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

Saturday, October 3, 2015

week ending Oct 3

What if the Fed is wrong? -- In her latest speech last Thursday, Janet Yellen left no further room for doubt that the vast majority of the Federal Open Market Committee supports a rate hike this year, and that she personally shares this view. They are confident that a firm recovery has now taken hold in the US. But the markets are nervous about this, believing that the emerging market shock is gathering momentum and that it could bring the developed economies down with it. What would happen if the Fed is making a historic mistake? That was the question posed, implicitly, by the Bank of England’s Chief Economist Andrew Haldane in one of his challenging speeches on 18 September. As he points out, it is quite likely that the next recession in the developed world will arrive with interest rates still stuck close to the zero lower bound. What then? One option, used in 2009, is a conventional fiscal easing, financed by bond sales. But none of the authorities in charge of budgetary policy in any of the main economies seems remotely interested in this option. In fact, they are mostly headed in precisely the opposite direction, and the politics of making a sudden about turn look forbiddingly difficult. Furthermore, in some countries there are legitimate concerns about the sustainability of public debt. Another option mentioned by Haldane – to increase inflation targets from 2 per cent to 4 per cent, thus allowing more scope to reduce real interest rates in a recession – also looks implausible. It will take many years for central banks to raise inflation to 4 per cent; they are struggling unsuccessfully to lift it even as far as 2 per cent.

Zero intolerance - In an earlier post, I summarized the main arguments people have used for and against a September lift-off.  There are, of course, other arguments one can make and bond guru Bill Gross isn't shy about offering his view on the matter in his September 23 2015 investment outlook. According to Gross, the Fed's low interest rate policy constitutes a form of "financial repression." His argument, as far as I can tell, goes as follows. Long-term prosperity depends on the stock of productive capital. The stock of productive capital is augmented by investment (the flow of newly produced capital goods). Investment is financed out of saving. Low interest rates discourage saving. Therefore, low interest rates are ultimately a prescription for secular stagnation.  Gross claims that "no model will lead to this conclusion." I'm not exactly sure what he means by that. I think what he means is "forget about theory, let's just look at the facts."   So what sort of evidence does he select to support his conclusion? He begins by noting that inflation-adjusted interest rates (on high-grade bond instruments, I presume) were on average negative over the period 1930-1979 and on average positive since then (thanks to Volcker) until recently. Here's what the data looks like since the end of the Korean war (FRED only gives me the interest rate series since then)...First, as the data above makes clear, it was nominal yields that gradually came down--real yields remained elevated for two decades after the event. Second, he evidently does have a model of how a policy-induced increase in the nominal interest rate leads to prosperity: as yields march downward from an elevated level, capital gains are realized in a broad range of asset classes. This is a bizarre argument both in its own right and because it ignores the initial capital losses realized on wealth portfolios when the policy rate is suddenly increased.

Fed Scared to Raise Rates: Nomi Prins -- Former top Wall Street banker Nomi Prins says forget about a Fed Rate Hike in December. It’s not going to happen. Prins explains, They are not going to raise rates in December. I didn’t think they were going to raise rates in September. . . . It wouldn’t have made sense for that to happen, and it’s not going to make more sense for the same reasons for December. In the next three months, economies thought the world will not be repaired, markets will not be stable, currencies will not be stable, and all of a sudden, interest rates will not have the need to rise to hurt other countries who are reducing their rates. So, the Fed is not going to move in December. . . . The factors around the policies, around economy, around the markets, don’t lend themselves to doing that. So, she (Janet Yellen) is in a catch 22 of her making and of the Federal Reserve’s making. The choice was made to bail out the financial institutions and prop up the markets with artificial money, and printing money, and reducing the level of interest rates, and reducing the level of currencies relative to the dollar throughout the world. That was the decision that was made. . . . The talk is ‘we will see what the economy does. We’ll see if unemployment is better. We’ll see if inflation is still low, and then maybe we will think about it.’ That is all code for we are not going to think about it because we are scared to move and cause a worse situation than the one we already created."  Prins goes on to point out, “Now, you have this heightened volatility. Now, you have this heightened negativity. There is only so much of an amount you can inflate asset bubbles before they destruct, and that’s what we are seeing now in the rising volatility in the last six months, this transition to destruction.”

The Fed Puzzle - Paul Krugman -- I’m having a very hard time understanding what Peter Gourevitch is saying in this article name-checking me. Stuff is complicated? What?  In any case, however, Gourevitch seems to have missed a crucial point about my puzzlement over the Fed’s eagerness to raise rates. I’m not saying “I’m smart, so why aren’t they listening to me?” Yes, people can have different views about how the world works.  But the strange thing here is that as far as anyone can tell, the people inside the Fed who are eager to hike and the people outside the Fed who think it’s premature have more or less the same economic models in their heads. It’s not just me; Larry Summers, the IMF (presumably reflecting Olivier Blanchard), the World Bank, and more are aghast at the urge to hike; and the thing is, all of the outsiders come from the same Cambridge 1970s updated Keynesian school of macro as the key insiders. Most of us were Stan Fischer’s students!  So we’re trying to understand why the insiders have such a different view of appropriate policy from the outsiders when their intellectual apparatus is the same. If you don’t get that, you’re missing the point.

Today in Fed Speak - Today in Fed speak: This year, this year, and "middle of next year". From NY Fed President William Dudley: Fed’s Dudley: Still Likely on Track for 2015 Rate RiseIf the economy continues on the same trajectory it’s on…and everything else suggests that’s likely to continue…then there is a pretty strong case for lifting off” before 2015 ends, he said in a Wall Street Journal interview.  From SF Fed President John Williams: The Economic Outlook: Live Long and ProsperLooking forward, I expect that we’ll reach our maximum employment mandate in the near future and inflation will gradually move back to our 2 percent goal. In that context, it will make sense to gradually move away from the extraordinary stimulus that got us here. We already took a step in that direction when we ended QE3. And given the progress we’ve made and continue to make on our goals, I view the next appropriate step as gradually raising interest rates, most likely starting sometime later this year. Of course, that view is not immutable and will respond to economic developments over time. From Chicago Fed President Charles Evans: Thoughts on Leadership and Monetary Policy Before raising rates, I would like to have more confidence than I do today that inflation is indeed beginning to head higher. Given the current low level of core inflation, some evidence of true upward momentum in actual inflation is critical to this assessment. I believe that it could well be the middle of next year before the headwinds from lower energy prices and the stronger dollar dissipate enough so that we begin to see some sustained upward movement in core inflation. After liftoff, I think it would be appropriate to raise the target interest rate very gradually. This would give us sufficient time to assess how the economy is adjusting to higher rates and the progress we are making toward our policy goals

Mixed messages as Fed officials go public in force | Reuters: A flurry of planned appearances this week by Federal Reserve officials began on Monday, but conflicting views by policymakers raised more questions about the U.S. central bank's ability to manage its message at a critical juncture. William Dudley, head of the New York Fed, and John Williams, head of the San Francisco Fed, both signaled support for an interest rate hike this year, saying they expect inflation to rise towards the Fed's 2-percent target. Williams sounded more hawkish, saying that just "a little bit" more data could convince him that a rate hike is needed. But Charles Evans, head of the Chicago Fed, took a far more dovish view, calling for rates to stay near zero until mid-2016. The Fed's 17 policymakers have scheduled 16 separate speeches or public appearances this week across the country, less than two weeks after the central bank decided to delay what would be its first rate hike in nearly a decade. With financial markets increasingly predicting rates will not rise until next year, Fed Chair Janet Yellen attempted to set the record straight last week when she said the central bank was still on track to move before year end. But the conflicting messages from Dudley, Williams and Evans did little to clear the air.

Understanding the current Fed and the problems with ftnt 14 | Jared Bernstein -- Last week, Fed chair Janet Yellen delivered an important speech on how the Fed thinks about what has surfaced as one of their biggest challenges: understanding inflation dynamics. As you’d expect from Chair Y, it’s a (mostly) thoughtful and interesting exposition of the problem, which in no small part is a collapse of the Phillips Curve, as I’ve discussed in lots of places. That is, as the job market has tightened up–we’re not at full employment but we surely moving in that direction–inflation has not accelerated…it’s decelerated. That’s the opposite of conventional economics wisdom and the motivation behind Chair Y’s effort to present their thinking about this critical development. I’ve got a longer piece about that conundrum coming out tomorrow. For now, I just want to make two other points coming out of the speech, the first of which is, IMHO, particularly important if you want to get inside the thinking behind what looks to many of us on the outside as a “craze to raise.” It is essential–ESSENTIAL, I tell you!–to wrap your head around Figure 6 from the speech, pasted in below. I’ll get to the figure in a sec, but note that Figure 1 from the speech shows another critical piece of information: the trend in inflation has been stable at around 2 percent since about the mid-1990s. The reason I thought the speech was “mostly” thoughtful was because footnote 14 made little sense to me and seemed more like Fed word salad than a convincing explanation of an important point. For reasons I’ll get more into in tomorrow’s piece, the Fed should, at some point, consider setting an inflation target of 4% instead of 2%. (I say “at some point” because doing so now when they’re having such trouble hitting 2% wouldn’t make a lot of sense. Also, see Larry Ball on this point.) In footnote 14, Chair Y explains why raising the inflation target is a bad idea. Here’s the ftnt with annotated comments in bold.

The Case Against Raising Interest Rates Before Wage Growth Picks Up - I’ve been arguing for the past year that until nominal wage growth picks up considerably, the Federal Reserve has little to fear about price inflation being pushed above its 2 percent target. The logic of focusing on wage growth is pretty easy to explain.  First, note that nominal (i.e., not inflation-adjusted) wage growth can rise as fast as economy-wide productivity without putting any upward pressure on prices.  If we assume that trend productivity growth in the U.S. economy is roughly 1.5 percent per year, this means that only nominal wage growth faster than 1.5 percent puts any upward pressure on prices.  Now, the Fed isn’t committed to zero upward pressure on prices. Fed officials say they’re comfortable with 2 percent inflation.  This price target means that nominal wage growth can be 2 percent higher than trend productivity growth before wages threaten to push inflation over the Fed’s target. We would need to see nominal wage growth of 3.5 percent, substantially higher than what it has been since the recovery began, before labor costs start threatening to push inflation beyond the Fed’s comfort zone. (There is a handy nominal wage tracker on the Economic Policy Institute’s website that covers a lot of this ground.) All that said, in a speech last week, Federal Reserve Chairwoman Janet Yellen included a footnote that argued against the relevance of wage targeting. The upshot was this sentence: “More generally, movements in labor costs no longer appear to be an especially good guide to future price movements.” This footnote reinforced other recent statements from Dr. Yellen that seem to leave the door open to the Fed tightening well before any increase in nominal wages shows up in the data. I would argue that this is almost exactly wrong.

Carl Icahn, Janet Yellen, and the High Yield Bond Bubble - For some time now, I’ve been writing about the trouble that might be brewing in the corporate debt market. Share prices have also been driven up by low interest rates that have allowed companies to borrow money on the cheap and use it for short-term gain. Corporate debt (not including debt held by banks) has risen from $5.7 trillion in 2006 to $7.4 trillion today. Much of that money has been used for stock buybacks, dividend increases and mergers and acquisitions.  The Office of Financial Research, a group set up within the Treasury Department after 2008 to conduct forensic investigations into the causes of financial crises, as well as risks that might be brewing in the markets, has already named corporate debt as one of its biggest concerns. I got a sneak look at a video Financier Carl Icahn is putting out tomorrow which lays out his concerns about not only the bond markets, but Fed interest rate policy, tax reform and US competitiveness. In an interview, Icahn told me he felt that the long-term low-interest rate environment had “forced a bubble in which people are pushed into risky securities like high yield bonds [in a search for yield].” The dependence on such rates “is a disease,” says Icahn. “There is so much margin debt. These companies are taking on other companies, doing mergers, and the earnings you see [as a result] are fallacious.”   Icahn thinks we’re at risk of brewing up a bubble that’s bigger than what we saw in the run up to 2008. I couldn’t agree more with him. It’s ironic, but the very debt-fueled low-interest rate environment that he and other financiers thrive on, an environment which was intended to support Main Street by making capital flow more easily to the little guy, has only increased inequality (by creating a bubble in asset prices) and helped Wall Street.

QE Infinity Calls Continue: "QE4 Will Be Their Next Move" -- To be sure, the idea of “QE infinity” has been around for quite some time. Once it became clear that the globalization of unconventional monetary policy had, for all intents and purposes, served to elevate central bank stimulus above economic variables and common sense in the eyes of market participants, it began to look as though withdrawing that stimulus might well prove to be impossible without triggering an outright meltdown in capital markets.  Still, the assumption was that eventually, trillions in global QE and seven years of ZIRP would conspire to resuscitate global demand and trade at which point the central banks of the world would ever so gradually begin to roll back stimulus.  Only that’s not what happened. Instead, global trade has remained in the doldrums and the unprecedented effort to keep capital markets accommodative has actually contributed to a worldwide deflationary supply glut. . In short, if the Fed hikes to telegraph its confidence in the US economy, EM will careen into crisis and that will feed back into advanced economies forcing the FOMC to reverse course. If the Fed remains on hold in an effort to avoid triggering more EM outflows, DM risk will sell off as market participants interpret a dovish FOMC as indicative of a worsening outlook for US economic growth and inflation expectations. And then there is of course the possibility that by keeping the world in suspense, the Fed is contributing to the uncertainty that plagues emerging economies and that keeps investors on edge.

Fed ready with more stimulus if economy slumps -Evans | Reuters: The U.S. Federal Reserve would need to deliver more stimulus "if things were to weaken very much," Chicago Fed President Charles Evans said on Monday, noting the economy could also surprisingly strengthen. Responding to audience questions at Marquette University, Evans said additional bond purchases, known as quantitative easing, are an option if more monetary stimulus is needed. "We need to consider those Plan Bs," he said, noting the global environment continues to be challenging.

Grim Jobs Report Is Likely to Delay a Move by the Fed on Rates - Unexpectedly dismal job growth last month cast a shadow on the nation’s economy, as a government report on Friday sent analysts scrambling for adjectives like “dreadful,” “a body blow” and “grim” to describe just how disappointing they found the latest employment figures.The Labor Department found that the jobless rate held steady at 5.1 percent in September, but wage gains stalled, the labor force shrank and employers created many fewer positions than they had been averaging in recent months. While the latest report is only a snapshot of the economy and the weakness may ultimately prove fleeting, it made clear that ordinary workers are still failing to take home the kind of monetary rewards normally expected from a recovery that has being going on for more than six years. The new estimates came just two weeks after the Federal Reserve decided that the economy’s advance remained too fragile to risk lifting interest rates from their near-zero level — even as it hinted an increase would come before the year’s end. Now, experts said, signs of a slowdown may well push any rise into 2016.Diane Swonk, chief economist at Mesirow Financial in Chicago, said the Fed chairwoman, Janet L. Yellen, had “really made it clear that she’d like to re-engage those sidelined in recent years by allowing the unemployment rate to fall below what most consider full employment. It’s the only way we’re going to regain living standards lost in recent years.” The Fed faces an uphill battle, she and other analysts suggested, as the United States now appears to be importing some of the economic malaise that has infected other parts of the world, particularly China and Europe. Ms. Swonk, who labeled the employment numbers a “body blow,” warned that the economy was likely to be plagued by subpar growth for a while

Do these data surprise the Fed? - 10 graphs - Today’s release of the employment situation shows a modest increase in employment of 142,000. Moreover, employment over the past two months was revised down by a total of 59,000 (22,000 for July and 37,000 for August). While the mining and logging sector (oil) continued to shed jobs, manufacturing employment was down for the second month in a row; falling 9,000 in September after falling by 18,000 in August. Although the housing sector has shown some growth, construction employment is still lagging. Average weekly hours also fell back to 34.5.  The household survey also had a weak flavor to it. The unemployment rate stayed at 5.1%, but the labor force fell by 350,000. The employment to population ratio also fell to 59.2.  Last week, the third “estimate” of real GDP for the 2nd quarter of 2015 shows  that output of final goods and services grew by 3.9% at an annual rate compared to 3.7% from the 2nd estimate. There was no change in the final estimate of 1st quarter GDP, remaining at 0.6%.  Personal consumption expenditures (PCE) was the largest contributor, providing 2.42 percentage points of the 3.9% gain. Chairperson Yellen’s remarks on September 24 mentions again that they could (expect to?) raise rates by the end of the year: Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change. The last sentence in the Yellen quote once again provides an out for the Fed not to do anything. It is the nature of the beast that quarterly or monthly outcomes can be much different from the trend without signaling a change in direction. That is, if in the next employment report there is a slight uptick in the unemployment rate, or an employment change of say only 100k workers, will that dissuade members of the committee? There is (almost) always something in a given report, GDP or employment, that can be read as surprising. Perhaps non-residential investment is particularly low, for example. Here are the numbers for the annualized percentage change in non-residential structures over the past six quarters, i.e., starting in 2014Q1: 19.1%, -0.2%, -1.9%, 4.3%, -7.4%, 6.2%. And this for equipment over the same time period: 3.5%, 6.5%, 16.4%, -4.9%, 2.3%, 0.3%.

The PCE Price Index Remain Below Target -- The Personal Income and Outlays report for August was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate is 0.33%, up fractionally from a revised 0.31% the previous month. The latest Core PCE index (less Food and Energy) at 1.31% is little changed from the previous month's 1.25% YoY. The general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since Early 2013, Core PCE Price Index has hovered in a narrow YoY range around 1.5%. For six months beginning in April 2014 it rose to a plateau slightly above the range has since dropped to a lower range around the 1.3% level.  The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. The first string of red data points highlights the 12 consecutive months when Core PCE hovered in a narrow range around its interim low. The second string highlights the lower range of the past eleven months. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. Also included is an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. The two percent benchmark is the Fed's conventional target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place. The most recent FOMC statement now refers only to the two percent target.

Q2 GDP Revised Even Higher to 3.9%  - Q2 GDP has been revised upward again to 3.9%.  Originally Q2 GDP was reported as 2.3% and then increased to 3.7%.  The reason for the higher GDP revision is consumer spending was revised upward by over a quarter of a percentage point.  Consumer spending was 62% of real GDP.  The revision is yet another surprise since GDP is now 70% greater than the original estimate.  Notice in the below graph how quarterly GDP is positive until the great recession.  After, quarterly GDP has been somewhat uneven. As a reminder, GDP is made up of: Y = C + I + G + ( X - M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the Q2 GDP component revision comparison.  As we can see investment was significantly revised upward and the usual mass of imports did not materialize. The below table shows the GDP component comparison in percentage point spread from Q1 to Q2.  This is quite an amazing bounce back. Consumer spending, C is now really strong with services being revised from a 0.93 percentage point contribution to 1.23 points.  Below is a percentage change graph in real consumer spending going back to 2000.Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X were revised from a small 0.23 percent point positive GDP growth contribution to 0.18 percentage points.  That's very little adjustment but small growth as exports increased while imports were less than Q1.  The trade deficit putting drag on the economy happens more often than any contribution. Government spending, G contributed 0.46 percentage points to Q2 GDP and was barely revised.  Investment, I is made up of fixed investment and changes to private inventories.  The change in private inventories alone was revised back again from a 0.22 percentage point contribution to 0.02 percentage points.  Below are the change in real private inventories and the next graph is the change in that value from the previous quarter.  Seems like quite the revision yo-yo.

A Slight Increase For US Q3 GDP Expectations Today’s encouraging update on US personal income and spending for August raised the Atlanta Fed’s third-quarter GDP nowcast to 1.8% from 1.4% (seasonally adjusted annual rate). The revised GDP projection for the current quarter is still a sluggish pace and well below Q2’s strong 3.9% increase. But at least the revisions are moving in a positive direction. In fact, today’s update of the widely followed GDPNow model offers the highest growth rate since the Fed bank began publishing Q3 estimates in early August. That’s not saying much since the initial estimate was a tepid 0.9%. Nonetheless, in the current environment of bearish expectations, the sight of even minor upgrades for macro expectations is noteworthy. The upwardly revised Q3 GDP projection is hardly a game changer. There’s still a strong case for expecting slower growth for the US as we head into the final months of the year. But today’s modestly brighter outlook suggests that the worst fears may be overbaked.

Atlanta Fed Slashes Q3 GDP Estimate By 50% To Just 0.9% -- Yesterday, when the Atlanta Fed boosted its Q3 GDP tracker from 1.4% to 1.8%, the permabulls were crowing how the global recession has been called off. We are confident they will be mysteriously mute, however, following today's dramatic revision lower which cut the number for the current quarter by half to just 0.9% as a result of the previously reported tumble in the advance report on U.S. international trade which slashed the Atlanta Fed's model contribution of net exports to third-quarter real GDP growth by 0.7 percentage points to -0.9%.

Atlanta Fed GDPNow Model Cuts Q3 Growth Outlook For US - One forecast for a weak US economy in the final months of the year just got weaker. The outlook for third-quarter GDP growth in the US was cut in half today in the widely followed GDPNow algorithm that’s published by the Atlanta Fed. The previous estimate for a 1.8% rise was already tepid–well below Q2’s solid 3.9% advance. But the new forecast for the third quarter quarter that begins todaywithered even further, slipping to a thin 0.9% (seasonally adjusted annual rate).  “The model’s nowcast for the contribution of net exports to third-quarter real GDP growth fell 0.7 percentage points to -0.9 percentage points on September 29 following the advance report on US international trade in goods from the US Census Bureau,” the Atlanta Fed advises.  The sharply lower revision arrives just four weeks ahead the official “advance” estimate from the Bureau of Economic Analysis, which will publish its initial Q3 GDP report on Oct. 29. The question is whether there’s enough time between now and then for upside revisions with the incoming data? Possibly, although time is running short. Today’s diminished outlook for growth in Q3 is partly a function of the weakness in exports, which is pinching the manufacturing sector. Earlier this week the Commerce Department released its monthly report on US international trade, which “showed that exports of US goods sank a seasonally adjusted 3.2% in August to their lowest level in years,” The Wall Street Journal noted. Jim O’Sullivan, chief US economist at High Frequency Economics, was quoted in the article, saying that “foreign demand remains the weakest part of the economy.” If that wasn’t obvious before, the point is front and center in the wake of today’s dramatic cut in the Atlanta Fed’s Q3 GDP forecast.

GDPNow Forecast Plunges to 0.9% Following Advance Report on US Balance of Goods -- The past few days have seen significant swings in the Atlanta Fed GDPNow Forecast.  What Happened?

  1. On September 28 following the Personal Income and Outlays Report, the forecast rose 0.4 percentage points to 1.8%.
  2. On September 29, following the Census Bureau Advance Trade Report the forecast fell 0.7 percentage points to 1.1%.
  3. On October 1, following the Manufacturing ISM report, the forecast fell another 0.2 percentage points to 0.9%.
See my discussion ISM Flirts with Contraction, Export Orders and Backlogs Contract for 4th Month. Let's investigate the Census Report Numbers to see the reason for the 0.7 percentage point plunge on September 29. The following table I put together will help visualize what happened. Numbers are in millions of dollars.

Treasuries Surge After Jobs Figures Cast Doubt on Fed Increase -  Treasuries rallied, pushing the 10-year yield below 2 percent for the first time since August, after a weaker-than-forecast U.S. labor report fueled bets the Federal Reserve will wait until next year to boost interest rates. Government debt prices advanced as the Labor Department said the nation gained 142,000 jobs in September, following a revised increase of 136,000 in August. The median forecast in a Bloomberg News survey of economists was for an addition of 201,000. The jobless rate remained at 5.1 percent, the lowest since 2008. While Fed Chair Janet Yellen said last week that she was among policy makers who believe a boost would likely be appropriate this year, Friday’s data undermined investors’ confidence in that stance. March is the first month where futures indicate a greater-than-50 percent probability that the central bank will lift its benchmark rate from near zero, where it’s been since 2008. "I really don’t see how the Fed could begin to hike or normalize rates this year-- there’s no immediacy," The yield on the benchmark 10-year Treasury fell 12 basis points, or 0.12 percentage point, to 1.92 percent as of 9:32 a.m. in New York, according to Bloomberg bond trader data. The yield sank to the lowest since it touched 1.9 percent on Aug. 24. The price of the 2 percent security due in August 2025 rose about one point, or $10 per $1,000 face amount, to 100 11/16. Traders see a 30 percent likelihood that the Fed raises rates by its December meeting, down from almost 60 percent a month ago, according to futures data compiled by Bloomberg. The probability for January is 37 percent, and 51 percent for March. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

Where MMT Gets Its Accounting Wrong — And Right  - Steve Roth - Modern Monetary Theory has been revolutionary in economics, and its influence is — beneficially — ever-more pervasive. It has opened the eyes of a generation to a clear-eyed, accounting-based methodology that trumps dimensionless theory, and has brought a deep, nuts-and-bolts understanding of money, debt, and financial institutions to a discipline where that understanding has been inexcusably absent. Witness: a whole raft of papers from central-bank economists worldwide embracing MMT principles (though often not MMT by name), and eviscerating decades or centuries of facile and false explanations of monetary mechanisms. But MMT’s terminology and associated accounting constructs remain problematic and contentious, even among some MMT supporters like the splinter group, the Modern Monetary Realists. Some of this contention results from the usual resistance to new ideas and ways of thinking. But some arises, in my opinion, because MMT terms and accounting constructs are indeed problematic. (The terminological confusion even causes some to object correctly, but for the wrong reasons.) These difficulties are apparent when you consider one of MMT’s central and oft-repeated mantras and accounting identities, here in its simplified form for a closed economy ignoring Rest of World, courtesy of the redoubtable Stephanie Kelton:

The Investment Accelerator and the Woes of the World - Paul Krugman -- Jason Furman of the Council of Economic Advisers gave an illuminating talk on the sources of weak business investment, largely aimed at refuting the “Ma! He’s looking at me funny!” school, which attributes US economic weakness to the way the Obama administration has created uncertainty, or hurt businessmen’s feelings, or something. As Furman shows, it’s a global slowdown, very much consistent with the “accelerator” model in which the level of investment demand depends on the rate of growth of overall demand.  It seems worth pointing out, or actually reiterating, several implications of this analysis that go beyond Obama-bashing and its discontents. First, if weak demand leads to lower investment, which it does, and if fiscal austerity is contractionary, which it is, then in a depressed economy deficit spending doesn’t crowd investment out — it crowds investment in. Or to be more explicit, austerity policies don’t release resources for private investment — they lead to lower private investment, and reduce future capacity in addition to causing present pain. Conversely, stimulus in times of depression supports, not hinders, long-run growth. Second, secular stagnation — persistent difficulties in achieving full employment — is a real concern if potential growth is slowing due to a combination of demography and weak technological progress, which seems to be happening. Lower growth means lower investment demand, so getting the private sector to spend enough gets harder. Finally, an extreme case of this arises in China, where the exhaustion of the reserve of underemployed peasants plus, perhaps, a slowdown in the rate of technological catchup means that the very high investment rates of the past can’t be sustained. Look out below.

John Boehner Resigns: Mitch McConnell 'Next Guys in the Crosshairs,' GOP Rep. Says -- Senate Majority Leader Mitch McConnell (R., Ky.) will be the next target of conservatives frustrated with party leadership, according to one of the conservative representatives who pressured House speaker John Boehner in the weeks leading up to his resignation. “Next guy in the crosshairs will probably be McConnell,” Representative Matt Salmon (R., Ariz.) said in a text message to Senator Mike Lee (R., Utah), according to National Journal’s Sarah Mimms. Lee replied that he doubts that will happen. Still, Salmon’s speculation reflects a theory of Boehner’s struggles that is common among the outgoing speaker’s friends and foes alike — that his unpopularity among the grassroots stems more from McConnell’s failure to take advantage of the Senate majority than anything House Republicans have done. If that’s true, then Boehner’s departure can hardly be expected to ease the tensions between GOP leadership and the conservative base or preempt more leadership fights in the future. “People are frustrated with out Republican leadership, with Boehner and McConnell, and it’s not usually the third or fourth question that comes up — it’s the first question that comes up,”

Congressional agenda thrown into disorder with Boehner’s departure - House Speaker John A. Boehner’s stunning resignation throws the congressional agenda into disarray, with short-term hope for passing crucial items offset by the long-term fear that old battles will only be repeated. By defusing a conservative revolt that threatened to end his speakership, Boehner’s announcement effectively ended the immediate threat of a government shutdown. And because he is not leaving Congress until Oct. 30, some Republicans and many Democrats are hoping the speaker finds the resolve to push through legislation that enjoys bipartisan support but has been stalled by conservative objections. Yet any progress may be hampered by the internal politics of the House Republican Conference and the leadership races to replace Boehner and his lieutenants. Measures that could advance in October include a long-term budget deal, a reauthorization of the Export-Import Bank, a multiyear highway bill and an extension of the federal debt ceiling. Some Democrats have made the unlikely suggestion that Boehner could move forward with the immigration reform package he has kept off the House floor for nearly two years because of a conservative outcry. “He gets a chance to really go out on a high note,” said Rep. Steve Stivers (R-Ohio). “I expect to see a very busy month in October.”

Greater Fools and Bigger Liars -- The moment we heard that John Boehner would resign, the first thing that came to mind was: the next one will be a Greater Fool and a Bigger Liar. For all of his obvious faultlines, Boehner is human. As was evident for all to see Thursday when the Pope -Boehner’s as Catholic as JFK and Jesus Christ- came to see ‘him’ in ‘his’ Senate. Even smiled reading that the Pope had asked Boehner to pray for him. But Boehner was really of course just a man who through time increasingly became a kind of barrier between a president and his party on the one hand, and Boehner’s own, increasingly ‘out there’, party on the other. He moved from far right to the right middle just to keep the country going. In essence, that’s little more than his job, but just doing your job can get you some nasty treatment these days in the land of the free. So now we’ll get a refresher course in government shutdown, though there’s no guarantee that Boehner’s successor will be enough of a greater fool to cut his/her (make that his) new-found career short by actually letting it happen. At least not before December. The government shutdown is a threat like Janet Yellen’s rate hike, one which always seems to disappear right around the next corner, a process that eats away at credibility much more than participants are willing and/or able to acknowledge. Until it’s too late.  Now that it’s clear they lost on Obamacare, Republicans demand that funding for Planned Parenthood must stop, as the women’s group is accused of ‘improperly selling tissue harvested from aborted fetuses’, something it vehemently denies. And there we’re right back to the shadow boxing multi-millionaire tragic comedy act the US Congress has been for years now.

John Boehner Says There Won’t Be a Government Shutdown - Speaker John A. Boehner said Sunday that he expects the House of Representatives to pass the Senate’s government funding measure with Democratic support this week, averting a shutdown that has looked increasingly less likely since he announced on Friday that he would resign. ... Mr. Boehner delivered a clear message to conservative colleagues credited with forcing his hand: Holding the government hostage to achieve untenable policy goals was reckless and harmful to the institution itself. “We have got groups here in town, members of the House and Senate here in town, who whip people into a frenzy believing they can accomplish things that they know, they know are never going to happen,” Mr. Boehner said in a live interview broadcast on CBS’s “Face the Nation.” The speaker described these conservative members of his party as “false prophets,” who promise policy victories they cannot deliver. “The Bible says, beware of false prophets,” he said. “And there are people out there spreading noise about how much can get done.”

Shutdown Update --From the LA Times: Congress moves closer to averting government shutdown with Senate vote With Wednesday's funding deadline looming, the Senate overwhelmingly advanced the government funding bill by a 77-19 vote. More than half the Republicans in the Senate joined Democrats to break the filibuster by conservative Republicans, led by Sen. Ted Cruz of Texas ... Final passage in the Senate is likely to come Tuesday. The House is expected to vote Wednesday. If it doesn't pass the House by Wednesday night, the Government will shutdown.  It seems likely this will pass.However, there is growing concern about a shutdown later this year - that might include Congress threatening (once again) to not pay the bills. From Dara Lind at Vox: The next government shutdown fight, explained The next funding bill is currently working its way through the Senate, and will come to the House sometime Wednesday. Congress was supposed to fund the government for the entire 2016 fiscal year, which begins on October 1. But instead, the Senate bill only funds the government through December 11. The so-called "debt ceiling" will probably be reached in November, so both of these issues will be tied together (the "debt ceiling" is misleading - it sounds fiscally responsible, but it is actually about paying the bills - and not paying the bills would be irresponsible). John Schoen at CNBC discusses this: How the government shutdown may be averted, for now The debt issued by the Treasury is used to pay for spending that Congress has already authorized for goods and services the government has already provided. It would be like trying to control your household spending by not paying a credit card charge for a meal you've already eaten.

Republicans, White House in Fresh Budget Talks - WSJ: Republican leaders, seeking to avoid repeated fiscal crises, have opened discussions with President Barack Obama about a two-year budget deal, aiming to avoid a spending fight in the middle of an election year. The preliminary talks are geared at finding a way around discretionary spending caps outlined in a 2011 budget law that many lawmakers see as draconian. Struggles over the size of government have been one of the main tensions in the GOP, pitting fiscal conservatives against pragmatists who want to boost military spending and are willing to negotiate with Democrats to do so. The House and Senate are expected Wednesday to pass a stopgap spending measure to keep the government running through Dec. 11. The talks, initiated before House Speaker John Boehner (R., Ohio) announced he would resign, would set overall spending levels for the remainder of fiscal 2016, which ends Sept. 30 of that year, and through fiscal 2017.“We’d like to settle a top line for both years so that next year we can have a regular appropriations process,” Senate Majority Leader Mitch McConnell (R., Ky.) told reporters on Tuesday. “The president and Speaker Boehner and I spoke about getting started at our discussion last week, and I would expect them to start very soon.” The talks are fresh and unlikely to be wrapped up before Mr. Boehner leaves office on Oct. 30. It is unclear whether his successor, likely Rep. Kevin McCarthy (R., Calif.), would be interested in participating in them. The two current GOP leaders, chastened by sinking poll numbers after the 2013 government shutdown, have resisted using similar tactics to gain leverage in negotiating with the White House. But Mr. McCarthy is campaigning for the speakership by saying he will be more in touch with the views of the public, where many conservative Republicans see threatening a shutdown as a legitimate negotiating tactic.

Congress avoids shutdown with stop-gap bill, but another showdown looms in December: Congress steered the US government clear of a shutdown Wednesday hours before a midnight deadline, approving temporary federal spending that does not defund women’s health care provider Planned Parenthood as Republicans had hoped. The Senate and House, both controlled by Republicans, acted pragmatically to fund the government at current levels beyond Thursday’s start of the new fiscal year. The legislation heads to President Barack Obama who was expected to sign it before midnight.The stopgap measure only runs until December 11, setting up a new potential fiscal clash just 10 weeks from now. But it avoids a repeat of 2013, when bickering lawmakers failed to reach a deal on spending and the government skidded into a damaging 16-day shutdown. Obama, speaking to Democratic state lawmakers at the White House, hailed the congressional action. “It looks like the Republicans will just barely avoid shutting down the government for the second time in two years,” he said.

Government Set to Default Weeks Earlier Than Forecast -  — As the government nears a potentially devastating default, the White House and congressional leaders have begun bipartisan talks aimed at reaching a two-year budget deal, seizing on what could be their final chance at consensus before Speaker John A. Boehner’s exit ushers in what is expected to be more combative leadership in the House.The opening of negotiations, which started this week with a closed-door meeting of senior White House and Capitol Hill staff members, came as Treasury Secretary Jacob J. Lew warned on Thursday that the United States would exhaust its ability to borrow on Nov. 5 if lawmakers refuse to increase the amount of money the government can legally borrow.That default date is weeks before lawmakers had expected, and it immediately increased the pressure to avoid a new fiscal crisis and break the gridlock that has become business as usual in Washington. Officials from both parties tamped down expectations for success, but the timing of the economic threats may provide a rare opportunity for cooperation. “This back and forth, going to the brink all the time, it’s bad governmentally, it’s bad for the markets and it’s bad politically,” said Representative Peter T. King, Republican of New York. “The average voter out there just thinks we’re crazy.” The talks are unlikely to include Representative Kevin McCarthy, the California Republican expected to succeed Mr. Boehner as speaker, with whom the White House has never worked closely. By contrast, Mr. Obama’s advisers regard Mr. Boehner as a familiar and straightforward — if not always entirely cooperative — negotiating partner. The outlines of the long-running disagreements between the parties remain the same: Mr. Obama and Democrats insist on lifting strict spending limits on domestic programs, while Republicans continue to say any increased domestic spending must be offset by savings in other social programs not subject to Congress’s annual discretion.

Why The US Running Out Of Cash In 4 Weeks Is Good News -- Over the past several weeks, Americans (not to mention the market) were forced to grapple with the latest example of congressional infighting and outright legislative gridlock as US lawmakers narrowly averted a government shutdown in the wake of House Speaker John Boehner’s surprise resignation. Now, the debt ceiling battle looms ahead of Boehner’s October 30 exit and according to Treasury Secretary Jack Lew, the US will run out of money to pay its bills far sooner than originally expected - November 5, to be exact. Here’s WSJ: The government will run out of money to pay its bills sooner than previously thought, forcing Republican lawmakers who are already scrambling to elect new leaders to immediately confront a series of unpopular fiscal deadlines. Treasury Secretary Jacob Lew said the government would be left with just $30 billion cash on or around Nov. 5. Government outlays can be twice that level on certain weekdays, underscoring the need to raise the federal borrowing limit, Mr. Lew said in a letter late Thursday to House Speaker John Boehner (R., Ohio). “Without sufficient cash, it would be impossible for the United States of America to meet all of its obligations for the first time in our history,” Mr. Lew said in the letter. The new debt-ceiling deadline falls less than a week after Mr. Boehner will leave Congress, putting pressure on him—and an incoming Republican leadership team—to pass legislation raising the limit before that transition.

The unexpected upshot of John Boehner’s ouster: The Trans-Pacific Partnership is in danger - Trade promotion authority, which allows the president to negotiate trade agreements and bring them to Congress for an expedited vote, barely passed the House earlier this year. Fifty-four Republicans voted against it, among them practically all the ringleaders of the campaign against Boehner – like Mark Meadows, R-N.C., who took the leadership role in ousting him; David Brat, the man who upset Eric Cantor and took his House seat; Jim Jordan, chairman of the anti-Boehner House Freedom Caucus; and 23 members of that caucus in all. Obviously, those who spurred the Boehner revolt are emboldened by their apparent victory. In the short term this will not bear fruit. Boehner has vowed to use his final month to prevent a government shutdown and defuse other potential crises. He could reauthorize the Export-Import Bank, pass highway spending, and even raise the debt ceiling. “I want to clean the barn up a little bit before the next person gets here,” Boehner said.  But the peculiarities of trade promotion authority make it impossible for Boehner to be in the speaker’s office when TPP comes up for a vote. Under the law, even if trade officials announce an agreement today, they must provide notification to Congress, wait 30 days, and then post the deal’s text on a public website for an additional 60 days before signing. Then there’s another 30 to 60 days where the administration must submit the final legal text and describe what changes to U.S. law must be put into implementing legislation. Only after that does the congressional process start. What this all means is that an agreement announced at the end of the ministerial meetings could not reach Congress until Feb. 1, 2016, at the very earliest.

TPP round kicks off in Atlanta - TPP negotiators are already diving into what the Office of the U.S. Trade Representative describes as a "limited number of outstanding issues" holding up a deal, including talks on automotive rules-of-origin between the United States, Japan, Canada and Mexico, dairy market access involving the first three of those countries and Australia and New Zealand, and biologic medicine test data protection with all 12 nations. But in a memo last week to other House members, Michigan Rep. Sander Levin listed a dozen major unresolved issues in areas ranging from labor and the environment to currency and state-owned enterprises. Public Citizen put out its own exhaustive list ahead of what it called the “latest” final TPP meeting. Still, at least one minister sounded optimistic they’d get a deal. "Notwithstanding [the difficult issues], a conclusion remains within imminent reach," Australian Trade Minister Andrew Robb said, according to media reports. “There are unresolved issues, but hopefully, those aren't intractable," Robb added, describing the deal as about 90 percent complete -- down from his off-the-cuff estimate of 98 percent at the end of talks in Maui two months ago.

Who Needs Balanced Trade? Who Needs Balanced Budgets? -  The intensity of the conflict over the Trans-Pacific Partnership (TPP) has died down since last June, after the Administration won its victory in getting Trade Promotion Authority (TPA) through Congress. During the Intervening months, the efforts of the Special Trade Representative (STR) to complete TPP negotiations have continued.   But, there is an important truth of macroeconomics to be considered. “Exports are real costs; and Imports are real benefits.” So, an important issue is: would we rather send US fiat money (our electronic reserves) to other nations and add to our real wealth by getting goods in return, or would we rather add to their real wealth and get their fiat money, or our old fiat money back in return? Other things being equal, we’d prefer the first alternative rather than the second: trade deficits are better than trade surpluses, at least in the short run because they add real wealth to our nation. Other things are not equal, however, since if the Government running trade deficits does nothing to compensate for their shorter and longer-term effects, then these will create a political reaction de-stabilizing any trade policy resulting in continuous trade deficits. (That political crisis has been building for a very long time and is coming to a head in the struggle over the TPP.) However, the negative effects of these continuous trade deficits can be avoided without implementing “balanced trade” as a continuous policy. How that can be done is the subject of my new e-book Who Needs Balanced Trade? Who Needs Balanced Budgets? which was published on September 29, 2015 at Amazon.

Huffing And Puffing Ideologically Over The Export-Import Bank - Tyler Cowen at Marginal  Revolution has sympathetically linked to an article in the latest issue of Econ Journal Watch by Veronique de Rugy, Ryan Daza, and Daniel B. Klein that argues that libertarian/conservative bloggers have been frequently and firmly critical of the supposedly awful Export-Import Bank, whose charter was renewed not too long ago, even while they admit that at least a few leftist bloggers have criticized it, most notably Dean Baker, who was all over its case today (perhaps in response to this article, although he made no mention of  it or Cowen's post).  While some commenters at MR attempt to criticize the methodology of the authors, it looks to me like they are basically correct.  Dean Baker is one of the lefty bloggers to post multiple times to criticize the Export-Import Bank as a protectionist subsidizer of big corporate interests, most notably Boeing and General  Electric.  OTOH, many righty bloggers have complained about its rechartering frequently, with Donald Boudreaux at Cafe Hayek leading the pack with 72 such posts, followed by Daniel Mitchell at International Liberty at 43. For the authors this apparently shows some kind of hypocrisy by statist protectionists on the left, even though the only blogger identified as supporting the Ex-Im Bank outright is Barry Ritholtz, a professional financial adviser whom I have not yet heard of presenting talks in URPE sessions at conferences. For the record, I agree with Dean Baker about the Ex-Im Bank.  It does not deserve to exist, and it clearly exists solely to help out some big corporate interests, even if one wants to argue as some have that workers may be involved here as well (the heart of leftist protectionist arguments).  So, why have most lefty blogs been silent on this, and I am posting on this at least partly because this blog is listed in this article as being one that has never had a post about this issue, accurately as near as I can tell, so this is the first such post.  I cannot speak for others here, but why have I not personally so posted in the past on this wicked evil big government protectionist protector of giant corporations?

Reform, Ohio Replacement Fund; Top Changes In NDAA - With the 2016 National Defense Authorization Act completed and headed to the president’s desk likely sometime next week, it’s useful to summarize the biggest policy changes therein. While most Republicans do not take the veto threat seriously, Mr. Obama will surely do just that. Still, when this bill eventually receives his signature later this year or early next year, it will be—for all practical purposes—a near-exact version as to what is now public. The only difference will (hopefully) be a small budget deal to fund the government after December 11th negotiated between the White House and Congressional Republicans. Highlights of this year’s defense policy bill crafted by Senators John McCain (R-AZ) and Jack Reed (D-RI) and Representatives Mac Thornberry (R-TX) and Adam Smith (D-WA) include significant bipartisan changes in acquisition reform, military retirement, US policy in the South China Sea, and a strategy for the eventual closure of Guantanamo Bay.  Fiscal hawks can no longer deny that Congress and the Pentagon are making real improvements in efficiency. Broadly, this year’s defense authorization bill may be the beginning of the end of the liberal-Tea Party coalition against reasonable levels of defense spending based on the needs of and increasing risk to the military.

Lawrence Wilkerson: “The Empire is in Deep, Deep Trouble” – Yves Smith - This is a must-watch video. Wilkerson describes the path of empires in decline and shows how the US is following the classic trajectory. He contends that the US needs to make a transition to being one of many powers and focus more on strategies of international cooperation.  The video is full of rich historical detail and terrific, if sobering, nuggets, such as: History tells us we’re probably finished. The rest of of the world is awakening to the fact that the United States is 1) strategically inept and 2) not the power it used to be. And that the trend is to increase that. Wilkerson includes in his talk not just the way that the US projects power abroad, but internal symptoms of decline, such as concentration of wealth and power, corruption and the disproportionate role of financial interests.  Wilkerson also says the odds of rapid collapse of the US as an empire is much greater is generally recognized. He also includes the issues of climate change and resource constraints, and points out how perverse it is that the Department of Defense is the agency that is taking climate change most seriously. He says that the worst cases scenario projected by scientists is that the world will have enough arable land to support 400 million people (no typo).  Be sure to listen to the Q&A as well.

Sunlight on Tax Havens - DeLong and DeLong - Tax havens are by design secretive and opaque. The entire point of their existence is to conceal the wealth hidden within them. And a new book by Gabriel Zucman, The Hidden Wealth of Nations: The Scourge of Tax Havens, reveals, as never before, the extent of their role in the global economy. Zucman examines discrepancies in international accounts to provide the most precise and reliable figures we are likely to obtain about the amount of money stored in tax havens. He estimates that 8% of the world’s financial wealth – some $7.6 trillion – is hidden in places like Switzerland, Bermuda, the Cayman Islands, Singapore, and Luxembourg. That is more wealth than is owned by the poorer half of the world’s 7.4 billion people. This figure has important consequences, as it represents money that should be in the tax base. If rich countries in Europe and North American cannot effectively tax the rich, they have little chance of preserving social democracy and offsetting the surge in inequality that has recently afflicted their economies. Similarly, emerging economies have little hope of putting in place progressive tax systems if they cannot find their plutocrats’ wealth. To be sure, Zucman’s relies on the unproven assumption that there are important data to be found in what is usually classified as “errors and omissions.” But there is good reason to believe his figures are in the ballpark. Switzerland’s central bank reports that foreigners hold $2.4 trillion in Swiss banks alone. And while Switzerland may be the world’s oldest tax haven, it is not the most advantageous place to park one’s money.

Fox host corners Bush for giving tax cuts to the 1%: ‘Does Jeb Bush need a $3 million tax cut?’ - Republican presidential candidate Jeb Bush suggested that the wealthiest top 1 percent of Americans would receive more benefits from this tax plan than the middle class because “that’s just the way it is.” During a Sunday interview on Fox News, host Chris Wallace pointed out that Bush’s assertion that cutting taxes would generate more revenue for the government was an idea that his father, George H.W. Bush, had called “voodoo economic” when Ronald Reagan tried a similar plan. “You gave your tax plan to four conservative economists who said that it would increase the deficit between 1 and 3 trillion dollars over the next ten years,” Wallace explained. “Now, Ronald Reagan proposed something roughly similar — big tax cuts — back in 1980 and he argued that the dynamic effect — the word you used — the growth would end up paying for the revenue loss.” “You know what your dad called that?” Wallace noted. “Is this your version of ‘voodoo economics’?”

Jeb Bush can’t explain the cost of his tax cuts correctly - George W. Bush's central plan for selling his 2001 tax cut, both as a candidate and then later as president, was to lie about both its cost and its beneficiaries. Jeb Bush's central premise for his own tax cut proposal seems to be the same. Here he is talking to CNBC's John Harwood about the impact of his plan on the deficit: Everybody freaks out about the deficit. And I worry about the structural deficit for sure. But if we grow our economy at a faster rate, the dynamic nature of tax policy will kick in. And so we'll be in the hole around $1.2 trillion over 10 years. And these are moderate growth effects. I'm not using the ones that I believe. I'm more optimistic. There's never been a time where there hasn't been a dynamic effect of taxation. That's not a risk at all. That's just a simple fact. Take the contrary argument here for a second: If tax policy doesn't matter, why don't we just tax everything? Bush is referring to an estimate prepared for media consumption by John Cogan, Martin Feldstein, Glenn Hubbard, and Kevin Warsh — four men who are smart economists in good standing but who are also very much partisan Republicans. The right way to think about an estimate they put together is that it represents the outer limit of what a person is willing to claim on behalf of the growth impacts of Bush's tax cut and feel like he can still look at his graduate students with a straight face.  And guess what? The paper doesn't say what Bush says it says. The paper says that under a conventional static estimate, Bush's tax cuts will cost $3.4 trillion. They get that down to the $1.2 trillion figure Bush cites by assuming that GDP will be 8 percentage points higher in 2025 in the Bush Utopia than it will be under current policies.

Trump Plan Cuts Taxes for Millions - WSJ: Republican presidential candidate Donald Trump unveiled an ambitious tax plan Monday that he says would eliminate income taxes for millions of households, lower the tax rate on all businesses to 15% and change tax treatment of companies’ overseas earnings. Under the Trump plan, no federal income tax would be levied against individuals earning less than $25,000 and married couples earning less than $50,000. The Trump campaign estimates that would reduce taxes to zero for 31 million households that currently pay at least some income tax. The highest individual income-tax rate would be 25%, compared with the current 39.6% rate. Many middle-income households would have a lower tax rate under Mr. Trump’s proposal, but because high-income households generally pay income tax at much higher rates, his proposed across-the-board rate cut could have a positive impact on them, too. For example, an analysis of Jeb Bush’s plan—taxing individuals’ incomes at no more than 28%—by the business-backed Tax Foundation found that the biggest percentage winners in after-tax income would be the top 1% of earners. Mr. Trump’s plan appears designed to help him, as the GOP front-runner, cement his standing as a populist—though that message is complicated by the fact that the billionaire, like other Republican leaders, would eliminate the estate tax.

'The Growth Fairy Model' -- Kevin Williamson at the National Review Online tells Republican candidates to get real: The Thing about Tax Cut, by Kevin D. Williamson: Every Republican tax-reform plan should be rooted in this reality: If you are going to have federal spending that is 21 percent of GDP, then you can have a.) taxes that are 21 percent of GDP; b.) deficits. There is no c. If, on the other hand, you have a credible program for reducing spending to 17 or 18 percent of GDP, which is where taxes have been coming in, please do share it. The problem with the Growth Fairy model of balancing budgets is that while economic growth would certainly reduce federal spending as a share of GDP if spending were kept constant, there is zero evidence that the government of these United States has the will or the inclination to enact serious spending controls when times are good (Uncork the champagne!) or when times are bad (Wicked austerity! We must have stimulus!). So even if we buy Jeb Bush’s happy talk about growth, or Donald Trump’s, the idea that spending is just going to magically sit there, inert, while the economy zips forward and the tax coffers fill up, is delusional. There are no tax cuts when the government is running deficits, only tax deferrals.

Voodoo Never Dies, by Paul Krugman - So Donald Trump has unveiled his tax plan. It would, it turns out, lavish huge cuts on the wealthy while blowing up the deficit.  This is in contrast to Jeb Bush’s plan, which would lavish huge cuts on the wealthy while blowing up the deficit, and Marco Rubio’s plan, which would lavish huge cuts on the wealthy while blowing up the deficit. For what it’s worth, it looks as if Trump’s plan would make an even bigger hole in the budget than Jeb’s. Jeb justifies his plan by claiming that it would double America’s rate of growth; The Donald, ahem, trumps this by claiming that he would triple the rate of growth. But really, why sweat the details? It’s all voodoo. The interesting question is why every Republican candidate feels compelled to go down this path. You might think that there was a defensible economic case for the obsession with cutting taxes on the rich. That is, you might think that if you’d spent the past 20 years in a cave (or a conservative think tank). ... True, you can find self-proclaimed economic experts claiming to find overall evidence that low tax rates spur economic growth, but such experts invariably turn out to be on the payroll of right-wing pressure groups (and have an interesting habit of getting their numbers wrong)... There is no serious economic case for the tax-cut obsession. Still, every Republican who would be president is committed to a policy that is both demonstrably bad economics and deeply unpopular. What’s going on? Well, it’s straightforward and quite stark: Republicans support big tax cuts for the wealthy because that’s what wealthy donors want. No doubt most of those donors have managed to convince themselves that what’s good for them is good for America. But at root it’s about rich people supporting politicians who will make them richer. Everything else is just rationalization.

Why massive tax cuts should be way off the table -- Over at the WaPo. There’s a lot more to say about this point about how we’re going to need more, not less tax revenue in the future, than I had space. A few points that ended up of the edit-room floor.  As Larry Summers has stressed, the relative prices of the things government buys–health care, education–are rising a lot faster than average:  Since the early 1980s the price of hospital care and higher education has risen fivefold relative to the price of cars and clothing, and more than a hundredfold relative to the price of televisions. Similarly, the complexity, and hence the cost, of everything from scientific research to regulating banks rises faster than overall inflation. These shifts reflect long-running trends in globalization and technology. If government is to continue providing the same level of these services, government spending as a share of the economy has to rise . . . Interest rates have been really low for really long, and they’ll likely stay low. But they’ll surely rise/”normalize” a bit as the Fed tightens. This will demand more revenues to service the debt.  I mentioned the environment in passing, but efforts to reverse global warming and dealing with its fallout create a huge and classic public goods challenge. No private firm would or could undertake such efforts. It will require significant revenue. Of course, the canonical solution is to raise such revenues through “internalizing the externality”–a tax on polluters.

What Carl Icahn Would Do As Treasury Secretary -- Carl Icahn, the financier Donald Trump recently said he’d choose as his Treasury Secretary, is talking. Icahn doesn’t really want the job. But in a video released Sept. 29, he sounds like a man with a well-considered plan for the office. In the spot, he offers up serious warnings about the financial bubbles brewing right now as well as advice for Fed chair Janet Yellen and the next President. There’s a lot to disagree with. But there are also some important truths. Here are the tenets of “the World According to Carl”: An unprecedented period of low interest rates has created a high-yield bond bubble that’s about to burst. This is totally true, and very worrisome. “Janet Yellen should have raised rates a year ago,” Icahn told TIME in an interview. “But they really have to raise them now.” His argument centers on the fact that low rates have led corporations to raise record amounts of debt–a.k.a., junk bonds that could explode when interest rates eventually rise, creating a major market correction or even a crash. “When it blows, who’s going to buy that stuff? It will be just like 2008,” says Icahn, who made a fair bit of money back then shorting dicey securities, and says he’s doing the same in the high yield bond market now. What might be the trigger for such a crash? “It could be that the China thing exacerbates. Maybe Japan screws up. Or there’s trouble in the oil market. Just about any little thing could send people for the exit [because investors are so jittery]. That’s what’s so dangerous right now.” Companies need to be able to repatriate offshore cash at a rate much lower than usual corporate tax rate, so that the government can use that money to fund stuff like the Highway Bill. Here’s where the World According to Carl differs somewhat from the World According to Trump. Trump said earlier this week that a corporate tax holiday would create jobs. That’s highly unlikely.

The Price Impact of Margin-Linked Shorts -- Rajiv Sethi - The real money peer-to-peer prediction market PredictIt just made a major announcement: they plan to margin-link short positions. This will lead to an across-the board decline in the prices of many contracts, especially in the two nominee markets. Given that the prices in this market are already being referenced by the campaigns, this change could well have an impact on the race.  What margin-linking short positions does is to make it substantially cheaper to bet simultaneously against multiple candidates. Instead of a trader's worst-case loss being computed separately for each position, it is computed based on the recognition that only one candidate can eventually win. So a bet against both Bush and Rubio ought to require less cash than a bet against just one of the two, since we know that a loss on one bet implies a win on the other. In an earlier post I argued that a failure to margin-link short positions was a design flaw that results in artificially inflated prices for all contracts in a given market, making the interpretation of these prices as probabilities untenable. The problem can be seen by looking at some of the current prices in the GOP nominee market:  The "Buy No" column tells us the price per contract of betting against a candidate for the nomination, with each contract paying out a dollar if the named individual fails to secure the nomination. One could buy five of these contracts (Rubio, Bush, Trump, Fiorina, and Carson) for a total of $3.91, and even of one of these were to win, the payoff from the bet would be $4. If, on the other hand, Cruz or Kasich were to be nominated, the bet would pay $5. There is no risk of loss involved. Margin-linking shorts recognizes this fact, and would make this basket of five bets collectively cost nothing at all. This would be about as pure an arbitrage opportunity as one is likely to find in real money markets. Aggressive bets would be placed on all contracts simultaneously, with consequent price declines.

Rarely enforced SEC rules may give green light to earnings manipulation - Francine McKenna - In fact, a new analysis finds, the enforcement of those rules—meant to reclaim compensation paid executives whose companies restated financial results as a result of misconduct—has been virtually nonexistent since they were adopted in 2002.  New rules soon to be adopted by the SEC will expand the pool of executives to which the regulations apply, potentially exposing more to financial penalties. The business community has expressed disapproval of the new rules, which no longer require evidence of misconduct. But the sparse enforcement of the current rules, experts say, suggests that there is little cause for new concern—and, perhaps, even less than before. What’s more, some say, the lack of enforcement makes clawback rules practically useless in deterring the earnings manipulation they were meant to discourage—perhaps even creating an incentive for executives to fudge numbers to boost their compensation. The rules “are written with loopholes and discretion that render them almost meaningless, if desired,”  The SEC’s enforcement thus far, “casts doubt on the effectiveness of compensation clawback policies.”

Questions About Leak at Federal Reserve Escalate to Insider-Trading Probe - WSJ: A high-profile investigation into a leak of sensitive information from the Federal Reserve in 2012 has escalated into an insider-trading probe led by a key market surveillance agency and federal prosecutors in Manhattan, according to people familiar with the matter. But the firm at the center of the probe, Medley Global Advisors, has thrown up a roadblock by claiming a novel defense: It says it is a media organization entitled to special protections under the law, the people said. Federal prosecutors in the Southern District of New York are focusing on the information leak, while the Commodity Futures Trading Commission is looking into whether anyone violated insider-trading rules in 2012, when Medley disclosed to its clients details about the Fed’s plans for further economic stimulus, according to people familiar with the matter. A spokesman for Medley said the firm “reserves complete editorial freedom in its newsletters, an integral principle for any serious news-gathering organization.” He said, “Medley’s journalists are focused on providing their readers deep insight,” and that the firm’s work is “made available to all subscribers and has a global audience from Kansas City to Madrid to Tokyo.” The Fed declined to comment on the investigation and insider-trading probe.

U.S. Bonds Flash Warning Sign - WSJ: The U.S. corporate-bond market is starting to flash caution signals about the broader economy. The difference in yield, called the “spread,” between bonds from America’s strongest companies and ultrasafe U.S. Treasury securities has been steadily increasing, a trend that in the past has foreshadowed economic problems. Wider spreads mean that investors want more yield relative to Treasurys to own bonds from U.S. companies. It can signal that investors are less confident about companies’ business prospects and financial health, though other factors likely also are at play. Spreads in investment-grade corporate bonds—debt from companies rated triple-B-minus or higher—are on track to increase for the second year in a row, according to Barclays data. That would be the first time since the financial crisis in 2007 and 2008 that spreads widened in two consecutive years. The previous times were in 1997 and 1998, as a financial crisis roiled Asian countries, and a few years before the dot-com bubble burst in the U.S.   Investors and analysts say they are closely watching the action to determine whether trouble is brewing once again. Concerns are growing about companies’ ability to pay back the massive debt load taken on in recent years, as ultralow interest rates spurred corporate finance chiefs to sell record amounts of bonds.

Investors Pull Back From Junk Bonds - WSJ: Investors are pulling back from the junk-bond market, in a shift that threatens to slow the global mergers-and-acquisitions boom. Tepid demand forced European cable company Altice and U.S. chemical producer Olin Corp. in recent days to reduce the size of bond sales and boost interest payments.  The deals amount to a setback for J.P. Morgan Chase & Co., the lead arranger of both. The bank this year has underwritten junk-bond deals worth $25 billion, an 11% market share, according to Dealogic. As junk-bond markets started to weaken, J.P. Morgan kept up its pace in a bid to clear its plate of M&A financings it had committed to, investors said. The concessions mark the first significant slowdown following a multiyear boom. U.S. issuance of high-yield bonds, commonly called junk bonds, so far in 2015 has fallen 1.4% from a year ago, according to Securities Industry and Financial Markets Association data, known as Sifma. Any prolonged decline in bond investors’ appetite could threaten a banner year for corporate mergers fueled in large part by cheap credit. A slowdown could also portend more trouble for U.S. stocks. The Dow Jones Industrial Average has dropped 11% from its May peak. Though the U.S. economy continues to expand, analysts closely watch credit markets for signs of whether economic weakness in China is spilling over to the U.S. “Until the recent volatility, there had been a fair amount of confidence that the capital markets would be there,” . “It’s going to be difficult for traditional banks to make up that shortfall.”

US junk bonds cracking after debt binge -- After the debt binge comes the bill, and that is the grim message for investors looking at the present performance of the US corporate bond market. As the third quarter draws to a close, slowing global economic activity threatens the earnings power of many US companies, which have amassed $7.8tn in debt. Years of easy monetary policy that kept borrowing costs low, a wave of mergers and acquisitions and the spectre of shareholder activism have all contributed to an erosion of balance sheet quality.Most vulnerable are junk-rated companies, which account for $2.5tn of the recent US corporate debt binge, with bonds worth roughly $1.5tn set to mature over the next five years, according to S&P. Refinancing that amount may prove a hurdle for corporate executives and chief financial officers if earnings come under more pressure. : “Finally investors are starting to wake up. They are starting to trade on earnings and they’re starting to trade on downgrades.” For the first time since the financial crisis, total returns from speculative grade US debt — generally riskier bonds issued by companies rated BB+ or lower by Standard & Poor’s or Ba1 by Moody’s — are set to decline. The Barclays US high yield index is down 2.3 per cent for 2015. As borrowing costs rise and defaults have accelerated, investors have withdrawn more than $14bn from junk bond funds since the middle of April. The yield on the BofA Merrill Lynch high yield index has climbed to 7.98 per cent from 6.52 per cent a year ago. “We are in the late stages of the credit cycle,” . “Cycles last five to seven years and we’re in the seventh year. It’s when the US economy slows that you have defaults across the board.”

This is When Bonds Go Kaboom!  - Wolf Richter - It’s getting tougher out there for our QE and ZIRP-coddled corporate junk-bond heroes. Unisys, whose revenues and profits decline year after year and whose stock dropped from over $400 a share during the prior tech bubble to $13 a share now, withdrew its offer to sell $350 million of bonds on Friday. The “current terms and conditions available in the market were not attractive for the company to move forward,” it said. Unisys isn’t an oil company, or a mining company, or a coal company – sectors that have been eviscerated by the commodities rout and are having trouble issuing any debt at all. Unisys is a tech company. But Unisys wasn’t the only one: It was the 15th bond offering withdrawn so far this year, according to LCD, though two of them – Fortescue Metals and Presidio – were able to pull them off later. In total, nearly $4 billion in bond offerings were withdrawn this year. In the energy sector, the bond devastation is even worse. California Resources – Occidental Petroleum’s spinoff of its oil-and-gas assets in California, a masterpiece of Wall Street engineering – has done nothing but burn investors in its 10 months as an independent company. When I last wrote about it ten days ago, its $2.25 billion of 6% notes due 2024, issued at par to QE-drunk investors in September last year, had plunged to 66 cents on the dollar. Now they’re at 59.5 cents on the dollar [read… A Spinoff Goes to Heck, after Just 10 Months]. Chesapeake Energy, the second largest natural gas driller in the US, is also facing the music. Two of its brethren, Quicksilver Resources and Samson Resources, have already filed for bankruptcy. When I last wrote about Chesapeake a month ago, its $1.1 billion of 5.75% notes due 2023 – that in June 2014 had been at 112 cents on the dollar – had plummeted to 70. Now they’re at 67 [read… Whose Capital Is Getting Destroyed in US Natural Gas?]. Oil and gas producer Halcon Resources, which has been demolishing its investors via serial debt exchanges that are becoming the model for distressed companies, saw its 8.875% notes due 2021 drop to 33.5 cents on the dollar. And darling Linn Energy saw its 6.5% notes due 2021 collapse to 23 cents on the dollar.

They’re Shouting from the Rooftops About Junk Bond Dangers – $2.2 Trillion Too Late - An uncanny number of people woke up this week with the same thought – it’s time to panic over the size, structure and illiquidity of the junk bond market. (Not to put too fine a point on it, but Wall Street On Parade made the warning in 2013 and again on August 18 of this year.) On Tuesday morning, it was both Carl Icahn, the famous hostile takeover artist and hedge fund billionaire, along with the more staid academics at the International Monetary Fund (IMF), who issued junk bond warnings. Icahn released a video (see clip below) assigning blame to companies like BlackRock which have bundled illiquid junk bonds into Exchange Traded Funds (ETFs), listed them on the New York Stock Exchange, and sat back and watched as millions of mom and pop investors were sold a bill of goods that these are liquid investments that can be exited at any time during the trading day. The danger, says Icahn, is that liquidity dries up when everyone heads for the exits at the same time. Icahn includes a graph in his video showing that the U.S. junk bond and leveraged loan market has grown from $1 trillion in 2007 to $2.2 trillion today. The IMF also came out on Tuesday with a warning on junk bonds that carried a brain stumper title: “Market Liquidity Not in Decline But Prone to Evaporate.” Check out the plunge line on August 24 in the above chart for one of BlackRock’s junk bond ETFs to grasp the nuance of that title. August 24 is the day the Dow Jones precipitously dropped 1089 points shortly after the open, closing down 588 points on the day.

Glencore Default Risk Surges Above 50% --Glencore is in total free-fall across all markets today. Most worrying for systemic risk concerns is the rush into credit protection that has occurred, as counterparties attempt to hedge their exposures. For the first time since 2009, Glencore CDS are being quoted with upfront pricing (something that happens as firms become seriously distressed). Based on the latest data, it costs 875bps per year (or 14% upfront) to buy protection against a Glencore default (which implies - given standard recoveries - a 54% chance of default).  Do not panic!!

Glencore Fear Trade Grips Debt Market Amid Commodity Pain --Glencore Plc just gave credit traders another reason to reach for the antacid. Fears the commodities house won’t be able to get a grip on its $30 billion debt load triggered a global selloff Monday, sending junk-bond yields over 8 percent for the first time in three years, a Bank of America Merrill Lynch index shows. The concern is tied to the reduced demand for metals and minerals from China amid the country’s economic slowdown. The panic Monday was also partially fueled by a warning from investment bank Investec Plc that Glencore and mining company Anglo American Plc could be severely devalued if low commodities prices persist. Maintaining an investment-grade rating is particularly important for Glencore because the company’s large trading operation needs it to continue borrowing at attractive rates. “The market is on edge, and the bad news keeps coming,” . “When you have this much bad news and you aren’t near any inflection point to speak of, it just begets more sellers, even when prices are low.” The rout was so fierce that traders started demanding more to insure against a Glencore default by the end of next year than for five years of protection -- a debt-market distortion that typically happens when companies are deemed in distress. Anglo American bonds, which have an investment-grade credit rating, were suddenly being treated like they were junk.

With $19 Billion In Derivative Liabilities, Some Observations On Glencore's "Counterparty Risk" Now that after long last the market has turned its attention not only to Glencore's mining operations, which as we have repeated said are a secondary aspect to the company's business model, the key being its trading operations which transact in billions of commodities every single day, and the stocks just plunged to fresh intraday lows down a historic 30%, here is a quick pointer at what traders should be looking at next: the company's own disclosure on counterparty risk from its most recent annual report.  But before we get into it, here is a reminder of Glencore's most recent disclosed financial situation:  So here is what "could go wrong" form the horse's mouth. First on counterparty credit in a world of plunging commodity prices: That's the big picture; here is the drill down on where GLEN has non-current receivables as of Dec. 31, 2014: The Company's approach to "credit risk": A breakdown of Glencore's "fair value" breakdown in Level 1 through 3 assets, which amount to $4 billion in total. The offseting liabilities: Perhaps the punchline: $19 billion in derivative liabilities. As a reminder, every collateral netting chain (this is for the very confused "gross is not net" punditry out there) is only as strong as the weakest counterparty. Should GLEN fail, those gross liabilities become net.   And as reminder, GLEN has $30 billion in net debt. Finally, here is Glencore's core value proposition: arbitraging everything in the commodity "value chain"

Glencore, Commodities Traders, and Systemic Risk - Yves Smith - Glencore, the second largest commodity trader in the world and one of the swasbhucking progeny of the old Marc Rich trading empire, has gone in recent months from looking wobbly to being on the verge of a death spiral. In the face of dim prospects for commodities and 29% fall in six-month earnings, Standard & Poors cut its ratings outlook for Glencore to negative at the beginning of September.  Even though Glencore’s stock price rebounded 16.9% on Tuesday after a 29% plunge on Monday due to a bearish analyst report from Investec, its bonds fell by a stunning “Lehman moment” 20% and did not recover. And it has already been the worst performer in the FTSE 100 over the past year before its recent swoon. I’m told that regulators and bankers are concerned about the systemic risks of a Glencore meltdown, since they don’t have a good picture of the size and concentration of its counterparty exposures. In fact, experts were expecting to see trouble among commodity traders before this, given the severity of the commodities bear market and continuing pressures from deflationary policies in Europe and weakness in China.  In other words, Glencore, along with other heavyweight commodity traders like Noble Group and Trafigura, are now the focus of concern about their viability.   But the big question remains: will the tsuris at Glencore, and its troubled kindred Noble Group and Trafigura morph into a full bore crisis?  The disconcerting bit is that the regulators seems to know much less about interconnections in the commodities markets than it did in the credit default swaps and CDO markets in 2007 and 2008, and we know they were flying with bad maps back then. The fact that three major players are all looking fragile is also dangerous. While the failure of any one of them might be more a MF Global-level event rather than an LTCM, given how opaque all three of them are, that if one does go into a death spiral, it’s almost certain that investors would bail out of the other two wobbly biggies, as well as smaller players deemed to be risky. Remember, the financial crisis just past looked like individual players falling over, but it could just as well be seen as large institutional chunks calving off a glacier of overly-risky subprime exposures.

Wall Street Banks Admit They Rigged CDS Prices Too - Back in June, we noted that a group of investors which included hedge funds, pension funds, university endowments, and others were looking to push forward with a lawsuit that alleged Wall Street had conspired to limit competition in the CDS market.  Of course the whole case was based on what amounts to tautological reasoning.  That is, everyone knows that Markit effectively monopolized the CDS market and because Markit was owned by Wall Street, it was self evident that big banks both monopolized and manipulated the market.  In any event, earlier this month, the Street agreed to settle for nearly $2 billion and today we learn that none other than JP Morgan - whose offshore, taxpayer sponsored hedge fund at CIO seems to have quite a bit of trouble trading CDX without losing billions - is set to bear the brunt of the pain. Here’s BloombergJPMorgan Chase & Co. is set to pay almost a third of a $1.86 billion settlement to resolve accusations that a dozen big banks conspired to limit competition in the credit-default swaps market, according to people briefed on terms of the deal. JPMorgan is paying $595 million, with the lender’s portion of the accord largely based on the plaintiffs’ measure of market share, said the people, who asked not to be identified because the firms haven’t disclosed how they’re splitting costs. The settlement also enacts reforms making it easier for electronic-trading platforms to enter the CDS market, according to a statement Thursday from the attorneys for the plaintiffs, which include the Los Angeles County Employees Retirement Association.

Same Name, New Businesses: Evolution in the Bank Holding Company - NY Fed - When we think of banks, we typically have in mind our local bank branch that stores deposits and issues mortgages or business loans. What we typically forget, however, is that most commercial banks are subsidiaries of larger bank holding companies (BHCs), and in fact nearly all commercial bank assets fall under such BHCs. This post presents a first in-depth analysis of the evolving organizational structure of U.S. bank holding companies over the last twenty-five years. We present a unique new database that details BHC structure at a level previously unavailable in any systematic way.  The two charts below formalize the description in the previous paragraph. The left panel shows the total number of commercial banks (gold plus red) and the proportion of those banks under BHCs (gold only). The right panel shows the equivalent breakdown, but measured in terms of total assets. This organizational feature of the industry raises a slew of questions: What are the boundaries of a modern banking firm? Are BHCs simply containers of diverse financial entities that include commercial banks? Do traditional commercial banking activities (such as maturity transformation, liquidity services, and credit extension) extend to a wider range of financial firms owned by the same BHC? Most importantly, how should we rethink our working definition of a bank (now a BHC?), and what are the implications of shifting organizational scope?

Big US banks lose patience with Fed -- Janet Yellen’s decision to delay an interest rate rise has worsened the outlook for big US banks, prompting them to try to eke out profits by shifting excess cash into longer-term assets. In the years since the crisis the banks have grown used to grappling with higher costs and subdued demand for credit, while keeping plenty of cash and cash-like instruments on hand in the hope of benefiting from an uptick in short-term rates.But, after the decision from the US Federal Reserve to keep its target overnight rate on hold this month, more lenders are taking their cue from Wells Fargo, the biggest bank in the world by market capitalisation, said analysts. Over the past year the San Francisco-based bank has run down its cash and short-term investments to buy longer-term assets, on the basis that rates will stay “lower for longer”, according to John Shrewsberry, chief financial officer. That conviction is now catching, said Jason Goldberg, an analyst at Barclays, which recently hosted representatives from about 150 banks at a conference in New York. “The consensus was: give up on the Fed,” said Mr Goldberg. Aggregate net profits for the big four universal banks in the quarter ending in September, to be reported in the middle of next month, are set to be about 2 per cent lower than the previous year, according to consensus forecasts. While loan growth has been solid, rising at about 4 or 5 per cent, capital markets units are not firing on all cylinders. Executives from Bank of America, Citigroup and JPMorgan have indicated that they will probably report about a 5 per cent drop in third-quarter revenues from trading. Fees from mergers and underwriting should be between 5 and 10 per cent lower, Deutsche Bank believes.

Fed Speech--Tarullo, Capital Regulation Across Financial Intermediaries--September 28, 2015: Strengthening the quantity and quality of capital held by banks has been a central element of post-financial crisis regulatory reform. Yet, as the topic of this conference reminds us, the crisis also exposed weaknesses in other financial intermediaries that carried systemic implications. In the United States, when Bear Stearns and Lehman Brothers failed, they were so-called freestanding investment banks, not subject even to the inadequate pre-crisis regulatory regime for bank holding companies. The stress at American International Group (AIG), an insurance company, and the vulnerability of money market funds to destabilizing runs contributed to a profound deepening of the crisis. Hence the theme for this session of the conference: In light of this recent history and, more generally, of the steady growth of nonbank financial intermediaries, to what degree should they be subject to the capital regulations developed by the Basel Committee on Banking Supervision and applied to bank holding companies in the United States and to all commercial and investment banks in Europe?

McKinsey warns banks face wipeout in some financial services - The digital revolution sweeping through the banking sector is set to wipe out almost two-thirds of earnings on some financial products as new technology companies drive down prices and erode lenders’ profit margins. This is one of the main predictions by the consultancy McKinsey in its global banking annual review to be published on Wednesday, portraying banks as facing “a high-stakes struggle” to defend their business model against digital disruption. McKinsey said technological competition would reduce profits from non-mortgage retail lending, such as credit cards and car loans, by 60 per cent and revenues by 40 per cent over the next decade. It predicted a smaller, but still significant, chunk of profits and revenues would be lost from payments processing, small and medium-sized enterprise lending, wealth management and mortgages. These would decline between 35 and 10 per cent, McKinsey said.

Why Bankers Want Rate Hikes - Paul Krugman -- I’ve been arguing that a major source of the urge to hike interest rates despite low inflation is the self-interest of bankers, whose profits suffer in a low-rate environment. Right on cue, the BIS has a new paper documenting that relationship. The key argument: The “retail deposits endowment effect” derives from the fact that bank deposits are typically priced as a markdown on market rates, typically reflecting some form of oligopolistic power and transaction services. If the markdown becomes smaller as interest rates decline, then monetary policy tightening will increase net interest income. The endowment effect was a big source of profits at high inflation rates and when competition within the banking sector and between banks and non-banks was very limited, such as in many countries in the late 1970s. It has again become quite prominent, but operating in reverse, post-crisis, as interest rates have become extraordinarily low: as the deposit rate cannot fall below zero, at least to any significant extent, the markdown is compressed when the policy rate is reduced to very low levels. This is pretty much what I said in the linked piece. The chart shows the paper’s estimate of the effect of higher short-term rates on bank profits (the partial derivative); it’s strongly positive at low rates. So it really is in bankers’ interest to demand monetary tightening, even when it’s inappropriate given the state of the economy.

September 2015: Unofficial Problem Bank list declines to 276 Institutions, Q3 2015 Transition Matrix - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for September 2015.  Changes and comments from surferdude808:  Update on the Unofficial Problem Bank List for September 2015. During the month, the list fell from 282 institutions to 276 after eight removals and two additions. Assets dropped by $683 million to an aggregate $82.0 billion. A year ago, the list held 432 institutions with assets of $136.8 billion.  With it being the end of the third quarter, we bring an update on the transition matrix. Since the Unofficial Problem Bank List was first published on August 7, 2009 with 389 institutions, a total of 1,698 institutions have appeared on a weekly or monthly list at some point. There have been 1,422 institutions have come on and gone off the list. Departure methods include 785 action terminations, 393 failures, 230 mergers, and 14 voluntary liquidations. The third quarter of 2015 started with 309 institutions on the list, so the 25 action terminations during the quarter reduced the list by 8.1 percent. Of the 389 institutions on the first published list, 34 or 8.7 percent still remain six years later. The 393 failures are 23.1 percent of the 1,698 institutions that have appeared on the list. This failure rate is well above the 10-12 percent rate frequently cited in media reports on the failure rate of banks on the FDIC's official list.

Bank Failures by Year -- First, a second failure today from the FDIC that makes eight in 2015: Twin City Bank, Longview, Washington, Assumes All of the Deposits of Hometown National Bank, Longview, Washington  As of June 30, 2015, Hometown National Bank had approximately $4.9 million in total assets and $4.7 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.6 million. ... Hometown National Bank is the eighth FDIC-insured institution to fail in the nation this year, and the first in Washington. The first graph shows the number of bank failures per year since the FDIC was founded in 1933. Typically about 7 banks fail per year, so the 8 failures this year is close to normal. Note: There were a large number of failures in the '80s and early '90s. Many of these failures were related to loose lending, especially for commercial real estate. A large number of the failures in the '80s and '90s were in Texas with loose regulation. Even though there were more failures in the '80s and early '90s, the recent financial crisis was much worse (large banks failed and were bailed out). The second graph includes pre-FDIC failures. In a typical year - before the Depression - 500 banks would fail and the depositors would lose a large portion of their savings. Then, during the Depression, thousands of banks failed. Note that the S&L crisis and recent financial crisis look small on this graph.

As Banks Retreat, Private Equity Rushes to Buy Troubled Home Mortgages -  Private equity and hedge fund firms have bought more than 100,000 troubled mortgages at a discount from banks and federal housing agencies, emerging as aggressive liquidators for the remains of the mortgage crisis that erupted nearly a decade ago.As the housing market nationwide recovers, this is a dark corner from which banks, stung by hefty penalties for bungling mortgage modifications and foreclosures, have retreated. Federal housing officials, for the most part, have welcomed the new financial players as being more nimble and creative than banks with terms for delinquent borrowers.But the firms are now drawing fire. Housing advocates and lawyers for borrowers contend that the private equity firms and hedge funds are too quick to push homes into foreclosure and are even less helpful than the banks had been in negotiating loan modifications with borrowers. Federal and state lawmakers are taking up the issue, questioning why federal agencies are selling loans at a discount of as much as 30 percent to such firms.One company has emerged as a lightning rod, criticized by housing advocates and lawyers for borrowers, but admired by investors: Lone Star Funds, a $60 billion private equity firm founded in 1995 by John Grayken. In just a few years, Lone Star’s mortgage servicing firm, Caliber Home Loans, has grown from a bit player to a major force in the market for distressed mortgages.An examination by The New York Times of housing data and court filings, as well as interviews with borrowers, lawyers and housing advocates, revealed a pattern of complaints that Lone Star was quick to begin foreclosure proceedings, whether the firm had bought a delinquent mortgage at a federal auction or directly from a bank.

Senator Elizabeth Warren to Join Call to Alter Sales of Distressed Loans - Housing advocates have attracted a prominent ally in their push to change the federal government’s policy of selling distressed mortgages at a discount to private equity firms and hedge funds.Senator Elizabeth Warren, Democrat of Massachusetts, joined other lawmakers, advocates and community activists on Wednesday in a Washington rally to oppose the loan sale program.The senator called on the Department of Housing and Urban Development and the Federal Housing Fianance Agency, the overseer of Freddie Mac and Fannie Mae, to make it easier for nonprofit organizations to bid for the bundles of distressed mortgages put up for auction.The sale of distressed mortgages by HUD and the government-sponsored mortgage finance firms has been drawing growing criticism from housing advocates and lawyers in recent months. The critics are concerned that private buyers of distressed mortgages are moving too quickly to put borrowers into foreclosure instead of modifying the loan terms as housing officials had hoped.The investors are buying loans at a discount, often as much as 30 percent.In a statement, Ms. Warren accused HUD and the F.H.F.A of “lining up with the Wall Street speculators.”“Wall Street is interested in profits, not in working out a way for people to stay in their homes,” she said.

Fannie Mae: Mortgage Serious Delinquency rate declined slightly in August, Lowest since August 2008 -  Fannie Mae reported today that the Single-Family Serious Delinquency rate declined slightly in August to 1.62% from 1.63% in July. The serious delinquency rate is down from 1.99% in August 2014, and this is the lowest level since August 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure". The Fannie Mae serious delinquency rate has only fallen 0.37 percentage points over the last year - the pace of improvement has slowed - and at that pace the serious delinquency rate will not be below 1% until 2017. The "normal" serious delinquency rate is under 1%, so maybe Fannie Mae serious delinquencies will be close to normal some time in 2017.  This elevated delinquency rate is mostly related to older loans - the lenders are still working through the backlog.

Freddie Mac: Mortgage Serious Delinquency rate declined in August, Lowest since October 2008 -- Freddie Mac reported that the Single-Family serious delinquency rate declined in August to 1.45%, down from 1.48% in July. Freddie's rate is down from 1.98% in August 2014, and the rate in August was the lowest level since October 2008.  Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure".   Although the rate is declining, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.53 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% until the second half of 2016. So even though delinquencies and distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales through 2016 (mostly in judicial foreclosure states).

Crocodile Tears From Mortgage Lenders - Ritholtz -- Starting Saturday, the real-estate industry will be subject to new disclosure rules, courtesy of the Dodd-Frank law and the Consumer Financial Protection Bureau. Lenders will be required to make transparent and complete disclosure of the terms of mortgages -- including all costs and fees.  This information was sorely lacking during the boom in the 2000s. Residential real estate peaked in the U.S. in 2006, and the housing bust that followed exposed the worst practices of the era. Common-sense disclosure could have curbed many of the more egregious and preventable abuses.  Nonetheless, the mortgage and real estate industries are up in arms about the new rules. They have made the questionable claim that it is costing billions of dollars to prepare, even though they knew the changes were coming five years ago.  And of course, they are predicting Armageddon, warning in a Wall Street Journal article that “the rest of the year could be marked by delayed closings, frustrated borrowers and confused real-estate professionals as they adjust to the new rules.”   I went through the process just a year ago, and I can attest to the fact that the old system was an utter mess. After handing out mortgages to anyone who could fog a mirror, the pendulum has now swung too far in the opposite direction. The mortgage originators themselves have changed the required documentation from borrowers, which already is gumming up and slowing down the process. Blaming two disclosure documents and a three-day waiting period is simply foolish.  This isn’t the first silliness from the industry. The National Association of Realtors made some laughable assertions during and after the mortgage crisis (see this, this, this, this, this, this, this, this, this, this, and this). But the Mortgage Bankers Association had been usually fairly sober about things, so I was surprised by the hair-on-fire comments from David Stevens, the MBA’s chief executive. He told the Wall Street Journal that “lenders have spent billions of dollars in technology-system changes and training" -- a number that appears to be a gross exaggeration.

MBA: Mortgage Applications Decrease in Latest Weekly Survey, Purchase Applications up 20% YoY --From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 6.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 25, 2015. ...The Refinance Index decreased 8 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index decreased 6 percent compared with the previous week and was 20 percent higher than the same week one year ago.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.08 percent from 4.09 percent, with points remaining unchanged 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 20% higher than a year ago.

New Rules Put Mortgages Within Reach for More Families - Fannie Mae recently unveiled new rules that allow more borrowers to qualify for a mortgage. The change is aimed at encouraging homeownership among creditworthy lower-income and minority homebuyers, Fannie says in a press release. In a departure from traditional lending standards, Fannie’s HomeReady mortgage rules mean that if your income isn’t enough to get a mortgage you also could count the salary of an employed child, a parent or another relative who lives with you but whose name is not on the mortgage loan. Parents and other relatives have been able to help their children buy a home in the past, but in different ways — by co-signing the mortgage, for example, or by giving them money to help with the down payment. (Zillow explains the rules for using gift funds toward your down payment.) “For the first time, income from a nonborrower household member can be considered to determine an applicable debt-to-income ratio for the loan, helping multigenerational and extended households qualify for an affordable mortgage,” the press release says. Qualified borrowers can get a HomeReady mortgages with down payments as small as 3 percent.

Case-Shiller: National House Price Index increased 4.7% year-over-year in July - S&P/Case-Shiller released the monthly Home Price Indices for July ("July" is a 3 month average of May, June and July prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. From S&P: July Home Price Gains Concentrated in the West According to the S&P/Case-Shiller Home Price Indices The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a slightly higher year-over-year gain with a 4.7% annual increase in July 2015 versus a 4.5% increase in June 2015. The 10-City Composite was virtually unchanged from last month, rising 4.5% year-over-year. The 20-City Composite had higher year-over-year gains, with an increase of 5.0%...Before seasonal adjustment, the National Index posted a gain of 0.7% month-over-month in July. The 10-City Composite and 20-City Composite both reported gains of 0.6% month-over-month. After seasonal adjustment, the National index posted a gain of 0.4%, while the 10-City and 20-City Composites were both down 0.2% month-over-month. All 20 cities reported increases in July before seasonal adjustment; after seasonal adjustment, 10 were down, nine were up, and one was unchanged..“The S&P/Case Shiller National Home Price Index has risen at a 4% or higher annual rate since September 2012, well ahead of inflation. Most of the strength is focused on states west of the Mississippi. The three cities with the largest cumulative price increases since January 2000 are all in California: Los Angeles (138%), San Francisco (116%) and San Diego (115%). The two smallest gains since January 2000 are Detroit (3%) and Cleveland (10%). The Sunbelt cities – Miami, Tampa, Phoenix and Las Vegas – which were the poster children of the housing boom have yet to make new all-time highs.  The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).  The second graph shows the Year over year change in all three indices. The Composite 10 SA is up 4.6% compared to July 2014. The Composite 20 SA is up 5.0% year-over-year.. The National index SA is up 4.7% year-over-year. The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

Striking Weakness in Home Prices -- For the third month in a row, the Case-Shiller 20-city seasonally adjusted home price index declined. Last month was revised lower. Economists were surprised. The Bloomberg Econoday Consensus was for a month-over-month rise of 0.1%, instead prices declined by -0.2%.   Case-Shiller is reporting what is becoming striking weakness in home prices, at -0.2 percent in July for the adjusted 20-city index which, after a downward revision to June, is the third straight 2 tenths decline. Twelve of 20 cities show contraction in the month with the deepest for a third straight month in a row coming from Chicago at minus 1.2 percent. Year-on-year readings are all still positive led by San Francisco at plus 10.4 percent with Washington DC at the bottom at 1.7 percent. Year-on-year, the 20-city index, whether adjusted or unadjusted, is at plus 5.0 percent vs 4.9 percent in July. The unadjusted month-to-month index, reflecting summer strength in home sales, was up 0.6 percent in August for however the weakest reading since the winter weather of February. This report is very closely watched and offsets last week's gain for FHFA prices which are trending slightly higher than Case-Shiller. Home sales have been mixed this year with existing homes showing strength through most of the year but weakness in the latest report and vice versa for new homes which had been weak but have since popped higher. Lack of home-price appreciation is a negative for household wealth and spending and may be another symptom of general price weakness.

Case-Shiller Home Price Index July 2015 Shows Stable Home Prices: The non-seasonally adjusted Case-Shiller home price index (20 cities) year-over-year rate of home price growth was 5.0% (again statistically unchanged from last month). The authors of the index say: "An interest rate increase by the Federal Reserve, now expected in December by many analysts, is not likely to derail the strong housing performance".

  • 20 city unadjusted home price rate of growth accelerated 0.0 % month-over-month. [Econintersect uses the change in year-over-year growth from month-to-month to calculate the change in rate of growth]
  • CoreLogic currently shows the highest year-over-year growth of 6.9 %.

Comparing all the home price indices, it needs to be understood each of the indices uses a unique methodology in compiling their index - and no index is perfect. The National Association of Realtors normally shows exaggerated movements which likely is due to inclusion of more higher value homes. The way to understand the dynamics of home prices is to watch the direction of the rate of change. Here home price growth generally appears to be stabilizing (rate of growth not rising or falling).

Real Prices and Price-to-Rent Ratio in July --Yesterday, San Francisco Fed President John Williams saidI am starting to see signs of imbalances emerge in the form of high asset prices, especially in real estate, and that trips the alert system. One lesson I have taken from past episodes is that, once the imbalances have grown large, the options to deal with them are limited. I think back to the mid-2000s, when we faced the question of whether the Fed should raise rates and risk pricking the bubble or let things run full steam ahead and deal with the consequences later. What stayed with me were not the relative merits of either case, but the fact that by then, with the housing boom in full swing, it was already too late to avoid bad outcomes. Stopping the fallout would’ve required acting much earlier, when the problems were still manageable. I’m not assigning blame by any means, and economic hindsight is always 20/20. But I am conscious that today, the house price-to-rent ratio is where it was in 2003, and house prices are rapidly rising. I don’t think we’re at a tipping point yet—but I am looking at the path we’re on and looking out for potential potholes. Williams is looking at something like the third graph below. This shows the price-to-rent ratio is elevated, but nothing like during the housing bubble (and there are few signs of speculations).In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (38%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). It has been almost ten years since the bubble peak.  In the Case-Shiller release this morning, the National Index was reported as being 7.0% below the bubble peak.   However, in real terms, the National index is still about 21% below the bubble peak.

In U.S. Home Prices, an East-West Divide - Recent indicators released about the strength of the housing market have been all over the map. In some cases, quite literally. Most cities east of the Mississippi River—from Chicago to Miami—saw home prices drop between June and July, according to the S&P/Case-Shiller Home Price Index. Meanwhile, most metropolitan areas west of that dividing line, from Portland to Las Vegas, saw home prices rise over the month. Geographic divides help explain the unevenness in the housing market’s performance in recent months. Prices have continued rising, even as the pace of existing-homes sales tumbled in August. New-home sales hit their highest level since early 2008 in August, but forward-looking indicators of the strength of the housing market have also been weak. Economists say that getting a clear read on the housing market has become difficult as local markets are performing very differently. The dividing line between the haves and have nots, in a word: jobs. Local areas especially with strong technology sectors are seeing prices rise rapidly, while many former industrial cities in the Northeast have slumped. Chicago saw prices decline 1.2%. Even New York City and its suburbs saw a seasonally adjusted decline in prices of 0.5%, likely driven by declining interest in living in single-family homes on Long Island and in Westchester. Meanwhile, San Diego saw prices rise 0.8% seasonally adjusted, while in Las Vegas they rose 0.4%.

Simply Unaffordable: Case-Shiller Home Price Index Rises 4.7% vs 2.2% Wage Growth - The S&P Case-Shiller 20 metro home price index rose 4.7% YoY for July. Unfortunately, average wage growth is only rising at a 2.2% YoY clip. Of course, San Francisco still leads the nation in YoY growth. Washington DC is in last place. San Francisco is witnessing fast growing home prices coupled with declining median family incomes. Although Washington DC, the home of Uncle Sam, is the slowest growing city in terms of home prices, they still have a positive growth path for median family income. Simply unaffordable. Stated differently.  The housing market is addicted to Fed.. Like this:

Q&A: Zillow Economist Says Fed Move Could Cool Hot Housing Markets - -- The Federal Reserve might accomplish something in San Francisco that otherwise seemed impossible in recent years: cool down the hot housing market.. If the Federal Reserve raises benchmark interest rates later this year, one effect would likely be slower home-price appreciation in sizzling markets, including the Bay Area, Denver and Seattle, said Zillow chief economist Svenja Gudell. Zillow chief economist Svenja GudellThe median home value in the San Francisco metro area was $764,600 last month, according to the real-estate website’s data. That’s up 12% from a year earlier and more than four times the national median value of $180,800. Such rapid acceleration probably can’t persist once the Fed starts raising rates, Ms. Gudell said. A Fed rate hike is likely to put a small amount of upward pressure on mortgage rates. In markets where houses are selling for $200,000, that will have little effect on monthly payments and the overall affordability of homeownership. But a half-percentage point increase on rates is a lot more meaningful on a house that cost three-quarters of a million dollars. Ms. Gudell, who became Zillow’s chief economist in August, discussed the Fed, housing values and more in a recent interview with The Wall Street Journal. Here are lightly edited excerpts from that conversation:

The Echo Bubble In Housing Is About To Pop  - And here's the knife in the heart of the Echo Housing bubble: declining household income. The Federal Reserve-induced Echo Housing Bubble is finally starting to roll over, and the bubble's pop won't be pretty. Why is the bubble finally popping now? All the factors that inflated the Echo Housing bubble are running dry. These include:

  • -- unprecedented low mortgage rates
  • -- FHA mortgage approvals for anyone who fogs a mirror
  • -- frantic cash buying by Chinese millionaires desperate to get their money out of China
  • -- the Federal Reserve buying up trillions of dollars in mortgages
  • -- lemming-like buying of housing for rentals by everyone from Mom and Pop to huge hedge funds.

The well's gone dry, folks. There isn't going to be another push higher or a third housing bubble after this one pops.

Zillow Forecast: Expect August Year-over-year Change for Case-Shiller Index Similar to July --The Case-Shiller house price indexes for July were released this morning. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Case-Shiller Forecast: Expect August's Data to Look a Lot Like July's The July S&P/Case-Shiller (SPCS) data published today showed home prices dipping on a seasonally-adjusted monthly basis, with both the 10- and 20-city indices falling 0.2 percent from June to July.  On an annual basis, the 10-city index was up 4.5 percent from July 2014, while the 20-city index increased 5 percent over the past year. The U.S. National Index was up 4.7 percent year-over-year. We expect the August SPCS to show a second consecutive monthly decline in the 10-city index, down 0.1 percent from July to August, and the 20-city index to be flat over the same period (seasonally adjusted). The National Index is expected to grow 0.4 percent (seasonally adjusted) in August from July. We expect all three indices to show annual appreciation of less than 5 percent when August data is released next month. All SPCS forecasts are shown in the table below. These forecasts are based on today’s July SPCS data release and the August 2015 Zillow Home Value Index (ZHVI), released September 21. The SPCS Composite Home Price Indices for July will not be officially released until Tuesday, October 27.   This suggests the year-over-year change for the August Case-Shiller National index will be about the same as in the July report.

NAR: Pending Home Sales Index decreased 1.4% in August, up 6% year-over-year -- From the NAR: Pending Home Sales Retreat Again in August but Remain at Healthy Level The Pending Home Sales Index, a forward–looking indicator based on contract signings, decreased 1.4 percent to 109.4 in August from 110.9 in July but is still 6.1 percent above August 2014 (103.1).  This was below expectations of a 0.5% increase. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in September and October.

August Pending Home Sales Down, But Remain at Healthy Level --Earlier today the National Association of Realtors released the August data for their Pending Home Sales Index. "Pending home sales retreated in August but remained at a healthy level of activity and have now risen year-over-year for 12 consecutive months, according to the National Association of Realtors®. A modest increase in the West was offset by declines in all other regions." (more here). The chart below gives us a snapshot of the index since 2001. Over this time frame, the US population has grown by 13.3%. For a better look at the underlying trend, here is an overlay with the nominal index and the population-adjusted variant. The focus is pending home sales growth since 2001. The index for the most recent month is 14% below its all-time high in 2005. The population-adjusted index is 21% off its 2005 high. The NAR explains that "because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads Existing Home Sales by a month or two." Here is a growth overlay of the two series. The general correlation, as expected, is close. And a close look at the numbers supports the NAR's assessment that their pending sales series is a leading index.

Pending Home Sales Miss Fourth Month In A Row, As Northeast Weighs On Index --While the rest of the US economy was slowly but surely reentering a recession, with the only two pieces of silver lining being the relatively strong, if unbelievable, jobs data (driven by low-wage paying jobs) and the US housing market, moments ago we just got the latest confirmation that one of these two final anchors is slowly falling apart when the perpetually optimistic housing industry organization, NAR, reported that August pending home sales dropped -1.4%, on expectations of a 0.4% increase, and down from a 0.5% jump the month before. Confirming that the Chinese "hot money parking" bid is finally ending, this was the fourth consecutive miss in a row.  The always entertaining Lawrence Yun, NAR chief economist, did his best to put some much needed lipstick on the pig saying that "even with the modest decline in contract signings, demand continues to outpace housing supply and elevate price growth in numerous markets. "Pending sales have leveled off since mid–summer, with buyers being bounded by rising prices and few available and affordable properties within their budget," he said. "Even with existing–housing supply barely budging all summer and no relief coming from new construction, contract activity is still higher than earlier this year and a year ago."

Reis: Apartment Vacancy Rate increased in Q3 to 4.3%  - Reis reported that the apartment vacancy rate increased in Q3 2015 to 4.3%, up from 4.2% in Q2, and unchanged from 4.3% in Q3 2014. The vacancy rate peaked at 8.0% at the end of 2009: Vacancy increased by 10 basis points to 4.3% during the quarter with construction slightly outpacing net absorption once again. Although vacancy has appeared to skip off of the bottom, vacancy has been largely unchanged over the last two years as supply and demand have been roughly in balance. However, slowly but surely construction is overtaking net absorption by a wider and wider margin and is nudging the national vacancy rate slightly higher. Although vacancy is unchanged over the last year, this is largely due to a weather‐induced pullback in construction during the first quarter of 2015. Without that, vacancy would likely be even higher now. Given the robust pipeline, further vacancy rate increases should be expected. Asking and effective rents both grew by 1.3% during the third quarter. This was roughly in line with last quarter’s performance.  Even without the tsunami of new supply hitting the market, vacancy is on the way up. This does not portend goods things for the next couple of years as new completions increase and flood the market. ... That said, vacancy expansion will not be dramatic – there is far too much demand to prevent that from happening – so vacancy will marginally drift higher. Still‐low vacancy rates, coupled with new properties coming online with above‐average rents, should keep asking and effective rent growth around 4% for 2015 which would be the best calendar‐year performance since 2007.
This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

Reis: Office Vacancy Rate declined in Q3 to 16.5% -   Reis released their Q3 2015 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.5% in Q3, from 16.6% in Q2. This is down from 16.8% in Q3 2014, and down from the cycle peak of 17.6%. From Reis: During the third quarter, net absorption exceeded construction which caused vacancy to decline by 10 basis points to 16.5%. This marks the fourth time in the last five quarters that vacancy declined and kept the rate at its lowest level since the second quarter of 2009. ...Occupied stock increased by 9.865 million square feet during the third quarter. This was an increase versus last quarter and indicating of the gradual strengthening of demand for office space. Moreover, year‐to‐date figures show even more dramatic improvement. Through the third quarter net absorption for 2015 totaled 25.304 million SF. This exceeds the year‐to date figure from 2014 by 5.380 million SF, or roughly 26%. ...New construction of 7.674 million SF is a bit of a decline from last quarter. While many lenders still require preleasing in order to provide construction and development financing, speculative new construction is slowly returning to the market. Admittedly, speculative projects remain at very low levels, well below cycles past, but their existence provides another sign of the ongoing recovery. Asking and effective rents grew by 0.6% and 0.7%, respectively, during the third quarter, marking the twentieth consecutive quarter of asking and effective rent growth. These growth rates are more or less in line with the growth rates from last quarter. However, even though quarterly rent growth did not accelerate, year‐over‐year rental growth rates for both asking and effective rents did accelerate. Effective rent growth of 3.5% is quite strong for a market with such an elevated vacancy rate.This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Construction Spending increased 0.7% in August, Up 13.7% YoY -- The Census Bureau reported that overall construction spending increased in August: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2015 was estimated at a seasonally adjusted annual rate of $1,086.2 billion, 0.7 percent above the revised July estimate of $1,079.1 billion. The August figure is 13.7 percent above the August 2014 estimate of $955.0 billion.  Both private spending and public spending increased: Spending on private construction was at a seasonally adjusted annual rate of $788.0 billion, 0.7 percent above the revised July estimate of $782.3 billion. ... In August, the estimated seasonally adjusted annual rate of public construction spending was $298.2 billion, 0.5 percent above the revised July estimate of $296.8 billion. Non-residential for offices and hotels is generally increasing, but spending for oil and gas has been declining. Early in the recovery, there was a surge in non-residential spending for oil and gas (because oil prices increased), but now, with falling prices, oil and gas is a drag on overall construction spending. As an example, construction spending for private lodging is up 43% year-over-year, whereas spending for power (includes oil and gas) construction peaked in mid-2014 and is down 9% year-over-year. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. Private residential spending has been increasing, but is 44% below the bubble peak. Non-residential spending is only 3% below the peak in January 2008 (nominal dollars). Public construction spending is now 9% below the peak in March 2009 and about 12% above the post-recession low. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is up 16%. Non-residential spending is up 17% year-over-year. Public spending is up 7% year-over-year. Looking forward, all categories of construction spending should increase this year and in 2016. Residential spending is still very low, non-residential is increasing (except oil and gas), and public spending has also increasing after several years of austerity.

August 2015 Construction Spending Growth Is Again Strong. -  The headlines say construction spending grew. The backward revisions make this series very wacky - but the backward revisions this month were downward making the data worse than the headline view. In any event, construction spending is growing much faster than the economy in general. Econintersect analysis:

  • Growth accelerated 0.4 % month-over-month and Up 13.7 % year-over-year.
  • Inflation adjusted construction spending up 11.9 % year-over-year.
  • 3 month rolling average is 13.4 % above the rolling average one year ago, and up 1.1 % month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.

Personal Income and Outlays September 28, 2015: The consumer is making money and spending money at the same time that inflation is very quiet. Personal income rose 0.3 percent in August which is on the low side of expectations but July is now revised 1 tenth higher to a very solid 0.5 percent. And the wages & salaries component is also very solid, at plus 0.5 and 0.6 percent the last two months. Turning to spending, the gain is 0.4 percent which is 1 tenth above consensus with July revised 1 tenth higher to 0.4 percent also. Inflation readings came in as expected, at no change for the PCE price index and up only 0.1 percent for the core. Year-on-year, overall prices are up only 0.3 percent, which is unchanged from July, with the core ticking 1 tenth higher to 1.3 percent which is still well below the Fed's 2 percent target. The savings rate is solid at 4.6 percent and has been edging lower from 4.9 percent in April. This may be a sign of confidence among consumers who are now willing to spend while saving less. Other details include a rise for rents but a dip for proprietor income. This report is very healthy but how it plays for the FOMC is uncertain. Income and spending would justify a rate hike but not the inflation readings.

Personal Income increased 0.3% in August, Spending increased 0.4% -- The BEA released the Personal Income and Outlays report for August:  Personal income increased $52.5 billion, or 0.3 percent ... according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $54.9 billion, or 0.4 percent....Real PCE -- PCE adjusted to remove price changes -- increased 0.4 percent in August, compared with an increase of 0.3 percent in July. ... The price index for PCE increased 0.3 percent in May, compared with an increase of less than 0.1 percent in April. The PCE price index, excluding food and energy, increased 0.1 percent in May, the same increase as in April. The August price index for PCE increased 0.3 percent from August a year ago. The August PCE price index, excluding food and energy, increased 1.3 percent from August a year ago. The following graph shows real Personal Consumption Expenditures (PCE) through August 2015 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change. The dashed red lines are the quarterly levels for real PCE.The increase in personal income was lower than expected.  And the increase in PCE was above the 0.3% increase consensus.  Including upward revisions, this was a strong report.  On inflation: The PCE price index increased 0.3 percent year-over-year due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.3 percent year-over-year in August. Using the two-month method to estimate Q3 PCE growth, PCE was increasing at a 3.5% annual rate in Q3 2015 (using the mid-month method, PCE was increasing 3.3%). This suggests the estimates for Q3 GDP will be revised up.

The Big Four Economic Indicators: Real Personal Income for August - Personal Income (excluding Transfer Receipts) in August rose 0.35% and is up 4.1% year-over-year. When we adjust for inflation using the BEA's PCE Price Index, Real Personal Income (excluding Transfer Receipts) rose 0.34%. The real number is up 3.77% year-over-year. Real PI less TR is one of those indicators that warrants adjustment for population growth. Here is a chart of the series since 2000 adjusted accordingly by using the Civilian Population Age 16 and Over as the divisor. A Note on the Excluded Transfer Receipts: These are benefits received for no direct services performed. They include Social Security, Medicare & Medicaid, Unemployment Assistance, and a wide range other benefits, mostly from government, but a few from businesses. Here is an illustration Transfer Receipts as a percent of Personal Income. The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009.

Solid Gains For US Personal Spending & Income In August -- Consumer spending and disposable personal income—money available to spend or save after taxes—posted healthy increases in August, according to this morning’s update from the US Bureau of Economic Analysis. Personal consumption expenditures rose 0.4% last month, matching July’s gain. Disposable personal income’s (DPI) advance ticked down to 0.4% in August from 0.5% in the previous month, but that’s still an encouraging rate of growth. Meanwhile, the year-over-year gains for income and spending remained steady in the 4% range, suggesting that the consumer sector—the foundation for US economic activity–remains on track to deliver moderate if unspectacular increases in the near-term future. Today’s news should ease worries that the US economy is on the verge of stumbling. It remains to be seen how the signs of slowdown in the global economy will impact the US macro trend in the months to come. But based on today’s reading of consumer spending and income, August was a relatively upbeat month for this all-important slice of the American economy. “Today’s number is consistent with a 3 percent consumer spending profile for the third quarter,” The question is whether the “nice pace” will hold up in September? The trigger for the recent spike in market volatility and downgraded economic projections is partly due to China’s surprise currency devaluation last month. Any signs of blowback for the US will probably show up in September. For the moment, the macro profile for this month is still thin, although the September purchasing managers’ index (PMI) for services still points to moderate growth. Manufacturing activity is weaker, although this sector’s flash estimate for Markit’s PMI in September held steady in moderately positive territory. In short, cautious optimism is still warranted.

August 2015 Inflation Adjusted Personal Income Again Improves: The data this month showed relatively good income growth (but on the low side of market expectations) - and spending grew faster (and was on the high side of expectations).

  • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, income trend is up and expenditures is down.
  • Real Disposable Personal Income is up 3.2 % year-over-year (3.3 % last month), and real personal expenditures is up 3.2% year-over-year (3.4% last month)
  • this data is very noisy and as usual includes moderate backward revision (detailed below) - this month the changes were minor.
  • The third estimate of 2Q2014 GDP indicated the economy was expanding at 3.9% (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - income and expenditure must grow at the same rate.
  • The savings rate continues to be low historically, and worsened this month.

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

Personal Income Rises At Slowest Pace In 5 Months As Savings Rate Drops To 10-Month Lows - Personal income rose at 0.3% MoM in August, the weakest growth and biggest miss since March's tumble. At the same time spending rose 0.4% MoM, slightly more than expected. Of course this relative shift means the savings rate declined (from 4.7% to 4.6%) to its lowest since October. Income growth slowing dramatically... Which means the savings rate has dropped to 10-month lows... And in context... Charts: Bloomberg

August Real Disposable Income Per Capita Rose 0.31% - : With the release of today's report on August Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The August nominal 0.28% month-over-month increase in disposable income remains unchanged when we adjust for inflation. The year-over-year metrics are 2.83% nominal and 2.49% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 63.6% since then. But the real purchasing power of those dollars is up only 22.4%.

The Number of Drones Expected to Sell During the Holidays Is Scaring the Government -- As many as one million drones could be sold during this year’s holiday season, FAA official Rich Swayze has told ATW Online.  Unmanned aerial vehicles (UAVs) have proven to be dangerous in the past — pilots have reported drones flying too close to their aircrafts, and some have even impeded firefighting efforts. Officials are understandably concerned about what a million drone sales will mean for the safety of both their operators and the public, and they want to inform people about the risks. The FAA will send a representative to Walmart to educate its salespeople about UAVs, and how to pass that information along to customers. This might not be all that helpful if people purchase them online. Walmart currently offers 19 drones on its website, the cheapest one going for just $19.99. Mark Dunkerley, Hawaiian Airlines president and CEO, commented on the expected drone sales and imminent safety issues:From an operating perspective, [small UAVs are] a very serious issue and there’s considerable concern that it’s going to end in tears … It’s not just in and around airports where drones present a danger to the traveling public. There are many areas outside of five miles of an airport where a drone conflict could occur. It has been difficult for government agencies to implement regulations regarding UAVs because there are so many different aspects to attend to. Swayze mentioned that in the 15 years he has been working on policy in Washington, D.C., he has “never seen so many divergent interests driving one topic.”

The Rich Get Hit Harder by Inflation Than the Poor - Noah Smith -- What if inequality isn't as bad as we've been led to believe?   That is the upshot of new research by Juan Sanchez and Lijun Zhu of the Federal Reserve Bank of St. Louis. They looked at changes in the prices of various items, and they found that the things that poor people buy more of have gone up in price by a lot less than the things rich people buy more of.   Usually, we measure inequality by looking at differences in real income. But real, in this case, means adjusted for inflation, and inflation is different depending on whether you're rich or poor. Rich people spend more on college tuition, entertainment and eating out. Poor people devote more to electricity, clothing and eating in.  Sanchez and Zhu found that the prices of education, entertainment and medical care have gone up hugely since 1980 (when the U.S.'s big increase in inequality is generally thought to have begun). But the prices of clothing, electricity, new cars and public transportation have only increased a small or moderate amount. In other words, it is getting more and more expensive to maintain a rich lifestyle, but not much more expensive to support a working-class lifestyle.    If you use only the consumer price index, a broad measure of inflation, you see working-class people's income gains since 1980 being eaten up by increased prices. But if you realize that the prices working-class people actually pay on a day-to-day basis haven't gone up by as much as the CPI, you understand that the income of working-class people has increased more than is generally believed. And since the prices that rich people pay on a daily basis have gone up by more than the CPI, that means gains in their real income have been less than is commonly advertised. 

U.S. Auto Sales Reach 10-Year High: U.S. auto sales rose to a seasonally adjusted annual rate of 18.2 million in September–the highest in more than 10 years, according to Bloomberg.A combination of Labor Day and low oil prices created high demand. It doesn’t hurt that economists expect that September boasted solid job growth. General Motors, Ford Motor, and Nissan Motor all beat analysts’ expectations for the month.GM’s sales rose 12.5% in September from the previous year to more than 250,000 cars. Fiat Chrysler reported a 14% increase year-over-year, and Ford saw its sales increase 23% since the previous year, according to the Wall Street Journal.Even Volkswagen enjoyed a small sales gain of 0.6%, despite being embroiled in a scandal over its emissions.

U.S. Light Vehicle Sales increased to 18 million annual rate in September -- Based on a WardsAuto estimate, light vehicle sales were at a 18.03 million SAAR in September. That is up almost 10% from September 2014, and up 1.7% from the 17.7 million annual sales rate last month. Labor day was included in September this year, and that probably pushed sales over 18 million.This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for September (red, light vehicle sales of 18.03 million SAAR from WardsAuto). This was above to the consensus forecast of 17.5 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967. This was another very strong month for auto sales and it appears 2015 will be the best year for light vehicle sales since 2001.

ATA Trucking Index decreased 0.9% in August -- From the ATA: ATA Truck Tonnage Index Fell 0.9% in August AAmerican Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index declined 0.9% in August, following a revised increase of 3.1% during July. In August, the index equaled 134.2 (2000=100), down from 135.3 in July. The all-time high of 135.8 was reached in January 2015. Compared with August 2014, the SA index increased 2.1%, which was below the 4% gain in July. Year-to-date through August, compared with the same period last year, tonnage was up 3.3%. After such a robust July, it is not too surprising that tonnage took a breather in August,” said ATA Chief Economist Bob Costello. “The dip after a strong gain goes with the up and down pattern we’ve seen this year.” Costello said a few factors hurt August’s reading, including soft housing starts and falling factory output. “As I said last month, I remain concerned about the high level of inventories throughout the supply chain. This could have a negative impact on truck freight volumes over the next few months,” he said. Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

Trucking Tonnage Index Declines in August 2015.: The American Trucking Associations' (ATA) trucking index decreased 0.9% following an upwardly revised increase of 3.1 % in July. From ATA Chief Economist Bob Costello: After such a robust July, it is not too surprising that tonnage took a breather in August. The dip after a strong gain goes with the up and down pattern we've seen this year. As I said last month, I remain concerned about the high level of inventories throughout the supply chain. This could have a negative impact on truck freight volumes over the next few months.Compared with one year ago, seasonally adjusted tonnage increased 2.1 %. Econintersect tries to validate data across data sources. It appears this month that jobs growth says the trucking industry increased 0.0 % month-over-month (red line). Please note using BLS employment data in real time is risky, as their data is normally backward adjusted significantly. This data series is not transparent and therefore cannot be relied on. Please note that the ATA does not release an unadjusted data series (although they report the unadjusted value each month - but do not report revisions to this data) where Econintersect can make an independent evaluation. The data is apparently subject to significant backward revision. Not all trucking companies are members of the ATA, and therefore it is unknown if this data is a representative sampling of the trucking industry.

Fight Over Postal Service Board Heats Up as Labor/Consumer Advocates/Minority Coalition Opposes Payday Lender Lobbyist, Privatization Backers -  Yves Smith -The US Postal Service’s Board of Governors which has had a strong tendency to rubber-stamp management’s plans, has been operating without a quorum. Board member terms are staggered and Obama served up a slate of nominees in March. I’ve attached a letter at the end of this post from The Leadership Conference to Senate Majority Leader Mitch McConnell and Senate Minority Leader Harry Reid urging them to reject Obama’s set of five nominees in their entirety. In other words, they are telling Obama to start from scratch. The letter singles out two particularly troubling candidates. One is Mickey Bennett, who has been a lobbyist for the payday lending industry. One proposal to fix the Postal Sevice’s trumped-up budget problems would be to offer low-cost financial services at bank branches. Needless to say, that’s the last thing the predatory payday lending industry would like to see. Separately, anyone who has worked in or served as a lobbyist for industries know to engage in widespread abuses, like payday lending and debt collection, should be deemed to be unfit for government service of any sort unless they’ve become whistleblowers.  Another nominee, James Miller, has advocated privatizing the Postal Service since his time at the Office of Management and Budget, back in the 1980s. He remains fixated on this idea, despite ample evidence that privatization leads to higher costs and worse service. Of course, I’m charitably assuming that Miller is actually interested in producing better results for the public, as opposed to a big looting opportunity for corporate interests.

Factory Orders October 2, 2015: The export-hit factory sector is in the headlines with orders for August down 1.7 percent and under the Econoday consensus for minus 1.3 percent. Orders for non-durable goods, pulled down by price weakness for petroleum and coal products, fell 1.1 percent on top of July's 1.4 percent decline. Orders for durable goods, initially released last week, are revised down to minus 2.3 percent vs an initial decline of 2.0 percent. And swings in aircraft are not distorting the picture as the ex-transportation reading is down 0.8 percent in August following July's 0.7 percent decline. Capital goods data show a step back from two months of prior strength. Orders for core capital goods (nondefense ex-aircraft) fell 0.8 percent in August with shipments for this reading down 0.4 percent. Motor vehicle orders fell 0.4 percent but are very likely to rebound in the next report given the sharp gains underway for vehicle sales. Pluses include another gain, despite the capital goods weakness, for machinery orders and also another gain for energy equipment which has been bouncing back. Furniture has also been strong. But the bulk of today's report shows weakness including a 0.2 percent decline for unfilled orders and another dip for total shipments, down a steep 0.7 percent following July's 0.2 percent decline. Inventories fell 0.3 percent but were outmatched by the decline in shipments with the inventory-to-shipment ratio moving one notch higher to 1.35. Unwanted inventories are a question right now, especially given what looks to have been a very poor September for the factory sector. Global weakening, as underscored by the FOMC, is a wildcard for the economy and the nation's factories are at the front line.

U.S. Factory Orders Pull Back More Than Expected In August - - New orders for U.S. manufactured goods fell by more than expected in the month of August, the Commerce Department revealed in a report released on Friday. The Commerce Department said factory orders tumbled by 1.7 percent in August following a downwardly revised 0.2 percent uptick in July. Economists had expected factory orders to fall by 1.3 percent compared to the 0.4 percent increase originally reported for the previous month. The bigger than expected decrease in factory orders partly reflected a sharp pullback in orders for durable goods, which plunged 2.3 percent in August after jumping by 1.9 percent in July. Orders for transportation equipment showed a particularly steep drop, plummeting by 6.2 percent in August after soaring by 4.9 percent in the previous month. The report also showed a continued decrease in orders for non-durable goods, which fell by 1.1 percent in August following a 1.4 percent decrease in July. The Commerce Department also said shipments of manufactured goods slid by 0.7 percent in August after edging down by 0.2 percent in July. Inventories of manufactured goods also fell by 0.3 percent in August, matching the decrease seen in the previous month. Subsequently, the inventories-to-shipments ratio came in at 1.35 in August, up slightly from a revised 1.34 in July.

August 2015 Manufacturing Is Still Not Good: US Census says manufacturing new orders declined. Our analysis says were not good, but better than last month. Unadjusted unfilled orders' growth remains in CONTRACTION year-over-year. There was no tailwinds this month in the data. Civilian aircraft was a headwind. US Census Headline:

  • The seasonally adjusted manufacturing new orders is down 1.7 % month-over-month, and down 7.2 % year-to-date (last month was down 3.6 % year-to-date)..
  • Market expected month-over-month growth of -2.4 % to 1.0 % (consensus -1.3 %) versus the reported -1.7 %.
  • Manufacturing unfilled orders down 0.2% month-over-month, and down 1.2 % year-to-date.

Econintersect Analysis:

  • Unadjusted manufacturing new orders growth accelerated 8.3 % month-over-month, and down 6.8 % year-over-year
  • Unadjusted manufacturing new orders (but inflation adjusted) down 2.3 % year-over-year - there is deflation in this sector.
  • Unadjusted manufacturing unfilled orders growth decelerated 0.7 % month-over-month, and down 1.2 % year-over-year
  • As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production was growth decelerated 0.5 % month-over-month, and up 1.7% year-over-year.

Gloom in Factory Orders - Broad-based weakness and downward revisions accompanied the larger-than-expected decline of 1.7 percent in August factory orders. Going into today’s factory orders report for August, we already knew from last week’s report that durable goods orders fell in the month and core capital goods orders (which lead business spending) slipped back into negative territory. The downward revisions to that already-reported data add to the gloom of this morning’s miss in the jobs report. Durable goods orders are now off 2.3 percent in August (vs. just 2.0 percent previously) and core capital goods orders were revised from a 0.2 percent decline to much larger 0.8 percent decline. Nondurable orders, the “new” data in this report, fell 1.1 percent. Shipments of core capital goods, a more coincident measure of business spending that feeds directly into GDP figures, went from a 0.2 percent decline in the durable goods report to 0.4 percent decline today. What is particularly vexing here is that not only are the revisions repeatedly revised lower, the new orders component of the ISM index was at 56.5 in July, which is firmly in expansion territory. The rosy sentiment measure and positive leaning initial estimates giving way to weaker figures later draw to mind an image of Charlie Brown considering whether or not to trust Lucy to actually hold the football this time. Coming Into the Homestretch and Sucking Wind Although we will not have September data for another month, turning the calendar to October invariably raises the question about prospects for the fourth quarter and how manufacturing will finish the year.

US Factory Orders Flash Recession Warning - Drop YoY For 10th Month In A Row -- For the 10th month in a row, US Factory Orders dropped year-over-year - the longest streak outside of a recession in history. Against expectations of a 1.2% decline MoM, August dropped 1.7% which is the worst MoM drop since Dec 2014, with a 24% drop MoM in defense new orders and capital goods. Most worrying however is the rise in the inventories-to-shipments ratio once again to cycle highs after a hopeful dip lower in July.

Dallas Fed: "Texas Manufacturing Activity Remains Steady" in September -- From the Dallas Fed: Texas Manufacturing Activity Remains Steady Texas factory activity was essentially flat in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained near zero (0.9), suggesting output held steady for a second month in a row after several months of declines. ..Perceptions of broader business conditions remained weak in September. The general business activity index, which has been negative all year, rose 6 points to -9.5. The company outlook index plunged to -10.3 in August but recovered somewhat this month, climbing to -5.2.  Labor market indicators reflected employment declines and shorter workweeks. The September employment index posted a fifth consecutive negative reading, falling to -6.1.  This was the last of the regional Fed surveys for September. All of the regional surveys indicated contraction in September, mostly due to weakness in oil producing areas. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Dallas Fed Manufacturing Outlook Remains Weak - We have added the Dallas Fed Texas Manufacturing Outlook Survey (TMOS) focusing on the General Business Conditions Index to our series of regional Fed updates. This indicator measures manufacturing activity in Texas. Here is an excerpt from the latest report:  Texas factory activity was essentially flat in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained near zero (0.9), suggesting output held steady for a second month in a row after several months of declines.  Perceptions of broader business conditions remained weak in September. The general business activity index, which has been negative all year, rose 6 points to -9.5. The company outlook index plunged to -10.3 in August but recovered somewhat this month, climbing to -5.2. Monthly data for this indicator only dates back to 2004, so it is difficult to see the full potential of this indicator without several business cycles of data. Nevertheless, it is an interesting and important regional manufacturing indicator. he state produced $159 billion in manufactured goods in 2008, roughly 9.5 percent of the country’s manufacturing output. Texas ranks second behind California in factory production and first as an exporter of manufactured goods.

September 2015 Texas Manufacturing Survey Manufacturing Activity Barely Made It Into Expansion.: Of the five Federal Reserve districts which have released their September manufacturing surveys - all are in contraction except the Dallas Manufacturinng Outlook which is weakly in expansion. A complete summary follows. There market expections (from Bloomberg) were -12.0 to -4.0 (consensus -9.0) versus +0.9 actual. From the Dallas Fed: Texas factory activity was essentially flat in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained near zero (0.9), suggesting output held steady for a second month in a row after several months of declines. Other indexes of current manufacturing activity increased in September, but some remained in negative territory. Thenew orders index posted a second negative reading but rose 8 points to -4.6, and the growth rate of orders index also remained below zero but rose to -4.3. The shipments index pushed to around zero from -3, and the capacity utilizationindex posted its first positive reading in eight months, coming in at 4.9.Perceptions of broader business conditions remained weak in September. The general business activity index, which has been negative all year, rose 6 points to -9.5. The company outlook index plunged to -10.3 in August but recovered somewhat this month, climbing to -5.2.Labor market indicators reflected employment declines and shorter workweeks. The September employment index posted a fifth consecutive negative reading, falling to -6.1. Twelve percent of firms reported net hiring, while 18 percent reported net layoffs. The hours worked index fell markedly from 0.6 to -11.1, suggesting a decline in workweek length from August.

Dallas Fed Activity Bad as Expected --The Dallas Fed Manufacturing Survey was as bad as expected in relation to Bloomberg Econoday Consensus of -9.0.  The Dallas Fed rounds out a full run of negative indications on the September factory sector with the general activity index remaining in deeply negative ground at minus 9.5. New orders are at minus 4.6 which, however, is an 8 point improvement from August. Production is actually in positive ground at 0.9. Other readings include a decline in the workweek and the fifth straight contraction for employment. Price readings show little change for inputs but, like other reports, contraction for finished prices. The Texas economy has been depressed all year by the energy sector while the nation's factory sector continues getting hurt by weak foreign demand and strength in the dollar.  Here are some additional details from the Dallas Fed SurveyTexas factory activity was essentially flat in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained near zero (0.9), suggesting output held steady for a second month in a row after several months of declines. Other indexes of current manufacturing activity increased in September, but some remained in negative territory. The new orders index posted a second negative reading but rose 8 points to -4.6, and the growth rate of orders index also remained below zero but rose to -4.3. The shipments index pushed to around zero from -3, and the capacity utilization index posted its first positive reading in eight months, coming in at 4.9. nPerceptions of broader business conditions remained weak in September. The general business activity index, which has been negative all year, rose 6 points to -9.5. The company outlook index plunged to -10.3 in August but recovered somewhat this month, climbing to -5.2.

Dallas Fed Manufacturing Contracts For 9th Month In A Row As Jobs, Workweek, & CapEx Collapse --August's regional Fed survey collapse was unanimous... Dallas, Richmond, New York,Philly, Chicago, and even Kansas City all flashing recessionary warnings. And so now we begin to see September's data and Dallas Fed prints -9.5 - the 9th negative (contractionary) print in a row. While a small beat (against -10 exp.) and rise from August's -15.8, under the surfacxe the data is a disaster with wages lower, employees contracting drastically, andaverage workweek collapsing. Having noted that "the quantitative easing hangover is starting" in August, it appears - judging by the biggest plunge in Capex in 5 years.

Regional Fed Manufacturing Overview: September -- Five out of the twelve Federal Reserve Regional Districts currently publish monthly data on regional manufacturing: Dallas, Kansas City, New York, Richmond, and Philadelphia.  Regional manufacturing surveys are a measure of local economic health and are used as a representative for the larger national manufacturing health. They have been used as a signal for business uncertainty and economic activity as a whole. Manufacturing makes up 12% of the country's GDP. The other 6 Federal Reserve Districts do not publish manufacturing data. For these, the Federal Reserve’s Beige Book offers a short summary of each districts’ manufacturing health. The Chicago Fed published their Midwest Manufacturing Index from July 1996 through December of 2013. According to their website, they suspended publication “…pending the release of updated benchmark data from the U.S. Census Bureau and a period of model verification.” They anticipate the next release to be fall of 2015. Here is a three-month moving average overlay of each of the five indicators since 2001 (for those with data).

Chicago PMI September 30, 2015: Giant swings are common enough for the Chicago PMI which collapsed nearly 6 points in September to a sub-50 reading of 48.7. This indicates slight monthly contraction in the Chicago region's composite activity. New orders are below 50 as are backlog orders, the latter for an 8th straight month. Chicago-area businesses can't rely on backlogs as much to keep up production which is also under 50 and at a 6-year low. Contraction in prices is deepening. This report is in line with the bulk of regional and private business data that are pointing at a disappointing month for September, one held back by weak foreign markets and perhaps business jitters tied to losses in the stock market.

Chicago PMI declined sharply in September --Chicago PMI: Sep Chicago Business Barometer Down 5.7 Points to 48.7.  The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply. The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern. ...Chief Economist of MNI Indicators Philip Uglow said, “While activity between Q2 and Q3 actually picked up, the scale of the downturn in September following the recent global financial fallout is concerning. Disinflationary pressures intensified and output was down very sharply. We await the October data to better judge whether this was a knee jerk reaction and there is a bounceback, or whether it represents a more fundamental slowdown.“

Chicago PMI Unexpectedly Dive to Negative Tetrritory; Production Plummets to Lowest Since July 2009; Emanuel's Tax Hike Will Make It Worse  The Chicago PMI is in negative territory, plunging to 48.7 from a prior reading of 54.4 and a Bloomberg Consensus Estimate of 53.6.  Giant swings are common enough for the Chicago PMI which collapsed nearly 6 points in September to a sub-50 reading of 48.7. This indicates slight monthly contraction in the Chicago region's composite activity. New orders are below 50 as are backlog orders, the latter for an 8th straight month. Chicago-area businesses can't rely on backlogs as much to keep up production which is also under 50 and at a 6-year low. Contraction in prices is deepening. Digging into to the Chicago PMI report we note Production Plummets to Lowest Since July 2009The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply. The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern. Three of the five components of the Barometer were in contraction in September with only Employment and Supplier Deliveries above the 50 neutral level. Production led the decline with a sharp double-digit drop that placed it at the lowest since July 2009. New Orders also fell significantly and both key activity measures are running well below their historical averages.

September 2015 Chicago Purchasing Managers Barometer Production Growth Collapsed and New Orders Fell Sharply - The Chicago Business Barometer declined and is now in contraction. From Bloomberg, the market expected the index between 49.0 to 55.0 (consensus 53.6) versus the actual at 48.7. A number below 50 indicates contraction. Chief Economist of MNI Indicators Philip Uglow said, While activity between Q2 and Q3 actually picked up, the scale of the downturn in September following the recent global financial fallout is concerning. Disinflationary pressures intensified and output was down very sharply. We await the October data to better judge whether this was a knee jerk reaction and there is a bounceback, or whether it represents a more fundamental slowdown. From ISM Chicago: The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply. The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern.

Chicago PMI "Bounce" Is Dead - PMI Plunges Back To Recessionary Levels - The brief dead cat inventory-stacking bounce in Chicago PMI is over. With a print of 48.7, back below 50, (against hope-strewn expectations of 52.9) this was below the lowest economist estimate and the lowest since May. Aside from employment (which somehow rose), the components were ugly with New Orders, Production, and Prices Paid all tumbling. Chicago confirms Richmond, New York, Philly, Chicago, and even Kansas City regional surveys all flashing recessionary warnings. Welcome back into contractionary sub-50 levels. Charts: Bloomberg The Breakdown:

  • Forecast range 49 - 55 from 43 economists surveyed
  • Prices Paid fell compared to last month
  • New Orders fell compared to last month
  • Employment rose compared to last month
  • Inventory fell compared to last month
  • Supplier Deliveries fell compared to last month
  • Production fell compared to last month
  • Order Backlogs rose compared to last month
  • Business activity has been positive for 7 months over the past year.
  • Number of Components Rising: 2

ISM Milwaukee index 39.44 vs. 48.5 est.: Much lower than expectations

  • new orders 35.51 vs. 47.52
  • production 35.29 vs. 32.83
  • employment 41.88 vs. 47.04
  • supplier deliveries 53.28 vs. 57.37
  • inventories 31.25 vs. 53.57
  • prices 21.88 vs. 28.57
  • Exports 40.91 vs. 36.36
  • imports 54.55 vs. 45.45

ISM Manufacturing index decreased to 50.2 in September - The ISM manufacturing index barely suggested expansion in September. The PMI was at 50.2% in September, down from 51.1% in August. The employment index was at 50.5%, down from 51.2% in August, and the new orders index was at 50.1%, down from 51.6%. From the Institute for Supply Management: September 2015 Manufacturing ISM® Report On Business®  . "The September PMI® registered 50.2 percent, a decrease of 0.9 percentage point from the August reading of 51.1 percent. The New Orders Index registered 50.1 percent, a decrease of 1.6 percentage points from the reading of 51.7 percent in August. The Production Index registered 51.8 percent, 1.8 percentage points below the August reading of 53.6 percent. The Employment Index registered 50.5 percent, 0.7 percentage point below the August reading of 51.2 percent. Backlog of Orders registered 41.5 percent, a decrease of 5 percentage points from the August reading of 46.5 percent. The Prices Index registered 38 percent, a decrease of 1 percentage point from the August reading of 39 percent, indicating lower raw materials prices for the 11th consecutive month. The New Export Orders Index registered 46.5 percent, the same reading as in August. Comments from the panel are mixed with some concern about the global economy and customer confidence." Here is a long term graph of the ISM manufacturing index.

ISM Flirts with Contraction, Export Orders and Backlogs Contract for 4th Month  - The ISM is positive at 50.2, but barely above the 50.0 break-even mark, and a bit below the Bloomberg Consensus Estimate of 50.5.  The ISM index, like nearly all other September indications, is pointing to trouble for the factory sector. At 50.2, the index is at its lowest point since May 2013. New orders, at 50.1, are at their lowest point since August 2012. Backlog orders, at a very low 41.5, are in their fourth month of contraction and won't be giving manufacturers much breathing room to keep up production. Export orders, at 46.5, are also in their fourth month of contraction and are a key factor behind the general weakness. Production, at 51.8, continues to hold up better than orders but not by much and probably not for long given the weakness in orders. Input prices are in deep contraction at 38.0 which is the weakest reading since early in the year when oil prices broke down.Together with the various regional reports, manufacturing is clearly in recession. When was the last time the Fed hiked with such weakness?

September 2015 ISM Manufacturing Survey Declined and Now Barely In Expansion: The ISM Manufacturing survey continues to indicate manufacturing growth expansion - but again marginally declined this month with this survey now barely in expansion. The key internal new orders declined but remains in expansion. Backlog of orders contraction worsened over the contraction the previous month.. The ISM Manufacturing survey index (PMI) marginally declined from 51.1 to 50.2 (50 separates manufacturing contraction and expansion). This was slightly below expectations which were 50.0 to 51.5 (consensus 50.5).Excepts from the ISM release: Economic activity in the manufacturing sector expanded in September for the 33rd consecutive month, and the overall economy grew for the 76th consecutive month, say the nation's supply executives in the latest Manufacturing ISM® Report On Business®. The September PMI® registered 50.2 percent, a decrease of 0.9 percentage point from the August reading of 51.1 percent. The New Orders Index registered 50.1 percent, a decrease of 1.6 percentage points from the reading of 51.7 percent in August. The Production Index registered 51.8 percent, 1.8 percentage points below the August reading of 53.6 percent. The Employment Index registered 50.5 percent, 0.7 percentage point below the August reading of 51.2 percent. Backlog of Orders registered 41.5 percent, a decrease of 5 percentage points from the August reading of 46.5 percent. The Prices Index registered 38 percent, a decrease of 1 percentage point from the August reading of 39 percent, indicating lower raw materials prices for the 11th consecutive month. The New Export Orders Index registered 46.5 percent, the same reading as in August.

ISM Index Shows a Barely Breathing Manufacturing Sector, PMI 50.2% - The September ISM Manufacturing Survey shows yet more deceleration of the manufacturing sector.  While a PMI of 50.2% is still growth, it is barely growth.  The composite PMI decreased by -0.9 percentage points and new orders decreased by -1.6 percentage points.  Order backlogs truly imploded.  Overall the report really shows a weakening manufacturing sector and this is so disconcerting it is probably another signal for the Fed to delay raising interest rates.  The ISM Manufacturing survey is a direct survey of manufacturers.  Generally speaking, indexes above 50% indicate growth and below indicate contraction.  Every month ISM publishes survey responders' comments, which are part of their survey.  Most mention slowdowns and reduced demand with specifics on the collapse in oil prices, China and Bird flu.  Manufacturers also complain of a strong dollar hurting their procurement pricing. New orders really slid yet another -1.6 percentage points to 50.1%.  This is precariously on the edge of growth, tipping towards contraction. The Census reported August durable goods new orders decreased b a large -2.0%, where factory orders, or all of manufacturing data, will be out later this week.  Note the Census one month lag from the ISM survey.  The ISM claims the Census and their survey are consistent with each other and they are right.  Below is a graph of manufacturing new orders percent change from one year ago (blue, scale on right), against ISM's manufacturing new orders index (maroon, scale on left) to the last release data available for the Census manufacturing statistics.  Here we do see a consistent pattern between the two and this is what the ISM says is the growth mark: A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders. Below is the ISM table data, reprinted, for a quick view.

US Manufacturing PMI Stagnates at 2-Year Low With Weakest Employment Since June 2013 -- Given the fact that for the first time since the recession, manufacturing has added zero jobs this year, that ADP just saw a drop in manufacturing jobs, Markit reports September USManufacturing PMI has stagnated for the last 2 months at 2 year lows (printing 53.1 final vs 53.0 prelim). Worst still, and confirming even further the demise of the US manufacturing "renaissance", the Employment sub-index dropped to 50.8 - the lowest since June 2013. As Markit sums up"The Fed is therefore likely to keep an open mind as to whether tighter policy is appropriate given current economic conditions and await a clearer idea of the health of the economy in the fourth quarter." On a side note Canadian manufacturing PMI printed at a post-recession low. Manufacturers indicated another slowdown in employment growth during September, with survey respondents citing the uncertain business outlook and reduced pressure on capacity. Moreover, the latest rise in staffing levels was the slowest in the current 27-month period of expansion. September data also highlighted ongoing caution in terms of stock levels, with post-production inventories falling for a second month running. The headline print remains stagnant at 2 year lows...

ISM Manufacturing Weakest Since May 2013 Amid Collapse In New Orders -- Following Manufacturing PMI's weakness and ADP's Manufacturing employment weakness (and six regional Fed surveys' weakness), ISM printed 50.2 (the 3rd miss in a row and lowest since May 2013). Under the surface was a disaster with New Orders collapsing (unadjusted are weakest since before 2013) with just 22% saying New Orders are better (the lowest since August 2012) As New Orders completely collapse... With 6 of 6 regional Fed Surveys all recessionary... And according to ADP, for the first time this decade, the US hasn't created a single manufacturing job for the entire year. In fact, it has lost some 6,600 jobs. Charts: Bloomberg.

Weekly Initial Unemployment Claims increased to 277,000 -- The DOL reported: In the week ending September 26, the advance figure for seasonally adjusted initial claims was 277,000, an increase of 10,000 from the previous week's unrevised level of 267,000. The 4-week moving average was 270,750, a decrease of 1,000 from the previous week's unrevised average of 271,750.  There were no special factors impacting this week's initial claims.  The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Job Market: Layoffs Up In September As Big Companies Shrank: Last month saw a surge in layoffs, primarily due to large-scale employee cuts at companies like Hewlett-Packard.U.S. companies laid off 58,877 workers in September, according to data released Thursday by Challenger, Gray & Christmas. September layoffs are up 43% from August when about 41,000 workers were let go. In total, employers have announced 493,431 planned layoffs so far this year, a 36% jump over the same period last year and 2% more than the 2014 total. “Job cuts have already surpassed last year’s total and are on track to end the year as the highest annual total since 2009, when nearly 1.3 million layoffs were announced at the tail-end of the recession,” said John A. Challenger, CEO of Challenger, Gray & Christmas. The computer industry accounted for the heaviest job cuts in September primarily driven by Hewlett-Packard, which said it would cut 30,000 jobs.. The job losses, which were announced in mid-September by CEO Meg Whitman, should save the company $2.7 billion annually and represented about 10% of the company’s workforce, HP said.

US layoffs surge 43% in Sept to 58,877: Challenger: The number of announced layoffs by U.S.-based companies surged in September from the previous month, driven by job cuts at Hewlett-Packard, global outplacement firm Challenger, Gray & Christmas reported Thursday. U.S.-headquartered companies put 58,877 jobs on the chopping block last month, up 43 percent from just more than 41,000 in August and the third highest monthly total this year.  The reductions pushed the layoff count in the third quarter to 205,759, making it the worst quarter for job cuts in six years. Year to date, employers have announced plans to hand out 493,431 pink slips, more than the full-year total of 483,171 in 2014. The Challenger report comes a day before the Labor Department's closely watched monthly employment data for September. Challenger said the computer sector led all other industries in layoffs in September. Hewlett-Packard accounted for nearly all of the 32,500 reductions. Last month, Hewlett-Packard announced it would cut 25,000 to 30,000 positions as part of its restructuring, which will split the company into one firm focused on enterprise services and one dedicated to its legacy hardware business.

ADP: Private Employment increased 200,000 in September  --From ADP: Private sector employment increased by 200,000 jobs from August to September according to the September ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. ...Goods-producing employment rose by 12,000 jobs in September, off from 15,000 the previous month. The construction industry added 35,000 jobs in September, almost double the 18,000 gained in August. Meanwhile, manufacturing dropped into negative territory losing 15,000 jobs in September, the worst showing since December 2010. Service-providing employment rose by 188,000 jobs in September, up from 172,000 in August. ...Mark Zandi, chief economist of Moody’s Analytics, said, “The U.S. job machine continues to produce jobs at a strong and consistent pace. Despite job losses in the energy and manufacturing industries, the economy is creating close to 200,000 jobs per month. At this pace full employment is fast approaching.”  This was above the consensus forecast for 190,000 private sector jobs added in the ADP report. 

ADP Job Growth Steady Near 20-Month Lows, Manufacturing Slides -- With ADP job growth having hovered back at its lowest since January 2014 for much of the year (with a modest inventory-stacking bounce in May and June), September's small beat (200k vs 190k exp) did very little to change that trend. Once again the gains were dominated by the Services-providing sector (188k vs 12k goods-producing) and large companies dominated the gains. While construction rose 35k in September, Manufacturing dropped 15k. As Zandi said"The job market is a machine, it's just pumping out a lot of jobs," so we assume that means an October Fed rate hike?   As Mark Zandi details,"Businesses with more than 1,000 employees contributed over half of the job gains in September, despite weakness in energy and manufacturing,” said Ahu Yildirmaz, VP and head of the ADP Research Institute. “The largest companies appear to be starting to overcome the impacts of weak global demand and the high dollar, while the smallest companies may have pulled back as concerns about the resiliency of the U.S. economy grew and consumer confidence softened.”

September 2015 ADP Job Growth at 200,000 - At Consensus Expectations: ADP reported non-farm private jobs growth at 200,000. The rolling averages of year-over-year jobs growth rate remains strong but the rate of growth continues in a downtrend.

  • The market expected 180,000 to 220,000 (consensus 190,000) versus the 200,000 reported. These numbers are all seasonally adjusted;
  • In Econintersect's September 2015 economic forecast released in late August, we estimated non-farm private payroll growth at 160,000 (unadjusted based on economic potential) and 190,000 (fudged based on current overrun of economic potential);
  • This month, ADP's analysis is that small and medium sized business created 47% of all jobs;
  • Manufacturing jobs contracted by 15,000;
  • 94% of the jobs growth came from the service sector;
  • August report (last month), which reported job gains of 190,000 was revised down to 186,000;
  • The three month rolling average of year-over-year job growth rate has been slowing declining since February 2015 - it is now 2.17% (down from 2.21% last month)

ADP changed their methodology starting with their October 2012 report, and ADP's real time estimates are currently worse than the BLS. Per Mark Zandi, chief economist of Moody's Analytics: The U.S. job machine continues to produce jobs at a strong and consistent pace. Despite job losses in the energy and manufacturing industries, the economy is creating close to 200,000 jobs per month. At this pace full employment is fast approaching.

For The First Time During This Business Cycle, The US Hasn't Added A Single Manufacturing Job This Year -- While the headline ADP print earlier today was modestly better than expected, at +200K, one of its components posted a surprising tumble: with 14,600 manufacturing jobs lost in August, this was the worst month for the US manufacturing sector since January 2010. Where this data becomes more disturbing, and where it can be seen in full context, is when clustering the monthlies into full year buckets. It is here that the full impact of what is now clearly at least a manufacturing, if not yet service, recession can be witnessed. As the chart below shows, according to ADP, for the first time this decade, the US hasn't created a single manufacturing job for the entire year. In fact, it has lost some 6,600 jobs.

September Employment Report: 142,000 Jobs, 5.1% Unemployment Rate - From the BLSTotal nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care and information, while mining employment fell.  ...  The change in total nonfarm payroll employment for July was revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported. ..In September, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in August. Hourly earnings have risen by 2.2 percent over the year. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 142 thousand in September (private payrolls increased 118 thousand). Payrolls for July and August were revised down by a combined 59 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In September, the year-over-year change was 2.75 million jobs. That is a solid year-over-year gain. The third graph shows the employment population ratio and the participation rate. The Labor Force Participation Rate declined in September to 62.4%. This is the percentage of the working age population in the labor force. A large portion of the recent decline in the participation rate is due to demographics. The Employment-Population ratio declined to 59.2% (black line).

Hiring Slows in U.S. as Global Economy Weakens: U.S. hiring slowed sharply in September, and job gains for July and August were lower than previously thought, a sour note for a labor market that had been steadily improving.The Labor Department says employers added just 142,000 jobs in September, depressed by job cuts by manufacturers and oil drillers. The unemployment rate remained 5.1 percent, but only because more Americans stopped looking for work and were no longer counted as unemployed.All told, the proportion of Americans who either have a job or are looking for one fell to a 38-year low.Average hourly wages also slipped by a penny and have now risen by only 2.2 percent in the past year.U.S. consumers are spending at a healthy pace, boosting job gains in sectors like retail and hotels and restaurants. But lackluster growth overseas has sharply reduced exports of factory goods.The tepid pace of hiring complicates the picture for the Federal Reserve, which is deciding whether to raise short-term interest rates later this year for the first time in nine years.Fed Chair Janet Yellen has said that the job market is nearly healed. But she has added that she wants to see further hiring and wage gains to increase her confidence that inflation will move closer to the Fed’s target of 2 percent.Job gains have averaged 198,000 a month this year, a solid total, but below last year’s average of 260,000.Sales of new U.S. homes have jumped to a seven-year high, and auto sales soared nearly 16 percent in September to the highest level in a decade.At the same time, the dollar has risen about 15 percent against overseas currencies in the past year, making U.S. goods more expensive overseas and imports less expensive. A sharp fall in exports has likely slowed growth in the July-September quarter to an annual rate of just 1.5 percent, according to economists from JPMorgan Chase. That’s down from a 3.9 percent pace in the April-June quarter.

September Jobs Report – The Numbers - WSJ: U.S. employers added a seasonally adjusted 142,000 jobs in September, well below economists’ expectations for a gain of 200,000 jobs. Payroll readings in the prior two months were also revised down by a total of 59,000. Employers added 136,000 jobs in August and 223,000 in July. The average job gain over the past three months was 167,000, a marked slowdown from the August three-month average. September marked the 60th consecutive month of job gains, the longest stretch on record. Jobless Rate5.1% The headline unemployment rate was unchanged at 5.1% last month, holding the jobless rate at its lowest level since April 2008. But that partly reflects a shrunken labor force. The unemployment rate is down from its peak of 10% at the end of 2009, and is just above the 5% reading recorded when the recession began in late 2007. The current rate is within the range Federal Reserve officials view as the likely long-run average. Wages$25.09 Average hourly earnings of private-sector workers declined by 1 cent to $25.09 last month. That’s a 2.2% increase from a year earlier. The average work week also decreased by 0.1 hour last month, to 34.5 hours. Wages had been advancing at a modest 2% pace or barely higher during much of the expansion. Many economists blame the slow gains for lackluster consumer spending and sluggish economic growth. A broad measure of unemployment that includes people looking for work, stuck in part-time jobs or who have been discouraged about finding a job fell to 10% in September, down from 11.7% a year earlier. The reading known as the U-6 is now below its 20-year average of 10.7%. The labor-force participation rate fell last month to 62.4%, after registering at 62.6% for the previous three months. The latest reading is the result of the labor force shrinking by 350,000 people last month. The participation rate—the share of the population either working or actively looking for work—has been dropping for several years and is near levels last consistently recorded in the late 1970s, a time when women were still entering the workforce in larger numbers.

Payroll Disaster: Establishment Survey +142K Jobs, Employment -236K; Labor Force -350K; 59K Downward Revisions -- This report was a veritable disaster.  Although the establishment survey sported 142,000 jobs it was much much weaker than expected. Downward revisions for the last two months totaled 59,000. The labor force fell by 350,000 driving the participation rate to a 40-year low. Government jobs rose 24,000 so private payrolls accounted for a mere 118,000 jobs. Weekly hours ticked down by 0.1 hours. Topping off the disastrous set of numbers, employment as measured by the household survey declined by 236,000.  The Bloomberg Consensus estimate was 203,000 jobs. Last month I noted, the preceding two months were revised up by 44,000. It seems something went wrong. The change in total nonfarm payroll employment for July was revised from +245,000 to +223,000, and the change for August was revised from +173,000 to +136,000. With these revisions, employment gains in July and August combined were 59,000 less than previously reported.  BLS Jobs Statistics at a Glance:

  • Nonfarm Payroll: +142,000 - Establishment Survey
  • Employment: -236,000 - Household Survey
  • Unemployment: -114,000 - Household Survey
  • Involuntary Part-Time Work: -447,000 - Household Survey
  • Voluntary Part-Time Work: +211,000 - Household Survey
  • Baseline Unemployment Rate: +0.0 at 5.1% - Household Survey
  • U-6 unemployment: -0.3 to 10.0% - Household Survey
  • Civilian Non-institutional Population: +229,000
  • Civilian Labor Force: -350,000 - Household Survey
  • Not in Labor Force: +579,000 - Household Survey
  • Participation Rate: -0.2 to 62.4 - Household Survey (a 40-year low)

September New Jobs Fall Below Forecast; July and August Were Revised Downward - Here are the lead paragraphs from the Employment Situation Summary released this morning by the Bureau of Labor Statistics: Total nonfarm payroll employment increased by 142,000 in September, and the unemployment rate was unchanged at 5.1 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care and information, while mining employment fell. Today's report of 142K new nonfarm jobs in September was substantially below the forecast of 203K. To make matters worse, July and August nonfarm payrolls were revised downward by 22K and 59K for a total of -81K. The unemployment rate remained unchanged at 5.1%. Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and the S&P Composite since 1948.  The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at its post-recession low of 1.3%, down from 1.4% the previous month. The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over. The inverse correlation between the two series is obvious.

BLS Jobs Situation Was Very Bad in September 2015.: The BLS job situation headlines from the establishment survey was not good. The unadjusted data shows growth is at the lowest levels since the Great Recession. Yah gotta look hard to find anything in this report which would warm your heart. In fact, this report would have been worse if the BLS did not remove 350,000 people from the workforce. The rate of growth for employment continued to decelerate this month (red line on graph below).

  • The unadjusted jobs added month-over-month was well below normal for times of economic expansion - and the worst since the end of the Great Recession (this was true last month also).
  • Economic intuitive sectors of employment were mixed.
  • This month's report internals (comparing household to establishment data sets) was very inconsistent with the household survey showing seasonally adjusted employment declining 236,000 vs the headline establishment number of growing 142,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey removed 350,000 people to the workforce.

A summary of the employment situation:

  • BLS reported: 142K (non-farm) and 118K (non-farm private). Unemployment unchanged at 5.1%.
  • ADP reported: 200K (non-farm private)
  • In Econintersect's September 2015 economic forecast released in late August, we estimated non-farm private payroll growth at 160,000 (unadjusted based on economic potential) and 190,000 (fudged based on current overrun of economic potential);

Payrolls Disaster: Only 142K Jobs Added In September Zero Wage Growth; August Revised Much Lower -- And so the "most important payrolls number" at least until the October FOMC meeting when the Fed will once again do nothing because suddenly the US is staring recession in the face, is in the history books, and at 142K it was a total disaster, 60K below the consensus and below the lowest estimate. Just as bad, the August print was also revised far lower from 173K to 136K. As noted above, the headline jobs print was below the lowest wall street estimate. In other words 96 out of 96 economisseds did what they do best. The unemployment rate came in at 5.1% as expected but everyone will be focusing on the disaster headline print. And worst of all, average hourly wages stayed flat at 0.0%, also below the expected 0.2%. Actually, if one zooms in, the change was not 0.0%, it was negative, while weekly earnings actually declined from $868.46 to $865.61.

Participation Rate Crashes To October 1977 Level: Americans Not In The Labor Force Soar By 579,000 To Record 94.6 Million -  While the September jobs number was an absolute disaster, here is the real punchline: in September, the people not in the labor force soared by a whopping 579,000 to a record 94.6 million, up from the previous record 94.0, even as number of people employed - according to the household survey used to calculate the "5.1%" unemployment rate - tumbled by 236,000 to 148.8 million. And as a result of this latest surge in people who aren't working, nor want to work, the participation rate crashed yet again, and sliding from 62.6% to 62.4%, it was the lowest since October 1977.  Finally, if anyone is still confused where there is no job growth in the US, here is the answer: the amount of slack in the labor force is simply breathtaking.

This Chart Truly Depicts a New, Terrible Trend in Jobs Mess -- Wolf Richter: As Oregoncharles put it, in terms of labor force participation, “Obama has now cancelled out the entire effect of the Women’s Movement.” The jobs report today has been described as “ugly,” though it certainly didn’t, or shouldn’t have, come out of the blue: Layoffs in the energy, Big Tech, retail, and other sectors have recently mucked up our rosy scenario. “The third quarter ended with a surge in job cuts,” is how Challenger Gray, which tracks these things, started out its report yesterday. In September, large US-based companies had announced 58,877 layoffs. In the third quarter, they announced 205,759 layoffs, the worst quarter since the 240,233 in the third quarter of 2009!  Year-to-date, we’re at nearly half a million job cut announcements (493,431 to be precise), up 36% from the same period last year. And they’re “on track to end the year as the highest annual total since 2009, when nearly 1.3 million layoffs were announced at the tail-end of the recession.”   These dogged references to crisis-year 2009! It’s been going on all year. In the first half, it was the energy sector. But more recently, Big Tech and others jumped into the fray. Biggest sinners this year: HP 30,000 (laying off people through thick and thin is what it does best); Target 17,000; Schlumberger 9,000 in January and another 11,000 in April; supermarket chain A&P 8,500; Microsoft 7,800; Baker Hughes 7,000; and down the line, including CAT a week ago with 5,000. The energy sector is still number one this year with 72,708 job cut announcements. Retail isn’t far behind with 68,871, the computer industry with 58,874, and industrial goods with 44,057. These are just the largest employers with big announcements that make it into the report. When a smaller company lays off 20 people, it doesn’t show up anywhere, unless it’s a startup in the “unicorn” club with a “valuation” over $1 billion. Then the media drool all over it.  Evernote, which raised a total of $302 million by May 2012, with the last round giving it that glorious $1 billion “valuation,” announced its first layoff in January, and its second a couple of days ago. Because it’s a formerly hot startup, it made the news. But a small manufacturer quietly laying off 100 people might barely make the local press. So now we get today’s “ugly” jobs report. It wasn’t the end of the world, compared to the end-of-the-world jobs reports in 2009. But there was a trend that, if it continues, is truly ugly.

Disappointing Jobs Numbers and Not Enough Teachers -- Today’s Bureau of Labor Statistics employment situation report showed the economy added a disappointing 142,000 jobs in September, bringing average monthly job creation to 198,000 in 2015—a rate slower than 2014. Hope for upward revisions to the low August numbers were dashed as well. In fact, July and August’s numbers were revised downward by a combined 59,000 fewer jobs. Digging into the report, we see that the civilian labor force participation rate declined, the employment-to-population ratio for prime age workers has continued to stagnate, (sitting at 77.2 percent—where it was when the year started), and wage growth is stuck at 2.2 percent. Taken together, these are signs of a labor market that retains a fair amount of slack and evidence that the Federal Reserve was right not to raise interest rates in September and indeed should not raise them in 2015. With the September data in hand, we can look at the number of teachers who are starting work or going back to school this year. The number of teachers and education staff fell dramatically during the recession, and has failed to get anywhere near its prerecession level, let alone the level that would be required to keep up with an expanding student population. Along with the dismal shortfall in public sector employment, due to the Great Recession and the ensuing austerity at all levels of government, public education jobs are still 236,000 less than they were seven years ago. The number of teachers rose by 41,700 over the last year. While this is clearly a positive sign, adding in the number of public education jobs that should have been created just to keep up with enrollment, we are currently experiencing a 410,000 job shortfall  in public education. Short sighted austerity measures have a measurable impact, hitting children in today’s classrooms.

The September Jobs Report in 11 Charts - The U.S. economy added 142,000 jobs in September, but there’s more to the monthly jobs report than the number of jobs added. The report provides a wealth of information about the demographics of unemployment—about who is unemployed and why—summarized in the following 11 charts. Over the past three months the economy has added jobs at the slowest pace since February 2014. Employers were adding an average of more than 200,000 jobs each month since the spring of last year, but now that pace has slowed. Similarly, the annual pace of job creation has eased in recent months after peaking above three million late last year. As a result of the weaker gains in August and September, job creation in 2015 has fallen well off last year’s pace. However, the economy is still on track to post the second-best year for employment growth in the past decade. Every measure of unemployment is declining this year. The broadest gauge, which includes part-timers who would prefer full-time employment and Americans too discouraged to look for a job, fell to 10% last month. That’s the lowest rate since May 2008. The median unemployed worker has been without a job for 11.4 weeks. That’s substantially shorter than during the first few years of this economic recovery, but still high by historical standards. After exceeding prerecession levels for the first time earlier this year, the number of Americans with full-time jobs has fallen in recent months. The labor-force participation rate—that is, the share of the population either working or looking for work—declined to the lowest rate since 1977. The employment-to-population ratio, that is, the share of the population with a job, fell to 59.2% from 59.4%. Much of the reason for the decline in the labor force is simply that a growing number of baby boomers are choosing to retire. Among workers ages 25 to 54, labor-force participation and employment rates are higher. Among this group of workers, dubbed prime-age by labor market economists, labor-force participation fell to 80.6% from 80.7% last month. People can be unemployed for a range of reasons—whether it’s entering the job market for the first time; re-entering after going to school, starting a family or caring for a relative; quitting an old job with no new one lined up; or losing a job, either on a temporary layoff or permanently. As the recovery has progressed, the share of the unemployed who lost their previous job has declined. A growing share of the unemployed are new entrant or re-entrants to the work force. College graduates have a significantly lower unemployment rate, which was unchanged at 2.5% this month. High-school dropouts have significantly higher unemployment, which climbed to 7.9% this month from 7.7%. The unemployment rate has continued to come down for men, women, whites, blacks and Hispanics. The gaps in the unemployment rate between men and women have mostly closed, but significant gaps remain between racial groups.

A September jobs report to forget - It’s not there were no encouraging bits in the September jobs report. There were. Long-term unemployment fell. So did people working part-time who would prefer full-time gigs. Ugh, but the rest.

  • 1.) Just 142,000 net new payrolls (and a mere 118,000 in the private sector) vs. the 200,000 consensus forecast. Also, the July and August numbers were revised lower by 59,000.
  • 2.) Household employment fell by 236,000. And if combine that number with the payrolls number using the 20/80 weighting suggested by economist Justin Wolfers, the economy may have lost something like 66,000 jobs last month.
  • 3.)  In the third quarter, average monthly job gains averaged 167,000 versus 237,000 in 3Q 2014. Deceleration.
  • 4.) Both the labor force participation and employment rates fell, the former to a 38-year low. Those “Not in Labor Force” increased by 579,000, while “Employed” fell by 236,000.
  • 5.) Average hourly earnings actually fell by a penny with the long-term growth trend stuck around 2%.

In other words, how did everyone enjoy the sweet spot of the Great Recovery? Those were heady days! Good times had by all. Here is how Barclays summed up the month: Beyond the headline number, we see broad-based weakness in US labor markets, with the past month’s revisions now showing a decidedly softer trend growth in jobs. Although the U3 unemployment rate was unchanged at 5.1%, the participation rate fell 0.2 to 62.4%. The broader U6 underemployment rate, which includes part-time workers, declined three-tenths, to 10.0%, as the number of workers who are part time for economic reasons dropped sharply. However, given the overall weakness in the report, we do not take that decline as a positive sign, as some of that decline likely reflects workers leaving the workforce rather than finding full time work. Average hourly earnings were also soft, rising 0.0% m/m, much weaker than expected. This report is much weaker than we had expected.  As such, we retain our view that rate hikes will be deferred past year end and we believe this employment report substantially reduces the probability of a rate hike from the FOMC this year.

September Employment Report Comments and more Graphs -- This was a disappointing employment report with 142,000 jobs added, and employment gains for July and August were revised down. Also wages declined slightly, from the BLS: "In September, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in August. Hourly earnings have risen by 2.2 percent over the year." There is always some variability in the month-to-month employment reports, and my general reaction is R-E-L-A-X.  Jobs gains are still solid year-over-year, and I expected some slowdown in job gains this year - also recent gains are still large enough to push down the unemployment rate. A few more numbers:  Total employment is now 4.0 million above the previous peak.  Total employment is up 12.7 million from the employment recession low. Private payroll employment increased 118,000 from August to September, and private employment is now 4.4 million above the previous peak. Private employment is up 13.2 million from the recession low. In September, the year-over-year change was 2.75 million jobs.  Since the overall participation rate declined recently due to cyclical (recession) and demographic (aging population, younger people staying in school) reasons, here is the employment-population ratio for the key working age group: 25 to 54 years old. In the earlier period the participation rate for this group was trending up as women joined the labor force. Since the early '90s, the participation rate moved more sideways, with a downward drift starting around '00 - and with ups and downs related to the business cycle. The 25 to 54 participation rate declined in September to 80.6%, and the 25 to 54 employment population ratio was unchanged at 77.2%. The participation rate for this group might increase a little more (or at least stabilize for a couple of years) - although the participation rate has been trending down for this group since the late '90s.  This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report.  The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees. Nominal wage growth was unchanged at 2.2% YoY - and although the series is noisy - it does appear wage growth is trending up a little. Wages will probably pick up a little more this year.

September jobs: A weak report, but does it reveal a true downshift? -- The nation’s payrolls rose by only 142,000 last month, and job gains for July and August were revised down by 59,000, suggesting the pace of job growth has slowed in recent months. The labor force contracted and weekly hours of work also declined slightly. Hourly pay was unchanged over the month and rose 2.2% over the past year, around the same pace it has been at for numerous years. In other words, what we have here is a surprisingly weak jobs report—analysts were expecting job growth of around 200,000, and the question is: how much should it change our views about underlying labor market conditions? The answer is somewhat, but it’s too soon to confirm a lasting downshift in job growth. On the one hand, my patented smoother shows evidence of the downshift. The figure gets at underlying trends in monthly job growth by tracking 3, 6, and 12-month averages. Over the past 3 months, payrolls have averaged 167,000 per month. That well below the 12-month average of about 230,000, suggesting a slowdown. On the other hand, a look at the BLS figure of monthly gains (not averaged) shows peaks and valleys to be common in this data. Note the circled months at the end of 2014. Someone writing those months up might have mistakenly assumed a significant upshift in job growth. The key then is to ask: what other economic indicators might be in play here, slowing job growth in a way that could be lasting? One candidate is the stronger dollar, which hurts the competitiveness of US goods in foreign markets. We know that negative net exports have been a drag on growth lately, and one place you’d expect to see that in the jobs numbers is in manufacturing employment. In fact, this year, factory employment is flat, up only 2,000 per month, and down 27,000 in the past two months. Last year, the sector added 18,000 jobs/month on average.

  • "They Just Don't Want A Job" - The Fed's Stunning "Explanation" Why 94.6 Million Americans Are Out Of The Labor Force -- In a note seeking to "explain" why the US labor participation rate just crashed to a nearly 40 year low earlier today as another half a million Americans decided to exit the labor force bringing the total to 94.6 million people..... this is what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history: "Generally speaking, people in the 25–54 age group are the most likely to participate in the labor market. These so-called prime-age individuals are less likely to be making retirement decisions than older individuals and less likely to be enrolled in schooling or training than younger individuals."  This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire taxpayer-funded "analysis."  However, as the chart below shows, when it comes to participation rates within the age cohort, while the 25-54 group should be stable and/or rising to indicate economic strength while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners, we see precisely the opposite. The Fed, to its credit, admits this: "participation among the prime-age group declined considerably between 2008 and 2013." And this is where the wheels fall off the Atlanta Fed narative. Because the regional Fed's very next sentence shows why the world is doomed when you task economists to centrally-plan it: The decrease in labor force participation among prime-age individuals has been driven mostly by the share who say they currently don't want a job. As of December 2014, prime-age labor force participation was 2.4 percentage points below its prerecession average. Of that, 0.5 percentage point is accounted for by a higher share who indicate they currently want a job; 2 percentage points can be attributed to a higher share who say they currently don't want a job.

    Detroit Jobs Crank Up Alongside Auto Industry -  Detroit’s economic engine appears to be revving up. The unemployment rate in the Detroit metro area touched a 15-year low last month and joblessness in greater Motor City is declining at twice the pace of the country as a whole. Detroit’s unemployment rate was a seasonally adjusted 5.6% in August, still above the national rate of 5.1%, but the lowest reading since September 2001. The rate declined 2.7 percentage points in the past year to 6.2% on a non-seasonally adjusted basis. That marked the largest drop among the 51 metro areas with more than 1 million residents. Unadjusted figures are needed to compare cities because the Labor Department doesn’t produce adjusted figures for all metro areas. The swift decline is a dramatic turnaround for the area that was rocked by General Motors and Chrysler’s Chapter 11 filings during the recession and then saw the city itself seek bankruptcy protection in 2013. The seasonally adjusted unemployment rate in the region peaked above 16% in 2009 and was above 10% as recently as April 2013. The improvement is at least partially tied to the resurgent auto industry. The last time joblessness was this low in Motown, in 2001, was the last time Americans purchased more than 17 million vehicles in a year.  Car sales have accelerated this year and are again near that historic pace.

    Wage Strife Clouds Car-Sales Boom - 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 this week rejected for the first time in three decades a tentative agreement as inadequate, and Ford 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, 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. The workers are angry that neither union officials nor Fiat Chrysler want to eliminate a concession put in place just ahead of the 2008 recession that pays some assembly-line staff substantially less than co-workers doing the same work. The same two-tier system exists to a lesser extent at GM and Ford.

    New H-1B Scandals Revealed by NYT: the H-1B Outsourcing Visa Ships American Jobs Overseas - The New York Times has a front page story today about two new cases of H-1B abuse as a follow-up to the Disney scandal it reported on in June. This one, too, features household names: Toys R Us and New York Life. It also includes academic publishing powerhouse, Cengage, whose textbooks are used in college campuses across the country. Those companies have been outsourcing work to companies with track records as major H-1B abusers that use the program to ship jobs overseas: Accenture, TCS, and Cognizant. The Times story, written by Julia Preston, outlines a process I have written quite a bit about over the years: how the H-1B program, which Congress created to help U.S. companies fill jobs here in the United States, is actually used to facilitate the shipping of American jobs overseas to low cost countries like India. This, in fact, is the most common use of the H-1B program, which India’s Commerce Minister Kamal Nath dubbed the “outsourcing visa” in 2007.  Preston reports that Tata Consultancy Services sent Indian workers to a Toys R Us facility in New Jersey, where they shadowed U.S. accounting employees, learning their jobs and writing up manuals to train employees back in India how to do the same work and replace the U.S. employees. The result was unemployment for middle-class, middle-aged Americans and the loss of 67 jobs in New Jersey. A company spokesperson was unapologetic, telling the Times that the outsourcing “resulted in significant cost savings.”

    Toys ‘R’ Us Brings Temporary Foreign Workers to U.S. to Move Jobs Overseas - When Congress designed temporary work visa programs, the idea was to bring in foreigners with specialized, hard-to-find skills who would help American companies grow, creating jobs to expand the economy. Now, though, some companies are bringing in workers on those visas to help move jobs out of the country.For four weeks this spring, a young woman from India on a temporary visa sat elbow to elbow with an American accountant in a snug cubicle at the headquarters of Toys “R” Us here. The woman, an employee of a giant outsourcing company in India hired by Toys “R” Us, studied and recorded the accountant’s every keystroke, taking screen shots of her computer and detailed notes on how she issued payments for toys sold in the company’s megastores.“She just pulled up a chair in front of my computer,” said the accountant, 49, who had worked for the company for more than 15 years. “She shadowed me everywhere, even to the ladies’ room.”By late June, eight workers from the outsourcing company, Tata Consultancy Services, or TCS, had produced intricate manuals for the jobs of 67 people, mainly in accounting. They then returned to India to train TCS workers to take over and perform those jobs there. The Toys “R” Us employees in New Jersey, many of whom had been at the company more than a decade, were laid off.

    Unemployment Payouts More Than Double in North Dakota - Falling commodity prices are dragging down workers’ earnings in the mining industry and boosting unemployment payouts in a handful of states. In the second quarter of the year, personal earnings declined in five states, according to a Labor Department report out on Wednesday. In three of those–North Dakota, West Virginia and Wyoming–that was largely due to drop-offs for the mining industry, a category that includes oil and gas extraction, coal and support services. It was also the second straight quarterly drop for earnings in those states. Meanwhile, unemployment insurance benefits rose 115% from the fourth quarter of 2014 to the second quarter of 2015 in North Dakota, 74% in Oklahoma, 66% in Wyoming, 49% in Texas, and 27% in West Virginia, all states with significant energy sectors. The oil story has been widely reported, with sharply lower prices helping consumers with cheaper gasoline but also squeezing energy companies and their employees. Coal hasn’t caught as much attention, though the industry has been battered by competition from natural gas, regulations to curb greenhouse gas emissions and the effects of a stronger dollar on exports. Net earnings fell just under 0.3% in North Dakota, West Virginia and Wyoming from the first to the second quarter. That’s the equivalent of about $56 million in North Dakota, $69 million in West Virginia and $67 in Wyoming. Of course, that’s just a drop in the national bucket. For example, net earnings grew $10.6 billion in California, the nation’s biggest state.

    Why We Must End Upward Pre-Distribution to the Rich - Robert Reich -- You often hear inequality has widened because globalization and technological change have made most people less competitive, while making the best educated more competitive.  There’s some truth to this. The tasks most people used to do can now be done more cheaply by lower-paid workers abroad or by computer-driven machines. But this common explanation overlooks a critically important phenomenon: the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. The underlying problem is not just globalization and technological changes that have made most American workers less competitive. Nor is it that they lack enough education to be sufficiently productive. The more basic problem is that the market itself has become tilted ever more in the direction of moneyed interests that have exerted disproportionate influence over it, while average workers have steadily lost bargaining power—both economic and political—to receive as large a portion of the economy’s gains as they commanded in the first three decades after World War II. Reversing the scourge of widening inequality requires reversing the upward pre-distributions within the rules of the market, and giving average people the bargaining power they need to get a larger share of the gains from growth. The answer to this problem is not found in economics. It is found in politics. Ultimately, the trend toward widening inequality in America, as elsewhere, can be reversed only if the vast majority join together to demand fundamental change. The most important political competition over the next decades will not be between the right and left, or between Republicans and Democrats. It will be between a majority of Americans who have been losing ground, and an economic elite that refuses to recognize or respond to its growing distress.

    What Recovery? 9.4 Million More Americans Below Poverty Line Than Pre-Crisis -- According to Janet Yellen, we are still on pace to raise rates in 2015. While the rate hike was supposed to happen this month, it got derailed by the August market selloff, volatility in China, lackluster work force numbers, and a variety of other factors. Despite the Fed continuing to kick this down the road, they continue to claim that we are in the middle of an ongoing recovery. There’s just one problem with that: things are getting worse than pre-crisis levels for millions of the poorest Americans. It’s true that the wealthiest 10% of Americans have finally seen their household incomes rise above the levels last seen in 2007. It’s also true that median incomes have “recovered” from the worst of the 2008 disaster. Median earners were -8.1% worse off in 2011, and now they are only -6.5% worse off according to most recent data for 2014 released by the U.S. Census Bureau last week. However, when we look at the lowest 10% of income earners, the situation is much more precarious. In 2011, the bottom 10% of households were -9.0% worse off in terms of income than they were pre-crisis. Since then, it hasn’t gotten any better: they now are making -11.6% less income than they were in 2007. Possibly even more concerning is the fact that the amount of Americans living below the poverty line has soared since 2007. There are now 9.4 million more people that can claim to be a part of this unfortunate group, and the total contingent living below the poverty line now makes up 14.8% of all Americans. This is also an increase from the 12.5% figure from before the Great Recession.

    1.5 Million American Families Live on $2 a Day — How the Poorest Get By - If she did not make plasma deposits twice a week at a donation center in Tennessee, Jessica Compton and her family would have no income. If not for a carton of spoiled milk, Modonna and Brianna Harris’ refrigerator would be barren.  The Harris and Compton families’ stories are just two accounts of devastating poverty documented in sociology professors Kathryn J. Edin and H. Luke Shaefer’s book, $2.00 a Day: Living on Almost Nothing in America. The book, released in September, documents the rise of 1.5 million American families, including 3 million children, who subsist on as little as $2 per person per day.  It reads like a Dickens novel. Edin and Shaefer spent years immersed in the lives of financially deprived families, combing through the budgets of welfare recipients and surveys of poor people’s cash flows. Additionally, they set up study sites in diverse locations like metropolitan Chicago and rural Mississippi to find out where and how severe poverty was concentrated. The stories of physical, sexual, and emotional abuse seemed like the norm rather the exception. In a media environment where the experiences of the poor are often neglected, the book’s revelations about the depth and pervasiveness of poverty in the United States have been startling for many—including its two authors. YES! Magazine spoke with co-author H. Luke Shaefer about what poverty truly looks like in America, the stigmas attached to it, and just what can be done to eradicate it. This interview has been lightly edited.

    Fox guest proposes welfare reform: People earning minimum wage ‘shouldn’t be having children’: Conservative welfare reform advocate Seton Motley told Fox News on Monday that instead of raising the minimum wage, the best way to keep people off of welfare was to stop low wage workers from having children. Over the weekend, Mayor Robert MacDonald appeared on Fox & Friends to explain his plan to shame welfare recipients by publishing their name and address.Motley, who is president of Less Government, insisted to Fox News host Steve Doocy on Monday that shame had the power to motivate people. “We know it is because the left has warped and redirected it, and wants to shame taxpayers for not paying enough taxes and for wanting to know what government money is being used to do,” Motley said. “Government does a terrible job of tracking how they spend our money.” “If we publish the welfare recipients, we’ll track it,” Motley continued. “We know there’s widespread welfare abuse. Government doesn’t seem to care to do anything about reining it in. If the American taxpayers who are paying the freight know who’s getting welfare, they can’t keep a better eye on who’s abusing the system, etc. And perhaps we can do some real serious welfare reform.”“The problem is a family of three is not supposed to be living on a minimum wage,” he added. “If you’re making minimum wage, you shouldn’t be having children and trying to raise a family on it.”Watch the video below from Fox News’ Fox & Friends, broadcast Sept. 28, 2015

    Study: Loss of Dairy Farm Immigrant Workers Would Double Retail Milk Prices - A recent dairy labor study found that a reduction of immigrant workers would lead to a doubling of retail milk price, costing the U.S. economy more than $32 billion. The study, commissioned by the National Milk Producers Federation, was conducted by Texas A&M AgriLife Research. The study team consisted of Parr Rosson, head of the department of agricultural economics at Texas A&M University; Flynn Adcock, assistant director of the Center for North American Studies at Texas A&M; and David Anderson, Texas A&M AgriLife Extension Service livestock economist, all in College Station. The report surveyed dairy operations across the U.S. and found one-third employ foreign-born workers, and those farms produced 80 percent of the nation’s milk. A loss of immigrant labor would result in 208,000 fewer jobs nationwide and 77,000 directly on dairy farms. Retail milk prices could top $6.40 a gallon as a result, according to the study. “The findings of the study clearly illustrate the importance of immigrant labor on dairy operations across the U.S. and the impact of their potential loss on consumer retail prices,”

    Refugee Crisis in Syria Raises Fears in South Carolina - The worried citizens gathered in the high school cafeteria, about 200 strong. Patriotic songs played on the stereo, a man in a blue blazer from the John Birch Society hovered by a well-stocked literature table, and Lauren L. Martel, a lawyer from Hilton Head, told the crowd that 25 Syrian refugees were already living among them. “The U.N. calls it ‘refugee resettlement’ — the Muslims call it hijra, migration,” said another speaker, Jim McMillan, a local businessman. “They don’t plan to assimilate, they don’t plan to take on our culture. They plan to change the way of American life.  None of Syria’s four million refugees have been resettled in this part of South Carolina in the last year, according to the State Department. Since May, a Christian nonprofit group, World Relief, has placed 32 refugees in the region, but most of them were Christians fleeing troubled countries like Myanmar and the Democratic Republic of Congo.    Even so, in South Carolina’s Upstate region, as its conservative northwest corner is known, the crisis has divided those who want to welcome new waves of huddled masses from those who question the federal government’s ability to weed out Muslim extremists. Some critics, echoing concerns in towns across the country, fear the newcomers will burden local government agencies or alter the character of their communities. Lynn Isler, a stay-at-home mother, was among those who pushed back. She created a short-lived Facebook page that warned of the “perfect storm that the Syrian refugees will bring.” She has also warned that Communists had infiltrated some elements of the Christian Evangelical movement that supports refugee resettlement.

    Illinois Powerball Winners Won't be Paid Until Budget Stalemate Ends - Illinois Lottery officials say that if an Illinois resident wins the Powerball jackpot, they won’t receive the prize money until there’s a state budget. Earlier, the lottery said it would not pay prize money to anyone who won more than $25,000 during the budget stalemate, saying the Lottery and the Illinois Comptroller didn’t have the legislative authority to pay them. Wednesday’s pot is the third biggest so far in 2015, hitting $301 million. Illinois Lottery’s spokesman Stephen Rossi said that even though the Powerball is a multi-state game, if an Illinois resident wins, the winner won’t be paid until the state’s budget stalemate ends.  State law mandates the Illinois comptroller's office must make payouts larger than $25,000, but they said last month that their hands were tied. “Without a budget, we can’t, by law, make any payments on an appropriated fund without a court order or consent decree or statutory continuing appropriation,” said Rich Carter, press secretary for Illinois Comptroller Leslie Munger’s office.

    Chicago businesses brace for potential doubling of property taxes | Reuters: Chicago Mayor Rahm Emanuel has disclosed that his record property tax hike plan entails significant cuts for nearly 300,000 homeowners, leaving Chicago businesses predicting they will face hikes of up to 50 percent. The second-term mayor last week proposed a $544 million property tax increase, the city's biggest ever, to help fix one of the worst-funded city pension systems in America and vowed “struggling” homeowners, whose residences are worth $250,000 or less, would not see an increase. But details from the mayor’s office on Wednesday showed Emanuel’s definition of “struggling” extends far beyond Chicago’s famed bungalow belt to include nearly 290,000 homes. For the first time, the mayor’s office is saying those homeowners actually would profit from his dramatic city-wide tax increase plan. A new analysis Emanuel’s administration circulated among city aldermen predicted that homeowners living in properties valued at $250,000 or less would experience “little or no increase” from the tax hike and that “most” would see their taxes drop. The owner of such a home would see their tax bill drop by $140, or 3 percent, with the tax cut rising as home values drop. By contrast, the owner of a $500,000 home would see a $195 reduction, or 24 percent drop, in property taxes under the mayor’s plan, his office’s analysis showed.

    Why is the American prison population going up so much? -- Slate has an interesting interview with Leon Nayfakh speaking to John Pfaff, here is the critical excerpt from Pfaff: What appears to happen during this time—the years I look at are 1994 to 2008, just based on the data that’s available—is that the probability that a district attorney files a felony charge against an arrestee goes from about 1 in 3, to 2 in 3. So over the course of the ’90s and 2000s, district attorneys just got much more aggressive in how they filed charges. Defendants who they would not have filed felony charges against before, they now are charging with felonies. I can’t tell you why they’re doing that. No one’s really got an answer to that yet. But it does seem that the number of felony cases filed shoots up very strongly, even as the number of arrests goes down. You will note that district attorneys are relatively politically independent at this level.  And this: But just letting people out of prison—decarcerating drug offenders—will not reduce the prison population by as much as people think. If you released every person in prison on a drug charge today, our state prison population would drop from about 1.5 million to 1.2 million. So we’d still be the world’s largest incarcerating country; we’d still have an enormous prison population.

    The Bipartisan Push To Unwind Mass Incarceration Has A Terribly Long Way To Go: - A new bipartisan overhaul of the criminal justice system would slightly reduce sentences for a small number of prisoners who meet strict criteria laid out in the package. Because it will not eliminate mandatory minimum sentences, as some advocates had hoped, the reform will likely do little to dent mass incarceration in the United States, though advocates are hailing it as a major step in the right direction. The watered-down proposal is the result of compromises needed to win the support of Judiciary Committee Chairman Chuck Grassley (R-Iowa), a longtime hardliner on criminal justice policy, according to one source close to Grassley and another who cosponsored the legislation.  "We didn’t start off in the best of circumstances. Sen. Grassley was very skeptical, and said so publicly," Sen. Dick Durbin (D-Ill.) said Thursday. "There are parts of this bill I would have written a lot differently. There are parts of this bill he would have written a lot differently." "This proposal is a step forward, but I advised groups working on the issue for more than a year that this is the most they will get with the strategy they were using," said one person familiar with Grassley's thinking on the issue. The person argued that without showing Grassley that Iowans had moved on this issue and were being impacted by it, he'd be hard to turn around.

  • Most Americans don’t realize it’s this easy for police to take your cash - Civil asset forfeiture is a controversial but legal practice that allows police to seize cash and property from people without charging them with a crime. If police simply suspect that you acquired something as a result of illegal activity, they can take it from you. If you want to get it back, the onus is on you to prove you got it legally. As you might imagine, a lot of folks are up in arms about this. But reform has been slow. New Mexico and Montana are the only two states that have placed significant limits on the process. A similar effort in California recently died in the state legislature. One possible reason? Most Americans aren't even aware that civil asset forfeiture is happening. According to a recent Huffington Post/YouGov poll, nearly three-quarters of Americans haven't even heard of the term "civil asset forfeiture." So pollsters got around this by asking a specific question: “To the best of your knowledge, when can law enforcement permanently seize money or other property from a person?” Only 30 percent of Americans correctly answered that property could be seized on the basis of suspicion alone. A much larger plurality -- 40 percent -- think that police need a conviction in order to permanently seize goods. But that is not true.

    Girls outnumber boys in juvy, report shows -- Girls now make up a larger share of the juvenile justice population, according to a new study released Friday. The report, “Gender Injustice: System-Level Juvenile Justice Reforms for Girls” by the National Crittenton Foundation and the National Women’s Law Center, said arrests of girls increased by 45 percent over the past two decades, while court caseloads and detentions increased by 40 percent and post-adjudication placement rose by 44 percent. A number of the girls coming through the system were found to have been victims of violence and sexual abuse at home and in their communities. “The traumatic and unhealthy social environments in which many girls live result in behaviors that are criminalized or are mishandled by other systems, resulting in girls’ entry into the juvenile justice system,” the report said. Of the girls in the system, 37 percent were there for technical violations and fighting at home and 21 percent were in for simple assaults. The report said girls are referred to the juvenile justice system most often because another public system has failed, such as child welfare, mental health and education, and that their offenses often pose little or no threat to public safety.

    CPS Announces Special Education Cuts, But Won't Answer Any Questions - — More than 70 special education teachers and aides could lose their jobs in schools across the city under an unprecedented round of budget cuts that could save $12 million, Chicago Public Schools officials announced Friday. Originally, principals were given to the end of the day Monday to appeal the cuts, which sent parents scrambling on social media to figure out if their children's schools would have enough staff to meet the requirements of each student's specialized education plan. Approximately 160 schools would lose special education teachers, while 184 would lose aides, according to the CPS spreadsheet. Facing an outcry, that deadline is now Nov. 2, CPS confirmed.

    Is Rahm looking for a war on special ed? - Our autocrat at City Hall appears bent on dismembering special education in Chicago by a thousand cuts. SpEd took its first major deep cut over the summer eliminating 500 positions at CPS. More cuts announced late Friday mean approximately 160 schools would lose special education teachers, while 184 would lose aides. Rahm has put his bureaucrats and principals on radio silence regarding the latest cuts, says DNAInfo's Heather Cherone. CPS officials declined to answer repeated inquires from DNAinfo Chicago reporters Monday about the formula — apparently based on enrollment figures also released Friday evening — used to make those cuts, and ordered principals not to speak with reporters trying to figure out what the cuts would mean for special education students in neighborhoods throughout Chicago.  Originally, principals were given to the end of the day Monday to appeal the cuts, which sent parents scrambling on social media to figure out if their children's schools would have enough staff to meet the requirements of each student's specialized education plan. The latest round of cuts, coming weeks after the start of the school year, further destabilize the schools (could it get any worse?), expand class size, and disrupt the lives of the system's neediest students and families -- the ones who need stability the most. Principals are outraged. But will more than a courageous few speak out? Doubtful.

    South Dakota drops early American history as a high school requirement: Monday, the South Dakota Board of Education approved new guidelines that do not require high schools to teach [early] U.S. history beginning next year. Some college history professors are against the social studies requirement saying history has the chance to repeat itself if students are not taught early American history. "I don't like it. My name is actually on the college professor's list that opposed them," said Michael Mullin, Augustana history professor. Professor Mullin has been teaching for 27 years. He says students who take a college history course such as 'American History Before 1877' will be overwhelmed.

    Empty school buildings in Flint now magnets for crime and arson --Like a pack of cigarettes or a bottle of whiskey, Johnson Elementary comes with a warning. "Death zone" is crudely scrawled across the side of the building at 5323 Western Road. Just feet away, a drawing of a gun, roughly resembling an assault rifle, cautions visitors to the school that was closed in 2006. The Flint school system and its ground-breaking community schools plan were at one time the national model for growing cities that were being fueled by the boom of American manufacturing and a swelling middle class. Now, Johnson and the the district's roughly two dozen other scuttled school buildings are a reminder of the nation's decaying Rust Belt and a symbol of a city plagued by violence and crime. Flint police and fire have received 2,639 calls for service, or an average of 1.3 calls per day, at the district's closed school buildings and properties left vacant from demolitions from 2010 through the end of the 2014-2015 school year, according to information obtained by The Flint Journal through a Freedom of Information Act request. Many of the calls are for relatively minor situations, such as overgrown grass or suspicious people. But others have helped spring Flint's reputation as a scrapped-out, burned-up city where life has little value and death can come easily.

    Are American schools making inequality worse? - The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association. Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide. Using data from 2012, researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ... "Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," . "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students." In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...

    As Glencore Is Compared to the Fall of Lehman, It Shows Up in Kids’ 529 College Plans -- Stocks were variously spiking and tanking from moment to moment in early morning trade and much of the problem resides in one eight letter word – Glencore. The Switzerland-based industrial metals producer and commodity trading firm has lost over 75 percent of its share value this year, dumping 29 percent of that just yesterday. Two of the major credit ratings agencies, Moody’s and Standard & Poor’s, have stated they may downgrade the debt of the company. Credit markets have effectively made those rating outlooks moot and already started trading the debt as junk. The Lehman Brothers’ analogy is being made by market pundits.  As if all of this weren’t causing enough market angst, yesterday UK investment firm Investec issued a research report on Glencore, suggesting that shareholders could be wiped out if low raw material prices persist.  The report stated: “In effect, debt becomes 100% of enterprise value and the company is solely working to repay debt obligations.” The market has watched the cost of buying Credit Default Swaps (CDS) on Glencore debt jump dramatically and the added worry is just which financial institutions are on the hook to pay on those bets. That same kind of opacity persisted during the Lehman debacle, leading to credit markets seizing up. Against this backdrop, the last place one would expect to find shares of Glencore is in college savings plans known as 529 plans. But according to a report from Morningstar, as of June 30, 2015, six VA CollegeAmerica 529 funds were holding a total of 179 million shares of the American Depository Receipts (ADRs) of Glencore (symbol: GLCNF). While the stakes represent a small percentage of the total assets in each fund, one has to wonder why the shares were not sold as the stock went into a nosedive beginning in December of last year.

    Colleges flush with cash saddle poorest students with debt - New York University is among the country’s wealthiest schools. Backed by its $3.5 billion endowment as well as its considerable fundraising prowess, the school has built campuses in Abu Dhabi and Shanghai financed by foreign governments, is investing billions in SoHo real estate, and given its star faculty loans to buy summer homes.   But the university does less than many other schools when it comes to one thing: helping its poor students. A ProPublica analysis based on new data from the U.S. Department of Education shows that students from low-income families graduate from NYU saddled with huge federal loans. The school’s Pell Grant recipients – students from families that make less than $30,000 a year – owe an average of $23,250 in federal loans after graduation.  That’s more federal loan debt than low-income students take on at for-profit giant University of Phoenix, though NYU graduates have higher earnings and default less on their debt. NYU is not the only university with a billion-dollar endowment to leave its poorest students with heavy debt loads. More than a quarter of the nation’s 60 wealthiest universities leave their low-income students owing an average of more than $20,000 in federal loans.  At the University of Southern California, which has a $4.6 billion endowment, low-income students graduate with slightly more debt than NYU’s graduates: $23,375. At Boston University ($1.5 billion endowment), it’s $27,000, and at Wake Forest University ($1.1 billion endowment) low-income students graduate with $29,150 in debt.  This new data on student debt is drawn from numbers that the Obama administration assembled as part of a planned effort to create grades for every college. In the face of fierce lobbying from universities, the administration backed away, but has made much of the data public on a new website called College Scorecard. ProPublica has used that material to create Debt By Degrees, an interactive database that allows you to search information for almost 7,000 schools. The data provides an unprecedented level of detail on the financial burden that the poorest college students face, showing for the first time how much federal debt poor students take on compared to their wealthier peers, and how well these students are able to repay their loans.

    Stop Universities From Hoarding Money By Requiring Them To Spend 8% Of Endowment Each Year : Last year, Yale paid about $480 million to private equity fund managers as compensation — about $137 million in annual management fees, and another $343 million in performance fees, also known as carried interest — to manage about $8 billion, one-third of Yale’s endowment. In contrast, of the $1 billion the endowment contributed to the university’s operating budget, only $170 million was earmarked for tuition assistance, fellowships and prizes. Private equity fund managers also received more than students at four other endowments I researched: Harvard, the University of Texas, Stanford and Princeton. Endowments are exempt from corporate income tax because universities support the advancement and dissemination of knowledge. But instead of holding down tuition or expanding faculty research, endowments are hoarding money. Private foundations are required to spend at least 5 percent of assets each year. Similarly, we should require universities to spend at least 8 percent of their endowments each year. Despite the success of its endowment, in 2014 Yale charged its students $291 million, net of scholarships, for tuition, room and board. In 2012, Harvard spent about $242 million from its endowment on tuition assistance; in 2014, it paid $362 million in private-equity fees, and nearly $1 billion in total investment management fees. Smaller institutions aren’t any better. The University of San Diego, where I teach, spent about $2 million from the endowment on tuition assistance in 2012, compared with $5 million in private-equity fees in 2014 and $13 million in overall investment management fees. We’ve lost sight of the idea that students, not fund managers, should be the primary beneficiaries of a university’s endowment. The private-equity folks get cash; students take out loans.

    Stop Googling. Let’s Talk. - COLLEGE students tell me they know how to look someone in the eye and type on their phones at the same time, their split attention undetected. They say it’s a skill they mastered in middle school when they wanted to text in class without getting caught. Now they use it when they want to be both with their friends and, as some put it, “elsewhere.”These days, we feel less of a need to hide the fact that we are dividing our attention. In a 2015 study by the Pew Research Center, 89 percent of cellphone owners said they had used their phones during the last social gathering they attended. But they weren’t happy about it; 82 percent of adults felt that the way they used their phones in social settings hurt the conversation.I’ve been studying the psychology of online connectivity for more than 30 years. For the past five, I’ve had a special focus: What has happened to face-to-face conversation in a world where so many people say they would rather text than talk? I’ve looked at families, friendships and romance. I’ve studied schools, universities and workplaces. When college students explain to me how dividing their attention plays out in the dining hall, some refer to a “rule of three.” In a conversation among five or six people at dinner, you have to check that three people are paying attention — heads up — before you give yourself permission to look down at your phone. So conversation proceeds, but with different people having their heads up at different times. The effect is what you would expect: Conversation is kept relatively light, on topics where people feel they can drop in and out.

    NC Senate votes to cut food stamps after GOPer promises it will make lazy people go to college: North Carolina Republican state Senator Norman Sanderson argued last week that reducing food assistance would force people to get a job or pursue higher education. A bill to ban so-called sanctuary cities offered by state House Republicans last week also aimed to cap food stamp benefits at three months for most unemployed adults without children. Even though the Supplemental Assistance Program (SNAP) is paid for with federal dollars, state Republicans argued that people in counties with double-digit unemployment should no longer be eligible to receive assistance after the initial three month period. Democratic state Sen. Angela Bryant offered an amendment on Thursday to overturn the food stamp cuts, saying that there are not enough jobs to go around in rural counties. “Over several sessions here were have reduced funding for job training and education,” Bryant pointed out during floor debate. “So we are basically relegating them, I guess, to steal for food.” Bryant asserted that there were better ways to police the abuse of SNAP benefits, but her amendment was dead in the GOP-controlled Senate. “I think that everybody in this chamber would agree that one of the best things we can do for anyone who has found themselves caught up in the — whether it’s the SNAP program or unemployment or any other of the program that we offer to people who are in emergency situations — one of the best things that we can do is to help them find a job,”

    Oil bust saps U.S. students' enthusiasm for petroleum degrees (Reuters) – Enrollment in U.S. petroleum engineering degree programs fell for the first time in 13 years this fall, as an oil industry slump makes college students wary of entering the boom and bust world of oil and gas. The drop, revealed this week in annual data provided by the country’s 21 petroleum engineering departments and made available to Reuters, is modest – the number of enrollments dipped just 1 percent from a record high of 11,332 hit last year when oil was around $100 a barrel. With oil now at around $45, the 21 departments estimated that enrollments would fall by a further 7 percent next year. Coming after years of steep gains that could mark the start of a long slide similar to one that followed a price slump in the 1980s and continues to leave a hole in the industry’s workforce, some department heads and industry experts said. “The students who haven’t made a long term commitment yet are making a change based on what they are seeing,” said Lloyd Heinze, professor of petroleum engineering at Texas Tech University, who compiled the data. Penn State University will graduate its largest petroleum engineering class ever next year, according to Turgay Ertekin, the head of the university’s department of energy and mineral engineering. But enrollment this year dropped to 782 from 860, and the university estimates it will drop further to 565 in 2016. “Petroleum engineering degrees will lose attractiveness in the years to come,” Ertekin said. “Last time it lasted for 20 years,” he said.

    An interesting read on the emotional fragility of college students today.  I probably would've used a different phrase than 'Buck up,' but the point is well-taken.   Faculty at the meetings noted that students’ emotional fragility has become a serious problem when in comes to grading. Some said they had grown afraid to give low grades for poor performance, because of the subsequent emotional crises they would have to deal with in their offices. Many students, they said, now view a C, or sometimes even a B, as failure, and they interpret such “failure” as the end of the world. Faculty also noted an increased tendency for students to blame them (the faculty) for low grades—they weren’t explicit enough in telling the students just what the test would cover or just what would distinguish a good paper from a bad one. They described an increased tendency to see a poor grade as reason to complain rather than as reason to study more, or more effectively. Much of the discussions had to do with the amount of handholding faculty should do versus the degree to which the response should be something like, “Buck up, this is college.” Does the first response simply play into and perpetuate students’ neediness and unwillingness to take responsibility? Does the second response create the possibility of serious emotional breakdown, or, who knows, maybe even suicide?  As the father of a college student, a high school student and a middle school student, and as a college professor, I see this first hand.  I have seen my own kids panic over getting a low grade (B?) and I have had my own students blame me for their lack of performance.  I'm not pointing fingers as I know this is a collective failure of pre-college teachers failing to prepare students for the independence, personal responsibility and higher expectations for college-level work; of parents for stepping in too quickly to help their children when they are struggling;  and of college professors/instructors for failing to maintain high standards out of fear of student backlash or worse.  

    Map: 16 states have more people in prisons and jails than in college housing - Vox -- In 16 states, there are more people in prisons and jails than in college housing. This map by MetricMaps shows which states (blue) have more people in college housing and which states (red) have more people in correctional facilities: One possible takeaway is that states keeping more inmates in prisons and jails than people in college housing arguably have poor priorities. College is still a great investment, with multiple studies showing higher education significantly increases people's wages and economic output. Mass incarceration in the US long ago hit diminishing returns that make it an ineffective crime-fighting tool; an analysis by the Pew Public Safety Performance Project found that the 10 states that shrank incarceration rates the most over the past five years saw bigger drops in crime than the 10 states where incarceration rates grew the most. But the map doesn't show that there are fewer people in college than in jail and prison. The entire US corrections population, which includes people in jail, prison, parole, and probation, totaled 6.9 million in 2013. In comparison, about 19.5 million people were enrolled for college that same year — but most students live off-campus

    When, Why and How the University of Phoenix Degraded Its Academic Standards -- In 2009, after five years of extraordinary growth in its enrollment, the Apollo Education, the parent company of the University of Phoenix, recognized that the days of booming enrollment in the Associate's degree programs it had launched in September 2004 were about to reverse, in part because the Great Recession, which had helped boost the school's enrollment, was ending.  At the same time, the leadership of the private educational institution realized that far fewer students graduating from its Associate's degree programs were making the transition to the University of Phoenix's Batchelor's degree programs than they had been counting upon. Worse, a much higher than expected number of students enrolled in its Associate's degree programs were failing to complete the program and were dropping out because they were not able to pass its required classes in Algebra.  To address its situation, the Apollo Education Group adopted a two-part strategy. It would:

    1. Restructure its Associate's degree programs to be more closely integrated with its University of Phoenix division, which would help facilitate the transfer of students graduating from the Axia College division it established to launch its Associate's programs to the University of Phoenix' Batchelor's programs.
    2. Degrade its academic standards for passing its Associate's degree program's Algebra classes, which would enable a higher percentage of students enrolled in the program to pass.

    The chart below, in which we've shown the enrollment figures for the University of Phoenix' Batchelor's and Associate's degree programs that we obtained from the Apollo Education Group's SEC filings, shows how that strategy played out.

    Student debt’s subprime problem -- This may sound familiar:

    1. Conventional wisdom says people who own Asset A do better than people who don’t, and that society as a whole would be better off if more people end up owning Asset A
    2. Asset A is expensive, so many people borrow to buy it
    3. Credit constraints limit how many people can buy Asset A
    4. Then, for some reason, lenders become a lot more willing to fund purchases of Asset A, so demand for Asset A goes up a lot
    5. Supply of Asset A isn’t initially big enough to accommodate the extra demand, so prices go up and lots more gets created
    6. All the extra spending temporarily boosts GDP above what it otherwise would have been
    7. Partly because of 1 and 6, regulators take a light-touch approach, which enables (encourages?) lots of fraud
    8. It turns out there were good reasons why credit had previously been constrained, and the new borrowers can’t repay their debts
    9. Credit conditions, prices, and rates of asset ownership eventually return to where they were before but not until after a lot of people suffer losses from the previous credit expansion

    Colleges need skin in the student loan game -- Another college year has begun. Another federal fiscal year is about to begin. The two are linked by the costs to the taxpayers of widespread defaults and other forms of non-payment on the over $1 trillion in federal student loans.  A fundamental flaw in the structure of this high-default government program is the role of the colleges. They are the biggest promoters, pushers, and beneficiaries of student loans. Of course the colleges are cheerleaders for a program which subsidizes them. No matter how high the default rate on these loans goes, they always represent pure cash income to the colleges. Once the colleges get their hands on the cash proceeds of student loans, the repayment performance is no concern of theirs—they merrily transfer that problem and the losses to the taxpayers.  It is apparent that the incentives for colleges are misaligned. The fix is simple:  colleges need some financial skin in the risky student loan game. A reasonable amount of risk sharing would be for each college to pay at least 20% of the losses which its own students impose on the government—leaving the taxpayers with no more than 80%, as opposed to the current 100%.  This sensible, fundamental reform has been proposed in the Congress, notably by Senator Lamar Alexander, Chairman of the Senate Committee on Health, Education, Labor and Pensions. It is certainly worthy of implementation before another college year goes by.

    Attention, New Teachers: Don't Count On Your Pension To Fund Your Retirement - Forbes: Why do public school teachers continue to agree to work towards a pension that they may never see? A report released this month by makes it clear that only one in four new teachers will break even on their pension. They say new teachers in Massachusetts hired after July 1, 2001, will never (never) receive a pension worth more than their own contributions plus interest. The issue is stark, say Chad Aldeman and Richard W. Johnson, authors of “Negative Returns: How State Pensions Shortchange Teachers”: “State pension plans provide little retirement-income security to most teachers with shorter tenures, even many who spend as long as 20 or 25 years teaching in one state.” They set out to find each state’s break-even point. That’s the time that teachers hired at age 25 can collect pensions that are more than the money they contributed, plus interest. They found that new teachers in only two states– Oregon and Utah–have a greater than 50-50 chance of breaking even. There’s less than a 10% chance that new teachers in Delaware, Maine, Mississippi, New Hampshire and Vermont will break even and make more money than they put in plus interest. Massachusetts? Forget it. Faced with tough economic times, states turned to pension plans to find a place to cut the budgets. New teachers were hurt as benefit formulas changed, retirement ages were increased and mandatory contributions were increased.

    Former State Chief Investment Officer Tells CalPERS and CalSTRS to Fire Consultant PCA Over Proposed Fix for Poor Private EquityPerformance  --  Yves Smith -Last week, we described how CalSTRS’ private equity consultant, Pension Consulting Alliance (PCA), made a mind-boggling suggestion as to how to address the fact that CalSTRS’ private equity program performance has undershot its performance targets by large margins over the past ten years: scrap the benchmark. That’s tantamount to telling an overweight person to get rid of their mirrors rather than go on a diet. Mind you, PCA did that with a tad more finesse, telling CalSTRS that it should focus on “absolute returns.” We explained why that is bogus,  As we stressed, the fact that two biggest public pension fund investors in the US that are widely seen as having preferred access to managers and a better selection process than most funds have fallen considerably short of their benchmarks over the past ten, five, three and one years means that private equity is not paying investors enough for the risks involved. It is thus not a sound investment strategy.  At CalSTRS, PCA made clear its intention to move that fund off those pesky benchmarks that are showing private equity to come up short on performance. By contrast, at the August Investment Committee meeting at CalPERS, PCA’s role in moving the goalposts was a tad less obvious.  There, as we recounted, the Chief Investment Officer, Ted Eliopoulos, tried to spin private equity’s persistent failure to meet CalPERS’ benchmarks as acceptable because it “has generated absolute returns in line with our expectations.” Huh? How could it do that when “absolute returns” were never a target? But the joint CalPERS/CalSTRS PCA consultant, Mike Moy, vouched for Eliopoulos’ misrepresentation by saying, “I thought Ted’s synopsis of what’s going on in the private equity space was excellent (starting at 11:48 here). It’s almost certain that PCA reviewed Eliopoulos’ overview in advance.

    The Biggest Reason Workers Don’t Save for Retirement - Why are only about half of American workers saving for retirement through their workplace? According to the Government Accountability Office, it’s largely because their employers do not offer savings plans like a 401(k). Of all the workers who aren’t currently saving through their employer, 68% work for an employer that doesn’t offer a plan and 16% are not eligible to participate in their workplace program. Only 16% could take part but choose not to, a GAO report released today found. The report takes a step toward understanding why workplace retirement saving among American workers isn’t more widespread. It suggests that more people would take part in retirement plans if more plans were offered. That could help more people be better prepared for retirement and avoid relying on government programs. The GAO used data from the 2012 Survey of Income and Program Participation, a U.S. Census survey that tracks households over a period of years. It also had access to tax information from the Internal Revenue Service, which allowed researchers to better track whether households who claim they don’t have retirement savings actually do but are unaware of it. Those who have no retirement plan at work, or who do not participate in it, are more likely to be lower-income, less educated and to work for smaller firms, the GAO found. Roughly 40.3% of workers in the lowest income quartile are offered retirement plans through their employer. Among the highest quartile, 83.9% are.

    Is CalSTRS Enabling Election Fraud? -  Yves Smith - One not-often-enough discussed issue is that elections of public pension fund board members are widely believed to be subject to undue influence by incumbent board members and their important allies, particularly unions. There are credible rumors in California, for instance, of unions pressing candidates who file as challengers to current board members to withdraw.  And that’s before you get to the fact that board member elections are subject to other forms of manipulation. Unlike other elections of public officials, board member elections are conducted by the organization itself. That’s a standard that no election monitor would ever deem to be acceptable.  A reader submitted a Public Records Act request for the election filing of the individual who opposed board member Harry Keiley, who has been on CalSTRS board since 2007, but then withdrew. This from the document that CalSTRS produced (the full form is embedded at the end of the post):  It’s critical to understand that it is a fundamental principle of of public records laws that election petitions are documents that members of the public can review. The underlying reason should be obvious: in the absence of independent oversight, al sorts of mischief can take place.   As troubling is the position CalSTRS has taken: it is above the law, both the Public Records Act and potentially election laws. This is not the sort of conduct that is acceptable for any public body, let alone a fiduciary.

    Feds Will Pay 7.4 Percent More Toward Health Care Premiums in 2016 -  Federal employees and retirees will pay an average of 7.4 percent more toward their health insurance premiums in 2016, the Office of Personnel Management announced Tuesday. Federal Employees Health Benefits Program enrollees with self-only coverage will contribute an average of $5.50 more per paycheck, while those with family coverage will pay about $19.61 more. For the first time ever, FEHBP participants can select the self-plus-one enrollment category. Those enrollees will see an average increase of $8.92 per paycheck -- or 4.9 percent -- over what they paid in 2015, assuming they were previously in the self-and-family category. About 95 percent of self-plus-one enrollees will pay lower premiums than self-and-family participants in enrolled in the same plan. Self-plus-one premiums are lower than self-and-family in every case, but a quirk in the contribution share formula led to some instances in which enrollees with just two people joining a plan would be better off choosing self-and-family. In a conference call on Tuesday, OPM officials encouraged FEHBP participants to check to ensure switching to self-plus-one is in their best interest. Federal employees and retirees’ share of their health care premiums will go up by a higher percentage than the government contribution, which will rise 6 percent. OPM said the government share of premiums “is based on a lower average as enrollees select lower cost plans.” OPM pays about 70 percent of FEHBP participants’ premiums.

    Antioxidants can protect our cells — but antioxidant supplements are generally harmful: ased on commercials for nutritional supplements, or even a trip down the supermarket aisle, you might get the impression that your food just isn’t nutritious enough. Why just stick to eating fruits and veggies when you can get an extra boost from supplements that put good things like antioxidants into a handy pill? And that seems like it should be a good idea. If the antioxidants that occur naturally in our food, like broccoli and carrots, are good for us, a supplement with the same thing must also be good. But that’s not quite true. Antioxidants are touted as protectors of our health because they eliminate free-radicals that damage molecules in cells and tissues by grabbing electrons from them, making those molecules, in turn, unstable. This process can then snowball until a cell dies or even a whole organ collapses, such as in liver failure or heart failure. An antioxidant should stop the electron-grabbing radicals, and keep us healthy. On this basis, a group of scientists proposed in 1981 the creation of a nutritional supplement to fight free-radicals. They reasoned that since many observational epidemiological studies had shown that people who eat lots of vegetables are at lower risk of colon cancer, heart disease and many other bad conditions, then the “active” ingredient should be identified and put into a pill. They thought that it must be beta-carotene, which helps make carrots orange, because it’s an antioxidant. But it’s not that simple. The constant interplay between electron acceptors (radicals) and donors (antioxidants) is a finely balanced and very complicated biochemistry at the core of how living cells survive and grow. When there is too much of either acceptors or donors, the system is out of balance, and damage can occur. So extra antioxidants aren’t necessarily a good thing.

    Drug Shortages, Price Gouging, And Our Broken Health Care System -- The shaming campaign that followed last week’s news of two generic drug prices somersaulting into the stratosphere after being acquired by private companies is not too surprising. The idea that a drug which cost $13.50 one day can cost $750 the next, seemingly on the whim of greedy Wall Street investors and pharma start-ups, is fodder for the outrage machine. But what the outrage machine does not realize is the extent to which the generic healthcare supplies are constantly on the brink of shortage. Every week I get a “drug shortage report” by email from my hospital. It lists the various items in short supply. Some drugs (for the most part generic ones) may even be absent from the shelves. And every week, the email also reminds me that there is a national shortage of normal saline. Normal saline, for heaven’s sake! What’s going on? Is our productive capacity in such a shamble that we can’t have the wherewithal to mix sterile salt and water and put it into a bag? Let’s go back to the basics. Remember that in order for any product to be available in a sustainable way, there must be a supplier willing to make it and a buyer willing to pay for it at the price the supplier expects. Multiple buyers bid the price up, multiple suppliers bid it down.  It seems that for something as commodified as normal saline, making plenty of it should not be too much of a problem. After all, there is no shortage of #2 pencils, even if the profit margin on pencils is minuscule. Welcome to our glorious world of regulated health economics. On the buyer side, you have hospital administrators which have been trained to operate under the reality of fixed payments and onerous oversights. Every expense is a cost that cannot be passed on to the ultimate “consumer” of the good. Therefore, the lower the price of supplies, the better. On the supply side, the regulatory apparatus overseeing the making of medical products is not known for its flexibility.  Manufacturers must follow rules which have no regard for market realities and for how much the intended customer will be willing to spend for the product. For something like normal saline, profit margins become dangerously thin and may even be negative.

    U.S. drug company sues Canada for trying to lower cost of $700K-a-year drug - A U.S. drug company is taking the Canadian government to court for its attempt to lower the price of what has been called the world's most expensive drug. Alexion Pharmaceuticals has filed a motion in Federal Court, arguing that Canada's drug price watchdog has no authority to force the company to lower its price for Soliris.  The company says in the court documents that the price of Soliris has not changed since it went on the market about six years ago and that the price difference between the two countries reflects the difference in exchange rates between the U.S. and Canada. The medication is approved to treat two rare blood diseases that affect about one in every one million people. A 12-month treatment costs about $700,000 in Canada, while in the U.S. it costs about $669,000.  Both diseases — paroxysmal nocturnal hemoglobinuria (PNH) and atypical haemolytic uremic syndrome (AHUS) — prompt the immune system to kill red blood cells, causing anemia, blood clots, organ failure and, eventually, death. While Soliris is not a cure, it can stop the assault on the body's tissues and organs. Since patients typically need to take the medication indefinitely, it can cost tens of millions of dollars over a lifetime. Due to the high cost, some patients in Canada can't get the drug. Only some provinces will cover the cost of treatment and there are different criteria to qualify for coverage in various jurisdictions. Soliris is the only drug Alexion produces, but it's earned the firm revenues of more than $6 billion over eight years. Canada's Patented Medicine Prices Review Board is challenging the cost of the drug, saying the price could be considered excessive and that it costs more.

    Cancer Drug Mark-Ups: Year Of Gleevec Costs $159 To Make But Sells For $106K - The rocketing cost of prescription drugs garners almost daily attention lately. Polls say it’s high on the list of Americans’ health care worries; presidential candidates are calling for sweeping reform; a storm erupts when one company jacks up the price of an HIV drug by 5,000 percent. And now, research reveals the yawning gap between the price of widely used cancer drugs and their actual cost. The true cost — what drug makers have to spend to get those pills to your local pharmacy — is made up of the active ingredient and other chemicals, their formulation into a pill, packaging, shipping and a profit margin. British researchers, in a report to be delivered this weekend at a European cancer conference, say the price of five common cancer drugs is more than 600 times higher than they cost to make.  For instance, the analysis figures the true cost of a year’s supply of Gleevec (generic name imatinib), used to treat certain kinds of leukemia, at $159.  But the yearly price tag for Gleevec is $106,322 in the U.S. and $31,867 in the U.K. A generic version costs about $8,000 in Brazil.

    GlaxoSmithKline fined $3bn after bribing doctors to increase drugs sales - The pharmaceutical group GlaxoSmithKline has been fined $3bn (£1.9bn) after admitting bribing doctors and encouraging the prescription of unsuitable antidepressants to children. Glaxo is also expected to admit failing to report safety problems with the diabetes drug Avandia in a district court in Boston on Thursday. The company encouraged sales reps in the US to mis-sell three drugs to doctors and lavished hospitality and kickbacks on those who agreed to write extra prescriptions, including trips to resorts in Bermuda, Jamaica and California. The company admitted corporate misconduct over the antidepressants Paxil and Wellbutrin and asthma drug Advair. Psychiatrists and their partners were flown to five-star hotels, on all-expenses-paid trips where speakers, paid up to $2,500 to attend, gave presentations on the drugs. They could enjoy diving, golf, fishing and other extra activities arranged by the company. GSK also paid for articles on its drugs to appear in medical journals and "independent" doctors were hired by the company to promote the treatments, according to court documents. Paxil – which was only approved for adults – was promoted as suitable for children and teenagers by the company despite trials that showed it was ineffective, according to prosecutors. Children and teenagers are only treated with antidepressants in exceptional circumstances due to an increased risk of suicide.

    Hip implant maker claims surgical funder inflated patients’ bills - A unit of Johnson & Johnson that makes artificial hips has accused a surgical funding company of seeking excessive profits from financing surgery for patients suing over the devices. The claim by DePuy Orthopaedics marks the first time that a device maker in the multibillion-dollar litigation over faulty hip replacements has publicly raised concerns about the controversial business of surgical funding, which has increasingly become a part of mass litigation over medical devices. Surgical funders essentially invest in operations on injured plaintiffs. If a litigant can’t afford surgery to correct problems allegedly caused by medical devices, the funders will step in to purchase medical bills at a deep discount from physicians, hospitals and others who have provided care to the patient. When the patient's lawsuit settles, the funder reaps a profit by placing a lien on the settlement for the full amount of the patient's surgical bill. Following a Reuters report about the role of Texas-based medical funder Medstar in pelvic mesh litigation, DePuy Orthopaedics has raised new questions about Medstar in litigation over its all-metal ASR hip implants. In an Aug. 31 filing in federal court in Toledo, Ohio, the defendant asked the court to compel MedStar to turn over more information about the liens, so it can investigate whether the funder schemed to “artificially inflate damages claims."

    Monsanto Sued by Farm Workers Claiming Roundup Caused Their Cancers --Two separate U.S. agricultural workers have slapped lawsuits against Monsanto, alleging that Roundup—the agribusiness giant’s flagship herbicide—caused their cancers, and that the company “falsified data” and “led a prolonged campaign of misinformation” to convince the public, farm workers and government agencies about the safety of the product. The first suit, Enrique Rubio v. Monsanto Company, comes from Enrique Rubio, a 58-year-old former field worker who worked in California, Texas and Oregon. According to Reuters, he was diagnosed with bone cancer in 1995, and believes it stemmed from exposure to Monsanto’s widely popular weedkiller and other pesticides that he sprayed on cucumber, onion and other vegetable crops. Rubio’s case was filed in U.S. District Court in Los Angeles on Sept. 22. That same day, a similar lawsuit, Fitzgerald v. Monsanto Company, was filed in federal court in New York by 64-year-old Judi Fitzgerald, who was diagnosed with leukemia in 2012. She claims that her exposure to Roundup at the horticultural products company she worked for in the 1990s led to her diagnosis. The plaintiffs have accused the company of falsifying the safety of the product and putting people at risk. Fitzgerald’s suit states:“Monsanto assured the public that Roundup was harmless. In order to prove this, Monsanto championed falsified data and attacked legitimate studies that revealed its dangers. Monsanto led a prolonged campaign of misinformation to convince government agencies, farmers and the general population that Roundup was safe.”

    Wales and Bulgaria Latest to Join Massive EU Wave of GMO Bans - Like falling dominoes, more and more European Union countries have decided to stamp out the growth of genetically modified (GMO) crops within their borders. According to Greenpeace, as the Oct. 3 deadline to notify the European Commission approaches, at least 14 European Union countries and three regions—which represent 65 percent of the EU’s population and 66 percent of its arable land—are in the process of banning the cultivation of GMO crops in its territories. As of today, Austria, Croatia, France, Greece, Hungary, Latvia, Lithuania, the Netherlands and Poland as well as one regional administration (Wallonia, in Belgium) have formally notified the commission of their intention to ban GMO crop cultivation, Greenpeace said. There are impending notifications from Bulgaria, Denmark, Germany, Italy and Slovenia, as well as and three regional administrations—Scotland, Wales and Northern Ireland in the UK, Greenpeace noted. These governments have chosen the “opt-out” clause of a European Commission rule passed in March that allows its 28-member bloc to abstain from growing GMO crops, even if they are already authorized to be grown within the union. Wales and Bulgaria were the most recent to join the growing ranks.

    Europe Standing Tall Against Monsanto -- What’s happening in Europe is interesting. A solid bloc comprising the great majority of Europe’s people and arable land is taking official action to block GMO cultivation under the new EU rules which were designed to be more industry-friendly than the previous ad hoc system. But, evidently contrary to the cartel’s expectations, Europe is reacting with alacrity. If anything, the people and governments of Europe seem even more motivated today to repel the GMO invasion than they previously were, even as the EU relaxes its already farcical assessment and approval procedures.  From any point of view Europe’s rejection of GMO cultivation is the rational choice. Europe’s non-GM conventional agriculture is more productive than the GM-dominated agriculture of the US and Canada, and the gap is widening. Similarly, Europe’s pesticide use continues to decline while that of the US continues to skyrocket. GMOs yield less and require greatly more pesticide, fertilizer, and irrigation. Europe’s campaign may bode well for its resolve to reject the TTIP and CETA globalization pacts, which in the long run would render all this for naught. The goal of these compacts is to eradicate all popular democracy and national sovereignty and impose direct corporate dictatorship. There seems to be little hope of stopping the TTIP from this side of the pond, but the nations of Europe are certainly capable of rejecting it. Right now Europe has a great agricultural advantage over the North American Babylon, from the point of view of the great transformation which will soon be necessary as well as from today’s mainstream marketing point of view. Why throw this away? On the European side, the TTIP makes sense only from the point of view of a few big corporate sectors and the Commission bureaucracy. It would be a pure disaster from the point of view of anyone else, an abject submission to US corporate power. Here’s to the prospect that Europe’s broad-based rejection of GMOs is a preliminary to its rejection of corporate globalization’s last, greatest gambit.

    EPA Acts To Mitigate 44 To 73 Percent Of Acute Pesticide Incidents In Farmworkers - The Environmental Protection Agency (EPA) took a major step this week to protect the thousands of U.S. agricultural workers who are exposed to pesticides every year, many of whom suffer from chronic health effects years after they stop working in the fields.  EPA officials announced that the agency will help mitigate pesticide exposure by updating a two-decade old regulation known as the Worker Protection Standard (WPS).  The finalized revision of the WPS includes increased mandatory training sessions to inform farmworkers on the protections their employers are required to offer them; expanded training to teach workers how to reduce “take-home exposure;” new anti-retaliatory provisions to protect whistleblowers who raise concerns; and “no-entry” application-exclusion zones up to 100 feet surrounding pesticide application equipment to protect workers from pesticide overspray. And, for the first time ever, the revision bars minors under 18 from handling pesticides.  The regulation, which will be phased in over the next two years, will affect agricultural workers and pesticide handlers who work on farms and in forests, nurseries, and greenhouses. Livestock workers are not covered. Once fully implemented, the revised regulation is expected to “avoid or mitigate approximately 44 to 73 percent of annual reported acute WPS-related pesticide incidents,” according to the EPA.

    Run-off from farms cause of high bacteria level in river - - A local river, with a history of pollution, has E. coli levels so high, residents are being warned not to even touch it.  Markus Cheatham, a health officer for the Mid-Michigan district health department said the levels are as high as they ever find. But why is the Pine River in Gratiot County so dangerous? Cheatham said they've tested the DNA of the bacteria in the river and think they have the answer. “And it's about 80 percent cattle. Agriculture is really booming in Mid-Michigan,” Cheatham said. “We're putting more and more animals on the land than ever before, and that manure has to go somewhere. It's going in our rivers.” Runoff from an increased number of farms in the area is mostly to blame, but that still leaves the other 20 percent of bacteria. This is where things get really gross: it's human feces. “We put a lot of septic tanks in the ground a generation ago, and they're getting old now,” Cheatham said. “Some of them are starting to fail. So we have an aging infrastructure problem.” And the muck and bacteria in the river continue to grow with time. Cheatham said fixing the problems with the lake will take years, both in regulating animal waste, and cleaning up the old septic tanks.

    Area doctors urge seniors, children, pregnant women to stop drinking Flint water now — Today at Hurley Medical Center, doctors warned the public that lead levels in Flint water are too high and many residents should stop drinking it immediately. Hurley did their own study of Flint water. They have advised senior citizens, children, and pregnant women to stop drinking Flint water right now or they could face irreversible damage. This damage could include memory loss or lowered IQ. They found double the acceptable amount of lead in Flint water. They tested the specific zip codes done in the recent Virginia Tech study and found excessive blood lead levels in children and babies. This will affect them not only now, but for decades to come, doctors say. They are advising people to use lead filters. The head of the Genesee County Health Department, Mark Valacak, said that just looking at children won't identify any of the issues. A blood test is the only way to know for certain.

    U.S. drinking water imperiled by failing infrastructure – $384 billion over 20 years needed to maintain existing systems – ‘The future is getting a little dark for something as basic and fundamental as water’ (AP) – Deep inside a complex of huge tanks, drinking water for Iowa's capital city is constantly cleansed of the harmful nitrates that come from the state's famously rich farmland.   But after decades of ceaseless service, Des Moines Water Works is confronting an array of problems: Water mains are cracking open hundreds of times every year. Rivers that provide its water are more polluted than ever. And the city doesn't know how it will afford a $150 million treatment plant at a time when revenues are down and maintenance costs are up? "We're reaching the end of the life cycle of some of the most critical assets we've got," said Bill Stowe, CEO and general manager of the utility, which has a downtown treatment plant that was built in the 1940s, long before nitrates, which can harm infants, became a pressing concern. He said the industry is getting "all kinds of these warning alarms that we haven't heard before." A similar crisis is unfolding in cities across the country. After decades of keeping water rates low and deferring maintenance, scores of drinking water systems built around the time of World War II and earlier are in need of replacement. The costs to rebuild will be staggering. The costs of inaction are already piling up. The challenge is deepened by drought conditions in some regions and government mandates to remove more contaminants.  At stake is the continued availability of clean, cheap drinking water — a public health achievement that has fueled the nation's growth for generations and that most Americans take for granted.

    If there is liquid water on Mars, no one—not even NASA—can get anywhere near it --NASA claims to have found evidence of liquid water on Mars. If true, you’d expect the US government to scramble to set up a new mission to test the claim. After all, discovering that Mars has life or even that in can support life will be one of the greatest discoveries ever. But that won’t happen so quick. NASA’s press statement makes it seem that scientists have certain evidence of flowing water. They do not. What they have is chemical evidence that gives a strong suggestion of liquid water mixed with salts. More importantly, however, even if NASA was 100% certain that there is liquid water on Mars, it could not do anything about it. The world’s space powers are bound by rules agreed to under the 1967 Outer Space Treaty that forbid anyone from sending a mission, robot or human, close to a water source in the fear of contaminating it with life from Earth.Terrestrial life has been shown to be very resilient. Microbes are found in almost every nook and cranny of this planet, even the driest and hottest parts. Earth’s microbes survived nearly two years stuck on the outside of the International Space Station. All probes that land on Mars are cleaned to be sterilized of life but no one yet knows how strict you need to be to ensure that bacterial life cannot form viable, self-sustaining colonies on Mars.

    The EPA Is Set To Issue Rule Curbing A Dangerous Form Of Air Pollution - The United States is set to get a new rule on a dangerous form of air pollution this week. The Environmental Protection Agency is scheduled to release its final rule on ozone levels by October 1, a regulation that will seek to reduce the amount of ozone in the air. Ozone is the main ingredient in smog and is created when nitrogen oxides and volatile organic compounds — both of which can come from car exhaust, gasoline, and power plants — interact with sunlight. Right now, the EPA’s standard for ground-level ozone is set at 75 parts per billion (ppb). Last year, the agency proposed to lower this standard of acceptable ozone levels to somewhere between 65 and 70 ppb.  The EPA’s Clean Air Scientific Advisory Committee, a group of scientists that advise the agency, said in a letter last year that setting the standard below 70 ppb — and, ideally, as low as 60 ppb — would be the best move the agency could make for public health. Breathing in ozone can contribute to a range of health impacts, including, according to the letter, “decrease in lung function, increase in respiratory symptoms, and increase in airway inflammation.”  The EPA itself said in 2010 that a standard of 60 ppb would help prevent 4,000 to 12,000 premature deaths and 21,000 hospital visits. It would also reduce the number of missed school and work days by 2.5 million. Ozone affects children, the elderly, and people with asthma most of all, but the current standard of 75 ppb leads to impacts for healthy adults who spend a significant chunk of their time outside as well.

    Air pollution and traffic linked to deaths and organ rejection in lung transplant patients - Researchers have shown for the first time that lung transplant patients in Europe who live on or near busy roads with high levels of air pollution are more likely to die or to experience chronic organ rejection, than those living in less polluted areas.  Dr David Ruttens, from the University of Leuven (Belgium) told the European Respiratory Society's International Congress today (29 September, 2015) that the risk of dying increased by 10% for patients living in an area where air pollution was above World Health Organization (WHO) recommended maximum levels, compared with patients living in areas with lower levels of pollution. However, this increased risk was not seen in lung transplant patients who were taking a class of antibiotics called macrolides, which include azithromycin and clarithromycin. WHO estimates that 3.7 million people worldwide die prematurely every year as a result of exposure to small particulate matter measuring between 2.5-10 micrometers in diameter (known as PM10). Ten micrometers is less than the width of a human hair, and PM10 particles tend to be dust particles stirred up by vehicles on roads and some grinding operations. WHO recommends PM10 particles should not exceed 20 micrograms per cubic metre in the atmosphere  Dr Ruttens said: "Short and long-term exposure to air pollution has been linked to an increase in deaths from respiratory diseases, particularly among vulnerable populations. Lung transplant patients are among the most vulnerable because they have weakened immune systems due to the immunosuppressive drugs they have to take to prevent organ rejection."

    Ohio Sen. Sherrod Brown lauds proposed 'Black Lung' legislation — In a quest to get benefits for coal miners who suffer from Black Lung Disease, U.S. Sen. Sherrod Brown said he has helped introduced legislation that would cut what he calls a claims backlog and prevent the denial of miners’ black lung benefits. In a conference call Wednesday with Ohio and West Virginia news organizations, Brown (D-Ohio) says Black Lung Disease is occurring at “record high levels.” As a result, he said coal companies have been making it increasingly difficult for many coal miners in Ohio and West Virginia to obtain the proper benefits. “We need to do all we can to ensure that our miners receive the benefits they deserve,” he said. Brown was joined on the conference call by Babe Erdos, a retired third-generation miner from Belmont County in eastern Ohio who discussed how Brown’s bill will make it easier for mine workers to secure the benefits. “Ohio coal miners have already risked their health far too often to put food on their families’ tables,” he said. “They shouldn’t have to navigate a system dominated by red tape and corporate lawyers to get the benefits they’ve earned. That’s why I’m fighting to pass the Black Lung Benefits Improvements Act — to ensure our miners receive the benefits they deserve.”

    New global data suggests air pollution kills 10 million people per year - It’s difficult to know how pollution will affect an individual's health. Existing air quality guidelines, which range from national regulatory policies to those of the World Health Organization, are often based on exposure response functions that focus on the mass of the particles. But this measurement doesn’t account for differences in toxicity based on chemical differences—evidence suggests that chemical composition of pollutants dramatically influences their toxicity. As a result, it was hard to estimate the overall effects on mortality rates. The researchers behind the new work were particularly concerned with the enhanced toxicity of carbon-containing (carbonaceous) fine particulate matter. They tested versions of their model that assumed carbon-containing particles were five times more toxic than inorganic particles. All particles, regardless of their chemistry, were also assigned the health impacts we know are caused by fine particulate matter. The authors estimate that the effects of particle pollutants killed 3.15 million individuals in 2010, with strokes (cerebrovascular disease) and heart attacks (ischemic heart disease) contributing most heavily. Analysis of ozone related mortality revealed a total estimate of 3.30 million people dying prematurely in 2010. An additional 3.54 million deaths per year are attributed to indoor air pollution caused by the use of solid fuels such as coal.

    If it's October, it's ozone - Today is the deadline for EPA to finalize its new ozone standard, and in a video published to YouTube yesterday, the agency promised that it would indeed lower the standard from its present level of 75 parts per billion, though it did not specify by how much. The administration is widely expected to set a standard of 70 parts per billion, a five-point drop from the Bush-era 2008 standard, but a far cry from what environmentalists and public health advocates sought. That’s at the high end of EPA’s proposed range of 65-70 ppb. A standard of 70 ppb isn’t going to truly please either side. Environmentalists indicated this week that they are likely to sue EPA if that's the number.. Industry sources have remained mum on the prospect of litigation, explaining that they want to see the final product first. Greens haven’t fully trusted President Barack Obama on the ozone standard since 2011, when he pulled the plug on a reconsideration of the Bush-era rule. Obama told business leaders last month that he is simply following the law, which requires EPA to revisit the ozone standard every five years (though not necessarily to change it). That distancing hasn’t given greens much hope of the strongest standard this time around, and they note that this rule has fallen a bit outside the administration’s higher-profile climate change agenda.  Public health groups want 60 ppb, but the standard used to be a lot higher. Jimmy Carter actually raised the ozone standard from 80 ppb to 120 ppb in 1979. Bill Clinton returned it to 80 ppb in 1997, and seven years ago the Bush administration shaved it down to 75 ppb.

    EPA to Set Stricter Emission Standards for Oil Refineries: The Environmental Protection Agency announced new rules Tuesday to reduce toxic air pollution from oil refineries by forcing operators to adopt new technology that better monitors and controls emissions.The rules will require for the first time that refineries install air monitors along “fence lines” where pollution enters neighboring communities. The monitors will measure levels of benzene and other dangerous pollutants. Corrective action will be required if levels exceed established limits.EPA Administrator Gina McCarthy said the rules would protect the health of more than 6 million people who live within 3 miles of a refinery. The rules will serve as a kind of “neighborhood watch for toxic pollutants” near the nation’s 140 petroleum refineries, including dozens across the coasts of Texas, Louisiana, Mississippi and Alabama, McCarthy said. Refineries also are located near major cities such as Los Angeles, Philadelphia, New York and Chicago.McCarthy called the rules a demonstration of the Obama administration’s commitment to “environmental justice,” noting that many people who live near refineries are poor, including a large percentage who are members of minority groups.Announcement of the long-delayed refinery rule came as the EPA prepared to set new limits on smog-forming pollution linked to asthma and respiratory illness.Facing a court-ordered deadline, the EPA is expected to act by Thursday to set a new ozone standard. Officials are expected to set a limit of 70 parts per billion or less in the atmosphere, down from the existing standard of 75.

    This summer’s El Niño looks set to bring more heatwaves to Australia’s north and east --The 2015 El Niño is well and truly here. Heat is building in the equatorial Pacific Ocean; subsurface temperatures in the middle of the affected region are more than 6C above average, and the ocean’s surface is warming up too. In terms of its strength, the current El Niño is comparable with the globally infamous 1997-98 event and is not showing signs of decaying until at least early next year. El Niños tend to bring drier, hotter conditions to a large part of Australia. But does that also signal an increase in heatwaves? And if so, where? In a recent study published in the Journal of Geophysical Research, my colleagues and I examined this question. We looked at whether the strength of the El Niño/Southern Oscillation (ENSO) phenomenon could predict the seasonal number of heatwave days, the duration and strength of the biggest heatwaves, and the timing of the start of heatwave season. Our results showed that strong El Niños do indeed bring more heatwaves to much of eastern and northern Australia. But the pattern is not the same over the whole country and ENSO is not the only natural culprit in influencing heatwaves. In fact, the story can be quite different depending on where you are - and on what characteristic of a heatwave worries you most.

    El Niño: Effects on 2015 Grain Production - According to reports from the Climate Prediction Center, there is a greater than 90 per cent probability that the current El Niño will continue until the end of the year, and 85 per cent probability that it will persist into early next year. In Central America, the phenomenon has caused severe droughts in the dry corridor, which should have received rains since May, seriously impacting agricultural and livestock production in the area and threatening the food security of 2.5 million people, reports the International Food Policy Research Institute (IFPRI). The most recent report from FEWS NET explains the damages and losses in the first harvest. It is estimated that El Salvador has lost 64 per cent of corn area planted and 82 per cent of the area in beans.  In Honduras, the estimated loss was 94 per cent of the area in corn and 97 per cent of the area in beans. In Guatemala, the estimated losses were between 75 and 100 per cent of the first harvest for subsistence farmers in the eastern and western part of the dry corridor. Authorities in the affected countries have been deploying humanitarian aid to those affected by this climatic catastrophe. For example, on June 5th, Costa Rica’s Ministry of Agriculture and Livestock began delivery of livestock feed to approximately 4,000 livestock producers in the Guanacaste province.Similarly, the government of Honduras has begun implementing the “Food Security Plan of Action for Drought” with an allocation of 100 million lempiras to provide food assistance to 161,403 households.

    Record El Niño set to cause hunger for 10 million poorest, Oxfam warns - At least 10 million of the world’s poorest people are set to go hungry this year because of failing crops caused by one of the strongest El Niño climatic events on record, Oxfam has warned.The charity said several countries were already facing a “major emergency”, such as Ethiopia, where 4.5 million are in need of food aid because of a prolonged scarcity of rain this year. Floods, followed by drought, have slashed Malawi’s maize production by more than a quarter, farmers in central America have suffered from two years of drought and El Niño conditions have already reduced the Asian monsoon over India, potentially triggering a wider drought across the east of the continent. Indonesia’s government has declared drought in 34 of the country’s provinces because of El Niño, while 2 million people in Papua New Guinea have been affected by crops shrivelling in heat in some parts of the country and severe frosts in its highlands. El Niño is a periodic climatic phenomenon where waters of the eastern tropical Pacific warm, triggering a range of potential consequences for global weather. While parts of South America are typically doused in heavy rainfall, warmer, drought-like conditions are experienced in Australia, south-east Asia and southern Africa. The UK Met Office has predicted this year’s El Niño could be the strongest on record since 1950, warning that famine could grip west Africa.

    Nation nears wildfire record with more than 9 million acres burned – All of the top years for acres burned have occurred since 2000: – The amount of land burned by wildfires in the U.S. this year has surpassed 9 million acres, according to data released Thursday by the National Interagency Fire Center. This is only the fourth time on record the country has reached the 9 million-acre mark, center spokesman Randall Eardley said in an e-mail. The area burned is roughly equivalent to the size of New Jersey and Connecticut combined. All of the top years for acres burned have occurred since 2000, Eardley said. The worst year occurred in 2006, with 9.8 million acres. In 2007 and 2012, 9.3 million acres were burned, he said. If another 800,000 acres are burned this year, an all-time record would be set. Accurate wildfire records go back to 1960. Prior to 2000, the U.S. surpassed 7 million acres only one time — in 1963. "The year 2000 seems to have been a turning point in the number of acres we've seen burned," Eardley said. This year's fire season has been unusually severe in the Northwest. Wildfires there destroyed dozens of homes and forced hundreds of residents to evacuate, sometimes for weeks on end. The season also included the largest fire in the history of Washington state, the Okanogan Complex fire, which killed three firefighters. Devastating fires in California have killed at least 7 people this month, CalFire, the state firefighting agency, reported.

    One-Two Punch of Rising Seas, Bigger Storms May Greatly Magnify U.S. East Coast Floods --Many studies predict that future sea-level rise along the U.S. Atlantic and Gulf coasts will increase flooding. Others suggest that the human-caused warming driving this rise will also boost the intensity and frequency of big coastal storms. Up to now, though, these two hazards have been assessed mostly in isolation from each other. Now, a new study quantifies how they could interact to produce alarming spikes in the combined height and duration of flooding. It projects that coastal flooding could possibly shoot up several hundredfold by 2100, from the Northeast to Texas. The study appears this week in the journal Nature Climate Change.  Over the past century, the East Coast has seen sea-level rise far above the 8-inch global average—up to a foot in much of the Mid-Atlantic and Northeast, including New York City. Global rise is being driven mainly by melting of ice and expansion of seawater as the ocean warms. In this region, sinking land and currents that chronically drive water coastward have worsened matters. Most projections call for a further 2- to 4-foot rise by 2100; some go as high as 6 feet. At the same time, separate studies suggest that the intensity of the biggest storms generated in the North Atlantic may increase, because warmer waters contain more energy. The new study shows how the two factors may work together. The authors analyzed 15 climate models at five locations:  Atlantic City, N.J.; Charleston, S.C.; Key West, Fla.; Pensacola, Fla.; and Galveston, Tex. Even the reduced-emissions calculations suggest a 4- to 75-fold increase in the flood index—that is, the combined heights and durations of expected floods—across the five locations. With business as usual, the flood index might go up 35 to 350 times.

    Surface of the oceans affects climate more than thought: First detected abiotic source of isoprene -- ScienceDaily: The oceans seem to produce significantly more isoprene, and consequently affect stronger the climate than previously thought. This emerges from a study by the Institute of Catalysis and Environment in Lyon (IRCELYON, CNRS / University Lyon 1) and the Leibniz Institute for Tropospheric Research (TROPOS), which had studied samples of the surface film in the laboratory. The results underline the global significance of the chemical processes at the border between ocean and atmosphere, write the researchers in the journal Environmental Science & Technology.  Isoprene is a gas that is formed by both the vegetation and the oceans. It is very important for the climate because this gas can form particles that can become clouds and then later affect temperature and precipitation. Previously it was assumed that isoprene is primarily caused by biological processes from plankton in the sea water. The atmospheric chemists from France and Germany, however, could now show that isoprene could also be formed without biological sources in surface film of the oceans by sunlight and so explain the large discrepancy between field measurements and models. The new identified photochemical reaction is therefore important to improve the climate models. The oceans not only take up heat and carbon dioxide from the atmosphere, they are also sources of various gaseous compounds, thereby affecting the global climate. A key role is played by the so-called surface microlayer (SML), especially at low wind speed. In these few micrometers thin layer different organic substances such as dissolved organic matter, fat and amino acids, proteins, lipids are accumulating as well as trace metals, dust and microorganisms.

    Report: Plastic Pollution in the Ocean Is Reaching Crisis Levels -- There are 5.25 trillion pieces of plastic trash in the world’s oceans, and each year, 8 million tons of plastic are added to the count. That’s equivalent to one municipal garbage truck pulling up to the beach and dumping its contents every minute. Though the oceans seem vast enough to stomach a lot of plastic, the level of waste is starting to reach a crisis point: According to a new report by the Ocean Conservancy, in partnership with the McKinsey Center for Business and Environment, by 2025, the ocean could contain one ton of plastic for every three tons of finfish.All these floating bits of plastic–from micron-sized plastic pieces to those six-pack can rings–not only disrupt marine ecosystems, but they also poison the global supply of seafood. “It’s reaching crisis proportions,” says Andreas Merkl, CEO of the Ocean Conservancy. “Plastic breaks down into small pieces that look like plankton and is eaten by everyone from plankton to whales.” Plastic acts as a pollution sponge in the ocean, so when wildlife ingest pieces, the plastic might as well be a poison pill.The new report calls for a focus on improving waste management systems in a handful of developing countries that are most responsible for the plastic leakage into the ocean. China, Indonesia, the Philippines, Thailand and Vietnam contribute more than half of the oceans’ plastic since their waste infrastructure hasn’t kept up with rapid industrialization. “We can concentrate on the places where the plastic is hitting the ocean,” Merkl says. “Five countries would solve half the problem.”On average, only about 40% of waste in these countries is actually picked up for disposal. But it’s not just uncollected waste floating around–though that is three-fourths of the problem. The other quarter of the oceans’ plastic came from post-collection activities. Even when a waste management company picks up waste to landfill it, poorly insulated landfills or illegal dumping mean that trash still ends up in the ocean.

    Endangered Fur Seals Dying at Alarming Rate Along California Coast  - The threatened Guadalupe fur seal is getting stranded on California’s coastline in record numbers, according to the National Oceanic and Atmospheric Administration (NOAA). The marine mammals typically spend their time off Mexico’s coast, but at least 80 of the pinnipeds have ended up on California’s shore emaciated, dehydrated or dead. That’s a rate eight times higher than what’s documented in a typical year. Of the 80 fur seals, 42 were found dead and only 16 of the 38 found alive survived.  The unprecedented occurrence has led NOAA to declare an unusual mortality event for the seals, meaning its scientists will devote more time to studying the species and more samples from rescued animals will be evaluated.  The fur seal’s struggles come during the same year that a record 3,500 California sea lions have washed ashore along California’s coast. Scientists think the unusually warm waters in the eastern Pacific Ocean could be affecting the health of marine mammals. The large swath of unseasonably hot water is wreaking havoc on everything from Washington’s crabs to Oregon’s algae and it could be pushing fish species that seals and sea lions rely on as food sources farther north than the animals can travel.

    If the Ocean Dies, We Die!  --  Paul Watson: Billions of people depend upon the ocean for food and I’m not talking about restaurants, sushi bars and fish markets in New York, Paris, London, Tokyo or Sydney. I’m talking about extremely poor people whose lives actually depend upon catching fish.  But food being taken from the ocean is the least of the factors that will kill us.The ocean is the life support system for the planet, providing 50 percent of the oxygen we breathe and regulating climate. The ocean is also the pump that allows us to have fresh water. It is the driving force, along with the sun, of the global circulation system that transports water from the land to the sea to the atmosphere and back to the land again.  Plankton—the most important group of plants and animal species on the planet (excluding bacteria). Plankton populations have been diminished by 40 percent since 1950, yet there is now commercial exploitation by Norwegian and Japanese fishing corporations to extract millions of tons of plankton for conversion to a protein-rich animal feed.Every year 65 billion animals are slaughtered to feed humans and some 40 percent of all the fish caught are converted to fishmeal to feed pigs, chickens, domestic salmon, fur-bearing animals and cat food. With fish populations diminishing, the corporations are looking to replace fishmeal with a plankton paste.  Is cheap fishmeal for domestic animals worth robbing the planet of our oxygen supplies?

    The AP will no longer use “skeptics” to describe people who don’t believe in climate change - Those who refuse to acknowledge that climate change is caused by human activity will no longer be called “skeptics” by the Associated Press, after the newswire service decided the term was too scientifically rigorous. The AP explained their decision in a blog post: Scientists who consider themselves real skeptics—who debunk mysticism, ESP and other pseudoscience, such as those who are part of the Center for Skeptical Inquiry—complain that non-scientists who reject mainstream climate science have usurped the phrase skeptic. They say they aren’t skeptics because “proper skepticism promotes scientific inquiry, critical investigation and the use of reason in examining controversial and extraordinary claims.” That group prefers the phrase “climate change deniers” for those who reject accepted global warming data and theory. But those who reject climate science say the phrase denier has the pejorative ring of Holocaust denier so The Associated Press prefers climate change doubter or someone who rejects mainstream science. More than 90% of peer-reviewed scientific literature supports the view that, as a result of humans burning fossil fuels, a buildup of carbon dioxide in the atmosphere is changing the earth’s climate. The AP cited a 2014 joint publication by the US National Academy of Sciences and the Royal Society of the United Kingdom, which describes the effects of global warming as follows: Since 1900, the global average surface temperature has increased by about 0.8 degrees Celsius (1.4 degrees Fahrenheit). This has been accompanied by warming of the ocean, a rise in sea level, a strong decline in Arctic sea ice, and many other associated climate effects. Much of this warming has occurred in the last four decades.

    Limited Progress Seen Even as More Nations Step Up on Climate - The pledges that countries are making to battle climate change would still allow the world to heat up by more than 6 degrees Fahrenheit, a new analysis shows, a level that scientists say is likely to produce catastrophes ranging from food shortages to widespread extinctions of plant and animal life.Yet, in the world of global climate politics, that counts as progress.The new figures will be released Monday in New York as a week of events related to climate change comes to an end. The highlight was an urgent moral appeal at the United Nations on Friday from Pope Francis, urging countries to reach “fundamental and effective agreements” when they meet in Paris in December to try to strike a new global climate deal.For much of this year, countries have been issuing pledges about how much emissions they are willing to cut in coming decades. With a plan announced by Brazil on Sunday, every major country except for India has now made a commitment to take to the Paris conference.An analysis by researchers at Climate Interactive, a group whose calculations are used by American negotiators and by numerous other governments, is expected to be released Monday and was provided in advance to The New York Times. It shows that the collective pledges would reduce the warming of the planet at century’s end to about 6.3 degrees, if the national commitments are fully honored, from an expected 8.1 degrees Fahrenheit, if emissions continue on their present course.

    Carney warns of ‘huge’ climate change hit -- The governor of the Bank of England has thrown down the gauntlet to the fossil fuel industry with a blunt warning that investors face “potentially huge” losses from climate change action that could make vast reserves of oil, coal and gas “literally unburnable”. In a sweeping assessment of the financial risks posed by global warming, Mark Carney acknowledged there was a danger the assets of fossil fuel companies could be left “stranded” by tougher rules to curb climate change. “The exposure of UK investors, including insurance companies, to these shifts is potentially huge,” he told a Lloyd's of London dinner on Tuesday night, explaining 19 per cent of FTSE 100 companies were in the natural resources and extraction industries. “The challenges currently posed by climate change pale in significance compared with what might come,” he said. “Once climate change becomes a defining issue for financial stability, it may already be too late.” The governor did not suggest the BoE would itself attempt to enforce stricter climate risk regulations for financial institutions. But his comments are still likely to irk fossil fuel industry executives confronting climate campaigners who argue the risk of so-called stranded assets shows why investors should divest from fossil fuels. Several oil and gas companies, including Royal Dutch Shell, say the concept overlooks projected demand for energy, especially in fast-growing developing countries. The prospect of tougher global climate action has grown as delegates from nearly 200 countries prepare to broker a UN climate change accord in Paris in December.

    One of the World’s Most Powerful Central Bankers Is Worried About Climate Change -   Mark Carney, the governor of the Bank of England, declared that the warming climate presented major risks for the global economy and global financial stability, and that businesses and regulators needed to move more quickly to try to contain the potential economic damage even though it may seem uncertain and far off. His warning, delivered in a 4,400-word speech with ample footnotes on Tuesday, is the latest example of how climate change has moved beyond theoretical scientific debates to the start of practical planning for safeguarding the economy and business. “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors — imposing a cost on future generations that the current generation has no direct incentive to fix,” he said. “In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”  Mr. Carney calls the economic challenges around climate the “tragedy of the horizon,” in contrast to the long-noted economic phenomenon of the “tragedy of the commons.” That is, the costs of a warming climate come on a time scale and with an uncertainty that go beyond the usual multiyear business cycle, beyond political cycles of presidential and parliamentary elections, or as he puts it, beyond “the horizon of technocratic authorities, like central banks, who are bound by their mandates.”It might seem odd for a central banker to be talking about a long-term problem of global climate, all the more so when the global economy is looking rather shaky. After all, the job is typically to worry about price inflation and the banking system.But if you back up and define a central banker’s job a little more broadly — to worrying about the economy and the stability of the financial system writ large — it quickly becomes clear why climate matters.

    Who put Mark Carney in charge of our climate policy? - Telegraph: Like virtually everyone else, central banks failed to see the financial crisis coming. For ordinary mortals, it was excusable; they were entitled to think the authorities had matters under control. For central banks, guardians of the world’s monetary system and supposed keepers of the deep knowledge on banking crises, it was not. Their reward for this failure was…er… to be endowed with even more powers and responsibilities than they had before. The fault, it was widely agreed, was not that they had too much power, and had failed to exercise it properly, but too little.  Along with setting interest rates and ensuring financial stability, both the Bank of England and the European Central Bank (ECB) have since been given responsibility for micro regulating the banking sector. Both have also wandered into the fiscal sphere by engaging in large scale quantitative easing, while Mario Draghi, president of the ECB, is even credited with having saved the euro through his words and actions. Where governments have proved unequal to the task, central banks have stepped into the breach and done what the politicians couldn’t. As if to rub it in, Mr Draghi has taken to regularly lecturing governments on the need for painful fiscal and structural reform. Small wonder these monetary technocrats are today considered more important and influential than the politicians they are notionally answerable to.  You’d have thought that managing the economy would be quite enough to be going on with, but no, if elevated to the position of demi-god on the global stage, then some degree of over-reach is only to be expected. By this week wading into the climate change debate, Mark Carney, Governor of the Bank of England, has signalled that there is almost no area of public discourse that can be considered off limits. What next? The war in Syria? Come to think of it, why not put the Bank of England in charge of everything?

    Cutting greenhouse gas emissions won't slow global economic growth — report -- As the world works out how to avoid catastrophic climate change, one of the biggest questions remaining is whether we can continue to grow economically without also increasing greenhouse gas emissions. New research released this week offers more hope that the answer might be yes. Prepared for green thinktank Heinrich Böll by DIW Econ, a German institute for economic research, the study found that, as a whole, countries that belong to the Organization for Economic Cooperation and Development (OECD) have already decoupled their economic growth from emissions. From 2004 to 2014, OECD countries grew their economies by 16% all together, while cutting fossil fuel consumption by 6% and reducing greenhouse gas emissions by 6.4%, according to the report. The findings echo the results of an International Energy Association study earlier this year, which found that global emissions remained flat in 2014 while global GDP rose, marking a historical milestone. Four major factors have contributed to this decoupling, according to the Heinrich Böll study: increased use of low-carbon energy sources instead of fossil energy sources; increased efficiency in energy generation; increased energy efficiency on the consumer side; and a move away from energy-intensive manufacturing towards less energy-intensive service sector work. The biggest driver has been the reduced cost of renewable energy, particularly solar power, . “In many parts of the world, solar and wind power have become cost competitive with coal. Renewables are, increasingly, offering the best return for your money, in terms of new investments.”

    146 Countries Covering Almost 87% of Global Emissions Submit Climate Plans Ahead of Paris  -- A total of 146 countries, representing almost 87 percent of global greenhouse gas emissions, have submitted their intended national climate action plans to the United Nations. This means that so far more than 75 percent of all member countries to the United Nations Framework Convention on Climate Change (UNFCCC) have responded. This includes all developed countries under the convention and 104 developing countries or almost 70 percent of UNFCCC developing member states. More than 80 percent of the plans include quantifiable objectives and also more than 80 percent include intended actions to adapt to climate change. Christiana Figueres, executive secretary of the UNFCCC said: “Over the past few months, the number of countries submitting their climate action plans to the Paris agreement has grown from a steady stream into a sweeping flood. This unprecedented breadth and depth of response reflects the increasing recognition that there is an unparalleled opportunity to achieve resilient, low-emission, sustainable development at national level. ” “The Intended Nationally Determined Contributions (INDCs) can be seen as an impressive portfolio of potential investment opportunities that are good for each individual country and good for the planet,” she said. The UNFCCC secretariat, as requested by parties to the convention, will provide a synthesis report of all these plans on Nov. 1.

    Even if every nation meets its pledge to fight climate change, we’re still fried -- If every nation that has so far pledged to cut down on its carbon emissions made good on its promises, the global average temperature would still rise 3.5˚ Celsius by the end of the century. According to a new study from MIT Sloan and Climate Interactive, even with the hard-won commitments from nations around the world, we’re still on track for “catastrophic” levels of planetary heating. If, that is, the governmental targets aren’t stepped up, or paired with other aggressive efforts. In advance of the upcoming climate talks in Paris this year, which many consider the world’s best shot at cementing an agreement to limit global warming, nations have begun submitting what are known in UN-speak as Intended Nationally Determined Contributions (INDCs).  These are basically declarations of intent for how a given country aims to reduce or mitigate its carbon emissions—Norway, for instance, is pledging to reduce its carbon emissions by 40 percent by 2030. The US is aiming for a 28 percent CO2 reduction by 2025. China, meanwhile, again made waves when it announced it would match the US’s fuel efficiency standards and launch a new cap-and-trade system for reducing pollution as part of its plan.  It should speak to the scope of the climate problem that even with all those reduction commitments on the books, we’re headed for what scientists say are civilization-threatening levels of warming. To reach that conclusion, MIT rounded up all such pledges that are on the books, and analyzed the total impact they’d have on temperature rise. [more]

    House Votes To Keep EPA From Considering Costs Of Climate Change -- Climate change costs an incredible amount of money. Whether it is deaths during heat waves, reconstruction after a superstorm, or even lost revenues at ski slopes, rising temperatures and increased extreme weather events are costing the economy. In fact, Citibank reported earlier this year that it will cost $44 trillion worldwide by 2060 to mitigate the costs of climate change under the business as usual scenario.  But efforts to include those costs in permitting projects just took another hit, when the House voted to pass the RAPID Act, a bill intended to streamline permitting processes. Tucked into the bill is language that will prohibit the Environmental Protection Agency from considered the social cost of carbon during permitting.  The bill, which passed largely down party lines Friday afternoon, specifically prohibits federal agencies from following draft guidance from the White House Council on Environmental Quality for “consideration of greenhouse gas emissions and the effects of climate change” in environmental reviews. Further, under the RAPID Act, any permit request that is not addressed by the agency deadline will be automatically approved.  “Everybody agrees that approving critically important economic projects should be simple. This is exactly what my RAPID Act does,” Rep. Tom Marino (PA-10) said when he introduced the bill. “It streamlines, it eliminates duplicative processes, it rewards good environmental stewardship and it aids our economy.”  Republicans have widely criticized the White House guidelines for the social cost of carbon and questioned their accuracy.  But not everyone agrees it will be good for either the environment or the economy to take climate change out of the equation.

    EV Market Has An Unlikely Backer - Volatile oil prices and rising greenhouse emissions are contributing to increasing interest in alternatives to the conventional internal combustion engine-based cars, and auto makers like Mitsubishi, Nissan, Tesla and others are now looking to increase their investments in the Electric Vehicles (EVs). With U.S., China and Japan leading global markets for electric vehicles, the total number of EVs on road recently surpassed the 1 million mark.. In a rather interesting development, however, the EV market now has a most unlikely backer - Russia. Russian Prime Minister Dmitry Medvedev signed an order on August 27 which states that all the Russian gas stations would have to equip their premises with EV charging stations by November 1, 2016.  With hardly 500 electric cars sold so far, EVs have proven to be quite unpopular among the Russian public. This means that the Russian government has an uphill struggle ahead to ignite its domestic EV market. The decision taken by the Russian Prime Minister, as part of his ‘green initiative,’ is intended to kick start the EV market in Russia, but introducing EV charging stations alone might not help the case.

    The Decadence of the People’s Car by Harold James - So far, the Volkswagen scandal has played out according to a well-worn script. Revelations of disgraceful corporate behavior emerge (in this case, the German automaker’s programming of 11 million diesel vehicles to turn on their engines’ pollution-control systems only when undergoing emissions testing). Executives apologize. Some lose their jobs. Their successors promise to change the corporate culture. Governments prepare to levy enormous fines. Life goes on. This scenario has become a familiar one, particularly since the 2008 financial crisis. Banks and other financial institutions have enacted it repeatedly, even as successive scandals continued to erode confidence in the entire industry. Promises of better behavior are clearly not enough, as the seemingly endless number of scandals in the financial industry has shown. As soon as regulators had dealt with one case of market manipulation, another emerged. The trouble with the banking industry is that it is built on a principle that creates incentives for bad behavior. Banks know more about market conditions (and the likelihood of their loans being repaid) than their depositors do. This secrecy lies at the heart of financial activity. Polite analysts call it “management of information.” Critics consider it a form of insider dealing. Banks are also uniquely vulnerable to scandal because many of their employees are simultaneously behaving in ways that could influence the reputation, and even the balance sheet, of the entire firm. In the 1990s, a single Singapore-based trader brought down the venerable Barings Bank. In 2004, Citigroup’s Japanese private bank was shut down after a trader rigged the government bond market. At JPMorgan Chase, a single trader – known as “the London Whale” – cost the company $6.2 billion. What these repeated scandals show is that apologies are little more than words, and that talk about changing the corporate culture is usually meaningless. As long as the incentives remain the same, so will the culture.

    Audi and Skoda say 3.3m cars have 'cheat' emissions software - BBC News: Audi and Skoda say they have a total of 3.3 million cars fitted with the software that allowed parent company Volkswagen to cheat US emissions tests. Some 2.1 million Audis affected worldwide include 1.42 million in western Europe, with 577,000 in Germany, and almost 13,000 in the US. Czech-based Skoda said 1.2 million of its cars were involved, but has yet to give a country or model breakdown. Separately, German prosecutors started a probe against VW's former boss. Former chief executive Martin Winterkorn will be investigated over "allegations of fraud in the sale of cars with manipulated emissions data," German authorities said on Monday. The Audi models affected include the A1, A3, A4, A5, A6, TT, Q3 and Q5 models, a spokesman told the Reuters news agency.

    Some Mercedes, BMW and Peugeot models consuming around 50% more fuel than official results, new study reveals --New cars, including the Mercedes A, C and E class, BMW 5 series and Peugeot 308, are now swallowing around 50% more fuel than their lab test results, new on-the-road results compiled by Transport & Environment (T&E) reveal. The gap between official and real-world performance found in many car models has grown so wide that it cannot be explained through known factors including test manipulations. While this does not constitute proof of ‘defeat devices’ being used to fiddle fuel economy tests, similar to that used by Volkswagen, EU governments must extend probes into defeat devices to CO2 tests and petrol cars too.  The gap between official test results for CO2 emissions/fuel economy and real-world performance has increased to 40% on average in 2014 from 8% in 2001, according to T&E’s 2015 Mind the Gap report, which analyses on-the-road fuel consumption by motorists and highlights the abuses by carmakers of the current tests and the failure of EU regulators to close loopholes. T&E said the gap has become a chasm and, without action, will likely grow to 50% on average by 2020.

    Have The World's TV Makers Been 'Doing a Volkswagen'? -  It may not be just cars that have been cheating official regulations on energy consumption.According to a report in The Guardian Thursday, independent lab tests have found that some TVs in Europe appear to use less energy during official testing conditions than they do during real-world use.That raises questions about whether they, too, are set up to game energy efficiency tests. The energy efficiency of TVs has become increasingly important as more people are watching more, and bigger, screens for longer now than at any time in the past. TVs now account for up to 10% of household electricity use, according to the NGO coolproducts.The Guardian’s report focused on Samsung Electronics’ Co., whose models were found to consistently consume more power in real-world conditions than during lab testing, due largely to a feature known as “motion lighting”. The feature reduces screen brightness in response to various types of content, including fast-action movies and sports.Samsung denied that the feature constituted a kind of ‘defeat device’ similar to the software installed in Volkswagen AG’s diesel engines. The Guardian quoted it as saying that: “This is not a setting that only activates during compliance testing. On the contrary, it is an ‘out of the box’ setting, which reduces power whenever video motion is detected.”However, the paper noted that certain national watchdogs, such as Sweden’s, have already complained to the European Commission that the system is being gamed.

    How Many Deaths Did Volkswagen’s Deception Cause in the U.S.? - The chemicals that spewed illegally from the Volkswagen diesel cars — known as nitrogen oxides or NOx — have been linked to a host of respiratory and cardiovascular illnesses, as well as premature deaths. Nitrogen oxides are a byproduct of burning fossil fuels at high temperature, whether in cars, power plants or other machines like industrial boilers. The chemicals can be harmful to humans, and in warm, sunny conditions, they can also turn into ground-level ozone, or smog, and unhealthy particle pollution. Nitrogen dioxide and ozone irritate the lungs, increasing airway inflammation, coughing and wheezing, and can lower resistance to respiratory illness like influenza, especially with long-term exposure. The chemicals can also worsen the suffering and risk of serious illness or premature death for those with conditions like asthma and chronic obstructive pulmonary disease. Older people, who are more likely to have these ailments, are particularly vulnerable. Unlike the ignition defect in General Motors vehicles that caused at least 124 people to die in car crashes, Volkswagen pollution is harder to link to individual deaths. But it is clear to public health researchers that the air pollutants the cars illegally emitted damage health, and they have formulas for the number of lives lost from excess pollution in general. Indeed, the Environmental Protection Agency uses its own estimates of the health effects of air pollution to create its regulations of what’s allowed. After consulting with several experts in modeling the health effects of air pollutants, we calculated a death toll in the United States that, at its upper range, isn’t far off from that caused by the G.M. defect.

    Germany Now Faced With Thousands Of Aging Wind Farms -- Germany has long been a pioneer in the field of renewable energy, generating a record 78 percent of its power consumption from renewables in July of this year. In fact, Germany is one of the very few countries in the world that is actually struggling with too much renewable energy. The latest testimony to this fact is the new issue of decommissioning its old wind farms. 2011 was a turning point for the European giant as it started moving away from nuclear energy (post Japan’s Fukushima nuclear disaster) and began to replace it with renewables. However, wind energy made its foray in Germany well before 2011. Germany started building wind turbines in the mid-1990s and now there are almost 25,000 wind turbines in the country. However, the problem now is that a large number of the 25,000 odd turbines have become too old. Close to 7,000 of those turbines will complete more than 15 years of operation by next year. Although these turbines can continue running, with some minor repairs and modifications, the question is whether it makes any economic sense to maintain them? Beyond a period of 20 years, the guaranteed tariffs that are set for wind power are terminated, thereby making them unprofitable. “Today, there are entirely different technologies than there were a decade ago. The performance of the turbines have multiplied, the turbines are also more efficient than before”, said Dirk Briese of market research company called Wind- Research. It therefore makes sense to replace old turbines with newer ones. However, it is not very easy to dismantle an existing turbine and, while there are companies like PSM that specialize in dismantling of wind turbines, the costs of decommissioning can run upwards of $33,500 per turbine.

    New EPA Rule Brings Power Plant Water Toxic Standards into the 21st Century | Earthjustice: The Environmental Protection Agency (EPA) finalized a rule today that requires coal-burning power plants to clean up nearly all of the toxic pollution that they dump into America’s waters each day. After 30+ years of inaction, the EPA updated requirements that power plants use affordable, state-of-the-art technologies to reduce their pollution—or eliminate it where feasible. This ruling comes after Earthjustice, representing environmental groups, filed a lawsuit in 2010 to force EPA to take action to better regulate pollution from the fossil fuel industry. Power plants dump more pollutants such as mercury, arsenic, and lead into our waters than the next nine industries combined. EPA’s final rule will require power plants to eliminate the majority of this pollution, resulting in thousands of river miles that are safer to swim and fish in, and hundreds of cleaner water bodies that are vital drinking water sources.

    16 states get extension on plan to meet new carbon dioxide emissions standards - The federal agency mandating a significant reduction in carbon dioxide emissions from coal-fueled power plants in North Dakota is giving the state more time to submit an implementation plan. Environmental Protection Agency officials have agreed to move the deadline from September 2016 to the fall of 2018, North Dakota’s congressional delegation said in a joint statement after meeting on Wednesday with EPA Assistant Administrator Janet McCabe. North Dakota is among 16 states that will have to reduce carbon dioxide emissions the most under EPA rules unveiled in August by President Barack Obama. Under the new standards, North Dakota must cut its emission rate almost 45 percent by 2030. State and industry officials have criticized the rules, saying the change will drive up the cost of electricity for ratepayers and hurt the state’s economy. Attorney General Wayne Stenehjem has said the state is considering a legal fight. In the meantime, state officials now have more time to figure out how to meet the new standard, should it stand.

    EPA officials hear from supporters, opponents of methane emissions rules - The Obama administration’s proposal to clamp down on methane emissions from the oil and gas industry is a “good first step” but will come up short of expectations, environmental advocates told regulators in Pittsburgh on Tuesday. “The council urges the EPA to go further,” Aaron Jacobs-Smith, an attorney for the Philadelphia-based Clean Air Council, said during testimony that echoed dozens of others in the William S. Moorhead Federal Building, Downtown. Rules proposed this year to cut leaks of the greenhouse gas by 45 percent would only apply to new wells, pipelines and related equipment, leaving existing sources unregulated, many testified. Those sources will account for 90 percent of methane emissions by 2018, several people said. “We ask EPA to develop a new rule to govern existing sources,” Sierra Club board member Jessica Helm of Massachusetts said during the hearing, the last of three that the agency held nationwide on the proposal. Hearings took place last week in Denver and Dallas. Industry and business groups have pushed back against the rule — one of several this White House has proposed targeting the energy sector — as unnecessary and costly. It seeks to extend permitting requirements to pipelines and storage equipment while requiring more efforts by companies to detect and fix leaks.

    Is The U.S. About To Break One Of Its Own Nuclear Treaties? - In a towering life of public service, Bill Richardson confronted Fidel Castro, Saddam Hussein, the Taliban, two of North Korea’s dictators, and an assortment of international thugs. He was a five-time nominee for the Nobel Peace Prize.  The essence of Richardson's deal-making was that the commitment must be kept by both parties. At present Richardson sees one of his deals in jeopardy, and he was in Washington last week to raise the alarm, meeting privately with former colleagues and appearing at a press conference at the National Press Club. The deal in jeopardy involves a commitment he made, when he was secretary of Energy in the Clinton administration, with the Russians to dispose of weapons-grade plutonium, the long-lived ingredient in nuclear weapons. There are 34 metric tons of the stuff that the United States is bound, by treaty with Russia, to dispose of by integrating it into nuclear fuel and burning it in civilian power plants. This is known as mixed oxide fuel or MOX. But the Obama administration wants to end the program, before a fleck of plutonium has been processed for fuel. It is seeking to pull the plug on the construction of the facility at a Department of Energy site on the Savannah River in South Carolina, which is two-thirds complete and has already cost over $4 billion. The administration is now looking not at the completion cost, but at the lifetime cost of the facility. And it is saying that it is too high; although that could have been calculated years ago.

    Half of World's Coal Output Is Unprofitable, Moody's Says -  Half of the world’s coal isn’t worth digging out of the ground at current prices, according to Moody’s Investors Service. The global metallurgical coal benchmark has fallen to the lowest level in a decade, settling last month at $89 a metric ton. “Further production cuts are necessary to bring the market back into balance,” Moody’s analysts including Anna Zubets-Anderson wrote in a report on Thursday. China’s slowing appetite for the power-plant fuel and steelmaking component has depressed the seaborne market, creating a worldwide glut. In the U.S., cheap natural gas is stealing coal’s share of the power generation market. And the strong dollar has tempered exports. In North America, the credit rating company said it expects the industry’s combined earnings before interest, taxes, depreciation and amortization to decline by 10 percent next year after a 25 percent plunge in 2015. The Illinois Basin stands to be the “most resilient to current market dynamics” because of its lower mining costs and its location in the middle of the country where power plants still burn the fuel, Moody’s said.

    Ohio Lawmakers Want To Indefinitely Freeze The State’s Renewable Portfolio Standard -- When Ohio Gov. John Kasich (R) signed a bill freezing his state’s renewable portfolio standard, it was widely accepted that he was offering the legislature — dominated by his own party — an opportunity to rethink destroying the policy.  Now, a year later, the committee tasked with considering the RPS, which requires that a certain amount of Ohio’s energy come from renewable sources such as wind and solar, has come back: They still want a freeze.  This puts Kasich, who is running for his party’s presidential nomination, in an awkward position. The freeze hurt Ohio’s nascent wind industry and turned off attractive investors, supporters say. Moreover, most Republicans actually support policies that encourage clean energy, and the governor might not be able to afford positioning himself in opposition to those voters.  In fact, he responded quickly Wednesday to the committee’s proposal.  “A continued freeze of Ohio’s energy standards is unacceptable,” Joe Andrews, a spokesman for the governor, told ThinkProgress in an email.  The Energy Mandates Study Committee recommended freezing the renewable energy and energy efficiency standards — under which utilities were required to reduce consumption by 22 percent and get 12.5 percent of electricity from renewable sources — “indefinitely,” according to a draft of the report provided to ThinkProgress on Wednesday.

    No action in Ohio fracking tax standoff as deadline arrives - WOWK  (AP) - Compromise is still eluding members of the Ohio Legislature on Republican Gov. John Kasich's (KAY'-siks) proposed tax hike on oil-and-gas drillers.  The extra time granted by legislative leaders to strike a deal with the powerful energy lobby is set to expire Thursday.  In pulling the tax issue from the state budget in June, Senate President Keith Faber (FAY'-bur) and House Speaker Cliff Rosenberger said Oct. 1 was a "hard deadline" for resolution, not a stall tactic. Faber more recently cited market factors in complicating extended talks.  The tax increase has been a priority for Kasich for years. The 2016 presidential contender says Ohio's severance tax on oil, natural gas and natural gas liquids is too low and proceeds of a tax increase could help reduce income taxes.

    Ohio Senate president expects paper from panel studying Ohio fracking tax: (AP) — A tax policy commission studying Ohio’s oil-and-gas severance tax is likely to have a report with various recommendations in time to meet its deadline — even though at least some members were only just formally appointed, Senate President Keith Faber said Wednesday. Faber told reporters a “concept document” from the 2020 Tax Policy Study Commission could come on the deadline Thursday or on Friday. “They are going to produce what we asked them to do,” he said. Faber’s comments came the same day he first formally appointed Senate members to the commission, which was created in the state operating budget passed this summer. He said the group had been meeting informally since July, however. Advertisement Faber declined to say whether the document would call for increasing Ohio’s drilling tax, as Gov. John Kasich has advocated, or to hint at any other potential recommendations. He said the report would contain a review of the market environment for oil and gas, which is not the same as it was six months ago. The tax increase has been a policy priority of Kasich’s for years now. The Republican governor and 2016 presidential hopeful says Ohio’s severance tax on oil, natural gas and natural gas liquids is too low. He proposes raising it and using proceeds to reduce Ohio’s income-tax rate. The hike’s omission from the two-year, $71 billion state operating budget came as the latest political blow to Kasich on the issue. The increase he initially proposed early in his first term, which began in 2011, would have come amid a boom made possible by then-new hydraulic fracturing, or fracking, technology. Drilling in eastern Ohio’s mostly Utica Shale deposits is less rigorous now.

    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.”

    Akron's drinking water supply surrounded by oil wells, a cash cow for the city - -- Akron earns hundreds of thousands of dollars each year from oil royalties thanks to over 216 oil and gas wells drilled on city-owned land, including the watershed that provides Akronites with drinking water.  No fewer than nine oil wells ring the city's municipal water supply at Lake Rockwell, where the city leases to Texas-based drilling and oil production company GonzOil.   The wells have been a cash cow for the city, depositing an average of nearly $375,000 per year in city coffers since 1997, but have offended environmentalists opposed to drilling and concerned citizens worried about what effect an accident at a well may have on surrounding areas.  Since the Ohio Legislature revoked local authority over oil and gas drilling in 2004, Akron has signed at least 36 new oil and gas leases.  As the city signed new leases under former mayor Don Plusquellic, new oil and gas money started flowing into the city after falling nearly $250,000 between 1997 and 2001.  Besides the lake property, other leases signed in that period include a 4,100-foot-deep well drilled on about four acres at Firestone High School and a 3,000-foot-deep well on two acres at Stan Hywet Hall and Gardens. (Scroll down to see a full list)

    Industry's investment in oil, gas could be better spent - Columbus Dispatch - The Sunday letter “ Oil, gas industry boosts local economy” from Rhonda Reda showed she represents her organization, the Ohio Oil and Gas Energy Education Program, well. However, it ignored the fact that clean air, clean water, and safe soil are our mutual, inherited, priceless resource, and that to risk them or pollute them for short-term private gain is immoral and shortsighted. If the same amount of money were invested in building community solar arrays, wind farms, homes upgraded for more energy efficiency and training local workers to do this work, we would be building a better long-term future for ourselves, our communities and our air, water and soil. Instead, fracking leads to financial gains for some, while disrupting communities and taking precious drinkable water permanently out of the watershed. Fracking is a boom-and-bust business, in which not everyone even benefits from the boom. For instance, when there is a boom in an area, lots of outside workers come in. Some landlords profit handsomely from higher rents, thereby causing hardship for local working people whose wages have not increased to cover higher rents. A study of drilling in Pennsylvania, West Virginia and Ohio, comparing counties with low, moderate and high levels of drilling, found higher rents, more traffic accidents, more sexually transmitted diseases and more crime in counties with high levels of drilling: This is not surprising, as many workers from outside, away from their families, come to an area where they are doing dangerous work, are being exploited for rent, and are not connected to the community.

    Ohio, 12 other states working to mitigate quake risks - Drilling - Ohio -  – Thirteen states partnered through a multi-state initiative called StatesFirst this past year to share and summarize current knowledge related to earthquakes potentially caused by human activity, otherwise referred to as induced seismicity. Today, the work group comprised of members of state oil and natural gas and geological agencies and other advisory experts from academia, industry, non-profit organizations and federal agencies released a Primer to provide a guide for regulatory agencies to evaluate and develop strategies to mitigate and manage risks of injection induced seismicity. The Primer also outlines how states can best provide information to the public in a transparent and effective manner. “Induced seismicity is a complex issue where the base of knowledge is changing rapidly,” according to Rex Buchanan, work group co-chair and interim director of the Kansas Geological Survey. “State regulatory agencies that deal with potential injection induced seismicity should be prepared to use tools, knowledge, and expertise, many of which are offered in this Primer, to prepare for and respond to potential occurrences of induced seismicity.” The primer primarily focuses on potential induced seismicity associated with Class II disposal wells. Injection wells are currently regulated under the Safe Drinking Water Act through the Underground Injection Control Program (UIC). The UIC program through primacy delegation by the U.S. EPA, is administered by certain states due to their in-depth knowledge of local industry operations and geology. In its assessment, the work group observed that the majority of disposal wells in the United States do not pose a hazard for induced seismicity; however most cases of felt injection-induced earthquake activity has generally been associated with direct injection into basement rocks or injection into overlying formations with permeable avenues of communication with the basement rocks, and in proximity to faults of concern.

    WKSU News: A more definitive word on earthquakes: They are linked to disposal wells: Disposal wells can cause earthquakes. That’s the word from this week’s gathering of state regulators and scientists in Oklahoma.  The “StatesFirst Initiatve” -- a pooling of efforts by regulatory agencies of Ohio and the other big energy producing states — met in Oklahoma City and issued a primer on “human-induced seismicity.”  It follows a more than year-long study and provides scientific data and best-practice suggestions for dealing with what amounts to man-made quakes. And, after the release, Oklahoma’s Secretary of Energy and Environment Michael Teague made the most definitive statement yet about controversial disposal wells. "We’ve had a huge increase here in the number of earthquakes above 3.0.  And, we do think that they are tied to disposal wells. That may not be the case in all states, but certainly in Oklahoma, it is the cause.” The primer stresses that the facts and practical actions it lists must be applied case-by-case because geology differs greatly around the country.  Ohio, with nearly 200 injection wells, organized the cooperative study idea and got kudos’s from Michael Teague, whose state has 4,200 such wells.“It’s really the result of a year and a half worth of work, and great leadership by Rick Simmers of Ohio, pulling this thing together.  It was ...I think started with six states; and ended up with 13 states, and universities from across the country, and industry folks from across the country." Richard Simmers heads the Oil & Gas Division of the Ohio Department of Natural Resources. 

    US Drilling States Guided on Handling Quakes - A working group of U.S. drilling states, seismologists, academics and industry experts has issued guidance to state regulators for handling human-induced earthquakes caused by hydraulic fracturing or the disposal of fracking wastewater. The StatesFirst initiative's 150-page report was released Monday. It represents perhaps the most candid discussion on the topic since tremors across the mid-continent were first linked to fracking-related activity around 2009. But it stops short of suggesting model regulations.  Ohio Oil & Gas Chief Rick Simmers, who co-chaired the effort, tells The Associated Press that's because each state's regulatory framework, laws and geography are unique. He described the report as a primer, providing states with up-to-date scientific and technical data, case studies and several suggested approaches for detecting and managing quakes potentially tied to human activity.

    U.S. Drilling States Issue Report On Handling Human-Induced Earthquakes « — A group of U.S. drilling states, seismologists, academics and industry experts issued guidance Monday in a frank new report on handling human-induced earthquakes caused by hydraulic fracturing or the disposal of fracking wastewater.  The 150-page report, produced by the StatesFirst initiative, represents perhaps the most candid discussion on the topic since tremors across the mid-continent — including in Texas, Oklahoma, Colorado and Ohio — began being linked to fracking and deep-injection wastewater disposal around 2009. It includes descriptions of how states handled various seismic incidents around the country, including their public relations strategies, and matter-of-factly references links between fracking or deep-injection wastewater disposal and earthquakes. Previously, public admissions had been fuzzy in some cases.  The group stopped short of suggesting model regulations, however. That’s because each state’s laws and geography are unique, Ohio Oil & Gas Chief Rick Simmers, who co-chaired the effort, told The Associated Press. The report says “a one-size-fits-all approach would not be an effective tool for state regulators.” Simmers said the report is in the form of a primer, providing states with up-to-date scientific and technical data, case studies and several suggested approaches for detecting and managing the quakes. In Texas, a state inquiry found that an oil and gas company’s disposal well operations likely did not cause a series of North Texas earthquakes. The findings directly contradict a study published by Southern Methodist University geologists, pinning the earthquakes to the XTO well and a well operated by Houston-based Enervest.

    How to limit man-made quakes: Drilling experts offer best practices - A new report from a coalition of industry experts and academics conclusively links hydraulic fracturing and fracking wastewater disposal to local seismic activity, but stops short of prescribing model regulations. The 150-page report from the StatesFirst initiative – a group of seismologists, academics, and industry experts in American drilling states – matter-of-factly links both hydraulic fracturing and wastewater disposal to earthquakes near drilling areas.Previous research into tremors in mid-continent drilling states like Texas, Oklahoma, Colorado, and Ohio had only tentatively identified fracking as a cause. The paper released today represents an unusually candid discussion of the topic, acknowledging both that the issue exists and that it will be difficult to solve.   Ohio Oil & Gas Chief Rick Simmers, who co-chaired the group that issued the report, says that state-specific differences in drilling laws and geology meant uniform national regulations would be ineffective. Mr. Simmers says the report serves mostly as a primer for states, providing up-to-date scientific and technical data, along with suggested approaches for detecting and managing earthquakes.   The US Geological Survey reports that within the central and eastern United States the number of earthquakes has “increased dramatically” along with an increase in wastewater injection activity.  The USGS also reported some larger events, including an M5.6 in Oklahoma and M5.3 in Colorado. Simmers said that both fracking and deep-injection wastewater disposal do create some seismicity, but added that relative to the amount of drilling activity tremors are “very rare.”  “State regulatory agencies that deal with potential injection-induced seismicity should prepare to use tools, knowledge, and expertise – many of which are offered in this primer – to prepare for and respond to [any] occurrences,” he added.

    Pennsylvania will monitor for earthquake activity linked to fracking - Pennsylvania plans to increase monitoring of seismic activity as tremors linked to hydraulic fracking in other drilling states spur calls for stepped up strategies to deal with human-induced earthquakes.  The state Department of Conservation and Natural Resources and the Department of Environmental Protection said Tuesday they will spend $531,000 on a network of seismic activity monitors at 30 stations across the state for three years. Many of the stations will be on park lands and the equipment will include five mobile units for quick deployment to areas of concern.   Despite a boom in drilling that has made Pennsylvania the No. 2 natural gas producer in the country, the state has not had earthquakes connected to fracking or the deep wastewater injection wells blamed for tremors in states such as Ohio. “This seismic monitoring network will give the state a better baseline understanding of the state's geology — for all DEP decisions, not just oil and gas,” The monitors will help the Bureau of Topographic and Geologic Survey map underground activity, including unnatural events such as tremors caused by quarry blasting or activities connected to the oil and gas industry, resources agency Secretary Cindy Adams Dunn said in a statement.  Seismologists, academics and state regulators in recent years have drawn connections between increased earthquakes in some states and drilling activities such as storing wastewater in deep underground wells.  StatesFirst Initiative, a multi-state group, issued a 150-page report this week that discussed how regulators have handled human-induced earthquakes in 13 drilling states. Pennsylvania was not part of the report. Gas production from shale wells in Pennsylvania increased to 4.1 trillion cubic feet in 2014, up from 1.1 trillion cubic feet in 2011. But it has few wastewater injection wells.

    Fracking Earthquakes "Appear" To Be A Thing - The internet has been buzzing with news that several oil and gas producing US states are finally responding to the issue of fracking earthquakes — but don’t hold your breath for any significant regulatory shift. These particular states are organized under the banner of the appropriately named States First Initiative, which launched in 2013 to lobby against tighter federal regulation of oil and gas operations.  Before we take a closer look at the news from States First, let’s clarify that when we say “fracking earthquakes” we’re doing shorthand for earthquakes caused by the disposal of fracking wastewater underground. Earthquakes that have been directly linked to the fracking operation itself are a rarity.  The States First “response” consists of a newly released manual for regulators titled “Potential Injection-Induced Seismicity Associated with Oil & Gas Development: A Primer on Technical and Regulatory Considerations Informing Risk Management and Mitigation.” Basically that’s fancyspeak for what we just said — the immediate concern is oil and gas wastewater injected into disposal wells.  To be clear, States First does not offer any specific guidance aimed at improved regulation. In its Fact Sheet for the Induced Seismicity Primer, States First offers this description:  “The Induced Seismicity Primer will be an informational document, and is not intended to offer recommended rules or regulations.” Okay, so that’s pretty clear. The fact sheet also makes it clear that States First is not entirely convinced by the definitive findings by seismologists (these guys, too) that the practice of injecting fluid underground has caused earthquakes. The impetus for creating the Primer is described with a large “appear” hedge in the middle:  “Recently, the frequency of seismic events that appear linked to underground injection of fluids has increased.” It’s not just us. Our friends over at Reuters also picked up on the hedge. The news agency reported on the release of the Primer earlier this week with the headline, “More research needed on U.S. earthquakes possibly tied to oil and gas work: report.”

    PennEast assures economic boost from proposed pipeline -- Nearly 60 people have filed for interventions against PennEast Pipeline Co. LLC since last Thursday, when company announced its application to start construction on a 118-mile natural gas pipeline that would run from Wilkes-Barre, Pennsylvania to Mercer County, New Jersey. Despite opposition, PennEast emphasized the cost-cutting benefits nearby families and businesses could gain from the billion-dollar project “The PennEast Pipeline Project is set to deliver reduced energy costs to residents and businesses, thousands of good jobs, and a cleaner environment by cultivating clean-burning American energy,” PennEast Pipeline Board of Managers Chairman Peter Terranova said in a statement. “This safe, state of the art infrastructure project will not only help meet the region’s energy demands, it can power New Jersey and Pennsylvania’s economies for years to come.”   An analysis from financial advisory firm Concentric Energy Advisers suggests the pipeline could have saved energy consumers in New Jersey and Pennsylvania a grand total of $890 million during periods of record-breaking natural gas prices in the winter of 2013/2014. “The New Jersey State Chamber of Commerce supports the proposed PennEast Pipeline,” shared Tom Bracken, president and chief executive officer of the New Jersey State Chamber of Commerce. “This Project will provide a regional benefit to businesses and citizens, assist in boosting New Jersey’s economy, improve the overall critical energy infrastructure and make our state more competitive, which will lead to job creation.”

    Methane leak data in Pa. paints an uncertain picture -- Shale gas companies in Pennsylvania reported leaking 9,681 tons of methane in 2013, a 41 percent increase over the prior year. But the real amount of methane that went into the air may have little to do with that estimate. Leaks, or fugitive emissions, aren’t measured at oil and gas facilities. Those emissions are estimated based on a 20-year-old formula that plugs in the number of components on a well site and the volume of gas flowing through. The increase from 2012 to 2013 reflects only that more wells were producing gas, not necessarily that those were leaking more gas. More than a dozen studies measuring emissions from shale gas sites, in the Marcellus region that underlies much of Appalachia and elsewhere in the country, have come up with varying conclusions about leak rates. But the equalizer has been the finding that a small number of very leaky wells skew the curve. “The type of phenomenon you have is the majority of wells do pretty well and don’t leak much,” said Rob Altenburg, director of PennFuture’s Energy Center in Harrisburg. “But those that do leak, potentially leak a lot.”

    Two court cases could upend centuries-old real estate laws -Two oil and gas leasing cases that will be argued in front of the Pennsylvania Supreme Court next week have the potential to either modernize or seriously disrupt centuries-old state real estate laws that have roots in the days when tax collectors still rode horses and much of Penn’s Woods was wilderness. Both of the cases feature old and complicated deeds, confusion about who owned oil and gas rights that had been severed from the surface property, and laws that aimed to sort out such disorder. The first case, Shedden v. Anadarko, challenges a century-old legal principle in the state known as estoppel by deed, which gives a lessee — in this case, an oil and gas company — the benefit of the original agreement if a property owner signs a contract to lease what he owns, finds out he doesn’t own all of it and later acquires it. The Superior Court cited the “well-settled” estoppel by deed doctrine when it sided with Anadarko E&P Co. in its decision last year. But the three-judge panel noted the doctrine had never been applied in Pennsylvania appeals court decisions involving oil and gas leases, although other states’ courts have used it in oil and gas disputes.  In the second case, Herder Spring Hunting Club v. Keller, the court will look at a long-retired practice called title washing. In that practice, undeveloped surface property is reunited with its severed mineral rights during a tax sale if the mineral rights had not been registered with county officials and separately assessed for taxes.

    EPA hears comments on proposed methane rule for oil and gas -  Supporters and opponents of the EPA’s proposed methane rules gathered in Pittsburgh Tuesday for a hearing on federal efforts to cut methane emissions from oil and gas production. Methane is up to 84 times more effective at trapping heat in the atmosphere than carbon dioxide over a 20-year period. The oil and gas industry is the country’s largest single source of methane emissions. In September, the EPA proposed the first federal rules to keep methane from oil and gas out of the atmosphere. The proposed rules are part of a plan that would reduce the industry’s pollution by up to 45 percent. The rule would require increased leak detection and repair of new well pads, pipelines, and gas processing stations, said David Cozzie, group leader of the EPA’s Fuels and Incineration Group, which helped craft the regulations. The rules would also require operators of compressor stations to use ‘low-bleed’ control systems that release fewer emissions, and require plant operators to replace equipment more often, in order to prevent methane from escaping through leaky seals. The EPA focused on well pads and compressor stations, Cozzie said, because they are constructed with equipment that allows methane to escape into the atmosphere. Studies have found that “super-emitters”–a relatively small number of leak sources–may produce the majority of methane pollution from the oil and gas industry.“There’s been lots of literature out there about these super-emitters, which are sites that have large emissions and they tend to be associated with well sites and compressor stations,” Cozzie said. The proposed rules would reduce methane pollution by 400,000 tons per year by 2025, the EPA said — the equivalent of removing 1.8 million cars from the road.

    New pipeline route raises questions — Energy giant Kinder Morgan updated the route of a natural gas pipeline proposed to run through New Hampshire, with the new Merrimack route passing through Fidelity Investments and near the Merrimack Premium Outlets. The latest change addressed some environmental and safety concerns in the area, but not all. “I don’t think it’s any better, it’s just different,” Merrimack Town Council Chairman Nancy Harrington said Monday. Harrington said while the new proposed route is farther away from Thorntons Ferry Elementary School, it still passes through an aquifer by Pennichuck Water Works. “It really doesn’t solve the problem,” she said. “The only improvement is the school.” Town and school officials wanted the route 1,000 feet from the school building, which it is at 1,100 feet; but the route is still less than 1,000 feet from the playground.  Final approval for the pipeline rests with the Federal Energy Regulatory Commission. New Hampshire residents have been following the process since 2014, notifying FERC and state officials of local environmental and safety worries. Called the Northeast Energy Direct Project, the pipeline would transport gas from the Marcellus Shale formation in Pennsylvania to Dracut, Mass., through New York, Massachusetts and New Hampshire.

    Feds want tougher rules for oil pipelines  (AP) — U.S. officials said Thursday they want tighter safety rules for pipelines carrying crude oil, gasoline and other hazardous liquids after a series of ruptures that included the costliest onshore oil spill in the nation’s history in Michigan. The U.S. Department of Transportation proposed expanding pipeline inspection requirements to include rural areas that are currently exempt and for companies to more closely analyze the results of their inspections. The agency also would make companies re-check lines following floods and hurricanes, and submit information on thousands of miles of smaller lines that fall outside of existing regulations. The Associated Press obtained details of the proposal in advance of Thursday’s formal announcement. It covers more than 200,000 miles of hazardous liquids pipelines that crisscross the nation — a network that expanded rapidly over the past decade as domestic oil production increased. Other pipeline ruptures in recent years have fouled waterways in Montana, California, Virginia and elsewhere with crude oil and other petroleum products. “This is a big step forward in terms of strengthening our regulations,” said Marie Therese Dominguez, chief of the Transportation Department’s Pipeline and Hazardous Materials Safety Administration. “It’s timely, and it’s raising the bar on safety.” The new rules have been in the works since 2010, when 840,000 gallons of crude oil spilled into the Kalamazoo River in Michigan and other waterways from a ruptured line operated by Enbridge Inc. of Calgary, Canada.

    Feds: Proposed pipeline rules could have prevented accidents (AP) — New federal rules proposed for pipelines that carry oil and other hazardous liquids could have prevented more than 200 accidents since 2010, including a Michigan rupture that ranks as the costliest onshore spill in U.S. history, federal officials said. The U.S. Transportation Department proposal announced Thursday covers more than 200,000 miles of hazardous liquids pipelines that crisscross the nation — a network that expanded rapidly over the past decade as domestic oil production increased. Included in the proposal are new inspection requirements for pipelines in rural areas; increased use of leak detection systems; and a requirement for companies to more closely analyze inspection results. Left out were requirements for the industry to install more automatic or remote-controlled valves that can quickly shut down a line when spills occur. Officials plan to address the valve issue separately, said Marie Therese Dominguez, chief of the Transportation Department’s Pipeline and Hazardous Materials Safety Administration. The delay was criticized by Rep. Lois Capps, D-Calif., whose district includes the Santa Barbara County coastline where a May rupture of a corroded pipe spilled 101,000 gallons of crude oil, some of which flowed into the ocean, formed a large slick and stained beaches. “Federally regulated oil and gas pipelines currently are not required to use the best automatic shut-off technologies available and that needs to change,” Capps said in a statement.

    Propane Frack Hoax Slouches On -- Horizontal wells are permitted in New York state.  Fracks under 300K gallons are permitted / not prohibited. So, if the horizontal well involved less than 300K gallons of fluid, it could be permitted under the drilling regulations of the state. So a straw-man operator has filed two LPG frack permits in Tioga County, one for a vertical test well, the other for a horizontal completion.  Note that GasFrac is on the application, since GasFrac no longer exists, and “Tioga Energy Partners” is not an operating company, but an Albany attorney, this begs some questions:

    • 1. Who is going to frack it ?  Which frack contractor ?  If not GasFrac, who ?  The short answer is : anyone with a tank truck of propane brave enough to try. The DEC routinely permits gaseous fracks – nitrogen is used on test fracks. Since there is no licensing in NYS for frack contractors, no certification, no licensing, no OSHA oversight, etc. anybody could show up with enough propane to frack the well !
    • 2. Is the proposed lateral long enough to be commercial ?  Depending on the formation/ depth, etc. the lateral would have to be approximately as long as comparable producing wells in that formation/ depth etc. Which would be hundreds if not thousands of feet.
    • 3. If 2 is “maybe” or “yes” then who is going to pay for it ?  The listed operator is a straw man. To complete and produce a commercial horizontal LPG well, some bone finde operator is going to show up with several million dollars.
    • 4. Before 1,2,3 happen, the vertical well test has to show significant potential.  That seems very unlikely in the Marcellus at current gas prices, and fairly iffy in the Utica. From what we know, the Utica produces dry gas in a pocket of productivity on the Pa. side of the border. So this would be a wildcat for the Utica, and a low probability well for the Marcellus.

    Fracking moratorium passes on 4-0 vote - Tears, smiles and high-fives filled the Stokes County courtroom Monday night as fracking opponents celebrated a victory in their multi-year battle to keep the practice out of Stokes County. The Stokes County Board of Commissioners unanimously agreed to pass a three-year moratorium on fracking in the county, effective immediately. Commissioner James Booth was not present at the meeting but had earlier expressed his support for the move. The decision came after months of public comment during which opponents demanded, and begged, the board pass a moratorium and begin work on ordinances that would limit the impact of fracking in the county. Fracking, a colloquialism for hydraulic fracking, is a method of obtaining natural gas by fracturing the bedrock though the forced injection of water, sand, and a variety of chemicals. While opponents of the practice have long been vocal in Stokes County, public outcry increased dramatically this summer after a core sample drilled in Walnut Cove showed that shale layers in the county showed potential for natural gas production. The Walnut Cove core sample also showed that the shale formation is located at depths between 98 feet and 423.7 feet, well with in the area that many water wells are drilled in the county. Under the moratorium passed Monday, it would be unlawful for anyone to engage in hydraulic fracturing or oil and gas development for a three year time period with violators of the ordinance facing a $500 per day fine.

    Indiana studying whether hydraulic fracking can cause quakes -- The man who oversees Indiana’s oil and gas industries says the state is studying whether hydraulic fracturing used by many operators can cause earthquakes in the state. Indiana Department of Natural Resources Oil and Gas Division Director Herschel McDivitt is a member of a group of U.S. drilling state officials, seismologists, academics and others who released a report Monday examining how states handled various seismic incidents linked to fracking. McDivitt says the DNR began a study about a year ago in collaboration with the Indiana Geological Survey to assess whether fracking can induce earthquakes in Indiana. He says about a quarter of Indiana’s oil and gas wells have been fracked in an effort to produce more oil and gas.

    How oil production creates earthquakes - Denial is a funny thing. It’s particularly funny watching as the story moves from “Oil production and fracking can’t possibly be creating earthquakes in Oklahoma” to “Okay, there’s evidence but it’s not proven” to “Okay, it’s proven but we’re still not going to do anything about it.”In the case of the Oklahoma earthquakes, we’ve reached the final stage. Over at the New Yorker, Rivka Galchen has a beautifully-written piece describing what happened.[Once], earthquakes were a relatively rare event for Oklahomans. Now they’re reported on daily, like the weather, and generally by the weatherman. Driving outside Oklahoma City one evening last November, I ended up stopped in traffic next to an electronic billboard that displayed, in rotation, an advertisement for one per cent cash back at the Thunderbird Casino, a three-day weather forecast, and an announcement of a 3.0 earthquake, in Noble County. Driving by the next evening, I saw that the display was the same, except that the earthquake was a 3.4, near Pawnee. Until 2008, Oklahoma experienced an average of one to two earthquakes of 3.0 magnitude or greater each year. In 2009, there were twenty. The next year, there were forty-two. In 2014, there were five hundred and eighty-five, nearly triple the rate of California. Including smaller earthquakes in the count, there were more than five thousand. This year, there has been an average of two earthquakes a day of magnitude 3.0 or greater. And we pretty much know what’s causing them – fossil fuel production.William Ellsworth, a research geologist at the United States Geological Survey, told me, “We can say with virtual certainty that the increased seismicity in Oklahoma has to do with recent changes in the way that oil and gas are being produced.” Many of the larger earthquakes are caused by disposal wells, where the billions of barrels of brackish water brought up by drilling for oil and gas are pumped back into the ground.

    Who's at fault? — In northwest Oklahoma, some scientists are digging for seismic answers as fervently as wildcatters have drilled for black gold during boom times.  Published literature left in dust-covered library bins for decades now is considered in­­valuable to scientists studying Oklahoma’s earthquakes. Mean­while, oil companies now are providing proprietary data on faults gathered through exploration, according to U.S. Geological Survey geophysicist George Choy.  In turn, the data is being used by Oklahoma Corporation Commission to regulate the oil and gas industry after wastewater injection was pinpointed as a cause for the increased seismicity. Scientists now know there is a link between injection wells and faults but have yet to get to the bottom of why some injection wells are linked to earthquakes and others are not. “We’ve put ourselves on record saying that there was relationship to the injection of wastewater in deep wells and into the basement, and that’s about as far as we can go right now, because we haven’t been able to really localize that and say, ‘It’s these faults, it’s these faults,’” Oklahoma Geological Survey Director Jeremy Boak said. “We know it’s certain faults in certain orientations that are properly aligned with the stress field occurring in Oklahoma, and they’re the ones that move. Most of those are small faults.”  One certainty is the increase in earthquakes in the state.  Between 1978 and 1998, Oklahoma averaged fewer than two earthquakes a year, according to U.S. Geological Survey records.  Since 2009, numbers have elevated, with the state surpassing a 2014 record of earthquakes larger than 3.0 magnitude in August this year, OGS records indicate.

    Report: Spills from oil, gas production up in New Mexico - An oil pipeline rupture and the illegal spraying of dirt roads with wastewater from a natural gas operation were among more than 1,800 spills related to oil and gas production in New Mexico in fiscal year 2015, a sharp increase from the number of spills reported the previous year. Growth in the volume of the spills from FY 2014 far outpaced growth in the volume of resources pumped out of the ground, says a recent Legislative Council Service report. The volume of spilled oil, wastewater and other fluids related to oil production alone increased 61 percent, the report said. Oil production for the same period was up by 23 percent. Incidents covered in the report ranged from small oil spills to the discharge of thousands of barrels of wastewater, said Beth Wojahn, a spokeswoman for the New Mexico Energy, Minerals and Natural Resources Department. “The overwhelming majority of these releases only require a soil cleanup,” Wojahn said. The department told the Legislative Finance Committee in its annual “report card” that failing pipelines and aging storage tanks, combined with new drilling and production technology, “might be responsible” for an increased number of spills. The department also told the committee that inspections had increased by 22 percent over the prior year, and that could account for the higher number of reported spills.

    Activists Call Attention To Oil Train Routes Near Water -- Wisconsin environmental groups want to know more about the rail industry’s clean-up plans, in case of an oil train accident near water. A coalition of groups held a protest Sunday near a rail bridge that passes over the confluence of Milwaukee and Menominee rivers.  Cheryl Nenn of Milwaukee RIverkeeper said that in the river basin alone, there are 36 locations where Canadian Pacific trains pass over water, plus many miles of track along the rivers. Nenn said in many oil train explosions, petroleum gets into water: “Whether it’s, you know, very close to it or maybe a little bit further away, a lot of the drainage all ends up somewhere in a waterway.” Nenn and other protest participants called on Canadian Pacific to share its spill response plans for waterways. The company said it has plans for every facility it operates in the state, plus a robust network of emergency response contractors and a close working relationship with the Department of Natural Resources and Coast Guard.

    Asked for info on bridge conditions, railroad carrying Bakken crude tells cities no -- Despite urging from a federal agency that railroads hand over more information on safety conditions of bridges, a carrier moving Bakken crude oil through Milwaukee says it doesn't plan to provide such details.  Sen. Tammy Baldwin (D-Wis.) distributed a letter from Sarah Feinberg, acting administrator of the Federal Railroad Administration, in which the regulator urged railroad carriers to provide more information to municipalities on the safety status of bridges. Milwaukee officials have complained about the lack of information on the structural integrity of railroad bridges used by Canadian Pacific in the city. "When a local leader or elected official asks a railroad about the safety status of a railroad bridge, they deserve a timely and transparent response," Feinberg wrote.  "I urge you to engage more directly with local leaders and provide more timely information to assure the community that the bridges in their communities are safe and structurally sound.""CP's position has not changed," said Andy Cummings, a manager of media relations for the company.  "It is our policy to work directly with the Federal Railroad Administration, which is our regulator, on any concerns they have with our infrastructure."The exchange comes in the wake of growing concerns from communities along rail corridors used by railroads shipping a growing tide of oil from the Bakken region of North Dakota.  Those worries have been exacerbated by tanker accidents. The most notable is the July 2013 derailment of tankers that killed 47 people in Lac-Megantic, Quebec. The tankers had been routed through Milwaukee before the accident.

    Wyoming Court Issues Injunction Against Fracking Rules For Public Lands  (Reuters) - A Wyoming judge on Wednesday granted a preliminary injunction against the federal government's regulations for hydraulic fracturing on public lands, handing a victory to oil and gas producers who had vehemently opposed the rules. U.S. District Judge Scott Skavdahl had put the regulations on hold in June as he weighed a request from energy industry groups and four states to stop the rules from being implemented until their lawsuit against the new standards was resolved. The rules issued by the Interior Department would require companies to provide data on chemicals used in hydraulic fracturing, or fracking, and to take steps to prevent leakage from oil and gas wells on federally owned land. The Independent Petroleum Association of America and the Western Energy Alliance were joined by Colorado, Wyoming, North Dakota and Utah in seeking to stop the new rules from taking effect. In his order granting the injunction, Judge Skavdahl ruled that federal agencies' only have authority to regulate hydraulic fracturing, or fracking, when the use of diesel fuel is involved. Skavdahl also questioned whether there was any justification for the fracking regulations.

    Firm behind $4 billion petrochemical plant enters deal with Continental Resources - A Denver-based company that unveiled plans last fall for a $4 billion petrochemical plant in North Dakota said Friday it has entered into a long-term ethane supply agreement with one of the biggest players in the state’s Oil Patch.Badlands NGL’s said it has entered a “precedent agreement” with Continental Resources Inc. to supply the plant with ethane gas, a byproduct of natural gas processing that will be converted into polyethylene for use in a wide variety of plastic products. “It’s a great vote of confidence for our project that a highly respected company like CLR will be a supplier,” Badlands CEO William Gilliam said in a news release. The length of the agreement with Continental Resources, one of the largest producers and leaseholders in the Williston Basin, wasn’t disclosed Friday. Gilliam told Forum News Service in June that the company was close to reaching a 10-year ethane supply agreement with one of North Dakota’s top three producers.

    New Report Exposes Hidden Fracking Subsidy on Public and Tribal Lands -- A new, peer-reviewed report from Friends of the Earth brings to light one of Big Oil’s most overlooked subsidies: royalty-free flaring on public and tribal lands.  As the fracking boom spreads across the country, companies eager to tap profitable shale oil are burning away—or flaring—natural gas in record amounts. This practice increases air pollution and sends climate-busting carbon dioxide directly into the atmosphere. Last updated 35 years ago, existing federal guidelines allow widespread flaring on public and tribal lands that is almost always exempt from royalties. “Royalty-free flaring is both a dangerous addition to climate disruption and a de facto subsidy for the oil industry,” said Lukas Ross, climate and energy campaigner at Friends of the Earth. “For over a century Big Oil has been subsidized to the hilt with everything from tax breaks to royalty free-leasing. To that list we can now add natural gas flaring—and it has to stop.”  Between January 2007 and April 2013, the BLM permitted the royalty-free flaring of 107,573,228 mcfs of natural gas on North Dakota public and tribal lands, producing carbon dioxide equivalent to the annual emissions of more than 1.3 million cars and wasting an estimated $524 million worth of resources.

    The Real Estate Crisis in North Dakota's Man Camps - Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. After struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn’t lasted long enough to support the oil-fueled building explosion.Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them. “We are overbuilt,” “I am concerned about having hundreds of $200-a-month apartments in the future.” The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. Predictions were that fracking would sustain production and a robust tax base for decades. Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official. The camps were supposed to be an interim solution until subdivision and apartment complexes could be built. Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding. Construction companies and investors went along for the ride.

    Frackers face mass extinction - Fortune -- Doomsday may finally be coming to the fracking industry.Despite the big drop in oil prices in the past year, there have been relatively few bankruptcies in the energy industry. That may be about to change. James West, an energy industry analyst at ISI Evercore, says months of low activity have left many of the companies in the hydraulic-fracturing business either insolvent or close to it. He says as many as a third of the fracking companies could go bust by the end of next year.“This holiday will not be a time of cheer in the oil patch,” says West.So far oil and gas exploration companies, while cutting back somewhat, have continued to spend based on budgets set a year ago when oil prices were much higher. But now West says the price of oil is catching up to them, and they may soon have to drastically cut back their spending on services. The catalyst is the banks.Banks lend to oil exploration companies based on the value of their reserves. But they only audit the value of those reserves every October. Given how much oil prices have tumbled in the past year, many analysts expect banks to greatly reduce in the next month how much they are willing to lend to oil and gas companies. Regulators, worried banks may face losses, have recently been pressuring banks to cut back their lending to oil and gas companies. On Friday, credit ratings firm Standard & Poors reported that its distressed ratio, which measures the percentage of corporate borrowers that investors appear nervous may not be able to pay back their debt, had reached the highest level since 2011. The oil and gas sector accounted for the largest number of the distressed borrowers, 95 out of 270.

    Push to lift ban on crude oil exports gains steam - The U.S. House of Representatives may be close to a vote on a bill that would eliminate a ban on exporting crude oil that has been in place for 40 years now. Those export restrictions were a reaction to the 1973 oil embargo by OPEC – the Organization of Petroleum Exporting Countries. But the U.S. oil market looks very different now, thanks to a dramatic increase in domestic oil production in recent years. The U.S. imported just 27 percent of the petroleum consumed last year – the lowest level since 1985. Even now, there are exceptions to the ban, such as exporting to Canada or “trades” with Mexico, where American light sweet crude is exchanged for Mexican heavy sour crude. Such swaps were approved by the Commerce Department last month and are supposed to help both refineries in both countries run better. But the push to lift the ban entirely has recently gained momentum. “It’s going to create more jobs here at home,” said Louis Finkel, with the American Petroleum Institute, as he summed up the pitch for lifting the ban. “It’s going to have a positive impact on our trade deficit and, most importantly, it’s going to have a positive impact on consumers.” He believes repealing the ban on crude exports will “create downward pressure on gasoline prices and benefit all American consumers.” However, those who want to maintain the export restrictions worry it'll have the opposite effect. "We are concerned that repealing the 40-year-old statutory prohibition on exporting U.S. crude oil could harm consumers, businesses and our national security," wrote Sen. Ed Markey in a June letter to President Obama, signed by 12 other Democrats.

    Allowing US oil exports could push crude prices higher -CBO (Reuters) - Lifting the ban on U.S. crude exports could push the price of domestic oil up roughly $2.50 a barrel in the coming decade, a report from the Congressional Budget Office said on Wednesday. "CBO estimates that authorizing exports of domestically produced crude oil without restrictions would increase wellhead prices of light oil by an average of roughly $2.50 per barrel over the 2016-2025 period, on an expected value basis," the report said.  The study, which weighs how crude exports could impact the federal budget, expects dropping the ban would stoke production and boost federal fuel royalties by about $1.4 billion in the next decade.  For a link to the report, click here:

    CBO: Lifting export ban increases U.S. crude oil prices - (UPI) -- Lifting the ban on exporting U.S. crude oil prices could lead to an increase of $2.50 per barrel for domestic producers, a federal report finds. Members of the House of Representatives are debating legislation that would end the ban on exports of domestically-produced crude oil. The ban was enacted in the 1970s to counter a decision by Arab members of the Organization of Petroleum Exporting countries to halt oil exports to the United States because of Washington's alliance with Israel. A report from the Congressional Budget Office finds authorizing U.S. crude oil exports under a bill sponsored by U.S. Rep. Joe Barton, R-Texas, would increase the price of U.S. crude oil by around $2.50 per barrel during a period ending in 2025. "CBO also expects that, if export restrictions are removed, higher wellhead prices would provide an incentive for firms in most parts of the country to produce more oil," the report said. "In particular, we expect that firms would increase oil production in three states -- North Dakota, Texas, and Oklahoma -- that contain the most light oil and accounted for about 90 percent of the increase in total U.S. oil production over the 2009-2014 period." An increase in crude oil production in the United States and OPEC decisions to keep output static has pushed crude oil prices to historic lows because global demand is low in major economies struggling to recover from the last recession. The low price of crude oil, meanwhile, means companies are working below their break-even prices, cutting staff and trimming spending on production.

    Refiners Take On Big Oil In Fight Over Crude Oil Export Ban - The price of a barrel of U.S. crude oil has plummeted by more than 50% since June 2014. U.S. producers claim that they're at a competitive disadvantage because they're restricted to selling their oil domestically at a time when they desperately need new markets to sell their expanding inventories. Congress is now debating whether or not to lift the 1970's era ban on crude oil exports that was established in the name of protecting national energy security. Legislation to lift the ban has passed in the U.S. House Committee on Energy and Commerce. Now the Senate Banking Committee is attempting to craft its version.  The debate is hardly black and white: Some of the major players in the American energy sector oppose the idea.The debate has implications for both employment in the energy industry and for national security. To set the stage, imagine that you refine crude oil in this country. You buy the oil at a price known as WTI, West Texas Intermediate. That’s the benchmark price for U.S. crude. WTI is less, sometimes a lot less than Brent crude, the world’s benchmark price.So you buy the discounted U.S. oil, refine it and sell the finished product to the highest bidder. “Right now because we don’t export crude oil, there is what some view as a disproportionate amount of profits going to refiners," said economist Carey King at the University of Texas at Austin’s Energy Institute."Because they can take in cheaper crude oil in the U.S. and export refined products at a global price for gasoline and diesel," he said.Refiners have a decidedly different take. They’ve spent billions of dollars over the last two decades to be better refiners of heavy, sulphur-laden oil known as sour crude because that’s what traditional drilling pulled up.  But fracking, which has triggered a shale revolution in this country, is pulling up a higher quality grade of oil with much less sulphur called light, sweet crude. U.S. refiners are adapting to process an abundance of light, sweet crude oil, but not nearly fast enough to accommodate many U.S. producers.

    America's Oil Output Refuses to Collapse. Here's One Reason Why.  - More and more sand is getting stuffed down wells to try to better pry open the rock and bolster output. Some of this is just a cost phenomenon. In the wake of crude’s selloff, the sand market collapsed too, driving down the price 30 percent and making it cheaper to shovel more grit in. The initiative, though, began years earlier, the result of engineers tinkering with inputs and discovering one of the many little technological breakthroughs that have helped the shale industry weather the downturn better than their legions of skeptics predicted. For proof of greater productivity, look no further than total U.S. output: It remains within 3 percent of a 40-year high even though drillers have idled more than half of their rigs. The increase in sand usage has been steady. Back in 2012, the average well in the Eagle Ford received less than 1,000 pounds for every foot that the opening snaked down into the ground, according to energy consulting firm Wood Mackenzie Ltd. By 2013, that number was about 1,200 pounds. And last year it climbed to over 1,500 pounds. A study of more than 1,000 wells in the Eagle Ford -- a region that accounts for 15 percent of all U.S. oil output -- revealed that the injection of additional sand can triple output in some cases, according to Bloomberg Intelligence analysts William Foiles and Andrew Cosgrove.Sand, of course, has been used in the oil industry for decades. But the traditional vertical wells that dominated the landscape for much of that time needed little more than a sprinkling. The rock in those wells tends to be porous and permeable, allowing natural underground pressure to squeeze the oil up to the surface. Shale rock is different. It’s more like concrete. Hydraulic fracking relies on large quantities of both sand and water to tease the oil out. The water is blasted into the well at high pressure to create tens of thousands of tiny cracks in the rock. The sand keeps the cracks open, elongates them and makes them more jagged. Increase the amount of sand and you increase the amount of fractures that stay open.

    So far, less pain than feared as U.S. shale firms renew loans (Reuters) – A number of U.S. shale oil and gas companies are securing unchanged or even increased credit allotments during their semi-annual loan reviews, defying expectations that banks would slash small firms’ credit lines in response to low crude prices. According to a Reuters review of disclosures made by 19 independent U.S. shale oil and gas companies since Aug. 1, at least 11 have said their borrowing bases have been or will be maintained or increased. In contrast, just five talked about cuts. It is too early to tell if the whole sector will emerge equally largely unscathed from the reviews. Many more companies from a batch of about 60 U.S. independents typically tracked by investment banks will probably make disclosures after the usual loan reset deadline of Oct. 1. But outcomes so far suggest an expected pullback by banks may be far less severe than many in the industry have feared. “I’ve seen some companies maintaining borrowing bases and some companies even increasing borrowing bases, though other companies are cutting,” “It really is on a case-by-case basis.” The Office of the Comptroller of the Currency has voiced concern about banks’ exposure to oil’s nearly 60 percent slide given crude prices serve to determine the value of borrowers’ assets. A survey of a broad range of 182 energy industry professionals this month by the law firm Haynes & Boone showed they expected borrowing bases linked to valuations of oil and gas reserves to fall on average by 39 percent. However, a quarterly survey of 40 energy lenders by the advisory firm Macquarie Tristone showed the average oil price they use to size their loans has edged down only about 5 percent in the last six months, suggesting just a modest pullback in lending

    Natural Gas Prices Retreat on Mild Weather - WSJ: Natural gas prices dropped to a five-month low on Wednesday, as forecasts for a mild start of autumn softened expectations for demand and pushed gas to its worst quarter of the year. Prices for the front-month November contract fell 6.2 cents, or 2.4%, to $2.524 a million British thermal units on the New York Mercantile Exchange. It was the lowest settlement since April 28. That was also its largest one-day loss in two weeks. Natural gas has now fallen in four of the past five quarters, losing 30.8 cents per mmBtu, or 11%, since June 30. Production has only decreased incrementally from its record pace, and that oversupply is suffocating prices as autumn arrives, said Frank Clements, co-owner of Meridian Energy Brokers Inc. A Wall Street Journal survey shows analysts and traders expect federal data coming Thursday will show the largest weekly surplus of natural gas since early June, putting stockpiles 4.6% above their five-year average level for this week of the year. “There’s nothing to keep this market from going lower,” Mr. Clements said. Weather forecasts suggest above-normal temperatures for large parts of the country in the first two weeks of October. It is a reversal from earlier this week when they showed much larger patches of below-normal temperatures settling in.

    Natural Gas Price Hits New Low Before Storage Report - The U.S. Energy Information Administration (EIA) reported Thursday morning that U.S. natural gas stocks increased by 98 billion cubic feet for the week ending September 25. Analysts were expecting a storage injection (increase) of around 100 billion cubic feet. The five-year average for the week is an increase of around 94 billion cubic feet, and last year’s addition for the week totaled 112 billion cubic feet. Natural gas futures for November delivery traded down about 1.6% in advance of the EIA’s report, at around $2.50 per million BTUs, and remained unchanged after the data release. Natural gas posted a new 52-week low earlier in the morning at $2.47. Last Thursday, natural gas closed at $2.67 per million BTUs, and over the past five trading days natural gas futures peaked last Monday at around $2.67. The 52-week high for natural gas futures is $4.03. One year ago the price for a million BTUs was around $3.99. Moderate fall temperatures across most of the United States will lower demand for natural gas both for heating in some areas and for cooling in others. The eastern United States and the Midwest continue to see milder temperatures, although nighttime temperatures may have some Americans turning on their furnaces, and even the Southeast, which is the warmest region of the country this week, is experiencing lower high temperatures. Natural gas supplies continue to be plentiful and demand is slowing down, at least for now.

    Oil up, then pares gains after U.S. inventory build data (Reuters) - Oil prices rose almost 2 percent on Tuesday, but then pared gains in post-settlement trade after an industry group reported a surprisingly large weekly build in U.S. crude inventories. The American Petroleum Institute (API) said U.S. crude stockpiles rose 4.6 million barrels in the week to Sept. 25 to reach 457.8 million barrels. Analysts polled by Reuters had expected an increase of only 102,000 barrels. "It's certainly a pretty big build for U.S. oil stocks," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland. But some investors were encouraged that the API inventory figures also showed a drawdown of nearly 1.2 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures. Cushing storage levels are key for the market's psyche and can temper headline numbers for oil inventories. Market intelligence firm Genscape estimated on Monday that Cushing stockpiles fell by around 1 million barrels last week, after back-to-back drawdowns of about 2 million barrels in two previous weeks.

    Jack Kemp's Weekly Crude Oil, Natural Gas Update Tweets -- September 30, 2015; Propane Stocks -- Already Sky-High -- Hit New Record

    • California gasoline emergency is over as West Coast stockpiles return to normal levels.
      West Coast refineries start to turn down now that gasoline stocks have returned to normal levels.
      Propane stocks hit fresh record, residual fuel oil stocks continue to flat line. Comment: the propane charts will all re-set after this year -- it's quite incredible, the US energy revolution.
      US distillate stocks flat at 151.6 million bbl but +26 million bbl above 2014 level and +19 million above 10-yr avg.

    Oil inventories rise as refineries slow down - Fuel Fix: U.S. refineries slowed down last week, contributing to a buildup in oil inventories, the government reported Wednesday. Refineries have been paring back operations for scheduled fall maintenance, which typically occurs through much of October. The oil they’re not processing is heading into storage tanks, pushing inventories up by 4 million barrels week over week and raising producers’ fears that stranded oil could keep crude prices low. In afternoon trading Wednesday, U.S. benchmark crude was down 46 cents to $44.77 a barrel on the New York Mercantile Exchange. U.S. refineries ran at 89.8 percent of capacity last week, processing 16 million barrels of oil per day. Near the end of August, refineries were running at 94.5 percent capacity and handling 16.7 million barrels per day. Some analysts worry that the pullback in refinery operations, combined with a global oversupply of oil, could leave tanks near their limits. U.S. tanks now hold about 457.9 million barrels of oil, the highest level for this time of year in at least the last 80 years, according to the U.S. Energy Information Administration. Various estimates put the U.S. total storage capacity at around 520 million barrels, though it’s likely oil prices would fall significantly before levels rose that high.

    Oil Prices Flip-Flop, End Lower on Mixed Inventory Data - WSJ: Oil prices inched down on Wednesday, fluctuating around unchanged levels several times after data showed an unexpectedly large addition to U.S. stockpiles but also some local stockpile withdrawals. Light, sweet crude for November delivery settled down 14 cents, or 0.3%, at $45.09 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, settled up 14 cents, or 0.3%, at $48.37 a barrel on ICE Futures Europe. Both benchmarks ended their worst quarters of the year and losses in four of their last five quarters. U.S. oil lost $14.38 a barrel, or 24%, and Brent lost $15.22 a barrel, or 24%. The U.S. Energy Information Administration showed crude stocks grew 4 million barrels last week, compared with analysts’ expectations for just a 300,000-barrel draw. However, The American Petroleum Institute reported late Tuesday that inventories grew by 4.6 million barrels, so many traders had prepared for an even larger addition. The data also showed a decline in stocks at Cushing, Okla., the delivery point for the benchmark Nymex contract. That helped balance out the large gains in total stockpiles and prices spiked back up as traders dove deeper into the report and absorbed those numbers, brokers said. U.S. production also continued its gradual decline, though the change was small, down 0.4% from last week at 9.1 million barrels a day.

    Oil mixed on U.S. crude build, Syria; down 24 percent on quarter | Reuters: Oil prices ended mixed in volatile trade on Wednesday, with global benchmark Brent up on worries about Russian airstrikes in Syria and U.S. crude down after data showing a surge in domestic inventories. For the quarter, both Brent and U.S. crude were down 24 percent for their sharpest decline since the end of 2014. Oil prices were broadly boosted in early trade by concern about a hurricane threatening energy infrastructure on the U.S. East Coast. Book balancing by traders at the end of the month and the third quarter also made for choppy trade. "It's the typical month-end, quarter-end 'window dressing' phenomenon," said Tariq Zahir, fund manager and crude oil spreads trader at Tyche Capital Advisors in Laurel Hollow, New York. Warplanes from Russia carried out air strikes against Islamic State targets in Syria, feeding worries about growing war in the Middle East.

    OilPrice Intelligence Report: Don’t Be Fooled By Latest U.S. Production Data: Despite the volatility, which has become the norm, oil prices close out the week not much changed from Monday. After growing evidence that U.S. supply was contracting, the EIA reported that U.S. oil production rose in July (the latest month for which data is available) by 94,000 barrels per day, compared to June. The monthly figures are much more reliable than the weekly estimates, so the increase can be considered more of a solid barometer of where the U.S. supply picture has been heading, although only in retrospect. However, the uptick needs some context. The increases came exclusively from the Gulf of Mexico where output jumped by 147,000 barrels per day. The Gulf of Mexico has entirely different time horizons for projects than U.S. shale. Projects take years to develop, so increases are coming from projects planned before the crash in oil prices. The production gains blur what is actually going on in the U.S., which is ongoing decline in output. Without the Gulf of Mexico, U.S. output would have dropped by another 53,000 barrels per day in July from a month earlier. And in the key shale states, which are garnering much of the attention in terms of trying to figure out how quickly U.S. output will adjust to lower prices, the drop offs continue. Texas lost 12,000 barrels per day; North Dakota lost 3,000 barrels per day, and Oklahoma lost 17,000 barrels per day. Only Colorado saw a decent increase in production. Still, even when leaving out the gains in the Gulf of Mexico, a decline of 53,000 barrels per day is a slower decline than the 115,000 barrels per day lost between May and June. That, coupled with the news that the U.S. saw another uptick in the level of crude oil in storage, was bearish for oil this week.

    U.S. Oil-Rig Count Falls to 614 - WSJ: The U.S. oil-rig count dropped by 26 to 614 in the latest reporting week, extending a recent streak of declines, according to Baker Hughes Inc. BHI 4.24 % The number of U.S. oil-drilling rigs, which is viewed as a proxy for activity in the oil industry, has fallen sharply since oil prices started falling last year. After a six-week streak of modest growth, the rig count has now declined for five consecutive weeks. Crude oil prices recently were up 0.4% to $45.13. There are now about 62% fewer rigs working since a peak of 1,609 last October. According to Baker Hughes, the number of gas rigs fell by two to 195. The U.S. offshore rig count was 30 in the latest week, down three from last week and down 31 from a year ago. For all rigs, including natural gas, the week’s total declined by 29 to 809.

    U.S. oil drillers cut rigs for 5th week -Baker Hughes (Reuters) – U.S. energy firms cut 26 oil rigs in the latest week, the biggest reduction since April and the fifth straight weekly decline, data showed on Friday, a sign low prices were pushing drillers away from the well pad. The cutback for the week ended Oct. 2 brought the total rig count down to 614, the least since August, 2010. In the previous four weeks, drillers cut a total of 35 rigs, oil services company Baker Hughes Inc said in its closely followed report. U.S. crude prices rose 1.5 percent in the minutes after the report. The latest rig count is less than half the 1,591 oil rigs in the same week a year ago and also far below the all-time high of 1,609 in October 2014. They have erased the 47 oil rigs energy firms added in July and August. The summertime additions came when U.S. crude was priced around $60 a barrel. This week, U.S. oil averaged $45 a barrel, the same as during the month of September, on continued worries about lackluster global demand and oversupply.  U.S. crude futures jumped after Baker Hughes released the report on expectations of reduced crude production in the months ahead. Crude prices had been flat just before the report. Baker Hughes also reported a reduction in natural gas rigs, bringing total U.S. rigs were to a 13-year low. Natural gas rigs were down two this week to 195, the lowest level in at least 28 years, according to the Baker Hughes data going back to 1987.

    Oil rebounds on largest rig count drop since April - Fuel Fix: — U.S. drillers idled another 26 oil rigs this week, sending the price of oil higher and bringing the number of rigs chasing crude to a five-year low. This was the largest week-over-week decrease since April and brings the number of active oil rigs to 614. That’s below the previous low for 2015 set in May, according to the count by oil service firm Baker Hughes. The number of gas rigs fell by two to 195 and miscellaneous rigs fell by one. Combined, the rig count fell by 29 to 809. U.S. crude oil swung to a gain shortly after the report was released. Traders bid the price up by 59 cents or 1.3 percent to $45.33 per barrel. Before the report, oil had edged lower on a weaker-than-expected jobs report. Between May and August, drillers added rigs and resumed drilling as the price of oil rebounded to near $60 per barrel in a short-lived rally. But the count began falling once more in September as the price of oil resumed its slide.  The Baker Hughes rig count serves as a proxy for oil industry activity. Less drilling will ultimately mean fewer barrels of oil pulled from the ground. Recently, though, the relationship between U.S. production and the number of active rigs has grown more complex, as drillers have managed to keep production high despite a massive falloff in the rig count.  Last month, the U.S. Energy Information Administration said that shale production has fallen by a relatively small 350,000 barrels a day since the shale boom reached its peak in April.

    In A Win For Anti-Pipeline Activists, TransCanada Backs Out Of Keystone XL Lawsuit -- TransCanada, the Calgary-based company behind the controversial Keystone XL pipeline, has backed out of a lawsuit filed by more than 100 Nebraska landowners, the company announced Tuesday. The energy company had been trying to gain access to private land along the proposed path of the tar sands pipeline, but had been held up legally by landowners who were opposed to letting the pipeline through their land. Now, instead of trying to gain access to that land through legal means, TransCanada will apply for a permit for Keystone XL with Nebraska’s Public Service Commission.   TransCanada says the decision will bring more certainty to Keystone XL’s route through Nebraska. But it also could cause further delays for the project, as a PSC approval can take a year or longer.  Previously, TransCanada sought to avoid the PSC approval process, choosing instead to give the state’s governor final approval over the project’s application in Nebraska. The law that gave the company the ability to choose was heavily challenged in court, but ultimately upheld.  Anti-pipeline activists in Nebraska applauded the news of TransCanada’s retreat from the lawsuit. “This is a major victory for Nebraska landowners who refused to back down in the face of bullying by a foreign oil company,”  “It has long been clear that TransCanada has no legal route through the state of Nebraska and no legal right to use eminent domain against landowners. Now they’ve recognized that they’ve lost in Nebraska and are desperately trying another tactic to see their risky pipeline built through our state.”

    Shell says it will cease Alaska offshore Arctic drilling: Royal Dutch Shell will end exploration in off shore Alaska "for the forseeable future,'' after an exploratory well in the Chukchi Sea failed to yield the oil and gas that was hoped for. Shell had drilled the Burger J well down 6,800 feet, and thought the exploration would pay off because of its location in a basin that it believed had the qualities that signal a significant reservoir of petroleum. But while it "found indications of oil and gas,'' it wasn't enough to justify continued exploration and so the company says it will seal the well and move on. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” Marvin Odum, president of Shell USA, said in a statement. “However, this is a clearly disappointing exploration outcome for this part of the basin.” The company also said it was ending its efforts in the basin because of the expense, and the contentious regulatory climate in the area. The announcement was a major setback for Shell, which hoped that drilling off the Alaska coast would boost the company's revenue. Environmentalists, who had been against the exploration, were pleased with Shell's decision.

    Shell abandons Alaska Arctic drilling -- Shell has abandoned its controversial drilling operations in the Alaskan Arctic in the face of mounting opposition. Its decision, which has been welcomed by environmental campaigners, follows disappointing results from an exploratory well drilled 80 miles off Alaska’s north-west coast. Shell said it had found oil and gas but not in sufficient quantities.  The move is a major climbdown for the Anglo-Dutch group which had talked up the prospects of oil and gas in the region. Shell has spent about $7bn (£4.6bn) on Arctic offshore development in the hope there would be deposits worth pursuing, but now says operations are being ended for the “foreseeable future.”  Shell is expected to take a hit of around $4.1bn as a result of the decision. The company has come under increasing pressure from shareholders worried about the plunging share price and the costs of what has so far been a futile search in the Chukchi Sea.   Shell has also privately made clear it is taken aback by the public protests against the drilling which are threatening to seriously damage its reputation. Ben van Beurden, the chief executive, is also said to be worried that the Arctic is undermining his attempts to influence the debate around climate change.  His attempts to argue that a Shell strategy of building up gas as a “transitional” fuel to pave the way to a lower carbon future has met with scepticism, partly because of the Arctic operations. A variety of consultants have also argued that Arctic oil is too expensive to find and develop in either a low oil price environment or in a future world with a higher price on carbon emissions.

    Shell Abandons Arctic Drilling After Poor Test Results -- Royal Dutch Shell Plc is to stop drilling for oil off the Alaskan coast “for the foreseeable future” and take a financial hit, after initial exploration results failed to live up to expectations. The news will dismay shareholders, who have seen the company plow $7 billion into a high-risk, high-return bet that has failed to pay off. It illustrates the souring climate for high-cost oil production against a backdrop of low prices around the world. Over $200 billion of exploration and production projects has been scrapped since Saudi Arabia decided it would no longer restrain output to keep prices high, according to some estimates.  At the same time, it will delight environmentalists who have been campaigning to stop the project. A spokesman for the environmentalist NGO Greenpeace, which has waged a high-profile campaign against drilling in the Arctic, said there were “hugs and high fives in the office” at what could prove to be a watershed moment for the future of the offshore industry in Alaska. Shell said in a statement it had found indications of oil and gas in the Burger J well, some 150 miles from Barrow, Alaska, but said it wasn’t enough to justify further exploration. The company valued its Alaskan operations at $3 billion but now said it “expects to take financial charges as a result of this announcement.” It’s also locked into another $1.1 billion of contractual commitments. However, it didn’t say how much it expected to have to write off against the project. Shell had paid $2.1 billion for drilling rights in a block of the Chukchi Sea–an area half the size of the Gulf of Mexico–in 2008, when global oil prices were close to their all-time highs.

    Shell Abandons Arctic Drilling Following ‘Disappointing’ Results -- After finding little oil and natural gas, Royal Dutch Shell announced today it would end its controversial Arctic drilling operations in the Chukchi Sea off Alaska’s coast “for the foreseeable future.” Shell said the amount of oil and gas found in the Burger J well is “not sufficient to warrant further exploration.” The well will be sealed and abandoned in accordance with U.S. regulations, the company said. The oil giant is also making efforts to safely demobilize people and equipment from the Chukchi Sea. “Shell continues to see important exploration potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” said Marvin Odum, the director of Shell Upstream Americas. “However, this is a clearly disappointing exploration outcome for this part of the basin.” Shell said its decision to cease drilling was also based on the “high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska.” According to the Associated Press, Shell spent more than $7 billion on Arctic offshore exploration. The company said it expects to lose approximately $4.1 billion as a result of ceasing operations.

    Shell Exits Arctic as Oil Slump Forces Industry to Retrench - Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic on Monday in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.The decision came after one well drilled by Shell this summer came up mostly dry, and environmental groups declared a major victory. But at a time when global markets are glutted with oil, it also confirmed major oil companies’ increasing willingness to turn their backs on the most expensive new drilling prospects in the Gulf of Mexico and suspended plans for new projects in Canada’s oil sands. Shell spent more than $7 billion on its Alaska venture.  The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. At the same time, companies have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota. United States oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States. Even exports from Saudi Arabia are beginning to ebb because of a glut in its Asian markets. “The decision by Shell to abandon its Arctic drilling program for now primarily reflects the realities of lower global oil prices,” . “When prices go down the oil industry shortens their list of projects in development by removing the most expensive ones.”

    Why Shell Quit Drilling in the Arctic - Royal Dutch Shell's abrupt announcement today that it would cease all offshore drilling in the Arctic is surprising for several reasons. One is the unusual degree of confidence the company expressed as recently as mid-August that it had identified 15 billion barrels of oil beneath the well known as Burger J it's now abandoning. What on earth happened?  After spending $7 billion over several years to explore a single well this summer, Shell said in a statement that it "found indications of oil and gas … but these are not sufficient to warrant further exploration." This contrasts sharply with Shell officials' statements as recently as July and August that based on 3D and 4D seismic analysis of core samples, its petroleum geologists were "very confident" drillers would find plentiful oil. The geologists' expectations were the main reason Shell spent all that money on a project that entailed much-higher-than-average operational risks and international environmental condemnation. Giving up has got to hurt at a company that prides itself on scientific and technical prowess. Shell said it would take an unspecified financial charge related to the folding of its Arctic operation, which carries a value of $3 billion on the company's balance sheet. In late July, when Ann Pickard, Shell's top executive for the Arctic, explained the economics of drilling in the Chukchi Sea, she readily acknowledged that if oil prices remained below $50 a barrel, the off-shore adventure would be for naught. At $70, Chukchi oil would be "competitive," she told Bloomberg Businessweek, and at $110—a reasonable projection, according to the company's economists—it would be a huge winner. She was talking about prospective prices 15 years from now.

    With Shell’s Failure, U.S. Arctic Drilling Is Dead - After more than eight years of planning and drilling, costing more than $7 billion, Royal Dutch Shell announced that it is shutting down its plans to drill for oil in the Arctic. The bombshell announcement dooms any chance of offshore oil development in the U.S. Arctic for years. Shell said that it had completed its exploration well that it was drilling this summer, a well drilled at 6,800 feet of depth called the Burger J. Shell was focusing on the Burger prospect, located off the northwest coast of Alaska in the Chukchi Sea, which it thought could hold a massive volume of oil. On September 28, the company announced that it had “found indications of oil and gas in the Burger J well, but these are not sufficient to warrant further exploration in the Burger prospect. The well will be sealed and abandoned in accordance with U.S. regulations.” After the disappointing results, Shell will not try again. FT reports that Shell executives privately admit that the environmental protests damaged the company’s reputation and had a larger impact than they had anticipated.  However, low oil prices were the nail in the coffin for the ill-fated Arctic drilling program. Oil from the Chukchi Sea is far from profitable when oil prices are at $50 per barrel. The costs to drill are exceptional, with unique challenges that aren’t found elsewhere. Drillers have to avoid sea ice. Offshore Alaska occasionally experiences hurricane-force winds (Shell had to briefly pause this summer’s drilling because of bad weather). The drilling season is short, with federal guidelines only allowing drilling for a few months out of the year. Even worse, there is inadequate infrastructure – the closes deep-water port is 1,000 miles away. All of this made it absolutely crucial that the company found vast volumes of recoverable oil. Even a sizable find wouldn’t be enough; Shell needed billions of barrels of oil. Justifying his decision to move forward to skeptical investors, Shell’s CEO Ben van Beurden said in July that its target in the Arctic could have been 10 times what Shell has cumulatively produced in the North Sea to date.

    Alaska Fears Fallout of Shell's Arctic Drilling Decision: — Royal Dutch Shell’s dry hole in the Chukchi Sea may be disappointing to shareholders, but it’s potentially devastating to Alaska.The company’s decision to end oil exploration in offshore Alaska for the foreseeable future means the state must find another source to fill the 800-mile trans-Alaska pipeline and solve its economic woes, Gov. Bill Walker said.“We need to get some oil in the pipeline, and we need to do it as quickly as possible and in the safest method possible,” Walker said. He is suggesting the federal government open the Arctic National Wildlife Refuge to natural gas drilling. The petroleum industry funds upward of 90 percent of state government. Declining oil production and low prices have left Alaska with a billion-dollar budget gap, and state leaders saw rays of hope in Shell’s offshore prospects. A transition to production — though a decade or more off — would have meant jobs, potential revenue and a source to replenish the trans-Alaska pipeline, now running less than one-quarter full. Kara Moriarty, president and CEO of the pro-industry Alaska Oil and Gas Association, noted other companies holding leases in the Arctic were waiting to see what happened with Shell and will follow its lead. “I haven’t talked to anyone, but I have very low expectation that we’re going to see any type of exploration or development in the Arctic anytime in the near future,” she said. She cited a loss of jobs as one of the biggest immediate effects in the state. “At any given day during the project this summer, they’d have 600 to 800 workers and another 600 to 800 workers waiting to shift in and out, on a two-to three week rotation,” Moriarty said. “So, I think in the short-term, it’s loss of jobs, it’s loss of investment.”

    Alaksa Pipeline Viability -- September 29, 2015 --I am posting a note here, but I follow the bigger story chronologically at this post. is reporting:
    Royal Dutch Shell's dry hole in the Chukchi Sea may be disappointing to shareholders, but it's potentially devastating to Alaska.  The company's decision to end oil exploration in offshore Alaska for the foreseeable future means the state must find another source to fill the 800-mile trans-Alaska pipeline and solve its economic woes, Gov. Bill Walker said. "We need to get some oil in the pipeline, and we need to do it as quickly as possible and in the safest method possible," Walker said. He is suggesting the federal government open the Arctic National Wildlife Refuge to natural gas drilling. The petroleum industry funds upward of 90 percent of state government. Declining oil production and low prices have left Alaska with a billion-dollar budget gap, and state leaders saw rays of hope in Shell's offshore prospects.  Confirmation of the estimated 15 billion barrels in the Chukchi lease area could have led to additional exploration by other leaseholders. And a transition to production — though a decade or more off — would have meant jobs, potential revenue and a source to replenish the trans-Alaska pipeline, now running less than one-quarter full.

    Will declines in U.S. and Canadian oil production lead to a global decline?  --At the beginning of this year I noted that all of the growth in world oil production* since 2005 has come from two countries: the United States and Canada. And, I suggested that since the growth in production in those two countries came from high-cost deposits--tight oil in the United States and tar sands in Canada--that the precipitous drop in oil prices would lead to declines in production in both countries. I concluded that unless another area of the world suddenly started growing its oil production significantly that those declines would probably result in a worldwide decline in oil production.Well, declines in the both the United States and Canada have arrived. It will be several months before we can know with any certainty whether those declines will translate into a persistent global decline. But this much we do know:  The International Energy Agency, a consortium of 29 countries tasked with tracking worldwide energy trends, said in its latest report that global oil production fell 600,000 barrels per day in July--and here's the important part--"mainly on lower non-OPEC output." That's a reference to falling U.S. and Canadian production. One month does not make a trend. But the report notes that non-OPEC supply is expected to contract in 2016.  The report said that further declines in U.S. production are expected. Weekly estimates from the U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, bear this out. The EIA put U.S. production at 9.1 million barrels per day (mbpd) for the week ending September 18; that's down from 9.6 mbpd in early June.  Canadian production has fallen since the beginning of the year from 4 mbpd to an estimated 3.6 mbpd in June when the numbers were last updated according to the country's National Energy Board.

    The Oil-Sands Glut Is About to Get a Lot Bigger - The last place oil producers want to be when prices plummet to profit-demolishing lows is midstream on a billion-dollar project in one of the costliest parts of the planet to extract crude. Yet that’s exactly where half a dozen oil sands operators from Suncor Energy Inc. to Brion Energy Corp. find themselves with prices for Canadian oil now hovering around $30 a barrel. While all around them projects have been postponed or canceled, their investments were judged too far along when the oil game suddenly moved from offense to defense. These projects will add at least another 500,000 barrels a day -- roughly a 25 percent increase from Alberta -- to an oversupplied North American market by 2017. For companies stuck spending billions in a downturn, the time required to earn back their investments will lengthen considerably, said Rafi Tahmazian, senior portfolio manager at Canoe Financial LP. “But the implications of slowing down a project are worse,” said Tahmazian, who helps oversee about C$1 billion ($758 million) in energy funds at the Calgary investment firm. A general rule of thumb says new plants require a West Texas Intermediate price of $80 a barrel to break even. Western Canada Select, a blend of heavy Alberta crude, is currently selling at a discount of about $14 a barrel to the WTI benchmark, which fell 1.5 percent Friday to settle at $46.05 on the New York Mercantile Exchange.

    Canada’s native chiefs reviewing treaty to block oil industry expansion (Reuters) – Native chiefs in the Western Canadian province of British Columbia voted on Wednesday to join some of their eastern counterparts opposed to a major pipeline project, in a move some leaders described as a step toward a national alliance aimed at blocking expansion of Alberta’s oil sands industry. The chiefs from British Columbia agreed to join opposition to the Energy East project – proposed by TransCanada Corp at the meeting, also attended by chiefs from the Canadian provinces of Ontario, Manitoba and Quebec. If approved, the Energy East pipeline would carry up to 1.1 million barrels of crude oil per day from Alberta’s oil sands to the Atlantic coast, along a 4,200 km (2,850-mile) route. Canada’s oil sands in northern Alberta are home to the world’s third-largest crude reserves but they also represent the country’s fastest growing source of greenhouse gas emissions due to their energy intensive production methods. While the industry has said it needs to expand pipelines to give it access to new markets and promote responsible expansion, environmental and aboriginal groups and some municipalities across the country have opposed new projects, due to the risk of spills and the climate change impacts. The native leaders also released a draft national treaty at the meeting, to be circulated among First Nations across the country, that would call for them to prohibit, challenge and resist use -whether by pipeline, rail or tankers – of their territories for expansion of oil sands production.

    Trouble Ahead For The World’s Next Shale Boom? --Argentina has often been held up as the next most likely location for a shale revolution, with some of the largest shale oil and gas reserves in the world. Argentina could hold more than 800 trillion cubic feet of shale gas, more than the U.S., and second only to China, according to the EIA. Its shale oil resources, at 27 billion barrels, are also significant. If Argentina is to succeed in developing its shale resources, the Vaca Muerta is where it will happen. The shale basin in central Argentina has been one of the most watched shale basins outside of North America, with significant interest and investment from major international oil companies including ExxonMobil, Royal Dutch Shell, Chevron, Wintershall, Total, and Russia’s Gazprom. Chevron’s $1.2 billion deal with Argentina’s YPF in 2013 raised expectations that the boom was not far behind.  Despite the presence of international companies and the few hundred wells drilled to date, it is still early days. Production has ticked up, but the shale region has barely been picked over. Chevron and YPF are producing around 43,000 barrels per day of oil equivalent from the Vaca Muerta. Low oil prices, however, are dampening activity in the country. YPF’s Miguel Galuccio said in April that, with oil prices so low, some wells are not profitable. “It is not profitable with an $11 million well and prices at $50 per barrel. We drilled our vertical wells with the expectation that they would be profitable at $84 per barrel and with wells that cost between $6.5 or $7 million,” he said. YPF has succeeded in bringing down the cost of drilling, but it is still shy of its target of $4 to $5 million per well, which would be much closer to the drilling costs in North America. Producing oil in Argentina does have one unique benefit, however. The Argentine government regulates prices, allowing producers to sell oil at a set price of $77 per barrel, rather than the much lower international price.   Argentina does have much higher drilling costs and less infrastructure in and around the Vaca Muerta, but the regulated oil price offers one advantage for oil companies in Argentina when market prices collapse.

    Russian Oil Producers Head for Tax Showdown Amid Output Warnings - Russia’s oil industry begins a critical battle over taxes this week. Losing may result in the first decline in crude production at the world’s largest energy exporter since 2008. Oil producers are due to meet with Russian Prime Minister Dmitry Medvedev Monday to present their joint view on Finance Ministry proposals to increase crude oil extraction taxes, said two company representatives who asked not be be identified because the meeting isn’t public. The ministry wants to boost revenue by about 600 billion rubles ($9.1 billion) in 2016 alone to mitigate the biggest budget deficit in years. The price of crude plunged by about 50 percent over the past year because of a global oversupply. While Russia’s government finances have deteriorated, its oil companies have proved more resilient to the slump as some tax rates automatically adjusted lower and a weaker ruble reduced their costs. The nation’s oil production rose to a post-Soviet record of 10.72 million barrels a day in June. “If the Fin Min proposal is approved in the current form, we expect the total production decline to reach 1.5 percent to 2 percent in 2016,” Karen Kostanian, oil and gas analyst at Bank of America Corp., said by phone. Output will fall because of cuts to capital expenditure estimated at $2 billion to $3 billion, he said.

    Survey: OPEC Oil Output Rises In September, Led By Iraq  (Reuters) - OPEC oil output has risen in September from the month before, a Reuters survey found on Wednesday, as Iraq's northern exports recovered from disruption that had halted supply growth from the group's second-largest producer. Saudi Arabia and other Gulf members of the Organization of the Petroleum Exporting Countries have kept output mostly steady, a further sign they are sticking to their focus on defending market share instead of prices. OPEC supply has increased in September to 31.68 million barrels per day (bpd) from a revised 31.57 million in August, according to the survey, based on shipping data and information from sources at oil companies, OPEC and consultants. With the increase in supply this month, OPEC has boosted production by almost 1.5 million bpd since it switched in November 2014 to defending market share from its previous policy of cutting output to prop up prices. Oil prices have almost halved in the past year to $48 a barrel because of excess supply, although analysts see signs that OPEC's strategy to curb growth in higher-cost production by letting prices fall is starting to deliver.  The OPEC supply boost in September has come from Iraq and a few smaller producers. Shipments from Iraq's north via Ceyhan in Turkey by Iraq's State Oil Marketing Organisation and the Kurdistan Regional Government have increased from August, when halts in the flow along the pipeline from Iraq slowed exports. Smaller increases have come from OPEC's two west African producers, Nigeria and Angola, both of which have slightly boosted exports, according to loading schedules. Nigerian exports are set for further growth in October.

    No need for OPEC, non-OPEC producers summit: Kuwait – A summit of OPEC and non-OPEC, as suggested by Venezuela, would be pointless as independent producers are not committed to cutting output, Kuwait’s oil minister said on Monday. “The problem is that there is no commitment from the countries outside OPEC on what they would offer for the stability of prices,” Ali al-Omair said. “Their request from the OPEC members is to… reduce production while others continue pumping, and then we lose our market share.” Cash-strapped OPEC-member Venezuela has for months been pushing for an emergency OPEC meeting with Russia to stem the tumble in prices. The Organization of the Petroleum Exporting Countries is due to meet next in December Saudi Arabia too sees no need to hold a heads of state summit nor interfere in the oil market. One OPEC source said that should such a meeting produce no concrete outcome, it would have a negative impact on prices.  Earlier this month, Venezuelan President Nicolas Maduro reiterated calls for action within OPEC and beyond OPEC, mentioning controls on output and price bands, adding he would travel shortly to lobby for a meeting.

    Saudi Arabia Withdraws Billions Of Dollars From Asset Managers To Cut Deficit From Falling Oil Prices -  Saudi Arabia has withdrawn tens of billions of dollars from global asset managers in recent months in an effort to cut its massive deficit caused by falling oil prices over the past year, Financial Times reported Sunday. The country's banks are borrowing in the bonds and loans market because of the cash squeeze. The price of crude oil has halved in the past year and now stands at about $50 a barrel. The slump in oil prices forced governments to fund spending through bond sales and to use cash accumulated during the boom.  Fund managers estimate the Saudi Arabia Monetary Agency has pulled out between $50 billion and $70 billion over the past six months. Last week, a large amount of assets were withdrawn, and fund managers told FT it was "our Black Monday."  Several global asset managers told FT they were hit by a wave of redemptions, which came on top of an initial round of withdrawals this year. Deposits into Saudi Arabian banks fell by about $4.53 billion from June to July, Bloomberg reported, and the country's three-month interbank lending rate climbed 12 basis points Tuesday from this year’s low in March.

    As oil wealth dwindles, Saudi Arabia faces change  — At a gas station in Saudi Arabia’s second largest city of Jiddah, drivers are fueling up their cars at just 45 cents a gallon — four times less than the price of water. To make that possible, the kingdom spends up to $10.7 billion per year on gasoline subsidies. It also offers a range of perks and welfare support to its citizens such as free healthcare and education, including thousands of scholarships to expensive Western universities. Such largesse, however, is likely to be rolled back as the world’s largest oil exporter looks to curb spending for the first time in years due to a plunge in the price of crude, which accounts for 90 percent of government revenue. While the country’s $656 billion in currency reserves will help it avoid a brutal shift in lifestyles and policies, the kingdom is starting to be more careful with its finances. That will likely mean less investment in new infrastructure projects but also possibly, down the line, less welfare spending, smaller wage increases, and less construction of much-needed housing and roads. “It’s not an absolute crisis, but it is a question of planning for the future,”   Saudi Arabia starts losing money when the price of oil drops below $70 a barrel, experts say. If the price hovers around the current level of about $50 a barrel, the country can continue spending at its current pace until 2020. “That’s when things get bad,” said Young. Alternatively, it can start cutting spending on infrastructure now to free up money for social welfare for another 30 years or so.

    How Well Is Saudi Arabia's Oil Strategy Working? -- How's that strategy to flood the market with oil working out for Saudi Arabia? Financial Times is reporting: Saudi Arabia has withdrawn tens of billions of dollars from global asset managers as the oil-rich kingdom seeks to cut its widening deficit and reduce exposure to volatile equities markets amid the sustained slump in oil prices.  The Saudi Arabian Monetary Agency’s foreign reserves have slumped by nearly $73bn since oil prices started to decline last year as the kingdom keeps spending to sustain the economy and fund its military campaign in Yemen.  The central bank is also turning to domestic banks to finance a bond programme to offset the rapid decline in reserves. Of course, under Sharia borrowing / lending money is not allowed. Whatever. I assume if one buys a Saudi bond one will not be paid interest; rather one will get a pre-arranged "installment payment" at regular intervals. Reminder:

    • Saudi is losing about 10% of their cash reserves annually by giving away oil for $50/bbl (but the article above suggests it could be significantly more)
    • Saudi apparently had an unsuccessful 5-year, $35 billion program to significantly hike crude oil production
    • Saudi recently completed two new refineries
    • Saudi has huge desalinization electricity demands -- and growing annually; oil used to produce electricity
    • Saudi recently canceled huge solar energy projects
    • Saudi put on hold all new capital-intensive projects in addition to aforementioned solar energy projects

    Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid - One of the key things to understand about China’s liquidation of hundreds of billions in US paper is that far from being a country-specific phenomenon, it actually marks the continuation of something that’s been taking place in other emerging markets for some time.  As we outlined in “Why It Really All Comes Down To The Death Of The Petrodollar,” the forced sale of Beijing’s UST reserves is simply the most dramatic example of what Deutsche Bank has called “quantitative tightening.” For years, reserve managers in the world’s emerging economies worked to accumulate war chests of USD-denominated paper in an effort to ensure that in a crisis, they would have sufficient firepower to guard against speculative attacks on their currencies and/or accelerating capital outflows. Slumping commodity prices and the threat of a supposedly imminent Fed hike have conspired to put pressure on these reserves and outside of China, nowhere is this dynamic more apparent than in Saudi Arabia. Indeed it was the Saudis who dealt the deathblow to the great EM reserve accumulation. By intentionally killing the petrodollar, Riyadh effectively ensured that the pressure on commodity currencies would continue unabated, but as we’ve documented exhaustively, that was and still is considered an acceptable outcome if it means bankrupting the US shale complex and securing market share. But for Saudi Arabia, this is all complicated by three things: 1) the necessity of preserving the lifestyle of everyday citizens, 2) spending associated with the proxy war in Yemen, and 3) defense of the riyal’s dollar peg. All of those factors have served to weigh heavily on the county’s already depleted petrodollar reserves, and if the “lower for longer” crude thesis plays out, Riyadh may see further pressure on its current and fiscal accounts which are now both squarely in the red.  Of course all of the above is a drag on global liquidity and as we warned nearly a year ago, the death of the petrodollar means oil exporters are set to become net sellers of assets for the first time in decades.

    On those diminishing petrodollar flows, Saudi edition --  Izabella Kaminska --  We thought we’d reiterate the really important bit of this Saudi Arabia funding story from the FT’s Simeon Kerr in Dubai about the rate at which the Kingdom is pulling funds from global asset managers:  Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.  The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said.  Since the third quarter of 2014, Sama’s reserves held in foreign securities have declined by $71bn, accounting for almost all of the $72.8bn reduction in overall overseas assets. And also this:  While some of this cash has been used to fund the deficit, these executives say the central bank is also seeking to reinvest into less risky, more liquid products. “They are not comfortable with their exposure to global equities,”said another manager.Fund managers with strong ties to Gulf sovereign wealth funds, such as BlackRock, Franklin Templeton and Legal & General, have received redemption notices, according to people aware of the matter. For “global” we think it’s fair to read EM.  What the story doesn’t emphasise is how this links into the wider eurodollar recycling thesis, a.k.a the direct consequence of the hypothetical eventuality of no more petrodollars. We’ve previously explained how the causation works here. In reality, the money tends to be invested in “global asset management” funds (offshore) which often offer access to structured products specifically designed to send capital market funding to investments further afield. Via this yield grabbing process, petrodollars flow into much riskier equities (often with an EM flavour) or — in some cases — into even less liquid but supposedly safe yield-enhancing arbitrage plays often associated with commodities.

    The evil empire of Saudi Arabia is the West’s real enemy -  Saudis are active at every level of the terror chain: planners to financiers, cadres to foot soldiers, ideologists to cheerleaders.  Iran is seriously mistrusted by Israel and America. North Korea protects its nuclear secrets and is ruled by an erratic, vicious man. Vladimir Putin’s territorial ambitions alarm democratic nations. The newest peril, Isis, the wild child of Islamists, has shocked the whole world. But top of this list should be Saudi Arabia – degenerate, malignant, pitiless, powerful and as dangerous as any of those listed above.  The state systematically transmits its sick form of Islam across the globe, instigates and funds hatreds, while crushing human freedoms and aspiration. But the West genuflects to its rulers. Last week Saudi Arabia was appointed chair of the UN Human Rights Council, a choice welcomed by Washington. The jaw simply drops. Saudi Arabia executes one person every two days. Ali Mohammed al-Nimr is soon to be beheaded then crucified for taking part in pro-democracy protests during the Arab Spring. He was a teenager then. Raif Badawi, a blogger who dared to call for democracy, was sentenced to 10 years and 1,000 lashes. Last week, 769 faithful Muslim believers were killed in Mecca where they had gone on the Hajj. Initially, the rulers said it was “God’s will” and then they blamed the dead. Mecca was once a place of simplicity and spirituality. Today the avaricious Saudis have bulldozed historical sites and turned it into the Las Vegas of Islam – with hotels, skyscrapers and malls to spend, spend, spend. The poor can no longer afford to go there. Numbers should be controlled to ensure safety – but that would be ruinous for profits.

    China, Iran to put brakes on oil price recovery: poll  (Reuters) – Global oversupply and more Iranian production are likely to keep a lid on oil prices next year, offsetting any slowdown in U.S. shale output, a Reuters poll showed on Wednesday. Benchmark North Sea Brent crude is expected to average $58.60 a barrel in 2016, slightly above the $56.63 seen so far this year, but well below the forecast of $62.30 in last month’s poll, the Reuters survey of 31 analysts showed. Fifteen of the 28 analysts polled in both the August and September surveys cut their 2016 forecasts, while 10 kept them unchanged. The poll forecast Brent would average $55.30 in 2015. U.S. crude is projected to average $54.10 a barrel next year, down from a forecast of $57 in the August poll. Oil prices have collapsed over the last year, falling from a high above $115 a barrel in June 2014 to a low of almost $42 in August this year. Underlying the drop in prices is a huge oversupply as Middle East oil exporters have fought for market share with U.S. shale producers, increasing stockpiles worldwide. Most analysts expect oil prices to stay low for some time to come until the market rebalances and stocks begin to fall.

    China Is Betting Its Energy Future On This Tiny, Foreign City - No, it's not New York, or London; Moscow, Geneva, Vancouver or even D.C. According to Clarmond House, the most important foreign city - the one which China is making the center of its largest offshore infrastructure project - is the tiny port of Gwadar (population 85,000) which Pakistan purchased from Oman in 1958 for $1 million, and which has become the critical hub of China's future energy policy.  China, the world’s largest oil importer, gets the majority of this oil from the Persian Gulf. Just look the world map and consider the journey of an oil tanker to reach Shanghai, only for the oil to then arrive in western China! The journey by sea is 16,000 miles, takes 2-3 months and passes through the Straits of Malacca, which is an area rife with piracy and which could also be shut down by anti-Chinese interests. Now reconsider Gwadar. It sits just outside the Straits of Hormuz directly in the line of all shipping routes out of the Gulf and, in geographic terms, there is only Pakistan to cross before you reach western China. So China is making Gwadar the centre of one of its largest infrastructure projects in the world. Over the next 5 years China will invest approximately $46 billion not only in Gwadar port but also in building the China-Pakistan corridor. This latter development is a massive project that will link Gwadar to Kashgar in western China, a distance of over 2,400 kilometres, all of it through Pakistan. The build will include new rail, road, and pipeline infrastructure. It will not only facilitate imports into China but also their exports into the gulf region; it binds Pakistan to its northern neighbour.

    China's economy is stumbling, but by how much? - China's economy is slowing down. We know that. So, of course, does President Xi Jinping. It is one of the major issues - shadows even - hanging over his visit to the United States. After an average annual growth rate of 10% for three decades, that pace has cooled substantially. Last year it was 7.4%. There are many economists who are profoundly sceptical about China's official data, who think the true figure is a good deal lower. For next year the IMF forecasts 6.8%. And the slowdown was bound to happen. 'Excessive investment' The IMF described the transition under way in China as "moving to a 'new normal', characterized by slower yet safer and more sustainable growth". A new normal is needed because the forces behind China's previous dynamism are weakening. The ageing population means there's a limit to the contribution that a growing labour force can make to the economy.All that previous strong growth means the technological gap compared with the rest of the world has narrowed. That in turn limits the scope for rapid gains from catching up. Investment is another source of growth, which adds to the productive capacity of the economy. But China's investment level is already extremely high. Indeed IMF research suggested even in 2012 that it was excessive.

    China statistics: Making the numbers add up - Financial Times - That China's official economic data cannot be trusted is now received wisdom among western economists, investors and policymakers. To treat the numbers as authoritative is to invite ridicule: believers are naive at best and, at worst, stooges for Communist propaganda. The problem with this conventional wisdom is that, aside from the closely watched and politically sensitive real gross domestic product growth rate, other official data vividly depict the slowdown in China's economy that sceptics insist is being concealed. If there is a conspiracy to disguise the extent of harder times in China, it is an exceedingly superficial affair. The surprise devaluation of China's currency in mid-August fuelled scepticism about official GDP data, as many interpreted the move as evidence that Beijing was taking drastic action to rescue an economy in deep trouble.  China officially posted 7 per cent real GDP growth for the first half of 2015, bang on the full-year target that Premier Li Keqiang announced in March. To the sceptics, it was both too convenient and incongruous with other data that suggested a deeper slowdown in manufacturing and residential real estate construction, the country’s economic powerhouses. Experts on China's national accounts data broadly agree that the quarterly real growth figure is subject to politically motivated “smoothing” aimed at reducing the appearance of sharp swings in the economy, especially in response to external shocks like the Asian financial crisis in 1998 and the global financial crisis in 2008. This goal is achieved mainly by tweaking the inflation metric used to convert between nominal and real growth, known as the “GDP deflator”. By understating inflation, China's statistics masters can create the impression of faster real growth. Yet the shortcomings of this single data point do not seriously impede our understanding of trends in the Chinese economy. One need look no further than nominal GDP figures, which express economic output in current prices, without adjusting for inflation, to observe the bleak state of the country's main industries.

    China central bank lowers mortgage down payment requirement in many cities - China's central bank and banking regulator said on Wednesday they would be lowering the minimum down payment requirement for first-time home buyers in many cities to 25 per cent from 30 per cent, in an effort to support the residential property market. The People's Bank of China and the China Banking Regulatory Commission said that the lower down payment requirement would apply in all cities not currently subject to restrictions on home purchases. The main cities that have such restrictions are Beijing, Shanghai, Guangzhou and Shenzhen. The agencies said localities could adjust the minimum down payment requirement if they saw fit, in line with local market conditions. The statement on the central bank's website did not say specifically when it would take effect, but the notice to local governments and regulatory bodies was dated Sept. 24.

    Containing the inevitable Chinese slowdown | The Japan Times: Pundits love debating the Chinese economy’s growth prospects, and nowadays the pessimists are gaining the upper hand. But many are basing their predictions on other economies’ experiences, whereas China has been breaking the mold on economic growth for the last three decades. So, are China’s economic prospects as bad as prevailing wisdom seems to indicate? And, if they are, how can they be improved? China’s situation is certainly serious. The economy grew by 7.4 percent last year, the lowest rate since 1990; it is unlikely to meet the official target of 7 percent this year, and, according to the International Monetary Fund, will probably grow by a mere 6.3 percent in 2016. Clearly, weak domestic activity and diminished external demand are taking their toll. China is also losing long-term growth momentum, as falling fertility rates and returns on investment weaken labor-force expansion and capital accumulation. And it is becoming increasingly difficult for China to take advantage of technology-driven productivity gains. All of these challenges have led former U.S. Treasury Secretary Lawrence Summers and his Harvard colleague Lant Pritchett to argue that China’s growth could slow to 2 to 4 percent over the next two decades, as the country succumbs to the historically prevalent growth pattern implied by “regression to the mean.” But, given that China’s growth pattern has so far been exceptional, the notion that it will suddenly start following a common trajectory seems unlikely.

    China's "Credit Mystery" Deepens, As Moody's Warns On Shadow Financing -- Last month, we took a detailed look at what we said could be a multi-trillion yuan black swan.  In short, one of China’s many spinning plates is the country’s vast shadow banking complex which allowed local governments to skirt borrowing restrictions leading directly to the accumulation of debt that totals some 35% of GDP and which has channeled trillions into speculative investments via the proliferation of maturity mismatched wealth management products.  One of the problems with the system is that it allows Chinese banks to obscure credit risk. As Fitch noted earlier this year, some 40% of credit exposure is effectively carried off balance sheet in China’s banking sector, making it virtually impossible to assess the extent to which banks are exposed. When considered in combination with the unofficial policy whereby the PBoC forces lenders to roll bad debt thus artificially suppressing NPLs, a picture emerges of a system that’s decidedly opaque.

    Slide in Manufacturing Continued in China Last Month - — China’s sprawling manufacturing sector continued to shrink in September, data released on Thursday showed, despite strength in service industries.  Yet some economists said that because of unprecedented government spending, monetary stimulus and a growing services sector, China’s economy as a whole might be more resilient than it seems at first glance. “All this talk about this impending crisis just seems so far off the mark, when you look at these indicators,”   For China, manufacturing output, as measured by the official purchasing managers index, was 49.8 in September, compared with a reading of 49.7 in August. The official nonmanufacturing survey result was 53.4, unchanged from August. The survey measures the change in conditions from the previous month; readings below 50 signal contraction. The results of another survey, compiled by Caixin, a Chinese financial news company, and Markit, an economic data provider, suggested a worse picture. The Caixin manufacturing purchasing managers index, also released on Thursday, was 47.2 in September, down slightly from 47.3 in August and the lowest reading since the depths of the global financial crisis in March 2009. China’s economic growth has been battered in recent months by a fall in housing construction. That has led to a huge surplus in materials like steel and cement, which has idled plants or caused them to operate at a loss.

    China Billionaire With Canal Dream Confronts Biggest Loss of '15 - The Chinese billionaire using his personal fortune to help fund a $50 billion Nicaraguan challenger to the Panama Canal has crashed into the bitter reality of equity markets in the world’s second-largest economy. Telecommunications entrepreneur Wang Jing, 42, was one of the world’s 200 richest people with $10.2 billion at the peak of the Chinese markets in June, according to the Bloomberg Billionaires Index. His net worth has since fallen to $1.1 billion. His 84 percent drop so far in 2015 is the worst recorded by the index, which provides a daily ranking of the world’s 400 richest people. Ivan Glasenberg, chief executive officer of Baar, Switzerland-based Glencore Plc, had the second-biggest percentage decline, falling 66 percent to $1.8 billion. Wang owns 35 percent of publicly traded Beijing Xinwei Telecom Technology Group Co., which has tumbled along with China’s equity markets. The end of a lockup on 51 percent of its shares on Sept. 10 triggered a further decline that’s pushed Xinwei to a 57 percent drop this year. He pledged Xinwei shares valued at $2.4 billion in July that were removed from his net worth calculation.

    Chinese Domino Effect Still Threatens World Markets - WSJ: A broad selloff that has rattled emerging markets is showing signs of spreading. The root of investors’ anxiety lies in China’s economy, which in 2015 is on track to grow at its slowest annual rate in six years. Another major worry is the fallout from higher U.S. rates, which many Federal Reserve officials say are likely to arrive later this year. The slowdown in China, the world’s biggest importer of many raw materials, has pummeled commodity prices and weighed on global trade, two factors that are putting other developing nations under strain. Even as the problems in China reverberated across the globe in the third quarter, many fund managers remained confident that markets in the U.S. and other developed countries would be able to withstand the headwinds without too much damage. That increasingly is coming under question as the global-growth outlook continues to deteriorate.The plunge in the share price of commodity-trading firm Glencore and a rise in corporate-default rates world-wide could signal a new phase in a downturn that has rocked financial markets since midsummer, some investors say. “We’re focusing on China and emerging markets now as the biggest risk to the U.S. economy and global markets,”

    Economic importance of China -- How important would an economic downturn in China be for the United States? Paul Krugman reviews some of the reasons why the United States perhaps shouldn’t worry too much: Suppose China experiences a 5 percent slump in its own GDP; given an income elasticity of 2, which is reasonable, this would mean a 10 percent fall in imports– but that’s a shock to the rest of the world of just 0.3 percent of GDP. Not nothing, but not that big a deal. . A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects. For example, while China may only account for 15% of world GDP, it has been a huge factor in commodity markets over the last decade. According to EIA data China accounted for 55% of the increase in global petroleum consumption between 2005 and 2013. IMF economists Arezki and Matsumoto note that China now accounts for about half of global consumption of iron ore, aluminum, copper, and nickel. U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3% from U.S. GDP.   Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating. A Chinese downturn will unquestionably be a big hit for certain financial institutions. Exactly who those will be and what it means for the rest of us, I don’t know. As Warren Buffett observed, “you only find out who is swimming naked when the tide goes out.”

    Collision course? Rise of China a stress for the US - "The United States welcomes the rise of a China that is peaceful, stable, prosperous and a responsible player in global affairs." So said President Obama on Friday, standing alongside President Xi at the White House. This line didn't make the news. After all, Mr Obama repeats it whenever he meets his Chinese counterpart. But the qualified American welcome to the rise of China is still the principle which underpins the most important bilateral relationship in the world, and it is the principle which has guided American policy on China through eight presidencies and four decades. Never before in history has a great power risen so fast, and in so many different spheres, as the China we see today. In three short decades, the backwards farming nation of both presidents' childhoods has become the world's largest manufacturer and largest trader. It may overtake the US during President Xi's time in office to become the world's largest economy. China's trade with the US alone has risen from $2bn in 1979, when relations were established, to nearly $600bn last year. The relationship is broad and deep, marked by intense co-operation but also intense competition. Both presidents are conscious of the dangers of the former giving way to the latter.

    China Caps Overseas Cash Withdrawals - WSJ: China has capped the amount of money Chinese holders of bank and credit cards can withdraw outside the country, in its latest effort to discourage people from moving badly needed capital offshore. China’s foreign-exchange regulator put a new annual cap on overseas cash withdrawals using China UnionPay Co. bank cards, a UnionPay official said on Tuesday. Under the new rules, UnionPay cardholders can withdraw up to 50,000 yuan ($7,854) overseas during the last three months of this year, and the amount will be capped at 100,000 yuan for all of next year, the official said. State-run UnionPay has a virtual monopoly on processing card transactions in China, meaning the limits extend to nearly all Chinese bank- and credit-card holders. It wasn’t clear when the new cap was issued. The new cap is in addition to an existing 10,000 yuan daily withdrawal limit, part of China’s curbs on how much money can flow across its borders. The move by China’s State Administration of Foreign Exchange is the latest by Beijing to scrutinize capital outflows. The People’s Bank of China, the country’s central bank, said earlier this month that its foreign-exchange reserves fell by $93.9 billion, the biggest monthly drop ever, after it surprised the market on Aug. 11 with its decision to devalue the yuan by around 2%.

    China pledges $2bn for developing world - BBC News: Chinese President Xi Jinping has pledged to establish a $2bn (£1.3bn) fund to assist developing countries and to significantly increase investment. Addressing a UN summit on development goals, Mr Xi said investment would reach $12bn over the next 15 years. He also said China would cancel debts to the world's least developed nations, including small island nations. Beijing, he added, would assist in 600 overseas projects in the next five years and offer more scholarships. 'End poverty' - and 16 more UN Global Goals "Looking around the world, the peace and development remain the two major themes of the times," the Chinese leader said at the summit in New York. "To solve various global challenges, including the recent refugee crisis in Europe, the fundamental solutions lie in seeking peace and realising development. "Facing with various challenges and difficulties, we must keep hold of the key of the development. Only the development can eliminate the causes of the conflicts," Mr Xi said. His pledges of aid give a big boost to the launch of the UN's new Global Goals for Sustainable Development - the day after all members states committed themselves to a hugely ambitious programme, the BBC's James Robbins in New York reports. The plan aims to eradicate poverty and hunger by 2030.

    First Time Ever: PRC Reports Reserve Holdings to IMF - After years of obfuscation, PRC authorities have only just begun reporting reserve data to the IMF Composition of Foreign Exchange Reserves (COFER). Previously, they furnished no data whatsoever--nada, zilch, zip, diddly-squat. But, all that changed recently with China partially--repeat, partially--reporting on its reserves.  In aggregate, total reported reserves to the IMF jumped by $600 billion. Assuming that all the increase is due to China's new reporting, it falls well short of the $3.56 trillion it is believed to hold even with its recent sell-off of foreign exchange to slow the rate of yuan depreciation. From an earlier report in the WSJ: The People’s Bank of China said Monday that its reserves fell by $93.9 billion, the biggest-ever monthly drop in dollar terms and the largest in percentage terms since May 2012. The decline in China’s foreign-currency reserves has accelerated, deepening a trend that illustrates the pressures of the country’s slowdown, rising capital outflows and expectations for monetary tightening in the U.S. China used its reserves to stabilize the yuan after the central bank devalued the currency on Aug. 11, a move that heightened worries about growth in the world’s second-largest economy and sparked a sharp selloff across global stock markets.  At $3.56 trillion as of the end of August, the currency reserves held by the PBOC still account for nearly one-third of all holdings by central banks world-wide. But the reserves have declined since a peak of nearly $4 trillion in June 2014 as more money leaves the country Now, Dow Jones newswires reports on China's COFER contribution:  China has begun to report its currency reserves to the International Monetary Fund for the first time—a milestone in opening a key facet of the country's economy to the public view. The move comes as Beijing seeks to have its currency, the yuan, included in the basket of reserve currencies that comprise the fund's lending instrument.

    Taiwan’s central bank: in a bind - Well, someone managed to take advantage of Fed inaction. Last Thursday, Taiwan’s central bank cut its benchmark interest rate for the first time in more than six and a half years. The move would not have happened if the US Federal Reserve had raised its own Fed funds rate the week before. That does not mean it was not justified. Taiwan’s mercantilist model is in need of an overhaul and its economy has slowed more and more as this year has gone on. Industrial production contracted 5.5 per cent in the year to August and exports fell more than 8 per cent over the same period. The latter have not been helped by the fact that the Taiwan dollar has depreciated less rapidly than either the Korean won or, until recently, the Japanese yen, giving manufacturers from those countries an advantage over their Taiwanese rivals. As a result, the government was forced to halve its growth forecast to 1.56 per cent for 2015 — poor showing for an economy that used to grow reliably by 4 to 5 per cent. With elections looming next January and the opposition leading in the opinion polls, the government has therefore been putting increasing pressure on the central bank of China to do something to shore up growth. Hence the first cut since 2009. And with no sign of inflation — in fact, the consumer price index is expected to drop almost 0.2 per cent in the current year — CBC governor Perng Fai-Nan was hardly in a position to resist. Whether reducing rates by 12.5 basis points to 1.75 per cent will have any meaningful effect on business investment or household consumption is doubtful, as Mr Perng has pointed out in the past. Still, at least he has done his bit. But it really may end up being just a bit. With inflation expected to pick up again over coming months as the effects of cheaper oil wear off, the market does not expect another cut at the CBC’s next quarterly meeting in December. And that feels right, particularly if the Fed looks likely to lift off at its own December meeting. So the CBC may be one (cut) and done.

    Global trade to grow at slowest pace since financial crisis: BOK: -- Global trade in 2015 and 2016 is expected to grow at the slowest pace since the financial crisis, which could pose serious challenges for an export-oriented economy like South Korea, the central bank said Tuesday. The report by the Bank of Korea (BOK) predicted worldwide trade will grow 2-3 percent this year and in 2016, far lower than the average 6 percent annual growth tallied from 2001 through 2008, when the bursting of the U.S. housing bubble triggered a financial crisis that rocked the entire world. The BOK said that in the first half of this year, trade actually grew just 1.2 percent on-year, the weakest growth recorded since the 1990s, with the exception of the period following the 2001 Sept. 11 terrorist attacks and the bursting of the information technology bubble in 2000. "The pace of growth is even lower than the 3 percent global gross domestic product growth predicted for this year," the report said. The bank said the overall weakness stems from a slowdown in China's growth and a drop in international commodities prices brought on by weak demand. A drop in commodities prices affects the purchasing power of many countries that export such goods. In addition, there has been a rise in protectionism among many emerging economies that is adversely affecting global trade, it said.

    Japan factory output slides unexpectedly, risks of recession rising | Reuters: Japan's factory output unexpectedly fell for the second straight month in August, fuelling worries the economy is slipping back into recession and raising more doubts about whether the government can reignite growth and end decades of deflation. As a slowdown in China chills global growth, hitting export-reliant Asia particularly hard, analysts say the Bank of Japan may be forced to offer fresh stimulus as early as next month in a bid to get the faltering economy back on track. "In the absence of growth engines due to weakness in external and domestic demand, the possibility is growing that the economy has shrunk for a second straight quarter in July-September and it may be slipping into a recession," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "Given weakening of the economy, the BOJ could ease policy again next month, even though Governor (Haruhiko) Kuroda remains bullish and the government is wary about further yen weakening boosting the cost of imports." The economy shrank an annualized 1.2 percent in April-June. August factory output fell 0.5 percent month-on-month, trade ministry data showed on Wednesday, short of a 1.0 percent increase expected by analysts. Not surprisingly, exporting industries led the decline. These included general-purpose machinery, cars and China-bound auto parts.

    Doubling Down on Abenomics - David Beckworth -- So it appears the Bank of Japan (BoJ) had already doubled down on Abenomics before the prime minister announced a new NGDP level target. In late 2014, the BoJ said it would increase the growth of the monetary base and by implication the number of assets it would purchase.  Here is the original BoJ announcement on Abenomics in early 2013 (my bold): The Bank will achieve the price stability target of 2 percent in terms of the year-on-year rate of change in the consumer price index (CPI) at the earliest possible time, with a time horizon of about two years.In order to do so, it will enter a new phase of monetary easing both in terms of quantity and quality. It will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases...The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen.1 And here is footnote one: Under this guideline, the monetary base -- whose amount outstanding was 138 trillion yen at end-2012 -- is expected to reach 200 trillion yen at end-2013 and 270 trillion yen at end-2014. The BoJ got close. The monetary base hit 267.4 trillion yen at the end of 2014. The BoJ did not, however, hit its inflation target. So it announced in October, 2014 it would increase how fast the monetary base would grow: [T]he Bank of Japan decided upon the following measures. (1) Accelerating the pace of increase in the monetary base by a 5-4 majority vote. The Bank will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen... So the BoJ decided to double down its bets on Abenomics by growing the monetary base an additional ¥10 trillion a year for a total of  ¥80 trillion per annum. This non-trivial pick up in growth can be seen in the figure below under the 'Abe II' label:

    Elon Musk Gives Indian Prime Minister Tour of Tesla Factory, Talks Battery Storage and Solar  -- It was a simple official visit and as per media reports, there was no talk of Tesla setting up manufacturing facilities in India. The company, however, stated earlier that India could be “one of the potential markets in Asia to have a local assembly plant” if the government moves towards a pro-electric vehicle policy. If and when that happens, the real opportunity for India here is to leapfrog the conventional grid and move straight to distributed generation (and consumption) of power, something similar to what happened in the telecom sector where most of the country got connected via mobile telephony, without having to go through the landline model. But the important thing which the visit did achieve was to start discussions on Powerwall usage in India. As a proof, you can look at the comments from those discussing the (un)economics of the battery and spammers trying to drive some traffic to their sites. Even at its launch, the Powerwall was discussed in the niche forums in India quite extensively. At both times, the battery got dismissed outright as “a too costly to consider” solution. I have one small issue (and one big rant) with these (as I call them) pseudo-economic-experts. The problem with their discourse is that, to use an idiom, they miss the forest for the trees. They have no idea of the future and certainly no understanding of how technology pricing works.

    India cuts interest rates more than expected as RBI front-loads | Reuters: The Reserve Bank of India (RBI) cut its policy interest rate to a 4-1/2 year low of 6.75 percent on Tuesday, in a bigger-than-expected move that, with inflation running at record lows, could help turn around an economy that has been slowing down. "I don't think we have been excessively aggressive," RBI Governor Raghuram Rajan told a news conference, explaining that the RBI had "front-loaded" the easing in response to downgrades to expectations for global growth. "Clearly this was about, given the state of the economy, how can we move forward," he added, reflecting widespread concern that India's growth was losing momentum. The RBI cut its growth forecast for the fiscal year to 7.4 percent from 7.6 percent previously, well below the government's target of 8 to 8.5 percent, but still faster than China. The central bank said it expects inflation to rise from August's record low of 3.66 percent to 5.8 percent in January, just below its 6 percent target. It also set a new inflation target of around 5 percent by March 2017, and Rajan said the RBI would strive to keep real interest rates benchmarked to a 1-year Treasury bill rate of between 1.5 to 2 percent. At the same time, the RBI announced a slew of measures intended to further open debt and currency markets, signalling confidence in an economy expected to do better than most emerging market peers when U.S. interest rates eventually go up for the first time in nearly a decade.

    RBI surprises with large rate cut to spur India growth - The Reserve Bank of India surprised markets Tuesday by slashing its key interest rate by 0.50 percentage points to 6.75%, taking advantage of easing inflation to boost growth in an economy that hasn't been able to escape global headwinds. A Reuters poll last week showed only one out of 51 economists had expected a 50 basis points cut in the repo rate, while 45 had expected a 25 bps cut. The RBI had previously cut interest rates three times this year, lowering it by 25 basis points each time.Runaway inflation in the past has toppled governments in India, but lower prices of commodities such as crude oil, of which India is a large importer, have helped calm inflation. "Headline consumer price index (CPI) inflation reached its lowest level in August since November 2014. The ebbing of inflation in the year so far is due to a combination of low month-on-month increases in prices and favorable base effects," the RBI said. The knock-on effect of the recent depreciation of the rupee will have to be carefully monitored, although benign crude prices should have an offsetting effect, the RBI noted. Taking all this into consideration, inflation is expected to reach 5.8 per cent in January 2016, the central bank estimates.

    Natural gas price cut will boost power and fertiliser sector - The Times of India: : The government today cut natural gas prices by 16 per cent to USD 4.24 per unit for the six month period, beginning October 1. Natural gas prices, according to a formula approved by the government in October last year, will fall to USD 4.24 per million British thermal unit on net calorific value (NCV) basis from the current USD 5.50 per mmBtu. On gross calorific value (GCV) basis, the new gas price for October 1 to March 31 would be USD 3.82 per mmBtu as compared to USD 4.66 currently, officials said. Using prevailing price in gas surplus nations like the US, Russia and Canada, the government had in October last year announced a new pricing formula that led to rates rising by about 33 per cent to USD 5.61 per mmBtu for a period up to March 31, 2015 from the long-standing price of USD 4.2. The rates, on net calorific value (NCV) basis, dropped to USD 5.05 per mmBtu for six month period beginning April 1, 2015. The price cut is the second reduction in rates ever - the first being on April 1. While the cut will impact the revenue of producers like Oil and Natural Gas Corp (ONGC) and Reliance Industries, it will bring gains for users in the power and fertiliser sector in the form of lower feedstock cost.

    ‘Set up free trade area in South Asia quickly’ -  India has said that all South Asian economies need to speedily work towards a free trade area within the region with a defined time-line, preferably 2020, as the first step towards achieving the joint vision of a South Asian Economic Union. “I am confident that consensus can be achieved for a defined time-line for 100 per cent tariff liberalisation with special and differential treatment for Least Developed Countries (LDCs) and vulnerable economies,” Commerce & Industry Minister Nirmala Sitharaman said at the South Asia Economic Conclave organised by the Commerce Ministry and industry body CII on Tuesday. While India has already allowed duty-free access to goods from LDC countries of South Asia as part of the South Asia Free Trade Agreement (SAFTA), it is ready to go to 100 per cent for non-LDCs, too, as per the Safta roadmap agreed by India with Pakistan in November 2012, Sitharaman said.  At least four of the eight SAARC countries — which include India, Pakistan, Sri Lanka, Maldives, Nepal, Bhutan, Bangladesh and Afghanistan — are looking at a free trade area by 2020. India is willing to take asymmetric responsibility towards achieving the goal, she added. Bangladesh Commerce Minister Tofail Ahmed pointed out that while India had extended duty free access to its markets for all products except tobacco and liquor, it faced access problems for items such as jute.

    Thai government websites hit by denial-of-service attack - BBC News: Several Thai government websites have been hit by a suspected distributed-denial-of-service (DDoS) attack, making them impossible to access. The sites went offline at 22:00 local time (15:00 GMT) on Wednesday. Access was restored by Thursday morning. It appeared to be a protest against the government's plan to limit access to sites deemed inappropriate. Tens of thousands of people have signed a petition against the proposal they call the "Great Firewall of Thailand". The name is a reference to the so-called "Great Firewall of China" commonly used to refer to the Chinese government's censorship over internet content. 'Inappropriate websites' A DDoS attack works by exceeding a website's capacity to handle internet traffic. They are usually orchestrated by a program or bot. But on Wednesday, calls went out on social media in Thailand encouraging people to visit the websites and repeatedly refresh them. Image caption One of the posts that appeared on social media: “Next target, to show our opposition to the single gateway" Among the targets were the site of the ministry of information, communications and technology (ICT) and the main government website ICT Deputy Permanent Secretary Somsak Khaosuwan said the site did not crash because of an attack but because it was overloaded by visitors checking to see whether an attack was happening, the Bangkok Post reports.

    Malaysia Stumbles Toward Financial Crisis - A perfect storm of bad economic news appears about to inundate a rudderless government in Malaysia as political squabbling paralyzes leaders, according to sources in Kuala Lumpur. Fiscal revenues are going through the floor, the currency is diving and inflation has risen from 0.1 percent in February to 3.3 percent in July and is expected to rise. With a huge projected fiscal deficit and steep bond indebtedness, the country may be faced with borrowing on the international markets. But with a sliding currency and allegations of massive corruption threatening the government of Prime Minister Najib Razak, borrowing costs are likely to be through the roof. Most observers in Malaysia believe that Najib remains insulated from political overthrow by the paid for loyalty of the 192 United Malays National Organization cadres in the Barisan Nasional, or national ruling coalition. But a major financial crisis could change the equation.  As the economy grows weaker and the scandals percolate, Najib has left the country, first to London for a trade show, then to the United Nations, where he was to address the general assembly. From there, he and his wife, Rosmah Mansor, were due to fly on an official private jet to Milan, Italy, where she is to sponsor an Islamic fashion show.

    Asian Markets Wrap Up One of Worst Quarters Since Financial Crisis - WSJ: Asian markets ended one of their worst quarters since the global financial crisis Wednesday, with the double threat of higher interest rates in the U.S. and China’s slowdown unlikely to ease heading into October. While calming words from some regional central bankers during the quarter’s last trading day and gains in the U.S. helped stocks and currencies recover from Tuesday’s steep losses, the period was a bruising one for nearly all of Asia’s financial markets. China’s main stock market posted its worst quarter since 2008 and its smaller Shenzhen index, in at least two decades. Markets in Singapore and Indonesia recorded their worst quarters since the financial crisis. Currencies in Asia also are on track for their biggest quarterly losses in years. Asia’s worst performing currency, Malaysia’s ringgit, lost as much as 14% of its value this quarter and is down 26% for the year, while Thailand’s baht has weakened close to a five-year low, with its worst quarterly performance since 2000. Adding to the gloom, industrial metals, including copper and zinc have fallen to multiyear lows. Prices for Brent crude oil, the international benchmark, have halved since this time last year.

    TPP like a zombie that won't die - When final negotiations for the Trans-Pacific Partnership (TPP) trade agreement failed in Hawaii in late-July, and then proponents failed to bring negotiators together to strike-up a deal by the end of August, I was convinced that the TPP was dead and buried, given Canada heads to the polls next month and the ramp up of the US presidential election campaign. It appears I was premature, with negotiators arriving in Atlanta this week in a last ditch effort to conclude the TPP, with Australian Trade Minister, Andrew Robb, claiming that agreement is within “imminent reach”. Sugar and dairy access remain key sticking points, along with motor vehicle assess between Mexico, the US, Canada and Japan. There is also the critical issue of enhanced protection for pharmaceuticals, in particular the fight over so-called “biologics,” which are an important new class of medicines produced from living organisms. The US first pushed for 12 years of data exclusivity before reducing its bid to 8 years, whereas Australia (amongst others) wants to keep protections to 5 years, as applies currently. And let’s not forget that the TPP would include a so-called investor-state dispute settlement (ISDS) provision, which could enable foreign corporations to sue governments over laws/regulations that lower their profitability. As noted by Peter Martin on Friday, more than 150 health experts including 60 professors of medicine have written to Trade Minister Robb urging him to resist tougher intellectual property protections that could add hundreds of millions of dollars to the cost of the Pharmaceutical Benefits Scheme. These groups are also opposed to ISDS.

    TPP – Gone with the Wind? -- Ministers from 12 Trans-Pacific Partnership (TPP) countries are returning to the negotiating table — this time in Atlanta –barely a month after the meltdown at Maui. The negotiations are still not ripe for harvest. But the drivers of monthly ministerial meetings have no fear of failure. They are good at it.  The San Francisco Quad meeting (Canada, Mexico, Japan and the US) on automotive rules of origin was supposed to set the stage for a successful Ministerial meeting. It has not. Japan says the auto deal is close. Rep. Sander Levin (D-Mi), who is House Ways & Means Committee Ranking Member, says there is a lot to do. There’s an important truism in trade talks: the deal is never as close as it appears to those desperate for closure.  Michael Harris suggests in iPolitics that the TPP will be concluded just before election day – shrouded in mystery. The best that can be done is some sort of agreement in principle or a much lower quality deal than originally advertised. But no trade agreement is ever concluded on expectations at the start. In the end it is a negotiation about exclusions. On September 4, 2015, I said no Canadian Government can entertain the Japanese demands (on automotive rules of origin). I was wrong.  Seeking the dilution of NAFTA-origin rules has already begun.

    Trans-Pacific Partnership could include big dairy concession - Canada is preparing to open the border to more American milk, without getting reciprocal access for Canadian dairy farmers in the United States, CBC News has learned. Trade Minister Ed Fast will leave the campaign trail to join his counterparts in Atlanta on Wednesday, intent on concluding the Trans-Pacific Partnership trade talks. Chief negotiators from the 12 Pacific Rim member countries meet starting Saturday. Conservatives want to conclude a deal before the Oct. 19 election and cast it as a win for consumers. But what Fast offers could seriously disrupt the supply-managed dairy sector. If that happens, "there's going to be a war," says Yves Leduc from the Dairy Farmers of Canada. "The industry will never accept that."  The final offers on market access for dairy products were one of the few things ministers didn't get to during the last trade talks in Maui, Hawaii, in late July.The list of outstanding issues is now very short: rules of origin for the automotive sector, which are also sensitive in Canada, as well as intellectual property protections for pharmaceuticals. The deal is portrayed as "98 per cent done."The short strokes on dairy come down to how much of Canada's domestic market would be opened up to American products to compensate U.S. dairy producers for opening up their market to TPP partners such as New Zealand, an aggressive and competitive dairy exporter. CBC News has learned Canada is prepared to offer up a significant share of its domestic market (as defined by consumption levels), including not only fluid milk, but also possibly butter, cheese, yogurt or the milk powders and proteins used to make other foods.

    TPP chief negotiators see progress in Atlanta talks - The Japan News: — Progress was made in just ended Trans-Pacific Partnership free trade talks here by chief negotiators from the 12 member countries, TPP minister Akira Amari said Tuesday. Amari, visiting Atlanta for a TPP ministerial session starting on Wednesday, said in a press conference that the chief negotiators moved forward in their efforts to sort out matters that remain to be solved. Although the paces vary from one matter to another, “the negotiations are making progress,” Amari said. With the aim of striking a broad agreement, the 12 TPP countries, including Japan and the United States, will hold the ministerial meeting for two days through Thursday. According to a source with access to the negotiations, the ministerial session may be extended through Friday. “In order not to let the TPP negotiations drift about for another year or more, we want to make it the last ministerial session,” Amari said. In their latest round of talks that started on Saturday, the chief negotiators discussed the protection period for development data on biopharmaceuticals in the field of intellectual property rights, where efforts to make trade and investment rules have been facing the most difficulty.

    TPP deadlock on dairy, autos: National politics put trade talks under pressure- While domestic political schedules are making it imperative for the U.S., Japan and Canada to wrap up a historic trans-Pacific trade pact, New Zealand and Mexico appear intent on prolonging the talks to extract the best concessions possible. The 12 nations taking part in the Trans-Pacific Partnership are accelerating preparations for ministerial talks starting here Wednesday in hopes of striking a final deal. U.S. President Barack Obama is making direct appeals, phoning Mexican and Peruvian leaders last week. Obama and Chilean President Michelle Bachelet agreed in a Sunday phone call "on the need for further progress in resolving remaining issues" related to the TPP, the White House said. Electoral obstacles The looming 2016 presidential election cycle is pushing the U.S. to achieve an agreement quickly. Many think major trade negotiations will be impossible after the beginning of next year. Eager to build a robust legacy, Obama wants to see ministers wrap up the talks in the upcoming meeting. In Canada, the Oct. 19 election poses a far more immediate threat. Prime Minister Stephen Harper's government looks to fare poorly, fueling leaders' urgency to conclude TPP negotiations before the vote. Yet Australia and New Zealand remain pitted against the North American neighbors in key areas. The U.S. wants the protection period for data on new pharmaceuticals to be as lengthy as possible, while Australia and New Zealand wish to keep that period short to speed the development of generic drugs.

    U.S. auto tariff periods may not be cut on Japanese imports under TPP | The Japan Times: Japan may be unable to negotiate a shorter grace period for the elimination of tariffs levied by the United States on Japanese vehicles in bilateral talks within the Pacific free trade initiative, sources close to the matter said Wednesday. Such tariffs may be abolished after more than 20 years as part of the U.S.-led Trans-Pacific Partnership deal, they said. That will be shorter than the 30 years that the United States proposed in negotiations last year, but far longer than the 10 years within which the U.S. government has agreed to remove its auto tariffs in a separate bilateral free trade pact with South Korea. The United States, Japan and 10 other countries involved in the free trade talks will begin ministerial-level talks Wednesday in Atlanta after chief negotiators wrapped up a four-day round of talks Tuesday to lay the groundwork. Akira Amari, the Japanese minister in charge of TPP negotiations, said Tuesday at a news conference that the negotiators made progress in their negotiations as a whole, though he admitted that some difficult issues remain. The outlook for reaching a broad agreement at the meeting of ministers remains unclear, with some key issues such as protection of new drug patents and market access for dairy products left unresolved.

    Japan, U.S. agree to aim for conclusion of TPP talks this week | The Japan Times: – Prime Minister Shinzo Abe and U.S. Vice President Joe Biden agreed Tuesday that the two countries will cooperate in an effort to conclude talks on a Pacific free trade initiative this week, according to statements by both governments. Biden and Abe agreed that their negotiating teams for the Trans-Pacific Partnership would work closely together “with the goal of resolving the limited number of outstanding issues at the upcoming ministers meeting in Atlanta,” according to the White House. Abe and Biden met before ministers from Japan, the United States and 10 other TPP member countries resume their negotiations in Atlanta on Wednesday over thorny issues such as exceptions in tariff removal and drug patents. A Japanese official who attended the meeting quoted Biden as saying the 12 countries engaging in the TPP talks should use this opportunity to strike a deal. Abe told Biden that it is important to dispatch a forward-looking message to the world by reaching a deal early, Katsunobu Kato, the deputy chief Cabinet secretary, told reporters. The envisioned Pacific free trade zone would cover some 40 percent of the global economy. Abe and Biden pledged the “utmost cooperation” over TPP-related issues, Kato added.

    Robb mulls back door TPP sell-out  - The last ditch negotiations for the Trans-Pacific Partnership (TPP) trade agreement, which got underway this week in Atlanta, have hit yet another road block, with negotiators failing to make headway on the sticking points of auto parts, dairy access and drug protections. Australia’s Trade Minister, Andrew Robb, has been quick to shunt blame on the US, claiming that its failure to strike a deal with congressman back home has hamstrung its ability to reach a compromise.  Robb has also blamed the US’ intransigence with regards to pharmaceutical protections on so-called “biologic” drugs, which are an important new class of medicines produced from living organisms and are used to treat cancers and diseases such as rheumatoid arthritis. Australian patent law currently gives pharmaceuticals 20 years of protection. Rival pharmaceutical companies must then wait another five years to access the clinical data needed to create similar and cheaper versions, known as “biosimilars”. In the TPP negotiations, the US first pushed for 12 years of data exclusivity before reducing its bid to 8 years, whereas Australia (amongst others) wants to keep protections to 5 years, as applies currently. Any extension of protections beyond five years would delay the entry of generic drugs, raise the cost of drugs in Australia, and would compromise Australia’s Pharmaceutical Benefits Scheme (PBS). Speaking about the issue of biologic protections, Andrew Robb noted: “I came to lower protection so I get frustrated if we are talking about increasing protection in the case of biologics or see no reduction in other areas,” Mr Robb told the newspaper in Atlanta. “Something has to give.” Andrew Robb has previously insisted that he would never agree to any deal that pushed-up the cost of medicines in Australia or compromised the PBS. The Department of Foreign Affairs and Trade (DFAT) has backed this view,

    Pacific trade ministers extend talks through Saturday -- Pacific trade ministers will extend talks on a free trade deal between a dozen nations through Saturday in a bid to reach a final agreement, representatives from Japan and Mexico said on Thursday. Japanese Economy Minister Akira Amari said the extension showed ministers thought there was a chance of reaching a deal. Mexican Economy Minister Ildefonso Guajardo told Reuters: "No one wants to leave without an agreement."

    NDP government would not adhere to a TPP deal, Mulcair says in letter - NDP Leader Thomas Mulcair is serving notice that a New Democratic Party government would not consider itself bound by the terms of a major Pacific Rim trade deal which the ruling Conservatives are negotiating right now in Atlanta. He says the Conservative government has no mandate to agree to the big changes that a Trans-Pacific Partnership deal would bring about. The NDP Leader’s announcement is well timed in that it comes as a TPP deal appears increasingly likely to be reached shortly by the 12 Pacific Rim countries, including Canada, gathered in Atlanta. The bombshell declaration on Friday promises to make the massive trade agreement a bigger factor in Canada’s 42nd federal election, which is 2 1/2 weeks away. It comes as polls suggest the NDP has dropped to third place in the national race. The NDP’s hardening of position on a potential TPP deal sets it apart from the Conservatives, who favour a deal, and the Liberals, who have focused most of their criticism on the manner in which the Tories have negotiated the agreement rather than its substance. Mr. Mulcair has sent a letter to International Trade Minister Ed Fast, the Conservative government’s point man on the Trans-Pacific Partnership talks, listing a slew of reasons why he’s distancing himself from the agreement, including the expected pain it will bring to Canadian dairy farmers and smaller auto parts makers.

    Time to say no to shameful TPP trade-offs: Trans-Pacific Partnership Trade Ministers' talks between the US, Australia, Japan and nine other Pacific Rim countries are set to resume on September 30 in Atlanta, Georgia in a final attempt to complete the deal before the Canadian elections in mid-October and the intensification of the US presidential race. The TPP is so unpopular that these governments want it signed before elections take place, without further public debate. The last TPP Ministerial talks collapsed at the end of July, because the US and Japan could not agree about market access to their own agricultural and vehicle markets, and so could not make market access offers to others. Market access talks between the US, Japan, Mexico and Canada, and between those countries, Australia and others have continued. Trade Ministers will meet to seal the deal with final trade-offs only if market access issues are resolved. The TPP is promoted as a huge trade deal covering 40 per cent of the global economy. Australia has little to gain because it already has free trade agreements with nine of the 12 countries, but could lose much. The US is driving the agenda on behalf of its pharmaceutical, media and tobacco industries, which want rules which suit their needs, but would tie the hands of future governments. The TPP is facing two rocks of resistance. Firstly community groups in Australia and other TPP countries have pressured governments not to agree to stronger monopolies and higher prices on very costly biologic medicines, stronger copyright monopolies and controls on the Internet, and to special rights for foreign investors to sue governments for damages in international tribunals over changes to domestic legislation. This is known as Investor-State Dispute Settlement or ISDS.Secondly, powerful US agriculture, vehicle and other industry groups have pressured the US against offering increased access to markets like sugar, dairy and other products. This follows a pattern established in the 2004 US-Australia FTA, when the US demanded substantial concessions on medicines, copyright and investor rights to sue, but did not make its very low offers on agricultural market access until the final stages of the negotiations.

    Emerging market firms' $18 trillion debt needs careful watching - IMF - The International Monetary Fund warned on Tuesday that emerging market firms, which together have amassed a record $18 trillion of debt, need careful monitoring as the era of record low global interest rates comes to an end. In its latest Global Financial Stability report, the fund said the biggest rises in 'leverage' - the amount of debt relative to a firm's equity - had come in "vulnerable sectors" like construction, mining and oil and gas, and were increasingly exposed to currency risk. Regionally, the most striking shifts had been in China and Latin America where overall corporate leverage was now at almost 120 percent and 110 percent respectively, and leverage in their construction sectors close to 275- and 200 percent. "The upward trend in recent years naturally raises concerns because many emerging market financial crises have been preceded by rapid leverage growth," the report said. The IMF also warned that years of record low rates had meant that despite weaker balance sheets, emerging market firms had been able to issue more bonds, and at better terms.

    IMF Flashes Warning Lights for $18 Trillion in Emerging-Market Corporate Debt -  Emerging markets should brace for a rise in corporate failures as a debt-bloated firms struggle with souring growth and climbing borrowing costs, the International Monetary Fund warned Tuesday in a new report. From sugar firms in Brazil to pipe makers in Russia, firms in developing countries bulked up on cheap debt as central banks gassed the easy-money pedal in the wake of the financial crisis. Then, emerging markets were the drivers of global growth. Developing-country firms quadrupled their borrowing from around $4 trillion in 2004 to well over $18 trillion last year, with China accounting for a major share. Now, prospects in industrializing economies are weakening fast even as the U.S. Federal Reserve is getting set to raise interest rates for the first time in nearly a decade, a move that will raise borrowing costs around the world. The burden of 26% larger average corporate debt ratios and higher interest rates come as commodity prices plummet, a staple export for many emerging-market economies. Compounding problems, many firms borrowed heavily in dollars. As the greenback surges against the value of local currency revenues, it makes repaying those loans increasingly difficult. That massive debt build-up means it is “vital” for authorities to be increasingly vigilant, especially to threats to systemically important companies and the firms they have links to, including banks and other financial firms, the IMF said.

    Investors Pull About $40 Billion From Emerging Markets in Current Quarter - WSJ: Foreign capital is gushing out of emerging markets. Global investors are estimated to have yanked $40 billion from emerging-market stocks and bonds during the current quarter, the most for a quarter since the depths of the 2008 global financial crisis, according to the latest data from the Institute of International Finance. The retrenchment reflected growing tensions in some of the world’s once-highflying emerging economies, which are struggling with slower growth, substantial debt and plunging prices for commodities, which many of these economies rely on. In a report published on Tuesday, the International Monetary Fund warned that emerging markets could brace for a rise in corporate failures as debt-laden firms find it harder to repay their loans and bonds as a result of sputtering growth and weakening currencies. Companies from developing countries quadrupled their borrowing to well over $18 trillion last year from around $4 trillion in 2004, with Chinese firms accounting for a major share, according to the bank. Thanks to low interest rates in developed countries, many of the borrowings were conducted in hard currencies, such as the dollar and euro. Investor confidence in emerging markets was further shaken in the quarter by an epic stock-market crash in China, as well as Beijing’s botched efforts to prop up share prices. The selloff in emerging markets accelerated and rattled global financial markets after the Chinese central bank’s move to let its currency devalue in Augustfueled suspicions that China’s underlying economy might be faring worse than expected.

    Emerging markets rout stirs unease about capital curbs (Reuters) - Moves by Nigeria and China to clamp down on currency and equity markets have raised fears other countries may also seek to curb capital movement as a way to stem the exodus of money from emerging markets. Some governments are already restricting citizens' ability to move cash freely or tightening existing measures and some foreign investors worry they may be next in line. As 2015 outflows from emerging stock and bond funds near $100 billion and currencies from Malaysia to Brazil plumb multi-year lows, memories are stirring of past controls that block unlucky investors' exits. At stake is the $7 trillion that the Institute of International Finance reckons has flowed into emerging markets since 2005, via direct investments, mergers and acquisitions, and stock and bond purchases. Some of those with EM exposure may considering moving before regulators do. "Malaysia, Brazil, Indonesia all have a recent history of intervening and imposing capital controls ... this is very much contingent on how much more outflows there are to come, and how much more depreciation there is to come,"   Capital controls are often first levied on local bank deposits or exporting firms. But freezing exchange rates or interbank trading can leave foreign investors struggling to liquidate assets or withdraw cash from banks.

    Emerging markets have worst quarter since 2008 global crisis: Emerging markets are closing in on their worst quarter since the global financial crisis. Investors yanked out $40 billion from emerging markets in the three months through September, according to estimates from the Institute of International Finance (IIF). That represents the worst quarter since the final three months of 2008. Countries from Mexico and Malaysia have been buffeted in recent months as investors take fright at the prospect of higher interest rates in the US, which dims the appeal of riskier emerging market assets. Higher capital outflows in many countries have exerted pressure on local currencies, exacerbating worries for some investors who are now nursing losses on both the underlying asset and the local currency.  Here are some charts from the IIF that highlight the extent of the sell-off.

    World set for emerging market mass default, warns IMF - The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging market corporate defaults and panic in financial markets as liquidity evaporates. The IMF said corporate debts in emerging markets ballooned to $18 trillion (£12 trillion) last year, from $4 trillion in 2004 as companies gorged themselves on cheap debt. It said the quadrupling in debt had been accompanied by weaker balance sheets, making companies more vulnerable to US rate rises. "As advanced economies normalise monetary policy, emerging markets should prepare for an increase in corporate failures," the IMF said in a pre-released chapter of its latest Financial Stability Report. It warned that this could create a credit crunch as risks "spill over to the financial sector and generate a vicious cycle as banks curtail lending". In a double warning, the IMF said market liquidity, or the ease with which investors can quickly buy or sell securities without shifting their price, was "prone to sudden evaporation", particularly in bond markets, when the Federal Reserve started to raise interest rates. It said a steady growth environment and "extraordinarily accommodative monetary policies" around the world had helped to maintain a "high level" of liquidity. However, it warned that this was not the same as "resilient" liquidity that could support markets in time of stress.

    Fears of a Chinese 'hard landing' trigger mass exodus from emerging markets - Investors are on track to pull $541bn (£357bn) out of emerging markets this year, as fears that China is headed for a ‘hard landing’ have prompted the greatest flight for safety since 1988.   The Institute of International Finance (IIF) said that the net outflows would most likely continue next year, as the prospect of US interest rate rises threatens to dampen the emerging market outlook further.   Charles Collyns, managing director and chief economist at the IIF, said that “emerging markets have seen sharp losses in recent months”. The IIF’s forecasts came as economists warned that emerging markets could face a brutal slowdown over the next 12 months.  The carnage in investments marks a huge reversal from 2014, when investors poured a net $32bn into emerging markets. “Unlike the 2008 crisis, the reasons [for the outflows] are largely internal rather than external – related to rising concerns about economic prospects and policies in China, coupled with broader uncertainties about EM growth prospects,” said Mr Collyns. Credit ratings agency Fitch said that it expected China to grow by 6.3pc next year, but cautioned that if the current turmoil continues, a collapse in public and private investment could cause growth to drop to less than half that pace.

    Emerging-Market Exodus Gains Steam - WSJ: A rush of money out of emerging markets risks triggering a major correction in U.S. financial-asset prices, a global banking industry group warned Thursday, as it forecast that more than half a trillion dollars would exit developing economies this year. The Institute for International Finance, a group representing more than 500 of the world’s biggest banks, hedge funds, insurers and other financial firms, said the projected net outflows of $541 billion in 2015 would mark the first year in nearly three decades that more money has left emerging markets than has entered them. The flow signals years of trouble ahead for East Asian economies and countries such as Brazil and Turkey, the group said. “The factors holding back capital flows to emerging markets will be persistent,” said Charles Collyns, the IIF’s chief economist. “This implies a protracted drought rather than quick relief.” China’s faster-than-expected deceleration is sending shock waves through the global economy, feeding plummeting commodity prices and slowdowns in other major emerging-market economies. Growth prospects in many emerging markets are falling off a cliff as China jitters are combined with rising borrowing costs, dollar strengthening and a large build up in corporate debt over the last five years as central banks injected more than $8 trillion into the global economy. Brazil and Russia are already in recession. And the International Monetary Fund has warned that many countries should expect a round of corporate defaults that could hit firms vital to their economies, bleed their banking sectors and exacerbate their economic downturns.

    Emerging-market flows set to go negative for first time since 1988 - Emerging markets are in a world of hurt! Investors are shunning the battered sector, which has been hammered by intensifying concerns over China, the world’s second largest economy. Adding to emerging-market woes is the prospect of the U.S. Federal Reserve lifting interest rates for the first time in nearly a decade. An interest-rate increase is a boon to the U.S. dollar, but for struggling emerging markets, like Brazil and others, a stronger buck places pressure on their currencies and makes dollar-denominated debts more expensive. Read: Ditch the dollar and buy emerging markets, says Citigroup With that backdrop, capital inflows to emerging markets, which had already seen investors running for the exits, are expected to go negative for the first time since 1988, when net outflows totaled more than $9 billion, according to a research report from the Institute of International Finance released Thursday. Negative flows mean investors are pulling money out of emerging-market funds at a greater clip than money is flowing into the area. According to IIF’s projections, emerging markets could see net outflows of about $540 billion. The attached table details the projections from the financial-services trade group, which represents 500 of the world’s largest banks and other financial firms:

    El-Erian: Emerging markets are 'completely unhinged': Emerging markets have come "completely unhinged," and their struggles will likely drag on growth in the United States and Europe, widely followed market watcher Mohamed El-Erian said Thursday.  On CNBC's "Fast Money: Halftime Report," the Allianz economic advisor said solid economic trends in the U.S. may not be enough to offset sagging growth in other pockets of the world.  "It's not that powerful to pull everybody out," he said, adding that emerging market troubles could drag Europe into a recession.  El-Erian's remarks follow similar comments from World Bank President Jim Yong Kim and International Monetary Fund Managing Director Christine Lagarde. Both told CNBC this week that emerging markets face significant headwinds. El-Erian noted that global growth problems come at a particularly troubling time for the Federal Reserve, which faces the task of deciding when to raise its short-term interest rate target for the first time in nearly a decade. The U.S. central bank highlighted global trends and possible downward pressure on inflation after voting not to raise rates last month. He argued that the Fed could hike interest rates later this year at an inopportune time. "There's a risk that the Fed does the right thing at the wrong time," El-Erian said.  Those factors will contribute to a "secular rise in volatility" for the rest of the year, El-Erian contended. In that environment, stocks with good and bad fundamentals could trade together, prices may overshoot and occasional rallies will be "really strong."

    Commodities in crisis as Asian shares tumble and shipper files for bankruptcy | Reuters: A Japanese shipper filed for bankruptcy on Tuesday and global trading firm Louis Dreyfus posted lower profits, the latest victims of tumbling energy and raw material prices. The London-listed shares of mining and trading giant Glencore rebounded by around 10 percent, clawing back some ground from a near 30 percent slump on Monday. Investors sold off Glencore bonds, highlighting nerves over its debt burden and financial situation. Glencore has been afflicted by the same issue facing other miners: the prolonged fall in global metals prices caused partly by a slowdown in China, which is the world's biggest consumer of metals. Energy and commodity prices have fallen largely because of rising output following heavy investment into new assets while prices were still high, which has increasingly clashed with slowing demand in Asia, where China's economy is growing at its slowest pace in decades. The problems in the sector contributed to global trading group Louis Dreyfus Commodities B.V reporting a steep drop in first-half profits on Tuesday. The crisis has also hit the shipping sector, where dry-bulk merchant Daiichi Chuo Kisen Kaisha filed for protection from creditors on Tuesday.

    Exchange Rates Moving -   Major exchange rates for countries around the world are in the midst of movement that is large by historical standards. The International Monetary Fund offers some background in its October 2015 World Economic Outlook report, specifically in Chapter 3: "Exchange Rates and Trade Flows: Disconnected?"  The main focus of the chapter is on how the movements in exchange rates might affect trade balances, but at least to me, equally interesting is how the movement may affect the global financial picture. As a starting point, here's a figure showing recent movements in exchange rates for the United States, Japan, the euro area, Brazil, China, and India. In each panel panel of the figure, the horizontal axis runs from 0 to 36 months. The shaded areas show how much exchange rates typically move over a 36 month period using data from January 1980 through June 2015. The darkest shading for 25th/75th percentile means that exchange rates moved historically within this range from 25-75% of the time. The lighter shading for 10th/90th percentile means that exchange rates move in this area from 10-90% of the time. The blue lines show the actual movement of exchange rates using different but recent starting dates for each country (as shown in the  panels). In every case the exchange rate has moved more than the 25th/75th band, and in most cases it is outside the 10th/90th band, too. As the figure shows, currencies are getting stronger in the US, China, and India, but getting weaker in Japan, the euro area, and Brazil. The IMF describes the patterns this way: The U.S. dollar has appreciated by more than 10 percent in real effective terms since mid-2014. The euro has depreciated by more than 10 percent since early 2014 and the yen by more than 30 percent since mid-2012 ...  Such movements, although not unprecedented, are well outside these currencies’ normal fluctuation ranges. Even for emerging market and developing economies, whose currencies typically fluctuate more than those of advanced economies, the recent movements have been unusually large.

    Q3 investor flight wiped record $10 trillion off global stocks -BAML (Reuters) - Investors pulled a combined $75 billion from U.S. and emerging market equity funds in the third quarter, wiping a record $10 trillion off the value of global equities in the period, according to EPFR Global and Bank of America Merrill Lynch. In data released late on Thursday, Boston-based fund tracker EPFR Global said European and Japanese funds were the only equity classes to receive net inflows between July and September, most likely motivated by the possibility of more central bank money-printing. Funds pulled $35.2 billion from dedicated U.S. equity funds over the quarter, according to EPFR, bringing year-to-date outflows to $138 billion. That along with September losses in European markets has led to a $10 trillion drop in global equity market capitalisation, the largest quarterly fall ever, BAML said. Global equity market cap now stands at $60 trillion, a two-year low, after peaking at $71 trillion in April, the bank said. The latest week saw global equity fund redemptions of $6.6 billion, the bank said in its weekly report, which also uses EPFR figures. This coincides with a setback for European stocks that have been hit by troubles at mining firm Glencore and German automaker Volkswagen.

    We’ve Seen This Picture Before—–Global Markets Down $13 Trillion Already -  David Stockman -The US stock market has been inflating almost continuously since Black Monday in October 1987 when the newly arrived Fed Chairman, Alan Greenspan, panicked and opened up the money spigots.  In fact, the S&P 500 had risen by nearly 1000% as of the recent May peak, but that was not owing to a traditional domestic business cycle or booming growth in the main street economy. To the contrary, real median household income in 1989 was $53,000 in constant 2013 dollars—–or exactly where it still sits today. Instead, the big cap US stock index depicted above floated upwards for more than two decades owing to the great central bank Financial Bubble. On the back of $225 trillion of debt, the world economy got drastically overbuilt—–from the boom’s epicenter in China and throughout the global food chain of Emerging Market (EM) economies which supplied it, the petro-states which powered it, and the Development Market (DM) economies which consumed more than they produced and financed it from borrowings and speculative windfalls. Now the tide is receding. The global commodity crash and CapEx depression is driving corporate profits lower—-a trend line which will sharply intensify in the year just ahead.At the same time, the central banks have reached the end of their tether. The EM banks like that of China must now shrink their domestic monetary system and credit in order to prevent monumental capital flight.  In the last five quarters alone China has had a $800 billion outflow. The DM central banks are in an even worse predicament. They have held interest rates at the zero bound for seven years and bought up a fair share of the public debt via the fiat central bank credit of QE. But while drastically inflating financial asset prices, these radical maneuvers haven’t levitated the main street economy. Consequently, central bank credibility is evaporating fast and policy confusion, indecision and incoherence are mounting visibly.

    Look Out for the Great Trade Stagnation - Something a little worrying has happened to the global economy: Trade is slowing down. Since the end of World War II, the world has grown steadily more globalized. Trade has grown faster than global gross domestic product itself. Supply chains have lengthened. Companies have become more multinational. The rate of globalization reached a fever pitch in the 1990s and early 2000s. But then the financial crisis hit. Trade plummeted in 2009, falling faster than GDP, only to rebound a year later. But since then, trade has stopped growing as a percentage of output, the way it had in the past. A few years isn't necessarily enough to establish a trend, but the slowdown in trade is unprecedented in the postwar era. There are many competing explanations for the pause in the growth of trade. One explanation is simply a series of negative shocks to major economies around the world. The Great Recession touched off an ongoing crisis in the euro zone, which has been followed more recently by a major slump in China. This may simply have hit the global trade system with a series of successive blows that were unprecedented in severity and duration. But there are reasons to think something deeper and longer-lasting is going on.

    Higher fuel prices to drive inflation up further in Brazil: Gasoline and diesel prices were unexpectedly adjusted by 6% and 4%, respectively, following the negative impact on Petrobras of a weaker exchange rate. We expect this adjustment to have a +0.25pp impact on domestic prices and therefore we revise our inflation forecast for 2015 up to 9.5%. Today, economic indicators will be released for Chile and Colombia. Yesterday, Petrobras announced that gasoline and diesel prices will be increased by 6% and 4% respectively from today onwards. The adjustment follows the recent exchange rate depreciation, in a context where the Brazilian oil producer company faces significant financial problems (due to the contraction of oil prices in global markets and the corruption scandals of the last few months). On the one hand, the adjustment is good news for Petrobras and suggests that the government is now less willing to keep fuel prices (and administered prices in general) at artificially low levels, on the other hand, it will have a negative effect on inflation. More precisely, we expect the impact of yesterday’s unexpected fuel price revision on inflation to be around +0.25pp As a result, we have revised our forecast for inflation at the end of 2015 to 9.5% YoY.

    Brazilian Nightmare Worsens On Bad Budget Data, Record Low Confidence, Horrific Government Approval Ratings -- Last month, in “‘No Recovery For You!’ Brazil Officially Enters Recession, Goldman Calls Numbers ‘Disquieting’”, we outlined Brazil’s July fiscal performance and came away believing that the country had little chance of hitting its primary fiscal surplus targets. Here’s what we said:  The latest on the political front is that President Dilma Rousseff has 15 days to explain to the the Federal Accounts Court why everyone seems to think that she intentionally delayed nearly $12 billion in social payments last year in an effort to make the books look better than they actually were. And while we won’t endeavor to weigh in one way or another on that issue, what we would say is that if someone in Brazil is doctoring this year’s books, they aren’t doing a very good job because things just seem to keep going from bad to worse. Case in point, on Friday, Brazil said its primary budget deficit was R10 billion in July, far wider than expected. The takeaway: "no primary surplus for you!" Just three days later, Brazil officially threw in the towel on the primarily surplus projection for 2016 only to reverse course a few weeks later when embattled Finance Minister Joaquim Levy promised to enact some BRL26 billion in primary spending cuts for the 2016 budget on the way to achieving in a primary surplus that amounts to 0.7% of GDP. Of course implementing austerity in the current fractious political environment is going to be well nigh impossible which means any and all upbeat assessments of the outlook for the country’s fiscal situation should be looked upon with an appropriate degree of skepticism. Add in the abysmal outlook for commodities and you have a recipe for perpetual twin deficits on the current and fiscal accounts, a situation which portends more BRL weakness to come.

    Chile scraps goal to erase structural budget deficit by 2018 | Reuters: (Reuters) - The Chilean economy will not reach its previously stated goal of a structural budget deficit of zero by 2018 and achieving that will be in part down to the next administration, Finance Minister Rodrigo Valdes said on Thursday. But Valdes, presenting his first budget to Congress, emphasized that the government was committed to gradually reducing the deficit and that it should improve by "somewhat more" than a quarter of a percentage point of gross domestic product annually. A sharp slide in the price of copper, Chile's top export, has complicated the government's spending plans and the retreat from the deficit goal had been widely expected. Achieving structural balance "is not going to depend only on this government," said Valdes. "We are not going to achieve a balance in this administration and I suppose that has been clear for a while," he told journalists. Center-left President Michelle Bachelet began her four-year term in 2014. A zero structural deficit would mean the government spending and expenditures would be in balance, once the impact of cyclical economic factors are stripped out.

    IMF downgrades 2015 economic forecast on Russia to minus 3.8% of GDP -- The International Monetary Fund (IMF) downgraded its economic forecast for Russia as it projects recession of 3.8% in GDP for 2015 and of 0.6% for 2016 in its new analytical research prepared to annual meeting, TASS correspondent reports with reference to informed sources. In end-June, IMF experts forecasted recession of 3.4% for 2015 and 0.2% growth for 2016 while in April the organization also projected the Russian economy will decline by 3.8% this year. The downgrade is largely due to recent falls in oil prices on the global markets. The IMF also expects inflation to reach 15.8% in Russia this year and 8.6% - in 2016. All in all, the fund’s projections are in line with those given by the Russian authorities. The Central Bank said on September 11 it expects recession in Russian to stand at 3.9-4.4% of GDP this year and at 0.5-1.0% of GDP next year. Earlier the Economic Development Ministry slightly downgraded its projection on GDP decline for 2015 - to 3.6% from 3.3%. The new report will be officially presented by the International Monetary Fund on October 6.

    Russia doubles size of Reserve Fund draw to 402 bln rbls in Sept -- Russia spent 402.2 billion roubles ($6 billion) from its Reserve Fund to cover the budget deficit in September, the Finance Ministry said on Friday, double the 200 billion roubles it had spent each month in July and August. The rate at which Russia is running down this fund is drawing attention because of questions about the sustainability of public finances. The Reserve Fund is the main tool for covering a budget shortfall caused by low oil prices. The Finance Ministry said the 402.2 billion roubles used to fund the deficit last month corresponded with 2014 oil and gas revenues that had been earmarked for increasing the fund by Oct. 1. The overall value of the fund was therefore little changed compared with a month earlier. As of Oct. 1, the Reserve Fund was worth 4.67 trillion roubles, equivalent to $70.51 billion. This compared with 4.7 trillion roubles, or $70.69 billion, on Sept. 1, the Finance Ministry said.

    IMF chief warns of weaker global economic growth -- A marked slowdown in big emerging market countries will cut global growth to its lowest level since the deep recession of 2009, the head of the International Monetary Fund has warned. Christine Lagarde, the IMF’s managing director, said forecasts to be published by her organisation next week would show activity expanded by less than the 3.4% recorded in 2014 – the joint weakest since the world economy came to a standstill six years ago. Speaking in Washington, Lagarde said “global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016”. Lagarde said she was “concerned about the state of global affairs”, highlighting the refugee crisis in Europe, the prospect of 2015 being the hottest year on record and the state of the global economy.“The prospect of rising interest rates in the United States and China’s slowdown are contributing to uncertainty and higher market volatility. There has been a sharp deceleration in the growth of global trade,” she said. “And the rapid drop in commodity prices is posing problems for resource-based economies.” The good news had been the modest pick-up seen in developed countries, Lagarde said, but this was offset by the fifth year of declining growth rates in the emerging world. “India remains a bright spot. China is slowing down as it rebalances away from export-led growth. Countries such as Russia and Brazil are facing serious economic difficulties. Growth in Latin American countries, in general, continues to slow sharply.”

    Currency Swings Still Pack a Power Export Punch - Currency depreciations get nearly as big a bang for the export buck as they always have, according to a new International Monetary Fund report. The IMF’s findings may lend credence to efforts by the European Central Bank and other authorities seeking to spur growth through policies that weaken exchange rates. But it could also bolster concerns that a series of tit-for-tat currency depreciations could undermine global growth prospects if policy makers rely on a using exchange-rate devaluations to gain competitive advantage.  An increasingly integrated global economy—where products are assembled in several different countries—has led some to believe that currency devaluations don’t fuel export growth like they used to. Japan’s sluggish rebound in exports despite a 40% depreciation in the yen was the prime exhibit. Not so, says the IMF in a new study published Monday. A 10% depreciation in a country’s exchange rate—accounting for inflation—can help boost net exports by an average of 1.5% of gross domestic product as cheaper currencies make exports more attractive to foreign buyers, the IMF found. Of course, the flip side of that coin is that appreciating currencies are a drag on growth as net exports fall. “There is little sign of a disconnect between exchange rates and trade,”

    Zero inflation looms for ECB as oil drop counters stimulus - If the euro area is about to run out of inflation -- again -- it won’t shock Mario Draghi. The European Central Bank president said more than three weeks ago that the inflation rate could turn negative this year because of the renewed decline in oil prices. The 19-nation region is set to take a step in that direction on Wednesday, when data will show consumer prices stagnated in September for the first time in five months, according to a Bloomberg survey of economists. Stalled prices would mark a setback for policy makers who have been trying to steer inflation back toward 2 percent for the better part of two years, and may spark a new debate about deflation risks. Yet while officials have repeatedly stressed that they’re prepared to add stimulus if needed, they’ve also said they want more evidence before making a decision. “The figures this month are unlikely to prompt any action from the ECB,” said Ben May, an economist at Oxford Economics Ltd. in London. “Quantitative easing has prevented the emergence of second-round effects from the new decline in oil prices and the pickup in core inflation in recent months is a cause for comfort. Some people may be concerned by this new fall in inflation, but the ECB has tried to distance itself from these concerns.” The European Union’s statistics office will publish September inflation data on Wednesday at 11 a.m. in Luxembourg. Estimates in the Bloomberg survey range from 0.3 percent to minus 0.2 percent. Eurostat will release unemployment data for August at the same time, and the European Commission will issue its latest report on economic confidence on Tuesday.

    German inflation turns negative in Sept for first time in 8 months | Reuters: German annual inflation turned negative in September for the first time in eight months, preliminary data from the Federal Statistics Office showed, undershooting the consensus forecast for consumer prices in Europe's largest economy to stagnate. German prices harmonised to compare with other European countries fell by 0.2 percent - the weakest reading since January - after a 0.1 percent rise in August, data showed on Tuesday. The reading was well below the European Central Bank's inflation target for the whole euro zone of just below 2 percent. Economists had expected it to slow to 0.0 percent. The statistics office said it would publish final consumer price data for September on Oct. 13.

    Europe needs €2.4 trillion to smash deflation threat, warn experts - Telegraph: The eurozone will need at least another three years of quantitative easing and €2.4 trillion of firepower to revive its flagging fortunes, Standard & Poor's has warned. With unemployment stubbornly high and growth still bouncing along the bottom seven years after the financial crisis, the European Central Bank is set to more than double its €1.1 trillion bond-buying blitz launched earlier this year, said S&P. • Time for more eurozone QE? Five charts you need to see The warning came as inflation fell back into negative territory for the first time in six months in September. Consumer price growth dipped to -0.1pc, confounding analyst expectations after being pushed lower by a near 9pc fall in energy prices. Core inflation - which strips out volatile elements such as energy prices - remained steady at 0.9pc.It is the first time deflation has come back to stalk the single currency after ECB chief Mario Draghi fought a protracted battle inside the Bank to begin asset purchases in March. The ECB is expected to carry out its €60bn-a-month programme until September 2016, and has said it is willing to extend QE in the wake of turmoil in financial markets and panic over a Chinese hard-landing. But S&P's prediction that stimulus will continue into mid-2018 goes well beyond analyst expectations of a just a six-month extension. It would also more than double the bank's firepower to €2.4 trillion.

    New EU union could tap investor funds across Europe - BBC News: New plans to get business to tap investor funds across the EU are to be outlined by the UK on Wednesday. Britain's EU Commissioner, Lord Hill, believes his Capital Market Union (CMU) could free up investment across Europe. Most European companies rely on banks to provide capital. CMU aims to encourage alternatives, from crowd funding to investment funds. And this week 17 countries demanded that the European Commission accelerate progress towards a single market. Although the EU's financial system provides some two trillion euros to small and medium sized businesses, non-bank finance is less than half that in the US. Lord Hill, who is European Commissioner for Financial Stability, Financial Services and Capital Markets Union said earlier this year: "The CMU should create the conditions for capital to cross borders, to flow to entrepreneurs with high growth potential, no matter where they are located." His first move will be to announce a review of some 40 pieces of legislation in the financial sector that have been put in place since 2008. Much of it was drawn up in the height of the financial crisis and he believes "should have been more joined up".

    Bundesbank chief warns of risks from cheap money | Reuters: The dip in oil prices will save German companies and individuals 25 billion euros ($28 billion) this year, the head of the Bundesbank said on Tuesday, as he warned of the perils of keeping the cost of money too low. "The expansionary monetary policy should not go on for longer than is absolutely necessary," Jens Weidmann told an audience near Frankfurt, saying the economic recovery in the 19-member euro zone was holding steady. The remarks from Weidmann illustrate the continued scepticism in Germany about the need to extend the European Central Bank's 1-trillion-euro-plus money printing program. While such opposition cannot prevent extra money printing, it can delay any such move. Weidmann, who also sits on the ECB's policy-setting Governing Council, argued that cheap money, with borrowing rates at record low in the euro zone, risked that financial markets would 'overdo it'. He also pointed to the threat that permanently low borrowing costs would keep 'zombie' companies afloat that should be out of business.

    Eurozone Producer Prices Fall Sharply, Adding to ECB’s Concerns - WSJ: The decline in eurozone producer prices accelerated in August, putting further pressure on the European Central Bank to stem the risk of deflation. Prices at the eurozone’s factory gates fell 0.8% on the month, their steepest monthly fall since January, the European Union’s statistics agency said Friday. Producer prices slumped 2.6% from August last year, their steepest annual fall since February. The reductions were more severe than the price declines of 0.6% and 2.4% economists’ had expected, more evidence that the ECB’s various stimulus programs have a long way to go to boost inflation. Data published by Eurostat Wednesday showed that consumer prices in the region fell in September on an annual basis for the first time since the ECB launched its government-bond purchasing program in March. Eurostat data showed Friday that lower energy costs continued to pull down producer prices across the eurozone. But even excluding energy, producer prices in August dropped 0.2% on the month, falling 0.5% from August last year.

    Euro zone factory growth eases in August despite modest price rises - PMI | Reuters: Euro zone manufacturing growth eased last month, despite factories barely raising prices, adding to the European Central Bank's woes as it battles to spur expansion and inflation, a survey showed. Tuesday's disappointing readings come almost half a year after the ECB began pumping 60 billion euros a month of fresh cash into the economy and a day after official data showed inflation in the 19-country bloc at just 0.2 percent. With inflation so far below the ECB's 2 percent target ceiling there is a growing chance the ECB will have to extend its stimulus program beyond the planned completion in September 2016. Markit's final manufacturing Purchasing Managers' Index was 52.3 last month, below an earlier flash reading that suggested it had held steady at July's 52.4. It has, however, been above the 50 mark that separates growth from contraction for over two years. An index measuring output that feeds into a composite PMI, due on Thursday and seen as a good guide to growth, rose to 53.9 from 53.6, above the preliminary 53.8 reading.

    Catalan Separatist Parties Victorious, Unprecedented 63.2 Percent Voter Turnout   --The showdown in Spain between the independence parties and Madrid is sure to heat up following today's elections. Here is a link to the Live Vote Totals. With 70% of the vote counted, the parliament totals look like this: In terms of popular vote, it appears the separatists will fall short of an absolute majority. Separatists will get about 47% of the popular vote. Current totals show prime minister Mariano Rajoy's conservative Popular party is going down in a crushing defeat with only 8.46% of the vote.  

    Victorious Catalan separatists claim mandate to break with Spain -  Reuters: Separatists on Sunday won a clear majority of seats in Catalonia's parliament in an election that sets the region on a collision course with Spain's central government over independence. "Catalans have voted yes to independence," acting regional government head Artur Mas told supporters, with secessionist parties securing 72 out of 135 seats in the powerful region of 7.5 million people that includes Barcelona. The strong pro-independence showing dealt a blow to Spanish Prime Minister Mariano Rajoy, three months before a national election. His center-right government, which has opposed attempts to hold a referendum on secession, has called the separatist plan "a nonsense" and vowed to block it in court. Spain's constitution does not allow any region to break away, so the prospect remains highly hypothetical. The main secessionist group "Junts pel Si" (Together for Yes) won 62 seats, while the smaller leftist CUP party got another 10, according to official results. They jointly obtained 47.8 percent of the vote in a record turnout of 78 percent, a big boost to an independence campaign that has been losing support over the last two years

    How an independent Catalonia plans to keep the euro - Catalonia's landmark regional elections are set to unleash a fresh wave of political and economic uncertainty in the eurozone's fourth largest economy. Last weekend's vote - billed as a proxy for independence in the prosperous north eastern region - bought a narrow victory for separatist leaders. The Catalan parliament will now have a majority pro-independence presence, led by the president and spearhead, Artur Mas. Mr Mas has vowed to use his narrow mandate to embark on a roadmap towards full independence over the next 18 months.But despite a record turnout of 77pc of the electorate, the campaign for an independent nation state was run on sentiment rather than the cold hard facts, note political observers.  One question that has remained conspicuously absent from the secession debate is the issue of Catalonia's eurozone membership.  The matter was brought into sharp relief ahead of the vote when Spain's central bank governor made it clear any independent region would no longer have use of the single currency. This would be the immediate consequence of Catalonia's loss of European Union membership. As a newly sovereign nation, it would no longer be subject to the EU's treaties and would need to re-apply for membership, Brussels has warned.  Economists have suggested that an independent Catalonia could carry on using the euro while the process of re-application to the EU takes place.

    Catalonia Exit Threat Moves Spain Toward Political Breakdown  -- The dust is not even close to settling after Catalonia’s latest experimental flirtation with nation building. The pro-independence coalition fell tantalizingly short of gaining a majority of seats (62 out of 135). Now it needs the support of the anti-capitalist separatist party Popular Unity Candidacy (CUP) to secure a pro-independence majority in the regional parliament. The problem is that CUP, which advocates a Catalonian exit (Cat-exit) from the EU, the Eurozone, and NATO, as well as unilateral default on the region’s debt, seems determined to play hard ball. After picking up 10 seats in the election – a seven-point increase on 2011’s total — its lead candidate Antonio Baños has refused to endorse the reappointment of the region’s pro-business president Artur Mas, who Baños described as “tainted” by corruption and the long shadow of austerity. In his role as Catalonia’s new kingmaker-turned-kingslayer, Baños also dismissed the possibility of CUP supporting a unilateral declaration of independence from Spain. Before the elections CUP had pledged that it would only support a unilateral declaration of independence if the pro-independence parties received a majority of the vote. It won 47%. As for Mas, his post-electoral hangover has only just begun. Back in 2012, The Economist’s Giles Tremlett presciently warned that by nailing his colors to Catalonia’s independence movement in a last-ditch effort to salvage his own political career, Mas had jumped on a tiger he could not fully control. Now the tiger, it seems, is in the process of unseating its rider. And the rider could soon find himself barred from public office altogether. As El País reports, the Catalan premier and two other political officials from his party are an official target in a probe (or in the vernacular of Catalonia’s pro-independence supporters, “political trial”) opened by prosecutors over last year’s symbolic referendum:

    Spanish inflation dives, falls to -1.2% - --Spain's consumer prices fell in September at their fastest pace in six months, driven by a decrease in energy costs that some economists expect could lead to months of falling prices in the eurozone's fourth-largest economy. Spain's statistics institute INE said Tuesday that a preliminary calculation shows the country's European Union-harmonized consumer prices fell 1.2% on the year in September, compared with a drop of 0.5% in August. INE will provide a full CPI breakdown on Oct. 14, but noted that lower power and fuel prices were the reason for the September decline. María Jesús Fernández, an economist with the influential Madrid-based think-tank, Funcas, said the decrease is slightly more pronounced than anticipated. She said it reinforces views that earlier expectations of a small increase in consumer prices late this year are likely to be misplaced due to persistently low oil prices. Spanish economists have been adjusting their inflation estimates over the last few weeks, as oil prices have remained low, but fresh cuts may be required. A Funcas consensus estimate compiled earlier this month from 16 economists still anticipates that CPI under Spain's own domestic calculation will rise 0.9% on the year in December, from a 0.9% decline in September.

    How Greece could collapse the eurozone - The problem is not that the eurozone found itself facing serious economic challenges. The issue is its failure to anticipate the risk of such a crisis ever happening, the lack of contingency planning, and the eurozone’s inability to deal with the problem on a timely basis. The Greek crisis is now over five years old, with no signs of a permanent solution. There are only unpalatable choices. Some concessions will not solve the problem. Other eurozone members will have to continue to provide additional financing to Greece, further increasing their risk. Favorable treatment for the Greek government risks opening a Pandora’s Box of demands from other countries to relax austerity measures. Demands for relaxation of budget deficit and debt level targets are likely from Spain, Portugal, Ireland, Italy, and France. A write-down of debt would crystallize losses. It might threaten the governments of Spain, Portugal, Italy, Finland, the Netherlands, and Germany. If Greece leaves the euro, then the consequences for the eurozone are unclear. Should Greece prosper outside the single currency, it reduces the attraction of the eurozone for weaker members. Given the absence of painless solutions, it seems for the moment that neither Greece nor its creditors have any objectives other than avoiding having their fingerprints on the instrument that triggers default, the world’s largest sovereign debt restructuring or a breakup of the euro.

    The Terrible Flight from the Killing - And yet across a long corridor of countries, from the Anatolian coast to Greece on up to Hungary and Austria, for anyone who cared to notice there were Syrians waiting to pay human smugglers in back alleys of Turkish beach towns. They were clinging, in the darkness, to hopelessly unseaworthy dinghies in the Mediterranean and Aegean seas; crouching in groups, thirsty and sunbaked, in trash-strewn holding areas on the Greek island of Kos; clamoring to get on rusty trains in the Former Yugoslav Republic of Macedonia; trudging, in irregular lines, with young children on their shoulders, through the forests of the Serbian–Hungarian border. They were emptying their last savings so they could again pay smugglers to be stuffed into the backs of trucks for a harrowing journey further north to Vienna or even to Munich. In fact, the new wave had already begun in late spring, when hundreds of thousands of Syrians, Iraqis, and Afghans began crossing from Turkey to Greece and continuing, as best they could, into Central Europe. Though it was little noted at the time, by July, well over a thousand people were arriving every day in the Greek islands closest to Turkey, which were woefully ill-equipped to receive them. International aid workers said that some holding areas had now become the most squalid in the world. At Kara Tepe, a makeshift reception center on the island of Lesbos, the International Rescue Committee, an emergency aid group working in forty countries, reported that there were just two showers for two thousand refugees; the United Nations High Commissioner for Refugees (UNHCR) described conditions as “shameful.”

    Down the Memory Hole: NYT Erases CIA’s Efforts to Overthrow Syria’s Government - FAIR has noted before how America’s well-documented clandestine activities in Syria have been routinely ignored when the corporate media discuss the Obama administration’s “hands-off” approach to the four-and-a-half-year-long conflict. This past week, two pieces—one in the New York Times detailing the “finger pointing” over Obama’s “failed” Syria policy, and a Vox “explainer” of the Syrian civil war—did one better: They didn’t just omit the fact that the CIA has been arming, training and funding rebels since 2012, they heavily implied they had never done so. First, let’s establish what we do know. Based on multiple reports over the past three-and-a-half years, we know that the Central Intelligence Agency set up a secret program of arming, funding and training anti-Assad forces. This has been reported by major outlets, including the New York Times, The Guardian, Der Spiegel and, most recently, the Washington Post, which—partly thanks to the Snowden revelations—detailed a program that trained approximately 10,000 rebel fighters at a cost of $1 billion a year, or roughly 1/15th of the CIA’s official annual budget. In addition to the CIA’s efforts, there is a much more scrutinized and far more publicized program by the Department of Defense to train “moderate rebels,” of which only a few dozen actually saw battle. The Pentagon program, which began earlier this year and is charged with fighting ISIS (rather than Syrian government forces), is separate from the covert CIA operation. It has, by all accounts, been an abysmal failure.

    Europe’s Refugees Are a Global Crisis -- Ilargi - “Smugglers” are not the problem, it’s the people they “smuggle” that are. Or perhaps we should turn that around and admit that in fact it’s the European leaders who are the problem. It’s they who lack any courage or vision, or even a basic understanding of what is going on. Angela Merkel has gotten a lot of accolades when she opened Germany’s borders to Syrians, even though that only lasted a few days. But people seem to forget that she is Europe’s most powerful politician, and that makes her responsible for a lot of the drowned children who lose their lives on a daily basis in a small stretch of the Mediterranean between Turkey and Greece. Merkel should have acted much faster. She’s just as culpable as all the other jokers in Brussels and various EU capitals. They all were, and still are, hoping this issue would go away by itself. Instead, the issue has only just started, and the whole continent is woefully unprepared to this day. German paper Die Welt ran a story this weekend (in German) that detailed how Merkel and her government were warned in Q1 by the German federal police (Bundespolizei) that a million refugees would be coming to Germany in 2015. And did nothing. The paper didn’t provide a precise date, but Q1 ended close to 6 months ago, so we know Merkel et al could have acted on this information -and prepared- at least half a year ago.  If Europe’s leaders don’t tackle the issue now, and in an effective way, we risk, with a likelihood bordering on certainty, much worse than we have seen so far. The refugees will not stop coming to Europe. But with autumn now on the doorstep, their journeys will become much more perilous, and deadly. Europe is set to change, and in very sweeping ways. That cannot be altered. What can be done is to treat refugees like they are human beings, whose lives matter the way German and French lives matter.

    Europe’s Refugee “Crisis”  -- Every day television screens show images of people pouring into towns and cities, crowding up border crossings or landing at sea (if they are lucky) and filling up transport hubs in certain European countries. International and national newspapers carry stories of some compassion, along with greater instances of more xenophobic responses of local populations. Government leaders (particularly in eastern and central Europe) are shown declaring that their country cannot possibly take in so many people, many of whom may not even be “real” refugees but simply economic migrants. Borders are being reinforced and aggressively policed; walls and barbed wire fences are being put up; desperate groups of travelers are even being shot at in the attempt to prevent further influx. Yet this tragic phenomenon that is receiving so much global publicity is but a small trickle in the huge flow of people displaced globally by wars and conflicts in the areas where they live. According to the UNHCR, in 2014 alone, nearly 14 million people were forcibly displaced due to civil war or other violence. Most of these moved within their own country – 11 million people, who are internal refugees losing everything, and often retaining only the most uncertain of citizenship rights precisely because of the internal conflicts. The 3 million who were cross-border refugees added to the estimated global total of 60 million displaced people, 19.5 million cross-border refugees and 1.95 million asylum seekers in 2014. Obviously in 2015 the numbers have gone up further, and the conflicts in many countries of origin have only intensified. But most of these displaced people – 86 per cent of them, in fact – are hosted by developing countries. The Least Developed Countries, with some of the lowest per capita incomes in the world and very poor conditions of infrastructure available to their own previously resident populations, were home to a quarter of the world’s refugees in 2014.

    British Labour Party to Launch Radical Review of BOE - Britain’s opposition Labour Party will launch a “radical review” of the national institutions that manage the economy, including the Bank of England, its finance spokesman will say on Monday. John McDonnell, a hard-left former trade unionist who has advocated re-nationalizing banks and imposing wealth taxes, will also promise a Labour government would ensure the proceeds of economic growth are shared more equally around the country. In a speech at the party’s first annual conference since Labour leader Jeremy Corbyn was elected, McDonnell will say that if his party wins power in 2020 Britain would live within its means but invest to help the economy grow, according to a source close to McDonnell. McDonnell has previously called for the government to reclaim the power to set interest rates from the Bank of England. But the source said the party’s position would be that the central bank would remain independent.

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