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

Saturday, October 10, 2015

week ending Oct 10

Fed's liftoff: a shift in sentiment - Friday's US jobs report combined with the September FOMC decision has significantly altered market expectations for the timing of the first hike by the Federal Reserve. The Fed Funds futures implied probability of a 2015 liftoff has dropped below 30%. In fact the expected trajectory of the rate hike probability has shifted materially in a similar fashion it did after the September FOMC meeting. We see this shift in sentiment reflected in the 2-year treasury rates move on Friday.Market participants are becoming uneasy about a potential loss of momentum in US labor markets. This latest concern comes on the heels of a number of other headwinds (discussed here) that resulted in the FOMC's September inaction on rates and weaker growth projections. The softness in the labor markets is not limited to the latest payrolls report, which missed economists' forecasts. This year for example has been marked by downward revisions in estimates, as the Labor Department consistently overestimated job creation. Another indicator that analysts have been focused on is the civilian labor force participation - which started declining again after leveling off for about a year.

The expectations of a fed rate hike are collapsing, even in the long term - After the more than announced FED decision of 17th September of leaving the interest rates unchanged, a great confusion has spread throughout the markets. The variegated opinions have oscillated from the “disappointed” who were expecting, if not a rate increase, at least clear commitments towards a steady normalization path and the “crypto-hawks”, that have been arguing that the FED was only temporarily retreating only to accelerate the hike cycle in the following months. For sure, Yellen and her spokespersons have not helped the markets to form a solid idea, by alternating contrasting declarations over just a week or little more. Anyway a belief is consolidating through the markets: the incoming rate increases will be of a significant smaller extent, also in the long term. By looking retrospectively at the data, we have to admit that the “hold” decision was not unexpected at all by the markets (Figure 1).  At the end of September, it seems that the games are done even for the FOMC October meeting (Figure 2). In this case, it’s not surprising that the main shift of expectations is given by the “hold” decision of the 17th September. Figure 2. The general consensus, reinforced by the Yellen's declaration of the 25th of September that “a US rate rise is still likely this year”, is that the hike cycle should begin with the FOMC December meeting. Nevertheless (Figure 3), the odds of a rate rise in December are generally decreasing and indeed since 17th September it appears a bit more plausible the continuation of a loose monetary stance. Yellen’s statement has impacted on the numbers only of a limited extent, even if it has influenced the estimates for a few days, till the market participants have realized that no new official decisions were on the table.

Fed’s Rosengren: If Weak Jobs Data Continues, Fed Should Delay Rate Rises - WSJ: —Federal Reserve Bank of Boston President Eric Rosengren said Saturday that his confidence that the U.S. central bank can raise rates soon has diminished in the wake of underwhelming employment data. “The jobs report was disappointing; it seems to validate the decision” of Fed officials to hold off on lifting interest rates off near zero levels at their meeting last month, Mr. Rosengren said in an interview with The Wall Street Journal. The performance of the September jobs data, released Friday, “highlights that we need to continue to monitor how the data is coming in to determine when it is appropriate” to boost the cost of borrowing, he said. Mr. Rosengren declined to say when the Fed would raise rates in the interview. That marked a change from his recent public comments. In an interview with Fox Business Network on Friday ahead of the jobs report release, he said he’d been cheered by recent job news. “I actually think it would be appropriate to start raising rates by the end of the year if we continue to get positive data,” he said then. The jobs report didn’t deliver that good news. The nations’ employers reported an anemic 142,000 gain in jobs and a steady jobless rate of 5.1%. Labor market data can be volatile but, even so, the unexpected slowdown in the pace of job creation raised fears that international economic conditions may be taking a greater bite out of U.S. momentum. The jobs report raised an already high bar for raising rates at the October meeting. The Fed has one additional meeting in December before 2015 ends.

Is the Fed being goaded into raising rates too soon? - Bruce Bartlett --All year, financial markets have been expecting the US Federal Reserve to begin the process of normalising interest rates, raising them from the extraordinarily low levels that they have been held at for an unusually long time. An initial rise in the federal funds rate was expected in September, but derailed by a less-than-stellar jobs report. Now markets are focused on a rise in December. The pressure to raise rates is a bit of a puzzle. Generally, the Fed raises rates to reduce money in circulation and thereby curb inflationary pressures. But inflation is well-behaved, bordering on deflation. Indeed, for years, it has been well below the Fed’s own target of 2 per cent a year. And all the indicators of future inflation are signalling no sign of inflation over the horizon. So why is the Fed on the path to tightening? Some economists, such as Paul Krugman, believe the pressure is coming from banks having a hard time making money. This theory received support recently from a study published by the Bank for International Settlements, which found that low short-term interest rates erode bank profitability and that it rises when rates rise. Another possibility is that the Fed has grown weary of the constant drumbeat of attacks from political conservatives who have been continuously warning about impending inflation, even hyperinflation, for years, despite the failure of their predictions to come true.  To be sure, when the Fed began its policy of quantitative easing in late 2008 to forestall a financial collapse there were reasons for concern — given the unquestioned contribution of excessive money growth to inflation in the 1970s. Inflationary fears were often expressed here in the Financial Times by top Republican economists.

Bernanke says ‘not obvious’ economy can handle interest rates at 1% - Former Fed Chairman Ben Bernanke said Monday that he was not sure the economy could handle four quarter-point rate hikes. Some economists and Fed officials argue that the U.S. central bank should hike rates now to anticipate inflation. That argument assumes the Fed can raise rates 100 basis points and it wouldn’t hurt anything, Bernanke said. ”That is not obvious, I don’t think everybody would agree to that,” he added in an interview with CNBC. Higher rates could “kill U.S. exports with a very strong dollar,” he said. Bernanke said the “mediocre” September employment report is a “negative” for the U.S. central bank’s plan to begin hiking rates in 2015, as a strengthening labor market was the key conditions for the Fed to be confident inflation was moving higher. Bernanke said he would not second-guess Fed Chairwoman Janet Yellen, saying only that his successor faced “tough” calls. He said the two do not speak on the phone. Bernanke said interest rates at zero was not “radically easy” policy stance as some have suggested. He said he did not take seriously arguments that zero rates was creating an uncertain environment was holding down business investment Bernanke defended his policies, noting the steady decline in the unemployment rate in recent years. He said that the slower overall pace of gross domestic product since the Great Recession was due to a downturn in productivity and other issues outside the purview of monetary policy. “I am not saying things are great, I don’t mean to say that at all,” he said., Rather, to boost productivity and capital investment, the Fed “needs help from other policymakers,” he said.

Kocherlakota Says Fed Should Consider Negative Interest Rates -- The Federal Reserve should consider ways to make monetary policy more accommodative, including negative interest rates, said Minneapolis Fed PresidentNarayana Kocherlakota. "I don’t see raising the target range for the fed funds rate above its current low level in 2015 or 2016 as being consistent with the pursuit of the kind of labor market outcomes that we are charged with delivering," Kocherlakota said Thursday in remarks prepared for a speech in Mankato, Minnesota. "Indeed, I would be open to the possibility of reducing the fed funds target funds range even further, as a way of producing better labor market outcomes." The policy-setting Federal Open Market Committee decided last month to hold rates near zero, though Chair Janet Yellen said Sept. 24 that she expected that the central bank’s first rate increase since before the financial crisis would be warranted before the end of this year. Kocherlakota, known as the committee’s most dovish member, pointed to a stall in the upward trend of the prime working-age employment rate and low inflation as signs that U.S. monetary policy has already become too tight. The employment metric, which measures the percentage of Americans between the ages of 25 and 54, rose from a low of 74.8 percent in December 2009 to 77.3 percent in February 2015. In September, it stood at 77.2 percent.

A Closer Look At Fading Rate-Hike Expectations For The US --Is the Federal Reserve still pondering a rate hike in 2015? Possibly, but the recent weakness in employment growth and industrial activity suggest that keeping the Fed funds rate close to zero may persist for “much longer, well into 2016 or potentially even beyond,” counsels Jan Hatzius, Goldman Sachs’ chief economist, in a note to clients. The Treasury market appears to be pricing in that outlook. The 2-year yield, which is highly sensitive to rate expectations, remains well below its recent highs. Briefly rising above 0.8% last month, the 2-year yield has since fallen sharply, holding steady at 0.61% this week through yesterday (Oct. 6), based on’s daily data. Meanwhile, the Treasury market’s inflation expectations have bounced back modestly in recent sessions, albeit after several months of nearly non-stop declines. The yield spread between nominal and inflation-indexed 5-year Treasuries has increased recently, to roughly 1.22% as of Oct. 6.—the highest since mid-September. Nonetheless, the 5-year’s current inflation estimate remains well below this year’s high of just over 1.7% in the spring. The crowd’s no longer cutting inflation expectations, but it’s not clear that the market’s inclined to reverse the recent trend in projecting weaker pricing pressure.

Outsourced Monetary Tightening -- From Zeng and Wei in the Wall Street Journal today: Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. The article continues: many investors say the reversal in central-bank Treasury purchases stands to increase price swings in the long run. It could also pave the way for higher yields when the global economy is on firmer footing, they say. … Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, said Torsten Slok, chief international economist at Deutsche Bank Securities, citing Treasury Department data. It was the biggest decline since data started to be collected in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.  Using estimates in Kitchen and Chinn (2012), we can calculate the increase in yields that have already occurred. Table 1 presents estimates from a regression of ten year yields on the cyclically adjusted budget surplus, Fed purchases and foreign purchases (plus activity variables).   Constraining the slope coefficient on these three variables to be equal (after sign switches), we obtained a point estimate of 0.335 (circled in red). Potential GDP according to CBO in 2015Q2 was $18425 billion (SAAR). The ratio of net sales to potential GDP is thus is 0.0067 (0.67%) Using our estimate of 0.335, I get an elevated ten year yield of 0.22 percentage points relative to what otherwise would have occurred.  None of this should be too surprising; back in April, I pointed out that foreign exchange reserves (of which 60% of emerging market/LDC holdings are in US dollars) were declining. For those who are attracted to apocalyptic views (e.g., here), a $1 trillion net sale of Treasurys would result in a 1.82 percentage points increase in yields (0.0543 ratio to potential GDP times 0.335, indicating a 1.82 ppt increase). That being said, there are other downward forces on yields, including deficient aggregate demand (aka secular stagnation).

The Fed relies on a model that only works when its policy fails - I've made this point before, but it's worth repeating, given all the recent talk about the Fed relying on the Phillips Curve. The Phillips Curve model only works when the business cycle is driven by demand shocks. When we are hit by supply shocks the Phillips Curve actually slopes upward; inflation is higher during recessions.  It's the Fed's job to prevent demand shocks, which means it's the Fed's job to make the Phillips Curve model false. So why are they relying on that model to predict an upswing in inflation as unemployment falls below 5%?  Here's an easier way to think about it. Imagine a single mandate, where the Fed keeps inflation right at 2%, all of the time. In that case the Phillips Curve is horizontal; there is zero correlation between inflation and unemployment. Now assume Congress adds a second mandate---employment. The Fed would do a bit more expansionary policy when unemployment was high, and vice versa. They would still keep inflation stable at 2%, on average, but allow some year to year fluctuation in inflation to smooth out unemployment. A bit more than 2% inflation when unemployment is high, and a bit less than 2% inflation when unemployment is low. In that case inflation will be countercyclical, exactly the opposite of the prediction of the Phillips Curve model.  So why is the Fed using the Phillips Curve to forecast inflation?

FOMC Minutes: Waiting on Inflation  --From the Fed: Minutes of the Federal Open Market Committee, September 16-17, 2015 . Excerpts: In assessing whether economic conditions had improved sufficiently to initiate a firming in the stance of policy, many members said that the improvement in labor market conditions met or would soon meet one of the Committee's criteria for beginning policy normalization. But some indicated that their confidence that inflation would gradually return to the Committee's 2 percent objective over the medium term had not increased, in large part because recent global economic and financial developments had imparted some restraint to the economic outlook and placed further downward pressure on inflation in the near term. Most members agreed that their confidence that inflation would move to the Committee's inflation objective would increase if, as expected, economic activity continued to expand at a moderate rate and labor market conditions improved further. Many expected those conditions to be met later this year, although several members were concerned about downside risks to the outlook for real activity and inflation. Other factors important to the Committee's assessment of the inflation outlook were the expectation that the influences of lower energy and commodity prices on headline inflation would abate, as had occurred in previous episodes, and that inflation expectations would remain stable. With energy and commodity prices expected to stabilize, members' projections of inflation incorporated a step-up in headline inflation next year. However, several members saw a risk that the additional downward pressure on inflation from lower oil prices and a higher foreign exchange value of the dollar could persist and, as a result, delay or diminish the expected upturn in inflation.

Merrill on September CPI - With the Fed focused on inflation, here is an excerpt from Merrill Lynch research piece today on September CPI to be released next week:  We expect headline CPI to decline for the second straight month, growing -0.3% in September after a -0.1% reading for August. Weak energy prices should more than offset a slight increase in food prices this past month. Such a reading will once again push the annual headline CPI inflation rate slightly negative, at -0.2% yoy for September. Stripping out food and energy should result in a 0.1% increase in core CPI in September, matching the pace of the prior two months. As a result, the annual core inflation rate should hold steady at 1.8%. Inflation looks likely to move largely sideways for the rest of this year.

Reason for low rates is real, monetary and financial - Martin Wolf -- Why are interest rates so low? What are the chances that they will soon rise? These questions matter not just to central bankers and financiers but also to business people, savers and the wider population. Let us start with the facts. The intervention rates of the four most important central banks of the high-income countries — the Federal Reserve, European Central Bank, Bank of Japan and the Bank of England — are all close to zero. These rates have been extremely low since soon after the worst of the global financial crisis, in September and October 2008. In addition, all these central banks have expanded — or, in the cases of the ECB and the BoJ, are now expanding — their balance sheets, with a view to lowering interest rates on longer-term government bonds. Partly as a result, long-term interest rates on conventional bonds have also fallen to extremely low levels: in mid-September 2015, yields were 0.3 per cent on 10-year Japanese government bonds; 0.7 per cent on the German bonds; 1 per cent on French bonds; 1.8 per cent on Italian and UK bonds; and 2.1 per cent on US bonds. This is not just a story of low nominal rates. Global real interest rates on safe bonds have averaged only 2 per cent since 2000. Currently, they are not far from zero. Ten-year US Treasury inflation-protected securities (TIPS) yielded 0.6 per cent in late September, while even 30-year TIPS yielded just 1.3 per cent. According to Andy Haldane, the Bank of England’s chief economist, these are the lowest real interest rates for 5,000 years. This is what John Maynard Keynes meant by the “euthanasia of the rentier”. Not surprisingly, rentiers hate it. There are three big-picture explanations of the combination of highly stimulative monetary policies, ultra-low nominal and real interest rates and the absence of inflation. The first is monetary; the second is real; and the third is real, monetary and financial. This last lies at the heart of my book, The Shifts and the Shocks.

Fed policy has made one of the best indicators of recession worthless – Maudlin - There is presently a bull market in complacency. There are very few alarm bells going off anywhere; and frankly, in reaction to my own personal complacency, I have my antenna up for whatever it is I might be missing that would indicate an approaching recession. It was very easy to call the last two recessions well in advance because we had inverted yield curves. In the US at least, that phenomenon has a perfect track record of predicting recessions. The problem now is that, with the Federal Reserve holding the short end of the curve at the zero bound, there is no way we can get an inverted yield curve, come hell or high water. For the record, inverted yield curves do not cause recessions, they simply indicate that something is seriously out of whack with the economy. Typically, a recession shows up three to four quarters later. I know from my correspondence and conversations that I am not the only one who is concerned with the general complacency in the markets. But then, we’ve had this “bull market in complacency” for two years and things have generally improved, albeit at a slower pace in the current quarter. With that background in mind, the generally bullish team at GaveKal has published two short essays with a rather negative, if not ominous, tone. Given that we are entering the month of October, known for market turbulence, I thought I would make these essays this week’s Outside the Box. One is from Pierre Gave, and the other is from Charles Gave. It is not terribly surprising to me that Charles can get bearish, but Pierre is usually a rather optimistic person, as is the rest of the team.

Fed’s Eric Rosengren Still Bullish on Economy - Eric Rosengren, president of the Federal Reserve Bank of Boston, says he thinks the American economy is doing pretty well, and a disappointing September jobs report hasn’t changed his mind. Not yet, anyway. “Up to now, I thought the incoming data was consistent with a reasonably strong U.S. economy,” Mr. Rosengren said in an interview Friday. “We’ll have to see if the data continues to ratify my idea that the economy is reasonably strong or whether there’s a sign of broader weakness than I was expecting to see.” Mr. Rosengren acknowledged that the Fed was unlikely to raise rates at its next meeting, in late October, but said he continued to view an increase in the near future as the most likely and appropriate outcome. He spoke during a Boston Fed conference focused on a longer-term question: what the Fed can and should do to prevent future crises. Disconcertingly, most of the gathered experts — including a number of Fed officials — regard the Fed as poorly equipped for that task. Mr. Rosengren said that was one reason for the Fed to raise rates, to discourage the emergence of problems it cannot solve. The text of our conversation is lightly edited for clarity.

Ben Bernanke, in Book, Blames Congress for Lagging Fiscal Recovery -- Congress is largely responsible for the incomplete recovery from the 2008 financial crisis, Ben S. Bernanke, the former Federal Reserve chairman, says in a memoir published on Monday. Mr. Bernanke, who left the Fed in January 2014 after eight years as chairman, writes that the Fed’s response to the crisis was bold and effective but insufficient. “I often said that monetary policy was not a panacea — we needed Congress to do its part,” he says. “After the crisis calmed, that help was not forthcoming.”  The Fed under Mr. Bernanke is widely credited with arresting the 2008 crisis in time to stop a collapse of the nation’s financial system. But its failure to prevent the crisis from erupting and the limited success of its postcrisis stimulus campaign have been criticized by some economists. As an academic economist, Mr. Bernanke argued that downturns can be exacerbated by a “financial accelerator” effect. In the Great Depression, for instance, thousands of bank failures left people and businesses unable to borrow, delaying recovery. Mr. Bernanke writes that the 2008 crisis is best understood as a traditional panic with some new characters: not just depositors lined up outside banks, but also other kinds of investors scrambling to get money out of other kinds of financial firms. “The magnitude of the panic at the height of the crisis was the most important reason for the severity of the Great Recession,” he writes. Without that panic, he argues, housing prices would not have fallen as far and economic activity would not have contracted as sharply.  Under Mr. Bernanke’s leadership, the Fed pumped trillions of dollars into the financial system.

USA Economic Outlook Appears Stable: There is no question that the economy is not running on all cylinders - but despite some pundits claiming the economy is about to crash - there is no evidence in the data using the current forecasting models.   You have heard the saying "this time is different". One never should be certain that you are not facing a situation which will yield a different result than the data would indicate. In fact, if I were using the economic models I used last century - I would be screaming RECESSION. Last century commodity price decline combined with commodity demand decline were the bellwether of USA and global recessions.  The main mover of commodities - rail - is in contraction [click graphic below to enlarge]. The 12 month rail rolling average has been in decline since the beginning of 2015. But something changed in the 21st century, and old models stopped working.  Commodities are necessary to build things - and it is obvious that the world is requiring less "things". Not building "things" is no longer the main prelude to recession.Our model of the economy released this week for October shows stable but relatively weak growth.  Commodity movements are part of our economic model - but contraction of commodities does not send our index into contraction. It is the consumer which is keeping the ship afloat. However, the ratio of spending to income is again over 0.92 - and has been elevated since Jan 2013. There have been only four periods in history where the ratio of spending to income has exceeded 0.92 (April 1987, the months surrounding the 2001 recession, from September 2004 to the beginning of the 2007 Great Recession, and for some occasions since late 2013). A high ratio of spending to income acts as a constraint to any major expansion in consumer spending.

IMF cuts US growth outlook for 2016: The International Monetary Fund has estimated that the US economy will pick up only modestly in 2016 after a mild gain this year, thanks to low energy prices and an improving housing market. The IMF cut its US growth forecast for next year to 2.8 per cent, 0.2 percentage points lower than it predicted just three months ago. It said in its new World Economic Outlook that the world's largest economy, which grew 2.4 per cent in 2014, would expand at an annual rate of 2.6 per cent this year.'The recovery is expected to continue in the United States, supported by lower energy prices, reduced fiscal drag, strengthened balance sheets, and an improving housing market,' the IMF said, predicting these positive factors would offset a decline in exports driven by the strong dollar. Growth beyond 2016, however, likely will slow to a lacklustre 2.0 per cent rate because of the ageing population and weak productivity growth, the IMF said. On the US labour market front, conditions remain favourable to support more job growth, as the unemployment rate continues to fall from 6.2 per cent in 2014, the fund said. It projected a 5.3 per cent jobless rate for all of 2015 - it already held at 5.1 per cent for the second straight month in September - and a fall to 4.9 per cent in 2016. The Federal Reserve, which plans to begin tightening credit this year after holding its key interest rate at zero since late 2008, needs to find the appropriate timing and pace of liftoff, the 188-nation institution said. 'The Federal Open Market Committee's decisions should remain data-dependent, with the first increase in the federal funds rate waiting until there are firmer signs of inflation rising steadily toward the Federal Reserve's 2 per cent medium-term inflation objective, with continued strength in the labour market,' the IMF said.

Economists Chase Tails and Tales, Cut GDP Estimates Again --In the wake of recent economic data, economists at the IMF and Deutsche Bank lowered their growth estimates.  Like a dog running in futile circles hoping to catch its tail, the IMF does the same thing with its perennially over-optimistic assessment of everything from emerging markets to the G7 economies. Reuters reports the IMF cuts global growth forecasts again, citing commodity and China worries.  The International Monetary Fund cut its global growth forecasts for a second time this year on Tuesday, citing weak commodity prices and a slowdown in China and warned that policies aimed at increasing demand were needed. The Fund, whose annual meeting starts in Peru this week, forecast that the world economy would grow at 3.1 percent this year and by 3.6 percent in 2016. Both new forecasts are 0.2 percentage point below its July forecast and are 0.4 percentage point and 0.2 percentage point below its April outlook, respectively. Among major economies, the United States is expected to grow by 2.6 percent in 2015 and by 2.8 percent in 2016, the Eurozone is forecast to grow by 1.5 percent and 1.6 percent, respectively, with Japan seen at 0.6 percent and 1.0 percent. Citing today's trade deficit report (see Trade Deficit Widens to $48.3 Billion, Up From $41.8 Billion; iPhone Connection), Deutsche Bank’s chief US economist Joseph LaVorgna joins the IMF in a tail-chasing exercise. ZeroHedge reports LaVorgna Throws In The Towel On US Economy As Deutsche's "Weatherman" Cuts Growth Outlook. Here’s the call: "US exports are expected to be unchanged in the quarter. This is down from a 5.1% annualized increase in Q2, which followed a -6.0% West Coast port- and weather-related decline in Q1. At the same time, imports are on track to increase 10.0% in the quarter, the fastest gain since Q4 2014. This would have the effect of widening the trade deficit by $64 billion, which equates to a negative 160 basis-point annualized drag on Q3 output relative to our prior estimate. Recall that in Q1 2015, net exports subtracted 192 bps off real GDP growth. In response to today’s trade data, we have lowered our Q3 real GDP growth forecast to 1.7% from 3.0% previously, and our forecast for Q4 real GDP growth has been trimmed from 3.0% to 2.3%. This has the effect of lowering 2015 real GDP growth, as measured on a Q4 over Q4 basis, from 2.6% to 2.1%."

The American Economy Is In Big Trouble: Two important indicators are lining up to show a significant slowdown in the American economy. An important fact to distinguish is that these two indicators have different time frames. For example, nonfarm payrolls are a lagging indicator — this hiring/firing has already happened. Layoff announcements are firing that will take place in the near future, a forward-looking indicator. With that said, let’s take a look at the trend in layoff data. Below is a chart on the number of announced job cuts since June 2014.  The jagged blue line — representing the number of announced job cuts — is drifting higher. I added the red line to highlight the direction layoffs have been heading. Another interesting tidbit from the release by Challenger is that the company noticed that earlier in the year layoffs were focused in the energy sector, but it has now translated into layoffs in the computer industry (think: Hewlett-Packard) and consumer sectors such as retail and automotive. This is a huge shift. It portrays the impact a slowing economy, lower oil prices and higher wages will continue to have on our employment situation. And the trend in increased layoffs goes back further than last year. Looking at the data on a quarterly basis shows that this past third quarter was the second highest in job cuts since the Great Recession. These layoff announcements are worrisome for the American economy, the markets and for Fed Chair Janet Yellen.Ms. Yellen routinely includes the labor market as a significant measure that’s considered when deciding whether to raise rates, which is why all eyes are on nonfarm payrolls today. But the truth is, according to our payroll data, the Fed could have raised rates a year ago when the American economy was stronger: Unemployment was steadily falling and jobs reports were strong. The layoff announcements above tell me that this is about to change. In short, the Fed missed its shot.

Is the US slowdown for real? -- In the aftermath of the supposedly “weak” US employment data published last week, investors seem to have shifted their assessment of the likelihood of the US Federal Reserve tightening interest rates by December — and also of the extent of tightening in the next two years.  Since the data were published, several investment banks’ economics teams have ruled out a December rise. Furthermore, equities have been strong; and the bond market’s implied probability of a 25 basis points rise in the federal funds rate by December has fallen from 76 per cent in mid-September to only about 40 per cent.  Nor is this seen as a minor postponement in the first rate rise. The expected federal funds rate at the end of 2016 implies only two Fed rate hikes in total over that entire period. Clearly, investors increasingly believe that the US economy is now slowing enough to throw the Fed off course.  This big change in market opinion is, frankly, surprising. The rise of 142,000 in non-farm payrolls in September was not all that weak, given the normal random fluctuations in the monthly data. And as John Williams, president of the San Francisco Fed, has pointed out, a slowdown to a monthly rate of increase of under 200,000 was long overdue anyway. Rightly or wrongly, there is little indication so far that important Federal Open Market Committee members share the market’s increased post-jobs-data dovishness.  The crucial question is how much growth in the US has slowed since the middle of the year, and whether this will continue. This is the kind of question that economic “nowcasts” are best suited to answer, so let us examine the recent evidence.  The graph below shows the recent tracking of the gross domestic product nowcasts by the Atlanta Fed — an increasingly popular source of up-to-date US activity estimates — along with the Fulcrum activity nowcast, and the consensus projection from the Blue Chip macroeconomic forecaster.

GDP Now -- 1.1% -- 3Q15 -- October 8, 2015 -- As of October 6, 2015:  The GDPNow model nowcast for real GDP growth in the third quarter of 2015 is 1.1 percent on October 6, up from 0.9 percent on October 1.  The model's nowcast of the third-quarter growth rate in real personal consumption expenditures increased 0.2 percentage points to 3.6 percent following yesterday's (October 5, 2015) light motor vehicle sales release from the U.S. Bureau of Economic Analysis. After this morning's international trade report from the U.S. Census Bureau, the model nowcasts of real net exports and real equipment investment each increased modestly. After a gazillion dollars in stimulus and six years into the recovery, and no evidence of any global warming in 18 years, and the Russians in Syria, the forecast for the US GDP for 3Q15 is a whopping 1.1%. At least it's not a negative number. POTUS, meanwhile, is on his way to Oregon, to talk gun control. And no one in the GOP wants to be House speaker. Welcome back, Mr Speaker.

Former IMF chief economist backs 'people's QE' | Reuters: "People's QE" could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund, said on Wednesday. Quantitative easing, where central banks buy assets such as government bonds from banks in exchange for newly created money, has been used in the euro zone, the United States and Britain to increase financial market liquidity and stimulate growth. But the verdict is still out on whether central banks should be buying assets, as they do now, or instead tie up with governments to spend it on 'real' goods, known as "people's QE", as a way of stimulating the economy, Blanchard said during a lecture at the Cass Business School. "There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods." "Which one should you choose? We haven't asked the question in the crisis but we should," he said. Blanchard said that this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money. He also stressed that these fiscal deficits should be "a certain size and not more".

Translating “net financial assets” - Steve Waldman - Steve Roth at Asymptosis offers a remarkable, detailed discussion of Modern Monetary Theory’s notion of “private sector surplus” with an emphasis on aggregate accounting. Roth’s core point is well taken: “Private sector surplus” (equivalently the increase in “private sector net financial assets”) should not be conflated with the economic saving of households. As Roth points out, household sector saving is the difference between household sector income and household sector (noninvestment) expenditure. “Private sector surplus” is likely to increase household sector income, and so in that sense it forms a component of household sector saving, but it is quantitatively small relative to total household income — especially, as Roth emphasizes, if you use comprehensive measures of income that include capital gains and losses. [1]  Roth is right about all this. But I think he is talking past MMT economists a bit. Roth invites us to think about comprehensive saving by households. But that’s very far from what MMT’s baseline sectoral balances decomposition claims to capture. Instead “net financial assets” capture only the financial position of the aggregated (domestic) private sector, including both households and businesses. MMT enthusiasts sometimes mix these things up, and when that happens it should be called out. But this confusion has been called out a lot over the years, and I think for the most part MMT economists have become pretty precise in expressing themselves. There is a great deal of value in the MMT decomposition, not as a measure of household saving, but of something else entirely. Let’s try to understand it.

Once the Biggest Buyer, China Starts Dumping U.S. Government Debt - WSJ: Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis. Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt. Few analysts expect much higher yields in the Treasury market as a result. Foreign private purchases of U.S. debt have increased amid pessimism about the world economic outlook. U.S. firms and financial institutions continue to buy Treasurys, as do some foreign central banks. Still, many investors say the reversal in central-bank Treasury purchases stands to increase price swings. It could also pave the way for higher yields when the global economy is on firmer footing, they say.  Foreign official net sales of U.S. Treasury debt maturing in at least a year hit $123 billion in the 12 months ended in July, according to Torsten Slok, chief international economist at Deutsche Bank Securities, the biggest decline since data started in 1978. A year earlier, foreign central banks purchased $27 billion of U.S. notes and bonds.

Treasury auction sees US join 0% club - - For the first time ever, investors on Monday parked cash for three months at the US Treasury in return for a yield of zero per cent. The $21bn sale of zero-yielding three-month Treasury bills brings the US closer into line with other developed economies, whose central banks have set overnight borrowing rates at negative levels. The lowest bid permitted for a US bill auction is zero per cent but ahead of the sale, four week and three-month bills have been trading at negative yields in the secondary market. This reflects a sharp decline in Treasury bill issuance in recent months as the US political system faces another tussle over raising the country’s debt ceiling. In trading on Tuesday, the four-week bill was quoted at minus 3 basis points and the three-month bill was at minus 1bp. “Our current forecasts assume that the debt limit will be raised in the first week of November and that the Treasury will start to ramp up issuance aggressively the following week,” said Wrightson Icap, the research company. “We could see the four-week offerings return to $40bn within a couple of weeks after Congress acts. However, there is no guarantee that the end-game will play out that neatly.” US Treasury debt is a haven asset, with short-dated matures such as bills attracting investors whenever there is a demand to park cash. Also on Monday, the US auctioned six-month bills yielding 0.065 per cent, the lowest in 11 months. Demand for US three-month bills was the highest since June, reflecting belief — stoked by Friday’s weak jobs report — that the Federal Reserve will keep interest rates at basement levels throughout 2015.

CBO Monthly Budget Review for September 2015 Reports Smallest Federal Budget Deficit Recorded Since 2007: The federal government ran a budget deficit of $435 billion fiscal year 2015, CBO estimates—$48 billion less than the shortfall recorded in fiscal year 2014, and the smallest deficit recorded since 2007. Relative to the size of the economy, that deficit—at an estimated 2.4 percent of gross domestic product (GDP)—was slightly below the average experienced over the past 50 years, and 2015 was the sixth consecutive year in which the deficit declined as a percentage of GDP since peaking at 9.8 percent in 2009. By CBO’s estimate, revenues were about 8 percent higher and outlays were about 5 percent higher in 2015 than they were in the previous fiscal year. CBO’s deficit estimate is based on data from the Daily Treasury Statements; the Treasury Department will report the actual deficit for fiscal year 2015 later this month.

Lew rules out letting Congress extract 'unacceptable' policies to lift U.S. debt limit | Reuters: U.S. Treasury Secretary Jack Lew urged Congress to act soon to raise the debt limit but said the Obama administration would not let lawmakers use the pending deadline to extract "unacceptable" policy commitments. Lew noted in an interview on National Public Radio airing on Thursday that he notified congressional leaders last week that the federal government would hit its legal debt limit around Nov. 5 and had indicated in the letter "it could even be a little sooner than that." "So they only have a few weeks," Lew said of the Republican-controlled Congress. "They need to act. The sooner they act, the better." The federal government is currently scraping just under its $18 trillion legal debt cap, with political wrangling over fiscal policy putting Washington at risk of not being able to pay its bills. The Treasury came close to missing payments in 2011 and 2013 when Congress delayed increasing the borrowing limit. U.S. House of Representatives Speaker John Boehner has left open the possibility of advancing an increase to the debt limit before he resigns from Congress on Oct. 30. But some conservative Republicans have said they cannot support a debt limit increase unless certain issues are addressed, such as a plan to sharply reduce government spending.

With Republicans In Disarray, And No Debt Ceiling Deal, All Eyes Turn To November 18 When The US Runs Out Of Cash - In the aftermath of Kevin McCarthy's surprising announcement yesterday that he would quit the race for speaker after reportedly telling House Republicans that he is not the one to unite the House Republicans following reports that he did not think he had the 218 votes necessary for the October 29th House vote, the GOP has been in disarray. According to Reuters, Friday morning House Republicans met behind closed doors "to discuss next steps in their internal leadership battle on Friday morning, the day after the front-runner to lead their chamber abruptly quit the speaker's race." "Starting this morning, we're looking for a consensus candidate," Representative Darrell Issa told CNBC ahead of the meeting. It won't be easy: finding a replacement for House Speaker John Boehner has consumed Republicans as Congress faces a series of pressing decisions, from raising the government borrowing authority to funding federal agencies through September. Further complicating matters is that the House of Representatives is set to take recess next week. Meanwhile, the power moves behind the scenes have begun. With House Ways and Means Committee Chairman, Paul Ryan, repeatedly saying he would not run, the richest member of Congress, California's Darrell Issa said he was considering running.  If no clear candidate emerges, he said, House Republicans should look at replacing all of their leadership positions. Other candidates include Representatives Daniel Webster of Florida and Jason Chaffetz of Utah.

Don’t Starve the BLS -- Why is Congress eyeing further cuts to the Bureau of Labor Statistics budget?Proposed Senate legislation would cut the BLS by another $13 million in 2016, after its real annual spending has already fallen more than 10 percent ($72 million) over the last five years. ... ...we need more and better data to understand our changing economy, not less. Instead of narrowing its data collection, BLS ought to expand it. For starters, it should develop and strengthen programs to help assess the growth of the “gig economy,” how global supply chains affect the US economy, and why wage growth remains sluggish despite job vacancy rates at a 15-year high. Skeptics will ask, why not rely entirely on the private sector to do this work? ... The answer is simple..., no private entity can match government statistical agencies’ ability to collect objective data and aggregate them into usable basic statistics. ... those basic statistics, such as basic scientific research, yield highly diverse applications and valuable benefits across our economy and society. Underfunding the BLS would be a false economy. It would mean basic statistics would be undersupplied, and the quality of economic decision-making would suffer. It may save a few million dollars in the 2016 federal budget, but would ultimately cost us much more.

U.S. Spent Nearly $100B On Foreigners To Fight Terrorists - To combat Islamic militants the White House says threaten national interests, the U.S. has spent nearly $100 billion to arm and train foreign militaries across the Middle East, North Africa and South Asia, an analysis by Vocativ shows. And nearly all of them are reeling from setbacks that threaten to undermine what’s become a core component of American foreign policy in these regions. U.S. programs funding foreign fighters began flourishing in the years after 9/11 and were laterbolstered by President Obama, who prefers doing this instead of deploying Americantroops into troubled areas. Now central to how the White House combats insurgencies in these regions, this strategy appears to be on the verge of unraveling. The Taliban toppled American-trained forces in Afghanistan last week to capture Kunduz, the country’s fifth-largest city. The fight to control it continues. U.S.-funded fighters in Iraq and Syria appear unable or unwilling to take on ISIS. Meanwhile, al-Qaeda-affiliated terrorists are virtually unchallenged in places like Yemen, Somalia and northwest Africa.  “Our track record at building security forces over the past 15 years is miserable,” said Karl W. Eikenberry, a former military commander and United States ambassador in Afghanistan, recently told the New York Times.  Here’s a snapshot of that record...

Americans Opposed to Being Shot Seek Representation in Washington - – Americans who are opposed to being shot, a constituency that has historically failed to find representation in Washington, are making a new effort to make its controversial ideas heard in the nation’s capital. “When you bring up the idea of not wanting to be shot with members of Congress, there’s always been pushback,” Carol Foyler, founder of the lobbying group Americans Opposed to Being Shot, said. “Their reaction has been, basically, ‘Not being shot: who’s going to support something like that?’” Foyler, however, believes that the right to not be shot, much like women’s right to vote, the right to same-sex marriage, and other rights that were deemed controversial in their day, may be an idea whose time has finally come. “For years, we’ve been talking about the right to not be shot and people have been looking at us like we’re out of our minds,” she said. “But recent polls show that a vast majority of Americans, in fact, do not want to be shot.” While Foyler and other anti-being-shot activists believe that Washington may finally be receptive to their radical ideas, Wayne LaPierre, the executive vice-president of the National Rifle Association, is doubtful. “People who don’t want to be shot are a very narrow interest group,” he said.

Trans-Pacific Partnership talks at 'take it or leave it' stage - A day of decision lies ahead for international trade talks as 12 countries must determine Sunday whether to tune out nagging individual worries in order to create the world's largest trade zone. Ministerial meetings in Atlanta have dragged on three days longer than scheduled and it appears this might be the make-or-break moment for concluding the Trans-Pacific Partnership here, and now, before the Canadian election. A few final irritants have pushed negotiations into the take-it-or-leave-it phase, after which some ministers have a G20 meeting in Turkey including Japan's envoy, who has made it clear he's gone after Sunday.The final issues include an important feud over how to regulate next-generation pharmaceuticals. On that issue, Canada is essentially a neutral bystander. But it's a full-fledged disputant in another final-hour tussle, this one involving a more traditional industry — dairy — and how much of it to accept in imports. Countries face the following dilemma: Accept the deal now, warts and all. Or wait, and risk that this decade-long project dies a slow, politically driven death. It became clear relatively early Saturday that all-night negotiations had failed to conclude agreements on those few issues, delaying yet another day the planned celebratory news conference announcing the deal. "Ministers have agreed to stay (until Sunday)," one source said, as hopes for a deal Saturday faded. So what began as a two-day ministerial meeting in an Atlanta convention centre will have wound up lasting five days, amid widespread desire from deal proponents to get it done now before elections in Canada, the U.S., Peru and Japan.

TPP trade deadlock: Japan leans on US to break impasse -- The US allows pharmaceutical companies an exclusive period of 12 years to use clinical data behind the approval for a new biological drug. The Obama administration had previously proposed lowering that threshold to seven years but has pushed a proposal for an eight-year minimum in the TPP talks in Atlanta. Australia, along with others such as New Zealand and Chile, have been unwilling to offer more than five years protection for the medicines since longer terms will push up the cost of state-subsidized medical programs. Japan called on the US to find a way to break a deadlock over protections for next-generation medicines on Saturday, as talks on a sweeping trade pact were extended for another 24 hours. Negotiators were up all night trying to broker a deal on the 12-nation Trans-Pacific Partnership, which will create a free trade zone covering 40% of the world economy. A push by the US to set a longer period of exclusivity for drug makers who develop biological drugs such as Genentech’s Avastin cancer-treatment has run into opposition from other TPP economies and is holding up a broader deal. Japanese economy minister Akira Amari said he had agreed to a US request to stay on in Atlanta for another 24 hours, but said the US had to find a way forward on biologics. “I said there were two conditions for us to accept that proposal: first, this would be the last chance, in other words there had to be certainty of getting a deal on pharmaceuticals; second, because of the schedule, Japan could not accept any further extension,” Amari told reporters.

The Trans-Pacific Free-Trade Charade -- As negotiators and ministers from the United States and 11 other Pacific Rim countries meet in Atlanta in an effort to finalize the details of the sweeping new Trans-Pacific Partnership (TPP), some sober analysis is warranted. The biggest regional trade and investment agreement in history is not what it seems.   You will hear much about the importance of the TPP for “free trade.” The reality is that this is an agreement to manage its members’ trade and investment relations – and to do so on behalf of each country’s most powerful business lobbies. Make no mistake: It is evident from the main outstanding issues, over which negotiators are still haggling, that the TPP is not about “free” trade.  New Zealand has threatened to walk away from the agreement over the way Canada and the US manage trade in dairy products. Australia is not happy with how the US and Mexico manage trade in sugar. And the US is not happy with how Japan manages trade in rice. These industries are backed by significant voting blocs in their respective countries. And they represent just the tip of the iceberg in terms of how the TPP would advance an agenda that actually runs counter to free trade. For starters, consider what the agreement would do to expand intellectual property rights for big pharmaceutical companies, as we learned from leaked versions of the negotiating text. The TPP would manage trade in pharmaceuticals through a variety of seemingly arcane rule changes on issues such as “patent linkage,” “data exclusivity,” and “biologics.” The upshot is that pharmaceutical companies would effectively be allowed to extend – sometimes almost indefinitely – their monopolies on patented medicines, keep cheaper generics off the market, and block “biosimilar” competitors from introducing new medicines for years. That is how the TPP will manage trade for the pharmaceutical industry if the US gets its way.

Pacific trade negotiators close in on landmark deal, fight for approval to follow | Reuters: A dozen Pacific Rim nations prepared on Monday to announce the most sweeping trade liberalization pact in a generation, a deal that could reshape industries and influence everything from the price of cheese to the cost of cancer treatments. The Trans-Pacific Partnership seeks to cut trade barriers and set common standards for 40 percent of the world economy and would stand as a legacy-defining achievement for U.S. President Barack Obama, if it is ratified by Congress. Lawmakers in other TPP countries must also approve the deal. The final round of negotiations in Atlanta, which began on Wednesday, had snared on the question of how long a monopoly period should be allowed on next-generation biotech drugs, until the United States and Australia negotiated a compromise. The TPP deal has been controversial because of the secret negotiations that have shaped it over the past five years and the perceived threat to an array of interest groups from Mexican auto workers to Canadian dairy farmers. Although the complex deal sets tariff reduction schedules on hundreds of imported items from pork and beef in Japan to pickup trucks in the United States, one issue had threatened to derail talks until the end – the length of the monopolies awarded to the developers of new biological drugs. Negotiating teams had been deadlocked over the question of the minimum period of protection to the rights for data used to make biologic drugs, made by companies including Pfizer Inc, Roche Group’s Genentech and Japan's Takeda Pharmaceutical Co.

TPP trade deal hit by delay at brink of completion | CTV News: -- A last-minute sprint toward a historic trade agreement has turned into yet another marathon negotiating session, with the suspense rippling from the negotiating table into Canada's federal election campaign. Negotiators appeared very close to striking the 12-country Trans-Pacific Partnership Agreement on Sunday afternoon, with plans to announce the creation of the world's largest trade zone. Here's how close: Reporters were brought into a room for a briefing session on the deal, were made to sign confidentiality agreements to keep the details secret until a formal announcement, and ziploc bags were distributed around the table to confiscate cellphones until the news embargo was lifted.That briefing never happened Sunday. A planned news conference to announce the deal was rescheduled -- from 4 p.m. to 6 p.m., then 8 p.m., and was eventually postponed indefinitely, in a fitting finale to a ministerial meeting marked by all-night negotiations that was intended to last two days, then three, four and finally a supposedly make-or-break fifth day. "Look, it's not done yet," said Andrew Robb, Australia's trade minister. The overnight hours into Monday could prove pivotal in determining whether the Canadian election experiences a debate on a deal, or a debate on which party should take over this process after Oct. 19. The talks appear likely to break up Monday as some ministers planned to leave for a G20 summit. Japan's envoy has warned he can't stick around through the day.

Trans-Pacific Partnership Trade Deal Is Reached -- The United States and 11 other Pacific Rim nations on Monday agreed to the largest regional trade accord in history, a potentially precedent-setting model for global commerce and worker standards that would tie together 40 percent of the world’s economy, from Canada and Chile to Japan and Australia.The Trans-Pacific Partnership still faces months of debate in Congress and will inject a new flash point into both parties’ presidential contests.But the accord — a product of nearly eight years of negotiations, including five days of round-the-clock sessions here — is a potentially legacy-making achievement for President Obama, and the capstone for his foreign policy “pivot” toward closer relations with fast-growing eastern Asia, after years of American preoccupation with the Middle East and North Africa.Mr. Obama spent recent days contacting world leaders to seal the deal. Administration officials have repeatedly pressed their contention that the partnership would build a bulwark against China’s economic influence, and allow the United States and its allies — not Beijing — to set the standards for Pacific commerce.The Pacific accord would phase out thousands of import tariffs as well as other barriers to international trade. It also would establish uniform rules on corporations’ intellectual property, open the Internet even in communist Vietnam and crack down on wildlife trafficking and environmental abuses.Several potentially deal-breaking disputes kept the ministers talking through the weekend and forced them repeatedly to reschedule the promised Sunday announcement of the deal into the evening and beyond. Final compromises covered commercial protections for drug makers’ advanced medicines, more open markets for dairy products and sugar, and a slow phaseout — over two to three decades — of the tariffs on Japan’s autos sold in North America.

Negotiators strike Pacific trade deal - The US, Japan and 10 other Pacific Rim economies have reached agreement to strike the largest trade pact seen anywhere in two decades, in what is a huge strategic and political win for US President Barack Obama and Japan’s Shinzo Abe. The Trans-Pacific Partnership covers some 40 per cent of the global economy and will create a new Pacific economic bloc with reduced trade barriers relating to the flow of everything from beef and dairy products to textiles and data as well as new standards and rules for investment, the environment and labour. Beyond that, however, it represents the economic backbone of the Obama administration’s strategic “pivot” to Asia and a response to the rise of the US’s chief rival, China, and its growing regional and global influence. It is also a key component of the “third arrow” of economic reforms that Mr Abe has been pursuing in Japan since taking office in 2012. After five years of negotiations and a final round of marathon talks that went around the clock in Atlanta over the past six days negotiators had been inching towards deals on the final sticking points. These include how long pharmaceutical companies should enjoy monopoly periods for next-generation “biologics” drugs and what access to their markets for dairy products countries like Canada, Japan and the US should provide to exporters like New Zealand. A planned announcement of the deal was delayed repeatedly on Sunday night as negotiations dragged on. But by Monday morning all 12 ministers had signed off on the agreement, which was due to be unveiled at a press conference. The deal must be signed formally by the countries’ leaders and ratified by their parliaments. In the US Mr Obama is likely to face a tough fight to get the deal through Congress next year, especially as presidential candidates like Republican frontrunner Donald Trump have argued against the TPP. Critics around the world have also lambasted the deal for being negotiated in secret and being biased towards corporations, criticisms that are likely to be amplified when the national legislatures seek to ratify the TPP in the months to come.

Trans-Pacific Partnership Deal Struck As "Corporate Secrecy" Wins Again -- Once again the corporatocracy wins as the so-called "Trojan horse" Trans-Pacific Partnership (TPP) trade agreement has been finalized. As WSJ reports, the U.S., Japan and 10 countries around the Pacific reached a historic accord Monday to lower trade barriers to goods and services and set commercial rules of the road for two-fifths of the global economy, officials said.  For the U.S., the TPP (reportedly) opens agricultural markets in Japan and Canada, tightens intellectual property rules to benefit drug and technology companies, and establishes a tightknit economic bloc to challenge China’s influence in the region (likely forcing their hand into separate trade agreements). However, Obama is likely to face a tough fight to get the deal through Congress(especially in light of presidential candidates' opposition). The US, Japan and 10 other Pacific Rim economies have reached agreement to strike the largest trade pact seen anywhere in two decades, in what is a huge strategic and political win for US President Barack Obama and Japan’s Shinzo Abe. As The Wall Street Journal reports, The deal, if approved by Congress, will mark an effective expansion of the North American Free Trade Agreement launched two decades ago to include Japan, Australia, Chile, Peru and several southeast Asian nations.

TPP trade agreement text won’t be made public for four years - The text of the Trans-Pacific Partnership that was agreed by trade ministers from US, Japan and ten other countries will not be made public for four years - whether or not it goes on to be passed by Congress and other member nations. If ratified by US Congress and other member nations, TPP will bulldoze through trade barriers and standardise international rules on labour and the environment for the 12 nations, which make up 40 per cent of the world’s economic output. John Hilary, the executive director the political organisation War On Want, said the result is that nobody knows what’s being negotiated. “You have these far reaching deals that are going to change the face of our economies and societies know nothing about it,” Hilary said in an interview posted on the Wikileaks channel in August. The US trade representative’s office keeps trade documents secret because they are considered matters of national security, according to Margot E. Kaminski, an assistant professor of law at the Ohio State University and an affiliated fellow of the Yale Information Society. The representatives claim that negotiating documents are “foreign government information” even though some may have been drafted by US officials. When Australian and New Zealand trade representatives asked to view the texts, they were asked to sign an agreement promising to keep it secret for at least four years “to facilitate candid and productive negotiations”, according to a document leaked by the Guardian.

Obama (Quietly) Finalizes His ‘Legacy-Making’ Trade Deal -- The first of the really big sandbags dropped on Monday morning.​​ But the accord—a product of nearly eight years of negotiations, including five days of round-the-clock sessions here—is a potentially legacy-making achievement for President Obama, and the capstone for his foreign policy "pivot" toward closer relations with fast-growing eastern Asia, after years of American preoccupation with the Middle East and North Africa. Well, all right, then. This is the economic equivalent of all those people who monger for war because we need to demonstrate "will." The plutocrats and their political sublets drag the rest of us into this unprecedented – and largely unexamined – arrangement so the president gets a "legacy-making achievement"? The legacy undoubtedly will be made in a Vietnamese factory by children making four Vietnamese dongs a decade and fashioned from some sort of toxic goop that will ensure that, when these children have children, those children will have two heads and gills. But the legacy for the rest of us is unlikely to be quite so bright and shiny. The only thing that may stop the onrushing runaway train is not a grand Tea Party-Bernie ideological marriage of opposites, but, rather a galaxy of parochial concerns that amount to a general chorus of oxen being gored. (This even includes Paul Ryan, the zombie-eyed granny starver from the state of Wisconsin, who's worried about dairy farmers.) Months and months of debate loom ahead, and there surely will be some bellowing about it on the campaign trail. (It's Christmas morning for Bernie Sanders.) Donald Trump says it's a bad deal, but only because he didn't make it. (Donald Trump likely feels the same way about the Peace of Westphalia and the Louisiana Purchase.) But my money is still on this thing squeaking through. If it fails, it will fail not because of politicians, but because of their constituents, and their dairy farms, sugar fields, and auto plants.

Making sense of the TPP: Don’t confuse trade with trade deals. Jared Bernstein - After years of negotiating, the Trans Pacific Partnership, a 30 chapter, 12 country trade agreement that’s been in the works for years, was signed yesterday by participating countries. Trade negotiators from the US, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam resolved long-standing differences on tariffs, dispute procedures, labor and environmental rights, intellectual property/patents, and much more, and agreed to the accord. That step alone does not make it the law governing trade practices between these nations; their governments, as well as our own, of course, must now ratify the treaty. But what does this all mean? The deal has been negotiated in secret so we’ve largely had to rely on what negotiators tell us about it, and since the negotiators are tasked by their governments with selling the deal, such information tends to be pretty one-sided. Will it really herald “a wide range of change in the years ahead” for “consumers across the country,” as the NYT writes this morning? I haven’t seen it either, but I strongly doubt it. Trade and globalization have historically been a big, economic game-changer, reaping benefits for consumers and macro-economies from vastly increased supply chains. Trade deals, on the other hand, are nothing more than rules of the road for how trade is conducted between partner countries. Some of those rules are handshakes between investors across borders; other measures, often in opposition to the investor-favored ones, have the potential to benefit consumers, workers, and the environment.

The Corporate-Friendly TPP - If the negotiations over the Trans-Pacific Partnership, the big trade accord covering twelve countries, which was finalized over the weekend, make anything clear, it’s that trade deals these days have much less to do with the classic ideas of free trade—lowering tariffs and quotas—than with things like intellectual-property rules, regulatory standards, and investor protection. Even the gains in export sales for American companies, which will find it easier to sell their products abroad, are likely to be modest. Instead, the real impact of this deal is going to be in the regulatory changes it imposes, and in the way it creates a more corporate-friendly environment. Some of those regulatory changes are potentially good. The deal requires all twelve signatory countries, which circle the Pacific and include not only the United States and Canada but states as diverse as Peru, Vietnam, New Zealand, and Brunei, to follow the labor standards set by the International Labor Organization. Those include prohibitions against child labor, minimum-wage and maximum-hour rules, and workplace-safety regulations. The obvious question, of course, is whether certain of those countries will actually enforce these rules, but in theory this is a move away from a “race to the bottom” approach to globalization. And the deal limits countries’ ability to restrict the flow of information on the Internet.  These things all sound great, which is why they’re prominently featured on the White House’s “What’s In It” page about the T.P.P., and on its deal fact sheet. What those pages don’t highlight, though, are other parts of the agreement—the provisions that will toughen intellectual-property rules, for example, and provide more protection for pricey medicines derived from living organisms, known as “biologics.” The deal also establishes rules that will make it easier for companies to sue to block regulations that they believe endanger their profits. These are the parts of the deal that aren’t likely to do anything to “benefit the middle class,” at home or abroad.

TPP Take Two  --Paul Krugman --I’ve described myself as a lukewarm opponent of the Trans-Pacific Partnership; although I don’t share the intense dislike of many progressives, I’ve seen it as an agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things, not good, even from an efficiency standpoint. But the WH is telling me that the agreement just reached is significantly different from what we were hearing before, and the angry reaction of industry and Republicans seems to confirm that. What I know so far: pharma is mad because the extension of property rights in biologics is much shorter than it wanted, tobacco is mad because it has been carved out of the dispute settlement deal, and Rs in general are mad because the labor protection stuff is stronger than expected. All of these are good things from my point of view. I’ll need to do much more homework once the details are clearer. But it’s interesting that what we’re seeing so far is a harsh backlash from the right against these improvements. I find myself thinking of Grossman and Helpman’s work on the political economy of free trade agreements, in which they conclude, based on a highly stylized but nonetheless interesting model of special interest politics, that  An FTA is most likely to politically viable exactly when it would be socially harmful. The TPP looks better than it did, which infuriates much of Congress.

Pacific Trade Deal’s Long Journey Is Just Beginning  -- The news that negotiators from 11 Pacific countries, including the U.S., have completed negotiations on the Trans-Pacific Partnership, a trade deal that will touch some 40 percent of the world’s cross-border sale of goods and services, sets off a long march toward an up-or-down vote in Congress that will likely take place just as presidential primary elections are heating up.  Here’s how the process will play out. First, the president has to give Congress 90 days’ notice before he officially signs on to the agreement. At least 60 days ahead of time, he must also provide a full copy of the agreement – which runs to thousands of pages – on the website of the United States Trade Representative. Assuming the president announces his intent to sign the deal in relatively short order – say this week – that means he can’t officially enter into the agreement until the first week of January at the earliest.Up to this point, the process is on autopilot. The notice requirement, giving lawmakers time to examine the deal makes the process more transparent, but does nothing to affect the President’s ability to sign it. “The President possesses inherent authority to negotiate with other countries to arrive at trade agreements,” notes the Congressional Research Service. However, “If any such agreement requires changes in U.S. law…it could be implemented only through legislation enacted by Congress.” Here is the potential sticking point. At an undetermined point in time after the president signs the deal, he has to deliver suggested implementing legislation to Congress. This would include all of the adjustments to existing U.S. law needed to bring the country into compliance with the agreement.

Historic Pacific trade deal faces skeptics in U.S. Congress | Reuters: Twelve Pacific Rim countries on Monday reached the most ambitious trade pact in a generation, aiming to liberalize commerce in 40 percent of the world's economy in a deal that faces skepticism from U.S. lawmakers. The Trans-Pacific Partnership (TPP) pact struck in Atlanta after marathon talks could reshape industries, change the cost of products from cheese to cancer treatments and have repercussions for drug companies and automakers. Tired negotiators worked round the clock over the weekend to settle tough issues such as monopoly rights for new biotech drugs. New Zealand's demand for greater access for its dairy exports was only settled at 5 a.m. EDT (0900 GMT) on Monday. If approved, the pact would cut trade barriers and set common standards from Vietnam to Canada. It would also furnish a legacy-shaping victory for U.S. President Barack Obama, who will promote the agreement on Tuesday in remarks to business leaders in Washington. The Obama administration hopes the pact will help the United States increase its influence in East Asia and help counter the rise of China, which is not one of the TPP nations. Lawmakers in the United States and other TPP countries must approve the deal. Five years in the making, it would reduce or eliminate tariffs on almost 18,000 categories of goods.

TPP: It’s Not a Deal, It’s Not a Trade Deal, and It’s Not a Done Deal -  Press coverage of the climax of the Atlanta ministerial meeting on TPP was as herd-like as the Corbyn 5 minutes of hate in the UK. Here are just a few of the headlines; you can see how very much alike they are, in tone and content:

Of course, nothing has been “signed,” and the deal has neither been “reached”, “sealed,” “struck,” or “agreed.” At best, what we have is a deal to try to make a deal; these headlines, and the mentality of the writers and editors, are all profoundly anti-democratic. In this post, I want to first look at the exact status of the deal we do not yet have; that is, the text that will, at some point, be presented to lawmakers. Then I want to look at what the deal, or at least the dealings, are really about; and it’s not trade. NC readers already know this, of course; but it’s good to have more confirmation come out of the negotiation process. (In this post, I’m not going to look at the sausage-making[1] or who said what[2]; frankly, I’m not certain that’s the only method to examine — or, more importantly, disrupt — the TPP process, though it is necessary to be informed if only to refute or recontextualize in conversation.[3]) In conclusion, there’s hope: Deals like TPP have been defeated before.

Republicans Sour on Obama’s Trade Pact -- Of particular concern to Hatch and other Republicans is a provision excluding tobacco companies from being able to sue governments over regulations seen as targeting their industry. Another Republican, Senator Thom Tillis of North Carolina, said that change from past trade agreements, which was cheered as a victory for public-health advocates, could lead him to vote against the TPP. Republicans also are upset about the resolution of the final sticking point in the Atlanta negotiations: a shortened period for top drug companies to keep their data secret on advanced medicines known as biologics. Senate Majority Leader Mitch McConnell, who guided to passage the legislation granting Obama’s expedited negotiating authority, said the agreement was “potentially one of the most significant trade deals in history” but would face “intense scrutiny” in Congress. “We are committed to opening trade in a way that benefits American manufacturers, farmers, and innovators,” he said in a statement. “But serious concerns have been raised on a number of key issues.” Are the concerns about the final details enough to sink the deal? Administration officials sounded confident that Congress would ultimately ratify it. They pointed out that the lengthy accord hadn’t even been printed yet and that the administration would be spending months going over it with lawmakers point by point. And they debuted a talking point designed explicitly for members of Congress to take back home to their constituents: By eliminating tariffs on U.S. exports to the Pacific, the deal contains some “18,000 tax cuts” for American businesses. “It’s an agreement that puts American workers first and will help middle-class families get ahead,” Obama said in a statement.

Hillary Flip-Flops On TPP - Shuns Obama's Trade Plan After Publicly Supporting It 45 Times In what seems like a nervous populist move amid Bernie Sanders' gains, Hillary Clinton has flip-flopped rather stunningly to oppose President Obama's Trans-Pacific Partnership. Despite supporting the bill at least 45 times, as CNN's Jake Tapper points out, Clinton told PBS' Judy Woodruff Wednesday in Iowa that, "As of today, I am not in favor of what I have learned about it." It's also a departure from the Clinton legacy, as CNN notes, it was President Bill Clinton who, two decades ago, signed the first mega-regional pact: the North American Free Trade Agreement. As CNN reports, Hillary Clinton came out against the Trans Pacific Partnership in an interview Wednesday, breaking with President Barack Obama and his administration, which has forcefully promoted the deal. Clinton told PBS' Judy Woodruff Wednesday in Iowa that, "As of today, I am not in favor of what I have learned about it." The former secretary of state cited the "high bar" she set earlier in the year as the reason she was giving the deal a thumbs down. "I have said from the very beginning that we had to have a trade agreement that would create good American jobs, raise wages and advance our national security and I still believe that is the high bar we have to meet" Clinton said, adding later,"I don't believe it's going to meet the high bar I have set."

Why Japan Did America’s Dirty Work in the TPP: USTR Gave Away the Agricultural Store - Lambert Strether - While doing the research for this morning’s work-up of TPP, I ran across this thirty-six page PDF, said to the the Japanese government’s summary of TPP (see translated headline here; link appears on page). During the Atlanta negotiations, I noticed that the Japanese were playing a much more forward role than usual, starting with all the leaks in the Japanese press that the deal was done (when in fact it wasn’t), and so forth. Frankly, I had expected Abe to throw Obama under the bus, once they had his permission to remilitarize, to protect Japanese agriculture for their upcoming elections. So I shot the PDF off to NC contributor Clive, who knows Japanese, saying “The media is trumpeting “Agreement” but I’m not sure what kind of agreement we have.” Here’s how Japanese agriculture did get protected. Take it away, Clive! Wow. That master negotiator USTR Froman has caved big time and handed Japan everything it asked for, certainly in terms of agriculture. To call it a sweetheart deal (Japan being the one who is being wooed, USTR Froman apparently being the Girl Who Just Can’t Say No) would be understating it. About the only concession from the Japan is the reduction to a small degree in agricultural tariffs. But as you’ll see, there’s no hurry to implementing them and plenty of get-out clauses.  Too much detail to quote the provisions detailed in the document in their entirety, but let’s take beef by way of example. (1) To avoid the elimination of tariffs while also reducing tariffs (but) with safeguards (the tariffs on beef will be reduced as follows).  38.5% (current) → 27.5% (initially (at the enactment of the TPP)) → 20% (after 10 years) → 9% (16 years later)  (2) Safeguards: trigger quantity (this is an annual “anti-dumping” limit that, once imports rise above a set level mean an additional import surcharge is made):  590,000 t (initially) → 696,000 t (after 10 years) → 738,000 t (after 16 years) (Also for the 5 years after year 11 from the enactment of the TPP there will be a 20% cut in the quarterly trigger level*)  safeguard tax rate:. 38.5% (initially) → 30% (4 years) → 20% (11-year) → 18% (15 years)  From Year 16 (since the TPP became enacted) the Safeguard tariff tax will be reduced by 1% every year. But if the Safeguard tax is invoked (i.e. if the anti-dumping trigger is reached) the Safeguard tax will not be reduced the following year. However, if the Safeguard tax (threshold) level is not reached for four (consecutive) years then the Safeguard tax will be abolished.

Full Translation of Japanese Government’s Summary of the TPP -  Yves Smith - Robert B graciously provided this to us. The source Japanese document is here:   Reader Clive had read it and translated sections of it as a basis for Lambert’s post earlier today, but it’s always good to have more eyes on important documents.  I’m sure we’ll have more to say about this once we’ve digested it, but we wanted the public to have acces to it as soon as possible.  Overview of the TPP

The TPP has a provision many will love to hate: ISDS. What is it, and why does it matter? - With the conclusion of negotiations in Atlanta on the Trans-Pacific Partnership (TPP), we will soon have texts to look at, and, eventually, a vote in Congress. One sticking point will be the agreement’s chapter on investor-state dispute settlement (ISDS). My colleagues posted a good explainer on The Monkey Cage earlier this year. Let me recap a few of the main points.  ISDS is a legal system that has been included in investment treaties and trade agreements over several decades, including under the North American Free Trade Agreement (NAFTA). Under these rules, foreign investors can legally challenge host state regulations outside that country’s courts. A wide range of policies can be challenged: Argentina has had its macroeconomic policies challenged, Australia its anti-smoking efforts, Costa Rica its environmental preservation laws. The system is unusual in international law. Most international courts only allow disputes between states. ISDS, in contrast, creates one-way rights: Corporations can sue governments, but not vice versa. It’s also ad hoc: The legal challenges are decided by arbitrators hired for that case only. The typical set-up is that the foreign investor appoints an arbitrator, the host state appoints a second, and the two parties or arbitrators appoint a third to chair the case. After their decision, they are paid by the parties, and the tribunal is dissolved. Finally, it’s also unusually powerful for international law. Arbitrators can order governments to pay cash to the investor, who can then enforce arbitrators’ decisions with the full force of domestic courts. As the U.S. Supreme Court determined last year, domestic courts must defer to their decisions and not review their merits.

How The TPP Could Lead To Worldwide Internet Censorship --On Monday, we learned that global “leaders” had come to an agreement on the infamous Trans Pacific Partnership, or TPP. While discouraging, this doesn’t mean the game is over - far from it. Although politicians have come to a secret agreement, this democracy killing, corporate monstrosity still has to pass the U.S. Congress. So it’s now up to all of us to create an insurmountable degree of opposition and make sure this thing is dead on arrival. The more I learn about the TPP, the more horrified I become. In case you need to get up to speed, check out the following:

If that wasn’t enough to concern you, here’s the latest revelation. From Common Dreams:The “disastrous” pro-corporate trade deal finalized Monday could kill the Internet as we know it, campaigners are warning, as they vow to keep up the fight against the Trans Pacific Partnership (TPP) agreement between the U.S. and 11 Pacific Rim nations.“Internet users around the world should be very concerned about this ultra-secret pact,” said OpenMedia’s digital rights specialist Meghan Sali. “What we’re talking about here is global Internet censorship. It will criminalize our online activities, censor the Web, and cost everyday users money. This deal would never pass with the whole world watching - that’s why they’ve negotiated it in total secrecy.”

Users Have Been Betrayed in the Final TPP Deal—Help Us Tell Washington How You Feel -- Trade negotiators from the U.S. and its 11 Pacific Rim partners announced their agreement on the Trans-Pacific Partnership Agreement (TPP) today, concluding the final round of closed negotiations in Atlanta and marking the culmination of seven years of secrecy. Throughout all that time, the U.S. Trade Representative (USTR) has acted as a de facto representative of the Hollywood big media lobbies in pushing other countries to adopt the most punitive aspects of U.S. copyright policies—such as our over-the-top civil and criminal penalties—while at best giving lip service to pro-user aspects such as fair use. Throughout this time EFF and our partner organizations, including the Our Fair Deal coalition, tried to play by the USTR's rules. We wrote whitepapers and open letters, we held side-events for negotiators, we gave presentations (during the limited window when we were allowed to do so), and we spoke with USTR officials bilaterally. But successive leaks of the TPP have demonstrated that unless you are a big business sector, the USTR simply doesn't care what you have to say. The latest evidence of this is that it was only when Google finally weighed in on the need for more robust support for fair use in the TPP, that the USTR budged on that issue—having ignored our similar calls for years. Now, the deal is finally done and the text still won't be available for another 30 days. Well enough's enough. The time for whitepapers and presentations is past. The USTR has failed us, so now it's time for the public to rise up and take their message about the TPP's threats to user rights to Congress, which has the ultimate authority to approve or reject the deal for the United States. To be effective we'll need to deliver that message in terms that are clear, and in-your-face—literally. So, that's what we're planning: to display signs and banners about how the TPP threatens digital rights and freedoms around the world, during demonstrations that are to be held in Washington, DC from November 14 to 18, 2015, while trade ministers are attending an APEC meeting in the Philippines.

Here’s What Needs to Happen in Order for the Trans-Pacific Partnership to Become Binding -- This week started with a bang with the news that the twelve states that have been party to the Trans-Pacific Partnership (TPP) negotiations, over a process spanning months for some and years for others, had come to a final agreement on the text for the deal. Make no mistake: this is a big deal. The TPP states, between them, represent 40 percent of the global economy and a quarter of its trade. They are home to 800 million people, representing 12 percent of global population. Though the text of the agreement is finalized, the TPP still has a ways to go before it actually becomes binding on its members, i.e. before it “enters into force.” The TPP can come into force in two ways. The first:

  • All TPP members complete their respective domestic treaty ratification processes for the TPP.
  • The TPP comes into effect 60 days after the 12th TPP member completes its ratification of the deal.

Of course, the TPP is not an uncontroversial free-trade agreement. In each and every member state, there is considerable opposition from domestic interest groups and stakeholders. It’s entirely possible that some states that agreed to participate in the talks and agreed on Monday to the finalized text could end up failing to ratify the agreement. That’s where the second mode of entry into force comes into play. If two years elapse and all signatories still haven’t ratified the agreement, the following conditions need to exist in order for the TPP to come into force:

  • At least six original signatories have to have successfully ratified the agreement.
  • Those six signatories, between them, must represent 85 percent of the total GDP of the twelve originals signatories.

That last clause is important. The United States and Japan between them represent just shy of 80 percent of the GDP of the twelve original TPP signatories (specifically, the U.S. represents nearly 62 percent of TPP GDP and Japan accounts for 17 percent). Basically, the TPP can’t come into force if either of these states fail to ratify the agreement in their domestic legislatures because there would be no way for the remaining signatories to fulfill the 85 percent of GDP requirement (even if the United States and all states but Japan ratify, the eleven would stand at 83 percent of GDP).

John Boehner To Stay On As Speaker After All, Fox Reports -- As The GOP lurches from turmoil to chaos, following speaker-in-waiting McCarthy's pulling out,Fox News' Bret Baier reports that Speaker John Boehner has agreed to stay on as Speaker - not just until the Caucus nominates someone - but, until that person can confirm 218 votes on the House floor (needed to take the Speaker’s gavel). As Fox News Bret Baier reports,Having Talked to several senior aides on Capitol Hill  (along with Chris Stirewalt and his sources on the Hill tied to the leadership) here is the picture that is beginning to form. Speaker John Boehner has agreed to stay on as Speaker--not just until the Caucus nominates someone --but, until that person can confirm 218 votes on the House floor (needed to take the Speaker’s gavel).  Short of that – Boehner will stay on for the rest of this Congress and steer legislation that is pending. What does this mean?   Moderates and leadership types are cheering and saying Boehner is the only one they will support.   Conservatives will go ballistic since they know this signals that Boehner will make ALL kinds of deals to get big ticket legislation through the House even if it means using Democrats votes to do it. The news… short of another candidate that can get 218 votes (and that looks like a long shot with leadership and moderates lining up behind Boehner) Looks like he may be here to stay to handle the very tough debt ceiling and next CR.

Why Marco Rubio is insisting that his massive tax cuts will pay for themselves, explained - Ezra Klein - On Tuesday, Marco Rubio told CNBC's John Harwood that his massive tax cuts — which estimates have found would blow a roughly $4 trillion to $5 trillion hole in the deficit — creates a surplus "within the 10-year window." It is worth slowing down to make clear exactly what Rubio said there. Rubio's plan cuts corporate taxes, capital gains taxes, taxes on the rich, taxes on the middle class — it cuts taxes on everyone. The cuts are so large that the New York Times called it "the puppies and rainbows plan." And what Rubio is saying is that his massive tax cut is actually going to mean more tax revenue for the government — that two minus one will equal four. ... Rubio's assurance will, to most tax analysts, sound like nonsense. And it is nonsense. A plan that massively cuts taxes isn't going to lead to budget surpluses. But it's nonsense that has been validated by an important conservative tax group, that shows the kind of candidate Rubio is looking to be, and that speaks to why the debate over taxes in Washington has become so dysfunctional. ...

From Fracking to Finance, a Torrent of Campaign Cash - The great American energy boom of the last decade has produced a wave of new billionaires and multimillionaires. Now they are throwing tens of millions of dollars into the presidential campaign, with the biggest checks going almost exclusively to Republicans and their “super PACs.” The top donors include Trevor Rees-Jones, who left a law practice in Dallas and turned $4,000 in savings into an energy empire as the head of Chief Oil and Gas; Dan and Farris Wilks, abortion opponents whose trucking and equipment business struck gold in the fracking boom; and Karen Buchwald Wright, the head of Ariel Corporation, an Ohio manufacturer of gas compressors. Established Texas oil families are deeply involved in the campaign, too. Descendants of the late gambler and oil speculator H.L. Hunt – once thought to be the richest man in America – account for at least $2.3 million in donations in this presidential campaign. Mr. Hunt’s fortune, feuds and multiple marriages are the stuff of legend: In the late 1970s, two of his sons reputedly tried to corner the silver market, and some say the Hunts inspired the classic television series “Dallas.” At least three of his descendants have followed his path in Republican politics in the 2016 campaign. Among them is Ray Lee Hunt, the sole surviving Hunt heir with enough wealth to make the Forbes list of billionaires. (Mr. Hunt is No. 92 in the United States.) The family business, Hunt Oil, remains among the largest privately held oil companies in the country. Mr. Hunt and his wife have put more than $2 million behind Mr. Bush.

Global tax deal targets multinationals -- Financial Times --- The world’s leading finance ministers agreed on Friday to change the rules on taxing profits, and warned multinational companies they could no longer use their size and international presence to dodge taxes. Under the rules, companies such as Starbucks, Amazon and Google will find it harder to concentrate their profits in low-tax countries and tax havens — a shift that promises to raise up to $250bn a year in extra tax revenues, according to the OECD. Angel Gurría, head of the OECD, the club of mostly rich nations that has drawn up the rules, said it was time “to recover the trust of our citizens” and “move to the next phase which consists of a well-defined trilogy: implementation, implementation, implementation”. The plans to crack down on corporate tax avoidance were devised by more than 60 governments in the first overhaul of the rules for taxing profits for nearly a century. Campaigners have criticised the rules for merely patching up the existing system, although businesses say they have a greater degree of consensus than initially expected. The new rules, called “base erosion and profit shifting” or Beps, are designed to improve transparency, close loopholes and restrict the use of tax havens. They are the culmination of an international project launched two years ago by G20 governments in response to public anger over corporate tax avoidance. Finance ministers from the largest economies hailed the initiative, which they hope will raise revenue and force companies to pay the tax they owe. Lou Jiwei, China’s finance minister, said each country needed to “enhance domestic reforms” to implement the rules.

A Tax to Curb Excessive Trading Could Be a Boon to Returns -  This is the story of the financial transaction tax that’s part of the agenda of Senator Bernie Sanders. His presidential campaign revealed this week that its fund-raising efforts have yielded about $26 million since July, enough that we’ll probably have his ideas to ponder for at least a few weeks into primary season in early 2016.Mr. Sanders wants to tax stock trades at 0.5 percent of the value of the transaction, 0.1 percent for bonds and 0.005 percent for derivatives. Individual investors wouldn’t pay this tax directly on their own trades in brokerage or retirement accounts; its main target is high-speed traders and hedge funds.Still, the campaign anticipated that mutual fund companies that would have to pay the tax themselves might somehow pass on the cost to customers. So it wants to offer a tax credit to lower-income individuals who feel any impact.There are all sorts of ways that this tax may cost many investors money in the long run. But considering its potential virtues, it is a useful exercise because it’s akin to a sin tax. Trading too much hurts returns and is extremely hazardous to our wealth, and the less we do of it, the better off most of us will be.Financial transaction taxes are not new. They exist elsewhere in the world in various guises, and the United States has had them before. They tend to find favor after crises of various sorts, and so it goes with this one.“Senator Sanders likes to call it a Wall Street speculation tax,” said Warren Gunnels, his campaign’s policy director. The description also points to the desire to curb high-speed trading that could threaten financial markets.

We All Get ‘Free Stuff’ From the Government - Bryce Covert -  Jeb Bush got caught sounding like a Mitt Romney rerun recently: He told a mostly white audience that he could attract black voters because his campaign “isn’t one of ... we’ll take care of you with free stuff.” ... But the shorthand of “free stuff” also takes an incredibly narrow, and therefore misleading, view of government benefits. There’s a whole treasure trove of government handouts that aren’t dispensed through spending, but rather through the tax code. That doesn’t make them any less “free” than a rent voucher or an Electronic Benefit Transfer card. ...What the government loses to tax expenditures dwarfs spending on welfare programs. ... These facts are obscured for most people. While those who get government benefits through spending programs are often aware — and too frequently ashamed — of that fact, those who get them through the tax system usually don’t realize they’ve received a handout. ... Jeb Bush has saved at least $241,000 since 1981 through the mortgage interest deduction. ... Just days before he vowed not to promise voters more free stuff, he put out a tax plan that would give out a whole lot more of it. ... Every four years, politicians stigmatize “free stuff” like food stamps and welfare while courting votes — and gloss over tax breaks. ... We turn a blind eye to giving out more and more tax breaks but balk at actually spending enough on welfare to truly help the most vulnerable among us.

Hillary Clinton's Wall Street Reform Plan Is Right of Bernie Sanders' - Dave Dayen - The rise of Bernie Sanders as a policy force among liberals has forced Hillary Clinton to lurch left this presidential primary season, from opposing the Trans-Pacific Partnership and the Keystone XL pipeline to calling for a repeal of the “Cadillac tax” on high-cost health care plans. Now she’s cobbled together a plan to protect and advance reforms of the financial industry. Clinton’s plan does not go as far as Sanders’ or her other rivals’—there’s no proposal to reconstitute the firewall between investment and commercial banking, for example. What Clinton does endorse addresses some glaring problems in the financial system: opaque algorithmic trading, risky bets with depositor funds, and bank executives who evade justice when they break the law. Whether you think they will work depends on how you game out the likely responses to such changes. For example, Clinton wants to strengthen the Volcker rule, the kludgy step-sister to Glass-Steagall, the investment/commercial bank firewall. The Volcker rule, named for the former Federal Reserve chair, is designed to prevent deposit-taking banks from making proprietary trades with their own funds. But it included several loopholes, including one allowing banks to invest up to three percent of their capital in hedge funds, who then make those trades. Banks haven’t even needed to sell their other stakes in hedge funds and private equity firms to get under that limit. And Goldman Sachs, in particular, has been testing the Volcker rule by redeploying money that used to fund hedge funds and buying the underlying investments outright (known as merchant banking). Clinton wants to close the hedge fund loophole, disallowing any stakes by deposit-taking banks, and ensuring that the broadest possible definition of “hedge fund” is used to prevent regulatory gaming. But it’s not clear that this would stop Goldman’s merchant banking activity, which could wind up even riskier, because more of their own money is at stake. In fact, restricting the hedge fund stakes could lead other banks to copycat Goldman’s efforts.

Hillary Clinton’s Lame Wall Street “Reform” “Plan”- James Kwak - Hillary Clinton is competing for the nomination of a party whose progressive base thinks, with considerable justification, that her husband is to blame for letting Wall Street run amok—and that Barack Obama, under whom she served, did too little to rein in the bankers who torpedoed the global economy. On top of that, she faces a competitor who says what the people actually think: that the system is rigged, that big banks should be restrained, and that people should go to jail. So she has no choice but to try to appear tough on Wall Street—but she has to do that without simply jettisoning twenty-five years of “New Democrat” friendliness to business and without alienating the financial industry donors she is counting on. So the “plan” she announced yesterday has two messages. On the one hand, she wants to show that she has the right approach to taming Wall Street. Unfortunately, it’s just more of the same: another two dozen or so regulatory tweaks, mainly of the arcane variety, that will produce more of the massive, loophole-ridden rules that Dodd-Frank gave us. Or, that could be the point. Her second message is a promise to the financial industry that, instead of real structural reforms, she will continue the technocratic incrementalism of the Geithner era—which has left the megabanks more or less the way they were on the eve of the financial crisis. Maybe, for her base, that’s a feature, not a bug.

Bill Gross Sues PIMCO "Cabal" Over Ouster, Seeks "Hundreds Of Millions" -- When Bill Gross exited PIMCO last October, it came as somewhat of a shock despite the fact that the outspoken “King” of the bond market had a reputation for being incorrigible and somewhat difficult to get along with in the boardroom.  Now, Gross is set to sue the asset management firm he put on the map for "hundreds of millions" in connection with what he says was a “plot” by an evil, internal “cabal” to facilitate his ouster. Here is Bloomberg's first take: Bill Gross sued Pacific Investment Management Co. and parent Allianz SE for “hundreds of millions of dollars,” claiming he was wrongfully pushed out as the bond giant’s chief investment officer by a “cabal” of executives seeking a bigger slice of the bonus pool. “Driven by a lust for power, greed, and a desire to improve their own financial position and reputation at the expense of investors and decency, a cabal of Pimco managing directors plotted to drive founder Bill Gross out of Pimco in order to take, without compensation, Gross’s percentage ownership in the profitability of Pimco,” according to the complaint, which Gross’s lawyers said was filed Thursday in California state court in Santa Ana. “Their improper, dishonest, and unethical behavior must now be exposed.”

That Bill Gross law suit in full FT Alphaville

Michael Hudson on Parasitic Financial Capitalism -- naked capitalism - Yves here. Get a cup of coffee! This is a meaty and wide-ranging interview.  The following is a transcript of CounterPunch Radio – Episode 19 (originally aired September 21, 2015). Eric Draitser interviews Michael Hudson. Eric Draitser: Doctor Hudson is the author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, available in print on Amazon and an e-version on CounterPunch. Michael Hudson, welcome to CounterPunch Radio.

Adam Posen Calls Financial Stability Oversight in U.S. “a Mess”; Speech Goes Missing -  This past Saturday, Adam Posen, the President of a powerful think tank, the Peterson Institute for International Economics, delivered a speech at a conference sponsored by the Federal Reserve Bank of Boston, calling the U.S. Financial Stability Oversight Council (FSOC) “a mess.” That speech has gone missing from online access.  FSOC is the body created under the Dodd-Frank financial reform legislation of 2010 to reassure the American people that Wall Street would never again be able to take the U.S. economy, the financial system, and the housing market to the cleaners and then get a multi-trillion dollar bailout. FSOC is chaired by the U.S. Treasury Secretary, Jack Lew (an alumnus of the biggest bailout recipient, Citigroup), along with the heads of every other major U.S. financial regulator. According to Bloomberg Business, in his conference remarks on Saturday, Posen also said that what individual financial institutions are able to do with discretion from regulators was “huge.” (That two of the mega banks in the U.S., JPMorgan Chase and Citigroup, admitted to criminal felony counts in May for rigging foreign currency markets along with other banks and that serial findings of collusion among the mega banks in multiple markets has now achieved epic dimensions, Posen’s comments would hardly seem an overstatement.) The New York Times added more gravity to Posen’s remarks with this quote from him at the Saturday conference: “The current U.S. institutional setup is likely to fail in a crisis and will do less to prevent a crisis than it should, and we are likely to suffer from this.” There are two places one would expect to find such a remarkably candid speech. At the official conference site where other speeches are posted or at Dr. Posen’s official page of speeches and publications at the Peterson Institute. We could not find the speech at either site, nor could we find it elsewhere on the Internet.

Policy Makers Skeptical on Preventing Financial Crisis - The 2008 financial crisis convinced most people in the world of central banking that it would be a good idea to try to prevent that kind of thing from happening again.But policy makers have made little progress in figuring out how they might actually do so, a troubling reality highlighted at a conference that ended over the weekend at the Federal Reserve Bank of Boston.The Fed has publicly committed itself to a strategy of so-called macroprudential regulation, meaning it is now focused on maintaining the stability of the financial system as well as the health of individual firms. But senior Fed officials at the Boston conference described that as more of a goal than an achievement.Crises remain hard to anticipate and prevent, and the available tools could cause significant economic damage.“My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States,” William C. Dudley, president of the Federal Reserve Bank of New York, told the conference.In the meantime, the importance of prevention has only increased because the Fed’s ability to respond to the outbreak of a crisis has diminished. The 2010 Dodd-Frank Act prevents the Fed from repeating some aspects of its 2008 actions. More important, the Fed expects interest rates to remain below historic norms for the foreseeable future, leaving less room to cut rates, which has long been its first line of defense. Donald Kohn, a former Fed vice chairman, said he was troubled by the gap between perception and reality. “If you ask people who is responsible for financial stability they would say, ‘The Fed,’ ” said Mr. Kohn, a senior fellow in economic studies at the Brookings Institution. “But the Fed doesn’t really have the instruments. It doesn’t really have the tools. “And I think this is a dangerous situation if people perceive that it has the responsibility and it doesn’t have the tools.”

Fed Officials Say a Toolkit to Combat Bubbles Isn''t Ready -- Are the Federal Reserve and other U.S. regulators ready to fight the bubbles that might emerge in the American economy? No, they aren't, key central bank authorities are warning. Fed Vice Chairman Stanley Fischer and the leaders of several regional Fed banks say they see no major financial imbalances taking hold in the U.S. economy. But they also agree American authorities need to learn how to better spot brewing financial imbalances, and they need to get down to the task of developing the means to deal with these problems when they arise. Fed officials see a deficit in what are called macroprudential policies. These tools comprise a broad regime of facilities that regulators believe can quell financial bubbles that could threaten the performance of the broader economy. A solid suite of such tools would allow the Fed, for example, to deflate a bubble without having to resort to the blunt tool of short-term interest-rate changes, which can create otherwise undesirable impacts on hiring and inflation rates. The issue is somewhat urgent given that the recent recession was rooted in a house price bubble fueled by breakdowns and excess in the mortgage market. The Fed did little to address that brewing storm and is still dealing with the aftermath, with short-term rates mired at near-zero levels. Not all bubbles can fell the economy. But for those that can, authorities want a way to deal with them. The officials who spoke were participating in a conference held by the Boston Fed on Friday and Saturday. "My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States," Federal Reserve Bank of New York President William Dudley said Saturday. Mr. Fischer, vice chairman of the Federal Reserve, speaking Friday, agreed and said he is "concerned" the Fed's stable of regulatory and supervisory powers designed for market troubles is "not large and not yet battle-tested."

NY Fed Dudley: Long Way From Using Macropru Tools Successfully -- While financial regulators are better placed to handle a crisis than in the past, New York Federal Reserve Bank President Bill Dudley warned Saturday that macroprudential tools in the U.S. aren't ready to be successfully implemented by regulations. "We should take considerable solace from the fact that we have made the financial system more resilient to shocks," Dudley said in remarks prepared for the Boston Federal Reserve Bank's Macroprudential Monetary Policy conference. "We may not be able to anticipate the next area of excess," he said. "But with higher capital and liquidity requirements and the use of stress tests to assess emerging vulnerabilities, I think we are much better placed than we have been in the past." Dudley, who votes each year as vice chair of the Federal Open Market Committee, did not comment on current economic conditions or monetary policy in his prepared remarks, but instead focused on macroprudential policies and the challenges with successfully implementing them in the U.S. "My own view is that while the use of macroprudential tools holds promise, we are a long way from being able to successfully use such tools in the United States," he said. Dudley cited two major "sets of difficulties." The first, he said, is that unlike monetary policy and microprudential regulation, there is not a well-defined framework for identifying emerging imbalances and applying macroprudential tools in response. The second is a topic brought up many times at the conference, the fragmentation of financial regulation in the U.S. "Even if such a framework existed, there would still be a problem in terms of timely implementation,"

Bernanke’s Cockroaches by Yves Smith - Yet again, the long suffering public is again subjected to what passes for a leader during the crisis engaging in image-burnishing, via an interview with the Financial Times: Ben Bernanke attacks Congress for failing to foster US rebound. Bernanke is getting spell of media hype attention due to the publication of his memoirs. I know I’m dating myself as a dinosaur, but it used to be that public service, when “public service” really did mean putting the needs of the citizenry as a whole first, didn’t go ringing the cash register and engaging in personal brand enhancement. And if Bernanke really can’t resist the lure of a big payday, can’t he just take his filthy lucre from hedge fund Citadel and keep the rest of us out of it?  The idea that Bernanke did a praiseworthy job has been debunked Can’t he just take his filthy lucre from hedge fund Citadel and retreat from public life. Bernanke continued the “Greenspan put” that stoked speculation. The Fed did even less to enforce the Homeowners Equity Protection Act meant to curb subprime lending than the bank-cronyistic OCC did. The Fed failed to take the risk posed by the credit default swaps market seriously, even though CDS contagion risk was the most important reason for bailing out Bear Stearns, otherwise too small to be deemed worthy of a rescue, and went into “mission accomplished” mode after its bailout.  Worse, after the crisis, the Fed consistently pursued policies to save banks and the current bank executive incumbents, and let the cost of the crisis fall on Main Street, particularly workers and homeowners in the bottom 90%. Did Bernanke say a peep when the big financial firms that had just been saved from certain death went to pay their executives and staffs record bonuses in 2009 and 2010 rather than rebuild their equity bases? The Fed was so deeply complicit that it didn’t even attempt a private scolding. And the central bank was fully on board with the Treasury’s treatment of the mortgage-backed securities market as too big to fail. The refusal to pressure banks to do principal modifications resulted in unnecessary foreclosures, and a massive loss of wealth, not just to homeowners but also to investors in mortgage backed securities. The Fed joined the Treasury and OCC in all of the various bank “get out of liability for almost free” mortgage and servicer settlements. It was thus fully on board with the Geithner “foam the runway” program of destroying borrower’s lives for the dubious purpose of preserving bank profits.

SEC Gives Blackstone $39 Million Wet Noodle Lashing Over Private Equity Abuses --  Yves Smith - The SEC is up to its usual kabuki, of pretending that a mere cost-of-doing business punishment for a firm that has engaged in widespread abuses amounts to a serious effort at enforcement. The gap between misconduct and SEC action is particularly striking in the case of private equity. In May 2014, former SEC examination chief Andrew Bowden declared that over half the firms that the agency had inspected thus far had engaged in stealing and other serious violations of securities laws. But as we discussed, Bowden began walking his tough talk back in September last year, which was such a dramatic reversal that we wrote: this is even worse than the SEC’s limp-wristed enforcement of financial-crisis-related misconduct against the too-big-to-fail banks. The real message is that private equity is too powerful to discipline. The SEC actions to date are playing out true to form.  That pattern of limp-wristed enforcement continued with a settlement the SEC announced yesterday, this one with Blackstone. We’ve embedded the order at the end of the post. It involves two types of misconduct. One was that Blackstone would take fees from former portfolio companies after the fund it had once owned them had exited the investment entirely. The device was a so-called termination of monitoring fees.  Monitoring fees are already an abuse that limited partners perversely tolerate; sadly, the SEC can’t protect them from their failure to negotiate remotely adequate arrangements. Monitoring fees are charges made to portfolio companies by general partners like Blackstone because they can. The agreements don’t provide for any actual services to be rendered. But that wasn’t good enough for firms like Blackstone. Blackstone had the monitoring fee agreements set up so that they were “evergreen,” meaning every year they would be extended a year so they always had a ten-year remaining life. Now here is the cute part, per the SEC order: In some instances, Blackstone terminated the monitoring agreement and accelerated monitoring fee payments even though the relevant Blackstone-advised fund had completely exited the portfolio company, meaning that Blackstone would no longer be providing monitoring services to the portfolio company.

Don’t Blame Dodd-Frank for the Slow Recovery - Ritholtz --Dodd-Frank has burdened small banks — and the businesses that rely on them — much more than large businesses that have access to capital markets. Is this why we’re experiencing the slowest recovery in two generations? So asks Peter Wallison, a scholar at the American Enterprise Institute, a conservative think tank that advocates for free markets and views government regulation with suspicion. Nonetheless, Wallison has raised a question worth asking — and answering — since he isn’t the only one who blames Dodd-Frank for the stubbornly slow recovery from the financial crisis. Just by way of background, Wallison was a member of the federal commission that studied the cause of the 2008 meltdown and was the lone member to lay almost all of the blame at the feet of the government-sponsored entities, Fannie Mae and Freddie Mac. Most scholars have concluded that the causes of the crisis were many — including deregulation of the sort Wallison has advocated — and his arguments have been widely disputed (see this, this or this). But leaving that aside, let’s spend a few minutes examining the assertion that Dodd-Frank, adopted in 2010 to lower the odds of another financial crisis, is responsible for the slow economic recovery. Wallison’s argument goes like this . . .

Has U.S. Corporate Bond Market Liquidity Deteriorated? - NY Fed - First in a six-part series. Commentators have argued that market liquidity has deteriorated in recent years as regulatory changes have reduced banks’ ability and willingness to make markets. In the corporate debt market, dealer positions, which are considered essential to good liquidity, have indeed declined, even as issuance and outstanding debt have increased. But is there evidence of reduced market liquidity? In previous posts, we discussed these issues in the context of the U.S. Treasury securities market. In this post, we focus on the U.S. corporate bond market, reviewing both price- and quantity-based liquidity measures, including trading volume, trade size, bid-ask spreads, and price impact.

Has Liquidity Risk in the Corporate Bond Market Increased? -- NY Fed -- Second in a six-part series. Recent commentary suggests concern among market participants about corporate bond market liquidity. However, we showed in our previous post that liquidity in the corporate bond market remains ample. One interpretation is that liquidity risk might have increased, even as the average level of liquidity remains sanguine. In this post, we propose a measure of liquidity risk in the corporate bond market and analyze its evolution over time.

Has Liquidity Risk in the Treasury and Equity Markets Increased? - NY Fed -- Third in a six-part series. Market participants have argued that market liquidity has deteriorated since the financial crisis. However, inspection of common metrics such as bid-ask spreads, market depth, and price impact do not show pronounced reductions in liquidity compared with precrisis levels. In this post, we argue that recent changes in liquidity conditions may best be described in terms of heightened liquidity risk, as opposed to general declines in liquidity levels. We propose a measure that shows liquidity risk has risen in equity and Treasury markets and discuss some factors behind the increase.

Changes in the Returns to Market Making   NY Fed -- Fourth in a six-part series. Since the financial crisis, major U.S. banking institutions have increased their capital ratios in response to tighter capital requirements. Some market analysts have asserted that the higher capital and liquidity requirements are driving up the costs of market making and reducing market liquidity. If regulations were, in fact, increasing the cost of market making, one would expect to see a rise in the expected returns to that activity. In this post, we estimate market-making returns in equity and corporate bond markets to assess the impact of regulations.

Redemption Risk of Bond Mutual Funds and Dealer Positioning - NY Fed -- Fifth in a six-part series. Market participants have recently voiced concerns that bond markets seem to become illiquid precisely when they want to sell bonds. Some possible reasons for a decline in corporate bond market liquidity in times of stress include the increasing share of corporate bond ownership by mutual funds and the reduced share of corporate bond ownership by dealers. In this post, we examine the potential effects of outflows from bond mutual funds and the role of dealers’ positioning in corporate bonds.

The Liquidity Mirage - NY Fed - Sixth in a six-part series. Market efficiency is often pointed to as a main benefit of automated and high-frequency trading (HFT) in U.S. Treasury markets. Fresh information arriving in the market place is reflected in prices almost instantaneously, ensuring that market makers can maintain tight spreads and that consistent pricing of closely related assets generally prevails. While the positive developments in market functioning due to HFT have been widely acknowledged, we argue that the (price) efficiency gain comes at the cost of making the real-time assessment of market liquidity across multiple venues more difficult. This situation, which we term the liquidity mirage, arises because market participants respond not only to news about fundamentals but also market activity itself. This can lead to order placement and execution in one market affecting liquidity provision across related markets almost instantly. The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market.

High-frequency trading gives rise to ‘liquidity mirage’- N.Y. Fed (Reuters) - The growth of high-frequency trading in U.S. Treasuries has made it more difficult to gauge real-time liquidity to trade U.S. government debt in futures and cash exchanges, according to a New York Federal Reserve blog published on Friday. High-frequency trading is an automated strategy that can move billions of dollars worth of trades among different markets in a fraction of a second. How easily investors and traders can buy and sell Treasuries, a $12.7 trillion sector, has become a concern in the wake of the Oct. 15 "flash" rally, when Treasuries registered wild price swings in just a 12-minute period. While high-frequency trading strategy has helped market makers maintain tight yield spreads and consistent prices of closely related assets, traders and investors act not only on fundamental news but also the price movements themselves, economists Dobrislav Dobrev of the Federal Reserve Board and Ernst Schaumburg of the New York Fed said in their blog. Dobrev and Schaumburg termed this situation a "liquidity mirage." "The modern market structure therefore implicitly involves a trade-off between increased price efficiency and heightened uncertainty about the overall available liquidity in the market," they wrote.

NYSE Short Interest Surges To Record, Pre-Lehman Level -- There are two ways of looking at the NYSE short interest, which as of September 15 surged by 1.4 billion to 18.4 billion shares or just shy of the level hit on July 31, 2008:

  • Either a central bank intervenes, or a massive forced buying event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or
  • Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner.

The correct answer will be revealed in the coming weeks or months.  Source: NYSE

The Financial Sector is Too Big - The processes of financialisation over the past few decades have involved the growing economic, political and social importance of the financial sector. In size terms, the financial sector has generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits, stock market valuations, or more significantly in the growth of financial products, securitisation, and derivatives as well as trading volume in them. This growth of the financial sector uses resources, often of highly trained personnel, and inevitably raises the question of whether those resources are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests, “The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources”

Glencore Oil Deals Could Bite Banks - WSJ: A deal struck last year between Glencore  and the government of Chad sent $1.4 billion to the African country as an up-front payment for four years of oil shipments. Now, uncertainties over the transaction, which was financed by bank lending, and troubles with other similar deals are shedding light on how Glencore’s energy business has taken some banks into risky areas that are causing jitters as commodity prices fall. At least seven banks signed on to the three-party arrangement with Chad, which was struck when a barrel of crude was trading near $100. Instead of having their primary claim on Glencore, the banks had a claim based on the African country’s oil output and expected to profit from a steady stream of repayments as that oil flowed through Glencore’s global energy and trading business. But then oil prices started to tank. This year, Chad, whose economy depends heavily on oil revenue, sought to delay payments it owed via oil deliveries, prompting months of talks to renegotiate terms.The troubled deal represents a small sliver of Glencore’s massive balance sheet. The risks are spread among banks including Crédit Agricole, Deutsche Bank , ING , Natixis and Société Générale according to law firms that arranged the loan. The banks either declined to comment on the loan or didn’t respond to questions.

As A Shocking $100 Billion In Glencore Debt Emerges, The Next Lehman Has Arrived -  One week ago, in a valiant attempt to defend the stock price of struggling commodity trading titan Glencore, one of the company's biggest cheerleaders, Sanford Bernstein's analyst Paul Gait (who has a GLEN price target of 450p) appeared on CNBC in what promptly devolved into a great example of just how confused equity analysts are when it comes to analyzing highly complex debt-laden balance sheets. In the clip below, starting about 2:30 in, CNBC's Brian Sullivan gets into a heated spat with Gait over precisely how much debt Glencore really has, with one saying $45 billion the other claiming it is a whopping $100 billion. The reason for Gait's confusion is that he simplistically looked at the net debt reported on Glencore's books... just as Ivan Glasenberg intended. However, since Glencore - like Lehman - is first and foremost a trading operation, one also has to add in all the stated derivative exposure (something we did ten days ago), in addition to all the unfunded liabilities, off balance sheet debt, bank commitments and so forth, to get a true representation of just how big, or rather massive, Glencore's true risk is to its countless counterparties. Conveniently for the likes of equity analysts such as Gait and countless others who still have GLEN stock at a "buy" rating, Bank of America has done an extensive analysis breaking down Glencore's true gross exposure. Here is the punchline: We consider different approaches to Glencore’s debt. Credit agencies, such as S&P, start with “normal” net debt, i.e. gross debt less cash and then deduct some share (80% in the case of S&P of “RMIs” – Readily Marketable Inventories. These are considered to be “cash like” inventories (working capital) in the marketing business. At the last results, RMIs were about US$17.7 bn. Giving full credit for RMIs plus a pro-forma for the equity raise and interim dividend we derive a “Glencore Adjusted Net Debt” of c. US$28 bn. On the other hand, from discussions with our banks team, we believe the banks industry (and ultimately regulators) may look at the number i.e. gross lines available (even if undrawn) + letters of credit with no credit for inventories held. On this basis, we estimate gross exposure (bonds, revolver, secured lending, letters of credit) at c. $100 bn. With bonds at around $36 bn, this would still leave $64 bn to the banks’ account (assuming they don’t own bonds).

Next financial crash is coming – and before we've fixed flaws from last one - The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one. That is the message from the International Monetary Fund’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting. Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise. Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt. “Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says. Meanwhile, the failure to patch up the international financial system after the last crash, by ensuring that banks in emerging markets hold enough capital, and constraining risky borrowing, for example, means that a new Lehman Brothers-type shock could spark another global panic.

How and Why Banks Will Seize Deposits During the Next Crisis - As we noted last week, one of the biggest problems for the Central Banks is actual physical cash. The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system. Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem. Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system. Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system. One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely. Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates. Indeed, the FDIC published a paper proposing precisely this back in December 2012. Below are some excerpts worth your attention.

My Plan to Prevent the Next Crash -  Hillary Clinton, Bloomberg

Clinton courts left with promise to break up risky banks - U.S. Democratic presidential hopeful Hillary Clinton on Thursday called for the breakup of large banks that take excessive risks as part of a sweeping plan to curb what she says are Wall Street abuses. Under the proposal, large financial firms would need to demonstrate to regulators that they can be managed effectively, with appropriate accountability, across all of their activities. If they fail to do so, regulators would have the power to make them reorganize, shrink, or break apart. Such a law would strengthen the government's ability to break up banks it deems a threat to the financial system. “It’s not pure size, it’s bad management, excessive risk and things like that, lack of controls," said Alan Blinder, a Princeton economist who helped formulate the plans. "Now the truth of the size question is that the bigger you get the harder it is to do those things effectively.” Clinton has been under pressure to join progressives within the Democratic Party calling for the government to break up banks deemed "too-big-to-fail." Both U.S. Senator Elizabeth Warren, the party's most outspoken critic of Wall Street, and U.S. Senator Bernie Sanders, Clinton's leading challenger for the Democratic nomination, have embraced such an approach. Though the risk-based approach offered by Clinton is more nuanced, it is the centerpiece of a host of financial proposals that hew to the liberal wing of the Democratic Party. Clinton has moved to pacify left-leaning critics in other ways too lately, opposing a controversial Asian trade deal, a tax on certain health plans and a proposed Canadian oil pipeline.

Making Bank: Wall Streeters Are Earning More Than Ever Before - Forbes: If you work on Wall Street, you’re pulling in bigger bucks than ever before. Wall Street pay set a new record last year, according to a report out Tuesday from the New York State Comptroller’s office, with the average salary (including bonuses) rising 14% to $404,800. This is the first time since 2007 that the average pay on Wall Street has exceeded $400,000 and is the third-highest annual pay on the books when you adjust for inflation. The rise in pay has been propelled by larger bonuses, which rose 2% to $172,900 last year. The only times that workers collected bigger bonuses were in the two years leading up to the financial crisis. As New York City dwellers are well-aware, someone with a job on Wall Street is making a lot more money than their neighbors. Here’s just how much: Average salaries on Wall Street were almost six times higher than the average salary of $72,300 at other NYC private-sector companies last year. The pace of wage growth on Wall Street has far outstripped other industries in the last 30 years, too. In 1981, Wall Street workers were making just twice as much as the average employee in the city’s private sector. There’s a disproportionate number of high-earners in finance, which helps bolster the numbers. Some 23% of Wall Street workers pulled in more than a quarter million dollars in 2013, the latest year in which there is data available, while less than 3% of the city’s other workers can say the same.

Wells Fargo's Master Spin Job - Taibbi: If you still don't believe our brethren on Wall Street have planet-sized cojones, check out this story. All over the country, Wells Fargo is making headlines for launching a multimillion-dollar homeowner assistance program called HomeLIFT, which among other things offers $15,000 down payment grants to prospective home-buyers. Local mayors in big cities from one end of the country to the other are showing up at ribbon-cuttings and throwing rose petals at the bank for its generosity. Newspapers in turn are running breathless profiles of the low-income homeowners who will now get to buy dream homes thanks to the bank's beneficence. Some knew, some didn't, but all are leaving out one key detail: Wells Fargo was forced to launch HomeLIFT. To understand the background, we have to go back to July 25th of last year, when a federal judge in the Northern District of California approved a settlement in a case called City of Westland Police and Fire Retirement System v. Stumpf.   For those who are fortunate enough to have forgotten, robo-signing was a common practice that devastated families during the foreclosure crisis.  It was a kind of systematic perjury, and most of the major banks eventually copped to doing it. Wells Fargo was one of those banks, joining JPMorgan Chase, Bank of America, Ally Financial, Citigroup and others in a sweeping $25 billion settlement with state and federal regulators finalized in 2012.  However, the road to that settlement was not smooth. According to some stockholders, the company's board of directors failed to cooperate with investigators throughout the process. A  So those shareholders sued Wells, essentially for failing to cooperate with the government over its robosigning practices. After a long battle, the bank finally agreed to settle last year. The terms mandated that the bank spend $67 million on a series of measures to repair its reputation in communities hit the hardest by foreclosures and robosigning. Enter HomeLIFT.

JPMorgan buys more mortgages from other lenders as market shrinks | Reuters: NEW YORK JPMorgan Chase & Co, looking to stem falling revenue in its mortgage business as fewer Americans refinance, is increasingly buying loans from smaller lenders, a practice that competitors including Bank of America view as risky. In the first half of 2015, the bank bought 62 percent of the $58 billion in home loans it added to its books, compared with 56 percent in 2014 and 37 percent in 2011. While other big banks buy mortgages from other lenders, known as correspondents, JPMorgan has racked up the biggest increase among its peers in the proportion of loans it buys from others, according to data from trade publication Inside Mortgage Finance. JPMorgan is fighting for business in what has been a shrinking market. According to the Mortgage Bankers Association, applications for U.S. home loans have fallen by about 25 percent since mid-January, when a temporary drop in rates spurred a small wave of refinancing. Since May 2013, when mortgage rates first started jumping amid fears the Federal Reserve would hike rates, application volume has fallen by more than 50 percent. Fewer applications overall make it harder for JPMorgan to make as many loans directly to consumers in its bank branches. Still, JPMorgan's willingness to buy loans from correspondent banks is a sign that banks are comfortable taking more risk in the mortgage market, nearly a decade after the housing bubble popped.

Black Knight August Mortgage Monitor -- Black Knight Financial Services (BKFS) released their Mortgage Monitor report for August today. According to BKFS, 4.83% of mortgages were delinquent in August, down from 4.71% in July. BKFS reported that 1.37% of mortgages were in the foreclosure process, down from 1.80% in August 2014.This gives a total of 6.20% delinquent or in foreclosure. It breaks down as:
• 1,582,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 865,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 696,000 loans in foreclosure process.
For a total of ​​3,142,000 loans delinquent or in foreclosure in August. This is down from 3,908,000 in August 2014. Press Release: Black Knight’s August Mortgage Monitor: Cash-Out Refinances Up 68 Percent Year-Over-Year
“In the second quarter of 2015, we saw cash-out refinance volumes rise almost 70 percent from the same period last year,” said Graboske. “While this is the highest volume in cash-out refinances we’ve seen in five years, it’s still nearly 80 percent below the peak in Q3 2005. Even so, it’s clear that borrowers have been capitalizing on the increased equity available to them. As we reported in last month’s Mortgage Monitor, total equity of mortgage holders has risen by about $1 trillion over the last year, and ‘tappable’ equity stands at $4.5 trillion. Borrowers today are pulling out an average of $67,000 of equity through cash-out refis, nearly the levels we saw back in 2006. What’s really interesting though, is that even after pulling out that equity, resulting average LTVs are at 68 percent, the lowest level we’ve seen in over 10 years. During this same time span, we’ve seen second lien HELOC lending rise, albeit at a lesser rate; that volume is up 40 percent from last year. However, as interest rates rise, we could see an increase in HELOC lending and corresponding slowing in first lien cash-out refis, as borrowers will likely want to hang on to lower rates for their first mortgage while still being able to tap available equity.”

Mortgage News Daily: Mortgage Rates holding 3 7/8%  - From Matthew Graham at Mortgage News Daily: Mortgage Rates Hold Sideways to Slightly Higher Most lenders are right in line with yesterday's latest levels though there are a few who marginally increased costs. That means that borrowers would still likely be seeing the same note rates as yesterday, with Conventional 30yr fixed loans being quoted in a range from 3.75 - 3.875%. To reiterate a point made yesterday, with the exception of last Friday, rates are as low as they've been since late April. Rates spent plenty of time dipping their toes in the water of "high 3's" over the past few months, but this is the best sustained run we've had with 3.75% being available at more than a few lenders. And again, keep in mind that almost any rate that's available at one lender would be available at other lenders as well, but the costs to obtain that rate could vary greatly between lenders on opposite ends of the spectrum.  Here is a table from Mortgage News Daily: Home Loan Rates  View More Refinance Rates

MBA: Mortgage Applications "Up Sharply", Purchase Applications up 49% YoY  - From the MBA: Mortgage Applications Up Sharply in Latest MBA Weekly Survey Mortgage applications increased 25.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 2, 2015. ..The Refinance Index increased 24 percent from the previous week. The seasonally adjusted Purchase Index increased 27 percent from one week earlier. The unadjusted Purchase Index increased 27 percent compared with the previous week and was 49 percent higher than the same week one year ago. “The number of applications for purchase and refinance mortgages soared last week due both to renewed rate volatility and as many applications were filed prior to the TILA-RESPA regulatory change. The average loan size of applications in the weekly survey increased by 6.9 percent, driven by a 12.1 percent increase in the average size of refinances,” The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.99 percent, the lowest level since May 2015, from 4.08 percent, with points increasing to 0.46 from 0.45 (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 49% higher than a year ago. This surge was partially related to applications being filed before the TILA-RESPA regulatory change, so I expect applications to decline significant in the next survey. 

Mortgage Applications Soar 25% (Ahead Of Regulatory Regime Change) -- Mortgage applications rose 25.5% week-over-week - the 2nd largest surge since 2009 - to the highest level (for this time of year) since 2012. Both refis and purchases soared, and exuberance immediatoley extrapolated this surge as 'proving' the housing recovery is healthy. However, as MBA admits, "many applications were filed prior to the TILA-RESPA regulatory change," strongly suggesting this is anything but sustainable. 2nd biggest week-over-week gain in mortgage apps since 2009... Both applications to refinance and to purchase a home were almost equally juiced. Refinance applications rose 24 percent, seasonally adjusted, and purchase applications were up by 27 percent. Purchase applications, which are usually less rate-sensitive week-to-week, are now 49 percent higher than one year ago, an astonishing jump given that the latest reads on home sales show the market appears to be weakening. They are now at the highest level in five years. This pushes the overall mortgage application index to its highest for this time of year since 2012... but note mortgage apps remain half what they were at the previous peak norms.

August 2015 CoreLogic Home Prices Year-over-Year Growth Rate Now 6.9%.: CoreLogic's Home Price Index (HPI) shows that home prices in the USA are up 6.9% year-over-year year-over-year (reported up 1.2% month-over-month). There is considerable backward revision in this index which makes monthly reporting problematic. CoreLogic HPI is used in the Federal Reserves's Flow of Funds to calculate the values of residential real estate. Dr. Frank Nothaft, chief economist at CoreLogic stated: Economic forecasts generally project higher mortgage rates and more single-family housing starts for 2016. These forces should dampen demand and augment supply, leading to a moderation in home price growth. Over the next 12 months through August 2016, CoreLogic projects its national HPI to rise 4.3 percent, less than the 6.9 percent gain over the 12 months through August 2015. Anand Nallathambi, president and CEO of CoreLogic stated: Home price appreciation in cities like New York, Los Angeles, Dallas, Atlanta and San Francisco remain very strong reflecting higher demand and constrained supplies. Continued gains in employment, wage growth and historically low mortgage rates are bolstering home sales and home price gains. In addition, an increasing number of major metropolitan areas are experiencing ever-more severe shortfalls in affordable housing due to supply constraints and higher rental costs. These factors will likely support continued home price appreciation in 2016 and possibly beyond.

Labor Market Gains Not Sparking a Single-Family Housing Recovery -- The unemployment rate is marching ever lower, and the economy is approaching full employment, but still single-family housing is lagging. This is prompting some to wonder, what will it take to turn things around? One suggestion is that once unemployment falls low enough we’ll see the long-awaited single-family housing recovery. If this were true, one would expect that metro areas with already-lower unemployment would be seeing a single-family turnaround. To test this theory, metro areas were ranked by their August unemployment rate compared with their historical average. Around 43% of metro areas have an unemployment rate lower than the 2000 to 2004 average. The 25 that are doing the best are concentrated in Texas, California, and states in the Northwest. Austin TX has the lowest relative unemployment rate. In August, the unemployment rate there reached 3%, which is 62.3% of the 2000 to 2004 average of 4.8%. The average unemployment rate in these 25 metro areas is 3.9%, compared with 5.6% for these same areas in 2000 to 2004, and 5.1% for the total U.S. today. In other words, employment is looking healthy in these metro areas compared with historical averages and the U.S. overall. ..However, even in these 25 metro areas, single-family housing permits remain significantly below historical levels. This suggests that even where unemployment has fallen to historically low levels, it has not been enough to boost single-family permits.

Faith in an Unregulated Free Market? Don’t Fall for It -- Robert Shiller --Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ... The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions.  Don’t get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I’ve written about these things in this column.  But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ... Current economic theory does recognize that if there is an “externality” — say, a business polluting the air in the course of producing the goods it sells — the outcome won’t be optimal, and most economists would agree that in such cases we need government intervention. But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

Fed: Q2 Household Debt Service Ratio Very Low - The Fed's Household Debt Service ratio through Q2 2015 was released yesterday: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.  These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013 The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income. The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.This data has limited value in terms of absolute numbers, but is useful in looking at trends.

Consumer Credit October 7, 2015: Revolving credit continues to show life, up a solid $4.0 billion in August for a sixth straight gain. Gains in this reading, which have been scarce this recovery, perhaps suggest that consumers are growing less reluctant to run up their credit cards, which would be good news for retailers going into the holidays. Non-revolving credit, driven by both vehicle financing and student financing which is tracked in this component, rose $12.0 billion to make for a headline increase of $16.0 billion.

August 2015 Consumer Credit Growth Rate Continues to Slow: The headlines say consumer credit rate of growth declined - and came in well below market expectations. Our analysis shows year-over-year consumer credit growth rate insignificantly declined. There continues to be moderate growth in revolving credit. The headline said: In August, consumer credit increased at a seasonally adjusted annual rate of 5-1/2 percent. Revolving credit increased at an annual rate of 5-1/4 percent, while nonrevolving credit increased at an annual rate of 5-3/4 percent.Overall takeaways from this month's data:

  • Student loan year-over-year growth rate has been decelerating gradually since the beginning of 2013.
  • Student loans were a negligible influence again this month, as its year-over-year rate of growth is about the same rate as the consumer credit in general - the effect of student loans is not noticeable in the trends. This month specifically, student loans growth rate declined 0.5 % month-over-month and year-over-year growth is now 13.3 % year-over-year.
  • Revolving credit (credit cards and this series includes no student loans) which had been slightly accelerating for most of 2014, is now decelerating in 2015. Specifically this month revolving credit rate of growth did accelerate.

The Source Of The US Economy's Only Bright Spot: $1 Trillion In Car Loans -- Moments ago, the Federal Reserve released the latest, August, data on consumer credit which rose by $16 billion in the month, below the $19.5 billion expected, consisting of a $4 billion increase in credit card debt, and $12 billion in non-revolving, or auto and student loans, which at a combined total of $2.55 trillion now account for 73% of total US consumer credit. The combined total monthly increase was the lowest since February on the back of a slowdown in non-revolving debt, while the increase in revolving credit was the weakest since May. And while the headline number was uninspiring, focusing on what has been the biggest source of consumer spending in recent years, namely auto and student loans reveals the following interest charts. First, only one word can describe the chart of total non-revolving credit: parabolic.

Gallup US Consumer Spending Measure October 5, 2015: Americans' daily self-reports of spending averaged $88 in September, essentially the same as the $89 found in August. Spending has been fairly consistent since April, hovering around $90. The current figure is similar to the $87 found in September 2014, but is higher than the September averages from 2009 through 2013, which were all below $85. Gallup has not found a consistent pattern in spending changes from September to October. But spending tends to increase in November as the holiday shopping season begins. Consumer spending in the U.S. has been fairly stable since April of this year, and going by previous years, it is likely to stay in this range until the start of the holiday shopping season. But developments in the U.S. economy could change that. In particular, the September jobs report released by the U.S. Bureau of Labor Statistics on Friday fell short of expectations. The 3rd quarter GDP report to be released in late October may also influence Americans' perceptions of the strength of the U.S. economy, potentially influencing their spending choices. Gallup has found Americans have been a bit more positive about their finances thus far in 2015 compared with prior years and that, too, could affect their willingness to spend

How do consumers respond to lower gasoline prices? -- U.S. gasoline prices averaged $3.31 a gallon over December 2013 to February 2014 but only $2.31 a gallon over December 2014 to February 2015. How did consumers respond to this windfall in their spending power? A new study by the JP Morgan Chase Institute has come up with some interesting answers. Rather than trying to draw conclusions from imperfect aggregate or survey data, the Chase study is based on the anonymized credit or debit card transactions of 25 million individuals over these two periods of high versus low gasoline prices. They found huge differences across individuals in terms of how important gasoline is for their budget. A typical household was spending $101 a month on gasoline back when gas prices were high. For the highest-spending quintile, that number was $359/month, whereas for the lowest quintile it was only $2/month. And spending on gasoline is a much bigger fraction of the budget for lower income households.  I and others have tried to infer the effects of lower gasoline prices on consumer spending by looking at aggregate consumption spending. But using their detailed data set the Chase researchers were able to come up with a more satisfying answer. The basic idea is to compare how much spending on other items changed between the high gas price and low gas price periods for those who had been spending a large amount on gasoline with those who had been spending a low amount on gasoline. Economists refer to this as inference based on difference in differences. The Chase researchers found 73 cents in extra spending on other items for every dollar saved at the gasoline pump. Restaurants and groceries were the two biggest areas where spending was observed to increase.

U.S. Consumers Splurged with Gas Savings After All, Study Finds -  Americans have saved a bundle at the pump since gas prices began to plunge in the middle of last year. So did households tuck the money away, pay down debt or splurge? New research, based on examining the spending patterns of millions of consumers, found that households were quick to spend most of the benefits from cheaper gasoline. The study finds Americans were far less cautious than previously thought in spending their extra cash. “Consumers report that they are using their gains at the pump to pay down debts and save. Our data show they are spending most of them,” the J.P. Morgan Chase Institute study said. Individuals spent 78 cents of every dollar saved on gasoline, with about 18% of that going to eating out and 10% to groceries, according to the study. Other big categories included entertainment, electronics and appliances, and charitable donations. The findings run counter to earlier studies and conventional wisdom, which interpreted soft overall consumer spending and a rising personal saving rate earlier this year as evidence that households were pocketing their windfall from lower gasoline prices. U.S. retail and food service sales, for example, fell in December, January and February and were flat in April and June, according to Commerce Department data.

U.S. motorists opt for larger vehicles, lower fuel economy (Reuters) - U.S. motorists are opting for larger, more powerful cars with worse fuel economy in response to the sharp drop in gasoline prices. The average fuel economy for vehicles sold in the United States in September was 25.2 miles per gallon, down by 0.6 mpg since August 2014, according to the University of Michigan Transportation Research Institute. "The decline likely reflects the decreased price of gasoline in September and the consequent increased sales of pickup trucks, sport-utility vehicles and crossovers," the institute said. Fuel economy, using window-sticker values, has increased by 5.1 mpg, about 25 percent, since October 2007, when the institute began monitoring, thanks to higher fuel prices and tougher government standards. But the improvement has stalled as the reduction in fuel prices has encouraged buyers to trade efficiency for increased size and power.  In the first nine months of 2015, sales of light trucks, a category that includes SUVs and pickups, surged more than 11 percent compared with the same period in 2014. Car sales dropped nearly 2 percent, according to WardsAuto. According to OPEC, the same trend is evident in China: lower prices are encouraging consumers to purchase larger and more fuel-hungry vehicles

Hotel Occupancy: 2015 on pace for Best Year Ever -- From STR: US results for week ending 3 October The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 27 September through 3 October 2015, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy increased 3.4% to 68.8%. Average daily rate for the week was up 8.0% to US$124.96. Revenue per available room increased 11.6% to finish the week at US$86.01. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are now in the Fall business travel season.

Gun Sales Soar After Surge In US Mass Shootings -- Just as was evidenced after the 2007 shootings at Virginia Tech, after Columbine and Tucson in 2011, and following the theater shootings in Aurora, Colorado in 2012, US gun sales have soared following the mass-shooting at Umpqua Community College in Oregon, which killed 10 people and injured seven others. As The FT reports, gun sales this year could surpass the record set in 2013, when gun purchases surged after the December 2012 Sandy Hook murders. As The FT reports, Business has been brisk for Larry Hyatt, owner of Hyatt Guns in North Carolina,since the Oregon community college shooting last week that left 10 people dead, including the 26-year-old suspect.Mr Hyatt saw an even bigger surge in customers after the 2012 massacre at Sandy Hook Elementary School in Connecticut that left 26 people dead, including 20 children, before the gunman killed himself.... However, the calls for tighter gun laws lead to an increase in weapons sales.Once the public hears the president on the news say we need more gun controls, it tends to drive sales,” said Mr Hyatt, who owns one of the largest gun retailers in the US. “People think, if I don’t get a gun now, it might be difficult to get one in the future. The store is crowded.”

Gun Sales Set A Record High For The Fifth Month In A Row: The FBI conducted 1,795,102 firearm background checks through the National Instant Criminal Background Check System (NICS) in September, suggesting gun sales were at an all-time high that month.The number of background checks represents a new record, up more than 20% from the previous September high set in 2012, when 1,459,363 background checks were conducted.September is also the fifth month in a row to set a record for background checks. May, June, July, and August all saw record numbers.The number of checks done in a particular month is generally seen as a proxy for how many guns were sold. This year alone over 15 million background checks have already gone through the NICS, which is more than were conducted in 2010 and every year prior (NICS began recording numbers of firearm related background checks in 1998).The report warns that there is not a one-to-one correlation between background checks and firearm sales. There are multiple factors that could skew the numbers.A single background check doesn’t represent the number of firearms that were purchased by an individual. According to CNN Money, only 5 states require a background check if you purchase a gun from a private individual at a gun show. As for why sales are so high, Fortune reported in June that it could possibly be caused by Obama calling for stricter gun control laws. As Business Insider’s Sam Ro said, “gunmakers don’t benefit from tighter gun control. They benefit when there are talks of tighter gun control but those talks go nowhere.”

Most Americans have less than $1,000 in savings - Americans are living right on the edge — at least when it comes to financial planning. Approximately 62% of Americans have less than $1,000 in their savings accounts and 21% don’t even have a savings account, according to a new survey of more than 5,000 adults conducted this month by Google Consumer Survey for personal finance website “It’s worrisome that such a large percentage of Americans have so little set aside in a savings account,” says Cameron Huddleston, a personal finance analyst for the site. “They likely don’t have cash reserves to cover an emergency and will have to rely on credit, friends and family, or even their retirement accounts to cover unexpected expenses.” This is supported by a similar survey of 1,000 adults carried out earlier this year by personal finance site, which also found that 62% of Americans have no emergency savings for things such as a $1,000 emergency room visit or a $500 car repair. Faced with an emergency, they say they would raise the money by reducing spending elsewhere (26%), borrowing from family and/or friends (16%) or using credit cards (12%). And among those who had savings prior to 2008, 57% said they’d used some or all of their savings in the Great Recession, according to a U.S. Federal Reserve survey of over 4,000 adults released last year.

Someone Is Lying: Consumer Confidence Is Somehow Both "Highest" And "Lowest" For The Year -  One week ago, the Conference Board, a "tax-exempt non-profit business membership and research group organization" released a ridiculous number which made even the permabullish "strategists" on Wall Street blush: a consumer confidence print which soared to a level of 103: a number just shy of the January high which in turn was the highest such print going back all the way to August 2007. In short, according to this "impartial" organization, consumer confidence was the highest it has been in 2015.Fast forward to today when Gallup released its own September consumer confidence number, one based on telephone interviews conducted Sept. 1-30, 2015, on the Gallup U.S. Daily survey, with a random sample of 14,684 adults. What it found is that confidence in the economy averaged -14 for September, another drop from the -13 recorded in August. As Gallup notes,"the index has declined steadily since peaking at +3 in January." It gets worse: weekly averages for the Economic Confidence Index have remained below -10 since early July. The weekly index fell to -17 in the last week of August amid volatile international and domestic market conditions, and has averaged between -12 and -14 since. The latest weekly average, for the week ending Oct. 4, is -13.

US wholesale inventories rise slightly in August: U.S. wholesale inventories rose in August, boosted by larger stocks of computers and professional equipment used by businesses. The Commerce Department said on Friday that wholesale inventories increased 0.1 percent, outpacing the median forecast of a flat reading in a Reuters poll. Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP — wholesale stocks excluding autos — rose 0.1 percent.Inventories for durable goods climbed 0.3 percent, with computers up 1.9 percent. At August's sales pace it would take 1.31 months to clear shelves, up slightly from 1.30 months in July. An inventory-to-sales ratio that high usually means an unwanted inventory build-up, which would require businesses to liquidate stocks. That in turn could weigh on manufacturing and economic growth.

U.S. Wholesale Inventories Tick Slightly Higher In August - With an increase in inventories of durable goods partly offset by a drop in inventories of non-durable goods, the Commerce Department released a report on Friday showing only a slight uptick in U.S. wholesale inventories in the month of August. The Commerce Department said wholesale inventories inched up by 0.1 percent in August following a revised 0.3 percent drop in July. The modest increase in inventories matched economist estimates. The report said inventories of durable goods rose by 0.3 percent, partly reflecting a jump in inventories of computers, peripheral equipment, and software. On the other hand, inventories of non-durable goods fell by 0.2 percent due largely due to a steep drop in inventories of farm product raw materials. The Commerce Department also said wholesale sales slumped by 1.0 percent in August after falling by 0.3 percent in the previous month. Sales of durable goods tumbled by 1.2 percent amid notable decreases in sales of computer, peripheral equipment, and software and motor vehicles and parts. The report said sales of non-durable goods also fell by 0.7 percent, reflecting steep drops in sales of petroleum and petroleum products and farm product raw materials. With inventories ticking higher and sales falling, the inventories/sales ratio for merchant wholesalers inched up to 1.31 in August from 1.30 in July. The ratio was up from 1.20 a year ago. Next Wednesday, the Commerce Department is scheduled to release a separate report on total business inventories and sales in the month of August.

Wholesale Inventories Rise And Sales Tumble Sending Ratio To "Recession Imminent" Cycle Highs -- Wholesale Inventories rose 0.1% MoM (more than expected and the most in 7 months) and Sales dropped 1.0% MoM (notably less than expected and weakest in 7 months) sending theinventory-to-sales ratio to 1.31x - new cycle highs - and flashing the brightest recession warning yet. With inventories up 4.2% YoY and Sales down 4.5% YoY, the stunning reality is the absolute dollar spread between inventories and sales has never been bigger. Inventories keep rising more than expected and sales keep missing...Sending the Inventories-to-Sales Ratio is firmly in recession territory... The annual change in these two critical time series screams one thing: inventory liquidation or at least remarking far lower: In absolute terms the dollar difference between wholesale inventories and sales has never been bigger.

International Trade October 6, 2015: A surge in imports of new iPhones helped feed what was an unusually wide trade gap in August of $48.3 billion, well up from July's revised $41.8 billion. But cell phones, at $2.1 billion, make up only a portion of the gap with a drop in exports the most salient factor. Exports were down nearly across the board including industrial supplies at minus $2.2 billion, consumer goods at minus $0.6 million, autos at minus $0.5 million, and foods/feeds/beverages at minus $0.3 million. Weakness in exports reflects weakness in foreign demand together with the strength of the dollar. The goods gap came in at $67.9 billion, which is up from last week's advance reading of $67.2 billion. The petroleum gap, which is always a central factor in the nation's deficit, fell to $6.9 billion from July's $8.1 billion and reflects lower prices. Demand for the nation's services, unlike its goods, continues to climb, to a surplus of $19.6 billion vs $19.5 billion in a reflection of demand for technical and managerial services. By country, the gap with China, the main source of iPhones, rose sharply, to $35.0 billion from $31.6 billion. The gap with Mexico widened to $5.3 from $3.4 billion. Other bilateral data are mostly steady though the gap with the EU narrowed to $13.8 from $15.2 billion. Imports are a subtraction on the national accounts but are, nevertheless, a two-way street, that is reflecting demand at home which is a sign of economic strength, not weakness. Still these results will limit expectations for third-quarter GDP.

August Trade Deficit at $48.3 Billion - The International Trade in Goods and Services, also known as the FT-900, is published monthly by the Bureau of Economic Analysis with data going back to 1992. The monthly reports include revisions that go back several months. This report details U.S. exports and imports of goods and services. The Bretton Woods agreement, which established a stable foreign currency exchange system (as well as created the International Monetary Fund), collapsed in 1971 and as a result, currency values began to float freely and the US dollar was no longer tied to gold values. Since 1976, the United States has had an annual negative trade deficit. Here is an excerpt from the latest report: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $48.3 billion in August, up $6.5 billion from $41.8 billion in July, revised. August exports were $185.1 billion, $3.7 billion less than July exports. August imports were $233.4 billion, $2.8 billion more than July imports. The August increase in the goods and services deficit reflected an increase in the goods deficit of $6.6 billion to $67.9 billion and an increase in the services surplus of $0.1 billion to $19.6 billion. Year-to-date, the goods and services deficit increased $17.6 billion, or 5.2 percent, from the same period in 2014. Exports decreased $58.9 billion or 3.8 percent. Imports decreased $41.3 billion or 2.2 percent. This series tends to be extremely volatile, so we use a six-month moving average. Today's headline number of -48.3B was a bit worse than the forecast of -47.4B. The previous month was revised downward by 56M.

Trade Deficit increased in August to $48.3 Billion The Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $48.3 billion in August, up $6.5 billion from $41.8 billion in July, revised. August exports were $185.1 billion, $3.7 billion less than July exports. August imports were $233.4 billion, $2.8 billion more than July imports.  The trade deficit close to the consensus forecast of $48.6 billion. The first graph shows the monthly U.S. exports and imports in dollars through August 2015.  Imports increased and exports decreased in August. Exports are 12% above the pre-recession peak and down 6% compared to August 2014; imports are 1% above the pre-recession peak, and down 2% compared to August 2014. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products (wild swings earlier this year were due to West Coast port slowdown). Oil imports averaged $49.33 in August, down from $54.20 in July, and down from $96.34 in August 2014. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $35.0 billion in August, from $30.3 billion in August 2014. The deficit with China is a large portion of the overall deficit.

U.S. Trade Deficit – The Numbers -- The U.S. trade deficit widened sharply in August as weak commodity prices, a strong dollar and soft overseas demand weighed on goods exports. The latest figures suggest net exports will be a drag on gross domestic product in the third quarter of the year.  The deficit widened to $48.3 billion in August, a 15.6% increase from the prior month. With the exception of a $52.2 billion reading this spring that was distorted by a West Coast port labor dispute, that was the biggest trade gap since March 2012.  U.S. exports of goods and services fell to $185.1 billion, the lowest level since October 2012. But the overall figure tells only part of the story. Overseas shipments of goods were the weakest in more than four years, while the figure for services was the highest on record.  Why were exports so weak? Industrial supplies–led by big drops for fuel oil, plastics and crude–saw the worst performance since October 2010. So the figures at least in part reflect soft commodity prices. But exports of autos and consumer goods also slipped, a sign the stronger dollar and weaker overseas demand are affecting U.S. companies.  Exports of services rose to the highest level on record amid rising sales of financial services and a boost for travel (spending by overseas visitors in the U.S. counts as an export, while U.S. spending by U.S. visitors overseas counts as an import). That suggests demand for American expertise and entertainment remains strong, one positive sign for the economy.  The deficit could have been worse if not for falling demand for foreign oil. Petroleum imports at $15.1 billion were the lowest since September 2004, a reflection of lower volume and price. A barrel of imported oil was $49.33 in August, compared with $96.34 just a year earlier.  Imports climbed in August, as the stronger dollar effectively made overseas goods cheaper for U.S. consumers. What were we spending our money on? Smart phones, according to Commerce. Imports of cell phones and other household goods totaled $2.1 billion in August, accounting for more than half of the $4 billion increase in imports of consumer goods. Also on the rise: imports of toys, games and sporting goods; apparel and textiles; furniture; and televisions.

August 2015 Trade Data Shows Growing Trade Balance Deficit: A quick recap to the trade data released today paints a mixed picture. The unadjusted three month rolling average value of exports decelerated month-over-month - but imports accelerated,. Many care about the trade balance (which decreased marginally relative to last month), and the trade balance grew.

  • Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth acceleration of 2.5% month-over-month (unadjusted data). The rate of growth 3 month trend is accelerating.
  • Exports of goods were reported down, but Econintersect analysis shows unadjusted goods exports growth deceleration of (not including services) 3.9 % month-over month. The rate of growth 3 month trend is decelerating.
  • The decrease in seasonally adjusted exports was generally across the board except for consumer and capital goods which increased. Import increase was due to consumer and capital goods.
  • The market expected (from Bloomberg) a trade deficit of $-50.2 B to $-41.0 billion (consensus $-48.6 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $48.3 billion.
  • It should be noted that oil imports were down 17 million barrels from last month, and up 4 million barrels from one year ago.
  • The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

Mighty dollar sends U.S. exports to 3-year low; iPhone imports surge -  Here’s how much a strong dollar is taking a bite out of the economy: U.S. exports fell in August to a three-year low. A 2% drop in exports helped push the U.S. trade deficit to a five-month high of $48.3 billion, the Commerce Department reported Tuesday. Surging imports of the newest iPhones and other cellular devices also helped to enlarge the trade gap. The trade deficit was 15.6% higher compared in August compared to a revised $41.8 billion deficit in July. A higher trade deficit is a drag on an economy and reduces gross domestic product. It means a country is producing fewer goods and services of its own or buying more from other nations.U.S. exports have fallen 6% compared to one year ago, hurt by a rising value of the dollar that’s made American goods and services more expensive overseas. “The strongest dollar in more than a decade, coupled with waning demand overseas as a result of tepid economic growth, is undermining demand for U.S.-made goods, said Lindsey Piegza, chief economist at Stifel Fixed Income. Large U.S. manufacturers, energy producers and other internationally oriented firms have borne the brunt of a strong dollar. Barely any manufacturing jobs have been created in 2015, and energy producers have cut 120,000 jobs since December. In August, the U.S. exported less oil, plastic and other industrial supplies. A drop in oil prices at the end of the summer also reduced the value of American petroleum exports. Overall, U.S. exports fell to $186.1 billion in August, marking the smallest amount since October 2012.

Trade Deficit Widens to $48.3 Billion, Up From $41.8 Billion; iPhone Connection -- Today the US Commerce department report on International Trade in Goods and Services shows the trade deficit rose by $6.6 billion to $48.3 billion. The numbers are for August, very backwards looking given it is now October. August exports were $185.1 billion, $3.7 billion less than July exports. August imports were $233.4 billion, $2.8 billion more than July imports.  The increased deficit was widely expected, in line with the Bloomberg Economic Consensus of -48.6 billion.  A surge in imports of new iPhones helped feed what was an unusually wide trade gap in August of $48.3 billion, well up from July's revised $41.8 billion. But cell phones, at $2.1 billion, make up only a portion of the gap with a drop in exports the most salient factor. Exports were down nearly across the board including industrial supplies at minus $2.2 billion, consumer goods at minus $0.6 million, autos at minus $0.5 million, and foods/feeds/beverages at minus $0.3 million. Weakness in exports reflects weakness in foreign demand together with the strength of the dollar.  The goods gap came in at $67.9 billion, which is up from last week's advance reading of $67.2 billion. The petroleum gap, which is always a central factor in the nation's deficit, fell to $6.9 billion from July's $8.1 billion and reflects lower prices. Demand for the nation's services, unlike its goods, continues to climb, to a surplus of $19.6 billion vs $19.5 billion in a reflection of demand for technical and managerial services.

Q3 GDP To Slide After 16% Surge In August Trade Deficit; Imports Jump As Exports Drop -- As was previewed last week in the advance release of international trade data which showed a big drop in the US deficit, moments ago the BEA confirms as much, when it reported that in August the US trade deficit blew out from $41.8 billion to a whopping $48.3 billion, an increase of 15.6%, as a result of a $3.7 billion drop in exports, offset by a $2.8 billion increase in imports. The August deficit, driven in major part by the surge in the US deficit with China which shot out to a whopping $32.9 billion, was the worst monthly print since March, and the second worst trade data read going back to early 2012.More details from the report: The goods deficit increased $6.6 billion from July to $67.9 billion in August. The services surplus increased $0.1 billion from July to $19.6 billion in August.

  • Exports of goods and services decreased $3.7 billion, or 2.0 percent, in August to $185.1 billion. Exports of goods decreased $4.1 billion and exports of services increased $0.4 billion.
  • The decrease in exports of goods mainly reflected a decrease in industrial supplies and materials ($2.2 billion).
  • The increase in exports of services mainly reflected increases in financial services ($0.1 billion) and in travel (for all purposes including education) ($0.1 billion).
  • Imports of goods and services increased $2.8 billion, or 1.2 percent, in August to $233.4 billion. Imports of goods increased $2.5 billion and imports of services increased $0.3 billion.
  • The increase in imports of goods mainly reflected an increase in consumer goods ($4.0 billion).
  • The increase in imports of services mainly reflected increases in travel (for all purposes including education) ($0.2 billion) and in transport ($0.1 billion), which includes freight and port services and passenger fares.

    Failure to Stem Dollar Appreciation Has Put Manufacturing Recovery in Reverse -- This week, President Obama announced the completion of negotiations on the proposed Trans-Pacific Partnership (TPP). The TPP, which is likely to drive down middle-class wages and increase offshoring and job loss, has been widely criticized by leading members of Congress from both parties. Hillary Clinton, Bernie Saunders, and other presidential candidates have announced their opposition to the deal. Meanwhile, U.S. jobs and the recovery are threatened by a growing trade deficit in manufactured products, which is on pace to reach $633.9 billion in 2015, as shown in Figure A, below. This deficit exceeds the previous peak of $558.5 billion in 2006 (not shown) by more than $75 billion. The increase in the manufacturing trade deficit in 2015 alone will amount to 0.5 percent of projected GDP, and will likely reduced projected growth by even more as manufacturing wages and profits are reduced.

    Rail Week Ending 03 October 2015: September Monthly Rail Movements Contract 2.0%: Week 39 of 2015 shows same week total rail traffic (from same week one year ago) and monthly total rail traffic (from same month one year ago) declined according to the Association of American Railroads (AAR) traffic data. A summary of the data from the AAR: The Association of American Railroads (AAR) today reported weekly U.S. rail traffic, as well as volumes for September 2015 and the first nine months of 2015. Carload traffic in September totaled 1,417,750 carloads, down 4.9 percent or 72,597 carloads from September 2014. U.S. railroads also originated 1,365,980 containers and trailers in September 2015, up 1.2 percent or 16,272 units from the same month last year. For September 2015, combined U.S. carload and intermodal originations were 2,783,730, down 2 percent or 56,325 carloads and intermodal units from September 2014. In September 2015, six of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with September 2014. This included: grain, up 14.4 percent or 13,447 carloads; miscellaneous carloads, up 33.1 percent or 8,057 carloads; and motor vehicles and parts, up 4.9 percent or 4,239 carloads. Commodities that saw declines in September 2015 from September 2014 included: coal, down 8.2 percent or 46,085 carloads; petroleum and petroleum products, down 15.6 percent or 12,692 carloads; and primary metal products, down 18.9 percent or 10,617 carloads. Excluding coal, carloads were down 2.9 percent or 26,512 carloads in September 2015 from September 2014. Total U.S. carload traffic for the first nine months of 2015 was 10,880,686 carloads, down 4.4 percent or 495,827 carloads, while intermodal containers and trailers were 10,417,267 units, up 2.5 percent or 249,869 containers and trailers when compared to the same period in 2014. For the first nine months of 2015, total rail traffic volume in the United States was 21,297,953 carloads and intermodal units, down 1.1 percent or 245,958 carloads and intermodal units from the same point last year.

    Import and Export Prices October 9, 2015: A bounce back for petroleum prices helped to limit import-price contraction in September, coming in at only minus 0.1 percent. But contraction in export prices, where agriculture and not petroleum is the wild card, was very heavy, at minus 0.7 percent in the month. Year-on-year rates are very weak, still in the double-digits for imports at minus 10.7 percent and at minus 7.4 percent for exports. A striking detail on the import side is slightly deepening year-on-year contraction in various core readings, still in the low to mid single digits with non-petroleum down 3.3 percent. This is the largest decline since October 2009 and points to fundamental price weakness for imports, in part a function of the strong currency which is giving U.S. buyers more for their dollars. Prices for petroleum imports rose 1.1 percent in the month, a welcome positive for the Fed's efforts to raise inflation but still a fraction of the giant 11.8 and 6.6 percent declines of the prior two months. On the export side, prices of agricultural goods fell 1.1 percent and are down a stiff 13.5 percent year-on-year in news that is not welcome in the farm sector. Non-agricultural export prices fell 0.6 percent in the month with the year-on-year rate also speaking to fundamental price weakness, at minus 6.7 percent in what is record weakness. But the price bounce for petroleum is a reminder that the great price drag from this year's oil rout may have run its course, especially given this month's early strength in oil prices. Still, this is a weak report that underscores the strong dollar's negative-price effects on imports.

    Import and Export Price Year-over-Year Deflation Continues in September 2015.: Trade prices continue to deflate year-over-year, and energy prices had little to do with this month's decline. Import Oil prices were down 13.3% month-over-month, but export agricultural prices decreased 2.6%.

    • with import prices down 0.1 % month-over-month, down 10.7 % year-over-year;
    • and export prices down 0.7 % month-over-month, down 7.4 % year-over-year

    There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships. Econintersect follows this series to adjust data for inflation.

    Export Prices Unexpectedly Collapse, Led by Agriculture; Non-Petroleum Import Prices Sink Most Since October 2009 --Economists expected export prices to drop by 0.2%. Instead they fell 0.7%, outside the range of any Econoday Import/Export Estimate. A bounce back for petroleum prices helped to limit import-price contraction in September, coming in at only minus 0.1 percent. But contraction in export prices, where agriculture and not petroleum is the wild card, was very heavy, at minus 0.7 percent in the month. Year-on-year rates are very weak, still in the double-digits for imports at minus 10.7 percent and at minus 7.4 percent for exports.  A striking detail on the import side is slightly deepening year-on-year contraction in various core readings, still in the low to mid single digits with non-petroleum down 3.3 percent. This is the largest decline since October 2009 and points to fundamental price weakness for imports, in part a function of the strong currency which is giving U.S. buyers more for their dollars. Prices for petroleum imports rose 1.1 percent in the month, a welcome positive for the Fed's efforts to raise inflation but still a fraction of the giant 11.8 and 6.6 percent declines of the prior two months. On the export side, prices of agricultural goods fell 1.1 percent and are down a stiff 13.5 percent year-on-year in news that is not welcome in the farm sector. Non-agricultural export prices fell 0.6 percent in the month with the year-on-year rate also speaking to fundamental price weakness, at minus 6.7 percent in what is record weakness. But the price bounce for petroleum is a reminder that the great price drag from this year's oil rout may have run its course, especially given this month's early strength in oil prices.

    Nomura on September CPI  - Yesterday I posted some on September CPI. Here is the take of economists at Nomura:  "Given the recent tightening in labor markets, higher wages in the health care sector and continued declines in the vacancy rate of rental houses, we think that the slowdown in core service inflation in August was temporary and still expect a gradual pick up in core inflation in the medium term. We expect a 0.17% m-o-m (1.8% y-o-y) gain in core CPI in September. We expect the continued decline in energy prices in September to weigh on the overall price index. As such, we expect headline prices to decline by 0.20% m-o-m (-0.1% y-o-y)." CPI for September will be released next Thursday.

    PMI Services Index October 5, 2015: Growth in the service sector is slowing but remains very solid, based on the services PMI which came in at 55.1 for the final September reading, down 1/2 point from the mid-month flash and down 1 point from final August. Growth in new orders and production both slowed slightly but growth in employment, in contrast to last week's employment report, is still described as "robust". Optimism in the business outlook is still strong though shows the least strength since June 2012. Price indications, like in nearly all other surveys, are depressed with finished prices posting the first back-to-back decline in the six-year history of the series. There are indications of slowing in this report but nothing severe. The signal on hiring is not being confirmed by government data though price indications are. This, unlike manufacturing reports, is a domestic-based report and continues to point to fundamental resiliency for the economy.

    September 2015 ISM Services Index Again Declines: The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 59.0 to 56.9 (above 50 signals expansion). Important internals likewise declined but remain in expansion. Market PMI Services Index was released this morning, also is in expansion, and also declined.. This was above expectations of 57.0 to 58.8 (consensus 58.0). For comparison, the Market PMI Services Index was released this morning also - and it weakened marginally. There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - both have good track records in spotting an incipient recession - both remaining in territories associated with expansion. This index and its associated sub-indices are fairly volatile - and onande needs to step back from the data and view this index over longer periods than a single month.

    ISM Non-Manufacturing Index decreased to 56.9% in September - The September ISM Non-manufacturing index was at 56.9%, down from 59.0% in August. The employment index increased in September to 58.3%, up from 56.0% in August. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: September 2015 Non-Manufacturing ISM Report On Business®  -- "The NMI® registered 56.9 percent in September, 2.1 percentage points lower than the August reading of 59 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 60.2 percent, which is 3.7 percentage points lower than the August reading of 63.9 percent, reflecting growth for the 74th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 6.7 percentage points lower than the reading of 63.4 percent in August. The Employment Index increased 2.3 percentage points to 58.3 percent from the August reading of 56 percent and indicates growth for the 19th consecutive month. The Prices Index decreased 2.4 percentage points from the August reading of 50.8 percent to 48.4 percent, indicating prices decreased in September for the first time since February of this year. According to the NMI®, 13 non-manufacturing industries reported growth in September. There has been a cooling off in the rate of growth during the month of September. Also, the trend of lower costs and little pricing power continues as reflected in the contraction of the pricing index. Overall, respondents continue to remain positive about current business conditions."  This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. This was below the consensus forecast of 57.7% and suggests slower expansion in September than in August. 

    ISM Non-Manufacturing: September Growth Continues to Slow - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 56.9 percent, down 2.1 percent from last month's 59.0 percent. Today's number came in below the forecast of 57.5 percent. Here is the report summary: "The NMI® registered 56.9 percent in September, 2.1 percentage points lower than the August reading of 59 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 60.2 percent, which is 3.7 percentage points lower than the August reading of 63.9 percent, reflecting growth for the 74th consecutive month at a slower rate. The New Orders Index registered 56.7 percent, 6.7 percentage points lower than the reading of 63.4 percent in August. The Employment Index increased 2.3 percentage points to 58.3 percent from the August reading of 56 percent and indicates growth for the 19th consecutive month. The Prices Index decreased 2.4 percentage points from the August reading of 50.8 percent to 48.4 percent, indicating prices decreased in September for the first time since February of this year. According to the NMI®, 13 non-manufacturing industries reported growth in September. There has been a cooling off in the rate of growth during the month of September. Also, the trend of lower costs and little pricing power continues as reflected in the contraction of the pricing index. Overall, respondents continue to remain positive about current business conditions." Unlike its much older kin, the ISM Manufacturing Series, there is relatively little history for ISM's Non-Manufacturing data, especially for the headline Composite Index, which dates from 2008. The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

    Service side of economy showing signs of catching flu from manufacturing - A pair of surveys released Monday show the services side of the U.S. economy catching the cold from the issues, including the strong dollar, China’s slowing and the energy-price collapse, that have hammered the manufacturing side. The Institute for Supply Management said its services index slowed in September to a three-month low of 56.9%. A similar index from Markit also fell a three-month low, of 55. Those readings are still well north of the 50% level indicating expansion, and considerably better than the manufacturing side of the economy. That said, the weakness could be considered unsettling at a time when so many issues are confronting the U.S. economy. The Federal Reserve last month decided not to lift interest rates, in large part due to concerns about how the weakness in China and related stock-market weakness could affect the domestic economy. And the purchasing managers who get polled each month seemed to echo those concerns. “Recent economic turmoil has caused sales to drop. We feel that this will be only temporary if the stock market returns to normal,” said one anonymous respondent in the retail trade field. “Continued concerns about the market impacting customer confidence and amount of orders,” added another, in the wholesale trade field.

    US Services Economy "Bounce" Dies As 'Hope' Tumbles To 39-Month Lows -- On the heels of China's, Japan's, Brazil's, and Europe's Services PMI weakness (and US Manufacturing PMI and ISM weakness), Markit's US Services PMI printed 55.1 (missing exectations of 55.6) and dropping to its lowest since June. This catch-down to Manufacturing weakness suggests the mid-year bounce is well and truly dead as even Markit admits, "it remains unclear as to whether growth will weaken further as we move into Q4." Additionally, after its exuberant spike to 10 year highs in July, ISM Services continued to drop back (to 56.9 missing expectations) . Services (blue) appear to catching down to Manufacturing (red) in the ISM and PMI surveys...After spiking to 10-year-highs in July, ISM Services continues to slide back to reality. While employment rose modesly; prices paid, inventory sentiment, and business activity tumbled. New Orders plunged...

    This chart is terrible news for the US economy. Is it true? - You want higher income growth and living standards? Hey, who doesn’t? Then your economy needs to become more productive. more innovative. Again, the de rigueur quote about productivity from Paul Krugman: “Productivity isn’t everything, but in the long run it is almost everything.” He’s right. But as the above chart shows, US productivity is barely growing. A second great productivity slowdown. If you believe the chart, that is. And Goldman Sachs has its doubts, as it again explains in a new report. I have blogged before about this analysis (and the debate surrounding it) by the firm’s chief economist, Jan Hatzius. But this is a helpful summary by Hatzius about the digital economy, and why official data likely overstate the productivity and innovation slowdown:

      • (1) A spurious slowdown in IT hardware deflation. An important recent study argues that much of the slowdown in measured semiconductor deflation since the early 2000s may reflect changes in industry structure, not a true slowdown in technological progress; similar issues may affect computer price measurement 
      • (2) An increased GDP share of IT software and digital content.  The official price index is basically flat, simply because the typical user still pays roughly the same monthly dollar amount for home internet access. There is no adjustment for the big increases in connection speeds or the availability of free internet access outside the home, let alone the fact that the expansion in online content makes “an hour of internet access” a much better product than it was a decade ago.
      • (3) An increase in “new product bias” because of the proliferation of free digital products. Price indices do not always fully capture early-stage price declines and welfare gains associated with new products. Our best estimates for the size of each of these biases suggest that IT-related measurement error may be holding down real GDP growth by a sizable amount, with a point estimate of 0.7pp per year now vs. only about 0.2pp in 2000. The corresponding downward bias on measured labor productivity growth in the nonfarm business sector—which accounts for about 75% of GDP—would be slightly larger at about 0.9pp now vs. 0.3pp in 2000.

    America's Beaten-Down Factory Worker Is Getting Squeezed Again -  The great recovery in U.S. manufacturing jobs -- a surprising five-year surge that blossomed in the aftermath of the financial crisis and added almost 900,000 people to payrolls across the country -- appears to be dead. Or at the very least, on hold. Factory employment fell by 27,000 in August and September, the worst back-to-back months since late 2009. To understand what’s behind those numbers, go right to the center of America’s heartland and take a look at a company nestled along the Illinois-Missouri border named Titan International Inc. It makes huge tires for tractors, backhoes and dump trucks, the kind of equipment that was in hot demand as the U.S. shale industry boomed and grain farmers flush with cash from soaring prices invested in new machinery. But with commodities now collapsing, the demand for earth-moving equipment -- and the tires they roll on -- is drying up.  The company is in the process of firing as many as 300 employees in the U.S.; when that’s done, its workforce there will be down by a third from a peak of about 3,000 in 2013. Manufacturers’ new-found struggles probably aren’t enough on their own to sway Federal Reserve policy makers as they decide when to start raising interest rates from near zero, but they do add to a picture of a slowing U.S. economy. The overall payroll increase of 142,000 in September fell well short of economists’ estimates of about 200,000, raising doubts that consumers can continue to drive growth. What’s more, the industrial slump dims hope for the manufacturing renaissance economists and President Barack Obama touted earlier this decade. Obama set a goal in 2010 to double exports in five years; shipments actually rose a little more than half that amount. And hiring hasn’t come close to replacing the 2.3 million workers lost in the 2008-2009 recession. There are currently 12.3 million factory employees in the U.S.

    Furious Auto Workers Demand More Than "Hot Dogs And Hamburgers" As US Car Sales Soar  --If you’re a mega corporation, one of the most annoying things about employees is that they expect to be paid for their work and as if that’s not enough, they also tend to draw a parallel between the performance of the company and what their labor is worth; beleaguered laborers start to get the idea that they’re entitled to a greater share of what they effectively create and that translates directly into calls for higher wages.  This situation is exacerbated when the peasantry gets together in the form of organized labor which unfairly seeks to deprive management of its capitalistic right to keep almost all of the profits from the widgets their employees produce.  Given the above, it comes as no surprise that the subprime loan-assisted boom in auto sales has auto workers asking for a larger piece of the pie. Here’s WSJ:Automobiles flew off dealer lots last month at the fastest pace in 10 years, but the good times are stirring tension between U.S. auto makers and their unionized workers that threatens to undercut the industry’s rebound. United Auto Workers union members at Fiat Chrysler Automobiles NV this week rejected for the first time in three decades a tentative agreement as inadequate, and Ford Motor Co. faces a walkout at a big truck factory as soon as Sunday. As buyers flood dealer lots, snapping up pricey pickups and sport-utility vehicles that deliver fat profits to General Motors Co., Ford and Fiat Chrysler, factory workers are demanding an end to the concessions that put the U.S. industry back on its feet after near collapse seven years ago.“We got a catered meal of hot dogs and hamburgers as our thanks while others, I’m sure, got big bonuses,” said Phil Reiter, a 44-year-old union member referring to a recent production milestone at Fiat Chrysler’s Toledo, Ohio, Jeep factory. That plant on Tuesday rejected a UAW supported contract by a more than 4-to-1 ratio.

    How the Trans-Pacific Partnership Threatens America’s Recent Manufacturing Resurgence - There are now 12 million manufacturing jobs in the U.S., down 30 percent from 1990. Even with that reduced number, manufacturing still accounts for 35 percent of America’s gross domestic product. Now that the U.S. and 11 Pacific Rim nations have agreed on the Trans-Pacific Partnership, or TPP, those who follow manufacturing are looking with new scrutiny at the deal, which will now come before Congress. There’s been a resurgence of manufacturing in the U.S. after all, a movement called “onshoring” in which companies move jobs from overseas back to the U.S. Wages in China are rising, and companies are finding that they have better control over quality with U.S. manufacturing operations. Walmart in 2013 announced that it would spend $50 billion buying U.S.-made goods. Whirlpool has shifted some production back to the U.S. from Mexico, and Otis Elevator moved some operations from Mexico to South Carolina. Since 2010, the nation has added nearly one million manufacturing jobs.  The nitty-gritty details of the TPP are still not public, but it’s known that the agreement seeks to gradually reduce trade barriers such as tariffs among member countries, which include Japan, Vietnam, and Malaysia. It adds intellectual property protections for certain products, including pharmaceuticals. It does not include rules on currency manipulation, which had disappointed some groups, because currency manipulation allows countries such as China to ensure that their goods are cheaper than U.S.-made goods. (Some economists believe that currency-manipulation provisions could make it more difficult for the U.S. to control its own currency and interest rates.) Hillary Clinton, who had formerly supported the TPP, said Wednesday on PBS NewHour that she opposed the pact because of the lack of currency manipulation rules and because of the sweet deal it gives to pharmaceutical companies. The deal also does not include China, the world’s second-largest economy, but is instead meant to increase the U.S.’s clout in Asia and make it easier to compete with China.

    Gallup’s US Job Creation Index Steady At 7-Year High In September -- Gallup’s US Job Creation Index remained at a seven-year high in today’s update for September. Is that a clue for thinking that last week’s disappointing employment report for September is only a temporary setback? The Gallup index was unchanged in September at +32—for the fifth straight month. This survey-based benchmark isn’t going anywhere, but perhaps the stronger message is that it’s not falling either, which is to say that the index is holding on to the gains of recent years. The polling group notes that the +32 reading “is the highest score Gallup has recorded since it began measuring employees’ perceptions of job creation at their workplaces in early 2008.”  It’s worth noting that jobless claims are still pointing to ongoing growth for the labor market, even if last week’s surprisingly weak increase in private payrolls for September suggests otherwise.

    Weekly Initial Unemployment Claims decreased to 263,000 -- The DOL reported: In the week ending October 3, the advance figure for seasonally adjusted initial claims was 263,000, a decrease of 13,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 277,000 to 276,000. The 4-week moving average was 267,500, a decrease of 3,000 from the previous week's revised average. The previous week's average was revised down by 250 from 270,750 to 270,500.  There were no special factors impacting this week's initial claims.  The previous week was revised down to 276,000. The following graph shows the 4-week moving average of weekly claims since 1971.

    Over Half a Million Drop Out of Labor Force, Participation Rate at Record Low (20 graphs) The September unemployment report was really a disaster.  Yet another 579,000 people dropped out of the labor force.  The labor participation rate dropped to record lows not seen since October 1977.  That's 38 years ago.  Even more disturbing is how the unemployment rate is really undermined as a reading on the state of labor.  The official unemployment rate did not change at all and remained at 5.1%.  The worst aspect is these statistics appear to be a trend, not a monthly anomaly.  Will this situation ever end and America really get back on it's labor force feet?  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  Those employed dropped by -236,000 this month.  From a year ago, the ranks of the employed has increased by 2.193 million, but that annual gain is much less than it was a month ago.  Those unemployed decreased by -114,000 to stand at 7,915,000.  From a year ago the unemployed has decreased by -1.322 million.  Below is the month change in unemployed and as we can see, this number typically has wild swings from month to month.  Those not in the labor force increased by 569,000 to 94.61 million.  The below graph is the monthly change of the not in the labor force ranks.  Those not in the labor force has increased by over 2 million in the past year.  That's faster growth than the drop in those unemployed and almost equal to the annual gains in those obtaining work.  The labor participation rate dropped by -0.2 percentage points to 62.4%, a low not seen since October 1977.  This is astounding even when taking into consideration the increasing retirement age population.  Below is a graph of the labor participation rate for those between the ages of 25 to 54.  The rate is 80.6%, which is a -0.1 change from last month and a rate not seen since April 1984, (discounting times past the great recession when the American work experience collapsed).  This proves labor participation rate cannot be explained away by retiring baby boomers and continuing education past high school full time as these are prime working years for people. The civilian labor force, which consists of the employed and the officially unemployed, declined by -350 thousand this month.  The civilian labor force has grown by 870,000 over the past year.  New workers enter the labor force every day from increased population inside the United States and immigration, both legal and illegal.  The small annual figure also implies people are dropping out of the labor force.  Notice how those not in the labor force has grown 231% bigger than the civilian labor force.

    More Employment Graphs: Duration of Unemployment, Unemployment by Education, Construction Employment and Diffusion Indexes  - By request, a few more employment graphs ... This graph shows the duration of unemployment as a percent of the civilian labor force. The graph shows the number of unemployed in four categories: less than 5 week, 6 to 14 weeks, 15 to 26 weeks, and 27 weeks or more. The general trend is down for all categories, and the "less than 5 weeks", "6 to 14 weeks" and "15 to 26 weeks" are all close to normal levels. The long term unemployed is close to 1.3% of the labor force, however the number (and percent) of long term unemployed remains elevated. Unemployment by Education This graph shows the unemployment rate by four levels of education (all groups are 25 years and older). Unfortunately this data only goes back to 1992 and only includes one previous recession (the stock / tech bust in 2001). Clearly education matters with regards to the unemployment rate - and it appears all four groups are generally trending down. Although education matters for the unemployment rate, it doesn't appear to matter as far as finding new employment. Note: This says nothing about the quality of jobs - as an example, a college graduate working at minimum wage would be considered "employed".This graph shows total construction employment as reported by the BLS (not just residential). Since construction employment bottomed in January 2011, construction payrolls have increased by 964 thousand. Construction employment is still far below the bubble peak - and below the level in the late '90s. Diffusion Indexes The BLS diffusion index for total private employment was at 52.9 in September, down from 55.5 in August. For manufacturing, the diffusion index was at 44.4, up from 39.4 in August. Think of this as a measure of how widespread job gains are across industries. The further from 50 (above or below), the more widespread the job losses or gains reported by the BLS. Above 60 is very good.

    Some Unpleasant Labor Force Arithmetic -- Words such as "grim" and "dismal" were used to describe Friday's employment report, which featured a payroll employment growth estimate for September of 142,000. Indeed, I think it would be typical, among people who watch the employment numbers, to think of performance in the neighborhood of 200,000 added jobs in a month as normal. But what should we think is normal? As a matter of arithmetic, employment growth has to come from a reduction in the number of unemployed, an increase in the labor force, or some combination of the two. In turn, an increase in the labor force has to come from an increase in the labor force participation rate, an increase in the working-age population, or some combination of the two. So, if we want to think about where employment growth is coming from, labor force participation is an important piece of the puzzle. This chart shows the aggregate labor force participation rate, and participation rates for men and women:As is well-known, the participation rate has been falling since about 2000, and at a higher rate since the beginning of the Great Recession. Further, participation rates have been falling for both men and women since the beginning of the Great Recession. It's useful to also slice this by age:   Thus, labor force participation has dropped among the young, and among prime-aged workers, but has held steady for those 55 and older. So, there are two effects which have reduced aggregate labor force participation since the beginning of the Great Recession: (i) participation rates have dropped among some age groups, and have not increased for any age group; (ii) the population is aging, and the old have a lower-than-average participation rate.Over the period since the beginning of the Great Recession, population has grown at an average rate of 0.5%, and labor force and employment at 0.3%. As you can see in the chart, employment has essentially caught up with the labor force, reflected of course in a drop in the unemployment rate to close to its pre-recession level. Year-over-year payroll employment growth looks like this: For more than three years, employment growth has been sustained, at close to or greater than 2%, year-over-year. And, with labor force participation falling, that growth in employment, in excess of the 0.5% growth rate in population, has come from falling unemployment.

    Underemployment and wages: September 2015 update -- About the only bright spot in Friday's jobs report was the 400,000+ decline in the number of involuntary part time workers.  So far this year, the number of those employed part time involuntarily has declined by -754,000, or about 1/2% of the workforce. The best way to look at this is as a percentage of the workforce: In January 1994, when the modern series began, 3.788% of the labor force was involuntarily employed part time. As of September of this year ,it was 3.852%. While this isn't too bad, a "good" number would be under 3%. The changes in 1994 subtracted about 1% from the calculation of involuntary employment. To give an idea how our present situation compares to pre-1994 data, here it is, subtracting 1%, and then another 3.788%, so that any situation better than currently shows as a negative number, and any worse than the present shows as a positive number: Next, here is the number for those Not in the Labor Force, but who Want a Job Now (NILFWJN): The modern version of this series also started in January 1994. We are currently at the same number as we were at the end of 1994. Again, not terrible, but not "good" either. Finally, let's look at the updated U6 underemployment rate (blue) and compare it with the YoY% of wage growth (red):

    Labor Report Silver Lining? ZPOP Ratio Continued to Rise in September -- Atlanta Fed's macroblog - We have received several requests for an update of our ZPOP ratio statistic to incorporate September's data. We have also been asked whether the ZPOP ratio can be constructed from labor force data from the U.S. Bureau of Labor Statistics (BLS). The ZPOP ratio is an estimate of the share of the civilian population aged 16 years and over whose labor market status is what they say they currently want (assuming that people who work full-time want to do so). A rising ZPOP ratio is consistent with a strengthening labor market. We constructed the ZPOP ratio from the microdata in the BLS's Current Population Survey, but we can also construct a very close approximation from the BLS's Labor Force Statistics data. Here's how (using data that are not seasonally adjusted): Take total employment, and add those not in the labor force who do not currently want a job. Then subtract those who were at work from one to 34 hours for economic reasons. The ZPOP ratio is this figure as a percentage of the civilian population 16 years and over. The following chart shows the history of the resulting ZPOP ratio over 20 years, seasonally adjusted.

    Goldman "Picks Apart" The Labor Paradigm: 50 Years Of A Productivity Paradox -- “Let me put this in perspective. For the total economy, productivity growth was 2.7% from 1920 to 1970, 1.6% from 1970 to 1994, 2.3% from 1994 to 2004 during what we call the dotcom era, and just 1.0% from 2004 to the second quarter of 2015.1 So the productivity growth of the last 11 years was not only slower than in the dotcom era, but even slower than in the so-called slowdown period beginning in the early 1970s. The reason for the slowdown after 1970 is straightforward: we simply exhausted the productivity benefits of prior innovations. In the late 19th century, hugely important “general purpose” technologies, like electricity and the internal combustion engine, were invented. Then there were major developments in entertainment and communication in the form of the telephone, telegraph, radio, motion pictures and television. We made major breakthroughs in health. And we vastly improved working conditions. All of that came together between 1920 and 1970. The last three spin-offs of the great inventions— interstate highways, commercial air travel, and air conditioning in most businesses—were also largely complete by 1970.So at that point we had run through the productivity payoffs.That’s from Robert Gordon, a professor of economics at Northwestern University and it comes courtesy of Goldman who has taken a close look at declining labor productivity in the US. As the Vampire Squid notes, falling productivity is something of a paradox. That is, better technology and advances in efficiency should by all rights have increased productivity but apparently, a number of factors are intervening to short circuit the system. Here's Goldman's full interview with Gordon.

    The Right Wing’s Assault on the Post Office – Smashing the Myth That It’s in Financial Trouble naked capitalism - Yves here. we’ve run posts on the issue of the manufactured Post Office budget “crisis,” but this bogus idea has been touted so widely that it apparently needs to be said, again and again, that the Post Office is more than able to pay for itself. The Washington Post recently published an article asking if the post office should “be sold to save it.” It begins with an explanation of what the author sees as an unsustainable postal service: The U.S. Postal Service, which has been losing customers for almost a decade, is still struggling to right itself. Everyone understands its basic problem. The electronic age has pushed first-class mail into an unstoppable decline. To stay afloat, the post office needs to get its costs under control, by closing post offices, eliminating Saturday delivery, downsizing its workforce. To boost revenue, it could offer banking services and sell lots of stuff besides stamps. It goes on to advocate for privatizing the agency by selling off parts of it to bidders who could then operate it independently. Congress passed the Postal Accountability and Enhancement Act of 2006 (PAEA). Under the terms of PAEA, the USPS was forced to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span” – meaning that it had to put aside billions of dollars to pay for the health benefits of employees it hasn’t even hired yet, something that “no other government or private corporation is required to do.”The problem with the Post‘s argument starts in its thesis: that the post office is in some sort of deep fiscal hole of its own making – a result of being left behind in the Internet Age and a shrinking consumer base. The truth is that almost all of the postal service’s losses can be traced back to a single change in the law made by the Republican Congress in 2006.

    The Immigration Dividend - Fifty years ago this month, Lyndon B. Johnson signed the Immigration and Nationality Act of 1965 at the foot of the Statue of Liberty. What ensued was arguably the most significant period of immigration in American history. Nearly 59 million people have come to the United States since 1965, and three-quarters of them came from Latin America and Asia. It was not unrestrained immigration — the act created preferences for those with technical training, or family members in the United States. But it was vastly more open than what had come before. There is little doubt that the act succeeded in the ways that its progressive supporters hoped — it made America a genuinely New Frontier, younger and more diverse, truer to its ideals. But it also was a success when measured by a more conservative calculus of hard power. It certainly increased American security. Significant numbers of immigrants and their children joined the United States military after 1965, and in every category the armed forces became more ethnically diverse. The flood of new immigrants also promoted prosperity in ways that few could have imagined in 1965. Between 1990 and 2005, as the digital age took off, 25 percent of the fastest-growing American companies were founded by people born in foreign countries. Much of the growth of the last two decades has stemmed from the vast capacity that was delivered by the Internet and the personal computer, each of which was accelerated by immigrant ingenuity. Silicon Valley, especially, was transformed. In a state where Asian immigrants had once faced great hardship, they helped to transform the global economy. The 2010 census stated that more than 50 percent of technical workers in Silicon Valley are Asian-American.

    Former Obama White House economist: $15 minimum wage is a ‘risk not worth taking’  -- The Democratic Party platform calls for a $15 per hour national minimum wage. Hmm. Here is economist Alan Krueger, a former chairman of President Obama’s Council of Economic Advisers, on the “fight for 15,” (via a New York Times op-ed): I am frequently asked, “How high can the minimum wage go without jeopardizing employment of low-wage workers? And at what level would further minimum wage increases result in more job losses than wage gains, lowering the earnings of low-wage workers as a whole?” Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. One reason for this judgment is that around 140 research projects commissioned by Britain’s independent Low Pay Commission have found that the minimum wage “has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy.” A $12-per-hour minimum wage in the United States phased in over several years would be in the same ballpark as Britain’s minimum wage today. But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States. … Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.

    Less Than a Third of Unemployed Americans Get Benefit Checks - The number of unemployed Americans dipped below eight million last month for the first time since 2008–but that figure doesn’t entirely reflect job growth. Unemployment dropped to a new low the same month that 350,000 Americans exited the labor force, the Labor Department said Friday. The civilian labor force has shrunk three of the past four months since touching a record high in May. One explanation for the trend is that Americans out of work for an extended period of time are giving up looking for jobs. The long-term jobless drop out of the labor force at a faster pace than those with shorter spells of unemployment, said Claire McKenna, policy analyst at the National Employment Law Project, an organization that advocates on behalf of the unemployed. “The headline numbers are masking other vulnerabilities in the job market,” she said. Why are workers leaving the labor force? It could be because relatively few unemployed are receiving jobless benefits. The number of Americans receiving ongoing unemployment benefits touched a 15-year low last month.. Those receiving government payments last month represented less than 28% of all unemployed Americans, according to an analysis of Labor Department data. That figure is down from 31% a year earlier. And it’s well below the 67% who received the assistance in September 2010, when emergency federal programs extended benefits beyond the 26 weeks granted in most states, to as long as 99 weeks.

    Please Train Your Replacement On Your Way Out! This Week In Corporate Layoffs - Donald Trump just surprised the nation by letting us know the unemployment rate is, in fact, not 5.1 percent and actually might be 42 percent. Does this alarming news register with our star-spangled Corporate Persons? Or is it possible that, as far as Corporate America is concerned, their enumerated task of “job creation” is a tad overstated, especially with all the newfangled Obamacare-exempt robots and the insane productivity of the debt-ridden American worker? Unlike Trump, we haven’t talked to any “great economists,” so maybe he is on to something. He’s not, but we don’t want to be accused of Liberal Bias and laid off like these poor souls … The H-1B visa program allows American Corporate Persons to bring over the best and brightest foreign workers so the companies can harvest and exploit the immigrants’ delicious nerd brains and PROFIT! It’s a decent concept, right?  But here’s the thing – and we know you’ll all be shocked – our bighearted Corporate Persons are exploiting the program by using these visas to accelerate their prolific outsourcing operations. Cheap plastic purveyor Toys ‘R’ Us is one Corporate Person taking advantage of the program and not for tricycle technicians or doll pyramid architects. It’s obtaining these visas to replace boring stiffs like accountants. The current employees, many of whom have spent years under the hoof of the cartoon giraffe, are then forced to train their Indian replacements in what is called a “knowledge transfer,” all the while knowing they’re getting booted. In an exercise that’s surely excellent for morale and self worth, they have to maintain a smile during that “transfer” in order to stay qualified for their token severance. Pick up the Lego Department Of Employment Security set next time you’re in a Toys ‘R’ Us.

    Right-Wing Urban Outfitters Now Asking Employees to Work for Free -- Yves here. Wow, this is astonishingly cheeky. Good for Gawker catching Urban Outfitters out in an attempted violation of labor laws. It looks like the finesse the company attempted was to pressure salaried workers, since salaried workers are not subject to overtime payments. I’m curious to get expert reader input. I wonder if the snag was OSHA….or the terms of the insurance on the warehouse?  Plus I’d look to see if Urban Outfitters is a short. This is an awfully desperate effort to contain costs. It’s the sort of thing you’d expect from a company that is worried about missing its forecasts.  By Kali Holloway. Over the last few years, Urban Outfitters has become known for three things (outside of carrying overpriced clothes that fall apart the first time you wash them): 1) Offending every possible marginalized group under the sun with apparel that features really tasteless messages; 2) allegedly stealing designs from up-and-coming artists and selling them as their own; and 3) having a president and CEO, Richard Hayne, who has given money to anti-gay marriage crusader Rick Santorum and other Republican politicians. Now the company is making news for its boldest action yet: asking employees to work for free! Gawker got hold of an email sent to salaried employees of URBN, which is the company that owns Urban Outfitters, on Tuesday. Note how it suggests that taking part will help build camaraderie:

    ‘But Whole Foods Is Supposed to Be Cage-Free!’: Colbert Skewers High-End Grocer for Using Prison Labor -- Stephen Colbert took aim on Monday's Late Show at yuppie favorite Whole Foods, which has been in a lot of hot water recently over its use of prison labor (AlterNet was one of the first to report this problem back in June). Evidently, Whole Foods routinely staffs out some of its farming and food packaging labor to correctional labor corporations who pay prisoners severely below minimum wage. Prison reform advocates are lobbying the powerful grocery chain to stop supporting this practice. "But everything at Whole Foods is supposed to be cage-free," Colbert joked. "That's not right. The whole time I thought it was 'Farmer Bob' making my goat cheese. Turns out it's some guy named 'Spider.'" Then, in a segment called "Whole Foods Apologizes," the Late Show host anticipated future PR problems for Whole Foods and offered to pre-tape a series of apologies for increasingly absurd scandals. Watch the clip below:

    Would a significant increase in the top income tax rate substantially alter income inequality? — Yes. This, you might think, qualifies as another in the series “Short Answers to Silly Questions”. But a Brookings Paper study by William G. Gale, Melissa S. Kearney, and Peter R. Orszag reaches the opposite conclusion. The study looks at increasing the top marginal tax rate (currently 39.6, applicable to incomes above $400k for singles), with the strongest option being an increase to 50 per cent. The proceeds are assumed to be redistributed to households in the bottom 20 per cent of the income distribution. The headline finding is that the Gini coefficient is barely changed, as are other popular measures including the 99/50 ratio (the ratio of income at the 99-th percentile to 50-th percentile, that is the median). But the 99/10 ratio and 90/10 ratios change a lot, from 50 and 17 under current law to 37 and 12.5 with the redistribution. What does this mean? Two things:

    (i) As is well known, the Gini coefficient is a lousy measure of income inequality, much more sensitive to the middle of the income distribution than to the tails
    (ii) The proposed redistribution would substantially improve the welfare of the poor, with most of the burden being borne by taxpayers in or near the top 0.1 per cent.

    Pro Publica: Extraordinary Stuggles of African American Debtors --  I understand what it's like to live in a low-income family. I can only begin to try to understand the extraordinary struggles facing low-income families who also happen to be black. Pro Publica has just released a story and accompanying study that helps a bit to bridge this empathy gap. Along the way, the story raises a frustrating point about our legal system that impacts all lower-income communities, but black folks in particular: Most legal protections against the kinds of rapacious collections activities described in the Pro Publica story require the debtor to affirmatively invoke the protections. For example, the story notes a collector explaining "if Byrd had filed a claim in court stating that the funds were exempt, the garnishment would have been terminated." Does the tragic irony escape this commentator? Byrd doesn't have enough money to pay the $29 sewer bill--do we really expect her to hire and pay for a lawyer to "file a claim in court stating that the funds were exempt"?! Similarly, the story describes default judgments being entered on time-barred debts because the debtors failed to invoke the statute of limitations--why in the world would a rational system allow time-barred debt to be revived against an impecunious debtor for failure to pay for counsel to raise this defense?! It's a self-fulfilling prophesy. The clever and unscrupulous inevitably prevail in a system where "The law doesn’t require anyone to tell debtors like Winfield of the [head-of-household 10% garnishment] exemption, and the burden is on them to claim it."

    98 Day Illinois Budget Impasse Could Delay 911 Calls - Illinois has gone almost 100 days without a budget and Republican Governor Bruce Rauner, at odds with Democrats in the legislature, signaled that a deal could still be far down the road. The impasse has racked up more than $6 billion in unpaid bills and week-by-week, state services are struggling to find funding. Among other services, the state has halted free STD testing public, the Illinois State Museum in Springfield closed to the public indefinitely for the first time in its 138-year history, and local 911 call systems are in jeopardy after it was announced that they would stop receiving state revenue from cell phone taxes. Here & Now’s Jeremy Hobson speaks with WBEZ reporter Tony Arnold for the latest on the shutdown and what needs to happen to reach a resolution.

    Tennessee’s First Year Of Drug Testing Welfare Applicants Didn’t Go Very Well -- Tennessee’s first year of drug testing welfare recipients uncovered drug use by less than 0.2 percent of all applicants for the state’s public assistance system. The state implemented the testing regime in the summer of 2014, adding three questions about narcotics use to the application form for aid. Anyone who answers “yes” to any of the three drug questions must take a urine test or have their application thrown away immediately. Anyone who fails a urine test must complete drug treatment and pass a second test, or have their benefits cut off for six months. In total, just 1.6 percent of the 28,559 people who applied for Temporary Assistance for Needy Families (TANF) benefits in the first year of testing answered one of the three screening questions positively. Out of the 468 people who peed in a state-funded cup, 11.7 percent flunked the test. You can read the rest of the article HERE.  In an earlier Think Progress article, Missouri, Oklahoma, Utah, Kansas, Mississippi, Tennessee, and Arizona were examined for the costs-benefits of their programmes. As state legislatures convene across the country, proposals keep cropping up to drug test applicants to the Temporary Assistance for Needy Families (TANF) program, or welfare. Proponents of these bills claim they will save money by getting drug users off the dole and thus reduce spending on benefits. But states that are looking at bills of their own may want to consider the fact that the drug testing programs that are already up and running haven’t seen such results.

    Child Nutrition Programs: Spending and Policy Options - CBO - Several federal programs support children’s nutritional needs. In 2014, the federal government spent about $20 billion to reimburse schools, child care centers, and after-school programs for children’s meals. Those programs benefit mainly school-age children from low-income households. Other nutrition programs provide benefits directly to such households: the Supplemental Nutrition Assistance Program (SNAP; formerly the Food Stamp program) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).  The largest of the five school- and center-based programs, the National School Lunch Program (NSLP), fed about 30 million children each school day in 2014 and cost $12.7 billion. The federal government spent another $3.7 billion in 2014 to feed about 14 million children through the School Breakfast Program (SBP). The government also spent $3.6 billion to provide nutritional assistance in locations outside schools and during the summer, as well as to augment children’s diets with milk. This report focuses on the school lunch and breakfast programs, which account for more than 80 percent of all spending for child nutrition programs.

    Recovery? Student Homelessness Has Doubled Since Before The Recession -- How’s that recovery going for you? That’s what I thought. mHere’s the latest data point from the ongoing oligarch crime spree shamelessly marketed to the masses as an “economic recovery.” From Five-Thirty-Eight: The number of homeless students in the country’s classrooms has more than doubled since before the recession, according to recently released federal data. That’s an alarming trend, but a new report offers some hope: At least part of the increase, the authors say, is not because more students have become homeless, but because states have gotten better at identifying homeless students. Here’s a visual representation of America’s Banana Republic neo-feualism for those of you so inclined: Bull market in serfdom. If this is what a recovery looks like, I don’t want to see a recession. There were about 1.4 million homeless students nationwide in the 2013-14 school year, according to the Department of Education, twice as many as there were in the 2006-07 school year, when roughly 680,000 students were homeless.

    High Quality Child Care Is Out of Reach for Working Families  - In recent decades most Americans have endured stagnant hourly pay, despite significant economy-wide income growth. In essence, only a fraction of overall economic growth is trickling down to typical households. There is no silver bullet for ensuring ordinary Americans share in the country’s prosperity; instead, it will take a range of policies. Some should give workers more leverage in the labor market, and some should expand social insurance and public investments to boost incomes. An obvious example of the latter is helping American families cope with the high cost of child care. The high cost of child care has received attention from an array of policymakers. For example, in his 2015 State of the Union address, President Obama cited child care affordability as a key to helping middle-class families feel more secure in a world of constant change. New York City Mayor Bill de Blasio recognized similar concerns and released an interagency implementation plan for free, high-quality, full-day universal prekindergarten (NYC 2014). High quality, dependable, and affordable child care for children of all ages is more important than ever, especially since having both parents in the workforce is an economic necessity for many families. This paper uses a number of benchmarks to gauge the affordability of child care across the country. It begins by explaining how child care costs fit into EPI’s basic family budget thresholds, which measure the income families need in order to attain a modest yet adequate standard of living in 618 communities. The report then compares child care costs to state minimum wages and public college tuition. Finally, to determine how child care costs differ by location and family composition, the paper reconstructs budgets for two-parent, two-child families in 10 locations to include the higher cost of infant care, compares these families’ child care costs to those of families without infants, and compares costs for both family types with metro area median incomes.

    Ohio court upholds school suspension of 12-year-old black boy accused of staring at a white girl: An Ohio court has upheld the suspension of a 12-year-old black boy for staring at a white girl at school in what he called a “staring contest,” Fox 19 is reporting. The unidentified student was suspended from a private Catholic school, St. Gabriel Consolidated, in September of last year after school officials say he “intimidated” his classmate.According to the boy, he and the girl were engaged in a staring contest and that she was giggling the whole time. Court documents state that the girl said she “felt fearful,” leading the school to suspend the boy despite the fact that he wrote an apology saying he meant no harm. “I never knew she was scared because she was laughing,” he wrote. “I understand I done the wrong thing that will never happen again. I will start to think before I do so I am not in this situation.”

    Texas mom calls out publisher after noticing high school son’s text book glossed over slavery: Texas mother took to YouTube to call out the publishers of her son’s geography text book for hinting that Africans first came to the United States as immigrants rather than slaves, ABC13 reports. Roni Dean-Burren was taken aback when she noticed her 9th grade son’s textbook, “World Geography,” addressed the forced displacement of Africans to the Americas to work as slaves in an unusual way. The subject is addressed under a section of the book, published by McGraw-Hill, called “Patterns of immigration.”On the section’s title page, there is a map that describes Africans being brought to the United States as “workers.” “The Atlantic slave trade between the 1500s and the 1800s brought millions of workers from Africa to the southern United States to work on agricultural plantations,” Dean-Burren read from the text. “Immigrants — yeah that word matters.” She then points out a section that discusses English and Europeans coming to the U.S., many as indentured servants, but then notes that “there is no mention of Africans working as slaves or being slaves. It just says we were workers.”

    Text book publisher issues groveling apology to Texas mother who called them out for suggesting African people wilfully emigrated to America to ‘work’ - The publisher of a 9th-grade geography textbook has apologized for suggesting African people willfully emigrated to America. It comes after a mother in Texas read her son's homework and took to YouTube slamming McGraw-Hill Education for its use of language.In a section titled 'patterns of immigration', the book describes slaves as 'workers' who came to the United States between 1500 and 1800 to work on agricultural plantations. On the next page, a paragraph explains how English and European immigrants came over as 'indentured servants' during the same period and were forced 'to work for little or no pay'. Expressing her disbelief in a YouTube video, Roni Dean-Burren, a Future Faculty Teaching Fellow at the University of Houston and a Black Lives Matter activist, explains that her shocked son sent her a picture of the chapter from his classroom last week.  He captioned the picture, 'we was real hard workers wasn't we :('.   'There is no mention of Africans working as slaves or being slaves,' Dean-Burren says, panning her cell phone camera over the pages of the text book. 'It just says we were "workers"'.  She hovers over the word 'immigration', and says: 'Immigrants - yeah, that word matters.'

    Charter School Nonsense: No, Hedge Fund Billionaires Aren't Going to Save All the Children - Yesterday was a school day in New York City. Across the city, over one million children were in class. But not the children of Eva Moskowitz's Success Academies! They (and possibly some allied charters) held a mass rally at Cadman Plaza Park in Brooklyn. The park was lined with rented buses. As the children and their parents stepped off the buses, an adult handed them a hand-lettered sign to carry, demanding more support for charter schools. There were multiple buses for the recording and video services. This was a well-funded, professionally orchestrated demonstration of support for privatization. If public schools closed for a political rally, their principals would be fired. The children and parents all wore identical red tee-shirts, with the slogan “Dont Steal Possible.” This slogan works nicely in suggesting that someone is trying to close down charter schools, and this imminent threat to their survival must be stopped. In fact, as is typical with reformer slogans, the opposite is true. Eva and her billionaire hedge fund backers get whatever they want from Governor Andrew Cuomo and the state legislature. And they aim to “steal” space and resources from the beleaguered public schools. They merrily “steal possible” from children with disabilities, children who are English language learners, and children who are homeless, none of whom are wanted by Eva’s Success Academies because they might not get high scores.

    Does federal student aid cause tuition increases? It certainly enables them -- Last week I had the honor of testifying on higher education finance in front of the Joint Economic Committee on Capitol Hill. My written testimony is posted here, and my remarks as written can be found here. One topic that came up again and again was the so-called Bennett Hypothesis, named for former Secretary of Education Bill Bennett, whose 1987 New York Times op-ed argued: If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible. Bennett’s hypothesis has become something of a core belief on the right, and for good reason. Federal spending on student aid has never been higher, and neither has the cost of college attendance. Bennett’s hypothesis provides a simple explanation as to why. But what does the research say? A sizable body of work has emerged to test the hypothesis. And despite Bennett’s clear assertion that “aid policies do not cause college price inflation,” researchers have spent many years and pages trying to identify a causal effect. When loan limits increase, do tuition prices increase shortly after?

    A Student Loan System Stacked Against the Borrower -- Gretchen Morgenson -- Consumer advocates say student-loan servicers often make an already heavy debt load even more burdensome for borrowers. A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than one in four student loan borrowers are delinquent or in default on their obligations. In the aftermath of the financial crisis, we learned repeatedly about dubious practices among mortgage servicing companies that made it harder for homeowners trying to repay or renegotiate their loans. Now, similar horror stories are emerging about the companies servicing student loans. Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007. Companies servicing these loans manage borrowers’ accounts, process their payments and enroll them in alternative repayment plans, including those based on a fixed share of the borrowers’ income. Among the biggest companies are Navient, Great Lakes and Discover Bank. The Education Department has contracts with 11 loan servicers. But with no federal standards governing these activities, student-loan servicers have great leeway in their practices. Making matters worse, borrowers are not allowed to choose their servicers, so if they encounter problems, they cannot take their business elsewhere.

    PSERS: Billions in Pa., local school pension dollars still not enough: Pennsylvania school district property owners and the state Treasury paid a combined $2.6 billion into the Pennsylvania Public School Employees' Retirement System (PSERS) in the year ended June 30. The total should top $3 billion this fiscal year and is scheduled to rise again into the future. That's not counting investment profits on the pension system's investments (just 3% in the fiscal year ended June 30) or employee contributions (which are also, of course, funded by taxpayers). Annual increases at far above the rate of inflation have squeezed flat school district budgets around the state (see my stories and data on the local school and police pension funding here); in Quakertown school board members voted in protest to delay their PSERS contributions; other districts have considered similar actions.   Yet the payments aren't enough to keep PSERS from getting broker, says chief investment officer James Grossman. PSERS "continues to be underfunded by school employers and the commonwealth," Grossman noted in this statement Tuesday.How's that possible -- when all the school districts inspected by state Auditor General Gene DePasquale lately report they are indeed making their legally required contributions and sometimes a bit more? Because "the rate is artificially being suppressed, as it has been for many years," PSERS spokeswoman Evelyn T. Williams explains:

    Retiree Healthcare Costs Are Up 11% Because We're Living Longer: Serious health problems easily top the list of retiree worries, in large part because they can be a devastating financial drain. But even for healthy retirees medical costs can be substantial.Not counting the costs of long-term care or most dental and vision, the estimated lifetime toll for co-pays, deductibles and other out-of-pocket healthcare spending will total $245,000 for a 65-year-old couple, according to Fidelity Investments. That’s up 29% in 10 years—and a striking 11% since just last year.A big reason for the jump is revised mortality tables, which show for the first time that the average newborn will reach age 90. The average 65-year-old woman will reach 88.8 and the average 65-year-old man will reach 86.4, the new tables show. In both cases, two years of life expectancy have been added since 2000. Those years will not be free. Fidelity also estimates that healthcare costs are rising between 4% and 5% a year.These dollar figures might sound dire, but other estimates of expected retirement healthcare costs are actually even higher. HealthView Services puts the figure at $266,589 for a healthy 65-year-old couple; the cost is a staggering $463,849 for a 55-year-old couple retiring in 10 years. Part of the problem is that only about one-third of large employers today offer retiree health benefits—down from two-thirds 25 years ago, according to Allianz Life Insurance.

    The Cadillac Tax: Why Economists, but Few Others, Love It - The so-called Cadillac tax is one of those rare taxes whose primary purpose is not to raise revenue. The tax, which is scheduled to begin hitting very-high-cost employer-sponsored health insurance plans in 2018, was included in the Affordable Care Act to discourage companies from offering such plans.  As economists say, “Tax something and get less of it.” This is appealing to those who would like to control health care spending, which ultra-comprehensive health plans tend to encourage more of. But it’s not very appealing to people who have the plans, many of them members of unions that fought hard to get the plans in the first place. A lot of the news coverage last week, after Hillary Rodham Clinton announced she’d like to see the tax repealed, focused on the fact that repealing the tax could cause the federal government to lose $87 billion in revenue over the first eight years it’s in effect.  But the revenue effects of the Cadillac tax are minor compared with the tax’s much larger effects on health care spending. It would be harder for Mrs. Clinton to replicate those cost-control benefits than to replicate the revenues. The tax is expected to cut health care costs in two ways. First, it would encourage employers to give their employees less generous health benefits and instead pay them more in cash. Second, a reduction in free-spending health plans would reduce the overall demand for health care services, making it harder for doctors and hospitals to raise prices. As a result, the tax is expected to reduce the cost of care even for people whose health plans do not change because of the tax.The tax would push against another public policy that encourages people to spend more on health care than they otherwise might: the longstanding exemption of employee health benefits from both income and payroll taxes. Tax exemptions for health spending cost the federal government $300 billion a year, nearly as much as the federal government spends on Medicaid.

    Seniors Dump Long-Term Care Insurance Just When They Need It Most - Buying long-term care insurance has always been a dicey proposition. It’s expensive. You may never need it. Insurers may later jack up the premiums. And new research shows that a third of those who buy the coverage let it lapse—forfeiting benefits they had paid for, often just as they are about to be eligible to collect.At age 65, a man with long-term care coverage stands a 32% chance of letting the policy lapse before death and a woman stands a 38% chance, according to the Center for Retirement Research at Boston College. In 23% of the cases studied, those who let their policy lapse did so within four years of needing long-term care.Long-term care insurance covers the often-high lifetime cost of care through a nursing home, assisted living facility or in-home assistance. The national average for a shared room in a nursing home is $77,380 a year, according to the Genworth 2014 Cost of Care Survey , but the tab can go much higher—$120,000 is typical in Massachusetts, for example. Even assisted living, where you get just some one-on-one help and basic medical care, averages $42,000 a year.Medicare and Medicaid exclude most of these costs until you have exhausted nearly all your resources. So the coverage generally makes best sense for those with enough wealth to protect but not so much that they can afford to foot the bill should it ever become necessary. One rule of thumb: buy the coverage if you are worth between $200,000 and $2 million.About 70% of those who make it to age 65 will eventually need some kind of long-term care. But not everyone needs it for a long time. The CRR estimates that this insurance, which may run $2,000 to $3,000 a year, makes financial sense for only one in five 65-year-olds.

    Hospital Care Unaffected By Quality Payments, GAO Finds | Kaiser Health News: Medicare’s quality incentive program for hospitals, which provides bonuses and penalties based on performance, has not led to demonstrated improvements in its first three years, according to a federal report released Thursday. The Government Accountability Office examined the Hospital Value-Based Purchasing Program, one of the federal health law’s initiatives to tie payment to quality of care. Earlier this year Medicare gave bonuses to 1,700 hospitals and reduced payments to 1,360 hospitals based on their mortality rates, patient reviews, degree of improvement and other measurements. While the payments to a majority of the nation’s hospitals have been affected each year, the audit found the financial effect has been minimal. Most hospitals saw their Medicare payments increase or drop by less than half a percentage point.  In the fiscal year that ended Sept. 30, 74 percent of hospitals fell within that range, with a median bonus of $39,000 and a median penalty of $56,000, according to the analysis.

    How the controversy over drug prices could take down Obama’s massive trade deal -     A political firestorm is building over the protections for drug companies in Obama administration's massive international trade deal, threatening support for a key piece of the president's legacy. The chapter addressing the issue, which was posted online Friday by WikiLeaks, grants at least five years of exclusivity to the makers of next-generation biologic medicines for diseases ranging from cancer to rheumatoid arthritis. That's less than what drug companies enjoy in the United States. The language has become a sticking point for both critics and supporters of the industry -- and has even changed the minds of some of the deal's most ardent supporters. Democratic presidential candidate Hillary Rodham Clinton is worried that the terms provide excessive protections for drug companies and said this week that she now opposes the Trans-Pacific Partnership (TPP). Senator Orrin Hatch (R--Utah), who has been a key GOP backer of Obama’s trade agenda, said in a speech this week that he could drop his support partly out of concerns that it provides too little intellectual property protection for drug development. The biologics issue was among the final sticking points in a deal that was negotiated by the administration for more than five years, with trade ministers haggling over the matter until just hours before President Obama announced they had reached a deal at a news conference on Monday. Almost immediately, what was known about the biologics provision began to generate controversy. According to the draft leaked Friday, drug companies will get either eight years of protection or "at least five years" plus an ambiguous amount of extra time due to "market circumstances" that will "deliver a comparable outcome in the market." The language is obtuse enough that some are interpreting it as five years, others as eight. In the United States, those drugs enjoy 12 years of exclusivity, through a provision embedded in the Affordable Care Act.

    Taking on the Drug Profiteers - That with a former peanut-company owner, Stewart Parnell, being sent to prison for knowingly selling salmonella-tainted peanut butter, and Volkswagen’s C.E.O., Martin Winterkorn, resigning after revelations about the cheat software in the firm’s diesel-powered cars, it took a special magnitude of corporate misbehavior to make the business-news headlines in the past couple of weeks. But Martin Shkreli, the C.E.O. of Turing Pharmaceuticals, managed it when his company said it was raising the price of a sixty-two-year-old lifesaving drug from $13.50 to seven hundred and fifty dollars a pill. The move quickly became a major scandal; Shkreli was called “the most hated man in America.” Yet the true scandal of Turing’s profiteering scheme was that it was entirely legal. Daraprim—which is used to treat toxoplasmosis, a condition that afflicts AIDS patients, among others—first came on the market back in 1953, so it has long since gone off patent. But what Shkreli recognized was that, even with a generic drug, regulatory barriers and a lack of competition can make big price hikes possible. In Daraprim’s case, only one company had regulatory approval to sell the drug in the United States. So, in August, Turing bought those rights. Shkreli knew that, in principle, other companies could produce their own versions of Daraprim. But it seemed a fair bet that none of them would try. The market for Daraprim is small—eight to twelve thousand prescriptions a year in the U.S.—and any company that wanted to enter the market would have to go through the expensive and time-consuming process of getting F.D.A. approval. As it happens, several companies already make and sell a generic version of Daraprim abroad, but they weren’t a worry, either, because they, too, would have to jump through the F.D.A.’s hoops to sell it here.

    Can SNAP do more to reduce obesity? - The Supplemental Nutrition Assistance Program (SNAP) provides food benefits to 45.5 million people in the average month – 14% of Americans – and costs almost $70 billion each year. Research shows that SNAP has positive aspects, including reducing poverty and increasing access to nutrients.At the same time, a commonly held belief is that SNAP contributes to obesity among low-income households by providing resources to purchase large quantities of unhealthy food. And some research by the USDA supports this view. But a new study suggests that the effect of SNAP on obesity has been overstated in past research because of data quality problems. In a September 2015 NBER Working Paper, researchers found that underreporting of SNAP participation on surveys likely accounts for much of the difference in obesity rates between self-reported SNAP participants and nonparticipants of similar income. When the authors factored in misreporting and controlled for a number of other factors, such as income, SNAP participation was no longer positively related to obesity.  From the study: When accounting for misreporting, we find no evidence that SNAP participation significantly increases the probability of being obese or overweight (either overall or among men and women separately). These results therefore call into question many of the existing findings of a positive effect of SNAP participation on adult weight outcomes among women, some of which are based on our same NLSY79 data. This suggests that SNAP by itself may not contribute to obesity. It also shows that SNAP does very little to reduce obesity.

    Aging Prison Population Sends Health-Care Costs Soaring -- In a year when the nation’s overall prison population dropped, the number of older inmates grew rapidly in 2014, continuing a trend that translates into higher federal and state prison health care spending. New federal data show that from 1999 to 2014, the number of state and federal prisoners age 55 or older increased 250 percent. This compares to a growth rate of only 8 percent among inmates younger than 55, according to the Bureau of Justice Statistics, which also reported that the U.S. prison population fell in 2014 to its lowest level since 2005.  In 1999, inmates age 55 and above—a common definition of older prisoners—represented just 3 percent of the total population. By 2014, that share had grown to 10 percent. Like senior citizens outside prison walls, older inmates are more likely to experience dementia, impaired mobility, and loss of hearing and vision, among other conditions. In prisons, these ailments present special challenges and can necessitate increased staffing levels and enhanced officer training, as inmates may have difficulty complying with orders from correctional officers. They can also require structural accessibility adaptions, such as special housing and wheelchair ramps. For example, in Florida, four facilities serve relatively large populations of older inmates. These units help meet special needs, such as palliative and long-term care.

    Fatal Fraud? More Big Dollar Settlements by For-Profit Hospices -- We have occasionally written about the rise of the commercialized hospice industry, and concerns that commercialized hospices may not be providing the compassionate care they promise.  As we have discussed before, the hospice movement began with small, non-profit, community based organizations meant to provide compassionate palliative care to the terminally ill.  However, in the US, the hospice movement has been co-opted by commercial hospices, often run by large corporations, which may put profit ahead of compassion. In the Washington Post series “Aging in America,” Peter Whoriskey explored problems affecting the contemporary “industrialized” model of hospice.  He noted in August, 2014, But the boom has been accompanied by what appears to be a surge in hospices enrolling patients who aren’t close to death, and at least in some cases, this practice can expose the patients to the more powerful pain-killers that are routinely used by hospice providers.  Whoriskey presented a case in which a non-terminally ill patient was admitted to hospice, and died possibly due to aggressive use of narcotics. While hospices tend to use very aggressive pain management strategies, they also by design do not attempt to cure patients who develop new acute problems. So if a non-terminally ill patient enters hospice, such a new acute problem could be fatal. For example, we discussed a case in which a person admitted to a commercial hospice for “debility” but apparently not defined terminal illness, died from untreated sepsis. It is possible that timely use of antibiotics could have contained her initial infection, or possibly even cured her sepsis. Yet evidence continues to accumulate that modern industrialized hospices, especially those owned and run by large for-profit corporations, may enroll patients who are not terminally ill to increase revenue. The regulatory response to such behavior continues to be spotty, and seems focused on enrollment of non-terminal patients as a form of fraud, not as a danger to patients. So far in 2015 two commercial hospice chains settled charges that they enrolled patients who were not terminally ill.

    Health Benefits of Tea? Here’s What the Evidence Says  - As with coffee, a fairly large number of studies have looked at associations between tea and health. Most of the studies don’t have the rigor of randomized control trials and don’t prove causality. But so many studies were available that I was able to focus on systematic reviews and meta-analyses, or “studies of studies.” Nine prospective cohort studies, three retrospective cohort studies and four cross-sectional studies including more than 800,000 participants have looked at the association between tea and liver disease. Those who drank tea were less likely to have hepatocellular carcinoma, liver steatosis, liver cirrhosis and chronic liver disease. This confirmed the findings in a previous systematic review published in 2008. Tea has been associated with a lower risk of depression. A 2015 meta-analysis of 11 studies with almost 23,000 participants found that for every three cups of tea consumed per day, the relative risk of depression decreased 37 percent. Tea was also associated with a reduction in the risk of stroke, with those consuming at least three cups a day having a 21 percent lower risk than those consuming less than a cup a day. A more recent meta-analysisexamined 22 prospective studies on more than 850,000 people and found that drinking an additional three cups of tea a day was associated with a reduction in coronary heart disease (27 percent), cardiac death (26 percent), stroke (18 percent), total mortality (24 percent), cerebral infarction (16 percent) and intracerebral hemorrhage (21 percent). A 2014 meta-analysis of 15 published studies of more than 545,000 participants found, as with coffee, an inverse relationship between tea consumption and the risk of developing Type 2 diabetes. For each additional two cups per day of tea consumed, the risk of developingdiabetes dropped 4.6 percent.

    Breast cancer cases among men on the rise: — From ubiquitous pink ribbons to blithe pleas to save the ta-tas, most people have heard of breast cancer and its effects on women. But what of the men? Although it's much more rare, men are also susceptible to breast cancer. The American Cancer Society estimates that around 2,350 new cases of breast cancer will be diagnosed in men in 2015, compared with 231,840 in women. An estimated 440 men will die of breast cancer this year. “It’s relatively unusual. Way more unusual than a female who gets breast cancer,” said Lynda Weeks, executive director of Susan G. Komen Louisville, part of the largest breast cancer research, education and advocacy organization in the country. “The figure is approximately one in 1,000, so it’s far less than females, but typically men are diagnosed at a later stage.” Dr. Janell Seeger, a medical oncologist with the Norton Cancer Institute, said that although male breast cancer cases remain rare, “the number is increasing.” Reports show an increase of “up to 26% over the last 25 years,” in diagnosed cases.

    One in three young Chinese men will die from smoking, study says - BBC News: A new study has warned that a third of all men currently under the age of 20 in China will eventually die prematurely if they do not give up smoking. The research, published in The Lancet medical journal, says two-thirds of men in China now start to smoke before 20. Around half of those men will die from the habit, it concludes. The scientists conducted two nationwide studies, 15 years apart, covering hundreds of thousands of people. In 2010, around one million people in China died from tobacco usage. But researchers say that if current trends continue, that will double to two million people - mostly men - dying every year by 2030, making it a "growing epidemic of premature death". While more than half of Chinese men smoke, only 2.4% of Chinese women do. The study was conducted by scientists from Oxford University, the Chinese Academy of Medical Sciences and the Chinese Center for Disease Control. But co-author Richard Peto said there was hope - if people can be persuaded to quit. "The key to avoid this huge wave of deaths is cessation, and if you are a young man, don't start," he said.

    USDA and DHHS decide not to include sustainability in the 2015 Dietary Guidelines for Americans -- Agriculture Secretary Tom Vilsack and Health and Human Services Secretary Sylvia Mathews Burwell issued a joint statement this afternoon, which appears to say that sustainability issues will not be considered in the 2015 Dietary Guide lines for Americans (DGA). In terms of the 2015 Dietary Guidelines for Americans (DGAs), we will remain within the scope of our mandate in the 1990 National Nutrition Monitoring and Related Research Act (NNMRRA), which is to provide “nutritional and dietary information and guidelines”… “based on the preponderance of the scientific and medical knowledge.” The final 2015 Guidelines are still being drafted, but because this is a matter of scope, we do not believe that the 2015 DGAs are the appropriate vehicle for this important policy conversation about sustainability. The announcement follows months of public debate after the Dietary Guidelines Advisory Committee this year included some discussion of environmental sustainability in its report, which provides the scientific basis for the guidelines that will be released later this year by USDA and DHHS.  As noted on Thursday, several colleagues and I recently had published a commentary in the journal Science, arguing that sustainability issues are just as much relevant to dietary guidance as physical activity or food security, both of which are widely accepted as in scope.

    Climate Change And Extreme Weather Linked To Low Birth Weight -- The world has learned much in recent years about the harmful health effects of climate change, such as heat-related deaths, respiratory and heart problems caused by air pollution, and emotional disorders that result from the consequences of extreme weather.  Now researchers have found that it poses a surprising new danger: low birth weight.  In a first-of-a-kind study, scientists from the University of Utah spent two years examining the relationships between fetal development and pregnant women’s exposure to low precipitation and very hot days. The research, which looked at data from 19 African countries, found that reduced rainfall and high heat resulted in newborns who weighed less than 2,500 grams, or about 5.5 pounds. “In the very early stages of intra-uterine development, climate change has the potential to significantly impact birth outcomes,” "While the severity of that impact depends on where the pregnant woman lives, in this case the developing world, we can see the potential for similar outcomes everywhere,” including in the United States. “Women who are pregnant are more sensitive to heat stress, dehydration, etc.,” although access to air conditioners in this country “would likely reduce the exposure and the stress,” she said. The World Health Organizationestimates that up to 20 percent of all births worldwide are low birth weight, representing more than 20 million births annually. Low birth weight infants face the potential of multiple health issues, including infections, respiratory distress, heart problems, jaundice, anemia, and chronic lung conditions. Later in life, they are at increased risk for developmental and learning disorders, such as hyperactivity and cognitive deficits.

    Sherrod Brown reintroduces clean water bill  --- Up to $1.8 billion more over five years would be available to communities nationwide for fighting algae-producing sewage overflows if legislation being reintroduced by U.S. Sen. Sherrod Brown (D., Ohio) is approved by Congress and signed into law by President Obama. Mr. Brown discussed his plans for additional money in the Clean Water Affordability Act at a news conference today inside Toledo’s Collins Park Water Treatment Plant. “We need to do more to address water quality at its source, by preventing the toxic runoff that causes the algal blooms,” Mr. Brown said. “But we also need to help the communities across Ohio that are struggling to afford expensive — but vital — renovations to outdated sewer systems. Too often, systems go without updates and repairs, and result in water contamination, like we have seen in Lake Erie…”  The Congressman was joined at the event by Toledo Mayor Paula Hicks-Hudson, Chuck Campbell, acting commissioner of plant operations, and Ed Beczynski, who owns The Blarney and Focaccia’s downtown, who discussed how last summer’s water crisis affected his businesses. The bill would authorize $1.8 billion over five years for a grant program to help financially distressed communities update their aging infrastructure by providing a 75/25 cost share for municipalities to use for planning, design, and construction to control combined and sanitary sewer overflows, according to a news release from Mr. Brown’s office.

    Public Health Emergency Declared in Flint, Michigan Due to Lead Contamination in Water --After a public health emergency was declared Tuesday due to the ongoing water crisis in Flint, Michigan, the state is now distributing free water filters and bottled water to the city’s residents, according to Reuters.  Recent tests from a local children’s hospital showed that children had elevated levels of lead in their blood a year after the city began using water from a local river instead of buying Lake Huron water through Detroit in order cut costs. The tests “found the number of Flint kids under the age of 5 years old with above average lead levels nearly doubled city-wide and in some cases, tripled,” reported FOX 2’s Randy Wimbley. “Our children are a top priority given the effects lead can have on their development,” Mayor Walling said in a statement.  “Any bottled water donations we receive will be used for our children and other high risk groups, such as our seniors.” It appears that the toxic metal had been entering drinking water through corroded pipes and plumbing materials, according to

    More Evidence We’ve Reached a “Peak Water” Tipping Point in California  -  Gaius Publius - A bit ago I wrote, regarding climate and tipping points: The concept of “tipping point” — a change beyond which there’s no turning back — comes up a lot in climate discussions. I think the American Southwest is beyond a tipping point for available fresh water. I’ve written several times — for example, here — that California and the Southwest have passed “peak water,” that the most water available to the region is what’s available now. We can mitigate the severity of decline in supply (i.e., arrest the decline at a less-bad place by arresting its cause), and we can adapt to whatever consequences can’t be mitigated. But we can no longer go back to plentiful fresh water from the Colorado River watershed. That day is gone, and in fact, I suspect most in the region know it, even though it’s not yet reflected in real estate prices.  Two of the three takeaways from the above paragraphs are these: “California and the Southwest have passed ‘peak water'” and “most in the region know it.” (The third takeaway from the above is discussed at the end of this piece.) “For the first time in 120 years, winter average minimum temperature in the Sierra Nevada was above freezing” My comment, that “most in the region know it,” is anecdotal. What you’re about to read below isn’t. Hunter Cutting, writing at Huffington Post, notes: With Californians crossing their fingers in hopes of a super El Niño to help end the state’s historic drought, California’s water agency just delivered some startling news: for the first time in 120 years of record keeping, the winter average minimum temperature in the Sierra Nevada was above freezing. And across the state, the last 12 months were the warmest on record. This explains why the Sierra Nevada snow pack that provides nearly 30% of the state’s water stood at its lowest level in at least 500 years this last winter despite precipitation levels that, while low, still came in above recent record lows. The few winter storms of the past two years were warmer than average and tended to produce rain, not snow. And what snow fell melted away almost immediately. Thresholds matter when it comes to climate change. A small increase in temperature can have a huge impact on natural systems and human infrastructure designed to cope with current weather patterns and extremes.

    Conditions Sour for California’s Dairy Farmers - WSJ: California dairy farmers are retrenching amid falling prices and drought in the largest milk-producing state, a shift that could further reshape the U.S. industry by enabling farmers in other states to expand. California producers, who pump about a fifth of the nation’s milk supply, say they’re struggling to maintain output as they weather a precipitous slump in the global dairy market and grapple with rising feed costs stemming from yearslong drought. Their travails are prompting at least one large milk processor—California Dairies Inc., a cooperative with nearly $5 billion in annual sales—to limit investments in milk-handling capacity. In California, “I think we have seen as high as the milk production is going to get,” said Eric Erba, chief strategy officer at California Dairies, which says it produces about 9% of the nation’s raw milk. Milk output in the Golden State slumped 3% over the first eight months of this year from a year earlier, while overall U.S. output climbed 1.5%, according to federal data. California dairy farmers’ struggles could extend an industry shake-up.  Dairy farmers and industry observers say the rising burden of land costs, environmental permitting and scarce water is making California less attractive than other states. In traditional dairy states such as Wisconsin, New York and Michigan, all with ample access to water, production has increased over the past five years. New York’s average milk production has climbed 9.9% to 1.16 billion pounds a month since 2010, according to government data.

    Ag prices in downward trend, says UN, doubting revival chances: Crop market behaviour signals that prices have reverted to a long-term downward trend seen before the 2008 spike, United Nations researchers said, casting doubt on the prospects of a rebound in values for now. Food prices have returned to a pattern of downward movement and lower volatility typical of markets when in a long-term decline, the UN's food agency, the Food and Agriculture Organisation, said. "The takeaway message here is that statistically, the most recent shifts in behaviour foresee downward price momentum with lower volatility," the FAO said. The agency said that "abundant stocks, lower prices and lower volatility characterise the global food markets today", also highlighting the role of the depressed oil markets and a stronger dollar in undermining food values. "That agricultural commodity prices are interconnected with energy prices has long been established," the organisation said in a report, noting the use of many crops in making biofuels, and the increased mechanisation which has increased farm sector's fuel dependency. Meanwhile, global commodity prices "have typically had an inverse relationship with the value of the dollar", in being dollar denominated, such that a rise in the currency lowering their affordability.

    Third of cactuses at risk for extinction - Almost a third of cactuses are at risk for extinction because of threats including illegal trade and a spread of farms in arid areas, making the spiny plants among the most vulnerable species, scientists said Monday. "We were surprised to find that such a high proportion of cactus species are threatened ... and by the diversity of threats," lead author Barbara Goettsch told Reuters of the findings by an international team of researchers. The study said 31% of 1,478 types of cactuses assessed were at risk of extinction — a higher rate than the 25% of mammals or 12% of birds that are rated as vulnerable to dying out because of human pressures. Cactuses range from 0.4 inches across to 62 feet high, and many are prized by collectors for brightly colored flowers that bloom unpredictably. An international treaty bans trade in many rare cactuses. Inger Andersen, director general of the International Union for Conservation of Nature, which oversees a Red List of threatened species, called the findings disturbing. "They confirm that the scale of the illegal wildlife trade, including trade in plants, is much greater than we had previously thought," she said. . The study said that cattle ranching in arid lands, a spread of other farms and of roads and urban areas were also threatening cactus habitats in the Americas, from Chile and Uruguay to Mexico and the US.

    Big Trees First to Die in Severe Droughts - Scientific American: National forests whose names come from their large, majestic trees—such as Redwood National Park and Sequoia National Park in California—may need to rethink their brands as droughts increase in frequency and severity in many regions around the world due to climate change. New research published this week in the journal Nature Plants finds it’s the large trees that suffer most and are first to die. The four-person team of researchers conducted a global analysis of how forests respond to drought using already published and vetted inventory data from 40 drought events in 38 forests across the globe. In every case, large trees showed a decrease in how fast they grew, and drought-related tree death increased with tree size in 65 percent of the droughts examined. “It shows us that this is really a pretty general trend,” said Kristina Anderson-Teixeira, a staff scientist with the Smithsonian Conservation Biology Institute and the Smithsonian Tropical Research Institute and senior author of the paper. “It tells us that biophysical principles make drought tougher on large trees.” Physics and gravity are factors large trees have to deal with. Imagine trying to suck up water from a straw that is 5 feet tall versus a few inches.

    Amazon carbon sink is in decline as trees die off faster -- Tropical forests are being exposed to unprecedented environmental change, with huge knock-on effects. In the past decade, the carbon absorbed annually by the Amazon rain forest has declined by almost a third. At 6m km2, the Amazon forest covers an area 25 times that of the UK, and spans large parts of nine countries. The region contains a fifth of all species on earth, including more than 15,000 types of tree. Its 300 billion trees store 20% of all the carbon in the Earth’s biomass, and each year they actively cycle 18 billion tonnes of carbon, twice as much as is emitted by all the fossil fuels burnt in the world. The Amazon Basin is also a hydrological powerhouse. Water vapour from the forest nurtures agriculture to the south, including the biofuel crops which power many of Brazil’s cars and the soybeans which feed increasing numbers of people (and cows) across the planet. What happens to the Amazon thus matters to the world. As we describe in research published in Nature, the biomass dynamics of apparently intact forests of the Amazon have been changing for decades now with important consequences.Is climate changing the Amazon?  There are two competing narratives of how tropical forests should be responding to global changes. On one hand, there is the theoretical prospect (and some experimental evidence) that more carbon dioxide will be “good” for plants.  Arrayed against this has been an opposing expectation, based on the physical climate impacts of the very same increase in atmospheric CO2. As the tropics warm further, respiration by plants and soil microbes should increase faster than photosynthesis, meaning more carbon is pumped into the air than is captured in the “sink.” More extreme seasons will also mean more droughts, slowing growth and sometimes even killing trees.

    Honeybees Face Global Threat: If They Die, So Do We -- By pollinating crops around the world, honeybees feed more than 7 billion people today. Most of the food that we eat (and all of our cotton) is produced in part by the hard work of bees. In her 2011 book The Beekeeper’s Lament, journalist Hannah Nordhaus described honeybees as “the glue that holds our agricultural system together.” The importance of bees isn’t limited to humans, of course. By promoting the reproduction of angiosperms or flowering plants, bees are also central to survival of countless other animal species that rely on those plants and their fruits to survive. In fact, Earth’s entire planetary ecology has been shaped by bees. Since they first evolved from wasps some 100 million years ago, bees have driven the evolution of plant life. Sadly, in recent times, we have not treated our bee friends well. The use of pesticides—neonicotinoids in particular, which are commonly used on corn, soybean, canola and cereal, as well as many fruits and vegetables—have killed an estimated 250 million bees in a just a few years. Applied to plants, neonics travel through the plant’s vascular system and appear in roots, pollen and nectar that then are transferred to bees and their colonies, as well as other untargeted and vulnerable species, from earthworms to birds and even bats.

    Frogs Are on the Verge of Mass Extinction, Scientists Say -- Things aren’t looking good for reptiles and amphibians lately, especially frogs. John Alroy at Macquarie University in Australia published a study last month examining recent extinctions for the two groups of animals, and the results are alarming. “About 200 frog extinctions have occurred and hundreds more [frog species] will be lost over the next century, so we are on pace to create a mass extinction,” according to the study. “It is hard to know how many species have gone extinct so far because it is difficult to prove that something not seen recently is really gone forever,” says the paper’s summary. Alroy was inspired to conduct the study because he couldn’t find any research on the total number of species that have gone extinct. But by using what he calls a “new, highly conservative statistical method,” he was able to infer the number of extinct amphibian and reptile species across the world. Alroy chose to study reptiles and amphibians partly because “there was a large amount of global data available for these groups, and partly because of a growing concern in the scientific community over the health of frog populations, which are thought to be in a state of decline in many places,” says the Washington Post. Alroy also looked at salamanders, snakes and lizards, but “he found that frogs seemed to be the most vulnerable to extinction—the results suggested that more than 3 percent of all frog species have disappeared, largely since the 1970s,” according to the Washington Post. The findings are especially alarming because the research method known as a Bayesian approach is “highly conservative,” meaning that the estimated number of past and future frog extinctions could, in fact, be even higher.

    Massive Coral Bleaching Event Is Sweeping Across The World’s Oceans  --For the third time in recorded history, a massive coral bleaching event is unfolding throughout the world’s oceans, stretching from Hawaii to the Indian Ocean. A group of ocean scientists from the National Oceanic and Atmospheric Administration (NOAA), XL Catlin Seaview Survey, the University of Queensland, and Reef Check, confirmed this bleaching event is being brought on by a combination of a strong El Niño pattern, a warm water mass in the Pacific called “the Blob,” and increasingly warming ocean temperatures brought on by climate change. This potentially lethal mixture of elements is expected to impact about 38 percent of the world’s coral reefs by the end of this year and kill over 4,633 square miles (12,000 square kilometers) of reefs. NOAA predicts that by the end of 2015, almost 95 percent of U.S. coral reefs will have been exposed to ocean conditions that can cause corals to bleach.  “This is already an unusually long time” for a coral bleaching event to be going on, said Mark Eakin, NOAA’s Coral Reef Watch coordinator. “And El Niño is expected to continue well in to next year, so it is expected to that this will start all over again in 2016 and may get worse.”

    2015: Still No Let Up in Ocean Warming:  Ocean warming has made up 93% of global warming in the last 5 decades (IPCC AR5 Chapter 3) and the first six months of ocean heat data for 2015 are now available from the National Centers for Environmental Information (NCEI). Armed with the knowledge that increasing industrial greenhouse gas emissions trap ever more heat in the atmosphere and ocean, it will come as no surprise whatsoever to learn that the strong ocean heating of recent years has continued into 2015.  In contrast to the Northern Hemisphere, the surface area of the Southern Hemisphere is dominated by the ocean and it's therefore the end of Southern Hemisphere summer, when that hemisphere is closest to the sun, that ocean heat uptake is strongest. Loeb et al (2012), however, demonstrated that outgoing longwave radiation (heat loss) from the Earth increases during El Niño, so it will be interesting to see how things pan out over the next 6-8 months given that we have a powerful El Niño still developing in the Pacific Ocean. We may see a temporary reduction in the rate of ocean warming as the El Niño discharges a greater-than-normal amount of tropical ocean heat to the atmosphere. Inevitably, much of this surplus heat will be radiated out to space. Also of interest, and directly connected with increasing ocean heat content due to the expansion of seawater as it warms, is global sea level rise - see Figure 3. The large year-to-year fluctuations shown in the graph are caused by short-lived water mass exchanges between the land and ocean. With La Niña anomalous precipitation falls over land, therefore lowering global sea level, and with El Niño this precipitation is concentrated over the oceans, raising sea level as the continental basins dry out and water drains back into the sea.

    'Stay in Your House': Officials Warn Residents During Unprecedented '1,000-Year' Floods - NBC News: Unprecedented and deadly rainfall turned South Carolina roads into rivers and parking lots into lakes on Sunday, prompting officials to warn residents not to leave their homes for any reason — even on foot. "We haven't seen this level of rain in the Low Country in 1,000 years," More than 250 roads across the state were closed due to the storm that dumped over two feet of rain in some areas, according to the state's department of transportation, which reported it had responded to nearly 1,200 distress calls and more than 300 collisions. One DOT employee was unaccounted for, said South Carolina Transportation Secretary Christy Hall Sunday, without offering additional details.   A record-breaking 8.7 inches of rain fell during a 24-hour period over the weekend in Columbia, South Carolina, the National Weather Service reported.   Haley advised people to stay off the roads not only to stay safe but to keep streets clear for rescue crews, as well as utility trucks working to restore power to 25,000 customers. Haley and the South Carolina Department of Public Safety said people shouldn't even leave their homes on foot.

    Death Toll Rises As Climate-Intensified South Carolina Rains Flow Back To Sea -- Hurricane Joaquin missed making landfall on the U.S. mainland, but extreme rainfall caused a “thousand-year” flooding event in South Carolina. However it’s the state’s senior senator, Lindsey Graham (R-SC), who has found himself in trouble after being accused of hypocrisy on disaster relief funding. Sen. Graham asked for federal aid — “whatever it costs” — to help his constituents cope with the historic flooding, yet in early 2013 was one of 36 Republican senators to vote against the long-delayed Hurricane Sandy relief package. When Wolf Blitzer asked him about it, he said he did not remember why he voted against it — though he later said it was because the package was not focused enough on those affected by the storm. On two prior occasions, Graham had asked for federal aid for South Carolinians impacted by extreme weather. Oddly, Sen. Graham has used the example of the lawlessness that followed Hurricane Katrina as a reason to oppose an assault weapons ban.  Graham was not alone in opposing Sandy relief — fellow Sen. Tim Scott (R-SC) also voted no, as did a majority of the House delegation: Republican Reps. Joe Wilson, Jeff Duncan, Trey Gowdy, and Mick Mulvaney. On Monday, Sen. Scott was in Columbia, surveying flood damage. “Certainly there will be FEMA money,” he said.

    African crops, economies at risk as El Nino threatens to scorch and soak: - Poor rains are forecast for South Africa's maize belt because of the El Nino weather pattern, expected to bring more drought to already-parched southern regions in Africa and potential flooding in the east. This will add misery to the world's poorest continent, already reeling from a collapse in commodity prices triggered by China's slowing economic growth. Aid agency Oxfam warned this week that 10 million people, mostly in Africa, face hunger because of droughts and unusual rainfall patterns caused by a "super" El Nino. Also called "Little Boy" or "Christ Child" - Peruvian fishermen first noted it around Christmas - El Nino is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years. The last "super" El Nino occurred in 1997-1998. While the weather phenomenon heralds drought in some parts of the globe and flooding in others, this one follows record temperatures linked to global warming.Drought cut the staple maize crop in South Africa, the region's biggest producer, by about a third this past season. It is likely to continue into the southern hemisphere summer as El Nino strengthens. According to Thomson Reuters data, futures for the white maize contract used for human consumption - the staple of the poor - hit record highs over 3,000 rand ($215) a tonne in July and are within striking distance of that.

    Indonesia On Fire -- The number of Americans who occasionally think about Indonesia is only slightly higher than the number of Americans who can find it on a world map, but I'm asking you to think about this southeast Asian country now. Indonesia's annual fire peat-burning season is unusually severe this year. Here's what caught my eye, from Yahoo Finance (October 2, 2015).  Jakarta (AFP) - The forest fires blanketing Southeast Asia in choking haze are on track to become among the worst on record, NASA has warned, with a prolonged dry season hampering efforts to curb a crisis that has persisted for nearly two decades...  The fires smolder beneath the surface of carbon-rich peatlands, feeding off vast quantities of fuel, making them extremely difficult to curb as millions of tonnes of greenhouse gas emissions are released into the atmosphere.  The NASA-linked Global Fire Emissions Database has estimated around 600 million tonnes of greenhouse gases have been released as a result of this year's fires - roughly equivalent to Germany's entire annual output. Impressive! Kinda gives us a new perspective on all those solar panels in Germany, doesn't it?

    The Fires In Indonesia Are A Health And Climate Nightmare  -- Indonesia is in the midst of the worst spate of forest fires in nearly two decades, sending choking smoke across Southeast Asia, releasing tons of carbon, and destroying thousands of acres of peat forest, one of the world’s most effective carbon sinks. The president of the island nation called for assistance this week from Singapore, Malaysia, Japan, and Russia to help fight the fires, which have been smoldering for months now. Indonesia had previously rejected an offer of help from neighboring Singapore, which has been suffering weeks of crippling pollution carried on trade winds. Malaysia, too, has been hit with the smoke from fires that were likely started by palm oil and wood pulp producers, who use slash and burn techniques to clear land on Sumatra and Borneo.  Singapore closed schools recently due to the smoke and has a standing alert on its environmental agency page. Exposure to smoke is associated with short- and long-term health impacts, including higher rates of asthma and asthma attacks and declines in cardiovascular health.  Moreover, the fires burning in Indonesia are a climatologist’s nightmare — a perfect confluence of everything we should not be doing. Not only do forest fires release carbon and other greenhouse gases, they also reduce the amount of carbon absorbed by the environment. A recent study from the University of California, Berkeley found that carbon emissions from fires in that state had been drastically underestimated. Greenpeace estimates that the Indonesia fires will emit more carbon this year than the entire United Kingdom.  Land use, including peat and forest fires, accounts for 63 percent of Indonesia’s emissions. Indonesia is the sixth-largest emitter in the world, due almost entirely to land use.  Indonesia has a long history of slash-and-burn agriculture. While technically illegal, the practice continues in the largely rural island nation, and experts have called for international intervention.

    The Papal Encyclical and Climate Change Policy - Robert Stavins  - On June 18, 2015, Coral Davenport, writing in the New York Times, was the first in the press to note that the encyclical on the environment, Laudato Si’, released by Pope Francis that same day, with tremendous praise from diverse quarters, “is as much an indictment of the global economic order as it is an argument for the world to confront climate change.” The Times article included the following: “…environmental economists criticized the encyclical’s condemnation of carbon trading, seeing it as part of a radical critique of market economies. ‘I respect what the pope says about the need for action, but this is out of step with the thinking and the work of informed policy analysts around the world, who recognize that we can do more, faster, and better with the use of market-based policy instruments — carbon taxes and/or cap-and-trade systems,’ Robert N. Stavins, the director of the environmental economics program at Harvard, said in an email. The approach by the pope, an Argentine who is the first pontiff from the developing world, is similar to that of a ‘small set of socialist Latin American countries that are opposed to the world economic order, fearful of free markets, and have been utterly dismissive and uncooperative in the international climate negotiations, Dr. Stavins said.” Those are accurate quotes from an email I sent to Coral Davenport in response to her inquiry the same day. The reason why I sent an email, rather than calling was that I was, at that moment, approximately 37,000 feet over the Pacific Ocean, flying from Seoul (where I had spoken at the third annual Future Energy Forum)As I sat in the departure lounge at Chicago’s O’Hare International, I began to see on my iPhone a small flood of hostile commentary from the blogosphere, indicating that I had unfairly “attacked the Pope.”

    Climate scientist requesting federal investigation feels heat from House Republicans - A scientist who helped organize a call for a federal investigation of the fossil fuel industry—for allegedly orchestrating a cover-up of climate change dangers—has himself become the target of a congressional probe. Last week, Representative Lamar Smith (R–TX), the chairman of the science panel of the House of Representatives, announced plans to investigate a nonprofit research group led by climate scientist Jagadish Shukla of George Mason University in Fairfax, Virginia. He is the lead signer of a letter to White House officials that urges the use of an antiracketeering law to crack down on energy firms that have funded efforts to raise doubts about climate science. In a 1 October letter, Smith asked Shukla, who is director of the independent Institute of Global Environment and Society (IGES) in Rockville, Maryland, to preserve all of the “email, electronic documents, and data” that the institute has created since 2009. Smith’s panel soon may be asking for those documents, the letter suggests. The flap has its origins in calls from some climate advocates for the federal government to investigate industry-funded groups that have challenged climate science.  Senator Sheldon Whitehouse (D–RI) discussed the idea this past May in an opinion piece for The Washington Post. He noted that federal prosecutors had used the federal Racketeer Influenced and Corrupt Organizations Act (RICO)—originally developed to combat organized crime and corrupt unions—to sue the tobacco industry for covering up the health effects of smoking. And he suggested they could do the same to investigate fossil fuel firms that he charged were “funding a massive and sophisticated campaign to mislead the American people about the environmental harm caused by carbon pollution.”

    Liberal Climate Change Denial (“the Anthropocene”) -- Climate change denial at NPR. The correct definition of climate change denial is either denying climate change is happening at all or that industrial activity is causing it, or to insist that the answer to it is anything other than: Reduce emissions, stop destroying carbon sinks, start rebuilding carbon sinks. The liberal variety is usually of this latter sort, though there’s increasing overlap. The scam here is to use the faddish propaganda meme of “the Anthropocene” to say, in effect, that nuclear war is the same thing as a chimpanzee throwing a rock. The real goal of the “Anthropocene” notion, as I predicted the first time I heard of it, is to absolve industrialization and capitalism of blame for environmental destruction. The implication is that civilization can go ahead with business as usual. The convergence of liberals and conservatives to the point of being indistinguishable continues. Today the only difference between a liberal “believer” in climate change and a conservative “denier” is those empty words. Both agree that under no circumstances must we reduce emissions, stop destroying carbon sinks, and start rebuilding carbon sinks, which are the only three things to be done if you actually want to prevent the worst. Both also agree that certain highly subsidized and profitable technologies like GMOs (via “climate smart agriculture”) and geoengineering should be deployed, even though neither could possibly do anything but make climate change worse while wreaking every other kind of environmental carnage.

    First Draft of New Universal Climate Change Agreement Presented to World Governments -- Work towards a new universal climate change agreement was strengthened today through the issuance of the first comprehensive draft of the agreement. The co-chairs of the Ad Hoc Working Group on the Durban Platform (ADP), the body tasked with negotiating the agreement, prepared the draft, which contains the basis for negotiation of the draft Paris climate package. In addition to the agreement, the package contains a draft of the decision that will operationalize the agreement from 2020 and a draft decision on pre-2020 ambition. The documents can be found here. The draft of the agreement is a concise basis for negotiations for the next negotiating session from Oct. 19-23 in Bonn, Germany. Co-Chairs Ahmed Djoghalf of Algeria and Daniel Reifsnyder of the U.S. prepared the draft in response to a request from countries to have a better basis from which to negotiate. Governments are committed to reaching the new agreement at the UN Climate Change Conference to be held in Paris in December this year.

    Why Isn’t Big Ag’s Huge Contribution to Climate Change on the Agenda at COP21? - Tackling carbon emissions from agriculture from farming isn’t even on the table at the UN climate talks in December. It ought to be and it’s big agribusiness that’s at the heart of the problem. In 2006 a report from the UN’s Food and Agricultural Organization (FAO) threw the climate change effects of farming into the spotlight. It claimed that the meat and dairy industries are responsible for more greenhouse gases than the whole transport sector.The majority of ensuing studies have only considered emissions released directly through farming. Yet when supporting industries such as transport, packaging and retail are included, agriculture is responsible for around half of total human-made emissions, not to mention other ecological degradation such as water scarcity and biodiversity loss. Farming itself is also a victim of climate change, as shifting temperatures adversely affect farming conditions and crop yields, particularly in the global south.Despite the severity of the situation and although food security is stated as a core objective of the UN climate negotiations, agriculture is still off the agenda at COP21 in Paris this December. The climate talks could be a prime moment to tackle the climate impact of agriculture, but doing so requires addressing the real issues at stake and powers at play.

    India's pledge clears a significant hurdle towards a climate deal in Paris -- With India’s plan for curbing carbon emissions now in, most of the major developing economies have responded to the UN’s requests for the commitments on climate change that will form the keystone of an agreement to be signed in Paris this December. Those commitments – to make absolute cuts in future emissions levels, in the case of developed countries; to curb future emissions growth, in the case of less industrialised nations – will not add up to the cuts that scientists say are needed to avoid more than 2C of warming above pre-industrial levels. This is significant, because the 2C threshold is regarded as the limit of safety, beyond which the changes in the climate are likely to become catastrophic and irreversible. On current commitments, warming is still likely to exceed 2 C or even 3C , with potentially severe consequences in the form of an increase in extreme weather, heatwaves, droughts, floods and rising sea levels, that could wreak havoc across the globe. But this is not the end of the story. In Paris, governments are expected to sign up to a new global agreement on the climate that would come into effect from 2020, when current national commitments on emissions expire. But while world governments debate their role in avoiding dangerous warming, other commitments are also likely to be significant.

    Climate Change in the Himalayas: Over the last year, Navdanya / Research Foundation teams have worked with local communities in Uttarakhand and Ladakh to assess the impact of climate change on their ecosystems and economies and to evolve participatory plans for climate change adaptation. From 6th to 13th of September 2009 we also undertook a climate yatra from Dehradun in Uttarakhand to Leh in Ladakh,followed by the national consultation on Climate change at New Delhi on 17th November 2009. The project findings are compiled as "Climate Change at Third Pole". The melting of snow in the Arctic and Antarctic due to global warming and climate change is reported frequently. However, the melting of the Himalayan glaciers goes largely unreported, even though more people are impacted. Presently 10% of the earth’s landmass is covered with snow, with 84.16% of the Antarctic, 13.9% in Greenland, 0.77% in the Himalaya, 0.51% in North America, 0.37% in Africa, 0.15% in South America, 0.06% in Europe. Outside the polar region, Himalaya has the maximum concentration of glaciers. 9.04% of the Himalaya is covered with glaciers, with 30-40% additional area being covered with snow. The glaciers of the Himalaya are the Third Pole. They feed the giant rivers of Asia, and support half of humanity.

    Court In Pakistan Rules The Country Must Protect Its Citizens From Climate Change  -- The high court of justice in Pakistan’s capital city, Lahore, recently ruled that the country must do more to protect its citizens from climate change, ordering the creation of a “climate council” to ensure that Pakistan’s climate commitments are followed. That makes Pakistan the second country in a matter of months to be compelled by a court to protect its citizens from the dangers of a warming climate. The case was brought before the court by Asghar Leghari, a farmer who claimed that his “fundamental rights” had been violated by Pakistan’s lack of action on climate change. The country has suffered a series of extreme weather events in recent years, including three consecutive years of deadly floods and a heat wave this summer that claimed more than 800 lives. In a country where half of the population relies on agriculture for survival, extreme weather events, coupled with a shorter and more intense monsoon season, can quickly turn into large-scale disasters. According to the United Nations, Pakistan is one of countries most vulnerable to climate change. In the ruling, judge Judge Syed Mansoor Ali Shah said that, “for Pakistan, climate change is no longer a distant threat — we are already feeling and experiencing its impacts across the country and the region.” The court ruled that the country had not taken sufficient steps to enact its national climate change policy, approved by the government in 2012.

    Xcel Energy plans more wind, solar power and less coal -- and sooner -- in Minnesota | Xcel Energy said Friday that it will accelerate cuts in its Minnesota-region greenhouse gas emissions by increasing wind and solar power investment in this decade and replacing two big coal-burning generators with a natural gas-fired unit in the mid-2020s in Becker, Minn. The plan, submitted to state regulators who could approve or reject it, would mean a 60 percent cut in the electric utility’s Upper Midwest carbon-dioxide emissions by 2030, compared with 2005 levels. Until now, Xcel had aimed for a 40 percent greenhouse gas reduction over that period. Two of the three coal burners at the Sherco power plant in Becker would be retired in 2023 and 2026 under the plan announced Friday. That plant, Xcel’s largest in the region, is also the state’s biggest emitter of greenhouse gases. The two units, built in the 1970s, would be replaced by a new power plant fueled by natural gas, which emits half the carbon dioxide of coal, Xcel said. “This is really a business decision about what we think is right for the future,” said Chris Clark, president of Xcel’s Minnesota regional operations, in an interview. “For us the time to move is now. We think we benefit from certainty. It is the right time to focus on the future. I think it is what our customers want us to do.”

    The Clean-Energy Moonshot - Jeffrey D. Sachs -- Since a group of policy leaders from the United Kingdom initiated the Global Apollo Programme to Combat Climate Change earlier this year, I and many others have enthusiastically signed on. The program, named after the NASA moon mission, is built on the idea of “directed technological change.” In other words, through a conscious effort, backed by public funds, we can steer the development of the advanced technologies needed to ensure humanity’s safety and wellbeing. At the top of the list is clean energy, which will enable us to head off the global warming caused by the combustion of massive amounts of coal, oil, and gas worldwide.  The Deep Decarbonization Pathways Project (DDPP) has demonstrated that a low-carbon future is within reach, with huge benefits at a very modest cost. In the United States, for example, cutting emissions by 80% by 2050 is not only feasible; it would require added outlays of only around 1% of GDP per year. And the benefits – including a safer climate, smarter infrastructure, better vehicles, and cleaner air – would be massive. Pathways to a low-carbon future focus on three main actions: improving energy efficiency, producing electricity from low-carbon energy sources (such as solar and wind energy), and switching from petroleum to low-carbon energy for powering vehicles (such as electric or fuel-cell vehicles) and heating buildings. These are clear and achievable goals, and the public sector should play a major role in advancing them. Politicians need to end subsidies for coal, oil, and gas, and start taxing emissions from their use. Moreover, they must meet the need for new power lines to carry low-carbon solar, wind, geothermal, and hydroelectric power from remote areas (and offshore platforms) to population centers.

    Utilities, Koch Brothers, Energy Companies, 1; Birds, US Wildlife, Sierra Club, 0 -- I'm not going to get into the whole "intent" issue -- this is a really, really slippery slope. For example, I doubt most vehicular deaths due to drunken driving were caused by a driver intending to kill someone. I'm also not going to get into the fact that it appears different federal courts have different "feelings" about this issue. This is not an issue the Supreme Court will ever take up. All I'm going to do is post the story for the archives, and suggest that this was a huge win for utilities, the Koch Brothers, the oil and gas industry, and a huge loss for the US FIsh and Wildlife Service, for Ducks Unlimited, for the Sierra Club. The AP is reporting that wind turbines have carte blanche when it comes to slicing and dicing migratory birds:  Companies accused of causing migratory bird deaths may be harder to successfully prosecute after a federal appeals court recently ruled that a century-old wildlife protection law only applies if the killing is intentional.  The decision by the 5th U.S. Circuit Court of Appeals runs contrary to two other federal courts' interpretations of the 1918 Migratory Bird Treaty Act and could save companies that operate wind farms, power transmission lines and other methods of energy production millions in research — at the risk of more bird deaths. "If you have a dead migratory bird, you have a violation. Doesn't matter how, why or when; that's historically been the government's interpretation," said Barry Hartman of K&L Gates, a Washington law firm that represents Duke Energy Corp. "And what the court is saying is that interpretation doesn't extend to unintentional takes." Te U.S. Fish and Wildlife Service has maintained that no intent is required to violate the law, which makes it illegal to "pursue, hunt, take, capture" or "kill" more than 1,000 bird species. But companies have long claimed they should not be held responsible for actions that incidentally cause deaths — up to about a half-million annually by wind turbines alone, the federal agency says.

    U.S. Climate Goals: A Reckoning - naked capitalism - Yves here. This short post describes the danger that the US lifestyle poses to the world. And what I find disconcerting is that many Americans who know better refuse to make changes, even if it were made easier for them to do so (like use bicycles and scooters instead of cars when possible). For instance, one friend stated, “What no one says is we’d all need to live in Dutch-sized apartments with no dishwashers. I’m not willing to do that.” Originally published at Triple Crisis We are sending you a link to our just released report, Capitan America in which we take a close and careful look at the U.S. government’s action plan on climate change.  There is also a link to our presentation on our key findings.  We write this report knowing that the threat of climate change is real and urgent. We know this because we in South Asia are already seeing horrific impacts of changing weather, hitting the most poorest and most vulnerable. We strongly believe the world needs an effective and ambitious climate change deal. In this context we ask if the U.S. climate action plan is ambitious, equitable or sufficient? We ask this because it is said that even if U.S. Intended Nationally Determined Contribution (INDC) is not ambitious, it signals a change in the country’s position. And that it will build momentum in the future. The question is if the U.S. is on track to make real reductions in greenhouse gas emissions? Our assessment presents some inconvenient truths, which have worrying implications for our common future. The U.S. climate plan is nothing more than business-as-usual; emission reductions will be marginal at best. What is even more worrying is that the U.S. plan is largely based on improvement in efficiency. This is not enough. Our data analysis shows clearly that gains made by improvements in efficiency are being lost because of increased consumption—sector after sector.

    Marco Rubio Says New Regs Wrong Way to Fix Climate Change - Florida Sen. Marco Rubio defended his position that climate change should be addressed by market-based solutions rather than blanket legislation or global accords, in response to voters here who prodded him on the issue. During a town hall meeting in this liberal-leaning area of New Hampshire Wednesday, the Republican presidential candidate was asked by three separate attendees to clarify his position on climate change and how he would address rising global temperatures. The Republican acknowledged that “there is sea level rise” in his native Florida, and that the flooding should be addressed with preventative measures in the short term. But Mr. Rubio said that market-based approaches should be employed to tackling climate-based problems in the long-term, and that he didn’t believe in numerous pieces of legislation that sought to regulate the matter. The U.S. should embrace energy efficiency because it will help to spur economic investment, not just address the environment, Mr. Rubio said. “I believe American innovation will solve these problems,” Mr. Rubio said. “What I’m not for are unilateral American policies or global policies for that matter that make it harder for our country to grow economically.” Sounding a populist note, Mr. Rubio said that “billionaires” wouldn’t notice if their utility rates go up in response to imposed energy regulations, while a single mother in Tampa would.Mr. Rubio, who is gaining new momentum in the crowded Republican field, has said he believes in climate change for some time, but has questioned the capacity of scientists to address it.

    Enemies of the Sun, by Paul Krugman - Does anyone remember the Cheney energy task force? Early in the George W. Bush administration, Vice President Dick Cheney released a report that was widely derided as a document written by and for Big Energy — because it was... But here’s the thing: by the standards of today’s Republican Party, the Cheney report was enlightened, even left-leaning. One whole chapter was devoted to conservation, another to renewable energy. By contrast, recent speeches by Jeb Bush and Marco Rubio — still the most likely Republican presidential nominees — barely address either topic. When it comes to energy policy, the G.O.P. has become fossilized. That is, it’s fossil fuels, and only fossil fuels, all the way. And that’s a remarkable development, because ... we’re ... living in an era of spectacular progress in wind and solar energy. Why has the right become so hostile to technologies that look more and more like the wave of the future? ... Part of the answer is surely that promotion of renewable energy is linked in many people’s minds with attempts to limit climate change — and the association with climate science evokes visceral hostility on the right. Beyond that,... follow the money. We used to say that the G.O.P. was the party of Big Energy, but these days it would be more accurate to say that it’s the party of Old Energy. In the 2014 election cycle the oil and gas industry gave 87 percent of its political contributions to Republicans; for coal mining the figure was 96, that’s right, 96 percent. Meanwhile, alternative energy went 56 percent for Democrats.

    The Hydropower Methane Bomb No One Wants to Talk About --  The principal environmental menace of hydroelectric dams is caused by organic material—vegetation, sediment and soil—that flows from rivers into reservoirs and decomposes, emitting methane and carbon dioxide into the water and the air throughout the generation cycle. Studies indicate that in tropical environments and high-sediment areas, where organic material is highest, dams can release more greenhouse gas than coal-fired power plants. Philip Fearnside, a research professor at the National Institute for Research in the Amazon, in Manaus, Brazil, and one of the most cited scientists on the subject of climate change, has called these dams “methane factories.” And, according to Brazil’s National Institute of Space Research, dams are “the largest single anthropogenic source of methane, being responsible for 23 percent of all methane emissions due to human activities.” Even that number 23 may be low; the emissions can be huge even in temperate climates. A 2014 article in Climate Central offered a disturbing comparison: “Imagine nearly 6,000 dairy cows doing what cows do, belching and being flatulent for a full year. That’s how much methane was emitted from one Ohio reservoir in 2012.  [Yet] reservoirs and hydropower are often thought of as climate-friendly because they don’t burn fossil fuels to produce electricity.” Another 2014 article in the same publication pointed out that, because very few dams and reservoirs are being studied, their methane emissions are mostly unaccounted for in climate-change analyses across the planet.

    Editorial: Don't cry for them (oil refineries) - Oil refiners have their britches in a twist over new regulations designed to curb their toxic air emissions. Crocodile tears. The oil industry has reaped record profits in recent years, while for decades refineries have foisted polluting toxic substances on the neighborhoods where some of America’s poorest citizens live. The U.S. Environmental Protection Agency is calling for refiners to install air monitors along their boundaries to measure for benzene and other dangerous pollutants that might leave the property, and to take corrective action if necessary. The goal is to reduce pollution for more than 6 million Americans who live within three miles of a refinery. Refiners are crying foul, saying the new requirements won’t substantially improve health but will cost money and jobs. But it’s hard to justify failing to make the effort toward cleaner air in these neighborhoods. Benzene, tuolene and xylene are known carcinogens. Emissions from refineries cause respiratory ailments, raise cancer risk and add to the smog that contributes to global climate change. Benefiting from the rules changes will be the mostly African American and Latino communities near the refineries. Such minorities are twice as likely than the general population to live close to refineries, the EPA said. The nation has 140 petroleum refineries, mostly in Texas, Louisiana, Mississippi and Alabama; a few are around major cities, including four in Philadelphia.

    Nearly a million illegal tons of smog resulted from VW's diesel cars -- When you add up all the additional smog from 11 million diesel Volkswagens that cheated emissions tests over the past six years, you get 918,720 tons of extra nitrogen oxide (NOx) pollution.  That's what used-car aggregation site Autolist came up with in an analysis, claiming VW's deceit has set air quality back for years.  The additional pollution, coming from Volkswagens and Audis that used a "defeat device" to thwart emissions tests, is the equivalent of adding another 437 million cars to the world's roadways; that's nearly twice the 256 million cars in the U.S. today.  Alex Klein, vice president of data science at Autolist, said he decided to crunch the exhaust numbers after reading one of the many articles on how VW had rigged software in its vehicles to make them appear to have low emissions. He wanted to find out how much extra pollution the vehicles created. According to the U.S. Environmental Protection Agency (EPA), the affected Volkswagens were emitting up to 40 times the legal limit of nitrogen oxide (NOx).

    Volkswagen Recall Could Screw Their Customers -- The CEO of Volkswagen AG announced Wednesday that the company will be launching a recall of their diesel vehicles in January, following the emission scandal that affected up to 11 million of their cars. Unfortunately for VW owners, a recall will mean downward revisions in fuel economy and resale value for their vehicles.  It’s unclear how the company intends to modify their diesel vehicles to make them compliant with Environmental Protection Agency regulations. The recall is set for 2016 once German authorities approve the company’s repair plans, according to The Wall Street Journal. Volkswagen’s U.S. CEO Michael Horn confirmed Thursday to Congress that discussions on how to fix the emission problems were ongoing, but said installing a urea injection system on the affected vehicles was a real possibility. Urea injection is standard in many diesel vehicles as a way to limit emissions, however Volkswagen previously avoided the technology because of its added cost to consumers. Any changes that require new installation would be a huge blow to Volkswagen owners. “Volkswagen will not be able to comply with the EPA order to make the Affected Vehicles comply with emissions standards without substantially degrading their performance and fuel efficiency to a level below that advertised by Volkswagen,” said West Virginia Attorney General Patrick Morrisey in a complaint filed on October 2nd in the Circuit Court of Kanawha County.

    Automakers Ask Europe for Leniency in Emissions Testing -  Despite the cloud cast by the Volkswagen scandal, automakers are proposing that they be allowed a 70 percent increase in the nitrogen oxides their cars emit, unreleased documents show, as part of new European pollution tests.Under the new plan, cars in Europe would for the first time be tested on the road, using portable monitoring equipment, in addition to laboratory testing.The automakers, which include Volkswagen, General Motors, Daimler, BMW, Toyota, Renault, PSA Peugeot Citroën, Ford and Hyundai, are essentially conceding what outside groups have said for some time — that the industry cannot meet pollution regulations when cars are taken out of testing laboratories. The move is occurring as Volkswagen, the world’s largest automaker, grapples with fallout from the discovery that 11 million of its vehicles were equipped with software meant to cheat emissions tests.Tests of car emissions required in the United States and Europe take place in laboratories, where vehicles are run through drills on a dynamometer, which is the automotive equivalent of a treadmill. Automakers have found ways to cheat the tests since emissions were first regulated in the early 1970s. OPEN Graphic Suspicions about Volkswagen began when an outside testing firm did its own road tests on the company’s cars, using portable equipment. Emissions from Volkswagen cars were found to be as much as 40 times higher than what is allowed under the Clean Air Act in the United States, the Environmental Protection Agency has said.

    Carmageddon: This Is What 750 Million Chinese Hitting The Road Looks Like - If you've ever complained about your commute, or the traffic jams on your way to vacation destinations, here is some context from China... As RT reports, the carmageddon took place on the 2,273-kilometer Beijing-Hong Kong-Macau Expressway that links the cities of Beijing and Shenzhen in the Guangdong province, at the border with Hong Kong on Tuesday. According to China's National Tourism Administration, more than 750 million Chinese were on the roads between October 1 and 7.

    Vehicle fuel economy standards as global climate policy | MIT News: Over the past decade, many countries and regions seeking to reduce climate-warming carbon dioxide emissions have adopted more aggressive fuel economy standards designed to boost the efficiency of new, light-duty cars and trucks. Economists, however, generally argue that a more cost-effective way to reduce CO2 emissions is to price carbon through a system such as cap-and-trade, in which emitters across all sectors of the economy pay for each ton of CO2 they put into the atmosphere. Impacts of these two approaches have been previously compared on a national and regional level, but until now, have not been evaluated on a global scale. To fill this gap, researchers at the MIT Joint Program on the Science and Policy of Global Change have compared the worldwide economic, environmental, and energy impacts of currently planned fuel economy standards (extended to the year 2050) with those of region-specific carbon prices designed to yield identical CO2 emissions reductions. Their study, which appears in the Journal of Transport Economics and Policy, shows that such stringent fuel economy standards would cost the economy 10 percent of global gross domestic product (GDP) in 2050, compared with only 6 percent under carbon pricing. This finding reinforces economists’ contention that improving the efficiency of motor vehicles through fuel economy standards will yield significantly less CO2 emissions reduction per dollar than an economy-wide instrument that encourages such cutbacks where they are cheapest — principally in the electric power and industrial sectors. But the fuel economy standards modeled in the study did prove beneficial in terms of fuel consumption: They reduced fuel used in passenger vehicles by 47 percent relative to a no-policy scenario in 2050, versus only 6 percent under carbon pricing.

    Bangalore Is Getting Inundated by Creeping Toxic Foam -  (photos) Strange, puffy, dense clouds are descending on the streets of Bangalore, India’s technology capital. While whimsical-looking, they are actually puffs of a toxic foam inundating the city. Documentary photographer Debasish Ghosh has captured images of the clouds floating around the city and overrunning the roads. The foam comes from Bellandur, a 1.4-square-mile lake that for years has been polluted by chemical and sewage waste. Every time it rains, the lake rises and wind lifts the froth up and carries it into the city. The toxic foam gets in the way of pedestrians and cars, creating awful traffic jams. It carries a stench so strong that it burns the nose. And if it comes into contact with your skin, you’ll get an itchy rash. “It causes a nuisance,” Ghosh says. Making matters worse, the froth is flammable. In May and June, the entire lake caught fire, leaving a 56-year-old man who was standing on a bridge above the lake with a ruptured cornea. The froth has come every summer for more more than a decade now, but Ghosh says that this year is particularly bad. He’s been documenting the pollution since May, making sure to immediately clean his arms, hands, and face any time he gets too close. (see photos)

    The Tennessee Valley Authority is closing coal plants, and that’s huge.: The coal industry has entered a rough patch. Its largest customers—electricity producers—are systematically shutting down plants that use the material. Earlier this week, SNL Energy issued a report that boosted the amount of coal-fired electric capacity it estimated would be retired in 2015—from 12.3 gigawatts to 14.6 gigawatts, an increase of nearly 20 percent. The plants being retired this year represent about 5 percent of the total coal-generating capacity in the U.S. But the entity that accounts for the largest portion of this year’s retirements isn’t, say, a utility in California that’s going all in on solar. Rather, it’s the Tennessee Valley Authority—the Depression-era entity that helped bring a large chunk of Appalachia into the modern age by electrifying the region in the 1930s. Coal is essentially being abandoned by its home team. Advertisement The TVA is one of my favorite New Deal agencies—right up there with the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Social Security Administration. It’s a classic example of the government stepping in where the private sector had failed, and building useful, economically powerful infrastructure on a large scale.  The TVA began to turn away from coal in 2011, primarily because the federal government deemed that its plants were too dirty. That year, the TVA struck a deal with the Environmental Protection Agency and other government bodies to lessen the environmental impact of its power production on the air, land, and water. At the time, the TVA said it would shut down 18 of its 59 coal-fired generating units by the beginning of 2018. That would represent the retirement of about 2,700 megawatts of coal capacity.

    Greenpeace Wants to Buy Four Coal Plants to Shut Them Down: Greenpeace says it is interested in buying the coal-related assets of a major Swedish state-owned utility company in order to shut down its German power plants.Vattenfall AB has been looking to sell off its four coal-fired plants and coal mines in Germany in a push to become greener and save money because of a recent fall in electricity prices, Bloomberg reports. Greenpeace says that it will look to pay for the acquisition of the plants and mines through crowdfunding and donations.“Mostly, we would believe it would be our supporters who would be interested in such an acquisition to save the climate,” Juha Aromaa, a Greenpeace spokesperson, told Bloomberg.Bloomberg says the environmental organization is now looking to start price negotiations with Vattenfall. According to an analyst at Landesbank Baden-Wuerttemberg, Vattenfall’s plants and mines, which are also located in the Netherlands, Denmark and Finland, are valued at over $2.2 billion.“All serious bids are welcome,” Vattenfall spokeswoman Sabine Froning told Bloomberg.

    13 Photos Reveal Fukushima as Post-Apocalyptic Wasteland -- Seven years after visiting Chernobyl for the first time, photographer and filmmaker Arkadiusz Podniesiński went to Fukushima to see how the cleanup process was going and to see how it compared to Chernobyl. Podniesiński notes that the two disasters have a lot in common.  An incredibly ironic message of government propaganda: "Local nuclear energy guarantees a lively future.” Photo credit: Arkadiusz Podniesiński. Nearly all of the buildings along the coast were destroyed by the tsunami. Podniesiński had to be issued permits just to enter the area.  Inside a school that managed to stay standing a mere 1,000 feet from the ocean. The clocks are frozen at the time the tsunami struck because that's when the area lost power.  Despite the area being totally deserted the traffic lights and street lamps still work.  There are millions of sacks of contaminated soil in Fukushima. Photo credit: Arkadiusz Podniesiński     The evacuation order is still in force, so everything is in the same place as it was four years ago.  An eerie supermarket.  "Only a tragedy on this scale can produce such depressing scenes," says Podniesiński. An aerial view shows you the scope of the cleanup. Abandoned cars. Arkadiusz Podniesiński (left) and Naoto Matsumura with his animals. Matsumura is living illegally in the orange zone. Photo credit: Arkadiusz Podniesiński

    How Fukushima exclusion zone has become an overgrown wilderness - A stunning new photo project offers unprecedented insight into the wild and desolate exclusion zone surrounding the Fukushima nuclear power plant - where tonnes of contaminated soil lie untouched and overgrown forest is engulfing hundreds of abandoned vehicles and homes.The 12.5-mile exclusion zone around the nuclear plant now resembles post-apocalyptic scenes from The Walking Dead after it was instantly abandoned following the 2011 nuclear disaster.  People deserted the area after warnings of dangerous levels of radioactivity, leaving cars, classrooms and libraries to be swallowed by the overgrown wilderness in stark scenes reminiscent of those seen in the show, in which entire towns have been left in stasis after zombies overran the earth. Scroll down for video  Dozens of vehicles lie abandoned and covered in overgrown bushes along what was once a stretch of road near the power plant+26Many vehicles now lie almost completely covered by the forest, which has been left to grow wild since the Fukushima Nuclear Disaster. motorbike sits chained to a pole where it was left locked in the hours before the tsunami struck the region, triggering a reactor meltdown. After four years without maintenance, bushes and shrubs have slowly swallowed the cars left abandoned in the area+26Scenes from the evacuation zone resemble those from The Walking Dead, a post-apocalyptic drama in which zombies have taken over the earth and the lives of those killed have been left behind in stasis+26Go karts remain lined up and ready to race in an entertainment park located within the 12.5mile exclusion zone

    Fukushima Kids Suffer Thyroid Cancer Up To 50x Normal Rate, New Study Finds -- Children living near the Fukushima nuclear meltdowns have been diagnosed with thyroid cancer at a rate 20 to 50 times that of children elsewhere, according to a new study. As AP reports, most of the 370,000 children in Fukushima prefecture have been given ultrasound checkups since the meltdown and thyroid cancer is suspected or confirmed in 137 of those children. "This is more than expected and emerging faster than expected,"according to the lead author of the study, and raises doubts about the government's less fearful view. Right after the disaster, the lead doctor brought in to Fukushima, Shunichi Yamashita, repeatedly ruled out the possibility of radiation-induced illnesses. The thyroid checks were being ordered just to play it safe, according to the government. But, as AP reports, a new study says children living near the Fukushima nuclear meltdowns have been diagnosed with thyroid cancer at a rate 20 to 50 times that of children elsewhere, a difference the authors contend undermines the government's position that more cases have been discovered in the area only because of stringent monitoring... Most of the 370,000 children in Fukushima prefecture (state) have been given ultrasound checkups since the March 2011 meltdowns at the tsunami-ravaged Fukushima Dai-ichi nuclear plant. The most recent statistics, released in August, show that thyroid cancer is suspected or confirmed in 137 of those children, a number that rose by 25 from a year earlier. Elsewhere, the disease occurs in only about one or two of every million children per year by some estimates.

    St. Louis Prepares For "Catastrophic Event" As Underground Fire Nears Nuclear Waste Cache -- Beneath the surface of a St. Louis-area landfill lurk two things that should never meet: a slow-burning fire and a cache of Cold War-era nuclear waste, separated by no more than 1,200 feet. As AP reports, Government officials have quietly adopted an emergency plan in case the smoldering embers ever reach the waste, a potentially “catastrophic event” that could send up a plume of radioactive smoke over a densely populated area near the city’s main airport. Although the fire at Bridgeton Landfill has been burning since at least 2010, the plan for a worst-case scenario was developed only a year ago and never publicized until this week, when St. Louis radio station KMOX first obtained a copy. But don't panic, as officials say it is "contained"... County Executive Steve Stenger cautioned that the plan “is not an indication of any imminent danger.” “It is county government’s responsibility to protect the health, safety and well-being of all St. Louis County residents,” he said in a statement. Landfill operator Republic Services downplayed any risk. Interceptor wells — underground structures that capture below-surface gasses — and other safeguards are in place to keep the fire and the nuclear waste separate.

    Why Bernie and Hillary Must Address America’s Dying Nuke Reactors  -- America’s nuke power industry is in accelerated collapse. The few remaining construction projects in the U.S. and Europe are engineering and economic disasters. Presidential candidates Hillary Clinton and Bernie Sanders may address this in broad terms. But as a nation we must now focus on the 99 dying U.S. reactors that threaten us all every day. In terms of our national survival, this is what Sanders and Clinton really must discuss. In the biggest picture, Fukushima and Germany‘s transition to renewables have escalated the energy debate to a whole new level. What we really need now are focused, persistent campaigns to bring these rogue nukes down before they blow up. Every one of them has the power to kill millions, irradiate entire sections of the globe and bankrupt us all. Fukushima still dumps huge quantities of radioactive water into the Pacific every day. The site is out of control. The myth that U.S.-made reactors can’t explode has been buried forever. Three melted cores are still missing. Especially among young children, health impacts in the region are devastating. Two dozen General Electric clones of Fukushima Unit 1 now operate in the U.S. They all need to shut. Meanwhile the extreme success of Germany’s Solartopian Energiewende makes it clear the world can indeed run entirely on renewables. The central electric grid is no longer sustainable. All German nukes will be done by 2022. Germany’s great green community-based assault on King CONG (coal, oil, nukes and gas) is ahead of schedule and under budget. Clean energy prices are plummeting along with climate impacts.

    Do You Live Near One of the 1,300 Most Toxic Sites in America? - More than 1,300 Superfund sites are littered across the U.S. These are the places that the U.S. Environmental Protection Agency (EPA) has deemed so contaminated with hazardous waste that they need long-term response plans to deal with the clean up. You might imagine these sites to be bubbling with bright green and orange goo, but most are much more inconspicuous and their whereabouts aren’t always obvious to the public. So media artist Brooke Singer decided to do something about it. Her new website, ToxicSites, features an interactive map, detailing all existing Superfund sites and updated in real-time as the EPA adds more data. Click on one of the colored dots and you’ll get all kinds of information about the company responsible, the contaminants involved, the possible health concerns and the populations living nearby. ToxicSites is part informational and part social media since it allows people who have been affected by a Superfund site to share their stories—that’s one social platform that would definitely need a “dislike” button.

    From Ohio University student: How fracking saved my family - Drilling - Ohio:  My name is Madison Roscoe and I’m currently a freshman at Ohio University studying political science. I wouldn’t be where I am today if it hadn’t been for the Ohio oil and natural gas industry and the opportunities it brought to my family. There’s one major factor that is often ignored in discussions about hydraulic fracturing. Most of the time, the emphasis is on the environment. But what about the fact that this industry has helped to financially stabilize many families, including my own? Some people seem to think that banning fracking would only impact “Big Oil.” But it would be people like me and my family would be harmed the most from shutting down this source of economic opportunity. My father worked two full time jobs for the majority of my life. This meant that I didn’t get to see him very often. He worked during holiday celebrations, vacations, and sporting events. This was just so we could get by as a family. My mother went to college later in her life to become a nurse. That helped, but my dad continued to work a heavy schedule so he could make sure our family was financially stable. In 2011, my dad made a decision that changed our lives for the better. He enrolled at the New Castle School of Trades to get his commercial driver’s license (CDL). He took money from his 401(k) to pay for our bills and his tuition. After only six weeks, he completed the course.  In November 2011, he began his first job in the oil and natural gas industry at Keane and doubled his salary from when he worked two full time jobs. After six months, he went to work for Multi-Chem, a Halliburton owned company. This increased his pay even more.

    Oil and gas company threatens to sue speakers at Akron council meetings over fracking comments - The two retired, gray-haired men often speak during Akron City Council meetings about their favorite topic: fracking. Their comments at a recent meeting, though, landed them in hot water with an oil and gas well company whose representatives were in the audience. The company’s attorney sent letters to the men warning that they had made untrue statements, and they could be sued if they do it again. John Beaty, a retired pastor, and Steve Postma, a retired postal worker, were surprised — and somewhat frightened — when a Fed­Ex driver delivered the cease-and-desist letters to the doorsteps of their Akron homes. “When you get an oil and gas company after you, it gets your attention,” The cease-and-desist letters have caused Beaty and Postma to watch what they say, adding phrases like “I believe” and “in my opinion,” but haven’t stopped either from commenting at the meetings. In fact, both again spoke against oil and gas wells at last week’s council meeting, three days after they received the letters from Pennsylvania-based Discovery. “We’re fighting for the Constitution, for the environment and for citizens’ rights to live in a neighborhood not threatened by wells like this,” Beaty said, gesturing at the well on East Park Boulevard in Goodview Park. “We can’t stop fighting.” The comments that Beaty and Postma made — and that prompted letters from Discovery — were in reference to legislation granting Discovery lease agreements for two new wells on city-owned land. The wells will be built on the east side of 25th Street Southwest, north of U.S. 224, and at 1023 W. Waterloo Road. Council members voted 9-2 last week to approve the legislation for the new wells. In his comments, Beaty said water and fumes from a waste pond that was at one time next to the East Park Avenue well killed surrounding trees. Postma questioned whether the drilling of the well damaged a nearby water line. Both men received a letter Sept. 25 from Vorys, Sater, Seymour and Pease, a Columbus law firm for Discovery, that said their statements are untrue.

    Anti-fracking backers question accuracy of vote count in Nov. 2014 - Two supporters of a Youngstown anti-fracking charter amendment on the Nov. 3 ballot questioned the legitimacy of the results of the last time the proposal was on the ballot, losing by 15.4 percent. The accusations drew a quick response from David Betras, vice chairman of the Mahoning County Board of Elections, who said: “You just basically accused this board of elections of election fraud. I can’t help it if some rinky-dink polling company did a poll for you and the results are different. This is just ridiculous. I’m not going to let you impugn the integrity of this board and our staff. I’ve got news for you: Mitt Romney’s poll said he’d win on Election Day [in 2012] and he didn’t. I find it highly offensive you’d accuse me of a crime.”  The Community Bill of Rights amendment had its largest defeat in the November 2014 election. Youngstown voters rejected it three other times: May and November 2013, and May 2014. During Tuesday’s board meeting, Ray Beiersdorfer, a Youngstown State University geology professor, claimed there had to be something questionable about the November 2014 election results because a poll taken of voters by phone after the vote showed it won by 2.1 percent. “That is such a big discrepancy that something wasn’t right,” he said. “I demand a public hand count of this issue so everyone can see the results,” he said.

    Pipeline project to start | — Construction is expected to start next week on a natural gas pipeline improvement that will disrupt traffic along a 10,000-foot length of Route 20 on Conneaut’s west side. A pre-construction meeting is scheduled for today with the contractor, Roese Pipeline Co., of Kawkawlin, Mich., City Manager James Hockaday said. A five-foot trench will be dug in the westbound passing lane of the four-lane highway that will house a 12-inch gas pipeline. The work site stretches between Parrish and Amboy roads. Hockaday, at Monday night’s City Council work session, said Roese brings a “good reputation” and “very responsive” attitude to the project, which has been estimated to cost about $2 million. Workers will dig, install and then fill the trench sections at a time, creating a “moving work zone” designed to help minimize traffic tie-ups, Hockaday said. The process will result in a “usable road once it’s backfilled,” he said. Signs and other traffic control methods will be in play to help drivers navigate construction areas, Hockaday said. Work should be complete by the end of the year.

    Ohio report On Fracking Tax Misses Deadline, Work Continues - A group studying Ohio's oil-and-gas severance tax will miss a state budget-imposed deadline for releasing its report even after the state Senate president initially called it a "hard deadline" and told reporters it was likely coming this week. Ohio Senate spokesman John Fortney said Thursday that work continues on the report and the group is making progress. He didn't know when a report would come, but cited a desire to "get this right." The tax increase has been a priority of Gov. John Kasich for years. Kasich says Ohio's tax on oil, natural gas and natural gas liquids is too low, and proceeds of an increase could help cut income taxes. In June, Senate President Keith Faber  described Oct. 1 as a "hard deadline" for striking "meaningful compromise."

    Most Ohioans left out of fracking bonanza - Columbus Dispatch - Ohio’s fracking industry has been a boon to oil and gas companies, their employees and to local economies in eastern Ohio where fracking is concentrated. And to state lawmakers, who have enjoyed $1.2 million in campaign contributions from oil and gas interests. The only ones not benefiting are the 11 million other people who live in Ohio. While the precious oil and gas in Ohio’s underground shale deposits is being sucked out of the state never to return, frackers are paying ridiculously low state severance taxes for this bounty.  State lawmakers, who already are getting their cut, have shown no interest in increasing Ohio’s severance taxes to ensure that taxpayers get some benefit from the exploitation of the state’s mineral resources. They continue to find ways to delay and dodge, most recently by missing last Thursday's deadline to produce a report about how to modify the state’s severance taxes. Neighboring states impose higher taxes on frackers than does Ohio, so Ohio could raise its rates without hurting its competitiveness. After all, drillers can make money only where there is something to drill for. And Ohio has something to drill for. The industry continues to poor-mouth, saying that low energy prices are depressing the market, yet quarterly report after quarterly report shows production increasing. And severance taxes apply only when drillers actually produce something. If low prices force them to idle drilling rigs, they pay no tax.

    Great Lakes face threat from another Enbridge line - The 62-year-old segment of Canadian oil transport giant Enbridge’s Line 5 pipeline underwater, at the bottom of the Straits of Mackinac, has been generating the most buzz and concern lately over how a spill from it would harm the Great Lakes. But it’s another segment of that same pipeline, out of the water and running through the Upper Peninsula along U.S.-2 highway for nearly 90 miles between Manistique and St. Ignace, that poses a more immediate — and just as dire — threat to the lakes, according to a U.S. Coast Guard oil spill contingency specialist. The 30-inch-diameter transmission line runs under at least 20 rivers and creeks that feed into northern Lake Michigan, and at points is within a half-mile of the lake. “Quite frankly, we see a spill in the straits as a very low probability,” said Steven Keck, who’s based at the Coast Guard’s Sault Ste. Marie station. “But that corridor along U.S.-2 we see as a much higher probability.A joint team of the Coast Guard; other federal, state, and local agencies; Enbridge officials, and representatives of Marine Pollution Control, an oil spill response contractor for Enbridge, conducted a walking line survey of Line 5 where it crosses streams, creeks and rivers along the U.S.-2 corridor earlier this year. The areas were plotted into a Geographic Information System mapping program, with priorities, objectives, and strategies in the case of a potential oil spill in that area identified, he said. “It’s very rural. And where you would stage equipment, place a command center and run operations is an additional challenge,” Keck said. “It’s a whole different ballgame in areas where you don’t even have Internet access. That’s a concern for us.”

    Study Links Fracking To Premature Births, High-Risk Pregnancies -- A new study from the Johns Hopkins Bloomberg School of Public Health has linked hydraulic fracturing — the process of pumping chemical-laced water into shale to extract the oil or gas embedded within — to premature births and high-risk pregnancies.  Preterm births were 40 percent higher among women who lived in areas of intense drilling and fracking operations, and these women’s pregnancies were 30 percent more likely to be considered “high-risk,” the authors found.  Preterm birth — when a baby is born earlier than the 37th week of pregnancy — is associated with a range of medical problems, according to the Centers for Disease Control and Prevention. Being born premature is linked to breathing problems, cerebral palsy, and hearing and vision impairments. In addition, preterm-related causes of death are the single leading cause of infant deaths, the CDC reports, accounting for 35 percent of infant deaths in 2010. Preterm birth can cause long-term neurological disabilities.  “The growth in the fracking industry has gotten way out ahead of our ability to assess what the environmental and, just as importantly, public health impacts are,” study leader Brian S. Schwartz, MD, a professor in the Department of Environmental Health Sciences said.  “More than 8,000 unconventional gas wells have been drilled in Pennsylvania alone,” Schwartz said. “We’re allowing this while knowing almost nothing about what it can do to health. Our research adds evidence to the very few studies that have been done in showing adverse health outcomes associated with the fracking industry.”

    Frack Zones – Home Rule in Pennsylvania --  Pennsylvania municipalities can zone where fracking is allowed and where it is prohibited. Although the town needs to do now is act on that ability. On September 24, 2015, the Municipality of Murrysville made public a draft of a proposed ordinance amending the provisions of Section 220-31(CC) of the Murrysville Zoning Ordinance No. 833-11 addressing surface operating standards for unconventional oil and gas development. The proposed ordinance would provide for new zoning standards to control oil and gas development. Following the Robinson Township Supreme Court decision, the Murrysville Council commissioned the Marcellus Task Force in April 2014 to review Section 220-31(CC) in the light of said decision. The Marcellus Task Force released a report in June 2015 offering regulatory options to the Council in order to revise the Zoning Ordinance. The report is entitled “Report of the Murrysville Marcellus Task Force on Revisions to Section 220-31(CC) of the Zoning Ordinance of the Municipality of Murrysville in Response to the Robinson Township Supreme Court Decision.” The report is available at The proposed ordinance, among other requirements, provides for new setbacks and requires the drafting of a comprehensive gas development plan for all applications relating to proposed drilling operations. The minimum public review period for the proposed ordinance is 45 days.

    Dreaming of a White Christmas – Could U.S. Natural Gas Production See Surprise Winter Uptick? -- U.S. natural gas production has been essentially flat this summer as many producers curtailed, deferred or delayed drilling and well completions earlier in the year. However, some of the same producers, particularly in the Northeast, in their most recent earnings calls, indicated they expect to meet their 2015 production targets by increasing output this winter. In today’s blog, we look at how and why producers defer production and the potential impacts on the market in Q4.  It’s not surprising that some gas producers deferred well completions this summer. Rates of return have been squeezed all year by a combination of low oil, liquids and gas prices. In response to lower prices, producers have made significant capital budget cuts (see Free Fallin’). And besides low prices and returns, Northeast producers in particular have faced midstream capacity constraints that push down prices to bargain basement levels and make it harder to find economically viable routes to market for new production. Producers responded by laying down rigs (Rig Cuts Deep, Output High!) and shifting their drilling activity and spending towards their most productive acreage (thereby cutting costs and increasing rig efficiency). Additionally, those producers that can afford to hold off production (losing cash flow in the short term – something not all have deep enough pockets to do) have used numerous tools and tricks for delaying production while they weather this tough market environment. These include drilling the minimum required to hold on to leases for future development (see Hold On Tight By Production), not completing (i.e. fracking) already drilled wells and choking back big initial production (IP) rates to restrain output until a pipeline tie-in or better pricing becomes available. Producers typically prefer to defer new production volumes in these ways rather than to shut-in existing wells that are producing, because (as we explained in You Can Pay Me Now, Or Pay Me Later) shut-in economics rarely make sense long term.

    CNY heating prices drop low this winter, depressed by fracking glut - Winter heating prices are expected to fall to their lowest level in years, thanks in part to a glut of natural gas from fracking. The cost of natural gas is at its lowest point in perhaps 15 years. And wholesale prices in Central New York are even lower than the national average, thanks to a regional glut from fracking. That's good news for heating customers. National Fuel Gas, the utility that supplies gas in Western New York, estimates that customers will pay 29 percent less for heat this winter than last year, assuming normal weather, according to a report in the Buffalo News. Gas rates in Central New York might not plummet like that. National Grid won't release its estimate of winter heating prices until Wednesday, and officials declined to comment on their forecast Friday. But signs are already emerging that prices this winter will be low -- and not just for natural gas.  The price of home heating oil is 35 percent lower than it was last year, and propane is 26 percent cheaper, according to the New York State Energy Research and Development Authority.  For the month of October, National Grid's gas supply price is 23 cents per therm, more than 20 percent lower than the October 2014 price. (By comparison, the price 10 years ago was $1.29 per therm.) Increased gas production from Marcellus shale reserves in nearby Pennsylvania and Ohio, combined with a shortage of pipeline capacity to transport gas out of the region, creates a glut that keeps local prices extremely low, said Phil Van Horne, CEO of BlueRock Energy, a Syracuse-based energy marketer.

    Two recent studies won't reverse New York fracking ban - Two studies showing no damage to water quality in the Marcellus Shale formation won’t change the fracking ban imposed by the Cuomo administration in New York state.  For officials in the economically depressed region of New York state known as the Southern Tier, two recent hydraulic fracturing studies gave them the slightest glimmer of hope the administration of Gov. Andrew Cuomo would reverse the state’s ban on hydraulic fracturing. But in a brief email to, the state’s Department of Environmental Conservation shut the door on that. “New York’s thorough review supports DEC’s conclusion that fracking should not be allowed to occur in New York state at this time,” DEC public information officer Lori Servino said. The studies — one from Syracuse University and the other from the Susquehanna River Basin Commission — turned up no evidence thus far of water quality problems associated with large volumes of hydraulic fracturing, the process known as “fracking” that sends pressured liquids that breaks rock formations below the earth’s surface to extract oil and natural gas deposits. “The science shows it can be done in a way that’s responsible and not causing major problems,” said Carolyn Price, town supervisor for Windsor and president of the Upstate New York Towns Association.  But the DEC email to put the kibosh on any possibility the Cuomo administration is going to budge. “This study does not remove the increasing scientific uncertainty surrounding significant environmental impacts” from high-volume hydraulic fracturing, Severino said.

    Activists: Stop gas terminal off New York, New Jersey coasts — Environmentalists and some elected officials are calling on the governors of New York and New Jersey to oppose a proposal for a liquefied natural gas import terminal off both states’ coasts. An application by Liberty Natural Gas to build the facility in federal waters 19 miles off Jones Beach, New York, and 29 miles off Long Branch, New Jersey, is due to be considered by federal regulators this fall. It can be vetoed by the governor of either state. Environmentalists say it’s a dangerous potential terrorist target and is unneeded given that the United States is awash in cheap, domestic natural gas, much of which is produced in the Marcellus Shale formation just west of New York. Liberty says the project would bring additional natural gas into the New York area during times of peak demand, thereby lowering home heating prices. “After seven years of opposing this zombie-like proposal, the final battle begins,” Cindy Zipf, executive director of the Clean Ocean Action environmental group, said at a news conference held Tuesday to urge New Jersey Gov. Chris Christie to veto the project. Business and labor groups support the plan, which was first proposed in 2008 and is projected to generate 800 construction jobs.

    Study refutes positive local effects of natural gas pipeline -- An 18-page study released this week by the Greenbrier River Watershed Association says that economic benefits of the Mountain Valley Pipeline, a natural gas pipeline slated to bisect Nicholas County and cut through portions of Summers, Greenbrier and Monroe counties, have been inflated by gas companies anxious to get their product to a market. Dr. Stephen Phillips of Key-Log Economics, Charlottesville, Va., firm, wrote the study. Key-Log provides research “supplying rigorously developed ecological-economic information to shape and advance policy campaigns, as part of expert testimony, and for public education efforts,” according to its Linked-In account. EQT, the pipeline’s owner, released its own study in December 2014. The study says expenditures on goods and services during construction would “translate into job creation; economic benefits to West Virginia suppliers, their employees and the overall economy.” Further, the FTI said the MVP would bring operational benefits, requiring a skilled workforce for continued maintenance and generate annual property tax revenues. FTI’s study said both the state and the MVP passes through would be benefited from the “potential direct use of gas from the MVP project.”

    U.S. says CSX missed rail defect blamed for oil train derailment -- – A fiery oil train derailment that forced the evacuation of hundreds of people in West Virginia last February was caused by a rail defect that railroad inspectors from CSX Corp missed twice in the preceding months, U.S. regulators said on Friday. Twenty-seven of the train’s 109 cars derailed near Mount Carbon, West Virginia, on Feb. 16. At least nine cars caught fire and burned for days, strengthening support for tougher oil train safety standards for trains carrying U.S. crude from North Dakota’s Bakken region. Tighter federal regulations were published in May. The Federal Railroad Administration fined CSX and its contractor, Sperry Rail Service, $25,000 each for failure to properly verify a potential rail defect. An FRA spokesman said the sum is the maximum allowed under federal law for such a violation.

    Fracking provision placed in early-morning 'technical' bill  — People unhappy with a new law making clear North Carolina cities and counties are handcuffed in passing fracking restrictions also don’t like how the legislation passed in the final minutes of this year’s General Assembly. It was contained in the final “technical corrections” bill disclosed publicly about 4 a.m. last Wednesday. Previous Senate and House versions of the bill never contained the provision that surfaced after early-morning negotiations. The omnibus bill passed with little debate. The fracking provision was never heard in an open committee. Chatham County Commissioner Jim Crawford says that’s not the way democracy should work. Mecklenburg County Sen. Bob Rucho backed the provision. He says it met the definition of a “technical correction” by clarifying what he called the original intent of a 2014 fracking law.

    North Carolina legislation answers local fracking moratoria - (AP) — The last bill the North Carolina General Assembly approved before adjourning this year was designed to stop local governments from trying to delay or restrict fracking in their own backyards. Last week’s legislation, inserted into a 41-page “technical corrections” bill approved in the middle of the night and that Gov. Pat McCrory later signed, is supposed to reinforce a 2014 ban on cities and counties from ordinances that prohibit hydraulic fracturing directly or indirectly. The updated law now says all provisions of local ordinances that “regulate or have the effect of regulating” oil and gas exploration “are invalidated and unenforceable.” Longtime fracking supporter Sen. Bob Rucho, R-Mecklenburg, said the language attempts to address any misunderstanding local governments may have about the legislature’s purpose. Rucho said the recast law was in response to recent local government ordinances. The original intent of the law is that “no local ordinance should restrict the ability of being able to have shale gas exploration or development,” Rucho said

    Frack Me First: NC Lawmakers Ban Local Anti-Fracking Ordinances   After a a number of local communities enacted temporary moratoriums on oil and natural gas development, including fracking, the Republican-led North Carolina government issued a resounding response: Drillers welcome!A last-minute markup passed by the legislature and signed into law by Governor Pat McCrory last week “renders ‘invalidated and unenforceable’ local ordinances that place conditions on fracking that go beyond those restrictions drafted by state oil-and-gas regulations,” the Winston-Salem Journal reportedon Monday. The vote occurred just days after a local body in Stokes County, N.C. passed a three-year fracking moratorium, following the lead of a number of other municipalities that are hoping to stave off exploration into their oil and gas reserves.  Brooks Rainey Pearson, a staff attorney with the Southern Environmental Law Center, said the provision was “passed in the dead of night, having never received a committee hearing or vetting of any kind.” “This is yet another example of the state attempting to lure the fracking industry to North Carolina over the objection of those who would be most directly impacted,” Pearson added. The argument as to whether a community has the right to protect itself from potentially dangerous and toxic industries is also being waged in Colorado, where state lawmakers have attempted to ban local fracking ordinances.

    More sections of national forest to be surveyed for pipeline — The developer of a proposed natural gas pipeline plans to survey additional sections of the Jefferson National Forest for a possible route. The Roanoke Times reports that the U.S. Forest Service has authorized Mountain Valley Pipeline LLC to survey two sections of the forest in Giles County and one in Montgomery County. Jefferson and George Washington national forests supervisor Tom Speaks previously authorized surveying in other sections of the Jefferson National Forest. Speaks says authorization of the additional surveying doesn’t mean he’s allowing construction of a pipeline. The Federal Energy Regulatory Commission will decide whether construction of the $3.2 billion pipeline should proceed. The pipeline would transport natural gas from Wetzel County, West Virginia, to another pipeline in Pittsylvania County.

    2 of 3 workers killed in pipeline explosion identified  — A maintenance company has released the names of two of the three people killed in a pipeline explosion in Terrebonne Parish. Danos, an oil and gas service company, says two of their contract employees, 40-year-old Samuel Brinlee, of Berwick, and 36-year-old Casey Ordoyne, of Larose, died in Thursday’s accident at the Transcontinental Gas Pipeline Co. facility in Gibson. Transcontinental is a subsidiary of major natural gas supplier Williams Partners. Danos CEO and President Hank Dano identified the workers in a news release on Friday. The third victim, a contract employee for Furmanite, an oilfield maintenance company, has not been identified. Danos says eight of his employees were working at the plant when the explosion occurred. Two are being treated at Terrebonne General Medical Center for minor injuries.

    Texas A&M Study's Super Obvious Conclusion: Busy Oil Fields Mean More Traffic Accidents (infographic) Well, Texas A&M has gone and put out what is possibly the most obvious "finding" ever issued by government-funded researchers: When oil fields start booming, there are more traffic accidents and they're more expensive. Right now, oil prices are in the toilet and the big oil booms that were fueled by the the explosion of drilling in shale plays, including the Eagle Ford Shale in South Texas, the Barnett Shale in North Texas and the Permian Basin in West Texas, are drying up the way most oil fields do when a boom goes bust. So, of course, this was the perfect time for the Texas A&M Transportation Institute to come out with a study called "New Findings: More New Oil and Gas Wells, More Crashes and Injury Costs."   Now some might argue that these facts on their own preclude any need to actually study things to find out what happened in the Barnett, the Eagle Ford and the Permian Basin when a whole bunch of traffic comprised of impatient people driving trucks and 18-wheelers (aka the oil field) started flooding into each of these areas, but just in case anyone needed hard answers about this now we have them. So what happened? Well, according to Texas A&M, when the number of new wells increased in each area the number of rural crashes involving commercial vehicles also shot up, as did the total cost of crash injuries. When the number of wells dropped, the number of commercial vehicle crashes and the total cost of crash injuries also dropped.

    Congress-backed Interstate Oil Commission Call Cops When I Arrived To Ask About Climate Change - Steve Horn - On October 1, I arrived at the Oklahoma City headquarters of the Interstate Oil and Gas Compact Commission (IOGCC) — a congressionally-chartered collective of oil and gas producing states — hoping for an interview.  There to ask IOGCC if it believed human activity (and specifically oil and gas drilling) causes climate change and greenhouse gas emissions, my plans that day came to a screeching halt when cops from the Oklahoma City Police Department rolled up and said that they had received a 9-11 call reporting me and my activity as “suspicious” (listen to the audio here). What IOGCC apparently didn't tell the cops, though, was that I had already told them via email that I would be in the area that day and would like to do an interview.  That initial email requested an opportunity to meet up in-person with IOGCC's upper-level personnel, a request coming in the immediate aftermath of its Oklahoma City-based annual meeting, which I attended. After the cops came to the scene and cleared me to leave, I sent a follow up email to IOGCC outlining the questions I would have asked if given the opportunity to do so.  Days later, IOGCC finally responded to those questions and told me its climate change stance. Well, as you'll see later, they kind of did.

    Keystone XL developer seeks route approval in Nebraska  — Nearly three years after Nebraska’s governor approved a route for the Keystone XL pipeline, the project developer is once again seeking state authorization for the same proposed path. TransCanada filed an application Monday with the Nebraska Public Service Commission, taking a new approach in a state where opponents have repeatedly thwarted efforts to complete the Canada-to-Texas oil pipeline. Former Gov. Dave Heineman approved the project route in January 2013, but opponents sued to overturn the pipeline-siting law that allowed him to do so. Their lawsuit and company efforts to use eminent domain have mired the project in the courts. TransCanada spokesman Mark Cooper says the Canadian company is applying through the commission because it now provides the clearest path for the project. Opponents say the project could still face delays.

    Bakken Economy Drives $326 Million BNSF Capital Projects In Minnesota --   --The StarTribune is reporting: The number of trains carrying oil from North Dakota and traveling through the west metro and downtown Minneapolis has temporarily been increased. More Bakken oil trains are entering the Twin Cities via the western suburbs, a route that sends an increasing amount of the hazardous cargo through downtown Minneapolis.  BNSF Railway, in reports filed with state officials, said the number of trains carrying at least 1 million gallons of crude oil is increasing through this rail corridor, starting with a modest gain in July followed by a larger bump in September.  Now, 11 to 23 oil trains each week pass through the western suburbs of Wayzata and St. Louis Park on their way to Minneapolis, up from a nominal number a year ago, according to BNSF reports obtained by the Star Tribune. This route takes trains past Target Field, through the North Loop and across the Mississippi River at Nicollet Island. The oil trains are destined for eastern refineries. Meanwhile, the Sandpiper (which would relieve some of this rail congestion) has been keystoned.

    Environmental groups seek enhanced studies of planned crude oil pipelines across Minnesota -- Opponents of two crude oil pipelines proposed in northern Minnesota are pushing for deeper, more sweeping studies of their environmental risks in the wake of an appeals court ruling rejecting the process begun by state regulators. The Minnesota Public Utilities Commission on Thursday decided to stay, or put on hold, its June decision granting a certificate of need to the proposed $2.6 billion Sandpiper pipeline to carry North Dakota oil across Minnesota on its way to refineries in other states. But the five-member commission left open what happens next with the project, which is entering a second stage of state review that focuses on its route. What ultimately happens with the Sandpiper project also could affect another proposed pipeline, Line 3, which has overlapping environmental issues because it’s proposed on the same route by the same pipeline company. “The hope is the commission will take this opportunity to take a broader look at pipelines in Minnesota,” said Kathryn Hoffman, an environmental attorney in St. Paul who successfully argued before the Minnesota Appeals Court that state utility regulators were required to do an environmental impact study of Sandpiper before deciding whether the project is needed. Calgary-based Enbridge Energy, which is proposing the two pipelines, still has the option of appealing the Sept. 14 ruling, as does the utilities commission. Neither has decided whether to take that step, which could mean a lengthy delay. In the meantime, the five-member commission asked Enbridge and its supporters and critics to comment on what to do next in the wake of the ruling.

    U.S. oil-rail flux means no retrofit bonanza for tank car makers -  When U.S. regulators adopted new rules last May to make hauling crude by rail safer, shippers anticipated relatively moderate costs and adjustments while rail tank car makers geared up for a retrofitting bonanza. It has not worked out that way. Months later, oil companies are learning that meeting the new standards is more expensive and complicated than they thought while tank car producers have yet to see the windfall from the fleet’s overhaul. Blame the reality of dealing with railway operators’ own technical requirements and an oil price rout that has radically changed the economics of the once-booming business. In the U.S. Northeast, which accounts for half of the nation’s crude rail shipments, Amtrak is warning that some of the cars modified or built to new specifications will be too wide for the busy corridor. Rail operators are also signaling they may impose new surcharges for certain older cars. Industry officials also say that the new safety features, such as thicker walls, thermal protection and front and rear shields, go further than many had expected. “No one anticipated the new rules would require all these bells and whistles,” Robert Pickel Jr., a senior vice president at Canadian rail car builder National Steel Car, said. “Some of the retrofits cost more than the actual car.”

    'Blood & Oil', North Dakota, and dreams not exactly fulfilled -- Last week a new television series set amidst the North Dakota oil boom debuted. Blood & Oil tells the story of locals and newcomers striking it rich in The Bakken, an oil formation that has been heralded as containing more oil than Saudi Arabia--a wildly misleading* but understandably alluring slogan. Based on the first episode we can conclude that this program is not actually a contemporary drama, but rather a period piece--specifically the period when North Dakota was booming from about, say, 2009 to sometime in mid-2014. And, therein lies the story. For Blood & Oil, above all, must be a tragedy of broken dreams if it is to live up to its realism credentials. We must look beyond the fact that the show is shot in Utah to the substance of the series. When we do, we see the ever-present gambler's mentality that dominates the American mind. It did not go unnoticed that America was a land of plenty from the very beginning of European settlement. With the coming of the Bakken oil boom we modern Americans have recreated that journey. Those needing work and with only minimal skills or possessed of a restless spirit found a new life in North Dakota, a booming oil province, that--when it came to oil--seemed like the limitless wilderness first encountered by Europeans landing on the American continent. In Blood & Oil Hap Briggs is a poor farmer's son who has built up large holdings of ranch land which, of course, have oil under them. He gets into the oil business himself and can't get enough of it.

    One Thing Leads to Another—Sweet-spot Bakken Oil Means More Gas -- Crude oil producers in the Bakken region responded to the oil price collapse with drilling cutbacks and a laser-like focus on sweet-spot areas with high initial production rates. It turns out those oil sweet spots also produce a lot of associated natural gas. But there’s not enough infrastructure in place to deal with the extra gas, and that’s slowing North Dakota’s efforts to reduce flaring (burning gas that can’t be utilized for various reasons). Today, we consider the multiple, domino-like effects that low oil prices are having on one of the U.S.’s most important tight oil plays. By almost any measure, the Bakken region has been a super-success story. In 2008, before the shale revolution, the Bakken was producing less than 200 Mb/d of crude and about 250 MMcf/d of natural gas, on average; the latest (July 2015) data from the North Dakota Pipeline Authority (NDPA) showed crude production is 1.2 MMb/d and gas production has soared past 1.6 Bcf/d--six-fold increases for both hydrocarbons. With that kind of upstream growth, it’s not surprising that the midstream sector struggled to keep up. As we’ve blogged about often, the lack of oil pipeline capacity in 2011 led to the frenetic development of rail loading terminals, and the dearth of gas pipeline capacity resulted in a significant amount of wasteful gas flaring—and a push to quickly develop new gas processing plants and gas pipeline capacity. Flaring usually happens when infrastructure to capture the gas and transport it to market haven’t yet been developed.

    Farmers poised to attack oil permitting plan -- A clash is brewing between Kern’s petroleum industry and members of the county’s agriculture sector over a plan to streamline local oil and gas permitting. Despite a compromise proposed to smooth relations between the two industries in cases of split ownership of farming properties, growers have mounted a vigorous challenge to a county environmental review at the heart of the permitting plan, which is backed financially by oil interests. That the environmental document is being carefully scrutinized by lawyers is no surprise: County Planning Director Lorelei Oviatt predicted the permitting plan would spark lawsuits when the Board of Supervisors ordered the review in early 2013. But it was unclear then that a Wasco farming company, Pacific Ag Management Inc., would attack the project with an intensity equal to or greater than that of environmental activists the oil industry is accustomed to battling in court. The conflict will likely spill over into public debate in coming weeks as the permitting plan undergoes review by the county Planning Commission and the Board of Supervisors. The commission is scheduled to discuss the matter at its 5 p.m. Monday meeting at the board’s chambers, 1115 Truxtun Ave. Both bodies are expected to vote on the plan as soon as next month. Pacific Ag’s opposition, detailed in more than 100 pages of legal arguments by San Francisco law firm Shute Mihaly & Weinberger LLP, suggests Oviatt and her staff have been unable to appease both sides of a dispute that lawmakers have left mostly unresolved at the state level.

    What oil spill? Company responsible for Yellowstone River spill gets Bakken pipeline approval -- The pipeline company responsible for the oil spills in the Yellowstone River and California Coast earlier this year has been granted permission from North Dakota state regulators to build a new crude oil pipeline in the southwest region of the state, reports the Forum News Service (FNS). An in-depth discussion was held with Bridger Pipeline LLC and the Public Service Commission’s three-member panel regarding the January 17 pipeline rupture. The spill released an estimated 30,000 gallons of crude into the Yellowstone River and temporarily tainted the drinking water of Glendive, Montana. In May, a pipeline operated by the Texas-based company spilled as much as 143,000 gallons of crude along the Santa Barbara Coast. PSC Chairwoman Julie Fedorchak told the FNS, “We had a really thorough discussion about how they plan to operate this and monitor it and the latest and greatest technology they’ll be using, the newest pipe materials and monitoring systems, and I felt comfortable with the company … walked away with some good lessons learned on that spill and will be incorporating that in this line.” Fedorchak added that this pipeline is “a key piece of infrastructure” that will relieve a bottleneck in the system which serves the Midwest region. The new 16-inch diameter line will stretch 15 miles across Billings and Stark Counties, running alongside an existing 8-inch Bridger pipeline. The new pipeline will increase the system’s capacity by 125,000 barrels per day from the Skunk Hills station to the Fryburg station, which then connects to a 12-inch line leading to Baker, Montana.

    Bakken and Canadian crude trade higher on pipeline approval - Prices for North Dakota Bakken crude and Canadian light synthetic crude scheduled for November delivery strengthened last week after Enbridge was granted approval to open its Line 9 crude pipeline, according to Reuters.  It is currently unclear when the pipeline will begin operations, but traders reported a growing demand for light crude in preparation of the line going online within the next couple months. The Enbridge Line 9 is an existing pipeline in which flow will be reversed to carry product from west to east. It will carry 300,000 barrels per day from western Canada and the U.S. Bakken to Quebec, reports The Globe and Mail. Although the project will add no new pipeline, the line will provide much needed transportation capacity for both Canadian and U.S. oil producers, which are struggling amidst low oil prices and the pending approval of new pipelines which would transport oil to new markets. Enbridge had planned to start the line last fall, but was delayed due to new safety conditions required by Canada’s National Energy Board. Last week the project passed the NEB’s last pre-operational hurdle after a series of hydrostatic tests. Following the news, light synthetic crude from the oil sands traded above the West Texas Intermediate benchmark while Bakken crude traded slightly below WTI prices, but at an increase from the day prior.

    Just Say #ShellNo to the Master Plan for the Northwest: Connecting the Dots on the Anacortes Oil Train Proposal - Shell Oil recently threw in the towel on the Arctic, but they haven’t walked away from their master plan to turn Puget Sound into an extreme oil throughway. With the Artic plan on ice, Shell is turning their full attention to an oil train terminal they want to build at their Anacortes, WA, refinery. This plan would bring six oil trains a week from North Dakota and Alberta, Canada, filled with toxic, explosive crude. Shell tried to keep the proposal secret because they know that no one else wants this master plan to work. But ForestEthics and our allies fought to make sure that the project gets the scrutiny, and opposition, that it deserves — and we won. Now it’s time for citizens to speak up for safety, for climate, and for Puget Sound and Say Shell No to this dirty, dangerous oil train plan. Since they’ve pulled out of the Arctic, their proposal to move crude by rail is even more critical.  In February a judge rejected Shell’s claim that they would not need an environmental review of the terminal. County officials might have been fooled, but we were not. The judge agreed and required a full environmental review of the plan and the comment period is now ON. The review is an important step to engage the public, hold officials accountable, and demand transparency from the oil company. But transparency, accountability and public scrutiny are the last thing that Shell wants.  The 100-plus car oil trains that Shell wants to bring to Anacortes carry as much as three million gallons of explosive, toxic Bakken or tar sand crude. This is extreme oil. That means more carbon pollution, more air pollution at the refinery and everywhere along the tracks, and millions more people, wildlife, and wild places in harm's way. The nation has watched five major oil train derailments and fires in 2015 alone. Oil trains are simply too dangerous for the rails.

    Oasis Petroleum's credit line cut by Wall Street banks - Credit lines for Oasis Petroleum have been reduced by about $170 million by Wall Street banks due to the persisting oil price slump. As reported by Reuters, this is the largest reported reduction of an oil producer’s “access to debt markets” this fall, prompted of course by low oil prices. Oasis, operating exclusively in the North Dakota Bakken oil patch, said its lenders reduced its borrowing base to $1.52 billion, or by roughly 10 percent. For smaller oil and gas companies, banks will usually review credit lines twice a year, with fall negotiations generally happening in October. Oasis’ next review will take place in April of next year. The company still has about $155 million drawn on its loan revolver, though, providing a decent buffer to help weather the low prices. As collateral for loans, Oasis has, like other small producers, used the value of oil still in the ground held in leases. Wall Street has placed some long term bets, however, and has actually increased the borrowing base of some companies in anticipation of what companies will be strong players in the event that oil prices rebound. Meanwhile, Oasis is trying to sell a stake in its saltwater disposal business, a deal which could add over $100 million in cash to the company’s coffers.

    Cannibalizing the oilfield: Idle rigs scavenged for parts - In the ongoing effort to save money amidst the oil price slump, rig owners have taken to “cannibalizing” parts like motors and drill pipe from stacked rigs, according to Reuters. To make repairs on the 800 some drilling rigs active in the U.S., equipment is being scavenged from the 1,100 rigs which were idled due to the price crash. The practice has become so widespread during this downturn that services companies and others are saying that even if prices were to make a significant rebound, it would be over six months before drilling and production would increase, an idea which has quelled concerns about another surge of activity driving prices down again. As reported by Reuters, in a stable and high oil price environment, spare and replacement parts are typically purchased new from companies such as National Oilwell Varco (NOV) and Premium Oilfield Technologies, a small operation which makes equipment and spare parts for drilling rigs active in North Dakota to Texas. NOV said there are currently enough rigs stacked that drill pipe could be cannibalized for up to a year before needing to place new orders. An oilfield services analyst told Reuters, “[Cannibalization] will slow the industry’s ability to ramp the rig count back up so it will delay the production response from oil prices.” Although there is no hard data for the extent of cannibalization, the practice has become so commonplace that experts say there is a high possibility that the majority of the 1,100 inactive rigs have already been harvested for parts. Spare parts from idled drilling rigs have become so readily available due to an almost 15-year record high before oil prices began to plummet.

    Fracking Boom Goes Bust as Companies File for Bankruptcy - (audio) U.S. shale production is in deep, deep trouble as the fracking boom bursts in the face of low oil prices. The September report from the oil cartel, OPEC, shows the writing on the wall.  “Crude oil prices have declined more than 50 percent since last year,” says Nova Safo of NPR’s Marketplace. “Fracking companies in places like North Dakota, West Texas, parts of Oklahoma and Kansas have all taken a big hit. Many are filing for bankruptcy protection or going out of business.” “There were a large number of new entrants into the fracking business during the last four to five years,” industry analyst James West of Evercore told NPR. “These are very small … they were building out their fleet. And now they’re finding there’s no work out there, and so they’re having to close their doors.” Listen here:

    US shale oil stares into abyss with Opec ready push it over - Telegraph: After hanging on for almost a year, the US shale oil industry is on the brink of complete capitulation. The reason for its impending downfall is simple: the lowest cost producer always wins. In this instance the most profitable producers are Saudi Arabia and its close Gulf Arab allies, who effectively control the Organisation of the Petroleum Exporting Countries (Opec). To their credit, shale drillers and operators in Texas and North Dakota have hung on for far longer than anyone expected after Opec launched its pre-emptive oil price war last November. However, a year of oil prices trading at an average of around $50 per barrel is finally succeeding in reversing the dramatic increases in US production that had been so troubling the Gulf’s oil-rich sheikhs. Total US output has fallen by almost 600,000 barrels per day (bpd) since the end of the first quarter, with the biggest declines occurring recently as operators begin to crack under the financial pressure caused by Opec’s squeeze on prices. By next year, the US government expects output to decline to an average of 8.6m bpd, down from an average of 9.3m bpd in 2015. According to Mark Papa, the former head of US shale oil specialist operator EOG Resources, this is just the beginning of the downturn in North America. Speaking at the annual Oil and Money conference in London this week, Mr Papa said: “We are about to see a pretty dramatic decline in US production growth.”

    The US Shale Oil Industry Will Simply Vanish -- Via GEFIRA, After many years of prosperity, the tough time has come for the US shale industry. Dramatic US oil production decline is inevitable and many shale companies face bankruptcy. Their assets can end up to larger producers, reinforcing market concentration. US energy independence can only be saved by government intervention. US government will remove exports limitation and FED September rate hike suspension is related to the unsustainable debt levels US oil industry is keeping afloat. But that is simply not enough to prevent a collapse of the US oil industry.From our research we learn that cost per barrel declined slightly but decreasing production cost is not enough to compensate for lower oil price. US oil production already declined 400K barrels per day from its April peak. We estimate an other 2 to 3 Million barrels can be wiped out the coming year. A few months ago, when the oil price rise again before the June crush, the US oil industry seemed to be able to go through the difficult times. "It is too late for OPEC to stop the shale revolution", "OPEC can’t stop the shale industry" – roared the headlines. However, after last publications of Energy Information Administration (EIA) the OPEC and Saudi Arabia are the only one to triumph. In July, the EIA projected the expand of US shale supply in 2016, but it had to adjust its estimates to new conditions. Comparing to the first-half of 2014, the US crude oil prices declined by 47%, despite the fact that they passed 60$ in June and were up 40% from their lowest from March’s 43$. The nearest future looks worrying, as EIA forecasts the Brent crude oil average price will rise in 2016 scarcely to 59$ from average 54$ in 2015. Nowadays, the main oil price factors are the economic condition of China and expectations of demand growth in emerging markets. The oil price seems to be closely correlated in recent months to China’s Purchasing Managers’ Index (PMI), which declined in August to 47.3, the lowest level in last six years.

    Senate panel votes to lift 40-year-old US ban on oil exports  — The Senate Banking Committee endorsed a bill Thursday to lift the four-decade-old ban on crude oil exports, the latest sign of congressional support for legislation that President Barack Obama opposes. The banking panel endorsed the bill, 13-9, on a largely party-line vote. Sen. Heidi Heitkamp of North Dakota sponsored the bill and was the only Democrat to support it. Heitkamp said the bill would lower or stabilize gas prices, support jobs and increase U.S. influence abroad. Despite the largely partisan committee vote, Heitkamp said she is optimistic that some Senate Democrats will support efforts to lift the export ban, which was imposed in the 1970s amid an energy shortage. Heitkamp’s bill is expected to be merged with larger legislation sponsored by Sen. Lisa Murkowski, R-Alaska, before a vote in the full Senate. “Putting an end to (the export ban) is a discussion we need to have by working together, and it shouldn’t be a partisan exercise or get bogged down by political poison pills,” Heitkamp said. “We have many options to move this policy forward and growing support for it. That’s good news for a common-sense, bipartisan policy.” GOP leaders in the House and Senate support lifting the export ban, and the House Energy and Commerce Committee endorsed a bill to do so last month.

    Why lifting oil export ban can help US foreign policy - A House of Representatives bill is due to go to the floor this week, one step closer to lifting the 40-year-old ban on the export of U.S. crude oil. The window of opportunity was opened by the continuing plunge in oil prices, now at a six-year low, as falling demand and booming production have created an overabundance of global supply.Congress must seize this opportunity: Lifting the ban on crude oil export would not only be good for the economy, it could also benefit U.S. foreign policy.U.S. firms have been unable to export crude oil since 1974 — a legacy of the energy security fears in the wake of the Arab oil embargo. The only exceptions are crude oil exports to Canada, and oil produced in Alaska. There are similar, if less draconian, export restrictions on natural gas, which requires a Department of Energy waiver.These restrictions were an overreaction. But recent changes in the global oil market have made matters worse. Over the past decade, new technologies — particularly hydraulic fracturing or “fracking” — have enabled the extraction of oil and natural gas in previously inaccessible areas. The result has been a shift away from some traditional energy-producing countries — such as Russia or members of the Organization of Petroleum Exporting Countries – and toward newer producers.The biggest beneficiary of these technological advances has been the United States, now the world’s largest producer of oil and natural gas. Even under current restrictions, U.S. crude exports to Canada have risen dramatically, from essentially zero in 2007 to more than 100,000 barrels a day by March 2013. U.S. producers could contribute far more globally, but are largely prevented from doing so under the current bans.

    Congress Is Trying To Lift The Oil Export Ban. This Is Why They Will Fail. - This week, the House of Representatives will consider — and likely pass — a bill to repeal a 40-year-old ban on exporting crude oil.  But some environmental groups say the repeal is a giveaway to oil companies that will bolster production and increase carbon emissions worldwide.  “This is definitely heading in the wrong direction,” Radha Adhar, a federal policy representative for the Sierra Club, told ThinkProgress.  While it seems to have sprung from nowhere, the repeal is the product of heavy campaigning from the oil industry, low oil prices, and an American fracking boom. The crude oil export ban has its roots in oil prices. When it was enacted in the 1970s, America was reeling from an oil embargo, and protecting every drop of our precious fuel from the global market seemed like a good idea. Now, the global price of oil has plummeted — and economists don’t see it bouncing back anytime soon. Meanwhile, due to developments in hydraulic fracturing, or fracking, oil producers have flooded the market, pushing U.S. prices even lower than the global price.  Supporters, such as Sen. Heidi Heitkamp (D-ND) and Sen. Lisa Murkowski (R-AK), who co-sponsored the Senate bill and have ties to the oil industry, say it will lower prices for consumers and benefit the economy.  But that’s not quite what the federal Energy Information Administration found in its study on the ban released this month. According to EIA analysis, if the ban were repealed, petroleum prices for the general American public would either slightly decrease (at higher domestic production levels) or remain the same (at current levels).   Margins for domestic oil processing would decline, in the face of competition from overseas refineries.

    White House issues veto threat for U.S. House oil export bill – The White House issued a veto threat on Wednesday for a U.S. House of Representatives bill that would lift a four-decade-old ban on crude oil exports, saying the legislation was “not needed at this time.” Congress should instead end “the billions of dollars a year in federal subsidies provided to oil companies” and invest in wind, solar and other renewable energy projects, the White House said in a statement about the bill, which is expected to face a vote in the full House on Friday. Two similar bills have passed committees in the Senate, but backers are struggling to find enough Democrats for the legislation to pass the full chamber. Oil company interests and other backers of repealing the ban say the domestic drilling boom will eventually choke on a glut of crude if it is not lifted. George Baker, the head of Producers for American Crude Oil Exports, or PACE, said that lifting the ban “will help level the playing field and allow America to compete on the international stage,” and that it would create jobs and aid trading partners abroad. Opponents of lifting the ban say increased drilling would harm the environment and that it would hurt jobs in refining and ship building.

    5 Things to Know About the U.S. Oil-Export Fight in Congress -- Lifting the ban has enough support to clear the U.S. House, but ...

    • 1 It takes both houses of Congress, plus the president’s signature, to change U.S. law. Navigating successful passage of a bill through the Senate is likely to be much trickier than winning House support.
    • 2 The White House doesn’t support lifting the ban -- for now. The White House has threatened to veto the House bill if it reaches the president’s desk, saying “legislation to remove crude export restrictions is not needed at this time.” That bodes ill for proponents of lifting the ban, but the statement wasn’t as critical as some observers expected and leaves open the door to relaxing restrictions later.
    • 3 A lot of American oil is already flowing out of the country. One exception to the ban is American oil sales to Canada. The U.S. exports 10 times as much crude to its northern neighbor as it did five years ago, thanks to the American drilling boom. The Commerce Department recently approved U.S. crude swaps with Mexico and has also rewritten rules governing exports to make ultralight oil called condensate legal to sell abroad.
    • 4 Everybody’s worried about gasoline prices. Several studies, some industry-funded and others from the U.S. government and academics, concluded allowing U.S. oil exports would lower prices at the pump, but skeptics abound. Politicians on both sides of the aisle worry that if they vote to lift the oil export ban and then gas prices rise, they will be blamed.
    • 5 The U.S. still imports a lot of foreign oil. The amount of foreign petroleum sloshing into U.S. ports has plunged in recent years as American companies pumped more oil at home. Even so, nearly 1 out of every 2 barrels that U.S. refineries process into fuel comes from overseas. Canada is America’s biggest oil supplier by far, followed Saudi Arabia, Venezuela and Mexico.

    House OKs lifting 40-year-old US ban on oil exports -— Defying a White House veto threat, the Republican-controlled House on Friday approved a bill to lift a 40-year-old U.S. ban on crude oil exports. Supporters argued that an ongoing boom in oil and gas drilling has made the 1970s-era restrictions obsolete.  The bill was approved, 261-159, with 26 Democrats joining Republicans in backing the measure that now heads to the Senate, where prospects are uncertain. House Speaker John Boehner, R-Ohio, said lifting the export ban would lower prices at the pump, create jobs and boost the economy. “In my view, America’s energy boom has the potential to reset the economic foundation of our economy and improve our standing around the world,” Boehner said.  Rep. Fred Upton, R-Mich., chairman of the House Energy and Commerce Committee, said times have changed and that U.S. policy should embrace a new reality of energy abundance. “While the (Obama) administration claims to support an all-of-the-above energy policy, their actions don’t match the rhetoric,” Upton said. Lifting the export ban also would strengthen national security and weaken economic and political rivals such as Russia, Iran and Venezuela, supporters said. The measure includes a Republican-sponsored amendment blocking crude exports to Iran.

    The House Just Did The Oil Industry A Huge Favor - The Republican-led House of Representatives voted Friday afternoon to lift the oil export ban, setting up a potential fight in the Senate and eventual veto from the White House.  Big Oil has been campaigning heavily for a repeal, as oil and gas prices have fallen globally, but opponents say that in fact lifting the ban will increase America’s dependence on foreign oil — and encourage more drilling and fracking in the United States. Environmentalists said Friday that the House move was simply kowtowing to fossil fuel interests during a time of political upheaval.  “The Republican party is in chaos right now,” Radha Adhar, a federal policy representative for the Sierra Club, told ThinkProgress, referring to the ongoing deliberations for a House speaker. “It appears that the only thing they can get unity on among their membership is that they support big polluter giveaways.”  The bill passed the House 261-169, with the support of only 26 Democrats.  During deliberations, Rep. Jack Pallone (D-NJ) called the repeal “a poorly crafted bill that needlessly and recklessly sweeps away 40 years of critical energy protections for national security, our economy, consumers, and the environment.”  Most Americans, according to polls, do not want the oil export ban to be lifted. While it’s considered a step in the wrong direction on the development of fossil fuels, it also raises concerns for many consumers that oil and gas prices will go up once the American product hits the global market.

    Moniz: Strategic Petroleum Reserve is too valuable to sell its stockpiles - Fuel Fix: — The Senate Energy and Natural Resources Committee on Tuesday examined the future of the nation’s emergency oil stockpile, amid calls to sell off some of the stored supplies as a revenue-raiser and an Obama administration push to stash more refined petroleum products alongside raw crude. Energy Secretary Ernest Moniz broadly agreed with senators and expert witnesses that changes are needed to ensure the Strategic Petroleum Reserve remains a valuable insurance policy against global crude supply disruptions. That includes bolstering some of the infrastructure surrounding the salt caverns in southwest Louisiana and southeast Texas that make up the reserve, so that 4.4 million barrels per day can be pulled out of in an emergency and delivered to the market. A test sale in March 2014 revealed that while the SPR actually can hit that target drawdown rate, there isn’t enough takeaway pipeline capacity to keep up with it. “The SPR remains an extremely powerful and valuable energy security tool,” Moniz told the Senate panel. But, 40 years after the reserve’s creation in the wake of the OPEC oil embargo, its facilities “are currently due for major life extension improvements.” “Basically, it’s old, and we need to extend its life,” Moniz said. A broad government analysis of U.S. energy infrastructure, released in April, suggested modernizing the SPR, including changes to the triggers for tapping it, and some $2 billion in projects to improve marine distribution capability and extend the life of the storage facilities.

    With increased regulation, continued decline in residual fuel oil demand is expected - Today in Energy - U.S. EIA - Health and environmental concerns related to the high sulfur content of residual fuel oil (RFO) have led to new policies and regulations that have significantly lowered expectations for future RFO use globally. As the demand for RFO declines, the need for the refining upgrades to convert residual material to lighter, cleaner products will increase. As its name implies, RFO is one of several residuals that remain after lighter material, like gasoline and distillate, are distilled out of crude oil. RFO contains a large amount of contaminants, including sulfur, nitrogen, and heavy metals. Because of its high viscosity, RFO is either blended with lighter streams or heated to ensure that it can be pumped. Throughout the world, RFO is used in many sectors, including marine transportation, power generation, commercial furnaces and boilers, and various industrial processes. In some areas, RFO is a relatively low-cost fuel for space heating. RFO plays an important role in the global liquids fuel market, as its price is normally below that of other liquid fuels. Large reductions in RFO demand will likely come from decreased use of RFO for power generation and space heating. In the power sector, the cost of pollution controls, maintenance, and RFO heating often offset the lower cost of RFO when compared to natural gas and other more expensive fuels. Consequently, power sector demand for RFO, especially in industrialized countries, is expected to decrease. However, RFO will serve as a transitional fuel in the power sector of developing countries that may be more sensitive to price and less sensitive to environmental and health implications.

    B.C. lowballing fugitive methane emissions from natural gas industry: The push by British Columbia to develop a new liquefied natural gas (LNG) export industry raises questions about the impact such activities would have on greenhouse gas emissions, both within the province and globally. One of the single most important factors relates to the amount of methane and carbon dioxide that gets released into the atmosphere, either deliberately through venting or by accident as so-called fugitive emissions. Fugitive emissions are the result of valves and meters that release, by design, small quantities of gas. But they can also come from faulty equipment and from operators that fail to follow regulations.  According to the B.C. Greenhouse Gas Inventory Report 2012, there were 78,000 tonnes of fugitive methane emissions from the oil and natural gas industry that year. B.C. produced 41 billion cubic metres of gas in 2012. This means about 0.28 per cent of the gas produced was released into the atmosphere. By North American standards, this is a very low estimate. The U.S. Environmental Protection Agency (EPA) uses a figure of 1.5 per cent leakage, more than five times higher. Recent research led by the U.S. non-profit group, Environmental Defense Fund (EDF), shows that even the EPA estimates may be too low by a factor of 1.5. B.C.’s estimate, in other words, would be about one-eighth of what has been estimated for the American gas industry.

    Suncor launches hostile bid for Canadian Oil Sands - Suncor Energy Inc launched a hostile bid for Canadian Oil Sands Ltd on Monday as the slump in oil prices encourages consolidation in Canada’s oil sands industry, which has some of the world’s highest operating costs and lowest prices. Canadian Oil Sands and Suncor are among stakeholders in Canada’s largest synthetic crude project, Syncrude, in northern Alberta. Alberta’s oil sands are the world’s third-largest crude reserves after Saudi Arabia and Venezuela and a leading source of U.S. crude imports. Suncor’s all-stock offer for Canadian Oil Sands is valued at about C$4.3 billion ($3.29 billion). Suncor shares were down 2 percent at C$34.67 and Canadian Oil Sands shares were up 48 percent at C$9.15 on the Toronto Stock Exchange on Monday morning. Canadian Oil Sands was not immediately available for comment.

    Despite Shell’s about-face, interest in Arctic oil grows -- After billions of dollars invested over several years, Royal Dutch Shell said September 28 it would end oil exploration offshore Alaska after “disappointing” results. But industry efforts to drill for oil and natural gas in the Arctic are unlikely to end with Shell’s decision to abandon the Chukchi Sea. Indeed, momentum to exploit fossil fuel reserves in the Arctic has been building for decades. This week, in fact, political and industry leaders will converge on Fairbanks, Alaska for the 2015 Arctic Energy Summit, where they will consider options and opportunities for energy development, despite some of the lowest gasoline prices in years and a glut of natural gas in the US. The trends pushing for oil and gas in the Arctic run counter to the efforts of a growing number of advocates who argue some fossil fuel resources need to remain untapped to slow the rate of carbon emissions. The prospect of oil and gas drilling also opens fresh questions over how such development would impact the local wildlife and cultures and the influence of environmental activists. As Shell’s decision to abandon its exploration well about 150 miles from Barrow, Alaska shows, energy development in the Arctic environment entails significant technical challenges. However, it remains an enticing resource: geologists know that the Arctic region’s 19 geological basins contain nearly 90 billion barrels of technically recoverable oil – roughly 13% of the undiscovered oil in the world!

    UK Gov Sees Fracking As Better Option Than Clean Energy | UK Energy Secretary Amber Rudd says Britain’s Conservative government is determined to cut subsidies to companies developing clean energy alternatives to oil and gas, and argues that hydraulic fracturing, or fracking, to extract oil from shale is a less expensive option. Addressing her party’s conference in Manchester on Oct. 5, Rudd dismissed subsidies as a path to cleaner energy for her country, saying there is “no magic money tree” to finance such an effort. “I support cutting subsidies,” she said, “not because I am an anti-green Conservative, but because I am a proud green Conservative on the side of the consumer. We must be tough on subsidies. Only then can we deliver the change we need.” Rudd also repeated the Tories’ support for fracking. She said evidence from the United States demonstrates that the technology is “cheaper, without subsidy, than the alternative” for generously providing Britons with energy.  "The kind of transformation we need of our global energy system will only happen if low-carbon energy becomes cheaper than the alternative,” Rudd said. “The only long-term way to solve the real tension between affordability, security and low carbon is to discover low-cost, low-carbon technologies.”

    Royal Dutch Shell warns of risk of oil price spike - Royal Dutch Shell on Tuesday warned of the risk of a “spike” in oil prices should Opec keep pumping flat-out in the face of an expected decline in output after spending cuts by energy groups outside the producers’ cartel. Ben van Beurden, Shell’s chief executive, said he saw “the first mixed signs” of a recovery in oil prices, which have more than halved to just above $50 a barrel since the summer of last year. Prices fell particularly sharply after Saudi-led Opec last November decided against reducing production in response to a US supply glut. The unexpected resilience of US shale producers meant that it would take “more time” to rebalance supply and demand, said Mr van Beurden, who identified Saudi strategy and Opec cohesion as “key uncertainties”. “If they get it right and find a new balance, prices will recover,” he told delegates at the Oil and Money conference in London. “­But what if Opec doesn’t get it right and prices remain low for much longer? “Then, the world may find itself in a tight corner at some stage, when stocks are rebalanced, growth of US shale oil is stalled, oil production outside Opec and the US is starting to decline due to cuts to capital expenditure, and when — by that time — there is unlikely to be any significant spare capacity in the system. “This could cause prices to spike upwards, starting a new cycle of strong production growth in US shale oil and subsequent volatility.”

    U.S. oil output on brink of "dramatic" decline, exec says -- Oil executives warned on Tuesday of a “dramatic” decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases. Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. “We are about to see a pretty dramatic decline in U.S. production growth,” the former head of oil firm EOG Resources Mark Papa, told the conference. Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments. Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year. Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

    Supply, demand and the price of oil -- Could the price of oil be a value such that the current quantity produced exceeds the current quantity consumed? The answer is yes, and indeed that has been the case for much of the past year. Suppose for illustration that even at a price of $40, there would be enough producers with sunk costs on projects already begun who would be willing to bring sufficient oil to the market to fully meet current consumption. But suppose further that at a price of $40, few new investments are undertaken, so that next year supply is much lower than it is this year, such that next year’s production would equal next year’s demand at a price of $60. What’s wrong with this picture? Under the above scenario, if you were to buy oil today at $40, store it for a year, and sell it next year for $60, you’d make a huge profit. And if right-minded capitalists tried to do exactly that in huge volumes, the price of oil today would be bid up above $40, as the inventory demand is added to current consumption demand. As that oil is sold next year, it would bring the price next year below $60. In equilibrium, the difference between this year’s price and next year’s expected price should be close to the storage cost. That arbitrage is clearly an important aspect of what has been going on over the last year. In response to lower prices, capital expenditures in the oil patch are being slashed. The number of drilling rigs active in the U.S. areas associated with tight oil production is only 43% of its level a year ago. U.S. oil production is falling, though so far the decline in production has been relatively modest. U.S. tight oil production is only down about 7% from a year ago.

    Low Oil Prices - Why Worry? - Gail Tverberg - Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit. In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy. What Janet Yellen is seeing in Figure 1, even though she does not recognize it, is evidence of a slowing world economy. The economy can no longer support energy prices as high as they have been, and they have gradually retreated. Currency relativities have also readjusted, leading to lower prices of imported goods for the United States. Both lower energy prices and lower prices of imported goods contribute to lower inflation rates. Instead of reaching “Peak Oil” through the limit of high oil prices, we are reaching the opposite limit, sometimes called “Limits to Growth.” Limits to Growth describes the situation when an economy stops growing because the economy cannot handle high energy prices. In many ways, Limits to Growth with low oil prices is worse than Peak Oil with high oil prices. Slowing economic growth leads to commodity prices that can never rebound by very much, or for very long. Thus, this economic malaise leads to a fairly fast cutback in commodity production. It can also lead to massive debt defaults. Let’s look at some of the pieces of our current predicament.

    Oil hits month-high on output forecast, OPEC comments: Crude prices hit one-month highs on Tuesday after a new U.S. forecast showed tighter oil supplies next year, while Russia, Saudi Arabia and other big producers hinted at further talks to support the market. Global crude benchmark Brent returned to above $50 a barrel, breaking range-bound trades since early September that have largely seen the market trade in a $5 band. A weakening dollar added support for oil, as did bets that the U.S. oil rig count could tumble again this week after last week's unexpectedly sharp decline of 26 rigs.  Brent crude, the global oil benchmark, was up $1.95, or 4 percent, at $51.20 a barrel by 1:57 p.m. EDT (1757 GMT), after rising as high as $51.99, it's strongest level since Sept. 3. Traders also cited technical buying for Brent at above $50 a barrel as it headed for its first three-day gain in a stretch after Monday's rise of more than 2 percent and Friday's climb of nearly 1 percent. U.S. benchmark West Texas Intermediate crude rose $1.77, or 3.8 percent, at $48.03 a barrel, after touching a one-month high of $48.63.

    Oil jumps $2, breaking range as supply seen ebbing  (Reuters) - Oil prices jumped more than $2 a barrel on Tuesday, breaking out of a month-long trading range on a mix of technical buying and industry talk as well as U.S. government data suggesting the global supply glut could be ebbing. Global benchmark Brent crude rallied for a third straight day and settled above $50 a barrel for the first time in a month. This convinced some dealers that there was little chance prices would slide back to the 6-1/2-year lows touched in August. Early gains were fueled by a U.S. government forecast for tighter oil supplies next year, and indications that Russia, Saudi Arabia and other big producers might pursue further talks to support the market. The rally accelerated above $50 on chart-based buying and a weakening dollar. Brent settled up $2.67, or 5.4 percent, at $51.92 a barrel, breaking out of the $47 to $50 band it had traded since early September. Its session peak, a penny shy of $52, was the highest since Sept. 3, and took three-day gains to more than 7 percent. West Texas Intermediate (WTI), the U.S. crude benchmark , settled up $2.27, or 4.9 percent, at $48.53. "We have reduced the probability of a return to the $37 to $38 area per nearby WTI,"  "We will maintain a longstanding view that price declines below this support level are virtually off of the table."

    Oil up to $50 on speculation producers getting together - Oil prices rose on Tuesday, heading for the first three-day gain in five weeks, on signals that the world’s biggest producers of crude may act jointly to support prices, which have halved over the past year. Brent crude, the global oil benchmark traded up 75 cents at the $50.00 a barrel milestone for the first time in two weeks by 1243 GMT, or 1.4 percent day on day. It rose 2.3 percent on Monday. The U.S. benchmark, West Texas Intermediate crude, was up 36 cents at $46.62 a barrel. The contract gained 1.6 percent in the previous session. “The market is possibly moving on speculation that OPEC and non-OPEC countries will find an agreement to cooperate,” said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt. Russia’s energy minister said Russia and Saudi Arabia had discussed the oil market in a meeting last week and would continue to consult each other. This was in line with comments made by OPEC Secretary-General Abdullah al-Badri at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut. “There is one problem we are facing: the overhang,” he said, adding there were already signs of higher crude demand and of a drop in supply growth from non-OPEC members.

    Oil up as U.S. production falls, stockpiles draw  – Oil prices rose on Wednesday after data showed the market was beginning to tighten, with falling supply, higher demand and lower inventories after two years of heavy surplus. The U.S. government’s Energy Information Administration (EIA) said in a monthly report global oil demand should increase by its fastest rate in six years in 2016, suggesting a surplus of crude is easing more quickly than expected. That view was reinforced by industry group the American Petroleum Institute (API), which said U.S. crude oil stocks decreased by 1.2 million barrels last week and distillate stockpiles also fell. Global benchmark Brent crude oil has dropped to around $50 from a high above $115 a barrel in June 2014 and many oil companies are losing money with oil prices so low. Brent rose $1.07 a barrel, or more than 2 percent, to a high of $52.99 on Wednesday before easing to $52.90. It jumped as much as $3 on Tuesday to close above $50 for the first time in a month. U.S. light crude rose $1.18 to high of $49.71. “The market has just realised the extent of the U.S. crude oil production decline and is pricing this in,” said Daniel Ang, oil analyst at brokerage Phillip Futures. Tuesday’s jump in oil prices pushed both crude benchmarks out of narrow trading ranges that had held for more than a month and chart analysts said prices could now rise further.

    Jack Kemp's Weekly Data Points -- October 7, 2015

    U.S. commercial crude oil inventories week ending 10/2/2015 UP 3.1 MMbbl, refinery utilization = 87.5%
    US commercial crude stocks rose +3.1 million bbl last week, up +10.2 million bbl in last 6 weeks
    Price of WTI is still holding, at least for the moment; flirting with $50/bbl threshold.
    US refineries cut throughput -403,000 b/d, exactly in line with 2014, but fuel consumption higher so tighter overall
    US crude oil imports eased down to 7.1 million b/d, from 7.6 million b/d the prior week, slightly below avg for 2015
    US gasoline consumption averaged +350,000 b/d above 2014 in last four weeks, tracking normal post-summer slowdow
    US gasoline stockpiles continued to rise (+1.9 million bbl) and seasonal stocks are now the highest for over 10 yrs -- what peak oil?
    US gasoline stocks stand at 24.76 days of current consumption, up from 23.99 days this time in 2014
    US distallate stocks fall for 3rd consecutive week, down -2.5 million bbl, but still +23.0 million above prior-year

    Crude Oil Price Dives After EIA Storage Report - The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning. U.S. commercial crude inventories increased by 3.1 million barrels last week, maintaining a total U.S. commercial crude inventory of 461 million barrels. The commercial crude inventory remains near levels not seen at this time of year in at least the past 80 years. Tuesday evening, the American Petroleum Institute (API) reported that crude inventories slipped by 1.2 million barrels in the week ending September 25. For the same period, analysts had estimated an increase of 2.5 million barrels in crude inventories. Total gasoline inventories increased by 1.9 million barrels last week, according to the EIA, and are now above the upper limit of the five-year average range. Total motor gasoline supplied (the agency’s measure of consumption) averaged about 9 million barrels a day for the past four weeks, up by 4% compared with the same period a year ago. On Monday the EIA released its latest version of the Short-Term Energy Outlook. The agency estimated that U.S. crude oil production fell by 120,000 barrels a day month-over-month in September. For the current year, the EIA projects average daily U.S. production of 9.2 million barrels; for 2016 EIA projects 8.9 million barrels a day. The agency also forecasts retail gasoline prices to tumble from an average of $2.37 a gallon for regular gas to $2.03 in December. For 2016, the EIA projects an average price of $2.38 a gallon.

    Crude Plunges After Bigger-Than-Expected Inventory Build & Production Surge -- In the face of a modest inventory drawdown (reported last night by API), DOE reports a major 3.073 million barrel inventory build (for the 2nd week in a row). As EIA reports, oil stocks remain at their highest in at least 80 years. Rubbing salt into the wounds, Crude production rose 0.84% WoW, the biggest surge in 5 months. WTI Crude's initial reaction is a significant sell-off... Biggest 2-week build since May...And production surged by the most in 4 months... (with a 0.7% rise in the Lower 48's production) And so Crude gives back all its post-API gains... Charts: Bloomberg

    WTI Crude Surges Back Above $49 After OPEC Comments  -- WTI Crude has recovered the losses following yesterday's DOE-reported inventory and production rise as it appears comments from OPEC Secretary-General Al-Badri told The IMF that demand will climb more this year than previously projected (coming on the heels of EIA's comments that oil companies worldwide will cut investments in oil exploration and production by a record 20 percent this year.) USD weakness is also helping drive algos to run stops in crude. Charts: Bloomberg Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMF’s International Monetary and Financial Committee. There is a supply overhang of about 200 million barrels in the market, El-Badri said at a conference in London on Oct. 6.

    Oil extends gains, set for biggest weekly rise since 2009 | Reuters: Oil extended gains on Friday and was set for its biggest weekly rise in over six years after U.S. Federal Reserve minutes suggested it was in no hurry to raise interest rates and an influential forecaster predicted a price rally. Brent crude, the global benchmark, was up 75 cents at $53.80 a barrel at 1211 GMT, 1.3 percent above the previous close and on track to rise 12 percent this week alone. U.S. crude was up $1, or 2 percent, at $50.43 a barrel, the highest level in more than two months. The U.S. central bank's meeting minutes showed more policymakers than expected agreed to keep the first interest rate hike in a decade on hold. The news also supported equity markets on Friday, with top European stocks climbing to a one-month high. Forecaster PIRA Energy Group issued a bullish oil price prediction on Thursday, saying oil would hit $70 a barrel by the end of next year and trade at $75 in 2017. "The Fed minutes and the PIRA price forecast are driving prices today," said Tamas Varga, oil analyst at London brokerage PVM Oil Associates. "The rally may sustain for the short term but it should run out of steam some time next week because we are in a generally oversupplied market."

    WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Ain't Buying It) - WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world’s biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.Following the 2nd biggest week in crude since January 2009... WTI Crude broke above $50 for the first time since July... “The stocks have been oversold over the past year and that’s helping the rally now,”  “Question is where will oil prices settle now? Investors think oil companies can weather the storm because they’ve got so many levers to pull.” However, Credit markets remain notably unimpressed (and given their focus on cashflows, we suspect at this level of risk, they are less momo and more fundamentally driven)... As Bloomberg reports, Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June. Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.

    U.S. Oil Rig Count Slides Again - WSJ: The U.S. oil-rig count dropped by nine to 605 in the latest week, extending a recent string of declines, according to Baker Hughes Inc. BHI -1.55 % The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year. After a streak of modest growth, the rig count has now declined for six consecutive weeks. U.S. oil prices recently were up 0.4% to $49.61 and have been hovering around the $50 mark. There are now about 62% fewer rigs from a peak of 1,609 last October. According to Baker Hughes, the number of gas rigs fell by six to 189. The U.S. offshore rig count was 32 in the latest week, up two from last week and down 26 from a year ago. For all rigs, including natural gas, the week’s total declined by 14 to 795.

    US rig count declines by 14 this week to 795 (AP) — 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 14 to 795. It was the sixth consecutive week of declines. Houston’s Baker Hughes said Friday that 605 rigs were seeking oil and 189 explored for natural gas. One was listed as miscellaneous. A year ago, with oil prices about double the prices now, 1,930 rigs were active. Among major oil- and gas-producing states, Oklahoma lost six rigs, Texas declined by four and Kansas, Louisiana, North Dakota, Ohio and Pennsylvania each dropped by one. Colorado gained one rig. Alaska, Arkansas, California, New Mexico, Utah, West Virginia and Wyoming 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 6th week on weak crude prices - Baker Hughes --U.S. energy firms cut oil rigs for a sixth week in a row this week, the longest streak of weekly declines since June, data showed on Friday, a sign low prices continued to keep drillers away from the well pad. Drillers removed nine oil rigs in the week ended Oct. 9, bringing the total rig count down to 605, oil services company Baker Hughes Inc said in its closely followed report. That total was the least since July, 2010. Drillers had cut a total of 61 rigs over the prior five weeks. Since hitting an all-time high of 1,609 during this week a year ago, weekly rig count reductions have averaged 20. Baker Hughes also reported a reduction in natural gas rigs, bringing total U.S. oil and gas rigs to a 13-year low. Gas rigs were down six this week to 189, the lowest level in at least 28 years, according to Baker Hughes data going back to 1987. The oil rig reductions over the past month erased the 47 rigs added over the summer when drillers followed through on plans to add rigs announced in May and June when U.S. crude futures averaged $60 a barrel. U.S. oil futures this week averaged $48 a barrel, up from a $45 average last week, on concerns over Russia’s entry into the Syrian conflict and a rising Chinese stock market. Drillers reduced the number of oil wells in three of the four major U.S. shale oil basins this week. Ten were cut in the Permian in West Texas and eastern New Mexico; two in the Eagle Ford in South Texas; and one in the Bakken in North Dakota and Montana. They added one in the Niobrara in Colorado and Wyoming.

    Four Ways the Oil Price Crash Is Hurting the Global Economy - Lower oil prices were roundly celebrated as a tailwind for global growth. In theory, the movement of wealth from commodity producers, which often stow away oil revenue in sovereign wealth funds, to consumers, which spend a far larger portion of their income, is a positive for economic activity. But strategists at Credit Suisse believe that so far, the global economy has seen only the storm from lower crude, not the rainbow that follows. "The fall in the oil price was considered by many investors, and ourselves, to be a significant positive for global GDP growth," a team led by global equity strategist Andrew Garthwaite admitted. The net effect of this development, according to their calculations, has turned out to be a 0.2 percent hit to the global economy.The negative effects of lower oil—namely the large-scale cuts to capital expenditures—are having a large and immediate impact on global gross domestic product. "The problem is that commodity-related capex accounts for circa 30 percent of global capex (with oil capex down 13 percent and mining capex down 31 percent in the past 12 months)," wrote the strategists, "and thus the fall in U.S. and global commodity capex and opex has taken at least circa 0.8 percent off U.S. GDP growth in the first half 2015 and circa 1 percent off global GDP growth over the last year." Garthwaite and his group highlight three other channels through which soft oil prices have adversely affected the American economy: employment, wages, and dividend income. Employment in oil and oil-related industries has declined by roughly 8 percent since October 2014, with initial jobless claims in North Dakota, a prime beneficiary of the shale revolution, at extremely elevated levels. During this period, average hourly wages for those employed in oil and gas extraction shrank nearly 10 percent after growing at a robust clip in the previous two years. And the payouts to investors who own oil stocks have also been cut, which Credit Suisse deems to be a modest negative for household income.

    Total Collapse In Interest For Oil Assets: Brazil Oil Auction Is Near Complete Failure - Brazil, which is caught in a vicious recessionary spiral which is only set to get much worse before it gets better, tried to obtain some much needed cash when earlier today it conducted an auction to sell exploration rights for of its oil and gas. It was, in short,  a disaster. According to Reuters, by midday Brazil had only sold 17 of 119 blocks offered. Companies made no bids at all for blocks offered in four of six basins, including areas in the prolific Campos Basin, Brazil's top producing region, and the offshore Camamu-Almada and Espirito Santo basins. Worse, the auction sold just 2 of the 10 blocks for sale in the Sergipe-Alagaos basin, which had been expected to be one of the most fiercely contested. The winning bidders had no competition. Traditionally, a key bidder for such rights has been Brazil's state-run energy giant, Petrobras, which however as a result of an ongoing giant price-fixing, bribery and political kickback scandal, has so far not bid for any blocks. With $130 billion in debt and a backlog of existing projects, Petrobras has not said if it will bid. In all previous auctions Petrobras, alone or in a group, was responsible for at least half of sales. Not this time. A total of 36 companies from 17 countries - including Petrobras, ExxonMobil Corp, BP Plc and Royal Dutch Shell Plc - registered for the auction. None of the majors have bid so far. Only a handful of sold blocks were even contested.

    Brazil's Petrobras cuts spending plan for 2nd time in 3 months (Reuters) - State-led Petróleo Brasileiro SA , struggling with the biggest debt load among global oil firms, on Monday cut $11 billion from capital spending plans for this year and next as Brazil's currency and oil prices slump. Petrobras, as the company is commonly known, plans to cut 2015 investment by 11 percent to $25 billion from the previous $28 billion, according to a statement. Investment for 2016 will be cut 30 percent to $19 billion from $27 billion. Budgeted costs plus operating expenses excluding purchases of raw materials were also trimmed for this year and next. The company is being battered by a whirlwind of bad news. In the last year, oil prices dropped nearly 50 percent and Brazil's currency, the real, slipped by a third against the U.S. dollar, causing revenue to fall and debt to soar. Meanwhile, the downgrade of its debt rating to junk status has raised the cost of borrowing, and a giant corruption scandal has tarnished its reputation with investors. "The company's uncertain future is the consequence of terrible governance," said Fabio Fuzette of Antares Capital, a Sao Paulo investment fund. "Debt is so high that they've sacrificed capital investment to preserve cash."

    Mexican crude oil output may only return to 2012 levels in 2018 – Mexico may succeed in bringing oil production only back to where it was three years ago by the time the current administration ends in 2018 despite a major reform to open up the industry, a senior government official said on Wednesday. In December 2012, the month President Enrique Pena Nieto took office, Mexican crude output was 2.56 million barrels per day (bpd), well down from peak production of nearly 3.4 million bpd in 2004. By this August, it had fallen to 2.25 million bpd. Deputy Energy Minister Lourdes Melgar said that with output declining at aging fields and international crude prices down sharply since last year, it would take time for new projects to make up the shortfall. “The situation has obliged us to make adjustments,” she said in an interview. “Just now, the most important thing is to arrest the decline in output and get back” to the 2.5 million bpd. Asked whether that figure was the best Mexico could hope for by 2018, Melgar said, “At this point in time to 2018, taking into account the time it takes to produce, yes.” That would be well below the target of 3 million bpd the government first set itself when Pena Nieto launched an overhaul of the oil and gas industry, which from last year opened up crude production and exploration to private companies.

    Huge oil discovery on Golan Heights - After more than a year of round-the-clock drilling, large amounts of oil have been found on the Golan Heights. Estimates are that the amount of oil discovered will make Israel self sufficient for very many years to come. Afek Oil and Gas chief geologist Dr. Yuval Bartov told Channel 2 News, “We are talking about a strata which is 350 meters thick and what is important is the thickness and the porosity. On average in the world strata are 20-30 meters thick, so this is ten times as large as that, so we are talking about significant quantities. The important thing is to know the oil is in the rock and that’s what we now know.” Three drillings have so far taken place in the southern Golan Heights which have found large reserves of oil. Potential production is dramatic — billions of barrels, which will easily provide all Israel’s oil needs. Israel consumes 270,000 barrels of oil per day. Although the existence of the oil in the ground is a fact, the critical phase now is to check how easily it can be extracted and whether it involves high production costs. In a period of very low oil prices, extraction will have to be relatively cheap to make exploitation of the field profitable. Just as Israel’s offshore Mediterranean gas discoveries have created an entire energy industry, so the Golan oil find could also generate a new industry around it. But while the gas has been found dozens of kilometers from Israel, the Golan find is much closer.

    Cheap oil shrinks Gulf bond sales as liquidity tightens (Reuters) - Low oil prices are stifling new corporate bond issuance in the Gulf as governments get less energy revenue, leaving banks and other institutional investors with less money to buy debt. International bond issues from the six-nation Gulf Cooperation Council, including both corporate and sovereign issues, dropped 33 percent from a year earlier to $22 billion in the first nine months of 2015, Thomson Reuters data shows. That is the lowest nine-month total since 2008, during the global financial crisis, when issuance totalled $15 billion. Economic growth has stayed robust, so companies still want to raise money. But investors have become less willing to buy bonds at ultra-low yields. Facing higher costs, some companies are cancelling issues. While some bankers cite geopolitical tensions in the Middle East and the approach of monetary tightening by the U.S. Federal Reserve, both factors have existed for many months. Now liquidity is tightening as governments deposit less oil earnings with banks. Last year, banks were so flush with cash that they bought regional bonds almost indiscriminately; that is no longer the case. "Wider spreads being demanded by bond investors, significant deterioration in the liquidity in the banking sector and the implication for the loan market, and of course the looming rate hike from the Fed are collectively making chief financial officers' funding strategy more difficult,"

    Saudi Petrodollar Reserves Fall To 32 Month Low Amid Crude Carnage, Proxy Wars, Budget Bleed -- Two weeks after Beijing shifted to a new currency regime in an effort to bring about a managed yuan devaluation, we explained why it really all comes down to the death of the petrodollar. When China began to burn through its FX reserves in a frantic attempt to put the deval genie back in the bottle, the world suddenly awoke to what it means when emerging markets begin burning through their rainy day funds.  Of course the reserve burn had been unfolding for quite sometime. That is, China’s epic UST liquidation was simply the most dramatic example of a dynamic that was already at play. As Deutsche Bank noted, the “Great Accumulation” ended months ago, as the world’s emerging economies began to dip into their USD war chests to defend against commodity currency carnage and the attendant capital outflows.  Nowhere is this more apparent than in Saudi Arabia, where Riyadh has been forced to tap the SAMA piggy bank amid the largely self inflicted pain from slumping crude, the war in Yemen, and the necessity of maintaining social order by preserving the lifestyle of everyday Saudis. Now, as the fiscal deficit balloons to 20% of GDP and falling crude prices put the kingdom on the path to a current account nightmare, reserves have fallen to their lowest levels in 32 months. Here’s Bloomberg: Saudi Arabia’s net foreign assets fell to the lowest level in more than two years in August and demand for loans among private businesses slowed, as the kingdom grappled with oil prices below $50 a barrel. Falling for a seventh month in a row, net foreign assets held by the central bank dropped to $654.5 billion, the lowest since February 2013. That compares with $661 billion in July, the Saudi Arabian Monetary Agency said in its monthly report. Credit to private businesses grew 8.4 percent, the slowest rate since 2011.

    On the actual reality of no more petrodollars -- - Isabella Kaminska -- About a year ago — a few days before Opec spooked the world with its decision to wage war on shale producers with an oil production race to the bottom, but following a few months of steady oil declines post the Fed’s decision to start signaling an upcoming tightening path — we speculated regarding a what if scenario based on the hypothetical eventuality of no petrodollars : For us — promoters of the view that commodity financialisation is a bigger deal for global flows, demand and output than most people appreciate — this was a major development. The theory loosely goes as follows. For as long as the US — the global superpower and added-value power house of the world — had a dependency on oil imports, it had no choice but to monetise imports with dollar outflows, or more specifically dollar IOU claims against its own economy issued to oil producers. Purchasing oil in IOUs, however, is unlikely to be tolerated by oil producers if such IOUs don’t keep their value over time. Indeed, if there’s too much inflationary debasement such relationships would soon grow hostile and void. Cue an oil selling embargo. Or some such. So, what we’re saying, essentially, is that the natural leverage oil producers have in the global economy is directly related to their ability to keep the US short of oil. Any sniff of inflation and, oops, there’s less crude for you United States, or the same exact amount of crude but for a much higher price to compensate for the inflation.

    Russia ready to meet OPEC to talk oil prices: Russia is ready to meet with members of the Organization of Petroleum-Exporting Countries (OPEC) -- as well as non-member oil producers -- to discuss the situation facing global oil markets, according to the country's oil minister. Alluding to a possible meeting with the 12-member oil producer group OPEC, Energy Minister Alexander Novak said Saturday "if such consultations are to happen, we are ready to take part," Reuters reported, although he did not say when and if such a meeting may take place. In addition, he told reporters that a meeting between officials from Russia and Saudi Arabia was being planned for the end of the month to discuss energy issues and other projects. Following the report, oil prices rose on Monday. Benchmark Brent crude was trading 70 cents higher at $48.72 a barrel Monday morning after ending up 44 cents on Friday. U.S. crude was 57 cents higher at $46.11 a barrel after settling up 80 cents.

    Russia, Saudi Energy Ministers Discussed Oil Demand, Production, Shale  (Reuters) – Russia and Saudi Arabia discussed the situation on the oil market last week and agreed to continue consultations, exchanging views on demand, production and shale oil, Russian Energy Minister Alexander Novak told reporters on Tuesday. Even though the oil price has halved since last year on oversupply, Russia, the world's top oil producer, has refused to cooperate with OPEC, where Saudi Arabia is the leading producer. Both OPEC and Russia are instead increasing production in a move to defend market share. Novak did say on Saturday that Russia was ready to meet with OPEC and non-OPEC producers to discuss the market and his comments have supported prices, although analysts have warned that relations may suffer over the two sides' different positions on Syrian President Bashar al-Assad's future.

    This Month Could Make Or Break The Oil Markets -- Saudi Arabia announced price cuts to its oil that it is exporting to Asia, in a bid to hold onto market share. Saudi Arabia’s competitors from the Gulf cut their prices last month, forcing the largest OPEC producer to follow suit. Saudi Arabia slashed prices by $1.70 per barrel, opening up a discount of $1.60 per barrel below the Dubai benchmark.  Although there was little expectation of a shift in strategy, the price cut highlights Saudi Arabia’s determination to continue to pursue market share by keeping production volumes elevated. And if there was any question about Saudi Arabia wavering as prices have failed to recover, the country’s top oil official put to rest any notion that the OPEC leader would alter course. “Since the 1970s this industry has been experiencing sharp fluctuations in prices—up and down—which have impacted investments in the field of oil and energy, and its continuity,” Saudi Arabia’s oil minister Ali al-Naimi, said. In other words, al-Naimi was calling upon non-OPEC producers to cut back production.While not specifically saying so, his comments suggest that Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States.But Russia is unable to cut production, even if such a move contributed to an increase in crude prices. Russia is already in deep recession, with the economy expected to contract by 3.8 percent this year. Russia is also producing at the highest level in decades, hitting 10.74 million barrels per day in September, according to the Russian government, a jump of 0.4 percent from a month earlier. While there has been a lot of speculation in the media about the possibility of Russia and OPEC coordinating production cuts in order to boost prices, the fact that Russia is producing the most oil since the Soviet era suggests that Russia is not considering collaborating with OPEC.That leaves few other options for major cut backs in production from market producers around the world, with a lot of attention on North America.

    Is Russia Plotting To Bring Down OPEC?  - naked capitalism Yves here. Even with this post giving what looks to be an overly-generous take of the impact of Western sanctions on Russia, the intriguing part is its argument that Russia is well on its way to organizing an anti-Saudi block within OPEC. While Russia has long been allied with Iran and Venezuela, they’ve never been heavyweight international oil players by virtue of the fact that they produce high cost and not terribly desirable heavy sour crude. By contrast, Iraq, which is moving closer to Russia, has the second largest proven oil reserves and they are light sweet crude. The fact that the US spend billions in treasure and lots of American and local lives, only to have Iraq align itself with Russia (even if only on a case-by-case basis) would be a colossal geopolitical own goal. Energy is the foundation of Russia, its economy, its government, and its political system. Putin has highlighted on various occasions the contribution Russia’s mineral wealth, in particular oil and natural gas, must make for Russia to be able to sustain economic growth, promote industrial development, catch up with the developed economies, and modernize Russia’s military and military industry. Even a casual glance at the IMF’s World Economic Outlook statistics for Russia shows the tight correlation since 1992 between GDP growth on the one hand and oil and gas output, exports, and prices on the other (economic series available here). The emergence of the U.S., along with Canada, as powerful crude, NGL, and natural gas producers is also a major concern for the Russian economy.  Putin’s moves in the Middle East could help Russia address the impact of these threats to the Russian energy industry. They potentially enhance the attractiveness of Russian crude and natural gas supplies compared to those from Saudi Arabia and its Gulf Arab allies. In the selection of crude and natural gas suppliers, security is a key consideration for importers. Wary of U.S. naval power, the Chinese, for example, prefer pipeline natural gas supplies over seaborne LNG supplies. Importers therefore must take into consideration the potential threats to transport. In this critical area, Russia enjoys a decided advantage over Saudi Arabia and the Gulf Arab producers, which depend on sea transport through the Persian Gulf and the Red Sea to ship their oil and LNG. Each of the three routes from these two bodies of water passes through a “choke point” (from the Red Sea, through the Suez Canal to Europe and through the Mandeb Strait to Asia, from the Persian Gulf through the Strait of Hormuz). By adding an airbase to their military presence in Syria, the Russians—coordinating with Iran, Syrian President Assad, and eventually possibly Iraq—would have the capability to disrupt shipments from Persian Gulf and Red Sea terminals.

    Saudi Aramco Cuts Crude Pricing to Asia, U.S. Amid Weak Demand - Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand. Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg. Brent crude, a global benchmark, tumbled almost 50 percent last year as Saudi Arabia and other OPEC members chose to protect market share instead of decreasing output to boost prices. Brent fell from more than $100 a barrel in July 2014 to less than half that amount six months later and traded below $50 a barrel on average in September. Contracts for November settlement were 40 cents higher at $48.53 a barrel on Monday at 7:19 a.m. in London. “They needed to cut pricing to keep Saudi crude competitive with other grades,” Saudi Arabia will continue investing in oil production even amid the low prices, Ali Al-Naimi, the country’s oil minister said in a speech in Istanbul, in comments reported by state-run Saudi Press Agency Friday. Volatile oil prices affect investments, creating a situation that’s not good for producers or consumers, he said. “We have to do the right thing,” Al-Naimi said   Commercially viable producers “will continue to prevail,” and the Organization of Petroleum Exporting Countries will increase its market share, he said.

    Saudi Oil Minister Puts On Brave Face Amid Severe Headwinds: "Eventually, Economic Producers Will Prevail" -- As the EM world looks on helplessly while Saudi Arabia’s war with the US shale complex (and, by extension, with the Fed) serves to keep crude prices depressed putting enormous pressure on commodity currencies and accelerating emerging market outflows, the question is whether Riyadh’s SAMA piggy bank can outlast the various capital market lifelines available to America’s largely uneconomic shale drillers.  It’s tempting to simply say “yes.” That is, with the next round of revolver raids due in days and with HY spreads blowing out amid jittery US markets, it seems unlikely that maligned US producers will be able to survive for much longer, and despite the fact that data out yesterday shows Riyadh’s FX reserves falling to a 32-month low, the Saudi war chest still amounts to nearly $700 billion,  giving the kingdom plenty of ammo. Given the above, some have dared to suggest that in fact, the Saudis could lose this “war” just as they may be set to lose their status as regional power broker to Tehran thanks to Iran’s partnership with Moscow in the ongoing effort to shore up Assad in Syria and wrest control of Baghdad from the US. But don’t tell that to Saudi Arabia's Oil Minister Ali al-Naimi who says that despite all the uncertainty, the economics of oil exploration and production will prevail at the end of the day. Here’s Reuters, citing Economic Times: Saudi Arabia's Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC's share of the market will rise, India's Economic Times newspaper reported on its website on Monday. In comments suggesting Saudi Arabia, the world's top oil exporter, is sticking to its policy of defending market share rather than supporting prices, Naimi told the paper the drop in oil prices was less of a problem than fluctuations.

    Saudi pricing shows oil volatility in action amid oversupply -- Saudi Arabia’s decision to lower prices for oil loading in November shows that the battle for market share in an over-supplied Asian crude market is far from over. Saudi Aramco, the kingdom’s state-owned oil company, cut its official selling price (OSP) for its main Arab Light grade to Asia to a discount of $1.60 a barrel to the regional benchmark Oman/Dubai price for November from a premium of 10 cents for October cargoes. While the reduction was at the lower end of expectations of traders surveyed by Reuters ahead of the announcement, it still indicates that the Saudis are willing to accept reduced prices in order to keep their crude competitive. In turn, this shows that there is still likely some distance to go before the end of the current cycle of weak crude prices, especially if one accepts the view that the Saudi pricing strategy reflects their desire to maintain market share over pricing power. A wider contango in the Dubai market structure in recent weeks, with oil for three months out commanding a higher premium than spot deliveries, was always likely to lead to a drop in the Saudi OSPs. The OSPs probably didn’t decline by as much as indicated by the contango because they hadn’t risen by as much in the third quarter, when the contango virtually disappeared amid strong demand for prompt supplies. The Saudi OSPs set the trend for prices from Middle East rivals such as Iran, Iraq and Kuwait, and are thus the bellwether for as much as 12 million barrels per day (bpd) of crude destined for Asian refiners.

    Oil market needs an anchor, Saudi adviser says -- The lack of a clear leader or “anchor” in the global oil market is fueling uncertainty and leading to sharp swings in crude prices, but this uncertainty is unlikely to continue for long, a senior Saudi oil adviser said. The comments by Ibrahim al-Muhanna suggest that Saudi Arabia and the rest of OPEC understand that they are unable to manage the oil market alone for the time being, and would like to see some kind of collective mechanism to reduce the current instability in the market. “In the current circumstances, the international oil market could continue in an unstable situation, where there is a lot of uncertainty with the lack of a market anchor,” Muhanna, an adviser to the Saudi oil minister, told a closed-door energy event in Kuwait on Wednesday. His comments were released publicly on Friday. “In the end, this means the inability of investors to find a suitable price in the market currently and in future,” he said in the speech. “This is an unnatural situation and it is difficult to see it continuing.” Top oil exporter and OPEC heavyweight Saudi Arabia was the driving force behind OPEC’s landmark decision, at its meeting in November 2014, not to cut oil output to support prices, and instead seek to defend market share. The decision, which is a shift from OPEC’s traditional role of reducing production to prop up prices, has along with a supply glut helped trigger a sharp drop in crude prices in the last year. The message from Riyadh has been clear: the kingdom is no longer willing to shoulder the burden of reducing production alone and if others want better prices, they should take on their share of output cuts.

    Saudi Arabia Said to Order Spending Curbs Amid Oil Price Slump - Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people with knowledge of the matter. The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned the buying of vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said. With oil accounting for about 90 percent of revenue in the Arab world’s largest economy, a drop of more than 40 percent in crude prices in the past 12 months has combined with wars in Yemen and Syria to pressure Saudi Arabia’s finances. While public debt is among the world’s lowest, with a gross debt-to-GDP ratio of less than 2 percent in 2014, that may rise to 33 percent in 2020, according to estimates from the International Monetary Fund.  To help shore up its finances, authorities plan to raise between 90 billion riyals ($24 billion) and 100 billion riyals in bonds before the end of the year, people with knowledge of the matter said in August. The kingdom’s net foreign assets fell for a seventh month to $654.5 billion in August, the lowest level in more than two years. That’s down from a record $737 billion a year earlier. Economic growth in OPEC’s biggest oil exporter will probably slow to 3 percent this year from 3.6 percent in 2014, according to the median estimate of economists on Bloomberg. Brent, a benchmark for more than half the world’s crude, was trading at $51.73 per barrel at 1:33 p.m. in London, down about 10 percent this year.

    Saudi Arabia Declares Spending Moratorium As Oil Rout Bankrupts Kingdom -- As we’ve documented extensively for the better part of a year, the Saudis’ move to “Plaxico” themselves by artificially suppressing crude prices in an attempt to preserve market share by bankrupting the largely uneconomic US shale space has far-reaching implications for global liquidity. When the supply of exported petrodollar capital turned negative for the first time in decades last year, it effectively ushered in a new era wherein the “great accumulation” (to quote Deutsche Bank) of USD-denominated assets by the world’s reserve managers came to an abrupt end removing a decades-old, perpetual bid for DM debt.   But that’s the bigger picture. At a more granular level, the Saudis bankrupted themselves, as slumping crude killed the current account and simultaneously created a budget deficit that amounts to 20% of GDP.  Now, as Bloomberg reports, Riyadh has effectively declared a spending moratorium in the wake of self-inflicted crude carnage: Saudi Arabia is ordering a series of cost-cutting measures as the slide in oil prices weighs on the kingdom’s budget, according to two people familiar with the matter.The finance ministry told government departments not to contract any new projects and to freeze appointments and promotions in the fourth quarter, the people said, asking not to be identified because the information isn’t public. It also banned buying vehicles or furniture, or agreeing any new property rentals and told officials to speed up the collection of revenue, they said.

    Iran to launch new oil projects, sees post-sanctions supply boost - Iran will introduce more than 50 exploration and production projects to investors in the near future, the country’s chief negotiator for new oil contracts said on Tuesday. Seyed Mehdi Hosseini, head of Iran’s Oil Contracts Restructuring Committee, told the Oil & Money conference in London the contracts would be introduced in Iran this year and at a conference in the British capital in February 2016. Iran is keen to recover the oil market share it lost as a result of international sanctions imposed over its nuclear program. These are due to be lifted following a deal in July with world powers to curb the nuclear program and Iran says it could boost supplies quickly. “Immediately after sanctions are lifted, maybe we within some months we can add at least 500,000 barrels per day (bpd). It does not take that long,” Hosseini told reporters on the sidelines of the conference. “After that we are targeting another 1 million. Maybe in less than a year we can come to our pre-sanction capacity of around 4 million bpd.”

    The REAL Reason Saudi Arabia Hates Iran -- Everyone knows that the Saudi Arabia – the center of Sunni Islam – hates Iran because it is the center for the rival Shia Muslim sect. The Saudis – close U.S. allies – also hate Iran because it is allied with Russia. But there is a third, little-known reason why the Saudi government hates Iran. As the Gulf Cooperation Council – the official council for the Arab Gulf States, comprised of the monarchies of Saudi Arabi, Kuwait, Bahrain, the United Arab Emirates, Qatar and Omanwrites: More than any other single factor, the Iranian Revolution helped to coalesce the security concerns of Saudi Arabia and the other monarchies in the Gulf region. As the largest Arab monarchy, Saudi Arabia was in a position to lead the others toward cooperative efforts. The impact of the Iranian Revolution on Saudi Arabia was manifold. The revolution destroyed the most powerful monarchy in the Gulf area. It was the second revolution to send shock waves throughout the Gulf region, the first being the revolution in Iraq that destroyed the monarchy in 1958. The Iraqi revolution had been followed by deteriorating relations between Riyadh and Baghdad, when the Baathist regime tried to subvert the Gulf monarchies. The Iranian example, however, appeared more menacing. The balance of forces seemed to have changed further against the monarchical regimes in the region because Iran, like Iraq, replaced the monarchy with a republic. Whatever course the new Iranian republic took, its very existence would threaten Saudi Arabia and other Gulf monarchies. In other words, the Saudi government hates Iran because it is a republic, while Saudi Arabia and the other Gulf states are monarchies.

    Qatar’s Wealth Fund Said Interested in Glencore Agriculture Sale -- The sovereign wealth fund of Qatar has joined investors expressing an interest in buying a minority stake in Glencore Plc’s agriculture business, according to three people familiar with the conversations. The talks are preliminary and a sale would take as long as six months, said the same people, who asked not to be identified because the matter is confidential. Qatar Holding LLC, the direct investment arm of the Gulf state’s sovereign wealth fund, is already the largest investor in the Swiss-based commodities trader-cum-miner, with an 8.9 percent stake, people said earlier this week. Others involved in preliminary talks with Glencore include the sovereign wealth fund of Singapore, Japanese trading house Mitsui & Co. and Canada Pension Plan Investment Board, the country’s largest pension manager. Citigroup Inc., one of the banks hired to run the sale alongside Credit Suisse Group AG, said earlier this month that the whole business could be worth as much as $10.5 billion. Glencore is seeking to sell a minority stake in the unit, which deals in commodities from wheat to cotton, soybeans to sugar. As part of negotiations with potential buyers, the Swiss-based commodities trader is considering a plan that will carve out its agriculture business as a stand-alone company with its own capital structure, incorporating the unit in Singapore, the same people said. Under the island state’s rules, commodity trading houses can benefit from tax rates as low as 5 percent.

    Tanker Rates Soar As China Hordes Saudi's "Cheap" Oil Amid Biggest Price Cut Since 2012 -- The oil patch is full of conundra currently... crude price declines globally to near 2009 lows but supertanker day-rates (demand) soaring over $100,000 for the first time since 2008. However, today's news that Saudi Arabia is slashing its price (to a $3.20 discount to the bechmark with the largest price cut since 2012) suggests in an effort to shore up tumbling reserves and capture more market share amid dwindling demand (and excess supply) - a price war has begun led by US ally Saudi Arabia... and China is hording crude at these low-low prices. With crude prices stuck near multi-year lows... Saudi Arabia cut pricing for November oil sales to Asia and the U.S. as the world’s largest crude exporter seeks to keep its barrels competitive with rival suppliers amid sluggish demand.As Bloomberg reports, Saudi Arabian Oil Co. reduced its official selling price for Medium grade crude to Asia next month to a discount of $3.20 a barrel below the regional benchmark, compared with a $1.30 discount for October sales, the company said Sunday in an e-mailed statement. The discount for the Medium grade to Asia, the main market for Saudi crude, widened by the most since the state-owned company made a $2 a barrel cut in February 2012, according to data compiled by Bloomberg.

    What Will Happen To Oil Prices When China Fills Its SPR? --The available information on China’s Strategic Petroleum Reserve is a mess. The data is sparse, infrequent, and contradictory, which is something one might expect from a strategic sector originating in China. In an apparent attempt to rectify this lack of transparency, in November of 2014 the Chinese government actually stated it would begin regularly releasing official data on its Strategic Petroleum Reserve; however, the data has not been particularly forthcoming, and has been erratic. So, there is still a need to fill information gaps regarding China’s SPR.  The SPR is supposed to eventually hold 500 million barrels, although some are now estimating that figure is meant to rise to 600 million by 2020, based on new demand assumptions and added facilities brought online this year. China has been building its reserve capacity for about a decade, and has been tackling this massive task in three phases, all of which are set to be complete by 2020. Phase 1, which saw four storage facilities constructed, is widely accepted to be complete, and currently holds around 90 percent of capacity, with 91 million barrels of crude stored, out of a capacity of 103 million, covering 9 days of Chinese consumption. China is currently in the middle of phase 2 construction, along with all the complexity and confusion that entails. Several of these facilities came online in 2011 and 2014, with others that have been completed earlier this year, and a couple slated to be completed in Q4 of this year. Originally, phase 2 was supposed to have 8 storage sites, but it is now believed that figure has been increased to 10, which will hold approximately 260 million barrels of crude..

    China to curb yuan speculation amid reform push: central bank - China is studying plans to curb currency speculation even as it seeks to quicken the process of making the yuan trade freely, a deputy central bank governor said. Beijing will further open up its capital markets and develop its foreign exchange market as it aims to "accelerate the renminbi convertibility on the capital account", Yi Gang wrote in an article published in China Finance magazine, a central bank publication. The yuan CNY=CFXS is also known as renminbi. While the yuan is already convertible under China's current account, the broadest measure of trade in goods and services, the capital account, which covers portfolio investment and borrowing, is still subject to restrictions due to worries about abrupt capital flight and hot money inflows. Chinese officials have not given a firm timetable for making the yuan freely tradable. They have pledged financial reforms to make the yuan more convertible as they push for it be included in the International Monetary Fund's Special Drawing Rights (SDRs) basket. But the authorities are also studying plans to curb currency speculation, including a "Tobin tax", non-interest bearing reserve requirement and foreign exchange trading fees, Yi said.

    China’s Nightmarish Citizen Scores Are a Warning For Americans - ACLU - China is launching a comprehensive “credit score” system, and the more I learn about it, the more nightmarish it seems. China appears to be leveraging all the tools of the information age—electronic purchasing data, social networks, algorithmic sorting—to construct the ultimate tool of social control. It is, as one commentator put it, “authoritarianism, gamified.” Read this piece for the full flavor—it will make your head spin. If that and the little other reporting I’ve seen is accurate, the basics are this:

    • Everybody is measured by a score between 350 and 950, which is linked to their national identity card. While currently supposedly voluntary, the government has announced that it will be mandatory by 2020.
    • The system is run by two companies, Alibaba and Tencent, which run all the social networks in China and therefore have access to a vast amount of data about people’s social ties and activities and what they say.
    • In addition to measuring your ability to pay, as in the United States, the scores serve as a measure of political compliance. Among the things that will hurt a citizen’s score are posting political opinions without prior permission, or posting information that the regime does not like, such as about the Tienanmen Square massacre that the government carried out to hold on to power, or the Shanghai stock market collapse.
    • It will hurt your score not only if you do these things, but if any of your friends do them. Imagine the social pressure against disobedience or dissent that this will create.
    • Anybody can check anyone else’s score online. Among other things, this lets people find out which of their friends may be hurting their scores.

    China's credit-fuelled expansion 'unsustainable' as country faces delicate transition to safer growth - Telegraph: China must consign its three decades of “extraordinarily rapid growth” to the past if the economy is to avoid a hard landing, according to the International Monetary Fund. The Fund said downside risks in the world’s second largest economy had risen in recent months, but urged China not to use debt-financed investment to boost growth. Tumbling commodity prices and the prospect of higher interest rates in the US had magnified spillovers from the country, the IMF said in a blog. This was likely to lead to lower growth throughout the rest of Asia, with a one percentage point slowdown in Chinese growth expected to translate into a 0.3 percentage point decline across the rest of Asia. “Such spillovers obviously are of concern, and recent experience suggests that spillovers to China’s neighbours in Asia might have become even larger lately, coming not only through trade but also global financial market linkages,” said Changyong Rhee, the blog’s author and director of the IMF’s Asia and Pacific Department. Mr Rhee said he remained confident that Chinese policymakers had the right tools to “prevent growth from falling excessively”, even as manufacturing and construction slows. He said China’s shock move to devalue the renminbi in August was “in line with medium-term fundamentals” but said clear communication from Beijing was vital to guide markets and manage market volatility.

    China’s Foreign Exchange Reserves Drop $43.26 Billion in September - WSJ: China’s foreign-exchange reserves dwindled further in September, a trend that likely will force the country’s central bank to step up monetary easing. Beijing traditionally has relied on an influx of capital for its money supply—not a problem as foreign-exchange reserves piled up when the central bank bought dollars from the country’s exporters. But now, with inflows turning into outflows as the Chinese economy slows, the bank finds itself having to look for other channels—such as direct lending to financial institutions and government bond buying—to create money and keep liquidity flowing.  The People’s Bank of China on Wednesday said currency reserves fell $43.3 billion in September to $3.51 trillion as more funds left the country, the fifth consecutive monthly drop but a less sharp one than the record $93.9 billion plunge the previous month. That came after the central bank first devalued the yuan in a mid-August surprise and then saw itself forced to step up selling of dollar assets, particularly U.S. Treasurys, to prevent a free fall in the currency. The continued decline in the reserves is highlighting a paradox in the world’s second-largest economy: Despite what has appeared to be extraordinary credit-easing measures by the PBOC over the past year, the central bank has fallen short, economists say. Not only have its efforts failed to jump-start productive lending to spur growth, but the lower foreign-exchange inflows have meant that the PBOC’s own assets haven’t kept pace with growth.

    China's Forex Reserves Drop Most On Record: What Does It Mean? Inflation Tsunami? --  Bloomberg reports China's Foreign Reserves Post Record Quarterly Drop on YuanChina’s foreign-exchange reserves fell by a record in the third quarter as the central bank sold dollars to support the yuan after a surprise Aug. 11 devaluation sparked the currency’s steepest slide in two decades. The stockpile plunged by $180 billion in the three months through September to $3.51 trillion, according to Bloomberg calculations based on data released by the People’s Bank of China on Wednesday.Note that China's Forex reserves are down about $500 billion from the 2014 peak. So what's it mean?  Peter Schiff predicted a Bombshell Event in November of 2013.The following "bombshell" quotes are from The Schiff Report (11/22/2013). Remarkable Set of Wrong Predictions In One Video:

    1. Fed would not taper (Tapering finished)
    2. No one would buy 10-year treasuries at 2.8% (yield is now 2.04%)
    3. Fed would have to pick up slack when China stopped accumulating treasuries (Nope)
    4. Downturn in oil over (Nope - clearly not then - perhaps now)
    5. Higher fuel bills (Nope -  clearly not then - perhaps now )
    6. US consumers will see higher interest rates (Nope - But is the Fed going to hike now? Peter care to predict?)
    7. Tsunami of inflation (Clearly laughable)
    8. Yuan will appreciate when China stops buying treasuries (Nope - China had to prop up the yuan)

    Quantitative frightening | The Economist: A DEFINING feature of the world economy over the past 15 years was the unprecedented accumulation of foreign-exchange reserves. Central banks, led by those in China and the oil-producing states, built up enormous hoards of other countries’ currencies. Global reserves swelled from $1.8 trillion in 2000 to $12 trillion by mid-2014. That proved to be a high point. Since then reserves have dropped by at least $500 billion. China, whose reserves peaked at around $4 trillion, has burnt through a chunk of its holdings to prop up the yuan, as capital that had once gushed in started to leak out. Other emerging markets, notably Russia and Saudi Arabia, have also called on their rainy-day stashes. This has sparked warnings that the world faces a liquidity squeeze from dwindling reserves. When central banks in China and elsewhere were buying Treasuries and other prized bonds to add to their reserves, it put downward pressure on rich-world bond yields. Running down reserves will mean selling some of these accumulated assets. That threatens to push up global interest rates at a time when growth is fragile and financial markets are skittish. Analysts at Deutsche Bank have described the effect as “quantitative tightening”. In principle, rich-world central banks can offset the impact of this by, for instance, additional “quantitative easing” (QE), the purchase of their own bonds with central-bank money. In practice there are obstacles to doing so.

    Is China's economy heading for a crash?: Markets are well aware that China's exceptional growth rate is finally slackening but economists are increasingly cognisant of this slowing could turn into a crash for the world's second largest economy. Concerns are beginning to rise about China's future economic prospects. While the International Monetary Fund chose not to downgrade its economic forecasts for the country's GDP, Citi's chief economist Willem Buiter has warned China will drag the rest of the world into a global recession. "We consider China to be at high and rapidly rising risk of a cyclical hard landing," Mr Buiter and his economist colleagues said in a report. "The reasons behind China's downturn and likely recession are familiar: rising excess capacity in a growing number of sectors, excessive leverage in the private sector and episodes of irrational exuberance in asset markets. Deutsche Bank research has joined the ranks with a new report that analyses the potential for a hard landing and economic crash in the economy that powered much of Australia's mining boom prosperity. "Market commentary continues to point to uncertainty about the Chinese economy as an important source of negative sentiment. 'Hard landing' fears, it seems, also persuaded the US Federal Reserve not to raise rates last month," chief economist Peter Hooper said.

    Yuan Rising: China Surpasses Japan To Claim Number Four Spot In Most Used Global Currencies -- Bungled efforts to mark a “managed” transition to a new currency regime notwithstanding, China seems generally to be doing a decent job of gradually paving the way for a world in which the yuan plays a far greater role in global trade and investment.  That is, if we look beyond the recent FX market turmoil, the picture that emerges is one in which China has managed to convince Russia to settle oil imports in renminbi and in which the AIIB and Silk Road funds are set to help establish the yuan as the funding currency for billions in development projects.  While we may still be years away from the fabled “yuan hegemony,” we got still more evidence on Tuesday that despite the currency’s rather uncertain medium-term trajectory and despite a still closed capital account, China is moving ever closer to establishing the RMB as a reserve currency. Here's WSJ: In August, for the first time, the yuan moved ahead of Japan’s yen for fourth place in a league table of the most-used currencies for cross-border payments compiled by Swift, the international payments provider.A “substantial” increase in usage of the currency in the final week of August was triggered by market volatility caused by concerns about the Chinese economy and Beijing’s devaluation of the yuan, Swift said in a report.

    Japan on Brink of Technical Recession - is on the verge of a technical recession after data on industrial production raised the prospect of a second consecutive quarter of negative growth.  Industrial production for August — a crucial input into gross domestic product — unexpectedly fell by 0.5 per cent on the previous month after a 0.6 per cent fall in July. “It’s likely we’re already in technical recession,” said Masamichi Adachi, senior economist at JPMorgan in Tokyo, who forecast an annualised contraction of 1 per cent in the third quarter after 1.2 per cent in the second. In an interview with the Financial Times this week, Mr Abe’s economic adviser, Etsuro Honda, said additional fiscal stimulus was an “urgent task”, while an increasing number of analysts expect the Bank of Japan to expand its monetary stimulus at the end of October. Last week Janet Yellen, US Federal Reserve chair, implicitly criticised the BoJ’s policy, noting in a speech: “I am somewhat sceptical about the actual effectiveness of any monetary policy that relies primarily on the central bank’s theoretical ability to influence the public’s inflation expectations.”  The BoJ has a wide range of policy options for further easing. It could increase the rate of asset purchases from the current Y80tn ($670bn) a year; expand the range of assets it buys; or use communication tools to signal how long it will keep monetary policy loose.

    Japan's slow wage growth dents consumption outlook, BOJ meetings in focus | Reuters: Japanese wage growth slowed in August and summer bonuses fell from last year, a discouraging sign for private consumption that should keep policymakers under pressure to offer more stimulus as fears of a recession grow. Inflation-adjusted real wages rose 0.2 percent year-on-year, slowing from a revised 0.5 percent gain in July, as nominal wages lag price gains of food and daily necessities, undermining the purchasing power of households. Special payments - predominantly summer bonuses - rose 0.6 percent, but those paid during a bonus period between June and August were 3.4 percent lower than last year, labor ministry officials said. The data follows a mixed batch of indicators last week including a surprise drop in factory output and bigger-than-expected household spending growth, highlighting an uneven economic recovery from a second quarter contraction. Wages are seen as crucial for generating a virtuous growth cycle, especially as policymakers hope companies will spend record profits on investments and salaries, and help boost private consumption that accounts for about 60 percent of the world's third-biggest economy. "The data showed household incomes are improving gradually. Wages are not strong enough to drive consumption though,"

    Japan machinery orders fall in August, undermine BOJ optimism…Reuters) - Japan's machinery orders unexpectedly fell in August in a worrying indication that capital expenditure is weaker than many policymakers expected, which could increase the chances of new fiscal and monetary stimulus. Core machinery orders, a leading indicator of capital expenditure, fell 5.7 percent in August versus the median estimate for a 3.2 percent increase, and followed a 3.6 percent decline in the previous month. The decline in machinery orders suggests capital expenditure is not as strong as indicated in last week's Bank of Japan tankan survey and could undermine Governor Haruhiko Kuroda's optimism. The September tankan survey found that big firms plan to raise capital expenditure by 10.9 percent in the fiscal year that started April 1, compared with their previous plan to boost capital spending by 9.3 percent. Kuroda citied these figures as one reason inflation will pick up after the central bank left policy on hold on Wednesday, but the slide in machinery orders undermines this argument. The Cabinet Office lowered its assessment of machinery orders to say they are stalling. Machinery orders fell 3.2 percent in August from July led by down by electronics, steel and car manufacturers, Cabinet Office data showed. Orders from non-manufacturers' fell 6.1 percent, due to declines in orders from financial services and shipping. An unexpected decline in August industrial production led some economists to say the economy may have contracted in July-September, which would put it in a technical recession after a contraction in April-June.

    Bank of Japan Cuts Production Forecast as Slack Grows in Economy - WSJ: The Bank of Japan said Thursday that excess capacity increased in the second quarter and industrial output may have fallen over the summer, in yet another sign that the economy is veering away from the central bank’s projections. The bank’s own measure of the gap between available resources in the economy and their degree of utilization worsened to minus 0.73% in the April-June period from plus 0.19% in the previous quarter. It was the worst showing since the third quarter of 2013, according to the bank’s monthly economic report. Slack in the economy could stay for a while, as Japan’s economy may have fallen into recession in the third quarter after shrinking 1.2% in April-June. The slower exports and lackluster consumption blamed for the contraction continue to weigh on the economy, prompting manufacturers to idle some of their production capacity. Excess capacity generally indicates weaker inflationary pressure as well, suggesting another setback for BOJ Gov. Haruhiko Kuroda’s campaign to generate 2% inflation. Mr. Kuroda has brushed aside the recent economic slump as a fleeting phenomenon, but a spate of largely disappointing data has kept investors speculating whether the central bank will add to its stimulus measures this month.

    IMF urges BOJ to stand ready to ease if inflation cools further - The Bank of Japan should be ready to ease monetary policy further if needed to accelerate inflation toward its 2 percent target, preferably by buying government bonds with longer maturity, the International Monetary Fund said on Tuesday. Japan's core consumer prices in August marked their first annual drop since the central bank deployed its massive stimulus programme more than two years ago, casting further doubt on whether heavy money printing alone can boost the economy and accelerate inflation to the BOJ's target. The IMF said several factors will put upward pressure on inflation and help it gradually accelerate to 1.5 percent over the medium term, such as a continued tightening of the labour market and the effect of recent yen declines, the IMF said. But near-term prospects for Japan's economic activity have "weakened," while medium-term inflation expectations are stuck substantially below the central bank's target, the global lender said in its World Economic Outlook report. "The Bank of Japan should stand ready for further easing ...," it said. The IMF also urged Japan to pursue "more forceful" structural reforms, such as raising service-sector productivity through deregulation and building more child-care facilities to encourage more women to join the workforce.

    TPP talks in home stretch after reported pharma breakthrough – A dozen Pacific nations closed in on a sweeping free trade pact on Sunday in Atlanta after a breakthrough over how long a monopoly pharmaceutical companies should be given on new biotech drugs. The issue has pitted the United States, which has argued for longer protections, against Australia and five other delegations who say such measures would strain national healthcare budgets and keep life-saving medicines from patients who cannot afford them. The compromise would preserve Australia’s existing five-year protection period but would also offer flexibility on longer drug monopolies, potentially creating two tracks on future drug pricing within the trading bloc, a person close to the negotiations said. The terms of that compromise, hammered out after a third all-night round of negotiations between Australia and the United States, still had to find support from other nations such as Chile and Peru, other people involved in the talks said. Mexican Economy Minister Ildefonso Guajardo said he could not reveal details of the compromise on biologics “until everyone has signed up and we are all on the same page.” But officials were increasingly confident of completing a deal that has been in negotiations for five years. Japan’s Economy Minister Akira Amari said he had called Prime Minister Shinzo Abe to notify him that a deal was within sight.

    Trans-Pacific Partnership Gives Stalled Abenomics New Momentum -- Among the big winners from Monday morning’s sweeping pan-Pacific trade pact: Japanese Prime Minister Shinzo Abe, who has been desperate for some good news lately. The deal shows there’s still some life in his much-maligned Abenomics revival program, and his campaign to implement painful, politically difficult structural reforms seen as essential to lifting his country out of its long stagnation. No leader, no economy, among the dozen countries in the Trans-Pacific Partnership, has more invested in the deal. The trade bloc’s potential global significance was enhanced by Mr. Abe’s surprising 2013 pledge early in his term to have the world’s third-largest economy join the negotiations. And the agreement struck after months of negotiations was made possible in part by Mr. Abe’s unusual willingness to take on entrenched agricultural lobby that has been a main supporter for his long-ruling Liberal Democratic Party, including last-minute concessions to further open Japan’s dairy market. TPP also feeds into Mr. Abe’s broader strategic goal of cementing Japan’s role in the 21st century as America’s main Asian ally in a region centered around the U.S.-Japan alliance, and as a counterweight to China. “The greatest absolute gains” from TPP “are estimated for Japan,” ,” according to a 2012 analysis from the Peterson Institute for International Economics examining the implications for the then-nascent bloc. The past few months have been difficult, politically and economically for Mr. Abe and Abenomics. His program of bold monetary stimulus has struggled to give the economy any sustained lift. Recent data suggests Japan this summer likely fell into its second recession—two consecutive quarters of negative growth—in two years, dragged down by China’s slump, as well as stingy consumers and executives skeptical about his pledges for a brighter future.

    Seoul reconsidering TPP : The Korean government suggested it will soon begin the process of applying to join the Trans-Pacific Partnership (TPP), the U.S.-led mega-free trade agreement (FTA) reached among 12 Pacific Rim countries on Monday. Deputy Prime Minister for the Economy and Finance Minister Choi Kyung-hwan said he will soon make the government’s final decision as to whether or not to join the FTA. “We will soon announce specific details, including when and how to join, after going through public hearings and other legal procedures [like a local economic impact analysis and getting support from the Assembly],” Choi said at a parliamentary audit session Tuesday morning at the National Assembly in Seoul. “The government has maintained communications with some of the countries involved in the TPP, but I can’t disclose the specifics.” When asked why Korea did not join earlier, Choi said, “The government at the time [the Lee Myung-bak administration] didn’t really feel the need to join the mega-FTA back in 2008 because Korea already had a bilateral FTA with the United States in progress and was busy working on another bilateral FTA with China.” When lawmakers criticized the government for having missed the chance to become a member at an audit on Tuesday, Korean Trade Minister Yoon Sang-jick explained, “The basic structure of the TPP is more like an FTA between the U.S. and Japan, which made it difficult for Korea to join the negotiation [after Japan decided to join the TPP negotiation in 2013].” He said the TPP would not affect the free trade pact that Korea has with the U.S.

    Early Winners and Losers From TPP Enlargement - Bloomberg has an initial rundown of countries expected to win and lose from the conclusion of the Trans-Pacific Partnership (TPP) enlargement. When I pointed out earlier that there is a potential for very significant carve-outs for important TPP participants, I definitely had Japan in mind. True enough, one of the remarkable bits of agricultural protectionism that remains intact concerns rice. Despite the staple food becoming an ever-smaller part of the Japanese diet, rice farmers remain a core Liberal Democratic Party constituency. How so? Try a 1%--I am not joking--non-tariff import quota. Yippee, 1% tariff-free market access! With concessions like these....Anyway, here is the list together with some of my thoughts about the other countries:
    Japan:*Japanese car and auto-parts makers may be the biggest winners, as they get cheaper access to the U.S., the industry’s biggest export market* Japan was forced to reduce some of the protections granted to its rice farmers, creating a non-tariff import quota of one percent of its total consumption* Livestock farmers may be harder hit as tariffs on beef will be cut to 9 percent over 16 years from 38.5 percent, while pork tariffs will also be slashed
    Australia:* The deal will remove about A$9 billion of import taxes from Australian trade, Prime Minister Malcolm Turnbull said * Australia will gain access to the U.S. sugar market while Japan will also reduce levies on the product and the cut in the beef tariff will help Australian ranchers * Seafood and most horticulture products will see tariffs dropped, while preferential quota access will be created for grains, cereals and rice
    * Australia and New Zealand successfully pressured the U.S. to compromise on the amount of time pharmaceutical companies would get protection for new biotech drugs, granting companies a minimum of five years rather than the 12 years of protection pushed by the U.S. That could lead to cheaper drug prices and more competition * Reduced tariffs on everything from iron and steel products, to pharmaceuticals, machinery, paper and auto parts will help Australian manufacturers.
    Vietnam:* Vietnam to be among the biggest winners, according to the Eurasia Group, with the agreement potentially boosting GDP by 11 percent by 2025, with exports growing 28 percent in the period as companies move factories to the low-wage country, the report said.* Reduced import duties in the U.S. and Japan will benefit country’s apparel manufacturers, whose low labor costs have enabled them to grab business from China. Still, impact may be limited as Vietnam will still face strict rules-of-origin on materials. * Fishing industry to benefit from elimination of import tax on shrimp, squid and tuna, now averaging 6.4%-7.2% * Eliminating import taxes on pharmaceutical products from the current average of about 2.5% will lead to tougher competition between Vietnamese domestic companies and foreign companies. TPP will also increase patent protection, restricting Vietnam companies access to new products as well their ability to produce new drugs.

    TPP: 'She's a beauty, mate!' Really?: Rarely has there been such a triumph of image over substance; rarely such an outpouring of admiration for a deal, whose details yet remain a secret, as there has been this week in the wake of the Trans-Pacific Partnership free trade announcement. "A gigantic foundation stone for our future prosperity," gushed the PM as business groups pumped out their press releases with zeal. On the TV news, the networks ran their panegyrics to the TPP even higher in the bulletin than the nightly Prince Harry segment. Illustration: John ShakespeareIf this is such a great deal, why are they hiding it? There is, among other things, a four-letter answer to this question: ISDS (Investor-State Dispute Settlement). ISDS is a mechanism for corporations to sue governments.  Water and waste management giant Veolia is suing the government of Egypt for lifting the minimum wage. Canada is being sued for a ban on fracking and Germany for its phasing out of nuclear power; all actions taken under ISDS clauses in free trade pacts. US corporations are the biggest litigants, having brought some 127 cases thus far against sovereign government decisions which they claim have damaged their financial interests. Taxpayers have the pleasure of footing the legal defence bills. Even worse, the authority of sovereign courts is ignored in favour of an international dispute tribunal. The reality is this TPP free trade deal is as much about free trade as it is about entrenching the interests of large multinational corporations.

    How Likely are Investor Suits Under the TPP?  - Australia and Canada have a great deal in common – a British colonial past; large and sparsely populated territories; and resource-intensive economies. Two other similarities also bear mentioning: the economies of both countries are dominated by US investors (27% of foreign investment in Australia and nearly half in Canada); and both countries were involved in the negotiations in the Trans-Pacific Partnership (TPP) finalised on Monday. But there is a one major difference: up until now, Australia has never agreed to provide American investors with access to Investor-State Dispute Settlement (ISDS), whereas Canada has. Why is this significant? Trade minister Andrew Robb likes to point out that Australia already has ISDS in 29 existing treaties and “the sun has still come up”. But comparing investment treaties with countries like Papua New Guinea (PNG) and one with the US is comparing apples and oranges. Aside from the obvious differences in levels of investment (PNG investors that don’t exist can’t sue the government), there is the fact that American corporations are more litigious than investors from any other country. It is true that creative lawyers can already find ways to bring suits against Australia on behalf of their American clients (such as tobacco giant, Philip Morris). But in providing direct access to ISDS the TPP will make it much easier for American investors to launch cases and possibly also to win them. For example, Philip Morris might very well lose its ISDS case in the jurisdictional stage for technical reasons related to the timing of its investment restructuring (which was done to access an Australia-Hong Kong investment treaty).

    Trans-Pacific Partnership: Should the key losers – China and Europe – join forces? -- The winners are obvious: Obama and Shinzo Abe, arguably also the US and Japanese economies. Obama can leave office with a strong demonstration of the US pivot to Asia, and Abe can finally argue that the third arrow of his Abenomics program is not empty. The losers are also obvious: China and Europe. China not only has been left out of the deal, but it has been left out on purpose. If anybody had any doubt (at some point China was invited into the negotiations and some still expect China to continue discussing membership in the future), Obama’s official statement on TPP yesterday makes it very clear: “when more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy”. For China the issue is not only losing access to the US market but also the fact that its most important trading partners are in the deal, with the notable exception of Europe. Europe, which has spent years negotiating with the US on another major trade pact, the Transatlantic Trade and Investment Partnership (TTIP), may need to be more accommodating to reach a deal before Obama leaves, as the President’s interest has probably waned somewhat after this victory. On the other hand, many of the negotiation benchmarks reached by the US government for TPP will probably not be acceptable for Europe

    'Free' Trade as Outright War: TPP is a geostrategic deal between the US and Japan to contain China, attempting to shape an Asia-Pacific economic zone that might at least balance the second-largest economy on the planet. Everything you need to know about the incessantly ballyhooed Trans-Pacific Partnership (TPP) deal comes directly from the lion's mouth. Here's US President Barack Obama: "When more than 95 percent of our potential customers live outside our borders, we can't let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products."  So Exceptionalistan must imperatively rule the trade — and war — waves if this ever shapes up as America's "Pacific Century". "Ruling", in this case, applies to a selected Pacific melting pot: the US and Japan, plus Australia, New Zealand, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore and Vietnam. Predictably, the usual corporate media suspects have been ecstatic over what's supposedly "the largest free trade agreement in history." Reality spells otherwise. For starters, TPP — as Obama himself bragged — is a sort of Pacific NATO on trade; the economic/commercial arm of the "pivoting" to Asia, part of the overall containment of China strategy. Needless to add, Beijing is not part of TPP. No one really knows anything about key TPP arcane provisions because TPP is an ironclad secret, negotiated behind ironclad rooms similar to those "green rooms" in WTO negotiations. If you, as a negotiator, had read the drafts and talked about them, you'd end up in jail. The Obama administration has been particular NSA-style paranoid on all things TPP.

    It's not checkmate yet: Beijing to counter US-led Trans-Pacific Partnership trade pact --  China will seek to quicken the pace of its free-trade negotiations with other Asia-Pacific economies to counter a mammoth Washington-led trade pact in the region, observers say. The United States and 11 other countries that in total make up 40 per cent of the world's economy scored a landmark Trans-Pacific Partnership (TPP) deal in Atlanta on Monday. In response, China - presently excluded from the TPP - was expected to push for the conclusion of its Regional Comprehensive Economic Partnership (RCEP) negotiations by the end of the year, said Peking University professor Wang Yong. Chinese delegates had, during a ministerial meeting in August, called on the negotiating countries - 10 Asean members plus Australia, India, Japan, South Korea and New Zealand - to "show enough political resolution … to conclude the substantive negotiations" by the end of 2015 to "produce deliverables for the East Asia Summit" in November, according to Xinhua.The top negotiators will gather in South Korea from October 12 to 16 for the RCEP talks. China is also in talks with South Korea and Japan for a separate free-trade agreement. The three countries were discussing a possible trilateral meeting of their finance ministers on the sidelines of a meeting of Group of 20 finance leaders in Peru this week, said Japanese Finance Minister Taro Aso. Chris Brummer, fellow at the US-based think tank Atlantic Council, said there was no doubt the TPP was viewed not only as an economic agreement, but also as "an instrument of foreign economic policy".

    China’s Heft Gives It Ammunition Against the Trans-Pacific Partnership Trade Deal - WSJ: —China’s huge domestic market, deep supply chain and push to create more consumers at home gives it heft to dispel challenges of the new Pacific trade pact that it isn’t a party to. On the surface, China appears a clear loser by its exclusion from the Trans-Pacific Partnership, which aims to deepen economic ties and lower or eliminate tariffs in the 12-member bloc led by the U.S. and Japan. But company executives and economists say that despite China’s slowing growth, at least in the near term it is well armed against harm from TPP. In part that is due to its shift to rely more on domestic consumption. So far, demand at home hasn’t quite kicked in to make up for sputtering exports, but there is evidence consumption is becoming a more important growth driver. Retail sales grew 10.5% in the first eight months this year, compared with GDP growth of around 7%. Several industries are now looking for growth primarily at home. Jiangsu Nijiaxiang Group Worsted Textile Co., a few hours’ drive from Shanghai in the heartland of Chinese textile production, says that before the 2008-09 global financial crisis, exports accounted for 70% of sales. Now, they represent less than half. “By the time TPP is implemented, we will already have transferred the base of our business to our own market,” said Miao Zhiying, a manager of manufacturing at the company. Decades of industrialization have helped Chinese companies carve out market niches that are now tough to challenge. While China’s heavy-machinery firms remain a notch below global leaders like Caterpillar Inc. CAT -0.75 % in terms of quality, many make products still far more competitive than Asian rivals.

    World Bank cuts Asia growth forecast on China and US rates - BBC News: The World Bank has cut its growth forecast for the Asia Pacific region for this year and next, because of the risks posed from a sharp slowdown in China and raising US interest rates. The bank now expects growth in developing East Asia and the Pacific to be 6.5% this year and 6.4% in 2016, down from an earlier forecast of 6.7%. The latest estimate is even lower than growth of 6.8% last year. Major development banks have recently revised lower their growth forecasts. Last month, the Asian Development Bank said slowing growth in China would drag down the developing region's growth to 5.8% this year. The International Monetary Fund also flagged in September that slowing growth in the world's second largest economy posed a threat to the global economy. "Developing East Asia's growth is expected to slow because of China's economic rebalancing and the pace of the expected normalization of US policy interest rates," said the World Bank's regional chief economist Sudhir Shetty in a statement on Monday. "If China's growth were to slow further, the effects would be felt in the rest of the region, especially in countries linked to China through trade, investment and tourism."

    South East Asia economic woes test reserves, defenses built after 1997/98 crisis | Reuters: Southeast Asia has spent the best past of two decades shoring defenses against a repeat of the Asian financial crisis, including building up record foreign exchange reserves, yet is now feeling vulnerable to speculative attacks again. Officials are growing increasingly concerned as souring sentiment has made currencies slide and investors reassess risk profiles in an environment where China is slowing and U.S. interest rates will rise at some point. And while economists have long dismissed comparisons with the 1997/98 currency crisis, pointing to freer exchange rates, current-account surpluses, lower external debt and stricter oversight by regulators, lately there has been a change. Malaysia and Indonesia, which export oil and other commodities to fuel China's factories, are looking vulnerable as the world's second-largest economy heads for its slowest growth in 25 years and the prices of their commodity exports plunge. "We are worried about the contagion effect," Indonesian Finance Minister Bambang Brodjonegoro said last week, using a word widely used in 1997/98.

    Indian services growth slowed in September - PMI -  India's pivotal services industry lost some momentum in September as demand weakened despite firms cutting prices for the first time this year, a business survey showed on Tuesday. The Nikkei/Markit Services Purchasing Managers' Index eased to 51.3 in September from August's 51.8 but marked its third straight month above the 50-level that separates growth from contraction. The prices charged sub-index slumped to a near 5-year low of 49.5 from 51.0 in August as falling commodity prices helped weaken input cost pressures. Retail inflation cooled to a new low of 3.66 percent in August, prompting the Reserve Bank of India to cut its benchmark repo rate for the fourth time this year. It brought rates down to a 4-1/2 year low of 6.75 percent in September to spur demand and boost economic growth. "The sluggish increase in private sector output mirrored softer demand conditions across the country, while growth of global demand for Indian goods also moderated," said Pollyanna De Lima, economist at Markit. "Looking ahead, service providers expect further setbacks, as highlighted by the Future Output Index sliding to its lowest mark in the history of the series."

    India Will Be Growing Much Faster Than China Next Year, a New IMF Report Says -- India’s growth rate is set to further outstrip China’s in 2016 with the gap between the two economies expected to widen to over 1%, a new report from the International Monetary Fund (IMF) stated on Tuesday. The IMF’s latest World Economic Outlook (WEO) report projects that India will grow at a rate of 7.5% while China’s economic growth will further drop to 6.3% next year from this year’s 6.8%. The South Asian nation’s economy, the report says, will “benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices.” The global growth rate, meanwhile, is expected to be lower than it was in 2014, and less than that forecast in the World Economic Outlook in July, with the IMF projecting it at 3.1%. The latest figures come soon after other recent economic surveys placed India in a highly favorable economic position, with a report from the Financial Times revealing it had surpassed both China and the U.S. as the world’s top destination for greenfield foreign investment, and a simultaneous 16-place jump in the World Economic Forum’s global rankings for competitiveness. Read the full IMF report here.

    Bad loans spiral in India's 'broken' banking system - Asking for a solution to the problems of the state banks that dominate India’s financial system is akin to a lost tourist asking the way in the proverbial joke. The answer is: “I wouldn’t start from here.” The Indian economy is growing at a respectable rate of more than 7 per cent a year, faster than any other large emerging market. But the state-controlled banks lent so much in previous years to infrastructure and steel companies for unprofitable road projects, power stations and factories that they have been left in aggregate with an alarming level of bad and doubtful loans. For public sector banks, bad loans and “stressed assets” together accounted for more than 14 per cent of assets at the end of June, compared with just 4.8 per cent for the more disciplined and profit-motivated private sector banks that account for only a quarter of all lending. One state bank exceeded 19 per cent of assets in bad and doubtful loans. Bad loans from steel and power projects alone, according to HDFC Bank, could exceed $23bn, with five of the top 10 private steel producers under “severe stress” from the collapse in global prices. Even in successful sectors of the economy, state banks are often exposed to “promoters” or big entrepreneurs who have run into financial trouble. Amtek Auto, a car parts maker whose share price plunged by three-quarters after it defaulted on a bond payment, has outstanding rupee loans equivalent to more than $1bn. “The banking system in many ways is broken. It’s really, really struggling,” says one senior private sector banker in Mumbai. “And with global uncertainty, it’s not as if international investors are rushing in to fill the gap.”

    AIIB to Invest in Pakistan's Infrastructure Development: The president-designate of the Asian Infrastructure Investment Bank has said the bank is interested in financing infrastructure projects in Pakistan. Jin Liqun made the remarks during his first visit to Pakistan since he was named the official candidate for the bank's presidency in August. Jin said Pakistan has a great potential in the infrastructure sector, especially in energy, transport, electric power, sea ports, urban development and water supply. He also added that the bank's officials will be visiting Pakistan to discuss collaboration in different projects in the near future. The president-designate also said that the bank will be working closely with existing multilateral development banks such as the World Bank and the Asian Development Bank. The Asian Infrastructure Investment Bank was proposed by China in 2013.

    US-Pakistan Civilian Nuclear Deal On Obama-Sharif Summit Agenda? - According to a Washington Post report, the deal with Pakistan centers around a civilian nuclear agreement similar to the one the United States arrived at with India, in exchange for a Pakistani commitment that would "restrict its nuclear program to weapons and delivery systems that are appropriate to its actual defense needs against India's nuclear threat."  As part of such a deal,  the United States will support an eventual waiver for Pakistan by the 48-nation Nuclear Suppliers Group, of which the United States is a member. At U.S. urging, that group agreed to exempt India from rules that banned nuclear trade with countries that evaded the Non-Proliferation Treaty. This so-called “civil nuclear agreement” allowed India partial entry into the club of nuclear powers, in exchange for its willingness to apply International Atomic Energy Agency safeguards to its civilian program, according to the Washington Post's veteran columnist David Ignatius. Prior to the Washington Post report, the Washington-based Stimson Center and the Carnegie Endowment think tanks published a 20,000-word essay on Pakistan’s nuclear program and diplomatic ambitions last week. Written by Toby Dalton and Michael Krepon and titled "Nuclear Mainstream", it recommends Pakistan to agree to meet five conditions for its nuclear mainstreaming:
    (1) Shift from the full spectrum deterrence to strategic deterrence
    (2) Limit production of tactical weapons or short range delivery weapons
    (3) Become amenable to talks on the fissile material cut off treaty (FMCT)
    (4) Delineate civil and military nuclear programs
    (5) Sign the Comprehensive Test Ban Treaty (CTBT)

    Economists cut Brazil's economic outlook for 2015 - --Economists again cut their outlook for Brazil's economic performance for this year, as consumer and business confidence continue at historic low levels. Brazil's gross domestic product is expected to contract 2.85% this year, according to a weekly central-bank survey of 100 economists, compared with expectations last week for a contraction of 2.80%. The forecast marked the 12th-consecutive downward revision in the weekly survey of economists. For the next year, economists maintained their view for a contraction of 1%. In the meantime, the economists surveyed increased their estimate for inflation in 2015, as measured by the consumer-price index, to 9.53% from 9.46%. For next year, they increased their inflation estimate to 5.94% from 5.87%. Respondents maintained their outlook for the benchmark Selic interest rate at the end of 2015 at 14.25%, and for 2016 at 12.50%. The rate is currently at 14.25%. The economists surveyed lifted their forecast for 2015's trade balance to a $12 billion surplus from $11 billion.

    IMF now sees Latam recession this year as Brazil slumps | Reuters: The International Monetary Fund said Tuesday that it now expects Latin America's economy to shrink 0.3 percent this year instead of growing 0.5 percent, largely due to a steep recession in Brazil and slumping commodity prices. It would be the first recession for the Latin American and Caribbean region since 2009. But the IMF, which is holding its annual meeting in Peru this week, said the region's economy should recover in 2016 to expand by 0.8 percent. The IMF had put 2016 growth at 1.7 percent in its last forecast in July, before regional giant Brazil's economy took a sharp turn for the worse with a slump in output, a ballooning corruption scandal and painful credit rating downgrade. The IMF's growth revisions for Latin America, part of its gloomier take on the global economy, were the sharpest for any region. Its new forecast for Brazil's 2015 recession - 3 percent - was double its previous view. "The downturn in Brazil was deeper than expected," the IMF said in its World Economic Outlook report. It warned of "significant negative spillovers" in the region. The IMF also noted slower-than-expected growth in Mexico and ongoing problems in Venezuela, where it sees the economy shrinking 10 percent this year while inflation is set to soar above 100 percent.

    IMF trims global forecast, as Brazil, Canada outlooks deteriorate - The International Monetary Fund has grown more pessimistic over the last three months over global growth, as declining commodity prices and increasing financial market volatility take their toll, particularly on emerging markets. The IMF’s new forecast for global growth this year and next was shaved by 0.2 percentage points each year, compared to the organization’s views from July. The pessimism was stark for Brazil and Canada in particular, with Brazilian projected output shaved by 1.5 percentage points this year and 1.7 percentage points next year, and with Canadian GDP trimmed by a half point lower this year and by 0.4 percentage points next year. Weak oil prices have hurt both countries, with Brazil also being hurt by its exposure to China and a corruption scandal at state-run Petrobras.Emerging economies such as China and Brazil are headed for their fifth straight year of declining growth, the IMF said. The U.S. forecast from the IMF, of 2.6% growth this year and 2.8% next year, is a tenth of a percent higher for this year and two-tenths lower for 2016. The IMF forecast is a bit more optimistic than the Federal Reserve’s projection of 2.1% growth in 2015 and 2.3% growth in 2016. Globally, the IMF says persistently low investment helps explain limited labor productivity and wage gains. “Slow expected potential growth itself dampens aggregate demand, further limiting investment, in a vicious circle. Aging populations further restrain investment in a number of countries; in some others, institutional shortcomings or political instability are deterrents,” the report says.

    IMF Warns of New Financial Crisis if Interest Rates Rise - Rising global interest rates could prompt a new credit crunch in emerging markets, as businesses that have ridden the wave of cheap money to load up on debt are pushed into crisis, the International Monetary Fund has said. The debts of non-financial firms in emerging market economies quadrupled, from $4tn (£2.6tn) in 2004 to well over $18tn in 2014, according to the IMF’s twice-yearly Global Financial Stability Report.  This borrowing binge has taken business debt as a share of economic output from less than half, in 2004, to almost 75%. China’s firms have led the spree, but businesses in other countries, including Turkey, Chile and Brazil, have also ramped up their debts — and could prove vulnerable as interest rates rise. With the US Federal Reserve expected to raise interest rates in the coming months, the IMF warns that emerging market governments should ready themselves for an increase in corporate failures, as firms struggle to meet sharply higher borrowing costs. That could create distress among the local banks who have bought much of this new debt, causing them in turn to rein in lending, in a “vicious cycle” reminiscent of the credit crisis of 2008-09. “Shocks to the corporate sector could quickly spill over to the financial sector and generate a vicious cycle as banks curtail lending. Decreased loan supply would then lower aggregate demand and collateral values, further reducing access to finance and thereby economic activity, and in turn, increasing losses to the financial sector,” the IMF warns.

    Why The IMF Cut Its Global Growth Forecast: China, Commodities And The Fed's Itchy Trigger Finger - Forbes: The International Monetary Fund lowered its outlook for the global economy again, citing three chief factors for reducing its 2015 growth target to 3.1%: the commodities crash, China’s challenges and the looming prospect of tighter U.S. monetary policy. In the organization’s updated economic forecast, it projects U.S growth of 2.6% in 2015, up a tenth of a point from July’s projection, but 2016 growth of 2.8%, down 0.2 points. The IMF still expects China to grow at a 6.8% clip this year, before slowing to 6.3% growth in 2016. Two bright spots were the euro area and Japan, both expected to grow faster next year. “[T]he holy grail of robust and synchronized global expansion remains elusive,” said Maurice Obstfeld, head of the IMF’s research department. More concerning, he adds, “downside risks to the world economy appear more pronounced than they did just a few months ago.”  None of the risks the IMF warns about will come as a surprise to economy-watchers:

    • Lower oil and other commodity prices, which although benefiting commodity importers, complicate the outlook for commodity exporters, some of whom already face strained initial conditions (e.g., Russia, Venezuela, Nigeria).
    • A sharper-than-expected slowdown in China, if the expected rebalancing toward a more market-based and consumption-driven growth proves more challenging than expected.
    • Disruptive asset price shifts and a further increase in financial market volatility could involve a reversal of capital flows in emerging market economies.
    • A further appreciation of the U.S. dollar could pose balance sheet and funding risks for dollar debtors, especially in some emerging market economies, where foreign–currency corporate debt has increased substantially over the past few years.

    Mark Carney: Emerging market debt is the biggest risk right now - Telegraph: A massive build-up of debt in emerging markets poses one of the biggest risks to the global economy right now, according to the Governor of the Bank of England. Mark Carney said the rise of shadow banking meant policymakers would be tested in the current "unforgiving environment" as countries such as the US and UK think about raising interest rates. “What worries me about the global economy right now is that we see the consequences of some of the policies that were used in response to the crisis, specifically big build-ups of debt," he told an audience in Lima, Peru. "A lot of it comes from outside the formal banking sector in a number of countries and emerging market economies. That debt and the policy response to that debt is going to be key." Mr Carney said in a recent speech that China's debt-fuelled growth in the years after the 2008 financial crisis had seen government, household and corporate debt more than double to reach 200pc of GDP as non-bank lending soared.  The Governor said one of the deployment of macroprudential tools to guard against financial risks was "absolutely essential" to guard against these risks, as well as a healthy and well capitalised banking sector.

    Central Bank Balance Sheets: What Will They Look Like in 2016-2017?  - Reader Gary emailed a link to JP Morgan's Quarterly Market Guide. Here are a pair of charts from page 19 that caught my eye. Central Bank Policy Rates:

    • Bank of England: 0.50%
    • Bank of Japan: 0.10%
    • Fed: 0.00%-0.25% (currently 0.14%)
    • ECB: 0.05%
    Central Bank Balance Sheets:  Three Questions
    1. Other than asset bubbles, what do we have to show for this?
    2. Will the ECB follow Japan to "Nirvana"?
    3. When do asset sheet balances approaching 100% of GDP matter?

    IMF told that amid 'new mediocre' no room for mistakes by central banks | Reuters: Central banks have little room for error in a low-growth world in which over-leveraged and commodity-dependent emerging economies and a slowing China are major risks, top international financiers told the International Monetary Fund's meeting. Despite $7 trillion in quantitative easing from banks in industrial nations since the global financial crisis, the world is stuck in a "new mediocre" growth pattern, IMF chief Christine Lagarde said on Thursday. In a bid to shore up finances and punish companies that arbitrage tax regimes, governments pushed ahead with plans to improve tax collection. The IMF meeting comes as the Bank of Japan looks poised to extend its money printing program, known as quantitative easing, as it stares down the barrel of a fifth year of recession. The European Central Bank is also expected to extend quantitative easing, while the two major central banks closest to raising rates, the U.S. Federal Reserve and the Bank of England, are holding their fire. "It is not the kind of economy in which you can make a mistake," Bank of England Governor Mark Carney told the meeting.

    The global economy is in serious danger -  Lawrence Summers - As the world’s financial policymakers convene for their annual meeting Friday in Peru, the dangers facing the global economy are more severe than at any time since the Lehman Brothers bankruptcy in 2008. The problem of secular stagnation — the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies — is growing worse in the wake of problems in most big emerging markets, starting with China. This raises the specter of a global vicious cycle in which slow growth in industrial countries hurts emerging markets, thereby slowing Western growth further. Industrialized economies that are barely running above stall speed can ill afford a negative global shock. Policymakers badly underestimate the risks of both a return to recession in the West and of a period where global growth is unacceptably slow, a global growth recession. If a recession were to occur, monetary policymakers would lack the tools to respond. There is essentially no room left for easing in the industrial world. Interest rates are expected to remain very low almost permanently in Japan and Europe and to rise only very slowly in the United States. Today’s challenges call for a clear global commitment to the acceleration of growth as the main goal of macroeconomic policy. Action cannot be confined to monetary policy. There is an old proverb: “You do not want to know the things you can get used to.” It is all too applicable to the global economy in recent years. While the talk has been of recovery and putting the economic crisis behind us, gross domestic product forecasts have been revised sharply downward almost everywhere. Relative to its 2012 forecasts, the International Monetary Fund has reduced its forecasts for U.S. GDP in 2020 by 6 percent, for Europe by 3 percent, for China by 14 percent, for emerging markets by 10 percent and for the world as a whole by 6 percent. These dismal figures assume there will be no recessions in the industrial world and an absence of systemic crises in the developing world. Neither can be taken for granted.

    U.S. to urge countries with fiscal space to spend: Treasury official - The United States will urge countries with fiscal space to boost domestic demand in order to support global growth, a senior Treasury official said on Monday. In a call to preview discussions among economic policymakers at the International Monetary Fund and World Bank annual meetings in Peru later this week, the official also said China's trade surplus pointed to strengthening of the yuan currency over the medium term. European countries should take steps on granting Greece meaningful debt relief, said the official, who spoke on condition of anonymity. The official added that Greece must continue to implement reforms to its economy. Finance ministers and central bankers converge on Lima this week for the meetings, which are expected to focus on the slowdown in global economic growth and a persistent weakness in emerging economies.

    Alberta recession to see provincial GDP shrink by 1.4% this year: TD - Calgary - CBC News: Alberta is in a recession and will see its GDP contract by about 1.4 per cent in 2015, according to a new report from TD Economics. The report blames the contraction on the precipitous drop in oil prices since July 2014. And, while the report forecasts a moderate recovery for oil prices in 2016, it doesn't expect the increase to be at "levels that would be consistent with a V-shaped rebound in investment and growth in the province." Economic growth in Alberta is pegged at a modest 1.2 per cent next year and 1.6 per cent in 2017, according to the report's outlook. TD Economics highlighted several areas of Alberta's economy that have been hardest hit, including:

    • Construction sector output is forecast to contract by more than 20 per cent in 2015 in the wake of a 25 per cent drop in in non-residential and engineering construction.
    • Housing starts are also forecast to decline by 10 per cent this year.
    • In the real estate market, both existing home sales and sale prices are forecast to contract over the next two years.
    • While oil production is "still on track" to expand in 2015 and crude output is expected to continue growing over the next several years, reduced capital spending is expected to lead to less oil-related construction activity in 2016 and 2017.
    • Job creation has "held up well" so far, with employment up 1.7 per cent, year over year, as of August, but the report forecasts a "steep decline in employment over the next few quarters."

    Russia Consumer Prices Up 15.7% on Year in September -  --Russia's consumer inflation slowed marginally in annual terms in September, but was still high above the central bank's target, data from the Federal Statistics Service showed Monday. Consumer prices were up 15.7% in September compared with a year earlier after increasing 15.8% in August. The central bank is aiming to bring inflation down to 4% in the next two years. In monthly terms, inflation accelerated to 0.6% in September from 0.4% in August, getting a boost from the ruble's rapid weakening filtering into consumer prices. The data underpin the central bank's concern that inflationary pressures remain high, leaving little room for a rate cut on Oct. 30. The central bank cut rates five times earlier this year, before putting the key rate on hold at 11% in September. Analysts expect the Bank of Russia to wait for inflation to show a pronounced slowdown before trimming rates further in order to revive the economy.

    Russian car sales plunge as automakers raise prices: -- Russian car sales plunged more than forecast in September, slumping the most in three months as a weaker ruble pushed automakers to raise prices. Sales of new cars and light commercial vehicles contracted 29 percent to 140,867 from a year earlier after a 19 percent drop in August, the Association of European Businesses (AEB) in Russia said in a statement on Thursday. That was worse than the median of four estimates in a Bloomberg survey for a 21 percent decline. Through September, sales plunged by 33 percent to 1.19 million. The drop reflects the collapse in consumer demand that’s threatening to extend Russia’s recession into a second year. As companies adjust to the ruble’s depreciation and runaway inflation, 22 carmakers raised prices in Russia last month, including Renault and Kia, according to analytical agency Autostat. “September did not do much to improve the year-to-date performance of the market, or the outlook on the remaining three months of the year,” Joerg Schreiber, chairman of the AEB automobile manufacturers committee, said in the statement. The industry group kept its forecast for a 37 percent decline in car sales in 2015.

    Norway’s oil fund: More than just a piggy bank - For years, Norway has used revenues from its oil fields to pour monies into its sovereign wealth fund. Now valued at well over $800 billion, the sovereign fund is the globe’s largest. Since the early 1970s, when oil was first pumped from Norway’s seas, oil and gas extraction has been a boon to the country at large and driven up per capita income. At present, nearly a quarter of Norway’s GDP is tied to the energy sector. And, with the long-term spike in the price of oil from the 1990s until recent years, the treasury’s coffers were never short. Sensibly, and unlike other major oil-producing states, Norway never went down the path of making its current public budgets singularly dependent on year-to-year oil production revenues. Instead, surplus revenues were put in a state fund that was invested in markets around the world. The result? A pot of money whose investment returns can help support the government’s budget and are there for that inevitable rainy day when the Norwegian oil and gas reserves start to peter out. As wise as that policy was, it appears even wiser today when Norway not only faces a decline in energy resources but also a dramatic drop in global prices for oil and gas. This week, the right-of-center Norwegian government announced that it would dip into the fund itself, over and above expected revenues, in order to pay for a reduction in corporate and personal income taxes.

    Turkey warns 3 mln more refugees may be headed to EU from Syria - Turkey has warned the European Union that 3 million more refugees could flee fighting in Syria as the EU struggles to manage its biggest migration emergency in decades. Around 2 million refugees from Syria are currently in Turkey, and tens of thousands of others have entered the EU via Greece this year, overwhelming coast guards and reception facilities. EU Council President Donald Tusk told lawmakers Tuesday that “according to Turkish estimates, another 3 million potential refugees may come from Aleppo and its neighborhood.” Tusk said that “today millions of potential refugees and migrants are dreaming about Europe.” He warned that “the world around us does not intend to help Europe” and that some of the EU's neighbors “look with satisfaction at our troubles.” Meanwhile, Austrian Chancellor Werner Faymann was heading to the eastern Aegean island of Lesvos with Greece's prime minister to view first-hand the impact of the refugee crisis and tour the facilities set up to handle the new arrivals, which number in the hundreds and sometimes thousands every day.

    Islands see surge in refugee arrivals - The number of refugees arriving on Greek islands has risen from 4,500 a day in late September to 7,000 over the past week, the International Organization for Migration (IOM) said Friday, as a toddler was found dead off the coast of Lesvos in the eastern Aegean. Speaking ahead of a visit to Lesvos Saturday and a meeting with Prime Minister Alexis Tsirpas in Athens later in the week, UN High Commissioner for Refugees Antonio Guterres said asylum seekers appeared to be making a move before weather conditions deteriorate. “All of a sudden, with the kind of weather that you have in the Balkans, this can be a tragedy at any moment,” Guterres said. The IOM data came as a baby died after the motor of the rubber dinghy carrying him and another 56 people broke down off Levsos, the coast guard said Friday. The 1-year-old boy, whose nationality was not reported, was found unconscious and taken to a hospital, where he was pronounced dead.

    Greece’s lenders have time: Dijsselbloem “sees” Debt serving problems after 15 years: Prime Minister Alexis Tsipras wants a debt relief. The International Monetary Fund wants the same. Both consider Greece’s debt as unsustainable. But the country’s European partners, the country’s biggest lenders do not want to hear about such option. At least not now. According to Eurogroup head Jeroen Dijsselbloem, Greece may face problems to serve its debt only after 15 years. “The European Stability Mechanism’s analysis has shown that the first financing humps will maybe occur in 15 years. So, if that is the case, it would be strange to already try to tweak those – they are very far away,” Dijsselbloem told Reuters. The Euro-zone governments, Greece’s biggest creditors, agree that “debt relief for Athens should be accomplished by capping its debt servicing costs at 15 percent of gross domestic annually,” Dijsselbloem added. He also stressed in full optimism that “We will see if there are any financing peaks in the coming 30 years.” Dijsselblome left a tiny door open though saying “But we will see – it very much depends on the scenarios we work on with the IMF.”

    German factory orders fall as global growth slows -- August German factory orders slid unexpectedly for the second month running; a sign Europe's largest economy is being hit by slowing global growth. Orders dropped 1.8 percent in August after falling 2.2 percent in July, according to the Economy Ministry. Germany's export-driven economy has been challenged by the slowdown in China and other emerging economies. Making the situation worse, the August figures do not yet reflect the impact of the Volkswagen emissions scandal which could affect 11 million vehicles worldwide as well as future sales of diesel cars. “While order data in August was overall disappointing, it’s too early to fall into a panic about the economy because orders from within the country and the currency union amid all the volatility still point upward,” economist at Bayerische Landesbank in Munich Stefan Kipar told Bloomberg. “However, a high uncertainty about China and the cooling of the Chinese economy has left its mark,” he added. Orders from other countries in the euro area were up 2.5 percent following a smaller gain in July, the Economy Ministry said in a statement. However, domestic demand was off 2.6 percent and orders from outside the eurozone dropped 3.7 percent.

    Emerging market slowdown hits German exports  (FT) German exports fell sharply in August, in the latest sign that the slowdown in emerging markets is beginning to affect Europe’s biggest exporter. Exports in August were 5.2 per cent lower than July, their sharpest monthly fall since the financial crisis, according to Germany’s national statistics office. Imports also fell 3.1 per cent. The data come two days after Germany reported a bigger than expected decline in industrial orders, with orders from outside the eurozone particularly weak, suggesting that activity could slow further towards the end of the year. Concerns over the state of emerging economies have grown since China devalued its currency in recent months, raising suspicions it could be slowing more quickly than previously assumed. Europe’s biggest exporter, Germany — which sends 6.5 per cent of its exports to China — is particularly exposed to such trends, and German companies have been warning for a while of a Chinese slowdown. “The figures are consistent with the industrial data we’ve already had this week and round off quite a bad August for German data,” said Richard Grieveson, an economist at the Economist Intelligence Unit. “Clearly, what’s happening in emerging markets — particularly China and Russia — is having an effect and the outlook is not as positive as it was, given the fall in factory orders and the possible impact of the Volkswagen scandal on the ‘Made in Germany’ brand.

    Germany, the eurozone’s economic engine, is sputtering as its biggest companies struggle - Ever since the European sovereign debt crisis erupted five years ago, the eurozone could count on one country to be a source of economic stability and growth — Germany. But Europe’s economic engine is sputtering. In an announcement that shocked the market late Wednesday night, Deutsche Bank AG said it expects to lose more than six billion euros in the third quarter — a record loss for the country’s largest financial institution. Analysts had predicted the bank would record a profit of one billion euros. That announcement comes as Germany’s largest company, Volkswagen AG, continues to deal with the fallout from its stunning emissions scandal. On Thursday, German prosecutors raided the company’s office in Wolfsburg, searching for documents about the software that allowed Volkswagen vehicles to circumvent emissions testing in many countries. The worrying corporate news could hardly come at a worse time for the German economy. On Thursday, Germany’s national statistics office said exports fell 5.2 per cent in August from July, the sharpest monthly decline since the financial crisis. “August trade data has yet to reflect the potential impact of the Volkswagen emissions scandals or the continued weakness in China’s September manufacturing data, so the risks looking ahead seem tilted to the downside,” said Derek Holt, vice president of Scotia Economics in Toronto.

    World's Largest Shipowners To Abandon Greece Ahead Of Major Tax Hike -- Once again the reactions of desperate government policies looks like creating an even worse situation thanks to unintended (though entirely foreseeable) consequences. Amid the prospect of sharply higher shipping taxes in Greece - designed to increase revenues and 'fix' the debt-ridden nation, WSJ reports many of Greece’s world-leading shipowners are actively exploring options to leave their home country. With Greece controlling 20% of the world's shipping fleet, the 'quadriga' of Greek creditors' demands to raise taxes (because debt restructuring is out of the question) on such an 'easy target' as the world's largest shipping industry appears likely to backfire as an entire industry's revenues move out of reach of government taxers. As The Wall Street Journal reports, Many in the Greek shipping world say any increase in taxes on shipping operations would prompt a mass exodus of the country’s shipowners. Relatively low-tax global shipping centers such as Cyprus, London, Singapore and Vancouver, Canada, are positioning themselves to benefit..

    Greek fin min says recession shallower than lenders forecast | Reuters: Greece's economy will suffer a less severe recession this year than its international lenders assumed in drafting the country's new bailout programme, Finance Minister Euclid Tsakalotos said on Tuesday. Tsakalotos gave no figures and said the draft 2016 budget announced on Monday had stuck to the bailout assumptions of a 2.3 percent economic contraction this year followed by a 1.3 percent shrinkage in 2016 before growth resumes in 2017, but it had more encouraging indications. "Our projections for the third quarter are much better than the projections that we had in August. That is what led the prime minister to say yesterday that we can return to growth (in the second half of 2016)," he told parliament in a debate on the government's four-year programme. "We could not include that in the draft budget yesterday because we don't have the official projections for the third quarter but it's an estimate. We feel that we have persuaded the institutions that the results will be better so we can be more optimistic," he said. The International Monetary Fund reiterated the creditors' gloomier forecasts in its half-yearly World Economic Outlook unveiled on Tuesday, based on data collected up to Aug. 12, just before Greece's third bailout was clinched. That included a 5.4 percent year-on-year fall in gross domestic product in the fourth quarter due largely to capital controls imposed in late June to halt deposit flight and stabilise Greek banks.

    The Billion-Dollar Moldovan Bank Scam, Scottish Limited Partnerships, and the UK’s Anti-Money-Laundering Mess -- Back in June, the BBC World Service covered the ruinous bank fraud in Moldova, a staggeringly complex affair in which a billion dollars, amounting to 12% of GDP, was removed from the heavily-manipulated Moldovan interbank lending system, plonked into Latvian banks, and whisked away to destinations unknown. The scam was years in the making, but reached its fruition in November 2014. Three bust banks were left behind in Moldova, and economic and political uproar ensued. File on Four, UK national radio’s premier investigative programme, has just broadcast a follow-up piece on the role of UK companies and partnerships in the Moldovan fraud. Your humble and now audibly British blogger puts in a couple of diffident appearances. Hello, acoustic world! But for a quirk of Moldovan politics, we wouldn’t even know that British companies were involved. They’re written up in a confidential report by Kroll Investigations, who were engaged by the Moldovan government to trace the funds. In April, for political or other reasons, the Speaker of the Moldovan Parliament, Andrian Candu, decided that Kroll wouldn’t mind a bit if the report’s confidentiality was breached, and leaked it on his web site.As one delves into the report, a huge network of shell companies emerges, dozens registered in Moldova itself, and 48 in the UK. Along with plain vanilla UK Limited companies, and a sprinkling of the new-fangled Limited Liability Partnerships, a surprising number (28) of the UK companies are Scottish Limited Partnerships (SLPs). SLPs are a remarkably obscure form of business vehicle: a mere 5,000 SLPs survive from the century between 1907, when their governing law was passed, and 2007. By way of indicative contrast, some three and a half million plain vanilla Limited Companies are currently active in the UK.

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