week ending Sept 19

Janet Yellen’s fateful decision - As the Federal Reserve’s open markets committee meets for its crucial two-day session in Washington, Janet Yellen faces her first real policy test since assuming the chair in February 2014. Amazingly, she is already almost halfway through her first term. But, so far she has had the relatively easy task of piloting the exit from quantitative easing. The exit plan had already been mapped out by Ben Bernanke, and it was not particularly contentious inside the committee. The decision on whether to raise interest rates this week is, however, proving more divisive. Among her key lieutenants, vice-chair Stanley Fischer seems somewhat hawkish, while William Dudley has stated the case for the doves. John Williams, her successor at the helm of the San Francisco Fed, and a key ally, also seems inclined to a more dovish view than he championed earlier in the summer. Mr Williams recently told the Wall Street Journal that he would “honestly, honestly, honestly” want to hear the opinions of his colleagues at this week’s meeting before making up his mind. Does he protest too much, I wonder? Perhaps the decision has already been taken, but the Yellen camp wants to allow the hawks a full and fair hearing before announcing that rates would remain unchanged.Mr Williams also said that he would be eagerly waiting to hear the opinions of Ms Yellen before making up his own mind on the rate hike. With the committee split more than usual, the views of the chair will probably swing the vote, within certain limits. But what does she think? Ms Yellen ducked last month’s Jackson Hole seminar, and has not spoken about monetary policy since a speech on 10 July, since when much water has passed under the bridge. No one can be sure which way she will jump.

Q&A: Lawrence Summers and Why It’s Too Early to Raise Rates - Lawrence Summers, the Harvard University professor and former Obama administration economic adviser, hasn’t been shy of late urging the Federal Reserve to refrain from raising short-term interest rates at its policy meeting this week. In a series of opinion columns and blog posts, Mr. Summers has argued that the time isn’t ripe for a move and that markets aren’t prepared.  We caught up with him by phone while he was in London on Tuesday to ask him why he is hitting the issue so hard. Below is a transcript of the conversation.

Kenneth Rogoff Slams One of the Most Popular Theories for What the Fed Should Do Next - Market participants have been coalescing around the view that the Federal Reserve's liftoff from near-zero interest rates will be a "one and done" affair. That is, market metrics suggest that monetary policymakers will likely hike rates once, then wait a considerable time to assess how financial markets and the real economy digest this less stimulative stance. But in an appearance on Bloomberg Surveillance, Kenneth Rogoff, Harvard professor of economics and public policy, questioned the rationale of this view. "What is the logic of doing it, also?" he said in response to a question on the merits of a rate hike followed by a long pause. "It's very asymmetric. If we see inflation, they can start raising rates, and if you go in the wrong direction, it's harder to do something about it." Since the end of the Great Recession, other central banks, notably Sweden's Riksbank and the European Central Bank, were forced to backtrack on rate hikes. Rogoff's thoughts on monetary policy are particularly noteworthy in light of his position on the Economic Advisory Panel of the Federal Reserve Bank of New York. While the Federal Reserve has indicated that it will raise rates once it is "reasonably confident" that inflation will move back to 2 percent in the medium term, Rogoff said monetary policymakers shouldn't just be confident — they should be certain. Overshooting inflation is the least of our concerns, he asserted, and Janet Yellen shouldn't put too much trust in models that suggest inflation is around the corner.

Which Fed Leaders Fear Inflation? Look at When They Grew Up - If you are an 18-year-old college freshman in the United States, inflation in your lifetime has averaged less than 2 percent. If you are a 30-year-old millennial, you experienced inflation above 5 percent for only one year — when you were in kindergarten, perhaps in the form of the coins in a piggy bank buying fewer pieces of candy the longer they sat unspent.If, by contrast, you are one of the 17 people who set monetary policy for the United States, you have had a rather different experience. The median age of the Federal Reserve System’s policy-making committee members is 58, meaning all of them were fully formed adults during the double-digit inflation of the 1970s and early 1980s. They know firsthand how it feels when mortgage rates are astronomical and a dollar buys substantially less every year.The Fed, which this week will weigh whether it is time to raise interest rates after seven years of keeping them near zero, is motivated by a desire to keep inflation around 2 percent. But any decision it makes will follow decades in which inflation has been quiescent and, in the last few years, consistently below that 2 percent target.Might that accident of the calendar have something to do with it? Could the fact that Fed policy makers are of a generation with firsthand experience with high inflation make them more antsy about a risk that might seem to younger Americans distant or utterly improbable? I did some analysis of the relationship between the inflation level when Fed officials were at a formative age and the degree of concern about price inflation they have shown as policy makers, and while it is far from definitive, it suggests there just might be something there.

Weak U.S. consumer sentiment, tame inflation muddy Fed rate outlook | Reuters: U.S. consumer sentiment hit its lowest in a year in early September and producer prices were flat in August, signaling moderate economic growth and tame inflation that could weigh on the Federal Reserve's decision whether to hike interest rates next week. The slump in consumer sentiment and persistently weak inflation reported on Friday are in stark contrast with a tightening labor market. Sentiment was likely undermined by recent stock market volatility amid worries over China's slowing economy, while a strong dollar is dampening price pressures. "The sharp deterioration in consumer confidence and the re-emergence of the disinflationary thrust in goods prices will factor prominently in the Fed's deliberations next week, and both are likely to add to the case for caution as they consider raising rates," said Millan Mulraine, deputy chief economist at TD Securities in New York.The University of Michigan said its consumer sentiment index fell to 85.7 early this month, the lowest since September last year, from a reading of 91.9 in August. The survey's gauge of consumer expectations also dropped to a one-year low, as households expected slower growth overseas to hit the U.S. economy. Consumers' expectations for current and future personal finances also took a knock. But even as households took a dim view of the economy's outlook, there were only mild declines in sentiment towards motor vehicle and home purchases. "We look to the final September survey results for any evidence of significant pass-through from weaker sentiment to actual purchasing activity, but expect robust income and job growth to outweigh these factors in actual consumption data,"

No Excuses…Or Are There? « U.S. Economic Snapshot (5 graphs) The moment of truth concerning liftoff is upon us as the FOMC makes their decision and delivers their verdict tomorrow. With the release of the latest Job Openings and Labor Turnover Survey (JOLTS) and the previous employment report,, it appears the labor market is firing on many, if not all, cylinders. The JOLTS data reveal both the highest level (about 5.7 million vacancies) and rate (3.9%) of job openings since the series began in December of 2000. The unemployment rate is also quite low and the Beveridge Curve (a plot of vacancies vs. unemployment) is now looking much healthier after its typical counter-clockwise journey. Many of the previous statements from the meetings suggested that there was still some slack in the labor market, but it was dissipating. With vacancies as high as ever it appears that businesses are in hiring mode big time…but, inflation is not in sight. So, the question is: When is the right time? Financial markets are volatile for sure; however, to what extent has Fed policy fed into the volatility? The rest of the world has its problems, but many areas will continue to be problematic for some time to come, see our commentary here. If the FOMC does not raise rates today, here is what they will likely say: “While labor markets appear to have reduced slack, there is little evidence of inflation. The rest of the world is still in turmoil.” And if they do raise rates, “Labor markets have continued to recover and are now near levels thought to be in the target range. While global markets are still somewhat fragile, the evidence in the US suggests that the current stance of policy is not in line with normal policy.”

FOMC Statement: No Rate Hike -- FOMC Statement:  --  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

The Fed Flight of the Dove As Interest Rates Remains the Same --Robert Oak - The Federal Funds rate is still effectively zero.  Surprise.   Since 2008 the Fed has keep interest rates an unprecedented effective zero, giving a free ride to big debt and Wall Street.  The phrase that pays from the Fed is a highly accommodative policy.  From the FOMC statement: The Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. The reason is very low inflation and what is happening globally: Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term. The FOMC concern from deflation was clear in their revised economic projections.  The median PCE for 2015 was only 0.4% and even excluding energy and food, their median projection was 1.4%, well below a 2.,0% inflation rate.  Even more interesting the FOMC median projection for 2.0% inflation, either with or without food and energy considered, isn't until 2018.   Wall Street doesn't seem to realize the damage deflation can cause an economy and this is precisely what the Fed is focused in on when determining to eventually raise rates. It is clear the FOMC still expects to raise rates this year.  Their median effective funds rate projection for 2014 is 0.4%, 2016 1.4%, 2017 2.6% and 2018 3.4%.  Yet this seems inconsistent with the concern over inflation. We now have free money, but primarily for high income individuals and institutions.  Credit cards and student loans are still off the charts in interest rates in comparison to the effective federal fund rate.  Federal Reserve Chair Janet Yellen gave a conference to further explain the Fed's rationale.  China and their recent currency manipulation was mentioned as causing a terrible net export amount and enhancing deflation.  She said, the situation abroad needs close monitoring.  Indeed, it is projected that China will further devalue their currency another 15%, which causes imports to soar and stunts U.S. economic growth.  Alternatively she mentioned China and emerging markets and their slowdown causing downward pressure on raw materials and commodities prices.  In other words, good old fashioned weak demand wreaks havoc on economies these days as national economies are all globalized and thus contagion can catch fire rapidly.

Fed Wimps Out: Rates Unchanged: Life Support --Today the Fed wimped out, once again, after signally for the last year it is ready to hike. In a Déjà  Vu Statement the Fed said virtually nothing.  To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.   Actions speak louder than words. The Fed could not even manage a baby hike. With only one dissent. What does the Fed's wimpy action imply about the real risks? And what success does the Fed have other than creating a stock and junk bond bubble? Finally, what will the Fed do if volatility goes up instead of down?

Global economy worries prompt Fed to hold rates steady | Reuters: The U.S. Federal Reserve kept interest rates unchanged on Thursday in a bow to worries about the global economy, financial market volatility and sluggish inflation at home, but left open the possibility of a modest policy tightening later this year. In what amounted to a tactical retreat, Fed Chair Janet Yellen said in a press conference that developments in a tightly linked global economy had in effect forced the U.S. central bank's hand. The U.S. economy has been performing well enough to perhaps justify a rate hike "and we expect it to continue to do so," Yellen said shortly after the Fed's policy-setting committee released its latest statement following a two-day meeting. But Yellen added that "the outlook abroad appears to have become less certain," driving down U.S. equity prices, pushing up the dollar, and tightening financial conditions in a way that may slow U.S. growth regardless of what the Fed does. "In light of the heightened uncertainty abroad ... the committee judged it appropriate to wait," Yellen said. "Given the significant economic and financial interconnections between the U.S. and the rest of the world, the situation abroad bears close watching." The policy statement also nodded squarely to international events as a decisive variable within Yellen's "data-dependent" Fed.

Parsing the Fed: How the September Statement Changed from July -- The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the September statement compared with July.

Dovish Tone of Fed’s Monetary Policy Statement Surprises Economists -  The Federal Reserve appeared surprisingly hesitant to raise interest rates, experts said on Thursday, following months of anticipation on Wall Street, in Washington and in corporate boardrooms around the country that a move was imminent.A majority of economists on Wall Street and market indicators of investor sentiment had predicted the Fed would hold off on any move to tighten monetary policy at the two-day meeting that concluded Thursday afternoon. But several analysts said the language in the rate-setting committee’s statement suggested that officials were even more cautious than they had thought.“It felt like a dovish result with a dovish statement,” said Carl R. Tannenbaum, chief economist at Northern Trust in Chicago. “Before this meeting, there was a supposition that they’d set the table for a future move. I didn’t see any silverware in this announcement, and I think October is off the table.”Still, other experts argued that the central bank is prepared to move as soon as global conditions improve, illustrating the uncertainty that will persist until at least the next Fed meeting in late October — or more likely until the last gathering of the year for policy makers in mid-December. “The global deterioration has caught their attention and, clearly, that was the main factor,” said Michael Hanson, senior United States economist at Bank of America Merrill Lynch. “I don’t think this will keep them on hold for an extended period of time. Both the meetings in October and December remain live.” Several analysts said they were struck by the second paragraph in the Fed’s statement, in particular the conclusion that global volatility and economic events “are likely to put further downward pressure on inflation in the near term.”

Is the Fed Pulling or Pushing? - Is the Fed in fact "holding down" interest rates? Is there some sort of natural market equilibrium that features higher rates now, but the Fed is pushing down rates? That's the conventional view, clearly expressed in Mary's questions. Well, let's think about that. If a central bank were holding down rates, what would it do? Answer, it would lend a lot of money at low rates. Money would be flowing out the discount window (that's where the Fed lends to banks), to banks, and through banks to the rest of the economy, flooding the place with low-rate loans. The interest rate the Fed pays on reserves and banks pay to borrow from the Fed would be low compared to market rates; credit and term spreads would be large, as the Fed would be trying to drag down those market rates. That is, of course, the exact opposite of what's happening now. Banks are lending the Fed about $3 trillion worth of reserves, reserves the banks could go out and lend elsewhere if the market were producing great opportunities. Spreads of other rates over the rates banks lend to or borrow from the Fed are very low, not very high. Deposits are flooding in to banks, not loans out of banks. If you just look out the window, our economy looks a lot more like one in which the Fed is keeping rates high, by sucking deposits out of the economy and paying banks more than they can get elsewhere; not pushing rates down, by lending a lot to banks at rates lower than they can get elsewhere.

FOMC Stunner: One FOMC Member Forecasts Negative Interest Rates Are Coming To The US -- The biggest shocker in today's Fed announcement is not that the Fed did not hike: that was telegraphed far away. It is highlighted on  the chart below in red: for the first time ever, one FOMC predicts negative rates in 2015 and 2016. And now, it is not Kocherlakota: he is out next year.  So: instead of QE4 is the Fed going to shock us with NIRP in the coming months?

 One Monetary Policymaker Wants Negative Rates in the US  -- The Federal Reserve elected to keep interest rates on hold following its September meeting, citing developments in the global economy and financial markets that will exert downward pressure on inflation in the near term.  Along with the statement, the central bank also released a set of projections—known as the "dot plot"—from members of the Federal Open Market Committee, which include forecasts of where each policymaker thinks the Fed should have its policy rate at the end of a given period.  There's one remarkable outlier in the projections: For the first time ever, one monetary policymaker thinks the U.S. needs to move to negative interest rates until at least the end of 2016  to achieve full employment and get inflation back to 2 percent.  Negative deposit rates mean that customers essentially have to pay a fee, rather than receive interest on the money kept at a bank. While in theory this could prompt depositors to withdraw their funds from a bank en masse as they seek to avoid a penalty, there's been precious little evidence of that occurring in nations that have so far embraced a negative interest rate policy, or NIRP. The early speculation is that the Fed policymaker who pushed for negative interest rates is outgoing Minneapolis Federal Reserve Bank President Narayana Kocherlakota.   During the press conference, Chair Yellen indicated that negative rates were not "something we seriously considered" at the current juncture, and added that the FOMC member in question was concerned primarily about the outlook for inflation.

Negative US Interest Rates: A Primer (Just In Case) - The crowd is buzzing over the possibility that the Federal Reserve may be considering negative interest rates. Where did that notion come from? Well, from the horse’s mouth. As noted earlier, an unnamed FOMC member recommended—for the first time in Fed history in terms of a formal, public document—that the central bank’s policy rate be set slightly below zero for this year and in 2016, as per two dots in yesterday’s dot plot (see chart below). It’s an idea that seems to be catching on… again. The Bank of England’s Andy Haldane just outlined the case for going negative in the UK. As for the Fed’s tentative foray into the concept of negativity, some wonder if yesterday’s below-zero advice constitutes some sort of monetary joke. Or is it an early clue that lays the groundwork for QE4 and yet another embrace of monetary stimulus that goes above and beyond the usual fare? Not so fast, said Fed Chair Janet Yellen, who was quick to dismiss the idea in yesterday’s press conference. When asked about the subject, she quickly sacked the issue: “Let me be clear that negative interest rates was not something that we considered very seriously at all today,” she insisted. “It was not one of our main policy options” under consideration. Ok, but is it under consideration going forward?  In any case, the rumor mill has been set in motion and the machinery of inquiry and analysis has been let loose on this formerly esoteric subject in the annals of US central banking. Is it ready for prime time? Maybe not, but to be fair it was the Fed that let this gnarly monetary cat out of the bag. Meantime, there’s a bull market in freshly minted theories about what the two subzero dots mean… or don’t. To get up to speed, here’s your short list of background intelligence for considering the prospect of going negative (maybe) with US monetary policy.

Should interest rates go negative in the U.S.? - The Federal Reserve wimped out and didn't raise interest rates Thursday, citing concerns about China and other global factors. But most economists expect the Fed will finally hike rates from the record lows of near zero later this year. It will probably come in December, a move that some traders may view as the Grinch stealing the easy money Christmas. But at least one member of the Fed seems to have a thing for one of the coolest villains in "The Running Man." He or she wants rates to be ... subzero! Yup, according to the Fed's dot plot -- which shows the projections of all 17 of the central bank's members -- there is one lone wolf (or shall I say dove?) that has a target of negative rates for this year and 2016.  What the wha? Negative interest rates? Did I miss the memo that the United States had applied to join the European Union?   Rates had turned negative in some parts of Europe earlier this year due to concerns about deflation -- persistently lower prices that can cripple an economy.  Some European corporate bond rates, including Nestle's, even dipped to less than zero. When rates are negative, banks essentially pay borrowers to take out money, instead of the other way around.  In theory, negative rates would encourage consumers to save less and spend more. They would also weaken a country's currency, which would be good for its exporters.

Ultra-low Interest Rates: Dangerous or Just a Price? - Two recent reports start by observing that long-term interest rates have been at extraordinarily rock-bottom levels for several years now. But from that common starting point, the analysis of the reports heads in different directions. The Council of Economic Advisers in a July 2015 report called "Long-Term Interest Rates: A Survey," which notes at the start: "The long-term interest rate is a central variable in the macroeconomy. A change in the long-term interest rate affects the value of accumulated savings, the cost of borrowing, the valuation of investment projects, and the sustainability of fiscal deficits." Ultimately, the CEA report takes the position that the very low long-term interest rates are mostly a matter of supply and demand in the market for loanable funds--and in particular, the result of a high global supply of saving. In contrast, the Bank of International Settlements in its 85th annual report expresses a concern that long-run interest rates at such low levels for such a long time are not a healthy development. For example, the BIS report states: "Our lens suggests that the very low interest rates that have prevailed for so  long may not be “equilibrium” ones, which would be conducive to sustainable and balanced global expansion. Rather than just reflecting the current weakness, low  rates may in part have contributed to it by fuelling costly financial booms and busts. The result is too much debt, too little growth and excessively low interest rates."  Of course, your view on these two perspectives will in substantial part determine your views about yesterday's decision by the Federal Reserve not to raise its target federal funds interest rate at this time. The short-term federal funds interest rate is a specialized market in which banks and big financial institutions make very short-term loans to each other. Changing short-run interest rates does not automatically lead to a one-for-one shift in long-run interest rates, because the long-run interest rates are affected by a wide array of supply and demand forces in capital markets. But central bank decisions about short-run rates do have an effect on long-run rates

Revised Fed "Dot Plot" And Downward Projections Confirm Economic Growth Capitulation Here is the Fed's official admission not only the global, but the US economy is fast turning over. First, the dot plot which dropped across the board... ... and the official forecast, the Fed cut unemployment forecasts once again, now seeing 5.0% unemployment at the end of 2015, and 4.8% unemployment from 2016 until 2018, even as it cuts its GDP and inflation forecasts across the board. But the biggest joke: while 15 "forecasters" expected a first rate hike in 2015 back in June, now this number is down to 13. In other words, 13 expect a rate hike in either October or December despite the lousy economic data revisions. Good luck.

Lesson for Fed: Higher Interest Rates Haven’t Been Sticking - WSJ: In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat. That looms as a threat as Federal Reserve officials contemplate raising interest rates for the first time in nearly a decade at a policy meeting later this week. Whether they move this week or later, Fed officials say they expect to move rates up gradually. Recent history suggests gradual in the Fed’s eyes might still not be gradual enough. The economy might not cooperate and rates could remain exceptionally low for a long time. Central banks in the eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond have tried to raise rates in recent years, only to reduce them again as their economies stumbled. Central-bank U-turns on rates in recent years had different causes and consequences. European Central Bank officials in 2011 worried about rising commodities prices. In Sweden, Canada, Australia and Israel, housing booms became a nagging concern. The Bank of Canada and others saw recoveries building and a case for higher rates as joblessness fell. The Bank of Israel, under Stanley Fischer, who is now the Fed’s vice chairman, was among the first to move. It started raising rates from 0.5% in September 2009, just as a global recovery took hold, pushing them up to 3.25% by May 2011. With Israel’s economy buffeted by Europe’s downturn and global inflation slowing, Mr. Fischer’s successor, Karnit Flug, has since pushed rates back down to 0.10%.

The Fed’s Policy Mechanics Retool for a Rise in Interest Rates - It’s easy to take for granted the Federal Reserve’s ability to raise interest rates. Even among the legions who doubt that Fed officials will pick the ideal moment to start increasing rates for the first time since 2008, few question the Fed’s technical competence. The central bank has a long history. The engine is known to work.So it may come as a surprise to learn that the old engine is broken. When the Fed decides that it’s time to “lift off” — perhaps this week, but more likely later this year — it will be relying on a new system, assembled from spare parts, to make interest rates rise.There is a general agreement among economists and market analysts that the Fed’s plans make sense in theory. A team led by Simon Potter, a former academic who now heads the Fed’s market desk in New York, has been testing and fine-tuning the details by moving billions of dollars around the financial system.But markets have a long history of scrambling the best-laid plans.“If something is going to go wrong, I haven’t been able to figure out what, but there’s a lot of reason for caution,” said Stephen G. Cecchetti, the former chief economist at the Bank for International Settlements. “We’ve never done this before.” The stakes are huge. The Fed is in charge of keeping economic growth on an even keel: minimal unemployment, moderate inflation. It tends to operate conservatively and to change very slowly because when it errs, the nation suffers. Yet the Fed has found itself forced to experiment. The immense stimulus campaign that it started in response to the 2008 financial crisis changed its relationship with the financial markets. It has pumped so many dollars into the system that it cannot easily drain enough money to discourage lending, its traditional approach. Instead, the Fed plans to throw more money at the problem, paying lenders not to make loans.

Low Unemployment with Falling Capacity Utilization… Not a Good Sign for Fed Liftoff --  naked capitalism - Yves here. The premise I disagree with in this post is that the Fed is primarily concerned about the real economy in its decision as to whether to raise interest rates. The central bank is instead desperate to back out of its ZIRP corner. It appears to recognize that negative real interests rates are helping speculators and allowing corporations to prop up the stock market by funding share buybacks. But loan demand remains slack, a clear sign that more stringent rate policy is not warranted out of any concern of real economy pressures. The Fed instead appears to want to latch on to any semi-good run of economic data to increase rate levels, so it will have wriggle room to drop them in the event of a crisis. By Edward Lampert: Should the Fed raise the base interest rate? They really shouldn’t at this point. Will they? They probably will because they still see years of growth. I do not see years of growth ahead… Let me explain.Almost one year ago I wrote that capacity utilization would start falling. (link) It has fallen since that time, even until today’s report that capacity utilization in August was 77.6%. This number was below expectations but perfectly in line with a limit line in a model that I use. The model plots the movement of capacity utilization and unemployment. The model has two limit lines that act upon the increasing utilization of labor and capital. One for Effective Demand (basically labor share) and one for Profit Maximization (equation in graphs). The utilization of labor and capital moves toward the limits during a business cycle to increase profits. Once the movement hits the limits, profits are further increased by only moving downward along the limits, which means that capacity utilization will decrease as unemployment falls. This pattern has existed for decades before a recession. When the plot starts to pull away from the limits, a recession is beginning.

The Receding NAIRU -  Krugman - I began my apprenticeship in economics as a research assistant to Bill Nordhaus, who was working on energy at the time, and one thing I remember was the continual frustration over the failure of alternatives to conventional crude oil to materialize. .It’s hard to escape the sense that something similar is happening now when it comes to estimates of the NAIRU, the lowest level unemployment can reach before inflation becomes an issue. The chart shows the actual unemployment rate versus the FOMC estimate of the long-run unemployment rate (the middle of the “central tendency” until the latest report, which gives us the median). Estimates of how low U can go seem always to be a bit below the current level of unemployment.   What’s driving this ever-falling estimate of the NAIRU? The failure of inflation to materialize. And look, it’s better to see the FOMC update in the light of evidence than not. But the truth is that we really don’t know how low unemployment can go, which means that the unemployment rate is not a good reason to tighten. Wait until you see the whites of inflation’s eyes!

The Fed Is Trapped: The Naked Emperor's New "Reaction Function" -- When China transitioned to a new currency regime last month, what should have been immediately apparent to everyone, was that the Fed was, from there on out, cornered. Boxed in. Trapped. Screwed.  We reiterated this earlier today as the market still seems to be quite confused as to what exactly happened that caused Janet Yellen to resort to what many thought was the most unlikely option going into this week's meeting: the "dovish hold", or, as Deutsche Bank recently called it, the "clean relent." What follows is a recap of just how we got to this point or, in other words, an explanation of how the FOMC missed its opportunity and became trapped in the wake of China's move to devalue the yuan. Following the recap, we present excerpts from Citi's take on the Fed's "new reaction function. For those familiar with the backstory and/or who have a good grasp on why it is that the Fed went the route they did, feel free to skip straight to the section from Citi and the subsequent discussion.

Fed: Sitting still deals blow to America's great recovery story: Three thousand, three-hundred and sixty-eight days. Make that 3369. And counting. That's how long it has been since the central bank of the world's biggest economy, the United States Federal Reserve, last raised interest rates. There are children who have seen more Collingwood premierships and more rolled Prime Ministers than they have Fed hikes.  It was a genuinely surprising decision on Thursday in Washington by Fed chair Janet Yellen to stay the course and keep interest rates at close to zero per cent. It is a move that dealt a blow to the great US recovery story. In deciding to keep the Fed funds rate at its record low level, America, the so-called engine of global growth in 2015, looks suddenly more vulnerable. Dr Yellen had good reason for inaction; high levels of volatility in financial markets mean that any move could create unintended aftershocks, and the true extent of China's slowdown is not fully understood. "The outlook abroad appears to have become more uncertain of late, and heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets," Dr Yellen said in her prepared remarks. "Given the significant economic and financial interconnections between the United States and the rest of the world, the situation abroad bears close watching." But economists are also wondering, if one of the best-performing economies in the world is not deemed healthy enough for a tiny increase in the cost of borrowing, perhaps the global economy's problems are deeper than thought.

Wary Fed has markets recalling years of Japan disappointment | Reuters: Financial markets were unnerved by the Federal Reserve's decision on Thursday to hold interest rates close to zero despite weeks of speculation that it was about to raise them for the first time in almost a decade. Their concern is that if the global economic cycle is turning lower with rates still at emergency settings aimed at easing the pain of the last recession, then central banks may be trapped at zero with no ammunition to cope with a new downturn. For all the caveats about different circumstances, investors are again looking to Japan's experience of 20 years ago for an inkling of what's going on now in the major Western economies. Market behavior in the four years after the Bank of Japan first experimented with near-zero borrowing costs in 1995 tells a sobering tale: The economy sank into a cycle of falling wages, prices and output from which it has still not emerged, a specter that has haunted policymakers across the developed world since the 2008 financial crisis. Three times in 1996 and 1997, measures of 3-month forward interest rates in Japan rose above 1 percent only to sink back to levels below 0.5 percent, which reflected effectively zero borrowing costs. In the three years that followed, those blips - even supported by a short-lived quarter-point hike in official rates - slipped steadily lower before flatlining for five years around 0.1 percent.

Fed Decision May Force Central Banks to Act, Pimco’s Balls Says - WSJ: The Federal Reserve’s decision to keep interest rates on hold may force policy makers elsewhere to ramp up efforts to boost their own economies, Pacific Investment Management Co. executive Andrew Balls said Friday. “It puts pressure on the European Central Bank to act and pressure on the Bank of Japan 8301 0.00 % to act” to stimulate growth, potentially pushing corporate bond prices higher, said Mr. Balls, chief investment officer for global fixed income at Pimco, in an interview with The Wall Street Journal. The ECB and BOJ have both launched major programs of quantitative easing to rouse their moribund economies. Such policies tend to lower the value of a currency, helping the competitiveness of exporters. Now, the Fed’s move to delay raising rates in the U.S. will likely weaken the dollar, undermining the impact of stimulus elsewhere. Markets in Europe and Japan reacted negatively to the Fed move, with stocks selling off sharply Friday. Germany’s DAX was down 3.1%, France’s CAC-40 fell 2.6% and Japan’s Nikkei 225 closed down 2%. The dollar also weakened against both the yen and the euro. Mr. Balls said the decision to hold off raising U.S. rates for the first time in almost a decade increases the likelihood that ECB President Mario Draghi will follow through on a pledge earlier in September to expand the central bank’s bond-buying program if it was merited.

Goldman Sachs - Perpetuator Of The Fed's Jihad Against Savers - David Stockman - You can’t blame Janet Yellen entirely for the growing prospect that the Fed will take a powder on Wednesday and opt for the 81st straight month of ZIRP. After all, she’s basically a fuddy duddy school marm caught in a 1970s labor economics time warp—–a branch of the “home” economics taught by John Maynard Keynes after he turned protectionist in 1930. Accordingly, she does apparently believe that the US economy resembles a giant bathtub, and that it is the Fed’s job to see that employment and output rise full to the brim. Nor does that mission take much special doing——-at least according to the primitive macroeconomic plumbing theories of Keynes’ disciples like her PhD supervisor, Professor James Tobin of Yale. Just crank the interest rate valve lower until the economic ether thereby released——–called aggregate demand——works its magic. Indeed, the good professor did help ignite a rip-roaring inflationary boom in one country during the Kennedy-Johnson years. Back then the world economy was still segmented and unmonetized enough to at last partially encompass a closed economy model of state managed pump-priming. That was especially possible because more than a billion potential workers were trapped in the economic Gulag of Mao’s China and the post-Stalinist Soviet bloc. Never mind that today the US GDP bathtub leaks like a sieve and that massive trade, capital and financial flows transmit economic and financial impulses from around the globe. Accordingly, the marginal price of labor is set in the rice paddies of China, the call centers of Bangalore, the temp agency body shops of America and on the “bid for gigs” sites of the worldwide web.

US Treasury market suffers steep sell-off - FT.com: The US Treasury market suffered a steep sell-off on Tuesday, highlighting investor nerves ahead of a Federal Reserve meeting this week when policymakers could decide to tighten monetary policy for the first time in almost a decade. US retail sales were solid in August, which initially put pressure on US government bonds on Tuesday morning, but the selling accelerated throughout the day. By late afternoon in New York the yield of the two-year Treasury had jumped by 8 basis points to a new four-year high of 0.8 per cent, and the 10-year Treasury climbed 10bp to a six-week high of 2.29 per cent. Michael Cloherty, head of US interest rate strategy at RBC Capital Markets, said that the positive retail sales had initially triggered some selling, but the severity of the moves was mostly due to the increasingly weak liquidity of the Treasury market — which has been a concern of some analysts and regulators.  “These are not the volumes that you would normally get for moves this big,” Mr Cloherty said.  The Federal Reserve is meeting on Wednesday and will on Thursday announce whether its policymakers have decided to lift interest rates. But the Treasury market sell-off had not been accompanied by a meaningful rise in interest rate futures that would indicate that investors thought a hike more likely after the retail sales. “This shows it’s a tough market for the Fed to operate in. If we can have big moves like this [on thin volumes] it’s an issue,” he said. “This puts pressure on them to move more gradually and communicate carefully.”

Cheaper oil lowers US current account deficit in 2nd quarter -- Cheaper oil imports and greater U.S. exports lowered the deficit in the broadest measure of U.S. trade in the April-June quarter. The Commerce Department said Thursday that the current account deficit shrank to $109.7 billion, down from $118.3 billion in the first quarter. The current account tracks not only trade in goods and services but also investment flows. Falling oil prices helped reduce the value of oil imports, lowering the trade deficit to $130 billion from $134.3 billion in the first quarter. Exports of goods and services increased to $564.7 billion from $561.7 billion. The trade gap was a big drag on growth in the first three months of the year, when the economy barely expanded. But the smaller deficit in the second quarter contributed to a much faster expansion. The economy grew at a 3.7 percent annual pace in the April-June quarter, after growth of just 0.6 percent in the first three months of the year. But the improvement in the current account deficit may not last. U.S. exporters have seen their overseas sales struggle as economies from Europe to China have slowed. The strong dollar is another challenge. It has increased about 14 percent in value in the past year compared with overseas currencies. That makes U.S. goods more expensive overseas, and imports cheaper in the U.S.

Strong Start to Third Quarter GDP?  - In Retail Sales Rise Thanks to Autos; Industrial Production Sinks Thanks to Autos; Last Hurrah for Autos? I highlighted this Bloomberg claim: "Taken together, July and August point to a very strong start to the third quarter for the consumer." Later in the afternoon I decide to check. It just so happened the Atlanta Fed updated its GDPNow Model following yesterday's reports.  The Atlanta Fed forecast reads ...  The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.5 percent on September 15, unchanged from September 3. The nowcast for third-quarter real personal consumption expenditures growth increased from 2.6 percent to 3.2 percent after this morning's retail sales release from the U.S. Census Bureau. This was offset by a decline in the nowcast of growth in real government spending after Friday's Monthly Treasury Statement and a decline in the nowcast of inventories for motor vehicle and parts dealers after this morning's industrial production release from the Federal Reserve.The GDPNow forecast following the retail sales and industrial production numbers is the same as it was on September 3. As noted above Retail Sales Rise Thanks to Autos; Industrial Production Sinks Thanks to Autos It was a wash. And 1.5% GDP growth annualized is hardly a strong start.

Young Americans 'Fed Up' with country's economy --  Joseph Stiglitz - At the end of every August, central bankers and financiers from around the world meet in Jackson Hole, Wyoming, for the US Federal Reserve's economic symposium. This year, the participants were greeted by a large group of mostly young people, including many African- and Hispanic-Americans. The group was not there so much to protest as to inform. They wanted the assembled policy-makers to know that their decisions affect ordinary people, not just the financiers who are worried about what inflation does to the value of their bonds or what interest-rate hikes might do to their stock portfolios. And their green tee shirts were emblazoned with the message that for these Americans, there has been no recovery. 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.

President Obama is now on track to reduce federal deficit to $0.00 -- President Obama has reduced the annual federal budget deficit by a full seventy percent since he inherited a $1.4 trillion annual shortfall from his successor George W Bush. And with the race of reduction now accelerating, there is now every reason to believe that Obama can reduce the annual deficit all the way to zero for his final budget before leaving office. This would make him the first U.S. President to eliminate the federal deficit since Bill Clinton. The original estimate for the 2015 annual federal budget deficit was $583 billion, but that’s since been revised downward to $455 billion and then subsequently revised to just $426 billion. That means President Obama is closing the budget gap even more quickly than he had planned to, likely thanks to a combination of a steadily growing economy and the closure of tax loopholes for the wealthy that he implemented early in his tenure, along with a continued winding down of the perpetual ground wars of his predecessor. Skeptics may point to the fact that according to the eight year calendar, just seventeen percent of his Presidency remains, while thirty percent of the deficit still needs to be cleared away. However this does not take into account that he’ll be setting the budget for the first year of the next Presidency before he leaves office. So while the deficit may not be $0.00 at the time the next President is sworn in, there is increasing reason to expect that the annual deficit will in fact be zero by the time Obama’s final budget has run its course. Of course some observers and partisans will mistakenly give credit for Obama’s accomplishment to the next President, just as some are still mistakenly blaming Obama for running up Bush’s $1.4 trillion deficit to begin with.

Thoughts on Dynamic Scoring -- DeLong -- Last Thursday two of the smartest participants at last Friday's Brookings Panel on Economic Activity conference--Martin Feldstein and Glenn Hubbard--claimed marvelous things from the enactment of JEB!'s proposed tax cuts and his regulatory reform program.They claimed it would boost economic growth over the next ten years by 0.5%/year (for the tax cuts) plus an additional 0.3%/year (for the regulatory reforms). That would mean that over the next ten years faster growth would produce an average of $210 billion a year of additional revenue to offset more than half of the $340 billion a year "static" revenue lost from the tax cuts. And that would mean that in the tenth year--fiscal 2027--the $400 billion "static" cost of the tax cuts in that year would be outweighed by a $420 billion faster-growth revenue gain.  The problem is that if I were doing the numbers I would reverse the sign.

• I would say that, on net, deregulatory programs have been very costly to the U.S. economy in unpredictable ways--witness the subprime boom and the financial crisis.
• I would say that the incentive effects would tend to push up growth by only 0.1%/year, and that would be more than offset by a drag on the economy that would vary depending on how the tax cuts were financed.
  • If they were financed by issuing debt, I would ballpark the drag at -0.2%/year.
  • If they were financed by cutting public investment, I would ballpark the drag at -0.4%/year.
  • If they were financed by cutting government programs, there might be a small boost to growth--0.1%/year--but any societal welfare benefit-cost calculation would conclude that the growth gain was not worth the cost.

And there is substantial evidence that I am right:

• You cannot find a boost to potential output growth flowing from either the Reagan or the Bush tax cuts.
• You cannot find a drag on growth from the Obama tax increases.
• You can find an effect of the Clinton tax increases--but it is that, thereafter, growth was faster, because the reduction in the deficit powered an investment-led recovery.

Prospect of shutdown grows -- A measure that blocks funding for Planned Parenthood would almost certainly lack the votes to pass the Senate, and would be vetoed by President Obama. But Republicans in the House don't have enough GOP votes to approve a funding measure that continues funding for Planned Parenthood, and don't want to negotiate with Democrats. Conservatives headed to their districts on Friday expressing certainty that they would force GOP leaders to include a hold on Planned Parenthood funding. And as in past funding fights, they insisted it would be the Democrats and President Obama who would be blamed for a shutdown. “Will the president shut down and defund the troops in order to fund Planned Parenthood?” said Rep. Tim Huelskamp (R-Kan.). “I don't think he's that politically stupid, but we shall see.”  The conservative House Freedom Caucus, with more than 40 members, on Thursday vowed to oppose any spending bill that includes Planned Parenthood funds. Senate Majority Leader Mitch McConnell (R-Ky.) has been the leading Republican opponent of demands to link an end to Planned Parenthood’s funding with the government-funding measure. On Friday in an interview with Politico, he sent the signal that Senate Republicans have had enough, calling the linkage “an exercise in futility” with President Obama in the White House. “I’m anxious to defund Planned Parenthood,” McConnell said, before adding that “the honest answer of that is that’s not going to happen until you have a president who has a similar view.”

Bernie Sanders Wants to Spend $18 Trillion: So What? -- The front page of yesterday’s Wall Street Journal featured an article claiming that Bernie Sanders wants to increase federal government spending by $18 trillion over the next ten years—an increase of about one-third over that time period. This was apparently supposed to raise some kind of alarm—what kind of maniac is this?—and I’m sure both Republicans and Hillary Clinton are happy the Journal is doing their work for them. The problem is that a spending figure, even one as big as $18 trillion, is meaningless on its own. Most of that money—$15 trillion—is the expansion of Medicare to cover all Americans. Yes, that’s a lot of money. But we are already spending a ton of money on  health care—with embarrassingly poor results. In 2013, total premiums for private health insurance cost Americans $962 billion, individuals and families paid $339 billion out of their own pockets and “other private revenues” accounted for another $121 billion of health care (data here). That’s $1.4 trillion of health care spending, paid for by families and businesses, most of which would be replaced by Sanders’s plan. Project that out for ten years, add health care inflation, and you’re talking about a lot more than $15 trillion. At the end of the day, what matters isn’t the amount of money that the federal government spends for health care. What matters is the amount of money that the American people spend for health care. The government is just a device that we use to provide certain services that are better handled collectively than individually. If the government can provide equivalent service at lower prices, then the gross dollar amount involved doesn’t matter.

U.S. Air Force warns F-35 order review could damage program - Reuters --  U.S. Air Force Chief of Staff General Mark Welsh on Tuesday warned that short-term moves to revise downward the Air Force's planned purchase of 1,763 Lockheed Martin Corp F-35 stealth fighters could damage the program and scare off foreign buyers. "Let’s delay this discussion for a little while until we see what happens in the world," Welsh told reporters at the annual Air Force Association conference, citing efforts by Russia and China to field more advanced fighter aircraft of their own. "All we do right now is risk damaging a program that's now gaining some momentum and is about to become operational," he said. Marine Corps General Joseph Dunford, who takes over as chairman of the Joint Chiefs of Staff this month, sparked questions about possible changes to the U.S. military's plans for a total fleet of 2,457 F-35s during his U.S. Senate confirmation hearing. The Pentagon later said no formal review was underway. Admiral John Richardson, who takes over as chief of naval operations on Friday, also told lawmakers he would take a hard look at the Navy's current requirement for 340 F-35 C-model jets that can take off and land on aircraft carriers. The F-35 is the Pentagon's largest arms program, with an estimated price tag for development and production of $391 billion over the next five decades.

More Closed-Door Meetings, a New Chief Transparency Officer, and Growing International Opposition to the Deal: What’s Going on with the TPP -- Over the past month, trade officials have been frantically working to resolve outstanding disagreements over provisions in the Trans-Pacific Partnership (TPP) in the midst of speculation that the deal is in deep trouble. At this late stage of negotiations, the U.S. Trade Representative (USTR) has pretty much abandoned all remaining pretense of transparency in its consideration of these remaining policy issues. Since the failure to conclude the deal at the meeting in Hawaii over the summer, the USTR has held several closed-door meetings between high-level officials to finalize the agreement and it is under intensifying pressure to finish it off as soon as possible.  In mid-August, there was a week-long meeting in Mexico to do a "legal scrub" of the TPP text, in order to have the text ready to go for an eventual signing. Toward the end of August, officials from Canada and Mexico went to Washington to continue discussions, likely around auto trade issues. And this week the USTR met with Vietnam's National Assembly along with corporate representatives of one of several trade advisory committees, with some other meetings taking place between Japan, Canada, and Mexico, also regarding auto trade.  U.S. officials seem confident that they can conclude before the end of the year. Undoubtedly, they are under mounting pressure from the impending federal elections in Canada, Japan, and the United States' presidential election season looming on the horizon. The Japanese trade minister claims that it will need to be concluded before the end of September, stating that otherwise it will be difficult to continue talks as Canada heads into its general election in October.

When there's no happily ever after to trade talks --  The history of the global trading system since the World Trade Organisation (WTO) was established in 1995 makes for a dismal narrative. Hardly any progress has been made in laying the foundations for a solid global trade architecture for the 21st century, let alone building an edifice. Trade is very much at the core of globalisation. If the trade system disintegrates, globalisation will, too, and we may find ourselves back in a scenario of global divisiveness and conflict. Singapore, as a nation whose spectacular growth story came from trade and whose welfare depends on trade, will suffer considerably from the consequences of renewed protectionism. Indeed, Singapore should assume a leadership role in the setting of the global trade agenda and building of the global trade framework.The latest chapter in the dismal narrative was written in Maui, Hawaii, last month. Did the TPP (Trans-Pacific Partnership) effectively die there? The same question has been asked for the last decade about the WTO Doha Development Round: Is it dead? Perhaps the answer can be found from General Douglas MacArthur's farewell address to the US Congress: "Old soldiers never die, they just fade away." The same may be true of trade treaties: They never die, they just fade away into irrelevance and impotence.

When $2.8 trn is not enough: US govt rakes in record tax revenue, but still overspends — The federal government has collected $2.8 trillion in taxes over the 11 months of the fiscal year 2015, almost $200 billion than the year before. This means $19,346 for every working American. Yet Washington has overspent by $530 billion.  Most of the money – $1.379 trillion – came into the Treasury from individual income taxes. Payroll taxes for Social Security, Medicare and other entitlements accounted for $977.5 billion, while corporate taxes accounted for $268.4 billion, according to the monthly statement released Monday by the Department of Treasury. The US fiscal year begins and ends in October. Given that the Bureau of Labor Statistics logged 149 million Americans with either part-time or full-time jobs in August, the total taxation would work out to $19,346 for every US worker. In 2015 dollars, the US government took in $198.4 billion more than in the first 11 months of the fiscal year 2014. This time last year, the government’s revenue was at $2.684 trillion. However, in 2015 the government has spent $3.413 trillion so far, racking up a $529.9 billion deficit. Most of the government spending goes to Social Security ($812 billion) and Medicare ($501 billion). Another $235 billion is dedicated to paying the interest on government debt. The second-biggest outlay is military spending, with the Pentagon receiving $536 billion.

Collecting Taxes Is Government Work - Buried in the Senate-passed version of the big highway bill is a provision that would require the Treasury secretary to use private debt collectors to collect unpaid back taxes.The provision, added to the bill by Republican leaders, is ostensibly intended to help pay for highways. But it’s a bad idea that should be kept out of the House version of the bill and out of any final compromise version.Private tax collection was tried in the 1990s and in the 2000s. Both times it lost money. It increases the cost of handling complaints and appeals at the Internal Revenue Service, and it is far less efficient than simply increasing the collection budget of the I.R.S.Worse, it fosters taxpayer abuse. The debts involved are ones that the I.R.S. has not been able to collect, in part because the taxpayers are too hard-pressed to pay up. A private company is probably not going to have better luck unless it uses abusive tactics.And yet, private tax collection is an idea that keeps resurfacing. Why? One reason is that it would be a cash cow for the four companies likely to win tax-collection contracts, two in New York, one in California and one in Iowa.

The Surprising Target of Jeb Bush’s Tax Plan: Private Equity - That’s why Mr. Bush’s tax reform plan — unveiled last week and a likely topic of discussion at Wednesday night’s Republican debate — was such a surprise.Mr. Bush’s proposal seems to take a direct shot at the very people who filled the tables that night to support him.In a departure from Republican orthodoxy, his new tax proposal calls for raising taxes — and closing a longtime loophole — on carried interest, which represents investment gains largely from private equity and hedge funds. (In this regard, Mr. Bush was following his Republican rival Donald Trump, who has been criticizing the carried-interest provision for weeks.) Even more worthy of attention is Mr. Bush’s plan to eliminate the ability of companies to deduct the cost of interest payments. In other words, Mr. Bush is seeking to destroy an incentive for American companies to borrow money.His policy could have a profound impact on almost every industry, but would especially affect the private equity and real estate industries, which have long relied on debt — or leverage, in Wall Street parlance — to increase their profits.   The tax plan also reduces both individual and corporate rates so much that it’s unclear how disadvantaged the wealthy would be. There’s a sound argument that the other parts of the plan are so tilted toward the wealthy that society’s upper crust may view the entire proposal positively.

This Is The Tax Loophole Obama, Bush, and Trump All Want To Close -- President Barack Obama has long argued for scrapping a “carried-interest” tax break that benefits private equity and hedge-fund managers. On Wednesday, he’s expected to make the case again at a meeting in Washington with the Business Roundtable, a group of CEOs.   But there’s a difference this time. Democrats have targeted the tax break as a way of talking about growing income inequality. Now Obama will argue that changing the carried interest rule is “one area of common ground” between Republicans and Democrats, White House officials told the New York Times.   In recent weeks, 2016 Republican candidates Jeb Bush and Donald Trump have both made some waves by coming out in favor of eliminating the break. Here’s what’s at stake: Private equity and hedge fund managers can receive part of the profits from the funds they manage. The current tax law calls these earnings capital gains—the same as when an investor makes a gain after buying a stock—so the managers can pay taxes on them at a lower rate than they would on regular income. Bush’s call to eliminate the rule came last Wednesday in an outline of his tax plan proposal. Many have it called a “populist note,” although it comes as part of a tax plan that would otherwise deeply cut overall tax revenue, with huge savings for very high-earning taxpayers. Bush’s tax proposal would cut the highest income tax bracket, currently paid by individuals earning over $413,000, from 39.6% (plus a Medicare surcharge) to 28%. Trump’s objections to the loophole—which came before those of any other presidential candidate in the 2016 race—have been less specific but more sharply worded. The current GOP frontrunner said during a phone interview with CBS’s “Face The Nation” that hedge fund managers “are getting away with murder.”

Prosecution of White Collar Crime Hits 20-Year Low -- David Sirota -- Just a few years after the financial crisis, a new report tells an important story: Federal prosecution of white-collar crime has hit a 20-year low. The analysis by Syracuse University shows a more than 36 percent decline in such prosecutions since the middle of the Clinton administration, when the decline began. Landing amid calls from Democratic presidential candidates for more Wall Street prosecutions, the report notes that the projected number of prosecutions this year is 12 percent less than last year and 29 percent less than five years ago. “The decline in federal white-collar crime prosecutions does not necessarily indicate there has been a decline in white-collar crime,” Syracuse researchers note. “Rather, it may reflect shifting enforcement policies by each of the administrations and the various agencies.” Underscoring that assertion is a recent study by researchers at George Mason University tracking the increased use of special Justice Department agreements that allow corporations -- and often their executives -- to avoid being prosecuted. Before 2003, researchers found, the Justice Department offered almost no such deals. The researchers report that from 2007 to 2011, 44 percent of cases were resolved through the deals -- known as deferred prosecution agreements and non-prosecution agreements.

A Closer Look at the Eric Holder “Doctrine” and the $1.87 Billion CDS Settlement -- Two key legal events occurred last week and were reported as separate news items when, in fact, they are highly correlated.  First, the U.S. Justice Department’s Deputy Attorney General, Sally Quillian Yates, released a memo on Wednesday effectively reversing former Attorney General Eric Holder’s standard operating procedure of big money settlements on Wall Street with no individuals being charged. Yates launched the new think in a speech the next day at NYU’s School of Law – not exactly the most auspicious of venues for setting a higher moral tone.  Yates lost much of her credibility in the first five minutes of her talk. First she told the audience that was packed with Wall Street’s white collar defense attorneys that in “the few years since its launch, the Program on Corporate Compliance and Enforcement has made its mark here in New York.”  More credibility evaporated when Yates attempted to rewrite Eric Holder’s legacy. In reality, after the worst episode of corruption on Wall Street since the era leading up to the 1929 crash and Great Depression, Holder brought no indictments against any major Wall Street bank executive. As crimes involved in the 2008 financial collapse were being settled by Holder for billions of dollars, new Wall Street criminal activity was spewing out of London trading rooms and Bloomberg chat rooms. So brazen was the Wall Street cartel activity in the chat rooms that the gang of thieves even called themselves “The Bandits’ Club” and “The Cartel.” The other major legal event last week was the announcement on Friday that 12 major Wall Street banks had agreed to a $1.87 billion settlement in a case brought by various public pensions and other investors involving the allegation that the 12 firms had colluded to rig prices on Credit Default Swaps – derivatives that played a key role in the 2008 implosion of Wall Street. The noteworthy part of the $1.87 billion settlement and a continuance of a disturbing trend embraced by the former highest law enforcement officer in our land, Attorney General Eric Holder — none of the millions of documents and emails unearthed in discovery in the Credit Default Swap lawsuit will be released to the public — ever. They are under a Protective Order agreed to by both sides and the Federal Judge in the case, Denise Cote of the Southern District of New York.

DOJ Must Prove Commitment to Ending ‘Too Big to Jail’- American Banker - In 2012, then-presidential candidate and former Massachusetts governor Mitt Romney informed the public that corporations are people too. The U.S. Department of Justice has treated them as such, bringing criminal charges against the nation's largest banks for a host of offenses committed both before the financial crisis and after. But the DOJ has thus far neglected to treat top bankers as people worthy of prosecution. Now officials say they're changing their tune. In a widely reported speech in New York last week, Deputy Attorney General Sally Yates announced that the DOJ would focus on prosecuting high-ranking individuals for white-collar crimes. Skeptics argue that this new policy may be more of a public relations stunt than the dawn of a new era in law enforcement. But whether the DOJ's shift from targeting corporations to targeting people is a sham or a serious policy change, the move must be understood in the context of the Obama administration's posture vis–à–vis the financial services industry in general and systemically important banks in particular. With the Dodd-Frank Act, the administration opted for massive over-regulation of large banks and their continued subsidization in lieu of meaningful structural reform of the financial industry. This deferential approach was dictated largely by the dire condition of the large banks at the time, most of which had just recently been bailed out by the government. Rightly or wrongly, punishing these institutions or the individuals that ran them into the ground was not a priority for either the White House or DOJ.

Will Banks “Cough Up Executives” in the Treasury Bid-Rigging Scandal?  - Yves Smith - The Department of Justice may face an early test of its long-overdue policy change, that the government will seek to prosecute individuals, including executives, along with those of corporations. As Sally Yates, Deputy Attorney and author of the memo setting forth the new policy, put it, “We mean it when we say, ‘You have got to cough up the individuals.’” As Bloomberg reported on Thursday, private plaintiffs have filed two suits alleging bid-rigging by the 22 primary dealers, adding pressure to an ongoing Department of Justice investigation. We’ve embedded the more recent filing, Cleveland Bakers and Teamsters Pension Fund v. Bank of Nova Scotia et al., at the end of this post. From the article: The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark — resulting in about $20 billion of fines — suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit…. The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading — including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley — using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases. Bear in mind that investigations and litigation is underway, and no charges have yet been proven. However, in the last major Treasury bid-rigging scandal, in 1991, the Fed didn’t bother to wait for the Department of Justice to act.

Key House Democrat presses SEC chief to explain waivers for bank offenders -  An influential House Democrat stepped up pressure on Securities and Exchange Commission Chairwoman Mary Jo White, asking her to explain why major banks received waivers despite admissions of guilt to felony charges. The letter from Rep. Elijah Cummings, the Maryland Democrat who’s the ranking member of the House Committee on Oversight and Government Reform, comes as the appointee of President Barack Obama has been pilloried from the left over her alleged soft attitude toward Wall Street. One group called Credo Action even says it is driving a truck around Washington with a sign reading, “SEC Chair Mary Jo White works for banks, not for you.” The letter calls out waivers granted to Citi, J.P. Morgan Chase, Barclays, UBS, and Royal Bank of Scotland, who all pleaded guilty to criminal violations related to the manipulation of the foreign exchange markets. Traders within each bank identified themselves as “The Cartel” and “The Mafia” while conspiring to fix prices and rig bids for U.S. dollars and euros. The Cummings letter asks White and her staff to explain the process for evaluating waiver requests and whether the banks’ status as repeat offenders factored into the decision. A spokeswoman from the SEC declined comment on the letter. While negotiating their guilty pleas and penalties, the banks simultaneously negotiated the waivers and exemptions with the SEC to avoid being barred from certain business activities such as securities offerings on expedited term. Barclays and UBS also applied for “bad actor” waivers that allow for additional benefits such as raising unlimited amounts of money from the public.

Lehman Anniversary: A Reminder That the SEC Needs Someone a Lot Better Than Mary Jo White as Chairman -- naked capitalism - Yves here. We’ve written regularly about the pathetic performance of Mary Jo White as SEC chairman. She was ballyhooed as a former effective prosecutor who could rebuild the agency. Here is a partial list of our stories on her tenure:

• Time to “Fire” Mary Jo White: SEC Covers Up for Bank Capital Accounting Scam Promoted by Her Former Firm, Debevoise
• Elizabeth Warren Declares War on SEC Chairman Mary Jo White
• Three Former SEC Commissioners Urge Mary Jo White to Stop Protecting Corporate Cronyism via Inaction on Disclosure of Political Spending
• The SEC’s Mary Jo White: A Failure, or Doing Her Real Job?
• The SEC’s Mary Jo White Punts on High Frequency Trading and Abandons Securities Act of 1934
• Mary Jo White Institutionalizes Deutsche Bank Protection Racket at the SEC

More and more activist groups are demanding that Mary Jo White be replaced, pronto. Note that while Obama can’t fire her, insiders think that asking her to resign would do the trick. Tomorrow we’re escalating our campaign calling on President Obama to replace Mary Jo White with a mobile billboard truck that will be circling DC for the next three days. I hope you’ll support this effort by circulating this post (best of all to your Senators and Congressman, contact information here and here), linking to it on your Facebook page, and tweeting it.

Appeal by 'Diva of Distressed' spotlights SEC in-house court | Reuters: The U.S. Securities and Exchange Commission's controversial use of in-house judges to enforce federal securities laws is about to undergo a major test. The 2nd U.S. Circuit Court of Appeals in New York on Wednesday will hear arguments over whether to revive a lawsuit by Lynn Tilton, a private equity chief dubbed the "Diva of Distressed," to block the SEC from pursuing fraud charges in an in-house administrative proceeding instead of federal court. Critics say the proceedings are unfair because there are no juries, and defense lawyers have a limited ability to depose witnesses and gather evidence. Some, including Tilton, also say the appointment of administrative judges, who are on the SEC payroll, is unconstitutional. The SEC charged Tilton, 56, and her Patriarch Partners firm in March with hiding the poor performance of assets underlying three collateralized loan obligation funds that raised over $2.5 billion. Tilton and Patriarch deny wrongdoing, and have said their investment strategy was consistently disclosed. Should the court not intervene, Tilton faces trial on Oct. 13. The decision by the 2nd Circuit could prove a major factor in the SEC's ability to continue pursuing enforcement actions administratively, invoking the 2010 Dodd-Frank law granting it the authority to bring more cases before its in-house court.

Second Circuit Rules That Dodd-Frank Whistleblower Protections Protect … Whistleblowers  -- The Omnibus nature of Dodd-Frank has led many important provisions to go un or under-noticed even five years later. One of these provisions to my mind has been the whistleblower provisions in Dodd-Frank. Under Dodd-Frank “eligible” Whistleblowers can receive a percentage of the monetary fines charged for wrongdoing they uncover as long as the total fine equals or exceeds one million dollars. Additionally, the act explicitly forbids retaliation from employers and gives employees the right to sue their employers based on the law ( what is referred to as a “private cause of action”). On Thursday the Second Circuit court ruled on just such a case, claiming by a 2-1 vote that the definition of whistleblower is expansive in Dodd Frank. Superficially this might look as a sort of non-issue. After all, how difficult is it to report to the Securities Exchange Commission rather than your boss? This framing is misleading. First it directly impacts the case itself. If a whistleblower discovers fraud and/or insufficient internal controls and decides to bypass their bosses and go directly to the SEC, his/her bosses could argue that the employee in question was part of their controls against fraud and had they acted “properly” it would never have been a court case. In other words, the obvious counterfactual of reporting internally creates reasonable doubt. So why did the second circuit rule for an expansive definition of whistleblowing in Dodd-Frank? It was an almost textbook case for the importance of regulatory rule writing in shaping legislation. The strongest rationale the judges who ruled in favor was that the SEC issued a rule that stated “The anti-retaliation protections apply whether or not you satisfy the requirements, procedures and conditions to qualify for an award”. In other words given textual ambiguity judges must defer to regulators interpretations of the legislation (what is referred to as Chevron Deference). Had the SEC’s rule-writing been in line with the “narrow” definition, it is at best unclear what legal basis the narrow definition could be subverted. Given that the fifth Circuit ruled differently this will likely go to the supreme court and will become an important issue to follow in the future.

Fears grow over US stock market bubble: A growing number of investors believe that US stocks are overvalued, creating the risk of a significant bear market, according to research by Yale University market scholar Robert Shiller. The Nobel economics laureate told the Financial Times that his valuation confidence indices, based on investor surveys, showed greater fear that the market was overvalued than at any time since the peak of the dotcom bubble in 2000."It looks to me a bit like a bubble again with essentially a tripling of stock prices since 2009 in just six years and at the same time people losing confidence in the valuation of the market," he said. However, he made clear that it remained impossible to time any fall in the market, and cast doubt on whether stocks would drop should the Federal Reserve raise rates later this week. "I'm not looking for any big effect," he said. "It's been talked about for so long, everyone knows that it's coming. It's just not much of a big deal." Risk of big stock drops grows: Robert ShillerProf Shiller added there was no historical evidence for a link between interest rates and share prices. "You would think that when interest rates are higher people would sell stocks, but the financial world just isn't that simple."

Fraud, Fools, and Financial Markets - Robert J. Shiller -- Most of us have suffered “phishing”: unwanted emails and phone calls designed to defraud us.  Routine phishing can affect any market, but our most important observations concern financial markets – timely enough, given the massive boom in the equity and real-estate markets since 2009, and the turmoil in global asset markets since last month. As too many optimists have learned to their detriment, asset prices are highly volatile, and a whole ocean of phishes is involved. Borrowers are lured into unsuitable mortgages; firms are stripped of their assets; accountants mislead investors; financial advisers spin narratives of riches from nowhere; and the media promote extravagant claims. But the losers in the downturns are not just those who have been duped. A chain of additional losses occurs when the inflated assets have been purchased with borrowed money. In that case, bankruptcies and fear of bankruptcy spawn an epidemic of further bankruptcies, reinforcing fear. Then credit dries up and the economy collapses. This vicious downward spiral for business confidence typically features phishes – for example, the victims of Bernard Madoff’s Ponzi scheme – discovered only after the period of irrational exuberance has ended. The response by the authorities to the Great Crash of 1929 was small and slow, and the world economy entered a “Dark Age” that lasted through the Great Depression.  The 2007-2009 financial crisis portended a similar outcome, but this time the world’s governments and central banks intervened promptly, in a coordinated fashion, and with an appropriately high volume of stimulus. The recovery has been weak; but we are nowhere near a new Dark Age. For that we should be grateful. Yet some now argue that the fiscal and monetary authorities should not have responded so quickly or strongly when the 2007-2009 crisis erupted. They believe that the primary cause of the crisis was what economists call moral hazard: because risk-takers expected that the authorities would intervene to protect them when their bets went awry, they took even greater risks. By contrast, our view (supported by plenty of data) is that rapidly rising prices usually reflect irrational exuberance, aided and abetted by phishes.

The True Reason for Stock Buybacks - Companies tell us they buy back stock because it is undervalued. The data, however, tells a different story. Buybacks peaked in 2007 at $589 billion—the best time to sell. And then fell to $138 billion in 2009—the best time to buy. More than 460 of the 500 companies that make up the S&P index bought back stock over the past decade. It is hard to believe that public companies are systemically undervalued. Much less 92% of the S&P 500. If companies aren’t undervalued, why do they buy back stock? Taxes. Buybacks and dividends accomplish the same goal. Both distribute cash to shareholders. The difference lies in their tax treatment. Dividends face the dividend tax. Buybacks do not. This divergence in tax treatment stems from an IRS stance taken in 1976. Buybacks were virtually nonexistent before then. Companies have since substituted buybacks for dividends to avoid tax. Federal Reserve data, shown below, charts this evolution. This IRS stance has been taken for granted by both scholars and the tax bar. In a recent article, I argue that the IRS has misinterpreted the Tax Code. Buybacks should actually be taxed as dividends. Sadly, the IRS’s mistaken stance incentivizes companies to gamble their earnings in exchange for a tax break. Dividends and buybacks are close, but not perfect, substitutes. Dividends are paid in cash. Buybacks, on the other hand, offer shareholders a choice—cash or company stock. The cash is taxable. The company stock is not, as long as it is held.

Advertising and Payday and Title Lending: How Do Lenders Target Borrowers? - Are bigger payday and title lending companies better for low-income borrowers than smaller companies? Jim Hawkins (Houston Law Center) takes up that question in a new article which reports the results of his study of the advertisements of payday and title loan companies with storefronts in Houston, Texas. The results are quite timely given that the Consumer Financial Protection Bureau is poised to release regulations for payday lenders. Based on Colorado's experience with payday lending reform, these regulations have the potential to increase large lenders' market share. What might be the consequences of consolidation? Hawkins begins to answer that question by comparing big and small lenders located in Houston based on their compliance with Texas regulations, prices, use of "teaser rates," and attempts to target minorities and women through storefront and online advertising -- all of which are practices that critics of payday and title lending have identified as particularly problematic or exploitative. His results overall are mixed. For instance, larger companies in Houston are more likely to feature minorities in advertisements, and smaller companies are more likely to feature women. Perhaps the most interesting finding is that there is price competition among these companies in Houston: larger companies tend to charge higher APRs than smaller companies. Given that the CFPB regulations will not cap interest rates, might there be unintended consequences of regulations that may bolster large lenders?

Bankers Threaten Fed with Layoffs if it Doesn’t Raise Rates  -- Wolf Richter - Banks try to make money in a myriad newfangled ways. But the classic way is on the spread between the interest they pay on deposits and the interest they charge on loans. A wide spread fattens their profits. But these spreads have become paper-thin. Banks can get all the money they need from the Fed at near-zero cost. They don’t need depositors, and there is no competition for depositors. So, in one of the biggest scams in history, depositors get next to nothing from banks around the country. And the banks’ cost of money is near zero. But there is desperate competition for making loans in an environment when bankers and their customers, especially big corporate customers, wade up to their nostrils in Fed-engineered liquidity. This mad frenzy pushes down lending rates (along with bond yields). And the banks’ spreads and profit margins have been squeezed. The entire world has its eyes riveted on the Fed. There are days, like today, when nothing seems to matter other than what the Fed is going to do. But the Fed once again couldn’t figure out what to do. It certainly didn’t want to ruffle the markets by doing anything in particular, such as raising rates from nearly nothing to almost nothing because it might somehow derail this economy of ours, or worse, that of the entire world. So it did nothing. Now, no one can figure out under what conditions the emergency that led to this extreme monetary policy in 2008 might be deemed over, or whether it will be reclassified as a permanent condition, rather than an emergency, and remain in place until something Really Big breaks that will make the prior emergency seem banal. Uncertainty – and frustrated bankers – is the result. Now bankers are losing patience with the Fed. And they were firing back today while at the Barclays Conference. US Bancorp CEO Richard Davis already lost patience; his bank would cut expenses – at a bank, that means jobs. Focusing on costs would allow him to “care less” about interest rates rise and whether they’d finally rise or not, he said according to the Wall Street Journal. And the shares of his bank dropped 2.4% following the Fed’s announcement.

Senate votes to suspend Fannie Mae, Freddie Mac CEO pay | Reuters: The U.S. Senate on Tuesday unanimously approved legislation that would suspend the current compensation for the heads of the government-controlled mortgage finance companies Fannie Mae and Freddie Mac following the disclosure of huge pay raises for the officials. On July 1, the two entities said that Fannie Mae CEO Timothy Mayopoulos and Freddie Mac head Donald Layton will earn $4 million annually, up from their previous salaries of $600,000. At the time, the pay hikes were opposed by the Obama administration. But the Federal Housing Finance Agency, which oversees Fannie and Freddie, said the lower pay caps hindered efforts to develop reliable CEO succession plans.

Officials Cover Up Housing Bubble’s Scummy Residue: Fraudulent Foreclosure Documents - Dave Dayen -- Every DAY IN AMERICA, mortgage companies attempt to foreclose on homeowners using false documents. It’s a byproduct of the mortgage securitization craze during the housing bubble, when loans were sliced and diced so haphazardly that the actual ownership was confused. When the bubble burst, lenders foreclosing on properties needed paperwork to prove their standing, but didn’t have it — leading mortgage industry employees to forge, fabricate and backdate millions of mortgage documents. This foreclosure fraud scandal was exposed in 2010, and acquired a name: “robo-signing.” But while some of the offenders paid fines over the past few years, nobody cleaned up the documents. This rot still exists inside the property records system all over the country, and those in a position of authority appear determined to pretend it doesn’t exist. In two separate cases, activists have charged that officials and courts are hiding evidence of mortgage document irregularities that, if verified, could stop thousands of foreclosures in their tracks. Officials have delayed disclosure of this evidence, the activists believe, because it would be too messy, and it’s easier to bottle up the evidence than deal w  ith the repercussions.Like many homeowner loans purchased during the housing bubble, Paatalo’s was packaged into a mortgage-backed security.The process worked like this: The loans were eventually sold into a tax-exempt REMIC (Real Estate Mortgage Investment Conduit) trust; the REMIC trust received monthly mortgage payments from homeowners; and the payments were passed along to investors in the mortgage-backed securities.

CoreLogic: "CoreLogic Reports 759,000 US Properties Regained Equity in the Second Quarter of 2015" -- From CoreLogic: CoreLogic Reports 759,000 US Properties Regained Equity in the Second Quarter of 2015 CoreLogic ... today released a new analysis showing 759,000 properties regained equity in the second quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q2 2015 to approximately 45.9 million, or 91 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by $691 billion in Q2 2015. The total number of mortgaged residential properties with negative equity is now at 4.4 million, or 8.7 percent of all mortgaged properties. This compares to 5.1 million homes, or 10.2 percent, that had negative equity in Q1 2015, a quarter-over-quarter decrease of 1.5 percentage points. Compared with 5.4 million homes, or 10.9 percent, reported for Q2 2014, the number of underwater homes has decreased year over year by 1.1 million, or 19.4 percent... Of the more than 50 million residential properties with a mortgage, approximately 9 million, or 17.8 percent, have less than 20 percent equity (referred to as “under-equitied”), and 1.1 million, or 2.3 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. ...

Mortgage Equity Withdrawal Slightly Negative in Q2 2015 --The following data is calculated from the Fed's Flow of Funds data (released today) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).  For Q2 2015, the Net Equity Extraction was minus $4 billion, or a negative 0.1% of Disposable Personal Income (DPI) - only slightly negative.  This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.  There might be a little actual MEW right now, however this data is heavily impacted by debt cancellation and foreclosures.The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $38 billion in Q2. The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

MBA: Mortgage Applications Decrease in Latest Weekly Survey - From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey - Mortgage applications decreased 7.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 11, 2015. The week’s results included an adjustment for the Labor Day holiday. ..The Refinance Index decreased 9 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 16 percent compared with the previous week and was 5 percent higher than the same week one year ago. The Labor Day holiday shifted 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) decreased to 4.09 percent from 4.10 percent, with points increasing to 0.42 from 0.39 (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 5% higher than a year ago - but that is probably too low due to the shift in timing of Labor Day. Last week, the MBA reported the index was up 41% YoY.

Mortgage Rates Decline after FOMC Announcement -- From Matthew Graham at Mortgage News Daily: Mortgage Rates Drop Sharply After Fed Announcement  While the Fed Funds Rate doesn't directly dictate mortgage rates, the two tend to correlate over time. At its most basic level, the Fed rate dictates the cost of short term money, which has ripple effects that carry through to longer term financing costs, like those associated with things like 10yr Treasury notes and mortgage rates.   Not only did the Fed forego a rate hike, they were also noticeably more downbeat about inflation and global growth/stability. It's just as likely that these longer-term implications helped longer term rates (like mortgages) do as well as they did today.  All that having been said, the drop in rates merely brings them back in line with last week's best levels. Considering they only rose from there due to Anxiety over today's Fed meeting, it's not unfair to say that rates are still in the same narrow range that's been in effect for more than 2 months. ... several lenders inching back into the high 3's today for conventional 30yr fixed rate quotes ...

Housing Starts decreased to 1.126 Million Annual Rate in August -- From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,126,000. This is 3.0 percent below the revised July estimate of 1,161,000, but is 16.6 percent above the August 2014 rate of 966,000. Single-family housing starts in August were at a rate of 739,000; this is 3.0 percent below the revised July figure of 762,000. The August rate for units in buildings with five units or more was 381,000. Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,170,000. This is 3.5 percent above the revised July rate of 1,130,000 and is 12.5 percent above the August 2014 estimate of 1,040,000. Single-family authorizations in August were at a rate of 699,000; this is 2.8 percent above the revised July figure of 680,000. Authorizations of units in buildings with five units or more were at a rate of 440,000 in August. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased in August. Multi-family starts were up year-over-year. Single-family starts (blue) decreased in August and are up about 15% year-over-year. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering (but still historically low), Total housing starts in August were below expectations, and starts were revised down for June and July.

New Residential Housing Starts Below August Forecast -  The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for August new residential housing starts. The latest reading of 1.126M was below the Investing.com forecast of 1.170M. Here is the opening of this morning's monthly report: Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,126,000. This is 3.0 percent (±11.3%)* below the revised July estimate of 1,161,000, but is 16.6 percent (±10.4%) above the August 2014 rate of 966,000. Single-family housing starts in August were at a rate of 739,000; this is 3.0 percent (±9.5%)* below the revised July figure of 762,000. The August rate for units in buildings with five units or more was 381,000. [link to report] Here is the historical series for total privately-owned housing starts, which dates from 1959. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included. Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1959. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.

Housing Starts Miss After Northeast Tumbles, Permits Beat On Strong Rental Demand -- While today's economic data is likely too late to influence the Fed's decision which is now due in just over 5 hours, moments ago the latest housing starts and permits data painted another mixed picture, with Starts declining to a three month low of 1,126K, missing expectations of 1160K, and below last month's downward revised 1161K. The miss was a result of housing starts in the Northeast tumbling by 34% to 108K, the lowest prince since March now that the tax-driven surge, which we discussed previously expired in July, is over.  In August, while single-family starts dropped, so did multi-family or rental units. Notably, while housing starts are still just barely above half the pre-crisis peak, rentals continue to rise ever higher as more and more Americans have no choice but to downgrade their American dream to renting for life. But while starts data was slightly weaker than expected, permits came in a fraction hotter, at 1170K, up from a revised 1130K, and above the 1159K expected. Like with starts, Northeast saw a decline but far less pronounced at just -4.4%, while all other regions saw a modest pick up. And just like with starts, multi-family permits continue to rise well above single family, up 21.5% vs 8.7% respectively.

New Residential Building Permits: Up 40K in August -  The U.S. Census Bureau and the Department of Housing and Urban Development have now published their findings for August new residential building permits. The latest reading of 1.170M was better than the Investing.com forecast of 1.160M. Here is the opening of this morning's monthly report: Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,170,000. This is 3.5 percent (±1.4%) above the revised July rate of 1,130,000 and is 12.5 percent (±1.9%) above the August 2014 estimate of 1,040,000. Single-family authorizations in August were at a rate of 699,000; this is 2.8 percent (±1.7%) above the revised July figure of 680,000. Authorizations of units in buildings with five units or more were at a rate of 440,000 in August. [link to report] Here is the complete historical series, which dates from 1960. Because of the extreme volatility of the monthly data points, a 6-month moving average has been included. Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1960. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.

August 2015 Residential Building Sector Permits Data Only Slightly Soft: The data this month is only slightly soft. Be careful in analyzing this data set with a microscope as the potential error ranges and backward revisions are significant. Also the nature of this industry variations from month to month so the rolling averages are the best way to view this series - and still the data remains in the range we have seen over the last 3 years. The unadjusted rate of annual growth for building permits in the last 12 months.

• The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is 8.9% this month.
• Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) show that construction completions are lower than permits this month for the eighth month in a row.
• Building permits growth accelerated 2.9 % month-over-month, and is up 8.9% year-over-year.
• Single family building permits grew 8.8 % year-over-year.
• Construction completions decelerated 17.5 % month-over-month, up 3.2 % year-over-year.

US Census Headlines:

• building permits up 3.5 % month-over-month, up 12.5 % year-over-year
• construction completions down 6.1 % month-over-month, up 12.7 % year-over-year.

Comments on August Housing Starts -- Total housing starts in August were below expectations, and, including the downward revisions to June and July, starts were a little disappointing. However permits were up in August. This first graph shows the month to month comparison between 2014 (blue) and 2015 (red). Even with weak housing starts early in the year, total starts are still running 11.3% ahead of 2014 through August. Single family starts are running 11.1% ahead of 2014 through August, and single family starts were up 14.9% year-over-year in August. Starts for 5+ units are up 12.7% for the first eight months compared to last year. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The blue line is for multifamily starts and the red line is for multifamily completions. The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months). Multi-family completions are increasing sharply.The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Housing permits: in which I have a bone to pick with the Census Bureau --When you make a revision of over 25% to one month's data, that turns a surge into a crater, but the non-seasonally adjusted data still shows a surge -- such that the YoY data, which ought to be unaffected by seasonal adjustments, is out of whack by 35% (!!!), don't you think you owe your readers an explanation?  Well, Census Bureau, I"m looking at you.  Here's what housing permits (red) and starts (blue) looked like one month ago:  Permits had spiked to over 1.3 million in June, which was due, we were told, to the expiration of a program in NYC that required permits to be issued no later than June 30. Now here is the same graph updated with this morning's data: The spike in seasonally adjusted permits is completely gone, replaced by a crater. This is no small revision. Rather, housing permits for June have just been revised down by 25% -- a full quarter of the total! That's one heckuva revision! How unusual is this big a revision? Well, here's a comparison of the numbers through last month, with the revised numbers through this month: Like I said, that's one heckuva revision! OK, revisions happen. Fair enough. But notice that starts -- an actual, physical event -- still reflect a significant increase in the last few months. It's one thing if permits were never acted upon with actual starts, but here we have suddenly non-existent permits leading to actual starts! What's more, the summer surge in permits still shows up in the revised non-seasonally adjusted data: Since, presumably, the issue here is a seasonal adjustment, the discrepancy ought to disappear if we compare YoY data. Umm, not quite: The wholesale deletion of the NYC permits has created a 30% discrepancy in the YoY comparisons of seasonally adjusted vs. non-seasonally adjusted data! Considering housing permits is perhaps the single most important long leading indicator, and with the revisions this morning completely wiping out any progress since last fall, it seems to me that the Census Bureau has some explaining to do.

Years After the Real Estate Crash, Renters Are Still on the Rise -  Nearly a decade after the housing crash, homeownership is still waning and renting is on the rise, according to U.S. Census data released Thursday. The homeownership rate fell to 63.1% in 2014, down from 63.5% in 2013, according to an analysis of the American Community Survey data prepared by Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. The homeownership rate peaked at 67.3% in 2006 and has fallen steadily since then. “It shows us ways in which the housing market is recovering very slowly,” Mr. Kolko said of the Census data. Perhaps most surprising, single-family renting—initially perceived by many as a temporary solution for families who lost their homes due to foreclosure—continued to rise in popularity. The number of single-family rental households grew by 2.1% from 2013 to 2014, compared with 1.8% growth for households occupying multifamily rentals and virtually no growth in single-family ownership households. Many families fled to single-family rentals after losing their homes to foreclosure during the crash because they could remain in a more traditional house in their own neighborhood. But the data show that many are choosing or being forced to linger there years after they lost their homes. That likely reflects the long wait time of up to seven years before people who go through foreclosure can buy again. Stagnant wage growth and rising rents have also made it difficult for many people to save for down payments.

NAHB: Builder Confidence at 62 in September, Highest in almost 10 Years --The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 62 in September, up from 61 in August. Any number above 50 indicates that more builders view sales conditions as good than poor. From the NAHB: Builder Confidence Continues to Rise Builder confidence in the market for newly constructed single-family homes continued its steady rise in September with a one point increase to a level of 62 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). It is the highest reading since November 2005...."NAHB is projecting about 1.1 million total housing starts this year,” said NAHB Chief Economist David Crowe. “Today's report is consistent with our forecast, and barring any unexpected jolts, we expect housing to keep moving forward at a steady, modest rate through the end of the year.”  ..Two of the three HMI components posted gains in September. The index measuring buyer traffic increased two points to 47, and the component gauging current sales conditions rose one point to 67. Meanwhile, the index charting sales expectations in the next six months dropped from 70 to 68.  Looking at the three-month moving averages for regional HMI scores, the West and Midwest each rose one point to 64 and 59, respectively. The South posted a one-point gain to 64 and the Northeast dropped one point to 46.

The Last Time Homebuilder Confidence Was This High, The Housing Market Crashed -- NAHB Sentiment jumped (again) to 62 (from 61) - its highest since 2005. The last time homebuilders were this exuberant, home sales collapsed.. reminding us of Upton Sinclair's classic line, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”  Well they nailed it in 2005!!

Fed's Flow of Funds: Household Net Worth at Record High at end of Q2 -- The Federal Reserve released the Q2 2015 Flow of Funds report today: Flow of Funds. According to the Fed, household net worth increased in Q2 compared to Q1: The net worth of households and nonprofits rose to $85.7 trillion during the second quarter of 2015. The value of directly and indirectly held corporate equities increased $61 billion and the value of real estate rose $499 billion.  Household net worth was at $85.7 trillion in Q2 2015, up from $85.0 billion in Q1.  Net worth will probably decline in Q3 due to the decline in the stock market.. The Fed estimated that the value of household real estate increased to $21.5 trillion in Q2 2015. The value of household real estate is still $1.0 trillion below the peak in early 2006 (not adjusted for inflation).The first graph shows Households and Nonprofit net worth as a percent of GDP. Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q2 2015, household percent equity (of household real estate) was at 56.3% - up from Q1, and the highest since Q3 2006. This was because of an increase in house prices in Q2 (the Fed uses CoreLogic).

US credit card debt soaring to unsustainable levels, says study: The credit card debt levels in the United States are soaring to unsustainable levels, according to CardHub, a financial website that studies credit card debt. It estimated that credit card debt levels will increase by another US$60 billion (AU$84.13 billion) by the end of 2015 and take the total U.S. credit card debt, close to US$900 billion, the level where unsustainability sets in. “We erased almost all of our first-quarter pay down, racking up a whopping US$32.1 billion (AU$44 billion) in new balances from April through June, the largest second quarter binge since conducting the Credit Card Debt Study in 2009,” CardHub told Financial Advisor. Data obtained from CardHub showed that the average indebted household's balance will reach US$7,813 (AU$1.09 billion) by the end of 2015, just US$615 (AU$861) below the balance at which delinquencies will start zooming, zooming, Business Insider reported.  Meanwhile, another study that analysed trends in credit card payments in various U.S. cities noted that Texas cities are taking more time to pay off a credit card debt, according to CreditCards.com. The study compiled information from 25 largest metropolitan areas in the U.S. and found three Texas cities in the top five league of places that take the longest time to pay off credit card debt. The study, calculated the payoff time by assuming that 15 percent of the median income goes into paying credit card debt. On an average, 15 percent is considered a benchmark by credit counselors in determining the reasonable ability to repay a debt.

Retail Sales increased 0.2% in August -- On a monthly basis, retail sales were up 0.2% from July to August (seasonally adjusted), and sales were up 2.2% from August 2014. From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $447.7 billion, an increase of 0.2 percent from the previous month, and 2.2 percent above August 2014. ... The June 2015 to July 2015 percent change was revised from +0.6 percent to +0.7 percent. This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline increased 0.4%. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales ex-gasoline increased by 4.2% on a YoY basis (2.2% for all retail sales including gasoline). The increase in August was below the consensus expectations of a 0.3% increase, however sales in July were revised up. An OK report.

Retail Sales: August Retail Sales Show Growth, But a Bit Shy of Expectations - The Census Bureau's Advance Retail Sales Report released this morning shows that seasonally adjusted sales in August increased 0.2% month-over-month and 2.2% year-over-year. Core Retail Sales (ex Autos) came in at 0.1% MoM and 1.2% YoY. The Investing.com forecasts were 0.3% for Headline Sales and 0.2% for Core Sales. The chart below is a log-scale snapshot of retail sales since the early 1990s. The two exponential regressions through the data help us to evaluate the long-term trend of this key economic indicator. The year-over-year percent change provides another perspective on the historical trend. Here is the headline series. Here is the year-over-year version of Core Retail Sales. The next two charts illustrate retail sales "Control" purchases, which is an even more "Core" view of retail sales. This series excludes Motor Vehicles & Parts, Gasoline, Building Materials as well as Food Services & Drinking Places. Here is the same series year-over-year. Note the highlighted values at the start of the two recessions since the inception of this series in the early 1990s.

Headline Retail Sales Mixed In August 2015.: Retail sales improved according to US Census headline data but were on the low side of expectations. Our view is that this month's data was weaker than last month but there was an improvement of the rolling averages. Consider that the headline data is not inflation adjusted and prices are currently deflating making the data better than it seems. Overall the rolling averages are now marginally improving. Backward data revisions were downward making this month's data seem slightly worse. Econintersect Analysis:

• unadjusted sales rate of growth decelerated 1.5 % month-over-month, and up 1.6% year-over-year.
• unadjusted sales 3 month rolling year-over-year average growth accelerated 0.3% month-over-month to 2.6% year-over-year.
• unadjusted sales (but inflation adjusted) up 2.8 % year-over-year
• this is an advance report. Please see caveats below showing variations between the advance report and the "final".
• in the seasonally adjusted data - department, furniture, and gasoline stores were weak, but mostly everything else was relatively strong.
• seasonally adjusted sales up 0.2% month-over-month, up 2.2% year-over-year (last month was 2.4% year-over-year).

Retail Sales Disappoints, Tests Recessionary Waters Ahead Of Fed Meeting -- Following Gallup's and BofAML's clear indications of weak retail sales, it should be no surprise that retail sales in August disappointed printing +0.2% MoM (missing +0.3% expectations). This dragged the YoY retail sales change down to a recession-looming +1.6% print. Ironically, while most headline data missed, the GDP-dependent 'control group' rose modestly more than expected (+0.4% vs +0.3%). Since this is the last major data point before The Fed's big decision, it would appear another nail in the coffin of a rate hike was just struck. Retail Sales rose just 1.6% YoY... testing recessionary waters...

The Big Four Economic Indicators: August Real Retail Sales Continue to Show Growth - Nominal Retail Sales in August rose 0.2%, and the previous month was revised upward from 0.6% to 0.7%. Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, came in at 0.3% month-over-month (rounded from 0.26%). The chart below gives us a close look at the monthly data points in this series since the end of the last recession in mid-2009. The linear regression helps us identify variance from the trend. The early 2014 dip in sales was generally written off as a temporary result severe winter, and the return to trend sales growth gave credence to the explanation. The early 2015 dip triggered the same explanation, but even with the subsequent recovery, Real Sales remain slightly below trend. The Generic Big Four The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009. Current Assessment and Outlook The US economy has been slow in recovering from the Great Recession, and the overall picture for 2015 has been a mixed bag. Employment and Income have been relatively strong. Real Retail Sales and Industrial Production have been distressingly weak. However, July Real Sales rebounded, and the August data, while a tad below expectations, continues to show growth.

EVs Sales Down 25% Year-Over-Year -- Normally this story would simply be an add-on, but when you see a headline suggesting that EV sales were down 25% year-over-year, it needs a stand-alone post, or at least at the top of a new post. A trade magazine is reporting: If you have been a follower of plug-in vehicle sales in the United States this year, then you knew this month was coming – the bottom of the barrel as it were. Compared to a year ago, August 2015 is EV sales-armageddon!  Put another way, with only the last inventory scraps of the first generation Chevrolet Volt, Toyota Prius PHV, and now obsolete Nissan LEAF left on lots to compete against a strong August of 2014 – it was a total comparative bloodbath.  For August, an estimated 8,972 plug-ins where sold, a slight gain over July, but significantly off 25% from the ~12,172 moved a year ago.

But, according to the linked article, sales will jump come September.
August, 2015, sales: 8,972
August, 2014, sales: 12,172
As usual, a lot of attention to EVs and intermittent energy, but in the big scheme of things, not a lot going on.

U.S. job market and automotive sales trends support growth in gasoline use - (EIA) U.S. motor gasoline product supplied, a proxy for gasoline use in the United States, has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use.  Because more than 90% of U.S. motor gasoline is used in light-duty vehicles (LDVs), factors that affect vehicle miles traveled (VMT) and the average fuel economy of the LDV fleet can also lead to changes in gasoline consumption. In addition to lower gasoline prices, a stronger U.S. job market and higher wage growth may have contributed to record-high VMT, and sales trends in the automotive market indicate that U.S. consumers are purchasing more vehicles that have lower fuel economy ratings.

Big Retailers, Delivery Firms Face Struggle to Find Holiday Workers - WSJ: For the past two years, Amazon.com Inc., Wal-Mart Stores Inc., Target Corp. and other big retailers have been flinging up warehouses and distribution centers across the country to get their online orders to customers faster. In the coming holiday sales season, that building spree could come back to bite them—and the companies that deliver their packages. With the nation’s unemployment rate at a seven-year low as holiday hiring begins to pick up, some retailers and logistics contractors are already struggling to find enough seasonal workers to keep their new facilities humming. Soon, United Parcel Service Inc., FedEx and smaller regional delivery firms will be facing the same problem. Employment agencies for retailers and logistics companies say they are having trouble finding warehouse workers to stock early holiday inventory and employees to train for work in fulfillment centers, where holiday orders will be packed and shipped. Few could have predicted the nation’s unemployment rate would fall to 5.1%, as it did last month, amid such red-hot growth in e-commerce. As a result, retailers and delivery companies expect to have to raise starting pay in some places.

Consumer Price Index September 16, 2015: Consumer prices came in soft in August and will not be turning up the heat on the doves at the FOMC. Pressured by gasoline, the CPI fell 0.1 percent in August with the year-on-year rate up only 0.2 percent. The core, which excludes energy and food, rose only 0.1 percent with the year-on-year rate steady at plus 1.8 percent and still under the Fed's 2 percent goal. And details are soft. Energy prices fell 2.0 percent in the month including a 4.1 percent decline for gasoline. Airfares were down sharply for a second month, 3.1 percent lower. Owners equivalent rent, which had been hot, rose only 0.2 percent in the month. Showing some pressure is apparel, up 0.3 percent for a second straight month in what hints at back-to-school price traction. Otherwise, components are flat to steady such as food at plus 0.2 percent or medical care at no change. The 1.8 percent year-on-year core rate does catch the eye but with commodity prices soft and foreign economies weak, the outlook for price acceleration remains elusive.

August Inflation -0.1% Due to Energy Prices -  The Consumer Price Index decreased by -0.1% for August on energy price declines  Gasoline alone dropped -4.1% for the month.  Inflation without food or energy prices considered increased 0.1% for the month.  From a year ago overall CPI has increased 0.2%, which is very low, yet without energy and food considered, prices have increased 1.8%.  While 1.8% is below the Fed's 2.0% inflation target, it might very well be high enough to justify a rate increase from the Fed.  We'll see tomorrow.   CPI measures inflation, or price increases. The flat yearly overall inflation is shown in the below graph, again driven by low energy prices. Core inflation, or CPI with all food and energy items removed from the index, has increased 1.8% for the last year. This is no change for the last two months. Core CPI is one of the Federal Reserve inflation watch numbers and 2.0% per year is their target rate. The Fed watches other inflation figures as well as GDP and employment statistics on deciding when to raise rates. Graphed below is the core inflation change from a year ago. For the past decade the annualized inflation rate has been 1.9%. Core CPI's monthly percentage change is graphed below. This month core inflation increased 0.1%, as shelter increased 0.2%. Used cars and truck prices dropped -0.4% and are down -1.5% for the year. The energy index is down -15.0% from a year ago. The BLS separates out all energy costs and puts them together into one index. For the year, gasoline has declined -23.3%, while Fuel oil has dropped -34.6%. Fuel oil dropped -8.1% for the month. Graphed below is the overall CPI energy index. Graphed below is the CPI gasoline index only, which shows gas prices seemingly never ending wild ride. Core inflation's components include shelter, transportation, medical care and anything that is not food or energy. The shelter index is comprised of rent, the equivalent cost of owning a home, hotels and motels. Shelter increased 0.2% and is up 3.1% for the year. Rent just keeps increasing and this month rent jumped by 0.3% and is up 3.6% for the year. Graphed below is the rent price index.

August 2015 CPI Annual Inflation Rate Remains 0.2%: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was unchanged at 0.2%. The year-over-year core inflation (excludes energy and food) rate remained unchanged at 1.8%, and continues to be under the targets set by the Federal Reserve.As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator. Energy (de)inflation was the major influences on this month's CPI. The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 0.2 percent before seasonal adjustment. The gasoline index declined sharply in August and was the main cause of the seasonally adjusted all items decrease. Other energy indexes were mixed, with the fuel oil index continuing to decline but the indexes for electricity and natural gas increasing in August. The food index rose 0.2 percent in August, with the indexes for eggs and for fruits and vegetables rising notably. The index for all items less food and energy increased 0.1 percent in August, the same increase as in July. The index for shelter rose, as did the indexes for apparel, tobacco, and alcoholic beverages. However the index for airline fares declined sharply, and the indexes for household furnishings and operations, recreation, and used cars and trucks also decreased in August, with the indexes for new vehicles and medical care unchanged. The all items index increased 0.2 percent for the 12 months ending August, the same increase as for the 12 months ending July. The 12-month change in the index for all items less food and energy also remained the same, at 1.8 percent for the 12 months ending August. The food index rose 1.6 percent over the last 12 months, while the energy index declined 15.0 percent.

August Consumer Price Index: Year-over-Year Core Remains at 1.8% -The Bureau of Labor Statistics released the August CPI data this morning. The year-over-year unadjusted Headline CPI came in at 0.20%, little changed from 0.17% the previous month. Year-over-year Core CPI (ex Food and Energy) came in at 1.83%, essentially unchanged from the previous month's 1.80%. Here is the introduction from the BLS summary, which leads with the seasonally adjusted monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 0.2 percent before seasonal adjustment. The gasoline index declined sharply in August and was the main cause of the seasonally adjusted all items decrease. Other energy indexes were mixed, with the fuel oil index continuing to decline but the indexes for electricity and natural gas increasing in August. The food index rose 0.2 percent in August, with the indexes for eggs and for fruits and vegetables rising notably. The index for all items less food and energy increased 0.1 percent in August, the same increase as in July. The index for shelter rose, as did the indexes for apparel, tobacco, and alcoholic beverages. However the index for airline fares declined sharply, and the indexes for household furnishings and operations, recreation, and used cars and trucks also decreased in August, with the indexes for new vehicles and medical care unchanged. The all items index increased 0.2 percent for the 12 months ending August, the same increase as for the 12 months ending July. The 12-month change in the index for all items less food and energy also remained the same, at 1.8 percent for the 12 months ending August. The food index rose 1.6 percent over the last 12 months, while the energy index declined 15.0 percent. [More…] Investing.com was looking for a 0.2% increase in both the seasonally adjusted Headline and Core CPI. Year-over-year forecasts were 0.2% for Headline and 1.8% for Core. The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. The highlighted two percent level is the Federal Reserve's Core inflation target for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Business Inventories September 15, 2015: The nation's inventories remain slightly on the heavy side, up an as-expected 0.1 percent in July vs a 0.1 percent gain in sales that leaves the stock-to-sales ratio at 1.36, substantially higher than 1.29 a year ago. Retail inventories rose 0.6 percent in July with the build, however, centered in vehicles which is positive given the strength, evident in this morning's retail sales report, of strong consumer demand for vehicles. Excluding vehicles, retail inventories rose a manageable 0.2 percent. Building materials rose 0.6 percent which may be a problem given weakness for this component in the August retail sales report. The stock-to-sales ratio for retail is unchanged at 1.46. Stock-to-sales ratios in the report's other two components, in previously released data, are also unchanged, at 1.35 for manufacturers and 1.30 for wholesalers. Though a bit heavy, inventories right now don't look to be a make-or-break factor for production or employment.

July 2015 Business Inventory Situation Seems To Be Improving.: Econintersect's analysis of final business sales data (retail plus wholesale plus manufacturing) shows unadjusted sales slumped compared to the previous month - but there was only a slight degradation of the rolling averages. With inflation adjustments, business sales are in contraction. The inventory-to-sales ratios remain at recessionary levels - but inventory levels are improving. Econintersect Analysis:

• unadjusted sales rate of growth decelerated 2.7 % month-over-month, and down 2.9 % year-over-year
• unadjusted sales (inflation adjusted) down 1.4 % year-over-year
• unadjusted sales three month rolling average compared to the rolling average 1 year ago decelerated 0.1% month-over-month, and is down 2.5% year-over-year.
• unadjusted business inventories growth decelerated 0.4% month-over-month (up 2.5 % year-over-year with the three month rolling averages unchanged), and the inventory-to-sales ratio is 1.4 which is at recessionary levels (well above average for this month). However, these ratios may be distorting the real picture as inventory values may not be properly revalued for inflation (first in, first out).

US Census Headlines:

• seasonally adjusted sales up 0.1 % month-over-month, down 2.7 % year-over-year (it was down 2.5 % last month).
• seasonally adjusted inventories were up 0.1 % month-over-month (up 2.6 % year-over-year), inventory-to-sales ratios were up from 1.29 one year ago - and are now 1.36.
• market expectations (from Bloomberg) were for inventory growth of 0.0 % to 0.5 % (consensus 0.1 %) versus the actual of +0.1 %.

Business Inventories Grow At Slowest Pace Since Jan, Sales-Ratio Signals Recession Imminent -- Following June's 0.8% surge in business inventories (the most in 4 years) which surged inventrory-to-sales to 1.37x - the highest since 2009 - July's data confirms the recession looms large as inventory accumulation appears to have hit its limit, up only 0.1% MoM (inventory-to-sales hovers at 1.36x - historic recession levels). Inventories rose a mere 0.1% in July - after June's big rise…  Business Inventory-to-Sales ratio remains stubbornly high as sales just do not appear despite all the 'signals' from a market driven purely be fallacious fed fenagling... Remembering that this data is lagged by 2 months (in the face of disastrous Empire Fed inventory collapse, auto production collapse and retail sales weakness), it appears the "if we build it, they will come" economy just got slapped in the face with the reality that 'Field of Dreams' was a fiction, just like The US 'Recovery'. Time for The Fed to hike rates?  Charts: Bloomberg

LA area Port Traffic: Record Inbound Traffic in August --Note: There were some large swings in LA area port traffic earlier this year due to labor issues that were settled on February 21st. Port traffic surged in March as the waiting ships were unloaded (the trade deficit increased in March too), and port traffic declined in April. Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.  On a rolling 12 month basis, inbound traffic was up 1.1% compared to the rolling 12 months ending in July. Outbound traffic was down 0.4% compared to 12 months ending in July. The recent downturn in exports might be due to the strong dollar and weakness in China. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). Imports were up 12% year-over-year in August; exports were down 4% year-over-year. On a monthly basis, imports were at an all time high. This data suggests a larger trade deficit with Asia in August, and that U.S. retailers are optimistic about the holiday shopping season.

China, U.S. Reach Agreement on High-Speed Rail Before Xi Visit - A China Railway Group-led consortium and XpressWest Enterprises LLC will form a joint venture to build a high-speed railway linking Las Vegas and Los Angeles, the first Chinese-made bullet-train project in the U.S. Construction of the 370-kilometer (230-mile) Southwest Rail Network will begin as soon as next September, according to a statement from Shu Guozeng, an official with the Communist Party’s leading group on financial and economic affairs. The project comes after four years of negotiations and will be supported by $100 million in initial capital. The statement didn’t specify the project’s expected cost or completion date. The agreement, signed days before President Xi Jinping’s state visit to the U.S., is a milestone in China’s efforts to market its high-speed rail technology in advanced economies. The country has been pushing the technology primarily in emerging markets -- often with a sales pitch from Premier Li Keqiang-- as a means to project political influence. A $567 million contract last October to supply trains for Boston’s subway system was China’s first rail-related deal in the U.S. The agreement also represents an important victory in China’s high-speed rail rivalry with Japan, as the two countries have competed for train contracts throughout Asia. The parent company of JR Central, Japan’s largest bullet-train maker, had expressed interest in the Los Angeles-Las Vegas line several years ago, and China and Japan are both expected to bid to supply train cars for a proposed high-speed rail line in California’s Central Valley. "This is the first high-speed railway project where China and the U.S. will have systematic cooperation," Yang Zhongmin, a deputy chief engineer with China Railway Group, said after a news conference in Beijing. “It shows the advancement of China-made high-speed railways."

Chinese-invested U.S. Rail Project to Start in 2016: The first high-speed railway project in the United States with Chinese investment involved is expected to kick off as early as September 2016, according to a senior Chinese official on Thursday. The 370-km Xpress West high-speed railway project, also named the Southwest Rail Network, will connect Las Vegas, Nevada and Los Angeles, California. Last week, Xpress West agreed to form a joint venture with China Railway International USA CO., to build and operate the rail, according to Shu Guozeng, deputy head of the Office of the Central Leading Group for Financial and Economic Affairs. China Railway International USA CO. is registered by a Chinese consortium led by national railway operator China Railway. With 100 million U.S.dollars in initial capital, the new high-speed rail line will create abundant jobs throughout the interstate corridor. Implementation of necessary regulatory and commercial activities will begin within the next 100 days. "As China's first high-speed railway project in the United States, the project will be a landmark in overseas investment for the Chinese railway sector and serve as a model of international cooperation," said Yang Zhongmin, chairman of China Railway International Co., Ltd.

Rail Week Ending 12 September 2015: Tremendous Unimprovement After Previous Week's Improvement: Week 36 of 2015 shows same week total rail traffic (from same week one year ago) collapsed according to the Association of American Railroads (AAR) traffic data. Intermodal traffic significantly declined year-over-year, which accounts for approximately half of movements. and weekly railcar counts continued in contraction. It could be that the data last week was screwed up - and the data this week was an adjustment. This analysis is looking for clues in the rail data to show the direction of economic activity - and is not necessarily looking for clues of profitability of the railroads. The weekly data is fairly noisy, and the best way to view it is to look at the rolling averages (carloads and intermodal combined).A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 510,797 carloads and intermodal units, down 11.9 percent compared with the same week last year. Total carloads for the week ending Sep. 12 were 268,960 carloads, down 10.5 percent compared with the same week in 2014, while U.S. weekly intermodal volume was 241,837 containers and trailers, down 13.3 percent compared to 2014. The week ending Sep. 12, 2015 contained the Labor Day holiday. The week it is being compared to in 2014 did not. One of the 10 carload commodity groups posted an increase compared with the same week in 2014. It was grain, up 3.6 percent to 17,897 carloads. Commodity groups that posted decreases compared with the same week in 2014 included: metallic ores and metals, down 27.5 percent to 20,583 carloads; petroleum and petroleum products, down 15.8 percent to 14,231 carloads; and nonmetallic minerals, down 15.1 percent to 34,734 carloads. For the first 36 weeks of 2015, U.S. railroads reported cumulative volume of 10,019,235 carloads, down 4.3 percent from the same point last year; and 9,572,991 intermodal units, up 2.5 percent from last year. Total combined U.S. traffic for the first 36 weeks of 2015 was 19,592,226 carloads and intermodal units, a decrease of 1.1 percent compared to last year.

Manufacturing Is the Reason the Economy is Not Doing Better? - There is little argument that manufacturing activity peaked just before the beginning of the Great Recession - and it seems it may not have recovered to this pre-recession level. Some analysts talk about manufacturing, but use the Federal Reserve's Industrial Production index which includes mining and utilities. The above graph uses the manufacturing component only of industrial production (red line in above graph) - and it shows nearly a full recovery from the Great Recession. The problem using this metric is the US Census also produces manufacturing data - and it shows manufacturing remains further below the pre-recession peak (blue line in above graph which is an inflation adjusted index value). And in any event, manufacturing employment is below World War Two levels and below most of the immediate post-war levels, as well. Remember the U.S. population was much less then. Note that the Fed's Industrial Production and the US Census use different pulse points which could explain deviations over short periods of time. Let us say for now that the US Census data is correct (even though my guess is that neither is correct). What does this mean? Are Americans buying more foreign products? Yep! Americans are currently importing more than they did before the Great Recession. This is confirmed by the data from the BEA showing consumer's consumption of goods continues to rise. What does matter is that for a variety of reasons, every country must be able to produce a proportion of every commodity, component or manufactured item it needs. It does not need to provide 100% of its needs. What does matter is that an economy needs to provide jobs to its citizens. I guess that the 5.1% headline unemployment rate shows the USA economy is providing jobs. ..... and if you believe that, I have a bridge to sell you.

Industrial Production September 15, 2015: A reversal in the auto sector pulled down industrial production in August, falling 0.4 percent vs the Econoday consensus for a 0.2 percent decline. The manufacturing component fell 0.5 percent, also deeper than the consensus at minus 0.3 percent. In an offset, gains in July proved more robust than initially reported with total industrial production revised 3 tenths higher to plus 0.9 percent and manufacturing revised 1 tenth higher, now also at plus 0.9 percent. Motor vehicle production is August's disappointment, down 6.4 percent following July's giant 10.6 percent spike. When excluding motor vehicle production, however, industrial production was unchanged in August following respectable gains of 0.3 percent in the prior two months. But these readings are far from spectacular and the weakness in the latest month could be a signal of retrenchment tied to Chinese-based volatility. Turning to the report's other two components, utility production rose 0.6 percent in August with mining at minus 0.6 percent. Mining, hit by weak commodity prices, has been hurting all year with the year-on-year reading at minus 3.2 percent. Utilities, however, are up 3.2 percent year-on-year which leads the major components as manufacturing's year-on-year rate is a soft looking plus 1.4 percent. Total industrial production is up only 0.9 percent year-on-year. This weakness is reflected in capacity utilization which is at 77.6 percent in the August report, down 4 tenths in the month and 2 tenths lower than consensus. Manufacturing utilization is at a soft 75.8 percent vs an unrevised 76.2 percent in July.

Fed: Industrial Production decreased 0.4% in August -- From the Fed: Industrial production and Capacity Utilization Industrial production decreased 0.4 percent in August after increasing 0.9 percent in July. The increase in July is now estimated to be greater than originally reported last month, largely as a result of upward revisions for mining and utilities. Manufacturing output fell 0.5 percent in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July; production elsewhere in manufacturing was unchanged. The index for mining fell 0.6 percent in August, while the index for utilities rose 0.6 percent. At 107.1 percent of its 2012 average, total industrial production in August was 0.9 percent above its year-earlier level. Capacity utilization for the industrial sector fell 0.4 percentage point in August to 77.6 percent, a rate that is 2.5 percentage points below its long-run (1972–2014) average.  This graph shows Capacity Utilization. This series is up 10.7 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 77.6% is 2.5% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.  . The second graph shows industrial production since 1967. Industrial production decreased 0.4% in August to 107.1. This is 22.8% above the recession low, and 1.8% above the pre-recession peak. This was below expectations of a 0.2% decrease. Much of the recent weakness has been due to lower oil prices - a weak report.

August 2015 Industrial Production: A Soft Data Point: The headlines say seasonally adjusted Industrial Production (IP) declined (the manufacturing portion of this index was also down month-over-month). Consider this a soft data point that was expected - but it is marginally worse than what was expected.

• Headline seasonally adjusted Industrial Production (IP) decreased 0.4 % month-over-month and up 0.9 % year-over-year.
• Econintersect's analysis using the unadjusted data is that IP growth decelerated 0.6 % month-over-month, and is up 1.2 % year-over-year.
• The unadjusted year-over-year rate of growth decelerated 0.1% from last month using a three month rolling average, and is up 1.4 % year-over-year.

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.5 this month (up 1.4 % year-over-year), mining down 0.6% (down 3.2 % year-over-year), and utilities were up 0.6 % (up 3.2 % year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.

Softer Growth In Retail Sales & Weak Industrial Activity In US Raise Concerns For Macro Risk Outlook - US retail sales ticked higher in August, rising 0.2%–below several consensus forecasts but still a decent if unimpressive gain. Industrial output in the US in August, on the other hand, was clearly disappointing, suffering a 0.4% slide vs. the previous month—the weakest performance in three months. On a year-over-year basis, industrial activity also weakened, with growth dipping close to its lowest pace since the US recession ended in 2009. Does this add up to a clear signal that a new recession for the US is now fate? Some are tempted to make that call, but I’m not there yet, as I’ll explain. Macro risk is certainly elevated, as I’ve been discussing for weeks (see here, for instance). But it’s still hard to quantitatively distinguish between what may turn out to be a run of slower growth vs. the start of an NBER-defined recession. For some, that’s a false distinction, but that’s an issue for another day. Meantime, let’s review today’s numbers from the comparatively reliable noise-filtering prism of rolling one-year percentage changes, starting with retail sales. The headline data for consumer spending last month dipped to a 2.2% increase from the year-earlier level. Here too the trend is close to its weakest growth rate in six years. That’s a worrisome sign, but hardly fatal at this stage.  Industrial activity, by contrast, looks noticeably weaker in annual growth terms. Output is still advancing, but at a sluggish pace: higher by just 0.9% for the year through August. That’s effectively a match with June’s 0.8% year-over-year increase—the lowest rate in six years. The manufacturing component’s a bit stronger, but here too the trend has turned unusually soft. The discouraging numbers for industrial activity aren’t much of a surprise at this point. It’s been clear that manufacturing growth has decelerated this year, asMarkit’s PMI flash release for this month points out. Today’s disappointing September data for this sector in the New York Fed region is another clue for thinking that the weakness will roll on.

The Big Four Economic Indicators: August Industrial Production Was Worse than Expected -- According to the Federal Reserve:  Industrial production decreased 0.4 percent in August after increasing 0.9 percent in July. The increase in July is now estimated to be greater than originally reported last month, largely as a result of upward revisions for mining and utilities. Manufacturing output fell 0.5 percent in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July; production elsewhere in manufacturing was unchanged. The index for mining fell 0.6 percent in August, while the index for utilities rose 0.6 percent. At 107.1 percent of its 2012 average, total industrial production in August was 0.9 percent above its year-earlier level. Capacity utilization for the industrial sector fell 0.4 percentage point in August to 77.6 percent, a rate that is 2.5 percentage points below its long-run (1972–2014) average. The full report is available here.  Today's report on Industrial Production for August shows a month-over-month decline of 0.4 percent (0.38 percent to two decimal places), which is below the Investing.com consensus of a 0.2 percent decrease. The indicator is up only 0.91% year-over-year. In some respects, Industrial Production is the least useful of the Big Four economic indicators.  As a long-term indicator, it needs two key adjustments to correlate with economic reality. First, it should be adjusted for inflation using some sort of deflator relevant to production. Second, it should be population-adjusted. The chart below is another way to look at Industrial Production over the long haul. It uses the Producer Price Index for All Commodities as the deflator and Census Bureau's mid-month population estimates to adjust for population growth. We've indexed the adjusted series so that 2012=100.

Retail Sales Rise Thanks to Autos; Industrial Production Sinks Thanks to Autos; Last Hurrah for Autos? -- An interesting divergence in auto production and sales came out in separate reports today. Let's start with sales. The Bloomberg Economic Consensus for Retail Sales was for 0.3% growth. Actual growth came it at 0.2%, nonetheless Bloomberg issued a glowing report, largely on autos, but also because of small upward revision for last month.  For a second report in a row, upward revisions highlight solid growth in retail sales. Retail sales rose 0.2 percent in August with ex-auto at plus 0.1 percent and ex-auto ex-gas at plus 0.3 percent. These are all 1 tenth below consensus. July, however, shows broad upward revisions with total sales at a very strong plus 0.7 percent vs an initial plus 0.6 percent. Ex-auto for July is revised upward by 2 tenths to plus 0.6 percent and ex-auto ex-gas revised upward by 3 tenths to plus 0.7 percent. Taken together, July and August point to a very strong start to the third quarter for the consumer, a fact that plays into the hands of the hawks at this week's FOMC. The Bloomberg Consensus Estimate for Industrial Production was -0.2%, in a range of -0.7% to +0.5%. The actual number was -0.4%, with an interesting highlight. A reversal in the auto sector pulled down industrial production in August, falling 0.4 percent vs the Econoday consensus for a 0.2 percent decline. The manufacturing component fell 0.5 percent, also deeper than the consensus at minus 0.3 percent. In an offset, gains in July proved more robust than initially reported with total industrial production revised 3 tenths higher to plus 0.9 percent and manufacturing revised 1 tenth higher, now also at plus 0.9 percent. Motor vehicle production is August's disappointment, down 6.4 percent following July's giant 10.6 percent spike. When excluding motor vehicle production, however, industrial production was unchanged in August following respectable gains of 0.3 percent in the prior two months. But these readings are far from spectacular and the weakness in the latest month could be a signal of retrenchment tied to Chinese-based volatility.

Industrial Production Plunges Most In 3 Years As Auto-Maker "Nightmare" Comes True -- Industrial Production missed expectations notably, dropping 0.4% MoM (the 6th of the last 8 months) missing expectations of a 0.2% drop (and notably weaker than the +0.9% upward revised July print). Thjis is the biggest MoM drop since August 2012. The big driver of the decline - just as we warned of nightmares ahead - was the biggest decline in auto production in 4 years. The year-over-year rise in IP is just 0.9% - flashing yet another recession-looming indicator. Worst MoM drop in 3 years...

Don't sweat industrial production -- When CNBC breathlessly reported industrial production this morning, it was with words to the effect that it was "the biggest decline in almost two years," On the contrary, while it supports the idea that the US is in a "shallow industrial recession," it does nothing to suggest that there are broader problems.  In the first place, with last month revised upward by +0.3, the net loss is only -0.1.  Secondly, as shown by the graph below, we have improved off of this spring's readings, although there certainly remains a slight downtrend from last fall. More importantly, when we decompose the number into manufacturing (blue in the graph below) and mining (red): we see that manufacturing remains in an uptrend. The big decrease is mining, i.e., it is all about the Oil patch. (Production by utilities was up this month). In short, not great, but not too shabby either.

Empire State Mfg Survey September 15, 2015: The shocking weakness in August was no fluke as the Empire State index came in far below expectations for September, at minus 14.67. Next only to August's minus 14.92, September's reading is the weakest of the recovery, since April 2009. And, unfortunately, judging by new orders, activity in October may prove to be just as weak. New orders are deeply negative this month, at minus 12.91 vs minus 15.70 in August and the fourth straight negative reading. And manufacturers in the New York region won't be able to turn to backlogs which are extending their long run of contraction at minus 8.25. Searching for positives in this report is difficult. Negative signs sweep components including shipments, at minus 7.98 following August's minus 13.79. If extended to national data, these results point to trouble for third-quarter GDP. Employment is at minus 6.19 which is the first negative reading since all the way back in January 2013. The workweek, reflecting the weakness in shipments, is down very steeply at minus 10.31. Price data show outright contraction for finished goods at minus 5.15 -- the first negative reading since November 2013. And rounding things out is a 10 point loss in the 6-month outlook to 23.21 which is the weakest since, once again, January 2013. The negative signals from this report from August were not confirmed by other regional indications but could be confirmed as early as this morning with the August industrial production report. Strength in the auto sector gave manufacturing a lift in June and July but this lift, given weakness in foreign markets and the energy sector, may not have extended too far, at least based on this report.

Manufacturing in New York shrinks for second straight month - Factory activity in New York state sank for a second straight month in September, a sign that American manufacturers are struggling with fallout from lower energy prices and a strong dollar, the Federal Reserve Bank of New York said Tuesday. The New York Fed's Empire State manufacturing index registered minus 14.7 this month after a minus 14.9 in August. Last month's reading was the lowest since 2009 during the Great Recession. And a measure of employment fell in September for the first time in more than two years — to minus 6.2 from a positive 1.8 in August. A gauge of new orders came in at minus 12.9, and shipments registered minus 8.0. The New York Fed also reported that manufacturers were less optimistic about the next six months. The index for future business conditions dropped to 23.2 from 33.6 in August. Low oil prices have reduced demand for drilling equipment. And a stronger dollar has made U.S. goods more expensive in overseas markets. Earlier this month, the Institute for Supply Management reported that growth at U.S. factories fell in August to its lowest level since May 2013. China's slowing economy and customer worries about volatility in the stock market contributed to the slowdown.

Empire State Manufacturing Remains at Lowest Levels --  This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions at -14.7 (-14.67 to two decimals) shows a slight edge up from last month's -14.9, which signals a decline in activity. These are some of the lowest levels since 2009. The Investing.com forecast was for a reading of -0.75. The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state. Here is the opening paragraph from the report. The September 2015 Empire State Manufacturing Survey indicates that business activity declined for a second consecutive month for New York manufacturers. The headline general business conditions index remained well below zero at -14.7. As in August, declines were reported for both orders and shipments, with the new orders index coming in at -12.9 and the shipments index registering -8.0. The inventories index slipped a point to -18.5, indicating a continuing drop in inventory levels. Price indexes pointed to a small increase in input prices and a small decline in selling prices. Labor market indicators suggested that both employment levels and hours worked contracted. Indexes for the six-month outlook were generally lower than last month, suggesting that optimism about future conditions waned.

Shocking Weakness in Empire State Manufacturing Report -- Last month we reported "Out of the Blue" Plunge in New York Region Manufacturing; Optimism Persists. As expected in this corner, there was absolutely no reason to be optimistic about manufacturing. Nonetheless, economists expected a snap-back. The Bloomberg Consensus Estimate for the Empire State Manufacturing Index was -0.50, up from the August plunge to -14.92. The economists were off by a mile.  The shocking weakness in August was no fluke as the Empire State index came in far below expectations for September, at minus 14.67. Next only to August's minus 14.92, September's reading is the weakest of the recovery, since April 2009. And, unfortunately, judging by new orders, activity in October may prove to be just as weak. New orders are deeply negative this month, at minus 12.91 vs minus 15.70 in August and the fourth straight negative reading. Let's tune into the New York Fed Survey for further details.   The September 2015 Empire State Manufacturing Survey indicates that business activity declined for a second consecutive month for New York manufacturers. The headline general business conditions index remained well below zero at -14.7. As in August, declines were reported for both orders and shipments, with the new orders index coming in at -12.9 and the shipments index registering -8.0. The inventories index slipped a point to -18.5, indicating a continuing drop in inventory levels. Price indexes pointed to a small increase in input prices and a small decline in selling prices. Labor market indicators suggested that both employment levels and hours worked contracted. Indexes for the six-month outlook were generally lower than last month, suggesting that optimism about future conditions waned.

September 2015 Empire State Manufacturing Index Remains Deeply in Contraction -September 2015: The Empire State Manufacturing Survey was essentially unchanged and remains in contraction. Expectations were for a reading between -6.0 and +5.0 (consensus -0.5) versus the -14.7 reported. Any value above zero shows expansion for the New York area manufacturers. New orders sub-index of the Empire State Manufacturing Survey has been very weak for the last 9 months and slide deeper into contraction, whilst unfilled orders marginally improved but remains in contraction. This noisy index has moved from +27.5 (September 2014), +6.2 (October), +10.2 (November), -3.6 (December), +10.0 (January 2015), +7.8 (February), +6.9 (March), -1.2 (April), +3.1 (May), -2.1 (June), 3.9 (July), -14.9 (August) - and now -14.7. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know. From the report: The September 2015 Empire State Manufacturing Survey indicates that business activity declined for a second consecutive month for New York manufacturers. The headline general business conditions index remained well below zero at -14.7. As in August, declines were reported for both orders and shipments, with the new orders index coming in at -12.9 and the shipments index registering -8.0. The inventories index slipped a point to -18.5, indicating a continuing drop in inventory levels. Price indexes pointed to a small increase in input prices and a small decline in selling prices. Labor market indicators suggested that both employment levels and hours worked contracted. Indexes for the six-month outlook were generally lower than last month, suggesting that optimism about future conditions waned.

Recession Looms As Empire Manufacturing Collapse Show No Signs Of A Bounce -- Despite some strangely optimistic expectation of a -0.5 print, September Empire Manufacturing printed -14.67, showing absolutely no hockeynesian dead-cat bounce mean-reversion. Hovering at the worst levels since April 2009, the underlying data is a total disaster. New Orders remain firmly negative and inventories collapse (who could have seen that coming?), and even more concerningly, employment and average workweek plunged into negative territory for the first time in over a year.

Philadelphia Fed Business Outlook Survey September 17, 2015: There may very well be something wrong with the manufacturing sector, at least in the Northeast where the Empire State index has been in deep negative ground for the last two months followed now by a minus 6.0 headline for the Philly Fed index. This is the first negative reading since February 2014. But the headlines for both of these reports, which are not composite scores of separate components, are sentiment scores of sorts, rough month-to-month assessments of general conditions. A key positive in today's is continued strength in new orders which rose 3.6 points to 9.4. Unfilled orders, nevertheless, have been trending into contraction, at minus 6.6 for the third straight negative reading. But some details are very strong with shipments at plus 14.8 and employment at plus 10.2 for a 5-month high. In a negative signal also seen in the Empire State report, prices received, that is prices for final goods, is in contraction at minus 5.0. The Fed is wondering whether global volatility and stock market losses are affecting consumer confidence. Early data this month from regional Feds suggest the effects may also be extending to business sentiment.

Philly Fed Manufacturing Survey decreased to -6.0 in September -- From the Philly Fed: September Manufacturing Survey Manufacturing conditions in the region were mixed in September, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicator for general activity fell into negative territory, but indicators for new orders, shipments, and employment remained positive. .. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in August to -6.0 this month. This is the first negative reading in the index since February 2014 ... Firms’ responses suggest some improvement in employment conditions in September despite the reported lull in overall activity. The percentage of firms reporting an increase in employees in September (21 percent) was higher than the percentage reporting a decrease (11 percent). The current employment index increased 5 points, its highest reading in five months. Firms also reported, on balance, a modest increase in the workweek similar to August. This was below the consensus forecast of a reading of 6.3 for September.

Philly Fed Business Outlook: General Activity Index Goes Negative - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. While it focuses exclusively on business in this district, this regional survey gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index. The latest gauge of General Activity came in at -6.0, down significantly from last month's 8.3. The 3-month moving average came in at 2.7, down from 9.7 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook was up at 44.0, versus the previous month's 43.1.Today's -6.0 came in well below the 6.0 forecast at Investing.com. Here is the introduction from the Business Outlook Survey released today: Manufacturing conditions in the region were mixed in September, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicator for general activity fell into negative territory, but indicators for new orders, shipments, and employment remained positive. Evidence suggests that the responses regarding general activity that were received earlier in the month may have been negatively affected by the volatility in the stock market and international news reports. Firms reported essentially unchanged prices for raw materials and other inputs in September and slight declines in prices for their own products. The survey’s indicators of future activity remained near their readings in August, indicating that firms expect a continuation of growth in the manufacturing sector over the next six months. (Full Report)The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity.

September 2015 Philly Fed Manufacturing Slides Into Contraction.: The Philly Fed Business Outlook Survey has transgressed into contraction. Key elements are mixed. This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The index declined from +8.3 to -6.0. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) 2.5 to 10.5 (consensus 6.3). Manufacturing conditions in the region were mixed in September, according to firms responding to this month's Manufacturing Business Outlook Survey. The indicator for general activity fell into negative territory, but indicators for new orders, shipments, and employment remained positive. Evidence suggests that the responses regarding general activity that were received earlier in the month may have been negatively affected by the volatility in the stock market and international news reports. Firms reported essentially unchanged prices for raw materials and other inputs in September and slight declines in prices for their own products. The survey's indicators of future activity remained near their readings in August, indicating that firms expect a continuation of growth in the manufacturing sector over the next six months.

Philly Fed Crashes To 31-Month Lows, Blames Stock Market -- On the heels of Empire Fed's big plunge, Philly Fed just collapsed. Despite employment and new orders picking up, the headline Philly Fed data crashed from 8.3 to -6.0 (missing expectations of +5.9 by the most in 4 years). This is the lowest print since March 2013and is blamed on markets "evidence suggests that the responses regarding general activity that were received earlier in the month may have been negatively affected by the volatility in the stock market and international news reports."   As The Philly Fed notes, The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in August to -6.0 this month. This is the first negative reading in the index since February 2014 (see Chart). However, the demand for manufactured goods, as measured by the survey’s current new orders index, showed continued growth: The diffusion index increased from 5.8 to 9.4. Firms reported that shipments also continued to rise. The current shipments index remained positive but fell 2 points, to 14.8.

Philadelphia Fed Manufacturing Survey "Something Very Wrong"  --Some are just beginning to figure out there are manufacturing sector troubles. The late-to-the party quote of the day come from Bloomberg who just now realized "There may very well be something wrong with the manufacturing sector." The quote is in response to the Philadelphia Fed Business Outlook Survey where the Consensus Opinion was for a "respectable" 6.3 reading but the actual reading was -6.0, well below the consensus range of 2.50 to 10.50.  There may very well be something wrong with the manufacturing sector, at least in the Northeast where the Empire State index has been in deep negative ground for the last two months followed now by a minus 6.0 headline for the Philly Fed index. This is the first negative reading since February 2014. But the headlines for both of these reports, which are not composite scores of separate components, are sentiment scores of sorts, rough month-to-month assessments of general conditions. A key positive in today's is continued strength in new orders which rose 3.6 points to 9.4. Unfilled orders, nevertheless, have been trending into contraction, at minus 6.6 for the third straight negative reading.  But some details are very strong with shipments at plus 14.8 and employment at plus 10.2 for a 5-month high. In a negative signal also seen in the Empire State report, prices received, that is prices for final goods, is in contraction at minus 5.0. The Philadelphia Fed surprise comes on the heels of Shocking Weakness in Empire State Manufacturing Report, released on Tuesday. There are even bigger troubles in the Dallas Fed and Kansas City Fed regions due to the collapse in oil prices.

Alternative ISM for Metalworking, Plastics, Composites Suggests Economic Contraction - About a week ago I received an interesting email from reader Steve Kline Jr.Kline is Director of Market Intelligence at Gardner Business Media, Inc., a B2B media company that conducts surveys similar to the ISM.   Steve writes .... Since 2006 we have conducted our own monthly survey that functions just like the ISM index. We get about 500 responses a month from all kinds of durable goods manufacturers. So, it’s a little more narrowly focused than the ISM. But, we don’t seasonally adjust the data. And, I’ve noticed over time that the Fed tends to revise capacity utilization data to reflect the changes in our backlog index. The Fed usually does this six to 12 months after the fact. Basically, in every industry we track there is an accelerating contraction over the last four to five months. Most indices are at their lowest point since late 2012.We do this for metalworking, plastics, composites, and a couple other processes. The metalworking index started in December 2006. The others started in December 2011. There are far more metalworking facilities in durable goods manufacturing than facilities in the other industries. The index can also be broken down by industries (aerospace, automotive, medical, etc.), region of the country, and plant size. We're working on a data visualization in Tableau for this.  I'll put a chart together of the ISM and our index.   I will say that one of the participating companies in the ISM has said our index is a better representation of their business than the ISM, particularly over the last two years or so (perhaps due to the seasonal adjustments of the ISM). It is an industrial supplies company.

The Autoworker Pay Premium Disappears - Justin Fox  - The United Auto Workers union has started negotiating a new labor agreement with Fiat Chrysler, which will serve as the template for deals with the other members of what’s now known as the Detroit Three. The old agreements, which date to 2011, were set to expire Monday at midnight but are being extended during the negotiations.   In olden times, before the Great Recession, UAW negotiations with the automakers were often occasion for oohing and aahing (or, if that was your thing, moaning and groaning) about what amazing pay and benefits autoworkers got. You don’t hear much of that anymore.  Yes, many autoworkers are reasonably well compensated: the average hourly labor cost (pay plus benefits) is $58 at General Motors, $57 at Ford and $48 at Fiat Chrysler, according to the Center for Automotive Research in Ann Arbor, Michigan. But that’s way down from before the recession and near-demise of GM and Chrysler. It also includes profit-sharing checks that only come in good years. New autoworkers hired by the companies start at a wage of just $15.78 an hour, not much higher than the $15-an-hour national minimum wage recently proposed by Bernie Sanders.  Workers at nonunion plants owned by manufacturers such as Toyota, Honda and BMW generally make less than those employed by the Detroit Three. So do most American workers. According to the Bureau of Labor Statistics, average hourly earnings for production and nonsupervisory workers in motor vehicle manufacturing were $27.81 in July, compared with $21.02 for the nonfarm private sector overall. But while private-sector hourly earnings kept rising even through the recession, autoworker earnings are down substantially from a decade ago (and that’s without even figuring in inflation).

Inequality Grows, Regardless of Technology - While technological progress favoring skilled workers is one of the main drivers behind inequality in America, the chasm between the rich and poor also grows naturally as an economy develops, according to a study led by Princeton University's Woodrow Wilson School of Public and International Affairs. When economies grow and individuals become richer, demands for high-skilled workers increase. This is because consumers shift their spending toward sectors that use high-skill workers more intensively, like education and healthcare.  "Our paper shows there is a key missing force behind inequality: the mere process of development,"  "As an economy develops, the demand for higher-skilled workers grows.  But we find this force is more powerful than we might've previously thought, painting an even gloomier picture of inequality." Economic activity has long been documented to have a systematic relationship with development. In very poor economies, goods and services mostly come from agriculture, while the gross domestic product in richer countries comes from manufacturing and services. As economies develop, the importance of agriculture tends to decline, and manufacturing and service industries begin to rise. Eventually, manufacturing also tends to decline, as the services industry continues to expand. This process is called "structural transformation." This study documents an additional feature of this process: in rich countries, the expansion of the service sector is dominated by high-skill-intensive industries like education and health care, which naturally brings about the need for more high-skilled workers.

Weekly Initial Unemployment Claims decreased to 264,000 - The DOL reported: In the week ending September 12, the advance figure for seasonally adjusted initial claims was 264,000, a decrease of 11,000 from the previous week's unrevised level of 275,000. The 4-week moving average was 272,500, a decrease of 3,250 from the previous week's unrevised average of 275,750.  There were no special factors impacting this week's initial claims. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Employment: Preliminary annual benchmark revision shows downward adjustment of 208,000 jobs -- The BLS released the preliminary annual benchmark revision showing 208,000 fewer payroll jobs as of March 2015. The final revision will be published when the January 2016 employment report is released in February 2016. Usually the preliminary estimate is pretty close to the final benchmark estimate. The annual revision is benchmarked to state tax records. From the BLS:

In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued on February 5, 2016, with the publication of the January 2016 Employment Situation news release.Each year, the Current Employment Statistics (CES) survey employment estimates are benchmarked to comprehensive counts of employment for the month of March. These counts are derived from state unemployment insurance (UI) tax records that nearly all employers are required to file. For National CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates a downward adjustment to March 2015 total nonfarm employment of -208,000 (-0.1 percent). ...

Using the preliminary benchmark estimate, this means that payroll employment in March 2015 was 208,000 lower than originally estimated. In February 2016, the payroll numbers will be revised down to reflect the final estimate. The number is then "wedged back" to the previous revision (March 2014). There are 33,000 more construction jobs than originally estimated. This preliminary estimate showed 255,000 fewer private sector jobs, and 47,000 additional government jobs (as of March 2015).

BLS: Twenty-Nine States had Unemployment Rate Decreases in August --From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were little changed in August. Twenty-nine states had unemployment rate decreases from July, 10 states had increases, and 11 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.... Nebraska had the lowest jobless rate in August, 2.8 percent, followed by North Dakota, 2.9 percent. West Virginia had the highest rate, 7.6 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.  The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.  The states are ranked by the highest current unemployment rate. West Virginia, at 7.6%, had the highest state unemployment rate.

Cities in the Southwest Are Still Waiting for a Recovery - Six years after the recession ended, some cities across the country are still struggling to bounce back. Nowhere has the fallout been more acute than in the American Southwest, according to new research from personal finance website WalletHub. In a study released this week, the company ranked the 150 largest U.S. cities based on which had made the most economic progress since the recession, which began in December 2007 and ended in June 2009. Researchers looked at 17 economic indicators, including the change in the poverty and violent-crime rates, home-price appreciation and wage growth, and the change in the number of part-time jobs compared with full-time jobs. Of the 15 cities that have recovered the least since the recession, nine are in the Southwest, including five in Arizona (Tucson, Glendale, Tempe, Mesa and Phoenix) and four in Nevada (North Las Vegas, Henderson, Reno and Las Vegas). Reno saw its GDP fall by 10%, the most of any large city. In North Las Vegas, home prices have fallen 35.8%, second only to Detroit, according to WalletHub’s analysis. California cities also struggled. Fresno experienced the largest increase in its unemployment rate, which has risen 5% since 2009. The least recovered city of all? San Bernardino, a city with more than 200,000 people about two hours east of Los Angeles. Over the past six years, San Bernardino’s median home price has fallen by a third, the average credit score has plunged 15.7% and consumer debt (excluding mortgages) has ballooned. Median household income has also fallen 6.43%, and the poverty rate grew by 7.9%. By contrast, some large U.S. cities are doing even better than they were before the recession, and many of them have the energy sector to thank.

So Many Job Openings, Why So Few Candidates? - Job Openings in U.S. Surge to Record While Hiring Cools" read the Bloomberg News headline following the release of the July report on Job Openings and Labor Turnover, better known as JOLTS. If that seems like a disconnect, it is. By all rights, employers should be bidding up the price of labor to fill the 5.75 million open slots in July, a record in the 15-year history of the data series. That's not happening.  Not only is there little evidence of wage pressure, but hiring fell in July, according to the JOLTS report. The quit rate, which indicates how confident people are about leaving a job, was unchanged at 1.9 percent for the fourth consecutive month.  Can a mismatch between the skill set employers need and candidates offer explain the record number of job openings? I doubt it. Manufacturing companies often train potential employees to their job specification or team up with community colleges, paying tuition in exchange for training. If the need is there, business will find a way.  Both the high level of job openings and the current 5.1 percent unemployment rate appear to overstate the tightness of the labor market, something Federal Reserve Chairman Janet Yellen has noted. Since a job is the primary means of support for most Americans, having one - or sensing employment opportunities - is key to perceptions about the economy. And right now, about two-thirds of Americans think the U.S. economy is on the wrong track, according to an array of opinion polls. That's not a noticeable improvement from the depths of the 2007-2009 recession.

Workers 65 and Older Are 3 Times as Likely to Die From an On-the-Job Injury as the Average Worker --As the Boomers age and retirement insecurity forces workers to delay retirement, workers 55 and older are a growing part of the workforce. In 2014, older workers were 21 percent of the adult workforce based on hours worked—8 percentage points higher than their 13 percent share in 2000. One unfortunate effect of this increased labor force participation is an increased exposure to workplace hazards, and with hazards come injuries and even death. Older workers are much more likely to be the victims of fatal occupational injuries than are younger workers. In 2014, nearly 35 percent of all fatal on-the-job injuries (1,621 of 4,679) occurred among the 21 percent of the workforce age 55 or older. The fatality rate for workers 65 and older is especially high—three times that of the overall workforce. In the last year there was an alarming 9 percent increase in fatal workplace injuries among workers 55 and older, and a 17.7 percent increase among workers 65 and older. Nationwide, among all age groups, fatal workplace injuries rose from 4,585 in 2013 to 4,679 in 2014, an increase of 94 deaths. The increase in deaths among workers age 65 and older more than accounted for the entire increase in fatal on-the-job injuries.

Gender Wage Gap Smallest on Record, but Women Still Earn 21% Less Than Men - The gender wage gap narrowed to the lowest level on record last year, but for every dollar a man earned women took home 21 cents less, on average. Women working full-time, year-round jobs earned 78.6% of what similar men did in 2014, according to a Census report released Wednesday. That’s the smallest gap on record back to 1960. The latest reading marks a narrowing from 77.6% in 2013, but the change is not statistically significant. In fact, the pay gap hasn’t changed meaningfully since 2007, when it was 77.8%. “There’s really no reason to celebrate,” said Heidi Hartmann, an economist and the president of the Institute for Women’s Policy Research, a Washington think tank. “It’s just not a picture of strong and rapid improvement in the wage gap.” The narrowing of the gap last year was largely a reflection of stagnant male earnings, rather than a robust increase in pay for women. Median earnings for women increased 2.1% last year to $39,621. When adjusting for inflation, the gain was 0.5%. Last year, men working full time had median earnings of $50,383. That’s an increase of 0.7%, and a 0.9% decrease when adjusting for inflation.

The Typical Male U.S. Worker Earned Less in 2014 Than in 1973 - The typical man with a full-time job–the one at the statistical middle of the middle–earned $50,383 last year, the Census Bureau reported this week. The typical man with a full-time job in 1973 earned $53,294, measured in 2014 dollars to adjust for inflation. You read that right: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs. This one fact, tucked in Table A-4 of the Census Bureau’s annual report on income, is both a symptom of an economy that isn’t delivering for many ordinary Americans and at least one reason for the dissatisfaction, anger, and distrust that voters are displaying in the 2016 presidential campaign. What about women? Well, they haven’t closed the pay gap with men, but the inflation-adjusted earnings of the median female worker increased more than 30% between 1973 and 2014, to $39,621 from $30,182, according to census data. But back to men. Why are wages for the typical male worker stagnating? After all, the U.S. economy has grown substantially since 1973. Output per person in the U.S. has nearly doubled since 1973, according to the Bureau of Economic Analysis. And output per hour of work (minus depreciation) has increased nearly 2.5 times, according to a recent analysis by the Economic Policy Institute, a left-leaning think tank that produces reliable statistical analyses

The typical male U.S. worker earned less in 2014 than in 1973: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs. What about women? Well, they haven’t closed the pay gap with men, but the inflation-adjusted earnings of the median female worker increased more than 30% between 1973 and 2014... But back to men. Why are wages for the typical male worker stagnating? ... I contacted Larry Katz, the Harvard University labor economist. He identified three factors to explain the stagnation of men’s wages:

• 1. Although this is not the major factor, workers have been getting more of their compensation in benefits as opposed to the cash wages that the Census tallies. ...
• 2. Labor’s share of national income has been declining since 2000 and capital’s share has been rising. Labor’s compensation (wages and benefits) has not been keeping pace with productivity growth. ...EPI’s Josh Bivens and Larry Mishel argue, “ This decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market.”
• 3. The “most important factor,” Mr. Katz says, is the rise in wage inequality, the gap between the earnings of the best-paid workers and the ones at the middle and the bottom that has been widening steadily since about 1980. Economists differ over how much of this is the result of globalization, technological change, changing social mores, and government policies, but there is no longer much dispute about the fact that inequality is increasing.

Some Friday good news: real retail sales and real aggregate wage growth ---I have not been a happy camper here at Camp Bonddad this week.  First, contrary to my expectation, the Census Bureau reported that real median household income actually *declined* by about -0.5% for the prime working age 25-54 cohort.  the main reason, apparently, was a seemingly random increase in the percentage of non-family households, which disproportionately consist of low wage earners.   Then the same Census Bureau wreaked havoc with housing permits, perhaps the most important among long leading indicators.  These went from making new highs several times in the second quarter, to no new high having occurred since 10 months ago.  Did I mention, these are invaluable for looking at the economy 12+ months out? So, suddenly, we are only 2 months away from no new highs for a year.  Awesome.  Except, oh by the way, housing starts still show the improvement, as do the non-seasonally adjusted numbers, even after the latest revisions.  Would it really be too much effort to supply us with an explanation? So let me point out two things which *did* go right this week, courtesy of a -0.1% decline in CPI: real retail sales and real aggregate wages.First of all, real retail sales made a new high:  This bodes well for employment growth in the coming months, since consumer spending leads jobs.  Since population increases by a little under +0.1% per month, this means real retail sales per capita, a long leading indicator, also made a new high in August. Secondly, real aggregate wages also grew, bringing total growth over this economic expansion to +17.0%:

How a Survey of Private Employers Offers a Peek Into Wage Growth - Are you, like many Americans, wondering when you’ll ever get a raise? A new analysis hints that wage growth could be picking up. The Trendsetter Barometer, a quarterly survey of the leaders of around 300 large privately held companies conducted by consulting company PricewaterhouseCoopers, has been a leading indicator of wage growth over the past two decades, according to an analysis by Oxford Economics comparing 80 quarters of survey data with historical economic performance. Throughout the past 20 years, sentiment in the index has predicted declines in wages ahead of recessions, as well as rising wages before economic recoveries. It also found business leaders’ views of the economy over the next 12 months was a good leading indicator for where U.S. gross domestic product was heading. The average company in the survey has annual revenues of $300 million, and the 300-odd companies are about evenly split between manufacturing and services. Since the end of 2010 through the first quarter of this year, the companies in the survey have anticipated average annual increases of between 2.1% and 2.9% for their hourly employees. That’s slightly higher than the rate at which private industry employers overall have raised worker wages and salaries over the same time period, a difference that could reflect the mix of businesses in the survey. In the second quarter of 2015, the average expected annual salary increase rose to 2.97%, its highest level since 2008.

“Solving” the Immigration Problem - I see the resurfacing of proposals to eliminate Birthright Citizenship and the forcible deportation of undocumented to solve the immigration problem. What are the implications of such proposals? Mass Deportation Now: A 2014 Congressional Research Service report cites Department of Homeland Security estimates of 11.5 million undocumented residents as of January 2011. The American Action Forum, headed by CBO’s former head Doug Holtz-Eakin, has estimated the 20 year cost at between $419.6 to $619.4 billion. One time cost (so excluding the subsequent 20 year’s of expenditures) would range from $103.9 billion to $303.7 billion. This would be the one-time direct fiscal cost, amounting to 0.6% to 1.7% of 2014 GDP (2.6% to 7.7% of the 2014 CY Federal budget). The Center for American Progress’s estimate is $114 billion, not including recurring costs. The AAF report continues to assess the long term (supply side) impact (it’s dynamic!). AAF estimates that in 20 years, GDP will be 5.7% lower than baseline given the 11 million reduction in labor force. Ending Birthright Citizenship: The most recent quantitative study on this issue I know of is this 2010 analysis written by Jennifer van Hook and Michael Fix for the Migration Policy Institute. The simulations indicate that passage of the Birthright Citizenship Act of 2009, which would have denied citizenship to any child born to parents who were both undocumented, would imply an increase of undocumented population from 10.8 million to 15.5 million by 2050. This is shown as the red line in the Figure 1 below. The simulations assume future behavior is the same as current (e.g., fertility, deaths), and the foreign born population remains constant at 10.8 million. Obviously, this assumes that illegal immigration continues. If the simulation assumes completely effective border control, so no new foreign born undocumented enter the country, then by 2050, the undocumented population would drop to 3.3 million. Hence, ending birthright citizenship is not in itself a “solution”, even with a completely cessation of illegal immigration – unless one is willing to wait a very long time.

U.S. Household Incomes: A 47-Year Perspective -- The Census Bureau has now released its annual report household income data for 2013. It is posted on the Census Bureau website. What I'm featuring in this update is an analysis of the quintile breakdown of data from 1967 through 2013 (see Table H.3). Most people think in nominal terms, so the first chart below illustrates the current dollar values across the 46-year period (in other words, the value of a dollar at the time received — not adjusted for inflation). What we see are the nominal quintile growth patterns over the complete data series. In addition to the quintiles, the Census Bureau publishes the income for the top five percent of households.The next chart adjusts for inflation in chained 2013 dollars based on a research variant of the Consumer Price Index, the CPI-U-RS. In other words, the incomes in earlier years have been adjusted upward to the purchasing power of the most recent year in the series.  As for the cumulative household income growth by segment over the past 46 years, the adjacent table shows the real, inflation-adjusted, difference between 1967 and 2013.To give us a better idea of the underlying trends in household incomes, I've also prepared charts of the nominal and real percentage growth since 1967. Here is the real version with some annotations. Note in particular the growing spread between the top quintile (and especially the top 5%) and the other four quintiles.  Here is a table showing decline in income for each household segment from its real peak.This table clearly illustrates a key explanation for the prolonged weakness in the consumer and small business confidence indicators I track:  It's important to understand that the data in the charts above is for the mean (average) income for each of these segments. For US households quintiles, the mean (average) income is higher than the median (middle of the range). I'll have more to say about this negative skew in a follow-up article on household incomes by age bracket.

More Proof That Economic Policies Have Failed Workers: Median Real Incomes Stagnant for Last Two Decades -- Yves Smith - Sometimes one chart really does tell you what you need to know. The Economic Policy Institute prepared an updated chart yesterday based on newly-released Census data. It confirms what most people know: the last generation has seen no improvement in the economic standing of ordinary workers. Indeed, this “median real income” picture masks elements of underlying deterioration, including: increased working hours (understated due to the fact that overtime by salaried workers isn’t captured in official statistics); a rise in “on demand” schedules in retail; shortened job tenures, which increases stress; and a reduction in health care benefits (by restricting coverage and/or increasing employee charges).  Key points from the EPI report: The Census data show that from 2013–2014, median household income for non-elderly households (those with a head of household younger than 65 years old) decreased 1.3 percent from $61,252 to $60,462. This decrease unfortunately exacerbates the trend of losses incurred during the Great Recession and the losses that prevailed in the prior business cycle from 2000–2007. Median household income for non-elderly households in 2014 ($60,462) was 9.2 percent, or $6,113, below its level in 2007. The disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000–2007, during which the median income of non-elderly households fell significantly from $68,941 to $66,575, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000–2014, the median income for non-elderly households fell from $68,941 to $60,462, a decline of $8,479, or 12.3 percent… Since 1973, the median man working full-time, full-year has seen no sustained growth, dropping from $53,291 in 1973 to $51,902 in 2002 and falling further over the 2002-07 recovery and the recession to $50,383 in 2014..

Income Stagnation in 2014 Shows the Economy Is Not Working for Most Families -- We learned from the Census Bureau this morning that the decent employment growth in 2014 yielded no improvements in wages and, not surprisingly, no improvement in the median incomes of working-age households or drop in the number of people living in poverty. Wage trends greatly determine how fast incomes at the middle and bottom grow, as well as the overall path of income inequality, as we argued in Raising America’s Pay. This is for the simple reason that most households, including those with low incomes, rely on labor earnings for the vast majority of their income. The Census data show that from 2013–2014, median household income for non-elderly households (those with a head of household younger than 65 years old) decreased 1.3 percent from $61,252 to $60,462. This decrease unfortunately exacerbates the trend of losses incurred during the Great Recession and the losses that prevailed in the prior business cycle from 2000–2007. Median household income for non-elderly households in 2014 ($60,462) was 9.2 percent, or $6,113, below its level in 2007. The disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000–2007, during which the median income of non-elderly households fell significantly from $68,941 to $65,575, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000–2014, the median income for non-elderly households fell from $68,941 to $60,462, a decline of $8,479, or 12.3 percent.

U.S. Job Growth Not Making a Dent in Poverty - The U.S. poverty rate was unchanged at 14.8% in 2014, according to a release today from the Census Bureau. This was the fourth consecutive year that the poverty rate was not statistically different from the previous year. The lack of change shows that the progress in the U.S. job market—in 2014 the economy added 2.6 million jobs, the most in more than a decade—have remained insufficient to lift the fortunes of the nearly 47 million people living in poverty. The official definition of poverty varies depending on the size, age and composition of the family. For a couple with no children under age 65, the threshold for income below which they are considered in poverty is $15,853. For a couple with two children, the threshold is $24,008. These thresholds are still quite low, and so some researchers prefer alternate measures. For example, the  Census Bureau also produces the Supplemental Poverty Measure, which accounts for more variables in a family’s circumstances (such as their regional cost of living) and generally concludes that poverty thresholds should be somewhat higher. By this measure, 15.3% of families were in poverty. That’s down from 15.8% the previous year, although that change is not considered statistically significant. The report finds that 6.6%, or nearly 20.8 million people, earn less than half the official poverty rate. And an even larger share of the population sits only a little bit above the official poverty level, according to the Census report. If the official poverty rate were raised by 50%, then 24.1% of people–or 76 million—would be under the threshold.

The case for redistributing wealth in America is losing support from 2 demographics -- As the US emerged from the Great Recession, there was a growing focus on the idea of the 1% and income inequality. As the US emerged from the Great Recession, there was a growing focus on the idea of the 1% and income inequality. Google Trends for the terms "the 1%" and "income inequality" spiked in 2011 and have remained elevated since then. Data has shown that the gap in income between the rich and poor has been increasing and the US is one of the worst developed countries in regards to economic inequality. Politicians, protestors, and the media have increasingly become fixated on these themes of the wealth gap. Despite the increased attention, though, researchers found that support for the redistribution of wealth, via government intervention, has stayed the same for most Americans, but for two surprising groups it has slid in recent years. Support has decreased among two groups.  African Americans and the elderly. Americans over age 65 have gone from being more supportive of redistribution than those under 65 to less so. For example, when asked if the government should do more to help reduce income differences on a scale of 1 (it should not) to 7 (it should), elderly people have gone from around a 4.5 in 1980 to around a 3.8 in 2012, while their younger counterparts haven't budged.  For blacks, while they still have a much higher support than whites, support has also decreased. "While there has been no significant movement on the issue by whites, in both datasets, blacks, who have a much higher desire for redistribution on average, have significantly decreased their support," said the report. These trends seem counterintuitive to the basic idea of why people support redistribution.

Record 46.7 Million Americans Live In Poverty; Households Income Back To 1989 Levels -- At this moment, president Obama is taking to the Business Roundtable where as notedpreviously he will discuss "the turnarounds in the stock market, housing iprices [sic?] and job growth." In other words: helping wealth inequality hit record levels, permitting Chinese and other offshore "investors" to push high-end US real estate prices to never before seen levels, while everyone else "benefits" from record jobs for bartenders and waiters. As for the stock market, other socialist leaders will laugh at Obama's puny returns. Obama: Stocks have doubled since 2009  Maduro: Stocks are up 44,584% since 2009.  That said, here are some things Obama will not discuss. According to the just released Census Bureau annual report on Income and Poverty, in 2014 the official poverty rate was 14.8% as a result of a record 46.7 million Americans living in poverty. This is the fifth consecutive year since the end of the recession that the number of impoverished Americans has barely not budged. What recovery?

In Virtually Every State, the Poverty Rate is Still Higher than Before the Recession - Between 2013 and 2014, the poverty rate in most states was largely unchanged, according to yesterday’s release of state poverty statistics from the American Community Survey (ACS). While the poverty rate fell slightly for the country as a whole, most of the changes at the state level were too small to signify a meaningful difference. As of 2014, only two states—North Dakota and Colorado—have poverty rates at or below their 2007 values, before the Great Recession. From 2013 to 2014, the national poverty rate, as measured by the ACS, fell from 15.8 percent to 15.5 percent. Poverty rates declined in 34 states plus the District of Columbia, but only five of these changes were large enough to signify a measurable difference: Mississippi (-2.5 percentage points), Colorado (-1.0 percentage points), Washington, (-0.9 percentage points), Michigan (-0.8 percentage points), and North Carolina (-0.7 percentage points). (A number of other states had similar reductions in their poverty rates, but the sample sizes for these states are too small to tell whether these changes were statistically significant.) Alaska was the only state where the poverty rate increased significantly, rising from 9.3 percent to 11.2 percent. The lack of improvement in state poverty rates echoes the trends we’ve seen in household income. However, the data suggest that the lack of real income growth over the past decade and a half has been even more pronounced for households at the bottom of the income scale. As of 2014, 38 states had lower median household income than in 2000, yet 47 states—nearly the entire country—had higher poverty rates in 2014 than in 2000.

Report Details Economic Hardships for Inmate Families - A survey of families that have a family member in jail or prison has found that nearly two-thirds struggle to meet their basic needs, including 50 percent that are unable to afford sufficient food and adequate housing. The report, by the Oakland, Calif.-based Ella Baker Center for Human Rights, Forward Together, and more than a dozen community and civil rights organization that work with incarcerated people, found that costs associated with incarceration, like traveling for prison visits, had pushed more than one-third of the families into debt.  The focus on the economic hardships endured by families after an arrest is an often overlooked element of the nation’s criminal justice system, where 2.4 million people are in prison or jail — many of whom are fathers or mothers who had been their family’s primary income earners, according to the report.  After an inmate’s release, a criminal conviction often means a family loses its ability to live in government-subsidized housing. And former inmates are barred from competing for various federal student grants and loans and have difficulty finding even menial work.Twenty-six percent of the more than 700 former inmates surveyed for the study remained unemployed five years after their release, and the vast majority of others had found only part-time or temporary jobs, the report said.The findings emphasize the link between imprisonment and poverty,  Previous research has shown that a significant number of prison and jail inmates come from impoverished backgrounds.

The Racism of Mass Incarceration, Visualized: an Interview With Bruce Western - In this animated interview, the sociologist Bruce Western explains the current inevitability of prison for certain demographics of young black men and how it's become a normal life event. "We've chosen the response of the deprivation of liberty for a historically aggrieved group, whose liberty in the United States was never firmly established to begin with," Western says. In The Atlantic's upcoming October cover story, Ta-Nehisi Coates explores the impact of mass incarceration on the black family. You can read the full story on September 15, 2015.

State Health Insurance Payments Could Be Stopped During Budget Impasse  -- Illinois payments to providers of health services for state workers, retirees and university staffers could be halted during the budget impasse, the Rauner administration has warned. "All health care services will continue to be paid as long as possible," a spokeswoman for the Illinois Department of Central Management Services told the State Journal-Register on Friday. "However, in the near future, we will no longer have the legal authority to continue to pay health care vendors for their services." No timeline was given as to when payments could stop. "All applicable fiscal 2015 funding has now been exhausted," the CMS spokeswoman said. "Without a budget in place, there is no appropriation or legal authority to continue to pay health care providers." The news about a possible state insurance payment freeze came as a shock to AFSCME Council 31. In an interview with the State Journal-Register, AFSCME Council 31 spokesman Anders Lindall said, "The state has never said, 'We're not playing claims,' before." Lindall said the news is "very disturbing," adding that AFSCME Council 31 "will do everything possible to correct it." "It's further evidence that our state is breaking down," he told the newspaper. The state has already stopped dental payments associated with services obtained by those covered under the state's health plan. Such patients are being asked to pay for their services in full. The state says they will be reimbursed later.

Illinois Halts Payments to Dentists, Threatens to Stop All Health Insurance Payments -- Unpaid bills in Illinois now stand at $8.5 billion. Some project the total will reach an all-time high of $10.5 billion by December. Total accumulated liabilities counting pensions are on the order of $163 billion. Illinois is flat out broke, and without a budget cannot legally pay some bills. In what I see as a sideshow, Illinois has not been paying lotto winners.  Far more serious issues are on the horizon. For example, the State Journal-Register reports Gov. Rauner threatens to halt health insurance payments to providers for state workers.  As Illinois approaches its 11th week without a state budget, Gov. Bruce Rauner has threatened to take the unprecedented step of stopping all payments to doctors, hospitals and others providing health care to the almost 363,000 state workers, university employees, retirees and others covered by the state's group insurance plan. "All health care services will continue to be paid as long as possible," said Meredith Krantz, spokeswoman for the Illinois Department of Central Management Services. "However, in the near future, we will no longer have the legal authority to continue to pay health care vendors for their services," "All applicable fiscal 2015 funding has now been exhausted," she said. "Without a budget in place, there is no appropriation or legal authority to continue to pay health care providers." In addition to the administration's threatened shutoff of reimbursements to health care providers and health insurance companies, the state recently halted all payments to dentists for services to the 359,325 state workers, university employees, retirees and dependents with dental coverage.

U.S. Inability to Feed Poor Children Worse than Third World Countries: Watch the Campaign to Humiliate our Politicians -  When they first see the videos, American viewers are appalled, shocked and angry that other nations like Germany, Slovenia and China would be offering humanitarian food aid to hungry children in the United States.  And so they should be.  As a man in one of the videos points out (in Mandarin),  The United States, one of the world’s wealthiest nations, still struggles with food insecurity. In this nation with a surplus of food, there are 49 million Americans impacted by hunger. Here [in America], many cannot afford healthy food to live productive lives. He ends the video by saying, “China – let’s help America.”   It’s part of a hard-hitting media campaign started last summer by Great Nations Eat, a non-profit organization that is using an unusual and highly provocative ad campaign. The goal is to raise awareness of the fact that every day, one-fifth of the people in the United States do not know where they will get their next meal. In a press release, Billy Shore, founder and CEO of Share Our Strength, states the obvious: “That doesn’t happen in any other developed nation. It shouldn’t happen here.”  The problem can be readily solved, but since the majority of US legislators and policymakers are little more than gutless puppets to the billionaire investor class and global capitalist interests, there is no political will to address it. Furthermore, many communities in America exacerbate the problem by making it illegal to feed homeless people.

Number of US homeless students has doubled since before the recession -- The number of homeless children in public schools has doubled since before the recession, reaching a record national total of 1.36 million in the 2013-2014 school year, according to new federal data. The latest homeless count, an 8 percent increase over the 2012-2013 school year, is a sign that many families continue to struggle financially even as the economy recovers from the housing collapse of 2008. And it offers a glimpse of the growing challenges that public schools face nationwide as they seek to educate an increasing number of low-income children. The impact is profound on public schools, which struggle to try to address the needs of homeless children. Teachers often find themselves working not only to help children learn but also to clothe them, keep them clean and counsel them through problems — including stress and trauma — that interfere with classroom progress. Many schools receive federal funds meant to help connect homeless students with support services. But that federal funding has not kept pace with the increasing need: In fiscal 2006, the Department of Education distributed $61.8 million for homeless youth programs. It had fallen slightly to $61.7 million by 2013, then increased slightly to $65 million in 2014. Nationwide, student homelessness has increased steadily since 2009, continuing to rise even after the U.S. unemployment rate began falling and much of the country began recovering from the recession and the housing crash that helped cause it. Now, nearly 3 percent of the nation’s public school students are homeless, the data show.

New Mexico Mom Refuses To Pray To God, Court Takes Away Her Kids -- Oh, do you miss mommy? Too bad.  There is a war on religious freedom and religious liberty (both kinds!) in US America right now, as we all know. American citizens are being persecuted and criminalized and jailed just for trying to exercise their First Amendment rights. It’s pretty bad out there these days, so here is a real effed-to-heck story about a single mom whose religious liberty was trampled on, kicked in the groin, decapitated, and left to rot in the hot New Mexico sun. The family court in Albuquerque, New Mexico, ordered a divorced couple to attend 10 counseling sessions, so they could learn how to be good parents to their 11-year-old twin sons and splitting up their combined record collection. This is a thing family courts do to divorced parents who can sometimes forget to take care of their children because they’re too busy stalking their exes with their new fucktoys on the Facebook, or whatever. But the counseling sessions Holly Salzman and her ex attended did not start with the basics of parenting, but rather, mandatory prayer:   “I walked into the session and the very first thing she said to me was, ‘I start my sessions by praying,’” Salzman said. “When I expressed my concerns that I didn’t pray she said, ‘well this is what I do’ and she proceeded to say a prayer out loud.” […] There were handouts with quotes of Psalms and other religious quotes. Pepper also gave her homework titled “who is God to me?” Every session there was some sort of religion that was intertwined with the sessions,” Salzman said.Now, a thinking person might wonder if the court (aka, The Government) can compel citizens to attend religious-based classes and participate in prayer, because of that whole First Amendment separation of church and state thing. And Holly Salzman was a thinking person, and she did wonder that. So she went to the court and said, “Um, yeah, I think this violates my constitutional rights, and you can’t make me do this.” But the court told her that yes uh-huh it can TOO make her go to this specific counselor to get proselytized, for the good of her children, OR ELSE. Or else what? The single mother of two said she felt so “offended and disgusted” that she stopped going to the court-ordered sessions. The result was that the court took her kids away. […] To get her kids back she had to finish the classes.

14 Year Old Texan, Ahmed Mohammed, Arrested For Home-Made Clock Because "It Looks Like A Bomb" -- A perfect storm of Islamophobia and technophobia (as Wired.com's Marcus Wohlsen so eloquently put it) has erupted in Texas where high-school freshman Ahmed Mohamed was arrested Monday after bringing a homemade digital clock to MacArthur High. A teacher at the Irving school exclaimed "it looks like a bomb,"  resulting in a call to police. By mid-afternoon, police were leading the boy out of school in handcuffs and taking him to juvenile detention on suspicion of making a "hoax bomb." As Mike Krieger sums up so perfectly,America is a deeply fallen nation. In his own words... As Liberty Blitzkrieg's Mike Krieger details, Police detained a 14-year-old Muslim boy after a teacher at his North Texas high school decided that a homemade clock he proudly brought to class looked like a bomb, according to school and police officials. The family of Ahmed Mohamed said the boy was suspended for three days from MacArthur High School in the Dallas suburb of Irving after taking the clock to class on Monday.The boy makes his own radios, repairs his own go-kart and on Sunday spent about 20 minutes before bedtime assembling a clock using a circuit board, power supply wired to a digital display and other items, The Dallas Morning News reported.

Computers 'do not improve' pupil results, says OECD - BBC News - Investing heavily in school computers and classroom technology does not improve pupils' performance, says a global study from the OECD. The think tank says frequent use of computers in schools is more likely to be associated with lower results. The OECD's education director Andreas Schleicher says school technology had raised "too many false hopes".. Tom Bennett, the government's expert on pupil behaviour, said teachers had been "dazzled" by school computers. The report from the Organisation for Economic Co-operation and Development examines the impact of school technology on international test results, such as the Pisa tests taken in more than 70 countries and tests measuring digital skills. It says education systems which have invested heavily in information and communications technology have seen "no noticeable improvement" in Pisa test results for reading, mathematics or science.  "If you look at the best-performing education systems, such as those in East Asia, they've been very cautious about using technology in their classrooms," said Mr Schleicher. "Those students who use tablets and computers very often tend to do worse than those who use them moderately."

The problem with one of the biggest changes in education around the world - There's an interesting thing happening in countries where kids are the most comfortable with computers: they aren't reading all that well. In fact, the more children use computers at school, the more their reading abilities seem to suffer. The chart below, plucked from a new report from the Organization of Economic Cooperation and Development (OECD), shows the relationship between computer use at school and reading abilities in developed countries around the world, including the United States, Germany, China, Japan, Australia, and others. And it doesn't bode well for those pushing for ceiling-less introductions of technology into classrooms."Overall, the use of computers does not seem to confer a specific advantage in online reading," the report says. "Even specific online reading skills do not benefit from high levels of computer use at school." Nor does it seem to help print reading. The best readers, as it happens, tend to be those who use computers slightly less than average. From there upwards—in terms of how often kids browse, email, chat, and learn on computers—computer use only seems to hurt reading skills (notice how the line dips in the chart above for both digital and print reading). The negative relationship is particularly strong between the frequency with which students use computers to chat online and their reading abilities. But it's also fairly pronounced for those who use computers to practice and drill. And all online activities—including browsing or emailing at school—seem to hurt students' reading once they become more than once or twice weekly habits. The chart below shows how reading scores tend to fall off as computer use grows.

An eighth-grade boy’s ‘outrageous’ class schedule -- What does unequal educational opportunity look like in many schools serving low-income and minority students? For starters, unqualified or under-qualified teachers; inadequate or nonexistent books, science labs, curriculum materials and technology; huge class sizes; rundown buildings. Then there’s the curriculum. In the modern school reform era, curriculum itself has been dramatically narrowed in many schools to allow extra focus on the two subjects for which standardized tests are given — math and English language arts. And so we can see what unequal educational opportunity looks like through the class schedule that one Newark eighth-grader just received at the start of the 2015-16 school year (which I am publishing with permission).  How does New Jersey translate that into the lives of the young citizens of Newark? A Newark dad shared his child’s schedule. To my suburban friends, can you ever imagine your child bringing home a schedule that looks like this? Or a superintendent selling this to you? No? Me neither. This is outrageous. ELA = English Language Arts. SS = Social Studies. It’s not possible to tell how often Social Studies will actually take place, but given that it’s not currently tested and used to condemn students, teachers, and schools, one would presume more time will be given to ELA. By the way, what the heck is a STEM class? In a 30-period week, they already have half devoted to STEM. We hear a lot about STEM (Science, Technology, Engineering, Math). Really, we should be hearing more about STEAM (A = Arts), but I digress. Should any student be subjected to so narrow a curriculum? And in 8th grade no less!

Study shows college textbook prices up an insane 1,041% since 1977 - SFGate: Do you want food or do you want books? Because if you're a college student, you might be making that choice when school starts. According to a study of Bureau of Labor Statistics by NBC, college textbook prices have gone up 1,041 percent since 1977. That's over three times the rate of inflation. NBC points to the "pharmaceutical sales model" that has helped accelerate the rise in book costs. Like with pharmaceutical reps visiting doctors, publishers try to sell professors on their books. And like patients, students are mostly voiceless in the process. Unsurprisingly, NBC notes that "publishers and college bookstores disagree with this diagnosis." The study does not take into account used or rented books, which are becoming more and more popular as costs rise. Amazon does booming business with its used book trade-in, and speciality sites like Chegg offer rentals too.

Obama hits 'coddled' liberal college students - President Obama is weighing in on the discussion over political dialogue on college campuses, saying students shouldn't be "coddled" from opposing views.  "It’s not just sometimes folks who are mad that colleges are too liberal that have a problem. Sometimes there are folks on college campuses who are liberal and maybe even agree with me on a bunch of issues who sometimes aren’t listening to the other side. And that’s a problem, too," Obama said during a town hall on Monday in Des Moines, Iowa. "I've heard of some college campuses where they don’t want to have a guest speaker who is too conservative. Or they don’t want to read a book if it has language that is offensive to African-Americans, or somehow sends a demeaning signal towards women," Obama continued. "I’ve got to tell you, I don’t agree with that either. I don’t agree that you, when you become students at colleges, have to be coddled and protected from different points of views," he said. Debate over sensitivity on college campuses has garnered increased attention recently, including over trigger warnings for course material, safe spaces on campuses and boycotts of prospective campus speakers such as Condoleezza Rice. Comedians Jerry Seinfeld and Bill Maher have also blasted oversensitivity of college students. "Anybody who comes to speak to you and you disagree with, you should have an argument with them. But you shouldn’t silence them by saying, you can’t come because I’m too sensitive to hear what you have to say. That’s not the way we learn, either," Obama said Monday in Iowa.

Are College Lectures Unfair? - - DOES the college lecture discriminate? Is it biased against undergraduates who are not white, male and affluent?The notion may seem absurd on its face. The lecture is an old and well-established tradition in education. To most of us, it simply is the way college courses are taught. Even online courses are largely conventional lectures uploaded to the web.Yet a growing body of evidence suggests that the lecture is not generic or neutral, but a specific cultural form that favors some people while discriminating against others, including women, minorities and low-income and first-generation college students. This is not a matter of instructor bias; it is the lecture format itself — when used on its own without other instructional supports — that offers unfair advantages to an already privileged population. The partiality of the lecture format has been made visible by studies that compare it with a different style of instruction, called active learning. This approach provides increased structure, feedback and interaction, prompting students to become participants in constructing their own knowledge rather than passive recipients.

Women earned majority of doctoral degrees in 2014 for 6th straight year, and outnumber men in grad school 136 to 100 -- The Council of Graduate Schools (CGS) released its annual report today on US graduate school enrollment and degrees for 2014 and here are some of the more interesting findings in this year’s report:

1. For the sixth year in a row, women earned a majority of doctoral degrees awarded at US universities in 2014. Of the 73,303 doctoral degrees awarded in 2014 (Table B.25), women earned 37,927 of those degrees and 52.2% of the total, compared to 34,737 degrees awarded to men who earned 47.8% of the total (see top chart above). The 52.2% female share of doctoral degrees in 2014 was the same as in the previous two years (2012 and 2013), but slightly lower than the female share of 52.5% in 2011.
2. By field of study, women earning doctoral degrees in 2014 outnumbered men in 7 of the 11 graduate fields tracked by the CGS (see top chart above): Arts and Humanities (51.7% female), Biology (52%, and one of the STEM fields), Education (68.9%), Health Sciences (70.8)%, Public Administration (63%), Social/Behavioral Studies (62.6%) and Other fields (51.6%). Men still earned a majority of 2014 doctoral degrees in the fields of Business (57.1% male), Engineering (76.9%), Math and Computer Science (73.9%), and Physical Sciences (65.5%).
3. The middle chart above shows the gender breakdown for master’s degrees awarded in 2014 (from Table B.24) and the gender disparity in favor of females is significant – women earned 59% of all master’s degrees in 2014 (up from 58.4% in 2013), which would also mean that women earned nearly 144 master’s degrees last year for every 100 degrees earned by men.
4. The bottom chart above displays total enrollment in 2014 by gender and field for all graduate school programs in the US (certificate, master’s and doctoral degrees from Table B.13), showing that there is a significant gender gap in favor of women for students attending US graduate schools. Women represent 57.7% of all graduate students in the US, meaning that there are now 136.4 women enrolled in graduate school for every 100 men.

What Was Missing From The GOP Debate? Student Loan Debt -- The second Republican debate covered many topics—from foreign policy, to immigration, to the drug war—but student loan debt, another major problem facing the country, only received a cursory mention from Ted Cruz at the end of the three-hour marathon. At $1.3 trillion, outstanding student loan debt is indeed a crisis, and it deserves the attention of those aspiring to lead Washington.  The job market for millennials remains weak, college costs continue to rise, and the government has yet to take meaningful action to reform higher education financing. As I argued in my testimony before the House Budget Committee last week, talk from Democratic presidential candidates of “free” or “debt-free” college does nothing to address the underlying reason why student loan debt is increasing—the perverse incentives created by federal student aid programs.  Over 40 million Americans carry student loan debt. Student loan debt is the only household debt that continued to rise during the recession, and young Americans owe more of it. About 70 percent of the undergraduate class of 2012 needed student loans, and average debt at graduation approached $30,000. These recent graduates differ drastically from the class that graduated college in 1993, when less than half of students needed loans before they could walk across the stage to receive their diplomas. In constant dollars, these loans averaged below $10,000—one-third of today’s average debt load. Paying for college without loans is no longer possible for most people. College tuition has increased by 1,200 percent since records began in 1978—while food costs have risen only 250 percent over the same period.  Not only does the government’s $165 billion annual spending on Pell grants, student loans, and tax credits do little to offset the burden, but it is contributing to the problem. Rather than fulfilling their original mission of opening the doors of the ivory tower to low-income students, government financial-aid programs have raised the costs of higher education.

70% Defaulted in 2013 -- To add to this attention getter, 70% of all the students who defaulted in 2013 went to non-traditional schools or “for-profit” schools. Of students who graduated from traditional schools and were required to start paying back student loans in 2011, two percent of graduate students and eight percent of undergraduate students defaulted as compared to ~21% of students from non-traditional schools within two years. Mind you, this does not exonerate traditional schools from the financial burden placed upon graduating students. The only cost increasing at a faster rate than healthcare is the cost of pursuing a college education.  In 2000, one nontraditional school of the top ten schools was the second highest with associated student loan debt to attend it. University of Phoenix was second to a traditional school at $2.1 billion. In 2014, the University of Phoenix moved to #1 at $35 billion of associated student loan debt to attend it. Of the next 10 schools, 8 were non-traditional and 2 were traditional schools in 2014. New York University went from 1st on the list in 2000 to 8th on the list in 2014 with triple the amount of student debt associated with getting a degree there. The number two school in 2000, University of Phoenix amassed student loan debt of $35 billion to attend. This was more than 17 times what the University of Phoenix had in 2000. The numbers of student loan borrowers doubled from 2000 to 2014 to 42 million and the debt quadrupled to $1.1 trillion. With this explosion in borrowers and increase in debt, defaults reached its highest level in 20 years. “Half of the borrowers exiting college in 2011 had attended a for-profit school or a 2 year college and represented 70% of the student loan defaults. As reported in “A Crisis in Student Loans?,” the default crisis centered around borrowers who attended non-traditional schools such as Phoenix and to a lesser extent two year colleges. In the past those who attended non-traditional schools represented a small portion of borrowers and those attending two year schools did not require borrowed funds to attend. So what changed?

Student Loan Distress Goes Beyond Defaults - Mike Konczal - There’s been a lot of new data and analysis of student loans and colleges in the past week, including a new Brookings paper and the launch of the College Scorecard by the Department of Education. And with so much data coming out, it’s becoming more important that we keep our questions open-ended. The Brookings Report, “A crisis in student loans?” (CSL) by the Treasury Department’s Adam Looney and Stanford’s Constantine Yannelis, is an important piece of research. It puts together a lot of evidence from other sources with a new, detailed data source. But there’s one criticism I want to explore: By focusing on a student loan “crisis” only in terms of defaults, we limit what problems we can see, with potentially serious consequences for an entire generation.  The case CSL makes is that there is no general student loan default crisis. Instead there is a serious, though limited, problem concentrated in for-profit schools and, to a lesser extent, community colleges. This was made far worse by the Great Recession, as many people went back to school, often falling into programs they weren’t prepared for.  I agree with this assessment. Student loans defaults from for-profit schools are a genuine problem, and the media often fails to recognize this. As Astra Taylor notes, when student debt activists in the wake of Occupy put forward people defrauded by the for-profit industry, the media prefers to talk about poetry majors with outrageous debt balances instead.

Gaps in Earnings Stand Out in Release of College Data - Colleges give prospective students very little information about how much money they can expect to earn in the job market. In part that’s because colleges may not want people to know, and in part it’s because such information is difficult and expensive to gather. Colleges are good at tracking down rich alumni to hit up for donations, but people who make little or no money are harder and less lucrative to find. On Saturday, the federal government solved that problem by releasing a huge set of new data detailing the earnings of people who attended nearly every college and university in America. Although it abandonded efforts to rate the quality of colleges, the federal government matched data from the federal student financial aid system to federal tax returns. The Department of Education was thus able to calculate how much money people who enrolled in individual colleges in 2001 and 2002 were earning 10 years later. The national universities producing the top earners are no surprise: Harvard, M.I.T., Stanford and others that routinely top the annual U.S. News & World Report college rankings. The most troubling numbers show up far beneath the upper echelons of higher education. Elite institutions prop up the overall average earnings of college graduates nationwide. Although earnings of college graduates continue to outpace those of non-collegians by a significant margin, at some institutions, the earnings of students 10 years after enrollment are bleak.The Department of Education calculated the percentage of students at each college who earned more than $25,000 per year, which is about what high school graduates earn. At hundreds of colleges, less than half of students met this threshold 10 years after enrolling.  At Bennington College in Vermont, over 48 percent of former students were earning less than $25,000 per year. A quarter were earning less than $10,600 per year. At Bard College in Annandale-on-Hudson, the median annual earnings were only $35,700. Results at the University of New Mexico were almost exactly the same.

Questions for California Teachers to Ask CALSTRS -- Yet another big pension fund has decided, despite the overwhelming evidence to the contrary, to engage in higher-risk, higher-cost investing. One day, this might end well, but history is replete with an almost-unbroken string of examples where it hasn't. You might have missed the Wall Street Journal article during the Labor Day bustle reporting how the California State Teachers’ Retirement System (often referred to as Calstrs), the nation’s second-largest pension fund with $191 billion in assets, was considering an aggressive move into both market timing and alternative investments: Top investment officers of the California State Teachers’ Retirement System have discussed moving as much as 12% of the fund’s portfolio—or more than $20 billion—into U.S. Treasurys, hedge funds and other complex investments that they hope will perform well if markets tumble, according to public documents and people close to the fund. Its holdings of U.S. stocks and other bonds would likely decline to make room for the new investments. We can't help but be astonished by this development, given all we know about almost every chief investment officer's ability to time markets or the typical investment committee's ability to select hedge funds or other alternatives. My wife is a teacher, and she and her colleagues often ask me questions about their self-directed 403(b) retirement accounts. Perhaps I can be of some assistance to those educators on the other side of the country who might be curious about how their retirement funds are being managed. So here are questions those California teachers should feel free to ask the managers running the Calstrs fund managers about their new investments:

CalSTRS, Maryland Fund Private Equity Players Seeking Profits in the Refugee Crisis -- Yves Smith - Rosemary Batt, co-author of the well-regarded book Private Equity at Work, was disturbed to see the prominent role that private equity was playing in what a Wall Street Journal story called The Growth of Refugee Inc. So you are getting a bigger dose of private equity than usual today.  Private equity’s role in refugee-related exploitation opportunism entrepreneurship serves to illustrate how private equity firms are so flush with cash that they are pursuing opportunities that lie well outside their traditional formula. The refugee crisis is unlikely to be long-lived, at least at its current level of inflow (and the high odds of governments changing tack in response to rising voter resistance is another significant business risk) so it’s hard to see how many durable businesses can be build on its back. And of course, given the obvious conflict between social expectations of altruism, or at least minimal profit margins in light of the refugees’ desperate straits, versus private equity’s aggressive return objectives would seem to guarantee criticism and less than rosy media coverage over time. This podcast from MarketPlace provides an overview of the bull case, via an interview with the author of the Wall Street Journal story on the growth of refugee-related service businesses.  The transcript:

PEU Report -- Naked Capitalism reported on the ongoing saga of CalPERS, a public pension fund, worshiping at the feet of private equity underwriters.  I believe this is rooted in two factors.  The first is CalPERS twelve year ownership of 5.5% of The Carlyle Group.  During this time CalPERS likely cheered for private equity's excessive fees and opaque ways as they benefited the pension fund. Carlyle's David Marchick told the U.S, Senate in 2008: CalPERS and Mubadala each receive a quarterly or annual financial report, and we will work hard to produce an attractive rate of return for both entities. Both CalPERS and Mubadala are sophisticated investors, and we are grateful for the confidence they have shown in us. The second factor is current management practice, which utilizes complexity, dishonest framing and fee obfuscation in the pursuit of excessive returns via greed and leverage.  CalPERS was willing to ignore these sins as nearly everyone else was doing likewise.  It's extremely difficult to challenge agreed upon business theory, even when it's ubiquitously bad.  I imagine it was hard to challenge robber baron PEU fees from the inside, especially with CalPERS holding a 5.5% stake in Lord Group of Carlyle.

Why You Should Care About CalPERS’ Staff’s and Board’s Incompetence in Private Equity and What You Can Do About It -- naked capitalism by Yves Smith - If you have not had the opportunity to do so yet, please read the earlier posts in our CalPERS’ Private Equity, Exposed, series:

Executive Summary
Senior Private Equity Officers at CalPERS Do Not Understand How They Guarantee That Private Equity General Partners Get Rich
CalPERS Staff Demonstrates Repeatedly That They Don’t Understand How Private Equity Fees Work
CalPERS Chief Investment Officer Defends Tax Abuse as Investor Benefit
CalPERS, an Anatomy of Capture by Private Equity
CalPERS’ Chief Investment Officer Invokes False “Superior Returns” Excuse to Justify Fealty to Private Equity
CalPERS’ Senior Investment Officer Flouts Fiduciary Duty by Refusing to Answer Private Equity Questions
How CalPERS’ Consultant, Pension Consulting Alliance, Promotes Intellectual Capture by Private Equity
CalPERS Board Members Defend Poor Performance by Staff, Capture by Private Equity

Kentucky Pension Fees Much Higher Than Previously Reported -- One year after promising more transparency in what it pays money management firms, Kentucky’s pension plan for public employees says that its annual investment expenses are running 75 percent higher than reported in previous years. The disclosure was made last week at a meeting of the Kentucky Retirement Systems Board of Trustees, which operates one of the worst-funded public pensions in the United States. Trustees were also given copies of a consultant’s report showing that KRS’ investment costs were 9.2 percent higher than the benchmark of similarly sized public pension plans in 2014. In a staff memo given to board members, KRS said that it revised the amounts spent on outside investment firms in the year that ended June 30, 2014, as part of a “proactive transparency change.” “It did not affect our net income,” said KRS Chief Investment Officer David Peden. “Our net performance numbers were the same.” Still, the 348,000-plus state, city and county workers and retirees relying on KRS for their pensions now have a more accurate reading of how much KRS pays investment firms, hedge funds and private equity firms to invest its roughly $16 billion in assets.

How Underfunded Are US Corporate Pension Plans? -- To be sure, we’ve written quite a bit about both public and private pension plans this year. Most notably, we’ve chronicled the deplorable state of the pension system in Illinois, where a State Supreme Court ruling in May set a de facto precedent for pension reform bids across the country.  But while the focus - here and elsewhere thanks to America’s growing state and local government fiscal crisis - has been on the public sector, seven years of ZIRP has taken its toll on private sector pension plans.  We touched on this briefly in March when we noted that ECB QE could end up widening pension deficits dramatically and as FT reported last month, “UK companies are paying less towards meeting their pension shortfalls than at any point since 2009, even as aggregate pension deficits reach their highest level in five years.”  For those wondering about the extent to which falling discount rates have served to create a giant, multi-hundred billion dollar underfunded liability for S&P companies, look no further than the following graphic from Citi’s Matt King which should come with a caption that reads: “You’re welcome pensioners -- The Fed.”

August Update: Early Look at Cost-Of-Living Adjustments indicates NO increase in 2016 -- The BLS reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) decreased 0.3 percent over the last 12 months to an index level of 233.366 (1982-84=100). For the month, the index declined 0.2 percent prior to seasonal adjustment.  CPI-W is the index that is used to calculate Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA). Since the highest Q3 average was last year (Q3 2014), at 234.242, we only have to compare to last year.  This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year. Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year). By law, COLA can't be negative, so if the average for CPI-W is down year-over-year, COLA is set to zero (no adjustment). CPI-W was down 0.3% year-over-year in August. We still need the data for September too, but it looks like COLA will be zero this year.

New report examines implications of growing gap in life span by income for entitlement programs -- As the gap in life expectancy between the highest and lowest earners in the U.S. has widened over time, high earners have disproportionately received larger lifetime benefits from government programs such as Social Security and Medicare, says a new congressionally mandated report from the National Academies of Sciences, Engineering, and Medicine. The report looked at life expectancy patterns among a group of Americans born in 1930 and compared those with projections for a group born in 1960.  "Life expectancy has risen significantly in the U.S. over the past century, and it has long been the case that people who are better-educated and earn higher incomes live longer, on average, than those with less education and lower incomes," said Peter Orszag, co-chair of the committee that carried out the study. "What has changed is that the life expectancy gap across different income groups has become so much bigger." Men born in 1930 in the highest of five earnings levels who survived to age 50 could expect to live to be about 82 years old, on average, while men born in 1960 in the same earnings bracket are projected to live an average of 89 years - a substantial gain. In contrast, life expectancy for men with the lowest earnings was found to decline slightly, from 77 years old on average for men born in 1930 to 76 years old on average for men born in 1960. The projections for women show a similar pattern, in that life expectancy gains have been larger for higher earners than lower earners. ...

Kill the old, Piketty and demographics edition - Morgan Stanley are revisiting the idea that the world has seen its peak working-age population growth come and go. They’re also, we think, revisiting a favourite slogan of ours even if they can’t say it explicitly: The two key cohorts of the labour force – the prime working age population and the aged – are likely to find themselves in a political battle. As the ranks of the aged swell, their political clout will increase significantly. The prime working age population will not have quite the same ability to grow its influence through numbers. However, what they will have on their side is a declining supply of a commodity – labour – whose price is likely to be on an upward trend. The compensation for the loss of political power to the aged may thus be something that workers counter-balance by seeking higher wages, given that they will not be able to withhold their own supply of labour, i.e., they will not be able to quit their jobs.  This is a fight between ages, not classes. Or, to skip the faffing, kill the old. From MS again, with our emphasis, with more on why the change in demographics might produce inflation, reduce inequality and increase wages:

1. 1. Could demographics reverse the 35-year-old trend of falling real interest rates? We argue that they could. And it is not because ageing is going to be deflationary. In fact, we believe that ageing could produce inflation rather than deflation (see Juselius and Takats, BIS 2015).
2. 2. Is Piketty history? We think so. Just as a larger labour force pushed real wages lower and inequality much higher in the advanced economies, a smaller labour force will inevitably lead to rising wages, a larger share of income for labour and a decline in inequality.
3. 3. Are there factors that could mitigate these demographic headwinds? Only partially, and probably not very quickly either. We consider three potentially mitigating factors:

Illinois state employees may have to pay up front for treatment: — It’s cash up-front for many Illinois state employees needing medical services, or it likely soon will be. The state’s Department of Central Management Services, a branch of the Rauner administration, has notified state employees it soon may not be able to pay medical providers. “All healthcare services will continue to be paid as long as possible,” CMS Director Tom Tyrell told state employees in a memo dated Sept. 9. “However, in the near future, we will no longer have the legal authority to pay healthcare vendors for their services.” CMS acknowledged that some providers in the state’s self-insured plans, such as Cigna and HealthLink, already may have begun asking state employees for cash at the time of service. In the case of medical providers, the provider will reimburse the employee once the provider gets paid, the memo said. For dental claims, Delta Dental will file the claim on behalf of the employee, and the plan will reimburse the member. Tyrell cited the lack of fiscal year 2016 state budget as the reason.

Big jump in number of immigrants losing health law coverage: — A change in government procedures has led to a big jump in people losing coverage under the Obama health care law because of immigration and citizenship issues. More than 400,000 had their insurance canceled, nearly four times as many as last year. The Obama administration says it is following the letter of the law, and this year that means a shorter time frame for resolving immigration and citizenship issues. But advocates say the administration's system for verifying eligibility is seriously flawed, and consumers who are legally entitled to benefits are paying the price. "Same dog, different collar," said Jane Delgado, president of the National Alliance for Hispanic Health, evoking an old Spanish saying about situations that do not seem to change. "The bottom line is people got taken off health insurance when they applied in good faith." The National Immigration Law Center says it believes the overwhelming majority of the 423,000 people whose coverage was terminated are legal U.S. residents and citizens snared in a complicated, inefficient system for checking documents.

Obamacare Backfires - 400,000 Immigrants Lose Benefits -- With tens of thousands of "lucky" Syrian immigrants due to arrive on American shores, it appears these hope-full refugeese may face life in the US is not as 'free' as they hoped. As AP reports, new government procedures have caused more than 400,000 current immigrants to lose healthcare coverage they received under Obamacare this year. The change in procedure shortens the timeframe during which foreign-born citizens can resolve eligibility issues, which has caused 423,000 people to lose their state-sponsored benefits - more than four times more than last year. As AP reports, the number of coverage terminations could actually be higher. The 423,000 figure only represents states served by the federal health insurance market. That does not include immigrant-rich California and New York, which run their own insurance exchanges.The Obama administration says it is following the letter of the law, and this year that means a shorter time frame for resolving immigration and citizenship issues. But advocates say the administration's system for verifying eligibility is seriously flawed, and consumers who are legally entitled to benefits are paying the price."Same dog, different collar," said Jane Delgado, president of the National Alliance for Hispanic Health, evoking an old Spanish saying about situations that do not seem to change. "The bottom line is people got taken off health insurance when they applied in good faith."The National Immigration Law Center says it believes the overwhelming majority of the 423,000 people whose coverage was terminated are legal U.S. residents and citizens snared in a complicated, inefficient system for checking documents.

More Americans Have Health Insurance. Here’s Who Still Doesn’t - The share of Americans without health insurance has plunged, but significant demographic gaps remain between who has coverage and who does not. The Census Bureau reported Wednesday that men, particularly young men, are much more likely to be uninsured than women. Both men and women are most likely to be uninsured at age 26—the year they are forced off their parents’ insurance policies—and become increasingly likely to obtain insurance as they age. By the time people hit 65, Medicare assures most people health coverage. Men and women are more or less equally likely to have private health insurance, most often through their jobs. But young women are more likely to receive government health care, specifically Medicaid. Poor single mothers are especially likely to be eligible for Medicaid. But not so for men. More than a quarter of young men lack insurance at some ages, even as the overall share of uninsured has dropped to around 10%. Additional data released today from the Census Bureau’s American Community Survey shows other significant demographic and geographic gaps.

• • About 27% of all foreign-born are not covered, and among noncitizens the figure is 40%.
• • Those with more education are highly likely to have insurance. For those with at least a bachelor’s degree, only 5.1% lack coverage. Conversely, 26.4% of high school dropouts have no coverage.
• • Only about 5% of those with income over $100,000 have no insurance.
• • Insurance coverage also varies widely across U.S. cities. Near the Texas-Mexico border, a number of towns have uninsurance rates above 30%. In Massachusetts, which had a health-care mandate before the nation did, a handful of cities have uninsurance rates below 4%.

Message from new census data: Keep the recovery on track and leave the ACA alone! -- Health-care reform is proving to be tremendously effective in delivering affordable health coverage to millions of Americans. The economy, on the other hand, is not adequately reaching the poor and middle class. Poverty in America was 14.8 percent in 2014, as 47 million people lived in households with incomes below the federal poverty line, about $24,000 for a family of four with two children, according to today’s release by the Census Bureau. Since 2010, poverty has remained at about 15 percent, well above its pre-recession rate of 12.5 percent rate in 2007. Thus, while 2014 was the fifth year of an economic recovery, the poverty rate remains elevated. Similarly, middle-income households failed to gain ground last year as the median income was also unchanged. Though a change in survey methods led to an increase in the level of income (see data note below), a consistent measure between 2013 and 2014 shows no gain in real terms for the median household. Clearly, the improving economy and falling unemployment have yet to adequately lift the living standards of middle- and low-incomes. The census data show that almost 3 million more people were working year-round in 2014 than in 2013, yet real median earnings were unchanged for both men and women. Poverty remains higher and median incomes lower than before the recession, and this pattern — taking longer in the upturn to make up the losses from the downturn — seems dangerously embedded in the economy. On the other hand, one of the most important, positive and striking findings from today’s report is the drop in the number of Americans lacking health coverage, a clear sign of the Affordable Care Act at work. Last year, 8.8 million more people got coverage, leading to yet another decline in the uninsured rate, from 13.3 percent in 2013 to 10.4 percent in 2014.  That’s a record low for these data, and a comparison using a range of health coverage surveys demonstrates that these are the largest single-year declines on record, with data back to 1987.

Doctor-Owned Hospitals Are Not Cherry-Picking Patients, Study Finds | Kaiser Health News: Physician-owned hospitals are often vilified in America’s health care system, accused of siphoning the most profitable operations away from other hospitals while leaving them with the sicker and poorer patients. Congress has banned new ones from opening. But an independent study released Wednesday argues physician-owned hospitals have gotten a bad rap. The study, published online by the British medical journal, The BMJ, concluded that overall, physician-owned hospitals are not cherry-picking patients or limiting themselves to the most lucrative types of procedures and operations. Some of these hospitals specialized in a narrow set of procedures, but they treated only 20 percent of patients who went to physician-owned hospitals, the study found. The rest sought care at doctor-owned hospitals that offered a range of services similar to those at community hospitals. “By and large, physician-owned hospitals have virtually identical proportions of Medicaid patients and racial minorities and perform very similar to other hospitals in terms of quality of care,” said Dr. Daniel Blumenthal, the lead author and a clinical fellow at Massachusetts General Hospital. The 2010 federal health care law not only banned new doctor-owned hospitals but also limited growth of existing ones. Legislation introduced in May in Congress that proposes to lift these restrictions is opposed by the main industry group, the American Hospital Association (AHA).

87 deceased NFL players tested positive for brain disease  -- Another study has come out further illustrating the devastating possibilities resulting from football-related concussions. The latest report on pbs.org shows that 87 out of 91 deceased NFL players that were tested came up positive for chronic traumatic encephalopathy, or CTE. The new figures are from researchers with the Department of Veterans Affairs and Boston University.  The report acknowledges that the figures are not perfect:  “Brain scans have been used to identify signs of CTE in living players, but the disease can only be definitively identified posthumously. As such, many of the players who have donated their brains for testing suspected that they had the disease while still alive, leaving researchers with a skewed population to work with.”  The news can only raise additional awareness of the serious nature of concussions.

$11mn, 36-hour historic head transplant to be carried out in China in 2017 -- Italian doctor Sergio Canavero, along with his Chinese colleague Ren Xiaoping, is set to conduct the world’s first head transplant on a 30-year-old Russian patient suffering from a rare disease. The operation is planned for December 2017. The project was first announced in 2013, and the man who volunteered for the procedure is Russian Valery Spiridonov, who suffers from the extremely rare, progressive Werdnig-Hoffmann disease. “Canavero initially joked it would be a Christmas present, but now this is becoming a reality. Most importantly, it will happen after the results of our tests and additional experiments being confirmed,” Spiridonov told RT.  Canavero explained to RT why a Chinese partner was so important to have. “China wants to do it because they want to win the Nobel prize. They want to prove themselves [as] a scientific powerhouse. So it’s the new space race,” the Italian surgeon said.  "A lot of media have been saying we will definitely attempt the surgery by 2017, but that's only if every step before that proceeds smoothly," Ren told AFP. He also refused to comment on where the donor would come from.“It’s impossible to predict who the donor will be. There is only one technical constraint: the body should be of the same race as the recipient,” Spiridonov said.

'Youngest' toddler with type 2 diabetes raises concern - BBC News: The case of a three-year-old girl in the US who developed type 2 diabetes has driven doctors to raise fresh concerns about diet in childhood. The child had a version of the illness more commonly seen in older people. She weighed 35 kg (5.5 stone) when she saw specialists. And experts believe an unhealthy diet and lack of exercise played a large role in her condition. The case is being discussed at this month's annual meeting of the European Association for the Study of Diabetes. 'Incorrect assumptions' In the UK only 2% of children with diabetes have type 2 and the youngest patients on record are aged between five and nine. Most children are instead diagnosed with type 1, a condition unrelated to lifestyle - where the immune system mistakenly attacks cells responsible for blood sugar control. But type 2 diabetes is increasing across the world, fuelled in part by a rising tide of obesity. Dr Michael Yafi at the University of Texas Health Science Center, one of the first specialists to see the toddler, warns young children with the condition may be being missed because of the incorrect assumption they are too young to develop it. He added: "I'm very vigilant and screen all obese children I see for signs of the disease but I was surprised to find it in someone so young. He says an early diagnosis, changes to lifestyle and in some cases medication can give children better odds of remaining healthy and sometimes reverse the condition.

Black children with appendicitis are less likely to get pain meds than white children --When it comes to disparities research, I sometimes get angry at researchers that we’re still spending so much time with studies pointing out disparities in medicine and so little time doing anything about them. I mean, is there anyone out there who denies that there are racial disparities in how we treat patients that would change their mind if they just saw one more study? I think not. But every once in a while, a study gets published that gets past my eye roll and makes me angry all over again. “Racial Disparities in Pain Management of Children With Appendicitis in Emergency Departments“: All of the participants are children with appendicitis, so this is an acute problem with pain. The researchers got data from the National Hospital Ambulatory Medical Care Survey, from 2003 to 2010. They looked at both opioid and nonopioid analgesia. They then looked to racial differences at their use after controlling for other factors, including pain score. Over this time period, almost a million kids had appendicitis. About 57% of them got analgesia of any type; 41% got opioids. Unadjusted, there were big differences in the types of pain medicines received, though. White children got opioids 43% of the time and non-opioids 14% of the time. Black kids, on the other hand, got opioids 21% of the time and non-opioids 34% of the time  In adjusted analyses, white children were predicted to get analgesia 48% of the time versus 42% for black children; this difference wasn’t statistically significant, though. The differences in opioid use, however, were statistically significant. White children were predicted to get opioids 34% of the time versus 12% for black children, The adjusted odds ratio for black children to get opioids versus white children was 0.2).

Antidepressants Scientifically Linked To Violent Behavior In Youth - A new study published in the PLoS Medicine journal has found that younger people taking antidepressants are more likely to commit violent crimes. Reuters reports that the researchers “used a unique study design which aimed to avoid confounding factors by comparing the same individuals’ behavior while they were on and while they were off medication.” The study was led by Seena Fazel of Britain’s Oxford University. Fazel’s team used matched data from Sweden’s prescribed drug register and its national crime register over a three-year period. Among 850,000 people prescribed Selective Serotonin Reuptake Inhibitors (SSRIs), one percent were convicted of a violent crime. SSRIs are often prescribed to fight off anxiety and depression and include drugs like Prozac and Paxil. Most of the age groups did not show an increase in crime and violence, however, the 15-24 year-old group showed a 43 percent increase in their risk of committing violent crime while on SSRIs. The researchers also observed an increased risk for younger people to be involved in violent arrests, non-violent convictions and arrests, non-fatal injuries, and alcohol problems when they were taking antidepressants. The results also showed those who took lower doses had an increased risk of being violent.

Air Pollution Kills More Than 3 Million People Each Year, And That Number Is Rising -- Air pollution is deadly, a new study has confirmed.  The study, published this week in Nature, found that outdoor air pollution kills 3.3 million people around the world every year. And that number is set to rise in the next 35 years — if worldwide emissions continue unabated, the number of deaths caused by air pollution each year could double to 6.6 million by 2050.  “This projection should sound alarm bells for public-health agencies around the world,” The study found that China and India — the world’s first- and third-highest greenhouse gas emitters — have the highest rates of death from air pollution. In China, a country that’s suffered from off-the-charts air pollution that’s closed schools and forced some residents to stay indoors, air pollution kills nearly 1.4 million people each year. India — which is home to Delhi, a city which has the most toxic air of any city in the world — sees about 645,000 deaths due to air pollution every year. In the United States, according to the study, air pollution kills about 54,900 people annually.

Heartland Virus Found In 13 States - It's called the Heartland virus disease. Since it was first detected in 2009, there have been only nine reported cases in the Midwest, including two deaths.  So scientists thought the Heartland virus was limited to a small region.That assumption was wrong.A team at the Centers for Disease Control and Prevention has now found signs that Heartland virus is circulating in deer, raccoons, coyotes and moose in 13 states — from Texas to North Carolina and Florida to Maine."It was not only in these states, but it was fairly common," says biologist Nick Komar, who led the study. "It's very possible there have been many other cases that have been overlooked."  The Heartland virus causes symptoms similar to other diseases, including high fever, nausea, joint pain and severe bruising.  "Unless doctors are doing laboratory tests specifically for this infection, they'll miss it," Komar says. "This study is a way to get the word out, so the medical establishment knows there may be more infections out there. And people should be watching for it." Scientists thought the lone star tick was the primary way Heartland spreads. But that tick isn't found up in northern New England. So there's likely a second type of tick that can also carry Heartland.

Microbiologists Find Another 30,000 Year Old Giant Virus in Siberian Permafrost - It might have happened anyway. After all, global warming is melting Arctic permafrost just fine without help from microbiologists, and within that permafrost are potentially all sorts of bad and very strange things waiting to be revived—like giant viruses. Especially giant viruses. For their part, scientists haven't had a very hard time finding those giant viruses. From a single sample of Siberian permafrost, they've managed to come up with two so far. The first of those, Pithovirus sibericum, was discovered/isolated last year, while the most recent find, Mollivirus sibericum, is described in a study published this week in the Proceedings of the National Academy of Sciences. Both are examples of rare giant viruses, e.g. those easily visible using optical microscopes. So, are these giant viruses going to wipe out human civilization? Well, the work was done in a top secret CDC lab, according to an AFP report. . The microbiologists behind the find, a group drawn mostly from institutions in France and Russia, assure that before "waking" the virus up they will need to verify that it is harmless to humans. This will be accomplished by using the virus to infect single-celled amoeba, which will serve as its host.

Michigan resident tests positive for plague  -- A Michigan resident is recovering from the state's first ever confirmed case of bubonic plague, state health officials said on Monday. The adult resident of Marquette County in the state's Upper Peninsula recently returned from a Colorado area with reported plague activity and there is no cause for concern about human-to-human contact, the state health department said. It was the 14th human plague case reported nationally in 2015, more than four times the average of three cases annually of the rare and potentially life-threatening flea-borne illness, state health officials said. An elderly Utah resident died from plague in August and two people have succumbed to the disease this year in Colorado. The U.S. Centers for Disease Control and Prevention says the plague was introduced to the United States in 1900 by rat–infested steamships that had sailed from affected areas, mostly in Asia. Early symptoms of plague include high fever, chills, nausea, weakness and swollen lymph nodes in the neck, armpit or groin.

America’s Largest Fast Food Chains Earn Failing Grade for Antibiotic Use --A new report and scorecard released today by several consumer, health and environmental groups grades America’s 25 largest fast food and fast casual chains on their meat and poultry antibiotics policies, with all but five of them earning “F”s for allowing routine antibiotic use by their meat suppliers.  Today’s report, Chain Reaction: How Top Restaurants Rate on Reducing Use of Antibiotics in Their Meat Supply, comes amid mounting pressure on restaurant chains, with a letter sent today from 109 organizations to the CEOs of the top 25 restaurant chains urging companies to eliminate the routine use of antibiotics in their meat supply. “From bacon cheeseburgers to chicken nuggets, most meat served by America’s chain restaurants comes from animals raised in industrial-scale facilities, where they are routinely fed antibiotics to prevent disease that is easily spread in crowded, unsanitary, stressful conditions,” said Kari Hamerschlag, senior program manager at Friends of the Earth. “It’s time for the U.S. restaurant industry to take leadership and address the growing crisis of antibiotic resistance by working with their meat and poultry suppliers to eliminate the routine use of antibiotics and improve overall conditions in U.S. meat production.”“Overusing antibiotics in meat production helps to create drug-resistant superbugs—our nation’s largest chain restaurants can be part of the problem or part of the solution,” said David Wallinga, MD, senior health officer with the Natural Resources Defense Council. “Restaurants billing themselves as a ‘healthier’ option, like Subway, have a particular responsibility to live up to that image by reducing antibiotics. Consumer demand for meat raised without routine antibiotics is transforming the marketplace; the companies continuing with business-as-usual will be left behind.”

Genetic Engineering Is (Probably) Protected By the First Amendment -- The dawn of cheap genome editing techniques such as CRISPR understandably have people across the political spectrum worried about what a future of designer babies, more pathogenic viruses, deextincted species, clones, and glow-in-the-dark sushi might look like. But does putting limits on genetic engineering violate scientists' constitutional rights? The First Amendment has been interpreted by the Supreme Court to encompass not just the freedom of speech, but also the freedom of expression and expressive conduct, which likely includes acts of science, according to Alta Charo, a bioethicist and law professor at University of Wisconsin Law School.  "We understand that religious conduct can be protected," Charo said last week at a DARPA conference in St. Louis. "When I fertilize an egg in a laboratory, am I conveying a message about the lack of need of a deity? In other words, am I expressing something that is in a fundamental way political?" Many scientists would likely argue that, yes, science is political, perhaps even religious speech. When geneticist Craig Venter created synthetic life using manmade DNA bases back in 2010, it was heralded (and denounced) as an act of a scientist "playing God." Some called it proof that intelligent design is real.  Venter himself called it an "important step both scientifically and philosophically" and said it "changed [his] views of definitions of life and how life works." Writing in the New Yorker last week, theoretical physicist Lawrence Krauss wrote that "all scientists should be militant atheists."  "The notion that some idea or concept is beyond question or attack is anathema to the entire scientific undertaking," he wrote. "Five hundred years of science have liberated humanity from the shackles of enforced ignorance. We should celebrate this openly and enthusiastically, regardless of whom it may offend."

Monsanto Stunned - California Confirms 'Roundup' Will Be Labeled "Cancer Causing" -- California just dealt Monsanto a blow as the state’s Environmental Protection Agency will now list glyphosate - the toxic main ingredient in the U.S.’ best-selling weedkiller, Roundup - as known to cause cancer. Under the Safe Drinking Water and Toxic Enforcement Act of 1986 — usually referred to as Proposition 65, its original name — chemicals that cause cancer, birth defects, or other reproductive harm are required to be listed and published by the state. Chemicals also end up on the list if found to be carcinogenic by the International Agency for Research on Cancer (IARC) — a branch of the World Health Organization.  In March, the IARC released a report that found glyphosate to be a “probable carcinogen.” Besides the “convincing evidence” the herbicide can cause cancer in lab animals, the report also found: “Case-control studies of occupational exposure in the U.S.A., Canada, and Sweden reported increased risk for non-Hodgkin lymphoma that persisted after adjustments to other pesticides.” California’s decision to place glyphosate on the toxic chemicals list is the first of its kind. As Dr. Nathan Donley of the Center for Biological Diversity said in an email to Ecowatch,“As far as I’m aware, this is the first regulatory agency within the U.S. to determine that glyphosate is a carcinogen. So this is a very big deal.”  Monsanto was seemingly baffled by the decision to place cancer-causing glyphosate on the state’s list of nearly 800 toxic chemicals. Spokesperson for the massive company, Charla Lord, told Agri-Pulse that  "Glyphosate is an effective and valuable tool for farmers and other users, including many in the state of California. During the upcoming comment period, we will provide detailed scientific information to OEHHA about the safety of glyphosate and work to ensure that any potential listing will not affect glyphosate use or sales in California.”

Glyphosate in Monsanto’s Roundup Is Linked to Cancer, But Big Ag Wants it in Your Food Anyway -- In Europe, the amount of pesticide residues that are allowed on food is determined by recommendations from the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO) at a Joint Meeting on Pesticide Residues (JMPR). Right now their big discussions are all about glyphosate. Glyphosate is the most widely used herbicide in the world and is the main ingredient in the weed killer Roundup, which is applied to more than 150 food and non-food crops. In addition to its agriculture uses, glyphosate is also commonly used on lawns, gardens and parks where pets and kids play.  Unfortunately, glyphosate is linked to cancer (Group 2A ‘probable’ human carcinogen) by the International Agency for Research on Cancer (IARC), the prestigious cancer assessment arm of the WHO. But, cancer-causing chemicals have friends in high places. Monsanto is the world’s leading producer of glyphosate, with annual sales of Roundup netting about two billion U.S. dollars. Unsurprisingly, the company quickly fired back with a statement on how the company is “outraged” at IARC’s “agenda-driven bias” in its “irresponsible” decision-making. [As a side, since IARC announced its decision, a group of U.S. citizens have filed a class action lawsuit against Monsanto for falsifying safety claims and a group of Chinese citizens have filed a lawsuit against the Chinese government for hiding Monsanto’s toxicity studies from the public]. In Europe, if a chemical is linked to cancer, then absolutely none of the chemical is allowed to remain as residue on our food. Zero tolerance. That seems reasonable—like zero tolerance for cancer. So, JMPR has assembled a task force to reevaluate IARC’s assessment and advise whether or not JMPR’s assessment from 2011 should be revised.

University Scientists Caught Conspiring with Monsanto to Manipulate Public Opinion on GMOs -- What happens when a private company with a long history of producing some of the most toxic chemicals on the planet and now produces our food starts facing public pressure from a growing national grassroots movement to label their products to conform with basic principles of democracy and transparency? Well, if the company in question is Monsanto, then you take a page out of Big Tobacco’s playbook and hatch a secret plan to enlist public university scientists to bury the potential harm of your genetically engineered crops by whitewashing negative studies and systematically demonizing your opponents in the media to mislead elected officials and the American public about the safety of GMOs (genetically modified organisms) and their accompanying toxic pesticides. In the 1940s, tobacco companies ran ads with doctors proclaiming smoking cigarettes were perfectly safe.   Today, Monsanto and the biotech industry are copying the same tactics, this time hiding behind the façade of public university scientists and hiring major PR firms to promote GMOs and the toxic weedkiller glyphosate, the main chemical ingredient in Roundup, which some scientists are offering to drink on Twitter and in front of classrooms of students to “prove” its safety and hide the fact that it is harmful to humans and the environment.

France + Russia Ban GMOs -- Russia and France have joined the growing list of European countries crusading against genetically modified (GMO) food and crops. According to RT, Russia is stamping out any GMOs in its entire food production.“As far as genetically-modified organisms are concerned, we have made decision not to use any GMO in food productions,” Russia’s Deputy PM Arkady Dvorkovich announced at an international conference on biotechnology in the city of Kirov. Dvorkovich added that there is a clear difference between the use of GMO-products for food versus scientific or medicinal purposes, RT reported.“This is not a simple issue, we must do very thorough work on division on these spheres and form a legal base on this foundation,” he said.Russia already has hardline policies against GMOs. In 2012, Russia banned imports of Monsanto’s corn after a French study linked the company’s GMO-product to tumors in lab rats (the study was later retracted). Last year, the country banned imports of GMO products, with Russian Prime Minister Dmitry Medvedev saying the nation already has the resources to produce its own non-GMO fare. “If the Americans like to eat GMO products, let them eat it then. We don’t need to do that; we have enough space and opportunities to produce organic food,” said Medvedev.   Russia’s latest move comes after similar news pouring in from Western Europe in recent weeks. On Thursday, France followed in the footsteps of other European Union countries—Scotland, Germany, Latvia and Greece—and has chosen the “opt-out” clause of a EU rule passed in March that allows its 28-member bloc to abstain from growing GMO crops, even if they are already authorized to be grown within the union.

Bees Win Big in Court, EPA’s Approval of Toxic Pesticide Overturned -- The three-judge panel said the EPA green-lit sulfoxaflor even though initial studies showed the product was highly toxic to pollinators such as bees. The chemical compound belongs to a class of insecticides, known as neonicotinoids, that scientific studies have implicated in bee deaths. “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 U.S. Court of Appeals for the Ninth Circuit panel wrote in its opinion.  In her opinion, Judge Mary M. Schroeder wrote that the EPA had initially decided to conditionally approve the chemical but ordered more studies done to better understand the effects the systemic insecticide would have on bees. “A few months later, however, the EPA unconditionally registered the insecticides with certain mitigation measures and a lowering of the maximum application rate,” Schroeder wrote. “It did so without obtaining any further studies.” The product, sold in the U.S. as Transform or Closer, must be pulled from store shelves by Oct. 18.

America’s birds flying into climate danger zone -- Some of North America’s birds may no longer be at home on the range. More than half of 588 studied species could lose over 50% of their flying, breeding and feeding space before the end of the century − because of climate change.  The researchers who discovered the precarious future facing so many species say they were shocked to find that rising temperatures could have such widespread effects on the continent’s birds. The finding comes from one of the world’s most distinguished ornithological bodies, the US National Audubon Society. Gary Langham, Audubon’s chief scientist, and colleagues report in the Public Library of Science journal PLOS One that they used mathematical models and results from two long-established annual surveys in the breeding season and in winter to estimate future geographic range shifts. The research was based on huge amounts of data. The society’s Christmas Bird Count has been continuous since 1900, and provides a good estimate of numbers in those species that overwinter. And the North American Breeding Bird Survey, a systematic study conducted between mid-May and July in the US and Canada, involves tens of thousands of three-minute counts of every bird seen or heard at 50 stops along a 39-kilometre route.

Tree planting can harm ecosystems -- The world's grassy biomes are key contributors to biodiversity and ecosystem services, and are under immense pressure from conversion to agriculture and tree planting, report Joseph W. Veldman, of Iowa State University, and his colleagues in an article for the October issue of BioScience. The authors argue that forest- and tree-focused environmental policies and conservation initiatives have potentially dire ecological consequences for undervalued ecosystems, such as grasslands, savannas, and open-canopy woodlands.  To illustrate this forest bias and its consequences, Veldman and colleagues review the World Resources Institute and International Union for Conservation of Nature's Atlas of Forest Landscape Restoration Opportunities, created as a tool to achieve the Bonn Challenge to restore 150 million hectares of deforested and degraded lands by 2020. The BioScience authors' global analysis suggests that the Atlas erroneously mapped 9 million square kilometers as providing "opportunities" for forest restoration. These errors arose largely because "the Atlas producers considered any nonforest area where climate could permit forest development to be deforested." Problems such as this one, combined with the failure of United Nations environmental policymakers to recognize grassy biomes for protection, constitute a significant threat to biodiversity, Veldman and his coauthors write.  Furthermore, the authors highlight the importance of grassy biomes' carbon storage capabilities, stating that "where grassy biomes are protected, their largely belowground carbon stocks, which store as much carbon as forests do globally, are secure." In contrast, aboveground forest carbon storage may be vulnerable to release by fire or logging.

Decades-Long "Megadrought" Looms For Entire US As Lake Powell Runs Dry, NASA Warns - With the number of people living in the U.S. Southwest and Central Plains, and the volume of water they need, having increased rapidly over recent decades - and, with NASA scientists expecting these trends to continue for years to come - the current severe drought combined with the tapping of the Lake Powell's water at what many consider to be an unsustainable level, has reduced its levels to only about 42% of its capacity. Forecasting that there is an 80 percent chance of an extended drought in the area between 2050 and 2099 unless aggressive steps are taken to mitigate the impacts of climate change, the researchers said their results point to a challenging - and remarkably drier – future. As Reuters reports, scientists from NASA and Cornell and Columbia universities warned earlier this year that the U.S. Southwest and Central Plains regions are likely to be scorched by a decades-long "megadrought" during the second half of this century if climate change continues unabated. More than 500 feet (150 meters) deep in places and with narrow side canyons, the shoreline of the lake is longer than the entire West Coast of the United States. It extends upstream into Utah from Arizona's Glen Canyon Dam and provides water for Nevada, Arizona and California. ...The peak inflow to Lake Powell occurs in mid to late spring, as winter snow melts in the Rockies. But since 2012, snow and rainfall totals have been abnormally low as the region suffered persistent drought. As the following images show, all around the lake, strikingly pale bands of rock have been exposed by the receding waters...

California's Sierra Nevada snowpack is the lowest in 500 years: The snowpack in California’s Sierra Nevada mountains this year has fallen to its lowest level in at least the past 500 years, according to a study published Monday in Nature Climate Change, a peer-reviewed British journal. The finding underscores the severe drought afflicting the state, now in its fourth year, and raises the prospect of more water shortages that could impact agriculture and hydroelectric power production, and exacerbate wildfires. "Our study really points to the extreme character of the 2014-15 winter," said study lead author Valerie Trouet of the Univeristy of Arizona's Laboratory of Tree-Ring Research. Where there is usually about five feet of snow, there was bare ground at the snow survey site in the Sierra on April 1. "This is not just unprecedented over 80 years — it's unprecedented over 500 years," she said. The Sierra Nevada snowpack plays a critical role in replenishing the state’s water reservoirs and provides 30% of the state's water supply, according to the study. Though actual snowpack measurements have been taken in California over the past few decades, climate scientists need to use other methods, known as proxies, to determine weather patterns for previous centuries.

California Epic Drought Leads to Lowest Snowpack in 500 Years -- The snowpack for the state of California—a critical source of drinking water for the state—hit its lowest level in the last 500 years, according to a study published yesterday in Nature. When the snowpack was measured in April—historically the high point for the season’s snowpack—it was just 6 percent of average for the past century.  Now, thanks to this latest study, we know that the snowpack hasn’t been this low in at least five centuries. The study used tree-ring data from centuries-old blue oaks to provide historical context for this year’s extremely low snowpack. The paper is the first of its kind in describing temperature and precipitation levels in the Sierra Nevada “that extends centuries before researchers started measuring snow levels each year,” says The New York Times.  “The 2015 snowpack in the Sierra Nevada is unprecedented,” Valerie Trouet, one of the authors of the study, told The Times. “We expected it to be bad, but we certainly didn’t expect it to be the worst in the past 500 years.” Last winter was the hottest on record for California, so the little precipitation the state received often fell as rain and not snow. This has grave implications for the state’s water supply because snowmelt provides one-third of the state’s drinking water and is also critical for fighting the state’s increasing wildfires. California is in the midst of a four-year drought that has produced devastating wildfires like the Valley Fire in Northern California, which is happening right now. This past spring, NASA scientist Jay Famiglietti warned that Californians only have one year of water left in the state’s reservoirs.

Global warming's one-two punch: extreme heat and drought -- As humans emit greenhouse gases into the environment, it causes the Earth to warm, we already know that. What is less certain is how it will cause changes to the weather we experience in our lives. In the past few years, research looking into the connection between a warming planet and more extreme weather has found more conclusive connections.I have covered extreme weather quite a bit recently, because the science is so compelling and new. But a new paper published in the Proceedings of the National Academy of Sciences by doctoral student Omid Mazdiyasni and his advisor Amir AghaKouchak takes a fresh look at this topic. Instead of just looking at heat waves or just looking at precipitation, they looked for concurrent events. Droughts can be caused by reduced precipitation. Hot weather speeds evaporation and damages the environment. But droughts and high temperatures can happen at the same time. These concurrent-event droughts are particularly harmful, they can set in fast and severely. The authors present results of various heat wave severity (85%, 90%, and 95% events) and for various durations (3 day, 5 day, and 7 day events). Focusing on 1960-2010, they found that the concurrence of all combinations of drought, heat wave intensity, and heat wave durations “have increased substantially in the south, southeast, and parts of the western USA.”   In other past of the country, these trends have decreased (I have written about changing precipitation in the USA hereand I have published on this topic here), in part because a warmer atmosphere contains more water vapor. What is also interesting is that the authors find a greater increase in the most extreme events. The new study clears up past research which has been mixed in this area. The authors more advanced statistical technique is better suited to finding trends and patterns in the climate record.

Thousands Of Acres Ablaze As California Governor Declares State Of Emergency -- New fires added to the evacuations and destruction in California over the weekend, as Gov. Jerry Brown (D) declared a state of emergency in two northern counties.  The Valley Fire, just north of San Francisco, covered 62,000 acres and was only 5 percent contained as of Monday morning.  The Butte Fire, due east of the Bay Area, has burned 71,063 acres and is 30 percent contained, according to the state’s Cal Fire agency. Four firefighters were injured over the weekend, and hundreds of homes have been destroyed. There’s also one report of a death from the fire, but it hasn’t yet been confirmed.  2015 has been a record year for wildfires across the West, and California has been hit particularly hard. This year, Cal Fire has fought nearly 5,000 wildfires over 150,000 acres, the agency reported. But the worst might be yet to come. Officials noted that, historically, September and October are the worst months for wildfires in California.  The state’s drought is primarily responsible for increasing wildfire danger year-round. California is now in its fourth year of a historic dry spell — one that’s been linked to climate change. Dry underbrush and trees ignite more easily, and fires spread more quickly. Earlier this year, officials called a fire’s spread “unprecedented.”   “What we’re seeing now is that the rain is starting later and stopping much earlier. The fires are burning at explosive speed because the vegetation is so dry and that allows them to get much larger.”Over the weekend, 1,000 firefighters were battling the Butte Fire. This manpower comes at a tremendous cost to the state, which spent an estimated $4 billion fighting wildfires between 2003 and 2012.  And that’s not even counting the federal spending on fighting fires. The Forest Service spent about $1.2 billion on fire suppression in fiscal year 2014, CNBC reported.

Raging California Wildfires Force Evacuations; Governor Brown Declares State of Emergency --California remains a tinderbox due to drought conditions. Fires rage in multiple places and Governor Brown has declared a state of emergency with a new fire about to consume San Andreas, a town 60 miles East of Sacramento.  The Guardian reports Explosive Wildfire Threatens California Mountain Towns as Blaze Intensifies: A mountain town is standing by to evacuate on Saturday and residents across a huge swath of northern California have been warned of “explosive fire conditions” as a fierce wildfire across more than 100 square miles suddenly intensified. California governor Jerry Brown has declared a state of emergency for the counties experiencing the inferno, as it approaches the town of San Andreas, about 60 miles south-east of Sacramento in the Sierra Nevada region. Some homes have been engulfed and thousands are threatened with imminent destruction in the path of flames that are spreading over steep landscape.  The gradients help the fires grow by sending heat up slopes and increasing ground temperatures ahead of the flames while making it extremely difficult for the emergency services to tackle the blaze.A blaze that covered one square mile on Thursday quickly burned more than 100 square miles and was only 5% contained by Friday evening. Meanwhile, in central California between the city of Fresno and the Kings Canyon National Park, firefighters are digging trenches to try to stop wildfires reaching a growth of ancient giant sequoia trees in the Sierra Nevada, where the towering specimens are often found to be 3,000 years old. The Guardian has many images.

Two untamed wildfires displace 23,000 people in northern California - Two explosive wildfires have displaced 23,000 people in northern California and threaten to wreak more devastation in rural communities, which have lost hundreds of homes. The so-called Valley fire in Lake County raged untamed on Monday after incinerating 61,000 acres, or 95 square miles, in just two days. Overcast weather grounded firefighting airplanes and helicopters, leaving ground crews to battle without air cover and prompting warnings of worse to come from a blaze that is just 5% contained. “Firefighters from across California are aggressively fighting the Valley fire that has continued to spread in hot, windy conditions,” said the California Department of Forestry and Fire Protection (Cal Fire). “The fire continues to grow as firefighters work to construct fire lines, while protecting lives and property.”The blaze has consumed 400 homes plus hundreds of other structures, and law enforcement is investigating a report of a civilian fatality, the agency said. Some 1,255 personnel were fighting the fire, it added. Since erupting on Saturday the fire’s speed and ferocity has astonished experts, who said it moved faster than any other in California’s recent history. Sheriff Brian Martin called it the worst tragedy ever seen in Lake County, 20 miles north of Napa winelands. People fled amid billowing smoke, smouldering telephone poles, downed power lines and fallen trees. Mark Ghilarducci, director of Office of Emergency Services, told a news conference it drove about 13,000 from their homes over the weekend.

California ‘Firestorm’ Scorched Area Twice the Size of Manhattan in 24 Hours  -- The Valley Fire, which ignited in Northern California on Saturday afternoon, scorched 50,000 acres—an area more than twice the size of Manhattan—within 24 hours, according to Napa Valley Patch. It has since grown to 67,000 acres and is only 15 percent contained. West Coast @TODAYshow viewers: #ValleyFire now 15% contained w/ 585 homes destroyed. We’ll have the latest at 7:00. pic.twitter.com/bh06XzusFm “It’s a true firestorm—extremely fast moving, generating its own weather conditions, and burning literally everything in its path,” Daniel Swain, a climate Earth system scientist at Stanford University, told Climate Central. “The Valley Fire is breaking all the rules in the midst of a fire season that had already rewritten the rulebook. What’s going on in Lake County is a direct manifestation of California’s record-breaking drought, and it’s pretty sobering.”  14 photos that show the devastation wrought by California’s Valley Fire http://t.co/GsIDzHqYrRpic.twitter.com/lbWfQKAB8X

Property toll from Northern California wildfire grows to 585 homes - Property losses from a deadly Northern California wildfire, the most destructive this year in the western United States, climbed on Tuesday to at least 585 homes and hundreds of other structures that have gone up in flames. The latest tally, up from Monday's estimate of 400 homes razed, came as firefighters gained some ground against the blaze, which erupted on Saturday and raced through several communities in the hills north of Napa County's wine-producing region. Thousands of residents were forced to flee, many without warning as neighborhoods burned around them. One elderly shut-in was later discovered to have perished in her home, and authorities have not ruled out finding additional victims. Ana Malachowski, 33, was back in the devastated village of Middletown on Tuesday, picking through ruins of her brother's home as he tried to direct her by cell phone to spots in the rubble where jewelry and other items might be salvaged. "I'm just numb," she said, recounting how she and neighbors tried in vain to battle flames with garden hoses on Saturday before giving up to join in the evacuation. Her own house survived, she said, but added, "This whole town is a big family. You can't say, 'This family lost their home and this one didn't.'" Lake County sheriff's deputies began escorting some evacuees back to their properties to briefly tend to pets or livestock that were left behind. But authorities said conditions in fire-ravaged areas remained unsafe, with downed power lines and other hazards. Residents whose homes remained intact would not be able to reoccupy their houses for at least another couple of days.

Valley Fire: Evacuees cling to sense of community, shared grief after devastating blaze - Here at the Napa County Fairgrounds, nearly 1,000 people who fled for their lives from the Valley Fire now sleep on cots in tents. They line up to use portable toilets, wear other people's clothes, and on Tuesday, many took their first showers in days. . Even many who could stay at hotels or move in with relatives are choosing to remain.  "Anywhere else, you'd feel total despair," said Ann Prehn, 67, who lost her home in hard-hit Anderson Springs. "Here we are in the same boat, trying to figure what we can do if we stick together." Firefighters spent Tuesday digging a perimeter line around the 67,200-acre fire, which is now 30 percent contained. But the devastation left behind, from melted homes to dangling transformers and toppling trees, was still too perilous for most to return. On Tuesday, with a special escort from the Lake County Sheriff's Department, some residents were allowed for the first time to quickly check on animals they left behind, from cats to cattle. But others wouldn't go even if they could."What am I going to go back to, a hot pile of ashes?" asked Sharon Woita, 59, who lost her home in Middletown over the weekend. "I'm not ready to go back."  Instead, on the fairgrounds midway lined with Porta-Potties and insurance booths and in the exhibit halls converted to dormitories, they shared their anger, frustration and grief over a fire that destroyed nearly 600 homes and killed at least one of their neighbors, with others still unaccounted for.

Viral Video of Terrifying Escape Through California Flames -- If you live in California anywhere near flames, don't depend on an evacuation order to save you. The order may never come. The following video Heading toward Middletown on through Valley Fire shows the last three cars to escape the inferno..  The Guardian has a condensed video and comments from the family in its report Mother Talks about Son's Viral California Wildfire Video.  Julie Wolf was two cars behind her son when he filmed their infamous escape from an explosive wildfire in Anderson Springs, California. She is the only member of the three-car convoy to speak out about footage that has gone viral, after providing a window into the dramatic blaze ravaging the state.  The video, now viewed by over 1.6 million people on YouTube, shows the terrifying escape her family made through flame-consumed woods on 12 September. “Oh my God,” her son muttered as he navigated through the inferno. Wolf said she was “too busy being terrified” during the drive, but her son, who does not want to be named, shot the video.  Wolf said she didn’t know the fire was so close until her son pulled into her driveway to drop off a small, electric trailer. “When my son drove into the property, he had seen the smoke. He didn’t see fire, but he saw smoke,” she said. “And he said it’s right up the hill from you and I think you should start packing.”  A mandatory evacuation was issued by authorities at 4pm – several hours before they left. She said they never received the order to evacuate. Wolf was expecting a phone call from the fire department, who she said had a “system in place to call everybody for evacuation situations”.  At one point, her son hit something, cracking the windshield, tearing away the passenger side headlight, and crushing the quarter panel. But the van was “so big and heavy so it just powered through”.

Hot August Confirms That Long-Awaited Global Temperature Speed Up Is Here - NASA reports that this was the hottest start to any year on record by far. This was the hottest August by far in the dataset of the Japan Meteorological Agency, and close to tied with 2014 for hottest August in the NASA dataset. With the underlying long-term warming trend adding to the short-term warming from the strongest El Niño since the big one of 1997-1998, you can bet the house that this will be the hottest year on record by far. Different climate-tracking groups around the world use different data sets, so they can show different results for a given month. The Japan Meteorological Agency is a World Meteorological Organization Regional Climate Center of excellence. Here is the horserace chart — the running year-to-date average temperature — for the past two decades, from HotWhopper.

Death toll in Northern California wildfires jumps to five | Reuters: Two more bodies were found in areas scorched by one of the two devastating wildfires raging in Northern California for the past week, raising the death toll to five from both blazes, even as fire officials on Thursday reported further progress in subduing the flames. The remains, though not yet positively identified, were believed to be of two men who had been reported missing in separate communities ravaged by the so-called Valley Fire just north of Napa County's wine-producing region, the Lake County Sheriff's Office said. Earlier in the week, authorities reported discovering the remains of an elderly, disabled woman who was unable to flee her house in the early frantic hours of the Valley Fire on Saturday and perished as flames consumed her home. Two more people who authorities said defied evacuation orders, lost their lives in the Butte Fire, still burning more than a week after it erupted more than 100 miles (160 km) to the east in California Gold Rush country of the Sierra Nevada foothills. Ranking as the most destructive wildfires in California this year, the two conflagrations together have blackened more than 145,000 acres (58,000 hectares) while laying waste to more than 800 homes and forcing the evacuation of some 20,000 people.

Climate changes drives El Nino, pointing to a hot summer ahead – (ABC Australia) MAN-MADE GLOBAL warming is set to produce exceptionally high average temperatures this year and next, boosted by natural weather phenomena such as El Nino, Britain's top climate and weather body said in a report on Monday. "It looks very likely that globally 2014, 2015 and 2016 will all be amongst the very warmest years ever recorded," Rowan Sutton of the National Centre for Atmospheric Science said. "This is not a fluke," he said. "We are seeing the effects of energy steadily accumulating in the Earth's oceans and atmosphere, caused by greenhouse gas emissions." The rate at which global temperatures are increasing is also on track to pick up in the coming years, ending a period of more than a decade in which the pace of warming worldwide had appeared to slow down, the report said. This "pause" has been seized upon by sceptics as evidence that climate change was driven more by natural cycles than human activity. Some scientists, however, argue that there was no significant slowdown, pointing instead to flawed calculations. The 20-page report from Britain's Met Office, entitled "Big changes underway in the climate system?", highlights current transitions in major weather patterns that affect rainfall and temperatures at a regional level. An El Nino weather pattern centred in the tropical Pacific Ocean is "well underway", the report says, and shaping up to be one of the most intense on record. Very strong El Ninos also occurred over the winters of 1997 and 1982.   Set to grow stronger in the coming months, the current El Nino — a result of shifting winds and ocean circulation — is likely to result is dry conditions in parts of Asia and Australia, as well as southern and sub-Saharan North Africa, the Met Office said. By contrast, the southwestern United States — including parched California, suffering from an historic drought — has a strong chance of seeing higher-than-average rainfall.

Earth's record streak of record heat keeps on sizzling: Earth's record-breaking heat is sounding an awful lot like a broken record. The National Oceanic and Atmospheric Administration announced Thursday that August, this past summer and the first eight months of 2015 all smashed global records for heat. That's the fifth straight record hot season in a row and the fourth consecutive record hot month. Meteorologists say 2015 is a near certainty to eclipse 2014 as the hottest year on record. This year, six of the eight months have been record breaking, with only April and January failing to set new records. Since 2000, Earth has broken monthly heat records 30 times and seasonal heat records 11 times. The last time a monthly cold record was broken was in 1916. Records go back to 1880. "For scientists, these are just a few more data points in an increasingly long list of broken records (that) is due to warming temperatures," Texas Tech climate scientist Katharine Hayhoe said in an email. "As individuals, though, this is yet another reminder of the impact our unprecedented and inadvertent experiment — an experiment that began with the Industrial Revolution — is having on our planet today." Scientists blame a combination of human-caused climate change and natural El Nino, a warming of the equatorial Pacific Ocean that changes weather worldwide.

Here’s Why 2016 Could Be Even Warmer Than 2015 - Researchers at NOAA’s Climate Prediction Center (CPC) reported Thursday we’re now in an El Niño that is both “strong” and will last through the spring. The resulting burst of regional warming in the tropical Pacific on top of the strong long-term global warming trend means that, as Climate Progress has been reporting for months, 2015 will easily be the hottest year on record — blowing past the record just set in 2014.  What of 2016? “The majority of international climate outlook models suggest that the 2015-16 El Niño is likely to strengthen further before the end of the year,” the World Meteorological Organization reported earlier this month. “Models and expert opinion suggest that surface water temperatures in the east-central tropical Pacific Ocean [the key Niño 3.4 region] are likely to exceed 2° Celsius above average.” And that would make this El Niño the strongest event since the super El Niño of 1997-1998.  At the time, 1997 did briefly become the hottest year on record, but 1998 then blew that record away, as shown in this NASA global temp chart, updated to include the record temperatures from July: major reason this happens is that the 12-month running mean global temperature tends to lag the Niño 3.4 region temperature “by 4 months,” as a 2010 NASA study explained. If El Niño temperatures peak in December, then the record for the hottest 12-month period would probably not be set until spring 2016. At that point, whether or not 2016 will top 2015 depends on how fast the El Niño dissipates — and whether it quickly transitions to a La Niña, as often happens at the end of strong El Niños. Here is the current projection of how long the El Niño will last (which is roughly how long Niño 3.4 region stays above +0.5C):

Arctic Warming Produces Mosquito Swarms Large Enough to Kill Baby Caribou -- Some Alaskans joke that mosquitoes are “Alaska’s state bird,” but the pesky insects are becoming no joke. Warming Arctic temperatures have caused their numbers to swell immensely in the region in recent years. Lauren Culler has been studying insects in Greenland for the last several years.  “It was really when the pond thawed that triggered the hatch,” Culler told National Geographic. “That’s not unexpected. Lots of biology is triggered by these melting events.”  Caribou—mosquitoes’ main food source—and other arctic animals might be able to cope with these swarms if they weren’t already threatened by a changing climate.  Plants, which the caribou rely on for a food source, are emerging earlier and earlier because of warmer temperatures. But caribou are still calving based on the cycle of the sun. By the time caribou calves are born in May or June, there is not enough food to go around. “Mothers are becoming malnourished. Fewer calves are being born, and fewer are surviving their crucial first few months,” says Andersen. “And even when they do survive, they are still vulnerable, to overhunting, and to diseases carried north by deer that would never have survived the Arctic chill of yesteryear.” Now add to that the growing swarms of mosquitoes and you see why it’s a real problem. “Arctic mosquito swarms are the stuff of legend,” says Andersen. “Some of them contain hundreds of thousands, if not millions, of insects. That’s enough to harass a pregnant caribou until she stops worrying about food. And it’s enough to kill caribou calves outright.” They inundate entire herds and the caribou’s only defense is to flee, leading to decreased eating and further stress on the population. Research from the U.S. Fish and Wildlife Service has found that “insect harassment interferes with caribou foraging, which also decreases survival.”

Marine population halved since 1970 - report - BBC News: Populations of marine mammals, birds, fish and reptiles have declined by 49% since 1970, a report says. The study says some species people rely on for food are faring even worse, noting a 74% drop in the populations of tuna and mackerel. In addition to human activity such as overfishing, the report also says climate change is having an impact. The document was prepared by the World Wildlife Fund and the Zoological Society of London. Image copyright PA Image caption Sea cucumbers - seen as luxury food throughout Asia - have seen a significant fall in numbers "Human activity has severely damaged the ocean by catching fish faster than they can reproduce while also destroying their nurseries," said Marco Lambertini, head of WWF International. The report says that sea cucumbers - seen as a luxury food throughout Asia - have seen a significant fall in numbers, with a 98% in the Galapagos and 94% drop in the Red Sea over the past few years. The study notes the decline of habitats - such as seagrass areas and mangrove cover - which are important for food and act as a nursery for many species. Climate change has also played a role in the overall decline of marine populations. The report says carbon dioxide is being absorbed into the oceans, making them more acidic, damaging a number of species.

World Running Out of Time to Save Oceans - The United Nations is posting a new environmental warning: the world is running out of time to prevent the gradual degradation of the world’s oceans and the widespread destruction of marine life. In its first comprehensive assessment on the state of the oceans, the United Nations says delays in implementing solutions to the problems already identified as threatening to degrade the world’s oceans will lead, unnecessarily, to incurring greater environmental, social and economic costs.   Comprising 55 chapters, the first World Ocean Assessment will be presented to the General Assembly’s Ad Hoc Working Group of the Whole at a meeting scheduled to take place Sep. 8-11. The study found the sustainable use of the oceans cannot be achieved unless the management of all sectors of human activities affecting the oceans is coherent. “Human impacts on the sea are no longer minor in relation to the overall scale of the ocean. A coherent overall approach is needed,” the report stated. Steered by the 22-member Group of Experts, the scientists selected from the Pool of Experts, comprised of some 600 members worldwide, looked at the oceans, their flora and fauna and the ways in which humans are benefitting from, and impacting on the ocean.

Threat to oceans from climate change must be key to Paris talks, say scientists -- The dangers posed by global warming to the world’s oceans must be a key part of any future international climate change agreement, a group of marine research scientists are insisting, as up to now the role of the planet’s biggest ecosystem has been largely ignored at the long-running UN climate talks. The scientists are attached to the French research vessel Tara, which is completing a three-and-a-half year trip gathering information from across the globe for the world’s largest ever study of plankton. They plan to make their appeal at the crunch UN climate change conference in Paris this December. Among their discoveries have been many thousands of new species of plankton, by sampling seas at a depth of up to about 500 metres in oceans from the poles to the tropics, east to west, and using DNA analysis on the 35,000 samples. The next step will be to study the samples more closely using powerful microscopes. “Above 90% of what we found were new [to science] and we don’t yet know what they are. What we need to do in the future is to try to understand what they are,” explained Chris Bowler, one of the scientists leading the expedition. Plankton represents about 95% of the biomass in the oceans, and is vital in the marine food chain, but much of what makes up this soup of microscopic organisms is still a mystery. One of the surprises for the team was that the greatest diversity they found among the specimens was in the middle-sized creatures. Another of the key findings has been how great an effect the marine temperature has on the organisms under study. “Temperature shapes which species are present, which is very relevant in the context of climate change,” said Bowler.

We’re Aiming At 200 Feet Or More Of Sea Level Rise: Here’s What That Looks Like -- The bad news: If we burn all of the planet’s fossil fuels, we’ll melt all of the world’s land ice. The good news: You’ll be long gone so … party on! Homo sapiens sapiens, the species with the ironic name, is not known for long-term thinking. So if the very real danger of Sandy-level storm surges coming every year or two in a half century — along with Dust-Bowlification of a third of the Earth’s habitable and arable landmass — isn’t enough to stop us from using the atmosphere as an open sewer for carbon pollution, then the prospect we are going to melt all of the Earth’s land ice and raise sea levels more than 200 feet over the next few millennia or so ain’t gonna do the trick.  Still, here’s what that would look like for the United States (via National Geographic):

MUST SEE: Kevin Anderson on the myths around 2C-related climate policies  - (video) With 14 of the 15 warmest years on record having occurred since the year 2000; with oceans both warming and acidifying; and with unequivocal scientific evidence that burning fossil fuels is the principal cause – what can we do to rapidly reduce emissions?  This lecture will revisit the mitigation agenda in light of the IPCC’s carbon budgets for 2 °C, arguing that whilst the science of climate change has progressed, we obstinately refuse to acknowledge the rate at which our emissions from energy need to be reduced. Speculative negative emissions technologies have become de rigueur in balancing the escapism of incremental mitigation with rapidly dwindling 2 °C carbon budgets. Similarly, the eloquent rhetoric of green growth continues to eclipse quantitative analysis demonstrating the need for radical social as well as technical change. Taking these issues head on, this seminar will develop a quantitative framing of mitigation, based on IPCC carbon budgets, before finishing with more qualitative examples of what a genuine 2 °C mitigation agenda may contain. Kevin Anderson is professor of energy and climate change in the School of Mechanical, Aeronautical and Civil Engineering at the University of Manchester.   Kevin’s work makes clear that there is now little to no chance of maintaining the rise in global mean surface temperature at below 2 °C, despite repeated high-level statements to the contrary. Moreover, it demonstrates how avoiding even a 4 °C rise demands a radical reframing of both the climate change agenda and the economic characterisation of contemporary society.

Pope Francis warns of ‘grave consequences’ if climate change is ignored: The environment is facing serious threats such as climate change and global warming, Pope Francis has said – adding that finding solutions is a matter of justice since it's often the poor who are most affected. “We must not forget the grave social consequences of climate change. It is the poorest who suffer the worst consequences,” the Pope said Sept. 11. Therefore the issue of climate change “is a matter of justice; it is also a question of solidarity, which must never be separated from justice,” he said, adding that the dignity of each person, “as peoples, communities, men and women, is at risk.” Pope Francis directed his address to the 300 participants in a meeting organized by the Foundation for Sustainable Development titled: “Environmental justice and climate change.” The event was attended by key figures in religion, politics, economic activity and various sectors of scientific research, as well as several international organizations and individuals involved in the fight against poverty. Francis is also expected to address the topic of climate change and the environment during his Sept. 25 speech to a U.N. Special Summit on Sustainable Development in New York, which will gather hundreds of politicians and heads of state from around the world.

Climate Shock: The Economic Consequences of a Hotter Planet: One of the most under-appreciated aspects of the climate change problem is the so-called “fat tail” of risk. In short, the likelihood of very large impacts is greater than we would expect under typical statistical assumptions. We are used to thinking about likelihoods and probabilities in terms of the familiar “normal” distribution—otherwise known as the “bell curve.” It looks like this: There are many phenomena that follow a normal distribution, from the heights of adult men in the U.S. to the day-to-day fluctuations in summer temperature in New York City. But the predicted warming due to increased greenhouse gas concentrations isn’t one of them. Global warming instead displays what we call a “heavy-tailed” or “fat-tailed” distribution. There is more area under the far right extreme of the curve than we would expect for a normal distribution, a greater likelihood of warming that is well in excess of the average amount of warming predicted by climate models. An important new book, Climate Shock: The Economic Consequences of a Hotter Planet, by Environmental Defense Fund senior economist Gernot Wagner and Harvard economist Martin Weitzman, explores the deep implications this has for the debate over climate policy. Here’s the blurb I wrote for the book (a shortened version of which appears on the back cover): Think climate change is a low-priority problem? Something to put off while we deal with more immediate threats? Then Climate Shock will open your eyes. Leading economists Wagner and Weitzman explain, in simple, understandable terms, why we face an existential threat in human-caused climate change. The authors lay out the case for taking out a planetary insurance policy, without delay, in the form of market mechanisms aimed at keeping carbon emissions below dangerous levels.

Climate Expert James Hansen: “We’ve Got An Emergency”  -- The repercussions of climate disruption are still not being acknowledged fully, warned climatologist Dr. James Hansen, addressing an audience of Baby Boomer and Greatest Generation climate activists on September 9. “We’ve now got an emergency,” he told about 150 “elder activists” at Calvary Baptist Church in Washington, DC, who were participating in Grandparents Climate Action Day. Hansen–formerly NASA’s head climate scientist, now Adjunct Professor at Columbia University–is probably best known for bringing definitive evidence of global warming to Congress in testimony in 1988. In July of this year, he released a report with sixteen co-authors studying glacier melt in Greenland and Antarctica. Unlike previous models, the new report takes into account some feedback loops which may be hastening the loss of ice sheet mass far faster than anticipated. Time is running out to transition to renewable energy, Hansen said, yet the most “relevant” people in power aren’t aware of the situation’s gravity. “Even people who go around saying, ‘We have a planet in peril,’ don’t get it. Until we’re aware of our future, we can’t deal with it.” Mass species extinction, extreme weather events, dry spells and fires are climate change impacts which are happening now. A warmer atmosphere and warmer oceans can lead to stronger storms, he explained. Superstorm Sandy, for example, remained a hurricane all the way up the Eastern seaboard to New York because Atlantic waters were abnormally warm. “Amplifying impacts” and feedback loops will accelerate the changes, according to Hansen. “It will happen faster than you think,” he said. If major coastal cities become “dysfunctional” because of sea level rise, as he believes is possible, the global economy could be in peril of collapse.

Big Oil Tanks California Measure To Cut Petroleum Use In Half  -- California lawmakers pulled a measure calling for a 50 percent reduction in oil consumption from climate legislation Wednesday night, following staunch opposition from the industry. SB 350, a bill from Senate President pro Tempore Kevin de León (D) and Sen. Mark Leno (D), included a measure to cut petroleum use in half by 2030, along with provisions to improve the efficiency of buildings by 50 percent and increase the amount of energy the state draws from renewables to 50 percent. The bill passed the state Senate this summer and is currently up for debate in the Assembly, but the oil provision faced pushback from the industry.  The oil industry blanketed the state with television and radio ads decrying what it called the "California Gas Restriction Act." The opposition fed hesitance among lawmakers to approve the overall bill and prompted leaders to drop the oil provision so the other portions could pass before the end of the legislative session on Friday.  The removal of that provision is a big setback for progressive lawmakers and Gov. Jerry Brown (D), who championed the bill as part of the state's overall effort to address climate change. "Oil has won the skirmish. But they've lost the bigger battle," Brown said at a press conference, the Los Angeles Times reported, "because I am more determined than ever."

Poor nations want U.S. to pay reparations for extreme weather: Poorer nations suffering from extreme weather disasters, so much so that their citizens are seeking refuge in safer terrains outside their borders, want rich nations like the United States to pay for reparations and to relocate populations. Preparatory talks ahead of the United Nations Conference on Climate Change to be held in Paris in December has representatives from developing nations asking for more than an already agreed upon $100 billion per year for climate change mitigation measures. They want additional compensation for weather-related disasters as well as a "displacement coordination facility" for refugees. And they want all this to be legally binding as part of the larger anticipated Paris accord. The U.S. and wealthier nations in the European Union are balking. The rationale for the additional funds and refugee facility is based on donor country failures to follow through cohesively on aid pledges following weather-related disasters. For example, last March, Cyclone Pam devastated islands in the South Pacific but attention quickly turned to the massive earthquake in Nepal soon thereafter. That left small nations such as Vanuatu, which was devastated, to manage its own cleanup without much in the way of international assistance. Poorer nations blame extreme weather-related disasters on climate change stemming from emission-polluting countries that have more developed and wealthier economies. The U.N. Paris conference aims to reach an international, legally biding agreement on climate change that would reduce greenhouse gas emissions and thwart global temperature rise. A separate agreement is being eyed to address losses and damages from extreme weather events, thought to be a result of climate change.

California Gov. Jerry Brown Sends Ben Carson The Climate Evidence He Couldn't Find -- Retired neurosurgeon turned Republican presidential candidate Ben Carson received a flash drive on Thursday full of the evidence for climate change that he has apparently been looking for.  California Gov. Jerry Brown (D) mailed Carson a copy of the synthesis report from the United Nations Intergovernmental Panel on Climate Change (IPCC), along with a letter asking Carson to utilize his "considerable intelligence" to review the material. The IPCC is the scientific body created by the United Nations Environment Program and the World Meteorological Organization to provide regular assessments of the state of climate science for policymakers.  Brown's letter came after Carson asked to see the science demonstrating climate change was caused by human activity during a visit to California earlier this week.  "I know there a lot of people who say 'overwhelming science,' but then when you ask them to show the overwhelming science, they never can show it," Carson told The San Francisco Chronicle. "There is no overwhelming science that the things that are going on are man-caused and not naturally caused." "Gimme a break," Carson added.    Brown said the flash drive contained the "overwhelming science" Carson wanted.   "These aren't just words. The consequences are real," Brown wrote in his letter. "Climate change is much bigger than partisan politics."

GOP members split from party, ready to tackle climate change - A small coalition of congressional Republicans have broken away from the party’s normal rhetoric by signing a resolution Thursday that recognizes humanity’s role in climate change. The Hill reports that the resolution also endorses steps to combat global warming, though specific solutions were void of the agreement. The resolution frames climate change as an issue of environmental stewardship, which it says has a long history in the United States. Rep. Chris Gibson (R-N.Y.) led the conservative pact that puts House lawmakers on record to generally agree with the overwhelming consensus of scientists that human activity, through greenhouse gases, is warming the globe. The call for “conservative environment stewardship” was endorsed by Republican representatives Ileana Ros-Lehtinen and Carlos Curbelo of Florida, Frank LoBiondo of New Jersey, Robert Dold of Illinois, Dave Reichert of Washington, Pat Meehan, Ryan Costello, and Michael Fitzpatrick of Pennsylvania, and Richard Hanna and Elise Stefanik of New York, according to the National Journal. “If left unaddressed, the consequences of a changing climate have the potential to adversely impact all Americans, hitting vulnerable populations hardest, harming productivity in key economic sectors such as construction, agriculture, and tourism, saddling future generations with costly economic and environmental burdens, and imposing additional costs on State and Federal budgets that will further add to the long-term fiscal challenges that we face as a Nation,” states the resolution.

Experts Have Just Found Gas Leaking Out Of 1,000 Spots In New York City -- Thanks to old and rusty pipelines, Manhattan leaks three to five times more natural gas than cities with newer infrastructure, according to a survey of three U.S. cities published on Wednesday.  In recent years, cities across America have increasingly switched their heating and energy sources from coal, the leading fossil fuel linked to global warming, to the cheaper and cleaner natural gas, or methane.   But environmental researchers have feared that this methane boom would cause urban gas lines to leak daunting amounts of natural gas. Methane is a potent greenhouse gas — about 25 times more powerful than carbon dioxide, according to the EPA. The new survey found 1,050 methane leaks in Manhattan, or about four leaks per mile. Two cities selected for comparison — Cincinnati, Ohio, and Durham, North Carolina — had about 90% fewer leaks per mile, the study found. Over the last decade, Cincinnati and Durham have replaced most of their old gas mains with new ones. “Older iron pipes are corroded, they leak from the joints, they crack and they buckle,” Stanford University’s Robert Jackson, who led the street survey, told BuzzFeed News. “The good news is that some cities are already doing something and showing we can do something about these leaks.”

Leaking Methane Deadly For People & Planet - Methane is spewing from more than 1,000 natural gas leaks under Manhattan, giving it 10 times the number of leaks per mile in its aging natural gas pipelines as cities with more up-to-date infrastructure, according to a study published Wednesday in the journal Environmental Science and Technology. Methane is the second-largest contributor to global warming after carbon dioxide, making the reduction of methane emissions a high priority in fighting climate change. While methane emissions are significantly smaller than those of CO2, methane is much more potent as a greenhouse gas, trapping 86 times more heat in the atmosphere than carbon dioxide over a 20-year period and 34 times more over 100 years. In the study, researchers measured concentrations of methane on the streets of New York, which has a high concentration of decades-old cast iron and steel pipes beneath its streets. They compared the findings with measurements in Durham, N.C., and Cincinnati, which recently replaced their aging pipelines. Methane leaks are the subject of an $18 million project led by the Environmental Defense Fund that includes work by more than 100 researchers. That project, which is not affiliated with the current study, is being done in collaboration with the natural gas industry and utilities. The researchers in the Manhattan study concluded that pipes under Manhattan averaged 4.3 leaks for each mile of pipe. Durham had 0.2 leaks per mile and Cincinnati had 0.5. Replacing the pipes, some of which have been in use for more than 100 years, also improves air quality and reduces the risk of explosion. One such explosion killed eight people and destroyed an apartment building in East Harlem in 2014.

EPA accuses VW of cheating on emission rules - Diesel cars from Volkswagen and Audi cheated on clean air rules by including software that made the cars' emissions look cleaner than they actually were, according to federal and California regulators. The regulators say that the software on the cars turns on emission controls only when it detects that the car was being tested. "The effectiveness of these vehicles' pollution emissions control devices is greatly reduced during all normal driving situations," said the Environmental Protection Agency's notice to the company. "This results in cars that meet emissions standards in the laboratory or testing station, but during normal operation, emit nitrogen oxides at up to 40 times the standard." There are nearly 500,000 of these diesel cars on U.S. roads. The models include the VW Jetta, the Beetle and the Golf from model years 2009 through 2015, the Passat from 2014-2015 as well as the Audi A3, model years 2009-2015. The Audi luxury brand is owned by Volkswagen Group.    Owners of the affected cars do not face health risks, according to the EPA, and can to continue to drive or sell them. But the EPA has ordered VW to recall the cars and fix the violation. No recall has yet been announced.

VW Is Said to Cheat on Diesel Emissions; U.S. Orders Big Recall - The Obama administration on Friday directed Volkswagen to recall nearly a half-million cars, saying the automaker illegally installed software in its diesel-power cars to evade standards for reducing smog.The Environmental Protection Agency accused the German automaker of using software to detect when the car is undergoing its periodic state emissions testing. Only during such tests are the cars’ full emissions control systems turned on. During normal driving situations, the controls are turned off, allowing the cars to spew as much as 40 times as much pollution as allowed under the Clean Air Act, the E.P.A. said.“We expected better from Volkswagen,” said Cynthia Giles, the E.P.A.’s assistant administrator for the Office of Enforcement and Compliance. She called the automaker’s actions “a threat to public health.” Agency officials issued the car company a notice of violation and said it had admitted to the use of a so-called defeat device. The recall involves 4-cylinder Volkswagen and Audi vehicles from model years 2009-15.

China’s coal consumption higher than thought - FT.com: China’s coal use this century has been significantly underestimated, according to analysis of new Chinese data by the US Energy Information Administration, adding to climate change negotiators’ problems ahead of December’s UN conference in Paris. Based on revised data released by Beijing this summer, the EIA has concluded that the world’s largest polluter and consumer of coal burnt up to 14 per cent more of the fossil fuel between 2000 and 2013 than previously reported. It said this meant China’s energy consumption and production were also much higher. The EIA’s analysis squares with the supercharged economic growth of the decade before 2013 and much slower growth now but throws into confusion the calculations on which climate change negotiators rely to determine the level of emissions produced by each nation. Talks this December in Paris will attempt to rein in those emissions, in the hopes of preventing dangerous global warming. The fact that China has made GDP figures a political target has resulted in a remarkably smooth growth path, which critics say obscures the real cycles in the Chinese economy. Higher energy consumption from 2000-2013 would tally with other indicators of an economy that grew more quickly than official figures over that period suggest, including high commodity prices, a boom in coal mining and the proliferation of private mines and smelters. Similarly, the motivation to hit targets may mask the extent of the current economic slowdown. A reported drop in China’s coal output in 2014 has cheered environmentalists, including Greenpeace, and raised hopes that the country’s emissions might peak and begin to decline before the official target of 2030. The EIA’s analysis also concluded that growth in coal use was slowing dramatically. “In 2014, energy-content-based coal consumption was essentially flat”, while coal production fell by 2.6 per cent, it said.

Exclusive – Chinese coal data cast doubt on historic stalling of world CO2 – When the International Energy Agency reported in March that global carbon emissions had stayed flat in 2014, even as the world economy grew, the news was hailed as a turning point in the struggle to curb climate change. But more recent data about Chinese coal consumption, seen by Reuters, raise doubts about whether that historic decoupling of economic growth and carbon emissions from energy use actually occurred. One of the keys to keeping carbon emissions flat in 2014 was significantly lower coal consumption in China, the world’s top greenhouse gas emitter: a 2.9 per cent drop, reported in preliminary Chinese data in February. It was the first fall in coal use by China this century. And it was good news for the U.N. climate conference meeting in Paris in December with the aim of stopping temperatures rising more than 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial levels: the limit beyond which scientists say the world will suffer ever-worsening floods, droughts, storms and rising seas. But in May, China’s National Bureau of Statistics (NBS) released a China Statistical Abstract, not available online but only on paper, showing that coal consumption edged up by 0.06 percent from 2013. Just that difference between two sets of NBS data would in turn lift global emissions growth in 2014 from a flat line to about 0.5 per cent, in line with an estimate by oil company BP in a report in June. That global growth rate is still low, but would undermine the arguments of many, from environmental groups to governments, who have cited the IEA data to support the idea that cuts in carbon use need not necessarily hamper economic growth.

Researchers just discovered a massive body of water under China's biggest desert - The Tarim basin in Xinjiang, China is a valley the size of Venezuela; bigger than California, New Mexico and Florida put together. On the surface it is home to Taklimakan, China’s biggest desert, but deep beneath lies a hidden ‘ocean’ that is thought to contain up to ten times more water than all the Great Lakes combined, storing more carbon than all the plants on the planet put together. While more water may sound like a good thing, researchers believe that if this carbon were to escape into the atmosphere, we would be in serious, serious trouble. “Never before have people dared to imagine so much water under the sand. Our definition of desert may have to change,” he told the South China Morning Post. “We were after carbon, not water,” Li explained. For ten years he has been studying the phenomenon of “missing carbon” in the atmosphere in the Tarim basin: the carbon seems to vanish into thin air and the scientists have spent years trying to figure out where it goes. “This is a terrifying amount of water, our estimate is a conservative figure — the actual amount could be larger”, said Professor Li Yan, who leads a research team at the Xinjiang Institute of Ecology and Geography in Urumqi, the Xinjiang capital. Li may have been searching for carbon, but it seems that the water holds the answer to the mystery. The alkaline soil on the surface of the desert helps to dissolve carbon which is carried underground by rainwater, meltwater from the surrounding mountains, and irrigation from farming. Cavernous chambers store the carbon-filled water in an immense underground ‘ocean’ from which it cannot escape, acting as a giant ‘carbon sink’. The combination of the alkaline sands on the surface and saline water deep beneath create the perfect conditions for carbon capture.

Iran Says It Finds "Unexpectedly High Uranium Reserve" -- While we await for the Russian secret service to leak photos of Iran's Revolutionary Guard in Syria, thereby stirring the pot on the latest and greatest proxy war in the middle east, one which would promptly disintegrate any last remaining shred of "victory" from Obama's alleged coup in restoring relations with an Iran which couldn't even wait for the signing of the "Nuclear" deal before turning its back on Obama and siding with Putin in Syria, we were particularly amused to learn that just yesterday Iran announced it has discovered an unexpectedly high reserve of uranium and will soon begin extracting the radioactive element at a new mine.  This stunning admission was made by the head of Iran's Atomic Energy Organization said on Saturday, just 48 hours after the Iran Nuclear deal squeezed through the US Senate with the tiniest of margins. Far less stunning, if quite more humorous was Reuters' tongue-in-cheek remark that "the comments cast doubt on previous assessments from some Western analysts who said the country had a low supply and sooner or later would need to import uranium, the raw material needed for its nuclear program."Any indication Iran could become more self-sufficient will be closely watched by world powers, which reached a landmark deal with Tehran in July over its program. They had feared the nuclear activities were aimed at acquiring the capability to produce atomic weapons - something denied by Tehran.

Why the UK Government Is Building 11 New Nuclear Plants Despite Mounting Criticism -- Electricity from proposed new nuclear stations in the UK will be more expensive than from any other nuclear reactors in the world, yet the government is pressing ahead with its plan to build 11 new installations, despite mounting criticism. This contrasts sharply with Germany’s policy of phasing out nuclear power altogether—and experts in nuclear policy now see a possible explanation in the fact that Britain is a nuclear weapons state, while Germany has no wish to be one. The UK’s approach also differs from that of France, which is investing heavily in renewables to cut its reliance on the atom. All three countries say their policies are based on the need to reduce greenhouse gases.  Renewables have already created more jobs and wealth in Germany than nuclear power, while Britain is cutting back drastically on support for solar power and on-shore wind in favor of nuclear stations designed and built by companies from France, China, Japan and the U.S. The strange mismatch between Europe’s two largest economies, Germany and the UK, is puzzling experts, especially since the International Energy Agency and the OECD Nuclear Energy Agency  say in the 2015 Projected Costs of Generating Electricity report that Britain’s plans will make its nuclear electricity the most expensive in the world.  Phil Johnstone and Andy Stirling, University of Sussex research experts in the nuclear policy area, have put forward the suggestion that the UK needs to continue to build and run civilian nuclear power stations to maintain enough nuclear expertise in the country to run its nuclear submarines independently, and so keep its status as a nuclear weapons state.

850 Tons of Treated Fukushima Water Dumped Into the Pacific -- Despite the objections of environmentalists and after overcoming local opposition from fishermen, the Tokyo Electric Power Co. (TEPCO) pumped more than 850 tons of groundwater from below the Fukushima nuclear power plant into the Pacific Ocean on Monday. According to Asahi Shimbun: The discharge marks the first release under the utility’s “subdrain plan,” an additional measure conceived to help diminish the build-up of contaminated groundwater at the crippled facility. TEPCO began discharging water after a third-party panel confirmed that the radioactive content was below the standard set by the utility. The plan utilizes subdrains, which are essentially wells set up around the main buildings of the power plant to collect groundwater flowing into the complex. Once the groundwater has been pumped from those wells, it undergoes decontamination in a special facility for release into the ocean after being checked for radioactive content.  And Agence France-Presse adds: Fishermen had argued that the discharge even of the groundwater would heighten contamination concerns and hurt their already battered reputation. They had fought to stop the water being released into the sea, even after it is filtered, but eventually bowed to pressure from TEPCO, which is struggling to find space to store the tainted supplies. But it has yet to find a solution to deal with another highly radioactive 680,000 tons of water that was used to cool the reactors during the meltdown, which is still stored on site.

How Our Energy Problems Lead To A Debt Collapse Problem - Gail Tverberg - Usually, we don’t stop to think about how the whole economy works together. A major reason is that we have been lacking data to see long-term relationships. In this post, I show some longer-term time series relating to energy growth, GDP growth, and debt growth–going back to 1820 in some cases–that help us understand our situation better. When I look at these long-term time series, I come to the conclusion that what we are doing now is building debt to unsustainably high levels, thanks to today’s high cost of producing energy products. I doubt that this can be turned around. To do so would require immediate production of huge quantities of incredibly cheap energy products–that is oil at less than $20 per barrel in 2014$, and other energy products with comparably cheap cost structures. Our goal would need to be to get back to the energy cost levels that we had, prior to the run-up in costs in the 1970s. Growth in energy use would probably need to rise back to pre-1975 levels as well. Of course, such a low-price, high-growth scenario isn’t really sustainable in a finite world either. It would have adverse follow-on effects, too, including climate change. In this post, I explain my thinking that leads to this conclusion. Some back-up information is provided in the Appendix as well.

Clean-air rules would harm Ohio, EPA director tells Congress -- New clean-air standards threaten the future of some coal-burning power plants and would undercut the state’s industrial comeback, Ohio’s top environmental regulator told a U.S. House committee today.  “We are marching down the road toward implementing a rule with far-reaching economic consequences without any assurance that the rule is even a legal exercise of U.S. EPA’s authority,” said Ohio Environmental Protection Agency Director Craig Butler.  The new rules, which would force states to burn less coal and use more renewable energy, are “ not the answer,” Butler said in testimony before the environment subcommittee of the House Committee on Science, Space and Technology.   Ohio and 14 other states have filed a federal lawsuit in a bid to block the plan to dramatically reduce greenhouse-gas emissions produced by coal-fired power plants and other sources blamed for contributing to climate change.  Ohio and other states contend that the new U.S. EPA rules exceed its authority and represent an end-run around the power of Congress to enact standards.  Butler said meeting the standards would be expensive and undermine the long-term viability of power plants in a state that uses 50 percent of its electricity for heavy industry such as auto, steel, iron and glass manufacturing.  He revealed that Gov. John Kasich wrote President Barack Obama on Aug. 28 to ask that the new standards be suspended until legal challenges are resolved.

County, OU collaborate to test water near injection wells -  The Athens County Commissioners and the Ohio University Voinovich School for Public Affairs are partnering with property owners around Athens County to undertake baseline water well testing near fracking waste-injection wells. Baseline water testing has been a primary goal for area residents concerned about the potential impact of the oil-and-gas horizontal hydraulic fracturing waste being dumped in the county via deep underground injection. There are currently eight fracking waste-injection wells in Athens County with one more on the way. Athens was the most-heavily injected county in the state through the first quarter of 2015, with nearly 1.1 million barrels of fracking waste injected into the ground, and over one million of those barrels coming from out-of-state. Athens County Commissioner Chris Chmiel explained Tuesday that the testing would set a baseline at residential water wells within two miles of each of the injection wells in Athens County. Once that data is collected, the county can then go back in future years to see what changes have occurred. “This is establishing baseline water quality,” Chmiel explained. “It will tell us what the water quality is now.” Jennifer Bowman, environmental project manager at the Voinovich school, said in an interview Tuesday that some baseline samples were taken in 2013 and will be updated, while others will be sampled for the first time.

Oilfield wastewater: what you need to know: As U.S. oil and gas production increased this past decade, so, too, did spills of salty oilfield wastewater that can foul the land, kill wildlife and threaten freshwater supplies. An Associated Press analysis of 11 states found more than 180 million gallons of wastewater spilled from 2009 to 2014. Oilfield wastewater is the fluid that comes to the surface when oil and gas are pumped out of the earth. Some is salty residue from ancient seas in underground rock formations. The rest is fresh water that was mixed with chemicals and sand and injected underground to crack open subterranean rock, the drilling process known as “fracking.” The industry usually calls the liquid waste “produced water,” but other common terms include brine, saltwater and flowback.   In a typical year, about 10 times as much wastewater is produced as crude oil itself, according to one study by a group of state groundwater agencies. In 2012, for example, roughly 840 billion gallons of wastewater were produced from onshore wells. Offshore wells generated another 26 billion gallons. In 2014 in Ohio, which was not one of the states in the AP investigation, oil and gas wells created more than 513 million gallons of brine, according to state production reports.  Salinity varies from place to place. In its least potent form, such as wastewater generated by coal-bed methane production in Wyoming, it can be safe enough for livestock watering. In its most potent form, oilfield wastewater is at least 10 times saltier than ocean water. The liquid also can contain metals such as barium and iron, oil and grease, and radioactive materials such as radium. Wastewater spills have killed fish in streams and ponds, and cattle that drank contaminated water. Brine-flooded land won’t grow crops or other plants.

Mansfield to consider ordinance protecting home values - — The Mansfield City Council will consider legislation that would allow the city and homeowners affected by adverse development banned under local zoning — such as injection wells — to go to court to halt that development and seek damages. The council had a first reading Tuesday night, putting the proposal on a fast track. Law Director John Spon said the proposed Mansfield Home Value and Family Protection Act was designed to protect owners of homes, apartment complexes or condominiums. The legislation says that if a company comes into Mansfield with development counter to zoning regulations that could reduce the property’s market value by at least 25 percent, both Mansfield and the residential property owner would have legal standing to seek relief in court to halt the development and recover damages, including the reduction in home value. “No city in the state of Ohio has adopted an ordinance like this,” Spon said, adding he thought the proposal has “historical significance” and could survive a challenge in the Ohio Supreme Court. In 2011, a Texas-based company announced plans to drill two injection wells in Mansfield, then stopped short of building the facility. But “It’s not just injection wells,” Spon told the council, saying the ordinance would strengthen Mansfield’s ability to exercise home rule in other areas where the legislature has said siting decisions should rest with the state. That could include toxic waste dumps, radioactive waste storage facilities or unwanted state-licensed facilities, he said.“I authored this act. I strongly recommend it. There is absolutely no downside for the city or for residents of this city,” he told the council.

Bill of rights/charter won't be on November ballot in Athens - Athens County voters will not have an opportunity to vote on an anti-fracking charter/community bill of rights amendment this November, as a result of a decision the Ohio Supreme Court issued on Wednesday. The majority in the 6-1 decision ruled against the 10 so-called “relators” (or complainants) in their complaint against Ohio Secretary of State Jon Husted. While the Supreme Court rejected Husted’s arguments that the charters were unconstitutional or illegal based on a previous high-court decision (Morrison vs. Beck Energy), they upheld his position that the three proposed charters failed to qualify for the ballot because (according to the decision) “they did not set forth the form of (alternate) government, which is the sine qua non (necessary requirement) of a valid charter initiative.” The decision suggests that if local charter/bill of rights supporters can come up with a proposal that rectifies that failing, they can get it on the ballot. If the Supreme Court had upheld Husted’s other argument, with regard to the legality of the proposals, that likely would have doomed future charter proposals intended to restrict or ban oil and gas activities locally. In the expedited case before the Supreme Court, 10 representatives of committees in Athens, Medina and Fulton counties asked the Supreme Court to order Husted to dismiss protests against the charter/bill of rights measures and allow them to make the general election ballots in the three counties. In a decision Aug. 13, the Secretary of State rejected petitions for the charter/bill of rights proposals in the three counties, finding that the provisions in each of the charters relating to oil and gas development represented an attempt to circumvent state law in a manner Ohio courts (including the Supreme Court in Morrison vs. Beck Energy) already have found to violate the state constitution. This is the argument the high court found wanting in its decision Wednesday.

Local ballot issues to try to stop pipeline blocked by court - Toledo Blade  — Voters in Fulton, Medina, and Athens counties will not get the chance to vote on changes in local law designed to block the path of a natural gas pipeline across northern Ohio and more heavily regulate “fracking” operations in southern Ohio. The state Supreme Court ruled 6-1 today to deny the request from citizen groups to overturn Secretary of State Jon Husted’s refusal to put the questions on the Nov. 3 ballot.  Mr. Husted had argued that that regulation of the oil and gas industry is the responsibility of the state, not counties, and, therefore, the citizen-initiated ballot issues were unconstitutional from the state. He dismissed the argument that he was barred from considering the substance of the ballot issues at this stage.  His position was backed in his decision by the oil and gas industry, the Ohio Chamber of Commerce, Ohio Farm Bureau Federation, and Affiliated Construction Trades of Ohio.  But on that question, the court sided with the backers of the ballot issues, saying that agreeing that Mr. Husted has the power to “prejudge” the legality of ballot issues before voters have their say would lead to “absurd” results.  Still, the court agreed with Mr. Husted’s other argument that the questions did not spell out the kind of charter government they sought to create. All three counties proposed the creation of charter forms of government but primarily so that they could achieve their goals. In the case of Fulton and Medina counties, that would have been blocking the path within their borders of a 250-mile NEXUS Gas Transmission pipeline across northern Ohio.The question in Athens sought was aimed at preventing disposal of waste from hydraulic fracturing, or “fracking,” and more heavily regulating the industry in the county.

Decision by Ohio Supreme Court keeps fracking-related charter issues off fall ballot - Stow Sentry - The Ohio Supreme Court has denied a request from groups in three Ohio counties to allow fracking-related charter issues to appear on the November ballot. In a 6-1 decision Sept. 16, with Justice William O'Neill dissenting, the state's high court ruled Republican Secretary of State Jon Husted acted within his authority when he blocked the issues from consideration during the coming general election. Justices were not swayed by Husted's declaration that the proposed amendments would prove invalid if passed, however. The court instead based its decision on the fact that the petitioners did not meet other requirements for inclusion on the ballot. According to the majority decision, "We hold that it was within Husted's discretion to determine that the proposed charters were invalid...." Husted invalidated charter proposals in Athens, Fulton and Medina counties that were related to oil and gas exploration, including horizontal hydraulic fracturing. Husted said the issues were an attempt to circumvent state law, which places oil and gas regulations with the Ohio Department of Natural Resources. The latter has already been upheld by the Ohio Supreme Court. Husted said earlier this month that groups that want to change the state law and regulatory setup should pursue legislative action or the citizen initiative process to take the issue to a statewide vote.  Justices ruled that Husted had no authority to decide the constitutionality of charter petitions.

For Now, Ohio Supreme Court Rules Against Local Anti-Fracking Petitions - The Ohio Supreme Court has upheld Secretary of State Jon Husted's decision to invalidate petitions in three counties across the state that sought to ban oil and gas development in a ruling that will keep the initiatives off November ballots. More than 9,000 people had signed petitions in Athens, Fulton and Medina counties to vote for establishing a county charter that would have banned underground injection wells, oil and natural gas exploration and production, or both. In August, Husted invalidated the petitions and removed them from November ballots, saying state courts had already found such bans to be a violation of the Ohio Constitution (see Shale Daily, Aug. 14). But the high court's decision did not resolve the issue of grassroots referendums across the state seeking to ban oil and gas development. The petitions are likely to be circulated again next year, organizers said, because the court found that Husted does not have the power to deem voter initiatives unconstitutional. "An unconstitutional proposal may still be a proper item for referendum or initiative," the court wrote. "If passed, the measure becomes void and unenforceable only when declared unconstitutional by a court of competent jurisdiction. Until then, the people's power of referendum remains paramount." The court upheld Husted's decision because the organizers proposed charters did not provide for a county executive or any meaningful change to the structure of county government to accommodate the changes a charter would bring. The court said the charters did not satisfy the threshold requirements under state law.

Both sides claim win in Ohio Supreme Court ruling - The Ohio Supreme Court on Wednesday voted 6-1 to back Secretary of State Jon Husted who had invalidated county charter proposals with community bill of rights on the Nov. 3 ballot in Medina, Athens and Fulton counties. But the issues are likely to be returning to the ballot in 2016 because the state high court also ruled that Husted does not have the discretion to assess the legality of such community rights charters and cannot block such votes. “That is huge,” said spokeswoman Tish O’Dell of Broadview Heights, Ohio organizer for the Community Environmental Legal Defense Fund that had assisted in the petition drives. The high court cited another valid reason cited by Husted to block the measures. The justices said the fact that the issues failed to satisfy threshold requirements for legal charter initiatives was sufficient to keep them off the ballot. Grass-root groups in Ohio will likely circulate new petitions that will comply with the high court’s edict and resubmit them next year, O’Dell said. The industry was also claiming victory after the three county charter votes were blocked by the high court. “The Ohio Supreme Court affirmed the fact that the Pennsylvania-based Community Environmental Legal Defense Fund’s ballot measures are invalid,” said Jackie Stewart of Energy in Depth-Ohio, a pro-drilling industry group.

State fines international oil and gas company over $220K for fracking-well fire –  A fire at a natural gas fracking well that forced evacuations and killed thousands of fish in eastern Ohio last summer will result in fines of about $223,000 against an international oil and gas company. Environmental regulators announced the fines against Norway-based Statoil on Tuesday. The fines are being assessed for the loss of aquatic species, spill cleanup and water quality violations from the well-pad fire in June 2014, the Ohio Environmental Protection Agency and Department of Natural Resources said. They say the company operated the well in Monroe County and can resume fracking there after it pays the fines. A message left Wednesday at the company's North America office in Houston wasn't immediately returned. The Department of Natural Resources found that fluids left the well pad in violation of state law and the company failed to maintain operational control on it. The agency also said the company disposed of brine fluid used in fracking, or hydraulic fracturing, in an unapproved method. Investigators confirmed that the fluids from the well pad depleted oxygen levels in a nearby creek, where about 70,000 fish died, according to the statement. Teresa Mills, an Ohio organizer with the Center for Health, Environment and Justice, told The Columbus Dispatch that the fines were "a slap on the wrist."Authorities have said that a tubing malfunction led to the fire that spread to about 20 trucks on the pad. No injuries were reported.

Ohio Supreme Court orders frack ban onto Nov. ballot: The Ohio Supreme Court agreed with Youngstown that the Mahoning County Board of Elections lacks authority not to certify an anti-fracking charter amendment and ordered it placed on the Nov. 3 ballot. In a 7-0 decision Thursday, the court ruled the board does “not have authority to sit as arbiters of the legality or constitutionality of a ballot measure’s substantive terms. An unconstitutional amendment may be a proper item for referendum or initiative. Such an amendment becomes void and unenforceable only when declared unconstitutional by a court of competent jurisdiction.” “We’re pleased the court did what we thought was the law and glad citizens will have an opportunity to vote on the proposed charter amendment,” said city Law Director Martin Hume. “This was about the separation of powers. The board made a decision that should be the responsibility of the judicial branch.” The city filed a writ of mandamus with the high court Aug. 28, two days after the board voted not to certify the citizen-initiative charter amendment. The city contended the board acted “illegally” by refusing to put the issue on the ballot. The board said it largely based its decision on a Feb. 17 Supreme Court decision that the Ohio Constitution’s home-rule amendment doesn’t grant local governments the power to regulate oil and gas operations in their limits, and that Ohio law gives the Department of Natural Resources the exclusive authority to regulate oil and gas wells.

StatOil fined $223000 over Ohio fracking-well fire - Columbus Dispatch -- Ohio environmental regulators will fine an international oil and gas company about $223,000 for a blowout and fire last summer at a Monroe County fracking well that contaminated a nearby stream, killed fish for miles and forced about 25 people from their houses.  StatOil North America, the company that operated the well, can resume fracking there after it pays the fines, which were announced on Tuesday. As much as $75,000 could go to first responders in eastern Ohio to help them deal with future oil and gas emergencies. The fines include about $41,000 for the roughly 70,000 fish that died after chemicals ran off the well pad and into a nearby creek, and about $132,000 for contaminating the water. The fire broke out on June 28, 2014. The Ohio Environmental Protection Agency and the Ohio Department of Natural Resources assessed the fines. StatOil officials did not return calls seeking comment. Teresa Mills, Ohio organizer with the Center for Health, Environment and Justice, called the fines “a slap on the wrist.” “Not even a dollar per fish,” she said. “So much for protecting wildlife.”

Gas well flame seen near Route 11 in Columbiana County - The Leetonia Police Department wants people to know that a large flame that visible in the area is not from a structure fire, but from a fracking well. Police say the flame is from a well located in the vicinity of Route 164 and Route 558. The flame, which can be seen from Route 11 is being used to burn off gas at the well. Energy companies use a method known as flaring, which according to the Ohio Department of Natural Resources is the controlled burning of natural gas and a common practice in oil and gas exploration, production and processing operations.

Step Energy scraps waterless fracking for now -- When GasFrac began testing their waterless fracking technique in Ohio, the prospect of using less water appealed to developers and environmentalists alike– rather than using millions of gallons of water for hydraulic fracturing, GasFrac’s method used a propane gel to fracture the earth. But Ohio Energy Inc. reports developers of the once-innovative process recently sacked plans for further development after testing yielded disappointing results. “The technology piece, the propane fracking, I like it,” said Regan Davis, CEO Step Energy Services, which now owns GasFrac. “I think it’s a technology that has a place in the market. But for our purposes, we decided that we weren’t going to be in that business, so we mothballed that whole segment.” GasFrac hoped to open access to the Utica shale play’s oil supply, development for which Energy Inc. writes is relatively young compared to Ohio’s gas industry.

Survey: Allegheny River water quality holds steady - Water quality is holding steady on the Allegheny River even though Marcellus shale drilling waste water and other river contaminants linger, according to one of the most comprehensive water surveys in the region.   However, all the news is not good: water from a creek in Indiana County that eventually drains into the Allegheny River via the Kiski River near Freeport keeps turning up bromide, a salt often associated with waste water from Marcellus shale fracking and abandoned mine drainage.  When combined with chlorine to treat drinking water drawn from the Allegheny, bromide form the carcinogen trihalomethane (THM).  The results are part of the Three Rivers Quest (3RQ) study, now in its third year, covering more than 30,000 square miles of the Upper Ohio River Basin. There are 54 sampling locations along the Allegheny, Monongahela and Ohio rivers and at the mouths of their major tributaries.   The highest concentration of bromide, the most persistent pollutant in the study since it began, was found in Blacklick Creek in Indiana County. The salt then travels downstream hitting the Conemaugh, Kiski and Allegheny rivers.  By the time the bromides hit the Kiski and the Allegheny rivers, they're diluted, according to Beth Dakin, a researcher from Duquesne University with 3RQ.  THMs showed up at varying levels in 2011 for drinking water surveys at water authorities including Tarentum, Buffalo Township, Brackenridge and New Kensington — all of which draw their water from the Allegheny River.

Sunoco claims eminent domain over properties in pipeline path -- A natural gas products distribution company has begun eminent domain proceedings against a number of Lebanon County property owners to obtain rights-of-way for a pipeline project. Sunoco Pipeline L.P. filed “Documents of Taking” in July and August against 13 property owners who live in the path of the company's Mariner East Pipeline project. Similar actions have been taken in other counties where the 350-mile Mariner East 1 Pipeline crosses underground. The company is re-purposing the 84-year-old pipeline that crosses southern portions of Lebanon County so it can carry products like ethane and propane from natural-gas-rich western Pennsylvania to its refineries in Marcus Hook, where it can be shipped to other states and overseas. The pipeline previously carried liquid petroleum fuels from the refinery westward. Sunoco also plans to add at least one parallel pipeline, called Mariner East 2, and possibly a second, and is seeking right-of-ways to construct them. Most of the properties condemned by Sunoco as part of the eminent domain process are residential. However, a few, including Thousand Trails Campground in South Annville Township and the former Alcoa property on State Drive in South Lebanon Township, are commercial properties. Since Sunoco began the eminent domain process, five land owners have negotiated settlements granting the company a right-of-way on their properties, according to court documents. Whether the company has the right to use the eminent domain law to forcibly obtain right-of-ways from landowners who do not wish to grant them for the dollar amount offered by the company, or for any amount, is a matter of disagreement.

Pipeline crunch is a key topic at Philadelphia shale conference - The buildout of pipelines needed to move natural gas from Pennsylvania’s shale fields to markets could last another 20 years, the head of one of the state’s largest utilities said Wednesday. “That’s probably a two-decade period to put the infrastructure in place to ensure continuous access to low-cost energy,” UGI Corp. CEO John Walsh told several hundred energy industry leaders during an annual conference at the Pennsylvania Convention Center. The Marcellus Shale Coalition’s Shale Insight conference began with a discussion of Philadelphia’s role in the shale boom that has generally taken place hundreds of miles to the north and west. A revived energy hub that has developed here at the end of crude oil rail lines and natural gas liquid pipelines “is basically a taste of what is yet to come,” said Philip Rinaldi, CEO of Philadelphia Energy Solutions, which runs the East Coast’s largest refinery.“This is a region that already is acting as a funnel for energy products,” he said. The key sites include the South Philadelphia refinery that Rinaldi’s company bought to process 20 percent of the oil pulled from shale in North Dakota, and Sunoco Logistics’ natural gas liquids terminal south of the city in Marcus Hook. Sunoco Logistics is building at least a second and possibly a third pipeline as part of its Mariner East project to bring propane, ethane and butane from shale wells around Pittsburgh to the terminal.

Is This The End Of The US Shale Gas Revolution - While everyone is watching the oil bust, there is another bust going on – one for natural gas.  Before there was a boom in oil production in the United States, there was the “shale gas revolution.” That is where we all became familiar with terms like “fracking.” And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian. The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008. But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low. Much of that has to do with the huge innovations in drilling techniques, including fracking and horizontal drilling, which allowed for production to remain profitable despite the downturn in prices. But some of the credit also goes to drillers searching for more lucrative natural gas liquids and crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially in the period between 2010 and 2014, drillers continued to produce natural gas even if they were looking for oil.  So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years.

What the Industry Doesn’t Want You to Know About Fracking - When we hear politicians and gas companies extoll the virtues of fracking, jobs created by drilling is usually high on their list of talking points. But the jobs created by fracking are extremely dangerous, exposing workers to chemicals whose long-term impacts on human health are yet unknown. In fact, the fatality rate of oil field jobs is seven times greater than the national average.  In our new short film, GASWORK: The Fight for C.J.’s Law, we conduct an investigation into worker safety and chemical risk. We follow Charlotte Bevins as she fights for CJ’s law—a bill to protect workers named for her brother CJ Bevins, who died at an unsafe drilling site. We interview many workers who have been asked to clean drill sites, transport radioactive and carcinogenic chemicals, steam-clean the inside of condensate tanks which contain harmful volatile organic compounds, polycyclic aromatic hydrocarbons and other chemicals, and have been told to do so with no safety equipment. A lot of reporting has been done on the health impacts fracking and drilling have on local communities, but often the story of the workers, the folks who are exposed to fracking chemicals and unsafe working conditions around the clock, goes untold. GASWORK has rare interviews with oil and gas workers who have come forward to speak out about the unsafe conditions.  The industry won’t tell you that the “good” jobs created by fracking are paying men to poison their own communities in order to feed their families. They won’t tell you that those jobs are not union jobs and if you get hurt, you are on your own. And they won’t tell you that the transition to 100 percent renewables will create hundreds of thousands of safer jobs.

Poisoning The Community: Gas Compressor Stations --In rural Minisink, NY, air contaminants from the Millennium Pipeline gas compressor now exceed what would be found even in a big city, says environmental health consultant David Brown. After dozens of Minisink residents found they were beset by similar ailments immediately after the compressor station was built in 2013, a two-month study of air contaminants and residents’ symptoms was conducted by Brown and his cohorts at Southwest Pennsylvania Environmental Health Project. The nonprofit group of public health experts, based in McMurray, PA, have been investigating a comparable pattern of symptoms near gas drilling sites in Pennsylvania and other states. In the Minisink study, recently released, they found that spikes in air toxins around the compressor coincided with residents’ adverse health symptoms. The study involved 35 residents, who were surveyed using a well-tested survey method, including interviews by a physician. SWP-EHP also provided five Speck monitors to measure fine particulate matter in air near residences for the two months, from October 19 to December 17 of 2014. Participants additionally used special canisters to capture air samples during “odor events,” periods when the compressor emitted strong odors. Asthma, nosebleeds, headaches, and rashes were common among the 35 participants in eight families living within one mile of the compressor. Those symptoms are also frequently reported around gas fracking sites, said Brown. Six of the 12 children studied had nosebleeds, which Brown attributed to elevated blood pressure or irritation of mucous membranes by formaldehyde, a carcinogen found in excess around compressors in a recent SUNY Albany study. Of particular concern were elevations of fine particulate matter (PM 2.5).

Residents organizing against offshore testing, drilling - The next wave of opposition to offshore testing for oil and gas deposits and drilling is emerging — grassroots groups looking to amass voter numbers to sway government officials. Don’t Drill Low country plans a launch-party meeting Tuesday with addresses by drilling opponents U.S. Rep. Mark Sanford and state Sen. Chip Campsen. The meeting, open to the public, is at 6:30 p.m. at the Charleston Harbor Resort Yacht Club, 32 Patriots Point Road in Mount Pleasant. Resident groups have begun coalescing in the Carolinas after at least 40 community governments in the two states have come out against the proposed drilling, along with hundreds of businesses and business groups. A coalition of governors, including Gov. Nikki Haley, worked largely behind the scenes with industry lobbyists to urge federal officials in the Obama administration to open the Southeast coast to oil and natural gas testing and drilling. In January, the Interior Department included the region in its proposed areas for five-year leases that would open the waters to exploration with repeated blasts of seismic guns 50 miles or more offshore. Most state political figures and others support exploring for potential economic benefits, even though the federal Bureau of Ocean Energy Management has concluded that the work “may result in low immediate economic benefits for nearby communities.” The leases would open up swaths of the Atlantic Ocean, Gulf of Mexico and Arctic for new oil and gas development. Meanwhile, a bill now in the U.S. Senate would give states the option to open up their own waters to testing closer the shore.

Hearing set on fracking moratorium - The Stokes County Board of Commissioners chambers erupted in applause Monday after the board agreed to set a public hearing on a proposed three-year moratorium on fracking in Stokes County. The hearing will be held in Courtroom A in the Stokes County Courthouse on Sept. 28 at 6 p.m. and commissioners could vote to approve the moratorium after the hearing. Under the proposed moratorium, it would be unlawful for anyone to engage in hydraulic fracturing (fracking) or oil and gas development for a three year time period with violators of the ordinance facing a $500 per day fine. Commissioners said they were in favor of the proposed moratorium, noting that they had not commented on the issue previously because the board’s policy is to not respond to public comments. “We have had several interesting people from Stokes County give their reasoning which was very beneficial to me,” said Commissioner James Booth. “You need to listen to what the people say and then gather information. This moratorium will allow us time to gather more information.” Commissioner Leon Inman provided a history of how the board had addressed the issue, noting that they had authored a resolution opposing fracking several years ago.

Lee Commissioners may seek fracking 'timeout' — Lee County commissioners are expected to consider a moratorium this month that could keep fracking out of the county for two years. Amy Dalrymple, chairwoman of the county Board of Commissioners, said a moratorium similar to the one adopted last month by Chatham County commissioners will be on the Lee County commissioners’ agenda for their Sept. 21 meeting. “I don’t know how the board is going to vote on it on the 21st, but it’s something the citizens have been calling on us to consider,” she said. Fracking, which is short for hydraulic fracturing, is a controversial method of horizontal drilling that involves injecting water, sand and chemicals under pressure to fracture rocks and release natural gas. Lee County has gained attention in the debate over fracking because geologists believe prehistoric formations of rock under the county and the surrounding area hold large deposits of natural gas. Dalrymple said the moratorium will include fracking, but also will cover other forms of mining. It will not be a ban, she said. “It is simply kind of a timeout.” State law prohibits local governments from banning fracking. Lee County is considering an update to its land use plan and unified development ordinance, Dalrymple said. The process is a huge undertaking, she said. “It’s not something you can do overnight,” she said. “It really takes months, if not more than a year.”

Application filed for Atlantic Coast Pipeline - : A formal application for a 564-mile natural gas pipeline into eastern North Carolina, backed in part by Duke Energy and Piedmont Natural Gas, was filed Friday with federal regulators. The Federal Energy Regulatory Commission will decide whether the Atlantic Coast Pipeline benefits the public and is needed. FERC and other agencies will weigh the environmental and social impacts of the line. The $5 billion project was announced a year ago. The new line will tap rich shale-gas reserves in West Virginia, Ohio and Pennsylvania and send fuel south. The sole existing line into North Carolina runs from Texas to New York City, cutting across western North Carolina, including Charlotte. The 30,000-page application includes environmental reports and exhibits on the hotly-debated route of the line. Dominion Energy, which will build and operate the pipeline, says hundreds of route adjustments have been made. The project has prompted bitter protests in Virginia. A final route for the line has not yet been announced. The pipeline will be 42 inches in diameter in West Virginia and Virginia, and 36 inches in North Carolina. The North Carolina portion will require a right-of-way 110 feet wide during construction and 50 feet wide permanently.

Louisiana oil and gas lease sales slump in September — Sales of oil and gas drilling rights on Louisiana state and local lands fell to $476,400 in September. The state saw relatively lucrative lease sales in June and August despite falling oil prices. NOLA.com/The Times-Picayune reports the Louisiana Mineral and Energy Board awarded 10 leases covering nearly 1,600 acres during the Sept. 9 sale. The four participating companies nominated 36 tracts covering more than 54,000 acres to be included in the sale. Bonus revenue collected in June hit $3.7 million, a two-year high, according to state records. Sales fell below $10,000 in July before surging to more than $3 million in August. Sales rise and fall depending on the amount of data oil and gas companies have on reserves on state and local land.

Texas drilling permits down in Aug -  Drilling permits have plummeted in Texas from the same time one year ago according to numbers reported by the Railroad Commission of Texas (RRC). According to the RRC, the regulation authority issued a total of 864 original drilling permits in August 2015 compared to 2,440 in August 2014. The August total included 730 permits to drill new oil or gas wells, 14 to re-enter plugged well bores, and 120 for re-completions of existing well bores. In August 2015, Commission staff processed 1,113 oil, 172 gas, 36 injection and 11 other completions compared to 2,157 oil, 303 gas, 92 injection and four other completions in August 2014. In addition, total well completions for 2015 year to date are 14,665, down from 20,657 recorded during the same period in 2014. Last week, Baker Hughes Inc. reported that the Texas rig count as of September 11 was 366, representing about 43 percent of all active rigs in the United States. Overall, Baker Hughes reported 848 rigs were in operation in the nation. For comparison, the U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999. Last year at this time, 1,931 rigs were active.

Royalty checks shrivel in Texas as oil, gas prices tumble (AP) - Once-lucrative royalty checks for mineral rights owners across Texas are shriveling as oil and natural gas prices tumble.The Dallas Morning News reported Saturday that land owners who leased their property to drillers during the oil and gas boom with the promise of steady income are starting to feel the pinch. Jerry Simmons, executive director of the National Association of Royalty Owners, says there's a perception that all mineral rights owners are rich. But he says the average owner is 67 years old and receives less than $500 a month in royalty checks. The Federal Reserve Bank of Kansas City found that landowners living in the Eagle Ford Shale received about $3 billion in royalty payments last year. Economists say that worked out to roughly $12,000 for every resident.

Battle Over Flaming Water and Fracking Reignites As Analysis Prompts Call for Renewed EPA Investigation --  For years, Steven Lipsky, a Texas homeowner who has appeared in a viral video with a garden hose spewing flames, has fought legal battles — most often with federal EPA investigators finding his claims of contamination credible, while Texas regulators and the drilling company, Range Resources, taking the opposite view. An analysis released this week, describing research by scientists at the University of Texas at Arlington, may open this case once again. It offers new evidence that the tests taken at Mr. Lipsky’s well water by Range Resources and Texas regulators, who reported little or no contamination, were flawed and potentially inaccurate. In the videotaped presentation, Zacariah Hildenbrand, a visiting scholar at the University of Texas at Arlington, lays out a detailed case that the Lipsky family’s water carries high levels of contamination, including methane matching that found in the gas from two nearby Range Resources Barnett shale gas wells, and presents evidence that past test results reported by the Texas Railroad Commission and Range were not reliable. Much of the research he describes in the video was conducted by a team from the University of Texas at Arlington , and Dr. Hildenbrand was later hired by Mr. Lipsky’s legal team to explain those findings on tape.  The Lipsky case was also at the center of a jurisdictional showdown between Texas and the federal government, after the EPA stepped in and issued an emergency order over the water contamination, and then Texas pushed back and the EPA dropped its investigation. The video also further complicates Range Resource’s ongoing defamation lawsuit against Mr. Lipsky over footage showing him holding a flaming garden hose hooked to a gas vent on the well that Range Resources says misled viewers into thinking the Lipsky’s water was on fire. “This is incredibly compelling evidence that something horribly wrong has happened here,” Dr. Hildenbrand said in the video, which Mr. Lipsky sent this summer to the EPA’s internal watchdog, the Office of Inspector General, as part of a request that the EPA re-open his case.

MAJOR CLEANUP: EPA working 'time critical emergency' pollution site - An Environmental Protection Agency team is cleaning up thousands of leaky oil drums left for years in industrial east Odessa that investigators say threatened groundwater, risked dangerous runoff to a nearby neighborhood and created a fire hazard after a local businessman abandoned them when his company failed. The site, about 4.5 acres at the intersection Market Street and Marco Avenue, contained about 15,000 oil drums in various states of disrepair, said William Rhotenberry, a federal on-scene coordinator with the EPA overseeing cleanup efforts on Tuesday. There are also open container pits, tanks containing unidentified material, stained soil from barrels that apparently leaked and a water well that Rhotenberry said has more than a foot of oily sludge on top of the water column in the well. The business was Ector Drum, which also operated under the name Lone Star Drum, at 2525 and 2604 North Marco Ave., just outside the Odessa city limits. It specialized in drum recycling operations for the oilfield. Ector Drum existed until 2012, at least on paper filed with Texas Secretary of State. But Rhotenberry said it appears to have gone out of business in 2010 or 2011. “In terms of threat, No. 1 would be the water well situation,” Rhotenberry said. “And the second is fire. If this thing were left just another two years untouched, chances are it would catch fire one way or another.”

Oil drilling boom brings trouble to farm, ranch lands - Carl Johnson and son Justin, who have complained for years about spills of oilfield wastewater where they raise cattle in the high plains of New Mexico, stroll across a 1½acre patch of sandy soil – lifeless, save for a scattering of stunted weeds. Five years ago, a broken pipe soaked the land with as much as 420,000 gallons of wastewater, a salty drilling byproduct that killed the shrubs and grass. It was among dozens of spills that have damaged the Johnsons’ grazing lands and made them worry about their groundwater. “If we lose our water,” Justin Johnson said, “that ruins our ranch.” Their plight illustrates a side effect of oil and gas production that has worsened with the past decade’s drilling boom: spills of wastewater that foul the land, kill wildlife and threaten freshwater supplies. An Associated Press analysis of data from leading oil- and gas-producing states found 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. There were some 21,651 individual spills. And these numbers are incomplete because many releases go unreported.Though oil spills get more attention, wastewater spills can be more damaging. Microbes in soil eventually degrade spilled oil. Not so with wastewater – also known as brine, produced water or saltwater. Unless thoroughly cleansed, salt-saturated land dries up. Trees die. Crops cannot take root. “Oil spills may look bad, but we know how to clean them up,” said Kerry Sublette, a University of Tulsa environmental engineer. “Brine spills are much more difficult.”

Interior Dept.: High-risk oil, gas wells checks lack funding -- (AP) — The U.S. Bureau of Land Management lacks sufficient resources to inspect high-risk oil and gas wells on federal land as a drilling boom continues in Wyoming, Colorado and other states, Interior Secretary Sally Jewell said Tuesday. The Obama administration has proposed a fee on oil and gas drillers that would allow the land management agency to hire more than 60 inspectors, but the proposal has not gained traction in Congress. The land bureau faces a “major backlog of inspections” as it tries to keep pace with a drilling boom that has sharply increased U.S. oil and gas production in recent years, Jewell said. “We do not have the resources necessary to do the job,” Jewell said at a breakfast sponsored by the Christian Science Monitor. The Associated Press reported last year that 40 percent of new wells on federal and Indian land with a higher pollution risk were not inspected from 2009 to 2012. Asked if the situation had improved since then, Jewell said no, adding: “We are under-resourced.” While the proposed fee has stalled in Congress, Jewell said it remains the agency’s best option to whittle its inspections backlog. “It makes no sense not to match supply and demand,” she said, adding that if the drilling boom slows or fizzles, the need to charge a fee would go away. Jewell also lamented a practice in which energy companies “flare” or burn off vast supplies of natural gas as they drill for oil. A report by the Government Accountability Office said 40 percent of the gas being burned or vented could be captured economically and sold.

Koch Addicts: University of Colorado Frackademics -- An investigation by Greenpeace and the Boulder Weekly has found troubling ties between the University of Colorado Boulder and Colorado public relations firms working on behalf of the  fracking industry and the Koch brothers. The controversy centers on the partnership between the University of Colorado Leeds School of Business and the Common Sense Policy Roundtable (CSPR), a front group funded by the oil and gas industry. This partnership was formed to produce economic studies that benefit the fracking industry’s PR strategy. CSPR paid the university to host the studies and fully controlled the priorities of the researchers. Documents obtained by Greenpeace reveal that the studies were conceived of, edited and strategically used by PR firms to influence fracking policy in Colorado, yet CSPR’s financial ties to the oil and gas industry were not disclosed to the media or in thepublished studies. The studies provided seemingly third-party validation for the oil industry’s attack on environmental regulations.

Fracking leads to spill at neighboring well -  A valve that failed during hydraulic fracturing operations caused a neighboring oil well to release fluids for 36 hours, leading to a spill of more than 600 barrels of produced water.  Burlington Resources Oil & Gas Co. reported the spill Tuesday at a well in Dunn County about 13 miles north of Killdeer, the Department of Mineral Resources said Thursday. Spokeswoman Alison Ritter said the company had shut down the well and crews were monitoring it while fracking a neighboring well owned by the same company. A valve failure in the frac operation caused an uncontrolled release of produced water to occur at the neighboring well, starting about 8 a.m. Tuesday, Ritter said. An estimated 630 barrels, or 26,460 gallons, of produced water and 20 barrels, or 840 gallons, of oil were released but contained on the well location, Ritter said. All but 20 barrels had been recovered Thursday, she said. Additional fluid being released was diverted into tanks, Ritter said. Crews regained control of the well about 8 p.m. Wednesday after pumping heavy saltwater down the well, Ritter said.

Fracking and fire cause two Bakken spills - Last week the North Dakota Oil and Gas Division reported two spills in Dunn and Williams counties, caused by a valve failure during a nearby hydraulic fracturing operation and a fire, respectively. According to the Forum News Service (FNS), on Tuesday Burlington Resources Oil & Gas Co. reported the valve failure and resulting spill in Dunn County, approximately 13 miles north of Killdeer. Department of Mineral Resources Spokeswoman Alison Ritter said a valve failure in the frac operation resulted in an uncontrolled release of produced water and oil from an adjacent well. The failure caused the release of an estimated 20 barrels, or 840 gallons, of oil and 630 barrels, or 26,460 gallons, of produced water. The water and oil were contained within the well location, and by Thursday, nearly all of the spill had been recovered. Other fluid being released was redirected and gathered into tanks while crews worked to regain control of the well, which they accomplished Wednesday after pumping heavy saltwater down the well. Petroleum geologist with the DMR, Richard Suggs, told the FNS that the high pressure at which fluids are injected during hydraulic fracturing operations can increase pressure in nearby wells. Ritter said, “We do have rules in place to try to prevent something like this from happening. This was a case where the valve failed and it couldn’t be prevented.” On Wednesday, in Williams County, Enduro Operating LLC reported that a fire resulted in approximately 460 barrels, or 19,320 gallons, of saltwater to be released at a saltwater disposal well roughly 7 miles southeast of Wildrose. The company reports nearly all of the released saltwater has been recovered. The DMR says state inspectors have been to both locations and will continue to oversee additional clean-up and remediation efforts.

Bakken flaring up in July -   While North Dakota oil production dipped slightly during the month of July, the volume of flared gas jumped, reports the Bismarck Tribune. During a monthly media briefing on state oil and gas production, North Dakota Department of Mineral Resources Director Lynn Helms reported that in terms of percentage of gas flared, July saw flaring rates of 20 percent compared to the 18 percent seen the month prior. Helms said, “On the flaring side, we took a step back. Every month, we’ve seen a slight increase in flared volume. Less gas flared is the real goal.” The record amount of gas flared peaked at 36 percent in September 2011. Last year, with the implementation of a new flaring policy, that percentage has been on a steady decline. As reported by the Tribune, Helms said the increase in flaring was anticipated as infrastructure capacity was reached. However, two natural gas processing plants are expected to come online next year, which should alleviate the current strain placed on existing infrastructure. Helms said, “The key to reducing volume is building infrastructure in the core area,” where operators have shifted focus amidst the oil price decline. Preliminary natural gas production figures for July estimate that statewide, nearly 1.66 billion cubic feet per day has been captured, up from the 1.65 billion cubic feet per day the previous month. Also up for the month of July was the number of total producing wells. The initial count for July was 12,940, compared to the 12,868 in June. Of these wells, 10,240 are producing in the Bakken and Three Forks shale formations.

North Dakota oil output down only slightly in July – North Dakota’s daily oil production fell less than 1 percent in July, state regulators said on Monday, a drop far less than many feared and one showing the state’s Bakken shale formation could continue pumping high volumes of crude for the foreseeable future despite sliding prices. The state, the No. 2 U.S. crude producer, had output of 1,201,920 barrels of oil per day (bpd) in July, down from 1,211,328 bpd in June, according to the Department of Mineral Resources, which reports on a two-month lag. The slight dip in output came despite a more than 50 percent plunge in crude prices in the past year that has eroded the oil industry’s profitability. Indeed, North Dakota’s drilling rig count has dropped alongside the price of oil, and is 12 percent below June levels. Yet advances in technology and efficiencies have helped the productivity of each drilling rig roughly double in the past year, helping the industry do more with less. Highlighting that gain, the number of producing wells in North Dakota hit 12,940 in July, an all-time high. Natural gas production rose slightly in the month to about 1,657,138 million cubic feet per day, also an all-time high.

Random Update Of A Well Still Flowing Since Spud Six Years Ago -- September 18, 2015  -- The well:

• 17147, 2,101, XTO, Boucher 41X-21, Hofflund, t4/09; F; cum 690K 7/15;

This is a Three Forks well. There are some minor sundry forms but the last major sundry form was dated March 23, 2009. No work on this well since -- or at least not enough work to require a report. It is still flowing at 5,000 bbls per month. Very little water being produced. Multiple payzones were evaluated when drilling this well; middle Bakken was felt to be economical. Gas readings while drilling gradually increased to 750 to 10,000 units; it was noted that the "abnormally high readings while drilling the lateral tangent to casing point may have been due in part to the close proximity to the recently frac'd DeAngelis 41X-21. For most of the lateral, the high volume of gas required the mud to be diverted through the gas buster, resulting in consistently strong flares. Extremely strong flares, at times exceeding 50 feet, were observed with trip gas and downtime gas kicks." It was a challenge to control the gas.  Open hole frack with 900,000 lbs of sand in six stages. Sometimes paperwork fails to catch up with what is happening in the field; in this case I do not see any evidence this well is on a pump.

Breaking even in the Bakken: Dunn County boasts lowest cost -- Of the core counties in the Bakken, Dunn County boasts the lowest break-even costs for oil production, reports the Forum News Service (FNS). According to figures from the North Dakota Department of Mineral Resources, producers operating in Dunn County are able to begin collecting revenue after the $24 per barrel mark. In comparison, to the northwest in McKenzie County, the break-even price came in at $27 per barrel. To the north of McKenzie in Williams County, the cut-off is $38 per barrel, and due south of Dunn in Stark County, the price is $41 per barrel. The counties with the highest break-even costs were listed at $85 per barrel in Bowman and Slope Counties, located in the southwest corner of North Dakota, and Bottineau and Renville Counties in the north-central region bordering Canada. As reported by FNS, Department of Mineral Resources Director Lynn Helms calculated the costs and said that in Dunn County, the Bakken formation is shallower than other areas, making it a more cost-effective area in which to operate.   A main factor, Commissioner Daryl Dukart said, is the amount of produced water that is associated with the produced oil. Less water means less needs to be separated from the oil, and “the formula just becomes cheaper to separate it.” Dunn County is one such area that doesn’t produce much water, making the process of hydraulic fracturing easier. Dunn County also features shale that is denser than other areas, creating conditions which are more conducive for oil production.

Asked for info on bridge conditions, railroad carrying Bakken crude tells cities no -  Despite urging from a federal agency that railroads hand over more information on safety conditions of bridges, a carrier moving Bakken crude oil through Milwaukee says it doesn’t plan to provide such details. Sen. Tammy Baldwin (D-Wis.) distributed a letter from Sarah Feinberg, acting administrator of the Federal Railroad Administration, in which the regulator urged railroad carriers to provide more information to municipalities on the safety status of bridges. Milwaukee officials have complained about the lack of information on the structural integrity of railroad bridges used by Canadian Pacific in the city. “When a local leader or elected official asks a railroad about the safety status of a railroad bridge, they deserve a timely and transparent response,” Feinberg wrote. “I urge you to engage more directly with local leaders and provide more timely information to assure the community that the bridges in their communities are safe and structurally sound.” “CP’s position has not changed,” said Andy Cummings, a manager of media relations for the company. “It is our policy to work directly with the Federal Railroad Administration, which is our regulator, on any concerns they have with our infrastructure.”

Court: Environmental study required for pipeline certificate — The Minnesota Court of Appeals has reversed regulators’ decision to grant a certificate of need for the proposed Sandpiper oil pipeline, saying Monday that state regulators must complete an environmental impact statement before the certificate can be issued. The appeals court sent the issue back to the Minnesota Public Utilities Commission to conduct an environmental review and reconsider whether a certificate should be granted. Minnesota regulators granted the certificate in June, saying the $2.6 billion, 610-mile pipeline from North Dakota’s Bakken oil fields to Superior, Wisconsin, was necessary and in the public interest. A lengthy environmental review of Enbridge Energy’s project was set to take place as officials determined the pipeline’s final route. But a three-judge panel of the appeals court said Monday that the certificate constituted a major governmental action, so state law requires the environmental impact statement be completed before that certificate is granted. No one disputed that the pipeline would be subject to environmental review, but the timing of a review was at issue. Traditionally, the certificate of need and routing permit proceedings for pipelines are conducted at the same time, but in this case, the commission conducted certificate of need proceedings first.

US senate committee probes pipeline safety after oil spills — A U.S. Senate committee is holding a field hearing on pipeline safety following spills that fouled a Montana river and the coast of Southern California. Senators are examining whether the government has enough safety inspectors to manage a boom in U.S. energy production that’s led to a rise in oil pipeline accidents after years of declines. More than 30,000 gallons of oil spilled into the Yellowstone River in January from a Bridger Pipeline Co. line near Glendive, Montana, shutting down the city’s water supply. In May, a corroded pipeline owned by Plains All American ruptured and released at least 101,000 gallons of crude along the scenic coastline of Santa Barbara, California. Both accidents remain under investigation.

Republicans oppose new safety rules on offshore drilling — Republican lawmakers on Tuesday criticized an Obama administration move to toughen standards for offshore drilling, saying the new rules would be costly for drillers and threaten to shut down oil and gas exploration off the nation’s coasts. The Interior Department is preparing to issue standards to close what it says are gaps in blowout preventer rules. A blowout preventer is a piece of equipment designed to shut an out-of-control well. Such a device failed catastrophically when a BP well blew out in 2010, causing a massive oil spill. But the Republicans blasted the new rules at a field hearing of the U.S. House Committee on Natural Resources in New Orleans. No Democratic members showed up. The Republicans complained the rules are too government-driven and costly to industry. The Republicans also questioned whether the new rules would make drilling safer. They also argued that drillers have proven they’re safe under current regulations. Besides aiming to strengthen blowout preventers, the rules require more record keeping by drillers, force companies to do real-time monitoring of drilling operations and take steps to dig safer wells. The rules are expected to be phased in over years. The new drilling rules — which critics say have been slow to be handed down — grew out of calls for increased safety in offshore drilling following the massive BP spill in 2010.

Fracking Boom Bursts in Face of Low Oil Prices -- The oil cartel, OPEC, has confirmed what has been obvious to many for months: U.S. shale production is in deep, deep trouble as the fracking boom bursts in the face of low oil prices. The cartel published its latest monthly oil market report yesterday revealing that it believes it is winning the price war it started with the U.S. shale industry. The numbers speak for themselves as the U.S. drilling rig count continued its decline this month, dropping 13 rigs to 662. The overall rig count is now down 864 units year on year.  The report is seen as a must-read for people within the oil industry. “In North America, there are signs that U.S. production has started to respond to reduced investment and activity,” says the report. “Indeed, all eyes are on how quickly U.S. production falls.” The numbers speak for themselves as the U.S. drilling rig count continued its decline this month, dropping 13 rigs to 662. The overall rig count is now down 864 units year on year.  As if to re-iterate the point, OPEC cut its forecast for U.S. production in 2015 by 100,000 barrels a day to 13.75 million and is also revising downwards U.S. shale production for next year by about 100,000 barrels a day, too.

US shale crude cash markets offer ray of hope amid global gloom - In shale strongholds of North Dakota and Texas, physical crude grades are trading at the highest premiums to futures prices in years, offering a glimmer of hope that a pickup in global oil markets might follow. While crude futures hover around 6-1/2-year lows, the cash markets, where producers and refiners buy and sell physical barrels of oil, are sending a more optimistic, if short-term, signal. West Texas Intermediate crude delivered to Midland, Texas , at the heart of the Permian Basin, is trading at a record $2.75 premium to benchmark U.S. futures. North Dakota’s Bakken crude fetches more than 50 cents more, the highest in two years. The two areas produce more than 60 percent of U.S. shale oil. Many cash crude traders say the relative strength of these markets most likely reflects local, short-term factors: newly built pipelines in Texas are increasing demand for local crude, while Midwest refiners are snapping up Bakken supplies following unexpected month-long outage in Canada. But as the gains persist, some are wondering if that could also be a sign that a year-long supply glut is beginning to ease, helping put a floor under world prices that have tumbled to their lowest since 2009. They point out that supply at Cushing, Oklahoma – the delivery point of the U.S. futures contract – continues to fall, defying expectations it would keep rising because of weak demand, refinery closures and maintenance season shut-downs.

Game-Changing, Cost-Saving Oil-Drilling Innovations That Are Keeping Shale Alive -- Multi-pad drilling is a major time- and cost-saver for oil and gas producers, since the drilling rig only has to be moved as little as 20 feet before the next well can be drilled. Think about it this way: Every individual oil well requires access roads, pipelines to collect the oil, electricity, and worker facilities while drilling is taking place. If a driller only has to deploy these resources once for four or more wells, versus having to do it every single well, we're talking potentially millions of dollars in savings for each well drilled, not to mention the reduced time.Chesapeake Energy went from 35 days to drill a well and move to the next location down to just 21 days this year. By cutting two weeks out of its drilling time, the company is not just saving money on the dayrate on the rig, but is also reducing "man hours" both for its staff and its contractors. This is why its well costs are steadily falling as it picks up drilling speed. The net result is that Chesapeake Energy's drilling costs in this particular play are down 42%, which really helps to mitigate some of the sting of lower commodity prices. One potential way to do to maximize returns on investment, which is already being used by major oil companies such as Devon Energy and Chesapeake Energy, is refracking older wells. In fact, according to Bloomberg, there are 50,000 U.S. oil wells that are candidates for refracking, which can cost around 75% less than drilling and fracking a new well.

This Is Why Americans Will Pay More For Gasoline If U.S Export Ban Is Lifted - -- They say that the first casualty of war is truth. And, on both sides of the fight over lifting the ban on exports of U.S. crude oil, the truth has already fallen into a coma. The ban was instituted in 1975 in order to make America less subject to swings in international oil supply after suffering the price shock associated with the Arab oil embargo in 1973.  Last week a committee in the U.S. House of Representatives voted to end the ban after a Senate committee voted in July to do the same. A vote by the full House and Senate could be near.  The proponents are careful NOT to say that the United States is energy-independent and so has oil to spare. Such claims made in the past backfired because it is too easy to look this up. Net U.S. imports of crude oil were almost 7 million barrels per day (mbpd) in the week ending September 4. That's out of about 15.6 mbpd of liquid fuels consumed domestically.*  Yet, it is this state of affairs that the proponents of lifting the export ban label as "abundance." Here's the relevant quote from the website of the Domestic Energy Producers Alliance (DEPA), a consortium of U.S. oil drillers: "Thanks to the genius of America's independent oil and natural gas producers, the world is moving from a concept of 'resource scarcity' toward 'resource abundance.'" (So, the world is not moving toward actualabundance, just the concept of abundance.)  In another piece entitled "From Scarcity To Abundance: Why The Strategic Petroleum Reserve Is Unnecessary" the group is more bold, saying that the supposed "abundance" is right here in the United States:  The site also includes a graph deceptively labeled "U.S. Crude Oil Production Potential" showing what looks like a rise in production to 20 mbpd by 2025. DEPA can always claim that that graph just represents estimates by its backers. The graph, however, stands in stark contrast to the latest "Short-Term Energy Outlook" just released by the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.  Even the ever-optimistic EIA forecasts that U.S. crude oil production will fall next year by 400,000 barrels per day to 8.8 mbpd.

White House opposes GOP bill to lift oil export ban - — The White House said Tuesday it opposes a House Republican bill to lift the four-decade-old ban on crude oil exports. A decision on whether to end the ban should be made by the Commerce Department, not Congress, White House press secretary Josh Earnest told reporters. Earnest also took a shot at House Majority Leader Kevin McCarthy and other Republicans pushing to end the oil export ban, which was imposed in the 1970s as the United States responded to an Arab oil embargo that sparked inflation and prompted long lines at gas stations. Earnest accused McCarthy and other Republicans of trying to “cozy up to oil interests” by pursuing policies that benefit the oil and gas industry. He urged Republicans to support efforts to eliminate subsidies for oil and gas companies and back investments in wind and solar power and other renewable energy. Earnest was responding a speech McCarthy, R-Calif., was scheduled to make in Houston Tuesday to promote the importance of U.S. energy production, including lifting the ban on crude oil exports. The House Energy and Commerce Committee is expected to approve a bill lifting the export ban later this week.

Senators struggle to find path for repealing U.S. oil export ban – U.S. senators who want to reverse the ban on oil exports are struggling to find wide legislation to attach their bill to, a sign that their effort to overturn the trade restriction could face difficulties. Senator John Hoeven, a Republican of North Dakota, the top U.S. oil-producing state besides Texas, said on Tuesday a measure to repeal the legislation would likely have to be attached to a wider bill. Adding the measure to a bill to renew a decades-old law regulating toxic chemicals would be a “good bet,” Hoeven said at a National Journal panel, because that bill is popular with both Democrats and Republicans. But Senator Tom Udall, a New Mexico Democrat and a co-author of the Toxic Substances Control act, wants his bill to move swiftly. Udall is discouraging lawmakers from adding amendments that are not germane to the control of toxics, his spokeswoman told Reuters. Oil producers say the exports ban, passed by Congress 40 years ago after the Arab oil embargo, has to be lifted to keep the U.S. drilling boom alive. Opponents say the ban ensures jobs for refinery workers and ship builders and lifting it could be bad for the environment. The full House of Representatives is likely to vote on a similar bill in coming weeks, with the chamber’s energy panel expected to easily pass the bill this Thursday. The White House said on Tuesday President Barack Obama, a Democrat, does not support the House bill advanced by Joe Barton, a Texas Republican.

House panel votes to lift 40-year-old US ban on oil exports — A key House committee endorsed a bill Thursday to lift the four-decade-old ban on crude oil exports, setting up a likely vote by the full House on a bill President Barack Obama opposes. The House Energy and Commerce Committee approved the legislation, 31-19, with three Democrats joining 28 Republicans to back the bill. The White House opposes the bill, arguing that a decision on whether to end the ban should be made by the Commerce Department, not Congress. Lawmakers who support the bill say an ongoing boom in oil and gas drilling has made the 1970s-era restrictions obsolete. “Numerous studies, including those from the Congressional Budget Office, Government Accountability Office and Energy Information Administration, all conclude that (allowing) oil exports would be a net jobs creator,” said Fred Upton, R-Mich., chairman of the energy panel. Lifting the export ban would also boost energy production and lower prices at the gasoline pump by increasing the overall crude supply, Upton said. Opponents said lifting the ban would benefit big oil companies at the expense of U.S. consumers and even national security. The United States still imports about 25 percent of oil used by businesses and consumers, a figure that could rise if some U.S. oil is diverted to international markets.

Members who voted to lift crude oil export ban have taken $11.5 Billion from the oil and gas industry throughout their comgressional careers -  Today, the House Energy and Commerce Committee voted to lift the crude oil export ban, a critical 40-year old policy that blocks a majority of raw American crude oil from being exported to foreign countries. The measure will now go to the full House of Representatives for a vote expected later this month. Allied Progress, an organization that has led campaigns in several states urging lawmakers to oppose ending of the policy, released the following statement from executive director Karl Frisch slamming Members of the committee who voted to repeal the ban: “Over the years the oil and gas industry have showered these Members of Congress with more than $11 million in campaign cash – it wouldn’t be a stretch to say they’ve been bought and paid for by big oil.”“Repealing the crude oil export ban could raise gas prices by more than a dime per gallon. It could send thousands of good-paying jobs overseas to foreign countries. Our hope of achieving American energy independence – something virtually every Member of Congress has called for – could be squandered for generations to come.”“Big oil and its Congressional shills may want this repeal to happen as quickly and quietly as possible but the American people will not be silent, nor will they forget. When gas prices go up, when jobs are lost, when we become even more dependent on foreign oil suppliers, they will know precisely who to blame.” According to an Allied Progress analysis of campaign disclosures maintained by Center for Responsive Politics, the 31 committee Members who supported repeal of the ban have accepted at least $11,546,338 in campaign contributions from the oil and gas industry throughout their Congressional careers: (list w/ amounts)

Oil Industry Influence Waning Amid Oil Price Slump - One unexpected victim of the oil price downturn seems to be the U.S. lobbying industry. The group of firms, whose business revolves around making sure government officials hear the concerns of U.S. companies, have long counted the oil and gas industry as a big customer. Now that seems to be changing as lower U.S. oil prices leave energy companies looking to cut costs wherever they can. Lobbying by oil and gas companies has dropped 10 percent on a year over year basis while lobbying by E&P firms fell a more dramatic 25 percent. What’s interesting though is how little cash the industry as a whole is spending to lobby the government and what an outsized influence that cash has. The oil and gas industry as a whole spent just under $24 million in the second quarter for instance, putting it on track to spend roughly $100 million for the entire year. The energy and natural resources industry in its entirety has spent a total of about $165 million so far in 2015 versus about $350 million in all of 2014. Those numbers, while large to an individual firm, are trivial in the context of an entire industry. In 2014 for instance, Exxon Mobil alone earned over $32 billion in profit or roughly 100 times the entire lobbying budget for the industry. Yet despite the low level of spending on lobbying, there is little doubt that Congress has tremendous power to help or hinder entire industries. In addition to obvious corporate issues like repatriation of foreign earnings and the corporate tax rate, smaller issues like the use of the country’s strategic petroleum reserve, the ethanol and solar tax credits, and the oil export ban all could dramatically change the face of the energy industry. In that sense then, either lobbying is very ineffective to accomplish these priorities, or U.S. energy firms are making a big mistake by not spending much more on lobbying.

"There's Just No Cash" Oil Price Increase Will Not Come Fast Enough To Save Alberta -- “There’s just no cash.” That’s the Coles Notes from a senior banker describing the book of oil service loans he manages for one of Alberta’s leading lenders. There’s simply not enough cash flow to support current levels of debt. Bankers and borrowers have kicked the can down the road about as far as they can as more oilfield service (OFS) and exploration and production (E&P) companies default on their loans and seek more relief on lending covenants. While a significant oil price increase to lift all the sinking boats will surely come, it won’t happen soon enough. More of the same won’t work. Oil industry debt is everyday news. But the discussion is about the symptoms, not the ailment. Companies cannot borrow their way out of debt. Equity capital is only available at distressed valuations. Specialized OFS assets will fetch only a fraction of replacement cost—if somebody actually wants them. Although oil and gas reserve valuations are down by half, borrowers are being forced to sell them anyway to repair balance sheets. The last four months of 2015 will be very difficult for any company with meaningful amounts of debt. Same for their lenders, the other signatories to the loan agreement. As the banker said, “There’s just no cash.” Here’s what it means.

For Canadian Oil Sands It's Adapt Or Die -- That low oil prices are squeezing out oil sands producers is not breaking news. But in spite of a grim oil price outlook, production out of Calgary has continued to grow, defying both expectations and logic. The implications are serious, not just for the future of Canada’s energy industry and economy, but also North American energy relations. In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace. Of course, the nature of capital intensive operations such as the oil sands is that they are also prohibitively expensive to shut down. Producers are left in limbo, praying that prices will rise. The implications for Canada should not be understated. Of the nation’s estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.

Gulf of Mexico lease sales to offer 42 million acres for drilling | NOLA.com: The federal government will offer more than 42 million acres off the coasts of Louisiana, Mississippi, Alabama and western Florida for oil and gas drilling in a March lease sale. The sales will be the ninth and 10th under the Obama administration's five-year offshore leasing plan. The government will offer more than 7,900 lease blocks in the central and eastern Gulf of Mexico in waters ranging from 9 feet to more than 11,000 feet in depth. The sale will be held in March at the Mercedes-Benz Superdome in New Orleans. The Bureau of Ocean Energy Management estimates the proposed lease acreage in the central Gulf could hold up to 894 million barrels of oil and 3.9 trillion cubic feet of natural gas. Acreage in the eastern Gulf -- the waters off of Mississippi, Alabama and parts of Florida -- could hold up to 71 million barrels of oil and 162 billion cubic feet of natural gas. Federal lease sales for drilling rights in the Gulf slumped at the most recent sale in August amid low oil prices. Just five companies placed $22.6 million in bids, the smallest sale in nearly 30 years. The Obama administration has offered more than 60 million acres for oil and gas exploration under the current 2012-17 lease plan. Federal sales have drawn nearly $3 billion in bonus revenue.

The Exxon Valdez Spill Is Still Making Fish Suffer 26 Years Later --  Now, 26 years later, scientists have found that the spill was even more ecologically catastrophic than originally predicted. In a study published this morning in Scientific Reports, researchers led by NOAA toxicologist John Incardona show that even very low levels of oil contamination can disrupt normal development in salmon and herring.  Incardona and his colleagues exposed Alaskan-sourced salmon and herring embryos to varying degrees of crude oil contamination, ranging from a low dose of .023 parts per billion (ppb) to a high dose of 45 ppb. In the months after the fish hatched, the team observed a sliding scale of growth problems and heart defects in them, proportional to the oil exposure level. This is because oil literally gets under the skin of these developing fish through absorption during the pivotal embryonic stage. Even the lowest doses prevented a healthy population from emerging. Given that there are still about 21,000 gallons of oil dispersed throughout Alaska’s Prince William Sound—and lingering contamination hundreds of miles beyond it—it’s no wonder that salmon and herring populations have not significantly recovered.  While some species have recovered to their pre-spill numbers, the overall health of the region is still dire over a quarter century after the disaster. If there’s one silver lining to this grimy oil slick, it’s that scientists have a much more accurate picture of the consequences of oil contamination, and can effectively shut down claims that ecosystems are “healthy and thriving” in their wake.   If the Exxon Valdez disaster is still preventing fish from recovering in Prince William Sound, imagine how much worse the situation will be for the Gulf of Mexico after Deepwater Horizon, which spilt an insane 168 million gallons of oil into the ocean.

Thai villagers say gas drilling sickens them, ruins crops — More than 100 students and villagers crowded into a northeast Thailand college forum to hear about American gas companies conducting drilling operations in their region. A lieutenant colonel and dozens of soldiers and police officers followed them in. The armed police began photographing members of the crowd, a menacing move in a country now run by a military junta that bars protests and routinely cracks down on dissenters. Some in the audience had already viewed the military as part of the problem, since months earlier they had forced demonstrators to make way for drilling equipment. “With soldiers in the meeting room we were scared because we could not criticize the state officers who protect the company,” said Chainarong Sretthachau, a professor who organized the May event at Mahasarakham University. “If I did not agree, they would not allow us to organize the conference.” Villagers in the northeast provinces of Udon Thani, Khon Kaen and Kalasin are trying to stop the drilling operations by American company APICO and its subsidiary Tatex Thailand. Opponents of the operations describe them as fracking, or hydraulic fracturing. The technique requires high-pressure injection of water, chemicals and sand to crack shale rock and allow gas to seep out, but has been criticized for causing water pollution and even triggering small earthquakes. Fracking has boosted fuel production in the U.S. and elsewhere while meeting increasing opposition from affected communities. APICO has said it is not fracking in the Southeast Asian country, though documents relating to its work say fracking was at least attempted there and describe wastewater ponds that are consistent with fracking operations. The Thai government says fracking is going on in the country’s shale-rich northeast but would not say precisely where.

Shell takes gamble hunting for oil on Arctic frontier - With a population of 4,429, Barrow is the major launchpad for helicopters shuttling to and from Transocean's Polar Pioneer, the rig now drilling an oil exploration well for Shell about 70 miles offshore in the Chukchi Sea. If Shell can pinpoint the rich oil reserves it thinks are lying below the sea floor, Barrow will be the main logistics hub for future production. But Odum's $7 billion quest has run smack into opposition. During President Obama's recent visit to Alaska, environmental groups called him to block Shell's Arctic drilling, which they said contradicts his message on slowing climate change. At a couple of points along routes Obama traveled, clumps of protesters held signs saying “Shell No” and “Polar Profiteer.” Obama said that oil use can't be stopped “overnight” and promised that Shell would be held to “the highest standards possible.” Still, the League of Conservation Voters said it was “deeply disappointed.” The Natural Resources Defense Council called the approval of Shell's drilling permits “a move wholly inconsistent with the urgent imperative of curbing carbon pollution.” Lois Epstein, Arctic program director of the Wilderness Society, said: “There are lots of reasons we oppose the drilling. Some of them are technical, some of them are related to the pristine nature of the Arctic Ocean. And some of them are related to the climate change impacts. This is another slug of carbon dioxide and once you have the infrastructure in place it will keep fossil fuels burning that much longer.”

"A Few People Are Going To Drown": Oil Patch Financing Dries Up As BTFDers Back Up The Truck -- To be sure, we’ve had our fair share at the retail crowd over the course of the dramatic decline in crude prices that began to accelerate late last year after Saudi Arabia decided to bankrupt the US shale space once and for all even if it meant killing the petrodollar in the process.  The thing about retail money is that it has a tendency to take the following rather simplistic view of asset prices: “that’s gone down a lot and I’ve heard the guys on TV talking about ‘babies being thrown out with bathwater’ so what I’ll do is conduct some armchair due diligence on the way to snapping up some ‘undervalued’ names.” This mentality is affectionately known as “BTFD,” and make no mistake, when the Fed is, as Jeremy Grantham recently put it, “bound and determined to engineer an asset bubble,” buying the dips isn’t necessarily too bad of a strategy.  The problem, however, is that when it comes to crude, the dynamics are complex, which means there are all manner of things going on behind the scenes, some are readily discernible to someone who understands a few basic concepts and knows how to read a 10K. Of course the muddied waters are just fine by struggling US producers because after all, someone has to be willing to buy into the endless string of secondaries and mom-and-pop’s post-crisis affinity for HY bond funds sure helps out when you’re trying to borrow more money. It’s against this backdrop that we present the following from BofAML which shows that “last week, flows into US stocks were largest in the Energy sector, where inflows were the largest since January and the fifth-largest in our data history, despite the retreat in oil prices following their late-August rebound. Inflows were chiefly from private clients, whose net buying of Energy stocks last week was the largest in our data history.”

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.

The Shale Delusion: Why The Party’s Over For U.S. Tight Oil - The party is over for tight oil. Despite brash statements by U.S. producers and misleading analysis by Raymond James, low oil prices are killing tight oil companies. Reports this week from IEA and EIA paint a bleak picture for oil prices as the world production surplus continues. EIA said that U.S. production will fall by 1 million barrels per day over the next year and that, “expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns.” IEA made the point more strongly. “..the latest price rout could stop US growth in its tracks.” In other words, outside of the very best areas of the Eagle Ford, Bakken and Permian, the tight oil party is over because companies will lose money at forecasted oil prices for the next year.  IEA data shows that the current second-quarter 2015 production surplus of 2.6 million barrels per day is the greatest since the oil-price collapse began in 2014 (Figure 1).  EIA monthly data for August also indicates a 2.6 million barrel per day production surplus, an increase of 270,000 barrels per day compared to July (Figure 2).   It further suggests that the August production surplus is because of both a production (supply) increase of 85,000 barrels per day and a consumption (demand) decrease of 182,000 barrels per day compared to July. The world oil demand growth picture is discouraging despite an increase in U.S. gasoline consumption (Figure 3). World liquids year-over-year demand growth has fallen by almost half from 2.3 percent in September 2014 to 1.2 percent in August 2015. This is part of overall weak demand in a global economy that has been severely weakened by debt. The news from both IEA and EIA is, of course, terrible for those hoping for an increase in oil prices.

Why it’s not an oil breakdown story, it’s a money story -  Izabella Kaminska -- In their latest research note out this Friday, Goldman Sachs’ commodity analysis team headed by Jeff Currie is now so bearish on oil they think even investment grade E&Ps may have to cut production if any sense of balance is to be restored.  As GS note: 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. Oh dear. So, even Goldman Sachs have been caught by surprise. (Inconceivable – we know).  Here’s Goldman’s new outlook for oil prices:   Our new 1-, 3, 6- and 12-mo WTI oil price forecast are $38/bbl, $42/bbl, $40/bbl and $45/bbl from $45/bbl, $49/bbl, $54/bbl and $60/bbl previously. Our 2016 average price forecast is now $45/bbl vs. $57/bbl previously and the forward curve at $51/bbl. On our updated forecast, we expect the sharp deterioration in producer financial conditions that has occurred recently to persist on the recognition that the rebalancing of supply and demand is proving to be far more difficult than previously expected and that such stress is needed until evidence that US shale production growth is required. With the real blow-away conclusion:  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.

Debt service uses a rising share of U.S. onshore oil producers’ operating cash flow - Today in Energy - U.S. Energy Information Administration (EIA): Results from second-quarter 2015 financial statements of a number of U.S. companies with onshore oil operations suggest continued financial strain for some companies. Low oil prices have significantly reduced cash flow for U.S. oil producers, and to adjust to lower cash flows, companies have reduced capital expenditures and raised more cash from debt and equity. Because of the large amount of debt accumulated from past years, a higher percentage of operating cash flow is being devoted to servicing debt. Debt service payments consist of principal repayment to creditors and typically are fixed in both amount and frequency, agreed upon before a company receives a bank loan or issues a bond. Some companies have been able to refinance their debt—that is, paying off old debt and taking on new debt, perhaps with a different interest rate or longer maturity. This option has increasingly become more expensive, because interest rates for energy company debt issuance have risen as crude oil prices declined, and rates are now higher than for any other business sector. The spread for energy company bond yields with a credit rating below investment grade averaged 11 percentage points above the risk-free rate since August, indicating higher interest rates for energy companies.  With fixed debt repayments and the large reduction in cash from operations for these companies, the ratio of debt repayments to operating cash flow has increased recently. For the previous four quarters from July 1, 2014 to June 30, 2015, 83% of these companies' operating cash was being devoted to debt repayments, the highest since at least 2012. As the share of debt repayment to operating cash flow increases, a company is left with less cash to use for investment opportunities, dividends, or savings for future use.

Shale Oil's "Dirty Little Secret" Has Been Exposed -- On Friday, on the way to diving into Goldman’s $20 crude call, we recapped our characterization of low crude prices as a battle between the Fed and the Saudis, a battle which is now manifesting itself in budget troubles in Riyadh and a concurrent FX reserve burn. Here’s what we said: 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.  Still, as we went on to point out, it looks like the Saudis have dug in for the long haul here and the strain on non-OPEC production is starting to show as the IEA now says “the latest tumble in the price of oil is expected to cut non-OPEC supply in 2016 by nearly 0.5 million barrels per day (mb/d) – the biggest decline in more than two decades, as lower output in the United States, Russia and North Sea is expected to drop overall non-OPEC production to 57.7 mb/d.” Citi has more on shale’s “dirty little secret”: 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 growth of North American shale a critical underlying factor in the oil market “regime change” from a $100/bbl world until 2014 to a sub-$50/bbl world today. As a result, the oil markets returned to competitive economics not seen for decades. And the economics of shale in particular are now set to be a decisive factor in balancing global oil markets and setting global prices. 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. Capex has consistently exceeded cash flow, causing some prominent critics to argue the business model of shale production is fundamentally unsustainable.

WTI Tumbles To $43 Handle As Iran 'Price Cut' Sparks Supply Surge -- Having traded above $46 on Friday, WTI Crude is back to a $43 handle as it appears Iran's price cut, as we detailed here, sparked demand from China and India driving up Iran exports to 1 million barrels per day.  As Bloomberg reports, Iran is exporting 1m B/D of Crude Oil as China Leads Buyers  China buying 400k b/d, followed by India at 250k b/d, official Islamic Republic News Agency reports, citing Mohsen Ghamsari, dir. of intl affairs, National Iranian Oil Co. S. Korea, Japan, Turkey also importing On a side note, though not reflected in today's pricing, Bloomberg reports that OPEC trimmed estimates for supplies from outside the group in 2016 as the slump in prices takes its toll on the U.S. shale-oil industry. The Organization of Petroleum Exporting Countries cut 2016 estimates for non-OPEC output by 110,000 barrels a day, its Vienna-based secretariat said Monday in its monthly market report. Still, the group sees non-OPEC supply expanding slightly next year, while the International Energy Agency on Friday predicted a contraction of 500,000 barrels a day, the biggest since 1992. Saudi Arabia told OPEC it curbed output in August to a six-month low. “There are signs that U.S. production has started to respond to reduced investment and activity,” OPEC said in the report. “Indeed, all eyes are on how quickly U.S. production falls.”

Gas Bears Rattled by Shrinking Shale Cut Bets to Six-Month Low - Speculators cut bearish bets on natural gas to a six-month low after late-breaking summer heat stoked demand for the power-plant fuel and as shale supplies start to slide. Money managers reduced short-only gas contracts 3.5 percent to the lowest level since March while long wagers rose 2.7 percent in the week ended Sept. 15, U.S. Commodity Futures Trading Commission data show. Their net-short position in four gas contracts shrunk by 34 percent. Energy drillers are idling so many rigs in response to low energy prices that gas supplies may fall short of demand next year, Bank of America Corp. and Citigroup Inc. said this week. Production is set to decline in October for the fourth straight month, a record slump in government data going back to 2007. “What you are seeing now is people a bit worried about natural gas production volumes,” Gas futures rose 0.7 percent to $2.728 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices briefly jumped to a one-month intraday high of $2.794 on Tuesday before ending the week at $2.605, the lowest settlement since June 5. Gas output from the seven largest U.S. shale deposits will fall 0.5 percent in October to average 44.784 billion cubic feet a day, the lowest since March and the fourth straight decline, the Energy Information Administration said Sept. 14. The biggest declines are projected in oil-rich fields such as the Eagle Ford formation in Texas, where drillers pull associated gas out with crude.

Weekly Crude And Natural Gas Data Points -- September 17, 2015 -- Natural gas fill rate (dynamic link): 73. In the East Region, stocks were 38 Bcf below the 5-year average following net injections of 50 Bcf.  Gasoline demand continues to plummet -- something I did not expect -- but look at the graph at the link at the very bottom of the page.  Gasoline demand this year is exceeding last year's demand but has dropped off remarkably. If one uses gasoline demand as a proxy for the economy of the country / a proxy for the recovery, this is a scary graph. I think this most recent data includes Labor Day weekend which is even more concerning, especially given the price of gasoline -- record lows.

OIL: U.S. production hits a downward slope as prices stay low -- Crude oil production in the United States is finally starting to decline, according to statistics and experts. After months of increases, even in the midst of falling oil prices, total output volumes have been trending downward as production growth in some areas is being outpaced by declines in major shale oil regions. The trend appears to be holding. Government statistics also strongly suggest the United States will not reach record crude oil production figures last set in 1970 as a consequence of the collapse of crude prices. Earlier, it had been difficult to tell whether recorded output declines represented a steady trend or the occasional variance seen month to month. Output continues to expand in the Permian Basin of west Texas and southeastern New Mexico and in federal waters in the Gulf of Mexico. But declines in the North Dakota Bakken Shale, in south Texas' Eagle Ford Shale and from other fields appear to be outpacing growth elsewhere. Data suggest very slow growth is occurring offshore, while the pace of Permian crude production increases may be slowing. Advertisement "There is evidence now that production from the shale plays is declining, not at a rapid rate, but I just recently saw some data for the Eagle Ford and the Bakken which do show production declines over the last couple of weeks," said Bernard Weinstein, an energy economist and director at the Maguire Energy Institute at Southern Methodist University. Even accounting for the Permian Basin and conventional oil production, "you put it all together and we are at the point where production is declining," he added.

Oil drilling rig count falls a third straight week - Oil futures pared losses after data from Baker Hughes released Friday showed that the number of active U.S. oil-drilling rigs fell 8 to 644 as of Sept. 18. The total active U.S. rig count, which includes natural-gas rigs, was at 842, down 6 rigs. Compared to last year, the total rig count has fallen by 1,089, with the oil rig count down 957. Oct. crude  was down $1.39, or 3%, to $45.51 a barrel on the New York Mercantile Exchange. It was trading at $45.45 just before the data.

Weekly US oil and natural gas rig count falls by 6 to 842 — Oilfield services company Baker Hughes Inc. says the number of rigs exploring for oil and natural gas in the U.S. this week declined by six to 842. Houston-based Baker Hughes said Friday that 644 rigs were seeking oil and 198 explored for natural gas. A year ago, with oil prices about double the prices now, 1,931 rigs were active. Among major oil- and gas-producing states, Colorado, New Mexico, Ohio and Utah each gained one rig. Louisiana and North Dakota lost three rigs apiece, Pennsylvania declined by two and Kansas and Texas were down one each. Alaska, Arkansas, California, Oklahoma, West Virginia and Wyoming all were unchanged. The U.S. rig count peaked at 4,530 in 1981 and bottomed at 488 in 1999.

U.S. oil drillers cut rigs for third week on weak crude prices - Baker Hughes - U.S. energy firms cut oil rigs for a third week in a row this week, data showed on Friday, a sign the latest crude price weakness was causing drillers to put on hold plans announced several months ago to return to the well pad. Drillers removed 8 rigs in the week ended Sept. 18, bringing the total rig count down to 644, after cutting 23 rigs over the prior two weeks, oil services company Baker Hughes Inc said in its closely followed report. Those reductions cut into the 47 oil rigs energy firms added in July and August after some drillers followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel. U.S. oil prices, however, have averaged $46 a barrel so far this week, up a bit from the $45 average last week. Earlier on Friday, U.S. crude prices were down more than 3 percent after the U.S. central bank warned of the health of the global economy and bearish signs persisted that the world’s biggest crude producers would keep pumping at high levels.

Shale Oil’s Retreat Threatens to Leave U.S. Short on Natural Gas - The retrenchment in drilling for U.S. oil is threatening to leave a different market short: natural gas. “The impacts of oil rig counts extend beyond oil: the outlook for U.S. natural gas is critically dependent on the outcome of this balancing act in U.S. oil rigs,” Anthony Yuen, a strategist at Citigroup Inc. in New York, said in a report to clients Wednesday. “If the oil market remains oversupplied and oil-rig counts fall, the decline in associated gas production would leave the market short of gas.” Associated gas is the gas that comes out of oil wells along with the crude. Supplies of this byproduct from fields including the Bakken formation in North Dakota and the Eagle Ford in Texas may fall by about 1 billion cubic feet a day next year as drillers idle rigs in response to the collapse in oil prices, Yuen said. That’s about 7 percent of U.S. residential gas demand.The U.S. Energy Information Administration has already forecast that shale gas production will drop in October for the fourth straight month, a record streak of declines. U.S. oil has lost half its value in the past year amid a worldwide glut of crude. Drillers have responded by sidelining almost 60 percent of the country’s oil rigs since Oct. 10. Crude producers in the lower 48 states may have to keep the number of working rigs low for a while longer to balance the global market, Yuen said. A recovery in the rig count may “exacerbate the current oversupplied environment” and weaken prices, he said. West Texas Intermediate crude futures gained $2.56 a barrel on Wednesday to settle at $47.15 on the New York Mercantile Exchange. Prices have fallen 50 percent in the last year.

OilPrice Intelligence Report: $50 Oil For 15 Years – Can Anyone Take Goldman Seriously Anymore? Goldman Sachs continues to roll out bearish predictions for oil prices. The latest from the investment bank is that oil prices could remain low for 15 years. Goldman made headlines recently when it outlined a scenario in which oil prices would drop to $20 per barrel. Now the bank is outdoing itself with a prediction that oil will remain around $50 per barrel though 2030. For evidence, it points to the bust of the 1980s when oil prices did not rebound until the turn of the century. Goldman gets a lot of attention with these types of headline-grabbing figures, but they seem to be off base on this one. The EIA has confirmed that U.S. oil production is declining, already down 500,000 barrels per day since peaking earlier this spring at 9.6 million barrels per day. At the same time, demand is rising. Throw in some other major sources of expected growth in oil production that won’t pan out – a few million barrels per day of capacity that were expected from both Iraq and Brazil can probably be ruled out – and there is a recipe for a rather strong rebound in oil prices in the coming years. Obviously, the big question is when that will happen. The glut could persist through this year and next, but calling for oil to remain near $50 per barrel for 15 years seems like a stretch. 

Decline rates will ensure oil output falls in 2016: Kemp   – “It takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast,” the Red Queen told Alice in Lewis Carroll’s novel “Through the Looking-Glass.” Oil companies have to invest heavily simply to offset the impact of natural decline rates on their existing fields, and even more if they want actually to increase production. The need for continued investment and drilling to maintain output as a result of the rapid decline rates on shale wells has been widely discussed. But decline rates on conventional oil fields are even more important because they account for more than 90 percent of global production. Decline rates on conventional fields will play a critical part rebalancing the oil market and determining where oil prices settle in the longer term. Decline rates will cut output by several million barrels per day each year in 2016 and 2017 unless oil producers invest to maintain production levels from existing fields and develop replacement fields. But with oil prices below $50 per barrel, almost all companies, from the super-majors to national oil companies and independents, are slashing exploration and production budgets hard to conserve cash. Cuts will hit sustaining expenditure on existing fields as well as frontier exploration. In a typical example, Iraq’s oil ministry wrote to contractors on September 6 warning it will cut exploration and field development spending next year.

Expect US oil output to slump? Better not overlook vertical wells – Easy money, super-sized frack jobs, and desperate drillers offering deep discounts to oil producers – all three have been credited for sustaining U.S. crude output during the worst price slump in six years. Now there appears to be a new factor in the mix: old vertical wells that can quickly be drilled, injected with water or fracked for a second time to increase production at low cost. Overshadowed by the fracking boom that delivered record oil and gas volumes, vertical wells are making a comeback as investors and producers shift focus away from production growth to capital discipline in the downturn. “It makes more sense to develop vertical wells in a lower price environment because they are not growth plays but they are a very strong cash flow asset,” said Benjamin Shattuck, principal analyst at Wood Mackenzie. “They are going to give you that cash flow that you need today.” It is too soon to know how big the long-term supply impact of this trend will be, but there are tens of thousands of older U.S. wells and companies say paying more attention to them is already bringing extra barrels. The industry’s ability to find some workaround every time prices seem too low to keep pumping explains in part why 15 months into the downturn U.S. output stays near highs of around 9 million barrels a day and the government forecasts only modest declines through mid-2016.

Move Over Exxon, Russian Drillers Are Oil World's Top Performers  -- At a time when the collapse in crude prices pushes Russia’s economy into a recession, the nation’s oil producers are managing to beat their western counterparts. On measures including cash flow, profit margins and share prices, OAO Rosneft, Lukoil PJSC -- Russia’s two largest oil producers -- and OAO Gazprom Neft are performing better than Royal Dutch Shell Plc, BP Plc or Exxon Mobil Corp. “When oil goes down, the western companies are hurt more than the Russian companies,” said Maxim Edelson, a Senior Director at Fitch Ratings in Moscow. Because Russian tax rates adjust automatically to lower prices the nation’s companies enjoy a buffer to the slump in crude while “a lot of the hit is taken by the government.” The oil industry is struggling to adapt after prices fell to the lowest level in six years amid a global supply glut. While energy producers have fallen more than any other group this year on the MSCI All-Country World Index, Russian companies have been the most resilient. Rosneft shares gained 2.9 percent and Gazprom Neft added 0.3 percent in London trading this year. Shell’s B shares, the most widely traded, lost 28 percent and BP 18 percent. Russia relies on oil and gas for about a half of its budget income, so the plunge in crude prices of more than 50 percent in the past year has pushed the country into its first recession since 2009. The faltering economy, combined with the effects of international sanctions over Russia’s involvement in Ukraine, has weakened the ruble, benefiting Russian oil companies that earn dollars and pay costs in the local currency.

Checkmate for Saudi Arabia - The debacle of oil prices has greatly exceeded that of the global financial crisis of 2008 and the Asian crisis of 1998. And it is much more severe. At the end of this summer of 2015, OPEC is just a shadow of its former self: simply put, it has been de facto dissolved and this cartel would be better off closing its offices in Vienna in order to save some cash… Similarly, it is easy to see that the Saudi tactic of flooding the market with petrol has backfired. Already in decline and very fragile due to the fact that the only income from exportation comes from the sale of just one product (oil), Saudi Arabia’s war using ancient weapons is dwindling. The oil markets have indeed fundamentally changed since the time when investments became lucrative only after ten years. The Saudis were of course the undisputed masters when vast sums of money had to be handed over to make extractions from oil wells that would only come good many years later. This is why they got up to their dirty tricks in November 2014 when they decided to lower prices in order to stifle American oil shale producers, whom they had been banking on wiping off the map. As for the lost revenue due to the fall in oil prices, they would inevitably gain it back after the renewed rise in prices thanks to the disappearance of US producers. However, this venture, which consisted of making prices drop in order to harm competitors before putting them back up again in order to monopolise and maximise profits, is now an invalid practice. Also, this insane gamble taken by Saudi Arabia last winter to increase its own production to 10.6 million barrels per day at the climax of the fall in prices was already lost because it reveals a deep misconception of fracking, which is by no means a classical resource extraction method, and one which doesn’t require substantial investment nor elevated oil prices in order to be viable.

OPEC Trims 2016 Estimates for Rival Supplies as U.S. Oil Suffers -  OPEC trimmed estimates for supplies from outside the group in 2016 as the slump in prices takes its toll on the U.S. shale-oil industry. The Organization of Petroleum Exporting Countries cut 2016 estimates for non-OPEC output by 110,000 barrels a day, its Vienna-based secretariat said Monday in its monthly market report. Still, the group sees non-OPEC supply expanding slightly next year, while the International Energy Agency on Friday predicted a contraction of 500,000 barrels a day, the biggest since 1992. Saudi Arabia told OPEC it curbed output in August to a six-month low. “There are signs that U.S. production has started to respond to reduced investment and activity,” OPEC said in the report. “Indeed, all eyes are on how quickly U.S. production falls.” West Texas Intermediate crude futures have tumbled more than 50 percent in the past year, triggering an unprecedented cutback in drilling that threatens to end the nation’s shale-oil boom. Prices have collapsed as OPEC follows Saudi Arabia’s strategy of defending its share of the global market against shale and other competitors. WTI traded near $45 a barrel on Monday. Smaller Increase Supplies from non-OPEC nations such as the U.S., Canada, Russia and Brazil will increase by 160,000 barrels a day to 57.6 million in 2016, according to the report. In last month’s report, OPEC had projected that non-OPEC supplies would expand by 270,000 next year. The organization reduced 2016 estimates for U.S. supply by 103,000 barrels a day, projecting the country’s total oil output at 13.97 million.

OPEC says the world will want more of its oil next year – OPEC on Monday predicted higher demand for its crude oil next year, sticking to its view that a strategy of letting prices fall will tame the U.S. shale boom and cut a global surplus. The monthly report from the Organization of the Petroleum Exporting Countries also said a weaker outlook for China would contribute to slower global oil demand growth next year. “U.S. oil production has shown signs of slowing,” OPEC said in the report. “This could contribute to a reduction in the imbalance of oil market fundamentals, however, it remains to be seen to what extent this can be achieved in the months to come.” OPEC said it expected demand for its crude next year to average 30.31 million barrels per day (bpd), up 190,000 bpd from last month, despite the slower demand growth overall due to a weaker outlook for Latin America and China Oil is trading below $50 a barrel, less than half its level of June 2014. But OPEC has refused to cut output, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by OPEC’s former policy of keeping prices near $100.

Frack Facts: OPEC vs. U.S. Shale -- If you believe all the recent stories about how Saudi Arabia is losing the price war it started against US 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 US 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 US 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 US 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 US shale plays. The IEA predicts that the US 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 Organisation 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 per cent within 12 months of start-up and 82 per cent 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.

Opec wins as non-cartel oil output suffers biggest drop in 20 years - Oil produced outside the Orgainsation of the Petroleum Exporting Countries (Opec) is slowing at its fastest rate in 20 years as lower prices hit higher cost producers such as the North Sea and US shale drillers, a leading energy think tank has warned. The Paris-based International Energy Agency (IEA) has said that lower production in the US, Russia and the North Sea would result in output outside Opec dropping to 57.7m barrels per day (bpd) in 2016. The majority of the declines would come from US light crude, which is expected to decline by 400,000 bpd. At the same time the IEA is forecasting that global oil demand growth will surge to a five year high this year of 1.7m bpd before moderating in 2016 to 1.4m bpd. "The steep declines in US crude oil production seen since the end of June has created some optimism that we are now finally seeing that start of a steep decline," said Bjarne Schieldrop, chief commodities analyst at SEB. Oil prices have plunged 50pc this year with Brent crude trading well below $50 per barrel, a level which makes it uneconomical for many producers. Opec, under pressure from Saudi Arabia, has allowed oil prices to fall in an effort to protect its shrinking market share especially from the rise of shale oil drillers in the US. However, the strategy has caused deep divisions within the group, which controls a third of the world's crude. Venezuela has formally asked for an emergency meeting of Opec to review its current strategy. The IEA's latest monthly report follows a warning by Oil and Gas UK that 65,000 jobs have been lost in the North Sea since oil prices started to slump last November.

OPEC sees oil prices returning to $80/barrel by 2020 (Reuters) – OPEC forecasters expect oil prices will rise by no more than $5 a barrel a year to reach $80 by 2020, with a slowing in rival non-OPEC production growth not enough to absorb the current oil glut, according to OPEC sources. The sources said the figures came from an updated mid-term strategy report discussed this week by representatives from the Organization of the Petroleum Exporting Countries (OPEC) in Vienna, which has yet to be fully endorsed by OPEC ministers. The report forecasts that non-OPEC supply would amount to 58.2 million barrels per day by 2017, some 1 million barrels per day lower than in the previous forecast. That effectively means OPEC will have to supply the world with 1 million extra barrels per day – good news for the group which last year decided against cutting output to support prices and instead started pumping more to win market share from rival producers. OPEC’s market share has shrunk in the past few years to 33 percent from as much as 40 percent in previous years because of a U.S. shale oil boom and new fields coming on stream in countries such as Canada and Russia. In its latest monthly report OPEC forecasters see rival non-OPEC output growth already slowing this year because of low oil prices, rising by just 880,000 bpd to some 57.43 million bpd after expanding by a record 1.7 million bpd in 2014.

With Congress sidelined on nuclear deal, next moves belong to Iran -- With Senate Democrats effectively blocking congressional efforts to kill the Iran nuclear deal, international attention now shifts to Tehran’s implementation of measures that are designed to cut off its pathways to building nuclear warheads. “The next steps will be Iran’s,” White House Press Secretary Josh Earnest said Friday, a day after Senate Democrats corralled enough votes to prevent passage of a Republican-sponsored resolution disapproving of the deal. For their parts, the United States and the European Union must begin making the “necessary arrangements and preparations” to lift economic sanctions once the U.N. International Atomic Energy Agency verifies that Iran has put in place the restrictions on its nuclear program. The next month includes some key dates to put into effect the so-called Joint Comprehensive Plan of Action, or JCPOA, which was negotiated over two years between Iran and the United States, Russia, China, France, Britain and Germany. On Thursday, the 60-day congressional review period ends, although deal opponents are expected to persist in their efforts to kill the agreement.  By Oct. 15, Iran must provide to the IAEA any followup information sought by agency experts investigating allegations that Tehran researched a missile-borne nuclear warhead until late 2003.

Iran to clients: Buy our oil and get joint ventures too (Reuters) – Iran has unveiled details for long-awaited foreign cooperation contracts which it hopes will attract oil buyers and investors to modernize its aging infrastructure, including offers to take part in joint ventures to extract its huge reserves. The United Nations endorsed a deal in July to end years of economic sanctions on the Islamic republic over its nuclear program, although a removal of those sanctions still requires U.S.-Congressional approval. Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), has some of the world’s biggest oil and gas reserves, and officials have identified around four dozen projects worth $185 billion it hopes to develop by 2020. Pre-sanctions agreements between Iran and foreign energy firms offered partners oil and gas revenue payments in return for cash investment in so-called buyback contracts. But foreigners were barred from joint ventures or from extracting themselves, making these contracts unpopular with investors. Iranian officials say that’s about to change. “Iran is going to apply a new version of oil contract model in order to make it more attractive for foreign investors, with similar terms to a PSA (production sharing agreement),” said Shahrouz Abolhosseini, petroleum products pricing manager at National Iranian Oil Company (NIOC), during a business meeting in the South Korean capital on Wednesday. “NIOC … aims to embark on joint ventures with foreign investors and international companies in the oil and gas industry,” he added.

Interview - S.African oil firms to meet Iranians to discuss crude imports – South African oil companies will meet Iranian officials in October to discuss the resumption of crude imports, the deputy energy minister said on Thursday. International sanctions on Iran could start to be lifted as early as spring next year as Tehran and the West rebuild their ties and potentially open up billions of dollars of trade deals. Iran was once the biggest oil supplier to South Africa, exporting around 380,000 barrels per day that powered up the continent’s most advanced economy. “There is a visit that has already been scheduled for them to come to South Africa in October and they will get the opportunity to speak to the oil companies,” Thembisile Majola told Reuters. Majola also said in a telephone interview that South Africa was planning to build a crude oil refinery, which would use Iranian crude, to add to the existing PetroSA’s gas-to-liquid plant in Mossel Bay. “We are looking to build a refinery and we had already began these kinds of discussion in terms of having a partnership,” she said, adding state-owned PetroSA had agreed to help Tehran build a gas-to-liquid refinery

Common factors in commodity and asset markets - -- Increases in oil production in the United States and the Middle East were certainly key factors in the huge drop in oil prices over the last year. Nevertheless, one can’t help but be struck by the fact that the weekly changes in oil prices correlate with dramatic moves in other commodity and financial markets.For some time I’ve been summarizing global macro factors behind oil price movements by looking at the price of copper, the dollar exchange rate, and the interest rate. Here’s a regression of the weekly percent change in oil prices (as measured by 100 times the change in the natural logarithm of the price of a barrel of WTI) on the weekly percent change in copper prices, the weekly percent change in the trade-weighted value of the dollar, and the weekly change in the yield on a 10-year Treasury. The regression is estimated using data from April 2007 to June 2014 (right before oil prices began their spectacular decline). If in a given week copper prices rose, the dollar depreciated, and interest rates rose, then it’s likely oil prices rose that week as well. The regression can account for about a third of the variation in oil prices through June 2014.  Comparing September 4 values with those at the start of July 2014, copper is down 34.3% (logarithmically), the dollar is up 19.3%, and the 10-year yield is down 52 basis points. Based on the above regression, you’d expect we would have seen a 41.8% (logarithmic) decline in the price of crude oil, or that the price of oil would have fallen from $105 to $69. In fact on September 4 oil was at $46. So certainly more was going on than just changes in the broader global economy. But just as certainly, the latter played an important role in the slide of the price of oil. The solid black line in the graph below plots the dollar price of WTI since the start of 2014, while the dotted blue line gives the price that is predicted by the above regression for each week since July 2014 based solely on what happened to copper prices, the exchange rate, and interest rates during that week.

Why Metal Prices Are Likely to Remain Weak for a While - Prices for iron ore, nickel and other metals have been in a multiyear slump amid sluggish growth in advanced economies and weakening expansion in emerging markets. Don’t expect the trend to reverse anytime soon. Despite forecasting a rebound in worldwide output next year, the International Monetary Fund says China’s ongoing slowdown and more than ample production capacity will push down prices still further. “The balance between weaker demand and steady increase in supply suggests that the metals market is likely to see a continued glut,” say top IMF commodities economists in a new blog post Monday. That’s because China, which accounts for half of the global base-metal consumption, is slowing at a faster pace than expected. According to IMF calculations, fluctuations in China’s industrial production account for 60% of the variance in metal prices. A slew of recent data is fomenting doubts about China’s ability to meet the government’s official growth target. The country is also shifting away from reliance on investment toward more consumption. Add to those factors a forecast for base-metal production capacity to remain relatively robust in the near future, and “ample supply is therefore likely to continue pushing metal prices further down,” the IMF economists say. That’s a boon for economies that import metal. But for nations that rely heavily on such exports, such as Chile, Niger and Liberia, it will likely be a rough ride ahead.

China's Economy Continues To Crumble As Key Data Is Worst In 15 Years -- When China transitioned to a new currency regime midway through last month, the PBoC triggered a veritable meltdown in emerging markets.  Make no mistake, part of the carnage was due to the fact that by devaluing the yuan, Beijing was effectively robbing the world of export competitiveness at a very precarious time. Fears that a weaker yuan would put upward pressure on regional REERs while further dampening onshore demand exacerbated an already tenuous situation across EMs, and in at least one case, forced the abandonment of a currency peg.  On Sunday, we got still more evidence to suggest that China’s economy isn’t growing at anywhere near the clip the official figures suggest as industrial production came in light of expectations and FAI rose at the slowest pace since 2000. Here’s WSJ: The data released Sunday pointed to continued weakness across large sw aths of the world’s second-largest economy, heaping more pressure on the government to seek to further stimulate activity.“This is very disappointing data,” said ANZ economist Li-Gang Liu.“It’s very difficult to see Premier Li Keqiang getting his 7% growth target this year.”China’s industrial production grew 6.1% year-over-year in August, according to the National Bureau of Statistics. While this was marginally faster than July’s 6.0% level, it compared with an already very low reading in August of 2014 and fell well below a median 6.6% forecast by 12 economists in a Wall Street Journal survey. Fixed-asset investment in nonrural areas of China rose 10.9% in the January-August period compared with the year-earlier period. This was also below expectation and slower than the 11.2% increase recorded in the January-July period.

China's investment, factory output lower than expected -- Growth in China's investment and factory output missed forecasts in August, pointing to a further cooling in the world's second-largest economy that will likely prompt the government to roll out more support measures. The downbeat data came on the heels of weak trade and inflation readings, raising the chances that third-quarter economic growth may dip below 7 per cent for the first time since the global crisis. Fears of a China-led global economic slowdown have roiled global markets in recent weeks, prompting speculation that the US central bank may hold off on raising interest rates later this week. "The pace of slowdown in fixed-asset investment is relatively fast - dragged by the property sector, while the factory sector remains sluggish," said Mr Zhou Hao, senior economist at Commerzbank AG in Singapore. "Overall, the economy is very weak and the central bank may have to continue cutting interest rates and banks' reserve requirement," he said, adding that he expected growth to very likely dip below 7 per cent in the July-September quarter. Some economists believe current growth is already much weaker than official data suggests. August power output, for example, was up just 1 per cent year-on-year, and production of key industrial commodities such as steel weakened. Growth in China's fixed-asset investment, one of the crucial drivers of the economy, slowed to 10.9 per cent in the first eight months of 2015 - the weakest pace in nearly 15 years, data from the National Bureau of Statistics showed.

China economy: growth target in doubt as investment and factory output stutters - Telegraph: Chinese investment grew at the slowest pace in 15 years in the first eight months of 2015 as factory output disappointed, raising fears that third quarter growth would drop below 7pc for the first time since the financial crisis. Fixed-asset investment, which covers expenditure on a wide range of assets from plant and machinery to infrastructure, expanded by 10.9pc in the year to August. This was weaker than the 11.1pc increase expected by economists and represents the slowest rise since 2000. The slowdown was driven by weaker property investment, according to the National Bureau of Statistics. Industrial output was also weaker than expected, rising by 6.1pc in the year to August compared with expectations for a 6.4pc increase. Economists said Sunday's figures provided further evidence that the world's second largest economy is cooling. Zhou Hao, an economist at Commerzbank, said growth figures for the third quarter, released next month, were likely to show that the Chinese economy expanded at an annual rate of less than 7pc. This would represent the weakest quarter of growth since the first three months of 2009, when the economy grew by 6.2pc.

‘The manufacturing boom in Guangdong is over’: Industrial robot makers the latest to get swallowed up by China’s economic slowdown -- Manufacturers of industrial robots in the southern province of Guangdong, China’s manufacturing hub, are seeing declining profits as demand dwindles in tandem with the country’s economic slowdown. A senior salesman for LXD Robotics, one of the biggest robot makers in Foshan, a city of 7million people, predicted that only five per cent of the companies making such robots in the province would still be around in two years’ time. This suggests the fault lines of China’s slowdown may run deeper than previously thought, given that the nation is said to be in the throes of an automation revolution, as makers look to robotics to overcome labour shortages and spur innovation amid rising wages and in line with a central policy this year touted by Premier Li Keqiang.Early this year, authorities in the province said they would spend 943 billion yuan (US$149.93 million) to replace traditional manpower with the kind that require batteries or electricity, but which work tirelessly and never complain or ask for a raise. As a result, many manufacturers of robots in the region set overly ambitious targets, while investment in this field was tipped to hit a record high.

China Plans Shake-Up of State-Owned Enterprises to Boost Growth - China has unveiled the much-awaited guidelines for reform of its bloated state-owned enterprise sector as the latest official data show its economy continuing to slow. The guidance from the State Council, China’s cabinet, calls for a shake-up of SOEs with share sales and management changes planned to reduce losses and improve efficiency, reported Xinhua, the official news agency, on Sunday. “The guidelines suggest that by 2020, the goals in all the main reform areas should be accomplished, constituting a system that is more suitable to the nation’s socialist-market economy,” said Xinhua. “The SOE system should be more modernised and market-oriented. It should make for higher economic vitality, higher control, greater influence and SOEs will be more risk-resistant.” China has more than 155,000 SOEs, employing tens of millions of people in all sectors from banks to hotels and airlines to oil refiners. But while the vast majority are managed by local governments, there is a core of more than 100 large nationally strategic groups, including ICBC, the world’s biggest bank by assets, and China Mobile, the world’s biggest network by subscribers, controlled by Beijing.

China grabs unused funds to spend on new projects as growth slows - Chinese authorities have seized up to 1 trillion yuan ($157 billion) from local governments who failed to use their budget allocations, sources said, as Beijing looks for ways to spend its way out of an economic slowdown. The exclusive Reuters report came after China's stocks fell following data suggesting economic growth was running below the 2015 target level of about 7 percent, heightening concerns about the health of the world's second largest economy. "China's economy faces relatively big downward pressure, so investor sentiment remains weak," said Gu Yongtao, strategist at Cinda Securities. Two sources close to the government said budget funds repossessed from local governments would be used to pay for other investments. The huge underspend, linked to officials' reluctance to splash out on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year. "In the past, local governments had asked for the money. Money was given, but no one acted," said one of the two sources. On Monday, China's powerful economic planner, the National Development and Reform Commission (NDRC), said it had approved feasibility studies for two road projects worth a total of 6.2 billion yuan ($973.65 million). Last week, the NDRC gave the green light for railway, highway and bridge projects worth a combined $23 billion, in a sign authorities are focusing on infrastructure spending rather than deeper reforms to shore up growth in the short term.

China to Remove Dividend Tax for Long-Term Shareholders - China has recently announced that Chinese investors holding shares of stock for more than one year will be exempted from a 5-percent dividend tax. The immediate objective of the tax policy change appears to be to promote long-term share-holding and suppress short-term speculation in the stock market, but it is another important step in making the Chinese tax system one of the most growth friendly in the world. Dividend income in China is subject to graduated tax rates based on the length of time the shares have been held. The new tax policy has eliminated the dividend tax on long-term investors, while dividend tax rates for short term stock holdings stay the same. Investor who hold shares for one month or less incur the full dividend tax rate of 20 percent; and those holding shares for between one month and a year are taxed at 10 percent. Before the latest change, persons holding shares longer than a year paid a 5 percent tax on dividends. That rate now drops to zero. China has been reducing tax rates on dividends since 2005. Tax rate paid by Chinese taxpayers on dividends on stocks:

China Ramps Up Fiscal Spending as Economy Slows Further -- China's fiscal spending surged 25.9% from a year earlier to 1.28 trillion yuan ($200.1 billion) last month, accelerating from a 24.1% pace in July, the Ministry of Finance said Tuesday. In the first eight months of the year, fiscal expenditure rose 14.8% from the same period last year to 10 trillion yuan, according to the official data. The world's second-largest economy has ramped up spending in recent months as the country showed more signs of weakness. Economic data including industrial production and fixed-asset investment came in weaker than expected in August. China has made moves on the monetary front to rekindle growth, including five cuts in benchmark interest rates since November injecting more funds into the nation's banking system to boost lending. A number of economists, however, have said China needs to loosen its purse strings because monetary easing alone isn't enough to stimulate the economic growth. Many also have said that Beijing might miss its own 7% growth target this year if the economy continues its current sluggishness. On Monday, China's economic planner said it would implement measures to allocate more money to support infrastructure construction, including extending additional funds from a government-backed fund as soon as the end of September to projects that would have foreseeable returns. Government officials have said slower growth in investment, which is a major pillar of the economy, was mainly due to lack of funds, as banks scaled back lending amid a buildup of bad debt. Meanwhile, the slowdown also damped government revenue. Fiscal revenue increased 6.2% in August from a year earlier to 967.1 billion yuan, down from a 12.5% rise recorded in July, according to data from the finance ministry.

China Spending Surge Means Debts Will Only Get Larger - WSJ: may support growth, but it is also a setback to getting the country’s debt load under control. Government agencies have publicly confirmed a new willingness to spend on infrastructure in recent weeks. Already in August, infrastructure investment rose 21% from a year earlier, up from 15.8% growth in July, according to calculations by economists at Société Générale. That far outpaced total fixed-asset-investment growth, which clocked in at just 9.2%. What is less clear is where the money is coming from. In recent years, much of the infrastructure development has been funded chiefly by off-balance sheet local government financing platforms, which helped get around limits on public borrowing. This avenue seemed to be cut off by a new budget law in late 2014, which ostensibly banned new borrowing by such financing vehicles. But it quickly became clear that this amounted to a kind of fiscal cliff for the economy. Beijing quietly backtracked, and is now allowing the platforms to keep borrowing for approved projects. Still, China will be eager to keep a lid on borrowing by provinces and towns. An official audit of total local government debt, released earlier this month, found it reached 24 trillion yuan ($3.8 trillion) at the end of 2014, up 34% over 18 months. Beijing doesn’t want to see that pace of growth continue.

Daiwa analyst known as 'Yuan Bear' warns of financial crisis in China  -  As economic growth slows in mainland China, policymakers are left with only two choices - hard landing or a financial crisis, Kevin Lai, Daiwa Capital Markets' chief economist for Asia ex-Japan, warned yesterday. Lai said rounds of monetary easing, doubts over the true level of overseas debt held by domestic companies, and a strengthening US dollar on the horizon meant the world's second-largest economy was coping with thornier issues than headline figures suggested. His long-held pessimistic views on China have earned him the nickname "Yuan Bear" and, two years ago, he was among the first to predict the yuan's depreciation. "The debate in the market now is between a soft landing and a hard landing," Lai said. "But I think the real debate should be either a hard landing or a possible financial crisis." In his latest report - "Crowded entry, jammed exit" - Lai slashed his target for the yuan from 6.83 to 7.50 against the US dollar by the end of 2016. That contrasts with more positive views in the market. On Monday, ING raised its yuan forecast against the US dollar to 6.40 from 6.55 by the end of the year, citing the recent firming trend of the currency, as well as Premier Li Keqiang's soothing remarks at the World Economic Forum in Dalian last week. Analysts at Capital Economics also noted on Monday that signs were emerging that economic activity would improve, with more fiscal spending and credit growth on the cards. "While China is still undergoing a structural slowdown as part of its transition toward a more consumption-driven economy, we believe that the short-run downside risks are overstated," they said.

How China lost UK GDP in 22 working days - It’s easy to get lost in the extraordinarily large numbers used to describe complex, modern economies. Economic analysis is strewn with the words millions, billions and trillions, which sound deceptively similar and are all too easy to jumble up in a slip of the tongue or a slip of the pen. But size matters. In the 12 months from June 2014, the value of the Chinese stock market increased by more than the annual output of Japan, but over the next month fell by an amount equal to UK GDP. Between June 2014 and June 2015 the Chinese stock market created a vast amount of wealth. The £3.6 trillion created was a quarter more than the annual economic output of Japan in 2014 and the increase in valuation in 2015 alone was equivalent to the GDP of Germany. But those are flows. It might be more intuitive to compare those numbers to stocks of assets, apples for apples – (Chinese-manufactured) iPhones for iPhones. The market capitalisation of the Tokyo Stock Exchange is about 100% of Japanese GDP, so the Chinese equity market increased by more in one year than the entire value of the world’s fourth largest stock exchange.In the summer of 2015, the Chinese stock market lost a (slightly less) vast amount of wealth. The £1.7 trillion wiped off the Shanghai and Shenzhen Composite indexes in the initial 22-day collapse is equivalent to the total value of goods and services produced in the United Kingdom in 2013. Again, comparing like-for-like, that is more than the total outstanding stock of lending to UK households; more than a third of the value of all gold that has ever been mined; and more than double the value of Euro notes and coins in circulation. Finally, the Chinese stock market managed to write off seven and a half times the nominal value of outstanding Greek government debt in the space of a month. At the end of August, the Chinese equity markets lost another £1 trillion and in the process gave back the rest of 2015’s gains.

China Faces Deflation Risk - According to the National Bureau of Statistics of China, the consumer price index (CPI) increased 2% in August from a year earlier, at the fastest pace in a year, while the producer price index (PPI) fell 5.9%, extending declines to 42 months. The gap between CPI and PPI is the widest since 1994. On the one hand, CPI inflation is now higher than the one-year benchmark deposit rate, crimping real interest rates for savers. The surge in food prices is the main factor that contributed to the pickup in CPI, affecting nearly 1.23% increase in the overall price level. As the official report shows, the price of pork increased 19.6% and the prices of vegetables were up by 15.9% from a year ago. However, the increase in CPI is not a big challenge for the Chinese government. Problems such as pork supply crunch can be solved in the short-term. Despite the soaring food prices, non-food prices only went up by 1.1% year-on-year. Moreover, the increase in CPI was still significantly below the government's annual target of 3%. On the other hand, the falling PPI is rather worrying. The latest figure suggests that China is facing a new risk of falling into deflation. As PPI represents the prices of products for manufacturers, PPI deflation would erode the profits of many companies, raise the burden of their debts, and push up real borrowing costs for the industrial sector, which in turn affects consumption and the entire economy. Last month, manufacturers laid off workers at a faster rate as their order books shrank. In addition, the declining PPI would also influence CPI eventually. Weak domestic demand due to slowing down economic growth, lower overseas demand and overcapacity across many sectors are the main reasons that caused PPI to fall. Furthermore, as the official report shows, among major industries, PPI extraction of petroleum and natural gas decreased 37.9%; that of mining of ferrous metal ores decreased 20.4%. The de-inventory process in energy sector caused significant structural shifts in demand. Producer prices for consumer goods rather went down only by 0.3%.

Is China Running Out of Reserves and Does It Matter? - Joseph Gagnon -After building the largest stockpile of foreign exchange reserves in global history, China is now spending them at a rapid pace to keep its currency from depreciating.  Is it plausible that China could be forced to devalue the renminbi because it runs out (or fears it may run out) of reserves?  And what other use do China’s reserves have anyway? It is highly unlikely that China would need to spend all of its reserves to defend the renminbi’s current value.  Moreover, the reserves are not useful for anything except to manage the renminbi, so China may as well use them to keep its exchange rate stable in this time of volatility.  Indeed, because the renminbi is bound to appreciate against the dollar and the euro in the long run, China is better off selling reserves while it can still get a good price for them. Right now, gloom about China’s economic transition and market worries about potential policy responses have propelled so-called “hot money” out of China at a record clip.  To maintain the renminbi peg to the US dollar, China’s central bank must take the other side of these transactions and supply foreign currency in exchange for domestic currency.  Hot money gets its name because it moves around quickly.  But hot money is not unlimited, and it would be a mistake to conclude that it will continue to flow out at the current pace for long enough to exhaust China’s reserves. The reported value of China’s reserves dropped $94 billion in August.  China must have spent more than that defending the renminbi peg because some of its reserves are invested in euro and yen, which rose in value about 3 percent during the month.  In addition, China has a large current account surplus, averaging about $25 billion per month.  Assuming that the euro and the yen stabilize against the dollar and the current account surplus remains near its current level, it would take more than two years of hot money outflows at the August pace for China to run out of reserves.  I doubt there is anywhere near that much hot money in China, and sentiment on China is not likely to remain so bearish for so long.

China banks' Aug net FX sales jump to $127 bln, show outflows rising (Reuters) - China's banks sold a net 807 billion yuan ($126.8 billion) of foreign exchange on behalf of clients in August, up sharply from July's 174 billion yuan, reinforcing signs of increased capital outflows in the wake of a surprising currency devaluation. Commercial banks sold a net $43.5 billion in foreign exchange settlements last month, taking into account their own foreign currency purchases, data from the State Administration of Foreign Exchange (SAFE), the country's foreign exchange regulator, showed on Thursday. Earlier data showed China's central bank and commercial banks sold a record 723.8 billion yuan ($113.69 billion) of foreign exchange in August on a net basis, highlighting how capital outflows intensified. The central bank said it sold a net 318.4 billion yuan worth of foreign exchange in August. The data, along with a record drop in the country's foreign exchange reserves in August, added to signs of dollar-selling intervention to stem a slide in the yuan.

China Outflows Said To Reach Staggering $308 Billion In Just 75 Days -- Whether Janet Yellen admits it or not, you can bet that going into today’s most important Fed meeting ever (until the next one) the supposedly “data dependent” FOMC has taken a good hard look at what’s happening in China in the wake of Beijing’s not-so-smooth transition to a new currency regime.  We’ve detailed the story exhaustively, so we won’t endeavor to recap it all here, but the short version is that what was billed as a move to give the market a greater role in setting the yuan’s exchange rate actually had the opposite effect - at least in the short run. That is, the PBoC used to manipulate the fix to control the spot and now they simply manipulate the spot to control the fix, but unabated devaluation pressure has forced China to intervene on a massive scale and that intervention recently moved into the offshore market as well, as Beijing scrambled to close the onshore/offshore spread. This is costing China dearly in terms of FX reserves, the liquidation of which was so massive in August as to prompt Deutsche Bank to brand it “Quantitative Tightening”, as the reserve drawdowns are effectively QE in reverse. This is of course the same dynamic that’s been taking place in Saudi Arabia in the wake of the petrodollar’s demise and mirrors the response across EMs which are struggling to support commodity currencies as prices collapse. Attempts to quantify the scope of China’s reserve burn have become ubiquitous, as the cost of offsetting the outflows from China effectively serves as a proxy for the extent to which the Fed would, were they to hike, be “tightening into a tightening”, as we’ve put it.  On Wednesday we showed that Beijing liquidated $83 billion in Treasurys in July. That, as we also noted, “is before China announced its devaluation on August 11 and before, as we also first reported, it sold another $100 billion in Treasurys in August.”

A new Chinese export — recession risk - FT.com: Is a global economic recession likely? If so, what might trigger it? Willem Buiter, Citi’s chief economist and the Financial Times’ erstwhile Maverecon blogger, answers these questions: “Yes” and “China”. His case is plausible. This does not mean we must expect a recession. But people should see such a scenario as plausible. Mr Buiter does not expect world output to decline. The notion here is a “growth recession”, a period of growth well below the potential rate of about 3 per cent. One might imagine 2 per cent or less. Mr Buiter estimates the likelihood of such an outcome at 40 per cent. His scenario would start with China. Like many others, he believes China’s growth is overstated by official statistics and may be as low as 4 per cent. This is plausible, if not universally accepted. It might become even worse. First, an investment share of 46 per cent of gross domestic product would be excessive in an economy growing 7 per cent, let alone one growing at 4 per cent. Second, a huge expansion of debt, often of doubtful quality, has accompanied this excessive investment. Yet merely sustaining investment at these levels would require far more borrowing. Finally, central government, alone possessed of a strong balance sheet, might be reluctant to offset a slowdown in investment, while the shares of households in national income and consumption in GDP are too low to do so. Suppose, then, that investment shrank drastically as demand and balance-sheet constraints bit. What might be the effects on the world economy? One channel would be a decline in imports of capital goods. Since about a third of global investment (at market prices) occurs inside China, the impact could be large. Japan, South Korea and Germany would be adversely affected. A more important channel is commodity trade. Commodity prices have fallen, but are still far from low by historical standards. Even with prices where they are, commodity exporters are suffering. Among them are countries like Australia, Brazil, Canada, the Gulf States, Kazakhstan, Russia and Venezuela. Meanwhile, net commodity importers, such as India and most European countries, are gaining.

Korea's household debt highest in ratio to GDP --- Korea posted the highest household debt to GDP ratio among emerging market economies last year, the Bank of International Settlements (BIS) said Tuesday. Backed by the government's stimulus packages and record-low interest rate, household debt has soared. It stood at 84 percent of GDP in 2014, far higher than the average of 30 percent for 14 emerging economies. It was also higher than the average of 73 percent for 26 developed countries. "Total debt in advanced economies has continued to expand by 36 percentage points of GDP since 2007. Meanwhile, total debt in emerging market economies has risen even more by 50 percentage points," said a BIS quarterly report released on Sept. 13. Korea is followed by Malaysia and Thailand both with 69 percent, Hong Kong with 66 percent, Singapore with 61 percent and South Africa with 37 percent, it said. Korea's household debt reached 1.13 quadrillion won at the end of June, jumping from 1.09 quadrillion won at the end of 2014, according to the Bank of Korea (BOK). Economists have expressed concern that record-high household debt could deal a blow to the economy if the U.S. Federal Reserve begins to raise interest rates as early as this month. Higher rates will push up the value of the dollar and investors are expected to exit from emerging markets seeking stable assets, they said.

S&P downgrades Japan, doubts Abenomics can soon reverse deterioration  (Reuters) - Ratings agency Standard & Poor's on Wednesday downgraded Japan's credit rating by one notch to A+, saying economic support for the country's sovereign creditworthiness had continued to weaken in the past three or four years. S&P cut its rating on Japan from AA- to A+, which is four notches below its top rating of AAA. The agency raised its outlook from negative to stable. It was the first Japan downgrade by S&P since January 2011 and came 4-1/2 years after it last lowered its outlook, from stable to negative. The downgrade brings its Japan rating into line with rival Moody's Investors Service, which downgraded Japan to A1 in December last year. Fitch Ratings cut its rating on Japan by one notch to A in April. The yen shrugged off the lowering of the credit rating. It briefly fell but then regained ground. "We believe the likelihood of an economic recovery in Japan strong enough to restore economic support for sovereign creditworthiness commensurate with our previous assessment has diminished," S&P said in a statement. "Despite showing initial promise, we believe that the government's economic revival strategy - dubbed 'Abenomics'- will not be able to reverse this deterioration in the next two to three years," it added. The world's third-largest economy shrank in the April-June quarter, and analysts expect any rebound in the current quarter to be modest as private consumption remains weak and China's slowdown dampens prospects for a solid recovery in exports.

Weak Inflation Gives RBI Elbow Room to Cut Rates: Experts -  Weak inflation figures in the country have provided "elbow room" to the Reserve Bank of India to lower rates by 25 basis points this month, say global brokerages. Financial services majors like HSBC, DBS, Bank of America-Merrill Lynch (BofA-ML) and State Bank of India expect the RBI to go for a 25 basis points rate cut during its policy review meet later this month. Retail as well as Wholesale Price Index-based inflation dived to new lows in August on falling global commodity prices. Consumer Price Index-based inflation, which the RBI considers as benchmark, eased to 3.66 per cent in August from 3.69 per cent the previous month, while the one based on WPI tumbled for the 10th straight month to (-)4.95 per cent compared with a provisional (-)4.05 per cent in July. "These weak inflation numbers give RBI the elbow room to lower rates by 25 bps this month," DBS said in a note. "We grow more confident of our September 29, 25 bps RBI rate cut call after August CPI inflation came in at 3.66 per cent and July CPI inflation was revised down to 3.69 per cent from 3.78 per cent earlier," BofA-ML said in a research note. It further added that the CPI inflation remains well on track to the RBI's "under 6 per cent" January 2016 forecast, notwithstanding a second consecutive poor monsoon. "We continue to believe that the Modi government will use supply-side measures rather than the RBI to fight a rain shock. On balance, we continue to expect the RBI to cut 25 bps each on September 29 and February 2," BofA-ML said.

Raghuram Rajan’s Common Man Theory on Inflation - India’s inflation has eased in recent months but not as far as the man or woman on the street is concerned, and that poses a challenge, Raghuram Rajan, governor of the country’s central bank said Monday. Mr. Rajan, who is on leave from his position as a finance professor at the Booth School of Business in Chicago, donned his metaphorical mortar board on Monday to explain to a room full of bankers and executives in Mumbai why he hasn’t been in a rush to cut interest rates. One key reason: the public doesn’t believe that inflation has fallen and is not convinced that when it does, it will stay down, the Reserve Bank of India governor said. If consumers believe that inflation will remain high, they tend to save and not buy goods and services, thus tempering demand in the economy. Meanwhile, if manufacturers believe that the cost of their raw materials could inflate, they are likely to price their products at a higher rate. Mr. Rajan noted that India’s average inflation was more than 9% between 2006 and 2013. The perception of the “Aam Aadmi,” or common man is that inflation will remain high even though in July, consumer prices rose by only 3.78%, the lowest pace of growth in eight months. “The longer we had high inflation, the more the public’s expectations of inflation became entrenched at high numbers,” said Mr. Rajan. He said that for expectations to come down, India needs a long period of low inflation. The RBI needs to earn the public’s trust, he continued, that it will act against future inflationary threats. To build its credibility on this front, Mr. Rajan said the central bank is creating a framework that targets inflation. He also addressed demands from industry that the RBI should cut interest rates again, which many believe will boost growth. But, Mr. Rajan said, cutting rates works only in the short term. If there aren’t enough goods and services to provide for the higher demand, then the lack of supply can cause inflation to spike sharply, forcing the central bank to raise rates again, he said.

Bank Indonesia Cuts 2016 Forecast Economic Growth Indonesia, Keeps High BI Rate -- Bank Indonesia Governor Agus Martowardojo revealed the central bank’s new GDP growth prognosis for 2016 (5.2 - 5.6 percent year-on-year). Regarding full-year growth in 2015, Bank Indonesia expects to see a growth pace in the range of 4.7 - 5.1 percent (y/y), down from an earlier projection of 5.0 - 5.4 percent (y/y). Martowardojo added that Bank Indonesia expects economic growth to accelerate in this year's third and fourth quarters on improved government spending and infrastructure development. In the first half of 2015 government spending and government-led infrastructure development had been weak. In the second quarter of 2015, Indonesia’s GDP growth slowed to the six-year low of 4.67 percent (y/y) amid external turmoil (low commodity prices, China’s economic slowdown, and looming monetary tightening in the USA) and internal factors (high inflation, declining purchasing power, and the central bank’s high interest rate).

Stock sell-off reveals ‘major faultlines’ in economy, BIS says - FT.com: The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major faultlines”, the Bank for International Settlements said, as it warned that investors should not expect central banks to ride to the rescue and solve such deep-rooted problems. In a gloomy assessment of the turmoil that has shaken global stock markets in recent weeks, the BIS, which acts as the central bank of central banks, said emerging markets were particularly exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis. The stark warning comes days ahead of a critical meeting by the US Federal Reserve, which will decide whether to increase interest rates for the first time in nearly a decade. An increasing number of investors believe the Fed is likely to wait until the autumn before pulling the trigger. Still, policymakers across the developing world are bracing for the possibility that such a momentous move will prompt flights of capital and steep currency devaluations across Africa, Asia and Latin America. Unlike the International Monetary Fund and the World Bank, which have both called for the Fed to delay its “lift-off”, the BIS believes the problems facing emerging markets are partly a consequence of the ultra-low borrowing costs that have prevailed since the crisis. “This is . . . a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalisation,” said Claudio Borio, head of the BIS’ Monetary and Economic Department. “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills,” he added.

“I’m not in this world to live up to your [inflation] expectations and you’re not in this world to live up to mine” -- Many economists think the government can help a weak economy by convincing people the rate of price increases is poised to accelerate. In theory, households will spend more whilst businesses will boost their hiring and investment. New research presented at the Brookings Panel on Economic Activity, which we attended, suggests this is mostly nonsense. A detailed survey of business executives in New Zealand suggests inflation expectations have basically no direct impact on the way companies make decisions. (Inflation expectations could affect how banks and capital markets charge firms for funding, but that’s an indirect effect.)  When asked what they would do if they learned prices would increase more over the next year than they were currently expecting, 65 per cent of managers wouldn’t raise prices, 75 per cent wouldn’t raise wages, 73 per cent wouldn’t increase employment, and 71 per cent wouldn’t increase investment.

EM FX Bloodbath Continues As Lira Slides To New Low, Tenge Plunges -- In the four weeks since China shifted to a new currency regime, the pressure on emerging markets and commodity currencies has been both palpable and persistent.  The possibility (however unlikely) that the Fed might make a “policy error” this month by hiking rates and accelerating outflows from EMs has only made the situation worse as has the growing realization that China’s economy may be decelerating faster than even the most pessimistic observers had suspected.  And there are of course idiosyncratic, country-specific factors such as the political turmoil in Turkey, Malaysia, and Brazil and the disconnect between the ruble and the Kazakh tenge, with the latter having finally forced Kazakhstan to move to a free float last month as the yuan devaluation was the straw that broke the camel’s back for central Asia’s largest energy exporter who was already suffering from a severe reduction in trade competitiveness thanks to the tenge’s relative overvaluation. After regaining its footing, the tenge has hit the skids again, with Monday marking the seventh consecutive day of losses.In any event, one country where rates are almost certainly too low given the confluence of factors weighing on the currency is Turkey. The country’s central bank had an opportunity to stem the lira’s decline last month, but balked, instead insisting that Turkey would not hike until the Fed moves. That, combined with a poorly communicated strategy regarding how the country plans to react to DM policy normalization, rattled the market significantly and the lira’s slide continued unabated with political upheaval and escalating violence serving to exacerbate an already precarious FX situation.

Will emerging economies cause global ‘quantitative tightening’? - Global investors have been in thrall to the central banks ever since quantitative easing (QE) started in 2009 and, of course, all eyes are on the Federal Reserve this week. The Fed has now frozen its QE programme, and may raise rates sometime this year, though perhaps not as early as next Thursday. Nevertheless, global investors have been comforted by the extremely large increases in balance sheets proposed by the Bank of Japan (BoJ) and the ECB, and the overall scale of worldwide QE has seemed likely to remain sizeable for the foreseeable future. However, in recent months, an ominous new factor has arisen. Capital outflows from the emerging market economies (EMs) have surged, and have resulted in large declines in foreign exchange reserves as EM central banks have intervened to support their exchange rates.  Since these reserves are typically held in government bonds in the developed market economies (DMs), this process has resulted in bond sales by EM central banks. In August, this new factor has more than offset the entire QE undertaken by the ECB and the BoJ, leaving global QE substantially in negative territory. Some commentators have become concerned that this new form of “quantitative tightening” will result in a significant reversal of total central bank support for global asset prices, especially if the EM crisis gets worse. This blog examines the quantities involved, and discusses the analytical debate about whether any of this matters at all for asset prices. The conclusion is that the EM factor is likely to offset part, but perhaps not quite all, of the QE planned by the ECB and the BoJ in the next year. Overall, global QE will provide much less stimulus than it has since 2006.

Fitch warns of emerging market shock if Fed sticks to rate plan - - Emerging markets have accumulated $7.5 trillion of external debt and are acutely vulnerable to a rapid rise in US interest rates, regardless of whether they borrowed in dollars or their own currencies, Fitch Ratings has warned. The credit agency said international markets are pricing in a much slower pace of US monetary tightening than the US Federal Reserve itself, risking a potential financial upset in East Asia, Latin America and Africa if Fed hawks refuse to bow to market pressure over the next two years. Fitch said the Fed has signalled a rise in rates to 3.8pc beyond 2017 but investors simply refuse to believe that this will happen, with futures contracts implying rates of just 1.4pc over the same span – an unprecedented gap of 240 basis points, and one that is fraught with risk.The warning comes as the Fed decides this week whether to raise rates for the first time in nine years, despite worries about China and the sharp sell-off in global equities in August, or whether to delay yet again until the dust settles. Traders say the likelihood that the Fed will pull the trigger on Thursday has fallen to 28pc. Andrew Colquhoun, Fitch’s senior director, said the pace of Fed tightening has powerful implications for emerging markets, which levered their economies to the hilt during the era of excess liquidity from Fed largesse and zero rates. “An outcome closer to the Fed’s own guidance would be a shock,” he said. External debt in these in these countries has increased by $2.8 trillion to $7.5 trillion since the Lehman crisis. The most extreme rise has been in Latin America, where gross external debt has jumped by 118pc.

US interest rate rise could trigger global debt crisis - Telegraph: Debt ratios have reached extreme levels across all major regions of the global economy, leaving the financial system acutely vulnerable to monetary tightening by the US Federal Reserve, the world's top financial watchdog has warned. The Bank for International Settlements said the wild market ructions of recent weeks and capital outflows from China are warning signs that the massive build-up in credit is coming back to haunt, compounded by worries that policymakers may be struggling to control events. "We are not seeing isolated tremors, but the release of pressure that has gradually accumulated over the years along major fault lines," said Claudio Borio, the bank's chief economist. The Swiss-based BIS said total debt ratios are now significantly higher than they were at the peak of the last credit cycle in 2007, just before the onset of global financial crisis. Combined public and private debt has jumped by 36 percentage points since then to 265pc of GDP in the the developed economies.  This time emerging markets have been drawn into the credit spree as well. Total debt has spiked 50 points to 167pc, and even higher to 235pc in China, a pace of credit growth that has almost always preceded major financial crises in the past.

Indebted emerging world about to count cost of Fed rate rise | Reuters: Sometime this year, possibly even this week, the U.S. Federal Reserve will add billions of dollars to the annual cost of borrowing. Many firms, especially in emerging markets, seem ill-prepared for the inevitable. Whenever the Fed finally starts tightening monetary policy, the impact will probably be felt for years by companies and households that loaded up on cheap debt during almost seven years of near-zero official U.S. interest rates. The Fed lifted the U.S. economy from near-collapse in 2008 when it slashed the Fed funds rate, effectively the base rate underpinning borrowing costs around the world. Now the heady years of rock-bottom rates are drawing to a close, with the Fed widely expected to raise them before the year-end and perhaps when its board meets on Thursday. Memories are therefore stirring of the ruckus that followed past Fed tightening cycles - hedge funds collapses, emerging currency crises and debt defaults. Some firms have anticipated the era of higher rates - which the U.S. central bank itself has been warning of for months - with steps such as cutting capital expenditure (capex). But this will do little to reduce a collective debt burden which has rocketed for years even though, by the laws of economics, the Fed was bound to reverse its policy sooner or later.

35 Years Of Economic History Is Coming To An End, And A Global Debt Crisis Could Be Next: If you’re old enough to have made a mortgage payment, say, a couple decades ago, then you likely remember a time when 8 per cent or even 10 per cent was a good mortgage rate. Today, of course, that would seem insanely high. Mortgage rates have been coming down for decades. It hasn’t been entirely downhill the whole time, but the long-term trend is clear, and today you can get a mortgage in Canada for less than 2.5 per cent. That’s been good news for homeowners, who have seen house prices shoot steadily upwards. It’s been less good for new home buyers, who face high house prices, but who can still afford them (arguably) thanks to those low interest rates. The Federal Reserve's funds rate has been coming down for more than three decades. But that whole trend is coming to an end. This week, there’s at least a 50-50 chance that the U.S. Federal Reserve will raise its prime lending rate -- arguably the most important interest rate in the world -- from the near-zero level where it has sat since December, 2008.  It may not happen at the Fed’s meeting this Thursday, but it will very likely happen before the end of the year. It will be the first time the Fed has raised interest rates in nine years. Having nowhere to go but up, the 35-year-long trend of downward interest rates will end and begin to reverse itself.: “This is a major inflection point. The end of free money is in sight.”  But when interest rates rise, many fear that the large run-up in asset prices that has been made possible in part by ever-cheaper borrowing costs may reverse itself as well.

Debt storm looms as US walks tightrope of higher rates -  The OECD has called for higher US interest rates "soon" to reduce the risk of the economy overheating, but warned that rapid tightening or a hard landing in China could trigger an emerging market debt storm with "serious repercussions" for the global economy. The Paris-based think tank cut its global growth forecasts for the next two years as it said slower trade and "major uncertainties clouding the outlook" meant the expansion would be "sub-par" in 2015. As US Federal Reserve policymakers meet to decide whether to raise interest rates for the first time in nine years, the Organisation for Economic Co-operation and Development said "solid growth" in the world's largest economy warranted tighter policy.However, it said the timing of rate rises was less important than how quickly rates increased, adding that the current benign inflation environment meant increases should proceed at a "very gradual pace". It warned that the "rapid" tightening implied by the Fed's own projections could exert a big drag on US growth and exacerbate market volatility. "The timing of the first rate hike is of secondary importance compared to the pace of increase. Clear communication of that pace will help to minimise financial market volatility," the OECD said in its interim economic outlook.  The OECD lowered its global growth forecast for 2015 to 3pc, from a projection of 3.1pc in June.

OECD Joins Chorus Of Global Confusion, Slashes Growth Forecasts As It Urges Rate Hike On Tuesday evening we brought you a fresh look at the worrisome deceleration in the pace of global trade, on the way to reiterating a point we’ve been keen to drive home over the last six or so months. Specifically, the post-crisis world may have witnessed a kind of seismic shift wherein depressed global trade has become structural and endemic rather than cyclical and transient.  To quote WTO chief economist Robert Koopman. “It’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing as they should.” Yes, it is “almost” like that and as it turns out, the OECD is starting to come to the same conclusion even if they’re predisposed to cheer the relative strength of America’s cleanest dirty shirt economy. On Wednesday, OECD cut their forecast for global growth to 3% in 2015 and 3.6% in 2016. Here’s the full breakdown:

Tick Tock » 8 years to fix the malfunctioning heart of the world’s financial and legal systems but nothing was actually done … and now the clock is ticking and there is hardly any time left. The number of red lights now blinking at us, largely ignored by those who are supposed to be flying this thing, is growing all the time. It is not that any one of them is a clear harbinger of the end but taken together they paint a dismal and coherent picture – of a system eating itself. What I mean is that every political and financial system, every bureaucracy, public or private is originally set up to do a necessary job. And the duty of those who work in it is to make sure the system doe that job. But when the challenges facing the system change so that the system begins to no longer be able to do its job, those in it have two choices: they can work for the greater good and help change the old system into a new one better fit to the new challenges, or they can ignore the problems, and forget the reason they and the system were created in the first place and instead seek merely to get as much as they can from the failing system before it implodes. It seems obvious to me that is where we are today, both politically and financially. We are living in the End Times not because some angry supernatural being is coming to punish us, but because we are living in a system, a machine, which we built and therfore can change, but we have forgotten this. Some time in the recent past we crawled inside our machine, closed the last hatch to the outside behind us, and then forget there was an outside. Our leaders are the worst of us. They are the lords of the machine and they are sure outside there is only chaos. We must all save the machine. Their power and wealth demands it. And yet they do not know how.

Don't panic, Nigerian central bank head urges banks  (Reuters) - Nigerian central bank Governor Godwin Emefiele ruled out a naira devaluation on Thursday and told people not to panic about a government order which risks draining billions of dollars from the financial system. In an interview with Reuters, Emefiele said he was ready to inject liquidity if needed into the interbank market, which dried up this week following the directive to government departments to move their funds from commercial banks into a "Treasury Single Account" (TSA) at the central bank. The policy is part of new President Muhammadu Buhari's drive to fight corruption, but analysts say it could suck up as much as 10 percent of banking sector deposits in Africa's biggest economy -- playing havoc with banks' liquidity ratios. With global oil prices tumbling, banks and companies are already struggling with the consequences of a dive in Nigeria's energy revenues that has hit the naira currency and triggered flows of capital out of the country. Then JP Morgan kicked Nigeria out of its influential Emerging Markets Bond Index last week due to restrictions that the central bank imposed on the currency market to support the naira and preserve its foreign exchange reserves. Since taking office in May, Buhari has vowed to rein in Nigeria's dependency on oil exports which account for 90 percent of foreign currency earnings. However, he has faced criticism from investors for failing to appoint a cabinet yet or outline concrete policies.

Nigeria's Boko Haram crisis: Half a million children 'flee in five months' - BBC News: Half a million children have fled attacks by the Islamist group Boko Haram over the past five months, the UN children's agency says. Unicef says this brings the total number of displaced children in Nigeria and neighbouring countries to 1.4m. Tens of thousands are suffering from acute malnutrition and some of their camps have been affected by cholera. Boko Haram attacks have spiked after it was driven out of territory it held by a regional military offensive. "In northern Nigeria alone, nearly 1.2m children - over half of them under five years old - have been forced to flee their homes," Unicef said in a statement. Another 265,000 children have been uprooted in Cameroon, Chad and Niger, it said.  Unicef is treating malnourished children and providing clean water. It is also helping tens of thousands of children continue their education.  But the organisation says it has received only a third of the $50m (£32m) it needs for its work in the Lake Chad region, creating a shortfall in measles vaccinations and other aid.

Credit Rating Agencies and Brazil: Why The S&P’s Rating About Brazil Sovereign Debt Is Nonsense -So S&P has downgraded Brazil’s rating on long-term foreign currency debt to junk and lowered its long-term local currency sovereign credit rating to ‘BBB-‘ from ‘BBB+’. First, what are sovereign debt ratings? Standard & Poor’s sovereign rating is defined as follows: A current opinion of the creditworthiness of a sovereign government, where creditworthiness encompasses likelihood of default and credit stability (and in some cases recovery). So that ratings are related to “a sovereign’s ability and willingness to service financial obligations to nonofficial (commercial) creditors.” What does this tell us? To begin with, credit rating agencies have repeatedly been wrong. The same agencies that rated Enron investment grade just weeks before it went bust, the same people that assigned triple A rating to toxic subprime mortgage-backed securities are now downgrading Brazil sovereign debt. As the FCIC report pointed out “The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval.” (FCIC 2011)After all, should you take the credit rating agencies seriously? The answer is no. Brazil is a net external creditor, that is, though the federal government has debt denominated in foreign currency, it holds more foreign currency assets (figure 1) than it owes in foreign currency debt (figure 2). Brazil’s public sector can pay all of its long-term financial obligations denominated in foreign currency. Moreover, Brazil’s federal government can never become insolvent on obligations denominated on its own currency (note that since 1999 Brazil maintains a floating exchange rate regime, which increases domestic policy space).

A Panicked Brazil Promises Billions In Austerity, Does 180 On Budget After Downgrade --Exactly two weeks after conceding that a primary surplus was no longer in the cards after budget data in July came in meaningfully worse than expected, Brazil is scrambling to restore some semblance of confidence in the government’s ability to close a yawning budget gap by implementing austerity even as political turmoil has made embattled FinMin Joaquim Levy’s life a living hell of late. On the heels of a painful S&P downgrade, Brazil now says it plans to enact some BRL26 billion in primary spending cuts for the 2016 budget on the way to achieving in a primary surplus that amounts to 0.7% of GDP.In other words, a complete 180 from what the government said prior to the downgrade.. Here’s Bloomberg with a bit more on the announcement: Finance Minister Joaquim Levy proposed a new round of spending cuts and tax increases that are designed to close the budget gap and protect Brazil from further credit downgrades.The government will reduce 26 billion reais ($6.8 billion) in expenditures from next year’s budget in large part by capping salaries of civil servants and suspending exams for new entrants, Levy said Monday. Brazil also plans to raise 28 billion reais in revenue by boosting taxes, including a levy on financial transactions.

Pimco, Fidelity Stung by Collapse of Petrobras's 100-Year Bond - - When Petroleo Brasileiro SA sold 100-year bonds in June, the move was largely seen as a sign the corruption-tainted oil producer had put the worst of its problems behind it. For investors like Pacific Investment Management Co., Fidelity Management & Research Co. and Capital Group Inc. -- the three biggest holders of the securities -- that turned out to be a costly miscalculation. Since the $2.5 billion offering, the bonds have tumbled 15 percent. That’s four times the average loss for emerging-market company debt. The plunge deepened last week, when the securities sank to a record-low 69.5 cents on the dollar after Petrobras, as the Brazilian company is known, had its credit rating cut to junk by Standard & Poor’s. The world’s most-indebted major oil producer was stripped of its investment grade by Moody’s Investors Service seven months earlier as a widening probe into alleged bribes paid to former executives at the state-controlled oil company caused it to delay reporting earnings. Pimco didn’t respond to e-mailed requests for comment. Fidelity and Capital Group declined to comment. Petrobras didn’t respond to an e-mail seeking comment on the performance of its bonds. The company has already borrowed enough to finance its projects for the medium term, it said in a statement Sept. 10.

Brazil's credit downgrade may herald more 'fallen angels' (Reuters) - With Brazil's sovereign debt rating relegated to junk by Standard and Poor's this week, investors fear that messy politics and flagging growth will erode the credit score of other once-buoyant economies. Like Brazil, emerging markets such as Russia and South Africa have basked for around a decade in a the glow of investment-grade ratings. Now they are at risk of becoming "fallen angels", tumbling back below investment grade into junk. A junk rating can set off a wave of capital outflows because it automatically excludes its bonds from certain high-profile indexes. That means some conservative funds - active managers as well as passive ones that "track" the index - are no longer able to buy and sell the bonds. That can drive up international borrowing costs for businesses and governments, with potentially destabilising results. With Russia becoming a fallen angel earlier this year and Brazil halfway there, Turkey and South Africa could be next in line. Credit default swaps (CDS), which can be used insure against or to bet on national or corporate debt problems, forsee a wave of EM downgrades, according to an S&P Capital model called Market Derived Signal. "We will continue to see CDS spread pricing in expectations of rating cuts especially in South Africa and Turkey, given agencies are focusing on structural issues more than anything else these days" said Simon Quijano-Evans at Commerzbank. And with political and commodity market worries growing just as the global liquidity tide begins to ebb, "Ratings metrics are so complex now," said Quijano-Evans.

Brazil: Government Unveils $17 Billion Austerity Package: Once hailed as an emerging economic giant, Brazil announced a $17 billion austerity package on Monday that will freeze public-sector salaries, eliminate ministries, cut jobs and trim social programs.“These are major corrections,” said Finance Minister Joaquim Levy, Agence France-Presse reported.The package is designed to address a severe economic downturn. Standard & Poor’s cut Brazil’s sovereign credit rating to junk last week, giving it a score lower than Russia. The South American nation announced last month that its economy is officially in recession; GDP is forecasted to shrink by 1.49% this year after it grew by only 0.1% last year.Compounding matters for the resource-rich nation, commodity prices are tumbling while the state oil company Petrobras is embroiled in a massive corruption scandal.Some commentators have even hinted at Brazilian President Dilma Rousseff impeachment over Petrobras, though this remains unlikely as she has not been personally implicated.But even if austerity measures help balance the books, critics say they could entail a political price for the embattled President, who has seen huge public rallies demanding her ouster in recent months. Rousseff’s Workers’ Party traditionally draws from a blue collar support base that stands to suffer extra hardships from the cuts.“These are measures that are quite unpopular,” economist Felipe Queiroz told AFP. “Especially among lower-income people.”

Brazil’s economy tanks as graft probe widens -  Brazil’s economy is tanking — and it’s not just China, its principal trade partner, that is to blame. South America’s biggest economy fell into recession in August and is expected to shrink by two to three percent this year. Inflation is pushing 10 percent, its highest since 2003, unemployment has climbed to over eight percent, and the Brazilian real has lost about a third of its value against the dollar this year. Just a few years ago, Brazil was a favourite of investors — one of the “BRICS” group of emerging markets named for Brazil, Russia, India, China and South Africa. Its economy grew more than seven percent in 2010. Yet last week, ratings agency Standard & Poor’s downgraded Brazil’s credit rating from investment grade to junk. ‘Generalized irresponsibility’ In a rare front-page editorial Sunday, the Folha de S. Paulo newspaper reacted by attacking President Dilma Rousseff, who was narrowly reelected in October, for the “generalized irresponsibility” of recent years, during which public spending soared. Under Rousseff’s mentor and predecessor, two-time president Luiz Inácio Lula da Silva, Brazil combined social policies that reduced poverty with market-friendly economics. A global commodities boom helped spur the economy — with a hungry China in the forefront, eagerly buying iron ore, oil and soya beans from Brazil. Rousseff has blamed global factors for her country’s current economic woes. China’s growth has slowed and commodities prices have tumbled — a double hit for Brazil. But critics say she shares responsibility. Antonio Porto Gonçalves, director of business studies at the Getulio Vargas Foundation in Rio, blamed the government’s “extreme incompetence.” Exports, he noted, represent just 10 to 12 percent of Brazil’s economy.

Worries Rise Over Global Trade Slump - WSJ: A sharp drop in global trade growth this year is underscoring a disturbing legacy of the financial crisis: Exports and imports of goods are lagging far behind their pace of past expansions, threatening future productivity and living standards. For the third year in a row, the rate of growth in global trade is set to trail the already sluggish expansion of the world economy, according to data from the World Trade Organization and projections from leading economists. Before the recent slump, the last time trade growth underperformed the rate of an economic expansion was 1985.We have seen this burst of globalization, and now we’re at a point of consolidation, maybe retrenchment,” said WTO chief economist Robert Koopman. “It’s almost like the timing belt on the global growth engine is a bit off, or the cylinders are not firing as they should.” Since rebounding sharply in 2010 after the financial crisis, trade growth has averaged only about 3% a year, compared with 6% a year from 1983 to 2008, the WTO says. Economists blame the slowdown on many factors, from China’s shift away from certain kinds of manufacturing to a decline in international investment. They also point to a dearth of major new trade agreements and the erection of trade barriers after the 2008 downturn, as well as a newfound reluctance by companies to source products and components far from home.

August 2015 Sea Container Exports Still Lagging: The data for this series continues to be less than spectacular - but imports improved this month while exports degraded. The year-to-date volumes are contracting for exports but imports are now in the green. This continues to indicate weak economic conditions domestically and globally. Consider that imports final sales are added to GDP usually several months after import - while the import cost itself is subtracted from GDP in the month of import. Export final sales occur around the date of export. Container counts do not include bulk commodities such as oil or autos which are not shipped in containers. For this month:As the data is very noisy - the best way to look at this data is the 3 month rolling averages. There is a direct linkage between imports and USA economic activity - and the change in growth in imports foretells real change in economic growth. Export growth is an indicator of competitiveness and global economic growth. The continued underperforming of exports is not a positive sign for GDP as the year progresses.

Russia''s Economy Minister Says GDP Shrinking More Than Expected - --The Russian economy will contract more than previously expected while inflation is set to overshoot initial expectations, Economy Minister Alexei Ulyukayev said Wednesday. Mr. Ulyukayev told reporters in Russia's southern town of Sochi that gross domestic product shrank by 3.9% in the first eight months of this year. The oil-dependent economy may also finish this year contracting by 3.9%, compared with the previous economy ministry's estimate that it would drop no more than 3%, state-run Ria news agency reported. At the same time, consumer inflation is likely to exceed 12%, Mr. Ulyukayev said. He said that under those circumstances the country's central bank was right to hold its key interest rate at 11% last week after easing monetary policy five times so far this year. Mr. Ulyukayev had been the central bank's veteran first deputy chairman until 2013. Commenting on the possibility that the U.S. Federal Reserve could lift its interest rate later this week, Mr. Ulyukayev said he expects no major shocks from such a move. "I think that markets have largely priced in a change to the rate. If it won't be accompanied with some strong statement that it [the rate increase] is the start of the series of steps, there won't be big repercussions," RIA quoted Mr. Ulyukayev as saying.

European Lowflation - Paul Krugman -- There is good reason to believe that the conventional 2 percent inflation target is too low, even for the United States; the risks of hitting the zero lower bound are clearly much higher than people believed when 2 percent became orthodoxy. But whatever the case for a higher US target, the case is much, much stronger for Europe, which combines Japan-style demography — a shrinking working-age population, making secular stagnation more likely — with adjustment problems that get much harder when inflation is low. It’s important to realize that it matters not at all whether the overall rate is slightly positive or slightly negative; as the IMF says, “lowflation” creates all the problems we associate with deflation, even if the headline number is greater than zero. So how’s it going? Terribly. Despite QE, euro area core inflation is stuck below 1 percent.  The euro remains a slow-motion disaster, despite the constant claims that a bit of growth here or there somehow vindicates all the suffering.

Sovereign Debt for Territory: A new Global Elite Swap Strategy - Recurrent sovereign debt crises reflect neither “over-lending mistakes” by bankers and investors, nor “innocence” on the part of successive governments in deeply indebted nations. Rather, it all ties in with a global model for domination driven by a system of perpetual national debt which I have called “The Shylock Model”. As with the tango which requires rhythm and bravado, Argentina is again dancing centre-stage to global mega-bankers’ financial tunes after falling into a new “technical default”. Not just because the country is unable to pay off its massive public debt by heeding the “rules of the game” as written and continuously re-vamped by global usurers, but now with added legal immorality and judicial indecency on the part of New York’s Second District Manhattan Court presided by Judge Daniel Griesa. Griesa has shown no qualms in putting US law at the service of immoral parasitic “bankers and investors” such as Paul Singer of the Elliott/NML Fund and Mark Brodsky of the Aurelius Fund. The mainstream media inside and outside Argentina refer to these parasitic money “sloshers” as “vulture funds”; a conceptual mistake because one might then be led to believe that other funds and bankers – Goldman Sachs, HSBC, Citigroup, JPMorgan Chase, Deutsche Bank, George Soros, Rothschild, Warburg – are not “vultures” when, in fact, the very foundations of today’s global banking system lie on parasitic pro-vulture rules and laws coupled with an overpowering lack of moral values.

Eurozone waits for elections, rules out renegotiation - Eurozone officials were calm on Saturday about the potential outcome of the general elections in Greece but made it clear that the next Greek government should not expect to be in a position to renegotiate parts of its bailout agreement. For the first time in around seven months, the Eurogroup meeting that took place in Brussels was not mostly focused on Greece. In fact, the official statement at the end of the talks made only a small reference to the Greek program. “[The Eurogroup] is confident that the new government, which will be formed after the general elections later this month, will work constructively with its euro-area partners and the institutions to implement Greece’s new economic adjustment program, agreed in August,” it said. Eurogroup chief Jeroen Dijsselbloem underlined the need for preparations to continue while Greece waits for a new government to be elected so there will be no significant delay in the review process. “I think that it’s important that in Greece the preparations continue while the political situation is of course unclear at the moment,” said Dijsselbloem, who is also Dutch finance minister. “The work needs to continue as much as possible and the same would go for the institutions,” he said.

Eurogroup: Greece Loan Payouts May Be Linked To Reform Action -- Greece's pending loans could be disbursed into smaller sub-tranches depending on the effectiveness of the new Greek government to agree on the next round of prior actions and milestones, Economy Commissioner Pierre Moscovici said Saturday. Speaking at a press conference after an informal Eurogroup meeting in Luxembourg, both Moscovici and Eurogroup President, Jeroen Dijsselbloem appeared confident that Greece's September 20 elections will not pose problems for the third bailout package signed in August as the majority of the Greek parties have voted in favour the MoU that accompanied the lending agreement. Dijsselbloem, Moscovici as well as European Central Bank Executive Board Member Benoit Coeure and European Stability Mechanism Managing Director warned that there is no time to waste and the new Greek government must show determination in the implementation of reforms. "We took stock of latest development in Greece and we were briefed by interim minister Houliarakis and confirmed that preparatory work of the caretaker government continues and implementation will continue to lose as little time as possible." Dijsselbloem said. "We respect the democratic process but timely implementation is crucial and time is limited." Dijsselbloem also said that the new Greek government might be able discuss with creditors certain details for the next round of prior actions that have not been agreed yet but pointed out that overall policies could not be renegotiated.

Eurozone races to restructure Greek banks as bail-in looms - FT.com: Eurozone officials are racing to restructure Greece’s banking system before new rules kick in that could wipe out corporate deposits with potentially disastrous effects for the Greek economy. That rush has been complicated by this weekend’s snap parliamentary elections, which, if recent polling is accurate, could produce no clear winner. Prolonged negotiations over a governing coalition in Athens would put at risk an impending deadline to repair the banking system. When eurozone negotiators agreed Greece’s bailout in August, they bowed to the insistence of Mario Draghi, European Central Bank president, that bank deposits should not be touched. At the time, Greece’s creditors were considering raiding accounts at the country’s four largest banks to help find the €25bn potentially needed to shore up and fully reopen a financial sector nearly destroyed by a run on deposits and economic turmoil. But now EU authorities find themselves in a bind: if they are to keep their promise not to touch deposits, they must complete the bank restructuring in little more than three months — before separate EU rules on bank bailouts come into effect on January 1. Under those rules, any eurozone bank that accepts government financial assistance must first “bail in” creditors totalling 8 per cent of the bank’s liabilities. In effect, that means first wiping out shareholders, then lower-priority bondholders and, if that is not enough, senior bondholders and deposits over €100,000. The idea, strongly supported by Berlin, was to reduce the cost to taxpayers of bank bailouts. Specifically, they wanted to prevent a repeat of Irish and Spanish-style rescues, in which governments took on tens of billions of euros in debts to prop up their banks.

Chris Hedges and Leo Panitch: We are All Greeks Now (interview & transcript) naked capitalism Yves here. While there is a lot of good material in this interview, I take issue with a few of the remarks. There’s a tendency to place the Syriza government in a Manichean frame, as the aspiring heros who fought the evil Germans. In keeping, Leo Panitch depicts Syriza as a sharper break with past corrupt government than it proved to be. Syriza could have cracked down on the medial oligarchs virtually as soon as it assumed office but failed to do so. Informed sources say that the new government held off because the media outlets started giving the party favorable coverage. Syriza was similarly unwilling to take on another powerful domestic organization, the military, refusing to cut the armed forces budget until the IMF pressured the ruling coalition to do so. Similarly, Panitch says that a humanitarian relief program that Syriza implemented over Troika opposition has done a great deal of good. That may be true, but the government did not move quickly with implementation. Panitch gives the impression the program started in February. In fact, it was passed in March and the government was still accepting applications in May.  The flip side is both Chris Hedges and Panitch stress points we made often as the negotiations were underway: that Greece had limited national sovereignity and had chosen to cede some of its powers to EU and Eurozone institutions, and that it was in a weak bargaining position by virtue of needing certain critical imports, namely, food, pharmaceuticals, and petroleum.

Is Catalonia About to Go All In? -  For a nation that doesn’t officially exist, Catalonia sure knows how to throw a national-day party. September 11, approximately 1.4 million people filled the streets of the region’s capital, Barcelona (urban population: 1.6 million), to commemorate La Diada, the fateful day 301 years ago when Catalonia was defeated during the War of the Spanish Succession. This year’s event was widely praised, even among some unionists, for its near flawless organization, and once again the atmosphere was one of peaceful joviality, resolute defiance and collective hope. Here are some photos I took in the evening after the march, at an event held in our neighborhood. In the first one, you can see a Castellers (human tower): In the second one you can see the “Arc de Triomf” in the background, with a massive independence flag swaying in the breeze: But now the festivities are over, and the really hard work of nation building begins. Hope, catchy slogans, and huge demonstrations alone are not enough to create a new nation.

Italy's Grillo sentenced for slander, compares himself to Mandela (Reuters) - Beppe Grillo, the leader of Italy's second largest political party, said on Monday a court had sentenced him to a year in jail for slandering a science professor and compared himself to late South African leader Nelson Mandela. People sentenced to less than three years in Italy very rarely actually go to jail, but the shaggy-haired founder of the anti-establishment 5-Star Movement invoked South Africa's first black president who spent 27 years in apartheid prisons. "If ... Mandela ended up in prison, I can go there too for a cause I think is just and that has been supported by the overwhelming majority of Italians ... Let's be brave!" he wrote on his blog. "Maybe people are scared that 5-Star is getting close to government?" said Grillo, who has been retreating from the front line of his party over the past year as a younger, more moderate generation takes the fore. Grillo was sentenced and ordered to pay 50,000 euros ($56,525) for slandering science professor Franco Battaglia at a political rally in 2011. He said at the time he would not pay the state television licence fee and encouraged his supporters to follow suit following a talk show appearance by Battaglia. The blog showed a clip of the show in question, in which Battaglia describes "disinformation" about radiation at Chernobyl, which in 1986 was the scene of the world's worst nuclear accident. "You cannot allow ... Battaglia, a consultant to multinationals, to go on television and casually say no one died at Chernobyl. I'll kick you in the backside and throw you off television, I'll report you and send you to jail," Grillo said at the rally.

Germany’s Handling of Immigration Will Shape the Future of Europe -- Immigrants are significantly younger than the domestic population. Given Germany’s major demographic challenges , this is welcome news. As Wolfgang Schäuble, Germany’s finance minister, has pointed out, the immediate costs of handling refugees and immigrants are manageable. Long-term benefits to public finance and the sustainability of pensions can be substantial. Research has documented that foreigners currently living in Germany pay more to the state than they receive in social benefits. But the long-term benefits depend on whether and how immigrants are integrated into the German labour market. Many immigrants bring specific skills and the ability and willingness to work. German industry has discovered this opportunity and has called for legal changes to facilitate the integration of qualified workers in the German labour market. Industry groups are calling for immigrants to be granted the right to apply for apprenticeship positions in Germany, in order to adapt and upgrade their skills. In the last few years, the integration of migrants in the German labour market has been made easier,  but significant obstacles remain, and Germany still has a reputation of being restrictive on immigration.  Opening  the German labour market quickly and comprehensively to migrants would provide a boost to the German economy. The substantial increase in the labour supply should contribute to increased German output. More workers would mean more investments, increasing growth further. Immigrants would also need housing, benefiting the construction sector. The additional investments in the economy and immigrants’ lower saving rates would boost German demand. The demand boost should also benefit Germany’s neighbours and could help bring down Germany’s current account surplus.

Germany Imposes Border Controls To Stem Flow Of Migrants - Germany's interior minister confirmed Sunday that his country would impose temporary controls on its border, halting trains between Austria and Germany for a 12-hour period to stem the flow of refugees flooding into Munich."The aim of these measures is to limit the current inflows to Germany and to return to orderly procedures when people enter the country," Thomas de Maiziere said at a news conference.He said refugees could "not choose" their host countries and he urged the European Union to take steps to resolve the crisis.Bild newspaper and Austria's Kronen Zeitung had earlier reported that the controls were pending after more than 12,000 migrants arrived over a 24-hour this weekend.The announcement came as officials in Munich warned they had reached "the upper limit" of what the Bavarian city could take. Authorities predicted that 40,000 refugees would come in just a few days, adding to the hundreds of thousands in total that were expected this year."We have reached the upper limit of our capacity," federal police spokesman Simon Hegewald.Munich has been the entry point for the mainly Syrian refugees who have sought to escape war and economic distress. Migrants from places such as Afghanistan and Eritrea in east Africa are also on the move. Munich is stretched to the limit to accommodate and house them, according to the mayor.

Germany Reintroduces "Border Controls" With Austria, Sends Riot Police As Refugee Crisis Spirals Out Of Control -- Two weeks ago, in what was the first official shot across the bow to Europe's long-standing "Schengen" customs union, we reported that the Italian province of Bolzano across from the Austrian border announced it is willing to "temporarily suspend Schengen" and "restore border controls" following a request by the German state of Bavaria. Today, none other than Europe's master state, Germany itself, is about to launch an ICBM at Schengen when, as BBC reports, "Germany is to reintroduce some form of controls on its border with Austria to cope with the influx of migrants, German and Austrian media report." While the BBC said that it is not clear what measures would be introduced, it is likely that a full return to the pre-Schengen era, with extensive customs checks of every border crosser is imminent.  BBC further reports that"more than 13,000 migrants arrived into Munich alone on Saturday. Germany's vice-chancellor said the country was "at the limit of its capabilities". Germany's Bild newspaper and Austria's Kronen Zeitung said controls would be in place on the Bavaria-Austria border. Germany expects 800,000 migrants to arrive this year." Kronen Zeitung said that Bavarian police will begin to carry out checks "to determine immediately who is entitled to asylum", but it is not clear how such checks would be made.

Refugees scramble for ways into Europe as Hungary seals borders - For a few fleeting minutes, there was some humanity in the darkness. It had turned midnight on the Serbian side of the Hungarian border, the time that Hungary had said it would close its borders for the final time to refugees. A fortified border fence had finally been finished. At the fence’s weakest point, where refugees had for weeks walked into Hungary along a set of disused railway tracks, police had blocked the way with the carriage of a freight train.  Yet even after the clock struck 12, Hungary seemed to soften, letting a few hundred stragglers enter its territory via a legal foot-crossing that lies in Horgoš, a mile to the west of those train tracks. At 10 minutes past midnight, there were still families running, limping and panting up the road that leads to the border gate. More than 160,000 people had crossed this line so far this year and no one wanted to be the first to be turned away. So began a day in which Fortress Europe began to pull up the few drawbridges still open. First Hungary blocked its southern border with Serbia, putting into action its much-heralded fence, declaring a state of emergency in two southern counties, and arresting dozens of people for attempting to cross the border under new laws unveiled last week by the prime minister, Viktor Orbán. Next Hungary announced plans to seal its border with Romania, a move denounced as “not a fair gesture” by the foreign ministry in Bucharest. Then Serbia warned it could not become the dumping ground for Europe’s refugees – or, as its foreign minister put it, “a collection centre”. And finally Austria introduced security checks along its border with Hungary, a measure it said could be extended to those with Slovenia, Italy and Slovakia if needed.

Desperation as record numbers of migrants rush into Hungary - (AFP) - As night fell on Sunday at the refugee transit camp just inside the Hungarian border, confusion reigned over the ever-shifting news and rumours from around Europe."I do not want to stay in Hungary. We are afraid to go with police," said Yusuf, a Syrian in his twenties. "If they take fingerprints, will they make us come back here?" he asked, reflecting a widely-held fear among migrants. The UNHCR staff member, who asked not to be named, told them the only thing he knew for sure: that for now, "zero people are being sent back to Hungary. No one wants you to stay here. "The safest way is to follow the police and get on the buses," he told them. "What other choice do you have? You can go back to Serbia and spend thousands of euros with the mafia people smugglers. The result is the same." But as record numbers stream into the European Union, the truth is no one knows for sure what the rules are anymore.

EU members impose emergency controls - FT.com: A wave of EU member states imposed emergency border controls on Monday as fallout from the refugee crisis put the bloc’s free movement area under increasing strain. Austria and Slovakia imposed tighter border checks on migrants, while The Netherlands also announced that police would carry out spot border checks. The moves were a response to Germany’s clampdown on its own borders, which involved temporarily disrupting both rail and road routes from Austria and caused reverberations throughout Europe. Hungary effectively closed down at least one important crossing point with Serbia a day ahead of a tough new Hungarian law against unauthorised border crossings. Poland also said it could tighten border restrictions to limit the number of migrants. Germany’s shift in position — it had previously been much more welcoming to migrants — came ahead of an emergency EU ministerial meeting in Brussels on Monday, where ministers were expected to call for greater use of detention measures, such as camps, for some migrants. Angela Merkel’s government wants other member states to take in more migrants to help share the burden. But the spate of measures by EU member states indicates reluctance to take on an open-ended commitment to accept migrants despite a surge of public sympathy largely set off by images of a Syrian toddler who drowned in a bid to reach Greece. Germany’s reintroduction of border controls have stoked fears in Vienna that Austria will be overwhelmed by thousands of refugees trying to reach Germany. Officials in Austria on Monday said the country’s decision to increase checks on refugees travelling from Hungary — including dispatching the army to the border — remained in line with Schengen rules on free movement across EU borders.

Migrants Take New Route Into EU After Hungary Fences Off Serbian Border - WSJ: About 150 migrants crossed into Croatia from Serbia overnight, the Croatian interior ministry said on Wednesday, marking an alternative route for refugees to enter the European Union after Hungary fenced-off its border with Serbia. The migrants were being registered at a border crossing at Tovarnik on Wednesday, a Croatian interior ministry spokeswoman said. Buses in Serbia have been taking migrants to Sid, a town on the Serbian side of the border, Serbian and Hungarian media reported after Hungary erected a 110-mile long fence in an effort to stem the flow of refugees. Migrants would then enter Croatia, some through points other than the official border crossing. Croatia’s Prime Minister Zoran Milanovic said his country would handle migrants or direct them further north to the more affluent European countries, mostly Germany and Sweden, where most migrants have said they wish to go. Interior Minister Ranko Ostojic said Tuesday the government had an emergency plan for handling a high number of refugees but didn’t give details. Croatia is part of the European Union but, unlike Hungary, not of the document-free Schengen area. The massive wave of migration has prompted some countries in the 26-nation area to reintroduce temporary border checks on internal borders.

Europe Lacks Strategy to Tackle Crisis, but Migrants March On - — Europe’s failure to fashion even the beginnings of a unified solution to the migrant crisis is intensifying confusion and desperation all along the multicontinent trail and breeding animosity among nations extending back to the Middle East. With the volume of people leaving Syria, Afghanistan and other countries showing no signs of ebbing, the lack of governmental leadership has left thousands of individuals and families on their own and reacting day by day to changing circumstances and conflicting messages, most recently on Thursday when crowds that had been trying to enter Hungary through Serbia diverted to Croatia in search of a new route to Germany. Despite the chaos, there were few signs that European Union leaders, or the governments of other countries along the human river of people flowing from war and poverty, were close to imposing any order or even talking seriously about harmonizing their approaches and messages to the migrants. Instead, countries continue to improvise their responses, as Croatia did Thursday, and Slovenia — the next stop along the rerouted trail — is likely to do in coming days. The migrants did not shift course to Croatia on a whim. When Hungary effectively blocked their access on Tuesday with a border crackdown — which resulted in an ugly skirmish Wednesday between the police and migrants — they had few options. And Macedonian and Serbian officials, along with many aid organizations, were urging them to circumvent a hostile Hungary and even providing maps and nonstop bus service to the Croatian frontier. Initially, Croatia’s foreign minister, Vesna Pusic, seemed to encourage them, too.

A Migration Juggernaut Is Headed for Europe - European leaders probably don’t want to hear this now, as they frantically try to close their borders to stop hundreds of thousands of desperate migrants and asylum seekers escaping hunger and violence in Africa and the Middle East. But they are dealing with the unstoppable force of demography.  Fortified borders may slow it, somewhat. But the sooner Europe acknowledges it faces several decades of heavy immigration from its neighboring regions, the sooner it will develop the needed policies to help integrate large migrant populations into its economies and societies.   That will be no easy task. It has long been a challenge for all rich countries, of course, but in crucial respects Europe does a particularly poor job.   Perhaps it’s not surprising, as a recent report by the Organization for Economic Cooperation and Development found, that it is harder for immigrants to get a job in European Union nations than in most other rich countries. But that doesn’t explain why it is also harder for their European-born children, who report even more discrimination than their parents and suffer much higher rates of unemployment than the children of the native-born.  Rather than fortifying borders, European countries would do better to improve on this record. The benefits would be substantial, for European citizens and the rest of the world.

Syria to Croatia: waiting for the trains that never come -- Initially, Croatia welcomed refugees here, promising to carry them from the station’s single platform all the way to Slovenia, the gateway to northern Europe. But as the exodus then swerved westwards it turned out Croatia could not cope with such a sudden influx of refugees. Many people were left stranded in Tovarnik. At about 12:30am on Friday, a train did arrive but the thousand people who climbed on board had to wait more than eight hours for it to leave. Those waiting at the station half a day later had the opposite problem. Instead of the train that never left, theirs was the train that never came. For Baddour’s group of mostly twenty-somethings, it was a kind of purgatory, a limbo between their hellish life in Syria and a better future they hoped for in Europe.“Imagine what I’m thinking,” said Zahraa Daoud, a 23-year-old literature student travelling with her mother, Nada. “Imagine if all of your country was exploding and the chance of a future was over there [down the track] but instead we’re stuck here.” Her friend Mohamed el-Haiba, 23, a bio-medical engineer, who joined the group after they reached Greece and was sitting on the ground near the station, said: “We’re stuck here and no one knows why we should be in this situation. We want to live. But not like this, with rubbish everywhere.” Haiba said he knew that some Europeans were afraid of Muslims and their perceived conservatism, but this was no way to treat them. “We’re still humans. I was reading the comments on the Guardian’s Facebook page and it was so disappointing. You can see many girls here without the hijab, just hanging out with guys. We’re just normal people in Syria who have had to flee.”

For Those Who Remain in Syria, Daily Life Is a Nightmare - — Every morning, at the dawn call to prayer, women and children move silently from the Damascus suburb of Douma to the surrounding farm fields, seeking safety from the day’s bombardments by the Syrian government.The walk is part of a surreal routine described by the fraction of Douma’s residents who remain: shopping on half-demolished streets, scavenging wild greens, carrying out mass burials. But not even the fields are safe; recently, medics said, bombs killed two families there — 10 people, including seven children.As crowds of Syrians transfix the world with their flight to Europe, this kind of life is one of the many nightmares they are fleeing. They leave behind increasingly empty neighborhoods — from the Damascus suburbs to the northern city of Aleppo — that testify to the scale of their exodus. Such bombardments have been going on for years in insurgent-held areas like Douma, one of the first areas to revolt against the government in 2011. And yet, the situation can still get worse. The past month in Douma made that clear.Government forces began a barrage even more intense than usual, using not only the artillery shells that Douma has come to expect, but also airstrikes. Perhaps four out of five residents had already fled what was once a bustling community of around half a million, and emergency workers say the new bombings drove out thousands more.

The crises that threaten to unravel the EU - FT.com: There is a comforting cliché in Brussels that the EU needs crises in order to progress. But the current cocktail of problems facing Europe — refugees, the euro and the danger that Britain might leave the union — look far more likely to overwhelm the EU than to strengthen it. For the first time in decades, some of the fundamental achievements and tenets of the EU are under threat. These include the single currency, open borders, free movement of labour and the notion that membership is forever. Rather than rising to these challenges, the EU is creaking under the strain. Its 28 members are arguing bitterly and seem incapable of framing effective responses to their common problems. These arguments are also taking place against an ominous backdrop. Large parts of the EU remain sunk in a semi-depression with high unemployment and unsustainable public finances. The problems of an imploding Middle East are crowding in on Europe, in the form of hundreds of thousands of refugees. And the political fringes are on the rise — with the latest evidence being the election of a far-left eurosceptic candidate to lead Britain’s Labour party. With a sense of crisis mounting and the EU unable to respond, countries will be increasingly inclined to act unilaterally or even — in the case of Britain — leave the bloc altogether. The refugee crisis is already threatening cherished ideas about open borders. In the past couple of days, Germany has reimposed frontier controls with Austria — which, in turn, has imposed controls at its border with Hungary, which itself is working feverishly to complete a barbed-wire fence to protect its frontier with non-EU Serbia. Controls have been tightened on the French-Italian borders, while migrants camp miserably in Calais, hoping to cross to England. If the EU somehow gets a grip on the migrant crisis, these measures might be no more than temporary expedients. But if the pressure of would-be refugees heading for Europe remains intense, then temporary measures could harden into permanent controls.

Buiter: Migrant Crisis "May Signal The Beginning Of The End" For EU -- Earlier this month, in a call that grabbed headlines across the mainstream financial media, Citi chief economist Willem Buiter made “some kind of recession” his team’s base case scenario for the next two years. The rationale: China mainly, and EM more broadly. The solution: why, “helicopter money” of course.  Unfortunately for the EU - which Buiter says is laboring under “already excessive public debt and the pro-cyclical nature of the constraints imposed by the Stability and Growth Pact and its myriad offspring” - member countries now face a growing problem that can’t be immediately “fixed” by cranking up the printing presses, namely, an influx of asylum seekers fleeing Syria’s four-year civil war.  As documented in these pages extensively, Europe’s migrant crisis threatens to undermine the spirit of the Schengen Agreement and the events that unfolded on Hungary’s border with Serbia over the past week presage what may be in store for the region should recalcitrant nations refuse to comply with the quotas Brussels wants to enforce in an effort to settle hundreds of thousands of asylum seekers.  As Slovakia put it earlier this week, if Germany attempts to use its financial leverage to force other nations to take on migrants, it would “bring the end of the EU.” We’ve also warned that any effort on the part of Berlin to impose its will risks fanning the flames not only of nationalism but of religious intolerance, especially given the likelihood that those opposed to settling the migrants will be predisposed to stirring up fears of ISIS operatives slipping into Europe disguised as refugees. Willem Buiter apparently agrees with all of the above.

Swiss central bank signals negative rates for foreseeable future - Switzerland’s central bank yesterday signalled it will keep interest rates negative for the foreseeable future and is not targeting a specific exchange rate for the “significantly overvalued” franc against the euro. The export-reliant economy had to absorb a surge in the franc’s value after the Swiss National Bank in January abruptly abandoned its cap of 1.20 francs per euro saying it had become too expensive to maintain. It has imposed negative rates and stressed its readiness to intervene in the currency market to weaken the franc. As expected, it maintained these policies at its quarterly policy meeting, saying the franc remained too strong even though the euro rose above 1.10 francs last week for the first time since the cap was scrapped. The franc strengthened slightly against the euro immediately after the statement. In an interview with Swiss radio, SNB chairman Thomas Jordan said rates would remain in negative territory for the “foreseeable future” in a bid to make the franc less attractive. He also rejected suggestions that the SNB has an exchange rate in mind for the franc against the euro when intervening. “We have no such target,” Jordan said. “We have a policy that takes consideration of the difficult situation.” JP Morgan described the SNB’s policy statement as “neutral”. “There is absolutely no suggestion that the SNB is minded to cut interest rates any deeper,” JP Morgan wrote in a note. Pressed on when the SNB could take rates out of negative territory, Jordan said it would be guided by the inflation outlook. Its goal is to keep inflation under 2%.

Germany Pushes for Financial Transaction Tax; Will Cameron Face Reality? --In a move certain to upset UK prime minister David Cameron as well as increase the odds of the UK kissing the EU goodbye, Berlin to Push for Financial Transactions Tax to Cover All of EU.  German Finance Minister Wolfgang Schäuble will push for a planned European tax on stock and bond trading to apply in all EU countries in spite of firm UK opposition to the scheme and warnings from banks it would hurt their business. While only 11 nations — including Germany and France — are planning to participate in the financial transactions tax, Mr Schäuble said on Saturday that this should be seen only as a first stage, and that efforts should then be made to convince other nations to join. “We made important if not decisive progress,” said Pierre Moscovici, the EU’s economics commissioner, who is a staunch supporter of the initiative. “This deal is possible, and more than possible, if we go on working with ambition.” The upbeat mood marked a shift from even a few months ago when the initiative seemed to be virtually dead. Mr Schäuble told reporters after the meeting that having a tax across only 11 of the EU’s 28 countries sat awkwardly with plans under development in Brussels to better integrate capital markets across the entire bloc. Cameron keeps stating he can get EU treaty changes in regards to immigration, agricultural subsidies, and the financial transaction tax. If he believes what he says, he is out of his freaking mind. No one can control the beast the EU has become. That's the reality.

The Elite’s Childlike Commitment to Austerity - Dean Baker -- The landslide victory of left-wing candidate Jeremy Corbyn for Labor Party leader in the United Kingdom has many establishment types bent out of shape. The Blair-wing of the party was literally obliterated, with Corbyn drawing more than four times the votes of his nearest competitor.  But naturally the elite types are fighting back. In this vein we get a lengthy piece in the New Yorker by film critic Anthony Lane warning us of the evils of Jeremy Corbyn. I will leave for others the discussion of Mr. Corbyn's friends and associates. I am mostly interested in Lane's treatment of Corbyn's economic agenda. He tells readers: "The national deficit would be erased not through austerity, as practiced by the heinous Conservatives, but through taxes on the rich and by what Corbyn calls 'quantitative easing for people.' This means, we are told, that the Bank of England will print more money: an endearing and almost childlike solution, though not one that has met with unqualified success elsewhere." First off, "quantitative easing for people" is obviously a political slogan. As such, it is not obviously more silly than "putting people first," or "yes we can." The issue is the substance behind the slogan.  What Corbyn is proposing is directly financing spending by printing money. If that is "childlike" then folks like Paul Krugman have a similar affinity for childlike solutions to economic problems. Just last week, in reference to Japan's continuing economic weakness, Krugman told readers: "What’s remarkable about this record of dubious achievement is that there actually is a surefire way to fight deflation: When you print money, don’t use it to buy assets; use it to buy stuff. That is, run budget deficits paid for with the printing press." By stuff, Krugman means things like child care, schools, hospitals, cutting edge Internet, research into clean energy, and other useful items. If the economy is suffering from a lack of demand, the government can directly create it by spending money. And, since the economy is below its potential, it doesn't need tax money to finance this spending, it doesn't even need to borrow, it can simply print the money.

Corbynomics 101: A Guide to People’s QE (PQE)  - As anyone who’s followed the discussion has seen, the proposal from the newly-elected leader of the British Labor Party, Jeremy Corbyn, to implement “People’s Quantitative Easing” or PQE, has created a lot of controversy (Richard Murphy’s blog is a good place to see the PQE defense against these arguments).  The basics of the proposal are that the government would create a public bank for financing infrastructure (National Investment Bank, or NIB), which the Bank of England (BoE) would then lend to directly in order to fund.  The NIB would then carry out infrastructure projects to jumpstart the economy, create public capital, and create jobs.The proposal obviously counters the austerity mantras going around in British politics (not to mention most other places), though Corbyn himself has paid lip service to balancing the budget, as well.  The controversy, beyond the typical concerns with greater government spending of austerians, are fairly predictable for anyone who has taken a standard macroeconomics course (usually with a textbook written by someone who didn’t see the financial crisis coming)—

• first, the often heard QE = “printing money” = massive inflation argument is pervasive here with regard to PQE, as well;
• second, there are substantial concerns being voiced that “forcing” the BoE to finance the NIB will undermine the “independence” of the central bank and monetary policy;
• third, PQE gives the government free reign to spend by eliminating the need to fund its deficits in the financial markets.

So, here I want to look at the accounting and some basic operational realities of this proposal in order to understand how PQE does or does not do what the naysayers say it will.

Jeremy Corbyn's QE for the people is exactly what the world may soon need - There are many good reasons to gasp at Jeremy's Corbyn's planned assault on capital, but his enthusiasm for "People's QE" is not one of them. Overt monetary financing of deficits - the technical term - is exactly what the world will need if the global economy tips into another recession with interest rates already at zero and debt ratios stretched to historic extremes.  HSBC's chief economist, Stephen King, argues such drastic measures may be our last resort in a "Titanic" world with few lifeboats left, if anything goes wrong. Jeremy Lawson, from Standard Life, gave his blessing to radical action this week, arguing central banks should be willing to fund fiscal stimulus directly, and even inject money "directly into household bank accounts" if need be. Mr Corbyn's ideas are a variant of "helicopter money", the term coined by Milton Friedman, the doyen of monetary orthodoxy, lest we forget. Friedman did not, of course, mean that banknotes should be dropped from the sky, though they could be in extremis, but rather that central banks have the means to create money to fund tax cuts, or to cover state spending, until the economy comes back to life. We cannot revert to plain vanilla forms of quantitative easing at this stage. The various rounds of QE by the US Federal Reserve and the Bank of England after the Lehman crisis were assuredly better than nothing. They averted a depression. But little more can be extracted from pulling down long-term interest rates by a few more basis points. The trade-off between risk and reward has, in any case, turned negative. Much of the money has leaked into asset booms, greatly enriching the "haves", with a painfully slow trickle-down to the rest of society.

Scrap cash altogether, says Bank of England’s chief economist - FT.com: Having already cast paper notes aside in favour of plastic, the Bank of England’s chief economist has proposed getting rid of cash altogether. For many the idea of abandoning a system that has been with us for centuries in favour of a government-backed digital currency will seem a step too far. But Andy Haldane, the radical thinker at the BoE, argues that such a move would give the bank new flexibility in the event of another downturn. In a speech to the Northern Ireland chamber of commerce he said it would help the bank manage inflation by enabling it to bypass the current constraint against lowering rates below zero. The assumption is if a central bank introduced negative interest rates — a radical move which would effectively amount to a charge on holding money — people would convert deposits into cash. But abolishing cash would remove that option. The speech reflects policymakers’ nervousness that they lack reliable tools to boost spending. Other economists have also argued that cash restricts central banks’ ability to stimulate a depressed economy. The Swiss and Swedish central banks have succeeded in setting negative interest rates: but most policymakers still believe in an “effective” lower band not far below zero. Some central bankers argue that if you remove the lower band they would be better equipped to confront a slowdown.