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

Saturday, September 26, 2015

week ending Sept 26

The US Federal Reserve has got it wrong - These are tough times for monetary policymakers. That is undeniable. In autumn 2008 and early 2009, the task was easy. Cut interest rates as fast as you can to as low a level as possible. I was one of the guilty men and women that participated in this economic rescue act. But now I see central bankers delaying taking action both in the US and the UK. The US Federal Reserve decided not to raise the key policy rate in the US this week. That would be an understandable decision if rates were at or close to a normal level. But they are not. Interest rates of 0.5 per cent in the UK and 0-0.25 per cent in the US are the lowest recorded levels in history. Seven years into a recovery, central bankers need to explain why the interest rate playing field is still so heavily tilted to borrowers. High quality global journalism requires investment.    Continuing with such low interest rates in the UK and the US, when unemployment rates are back to 5-5.5 per cent and our economies are growing well, raises some more profound questions about monetary policy in the west. First, how independent are central banks? Since the 1990s, the Fed and the Bank of England have pursued policies similar to the ones any well-meaning government official would have chosen. They have cut interest rates very readily, but when they have raised them (in 1994-5 and 2005-7) they have been behind the curve. Independent central banks were established precisely to avoid this “behind the curve” interest rate policy. But it has not worked. Once again, they are at serious risk of lagging behind in their interest rate decisions as the major western economies climb out of the post-crisis recession. Second, if interest rates cannot rise now, when will they increase? In the case of the US, growth has averaged over 2 per cent for more than six years since the recovery started in mid-2009. Unemployment has halved from around 10 per cent to 5 per cent over roughly the same period. Yet interest rates remain stuck — close to zero. A similar position prevails in the UK.

The Federal Reserve’s big messaging problem - So that is cleared up then. The Federal Reserve wanted to raise rates in September but then lost its nerve over China’s stock market crisis. Instead, it will probably move in December. No harm done. The return to normal is on course barring a minor hiccup in the schedule. That, at least, was the gist of Janet Yellen’s message. Yet she also hinted she could simply repeat last week’s line in December. Investors would be forgiven for feeling confused. If the risk of an emerging market shock was the Fed’s main worry in the third quarter, what are the chances it will have receded by the fourth? Presumably they are slim. In which case, is a delay of a few weeks remotely adequate to the risks? Nobody said central banking was easy. But Ms Yellen’s communications have recently been at sixes and sevens. The Fed started off 2015 indicating that it would exit from zero-bound interest rates this year. Initially speculation focused on June. But another winter contraction in the economy pushed that back. Then it needed to be sure the second quarter rebound was real. Expectations were nudged back to September. It concluded the rebound was on track. Joblessness continued to fall at a rate that implied wage inflation was not far off. In between, the China crisis struck along with signs its authorities lacked “deftness” in handling it. Now the timetable has slipped again. By December the US economy may be heading into another quarterly contraction. Moreover, China’s problems, and those of other emerging markets, are likely to take years to work out. Ms Yellen has thus laid a recurring trap for herself. More hawkish officials worry that each time the Fed limbers up for an interest-rate increase, market volatility increases, credit conditions tighten and the Fed feels obliged to postpone. But, as Evercore ISI’s Krishna Guha points out, what looks like a “Groundhog Day” problem is really a symptom of the fact the Fed has underestimated the danger from emerging markets. The Fed takes a credibility hit when it delays taking action for reasons not well flagged in advance. The build-up to the December meeting may be bumpier than the countdown to last week’s. If it delays again, that will only grow.

The Fed’s Confusing Message About Interest Rate Increases - Economists always warn, correctly, not to make too much of any single economic report, but rather to analyze new information in terms of longer-term trends.At the same time, Federal Reserve officials, up to and including Fed chair and ace economist Janet Yellen, keep saying they will raise interest rates this year as long as there are no rude surprises in the economic data – as if Fed policy depends on the next data point, the next report.For an institution that is obsessive about its credibility, that stance is a head scratcher.Incoming data would have to be extraordinarily strong to signal the arrival of a sustainably healthy economy. So far – more than six years into an economic recovery – growth has been too modest and too uneven to repair the harm from the Great Recession.The clearest evidence of deep and uncorrected damage is recent Census data which shows that in 2014, the median American household still had lower income, after inflation, than in 2007, before the recession. Specifically, median income in 2014, $53,657, was 6.5 percent below its level in 2007 and 7.2 percent below its level in 1999. Data on wages this year does not indicate any meaningful improvement in those dismal trends.Even the news on Friday that the economy expanded at a strong annual pace of 3.9 percent in the second quarter does not portend an era of robust growth. A rebound had been expected in the second quarter because the first quarter was so very weak. In addition, recent economic surveys indicate that growth slowed again in the third quarter; that optimism among business leaders is near lows last seen during the financial crisis; and that prices for goods and services are falling, a sign of weak demand.

Fed Cred Dead  -- Kunstler -- The economy is a two-headed monster. One head is the trade in real goods and real services. The other head is the financialized traffic in swindles and frauds that surrounds banking. There is some deception and overlap about which is which. For instance so-called health care might be perceived as a real service. In fact, it’s a hostage racket, designed to victimize “patients” at their weakest, with a “protection” premium that easily runs to $12,000-a-year for a married couple, even when they aren’t sick, and vulnerable. Just see what happens if you go to an emergency room with an injury that requires six stitches. Next stop: re-po land. Most of the remaining on-the-ground economy consists of people merely driving their cars absurd distances, burning gasoline, between exquisitely-tuned giant warehouse store operations that were designed to destroy local Main Street trade — and accomplished that, by the way, to the applause of the local citizens whose towns were destroyed (“We want bargain shopping!”).  Now, of course, even WalMart is looking over its shoulder at the collapse of the complex arrangements that allowed it to metastasize across North America like some cancerous fungus. Globalism is winding down as the gargantuan matrix of Ponzi schemes based on owed money dissolves debt by debt. It isn’t long before nobody is a credit-worthy borrower, and no transaction in real goods can be risked unless cash hits the barrelhead — which turns out to be a very awkward way of doing business. It’s especially like this these days in the so-called “emerging markets” — e.g. places in the world with large populations of willing factory slaves. The traffic in shipping-out containers full of flat screen TVs (or shipping-in the raw materials to make them) won’t work very well without letters-of-credit, which are promises between banks to make sure that the stuff on the receiving end gets paid for. That becomes difficult when national currencies drop 3.5 percent in value one day and then 4 percent another day, and so on. An eight-year-old can figure out how that math works.

China, Rates, and the Outlook: May the (Economic) Force Be with You - SF Fed President John Williams - Regarding monetary policy, we’re balancing a number of considerations, some of which argue for greater patience in raising rates and others that argue for acting sooner rather than later. Our decisions reflect a careful judgment about the relative risks and merits of those factors.  First, we are constrained by the zero lower bound in monetary policy and this creates an asymmetry in our ability to respond to changing circumstances. That is, we can’t move rates much below zero if the economy slows or inflation declines even further. By contrast, if we delay, and growth or inflation pick up quickly, we can easily raise rates in response. This concern is exemplified by downside risks from abroad. One such risk is the financial turmoil and economic slowdown in China, which I’ll get to shortly. More generally, economic conditions and policy overseas, from China to Europe to Brazil, have contributed to a substantial increase in the dollar’s value, which has held back U.S. growth and inflation over the past year. Further bad news from abroad could add to these effects.That brings me to inflation, which has been under our target for over three years. This is not unique to the United States—inflation is very low in most of the world. Although we can ultimately control our own inflation rate, there’s no question that globally low inflation, and the policy responses this has provoked, have contributed to put downward pressure on inflation in the U.S. Although my forecast is that inflation will bounce back, this is only a forecast and there remains the danger that it could take longer than I expect. Those are arguments on the side of the ledger arguing for more patience. On the other side is the insight of Milton Friedman, who famously taught us that monetary policy has long and variable lags. . If you’re headed towards a red light, you take your foot off the gas so you can get ready to stop. If you don’t, you’re going to wind up slamming on the brakes and very possibly skidding into the intersection.

Fed's Williams still sees 2015 rate hike after 'close call' - (Reuters) - An interest rate hike will likely be appropriate this year given the U.S. Federal Reserve's decision last week to stand pat was a "close call," a top Fed policymaker said on Saturday. John Williams, a centrist and president of the San Francisco Fed, said the arguments for and against beginning to tighten U.S. monetary policy are about balanced now that the economy is on solid footing, giving him confidence in continued economic and labor market growth. Williams, the first U.S. policymaker to speak publicly since the Fed's much-anticipated decision on Thursday, suggested he is almost ready to pull the trigger on a rate hike. He acknowledged the risks from a slowdown in China and global downward pressure on inflation, noting a rate rise in 2015 is not guaranteed. But he said full U.S. employment should be achieved "in the near future" and inflation, while still too low for comfort, should gradually move back to a 2-percent goal. "Given the progress we've made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year," he said at a weekend conference on the China-U.S. financial system. The Fed's decision to leave rates near zero "was a close call in my mind, in part reflecting the conflicting signals we're getting," he said. "The U.S. economy continues to strengthen while global developments pose downside risks to fully achieving our goals."

St. Louis Fed's Bullard Discusses Normalization of U.S. Monetary Policy - “The case for policy normalization is quite strong, since Committee objectives have essentially been met,” he said during his presentation titled, “A Long, Long Way to Go.”   However, he noted, “Even during normalization, the Fed’s highly accommodative policy will be putting upward pressure on inflation, encouraging continued improvement in labor markets, and providing the best contribution to global growth that we can provide.” Bullard noted that the FOMC wants unemployment at its long-run level and inflation at the target rate of 2 percent. “The Committee is about as close to meeting these objectives as it has ever been in the past 50 years,” he said.  To measure the distance of the economy from the FOMC’s goals, Bullard used a simple function that depends on the distance of inflation from the target rate of inflation and on the distance of the unemployment rate from its long-run average. This version puts equal weight on inflation and unemployment and is sometimes used to evaluate various policy options, Bullard explained. ... While the objectives for unemployment and inflation have essentially been met based on those calculations, Bullard noted that monetary policy settings remain far from normal...Even once the FOMC begins to normalize, Bullard emphasized, this will still mean a very accommodative policy stance. Policy will remain exceptionally accommodative through the medium term no matter how the Committee proceeds,” he said. “This means there will continue to be upward pressure on inflation and downward pressure on unemployment.”

Janet Yellen Expects Interest Rate Increase This Year - WSJ: - Federal Reserve Chairwoman Janet Yellen laid out her most detailed case yet for the central bank to begin raising short-term interest rates later this year ... Ms. Yellen made her case like a prosecutor making a courtroom closing argument. She presented it in a 40-page speech at the University of Massachusetts in Amherst, including 40 academic citations, 35 footnotes, nine graphs and an appendix.    Central to the argument she set out to establish is a belief that slack in the economy has diminished to a point where inflation pressures should start to gradually build in the coming years. Ms. Yellen argued those pressures aren’t asserting themselves yet, because a strong dollar and falling oil and import prices are placing temporary downward pressure on consumer prices. As those headwinds diminish, she predicted, inflation will gradually rise. The Fed needs to get in front of this, she said, and also prevent speculative forces in financial markets that could lead to “inappropriate risk-taking that might undermine financial stability,” she said in the prepared text of her comments. “It will likely be appropriate to raise the target range of the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective,” Ms. Yellen said.

A divided Fed pits world's woes against domestic growth | Reuters: Federal Reserve policymakers appeared deeply divided on Saturday over how seriously problems in the world economy will effect the U.S., a fracture that may be difficult for Fed Chair Janet Yellen to mend as she guides the central bank's debate over whether to hike interest rates. Though last week's decision to again delay an interest rate increase was near-unanimous, drawing only one dissent, St. Louis Fed President James Bullard called the session "pressure-packed" as members debated whether global uncertainty or the continued strength of the U.S. economy deserved more attention. In the end the committee felt that tepid global demand, a possible weakening of inflation measures, and recent market volatility warranted waiting to see how that might impact the U.S.   Bullard, who does not have a vote this year on the Fed's main policy-setting committee, said he would have joined Richmond Fed President Jeffrey Lacker's dissent, and worried the central bank had paid too much attention to recent financial market gyrations. Markets sold off sharply this summer over concerns about a slowdown in China and weak world growth, leaving Fed officials to vet whether that reflected a short-term correction or more fundamental problems on the horizon. "Financial markets tend to wax and wane, sometimes suddenly. Monetary policy needs to be more stable," said Bullard, who said he did not think the Fed "provided a satisfactory answer" to why rates should stay near zero. The economy is near full employment, and inflation will almost certainly rise, Bullard said, leaving the Fed's near seven-year stay at near zero rates out of line with the broad economic picture.

Financial conditions and a catch-22 for the Fed - Gavyn Davies  When Janet Yellen announced last week that the Federal Open Market Committee had considered, but decided against, a rate rise in September, many commentators concluded that the Fed had taken a decisive shift towards dovishness. Yet the markets, so far, have not really shared this interpretation.   There is little sign that investors’ assessment of the Fed’s underlying policy stance has been altered by what is increasingly seen as nothing more than a “postponement” of the almost inevitable rate hike later this year.   Before the FOMC meeting, I argued that market action seemed to be consistent with an adverse monetary policy shock, in which real US bond yields were rising while breakeven inflation expectations and equity prices were falling. The “shock” stemmed from the fact that the Fed seemed wedded to its calendar-based guidance that rates would rise before year end, in the face of increased deflationary risks from China. The question was whether Ms Yellen would eliminate this “shock” at her press conference. Instead, her words were nuanced, leaving investors in two minds about her true intentions. The vast majority of participants at the FOMC remain inclined to raise rates this year, presumably on the grounds that the economy is now close to normal, while the setting of monetary policy is far from normal. This is the argument of James Bullard, president of the St Louis Fed — and it may explain why both John Williams, San Francisco Fed president, and Dennis Lockhart, president of the Atlanta Fed, have implied that the September decision was only a postponement, not a change of underlying strategy.  Ms Yellen herself seemed to share that view. When asked if the Fed might actually ease again if inflation moved further below target, she replied very firmly that no such intention had been even remotely on the agenda. Some members of the FOMC, however, have become concerned about the tightening in financial conditions in the past few months, and will not happily support a rate rise until this is reversed. William Dudley, New York Fed president, specifically used this argument against a rate rise.

The One Phrase That Actually Matters In Yellen's Speech: "Nominal Interest Rates Cannot Go Much Below Zero" -- While many are focusing on the latest attempt by Yellen to restore some Fed confidence, even if it means confusing the market even more and sound far more hawkish than last week's FOMC statement, which showed once and for all that the mandate of the Fed is the stock market and global risk pricing stability, and is written by Goldman Sachs, with an emphasis on the circular assumption that inflation is under control because, well, it is under control... Wow - Yellen Speech Word Cloud ... which naturally is something to be expected from a speech titled "Inflation Dynamics", the one phrase in the quite massive speech of 5531 words, had nothing to do with inflation, and everything to do with the Fed's deflation "reaction function", i.e., NIRP. This is what Yellen said in her speech dissecting the theory, if not practice, of inflation: ...the federal funds rate and other nominal interest rates cannot go much below zero, since holding cash is always an alternative to investing in securities. So just a "little" then? Which is what exactly: -0.25%? -1.0%? -2.5%? Or, as Albert Edwards suggested earlier today: -5%? Yellen explains: ... the lowest the FOMC can feasibly push the real federal funds rate is essentially the negative value of the inflation rate. As a result, the Federal Reserve has less room to ease monetary policy when inflation is very low. Well, no: not less room - more room: negative room! What is the most negative inflation, pardon deflation, can get? Very: This limitation is a potentially serious problem because severe downturns such as the Great Recession may require pushing real interest rates far below zero for an extended period to restore full employment at a satisfactory pace.

Low Interest Rates have become a Self-fulfilling Prophecy - So the Fed has kept interest rates at their rock bottom. Will they ever be able to raise them? Let me take a closer look… Tim Taylor writes about the impact of low long-term interest rates. He ends his post with this quote… “The BIS report raises the uncomfortable question of whether we are riding a merry-go-round in which sustained ultra-low interest rates bring financial weakness in various forms, and then the financial weakness is the justification for continuing ultra-low interest rates.” The idea is that ultra-low interest rates have become a self-fulfilling prophecy in that they have led to conditions that further justify them. I wrote about this issue last December here on Angry Bear. (link) All I had to do was search for “self-fulfilling prophecy” to find the post. The IS-LM model was used to show how low interest rates beget low interest rates when one sees full-employment much greater than it really is. Full-employment is when output reaches its potential. Tim Taylor includes this point in his post referring to a BIS article… “After all, pre-crisis, inflation was stable and traditional estimates of potential output proved, in retrospect, far too optimistic. If one acknowledges that low interest rates contributed to the financial boom whose collapse caused the crisis, and that, as the evidence indicates, both the boom and the subsequent crisis caused long-lasting damage to output, employment and productivity growth, it is hard to argue that rates were at their equilibrium level. This also means that interest rates are low today, at least in part, because they were too low in the past. Low rates beget still lower rates. In this sense, low rates are self-validating.”

Rate Rage -- Paul Krugman - OK, I should have seen that one coming, but didn’t: the banking industry has responded to the Fed’s decision not to hike rates with a primal cry of rage. And that, I think, tells us what we need to know about the political economy of permahawkery. The truth is, I’ve been getting this one wrong. I’ve tried to understand demands that rates go up despite the absence of inflation pressure in terms of broad class interests. And the trouble is that it’s not at all clear where these interests lie. The wealthy get a lot of interest income, which means that they are hurt by low rates; but they also own a lot of assets, whose prices go up when monetary policy is easy. You can try to figure out the net effect, but what matters for the politics is perception, and that’s surely murky. But what we should be doing, I now realize, is focusing not on broad classes but on very specific business interests. In particular, commercial bankers really dislike a very low interest rate environment, because it’s hard for them to make profits: there’s a lower bound on the interest rates they can offer, and if lending rates are low that compresses their spread. So bankers keep demanding higher rates, and inventing stories about why that would make sense despite low inflation.  Like everyone, the bankers no doubt are able to persuade themselves that what’s good for them is good for America and the world; more alarmingly, they may be able to persuade officials who should know better. Does this explain the puzzling divergence between the views of Fed officials and those of outsiders like Larry Summers (and yours truly) who have a similar model of how the world works, but are horrified by the eagerness to raise rates while inflation is still below target? I don’t know about you, but I feel that I’m having an Aha! moment here. Oh, and raising rates is still a terrible idea.

Nutcases and Knut Cases - Paul Krugman --Monetary permahawkery takes two forms. One is obviously ridiculous, but nonetheless has a lot of influence on right-wing politicians. The other can sound serious and judicious, which makes it dangerous, because it might gain real traction with policymakers. Permahawkery of the first kind is exemplified by the likes of Ron Paul, Zero Hedge, and Paul Ryan. Hyperinflation is always just around the corner. And no matter how wrong the scare stories have been in the past, there’s always a willing audience. But the clear and present danger comes from people like Andrew Sentance, who was until recently a member of the Bank of England’s Monetary Policy Committee – the equivalent of the FOMC. Sentance has a remarkable piece in today’s FT castigating the Fed for not hiking rates. What makes the piece so remarkable is that there isn’t so much as a nod to what you might have thought was the standard approach to monetary policy; not only has Sentance made up his own version of macroeconomics, he’s evidently completely unaware that he has done so. As I’ve been trying to point out – and as others, notably Ben Bernanke, have also tried to point out – such monetary wisdom as we possess starts with Knut Wicksell’s concept of the natural interest rate. Try to keep rates too low, and inflation accelerates; try to keep them too high, and inflation decelerates and heads toward deflation. Now comes Sentance, claiming that monetary policy has been consistently too easy, not just in recent months, but for the past generation: So central banks have been too eager to cut and too slow to hike, presumably meaning that interest rates on average have been much too low. If true, this should imply that policy has had an inflationary bias, right? Except that inflation has trended downward, not upward:  You might have expected at least some effort to explain why this isn’t a problem for Sentance’s claim. But no. (The BIS does offer a sort of explanation, claiming that excessively low interest rates now push required rates even lower in the future, which is bizarre but at least coherent.) Wait, it gets worse. Sentance mocks the decision not to raise rates, suggesting that it has no real justification:

Arguing for Higher Rates: Are Bankers Evil or Stupid? - Dean Baker -- I see my friends Paul Krugman and Brad DeLong are arguing over whether the pressure from the banking industry for the Fed to raise interest rates is the result of their calculation that higher interest rates would raise their profits or is it just ignorance of the way the economy works. Krugman argues the former and DeLong the latter. I would mostly agree with Krugman, but for a slightly different reason.  I don't see the clear link, claimed by Krugman, between higher Fed interest rates and higher net lending margins for banks (the difference between the interest rate they charge on loans and the interest rate they pay on deposits). Such a link may exist, but his data don't show it. On the other hand, I think it is still not hard to make a case for banks' self-interest in following a tight money policy.  An unexpected rise in the inflation rate is clearly harmful to banks' bottom line. This will lead to a rise in long-term interest rates and loss in the value of their outstanding debt. This is very bad news for them. While we (the three of us) can agree that such a jump in inflation is highly unlikely in the current economic situation, it is not zero. Furthermore, a stronger economy increases this risk. If we assume that the banks care little about lower unemployment (they may not be bothered by lower unemployment, but high unemployment is not something they wake up every morning worrying about), then they are faced with a trade-off between a greater risk of something they really fear and something to which they are largely indifferent. It shouldn't be surprising that they want to the Fed to act to ensure the event they really fear (higher inflation) does not happen. Hence the push to raise interest rates.

Monetary stimulus doesn’t work the way you think it does, redux  Once upon a time people thought central banks could boost business investment by lowering interest rates. Thus America had its Large-Scale Asset Purchase programmes, which, according to the Fed, lowered longer-term Treasury yields. Again, according to the Fed, part of the appeal of these purchases was the impact they would have on investors with fixed income liabilities. Unable to hit their return targets with safer bonds they would be forced to buy riskier instruments, which, in theory, should improve the flow of credit to businesses and households and therefore spending. Most of the US government bonds bought by the Fed were sold by foreigners, and for the most part they used their proceeds to buy newly issued dollar-denominated corporate bonds. The problem was that these new bonds overwhelmingly funded companies outside the US, often firms based in emerging market countries that wanted to exploit the yield spread between local currency financial assets and dollar liabilities. (This shouldn’t have been too surprising, since researchers have found borrowing costs are irrelevant for investment decisions.) It turns out something similar has happened in Europe. First, consider who has been borrowing since 2012, when Mario Draghi uttered his priestly incantation to narrow credit spreads. It turns out basically all of the euro-denominated bonds issued by the private non-financial sector were issued by companies outside the euro area. We’ve previously noted the eagerness of American firms to borrow in euros — which, counterintuitively, has encouraged European banks to increase their borrowing in dollars. (Unlike the offshore dollar bonds issued by many emerging market companies, Americans and Europeans don’t seem to be borrowing to finance unhedged cash holdings in higher-yielding foreign currency.) Meanwhile, most of the net demand for euro-denominated fixed income since 2012 has come from people outside the euro area:

Pimco: Fed 'may find it impossible' to escape lower bound of rates - Bond fund giant Pacific Investment Management Co said on Tuesday the pace of Federal Reserve interest-rate increases is likely to be even more gradual than the firm expected in March and that the U.S. central bank may find it impossible to escape the effective lower bound of policy rates. Pimco said in its quarterly Cyclical Forum outlook report that it cut its forecast for U.S. economic growth in the next 12 months to between 2.25 percent and 2.75 percent, from 2.5 percent and 3 percent in March. "In contrast to robust consumption and housing, business investment confronts the headwinds from low oil prices and cutbacks in drilling and exploration, while exports will be challenged by the delayed effects of a stronger dollar and slower growth in emerging economies," Richard Clarida, global strategic advisor, and Andrew Balls, chief investment officer of global fixed-income, wrote in the Pimco outlook report. Pimco said it expected global economic growth in the next 12 months to remain broadly unchanged from where the Newport Beach, Calif-firm saw them in March, between 2.5 percent and 3 percent with global inflation between 2 percent to 2.5 percent. Clarida and Balls said although more than 40 central banks have eased monetary policy thus far in 2015, the odds of additional monetary easing by the European Central Bank and the People's Bank of China "are material," and further easing by the Bank of Japan is "certainly possible." As for the Federal Reserve, while Pimco's baseline view remains that it will commence a rate hike cycle sometime over Pimco's one-year cyclical horizon, the pace of liftoff is likely to be even more gradual than it expected in March.

Goldman Calls It: No Rate Hike Until Mid-2016 -- Several days before Thursday's FOMC meeting, we asked rhetorically whether "Yellen is about to shock everyone", and lo and behold: everyone was quite "shocked" when instead of a hawkish hold or a dovish hike, Yellen proceeded with the loosest possible decision: keeping ZIRP indefinitely, crushing both the Fed's credibility and its market "communication" strategy in the process, and sending the market tumbling. That said, not everyone was shocked - as we also reported one bank made the explicit case not only for no rate hike but for further easing - as first reported here last weekend, "Goldman said The "Fed Should Think About Easing." This is what we added last weekendWhat one should most certainly pay attention to, however, is what Goldman says the Fed will do - you know, for "risk management" purposes - because as we have shown countless times in the past, Goldman runs the Fed. As such, forget a September rate hike. Or perhaps Yellen will listen too carefully to Hatzius and instead of a rate hike, shock absolutely everyone, and instead of a rate hike the Fed will join the ECB, SNB and Riksbank in the twilight zone of negative rates. That, or QE4. And why not: after both the Swiss National Bank and the Chinese central bank crushed investors who thought the banks would never surprise them, why should the Fed not complete the 2015 trifecta of central bank turmoil? After all, the money printers are already running on "faith" and credibility fumes. Might as well go out with a bang.  Not only is this precisely what happened (yes, the Fed gave its first ever NIRP hint ever) but more importantly, we got the latest confirmation that when it comes to policy, anything that Goldman wants, Goldman gets courtesy of a few clueless lifetime academics in charge of the US money printer.  With that out of the way, the only question that remains is not what will the Fed do, but what Goldman tells the Fed to do in 2015, or rather in 2016, because according to Jan Hatzius' latest note, one can forget about a hike in October or December, and instead focus on 2016, or rather the summer of 2016. For the answer, we go straight to Goldman which in a rhetorical Q&A wonders "What were the most important things you learned from this week’s FOMC meeting?" to which the answer is "Mostly, the FOMC confirmed what we already knew."

Why US Rates Can Never Rise: In 1 Awkward Chart - Just before the FOMC decided to not decide last Thursday, we asked if the scuffle depicted below was Japanese lawmakers’ attempt to act out what they imagined might go on in the Eccles Building during what was billed as the most important Fed decision in recent history: We went on to note that Japan - which, you're reminded, is the poster child for Keynesian insanity with a debt load that now totals ¥1,057,224,000,000,000 - tried to raise rates at one point, only to reverse course within seven months.  Now that the Fed is allegedly set to hike at some point in the not-entirely-distant future, and now that Japan has completely lost its mind and declared that despite Abenomics' abysmal and demonstrable failure, the economy will somehow expand at a 20% clip going forward, we thought this an oppotune time to demonstrate, with one helpful infographic, why the US can never raise rates. Put simply: the US is second only to Japan on the list of countries with the worst debt to central government revenue ratios.

The Mystery Of The "Missing Inflation" Solved, And Why The US Housing Crisis Is About To Get Much Worse -- Over the past few months (not to mention last 7 years), the topic of America's "missing inflation" has gained major prominence, because while supposedly every other aspect of the economy is humming along (which really just means that record numbers of waiters, bartenders and temp workers are hired and collect minimum wage salaries), CPI remains so low it (together with China to a lesser extent) was used as justification by the Fed to not hike rates for 55th consecutive FOMC meeting, even though 75% of polled economists said, after 9 years of ZIRP, Fed lift off would take place last week. One problem with the Fed's measures of inflation, as we have documented in the past, is that they are wrong purely by definitional purposes.Recall our July comparison between CPI and PCE and our warning that "With The Spread Between CPI And PCE Blowing Out The Most Since 2009, Is The Fed Making A Big Mistake" in which we warned that "with a rate hike, as small as [25 bps] the Fed can and will almost certainly start a chain of events that results in the "ghost of 1937" waking up. But a bigger problem for the the Fed's measures of how the overall economy is doing (and/or overheating) is that the Fed telling the vast majority of Americans that inflation is negligible, leads to riotous laughter. The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters. At this point we should perhaps remind readers that according to the latest census data, theUS homeownership rate tumbled to 63.4%, the lowest reading since the first quarter of 1967:the lowest in 48 years!  Peeking behind the headline number, an even uglier truth is revealed: the only reason the homeownership rate is as "high" as it is, is due to homeowners in the 65 and over age group. For everyone else, homewonership rates are now the lowest in history!

Central Banks Policy Asynchronous-ity – A Source of New Risk - Since 2009, the key driver of financial markets has been low rates and abundant liquidity which has boosted all asset prices. The total amount of money pumped into global money markets is around US$10-12 trillion, enough to buy each person on earth a widescreen flat TV.  In the great reflation, according to one estimate, over 80 percent of equity prices are supported in some way by quantitative easing (“QE”). In Australian both real estate prices and share markets have been underpinned by the global flow of money. Today, as much as US$200-250 billion in new liquidity each quarter may be needed globally to simply maintain asset prices. However, the world is entering a period of asynchronous monetary policy, with divergences between individual central banks which has the potential to destabilise asset markets. The discussion around the possible first increase in US interest rates, beginning the process of reversing the emergency zero interest rate policies implemented to combat the 2008 crisis kisses an essential point. The US Federal Reserve is scaling back, terminating purchases of government bonds and mortgage backed securities (“MBS”), which at their peak provided over US$1 trillion a year in new funds to markets. While new purchases have ceased, the Fed does not plan to sell its portfolio of around US$4 trillion of securities. It will continue to reinvest principal payments from its holdings of MBS and roll over maturing Treasury bonds.  The combination of maintaining its balance sheet at sizable levels and low official interest rates will keep financial conditions loose. But the Fed will not add significantly to liquidity. The withdrawal of Fed support will be offset, many have assumed, by the European Central Bank (“ECB”) and Bank of Japan (“BoJ”).

Chicago Fed National Activity Index September 24, 2015: August was a weak month for the economy, based on the national activity index which came in at minus 0.41. The 3-month moving average is barely positive, at plus 0.01. August's downswing is tied largely to the manufacturing component of the industrial production report which was hit by a reversal in vehicle production following its July surge. But employment, after boosting the index in July, was also weak in August. The report's two other components, consumption & housing and sales/orders/inventories, were both slightly negative. This whole recovery has been softer than usual and indications of any pickup remain elusive.

Chicago Fed: Economic Growth Slowed in August -- "Index shows economic growth slowed in August." This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.41 in August from +0.51 in July. All four broad categories of indicators that make up the index decreased from July, and all four categories made negative contributions to the index in August.  The index’s three-month moving average, CFNAI-MA3, ticked down to +0.01 in August from +0.02 in July. August’s CFNAI-MA3 suggests that growth in national economic activity was very close to its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.The CFNAI Diffusion Index, which is also a three-month moving average, decreased to –0.09 in August from +0.05 in July. Twenty-five of the 85 individual indicators made positive contributions to the CFNAI in August, while 60 made negative contributions. Twenty-two indicators improved from July to August, while 62 indicators deteriorated and one was unchanged. Of the indicators that improved, 12 made negative contributions. [Download PDF News Release] The previous month's CFNAI was revised upward from 0.34 to 0.51.

Chicago Fed: US Growth At Slightly Above-Trend Pace In August -- US economic activity in August increased at a pace that’s fractionally above the historical trend, according to this morning’s update of the Chicago Fed National Activity Index’s three-month average (CFNAI-MA3). Last month’s reading of +0.01 ticked down from July’s revised +0.02 level, but both numbers reflect an upbeat macro trend. Meanwhile, the sharp decline in the monthly data for this benchmark may be a warning sign for the months ahead. The drop to -0.41 marks the lowest reading in six months. The monthly figures are noisy, which is why the Chicago Fed recommends focusing on the three-month average for monitoring the business cycle. By that standard, the economic trend still looks encouraging. CFNAI-MA3’s current +0.01 level is well above the -0.70 mark that signals the start new recessions, according to Chicago Fed guidelines. Analyzing the updated CFNAI-MA3 data with a probit model also shows that the probability is low (below 4%) that a recession started in August. The current risk estimate in the chart below is based on a probit regression that reviews the historical record of NBER’s business cycle dates in context with CFNAI-MA3. The low risk estimate aligns with last week’s update of business-cycle risk via The Capital Spectator’s proprietary indexes.

Q2 GDP Revised Up to 3.9% Annual Rate - From the BEA: Gross Domestic Product: Second Quarter 2015 (Third Estimate) Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.9 percent in the second quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent. The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 3.7 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; personal consumption expenditures (PCE) and nonresidential fixed investment increased more than previously estimated ... Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 3.1% to 3.6%. Residential investment was revised up from 7.8% to 9.3%.

Q2 GDP Third Estimate at 3.9%, An Upward Adjustment from 3.7% - The Third Estimate for Q2 GDP, to one decimal, came in at 3.9 percent, an increase from the 3.7 percent Second Estimate. Today's number was slightly better than most mainstream estimates, with and both expecting no change. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes -- increased at an annual rate of 3.9 percent in the second quarter of 2015, according to the "third" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.  The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 3.7 percent. With the third estimate for the second quarter, the general picture of economic growth remains the same; personal consumption expenditures (PCE) and nonresidential fixed investment increased more than previously estimated (see “Revisions” on page 2).  The increase in real GDP in the second quarter primarily reflected positive contributions from PCE, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.  Real GDP increased 3.9 percent in the second quarter, after increasing 0.6 percent in the first. The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment and in federal government spending. [Full Release] Here is a look at Quarterly GDP since Q2 1947. Prior to 1947, GDP was calculated annually. To be more precise, the chart shows is the annualized percent change from the preceding quarter in Real (inflation-adjusted) Gross Domestic Product. Also illustrated are the 3.25% average (arithmetic mean) and the 10-year moving average, currently at 1.46 percent.

Final Revision Shows Strong Second Quarter GDP Growth -- The final revision to Gross Domestic Product for the second quarter of the year showed that the economy expanded at an annualized rate of nearly four percent, which is likely to revive debates over the direction of Federal Reserve Board policy: The U.S. economy expanded more than previously estimated in the second quarter on stronger consumer spending and construction, backing the case for an interest rate rise before the end of the year despite data sounding a note of caution for September. The Commerce Department said on Friday gross domestic product rose at a 3.9 percent annual pace in the April-June quarter, up from the 3.7 percent pace reported last month. The data supports the case that the U.S. economy may be gaining enough strength to withstand an increase in benchmark interest rates from record low levels despite growing concerns about the global economy. Still, many economists are expecting a cooler pace of growth in the third quarter, a view bolstered by separate data showing slower growth in services and a drop in consumer sentiment in September. The U.S. Federal Reserve last week held off on hiking rates, but Fed Chair Janet Yellen kept the door open to an increase this year in a speech on Thursday night, as long as inflation remains stable and growth is strong enough to boost employment. “There are a lot of things to like about the domestic side of the economy for the second half of the year despite all the global malaise,” said Jacob Oubina, senior economist at RBC Capital Markets in New York. “If the domestic economy holds in there, (Fed policymakers) are going to hike in December.” Second-quarter growth, which beat expectations in a Reuters poll for the third GDP reading to be unchanged at 3.7 percent, was bolstered by higher consumer spending, mainly on services like healthcare and transport. Treasury debt prices extended losses and the dollar hit a fresh five-week high against a basket of currencies on the second-quarter figures, although U.S. stock index futures pared some gains after the September data was released.

Third Estimate 2Q2015 GDP Revised Slightly Up. Corporate Profits Up.: The third estimate of second quarter 2014 Real Gross Domestic Product (GDP) improved to 3.9 %. This "improvement" was due to personal consumption expenditures (PCE) and nonresidential fixed investment increasing more than previously estimated. Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively weak in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 2Q2015, the year-over-year growth is 2.7% - down from 1Q2015's 2.9% year-over-year growth. So one might say that GDP decelerated 0.2 % from the previous quarter.  The table below compares the 1Q2015 GDP (Table 1.1.2) with 2Q2015 GDP which shows:

  • consumption for goods and services improved.
  • trade balance improved
  • there was little inventory change
  • there was little fixed investment growth
  • there was significant growth in local in government spending

The arrows in the table below highlight significant differences between the second and third estimates (green is good influence, and red is a negative influence). [click on graphic below to enlarge]

Final Q2 GDP Revision Spikes To 3.9% From 3.7% On Jump In Consumer Spending -- While the final Q2 GDP revision released moments ago by the Bureau of Economic Analysis is a largely meaningless number looking at the performance of the economy some 3 months ago, it will still set the momentum for today's trade, and with its surging from a 3.7% first revision print to 3.9%, surpassing expectations of a 3.7% print, means that concerns (or perhaps hopes) for a rate hike are once again back on the table. As the chart below shows, after printing a modest, and double-seasonally adjusted 0.6% in Q1 (originally this was negative), in the second quarter the economy is said to have grown at the fastest pace since Q3 of 2014 when the Fed was once again said to be on the verge of tightening. The breakdown by components shows an increase in the two key items:

  • Core Personal Consumption Expenditures rose by 3.6%, far above the 3.1% in the prior revision and above the 3.2% expected. It contributed 2.42% of the final 3.91% GDP annualized number, up from 2.11% earlier.
  • Fixed Investment also rose, adding another 0.83% to GDP, up from 0.66%

Net trade was largely unchanged while Inventories declined modestly, adding 0.02% to GDP, down from 0.22%.

Q2 GDP Per Capita at 3.2% for Third Estimate - Earlier today we learned that the Third Estimate for Q2 real GDP came in at 3.9 percent (rounded from 3.92 percent), up from the 3.7 percent of last month's the Second Estimate. Here is a chart of real GDP per capita growth since 1960. For this analysis we've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence our 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale. The chart includes an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 9.8% below the pre-recession trend but fractionally above the -10.1% below trend in Q1 2014.

Third-quarter GDP tracking below 2%, complicating Fed decision -  The U.S. economy has sped up and slowed down repeatedly since a recovery began six years ago and 2015 is shaping up to be another bumpy ride. In the third quarter, the economy is on track to grow less than 2% and fall well short of the robust 3.7% clip in the spring. The U.S. grew a dismal 0.6% in the first quarter. The apparently softer pace of growth in the late summer and fall stems from lackluster exports, tougher times for U.S. manufacturers and mediocre business investment. GDPNow, a widely respected forecasting tool of the Atlanta Federal Reserve, pegs third-quarter growth at just 1.5%. The Atlanta Fed will update its forecast several more times, but the only part of the economy that’s showing more gusto is the housing market. Economists surveyed by MarketWatch, on the other hand, predict gross domestic product will rise by 2.5% in the third quarter. A separate Blue Chip survey also sees GDP growth ending up at 2.5%. The big question is, are they too optimistic as has often been the case over the past six years. “The U.S. economy is running cooler than many market participants realize or want to accept,”

3rd Quarter GDP Now Forecast Ticks Down to 1.4%  --The Atlanta Fed GDPNow Forecast model ticked slightly lower today following recent economic reports. The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.4 percent on September 24, down slightly from 1.5 percent on September 17. The decline occurred on Monday when the model's forecast for third-quarter real residential investment growth fell in response to the existing home sales release from the National Association of Realtors. I thought today's Durable Goods report (see Orders Decline 2%, Led by Transportation; QE Bounce Effect is Over; Recession on the Way?) would have knocked a tick or two off the model forecast, but it was actually existing home sales that did it.

Is a Recession Forming in the US? - Stocks continue downward.. China is struggling… Commodity exporting countries are in trouble… industrial production is projected to be weak in September as it was in August… Could the US economy be forming a recession? First, I have had the opinion that there are hidden weaknesses in the economy partly due to the strange monetary policy since the last recession. Some marginally-profitable firms were nurtured along by the banking system and policies. Also investment in productive activities has been weak. Productivity is stagnant. Labor income is not rising with strength. I sense that hidden weaknesses are coming into the light, because of the struggles in China, Brazil and the oil industry… and now we can add the auto industry. (Let me note that the struggles in China should allow for more investment to come back to the US and for labor share to start rising again… a view I share with Noah Smith. So the stock market troubles could be short-term effects before the benefits appear in the US. Yet, a recession may have to come first.) In my view, the economy hit the effective demand limit last year. As seen in the following graph where the plot reached zero. Angry Bear’s own Steve Roth once rightly commented that after the economy hits the effective demand limit, it can jiggle and jog thereabouts for many quarters before a recession starts. (I do not have the direct link to where he said that, but I remember.) And we are seeing this jiggling and jogging again over the past year. The graph is showing us that the economy hit its natural effective demand limit and would be in this process of jiggling around trying to keep going.

A wink and a nod later… and the debt is monetised  -- In the event of a new downturn please press the giant red button. To do so please break through the glass emblazoned with the words “political reality”. What to do if the world turns sour is, of course, a fair question. And one that Andy Haldane recently tackled while discussing 5000 years of dread, the record low interest rates and stretched central bank balance sheets, we are currently seeing. Citi are starting to point to a new global recession too, triggered by EM and a stumbling China. We’re not sure we buy that just yet but here’s Citi’s Englander with what he think is coming down the policy path in response, with our emphasis: Our ‘innovation’ here is to suggest that central banks will invite fiscal spending by announcing that their balance sheets will stay expanded permanently, or almost equivalently, be reduced only under extreme circumstances, and that they anticipate additional permanent expansion if targets are missed. Effectively this eliminates the government debt from the balance sheet, since any coupon payments on the debt are remitted back to the government via central bank profits. Literally the government is paying itself, which is not a bad deal if you can manage it. Many central banks are forbidden to monetize government debt, but governments will understand that permanent balance sheet expansion is an invitation to spend more, opening the fiscal channel. If the government understands that the CB’s QE is permanent it opens the door to direct fiscal measures and increased demand. Congress may have different ideas on the virtues of additional spending, but they could be tempted by the prospect of Fed-funded tax cuts. There is nothing that forces fiscal policy to be highways and bridges, rather than low personal or corporate tax rates. There are plenty of Republican tax cutting proposals that rely on economic expansion or animal spirits to close the fiscal hole that the tax cut brings (for example). Combine such a proposal with balance sheet expansion and you have big-time money financed fiscal stimulus. Essentially you are combining Paul Krugman fiscal with Republican tax and Bernanke 2002 {link} monetary. Government spending and infrastructure could be used as well, but it is important to understand that fiscal expansion is not synonymous with government spending.

Treasury Yields at Zero Highlight Concerns Over Risk - WSJ: A $15 billion sale of U.S. government debt attracted record demand, even though the securities, which mature in a month, were sold with an interest rate of zero. Auctions for one-month Treasurys haven’t produced more than a few hundredths of a percentage point of yield going back more than two years. But the record bids on Tuesday highlighted the depth of uncertainty about global economic conditions and investors’ desire to park cash where they know it will be available tomorrow. The Treasury auction drew bids of $9.47 for each dollar of bonds on offer, surpassing the previous high from a December 2011 Treasury bill sale. Treasury prices broadly strengthened, and commodities and stocks declined, as investors retreated from riskier assets amid fresh anxiety over the health of China. The Dow Jones Industrial Average fell 179.72 points, or 1.1%, to 16330.47, its third drop in four trading days. The yield on the 10-year Treasury note dropped to 2.127%, the lowest closing level since Aug. 24, compared with 2.212% Monday. Bond yields move inversely to prices. Copper for September delivery slumped 3.8%, the biggest one-day percentage decline in eight months, to $2.3070 a pound. Crude oil pulled back 1.8%, to settle at $45.83 a barrel on the New York Mercantile Exchange.

The Odds of a Shutdown Spike - I’ve been predicting since July that the irreconcilable differences between Democrats and Republicans on several key issues — only some of which have anything to do with the budget — are much more likely than not to lead to the federal government shutting down when the next fiscal year begins at midnight, Sept. 30. My most recent projection is that there is now a 75 percent chance of a shutdown. As an almost 40-year veteran of the federal budget wars and one of the few people who has served on the staffs of both the House and Senate budget committees, I’ve reached this lofty number by reading the budget tea leaves that others seem almost desperate to discount, disregard or ignore. First and foremost, there is not enough time to reach a deal. Not only have none of the fiscal 2016 appropriations yet been signed into law, none have even passed both the House and Senate. With less than two calendar weeks (and far fewer days of potential legislative work) to go, the only way to keep the government from shutting down will be for Congress and the president to agree on a continuing resolution to fund the government for a short time while a larger deal is negotiated. Such a short-term CR will be very difficult for any number of reasons, but the controversy over Planned Parenthood is perhaps the biggest one. The dispute over continued funding for the organization has added a hyperemotional element to what already is a hyperpartisan and dysfunctional budget process. Some Republicans have vowed never to vote for any legislation — including a CR — that maintains this funding, while the White House has promised to veto any bill that ends it. With Congress not likely to have the votes to override a veto, this issue alone could easily bring government operations to a halt on Oct. 1.

Why Republicans just might be okay with another government shutdown --- Shortly after the end of the government shutdown in 2013, The Washington Post and ABC News conducted a poll. "Major damage to GOP," the headline stated -- and with good reason. The vast majority of Americans disagreed with the shutdown, which lasted more than two weeks after Republicans declined to pass a budget that funded components of the Affordable Care Act before an Oct. 1 deadline. Despite attempts by the GOP to blame the event on their opponents, most Americans believed that it was congressional Republicans who were responsible.  People responding to the Post-ABC News poll believed that the shutdown had hurt our international reputation and our economy -- with about half in each case thinking that the damage was "serious." In the midst of the shutdown, Gallup conducted a regular survey gauging how people felt about each party. The Republican Party hit "a record low," Gallup reported -- the lowest favorability for either party since 1992. You can see that low point on the graph below, which shows net favorability for each party. You can also see how, one year later, Republicans' favorability was back to normal levels -- even passing the Democrats' at around the time of the 2014 election. During and after the shutdown, there were regular reports that the damage to the GOP would hurt their chances the following November. It didn't. Republicans gained a dozen seats in the House (earning their biggest majority since the Great Depression) and retook the Senate.

Shuttering the government actually costs more than keeping it open — more than $2 billion last time -  Budget hawks in Congress may stand their ground on wasteful spending, but shutting down the government is no example of fiscal frugality. Lost work, back pay and wiped-out jobs for federal contractors and other private-sector workers loom as just some of the costs of a closure that will happen in six days unless Democrats and Republicans in Congress break their impasse over abortion, military spending and other issues to pass a new budget.  The last time this happened, for 16 days in October 2013, the White House put a price on it: 6.6 million days of lost work, $2 billion in back pay for 850,000 federal employees who did no work and 120,000 private-sector jobs gone. The effects, according to an accounting by the Office of Management and Budget and later by the Government Accountability Office, also added up to less effective government services as federal agencies spent much of their time ramping up for a closure before it happened, then recovering afterward from delays to their operations.Closing the government has macroeconomic effects on economic output, and forecasters had varying estimates two years ago on how significant that was. Much clearer, though, were the direct costs to taxpayers. The budget office concluded that the furloughs of roughly 40 percent of the civilian workforce — from the Defense Department to the Environmental Protection Agency — hit $2 billion, or $2.5 billion if you add in benefits. The shutdown led to a total of 6.6 million days of lost work when employees were at home, many of them wanting to work but not even permitted to check their iPhones and BlackBerrys. Many federal contractors had to furlough employees as well and even fire some. And for the most part, those workers were not paid at all.

Government Shutdown & Debt Limit Questions Answered -- A federal shutdown due to a funding lapse looks no less likely than it did two weeks ago, and Goldman Sachs believes the probability is nearly 50%. The Senate is expected to begin voting later this week on a funding extension, but the House looks unlikely to act until shortly before the September 30 deadline. The following attempts to answer the main questions surrounding the shutdown, debt limit, and ramifications...

  • The current debate does not involve the debt limit. However, Congress looks increasingly likely to set the next expiration of spending authority around the time of the debt limit deadline. This is likely to lead to renewed negotiations to increase the caps on spending for 2016 and 2017, but could also cause greater uncertainty among consumers and market participants than a shutdown alone would.
  • Based on recent daily cash flows at the Treasury, we estimate that the upcoming deadline to raise the debt limit is likely to fall slightly earlier than we previously expected, potentially coming around mid-November.

Pope Decries “Shameful and Culpable Silence” on Arms Sales “Drenched in Innocent Blood” - Pope Francis on Thursday gently scolded Congress on a variety of issues, from immigration to foreign policy, but on one unexpected topic — the weapons sales that fuel armed conflicts around the world — he couldn’t have been much more blunt. He was speaking about his determination “to minimize and, in the long term, to end the many armed conflicts throughout our world,” when he said this: Here we have to ask ourselves: Why are deadly weapons being sold to those who plan to inflict untold suffering on individuals and society? Sadly, the answer, as we all know, is simply for money: money that is drenched in blood, often innocent blood. In the face of this shameful and culpable silence, it is our duty to confront the problem and to stop the arms trade. Those were fighting words, especially given where he spoke them. The U.S. is by far the largest arms supplier in the world, with domestic manufacturers selling more than $23.7 billion in weapons in 2014 to nearly 100 different countries. During the Obama administration, weapons sales have surged to record levels, in large part due to huge shipments to Gulf States, particularly Saudi Arabia. The weapons sales to Saudi Arabia include cluster bombs and other munitions being used to hit densely populated areas, schools, and even a camp for displaced people in Yemen. And a healthy chunk of those arms sales — especially to Israel and Egypt — are heavily subsidized by the U.S. taxpayer.  Congress, which could have blocked any of this, went along happily — in no small part because of the approximately $150 million a year the defense industry spends on lobbying and direct campaign contributions.

Pope Francis US Visit: Read the Speech He Gave to Congress: Pope Francis addressed a joint meeting of Congress in a historic speech Thursday morning. Here’s a full transcript of his remarks.

Boehner to resign Congress, speakership in October: — In a stunning move, House Speaker John Boehner informed fellow Republicans on Friday that he would resign from Congress at the end of October, giving up his top leadership post and his seat in the House in the face of hardline conservative opposition. The 13-term Ohio Republican shocked his GOP caucus early Friday morning when he announced his decision in a closed-door session. It came one day after a high point of Boehner's congressional career, a historic speech by Pope Francis to Congress at Boehner's request. A focus of conservatives' complaints, Boehner "just does not want to become the issue," said Rep. John Mica, R-Fla. "Some people have tried to make him the issue both in Congress and outside," Mica said. Conservatives have demanded that any legislation to keep the government operating past next Wednesday's deadline strip Planned Parenthood of government funds, an argument rejected by the more pragmatic lawmakers. The dispute has threatened Boehner's speakership and roiled the GOP caucus. Some conservatives welcomed his announcement. Rep. Tim Huelskamp of Kansas said "it's time for new leadership," and Rep. Tom Massie of Kentucky said the speaker "subverted our Republic." "I think it was inevitable," Massie said. "This is a condition of his own making right here." But more mainstream Republicans said it would be a pyrrhic victory for the tea partyers. "The honor of John Boehner this morning stands in stark contrast to the idiocy of those members who seek to continually divide us,"

With Boehner’s Resignation Comes Another Bout of Economic Uncertainty - Congressionally induced uncertainty is back. The announcement this morning that Speaker of the House John Boehner (R., Ohio) will resign from Congress at the end of next month complicates the difficult debates in Congress over how to keep the government open and raise the debt ceiling. The government’s current funding expires on Sept. 30 and some members of Congress want to use the debate over the budget as leverage to strip federal government funding from the women’s health organization Planned Parenthood. As the leader of the House Republicans, Mr. Boehner was a key player in pushing to keep the government open, having made clear that he does not want to shut down the government again. The political fallout from his resignation remains to be seen, but it’s safe to say that the uncertainty is back. Congress has repeatedly struggled to reach clean agreements on key fiscal issues in recent years. In 2011 the Treasury came within days of running out of funds. This led to a downgrade of the U.S. triple-A credit rating from Standard & Poor’s. In October of 2013, the government shut down for over two weeks after Congress failed to reach an agreement on keeping it open. Even though the debt ceiling was ultimately raised in 2011, and the government ultimately reopened (with government employees getting back pay), most economists believe that the uncertainty caused by these budget battles did real damage to consumer and business confidence and to the U.S. economy. About 77% of economists in a Wall Street Journal survey last month said that the repeated bouts of uncertainty from Congress have dragged down the economy in recent years. That includes the 14% of economists who said fiscal uncertainty has been one of the primary reasons for slow U.S. economic growth since the end of the recession.

What John Boehner’s resignation as House speaker means - While our politics and budget priorities couldn’t be more different, I’ve always considered House Speaker John Boehner (R-Ohio) a guy one could deal with. He’s typically stood against the reckless obstructionists to his right, trying to hammer out deals on shutdowns, debt ceilings, and budget caps. My fear is that he’ll be replaced by someone closer to the tea party, like Reps. Paul Ryan and Kevin McCarthy. That could make the path to the kind of deals noted above even more rocky than it already is.  My guess is that his resignation at the end of next month makes a near term shutdown less likely, i.e., it clears the path for a “clean CR”–a budget patch without noxious riders, like defunding Planned Parenthood–as Boehner will presumably be less concerned about pressure from the hard right of his caucus. But if I’m right, that just shifts my worries to the debt ceiling debate. We likely hit the debt ceiling in November, and if the absence of Speaker Boehner makes it harder to get past this potentially serious, self-inflicted wound, then woe betide our economy, markets, recovery, interest rates, etc.

Boehner Resignation Increases the Prospects for a Government Shutdown - House Speaker John Boehner’s abrupt resignation on Friday – less than a week before the start of a new fiscal year -- has sparked a crisis atmosphere and uncertainty on Capitol Hill that further fuels speculation about another government shutdown.  The odds were pretty high before today that Congress and President Obama would be unable to negotiate a deal for a short-term extension of funding authority to keep the government operating beyond midnight Wednesday – largely because several dozen far right conservatives in the House have refused to help pass any spending bill containing $550 million in subsidies for Planned Parenthood.  Bill Hoagland, a former Republican Senate budget adviser, said that even if Congress and the White House manage to agree on a short-term extension of spending in the next few days, the new Speaker has an overwhelming task before him. “For the next Speaker, he’s going to have a huge, huge problem,” Hoagland said in an interview. “With the debt limit, with the expiring continuing resolution, with tax extenders, the highway bill – you almost understand why Boehner said to hell with it, I’m out of here. How that next Speaker makes a silk purse out of a sow’s ear come December is going to be extremely difficult.” Hoagland, a top official with the Bipartisan Policy Center, noted that the Freedom Caucus – the conservative Republicans who helped force Boehner out – “is going to be even more powerful in terms of what happens with the next negotiations.” “This resets everything,”

Boehner sets House on course to avoid shutdown - (AP) — As one of his last moves as House Speaker, John Boehner set the House on course to avoid a government shutdown by advancing a stopgap spending measure free of a dispute over Planned Parenthood's taxpayer funding. Boehner, R-Ohio, shocked his colleagues Friday by saying he would leave the House at the end of next month. The announcement came after he informed conservatives privately on Thursday afternoon that he would reject their demand to use a must-pass government-wide funding bill as a means to carry the battle against Planned Parenthood to President Barack Obama. Boehner wants to avoid a repeat of the 2013 partial government shutdown over implementation of Obama's health care law. The temporary measure is needed to avoid a shutdown at midnight on Wednesday. It would fund the government through Dec. 11. In the Senate, Majority Leader Mitch McConnell, R-Ky., offered his bipartisan measure following a decisive vote blocking a GOP-backed bill that would have stripped Planned Parenthood of its taxpayer funding while keeping the government running through Dec. 11. The vote was 52-47 against the measure, 13 votes shy of the 60 required to overcome a filibuster led by Democrats. Eight Republicans, several of them supporters of abortion rights, voted with 42 Democrats and two independents. McConnell has for almost a year promised that Republicans controlling Congress won't repeat the government shutdown of two years ago. The White House signaled that Obama would sign the measure, called a continuing resolution, or CR, into law — if the House steps aside from the fight tea party Republicans want over "defunding" Planned Parenthood.

JPMorgan’s Jamie Dimon: running the country a job for politicians, not CEOs - The chief executive of one of America’s most powerful financial companies said on Sunday that CEOs have some attributes that would serve a president well, but running the country might be better left to a politician.  In an interview on NBC, JPMorgan Chase CEO Jamie Dimon was asked by host Chuck Todd whether a CEO would make a good president. Two Republican presidential candidates, Donald Trump and Carly Fiorina, have experience as chief executives.  “I think some of the attributes could be good. Running things, knowing how to run things, knowing how to get good people involved,” Dimon said.  But he added: “It’s not sufficient. I think you have a whole ’nother set of attributes. I think it’s really complex politics. It’s three-dimensional chess.”  He said he had a lot of respect for how hard politicians’ jobs are.“When I go to Washington, I don’t walk away saying: ‘It’s terrible,” he said. “I’m saying: ‘My God, they’re dealing with some really complex stuff, and it’s not that easy to do.’” Dimon, who steered the nation’s largest bank by assets through the perils of the 2008 financial crisis, also said he did not expect something in return when he gives money to candidates.

Dewey, Cheatem & Howe, by Paul Krugman - The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.  The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.  Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?  Well, we used to know it... But an important part of America’s political class has declared war on even the most obviously necessary regulations. ... A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing “a flood of creativity-crushing and job-killing rules.” Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama’s “job killing” policies than it did under Mr. Bush’s brother’s administration.

Is the Government Jackboot on your Neck? | The Economic Populist: What would less government mean for you? Will you earn higher wages, be more safe, live a healthier life, have more financial security and be more free? The Republican mantra is: Less Taxes + Less Regulation = Less Government and more Freedom The GOP likes to say they are for getting the government jack boots off our throats, as though most typical American citizens are being constantly oppressed by a tyrannical government in their daily lives. But yet, for over 200 years, people from all over the world continue to immigrate here — and by any means possible, sometimes risking their lives. Why? When most Americans first wake up in the morning, are they dreading government oppression? Or are they dreading having to go to work for an over-demanding and unreasonable boss who barely pays them enough for food and rent? If so, then one example of "better" government (not "less" government) might be a government law to raise the federal minimum wage if their boss is too cheap and greedy to pay them a fair and living wage. Would a good example of less government oppression and tyranny be to eliminate all speed limits, stop signs, school zones, crosswalks and traffic lights as they're driving to their crummy job?

The Trans-Pacific Partnership, International Trade and Arithmetic Problems at the Washington Post - Dean Baker - The Washington Post ran an editorial yesterday worrying about the end of globalization. It told readers:  "Freshly released data from the World Trade Organization and other economic forecasts show that the world is on course for its third consecutive year in which growth in global trade will be lower than overall economic growth, which is itself anemic, according to the Wall Street Journal. The last such three-year streak ended in 1985." There are several aspects to this that are striking. First, the comparison with the three years ending in 1985 is interesting since the U.S. economy grew very rapidly from 1982 to 1985. The economy had been in the middle of a steep recession in 1982. It had a sharp recovery over the next three years with growth averaging 5.4 percent. If the U.S. economy suffered from this period of weaker trade, it's difficult to see how. The second point is a simple question of logic and arithmetic. When trade barriers are removed we expect to see rapid growth in trade. Once most barriers have been removed, the rate of growth is likely to slow, since trade is already very large. It is unlikely that we will see rapid growth in trade between the 15 original members of the European Union, since most of the barriers to trade were removed more than twenty years ago. The third point concerns relative prices. In the United States, trade has fallen very slightly as a share of GDP from 2011 to 2014 (from 17.7 percent to 17.67 percent) even though real exports and imports both grew far more rapidly than real GDP over this period. Exports grew by 9.9 percent, while imports grew 7.3 percent. By comparison, GDP grew 6.3 percent. The explanation for this difference is that prices of traded items, most importantly oil, plummeted in this period. This drop in the relative price of items that are traded will lead to a drop in trade as a share of nominal GDP. It can also lead to a drop in real trade when countries that are heavily dependent on some products, for example oil exporters like Russia and Venezuela, have to cut back their imports. In any case, a fall in the price of traded items is not obviously bad and in fact the Post had previously celebrated the fall in the price of oil in its editorials.

Seeing Is Believing - Jared Bernstein -- Michael Froman provides what has to be the most robust, full-throated progressive defense of the Trans-Pacific Partnership (TPP) that’s ever been written about it or any other trade agreement. From the outset, his argument pits the dour, protectionist conservatism of Herbert Hoover against the progressive vision and values of FDR. He’s not saying, “Don’t worry, Democrats, this won’t hurt your constituencies (and thus your electoral future).” He’s saying that if you want to promote progressive values on labor, the environment, health care, inequality, and more, then boy, has he got the trade deal for you! The TPP will even, Froman claims, block some of your junk emails. It will protect an endangered creature I’d never even heard of: “the pangolin, a scaly, ant-eating mammal.”  I do not expect the TPP to be the disaster that some fear, and Froman’s case for the trade deal certainly supports that view. But for all the references he makes to FDR, the TPP is not the New Deal. I doubt it will have anything like the far-reaching positive effects that he advertises. No trade agreement has ever done so. Look around—we’ve had lots of trade deals and we still have lots of inequality, wage stagnation, large, persistent trade deficits, and vast power imbalances. The TPP is also being negotiated in secret, so in evaluating all of its alleged progressive attributes, we must depend on Froman’s insider knowledge. While transparency should generally characterize policy-making in advanced democracies, there’s logic to the secrecy—it’s hard enough to get a dozen countries to agree on anything without the constant pressure that public negotiations would likely engender on even minor details. But there’s an unfortunate information asymmetry here, as well as a fundamental tension in Froman’s piece: We’ve got the lead negotiator from the major economy in the deal telling readers what’s in it. If he can do that, why can’t we see it then?

America’s Collapsing Trade Initiatives --  Obama's trade policy is in tatters. The grand design, created by Obama's old friend and former Wall Street deal-maker, trade chief Mike Froman, comes in two parts: a grand bargain with Pacific nations aimed at building a U.S.-led trading bloc to contain the influence of China, and an Atlantic agreement to cement economic relations with the European Union. Both are on the verge of collapse from their own contradictory goals and incoherent logic. This past June, the president, using every ounce of his political capital, managed to get Congress to vote him negotiating authority (by the barest of margins) for these deals. Under the so-called fast-track procedure, there is a quick up-or-down vote on a trade agreement that can't be amended.The assumption was that the administration could deliver a deal backed by major trading partners. But our partners are not playing. ...The U.S. negotiators, increasingly, are prepared to give away the store, to get a deal. ...It is a bit premature to write the obituaries for these deals. Never underestimate the power of corporate elites. But one has to ask, what was Obama thinking? The U.S. faces serious economic challenges from an economy that is still stagnant for regular people. And we face complex national security challenges from China. These trade deals address neither challenge, much less the even more daunting economic woes in Europe.

The GOP’s Donald Trump nightmare may soon get a whole lot worse -  So you think Donald Trump’s demagoguery on immigration has created problems for the other GOP candidates? Well, another very ripe opportunity for Trump to make his GOP rivals even more miserable may be lurking right around the corner, and it could expose the same sort of schism between GOP elites and GOP voters that Trump’s forays into immigration policy have.  I’m talking about the massive global trade deal called the Trans-Pacific Partnership. Some time in the next six months — in late 2015 or in early 2016 — the participating nations may finally reach a deal on the TPP. That may well come just when the GOP primaries are heating up. Virtually all of the major GOP presidential candidates, including Jeb Bush, Scott Walker, and Marco Rubio, all support the TPP, as do Republican Congressional leaders. But, in a little noticed move a few days ago, Trump signaled that he might be headed in a very different direction on the TPP soon enough. After his terrific and wonderful rally outside the Capitol the other day, Trump met with Senator Jeff Sessions, and both men enthusiastically recounted that they had had a good conversation about immigration and …. trade. Said Trump: “The meeting was great!” Sessions is a leading opponent of the TPP. He has warned that the TPP could harm American workers and allow China to join the deal later without the approval of the U.S. Congress; he has also said that it won’t do anything to counter Chinese currency manipulation and could facilitate the flow of “foreign workers” into the United States.

Imperial Overreach: U.S. Special Ops Forces Deployed in 135 Nations - This year, U.S. Special Operations forces have already deployed to 135 nations, according to Ken McGraw, a spokesman for Special Operations Command (SOCOM).  That’s roughly 70% of the countries on the planet.  Every day, in fact, America’s most elite troops are carrying out missions in 80 to 90 nations, practicing night raids or sometimes conducting them for real, engaging in sniper training or sometimes actually gunning down enemies from afar. As part of a global engagement strategy of endless hush-hush operations conducted on every continent but Antarctica, they have now eclipsed the number and range of special ops missions undertaken at the height of the conflicts in Iraq and Afghanistan. In the waning days of the Bush administration, Special Operations forces (SOF) were reportedly deployed in only about 60 nations around the world.  By 2010, according to the Washington Post, that number had swelled to 75.  Three years later, it had jumped to 134 nations, “slipping” to 133 last year, before reaching a new record of 135 this summer.  This 80% increase over the last five years is indicative of SOCOM’s exponential expansion which first shifted into high gear following the 9/11 attacks. Special Operations Command’s funding, for example, has more than tripled from about $3 billion in 2001 to nearly $10 billion in 2014 “constant dollars,” according to the Government Accountability Office (GAO).  And this doesn’t include funding from the various service branches, which SOCOM estimates at around another $8 billion annually, or other undisclosed sums that the GAO was unable to track.  The average number of Special Operations forces deployed overseas has nearly tripled during these same years, while SOCOM more than doubled its personnel from about 33,000 in 2001 to nearly 70,000 now.

Privatizing the Apocalypse: How Nuclear Weapons Companies Commandeer Your Tax Dollars - Imagine for a moment a genuine absurdity: somewhere in the United States, the highly profitable operations of a set of corporations were based on the possibility that sooner or later your neighborhood would be destroyed and you and all your neighbors annihilated.  And not just you and your neighbors, but others and their neighbors across the planet. What would we think of such companies, of such a project, of the mega-profits made off it? In fact, such companies do exist. They service the American nuclear weapons industry and the Pentagon’s vast arsenal of potentially world-destroying weaponry.  They make massive profits doing so, live comfortable lives in our neighborhoods, and play an active role in Washington politics.  Most Americans know little or nothing about their activities and the media seldom bother to report on them or their profits, even though the work they do is in the service of an apocalyptic future almost beyond imagining. Add to the strangeness of all that another improbability.  Nuclear weapons have been in the headlines for years now and yet all attention in this period has been focused like a spotlight on a country that does not possess a single nuclear weapon and, as far as the American intelligence community can tell, has shown no signs of actually trying to build one.  We’re speaking, of course, of Iran.  Almost never in the news, on the other hand, are the perfectly real arsenals that could actually wreak havoc on the planet, especially our own vast arsenal and that of our former superpower enemy, Russia.

Treasury to Delay Enforcing Part of Tax Law That Curbs Offshore Tax Evasion - WSJ: —The Treasury Department said Friday it would delay enforcement of one key part of a 2010 law that is aimed at curbing offshore tax evasion, in a regulatory victory for banks. The law, the Foreign Account Tax Compliance Act, or FATCA, requires foreign banks to start handing over information about U.S.-owned accounts to the Internal Revenue Service. It also would force banks and other financial institutions around the world to withhold a share of many types of payments to other banks that aren’t complying with the law. In effect, the withholding amounts to a kind of U.S. tax penalty on noncompliant financial institutions. The latest move by Treasury will push back the start of withholding for many types of transactions—such as stock trades—from 2017 until 2019. Withholding for some other types of payments has already begun. The change will give banks more time to come into compliance with FATCA, and governments and the financial industry more time to work out some of the difficult details involved in withholding on more-complex financial transactions. The withholding provision is “the really big stick” in FATCA, said Michael Plowgian, a former Treasury official who is now at KPMG LLP. “The problem with it is that it’s really complicated…So Treasury and IRS have essentially punted” and created more time to solve some of the sticky technical issues, he added.The Securities Industry and Financial Markets Association, a Wall Street trade group, applauded the move.

Elizabeth Warren, Other Senators Back IRS in Cracking Down on Private Equity Tax Abuse, Management Fee Waivers -- Yves Smith - Elizabeth Warren, Al Franken, Tammy Baldwin, and Sheldon Whitehouse wrote a short, forceful letter supporting IRS efforts to end a long-standing private equity tax dodge, management fee waivers. We written about this abuse before, most recently in one of our posts on CalPERS, where Chief Investment Officer Ted Eliopoulos did a “put foot in mouth and chew” by showing he had no clue about how management fee waivers actually worked, and instead parroted general partner Big Lies about the practice. Despite the mouthful of a name, in concept, management fee waivers not all that complicated. As we wrote earlier this year, when the IRS issued guidance that it had the scam in its crosshairs: the IRS has finally decided to crack down on it, as Gretchen Morgenson describes in today’s New York Times. The abuse allowed private equity firms to convert income that would otherwise have been taxed at ordinary income rates into lower capital gains rates. That’s the same type of result that has been widely decried in the media as far as so-called “carried interest” loophole is concerned. Recall that “carried interest” which is actually a profit share, is the 20, or 20%, in the prototypical “2 and 20” private equity fee schedule.  Back to the current post. Recall we criticized CalPERS for attempting to present this scheme as aligning general partners’ interest with those of limited partners like CalPERS. As you can see, that view reflects either a complete misunderstanding of how management fee waivers work, or willful misrepresentation to CalPERS’ board, since the management fees waived aren’t treated in the same manner as the limited partners’ hard dollar contributions.  Worse, the limited partners routinely allow management fees waived to stand in lieu of the monies the limited partners expect the general partners to invest in the fund to show they are willing to eat their own cooking.

Bill Black on the Department of Justice’s Failure to Prosecute Individuals and Promises to Do Better -- Yves Smith - This is a wide-ranging interview with Bill Black on a subject of the keen desire of the public to see more corporate officials prosecuted for big business misdeeds, and why that never happens these days. Interviewer Richard Eskow starts with the case of the GM ignition switch defect that GM covered up for a decade. Black points out that this should have been a case for prosecution of executives, particularly since it’s now estimated that 100 people died as a result, yet GM merely paid a big fine and entered into a deferred prosecution agreement. Black goes through the history of how the theory of non-prosecution came to be institutionalized and comments on important precedents, like Enron, and more recent cases. He also debunks the classic excuse “It’s too hard to prosecute these people”. The experience of Benjamin Lawsky at the a secondary regulator with a tiny staff, the New York Department of Financial Services, with no prosecutorial powers, was able to force resignations of senior executives as part of his settlements. Imagine what he would have been able to do had he been able to lodge indictments.

It's All `Perverted' Now as U.S. Swap Spreads Tumble Below Zero -- At the height of the financial crisis, the unprecedented decline in swap rates belowTreasury yields was seen as an anomaly. The phenomenon is now widespread. Swap rates are what companies, investors and traders pay to exchange fixed interest payments for floating ones. That rate falling below Treasury yields -- the spread between the two being negative -- is illogical in the eyes of most market observers, because it theoretically signals that traders view the credit of banks as superior to that of the U.S. government. Back in 2009, it was only negative in the 30-year maturity, a temporary offshoot of deleveraging and market swings following the credit crisis. These days, swap spreads are near or below zero across maturities. The shift is a result of a confluence of events. It’s a ripple effect of regulations spawned by the credit crunch, combined with large-scale selling of Treasuries and surging corporate issuance. “All of these effects have been pushing swap spreads the same way -- lower,” . “If this doesn’t go away after quarter-end, it could be the fact that a lot of the structural changes that have taken place in the marketplace are now manifesting. And this might then be one of the most visceral examples.”

‘Fear Index’ Grabs Headlines as Stocks Swing - The VIX is the most popular measure of expected short-term volatility on Wall Street. The index is computed in real time on trading days, and when it shoots up, it suggests investors fear market prices are about to move wildly.  The historical average of the VIX is around 20. Lower numbers signal that investors are confident in the strength of their investments. Higher numbers signal investor anxiety. For example, during the 2008 financial crisis, the index hit a dizzying 80, and last month, it made news when it spiked above 50 for the first time since 2009 before returning to near its long-run average.  “What you’re scared of is a drop in the value of your pension fund,” said Mr. Whaley. “The higher the VIX gets, the more fear you have the market will drop.”  The VIX reflects investors’ sentiment by tracking how much they are paying for “out-of-the-money” stock options—particularly “put” options, which provide a cushion against falling market prices. Mr. Whaley compared it to buying insurance for a beach house. “If a hurricane is forming and there is potential for the hurricane to hit land in the next few weeks, you are likely to pay a whole lot for insurance,” he said. “You want to protect the value of the home.”

Law firm removes references to SEC chief’s husband’s ties to audit regulator - Francine McKenna - Securities and Exchange Commission Chairwoman Mary Jo White will choose a leader for the audit regulator, but critics say her husband’s ties to that agency present a conflict of interest A move by the law firm Cravath, Swaine & Moore to excise references to uncommonly close regulatory ties follows a Bloomberg story that pointed to an ongoing conflict between John White’s service to the group while his wife, Securities and Exchange Commission Chairwoman Mary Jo White, has oversight responsibility for the Public Company Accounting Oversight Board, the audit regulator. A spokesperson for Cravath did not respond immediately to a request for comment. The conflict has existed since April 2013, when Mary Jo White became head of the agency. John White has served on the PCAOB advisory committee continuously since he was at the SEC between 2006 and 2008.  He did resign as an equity partner at Cravath when his wife took the chairwoman’s job, since Cravath is a top white-collar and corporate defense firm that represents clients at the SEC frequently. Mary Jo White has recused herself from weighing in or voting on SEC cases when her husband’s firm is involved. The issue has been receiving new attention since Mary Jo White told reporters last Wednesday at a meeting of the Investor Advisory Group, according to a Wall Street Journal report, that the SEC is “identifying interested and qualified candidates” to chair the PCAOB. The Bloomberg report cited the Center for Effective Government, an advocacy group, calling for White to step aside from the selection of the next PCAOB chairman.

SEC’s Mary Jo White Plots to Oust Effective Accounting Regulator, in Face of Escalating Criticism Over Conflicts -- Yves Smith - The evidence that SEC Chairman Mary Jo White needs to go becomes more overwhelming with every passing day. One brewing scandal which has not gotten the attention it warrants is over the selection of the next chairman of the Public Company Accounting Oversight Board, which oversees auditors. Enron and Lehman’s Repo 105 accounting dodge are proof in and of themselves of the importance of having tough accounting standards. The current chairman of the PCAOB, John Doty, is widely seen as doing a good job despite the anti-regulatory bent of the times, and would like to stay in his post when his term ends this October. I heard that Mary Jo White had the knives out for him when I was in DC in early May, but wasn’t sure what I could say about it.  But as Francine McKeenna describes in a MarketWatch story, Mary Jo White’s conflicts, as well as her corporate cronyistic reasons for seeking to replace Doty have turned the pending appointment of the PCAOB chairman into an ugly fight, with no less that Columbia law professor John Coffee, the dean of the securities law bar, calling out Mary Jo White’s conduct in unusually blunt terms.  And as we’ll discuss shortly, Mary Jo White, who is leading the charge against Doty, has a conflict of interest serious enough that she is facing demands to recuse herself from the PBAOC decision.

S.E.C. Turns Its Eye to Hidden Fees in Mutual Funds - Gretchen Morgenson - As regulators have ramped up their scrutiny of private equity practices in recent years, investors have learned a lot about hidden — and dubious — fees they are paying. Now it’s time for investors in the $16 trillion mutual fund arena to do the same. On Sept. 21, the Securities and Exchange Commission’s enforcement division filed proceedings against First Eagle Investment Management, an asset-management company overseeing $100 billion — mostly in eight stock, bond and multi-asset funds. The S.E.C. said that from January 2008 through March 2014, First Eagle improperly billed its investors $25 million for payments to brokers marketing the funds’ shares. The commission also accused First Eagle of misleading investors by maintaining in fund documents during that period that it was paying the marketing costs itself. First Eagle settled the matter without confirming or denying the allegations. It agreed to pay about $27 million in disgorgement and interest as well as penalties of $12.5 million. The S.E.C. will set up a fund to return money to investors who were harmed by First Eagle’s actions. “Of course, the problem is much bigger than this one case,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “The S.E.C. has allowed 12b-1 fees to morph into distribution fees when they were originally intended to serve a very different purpose. The agency had a reform proposal ready to go back in the early days of this administration, but the industry didn’t like it, so it never went anywhere.” There are signs, however, that the First Eagle case may be just the initial S.E.C. salvo on improper mutual fund fee practices. Tricks involving 12b-1 fees are a rich vein for the S.E.C. to mine because these charges are exceedingly opaque. Bringing cases in this area is crucial for investors since these fees drag down fund returns.

SEC settles with former Fannie Mae execs over subprime fraud -  HousingWire -- A 2011 lawsuit brought by the Securities and Exchange Commission against two former Fannie Mae executives over charges that the Fannie execs misled investors about the quality of subprime mortgages, is over, and it ended with a whimper. According to a report from the Wall Street Journal, the SEC reached a settlement agreement with Enrico Dallavecchia, Fannie Mae’s former chief risk officer, and Thomas Lund, Fannie Mae’s former chief of the single-family operation, for a mere $35,000. In its 2011 lawsuit, the SEC alleged that Dallavecchia and Lund, along with former Fannie Mae CEO Daniel Mudd, excluded nearly $100 billion in loans written to borrowers with weak credit histories from its financial disclosures. The SEC also accused Fannie Mae of failing to count $28.5 billion in mortgages bought from the Countrywide subprime unit in 2007. In addition, the SEC sued executives from Freddie Mac, alleging that its executives also misled investors over subprime mortgages. Both lawsuits alleged that the former executives caused the now government-sponsored enterprises to “materially misstate” their holdings of subprime mortgage loans in periodic and other filings with the SEC, public statements, investor calls, and media interviews. At the time, the SEC said that it was seeking financial penalties, disgorgement of ill-gotten gains with interest, permanent injunctive relief and officer and director bars against the Fannie and Freddie execs.

Black Knight's First Look at August: Mortgage "Delinquency Rate Sees Largest 12-Month Decline in Four Years" -- From Black Knight: Black Knight Financial Services' First Look at August Mortgage Data: Despite Monthly Rise, Delinquency Rate Sees Largest 12-Month Decline in Four Years According to Black Knight's First Look report for August, the percent of loans delinquent increased 2.5% in August compared to July, and declined 18.2% year-over-year. The percent of loans in the foreclosure process declined 2% in August and were down 24% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.83% in August, up from 4.71% in July. The percent of loans in the foreclosure process declined in August to 1.37%.  This was the lowest level of foreclosure inventory since 2007. The number of delinquent properties, but not in foreclosure, is down 548,000 properties year-over-year, and the number of properties in the foreclosure process is down 217,000 properties year-over-year.

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

Big Landlords to Merge, Betting on Rising Rents - WSJ - Two big owners of single-family rental homes said Monday they have agreed to merge, a bet that rents will keep rising and homes will remain difficult for many Americans to buy.  Starwood Waypoint Residential Trust, a publicly traded real-estate investment trust run by Barry Sternlicht, the longtime real-estate investor who is Starwood Capital Group’s chief executive, will combine with closely held Colony American Homes Inc. in a deal that values Colony at about $1.5 billion based on Starwood Waypoint’s closing share price Friday. The Wall Street Journal had reported the deal earlier Monday, citing people familiar with the talks.  Under the terms of the agreement, Colony shareholders will receive about 65 million shares of Starwood Waypoint. The deal has been approved by the boards of both companies and is expected to close in the first quarter of next year. Starwood Waypoint shares were inactive premarket. “We believe this merger demonstrates the power of scale and consolidation and really crystallizes the long-term durability of the single-family rental industry,” said Thomas J. Barrack Jr., the executive chairman of Colony American Homes’ parent, Colony Capital. He will serve as nonexecutive co-chairman of the combined company alongside Mr. Sternlicht.  The two companies own a combined total of more than 30,000 homes valued at nearly $8 billion. Messrs. Sternlicht and Barrack were part of the rush by big investors to buy foreclosed homes in bulk, often sight unseen and at steep discounts, after the U.S. housing market collapsed.

MBA: Mortgage Applications Increase in Latest Weekly Survey, Purchase Applications up 27% YoY -- From the MBA: Rate Decreases Drive Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 13.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 18, 2015. The previous week’s results included an adjustment for the Labor Day holiday. ...The Refinance Index increased 18 percent from the previous week. The seasonally adjusted Purchase Index increased 9 percent from one week earlier to its highest level since June 2015. The unadjusted Purchase Index increased 20 percent compared with the previous week and was 27 percent higher than the same week one year ago. “We saw significant rate volatility last week surrounding the FOMC meeting, and rate declines toward the end of the week likely drove applications from both prospective home buyers and borrowers looking to refinance. The 30-year fixed rate remained unchanged over the week even though there was substantial intra-week fluctuation, but we saw rate decreases in other loan products like the 15-year fixed, 5/1 ARM, and 30-year jumbo,” said Mike Fratantoni, MBA’s Chief Economist....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 4.09 percent, with points increasing to 0.45 from 0.42 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

"Mortgage Rates Back Into High 3's" - At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.  From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Into High 3's Mortgage rates got back on track today after giving up a fair amount of last week's gains yesterday. Most lenders are very close to Friday afternoon's levels, which were among the best in over 4 months. ...Most lenders continue to operate in a range of 3.875%-4.0% for conventional 30yr fixed rate quotes, though some of the more aggressive lenders are moving down to 3.75%.

FHFA House Price Index Up 0.6 Percent in July, Up 5.8 Percent YoY -- From the FHFA: FHFA House Price Index Up 0.6 Percent in July U.S. house prices rose in July, up 0.6 percent on a seasonally adjusted basis from the previous month, according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI). The previously reported 0.2 percent change in June remains unchanged.   The FHFA HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From July 2014 to July 2015, house prices were up 5.8 percent. The U.S. index is 1.1 percent below its March 2007 peak and is roughly the same as the November 2006 index level. This graph from the FHFA shows the FHFA purchase only index since 1991.   The index is almost back to the March 2007 peak in nominal terms, but is well below the peak in real terms (adjusted for inflation).  Most of the other indexes are also showing the year-over-year change in the 5% range. For example, Case-Shiller was up 4.5% in June, and CoreLogic was up 6.9% in July.

Existing Home Sales September 21, 2015: Though slowing in August, existing home sales are still healthy and trending higher. Existing home sales came in at a lower-than-expected 5.31 million annual rate in August which is the lowest since April. July was revised down just slightly but is still an 8-year high at 5.58 million. At 6.2 percent, growth in year-on-year sales is the lowest since February. The year-on-year median price, up only 4.7 percent to $228,700, is the lowest since August 2014. The report cites no special reasons behind August's softness, but notes that it follows prior strength, in fact six months of strength. With the in dip sales, supply relative to sales is less tight, at 5.2 months from 4.9 months in the prior two months. But there's still a lack of homes on the market, evidenced by a comparison with the year-ago supply at 5.6 months. Details show high mid-single digit declines across regions except the Northeast where the August sales rate was unchanged. Year-on-year, data are very well balanced with high mid-single gains for all. Despite low mortgage rates and soft prices, the housing sector isn't exactly on fire. Watch for FHFA house prices on tomorrow's calendar, which are expected to rise, and also for new home sales on Thursday which are also expected to rise.

Existing Home Sales in August: 5.31 million SAAR -- From the NAR: Existing-Home Sales Stall in August, Prices Moderate Total existing–home sales, which are completed transactions that include single–family homes, townhomes, condominiums and co–ops, fell 4.8 percent to a seasonally adjusted annual rate of 5.31 million in August from a slight downward revision of 5.58 million in July. Despite last month's decline, sales have risen year–over–year for 11 consecutive months and are 6.2 percent above a year ago (5.00 million). ...  Total housing inventory at the end of August rose 1.3 percent to 2.29 million existing homes available for sale, but is 1.7 percent lower than a year ago (2.33 million). Unsold inventory is at a 5.2–month supply at the current sales pace, up from 4.9 months in July. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in August (5.31 million SAAR) were 4.8% lower than last month, and were 6.2% above the August 2014 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.29 million in August from 2.26 million in July. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Existing Home Sales Down 4.8%, Decline More Than Expected; "Still Healthy and Trending Higher" Says Bloomberg - Let's Investigate -- Existing home sales in August dipped 4.8% month-over-month to a seasonally adjusted rate of 5.31 million units. Although a decline of 1.7% was anticipated, the actual number was below any estimate in the Bloomberg Consensus Range of 5.4 to 5.6 million.  Though slowing in August, existing home sales are still healthy and trending higher. Existing home sales came in at a lower-than-expected 5.31 million annual rate in August which is the lowest since April. July was revised down just slightly but is still an 8-year high at 5.58 million. At 6.2 percent, growth in year-on-year sales is the lowest since February. The year-on-year median price, up only 4.7 percent to $228,700, is the lowest since August 2014. The report cites no special reasons behind August's softness, but notes that it follows prior strength, in fact six months of strength. With the in dip sales, supply relative to sales is less tight, at 5.2 months from 4.9 months in the prior two months. But there's still a lack of homes on the market, evidenced by a comparison with the year-ago supply at 5.6 months. Details show high mid-single digit declines across regions except the Northeast where the August sales rate was unchanged. Year-on-year, data are very well balanced with high mid-single gains for all. What caught my eye in the analysis was the statement by Bloomberg that sales were "still healthy and trending higher."  Let's investigate that claim two different ways.

August 2015 Existing Home Sales Headlines Say Sales Down. Home Price Growth Rate Continues to Slow.: The headlines for existing home sales say "home sales in August lost some momentum to close out the summer". Our analysis of the unadjusted data shows that home sales were soft - but that the rolling averages did improve. Overall, existing home sales appear to continue in the long term improvement trend channel.. Econintersect Analysis:

  • Unadjusted sales rate of growth decelerated 6.1 % month-over-month, up 5.4% year-over-year - sales growth rate trend improved using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.2 % month-over-month, up 3.0 % year-over-year - price growth rate trend is modestly slowing using the 3 month moving average.
  • The homes for sale inventory insignificantly improved this month, remains historically low for Augusts, and is down 1.7% from inventory levels one year ago).

NAR reported:

  • Sales down 4.8 % month-over-month, up 6.2 % year-over-year.
  • Prices up 4.7 % year-over-year
  • The market expected annualized sales volumes of 5.400 to 5.600 million (consensus 5.50) vs the 5.31 million reported.

A Few Random Comments on August Existing Home Sales --I've been expecting that the seasonally adjusted pace for existing home sales would slow due to limited inventory and higher prices.   Maybe this is the beginning of that slowdown. However, it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc - but overall the economic impact is small compared to a new home sale.  So some slowing for existing home sales (if it continues) would not be a big deal for the economy. Even though inventory was up a little month-to-month, Inventory is still very low (down 1.7% year-over-year in August). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. Note: I'm still hearing reports of rising inventory in some mid-to-higher priced areas.  However many low priced areas still have little inventory. Also, the NAR reported distressed sales declined a little further year-over-year:   Matching the lowest share since NAR began tracking in October 2008, distressed sales — foreclosures and short sales — remained at 7 percent in August for the second consecutive month; they were 8 percent a year ago. Five percent of August sales were foreclosures and 2 percent were short sales.  The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Lawler on Existing Home Sales -- In a report released today, the National Association of Realtors estimated that US existing home sales ran at a seasonally adjusted annual rate of 5.31 million, down 4.8% from July’s downwardly-revised (to 5.58 million from 5.59 million) pace and up 6.2% from last August’s seasonally-adjusted pace. The NAR’s estimate was way below both consensus and my estimate from early last week based on regional tracking.   Part of my “miss” was a “misread” of this August’s seasonal factors, which I had assumed would be significantly (rather than just slightly) lower than last August’s seasonal factor (related to the timing of Labor Day.) In addition, most realtor/MLS reports released subsequent to when I issued my forecast – including many released today – came in below what I had assumed (I put out my “early read” after getting enough local realtor/MLS reports to produce a “reasonable” projection).  However, even after taking into account publicly-available reports released through today, my “regional tracking methodology” comes up with faster YOY growth in sales (on a not seasonally adjusted basis) than that shown by the NAR. Net, my forecast for August existing home sales as measured by the National Association of Realtors was way off track, and I apologize for this. The NAR also estimated that the inventory of existing homes for sale at the end of August was 2.29 million, up 1.3% from July’s upwardly-revised (to 2.26 million from 2.24 million) level and down 1.7% from last August. Local realtor/MLS data suggested to me that the August inventory level would be down slightly from July.Finally, the NAR estimated that the median existing SF home sales price in August was $230,200, up 5.1% from a year earlier. This YOY increase was slightly higher than my forecast.

New Home Sales increased to 552,000 Annual Rate in August - The Census Bureau reports New Home Sales in August were at a seasonally adjusted annual rate (SAAR) of 552 thousand.  The previous three months were revised down by a total of 8 thousand (SA). "Sales of new single-family houses in August 2015 were at a seasonally adjusted annual rate of 552,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.7 percent above the revised July rate of 522,000 and is 21.6 percent above the August 2014 estimate of 454,000"  The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply. The months of supply decreased in August to 4.7 months. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed. The third graph shows the three categories of inventory starting in 1973.

New Home Sales Pop Up by 5.7% in August  -- The August 2015 New Residential Single Family Home Sales increased by 5.7%.  Sales jumped up by 30,000 annualized units to 552,000 for the month.  July was significantly revised upward from 507 thousand to 532 thousand sales.  These are levels not seen since February 2008.  For the year, new single family home sales are up 21.6% from the year ago 454,000 sales levels.  The annual increase is equal to the ±18.7% margin of error.  In this Census survey, amounts are annualized and represent what the yearly volume would be if just that month's rate were applied to the entire year.  These figures are also seasonally adjusted.  The monthly percentage changes are always in between error margins (this month ±16.2%) and sales figures are almost always revised.  The August 2015 average home sale price was $353,400.  This is a 2.5% monthly increase.  From a year ago the average price has changed by 0.5%.  Overall it appears prices are really flat lining from a year ago and this should be no surprise since they are clearly not affordable for most people.  The median home price is $292,700 and had a 0.5% change from the previous month.  From August 2014, the median new home sales price also has almost no change, 0.3%.   Median means half of new homes were sold below this price and both the average and median sales price for single family homes are not seasonally adjusted.   New homes available for sale is now 216,000 units, a 0.5% increase from last month.  From a year ago inventories have increased 5.4% and this is outside the ±6.1% margin of error.  The monthly change is also outside the ±2.0% error margin. The graph below shows how long it would take to sell the new homes on the market at each month's sales rate.  For June the time stands at a very low 4.7 months.  This is a -4.1% monthly change with a whopping -13% annual drop.  That is a very tight new homes sales market.The median time a house was completed and on the market to the time it sold was 3.7 months.  From a year ago that time period was 3.1 months.  This implies the median time to move new properties is still reasonably stable.

New Home Sales at Interim High of 552K - This morning's release of the August New Home Sales from the Census Bureau at 552,000 surprised general expectations, and the previous month was revised upward by 15K. The forecast was for 515K. This new interim high has not been seen since the recession began in 2008. Here is the opening from the report:  Sales of new single-family houses in August 2015 were at a seasonally adjusted annual rate of 552,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.7 percent (±16.2%)* above the revised July rate of 522,000 and is 21.6 percent (±18.7%) above the August 2014 estimate of 454,000.[Full Report]  For a longer-term perspective, here is a snapshot of the data series, which is produced in conjunction with the Department of Housing and Urban Development. The data since January 1963 is available in the St. Louis Fed's FRED repository here. Now let's examine the data with a simple population adjustment. The Census Bureau's mid-month population estimates show a 71% increase in the US population since 1963. Here is a chart of new home sales as a percent of the population.

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

  • unadjusted sales growth decelerated 0.7 % month-over-month (after last month's revised acceleration of 12.6 %).
  • unadjusted year-over-year sales up 25.0 % (Last month was up 25.7 %). Growth this month is on the high end of the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth accelerated 5.6 % month-over-month - is up 21.1 % year-over-year.

US Census Headlines:

  • seasonally adjusted sales up 5.7 % month-over-month
  • seasonally adjusted year-over-year sales up 21.6 %
  • market expected (from Bloomberg) seasonally adjusted annualized sales of 500 K to 531 K (consensus 515K) versus the actual at 552 K.

The quantity of new single family homes for sale remains well below historical levels.

Comments on August New Home Sales -- The new home sales report for August was above expectations and sales were at the highest level since early 2008.  New home sales are important for jobs and the economy, and the solid increase in sales this year is a positive sign.  The Census Bureau reported that new home sales this year, through August, were 359,000, not seasonally adjusted (NSA). That is up 21.1% from 297,000 sales during the same period of 2014 (NSA). That is a strong year-over-year gain for the first eight months of 2015! Sales were up 21.6% year-over-year in August. This graph shows new home sales for 2014 and 2015 by month (Seasonally Adjusted Annual Rate). The year-over-year gain was strong through August, however I expect the year-over-year increases to slow over the remaining months - but the overall year-over-year gain should be solid in 2015. And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through August 2015. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.I expect existing home sales to move sideways (distressed sales will continue to decline and be partially offset by more conventional / equity sales).  And I expect this gap to slowly close, mostly from an increase in new home sales.  However, this assumes that the builders will offer some smaller, less expensive homes.

More Perspective on Housing Starts -
Average Annual Housing Starts, 1959-Aug. 2000:
3 Worst 5-Year Periods for Housing Starts since 1959:
Average Annual Housing Starts, Sept. 2000-Aug. 2015 - a 15 year period which includes the housing "bubble":
So, the worst 5 year period for housing starts in the modern era was followed by a 6 year period with average housing starts (1,517,000 from 1994 to 2000).  This was followed by a 15 year period that has had lower housing starts than any of the other 5 year periods in the modern era. Yet, practically everyone I speak to says home prices and rents are going up because we have a too much money! Apparently, there is nothing too outrageous for there to be a national consensus about it.  There are arguments about efficient markets, which have not been settled.  But, is there any question about what would happen if we had stable regulatory and institutional foundations that weren't bent on adjusting market conditions?  We'd be building houses!  And all the people complaining about demand and bubbles would be buying them.  Because we are only insane in the abstract.  We are usually sane in practice. Group beliefs are strange.  They say you can't reason someone out of something they weren't reasoned into.  But, we all think we were reasoned into our beliefs.  When consensus beliefs reach a certain level of absurdity, strange group behaviors begin to take shape.  There is some tipping point, where the absurdity of the belief itself creates a barrier against accepting rational, disciplining information, because it becomes difficult for the group to correct in a face-saving way.  We naturally rationalize the delusion.  We are now engaged in a subconscious national Ptolemaic drama.  The problem is that this process is unpredictable because it is not constrained by reason. This particular issue is not even moderated by arbitrary bipartisanship, because the absurdity has captured virtually the entire spectrum of political viewpoints.  Antipathy to finance is a useful unifying device.  But, the worse things get, the harder the face-saving becomes.  I don't have a confident image of how the American populace will be able to allow housing to normalize.  The mechanisms that trigger new housing will probably lead to recovering prices before they lead to a supply response that will be strong enough to eventually lower rents, and therefore eventually prices.  Can we get there?

Renters Will Continue to Struggle for the Next Decade, Harvard Study Says - Renting is unlikely to get easier anytime soon. An estimated 11% more households will pay more than half of their incomes in rent in 2025, according to a new report from Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners, an affordable-housing organization. The situation could have significant policy implications. Renters who are severely cost-burdened—meaning they pay more than 50% of their incomes in rent—often require federal subsidies to find an affordable place to live.  The private sector is struggling to produce profitable housing that is affordable to lower- and moderate-income families, while many federal housing subsidies have been cut in recent years. In 2013, one in four renters, or 11.2 million households, paid more than half of their incomes in rent. . That is three million more households than in 2000. Many of the factors contributing to that rise were considered temporary. Millions lost their homes due to foreclosure and saw their incomes stagnate during a sputtering economic recovery. But the report finds other factors that have put a strain on renters are likely to persist and contribute to longer-term challenges. Rapid growth in the Hispanic population is one such pressure, because Hispanics tend to be disproportionately renters and are more likely to pay a large share of their incomes in rent, thus putting more pressure on the existing supply of affordable rental housing. Millennials—the population currently in their mid-20s and early 30s—are also expected to grow and continue to rent in larger numbers than prior generations.

As San Francisco rent skyrockets, even employed people are homeless - Having a full-time job and being homeless is not just a New York thing. In the San Francisco Bay Area, home to some of the biggest and wealthiest companies in the world, there is a growing number of people who are gainfully employed but can’t afford rent as a decade-long tech boom inevitably gives rise to sprawling gentrification. The San Francisco Chronicle profiled one such Bay Area resident who ferries Apple employees during the day but sleeps on an air mattress in his 1997 Dodge Caravan at night. Scott Peebles works for Compass Transportation, a company that provides shuttle services for Apple, EBAY, and Yahoo. He earns roughly $30 a hour but has not been able to find a place to live near the bus yard that is within his budget, according to the newspaper. Even when he finds apartments in his range — between $850 and $1,200 month — they are snapped up too quickly. And that has forced people like Peebles to either commute up to four hours a day or sleep in their cars.

Do Millennials Prefer to Live Closer to the City Center? --In past posts (Part 1 and Part 2), we examined whether millennials were driving the decline in first-time homebuyers. We concluded that, if anything, first-time homebuyers were becoming younger over time and location and economic conditions appeared to be a much stronger predictor of declines than a generational divide. In this post, we look into whether millennials prefer to live close to the city core or in the suburbs. Where millennials settle could determine whether our cities continue to grow, what our transportation infrastructure expenditures should be, and whether homebuilders should focus their efforts on multifamily housing in urban locations or traditional single-family homes in the suburbs.  This question has received a fair amount of attention—see here, here, here, and here. A number of observers have speculated whether the recent surge in millennials living in cities represents a change in preferences or whether it's simply an artifact of financial constraints—tighter underwriting standards, weak income growth, or larger student debt. Nielsen's survey of young adults finds that millennials prefer the lifestyle afforded by dense urban environments, but the National Association of Homebuilder's survey of young homebuyers finds that just 10 percent would prefer to live in the city while a whopping 66 percent want to live in the suburbs. This research on young adults tends to combine renters and homeowners in one category. Renters tend to experience credit and financial barriers to location, and are limited in their location choice by the distribution of rental housing stock. That can make it difficult to distinguish whether young people who move to the city do so because they prefer urban life or because there is more rental housing stock in the city than in the suburbs. To shed light on the question of where millennials prefer to live, we segment out a group of young adults who experience relatively fewer restrictions on where to live: first-time homebuyers. Our data set allows us to identify first-time millennial homebuyers and the census tracts where they bought their first homes (a previous post describes the data).

How an Immigration Downturn Has Contributed to the Construction-Worker Shortage - The U.S. construction industry has lost more than half a million Mexican-born workers since 2007, contributing to a labor shortage that’s likely to drive up home prices, according to a new analysis. Increasingly restrictive immigration policies and better opportunities abroad have resulted in less Mexican immigration to the U.S. for such work, according to a report released Monday by home-building analyst John Burns Real Estate Consulting Inc. Without taking a position on immigration policy, the analysis firm examined Commerce Department data to determine that there now are 570,000 fewer Mexican-born construction workers in the U.S.—both in the residential and commercial sectors—than at the construction industry’s peak in 2007. Mexican-born construction workers in the U.S. numbered 1.32 million last year compared with 1.89 million in 2007, Commerce data show. Burns chief executive John Burns and his firm’s demographer, Chris Porter, conclude that many of those workers who went back to Mexico during the downturn haven’t returned to work in the U.S. due to tighter immigration controls—both for those entering legally and those not—and comparable job opportunities in some Mexican states with improving economies. That doesn’t bode well for a home-building industry that increasingly has cited labor shortages among the factors deterring greater production of late. Granted, U.S. construction starts on single-family homes so far this year amount to an 11% increase from the same period a year ago. Even so, the pace of construction starts in August still amounted to only about half of the average annual output in the most recent normal market of 2001 to 2003.

CoStar: Commercial Real Estate prices "indices post moderate gains" in July, up 12% year-over-year  - From CoStar: CCRSI: Composite Price Indices Post Moderate Gains in July - Both the equal- and value-weighted national composite price indices advanced in July 2015 as a combination of strong market fundamentals, low interest rates and improving market liquidity continued to support conditions for CRE price growth. However, the pace of price growth cooled slightly from that of the previous six months ending in June 2015.  The moderation in the rate of price growth was especially evident at the high end of the market where pricing has already exceeded prior peak levels. CoStar’s value-weighted U.S. Composite Index, which is influenced by high-value trades, advanced 0.3% in July 2015 compared with a 1.1% average monthly pace from January 2015 through June 2015. The value-weighted U.S. Composite Index is already more than 13% above its prerecession peak level. The equal-weighted U.S. Composite Index increased 0.9% in July 2015, down slightly from the 1.1% average monthly pace from January 2015 to June 2015. It has now advanced to within 7.5% of its prerecession peak, supported by increased investor interest beyond core properties in primary markets.

AIA: Architecture Billings Index indicated slight contraction in August - Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Architecture Billings Index Backslides Slightly The Architecture Billings Index (ABI) slipped in August after showing mostly healthy business conditions so far this year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the August ABI score was 49.1, down from a mark of 54.7 in July. This score reflects a slight decrease in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.8, down from a reading of 63.7 the previous month. “Over the past several years, a period of sustained growth in billings has been followed by a temporary step backwards,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The fact that project inquiries and new design contracts continue to grow at a healthy pace suggests that this should not be a cause for concern throughout the design and construction industry.”   This graph shows the Architecture Billings Index since 1996. The index was at 49.1 in August, down from 54.7 in July. Anything below 50 indicates contraction in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. The multi-family residential market was negative for the seventh consecutive month - and this might be indicating a slowdown for apartments - or at least less growth. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment over the next 12 months.

Fed Survey of Household Spending Projections in Firm Downtrend -- Every month the New York Fed interviews a rolling group of 1200 people to produce a detailed Survey of Consumer Expectations.  Interested parties can download the Survey Questionnaire PDF. The Fed states:  Where existing surveys look at consumer sentiment and the decisions households make, their coverage of household expectations is limited; the Survey of Consumer Expectations seeks to collect information on a wide variety of consumer expectations – including inflation, future earnings, household income, house prices, access to credit, layoff risk and reemployment prospects, and US economic conditions overall. Through a set of quarterly special surveys it also aims to focus in depth on special topics such as household finances as well as labor and housing market issues and outcomes. Projections:

  • High-end spending projections have been slowly drifting lower for quite some time, but the decline became more noticeable about a year ago. 
  • Median spending projections took a sustained turn for the worse in December of 2014.
  • Low-end spending projections to a sustained dive starting November of 2014.

U.S. holiday season in 2015 could be weakest since recession --- Upper middle-class shoppers spooked by a whipsawing stock market and shoppers waiting till the last minute for the best deals could result in the weakest U.S. holiday sales season for retailers since the recession, AlixPartners said. The consultancy firm said it expects sales to grow 2.8 percent to 3.4 percent during the November-December shopping period compared with 4.4 percent in 2014, based on analyzing consumer spending trends so far this year. This forecasted increase is on the low end of holiday sales performance since 2010, AlixPartners said in an advanced copy of a report given to Reuters. Holiday sales have averaged 3.9 percent in the last five years, the firm said. AlixPartners’ forecast, due to be published on Wednesday, is the first estimate to be released among industry and consultancy groups and excludes sales from automotives, restaurants and gasoline. The more closely watched National Retail Federation forecast for holiday sales is expected in early October. "What we are seeing is that consumers' behavior this year in terms of increased retail sales is fairly muted,"

Wal-Mart Wants Price Cut From Its China Suppliers: Wal-Mart wants to leverage the falling price of the yuan to get its products on the cheap. The retail giant is asking for price cuts from its suppliers that have production facilities China, according to Reuters.  If Wal-Mart gets its way, the cost cuts, in the range of 2% to 6%, will affect home furnishings, electronics, apparel appliances and other merchandise. It’s unclear whether the cuts would lead to cheaper prices for consumers, though they would likely help Wal-Mart at least maintain its generally low price points. Other retailers are also trying to take advantage of China’s decision in August to devalue its carefully controlled currency, which is down 2.9% versus the dollar this year. Executives at Toys R Us and Home Depot told Reuters they are negotiating better terms with their suppliers because of the cost savings. Wal-Mart could use a cut in its expenses following its announcement earlier this year that it will raise wages for half a million of its employees. The initiative is expected to cost $1 billion.

Michigan Consumer Sentiment: Up Slightly from Preliminary Reading -- The University of Michigan Final Consumer Sentiment for September came in at 87.2, an increase from the 85.7 Preliminary. had forecast 86.7 for the September Final. Surveys of Consumers chief economist, Richard Curtin makes the following comments: The decline in optimism continued to narrow in late September as consumers increasingly concluded that the stock market declines had more to do with international conditions than the domestic economy. While the September Sentiment Index was at the lowest level in eleven months, it was still higher than in any prior month since May 2007. To be sure, a raft of recent events have been viewed as negative economic indicators by consumers, including falling commodity prices, weakened Chinese and other economies as well as continued stresses on European countries. Although most believe the domestic economy is still largely insulated, they have lowered the pace of job and wage growth that they now anticipate. The true significance of these findings is not the diminished economic prospects, but that consumers now believe that global economic trends can directly influence their own job and wage prospects as well as indirectly via financial markets. While now small, the influence of the global economy is certain to rise in the future and prompt widespread adjustments by consumers and policy makers. [More...] See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

UMich Consumer Confidence Tumbles To Lowest Since October, Worst Drop In 4 Years - Despite rising modestly from the preliminary print, UMich Consumer Sentiment for September finalised at 87.2 - the lowest since October 2014. This is now the biggest 8-month drop since 2011. Inflation expectations fell modestly as "hope" fell to the lowest level since September. Household Income gain expectations continue to slide (now just 1%) back to 13 month lows.

U.S. gasoline sales surge at fastest for over a decade – Gasoline sales to U.S. motorists rose by more than 5 percent in July compared with the same month a year before, according to the U.S. Energy Information Administration (EIA). Gasoline sales are rising at the fastest year-over-year rates for more than 14 years as demand surges.  Continued economic expansion, rising employment and cheaper fuel are putting a record volume of traffic on U.S. roads as well as encouraging motorists to upgrade to larger and more fuel hungry vehicles. Gasoline sales were up 5.1 percent in July 2015 compared with July 2014, according to the EIA’s Prime Supplier Report published on Tuesday. Sales for the first seven months as a whole were up 4.4 percent compared with 2014.  The Prime Supplier Report is based on a census of around 200 firms that produce, import or transport across state boundaries selected fuels and sell the products to local distributors, local retailers or end users. Prime Suppliers account for substantially all fuel delivered to local distributors, retailers and end users in the United States so the census provides a comprehensive picture of demand. Fuel consumption is being boosted by more traffic on the roads. Vehicle-miles traveled were up 3 percent in the first half of the year compared with 2014, according to the Federal Highway Administration. Motorists are also opting for larger vehicles. Car sales fell almost 3 percent in the first eight months of 2015 but sales of light trucks, which include sport utility vehicles, surged by 10 percent, according to WardsAuto. Light trucks typically use nearly 40 percent more fuel for the same journey, according to U.S. government statistics, so the changed sales mix is boosting consumption.

Vehicle Sales Forecast for September: Over 17 Million Annual Rate Again -  The automakers will report September vehicle sales on Thursday, Oct 1. Sales in August were at 17.7 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in September will be over 17 million SAAR again. Note:  There were 25 selling days in September, up from 24 in September 2014 (Also note: Labor Day was included in September this year).  Here are several forecasts: From WardsAuto: Forecast: U.S. Automakers to Record Best September in Ten Years A WardsAuto forecast calls for U.S. automakers to deliver 1.42 million light vehicles in September, an 11-year high for the month. The report puts the seasonally adjusted annual rate of sales for the month at 17.8 million units, slightly above last month’s 17.7 million SAAR and well ahead of the year-to-date SAAR through August (17.1 million). From J.D. Power: Labor Day Propels New-Vehicle Retail Sales’ Strongest Growth So Far in 2015  For the first time since 2012, Labor Day weekend falls in the industry’s September sales month instead of August. Labor Day weekend is traditionally the biggest new-vehicle sales weekend of the year, as consumers take advantage of the holiday and model year-end sales promotions, as well as the availability of the new model-year vehicles arriving in showrooms. [17.7 million SAAR] From Kelley Blue Book: Double-Digit New-Car Sales Growth Expected In September 2015, According To Kelley Blue Book  New-vehicle sales are expected to increase 12 percent year-over-year to a total of 1.39 million units in September 2015, resulting in an estimated 17.5 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ...

DOT: Vehicle Miles Driven increased 4.2% year-over-year in July, Rolling 12 Months at All Time High -- The Department of Transportation (DOT) reported: Travel on all roads and streets changed by 4.2% (11.4 billion vehicle miles) for July 2015 as compared with July 2014.  Travel for the month is estimated to be 283.7 billion vehicle miles. The seasonally adjusted vehicle miles traveled for July 2015 is 264.4 billion miles, a 3.9% (9.9 billion vehicle miles) increase over July 2014. It also represents a 0.8% change (2.1 billion vehicle miles) compared with June 2015.  The following graph shows the rolling 12 month total vehicle miles driven to remove the seasonal factors. The rolling 12 month total is moving up - mostly due to lower gasoline prices - after moving sideways for several years.   Miles driven (rolling 12) had been below the previous peak for 85 months - an all time record - before reaching a new high for miles driven in January. The second graph shows the year-over-year change from the same month in the previous year. In July 2015, gasoline averaged of $2.88 per gallon according to the EIA. That was down significantly from July 2014 when prices averaged $3.69 per gallon. Gasoline prices aren't the only factor - demographics is also key. However, with lower gasoline prices, miles driven - on a rolling 12 month basis - is setting new highs each month.

I created a fake business and bought it an amazing online reputation -- If you live in the Bay Area and have looked for something special to spice up a birthday party, you might have discovered the Freakin’ Awesome Karaoke Express, a truck that promises to deliver an unbelievable selection of songs to your doorstep. You might have seen a review on Yelp that said it’s perfect for a girl’s night out or a Facebook review that mentioned it being a crowd-pleaser at a neighborhood block party. You may have been impressed by its 19,000 Twitter followers, and considered hiring this mobile song-slinging truck to drive up to your next outdoor shindig.  What you probably didn’t realize was that there is no such thing as the Freakin’ Awesome Karaoke Express (or F.A.K.E., for short). I made it up and paid strangers to pump up its online footprint to make it seem real. I didn’t do it to scam anyone or even for the LULZ. I wanted to see firsthand how the fake reputation economy operates. The investigation led me to an online marketplace where a good reputation comes cheap.   For $5, I could get 200 Facebook fans, or 6,000 Twitter followers, or I could get @SMExpertsBiz to tweet about the truck to the account’s 26,000 Twitter fans. A Lincoln could get me a Facebook review, a Google review, an Amazon review, or, less easily, a Yelp review.

Chemical Activity Barometer "Signals Slowdown of Economic Activity" -- Here is an indicator that I'm following that appears to be a leading indicator for industrial production. From the American Chemistry Council: Chemical Activity Barometer Cools; Signals Slowdown of Economic Activity The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), dropped 0.4 percent in September, following a revised 0.2 percent decline in August. The pattern shows a marked deceleration, even reversal, over second quarter activity. Data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.2 percent over this time last year, also a deceleration of annual growth. In September 2014, the CAB logged a 4.1 percent annual gain over September 2013. It is unlikely that growth will pick up through early 2016. ...  “Chemical, other equity, and product prices all continued to suffer, signaling a likely slowdown in broader economic activity,” he added. “One bright spot continues to be plastic resins, particularly those used in light vehicles. Sales of light vehicles are on track to record a banner year, the best since 2000,” he said. Light vehicles are a key end use market for chemistry, containing nearly $3,500 of chemistry per vehicle. Also at play is the ongoing decline in U.S. exports. According to Swift, global trade is lagging behind both global industrial production and broader economic activity with deflationary forces at play. With this month’s data, the CAB is signaling slower gains in U.S. business activity into early 2016. This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue). And this suggests a slowdown in growth for industrial production.

September 2015 Chemical Activity Barometer Says Economy Will Continue to Slow: The Chemical Activity Barometer (CAB), dropped 0.4 percent in September, following a revised 0.2 percent decline in August. The pattern shows a marked deceleration, even reversal, over second quarter activity. It is unlikely that growth will pick up through early 2016. Data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 1.2 percent over this time last year, also a deceleration of annual growth. In September 2014, the CAB logged a 4.1 percent annual gain over September 2013. Said ACC Chief Economist Kevin Swift: Business activity cooled off in September. Chemical, other equity, and product prices all continued to suffer, signaling a likely slowdown in broader economic activity. One bright spot continues to be plastic resins, particularly those used in light vehicles. Sales of light vehicles are on track to record a banner year, the best since 2000. Light vehicles are a key end use market for chemistry, containing nearly $3,500 of chemistry per vehicle. The Chemical Activity Barometer has four primary components, each consisting of a variety of indicators: 1) production; 2) equity prices; 3) product prices; and 4) inventories and other indicators. During November, the components were mixed, with production flat, equity prices up, production down, and inventories continuing to improve.

Durable Goods Orders September 24, 2015: Transportation equipment, specifically aircraft orders, are once again skewing durable goods orders which fell 2.0 percent in August as expected. Excluding transportation, durable goods were unchanged which is slightly lower than expected. Weakness here in part reflects a pause for core capital goods as nondefense ex-auto orders slipped 0.2 percent following two prior months of very solid growth. Looking at transportation equipment, both aircraft and motor vehicles were weak. Orders for civilian aircraft fell 12 percent in the month while vehicle orders fell 1.5 percent. Vehicle shipments were down 1.6 percent but follow July's big 4.7 percent surge. Total shipments were flat in the month but follow solid gains in July and June. Core capital goods shipments, like orders, slipped 0.2 percent but also follow prior gains. Still, the dip in core shipments will not be lifting third-quarter GDP estimates. Factories held inventories unchanged in August and worked off backlog orders slightly, down 0.2 percent. This report falls in line with last week's industrial production data where manufacturing basically held flat in August. Weakness in exports is the balancing factor tipping the factory sector away from growth.

August Durable Goods: Down 2%, Core Goods Flat at 0.0% -- The Advance Report on Manufacturers’ Shipments, Inventories and Orders released today gives us a first look at the August durable goods numbers. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in August decreased $4.8 billion or 2.0 percent to $236.3 billion, the U.S. Census Bureau announced today. This decrease, down following two consecutive monthly increases, followed a 1.9 percent July increase. Excluding transportation, new orders decreased less than $0.1 billion, or virtually unchanged. Excluding defense, new orders decreased $2.2 billion or 1.0 percent. Transportation equipment, also down following two consecutive monthly increases, led the decrease, $4.8 billion or 5.8 percent to $78.7 billion. Download full PDF The latest new orders headline number at -2.0 percent was spot on the estimate. This series is down -2.3 percent year-over-year (YoY). If we exclude transportation, "core" durable goods came in at 0.0 percent month-over-month (MoM), a tick below the estimate of 0.1 percent. However, the core measure is down -3.9 percent YoY. If we exclude both transportation and defense for an even more fundamental "core", the latest number was up -1.8 percent MoM but down -4.5 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 -0.2 percent decline, and it is down -5.2 percent YoY.  For a look at the big picture and an understanding of the relative size of the major components, here is an area chart of Durable Goods New Orders minus Transportation and Defense with those two components stacked on top. We've also included a dotted line to show the relative size of Core Capex.

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

  • unadjusted new orders growth accelerated 18.2 % (after decelerating a downwardly revised 19.6 % the previous month) month-over-month , and is down 1.9 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 1.3 % month-over-month, and down 7.4% year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are down 3.8 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth decelerated 0.9 % month-over-month, up 1.3 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, and has been decelerating for a year..

Durable Goods Orders Decline 2%, Led by Transportation; QE Bounce Effect is Over; Recession on the Way? --- Those looking for "lift off" material for Fed hikes will not find it in the latest Durable Goods report from the US Department of Commerce. Durable Goods orders declined 2.0% in line with Bloomberg Consensus Estimates, but details and year-over-year numbers weak.   Transportation equipment, specifically aircraft orders, are once again skewing durable goods orders which fell 2.0 percent in August as expected. Excluding transportation, durable goods were unchanged which is slightly lower than expected. Weakness here in part reflects a pause for core capital goods as nondefense ex-auto orders slipped 0.2 percent following two prior months of very solid growth. Looking at transportation equipment, both aircraft and motor vehicles were weak. Orders for civilian aircraft fell 12 percent in the month while vehicle orders fell 1.5 percent. Vehicle shipments were down 1.6 percent but follow July's big 4.7 percent surge. Total shipments were flat in the month but follow solid gains in July and June. Core capital goods shipments, like orders, slipped 0.2 percent but also follow prior gains. Still, the dip in core shipments will not be lifting third-quarter GDP estimates. Factories held inventories unchanged in August and worked off backlog orders slightly, down 0.2 percent.The effect of QE, and central bank stimulus in general, is over (assuming it was ever really in play in the first place).  If the strength in autos is over, and I suppose a global scandal on Volkswagen would mark a fitting top, then recession cannot be too far off.

China offers huge rewards for U.S. companies like Boeing. But it could also take that business away. -- On Tuesday, when Chinese President Xi Jinping arrived in Seattle, he also flew in on a Boeing. And at a visit to the company’s Everett, Wash., factory on Wednesday, Xi, too, put in some orders.  Boeing announced Wednesday that Chinese airlines and leasing companies agreed to purchase 300 Boeing aircraft, a package with a total value of $38 billion. (The package included some planes that had previously been ordered, reported The Seattle Times.) The company also announced plans to build a factory in China in partnership with the state-owned Commercial Aircraft Corporation of China, or Comac, to complete interiors and paint 737s. Manufacturing airplanes is a symbolic industry for the United States -- a feat of advanced engineering, one of the nation's major exports and a bastion of American manufacturing jobs, many of which have left U.S. shores for China in past decades. It’s also an industry that has benefited hugely from China’s growth. One of every five commercial airplanes made in Boeing factories last year was sent to China, a trend analysts expect to continue as the country's rising middle class increases demand for air travel. In August, Boeing said its Chinese fleet could almost triple in the next 20 years, for sales of $950 billion.  Yet, as for other American companies in China, this success may come at a future price. China has long demanded that foreign companies transfer technology and manufacture some of their products in China. In exchange for access to one of the world’s most valuable markets, foreign companies must help China build brands that may one day put them out of business.

PMI Manufacturing Index Flash September 23, 2015: Growth in Markit's manufacturing sample remains as slow as it's been since October 2013, stuck at 53.0 for the September flash. The reading is the same as the final August result and little changed from August's flash of 52.9. It's also below the recovery's 54.3 average. Growth in new orders is the slowest since January with businesses citing caution among customers and subdued business conditions. Export orders, hurt by weak foreign demand and strength in the dollar, have been very weak this year but did improve slightly in the latest report. Slow orders are leading the sample to slow hiring and trim inventories. The latest gain for employment is only marginal and the weakest since July last year. Prices are especially weak in the report, showing the first drop in four months for input costs and the first drop in finished goods since August 2012. Fed policy makers, concerned by low inflation, are likely to take special notice. The 53.0 headline points to more strength than many of the details of the report. Together with the September run so far of regional surveys, the manufacturing sector does not look like it's having much of a month. Watch for durable goods orders tomorrow for definitive data on August followed by the Kansas City manufacturing update for September.

US Mfg PMI Holds Steady At Modest Growth Rate In September - US manufacturing activity is surprisingly firm in September, according to the initial estimate of Markit’s purchasing managers’ index (PMI) for this corner of the economy. I say “surprisingly firm” because three previously released regional indexes for manufacturing in September (via Fed banks) are unusually weak, as Idiscussed yesterday. But the national trend for manufacturing looks comparatively resilient. Growth is still moderate, bordering on sluggish for manufacturers. But if you’re looking for a dark signal for the US business cycle, today’s PMI update doesn’t offer much red meat. That said, manufacturing output “remains at the lowest level since October 2013,” Markit advised in today’s press release. The good news is that the flash reading of this month’s headline PMI is 53.0, unchanged from August. A number above the neutral 50 mark indicates growth, which means that today’s update reflects a modest pace of expansion for this cyclically sensitive sector. The fact that the PMI is steady and in positive territory suggests that the US macro trend isn’t giving way to the darkness that appears to be descending elsewhere in the world, particularly in some emerging markets, including China. Indeed, China’s manufacturing PMI for September (also released today) slipped deeper into negative territory this month: 47.0 vs. 47.3 in August.

US Manufacturing Economy Weakest In 2 Years As New Orders, Prices, Jobs Slow - On the heels of dismal China manufacturing data (worst PMI since March 2009) and mixed-to-weaker European data, US Manufacturing PMI printed a September preliminary 53.0 (flat from 53.0 in August and modestly better than expectations of 52.8). This is the equal lowest print since Oct 2013. Underlying components are mixed (factory prices dropped for first time in 3 years and new orders and employment slowed), but, confirming what Yellen told us last week (that the US economys is to fragile to handle a 25bps rate hike), Markit notes, "the sluggish growth, weaker forward-looking indicators and downturn in price pressures all point to the Fed holding off with rate hikes until next year." It appears US decoupling is once again proved a timing issue more than reality... Factory gate charges dropped for the first time since August 2012. Anecdotal evidence from survey respondents suggested that falling commodity prices, intense competitive pressures and softer demand conditions were all factors contributing to price discounting in September. Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said: “Manufacturing remained stuck in crawler gear in September, fighting an uphill battle against the stronger dollar, slumping demand in many export markets and reduced capital spending, especially by the energy sector.“The survey is indicating the weakest manufacturing growth for almost two years, meaning the sector will have acted as a drag on the economy in the third quarter.

Richmond Fed: "Manufacturing Sector Activity Generally Softened" in September --From the Richmond Fed: Manufacturing Sector Activity Generally Softened; Average Wages Grew Moderately Fifth District manufacturing activity slowed in September, according to the most recent survey by the Federal Reserve Bank of Richmond. Order backlogs and new orders decreased, while shipments declined. Average wages continued to increase at a moderate pace this month, however manufacturing employment grew mildly.  Overall, manufacturing conditions weakened in September. The composite index for manufacturing decreased to a reading of −5, following last month's reading of 0. The index for shipments remained negative, only gaining one point to end at −3. Additionally, the volume of new orders decreased this month. At an index of −12, the September indicator lost 13 points from last month's reading of 1. Manufacturing employment increased mildly this month. The indicator added two points, ending at a reading of 3.

Richmond Fed Region Unexpectedly Bad; New Orders Plunge -- The already bleak manufacturing reports took another step for the worse today as evidenced by the Fifth District Survey of Manufacturing Activity by the Richmond Fed. Volume of new orders, backlog of new orders, capacity utilization, and average workweek have crashed making the report details far worse than the headline reading.  "Producers anticipated positive business conditions for the six months ahead. They continued to expect steady growth in shipments and in the volume of new orders. The indexes for expected shipments and new orders strengthened to readings of 48 and 42, respectively." It's been amusing watching the look ahead projections in these reports. They have been consistently wrong for months on end. Manufacturers and economists alike have been overoptimistic about manufacturing. The Bloomberg Consensus reading for the Richmond Fed region was for a strengthening to +3. Early indications on the September factory sector are negative and now include a minus 5 headline from the Richmond Fed. New orders, unfortunately, are even more deeply in the negative column at minus 12 which points to even weaker activity in the months ahead. Shipments are already in the negative column for a second straight month at minus 3. And manufacturers in the region have already worked down their backlogs to keep up production with backlogs in deep contraction at minus 24 and minus 15 the last two months. Employment is in the plus column but just barely at 3 and it won't stay there for long if orders and production continue to weaken. Price readings are moderating further to round out an unpleasant picture of unexpected slowing.

Richmond Fed Manufacturing Survey Also In Contraction in September 2015 - Below Expectations - Of the three regional Federal Reserve surveys released to date, all are in contraction. The market expected values (from Bloomberg) from 2 to 5 (consensus 3) with the actual survey value at -0.5 [note that values above zero represent expansion].   Order backlogs and new orders decreased, while shipments declined. Average wages continued to increase at a moderate pace this month, however manufacturing employment grew mildly. Prices of raw materials and prices of finished goods rose, although at a slightly slower pace compared to last month. Manufacturers anticipated improved business conditions during the next six months. Producers expected faster growth in shipments and in the volume of new orders. Additionally, survey participants expected order backlogs to grow and anticipated increased capacity utilization. Expectations were for longer vendor lead times during the next six months. Firms expected faster growth in the number of employees and looked for average wages to grow more quickly in the months ahead. In addition, survey participants looked for moderate growth in the average workweek. Looking ahead, manufacturers anticipated faster growth in prices paid and prices received.  Overall, manufacturing conditions weakened in September. The composite index for manufacturing decreased to a reading of −5, following last month's reading of 0. The index for shipments remained negative, only gaining one point to end at −3. Additionally, the volume of new orders decreased this month. At an index of −12, the September indicator lost 13 points from last month's reading of 1. Manufacturing employment increased mildly this month. The indicator added two points, ending at a reading of 3.

Richmond Fed Manufacturing Survey Collapses, Workweek Crashes To 6 Year Lows - Following August's collapse (from 13 to 0), September's Richmond Fed followed on the heels of Philly, Empire, and Dallas Fed surveys and collapsed to -5 - its lowest since January 2013. Under the covers it is a total disaster, the average workweek crashed from 3 to -12 - the lowest level since April 2009 (as did the order backlog). New Orders and Capacity Utilization also plunged to its lowest since Jan 2013 as clearly the inventory accumulation is starting to feedback into prodiction cuts. Combined, the regional surveys suggest a notable plunge in overall ISM in September... flashing bright red recession warnings. Following weakness in Empire, and Philly Fed surveys, this suggests September ISM will be notably below the crucial '50'level.

Kansas City Fed Manufacturing Index September 24, 2015: At an index of minus 8, contraction continues apace in the Kansas City manufacturing sector which reports export weakness tied to the strong dollar and energy-sector weakness tied to low commodity prices. Metals and machinery are showing particular weakness with new orders at minus 8 and backlog orders at minus 12. Employment is at minus 7 with the workweek at minus 12. Despite contraction in the workweek, production is the only component in the plus column, but just barely at plus 1. Price data, like for many other reports, show contraction for both inputs and outputs. Manufacturing was basically flat in August, as evidenced by this morning's durable goods report. And the early indications on September, including the Kansas City report, are all pointing to increasing weakness.

Kansas City Fed: Regional Manufacturing Activity Declined Again in September -- From the Kansas City Fed: Tenth District Manufacturing Activity Declined at a Similar Pace The Federal Reserve Bank of Kansas City released the September Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined at a similar pace as in previous months, while expectations for future activity dropped considerably. “Survey respondents continued to blame a strong dollar and weak energy activity for declining factory activity”, said Wilkerson. “This month their future outlook also weakened after holding steady in recent months.”..Tenth District manufacturing activity declined at a similar pace as in previous months, while expectations for future activity dropped considerably. Producers continued to cite weak oil and gas activity along with a strong dollar as key reasons for the sluggish activity. Most price indexes fell from the previous survey.  The month-over-month composite index was -8 in September, largely unchanged from -9 in August and -7 in July ... employment index inched up from -10 to -7, and the new orders for exports index also moved slightly higher.   The recent decline in the Kansas City region manufacturing has probably been mostly due to lower oil prices, although respondents also blame the strong dollar.

Kansas City Fed Survey: Manufacturing Declined Moderately in September - The Kansas City Fed Manufacturing Survey business conditions indicator measures activity in the following states: Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, and northern New Mexico Quarterly data for this indicator dates back to 1995, but monthly data is only available from 2001. Here is an excerpt from the latest report: The Federal Reserve Bank of Kansas City released the September Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity declined at a similar pace as in previous months, while expectations for future activity dropped considerably. "Survey respondents continued to blame a strong dollar and weak energy activity for declining factory activity", said Wilkerson. "This month their future outlook also weakened after holding steady in recent months." [Full release here]  Here is a snapshot of the complete Kansas City Fed Manufacturing Survey. The three-month moving average, which helps us visualize trends, is at its lowest level since mid-2009.

Weekly Initial Unemployment Claims increased to 267,000 -- The DOL reported: In the week ending September 19, the advance figure for seasonally adjusted initial claims was 267,000, an increase of 3,000 from the previous week's unrevised level of 264,000. The 4-week moving average was 271,750, a decrease of 750 from the previous week's unrevised average of 272,500.  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.

State Employment Shows Static Scene for August - The August state employment statistics shows the unemployment situation for states and regions is little changed from July.  From July 18 states lost jobs while 32 states gained them.  The national unemployment rate was 5.1% and 29 states showed an unemployment decrease while in 10 states the unemployment rate went up.  Below is the BLS map of state's unemployment rates for the month.  August showed a -0.4 percentage point drop in the South Carolina and and a -0.3 percentage point change in Virginia and Ohio.  Only one state has a rate above 7.0%.  That's West Virginia with an unemployment rate of 7.6%.  Plenty of states have rates above 6%.  Both the Nevada and D.C. unemployment rate is 6.8%.  New Mexico is 6.7%, Alaska, 6.6% and both Arizona and Mississippi are 6.3%.  Nebraska has an astounding 2.8% unemployment rate.  North Dakota still maintains the 2nd lowest with 2.9%. The unemployment change from a year ago nationally has declined by -1.0 percentage points.  Seven states saw unemployment rate annual increases, with West Virginia increasing by 1.2 percentage points.  Rhode Island's unemployment rate droppped by -1.8 percentage points and Michigan also had a significant -1.7 percentage point decline.  For the month, state monthly payrolls increased in 32 states and decreased in 18 states plus the District of Columbia.  By percentages of total payrolls, South Dakota showed a -0.7% decrease in jobs.  Delaware, and New Hampshire both declined by -0.6% in monthly payrolls.  Employment gains were huge in Hawaii for the month, 1.3%, whereas Nebraska also increased 0.6% and Maine did to with a 0.4% monthly change.   For the year, payrolls increased in 47 states plus D.C. and decreased in three states.  West Virginia declined by -2.6%, North Dakota by -0.7% and Alaska by -0.4%.  For the year Utah shows a 4.0% employment increase, Oregon, 3.5%, with Florida and Nevada showing a 3.3% increase.  The below map shows the past year ago change for payroll growth.

A Toxic Work World - -- FOR many Americans, life has become all competition all the time. Workers across the socioeconomic spectrum, from hotel housekeepers to surgeons, have stories about toiling 12- to 16-hour days (often without overtime pay) and experiencing anxiety attacks and exhaustion. Public health experts have begun talking about stress as an epidemic.The people who can compete and succeed in this culture are an ever-narrower slice of American society: largely young people who are healthy, and wealthy enough not to have to care for family members. An individual company can of course favor these individuals, as health insurers once did, and then pass them off to other businesses when they become parents or need to tend to their own parents. But this model of winning at all costs reinforces a distinctive American pathology of not making room for caregiving. The result: We hemorrhage talent and hollow out our society. To begin with, we are losing women. Far too many discover that what was once a manageable and enjoyable work-family balance can no longer be sustained — regardless of ambition, confidence or even a partner who shares tasks equally. Every family’s situation is different; some women may be able to handle with ease conditions that don’t work for others. But many women who started out with all the ambition in the world find themselves in a place they never expected to be. They do not choose to leave their jobs; they are shut out by the refusal of their bosses to make it possible for them to fit their family life and their work life together.

U.S. Will Accept More Refugees as Crisis Grows - — The Obama administration will increase the number of worldwide refugees the United States accepts each year to 100,000 by 2017, a significant increase over the current annual cap of 70,000, Secretary of State John Kerry said Sunday.“This step that I am announcing today, I believe, is in keeping with the best tradition of America as a land of second chances and a beacon of hope,” Mr. Kerry said, adding that it “will be accompanied by additional financial contributions” for the relief effort.The American move, announced after Mr. Kerry held talks in Berlin with his German counterpart, Frank-Walter Steinmeier, still falls far short of the global demand for resettlement from people who continue to flee turmoil in Syria, Iraq, Afghanistan and other countries.  “This kind of piecemeal, incremental approach is simply not enough to effectively address this crisis,” said Eleanor Acer, director of the refugee protection program at Human Rights First, an advocacy group that has been pressing the United States to take 100,000 Syrians alone next year. “This minimal increase for next year is certainly not a strong response to the largest refugee crisis since World War II.”Four million Syrians have fled to other countries, and hundreds of thousands of others from the Middle East and Africa have been pouring into Europe. Mr. Kerry said the United States would explore ways to increase the overall limit of refugees beyond 100,000, while carrying out background checks to ensure that their numbers are not infiltrated by terrorists.

With Wages Down 5% In 42 Years, Jamie Dimon Says Stop Complaining, At Least You Have An iPhone -- Another day, another data point proving what anyone with two functioning braincells already knows. That for most citizens, the U.S. economy is a neo-feudal Banana Republic oligarch hellhole. The facts are indisputable at this point, and the trend goes back decades when it comes to the American male. All the way back to 1973, in fact, just two years after the U.S. defaulted on gold and the economy started its grotesque transformation into a Wall Street controlled, financialized gulag. Just yesterday, I highlighted some very depressing data from the Census in the post: Census Data Proves It – There Was No Economic Recovery Unless You Were Already Rich.  Now we learn the following, from the Wall Street Journal: The typical man with a full-time job–the one at the statistical middle of the middle–earned  $50,383 last year, the Census Bureau reported this week. The typical man with a full-time job in 1973 earned $53,294, measured in 2014 dollars to adjust for inflation. You read that right: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs. This one fact, tucked in Table A-4 of the Census Bureau’s annual report on income, is both a symptom of an economy that isn’t delivering for many ordinary Americans and at least one reason for the dissatisfaction, anger, and distrust that voters are displaying in the 2016 presidential campaign. Now here’s a chart of the middle class death spiral:

Wage Inequality Across US Metropolitan Areas: Some US urban areas in their level of wage inequality, and in how the level of wage inequality has been changing over time. J. Chris Cunningham provides some data in "Measuring wage inequality within and across U.S. metropolitan areas, 2003–13," which appears in the September 2015 issue of the Monthly Labor Review (which is published by the US Bureau of Labor Statistics). For his measure of wage inequality, Cunningham focuses on what is sometimes called the 90/10 ratio, which is the ratio between the income of the person in the 90th percentile of the wage distribution to the person in the 10th percentile of the wage distribution. "The most recent data show that the 90th-percentile annual wage in the United States for all occupations combined was $88,330 in 2013, and the 10th-percentile wage was $18,190. In other words, the highest paid 10 percent of wage earners in the United States earned at least $88,330 per year, while the lowest paid 10 percent earned less than $18,190 per year. Therefore, by this measure, the “90–10” ratio in the United States was 4.86 in 2013, compared with 4.54 in 2003, an increase of about 7 percent over that 10-year period." How does this measure of inequality differ across metro areas? The most unequal metropolitan areas, where the 90/10 ratio is above 5.5, are shown by reddish shading in the map below. They are heavily concentrates from Washington, DC to Boston on the east coast, and then in the San Francisco/San Jose region on the west coast.

Why the Pope Likes to Talk About Inequality and the U.S. - Pope Francis makes a number of remarks in the U.S. this week, including at the White House and at Congress. In the past, when the pope met with President Barack Obama, the two discussed economic inequality. TIn the past, when the pope met with President Barack Obama, the two discussed economic inequality. The pope has been a repeated critic of American-style capitalism and has called on the church to renew its focus on the poor. Wednesday morning, he called on Americans to “support the efforts of the international community to protect the vulnerable in our world and to stimulate integral and inclusive models of development, so that our brothers and sisters everywhere may know the blessings of peace and prosperity.” But it’s not just elsewhere the issue resonates: Statistical measures of economic inequality are especially high here. The Organization for Economic Cooperation and Development, an association of 34 of the world’s richest economies, produces standardized statistics on several measures of inequality. Shown below is the Gini coefficient, perhaps the most famous measure of income inequality. A country where everyone has the same income would score a zero, while a country where one person has all the income would score a 1. A higher Gini indicates more inequality. By this measure, inequality in the U.S. is higher than anywhere but Turkey, Mexico and Chile.

Wealth inequality has widened along racial, ethnic lines since end of Great Recession | Pew Research ==The Great Recession, fueled by the crises in the housing and financial markets, was universally hard on the net worth of American families. But even as the economic recovery has begun to mend asset prices, not all households have benefited alike, and wealth inequality has widened along racial and ethnic lines.  The wealth of white households was 13 times the median wealth of black households in 2013, compared with eight times the wealth in 2010, according to a new Pew Research Center analysis of data from the Federal Reserve’s Survey of Consumer Finances. Likewise, the wealth of white households is now more than 10 times the wealth of Hispanic households, compared with nine times the wealth in 2010. The current gap between blacks and whites has reached its highest point since 1989, when whites had 17 times the wealth of black households. The current white-to-Hispanic wealth ratio has reached a level not seen since 2001. (Asians and other racial groups are not separately identified in the public-use versions of the Fed’s survey.)  Leaving aside race and ethnicity, the net worth of American families overall — the difference between the values of their assets and liabilities — held steady during the economic recovery. The typical household had a net worth of $81,400 in 2013, according to the Fed’s survey — almost the same as what it was in 2010, when the median net worth of U.S. households was $82,300 (values expressed in 2013 dollars).

Waiting for Collapse: USA Debt Bombs Bursting -  It’s been so easy the past 15 years for local governments in the USA, state governments, government authorities, corporations, banks, hedge funds and the US Federal government to simply say how many millions, billions or trillions of dollars they wanted, pay some high priced call accountants to fill out some paperwork with fine print and voila, millions, billions and trillions of dollars in borrowed money simply appeared. It has been that easy! Now, the government in the USA owes $46 trillion, US corporations owe $15 trillion, US individuals owe $13 trillion plus there are $315 trillion in outstanding Wall Street derivatives. (Few Americans know what a derivative is, but we as a nation are on the hook for up to $315 trillion in additional debt because of these derivatives.) These debt figures continue to escalate with each passing month. Detroit and Puerto Rico have only just begun the debt bombs bursting in the USA, the USA’s slow motion economic collapse. Who’s next? I’m going to tell you about some US local and state governments that have too much debt and are ripe for debt collapse along with a few US government authorities and corporations that borrowed too much money and are also ripe for debt collapse. Mr. Dudley of the New York Federal Reserve Bank recently warned of a wave of US municipal debt collapses coming soon. The problem is bigger than solely US municipalities as Mr. Dudley no doubt is aware.  1 out of 25 states are ready to collapse within months, as are 1 out of 20 US cities, 1 out of 15 US government authorities and 1 out of 7 US corporations. Within a few years, many US cities, counties, authorities, states and corporations will have debt collapsed, before the USA as a nation debt collapses. A tsunami of debt collapses is hitting the USA. The causes are government officials and corporate executives who borrowed too much easy money plus Wall Street bankers and hedge fund vultures who lent too much easy money.

Chicago mayor’s budget includes massive property hike - Mayor Rahm Emanuel pitched a massive property tax hike Tuesday as a ‘‘last resort’’ to correct Chicago’s financial footing, suggesting that the only alternative for the nation’s third-largest city would include severe cuts to police and fire services, recycling programs, pothole repair, and even rodent control. Emanuel, who needs approval from state lawmakers and the governor for at least part of his sweeping plan, outlined a $543 million property tax increase over four years, a $45 million tax to modernize schools, and new fees for garbage pickup, e-cigarettes, and ride-sharing services. The property tax revenue would go toward paying police and firefighter pensions, with other fees aimed at closing a budget gap and improving overall financial health. Continue reading below The Democrat, who won a second term after a tough campaign, said Chicago’s underfunded pensions are ‘‘a big dark cloud’’ standing in the way of further progress. Before delivering the news, he ticked off other cost-cutting reforms the city already had tried.‘‘Now it’s time to finish the job,’’ Emanuel said. ‘‘Raising city property taxes is a last resort. It is why we have never increased them in my last four years. But we must solve our pension challenge.” To soften the blow, he pitched an exemption for those whose homes are worth no more than $250,000.

Chicago okays $2.7 billion in bond sales amid credit rating warnings | Reuters: Chicago is poised to issue more than $2.7 billion of debt amid warnings that its core credit ratings could be downgraded depending on the outcome of the city's fiscal 2016 budget. Both Standard & Poor's and Fitch Ratings said this week they could downgrade Chicago's BBB-plus general obligation ratings if the city does not adequately address escalating pension payments. "If the final budget that is adopted by the end of the calendar year fails to cover the larger pension payments with an identifiable and reliable revenue source, it would likely strain the rating, potentially resulting in the rating being lowered by multiple notches," S&P said in a report. Fitch Ratings said Chicago risks a downgrade if it fails to put pension payments on a solid funding path or raids budget reserves. Moody's Investors Service, which dropped Chicago's rating to junk in May, withheld comment until a final budget is enacted. Mayor Rahm Emanuel proposed a budget on Tuesday that includes the biggest-ever city property tax hike to cover increased contributions to public safety worker pensions. To make the $543 million tax hike, phased in through 2018, palatable to city aldermen, Emanuel is seeking an expanded tax exemption in the Illinois Legislature to shield homes valued at $250,000 or less from the increase. His budget also counts on enactment of a bill that spreads out the city's police and fire pension payments.

Bernie Sanders Reveals Plan To Abolish Private Prisons In America -- With a call to “end the private prison racket in America,” a group of progressive lawmakers on Thursday introduced a bill that seeks to subvert the reigning “pro-incarceration agenda” by banning private prisons, reinstating the federal parole system, and eliminating quotas for the number of immigrants held in detention. “It is morally repugnant and a national tragedy that we have privatized prisons all over America,” said Democratic presidential candidate Sen. Bernie Sanders, one of the legislation’s lead sponsors along with Reps. Raúl M. Grijalva (D-Ariz.), Keith Ellison (D-Minn.), and Rep. Bobby L. Rush (D-Ill.). “We cannot fix our criminal justice system if corporations are allowed to profit from mass incarceration. Keeping human beings in jail for long periods of time must no longer be an acceptable business model in America.”With the ultimate goal of reducing the inmate population in federal, state, and local facilities, the Justice Is Not For Sale Act (pdf) would, according to a fact sheet:

— Bar federal, state, and local governments from contracting with private companies starting two years after the bill is passed;
— Reinstate the federal parole system to allow “individualized, risk-based determinations regarding each prisoner and restore fairness in the system;”
— Increase oversight to prevent companies from overcharging inmates and their families for services like banking and telephone calls;
— End the requirement that Immigration and Customs Enforcement maintain a level of 34,000 detention beds; and
— End immigrant family detention.

It Is Very Expensive To Be Poor - Cash checking fees, prepaid card fees, money transfer fees, cashier's check fees -- all together, the unbanked pay up to 10% of their income simply to use their own money. And when lower-income people face an emergency, they must turn to expensive payday loans, title loans, and tax refund loans. As Mehrsa Baradaran writes in her new book, How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy, "indeed, it is very expensive to be poor." How did this happen? And how might we begin to solve the problem?   Baradaran details how banks and government are and always have been inextricably tied, with the government helping banks and the banks supposedly helping the public in return. But this "social contract" has eroded. The banking sector has turned away from less profitable markets, leaving people with small sums of money to deposit without a trustworthy place to stash their cash, and people in need of small sums of money to borrow nowhere to turn but fringe lenders. Moreover, these people understandably often are uncomfortable dealing with large banks. And the result is that an astonishing large chunk of the American population is unbanked or underbanked. If the unbanked and underbanked had a trustworthy place to deposit their cash, some of the fees they pay simply to use their money would go away. This alone might allow families to stay financially afloat. Likewise, if they had the option to borrow small sums of money at reasonable rates, temporary financial emergencies may not set so many families up for a lifetime of financial failure. Which leads Baradaran to a proposal that I’m fond of (indeed, I’ve blogged about Baradaran’s thoughts on it before): postal banking.  Postal banking, even if the post office system only is used to accept small dollar deposits, may represent the best current option to at least provide lower-income people with gloves to protect themselves while they are juggling. And history tells us that it might strengthen our banking system to boot.  And if you want even more convincing, watch her discuss the book here.

Poor People Don't Have Less Self-Control. Poverty Forces Them to Think Short-Term -- When considering poverty, our national conversation tends to overlook systemic causes. Instead, we often blame the poor for their poverty. Commentators echo the claim that people are poor because they have bad self-control and therefore make nearsighted choices. But psychology research says the opposite might be the case: poverty makes it hard for people to care about the future and forces them to live in the present. As a researcher who studies goals and motivation, I wanted to know how self-control works and if science can help us get better at it. Poverty seemed like a good place to start, because greater self-control could be especially helpful there. In fact, the federal Administration for Children and Families is adding character-skills training to its programs in efforts to improve self-control among children. But as I started this work I was surprised by all the reasons that it’s so hard for people in poverty to have good self-control. In fact, I started to question whether the usual definition of self-control–choosing long-term over short-term outcomes–even makes sense for people who are short on time, money, or both. The very definition of self-control is choosing behaviors that favor long-term outcomes over short-term rewards, but poverty can force people to live in a permanent now. Worrying about tomorrow can be a luxury if you don’t know how you’ll survive today.  Research supports this idea by showing that poor people understandably have an increased focus on the present. People who are among the poorest one-fifth of Americans tend to spend their money on immediate needs such as food, utilities and housing, all of which have gotten more expensive. In this situation, the traditional definition of self-control doesn’t make a lot of sense. ...

City’s Poverty Rate Shows No Improvement - It's been a banner year for the economy across our land and here in our fair city. The U.S. economy added just shy of 3 million jobs in 2014, the best year since the Clinton boom. In New York, the unemployment rate fell a full two points from summer 2013 to summer 2014, and the city saw more than 90,000 new private-sector jobs over the same period. The rate of people living in poverty, however, didn't budge, according to figures released today by the Census Bureau. The national rate held at 14.8 percent. The rate in New York City stayed at 20.9 percent. Racial disparities barely budged: The white poverty rate was still 10 points behind the rate for blacks and half the level for Latinos. "Five years into the recovery from the Great Recession, it has become clear that it will take more than new jobs and lower unemployment to change the fact that one in five New Yorkers live below the poverty line. The city’s residents need bold public policies to reverse the trend," said the Community Service Society of New York in a statement. The antipoverty agency (a funder of City Limits) backed the governor's recent call for a $15 minimum wage and the push for broader family leave policies. "Today’s poverty numbers reveal why that is such a critical matter: the poverty rate for single mothers was 41.4 percent in 2014, almost double the overall poverty rate and up from 2013," CSS noted.

Oklahoma Pre-K teacher allegedly calls being left-handed ‘evil’ and ‘sinister’ --- A 4-year-old was allegedly forced by his teacher to write with his right hand, even though he’s left-handed. The child was sent home with a letter about how left-handedness is often associated with evil and the devil.  Zayde is only 4 years old.. It's his first year at Oakes Elementary in Okemah, but his mom kept him home Monday after a dispute with his teacher over being left-handed. Zayde, like most kids in Pre-K, is learning how to read and write. And like his mom, Alisha, Zayde is a lefty. “From picking things up to throwing things, to batting, to writing, to just coloring you’d do at home with him, he’s always, always used his left hand,” Alisha Sands said. That was until last week at homework time. Alisha asked him why he was writing with his right hand, not his left. “I just asked ‘Is there anything his teachers ever asked about his hands?’ And he raises this one and says this one’s bad,” Sands said. Alisha sent the teacher a note and got a strong response. It was an article calling left-handedness “unlucky,” “evil,” and “sinister.” It even says “for example, the devil is often portrayed as left-handed.”

Teen prosecuted as adult for having naked images – of himself -  Experts condemned the case as ludicrous. The boy was, however, punished by the courts, and had to agree to be subject to warrantless searches by law enforcement for a year, in addition to other penalties. The young man was also named in the media and suffered a suspension as quarterback of his high school football team while the case was being resolved. Cormega Copening, of Fayetteville, North Carolina, was prosecuted as an adult under federal child pornography felony laws, for sexually exploiting a minor. The minor was himself. “It’s dysfunctional to be charged with possession of your own image,” said Justin Patchin, a professor of criminal justice at the University of Wisconsin and co-founder of the research website  Copening was charged with four counts of making and possessing images of himself and one count of possessing a naked image of his 16-year-old girlfriend. His girlfriend, Brianna Denson, took a plea deal after being prosecuted on similar charges for having naked, suggestive pictures of herself on her cellphone. While the pictures were technically illegal, actual sex would not be – the age of consent for sexual intercourse in North Carolina is 16.

Why the healthy school lunch program is in trouble. Before/after photos of what students ate. - In the war to get America's children to eat healthier, things are not going well. Student E114 is a case in point. E114 -- the identification code she was assigned by researchers studying eating habits at her public elementary school somewhere in the Northeast -- left the lunch line one day carrying a tray full of what looked like a balanced meal: chicken nuggets, some sort of mushy starch, green beans and milk. Exactly 13 minutes later she was done. The chicken nuggets and the starch were gone. But the green beans? Still there in a neat pile and headed straight for the trash. In a study published Tuesday in Public Health Reports, researcher Sarah Amin reports that such waste has become heartbreakingly common since the Agriculture Department rolled out new requirements in the 2012 school year that mandated that children who were taking part in the federal lunch program choose either a fruit or vegetable with their meals. The USDA mandate -- championed by first lady Michelle Obama -- has been highly controversial. Some school officials had warned that picky eaters would just throw the additional food away, but proponents said they should give kids more credit and that they would make the right choice with some nudging. "The basic question we wanted to explore was: does requiring a child to select a fruit or vegetable actually correspond with consumption. The answer was clearly no,"

Federal Money to Michigan Schools is Dropping  - Although the media and union activists have repeatedly (and erroneously) reported that Michigan’s Legislature has cut state dollars for K-12 education, there has been one facet of school funding that has been reduced significantly — and with nary a mention from either the media or activists. Federal funding for schools in Michigan has been cut two years in a row, according to the Senate Fiscal Agency. And the federal support today falls far short of what it was in the final years of former Gov. Jennifer Granholm, who benefited from a spike in federal funding due to President Obama’s stimulus plan. The state of Michigan received $1.82 billion from the feds in 2013-14. That dropped to $1.81 billion in 2014-15 and then some more to $1.78 billion in 2015-16. But total funding for K-12 schools has not dropped in the last four years; state dollars have increased enough to make up for the loss of federal money. The state of Michigan received more than $2 billion a year from the feds for three years from 2008-09 to 2010-11, largely due to the American Recovery and Reinvestment Act of 2009. The subsequent reduction in federal funds has had significant impacts on the operating budgets of school districts across the state.

Taxes, education and violence: Is it time to leave Chicago for the suburbs? - Is it time to move out of the city of Chicago? Are you raising a family in the city of Chicago? Is it time to leave? Is it time to move to Evanston? Maybe you’re thinking Oak Park, Evergreen Park or Berwyn? Maybe Park Ridge? Have you had enough? Have you started your pros and cons list? Considering Mayor Rahm Emanuel’s push to raise property taxes $588 million, the cons are getting heavier. That adds $543.00 to the tax bill on a home valued at $250,000.00. Is your home worth $500,000.00? Add $1,086.00 to your property taxes. And that property tax doesn’t include new fees on garbage hauling, increases on building permit fees, taxes on ride sharing and taxi trips. Get out your wallet Chicago. Oh, and by the way, Chicago Public Schools is underfunded by HALF A BILLION dollars and will have to lay off more teachers and staff if the state of Illinois doesn’t fund that gap. That fact alone should give Chicago families pause: CPS is relying on the state of Illinois—which is almost three months overdue on passing a budget—to fund a $500 million gap. All to fund a lackluster school district (to put it kindly). Good luck with that. Is Oak Park starting to look better to you?

Education Gap Between Rich and Poor Is Growing Wider - For all the progress in improving educational outcomes among African-American children, the achievement gaps between more affluent and less privileged children is wider than ever, notes Sean Reardon of the Center for Education Policy Analysis at Stanford. Racial disparities are still a stain on American society, but they are no longer the main divider. Today the biggest threat to the American dream is class.  Education is today more critical than ever. College has become virtually a precondition for upward mobility. Men with only a high school diploma earn about a fifth less than they did 35 years ago. The gap between the earnings of students with a college degree and those without one is bigger than ever. And yet American higher education is increasingly the preserve of the elite. The sons and daughters of college-educated parents are more than twice as likely to go to college as the children of high school graduates and seven times as likely as those of high school dropouts. Only 5 percent of Americans ages 25 to 34 whose parents didn’t finish high school have a college degree. By comparison, the average across 20 rich countries in an analysis by the Organization for Economic Cooperation and Development is almost 20 percent

Kids Who Use Computers Heavily in School Have Lower Test Scores, Major Worldwide Study Finds - The Organization for Economic Cooperation and Development (OECD) looked at computer use among 15-year-olds across 31 nations and regions, and found that students who used computers more at school had both lower reading and lower math scores, as measured by PISA or Program for International Student Assessment. The study, published September 15, 2015, was actually conducted back in 2012, when the average student across the world, for example, was using the Internet once a week, doing software drills once a month, and emailing once a month. But the highest-performing students were using computers in the classroom less than that. “Those that use the Internet every day do the worst,” said Andreas Schleicher, OECD Director for Education and Skills, and author of “Students, Computers and Learning: Making the Connection,” the OECD’s first report to look at the digital skills of students around the world. The study controlled for income and race; between two similar students, the one who used computers more, generally scored worse.*  Home computer use, by contrast, wasn’t as harmful to academic achievement. Many students in many high performing nations reported spending between one to two hours a day on a computer outside of school. Across the 31 nations and regions, the average 15-year-old spent more than two hours a day on the computer. (Compare your country here). Back in the classroom, however, school systems with more computers tended to be improving less, the study found. Those with fewer computers were seeing larger educational gains, as measured by PISA test score changes between 2009 and 2012.

The Science Of Grading Teachers Gets High Marks -- Is evaluating teachers an exact science? Many people — including many teachers and their unions — believe current methods are often too subjective and open to abuse and misinterpretation. But new tools for measuring teacher effectiveness have become more sophisticated in recent years, and several large-scale studies in New York, Los Angeles and North Carolina have given those tools more credibility. A new study released on Monday furthers their legitimacy; and as the science of grading teachers advances, it could push for further adoption of these tools. This evolving science of teacher evaluation was recently thrust into public controversy when, in 2012, nine students sued the state of California, claiming its refusal to fire bad teachers was harming disadvantaged students. To claim that certain teachers were unambiguously bad, and that the state was responsible, the plaintiffs relied on relatively new measures of teacher effectiveness. In that case, Vergara v. California, several top-notch economists testified for each side as expert witnesses, arguing the merits of these complex statistics. In June 2014, the judge ruled that California’s teacher-tenure protections were unconstitutional, a victory for the plaintiffs. Gov. Jerry Brown is appealing, and a similar case has begun in New York state. But the economists on both sides of the Vergara case are still engaged in cordial debate. On one side is Raj Chetty of Harvard University, John Friedman of Brown University and Jonah Rockoff of Columbia University — hereafter referred to as “CFR” — who authored two influential papers published last year in the American Economic Review; Chetty testified for the plaintiffs in the case. On the other side is Jesse Rothstein, of the University of California at Berkeley, who published a critique of CFR’s methods and supported the state in the Vergara case.

The Greatest Threat to Campus Free Speech is Coming From Dianne Feinstein and her Military-Contractor Husband -- There is no shortage of American pundits who love to denounce “PC” speech codes which restrict and punish the expression of certain ideas on college campuses. What these self-styled campus-free-speech crusaders typically – and quite tellingly – fail to mention is that the most potent such campaigns are often devoted to outlawing or otherwise punishing criticisms of Israel. The firing by the University of Illinois of Professor Steven Salatia for his “uncivil” denunciations of the Israeli war on Gaza – a termination that was privately condoned by Illinois’ Democratic Senator Dick Durbin – is merely illustrative of this longgrowing trend. One of the most dangerous threats to campus free speech has been emerging at the highest levels of the University of California system, the sprawling collection of 10 campuses which includes UCLA and UC Berkeley. The University’s governing Board of Regents, with the support of University President Janet Napolitano and egged on by the State’s legislature, has been attempting to adopt new speech codes that – in the name of combating “anti-Semitism” – would formally ban various forms of Israel criticism and anti-Israel activism. Under the most stringent such regulations, students found to be in violation of these codes would face suspension or expulsion. One of the Regents most vocally advocating for the most stringent version of the speech code is Richard Blum, the multi-millionaire defense contractor who is married to Sen. Dianne Feinstein of California. At a Regents meeting last week, reported The Los Angeles Times, Blum expressly threatened that Feinstein would publicly denounce the University if it failed to adopt far more stringent standards than the ones it appeared to be considering, and specifically demanded they be binding and contain punishments for students found to be in violation.

Private Equity Asset-Stripping Strategy Meets Charter Schools to Produce Even Better Looting - Yves Smith - Eileen Appelbaum, co-author of the important book Private Equity at Work, flagged an important article in on how a secretive consulting firm that was previously investigated for corruption and a local law firm are engaged in complex, high cost bond deals to implement an asset stripping strategy that Appelbaum and her co-author Rosemary Batt have called out as a private equity enrichment scheme that impairs operating businesses. It’s bad enough to see this sort of thing take place in the dog-eat-dog world of Corporate America. It’s even worse to see it take place in charter schools, where the losers are students, by virtue of unjustifiably large portions of charter fees go to unproductive rental payments and financing fees, as opposed to education, and to taxpayers, who over time face inflated costs to fund profiteering masquerading as education.  If you live in the Philadelphia area, I hope you’ll read articles Charter schools building boom: Charters borrow nearly $500 million on taxpayers’ dime and raise holy hell about the String Theory charter schools, whose expansion plans need to be stopped in their tracks, as well as the roles of its highly paid fixers, the consulting firm Santilli & Thomson and the law firm Sand & Saidel. The nub of the looting strategy is the acquisition and leaseback of lavish buildings to house charter schools. Because charters are correctly perceived to be risky tenants, bond financings for these purchases are at junk bond rates, meaning high financing costs are heaped on top of what would already be unjustifiably high rental charges, by virtue of putting schools in educationally unproductive glamorous digs. And of course, in an environment where it’s business as usual to lard up bond deals that could be done on a plain-vanilla basis with far more complicated deals that lower interest rates a smidge in return for allowing consultants to charge hefty fees and the financiers to dump risks worth more than the cost savings on the hapless borrower through derivatives, the financial rent extraction can occur at an even greater scale on a high-cost financing.

Why Is College So Expensive if Professors Are Paid So Little? -- With student debt and tuitions both ballooning across the country, a college degree is in many ways more expensive—or overvalued—today than ever. So why is the cost of academic labor—the kind Layfield struggles to provide every day—treated as dirt cheap?  According to a study by the Campaign for the Future of Education (CFHE), overreliance on precariously employed faculty is devaluing higher education for teachers and students alike.  Faculty activists acknowledge the consumer concerns about higher education’s value today, including poor completion rates, but link these to a cycle of underinvestment on the teaching side: The “churning of the faculty workforce…low salaries and over-reliance on part-time appointments” erode the quality and attentiveness of instruction, with long-term impacts on public institutions that have historically served the most challenged populations—the poor, people of color and first-generation college students. And as disinvestment and declining academic outcomes deepen, the overall institutional integrity of higher- education systems erodes.  One example is the California State University system: Between 2004 and 2013, the number of faculty teaching full-time or the equivalent ticked up 8 percent, but the population of full-time-equivalent students simultaneously jumped by 20 percent. SEIU’s adjunct-organizing project estimates that as of 2013, “22 percent of part-time faculty live below the poverty line,” significantly higher than the overall poverty rate nationwide. But the hyperinflated price tag of college has funneled toward another aspect of the higher education system: driving funds into administrative offices—a pattern “reflected in increases in the numbers of administrative positions, increases in those salaries, and increases in the percentage of college budgets going to these functions.”

Hillary Clinton Wants Poor Students to ‘Work’ for Tuition—Though Her Dad Paid Hers -- Earlier this week, Hillary Clinton threw down the gauntlet on rival candidate Bernie Sanders's tuition-free college plan, implying that it was wrong to pay for a student's tuition unless they did some sort of side job in addition to their studies, which her plan requires: "I am not going to give free college to wealthy kids," she said. "I'm not going to give free college to kids who don't work some hours to try to put their own effort into their education. Clinton's view highlights the main difference between the two candidates: Sanders views college as a right that cannot be denied or tied to a student's income or ability to work a job alongside their studies. To Clinton, it's a commodity, that the government can make cheaper under certain circumstances. Her work requirement would mostly impact poor students, whose parents could not simply offer up the support needed to pay tuition.  Except that Clinton was not required to complete a work requirement to have her tuition and room and board paid for. Clinton's plan would make US higher education uncompetitive with our European and Asian rivals, many of which fully subsidize school for their students and do not have a work requirement that distracts students from their studies. It also is a much more conservative plan than that followed by much of the United States for most of the 20th century, where states fully subsidized public colleges. But Clinton's self-righteous tone about not giving free college to kids who “don't work some hours” seems to be somewhat undermined by the fact her father paid for her college.

Brace Yourself: Our Latest Look at Student Debt - College Tuition and Fees constitute one of the biggest threats to our economic outlook. Here is a chart of data from the relevant Consumer Price Index sub-component reaching back to 1978, the earliest year Uncle Sam provides a breakout for College Tuition and Fees. As an interesting sidebar, we've thrown in the increase in the cost of purchasing a new car as well as the more substantial increase for the broader category of medical care, both of which pale in comparison. During that decade of the '90s, when real out-of-pocket funding declined 25%, tuition and fees rose 92%, which sounds substantial ... until you compare it to the 1257% across the complete data series. For early boomers (a decade before the timeframe in the chart above) paying for college was sort of like buying a car. But in recent decades, it has become more like buying house, for which the strategy of a minimum down payment is commonplace for first-time buyers. The annual stair-step rise in college costs is probably the most dramatic visualization of inflation data we routinely produce. The only chart we have that rivals it is our quarterly snapshot of federal loans to students from the Fed Flow of Funds report. Sadly, the chart above doesn't illustrate all the student loans outstanding. We don't have a data source for private loans for college expenses, but the New York Fed estimates total student loan debt to be in the neighborhood of $1.2 Trillion. The best source economic analysis of the imact of tuition debt for the larger economy is the New York Fed, whose economists keep a close watch on this topic. See this slide set (PDF format) posted earlier this year: Student Loan Borrowing and Repayment Trends, 2015.

Retirement: 30 Million Workers Raided Their Retirement Plans: With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.Pulling money out of your 401(k) early is one of the worst moves you can make. For boomers, once you’re at or near retirement, you have little time to rebuild your savings. Millennials have decades to repair any such early distribution, but taking money out will still cost you future growth. So far only 11% in this generation say they are worse off financially than a year ago, and just 8% tapped retirement savings early, found.Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic—a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

Public Pension Fund Study: High Fee Strategies Like Private Equity Lose Billions Compared to Cheaper Alternatives - Yves Smith - The Maryland Policy Institute issued a report this summer on the impact of high fee strategies on public pension fund returns. The results are devastating as far as high-fee strategies, both alternative investments like hedge funds, infrastructure funds, and private equity are concerned, as well as active managers. Needless to say, followers of John Bogle would not be surprised, but a horde of pension consultants have apparently succeeded in persuading public pension fund staff and trustees that they can find someone with a hot hand who can deliver them sparking performance…if they are willing to ante up for it.* I’ve embedded the short, tartly worded paper at the end of the post and urge you to read it in full. It shows the high cost of investing in high fee strategies:  The study also shows that a passive index that mimics the investment allocation of the typical state pension fund outperformed the peer group median by 1.62 percent per year over a five-year period. On an initial $50 billion pension fund, this difference over five years is equivalent to $6.8 billion in foregone income.  The same team performed the same analysis two years ago and got similar results.  Note that this study analyzes only the fees reported in public pension funds’ Annual Comprehensive Financial Reports. That means that both the return and even more so, the fee data is less than complete. We’ll turn to the problems with the returns as far as private equity is concerned shortly and will discuss fees first.  On the fee side, as the fiascoes in recent CalPERS’ Investment Committee meetings have demonstrated, CalPERS, like most of its peers, does not include the profit share mislabeled as “carry fees” in its Comprehensive Annual Financial Report. And it does not report the full management fees in the private equity fees and costs section of its CAFR. It includes only the hard dollar payments, and omits the portion shifted onto portfolio companies via management fee offsets.

Census Bureau: Public pension fund assets fall 1% in quarter - The 100 largest U.S. public employee retirement systems had $3.369 trillion in assets as of June 30, a 1% decrease from three months earlier, said the U.S. Census Bureau’s latest quarterly survey of public pension funds. Earnings on investments totaled $32 billion in the second quarter, with government contributions of $26.3 billion and employee contributions of $11.8 billion. Benefit payments increased 9.5% to $68.3 billion from the previous quarter. Corporate stocks, which make up 35.9% of the pension funds’ total cash and security holdings, decreased 4% to $1.211 trillion from three months earlier; and corporate bonds decreased 2.5% to $420.1 billion. Federal government securities and international securities saw small increases in the second quarter, rising 1.4% to $260.8 billion and 0.9% to $618.3 billion, respectively. The 100 public pension systems represent 88.4% of all U.S. public pension fund assets.

No COLA for Social Security Recipients in 2016 - Or that is what is being thought by the Social Security Administration as we round out 2015 and head into 2016. And the culprit? “Persistently Low Inflation.” How could that be, didn’t the Fed just meet and there were concerns of looming inflation? Apparently not enough inflation to rock the CPI-W.  The SS COLAs are determined in a differently using the CPI-W which is the consumer price index for all urban wage earners and “clerical workers” as compared to the more commonly know CPI-U for all urban consumers. Ending the 12 months in August, the CPI-W has been trending downwards(?) at 3 tenths of 1%. It kind of makes sense as we are now talking about the upper 10 of the income brackets starting at ~$110,000. Going into the future, Social Security trustees suggest COLAs will average 2.7%. And banks, the Fed, and Congress continues to worry about inflation.  This will be the 3rd year after 2010 and 2011, a COLA has not be given to Social Security recipients.

Disabled face steep benefit cuts as federal program runs out of cash - The Social Security Disability Insurance (SSDI) program will run dry in 2016 and 14 million disabled Americans could face a benefit cut of nearly 20 percent, if lawmakers don’t make drastic changes. Despite continued talk about reforms, little has been done so far to head off the impending disaster. But last week the Social Security Administration (SSA) announced it will seek public input about how changes in technology and factors such as age, education, and work experience should affect eligibility decisions.  Six decades ago, lawmakers designed the SSDI program as a safety net for those who cannot work due to a disability, but the program has become rife with inaccuracies and fraud, Sen. James Lankford, R-Okla., wrote in a recent opinion piece.  “Because of technological advances, many more people today can perform remote, mobile, or technology-based jobs that could not be done decades ago,” he wrote. “Additionally, advances in treatments and therapies have improved the quality of life for Americans with medical conditions.”

Health care costs rise again, and the burden shifts again to workers — American workers saw their out-of-pocket medical costs jump again this year, as the average deductible for an employer-provided health plan surged nearly 9 percent in 2015 to more than $1,000, a major new survey of employers shows. The annual increase, though lower than in previous years, far outpaced wage growth and overall inflation and marked the continuation of a trend that in just a few years has dramatically shifted health care costs to workers. Over the past decade, the average deductible that workers must pay for medical care before their insurance kicks in has more than tripled from $303 in 2006 to $1,077 today, according to the report from the nonprofit Kaiser Family Foundation and the Health Research &Educational Trust. That is seven times faster than wages have risen in the same period. “It’s a quiet revolution,” said foundation president Drew Altman. “When deductibles are rising seven times faster than wages … it means that people can’t pay their rent. … They can’t buy their gas. They can’t eat.” By comparison, workers’ wages increased 1.9 percent between April 2014 and April 2015, according to federal data analyzed by the report’s authors. Consumer prices declined 0.2 percent. Raising deductibles and co-pays has traditionally been a way for employers to keep premiums in check. And the new report shows that premium growth remained modest in 2015. An average employer-provided health plan cost workers $1,071 in 2015. That is down nearly 1 percent from 2014, marking the first time that the survey has documented an absolute decline in workers’ share of premiums.

Health Insurance Deductibles Outpacing Wage Increases, Study Finds - It may not seem like much — just an extra hundred dollars or so a year.But the steady upward creep in health insurance deductibles has easily outpaced the average increase in a worker’s wages over the last five years, according to a new analysis released on Tuesday by the Kaiser Family Foundation.Kaiser, a health policy research group that conducts a yearly survey of employer health benefits, calculates that deductibles have risen more than six times faster than workers’ earnings since 2010.“It’s a very powerful trend,” said Drew Altman, Kaiser’s chief executive.Four of five workers who receive their insurance through an employer now pay a deductible, in which they must pay some of their medical bills before their coverage starts, according to Kaiser.  Those workers’ deductibles have climbed from a yearly average of $900 in 2010 for an individual plan to above $1,300 this year, while employees working for small businesses have an even higher average of $1,800 a year. One in five workers has a deductible of $2,000 or more. The nation’s largest health insurers are engaged in a round of consolidation, and consumer advocates worry that the mergers will result in even higher costs for coverage. A Senate hearing on Tuesday scrutinized the merger plans. While the Kaiser survey examines plans provided by employers, Mr. Altman said many of the insurance policies being sold under the federal health care law through the state exchanges also rely on high deductibles to keep premiums low. Some employers also increased their deductibles to reduce the higher costs associated with the law

A Growing Gap in Life Expectancy by Income - Rising inequality of incomes in the US is being accompanied by a rising gap in life expectancy by income category. Ronald Lee and Peter R. Orzag chaired a recent committee on behalf of the National Academies of Sciences, Engineering, and Medicine that explains these patterns in "The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses." The analysis has broader implications for how one thinks about inequality,  and also specific implications for what this means about old-age support programs like Social Security and Medicare. Here's a comparison for men; green bars show values for those born in 1930; orange bars for those born in 1960. Notice that life expectancy rises with income level: that is, the green bars rise from left to right, and so do the orange bars. However, the gap between the green and orange bars is rising for higher levels of income. More specifically, tThe first bar on the left show that for those men who were born in 1930 and were in the lowest quintile of income for the decade leading up to when they turned 50, their life expectancy at age 50 was 26.6 years. For those born in 1960, the parallel calculation was a life expectancy at age 50 of 26.1 years--which given the uncertainties involved in these calculations can be viewed as basically equal values. However, for those in the top quintile of income, life expectancy at age 50 was 31.7 years for those born in 1930 and 38.8 years for those born in 1960.

The stunning — and expanding — gap in life expectancy between the rich and the poor -  Wealthy and middle-class baby boomers can expect to live substantially longer than their parents' generation. Meanwhile, life expectancy for the poor hasn't increased and may even be declining, according to a report published Thursday by several leading economists. Call it a growing inequality of death — and it means that the poor ultimately may collect less in money from some of the government's safety net programs than the rich. As of 2010, the average, upper-income 50-year-old man was expected to live to 89. But the same man, if he's lower income, would live to just 76, according to the report. The corresponding life expectancies among women are 92 and 78 years of age. The authors considered the effect of these shifts on the federal budget and the full range of entitlements. As their years lengthen, the rich will benefit more from Social Security, a program intended to help protect the poor from poverty in old age. Economists and public health experts have long known that while the U.S. life expectancy has nearly doubled over the past century, more affluent Americans have been dying later. The new report, ordered by Congress and published by the National Academies of Sciences, Engineering and Medicine, attempts to project those trends into the future. How long can the boomers alive today expect to draw checks from Social Security? Peter Orszag, one of the chairmen of the committee that wrote the report and a former senior official in the Obama administration, said he was surprised by the differences among this group by income. "The bottom of the socioeconomic distribution isn't experiencing any material increase in life expectancy," he told Wonkblog.

A dangerous myth about who eats fast food is completely false - There's a popular narrative about poor families and fast food: They eat more of it than anybody else. It’s dangled as evidence for the high rate of obesity among poorer Americans --  and talked about even by some of the country’s foremost voices on food. "[J]unk food is cheaper when measured by the calorie, and that this makes fast food essential for the poor because they need cheap calories," wrote Mark Bittman for The New York Times in 2011.  But there’s a problem with saying that poor people like fast food better than others. It’s not true. New data, released by the Centers for Disease Control, show that America's love for fast food is surprisingly income blind. Well-off kids, poor kids, and all those in between tend to get about the same percentage of their calories from fast food, according to a survey of more than 5,000 people. More precisely, though, it's the poorest kids that tend to get the smallest share of their daily energy intake from Big Macs, Whoppers, Chicken McNuggets, and french fries.  As shown in the chart above, children born to families living just above the poverty line and below get roughly 11.5 percent of their calories from fast food. For everyone else, the portion is closer to 13 percent. Surprisingly, the better-off children—those between the ages of 2 and 11 years—lead the pack. The average percentage of calories coming from fast food for kids with working and middle class parents is 9.1 percent. But poor kids only get 8 percent of their calories food. For teenagers, it's those born to the poorest families, once again, who rely on fast food the least.

Exclusive: Americans overpaying hugely for cancer drugs - study | Reuters: Americans are paying way over the odds for some modern cancer drugs, with pharmaceutical companies charging up to 600 times what the medicines cost to make, according to an independent academic study. The United States also pays more than double the price charged in Europe for these drugs - so-called tyrosine kinase inhibitors (TKIs), a potent class of cancer pills with fewer side effects than chemotherapy. The analysis by pharmacologist Andrew Hill of Britain's University of Liverpool, who will present his findings at the Sept. 25-29 European Cancer Congress in Vienna, is likely to fuel a growing storm over U.S. drug costs. Democratic presidential candidate Hillary Clinton's declared aim to lower the cost of prescription drugs by ending what her campaign describes as "excessive profiteering" triggered a sell-off in drug stocks this week. Hill told Reuters he had shared his work on the cost of producing TKIs with the World Health Organization (WHO), which is keen to add such treatments to its list of medicines deemed essential for a basic healthcare system. WHO officials have used the findings in determining that the drugs can be made at low cost, he said.

A Huge Overnight Increase in a Drug’s Price Raises Protests -- Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.  The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars. “What is it that they are doing differently that has led to this dramatic increase?” said Dr. Judith Aberg, the chief of the division of infectious diseases at the Icahn School of Medicine at Mount Sinai. She said the price increase could force hospitals to use “alternative therapies that may not have the same efficacy.” Turing’s price increase is not an isolated example. While most of the attention on pharmaceutical prices has been on new drugs for diseases like cancer, hepatitis C and high cholesterol, there is also growing concern about huge price increases on older drugs, some of them generic, that have long been mainstays of treatment.Although some price increases have been caused by shortages, others have resulted from a business strategy of buying old neglected drugs and turning them into high-priced “specialty drugs.”

Company hikes price 5,000% for drug that fights complication of AIDS, cancer: A drug treating a common parasite that attacks people with weakened immune systems increased in cost 5,000% to $750 per pill. At a time of heightened attention to the rising cost of prescription drugs, doctors who treat patients with AIDS and cancer are denouncing the new cost to treat a condition that can be life-threatening. Turing Pharmaceuticals of New York raised the price of Daraprim from $13.50 per pill to $750 per pill last month, shortly after purchasing the rights to the drug from Impax Laboratories. Turing has exclusive rights to market Daraprim (pyrimethamine), on the market since 1953. Daraprim fights toxoplasmosis, the second most common food-borne disease, which can easily infect people whose immune systems have been weakened by AIDS, chemotherapy or even pregnancy, according to the Centers for Disease Control. “This is a tremendous increase," said Judith Aberg, a spokesperson for the HIV Medicine Association. Even patients with insurance could have trouble affording the medication, she said. That's because insurance companies often put high-price drugs in the "specialty" category, requiring patients to pay hundreds or even thousands of dollars a year. Patients whose insurance plans require them to pay 20% of the cost — a common practice — would shell out $150 a pill. About 60 million people in the United States may carry the Toxoplasma parasite, according to the CDC. It comes from eating under-cooked meat, cooking with contaminated knives and boards, drinking unclean water and contact with infected cat feces.

Hedge Fund Manager Buys Rights To Critical Drug, Hikes Price By 5000% - This is enough to make anyone sick. Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection. The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars. The hedge fund manager responsible for the price increase is named Martin Shkreli.  Shkreli has a reputation as some type of wunderkind, having started his own hedge fund company while still in his 20's. Shkreli has already drawn attention for urging the FDA not to approve drugs made by companies whose stocks Shkreli was shorting. In July 20012, Citizens for Responsibility and Ethics in Washington called for an investigation of Shkreli and others whom it charged were manipulating the prices of drug company stocks through blog posts intended to spread negative and purportedly misleading information about certain drugs. According to CREW, Mr. Shkreli has acknowledged he has no medical expertise whatsoever.  His company stands to increase sales in the magnitude of tens or even hundreds of millions of dollars from the price increase, according to the article. The Infectious Diseases Society of America and the HIV Medicine Association sent a joint letter to Turing earlier this month calling the price increase on Daraprim “unjustifiable for the medically vulnerable patient population” and “unsustainable for the health care system.” Daraprim, known generically as pyrimethamine, is used mainly to treat toxoplasmosis, a parasite infection that can cause serious or even life-threatening problems for babies born to women who become infected during pregnancy, and also for those with compromised immune systems, like AIDS patients and certain cancer patients. Shkreli may also be able to prevent generic duplication of the drug by controlling its distribution, a tactic which prevents other companies from getting enough of the drug to test.

Clinton Takes Aim At Soaring Drug Costs, Proposes $250 Monthly Cap -- On Monday, the soaring cost of prescription drugs was thrust back into the limelight when hedge fund manager turned-serial pharma startup mogul Martin Shkreli made the rounds to explain why his company, Turing Pharmaceuticals, decided to raise the cost of a 62-year-old treatment for life-threatening parasitic infections from $13.50 to $750 a pill virtually overnight.   Shkreli’s answer: “This is still one of the smallest pharmaceutical products in the world. It really doesn’t make sense to get any criticism for this.” Unfortunately for Shkreli - who also said the price increase is just Turing “trying to stay in business” - some people aren’t buying the idea that unbridled free market principles should pertain wholesale in life or death situations.  For her part, Hillary Clinton says she would solve the problem in the (increasingly unlikely) event that she becomes President. Here’s more from The Washington Post: Democratic presidential candidate Hillary Rodham Clinton is proposing a $250 monthly cap on the amount patients with chronic and serious medical problems would have to pay out of pocket for prescription drugs as a way to reduce the effect of skyrocketing drug prices on consumers. The cap is part of Clinton’s program to alter and expand the Affordable Care Act, the signature domestic policy achievement of President Obama, if she is elected to succeed him.

Generic Drug Regulation and Pharmaceutical Price-Jacking -- The drug Daraprim was increased in price from $13.60 to $750 creating social outrage.   The drug is a generic and not under patent so this isn’t a case of IP protectionism. The story as I read it is that Martin Shkreli, the controversial CEO of Turing pharmaceuticals, noticed that there was only one producer of Daraprim in the United States and, knowing that it’s costly to obtain even an abbreviated FDA approval to sell a generic drug, saw that he could greatly increase the price. It’s easy to see that this issue is almost entirely about the difficulty of obtaining generic drug approval in the United States because there are many suppliers in India and prices are incredibly cheap. The prices in this list are in India rupees. 7 rupees is about 10 cents so the list is telling us that a single pill costs about 5 cents in India compared to $750 in the United States!  It is true that there are real issues with the quality of Indian generics. But Pyrimethamine is also widely available in Europe. I’ve long argued for reciprocity, if a drug is approved in Europe it ought to be approved here. In this case, the logic is absurdly strong. The drug is already approved here! All that we would be doing is allowing import of any generic approved as such in Europe to be sold in the United States. Note that this in not a case of reimportation of a patented pharmaceutical for which there are real questions about the effect on innovation. Allowing importation of any generic approved for sale in Europe would also solve the issue of so-called closed distribution. There is no reason why the United States cannot have as vigorous a market in generic pharmaceuticals as does India.

The TPP, big Pharma, and drug costs to poorer nations - Jared Bernstein - My CBPP colleague Bryann DaSilva makes a smart connection I missed between some of my recent scribblings. In the TPP debate I had with USTR Mike Froman in the journal Democracy, I point out concerns regarding extended patents on pharmaceuticals, due in no small part to the agenda of those corporate interests at the negotiating table. As I stressed, I suspect Froman is closer to me on these concerns–which loom particularly large, btw, for the less advanced economies in the deal. Such protectionism jacks up prices and that surely hurts them even more than us. But here the key political economy point:  “There’s very little distance between what Pharma wants and what the U.S. is demanding.” That may be changing; I suspect that Froman personally is more sympathetic to costs in developing countries than he is to the Pharma lobby. But we do not know, and we should not assume, that the USTR has more clout than Big Pharma in a deal that is likely to require Republican support.” Bryann noted the connection between this problem–a critical good that I argue has important public good characteristics–and the solutions both Dean Baker and I discuss in this Room for Debate forum in today’s NYT. I argue that while incremental steps, like requiring a certain amount of profits are reinvested in research, might help realign incentives to boost social benefits over individual profits, the fact is that health care is in many ways a public good. And that probably means we can’t solve this problem with market solutions (more competition) or quasi market solutions, like privately held patents of the type Pharma appears to want to enshrine in the TPP. I suspect that at the end of the day it will take more rigorous cost controls and moving drug patents into the public domain. I offer some ideas on how to do that without hurting innovation in my NYT piece. And yes, that appears to be the opposite direction of where the TPP is headed on this issue.

Cancer vaccines under investigation by EU - At the request of Denmark, which has seen an increasing number of young girls suffer side effects, the European Medicines Agency said on Monday that it will take a closer look at the HPV vaccine.  The European Medicines Agency (EMA), the EU's drugs authority, announced on Monday that it would review the safety of the human papilloma virus (HPV) vaccine.  The decision by the EMA to "further clarify aspects of [the vaccine's] safety profile" comes in the wake of pressure from the Danish Health and Medicines Authority (Sundhedsstyrelsen), which has been following reports of young Danish girls negatively affected by the vaccine. Health officials in Japan have also raised questions about the vaccine's safety. The EMA states that more than 72 million women have been vaccinated against the HPV virus to protect them from cervical cancer since 2006.  "Cervical cancer is the fourth most common cause of cancer death in women worldwide, with tens of thousands of deaths in Europe each year despite the existence of screening programmes to identify the cancer early. The review does not question that the benefits of HPV vaccines outweigh their risks," the EMA press release stated. The review is been carrying out by EMA's own side effects committee, PRAC, which according to Swedish newspaper Svenska Dagbladet has had internal disagreements over how to handle mounting suspected evidence of medical risks connected to the vaccines.

Hospital Warning Thousands To Get Children Tested For HIV, Hepatitis After Surgical Equipment Not Sterilized: – Seattle Children’s Hospital is offering free blood tests to 12,000 families after discovering surgical equipment at its Bellevue Clinic and Surgery Center had not been properly cleaned and sterilized, reports KIRO-TV.“As a result, some patients who had a surgical procedure at Bellevue Clinic may need to be tested for hepatitis B and C, as well as HIV,” said a statement from the hospital. “The risk to patients is extremely low; however, we don’t know the exact risk to each patient.”The hospital says required procedures for sterilizing surgical instruments were not always followed.The notification went out to the families of all 12,000 patients treated at the Bellvue surgery center through the entire five-year history of the facility.“What you’re hearing this is an extreme level of caution,” said Seattle Children’s CEO Jeff Sperring at a news conference. “We’re not aware of any patients (infected) but we’re not going to take chances.”Yvonne McPherson told KIRO-TV she’s anxious to get her son Hayden tested.“It’s very scary. I mean, these are our kids,” she said. “This is not something to mess around with.”

More leukemias in children living close to heavily used roads -- Inserm researchers from CRESS (Epidemiology and Biostatistics Sorbonne Paris Cité Research Centre, Inserm - Paris Descartes University - University of Paris 13 - Paris Diderot University - INRA) studied the risk of acute leukaemia in children living close to heavily used roads. To address this question, the research team considered all 2,760 cases of leukaemia diagnosed in children under 15 years of age in metropolitan France over the 2002-2007 period. The results show that the incidence of new cases of myeloblastic leukaemia (418 of 2,760 cases of leukaemia) was 30% higher in children in the population whose residence was located within 150 m of heavily used roads, and had a combined length of over 260 m within this radius. In contrast, this association was not observed for the more common, lymphoblastic type of leukaemia (2,275 cases). The researchers particularly studied the case of the Île-de-France region of Paris with the help of data modelled by Airparif, which is responsible for the monitoring of air quality in Ile-de-France. These results are published in the American Journal of Epidemiology.

From Peanut Butter and Jelly to Peanut Butter and Jail Food -- Under section 402(a)(4) of the Federal Food, Drug, and Cosmetic Act (FDCA), a food product is deemed “adulterated” if the food was “prepared, packed, or held under insanitary conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health.” A food product is also considered “adulterated” if it bears or contains any poisonous or deleterious substance, which may render it injurious to health. Chapter III of the Act addresses prohibited acts, subjecting violators to both civil and criminal liability. Felony violations include adulterating or misbranding a food, drug, or device, and putting an adulterated or misbranded food, drug, or device into interstate commerce.  Any person who commits a prohibited act violates the FDCA.  A person committing a prohibited act “with the intent to defraud or mislead” is guilty of a felony punishable by years in jail and millions in fines or both. The key here is an intentional act.  A misdemeanor conviction under the FDCA, unlike a felony conviction, does not require proof of fraudulent intent, or even of knowing or willful conduct.  Rather, a person may be convicted if he or she held a position of responsibility or authority in a firm such that the person could have prevented the violation.  Convictions under the misdemeanor provisions are punishable by not more than one year or fined not more than $250,000, or both.  Here are five cases involving foodborne illness outbreaks where prosecutors have brought criminal charges:

Taiwan Faces Worst Dengue Outbreak In A Decade - Taiwan is facing one of its worst dengue outbreaks in a decade this summer. At of the time of this report, there have been more than 10,000 cases and 30 deaths reported in Taiwan according to Taiwan’s Center for Disease Control (CDC), with more than 98 percent of the cases coming from Tainan.  Dengue outbreaks are not foreign for the southern part of Taiwan. Just last year, after an underground gas pipe explosion in Kaohsiung and a series of heavy rain, there was an outbreak of dengue fever in the region. According to a letter published in Emerging Microbes and Infection, the hot, humid summer combined with rain water gathered at the site of the pipe damage contributed to the dengue spike.  Taiwan has faced periodic outbreaks of dengue, particularly in the southern parts of the island. This year’s outbreak, which started in May and has continued to increase steadily as the summer progressed, is particularly serious. Dengue fever is spread through Aedes aegypti mosquitoes. To date, there is no treatment or vaccination for dengue fever (although there have been new developments in our understanding of the mechanism to which dengue virus affects the immune system). Symptoms of the disease include fever, rash, swollen lymph nodes, exhaustion and severe joint and muscle pains. In severe cases, like dengue hemorrhagic fever or dengue shock syndrome, there might even be widespread internal bleeding and may be fatal.

Northern Ireland Bans GMO Crops -- The politics of genetically engineered foods (GMOs) are being redrawn in Europe, where a near complete disapproval persisted until earlier this year. Now, it’s up to individual nations to say whether or not they want GMO crops grown on their soil.  So far, it hasn’t been the leading farming countries that are saying no to the controversial technology. On Monday, Northern Ireland became the second European Union member state to pass a national GMO ban. In August, Scotland announced its own such measure, the first country to do so following the change in EU rules that allows individual members to ban crops from being grown within their sovereign borders even if they’re approved for production within the wider union. All told, the UK produces less than 8 percent of the EU’s agriculture output, compared to nearly 18 percent from France, an industry leader in the 28 nation bloc.  Ministers in both Scotland and Northern Ireland couched the bans in terms of marketing.  “We are perceived internationally to have a clean and green image,” Mark H. Durkan, Northern Ireland’s environment minister, told the BBC. “I am concerned that the growing of GM crops, which I acknowledge is controversial, could potentially damage that image.” Activists have argued that the island of Ireland—including the Republic of Ireland—is too small to safely grow GMO crops without them cross-pollinating with non-GMO ones—a point that Durkan echoed in his interview with the BBC.

Syrian war spurs first withdrawal from doomsday Arctic seed vault | Reuters: Syria's civil war has prompted the first withdrawal of seeds from a "doomsday" vault built in an Arctic mountainside to safeguard global food supplies, officials said on Monday. The seeds, including samples of wheat, barley and grasses suited to dry regions, have been requested by researchers elsewhere in the Middle East to replace seeds in a gene bank near the Syrian city of Aleppo that has been damaged by the war. "Protecting the world's biodiversity in this manner is precisely the purpose of the Svalbard Global Seed Vault," said Brian Lainoff, a spokesman for the Crop Trust, which runs the underground storage on a Norwegian island 1,300 km (800 miles) from the North Pole. The vault, which opened on the Svalbard archipelago in 2008, is designed to protect crop seeds - such as beans, rice and wheat - against the worst cataclysms of nuclear war or disease. It has more than 860,000 samples, from almost all nations. Even if the power were to fail, the vault would stay frozen and sealed for at least 200 years. The Aleppo seed bank has kept partly functioning, including a cold storage, despite the conflict. But it was no longer able to maintain its role as a hub to grow seeds and distribute them to other nations, mainly in the Middle East.

Tourists Thwart Turtles from Nesting in Costa Rica — The day-trippers swarmed onto the beach to watch one of nature’s most extraordinary sights, hundreds of thousands of olive ridley sea turtles crawling out of the ocean to lay their eggs in the sand. The turtles did not want the company. Scared off by the thousands of tourists massed along Ostional Beach on Costa Rica’s Pacific Coast, snapping selfies and perching their children on the turtles’ backs, the ancient reptiles simply turned around and retreated into the sea. “It was a mess,” said Yamileth Baltodano, a tour guide who was at the scene when the turtles were scared away two weeks ago. What happened during the first weekend in September was a one-time event, when a confluence of factors allowed the utterly unexpected to take place. But it was a cautionary tale for the conservationists charged with protecting the turtles, which are classified as vulnerable, not to mention a social media sensation. Now Costa Rican officials are scrambling to make sure it does not happen again. The olive ridley nesting season, from August through October, coincides with Costa Rica’s rainy season, which ordinarily provides a natural barrier that protects the turtles. During that time, the beach is all but cut off by the flood tide of the swollen Nosara River, which blocks access on bridges. Even in the dry season, the beach is accessible only by a four-wheel-drive vehicle driven by a local guide. But this year, low rainfall caused by El Niño left the river all but dry, making passage to the beach easy.

Despite All-Clear From EPA, New Studies Show Lingering Contamination After Animas River Spill -- On September 2, the EPA released data showing that water and sediment samples taken from the San Juan River — whose largest tributary, the Animas River, was tainted with three million gallons of toxic wastewater from the Gold King Mine spill earlier this summer — had returned to pre-spill levels. On September 16, during a hearing before the U.S. Senate Committee on Indian Affairs, EPA administrator Gina McCarthy reiterated those findings. But a spate of recently released studies paint a less positive picture of the river’s return to health. According to Al Jazeera, a new report conducted by the nonprofit Water Defense shows elevated levels of nearly a dozen metals and chemicals still present in the San Juan River. Another study recently conducted along a 60-mile stretch of the Animas River itself by researches at Texas Tech University and New Mexico State University also found elevated levels of heavy metals in the river sediment. “I would say at this point the water is unsafe to use until we have more testing completed,” Scott Smith, the chief scientist with Water Defense, told Al Jazeera. “We are dealing with known chemicals that are toxic and cancer causing, and we don’t know what’s happening to those chemicals and what’s going on in the crops.”  Water Defense’s tests showed levels of chromium at 4.7 parts per million in sediments affected by the spill, compared to levels of 3.7 parts per million in baseline sediments. According to EPA standards, levels at or below 0.01 parts per million are considered safe for drinking. The Water Defense tests also found concentrations of lead in the San Juan River had increased from 7.8 parts per million to 9.9 parts per million.

Investors Are Mining for Water, the Next Hot Commodity - Mr. Slater admits, his company, Cadiz, has never earned a dime from water. And he freely concedes it will take at least another $200 million to dig dozens of wells, filter the water and then move it 43 miles across the desert through a new pipeline before thirsty Southern Californians can drink a drop.But tapping cash, as opposed to actual water, has never been a problem for Cadiz. “I think there’s plenty of money out there,” Mr. Slater said.Real profits may be nearly as scarce as snow in the High Sierra, but Wall Street, as it is wont to do, smells profit as California endures its worst drought in decades.  “Investing in the water industry is one of the great opportunities for the coming decades,” said Matthew J. Diserio of Water Asset Management, a New York firm that is a major backer of Cadiz. “Water is the scarce resource that will define the 21st century, much like plentiful oil defined the last century.”“Cadiz has promoted the dream and for years Wall Street has pumped optimistic paper water for Cadiz,”  Other water ventures have also promised more than they have been able to deliver, at least so far. Obstacles abound in the forms of skeptical regulators, wary customers and implacably opposed environmental groups.But some projects are finally nearing fruition. Near San Diego, the privately held Poseidon Water is getting ready to flip the switch on a new desalination plant that it built after 15 years of battling lawsuits filed by environmental groups and waiting for go-aheads from cautious regulators. The drought, however, hasn’t softened local opposition to private players like Cadiz or Poseidon entering California’s water market. A main reason is money.

California Lake Mysteriously Runs Dry Overnight, Thousands Of Fish Dead -- Perhaps it is because the world has grown habituated to its unique set of "liquidity" problems, but California's record, and ongoing, drought has not been receiving much media coverage in recent weeks. Perhaps it should be, because according to a report by CBS Sacramento, the mystery that recently surrounded the water levels at Lake Mead and Lake Powell, has spilled over to a water reservoir in Northern California. As CBS reports, the Mountain Meadows reservoir also known as Walker Lake, a popular fishing hole just west of Susanville, ran dry literally overnight, killing thousands of fish and leaving residents looking for answers. The unprecedented emptying of the lake has stunned locals: residents say people were fishing on the lake last Saturday, but it drained like a bathtub overnight.  "Everywhere that you see that’s wet, there was water," said resident Eddie Bauer. Bauer has lived near this lake his entire life. This is the first time he’s ever seen it run dry. He and other residents want answers. Pacific Gas & Electric Company owns the rights to the water and uses it for hydroelectric power. What little water remained on the morning of Sept. 13 is gone. Along with leaving large-mouth bass and other non-native fish belly up, a swift drawdown dumped silt and rotting fish into Hamilton Branch, a stream that connects Mountain Meadows reservoir with Lake Almanor. “Something went haywire,” said Aaron Seandel, chairman of a water quality committee that has been monitoring the water levels in Lake Almanor for 25 years.

What California can learn from Saudi Arabia’s water mystery - A decade ago, reports began emerging of a strange occurrence in the Saudi Arabian desert. Ancient desert springs were drying up. The springs fed the lush oases depicted in the Bible and Quran, and as the water disappeared, these verdant gardens of life were returning to sand.  “I remember flowing springs when I was a boy in the Eastern Province. Now all of these have dried up,” the head of the country’s Ministry of Water told The New York Times in 2003. The springs had bubbled up for thousands of years from a massive aquifer system that lay underneath Saudi Arabia. Hydrologists calculated it was one of the world’s largest underground systems, holding as much groundwater as Lake Erie. So farmers were puzzled as their wells dried, forcing them to drill ever deeper. They soon were drilling a mile down to continue tapping the water reserves that had transformed barren desert into rich irrigated fields, making Saudi Arabia the world’s sixth-largest exporter of wheat. But the bounty didn’t last. Today, Saudi Arabia’s agriculture is collapsing. It’s almost out of water. And the underlying cause doesn’t bode well for farmers in places like California’s Central Valley, where desert lands also are irrigated with groundwater that is increasingly in short supply. Here’s a look at what happened, and what the United States, China and the rest of the world can learn from Saudi Arabia.

Key differences between the 1997 and 2015 El Niños, and their impact on our hurricane season -- The 1997 and 2015 El Niño events are very similar in many ways — mainly in their stark intensity. But over the North Atlantic ocean, interesting differences emerge between the 1997 record-strong El Niño and its potential usurper. Just past the halfway point, this Atlantic hurricane season has been relatively quiet. Hurricane activity is just 40 percent of normal for this time of year.  Research has shown that the location of the warmest Pacific ocean waters can possibly lead to different effects on weather across the globe. During the 1997 El Niño, the warmest ocean temperatures were located in the far eastern Pacific and peaked in mid-September. During this El Niño, on the other hand, the warmest waters have been concentrated west of that, in the central tropical Pacific, with warmer waters than 1997 in the central tropical Pacific. Another interesting difference is the emergence of very warm water in the northeast Pacific and around Hawaii — a feature often referred to as “the blob.”Perhaps the most interesting difference between the 1997 and 2015 El Niños has been the pattern of wind shear across the Atlantic Ocean. Wind shear, which is the change in wind direction and speed as you go up in the atmosphere, is harmful to blossoming hurricanes. El Niño typically brings strong upper-level westerly winds across the Caribbean, extending into the tropical Atlantic, which rips apart storms as they travel from east to west in the deep tropics.The 2015 season has been characterized by the strongest levels of vertical wind shear on record for the Caribbean, which is a primary reason why we’ve seen no tropical cyclones develop in the Caribbean this year. However, farther east in the tropical Atlantic, vertical wind shear is actually below-normal, which is another reason why tropical cyclones have been able to form there.

Climate change set to fuel more "monster" El Niños, scientists warn -- The much-anticipated El Niño gaining strength in the Pacific is shaping up to be one of the biggest on record, scientists say. With a few months still to go before it reaches peak strength, many are speculating it could rival the record-breaking El Niño in 1997/8.Today, a new review paper in Nature Climate Change suggests we can expect more of the same in future, with rising temperatures set to almost double the frequency of extreme El Niño events. Every five years or so, a change in the winds causes a shift to warmer than normal sea surface temperatures in the equatorial Pacific Ocean - known as El Niño.  Together with its cooler counterpart, La Niña, this is known as the El Niño Southern Oscillation (ENSO) and is responsible for most of the fluctuations in global weather we see from one year to the next. Last week, US scientists confirmed they expect "a strong El Niño" to peak in the next few months. The event brewing in the Pacific is already "significant and strengthening", said the statement from NOAA's Climate Prediction Centre. The latest temperature maps, released today, confirm parts of the tropical Pacific are up to 3C warmer than the long term average (dark red in the map below).  Because of their potentially serious impacts, there is a huge societal pressure to better predict when an El Niño or La Niña event will occur and how strong it will be. The new research, which McPhaden was not involved in, reviews all the available scientific evidence on ENSO and climate change, concluding that extreme El Niño events will happen more often as the climate warms. If emissions stay very high, the authors expect extreme El Niño events with impacts similar to the one in 1997/8 will almost double in frequency by the end of the century, from about once every 28 years today to once every 16 years.

Why some scientists are worried about a surprisingly cold ‘blob’ in the North Atlantic Ocean - It is, for our home planet, an extremely warm year.  Indeed, last week we learned from the National Oceanic and Atmospheric Administration that the first eight months of 2015 were the hottest such stretch yet recorded for the globe’s surface land and oceans, based on temperature records going to 1880. It’s just the latest evidence that we are, indeed, on course for a record-breaking warm year in 2015.  Yet, if you look closely, there’s one part of the planet that is bucking the trend. In the North Atlantic Ocean south of Greenland and Iceland, the ocean surface has seen very cold temperatures for the past eight months. What’s up with that?  I checked with Deke Arndt, chief of the climate monitoring branch at NOAA’s National Centers for Environmental Information, who confirmed what the map above suggests — some parts of the North Atlantic Ocean saw record cold in the past eight months. As Arndt put it by email: For the grid boxes in darkest blue, they had their coldest Jan-Aug on record, and in order for a grid box to be “eligible” for that map, it needs at least 80 years of Jan-Aug values on the record. Those grid boxes encompass the region from “20W to 40W and from 55N to 60N,” Arndt explained.  “It’s pretty densely populated by buoys, and at least parts of that region are really active shipping lanes, so there’s quite a lot of observations in the area,” Arndt said. “So I think it’s pretty robust analysis.”  At this point, it’s time to ask what the heck is going on here. And while there may not yet be any scientific consensus on the matter, at least some scientists suspect that the cooling seen in these maps is no fluke but, rather, part of a process that has been long feared by climate researchers — the slowing of Atlantic Ocean circulation.

Hot air melting the Arctic - Around 700 new ‘methane holes’ found in the Arctic shelf by Russian scientists show how fast these emissions are heating up the region. Given the scale of hot air emissions, it is likely the permafrost has been severely degraded, and the thaw irreversible. Carbon and hot gaseous emissions from small water bodies in the Arctic continental shelf have emerged as a major cause of concern, more worrying than the speed of thawing Arctic glaciers. Having spent 20 years studying water bodies formed when permafrost thaws, a team of Russian scientists have found that these thermokarst lakes are sources of carbon dioxide and hot methane gas. More recently, they have begun to grow rapidly, making it difficult to recognize them on satellite images compared to a couple of years ago. The coastline, in some areas, has shifted as much as 70 metres in a few years. For decades, researchers at Tomsk State University (TSU) have studied the West Siberian subarctic, an important natural zone of the Northern Hemisphere. The size of these local wetlands surpasses the area of the Scandinavian, Canadian and Alaskan wetlands several times over. “The soil organic carbon, also known as peat, transforms into carbon dioxide the fastest while in water,” said Sergei Kirpotin, head of TSU’s BioKlim Land research centre. “Over 80 percent of subarctic Siberia is covered by thermokarst lakes, but the scale of the carbon dioxide flow still has not been evaluated by anyone, and neither has the chemical composition of the water. We are currently working on it together with our colleagues from Sweden and France as part of the Siberian Inland Waters international initiative.”

Searching for Leads in the Opening Arctic -- The Arctic is melting. Summer sea ice that used to cover the Chukchi Sea and the Bering Strait isn’t there, where it used to be. Summer ice coverage in the Arctic hit a record low in 2012; this past March, it registered an all-time winter low. As the ice recedes, something new is popping up in its place: oil rigs and commercial ships. Whatever the debate about climate change looks like in Washington, it’s sadly clear up here. At least for part of the year, thanks to rising temperatures, a once-closed ocean is now open for business. That doesn’t mean it’s always easy sailing. Less ice is more ice, the Alaskan natives say: As ice melts, it opens things up just enough to get you into trouble. That’s as true for native whalers and seal hunters as it is for specialized drilling rigs that are starting to head north for a few months each year. As the Arctic melts, it is birthing a new global battleground, with huge economic, environmental, and geopolitical implications for the United States. Oil companies are moving north, even though cheap crude makes pricey Arctic drilling a tough sell for now. Shipping companies are eagerly eying a fresh northern route that can trim thousands of miles off voyages between Asia and Europe. Russia, which has a fleet of six nuclear-powered heavy icebreakers, with 11 more planned or under construction, is revamping scores of Cold War-era military bases inside the Arctic Circle. Moscow, eight years after planting a symbolic flag on the seabed at the North Pole, just handed the United Nations an expansive claim to almost half a million square miles of Arctic seabed potentially rich in oil, natural gas, and minerals. The United States would be hard-pressed to make a similar claim, since it has never ratified the Law of the Sea treaty, which codifies international maritime law. And China, which isn’t even an Arctic nation, is busy dipping its toe into the icy waters — launching its very own icebreaker, currently building a second, and for the first time sending navy ships into Alaskan waters.

$43 Trillion: What Scientists Calculate a Warming Arctic Will Cost - The melting permafrost in the Arctic could cost the world dearly. New research calculates that the economic damage that would flow from loss of permafrost and the increased emissions of greenhouse gases would add up to $43 trillion.  This is very nearly the estimated combined gross domestic product last year of the U.S., China, Japan, Germany, UK, France and Brazil.  The attempt to put a cumulative economic value on natural changes in climate that have yet to happen is part of the bid to get governments to take climate change seriously. In the latest attempt to cost the impact of rising carbon dioxide levels in the atmosphere and the continuous rise in global average temperatures, all as a consequence of fossil fuel combustion and other human action, the economist Chris Hope of the University of Cambridge and the polar expert Kevin Schaefer of the University of Colorado have turned their sights on the Arctic. The Arctic is the fastest-warming region of the planet. It was once much warmer and its now-frozen soils are home to huge quantities of vegetation that never had a chance to decompose. The two scientistsreport in Nature Climate Change that if emissions of greenhouse gases continue to rise as they are doing now, the thaw of the permafrost and the loss of the ice caps could release 1,700 billion metric tons of carbon now locked in as frozen organic matter. What would follow would include a higher chance of catastrophic floods, wind storms, heat waves and drought, the accelerated melting of the Greenland (and West Antarctic) ice sheets, rising sea levels, the loss of agricultural land and rising energy demand as more and more people began to depend on air conditioning. So the total cost of permafrost thaw would be $43 trillion, which is about half the annual global domestic product of the planet right now. The predicted total cost of climate change by 2200 could reach $369 trillion, an increase of 13 percent on all calculations so far.

Arctic thaw would cost half of world's annual earnings - The melting permafrost in the Arctic could cost the world dearly. New research calculates that the economic damage that would flow from loss of permafrost and the increased emissions of greenhouse gases (GHGs) would add up to US$43 trillion.  This is very nearly the estimated combined gross domestic product last year of the US, China, Japan, Germany, the UK, France, and Brazil. And, British and US scientists say, this would be in addition to at least $300 tn of economic damage linked to other consequences of climate change. The attempt to put a cumulative economic value on natural changes in climate that have yet to happen is part of the bid to get governments to take climate change seriously. In the latest attempt to cost the impact of rising carbon dioxide levels in the atmosphere, and the continuous rise in global average temperatures, all as a consequence of fossil fuel combustion and other human action, the economist Chris Hope of the University of Cambridge and the polar expert Kevin Schaefer of the University of Colorado have turned their sights on the Arctic. The Arctic is the fastest-warming region of the planet. It was once much warmer, and its now-frozen soils are home to huge quantities of vegetation that never had a chance to decompose.

In First U.S. Address, Pope Francis Spends Most Of His Time Talking About Climate Change -- In his first public address during his visit to the United States, Pope Francis spent the majority of his time harping on one issue: Climate change. Speaking  Pope Francis began his talk by referencing his immigrant heritage, But just three paragraphs into his prepared remarks, Francis pivoted sharply to the another issue near to his heart — the environment. It seems clear to me also that climate change is a problem which can no longer be left to a future generation. “Mr. President, I find it encouraging that you are proposing an initiative for reducing air pollution,” Francis said. “Accepting the urgency, it seems clear to me also that climate change is a problem which can no longer be left to a future generation.” Francis twice quoted his own encyclical on the environment, a papal document released earlier this year that made headlines because of its bold call for global action on climate change.“When it comes to the care of our ‘common home’, we are living at a critical moment of history,” he said. “We still have time to make the changes needed to bring about ‘a sustainable and integral development, for we know that things can change.’ Such change demands on our part a serious and responsible recognition not only of the kind of world we may be leaving to our children, but also to the millions of people living under a system which has overlooked them. Our common home has been part of this group of the excluded which cries out to heaven and which today powerfully strikes our homes, our cities and our societies.”

Why Big Business Is Taking Climate Change Seriously -- Politicians and policymakers have long explained their opposition to action on climate change as an effort to protect the economy and jobs. Reducing harmful greenhouse gas emissions would require devastating economic losses, their argument goes.But in recent years large corporations have changed their tune, slowly eroding the economic argument for inaction. On Wednesday, nine Fortune 500 companies announced plans to switch to sourcing 100% renewable energy, joining a growing group of corporations recognizing the risks of climate change.“In the early 90s there was a sense that business was holding us back and governments were trying to push forward,” says David Levy, a professor at the University of Massachusetts, Boston. “Now, companies are coming forward to say, ‘This is important.'”Companies have been aware of the risks climate change poses to their businesses for years—even decades—but developments this year may leading to a tipping point, experts say. Last month, the White House announced a series of landmark regulations to address global warming, and negotiators from around the world are expected to reach a historic agreement to cut greenhouse gas emissions in United Nations negotiations in Paris later this year.Companies taking part in Wednesday’s announcement, a list that includes household names like Walmart, Goldman Sachs and Starbucks, have set individual time frames to go 100% renewable, from a 2015 deadline set by Voya Financial to a 2050 deadline set by Johnson & Johnson.“Companies have looked at climate change and said, ’It’s not if we have to address it, but when,'”

Oil industry is to blame for losing climate debate, says Shell boss - SHELL chief executive Ben van Beurden believes the oil industry is partly to blame for allowing environmentalists to edge ahead in the debate over climate change. In an interview with The Mail on Sunday, he insists that oil and gas will remain a crucial part of the world economy for decades — and both will be vital to the development of the poorest countries. The boss of the Anglo-Dutch oil giant does not dispute that global warming is a reality, but he says campaigners against fossil fuels have been boosted by his industry’s reluctance to engage with critics. Van Beurden said: ‘We as an industry have not spent a lot of time explaining ourselves very well because we felt that whatever happens there would only be reputational downside and whatever we said would be misinterpreted or seen as self-serving. ‘By ignoring the debate it has gone to a place where the voices that have a simplistic remedy for this are the ones heard most. ‘The strongest advocates, in my mind, do a public disservice by delaying meaningful policy action by suggesting that there is actually a simple solution.’

Letter To President Obama: Investigate Deniers Under RICO –   The following is the text of a letter written by a number of scientists asking for a federal investigation of climate science denial under the RICO statute.  Letter to President Obama, Attorney General Lynch, and OSTP Director Holdren: The methods of these organizations are quite similar to those used earlier by the tobacco industry. A RICO investigation (1999 to 2006) played an important role in stopping the tobacco industry from continuing to deceive the American people about the dangers of smoking. If corporations in the fossil fuel industry and their supporters are guilty of the misdeeds that have been documented in books and journal articles, it is imperative that these misdeeds be stopped as soon as possible so that America and the world can get on with the critically important business of finding effective ways to restabilize the Earth’s climate, before even more lasting damage is done.

The Wealthiest Households Claim 90% of Tax Credits for Buying Electric Cars -  The federal government offers up to $7,500 in tax credits to purchase an electric vehicle, part of a broader national policy to encourage efficient use of energy and curb carbon emissions.  Almost all of those benefits are going to the wealthiest U.S. households, according to an analysis by University of California, Berkeley, . “We find that the top income quintile has received about 90% of all credits,” . The pattern is similar, though not as extreme, for other so-called clean-energy tax incentives. The authors dig through tax records to determine who’s claiming credits for residential energy-efficiency improvements, solar panel installation and purchase of alternative-fuel or electric vehicles. From 2006 to 2012, the most recent data available, tax credits totaled $18.1 billion, the authors find. In that time, taxpayers with an adjusted gross income greater than $75,000 received about 60% of those credit dollars for energy efficiency, residential solar and hybrid vehicles, and about 90% for electric cars. In other words, it’s a fairly regressive portion of the tax code. A more progressive tax–the authors suggest a carbon tax–would place more of the burden on the wealthy. “There may well be political considerations that continue to favor tax credits, but this approach comes at real cost, both in terms of efficiency and equity,”

Volkswagen could face $18 billion penalties from EPA = Volkswagen faces penalties up to $18 billion after being accused of designing software for diesel cars that deceives regulators measuring toxic emissions, the U.S. Environmental Protection Agency said on Friday. "Put simply, these cars contained software that turns off emissions controls when driving normally and turns them on when the car is undergoing an emissions test," Cynthia Giles, an enforcement officer at the EPA, told reporters in a teleconference. Volkswagen can face civil penalties of $37,500 for each vehicle not in compliance with federal clean air rules. There are 482,000 four-cylinder VW and Audi diesel cars sold since 2008 involved in the allegations. If each car involved is found to be in noncompliance, the penalty could be $18 billion, an EPA official confirmed on the teleconference. A U.S. Volkswagen spokesman said the company "is cooperating with the investigation; we are unable to comment further at this time." The feature in question, which the EPA called a "defeat device," masks the true emissions only during testing and therefore when the cars are on the road they emit as much as 40 times the level of pollutants allowed under clean air rules meant to ensure public health is protected, Giles said. The EPA accused Volkswagen of using software in four-cylinder Volkswagen and Audi diesel cars from model years 2009 to 2015 made to circumvent emissions testing of certain air pollutants.

Volkswagen says 11 million cars hit by scandal, probes multiply | Reuters: Volkswagen said a scandal over falsified U.S. vehicle emission tests could affect 11 million of its cars around the globe as investigations of its diesel models multiplied, heaping fresh pressure on CEO Martin Winterkorn. The world's largest automaker said it would set aside 6.5 billion euros ($7.3 billion) in its third-quarter accounts to help cover the costs of the biggest scandal in its 78-year-history, blowing a hole in analysts' profit forecasts. It also warned that amount could rise, saying diesel cars with so-called Type EA 189 engines built into Volkswagen models worldwide had shown a "noticeable deviation" in emission levels between testing and road use. The U.S. Environmental Protection Agency (EPA) said on Friday Volkswagen could face penalties of up to $18 billion for cheating emissions tests. In addition, the U.S. Justice Department has launched a criminal probe of Volkswagen, a source familiar with the matter said. The investigation is likely to examine not only possible violations of the Clean Air Act but also of broader statutes against wire fraud, false statements to regulators and other crimes, former prosecutors not involved with the investigation said.

VW Scandal Bad News For Diesel - naked capitalism - Yves here. As John Gapper describes in today’s Financial Times, diesel engine manufacturers routinely gamed emissions tests, but Volkswagen was apparently the most extreme. From his article: It has become so common to game European fuel efficiency tests with tricks such as taping up doors and overinflating tyres to curb drag that most diesel cars are less fuel-efficient and environmentally friendly than claimed. In the US, Ford was found to have fitted an illegal “defeat device” — the charge facing VW — to vans in 1997, and Hyundai and Kia were fined $100m last year for fixing their tests. From OilPrice: The outlook for diesel looks grim after U.S regulators found that the world’s second biggest car manufacturer cheated on its emission tests. Last Friday, the U.S. Environmental Protection Agency reported that Volkswagen violated the U.S Clean Air Act. The German auto maker deliberately rigged the so called emission control systems in several models of their cars in order to reduce nitrogen-oxide emissions when tested in the lab. However, when tested on the road, the size of the ‘diesel deception’ proved to be bigger than many could have imagined. Bloomberg reported on September 22 that on an open road test both the ‘Jetta’ and ‘Passat’ models exceeded U.S nitrogen-oxide emissions standards by up to 35 times. The company has already announced it will allocate $7.3 billion to deal with the costs of the emissions scandal. The Volkswagen scandal is not just likely to cause damage upon the company itself, it might also cause damage to the rest of the industry, including parts manufacturers, and other car makers. There is also the possibility that other car builders may have also manipulated tests. Maybe even more important is the damage done to the image of diesel as a ‘cleaner’ fuel.

Volkswagen Emissions Investigations Should Widen to Entire Auto Industry, Officials Say - WSJ: Investigations into Volkswagen’s alleged manipulation of U.S. emissions tests should be widened, officials from German, France and the U.K. said Tuesday, as regulators begin to ponder whether such deception is widespread. Calls for a broader probe came as Italy opened an investigation into the issue and a spokesman for the European Union said its regulators would soon meet with national authorities to discuss how to address the Volkswagen crisis. Concerns that the scandal could lead to broader damage for the industry hit the shares of car companies across Europe on Tuesday and those losses accelerated after Volkswagen warned that 11 million vehicles could be affected.  The state of Lower Saxony, a major Volkswagen shareholder with 20% of the car maker’s voting stock, said the emissions allegations raised doubts about tailpipe data published by all car makers. The French government also called for a broader probe, suggesting a European-wide examination of the auto industry. “We need to do it at the European level,” French Finance Minister Michel Sapin said Tuesday. The call was echoed by the U.K. government, which has pushing for more accurate tests at the European level for some time. “It’s vital that the public has confidence in vehicle emissions tests and I am calling for the European Commission to investigate this issue as a matter of urgency,” U.K. Transport Minister Patrick McLoughlin said in a statement.

Your Guide To Dieselgate: Volkswagen’s Diesel Cheating Catastrophe -- Yes, it’s a catastrophe. There’s no other way to describe the allegations from the Environmental Protection Agency that Volkswagen cheated on their emissions tests with nearly half a million TDI diesel cars. What’s at stake here? Potentially billions in fines, criminal prosecutions, VW’s reputation, and maybe even the future of diesel in the U.S. (The scandal has also gone worldwide; see update below.) On Friday the EPA said VW found a way to circumvent emissions requirements during testing with a “defeat device” that lets the TDI cars detect when they are being tested and then emit far less than normal. When the device is not working, and the cars are operating in regular driving, they emit 10 to 40 times more than the allowable legal levels of certain pollutants.  Make no mistake that this scandal is a huge deal. If the EPA’s allegations are true, VW knowingly broke the law with some of their most important products and could face severe financial and criminal penalties. And even in an era of recall after recall, Automotive News puts this well: “Compared with other run-ins between the EPA and automakers, VW’s alleged violation stands out in its brazenness.” More than that, this could be a landmark moment for emissions enforcement the same way the General Motors ignition switch crisis and its aftermath was for safety. And it’s already sent VW’s stock prices tumbling.

"VW’s Deepwater Horizon?": Last week one of the biggest environmental scandals since the Deepwater Horizon disaster made its way to somewhere near the bottom of page 11 of most major newspapers. VW admitted to systematically cheating on emissions tests of its Diesel vehicles. This might sound snoozy, until you read up on the details. ... In a Lance Armstrongian feat of deception, VW has now admitted to having installed a piece of software called a “defeat device” that turns on the full suite of pollution control gadgets when cars are being smog tested. As soon as you leave the testing station and head out for your Yosemite adventure with Fluffy barking in the back, your car emits 10-40 times (!!!!!!!!!!!) the amount of NOx you just reported on your smog check card. ... The EPA will almost certainly sue VW. The penalties involved here are significant. The EPA can ask for $37,500 per incident, which amounts to roughly $18 billion in fines. Plus there will likely be criminal charges filed against VW executives. ... But, there is a large law and economics literature on determining the fines to achieve the optimal and efficient amount of deterrence. The problem with just passing on the external damages is that VW was not going to be caught with certainty. If the executives thought there was a 1% chance of getting caught, it might have been more worthwhile to cheat than if they thought that they were going to get caught with certainty. In this case, the penalty should be approximated by the external costs divided by the probability of getting caught. This, of course, would be significantly larger than the external costs alone. ...

WTF, Volkswagen? -- It wasn't until yesterday that I actually read a couple of the stories and realized what Volkswagen had actually done. Once I did, words failed me. So let's just hand the mike to Mark Kleiman: In the VW case, code was written into the engine-control software to detect the pattern of pedal and steering operations characteristic of an emissions test. Then, and only then, the car’s emissions-control machinery would kick in. Once the test was over, the software noticed that, too, and returned to normal — that is to say, illegally and dangerously dirty — operations, at about 40x the permitted — and advertised — level of nitrous oxide emissions.Now just think about the depth of corporate depravity involved. This wasn’t one rogue engineer or engineering group at work. People up and down the chain had to be party to the crime. And note that the conspiracy held together for six years, and was finally broken not by an internal leak but by the work of outside scientists at the University of West Virginia. In a nutshell: a whole range of VW and Audi "clean diesel" models were spewing immense amounts of nitrous oxide—a precursor to ozone formation—into the air we breathe. But if you took one of these cars in for a smog check, its engine-control software temporarily put it into a special mode that would pass the test. As soon as the test was over, the engine returned to its smog-spewing ways. This goes far beyond most safety issues with cars. There was no cost involved. In fact, writing the code to do this cost Volkswagen money. Nor was it something that took place just among a small group of product managers with bad incentives. This was coldly premeditated. It required substantial testing to make it work right. It happened across not just different models, but across two different nameplates. It lasted for six years until it was discovered. How far up does this go? It's hard to believe it doesn't go up pretty far. And it must have left behind a significant paper trail. So what's next? Given the calculated nature of the crime, and the fact that it almost certainly killed people, Kleiman doesn't think civil fines are enough: When people conspire to commit a crime that harms the health of untold numbers of people, shouldn’t criminal charges at least be considered? And not only against the company, but against every official in it who can be shown to have known about the conspiracy....

Volkswagen Case Spotlights Lawmakers From Competing Auto Manufacturing States -After Volkswagen admitted it had installed software in its cars to evade government emissions tests, federal lawmakers quickly announced they were launching a congressional probe into the matter. The hearings will be led by Michigan Rep. Fred Upton, a Republican who chairs the Energy and Commerce Committee and who has been a high-profile opponent of stricter limits on pollution spewing from cars. Yet Tuesday, as he announced the impending hearings about Volkswagen’s scheme, Upton declared that “strong emissions standards are in place for the benefit of public health.” The outspoken foe of the Environmental Protection Agency suddenly backing tough emissions standards appeared to reflect the interests of his constituents in Michigan, home to some of Volkswagen’s major U.S. competitors.  Upton is among the House’s top career recipients of campaign donations from automobile manufacturers; Upton already had reason to be down on Volkswagen. In 2007, Volkswagen America announced it was uprooting its headquarters from Auburn Hills, Michigan, and moving to Virginia. The following year, the firm rejected Michigan when deciding where to site a new manufacturing facility. Volkswagen instead chose Tennessee, after state and local political leaders there devoted more than $500 million of taxpayer money to persuade the firm to build a massive manufacturing plant in Chattanooga. They are represented on Capitol Hill by Lamar Alexander, who serves on the powerful appropriations subcommittee that oversees the budget of the Department of Justice. That role could provide him with opportunities to try to use the power of the purse to influence the department’s decisions about whether or how to prosecute Volkswagen. Alexander has been a booster of the company. Only a few months ago he lauded the fact that with the company investing in the state, "one-third of Tennessee manufacturing jobs are auto related.”

The Potential Criminal Consequences for Volkswagen -- It appears automakers have become the latest source of corporate misconduct after Volkswagen admitted installing software to fool emissions tests.  It comes after the General Motors settlement of a criminal investigation into how it handled defective ignition switches that caused at least 124 deaths. And when there is a video in which the head of Volkswagen’s American operations tells an audience in Brooklyn that the company was “dishonest” and “totally screwed up,” then it is only a matter of time before the company has to deal with multiple civil and criminal penalties. The question is what types of proceedings Volkswagen is likely to face and how far up the corporate ladder prosecutors can go in seeking to hold individuals accountable. According to a notice of violation filed by the Environmental Protection Agency on Sept. 18, Volkswagen installed what is known as a “defeat device” in vehicles equipped with 2-liter diesel engines that made it appear to meet emissions standards. The software installed in the cars very likely resulted in a violation of the Clean Air Act by avoiding applicable testing requirements for automobiles and providing false information to obtain a “certificate of conformity” required to sell cars in the United States. The E.P.A. can impose only a civil penalty, but the Justice Department can seek criminal punishment based on the same conduct. The Supreme Court held in Hudson v. United States that the protection against double jeopardy does not bar prosecutors from pursuing criminal charges even if a substantial monetary penalty was already imposed by a regulatory agency. The Clean Air Act authorizes a criminal prosecution for knowingly making a false statement in an application to the E.P.A. and for tampering with “any monitoring device or method” required for tracking emissions. That Volkswagen apparently designed the software to make its emission controls work in a testing lab but not on the road would seem to rule out any defense based on a lack of knowledge or mistake.

Progress on cutting fossil fuel subsidies “alarmingly slow” – OECD -- Major nations are “alarmingly slow” in keeping pledges to cut fossil fuel subsidies despite signs of a decline in support worth up to $200 billion a year, the Organisation for Economic Cooperation and Development (OECD) said on Monday. Reductions in damaging subsidies for oil, coal and natural gas would reduce air pollution, save cash and help a shift to greener energies before a Nov. 30-Dec. 11 U.N. summit in Paris on limiting climate change, it said. “We are totally schizophrenic,” OECD Secretary-General Angel Gurria told an online news conference. “We are trying to reduce emissions and we subsidize the consumption of fossil fuels” blamed for stoking global warming. “Support for fossil fuels seems to have peaked, but global progress remains alarmingly slow,” he said of an updated inventory of subsidies. The OECD estimated the annual value of subsidies for 2010-14 at between $160 billion and $200 billion, mostly for petroleum products, in the 34 OECD nations and China, India, Brazil, Russia, Indonesia and South Africa. The Group of 20 leading economies agreed as long ago as 2009 to phase out inefficient

Methane Madness: Science Does Not Support White House Policy - The US Environmental Protection Agency (EPA) on 18 August 2015 proposed regulations to reduce emissions of methane.  These regulations would be the first to directly restrict methane emissions by the oil and gas industry; they build on a 2012 rule that sought to curb volatile organic compounds (VOCs) from hydraulic fracturing (fracking) to extract natural gas. The proposed EPA regs are part of a larger effort by the White House to reduce national methane emissions by 40–45% by 2025. [See for more detail.]  But methane has only negligible influence on climate -- contrary to popular belief and contrary to the claims of the IPCC, the UN’s climate science panel.  Basic physics does not support White House policies to control methane emissions.  In contrast to CH4, the atmospheric concentration of CO2 is hundreds of times greater, about 400 ppm (400,000 ppb); water vapor is quite variable and often reaches 1 -2 % (10,000 – 20,000 ppm).  Methane’s lack of importance for climate change is partly due to its low abundance, but mostly because of spectroscopic reasons. The IPCC claim that methane is roughly 30 times more important per molecule than CO2 is largely irrelevant.  My colleague Thomas Sheahen (PhD in physics, MIT) has pointed out that the much more abundant atmospheric water vapor absorbs radiation in many of the same parts of the infrared spectrum.  As a result, the global warming effectiveness of CH4 is much reduced, since the Earth’s radiation can only be absorbed once.  A further reduction in its effectiveness comes from the fact that there’s just very little radiation energy in the part of the infrared spectrum where methane absorbs.   The EPA’s proposed new regulations to reduce anthropogenic methane emissions into the atmosphere will raise greatly the cost of oil and gas production.  Perhaps that is the real purpose of the EPA regs.  But since the climate effects of methane are insignificant, EPA regs lack a science base and may simply be part of a scheme to phase out all fossil fuels, including natural gas.

University of Kansas Case Exposes Koch Campus Strategy - Documents released last month in the settlement of a lawsuit at the University of Kansas offer a revealing window into an underreported Koch brothers' strategy: targeted, politicized funding on college campuses. Consider the details of the case: When, in March, 2014, economist Art Hall testified before the Kansas state senate urging repeal of the state's renewable energy standard, he identified himself -- accurately -- as the executive director of the Center for Applied Economics at the University of Kansas School of Business. As preferred by the university, Hall also noted that he did not speak for the school or the Kansas Board of Regents, claiming the views he expressed were "his alone." But, as the documents recently released by the university show, Hall left out some pertinent information: The funding for the research on which his testimony was based came from a grant from a foundation controlled by Charles and David Koch; his academic center was founded and endowed by the Kochs; the foundation paid a portion of his salary, and Hall took the position as the Center's first executive director directly after having spent seven years working for a Koch subsidiary as an economist and lobbyist.  Of course, considering that Koch Industries, the second largest privately-held company in the United States, has significant holdings in oil refining, pipelines, gas production, and coal, Hall's testimony disparaging renewable energy standards would likely have been perceived differently had he disclosed his close ties to the Kochs rather than portraying himself as an independent, unaffiliated researcher at a state university.

Bipartisan Bill Seeks To Reduce Greenhouse Gases That Make Up 40 Percent Of Global Warming  - Sen. Susan Collins (R-ME) and Sen. Chris Murphy (D-CT) reintroduced their bipartisan Super Pollutants Act on Wednesday. The bill is targeted at reducing short-lived climate pollutants (SLCPs), which include refrigerants, methane, and so-called black carbon, which comes largely from diesel engines, cook stoves, and open fires. These compounds break down significantly faster than CO2, on the order of days for black carbon and up to 12 years for methane. But they can also be hundreds or thousands of times more effective at trapping heat than carbon dioxide.  SLCPs are responsible for 40 percent of global warming to date, according to the Center for Climate and Energy Solutions. The legislation takes a business approach to reducing SLCPs, by allowing government agencies to work with the private sector on the development and adoptions of policies and technologies that would reduce SLCP emissions. “Studies show that fast action to reduce SLCPs in the atmosphere could cut the rate of sea level rise by 25 percent, almost halve the rate of temperature rise, prevent two million premature deaths each year, and avoid crop losses of over 30 million tons annually,” the senators said in a statement.

Senate Democrats’ Bill Would Overhaul the Treatment of Energy in the Tax Code -- Earlier this week, Democrats on the Senate Committee on Energy and Natural Resources released the American Energy Innovation Act, a 437-page bill aimed at promoting clean energy and improving the country’s energy infrastructure. About 100 pages of the bill are devoted to rewriting several sections of the tax code that deal with energy. Here are a few takeaways about the tax-related portions of the bill:

  • 1. The bill would simplify the treatment of energy in the tax code. There are currently over two dozen tax provisions relating to energy. The majority of these are incentives and subsidies for consumers and producers of clean energy. The Senate bill would repeal or phase out 16 of these provisions, replacing them with 10 new clean energy credits (listed below.)
  • 2. The new clean energy credits are technology-neutral. One of the ways in which the Senate bill simplifies the system of clean energy credits is by not making reference to any specific energy technologies. In theory, this means that if a company discovers an entirely new energy technology, it would be able to receive federal clean energy credits for it immediately. Currently, the company would likely have to lobby Congress to amend the tax code to include the new technology.
  • 3. The bill uses performance-based standards to compute tax credits.Under current law, different energy sources receive different levels of federal tax subsidies, with little rhyme or reason. For instance, wind power receives a production tax credit twice as large as hydropower.

If An Energy Bill Drops In The Senate But Everyone Knows It Won’t Pass, Does It Make A Sound? -- This week, Senate Democrats unveiled an energy bill that would attempt to move America to a low-carbon future. But if the bill has zero chance of being passed in a chamber controlled by Republicans, does it matter? “Today’s announcement should send a clear signal that it is a top priority for Senate Democrats to invest in our nation’s energy future and address climate change before it’s too late,” said Senate Minority Leader Harry Reid (D-NV) at a Tuesday press conference. The legislation “is a technology driven pathway to a clean energy future,” said Sen. Maria Cantwell (D-WA) who sponsored the bill, dubbed the “American Energy Innovation Act of 2015.” Though it would not set a price on carbon emissions, like the failed cap-and-trade bill from five years ago, her bill does contain many provisions intended to accelerate the shift to a low-carbon economy, and sets a more ambitious carbon target than the White House.  It would implement a “carbon savings goal” making it the policy of the United States “to use appropriate authorities and available technologies to reduce the greenhouse gas emissions of the United States by not less than 2 percent per year on average through 2025.” It would repeal some fossil fuel subsidies and invest in clean energy technology through tax incentives and grant programs. It would, as Sen. Ron Wyden (D-OR) explained at the press conference, provide incentives, but no penalties.

Hillary Clinton Releases A Plan To Modernize America’s Energy Infrastructure --Less than 24 hours after officially coming out against the Keystone XL pipeline, Democratic presidential candidate Hillary Clinton released her plan for modernizing America’s energy infrastructure and combatting climate change across North America. Clinton had long refused to take a public stance on Keystone, a project that was first filed with the State Department during her tenure as Secretary of State. But the increasingly-visible threat of climate change, Clinton wrote in an essay published today on Medium, caused her to finally release an official position on the proposed pipeline, which would bring tar sands crude from Canada to Nebraska.  “We shouldn’t be building a pipeline dedicated to moving North America’s dirtiest fuel through our communities — we should be focused on what it will take to make America the clean energy superpower of the 21st century,” Clinton said in the essay. “Building a clean, secure, and affordable North American energy future is bigger than Keystone XL or any other single project. That’s what I will focus on as president.”  Clinton announced that she would immediately begin negotiations for a North American Climate Compact between the United States, Canada, and Mexico, intended to create strong national targets and accountability mechanisms for emissions reductions in each country. A climate pact between the three countries, Clinton said, would “[create] certainty for investors and confidence in the future of our climate, so we can all marshal resources equal to the challenges we face.” In addition to setting ambitious emissions reduction targets, the proposed climate compact would develop common infrastructure standards across the continent, expand existing regional emissions trading markets, invest in low-carbon transportation, and work to set continent-wide reduction standards for methane.

Millions of UK public sector pensions 'exposed to risky fossil fuel investments' -- Millions of social workers, teaching assistants and other council employees have over £3,000 each in coal, oil and gas investments as part of their pension pots - assets that are at risk of falling in value as the world tackles climate change. The first analysis of the £231bn in assets held by 4.6m local government workers through their pensions schemes has revealed a total of £14bn in fossil fuel investments, with the Greater Manchester and Strathclyde schemes having the largest holdings.  Most existing fossil fuel reserves must stay in the ground to avoid catastrophic global warming and institutions including the Bank of England, the World Bank, the G20 and city analysts are concerned about the risk of huge financial losses if the world’s nations act to slash carbon emissions.  Many institutions, including two of the world’s largest pension funds in California, have committed to sell fossil fuel investments with the aim of limiting the impact of climate change on both the world and the value of their portfolios. The value of the funds divesting from fossil fuels has soared 50-fold in a year to $2.6tn. “We don’t want fossil fuels to destroy our pensions, and we don’t want our pensions to destroy everyone’s future,” “Public investments in fossil fuels are fuelling dangerous climate change, and present a threat to the pensions of public sector workers. There’s a strong ethical and financial case for local councils to divest from fossil fuels and reinvest into infrastructure fit for the 21st century,”

‘I’m beginning to struggle with why we even do plans’: New towers will block $400K solar panels in Edmonton -- Edmonton city council received an earful Monday when they ignored a five-year-old downtown plan when they approved a trio of 40-storey-plus towers. “We thought the zoning bylaw had some teeth in it,” said architect Gene Dub, frustrated the additional height will shade the $400,000 solar panels he bought for a site northwest of the project, reducing their energy output by 40 per cent. The downtown plan approved in 2010 called for buildings of up to 20 stories in the Warehouse District. Instead, towers at the old Massey Ferguson building that housed the Healy Ford dealership on 106th Street between 104th and 103rd avenues will soar to 48, 42 and 45 stories. “I’m beginning to struggle with why we even do plans,” said Coun. Ben Henderson, the only one to vote against rezoning. He said council spent a lot of money on a 35-year market forecast before it set maximum heights for each zone. Planners wanted to make sure they didn’t concentrate all the development on just a couple of lots and get stuck with vacant properties elsewhere. On Monday, council supported a rezoning that dramatically changes those numbers without any updated market estimates. “We spend so much time and effort on these plans just to walk away from them the first time someone says ‘Boo’,” said Henderson. “Mr. Dub’s situation is a really good example of why us playing fast and loose with our long-term planning is problematic. We make a set of promises and we’re not prepared to follow them.”

Will Washington state have the first carbon tax in the nation? -  If voters approve the measure, dubbed Initiative 732, it would implement the first carbon tax in the nation. The purpose would be to motivate households and businesses to cut down on the burning of fossil fuels, the major source of man-made emissions of carbon dioxide, the main greenhouse gas. By raising the price of fossil fuels it would encourage conservation and efficiency and the substitution of low-carbon and carbon-free sources of energy by making these energy sources more cost-competitive.  The principle behind the proposal is simple: Raise taxes on what you want less of and lower taxes on what you want more of. In this case, the proposal taxes carbon emissions at a rate of $25 per metric ton. It lowers the state's sales tax by one full percentage point (from 6.5 percent to 5.5 percent), provides a rebate to poor families of up to $1,500 to lessen the burden of the carbon tax on their limited incomes, and virtually wipes out the so-called business and occupation tax in the state. That tax falls from 0.44 percent of gross business receipts to 0.001 percent. The effect is to hold state revenues steady. The proposal's tax reductions and rebates give back to Washington state residents and businesses as much as the carbon tax collects, about $1.7 billion annually. The purpose of the tax then is strictly to change behavior and buying habits in order to lower carbon emissions rather than to raise revenue for the state. In bureaucratese the tax is "revenue neutral."

China to Announce Cap-and-Trade Program to Limit Emissions - — President Xi Jinping of China will make a landmark commitment on Friday to start a national program in 2017 that will limit and put a price on greenhouse gas emissions, Obama administration officials said Thursday.The move to create a so-called cap-and-trade system would be a substantial step by the world’s largest polluter to reduce emissions from major industries, including steel, cement, paper and electric power.The announcement, to come during a White House summit meeting with President Obama, is part of an ambitious effort by China and the United States to use their leverage internationally to tackle climate change and to pressure other nations to do the same. Joining forces on the issue even as they are bitterly divided on others, Mr. Obama and Mr. Xi will spotlight the shared determination of the leaders of the world’s two largest economies to forge a climate change accord in Paris in December that commits every country to curbing its emissions. Mr. Xi’s pledge underscores China’s intention to act quickly and upends what has long been a potent argument among Republicans against acting on climate change: that the United States’ most powerful economic competitor has not done so. But it is not clear whether China will be able to enact and enforce a program that substantially limits emissions

Can Climate Policy Actually Benefit Coal? - Adam Ozimek -- I remain a big proponent of carbon taxes, but for reasons I’ve discussed before I worry they wouldn’t be enough. What’s more, it appears to be pretty politically hard to achieve in this country so far. Whether we think we’ll get a carbon tax or not, it’s worth considering simple plan that has a lot going for it: let’s keep it in the ground. This idea comes from Matt Frost, who has a lot more to say about it here. The basic idea is that one of the best ways to reduce the amount of carbon in the atmosphere is to simply lock up a lot of coal and never use it. The specific policy he proposes changing is creating a perpetual easement so that buyers can be guaranteed coal they purchase will never be used. Here is how Matt puts it: The U.S. government should modify the legal infrastructure for mineral resources such that the carbon in undeveloped fossil fuels can be purchased and reserved in perpetual easements. Private activists and even coal-competing energy developers could buy in-situ coal with the assurance that its carbon would never be released through combustion. There are a lot of desirable features of this plan. First, the U.S. exports coal and while a tax on dirty energy demand in the U.S. could lower dirty energy costs around the world, reducing U.S. supply can only drive prices up. Second, it’s actually pretty simple and easy to understand. I think this lends to the marketing power of the plan, and if we are going to get individuals to donate to this then marketing clarity is key. This transparency and ease of marketing could also be a help in crowd-funding donations. And yes, another benefit is that rather than a big technocratic policy change, this policy will ultimately involve the decentralized decisions of individuals and organizations deciding which coal to buy with their own money. It’s also pretty cheap. Finally, unlike carbon taxes, this policy doesn’t require passing a tax on any parties. Current owners of coal, in fact, only benefit from this policy because it creates more potential buyers for their assets. Indeed, it’s hard to imagine a powerful political lobby that would actually have an interest in opposing this plan.

There Are 800 Fossil Fuel Subsidies Around The World - There are 800 different programs around the world that subsidize fossil fuels, according to a new report from the OECD. The OECD released the report ahead of the international climate change negotiations set to take place in Paris in December, where the world has a “moral imperative to reach an ambitious and actionable agreement.” Tackling climate change will be a monumental task, but key to the effort will be scrapping “lose-lose” fossil fuel subsidies, as the OECD calls them. Subsidizing oil, natural gas, and coal leads to distortions in prices, contributes to overconsumption of energy, and saps developing countries of revenues that could be used for much better investments in education and infrastructure. They also lead to environmental fallout, with capital flowing to pollution-heavy industry and energy extraction. These investments, once made, can last for decades, essentially “locking-in” pollution for a long time to come. That is one of the glaring downsides to subsidizing fossil fuels. “Because they change the stream of income investors expect to receive for holding a particular asset, those subsidies influence investment choices and change the allocation of capital across sectors. In the case of certain fossil-fuel subsidies, there is therefore the risk that investors end up favouring sectors that produce fossil fuels or use them intensively, at the expense of cleaner forms of energy and other economic activities more generally,” the OECD wrote.

Ohio has 1,591 drilled Utica wells, 1,009 producing Utica wells - Drilling - Ohio: Ohio has approved 2,013 Utica Shale drilling permits, as of Sept. 19. That total includes 1,591 drilled Uitca wells and 1,009 producing Utica wells. Ohio has 22 drilling rigs at work. Fifteen new permits were approved: four in Belmont County, four in Guernsey County, five in Harrison County and two in Noble County.

Ohioans deserve to get fair fracking tax - Columbus Dispatch  -- It’s been three years since Gov. John Kasich started pleading with state legislators and drillers to come up with a reasonable severance tax. It’s been three months since Senate President Keith Faber said he and his colleagues couldn’t come up with one in time to be included in the biennial budget, but promised they were setting a “ hard deadline” of Oct. 1 by which a legislative study commission would come up with a plan. It is now less than three weeks until that deadline. One small problem: It since has come out that the budget language to create the study group doesn’t technically take effect until Sept. 30 — just one day before the Oct. 1 deadline. Most Ohioans surely are weary of seeing lawmakers cater to drillers, many of whom are based out of state and make big political contributions. Residents of Ohio, like those in other states with higher “fracking” taxes, deserve better compensation for nonrenewable natural resources being extracted. Kasich wants this money to go toward further income-tax reduction for state residents, not pad state coffers or fund government bloat. But the legislature has resisted, either offering nothing or, in the case of an earlier House proposal, an amount Kasich saw as so “puny” that he called it a “big, fat joke.” Meanwhile, the 4.5 percent (natural gas and liquids) to 6.5 percent (oil and gas) tax proposed by Kasich has been judged fair by independent analyses.  The oil and gas industry has predictably launched a counterattack, hoping to keep the sweet deal it has in Ohio. In addition to lobbying and writing checks to legislators, the American Petroleum Institute several months ago ran a radio advertising campaign repeating its claims that increasing taxes on fracking would kill the industry in Ohio. Drillers will go where the oil is and won’t be chased off by a modest increase in severance taxes.

Ohio lawmakers will miss promised deadline on fracking tax report -   – Ohio lawmakers said this week they won't meet a self-imposed Oct. 1 deadline to hammer out recommendations on an oil and gas severance tax deal, as they need more time for negotiations. The impasse is the latest delay in a years-long effort to tap into a potentially lucrative source of revenue to pay for income-tax cuts and funding to local governments in eastern Ohio, where drilling activity is ramping up.  In June, House and Senate leaders held a rare joint news conference to announce that a legislative study committee would work over the summer to reach a compromise agreement on raising taxes on fracking activity.  Senate President Keith Faber, a Mercer County Republican, told reporters that Oct. 1 was a "hard deadline" to compile recommendations on a compromise between industry groups, which oppose any severance tax increase, and Gov. John Kasich's administration, which has called for a major tax hike. At the time, Faber disputed that sending the issue to a study group was "just a stalling tactic."

Ohio injection well program gets high marks from U.S. EPA, some areas need improvement -- Results of a federal review of Ohio’s injection well program led to a U.S. Environmental Agency official describing it as a “good quality program.” Tinka Hyde, director of the Water Division in EPA’s Region 5, made the comment in a cover letter to Richard Simmers, chief of the Ohio Division of Oil and Gas Resources (part of the Ohio Department of Natural Resources). The EPA issued a final report on Sept. 8 of a review of Ohio’s Class II injection well program. Class II injection wells are used to dispose of fluids brought to the surface in the process of production of oil and natural gas. Concerns have been raised by environmental groups and others about chemicals used to “frack” oil and gas wells. As part of the review, the EPA examined files from 29 injection wells, including two K&H Partners injections wells in Athens County’s Troy Twp. and the Ginsburg well on Ladd Ridge Road, east of Albany. The previous review was in 2009. “EPA found that Ohio runs a good quality program for Class II wells, and is administering the program in accordance with (EPA) approval,” Hyde wrote. “The program is strong in several areas, including permitting, inspections and resolving violations found during inspections.” Hyde wrote that Ohio has invested “significant new resources in the program” and described Ohio as “a leader in terms of addressing seismic potential during the review of permit applications and well operations.” Hyde wrote that Ohio should improve its program by:

  • • Identifying operator reporting gaps or inaccuracies and taking enforcement action for violations of reporting requirements.
  • • Escalating enforcement for recalcitrant and repeat violators. (EPA found instances where operators repeated violations or where the same operating violations were noted in successive inspection reports at a well site, without documentation of ODNR compliance or enforcement action, according to the report.)

Thousands of petroleum leak investigations backlogged in Ohio — More than 35,000 petroleum leaks have been reported in Ohio since the state began monitoring underground storage tanks in the mid-1980s, and about 12 percent of them are still in need of cleanup years or even decades later. Ohio has a current backlog of about 4,300 active cases, according to the Ohio Bureau of Underground Storage Tank Regulations. Most of them involve vacant properties — an old gas station or abandoned factory — where an owner can’t be tracked down to take responsibility for the testing, cleanup and monitoring of a suspected or confirmed leak. “We do not have a responsible party to address those situations,” said Verne Ord, BUSTR assistant bureau chief. It could be because the company has gone out of business, declared bankruptcy or the owner may have died, he said. In some cases they simply can’t afford the cleanup. Without someone to take responsibility, the case sits open, sometimes for decades. Nearly three quarters of the 48 active cases in Clark County involve leaks detected between 1988 and 1999. “If you’ve got one that’s that old, it’s been either a really bad petroleum release that’s taken years to remedy, or we don’t have a viable, responsible party,” Ord said. About half of Champaign County’s 23 open cases have been open longer than 15 years and about half involve non-viable owners.

Government and Gas Industry Team Up Against Local Fracking Ban Initiatives in Ohio - Last week the Supreme Court of Ohio upheld the Ohio Secretary of State’s decision to remove from this November’s ballot, measures by Medina, Fulton, and Athens counties that would have banned hydraulic fracturing and related infrastructure projects. However, in a separate ruling, the court allowed the city of Youngstown to proceed with an anti-fracking charter amendment and ordered it be placed on the November 3 ballot.  Secretary of State Jon Husted had removed the county ballot measures in August, claiming “unfettered authority” even though all three initiatives had gathered sufficient signatures. The court did not agree with Husted’s argument that there was “nothing to materially limit the scope of [his] legal review of the petitions.” It’s ruling against the initiatives was based on a technicality. Terry Lodge, a lawyer for the petitioners, told Earth Island Journal “we don't agree that the [initiatives] are in any way deficient.”  According to Lodge, the argument that local initiatives that challenge state preemption should not be allowed a vote, never stood a chance in court. “The only role of governmental regulation over initiative petitions,” Lodge said, “is to verify that the signatures were collected on the proper forms, that they were properly verified by the circulator, and that the form in which the petition wording was circulated was proper. The county boards of election and the Secretary of State may not indulge an inquiry into whether, if passed, something might be ruled illegal.” The oil and gas industry played a key role too. Rather than rely on the state attorney general for legal representation — as state actors most often do — Husted brought on the private law firm, Bricker & Eckler LLP, to defend his August decision. Bricker & Eckler is not just any law firm; it’s the firm that represents the very company — Spectra Energy — that is trying to build a massive, hotly contested, natural gas pipeline which two of the local bans would have blocked. The proposed NEXUS pipeline would traverse Northern Ohio en route to exporting gas to Ontario and thence international markets.

Community hears about proposed methane regulations -- The public was invited to give its input on input on the Environmental Protection Agency’s recent draft proposal to reduce national methane emissions during an informational session. The event was held Thursday evening in the community room at the North End Community Improvement Collaborative.The meeting was put together by Bill Baker, organizer for Frack Free Ohio, in collaboration with Sierra Club, the Ohio Environmental Council, and Moms Clean Air Force.. The purpose of the session was to educate locals on the new EPA draft proposal for methane regulations, which are targeted at the oil and gas industry, as well as hydraulic fracturing operations. “Frack Free Ohio’s mission is not just to protest against fossil fuel development but also to teach people about alternatives,” Baker said. “And until we really look at how much pollution’s being created, we’re not going to really look at the alternatives and the other solutions.” Presenters during the meeting included Laura Burns, Ohio organizer of Moms Clean Air Force; Cheryl Johncox, of Sierra Club; Melanie Houston, of the Ohio Environmental Council; and Mansfield City Councilman Don Bryant.

Youngstowners yet again can reject fracking issue - Youngstown Vindicator --A ruling by the Ohio Supreme Court that will result in the anti-fracking charter amendment appearing on the November ballot in Youngstown does not change this fact: The amendment will be unconstitutional even if it is approved by the voters.  Indeed, it’s a big “if,” given that Youngstown residents have rejected the ban on fracking four times – twice in 2014 and twice in 2013. Last November, the so-called Community Bill of Rights was summarily dismissed by a vote of 7,231 to 5,268. In the May 2014 primary, the charter amendment went down to defeat 3,674 to 3,100.  So, what was the Supreme Court ruling about? It had nothing to do with the merits or constitutionality of the anti-fracking proposal. Rather, the justices were acting on a motion filed by the city of Youngstown to order the Mahoning County Board of Elections to place the constitutional amendment issue on the Nov. 3 general-election ballot. The board had voted 4-0 not to certify the citizen-initiative amendment, thus preventing it from being included on the ballot. The city, led by Mayor John A. McNally and Law Director Martin Hume, argued in its motion for a writ of mandamus that the board of elections had acted illegally and had violated the constitutional separation of powers. The Supreme Court agreed, saying the elections officials do not have the authority “to sit as arbiters of the legality or constitutionality of a ballot measure’s substantive terms. “An unconstitutional amendment may be a proper item for referendum or initiative,” the court ruled. “Such an amendment becomes void and unenforceable only when declared unconstitutional by a court of competent jurisdiction.” Let there be no doubt about how a court of competent jurisdiction will rule if the Community Bill of Rights is passed by the voters and then challenged in court. After all, the Ohio Supreme Court already has ruled in another case that only the Ohio Department of Natural Resources has authority over oil and gas drilling in the state.

Judge tosses landowners' lawsuit against fracking opponents (AP) — A judge has dismissed a lawsuit that landowners filed against people and groups who oppose fracking in a western Pennsylvania township. Natural gas drilling has been delayed in Middlesex, Butler County while some of the rural community’s 800 residents challenge a zoning ordinance that would allow drilling in 90 percent of the rural township. Dewey Homes and Investment Properties and 12 landowners sued the drilling opponents, seeking damages for royalties they’ve been unable to collect from gas drilling companies who have leases to drill on their land. But the residents and environmental groups challenged that litigation as a strategic lawsuit against public participation, or SLAPP suit, meant to silence their opposition and free-speech rights. An attorney for the landowners hasn’t said whether he’ll appeal Thursday’s ruling, which dismissed the lawsuit for not being specific enough.

Two Marcellus pipeline projects move forward -- Two large pipeline projects aimed at alleviating a glut of natural gas coming from the Marcellus shale moved ahead in the federal permitting process this week. Houston-based Columbia Pipeline Group said its proposal to build the $2 billion, 165-mile Mountaineer Xpress in West Virginia entered a pre-filing phase before the Federal Energy Regulatory Commission. Moving from Marshall County to Wayne County along the state’s western border with the Ohio River, the pipeline would connect processing points and other lines, “providing producers in the Marcellus and Utica shale areas new transportation options to move gas out of the capacity-constrained supply basin and into the interstate market,” the company said. Columbia has started reaching out to landowners in the project’s path and, pending the FERC’s approval, will start construction in the fall of 2017 with hopes to start moving 2.7 billion cubic feet of gas per day a year later. On the northeastern end of the Marcellus, a venture led by six midstream and utility companies applied to the FERC for permits to move ahead with construction of the PennEast Pipeline. The $1 billion, 118-mile system of 36-inch pipes would move gas from shale fields north of Wilkes Barre to New Jersey and the Philadelphia suburbs.

Book details railroad tracks for responders -- In 1987, rescuers had to evacuate the entire borough of Confluence when 27 tank railcars derailed in the heart of town. Two decades later, a similar scene unfolded: a CSX freight train derailed in February 2007 on the outskirts of the same town, leaving behind twisted railcars, scattered coal and ripped tracks. Both incidents happened before thousands of gallons of crude oil and ethanol from fracking ventures in North Dakota were routinely hauled through the county by rail. Responders aren’t waiting for another derailment to prepare, according to training officer Joel Landis with the Somerset County Hazmat Team. Landis helped land federal funding to organize a project to help responders prepare for railroad emergencies. The Somerset County department of emergency services secured a Hazardous Materials Emergency Preparedness grant funding through the state’s Emergency Management Agency. The result of the 10-month collaboration is a book that details tracks to help responders quickly — and uniformly — identify street access points. The book, distributed to eight volunteer fire companies, covers the CSX Keystone section of railroad that runs from Confluence to Fairhope in Somerset County. The line runs from Cumberland, Maryland, west to Connellsville, Fayette County, along a former Baltimore and Ohio Railroad line.

Proposed W.Va. pipeline accepted for pre-application review (AP) — The Federal Energy Regulatory Commission will review a proposed $2 billion natural gas pipeline in West Virginia before the developer formally submits an application. The commission notified Columbia Gas Transmission, LLC last week that it accepted the Mountaineer Xpress Project for the pre-filing review process. Parent companies Columbia Pipeline Group, Inc. and Columbia Pipeline Partners LP said Wednesday that an application will be filed with the federal commission in April 2016. If the pipeline is approved, construction would begin in the fall of 2017. The pipeline would run about 165 miles from Marshall County to Wayne County. The companies say in a news release that the pipeline would give producers in the Marcellus and Utica shale areas new options to transport gas into the interstate market.

Halliburton to pay $18.3 mln overtime wages -U.S. Labor Dept (Reuters) – Halliburton Co will pay $18.3 million to more than 1,000 oil and gas workers it improperly exempted from overtime pay, the U.S. Department of Labor said on Tuesday, the latest development in a nationwide probe into wage practices in the industry. The department said Halliburton improperly identified workers in 28 job categories as exempt from overtime pay under the Fair Labor Standards Act, the U.S. law governing wages and working hours. The company said it had begun paying the overtime and was cooperating with the Labor Department. The settlement is one of the largest for the Labor Department in recent years in an overtime case. Under the law, employees are entitled to mandatory overtime pay only if they earn less than $455 weekly or have few or no management duties. The Obama administration recently proposed more than doubling the income threshold, rankling business groups and Republican officials. The Labor Department said Halliburton automatically exempted all salaried workers from overtime without considering their income or job duties.

UT must end worst practices of fracking - The very first well drilled on University of Texas-owned land in west Texas, Santa Rita No. 1 started producing way back in 1923. It didn’t just produce oil, but it also brought up salt water from deep underground. The salt wastewater was stored in surface ponds, which leaked into the surrounding environment and onto lands that had once been used for grazing livestock. By the 1960s, 11 square miles — more than 7,000 acres — of the former pastureland had been rendered barren. That one well was the first of thousands drilled on millions of acres of West Texas land set aside by the state government as a form of an endowment to provide revenue for revenue for the University of Texas and Texas A&M systems. Today, nearly a century after the first well was drilled, oil and gas production continues on land owned by the University of Texas. According to a new report by the Environment Texas Research and Policy Center and Frontier Group, fracking of as many as 4,132 on university-owned land in recent years has consumed enormous quantities of water, introduced vast amounts of toxic chemicals into the environment, and threatened land that is valuable to the environment and wildlife. At least 6 billion gallons of water were used on university lands amid a historic drought in which Texans were asked to scale back water use. Increasing demand for water by oil and gas companies has harmed farmers and local communities. For example, water withdrawals by drilling companies caused drinking water wells in the town of Barnhart to dry up in 2013 and 2014. Approximately, 275 million pounds of chemicals were pumped deep underground, including 92.5 million pounds of hydrochloric acid and 8.5 million pounds of methanol, which is suspected to cause birth defects. Some of those chemicals come back up to the surface, creating toxic waste. And some of them stay underground, where they can contaminate our drinking water. Either way, they’re a danger to the Texas environment.

Silicosis: another fracking field hazard that leaves scars -- What is America’s most dangerous occupation? It’s oil and gas extraction, according to a 2014 report (based on 2012 data) published by the National Council for Occupational Safety and Health (COSH).The industry’s fatality rate is now 24.2 deaths for every 100,000 full time workers vs. 3.2 deaths per 100,000 overall rate for U.S. workers. Many factors contribute to its dangerous reputation, though one is garnering lots of attention these days – the results of which happen while working unprotected around frac sand. The composition of frac sand is 99 percent crystalline silica (silica). Inhaling its dust can lead to silicosis, which causes inflammation and scarring in the lungs. If it sounds bad, it’s because it is. Once lungs succumb to silicosis, they can’t take in as much oxygen. This leads to a host of symptoms, such as becoming easily winded and fatigued. The side effects can be difficult to manage and result in a lower quality of life and premature death. Silicosis is a cumulative disease caused by breathing in silica dust, usually over longer time periods. However, according to The National Institute for Occupational Safety and Health (NIOSH), the amount inhaled and the time length of respiration greatly determines the progression of the disease. There are three classified types of silicosis that take time and amount of inhaled toxic dust into account. The most common is the chronic or classic type, in which the onset takes an average of 10-20 years. The accelerated type occurs along a shorter timeline and appears within 5-10 years. Lastly, there’s acute silicosis, characterized by rapid onset of symptoms in as little as a few months to a few years. It’s usually deadly.

How one US state went from two quakes a year to 585 - Located in the middle of the country, far from any major fault lines, Oklahoma experienced 585 earthquakes of a magnitude of 3.0 or greater in 2014. That's more than three times as many as the 180 which hit California last year."It's completely unprecedented," said George Choy, a seismologist at the US Geological Survey.As of last month, Oklahoma has already experienced more than 600 quakes strong enough to rattle windows and rock cars. The biggest was a 4.5-magnitude quake that hit the small town of Crescent. The fracking process has unlocked massive amounts of oil and gas in Oklahoma and other states over the past decade. But along with the oil and gas comes plenty of that brackish water, which is disposed of by injecting it into separate wells that are dug as deep as a mile (less than two kilometers) below ground. The unnatural addition of the water can change pressure along fault lines, causing slips that make the earth shake, said Choy of the US Geological Survey. There is debate among scientists over how large of a fault could be reawakened, and how hard that fault might shake. One camp believes Oklahoma won't see bigger than a 4.0 to 5.0-magnitude earthquake, which would be enough to break windows and knock things off shelves. Others believe a 7.0-magnitude earthquake could come about, which would be strong enough to topple buildings. "What's at risk is that when you put water into the ground, it's never going to come back out. You're putting it in places it has never been before," Choy told AFP. "The bigger the volume, the greater the area will be affected. And we don't know what the long-term effect will be."

Fracking Increases Oklahoma Earthquakes from Two a Year to Two a Day -- Earthquakes continue to rattle the frack-happy state of Oklahoma. The Sooner State has jumped from two earthquakes a year to roughly two a day, with scientists once again pinning the recent uptick on fracking. Scientists have identified that the injection of wastewater byproducts into deep underground disposal wells from fracking operations are very likely triggering the major increase of seismic activity in the central U.S. state.  Oklahoma, which is not near any major fault lines, has felt 585 earthquakes that were a 3.0-magnitude or greater in 2014—three times the 180 quakes felt by California last year, the AFP reported. Last month alone, Oklahoma experienced more than 600 quakes that could shake homes and cars, with the town of Crescent hit hardest with a 4.5 whammy, the AFP said. “It’s completely unprecedented,” George Choy, a seismologist at the U.S. Geological Survey (USGS), told AFP about the spate of recent tremors.  “What’s at risk is that when you put water into the ground, it’s never going to come back out. You’re putting it in places it has never been before,” Choy told AFP.  Oklahoma has about 4,500 disposal wells. Last week, the state’s public utilities commission shut two wells and slowed the disposal volume of three more, a local news station reported, after a series of earthquakes, including a 4.1, hit the city of Cushing, which holds one of the largest crude oil storage facilities in the world.

Oklahoma agency reveals new well plans in the Cushing area — The Oklahoma Corporation Commission says it is imposing new operating guidelines for oil and gas wastewater disposal wells in an area of north-central Oklahoma that has experienced frequent earthquakes. The commission says the plans were developed following an analysis of disposal well and seismicity data in the Cushing area. Officials say the guidelines will change the operation of certain oil and gas wastewater disposal wells in the area and may be altered as more data becomes available. The plan calls for two disposal wells to cease operations entirely and for three others to reduce their disposal volumes. The Oklahoma Geological Survey has said it is likely that many recent earthquakes in the state have been being triggered by the injection of wastewater from oil and natural gas drilling operations.

Exclusive: In clash with pope's climate call, U.S. Church leases drilling rights | Reuters: Casting the fight against climate change as an urgent moral duty, Pope Francis in June urged the world to phase out highly-polluting fossil fuels. Yet in the heart of U.S. oil country several dioceses and other Catholic institutions are leasing out drilling rights to oil and gas companies to bolster their finances, Reuters has found. And in one archdiocese -- Oklahoma City -- Church officials have signed three new oil and gas leases since Francis's missive on the environment, leasing documents show. On Francis' first visit to the United States this week, the business dealings suggest that some leaders of the U.S. Catholic Church are practicing a different approach to the environment than the pontiff is preaching. Catholic institutions are not forbidden from dealing with or investing in the energy industry. The United States Conference of Catholic Bishops' (USCCB) guidelines on ethical investing warn Catholics and Catholic institutions against investing in companies related to abortion, contraception, pornography, tobacco, and war, but do not suggest avoiding energy stocks, and do not address the ownership of energy production interests. A Reuters review of county documents found 235 oil and gas leasing deals signed by Catholic Church authorities in Texas and Oklahoma with energy and land firms since 2010, covering 56 counties across the two states. None of the Texas leases in the review were signed after the pope's encyclical.

How the Oil & Gas Industry Turned Colorado From Blue to Red - If money is speech, then it stands to reason that a very small number of very wealthy people can effectively drown out the voices of the multitude on issues they determine worthy of a shout via their checkbooks. Currently in Colorado, the issues where this money/speech is reaching the highest decibels are oil and gas extraction, aka fracking, and education issues such as the 2013 battle over Amendment 66 and the ongoing push by some for a school voucher system or other form of school choice. Even before the Supreme Court’s controversial “Citizens United” ruling, campaign finance laws had blurred the lines between dollars and words. It never seemed to matter that polls have long shown nearly 80 percent of us disagree with this notion that money is simply an extension of the voice we use to express our views and should therefore be unlimited. For decades, all that has really mattered is that the elected officials who could fix this broken system are the primary beneficiaries of its democratic shortcomings. Hence, money still talks and in Colorado, more loudly than in most places. To understand how a handful of wealthy, influential individuals, along with the oil and gas industry and a few key political operatives, have managed to play puppeteer over our state government and even the electorate is quite complicated. That’s why we’ve included seven full pages of what I refer to as “influence maps” at the end of this article.

New Fracking Report Reveals Network of Deceit -   Greenpeace has teamed up with a Colorado newspaper, the Boulder Weekly, to rip the thin veneer of academic cred away from the fracking industry’s PR blitz in the state. According to the report, entitled Frackademia, the lobbying effort pivoted on industry-funded research conducted at the University of Colorado, Boulder Leeds School of Business. Greenpeace itself was marked as a “Big Green Radical” in a separate oil and gas industry lobbying effort last year meant to undermine the credibility of several high-profile environmental groups, but apparently name-calling is not a particularly effective tactic against the organization. In Colorado, local communities face an uphill climb when it comes to banning fracking, an oil and gas drilling method that involves pumping millions of gallons of chemical brine underground at high pressure. The oil and gas industry has successfully taken cities to court over local fracking bans, and cash-strapped communities are an uneven match with the industry’s legal teams. High court decisions in Ohio and New Mexico have also cast a long shadow of doubt over the legal authority of local communities to restrict state-regulated energy sector activities. Zoning also factors into the fracking fight in Pennsylvania. In that state, one result of former Gov. Tom “wardrobe malfunction” Corbett’s ties to the fossil fuel industry was an attempt to impose statewide zoning regulations in support of fracking. The Pennsylvania Supreme Court ruled against the new zoning scheme in 2013, and it also affirmed the right of local communities to impose fracking bans under their zoning powers. Pennsylvania’s new governor, Tom Wolf, reinstated a ban on fracking in state parks and forests when he took office in January, and under his tenure the state is cracking down on drilling violations. But he seems to have taken a statewide ban off the table, at least for now.

US panel: Cancel drilling lease near Glacier National Park — A federal panel recommended Monday that the U.S. government cancel a long-suspended drilling lease on land near Montana’s Glacier National Park that is considered sacred to Native American tribes. The recommendation by the Advisory Council on Historic Preservation comes as Baton Rouge, Louisiana-based Solenex is suing the U.S. government to lift the decades-old suspension on the lease in the Badger-Two Medicine area of the Lewis and Clark National Forest. The development would be so damaging to the area “that the Blackfeet Tribe’s ability to practice their religious and cultural traditions in this area as a living part of their community life and development would be lost,” the council said in its recommendation. Even the company’s plans to reduce the effects of drilling wouldn’t be enough to counter the damage that would be done, it said. The council recommended revoking Solenex’s suspended permit to drill, canceling the lease and ensuring that future mineral development does not occur. The advisory council’s recommendation is the first of a multi-step process to either cancel the lease or proceed with drilling. The council analyzed the effects of drilling on the historic and cultural value of the land, and its recommendations will be considered by the U.S. Forest Service and the U.S. Bureau of Land Management, which will make the final decision.

Oil company officials laud findings on crude oil volatility - Preliminary research and comments by several federal agencies on the volatility of crude oil from North Dakota shows that Bakken crude has been unfairly singled out in safety discussions, oil industry representatives said Tuesday. The makeup of crude oil from the Bakken formation has been at the forefront because of several fiery train derailments, including one in December 2013 outside Casselton that created a huge fireball and several explosions. Some regulators have said that Bakken crude is more flammable than other crude oils. American Petroleum Industry spokeswoman Beth Treseder told oil company officials who were in Fargo for the North Dakota Petroleum Council’s annual meeting that several agencies appear to debunk that notion. She cited comments last week by National Transportation Safety Board Chairman Christopher Hart, who said volatility is not a significant issue. “If it derails and the product is released, our accident experience has shown that the biggest contributor to a large explosion or fire is how much product is released rather than that volatility of the product,” Hart told Fargo radio station KFGO. Treseder said findings by the Department of Transportation, Department of Energy and Federal Railroad Administration seem to point to the same conclusion. She said DOT officials told federal lawmakers that the vapor pressure of Bakken crude was “not outside the norm” for light crude oils.

Contractors tapped for Midwest oil pipeline  — Two Wisconsin companies, including Michels Pipeline Construction, which has a field office in Cedar Rapids, have been selected to build portions of the proposed Dakota Access Pipeline. The yet-to-be-approved $3.78 billion, 1,134-mile Dakota Access Pipeline would transport domestically produced light sweet crude oil from the Bakken and Three Forks production areas in North Dakota to Patoka, Ill, where it could be shipped to the Gulf Coast and other destinations. Brownsville, Wis.-based Michels Pipeline will construct portions of pipeline in Iowa, South Dakota and North Dakota totaling 380 miles, according to a news release from Dallas-based Dakota Access Pipeline LLC. Eau Claire, Wis.-based Precision Pipeline will build pipeline segments in Iowa and Illinois totaling 476 miles. “Michels has a strong tradition of corporate social responsibility,” said Robert Osborn, senior vice president, in a news release. “A big part of that commitment is safety, quality workmanship and environmental stewardship. Another characteristic of our commitment is to sourcing locally whenever we can on a project.”  Michels Pipeline and Precision expect to collectively employ up to 4,000 people per state. As part of the pipeline’s agreement with the contractors, the companies would use 100 percent union labor with 50 percent coming from local union halls.

North Dakota set to extend deadline for gas flaring rules -- North Dakota is poised to give the energy industry up to two extra years to curb the amount of natural gas burned off at oil wells, a move that would ease worries pipeline construction delays make it impossible to meet aggressive flaring standards. Governor Jack Dalrymple and the two other members of the North Dakota Industrial Commission (NDIC), who spent months last year finalizing the rules, will mull oil companies’ request for the extension at their Thursday meeting. “These were lofty goals, but things have changed a bit and we’ve got to take that into consideration,” Doug Goehring, an NDIC member and the state’s agriculture commissioner, said in an interview. “We’re probably going to have to extend the deadline.” Goehring, who said low commodity prices will influence his vote, has an outsized influence over oil regulation due to his seat on the NDIC. Environmentalists oppose any extension and note the volume of gas flared in the state continues to rise as more oil wells are drilled, despite the best intentions of existing regulations.

New CBR Loading Facility Almost Ready To Start Shipping -- Palermo, ND -- September 21, 2015  On my most recent trip back to the Bakken -- just a week or so ago -- I was surprised at all the activity and all the projects still underway. Many of the projects were just breaking ground. I was surprised because the East Coast media has said the Bakken is dead. Maybe. And RBN Energy regularly reports that CBR is a dying industry. Maybe. But this is not a maybe. This is real. Another CBR loading facility is about ready to put out the sign: "Open For Business." KXNET is reporting: A new rail loading facility is on track to start shipping Bakken crude to the coast this winter. The Phillips 66 terminal near Palermo will be moving by train about 150-thousand barrels of oil a week starting out.The facility was built with expansion in mind and at full operation, the terminal could load two 110-car trains every day.  Linking into the Palermo BNSF mainline, the Phillips 66 rail loading facility will streamline the company's Bakken presence. Color me confused. I thought the Bakken was dying. I thought CBR was dead.  I can't recall the last time I had to update the "CBR Page." Palermo, ND, is about 10 miles east of Stanley, ND, right on the BNSF rail and just a half-mile or so north of I-98

West Coast to get Bakken oil via rail indefinitely: regulator (Reuters) – North Dakota’s Bakken crude oil should continue to travel to the U.S. West Coast via rail for the foreseeable future, the state’s pipeline regulator said on Tuesday. The use of pipe to transport oil out of the No. 2 U.S. crude producing state continues to climb, nearly reaching parity with rail this month. Yet with no pipelines planned across the Rockies, the two oil trains that leave North Dakota each day for Washington state should continue to chug along, Justin Kringstad, director of the state’s pipeline authority, said at the North Dakota Petroleum Council’s annual meeting. . “The West Coast will be serviced by rail for the foreseeable future,” he said

The Bakken is not special - analysis - Speaking at the annual North Dakota Petroleum Council meeting, Scott McNally dissected the Bakken’s potential in the global energy market and its ability to swing the market. The verdict? Despite being the number two producer in the U.S., the Bakken isn’t all that special. McNally, a graduate research assistant at Harvard University and fellow for the Center on Global Energy Policy at Columbia University, addressed the current downturn, price sensitivity, production and the Bakken’s potential, as well as the nation’s, to become a swing producer. Nine years ago, he said, North Dakota’s oil production sat around 120,000 barrels of oil per day. Fast forward to the current slump, which has lasted longer than predicted, or wanted, of which the effects are obvious: layoffs, cancelled contracts, acquisitions, and the list goes on. One fact remains, though: the proven resiliency of U.S. shale production in light of the persistent oil price slump and global oversupply. Posing the question of whether or not the U.S. will become the new swing producer, thus dictating the global market,, McNally said, “Probably not.” According to Baker Hughes, the U.S. rig count tallied in at 644 on Tuesday. About a year ago, there were roughly 1,931 rigs active nation-wide. Despite the dramatic drop, production has continued to climb. From 2005 to 2009, the natural gas market witnessed similar activity. Gas prices fell by about half, but production continued to climb. He commented that this is amazingly similar to what is happening with oil right now. Due to increased efficiencies in drilling rigs, the same number of wells are being drilled with half the number of rigs.

A Spinoff Goes to Heck, after Just 10 Months - Occidental Petroleum made a sweet deal on November 30, a masterpiece of Wall Street engineering. And just about every investor that touched it is now getting their hands burned off. Oxy was the big player in the miraculous scam of the Monterey Shale formation in California, which had been hyped for years as the largest reserves of oil in the US. Any studies that showed that this oil wasn’t recoverable with todays’ technologies due to the geological mess underground in earthquake land were shunted aside. The EIA finally conceded that point in May 2014 and slashed the delusional estimates of the reserves by 96%. California isn’t exactly the easiest place for fracking in the US. When the EIA finally acknowledged reality, Oxy was the biggest loser. Six months later, after the dust had sort of settled, Oxy exited in a grand manner by spinning off 80.5% of its California dream to Oxy shareholders. Shares started “regular way” trading under the ticker CRC on December 1, 2014. Energy spinoffs were hot in 2013 and 2014. Hedge funds clamored for them. They’d buy a big stake in the parent company and push the board to do a spinoff that entailed loading the spinoff up with debt to fund a fat special dividend back to the parent. The scheme was supposed to temporarily jack up the price of the parent company’s stock. “Unlocking value,” it’s called. Wall Street made sure that there were enough unwitting or yield-desperate buyers for the debt. Hedge funds got their way, made their money, and the lucky ones bailed out. Then came reality.

U.S. Shale Drillers Are Drowning in Debt -  As much as 400,000 barrels a day of oil production is at risk as U.S. shale companies like Samson Resources Co. run out of money and are forced to slow drilling. Total debt for half of the companies in a Bloomberg index of more than 60 producers has risen to a level that represents 40 percent of their enterprise value. It’s a sign of distress that shows equity values falling in the face of oil’s crash, The companies facing high debt loads, which include Encana Corp. and Chesapeake Energy Corp., produced 1.1 million barrels of oil a day in the second quarter of this year, according to data compiled by Bloomberg. If more companies file for bankruptcy as Samson did Wednesday, or embrace the kinds of draconian cuts needed to survive, output could fall by 200,000 to 400,000 barrels, Thummel said. A loss of that much crude would be the steepest U.S. decline since 1989, about the amount of oil from Oklahoma, the sixth-largest producing state, which pumped 356,000 barrels a day in June, government data show. “We are going to see a major response because these financially challenged companies won’t be able to produce as much as they did in the past,” he said. As companies run low on cash, they may be forced to idle drilling rigs, confront bankruptcy or seek more expensive financing and sell assets. In the past year, U.S. oil producers used 83 percent of their operating cash flow to pay for debt service, according to the U.S. Energy Information Administration. A year ago, it was less than 60 percent.

Plunging oil prices put question mark over $1.5tn of projects - Plunging oil prices have rendered more than a trillion dollars of future spending on energy projects uneconomic, according to a study that suggests that the impact on industry operators is worsening. A report published Monday says $1.5tn of potential investment globally — including in North America’s shale-producing heartlands — is “out of the money” at current oil prices close to $50 a barrel and unlikely to go ahead. Industry operators expect capital spending on new projects to decline by between 20 and 30 per cent on average in the wake of the price slide, says Wood Mackenzie, the energy consultancy. It calculates that $220bn of investment has been cut so far, about $20bn more than it estimated two months ago and much of it the result of projects being deferred. Such a decline in spending means that the price crash since last summer — the result of weaker Chinese demand, record US production and Saudi Arabia’s decision not to cut output — could resemble the savage downturn of the mid-1980s. After a brief recovery in the spring, oil prices spiralled lower in July. Brent crude — the global benchmark — fell to its lowest point in more than six years during August’s wider market turmoil. It now stands at $47.47 a barrel, down from $115 in June last year. Just half a dozen new projects will be approved this year, says the Wood Mac report, and 10 or 11 in 2016, compared with an annual average of 50 to 60.  “Deep cuts” in North America account for more than half of a 45 per cent fall in capital spending across the Americas. “The flexibility to rapidly dial back investment in unconventionals at low prices has provided a competitive advantage for the US independents with the bigger positions,” the study says.

Samson’s weakness is a cautionary tale - In mid September, Samson Resources, an exploration and production company valued at more than $7bn when a group led by KKR bought it in 2011, joined the ranks of energy companies filing for bankruptcy protection. The statistics make for grim reading. September is not yet over but August saw the highest ratio of distressed issuers in the US bond market in four years. Some 41 per cent of all oil and gas loans are distressed. Seventy energy companies have already defaulted this year, or a quarter of all such borrowers — of which 40 are in the US. Distress, which was at record lows for years, is about to increase dramatically, spreading from energy to mining and metals (the two sectors comprise 20 per cent of one standard high-yield index) and beyond. The Federal Reserve may have chosen not to raise rates but that has not given the financial markets the expected reprieve — as has been the case in previous bouts of the game of chicken between the financial markets and the Fed. The credit markets are in disarray and the cost of money is rising for cash strapped borrowers, while the usual relief rally in the stock market has failed to materialise. Ironically, even as the Fed says the economy is healing, (despite the fact that economic growth continues to bounce between 2 per cent and 2.5 per cent) the benign effect of almost zero rates is no longer enough to support either the debt or equity market. Asset price inflation has come to an end without any real sign of a robust recovery that would give investors a new and better reason to buy shares or high-yield debt. The risk on/risk off template seems to have been permanently switched to off mode. The combination of a higher cost of capital and the continuing plunge in oil prices suggests that despite the drop, there is more downside to come. “Even August’s devastation has not restored reasonable value to the vast majority of high-yield bonds,” noted research from the LCD arm of Standard & Poor’s.

Credit Crunch, More Defaults: Things Could Get Ugly for Oil Investors -- Private-equity firms may yet feel more pain from their oil and gas deals as the companies meet with lenders through the fall to review loans and determine how much debt they can continue to carry. The challenges are considerable: Regulators don’t like what they consider to be risky loans, the companies are running out of cash and can’t access the debt markets, and oil and gas prices remain stubbornly low. In some ways, the private-equity industry has become a victim of its own success: It has helped fuel the U.S. shale boom that in part led to the supply glut. But the prolonged oil downturn has stung such experienced investors as KKR and First Reserve Corp. with two high-profile bankruptcies this year in the form of Samson Resources Corp. and Sabine Oil and Gas Corp., respectively. More firms’ equity interests are at risk of being written down—or written off entirely. On the credit front, the widely anticipated wave of distressed debt opportunities has yet to hit, leaving many of the debt funds being raised waiting on the sidelines. Although the oil industry’s mess promises to yield more distress, investors can’t dive in without knowing where the bottom is. “I think we’ve only just begun to see the fallout from this crisis,” said the head of the energy practice at a large investment bank. The high-yield bond and second-lien loan markets aren’t nearly as welcoming as they were earlier this year and will no longer enable companies to raise new debt to pay down old one, said Joseph D’Angelo, partner at investment banking and advisory firm Carl Marks Advisors. Hedging programs that help lock in prices at which companies can sell their oil and gas production also are running out as 2015 comes to an end. And persistently low commodity prices led to at least one credit ratings firm to cut its price assumptions.

Oil drillers face shrinking credit lines as banks revalue assets - Oil producers in the U.S. are about to see their credit lines shrink, just when they need the money most. The latest round of twice-yearly re-evaluations is underway, and almost 80 percent of oil and natural gas producers will see a reduction in the maximum amount they can borrow, according to a survey. Companies’ credit lines will be cut by an average of 39 percent, the survey showed.“There’s going to be a reduction to the majority of these credit lines,” “It’ll make a lot of these companies reduce a bit more on spending.” In many cases, banks have first claim on assets in a bankruptcy, and the size of a loan is tied to how much an oil producer’s acreage is worth. To reduce their risk, lenders reduce credit lines when prices fall. That’s helped keep loans backed by oil and gas properties some of the safest bets around, even amid the worst oil crash in almost 30 years. At bottom, the math is pretty simple. The amount banks are willing to lend is based on two things: the size of a company’s reserves, and the price of crude. Multiply the number of barrels by the price, and that’s the value of a company’s oil prospects. In practice, it’s not that easy. Counting barrels trapped thousands of feet below the ground is by nature an uncertain business. And prices are always moving. Crude has declined 51 percent in New York over the past year. To protect themselves, banks underestimate both reserves and prices. First, they attribute very little value to wells that haven’t been drilled yet, unlike equity investors who see undeveloped properties as growth potential. Banks also don’t lend against every barrel credited to producing wells. And lastly, they assume oil will sell for less than market prices.

Wells Fargo has biggest energy exposure among large US banks-Raymond James - Wells Fargo & Co has the largest exposure to loans to energy companies among major U.S. lenders, a report from Raymond James said, amid concerns that banks may have to set aside more money to cover bad loans to the industry. The bank also topped the list with the biggest exposure to energy companies whose public debt was trading less than 35 percent of par, the brokerage said on Thursday. Wells Fargo was followed by Bank of America Corp, Citigroup Inc, Comerica Inc and BB&T Corp. Companies whose debt is trading 35 percent below par are generally seen as more distressed in comparison to those trading at 70-75 percent below par. U.S. accounting rules require that banks set aside money to cover losses on loans after the loan shows visible signs of deterioration.

Clinton would support end to oil export ban only with concessions  – Democratic presidential candidate Hillary Clinton said on Friday she would support lifting the 40-year-old U.S. ban on crude exports only if the measure included concessions from the oil and gas industry to move toward cleaner energy. Clinton said she had not yet seen any legislation on lifting the ban that included concessions from the fossil fuel industry, In the absence of that, “I don’t think the ban should be lifted,” Clinton told reporters. The U.S. House of Representatives is expected to pass a measure scrapping the trade restriction in coming weeks, after a panel in the chamber passed the bill on Thursday. Oil drillers say the ban needs to be repealed to keep the domestic energy boom alive. Opponents say lifting the ban could threaten jobs in oil refining and shipbuilding and harm the environment with more drilling. Clinton did not specify exactly what kind of concessions she wants from the oil and gas industry.

Clinton opposes construction of Keystone XL pipeline - — Hillary Rodham Clinton broke her longstanding silence over the construction of the Keystone XL pipeline, telling voters at a campaign stop in Iowa on Tuesday that she opposes the project assailed by environmentalists. The Democratic presidential candidate said the project had become an impediment to efforts to fight climate change. “I think it is imperative that we look at Keystone pipeline as what I believe it is, a distraction from the important work we have to do to combat climate change,” Clinton said. “And unfortunately, from my perspective, one that interferes with our ability to move forward to deal with the other issues. Therefore I oppose it. I oppose it.” The former secretary of state had previously said she shouldn’t take a position on the issue, saying she didn’t want to interfere with the Obama administration’s deliberations on allowing a project that would transport oil from Canada’s tar sands to refineries on the Gulf of Mexico. But she had expressed impatience in recent weeks over the drawn-out pipeline decision, which has been vigorously opposed by environmental activists and liberals who play a key role in the Democratic primaries. Clinton’s campaign events in New Hampshire and Maine last week were attended by activists who held signs that read “I’m Ready for Hillary to say no KXL,” demanding she oppose the pipeline.

Why we must drill for oil in the arctic -- Some green campaigners seem to believe Shell boss Ben van Beurden would be happy dunking polar bears in thick, black crude oil if it helped make the planet even hotter. But van Beurden, the 57-year-old engineer who has run Royal Dutch Shell for nearly two years and has given the company the green light to drill in Arctic waters, believes his view of the world’s future is considerably more honest than that of many environmentalists. ‘The amount of energy we consume is going to double in the first half of the century so we will have to supply twice as much as we do today as an industry. Most renewables produce electricity, and electricity is just 20 per cent of the energy mix. Where is the other 80 per cent going to come from?’ says the Dutchman.The UN conference on climate change opens in Paris in December, and van Beurden has already signed his name to an open letter calling for the implementation of a proper widespread system of pricing carbon emissions to cut greenhouse gases — necessary if the world is to hit its target of limiting global temperature rise to two degrees Celsius above pre-industrial levels. ‘I do think we can see a path that will get us to a system which is carbon neutral,’ he says. ‘But I object to the notion that it is a simple thing to do — that the only thing required is for companies like ours, people like myself, to step off the hose because we are the ones blocking it.’ ‘I want to explain what we are doing, how we are acting, and to make them conscious of the fact that their quality of life is highly dependent on energy. It is a fact that, in the wider debate, is very, very easily forgotten.’ Van Beurden is adamant that exploring for oil in the Arctic is manageable, saying: ‘A very significant part of the world’s oil and gas production already comes out of the Arctic. We deal with very significant risks all the time, we mitigate them, we understand them. ‘Engineers have a can-do mentality, that’s why we enjoy the quality of life that we all take for granted.’

TransCanada says cutting 20 percent of senior management positions – Pipeline company TransCanada Corp will cut 20 percent of its senior management positions as a continuing slump in oil prices has necessitated cost reductions, with further staff cuts possible in the future, a company spokesman said on Thursday. The company behind the Keystone XL and Energy East pipeline projects said staff were informed Monday about the cuts, which would be implemented over the next several months. “We don’t have an exact number for reductions at the senior level as the process is continuing but when transitions out of the company and retirements are complete, we expect about a 20 per cent reduction in senior leadership positions,” spokesman James Millar said in a statement. “Falling oil prices and the current environment are having a profound impact on our customers and we must do all we can to drive down costs and pursue our projects more efficiently and strategically.” Millar said it would be up to the leaders of business units and other support areas to determine how many employees are affected. TransCanada laid off 185 people from its major projects division in June, joining several other Calgary-based energy companies, including Suncor Energy Inc and Penn West Petroleum, that had trimmed staffing levels in order to survive the oil price slump.

Oil prices edge up as U.S. drilling declines - Oil prices edged up in early trading in Asia on Monday as U.S. drilling slowed and analysts estimated that $1.5 trillion worth of planned American production was uneconomical at prices of $50 per barrel or lower. Crude oil prices have plunged almost 60 percent since June 2014, when soaring global production started to clash with slowing demand. This includes losses of more than a quarter since June this year as a sharp slowdown in China has sparked concerns over the health of the world economy. Analysts said the low prices were beginning to impact production as drillers slow down new projects, especially in cost-sensitive North America where drillers react fast to changing prices. U.S. energy firms cut oil rigs for a third week in a row last week, a sign that the latest crude market weakness was causing drillers to put on hold production plans, triggering a slight increase in prices on Monday. “The current rig count is pointing to U.S. production declining sequentially between 2Q15 and 4Q15 by 255,000 barrels per day at the observed path of the U.S. horizontal and vertical rig count across the Permian, Eagle Ford, Bakken and Niobrara shale plays,” Goldman Sachs said.

Hedge funds no longer sure oil prices will fall further – Hedge funds continued to pare short positions in U.S. crude oil last week even as the previous short-covering rally ran out of steam. The unusual concentration of hedge fund short positions built up between June and August has been partially unwound, reducing some of the persistent selling pressure evident in the market during the third quarter. Speculators are not yet ready to bet heavily on a rebound in prices but the bearishness that dominated the market over the summer is dissipating. Hedge funds and other money managers reduced their gross short position in the main NYMEX U.S. crude futures and options contract by 14.5 million barrels in the week ended Sept. 15. Hedge funds have reduced their gross short position for five consecutive weeks by a total of more than 52 million barrels, according to the U.S. Commodity Futures Trading Commission. The gross short position has been cut by almost a third to 111 million barrels, down from a peak of 163 million in mid-August, though still almost double the 56 million barrels in the middle of June. The number of hedge funds with large short positions above the reporting threshold was unchanged at 59 but their average position was trimmed by almost 250,000 barrels, or 12 percent.

Oil Speculators Most Bullish in Two Months as OPEC Calls for $80 - Hedge funds slashed their bets on falling oil prices, leaving them the most bullish on U.S. crude futures in two months. Money managers’ net-long position in West Texas Intermediate rose by 14,821 contracts to 147,678 futures and options in the week ended Sept. 15, according to data from the Commodity Futures Trading Commission. That’s the highest level since July 7. In contrast, traders curbed their bullish positions in European benchmark Brent by the most in a month. The Organization of Petroleum Exporting Countries assumes crude prices will rise to $80 by 2020 as output falls elsewhere. U.S. production could sink by the most in 27 years in 2016 as the price rout extends a slump in drilling. Speculators closed out short positions two days before the Federal Reserve decided not to raise key U.S. interest rates. “The market’s not as oversupplied as we think it is,” OPEC assumes crude prices will rise by about $5 a year through 2020. Production from nations outside the group will be 58.2 million barrels a day in 2017, 1 million lower than previously forecast, according to an internal report. The impact of low prices is “most apparent on tight oil, which is more price reactive than other liquids sources,” according to the report.

Oil falls 2 percent as concern over demand bites (Reuters) – Crude oil prices fell as much as 2 percent on Tuesday on uncertainty over whether global demand will be enough to erode a sky-high surplus, ahead of a weekly survey of U.S. inventory levels. Volatility has picked up this week, as the outlook for crude has been muddied by data pointing to the market possibly having stabilized after losing more than half its value in a year, and the persistence of the highest global surplus in modern times. There is evidence that U.S. shale production is starting to feel the pinch of oil prices near six-year lows, which has prompted the International Energy Agency to issue more bullish forecasts for the market balance next year.  Capital Economics analyst Thomas Pew said there has been a loss of some half a million barrels of oil per day in U.S. production in the last couple of months alone. But uncertainty is running high over the outlook for demand in top consumers such as China, as well as the resilience of the U.S. economy following the Federal Reserve’s policy meeting last week

Brent recoups early losses, U.S. settles down 2 pct; eyes on inventories (Reuters) - Brent settled up on Tuesday, while U.S. crude finished down 2 percent but off its lows after a partial pipeline outage and bets of positive U.S. inventory data helped oil offset skittish sentiment in financial markets. Oil saw more support in post-settlement trade after industry group the American Petroleum Institute reported that U.S. crude inventories fell 3.7 million barrels last week. Stockpiles at the Cushing, Oklahoma delivery point for U.S. crude futures alone fell almost 500,000 barrels, it added. A Reuters poll projected that U.S. crude stocks fell by just around 500,000 barrels last week. Official inventory data from the U.S. government is due on Wednesday. Brent's front-month contract, November, settled up 16 cents, or 0.3 percent, at $49.08 a barrel. U.S. crude's October contract settled down 85 cents, or 1.8 percent, at $45.83 before expiring as the front month.

WTI Rises On Inventory Draw Despite Biggest Production Rise In 8 Weeks -- Following API's bigger than expected inventory draw, DOE confirmed a 1.925mm draw(more than expected) but the bigger story is likely that crude production rose 0.21% - the first rise in 8 weeks. Crude's initial reaction was dip but algos have morphed that into a rip now above $47. Inventories draw again... But production rose for the first time in 8 weeks... (notably though the rise was due to Alaska with 0% growth in The Lower 48)  And so for now the machines are focused on inventories and not production... Charts: Bloomberg

U.S. crude stockpiles fall more than expected last week - EIA -- U.S. crude oil stocks fell more than expected last week, while gasoline inventories increased and distillates drew down unexpectedly, data from the Energy Information Administration showed on Wednesday. Crude inventories fell 1.9 million barrels in the week to Sept. 18, the second straight weekly drawdown, compared with analysts’ expectations for a decrease of 533,000 barrels. The fall was smaller than the previous week’s 2.1-million barrel draw. U.S. crude imports fell 13,000 barrels per day last week with Gulf Coast imports dropping to second lowest weekly level since 1992. Crude stocks at the Cushing, Oklahoma, delivery hub for U.S. crude futures fell 462,000 barrels, EIA said. Crude futures extended gains in choppy trade after the bigger-than-expected drop, but pared gains later.

Jack Kemp's Weekly Crude Oil, Gasoline Tweets -- September 23, 2015  -- Jack Kemp's weekly tweets on gasoline demand and oil inventories:

  • Record propane stocks show first weekly drawdown since March, residual fuel oil stocks little changed; graphs are incredible; huge records being set
  • US distillate stocks fell -2.1 million bbl as refineries cut crude processing at the end of the driving season 
  • US gasoline stocks stand at 23.87 days of consumption, +1.57 days over 10-yr seasonal avg and +0.39 days over 2014 
  • US gasoline stocks rose +1.4 million bbl and are +8.4 million bbl over 2014 level and +7.0 million bbl over 10yr avg.  
  • US gasoline consumption averaged 9.2 million b/d over the last four weeks, +270,000 b/d over 2014
  • US refinery throughput edged down -310,000 b/d but at 16.2 million b/d is in line with 2014 and equal to 10-yr high
  • US crude imports were unchanged from previous week and relatively subdued at 7.2 million b/d
  • US commercial crude stocks fell -1.9 million bbl last week and have been basically flat since the start of August -- but still way above above; will move the 10-year average

One has to look at the graphs to see how the energy picture has really changed in the past year. The amount of crude oil being produced in this country is not simply setting new records; production will move the needle on 10-year averages.

Oil edges higher on U.S. GDP data but long-term outlook weak -- Oil prices edged up on Friday boosted by stronger than expected U.S. economic data though the longer-term outlook for energy markets remains weak due to a global oil supply glut and uncertainty over economic growth prospects in Asia. Globally traded Brent crude oil futures were at $48.62 per barrel by 1335 GMT, up 45 cents from their last close. U.S. West Texas Intermediate (WTI) futures were up 89 cents at $45.80 a barrel, having gained $1 earlier. The gains accelerated after U.S. government data showed the economy expanded at a annual pace of 3.9 percent in the second quarter, more than previously estimated, on stronger consumer spending and construction. Oil prices rose more than 25 percent in late August after a slowing rig count and reduction in U.S. crude stocks implied a tightening North American market and an easing of the global oil supply glut. But Brent is still down 24 percent so far in the third quarter, putting it on track for the second largest quarterly drop since 2008. Credit ratings agency Standard & Poor’s said that marginal production costs in places such as the United States were poised to fall due to improved drilling efficiencies, meaning production will not decline as steeply as expected.

U.S. Oil-Rig Count Falls to 640 - WSJ: The U.S. oil-rig count fell by four to 640 in the latest reporting week, extending a recent streak of declines, according to Baker Hughes Inc. BHI -1.33 % The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year. After a six-week streak of modest growth, the rig count has now declined for four consecutive weeks. Crude oil prices rose 1% to $45.38. There are now about 60% fewer rigs working since a peak of 1,609 last October. According to Baker Hughes, the number of gas rigs fell by 1 to 197. The U.S. offshore rig count was 33 in the latest week, up two from last week but down 29 from a year ago. For all rigs, including natural gas, the week’s total was down four to 838.

U.S. oil drillers cut rigs for 4th week on weak crude-Baker Hughes (Reuters) – U.S. energy firms cut oil rigs for a fourth week in a row this week, data showed on Friday, a sign the continued weak prices were causing energy firms to reduce drilling plans. Drillers removed four oil rigs in the week ended Sept. 25, bringing the total rig count down to 640, the lowest since July, after cutting a total of 31 rigs over the three prior weeks, oil services company Baker Hughes Inc said in its closely followed report. That compared with 1,592 oil rigs in the same week a year ago and an all-time high of 1,609 in October 2014. Combined with the reduction in natural gas rigs, total U.S. rigs were at a 12-year low. Natural gas rigs were down one this week to 197, up just one from its lowest level since at least 1987, according to the Baker Hughes data. The reductions over the past few weeks have cut into the 47 oil rigs that energy firms added in July and August after some drillers followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel. U.S. oil futures this week however were averaging $45 a barrel for a third week in a row, near the lowest levels for the year on continued lackluster global demand and lingering oversupply concerns.  In the country’s major shale basins, drillers this week cut three oil rigs in both the Permian in West Texas and eastern New Mexico and the Eagle Ford in South Texas and one in the Bakken in North Dakota and Montana. The Niobrara in Colorado and Wyoming remained unchanged.On Friday, U.S. crude prices were up about 1 percent, following gains in Wall Street stocks on stronger revised U.S. economic data.

Why the US hides 700 million barrels of oil underground - Something important, and valuable, has been quietly hidden along America’s Gulf Coast. Across four secure sites in unassuming locations lies nearly 700 million barrels of oil – buried underground. A total of 60 subterranean caverns, carved into rock salt beneath the surface, constitute the United States’ massive “Strategic Petroleum Reserve” (SPR). The facility was set up 40 years ago and there are now many other huge oil stockpiles dotted around the world. In fact, a whole host of countries have poured billions of dollars into developing such facilities and more are on the way. But what are these reserves – and why would anyone want to bury oil back into the ground in the first place? The answer lies in the energy crisis of 1973. Arab oil exporters had cut off the West from their supplies in response to US support for Israel during the Yom Kippur War. The world was so dependent on oil from the Middle East that prices skyrocketed and petrol was soon being rationed at US filling stations. In some cases, it dried up completely. People feared that any petrol they had might be stolen and a few even took to protecting their cars with firearms (see photographs taken during the crisis, below).A couple of years later, the US began building its SPR, filling caverns full of crude oil. Were oil supplies to be severely disrupted in the future, now the US would have its own stores to tide them through a price spike and alleviate pressure on global markets. As a government website boasts, “The SPR's formidable size… makes it a significant deterrent to oil import cutoffs and a key tool of foreign policy.” It’s a neat, but expensive, idea. The current year’s budget for maintaining the SPR is $200m.

This Is What Needs To Happen For Oil Prices To Stabilize -- To date, we have lost about 500,000 BOPD in the Lower 48. We will lose that again before the year is out. Pundits will claim otherwise, suggesting that oil in the 50’s or 60‘s will spur activity. But if that activity is in drilling, we won’t see any effect for a half a year or so. If it is in fracking drilled but uncompleted wells (“DUC’s”), that won’t mean much either over time. DUC’s have been the story of 2015 though they have had little effect on stopping the declines being put in. Back when the onslaught began, which I mark as Thanksgiving Day 2014—when OPEC declined to cut—Wall Street began talking of shale as being a switch; as in you can turn it on and off. Well, in the perspective of a remote offshore project and the 10 years that it takes to bear fruit, then the answer is yes. But shale is not a switch when it comes to controlling commodity prices, which are much more impatient. It took a full 6 to 7 months for the falling rig count to cast a shadow over production declines. And even then the initial declines were shallow, more of a cresting action really. So, going forward, we may have a new metric. That is, a sudden decline in rigs will take 6 to 9 months to show up in production in any meaningful way. We also still have a somewhat uneducated media that continues to shrug off its homework. We’re about a year into this bear market and oil has been covered to death on the financial news but it is still being misreported. As I mentioned above, the thought that $60 causes a switch to be thrown is wrong. Operators are battered and bruised. Sensible ones like EOG are holding onto their money. Others like Pioneer are thumping their chests claiming they can drill anywhere any time on their better prospects (but what company is going to claim holding mediocre acreage?). Full disclosure: I own stock in both, but should I stumble upon a few bucks (I run a frack company so these days I’m not counting on it) it would go to EOG. But, for the most part, very few operators are going to run headlong into a drilling program on a modest recovery. There is also the matter of their banks. They won’t let them. The shine is officially off shale in the debt markets. There are the private equity folks and other bottom feeders that are finding their way into the market but for the most part they are spending money on distressed assets, not new oil and gas wells.

How Much Are The World’s Giant Oil Fields Depleting? - The Joint Organizations Data Initiative (JODI) releases monthly oil supply-and-demand data for about 80 countries, which it gathers by directly surveying the countries. It is widely cited by analysts, especially for its figures on demand, imports and exports. The latest JODI data released Sunday showed that U.S. crude-oil production rose from 9.3 million barrels a day in June to 9.5 million barrels in July. But the EIA’s latest forecast called for July production to fall to 9.2 million barrels a day in July, continuing the trend of declining U.S. production as companies cut spending in the face of low prices. For the charts below I have used JODI data for all Non-OPEC nations except those that do not report to JODI.  For the USA, since the JODI data is obviously wrong for July, I simply carried forward the June data which also came directly from the EIA. And for OPEC I use the OPEC MOMR’s “secondary sources.” The data below is through July 2015 and is in thousand barrels per day. The below table, Giant Oil Fields of the World Data as of 2013 is from Art Berman. It was compiled by Mike Horn and Associates and is on the AAPG records. The Excel file that I received was far more extensive than the below. It contained the 738 largest oil fields and 1048 total oil and gas fields. I have shortened it to only fields above 5 billion barrels of oil, ultimate recovery estimate. Five fields above 5 billion barrels ultimate recovery are not included. Three because there was no data and Manifa and Khurais (Saudi Arabia), because of decades of being mothballed offline, I found their data to be inaccurate.   Horn and Associates calculated the decline, from first production, using three decline rates, 6.7 percent per year, 3.4 percent per year and 1.4 percent per year. Then they calculated the decline rate using an average of those three decline rates. The average of the three is the one used here when I calculated the remaining reserves from the original ultimate recovery estimate. The average of those three works out to be 3.83% decline per year. I think that number is very conservative.

OPEC focuses on rival mega projects, lives with shale swing output – After almost a year of painfully low oil prices, OPEC members are beginning to believe they are winning against upstart U.S. shale producers in a short-term market share contest. Yet insiders and experts say OPEC is looking for a longer-lasting impact on other high-cost production oil field plans, many in deep oceans, with bigger time scales, even if that means a period of cheap oil prices lasting for years. Privately, OPEC’s core Gulf members say they have resigned themselves to the idea that the U.S. shale industry’s high-tech flexibility means it will respond quickly when prices start rising again, making the United States the new swing producer in world oil, the role held for so long by Saudi Arabia. “The oil surplus is slowly being drawn from the market. U.S. oil production is expected to fall to less than 9 million barrels per day by the end of this year or early next year,” said an OPEC delegate from a Gulf oil producer. “But there is one point that no one is looking at which is the delay in the longer-term oil projects, these are 4-5 year projects. The postponement of these projects will impact the overall supply in the market.” The short investment cycle of U.S. shale, where it takes about few months before returns are seen, make it the most sensitive to oil price fluctuation — either way. Thus the spike in oil prices in June where U.S. crude was trading above $60 a barrel drew out more shale output but the price drop in August will reverse that, OPEC sources say.

Can The Saudi Economy Resist "Much Lower For Much Longer"? - The previous article in this series on Saudi oil policies asked what the Saudis planned to do as their encore in 2016 after sacrificing approximately $100 billion in crude oil export revenue in 2015 in pursuit of market share. This article provides the author’s answer: the Saudis must alter course, seek a consensus on prices and volumes with their fellow OPEC members, coordinate with Russia, and reduce output from 2015’s average (approx. 10.5 mmbbl/d) to signal their commitment. Why? Crude prices staying lower for longer will rapidly devastate the Saudi economy. In recent days, it seems the slogan “lower for longer” for crude prices has become “much lower for much longer.” September 11, Goldman Sachs revised downward its projection for average WTI and Brent per barrel prices in 2016 from $57 to $45 and $62 to $49.50 “on the expectation that OPEC production growth, resilient supply from outside the group and slowing demand expansion will prolong the glut.” Goldman also said prices could reach $20, albeit probably not for an extended period. At a recent conference in Alberta, Jeff Currie, Goldman’s head of commodity research, said low crude prices could persist for fifteen years and that Goldman’s long-term forecast is for $50 crude. Goldman’s projections both in terms of average 2016 prices and $20 as a possibility could prove optimistic. In a situation of oversupply, which prevails currently, when oil-dependent economies must earn dollars to pay for imports and the interest and principal on US$ loans, the price elasticity of supply is sharply negative. As excess crude oil production threatens to exceed crude storage capacity the price of each incremental barrel of crude presumably could approach $1 for US$ hungry producers. This is the kind of environment a September 14 Bloomberg article describes: intense competition between major oil exporting nations as Saudi Arabia fights to maintain its place as China’s chief crude supplier, and Iran, Russia, and Angola gird to compete fiercely for second place in this critical export market.

OPEC is winning battle to stimulate gasoline demand --  OPEC's bid to curb production of high-cost oil is taking time to produce results but the organisation is already making good progress on its other objective of stimulating fuel demand. In the first half of the year, gasoline deliveries into U.S. local markets jumped by 4.3 percent compared with the same period in 2014, according to the U.S. Energy Information Administration. The United States is the world's largest gasoline consumer and its gasoline demand accounts for 10 percent of all crude and condensates produced worldwide. In the first six months of 2015, U.S. gasoline consumption rose at the fastest rate since 1985 - another occasion on which the real price of oil halved over 12 months and stimulated demand ( U.S. gasoline sales have fallen or stagnated for the last decade as the high cost of fuel encouraged motorists to use their cars less and buy smaller and more fuel efficient vehicles. But the sharp drop in fuel prices since the middle of last year is stimulating demand again by encouraging more driving and motorists to purchase much bigger and heavier vehicles. According to the Federal Highway Administration, the volume of traffic on U.S. roads in the first half, measured in vehicle-miles travelled, was up 3.5 percent compared with 2014

Saudi Arabia Closed to Oil War III Refugees. - If you were a fleeing a oil and wars between warring Muslim factions, you might want to get the frack away from the people doing the fighting – fellow Muslims. The Saudis, who bankroll proxy groups in Syria and Iraq have closed their borders to their northern neighbors. While European countries are being lectured about their failure to take in enough refugees, Saudi Arabia – which has taken in precisely zero migrants – has 100,000 air conditioned tents that can house over 3 million people sitting empty. The sprawling network of high quality tents are located in the city of Mina , spreading across a 20 square km valley, and are only used for 5 days of the year by Hajj pilgrims. As the website Amusing Planet reports, “For the rest of the year, Mina remains pretty much deserted.”; The tents, which measure 8 meters by 8 meters, were permanently constructed by the Saudi government in the 1990’s and were upgraded in 1997 to be fire proof. They are divided into camps which include kitchen and bathroom facilities. The tents could provide shelter for almost all of the 4 million Syrian refugees that have been displaced by the country’s civil war, which was partly exacerbated by Saudi Arabia ’s role in funding and arming jihadist groups. However, as the Washington Post reports, wealthy Gulf Arab nations like Saudi Arabia, Qatar, Kuwait and others have taken in precisely zero Syrian refugees. Although Saudi Arabia claims it has taken in 500,000 Syrians since 2011, rights groups point out that these people are not allowed to register as migrants. Many of them are also legal immigrants who moved there for work. In comparison, Lebanon has accepted 1.3 million refugees – more than a quarter of its population.

Senior Saudi royal urges leadership change for fear of monarchy collapse | Middle East Eye: A senior member of Saudi Arabia’s royal family has circulated a letter expressing fear that the monarchy may collapse unless the king is urgently replaced and the position of deputy crown prince scrapped, Middle East Eye can reveal. On 4 September, a grandson of the late King Abdulaziz Ibn Saud wrote a four-page letter calling on the royal family to hold an emergency meeting to address concerns that the House of Saud may be losing its grip on power. “We [have] got closer and closer to the fall of the state and the loss of power,” the letter read. “We appeal to all the sons of King Abdulaziz – from the eldest Prince Bandar to the youngest Prince Muqrin – to summon an emergency meeting with all the family to discuss the situation and do everything that is need to save the country.” The letter was signed “a descendant of the King Abdulaziz of the House of Saud”. MEE spoke to the letter’s author, who confirmed he is a grandson of Abdulaziz, but asked not to be named for fear of negative repercussions. The document has been carefully circulated among princes, using secure means of mobile communication, because royal family members are under surveillance by those in power, the letter’s author said.

More Than 700 People Killed in Mecca Stampede - WSJ: —A stampede during the annual Hajj pilgrimage to Islam’s holiest city on Thursday left at least 717 people dead and another 863 injured, Saudi officials said. Saudi officials described the midmorning stampede at an intersection in Mina, about 3 miles from Mecca, as a “tragic accident.” Health Minister Khaled al-Faleh told state television that “crowding” and the failure by the host of pilgrims to follow instructions to walk at a measured pace had been the cause. Among the dead were 43 pilgrims from mainly Shiite Muslim Iran, according to Iran’s state news agency. Iranian officials castigated the Riyadh government for the disaster, which occurred on the first day of the Muslim holiday of Eid al-Adha. “The failure of the Saudi rulers to provide security for the pilgrims is inexcusable,”  An estimated two million Muslims from around the world have thronged the holy city to participate in this year’s Hajj, which began Tuesday. Each year, the Hajj poses a major logistical challenge to Saudi authorities. Every financially and physically able adult Muslim is obliged during their lifetime to perform the Hajj, imposing heavy demands each year on the kingdom’s infrastructure. The pressure is compounded by the multitude of nationalities and languages of those performing the Hajj and its rituals, which occur at specific locations in and around Mecca over a short period.

Saudi suggests pilgrims at fault over haj deaths, Iran angry - Saudi Arabia on Friday suggested pilgrims ignoring crowd control rules bore some blame for a crush that killed over 700 people at the haj pilgrimage in the annual event's worst disaster for 25 years. The kingdom's regional rival Iran expressed outrage at the deaths of 131 of its nationals at the world's largest annual gathering of people, and politicians in Tehran suggested Riyadh was incapable of managing the event. Hundreds of demonstrators protested in the Iranian capital, chanting "Death to the Saudi dynasty". With pilgrims frantically searching for missing compatriots and photographs of piles of the dead circulating on social media, the tragedy haunted many on the haj a day on. "There were layers of bodies, maybe three layers," said one witness who asked not to be named. "Some people were alive under the pile of bodies and were trying to climb up but in vain, because their strength failed and they dropped dead. "I felt helpless not to be able to save people. I saw them dying in front of my eyes," he told Reuters. An Algerian pilgrim told Algeria's al-Shurouk television: "We saw death: People were stepping over the mutilated bodies in front of you, four or five on top of each other.

Mecca belongs to all Muslims, and Saudi Arabia shouldn’t be allowed to run it - Quartz: Petroleum and the pilgrimage. The two combined give Saudi Arabia the chance to punch well above its weight, affording one of the world’s most regressive regimes the chance to exercise an outrageous influence on Islam. It’s time to think of alternative arrangements. It might seem obvious to you why Saudi Arabia is bad for Islam. Because the House of Saud controls Mecca, the direction of Muslim prayer and location of the hajj pilgrimage, and Medina, where the Prophet Mohammed built the first Muslim society, died and is buried, the Kingdom is linked to Islam. And vice versa. Though there is only one Muslim-majority country in the world where women can’t drive, because it is the country that rules over Islam’s holy land, it is assumed that Islam does not want women to drive. Because it is one of the few Muslim-majority countries that suffers an absolute monarchy, it is presumed Islam prefers unaccountable government too. In so many ways, Saudi Arabia stains the reputation of Islam. But Saudi Arabia has another kind of influence on Islam. Every year, millions of pilgrims descend on Mecca to circumambulate the Ka’ba, the cubical shrine we believe was built by Abraham to honor God, and restored by Mohammed to His worship. Many are from poor countries, and are visibly bedazzled by Saudi conspicuous consumption, the magnificence of the wealth on display, the awesomeness and indescribable hugeness of the great mosques that have been constructed to accommodate their numbers.I know how many feel. God has given the Saudis money beyond measure, and power over His holy land; this must mean God approves of their Islam.

OilPrice Intelligence Report: Iran Holding Up Its End Of The Bargain, So Far - The International Atomic Energy Agency (IAEA) says that Iran is on track with its obligations under the landmark nuclear agreement reached in July. The head of the IAEA, Yukiya Amano, confirmed that the agency’s inspectors were in Iran and had access to the Parchin military site as part of its investigation into Iran’s past nuclear activities. Amano says that Iranian officials cooperated and granted access to investigators. IAEA personnel have long been barred from the Parchin facility, where the international community believes Iran worked on nuclear weapons research and technology. Up until now, the outside world has only observed the facility via satellite. The announcement that Iran has given access to the IAEA puts Iran on course to meet its side of the nuclear deal reached with the P5+1 countries in July, a prerequisite to the removal of western sanctions. Also, with the deal free of attacks from the U.S. Congress, implementation is looking increasingly likely. The IAEA is set to release the results of its investigation by December 15 of this year, a pivotal event that will determine the next steps for Iranian sanctions. If removed, Iran could return a significant portion of its oil production capacity to market, adding to global supplies.

Iran Deal May Redefine The Middle East -- One month after the Iran nuclear deal was concluded, the Middle East is still reeling from profound shock. Long and well established alliances have led to bewildering changes, not only in the Mideast, but across the world. The stark difference is nowhere more strikingly revealed than in the media reports on the recent Iran nuclear deal. In a recent article on the front page of the Tehran Times, the author compared President Lincoln’s battle with a recalcitrant Congress for the passage of the 13th Amendment with Obama’s struggle with the Congressional leadership and hardliners for passage of the Iran nuke deal. Obama’s publicly stated view of the deal, similar to Iran’s, is that it is not just about weapons, but also about ending the thirty odd years of isolation and restoring Iran to its traditional place of power, leadership, and influence in the region.  There is widespread speculation about the visit of the new Saudi King to the U.S. to meet with President Obama, at a time when tensions between the two countries have seldom been higher. The Saudis’ bitter disappointment over the U.S./EU nuclear deal with Iran, their prime geopolitical rival, is no secret.  The nuke deal also led directly to a sudden military alliance between Israel and Saudi Arabia, once thought of as inconceivable. Along with that, the Saudis also promised, for the first time, exports of oil to Israel. But the real bombshell, reported in the Israeli press, was the Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran became necessary, supposedly in exchange for some form of peace agreement with the Palestinians.

The Parchin nuclear myth begins to unravel: For well over three years, heavy doses of propaganda have created a myth about a purported steel cylinder for testing explosives located on a site at Iran’s Parchin military testing reservation. Iran was refusing to allow the International Atomic Energy Agency (IAEA) to inspect the site while it sought to hide its past nuclear weapons-related work, according to that storyline. Now Iran has agreed to allow the IAEA to visit the site at Parchin and environmental samples have already been collected at the site. However, the politically charged tale of the bomb test chamber of Parchin is beginning to unravel. IAEA director general Yukiya Amano entered the building in which the explosives chamber had supposedly been located on Monday and announced afterward that he found “no equipment” in the building. That is surely a major story, in light of how much has been made of the alleged presence of the chamber at that location. But you may have missed that news, unless you happened to read the story by Jonathan Tirone of  Bloomberg Business News, who was the only journalist for a significant news outlet who chose to lead with the story in his coverage of Amano’s Monday visit.  But the full story of that mysterious chamber makes it clear that it was highly dubious from the start.

OilPrice Intelligence Report: “A Real Wake-Up Call” For The Oil Markets: Iran announced a decision to push back a key oil conference where it had planned to reveal new contracts for doing business in Iranian oil fields. The London conference, originally scheduled for December 2015, will instead be held in February 2016. The conference has already been postponed several times, but the decision to push it back another 2 months is intended to ensure that there is some clarity regarding western sanctions before the conference is held. For now, there is a decent chance that December will be a pivotal month for the removal of sanctions. The details of the new oil contracts will go a long way in determining how attractive Iran becomes as a new oil frontier for international companies. Iran has historically been a tough place to do business for foreign companies, but with Iranian oil production down more than 1 million barrels per day from its pre-sanctions level, the government has suggested that an overhaul of contracts would make investment much more attractive. Meanwhile, on September 25, China announced efforts to address climate change, as President Xi Jingping wraps up his trip to the U.S. this week. The initiative comes after the U.S. and China announced climate initiatives in November 2014, following months of backroom negotiations. The U.S. pledged to slash emissions by 26 to 28 percent by 2025, and China will see its emissions peak by 2030.   The announcement this week will put some meat on the bones for those targets. China unveiled a plan to launch a cap-and-trade program in 2017 in order to reduce greenhouse gas emissions from an array of industries. China has already put in place cap-and-trade plans at the regional level in several parts of the country, but the 2017 plan will cap emissions nation-wide.

The End Of Magical Thinking: Money Cannot Manufacture Resources ---Author Kurt Cobb writes frequently on energy and the environment and warns that our current economic policy suffers from a fatal degree of magical thinking: sufficient new resources will emerge if the price is high enough. As any fourth grader will tell you, a finite system will not yield unlimited resources.But that perspective is not shared by those controlling the printing presses. And so they print and print and print, yet remain flummoxed when supply (and increasingly, demand for that matter) does not increase the way they expect. Is this any way to run an economy? Or a finite planet for that matter?  Of course, a lot of people have been hearing the hype about the growth in production in the United States for crude oil. That has been happening, but it has been happening with very high cost oil. Now the prices are down and the industry is on its back. They are looking for ways to increase the amount of money they can get for that crude oil. One of those would be to sell this light tight oil, which is oversupplied in the United States to foreign refineries.  I am not sure that is going to help them much because the price of oil has gone down so low as compared to what their costs are. We have already seen a decline in U.S. output. The prognostication that we were going to be energy independent in oil, and that we were going to become the largest provider of oil to the world, I do not think are going to work out. It shows us that high priced oil leads to low priced oil, which also leads to economic slowdown. That is what we are seeing now. That is the equation that you and I wonder how people do not see that these things are connected, and yet they do not. people who run our central banks and run our government policy think that money manufactures resources. If we just put enough money out there, it will call forth the resources. There is a little bit of truth to that, because very cheap finance made it possible for us to lift this $100 barrel oil out of the shale formations of North Dakota, Texas, and other places. That is not endless, and the high price puts pressure on the economy. I think this is where we are going to have problems.

Global Oil Market Gets New Chinese Traders Hungry to Taste Crude - They long stood in the shadows of state-owned Chinese energy giants, small in size and clustered in an eastern province along the coast. Now, independent refiners are wielding growing clout in the global oil market. Shandong Dongming Petrochemical Group, the biggest of dozens of privately owned refiners known as “teapots,” illustrates how such processors may be coming into their own after years of depending on state-owned companies for oil. It began importing supply on its own this year after hiring two crude traders in Singapore, according to Shen Fan, a deputy general manager at Pacific Commerce Holdings Pte, its trading unit. China is widening access for teapots as part of its drive to encourage private investment in its energy industry. That may boost imports into the world’s second-biggest oil user, helping counter a glut that’s cut benchmark prices by half in the past year. The small plants account for almost a third of the nation’s processing capacity, and if Shandong Dongming is a guide, may attract cargoes from Latin America to West Africa and Australia. “Crude demand from teapots is a shining light for producers in the oversupplied market we are in today,” Wu Kang, a Beijing-based analyst with industry consultant FGE, said by phone. “If China is a force on the demand side in the global oil market, teapots’ expanded imports is one of the factors driving this force.” The government has approved seven teapot operators to get a combined 35.3 million metric tons a year of overseas crude, or about 700,000 barrels a day, according to data compiled by Bloomberg. This may rise to as high as 40 million tons by 2016, according to ICIS China, a Shanghai-based commodity researcher. The plants are mainly found in Shandong, a province on the country’s eastern coast.

China Keeps Oil Prices From Falling As It Fills Its Strategic Reserves - WSI has released its winter weather outlook, amid a backdrop of a strong El Niño. For the peak of the bleak mid-winter, WSI projects warmer-than-average temperatures for the West Coast and Northwest, as well as for the Upper Midwest. Colder-than-average temperatures are projected for the rest of the US. What does this mean for energy? It leans modestly bullish for natural gas prices, given lower temperatures for the key heating regions of the East coast and Midwest. For the crude complex it is a bit more mixed; above-normal, damp conditions for the upper US should mean less inclement conditions and therefore more gasoline demand, although these inclement conditions could manifest themselves in the lower half of the US instead. A shift to natural gas-fired generation in the Northeast means an ongoing marginalized impact on heating oil demand. From a supply perspective, the prospect of lower temperatures in key producing regions could lead to freeze-offs for both oil and gas production. Switching focus to China, and much is being made of China’s ongoing staunch level of oil demand amid a slowing economy and stumbling stock market. This is leading to an increasing number of accusatory fingers pointing to strategic stockpiling and the filling of storage, as opposed to underlying product demand strength. We can affirm this view from the perspective of healthy imports. #ClipperData shows that waterborne imports into China continue to knock the socks off last year’s levels. Should imports keep up their pace for the rest of the month, they will be achieve their highest level since April, and imports overall will be up 14% year-to-date through the first three quarters of the year. Bargain-hunting? You betcha.

China Is Sitting on an Ocean of Diesel Fuel - Add diesel to the commodities flooding global markets from China. The nation exported a record volume of the fuel last month after already shipping unprecedented amounts of steel and aluminum overseas. The weakest economic growth since 1990 is sapping domestic demand for commodities, while refineries, mills and smelters grapple with excess capacity after years of expansion. “A lot of it has to do with slowing demand at a time when companies had plans for much a better demand environment, so capacities had been increased,”  . “As demand slows, that’s led to an overcapacity in the domestic market and producers have sought to export the surplus.” Exports of Chinese raw materials are exacerbating a global glut that drove prices to the lowest since the 2008 financial crisis and prompted steel and aluminum producers around the world to protest against the deluge. While diesel exports are principally a risk to Asian refiners, the additional shipments threaten to worsen a glut that already extends from Singapore to Europe and the U.S. Refining profits, or cracks, from making diesel in the Asian oil trading hub of Singapore have shrunk about 30 percent from a year ago as exports from China, India and the Middle East create an oversupply.

China Manufacturing PMI Sinks to 78 Month Low - If you think a global economic rebound is just around the corner, then please note China Manufacturing PMI is in contraction, and at a 78 month low. Key Points:

  • Flash China General Manufacturing PMI at 47.0 in September. 78-month low
  • Flash China General Manufacturing Output Index at 45.7. 78-month low

In support of the idea that economic cheerleaders are nearly everywhere one looks ...  Commenting on the Flash China General Manufacturing PMI™ data, Dr. He Fan, Chief Economist at Caixin Insight Group said: "Overall,the fundamentals are good. The principle reason for the weakening of manufacturing is tied to previous changes in factors related to external demand and prices. Fiscal expenditures surged in August, pointing to stronger government efforts on the fiscal policy front. Patience may be needed for policies designed to promote stabilization to demonstrate their effectiveness."

China manufacturing contracts at fastest pace in more than 6 years - China’s crucial manufacturing sector is having its worst month since the depths of the global financial crisis in early 2009, according to a preliminary reading of a closely watched factory survey. The flash reading of the Caixin China general manufacturing purchasing managers’ index dropped to 47 points in September, down from 47.3 in August, marking the worst performance for the sector in 78 months. A reading above 50 indicates improving conditions while a reading below 50 signals deterioration. The index has now indicated contraction in the sector for seven consecutive months. Most analysts had expected a mild recovery in the Chinese manufacturing sector in September thanks to loosening credit and monetary policy conditions and an increase in government investment as it tries to stimulate growth in the slowing economy. In refraining from raising interest rates last week, the US Federal Reserve alluded to fragility in the Chinese economy as one of its main concerns. Another month of particularly weak Chinese data in September could convince the Fed to hold off again from interest rate “lift-off” when it meets near the end of next month. Every component of the Caixin flash PMI, from new orders to prices to employment, showed signs of worsening deterioration in the manufacturing sector in September. The benchmark Shanghai Composite Index fell more than 2 per cent by Wednesday afternoon, despite Mr Xi’s comments in Seattle that China’s stock markets had entered a period of “self-recovery and adjustment after recent ups and downs”.

Robot revolution sweeps China's factory floors: For decades, manufacturers employed waves of young migrant workers from China's countryside to work at countless factories in coastal provinces, churning out cheap toys, clothing and electronics that helped power the country's economic ascent. Now, factories are rapidly replacing those workers with automation, a pivot that's encouraged by rising wages and new official directives aimed at helping the country move away from low-cost manufacturing as the supply of young, pliant workers shrinks. It's part of a broader overhaul of the economy as China seeks to vault into the ranks of wealthy nations. But it comes as the country's growth slows amid tepid global demand that's adding pressure on tens of thousands of manufacturers. With costs rising and profits shrinking, Chinese manufacturers "will all need to face the fact that only by successfully transitioning from the current labor-oriented mode to more automated manufacturing will they be able to survive in the next few years," said Jan Zhang, an automation expert at IHS Technology in Shanghai.

China’s Workers Stumble as Factories Stall - WSJ: For decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums. The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price. Now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest. In Xiguozhuang, a village among cornfields some 155 miles south of Beijing, it had been rare to see working-age men for much of the year. This year, however, many of the men are at home, sidelined by a fading property boom. “Times are tough now,” said Wang Hongxing, a 39-year-old father of three who has worked at building sites across China’s northeast since his teens, but who has spent the past two months tending his farmland plot. “There are too many workers and wages are dropping.” But for other migrants, especially those of a younger generation who took jobs in factories along China’s coast, a return to farming isn’t an option. Nor do they necessarily want to join the service sector China sees as a cornerstone in its shift to a new economic model.

China central bank steps up cash injections before holiday as rates increase — China’s central bank stepped up cash injections as a benchmark money-market rate climbed the most in seven weeks in the run-up to a week-long holiday. The People’s Bank of China added 80 billion yuan (RM55 billion) to the financial system today using 14-day reverse-repurchase agreements, double the 40 billion yuan supplied via seven-day contracts a week ago. Open-market operations injected a net 40 billion yuan for the week. The tenor of reverse repos auctioned was changed as China’s financial markets will be closed Oct. 1-7 for the National Day holiday. The seven-day repurchase rate, a gauge of interbank funding availability, rose 12 basis points to close at 2.46 per cent in Shanghai, based on a weighted average from the National Interbank Funding Centre. While that’s the biggest one-day gain since Aug. 7, the rate is still below the past year’s average of 3.18 per cent. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was steady at 2.48 per cent. More reverse repos were offered “to meet increased cash demand before the National Day holiday,” said Li Miaoxian, a Beijing-based analyst at Bocom International Holdings Co. “The amount of the injection isn’t that huge as money-market rates remain at quite low levels.”

The drain on China’s foreign exchange reserves - Gavyn Davies - After increasing relentlessly for two decades, China’s foreign exchange reserves started to decline about a year ago, and during the crisis month of August 2015 they plummeted alarmingly. Seen by many investors as a signal of waning confidence in the credibility of Chinese economic policy, a collapse in the reserves is now taken as one of the prime reasons to dump risk assets on a global basis. As the balance sheet of the PBOC shrinks, investors fear that “quantitative tightening” will be triggered in developed bond markets, and worry that a credit crunch will occur in China itself.  These concerns are not entirely without foundation but a confidence run on the renminbi is still unlikely. Much will depend on whether the Chinese authorities can shed their cloak of secrecy sufficiently to lay out a clear strategy for the reserves, the exchange rate, monetary policy and the necessary clean up in the domestic banking system. If the right strategy emerges, confidence can be restored, because China is very far from being an insolvent nation.How did China get here? The rise in foreign exchange reserves started way back in 2001, and proceeded at about 40 per cent a year in the mid 2000s. After that, the rate of increase has gradually slowed, and the reserves peaked at almost exactly $4 trillion in August 2014. Throughout this long period, China ran a large current account surplus, and a private sector capital surplus, but did not want the exchange rate to rise too rapidly. The authorities therefore smoothed the inevitable exchange rate appreciation by buying dollars and building reserves. The rise in the reserves was not so much a deliberate policy choice, more the automatic result of policy decisions elsewhere.

A Big Bet That China’s Currency Will Devalue Further -- Mark L. Hart III, a big time hedge fund investor based in Texas, is betting that the mini-devaluation of China’s currency last month was a mere appetizer to a 50 percent currency implosion that he predicts will come when foreign investors pull their money out of China. Such an extreme drop in China’s currency, the renminbi, would propel a broader rout in emerging-market currencies — from South Korea to Turkey to Brazil — and result in a sustained global slump as China’s borrowing binge grinds to a halt. A growing number of investors like Mr. Hart have concluded that a dollar that strengthens with the United States economy will have a devastating effect not only on China but on emerging markets in general. Their view is that the trillions of dollars that chased risky investment opportunities in China, Brazil, Turkey and other countries are swiftly exiting and that the pace will pick up when the Federal Reserve eventually raises interest rates. The result, they say, will be plunging currencies, corporate defaults and a sustained growth slowdown over the next few years. This week, emerging-market currencies continued their decline, led by Brazil, Turkey, Mexico and South Africa. Passport Capital, a $4 billion hedge fund in San Francisco, has earned stellar returns this year by betting on weak commodities and imploding emerging-market stock markets and currencies. In a report by HSBC on top-performing hedge fund managers, a special opportunities fund managed by Mr. Burbank increased 29 percent through July of this year. Through August, his Global Strategy Fund was up 14.5 percent. “Emerging markets are being liquidated,” Mr. Burbank said in a separate Real Vision interview. This will continue, he argued, as investors keep taking their dollars out of these economies. At the root of this investment thesis is the belief that China’s 3 percent currency devaluation last month was not a one-time event, as many analysts have suggested. Instead, these investors think that after a borrowing and investing frenzy — much of which was financed by dollar-based lenders — China is experiencing a run on the bank similar to what happened to Asian countries in 1997 when their semi-pegged currencies collapsed.

Chinese Spillovers -- Krugman -  China is clearly in economic trouble. But how worried should we be about spillovers from China’s woes to the rest of the world economy? I have in general been telling people “not very”, although it’s a bigger issue for Japan and Korea. But Citi’s Willem Buiter suggests that it could be a quite big deal, leading to a global recession. ... So could he be right? Let me start with the case for not worrying too much, which comes down to the fact that China’s economy, while big, is still a small fraction of the global economy... One possibility is ... that a Chinese slump could, via its impact on commodity prices, do a lot more harm to some other emerging markets than the above analysis suggests. I’m still working on this, although so far I don’t seem to be finding much there. Another possibility is an international version of the financial accelerator. As Buiter points out, many emerging markets seem to be vulnerable thanks to private-sector foreign currency debt (which was so deadly in 1997-98). .. Maybe, also, we could see some version of the financial contagion so obvious in the 1990s. Troubles in Brazil might make investors leery of other emerging markets, driving up interest spreads and forcing fiscal austerity that worsens the downturn. Or for matter, to the extent that the same hedge funds have been buying assets in a number of emerging nations, losses in one place could force them to liquidate assets elsewhere, causing a sort of global debt deflation. That was a popular story in the 1990s... Overall, I’m not convinced of the Buiter thesis; China still seems to me not big enough to bring down the rest of the world. But I’m not rock-solid in that conviction, largely because we’ve seen so much contagion in the past. Stay tuned.

Hong Kong Aug Exports Fall More Than Expected: Hong Kong's exports declined for the fourth straight month in August at a faster-than-expected pace, figures from the Census and Statistics Department showed Thursday. Exports fell notably by 6.1 percent year-over-year in August, much faster than economists' expectations for a 1.7 percent decrease. In July, exports had dropped 1.6 percent. The value of domestic exports plunged 21.3 percent annually in August and re-exports dipped by 5.9 percent. Imports also slipped at a faster pace of 7.4 percent yearly in August, following a 5.2 percent fall in the preceding month. The expected rate of decline was 3.3 percent. The visible trade deficit narrowed to HK$25.1 billion in August from HK$31.5 billion in the corresponding month last year. Economists had forecast a deficit of HK$28.0 billion for the month. In July, the shortfall was HK$28.4 billion. In the January to August period, total trade deficit came in at HK$295.8 billion versus HK$336.03 billion a year ago. Both exports and imports fell by 1.0 percent and 2.4 percent, respectively.

Taiwan export orders fall for 5th month on global slowdown  (Reuters) - Taiwan's export orders contracted for a fifth month in August as demand from China and key markets continued to deteriorate, putting the economy on track for its slowest growth in six years. The bigger-than-expected order decline does not bode well for trade-reliant Asian economies hoping for a recovery in exports heading into the year-end shopping season and raises the chances that Taiwan's central bank will cut interest rates. A slowdown in China, among the two biggest markets for Taiwan, is weighing on the island's exports and has prompted the government to slash its 2015 full-year economic growth forecast to 1.56 percent from 3.28 percent previously. Annual export orders in August declined 8.3 percent, Taiwan's Ministry of Economic Affairs said, worse than the 4.6 percent slide forecast in a Reuters poll. U.S. order growth fell to a mere 0.6 percent in August from nearly 11 percent growth in July. Orders declined from other major markets, down 14.8 percent from China, 12.1 percent from Europe and 17.1 ercent from Japan, the ministry said. The 8.3 percent contraction in overall export orders was the worst since August 2009 when ruling out distortions from the Lunar New Year, the ministry told a news conference. The dates of the long holiday are different in every year according to the lunar calendar. Taiwan's export orders, which are seen as an indication of the strength of Asian exports and of global demand for technology, have been contracting after surging last year from strong demand for Apple Inc's iPhones.

Taiwan Central Bank Cuts Rate for First Time Since 2009 -- Taiwan's central bank cut its benchmark interest rate for the first time in more than six-and-a-half years Thursday, saying a 0.125-percentage-point reduction in rates would help lift prices and ensure financial stability. The decision came as the Chinese economy shows further signs of slowing, and follows a series of disappointing Taiwan data that had prompted some economists to expect a rate cut to help weaken the Taiwan dollar and boost export competitiveness. China is Taiwan's biggest export market. The central bank lowered the benchmark discount rate to 1.750% from 1.875%. It also trimmed its other key rates for secured and unsecured loans by the same amount. The Taiwan dollar fell against the U.S. dollar after the decision, weakening to US$33.255 from US$33.166. The rate cut came after figures released earlier this week showed industrial output falling at a faster-than- expected 5.5% in August from a year earlier, while export orders slumped 8.3% in the same period, hit by a slowdown in China and sluggish global demand. The government has already halved its 2015 growth forecast to 1.56%, also lowering last month its view on inflation. It now sees the consumer-price index falling 0.19% in the current year compared with a previous forecast for a 0.13% increase. Some analysts said the rate reduction showed that the Taiwan central bank had become less dependent on moves by the U.S. Federal Reserve and more dependent on the health of the Chinese economy, which is showing signs of further weakening.

Large manufacturers' revenue in S. Korea posts biggest decline in 12 years (Xinhua) -- Revenue of large manufacturing companies in South Korea posted the largest decline in 12 years during the second quarter due to lower commodity prices and the slump in the shipbuilding industry, central bank data showed Tuesday. According to the Bank of Korea (BOK)'s sample survey of about 16,000 companies subject to external audit, their average revenue shrank 4.3 percent in the second quarter from a year earlier after sliding 4.7 percent in the prior quarter. Among large companies, manufacturers saw revenue tumble 7.5 percent during the quarter, marking the biggest decline since the related data began to be compiled in 2003. The BOK attributed the biggest reduction in 12 years to falling prices in crude oil, natural gas and iron ore that led to lower export prices and a fall in revenue especially among large exporters. By industry, revenue in the oil and chemical sector plunged 15. 9 percent on lower commodity prices, followed by an 11.4 percent decline for the electricity and gas sector and a 6.6 percent fall for the metals-making industry. Economic slowdown in China, South Korea's largest trade partner, resulted in a 3.6 percent fall in revenue for the machinery, electric and electronics sector in the second quarter from a year earlier.

Asian Currencies Slide After Fed Officials Signal Rate Increase Possible in 2015 - WSJ: Asian currencies weakened Tuesday after U.S. Federal Reserve officials suggested interest rates could be raised as early as next month, but the region’s major stock markets gained modestly ahead of a reading on Chinese manufacturing. The Malaysian ringgit fell by 0.5% against the U.S. dollar while the Thai baht and Indonesian rupiah each fell by about 0.3%. The Shanghai Composite Index gained 0.9%, leading most of the region higher. As Chinese President Xi Jinping makes his first state visit to the U.S., the benchmark is down 38% from its June peak, after a selloff that rattled global markets in August. In his first interview with foreign media since the skid began, Mr. Xi said that the government’s intervention in its stock market was necessary to “defuse systemic risks.” On China’s nearly 2% devaluation of the yuan, which had investors questioning whether the slowdown in China’s domestic economy was worse than previously thought, Mr. Xi said that said the reduction in foreign reserves that followed is normal “and there’s no need to overreact to it.” The dollar rose overnight to levels reached before last week’s Fed decision to leave interest rates unchanged. Regional Fed presidents Jeffrey Lacker of Richmond, Va., James Bullard of St. Louis and John Williams of San Francisco signaled in speeches that many central-bank objectives had been met and that Thursday’s decision was a close call.

Asia Development Bank cuts growth forecasts for China, Asia - Weaker growth in China this year is expected to cause a slowdown in the rest of Asia, the Asian Development Bank said today as it became the latest major body to revise down its forecasts for the world’s number two economy. It also warned central banks to prepare for an expected Federal Reserve interest rate rise, with many nations already seeing huge capital outflows as dealers look for better, safer US investments. The report comes as markets are swiped by extreme volatility driven by fears over the Chinese economy — and its leaders’ management of it — after last month’s surprise devaluation of its yuan currency. “The combination of a moderating prospect in China and India, together with delayed recovery of advanced countries, weighed on our forecast for the region as a whole,” said ADB Chief Economist Shang-Jin Wei, who presented the report at the Foreign Correspondents’ Club in Hong Kong. In an update to its flagship Asian Development Outlook released in March, the Bank said growth in the region would hit 5.8 per cent this year and 6.0 per cent in 2016. March’s forecast was for 6.3 per cent for both years. Inflation in the developing Asia region was forecast to ease further, partly due to lower global commodity prices.

Japan Manufacturing PMI Borders on Contraction as New Export Orders Plunge - Japan's Manufacturing PMI is still growing, but barely. Key Points:

  • Flash Japan Manufacturing PMI™ at 50.9 (51.7 in August). Operating conditions improve at slower rate.
  • Flash Japan Manufacturing Output Index at 51.4 (51.1 in August). Growth in production little changed from August’s modest pace.

Amy Brownbill, economist at Markit, which compiles the survey, said: "September PMI data pointed to a general slowdown in the expansion of the Japanese manufacturing sector. New order growth moderated, having increased in August at the fastest rate since January. Underpinning the slowdown in total new order growth was a sharp reduction in international demand as new export orders dropped to the greatest extent for 31 months. A number of panellists blamed a fall in sales volumes from China leading to a decrease in new exports. Subsequently, employment levels declined for the first time since March."

RPT-BOJ brainstorms stimulus overhaul as options dwindle -sources (Reuters) - Sources say the Bank of Japan has been quietly brainstorming the idea of overhauling its massive monetary stimulus programme over time, casting doubt on officials' confident assertions that it can keep buying up government bonds for several more years. Sources familiar with the BOJ's thinking say stepping up its 80 trillion yen ($665 billion) per year asset buying remains its go-to option if deflationary pressures persist, given a limited arsenal of obvious policy alternatives. But they say the central bank isn't ruling out breaking with the money-printing programme over the longer term, as it has had little success in accelerating inflation toward its 2 percent target since it began in April 2013. Senior BOJ officials have been involved in preliminary talks discussing the longer-term options, the sources said. "If the medicine isn't working, you wonder whether it makes sense to keep prescribing more," one of them said on condition of anonymity.

Japan falls back into deflation for first time since 2013 - Japan has fallen back into deflation for the first time since April 2013 in a symbolic blow to prime minister Shinzo Abe’s economic stimulus programme. Headline prices, excluding fresh food, were down 0.1 per cent compared with a year ago in August, as slumping global energy prices outweighed stronger domestic inflation in Japan. The figures create a conundrum for the Bank of Japan: it is encouraged by signs of inflation at home, but the fall in headline prices may lead the public to conclude its policy has failed, and their belief could be self-fulfilling. That is leading to rising pressure on the BoJ to ease monetary policy further when it updates its economic forecasts at the end of October, especially given sluggish growth in Japan and the economic slowdown in China and emerging markets generally. “We strongly believe the BoJ remains too optimistic about inflation,” said Hiromichi Shirakawa at Credit Suisse in Tokyo. He said the BoJ did not want to move but would most likely be forced to act. “If they stick to 2 per cent inflation [as a target], they have to do more. There is a very big credibility issue if they do not move,” Mr Shirakawa said. However, core prices excluding food and energy were up 0.8 per cent compared with a year ago in August, a pace seldom seen since the 1990s. That suggests the domestic economy is running out of spare capacity, creating pressure for higher prices. “Not surprisingly, energy prices continue to weigh on headline and core inflation in Japan, but the Bank of Japan would take comfort from further signs that domestically driven inflation is rising,”

Less Than Zero: Japan's CPI Falls as Oil Rout Trumps Kuroda - After hovering near zero for months, the Bank of Japan’s main inflation gauge dropped into negative territory as weak domestic demand and plunging oil prices wiped out the impact of Governor Haruhiko Kuroda’s unprecedented monetary stimulus. As forecast, consumer prices excluding fresh food fell 0.1 percent in August from a year earlier, the first decline since April 2013, the same month Kuroda embarked on a campaign of record asset purchases to rid Japan of its "deflationary mindset." Stripping out food and energy, prices rose 0.8 percent in August. This latest price data underscore mounting challenges to the reflation campaign led by Kuroda and Prime Minister Shinzo Abe, with the economy contracting last quarter amid disappointing household spending, industrial production and business investment. October is shaping up as key a month for the BOJ, with almost one-third of economists surveyed by Bloomberg forecasting the central bank will add to its stimulus when it updates its estimates for growth and inflation. “The drop in prices brings more unpleasant news for the BOJ,” Masamichi Adachi, an economist at JPMorgan Chase & Co. and former BOJ official, said before Friday’s report by the statistics bureau. “It’s getting harder to defend keeping policy unchanged.” Energy prices in August dropped 11 percent from a year earlier, with gasoline falling almost 18 percent. In Tokyo in September, the main price gauge fell 0.2 percent from a year earlier, with the 13 percent drop in energy prices in the capital this month beating large rises in the price of televisions and other durable goods.

Japan's Shinzo Abe signals readiness to offer fiscal stimulus - The Economic Times: Japanese Prime Minister Shinzo Abe said on Friday he was ready to respond flexibly to any downturns in the economy with additional policy measures, including further fiscal stimulus. He also stressed that achieving strong economic growth would remain the top priority for his administration, even as it tackles longer-term challenges for Japan, such as a rapidly ageing population and a dwinding workforce. "Japan's economy is showing some wekanesses but remains on a recovery trend ... The economy will remain our top priority," Abe told a news conference. "We're not considering compiling an extra budget to fund a stimulus package now. But we're monitoring economic developments carefully and stand ready to guide economic and fiscal policy flexibly." Abe's key cabinet ministers, including Finance Minister Taro Aso, have ruled out another fiscal stimulus package to support a fragile economic recovery. But many analysts expect the government to offer additional fiscal stimulus to spur growth and help the ruling party win votes ahead of next year's upper house elections.

Japan Dumbs Down Its Universities - Japan’s government just ordered all of the country’s public universities to end education in the social sciences, the humanities and law. The order, issued in the form of a letter from Hakubun Shimomura, Minister of Education, Culture, Sports, Science and Technology, is non-binding. The country’s two top public universities have refused to comply. But dozens of public schools are doing as the government has urged. At these universities, there will be no more economics majors, no more law students, no more literature or sociology or political science students. It’s a stunning, dramatic shift, and it deserves more attention than it’s receiving. It is also a very bad sign for Japan, for a number of reasons. First of all, eliminating social science could signal a return to a failing and outdated industrial policy. Many observers interpret the change as an economic policy, intended to move the Japanese populace toward engineering and other technical skills and away from fuzzy disciplines. But if this is indeed the aim, it’s a terrible direction for Japan to be going. Since it's a country with a shrinking population, it can only grow by increasing productivity. But Japanese productivity has grown very slowly since the early 1990s, and has fallen far behind that of the U.S. If Japan is going to turn this situation around, it will need more than a workforce of skilled engineers. It will need managers who can communicate with those engineers and with each other. It will need conceptual thinkers who can formulate business plans and strategic vision. It will need marketers who can establish and increase Japanese brand recognition. It will need financiers who can channel savings away from old, fading industries and toward productive new ones. It will need lawyers to sort out intellectual property cases and help businesses navigate international legal systems. It will need consultants to evaluate the operations of unprofitable, stagnant companies and help those companies become profitable again. In other words, it will need a bunch of social science and humanities students. So the education change is a big step backward economically. But what it signals about Japanese politics and the policy-making process might be even more worrying.

India Needs Lower Interest Rates, Finance Chief Jaitley Says - India needs lower interest rates, and the central bank must decide how much to cut, Finance Minister Arun Jaitley said. "India obviously does need cuts but to what extent, I think, is a prerogative of the central bank and they will factor in all these concerns," Jaitley said in an interview with Bloomberg Television in Hong Kong. "Indian inflation is under control," he added, contrasting recent numbers with double-digit figures just a few years ago. Central bank Governor Raghuram Rajan last month resisted pressure from the Finance Ministry to ease policy. He left borrowing costs unchanged at 7.25 percent at an Aug. 4 meeting after three cuts this year to meet his inflation target of 6 percent by January. The next meeting is on Sept. 29. Since last month, data has shown that consumer price gains slowed to 3.66 percent in August -- below the central bank’s 6 percent target for January -- as oil has tumbled below $50 a barrel and global food costs fell. "Commodity prices have weakened since the last time they met in August and then you have external risks that have abated," said Radhika Rao, an economist at DBS Bank Ltd. in Singapore. "So these factors put together do make a clear case for RBI to lower rates. It is like another window that has opened up for them to act this quarter." Sectors including real estate, manufacturing and infrastructure are "anxiously looking up" and want more rate cuts, Jaitley said. "Any finance minister who wants economic growth would love more, but then I’ve said this is a view on which the Reserve Bank will take a very balanced view." India’s $2.1 trillion economy is set to expand over 7 percent in the year through March, among the fastest growing in the world. Even so, investors are starting to question Prime Minister Narendra Modi’s ability to push through reforms as opposition lawmakers block key proposals like a goods-and-services tax.

Indonesia Central Bank to Announce Policy Package to Support Rupiah | Jakarta Globe: Indonesia's central bank will announce new policies aimed at increasing onshore supply of dollars, as part of the second installment of a stimulus package to support the shaky rupiah. Earlier this month, Indonesia's government unveiled the first installment of a stimulus package, which analysts argue did not directly affect the exchange rate because most of the changes were deregulation measures to attract direct investment. "This part of the package we hope will be able to stabilise the exchange rate more," said Juda Agung, Bank Indonesia's (BI) executive director for monetary and economic policy, on Friday. Hit by sliding prices for commodities, cooling demand from China and a likely rate hike in the United States, the rupiah has lost about 16 percent against the dollar so far this year - the second worst performing currency in emerging Asia. Analysts say Indonesia's current account deficit and the big share of its government debt in offshore investors' hands make it especially vulnerable to capital outflows in the event of a rate rise in the United States.

Interest rate cuts predicted: Property prices have peaked, Morgan Stanley: AUSTRALIA’S housing boom has peaked, with the challenge now to pull off a ‘soft landing’, investment bank Morgan Stanley says as it predicts further interest rates cuts and a mini-budget stimulus. While official interest rates remain at a record low two per cent, tightened lending standards are prompting a cooling-off period amid slower net migration, its analysts note in a research report. “We are now calling the peak in the housing cycle, and expect further falls in auction clearance rates and house price momentum, with a negative impact on construction occurring over 2016,” the report said. The analysts say the housing slowdown comes at an awkward time for the Australian economy as it transitions out of the mining boom. “We believe recession risks are elevated as regulators attempt a difficult soft landing of the housing market amidst external and income challenges,” the report said. “While we believe policymakers have meaningfully tightened credit conditions and are willing to sacrifice some growth to lessen the risk of a ‘crash’ down the track, the challenge is to pull off a ‘soft-landing’, as seen in 2003-04.” Morgan Stanley argues fiscal stimulus is necessary and the federal leadership spill could be a catalyst to unlock a major infrastructure stimulus. It predicts new prime minister Malcolm Turnbull may use the mid-year economic forecast in December as a mini-budget with a new growth agenda, although Mr Turnbull on Monday said it was not something he had considered.

Australia heads to Atlanta for last-ditch talks to revive Trans-Pacific Partnership: The stalled Trans-Pacific Partnership negotiations will be restarted next week, with the possibility of an agreement by the week's end. "There are some unresolved issues, but I don't believe they are intractable," Trade Minister Andrew Robb said as Australian officials prepared to travel to Atlanta, where officials from 12 nations including the United States, Japan and Singapore will meet to narrow down differences before ministerial talks due later in the week. Talks aimed at creating the world's biggest free-trade zone broke down in Hawaii in August, with disputes over medicines, cars and dairy products the main stumbling blocks. Mr Robb is understood to have withstood enormous pressure from the US to extend the period of so-called data protection for new biotech medicines known as biologic drugs. The US wanted 12 years in which drug companies could be able to charge high prices, Australia wanted no more than the present five. It had been thought that an agreement would be impossible once the Hawaii talks broke up, because of the start of the US election season and an election in Canada. US President Barack Obama is keen to land the deal before he leaves office in January 2017. The fresh round of talks begins in Atlanta on Monday, and then if progress is made ministerial talks including Mr Robb will begin on Wednesday. The timetable means a deal could be sealed by Sunday, creating a new trade zone that would encompass 40 per cent of the world's economy.

Investment Treaties: A Renewed Plea for Multilateralism - OECD Insights -Never before have  investment chapters in free trade agreements aroused such an interest from parliaments. People and politicians alike are concerned about their impact on international and domestic affairs. Their scope is expanding dramatically: just think of mega deals like the Trans-Pacific Partnership (TPP) or the Transatlantic Trade and Investment Partnership (TTIP), and the rise of intra-regional investment agreements. Debates on investment agreements have intensified recently within the EU because of the European Commission’s newly-acquired exclusive powers in this arena.  The increased importance of global value chains (GVCs) and ever more integrated trade and investment flows call for (a renewed consideration of) more coherence between trade and investment policies. Today, governments adopting a regulatory measure (e.g. Australia’s plain-packaging legislation for cigarettes) can face both WTO and investment treaty claims, often raising similar issues, but with sharply different adjudication mechanisms – ad hoc arbitration, WTO Dispute Settlement with a permanent Appellate Body – and diametrically opposed remedies – damages vs. non-pecuniary; and very high costs, especially in Investor-State Dispute Settlement. Many treaties focus only on investor protection. In addition to being increasingly controversial, those provisions are too narrow for today’s needs, including ensuring sufficient productive investment, providing the infrastructure to support the development of GVCs and removing barriers to cross-border investment that hinder technology spill-overs. Good policies to support the liberalisation of investment are ever more needed. One also needs to consider ISDS carefully in order to respond to public concerns in many jurisdictions. Governments need to modernise, simplify and strive for coherence in investment treaty policy. For all these reasons, we must revitalise the multilateral debate on investment treaties. A key role should be played in this respect by the G20, the OECD and other international organisations. All G20 governments have been invited to participate in the regular meetings of an OECD-hosted Roundtable that has focused on investment treaties since 2011.

Canada heads to TPP talks in Atlanta with key auto content issue unresolved - Canada’s Trade Minister Ed Fast is heading to Atlanta to join a pivotal round of talks that could yield a massive Pacific Rim trade deal – even though Japan has so far refused to give ground on rules in the proposed accord that could hurt Canada’s auto sector. The very same unreconciled differences between Canada and Mexico on one hand, and Japan on the other, stalled a Trans-Pacific Partnership trade accord last summer in Maui. Mr. Fast says Canada can’t afford to walk away from the table – even during an election campaign with less than four weeks before the vote. A successful conclusion to the talks, of course, could be a political boon for the Tories. Twelve countries, from Chile to Vietnam, are part of efforts to create a sprawling free trade zone comprising 40 per cent of annual global economic output. Canada and Mexico, however, are challenging provisions agreed to by the United States and Japan that would allow cars and auto parts to be sold in North America with significantly less domestic-content requirements than exist under NAFTA. Negotiations this week in San Francisco to break this auto-trade logjam ended without resolution. Canadian officials privately point fingers at Tokyo. “Talks have been difficult, and there is still much progress to be made,” a Canadian government official said, speaking on condition of anonymity. “Japan has moved in the right direction, but they’re moving inches and we need them to move yards.”

Stephen Harper's TPP Remarks Criticized By Mulcair, Trudeau: — Stephen Harper was under fire Friday for a debate remark the previous evening in which he predicted the auto sector may not like the outcome of the Trans-Pacific Partnership talks. The Liberal and NDP leaders pounced on the Conservative leader, who has placed trade deals at heart of his economic agenda. Justin Trudeau said Harper needed to be more forthcoming to Canadians about the opaque trade talks, a frequent complaint by critics of the 12-country negotiations. Tom Mulcair cited the remark as further evidence that Harper's policies have harmed the auto and manufacturing sectors, leading to hundreds of thousands job losses. But it was the head of Unifor, which bills itself as Canada's largest private-sector union, that had the most scathing critique of Harper. "It just blew us out of the water. You've got Ed Fast, the trade minister, saying that he's not signing a trade deal that's going to negatively impact the auto industry, and you have Harper saying just the opposite," said Unifor President Jerry Dias.

Abe urges all-out efforts during TPP talks in Atlanta -- Prime Minister Shinzo Abe on Friday urged his nation’s Trans-Pacific Partnership trade pact negotiators to make all-out efforts toward an agreement at their upcoming meeting in Atlanta. “I hope the next ministerial meeting will be the last one,” Abe said at a meeting with ministers engaged in negotiating the proposed free trade bloc. Nations failed to strike a deal during their last talks, in July. The United States said Thursday that it and the 11 other countries, which include Canada and Mexico, will hold two-day ministerial talks on the free trade pact from Wednesday in Atlanta. If it comes into existence, the framework between nations, accounting for 40 percent of worldwide output, would likely serve to stimulate the global economy. The success of the initiative is also an integral part of Abe’s “Abenomics” pro-growth policies. This much-vaunted package of measures has failed so far to lift the economy out of its long deflationary malaise. Similarly, the economic prospects for China, the world’s second-largest economy and Japan’s biggest trade partner, are looking increasingly gloomy. Akira Amari, minister in charge of the TPP, was not fully confident about reaching a final deal at the next meeting. It would be “hard to say” the probability of agreement is 100 percent, he said. “But we will make utmost efforts to make this meeting the final one,”

U.S. dairy exporter pushes for TPP deal acceptable to Congress - The Japan Times: – Japan and other nations need to open their dairy markets further to hammer out a Trans-Pacific Partnership free trade deal that is acceptable to Congress, Tom Suber, president of the U.S. Dairy Export Council, suggested. “If Japan, Canada, New Zealand want an agreement that gets passed, that is accepted by the Congress, then I think they have to listen carefully to what is being asked,” Suber said in a recent interview. Noting that “there are not so many (unresolved issues),” Suber expressed his belief that it is possible for the 12 nations involved in the talks to reach a broad agreement at the ministerial meeting expected to be held in Atlanta later this month. “It really depends upon those countries. It is not for the United States to say we will sacrifice to get a final agreement,” he said. “That used to be the way. Those days are gone.” On Japan, Suber said, “Despite Japan’s increasing reliance on imports, especially butter, there still is a hesitancy to liberalize to really meet the market needs.” He also criticized Canada for “resisting its promise to be ambitious.” Suber urged New Zealand to take a realistic approach to the negotiations, after the country demanded that other TPP nations drastically open their markets to dairy product imports.

Uruguay Does Unthinkable, Rejects TISA and Global Corporatocracy  -- Often referred to as the Switzerland of South America, Uruguay is long accustomed to doing things its own way. It was the first nation in Latin America to establish a welfare state. It also has an unusually large middle class for the region and unlike its giant neighbors to the north and west, Brazil and Argentina, is largely free of serious income inequality. Two years ago, during José Mujica’s presidency, Uruguay became the first nation to legalize marijuana in Latin America, a continent that is being ripped apart by drug trafficking and its associated violence and corruption of state institutions. Now Uruguay has done something that no other semi-aligned nation on this planet has dared to do: it has rejected the advances of the global corporatocracy. Earlier this month Uruguay’s government decided to end its participation in the secret negotiations of the Trade in Services Agreement (TISA). After months of intense pressure led by unions and other grassroots movements that culminated in a national general strike on the issue – the first of its kind around the globe – the Uruguayan President Tabare Vazquez bowed to public opinion and left the US-led trade agreement. Despite – or more likely because of – its symbolic importance, Uruguay’s historic decision has been met by a wall of silence. Beyond the country’s borders, mainstream media has refused to cover the story. This is hardly a surprise given that the global public is not supposed to even know about TiSA’s existence, despite – or again because of – the fact that it’s arguably the most important of the new generation of global trade agreements.  TiSA involves more countries than TTIP and TPP combined: The United States and all 28 members of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan and Turkey.

Car industry 'buried report revealing US car safety flaws over fears for TTIP deal' -- The motor industry has been accused of withholding a report that reveals US cars are substantially less safe than European vehicles - for fear that the findings would hamper the drive to harmonise safety standards as part of the controversial Transatlantic Trade and Investment Partnership (TTIP) deal. The major study was commissioned by the car industry to show that existing EU and US safety standards were broadly similar. But the research actually established that American models are much less safe when it comes to front-side collisions, a common cause of accidents that often result in serious injuries. The findings were never submitted – or publicly announced – by the industry bodies that funded the study. Safety campaigners have said the research showed that trade negotiators would potentially be putting lives in danger by allowing vehicles approved in the US to be sold in Europe and vice-versa. The news casts a further shadow over a global industry already in the spotlight following this week’s Volkswagen emissions scandal.

Global Corporate Cash Piles Exceed $15 Trillion -- Various studies and reports show that advanced economies corporations continue to pile up cash on their balance sheets.The global economy is slowing – from China to Brazil to South Africa and beyond. Currency wars initiated in 2013 by Japan’s introducing a ‘quantitative easing’ (QE) monetary policy, intensified in 2015 by Europe introducing its own ‘QE’, and exacerbated still further by Saudi Arabia initiating a global oil price war to bankrupt U.S. shale oil challengers – have together converged to drive emerging market economies (EMEs) like Brazil, South Africa, Indonesia and others into recession or stagnation. Exporting Recessions to Emerging Markets Actions in the past 18 months by Europe, Japan and Saudi Arabia have resulted in lowering their currency exchange rates. The moves represent desperate attempts to boost their weakening economies by trying to capture a larger share of a slowing global export pie. Once growing in 2008 at a rate of 12 percent per year, that pie today, in 2015, is virtually flat. Money wars, price wars, and currency wars all reflect an intensification of competition between the advanced economies (AEs) of Europe, Japan, U.S., and the Saudis as the global economy as a whole grows weaker and slows – i.e. what amounts to an intensifying economic ‘cat fight’. That cat fight is having a severe impact on EMEs, resulting in escalating capital flight, collapsing financial asset markets (stocks, bonds, etc.), slowing revenue from exports, import inflation, falling investment and employment, and rising real debt. In response, some have raised interest rates to try to slow the capital outflow, attract more inflow, and slow inflation. But that has only slowed their own economies even more.

"Reverse QE" Could Top $1.2 Trillion, Barclays Says --Last week, we updated our assessment of capital outflows in China, noting that based on available information, it appears that outflows may have surpassed $300 billion from early July through mid-September. That figure comes from our analysis of July TIC data, Goldman’s assessment of underlying currency demand (comprised of outright spot plus freshly-entered forward contracts), and Nomura’s estimates for onshore spot intervention and offshore spot and forward meddling by the PBoC in September.  This creates a dilemma for Fed policy as hiking rates could accelerate outflows from emerging markets thus putting further pressure on already falling USD reserves. In other words, in today’s world, a 25 bps hike by the FOMC would be amplified and transformed into something much larger once it reverberates throughout the global financial system.  Assessing how large the cumulative outflow from China may end up being is important as it proxies for the expected drain on global liquidity (or at least part of the drain on global liquidity, as we must also consider the possibility that net petrodollar exports turn deeply negative in the face “lower for longer” crude). Previously, we suggested that outflows could eventually reach $1.1 trillion. That figure was derived from a look at BofAML’s assessment of the size of the RMB carry trade, which is now unwinding.   Needless to say, rampant speculation that China is targeting a much larger devaluation than that implied by the August 11 “one and done” reset only serves to put more pressure on RMB, necessitating still more reserve drawdowns. Of course each round of intervention sucks liquidity out of the system which means Beijing must offset the tightening with RRR cuts and liquidity injections. On Monday, we get a fresh take on all of the above courtesy of Barclays who says that before it’s all said and done, China’s FX reserves could take a hit on the order of $1.2 trillion.

Anemic Global Growth May Undermine Efforts to Lift the World’s Poorest, IMF Chief Says - Weak global growth will prove a major frustration to new efforts by the United Nations to lift the world’s poorest people out of poverty, the head of the International Monetary Fund warned Tuesday. On Friday, the United Nations will adopt a list of 17 new development goals meant to eradicate poverty and hunger across the globe by 2030. But unlike the last decade and a half, when breakneck growth in emerging market catapulted hundreds of millions of people out of hardship, a souring of economic prospects worldwide will make the new targets much harder to achieve, said IMF Managing Director Christine Lagarde. “The outcome of the exercise will not be as massive as we have seen with the millennium development goals,” Ms. Lagarde said, referring to earlier U.N. efforts. The number of people living in extreme poverty has fallen by more than half to 836 million people since 1990, with most of the progress seen since 2000 when economic growth in China and other large developing countries nearly doubled. But declining population growth, dwindling gains in productivity and the inability of many countries to overhaul their economies are putting the global economy into a long-term low-growth rut. The IMF is downgrading its global growth forecasts, due to be published early next month, as China’s faster-than-expected economic deceleration ripples through the world economy. “The downside risks are greater,” Ms. Lagarde said, pointing to three signs of a worsening outlook. Global trade, which used to increase at almost double the rate of global growth, is struggling to match the rate of economic expansion. Eight years after the financial crisis shook the global economy, there are nearly 200 million people still officially searching for work, up nearly 6% from precrisis levels. And the amount of economic growth that increased productivity can generate is shrinking in emerging market economies.

Emerging-market currencies fall to record lows as stocks sell off -  Several emerging-market currencies were at or near record lows against the dollar Thursday as risk-averse sentiment gripped global financial markets. The record lows included the Turkish lira which shed 0.9% to 3.07 to the dollar; the Mexican peso, which fell 0.4% to 17.34 to the dollar; and the Brazilian real, which shed 0.7% to 4.24 to the dollar. The South African rand was the day's biggest decliner, down 1.2% to 14.08 rand to the dollar, its weakest level since Aug. 24, when the rand briefly touched an intraday low of 14.50 rand to the dollar. Elsewhere, the Malaysian ringgit fell to a session low of 4.45 ringgit to the dollar, its weakest level since the Asian economic crisis of the late 1990s. "There's a broad negative sentiment in the market. Stocks are down," said Ilan Solot, vice president of of emerging-market currency strategy at Brown Brothers Harriman. Emerging-market currencies have been weakening since the Federal Reserve opted to leave interest rates unchanged a week ago.

Fury after Saudi Arabia 'chosen to head key UN human rights panel' - The United Nations has been criticised for handing Saudi Arabia a key human rights role - despite the country having “arguably the worst record in the world” on freedoms for women, minorities and dissidents. Critics, including the wife of imprisoned pro-democracy blogger Raif Badawi – sentenced to 1,000 lashes for blogging about free speech – labelled the appointment “scandalous”, saying it meant “oil trumps human rights”. Mr Badawi’s wife, Ensaf Haidar, who is leading an international campaign to free her husband, said on Facebook that handing the role to Faisal bin Hassan Trad, Saudi Arabia’s ambassador at the UN in Geneva, was effectively “a green light to start flogging [him] again”.  UN Watch, an independent campaigning NGO, revealed Mr Trad, Saudi Arabia’s ambassador at the UN in Geneva, was elected as chair of a panel of independent experts on the UN Human Rights Council.As head of a five-strong group of diplomats, the influential role would give Mr Trad the power to select applicants from around the world for scores of expert roles in countries where the UN has a mandate on human rights. Such experts are often described as the "crown jewels" of the HRC, according to UN Watch, which has obtained official UN documents, dated 17 September, confirming the appointment. UN Watch executive director Hillel Neuer said the appointment, made in June but unreported until now, may have been a consolation prize for the Saudis after they withdrew their bid to head the 47-nation council following international condemnation of the kingdom’s human rights record.

Nigerian firms in trouble as central bank measures backfire (Reuters) - Nigerian companies making anything from soap to tomato paste could run out of raw materials and be forced to shut down as Africa's top oil producer has effectively banned the import of almost 700 goods to prevent a currency collapse. Selected luxury items such as make-up or brown bread imported from Europe have become scarce in some shops as the central bank denies importers dollars, seeking to stem the fallout from a crash in vital oil revenues hammering Africa's largest economy. The central bank has restricted access to foreign currency to import 41 categories of items to stop a slide of the naira but the Manufacturers Association of Nigeria (MAN) said this in fact amounted to about 680 individual items. The foreign exchange bans are part of a long-term plan by President Muhammadu Buhari to encourage local manufacturing, but they run the risk of pushing the economy closer to recession after growth halved in the second quarter compared with the same period last year. Many items on the central bank list - ranging from incense and toothpicks to plywood, glass and steel products -- are not available in Nigeria in sufficient volumes. While Nigeria grows a lot of tomatoes, transport is poor and it lacks facilities to produce the concentrate needed by factories making tomato paste, a staple in the West African nation.

UPDATE 1-Mexico factory exports slump by most in over 6-1/2 years in Aug (Reuters) - Mexico's factory-made exports slumped in August by the most in more than 6-1/2 years after uneven growth in the first half of 2015, data showed on Friday, while consumer imports rose. Manufactured exports sank 7.2 percent in August compared with July, falling back after two months of gains, the national statistics agency said in a statement. It was the biggest month-on-month drop since December 2008, data showed. Mexico exports mostly manufactured goods like cars and televisions and about three-quarters are sent to the United States. The data showed non-oil consumer imports rose in August by 2.1 percent from July. Rising retail sales helped the economy in the second quarter, offseting uneven factory production and a drop in oil production. Mexico's finance ministry trimmed its 2015 growth forecast last month to around 2.4 percent after weak activity in the first half of the year. Mexico posted a $2.01 billion trade deficit in August when adjusted for seasonal swings. In unadjusted terms, Mexico posted a trade deficit of $2.8 billion.

Economists Cut Brazil's Economic Outlook for This Year and 2016 - Survey - --Economists reduced their outlook for Brazil's economic performance for this year and next, as Latin America's largest economy fails to regain traction amid low levels of consumer and business confidence. Brazil's gross domestic product is expected to contract 2.70% this year, according to a weekly central-bank survey of 100 economists, compared with expectations last week for a contraction of 2.55%. The forecast marked the 10th-consecutive downward revision by economists. For next year, economists also reduced their view and now expect a contraction of 0.80%, compared with an expected contraction of 0.60% last week. Economists increased their estimate for inflation in 2015, as measured by the consumer-price index, to 9.34% from 9.28%, according to the survey. For next year, they increased their inflation estimate to 5.70% from 5.64%. Respondents maintained their outlook for the benchmark Selic interest rate at the end of 2015 at 14.25%, and increased their view for next year to 12.25% from 12%. The rate is currently at 14.25%. Economists kept their forecast for 2015's trade balance at a $10 billion surplus.

Brazil's Real Drops Toward Record Low as Budget Pessimism Rises - Brazil’s real fell to a record low as investors grow increasingly pessimistic about PresidentDilma Rousseff’s ability to shore up the budget and ward off further cuts to the country’s credit ratings. The currency slipped 1 percent to 3.9851 per dollar in Sao Paulo, reaching the weakest closing level since it was created two decades ago and bringing its decline this year to 33 percent. The Ibovespa stock gauge led losses in the Americas on Monday, local bond yields reached the steepest since at least 2007 and Brazil’s bond risk increased to the highest since 2009. The real’s slide this year makes it the worst performing major currency after the nation’s credit rating was cut to junk by Standard & Poor’s and as Brazil heads for its longest recession in eight decades. President Dilma Rousseff is fighting for her political survival amid a corruption scandal that’s crippled Brazil’s economy, raising concern she may not have the capital left to drive austerity measures through a fractured Congress. “What we are going through right now is a confidence crisis,” . "We are reaching rock bottom.” Yields on Brazil’s $4.3 billion of bonds due in 2025 rose 0.31 percentage point to 6.04 percent, the highest since they were issued in 2013, as the cost of insuring the country’s overseas debt for five years with credit-default swaps rose 0.25 percentage point to 4.15 percentage points. Yields on the country’s local fixed-rate bonds due 2025 climbed to 15.97 percent, the highest for a 10-year bond since at least 2007.

Meanwhile, Brazil's Currency Just Plunged To An All-Time Low... On Monday, we updated the rapidly deteriorating situation in Brazil which for the uninitiated, faces a laundry list of seemingly intractable problems which Goldman recently summarized as follows: We expect the economy to continue to face headwinds from:

  • the ongoing fiscal and quasi-fiscal adjustment
  • higher interest rates
  • increasingly exigent credit conditions
  • rapidly weakening labor market
  • higher levels of inventory in key industrial sectors
  • higher public tariffs and taxes
  • high levels of household indebtedness
  • weak external demand
  • soft commodity prices
  • political uncertainty
  • extremely depressed consumer and business confidence

And believe it or not, that’s actually putting it nicely. The outlook for Brazil’s fiscal adjustment is clouded by the country’s political crisis which threatens Dilma Rousseff’s presidency and makes passing badly needed spending cuts virtually impossible. Meanwhile, the current account continues to face pressure from a commodities slump that's exacerbated by depressed Chinese demand. All of the above translates to near daily doses of bad economic news, downbeat analyst pronouncements, and currency turmoil and indeed, Tuesday was no different as the real slid to a record low and Brazil CDS blew out to near six year wides:

Brazil’s Real Hits Two-Decade Low - WSJ: Brazil’s currency hit its lowest level against the dollar in two decades, as investors wagered that the commodity rout and political turmoil will continue to batter the country’s economy. On Tuesday, the Brazilian real hit its weakest point since the currency was introduced in 1994. Trading as low as 4.0667 to the dollar, the real has lost 35% of its value against the dollar so far this year. The currency continued to weaken on Wednesday, trading as low as 4.14 to the dollar before recovering some ground as the central bank announced interventions to prop it up. Bets across various markets were downbeat on the country. Yields on the nation’s real-denominated government bonds have hit 16%, some nine percentage points higher than the emerging-markets average. Yields rise as prices fall. Furthermore, trading in credit default swaps that would pay off in a Brazil debt default has risen, making the country the second-most bet-against after Italy, according to the Depository Trust & Clearing Corp. The spread on Brazil CDS, reflecting the sum investors pay annually to insure $10 million of debt for five years, has surged to $464,000 from $200,000 at the beginning of this year. The wagers reflect concern over policy makers’ stewardship amid an epic commodity bust that is hammering the Brazilian economy, where inflation is running at a 9.6% annual rate.

Brazil 5-yr CDS jump to 7-yr high, dollar bonds tumble 2-3 cents (Reuters) - Brazilian debt insurance costs jumped to their highest in almost seven years on Thursday and sovereign dollar bonds fell 2-3 cents across the curve on fears of a deepening political and financial crisis. Other emerging assets also sold off as world stocks slid towards two-year lows but the biggest losses came in Brazil where the real currency fell another 1.5 percent to fresh record lows, shrugging off central bank interventions. Five-year credit default swaps (CDS) rose 33 basis points from the previous close to 513 bps, according to data from Markit. The CDS have risen almost 200 bps since the end of August and last traded above 500 bps in October 2008. "Brazil is in a deep economic, currency and confidence crisis. The decline in the currency is unprecedented, similar to the collapse of the (Russian) rouble last year ... accordingly CDS are jumping and bond yields are rising," said Bernd Berg, a strategist at Societe Generale in London. Investors have been spooked by news that Brazilian retailer General Shopping has deferred coupon payments on $150 million of subordinated debt and offered creditors a 50 percent write-down on another debt tranche.

Central-bank interventions fail to halt Brazilian real’s decline - The Brazilian real pushed further into record-low territory Thursday despite two interventions by the country’s central bank meant to prop up the beleaguered currency. The Central Bank of Brazil auctioned off currency-swap contracts and dollar-repurchase agreements Wednesday afternoon local time. The currency swaps allow local businesses to hedge against the weakening real, while the dollar-repurchase agreements provide a temporary injection of U.S. currency into the country’s markets. The central bank has undertaken similar measures in the past. In 2013, it started regular auctions of dollar-swap agreements, but ended that program earlier this year. The real has lost more than a third of its value against the dollar since the beginning of the year, and about half of its value since early 2013. The currency recently fell to 4.23 to the dollar, its lowest level on record, down 0.7% from 4.14 real to the dollar, its value late Wednesday in New York.

Emerging Headache: Brazil Sinks Deeper Into Recession -- Brazil’s central bank now forecasts that the once high-flying emerging market economy will shrink by 2.7% this year—the worst contraction in a quarter century, according to the Wall Street Journal. The revised forecast comes as Brazil’s currency, the real, has reached new lows against the dollar, and the unemployment rate has surged, hitting 7.6% in August, the eighth-straight month of increase. The troubles in the world’s 7th largest economy are the result of a slowdown in growth in places such as China, which has been a key source of demand for Brazil’s natural-resources industry. But Brazilian policy is also to blame, as its significant budget deficit of 8% of GDP has helped feed inflation and higher interest rates.“I am disillusioned and upset with what’s happening,” reformist economist Edmar Bacha, told the Journal “All the work that we all did to create the real, to create stability, was destroyed” by poor policy.Brazil is just one of many emerging market economies—along with Turkey, Russia and China—that have seen sharp slowdowns in growth. While this trouble abroad has yet to significantly hurt growth in the U.S., there are reasons to believe that trouble in developing economies could eventually wash up on American shores. That’s because most of the investment growth in the global economy since the financial crisis has been driven by the emerging world.

Brazil Braces for More Pain - WSJ: —Brazil’s battered currency on Thursday touched a new low, unemployment surged and the central bank forecast a far deeper recession—a litany of woes suggesting a major crisis ahead for this once high-flying economy with a long history of booms and busts. The real, already the worst performer of any major global currency so far this year, hit a new intraday low of 4.24 reais per dollar, prompting Alexandre Tombini, the head of the central bank, to make a surprise announcement that Brazil could dip into its $371 billion in reserves to stem the currency’s bleeding. Despite the slight rebound to 4.04 per dollar prompted by the remarks, the real has lost around 35% of its value this year, edging out Kazakhstan’s tenge as the biggest loser so far this year. The currency’s collapse is a telling marker of the economic reversals touched off by the end of the global commodities boom. Resource-rich Brazil was sure to slow, but what might have been an economic speed-bump is rapidly becoming a full-blown economic crisis, as years of economic policy missteps compound the downturn. Brazil’s central bank lowered its 2015 forecast for a second time Thursday and now predicts the economy will shrink 2.7% this year—the worst contraction in 25 years. Almost all of the gauges on Brazil’s economic dashboard are heading toward the red. Unemployment rose to 7.6% in August, the eighth consecutive monthly increase. and double the rate from a year ago.The inflation rate is rising toward 10%, cutting into the budgets of the country’s poor. And Brazil’s budget shortfall stands at about 8% of annual economic output—a big reason why Standard & Poor’s cut Brazil’s hard-won investment grade credit rating to junk.

Bad-Loan Hiatus Ending for Canada Banks as Oil and Economy Slump -  Soured loans from slumping oil prices and a weakened economy are likely to push Canada’s banks next year to set aside the most money since 2009. Toronto-Dominion Bank, Royal Bank of Canada and four other large lenders are forecast to allocate 27 percent more money for bad debt next year, according to estimates of analysts surveyed by Bloomberg, adding further pressure to earnings as lending slows. “This is what may create some significant headwinds in 2016,” John Aiken, a Barclays Plc analyst, said in an interview. “The biggest villain is low oil prices and what that’s doing to the Alberta economy. However, broadly speaking, the Canadian economy is not doing well.” Canadian banks put aside less money for bad loans in the past five years than the historic average, helping boost profits to records. With impaired loans in the energy industry soaring amid crude’s almost 50 percent plunge over 12 months and household debt at a record in the second quarter, analysts are expecting that to reverse. The country’s six large lenders will allocate C$8.1 billion ($6.1 billion) for soured loans in 2016, up from C$6.36 billion this year, according to the analysts’ estimates. That’s the most since 2009, when the Canadian economy shrank in the aftermath of a global financial crisis.

Russian Imports Plunge 39 Percent as Recession Takes Hold - The value of goods imported by Russia from outside the former Soviet Union tumbled 39 percent in the first eight months of this year compared to the same period in 2014, as a deep recession cut into the country's buying power. According to preliminary data from the Federal Customs Service released this week, Russia imported goods worth $103.9 billion over the period, down from $170.3 billion in January-August last year. The decline comes as the low price of oil, Russia's key export, shrinks the country's income and worsens an economic slowdown. Russia's ruble has weakened by around 45 percent against the dollar during the last year, making imports more expensive for companies and consumers. A breakdown of the figures for August shows that the value of machinery and equipment imports dropped 36.7 percent compared to the same month in 2014. Imports of chemicals plunged by 29.4 percent, and of textiles and shoes by 35.9 percent, the data showed. Food imports, whose value fell by 29.1 percent, were also constricted by embargoes imposed by the Kremlin in August 2014 on meat, fish, dairy, fruit and vegetables from the U.S. and European Union and some other allied countries — a retaliation to sanctions on Russia over its actions in Ukraine. The government in August doubled down on these measures by burning contraband food and crushing it with tractors at the border.  Vegetable oil, tobacco and cotton saw their import value grow slightly, along with pork — the latter likely due to smaller import volumes last year when sanitary controls blocked imports from a number of countries.

Russians Feel Pain as Sinking Ruble Pushes Up Medical Costs - WSJ: Nina Semyonova is in trouble. She is at risk for stroke, but says she can no longer afford to take the prophylactics prescribed for her condition, as a weakening ruble and double-digit inflation drive up prices. The cost of a course of Caviton and Phezam, both imported, has gone up by two thirds to 500 rubles ($7.60), the 50-year-old English teacher says. That is a lot of money where she lives in Nizhny Novgorod, where educators earn less than $300 a month on average. Cheaper, Russian-made alternatives “aren’t of good quality, and somehow don’t work,” she says. “I basically haven’t taken these drugs since last year. Now I am just waiting for my symptoms to start, like dizziness.” Imports across the board have become more expensive in Russia as Western sanctions and falling oil prices take a toll on the national currency. Over the past year, the ruble has weakened by about 45% against the dollar, and the economy remains mired in recession. Drug prices in particular have become such a cause for concern that President Vladimir Putin addressed the issue during his annual phone-in with Russians in mid-April. “Part of those medicines, even though they are produced in our country, contain imported substances. Obviously, because of the exchange rate fluctuations, their prices have gone up,” he said. In response, the Russian government has embarked on a campaign to bolster domestic pharmaceutical manufacturers. In addition to a pledge to support local producers, the country recently adopted a set of new regulations that would raise the prices of domestically produced “essential medicines”—widely prescribed drugs used to treat relatively common conditions.

Bank of Russia: Economic Downturn May Continue for Several More Quarters - --Russia's economy is set to contract further for a few more quarters, the central bank's first deputy chairwoman said Thursday. Ksenia Yudaeva said the central bank's target of reaching an annual inflation rate of around 4% in the next two and a half years was attainable and coincided with the general need to revive economic growth, Interfax news agency reported. Russian authorities say their top priority is to limit the contraction of the economy, hit by Western sanctions and a sharp drop in oil prices. So far, only a few measures have been offered to kick-start the economy, which is seen falling by around 4% this year. Meanwhile, annual inflation hovers above 15%. Outlining the central bank's outlook for the Russian economy at the American Chamber of Commerce in Moscow, Ms. Yudaeva underscored the bank's readiness to act, if needed, to address risks related to another wave of volatility on global markets. As before, Ms. Yudaeva didn't elaborate on the ways the central bank could intervene to lower risks for Russia's financial system.

Russia Seen Testing Wide Policy Mix to Fix Budget Hit by Oil -- Russia’s biggest budget crisis in years is leaving the government stumped as it debates a range of options to steady public finances, from spending cuts to higher oil taxes. The choice may be to select all of the above, according to economists surveyed by Bloomberg. Rather than opting for a narrowly tailored solution, the cabinet will resort to a wider range of measures that may also include increased borrowing and a freeze on pension-fund contributions, according to 18 of 23 economists in a Sept. 18-23 survey. The deadline for submitting the budget to lawmakers is Oct. 25. Millions of Russians are sinking into poverty as the collapse in crude prices drags down the economy of the world’s biggest energy exporter, sends the ruble into a tailspin and crimps budget revenue. Facing the widest fiscal gap in five years, the government is locked in a debate that’s pitting some officials, led by the Finance Ministry, against the oil industry and cabinet members opposing deeper austerity amid the country’s first recession since 2009. “Moscow is split on how to deal with all the holes in the budget,” . “Assistance of various types will be scrutinized as well. Raising taxes for oil producers is also possible.” President Vladimir Putin instructed the government this week to study the possibility of tapping into some of the gains reaped by exporters from ruble devaluation. The proposal by the Finance Ministry has sent Russian stocks tumbling, led by the nation’s biggest oil and mining companies.

Norway’s Central Bank Cuts Interest Rate - — Norway’s central bank reduced its main interest rate on Thursday for the second time in four months, sending its currency tumbling, and said it might lower rates more than previously anticipated in the coming year as growth prospects have weakened.  Oil and natural gas companies, which generate a fifth of the Nordic economy’s output, have been canceling investments and laying off thousands of workers, preparing for an extended period of low crude oil prices.“The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the coming year,” the governor of the bank, Oystein Olsen, said in a statement.“It is a new era for the Norwegian economy. We are no longer in a league of our own,” he said, adding that the bank did not discuss keeping rates at the same level.The Norwegian krone tumbled 3 percent against the euro, after markets were surprised by the move.Only six of the 18 economists polled by Reuters had expected a rate cut. The other 12 had all seen the bank keeping its main rate at 1 percent.

EU banks' bad loans worth about 1 trillion euros end-2014: IMF paper - High levels of non-performing loans (NPLs) to companies, particularly small and medium-sized firms, were dampening credit supply and tying up bank capital that could otherwise be used to increase lending. "Given the urgent need to support Europe’s still tentative recovery, resolving NPLs expeditiously to promote new lending is of first-order macroeconomic importance," IMF staff said in a discussion note. Non-performing loans were particularly high in the southern part of the euro area, where corporate debt had reached "acute" levels, and in eastern and southeastern Europe. In euro area countries, the stock of bad loans reached 932 billion euros, or 9.2 percent of euro area gross domestic product, at the end of 2014. Only a handful of countries, including Estonia and Germany, recorded a decline in the share of NPLs to total assets compared with their highest post-crisis levels, figures cited in the paper showed. By the end of last year, NPL ratios reached exceptionally high levels in Cyprus, where they topped 40 percent, and Greece, at 35 percent. Still, in Ireland and Spain, NPL ratios started to decline in 2014.

France tells Google to remove search results globally, or face big fines -- Google's informal appeal against a French order to apply the so-called "right to be forgotten" to all of its global Internet services and domains, not just those in Europe, has been rejected. The president of the Commission Nationale de l’Informatique et des Libertés (CNIL), France's data protection authority, gave a number of reasons for the rejection, including the fact that European orders to de-list information from search results could be easily circumvented if links were still available on Google's other domains. CNIL's president also claimed that "this decision does not show any willingness on the part of the CNIL to apply French law extraterritorially. It simply requests full observance of European legislation by non European players offering their services in Europe." As you've probably gathered, Google disagrees with CNIL's stance. In a July blog post regarding the case, the company's global privacy chief, Peter Fleischer, wrote: "If the CNIL’s proposed approach were to be embraced as the standard for Internet regulation, we would find ourselves in a race to the bottom. In the end, the Internet would only be as free as the world’s least free place. We believe that no one country should have the authority to control what content someone in a second country can access."As far as CNIL is concerned, Google must now comply with its order. "Otherwise, the President of the CNIL may designate a Rapporteur who may refer to the CNIL’s sanctions committee with a view of obtaining a ruling on this matter." Those sanctions could be severe. According to The Guardian: "CNIL will likely begin to apply sanctions including the possibility of a fine in the region of €300,000 against Google, should the company refuse to comply with the order.

Tsipras Wins Reelection in Low Turnout, Same Coalition to Govern -- Syriza party leader Alexis Tsipras who resigned in the wake of his cave-in to the troika is back in office following Sunday's snap elections. The election was supposed to be extremely close, but it wasn't.  Greek polls are notoriously unreliable. Tsipras won his first election by a huge vote even though polls were close. On Sunday the result was the same. Pollsters had New Democracy running neck-and-neck but in a low turnout Syriza received 35.5 per cent of the vote to 28 percent for New Democracy.Greek election rules give a huge block of parliament to the plurality vote, so in parliament the score is 145-75 out of a total of 300. That is short of a majority, but close enough so Tsipras can form a coalition with the Independent Greeks party (Anel), just as it did after the last election.

Greek leftist Tsipras returns in unexpectedly decisive vote win | Reuters: Greek leftist Alexis Tsipras stormed back into office with an unexpectedly decisive election victory on Sunday, claiming a clear mandate to steer Greece's battered economy to recovery. The vote ensured Europe's most outspoken leftist leader would remain Greece's dominant political figure, despite having been abandoned by party radicals last month after he caved in to demands for austerity to win a bailout from the euro zone. In a victory speech to cheering crowds in a central Athens square, he promised a new phase of stability in a country that has held five general elections in six years, saying his mandate would now see him through a full term. "Today in Europe, Greece and the Greek people are synonymous with resistance and dignity. This struggle will be continued together for a full four years," he said. He made no specific reference to the 85 billion euro bailout, but Syriza campaigned on a pledge to implement it, while promising also to introduce measures to protect vulnerable groups from some aspects of the deal. "We have difficulties ahead of us but we also have a solid ground, we know where we can step, we have a prospect. Recovery from the crisis can't come magically, but it can come through tough work," he said. Tsipras's first task after forming a government will be to persuade European Union lenders that enough agreed steps have been made to ensure the next payment. The bailout program is due for a review next month.

Greek election: Alexis Tsipras defied polls but widespread malaise remains - The charismatic Greek leader Alexis Tsipras has once more managed to defy both the pollsters and the pundits by winning a decisive victory in Sunday's general elections, his left-wing Syriza party taking about 35 per cent of the vote compared to 28 per cent for the closest challenger. So many times has his political demise been predicted, only to be proven false, that you could start calling Tsipras the comeback kid. In fact, he hasn't actually gone anywhere since he first swept to power in January on a promise to end European Union-imposed austerity measures. Over the past eight months, his has been a constant, lightning-rod presence on what has been a rough-and-tumble political stage for the Greeks from Athens to Berlin and Brussels.  "Today in Europe, Greece and the Greek people are synonymous with resistance and dignity," Tsipras told supporters at a victory rally in Athens. "This struggle will be continued together for a full four years, because the mandate we got is a four-year mandate." The quandary of Tsipras's enigmatic appeal lies right there in the contradictions contained in that message. He is implying that he will continue to resist EU austerity measures, and so restore pride to the Greek people, even though he called the snap election in August in the first place to deal with rebel MPs in his own party unhappy because he had agreed to austerity measures. Adding injury to insult, he had done so after 62 per cent of voters rejected bailout terms insisting on austerity in a national referendum that Tsipras had himself called.

Greece: the election is over, the economic crisis is not - What a difference eight months can make. When Syriza came to power in Greece in January it did so on a wave of voter enthusiasm. There was talk of an austerity party breaking the mould of post “great recession” politics. Europe’s political establishment looked on in horror. The financial markets trembled. All the euphoria and most of the apprehension had disappeared by the time Greeks voted today. Alexis Tsipras has won but the turnout was low and the mood sullen. The financial markets are no longer concerned that Syriza will be the template for a pan-European political backlash against budget cuts or that it could start the breakup of monetary union by leaving the single currency. In reality, there is no reason for the markets to worry about Greece, at least for now. Tsipras quickly discovered once he had swept to victory in January that he could not deliver on a mutually incompatible trio of election pledges: to end austerity, to put the economy on the road to recovery and to stay in the euro. He has achieved just one of these objectives – remaining in the euro – but at a high price. The fresh dose of deflationary measures in Greece’s new €86bn (£62bn) bailout programme, agreed in July after Tsipras folded under pressure from creditors, will deepen a depression similar in its severity to those that afflicted Germany and the United States in the 1930s. The Greek economy has contracted by 29% since 2009 and is still shrinking after months of financial turmoil. Yet Greece remains part of a single currency that has emerged bloodied but intact. All the main parties contending the election were committed to continuing with the bailout that Tsipras negotiated in the summer. Even so, the election will have consequences. Syriza has done well enough to form a workable coalition, thereby avoiding the need for another election and removing one of the hurdles before Greece has the first review of its bailout some time before the end of the year.

Paul Krugman on Greece’s 3rd MoU: An agreement designed to fail  (video) - Yanis Varoufakis

Greece's liabilities toward ECB payment system near their 2012 highs | Reuters: Greece's liabilities to the euro zone's bank payment system climbed last summer to highs not seen since 2012, as fears Greece would be forced out of the euro zone drove money out of the country, data from the European Central Bank showed on Monday. The Bank of Greece had net liabilities of 106.13 billion euros ($119.24 billion) toward the ECB at the end of July, according to data from the Target 2 payment system published for the first time on Monday. The Target 2 system facilitates payments between banks in different euro zone countries by channeling them through each national central bank's account at the ECB. In the case of the latest data, payments by Greek banks to institutions in other euro zone countries exceeded flows in the opposite directions by 106.13 billion euros. Greece's net liabilities hit 107.70 billion euros, their highest level since late 2012, at the end of June, when the Greek government decided to introduce capital controls. Cross-border payment imbalances increased during the 2010-2012 euro zone debt crisis as the private sector withdrew capital and banks turned to the ECB for funding because banks from the stronger economies stopped lending to them.

Greece budget update – September -- The state budget primary balance remained almost unchanged during August, up by only 89 million euro compared to the level reached at the end of July (Figure 1). This takes the total cumulative primary surplus to 3.8 billion euros, against a target of 3.26 billion. The primary surplus has exceeded the target less than in previous months, reflecting ongoing revenue shortfalls and probably some electoral concerns. Revenues (Figure 2) have continued to underperform. Revenues for the month of July were almost in line with the target (3.9 billion euros recorded against a target of 4.1 billion). On a cumulative basis, however, total revenues for the period January-August 2015 stood at 30.8 billion euro, against a target of 34.9 billion. This means that the significant shortfall observed in July, when revenues came in at 40% (i.e. 3.2 billion) lower than their monthly target, has not been re-absorbed and risks being a drag on results at the end of the year. Part of the shortfall in ordinary net revenues is attributable to missed ANFA and SMP revenues, but as I pointed out last month, this explains only 1.7 billion out of the total shortfall. Macropolis reports that according to the General Secretariat of Information Systems (GSIS), new unpaid taxes resumed an accelerating trend, growing by 645 million euros in August from 388 million in July. “Legacy tax arrears” – tax debt created by the end of 2014 – amounted to 72.18 billion in August 2015. Overall, the total stock of new and legacy tax debt grew by 548 million month-on-month and 5.31 billion year to date to 79.1 billion at the end of August.

Greece's Cruel October: Clock Ticks To Implement New Austerity Reforms: -- The financial team of the new Greek government will have to race against the clock this month to prepare a timetable for implementing the austerity reforms agreed to by the previous government. Greek leaders committed to a series of austerity measures in a controversial bailout deal with international creditors this summer. The country is due to present a schedule for implementing the measures during a meeting of Eurozone finance ministers on Oct. 5. Greece needs the ministers' approval to unlock a 3-billion-euro installment of bailout funds. The numbers are uncompromising and the deadlines very tight. According to the agreement between the Greek government and its lenders, Greece's finance ministry must put together two different budgets -- one for next year and one for the rest of 2015 -- within the next two weeks. The government is also required to proceed with 100 bailout commitments before Oct. 20, while more than fifty percent of the measures stipulated by the bailout deal need to be implemented by the end of the year. Greece's Kathimerini newspaper reports that among the measures to be adopted this month are a further reduction of pensions, an increase of the farmers' tax rate from 13 to 20 percent, a restructuring of the income tax and a reduction of defense expenditures by 100 million euros (the equivalent of $111 million) by the end of this year. Once Greece's timetable is approved by the Eurozone, European technical teams will return to Athens and monitor the measures' implementation. The timing of the implementation and evaluation of the austerity measures will determine when negotiations about Greece's debt restructuring can start.

Trading Meat for Tires as Bartering Economy Grows in Greece - — Thodoris Roussos stood in his butcher’s shop and pointed to a large white delivery truck at the curb. For months, he had put off replacing the tires, because Greece’s financial crisis had cut into business. But recently, he upgraded the van with a set of good wheels at a price that could not be beat.“Normally, the tires cost 340 euros, but no money changed hands,” Mr. Roussos said, beaming. “I paid the guy in meat.”As Greece grapples with a continued downturn, bartering is gaining traction at the margins of the economy, part of a collection of worrisome signs for Prime Minister Alexis Tsipras who was re-elected on Sunday.Graphic artists are exchanging designs for olive oil. Accountants swap advice for office supplies. In the agricultural heartland and on the Greek islands, informal bartering, which has historically helped communities survive, has intensified as more people exchange fruits, vegetables, other crops, equipment, clothing and services.“In Greece there’s a major liquidity problem,” said Mr. Roussos, who met the tire vendor and scores of new clients through an Athens-based online barter club, Tradenow, which created its own currency called tradepoints. “People are finding it more convenient to trade because money is not readily available.”

Independent Catalonia will be kicked out of the eurozone, warns central bank governor - Telegraph: Spain's Catalan region will be automatically ejected from the eurozone and its banking system brought to collapse, if voters choose to back independence for the region this weekend, the country's central bank governor has warned. Luis Maria Linde, head of the Bank of Spain, said the region would not be able keep the single currency and its position in the European Union as a whole would be under threat should it decide to break away from Spain. "The exit from the euro is automatic, the exit from the European Union is implied," he said. Catalan banks would also "stop having access to the European Central Bank's facilities", cutting off the last remaining link between the financial system and the eurozone.

No ECB Funding for Catalan Banks? Wait a Second -- Two days before a regional election that may put Catalonia on the path to independence, Catalan banks have become the focus of a heated debate in Spain. The issue is the future of Catalan lenders in the case of a creation of a new Catalan state, which would likely be left outside the eurozone. The question is significant, as Catalan banks are large by eurozone standards, and the wealthy region can’t afford any significant disruption in their operations. The situation is unprecedented: Since the eurozone was created in 1999, no part of the monetary union has seceded. Catalonia’s government wants to secede from Spain, but not the European Union or the eurozone. Madrid has responded that independence is not possible and, if it happened, it would leave Catalonia stranded out of both. Recent EU pronouncements indicate that Catalonia would be left out of the union in a scenario of non-amicable separation. The European Commission has often said that new countries would have to apply for membership. This puts the spotlight on the European Central Bank. Luis María Linde, ECB board member and head of the Bank of Spain, told Spanish lawmakers Wednesday that the big Spanish banks headquartered in Catalonia—CaixaBank and Banco Sabadell—would be cut off from ECB funding if the region were to break from Spain. This has triggered alarms across financial markets, with Catalan banking stocks falling. Analysts at Deutsche Bank say a political compromise between Barcelona and Madrid is still possible, but would not be easy. In the worst case scenario, they note, the standoff could evolve into a classic “prisoner’s dilemma” outcome, in which both sides lose: Catalonia ends up with capital controls and Spain loses a big chunk of its economy.

E.U. votes to distribute 120,000 asylum seekers across Europe— With Europe’s refugee crisis escalating, European leaders on Tuesday approved a plan to spread asylum seekers across the continent over the objection of Central European nations. The plan to distribute 120,000 migrants across Europe is a first step toward easing the plight of the men, women and children who have been shunted from one European nation to another in recent weeks, a grim procession of human need in one of the world’s richest regions. But the decision to override the dissenters means the European Union will be sending thousands of people to nations that do not want them, raising questions about both the future of the ­28-nation bloc and the well-being of the asylum seekers consigned to those countries. Hungary, Romania, the Czech Republic and Slovakia voted against the measure, a rare note of discord for a body that usually operates by consensus on key matters of national sovereignty. Finland abstained. For all the controversy, the plan would find homes for just 20 days’ worth of new arrivals to Europe, a measure of the scale of the crisis and the baby steps the continent has taken to address it. E.U. leaders will meet in Brussels on Wednesday to discuss broader measures to stem the flow, including bolstering the region’s border controls and stepping up support for the overburdened refugee camps along Syria’s borders. But after Tuesday’s bitter vote, it was unclear how much common ground remained among leaders.

Thousands Ricochet Across Europe: Inside the Migrant Crisis -  Rick, our Warsaw bureau chief responsible for reporting on Eastern Europe and the Balkans, and Helene had arrived at the Serbian border crossing in Horgos that afternoon just in time to witness — and be caught up in — a melee between migrants and Hungary’s riot police. Asylum-seekers who had missed the opportunity to cross into Hungary turned their frustration on the police who were reinforcing new border gates.Twice the migrants had tried to push their way past the police, and twice the police had responded with force, tear gas, pepper spray, water cannons and batons. Among those who were doused were the young men tugging at the fence, but also women, children and our correspondents.It was Rick and Helene’s latest stop in pursuit of a story that has so far lived up to its reputation: the biggest migrant crisis in Europe since World War II. It has been my job, since the crisis intensified a month ago, to coordinate the coverage and figure out the best ways to tell a story that is unlikely to abate any time soon.With people arriving by the thousands every day from troubled nations like Syria, Iraq, Afghanistan, Eritrea — even Ethiopia — Europe has been experiencing a momentous upheaval. The migrants come on foot, bus and train, making it a news story on the move, snaking its way erratically — and sometimes tragically — across the continent.

EU Move to Force Relocation of Migrants Deepens Divisions in Europe - WSJ: The European Union, pushing through a plan that forces member states to take in migrants, exacerbated a continent-wide conflict over how to cope with the more than half a million people seeking refuge from the strife-torn Middle East and elsewhere.  EU interior ministers made a rare move Tuesday to override four countries that opposed the quota plan, marking an abrupt shift from the bloc’s usual consensus-style decision-making over sensitive political questions. One veteran EU diplomat called the decision—a day before Wednesday’s crisis summit of EU leaders in Brussels—“dangerous.”  Given that the issue is so contentious, it would be “quite a moment in European political history,” he said. Slovakian Prime Minister Robert Fico—whose government along with Hungary, the Czech Republic and Romania opposed the plan—said pushing through the quota system had “nonsensically” caused a deep rift over a highly sensitive issue. “As long as I am prime minister,” he vowed, Slovakia wouldn’t implement the quota.Wednesday’s crisis summit was called to seek other ways to stem the influx of refugees and other migrants: cooperation with Turkey, support for refugee camps in the front-line states around Syria and protecting the EU’s common border. “But shouting at each other is going to be the first item on the agenda,” an EU official said.

Vatican houses first Syrian family after Pope Francis' refugee appeal: The Vatican City seems to be ready to practise what Pope Francis preaches, at least on the subject of immigration, by housing a family of refugees who had fled the Syrian civil war. The family of four – Melkite Greek Catholics from Damascus – arrived in Italy on 6 September and have since asked for asylum. On that day, Pope Francis called for every Catholic parish in Europe to take in at least one refugee family who are suffering from "death from war and hunger"."Every Catholic parish, every religious community, every monastery, every sanctuary in Europe should accommodate one family, beginning with my diocese of Rome," he told a group of thousands during the Sunday Angelus prayer.On Friday 18 September, the Vatican announced: "According to the law, for the first six months following the request for asylum those seeking international protection cannot work. During this time, they will be helped and accompanied by the Parish of Santa Anna."Santa Anna is one of the two parishes in the Vatican City, the other being the St Peter's Basilica, which is also expected to house a second Syrian family. Francis' appeal to 120,000 parishes across Europe to take in one family each has received a mixed response, with some clerics openly opposed to the idea of welcoming in Muslims.

UNHCR: Time running out to resolve refugee emergency in Europe – ‘The crisis is growing and being pushed from one country to another without solution’– Following yesterday's mayhem on the Serbian border with Croatia, which has closed some entry points, the UN refugee agency today issued a stark warning that time was running out for Europe to resolve the current refugee crisis. UNHCR blamed the continuing absence of a coherent and united response to Europe's refugee situation as the main reason for the chaos and confusion on the Serbian border with Croatia yesterday and today and the dramatic scenes on Wednesday on the Hungarian border. "With more than 442,440 refugees and migrants having arrived via the Mediterranean so far this year, some 2,921 deaths, and 4,000 people arriving on the Greek islands daily, the crisis is growing and being pushed from one country to another without solution," UNHCR spokesperson Adrian Edwards told a press briefing in Geneva. He added that the suffering and risks for thousands of refugees and migrants were meanwhile increasing as uncertainty and a lack of information fuels desperation, raises the likelihood of further incidents, and stokes hostility towards people who have fled persecution and conflict and are in need of help. "This environment is fertile ground for people-smugglers and others seeking to prey on this vulnerable population," he declared. Edwards stressed that against the context of these events UNHCR believed Thursday's decision of the European Parliament to back plans for the relocation of an additional 120,000 people to all countries of the European Union deserved applause.

As Europe Wrangles Over Migrant Relocation, Reality Moves Faster -  Amid the rancorous bickering this week by European leaders over a relocation plan to spread asylum seekers around the Continent, a Coast Guard officer stood on the dock here at Greece’s main port screaming a blunt command at a throng of rain-soaked new arrivals: Hurry up and relocate yourselves.“Get out of here. Get on the bus! Go, go, go,” the officer shouted, ordering another shipload of Afghans, Syrians, Iraqis and others who had just been ferried from outlying Greek islands to keep moving to wherever it is in Europe they want to go.The scene at Piraeus underscored the huge distance between decisions made in the conference rooms of Brussels and the often chaotic realities on the ground for a refugee crisis that keeps thwarting promises of a “European solution.” This sprawling port southwest of Athens is where many of the various tributaries carrying desperate people fleeing war and poverty converge to form an unstoppable human river flowing northward, usually to Germany or Sweden. It is also the place where Europe’s disarray is on full display, particularly its failure to follow through on plans — no matter the pledges repeated in Brussels — to secure Europe’s outer borders and help front-line states like Greece to deal with the largest movement of refugees in Europe since World War II. In fact, this week’s plan to distribute 120,000 asylum seekers — bitterly contested as it was by Eastern European nations, which were overruled — was just the latest faint stab at a unified European Union policy in the face of underfunded and embryonic blocwide agencies to deal with the crisis.

Austria Takes Role of Distribution Center for Germany-Bound Migrants - — In the absence of a unified plan by the European Union, consistent national policies or any consensus on the best way to end the worst humanitarian crisis on the Continent since World War II, Austria is stepping up to house thousands of migrants from the Middle East and Asia, fast becoming Europe’s distribution center of people seeking safety and a better life.Austria, a nation of 8.7 million, has been assembling Syrian refugees and others who have reached its border after a treacherous journey across the more hostile Balkan states, feeding and housing them and providing health care before routing them toward Germany.In imposing some order on the human flow, Austria has served as a safety valve for countries to the south and a regulator for the stream of migrants who would otherwise pour into Germany, which is straining to keep up.Since the start of the weekend, reception centers and other camps had received more than 26,000 people — 10,500 on Saturday, 10,700 on Sunday and 5,000 on Monday, all from Hungary. Most of the 2,700 migrants who massed on Slovenia’s southern border with Croatia in the past few days had passed through and onto Austria, officials said.

Germany's Five-Year Yields Drop Below Zero as Equities Tumble -  European government bonds surged, pushing German five-year yields below zero for the first time in almost a month, as a slide in equity markets boosted demand for fixed-income assets. Benchmark German 10-year bunds led gains as European stocks fell the most in almost a month, underpinning the region’s benchmark sovereign securities. Speculation of extended stimulus from the European Central Bank increased after Executive Board member Peter Praet said on Monday that policy makers would “forcefully react” to defend their inflation objective. Since the ECB started its 1.1 trillion-euro ($1.2 trillion) bond-buying program in March, inflation in the currency bloc has slowed to a near standstill, compared with the ECB’s goal of just below 2 percent. The U.S. Federal Reserve’s decision to refrain from increasing interest rates last week has bolstered the prospect of the ECB extending its “easy-monetary policy stance,” according to Rabobank International. “We are seeing softness in European equities and that provides a conducive backdrop for fixed income,” said Richard McGuire, head of European rates strategy at Rabobank in London. He added that “ongoing speculation of additional central-bank support in Europe and beyond, in the wake of the Fed’s steady rate decision, may be also playing a part here.”

German bond auction fails shine light on bank rules, yield funk - The U.S., German and British governments are finding it harder to sell super-long bonds than at any time in almost a decade as meagre yields deter investors and new regulation bites into banks' ability to broker this debt. The end of an almost 30-year bull market in bonds has been called several times in recent years only for forecasters to be confounded by factors from weak economic growth and chronically low inflation to demographics and financial reforms. But analysis of government bond auctions this year shows demand from market makers - typically investment banks who later sell the bonds to institutional investors like pension and insurance funds - has been steadily ebbing. All six auctions of the German bond maturing in August 2046 have been technical "fails", meaning the sum of bids has not matched the amount on offer. It's the first time since the German finance agency began compiling comparable records in 2007 that every auction of a single bond or bill has failed. In Britain the "bid-to-cover" ratio for 30-year auctions, which measures the degree to which demand exceeds the quantity of bonds on offer, is lower in the current financial year than any year since the 2008 crisis. And the bid-to-cover ratio of the last six U.S. long bond auctions is below long-term averages over the period since the reintroduction of the 30-year bond almost a decade ago.

Eurozone Nears Limits of What Monetary Policy Can Do - WSJ: As the Federal Reserve chews over when to raise interest rates, after holding fire Thursday, European Central Bank officials can claim some success in traveling a very different road, already blazed by the Fed, in buying up hundreds of billions of euros in bonds. Thanks to the ECB’s own version of quantitative easing, the value of the euro is down from a year ago and bond yields are low, while bank lending is slowly recovering. All this provided a solid wall of defense against Greek contagion. But in many ways, the eurozone is running up against the limitations of what monetary policy can hope to accomplish, economists say. While the ECB has no mandate to boost employment—unlike the Fed, which can tout real progress on that front—its QE program hasn’t made much of a dent in the eurozone’s jobless rate, which remains in the double digits. Nor has crucial business investment picked up much.

ECB''s Nowotny Says Dangerous for Central Banks to Raise Interest Rates Too Quickly - —It is dangerous for a central bank to raise interest rates too soon, a member of the European Central Bank'sGoverning Council said in remarks Monday evening. "The most dangerous thing that can occur is if a central bank raises short-term interest rates too soon," said Ewald Nowotny. "That's a horror scenario." Though not directly referring to any particular central bank, the comments come after the U.S. Federal Reserve decided to hold interest rates at rock-bottom levels last week in a very closely watched decision. Mr. Nowotny also said in his presentation in the Austrian capital that a potential move to raise interest rates in the U.S. in three months would be less risky than tightening borrowing costs now. Mr. Nowotny said that Europe "can only dream" of the U.S.'s economic data, noting that the U.S. had both low inflation and low unemployment. But he noted that the U.S. also has low labor-force participation. In reference to China, he said the concern isn't so much the fall on the Chinese stock market, but rather "how far can we trust the Chinese statistic statements."

Ban cash, end boom and bust -  A proposed new law in Denmark could be the first step towards an economic revolution that sees physical currencies and normal bank accounts abolished and gives governments futuristic new tools to fight the cycle of “boom and bust”. The Danish proposal sounds innocuous enough on the surface – it would simply allow shops to refuse payments in cash and insist that customers use contactless debit cards or some other means of electronic payment. Officially, the aim is to ease “administrative and financial burdens”, such as the cost of hiring a security service to send cash to the bank, and is part of a programme of reforms aimed at boosting growth – there is evidence that high cash usage in an economy acts as a drag. But the move could be a key moment in the advent of “cashless societies”. And once all money exists only in bank accounts – monitored, or even directly controlled by the government – the authorities will be able to encourage us to spend more when the economy slows, or spend less when it is overheating. In this futuristic world, all payments are made by contactless card, mobile phone apps or other electronic means, while notes and coins are abolished. Your current account will no longer be held with a bank, but with the government or the central bank. Banks still exist, and still lend money, but they get their funds from the central bank, not from depositors.  Having everyone’s account at a single, central institution allows the authorities to either encourage or discourage people to spend. To boost spending, the bank imposes a negative interest rate on the money in everyone’s account – in effect, a tax on saving.

More economic insanity - The ratings agency Fitch has affirmed the AAA rating on Finland's sovereign debt. But on reading Fitch's analysis, the justification for this is very hard to see. Finland's economic situation is, to say the least, dire.  This is what Fitch has to say about it: The Finnish economy is adjusting to sector-specific shocks in key industries (electronics, communications and forestry), is already experiencing the impact of an ageing population through a declining labour force, and is exposed to the weakness of Russia's economy (Russia is Finland's second-largest export market). The structural decline of key industries and a shrinking labour force have led to a sharp decline in productivity growth and in estimates of potential growth. So, a serious fall in productive capacity due to supply-side shocks, unfavourable demographics and a Russian problem. This has significantly weakened Finland's external position: The loss of competitiveness has led to the current account turning negative in 2011 and net external debt rising to an estimated 35.7% of GDP in 2014 from -3.6% in 2007 - more than three times the 'AAA' median of 10.1%. The rise in external debt is evident from this chart:

French Joblessness Surges To Record High -- Since Francois Hollande was elected (in May 2012), France has seen its joblessness ranks rise 36 of 39 months by a stunning 648,000. The lastest month added another 20,000 as it appears the brief respite in June and July is well and truly over. At 3.571 million, this is the highest number of jobseekers France has ever had... Record high joblessness, well played Hollande!

France signals EU treaty change to avert Brexit, warns on euro survival - Telegraph: France has opened the door to full-blown treaty changes in a bid to keep Britain in the EU, warning that it would be grave mistake to disregard the legitimate demands of London. Emmanuel Macron, the French economy minister, said creative ways can be found to amend the EU treaties and stop a European "Brexit" crisis from spinning out of control. “We shouldn’t turn a treaty change into something traumatic or taboo,” he said, speaking in London on a visit to promote France’s "industrial renaissance".  “We mustn’t close the door to the British if what they are demanding from other member states is acceptable,” he said. Mr Macron said it is not beyond the wit of man to craft a “win-win deal” that addresses Britain’s worries about the status of the non-euro members, increasingly untenable as the core countries press ahead with ever closer integration.The comments came a day after French president Francois Hollande met David Cameron for a brain-storming session at Chequers. There appears to be a coordinated move by Paris to defuse an unnecessary clash with Britain. Mr Macron said changes to the UK’s membership terms could be lumped together with euro reform in a broader EU accord, giving Mr Cameron the coveted imprimatur of full treaty change.

Jeremy Corbyn’s leadership might shake more than Britain - The scale of Jeremy Corbyn’s victory in the Labour party’s leadership election is a political earthquake. Britain’s Labour party is neither Greece’s Syriza nor Spain’s Podemos. It has been in power for just less than 40 per cent of the time since 1945. The UK is also a participant in the group of seven leading economies, a weighty member of Nato, a close ally of the US, one of the larger members of the EU and home to a global financial centre. So, what does the election of an inexperienced left-winger mean? Start with why he won. Paul Krugman argues in the New York Times that it is because the Labour establishment failed to counter the Conservatives’ misleading propaganda on the causes of the fiscal deficits bequeathed by the financial crisis and the urgency of fiscal retrenchment. I agree that the past leadership was too supine. Yet also important were changes in the electoral process. Above all, Mr Corbyn’s rise reflects the loss of confidence in political and commercial elites also to be seen in other high-income countries, notably France, Spain and the US. This mistrust has roots in longstanding discontents. But a huge and essentially unexpected financial crisis, followed by the rescue of the institutions held responsible and a lengthy period of depressed real incomes, has turned it into rage.  The anger is to be seen on both extremes. The populist right identifies the enemy as corrupt elites, feckless scroungers and foreigners. The populist left identifies it in greedy plutocrats and their lackeys in politics and media. Mr Corbyn’s ascendancy is the triumph of this second view. It may not be the last such event in western politics. What might the rise of Mr Corbyn mean for near and more distant futures? It seems to raise the likelihood that the British will vote to leave the EU in the forthcoming referendum. True, Mr Corbyn has now clearly indicated his desire to keep the UK inside the EU. But many of his supporters see it as a capitalist plot and may even oppose him. More important, the pro-business and pro-market reforms David Cameron, prime minister, seeks are just what Mr Corbyn rejects. The more successful Mr Cameron is in uniting his party behind such a package of reforms the less likely is Mr Corbyn’s Labour party to support membership wholeheartedly. Labour’s hostility to Mr Cameron’s terms is likely to make the referendum even harder to win.

Jeremy Corbyn reveals first official policy: To renationalise the railways -  Jeremy Corbyn unveils his first official policy since becoming leader of the Labour Party, with plans for a “People’s Railway” under which his government would fast-track a renationalisation of England’s rail network. The plans would lead to a third of franchises being brought under public ownership by 2025 if he became prime minister at the next election. Mr Corbyn will announce that each route would be renationalised when its franchise expired. Some five out of 16 franchises are due to expire between 2020 and 2025, including East Coast, Southern and TransPennine Express. Mr Corbyn will make rail renationalisation Labour Party policy at his first conference as leader, which starts in Brighton next Sunday. The move will fuel the Conservative Government’s claim that the new Labour leader is a threat to the economy. However, a poll two years ago showed that two-thirds of voters support renationalisation. The Labour leader told The Independent: “We know there is overwhelming support from the British people for a People’s Railway, better and more efficient services, proper integration and fairer fares. On this issue, it won’t work to have a nearly-but-not-quite position. Labour will commit to a clear plan for a fully integrated railway in public ownership.”

People's QE: no big deal: There's been much debate and, I fear, confusion, about "people's quantitative easing". Personally, I suspect the case for it all depends on the circumstances. Let's start from a fact - that if it has any effect at all, PQE is inflationary. Whether this is a good thing or not depends upon the conditions in which it is introduced. If PQE is undertaken when inflation and economic activity are high, then Tony is right - it would be incompatible with the Bank's mandate to keep inflation at 2%. If, however, we face the risk of deflation and/or weak activity then PQE would be entirely consistent with that mandate. In such circumstances, there is nothing radical whatsoever in the Bank buying the bonds of a National Investment Bank: the Fed's QE involved buying the bonds of government agencies such as Fannie Mae and Freddie Mac, so why shouldn't the Bank do the same? Doing this would not require any breach of Bank independence. Any expansion of QE would require authorization by the Treasury, and as part of this the Treasury could authorize the Bank to buy NIB bonds. Undertaken in the appropriate conditions, therefore, there is nothing radical or unusual about PQE*. In fact, it could be that the problem with PQE is that - if undertaken at a time of recession - it would not be radical enough.

Haldane on alternatives to QE, and what he missed out - Andrew Haldane, Chief Economist at the Bank of England, gave a typically well researched and thoughtful talk recently. The main subject matter was the problem of the Zero Lower Bound (ZLB): why we may hit it much more often than we would like, and why QE is not a great instrument for dealing with it. To quote:  “QE’s effectiveness as a monetary instrument seems likely to be highly state-contingent, and hence uncertain, at least relative to interest rates. This uncertainty is not just the result of the more limited evidence base on QE than on interest rates. Rather, it is an intrinsic feature of the transmission mechanism of QE.”  In the past I have emphasised the point about lack of evidence simply because it is obvious. But as Haldane’s discussion shows, the problems are more basic than that. Some people argue that we can always get the result we want with enough QE. Yet if the central bank and the public never know how effective any amount of QE will be, then lags make it a poor instrument. It is refreshing to see a senior member of the Bank finally acknowledge its limitations.   Haldane considers two alternative ways of dealing with, or avoiding, the ZLB: a higher inflation target and getting rid of cash so that negative interest rates of whatever size become possible. The first is obviously welfare reducing, but as Eric Lonergan argues the second is likely to be as well. (See also Tony Yates.) But what is really strange about Haldane’s analysis is what is missing from his discussion.

Central banks have made the rich richer - Labour’s new shadow chancellor has got at least one thing right. Amid the brickbats thrown at John McDonnell, there is a nagging failure to acknowledge the validity of one part of his critique of the money-creation programmes of the four leading central banks. Quantitative easing , as this policy is known, has bailed out bonus-happy banks and made the rich richer. It is a surprise that the UK opposition party and other leftwingers have not made more of this. Maybe they thought it was too complicated. It isn’t really, and it might appeal to voters’ sense of justice far more effectively than threats to raise the top rate of income tax or to introduce a financial transactions tax (which Mr McDonnell also supports). Public pronouncements about the objectives of QE are deliberately shrouded in central bank speak. Depreciation of the yen is quite obviously an indirect effect of large-scale Japanese money printing — but it would not do for Shinzo Abe, the Japanese prime minister, or Haruhiko Kuroda, the Bank of Japan governor, to say so plainly. That would be politically toxic in the American heartlands. Nor would Mario Draghi, president of the European Central Bank, acknowledge that he is artificially distorting the bond markets so that the debt-ridden governments of peripheral Europe can continue to enjoy a low cost of capital (the eurozone’s very own Ponzi scheme). But that is what he is doing. Instead, central bankers talk about two main objectives of QE. The first is to maintain the supply of money to the banking system, to prevent a contraction in credit from leading to a seizure of 1930s proportions. The second is to stimulate what they call the “portfolio channel” via the purchase of sovereign bonds. Government bonds provide the risk-free rate for financial markets, off which everything else is priced. If you suppress the risk-free rate by buying debt, you boost the price of all other assets, from credit to equities to property.

Central Banks Below Zero - WSJ: The main monetary news last week was Janet Yellen’s decision not to start a modest liftoff in U.S. interest rates until, well, whenever. So it might have escaped broader notice that the Bank of England is inching toward the same conclusion, despite Britain’s recent success as the fastest-growing developed economy. The central bank’s chief economist and a member of its policy board, Andrew Haldane, warned Friday that instead of thinking about its first rate increase in years, the BOE should figure out how it can cut rates further than near-zero in the next slowdown. “The case for raising U.K. interest rates in the current environment is, for me, some way from being made,” he said. “One reason not to do so is that, were the downside risks I have discussed to materialize, there could be a need to loosen rather than tighten the monetary reins as a next step to support U.K. growth and return inflation to target.” Mr. Haldane is one of the BOE’s doves, and commentators have played up a perceived conflict between his statements and those from bank Governor Mark Carney suggesting a rate increase could come next year. But Mr. Haldane’s remarks, especially those pointing to an economic slowdown in China, echo a theme recently picked up by central bankers in Washington and Frankfurt. And Mr. Carney isn’t exactly a hawk. In June 2014 he warned there might be a rate hike “sooner than markets could currently expect.” We’re still waiting.

UK employer pension contributions collapse by 48% in a year - Fears have been raised that employers are slashing the amount they pay into workers’ pensions in an attempt to save money, after official figures revealed a near-50% collapse in contribution rates in 12 months. The average amount being paid into private-sector defined contribution (also known as money purchase) workplace pension schemes plummeted to 4.7% of a worker’s salary in 2014, when a year earlier it stood at 9.1%, according to the Office for National Statistics (ONS). The figure of 4.7% is made up of a typical employee contribution of 1.8% of eligible pay, plus a contribution from their company of 2.9%.  A reduction in the average contribution rate had been viewed by many as an inevitable side-effect of the government’s “auto-enrolment” regime, which is currently being rolled out and requires all employers to put eligible workers into a pension scheme. Under auto-enrolment, in order to ease workers into the new system, the total minimum contribution into their workplace pension has started at just 2% of earnings before rising to 5% in October 2017 and then 8% in October 2018. The ONS said an increase in the number of new members starting on the minimum rates would clearly pull down the average figure, but the scale of the reduction – a 48% fall in 12 months – is likely to alarm some observers. The ONS said: “The fall in employer contributions may also be due to employers reducing contributions into existing pensions, referred to as ‘levelling down’.”

Ernst & Young Removes Degree Classification From Entry Criteria As There's 'No Evidence' University Equals Success: Ernst & Young, one of the UK's biggest graduate recruiters, has announced it will be removing the degree classification from its entry criteria, saying there is "no evidence" success at university correlates with achievement in later life. The accountancy firm is scrapping its policy of requiring a 2:1 and the equivalent of three B grades at A-level in order to open opportunities for talented individuals "regardless of their background". Maggie Stilwell, EY’s managing partner for talent, said the company would use online assessments to judge the potential of applicants. "Academic qualifications will still be taken into account and indeed remain an important consideration when assessing candidates as a whole, but will no longer act as a barrier to getting a foot in the door," she said. "Our own internal research of over 400 graduates found that screening students based on academic performance alone was too blunt an approach to recruitment. "It found no evidence to conclude that previous success in higher education correlated with future success in subsequent professional qualifications undertaken."

What the British are really laughing about -- Outsiders to the British cultural landscape are focusing on the central detail that a leader of a G8 country screwed a dead pig, because it’s hilarious. But the howling laughter of the British themselves goes deeper than just schadenfreude at a man doing something disgusting and getting caught – this is about class. When Cameron was at Oxford, he was a member of several secret societies of rich young men. The most famous of these is the Bullingdon Club, after which Yale’s infamous Skull and Bones is fashioned. The aim of the Bullingdon Club is ostensibly to dress up fancy with the chaps, get blind drunk at an expensive restaurant or private dining room, and trash the place – because they can afford to pay for the damages without doing a day’s work. Among their known initiation rites, they are said to have to burn a £50 bill in front of a homeless person. And that leads to the other side of what the Bullingdon Club (and societies like it) is about: upper class right wing team-building. The friendships and alliances forged in the secret drinking societies of powerful rich kids go on to define their careers, and these young men all have access to the highest rungs of British society. Three prominent members of Cameron’s cabinet were members, whilst many others went on to run the banks that crashed the economy in 2008 and the media empires that protect them. Burning money in front of a homeless person isn’t just intended to be a nasty prank, it serves to train a Bullingdon boy’s senses, to make other humans seem somehow less. That David Cameron and his allies George Osborne and Boris Johnson have all done this, and that they have all presided over a sharp spike in homelessness in London and throughout the UK, are not coincidental. The MP who provided Lord Ashcroft with the details of the pig story attended one meeting of the expensive club but left in disgust because ‘it was all about despising poor people’.

Is Britain Ruled by a Secret Pig-Fucking Cabal? - Something very weird happened as soon as the allegations emerged in the Daily Mail that Prime Minister David Cameron had, during his student days at Oxford, stuck "a private part of his anatomy" in a dead pig's mouth—a story upon which Downing Street declined to comment today. While most of us were laughing uncontrollably all evening, political and media figures across the UK Right, from Louise Mensch to James Delingpole, suddenly started insisting that it was no big deal, that he was just a student, that we've all done something embarrassing back in the day, so who cares? This is true. There are certainly long and stupid years of my life that, whenever I'm reminded of them, make me want to slam my head into the nearest wall. But even so, I never fucked a dead pig. So the question hangs in the air. Could it be that the entire United Kingdom is ruled by a secret pig fucking cabal? Some ancient society, devoted to the enjoyment of forbidden porcine pleasures, driven wild by its transgressions, with ambitions to take over the world? This kind of idea is difficult to prove. But I want to suggest that, at the very least, we should take the proposition seriously.