week ending Sept 12

Fed Up with the Fed - Joseph E. Stiglitz  -- Even now, seven years after the global financial crisis triggered the Great Recession, “official” unemployment among African-Americans is more than 9%. According to a broader (and more appropriate) definition, which includes part-time employees seeking full-time jobs and marginally employed workers, the unemployment rate for the United States as a whole is 10.3%. But, for African-Americans – especially the young – the rate is much higher. For example, for African-Americans aged 17-20 who have graduated high school but not enrolled in college, the unemployment rate is over 50%. The “jobs gap” – the difference between today’s employment and what it should be – is some three million.  With so many people out of work, downward pressure on wages is showing up in official statistics as well. So far this year, real wages for non-supervisory workers fell by nearly 0.5%. This is part of a long-term trend that explains why household incomes in the middle of the distribution are lower than they were a quarter-century ago.  Wage stagnation also helps to explain why statements from Fed officials that the economy has virtually returned to normal are met with derision. Perhaps that is true in the neighborhoods where the officials live. But, with the bulk of the increase in incomes since the US “recovery” began going to the top 1% of earners, it is not true for most communities. The young people at Jackson Hole, representing a national movement called, naturally, “Fed Up,” could attest to that.  The Fed has a dual mandate – to promote full employment and price stability. It has been more than successful at the second, partly because it has been less than successful at the first. So why will policymakers be considering an interest-rate hike at the Fed’s September meeting?

A Turbulent Exit, as the Fed Achieves “Lift-off”? -- Perry Mehrling --In a followup from their much-discussed (by me here) May memo, Pozsar and Sweeney predict “A Turbulent Exit” when the Fed begins to raise rates.  FT Alphaville and Bloomberg both appreciate the importance of the memo, but focus attention on the exchange rate dimension, and so miss the main point.  Let’s walk through the argument more slowly, so as to put the exchange rate consequences in proper perspective.  As in their May memo, P&S point to an imminent and very large rotation of existing cash pools away from prime money funds and various bank liabilities (domestic and foreign) into government-only money funds.  Here is the picture:  Exhibit 14. There are two reasons for this rotation.  One is the shift to floating NAV for prime funds, but that is not imminent and so the resulting flow should be “slow”. The other is the Fed’s shift to higher base interest rates, and that apparently is imminent (whether September meeting or the next one), and so the resulting flow should be “fast”.  Fast flows are likely to be disorderly.  In the words of P&S, “someone won’t get things right”.  Hence, turbulent exit. The reason for the fast shift is that, given regulatory changes, banks really don’t want to be in the business of meeting demand for cash balances from the large institutional cash pools.  So probably they will not match the Fed’s interest rate hike on liabilities they offer to the cash pools, providing cash pools with a clear incentive to move their money elsewhere, pronto.  Government-only money funds are the likely destination because they are constant NAV.  The question is what government assets are out there for the funds to buy? The answer, according to P&S, is the RRP facility of the Fed.  And the best way to reduce turbulence to a minimum, they suggest, is for the Fed to offer a full-allotment RRP facility at the new higher interest rate.

The FOMC is coming -- Having dropped to 5.1%, the unemployment rate has reached the longer-run employment goal of the Federal Reserve’s Open Market Committee (FOMC). So, starting to raise interest rates would seem to be in the cards. And, many observers expect policymakers to act soon, possibly very soon. The key sticking point, and it is a big one, is that inflation – as measured by the personal consumption expenditure price index (PCE) favored by the FOMC – has been consistently below their stated 2% medium-term objective since early 2012. Tightening monetary policy for the first time since 2006 requires confidence that inflation will in fact head back up (see, for example, the July FOMC statement and Fed Vice Chair Fischer’s recent comments). The difficulty is that confidence requires reliable forecasts. And, as it turns out, precise forecasts of inflation are hard to come by. (See our earlier post for the mechanics of how the Fed will tighten policy when the time comes.)  First, what’s been happening to inflation? In the chart below, we plot annual headline, or all-items, PCE inflation (thick black line); along with two indicators of trend inflation, the PCE excluding food and energy (red line); and the trimmed mean PCE constructed by the Federal Reserve Bank of Dallas (blue line). (For a discussion of core inflation measures see here.) You can see the problem right away. It has been over three years since inflation hit 2%, while the core measures recently have remained stubbornly around 1½%. And this has occurred amid remarkably low inflation across most of the world and deflation risks in several advanced economies.

Interest rate rise: economic indicators mean hard choices for Fed - FT.com: If James Bullard is right, the US is more than ready to weather its first rise in short-term interest rates for a decade. To the hawkish St Louis Federal Reserve president, the US is entering a full-blown economic boom and it is time official borrowing costs responded. Barring unexpected shocks, “you will see very strong labour markets and hopefully very strong growth as well”, he said in an interview on August 28. Whether that view is shared elsewhere in the Fed will become clearer on September 17, when the central bank holds its most scrutinised policy meeting since Janet Yellen took the chair in February last year. Ms Yellen has argued that it would be “appropriate” to raise rates, if not in September then later in the year, to begin returning monetary policy to normal after the extraordinary conditions of the great recession. With debt servicing costs at their lowest as a share of income since at least the 1980s, officials from the central bank have repeatedly stressed policy would remain very loose even after a move. But even as the Fed prepares to tighten policy, disinflationary clouds are gathering over many emerging economies, financial markets are shaking, and US exporters are suffering from the hindrance of a higher dollar. Officials at the central bank face a fiendishly complex picture. Hotspots are emerging across the US economy, in areas ranging from car sales, which are running at their fastest pace in a decade, to commercial real estate prices, which have surpassed their bubble-era peaks. The unemployment rate has fallen below levels seen at the beginning of both of the Fed’s last two rate-increasing cycles, and companies are finding it harder to fill vacancies than in 2005-06. In spite of such momentum a Fed survey of its reserve banks released last week suggests there is scarcely a flicker of inflation across their regions, while figures on Friday confirmed wages remain sluggish.

Fed Watch: Flying Mostly Blind Heading Into the September FOMC Meeting -- Last year, I would have said you were crazy if you told me that short-term rates would still be hugging zero even as unemployment fell to 5.1 percent. Yet here we are, gearing up for a FOMC meeting that promises to be the most contentious in years. The era of data dependence yielded substantially less clarity on the direction of policy than one would hope for, leaving expectations for the meeting’s outcome all over the place. That means this meeting is not just about 25 basis points – it’s about defining the parameters of the Fed’s reaction function. We will learn what data dependence means not just in theory, but in practice. The argument for a move next week is straightforward. Actual and underlying economic activity remains sufficient to sustain further improvement in the labor market. Indeed, dramatic progress has been made when viewed through the eyes of Federal Reserve Chair Janet Yellen as she scoped out the economic landscape in 2013: With unemployment at the Fed’s estimate of the natural rate, inflationary pressures will soon emerge. To be sure, wage growth remains flat, but even Yellen leans toward writing that off as an expected outcome of low productivity growth:  When combined with stable inflation expectations, policymakers have good reason to be confident that actual inflation will soon reverse course and trend toward the Fed’s target. In such an environment, financial accommodation needs to be withdrawn pre-emptively to avoid overshooting the targets. As policymakers prefer to raise rates gradually, they are impelled to raise them early to avoid the risk of more rapid increases in the future. The counterargument, however, is also straightforward. Labor markets remain far from healed if viewed through the eyes of Yellen in 2014:

Fed's Williams Lays Out Pros and Cons of a Rate Increase: Interview Excerpts - John Williams, president of the Federal Reserve Bank of San Francisco, sat down for an interview Friday with The Wall Street Journal’s Jon Hilsenrath. They spoke after the release of the Labor Department’s August employment report, which showed employers added 173,000 jobs and the unemployment rate fell to 5.1% from 5.3% in July.  Mr. Williams wouldn’t say whether he thought the central bank should raise interest rates at its Sept. 16-17, but laid out the points to consider on both sides of the argument. Below is a transcript of key excerpts from the interview, edited slightly for clarity.

The case for keeping US interest rates low - FT.com - Martin Wolf -  How close is the US Federal Reserve to normalising monetary policy? This was the question addressed by Stanley Fischer, vice-chairman, at the Jackson Hole Symposium. So will the Fed raise interest rates this month? On that, I can only guess — and that guess is no. Another question is whether the Fed should raise rates this month. My answer to that is also no. In itself a rise might seem unimportant. The Fed’s intervention rate has been 0.25 per cent since December 2008. One must doubt whether a jump to 0.5 per cent would be significant. After all, the Bank of England’s base rate has been 0.5 per cent throughout the crisis. This point is correct, but too limited. Any increase would be significant: first, it would indicate the Fed’s belief that the policy can be “normalised” after almost seven years of post-crisis healing; second, it would indicate the beginning of a tightening cycle. One of the reasons for believing the latter is that this is how the Fed has historically behaved: the last such cycle began with rates at 1 per cent in June 2004 and ended with rates at 5.25 per cent two years later. Without doubt, beginning a tightening cycle for the first time in more than 11 years would be a significant moment. It would also signal more than an immediate rise in rates. The likely destination and speed of travel are also enigmas because the US economy is not behaving normally. After nearly seven years of zero interest rates, the inflation of which critics warned is invisible. This is not normal. For the same reason, the correct timing of that first tightening remains uncertain. Yes, US unemployment is down to 5.1 per cent. And, yes, the private sector has added 13.1m jobs over 66 months.

Further thoughts on US monetary policy - Lawrence H. Summers -- Two weeks ago I  argued that a Federal Reserve decision to raise rates in September would be a serious mistake.  As I wrote my column, the market was assigning a 50 percent chance to a rate hike. The current chance is 34 percent. Having followed the debate among economists, Fed governors and bank presidents I believe the case against a rate increase has become somewhat more compelling even than it looked two weeks ago. Five points are salient. First, markets have already done the work of tightening.  The U.S. stock market is worth $700 billion less than it was 2 weeks ago and credit spreads have widened noticeably.  Financial conditions as measured by Goldman Sachs or the Chicago Fed index have tightened in the last 2 weeks by the impact equivalent of more than a 25 BP tightening.  Second, the data flow suggests a slowing in the U.S. and global economies and reduced inflationary pressures.   Employment growth appears to have slowed down, commodity prices have fallen further, and the general data flow has been on the soft side.  Third, the case for concern about inflation breaking out is very weak.  Market based expectations suggest that inflation over the next decade on the Fed’s preferred core pce basis is near record lows and well below 2 percent.  The observation that 5 year inflation, 5 years from now is expected to be below target calls into question arguments that current low inflation is somehow transitory.  Fourth, arguments of the “one and done” variety or arguments that the Fed can safely raise rates by 25 BP as long as it’s clear that there is no commitment to a series of hikes are specious. If as some suggest a 25 BP increase won’t affect the economy much at all, what is the case for an increase?  Fifth, I believe that conventional wisdom substantially underestimates the risks in the current moment.  It bears emphasis that not a single post war recession was a predicted a year in advance by the Fed, the Federal government, the IMF or a consensus of forecasters.  Most were not recognized till long after they started.  And if history teaches anything it is that financial interconnections are pervasive and not apparent till it’s too late.  

A Hidden Reason Why The Fed May Raise Interest Rates - I think there is a deeper hidden issue here that some at the Fed are in fact aware of, although I do not think that it is a major factor in the immediate considerations.  It has to do  with the funding of the retirement of the baby boomers, many of whom are planning to cash in this or that accumulated asset account into an annuity.  How nice. The problem is that the sources of funding by the companies providing for them are heavily dependent on bonds.  Many of them have been holding long term bonds from way back, with the interest on those bonds far above what is out there right now for when they must eventually refinance. There has been little publicity about this and how without interest rates moving up noticeably sometime in the near future, these companies are going to come under serious pressure within the next few years as their longer term high yield bonds mature.  There are serious people aware of this, but, if in fact the Fed cannot get those interest rates back up somewhere near where they were some decades ago, the retired baby boomer rentiers-to-be may find themselves fulfilling Keynes's old wish that they be euthanized, or at least have to struggle to make up for a much lower income out of their long-accumulated savings than they thought they would get.

World Bank chief economist warns Fed to delay rate rise -- The US Federal Reserve risks triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned.  Rising uncertainty over growth in China and its impact on the global economy meant a Fed decision to raise its policy rate next week, for the first time since 2006, would have negative consequences, Kaushik Basu told the Financial Times.  His warning highlights the mounting concern outside the US over the Fed’s potential “lift-off”. It follows similar advice from the International Monetary Fund where anxieties have also grown in recent weeks about the potential repercussions of a September rate rise.  That means that if the Fed’s policymakers were to decide next week to raise rates they would be doing so against the counsel of both of the institutions created at Bretton Woods as guardians of global economic stability.  Such a decision could yield a “shock” and a new crisis in emerging markets, Mr Basu told the FT, especially as it would come on the back of concerns over the health of the Chinese economy that have grown since Beijing’s move last month to devalue its currency.  He said that, even though it had been well-advertised by the Fed, any rise would lead to “fear capital” leaving emerging economies as well as to sharp swings in their currencies. The likely strengthening in the dollar would also hamper US growth, he said.  “I don’t think the Fed lift-off itself is going to create a major crisis but it will cause some immediate turbulence,” Mr Basu said. “It is the compounding effect of the last two weeks of bad news with that [China devaluation] . . . In the middle of this it is going to cause some panic and turmoil.

Calls To Delay Fed Rate Hike As 2-Year Yield Rises -- The World Bank and two influential economists–Larry Summers and Paul Krugman–have joined the do-not-raise-rates club of doves. The Treasury market, however, is still expecting that the Federal Reserve will tighten monetary policy at next week’s meeting, according to the rate-sensitive 2-year maturity, which ticked up to a seven-week high of 0.75% yesterday (Sep. 9) via daily data from Treasury.gov.  Yesterday’s upbeat numbers on job openings certainly boosted the hawks’ case—employers advertised a record high for new positions in July, according to the US Labor Department. But the optimism bubbling from the US labor market, which extends across a range of indicators through August, is offset to a degree by ongoing worries about the global economy, largely due to concerns over China’s faltering growth. Nonetheless, yesterday’s incremental increase in the 2-year yield marks a return to a four-year high that the market has touched several times in recent months before declining in subsequent days and weeks. Will the latest rise of the 2-year yield endure—and go on to new highs—this time? The answer, of course, depends on the crowd’s confidence—or the lack thereof—in the Fed’s willingness to squeeze policy next week. The 2-year yield suggests a rate hike is near, but the odds for tightening next week fades once you look elsewhere. As you can see in the chart above, the benchmark 10-year rate, although inching higher lately, is still well below its recent highs. Meanwhile, the market’s inflation estimates remain close to the lowest levels so far this year. In fact, the latest inflation estimate from the Billion Prices Project @ MITshows a slight whiff of deflation has returned to the US. Official inflation data is still in the black, although well below the Fed’s 2% target.

Fed Hike Will Result In "Panic And Turmoil" And A New Emerging Market Crisis, Warns World Bank Chief Economist --  If it was the Fed's intention to make the upcoming rate hike seem like a welcome event, one that presaged a new Golden Age in the US (and global) economy because, lo and behold, the wise Fed would never hike unless the economy is flourishing and thus create a self-fulfilling prophecy in which the rate hike itself - an event of tightening financial conditions even when inflation expectations are the lowest they have been in years - becomes a catalyst for growth, then it has failed spectacularly.  First, it was the IMF warning a rate hike would be a big mistake, then Larry Summer (who for some reason progressives thought was hawkish when it was a choice between him and Aunt Janet), then even China got into the fray saying the Fed should delay its rate hike as it could push emerging markets (such as China) into crisis.  But it wasn't until today that we got the most glaring confirmation there had been absolutely zero coordination at the highest levels of authority and "responsibility", when the World Bank's current chief economist Kaushik Basu warned that the Fed risks, and we quote, triggering “panic and turmoil” in emerging markets if it opts to raise rates at its September meeting and should hold fire until the global economy is on a surer footing, the World Bank’s chief economist has warned.   Basu destroys with just two words the narrative that i) the Fed knows what it is doing and that ii) contrary to logic, a rate hike at a time when the world clearly and desperately needs, and is addicted, to global central bank liquidity, will lead to even further asset price plunges.  In fact, Basu may have just admitted, in not so many words, that Deutsche Bank's sinking feeling that the Fed's rate hike is nothing but a "controlled demolition" of the market, one which would send global equities 20-40% lower.

Fed Wavers on September Rate Rise - WSJ: Federal Reserve officials aren’t near an agreement to begin raising short-term interest rates heading into a crucial week of private discussions before their Sept. 16-17 policy meeting, according to their recent comments. Wednesday marked the beginning of the Fed’s self-imposed blackout, the period when officials stop communicating with the public ahead of a policy meeting and begin a week of internal deliberations and staff briefings. Though officials appear to remain on track to raise rates this year—after September, there are Fed meetings in October and December—their recent remarks in interviews and elsewhere showed divisions and uncertainty that could restrain them from moving on rates as soon as next week.  The Fed pushed its benchmark short-term interest rate to near zero in December 2008, an effort to spur borrowing, spending and investment in the aftermath of the financial crisis. The central bank has kept rates low ever since to keep a fragile expansion going. Some Fed officials want to start raising their rate from near zero because the job market is improving at a rapid pace and reducing economic slack. Underscoring that point, the Labor Department reported Wednesday a record of 5.8 million U.S. job openings in July, a sign that the demand for labor is on the rise and could lead to wage gains. That follows Friday’s report that unemployment fell to 5.1% in August from 5.3% in July. Some officials in this camp also worry that if the Fed keeps rates low for too long it could breed financial excesses like asset bubbles fueled by borrowing that hurt the economy later.

Whether they raise or hold, central bankers are due a fall - FT.com: America’s monetary priesthood convenes next week amid more than the usual scrutiny. It has been 11 years since the Federal Reserve last initiated a tightening cycle, and the fateful moment of lift-off may now approach, if not at this meeting then at least before Christmas. But whatever the Fed’s interest-rate committee determines, we can be sure of one thing: few will doubt its competence. Gone are the days when the Fed was a holding pen for cronies and chancers — placemen such as the redoubtable James K Vardaman Jr, appointed to reward his service as a plodding presidential aide, sworn into office in 1946 in the full regalia of a navy commodore. Do modern central bankers deserve their exalted reputations? In one sense, yes: like the economics profession writ large, they have become more scientific and sophisticated. But in another sense there is a danger in pushing this reverence too far. The Fed still grapples with surprisingly basic questions about its purpose. Should it stabilise inflation, or a combination of growth and inflation, or perhaps employment, or maybe even asset prices? And how, for that matter, do its tools really work? By toggling short-term rates, the Fed hopes to guide the more important long-term ones that matter to homebuyers and businesses, but the transmission mechanism is unstable. As for quantitative easing and the rest of the modern monetary toolkit, it is a work of improvised brilliance, dazzling and yet prone to fail. It is not a trusty set of spanners.

Three Reasons the Fed Cannot Let Rates Normalize --Analysts and commentators remain hung up on whether or not the Fed will raise rates next week. Certain Fed officials have been stating that the Fed should commence tightening. However, with China’s bubble collapsing, dragging down the Emerging Markets, there are plenty of excuses for the Fed to postpone yet again. Ultimately, I remain convinced that whenever the Fed does hike rates, it will largely be a symbolic rate hike, say to 0.35% or 0.5%.  That will be it for some time. I say this because the Fed cannot afford raising rates anywhere near historical norms (4%). There are three reasons for this:

• 1)   The $9 trillion US Dollar carry trade
• 2)   The $156 trillion in interest-rate based derivatives sitting on the big banks’ balance sheets.
• 3)   The weak US economy cannot handle rate normalization

Regarding #1, there are over $9 trillion in borrowed US Dollars floating around the financial system invested in various assets. When you borrow in US Dollars you are effectively shorting US Dollars. So if the US Dollar strengthens, you very quickly blow up (carry trades only work when the currency you are borrowing in remains weak or stable).

Hike rates when you hear the creak of inflation at the door, not when you see the whites of its eyes -- A common argument against the Fed raising interest rates next week is the asymmetry in risks that it faces. If it keeps rates low too long and sets off inflation, no problem: it can quickly hike rates a few times to bring prices back in line. However, if it boosts rates too early and an unintended slowdown sets in, the Fed won't have room to cut a few times in order to fix its mistake. That's because the Fed is at the zero lower bound, the edge of the world in monetary policy terms. To avoid this conundrum, the Fed should hold off as long as possible before raising, until it "sees the whites of inflation's eyes." As Paul Krugman points out, the asymmetry argument is only a recent one. Historically U.S. interest rates have hovered far above zero. If the Fed made a mistake, it didn't have to worry about falling off the edge of the world in order to fix the situation, it could simply ratchet rates down a few times. Rather than waiting till the last minute to see the whites of inflation's eyes before hiking, the FOMC only had to wait to hear the creak of inflation at the door.    I don't buy the current asymmetry argument. I might have bought it back in 2013, but the data has changed.

Fed Hike - Now Or Never - The most anticipated, discussed and fretted about meeting of the Federal Reserve Open Market Committee (FOMC) is rapidly approaching. That meeting will answer the one singular question on every investors mind – will the Fed hike interest rates?  The chart below shows that the Fed has maintained near zero overnight lending rates for a period longer than any other in history. The consequence of extremely accommodative monetary policy has been a blistering run-up in financial asset prices as "savers" were forced to chase yield in higher risk areas. However, there has been little translation through the real economy that has continued to limp along. It is worth remembering that the Federal Reserve uses monetary policy tools in an attempt to foster full employment and maintain price stability. In other words, the Fed lowers interest rates to stimulate economic activity and spark some inflationary pressures. The raises interest rates when the economy begins to accelerate too quickly, and inflationary pressures are building to a point that it becomes a detraction to economic growth. The chart below shows the Fed Funds rate as compared to CPI. As I stated previously, I think the Fed realizes that we are likely closer to the next recession than not. While raising interest rates may accelerate the pace to the next recession, it is better than being caught with rates at zero when it does occur. In every market cycle throughout history there have been times where it was vastly more beneficial to "err to the side of caution." This is very likely one of those times.

Manufacturing, the Dollar and Implications for Monetary Policy - One of the bits of information in the employment release was a decline in manufacturing employment. When added to declining exports and stagnant manufacturing output growth, the case for near-term monetary policy tightening seems more tenuous to me. First, manufacturing employment.  While the decline in August employment might very well be erased in the next revision, what can be said is that manufacturing employment has flattened out several months after the dollar’s ascent began.  Next up – exports. Thursday’s trade release provided some good news, with the trade deficit shrinking and exports inching up. But what about exports?  Nonetheless, non-petroleum related exports are down slightly relative to a year ago, and down noticeably relative to the 2014M10 peak (since the left scale is log, but with original data reported — as some readers have asked for given their befuddlement with logs — one can’t read directly off the graph the percent decline; it is 3.5% in log terms).  Manufacturing output (a proxy for tradables) ticked up for the last reported month. However, the deceleration in manufacturing output growth is marked over the past year. This is the best high frequency indicator for the impact on the tradables sector of the dollar, given the trend decline in manufacturing employment. All the foregoing suggest to me we should be wary of tightening, given the tightening has already occurred, based on indicators of financial indicators. Consider the Goldman Sachs indicator, as of yesterday.

Janet Yellen's "Favorite" Jobs Indicator Just Shrieked A Rate Hike Is Imminent -- Following the surge in overnight screams against a rate hike, which in just the past 24 hours has added those of the World Bank's chief economist, Paul Krugman, and Larry Summers (for the second time), all eyes were focused on Janet Yellen's favoriote Jobs indicator - the JOLTS report, and especially the total nonfarm Job Openings. And here a big problem appeared because while the Fed is now facing tremendous pressure from the outside not to hike in September, the JOLTS report not only gave a green light, but literally shrieked a rate hike in September is inevitable.  The reason: the Job Openings number soared from 5.323MM toi 5.753MM, smashing expectations of a drop to 5.3MM. In fact, the monthly increase in openings of 430,000 was the highest stretching all the way back to April 2010, and was the fourth highest monthly jump in the history of the series! To be sure, a more than cursory scan at the components of the jump reveals it was all quantity, and zero quality: the biggest increase among "job wanted" poasters was for low-paying jobs (just in case anyone is still confused why there are no wage hikes), including retail trade and leisure and hospitality, but to the Fed that was largely irrelevant. What does matter to Yellen is that the ratio of number of unemployed people per job opening is now back to pre-crisis levels. To wit: "when the most recent recession began (December 2007), the number of unemployed persons per job opening was 1.8. The ratio peaked at 6.8 unemployed persons per job opening in July 2009 and has trended downward since. The ratio was 1.4 in July 2015."

Stop Fearing Full Employment - August’s Employment Report showed the unemployment rate fell to 5.1 percent and creation of 173,000 new jobs. Predictably, the decline in the unemployment rate has triggered calls for higher interest rates from Wall Street Hawks on grounds that higher core inflation is just around the corner. That is the same call we heard when the unemployment rate was much higher, and it is the same call we heard in the past two business cycles. Federal Reserve policymakers should ignore the Hawks and stop being afraid of tight labor markets. In a market economy, that is the way workers get a raise. There is no reason for the Fed to rock the boat and risk confiscating the raise working families have waited for so long. That is the message this Labor Day weekend. Though the unemployment rate fell, headline job creation was actually below expectations. Moreover, private sector job creation was only 140,000, which is much weaker than recent months.  Employment in manufacturing fell 17,000, and the fall would have been worse absent continuing strength in auto production due to the car-buying boom. In fact, there are indications manufacturing could even be on the cusp of recession. Comprehensive measures of labor supply, which include the labor force participation rate and the U-6 broad measure of unemployment, show continued excess supply. The U-6 rate, which includes discouraged workers and those involuntarily working part-time, is 10.3 percent. That is much higher than prior to the Great Recession.  Inflation is tame; unit labor costs are down; energy prices are down; and the strong dollar has lowered import prices and is holding the lid down on prices of domestically manufactured goods.

Fed Watch: If You Ever Wondered Whose Side The Federal Reserve Is On...-  Catching up with Richmond Federal Reserve Jeffrey Lacker's speech. His dismissal of low wage growth numbers: real wages are tied to productivity growth, and productivity growth has been slow for several years now. Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated.   Real wage growth is consistent with productivity, thus there is no excess slack in the labor market. If you think this is some crazy hawk-talk, think again. Fed Chair Janet Yellen in July: The growth rate of output per hour worked in the business sector has averaged about 1‑1/4 percent per year since the recession began in late 2007 and has been essentially flat over the past year. In contrast, annual productivity gains averaged 2-3/4 percent over the decade preceding the Great Recession. I mentioned earlier the sluggish pace of wage gains in recent years, and while I do think that this is evidence of some persisting labor market slack, it also may reflect, at least in part, fairly weak productivity growth. For more than three decades, the pace of productivity growth has exceed that of real compensation: Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners.

Era of low interest rates fails to generate expected growth - FT.com: In a world characterised by flagging growth, the US is leading the transatlantic economies from their deepest post-second world war recession thanks in large measure to the Federal Reserve’s historically unprecedented stimulus policies. But nearly seven years after the central bank cut rates to near-zero, policymakers from the Fed’s crisis-era response team say low rates and quantitative easing have failed to generate the vigorous economic bounceback they expected. Deepening the conundrum over whether to raise rates from their historic lows, inflation figures have stayed moribund even as the economy hits what the Fed believes is full employment. Meanwhile, patches of the financial markets are heating up, buoyed by historically cheap borrowing costs, and challenging the economic models central bankers traditionally rely upon. Donald Kohn, who was vice-chairman of the Fed’s board of governors at the height of the crisis and one of the handful of officials to shape its response, says the rebound, which has seen average annual growth of 2.2 per cent for six years, has been underwhelming. “I expected a slow recovery, but I expected credit to become more available over time, and zero interest rates to have more of a stimulative effect on spending than they appear to have had,” says Mr Kohn, a senior fellow at the Brookings think-tank. “This has been a disappointing recovery.” By some measures the US is doing well. Unemployment is just 5.1 per cent. Second-quarter growth at 3.7 per cent was well above the long-term historical trend. But the picture is marred. Annual wage growth at 2.2 per cent is well below the pace many Fed officials expect at full employment, and the labour force participation rate is at the lowest level since the 1970s. The latter is partly because of the retirement of baby boomers, but also because many potential workers have given up looking for a job. Inflation has languished below the Fed’s target since 2012, meanwhile, despite the stimulant of low rates and quantitative easing.

What QE Actually Impacted - The end of excess liquidity & the end of excess profits always spelt the end of excess returns, as BofAML notes, especially as the hand-off from psychotic monetary stimulus to economic recovery has been so lame in nominal terms.  But, as Gavekal Capital explains, the 'gains' from QE are even more tenuous than previously believed..  The Federal Reserve’s balance sheet has now been relatively unchanged for about 10 months. Total asset at the Fed are about $61 billion higher than they were one year ago. It sounds like a lot but considering total assets are currently $4.48 trillion, $61 billion is a drop in the bucket.  During the various QE programs in the US, a useful template to track different market and economic indicators was to plot them against the 3-month change in total Fed assets (see some of our older posts here, here, and here). Now that we have gone nearly a year since the taper ended, let’s check in on some relationships.  QE certainly affected asset prices. For government bonds, yields widened as the Fed’s balance sheet expanded and have narrowed as the Fed’s balance sheet has stopped growing. For corporate bonds, spreads over treasury narrowed as the Fed was expanding its balance sheet and have since widened substantially as the Fed’s balance sheet has stopped expanding. Breakeven inflation expectations have dropped significantly as the Fed’s balance sheet has stopped growing as well. Stocks were positively affected as well. The 12-month change in the S&P 500 has fairly closely tracked the 3-month change in Fed assets. Momentum in the market has also tracked the change in Fed assets. image image image image The effect on economic indicators is much more mixed. QE seems to have clearly impacted the manufacturing PMIs. However, the effect on manufacturing IP itself is tougher to discern. image image image image It’s tough to see if QE had much effect on house prices. And it certainly didn’t matter to the consumer or small business owners. However, it seems to have negatively impacted economic surprises and increased perceived macro risks in the world as it was winding down.

Odds of Deflation  --The Atlanta Fed posts some great stuff at their "macroblog". Friday, they posted about a measure of expected 5 year cumulative deflation that can be estimated by comparing the yields of new 5 year TIPS bonds with the yields of off-the-run 10 year TIPS bonds that have the same maturity date.  Since past inflation on the 10 year bonds can be clawed back, but the new 5 year bonds can't have a maturity value less than the original value, the difference in their yields can be used to estimate the expected probability that there will be net deflation over the next 5 years. Here is the graph from the post. This probability has been negligible since late 2013, but it has re-appeared in the past couple of weeks. You can see the shadow of monetary policy here.  The probability of deflation hit 30% after the end of QE1.  Then it dropped with QE2, and rose again after QE2 ended.  Then it dropped after QE3 began, returned briefly during the "taper tantrum", and subsided after the Fed signaled that it would be patient about tapering QE3.  Since then, the market appears to have seen no risk of deflation until now. It seems to me that the natural interest rate has been tickling something above the zero lower bound, but recent turmoil has pushed it slightly back down.  It will probably continue to move up with the economy's natural recovery if we let it.  A rate hike now risks getting ahead of it. While nobody on the FOMC seems to take responsibility for the discretionary tightening that culminated in the late 2008 collapse, it does seem as though the FOMC has made the right moves when they have had to, since then, even if they have been a little premature about withdrawing accommodation.  Let's hope they acquiesce to all of the signs one more time.  I suspect that within a few months, we will have seen some more recovery in the natural rate, and a rate hike won't be as much of a risk.

Affinity and Inflation - Paul Krugman - Brad DeLong marvels at Peter Schiff insisting to Josh Barro that US inflation is far higher than the official statistics acknowledge, and hence that the economy is actually shrinking. Incidentally, the independent Billion Prices index — which is internet-based, and places a higher weight on goods as opposed to services including housing — is actually showing deflation right now.Brad — picking up on me, I think — suggests that it’s about affinity fraud. I’ve been arguing for a while that inflation paranoia is best understood in affinity fraud terms. It’s true that some people benefit from deflation, but it’s hard to make a general case that this is what’s driving the phenomenon. And all the CNBC and Zero Hedge followers have been losing money if they believe what they’re hearing. To quote myself: So who are the people who feel a deep affinity with a crotchety crank? Um, crotchety white guys feeling cranky. The whiteness is, I believe, an important part of the story, as I’ll explain in a minute. The basic mindset of the kind of people who pay Ron Paul for his economic advice is pretty clear: they’ve made some money over the course of their lives, they believe that all of it reflects their own virtue, and they think they know from that experience what it takes to create wealth. They hear that the Fed is printing money, and it sounds to them like a violation of both the laws of economics and morality — and they surely think of it as a plot to take away their completely earned gains and give them to Those People (hence the whiteness issue).  You can try as hard as you like to tell such people that monetary policy is mainly a technical problem, that the Fed isn’t giving money away, and that predictions of runaway inflation have been utterly wrong; it will make no difference. This stuff will never go away.

Fed Rate Hike Odds Rise After Hotter-Than-Expected Producer Price Data --- While still well below Fed mandated levels, the 0.9% year-over-year rise in PPI Final Demand ex Food & Energy is the hottest since March and notably above expectations. While the headline PPI Final Demand YoY has not risen for 8 months, surging prices for chicken eggs (+23%) and apparel (+7%) in August made up a considerable part of the inflation index move and bond yields and stocks are leaking lower on the news ahead of next week's FOMC meeting. PPI has now beaten expectations for 3 months in a row and stands at 6 month highs...

The Numbers Are In: China Dumps A Record $94 Billion In US Treasurys In One Month -- Shortly after the PBoC’s move to devalue the yuan, we noted with some alarm that it looked as though China may have drawn down its reserves by more than $100 billion in the space of just two weeks. That, we went on the point out, would represent a stunning increase over the previous pace of the country’s reserve draw down, which we’ve began documenting months ahead of the devaluation (see here, for instance). We went on to estimate, based on the estimated size of the RMB carry trade unwind, how large the FX reserve liquidation might need to be to offset capital outflows and finally, late last week, we suggested that China’s official FX reserve data was set to become the new risk-on/off trigger for nervous, erratic markets. In short, the pace at which Beijing is burning through its USD assets in defense of the yuan has serious implications not only for investors’ collective perception of market stability, but for yields on core paper, for global liquidity, and for US monetary policy.  On Monday we got the official data from China and sure enough, we find out that the PBoC liquidated around $94 billion in reserves during the month of August and as Goldman argues (see below), the "real" figure might have been closer to $115 billion. Whatever the case, it’s a staggering burn rate and needless to say, were the PBoC to continue to liquidate its assets at this pace, it would necessitate a raft of RRR cuts and hundreds of billions in short-term liquidity ops to ensure that money market don’t seize up in the face of the liquidity drain.

Not Everyone Is Buying 3.7% U.S. GDP in 2Q; “Only the Chinese Numbers Are More Suspect”  --- When the revision to second quarter Gross Domestic Product was released by the Commerce Department on August 27, boosting GDP to 3.7 percent, it had a lot of people scratching their heads. Consumer Metrics Institute came right out with it, writing: “Once again we wonder how much we should trust numbers that bounce all over the place from revision to revision. One might expect better from a huge (and expensive) bureaucracy operating in the 21st century. Among major economies, only the Chinese numbers are more suspect.” Ouch.  Jeffrey Sparshott and Jon Hilsenrath, economic writers at the Wall Street Journal, were more subtle in their assessment, suggesting that “How fast the economy grew depends on how you measure it. An alternative measure, gross domestic income, advanced at a much slower 0.6% pace last quarter. Both GDP and GDI measure overall economic activity but tap different source data: GDP uses expenditures and GDI uses incomes. While they should move in the same direction, there are often short-term discrepancies.” The difference between 0.6 percent growth and 3.7 percent growth might be viewed by some as more than a “discrepancy.” Not to put too fine a point on it, but 3.7 is more than 6 times the rate of growth as measured by Gross Domestic Income for the second quarter. There is also the concern that this exuberant 3.7 percent growth in GDP came when both earnings and revenues on the Standard and Poor’s 500 (the largest companies in the U.S.) contracted. On August 25, Bloomberg Business wrote that “Profits reported by S&P 500 companies in the second quarter fell 2 percent from a year ago and are projected to slip 5.5 percent in the current period.” (FactSet says the decline was 0.7 percent in the second quarter.) Of equal alarm, revenue growth fell by 3.4 percent, according to S&P Capital IQ.  If the largest corporations in the U.S. are experiencing a slowdown why isn’t the overall U.S. economy?

The USA Has an Almost Healed and Improving Economy???? - Most realize something is broken in the current economy - and it is aggravating to listen to the litany of "information" pumped out in the media. The Fed continues to talk up the economy and continue to dangle the prospect of rate increases which suggests an almost healed and improving economy. Seems everything is getting rosy, and the only reason the economy is not doing better is because of the politicians as they are either spending too much or too little - or there is too much regulation. And to listen to headlines - the consumer has returned to the consumption trough. The per capita consumer spending continues to grow. But unfortunately, this inflation adjusted picture distorts consumer spending. Literally half of consumer spending at the beginning of the Great Recession was on food and shelter. And BOTH food and shelter are now growing much faster than the inflation adjustments. Basically, Joe Sixpack, who was spending every penny on food and shelter at the beginning of the Great Recession, actually has less to spend in real terms on food and shelter - and likely little on anything else. Note in the graph below, the inflation adjustment was removed from real median income so that it can be indexed against the growth of the CPI.The point being made here is that the median consumer has yet to see an economic recovery. According to a study by the National Employment Law Project: In summary, we find that real wage declines were greatest for the lowest-wage occupations. In the bottom quintile, restaurant cooks and food preparation workers experienced wage declines well in excess of the average for all bottom-quintile occupations and the entire occupational distribution. Real median wages fell by 5.0 percent or more in six of the ten occupations with the greatest projected job growth by 2022. Moreover, five of the ten highest-growth jobs were at the bottom of the occupational distribution in 2014, suggesting a future of continued imbalance.

What’s Most Likely to Shift Economy Toward Faster Growth? Consumers -  What will it take to get the economy growing at a faster pace? Since the recession ended, full-year gross domestic product hasn’t advanced faster than 2.5% and has averaged only 2%. Forecasts are only a little better: In the latest Wall Street Journal survey of private economists, the consensus forecast is 2.4% this year and 2.6% next year. By comparison, GDP growth averaged a little over 3% in the 20 years prior to the Great Recession In the coming months, a free-spending consumer may offer the greatest hope for more rapid expansion. Among economists in the survey, more than half of those responding said a bump in consumption offered the biggest upside risk to their forecasts. (The Wall Street Journal surveyed 64 economists but not everyone answered all questions.) “In our bull case, households pick up the pace of spending more than expected,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. “Seeing the sustained pickup in demand and expecting more, business investment accelerates and cyclically depressed productivity rebounds closer to historical norms.” Consumer spending accounts for more than two-thirds of economic output. And so far this year, household outlays have been solid if unspectacular amid global turbulence. But many economists had been looking for an even brighter mood amid cheap gasoline and steady job creation. Instead, many Americans have boosted savings and the benefits of low oil prices have been mixed. Why would consumers come out of their shell? Possibilities include accelerating wage gains (which haven’t materialized yet), more hiring, easier access to credit and further declines in gasoline prices.

Worker voice critical in US growth agenda -- Larry Summers - On Wednesday, I participated in a Center for American Progress forum where a new study on unions and social mobility was released. The study, by my Harvard colleague Richard Freeman and collaborators, showed a significant correlation across American metropolitan areas between the extent of union membership and social mobility. Freeman, who based his research on data in the famous studies of Raj Chetty and his collaborators, also showed that the children of union members earn higher wages and are healthier than other children. This is important work. From Ted Cruz to Bernie Sanders, there is agreement across the political spectrum that equality of opportunity is an American ideal — that Thomas Jefferson was right in saying that America should be an aristocracy of talent. Yet equality of opportunity in the US, no matter how measured, lags behind other countries and certainly has not progressed over the last several decades. Chetty’s celebrated “equal opportunity map,” reproduced below, shows that there are no grounds for fatalism. Different parts of the US deliver very different levels of social mobility, while all in the same global economy, with the same technology, and the same increasing proclivity of able men and women to marry each other. There is nothing immutable about the existing inadequate level of equal opportunity.

Three Rich Treasury Secretaries Laugh It Up Over Income Inequality: Three of the world's richest and most powerful people (and Timothy Geithner) had a good laugh over income inequality earlier this year. Former Treasury Secretaries Robert Rubin, Henry Paulson and Geithner were asked about the issue by Facebook executive Sheryl Sandberg during a conference in Beverly Hills. When Paulson responded that he'd been working on income inequality since his days at Goldman Sachs, Geithner quipped, "In which direction?" "You were increasing it!" cracked Rubin, as everyone on stage roared with laughter. Watch the exchange:

Paul Krugman: Trump Is Right on Economics -- So Jeb Bush is finally going after Donald Trump as a false conservative, a proposition that is supposedly demonstrated by his deviations from current Republican economic orthodoxy: his willingness to raise taxes on the rich, his positive words about universal health care. And that tells you a lot about the dire state of the G.O.P. For the issues the Bush campaign is using to attack its unexpected nemesis are precisely the issues on which Mr. Trump happens to be right, and the Republican establishment has been proved utterly wrong. To see what I mean, consider how things turned out after Mitt Romney lost. During the campaign, Mr. Romney accused President Obama of favoring redistribution of income from the rich to the poor, and the truth is that Mr. Obama’s re-election did mean a significant move in that direction. Taxes on the top 1 percent went up substantially... Conservatives were very clear about what would happen as a result. Raising taxes on “job creators,” they insisted, would destroy incentives. And they were absolutely certain that the Affordable Care Act would be a “job killer.” So what actually happened? As of last month, the U.S. unemployment rate, which was 7.8 percent when Mr. Obama took office, had fallen to 5.1 percent, lower than it ever got under Ronald Reagan. And the main reason unemployment has fallen so much is job growth in the private sector, which has added more than seven million workers since the end of 2012. ... And here’s what’s interesting: all indications are that Mr. Bush’s attacks on Mr. Trump are falling flat, because the Republican base doesn’t actually share the Republican establishment’s economic delusions.

More US public debt could help monetary policy in long run -Fed official | Reuters: A top U.S. Federal Reserve official on Tuesday floated a potentially controversial proposal to help keep America's economy more stable: The federal government could issue more debt. Narayana Kocherlakota, president of the Minneapolis Fed, said bond market data suggests that the ideal inflation-adjusted rates of interest in the U.S. economy have fallen in recent decades. This is important because it means the Fed's own target for interest rate policy will tend to be lower, raising the risk that the Fed finds itself in a situation where it would like to slash rates but can only cut them modestly before hitting the "zero lower bound." Near-zero rates also raise the risk of encouraging people to over borrow, setting up instability in the form of financial booms and busts. "Fiscal policymakers can mitigate these risks by choosing to maintain higher levels of public debt than markets currently anticipate,"

US shutdown risk resurfaces as Congress kicks off budget talks - FT.com: The threat of a US government shutdown is back as Congress returns from its summer break to confront a series of divisive issues that could cause federal funding to dry up next month. The latest deadline in the US’s recurring budget crisis is the end of the fiscal year on September 30, when current government funding expires. To avert a repeat of the 2013 shutdown, lawmakers must strike a new budget deal or reach a stopgap accord to let spending continue at current levels into the next fiscal year. No politicians say they want a shutdown, which would entail the suspension of non-essential government services and put as many as 800,000 federal workers on furlough from October 1. President Barack Obama, Democratic lawmakers, Republican leaders and that party’s often rambunctious conservatives all agree this would be a bad thing. But that does not guarantee it will be averted, given the bad blood and budget brinkmanship that have become standard in Congress. Political analysts are divided on the odds of a shutdown this time. At one end of the spectrum, Stan Collender, a former congressional staffer now at Qorvis Communications, says there is a near 70 per cent risk of it happening. At the other, Stephen Myrow, a former Treasury official at Beacon Policy Advisors, says there is a 5-10 per cent chance.

Treasury stands by late autumn debt limit deadline - The Treasury Department announced Thursday that Congress will likely have until early November to increase the debt limit, reaffirming earlier estimates. Treasury will exhaust the extraordinary measures it has used to avoid defaulting on the nation’s debt near the end of October. That’s according to a letter sent by Treasury Secretary Jack Lew to House Speaker John Boehner. It is difficult to predict the exact date on which the government will run out of funds, but the letter increases pressure on lawmakers to act quickly to avoid default. Lew warned Congress of the impending deadline at the end of July before lawmakers left town for an August recess. “Since my previous letter, I have taken additional action to implement the extraordinary measures that allow us, on a temporary basis, to continue paying the nation’s bills,” Lew wrote. “If Treasury exhausts these measures, the United States will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash on hand on any given day.” The letter increases pressure on Republican leaders, who have struggled in recent years to find sufficient votes to increase the borrowing limit and are already engaged in a larger spending fight with fellow conservatives.

Goldman on Possible Government Shutdown -- A brief excerpt from a research note by Goldman Sachs economist Alec Phillips:   [T]he political environment at the moment seems ripe for fiscal conflict. We are still closer to the last election than the next one, and it is not a coincidence that recent major fiscal disruptions occurred in 2011 and 2013—odd years—when upcoming elections were still more than a year off. In the 2013 experience, public sentiment toward Republicans dropped sharply during and after the shutdown (Gallup’s Republican favorability measure hit a 20-year low), but a year later Republicans won the majorities in the House and Senate. Some lawmakers may conclude from this that voters’ memories are short and the political price for a shutdown more than a year before the next election is low. [W]hile the probability of a shutdown of some kind seems to us to be approaching 50%, we think the probability of a shutdown that has a significant effect on the financial markets or real economy is much lower, for two reasons. First, unlike the 2013 shutdown, which coincided with the deadline to raise the debt limit, the next deadline to raise the debt limit is unlikely to be reached until at least mid-November. ... shutdowns that overlapped with debt limit deadlines—the 1990 and 2013 shutdowns—have tended to result in a stronger reaction in financial markets than other shutdowns where the debt limit deadline was not about to be reached. This possibly shutdown isn't related to the "debt ceiling" (incorrectly named - actually about paying the bills), so hopefully this will be resolved. If not, some data releases will probably be delayed (September employment report, etc).

Goldman Fears "Government Shutdown" Is Looming As Lew Urges Congress "Raise Debt Limit ASAP" -- With Treasury Secretary Jack Lew sending a letter to Congress this evening demanding they raise the debt limit as soon as possible, warning that cash balances have dropped below the "minimum target," it is perhaps less than surprising that Goldman Sachs is warning that a government shutdown at the end of the month has become much more likely over the last several weeks. While out-months in VIX (beyond the prospective shutdown) remain elevated, Goldman finds a silver-lining claiming that the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. We shall see... As Goldman explains...

• While it is a close call, we still think it is slightly more likely that Congress will avoid a shutdown and pass spending legislation just before the current funding expires on September 30.
• More importantly, while the risk of a shutdown is real and the outcome of the political debate is hard to predict, the effect of a potential shutdown on financial markets and the real economy would probably be modest if it did occur. Unlike 2013, a shutdown in October would be unrelated to raising the debt limit, and it would probably also be shorter in duration. If so, it would probably have little effect on output or personal income, though it could dent confidence.

A government shutdown at the end of the month has become much more likely over the last several weeks, in our view. Federal spending authority expires on September 30, and with little hope of resolving differences on full-year spending bills by then, Congress will need to pass a “continuing resolution” to avoid a lapse in funding that would result in a partial government shutdown.While the parties have disagreed on 2016 spending levels for some time, a shutdown only recently emerged as a risk, mainly because the controversy surrounding whether to block funds to the Planned Parenthood organization has created the sort of binary issue that has caused or threatened to cause shutdowns in the past. Some Republicans want to use the upcoming spending bill to block the organization from receiving federal funds, while Democrats generally oppose such a move. Unlike budget disagreements, which can be settled by meeting halfway, these issues are harder to resolve because one side basically needs to give up on their position.

CBO: Fiscal 2015 Federal Deficit through August more than 10% below Last Year -- More good news ... the budget deficit in fiscal 2015 will probably decline more than 10% compared to fiscal 2014. From the Congressional Budget Office (CBO) today: Monthly Budget Review for August 2015 The federal government’s budget deficit amounted to $528 billion for the first 11 months of fiscal year 2015, the Congressional Budget Office estimates. That deficit was $61 billion smaller than the one recorded during the same period last year. Revenues and outlays were both higher than last year’s amounts, by 8 percent and 5 percent, respectively. Adjusted for shifts in the timing of certain payments (which otherwise would have fallen on a weekend), the deficit for the 11-month period decreased by $42 billion. In its most recent budget projections, CBO estimated that the deficit for fiscal year 2015 (which will end on September 30, 2015) would total $426 billion, about $59 billion less than the shortfall in fiscal year 2014. ...  The Treasury will run a surplus in September, and it appears the deficit for fiscal 2015 (ends in September) will be below 2.4% of GDP.

Iran deal: Obama secures 41 votes in support of nuclear agreement - President Barack Obama won decisively on the Iran nuclear deal on Tuesday. But the Senate’s war over the agreement is just beginning. While the accord will survive Republican attempts to derail it, the Senate still faces a bitter fight over how exactly Democrats will stymie the GOP. Right now, it’s not clear if Democrats will block a Republican disapproval resolution with a filibuster on the floor, or if President Barack Obama will have to veto the measure, a move that almost surely would have to be upheld by another vote in Congress. Democrats argue that a presidential veto, and the weeks of additional debate the override process would eat up, could hurt the United States’ international standing. But Republicans are eager to put political pressure on Democrats and keep the focus on an agreement the GOP argues is a threat to Israel’s existence and weakens U.S. security. Despite those concerns, and a fierce, multi-million dollar lobbying campaign against the deal from the American Israel Public Affairs Committee and others, Obama hit the magic number of 41 senators on Tuesday, denying Republicans a filibuster-proof majority in the Senate. But rather than take a victory lap, Democratic leaders that support the deal are still working their members in preparation for a decisive Wednesday party lunch that will determine whether the Senate minority is prepared to mount a historic filibuster of the resolution. “They don’t like the notion ‘filibuster.’ They had a bellyful of filibusters when Republicans were in the minority,” said Senate Minority Whip Dick Durbin (D-Ill.) of the colleagues he is canvassing. “Now we’re getting into the type of vote it is … nobody knows the answer to the question.”

House GOP Comes Up With New Meaningless Way To Oppose Iran Deal: -- House Republicans emerged from a hastily called Wednesday conference meeting with a new strategy for opposing the Iran nuclear deal: a purely symbolic, three-part vote that lets them criticize the agreement in a variety of ways. It was an unexpected shift by House GOP leaders, who just hours earlier were set to begin debate on a resolution of disapproval of the nuclear agreement reached in July between Iran, the U.S. and five other world powers. Because of legislation passed in the spring, lawmakers have 60 days to review and ultimately vote on the deal. The review period ends Sept. 17. But conservative Republicans, who have been pushing for access to confidential International Atomic Energy Agency documents, rebelled against their leadership and vowed to sink a procedural vote on the resolution unless their concerns were addressed. Until Congress gets its hands on those documents, they argued, the review period hasn't even begun. The documents detail the IAEA's investigation into Iran's alleged past nuclear weapons development -- and access to those documents is off-limits even to the Obama administration. House GOP leaders recognized that they did not have the votes to move forward without support from conservatives, so they caved and scheduled an afternoon meeting to hash out another way forward. They emerged less than an hour later with a new plan for a series of three votes: The first will be on a resolution stating that President Barack Obama did not submit all the necessary documents related to the Iran deal and therefore the 60-day congressional review period has not yet taken effect. The second will be on a bill to approve the Iran deal, which will likely fail in the Republican-led House and is intended to be a show of dissatisfaction. The third will be on a bill aimed at preventing Obama from lifting some sanctions on Iran.

Jeb Bush’s new tax plan: A revenue-eating wolf in sheep’s clothing: It seems like just yesterday we were pointing out that a) the arithmetic in Republican presidential candidates’ tax plans didn’t add up, and b) they were highly regressive. Well, crank up the old calculator, because Jeb Bush’s new tax plan appears to have both of those problems, big time. ... I can confidently assert that the plan loses piles of revenue. Perhaps that’s the point, but if so, it’s a serious problem for our fiscal accounts, our economy, and the ability of our government to do what we need it to do. ...[some details of the plan] ... These are just absolutely huge, regressive changes, far bigger than his bro’s, and really–what did we get for all of W’s supply-side cuts? Growth, jobs, and productivity had little to show for them, while after-tax inequality significantly worsened. There are a few pieces I’ll note below that claw back some lost revenue, but this is really aggressive tax cutting. ... But didn’t I say something about sheep’s clothing?  There are a few ideas in the plan that tilt in different directions from the usual supply-side formula. To its credit, the Bush team expands the Earned Income Tax Credit for childless workers... They also expand the standard deduction, thereby significantly reducing the number of households with federal tax liability..., this pits Bush against the Romney “makers/takers” crowd...

Dynamic Voodoo - Paul Krugman -- We have a first score on the Jeb! tax plan — in answer to Matt O’Brien, I think we refer to this as the Bush! tax! cuts! It’s $3.4 trillion in lost revenue. But most of this will be made up through higher growth, Bush’s advisers, led by Glenn Hubbard, assure us.  And that’s highly credible, right? After all, Hubbard was a big booster of the Bush (as opposed to Bush!) tax cuts, which he assured everyone would lead to much faster growth and 300,000 jobs a month. He was especially proud of the 2003 tax cut.  And just look at the chart above, which compares private sector job creation after that pro-growth tax cut and after the job-killing 2013 Obama tax hike. As you can see — hmm, that doesn’t seem to go the right way, does it?   It’s almost pathological how Jeb! seems to have learned nothing from what didn’t work under Bro! Why, next thing he’ll be saying that he’s leaning on W’s advice for dealing with the Middle East. Oh, wait.

Jeb Bush and the Return of Voodoo Economics -  With the economic recovery continuing, the budget deficit falling, and 2016 approaching, it has been clear for some time where the Republican Party is heading on economic policy: back to the old-time religion of tax cuts. About the only question left to be answered was whether the Party would endorse measures narrowly targeted toward middle-income families, which is what Marco Rubio and some others are recommending, or whether it would revert to the old Reaganite model of broad cuts in tax rates, which reduce tax payments for virtually everyone, but especially the rich—and to heck with the deficit.   Now we know part of the answer. On Wednesday, Jeb Bush, the G.O.P. establishment’s standard-bearer, announced, as the centerpiece of his 2016 campaign, a plan to cut federal income-tax rates across the board. The top rate would be reduced from its current level of forty per cent (or nearly forty-four per cent, if you include a surcharge introduced as a part of Obamacare) to twenty-eight per cent. At the bottom of the income distribution, roughly fifteen million households would have their effective rates cut to zero. Bush’s tax-cutting zeal doesn’t stop there. He also pledged to cut the top tax rate on capital gains and dividends, reduce the rate that corporations pay (or, in many cases, don’t pay) from thirty-five per cent to twenty per cent, and abolish the estate tax. All told, these tax cuts would cost about $3.4 trillion over ten years. (By any standard, that’s a big tax cut. On an annual basis, it’s equivalent to about two per cent of current G.D.P.)

Jeb’s tax plan makes George W. Bush’s policies look good - Bruce Bartlett -- There is no doubt that Bush’s tax plan would blow a massive hole in the budget deficit. His own economic advisers estimate that it would raise the budget deficit by $3.4 trillion over 10 years. Even if their dubious estimate of higher growth is achieved, massive spending cuts will be needed just to keep the deficit from rising above current projections. In this respect, Bush’s tax plan is much more similar to his brother’s than to Reagan’s tax reform. According to the Congressional Budget Office, George W. Bush’s tax cuts added $3 trillion to the national debt and did nothing to raise growth or forestall the massive recession that began in 2007. That recession was still ongoing when Barack Obama took office, yet Jeb spends much space in his proposal criticizing him for not immediately reversing all the negative budgetary effects of his brother’s policies, which added a total of $12 trillion to the national debt, according to CBO. It appears that Bush has relied upon advice from economists who have been wrong about just about everything to do with taxes for the last 20 or more years. One, Stephen Moore, who founded the Club for Growth and now works for the ultra-right-wing Heritage Foundation, published a book in 2004, “Bullish on Bush,” that made the same extravagant promises for George W. Bush’s tax cuts that Jeb Bush now claims for his. The reality is that the U.S. economy did very, very poorly under George W. Bush – even before the recession began in December 2007. At the very minimum, there is zero evidence that his tax cuts did anything whatsoever to raise growth or lower unemployment.

Blowing the Whistle on Tax Cheats - WSJ: The Internal Revenue Service awarded $11.6 million to a whistleblower this week, and experts say the agency could make as many as 10 more large payouts in coming weeks to people who have reported massive tax cheating. “Large awards are finally starting to flow,” says Scott Knott, an attorney with the Ferraro Law Firm in Miami, which has more than 100 tax whistleblower cases before the IRS. This year’s number could equal or exceed the total of 11 large awards made between late 2006, when Congress expanded the tax whistleblower program to allow the bigger payouts, and the end of fiscal 2014, he said. Under this program, whistleblowers who report cases involving $2 million or more of unpaid taxes are eligible for awards of as much as 30% of what the IRS recovers. (A program for cases involving less than $2 million of unpaid taxes generally issues awards of as much as 15%.) The IRS is expected to make the large awards by Sept. 30, when the government’s fiscal year ends. The public may never learn about specific payments, however, as IRS statistics obscure them on privacy grounds. The agency also doesn’t break out how much revenue the large-award program has collected, although since 2010 it has collected taxes in about 40 cases.

Do the Math: The Rich Really Are Different -Is extreme wealth inequality in the U.S. something that government can or should address? The answer depends on how it arises. If everybody has a shot at the top, maybe it's not so bad. If the wealthiest are exploiting some kind of advantage, the system may need fixing. New research suggests that only the latter explanation makes mathematical sense.  The top 1 percent of earners in the U.S. take home about 20 percent of all income, nearly three times as much as in 1980. Experts variously attribute the trend to the meteoric rise of finance, three decades of tax reductions, technological advances or even a flaw at the heart of capitalism. In truth, nobody knows for sure. Mathematics offers some useful insights. For one, it's actually pretty natural for a large fraction of income (or wealth) to end up in the hands of a small fraction of people. Thanks to chance alone, some will enjoy better investment returns than others, and will then be able to invest more than their less wealthy counterparts. A few will be lucky enough to enjoy a string of successes, multiplying their riches to extreme levels. In other words, you don't need a conspiracy to get high inequality. You'd see it even in a society of genetically identical clones. Inequality alone doesn't imply that the wealthy have any inherent advantage. In such a model, the share of wealth going to the top 1 percent varies with such factors as the level of redistributive taxes and the importance of investment income. This offers one possible explanation for what has happened in the U.S.: Maybe policy changes since 1980, including lower taxes and moves to encourage more people to save for retirement, have simply triggered a qualitative shift toward a higher level of inequality. In a recent paper, however, a group of U.S. and French economists and mathematicians finds that the experience of the U.S. doesn't fit into such a simple model. Over the past four decades, inequality has increased much too quickly. If tax levels or investment income were the only drivers, the change should have taken a few centuries.

The 0.01%? Another Wealth Gap Matters More - Noah Smith - Everyone knows by now that the U.S. has seen a substantial rise in economic inequality since the 1970s. What’s less well-known is that this inequality run-up came in two distinct phases. The first, from the late 1970s to the late 1990s, represented the spreading-out of the American middle class. The second, starting in the 2000s, represented a tiny fraction of Americans whose wealth skyrocketed. Let’s call these Phase 1 and Phase 2 of the great inequality increase.  To see Phase 1 in action, check out this Brookings Institution report on the divergence of the American middle class. To show this, the researchers measured the income shares of the top 20 percent, the middle 40 percent and the bottom 40 percent:  As you can see, there was a period from about 1980 through 2000 when the share of the top 20 percent -- the upper-middle class -- rose, and the rest, especially the middle, correspondingly fell. But after 2000, the share of the top fifth stopped rising. Phase 1 was over.   To see Phase 2, we have to look not at the upper-middle class, but at the super-rich. The income of the top 0.1 percent and 0.01 percent of Americans is very difficult to measure, partly because surveys have an upper limit on their income categories. But what we do knowindicates that while income for even people at the 99th percentile of the distribution -- the rich-but-not-super-rich -- has flattened out since 2000, the income share of the super-rich at the 99.99th percentile has continued to rise rapidly.   The evidence is even starker when we look at wealth rather than income. Economists Emmanuel Saez of the University of California-Berkeley and Gabriel Zucman of the London School of Economics have been studying wealth inequality for a long time. Here is their graph of the divergence in wealth between the super-rich and the rest:

New Justice Department Rules Aim to Prosecute Executives in Corporate Crime -- The Justice Department will put a renewed focus behind targeting individual executives in incidents of corporate fraud and other white-collar crime, according to a new memo released Wednesday.The memo, obtained by the New York Times, was released to prosecutors nationwide. In the document, Deputy Attorney General Sally Q. Yates urges prosecutors to demand evidence against named employees, “regardless of their position, status or seniority,” in exchange for being credited for cooperating with the government—a status that could save companies billions of dollars and lessen charges against them.The Just Department has been criticized for accepting large settlements from companies it has investigated while failing to punish individuals behind the wrongdoing. The department has countered that charging executives themselves is often difficult, if not impossible. The memo acknowledges that charging higher-level employees is challenging because they “may be insulated from the day-to-day activity in which the misconduct occurs.”In an interview with the Times, Yates explained the Justice Department was seeking to lose its image of being too cozy with Wall Street: “The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom,” said Yates.

Justice Department Sets Sights on Wall Street Executives -  — Stung by years of criticism that it has coddled Wall Street criminals, the Justice Department issued new policies on Wednesday that prioritize the prosecution of individual employees — not just their companies — and put pressure on corporations to turn over evidence against their executives.The new rules, issued in a memo to federal prosecutors nationwide, are the first major policy announcement by Attorney General Loretta E. Lynch since she took office in April. The memo is a tacit acknowledgment of criticism that despite securing record fines from major corporations, the Justice Department under President Obama has punished few executives involved in the housing crisis, the financial meltdown and corporate scandals. “Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates, the deputy attorney general and the author of the memo, said in an interview on Wednesday. “It’s only fair that the people who are responsible for committing those crimes be held accountable. The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.”Though limited in reach, the memo could erase some barriers to prosecuting corporate employees and inject new life into these high-profile investigations. The Justice Department often targets companies themselves and turns its eyes toward individuals only after negotiating a corporate settlement. In many cases, that means the offending employees go unpunished. The memo, a copy of which was provided to The New York Times, tells civil and criminal investigators to focus on individual employees from the beginning. In settlement negotiations, companies will not be able to obtain credit for cooperating with the government unless they identify employees and turn over evidence against them, “regardless of their position, status or seniority.” Credit for cooperation can save companies billions of dollars in fines and mean the difference between a civil settlement and a criminal charge.

Now the Justice Department Admits They Got it Wrong -- Bill Black - By issuing its new memorandum the Justice Department is tacitly admitting that its experiment in refusing to prosecute the senior bankers that led the fraud epidemics that caused our economic crisis failed. The result was the death of accountability, of justice, and of deterrence. The result was a wave of recidivism in which elite bankers continued to defraud the public after promising to cease their crimes. The new Justice Department policy, correctly, restores the Department’s publicly stated policy in Spring 2009. Attorney General Holder and then U.S. Attorney Loretta Lynch ignored that policy emphasizing the need to prosecute elite white-collar criminals and refused to prosecute the senior bankers who led the fraud epidemics.  It is now seven years after Lehman’s senior officers’ frauds destroyed it and triggered the financial crisis. The Bush and Obama administrations have not convicted a single senior bank officer for leading the fraud epidemics that triggered the crisis. The Department’s announced restoration of the rule of law for elite white-collar criminals, even if it becomes real, will come too late to prosecute the senior bankers for leading the fraud epidemics. The Justice Department has, effectively, let the statute of limitations run and allowed the most destructive white-collar criminal bankers in history to become wealthy through fraud with absolute impunity. This will go down as the Justice Department’s greatest strategic failure against elite white-collar crime.

DOJ’s Rules for Wall Street Are Nothing New -- David Cay Johnston, Brandon Garrett and NEP’s Bill Black appear on HuffPostLive discussing DOJ’s rules for Wall Street. You can view it here.

New U.S. prosecution policy is recipe for corporate conflict: lawyers - Company executives may be quicker to hire lawyers and less likely to cooperate with investigations because of a renewed push by U.S. prosecutors to put individuals in prison instead of only levying big fines on corporations that break the law, lawyers with expertise in white-collar crime cases said. The Department of Justice, after years of criticism from lawmakers and the general public that people responsible for the 2008-09 financial crisis had not been held accountable, on Wednesday advised prosecutors to take a tougher stand against high-level executives and other employees for wrongdoing under their watch. In future investigations, corporations will be required to give up all potential evidence against officers and other employees if the business itself hopes to get leniency for cooperating with authorities, the department said in a memo. The policy will be incorporated into the US Attorneys' Manual, which federal prosecutors look to for guidance. Corporations put a high value on obtaining leniency, which comes in the form of lower fines or less serious charges, so they often try to cooperate fully with authorities. They frequently hire law firms to conduct internal investigations, with the results later turned over to the government. Putting into the mix an expectation that some individuals will be charged criminally is a recipe for increased internal conflict in the corporate world, lawyers said on Thursday as they sorted through the implications of the guidelines.

Interest rate rise: turning point looms for US debt binge - FT.com: With a $4tn mountain of debt maturing over the next five years, corporate America’s reliance on cheap cash is about to get tested. With the prospect of steadily higher interest rates in the coming years as the Federal Reserve gradually tightens policy, US companies that tapped global markets for inexpensive finance over the past four years will soon face a different environment. US corporate treasurers have rushed to lock in cheap borrowing costs in advance of the expected rate rise, refinancing more than $1tn each year between 2012 and 2014, according to Standard & Poor’s. Tighter borrowing conditions will mark a turning point in the recent debt binge. Companies have had easy access to cash to write cheques for multibillion-dollar takeovers, to fund buybacks and dividend strategies — all welcomed by investors as share prices rallied off 2009 lows. But as rates turn higher, investors may see the flip side of cheap financing. Analysts warn companies will begin defaulting in greater numbers, particularly in the energy sector, which has found itself in the line of fire as commodity prices languish. In the first half of 2015, the pace of capital raisings accelerated, with bond issuance from blue-chip companies — those rated “investment grade” by one of the leading credit agencies, such as Apple, Comcast, Exxon and Boeing — jumping nearly 50 per cent from a year earlier. Bond issuance by non-investment grade companies, often called “junk”, is up 21 per cent in the first six months of the year from the same point in 2014. But this hearty bond borrowing binge could be challenged this year. Traders are betting that the Fed will lift interest rates in December, while many economists and analysts are leaning towards a hike as early as this month. “It has become clear we are close to the point when the Fed starts to raise rates,” says Hans Mikkelsen, a strategist with Bank of America Merrill Lynch.

Rule change puts pressure on CLO managers - FT.com: The US packaged loan industry is bracing for consolidation as increased capital rules due to take effect at the end of next year are expected to lead to a flurry of exits and takeovers in the market. So-called collateralised loan obligations are pools of riskier but higher-yielding loans taken out to finance private equity acquisitions and by companies that might be cut off from traditional sources of capital. There are 160 CLO providers today, down from 181 pre-crisis, but many are managing legacy deals issued before 2008 that are expected to close out in the next year or two. Only 126 managers have issued new deals since 2010. This number will be put under further strain by new rules requiring CLO managers to retain 5 per cent of the economic interest in new deals. These “risk-retention” rules take effect from the end of next year. The number of managers continuing to issue will fall to about 100 after the rules take effect, according to research from Citi, with smaller managers choosing to leave the market or merge with a larger entity. Only 80 managers of CLOs have issued new deals so far this year compared with 92 for the same period last year and 105 throughout 2014. Consolidation is most likely among smaller managers, who may struggle to raise the capital required to satisfy the risk-retention rules. “In short, it’s very unlikely that all existing managers will find a way to retain 5 per cent of each CLO they wish to issue after the effective date,” said one large CLO manager. It is a boon for bigger providers, who are lining up to take a greater proportion of the growing market. Although the number of managers issuing new CLOs has fallen, issuance volumes are growing, with the total outstanding up from $266bn at the end of 2011 to about $416bn currently.

U.S. CLOs Have Material Exposure to Commodities, Moody’s Says -- Collateralized loan obligations that were created after the financial crisis in the U.S. have material exposure to the commodities sector, which poses an increased risk to investors due to the plunge in crude prices. That’s the finding of a report published yesterday by Moody’s Investors Service, which shows that as of June the top 20 individual CLOs with the largest exposures to companies in the commodities-related sector ranged from 14.4 percent to 21.3 percent of their holdings. A fund managed by GoldenTree Asset Management LP had the biggest exposure followed by two CLOs issued by Halcyon Asset Management LLC, the report shows. "We are increasingly concerned about default risks among borrowers affected by commodity markets," Ramon Torres, a Moody’s analyst, said in the report. "Market signals also suggest increased defaults in the future." Energy and mining companies pushed the number of defaults among speculative-grade issuers in the U.S. to a three-year high of 15 in the second quarter from 10 in the first, according to Moody’s. Loans issued by oil and gas companies such as Fieldwood Energy LLC and American Energy - Marcellus LLC have plunged, signaling investors’ concern. U.S. crude prices have collapsed from last year’s peak of $107.26 a barrel to less than $47 on Thursday, cutting into cash flows of borrowers in the industry. About 14.6 percent of CLOs raised after 2009 had at least 10 percent of their assets in the oil-and-gas or metals-and-mining industries as of June, according to Moody’s.

Wolf Richter: Corporate Revenue Recession Spreads past Dollar, Energy  -- Now that 495 of the S&P 500 companies have reported second quarter earnings, something has become abundantly clear: 2015 is going to be a nasty year for corporate revenues. Blended revenue for the S&P 500 companies dropped 3.4% in Q2, according to FactSet. “Blended” because it includes estimates for the five companies that have not yet reported. This follows the first quarter, during which reported revenues also declined. The last time year-over-year revenues declined two quarters in a row was in Q2 and Q3 2009 during the Financial Crisis. Analysts liberally blame the strong dollar. It’s convenient. But numerous companies that mostly benefit from the strong dollar, such as GM (more on that in a second), still reported shrinking revenues in the quarter. And analysts blamed energy companies whose revenues have totally collapsed. But company by company outside the energy sector reported declining, and in some cases plunging revenues, including in Big Tech and financial services.  Here is a sample of revenue losers: Caterpillar (-13%), Dow Chemical (-13%), MetLife (-12%), Microsoft (-4%), Intel (-5%), International Paper (-21%), JPMorgan Chase (-3%), Johnson Controls (-11%), Oracle (-5%), PepsiCo (-6%), Pfizer (-7%), Procter & Gamble (-12%), Union Pacific (-10%)….Wait… Union Pacific? Would it blame the strong dollar or the price of oil? Hardly. It doesn’t operate trains in Europe. It doesn’t sell oil. It buys and burns it; so cheap oil is a godsend. It’s blaming the economy, particularly the reduced number of carloads of coal and other commodities. And it’s blaming that obnoxious add-on, the fuel surcharge that has been declining with the plunging price of oil. Surcharges go straight to revenues. Competitive pressures forced it to back off. Easy come, easy go.

When “Virtuous Debt” Turns Ferociously Vicious: The Mother Of All Corporate Margin Calls On Deck – David Stockman - One of the arguments put forth in the bull vs. bear debate is that the solidity of US non-financial corporations have never been stronger. The amount of cash held by non-financial corporations has risen 150 per cent since the depth of the crisis in 2009. With such a massive cushion to stave off whatever the market may throw at them, they will be able to cope, or so it is held. In addition, we know that financial corporations are flush with cash, or excess reserves held at the Federal Reserve. Throughout the various quantitative easing (QE) programs conducted by the Federal Reserve, commercial banks have been force fed cash as ducks on a foie gras farm. This has swelled their excess reserves to the unprecedented, and what would be thought unimaginable only few years’ back, level of US$2.6 trillion. With all this cash the system should be, again according to the perma-bulls, more than ready to withstand the shock from the ongoing global deleveraging, a stronger dollar, emerging market blow-ups and the forthcoming US recession. We beg to differ. When it comes to excess reserves they are most likely already “spoken” as a form of collateral in shadow banking chains. While the initial effect from QE on the shadow banking system was massive deflationary shock as all the high quality securities used in re-hypothecated collateral chains were soaked up by the Federal Reserve, it is a safe bet that excess reserves has to some extend filled that void. In the non-financial sector on the other hand cash is, well, plain old cash. With more than US$1 trillion of the stuff on their balance sheet complacency is destined to be prevalent. And it is. Credit market instruments, id est. debt, have also risen at a tremendous rate. Net debt, that is credit market liabilities less cash, has actually never been higher. As the chart below shows, sitting at more than US$6.6 trillion, non-financial net debt outstrips even the high from 2008.

Top CEOs Make 300 Times More than Typical Workers: Pay Growth Surpasses Stock Gains and Wage Growth of Top 0.1 Percent-- The chief executive officers of America’s largest firms earn three times more than they did 20 years ago and at least 10 times more than 30 years ago, big gains even relative to other very-high-wage earners. These extraordinary pay increases have had spillover effects in pulling up the pay of other executives and managers, who constitute a larger group of workers than is commonly recognized.1 Consequently, the growth of CEO and executive compensation overall was a major factor driving the doubling of the income shares of the top 1 percent and top 0.1 percent of U.S. households from 1979 to 2007. Since then, income growth has remained unbalanced: as profits have reached record highs and the stock market has boomed, the wages of most workers, stagnant over the last dozen years, including during the prior recovery, have declined during this one. In examining trends in CEO compensation to determine how well the top 1 and 0.1 percent are faring through 2014, this paper finds:

• Average CEO compensation for the largest firms was $16.3 million in 2014. This estimate uses a comprehensive measure of CEO pay that covers chief executives of the top 350 U.S. firms and includes the value of stock options exercised in a given year. Compensation is up 3.9 percent since 2013 and 54.3 percent since the recovery began in 2009.
• From 1978 to 2014, inflation-adjusted CEO compensation increased 997 percent, a rise almost double stock market growth and substantially greater than the painfully slow 10.9 percent growth in a typical worker’s annual compensation over the same period.
• The CEO-to-worker compensation ratio, 20-to-1 in 1965, peaked at 376-to-1 in 2000 and was 303-to-1 in 2014, far higher than in the 1960s, 1970s, 1980s, or 1990s.

In hurry-up ruling, SEC declares in-house judges are constitutional - Alison Frankel - The Securities and Exchange Commission’s 3-2 split decision last week in its administrative proceeding against the former syndicated radio host Raymond Lucia shows the far-reaching risk the agency faces if its administrative law judges are eventually determined to be subject to the Appointments Clause of the U.S. constitution.  The SEC commissioners clearly were in a big hurry to put on record their determination that – surprise! – they do not believe the SEC’s hiring process for the in-house judges who reach initial determinations about the liability of defendants in administrative proceedings to be unconstitutional. The commissioners first signaled their concern with the Appointment Clause argument that has swept across the white collar defense bar in May, in an appeal to the commission by the real estate investment manager Timbervest. Lucia’s lawyers didn’t move to brief the constitutional issue until June, but they ended up beating Timbervest, which is bogged down in tangential briefing, to oral argument. That argument took place on July 29, and the commission hustled out a decision so quickly that the dissent has not had time to publish its opinion. There’s no mystery to the fast turnaround. The constitutionality of the SEC’s appointment of in-house judges is also at issue in cases at the 2nd and 11th U.S. Circuit Courts of Appeal, after the commission asked for review of three federal district court decisions that held the SEC’s ALJ hiring process likely violates the Appointments Clause. As the commission said in its decision in the Lucia case, when cases implicate the agency’s own rules and procedures, the SEC considers it “important that the commission have an opportunity to address constitutional issues in the first instance.”

What happens when the government limits payday lending -  Payday lenders open branches in neighborhoods where banks won't go. They give people a place to cash their checks, and they make loans to those whom no credit card company would trust with plastic. The cash isn't free, though. The money has to be paid back, and for many borrowers, the only way to pay off a loan is by taking out another. For them, payday lending often isn't a lifeline, but a trap. Policymakers who want to protect these borrowers from predatory lending not only risk cutting off much-needed credit for people who really need it, but they also risk implying that the poor can't make sound financial decisions on their own.  Under the Consumer Financial Protection Bureau's proposal, borrowers would be allowed to take out no more than two additional loans to pay back an original loan. People who really needed a loan would be able to get one, the bureau hopes, but loans wouldn't turn into a cycle of debt.Before the CFPB acted, several states had already moved to more tightly regulate the industry, providing some idea of what effect the federal rules might have. And new research by a pair of economists on the Pacific Northwest suggests that in Washington, similar restrictions put about two thirds of the state's payday lending establishments out of business, and that many borrowers may have been better off without them. The economists found that about two out of three payday lending establishments in Washington closed their doors after the new rules took effect. That wasn't surprising, but Cuffe and Gibbs also found the law had an effect on liquor stores. Compared to sales in the neighboring state of Oregon, sales in Washington were less than would be expected after the law's enactment. Liquor stores located near payday lenders lost the most business. The apparent effect of the law on sales was three times greater at liquor stores with a payday lender within 33 feet than for liquor stores in general.

Debt collectors ordered to refund millions to consumers - Sep. 9, 2015: The two largest debt collectors in the country are refunding millions of dollars to customers over allegations they used deceptive practices to collect bad debts. The Consumer Financial Protection Bureau charged that Encore Capital Group and Portfolio Recovery Associates bought potentially inaccurate debt, attempted to collect unverified debts and used illegal litigation practices to collect debts. "Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems," said CFPB Director Richard Cordray in a release Wednesday. The companies buy outstanding debts from creditors at highly-reduced rates and then attempt to collect on them. According to the CFPB, the companies have purchased the rights to collect more than $200 billion in various defaulted consumer debts.  Encore Capital Group will pay up to $42 million in refunds and stop collection on $125 million in debt, as part of the settlement. It will also pay a $10 million penalty to the bureau's Civil Penalty Fund. Portfolio Recovery Associates, which is a subsidiary of PRA Group, has to pay $19 million in refunds, stop collecting on $3 million in debt and pay $8 million to the fund.

Wall Street Banks to Settle CDS Lawsuit for $1.87 Billion -- Some of Wall Street’s biggest financial institutions -- including Goldman Sachs Group Inc., JPMorgan Chase & Co., Citigroup Inc. and HSBC Holdings Plc -- have agreed to a $1.87 billion settlement to resolve allegations they conspired to limit competition in the lucrative credit-default swaps market. The banks reached an agreement in principle with a group of investors that includes the Los Angeles County Employees Retirement Association, Daniel Brockett, a lawyer for the group, told a judge in Manhattan federal court on Friday. A settlement would avert a trial following years of litigation by hedge funds, pension funds, university endowments, small banks and other investors, who sued as a group. They alleged that a dozen global banks -- along with Markit Group Ltd., a market-information provider in which the banks owned stakes -- conspired to control the information about the multitrillion-dollar credit-default swap market in violation of U.S. antitrust laws. The banks “made billions of dollars in supracompetitive profits” by taking advantage of “price opacity in the CDS market,” the investors said. The banks will pay different amounts toward the settlement, according to two people familiar with the deal. The size of each bank’s payment is based on its share of CDS trading, one of the people said.  Ed Canaday, a Markit spokesman, declined to comment. Goldman Sachs, JPMorgan, Citigroup and HSBC also declined to comment. 

Big Banks Agree to Settle Swaps Lawsuit - WSJ: Wall Street’s biggest banks have agreed to a tentative settlement over allegations that they conspired to rig the market for credit derivatives. Twelve banks and two industry groups reached the preliminary agreement with plaintiffs in a civil lawsuit to pay $1.87 billion to settle the accusations, a milestone stemming from long-running probes into that corner of the financial system. Investigations by U.S. and European authorities into the credit-derivatives market are continuing. The tentative settlement follows a wave of regulatory actions and private lawsuits that have alleged banks manipulated foreign-exchange and commodity markets as well as interest-rate benchmarks. Those cases have resulted in billions of dollars in fines. The likely settlement is “an indication that this kind of behavior by Wall Street could be more far-reaching than we thought,” . The lawsuit brought by a group of investors accused the banks, the International Swaps and Derivatives Association and data provider Markit Group of colluding to block competing providers, including exchanges, from entering the market for derivatives called credit-default swaps.  Trading the swaps on exchanges would have loosened the banks’ grip on a market that until recent years produced significant profits. At one point in 2011, banks made $55 billion, or 37% of their revenue, from swaps, according to a report by audit firm Deloitte.

Credit Suisse challenges court order to pay $288 mn in mortgage suit - - Swiss banking giant Credit Suisse on Monday challenged a court ruling ordering it to pay a US hedge fund $287.5 million (257.6 million euros) in a case linked to the burst housing bubble. A court in the US state of Texas ruled last week in favour of a unit of Highland Capital Management in a suit against the bank for an overvalued real estate project called Lake Las Vegas, which the hedge fund unit invested in in 2007. A year later, the planned Nevada resort community filed for bankruptcy as the subprime crisis erupted. A Dallas judge ordered Credit Suisse to pay $211.9 million in damages and restitution and $75.6 million in prejudgement damages and interest, following a jury ruling last year finding Switzerland's second largest bank had inflated appraisals on development projects. "We respectfully disagree with the court's decision," the bank told AFP in an email, adding that it planned to "pursue all available options" to oppose the ruling. In its second quarter earnings report, Credit Suisse said it had put aside 124 million Swiss francs ($127 million, 113 million euros) to cover legal expenses. It said in that earnings report that it did not expect the Highland Capital Management lawsuit to have a significant impact on its results, although it acknowledged that the final costs could be higher than expected.

Nomura Wins Sad-Sack Bank of the Week After Overpaying on Court Loss to FHFA, Having Bond Traders Indicted - David Dayen - So yesterday was a bad day if you were a Japanese bank with stubborn executives.  Back in March, Nomura inexplicably decided not to settle with the Federal Housing Finance Agency over lying about the quality of the underlying loans in mortgage-backed security pools. Fannie Mae and Freddie Mac only purchased $2 billion in Nomura securities, and based on the fact that other settlements went for around 12 cents on the dollar, Nomura would have coughed up something like $234 million if they settled. But they wanted to challenge this extortion, and forced the FHFA to take them to court. Which FHFA did, detailing precisely the shoddiness of the loan files Nomura peddled, giving a baseline of the magnitude of the deception banks engaged in during the crisis. Well, Judge Denise Cote ruled for FHFA, ordering payment of $806 million, nearly four times more than what Nomura would likely have paid if they settled. And instead of appealing, they agreed to pay an even higher amount, $839 million, which I believe covers FHFA’s legal costs (it’s unclear if that’s in addition to the $839 million).  So the price of stubbornness was an additional $600 million. Not only that, but Nomura’s (and its counterparts’) proclivity for fudging mortgage bond deals was on full display. Which brings us to today: A federal grand jury in New Haven has returned a 10-count indictment charging three former New York-based bond traders for Nomura Securities International, ROSS SHAPIRO, 41, MICHAEL GRAMINS, 33, and TYLER PETERS, 32, all of New York, New York, with conspiracy and fraud offenses. There are two parallel cases: an SEC fraud charge (they apparently flipped three lower-level traders to get key documents), and this criminal indictment, which carries a maximum prison term of 20 years for each count.

Liar Loans Redux: They're Back and Sneaking Into AAA Rated Bonds - - The pitch arrived with an iconic image of the American Dream: a neat house with a white picket fence. But behind that picture of a $2.95 million home in Manhattan Beach, California, were hints of something darker: liar loans, those toxic mortgages of the subprime era. Years after the great American housing bust, mortgages akin to the so-called liar loans -- which were made without verifying people’s finances -- are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street. Today’s versions bear only passing resemblance to the ones that proliferated in the mid-2000s, and they’re by no means as widespread. Still, they reflect how the business is starting to join in the frenzy that’s been creating booms in everything from subprime car loans to junk-rated company bonds.  The story begins earlier this year, when a TV producer bought the cream-colored home. His lender, Velocity Mortgage Capital LLC, says it writes mortgages for people buying homes only for business purposes, such as renting them out, and requires all customers to sign documents stating their intentions. Soon Velocity was bundling the $1.92 million mortgage and hundreds of other loans into securities through Wall Street’s securitization machine. Kroll Bond Rating Agency featured a picture of the house in a report on the $313 million deal, most of which was rated AAA. Marketing documents for the offering, which was managed by Citigroup Inc. and Nomura Holdings Inc., characterized the buyer as an “investor.” No Rental Plans But when a reporter recently knocked on the door in Manhattan Beach, the buyer answered and said he never planned to rent out the place. Nor, he said, had he signed documents stating he would. He was living in the house with his family.

Riskier mortgage bonds are back — but don’t call them subprime - FT.com -- Yield-hungry investors are ready to endorse a revival of bonds backed by riskier US residential mortgages, as lenders warm to housebuyers who do not meet strict borrowing guidelines introduced after the financial crisis.  But the now toxic label of subprime mortgages has been dropped. Instead, Angel Oak Capital is in the process of pricing a deal for a bond offering of so-called “non-prime mortgages” — a term funds are using to describe mortgages that do not meet government standards. Lower-quality subprime mortgage-backed securities have drawn fierce criticism for their prominent role in the 2008 housing crash, with bond king Bill Gross saying 2m homeowners were “thrown to the wolves”.  But those who support efforts to breathe life back into the market say this time is different. Big banks are lending predominantly to the safest mortgage borrowers, as regulatory guidelines exclude a large swath of potentially riskier borrowers from buying a home, said Brad Friedlander, managing partner at Angel Oak Capital.  “These are deserving borrowers that might be a 705, but not a 770 credit score,” he said, referring to so-called Fico scores that US banks use as a measure of a borrower’s ability to repay debts. Fico scores range from 300 to 850: a score below 620 used to be called subprime, while the average is about 700. “There’s no reason they shouldn’t have some type of access to credit. Lenders are still in a very restrictive mode, but I think we will see that pick up over time.”

Black Knight July Mortgage Monitor - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for July today. According to BKFS, 4.71% of mortgages were delinquent in July, down from 4.82% in June. BKFS reported that 1.40% of mortgages were in the foreclosure process, down from 1.85% in July 2014.This gives a total of 6.11% delinquent or in foreclosure. It breaks down as:
• 1,503,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 886,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 711,000 loans in foreclosure process.
For a total of ​​3,100,000 loans delinquent or in foreclosure in July. This is down from 3,785,000 in July 2014. Press Release: Black Knight’s July Mortgage Monitor: Total Equity in U.S. Mortgage Market at $7.6 Trillion, Up $825 Billion Year-to-Date; $4.5 Trillion in Equity “Tappable” by Borrowers Today, the Data and Analytics division of Black Knight Financial Services, Inc. (NYSE: BKFS) released its latest Mortgage Monitor Report, based on data as of the end of July 2015. Looking at the nation’s population of mortgage holders and comparing first and second lien debt against May property values, Black Knight has determined that total home equity in the U.S. has increased by nearly $1 trillion in the past year to the highest level since 2007. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, this growth in available equity has direct implications for borrowers’ ability to access the equity in their homes. “We’ve seen total home equity in the mortgage market expand by $825 billion in just the first five months of this year,” said Graboske. “At $7.6 trillion, total net equity is nearly 2.5 times more than it was at the end of 2011, and is at the highest level it’s been since the start of the housing crisis. To put this growth in perspective, consider that the average American homeowner with a mortgage has about $19,000 more equity in his or her home today than a year ago."

Why Are Fannie and Freddie Raising Their Foreclosure Timeline? - One of the major fallacies skillfully employed by the lending industry since the foreclosure crisis is that the meddling defense attorneys and pro se litigants were clogging the courts with their dilatory motions and challenges, unnecessarily prolonging the foreclosure process, creating neighborhood blight and costing homeowners billions in property values by preventing “market clearing.” This was presented to state lawmakers as a rationale to tighten the rules on foreclosure challenges and eliminate consumer protections, ensuring that lenders could bulldoze their way through the courts. It never appeared to be true, however, given that plaintiff’s attorneys routinely allowed cases to rot, filed motions to delay, withdrew cases at the last minute and so on. Some of this was due to problems with documents and procedure, some of it was inscrutable, some of it maybe even based on squeezing more money from investors. But the main investor in mortgages, the GSEs, continue to play along, whether wittingly or not. Last week, Fannie Mae and Freddie Mac, in successive days, extended their foreclosure timelines in a majority of the states where they own mortgages. The timeline is a guidance for how long a foreclosure is supposed to take, from the initial delinquency to the foreclosure sale. This includes the timeline for an uncontested foreclosure proceeding.  In theory, if servicers go beyond the timeframe they get fined a “compensatory fee,” which they pass on to the foreclosure mill law firms to get them to hurry up. But servicers can provide “reasonable explanations” to waive the fee, like bankruptcy, probate or an active trial modification. There’s also a compensatory fee moratorium for Washington D.C., Massachusetts, New York and New Jersey, which presumably is related to their more stringent foreclosure laws. Here’s a look at the Fannie Mae timelines (the Freddie timelines are seemingly identical), and you can read the compensatory fee allowances on the second page. As you can see the timelines are incredibly long, from a low of 300 days in the District of Columbia to a high of 1,080 days – nearly three calendar years – in Hawaii and Oregon. The timelines don’t correspond to the usual assumption that judicial foreclosure states take longer, by the way – Oregon, Washington, Rhode Island, Nevada and Maryland are examples of non-judicial states with timelines over 720 days.

Mortgage debt — the new retirement time bomb - How long has it been since you’ve seen one of those mortgage-burning pictures? It was once a big deal, especially with the Greatest Generation. There was no joy like that last mortgage payment, and our parents prided themselves on burning that paper, hopefully before they retired.These days, baby boomers increasingly are carrying that debt into retirement. And while there are pluses to that (the interest rate deduction for some), many financial planners now advise their clients to pay off the mortgage. But they are much more concerned with credit-card, auto-loan and student-loan debt. The Consumer Financial Protection Bureau says the percentage of homeowners ages 65 and older with mortgage debt increased from 22 percent in 2001 to 30 percent in 2011. Among homeowners 75 and older, the rate more than doubled, from 8.4 to 21.2 percent. The CFPB said, in a report last year, that rising mortgage debt is “threatening the retirement security of millions of older Americans. In general, older consumers are carrying more debt, including mortgage, credit card and even student loan debt, into their retirement years.”

Fannie Mae Revamps Mortgage Program - Fannie Mae is overhauling its mortgage program for low- to moderate-income households to better accommodate today’s financial and familial realities.  Renamed HomeReady (from MyCommunityMortgage) and set to start in December, the program has revised guidelines to acknowledge that many borrowers share homes — and finances — with extended family. That’s the situation for about 19 percent of African-American households and 24 percent of Hispanic households, according to Jonathan Lawless, Fannie Mae’s vice president for underwriting and pricing analytics. Lenders will now be able to qualify borrowers by including income generated by non-borrowers living in the household. Data generated by the Census Bureau’s American Community Survey and American Housing Survey shows that this income tends to be stable over time, Mr. Lawless said. (Fannie Mae will publish the specifics on those findings later this year.) “So it’s not only common to have multiple generations or more than one family living in the same house,” he said, “but it’s something that actually helps support the household.”Borrowers may also be able to include income from non-occupant co-borrowers such as parents. The down payment requirement is as little as 3 percent. Fees and mortgage insurance requirements will also be lower than on standard loans.The program will no longer be limited to first-time home buyers. By expanding eligibility to repeat buyers, Fannie Mae hopes to help homeowners who lost wealth (in the form of home equity) when property values plummeted, Mr. Lawless said.There are no income guidelines for borrowers buying within designated low-income census tracts. Those buying in high-minority census tracts must have no more than 100 percent of area median income. And those buying in all other census tracts must be at or below 80 percent of area median income.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Index up Sharply YoY -- From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 6.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 4, 2015. ... The Refinance Index decreased 10 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 41 percent higher than the same week one year ago. The annual change is inflated due to the shift in Labor Day from the first week in September last year to the second week this year. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.10 percent from 4.08 percent, with points increasing to 0.39 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index. Refinance activity remains low. 2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year). The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is 41% higher than a year ago - but is misleading due to the shift in timing of Labor Day.

Federal Reserve Bank of San Francisco | Measuring Monetary Policy’s Effect on House Prices: The great unresolved question in central banking today is: Should monetary policy be used to foster financial stability, even at the expense of achieving other macroeconomic goals such as inflation and employment? Rivers of ink have already been spilled on this question and no doubt much more will be in coming years. In my talk today, however, I will take a step back from the “big picture” policy questions, such as the pros and cons of “lean” vs. “clean” and the appropriate roles of fiscal, regulatory, and monetary policies in addressing risks to financial stability. Instead, I will put on my researcher’s hat and focus narrowly on one particular issue that is central to thinking about the role of monetary policy in supporting financial stability—the effects of monetary policy on house prices and the overall economy.

FNC: Residential Property Values increased 5.5% year-over-year in July  FNC released their July 2015 index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.2% from June to July (Composite 100 index, not seasonally adjusted). The 10 city MSA was unchanged in July (NSA), the 20-MSA RPI increased 0.1%, and the 30-MSA RPI was unchanged. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales). Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The year-over-year (YoY) change was smaller in July than in June, with the 100-MSA composite up 5.5% compared to July 2014. The index is still down 15.2% from the peak in 2006 (not inflation adjusted). This graph shows the year-over-year change based on the FNC index (four composites) through July 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

"We've Run Out Of Buyers" - Half Of Homes In New York Are Now Losing Value - Late last month, when we reported that Case-Shiller's 20-City home price index missed expectations for the 3rd month in a row in June, bringing the string of flat price appreciation to 5 months, we said that perhaps, just perhaps, another pillar of the 'strong' US economy meme is being kicked out. We also noted that a Fed hike would be just about the last thing the housing market needs. Well don’t look now but according to a new index created by Allan Weiss (co-founder of the Case-Shiller home price indexes), nearly half of homes in the New York and Washington metropolitan areas are falling in value by at least 2%. More from Bloomberg: The values of 45 percent of houses in both the Washington and New York areas slumped by at least 2 percent in June from a year earlier, according to a new index created by Allan Weiss, co-founder of the Case-Shiller home price indexes. In June 2014, only 15 percent of Washington residences dropped in value, while 20 percent fell in New York. Because the index is of only single-family homes, it doesn't include Manhattan. More properties also were in decline in Los Angeles, Chicago, Phoenix and Miami. A steady rise in U.S. home prices since the bottom of the market combined with weak income growth has made housing less affordable, especially in big cities. Credit remains tight and demand is now being driven primarily by buyers dependent on mortgages, as foreign buyers and investors pull back from the market. "What happens in any bull asset bubble such as what we've seen is you run out of buyers,"

Investors snapping up new homes for rentals: It was widely deemed a temporary play: Large-scale investors buying thousands of discounted foreclosed properties during the worst of the housing crash and turning them into single-family rentals. When home prices recovered, they would surely sell them for a hefty profit. The housing market is recovering, albeit more slowly than expected. Foreclosure volume is way down and home prices are way up, but these investors are not selling. They are buying more, and now they are buying new. "I actually think that we're coming into perhaps the most compelling three or four years that I've seen since I've been in the business,"  "For us operationally, being able to have a brand-new home that typically has a warranty, that works well for us. We can also customize floor plans that work for the business,"  Starwood Waypoint, which launched its business seven years ago, now owns more than 16,000 single-family rentals, the vast majority of which were foreclosures. So far it has purchased about 200 brand-new homes from builders, with an average price point of around $180,000. These homes represent about 5 percent of the REIT's portfolio.I think the institutional capital is still looking at this very carefully, because there's a belief, and I support that belief, that it is a long-term hold and there's yield and there's appreciation to be had," sa. "But the real challenge for capital now, for the institutional capital sources, is that the massive low-lying fruit is gone."   That fruit, cheap foreclosures, offered investors a relatively low-risk play, because they could buy homes at well below the cost of replacement, and not only would they see rental revenue but also property price appreciation. As this new interest develops, however, builders are starting to offer institutional buyers bulk discounts.

Renters Not Looking to Buy Anytime Soon, Zillow Says - Renters are losing faith that they will be able to buy a home in the next year, a worrying sign that the housing market won’t get a boost from new buyers anytime soon, according to a new report by Zillow. Some 4.9 million renters say they plan to buy in the next year, down from 5.2 million in January, according to the property-market database company. Renters’ confidence is especially weak in strong markets, such as San Francisco and Denver, where rising home prices and high rents have made it difficult for younger buyers to save for down payments. In San Francisco, 5% of renters between the ages of 18 and 34 said that they planned to buy a home within a year, compared with 18% when they were asked in January. As wages and job growth have strengthened, many economists expected 2015 to be the year when younger adults finally made a delayed transition from renting to owning. The Zillow survey suggests that those buyers are unlikely to emerge now until at least well into next year. The lack of first-time buyers is worrying because without new homeowners, the housing market is just recycling existing owners and isn’t contributing to economic growth. Economist blame the stubborn absence of new buyers on the lack of more affordable inventory and struggles to save for a down payment when many are pouring a huge portion of their incomes into rents. In contrast to pricey markets like San Francisco, in Philadelphia, where home prices are flat, 23% of younger renters said that they planned to buy in the next year in July, up from 1% in January. “We keep hearing stories about people in San Francisco wanting to move to Portland or Seattle because they can’t afford San Francisco anymore,”

Why a Stronger Housing Sector Isn’t Boosting the U.S. Economy That Much - WSJ: The U.S. housing market dragged the economy into a deep recession nearly eight years ago. Could it now insulate the domestic expansion during a fragile period of global growth? Recent numbers look promising, but several obstacles—including shifts in where young households want to live, their capacity to take on debt and rising costs for home builders—suggest the sector won’t soon offer breakout growth. First, the good news: New foreclosures have dropped to precrisis levels and sales of previously owned homes—the bulk of the market—have climbed to the pace of the early 2000s. Rising housing prices have made homeowners feel better about spending on their homes. The problem: Housing still isn’t contributing much to overall economic growth because new construction of single-family homes, which packs an outsize economic punch, is stuck near levels hit during the early 1990s recession. Initially, construction collapsed due to falling demand. Now, it faces a second headwind: Supply constraints have emerged as more people want to live in cities and construction costs have risen, while demand remains stubbornly weak at the entry level. The forces hindering home building matter a lot. New single-family homes give the economy a bigger boost than existing-home sales or the construction of new apartments, which is booming as more people rent. The National Association of Home Builders estimates that building a single-family home supports three full-time jobs for a year in construction and ancillary services. In comparison, it estimates that construction of a condo or apartment unit supports one full-time job.

Has Industry Consolidation Held Back Home Construction? - The housing sector isn’t dragging on the economy anymore and has begun to provide a modest boost. But, as this week’s Outlook column explains, housing continues to punch below its traditional weight because home construction is a shell of its old self. Economists cite several reasons, from weak household formation that has held back entry-level demand to rising land costs. Both factors have made construction of starter homes in the outer suburbs, where land is cheaper, a riskier proposition. Instead, builders have deemphasized volume and shifted towards selling a smaller number of more expensive homes with big floor plans. One other reason home builders’ conservatism might be magnified: There are fewer them. Hundreds of smaller builders failed during the crisis and others sold out to larger, better-heeled competitors. A long-running wave of consolidation has left the 10 largest builders with more than 26% of the new-home market last year, up from less than 10% in 1994, according to the National Association of Home Builders. The trend toward consolidation isn’t unique to the home builders, of course. Look at mortgage lending, where the top 10 originators funded around 60% of loans in the first half of 2013, up from less than 30% in 1996. In home building, the survivors have been much less willing to take the risk of buying land and building developments in more-distant suburbs. “The builders that remain and have access to capital have been shooting down the very straight, narrow fairway,” said Ivy Zelman, chief executive of a real-estate research firm Zelman & Associates. She said there are some signs that builders are stepping out into the rough.

Why Is Home Building Lagging Job Creation? Realtors, Builders Disagree -  The National Association of Realtors calculates that home construction lagged behind job creation last year in nearly two-thirds of the 146 U.S. metro areas it studied. The home-building industry’s largest trade association doesn’t directly dispute that. Rather, Realtors and builders are at odds on the fundamental question of whether it’s a supply problem or a demand problem. The Realtor association’s chief economist, Lawrence Yun, says it’s a supply shortfall. He argues that builders “are just not robustly getting back into the game” by picking up their pace of construction. David Crowe, chief economist of the National Association of Home Builders, counters that builders would churn out more houses if there was sufficient demand to warrant it. “Supply is an issue; that is true,” he said. “But the dominant issue still is demand. That’s the reason builders aren’t building more homes.” The debate was rekindled this week when the Realtor association on Wednesday released its second annual study comparing the pace of home construction with that of job creation. The association’s researchers determined that, since 1990, the 146 metro areas it studied generated an average of 1.2 new jobs for each residential building permit (for both single-family homes and multifamily units). However, of late, the ratios have skewed higher. The Realtor association found that, last year, job creation in 63% of those 146 metro areas exceeded the traditional 1.2 jobs-per-building-permit benchmark. On average, the entire group generated 2.4 jobs per building permit issued.

The Construction Industry Struggles to Rebuild its Worker Ranks - While debate rages on about whether demand or supply factors are more to blame for the sluggish home-construction recovery, most industry observers and participants agree on at least one point: Construction labor is in short supply. Scant availability of skilled construction workers has hampered home construction at various times in the past few years of recovery But the shortfall seems to have grown more acute of late, as new-home sales are up 21.2% so far this year from the same period last year and commercial construction has increased steadily. Construction employment isn’t quite keeping pace with that rebound, and workers with certain skills, such as carpenters and sheet-metal installers, are hard to find. “We are finding a greater failure rate of subcontractors in the industry because they are not able to hire the skilled workers that they need,” said John Finch, chief executive of PBG Builders Inc. in Goodlettsville, Tenn., on a conference call with media on Thursday organized by the Associated General Contractors of America. “That’s resulting in some budget issues and work that has to be redone.” The Associated General Contractors, the largest U.S. construction-industry association, on Thursday released the results of its survey of 1,358 construction firms about their perspectives on the labor market. Of the respondents, 86% reported difficulty filling jobs for hourly craft workers and salaried supervisors and specialists. Asked which hourly workers are hardest to find and hire, 73% of respondents cited carpenters, 65% mentioned sheet-metal installers and 63% said concrete workers. In terms of salaried and management employees, 55% of respondents said project managers and supervisors are scarce, 43% mentioned estimating professionals and 34% cited engineers.

Cost of Skyscraper Glass Hits Dizzying Heights - A shortage of glass is taking a toll on the nation’s commercial building boom, adding millions of dollars to the cost of new skyscrapers and halting some projects midway through construction. Apartment buildings are sprouting up at their briskest pace in decades, and new office towers are rising in major markets like Manhattan at the fastest rate since the early 1990s. Restarting idled glass factories is a costly and time-consuming process, so property developers say the current shortage could last well into next year, if not longer.  In the meantime, builders are reporting that curtain-wall prices, which have risen more than 30% in the past 18 months, are setting records.  Glass accounts for roughly one-quarter of a construction project’s budget, so the extra expense can add tens of millions of dollars to a building’s cost.  Delays are also a problem: Several towers in San Francisco’s trendy Rincon Hill neighborhood, home to some of the city’s most expensive apartments, are standing bare while their builders wait for glass.

Consumer Credit Rose Again in July - The American consumer base is taking on more debt. While nowhere near a concern, the Federal Reserve released its July 2015 Consumer Credit report showing that credit rose by 6.7% on an annualized basis. This was up $19.1 billion from the prior month, and it marks a rising trend that has lasted for nearly four years now. Tuesday’s report is rarely a market-moving report. It was also pretty much in-line with estimates if you split the consensus estimates. Those estimates were $19.5 billion as the consensus from Dow Jones. Bloomberg was calling for a gain of $18 billion in July. Credit card debt is the key component of revolving credit, and it rose by 5.7% annually. That is high on the surface, but lower than the roughly 10% gain measured in June. Student debt and auto loans make up a large portion of the non-revolving credit. This measurement of dent rose 7% annually versus a gain of almost 9.5% in June. With so much of consumer spending being tied to purchases on credit cards or tied to the ability to get a loan for large ticket items, much of this is likely to support the notion that the U.S. consumer remained healthy throughout the first two-thirds of the key summer months.

Consumer Sentiment September 11, 2015: Just when you think you've gotten through the week, consumer sentiment dives and, perhaps, tips the balance against a rate hike. The mid-month September flash for the consumer sentiment index is down more than 6 points to 85.7 which is below Econoday's low-end forecast. The index is now at its lowest point since September last year. Weakness is centered in the expectations component which is down more than 7 points to 76.4, also the lowest reading since last September. Weakness in this component points to a downgrade for the outlook on jobs and income. The current conditions component also fell, down nearly 5 points to 100.3 for its weakest reading since October. Weakness here points to weakness for September consumer spending. Inflation readings are quiet but did tick 1 tenth higher for both the 1-year outlook, at 2.9 percent, and the 5-year, at 2.8 percent. New York Fed President William Dudley himself has said he is focused on this report as an early indication of how U.S. consumers are responding to Chinese-based market turbulence. These results offer a rallying cry for the doves at next week's FOMC meeting.

UMich Consumer Confidence Tumbles To 12-Month Lows With Biggest Miss On Record -- Having fallen and missed the last two months, UMich Consumer Sentiment plunged in September's preliminary data from 91.9 to 85.7 (dramatically missing the 91.1 expectations) crashing to its lowest in a year. This is the biggest miss on record. Crucially, this is the all-important factor that The Fed's Dudley said he would be monitoring in th elead up to the rate hike... Hope collapsed as "expectations" tumbled from 83.4 to 76.4 - the lowest in  a year as 73% of respondents cited negative economic developments seeing a weaker econmomy due to a global growth slowdown. Reality is also starting to set in for the majority who expected higher incomes in th enext year has now dropped to just 48.3% - its lowest since 2014. Charts: Bloomberg

Little Movement for U.S. Consumer Spending in August, at $89: . -- Americans' self-reported daily spending averaged $89 in August, similar to the $90 to $91 averages Gallup has found each month since April. The latest figure is the lowest August reading since 2012. Gallup's daily spending measure asks Americans to estimate the total amount they spent "yesterday" in restaurants, gas stations, stores or online -- not counting home, vehicle or other major purchases, or normal monthly bills -- to provide an indication of Americans' discretionary spending. The average for August 2015 is based on Gallup Daily tracking interviews with more than 15,000 U.S. adults. Spending peaked at $114 in May 2008 before waning and then plunging amid the global economic crisis that took hold later in the year. From 2009 to 2012, spending stagnated, ranging between $58 and $83. Americans' spending picked up in late 2012, and continued in 2013 and 2014, ranging from $78 to $98. Averages for 2015 have ranged from $81 to $91.  If monthly spending patterns in recent years are any indication of what is to come, spending is not likely to increase in September. In each of the previous five years, spending in September has been lower than in August, including sharp declines of $11 in 2013 and $7 in 2014. In 2008 and 2009, it increased slightly, but only by a dollar or two. Regular declines in spending from August to September are understandable given the end of the vacation season and the end of back-to-school shopping, one of the busiest times of the year for retailers. By contrast, spending typically booms at the end of the year. In each year except for 2008, spending averages increased -- often by double digits -- between September and December.

Retail Sales Slump On Deck: Consumer Spending Slides To Lowest Since March After Worst August Since 2012 -- When it comes to exposing the disturbing, some say desperate, propaganda wave sweeping the nation, nothing has quite captured the unprecedented decoupling between policy-accepted "confidence indicators" such as the Conference Board, which in August printed at its 2015highs and those which actually poll people such as Gallup, whose economic outlook indicator collapsed to the lowest level in one year. Which, considering the general state of the economy, begs the question: has Gallup now officially become the one poll-based indicator that has not been tained by "policy-supervision." We don't know the answer, but we do know that if Gallup indeed provides an accurate representation of the US economy, then August retail spending - that most important driver of the US economy, more important even than the backward looking GDP print - is set to come crashing down with a bang. The reason: according to the latest Gallup report on US consumer spending, in which a random sample of 15.724 adults were interviewed by phone, Americans' self-reported daily spending averaged just $89 in August, down not only from August in 2014 and 2013...

Why The New Car Bubble's Days Are Numbered -- It appears the bubble in new car sales is about to be crushed by yet another unintended consequence of The Fed's lower for longer experiment. Edmunds.com estimates that around 28% of new vehicles this year will be leased - a near-record pace... Which means... 13.4 million vehicles (leased over the past 3 years in The US) - compared with just 7 million in the three years to 2011 - are set to spark a massive surplus of high-quality used cars. Great for consumers (if there are any left who have not leased a car in the last 3 years) but crushing for automakers' margins as luxury used-care prices are tumbling just as residuals have surged. As The Wall Street Journal explains, Consumers focused on the dollar amount of their monthly payment have taken advantage of low interest rates to sometimes buy more car than they might otherwise be able to afford.  But, aside from the actual cost of the vehicle, rates are only part of the equation determining monthly payments. The other is what auto makers and their financing arms think the residual value will be once a typical 36-month lease is up. Those values surged after the financial crisis.Now, a surfeit of off-lease vehicles is starting to depress prices, particularly for expensive vehicles.Three-year old, used premium luxury-car prices are down by nearly 7% from a year ago, according to Edmunds.com data. Along with Fed interest-rate increases, that would make leases less of a bargain and used cars more attractive.

Hotels: On Pace for Record Occupancy in 2015 -- Note: Some of the year-over-year improvement last week was due to the shift in timing of Labor Day. From HotelNewsNow.com: STR: US results for week ending 5 September The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 30 August through 5 September 2015, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy increased 7.5% to 63.6%. Average daily rate for the week was up 6.6% to US$115.73. Revenue per available room increased 14.6% to finish the week at US$73.58. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  The occupancy rate is now declining following the summer travel season.  The red line is for 2015, dashed orange is 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000. I added 2001 (yellow) to show the impact of 9/11/2001 on hotel occupancy.  Occupancy was already down in 2001 due to the recession, and really collapsed following 9/11. For 2015, the 4-week average of the occupancy rate is solidly above the median for 2000-2007, and above last year. Right now 2015 is above 2000 (best year for hotels), and 2015 will probably be the best year ever for hotels.

U.S. Gasoline Prices Could Stay Low For The Time Being -- The oil bust has been largely a supply-driven phenomenon. Unlike the last time that oil prices were this low – during the 2008-2009 financial crisis – this past year’s price collapse has not been because of destruction in demand, but due to too much supply. Nevertheless, the way the oil markets get out of the current mess and find equilibrium is from both a supply and demand correction. Supply is indeed falling in the United States. Last week the EIA reported sharply lower production figures for the first half of 2015, revealing that U.S. oil production has been falling quicker than previously expected. But the demand side of the equation is also pointing to signs of adjustment. Lower prices have spurred much stronger demand for refined products. Car sales for the month of August hit their highest levels on an annualized basis since 2005. And consumers are preferring heavier-duty vehicles, which burn more fuel. Truck sales are up 8.6 percent from the same month a year ago. In June, U.S. motorists drove the most miles ever recorded in a single month, and gasoline consumption spiked by 4 percent from June 2014. The rapid rise in consumption is obviously linked to low prices at the pump. The EIA published new data that shows that gasoline prices during the Labor Day holiday weekend – a weekend of exceptionally high traffic on the roads – were at their lowest levels in 11 years. In fact, a gallon of gas on Labor Day 2015 was 95 cents lower on average than the same gallon a year ago.

Wholesale Trade September 10, 2015: Factory inventories held stable in July as did wholesale inventories, down 0.1 percent against a 0.3 percent decline in sales that leaves the stock-to-sales ratio unchanged at 1.30. Wholesale inventories look light for machinery and apparel but heavy for farm products and metals. The nation's inventories are heavier than they were last year which may limit future production and hiring. Next data on inventories will be the business inventories report on Tuesday.

July 2015 Wholesale Sales Remain In Contraction: The headlines say wholesale sales slowed year-over-year with inventory levels remaining at levels associated with recessions (although inventories contracted month-over-month). The best way to look at this series may be the unadjusted data three month rolling averages which marginally decelerated keeping the long term downtrend in play. This report is not excellent. Note that Econintersect analysis is year-over-year - the analysis is based on the change from one year ago. Econintersect Analysis:

• unadjusted sales rate of growth decelerated 4.2% month-over-month.
• unadjusted sales year-over-year growth is down 4.5% year-over-year
• unadjusted sales (but inflation adjusted) down 5.8% year-over-year
• the 3 month rolling average of unadjusted sales decelerated 0.3% month-over-month, and down 3.% year-over-year. There has been a general deceleration trend since late 2014.
• unadjusted inventories up 4.8% year-over-year (decelerated 0.5% month-over-month), inventory-to-sales ratio is 1.27 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data.

• sales down 0.3% month-over-month, down 4.2% (last month was reported down 3.8%) year-over-year
• inventories down 0.1% month-over-month, inventory-to-sales ratios were 1.19 one year ago - and are now 1.30.
• the market (from Bloomberg) expected inventory month-over-month change between 0.1 % to 1.3 % (consensus 0.3 %) versus the -0.1 % reported.

US Recession Looms As Wholesale Sales Tumble More Than Inventories --The Wholesale Inventories-to-Sales ratio has now been stuck deep in recession territory since January as the mal-investment boom-driven deflation-beckoning dream of "if we build it they will come" inventory surges smashes into the ugly reality of peak-debt-based lack of consumption worldwide. Inventories dropped 0.1% in July (notably lower than the 0.3% rise expected), but worse still Wholesale Sales tumbled 0.3% (missing expectations of a 0.1% rise). So inventories dropped (bad for Q3 GDP) and sales dropped more (even worse) leaving July's 1.30x inventories-to-sales ratio remains a flashing red beacon of over-capacity and looming production cuts (especially in Automakers). The absolute dollar size of the gaop between Inventories and Sales has never - ever - been bigger... Led by Automakers over-building... Charts: Bloomberg

PPI-FD September 11, 2015: There's unexpected pressure in the producer price report but not very much. PPI-FD came in unchanged in August vs expectations for a 0.2 percent decline while less food & energy came in at plus 0.3 percent which is just outside the high estimate. The less food, energy & trade services reading edged 0.1 percent higher as expected. Trade services posted a large 0.9 percent gain tied to a jump in apparel and footwear. Fruits shot higher in the month with residential natural gas also up. Of note, the less food & energy reading has now posted three straight outsized gains of 0.3 percent. Year-on-year, the headline reading is minus 0.8 percent while the two core readings show some pressure, at plus 0.9 percent and plus 0.7 percent respectively. Though still low, the direction of this report does support the hawks, at least to a degree, at next week's FOMC. Next inflation report will be the consumer price index on Wednesday, which is also the first day of the FOMC's two-day meeting.

August 2015 Producer Prices Year-over-Year Deflation Unchanged: The Producer Price Index year-over-year deflation continued - and deflation was unchanged relative to last month. The intermediate processing continues to show a large deflation in the supply chain. The PPI represents inflation pressure (or lack thereof) that migrates into consumer price. The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate was unchanged at -0.8%.    In the following graph, one can see the relationship between the year-over-year change in crude good index and the finish goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower. Removing food and energy (core PPI) was originally done to remove the noise from the index, however the usefulness in the twenty-first century is questionable except in certain specific circumstance.

US Producer Price Index unchanged in Aug vs 0.1% drop expected: U.S. producer prices were flat in August, pointing to benign inflation pressures that could weigh on the Federal Reserve's decision whether to hike interest rates next week. The unchanged reading in the producer price index last month followed a 0.2 percent gain in July, the Labor Department said on Friday. The drag on producer prices from lower crude oil prices and a strong dollar was offset by an increase in profit margins for apparel, footwear and accessories retailing. In the 12 months through August, the PPI fell 0.8 percent after a similar decline in July. It was the seventh straight 12-month decrease in the index. Tame inflation despite a rapidly tightening labor market poses a dilemma for Fed officials who are contemplating raising rates for the first time in nearly a decade.   Economists polled by Reuters had forecast the PPI dipping 0.1 percent last month and falling 0.9 percent from a year ago.  Producer inflation is likely to remain muted in the near term after a report on Thursday showed import prices fell 1.8 percent in August, the largest drop since January.

Import and Export Prices September 10, 2015: Significant declines sweep nearly all categories of the import & export price report pointing squarely to a deepening of cross-border deflationary pressures. Import prices fell 1.8 percent in August, slightly more than expected, while export prices fell 1.4 percent which is substantially more than expected. The monthly drops for both are the steepest since the oil-price rout of January. Petroleum pulled down the import side but even when excluding petroleum, prices fell 0.4 percent. Export prices were hit by lower prices for industrial supplies, foods-feeds-beverages, and also agricultural products. And finished goods, whether on the import or export side, show a run of minus signs for both the monthly readings and the year-on-year readings. Year-on-year rates are severe, at minus 11.4 percent for total imports, which is the lowest since September 2009, and minus 7.0 percent for exports which is the lowest since July 2009. This report highlights the risk that inflation may not be moving to the Fed's 2 percent target any time soon which is a major argument on the side of the doves at next week's FOMC meeting.

Cross-Border Deflation: US Export Prices Collapse Most Since July 2009; How Damaging is Price Deflation? --Today's Import/Export report will have alarm bells ringing in the heads of various Fed members. Month over month, export prices fell 1.4% with the Bloomberg Consensus opinion at -0.4%. The decline was outside the range of any estimate. Economists' estimates ranged from -1% to +0.1%.  Significant declines sweep nearly all categories of the import & export price report pointing squarely to a deepening of cross-border deflationary pressures. Import prices fell 1.8 percent in August, slightly more than expected, while export prices fell 1.4 percent which is substantially more than expected. The monthly drops for both are the steepest since the oil-price rout of January. Petroleum pulled down the import side but even when excluding petroleum, prices fell 0.4 percent. Export prices were hit by lower prices for industrial supplies, foods-feeds-beverages, and also agricultural products. And finished goods, whether on the import or export side, show a run of minus signs for both the monthly readings and the year-on-year readings. Year-on-year rates are severe, at minus 11.4 percent for total imports, which is the lowest since September 2009, and minus 7.0 percent for exports which is the lowest since July 2009. Let's dive into the BLS report on U.S. Import and Export Prices for more details and charts.

US Imports Biggest "Disinflationary Impulse" In 6 Years At Worst Possible Time -- August's import prices dropped a stunning 11.4% YoY, the biggest drop since September 2009. This faster-than-expected deceleration suggests "another leg lower" according to TD's Millan Mulraine, as USD strength and renewed energy declines feed through the price channel and reverses a hope-filled mid-year drift higher. This is the 13th month of YoY drops (and 111th of last 12 MoM drops) flashing a recessionary warning.  Hope fades as Import Price drops re-accelerate... As Mulraine conculdes ominously, "coming at a time when the Fed is contemplating a lift-off in rates, the weak tone of this report should come as a key reminder that the dis-inflationary impulse is re- emerging." Charts: Bloomberg

Consumption by Capital Income surges in 2nd Quarter -- I track an estimation of consumption by capital income through the NIPA numbers and labor’s income share. Changes in this estimation give insights into how well capital income is doing. What do I find? The percentage of capital’s income used for consumption surged in the 2nd quarter 2015.  To me, this is crazy. The dynamics of the economy are making the rich feel even richer.  One problem is that the economy is becoming more unstable, more top heavy. We see this because capital income’s consumption sagged before the previous recessions. This isn’t happening yet though. But we need to watch for it. Measures around the world from loose monetary policy are propping up capital income. But the situation is just becoming more unstable as time goes on.  The balanced economy of the past is a thing of the past.  Labor needs more income.

NFIB: Small Business Optimism Index increased in August -  From the National Federation of Independent Business (NFIB): NFIB Small Business Optimism Index increased only 0.5 points last month  The Index of Small Business Optimism went nowhere in August, so the good news is it did not fall. Two Index components, job openings and earnings trends both posted a solid 4 point gain, but there was not much action in the remaining components ...  On balance, owners added a net 0.13 workers per firm in recent months, better than July’s 0.05 but historically a solid reading. This graph shows the small business optimism index since 1986. The index increased to 95.9 in August from 95.4 in July.  

JOLTS September 9, 2015: Job openings were up sharply in July, to 5.753 million from an upwardly revised 5.323 million in June. The job openings rate rose to 3.9 percent in July following three prior months at 3.6 percent. Professional & business services, which is considered to be a leading component for total employment, led the gains with a 122,000 increase followed by accommodation & food services at 82,000 and retail at 77,000. Despite the rise in openings, the number of hires edged lower to 4.983 million from June's 5.182 million. The quits rate, which is watched as an indication of worker confidence, was unchanged for a fourth month at 1.9 percent. The rise in openings could definitely be cited by the hawks at next week's FOMC as a further indication of tightness in the labor market.

The Number of Job Openings in America Just Hit a New Record -- After last week’s disappointing jobs report, there’s some good news on the employment front.   Job openings hit a new record high of 5.75 million in July, the Labor Department reported Wednesday.  The U.S. government has been tracking job openings since December 2000 as part of its Job Openings and Labor Turnover Survey, commonly known as JOLTS. July’s job opening numbers were well above economists’ average estimate of 5.29 million, and up 3.9% after holding steading at 3.6% for the three preceding months.  While all the openings are good news for job seekers, there was some mediocre data in the Labor Department’s report as well. Despite all the available jobs, employers aren’t hiring new people. Hiring fell to 4.98 million in July from 5.18 million in June. Separations, meaning those people leaving their jobs whether by quitting or layoffs, also fell, hitting 4.72 million in July compared to 4.91 million in June. The quits rate, which signals how confident people are to leave their job for another, held steady at 1.9% for the fourth month.

BLS: Jobs Openings increased to 5.8 million in July, New Series High -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings again rose to a series high of 5.8 million on the last business day of July, the U.S. Bureau of Labor Statistics reported today. The number of hires and separations edged down to 5.0 million and 4.7 million, respectively. Within separations, the quits rate was 1.9 percent for the fourth month in a row, and the layoffs and discharges rate declined to 1.1 percent. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in July, little changed from June. Although the number of quits has been increasing overall since the end of the recession, the number has held between 2.7 million and 2.8 million for the past 11 months. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000. Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for July, the most recent employment report was for August. Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in July to 5.753 million from 5.323 million in June. The number of job openings (yellow) are up 22% year-over-year compared to July 2014. Quits are up 6% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is another solid report. It is a good sign that job openings are at a series high, and that quits are increasing year-over-year.

Job Openings at Record, Hires Not So Much -- The BLS JOLTS report shows once again record high job openings.  While Wall Street cheers and proclaims the long bad jobs market over, not so fast.  Actual hiring still has not recovered to even the 2007 prerecession levels.  The Job Openings and Labor Turnover Survey shows there are 1.4 official unemployed per job opening for July 2015.  While job openings were almost 5.8 million, hires were below five million, quite a divergence.  In just the private sector job openings recovered to pre-recession levels in April 2014, while private hires are 4.1% below their pre-recession levels.  The soaring job openings give an illusion of a red hot jobs market, but hires paint a very different, bleak picture.  There were 1.8 official unemployed persons per job opening at the start of the recession, December 2007.  Below is the graph of the official unemployed per job opening, currently at 1.44 people per opening.  This ratio is at the lowest level since March 2007. If one takes the U-6 broader measure of unemployment that includes people who are forced into part-time work and the marginally attached, the ratio is 2.87 people needing a job to each actual job opening. In December 2007 this ratio was 3.2. Here too we see great ratios regarding job openings. This is the lowest ratio since August 2007. Job openings are soaring past pre-recession levels. Yet population increases, so having raw numbers come up to levels from eight years ago and so many stopped looking for work belies the level and ratios. Currently job openings stand at 5,753,000, a record since the BLS started tracking on job openings. Below is the graph of actual hires, currently 4,983,000. Since the June 2009 trough, actual hires per month have increased 36.6%. Recession hiring really didn't cliff dive like layoffs, firings and openings did, yet for months now openings have soared while actual hiring isn't. None of these figures are adjusted for population growth, which shows how badly the labor pool has really shrunk. Also, Businesses can say there have job openings, but if they do not hire an American and fill it, so what about the reported opening? The tech industry is notorious to put out false job ads with no intention of hiring an actual American worker. It is most telling that professional and business services reported a +452,000 gain in job openings. One might check the H-1B and other guest worker Visas being issued or demanded for next year, as it seems quite improbable that the broad field needs almost half a million more workers in the space of a year. During that same time period the hires in the do you want fries with that accommodation and food services sector jumped up by 113,000 while hires in professional and business services actually dropped by -60,000

Hold the Celebration on Job Openings - Dean Baker -- The Labor Department released new data this morning on job openings and turnover. The release showed a big jump in openings in July compared with June or July of 2014. In the past this has been taken as evidence of the economy's strength and also as an indication that employers are having problems get workers with the needed skills. One problem with this story is that many of the openings are showing up in retail trade and restaurants, which are not areas where we ordinarily think the skill requirements are very high (which does not mean that the work is not difficult). The chart below shows most of the sectors responsible for the jump in openings. The biggest rise is professional and business services, which includes many highly skilled occupations, but also includes temp help and custodians. The point here is that it is not clear what is going on in these markets based on the rise in openings. If employers were really having trouble getting the workers they need then they should be offering higher pay. Thus far, they are not.

August JOLTS news not so great -- The August JOLTS report adds further concern about the strength of the economy.  I think the Openings measure is an outlier.  I think it might be signaling both cyclical strength and secular weakness.  The increase in Openings without similar movements in the other measures suggests a rightward move in the Beveridge Curve, which coincided in the 1970s and early 1980s with possible frictions in the labor market and rising secular unemployment levels. While Layoffs remain very low, Hires and Quits have leveled off.  This could be an early sign of a cyclical top.  There is no reason why we can't coast along a high growth trajectory for many years, like we did in the late 1990s, but this would require a willingness to allow expansion.  In the current regulatory and technological context, that probably means rising wages, rising inequality, rising home prices, rising building, and rising debt.  A plurality of the country appears to be generally against the realistic achievement of growth that includes these properties, so I am just hoping we can have as much growth as we can get until that plurality pushes us into an unnecessary cyclical contraction.  Some forbearance from the Fed would be a nice step in the direction of allowing some reasonable growth. Quits and hires are starting to look like the late 2005-2006 period, where the yield curve and JOLTS data both flattened.  These were early signs of a downturn.  I don't think a downturn is inevitable.  If the Fed raises rates and the yield curve flattens as a result, the danger of a downturn is high.  If we allow it, we could see expansion for years with relatively flat behavior among the JOLTS indicators.  But both hires and quits have been level for nearly a year, now.  This is beginning to be a pretty strong indicator of a maturing recovery phase.

JOLTS Report is Evidence of an Economy Moving Sideways -- Today’s Job Openings and Labor Turnover Survey (JOLTS) report corroborates last week’s jobs report, which continued to provide evidence that the economy is at best moving at a slow jog, with meager wage growth and employment growth that’s just keeping up with the growth in the working age population. The rate of job openings increased in July, while the hires rate fell and the quits rate remains depressed. There continues to be a significant gap between the number of people looking for jobs and the number of job openings. The figure below illustrates the overall improvement in the economy over the last five years, as the unemployment level continues to fall and job openings rise. In a tighter economy (like the one shown in the initial year of data), these levels would be much closer together. So it’s clear that there is still a significant amount slack in the economy. Furthermore, on top of the 8+ million unemployed workers warming the bench, there are still more than three million workers sitting in the stands with little hope to even get in the game.

A postscript on job guarantees - I want to respond to this post by Professor Pavlina Tcherneva of Bard College on job guarantees. She seems at pains to distinguish such a guarantee from “big government.” I have no such need. In the Tcherneva version of the government as an employer of last resort (‘ELR’), public employment would respond rapidly and precisely to ebbs and flows of the business cycle, but no more than necessary. I prefer to imagine sizable new public enterprises with the capacity to shrink and expand, but always continuing to function and produce. One of the issues raised by Tcherneva as well as by Matt Bruenig is the flexibility of public works projects as counter-cyclical tools. I don’t think this is a problem. One wouldn’t want to turn jobs on and off, but it would seem possible to speed them up and slow them down. Remember, in my ELR system, there is a goodly core of permanent employees and on-going projects. There could also be smaller-scale projects noted by Tcherneva that can be completed as labor availability dictated. One wouldn’t halt such work prior to completion, but I  don’t see why an ELR enterprise couldn’t finish jobs in time to release labor back into the private sector. I do have to take exception to the premise that an ELR completes the social safety net. Unfortunately, some of those pushed into destitution in the current age have difficulty functioning in the labor market. We will still need some kind of income guarantee to backstop public employment.

August 2015 Conference Board Employment Index Suggests Improving Jobs Growth In the Future: The Conference Board's Employment Trends Index - which forecasts employment for the next 6 months - improved, and the rate of growth improved relative to last month. Consider that this projected growth is six months from now. Econintersect is now forecasting marginally improving jobs growth six months from now. From the Conference Board: The Conference Board Employment Trends Index™ (ETI) increased in August for a second consecutive month. The index now stands at 128.82, up from 127.64 in June (a downward revision). The change represents a 4.5 percent gain in the ETI compared to a year ago. ""The large increase in the Employment Trends Index in August suggests that a significant moderation in employment growth is unlikely to occur in the coming months," said Gad Levanon, Managing Director of Macroeconomic and Labor Market Research at The Conference Board. "With solid job growth expected to continue, the unemployment rate is likely to go below 5 percent by year's end." August's increase in the ETI was driven by positive contributions from four of the eight components. In order from the largest positive contributor to the smallest, these were: Percentage of Respondents Who Say They Find "Jobs Hard to Get," Percentage of Firms with Positions Not Able to Fill Right Now, Number of Temporary Employees, and Industrial Production.

698K Native-Born Americans Lost Their Job In August: Why This Suddenly Is The Most Important Jobs Chart -- After the Fed admitted over a year ago that the US unemployment rate (which in 2012 was supposed to be a rate hike "threshold" once it hit 6.5% and is now at 5.2%) has become irrelevant in a country where a record 94 million people have left the labor force, and with the Fed poised to hike rates even though US hourly wages have not only not increased for the past 7 years, but for the vast majority of the labor force continue to decline, some have asked - is there any labor-related chart that matters any more? The answer: a resounding yes, only it is none of the conventional charts that algos and sometimes humans look at. The one chart that matters more than ever,has little to nothing to do with the Fed's monetary policy, but everything to do with the November 2016 presidential elections in which the topic of immigration, both legal and illegal, is shaping up to be the most rancorous, contentious and divisive. The chart is the following, showing the cumulative addition of foreign-born and native-born workers added to US payrolls according to the BLS since December 2007, i.e., since the start of the recession/Second Great Depression. The chart is especially important because what it shows for just the month of August will be enough to provide the Trump - and every other - campaign with enough soundbites and pivot points to last it for weeks on end: namely, that in August a whopping 698,000 native-born Americans lost their job. This drop was offset by 204,000 foreign-born Americans, who got a job in the month of August.

Job Market for Disabled Workers Helps Explain Labor-Force Participation Puzzle - A historically small share of Americans participating in the labor force could in part reflect a weak job market for people with disabilities, even six years after the recession ended. Labor-force participation among Americans with disabilities, but who are able to work, fell from 25% in 2007 to 16% in 2014, according to a study to be released Tuesday by the American Institutes for Research. That nine-percentage-point decline is nearly three times steeper than the drop for all adults ages 21 to 65 during that time. The figures “have not reversed for people with disabilities at the same rate as for people without disabilities, despite the recovering economy,”  The job market for individuals with disabilities is important because having a disability or illness is the top reason why an American is not working or looking for a job. Among those not participating in the labor force, 32% say they are disabled or sick. That’s a higher share than those who are taking care of family members, 29%, or are in school, 11%. The overall labor-force participation rate, 62.6% last month, is at the lowest level since the 1970s, a time when women were entering the workforce in larger numbers.  During the recession, the share of Americans with disabilities dropping out of the labor force increased. The same occurred with people younger than 65 who chose to retire. But the retiree figure returned to historical norms when the economy improved, while the figure for workers with disabilities continued to rise.

Weekly Initial Unemployment Claims decreased to 275,000 -- The DOL reported: In the week ending September 5, the advance figure for seasonally adjusted initial claims was 275,000, a decrease of 6,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 282,000 to 281,000. The 4-week moving average was 275,750, an increase of 500 from the previous week's revised average. The previous week's average was revised down by 250 from 275,500 to 275,250.  There were no special factors impacting this week's initial claims.  The previous week was revised down to 281,000. The following graph shows the 4-week moving average of weekly claims since 1971.

Productivity and Pay - Krugman -  I want to flag an excellent report by Josh Bivens and Larry Mishel on the productivity-pay gap. The divergence between pay and productivity — a lot of productivity gains, almost total failure to trickle down — is one of the most striking features of American economics these past 40 (!) years. It’s also the subject of endless attempts at debunking, of claims that the divergence is somehow a statistical artifact. What Bivens and Mishel do is take on these arguments carefully, not dismissing them completely, but showing that they explain only a fraction of what we see. Rising benefits are mainly a pre-1979 issue, explaining almost nothing since then; the “terms of trade” — consumer prices rising faster than the prices of U.S. output — is also mostly pre-1979, and in any case only a fractional concern. And so on. One thing they don’t say explicitly, but is important: the next time you hear someone claiming that middle-class families have, in fact, seen a big rise in living standards, you should know that to the extent that this is true (which is less than claimed), it’s mainly about working more hours. Pay really has almost stagnated despite rising productivity.

How on-call and irregular scheduling harm the American workforce -- As we head into the holiday weekend, many of us know with certainty what days and hours we’ll be working over the coming week. A significant share of the workforce, however, isn’t quite so fortunate. Millions of employees awake every morning without knowing what time they’ll start work, how long their shift will last or even if they’ll be working at all, regardless of what the company schedule says. Whether it will truly be a “labor day,” and compensated accordingly, remains up in the air for these workers until they get a call confirming that they need to come in to work and for how long. This type of on-call scheduling has always been a component of certain occupations, such as doctors, firefighters and substitute teachers, a risk compensated for in their salaries. But in recent years this practice has spread to jobs like retail sales work, among the fastest-growing occupations and for which there is little or no extra compensation. The growing frequency of employees being required to be “on call” during the day or sent home early before their scheduled shift ends became an issue of public concern in April, when New York’s attorney general asked 13 retailers in the state about their scheduling practices, requesting that show they are in compliance with its laws.

H-2B Wage Rule Loophole Lets Employers Exploit Migrant Workers  -- Last week the New York Times reported the latest innovation from employers who use the H-2B visa temporary foreign worker program to hire workers to staff traveling carnivals (think your local county or state fair): an employer-created union that collectively bargains with employers on behalf of workers to keep wages artificially low. Thanks to a loophole in H-2B wage regulations, low-wage, low-road employers are permitted to pay their temporary foreign workers dreadfully low wages. The genesis of the prevailing wage loophole  For about half a decade, thanks to an H-2B wage regulation the George W. Bush administration illegally put in place in 2008, employers of landscapers, dishwashers, tree planters, maids, janitors, carnival workers, and construction workers were allowed to pay their H-2B employees as little as the local 17th percentile wage. (This is legally defined as the “Level 1” prevailing wage, based on Labor Department wage survey data for the job and local area.) After the rule was struck down in federal court in 2010, the Obama administration promulgated a final wage rule in 2011 that would have required employers to pay H-2B workers the local average wage (what’s also known as the Level 3 prevailing wage). However, this effort led to years of federal litigation brought by H-2B employers that stopped the rule in its tracks, and spurred an onslaught of corporate lobbying that convinced members of Congress from both major parties to deny funding to the Labor Department to enforce the rule. Finally, in April 2013, the wage rule for the H-2B program was re-promulgated as an interim final rule issued jointly by the departments of Labor and Homeland Security. (The fact that the rule was issued jointly negated the main legal challenge, namely that the Labor Department lacked authority to promulgate any H-2B wage regulation.) The 2008 and 2013 H-2B wage rules both required employers to pay their H-2B employees the wage set out in an applicable collective bargaining agreement (CBA). But under the 2008 rule, if no CBA applied, then employers were allowed to pay the 17th percentile wage. The 2011 final H-2B wage rule that Congress blocked would have required employers to pay the higher wage between the CBA wage or the local average wage. Under the 2013 rule, if no CBA covered the H-2B worker, then the employer would have to pay the local average wage.

As European Migrant Crisis Grows, U.S. Considers Taking In More Syrians - Facing mounting pressure to respond more aggressively to the migrant crisis unfolding across Europe, the White House on Tuesday said it was re-examining whether it should increase its assistance, including resettling more Syrians in the United States. As the leaders of Germany and Sweden appealed to other European nations to take their fair share of migrants, American officials hinted that the United States might be moving toward an increase. White House officials said a “working group” at the State Department was “actively considering” a range of options, including refugee resettlement. The United States currently limits the number of migrants from Syria to 1,500 per year, a tiny fraction of the millions who have flowed out of the war-ravaged country. Officials declined to say whether a sizable increase in the cap had been discussed. “The international community is looking at the United States right now to determine what additional steps we can take to try to confront, or help Europe confront, this difficult challenge,” said Josh Earnest, the White House press secretary. “We’re certainly mindful of the urgency around increasing the resources and response.”

Are Women the New Face of Organized Labor? - Unionized labor represents an ever-smaller share of the American workforce, having fallen to 11.1% in 2014, down from 20.1% in 1983, according the U.S. Labor Department. But as men’s union membership fallen steeply, women, and particularly women of color, have been the majority of new organized workers. Their presence could shift labor’s agenda. The growing female union presence dates back at least to the 1980s, when many public sector jobs became unionized, said Kate Bronfenbrenner, the director of labor education research at Cornell University’s School of Industrial and Labor Relations. One 2014 study by the left-leaning Center for Economic and Policy Research forecast that women will be the majority of unionized workers by 2025. Union membership goes a long way toward closing the gender pay gap: A new analysis by the Institute for Women’s Policy Research shows that women in unions have median weekly earnings 31% higher, on average, than nonunion workers. Even controlling for other factors that influence wages, such as education and age, women in unions still have a 13% “union advantage” over their nonunion counterparts in the same jobs, which translates to around $2.50 per hour, the 2014 study by CEPR found. There’s evidence that women’s increasing prominence in unions is already influencing what workers demand at the bargaining table. Ms. Bronfenbrenner, who has reviewed the content of union contracts from the 1980s and 1990s, said antidiscrimination clauses are now appearing in contracts more frequently than in earlier decades. She is also seeing contract provisions on issues like scheduling and sick days that disproportionately affect women, who still do the majority of care work, although it is too early in the research process to tell whether their prevalence has increased from earlier periods.

Do Welfare Programs Penalize Marriage? - When it comes to marriage, the U.S. tax code is roughly neutral: The number of people penalized for being married is roughly the same as the number who benefit from it. The same is not true for social welfare programs, such as Medicaid, food stamps or housing assistance, which can impose significant financial penalties on recipients who are married, according to new research from the R Street Institute, a Washington think tank. In some cases, that creates major disincentives for low-income couples—especially those who are already living together—to tie the knot. “Historically, low-income couples have faced especially onerous marriage penalties, because most safety-net benefits are means-tested (with steep phase-out rates or even cliffs)” applied on those who are married,  “Marriage could easily reduce or end the benefits of a single parent with children.” The effects vary from state to state, and depend on the relationship between the couple living together, whether or not they have children, whether they share expenses and how much money they earn. In Arkansas, the state with the highest marriage penalties, if a nonparent marries a parent with two children and each adult earns $20,000, they would lose approximately $13,248 in benefits, or roughly a third of their total household income, according to the study. The effects also vary by program. In a paper released Tuesday, researchers at the Urban Institute found the additional-child tax credit and the earned-income tax credit had the largest effect on creating either marriage penalties or bonuses, depending on the state and how the earnings were divided among the couple.

America's Poorest Are Getting Virtually No Assistance -- People who pay attention to poverty, including the poor themselves, know one thing all too well: Over the past few decades, anti-poverty policy in this country has evolved to be “pro-work.” This means that if you’re a low-income parent who’s well connected to the job market, the government will help you in a variety of ways. But, if you’re disconnected from the job market, public policy won’t help you much at all. How do people in that second group survive?That’s a question that Kathryn Edin and H. Luke Shaefer, a sociologist and a social-work professor, answer in their new book, $2.00 a Day: Living on Almost Nothing in America. It is, as the title suggests, a devastating portrait of families struggling to get by on impossibly low incomes. A few of their strategies: availing themselves of charities and public spaces (like libraries), selling food stamps for cash (illegal, and they typically get just 60 cents on the dollar on the street), relying on relatives (who can be as hurtful as helpful), selling scrap metal or aluminum cans, selling plasma (which involves considerable angst as to whether a person’s blood’s iron levels are sufficiently high, especially difficult around menstruation), receiving some public support (housing vouchers, nutritional support, disability payments), occasionally holding a job, and—the most common strategy of all—just going without.

The Rise of $2-a-Day Poverty and What to Do About It - Demos -  In “$2.00 a Day: Living on Almost Nothing in America,” authors Kathryn L. Edin and H. Luke Shaefer examine the legacy of welfare reform and its effects on the poorest members of society. What they find is equally predictable and horrifying: despite the glowing reflections of boosters like Clinton, welfare reform has led to a dramatic increase in extreme poverty, which has in turn subjected the most vulnerable members of society to rising levels of hunger, homelessness, and physical abuse. According to the authors, in 1996, around 1 in 59 American households with children had cash incomes lower than $2 per person per day, the commonly used threshold of extreme poverty. After welfare reform, that number grew steadily, increasing 150% in 15 years. By 2011, 1 in 23 households with children was living in extreme poverty. Lacking sources of cash, these households occasionally revert to selling plasma, scrapping found or stolen metal, and exchanging sexual favors for food or rent (children included). Members of these extremely poor households sometimes go days without eating and explain to the interviewers that they often want to die. While some of these people are too disabled to work (but not disabled enough for benefits), others very much want to work but can’t find any. The promise of welfare reform was to move such people from welfare to work and from dependency to dignity, but for many it’s denied them all of the above.Cultural hysteria, mainly racist in origin, drove Bill Clinton's near total annihilation of cash assistance for the very poor. Even at its high-point in 1993, AFDC was a relatively modest program that provided cash benefits equal to 0.3% of GDP to the poorest 5.5% of Americans, two-thirds of whom were children. AFDC was never a budgetary or economic problem, but it became a convenient vehicle for mobilizing anti-black and anti-poor animus and a perfect thing to blame for all of society’s problems. Despite the obvious long-term failure of welfare reform, Edin and Shaefer insist that “reverting to the old welfare system is not the answer.” For them, AFDC was out of sync with “America’s values” and “government programs that are out of sync with these values serve to separate the poor from the rest of society, not integrate them into society.”

'How Rising Inequality Increases Political Polarization' -- This research is examines how state-level income inequality impacts political polarization within state legislatures. It's from one of our graduate students, John Voorheis (who will be on the job market at the AEA meetings this year), along with Nolan McCarty at Princeton and Boris Shor at Georgetown (who have very good state level legislator ideology data). They have some preliminary results, which were presented this at last weekend's APSA meetings (there is a preliminary working paper on SSRN). Here's a thumbnail sketch of the results:

• They use a simulated instrument for state level inequality to address potential endogeneity between state politics and state income distributions. That allows them to estimate the causal effect of inequality on polarization (a first for this literature).
• They find robust evidence that increases in state inequality cause increased political polarization (i.e. the ideological distance between Democratic and Republican parties).
• Inequality affects the mean position of both Democratic and Republican parties, but the effect is larger and more precisely estimated for Democrats.
• Income Inequality also causes a rightward shift in the average ideology of state legislatures.
• They conclude that inequality's effect on polarization primarily occurs through moving the moderate wing of the Democratic party to the left; this occurs through replacing moderate Democrats with Republicans, which results in a more liberal Democratic party but a more conservative legislature overall.

Bread & Circuses: The Shady, Slimy & Corrupt World Of Taxpayer Funded Sports Stadiums - Like pretty much everything in the modern U.S. economy, wealthy and connected people fleecing taxpayers in order to earn even greater piles of money is also the business model when it comes to sports stadiums. Many cities have tried to make voter approval mandatory before these building boondoggles get started, but in almost all cases these efforts are thwarted by a powerful coalition of businessmen and corrupt politicians. To get you up to speed, here are a few excerpts from an excellent Pacific Standard magazine article: Over the past 15 years, more than $12 billion in public money has been spent on privately owned stadiums. Between 1991 and 2010, 101 new stadiums were opened across the country; nearly all those projects were funded by taxpayers. The loans most often used to pay for stadium construction—a variety of tax-exempt municipal bonds—will cost the federal government at least $4 billion in taxpayer subsidies to bondholders. Stadiums are built with money borrowed today, against public money spent tomorrow, at the expense of taxes that will never be collected. Economists almost universally agree that publicly financed stadiums are bad investments, yet cities and states still race to the chance to unload the cash. What gives? To understand this stadium trend, and why it’s so hard for opponents to thwart public funding, look to Wisconsin. Last month, Governor Scott Walker signed a bill to spend $250 million on a new basketball arena for the Milwaukee Bucks. (The true cost of the project, including interest payments, will be more than $400 million.) The story of what’s happening in Milwaukee is remarkable, if not already familiar. Step one: A down-on-its-luck team is purchased by a group of billionaire investors. Step two: The owners nod to their “moral responsibility” to keep the team in its hometown,while simultaneously lobbying for a new stadium. Step three: The team threatens to abandon its hometown for greener pastures—and newer facilities—in another city. Step four: The threat scares up hundreds of millions of public dollars in stadium financing. Step five: The new stadium opens, boosting the owners’ investment, while sloughing much of the financial risk onto taxpayers.

U.S. household food insecurity remained high in 2014 -- The U.S. Department of Agriculture today reported that the rate of household food insecurity in 2014 was 14%, still far higher than historical averages and a sign that robust economic recovery has not yet reached low-income Americans. For Politico's Agenda today, I reflected on the role of poverty reduction -- and not just food provision -- as a solution to household food insecurity. Here is the conclusion. It may be that anti-hunger groups and political leaders focus on food because they’ve lost confidence that the United States really can make progress against the deeper problem of poverty. But this is doubly wrong. Food alone cannot eliminate the spectrum of food-related worries and shortfalls—and reducing poverty is not really beyond the capacity of the American people, their government, and their economy.

Rate Of U.S. 'Food Insecurity' Stubbornly High: -- Fourteen percent of U.S. households lacked access to enough good food at some point last year, according to the latest annual food insecurity estimate from the federal government. The change from last year's 14.3 percent is too small to count as statistically significant, but the decline from 14.9 percent in 2011 is good news, say researchers at the U.S. Department of Agriculture. Still, despite an improving economy, the rate is much higher than the 11.1 percent seen in 2007, before the onset of the Great Recession. "It's just appalling that in this country -- when at least from a GDP point of view we have a larger economy than we did before the recession -- we have millions more people struggling with hunger,"  "I'm disappointed by the findings in today’s report which revealed essentially no progress has been made in decreasing food insecurity for American families over the past year," . People in food-insecure households didn't necessarily go hungry. About two-thirds had "low food security," meaning they managed to get enough to eat, but they compromised on quality or variety. Members of these households are at greater risk of health problems, but they were unlikely "to suffer from hunger in the sense of the uneasy or painful sensation caused by lack of food," the USDA says in a fact sheet.

Two in Every Five U.S. Children Spend at Least a Year in Poverty - Childhood poverty is far more prevalent than annual figures suggest, a new paper says, with nearly two in every five U.S. children spending at least one year in poverty before they turn 18 years old. The findings show particularly stark divides along racial lines. Black children fare much worse. Some 75% are poor at some point during their childhood, compared to 30% of white children. The Census Bureau is set to release its annual statistics next week on household incomes and poverty for 2014. Last year, the report showed that one in eight adults live below the poverty line, compared to one in five children. The Urban Institute analysis, released Wednesday, used separate data from the Panel Study of Income Dynamics, a survey that has followed several thousand sets of parents and children since the 1960s, to examine the prevalence of poverty for children from birth through age 17. Around one in 10 children are persistently poor, meaning they have lived below the federal poverty level for at least half of their childhood. Here, too, the researchers find a huge racial split, with around 39% of black children that are in persistent poverty, compared to 4% of white children. The research dives deep on this group of poor children to find out common characteristics of those who succeed despite financial hardship and those who don’t. It finds that the longer children live in poverty, the worse their future advancement in the classroom. Persistently poor children, for example, are 43% less likely to finish college than those who are poor but not persistently poor during their childhood, and 13% less likely to finish high school. It also finds that persistently poor children that have to move more often due to negative reasons, such as eviction or divorce, fare much worse than persistently poor children who never move. Those who experience at least three such moves before they turn 18 are 68% less likely to complete a four-year college degree by the time they turn 25.

Births to undocumented US immigrants down 20 percent from 2007 peak: Pew: The number of children born in the United States to undocumented immigrants has dropped by about 20 percent since its 2007 peak after rising sharply for a quarter-century, the Pew Research Center said on Friday. An analysis of Census Bureau data by the polling group showed that about 8 percent of the nearly 4 million births in the United States in 2013 had at least one parent who was living in the country illegally.Children of undocumented immigrants became a prominent issue in the race for the White House after U.S. Republican presidential hopeful Jeb Bush used the phrase “anchor babies” in a radio interview last month and was criticized by other presidential candidates for doing so. Immigration critics sometimes use the term “anchor babies” to describe U.S.-born children of illegal immigrants. Immigration groups say the phrase is offensive. The 14th Amendment to the U.S. Constitution grants citizenship to any child born on U.S. soil, regardless of parentage. About 295,000 babies were born to parents who were unauthorized immigrants in 2013, down from 370,000 in 2007, Pew said. Some Republicans seeking the presidential nomination, including Donald Trump, have criticized across-the-board birthright citizenship.

How an Area’s Union Membership Can Predict Children’s Advancement -  It is well established that unions provide benefits to workers — that they raise wages for their members (and even for nonmembers). They can help reduce inequality. A new study suggests that unions may also help children move up the economic ladder.  Researchers at Harvard, Wellesley and the Center for American Progress, a liberal think tank, released a paper Wednesday showing that children born to low-income families typically ascend to higher incomes in metropolitan areas where union membership is higher. The size of the effect is small, but there aren’t many other factors that are as strongly correlated with mobility. Raj Chetty of Stanford, Nathaniel Hendren of Harvard, and Patrick Kline and Emmanuel Saez of the University of California, Berkeley, who pioneered this method of examining economic mobility, established five factors that are strongly correlated with a low-income child’s likelihood of making it into the middle class: the rate of single motherhood in an area, the degree of inequality, the high school dropout rate, the degree of residential segregation, and the amount of social capital, as measured by indicators like voter turnout and participation in community organizations.  Single motherhood is the most strongly correlated factor with mobility. The latest study, which relied on the Chetty/Hendren data, says union membership is roughly as strongly correlated with mobility as the other four factors. “It’s a striking relationship,” said Lawrence Summers, the former Treasury secretary and Obama economic adviser, who is participating in a discussion with some of the study’s authors on Wednesday. “It’s further grounds for concern about the decline of unionism in the United States.”

Cuomo Set to Back $15 Minimum Wage Across New York State - After devising a way to raise wages for fast-food workers, Gov. Andrew M. Cuomo is preparing to announce his support for a $15 minimum wage for all workers in New York State.Mr. Cuomo, who earlier this year said that a $13 minimum wage was a “nonstarter” in Albany, is scheduled on Thursday afternoon to call for an across-the-board increase in the wage to $15, according to people who had been briefed on the plan but declined to be identified speaking ahead of the announcement. The push for an increase in the state’s minimum wage, now $8.75 an hour, has met resistance from Republican lawmakers in Albany. After they rebuffed an effort to raise it in the last session, Mr. Cuomo convened a panel, known as a wage board, to study the question of whether fast-food chains were paying fair wages.The panel, whose three members were chosen by Mr. Cuomo, concluded that the minimum wage for workers employed by those chains should be raised in stages to $15 an hour. The increase would happen faster for workers in New York City than in the rest of the state, under the plan which still must be approved by the acting commissioner of the State Labor Department.

Puerto Rico Lays Out 5-Year Plan for Restructuring Its Debts - The New York Times: Puerto Rico issued a five-year plan on Wednesday for broadly restructuring its mammoth debts, opening what is likely to be a turbulent new chapter in its efforts to rekindle economic growth and avoid an unprecedented collapse.The new plan calls for restructuring about $47 billion of Puerto Rico’s $72 billion in bond debt and carrying out an ambitious package of economic changes under the eyes of an independent financial control board. Virtually every element of the plan requires either concessions negotiated from creditors or legislation enacted in San Juan or Washington, suggesting a long and difficult road ahead.In a live televised speech Wednesday morning, Gov. Alejandro García Padilla said economic revival was “our historic responsibility,” and warned that if creditors did not come to the negotiating table, “Puerto Rico will have no choice but to go ahead without them.”  Already, Puerto Rico has already had to take a number of “extraordinary measures” to keep from running completely out of cash. The government liquidated the assets of its workers’ compensation fund and two other insurance pools over the summer, so it could pay other bills. It has delayed sending people their 2014 income-tax refunds until at least February 2016.Among the most striking aspects of the plan — and likely to be one of the most contentious — is the proposal to restructure Puerto Rico’s general obligation bonds, which were sold to investors with an explicit constitutional promise that timely repayment would take priority over all other expenditures on the island. Puerto Rico stunned investors this summer by defaulting on another type of bond, but failing to pay general obligation debt when due is almost unheard-of.

Puerto Rico's plan to pay off its debt falls $14 billion short - Right now, there is a $28 billion gap between what Puerto Rico must pay bondholders over the next five years and what it can actually pay, according to a new government report.  The Puerto Rican government just released its plan to plug the gap. Even after all the proposed spending cuts and tax increases, the island would still be unable to pay back $14 billion, raising concerns that the island could default again.  The commonwealth defaulted on a small portion of its debt in August.  The Puerto Rican government proposes a wide range of spending cuts and tax hikes to help pay off its debt over the next five years. First, the island's sales tax sharply increased from 7% to 11.5% in July. On top of that, the government plans to fully implement a value-added tax. That sales tax is higher than any other in the United States. (Tennessee is the next highest at 9.45%, according to the Tax Foundation, a research group). Puerto Rico also aims to consolidate its schools, lower health care spending and reduce the number of government employees. It lists several initiatives to spark economic growth on the island too. "Working out of this, it's going to take a long time," says Cate Long, founder of Puerto Rico Clearinghouse, a research firm focused on the island's debt. "Much of the government has needed to be downsized for years." Keep in mind: Some proposals must be passed by the U.S. Congress while others need the approval of Puerto Rico's legislature. Approval isn't guaranteed, experts say.

Illinois Infrastructure Crumbles Amid Budget Warfare — Amid the attention generated by the Illinois budget crisis, a long-term infrastructure problem is brewing behind the scenes, a report warns. The state’s infrastructure shortcomings are as serious as its budget deficit and pension shortfalls, says author Martin Luby. “We’re calling this Illinois’ third deficit,” said Luby, an associate professor at DePaul University and a visiting scholar at the University of Illinois Institute of Government and Public Affairs, which released the policy brief Monday as part of its The Fiscal Futures Project. “Everyone has been focused on the budget, but governments also build things,” he said. “And that’s one area we think lawmakers are aware of, but not as much as possible, and we wanted to put it on the radar.” The report, “All Bad Things Come in Threes: Illinois’ Third Type of Deficit: Infrastructure Funding,” estimates of the size of Illinois’ funding gap, taking into account all of the state’s capital needs – mostly for roads and bridges. It focused only on the state government, not its independent agencies or local governments. The size of the deficit depends on several factors, including the state’s current debt position and credit profile, the group says. At the report’s base-case scenario, the state would need annual new revenue ranging from $447 million in 2016 to $1.09 billion in 2020 and $2.33 billion in 2024 assuming it maintains its current 11% ratio of debt service to general fund spending. “Given the fiscal and budgetary urgency of dealing with the other two deficits the state faces, it may be convenient to ignore the state’s infrastructure funding deficit,” the report says. “But this is perilous. Failing to maintain, replace and improve its infrastructure and other physical capital assets, Illinois limits the future productivity and income-earning potential of its businesses and workers.”

Apocalypse Illinois: IOUs Projected to Hit $10.5 Billion, $163 Billion Total Accumulated Liabilities -- Illinois is in serious fiscal trouble. Unpaid bills will hit about $10.5 billion later this year, counting unpaid lotto winners and state university bills. Lotto is a small problem overall, yet symbolic of the mess the state is in.  Because Illinois has no current budget, the state does not pay lotto winners. Instead it sends the winners IOUs. Yesterday, two Illinois lottery winners filed a class action lawsuit over unpaid prizes.  Unpaid bills do not count additional promises that politicians seek. For example, Chicago Mayor Rahm Emanuel wants a half billion dollars from the state to shore up the Chicago school budget. Where is that supposed to come from? The list of "wants" is endless; the reality is "Illinois is flat out broke". When will multiple downgrades from Moody's, Fitch, and the S&P hit the overall state, not just the city of Chicago?  In a big understatement of Illinois' problem, a Crain's Chicago headline reads Illinois IOUs Growing Fast, Could Pass $8.5 Billion by Yearend.  Slowly but surely, Illinois government is beginning to drown in red ink, State Comptroller Leslie Munger said today, as the cost of the continuing Springfield budget war steadily worsens the already bad condition of state finances. Without legislative action to adopt a balanced budget, the state's backlog of unpaid bills will hit $8.5 billion in December—not counting an additional $4 billion in spending for state universities, lottery winners and other purposes that has been indefinitely deferred, Munger said. If the bill backlog indeed hits $8.5 billion in December—and you include half of that $4 billion in other spending, since December is the midpoint of the state's fiscal year—that would put the cumulative backlog at what appears to be an all-time high of $10.5 billion.

Chicago Schools Seek State Cash, as Crunch Looms - WSJ: —The nation’s third-largest public school system is set to open Tuesday without enough money to make it through the school year, as layoffs, school closings and contract fights have failed to stem mounting fiscal problems. Chicago Public Schools—with 394,000 students and nearly 21,000 teachers—has closed more than half of a projected $1.1 billion shortfall through cuts, borrowing and other means, but is looking to the state to come up with the rest. The school board warns of deep cuts later this year if Illinois, which faces its own fiscal crisis, doesn’t deliver an additional $480 million in the coming months, representing roughly 8% of annual district spending. “It is like the board is a desperate gambler at the end of their run,” said Jesse Sharkey, vice president of the Chicago Teachers Union, in a recent speech. Chicago’s deepening fiscal problems, driven by fast-growing pension costs and declining state aid, run largely counter to the brightening picture for districts across the country as they open their doors for a new school year. While budgets remain tight, school finances are improving as the strengthening U.S. economy helps boost local tax collections and state support for education. Still, fiscal pressures remain for some districts struggling with challenges like Chicago’s and other issues, including increased competition from charter schools.

"Desperate" Chicago Schools Need Half Billion To Avoid Mass Layoffs, Partial Shutdown -- Last month, we noted with some incredulity that Illinois is now paying lottery winners in IOUs.  The lottery debacle is just the latest example of Illinois’ deepening fiscal crisis which was catapulted into the national spotlight in May when a state Supreme Court decision that struck down a pension reform bid prompted Moody’s to cut the city of Chicago into junk territory. Since then, the media has been awash with tales of the labyrinthine, incestuous character of the state’s various state and local governments and the deplorable condition of the state’s pension system.  The fallout from the budget crisis is far-reaching in the state with the latest example being Chicago’s public school system (the third-largest in the country), which opened this week with a budget shortfall of nearly a half billion dollars. Here’s WSJ with the story: Chicago Public Schools—with 394,000 students and nearly 21,000 teachers—has closed more than half of a projected $1.1 billion shortfall through cuts, borrowing and other means, but is looking to the state to come up with the rest. The school board warns of deep cuts later this year if Illinois, which faces its own fiscal crisis, doesn’t deliver an additional $480 million in the coming months, representing roughly 8% of annual district spending. “We are really now at a point where further cuts would reach deep into the classroom,” said Forrest Claypool, who was named chief executive of the city schools in July. Since 2011, the school board has made nearly $1 billion in cuts—including $200 million this year that involved eliminating 1,400 positions, mostly through layoffs. Enrollment declines, due to shifting demographics and Chicago’s shrinking population, have led to school closings, including nearly 50 elementary schools in 2013 alone.

Detroit schools plan $121 million note sale to refinance debt as enrollment slumps -  The Detroit school system, which is being run by a state-appointed manager because of its financial strains, is planning to sell $121 million in tax-exempt notes this week as it struggles with shrinking enrollment. The notes, which mature in August and are being sold through the Michigan Finance Authority, will refinance debt to help cover the schools’ budget shortfall, according to offering documents. The sale is expected to price on Thursday, Michelle Zdrodowski, a spokeswoman for the district, wrote in an email. Detroit’s schools were placed under control of an emergency manager in 2009 after the city’s dwindling population caused the number of students to plummet. That trend led Standard & Poor’s on Tuesday to lower its rating on some of the district’s revenue bonds to as low as A-, four steps above speculative grade. The rating company said “severe declines” in enrollment have cut into state aid available for debt payments. The district, the state’s largest, saw average annual enrollment declines of more than 12 percent from 2007 to 2012, S&P said. While the school system is projecting a 2.8 percent drop in the 2016 fiscal year, the rating company said it expects the number of students to fall by more than the district estimates. S&P rates the notes SP-3, its lowest grade for short-term municipal debt.

Growing economic segregation among school districts and schools - Rising income inequality means those at the top have a growing resource advantage. Some high-income families use these resources to pay for housing in particular neighborhoods, resulting in increasing segregation by income between neighborhoods over the past four decades. Residential segregation creates inequalities between neighborhoods, and neighborhood contexts are critical for children’s development. Children who grow up in disadvantaged neighborhoods have worse educational and occupational outcomes later in life. ... In a recent study, Sean F. Reardon, Christopher Jencks, and I documented trends in economic segregation between schools and school districts. ... We found that segregation by family income between school districts within metropolitan areas rose from 1970 to 2010. Looking only at families with children enrolled in public school from 1990 to 2010, segregation by family income between school districts rose by nearly 20 percent. ... Segregation of upper-middle-class and affluent families from all others increased the most. In 2010, families with incomes in the top 10 percent of the national income distribution lived in the most homogenous districts, with other affluent families like them. In contrast, we found that poor families have become slightly more integrated by income between school districts. However, given that high-income families have distanced themselves from others, poor families are likely integrating with working-poor or lower-middle-class families rather than the affluent. We then examined segregation between schools within school districts. Available data limit our investigation to measuring segregation between students that qualify for free lunch and those that do not. We found that segregation based on free lunch eligibility between schools within districts was 10 percent higher in 2010 than 1991. Focusing only on the 100 largest districts in the U.S., segregation by free lunch status between schools increased by 30 percent. Therefore, students increasingly attend school with students whose family incomes are similar to their own. ....

Late Friday surprise: Supreme Court says charter schools initiative is unconstitutional - The Washington State Supreme Court, in a late Friday surprise, delivered a ruling that the state’s voter-passed, billionaire-backed charter school initiative is unconstitutional. The high court’s 6-3 ruling found that the independently organized schools do not pass muster as common public schools and therefore cannot receive public funding.  .“We hold that provisions of Initiative 1240 that designate and treat charter schools as common schools violate article IX, Section 2 of our state Constitution and are void,” Chief Justice Barbara Madsen wrote in the majority opinion. “This includes the Act’s funding provision, which attempts to tap into and shift a portion of moneys allocated for common schools to the new charter schools authorized by the Act. Because the provisions designating and funding charter schools as common schools are integral to the Act, such void provisions are not severable …” In short, I-1240 goes down, although supporters said last night they would weigh legal options.

American adults get a D in science; 22% confuse astronomy and astrology -- Americans get a D in science. So says the Pew Research Center, which issued a report Thursday on the state of the nation’s knowledge regarding some basic scientific facts. The public opinion and research organization quizzed a representative sample of U.S. adults on geology, physics and astronomy, among other topics. Out of 12 questions, the test-takers answered 7.9 correctly, on average. That’s a score of 66%. Only 6% of the 3,278 test-takers answered all 12 questions correctly. Twenty-six percent missed only one or two questions, and an additional 27% missed three or four. At the other end of the spectrum, only 1% of those surveyed missed 11 of the questions, 2% missed 10 and 3% missed nine. The more time people had spent in school, the better they did on the quiz. For instance, those who had earned some type of graduate degree scored an average of 9.5, while those who didn’t make it past high school averaged only 6.8 correct answers. Men outscored women, 8.6 to 7.3, on average. Even when the report authors accounted for the fact that the men who took the survey had more years of education than the women, the gender gap remained, according to the report. The Pew researchers also found that whites did better on the test than Latinos or African Americans. Their average scores were 8.4, 7.1 and 5.9, respectively.

There are more atheists and agnostics entering Harvard than Protestants and Catholics - How religious are America’s best and brightest? A Harvard Crimson poll of the university’s class of 2019 provides a glimpse into the beliefs and practices of incoming freshman, including sex, politics and drug use. Some of the interesting findings included the religious breakdown, especially when compared to other millennials in the U.S. Harvard’s combined number of atheists and agnostics among its incoming class exceeds the number of Catholics and Protestants, as Pew Research Center’s Conrad Hackett noted. The number appears to be a striking contrast with the rest of the U.S. millennial population, those from ages 18 to 34. Pew’s survey suggested a decline in Christianity in the U.S., especially among millennials, though Harvard’s freshman still don’t appear to reflect the rest of millennials in the U.S. Among the general population in the U.S., 52 percent of millennials identify as Protestant or Catholic, according to Pew, compared to 34.1 percent of Harvard’s incoming class. And 13 percent of millennial Americans identify as atheist or agnostic, compared with 37.9 percent of Harvard freshmen who said they were atheist or agnostic. Part of the reason why American Christianity is on the decline is due to the number of people who don’t self-identify with a religion anymore. Pew also asks survey respondents if they are unaffiliated with faith, and 36 percent of them describe themselves as not affiliated with religion.

Wall Street Sugar Daddies in the Board Room and Bedroom, Perverting Higher Education -  New York University has devolved into a dystopian model of higher education reimagined by Wall Street knaves who serve on its Boards and their kingpin attorney, Martin Lipton, who has been NYU’s Board Chairman for 17 years. As the university has thrown million dollar pay packages and perks like vacation homes with forgivable loans at its President, John Sexton, and an elite group of faculty, students have been buried under debt by the likes of the serially charged and now admitted felon, Citigroup, and are turning to prostitution in increasing numbers to meet the obscene hidden fees and staggering tuition piled on their shoulders by NYU’s masters of the universe. It now costs over $240,000 for a four-year degree at NYU – a nonprofit university subsidized by the taxpayer. At a protest rally in Washington Square last Tuesday against NYU’s tyrannical conduct, you could have heard a pin drop when a young woman walked onto the stage with a mask covering her face to tell her story of being the first in her family to attend college and the first to have to turn to prostitution to pay the soaring tuition demanded by NYU. The NYU student read from a prepared statement, saying: “I learned at the dominatrix den and at the Tantra House, almost every single girl who worked there was a student struggling to pay for school or to pay off her crippling student loans. Some were Sarah Lawrence girls, some went to CUNY or Cooper Union, but the vast majority go to or went to NYU…We came to these universities to better ourselves, to work for a better life. No girl should have to sell herself to make that better life a reality.”

Trump University students say school was scam - When 75-year-old Robert Guillo hears candidate Donald Trump speak for “the silent majority” and promise to “put people back to work,” he has to laugh. Guillo is one of hundreds of former “students” of the now-defunct Trump University; an entity the New York attorney general says was a grand scam that put $5 million in Trump’s pocket. “Every single workshop, they charged you another amount. Everything was to get you to spend more and more and more.”  Instead, according to lawsuits filed in New York and California, “students” got repeat come-ons to run up credit card debt to buy increasingly expensive mentorships topping out at nearly $35,000 per person. Students were even advised to fudge their income to persuade credit card companies to increase their credit limits, the lawsuits charge. An internal Trump U. document titled “surefire script to more purchasing power” suggested deliberately inflating actual income by adding in “projected income” from businesses that did not yet exist. An internal Trump University document that advises students to fudge their income to get their credit card limits extended. Trump University application showing that the course cost $34,995. The New York attorney general says Trump University was a grand scam that put $5 million in Trump’s pocket.Previous Next Enlarge An internal Trump University document that advises students to fudge their income to get their credit card limits extended.Students were told to make up a name of this fictional business, but not to include “real estate” in its name. “Be vague,” the internal Trump U. document states. In the end, according to the lawsuits, hundreds of students saw their credit scores damaged — and worse.

New Data Gives Clearer Picture of Student Debt - We know the total number of borrowers and their combined debt — 40 million people owe $1.2 trillion — but beyond these headline numbers, the data has been frustratingly thin. Who borrows? Who defaults? Why are so many borrowers in distress? The answers have been unclear, leaving analysts and policy makers to prescribe remedies without an accurate diagnosis of the disease.But now the picture has become significantly sharper. On Thursday, two researchers — Adam Looney of the Treasury Department and Constantine Yannelis of Stanford University — released an analysis of a new database that offers much more detail. It matches records on federal student borrowing with the borrowers’ earnings from tax records (with identifying details removed, to preserve privacy). The data contains information about who borrows and how much; what college borrowers attended; their repayment and default; and their earnings both before and after college. And the data suggests that many popular perceptions of student debt are incorrect. The huge run-up in loans and the subsequent spike in defaults have not been driven by $100,000 debts incurred by students at expensive private colleges like N.Y.U. They are driven by $8,000 loans at for-profit colleges and, to a lesser extent, community colleges. Borrowing for both of these has become far more common in recent years. Mr. Looney and Mr. Yannelis estimate that 75 percent of the increase in default between 2004 and 2011 can be explained by the surge in the number of borrowers at those institutions.

For-Profit Schools Behind Big Rise in Student Loan Defaults, Paper Says - Student debt has tripled over the past decade and almost 7 million Americans have gone at least a year without making a payment on their federal student loans. The burgeoning numbers have raised alarms in Washington, on campuses and across kitchen tables as families weigh the costs and benefits of education. But new research suggests most of the rise in defaults isn’t from students attending traditional universities such as four-year public and private nonprofit colleges and grad schools. “To the extent there is a crisis, it is concentrated among borrowers from for-profit schools and, to a lesser extent, two-year institutions,”  The authors trace the biggest share of rising defaults to the growing number of what they call “nontraditional” borrowers. The number of such students climbed markedly when the recession hit, rising to represent half of all borrowers. Students at those institutions tended to come from lower-income families, while many of the schools offered relatively weak educations and middling job prospects upon graduation. “With poor labor market outcomes, few family resources, and high debt burdens relative to their earnings, default rates skyrocketed,” Messrs. Looney and Yannelis said. “Of all students who left school and who started to repay federal loans in 2011 and who had fallen into default by 2013, 70% were nontraditional borrowers.” Meanwhile, borrowers who graduated from four-year public and private nonprofit colleges in 2011 and started repaying their loans had a default rate of 7.7% in 2013.

Nearly one in three graduates would sell an organ to pay off student debt - Telegraph: From selling an organ to being a drug guinea pig, graduates are ready to do almost anything to clear their student debts. An American personal finance site, MyBankTracker, asked 200 of its users what steps they would take to get rid of student loans With respondents’ debts averaging $34,500 ( £22,345), the survey found that the burden of debt has made many graduates somewhat desperate. As many as 30 per cent said they would even sell an organ if it meant clearing their debt completely. Slightly more, 32 percent, were prepared to sign up for military service and 38 per cent said they would volunteer to be a human guinea pig in a drug trial. An even larger number said they would get rid of half of what they owned to be debt free, while 55 per cent would be prepared to endure the humiliation of turning their life into a reality show. Student debt is emerging as an issue in the presidential election. However earlier this year a study found that UK students were graduating with larger debts than their American counterparts.

Financial Times Joins the Party on CalPERS (and Links to Naked Capitalism)  - So, it’s not just Fortune and the Wall Street Journal; now it’s the FT piling on, but because Yves really is on vacation, the happy task of doing the happy dance falls to me. Here’s the scoop, from FT’s story headlined “Calpers’ support of private equity ‘propaganda’ slammed” this morning:  Joseph Jelincic, a board member of Calpers, which helps finance the retirement plans of teachers and firefighters, has sent a damning letter to Anne Stausboll, the pension plan’s CEO. He questioned the competency of Calpers’ investment staff regarding its private equity holdings.  Calpers employees were perpetuating the mythology of private equity managers by telling the board the fund was “receiving a better deal [from its private equity managers] than we actually are”, Mr Jelincic said.  NC readers will recall that Joseph Jelincic was the CalPERS board member who questioned Real Desrochers in the video for which Yves provided extensive exegesis last week. Some of the mythology that Jelincic was talking about showed up in a deck prepared by CalPERS staff: [JELINCIC: ] The [staff] presentation is good as far as it goes. It’s very high level. But one of the things that it did is that it assumed away the things like offsets and fee waivers and clawbacks and fund costs and preferred returns, which are all the areas that are creating the controversy. These are the areas where the SEC has said limited partners are getting ripped off, where the IRS has said it looks like taxpayers are getting ripped off. So how big is the rip off? How big are all those numbers that were “assumed away”? From the FT article, Oxford’s private equity expert Ludovic Phalippou: “Calpers’ total bill is likely to be astronomical. People will choke when they see the true number.”

CalPERS, an Anatomy of Capture by Private Equity  --Yves Smith - One of the strongest, most consistent reactions of experts who watched the video of the last meeting of CalPERS’ Investment Committee was that the staff and the Investment Committee members, save JJ Jelincic, were completely captured by the private equity industry. If you doubted that the video is representative of CalPERS’ or typical limited partner (LP) conduct, a former private equity partner cited other examples of how limited partners fail to act in their best interest:

• ¶ The investors are fiduciaries themselves but are delegating their fiduciary duty to parties (the PE firms) that demand the right to give priority to their own interests over those of their investors
• ¶ The LPs claim that they are powerless in the relationship with PE managers, even though they collectively provide all the capital
• ¶ The LPs actively resist public disclosure of PE bad practices contained in the LPs’ own records, even though disclosure would greatly promote the curbing of such bad practices
• ¶ LPs actively defend the PE managers in the claim claim that their limited partnership agreements are “trade secrets,” even though almost all of the details are now in their SEC Form ADV filings, except for various shenanigans that are used to trick the LPs

We have been writing about private equity abuses for over two years. We have also highlighted how little investors have done even after the SEC made clear that misconduct was both widespread and serious and included stealing. Other long-standing issues have similarly have been allowed to fester, like the widespread use of misleading measures of investment returns. When readers have grasped the extent and severity of these problems, they immediately want to know how the staff and trustees have been bought off. They find it inconceivable that such vendor-favorable results have occurred in the absence of payoffs. Yet that is precisely what has taken place.

CalPERS’ Chief Investment Officer Invokes False “Superior Returns” Excuse to Justify Fealty to Private Equity -  Yves Smith -  Although private equity limited partners offer plausible-sounding rationalizations for the many ways that they allow the general partners to extract fees from and shift risks onto them, one justification stands above others. The One Excuse That Rules Them All of private equity is that it is essential because it provides a level of returns that cannot be achieved elsewhere.  It does not reflect well on limited partners that this excuse is not even remotely true. Nevertheless, this justification is particularly potent, since both public and private pension funds have too often set return targets that made sense historically but have become increasingly unrealistic as prevailing interest rates have fallen and are now in negative real interest rate territory. As a result, many retirement plan sponsors like CalPERS are now desperate to make up for investment shortfalls.  If you believe that only one strategy (or set of strategies, such as private equity, hedge funds and infrastructure investments, which are often referred to as alternative investments or “alts”) provide outsized returns, and you are behind your targets, it then becomes imperative that you have meaningful investments in these strategies. Combine this need with the closed nature of private equity and you can see how private equity general partners prey on the limited partners’ fears. They play up the notion that the limited partners might be denied access to private equity funds if they get too uppity.*

Americans will fall short in retirement according to study – A new analysis indicates that Americans in nearly every state will fall far short in meeting their economic needs in retirement. The State Financial Security Scorecards research project gauges the retirement readiness of future retirees in each of the fifty states and the District of Columbia in three key areas: anticipated retirement income; major retirement costs like housing and healthcare; and labor market conditions for older workers. The research finds that the lowest ranking states include:

• California due to low potential retirement income, low workplace retirement plan access and high retiree costs.
• Florida due to high retiree costs, low wages for older workers and low workplace retirement plan access.
• South Carolina due to low potential retirement income and low labor market scores.

The highest-ranking states include Wyoming, Alaska, Minnesota and North Dakota due to their relatively strong labor markets and lower retiree costs. However, each of these states with a favorable outlook is weak in terms of potential retirement income for retirees. For example, North Dakotans have an average defined contribution retirement account balance of only $27,700 – nowhere near the level of accumulated savings required to ensure self-sufficiency through retirement.

Michael Hudson: Wall Street Parasites Have Devoured Their Hosts — Your Retirement Plan and the U.S. Economy -- The riveting writer, Michael Hudson, has read our collective minds and the simmering anger in our hearts. Millions of American have long suspected that their inability to get financially ahead is an intentional construct of Wall Street’s central planners. Now Hudson, in an elegant but lethal indictment of the system, confirms that your ongoing struggle to make ends meet is not a reflection of your lack of talent or drive but the only possible outcome of having a blood-sucking financial leech affixed to your body, your retirement plan, and your economic future. In his new book, “Killing the Host,” Hudson hones an exquisitely gripping journey from Wall Street’s original role as capital allocator to its present-day parasitism that has replaced U.S. capitalism as an entrenched, politically-enforced economic model across America. This book is a must-read for anyone hoping to escape the most corrupt era in American history with a shirt still on his parasite-riddled back.

Busting the Myths About Disability Fraud --  A recent blog post on a Republican threat to the Social Security disability fund elicited comments about disability fraud, implying that the fund is not worth protecting until ways are found to stop healthy people from gaming the system.There is fraud, no doubt. But there is no evidence it is rampant. The Center on Budget and Policy Priorities explains the disability system in an excellent policy brief. Disability claims are not skyrocketing. Rather, the population most likely to go on disability, those aged 50 to 64, is growing. The potential disability population is also larger now than in the past because today’s older women are more likely to have worked enough to qualify for disability than in earlier generations. In any event, demographic pressures have already begun to subside. Adjusted for demographic factors, the share of workers on disability has gone from slightly below 4 percent in 2000 to slightly above 4 percent in 2014.The solution to fraud in the disability system is not to make it more difficult to qualify for disability or to question the usefulness of the system itself. The United States already has stricter eligibility requirements and stingier benefits than in almost all other advanced economies, according to the Organization for Economic Cooperation and Development. The solution to fraud is to prevent and detect it. So what has Congress done? It has refused to give the Social Security Administration the money it needs to keep up with fraud detection and maintain customer service. Since 2010, the agency’s resources have declined in real terms, even as claims have increased due to the aging of the population.

House GOP can pursue part of health care lawsuit, judge rules - House Republicans can proceed with part of their lawsuit challenging how the Obama administration has carried out aspects of the president’s signature 2010 health care law, a federal judge ruled Wednesday. The decision from U.S. District Court Judge Rosemary M. Collyer represents a partial win for Republicans who have turned to the courts to try and rollback parts of Obamacare having failed to get enough votes to change the law through the legislative process. Collyer ruled that the House can sue the administration for spending money on new consumer health care subsidies that was not appropriated by Congress. But she also ruled that the House cannot pursue its claim that delays in enacting the health care law’s employer mandate violated the Constitution. “The mere fact that the House of Representatives is the plaintiff does not turn this suit into a non-justiciable ‘political’ dispute,” Collyer wrote. “Despite its potential political ramifications, this suit remains a plain dispute over a constitutional command, of which the Judiciary has long been the ultimate interpreter.” House Republicans filed their lawsuit challenging Obama’s executive actions in November. Criticized as a political ploy by Democrats, the lawsuit targeted two aspects of the health care law’s implementation: the delays in enacting the employer mandate, which requires most larger companies to offer health insurance, and the use of unappropriated funds for cost-sharing subsidies designed to alleviate out-of-pocket medical costs for people with lower incomes. Now, given the ruling, House Republicans are expected to move forward with the cost-sharing issue at the center of their legal challenge.

Oh boy. Here we go again. -- A district court in Washington, DC ruled Wednesday that the House of Representatives has standing to bring a lawsuit alleging that the Obama administration is spending federal money to finance the ACA, absent a congressional appropriation. As I’ve explained, the stakes of the lawsuit are high—not as high as King v. Burwell, but nothing to sniff at, either. The decision is not entirely unexpected. Judge Collyer signaled at oral argument that she was inclined to find that the House had standing. In her view, the House has an institutional interest in preserving its constitutional power of the purse. Whenever the president violates the Appropriations Clause, he gores the House’s constitutionally protected interest. In the judge’s view, that’s enough for a federal lawsuit.  But here’s the thing. This may be a fight about the Appropriations Clause, but it’s also a fight over whether—as the administration claims—an existing statute actually appropriates the money. The House may think it doesn’t, but the House’s job is to pass statutes, not to file lawsuits to determine their meaning. That’s why the courts have routinely rejected legislative efforts to sue the president over purported statutory violations. “Accepting the House’s position here,” as Walter Dellinger wrote a couple of weeks ago, “means opening the door to lawsuits whenever Congress and the president disagree over what a law means.”

Sanders: "End the Great American Drug Heist" - BillMoyers.com -  Americans pay the highest prices for prescription drugs in the world – even though taxpayer money supports much of the research that develops the drugs. Drug costs increased nearly 11 percent last year, more than double the rise in overall medical costs. This when prices generally were up less than 1 percent. One in five Americans, Sanders noted, don’t fill a prescription because of its cost. Lives are lost because drugs are too expensive.  As Sanders noted, we spent about 40 percent more on prescriptions in 2013 than they did in Canada, the industrial country with the second most expensive drugs. Our costs were nearly five times per person than those in Denmark. When they spend $20, we spend $100 on the same prescription. Think about that. And if nothing changes, it will get more ridiculous. Medicare projects that drug costs will continue to rise about 10 percent a year for the next decade. Millions more Americans will simply be unable to afford the drugs they need. This isn’t because drugs are expensive. This is because we are getting robbed. And we’re getting robbed because our politics is utterly corrupted. The drug companies have rigged the rules to make out like bandits.

Dementia Care: A Shift to Paid Support? - The economic burden of dementia care is already enormous, and will only rise further as the population ages. In "Improving Long-Term Care Dementia: A Policy Blueprint," a report for the Rand Corporation, authors consider what might be done to improve care. Let's start with a bit of background:  Dementia is a debilitating and progressive condition that affects memory and cognitive functioning, results in behavioral and psychiatric disorders, and leads to decline in the ability to engage in activities of daily living and self-care. In 2010, 14.7 percent of persons older than age 70 in the United States had dementia. With the expected doubling of the number of Americans age 65 or older from 40 million in 2010 to more than 88 million in 2050, the annual number of new dementia cases is also expected to double by 2050, barring any significant medical breakthroughs. Alzheimer’s disease, which accounts for 60 to 80 percent of dementia cases, is the sixth leading cause of death in the United States overall and the fifth leading cause of death for those age 65 and older. Additionally, recent research suggests that deaths attributable to Alzheimer’s disease might be underreported such that it could be the third leading cause of death overall. It is the only cause of death among the top ten in the United States without a way to prevent it, cure it, or even slow its progression. Dementia is already the medical condition that imposes the highest annual cost in terms of market cost of services provided, ahead of cancer and heart disease. These market costs don't include the costs of care provided by family and friends, which in the case of dementia could double the total costs.

California Senate Passes Nation’s Strictest Ban on Microbeads - The California State Senate passed AB 888 on Friday, banning personal care products containing plastic microbeads. The bill’s amendments need to be approved by the State Assembly and, if passed, it will head to Gov. Brown’s desk. If the bill is approved and signed by the governor, as expected, it would become the nation’s most stringent microbeads ban yet—preventing 38 tons of plastic pollution from entering California’s waterways every year, according to 5 Gyres Institute. The bill “prohibits, on and after January 1, 2020, selling or giving away personal care products—like soaps, toothpastes and body washes—containing plastic microbeads, in California,” says Surfrider Foundation, which advocated for the bill’s passage. The legislation has the support of 5 Gyres Institute, Californians Against Waste, Story of Stuff Project, Clean Water Action, California Association of Sanitation Agencies and more than 75 environmental and health advocacy organizations, clean water agencies and green businesses throughout California.  “Toxic microbeads are accumulating in our rivers, lakes and oceans at alarmingly high levels. We can and must act now,” Richard Bloom, assembly member and author of the bill, told Mother Jones. “Continuing to use these harmful and unnecessary plastics when natural alternatives are widely available is simply irresponsible and will only result in significant cleanups costs to taxpayers who will have to foot the bill to restore our already limited water resources and ocean health.”

California Becomes First State to Label Monsanto’s Roundup as a Carcinogen -- In a first for the country, California’s Environmental Protection Agency (Cal/EPA) has issued plans to list glyphosate—the toxic active ingredient in Monsanto’s Roundup herbicide—as known to cause cancer. According to a “notice of intent” issued last week by the Cal/EPA’s California’s Office of Environmental Health Hazard Assessment (OEHHA), the effort falls under California’s Proposition 65, in which the state is required to publish a list of chemicals known to cause cancer or birth defects or other reproductive harm. The same law, otherwise known as the Safe Drinking Water and Toxic Enforcement Act of 1986, also requires that certain substances identified by the International Agency for Research on Cancer (IARC)—the World Health Organization’s cancer arm—be listed as known to cause cancer. The state agency’s Sept. 4 announcement follows a classification of glyphosate by the IARC as “probably carcinogenic to humans” in March. “Case-control studies of occupational exposure in the USA, Canada, and Sweden reported increased risks for non-Hodgkin lymphoma that persisted after adjustment for other pesticides,” the IARC said about the herbicide. There is also “convincing evidence” that it can cause cancer in laboratory animals. It appears that California is the first state in the country to make this assessment about the controversial chemical, according to Dr. Nathan Donley, a scientist at the Center for Biological Diversity.“As far as I’m aware, this is the first regulatory agency in the U.S. to determine that glyphosate is a carcinogen,”

A boring post with quiet opinions about GMOs --- Here is a forlorn too-boring-to-notice list of quiet positions on recent Genetically Modified Organism (GMO) controversies.
1. I never say "GMOs are safe." Not all GMO traits are safe. The most widely-used GMO trait in American agriculture is the "Roundup Ready" or "glyphosate-resistance" trait, which allows farmers to apply the pesticide glyphosate to corn and soybeans. This pesticide is generally thought to be safer than many others. Yet, GMO technology has encouraged such rapid increases in its use that here are strong concerns about environmental consequences (pesticide resistance) and less settled but still relevant concerns about health consequences (cancer risk).
2. I never say "GMOs are dangerous."The fact that a technology is GMO does not make it dangerous. For example, a second major GMO trait is the "Bt" trait, which allows crops to produce the Bt toxin. Bt is widely thought to be harmless for vertebrates, and so natural that it is permitted in "organic" production. You may choose to worry or not worry about Bt. If you do worry, you should avoid both GMO food and organic food.
3. I do not support mandatory GMO labels.  The "Just Label It" campaign and other anti-GMO organizations seldom emphasize the mandatory character of their labeling proposals. A mandatory labeling proposal is not just about meeting the needs of curious consumers. It also is about using the government's own authority to stand behind the value of distinguishing between GMO and non-GMO foods.
4. I do not support stripping states of labeling authority.  Congress should not pass a law, which critics have called the "DARK" act, to strip states of the authority to pass a mandatory GMO label. The proposed law really is undemocratic, and its sponsors corroborate every wild claim ever made by GMO critics. For example, the DARK act's supporters repeat endlessly the claim that GMOs are safe (see #1 above). The "Just Label It" campaign wishes to frame the debate not as a question of government enforcement of a dubious distinction, but instead as a question of our "right to know what is in our food." There is no better way to justify that framing than to try to take away state rights to inform people about what is in their food.

French Court Finds Monsanto Guilty of Chemical Poisoning -- An appeals court in Lyon, France has upheld a 2012 ruling against Monsanto, in which the agribusiness giant was found guilty of the chemical poisoning a farmer named Paul François. The grain grower said that in 2004 he became ill due to Monsanto’s weedkiller, Lasso. François claimed he suffered from neurological problems, memory loss, headaches and stammering after inadvertently inhaling the herbicide. In François’ case, doctors determined the cause of his ill health was monochlorobenzene, a highly toxic substance that made up 50 percent of Monsanto’s herbicide, according to teleSUR. The substance sent François to the hospital, where he entered in a coma. Subsequent tests showed that the farmer suffered permanent brain disease, teleSUR reported. In 2012, he filed suit against Monsanto for not providing a warning on the product label and won. Monsanto appealed the decision shortly after. Yesterday’s ruling, however, stamps another victory for the farmer. The appeals court said Monsanto was “responsible” for the intoxication and ordered the company to “fully compensate” François, Reuters reported. “It is a historic decision in so far as it is the first time that a (pesticide) maker is found guilty of such a poisoning,”

China to investigate illegal domestic GMO crops -ag ministry (Reuters) – China will launch a nation-wide investigation over the suspected illegal cultivation of genetically-modified (GMO) crops, the agriculture ministry has posted on its website. The investigation follows a report by an official financial newspaper this week that GMO soybeans have been found in the country’s top growing area for the oilseed. China is the world’s top buyer of GMO soybeans, but Beijing has not given the go-ahead for domestic cultivation of GMO crops, although it has spent billions on research. However, some farmers in the northeast province of Heilongjiang are growing GMO soy crops illegally to seek higher yields, the China Business Journal reported this week. The report identified an area near the city of Suihua where GMO crops are allegedly being grown, but did not give any further details. The local Heilongjiang agricultural commission has said on its website that it would also investigate whether GMO crops are being grown in the province. Opponents of genetically-modified corps have long accused China’s agriculture ministry of poor supervision of GMO crops under trials, saying seeds have been sold to farmers for cultivation. Former CCTV anchor Cui Yongyuan told reporters last year that GMO rice was grown in some 20 Chinese provinces. Heilongjiang, which produces about one third of the country’s total soybean output, is known for growing protein-rich non-GMO soy crops used to make food products, including tofu and soy sauce.

Food prices record biggest monthly drop in seven years - FT.com: Food prices have registered the largest monthly fall in seven years as the sell-off in commodities, good harvests, and concerns about China’s economic growth depressed agricultural markets across the board, according to the UN Food and Agriculture Organization. The FAO’s monthly food index in August fell 5.2 per cent from the month before, the steepest monthly drop since December 2008. The index is now at its lowest level since April 2009. A separate FAO report on supply, demand and inventories of grains and cereals showed that the pressure on prices would likely continue. The ratio of wheat inventories to consumption is forecast to rise to a four-year high of 28.3 per cent from 27.9 per cent the year before thanks to good harvests and lower demand from importing countries. Wheat production is expected at 728m tonnes, falling slightly from the year before. “Bigger crops in Australia, the EU, the Russian Federation and Ukraine, due to larger than anticipated plantings and favourable weather, more than offset a downgrade in Canada, where major growing areas continued to be affected by dry conditions,” the report said. On the demand side, faced with large domestic supplies, wheat purchases by Iran are likely to be cut sharply in 2015/16, possibly to their lowest level in four years, the FAO predicted. Bumper crops in Morocco and Turkey are also predicted to lead to “significantly less” imports this season. Global inventories of coarse grains, which include corn and barley, are forecast to reach an all-time high of almost 272m tonnes in 2016. The EU is importing more than expected levels of corn after weather-related damage, but China is expected to import less corn, barley and sorghum while Iran and Mexico are also likely cut their coarse grain purchases.

Court Rules Pesticide That’s Been Found To Harm Bees Is No Longer Approved In The U.S. -- A certain pesticide that’s been found to harm bees is no longer approved for use in the United States, after a federal appeals court struck down the Environmental Protection Agency’s authorization of it Thursday.   The 9th U.S. Circuit Court of Appeals found that the EPA shouldn’t have signed off on Dow AgroSciences’ sulfoxaflor, which is sold under the brand names Transform and Closer, because it didn’t seek necessary, additional tests on it.  “Because the EPA’s decision to unconditionally register sulfoxaflor was based on flawed and limited data, we conclude that the unconditional approval was not supported by substantial evidence,” the court’s opinion reads. “We therefore vacate the EPA’s registration of sulfoxaflor.” Because existing tests found that the pesticide — which is part of a broad class of insecticides called neonicotinoids — was toxic to bees, letting sulfoxaflor stay approved would have been dangerous for the environment, Circuit Judge Mary Schroeder said. “In this case, given the precariousness of bee populations, leaving the EPA’s registration of sulfoxaflor in place risks more potential environmental harm than vacating it,” she wrote. Sulfoxaflor was approved in 2013 for use on a variety of crops, including citrus, potatoes, soybeans, and strawberries. But soon after, a group of U.S. beekeepers sued the EPA, calling on it to rescind the registration because of the pesticide’s toxicity to bees and other pollinators. This court decision was in response to the case.

Parasitized bees are self-medicating in the wild, Dartmouth-led study finds   - Bumblebees infected with a common intestinal parasite are drawn to flowers whose nectar and pollen have a medicinal effect, a Dartmouth-led study shows. The findings suggest that plant chemistry could help combat the decline of bee species.  The researchers previously found in lab studies that nectar containing nicotine and other natural chemicals in plants significantly reduced the number of parasites in sickened bees, but the new study shows parasitized bees already are taking advantage of natural chemicals in the wild. Colony collapse disorder among bees has drawn much attention in recent years, but parasites are a common natural cause of disease in bumblebees and honeybees, both of which play a vital role in agriculture and plant pollination. The intestinal parasite the researchers looked at can strongly affect their survival, reproduction and foraging behavior. The researchers studied the effects of a group of plant secondary metabolites found naturally in floral nectar -- iridoid glycosides -- on bumblebee foraging and plant reproduction. Iridoid glycosides can deter deer and other herbivores, but the researchers' earlier studies showed the compounds have a medicinal effect on parasitized bees by reducing their parasite load.

Honey isn’t as healthy as we think - Honey has an aura of purity and naturalness.  High-fructose corn sweetener? Not so much.  But a study published this month compared the health effects of honey and the processed sweetener and found no significant differences. “The effects were essentially the same,” said Susan K. Raatz, a research nutritionist at the USDA who conducted the study with two colleagues. The belief that HFCS may be harmful - linked to obesity or diabetes - has helped sink consumption of HFCS over the last ten years. Researchers at the USDA decided to put that belief to the test. The honey industry, likely hoping that that honey's suspected health benefits might be proven, helped fund the effort. The researchers gave subjects daily doses of each of three sweeteners - honey, cane sugar and high-fructose corn sweetener - for two weeks at a time. They then compared measures of blood sugar, insulin, body weight, cholesterol and blood pressure in the 55 subjects. The researchers found that the three sweeteners basically have the same impacts. Most measures were unchanged by the sweeteners. One measure of a key blood fat, a marker for heart disease, rose with all three. “Honey is thought of as more natural whereas white sugar and high fructose corn syrup are processed from the cane or the beet or the corn,” said Raatz, whose paper appears in the Journal of Nutrition. “We wanted to find out if they were different. But chemically, they are very, very similar, and that’s what it seems to break down to.”

The Fight to Save a Prairie Chicken -  The prairie chicken has urgently needed help for some time. Almost a million of them once roamed the coastal prairie of Texas and Louisiana. But by 1919, the birds had disappeared from Louisiana, and in 1967, with only 1,070 left, the chicken, in fact a type of grouse, was listed as endangered.Cont Since then, its numbers have declined precipitously, despite a vigorous captive breeding program and painstaking efforts to protect young chicks in the wild. In 2002, the yearly count of the birds by the federal Fish and Wildlife Service, which runs the refuge, dipped to 40, an all-time low. This year’s total was 104.Endangered species around the world now number in the tens of thousands: The International Union for Conservation of Nature lists almost 23,000 plants and animals as threatened with extinction, from charismatic mega-fauna like giant pandas and polar bears to insects and plants that few people have ever heard of. But the Attwater’s prairie chicken, named for the Texas conservationist Henry Philemon Attwater, is a sobering example of how difficult it can be to recover a species once its numbers have dwindled to perilous lows and its natural habitat has been largely destroyed. For decades, the scientists attempting to rescue the Attwater’s have negotiated a seemingly endless course of obstacles, solving one problem only to confront a host of others. Times of heady optimism, when the prairie chickens seemed to be increasing, have been followed by harsh disappointment, as the count once again plummeted.

Carbon Cuts So Sharp Even California Democrats Are Divided - With President Obama back from a trip to Alaska in which he portrayed the fight against climate change as an urgent international priority, California is showing how hard it can be — even in a state overwhelmingly controlled by Democrats — to get an ambitious carbon reduction bill passed.The state has been at the forefront of global efforts to battle greenhouse gases, enacting mandates to force sharp reductions in emissions over the next 35 years. Its environmental record was applauded by Mr. Obama last week, and Pope Francis invited Gov. Jerry Brown to discuss the fight against global warming in the Vatican this summer.But a centerpiece of California’s long-term campaign against emissions — legislation requiring a 50 percent reduction in petroleum use by Jan. 1, 2030 — has set off a fierce battle here, pitting not only a well-financed oil industry against environmentalists, but Democrat against Democrat. The bill easily passed the Senate, but it is faltering in the Assembly because of opposition by moderate Democrats, many representing economically suffering districts in central California. A vote is expected early this coming week.The legislation faces an onslaught by the Western States Petroleum Association and other oil industry advocates that, in ads and mailings, assert that a 50 percent cut in petroleum use could result in gas rationing and a ban on minivans. “This law will limit how often we can drive our own cars,” a narrator in one advertisement says urgently, an assertion the bill’s sponsors say is groundless. The oil industry has tagged the bill “the California Gas Restriction Act of 2015.”

California Lawmakers Abandon Key Part Of Climate Legislation, Blaming Oil Industry Lobbying  -- California Democrats dropped a major component of their ambitious climate change legislation Wednesday, after a group of moderate Democratic holdouts threatened to spell the end for the bill. The legislation affected was Senate Bill 350, which originally aimed for a 50 percent reduction in petroleum use in cars and trucks, a 50 percent increase in energy efficiency in buildings, and a goal of 50 percent of state utilities’ power coming from renewable energy, all by 2030. On Wednesday, lawmakers scrapped the goal of a 50 percent reduction in petroleum use in cars and trucks. California Senate President Pro Tem Kevin de León, who authored the legislation, said Wednesday that a major lobbying campaign by the oil industry was largely to blame for the doubt that had emerged over the bill. “The fact that, despite overwhelming scientific opinion and statewide public support, we still weren’t able to overcome the silly-season scare tactics of an outside industry which has repeatedly opposed environmental progress and energy innovation — means that there’s a temporary disconnect in our politics which needs to be overcome,” de León said.  The oil industry has poured money into a campaign against SB 350, calling the legislation the “California Gas Restriction Act of 2015″ and warning that it could lead to bans on SUVs.

4 States Likely to See the Hottest Year Ever - It’s already shaping up to be the hottest year on record globally, and it’s certainly been a scorcher for the U.S. as well. The latest data from the National Oceanic and Atmospheric Administration (NOAA) found that the contiguous U.S. had its 12th warmest summer on record and its ninth warmest year to date in the last 121 years. Washington, Oregon, Nevada and California had their record warmest January-August. Fifteen other states saw “much above average” or “above average” temperatures. Photo credit: NOAA  Washington and Oregon even had their warmest summers ever as the Pacific Northwest battled record heat and Washington dealt with its largest fire in state history. Those two states, along with California and Nevada, recorded their warmest January to August, and are poised to see their hottest years ever, according to NOAA. “I think it’s likely that 2015 will set the record for the warmest year on record for WA State,” Karin Bumbaco, assistant state climatologist for Washington, told Climate Central. “Even if the rest of the year were simply average temperature-wise, 2015 would surpass the current record-holder of 1934 by 0.5°F,” she said, and with one of the strongest El Niños on record, it is very likely that temperatures will remain above normal for the rest of the year. Alaska had its second-warmest January to August on record. Montana, Idaho, Wyoming, Colorado, Utah, New Mexico, Arizona and Florida all had “much above average” temperatures for January to August. The record warmth, coupled with record dryness has created conditions for what might yet be the worst wildfire season on record—with no sign of relief anytime soon.

2015 El Niño produces new climate record: 3 simultaneous Pacific category 4 hurricanes -- Small Island States don’t (yet*) make global headlines, but this NASA picture shows a new Pacific climate record, which has a story for us all. On August 29 2015 NASA satellites shot the above picture of 3 tropical storms in the more or less the same path across the North Pacific that at one point all had category 4 hurricane strength at the same time. This simultaneous occurence of three major hurricanes across the same ocean basin has never been seen before. But although it dramatically influenced surface conditions across a big chunk of our globe, not many people live there, so no one really paid much attention.  It’s not that clever though from world media to ignore the news: the hurricane record was fuelled by something that will definitely make global headlines later this season: the 2015 super El Niño. Climatologists and meteorologists agree that the three consecutive Pacific hurricanes originated over the (nothern part) of the current tropical Pacific warm water anomaly. Over August this El Niño has already increased considerably in strength. But looking at the dynamical climate models this increase is set to continue over the months ahead, possibly doubling to record-strength by November, judging by NASA’s model.

Current El Nino climate event 'among the strongest' -  The current El Nino weather phenomenon could be one of the strongest on record, according to the World Meteorological Organization (WMO). The event occurs when the waters of the Pacific become exceptionally warm and distort weather patterns around the world. Researchers say parts of the Pacific are likely to be 2C warmer than usual. The WMO says that this year's event is strengthening and will peak by the end of this year. The strongest El Nino on record was in 1997-98, but there were events that were significantly above the norm in 1972-73 and again ten years later in 1982-83. Scientists say that the event now underway is sending sea temperatures in parts of the Pacific to levels not seen since the late 1990s. In a statement the WMO said that this El Nino was gathering strength. "Models and expert opinion suggest that surface water temperatures in the east-central tropical Pacific Ocean are likely to exceed 2C above average, potentially placing this El Nino event among the four strongest events since 1950," it said. The WMO says that patterns of cloudiness and rainfall near the international dateline developed during the second quarter of this year and have been well maintained. These patterns are considered essential in triggering El Nino's global climate impacts which are more likely to be felt over the next six to eight months.

Feds upgrade El Nino to strong, but not as big as 1997-98: — Federal forecasters upgraded this year's El Nino to an unusual strong status, but said it's probably not a record breaker or drought buster. Mike Halpert, deputy director of the federal Climate Prediction Center, said the current worldwide weather shifting event doesn't match the monster El Nino of 1997-1998, nor is it likely to. With even warmer waters in the central Pacific in August, the hottest in more than 17 years, the prediction center moved the El Nino up from moderate status. So far the El Nino is the third strongest on record, behind 1997-98 and a weird one in 1987-88 that peaked early. Meteorologists said strong El Ninos usually dump heavy rains on southern California, but its four-year water deficit is too big to be erased in one wet winter.

Will predicted El Nino quench NW drought's thirst? -- - A bone-dry summer is ending -- leaving many looking to the skies to see if winter will replenish what's been lost."It could be devastating, if it's below average," Deschutes Basin Watermaster Jeremy Giffin said Wednesday. "Next year could be really bad." Giffin is talking about desperately needed snow and rain. A new NASA study shows Oregon is the driest state in the country, with nearly 70 percent of the region in extreme drought. Jefferson, Crook and Deschutes counties were granted drought disaster declarations and state of emergency status earlier this year. Reservoirs around the High Desert are low, and streams are now trickling. But Mother Nature just may show some mercy. There are predictions of a strong El Nino to bring a wet winter. "We are hopeful that it does spring some extreme precipitation events -- which would definitely help fill those reservoirs," Giffin said. "But it's a little gray (area) to how that's going to spell out for us this winter." The bad news: It likely will not be enough. "We're seeing Wickiup Reservoir the lowest it's been in over 20 years," Giffin said. The water sits at just 10 percent of average --the result of several years of drought. "The Deschutes River basin is largely spring-fed -- much like a large sponge. And it would take several years of above-average precipitation to fill that sponge back up," Giffin said.

Fires in West Have Residents Gasping on the Soot Left Behind - — The air in the San Joaquin Valley hangs thick with gray-brown dust, a result of the state’s largest fire, which has burned through more than 160 square miles in the nearby hills.The fire has so far spared lives and homes. But it has exposed one of the obscured effects that four years of record drought has unleashed here: dangerous drops in air quality that exacerbate public health problems in this region and threaten to choke the quality of life.“With the fire, even with my inhaler, I’m still wheezing,” Antoinette Wyer, 48, an asthmatic who has lived her whole life here, said at a health clinic on Wednesday. She has kept her 3-year-old grandson inside this week, while a 4-year-old grandson has stayed home from school.The dreadful conditions here — with temperatures soaring over 100 degrees, dry brush everywhere and a miasma of bad air — seem likely to become more common throughout the Western States, where the fire season is shaping up as a record one. This summer, residents of Denver grappled with air pollution that had wafted down from wildfires in Canada; throughout the West, a big blaze in one place can be felt many miles away. In Fresno County, elementary schoolchildren have been kept inside during recess this week because of the soot in the air that blots out the sun, and the Clovis school district may cancel a football tournament this Saturday for the same reason. Public health officials are warning people with heart and lung problems to stay inside. And asthma clinics around Fresno are overflowing with new patients. Normally, particulate matter levels in the air spike in the winter but drop during the summer, said Seyed Sadredin, the executive director of the San Joaquin Valley Air Pollution Control District. But since the drought began, the volume of particles in the air has been spiking year-round, for a variety of reasons: Rain does not clear the air; dust from dry, fallow fields and from farmers digging wells kicks up more easily; and the longer wildfire season means more smoke in the air more often.

Drought’s lasting impact: Forests across the planet take years to rebound from drought, storing far less carbon dioxide than assumed in climate models – In the virtual worlds of climate modeling, forests and other vegetation are assumed to bounce back quickly from extreme drought. But that assumption is far off the mark, according to a new study of drought impacts at forest sites worldwide. Living trees took an average of two to four years to recover and resume normal growth rates after droughts ended, researchers report today in the journal Science. [“Pervasive drought legacies in forest ecosystems and their implications for carbon cycle models”]  “This really matters because in the future droughts are expected to increase in frequency and severity due to climate change,” . “Some forests could be in a race to recover before the next drought strikes.”  Forest trees play a big role in buffering the impact of human-induced climate change by removing massive amounts of carbon dioxide emissions from the atmosphere and incorporating the carbon into woody tissues. The finding that drought stress sets back tree growth for years suggests that Earth’s forests are capable of storing less carbon than climate models have calculated.  The rate of recovery from drought is largely unknown for the vast majority of tree species. Anderegg and colleagues carefully measured the recovery of tree stem growth after severe droughts since 1948 at more than 1,300 forest sites around the earth using records from the International Tree Ring Data Bank. Tree rings provide a convenient history of wood growth and track carbon uptake of the ecosystem in which the tree grew.  The researchers found that a few forests showed positive effects, that is, observed growth was higher than predicted after drought, most prominently in parts of California and the Mediterranean region. But in the majority of the world’s forests, trees struggled for years after experiencing drought.

Global count reaches 3 trillion trees -- There are roughly 3 trillion trees on Earth — more than seven times the number previously estimated — according to a tally¹ by an international team of scientists. The study also finds that human activity is detrimental to tree abundance worldwide. Around 15 billion trees are cut down each year, the researchers estimate; since the onset of agriculture about 12,000 years ago, the number of trees worldwide has dropped by 46%. “The scale of human impact is astonishing,” says Thomas Crowther, an ecologist now at the Netherlands Institute of Ecology in Wageningen who led the study while at Yale University in New Haven, Connecticut. “Obviously we expected humans would have a prominent role, but I didn’t expect that it would come out as the as the strongest control on tree density.” The previously accepted estimate of the world’s tree population, about 400 billion, was based mostly on satellite imagery. Although remote imaging reveals a lot about where forests are, it does not provide the same level of resolution that a person counting trunks would achieve. Crowther and his colleagues merged these approaches by first gathering data for every continent except Antarctica from various existing ground-based counts covering about 430,000 hectares. These counts allowed them to improve tree-density estimates from satellite imagery. Then the researchers applied those density estimates to areas that lack good ground inventories. For example, survey data from forests in Canada and northern Europe were used to revise estimates from satellite imagery for similar forests in remote parts of Russia.

We Might Be Near Peak Environmental Impact - Justin Fox -- The Northeastern U.S. is full of forests these days, and those forests are increasingly full of bears, coyotes and other wildlife. This probably would have seemed inconceivable 150 years ago, when the region’s trees were being clear-cut to oblivion. Forested acreage has been increasing in the Northeast since the early 20th century, according to the U.S. Forest Service.    Similar trends have been playing out in temperate zones around the world. Deforestation in the tropics is still outpacing reforestation elsewhere, but worldwide losses of forested acreage have slowed. Focusing on wood may seem a little retro, but the above chart comes from a report out this week that suggests that its trajectory is a precursor of what is to come for other natural resources and environmental indicators. It is now conceivable that the human race will reach “peak impact” before the end of this century, authors write in “Nature Unbound: Decoupling for Conservation.” The decoupling to which they refer is a breaking of the link between economic and population growth on the one hand and resource use on the other. Some decoupling indicators from the report: The per-capita farmland requirement (cropland and pasture) has declined by half in the last half-century. In absolute terms, cropland has expanded 13 percent and pasture 9 percent in that time period, but the sum of the two has remained stable since the mid-1990s. … Total water consumption increased by 170 percent between 1950 and 1995, but per-capita water consumption peaked around 1980 and declined thereafter. The least decoupled environmental impact is greenhouse gas emissions from energy: global per-capita emissions increased by nearly 40 percent between 1965 and 2013.

Europe is parched, in a sign of times to come -- Europe has undergone a severe drought this summer, the worst in over a decade. Temperatures have been high across the continent, and have combined with low rainfalls. This drought, like the one in 2012 in the United States, are a sign of what our future holds in a warming world.As humans emit greenhouse gases, the world warms. We already know that. But a warming world is also host to other changes. Among the most important changes are those to the water cycle. Scientists refer to this as the hydrological cycle – basically changes to the storage of water in the soil and underground, the evaporation of water into the atmosphere, and the subsequent rainfall and runoff that occurs.  A warmer atmosphere can hold more moisture, as people know through the personal experience of high humidity in warm months. Changes to humidity have been measured over the past decades and confirm our expectations. These changes lead to increased rainfall. At the same time, higher temperatures accelerate evaporation, which dries out the soil and plants and can create drought conditions.  We see then that competing factors are in play. On the one hand, we expect there to be more intense rainfall. On the other hand, we expect more drying. Which process wins depends on where you live. The prevailing view is that areas which are currently wet will become wetter. Areas that are currently dry will become drier. Finally, rainfall will occur in heavier doses. A recent report has been released about current conditions in Europe and in particular, on the 2015 heat wave and drought. The organization (European Drought Observatory) has an online report which is easy to obtain and read here.

5 Trillion Tons of Ice Lost Since 2002 --- I’ve been writing about what global warming means to our planet and to us for a long time now. A critical concern for this is the loss of land ice in Antarctica and Greenland, for many reasons. One is that it's a bellwether for our poles, a preview of what it means as we turn up the global thermostat. Another is that it contributes to sea level rise, which has been moving upward for quite some time now. But land ice loss is perhaps most important as a political trigger; the sheer amount of land ice being lost every year is immediate, here, now. And the numbers are staggering: Using data from the GRACE satellites launched in 2002, scientists measured that the Antarctic ice sheet is losing 134 billion metric tons per year, and Greenland is losing 287 billion tons per year.  Perhaps a change in perspective is called for. Those rates quoted are horrific, but what do they mean for the total ice lost from those two regions? On Wednesday, NASA posted the graphs above on its climate change website, and that hammered home just what 420 billion tons of ice melting annually means when looking back into the recent past. From 2002 to mid-November 2014—less than 13 years—the combined land ice loss from Antarctica and Greenland is more than 5 trillion tons. Five. Trillion. Tons. That’s beyond staggering; that’s almost incomprehensible. It’s a volume of about 5,700 cubic kilometers, a cube of ice nearly 18 kilometers—more than 11 miles—on a side. Place that cube on the ground, and the top of it would be above 90 percent of the Earth’s atmosphere, reaching twice the height of Mount Everest.

Jason Box: Earth's Ice Is Melting Much Faster Than Forecast. Here's Why That's Worrying -  Somehow all marine-terminating glaciers across the southern half of Greenland doubled in speed simultaneously between 2000 and 2005.  We didn't yet know why.  In the meantime, scientists tried defining a plausible upper limit for the contribution to sea level rise from Greenland's ice. That was at a time when surging glacier speeds -- ice flow -- was thought to be the dominant conveyer of ice loss, and would be for the foreseeable future. Well, surprise! It became clear that for six years in a row, starting in 2007, ice loss from surface meltwater runoff took over the lead position in the competition for biggest loser.  [This was something I thought privately at the time -- that this must occur eventually, but I did not imagine that it would occur so soon. I never bought into the idea that the topography was a limit on glacial outflow and thus would restrain Greenland's contribution to sea level rise.] From 2007 to 2012, nearly each summer set higher and higher melt records, owing to persistent and unforeseen weather that by 2012 would become a signature of climate change. The competition between how much ice is lost through glacier flows into fjords versus meltwater runoff is intimately synergistic with meltwater interacting with ice flow all along the way. Increasing melt sends more water down through the ice sheet, softening the ice so it flows faster. Once at the bed the water lubricates flow. Squirting out the front of glaciers into the sea, the meltwater drives a heat exchange that undercuts glaciers, promoting calving, loss of flow resistance and faster flow. Put it this way: in Washington, DC, to know what's happening, you follow the money; in Greenland you follow the meltwater.Glaciologists became oceanographers when they realized, in 2008, the trigger effect for galloping glaciers was warm pulses of subtropical waters that undermine glaciers at great depth in the sea, at the grounding lines where this warm water can invade.

Frankenvirus emerges from Siberia's frozen wasteland : Scientists said they will reanimate a 30,000-year-old giant virus unearthed in the frozen wastelands of Siberia, and warned climate change may awaken dangerous microscopic pathogens. Reporting this week in the flagship journal of the US National Academy of Sciences, French researchers announced the discovery of Mollivirus sibericum, the fourth type of pre-historic virus found since 2003 -- and the second by this team. Before waking it up, researchers will have to verify that the bug cannot cause animal or human disease. To qualify as a "giant", a virus has to be longer than half a micron, a thousandth of a millimetre (0.00002 of an inch). Mollivirus sibericum -- "soft virus from Siberia" -- comes in at 0.6 microns, and was found in the permafrost of northeastern Russia. Climate change is warming the Arctic and sub-Arctic regions at more than twice the global average, which means that permafrost is not so permanent any more.  "A few viral particles that are still infectious may be enough, in the presence of a vulnerable host, to revive potentially pathogenic viruses," one of the lead researchers, Jean-Michel Claverie, told AFP. The regions in which these giant microbes have been found are coveted for their mineral resources, especially oil, and will become increasingly accessible for industrial exploitation as more of the ice melts away. "If we are not careful, and we industrialise these areas without putting safeguards in place, we run the risk of one day waking up viruses such as small pox that we thought were eradicated," he added.

Rising seas threaten to flood launch sites, NASA says - At Kennedy, the starting point for almost every NASA human space flight, the launch pads and buildings sit just a few hundred feet from the Atlantic Ocean. The same is true at Wallops Flight Facility in Virginia, an active rocket launch site for NASA's science and exploration missions.Langley Research Center is on the Back River in Hampton, Virginia, near the mouth of Chesapeake Bay. Ames Research Center borders the south end of the San Francisco Bay. Johnson Space Center in suburban Houston sits on Clear Lake, an inlet of Galveston Bay. All of them stand between 5 and 40 feet above mean sea level -- higher, actually, than NASA's Michoud Assembly Facility in New Orleans, which sits below sea level behind earthen levees. After Hurricane Katrina, Michoud employees had to pump more than a billion gallons of water out of the facility, NASA says. Most of Kennedy, NASA's flagship launch site, is built on coastal marshland about 5 to 10 feet above sea level. The high-tide line there has been moving landward for some time, and NASA says conservative climate models project that the sea level off Kennedy will rise 5 to 8 inches by the 2050s. "Kennedy Space Center may have decades before waves are lapping at the launch pads," coastal geologist John Jaeger of the University of Florida said in NASA's post. "Still, when you put expensive, immovable infrastructure right along the coast, something's eventually got to give."

GOP ready to attack Obama's climate agenda -  Congress comes back from its month-long break ready to tackle a number of landmark energy initiatives, starting with an assault on President Obama's climate change plans. Senate Majority Leader Mitch McConnell of Kentucky is expected to make stopping the Environmental Protection Agency's Clean Power Plan a top agenda item in the fall, according to congressional aides.

McConnell has been an outspoken opponent of the climate change plan, which he says will place increased strain on the economy by driving up energy prices. The plan puts states on the hook for eliminating one-third of their greenhouse gas emissions by 2030. The Republican leader, who hails from a large coal-producing state, says the reduction in emissions is unachievable. The EPA plan is the centerpiece of President Obama's climate change agenda, which is being contested by more than a dozen state attorneys general, including from McConnell's home state. Two legislative measures are being looked at to block the climate plan:

• • The Senate Environment and Public Works Committee passed a bill introduced by Sen. Shelley Moore Capito, R-W.Va., called the Affordable Reliable Energy Now Act, which would delay the Clean Power Plan until it has survived all its court challenges. It also gives states the ability to opt out of the plan if they find the EPA rule will increase rates for consumers or harm the electric grid.
• • Second, the Senate is considering a "resolution of disapproval" using the Congressional Review Act, which enables Congress to block a regulation if a majority of lawmakers sign onto the resolution.The Justice Department told federal judges Aug. 31 that it will be months before the EPA rule is published in the Federal Register. That could mean action to counter the Clean Power Plan may occur at the end of the year when President Obama is in Paris to negotiate a global deal on climate change. The plan is seen as key to the U.S. meeting its obligations under any international deal.

At UN climate talks, growing frustration at "snail's pace"  (Reuters) - The "snail's pace" of progress on an agreement to combat climate change caused widening unease at U.N. negotiations on Friday, with time fast running out before a Paris summit at which a global accord is due to be reached. The United Nations said the talks were on track for the Nov. 30-Dec. 11 summit after a week of negotiations in Bonn made progress in clarifying options about everything from cuts in greenhouse gas emissions to raising aid to developing nations. "We all would want to see this baby born," Christiana Figueres, head of the U.N. Climate Change Secretariat, said of the U.N. agreement meant to chart ways to fight global warming beyond 2020 by almost 200 nations. "Of course we are all impatient, of course we are all frustrated," she told a news conference, referring to efforts to pin down emissions cuts to limit heatwaves, floods and rising sea levels. "We are ... on track with the Paris agreement." U.N. Secretary-General Ban Ki-moon has in recent weeks criticised the negotiations as progressing at a "snail's pace". Ahmed Djoghlaf, an Algerian who co-chairs the Bonn meetings, bristled at the description. He said Ban's office was on the 38th floor of the U.N. building in New York. From so high up "you don't see what is going on in the basement," he said. "We are making progress... We will be on time in Paris," he told a news conference.

Fewer than 50% of CEOs say Paris deal would make them act on climate change -- Fewer than half (46%) of the chief executives of the world’s largest companies say a binding agreement on climate change at the UN’s climate summit in Paris will push them to prioritise the issue, according to new research by PwC. The firm polled 142 international business leaders on the business risks of climate change. Only a minority (albeit a “growing” one) of chief executives are engaged with the UN process, with most lacking any real understanding of the detail or implications, says Jon Williams, partner for sustainability and climate change at PwC. Many are also “jaundiced” by the seemingly interminable process of agreeing a global climate deal. The Paris meeting from 30 November to 11 December sees negotiators entering their third decade of discussions. “CEOs are much more motivated by national governments putting in climate legislation, whether it comes from Paris or somewhere else. If and when it comes, that’s what they will respond to,” Williams says. Missed opportunity Williams describes Paris as a “missed opportunity”for businesses to engage in the policy process around a global deal, which will ultimately feed into the climate rules and regulations that their businesses will face in the future. It’s the shorter-term pressures rather than longer-term financial risks that motivate business leaders, the survey suggests. Top of the list is greater public awareness and engagement on climate change, with four out of five (80%) of those surveyed identifying this as an important driver for action. In other words: they worry that global warming might affect how consumers shop. The second major driver is the emergence of national policy frameworks on emission reductions. More than seven out of 10 (77%) chief executives say that a clear and robust policy roadmap would spur their industry to action.

Palin wants to be Trump’s Energy Secretary…but doesn’t know what the job actually is  -- GOP maverick Donald Trump recently stated that he would love to host former Alaska governor Sarah Palin in his administration if he were elected. Palin, who is a supporter of what Trump is doing for the Republican party, responded by claiming there’s one position in particular she’d love to lead: the Department of Energy. “Energy is my baby,” Palin stated in an interview with CNN’s Jake Trapper. “Oil and gas and minerals, those things that God has dumped on this part of the Earth for mankind’s use instead of us relying on unfriendly foreign nations.” Palin also added that if she were the head of the department, she’d “get rid of it” and “let the states start having more control over the lands within their boundaries.” Palin stated that it would be a short-term job for her, but it would be great to have someone who is pro-energy and pro-responsible development. Funny enough, by the sounds of her response, Palin doesn’t know what the department she’d eradicate actually does. As a Vox report points out, the DOE mainly oversees the nation’s nuclear weapons program — a task consuming nearly half its budget — runs the national labs and conducts energy R&D. The current Energy Secretary, Ernest Moniz, is literally a nuclear physicist. The GOP’s 2008 vice presidential nominee is actually thinking about the Department of the Interior, which oversees the nation’s natural resources. In addition, only Congress could do away with the Department of Energy.

Climate change denier Rupert Murdoch just bought National Geographic, which gives grants to scientists --The National Geographic magazine has been a nonprofit publication since inception in 1888, but that ends today. The long-running American publication becomes very much for-profit under a $725 million dollar deal announced today with 21st Century Fox, the entertainment company controlled by the family of Rupert Murdoch.  Murdoch is a notorious climate change denier, and his family's Fox media empire is the world's primary source of global warming misinformation. Which would be no big deal here, I guess, were it not for the fact that the National Geographic Society's mission includes giving grants to scientists.  Or had you forgotten? Here's a refresh for you, a fun little interview with Murdoch on his climate change views.  From today's deal coverage in WaPo:   The partnership, which will also include the National Geographic cable channel and the National Geographic Society’s other media assets, will be called National Geographic Partners. Fox will own 73 percent of the partnership, and Washington-based National Geographic Society will own the balance. Fox will pay $725 million to the Society for its stake in the partnership. This will push the Society’s endowment to more than $1 billion.

Naomi Klein: ‘Toxic Ideology of Market Fundamentalism’ Is to Blame for the ‘Degradation of the Planetary System’  -- Naomi Klein, author of the critically acclaimed book, This Changes Everything: Capitalism vs. the Climate, spoke at the Festival of Dangerous Ideas in Sydney, Australia last weekend. The annual event “brings leading thinkers and culture creators from around the world to the Sydney Opera House stages and online to discuss and debate the important ideas of our time.”  Klein’s most recent book argues that the climate crisis cannot be addressed without fundamentally changing our current economic system. Since her book was published, Klein has become a fierce advocate for action on climate change. Last month, she criticized her own Canadian government and the Australian government for “destroying the planet,” calling Australian Prime Minister Tony Abbott a climate change “villain.” In July, she spoke at a Vatican conference, People and Planet First: the Imperative to Change Course. She even made an appearance on The Colbert Report with Stephen Colbert last fall.  At the festival this past weekend, she spoke of the continued urgency of the climate crisis. She focuses in on the refugee crisis, which she says will only get worse with climate change, citing the research that linked the Syrian conflict to a drought made worse by climate change. She references Alan Kurdi (initially reported as Aylan), the 3-year old Syrian boy who washed up dead on a Turkish beach, who, Klein says, “has become the tragic symbol of this moral crisis.”

World Premiere of Naomi Klein’s ‘This Changes Everything’  --This weekend is the world premiere of the documentary This Changes Everything. The film is directed by Naomi Klein’s husband, journalist and filmmaker Avi Lewis (The Take) and it’s produced in conjunction with Klein’s best-selling book of the same name. It will premiere at the Toronto International Film Festival on Sept. 13 and will be available in theaters in the U.S. and on iTunes on Oct. 20.  Narrated by Klein, the film argues that climate change is the greatest threat humanity has ever faced, but it also “offers us the opportunity to address and correct the inhumane systems that have created it.” “Filmed over 211 shoot days in nine countries and five continents over four years, This Changes Everything is an epic attempt to re-imagine the vast challenge of climate change,” says the film’s website. In the movie, Klein says, “So here’s the big question: What if global warming isn’t only a crisis? What if it’s the best chance we’re ever going to get to build a better world? Change or be changed.” Watch the exhilarating trailer here:

Erin Brockovich Stands With Navajo Nation, Accuses EPA of Lying About Colorado’s Toxic Mine Waste Spill - Environmental activist Erin Brockovich, responsible for the largest settlement ever paid in a direct-action lawsuit in U.S. history, accused the U.S. Environmental Protection Agency (EPA) of lying about how much toxic wastewater spilled into the Animas river from a Colorado abandoned mine.She made the statements on Tuesday during a visit to the Navajo Nation—the country’s largest American Indian reservation—while she met with Navajo leaders and farmers and spoke to a group of high school students.“They did not tell the truth about the amount. There were millions and millions of gallons,” Brockovich said, expressing shock at the agency’s actions leading up to the spill and its response afterward. A mining and safety team working on behalf of the EPA said that a million gallons of mine waste was spilled from the abandoned Gold King Mine in San Juan County, Colorado in early August. However, a few days later, the EPA revised their estimate, saying it was likely three times as high as originally estimated. Downstream communities declared states of emergency and the Navajo Nation vowed to take action against the EPA. “Uncertainty lingers over the long-term dangers to public health and the environment from the spill, which contaminated rivers in Colorado, New Mexico and Utah,” reports the AP. Leaders of the tribe went to the Gold King Mine to investigate just days after the spill. They believe even the 3 million gallon estimate is too low. The tribe is doing its own water and sediment testing. In the meantime, some irrigation systems have remained off, leaving thousands of acres of crops without water for weeks.

12 People Fasting for 18 Days Demanding FERC Issue #NoNewPermits -- Twelve members of Beyond Extreme Energy (BXE), ages 19 to 72—from California, Virginia, DC, New York, New Jersey, Connecticut, Nebraska, Michigan and North Carolina—are in the beginning days of a planned 18-day, water-only “Fast for No New Permits” for fossil fuel infrastructure in front of the Federal Energy Regulatory Commission (FERC), a virtual rubber-stamp agency for the fracked gas industry. Each weekday until Sept. 25 we will be on the sidewalk in front of FERC from 7 a.m. to 6 p.m., leafletting FERC employees—over a thousand of them—as they arrive for or leave from work. We’re also passing out leaflets to thousands of others who work or live in the area who walk by.  It’s not a very aesthetic area, mostly high-rise office buildings and condominiums. There are some colorful begonias around the FERC building and about 15 young trees growing across the street just three blocks north of Union Station. Also across the street is a 30-foot high stone wall on top of which the red line trains of the DC Metro subway system come by loudly every 10 minutes or so, interrupting any and all street conversations. For the 12 of us, joined by supporters and people fasting for shorter periods of time, this will be our “home” until Sep. 25, the day after Pope Francis speaks to a joint session of Congress. For some who have slept and will be sleeping here overnight, it’s a 24-hour “home.”

2020 Could Mark The Tipping Point For U.S. Solar - The U.S. solar industry hit another milestone this year: there are now more than 20 gigawatts of solar capacity installed across the country, enough electricity to power 4.6 million households. The solar market continues to heat up, and bit by bit the technology is becoming a go-to source of new electricity capacity. In the second quarter of 2015, the U.S. installed 1,393 megawatts of new solar capacity, according to a new report from the Solar Energy Industries Association (SEIA) and GTM Research, the third highest quarterly total on record. That puts the country on track to install over 7,700 megawatts for 2015, which would break a new record for the most capacity ever installed in a single year. Driving the expansion for solar are ongoing cost savings. System costs fell by an additional 6 to 11 percent year-on-year for the second quarter. In fact, solar costs are falling by an average of 2 to 6 percent each quarter. The bulk of the installations came from utility-scale solar. As a key tax credit expires at the end of 2016, the solar Investment Tax Credit (ITC), large-scale solar projects under development are at a record high. There more than 5,000 megawatts currently under construction as developers rush to take advantage of the tax incentive before it lapses.

The altruistic logic of Chinese air pollution? -  Kai Xue writes: I say in plain honesty that terrible air pollution while taken as mandarin indifference to public demands is to the contrary a manifestation of commitment to a mass middle class by the Chinese political system. Policy deliberately trades off public health for blue collar jobs. Around Beijing are industries including steel mills and cement plants that are major polluters. About 1 in 10 tonnes of the world’s steel output is smelted in Hebei, the province surrounding Beijing. With so much local heavy industry, cleaning the air would start with plant closures that cause concentrated unemployment. Whether this bargain of clean air for economic growth is a good deal is a fair question but whether it is virtuous public policy depends on the extent decision-makers are subject to or instead insulated from the consequences of self-produced actions. Beijing is the seat of power in a centralized state. About one third of the thousands who hold junior ministerial rank or higher and many of the very rich reside here. Regardless of stature, for every Beijing inhabitant air pollution is the most serious public concern. That is from an Atlantic article by James Fallows.

Rein in methane: The EPA rules are needed to cut greenhouse gases  Coal producers recoiled last month after the Environmental Protection Agency announced rules that will reduce climate-warming carbon emissions over the next decade and lower the nation’s dependence on coal. Now the oil and gas lobby is raising a fuss over the next critical component of the Obama administration’s climate change strategy: a plan that will reduce emissions of the greenhouse gas methane. Methane accounts for the second-largest share of climate-warming emissions in the world after carbon but has 25 times its potency. The new rules will reduce methane emissions by 20 to 30 percent by 2025, administration officials say, by requiring oil and natural gas producers to find and repair leaks from new or revamped wells. These reductions will fit into the White House’s strategy of reducing methane pollution by 40 to 45 percent within the next decade. The rules won’t affect existing drilling infrastructure, which environmental advocates say don’t go far enough. Oil and gas producers have condemned the rules, claiming they’d be too costly, would kill jobs and would inflate Americans’ energy costs. The EPA estimates making the changes will cost energy producers about $420 million over 10 years but will generate up to $550 million in savings because of the reduction in methane losses. In the coming months, the methane rules, along with the EPA’s rules on power plant emissions, will be challenged in protracted legal battles. Energy lobbies’ short-term profit cannot come before America’s long-term economic and security interests. In that regard, the industry cannot be trusted to govern itself.

Judicial battlefront: Courtroom battles targeting coal where it digs - While the market continues to batter the coal sector and legislative relief from regulatory pressures seems increasingly distant, coal companies also increasingly find themselves waging expensive battles in the nation's courtrooms. Traditional environmentalism often focused on the local and visible effects of industry, however, the current so-called "war on coal" is both a ground and air battle, with groups simultaneously fighting supply and demand-side dynamics of the coal business. Bruce Nilles, senior campaign director of the Sierra Club, told SNL Energy that the campaign files a legal appeal roughly every three days — including holidays and weekends — against everything from new and existing coal plants right down to the mine itself. The group is even attacking the industry's means of transport with lawsuits against the railroads that move coal around the country and the ports that move it abroad. "Litigation is the first line of attack for the [environmental non-government organizations] and the last line of defense for our industry," said National Mining Association spokesman Luke Popovich. "Much of the litigation against mining, funded generously by foundations and donors typically far removed from the mining regions, is enormously wasteful and short-sighted." Popovich told SNL Energy that energy and mineral resources are "essential" and what is not produced here for domestic needs will be produced elsewhere, often where environmental regulations are "likely to be less comprehensive and standards less strict."

Flooding swept away radiation cleanup bags in Fukushima --  Bags filled with grass and soil from work to remove radioactive substances spewed by the crippled Fukushima No. 1 nuclear plant were swept away in the flooding of rivers in Iitate, Fukushima Prefecture, the Environment Ministry said. A total of 82 of the bags were discovered, with 37 of them recovered Friday, though it remained unclear how many had been washed away, the ministry said. Scores of 1,000-liter bags were used during the cleanup work, mainly to store surface soil that had been contaminated from the release at the plant, which was heavily damaged in the March 2011 earthquake and tsunami.

Mahoning board of elections hires attorney to defend its decision on anti-fracking proposal: The Mahoning County Board of Elections hired outside legal counsel to defend its decision to not put an anti-fracking charter amendment on Youngstown’s Nov. 3 ballot. The reason for hiring Vorys, Sater, Seymour and Pease LLP is because the board’s Aug. 26 vote conflicted with the legal opinion of the county prosecutor, who serves as the board’s attorney. “The opinion differed from what the board decided,” said Mark Munroe, board chairman and head of the county Republican Party. “Because of a conflict, we’re hiring outside legal counsel.” The board met Tuesday and declined a request from The Vindicator to vote on making the opinion, in letter form, public. “It’s subject to attorney-client privilege,” Munroe said. County Prosecutor Paul J. Gains declined to make the letter public without a vote of the board of elections. The city of Youngstown filed a complaint Aug. 28 with the Ohio Supreme Court contending the elections board acted “illegally” when it refused to put the citizen-initiative amendment on the ballot. The complaint also named Secretary of State Jon Husted

Tuppers Plains water district shares injection concerns with state - The Tuppers Plains-Chester Water District sent a letter to the Ohio Department of Natural Resources this summer expressing concerns about fracking injection wells, asking that public hearings be made mandatory for approval of such wells, and restrictions enacted on the amount of waste received. The Tuppers Plains-Chester Water District is based out of Reedsville in neighboring Meigs County, and the letter cited the DuPont C-8 contamination of water that led to 15 years of litigation against the company and around 3,500 personal injury lawsuits, the first of which comes to trial this month. “Our 13,000 customers and neighboring water systems that were contaminated by the chemical C-8 have learned the political process of large government entities and huge private corporations do not always operate in our best interest,” District Manager Donald C. Poole wrote the ODNR on June 25.

Water system raises concerns about injection wells - — Tuppers Plains-Chester Water District has raised concerns with state officials about the disposal of fracking waste in injection wells in the region. A response from the Ohio Division of Oil and Gas Resources Management maintains that injection wells are safe.  This summer, water district General Manager Donald Poole wrote a letter to James Zehringer, director of the Ohio Department of Natural Resources, outlining concerns about injection wells. The letter — which was provided to the water system’s customers in July — also was sent to the governor, Ohio Environmental Protection Agency, and the heads of other water systems in the area.  Tuppers Plains-Chester Water district’s service area covers about one-third of Athens County, including Coolville, and about two-thirds of Meigs County. In his letter, Poole asks that public hearings be required for all injection wells, that limits be put on the amount of material that can be injected, that groundwater monitoring wells around all injection wells be required and that fees be placed on all waste disposed of in injection wells. “Let us be the most expensive dumping ground, not the cheapest,” Poole wrote, arguing that current rules provide an economic inventive for oil and gas well waste to be trucked into Ohio.

Marcellus and Utica shale: Possibly biggest play in US? - — The Utica and Marcellus shale plays are considered to be young oil and gas plays, but there is little doubt that the plays’ production is significant. As of June 15, according to the U.S. Energy Information Agency, the Marcellus shale play produced 16.48 Bcf per day, which makes it the largest gas-producing area in the country. The Eagle Ford was behind the Marcellus shale with 7.18 Bcf. The Utica was seventh on the list of eight with a reported production of 2.60 Bcf per day. Brackett said it is clear the Marcellus and Utica are going to grow to be perhaps the largest producing plays. The U.S. EIA reported the Marcellus and Utica is responsible for 85 percent of the gas production since 2012. “The Appalachian basin with the Marcellus and Utica shale is going to be center of the shale production here in the United States, at least the rest of this century and for a long time to come,”  Some challenges are unique to the Appalachian region. Operators are unfamiliar with the Appalachian region and the residents of the Appalachian region are not familiar with how the oil and gas industry works. Another challenge has been educating people living in the Appalachian region about the oil and gas industry. This meant launching a constant public relations campaign, from the start of leasing to the construction of pipelines. Landowners and residents have had to learn how the leasing process works, what dangers there are to drilling and fracking, and companies have had to earn public support for pipeline construction.

How sound are Pennsylvania's oil and gas wells? ---Hundreds of oil and gas well owners failed to submit required reports this year that are meant to document whether Pennsylvania’s active wells are structurally sound or showing signs of leaks and decay. The roughly 450 well owners who were sent violation notices for the missing reports by the Department of Environmental Protection represent a small fraction of the roughly 5,600 oil and gas operators with active wells in the state. But some types of well owners had a dismal compliance rate, especially companies that keep old wells pumping but rarely drill new ones and homeowners and small businesses that have wells for use only on their property, DEP officials said. This year was the first time operators had to submit the annual reports, which detail the results of their quarterly inspections of all of their wells for signs of defects or excess pressure. The reports are due each year on Feb. 15. The inspection and reporting requirement was added to Pennsylvania’s oil and gas regulations in 2011 so the state could ensure that every well is routinely monitored even if DEP oil and gas inspectors can’t reach every one every year. But the state delayed implementing the mechanical integrity assessments for years as regulators developed methods for collecting the information that would be practical for even the least sophisticated operators or those with the largest inventories of wells. DEP also wanted to receive as many of the results as possible through electronic forms that could easily be analyzed.

Local Ordinance Blocks Frackquake Injection Well! --And court upholds it. Surprise, surprise. Frackers will have to go make frackquakes somewhere else. Attorney John Smith: “The DEP should continue to recognize its obligation to respect local ordinances that comply with statutory and constitutional directives that serve to protect local residents from negative environmental impacts, and the fact they’re acknowledging local zoning is an essential part of considering these permits is how it should be.“ The Pennsylvania Department of Environmental Protection rejected a permit in Indiana County for Pennsylvania General Energy Co. to build a hydraulic fracturing wastewater injection well Aug. 12, citing the authority of a local ordinance banning frack filth injection wells. Thomas Linzey, executive director for the Community Environmental Legal Defense Fund, said it was an unprecedented step for the DEP to take in recognizing Grant Township’s local ordinances as having authority in local affairs.PGE Co. sued Grant Township in June 2014 to overturn the community’s “Bill of Rights” ordinance which, among other things, bans frackquake injection wells.  The Legal Defense Fund helped draft those ordinances. PGE argued its corporate constitutional rights were violated and is seeking reimbursed attorneys’ fees and damages from Grant Township. The rejection letter from DEP said “as part of its permit application review, the department has an obligation to consider applicable local ordinances related to environmental protection and the commonwealth’s public natural resources.”

Shale gas production in retreat amid low prices, shortage of pipelines - Pennsylvania shale gas production is starting to show the effects of a partial retreat by drillers struggling with low prices and a shortage of pipelines.  The 2.25 trillion cubic feet of natural gas that companies pulled from the Marcellus and other shale formations beneath Pennsylvania during the first six months of the year was about 5.6 percent higher than the last six months of 2014, the most recent state data show. That compares to double-digit increases for every previous six-month reporting period dating to 2009.  Statewide production posted monthly drops in April, May and June, falling to nearly 360 billion cubic feet from more than 395 billion cubic feet in March. The state only required monthly reports from producers starting this year.  The record growth that producers generated in the Marcellus and other shale plays during the past seven years fueled a glut of supply that started pushing prices to three-year lows this year. Without enough pipelines to carry the gas to higher-demand markets, prices as low as $1 per thousand cubic feet in Pennsylvania could stick around for a few more years.  Producers first cut their capital budgets for the year, dialing back drilling programs. State Department of Environmental Protection records show companies drilled 42 percent fewer shale wells during the first half of the year compared to the same period last year. During the past few months, companies focused on the northeast corner of the shale — including Cabot Oil & Gas and Seneca Resources — announced they would curtail production, restricting or shutting down wells if local prices or space on pipelines were too low.  “Curtailment may mean an entire section of wells is shut in, meaning no gas is flowing,” said Rob Boulware, a spokesman for Seneca, whose Pennsylvania shale production was down 27 percent compared to the second half of 2014.

Study: Marcellus shale industry has 'modest impact' on creating local jobs -- Up to half of the drilling jobs associated with the Marcellus shale industry don’t go to local residents, and the industry has had only “modest impact” on overall employment numbers in the state, a new study commissioned by a Penn State University economist suggests. Tim Kelsey studied tax data from the state Department of Revenue from 2002 to 2011, the last year the data was available. He studied the tax data in an attempt to pin down exactly where Marcellus shale workers lived, and what he found was that many drilling jobs did not go to people already living in counties where drilling took place. Kelsey cautioned that doesn’t mean the jobs are going to outsiders from far-away states. It does mean, though, that the gas drilling industry isn’t having as big an impact locally as some might suggest, he said. The numbers in his study show a discrepancy to back up his claim, Kelsey said. Based on his data, Kelsey said Marcellus development “increased the aggregate employment of local residents between 7,346 to 9,602 jobs” in the average Pennsylvania county, despite Bureau of Labor Statistics information that predicted between 18,761 and 20,385 jobs in the average county. Furthermore, Kelsey said in an interview, those jobs that are created aren’t necessarily going to local workers. “We know a lot of workers are from non-Marcellus counties who commute into work, as well as the stereotype of people coming from Texas and Oklahoma,” Kelsey said. “And those folks make up about half the jobs.”

Most Comprehensive Appalachian Region Study Finds Water Quality Issues Long Before Fracking --A new study, which can boast of having one of the most comprehensive water quality datasets in the Appalachian basin prior to Marcellus and Utica shale development, was recently released in the journal, Applied Geochemistry. The study, led by Don Siegel of Syracuse University, analyzed over 21,000 samples of groundwater collected by third party contractors from individual domestic or stock water-supply wells before Chesapeake Energy Corporation drilled nearby Marcellus and Utica shale oil and gas wells. According to the study’s summary: “Our comparison of these results to historical groundwater data from NE Pennsylvania, which pre-dates most unconventional shale gas development, shows that the recent pre-drilling geochemical data is similar to historical data. We see no broad changes in variability of chemical quality in this large dataset to suggest any unusual salinization caused by possible release of produced waters from oil and gas operations, even after thousands of gas wells have been drilled among tens of thousands of domestic wells within the two areas studied.” The study falls in line with previous studies from the United States Geological Survey (USGS), which also found major ions and metals in exceedance of federal drinking water standards in a majority of private water wells in Pennsylvania, West Virginia and Ohio prior to development.  Of course, it also bolsters the findings of the Environmental Protection Agency’s (EPA) comprehensive five year study, which found that “hydraulic fracturing activities have not led to widespread, systemic impacts to drinking water resources.” Due to a lack of water well standards in Pennsylvania, residents have always had water quality issues throughout the Commonwealth. Now, because of regulatory framework for oil and gas development, operators are required to take a baseline sample of water wells near drilling operations.

Study: O&G not a threat to Marcellus and Utica water quality - Study: O&G not a threat to Marcel: For people living near oil and gas development in the Marcellus and Utica formations, the safety and quality of their drinking water is understandably a major concern. Though some residents may worry about oil, gas and their byproducts contaminating groundwater, Applied Geochemistry recently released a study that may comfort neighbors of the oil and gas industry.  Energy InDepth reports the study, led by Don Siegel of Syracuse University, analyzed more than 21,000 groundwater samples collected from well by third parties before Chesapeake Energy Company began drilling the formations. The summary of the study points to current chemical levels in northeastern Pennsylvania that are similar to “historical data”: We see no broad changes in variability of chemical quality in this large dataset to suggest any unusual salinization caused by possible release of produced waters from oil and gas operations, even after thousands of gas wells have been drilled among tens of thousands of domestic wells within the two areas studied. These findings reiterate those of the similar studies from both the U.S. Geological Survey and Environmental Protection Agency, which found not only that most private well water contained ion and metal levels that exceed federal drinking water standards before shale development, but also that fracking had not caused ‘widespread, systematic impacts’ to sources of drinking water.” However, the new study challenges the findings of a Duke University study (Warner et al 2012), which sourced the metal-rich brine in the area’s water to oil and gas development. “The saline water is naturally-occurring connate brine or salt water which has not been flushed away by circulating meteoric water,” writes Bert Smith, an author of the new study. “Rather than vertical migration of salt water from deep strata such as the Marcellus shale as suggested by Warner et al (2012).”

Giving the Frackers the Finger (Lakes) - Let’s amend the famous line from Joni Mitchell’s “Yellow Taxi” to fit this moment in the Finger Lakes region of New York State. There, Big Energy seems determined to turn paradise, if not into a parking lot, then into a massive storage area for fracked natural gas. But there’s one way in which that song doesn’t quite match reality. Mitchell famously wrote, “Don’t it always seem to go that you don’t know what you’ve got till it’s gone.” As part of a growing global struggle between Big Energy and a movement focused on creating a fossil-fuel-free future, however, the residents of the Finger Lakes seem to know just what they’ve got and they’re determined not to let it go. As a result, a local struggle against a corporation determined to bring in those fracked fuels catches a changing mood not just in the United States but across the world when it comes to protecting the planet, one place at a time, if necessary. .There’s a battle brewing between the burgeoning clean-energy future embraced by this region and the dirty energy sources on which this planet has been running since the Industrial Revolution.  Over the last six years,Crestwood Midstream Partners, a Texas-based corporation, has been pushing to build a gas storage and transportation hub for the entire northeastern United States at Seneca Lake.  The company’s statements boast about settingup shop “atop the Marcellus Shale play,” a hydraulic fracturing, or fracking, hotspot.  It plans to connect pipelines that will transmit two kinds of fracked gas — methane and liquefied petroleum gas (LPG) — probably from areas of the Marcellus Shale in Pennsylvania, Ohio, and West Virginia.  These will be stockpiled in long-abandoned salt caverns, the remnants of a nineteenth-century salt-mining industry that capitalized on the remains of a 300-million-year-old ocean that once was here.

Armed with proof of oil shipments, activists say they will press the issue - CSX Transportation said Thursday it still moves crude oil by train through Maryland via downtown Baltimore occasionally, but not as many as the five 1 million-gallon trains a week it estimated in documents released this week by the state. Environmental groups and community activists said they hope the new disclosure about trains carrying the explosive crude though the city will spark public pressure and lead officials to act. The state released documents on Wednesday in which CSX estimated it moves up to five trains a week, each carrying at least 1 million gallons of the volatile crude oil, through Baltimore City, as well as through eight Maryland counties. The information, disclosed after CSX and Norfolk Southern lost a court battle to keep it private, is outdated, said Rob Doolittle, a spokesman for Jacksonville, Fla.-based CSX. The railroad has not moved trains carrying 1 million gallons of so-called Bakken crude — the volume that triggers federal reporting and disclosure requirements — through the Howard Street Tunnel since the third quarter of 2014, he said. Trains carrying less than 1 million gallons continue to travel that route “on occasion,” he confirmed. He declined to be more specific about the amounts or frequency. It takes roughly 35 tank cars to carry a million gallons of crude.

Natural-gas pipeline to Florida draws environmental concerns - A Florida environmental group has joined the opposition against a $3 billion natural-gas pipeline that would extend from Alabama through Georgia and into Central Florida. The Sabal Trail Pipeline has drawn opposition from a Florida group affiliated with WWALS Watershed Coalition Inc., which is based in Georgia. A chief concern is that the pipeline could impact Florida waterways and the drinking-water supply, said John S. Quarterman, director of the Florida and Georgia WWALS groups. “It’s impacting the most vulnerable area of the Floridan Aquifer, and that whole area indeed extends down to Orlando,” said Quarterman said Tuesday. Environmental opponents have already issued pipeline concerns to the Florida Department of Environmental Protection and the federal government. A state administrative-hearing officer will oversee the WWAL group’s complaint, although a date hasn’t been set. On Friday, the federal Energy Regulatory Commission issued a draft environmental-impact statement on the project. Proposed in 2013, the pipeline would transport fuel for Florida Power & Light and Duke Energy Florida. Together with Duke, Spectra Energy and NextEra Energy Inc. are seeking federal permits by early next year, with construction expected to start on the pipeline in a year. As proposed, the pipeline would start operating in 2017.

Enbridge’s Aging Tar Sands Pipelines Beneath Great Lakes Are ‘A Ticking Time Bomb’ -- The Straits of Mackinac is a narrow waterway that separates Michigan’s lower peninsula from its upper peninsula. The straights connect two of the Great Lakes: Lake Huron and Lake Michigan. But underneath this iconic part of the Great Lakes are two 62-year old pipelines. The pipelines have never been replaced, despite the well-documented risk of a rupture. “If just one of the pipelines ruptured, it would result in a spill of 1.5 million gallons of oil—and that’s if Enbridge, the company that owns them, is able to fix the pipeline immediately,” says Motherboard. “I can’t imagine another place in the Great Lakes where it’d be more devastating to have an oil spill, University of Michigan research scientist Dave Schwab told Motherboard.  Enbridge does not have a good record when it comes to spills either. It’s responsible for more than 800 spills between 1999 and 2010, totaling 6.8 million gallons of spilled oil. And in 2010, it spilled more than 800,000 gallons into the Kalamazoo River in Michigan—creating the biggest inland oil spill in the country’s history. It did not receive as much national attention because the country was fixated on another oil spill: the BP oil spill in the Gulf of Mexico. Enbridge maintains that the pipeline, which was only supposed to last 50 years, is still in working order. Others beg to differ. After nearly two years of pressing Enbridge and pipeline regulators to release information about the integrity of the pipelines, the National Wildlife Federation was finally fed up and conducted its own diving expedition to survey them in 2013. Their footage revealed “some original supports broken away—indicating the presence of corrosion—and some sections of the suspended pipelines covered in large piles of unknown debris.” Last month, Motherboard correspondent Spencer Chumbley went to Michigan to investigate. Watch here to find out what he discovered:

AP Exclusive: Fracking Boom Responsible for 175 Million Gallons of Toxic Wastewater Spilled Since 2009 -- Among the litany of risks posed by the continued extraction and use of fossil fuels, an Associated Press analysis published Tuesday exposes yet another harmful side effect of the oil and gas drilling boom: an uptick in toxic wastewater spills. According to data obtained from leading oil- and gas-producing states, “more than 175 million gallons of wastewater spilled from 2009 to 2014 in incidents involving ruptured pipes, overflowing storage tanks and other mishaps or even deliberate dumping,” Associated Press reports, tainting agricultural land, poisoning drinking water and sparking the mass die-off of plant and animal life. Most of the incidents involved the spill of fracking wastewater, which is a combination of underground brine mixed with a slurry of undisclosed chemicals. As the story notes, “A big reason why there are so many spills is the sheer volume of wastewater” produced, which according an organization of state groundwater agencies, amounts to roughly 10 barrels for every barrel of oil or more than 840 billion gallons a year. The report details a sampling of incidents, which help illustrate the scope of the problem. In one instance, a roughly 1 million gallon spill in North Dakota in 2006 caused a “massive die-off of fish, turtles and plants in the Yellowstone River and a tributary.” In another case, a decades-long seepage of toxic brine onto Montana’s Fort Peck Indian Reservation polluted a river, private wells and the municipal water system, making the water “undrinkable.” What’s more, the amount of toxic byproduct spilled along ranch land, streams and forests has grown each year since the so-called fracking boom began. “In 2009, there were 2,470 reported spills in the 11 states; by 2014, the total was 4,643. The amount of wastewater spilled doubled from 21.1 million gallons in 2009 to 43 million in 2013 before dipping to 33.5 million last year"

States rarely punish companies for oil wastewater spills -— In April 2013, a malfunctioning oil well in the countryside north of Oklahoma City caused storage tanks to overflow, sending 42,000 gallons of briny wastewater hurtling over a dike, across a wheat field and into a farm pond. State regulators ordered the oil company to clean up as much of the spill as possible and repair the site. But they didn’t impose fines or other punishment against Moore Petroleum Investment Corp., a tiny company in Norman that operates only a few wells. Regardless of the damage done, the no-penalty policy is standard practice across the country after oilfield wastewater accidents by companies of all sizes. Spills by the tens of thousands have denuded farm and ranch lands and polluted waters in oil-producing areas for decades, yet only a small minority resulted in discipline. Regulators’ approach toward oil spills is largely the same. “We certainly believe there’s a time and a place for that hammer, but we want to be very judicious in its use,” said Matt Skinner, spokesman for the Oklahoma Corporation Commission, which oversees the industry in that state. Moore Petroleum promptly arranged cleanup of its spill, which was accidental, he said. Environmental activists and groups representing landowners contend the lack of punishment helps explain why the industry hasn’t done more to prevent spills, and shows regulators’ deference to oil and gas producers. “It’s almost a coddling relationship,” said Jill Morrison of the Powder River Basin Resource Council, an environmental advocacy group in Wyoming, adding that it takes large court judgments or settlements for companies to mend their ways. “The industry looks at spills as a cost of doing business.”

We were a small Texas town that banned fracking — then the oil industry stepped in - The issue of local control has its roots in the emergence of modern cities and their relationship with centralized organs of power like the crown. In the 17th century, Thomas Hobbes argued that we must have a Leviathan, a single ruler, to quash disagreements and ensure peace. . These are the origins of contemporary talk by the industry and our legislators in Austin about the need for “regulatory certainty” and the supposed ills of a “patchwork of local regulations.” I couldn’t help thinking of Austin as the Leviathan – ironic given all the lip service paid down there to small government. From the perspective of the state, Denton (or any other city on the shale) is not a community – it’s a node on an energy network.  Soon there were about 20 protesters on site holding banners and signs, breaking out in spontaneous chants. There must have been at least eight police officers there too. A few of them started issuing verbal warnings that we were trespassing and needed to vacate the premises. Other officers were talking through the window of a pickup truck with its driver who had stopped in front of our seated bodies. Two large tanker trucks had pulled up behind him and were parked on Nail Road, which runs alongside the entrance gate to the frack site.   The chief of police, Lee Howell, is a friend of my family and he briefly checked in on us. I thanked him for the way his team was handling the situation and assured him our intentions were peaceful. I would later learn he had been texting my wife, Amber, from his position at the southern police checkpoint on Nail Road. He let her know I was all right and even apologized for the fact that it appeared he was going to have to arrest me.

Oil bust -- The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked. McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.DeWitt County’s total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.The Eagle Ford’s biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter. Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. “They’re chasing the water right down the drain,” he said. South Texans track other economic measures — traffic jams on rural roads or the advertised prices for hotel rooms in the region, now as low as $40.A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the oil field. The police academy in Victoria had to cancel classes because everyone was going to work in the oil field instead. “We’ve got great benefits,” Zavesky said. “But a young guy can’t buy diapers on great health insurance.” Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.He’s also seen an uptick in oil field crime — the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

New Mexico AG calls on feds to address natural gas waste — New Mexico’s attorney general is calling on the federal government to move quickly in adopting new rules to curb the waste of natural gas and the resulting loss of millions of dollars in royalties that could benefit education and other public programs. Attorney General Hector Balderas sent a letter to Interior Secretary Sally Jewell this week, saying New Mexico has lost nearly $43 million in royalties since 2009 because of leaks and the venting and flaring of gas wells on federal lands. Balderas says the technology is available and both industry and states stand to benefit. The Bureau of Land Management, which oversees oil and gas development on federal and Indian lands, has indicated that a proposed rule to address the issue will be released later this year.

Oil boom a loser for North Dakota cities, counties, study finds — While the massive Bakken oil boom drew hordes of job seekers and international attention to the remote prairies of North Dakota and Montana in recent years, it’s turned into a money loser for most cities and counties in the region. Crime in Dunn County, N.D., in the heart of the nation’s oil boom, skyrocketed 60 percent in just three years, and the road maintenance budget soared from $1.5 million to $25 million. The local government couldn’t keep up, with demand for services outpacing the growth in tax revenue by as much as 40 percent. The problem continues as the drop in oil prices in the past year means increasingly less money for the county to spend on projects — while drilling, the truck traffic that eats up the roads, and demand for community services haven’t stopped. “The gap between revenues and needs is still fairly large,” Daryl Dukart, a Dunn County commissioner, said in an interview. “It will take many years to balance out.” Dunn County is far from alone. Analysis from researchers at Duke University found that “most local governments in North Dakota and Montana’s Bakken region have experienced net negative fiscal effects” from the shale drilling boom. “Because of the very rural nature of North Dakota and Eastern Montana, and the very large scale of the activity that’s been taking place, population growth has essentially outstripped local government’s ability to provide services,” .

Again? Continental Resources cuts budget, Bakken rig count -- Continental Resources, North Dakota’s second largest oil producer, announced that it will be cutting its budget for 2015 yet again amidst the persisting slump in oil prices. However, the company does anticipate continued production growth. As reported by Reuters, last year Continental CEO Harold Hamm cancelled all of the company’s oil hedges. He called Saudi Arabia, the de facto leader of OPEC, a “toothless tiger” and placed his bets on an oil price rebound. Alas, oil prices have yet to climb significantly, which has spurred thousands of layoffs as well as budget reductions across the industry. Continental’s goal for the remainder of the year is to save up to $350 million by reducing its North Dakota rig count from 10 to eight and temporarily halting the completion of most wells. In a statement, Hamm said, “We are reducing capital expenditures to protect our balance sheet and to preserve the value of our world-class assets until commodity prices improve.”  For 2015, the company plans to spend between $2.35 billion and $2.4 billion, compared to the previously forecast $2.7 billion. Continental Chief Financial Officer John Hart said, “We believe it is in the interest of shareholders to defer new production growth until we see stronger commodity prices.” The goal is to not spend more than the company takes in, but executives said oil prices would need to be above the $50 per barrel for this to happen. Hart added, “Obviously we are in a dynamic environment, and our outlook could change.”Although the budget has been reduced further, Continental anticipates that its output will climb between 19 and 23 percent this year, thanks in part to increases in efficiencies and the use of new technology. The company now projects its output for 2015 to be between 200,000 and 215,000 barrels of oil equivalent per day (boe/d). Previous projections had the low end of its production guidance set at 210,000 boe/d, but because of delayed completions, that figure was reduced.

Pipe staged ahead of permits for proposed ND oil pipeline — Mountainous piles of steel pipe are being staged across four states in anticipation of building the biggest-capacity pipeline proposed to date to move crude from North Dakota’s prolific oil patch. But stockpiling the pipe is a gamble for the Dallas-based Energy Transfer Partners’ Dakota Access Pipeline, a $3.8 billion, 1,130-mile project that still needs approval from regulators in North Dakota, South Dakota, Iowa and Illinois. “What the company does is at their own risk,” said Julie Fedorchak, chairwoman of the North Dakota Public Service Commission. The three-member panel has signaled its approval of the company’s project in North Dakota, the pipeline’s longest leg, but Fedorchak said a final decision is several weeks away. If approved, the Dakota Access Pipeline would move at least 450,000 barrels of North Dakota crude daily through South Dakota and Iowa to an existing pipeline in Patoka, Illinois, where shippers can access Midwest and Gulf Coast markets. Energy Transfer Partners announced the project last year, just days after North Dakota Gov. Jack Dalrymple urged industry and government officials to build more pipelines to keep pace with the state’s oil production. He said doing so will reduce truck and oil train traffic, curb natural gas flaring and create more markets for the state’s oil and gas.Energy Transfer Partners spokeswoman Vicki Granado said Thursday the company is optimistic the necessary permits will be obtained in all states, with construction expected to start late this year or early 2016. Granado said so far Energy Transfer Partners has acquired 72 percent of the easements needed along the route, which crosses 50 counties in the four states. The company has said it would use the eminent domain process to acquire other easements if agreements with landowners can’t be reached voluntarily.

Energy Pipeline Boom Ebbs - WSJ: Falling U.S. oil production and low crude prices are casting a shadow over one of the bigger energy-infrastructure building sprees: pipeline construction. The shale boom that began in 2008 created a huge need for new pipelines in places like North Dakota and West Texas—but many of those lines now have been built. Meanwhile, oil output has finally started to decline, according to federal estimates, in the wake of a 50% drop in the price of crude. “It’s hard for us to paint a scenario where, at least for the foreseeable future, any additional long-haul pipelines are needed,”  A slowdown would be bad news for investors who bought pipeline partnerships that pay out most of their available cash in dividend-like payments. Investor pressure to keep those distributions growing means that these companies are constantly on the prowl for new sources of income—which is harder to find without new projects. “If you’re structured to grow and growth opportunities are in short supply, something’s got to give,” Between 2009 and 2014, U.S. companies added nearly 14,000 miles of crude-oil pipeline, a 26% increase. The stalled Keystone XL Pipeline project, which would move Canadian oil roughly 2,000 miles to Texas, has become less pressing since it was first proposed.  Not everyone agrees that the pipeline-building party is over. In some pockets of the country, more are still needed: New England, for example, doesn’t have enough access to nearby natural-gas fields to run its power plants. And in the crowded Permian Basin area of Texas, some companies continue to build. But any hint of a slowdown can send pipeline stocks tumbling.

There will be blood & oil TV shows -- by Izabella Kaminska - In our Christmas podcast and this post, we warned of the eery similarities between the oil market of today and the oil market of JR Ewing and Blake Carrington in the 1980s. We even predicted that if history tells us anything we might soon be blessed with a modern equivalent of a Dynasty and Dallas TV series, something along the lines of “North Dakota Millionaires”. Well. It’s happening.  Via John Kemp’s energy note on Wednesday:  How do you know the oil industry is turning from boom to bust? The first episodes of “Dallas” were shown in 1978 as oil prices were climbing to their 1980 peak at $100 per barrel in real terms, but most of the series were aired in the 1980s, in time for the spectacular bust of the Texas oil industry. Now comes “Blood and Oil” featuring the oil boom in North Dakota. For those of you in the U.S., the series premieres on September 27. Wikipedia has some good background on the show’s gestation …

Company wants to expand energy project on Columbia River — A Houston-based energy company has unveiled plans to expand its proposed energy project along the Columbia River in Longview. In addition to an $800 million proposed oil refinery, Waterside Energy says it also wants to build a $450 million liquefied petroleum gas on private property. The Daily News reports that about one train a day would bring propane and butane from Canada and North Dakota to the terminal. The facility could receive up to 75,000 barrels per day. The company says the projects together will create 700 construction jobs and 180 jobs after construction. The proposed oil refinery would process 45,000 barrels a day, including 30,000 barrels of crude oil and 15,000 barrels of seed oil and used cooking oil. Most of that product will be sold into the greater Portland market. Environmental groups have raised concerns about potential train derailments and other risks.

Earthquake and Tsunami Risks Ignored at Proposed LNG Facility on Oregon Coast - The most shocking fact about earthquake and tsunami risks on the coast of Oregon is their inevitability. We buy fire insurance—spending good money though our house is unlikely to burn. Meanwhile, the geologic record indicates beyond scientific doubt that a major tremor and Fukushima-style tidal wave is due. And it’s going to be the big one. The really big one—many times greater than the infamous 1906 San Francisco disaster. All credible science indicates that a major event approaching or exceeding magnitude 9 at Coos Bay, on the coast of Oregon, has a return cycle of 243 years. The last one was 315 years ago. We’re not just due, we’re overdue. As an Oregonian who lives in the danger zone, I have to say that denial is our most common modus operandi. We hope it won’t happen. But taking a personal risk, with knowledge of the consequences, is one thing and taking a public gamble by forcing the entire community and region to be at risk is quite another. That’s what’s happening at Jordan Cove just north of Coos Bay. Three years ago the State Department of Geology and Mineral Industries provided maps to the county that clearly define the area of the LNG proposal as a “hazard” zone. Yet planning for the facility proceeds on a path greased by the county and the Federal Energy Regulatory Commission. The inevitable earthquake and tsunami will shatter and pound at full force directly on the LNG site with its tanks, tankers and pipelines loaded with one of the most explosive and flammable substances known.

These Popular Fruit and Veggie Brands May be Grown With Oil Wastewater - Mother Jones: Was your California orange irrigated with wastewater from oil wells? Quite possibly yes. Under a 20-year-old water recycling program, wastewater that is generated as a byproduct from oil extraction is treated and sold to some 90 Southern California landowners—including one with certified organic operations—which use it to grow crops such as citrus, almonds, apples, peaches, grapes, and blueberries sold in major grocery chains around the country.As California's epic drought wears on, Southern California farms are using an increasing amount of oil wastewater. In 2014, oil companies such as Chevron provided half the water that went to the 45,000 acres of farmland in Kern County's Cawelo Water District, up from about 35 percent before the start of the drought in 2011. And California Resources Corp., the state's largest oil company, recently announced plans to quadruple the amount of water it sells to farmers. Another reason for that increase is tighter rules around oil wastewater disposal. Though oil companies usually get rid of wastewater by injecting it back underground, the practice has come under increased scrutiny in recent months after regulators admitted that injections occurred near aquifers that supply drinking water. Environmental groups have sued the state to stop the practice at 2,500 sites considered most sensitive. Water officials praise the practice of using oil wastewater on farms as a model for water conservation at a time when California needs every drop, but there are unanswered questions about its safety. The State Water Resources Control Board requires periodic testing of oilfield water that is used for irrigation but has not set limits for many contaminants. Recent tests of irrigation water supplied by Chevron, for instance, turned up benzene, a carcinogen, at higher concentrations than what is allowed in California drinking water. The state has not set a standard for benzene in irrigation water.

Notes from Underground: Out of Our Sight, Out of Their Minds - Appropriate – is it not? – that the word “underground” carries connotations of secrecy, subversion, and conspiracy. In the context of fossil fuel production and transportation, underground is home to a number of activities about which the public has a dire need to be well informed. Instead, we remain largely misinformed, or not informed at all. The focus of Notes from Underground will be issues surrounding the use of pipelines and hydraulic fracturing (“fracking”). This first post will provide a foundational overview of the problems associated with fracking and pipeline use, referencing some relevant events of the recent past.Both fracking and pipeline use take place out of sight of critics, regulators, and local populations. Hidden there under our feet, problems and dangers associated with fracking and pipelines can be difficult to spot, or easy to conceal (up to a point — see here and here, for example). The potential difficulty of timely detection is only one of the dangers posed by a pipeline leak or a fracking mishap. When there is an observed accident, there may be obvious consequences, such as contamination of water or agricultural lands. There may also be consequences that are not clear or predictable, such as long-term health and environmental impacts. Then there is the difficulty of ascribing liability, as proving knowledge of underground occurrences is naturally challenging. These issues will recur as themes throughout these posts.

Walking Oil Rigs Spur Cheaper, Quicker Drilling in Supply Glut - Have you ever seen an oil rig walk? Some of the newest rigs can travel hundreds of yards to the next well under their own power, lurching along like 150-foot-tall robots on hydraulic legs that raise the equipment five inches at a time, nudging forward at about a foot per minute. While that sounds slow, it is faster and cheaper than dismantling a rig and trucking the parts to a new site nearby. More efficient drilling rigs that cost a third less than just a year earlier are changing the face of the U.S. shale industry, helping boost per-rig output in the four largest fields by at least 40 percent since the crude price plunge began in 2014. While helping producers pump more oil, the new rigs have a downside.   Producers “are being incentivized to continue drilling to keep cash coming in the door because costs have come down so much,” . “Even though the rig count is down by half, you can do more with the half that’s still working.” Even though the number of rigs has dropped by more than half since prices began falling in June of last year, U.S. output is down just 3.3 percent from a four-decade high. The rigs aren’t the only factors increasing efficiency in U.S. oil fields. Over the past few years, service companies such as Schlumberger Ltd. and Halliburton Co. have also been crafting more efficient systems to complete wells, including the use of 3-D seismic imaging that can track where cracks are going in the oil-soaked rock underground. The newest rigs, though, are making a substantial difference at a time when producers, historically heavy users of debt to fund exploration, need to keep cash flowing as prices remain mired below $50 a barrel.

US shale industry braced for bankruptcies - FT.com: The world may run on oil, but the oil industry runs on capital, and for US shale producers that capital is starting to dry up. Earlier in the year it was still relatively easy for US exploration and production companies to raise capital by selling debt or equities, in spite of last year’s oil price crash caused by a global glut. Now those sales have slowed sharply, and the financial strain on the industry is growing. The next turn of the screw is approaching, in the shape of another round of redeterminations of “borrowing bases”: the valuations of companies’ oil and gas reserves used by banks to secure their lending. The shale industry, which has been responsible for rapid growth in US oil production since 2009, is not about to die. There are plenty of strong companies that have healthy balance sheets, low costs, or both, and they should be able to ride out the downturn. But there are very wide differences in resilience between companies. Those with high costs or high debts, or both, face a turbulent future. “In retrospect, easy money and a difficult time for finding the right thing to invest in led to an overshoot in US [oil] production growth,” . “Companies that should never have been brought to life were brought to life.” Now that overshoot is heading for a correction. Analysts expect a wave of asset deals, acquisitions and corporate bankruptcies, as weaker companies struggle to avoid collapse, not always successfully. Already 16 US oil production companies have defaulted this year, according to Standard & Poor’s, the rating agency. The biggest failure has been Samson Resources, which was bought by a consortium led by KKR in 2011 for $7.2bn, and said last month it intended to seek bankruptcy protection in September. There are eight oil producers with credit ratings of triple-C or lower, meaning that “they’ve got about a year or less before they burn out of cash”. The next hurdles facing many of those companies will be their borrowing base redeterminations, which typically take effect on October 1. The previous round in March and April was less brutal for the companies than some had feared. This one is likely to be significantly tougher, draining liquidity away from struggling companies.

US shale oil industry hit by $30bn outflows - FT.com: US shale producers reported a cash outflow of more than $30bn in the first half of the year, in a sign of the challenges facing the US’s once-booming industry as the slump in oil prices begins to take effect. The shortfall points to a rise in bankruptcies and restructurings in the US shale oil industry, which has expanded rapidly in the past seven years but has never covered its capital expenditure from its cash flow. Capital spending by listed US independent oil and gas companies exceeded their cash from operations by about $32bn in the six months to June, approaching the deficit of $37.7bn reported for the whole of 2014, according to data from Factset, an information service. US oil production fell in May and June, according to the US Energy Information Administration, and some analysts expect it to continue falling as financial constraints limit companies’ ability to drill and complete new wells. Companies have sold shares and assets and borrowed cash to increase production and add to their reserves. The aggregate net debt of US oil and gas production companies more than doubled from $81bn at the end of 2010 to $169bn by this June, according to Factset.  “The capital markets have been so strong and so open for these companies that a lot of them were able to raise a lot of debt.” Capital markets have remained open for US oil and gas companies despite the crude price more than halving in the past year. However, there are now signs that the flow of capital is slowing. US exploration and production companies sold $10.8bn of shares in the first quarter of the year, but that dropped to $3.7bn in the second quarter and under $1bn in July and August, according to Dealogic. Similarly, those companies were selling an average of $6.5bn worth of bonds every month in the first half of the year, but the total for July and August was just $1.7bn. The next hurdle facing many US oil companies is the resetting of their borrowing base: the valuation of their oil and gas reserves that banks use to determine how much they will lend. Borrowing bases are generally set twice a year, and the new levels, which will typically take effect from October 1, will reflect significantly lower expectations for oil prices than the round agreed in the spring.

Oil and gas M&A at record pace amid oil rout - M&A in the oil and gas industry is running at a record pace this year, as the slump in oil prices sparks a wave of acquisitions and consolidation. The total $321.2bn spent on deals so far this year easily surpasses the previous year to date record of $227.7bn seen in 2010, according to Dealogic data. It is roughly double the $162bn spent in the same period last year, writes Joel Lewin. The largest deal of the year so far has been Royal Dutch Shell's £47bn swoop on its smaller rival BG Group, the biggest deal the energy sector has seen in more than a decade and one that could potentially transform Shell into the world's largest non-state oil company by output. The M&A wave spread to Australia on Tuesday with news that Perth-based Woodside Petroleum has launched a A$11.6bn bid (US$8.1bn) for explorer Oil Search. With oil prices down by more than half since June 2014, there has been much anticipation of a wave of consolidation that would echo the series of mergers and acquisitions that formed today's supermajors during a period of similarly depressed prices in the late 1990s. During that period, BP joined forces with Amoco and Arco, Chevron with Texaco and Exxon with Mobil. With many of the world's most easily and cheaply accessible oil resources already used up or discovered, dealmaking offers large companies a shortcut to growth. The US has been the top targeted nation for oil and gas M&A this year, accounting for $159.6bn, almost half the total.  May saw the first acquisition of a large US shale oil producer since prices collapsed, with US oil and gas group Noble Energy nabbing Rosetta Resources for about $3.7bn. If prices remain low, the US shale sector could see a rise in acquisitions as balance sheets weaken.

Falling prices force cutbacks and delays to exploration - FT.com: Even by the standards of past oil price collapses, the latest is shaping up to be momentous. And the world’s biggest oil companies have responded in unison — slashing spending, shedding jobs, and axing or deferring billions of dollars worth of projects. The most recent set of company results reflects the damage inflicted on profits and revenues by a slide in the price of crude of 60 per cent since last summer. This drop from more than $115 a barrel to less than $50 has been triggered by a US supply glut, and accelerated by Opec’s November decision not to cut output. In July, ExxonMobil, the US supermajor, reported a 52 per cent decline in second-quarter profits and its worst quarterly performance since 2009, while Chevron’s earnings plunged 90 per cent, hitting their lowest in more than a decade. In Europe, Royal Dutch Shell took drastic cost-cutting action in July, warning of a “prolonged downturn” as it cut capital spending by 20 per cent and disclosed a 6,500 fall in staff numbers. And BP revealed that it was deferring projects in order to benefit from falling supplier costs. Behind all the noise and numbers is a common theme: a laser-like focus on capital discipline. Even before the oil price began to fall last year, energy groups were under pressure from shareholders to rein in spending and place greater emphasis on “value” over “volume”, after soaring cost inflation eroded returns during the boom years of crude prices at beyond $100 a barrel. That pressure has only increased. So, just as in past downturns such as 1986, oil companies are scrambling to shore up cash flow in order to protect dividends — for which their shares have traditionally been held by investors. The first and easiest button to push is capital spending, or the investment that companies make in exploration and in developing resources that will meet demand years from now. According to energy consultancy Wood Mackenzie, about $200bn of spending on new oil and gas projects has been shelved, at least in part because of the plunge in the price of crude.

US oil producers thirsty for cash eye wastewater unit spin-offs (Reuters) – Some U.S. oil producers are trying to sell parts of their lucrative saltwater disposal businesses in a sign that cheap crude is already forcing cash-starved companies to sell assets so oil can keep flowing. Many oil companies rely on outside contractors, which tend to be small, privately-held companies, to inject the briny byproduct of crude production hundreds or thousands feet deep into the earth, well below the water table. But for producers which own such facilities, the high-margin business has served as a source of cost savings and steady revenue, factors that also make them appealing to yield-seeking investors in master limited partnerships (MLPs) and private equity funds. SandRidge Energy Inc and Oasis Petroleum Inc are two publicly traded oil producers openly marketing their saltwater divisions. SandRidge is planning to raise cash by listing it as an MLP and Oasis is seeking at least a partial sale. “The psychology of the market is pretty bad right now,” said Andrew Coleman, an energy analyst at Raymond James. “Any sale of these assets gives financial visibility without having to carry the cost of the asset on their books in what could be a rocky next few months.” Putting even a part of such businesses on the block suggests some energy executives are coming under increasing pressure to part ways with good, albeit non-core, assets to ride out the crude market slump and finance core oil operations.

The Biggest Red Herring In U.S. Shale -- Rig productivity and drilling efficiency distract from the truth that tight oil producers are losing money at low oil prices. Pad drilling allows many wells to be drilled from the same location by a single rig. Rig productivity reflects the increased volume of oil and gas thus produced by each of a decreasing number of rigs. It does not account for the number of producing wells that continues to increase in all tight oil plays. In other words, although the barrels produced per rig is increasing, the barrels per average producing well is decreasing (Figure 1). Rig productivity is a potentially deceptive measurement because it does not consider cost and apparently it always increases. It gives a best of all possible worlds outcome that seems to defy the laws of physics. Drilling productivity gives the false impression that as the rig count approaches zero, production approaches infinity. Barrels per rig is interesting but the cost to produce a barrel of oil is what matters. Similarly, drilling efficiency measures the decrease in the number of days to drill a certain number of feet. This is also interesting but, unless we know how it affects the cost to produce a barrel of oil, it is not useful. First-half 2015 SEC filings for Pioneer, EOG* and Continental show that these companies are all losing money at an average realized crude oil price of $48 and range of $44-52 per barrel that includes hedges. I chose these companies to study because they have good positions in the best tight oil plays, and provide a weighted cross-section of Bakken, Eagle Ford and Permian production performance (Table 1).

Shale’s dirty little capital market secret - Izabella Kaminska - "Many shale producers outspend cash flow and thus depend on capital market injections to fund ongoing activity." That’s from Citi’s Richard Morse and Edward Morse (related?), plus team, on the way capital markets rather than cartels are driving commodity prices these days. The note is titled: “From Cartel to Capital Markets: Investors Join OPEC Shaping Oil Market Dynamics.” This of course relates to our point on Monday that even the big commodity traders have been forced to turn to market-based funding in lieu of a dearth of bank finance in the sector. This is important because back in the old days it was Opec which acted as the balancing agent of last resort for the market. But today it’s not Opec which balances supply. It’s not even specialist banks. It’s the capital markets, which for the most part are made up of a melange of passive, active, risk averse and risk-on investors. As a collective they either provide financing to help withhold commodities from the market so as to keep sector investment flowing or alternatively which withdraw financing so as to release stored or pent-up commodities to the market to cover shortages. The problem with capital markets, however, is that unlike politically-motivated cartels which at least pretend to adhere to cartel rules that act in the interest of sovereign nations (motivated as they are by the desire to extend the value of their natural resource endowment for as long as possible), capital markets don’t have any such protocols or long-term aspirations. They are motivated simply by profit. Consequently, the only reason to provide financing to withhold commodity supply from the market is the assumption you can one day profit in a period of scarcity or shortages. Joseph and the Pharaoh stuff. Except, unlike with Joseph and the Pharaoh, capital markets don’t have access to prophetic dreams which can de-risk the cost of over-accumulation in times of plenty for anticipated shortages that never actually transpire. To wit, here’s Citi on how it was capital markets which helped to bridge the shale producing “funding gap,” but how that capital might not be as forthcoming if general capital costs rise:  Easy access to capital was the essential “fuel” of the shale revolution. But too much capital led to too much oil production,and prices crashed.  The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow. In the aggregate North American crude producers do not generate positive free cash flow (Figure 1), although some stronger producers do.

Citigroup Sees U.S. Oil Output Losing 500,000 Barrels a Day - A funding squeeze threatens to cut U.S. oil output by as much as half a million barrels a day by the end of the year, with shale producers among the worst affected, Citigroup Inc. said. “Capital markets thus far have plugged shale’s funding gap but are showing signs of tightening, with impacts for drilling, oil supply and global prices,” Richard Morse and Ed Morse, analysts at Citigroup in New York, said in a note. Access to high-yield credit markets for debt-strapped producers is “sharply contracting,” they said. High-cost oil producers in the U.S. have been forced to scale back in the past year after members of the Organization of Petroleum Exporting Countries decided to maintain output to defend their market position. U.S. crude prices have dropped almost 40 percent since OPEC announced its policy change in November to trade at about $45 a barrel Wednesday. “The U.S. could lose up to 500,000 barrels a day of output by year-end, half from shale,” Citigroup said in the note dated Tuesday. That loss almost matches Ecuador’s daily production, which was about 536,000 barrels last month. Ecuador is the 11th-biggest producer in OPEC, whose 12 members supply about 40 percent of the world’s oil. Cuts to reserve-based lending, which allows companies to secure loans with undeveloped oil resources, will remove an important source of liquidity, according to the bank. Weaker producers may face bankruptcy, while those with “high-quality” assets should be more resilient, it said. The number of oil rigs in the U.S. has shrunk by almost 60 percent since reaching a record-high last October, Baker Hughes Inc. data show. Production in the country fell for a fourth week on Aug. 28, the longest declining streak since January 2012, according to the Department of Energy.

Blue Dog Democrats endorse oil export bill - — A coalition of fiscally conservative Democrats on Wednesday declared their support for legislation to lift longstanding oil export restrictions. The 14-member Blue Dog Coalition said they backed the bill the night before a House subcommittee is expected to approve the measure.  Oil export advocates said the endorsement is a sign of growing support for the push to lift the ban, though substantively, it may not represent many new “aye” votes for the legislation. Eight members of the group had already signed on as cosponsors of the bill. One of them, Rep. Kurt Schrader, D-Ore., said oil exports can be a force for stability in volatile regions of the world “by creating competition on the global market and limiting the ability of countries like Russia to use crude . . . as a political weapon.” Rep. Joe Barton, R-Ennis, has been working with lead Democratic cosponsor (and Blue Dog member) Henry Cuellar, D-Texas, to build support for the bill. The House Energy and Power Subcommittee is slated to vote on the legislation Thursday, paving the way for a full committee’s consideration as early as next week.

U.S. House panel passes bill to repeal oil export ban -  A bill to repeal the U.S. ban on oil exports gained momentum on Thursday, when it passed a House of Representatives subcommittee, an initial step to overturn the 40-year-old trade restriction in the full chamber. The House Energy and Power subcommittee passed the bill by a voice vote. The legislation, sponsored by Republican Representative Joe Barton of Texas, is expected to go to a vote by the full Energy and Commerce committee next week. Passage by the full panel would set it up for a wider vote by the Republican-led House, where it is expected to pass. The measure, however, still faces an uphill battle in the U.S. Senate. Barton said the energy landscape has changed since 1975 when the ban was imposed and a repeal would provide jobs and help allies diversify their oil supplies. The bill is supported by oil producers who say they need access to global markets to keep the domestic drilling boom alive. But several Democrats on the panel expressed reservations about the measure. Representative Frank Pallone, a New Jersey Democrat, said repealing the ban would lead to a “significant pay day for oil producers,” but it was less certain that it would benefit U.S. consumers and that a repeal would put oil refinery jobs in jeopardy. Democratic Representative Mike Doyle of Pennsylvania said repealing the ban would shift U.S. refinery jobs overseas.

Alberta’s oil and gas land sales revenue takes a beating - Alberta is on track to post its worst annual oil and gas land sales revenue in more than two decades. As of late August, auctions in which the province leases out land rights to energy companies have pulled in $209-million. “It’s absolutely the worst that we’ve seen the 21 years that I’ve been doing this,” said Winston Gaskin, president of Standard Land Co., which assists companies in buying land rights.In 2014, Alberta sold $494-million worth of energy land tenures, the lowest since 2002. Given the current pace of sales, Alberta could see its lowest land sales revenue since 1992, when it sold a paltry $149-million in land rights. That compares with a high-water mark of $3.5-billion in 2011 as excitement in the Duvernay shale formation drove up prices. “Exploration budgets are the first things that get cut in times like these, so that impacts the sales,” Mr. Gaskin said. B.C., meanwhile, had sold only $8.5-million worth of petroleum and natural gas tenures as of mid-August, compared with $383-million in all of 2014 and a bumper year of $2.7-billion in 2008. In Saskatchewan, the government had pulled in $35.7-million from exploration licences and leases as of mid-August, while last year it received $197.9-million.

Alberta regulator lets Nexen reopen some Long Lake pipelines - Alberta’s energy regulator said late on Sunday it will allow Nexen Energy, the Canadian subsidiary of China’s CNOOC Ltd, to reopen some pipelines ordered closed following a major spill. The Alberta Energy Regulator said it would allow a restart of 40 of 95 pipelines closed at Nexen’s Long Lake oil sands operations after reviewing maintenance and monitoring documentation. “The remaining 55 pipelines affected by the order, which contain several products, including crude oil, natural gas, salt water, fresh water and emulsion, continue to be suspended,” the regulator said in a statement. “These pipelines … will not return to service until Nexen can demonstrate that the pipelines can be operated safely and within all requirements.” The provincial regulator last month ordered Nexen to shut in the pipelines at the Long Lake facility as part of an investigation into one of the largest-ever oil-related pipeline spills on North American soil, discovered in July.

Inside Ground Zero Of Canada's Burst Oil Bubble --In the past year, we have extensively profiled the collapse of ground zero of Canada's oil industry as a result of the plunge in the price of oil, in posts such as the following:

• "Canada Crude Contagion: Calgary Home Prices Drop Most In 2 Years"
• "Canada's Biggest Oil Casualty To Date: Calgary's Nexen Shutters Oil Trading Desk"
• "The Canadian Housing Bubble Has Begun To Burst"
• "Canada's Oil Patch Confidence Crashes"
• "Canada Mauled by Oil Bust, Job Losses Pile Up – Housing Bubble, Banks at Risk"
• "The Stage Is Set For A Massive Housing Market Correction in Canada's Oilpatch"

Since then it has gotten far, far worse for Canada. In fact, as of September 1 it culminated with the first official recession in 7 years. And it's only downhill from there. As Mark Thornton of the Mises Institute points out, in a report from the Financial Post shows that Calgary in Alberta Canada now has 1.7 million square feet of empty office space, the most in North America with another 5.2 million under construction! After years of booming construction, the natural resource rich country is starting to feel the pinch. To wit:  The number of half-empty office buildings in Alberta is projected to spike, as Colliers International predicts an “ill-timed” building boom should push up vacancy rates in Calgary and Edmonton. 

Oil falls more than 3 percent on oversupply, China equity losses | Reuters: Oil fell more than 3 percent on Monday, hit by weaker Chinese equities and record North Sea crude production data that added to global oversupply concerns. China's main indexes closed down on Monday as investors sold shares in the aftermath of a four-day market holiday, during which further restrictions on futures trading were announced. "Oil is only taking its cues from China,". "The price is taking little notice of constructive data like stronger (European) equities, stronger base metals and last Friday's fall in U.S. rig count," he said. Brent futures contracts for October fell $1.98 to settle at $47.76 a barrel, a 3.73 percent loss. U.S. crude fell $1.80 to $44.25 per barrel by 2:48PM, with trading volume of around 75,000 lots less than one-quarter the norm due to the U.S. Labor Day holiday. Oil has fallen almost 60 percent since June 2014 on a global supply glut, with prices seesawing in recent weeks as concerns about a slowing Chinese economy caused turmoil in global stock markets. "For commodities, the key demand-side figure to care about is not China’s GDP growing at 7 percent instead of 9 or 10 percent, it is the manufacturing price index, which has been falling for more than 40 months in a row," JBC Energy said. The Organization of the Petroleum Exporting Countries is producing close to record volumes to squeeze out competition, especially from U.S. shale producers, which have so far weathered the price plunges to keep pumping oil.

WTI Crude Tumbles To $44 Handle (As Algos Forget US Closed) -- Despite US markets being closed for Labor Day, WTI Crude futures traders algos appear to be following the post-EU close run-the-stops pattern. Despite rising tensions in the middle-east and China promising their market is stable, WTI Crude is down almost 4%, back to a $43 handle...

API crude oil inventories: up 2.1 mln barrels - American Petroleum Institute (API) crude oil inventories for the week to September 4

• Stock build last week of 2.1 million barrels
• Refineries cut output
• Gasoline inventories and distillate inventories up
• Crude stocks at Cushing fell 1.1 million barrels

The API data is closely watched as a guide to the U.S. Energy Information  Administration (EIA) data due tomorrow morning (US time). The consensus estimate for tomorrow's EIA report is currently for +872.73Kbbls (i.e. an inventory build).

WTI Tumbles On Crude's Biggest 2-Week Build In 5 Months -- Following last night's 2.1mm barrel build forecast from API, DOE reported a bigger than expectd 2.6mm barrel inventory build. This is the largest 2-week build in crude stocks since April and has sent crude prices tumbling. Charts: Bloomberg

Crude Oil Price Dips as Inventory Rises, but Refineries Slow Down - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Thursday morning. U.S. commercial crude inventories increased by 2.6 million barrels last week, maintaining a total U.S. commercial crude inventory of 458 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Wednesday evening, the American Petroleum Institute (API) reported that crude inventories rose by 2.1 million barrels in the week ending September 4. The API also reported that gasoline supplies rose by 700,000 barrels and distillate stockpiles rose by 800,000 barrels. For the same period, analysts surveyed by Platts had estimated an increase of 300,000 barrels in crude inventories. Total gasoline inventories increased by 400,000 barrels last week, according to the EIA, and remain in the middle of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged over 9.3 million barrels a day for the past four weeks, up by 3.8% compared with the same period a year ago. The U.S. House of Representatives Energy and Power subcommittee has been lining up votes to lift the 40-year ban on exports of U.S. crude. On Wednesday, 14 Democrats known as the Blue Dogs said they supported lifting the ban on oil exports. What all this means is not terribly clear, although the most likely options are an up or down vote on legislation to lift the ban or adding the export language to other legislation, such as the spending bill or the highway funding bill.

OilPrice Intelligence Report: Does This Mean OPEC Is Winning The Oil Price War? -- The EIA’s weekly data showed a surprise uptick in oil inventories, the second consecutive week of gains. Crude stocks jumped by 2.6 million barrels. After around three months of slow but steady drawdowns in inventories since the beginning of May, crude stocks have been largely unchanged (despite week-to-week movements) since the beginning of August. It is not coincidental that the pause in drawdowns overlapped with another dive in oil prices. The latest inventory build puts more pressure on prices. However, we are finally seeing meaningful reductions in actual output, the most important indicator for investors watching for a balancing in the oil markets. All summer, the world has been left in a confused state over how long U.S. oil production would remain steady. But in the last two weeks, the EIA has published new data that points to a much deeper and more definitive slowdown in U.S. oil production. The best guess from the agency says that the U.S. is producing just 9.13 million barrels per day (mb/d), down around 500,000 barrels per day since peaking in April. The loss of around half a million barrels per day in production is equivalent to the entire output of individual countries, such as OPEC member Ecuador, or even Libya’s current production level. It is a significant reduction, and one that is accelerating. In June, the U.S. saw oil production dip by 100,000 barrels per day, but a few months later, the losses have grown to 140,000 barrels per day for the month of August. With investment on behalf of exploration and production companies shrinking, not expanding, the cutbacks will continue.The IEA released its monthly report on September 11, and its conclusions largely back up the latest predictions from the EIA. The Paris-based organization believes that non-OPEC production will fall by 500,000 barrels per day in 2016, which will be the sharpest drop in the past quarter century. “Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea,” the report concludes. U.S. shale “is likely to bear the brunt” of the contraction, losing 400,000 barrels per day next year.

U.S. crude inventories might be tighter than they look – U.S. oil markets have been transformed over the last decade by the emergence of oil trading and storage as a major business in its own right, separate from production and refinery operations. At the end of 2014, there were more than 390 million barrels of crude stored at refineries and tank farms as well as in transit in pipelines and barges and in storage tanks at oilfields. Commercial crude stockpiles had climbed by more than 100 million barrels since the end of 2004, almost 38 percent, according to annual data published by the U.S. Energy Information Administration (EIA). By the end of April 2015, commercial stocks had climbed by another 105 million barrels to a record 491 million as the oversupply in the global oil market ended up at refineries and tank farms. Even after a strong summer driving season, with U.S. refineries processing record amounts of crude into gasoline and other fuels, stockpiles remained at 455 million barrels at the end of August. But the focus on rising inventories as a sign of the cyclical supply-demand imbalance has obscured deeper structural changes which have resulted in the industry holding higher stocks than a decade ago.Some of the increase in stocks stems from operational requirements linked to the increase in domestic oil production, which means more crude stored in field tanks as well as in railroad tank cars and in pipelines on the way to refineries.The futures markets are also providing incentives to store more crude in the form of a much wider and more consistent contango structure. Before 2005, the U.S. oil futures market traded in backwardation about two-thirds of the time, and contango around one-third of the time. Whatever the cause, the shift from backwardation to contango trading as the norm has coincided with a large increase in stockholding. And the physical market has moved to accommodate an increased desire to hold stocks by building much more storage capacity. The amount of storage available at tank farms, most of which is leased either long-term or short-term to traders, has surged.  Tank farm and underground storage capacity jumped to 391 million barrels in March 2015, from 307 million in March 2011, according to the EIA.

Crude Jumps After Biggest 2-Week Rig Count Decline In 4 Months -- With Saudis blowing off an OPEC leaders meeting, Iran slashing prices to 3 year lowsinventories rising rapidly but US production dropping quickly, and Goldman calling for $20 oil possible, it has been a busy (and mixed) week for oil news. Add to that the seasonal lull amid refinery slowdown/repairs and Today's 10 rig drop in US oil rig count to 652 (following last week's 12 rig drop) is the biggest 2-week drop in 4 months just adds to the noise with Texas rig count dropping most (-9 to 366). Crude prices are rising modestly as US rig count drops back to 2-months lows. This is the lowest total rig count since January 2003...  and the result... Finally, just a "thinking out loud" chart....  Charts: Bloomberg

U.S. oil drillers cut rigs with crude price decline - Baker Hughes - U.S. energy firms cut oil rigs for a second week in a row, data showed on Friday, a sign the latest price declines may be causing some drillers to put on hold their recently announced plans to return to the well pad. Drillers removed 10 rigs in the week ended Sept. 11 and 13 rigs in the week ended Sept. 4, bringing the total rig count down to 652, after adding rigs in six of the past eight weeks, oil services company Baker Hughes Inc said in its closely followed report. That was the biggest two-week decline since early May. Those additions since the start of July showed some drillers had followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel. U.S. oil prices this week, however, averaged $45 a barrel, down from an average of $47 last week. Earlier Friday, U.S. crude prices were down more than 2 percent after two banks, Goldman Sachs and Commerzbank, both slashed their crude forecasts, citing lingering oversupply concerns and worries over China’s economy.  “The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016,” Goldman said in a note entitled “Lower for even longer.” Drillers this week cut one oil rig in each of the four major U.S. shale oil basins: the Eagle Ford in South Texas, Niobrara in Colorado and Wyoming, Bakken in North Dakota and Montana, and Permian in West Texas and eastern New Mexico.

Near-Term Forces Could Push Oil Prices Lower -- Meanwhile, the North Sea oil industry is facing an existential crisis. Low oil prices have forced spending cuts and contraction across the world, but the offshore oil and gas fields in the North Sea are some of the world’s costliest. Mature fields have been in decline for years, and companies have to constantly invest capital to keep the decline merely at a slow pace, rather than a precipitous one. However, persistently low oil prices could send the North Sea oil and gas industry into a sort of death spiral. According to the FT, the North Sea is at “serious risk” of shutting down. The problem is that many companies share certain infrastructure, so when one company shuts down its operations and pulls out, that leaves the cost of maintaining collective infrastructure (such as pipelines or processing facilities) much greater for the companies that remain. As such, the more fields that are shut down, the greater the pressure on existing operators to leave the region as well. The British government has tried to help the industry through lower taxes, but it may not be enough. More companies are clamoring for the exits. Royal Dutch Shell (NYSE: RDS.A) announced this summer that it would shrink its footprint in the North Sea. Total (NYSE: TOT) announced in August that it would sell $900 million worth of North Sea assets in order to raise cash. Greater cooperation between companies could slow the decline, an industry trade group says. For example, companies could share data on dry wells. However, such cooperation is foreign to operators who are so used to competing, and salvaging the region as a major source of oil and gas production appears increasingly difficult.

The Decline Of Oil: Head-Fake Or New Normal? -- In May 2008 I proposed the Oil "Head-Fake" Scenario in which global recession pushes oil demand down as oil exporters pump their maximum production in a futile attempt to fund their vast welfare states and thus retain their precarious political power. The terrible irony of the head-fake, of course, is that the exporters' efforts to pump more oil exacerbates the oversupply, further depressing prices. As exporters receive fewer dollars for their production, they attempt to compensate by pumping even more oil. Perniciously, this suppresses prices even more, setting up a positive feedback loop which pushes prices to the point that exporters are no longer able to fund their welfare states and Elites. Something has to give, and that something is the existing power structure in oil exporting nations. The majority of exporting nations under-invest in their oil production and exploration infrastructures, essentially guaranteeing declining production once the easy oil has been extracted. This cycle of spending the fruits of current production while starving investment for the future is part of what is known as the resource curse: nations with an abundance of resources rely on the income generated by the sale of their resources which effectively stunts the development of a diverse economy and the institutions which such a diverse economy requires as a foundation. The net result of the resource curse is national impoverishment as the resources are depleted. Diverting the majority of the oil revenues to support welfare states and Elites dooms the oil exporters to under-investment in future production. In other words, the decline in the price of oil does not mean oil will remain cheap for years to come; it's a head-fake that fools the unwary into assuming the glut is The New Normal.

Oil production in US seen tumbling due to price drop - Oil supply from the United States, Russia and other non-OPEC countries is expected to drop sharply next year — possibly the steepest decline since the Soviet Union collapsed — because of low prices, the International Energy Agency forecast Friday. In its latest monthly report, the IEA says non-OPEC production is expected to drop nearly half a million barrels to 57.7 million barrels a day. It said that would be the largest annual drop since 1992, when non-OPEC supply shrank 1 million barrels after the USSR fell apart. Amid booming U.S. production and high OPEC output, the benchmark price of oil plunged from over $100 last year to about $45 this week. Global oil demand has also grown, but not enough to absorb the high supply. The agency forecast global oil demand would grow this year to a five-year high of 1.7 million barrels a day, before dropping to 1.4 million next year. The low price is particularly hurting U.S. production, with the decline in output speeding up over the summer, the IEA said. Russian and North Sea supply is also forecast to shrink. The report said OPEC supply remains higher than last year and well above the group’s own production targets. There have been only slight declines in Saudi Arabia, Iraq and Angola, which edged down OPEC’s daily crude supply by 220,000 barrels in August to 31.6 million barrels a day.  So despite the IEA’s forecast for a drop in production in places like the U.S. next year, experts say it is unlikely that prices will rebound any time soon.

Global Economic Fears Cast Long Dark Shadow On Oil Price Rebound -- Aside from supply and demand fundamentals in the oil markets, central bank policymaking is another major factor determining the trajectory of oil prices. The European Central Bank hinted that it might consider more monetary stimulus to help the stagnant European economy. Oil prices rose on the news. The markets, however, are waiting on a much more significant announcement from the Federal Reserve this month on whether or not the central bank will raise interest rates.  On September 4, the U.S. government released data for the month of August, revealing that the U.S. economy added only 173,000 jobs, a mediocre performance that missed expectations. Although an economic slowdown is no doubt a negative for oil prices, the news could provide enough justification for the Fed to hold off on raising interest rates. A delay in a rate hike could push up WTI and Brent.  Although a slew of Canadian oil sands projects have been cancelled due to incredibly low oil prices, several large projects were already underway before the downturn.With the costs of cancellation too high, these projects continue to move forward. When they come online – several of which are expected by 2017 – they could add another 500,000 barrels per day in production, potentially exacerbating the glut of supplies not just in terms of global supply, but more specifically in terms of the flow of oil from Canada. Canadian oil already trades at a discount to WTI, now at around $15 per barrel. That means that when WTI dropped below $40 per barrel last week, Western Canada Select was nearing $20 per barrel. With the latest rebound to the mid-$40s, WCS is only around $30 per barrel. But with breakeven prices for many Canadian oil sands projects at $80 per barrel for WTI, oil operators in Alberta are no doubt losing sleep over their current situation. One important caveat to remember is that unlike shale projects, Canada’s oil sands operate for decades, so the immediate downturn does not necessarily ruin project economics. However, with a strong rebound in prices no longer expected in the near-term, high-cost oil sands projects are probably not where an investor wants to be.

Oil absolutely friggin everywhere - The monthly IEA oil market report puts things about as simply as they can be put: As they note: The big story this month is one of tightening supply, with the spotlight firmly fixed on non-OPEC. Oil’s price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day – the biggest decline in 24 years. While oil’s recent volatility has been unnerving – Brent crude jolted from a six-year low below $43 /bbl to above $50/bbl in the space of days – the lower price environment is forcing the market to behave as it should by shutting in output and coaxing demand. US oil production is likely to bear the brunt of an oil price decline that has already wiped half the value off Brent. After expanding by a record 1.7 mb/d in 2014, the latest price rout could stop US growth in its tracks. A sharp decline is already underway, with annual gains shrinking from more than 1 mb/d at the start of 2015 to roughly half that level by July. Rigorous analysis of our data suggests that US light tight oil supply, the engine of US production growth, could sink by nearly 400 kb/d next year as oil’s rout extends a slump in drilling and completion rates. Critically, the IEA notes that inventories are continuing to build with global supply — towering 2.4 mb/d above a year ago, outpacing demand. Furthermore, the IEA says it only sees the world beginning to siphon off record-high stocks in the second half of 2016. Here, meanwhile, is a nifty chart representing how the crude supply battle is currently being fought out between Opec and non-Opec producers:

$20 Oil? Goldman Says It's Possible -- We’ve long framed collapsing crude prices as a battle between the Saudis and the Fed.  When Saudi Arabia killed the petrodollar late last year in a bid to bankrupt the US shale space and secure a bit of leverage over the Russians, the kingdom may or may not have fully understood the power of ZIRP and the implications that power had for struggling US producers. Thanks to the fact that ultra accommodative Fed policy has left capital markets wide open, the US shale space has managed to stay in business far longer than would otherwise have been possible in the face of slumping crude. That’s bad news for the Saudis who, after burning through tens of billions in FX reserves to help plug a yawning budget gap, have now resorted to tapping the very same accommodative debt markets that are keeping their competition in business as a fiscal deficit on the order of 20% of GDP looms large. But even with a gaping hole in the budget and an expensive proxy war raging in Yemen, it’s not all bad news for Saudi Arabia as evidenced by King Salman’s lavish Mercedes procession upon arrival in DC last week and as evidenced by the fact that, as The Telegraph reports, non-cartel output is beginning to fold under the pressure of low prices. The only remaining question then, is how low will oil go in the near- and medium-term and on that point we go to Goldman for more: Oil prices have declined sharply over the past month to our $45/bbl WTI Fall forecast. While this decline was precipitated by macro concerns, it was warranted in our view by weak fundamentals. In fact, the oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop.  Given our updated forecast for a more oversupplied oil market in 2016, we are lowering our oil price forecast once again. Our new 1-, 3-, 6- and 12-mo WTI oil price forecast are $38/bbl, $42/bbl, $40/bbl and $45/bbl. Net, while we are increasingly convinced that the market needs to see lower oil prices for longer to achieve a production cut, the source of this production decline and its forcing mechanism is growing more uncertain, raising the possibility that we may ultimately clear at a sharply lower price with cash costs around $20/bbl Brent prices, on our estimates. While such a drop would prove transient and help to immediately rebalance the supply and demand for barrels, it would likely do little for the longer-term capital imbalance in the market with only lower prices for longer rebalancing the capital markets for energy.

Energy job cuts approaching 200,000 worldwide - The oil bust’s toll on corporate payrolls continues to grow. Job cuts in the petroleum industry reached nearly 196,000 globally last week, according to a Houston energy consultant, after ConocoPhillips said it would cut 10 percent of its workforce and other energy firms announced more layoffs. Nearly half of the oil industry’s reductions over the past year have come from the oil field service industry, firms that provide oil and gas producers with drill bits, well casing, hydraulic fracturing pumps and other technology, says John Graves, president of Graves & Co., who has tracked the layoffs closely. Though most of the reductions have come from oil field service firms so far, analysts believe oil producers could spur the next wave of layoffs. “While there remains additional force reduction potential in the OFS sector, upstream organizations within the producer community appear to be just getting started with their layoff programs,” analysts at Tudor, Pickering, Holt & Co. said in a note to clients Tuesday. The analysts said a handful of other producers have cut general and administrative costs, but most haven’t indicated whether layoff are taking place or not. There is also anecdotal evidence firms are rescinding offers to new hires in petroleum engineering, they said.

End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought - The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters. Here is the crux of the matter as expressed in a piece which I wrote last year: The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out.... Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now. Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.

The Petrostate Hex: Visualizing How Plunging Oil Prices Affect Currencies -- (infographic) Every day, the world consumes 93 million barrels of oil, which is worth $4.2 billion. Oil is one of the world’s most basic necessities. At least for now, all modern countries rely on oil and its derivatives as the backbone of their economies. However, the price of oil can have significant swings. These changes in price can have profound implications depending on whether an economy is a net importer or net exporter of crude. Net exporters, countries that sell more oil abroad than they bring in, feel the sting when prices plunge. Less revenue gets generated, and this can impact everything from balancing the budget to the value of their currency in the world market. Net importers, on the other hand, benefit from lower prices as it decreases input costs for production. For example, a country like Japan only meets 15% of its energy needs domestically, and must import 3.5 million barrels of oil each day. A lower oil price significantly decreases these costs. For many major net exporters of oil, changes in oil prices are highly correlated with their currencies. With oil prices crashing over the last year, currencies such as the Canadian dollar and Russian ruble have been highly impacted in terms of USD. But the impact of oil on currency depends on how central banks approach to policy.

Low oil price forces Saudi Arabia to cut spending amid record budget shortfalls - Saudi Arabia will cut spending and issue more bonds as it faces a record budget shortfall due to falling oil prices, the finance minister said on Sunday. The kingdom - the biggest Arab economy and the world's largest oil exporter - is facing an unprecedented budget crunch after crude prices dropped by more than half in a year to below $50 a barrel. It has so far relied on its huge fiscal reserves to bridge the gap but Finance Minister Ibrahim al-Assaf said more measures would be necessary. "We are working... to cut unnecessary expenditure," He provided no details on the scale of the cuts but insisted key spending in education and health and on infrastructure would not be affected. "There are projects that were adopted several years ago and have not started yet. These can be delayed," Assaf said. He said the government would issue more conventional treasury bonds and Islamic sukuk bonds to "finance the budget deficit" - which is projected by the International Monetary Fund at a record $130bn (£86bn) for this year. The kingdom has so far issued bonds worth "less than 100 billion riyals (£17.8bn)" to help with the shortfall, he said, without providing an exact figure. "We intend to issue more bonds and could issue sukuk for certain projects... before the end of 2015," Assaf said. Saudi Arabia has projected an official budget shortfall for this year of $39 billion, but the IMF and other institutions believe the actual deficit will be much higher.

Expectations of Saudi oil shake-up stir uncertainty - A shake-up of Saudi Arabia’s oil leadership by King Salman has introduced a new element of unpredictability to its energy policymaking at a moment when Riyadh is grappling with slumping crude prices and its war in neighboring Yemen. State oil giant Aramco has been without a permanent chief executive since April, when Khalid al-Falih was made health minister, and the old Supreme Petroleum Council, where energy policy was historically made, was abolished in January. While the world’s top crude exporter has always prized stability and consistency in crafting oil policy, the changes, alongside a shift in market strategy that contributed to the world price slump, have left analysts and traders guessing as to King Salman’s long-term vision. The main tenets of Saudi oil policy – maintaining the ability to stabilize markets via an expensive spare-capacity cushion and a reluctance to interfere in the market for political reasons – are still set in stone, say market insiders. But the uncertainty has led to speculation over the fate of both veteran Oil Minister Ali al-Naimi and the wider composition of the kingdom’s energy and minerals sectors, with rumors abounding that a sweeping restructure could be imminent. “There will be changes (at the oil ministry), but no one knows when or what will happen next. It could be tomorrow, next week or a month from now,” said a Saudi insider. “The decisions are being taken by a small circle of people and a few advisers.” The key person in that small circle is Prince Mohammed bin Salman, the young deputy crown prince who without having any previous oil experience has emerged since his father’s accession to power as the most powerful figure in Saudi economic and energy policy.

Saudi oil maintains Asian market share - FT.com: Saudi Arabia maintained its market share among Asian oil importers in the first half of this year but threats to its long-term standing loom, according to the US energy department. The share of these crude oil imports from Saudi Arabia averaged 23.2 per cent from January to June, compared with 23.9 per cent in the same period in 2014, the Energy Information Administration said on Wednesday. The world’s largest crude exporter and biggest Opec producer “increased production and kept its export levels high, enabling it to maintain its market share”, the EIA said. Saudi Arabia exported on average 4.4m barrels a day of crude oil to seven major trading partners in Asia in the first half of this year. Total crude oil imports for these countries averaged 19.1m b/d, about 700,000 b/d higher than during the same period in 2014. The kingdom’s import share to China (16 per cent), Japan (33 per cent), India (20 per cent), South Korea (33 per cent), Taiwan (33 per cent) and Thailand (19 per cent) were almost unchanged. Its share declined in Singapore, down to 18 per cent from 26 per cent. Previously during periods of oversupply, Saudi Arabia has adjusted its production to bolster prices. But last November the kingdom led a decision by the Opec producers’ cartel not to cut output and instead focus on maintaining its market share among core customers. Saudi Arabia’s output rose sharply in the first six months of the year to 10.6m b/d in June, according to the JODI oil database. Exports, meanwhile, have fluctuated between 7m-8m b/d, with Asia making up more than half of the total.

Saudis Are Winning the War on Shale  If you believe all the recent stories about how Saudi Arabia is losing the price war it started against U.S. tight oil producers last year, the new Oil Market Report from the International Energy Agency offers a reality check. The Saudis are winning, though they're paying a heavy price for it. The narrative about U.S. shale's resilience in the face of the Saudi decision to drive up production, prices be damned, centers on the American industry's ability to cut costs and use innovative technology to repel the brute force onslaught. There is a kind of David versus Goliath charm to this story, but the data don't bear it out. The IEA, the world's most respected independent source of information about the oil market, has changed its methodology for measuring U.S. output: It now polls producers, instead of relying on data from states. And the switch has caused the agency to revise production data for the first half of 2015, showing a noticeable slowdown. The U.S. is still pumping more than it did last year, but the output is declining: IEA data show monthly contractions of 90,000 barrels a day in July and almost 200,000 barrels a day in August. Output is dropping for all seven of the biggest U.S. shale plays. The IEA predicts that the U.S. production of light tight oil -- the type pumped by frackers -- will go down by 400,000 barrels a day next year, about as much as Libya currently produces. That drop will account for most of the 500,000 barrels a day drop in production outside the Organization of Petroleum Exporting Countries that the agency predicts for 2016. Production is also dropping in Canada: It's below 4 million barrels a day for the first time in 20 months. The IEA doesn't believe shale oilers' incantations about drastically lower marginal cost of producing oil from already drilled wells. It points out that tight oil wells dry up much faster than traditional ones: Recent data show that output drops 72 percent within 12 months of startup and 82 percent in the first two years of operation. "To grow or even to sustain production levels requires continuous investment," the IEA report says. Low oil prices reduce frackers' access to the capital they need, and rig counts are falling again -- in early September the drop was the steepest since May.

Saudi deficit could erode reserves: IMF - The International Monetary Fund warned Wednesday that Saudi Arabia's growing budget deficit could rapidly erode its reserves unless it adapts to slumping oil prices by adopting a host of painful reforms. "With the large decline in oil prices, the fiscal deficit has increased sharply and is likely to remain high over the medium term," the IMF said in a report released after talks with Saudi officials. "These deficits will rapidly erode the fiscal buffers that have been built over the past decade," it said. The kingdom must undertake "a large multi-year fiscal adjustment" to balance the budget, the IMF said. The reforms should include comprehensive energy efficiency and price alterations, expanding non-oil revenues, reviewing capital and current expenditures and reducing the government wage bill, it added. The report projected the Saudi budget deficit to run at 19.5 percent of Gross Domestic Product, or around $130 billion, in 2015. It said the deficit is projected to be lower in 2016 but will remain high in the medium term and is estimated at 9.5 percent of GDP -- around $80 billion -- in 2020. The IMF has already cut its economic growth projections for Saudi Arabia to 2.8 percent this year and 2.4 percent in 2016.

Iran Cuts Crude 'Selling Price' To Asia To 3-Year Low -- In what appears to be a bid to lure Asian buyers to lock in longer-term supplies, Reuters reports that Iran has cut its quarterly selling price (for its flagship 'light' crude) to its lowest (relative to Saudi) since Q4 2012. According to recent tanker loading data, Iran's oil sales in September are set to hit a six-month low, and this price reduction is just one of the steps taken by the OPEC producer to ramp up output and regain market share lost since U.S. and European sanctions aimed at its nuclear program cut its crude oil exports by more than half. Iran has cut its relative prices notably over the past year... Iran set its official selling price (OSP) for Iranian Light crude for October at a 25 cents a barrel premium to Oman/Dubai, down 35 cents from the month before, two sources with knowledge of the matter said on Thursday. This puts Iranian Light OSP at a 15-cent premium to Saudi's Arab Light in the fourth quarter, the lowest quarterly price since the last three months of 2012, according to Reuters data. As Reuters reports, Asian buyers have called for lower prices amid a supply glut that has made it tougher for Iran to elbow its way to higher sales volumes despite optimism over the deal that eased some of the sanctions in exchange for curbs on Tehran's nuclear work. An executive at a North Asian oil refiner said it is in talks with the National Iranian Oil Company for next year's term supply, but that Iran's crude prices have been uncompetitive.

Secret memos expose link between oil firms and invasion of Iraq -  Plans to exploit Iraq's oil reserves were discussed by government ministers and the world's largest oil companies the year before Britain took a leading role in invading Iraq, government documents show.  The papers, revealed here for the first time, raise new questions over Britain's involvement in the war, which had divided Tony Blair's cabinet and was voted through only after his claims that Saddam Hussein had weapons of mass destruction. The minutes of a series of meetings between ministers and senior oil executives are at odds with the public denials of self-interest from oil companies and Western governments at the time. The documents were not offered as evidence in the ongoing Chilcot Inquiry into the UK's involvement in the Iraq war. In March 2003, just before Britain went to war, Shell denounced reports that it had held talks with Downing Street about Iraqi oil as "highly inaccurate". BP denied that it had any "strategic interest" in Iraq, while Tony Blair described "the oil conspiracy theory" as "the most absurd". But documents from October and November the previous year paint a very different picture.

The Economies Getting Hit by Low Oil Prices - Oil prices are still under $50 a barrel due to a glut in production and OPEC’s—the cartel of oil-producing countries—price war. Some say that the OPEC is winning: U.S. energy firms have been making cut-backs this summer due to losses from the low prices. It’s good news for U.S. consumers though: Labor Day gas prices are expected to be the lowest in 11 years. But lower oil prices are almost definitely bad news for the governments whose budgets are dependent on them being high: Saudi Arabia, ostensibly the leader of OPEC, is facing huge budget deficits this year due to decreased oil prices. According to the International Monetary Fund (IMF), the deficit will be about $140 billion. Canada’s economy has also made headlines as low crude oil prices meant that the Canuck GDP shrunk for first half of 2015—putting the country in a modest recession on the eve of an election. Major oil-producing countries—that list includes Venezuela, Libya, Russia, Qatar, and Iraq—are all taking a hit. Each of these countries have a different threshold for how low prices can go before their budget goes into deficit territory, but according to calculations by the Wall Street Journal and the IMF—only Kuwait can break even at the current prices. (In Deutsche Bank’s estimates, no one survives.) For now, it’s still unclear when the oil price war will end—some analysts are expecting low oil prices to last for a while. Perhaps what’s even more unclear is who will come out on top at the end of it.

Exclusive: Petrobras spending plan already obsolete, new cuts likely - sources | Reuters: Brazil's state-run oil company Petrobras, which slashed its five-year spending plan by 40 percent in June, will likely cut back further as growing debt costs, falling oil prices and a weak currency have already made the plan obsolete, two company sources told Reuters on Thursday. Standard & Poor's decision to cut Brazil's sovereign credit rating to "junk" grade on Wednesday was followed by a separate downgrade for Petroleo Brasileiro SA, as Petrobras is known, on Thursday. The sources said the downgrade will raise the cost of refinancing Petrobras' more than $130 billion of debt and reduce the capital available to drill wells, build production ships and refineries and pay for infrastructure to boost output and revenue. "The June plan is already obsolete, its outlook for oil prices, debt costs and the currency are no longer realistic. The plan will have to be changed," one of the sources said. In a statement released late on Thursday, Petrobras said its project financing was sound in the medium term and is not affected by a downgrade in credit risk by a ratings agency. Hailed as a return to reality after years of missed output goals, record spending and a giant corruption scandal that led to $17 billion of writedowns, the plan unveiled in June cut the 2015-2019 spending goal to $130 billion from $221 billion. Both sources are directly involved in Petrobras' planning efforts and asked for anonymity because company plans are still under discussion. Both also said a planned sale in 2015 of up to 25 percent of fuel-distribution arm Petrobras Distribuidora SA is now almost impossible.

Mexico's 'mother of all oil and gas rushes' is about to get ugly - Mexico’s energy revolution could prove to be a bitter pill for the vast rump of the Mexican population, who stand to lose out on billions of dollars of annual state funds provided by the newly privatized but financially crippled oil company Pemex. But where there are losers, there are inevitably winners. In this case the biggest beneficiaries will be some of the world’s largest oil and gas majors — particularly those in the U.S. — and well-connected local politicians. Chief among them is former Mexican President Vicente Fox Quesada, whose private equity firm Energy and Infrastructure Mexico (EIM) has just signed a joint venture with Aubrey McClendon, former CEO of natural gas giant Chesapeake Energy and current CEO of American Energy Partners (AEP). The partnership’s main purpose, according to Sin Embargo, is to exploit the vast exploration and development opportunities opened up by Mexico’s newly privatized and liberalized energy sector. “This is a significant vote of confidence in the Energy Reform program championed by current Mexican President Enrique Pena Nieto, and in the myriad possibilities offered by Mexico’s unconventional resources,” hailed a joint press release. Those resources include Mexico’s side of the Eagle Ford Shale basin. EIM Capital’s own website admits, with seemingly not even a hint of shame, that the company was “founded in anticipation of Mexico’s historic Constitutional (Energy) Reform of 2013,” a reform for which Fox himself helped pave the way during his six-year presidential mandate (2000-2006), as recently confirmed by a 2005 State Department diplomatic cable about Fox’s first visit to Alberta recently leaked by Wikileaks. Now, thanks to Peña Nieto’s landmark reforms, the pain is set to recede as Mexico prepares for the mother of all oil and gas rushes. “This is a major opportunity for Mexican energy production,” Fox said in the press release. “We look forward to working closely with the Mexican government to advance this monumental project and enhance Mexico’s current energy policy.”

"They're Making Idiots Of Us!": Eastern Europe Furious At West For Doing Gas Deals With Russian Devils -- Back in June, when Greece was still predisposed to waving around an MOU for participation in the Turkish Stream natural gas pipeline in a desperate attempt to play the Russian pivot card and force Brussels to blink, we remarked that the Turkish Stream MOU with Greece wasn’t the only preliminary energy deal Gazprom inked at the St Petersburg International Economic Forum.   The company also signed a memorandum of intent with Shell, EOn and OMV to double the capacity of the Nord Stream pipeline — the shortest route from Russian gas fields to Europe — to 110bcm/year.  That, we said, proves Russia is making progress in efforts to facilitate the unimpeded flow of gas to Europe even as the crisis in Ukraine escalates. Nearly three months later and Ukraine isn’t happy. Neither is Slovakia. Here’s Bloomberg: Eastern European nations set to lose billions of dollars in natural gas transit fees are lambasting western Europe for striking another pipeline deal with Russia that will circumvent Ukraine. The prime ministers of Slovakia and Ukraine criticized an agreement between western European companies from Germany’s EON AG to Paris-based Engie with Russian pipeline gas export monopoly Gazprom PJSC to expand a Baltic Sea link. Western European leaders and companies are “betraying” their eastern neighbors, Slovakia’s Robert Fico said after meeting Ukraine’s Arseniy Yatsenyuk in the Slovak capital of Bratislava on Thursday. Gazprom and EON, Engie, Royal Dutch Shell Plc, OMV AG and BASF SE signed an agreement last week to expand Nord Stream by 55 billion cubic meters a year, or almost 15 percent of current EU demand. Ukraine, already struggling to avoid a default amid a conflict with Moscow-backed separatists in its east, is set to lose $2 billion a year in transit fees while Slovakia would lose hundreds of millions of euros, the leaders said.

Rosneft chief Sechin damps talk of Russia-Saudi oil supply deal - FT.com: Russia will not work with Opec to curb a global oil glut even after prices hit the lowest level since the financial crisis, according to the chief executive of Rosneft. Igor Sechin’s comments on Monday damped speculation that recent communications between Moscow and Saudi Arabia could yield a supply agreement. Mr Sechin, former deputy prime minister and a close ally of Vladimir Putin, the Russian president, said Opec had proposed that Russia became a member of the oil producers’ cartel. But the “golden age” of Opec had passed, he said. “The Russian oil industry is private, with a high number of foreign shareholders,” Mr Sechin told an audience at the FT Commodities Retreat in Singapore. BP owns 20 per cent of Rosneft, the Russian state-backed oil company, which is majority owned by the Kremlin. “The Russian government cannot administer the oil industry like an Opec country can,” he said, adding that Russia would also face technical difficulties in shutting production in regions such as Siberia, where extremely cold winters could cause wells to fracture if they were closed. Mr Sechin criticised Saudi Arabia and other Opec members for their role in the oil crash, following the cartel’s decision to keep the taps open last November despite rising supplies. “It needs to be recognised that Opec’s ‘golden age’ in the oil market has been lost,” Mr Sechin said. “They fail to observe their own quotas [for Opec oil output]. If quotas had been observed, global oil markets would have been rebalanced by now.”

Why Vladimir Putin Won't Be Helping OPEC to Cut Oil Production - Few things have more potential to spook the oil market than the prospect of Russia joining forces with OPEC. Speculation that such a move was afoot last month drove crude to its biggest three-day gain in 25 years. Despite the market buzz, there are sound economic and technical reasons why this is unlikely to happen. “Russia and OPEC have talked about cooperation in cutting production many times in the past, but the results of that were always dismal and disappointing,” “Russia has assumed that when oil prices go down, OPEC countries are in a weaker position and are more likely to be the first to cut its production, and they always did.” Russia vies with Saudi Arabia and the U.S. for the title of world’s largest oil producer. Kremlin officials were quick to dismiss the prospect of joint action. Making artificial cuts to output would be senseless in a long term, Russian Energy Minister Alexander Novak said Thursday. Igor Sechin, chief executive officer of Russia’s largest oil company Rosneft OJSC, also delivered a reality check, saying the nation won’t be joining the Organization of Petroleum Exporting Countries and couldn’t cut production even if it wanted to. To be sure, Russia has good reason to want crude to rise again. Energy accounts for more than 60 percent of exports and the nation’s economy is entering a recession due in large part to the price slump.  However, the nation can tolerate low prices better than many OPEC members. Russia’s budget deficit is projected to be about 3 percent of economic output this year,  . Saudi Arabia, OPEC’s largest producer, will have a budget gap of almost 20 percent, the International Monetary Fund forecasts. Russia is comfortable with an oil price above $60 per barrel, Deputy Prime Minister Arkady Dvorkovich said last week. Several OPEC members need more than $100 to balance their government budgets, according to the IMF.

Indonesia close to goal of rejoining Opec - FT.com: Indonesia is close to rejoining Opec despite a continuing decline in crude output in Southeast Asia’s largest economy.   The country hopes to be readmitted to the oil producers’ cartel at the December meeting of Opec nations, seven years after Jakarta suspended its membership amid falling production. In a statement on Tuesday, Opec said Jakarta had submitted an official request to reactivate its membership, which had been circulated to cartel members for approval. Following feedback, Sudirman Said, Indonesian energy minister, would be invited to Opec’s December meeting, it said. “This will include the formalities of reactivating Indonesia’s membership of the organisation. . . Indonesia has contributed much to Opec’s history. We welcome its return,” the statement added. Although the country exports some crude, it remains a net importer because of its need for refined products. Industry analysts say re-entering the cartel has clear benefits for Indonesia, where a fast-growing population is driving demand for oil and the government is pushing ahead with plans to expand the refining industry. “Oil production is declining rapidly here,” said a Jakarta-based consultant in the oil and gas sector. “To have good contacts, which membership of Opec would give them, would help them in procuring or negotiating competitive deals.”

Sudan grants China gas production franchise in four zones -  Sudan announced Tuesday that China will explore for oil and gas in the Red Sea, Sinnar, and West Kordofan. China is the largest foreign investor in Sudan, which hosts China’s biggest investment in the African continent. Last week President Omer al-Bashir and Chinese President Xi Jinping signed a bilateral strategic partnership, including an agreement for production of natural gas in Sinnar State. Sudanese oil and gas minister Mohamed Zayed Awad confirmed that China had agreed to embark on new oil explorations and to expand its oil operations in Sudan. “China will start gas production in zone 15 in the Red Sea, in zone 4, known as Baleela field, and zone 6 north of Heglig in West Kordofan State, as well as zone 8 in Souki in the east of Sinnar State,” the minister said upon the return of a Sudanese delegation led by President al-Bashir from a visit to Peking. Gas production ushers in a new stage in the development of oil industry in the Sudan. Explorations confirmed presence of gas in many areas, particularly zones 8 and 15 in the Sinnar and Red Seas States, respectively. Last March al-Bashir announced that gas production in zone 8 in Souki, Sinnar State, would start soon.

The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent -- Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner? This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable. Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it's moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters: China's push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country's growing economic influence means a third global crude benchmark is inevitable. A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London's Brent and U.S. West Texas Intermediate (WTI). And while others have tried and failed, China brings its might as the world's biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.

Like it or not, China's crude oil futures will be a global benchmark - – China’s push to establish a crude derivatives contract has been met with early skepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable. A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI). And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract. “The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity. “China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”

China's Central Bank Says Stock Market Correction "Mostly Over" -- In remarks to the G20 finance ministers, Zhou Xiaochuan, governor of China’s central bank says China Stock Market Correction ‘Mostly Over’.  In remarks at the G20 in Turkey, the People’s Bank of China quoted Mr Zhou as saying: “At present, the exchange rate of the renminbi against the dollar is stabilising, the correction in the stock market is already mostly over and the financial markets show hope for stabilising.” Mr Zhou acknowledged that “before June, the Chinese stock market bubble grew continuously”, but added that of the three major corrections since June, only the most recent in mid-August had a global impact. Chinese government action had prevented further slides and systemic risks, he added. “Following the correction, levels of leverage are clearly lower and there has been no notable effect on the real economy,” he added. The PBoC issued its paraphrased transcript of Mr Zhou’s remarks only after Taro Aso, Japanese finance minister, told reporters that Mr Zhou had three times used the term “burst” referring to the stock market bubble. The Chinese transcript uses the more decorous term “correction”, and refers to a “bubble” only once. Apparently it's OK for central bank officials to use the word bubble even though others have been forced to make public confessions for using "emotionally charged" words. The media was ordered not to use words such as slump, spike, plunge, and collapse. Analysts were instructed "Do not conduct in-depth analysis, and do not speculate on or assess the direction of the market."

Misinterpreting Chinese Intervention in Financial Markets - It is tempting to view economic events in China through a single template: the view that they are driven by government intervention because the authorities haven’t learned to let the market operate. After all, Mao’s portrait still hangs on the wall and the Communist Party still governs. But the lens of government intervention has led foreign observers to misinterpret some of the most important developments this year in the foreign exchange market and the stock market. An instance of such misinterpretations is the confused positions of many American congressmen which have helped bring about the opposite of what they really want from China’s exchange rate. To be sure, Chinese authorities do often intervene strongly in various ways. In the foreign exchange market, the People’s Bank of China intervened heavily during the decade 2004-13, buying trillions of dollars in foreign exchange reserves and thus preventing the yuan from appreciating as much as it would have if it had floated freely. Hence years of US allegations of currency manipulation. More recently, in the stock market, the authorities have deployed every piece of artillery they could think of in a crude attempt to moderate the plunge that began in June of this year. But some important episodes that foreigners decry as the result of government intervention are in fact the opposite. Two developments this year have dominated the financial pages, but have often been misinterpreted. One is the depreciation of the yuan against the dollar on August 11. The other is the bubble in the Chinese stock market that led up to the June peak.

China FX reserves fall record $93.9 bln in Aug as central bank supports yuan | Reuters: China's foreign exchange reserves, the world's largest, shrank by $93.9 billion in August, the biggest monthly fall on record, reflecting the scale of intervention by the central bank to support the yuan after a surprise devaluation last month. The People's Bank of China reported reserves had dropped to $3.557 trillion, having descended from a record $3.99 trillion in June 2014, as capital outflows escalated due to fears over China's economic slowdown and prospects of rising U.S. interest rates. "The drop was, in our view, due to capital outflows and heavy intervention to stabilise the currency after the fixing mechanism change last month," said Dariusz Kowalczyk, senior economist/strategist at Credit Agricole CIB in Hong Kong. A large portion of China's reserves are held in U.S. Treasuries. Last week, traders suspected China of selling Treasuries. Kowalczyk said the actual reserve loss was bigger given positive impact of valuation changes as the dollar fell against other major currencies. "That said, it was probably a one-off, China retains massive reserves which will be sufficient to protect the CNY, and we see only limited depreciation – to 6.50 – by year end," he said.

China's Forex Reserves Fall by Record $93.9 Billion as PBOC Intervenes -- One of the world's largest piles of cash is rapidly shrinking. In another sign of a new normal for the Chinese economy, and the world, China's central bank on Monday said its foreign-currency reserves fell a record $93.9 billion in August, a month when it intervened intensely in the currency market to prop up the yuan. The drop underlined the shifting role for a stockpile of money that had steadily accumulated since the mid-1990s as China bought dollars and other currencies from its exporters and one that had turned China into a gargantuan investor in U.S. Treasurys. At $3.56 trillion as of the end of August, the currency reserves held by the People's Bank of China still account for nearly a third of all holdings by central banks world-wide, but the reserves have declined since a peak of nearly $4 trillion in June 2014 as more money leaves the country. The outflows have speeded up since China devalued the yuan in mid-August, a move that has prompted the central bank to dip deep into the pile to defend the yuan from a free fall and too much money from leaving Chinese shores. For years, companies and investors poured money into yuan assets in China, hoping to gain not only from investing in a rapidly growing economy, but also from a currency that was set for appreciation--rising over 30% in the last decade. Those bets have been upended both by China's yuan devaluation and signs of a deepening economic slowdown. China on Monday revised its 2014 growth rate to 7.3% from 7.4% due to a weaker-than-reported contribution from the service sector, a relatively small change but one that suggests that China's effort to meet its official growth target of about 7.5% last year was tougher than it seemed. The implications for the rest of the world of a shrinking Chinese reserve pile could be profound.  China's selling of U.S. Treasury debt as it has bought yuan has led to concerns that bond yields in the U.S. and Americans' borrowing costs in general could be pushed up.

Moody's: Chinese banks will face rising operating pressure over the next 1-2 years -- Moody's Investors Service says that listed Chinese banks will face rising operating pressure over the next 1-2 years, as China's economic growth slows, and as the banks' interest margins narrow further on the government's monetary easing policies and deregulation of interest rates. Moody's conclusion was based on the banks' results for the half-year ended 30 June 2015 (1H 2015). "While most of the banks recorded a modest growth in profit in 1H 2015, their asset quality and margins are coming under increasing pressure," says Christine Kuo, a Moody's Senior Vice President. "Pressure on asset quality in particular, is reflected not only in the rise in headline non-performing loan ratios, but also in the less stringent recognition of such loans," adds Kuo. "We note that an increasing amount of loans overdue for at least 90 days are not classified as non-performing loans." Kuo explained that this non-recognition of loans overdue for at least 90 days (90+ day delinquencies) prompted Moody's to focus its asset quality analysis on 90+ day delinquencies. Specifically, in analyzing the banks' results in 1H 2015, Moody's focused on the new formation of 90+ day delinquencies before write-offs and the sale of problem loans.

Sizeable capital outflow from China adds another layer of worry - In yet another sign of deteriorating confidence in China’s economic prospects, capital outflows from the country are accelerating quickly, adding another layer of worry for investors and policy makers alike. “If all of the capital that went into China since 2010 were to exit, this would mean another $400 billion could leave. If we were to assume that all of the capital inflows that went in since 2008 were to exit, the number rises to another $700 billion,” said David Woo, FX and rates strategist at Bank of America Merrill Lynch. While Woo’s projections are based on the worst-case scenario, analysts at Goldman Sachs in July had noted the alarming pace of funds exiting the country. “Net capital outflows could be around $224 billion in the [second] quarter, meaningfully up from the first quarter,” they said. “Capital outflows have become very sizeable and now eclipse anything seen in the recent past.” In theory, China’s foreign exchange reserves of $3.6 trillion are sufficient to handle the capital flight, but Woo believes Chinese officials are running out of tools to prop up the economy, forcing them to make a tough choice. “China cannot lower interest rates and defend the Chinese yuan at the same time,” he said. And once the Federal Reserve hikes interest rates, which BAML still expects this month, the interest rate differential between China and the U.S. will further narrow, leading to more capital leaving the country, he said.

Capital flight now the big concern for slowing China - FT.com: It is hard to know what represents prudent diversification and what constitutes capital flight on the part of Chinese groups and wealthy travellers. But for those who track capital outflows from China, the distinction does not much matter. In the four quarters to the end of June, such outflows, (which do not include debt repayment) have totalled more than $500bn according to data from Citigroup. China’s mountain of foreign reserves, once around $4tn, are now down to less than $3.7tn and are expected to drop further to $3.3tn by the end of the year, Citi calculates. Not long ago, it seems that the world was awash in cheap dollars. Many of those cheap dollars could be traced to the generous monetary policies of the Federal Reserve. But many of them also came from the mainland as Chinese recycled their dollar earnings from the sale of exports abroad. Chinese capital flowed into everything from farms in Africa to ports in Sri Lanka and Pakistan, to dairies in New Zealand, energy firms in Canada and Treasuries in the US. More recently China started undertaking massive new, and expensive initiatives including the Asian Infrastructure Investment Bank, the New Development Bank, its Silk Route projects and a recapitalisation of the two policy banks that help recycle its reserves. Suddenly, though, the question has shifted from what China will do with all the capital that flowed in and its arguably excessive reserves to whether it has enough money and adequate reserves at all. “It is neither the sell-off in Chinese stocks nor weakness in the currency that matters most,” . “It is what is happening to China’s FX reserves and what this means for global liquidity. The People’s Bank of China’s actions are equivalent to an unwind of QE or, in other words, Quantitative Tightening.” The question is being asked with some intensity in the wake of the PBoC’s decision to move to a more market-determined system to establish the value of the renminbi. The change will make capital controls less rigorous over time and triggered an immediate drop in the value of the currency. Some doomsayers now expect the 3 per cent move down to soon lead to a more dramatic fall as capital outflows pick up and Chinese companies continue to unwind their short-US dollar/long-renminbi carry trades. This would add to pressure on the PBoC to allow the currency to weaken, analysts at research boutique Gavekal say.

Why Capital Is Fleeing China: The Crushing Costs of Systemic Corruption: Corruption isn't just bribes and influence-peddling: it's protecting the privileges of the few at the expense of the many. Rampant pollution is corruption writ large: the profits of the polluters are being protected at the expense of the millions being poisoned.  This is why capital and talent are fleeing China: systemic corruption has poisoned the nation and raised the cost of doing business. External costs such as environmental damage must be paid eventually, one way or the other. Either the cost is paid in rising chronic illnesses, shorter lifespans and declining productivity, or profits and tax revenues must be siphoned off to clean up the damage and the sources of environmental degradation. In large-scale industrial economies such as China and the U.S., that cost is measured not in billions of dollars but in hundreds of billions of dollars over a long period of time. I have often noted that one key reason why the U.S. economy stagnated in the 1970s was the enormous external costs of runaway industrialization were finally paid in reduced profits and higher taxes. China's manufacturing base simply isn't profitable enough to pay for the remedial clean-up and pollution controls needed to make China livable. That means labor and all the other sectors will have to pay the costs via higher taxes.

China’s Forex Follies - Barry Eichengreen -- On August 11, China devalued its currency by 2% and modestly reformed its exchange-rate system. This was no earth-shattering event, but financial markets responded as if a meteorite had struck them. The negative reaction is no mystery: China’s devaluation was a textbook example of how not to conduct exchange-rate policy. One of the government’s motivations was presumably to give a boost to China’s slowing economy. Although the service sector, which accounts for the majority of employment, is holding up relatively well, the country’s output of tradable goods, many of which are produced for export, is weakening sharply. Chinese exporters are caught between the pincers of weak foreign demand and rapidly rising domestic wages. Devaluation is the tried and true remedy for such ills. But a 2% change in currency values is too little to make much of a difference, given that wages in Chinese manufacturing are rising at an annual rate of 10%. It could be that Chinese policymakers regard the 2% devaluation as a down payment – the first in a succession of downward adjustments. But, in that case, they violated the first rule of exchange-rate management: Don’t cut off a cat’s tail in slices. The rationale for this rule is straightforward: If foreign investors expect that more currency depreciation will follow, they will rush out of Chinese markets to avoid further losses. Capital outflows will accelerate, financial conditions will tighten, and investment will suffer. In fact, this is precisely what China is experiencing. A single large devaluation that gets the entire adjustment out of the way minimizes this risk. Indeed, if investors expect the sharp improvement in competitiveness to lead to stronger economic performance, the currency will recover some of its lost value. Capital will flow in rather than out. Spending will rise rather than fall, which is precisely what China needs in the current circumstances.

Washington’s Financial Currency War on China: The Eclipsing of the US Dollar by the Yuan - Fearing the eclipsing of the US dollar and the Bretton Woods system by a rival financial architecture the US response has been an attempt to damage the Chinese markets and increase the value of China’s currency. China has responded through regulations in the market and then quantitative easing of its currency to maintain the low prices of Chinese manufactured goods and exports. Beijing’s quantitative easing is a reaction or response to the financial manipulation of Washington and Wall Street. Additionally, Washington never thought that the Chinese would respond by dumping US Treasury bonds. Instead of the hysteria about the Chinese economy, «the impending collapse of the US dollar should be getting all of the attention of investors», one US economist (Peter Schiff) has warned. Schiff’s voice is one of many analysts saying that the talk about the Chinese economy faltering is exaggerated and bad spirited. Financial War against China, Russia: America’s War against the «Community of Destiny» As the financial architecture of the world is being altered by China and Russia, the US dollar is gradually being neutralized as one of Washington’s weapon of choice. Even the monopoly of Washington’s Bretton Woods system formed by the International Monetary Fund (IMF) and World Bank is being directly challenged. Although they do not constitute alternatives to neoliberal economics, the BRICS News Development Bank (NDB) and Beijing’s Asian Infrastructure Investment Bank (AIIB) are challenging the Bretton Woods system through a rival financial structure.

China PPI Declines 42nd Consecutive Month; Banks Struggle to Contain Devaluation Fallout; More Capital Controls -- Bad news stories continue in China today with reports of more capital controls, devaluation fallout, and another drop in the Producer Price Index (PPI). Reuters reports China Deflation Fears Grow as Producer Prices Sink Most in Six Years.  China's manufacturers slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signaling stubborn deflation risks in the economy and adding to expectations for further stimulus measures.  The producer price index (PPI) fell 5.9 percent in August from the same period last year, its 42nd consecutive month of decline and the biggest drop since the depths of the global financial crisis in late 2009, data showed on Thursday. Official and private factory surveys last week also showed manufacturers laid off workers at a faster rate last month as their order books shrank.  The Financial Rimes reports Beijing Clamps Down on Forex Deals to Stem Capital Flight China has tightened its capital controls, in a sharp reversal of its market liberalising rhetoric, as it struggles to contain the fallout from last month’s devaluation of the renminbi.  The August 11 devaluation unleashed turmoil on global stock markets and policy confusion at home, forcing the central bank to spend up to $200bn to support the currency. The prospect of an interest rate rise in the US has further encouraged capital flight. The Safe [State Administration of Foreign Exchange] has ordered banks and financial institutions to pay particular attention to the practice of over-invoicing exports, used to disguise large capital outflows. The administration confirmed the existence of the memo, but declined to comment further. For the first time since it began internationalising its currency a few years ago, the central bank has also been intervening heavily in the offshore renminbi market to narrow the gap between the onshore (CNY) and offshore (CNH) exchange rates.

China deflation risks grow, foreign central banks on alert | Reuters: The risk of deflation in China is growing, data suggested on Wednesday, as policymakers tried to reassure markets that the economy can stay on track and state banks were suspected of intervening in offshore markets to bolster the yuan. Some foreign central banks are increasingly worried about the impact falling Chinese prices and a weaker yuan CNY=CFXS could have on their economies, following a surprise devaluation in the currency last month. Since then investors have been betting the yuan, or renminbi, could fall further, reflected in a wide spread between the offshore and more-tightly controlled onshore rates. On Wednesday afternoon though a surge of buying sent the offshore rate up more than 1 percent, in what market sources said was a move by Chinese state-owned banks to curb speculation against their currency. Sliding Chinese stock prices and currency have rattled global markets and prompted a flurry of policies and intervention by authorities to steady the world's second-biggest economy. Earlier, New Zealand's central bank governor Graeme Wheeler said the yuan devaluation had left them concerned about the risk China may let it slide further.

China Car Sales Driven Lower by Slowing Economy - WSJ: China’s new car sales fell for a third month in August as auto makers continued to grapple with sluggish demand amid an economic slowdown and slumping stock prices. Sales of passenger cars slipped 3.4% to 1.42 million vehicles last month, following a 6.6% decline in July and a 3.4% fall in June. Combined sales of passenger and commercial vehicles fell 3% in August to about 1.66 million vehicles, the government-backed China Association of Automobile Manufacturers said Thursday. After years of rapid growth, China’s auto market, the world’s largest, is stalling as the economy slows, the government’s crackdown on corruption continues and more cities curb car ownership to reduce congestion and pollution. Foreign auto executives had forecast 2015 sales in China to slow to a high, single-digit percentage gain compared with 2014. But that estimate now looks out of reach. Growth in China’s economy, the world’s second-largest, is expected to fall to a more-than-two-decade low this year, and shares on the country’s exchanges have lost about 40% of their value since mid-June, despite concerted efforts by the government to revive buying. China’s largest auto maker by sales, SAIC Motor Corp. 600104 0.17 % , has forecast zero growth in industrywide sales of passenger and commercial vehicles this year. The auto manufacturers’ group in July slashed its forecast for China’s auto market in 2015 to a 3% gain compared with last year, from a prior estimate of 7% growth.

China exports, imports decline in August as slowdown weighs: China's trade picture remained grim in August, denting hopes that the shaky global economic recovery could regain its poise. China's dollar-denominated exports declined by 5.5 percent year-on-year in August, while imports slid 13.8 percent, producing a trade surplus of $60.24 billion. China's foreign trade activity has weakened dramatically in recent months. Exports have been hit by sluggish global demand, while imports have been constrained by a slowing domestic economy and depressed commodity prices. Gross domestic product (GDP) growth is expected by some economists to slip below 7 percent in the third quarter – down from 7 percent in both the first and second quarter. Over the weekend, China's Finance Minister Lou Jiwei said that the world's second largest economy had entered a "new normal" of slower growth, adding that a growth rate of around 7 percent was to be expected in the coming four to five years. China's economic downturn has sent shockwaves across the region, as evident in the deteriorating trade data of neighboring Taiwan and South Korea, which reported plummeting exports in August. Taiwan's exports plunged 14.8 percent on year last month, while Korea's exports contracted 14.7 percent, largely attributable to retreating mainland demand.

We’ve hit ‘peak China’ and no one is ready for what’s to come --During the financial crisis of 2008, China lauded itself for escaping contagion by the American financial meltdown. Now, however, China’s recent stock market collapse is infecting global equity markets, ushering in a period of almost unprecedented volatility. But while the world focuses on the effects on Wall Street, the real story of the summer of 2015 is that China’s troubles are just beginning. The spillover effects likely will spread beyond China’s economy, even affecting politics and security—that should be the main topic of conversation when Chinese president Xi Jinping visits President Obama in Washington this month. It is easy for a political contender such as Donald Trump to score points by claiming that Beijing is “ripping us” by stealing US jobs and cheating through currency manipulation, and that “China would be in trouble” were he elected. But as in so much else, The Donald misses a much bigger story: We have hit “peak China.” China is unlikely to completely collapse. Yet the Chinese success story of the past quarter-century is over, just like the Japanese miracle ended abruptly in the 1990s. Due simply to its size, China will remain one of the world’s largest economies for decades to come, and it will still be an indispensable part of the global supply chain and trading network. But from political, diplomatic and economic perspectives, China faces risks that will test the skills of President Xi Jinping and his co-leaders, possibly threatening their political authority.

China to roll out 'more forceful' fiscal policy - China's finance ministry said Wednesday the country would roll out a "more forceful" fiscal policy to stimulate economic growth, which it said faces downward pressure. The Ministry of Finance said in a statement that it would allocate more funds to support some infrastructure projects and implement tax cuts for small businesses. It also said it would accelerate the approval process for duty-free stores in a bid to boost construction. The ministry also said it would issue debt quotas for local governments after the nation's top legislator this year capped outstanding local-government debt at 16 trillion yuan ($2.5 billion). To help ease the local-government debt burden, Beijing has approved a 3.2 trillion yuan swap program that enables local governments to sell bonds to replace older, costlier debt. In its latest statement, the finance ministry said that as of Aug. 27 local governments had raised 1.82 trillion yuan through debt issues. This is equivalent to 48% of the total quota allowed by the central government, suggesting that there is more room for local governments to raise funds. The Chinese economy slowed to 7% in the second quarter of the year, its slowest pace in six years. Economic data in July and August indicated more softness in the world's second-largest economy despite a series of central-bank rate cuts and other policy moves. Economists have said Beijing needs to implement a more-proactive fiscal policy in the remainder of the year to provide a further boost to the economy.

Chinese Companies Face Premium to Resume Selling Dollar Debt - WSJ: Improving market sentiment has Chinese banks and companies restarting their offshore-debt engines—but given the economy’s struggles to revive, this comes at a price. Chinese U.S.-dollar bonds dominate Asia’s $874 billion bond market, but issuance ground to a halt for almost a month as China’s worst stock selloff in years, the devaluation of the yuan and a succession of weak economic numbers damped investor appetite for the country’s debt. As China’s stocks began to rebound this week—lifting equities around the region—windows reopened for Chinese businesses from lenders to highway operators to tap funds in the offshore debt market. Out the gate Wednesday are the Export-Import Bank of China and midsize lender Shanghai Pudong Development Bank 0.66 % Shanghai Pudong is issuing a three-year benchmark bond—a benchmark issue typically amounts to about $500 million—for working capital and general corporate purposes, according to a term sheet seen by The Wall Street Journal. But the offering yield of 2.8%, some 1.75 percentage points above the yield on comparable U.S. Treasurys, exceeds the current yields on three-year bonds from its peers China Merchants Bank Co.and China Minsheng Banking Corp., currently at 2.53% and 2.56%, respectively.

Li says China to open currency market to central banks -  China plans to allow foreign central banks into its interbank currency market, the country’s No. 2 leader said Thursday, in a new move to expand use of the tightly controlled Chinese yuan. Speaking at a business conference, Premier Li Keqiang gave no time frame for the change or details of what foreign institutions would be allowed to do. The move follows Beijing’s decision in March to allow some foreign investors into the market in which its state-owned banks trade bonds. “In our next step, we will open the interbank foreign exchange market to non-mainland central bank-type institutions,” said Li at the World Economic Forum in the eastern city of Dalian. Beijing controls the yuan’s exchange rate and limits movement of money into and out of China but has been encouraging use of its yuan abroad, mostly for trade. The central bank said its surprise Aug. 11 devaluation of the yuan, which rattled global financial markets, was part of efforts to make the exchange rate more market-oriented. Wider use of the yuan would reduce costs for China’s traders and encourage sales of Chinese goods abroad, economists say.

Japan reports negative economic growth -Japan's economy contracted at a minus 1.2 percent annual rate in the April-June quarter, on higher than earlier estimated inventories and consumer demand. The revised growth figure today was better than some economists had anticipated. A preliminary estimate last month showed the economy contracting at a minus 1.6 percent annual rate. But economists said much of the change stemmed from an upward revision in inventories, and the general trend is weaker. The higher inventories and a revision in consumer spending to minus 0.7 percent instead of minus 0.8 percent as earlier estimated helped to offset weaker government and corporate investment. “The details were hardly reassuring,'' Marcel Thieliant of Capital Economics said in a commentary. He expects growth to be positive but tepid in the current quarter, based on the data seen so far. Domestic demand was essentially flat in the quarter. On a quarterly basis, the economy contracted 0.3 percent versus the earlier estimate of a 0.4 percent contraction.

Japan economy minister urges fiscal stimulus - FT.com: Japan should consider an extra fiscal stimulus of Y2tn ($84bn) this autumn, the country’s economy minister has said, as fears grow that a Chinese slowdown will hit growth across Asia. In an interview with foreign reporters, Akira Amari said Japan’s tax revenues had come in Y4tn higher than budgeted, and that the question was how to make use of the extra funds. “The ministry of finance would like to use all of the money to speed fiscal consolidation,” said Mr Amari, one of the most senior figures in the administration of Shinzo Abe, prime minister. “But looking at global economic trends, the Japanese economy could be negatively affected. So about half of that money could be used to boost the economy,” he said. A Y2tn supplementary budget would be smaller than the Y3.5tn passed last year, or Y5.5tn the year before, but Mr Amari’s comments reflect growing concern among Japanese policymakers that China could derail their recovery. His remarks came as revised gross domestic product data showed Japan’s economy shrank by less than previously thought in the second quarter of 2014 — although largely due to a build-up in inventories that bodes ill for the rest of the year. The new numbers show Japan’s economy contracting by an annualised 1.2 per cent in the second quarter, versus the original estimate of a 1.6 per cent fall.

Nikkei’s 7.7% surge biggest one-day gain in 7 years - FT.com: Japan’s Nikkei 225 notched up its biggest one-day percentage gain since the depths of the financial crisis, surging 7.7 per cent and leading an Asia-wide rally as investors pinned their hopes on prolonged monetary and fiscal stimuli. Markets leapt higher on the possibility that the Federal Reserve might delay raising interest rates this month. The prospect of proactive fiscal policy in China to counter the slowing economy, while vague, and the covering of short positions in Tokyo also served to propel markets higher.  The Nikkei closed at 18,770.51, its biggest one-day rise in percentage terms since October 20 2008 and its eighth-biggest gain since at least 1970. The market was in catch-up mode after a 7 per cent drop last week — its worst weekly performance since late October 2008, which wiped out all gains for the year. The broader Topix index rose 6.4 per cent for its best session since a 6.6 per cent gain on March 16 2011, after the Tohoku earthquake and tsunami. Late on Tuesday evening, following weak trade data, China’s Ministry of Finance posted an article on its website stating it would carry out “stronger proactive fiscal policy” to counter slowing economic growth. The statement was short on detail and dismissed by China economists — policy is already “quite proactive”, noted Commerzbank economist Zhou Hao. Masaki Motomura, equity strategist at Nomura in Tokyo, said the statement helped swing sentiment but was not itself a big factor in the Japanese market’s rise.

Australian Dollar Hits Fresh 6-Year Low - WSJ: The Australian dollar traded at a fresh six-year low below US$0.6900 Monday, as concerns about world growth and talk of recession in the local economy kept buyers on the sidelines. At 0600 GMT, the currency was trading at US$0.6929, down from US$0.6978 late Friday. It traded briefly at US$0.6892, a low level not seen since the market panic associated with the global financial crisis. Weakness in the Australian dollar also followed somewhat upbeat U.S. employment data on Friday, which showed unemployment in the world’s largest economy falling to 5.1%, its lowest level since the early months of 2008. Economists said the outcome was strong enough to keep the U.S. Federal Reserve on track to raise interest rates later this month, a move that would likely help the U.S. dollar strengthen. The U.S. unemployment rate is now below the 5.2% to 5.3% range that Fed officials thought it would be by the end of the year. . “From our perspective we continue to expect the Fed to hike in September, although it is a close run thing despite payrolls on balance being robust enough. Even if delivered gently, a Fed hike on 17 September will be negative for the Australian dollar,” he said.

UBS cuts India’s growth forecast to 7.1% for FY16 -- Swiss brokerage UBS has revised downwards India’s GDP growth projection for the current fiscal to 7.1 per cent, from 7.5 per cent earlier, on account of weaker external demand prospects. The global financial services firm has also lowered its growth projection for financial year 2016-17 to 7.6 per cent from 8.3 per cent earlier. India’s GDP growth rate slipped to 7 per cent in the April-June quarter of 2015-16, from 7.5 per cent in the preceding quarter. The downward revision in growth projection comes despite lower oil prices which were expected to provide a boost to Indian growth. “Weaker external demand prospects and slow progress on balance sheet repair leads us to curtail our growth forecast in spite of cuts in UBS’ Brent oil price projections to an average of USD 57.5 in calendar 2016 (from USD 70),” UBS said in a research note. On RBI’s policy stance, the report said: “We expect the RBI to cut policy rates 75 bps during the remainder of this fiscal year”. The brokerage said that a combination of below potential growth and balance sheet repair will keep inflation lower than the RBI’s targets.

Worries grow over India's share-backed debt binge -- The fondness of Indian shareholders for share-backed debt funding is exposing investors to losses if a market downturn were to trigger a wave of liquidations, bankers and rating agencies warn. Major shareholders (known locally as promoters) in Indian companies have pledged shares valued at Rs1.75trn (US$26bn) against loans or bonds, according to figures from the Bombay Stock Exchange. The value of shares pledged grew 11% to Rs1.9trn in the three months to the end of June, even though the Sensex benchmark index fell 1.7% during that period. Since then, share pledges have tracked an 8% decline in Indian stocks, dipping to Rs1.75trn as of September 2. There is no official data on the amount of debt raised from these so-called promoter financings, but market players estimate that major shareholders have used their equity stakes to raise as much as Rs500bn (US$7.5bn) to Rs1trn. Share-backed financings are popular with highly leveraged Indian investors unable to take bank loans. Founding families have even been known to use them to pay for lavish weddings. However, these arrangements are vulnerable in times of market stress. Margin calls on share-backed financings were blamed for heavy selling in China’s domestic stock market after shares began to retreat from their June 12 peak.

Modi Gathers India’s Top Economic Minds as Stocks, Currency Fall --Prime Minister Narendra Modi urged India’s business leaders to invest for the good of the nation after seeking fresh ideas from billionaires, bankers and bureaucrats as the country’s stocks and currency slide. “He suggested to industry that they should really contribute to nation-building to invest in India,” Deputy Finance Minister Jayant Sinha told reporters on Tuesday, referring to Modi. The prime minister called on everyone to work together and focus on job creation to get India through a turbulent period in the global economy, Sinha said. Modi has struggled to pass key economic proposals including a goods-and-services tax even as China’s slowdown threatens to drag down global growth. India’s stocks and currency have been among the worst hit in Asia since China devalued the yuan last month. India’s benchmark stock index rose 1.7 percent on Tuesday, the biggest gain in two weeks, and the rupee strengthened 0.4 percent to 66.55 a dollar. The meeting at Modi’s official residence included billionaires Mukesh Ambani and Gautam Adani, and top bankers Arundhati Bhattacharya and Chanda Kochhar, Economic Times reported, without citing anyone. Central bank Governor Raghuram Rajan also attended.

The dangers in Delhi’s dream of overtaking China - FT.com: Shining India is back. At least that’s what many hyperbolic Indians would have you believe. With China’s economy slowing and its markets and policymaking credentials upended, India is plausibly poised to take over as the world’s fastest-growing large economy. Many Indians, deploying language that evokes the “India Shining” campaign used when Prime Minister Narendra Modi’s Bharatiya Janata party was last in power a decade ago, see more than a glimmer of opportunity in China’s misfortunes. Arun Jaitley, finance minister, said in an interview with the BBC: “An economy which can grow at 8 to 9 per cent like India certainly has viable shoulders to provide support to the global economy.” Adi Godrej, head of the eponymous consumer goods group, said it was a fine time for India to “shine”. In one of the strongest “move-over-China” remarks, Jayant Sinha, minister of state for finance, said Delhi was ready to “take the baton of global growth” from Beijing. He chirpily told an audience in Bihar, one of India’s poorest and most benighted states: “In coming days, India will leave China behind as far as growth and development matter.” On the face of it, there is room for optimism. As China seeks to wean itself off supercharged investment, its economy will inevitably slow. Officially, growth will glide down to 7 per cent this year. More likely, it could quickly head towards 5 per cent or below. India, meanwhile, is expected to expand at 7.7 per cent. Unlike many other emerging economies, including fellow Brics nations Brazil, Russia and South Africa, India has not been buoyed by exports of high-priced commodities. That means it will not be dragged down by the Chinese- induced commodities slump. Far from it. India, the world’s third-biggest petroleum importer , benefits greatly from weak oil prices, which improve its current account position and ease inflationary pressures. Nor is India a big exporter of manufactured goods. Even if global demand is weak, its economy is relatively insulated, with 57 per cent of gross domestic product coming from household consumption. Yet the idea that India is poised to become the global economy’s main event is flawed to say the least. If it induces complacency, it is positively dangerous.

India has fissile material for 2,000 nuclear warheads, claims Pakistan - Pakis­tan has assessed that India has enough fissile material for more than 2,000 warheads, a media report said on Thursday. The Natio­nal Command Authority (NCA) on Wednes­day concluded that India’s growing nuclear programme and absence of a conflict resolution mechanism were upsetting strategic stability in the region and the situation was forcing Pakis­tan to maintain ‘full-spectrum deterrence capability’, reported Dawn. Inter-Services Public Relations (ISPR) said that the apex policy-making body for the country’s strategic programme reviewed in its meeting the regional security environment and was briefed on fast-paced strategic and conventional capability developments taking place in the neighbourhood. Representational imageThe media report said that contrary to international estimates, Pakis­tani assessment is that India has enough fissile material, both reactor- and weapon-grade plutonium, for more than 2,000 warheads. International Institute of Strategic Studies noted in a paper: “New Delhi’s plutonium stocks also continue to pile up; according to one Pakistani assessment, by the end of 2013 India had produced enough weapons- and reactor-grade plutonium (0.8-1tn and 15tn respectively) for 2,000 warheads.”

TPP’s rule of origin challenges Vietnam’s apparel industry - VietNamNet News: Regulations on the origin of goods will present challenges to Vietnam’s textile and garment sector once free trade agreements, especially the looming Trans-Pacific Partnership (TPP), come into force. The concern was raised during a Vietnam-Republic of Korea (RoK) scientific seminar on garment technology in Ho Chi Minh City on September 9. Though Vietnam is one of the world’s top apparel exporters, 70 percent of its textile makers are working as sub-contractors on medium and small scales, and are still weak in fibre manufacturing, weaving and dyeing, with almost all input materials imported from China and the RoK. Moon Byung-chul, Commercial Counsellor at the RoK Consulate General in Ho Chi Minh City, said Vietnam must follow TPP’s “yarn-forward” rule of origin which requires that only textile and apparel products using the US and other TPP countries’ yarns and fabrics qualify for the benefit of the agreement. According to the Vietnam Textile & Apparel Association (VITAS), the rate of locally-made products in the sector stands at a mere 55 percent, attributable to the weak weaving and dyeing capability. VITAS Vice Chairwoman Dang Phuong Dung revealed that weaving and dyeing projects fail to receive licences due to their high risk of environmental pollution. In the face of such realities, she suggested zoning off regions and areas exclusively designed for weaving and dyeing and equipped with infrastructure and waste treatment facilities, making it easier to pitch to foreign investors. She also called on Vietnamese apparel makers to learn from the RoK – a fashion powerhouse in research and development in order to produce quality fabrics.

Mulcair vows to protect Canadian auto-industry jobs in TPP talks - The Conservative government is coming under increasing pressure to extract a better deal for Canadian auto workers in the Trans-Pacific Partnership talks, and negotiations are under way in Washington this week to resolve a deadlock between Canada, Japan and Mexico over how a deal would treat vehicle imports. This matter has driven a wedge between North American Free Trade Agreement partners and stalled the huge trade accord. Under existing NAFTA rules, a car can be sold in Canada, the United States or Mexico without facing tariffs as long as 62.5 per cent of it originates in one or more of these three countries. Japan has proposed – and the United States has provisionally agreed – that the rule for Trans-Pacific partner countries in a proposed TPP trade zone should be that a car with as little as 45-per-cent domestic content can be sold without tariffs. This same side deal between Washington and Tokyo would allow the duty-free importation of auto parts with as little as 30-per-cent domestic content. The NDP is saying that’s not good enough, vowing in a statement that a “Mulcair government will further protect Canadian auto jobs by defending existing regional content rules in trade negotiations.”

Ringgit falls to new 1998 low amid uncertainty - Malaysia's currency has lost more than a quarter of its value in the past year and yet it still hasn't found a bottom. In early trading on Monday the ringgit fell nearly 1 per cent. For weeks the currency had already been trading at its weakest valuation since August 1998; it's now at its lowest since January 1998. One US dollar is worth 4.3010 ringgit, following 11 straight weeks of decline. The currency has been falling as a result of political turmoil and the broader emerging market malaise. Oil accounts for nearly one-third of government revenue and the renewed slide had added more pressure. On Friday the price of Brent crude fell 2.1 per cent and today it declined another 0.3 per cent to $49.44 a barrel. Last week the political crisis in Malaysia deepened, as tens of thousands of protesters took part in protests aimed at forcing Najib Razak, the scandal-hit prime minister, to resign. Malaysia's central bank meets later this week. While the economy could use some stimulus no economists are forecasting a cut to interest rates, because of the battered currency and fears of outflows.

Hot money flees Philippines in August; net outflow reaches $542 M -- More foreign portfolio investments or hot money fled the Philippines after a global stock market rout late last month, prompting investors to take profits. According to the Bangko Sentral ng Pilipinas (BSP) foreign portfolio investments recorded a net outflow of $542.52 million in August, a complete reversal of the net inflow of $483.45 million in the same period last year. Inflows of hot money into the Philippines fell 46 percent to $1.11 billion in August from $2.07 billion in the same month last year, while outflows inched up by 4.7 percent to $1.66 billion from $1.58 billion. The BSP said outflows grew due to profit taking. Foreign portfolio investments are also known as hot money since these are speculative capital flows that move very quickly in and out of markets. About 88.7 percent of investments registered in August were in listed securities at the Philippine Stock Exchange (PSE) particularly in holding companies, banks, property developers, telecommunication providers as well as food, beverage and tobacco firms. On the other hand, about 10.8 percent of total inflows last month were invested in peso-denominated government securities. The central bank said the rest of the investments were in peso time deposits and other peso debt instruments.

Indonesia’s Foreign Exchange Reserves Fall as Central Bank Defends Rupiah - Meanwhile, growth of foreign exchange receipts due to the issuance of government (yen-denominated) Samurai bonds managed to somewhat offset a further decline of the country's foreign exchange reserves. In July 2015, the Indonesian government sold 100 billion yen (approx. USD $840 million). According to a statement released by Bank Indonesia Indonesia’s foreign exchange reserves at the end of August (USD $105.3 billion) can cover 7.1 months of imports or 6.9 months of imports and servicing of government external debt repayment, which is well above the international standard of reserves adequacy at three months of imports. The central bank also stated that it is convinced that the current reserve assets are able to sustain economic growth and ward off external pressures. Foreign Exchange Reserves Indonesia (in USD million): However, despite having used a portion of the foreign exchange reserves, Bank Indonesia still fails to stabilize the rupiah as the currency continued to weaken against the US dollar. After Malaysia’s ringgit the Indonesian rupiah has been the second-worst performing Asian currency (against the US dollar), weakening 14.4 percent so far this year.

Investors can’t quit Turkey fast enough, pushing the lira to record lows - Quartz: The steady selling of Turkish assets is fast becoming a stampede. Fearing for the country’s economic, political, and security stability, investors are quitting the country in droves. As a result, the Turkish lira has been touching new all-time lows against the dollar in trading today (Sept. 7)—with no respite in sight: Amid the general decline in emerging-market assets, Turkey stands out for the severity of its rout. Analysts have long considered Turkey the most vulnerable of the largest developing economies to capital outflows as investors rethink their appetite towards risk given the economic slowdown in China and prospect of interest-rate hikes in the US. But what’s really spooked investors in the country recently are concerns closer to home, namely a bout of political instability and separatist violence that puts pressure on a country already facing a tough fiscal situation. Yesterday, Kurdish separatists killed more than a dozen Turkish soldiers in the deadliest attack on the country’s military in years. President Recep Tayyip Erdogan responded today with airstrikes on targets linked to the outlawed Kurdistan Workers’ Party. The violence comes amid political uncertainty ahead of snap elections on Nov. 1, described by Erdogan as a “re-run” of the June poll in which his party lost is majority in parliament. . The government has also recently taken to detaining journalists covering the unrest in the Kurdish-majority southeast.

Moody's lowers Asia growth forecasts on slowing exports, subdued demand - Moody's has revised its growth forecast for the APAC region, saying weak demand from China has dampened the overall export outlook for the region, while softer commodity prices continued to weigh on some sovereigns' export revenues, external positions and fiscal balances. Internally, an anticipated investment boost from government infrastructure spending has not materialised in some cases, it said, adding that households are saving more of the income gains from lower energy costs than we previously expected, despite easing by central banks in the region. Moody's had earlier reduced its projections for India (Baa3 positive) to 7 per cent for 2015 and 7.5 per cent for 2016 from 7.5 per cent and 7.6 per cent, respectively. Market volatility and political risk are also weighing on confidence, the rating agency said. "We lower our APAC growth forecasts for this year and the next, illustrating a weaker outlook for the region and other parts of the world," it said. "We now see APAC -- excluding China, India and Japan (A1 stable) -- growing 3 per cent this year and 3.2 per cent next, down from our forecasts of 3.6 per cent and 4.0 per cent in May," it said, adding that its 2016 forecast for China is now a shade lower at 6.3 per cent from 6.5 per cent earlier. But the slowing is most marked elsewhere in emerging Asia, the rating agency said.

How Hard Will the Great Fall of China Hit ASEAN? --  As recriminations take hold in China over the stock market route, regional governments and their finance ministries are bracing for the economic fallout which analysts expect will take a heavy toll on ASEAN over the next few years. Whether increased trade accompanying the launch of the ASEAN Economic Community (AEC) – due by the end of December – can offset the anticipated havoc from China is a formidable debate swirling the finance houses within the region. But investors can expected the shine of a key ASEAN policy plank will be tarnished by a Chinese bureaucracy faced with unprecedented fiscal and monetary issues. Chinese largesse – through foreign investments, soft loans or direct aid – tourist numbers and purchasing power, will take a direct hit with weak market sentiment likely to prove contagious and economic downgrades likely to cause a rethink over joint ventures and contractual obligations. Further fears should be fueled by a Bloomberg survey which found the top 100 Southeast Asian listed companies – determined by assets – are carrying six-times the debt levels they had when the Asian financial crisis struck over 1997-98. According to the dispatch, CP ALL Pcl, Petron Corp and Wilma International Ltd – of Thailand, the Philippines and Singapore respectively – had mounting debts of $392 billion as of June 30 amid a decline in credit quality and expectations that economic growth will continue to ease in line with China’s faltering economy. Less than two weeks ago Vietnamese officials were warning that “any changes in the global economy would have huge impacts on developing countries like Vietnam, Laos, Cambodia and Myanmar.”

Central banks can do nothing more to insulate us from an Asian winter  Draghi was forced to admit that the outlook for eurozone growth and inflation had darkened considerably as a result of the slowdown in emerging economies and the market turmoil in China – the latter an issue he said he would take up with officials at the People’s Bank of China at this weekend’s G20 meeting in Ankara. Meanwhile, Federal Reserve policymakers will have to decide in the coming days whether to stick to their carefully signalled plan to push up America’s interest rates at their next policy meeting on 17 September, in the face of growing fears about a Chinese slowdown. Certainly, the International Monetary Fund made it clear last week that it believed policymakers should be cautious about pushing up rates in the current fragile environment. Central bankers slashed rates to their current emergency levels in the depths of the crisis. They also unleashed quantitative easing on a massive scale, as a short-term measure meant to prevent an outright economic slump and buy time for other engines of growth – trade, investment, consumer demand – to be restarted. Yet even with rock-bottom borrowing costs, the recovery in many countries has been tepid, leaving central bankers little choice but to keep the cash taps on. The ECB and the Japanese central bank are still quantitatively easing; and the Bank of England and the Fed are yet to raise rates, seven years on from the collapse of Lehman Brothers. Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

Interest rate rise: emerging markets set to feel the wrath - FT.com: For policymakers in emerging markets, the prospect of the US Federal Reserve raising interest rates for the first time since 2006 has been building like a storm cloud on the horizon for much of the past two years. Officials at the Fed, however, seem determined to play down any suggestion that their actions might contribute to slower growth in EMs and the rest of the world.  Yet the consequences of a US rate rise — which Janet Yellen, Fed chair, says would be “appropriate” by year end — would be felt across the world, from China to the likes of Brazil and Turkey, countries that grew used to ultra-loose monetary policy in the US and the cheap financing that it spawned. Since the great recession, EMs saw growth soar, partly in response to US borrowing costs at historic lows, then fall back as the Fed moved to tighten even as Chinese growth slackened. Now, against a backdrop in which developed economies account for less than half of world GDP by some measures, the question is whether the US and other industrialised countries will suffer from the fallout from a further EM slowdown caused by a Fed rate rise. “First we had the spillover phase,” says Mohamed El-Erian, chief economic adviser to Allianz and chairman of US President Barack Obama’s Global Development Council. “This was the inability of the west to generate growth and its use of experimental monetary policies, which have undermined growth in EMs. “Stage two is the spill back — the weakness in EMs that disrupts the economies of the west and makes its challenges even harder.” The most profound consequence of higher US rates will be to accelerate capital outflows from China, the source of recent global market turmoil, making the world’s second economic superpower potentially yet more unstable.

In 18 Nations, Women Cannot Get a Job Without Their Husband’s Permission - Where is the law gender-blind? Only in about a tenth of the world’s nations. Two decades after the United Nations and its members committed to improving gender equality, only a handful of those countries treat women the same under the law as men–and the U.S. isn’t one of them. Out of 173 economies surveyed, all but 18 of them have some form of legal discrimination against women, according to the World Bank’s latest biennial report on Women, Business and the Law.. In 18 countries, married women cannot get a job without their husband’s permission: Bahrain, Bolivia, Cameroon, Chad, Congo, Gabon, Guinea, Iran, Jordan, Kuwait, Mauritania, Niger, Qatar, Sudan, Syria, United Arab Emirates, West Bank and Gaza and Yemen. The report measures women’s legal barriers to entrepreneurship and employment by looking at the laws in each country, including whether women are prevented from holding certain jobs, whether they have equal access to credit and whether they face restrictions on where they can live or work. “There is study after study that shows that empowering women is not just good for women, but it’s good for children, it’s good for society and it leads to ultimately a more prosperous, vibrant economy and development,” said Kaushik Basu, the bank’s chief economist.

Sinking currencies reflect grim African prospects  (Reuters) - A slump in commodity prices and flight by global investors from risky "frontier" markets has hammered currencies and state budgets across Africa, increasing dollar borrowing costs and raising the prospect of political instability. From Nigeria and Ghana in the west to Kenya in the east and South Africa and Zambia in the south, currencies have all fallen against the dollar, and in many cases crashed through historic lows plumbed in the 2008-09 financial crisis. Things took a turn for the worse in mid-2014 when prices of oil and other commodities, the export mainstay of many African economies, dived largely due to a sharp slowdown in one of the biggest consuming countries, China. This accelerated a flow of funds out of frontier markets, a less developed set of emerging markets, as investors anticipated a rise in U.S. interest rates which has yet to happen. Although the decline in prices and prospects has been less precipitous than during the global crisis, the fallout from China could be even worse for Africa since state finances have failed to recover from the last upheaval. African budgets were broadly in balance before the crisis but this year governments are on track for an average fiscal deficit of 4.2 percent of GDP, almost twice the shortfall in 2010, according to Barclays Africa.

South Africa's central bank lacks ammunition to defend rand (Reuters) - South Africa's central bank has little muscle to defend the rand through the upheaval in global markets, with foreign reserves stuck at low levels that could easily be wiped out if it attempted to influence the exchange rate. South Africa brought its long-standing negative net gold and foreign exchange reserves into balance more than a decade ago, but its position has steadily declined since peaking at nearly $50 billion in February 2012. This has rendered the Reserve Bank powerless to halt the rand's 21 percent slide against the dollar this year -- hitting a record low on Monday -- as investors expecting higher U.S. rates dump emerging market assets. The local unit weakened on Monday after central bank data showed net gold and foreign exchange reserves barely ticked up to $41.244 billion in August. This provides fairly adequate import cover of 5 to 7 months, but leaves the rand vulnerable to speculative attack, especially given a wide current account deficit of nearly 5 percent of GDP. "South Africa's low level of reserves relative to its emerging market peers means we don't have the firepower or the ammunition to really influence the value of the currency,"

Uruguay has pulled out of TISA talks, says gov’t - — Uruguay has decided to drop out of talks concerning the Trade In Services Agreement (TISA), Minister of Tourism Liliam Kechichián announced yesterday. The decision was taken by President Tabaré Vázquez after a Broad Front (FA) — the centre-left governing coalition — plenary session failed to give the act its backing on Saturday, by a vote of 117 to 22, in view of its “vision for the integral development of the nation.” “The Council of Ministers has considered the decision taken by... our political force (the plenary group), and has asked the foreign minister (Rodolfo Nin Novoa) that he enact such a decision, in the sense of halting our participation in the TISA,” said Kechichián yesterday after meeting with the Cabinet. Kechichián said that the decision was “essentially” taken with the FA’s statement in mind and not with voices from the opposition, who have said the final decision over the deal should be made in Congress and not by a political plenary. Last week, Nin Novoa defended Uruguay’s participation in TISA negotiations “to see what the final result would be,” because, he said, it would lead to a loss of credibility if the country pulled out. The nation’s participation was also vigorously backed by the minister of economy, Danilo Astori, who months ago warned that leaving the talks would cause job losses in the country. The TISA, which is still in its exploration stage — with a dozen negotiating sessions already held — is the result of the concern of a group of countries, seeking to liberalize trade in services, at the delay of the Doha Round negotiations of the World Trade Organization (WTO).

Mexico to slash spending by $5.8bn - FT.com: Mexico plans to cut spending by another $5.8bn in 2016, finance minister Luis Videgaray said on Tuesday, after its economy was buffeted by tough global economic conditions and especially the drop in oil prices. A 2016 budget package, which he submitted to Congress, reduces spending by 1.15 per cent of gross domestic product compared with the 2015 package — a total of 221bn pesos ($13bn). Mr Videgaray said that more than half of the budgetary belt-tightening had already happened — amid falling oil prices, Mexico’s main budgetary problem, the government announced a pre-emptive 124bn peso austerity drive in January. However, Mexico still needs to find 97bn pesos of cuts, which Mr Videgaray told reporters represented a “considerable challenge”. He acknowledged that despite a growing and stable economy, in which inflation is at an all-time low, jobs are being created and unemployment is down, Mexicans cannot shake off a sense of crisis. “It is clear that Mexicans are very worried by falling oil prices, a rise in the dollar compared with the peso, uncertainty in financial markets. This is a reality,” he said. That was why the budget’s main goal was “to preserve stability and protect Mexican pocketbooks”. Mr Videgaray said the budget estimated 2016 growth at 2.6 per cent to 3.6 per cent, although that could change depending on how the international economy performs. Mexico is also aiming for a 2016 average exchange rate of 15.9 pesos per dollar, a recovery compared with the current level of around 16.8. It expects oil production of 2.247m barrels per day, significantly lower than the 2015 budgeted production of 2.4m, and is basing its calculations on an expected price for Mexico’s crude oil mix of $50 per barrel.

Guatemala Comedian Wins First Round of Presidential Vote - — A comedian won the first round of voting in Guatemala’s presidential election, five days after a wave of protests forced the country’s president from office.Jimmy Morales, a television comedian with name recognition but no political experience, emerged seemingly out of nowhere to move up in the polls as the political crisis deepened over the summer. The latest count gives him almost 24 percent of the vote.Only a few thousand votes separated the second-place finishers, as the last results of Sunday’s elections came in Monday. Mr. Morales and the candidate receiving the next highest number of votes will head to a runoff in October.Julio Solórzano, a member of the electoral tribunal, said that the results would not be known until each district made an official count of the preliminary results, expected by Friday. Candidates may also file challenges to the result, but Guatemalan law does not provide for a recount.

Brazil's GDP Growth Rate May Contract by 2.44 Percent in 2015 – Estimates by financial analysts for Brazil’s Gross Domestic Product (GDP) growth rate in 2015 have deteriorated further, from a contraction of 2.01 percent at the beginning of August to 2.44 percent last week, according to the latest Focus Survey, released by the Central Bank. This is the eight consecutive time the GDP growth rate has declined. For 2016 the growth rate forecast went from a contraction of 0.4 percent to a contraction of 0.5 percent.The weekly survey conducted with a hundred bank analysts also shows that the country’s industrial production is also expected to decline more than in the previous forecasts, by six percent by the end of the year, from last week’s forecast of a reduction by 5.57 percent. In 2016 the survey calls for a recovery in industrial production with a growth rate of 0.72 percent. According to the latest Focus Survey Brazil’s annual inflation rate (IPCA) will surpass the government’s target (4.5 percent), registering a 9.29 percent inflation growth for the year. For 2016, however analysts forecast a much lower annual inflation, of 5.58 percent. With last week’s appreciation surge of the U.S. dollar in relation to the Brazilian real, analysts are now forecasting a foreign exchange rate of R$ 3.60/US$ for the end of 2015 and increased the foreign exchange rate at the end of 2016 from R$ 3.60/US$ to R$ 3.70/US$.  Despite the recent deterioration of some economic indicators, analysts have maintained their benchmark interest rate (Selic) forecast for this year at 14.25 percent. For 2016 the estimate is that the Selic will be reduced to twelve percent per year.

Brazil’s Central Bank Intervenes Again to Defend Currency: Brazil’s Central Bank said Tuesday that it would sell up to $3 billion in greenbacks to stem the steep depreciation of the real, now hovering at levels not seen in 13 years. The announcement, which came before Brazilian financial markets re-opened on Tuesday following the independence day holiday, boosted the real by 1.60 percent to just under 3.8 reais to the dollar. The currency fell 2.6 percent last week to 3.86 reais to the dollar, the lowest level since October 2002, when markets were alarmed by the victory of Luiz Inacio Lula da Silva – then seen as a radical leftist – in the presidential election. The real has lost more than 45 percent of its value this year, mainly as a result of fears that the U.S. Federal Reserve might raise its benchmark interest rate and concerns about the economic slowdown in China. Analysts say the real has also been battered by the political crisis in Brazil, where President Dilma Rousseff is contending with record levels of disapproval while clashing with Congress over economic policy against the backdrop of a $2 billion corruption scandal at the state oil company Petrobras.

Brazil's real falls to all-time low after S&P downgrades country's debt - The Brazilian real fell to an all-time low of 3.90 real to the dollar Thursday after Standard & Poor's Ratings Services downgraded Brazilian sovereign debt into junk territory late Wednesday. Doug Borthwick, the head of foreign exchange at Chapdelaine & Co., said the real's move was "a kneejerk reaction that may see a pullback during the day today." The currency has steadily weakened over the past year amid falling commodity prices and a corruption scandal at the state-owned Petrobras. The prospect of higher interest rates int he U.S. has caused the dollar to strengthen against emerging-markets currencies, a category that includes the real. The currency recently traded at 3.87 to the dollar, down 2.5% from its level late Wednesday in New York.

As a Boom Fades, Brazilians Wonder How It All Went Wrong -  The president of Brazil should have been ecstatic. She had just won re-election after an intense campaign in which she fiercely defended her role in making Brazil, for a few fleeting years, a rising star on the global stage.But in the days after her victory last October, President Dilma Rousseff was worried, confronted in private deliberations with her closest advisers by signs that Brazil’s triumphs were at risk of coming undone.It was not just the drop in global prices for Brazilian commodities like iron ore, the slumping demand in markets like China, or even the brewing corruption scandal at the national oil company that were hurting the country. Ms. Rousseff’s own economic policies were taking a toll, too, officials concede. Now, an economic crisis is unleashing a withering national exploration of how Brazil squandered its hard-won success. Highlighting the strain, Standard & Poor’s downgraded Brazil’s credit rating to junk status on Wednesday, igniting a broad sell-off of Brazilian financial assets on Thursday. The blow is expected to increase Brazil’s borrowing costs while focusing even more scrutiny on the government’s inability to rein in public spending. “We were putting off our date with reality,” Carlos Langoni, a former chief of Brazil’s central bank, told reporters after the downgrade. “Now is the time to do it.”

Emerging-Market Currencies: Things Look to Get Worse - WSJ: Investor bets that Brazil and South Africa will default on their debt hit their highest level since the financial crisis, underscoring the stress mounting on emerging-market economies heading into the most anticipated Federal Reserve meeting in years. The cost to buy credit-default swaps—insurance-like contracts that compensate users for debt defaults—is far from the only sign that investor anxiety is building ahead of the Fed’s two-day meeting concluding Sept. 17. Currencies in Turkey, South Africa and Malaysia have plunged to the weakest levels in many years against the dollar. The average 10-year government debt yield in emerging countries has increased significantly, even as U.S. yields have slipped this summer. Bond yields move inversely to prices. Many investors believe the Fed will raise short-term interest rates this year for the first time since 2006, intensifying the strain on developing nations that in many cases already are struggling with slowing growth, substantial debt and crumbling demand for the commodities that are at the heart of many of their domestic economies. Turkey and Brazil are considered especially vulnerable by many investors, thanks to economic imbalances that will likely be exacerbated by the declines of their currencies. Turkey’s external debt, or debt borrowed from foreigners, as a percentage of its gross domestic product is among the highest of all emerging countries, while Brazil is facing problems including weaker commodity prices, sluggish Chinese demand for its goods and the government’s struggles to cut spending without hitting revenue.

G-20 Countries Vow to Refrain From Currency Depreciation - WSJ: The Group of 20 largest economies on Saturday renewed their pledge to avoid depreciating their currencies to gain a competitive trading advantage as the fallout from China’s slowing economy roils international markets and threatens to stall a weakening global economy. The effort to avert a so-called currency war comes on the heels of China’s yuan devaluation last month and as the International Monetary Fund plans to downgrade global growth prospects, warning that a confluence of downside risks threatens to slam the brakes on output. “We will refrain from competitive devaluations and will resist all forms of protectionism,” G-20 finance ministers and central bankers said in their communiqué Saturday following two days of talks in Turkey. Chinese officials, meanwhile, sought to reassure G-20 finance ministers and central bankers anxious about Beijing’s economic management and its commitment to overhauls needed to ensure the country’s longer-term growth prospects. Despite the threats to the anemic global recovery, the G-20 said it was “confident the global economic recovery will gain speed.” A faster-than-expected slowdown in China has helped fuel a commodity-price slump and recessions in several major emerging markets. Worries that the world’s second-largest economy is on the verge of a much faster and deeper deceleration than Beijing is letting on have spurred weekly currency, equity and bond selloffs in developing nations. Those emerging-market woes come as the U.S. Federal Reserve prepares to raise interest rates, possibly as soon as this month, pushing up borrowing costs around the world and creating new debt headaches.

G20 fin leaders: cheap central bank cash alone not enough for balanced growth -- World financial leaders agreed on Saturday that over reliance on cheap cash from loose central bank monetary policy will not lead to balanced economic growth and that as activity picks up, interest rates would have to rise. Instead, G20 governments agreed that they should focus more on what they themselves can do to boost growth, Britain's Finance Minister George Osborne told Reuters. "What I think we're all agreeing on is that there does need to be, alongside the very accommodative monetary policy in many countries you see, real structural reforms," he said. The formulation of the final communique of finance ministers and central bank governors from the world's top 20 economies defies pressure from emerging market countries to brand an expected rate rise in the United States as a risk to growth. "Monetary policies will continue to support economic activity consistent with central banks' mandates, but monetary policy alone cannot lead to balanced growth," the G20 communique said. "We note that in line with the improving economic outlook, monetary policy tightening is more likely in some advanced economies," the statement said.

S&P cuts Brazil’s credit rating to junk - FT.com: Standard & Poor’s cut Brazil’s prized investment grade credit rating to junk on Wednesday and warned that it could lower it again in the coming months, in a major blow to President Dilma Rousseff’s government. S&P attributed the move, which surprised analysts who had not expected such a downgrade until at least next year, to government backpedalling on its budget deficit targets as well as what it described as divisions in Ms Rousseff’s cabinet over fiscal policy. “The political challenges Brazil faces have continued to mount, weighing on the government’s ability and willingness to submit a 2016 budget to Congress consistent with the significant policy correction signalled during the first part of President Dilma Rousseff's second term,” S&P said. The move by S&P to reduce the BBB- rating to BB+ with a negative outlook comes as Brazil’s economy is in recession, with second-quarter gross domestic product sinking 1.9 per cent compared with the first. Ms Rousseff, who started her second term in January this year, appointed a fiscal hawk, University of Chicago-trained Joaquim Levy, to try to turn round the country’s finances. But after a relatively positive start, her economic team has twice slashed its forecasts for the primary budget surplus, the balance excluding interest payments, considered a key measure of the health of public finances in Brazil. S&P lowered its outlook on Brazil’s investment grade rating on July 28, after the country’s first revision of its budget targets, leading analysts to believe a full downgrade could come next year.

G20 Hypocrites Want to "Double Down Against Competitive Currency Devaluation" -- In a joint meeting of totally useless finance and labour ministers, the G20 Seeks to 'Double Down' Against Devaluation There is a shared belief among the members of the Group of 20 leading economies in the need to "double down" against competitive currency devaluation and avoid it in both policy and language, a senior U.S. Treasury official said on Saturday. Speaking to reporters on the sidelines of the G20 meeting of central bankers and finance ministers in the Turkish capital Ankara, the official said the final communique from the meeting was expected to address competitive devaluation, where countries attempt to drive down a currency to boost exports."There is a shared sense that the G20 needs to double down on its principle that competitive devaluation is a bad thing."  Currencies have come into sharp focus at the G20 meeting, after China devalued the yuan in a surprise move in August, sparking market turmoil. G20 Hypocrites Translated: The G20 believes the yuan should go higher.That's quite a collection of clowns all in one place. And if those hypocrites actually believed what they stated, QE would go out the window in a second.

IMF's Lagarde calls for urgent economic overhauls - --The head of the International Monetary Fund on Saturday called for the world's largest economies to urgently move ahead with economic overhauls as the global growth outlook sours and market turmoil rocks emerging markets. "Downside risks to the outlook have increased, particularly for emerging market economies. Against this backdrop, policy priorities have taken on even more urgency since we last met in April," IMF Managing Director Christine Lagarde said after a meeting of top finance officials from the Group of 20 largest economies. The International Monetary Fund said earlier this week that it plans to downgrade its global growth outlook for the year--already at its slowest rate since the financial crisis--in part because China's slowdown is weighing on global output more than expected. Several of the world's largest emerging markets are already in recession and struggling to revive growth, especially those reliant on commodity exports. Emerging market woes come as the Federal Reserve prepares to raise interest rates, possibly as soon as this month, pushing up borrowing costs around the world. "A concerted policy effort is needed to address these challenges, including continued accommodative monetary policy in advanced economies; growth-friendly fiscal policies; and structural reforms to boost potential output and productivity," Ms. Lagarde said.

IMF chief urges Ukraine's creditors to back debt restructuring plan - (Reuters) - International Monetary Fund chief Christine Lagarde on Sunday lauded Ukraine's economic progress and urged its creditors to join in a deal to restructure $18 billion of its sovereign and quasi-sovereign debt. Speaking in Kiev alongside Ukrainian President Petro Poroshenko, Lagarde said Ukraine had "surprised the world" by its achievements, and his government's policies had brought "an economy that is showing signs of turning the corner." In particular, she said, Kiev's fiscal policies and efforts to strengthen the banking sector in difficult circumstances sent a welcoming signal to investors that Kiev had a strong team in place to make the economy grow. At the same time, she said stamping out corruption was a must if Ukraine's authorities were to re-establish the social contract with the people. The IMF is Ukraine's key financial savior and Lagarde's unstinting praise for Kiev's efforts gave a boost to Poroshenko after a traumatic week in which street protests against his government's policies to bring peace to the east of the country killed three national guardsmen and injured scores of others. Turning to the Aug. 27 debt restructuring deal between Kiev and a group of its largest creditors, Lagarde urged all Ukraine's bondholders to support it. It includes a write-down of 20 percent of the principal owed, a small increase in the coupon on most of the bonds and a four-year extension of the maturity for each bond.

Rouble decline stokes fears of Russian credit crunch - FT.com: Global oil producers have breathed a sigh of relief following a partial rebound in the price of crude — and nowhere has the sense of respite been more palpable than in Russia. Combined with a deepening recession and western trade sanctions the wild gyrations in the oil price and knock-on effects on the rouble have left key sectors of the Russian economic facing a credit crunch when it comes to repaying their foreign currency debt. “Overall, there is less cause for concern than late last year when we got quite close to a sense of panic, but with the rouble again trading close to the lows seen early in the year servicing foreign currency debt is becoming a heavier burden again,” said the head of risk management at a foreign bank in Moscow. “The question of what needs to be done to ensure foreign exchange liquidity is coming back.” Late last year, a sharp fall in the price of crude cut deeply into the foreign exchange revenues on which Russia’s corporate sector relies heavily. Together with sanctions, which almost entirely barred Russian banks and companies from raising fresh funds in western capital markets, this stoked fears that some might struggle to repay foreign creditors on which they previously depended. Those concerns receded after the rouble strengthened back to 49 to the dollar this May and the central bank stepped in to offer foreign currency loans. But since then the rouble resumed its slide to about 65, a 23 per cent decline in value, making Russia’s total $410bn in external debt more expensive to service, according to central bank statistics. Banks and non-financial companies are due to repay $61bn, including interest, between now and the end of the year. Most of this is concentrated in two massive redemption peaks this month and in December.

ECB Ready to Expand Stimulus Programs - WSJ: —European Central Bank President Mario Draghi sent a strong signal Thursday that the bank is prepared to expand its already massive bond-buying program, underscoring an increasing divergence in the monetary policies of the world’s largest central banks. While the ECB opens the door to further expansive policy, economists widely expect the U.S. Federal Reserve to start tightening this year, possibly as soon as mid-September. The Bank of England could follow early in 2016. Meanwhile, the Bank of Japan, like the ECB, is buying large amounts of assets, mostly government bonds, although additional easing appears unlikely for now. Sweden’s central bank also signaled Thursday that it is ready to do more to boost inflation. This widening gap could spur volatility in financial markets—particularly in exchange rates, which are sensitive to the path of monetary policy. European stocks and bonds rallied on Mr. Draghi’s comments and the euro tumbled 1% against the U.S. dollar. Central bank stimulus typically weakens a currency, particularly if other key banks are moving in the opposite direction. Weaker growth in China and other emerging markets is dragging on the eurozone’s economy, Mr. Draghi warned at a news conference on Thursday.  Asset purchases “are intended to run until the end of September 2016, or beyond, if necessary,” he said—a statement investors and economists took as a sign that the bank could extend its more than €1 trillion ($1.1 trillion) bond-purchase program, known as quantitative easing, beyond its targeted end date of September 2016.

Germany's Schaeuble Blasts Central Banks: Money Printing Is "Neither Original Nor Serious" -- Thanks largely to his prominent role in Greece’s protracted bailout negotiations, German Finance Minister Wolfgang Schaueble has become something of an international symbol for fiscal rectitude.  Over the course of six painful months of talks between Athens and Brussels, the incorrigible FinMin was the go-to source for the prompt denial of any and all “Greece is fixed” rumors and by the time it was all said and done, Schaeuble managed not only to humiliate Alexis Tsipras by forcing the Greek premier to effectively sell out the Greek people’s referendum “no” vote, but also to serve notice to France and any other EMU debtor countries who might be listening that anyone unwilling to get in line may be served with a euro “time-out” notice from Berlin.  By “get in line”, we of course mean adopt the German version of fiscal responsibility, which is the subject of some debate currently as pressure mounts to find a solution for the region’s worsening refugee crisis. Speaking to the Bundestag on Tuesday, Schaeuble delivered a sharp critique of the world’s addiction to debt and central bank printing press money, excerpts from which along with some commentary, can be found below, courtesy of Reuters:

Alexis Tsipras faces shock election defeat as voters on course to punish Syriza at the ballot box -  Greek voters are set to punish the government of prime minister Alexis Tsipras after polls show his hard-Left Syriza party is on course for a shock defeat in a general election later this month. Mr Tsipras, who called a snap vote on August 20, has seen his party’s comfortable 15 point lead evaporate in just six weeks, putting the centre-right New Democracy in pole position to lead Greece's fifth government in just four years.The ascendant conservatives - who support the bail-out and will keep the country in the euro at all costs - edged ahead of Syriza for the first time since May 2014 in two polls this week. A survey carried out by Metron analysis put ND in the lead with 24pc of the vote, compared to 23.4pc for the incumbent Leftists. A previous poll for Mega TV put them on course for 25.3pc of the vote ahead of Syriza's 25pc.

Life under capital controls | The Economist: Greeks will once again vote in an election, having last chosen a new government in January and also voted in a referendum in July. The year has been marked by economic turmoil even worse than in previous ones, culminating in the imposition of limits on cash withdrawals from banks. Circumstances are unlikely to improve, whatever the outcome of the poll. But somehow Greeks carry on, cashless but ingenious. Many households have hidden large sums in beds. The practice hails from the time of tight foreign exchange controls in the 1970s. “Mattress money makes me feel safer,” says Dina Efthymiou, a pensioner. The number of burglaries has gone up as a result but the police refuse to give out figures. Estimates put the increase at about 15%. That the number is not higher suggests Greeks are getting better at concealing their cash. Some seal it in with cement. In this section The hatred never went awayLife under capital controls Lonely but not lostLeading from the frontReprintsThe continuing cash shortage has also prompted more than a million people, including Mrs Efthymiou, to buy on credit. “I never got any bank cards because I worried about falling into debt,” she says. “Now I can pay at the supermarket with a card and save my cash.” For owners of small businesses, many of which have already been hit hard by several years of declining sales, the capital controls could prove the final blow. Manufacturers struggle with approvals for raw material imports, and suppliers outside Greece now insist on being paid in advance. Bank loans are only available to big companies, says Adamantios Pappas, owner of a plastics plant that has extended its four-week summer shutdown by another six weeks. “I’m thinking of shutting up shop altogether,” he says.

Majority of Greeks Now Say Euro Has Harmed Greece -- A Gallup poll conducted in May and June but just released today shows Majority of Greeks Say Adopting Euro Has Harmed Country As the Greek debt crisis came to a head again earlier this summer, it's no surprise that leaders in more solvent eurozone countries expressed doubts about Greece's participation in the monetary union -- but these doubts are also widespread among Greeks themselves. A majority of adults in the country -- 55% -- said in a poll conducted May 14-June 16 that they think converting from the Greek drachma to the euro in 2001 has harmed Greece, while one-third (34%) said the common currency has benefited the country. Euro Question: In general, do you think changing this country's currency to the euro has benefited or harmed Greece? A question on EU membership shows the opposite result.

Greece to lift capital controls for those who bring money back to banks: The Greek authorities will try everything to get back to the banks what depositors withdrew before the capital controls were imposed on June 29th 2015. The financial ministry and its high-ranking state officials and interim government ministers are determined and will try everything to get the money back to the banks all the euro cash hidden under mattresses, in closet private safes or planted in terracotta flowerpots. And when stick does not move money, maybe the carrot will. In this case the carrot is in form of incentives like bypassing -or better say “partially lifting of” – the capital controls. But only for amounts that have been returned to the banks or apparently have been newly brought to the bank. Several Greek media reported today that the Finance Ministry and the Bank of Greece with the approval of the European Central Bank consider to give incentives to those who will bring their money back to the banks, even though the press reports do not specify the amount of money the measure will affect. “One of the most important regulations is the possibility for citizens who deposit cash in savings or current deposit accounts that they will be able to withdraw the amount they will deposit at any time and without the weekly restrictions of the capital controls. The money will be deposited in existing accounts of depositors and it will possible to separate the new amount from the old balance of the account through a special software that has been invented for the banks. Then the amount currently on the deposit account will remain under the restrictions of the capital controls.”

Why The Greeks Should Repudiate Their Government's Debt - In apportioning blame for the Greek government debt crisis, it would be difficult not to lay the major share on Greece itself. With government jobs paying three times the private sector average, a national rail service with a wage bill four times its annual revenue, a public pension system that would pay out generous benefits at fifty for anyone classified as working in “arduous” professions like hairdressing, there is no shortage of taxpayer-funded largesse running rampant through Greek society. At this point however, dissecting the Greek’s failure to live within their means is not only nugatory - beyond proving the time-tested observation that people like something for nothing - but also obfuscates the true moral contours of the crisis.Moreover, it blurs our understanding of a fundamental truth crucial not just to the future of Greeks but all peoples: Government debt is not like private debt. In fact, government debt is fundamentally illegitimate and one might even be justified in claiming that anyone seeking to profit from it is aiding and abetting criminal activity.

Ex deputy PM admits Tsipras gov’t was unable to borrow “from third countries”: High-ranking SYRIZA official and one of the party’s top economist, former deputy Prime Minister Yannis Dragasakis, admitted that the SYRIZA-led coalition government was unable to borrow money from third countries and that therefore it was obliged to sign the July 13th agreement. At the same time, he revealed that before the capital controls, Greece was very close to have to proceed to ‘deposits haircut’ because “the plan was to follow the Cyprus example.” Speaking to economic news portal euro2day.gr, Dragasakis said that “the threats of capital controls started already on February 15th as part of the war that took place.” The former deputy PM revealed that the Tsipras government had sought alternative ways to raise capital and avoid signing the 3. Memorandum of Understanding and the 3. bailout. Greece has contacted China, Russia, India and Venezuela, but without result. And borrowing was inevitable. “We did a global effort to see if we can raise capital from third countries so that we can meet our then obligations (…) There were no such possibilities,” Dragasakis said “they didn’t give us”.

How Europe Crushed Greece - Yanis Varoufakis -- Since the beginning of Greece’s financial crisis in 2010, two prime ministers have been swept from office after they were forced to adopt an unfeasible package of austerity measures in exchange for a bailout from the troika, as the eurozone authorities — the European Commission, the European Central Bank and the International Monetary Fund — are known. It pains me to watch the same fate befall a third prime minister, my friend and comrade Alexis Tsipras. The cause of this continuing trouble for Greece lies in the eurozone’s existential crisis. The pioneers of the single currency, of whom Mr. Schäuble is the last active member, were undecided whether the euro should be modeled on the international gold standard of the interwar period or on a sovereign currency, like the dollar. The gold standard relied on strict rules that were unenforceable during a crisis. In a severe downturn, these imposed the greatest burden on the worst-hit economies and thus made exit the only alternative to a humanitarian crisis. This is the reason that President Franklin D. Roosevelt took the United States off the gold standard in 1933, expanded the money supply and helped pull America out of the Depression. A sovereign currency, or state money, demands a different, more flexible set of responses based on political union, as the French government and others have recently proposed. The great questions that Europe must answer are: What kind of political union do we want? And are we prepared to act quickly enough to prevent the fragmentation of the eurozone? Europe’s indecision is a result of a deep rift between Berlin and Paris. Berlin has traditionally backed a rules-based eurozone in which every member state is responsible for its own finances, including bank bailouts, with political union limited to a fiscal overlord’s possessing veto power over national budgets that violate the rules. Paris and Rome, cognizant that their deficit position would condemn them to a slow-burning recession under such a rules-based political union, see things differently.

Spain set for secessionist clash as Catalonia’s election looms -- Catalans go to the polls at the end of this month to choose a new regional government in what is shaping up to be a showdown between the secessionists and central government in Madrid and between Catalans themselves, who are split on independence. The majority of pro-independence groupings have come together as Junts pel Sí (United for a Yes Vote), a single-issue coalition that includes Artur Mas, the incumbent Catalan president. The poll has been billed as a plebiscite, and Mas has said he will declare unilateral independence if the group wins a majority of seats, even if it has not obtained a majority of the popular vote. The first test will be the turnout on Friday, in what has become an annual show of force by the secessionists on Catalan National Day, as tens of thousands will converge on the capital to demand independence. This year the demonstration has been billed as “The Open Road to the Catalan Republic”. In spite of polls showing waning support for independence, Raül Romeva i Rueda, the ex-communist who leads Junts pel Sí, says a unilateral declaration of independence is justified because “they [Spain] have beaten us with unjust laws and huge fines”. The Madrid government has refused to enter into a dialogue on independence and has adopted a hardline stance throughout. Its reaction to Junts pel Sí has been to rush through an amendment to the constitution so that any politician who declares independence can be imprisoned.

Euro zone second-quarter GDP revised up as Italy grows faster | Reuters: The euro zone economy grew faster than expected in the second quarter, data showed on Tuesday, mainly because of faster growth in Italy and Greece. The European Union's statistics office Eurostat said gross domestic product in the 19 countries sharing the euro rose 0.4 percent quarter-on-quarter in the April-June period for a 1.5 percent year-on-year rise. This is a revision of the previously reported figures of a 0.3 percent quarterly rise and a 1.2 percent year-on-year gain. Economists polled by Reuters had expected the initial figures released by Eurostat would remain unchanged. Euro zone figures were revised also for the first quarter -- growth was 0.5 percent on a quarterly basis, instead of the 0.4 percent reported previously. Year-on-year, the first quarter was revised up to 1.2 percent from 1.0 percent . The revision is mainly driven by better-than-expected data in Italy, the third biggest economy of the euro zone.

There Goes Europe -  Kunstler -- T he desperate wish in what is loosely called the West to at least appear morally correct is unfortunately over-matched by the desperation of people fleeing unstable, overpopulated places outside the West, and it is a fiasco beyond even the events of the moment. The refugee / immigrant crisis around the Mediterranean is a preview of a horror show to which there is no end in sight, and is certain to escalate. So anyone who indulges in fantasies about organizing an orderly, rational distribution of displaced persons for the current wave, is badly missing the point. Wave beyond wave awaits after the this one. And then what will the well-intentioned sentimentalists say? We wanted to do the right thing… we meant well… we cried when we saw the little boy dead on the beach…. Yes, the tragic intrusions of the US military in Iraq, Libya, Somalia, Syria, and elsewhere have been reckless and stupid. But that is not the whole story. The desert nations of the Middle East and North Africa (MENA) have populations abnormally swollen by a century of oil-and-gas-based agriculture, really by the benefits of Modernity in general. Now that the oil age is chugging to an unruly crack-up, and Modernity with it, and the earth’s climate is doing wonky things, and the rich nations to the north have faked their finances to the point of bankruptcy, well, circumstances have changed.In the years ahead, populations will be fleeing and shifting from many more unfavorable corners of the world. The pressures are mounting all over. Alas, the richer nations in which the fleeing poor aspire to gain a foothold, will also be contending with the disabling effects of a universal economic contraction — the winding down of the techno-industrial system and the global economy with it. That process has the potential to shatter political unions, overthrow established social orders, and provoke wars between the demoralized countries who still possess dangerous military hardware. At the least, it will produce economic conditions in Europe and North America probably worse than the Great Depression of the 1930s.

Europe debates migrant quota buyout plan - FT.com: European Commission officials are debating a proposal that would allow some EU countries to pay money in order to opt out of a mandatory quota system for accepting refugees, in a plan that could ease a stand-off between eastern and western members over how to relieve Europe’s migrant crisis. Some eastern states have balked at being forced to accept mandatory numbers, under a plan to divide 160,000 migrants across the region to be announced on Wednesday by commission president Jean-Claude Juncker. They argue that voluntary targets allow member states to provide better care to people looking to settle in Europe. “We are ready to share the burden and take responsibility, but only if we have control over the situation,” said Poland’s minister for Europe, Rafal Trzaskowski. Over the summer a harrowing exodus of people from the Middle East, Africa and Afghanistan has leapt to the top of Europe’s political agenda, and led to a quadrupling of the EU’s resettlement target from 40,000 people in July. Commission officials and eastern diplomats stressed that the plan would only allow countries to take temporary “time-outs” from any expanded quota regime, in exchange for payments to a fund supporting refugees. “It creates an opportunity for voluntary decision making,” said an eastern EU official. “If they do it with penalties, then that is a bad idea. But if there is a system where you contribute financially to helping the problem in a different way, then that is much more palatable.” EU officials stressed that any opt-out would also have to be justified by “objective reasons” — for example Poland’s desire to have contingency plans in place to accept large numbers of refugees from Ukraine if the conflict there worsens. Talks on the proposal will continue on Monday and Tuesday, officials said.

Europe refugee crisis: The EU has failed to confront the wars in Syria and Libya.: —Picking apart the layers of irony and hypocrisy that surround the European refugee crisis is like peeling an onion without a knife. At a train station in southern Moravia, Czech Republic, police pulled 200 refugees off a train and marked numbers on their arms. On its eastern border, Hungary is building a barbed-wire fence to keep out refugees, remarkably like the barbed-wire “iron curtain” that once marked its western border. Choose whatever image you want—ships full of Jews being sent back to Nazi Europe, refugees furtively negotiating with smugglers at a bar in Casablanca—and it now has a modern twist. As so often, crocodile tears are falling. The Sun, a British tabloid, has spent a decade railing against immigrants of all kinds. Not long ago, it told the British prime minister to “Draw a Red Line on Immigration—or Else.” Now, after the publication of photographs of a dead Syrian toddler who washed up on a Turkish beach, it wants the prime minister to “Deal With the Worst Crisis Facing Europe Since WW2.” Having just declared that there was no point accepting “more and more refugees,” poor David Cameron has now declared that, actually, Britain would accept more and more refugees. His aides hurriedly explained that “he had not seen the photographs” when he made the original statement. More layers of hypocrisy: Although the photographs are indeed terrible, they aren’t actually telling us anything new. Refugees have been crossing the Mediterranean for months. Hundreds have died. Also, if we are disturbed by a dead child on a beach, why aren't we disturbed by another dead child in a bombed-out house in Aleppo, Syria? What's the distinction?

Wealthy Gulf Nations Are Criticized for Tepid Response to Syrian Refugee Crisis— The Arab nations of the Persian Gulf have some the world’s highest per capita incomes. Their leaders speak passionately about the plight of Syrians, and their state-funded news media cover the Syrian civil war without cease. Yet as millions of Syrian refugees languish elsewhere in the Middle East and many have risked their lives to reach Europe or died along the way, Gulf nations have agreed to resettle only a surprisingly small number of refugees. As the migration crisis overwhelms Europe and after images of a drowned Syrian toddler crystallized Syrian desperation, humanitarian groups are increasingly accusing the Arab world’s richest nations of not doing enough to help out. Accenting that criticism are the deep but shadowy roles countries like Qatar and Saudi Arabia have played in Syria by bankrolling rebels fighting President Bashar al-Assad.

11,000 Icelanders Offer To House Syrian Refugees -  The Icelandic government is reconsidering its national refugee quota after a social media campaign resulted in over 11,000 Icelanders offering up a room in their homes to refugees.As Europe struggles to cope with unprecedented levels of those seeking shelter, residents of the sparsely populated Nordic island country resorted to direct action to pressure their leaders. With a population of 330,000 — less than many European cities — the country’s government had previously stated it could only take in 50 people this year. Taking matters into their own hands, over 16,000 Icelanders joined a Facebook pagecreated on Sunday to pressurize the Icelandic government into accepting more refugees. In addition to offering rooms in homes, people have pledged financial support with air fares, language teaching, clothing, food, and toys, and the page has been inundated with messages of gratitude from Syrians, some of whom are writing from refugee camps. As a result of the outpouring of support, Icelandic Prime Minister Sigmundur David Gunnlaugsson announced that a committee is being formed to re-assess the country’s current policy.

European migrant crisis: more refugees, more troubles - CNN.com: A trash-strewn field along the Hungarian-Serbian border served as the latest flashpoint in Europe's migrant crisis Monday as people grew weary of waiting for days in primitive conditions to resume their journey to safety. The question on all their lips: "Why are they treating us like this?" At times, the migrants -- most of them from Iraq, Syria and Afghanistan -- tussled with police blocking a road from this holding site to a transit camp near Roszke, Hungary, where they can register as refugees and continue their journeys. Buses were carrying small numbers of migrants to the camp, but many have been forced to wait at the holding site for as many as three days with little in the way of services or support. One Hungarian nonprofit was on site handing out biscuits, fruit and water, and a medical tent was erected Monday.  Meanwhile, Austria and Germany warned they can't keep up with the influx of refugees and said they must begin to slow the pace.  More than 16,000 migrants have streamed into Austria since Saturday, Burgenland state police spokesman Wolfgang Bachkoenig said Monday. Virtually all continued to Germany, where the city of Munich had received more than 17,500 people, police said.  "We must now, step by step, go from emergency measures to a normality that is humane and complies with the law," Austrian Chancellor Werner Faymann said.  The United Nations' refugee agency, UNHCR, estimates that more than 366,000 refugees and migrants have crossed the Mediterranean Sea to Europe this year.

Migrant crisis: Hundreds force way past Hungarian police - BBC News: Hundreds of migrants have broken through police lines on Hungary's border with Serbia and are walking towards the capital, Budapest. The migrants had earlier broken out of a registration camp at Roszke. About 300 are on a motorway, escorted by police. Some later reportedly agreed to be bussed to a reception centre. Meanwhile, the Greek government and UN refugee agency brought in extra staff and ships to deal with some 25,000 migrants on the island of Lesbos. The processing centre has been set up on an abandoned football ground to help the stranded migrants. The hope is that the centre - which will operate for five days - will help people to buy tickets for specially chartered ships to get to Athens, the BBC's Jonny Dymond on Lesbos reports. Local authorities have been overwhelmed by the migrants who have been forced to live in squalid conditions, our correspondent adds. Athens has already requested emergency EU assistance to deal with migrants arriving from Turkey. Earlier, German Chancellor Angela Merkel warned that the "breathtaking" flow of migrants into Germany would change the country in the coming years.

Lesbos 'on verge of explosion' as refugees crowd Greek island - Lesbos is on the verge of ‘explosion’, the Greek immigration ministry has said, as the island struggles to cope with the influx of thousands of refugees, mostly from Syria. Yiannis Mouzalas told To Vima radio that boats taking refugees to the Greek mainland - the start point of a land route to Germany through Macedonia, Serbia and Hungary - would soon be using a second port to ease pressure on the island of 85,000 inhabitants. “Mytilene [the capital of Lesbos] currently has 15,000 to 17,000 refugees and this is the official figure from all services,” Mouzalas, a junior interior minister, said. “We are placing emphasis here because the situation is on the verge of explosion.” Greek television on Monday night reported scenes of chaos with as many as 6,000 refugees crowding the island’s port to board the Eleftherios Venizelos, a cruiseliner pressed into action to transport newcomers to the mainland. The surge was such that the ferry was forced to raise its gangplanks after it had docked. Athens’ caretaker government, which has made handling of the crisis its top priority ahead of general elections on 20 September, said it was also stepping up emergency aid, dispatching doctors and medical units to the island. In a bid to defuse tensions, the migration minister Yiannis Mouzalas also announced urgent measures, including the deployment of 60 coastguard officials and police from Athens to expedite the processing of refugees.

Can the World Find $14 a day to feed Syrian Refugees? -  While the world is focused on the Syrian refugee crisis (now that the refugees have arrived in Europe) aid to refugees in Turkey, Lebanon and, especially, Jordan has been cut. The cash-strapped World Food Programme has had to drop one-third of Syrian refugees from its food voucher program in Middle Eastern host countries this year, including 229,000 in Jordan who stopped receiving food aid in September, a spokeswoman said. This is crazy. It would cost Europeans much less to feed refugees in Jordan than to host them in Germany. The moral obligation is equal for the USA even if few refugees are crossing the Atlantic. I really don’t understand what is going on. Partly I don’t understand the UN at all — why is this financed by the World Food Program not the High Commission for Refugees project ? Why did I find an alarming article dated December 2014 making the same warning of an imminent interruption of the food voucher program ?  I assume the UN collectively is declaring a crisis of this program right now, because it is the best way to scare up contributions. I also don’t care much. No matter what the UN PR strategy might be, the world’s response to the refugee crisis is unreasonable and emergency funding for the WFP vouchers makes sense.

Germany to spend extra €6bn to fund record influx of 800,000 refugees --The German government will spend an extra €6bn (£4.4bn) to cope with this year’s record influx of refugees, the country’s ruling coalition has said. State and local governments will receive €3bn to help them house the 800,000 people expected to arrive in Germany this year, and central government plans to free up another €3bn to fund its own expenses, such as paying benefits for the new arrivals. Leaders from Angela Merkel’s coalition also agreed a other measures, such as speeding up asylum procedures and the construction of shelters. Germany expects to take in far more refugees than any other EU nation. In August, it registered more than 100,000. The chancellor of Europe’s largest economy described the numbers crossing the border into Germany over the weekend as breathtaking, and said EU partners should share the burden of the influx. “We have a weekend behind us that was moving, at times breathtaking,” she said. Efforts by ordinary Germans to support the new arrivals had “painted a picture of Germany which can make us proud of our country”. “Germany is a country willing to take people in, but refugees can be received in all countries of the European Union in such a way that they can find refuge from civil war and from persecution,” Merkel said. Bavarian authorities, which have so far accepted two-thirds of the 18,000 people who arrived in Munich via Austria over the weekend, have said they are at breaking point. “We’re right at our limit,” said Christoph Hillenbrand, the president of the Upper Bavarian government. He called for better communication across borders after authorities were taken by surprise at the number who arrived on Sunday.

Denmark blocks motorway, rail links with Germany to stop refugee flow | Reuters: Danish police closed a motorway and rail links with Germany on Wednesday in a bid to stem the flow of refugees heading north to Sweden, as Europe's migrant crisis spreads northward. The motorway, a vital traffic artery for people and goods between the two countries, was closed when some 300 refugees, including children, began walking on it. Police tried to persuade them to leave but appeared reluctant to use force, witnesses said. "We are trying to talk to them and tell them that it is a really bad idea to walk on the motorway," a police spokeswoman said. Police also asked the state-owned railway operator to stop all trains between Germany and Denmark until further notice. Vast numbers of people, many fleeing war and Islamic State in Syria, are trying to reach safety in EU countries willing to have them. Most have headed to Germany, but Sweden is also a favorite destination. Both countries have more generous policies for refugees than their EU neighbors. Denmark is part of the EU's Schengen zone, where borders are meant to be open to allow free movement. When asked by Reuters whether blocking the road and rail links meant breaking with the Schengen system, a police spokesman he did not think so as he expected to traffic to start moving again soon, although he could not say when.

The deadly disunity of the Europeans - FT.com: Europe’s multiple crises share a common theme. Whether we are talking about banks, sovereign debt or, as now is the case, refugees, the EU finds it hard to act. What we have is a classic collective action problem, of the kind described by Mancur Olson, the political economist, in the 1960s. People have a common interest in acting but fail to do so because vested interests get in the way. Even the harrowing pictures of the dead young boy will not resolve the collective action problem. All it will do is to produce visible hyperactivity. The three crises share another common theme: each one of them is virtually intractable if you look at it from a micro perspective, from the vantage point of a Greek bank or Budapest East train station. But if you look at immigration from an EU-level perspective, the picture is much more nuanced. The EU has 500m inhabitants. Setting aside refugees, net immigration — the difference between those coming into and those leaving the EU — was 539,000 in 2013, about 0.1 per cent of the total population. Net immigration was higher in 2010, when it stood at 750,000. The UN refugee agency (UNHCR) puts the number of refugees and migrants who crossed the Mediterranean at 300,000 between January and August, compared with 219,000 for the whole of 2014. If you extrapolate this year’s number to the whole of 2015, you get to around 450,000, an extra 230,000 people compared with last year. These numbers do not capture the whole story: many immigrants, from Syria in particular, use land routes. Net immigration this year may thus well end up being the highest in recent years, but still tiny compared with the EU’s total population. Net immigration including refugees is clearly rising. Still, this is not an immigration crisis. It is a collective action crisis. Its solution would be straightforward in the presence of a central authority empowered to take decisions. But this is not how the EU works. It works through co-ordination and harmonisation — through fiscal rules, banking regulation and neighbourhood policies. But none of them prevented the crisis, and none of them helps solve it. The problem was never a lack of rules or policies. It was the simple fact that certain things in life cannot just be co-ordinated.

Blow to Cameron with Order to Rewrite Brexit Poll Question - David Cameron suffered his first defeat in the build-up to the Brexit referendum campaign after being told to rewrite the allegedly biased question to be put on the ballot paper. Mr Cameron agreed to change the wording after the Electoral Commission objected to the suggestion that voters be invited to say Yes to Britain staying in the European Union. Eurosceptics celebrated the verdict. Nigel Farage, leader of the UK Independence party, said: “I’m in no doubt that the Yes/No offering was leading to great confusion.” The EU referendum bill going through parliament had proposed voters be asked: “Should the United Kingdom remain a member of the European Union?” But the independent Electoral Commission urged the government to change the question to: “Should the United Kingdom remain a member of the European Union or leave the European Union?” Pro-EU campaigners shrugged and said they would continue to call themselves the Yes campaign. One said: “In any case the word “remain” sounds static: fighting for the status quo is an advantage.” The Electoral Commission said the original wording was clear but contained a “double bias” by including only the “remain” option and having the “yes” answer endorse the status quo.Research from pollsters ICM and ComRes suggests that voters are more likely to say they favour the status quo when framed as a yes or no question rather than whether the UK should remain or leave.

Majority in UK Now Favor Leaving EU; Businesses Told to Shut Up Over "Brexit Poll" --In the wake of the EU migration crisis with German chancellor Angela Merkel chiding UK prime minister David Cameron for not doing enough, a shocking new poll shows Majority in UK Wants to Leave the EU.  A majority of British people would vote to leave the European Union in the wake of the migrant crisis engulfing the continent, a shock new Mail on Sunday poll has found. If a referendum were to be held tomorrow on whether to remain a member of the EU, 51 per cent of British people would vote ‘No’. It follows a string of polls over recent years which have given comfortable leads to the pro-European camp. Significantly, it is the first measure of public opinion since the Government changed the wording of the referendum question, lending weight to claims that the new phrasing boosts the chances of victory for the ‘Out’ campaign.  The survey also found strong backing for David Cameron’s stance in standing up to German Chancellor Angela Merkel, who wants the UK to take in a greater share of migrants.Growing public support to cut all ties with Brussels came as it was revealed the Prime Minister told Merkel to her face: ‘I could walk away from the EU.’At a private dinner in Downing Street, Merkel accused him of being ‘too forceful’ in demanding concessions from the rest of the EU. That was why ‘we all hate you and isolate you,’ she said.  The Above from The Mail.  I strongly doubt Merkel actually said anything resembling "we all hate you". Normally I would stay away from such sources but the Financial Times linked to the article as well.

Won’t somebody please think of the tax havens? - Moody’s observes this week that off-shore financial centres such as the Isle of Man are facing economic challenges due to the international community’s general clampdown on global tax avoidance.  In the case of the Isle of Man specifically there’s the added uncertainty surrounding the outcome of the Isle’s negotiation with the UK government on the customs and excise agreement, which determines a substantial portion of the island’s excise. Basically it’s a tough time to be an island economy. Especially if you offer little in the way of real-economic value to the world apart from your ability to protect the rich (and the financial rent seekers which prey on them) from taxes in their homeland states, and if you survive mainly by charging a competitive rate for that service. Lucky for the Isle of Man, Moody’s notes it’s been wise enough to anticipate such headwinds and has been working hard to diversify its economy for a while.As the press release for the Isle of Man report notes: The Isle of Man has successfully diversified into high-growth sectors, with the support of favourable government policies,” says Evan Wohlmann, a Moody’s Assistant Vice President – Analyst. “The importance of financial services in gross value added has fallen, with information and communication technology and e-gaming now the main growth drivers.” So there you have it. ICT and e-gaming services are coming to the aid of offshore financial centres just in the nick of time:

UK Industrial Output Falls Unexpectedly; Trade Gap Widens - UK industrial production dropped unexpectedly and the visible trade gap widened to the highest level in a year in July largely due to a strong pound, suggesting a weak start to the third quarter. Industrial output dropped 0.4% on a monthly basis in July, having had an equivalent fall in the prior month, the Office for National Statistics said Wednesday. Economists had forecast 0.1% growth for July. This was the second consecutive fall in production. Largely due to summer shutdowns at auto factories, manufacturing output declined 0.8% in July, the largest fall since May 2014. Economists had expected it to grow 0.2% again as seen in June. Year-on-year, the growth in industrial production slowed notably to 0.8% in July from 1.5% in June. This was the weakest expansion in five months. Output was expected to grow 1.4% in July. On the other hand, manufacturing output slid 0.5% annually, offsetting 0.5% increase in June. This was the first drop since August 2013, when it fell 1%. Economists had forecast a 0.5% growth for July. Another report from ONS showed that the visible trade deficit widened for a second straight month in July. The deficit on the trade in goods rose to GBP 11.08 billion from GBP 8.51 billion in June. Economists had forecast a GBP 9.5 billion shortfall. The deficit figure was the biggest since the GBP 11.24 billion shortfall logged in July 2014. Exports of goods fell to GBP 22.8 billion in July, the lowest since September 2010. Exports decreased 9.2% from the prior month, logging the biggest fall since mid 2006. Meanwhile, imports grew GBP 0.3 billion to GBP 33.9 billion. The surplus on services remained unchanged at GBP 7.7 billion in July. Consequently, the total trade deficit widened to GBP 3.4 billion from GBP 0.82 billion in June

Problem debt: number of households affected rises by a quarter -- The number of households struggling with problem debt grew by a quarter between 2012 and last year, as stagnating wages forced a growing number to borrow to get by, according to the TUC. By 2014, 3.2 million families were spending at least 25% of their gross monthly pay on servicing unsecured debts, the definition of problem debt. The figure for 2012 was 2.5 million, according to research commissioned by the TUC and Unison. Young people, the self-employed and low-income families recorded the biggest increases in debt. The report said 1.6m households were spending 40% of their gross income on repaying non-housing debts. Of those, 1.1 million were earned less than £30,000 a year. Borrowing on credit cards, loans and overdrafts fell with the onset of the financial crisis and has not returned to pre-crisis levels, but the unions said a fall in real wages meant debt-to-income ratios remained high. The research, based on analysis of household surveys including an annual report for the Bank of England, showed that problem debt had almost trebled among the self-employed. In 2012, 6% of self-employed workers with credit commitments were in serious debt. By last year the figure had risen to 17%. The proportion of low-income families spending more than a quarter of their earnings on debt repayments increased from 9% to 16% over the same period. Among 18 to 34-year-olds it rose from 2% to 10%. The report said this was not down to student loans, but because of borrowing on credit cards and via personal loans, overdrafts and payday loans.

Third of OAPs on less than minimum wage - A third of those over the age of 65 are living on less than they would make on the minimum wage. Two in five of them say they have 'gone without' in order to make ends meet, and over 150,000 of them say they struggle to pay their utility bills. Given that 68% of them say they have equity in their home, is there an obvious solution?  People are living longer than ever, and with many relying on their state pension alone, they face decades on a low income, finding it harder and harder to make ends meet. A study by LV= found that quarter of them have given up taking holidays abroad, while 16% can't imagine buying a new car, 15% have stopped eating out, and one in twenty say they can no longer stretch to birthday and Christmas presents for friends and family. Of those living on less than the minimum wage, more than half have had to go without in order to stay within their budget, and one in seven say they can no longer afford to replace household goods that have come to the end of their natural life. This horrible situation is one reason why one in four people seeking guidance on their pensions in the wake of new freedoms are also asking for help on other issues - with 42% asking for help with benefits and tax credits, 29% asking for assistance in managing their money and 14% asking for advice on debt.

The UK as a test case for NGDP targets: In an article in the Independent today, I argue that it is about time the Bank of England changed UK interest rates. But they should go down, not up. The essence of the argument is there remains a significant risk that we have substantial deficient demand. Even if the probability of this is below 50%, if it is true the costs of it persisting far outweigh the costs of some mild inflation overshooting. One point I do not consider in the article are the implications for nominal GDP (NGDP) targeting. Here is the picture. I use nominal GDP per head, because that is robust to changes in migration flows, which for the UK have been important and variable. The serious arguments are for a levels target, so I’ve drawn in a reference path for 4.25% growth. That is a combination of 2% output price inflation and 2.25% real growth per head, the latter being the 1955-2008 average rate. If the Bank of England had adopted a NGDP target, as many have recommended, the MPC would be tearing their collective hair out right now trying to stimulate the economy. There would be zero talk of interest rate increases. So there seem to be just two possibilities. Either NGDP targeting is nuts, or monetary policy has slowly gone off the rails by focusing on CPI inflation alone.

Rethinking government debt -- There is a huge amount of hysteria about government debt and deficits, not just in the UK but throughout much of the world. As I write, Brazil has been downgraded by Standard & Poors because of concerns about rising government debt and weakening commitment to primary fiscal surpluses in a context of political uncertainty and deepening recession. It is the latest in a long line of downgrades and investor flight over the last few years. The global economy is a very stormy place. The UK, which has halved its fiscal deficit in relation to gdp in the last five years, is embarking on another round of fiscal tightening, with the aim not only of completely eliminating the deficit but running an absolute surplus by 2020 in order to, in the words of the Chancellor, "bear down on debt". The Chancellor's plan enjoys considerable popular support due to a widespread belief that if we do not eliminate the deficit and start paying down debt, we will end up like Greece. "Dealing with the deficit" has become synonymous with good economic management. But others argue that further austerity to eliminate the deficit and pay down debt is unnecessary and harmful, especially if it means further cuts to investment spending. A growing number of voices call for the UK to increase investment spending even if it means a rise in headline debt/gdp in the short term, because improved growth from the extra investment would result in debt/gdp falling in the longer term. For many of these people (and I admit I am one), deficit phobia is economically illiterate and failing to invest when interest rates are on the floor is irresponsible management of the economy. Still others say that government debt is unnecessary: a monetarily sovereign government can fund spending through central bank money creation. Jeremy Corbyn's People's QE gives a nod in this direction. So who is right? How much debt should the UK have? What is the purpose of government debt?