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

Saturday, June 11, 2016

week ending Jun 11

Federal Reserve Plan for Raising Rates Sidetracked by Weak Jobs Data - WSJ: The Federal Reserve’s plans for raising short-term interest rates went on hold after Friday’s dismal jobs report, with officials now wanting to wait and see whether the economy remains on track before they make a move. A rate increase at the Fed’s June 14-15 meeting is almost surely off the table. A move at their July meeting six weeks later is still possible though less likely, because officials won’t have that much more economic data to reassure themselves about the course of the economy’s expansion, according to their remarks.  Some officials could prefer to wait until their September meeting to consider lifting rates, provided the economy picks up during the summer. The Fed’s next signal comes Monday from Chairwoman Janet Yellen, who is scheduled to speak in Philadelphia on the economic outlook and monetary policy. “We cannot take the resilience of our recovery for granted,” Fed governor Lael Brainard said in a speech Friday after the weak employment report, potentially foreshadowing Ms. Yellen’s approach. Though the two women don’t always see eye-to-eye, they are both cautious about raising rates. “In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals,” Ms. Brainard said at the Council on Foreign Relations. Before Friday, when the Labor Department reported that hiring slowed sharply in May, Fed officials were considering lifting rates this month or next."Today’s labor market report is sobering, and suggests that the labor market has slowed,” Ms. Brainard said Friday. Cleveland Fed President Loretta Mester, speaking in Stockholm on Saturday, said the employment gain reported Friday was a “disappointing number,” adding that it “has not changed fundamentally my economic outlook, but we will be assessing the data as it comes in.”

It’s a Good Thing the Fed Has Missed its Chance to Raise Rates. Here’s Why. --A shockingly weak May jobs​ report​ knocked the Federal Reserve off what looked like a clear course to raise interest rates in the next few months. Up and down Wall Street, you could hear the groans: once again the Fed missed its chance. For two years now the Fed has charted a path to steadily raise interest rates, but has regularly pulled back because the economy suddenly weakened, inflation dropped, or the financial markets acted up. The Fed still thinks rates will gradually rise as unemployment falls, which leaves it “looking for windows of opportunity to raise rates​,” as my colleague Jon Hilsenrath puts it.  ​Critics say it has boxed itself in: By simply preparing to raise rates, the Fed triggers conditions that make it impossible to follow through. Yet this logic has perverse implications. It says the Fed tightens when it can, not when it should. This confuses the tool of monetary policy, interest rates, with​ its goal, which is low unemployment and stable inflation around 2%. The Fed’s rate target was near zero from 2008 to 2015 and, after just one increase, sits between 0.25% and 0.5%. So isn’t it self-evident that rates have to rise?  Actually, no: The right level of rates will have been achieved when the economy is at full employment and inflation at 2%. A few years ago officials thought that magic interest rate (they prefer the term “neutral” or “equilibrium rate”) was 4%. Now they think it’s 3.3%. In her speech Monday, Janet Yellen, the Fed chairwoman, suggested it may now be less than 2%. These are all guesses. For all they know the right number is 0.25%.  To say the Fed missed its chance is to argue that rates today should already be higher. But if they were, then the slowdown (if indeed there is one) now underway would have come sooner.

Yellen: Current Conditions and the Outlook for the U.S. Economy --The speech may be viewed here live.  From Fed Chair Janet Yellen: Current Conditions and the Outlook for the U.S. Economy Excerpts:   [T]he overall labor market situation has been quite positive. In that context, this past Friday's labor market report was disappointing. Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month.2 And while the unemployment rate was reported to have fallen further in May, that decline occurred not because more people had jobs but because fewer people reported that they were actively seeking work. A broader measure of labor market slack that includes workers marginally attached to the workforce and those working part-time who would prefer full-time work was unchanged. An encouraging aspect of the report, however, was that average hourly earnings for all employees in the nonfarm private sector increased 2-1/2 percent over the past 12 months--a bit faster than in recent years and a welcome indication that wage growth may finally be picking up. Although this recent labor market report was, on balance, concerning, let me emphasize that one should never attach too much significance to any single monthly report. Other timely indicators from the labor market have been more positive. For example, the number of people filing new claims for unemployment insurance--which can be a good early indicator of changes in labor market conditions--remains quite low, and the public's perceptions of the health of the labor market, as reported in various consumer surveys, remain positive. That said, the monthly labor market report is an important economic indicator, and so we will need to watch labor market developments carefully. Yellen remains cautiously optimistic, but no indication of a rate increase in June.

Janet Yellen Speech Indicates Fed Will Rethink Interest-Rate Plans - The Federal Reserve, mindful of unexpectedly weak job growth last month, has abandoned hope of raising interest rates at its next meeting in June, but Fed officials say they are still thinking seriously about raising rates in July or September.Janet L. Yellen, the Fed’s chairwoman, said a few weeks ago that she expected the Fed to raise its benchmark interest rate “in the coming months,” but she omitted those words from a Monday speech, indicating the reported weakness of job creation in May has caused the Fed to rethink its plans.Still, Ms. Yellen delivered a generally upbeat assessment of economic conditions. While describing the May jobs report as “concerning,” she also emphasized that it was just one piece of data and that other economic indicators, including wage growth, paint a considerably brighter picture.“I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones,” she told the World Affairs Council of Philadelphia.Investors have all but written off the chances the Fed will increase rates at its next meeting on June 14 and 15, and Ms. Yellen did not try to change their minds. Her speech was the last public appearance by a Fed official before the meeting. But she added that she still expected economic growth — and she still expected rate increases.“If incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, as I expect, further gradual increases in the federal funds rate are likely to be appropriate,” she said.

Fed's Yellen sees rate hikes ahead, but few hints on when | Reuters: Federal Reserve Chair Janet Yellen on Monday gave a largely upbeat assessment of the U.S. economic outlook and said interest rate hikes are coming but, in an omission that stood out to some investors, gave little sense of when. Overall, Yellen said, "I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones." While last month's jobs report, released Friday, was "disappointing," and bears watching, policymakers will respond "only to the extent that we determine or come to the view that the data is meaningful in terms of changing our view of the medium- and longer-term economic outlook." Though she stressed surprises could emerge that could change her expectations, and listed four main risks to the U.S. economy - slower demand and productivity, and inflation and overseas risks - she concluded by downplaying them all and flagging her expectation that "further gradual increases in the federal funds rate are likely to be appropriate." Still, Yellen was careful not to give any hints about the timing of a next rate increase, in contrast to a speech on May 27, when she said such a move would probably be appropriate "in coming months."To some investors, the absence of a timeframe in Monday's remarks suggests the Fed will delay its next rate hike well beyond next week, when U.S. central bankers next gather to make monetary policy. Economists now see September or possibly July as the most likely time for a quarter-point policy tightening, while traders in futures markets are betting on later in the year.

The Days of Huge Fed Rate Hikes Are Over | Bank Think: Despite the disappointing jobs numbers reported Friday, Federal Reserve Board Chair Janet Yellen made clear in comments last week that a rate hike is coming. While the slowdown in hiring reported for May reduces the likelihood of an immediate rise in rates, it is still a question of when — not if — rates will go up. But before banks place their bets on higher interest-related revenue, let's try to put the prospect of a rate hike in perspective. This is still not Alan Greenspan's Federal Reserve. In Greenspan's days — which saw factors supporting a more traditional Fed rate cycle — it was not uncommon to see the federal funds rate approach 6% and 10-year rates even higher. But those days are long gone. The outlook for U.S. growth and inflation has changed so fundamentally in the last decade that most U.S. rates — from fed funds out to 10-year notes and beyond — look likely to run between 2% and 3% for the next decade. Banks waiting to get rescued by a Greenspan cycle may end up bitterly disappointed or even out of business. Today we are in the middle of a productivity devolution. U.S. workers from 1995 to 2004 on average raised output by an extraordinary 3.25% a year, a trend that would double standards of living every 22 years. But average annual productivity growth from 2004 to 2014 slipped to 1.5% and, in the last five years, to 0.5%, a pace that would double living standards only every 139 years. Since growth depends on rising population, productivity or both, the productivity devolution has hurt. The productivity downshift has come for reasons ranging from a changing workforce to declining gains from technology to increasing regulation and beyond. The Fed has acknowledged these challenges. None look likely to change soon.

Rosengren flags jobs report, yet says Fed rate hikes coming | Reuters: The U.S. economy's rebound from a weak winter has moved the Federal Reserve closer to raising rates, though last month's poor employment report might give it pause, a top Fed official said on Monday. Boston Fed President Eric Rosengren, speaking in Finland, gave the latest hint that while the U.S. central bank remains on track to continue tightening policy it likely will not do so at a June 14-15 meeting. "Lately the economic data have been choppy" with the May employment report "disappointing," Rosengren, a dovish voter on Fed policy this year, said at the Global Interdependence Center conference in Helsinki. The report showing the U.S. economy added just 38,000 jobs in May, along with a sensitive vote later this month on Britain's membership in the European Union, have convinced most economists that the Fed will wait until July or September to raise rates again after lifting them from near zero in December. Rosengren said the jobs data contrasted with a strong pick-up in U.S. spending and growth in the second quarter, so "it will be important to see whether the weakness in this report is an anomaly or reflects a broader slowing in labor markets." But he still expects "sufficient economic growth to justify a gradual removal of accommodation" and he noted that, at 4.7 percent, unemployment has dropped to his estimate of "full employment," a key goal since the financial crisis

Why The Fed Is Trapped: A 1% Increase In Rates Would Result In Up To $2.4 Trillion Of Losses -- A funny thing happened as every central bank around the world rushed to stimulate their economy by devaluing their currency in a global FX war that is now 7 years old and getting more violent by the day: with bond yields plunging, and over $10 trillion in global debt now having a negative yield, every fixed income investor starved for yield was pushed into the long end of the bond curve where whatever yield is left in the world of "safe" bonds is to be found. As long as interest rates never go up, this strategy is relatively safe. However, a major risk emerges when central banks start tightening.   Just this Thursday, speaking at an investor conference James Dimon said that if short-term and long-term rates were to move up by 1 percentage point simultaneously, 70% of the benefit would come from the move in short-term rates. The reason for this is that even if long-term rates remain under pressure, and the curve flattens further, an increase in short-term rates provides an immediate boost to bank profits. That is because many loans are automatically priced against short-term benchmarks like LIBOR and Prime. What Dimon did not discuss is the P&L impact from the higher yields and dropping bond prices in the long end of the yield curve. And it is here, in the unprecedented duration exposure that central banks have forced everyone into, that the true risk resides. How big is the risk? According to an analysis by Goldman's Charles Himmelberg, if rates rise by the Jamie Dimon-referenced 1 percentage point, the market value loss would be between $1 and $2.4 trillion! Putting this loss in context, even the smaller $1trn loss would be over 50% larger than the market value lost in the 1994 bond market selloff in inflation-adjusted terms,and larger than the cumulative credit losses experienced to date in the non-agency residential mortgage backed securities market. And this is only only as a result of a 1% interest rate increase: assuming full normalization of rates to their historical level of 3.5%, and the level of mark-to-market losses climbs to a staggering $3 trillion. The culprit? The Fed, the same Fed which does not to grasp that by "renormalizing" into the biggest bond bubble in history is assuring massive losses for the financial sector.

The Fed Must Attack Low Inflation - - Narayana Kocherlakota -- The U.S. economy remains weak, with inflation expected to remain below the Federal Reserve's target for years to come. When the central bank holds its policy-making meeting next week, it should take decisive action to end the malaise. Charles Evans, president of the Federal Reserve Bank of Chicago, has suggested a good plan: Hold off on any further interest-rate increases until core inflation (excluding volatile food and energy prices) returns to the Fed's target of 2 percent "in a sustainable way." His thinking is that central banks know how to address high inflation (just raise interest rates) but have a much harder time dealing with inadequate inflation, so the Fed should place much more emphasis on avoiding the latter. I would even argue that the Fed could do more. Evans's proposal, for example, does not contemplate unwinding the December 2015 interest-rate increase. Instead, the Fed could say that until its inflation target is met, it will maintain a zero rate on the excess reserves that banks deposit at the central bank (it currently pays 0.5 percent). It could add that it will consider reducing the excess-reserve rate below zero in order to accelerate the process. Maintaining inflation near 2 percent is important because it provides consumers and businesses with certainty. It's like a yardstick -- if people are counting on it to be 36 inches long, being an inch short is as bad as being an inch over.

Negative Interest Rates Are Nothing to Fear -- Narayana Kocherlakota - The world's central banks are increasingly employing a controversial method to stimulate economic growth: negative interest rates. I'm convinced that this can be a valuable tool, but its power depends a lot on how it's used.  First, some context. A bond that promises to pay $1,000 in a year’s time is said to have a negative interest rate if its current price exceeds $1,000. Economists used to think that nobody would pay such a price: After all, anyone could guarantee themselves $1,000 in a year simply by holding a $1,000 bill. As it turns out, though, cash is costly to store and costly to secure, so people will accept negative interest on other investments -- as low as minus 0.75 percent -- for prolonged periods of time. Hence, by taking interest rates into negative territory, central banks can give people and companies an added incentive to spend money now before its value erodes, potentially providing a temporary boost to the economy.  I recently participated in a conference at the Brookings Institution in Washington, D.C., where economists examined the impact of negative interest rates in the euro area, Denmark and Switzerland. The broad conclusion: There's nothing special about going below zero. The effect of moving from 0.5 percent to 0.25 percent seems to be roughly the same as moving from minus 0.25 to minus 0.5. Both will spur spending – and both will leads banks and insurance companies to complain to central banks about declining profitability. That said, communication matters.  Central banks have typically displayed a great deal of reluctance to employ negative interest rates. The U.S. Federal Reserve, for example, avoided doing so even in the depths of the last recession. This reluctance can make going below zero look like an act of desperation, damaging confidence in the economy. That's arguably why the Bank of Japan's move in January to lower its policy rate slightly into negative territory hasn’t been as effective as expected. The Fed risks falling into the same trap by insisting that negative interest rates are not under consideration, even though the rate it pays on bank reserves remains very close to zero.

Janet Yellen and the Four Big Uncertainties - When Federal Reserve Chair Janet Yellen spoke in Philadelphia on Monday, a lot of people listened for clues on when the Fed would next raise interest rates.  Less attention was paid to a section of Ms. Yellen’s speech highlighting “four areas of uncertainty [that] seem particularly salient at present.” It’s a list worth pondering because answers to the simple questions she posed will determine whether this year and next prove to be good ones for the U.S. economy. Here’s a paraphrased and abridged version of Ms. Yellen’s Four Big Uncertainties:

  • 1. Will U.S. domestic spending continue to keep the U.S. economy growing amid “fairly considerable global bumpiness”? Yes, she predicted. Then she mentioned two worrisome developments: the recent weak pace of business investment and last week’s disappointing jobs report.
  • 2. How will the rest of the world economy perform? Financial stresses from abroad have eased, she said, but global investors’ appetite for risks can change abruptly, China faces “considerable challenges” and a UK vote on June 23 to leave the European Union “could have significant economic repercussions.”
  • 3. Why has growth in U.S. productivity (the goods and services produced by each hour of work) been so weak? “Economists are divided,” she said. (Thanks a lot for that, Ms. Yellen.) She was more opinionated in her forecast, describing herself as “cautiously optimistic” that the pace of productivity growth will quicken. She blamed the recent distressing slow growth of productivity on lingering after-effects from the Great Recession and, in contrast to views expressed by Northwestern University economist Robert Gordon, a productivity pessimist, said that she sees “no obvious slowdown” in the pace of innovation.
  • 4. How quickly will inflation move up to the Fed’s 2% target? “Over the next one to two years,” Ms. Yellen predicted, provided that oil prices don’t resume their downward trend and that the U.S. dollar does not rise “substantially.” But, with some concern, she noted the recent downward trend in inflation expectations among financial markets and in surveys of consumers and businesses. “If inflation expectations really are moving lower, that could call into question whether inflation will move back to 2% as quickly as I expect.”

Bernanke Blew It Big-Time: He Should Have Raised Rates Three Years Ago -- Bernanke blew it big-time, letting the "recovery" run seven years without any significant increase in rates. It is now painfully obvious that Ben Bernanke blew it big-time by not raising rates three years ago when the economy and markets enjoyed tailwinds. The former Federal Reserve chairperson, who has claimed the mantle of savior of the global economy, foolishly kept rates at zero until tailwinds turned to headwinds, at which point he handed Janet Yellen the unenviable task of raising rates as the headwinds are strengthening. Ben Bernanke is not the savior who rescued the global economy; he is the clueless fool who plunged a poisoned knife in its back. After weathering the spot of bother in Euroland in 2011-2012, the global economy had multiple tailwinds in 2013 — tailwinds that enabled Bernanke and the Fed to raise rates in a series of measured steps. (graphs)

  • Tailwind #1: the Fed's binge-buying of assets (QE3) was still ramping up in 2013:
  • Tailwind #2: the yield curve spread had bounced off its 2012 low:
  • Tailwind #3: market speculative positions and sentiment were solidly positive:
  • Tailwind #4: China's economy and appreciation of the yuan had not yet weakened:

In April 2013, the market's "recovery" had already been running for four years. By mid-2013, the S&P 500 had soared from 667 in March 2009 to 1,600, exceeding its previous all-time highs around 1,574 — a gain of 930 points or 140% off the 2009 lows. What else did The Bernank want in mid-2013 — an infinite line of credit with the Central Bank of Mars? He had literally every tailwind a central banker could want to support higher interest rates — especially rates that could have clicked higher by tiny .25% increments. Instead, Bernanke blew it big-time, letting the "recovery" run seven years without any significant increase in rates. Now that the "recovery" is in its eighth year, it's starting to roll over. All those tailwinds have reversed.

Fed’s Brainard warns Brexit could hit US - A vote by the UK electorate to leave the EU could deliver a “significant adverse reaction” to global markets and impact the US economic recovery, a senior Federal Reserve official warned on Friday. Lael Brainard, a member of the Fed’s board of governors, signalled that she wanted the central bank to hold fire in its rate-setting meeting this month as it assesses signs of slower US hiring and below-target inflation at home and hazards overseas. She highlighted the “fragility” of the global economic environment while homing in on particular risks brewing in the EU and China. Her words on the UK were stark. If Britain votes to leave the EU on June 23, it could deliver a shock to global markets that may reverberate to the US, Ms Brainard said at a speech at the Council on Foreign Relations in Washington, as she noted warnings by the International Monetary Fund about the risks and protracted economic uncertainty a British exit from the EU could entail. “Although the economic effects of this uncertainty and the costs of adjusting to altered trade and financial ties are difficult to quantify, we cannot rule out a significant adverse reaction to such an outcome in the near term, such as a substantial jump in financial risk premiums,” Ms Brainard said. “Because international financial markets are tightly linked, an adverse reaction in European financial markets could affect US financial markets, and, through them, real activity in the United States.”   Ms Brainard said the numbers suggested the labour market had slowed, as she warned “we cannot take the resilience of our recovery for granted”. Referring to the timing of possible rate rises, she added: “Recent economic developments have been mixed, and important downside risks remain. In this environment, prudent risk management implies there is a benefit to waiting for additional data to provide confidence that domestic activity has rebounded strongly and reassurance that near-term international events will not derail progress toward our goals.”

Yellen Reportedly Urges Central Banks to Study Blockchain, Bitcoin | American Banker: Federal Reserve Chairman Janet Yellen encouraged her fellow central bankers to accelerate their studies of new financial technologies, specifically mentioning bitcoin, the blockchain, and other distributed ledgers, according to the trade group whose conference she attended. The June 1 event in Washington, attended by representatives from more than 90 central banks, was closed to the press. The Chamber of Digital Commerce, which organized the conference, summarized her remarks in a press release Monday. "The fact that the words bitcoin and blockchain were spoken by chairwoman Yellen in a positive context highlights the importance of emerging financial technology," said Perianne Boring, president of the Chamber. The Fed declined to comment. A conference agenda listed several speakers from Fed including Yellen, as well as representatives from Goldman Sachs, Nasdaq and the International Monetary Fund.

"Rising" Rates Hit New Lows - Despite ubiquitous calls and expectations for rising interest rates, yields on the long bond closed the week at a 52-week low. It was probably over 10 years years ago when we first started getting calls from mutual fund wholesalers pushing their inverse bond funds. Their spiel was that, with interest rates at 40-year lows following a multi-decade rally in the bond market, rates had nowhere to go but up. To be honest, as contrarian as we like to think we are programmed to be, it didn’t seem like a reach to expect rates to soon begin to move higher. If forced to make a 10-year bet on the direction of interest rates at the time, you can be sure that bet would have been for higher rates. And it would have been a comfortable bet. The yield on the 30-year treasury bond back then was around 5%. Today, it is half that. It is the comfort level that probably should have tipped us off that rates didn’t “have to” rise. That and the fact that it was the consensus thinking. Now, we might be slow, but we’re not the slowest. Thus, in recent years we’ve gone against the grain, remaining consistently in the “lower for longer” camp regarding interest rates, both short and long-term. Apparently, that is still “non-consensus”. That’s because, in light of one of the biggest Non-Farm Payroll misses in recent memory, the 30-year yield dropped Friday to 2.517%, a new weekly 52-week closing low. In the process, it also broke down below the Up trendline stemming from the January 2015 all-time lows.

The Money Cult - Previously, I have written about the progression from positive interest rates to zero interest rates (since 2008) and finally to negative interest rates. And I asked my readers a simple question: How will negative interest rates blow up the financial system? And apparently none of you knew the answer. Now, I must confess that to start with I didn’t know the answer either, which is why I asked the question, and my first attempts at finding it were somewhat tentative. But now, having thought about it, I do seem to have found the answer, and it is that… But first let us back up a bit and answer several preliminary questions:
1. Why did zero interest rates become necessary?
2. Why are negative interest rates now necessary? and,
3. Why are negative interest rates a really excellent idea?*
* if you ignore certain unintended consequences (which is what everyone does all the time, so let’s not worry about them just yet).
1. Interest rates went to zero because economic growth went to zero. If you are just now wondering why that happened, just google “Limits to Growth” by clicking this link. (A public notice about the scheduled end of growth has been on display at your global planning office for four decades now. It is not anyone else’s fault if people of this planet don’t take an interest in their global affairs. I mean, seriously…)
2. Once you are faced with a continuously shrinking economy, just holding interest rates at zero is not sufficient to forestall financial collapse. The interest rates must go negative.
3. Are you starting to see how this works? Whereas before you had to be careful about taking on debt, and had to have a plan for how you will repay it, with negative interest rates that is simply not a consideration. If your debt pays you, then more debt is always better than less debt. It no longer matters that the economy continuously shrinks because now you can get paid just for twiddling your thumbs!

Textbook defying global dollar shortages -  Izabella Kaminska - Take a long hard look at this chart:  It comes by way of Hyun Song Shin’s latest piece for the BIS, delivered to a World Bank conference on Wednesday.  Shin describes it as “quite striking”. Though we’re inclined to suggest it’s one of the most important charts in the world right now. And that’s not widely appreciated. What it shows is how dollar strength and the availability of dollars via the FX swap market go hand-in-hand in the market atm. What it implies is that the global “dollar shortage” is matching if not surpassing 2008 levels. This follows on from another unprecedented situation occurring in markets: the breakdown of hallowed covered interest parity (CIP) theory, a presumption that interest rates derived from FX swap markets should always be aligned with market rates.With an FX swap the rate is derived from the cost of pledging your national currency as collateral for access to another type of currency. This, theoretically, should match the rate offered by the market, a.k.a the Libor rate, on the basis that if the rate gets too high, an arbitrage is opened up encouraging those with access to dollars through the Libor market to borrow and then lend out to the FX swap market. As Shin explains covered interest parity held with barely a blip until the crisis but since then large deviations have been taking place quite regularly. At first these were tied with financial crises. What is remarkable now, says Shin, is that CIP deviations are occurring during periods of relative calm. Shin hints this may be down to the reduced risk-taking capacity of dealer banks:

Former Fed President: "All My Very Rich Friends Are Hoarding Cash" -- Fisher was president of the Federal Reserve Bank of Dallas and a voting member of the Federal Open Market Committee (FOMC) from 2005 to 2015. He was one of, perhaps the only, skeptic on the Fed board going into the great financial crisis, warning on numerous occasions about the upcoming crash only to be ignored by his wiser peers and certainly Alan Greenspan and Ben Bernanke. He was also ignored in the post-Lehman era by both Bernanke and Janet Yellen. Among his biggest concerns:

  • Government Debt: he is worried about the $19 trillion US government debt (up $11 trillion since 2008) because the Fed has fired all its monetary bullets and can’t expand the balance sheet any further.
  • China and social instability: he thinks communist leaders care about production but not efficiency. "They might produce more, but our products work," jokes Fisher.. Fisher says the biggest problem in China is social stability. "
  • Low interest rates don't work: "We had a long period of moderation and low interet rares, which did nothing to adjust." The online countries that adjusted were Poland and Mexico, according to Fisher.
  • The failed Brazilian experiment: Fisher said Brazil is a symbol of what's wrong with emerging markets. They lived through the crisis but learned nothing from it.“Brazil has always been a country with potential, and it’s never been realized."
  • Raising rates is long overdue: he made the point that raising interest rates won’t ruin the economy. "The debt rollover is what we should be worried about. Yet nobody is talking about it."
  • It's all one big Ponzi scheme: “Our government has to borrow money just to pay interest.” Or as Minsky would say, this is the Ponzi finance stage, just before everything goes to hell. "We have a lot of unsound policy in place. It is agreeable, but in my view, it is unsound.”
  • The death of the middle class: Fisher says the lowest income quartile has seen an increase in income. The highest quartile has also seen a massive increase in income. The two middle quartiles were flat over a period of many years. “This is why we have such support for people like Donald Trump and Bernie Sanders.”
  • A ritalin monetary policy: “We have what I call a Ritalin based monetary policy.” Now Janet Yellen’s job is to wean it. “It has to do with taking the distortions out of the financial markets and letting the markets down easier.” “These are the lowest interest rates in 239 years of history.”

Post-Recession Rethink: Growth Potential Dimmed Before Downturn - WSJ: Something looks wrong. Just as consumer spending picks up, business investment is headed in the opposite direction: It’s down now for two straight quarters, which typically has happened only in a recession. These numbers add to evidence that today’s subpar economic growth isn’t just an aftereffect of the Great Recession but part of a deeper malaise that predates, and indeed may have helped cause, the financial crisis. Consider how poorly the economy has performed. Growth averaged 3% between 1980 and 2007. Since then it has averaged 1.2%. That suggests the economy’s underlying potential growth rate—what’s possible with the available work force and its productivity—has downshifted. That has left the economy 11% smaller than what the nonpartisan Congressional Budget Office thought, before the recession, would be achievable by now. The CBO now thinks the U.S.’s long-run potential growth is around 2%. But getting there will require a pickup in productivity growth from 0.5% in recent years, the worst in decades. There’s no sign yet.  Economies are often stunted by deep recessions. In a recent paper, Olivier Blanchard, Eugenio Cerutti of the IMF Larry Summers examined 122 recessions around the world since the 1960s and found that in about 70%, either the level or the growth of potential output was permanently lower afterward.  There are several possible explanations. In the case of the U.S., the most popular is that the crisis and recession undermined potential, by driving workers out of the labor force for good and forcing businesses to slash their capital spending because they couldn’t borrow, were worried about the future, or faced stiff new regulations. With less equipment, workers were less productive. An alternative theory is that causation runs the other way: Underlying growth had started to slip in the early 2000s, and that, indirectly, led to the recession.

Noahpinion: What Causes Recessions? Debt Runups or Wealth Declines?:  Noah Smith asks what seems to be an interesting question in a recent post: “what leads to big recessions: wealth or debt”? But I’d like to suggest that it’s actually a confused question.  The answer is obviously “Yes. Both.”The question’s confused because wealth and debt are inextricably intertwined. “Wealth” is household net worth — household assets (including the market value of all firms’ equity shares) minus household sector debt. Debt is part (the negative part) of wealth. Still, it’s interesting to look at time series for household assets, debt, and net worth, and see how they behave in the lead-ins to recessions. I’ve pointed out repeatedly that year-over-year declines in real (inflation-adjusted) household net worth are great predictors of recessions. Over the last 65 years, (almost) every time real household net worth declined, we were just into or about to be into a recession This measure is eight-for-seven in predicting recessions since the late sixties. (The exception is Q4 2011 — false positive.) It makes sense: when households have less money, they spend less, and recession ensues. But now here’s what interesting: YOY change in real household assets is an equally good predictor: Adding the liability side of the household-sector balance sheet (by using net worth instead of assets) doesn’t seem to improve this predictor one bit. It’s also interesting to look at changes in real household-sector assets (or net worth) compared to changes in real household-sector liabilities: As we get closer to recessions, the household sector takes on debt progressively more slowly, with that shift happening over multiple years. (2000 is the exception here.) That speaks to a very different dynamic than the sudden plunges in real assets and net worth at the beginning of the last seven recessions. Perhaps: household’s portfolios are growing in these halcyon days between recessions, so they have steadily less need to borrow. And as those days continue, they start to sniff the next recession coming, so they slow down their borrowing.

Four Risks That Could Push the U.S. Economy Into Recession - Many economists believe the U.S. faces a non-negligible risk of entering a recession within the next year. Asked to rank the probability of being in recession at some point over the next 12 months, respondents to The Wall Street Journal’s monthly survey of economists, on average, put the odds at 21%. That’s about double what they were a year ago. Not high enough to panic, but high enough to pay attention. We asked the group of about 70 business, financial and academic economists to list the biggest risk factors they believe could tip the U.S. into recession. Most of their responses fall into just four distinct categories of worry: risk from China, falling levels of business investment, U.S. political uncertainty and concern that slower job growth and economic growth leave the U.S. at risk of stalling out.

  • 1. China. The single risk getting the most attention in the U.S. economy is not even part of the U.S. Just over 40% of the respondents to the WSJ survey listed the potential fallout from China as the biggest risk.
  • 2. Business investment.  Many economists have an increasingly nervous eye on the levels of U.S. business investment. Though it gets much less attention than the monthly jobs report, one report worth watching is the Commerce Department’s measures of spending on capital goods. The report shows companies are spending less on things like machines, computers and raw materials powering their businesses.
  • 3. U.S. politics. Every presidential election introduces an element of uncertainty into the U.S. economy, but this election has been especially challenging because of stark differences between candidates Hillary Clinton and Donald Trump, and in the case of Mr. Trump, a great deal of uncertainty about the policies he would pursue if elected.
  • 4. Stall speed. The final concern, mentioned by about 15%, is the risk that with the economy growing more slowly and adding fewer jobs, the U.S. is simply more vulnerable to tumbling into recession from small shocks. Economists sometimes call this “stall speed,” a term borrowed from aviation, where if a plane is traveling too slowly it can easily be knocked off course by things that would be a minor squall at higher speeds.

If the Economy Is Sinking, Policy Makers Are Far From Prepared - By now you have probably heard that the latest employment report suggests that jobs growth is slowing. My best guess is that this is a signal that the economy is reverting to a more sustainable rate of growth, rather than anything more drastic.But what if I’m wrong?It’s possible that the economy is slowing significantly — that Friday’s jobs report is the canary in the coal mine. Perhaps employment is slowing because of election-related anxiety, or Fed-induced fears of higher interest rates, or concerns about the world economy. Maybe the recovery has run its course.Whatever it is, I find it hard to think of a time in recent American history when policy makers are as ill-prepared to respond.The Federal Reserve still has interest rates set nearly as low as they will go. This means it can’t use its standard tool of cutting rates to stimulate the economy.Typically, that would suggest turning to fiscal stimulus. But the odds of a timely stimulus are slim. Though it’s only early June, Washington is already gripped by election fever, and Congress has decided to punt on just about every major issue until after the election. As a result, fiscal policy will most likely be delayed at least until a new administration takes office in early 2017. And who knows what the priorities of the new president might be?  Add in the usual lags in recognizing the downturn and then passing and ultimately carrying out fiscal policy, and it seems unlikely that an economic slowdown will generate much of a policy response for nearly a year.

"What Went Wrong?" - David Rosenberg Explains In 106 Slides - Over the weekend, we presented the latest note from Gluskin Sheff's David Rosenberg which analyzed the May payroll report and had a decidedly pessimistic undertone, one which according to Henry Blodget suggested that "David Rosenberg thinks we're headed for a recession." While Rosenberg was quick to talk back this take (especially in light of the dramatic ramp in stocks in the two days since Friday) on CNBC yesterday, the truth is that his assessment of the US economy was substantially gloomier from what he told the WSJ in February when he said that he puts “odds of a U.S. recession in the next year as close to zero as anything could be close to zero.”  As a reminder, this is what he said late on Friday: I don’t want to alarm anyone but the facts are the facts, and the facts here is simply that this is precisely the sort of rundown we saw in November 1969, May 1974, December 1979, October 1989, November 2000 and May 2007. Each one of these periods presaged a recession just a few months later — the average being five months. The truth is that Rosenberg's shift back to "less than bullish" did not take place overnight, and was documented in 106 slides at the Mauldin Strategic Investment Conference, in a presentation titled "What Went Wrong", and starts with an amusingly retrospective slide that take aims at the economic bulls (we wonder if that includes the author).

Services data suggest upward revision to first-quarter GDP | Reuters: The U.S. economy was probably not as weak as has been reported in the first quarter, with data on Wednesday showing stronger consumer spending and investment in intellectual products than previously estimated. The Commerce Department's quarterly services survey, or QSS, showing consumption, including healthcare spending, increased at a faster clip than the government had assumed in its second estimate of gross domestic product published last month. According to JPMorgan, the QSS data suggested first-quarter consumer spending could be raised as much as two-tenths of a percentage point to a 2.1 percent annual rate when the government publishes its third GDP estimate on June 28. JPMorgan also estimated that growth in spending on intellectual products, a wide variety of services ranging from entertainment to scientific research and development, could be revised up to a 1.5 percent rate from a pace of -0.1 percent. That, together with data last week on international trade and construction spending, suggest first-quarter gross domestic product could be raised to as high as a 1.2 percent rate from the 0.8 percent pace the government reported last month."The upward revision to services consumption also has favorable forward-looking implications for second quarter GDP growth,"

It Took $10 In New Debt To Create $1 Of Growth In The First Quarter - When the Fed unexpectedly stopped reporting the data for Total Credit Market Instruments in September 2015, the most comprehensive series of total credit in the US economy, there were many screams of disappointment and frustration from US debt watchers. However, this was unnecessary, as all the Fed did was break up the series into its two constituent components: total debt (found here) and total loans (found here). So today we had a chance to update the total US credit following the release of the Fed's Flow of Funds (Z.1) statement, which is usually parsed for its tracking of changes to household wealth. And while it showed that in  the first quarter the net worth of US residents, mostly the wealthy ones as the bulk of financial assets is held by a small fraction of the total population, rose by $837 billion to $88 trillion mostly as a result of a change in real estate holdings, we were more interest in the aggregate picture. It wasn't pretty. As a reminder, according to the latest BEA revision, nominal Q1 GDP was $18.23 trillion, an increase of just $65 billion from the previous quarter or an annualized 0.7% rate, the question is how much credit had to be created to generate this growth. Well, according to the Z.1, total credit rose to a new record high $64.1 trillion. This was an increase of $645 billion from the previos quarter. It means that in the first quarter, it "cost" $10 in new debt to generate just $1 in new economic growth!

May 2016 CBO Monthly Budget Review: Estimated Deficit $53 Billion: The federal budget deficit was $408 billion for the first eight months of fiscal year 2016, the Congressional Budget Office estimates - $41 billion more than the shortfall recorded during the same period last year. Outlays were 3 percent higher than they were at this time last year, and receipts were 2 percent higher.  Receipts totaled $2,137 billion during the first eight months of fiscal year 2016, CBO estimates—$33 billion more than they did during the same period last year. The changes were as follows:

  • Individual income taxes and payroll (social insurance) taxes together rose by $41 billion (or 2 percent).
    • Amounts withheld from workers' paychecks accounted for an increase of $61 billion (or 4 percent). Growth in wages and salaries probably explains that increase.
    • Nonwithheld receipts declined by $4 billion (or 1 percent). That decline stemmed from two partially offsetting changes: a drop of $16 billion (or 5 percent), mostly in people's final tax payments for 2015, during the tax-filing season from February through April; and an increase of $11 billion during the other months covered in this report.
    • Income tax refunds increased by $13 billion (or 6 percent), reducing net receipts.
    • Receipts from unemployment insurance taxes (one kind of payroll tax) fell by $2 billion.
  • Corporate income taxes declined by $21 billion (or 11 percent). About half of the decline occurred between October and March, when firms paid taxes that were largely on their taxable profits in the 2015 tax year. The other half of the decline occurred in April and May, when most firms began paying taxes on their taxable profits in 2016. Part of the decline in receipts in the past two months probably stems from the enactment in December of the Consolidated Appropriations Act, 2016 (Public Law 114-113), which extended—retroactively and prospectively—tax rules that allow businesses with large amounts of investment to accelerate their deductions for that investment. Because of the timely enactment of that law, many businesses will make lower payments of estimated taxes in 2016 than they made in 2015, when the rules had temporarily expired.

CBO Releases Report on White House 2017 Budget: Summary and Analysis - The Congressional Budget Office (CBO) has recently published their Macroeconomic Analysis of the President’s 2017 Budget. In it the CBO assessed four major topics including changes to the tax code, increased spending to reduce the federal deficit, increases in federal investment, and immigration reform.Obama’s budget contains roughly $2 trillion in new tax proposals. Among the proposals is a 28% cap on itemized deductions which has previously been analyzed by the Tax Foundation as part of Hilary Clinton’s tax plan. Also forthcoming is a new minimum flat tax on high-income taxpayers and a $10.25 tax per barrel of crude oil, both domestically produced or imported, which will account for one tenth of the total revenue increases predicted. Overall the CBO projects that these changes would increase marginal tax rates on labor and capital income, thereby discouraging work and reducing output.The Obama administration also proposes to use some of the increased tax revenue to reduce the federal deficit. The CBO forecasts that this would reduce output in the short-term, but might produce a long-term boost in output due to increasing the level of national saving. Along with increases on deficit spending, Obama has also proposed boosting spending on “surface transportation, education and job-training programs, and research and development.” If done correctly, these public spending projects are projected to start boosting the economies output well after 2026 as there is a significant amount of lag associated with education and research spending. Finally, the CBO’s largest projected effect on the economy will happen as a result of immigration reform. The Obama administration plans to increase immigration by about 11 million people over a ten year period, which would offset any of the short-term negative effects on aggregate output from the proposed fiscal policies.

Obama touts legacy of renaming wars in Afghanistan and Iraq, saying he would close Gitmo: — President Obama sought on Sunday to reshape the controversy over the ongoing wars in Iraq and Afghanistan and the fully operational Guantanamo Bay prison by asking the American people to remember that he tried really hard. Speaking at an event for Iraq and Afghanistan Veterans of America (IAVA), Obama strongly touted his legacy as the only president to semantically end the wars in Iraq and Afghanistan, and reminded the American people that he has been talking serious about closing Guantanamo Bay, “since like, the 2008 election.” When pressed to explain the current military operations against ISIS in Iraq and a resurgent Taliban in Afghanistan, Mr. Obama responded with “I said I ended the wars didn’t I? There’s no more war. What’s going on now is more like ‘kinetic foreign advising.’” Like all presidents before him, Obama has sought to brand and message his legacy as one in line with the sweeping campaign promises he staked his candidacy on. The Obama administration’s reluctance to call the actions in Iraq against ISIS which have claimed the lives of three US serviceman “combat operations” has angered veterans and the other dozen or so Americans who pay attention to the nation’s continuing wars.

Clinton’s Speech Shows That Only Sanders Is Fit for the Presidency - Jeffrey Sachs - Hillary Clinton's recent foreign policy speech was an attack on Donald Trump but was also a reminder that Clinton is a deeply flawed and worrisome candidate. Her record as Secretary of State was one of the worst in modern U.S. history; her policies have enmeshed America in new Middle East wars, rising terrorism and even a new Cold War with Russia. Of the three leading candidates, only Bernie Sanders has the sound judgment to avoid further war and to cooperate with the rest of the world.  Clinton is intoxicated with American power. She has favored one war of choice after the next: bombing Belgrade (1999); invading Iraq (2003); toppling Qaddafi (2011); funding Jihadists in Syria (2011 till now). The result has been one bloodbath after another, with open wounds until today fostering ISIS, terrorism, and mass refugee flows.  In her speech, Clinton engaged in her own Trump-like grandiose fear mongering: "[I]f America doesn't lead, we leave a vacuum -- and that will either cause chaos, or other countries will rush in to fill the void. Then they'll be the ones making the decisions about your lives and jobs and safety -- and trust me, the choices they make will not be to our benefit." This kind of arrogance -- that America and America alone must run the world -- has led straight to overstretch: perpetual wars that cannot be won, and unending and escalating confrontations with Russia, China, Iran and others that make the world more dangerous. It doesn't seem to dawn on Clinton that in today's world, we need cooperation, not endless bravado.

Despite White House Denials, FOIA Documents Prove Snowden Did Try To Voice Concerns With The NSA --Edward Snowden's story is one that most know by now - the NSA contractor who went rogue and instead of going through available channels to voice his concerns, leaked sensitive government documents that revealed how the US surveillance state operates for all the world to see. Or at least, that's what the government's version of the story is. In a Vice News exclusive, based on over 800 pages of newly released documents from the NSA and countless interviews, Vice News finds that there is much more to the story that the public isn't being told. Snowden, according to Vice News, did have both email and face-to-face contact with compliance over concerns, and the available options for Snowden may not have been adequate during the time Snowden was actually working as a contractor at the NSA. At a bare minimum, Vice News provides valuable insight into the fact that while the NSA and other government agencies put on a public face that they were "sure" only a single email sent by Snowden, the investigation missed a lot of correspondence over time, and even a critical face-to-face interaction that wasn't documented until much later.  The following helps walk through what Vice News found, however we encourage readers to read the full piece at Vice News. We'll start by pointing out a quick aside, and that is that Vice News also found as it received the FOIA documents, that the NSA admitted that it altered emails related to its discussions about Snowden - "unavoidably" of course.

TPP mired as Congress returns - It could be a long, sleepy summer for the Trans-Pacific Partnership one year after Congress nearly ripped itself apart to give President Barack Obama “fast track” authority to finish the landmark Asia-Pacific deal. The administration is trying to sell Congress and the American public on the economic and geostrategic benefits of TPP. But both Senate Majority Leader Mitch McConnell and House Speaker Paul Ryan are keeping their distance, while Donald Trump is promising to walk away from the 12-nation pact. Story Continued Below Lawmakers return this week from their Memorial Day break with no indication that either House Ways and Means Committee Chairman Kevin Brady or Senate Finance Committee Chairman Orrin Hatch will take any action on the agreement before Congress leaves town in mid-July for a prolonged summer break because of the party nominating conventions. For its part, the Obama administration still hasn’t given Congress a draft statement of how it plans to implement the agreement, something it’s required to do 30 days before submitting the pact for a vote. The Office of the U.S. Trade Representative says it’s working on a handful of issues that have jeopardized support for the trade deal, but there’s no sign of progress on Hatch’s main concern that TPP doesn’t provide 12 years of data protection for biologics medicine.

Bill Black: The Lie That “China Wins” if the TPP Kangaroo Tribunals are Stopped  -- naked capitalism -- Proponents of the Trans-Pacific Partnership (TPP) know that they have a major problem. Bernie Sanders, Hillary Clinton, and Donald Trump each oppose the deal. CEOs, however, have not given up on their dream of being able to rig the international system through the creation of kangaroo tribunals that can, effectively, destroy effective regulation and the enforcement of rules to protect the public. As I explained in my most recent column on this subject, “trade” is simply the pretext for this assault on the rule of law and national sovereignty. President Obama plans to try to get the TPP approved by the lame duck Senate after the November elections. Outgoing officials no longer must fear (or respect the will of) the voters and they are eager to cash in on the corporate largess that will reward politicians that vote for the international CEO impunity deals. The “serious people” of the lame stream media are encouraging the lame ducks to vote for the CEOs’ dream deal. One of their principal claims is “If T.P.P. falls apart, China wins. It’s as simple as that.” TPP is deliberately opaque, complex, and crafted in secrecy by the CEOs’ lobbyists to be the opposite of “simple.” It has nothing to do with China winning or losing. TPP is all about Article 9 of the TPP, which allows CEOs to rig the system so that the CEOs win and the people and nations lose. If the TPP becomes law Chinese CEOs win because the kangaroo tribunals of Article 9 will intensify the global “race to the bottom” that is eviscerating what remains of the rule of law even in nations that are not parties to the TPP.  Article 9 is the “rule of law” only in the sense that it specifies that the “rule of law” does not apply to the kangaroo tribunals that can impose billions of dollars in penalties on a nation for the high crime of trying to discourage smoking. Article 9 is designed to bypass one of the most important requisites of national sovereignty – a nation’s laws and judicial system. Article 9 is authoritarian diktat – by the CEOs of multinational corporations.

The level of the corporate income tax rate is important, but it's not everything - For the past few years, policymakers on both sides of the aisle in Washington DC have hoped that the next U.S. election cycle would create the right conditions for “tax reform.” More specifically, the hope is that the U.S. corporate income tax could be reformed, with the assumption being that the statutory rate could be lowered alongside efforts to close numerous corporate tax loopholes. Yet it’s worth remembering that the corporate tax rate isn’t everything when it comes to taxing business income. . When thinking about taxes, we have to consider not only the rate at which something is being taxed but also how much of the income is actually taxed. Increasing the amount of income that’s taxable is known as “broadening the base.” When it comes to the corporate income tax, the base is eroding. Through profit shifting, U.S. corporations are increasingly adept at getting profits earned in the United States to appear as profits registered in low-tax jurisdictions. Some policymakers argue that lowering the tax rate would lead companies to move some of these profits back to the United States. But that argument—taken to its logical conclusion—would require bringing down U.S. rates to the lowest rate elsewhere in the world. In effect, that would be outsourcing the U.S. corporate income tax rate to whichever jurisdiction wanted to decrease its rate the most. There are other, more viable, options. Policymakers could help broaden the base through other reforms that make sure the base isn’t eroded. Such reforms are discussed in an Equitable Growth report from Reed College economist Kimberly A. Clausing. Pulling our lens back a bit further, there’s another trend that’s reducing the corporate income tax base—increasingly, U.S. businesses are no longer publicly held and instead are private companies.

Panama Papers Show How Rich United States Clients Hid Millions Abroad – NYT - “He is the manager of one of the richest hedge funds in the world,” a lawyer at Mossack Fonseca wrote when the firm was introduced to Mr. Ponsoldt in 2004. “Primary objective is to maintain the utmost confidentiality and ideally to open bank accounts without disclosing his name as a private person.”  Thus began a relationship that would last at least through 2015 as Mossack Fonseca managed eight shell companies and a foundation on the family’s behalf, moving at least $134 million through seven banks in six countries — little of which could be traced directly to Mr. Ponsoldt or his children. These transactions and others like them for a stable of wealthy clients from the United States are outlined in extraordinary detail in the trove of internal Mossack Fonseca documents known as the Panama Papers. The materials were obtained by the German newspaper Süddeutsche Zeitung and the International Consortium of Investigative Journalists, and have now been shared with The New York Times.  In recent weeks, the papers’ revelations about Mossack Fonseca’s international clientele have shaken the financial world. The Times’s examination of the files found that Mossack Fonseca also had at least 2,400 United States-based clients over the past decade, and set up at least 2,800 companies on their behalf in the British Virgin Islands, Panama, the Seychelles and other jurisdictions that specialize in helping hide wealth. Many of these transactions were legal; there are legitimate reasons to create offshore accounts, particularly when setting up a business overseas or buying real estate in a foreign country. But the documents — confidential emails, copies of passports, ledgers of bank transactions and even the various code names used to refer to clients — show that the firm did much more than simply create offshore shell companies and accounts. For many of its American clients, Mossack Fonseca offered a how-to guide of sorts on skirting or evading United States tax and financial disclosure laws.

New Study Finds Evidence That Rents Might Be Higher in the US Than in Europe  -  Extreme wealth has been on the rise across the world in recent decades. The number of billionaires, and the wealth they hold, has increased rapidly, in conjunction with the rise of inequality. Forbes’ latest ranking of the world’s richest included a record number of 1,826 billionaires, in large part thanks to the rapid increase in the number of billionaires from emerging markets. Who are the world’s “superrich,” and how did they acquire their wealth? In recent years, a few studies have tried to answer this question. In 2013, Chicago Booth’s Steven N. Kaplan and Stanford’s Joshua Rauh looked at Forbes’ list of 400 wealthiest Americans in the years 1982, 1992, 2001, and 2011, and compared billionaires in the US to billionaires in the rest of world1. Among other things, they found that in the US and elsewhere, the number of billionaires who inherited their wealth and businesses has declined significantly since the 1980s. Whereas much of the new wealth generated in the US came from technology and finance, they found, outside the US natural resources (most notably mining and energy) played a much larger role. A new paper by Caroline Freund and Sarah Oliver of the Peterson Institute for International Economics (PIIE) also uses the Forbes billionaire list to compile a comprehensive database of the world’s billionaires and compare the sources of their wealth2 “The idea was that by looking at who the wealthy are and how they made their fortune, you can get a sense of the business climate and what activities are most well-rewarded in different countries,” Freund, a senior fellow at PIIE and a former World Bank, IMF, and Federal Reserve economist, recently told ProMarket. The paper, one of the most extensive attempts yet to study the origins of the world’s superrich, relies on Forbes’ World Billionaires list, which lists all individuals with a net worth over $1 billion each year, between 1996 and 2015. It goes on to distinguish between billionaires across six geographical regions: Europe (which Freund and Oliver divide into high-income and low-income countries), Latin America, Sub-Saharan Africa, the Middle East and North Africa, South and Central Asia, and East Asia (which is also separated by high and low income countries). Anglo countries—US, Canada, Australia, and New Zealand—are grouped in a category of their own.

Hillary Clinton Super-Lobbyist Says “We’re Not Paid Enough,” Pans Obama Lobbying Reforms - Leading Democratic super-lobbyist and Hillary Clinton bundler Heather Podesta derided President Obama’s lobbying reforms Wednesday, while laughing off concerns about her own sky-high compensation. “I think Obama hurt himself by taking such an arms-length posture with the Washington community,” Podesta, a multimillionaire who has represented chemical companies, health insurers, and for profit-colleges, told Vox’s Ezra Klein. “By attacking Washington in that way, there was a bit of a brain drain. And a lost opportunity.” As for the idea of taking money out of politics, “I just find it preposterous,” she said. “I think we’re not paid enough,” Podesta’s boutique firm, notably, brought in $7.5 million in registered lobbying fees last year. After her divorce from super-lobbyist Tony Podesta, Heather settled into a home in D.C. now assessed at $4.7 million.As we’ve previously reported, Heather Podesta represented the health insurance giant Cigna as the company sought to weaken and derail the Affordable Care Act. This week, she registered to lobby on behalf of chemical firm LSB Chemical on nitrogen-based fertilizers, which have been under scrutiny since a chemical explosion in West, Texas, killed 15 people and injured nearly 150. This year, Heather Podesta has hit the trail for Clinton during the primaries, organized fundraisers for Clinton, and raised at least $348,581 in campaign funds. The Democratic National Committee and the Clinton campaign apparently agree with Podesta that Obama went too far on ethics reforms. The former ended all of Obama’s restrictions on lobbyist donations earlier this year, while the latter never restricted them at all.

Krugman’s Karma Forces Him to Feel the Bern and Attack the Kochs for “Buying Politicians” -- William K. Black -- When last we read Paul Krugman he was repeatedly demanding that Bernie Sanders cease criticizing Hillary Clinton for a lifetime addiction of taking tens of millions of dollars in political contributions and hundreds of thousands of dollars in speakers’ fees from Goldman Sachs and other business interests. While Professor Krugman consistently stressed that the data show that business campaign contributions do rig the system, Hillary Surrogate Krugman suddenly professed that business political campaign contributions and speaker fees have no corrupting effect on politicians. Economists should be honest for all the usual reasons, but economists who wish to affect policy have an additional reason to embrace intellectual honesty.  Karma means that an intellectually dishonest economist is likely to be promptly confronted by the desirability of telling the truth in order to prevent disastrous policy on precisely the subject he or she just lied about. Krugman suddenly felt the Bern and wrote a June 3, 2016 column denouncing the Koch brothers for “buying politicians” in order to prevent any effective policy against global climate change.  “Buying politicians is a pretty good business investment for fossil-fuel magnates like the Koch brothers.” Corporations buy politicians because doing so is a great business investment.  As financial regulators we always said that a bank’s highest return on assets is on its political contributions.  Krugman knows that the Kochs buy politicians in order to rig the system, but conveniently pretends to believe that Goldman Sachs does not buy politicians as a “good business investment.”   As long as politicians take money from these corporations their CEOs and their political cronies will continue to rig the system. Given that Krugman’s column describes Hillary’s nomination as “inevitable,” I have a question for him.  Why aren’t you making every possible effort to convince her to take the Bank Whistleblowers United’s (BWU) campaign financing pledge to stop taking money from the Wall Street felons?  Indeed why aren’t you urging her to stop taking money from big business, make public the texts of the speeches she gave to Goldman Sachs, and donate Goldman’s speaking fees to a real charity?  .  She can run a clean campaign finance program and dramatically increase her popularity.  In your eagerness to defend her you have become her enabler-in-chief.  You encourage Hillary’s worst qualities, the ones that cause her terrible unfavorable ratings.  Bernie is not causing Hillary’s problems, but you are adding to them.

Paul Krugman. VSP -- As Paul Krugman often notes, Republican talking heads often, if not always, get their analysis wrong.  What I think is interesting and very disturbing is that Hillary Clinton is getting the same bad quality analysis and positions out of her supporters – chief among them is Krugman himself.  Take this quote from a damning column on Bernie Sanders view on financial market reform: “Many analysts concluded years ago that the answers to both questions were no. Predatory lending was largely carried out by smaller, non-Wall Street institutions like Countrywide Financial; the crisis itself was centered not on big banks but on “shadow banks” like Lehman Brothers that weren’t necessarily that big. And the financial reform that President Obama signed in 2010 made a real effort to address these problems. It could and should be made stronger, but pounding the table about big banks misses the point.” – from Krugman’s “Sanders Over the Edge” column dated April 8, 2016. This is pretty naïve and a totally wrong assessment of what happened.  To understand any trade you need to look at the cash flows and see what motivated investors – in this case it’s the proprietary trading desks that purchased the riskiest tranches or parts of Collateralized Debt Obligations of negative amortization, high credit risk mortgages as well as wrote the Credit Default Swaps on other tranches of similar CDOs.  As a large investor, banks really could not easily participate in the bubble in single family homes – and the prop traders who are paid grossly to chase the hottest assets in town must have felt this acutely.  Can’t really buy individual houses, rent them in the interim till later monetization because the logistics are prohibitive and rents had relatively dropped.  So what do you do?  Buy the riskiest or ‘z’ tranches of negative amortization mortgages of low credit borrowers and write CDS’ on the other tranches of similar CDOs.  From Put-Call parity this buys you a levered position in the underlying single family homes!  This is what the big boys were up to and drove the whole stinking mess to its eventual explosive and devastating demise – and for the uninitiated requires some explanation...

"Do I Have A Problem With That, Ya I Do" - Sanders Slams Hillary's Clinton Foundation Conflict Of Interest -- We have pointed out on numerous occasions that the Clinton Foundation has had some sketchy dealings to say the least (recently here & here).  In an interview with Jake Tapper, Bernie Sanders also said he has a problem with the foundation - the senator continues to hammer Hillary as he simply refuses to give up on his bid for Democratic presidential nominee. "You asked me about the Clinton Foundation, do I have a problem when a sitting secretary of State and a foundation run by her husband collects many millions of dollars from foreign governments, governments which are dictatorships, you don't have a lot of civil liberties or democratic rights in Saudi Arabia. You don't have a lot of respect there for gay rights, for women's rights - do I have a problem with that, ya I do"  When Tapper asked if it creates a conflict of interest Sanders quickly responded with "ya I do, I do"  The Clinton Foundation has received donations from countries including Saudi Arabia, which has given between $10 million and $25 million to the foundation since it was created through 2014, although it allegedly stopped donating when Hillary was secretary of State The Hill reports. Sanders shows no signs of letting up heading into the California primary June 7th, and these comments are further evidence the the campaign will continue to apply pressure to any and all pain points that Clinton may have. We do still hold out hope that Sanders, as it gets even closer to the end, will at least raise the issue of the Clinton Foundation giving $2 million to Bill's"Energizer" mistress just as one last thorn in Hillary's side. Although if Sanders doesn't mention it, there's a good chance that Trump will.

How Clinton Donor Got on Sensitive Intelligence Board -  Newly released State Department emails help reveal how a major Clinton Foundation donor was placed on a sensitive government intelligence advisory board even though he had no obvious experience in the field, a decision that appeared to baffle the department’s professional staff.  The emails further reveal how, after inquiries from ABC News, the Clinton staff sought to “protect the name” of the Secretary, “stall” the ABC News reporter and ultimately accept the resignation of the donor just two days later. Copies of dozens of internal emails were provided to ABC News by the conservative political group Citizens United, which obtained them under the Freedom of Information Act after more the two years of litigation with the government. A prolific fundraiser for Democratic candidates and contributor to the Clinton Foundation, who later traveled with Bill Clinton on a trip to Africa, Rajiv K. Fernando’s only known qualification for a seat on the International Security Advisory Board (ISAB) was his technological know-how. The Chicago securities trader, who specialized in electronic investing, sat alongside an august collection of nuclear scientists, former cabinet secretaries and members of Congress to advise Hillary Clinton on the use of tactical nuclear weapons and on other crucial arms control issues. “We had no idea who he was,” one board member told ABC News. Fernando’s lack of any known background in nuclear security caught the attention of several board members, and when ABC News first contacted the State Department in August 2011 seeking a copy of his resume, the emails show that confusion ensued among the career government officials who work with the advisory panel.

CalPERS-TH Lee Row Over Private Equity Fee Abuses Demonstrates Failure of SEC Oversight --Yves Smith - An important story by Chris Witowsky of PEHUb describes in considerable detail how CalPERS tried unsuccessfully to get the private equity kingpin TH Lee to pay back various fees that the SEC had deemed improper, in ordering other major players to make restitution and pay fines. To CalPERS’ credit, this wasn’t a casual query; the giant public pension fund went several rounds with TH Lee and also tried enlisting the support of the advisory councils of the two TH Lee funds where this misconduct occurred.   CalPERS’ failure in getting restitution for precisely the same kind of conduct that the SEC sanctioned shows the abject failure of the SEC’s selective enforcement regime. As we’ve discussed, the SEC has been adopting an enforcement policy that looks like “one and done”: cite only one firm for a particular type of bad conduct, out of the bizarre belief that the others will get the message and stop misbehaving, Mind you, that is not our interpretation; the SEC’s head of enforcement, Andrew Cereseny, as well as a former regional SEC office head, made precisely that claim at an SEC enforcement conference earlier this year. As we wrote , it’s clear this approach is not working: The SEC’s own annual filings from private equity investors, the Form ADV due in at the end of March, shows that private equity firms are continuing to engage, on a widespread basis, in abuses that the SEC regards as serious enough to merit fines.

Financial Times Exposes McKinsey’s Secret, Conflict-Ridden In-House Hedge Fund - Yves Smith - The Financial Times’ lead story today is on a heretofore well-hidden McKinsey internal fund which invests on behalf of current and former partners (both pension funds and additional contributions). The fact that McKinsey has an in-house investment business is in many respects old news; the firm since the early 1980s run its pension investments for both partners and non-partners as mini-family office, selecting outside managers and letting participants choose once a year what percentage of their funds in which category. And there’s nothing that should be controversial about that. And one gets the impression that a large chunk of the funds are invested via other managers. From the article: MIO’s flagship fund is the Compass Special Situations Fund, a fund of hedge funds that is described by one client as the “crown jewel” in the investment office and a “great benefit” for McKinsey partners. He said Compass closely guards the names of the hedge funds in which it invests and will not even disclose these names to clients of Compass.  The part that is new, and disturbing, is that the firm is also engaged in making active investments in house. It has an 80 person investment team and manages $9.5 billion, which as the article notes, makes it as large as some of the biggest hedge funds.  Critically, the article was unable to parse how much of the total was unproblematic investments in other fund managers, versus direct investments or co-investments, which can represent conflicts of interest with McKinsey clients. Moreover, McKinsey asserts that the internal fund, called MIO for McKinsey Investment Office, is independent when it isn’t. Unlike Bain Capital, which is organizationally separate from Bain the consulting firm, but uses Bain as a preferred vendor, the investment operation, as was the case in my day, is supervised by McKinsey partners: MIO is overseen by a board of 12 current and former McKinsey partners, including Vik Malhotra, head of McKinsey’s practice in the Americas and the co-heads of its energy, private equity and investment banking practices. The McKinsey partners serving on the board do not mention their role on their official company biographies. First, the idea that the investment unit doss not know the identity of at least some McKinsey clients is hogwash. Again, in my day, firm members were extremely circumspect about mentioning who McKinsey clients were to outsiders. But even so, the identities of some core clients were well known, like Citigroup, Merrill, American Express, and General Motors.

The secret to investing in hedge funds: avoid almost all of them -  Hedge funds have taken a beating lately, with some of the most prominent managers performing badly. The first quarter was so bad that Third Point's Dan Loeb described the period as a "hedge fund killing field." Some of the funds' biggest investors like public pensions have even pulled out completely , frustrated with hedge funds' notoriously high fees. But some still love hedge funds - with a caveat. Cambridge Associates is one of the biggest investment consultants advising pensions and others on which funds to choose. Their secret to picking hedge funds: avoid almost all of them. "We think about 5% of the entire universe could be on a list of potential funds to look at," Joe Marenda, a managing director at Cambridge, told Business Insider. Estimates put the number of hedge funds at about 11,000 worldwide. That brings Cambridge's consideration pool down to 550 funds - tough competition for startups and established hedge funds alike. Hedge funds need to woo over consultants because they are some of the most important gatekeepers to the biggest asset holders, like pensions that are looking to invest several hundred million at a time.

The Overselling of Financial Transaction Taxes - Kenneth Rogoff -- However November’s presidential election in the United States turns out, one proposal that will likely live on is the introduction of a financial transaction tax (FTT). While by no means a crazy idea, an FTT is hardly the panacea that its hard-left advocates hold it out to be. It is certainly a poor substitute for deeper tax reform aimed at making the system simpler, more transparent, and more progressive. As American society ages and domestic inequality worsens, and assuming that interest rates on the national debt eventually rise, taxes will need to go up, urgently on the wealthy but some day on the middle class. There is no magic wand, and the politically expedient idea of a “Robin Hood” tax on trading is being badly oversold.  True, a number of advanced countries already use FTTs of one sort or another. The United Kingdom has had a “stamp tax” on stock sales for centuries, and the US had one from 1914 to 1964. The European Union has a controversial plan on the drawing boards that would tax a much broader array of transactions. The presidential campaign of US Senator Bernie Sanders, which dominates the intellectual debate in the Democratic Party, has argued for a broad-based tax covering stocks, bonds, and derivatives (which include a vast array of more complex instruments such as options and swaps). The claim is that such a tax will help repress the forces that led to the financial crisis, raise a surreal amount of revenue to pay for progressive causes, and barely impact middle-class taxpayers. What is really needed is better regulation of financial markets. The unwieldy and deeply imperfect 2010 Dodd Frank legislation, with its thousands of pages of provisions, is a stopgap measure; few serious people view it as a long-term solution. A far better idea is to force financial firms to issue much more equity (stock), as Stanford University’s Anat Admati has proposed.

“Finance is Just Another Industry” - Yves Smith - At the end of this post, you’ll find an embedded a lively, thought-provoking speech by economist and Financial Times writer John Kay made at a Bank of International Settlements conference last month. Kay discussed how the claims made by people in the financial services industry, that it was special, in terms of its role in the economy and its mode of operation, are made by just about every industry and don’t hold up to scrutiny. There were two parts I particularly liked. One was when Kay debunked the notion that financiers play an oh-so-importnat role in allocating capital to its highest and best use.  Kay explains that real-economy investment decisions are made by real economy players, like major corporations who make capital budgeting decisions. And the overwhelming source of investment funding for companies is retained earnings, not external funding. Similarly, we’ve pointed out that the role of venture capital in start ups is deminimus. Only 1% of new companies get funding form VCs. Even with among the highly successful enterprrises that these investors target, only a minority get funding from them. Professor Amar Bhide has found that only 25% of the Inc 500 had brought in venture capitalists. And some of those came in shortly before an IPO, with their main role thus validating the company to help it get access to better underwriters rather than playing a critical role in its growth.   Another good discussion was on a pet topic, how Big Finance makes a great deal of fuss about the importance of liquidity and goes all hair-a-fire if liquidity falls. We’re long been of the view that the ability to sell large amounts of securities on a hair-trigger is a very recent convenience that didn’t impede successful investing in the stone ages of the 1970s and 1980s. As Kay put it: A paradox of financialisation is that the need for an active share market has diminished at the same time as the volume of trading has grown exponentially….

Bond Market Flight to Safety as Investors Sweat Over Brexit Risk, Wobbly US Economy, Negative Rates -  Yves Smith - George Soros appears to have timed his return to trading and his bearish bets perfectly. The Financial Times reports on the panic in the global bond markets today as investors came to terms with the rash of bad news over the last week. Not only did revisions make the cheer about improving labor market conditions look like one big headfake, but as Wolf Richter pointed out, hiring of temps also declined. This is particularly worrisome since trends in those short-term positions are often a harbinger of future hiring plans.  Earlier this week, the Wall Street Journal flagged another major negative indictor: a decline in birth rates to the lowest level recorded in the US.  The drivers of economic growth are increases in population and productivity. US population was forecast to fall in the 1990s, and demographers were surprised at the end of the decade to have been proven wrong.  Given the propensity of advanced economies to have birth rates at less than replacement rates, combined with low household formation among the young due to high student debt levels, high unemployment among the young, and short job tenures, it’s hard to see why one should expect to see a reversal absent a big improvement in the state of the economy, when there’s no reason to expect that to occur. And that’s before getting to the fact that some young people are choosing not to have children, not out of economic concerns, but environmental ones. They foresee disruption due to climate change and escalating fights for resources between nations and potentially within nations, and they don’t think they should bring children into a world like that.  Michael Shedlock highlighted yet another worrisome sign mid-week: both personal tax receipts and the Evercore ISI Tax Receipts Survey have dropped sharply. When that’s happened previously, a recession has already started.

Gross says negative yields will lead to ‘supernova’-like market implosion -  As yields on government bonds across the globe march toward fresh record lows, bond guru Bill Gross continues to sound the alarm. Early Friday, he tweeted via Janus Capital that global yields are their lowest in “500 years of recorded history.” The fixed-income expert, who manages the firm’s unconstrained bond strategy, cautioned that record-breaking low yields and negative interest rates emerging in places like Japan and parts of Europe could have explosive implications. And not in a good way for global markets, as his tweet suggests: Gross: Global yields lowest in 500 years of recorded history. $10 trillion of neg. rate bonds. This is a supernova that will explode one day — (@JanusCapital) June 9, 2016.  Indeed, the amount of sovereign debt bearing negative yields surpassed $10 trillion for the first time in May, according to Fitch Ratings. That means lenders are willing to pay government borrowers to park their money, and the amount of negative debt is growing. On Friday, global yields continued their descent, with the yield on the 10-year German bond tumbling to 0.015%, according to Tradeweb, a record low that leaves the German benchmark bond a hair away from negative territory. The yield on Britain’s equivalent, known as the gilt fell to a historic low of 1.229%. And overnight Friday, the Japanese 10-year benchmark yield touched a record low of negative 0.155%  European yields taking the elevator lower has put pressure on Treasury yields, with the U.S. benchmark 10-year note touching 1.63% early Friday in New York—its lowest yield in more than a year.

Republicans to Unveil Plan to Revamp Dodd-Frank -  NYT - The Republican chairman of the House Financial Services Committee plans to outline on Tuesday a legislative proposal that aims to dismantle significant portions of the Dodd-Frank financial regulatory overhaul.The plan, whose details will be released in full later this month, has little chance of passing Congress this year. But the proposal by Representative Jeb Hensarling, Republican of Texas, may influence the presidential debate and help shape the Republican agenda in the next term.The conservative lawmaker has been a longtime critic of the financial reform law. The Financial Choice Act, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs, builds on longstanding efforts by House Republicans to roll back or repeal major elements of the law, and would strip financial regulators of significant authority to oversee some of the country’s largest financial institutions. The plan is an outgrowth of a call by House Speaker Paul Ryan for Republican lawmakers to offer affirmative policy proposals that go beyond criticisms of Democratic policies.Donald J. Trump, the presumptive Republican presidential nominee, has said that he will dismantle Dodd-Frank, though he has not provided detail about how he would replace or rewrite the law.“Simply put, Dodd-Frank has failed,” Mr. Hensarling said in prepared remarks that he is set to present at the Economic Club of New York on Tuesday. “It’s time for a new legislative paradigm in banking and capital markets.” His proposals will call for replacing the financial reform law’s “orderly liquidation authority” for winding down a failing financial institution with a new chapter of the bankruptcy code. The plan would also repeal the Volcker Rule, which aims to stop banks from making some risky bets with their own money. Moreover, the legislation would prevent a body of regulators known as the Financial Stability Oversight Council from designating any nonbanks as “systemically important.” MetLife recently won a federal court case to throw out its “too big to fail” label from the F.S.O.C., but other companies, including the American International Group and Prudential Financial, are still covered. General Electric’s financial unit has applied to have the designation removed.

GOP unveils Dodd-Frank alternative | TheHill: A leading House Republican has unveiled the GOP plan to regulate Wall Street and replace the Dodd-Frank financial reform law. A new bill introduced by House Financial Services Committee Chairman Jeb Hensarling (R-Texas) would fundamentally remake the financial regulation landscape, and eradicate major pieces of President Obama’s Wall Street reform law. Congressional Republicans have considered dozens of smaller bills tweaking the sweeping 2010 law. But Hensarling’s latest proposal marks the broadest, most ambitious effort yet by the GOP to change how Wall Street and Washington interact. Hensarling will detail the bill in remarks delivered to the Economic Club of New York Tuesday morning. “Simply put, Dodd-Frank has failed. It’s time for a new legislative paradigm in banking and capital markets,” he will say, according to prepared remarks. Such a plan is a political longshot this Congress, as the White House has repeatedly threatened to veto any changes to Dodd-Frank, and congressional Democrats have shown little interest in revisiting it. But Hensarling’s plan could serve as a blueprint for Republicans after the presidential election, particularly if the party’s nominee, Donald Trump, wins the White House. But in his speech, Hensarling laid the blame for a lackluster economic recovery squarely at the feet of the new financial rules, which he argued has hamstrung the economy. “Ending and replacing the mistake of Dodd-Frank is the necessary start if we ever hope to restore real economic growth in America,” he will say. But President Obama made clear in earlier remarks he is not interested in restarting the conversation on regulating Wall Street, "How it is that somebody could propose that we weaken regulations on Wall Street?  Have we really forgotten what just happened eight years ago?" he said June 1. "Less oversight on Wall Street would only make another crisis more likely."

Republican Alternative to Dodd-Frank Calls for Banks to Boost Capital - WSJ: Wall Street banks would be able to break away from the 2010 Dodd-Frank regulatory-overhaul law under a Republican plan—but it would cost them billions of dollars. The  GOP plan set to be released by the chairman of the House Financial Services Committee on Tuesday in a speech in New York would provide financial institutions, large and small, an alternative to the existing postcrisis regulatory regime. They would be allowed to opt in to the alternative plan if they can surpass critical thresholds, including a 10% leverage ratio, which is a measure of capital held by a bank against its total assets and hence curbs the amount of borrowing, or leverage, banks can do.  “Think of it as a market-based, equity-financed Dodd-Frank off ramp,” Rep. Jeb Hensarling, (R., Texas) was due to tell the Economic Club of New York around 8 a.m. Tuesday, according to prepared remarks. “The Republicans’ better approach will relieve financial institutions from regulations that create more burden than benefit in exchange for meeting higher, yet simple, capital requirements.” Currently, U.S. banks are required to meet a 6% leverage ratio—that is higher than the 3% buffer the Basel Committee on Banking Supervision requires institutions to maintain. While the Basel Committee sets guidelines for global banking regulation, it is up to individual countries to determine how, if at all, to implement its proposals.  Mr. Hensarling’s plan has no chance of becoming law this year, with Democrats in the Senate likely to block it, and President Barack Obama certain to veto it if it came to his desk. But the details are significant for defining the Republican financial agenda should the party win the White House and keep control of Congress in November.   “While a 10% leverage ratio may seem high by current standards, history suggests it is far from abnormal,” said Mr. Hensarling, endorsing a threshold long advocated by Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig.  Wall Street firms have balked at the leverage ratio, saying it curtails lending and saddles them with more costs that leave them at a competitive disadvantage against foreign banks with lower capital requirements.

Cheat Sheet: Hensarling Asks for the Moon in Dodd-Frank Revamp | American Banker: — House Financial Services Committee Chairman Jeb Hensarling R-Texas, was set Tuesday to unveil an ambitious plan to revamp the Dodd-Frank Act and replace it with a capital-based alternative during a speech in New York. "Our Republican plan rests on the belief that bank capital is the most basic element in making a financial system healthy, resilient and reliable for economic growth," Hensarling said in remarks prepared for the Economic Club of New York. The Texas Republican signaled earlier this year that he was working on legislation that would create a separate regulatory framework that banks could choose to follow as an "off-ramp" from Dodd-Frank in return for higher capital requirements. But the Financial CHOICE Act also includes other sweeping provisions that effectively constitute a wish list for Republicans, including measures to subject all federal regulators to the appropriations process, repeal the Volcker Rule and remove the deference courts traditionally give to the agencies. As a result, the bill is not just dead on arrival this year, which is no surprise given that President Obama has already said he would oppose changes to Dodd-Frank. It would also face an uphill battle even if the election in November went entirely in the GOP's favor, including seizing the White House and maintaining control of the Senate. Some provisions are certain to anger progressive Democrats like Sen. Elizabeth Warren, D-Mass., and Democrats will undoubtedly maintain enough Senate seats to filibuster any similar bill in that chamber.

What Jeb Hensarling Gets Wrong About Capital Requirements - Mike Konczal  --Props to the House Republicans for releasing their policy platforms for 2017 as if everything is just fine, in the hopes that they’ll influence Donald Trump and the general election. A speech by Jeb Hensarling, the chair of the House Financial Services Committee, today previewed the Financial CHOICE Act, their replacement for Dodd-Frank. (The H in CHOICE stands for hope.)  Much of what’s in Hensarling’s speech is the general anti-Dodd-Frank platform that has been in circulation for several years: Get rid of the Volcker Rule, cut the independence of the Consumer Financial Protection Bureau, etc. But there’s a lot that goes further. Repeal the Chevron doctrine, subject the Federal Reserve’s prudential regulatory and financial supervision activities to appropriations, and so on. It “asks for the moon” in the words of American Banker. One new agenda item requires some debate: Hensarling argues for a 10 percent leverage requirement that, if firms met it, would exempt them from all other Dodd-Frank capital requirements and heightened regulations. Reformers are unlikely to adopt this overall agenda—it’s pretty far out there—but in isolation, they could be interested in a deal that removes some capital requirements in exchange for higher leverage requirements. I’ll put my cards on the table: Even in isolation, this is a bad trade. Leverage requirements should be higher, but a higher leverage requirement, by itself, can’t substitute for the rest of the Dodd-Frank capital requirements. First, it’s important to regulate the entire balance sheet, and each of the three parts of capital requirements amplifies and boosts the others. Second, the overall capital requirements prepare a firm for failure in a way that the static measure Hensarling describes would not. Especially if the resolution components of Dodd-Frank were gutted, capital requirements would need to do more, not less, to end Too Big to Fail.

The Myriad Mendacious Myths of “Market Regulation” of Finance - Bill Black - Representative Jeb Hensarling, Chair of the House Financial Services Committee has announced that he will introduce a Republican plan to repeal key provisions of the Dodd-Frank Act and replace them with “market-based” regulation.  I have explained in a prior column how theoclassical economists, for over 40 years, have created repeated criminogenic environments in finance due to their unholy ideological war against effective financial regulation.  The dominant policy view among economists and senior anti-regulatory policy advisers of every administration since President Carter embraced the myth that economists had invented means by which the “markets” will effectively “regulate” finance. The reality is, first, that what they falsely call “market” “forces” are what creates the perverse incentives that cause our recurrent, intensifying crises.  Second, their “market” regulation makes those incentives even more perverse.  Third, the theoclassical myths and anti-regulatory policies generate regulatory complacency based on the myth that the problem of those perverse incentives has been vanquished by “incentive compatible” regulation. It is ironic that economists’ proudest boast is that have unique insights and predictive abilities because of their understanding of the incentive of self-interest.  They brag that they have been taught to “think like economists” and understand that self-interested behavior is ubiquitous.  As we have all observed, they are actually so supremely bad at understanding how perverse the incentives they worship are in the real world that their predictive record is abysmal – and getting worse. The newest theoclassical variant on “market” regulation is Hensarling’s Republican plan.  This variant relies on the myth that “capital” is a thing of great value sitting in a bank’s vaults that can easily be measured and that all we have to do is require higher capital requirements and banks will not fail or at least will fail at no or minimal cost to the public.  To believe this myth one need only be ignorant of accounting, finance, and regulation. First, capital is merely an accounting residual.  Assets – Liabilities = Capital.  This means that if assets are overstated or liabilities are understated (or both) capital will be overstated.  Second, the way “accounting control fraud” works is to massively overstate asset values. Third, it is epidemics of accounting control fraud that have driven our three modern financial crises – the savings and loan debacle, the Enron-era frauds, and the most recent financial crisis.  Hensarling’s plan assumes that the banks’ reported capital is real rather than the product of fraud.

Bill to change CFPB to 5-person board passes House Appropriations Committee  - Momentum to modify how the Consumer Financial Protection Bureau is structured and operates gained more steam this week. Soon after the U.S. House Financial Services Committee chairman outlined his plan to revamp the Dodd-Frank Act and more, the House Appropriations Committee’s fiscal year 2017 Financial Services and General Government Appropriations bill passed out of the committee. That measure includes a provision to alter CFPB leadership from a single director to a five-person group. “We applaud House appropriators for taking steps to make needed improvements to the CFPB on behalf of consumers,” said Richard Hunt, president and chief executive officer of the Consumer Bankers Association. “Chief among the reforms is the creation of a five-person, bipartisan board that would preserve it as a stable, strong and effective regulator, regardless of a President Trump or Clinton. “CBA also appreciates the committee requiring the bureau to take a second look at its arbitration and small-dollar lending proposals before consumers are potentially harmed,” Hunt continued. “We are grateful the committee sees the wisdom in these commonsense improvements and encourage the full House and Senate to follow their lead in protecting consumers.” Along with what Hunt referenced, the bill provides annual funding for the Treasury Department, the Judiciary, the Small Business Administration, the Securities and Exchange Commission and other related agencies. The bill totals $21.7 billion in funding — $1.5 billion below the fiscal year 2016 enacted level and $2.7 billion below the budget request of President Obama.

More Proposed CFPB Reforms Clear Subcommittee - A House Subcommittee has approved a bill on Wednesday aimed that contained proposals for major reforms to the Consumer Financial Protection Bureau (CFPB)’s leadership and budget. The House Financial Services and General Government Appropriations Subcommittee approved by a voice vote its Fiscal Year 2017 Financial Services Bill, which proposes three major changes to the Bureau. The bill proposes to increase oversight for the CFPB by:

  • Bringing the CFPB’s funding under the annual Congressional appropriations process rather than receiving funding directly from the Federal Reserve.
  • Replacing the Bureau’s director with a five-member bipartisan commission.
  • Requiring the CFPB to study the use of pre-dispute arbitration prior to issuing regulations. The Bureau recently issued a controversial proposal to ban the use of arbitration clauses in financial contracts between businesses and consumers, which would open the door for consumers to file class action lawsuits against businesses.

“The job of this bill is two-fold: to make wise investments with taxpayer dollars in the programs and agencies that we need to grow our economy and enforce our laws, and to tightly hold the reins on the over-spending and overreach within federal bureaucracies,” House Appropriations Committee Chairman Hal Rogers (R-Kentucky) said. “This bill makes great strides on all accounts—carefully investing taxpayer dollars in programs that promote opportunity, while keeping these agencies accountable to the American people.”

Why Wall Street Needs Younger Workers to Boost Returns - WSJ: Investment banks are competing fiercely for young talent. Of course, they always did. But in the past, the lure was mostly financial. Now, banks are loudly promising a modicum of quality of life, too. Just last week, UBS told bankers they can take two hours of personal time each week. Credit Suisse has insisted bankers ought to take Friday evenings off unless something important is happening. Morgan Stanley is offering paid sabbaticals. And J.P. Morgan Chase has loosened its dress code to allow employees to wear business-casual attire. For bank investors, it might seem all this misses the most urgent task facing banks: to cut costs. But that would be shortsighted. The common view is that banks need to soften their workaholic cultures because young people could have a nicer life working in technology or other areas of finance. But there is a more commercial reason, too. Banks desperately need young people because they are cheaper. The profile of the workforce is changing as investment banks have realized fewer of their highest-paid bankers and traders are crucial for bringing in revenue. The rest of the teams can be made up of more people in their 20s with less experience—and far smaller pay packages. The industry even has a word for this: “juniorization.” It helps explain how investment banks have cut compensation costs on average by 21% since 2009 while cutting staff numbers by just 3%, according to J.P. Morgan analysts. This is especially true in Europe where regulations have forced banks to pay higher fixed salaries and less in bonuses. That makes it much harder to cut the cost of higher-paid bankers in their 30s, 40s and 50s when they aren’t making it rain. There is longer-term thinking at work, as well. Banks want younger, more tech-savvy people to usher in a more automated age. But those same young people also realize that future financial rewards in banking are less likely to match those widely enjoyed in the past given the industry’s reduced profitability. So they will need other carrots as well.

New Graduates Should Choose Tech Careers Over Wall Street (Video) --Financial Markets have seen their Zenith, whereas the Technology Sector is just getting started in my opinion. Why do you think the Financial Industry is trying to rebrand themselves as Technology Firms? Go to work where future investment capital is going to flow, business development in the financial industry is beyond mature, it has already seen its glory days. The decision from a Decision Making Tree Process isn`t even close, sure an individual might love Finance, but from an expected value and game play optimal standpoint, choosing a career in the Financial Sector versus the Technology Sector is just plain stupid! You literally are the proverbial Pink Salmon swimming upstream to your miserable death as many management jobs in Finance are still yet to be downsized as automation, regulation and new technology makes many existing business units within finance obsolete at best. Wall Street is going to increasingly be defined as more top down "Financial Winners" whereas the Technology Sector is going to offer more "Broad Based and Diverse Financial Winners" for employees. In summation you can be quite average in the Tech Sector and have a rewarding career path, however in the financial sector the trend has been on a glide path for the over-achievers and exceptional to experience a rewarding career path, and steepening by the year. This didn`t used to be the case for Wall Street careers.

Big Banks Stand Out with Overdraft Revenue Gains | American Banker: Federal regulations to rein in overdraft charges were supposed to kill a golden goose of the banking industry, but it looks like the nation's largest financial institutions didn't get that memo. Wells Fargo, Bank of America and JPMorgan Chase — the three biggest U.S. banking companies by assets — are finding ways to squeeze more revenue from overdraft fees. They generated a combined 9% more in overdraft fees during the first three months of 2016 than they did a year earlier, according to new government data. The rebound follows new rules that curbed overdraft fees, as well as a wave of lawsuits that led to more consumer-friendly policies across the industry. Meanwhile, hundreds of banks with less than $50 billion of assets saw virtually no increase in revenue from the fees. Experts are still trying to figure out exactly what caused the disparity between big banks and their smaller peers, but questions are already being asked about the clarity and aggressiveness of overdraft-protection marketing at the big banks. Richard Barrington, a senior financial analyst at, said that some banks have developed messages to persuade more customers to enroll in overdraft programs. "I think that's unfortunate because obviously at around $30 per occurrence, it's a terribly big expense," he said. Those concerns could grow louder later this summer when the Consumer Financial Protection Bureau is expected to begin writing rules for overdraft fees. Consumer advocates have long criticized the fees as a way of gouging consumers who maintain low balances.

Foreign Banks Get an Extra Year to File U.S. Living Wills -- The Federal Reserve Board and the Federal Deposit Insurance Corporation granted four foreign banks an extra year to submit an update to their resolution plans, the blueprints all big banks operating in the U.S. must have for dealing with their failure in a crisis. The banks, London-based Barclays Plc, Credit Suisse in Zurich, Frankfurt’s Deutsche Bank and Zurich-based UBS Group AG, were given to July 1, 2017, to make the submission, the Fed and FDIC said Wednesday in a statement. The extension was granted “in light of the significant restructuring these companies are undertaking” to comply with the Fed’s Intermediate Holding Company requirement by the deadline of July 1 this year, the regulators said. The IHC requirement was set by the Fed in 2014 as part of tougher prudential standards. Annually updated resolution plans, mandated by the 2010 Dodd-Frank Act for all banks with assets exceeding $50 billion, must include a bank’s proposals for managing a “rapid and orderly resolution in the event of material financial distress or failure of the company,” according to the Fed’s website. Still, the change isn’t a substantive one given that regulators were likely to take a pragmatic approach to foreign banks’ efforts, . The need for an extension does raise questions about the banks’ planning processes and how they’ll fare in the Fed’s annual stress test, . “The Fed has thrown their hands up in the air and said, ‘This isn’t good but we need them to do this correctly,”’ “It tells you the challenges they’re facing in the new world of foreign banking rules in the U.S.”

Banks Tell Basel to Back Off Credit-Risk Capital Restriction - Banks are stepping up opposition to looming capital standards, with one of the financial industry’s largest lobbying groups warning that regulators risk slowing the global economy with a clampdown on lenders’ ability to judge the health of their own borrowers.  The Basel Committee on Banking Supervision’s proposed curbs on banks’ use of internal models to assess risks would have a “material impact” on lending to financial institutions, corporations and other borrowers, the Institute of International Finance wrote in an 83-page letter to the regulator. The IIF called on the Basel Committee, whose members include the U.S. Federal Reserve and the European Central Bank, to grant banks more leeway in assessing the riskiness of borrowers, particularly large corporations.  according to the IIF’s letter, dated June 3 and released on Monday. The group represents about 500 firms, including JPMorgan Chase & Co., Deutsche Bank AG and BlackRock Inc.  The IIF, which offered a list of suggested changes to Basel’s proposal, said it is collecting data to provide an estimate of the rule’s impact. The Basel Committee said it would accept comments on the credit-risk proposal until June 24. IIF released the letter ahead of the deadline to give regulators more time to review suggestions and to help Basel avoid “hasty outcomes” in its plan to complete the rule by the end of the year.  The letter was published in advance of a two-day Basel Committee meeting that begins on Wednesday. It’s the latest effort in the industry’s campaign against a raft of proposals from the regulator over the last year that seek to rein in banks’ ability to assess risks that are then used to determine capital requirements.  While the Basel Committee has said it will “focus on not significantly increasing capital requirements” with the new restrictions, the industry says the regulations will have far-reaching effects that come on top of rules already put in place following the 2008 credit crisis. The regulator says its wrapping up work on the post-crisis framework known as Basel III.

Don't Fall for Scaremongering Over Loan Participations - Christopher Whalen's recent op-ed, "A Cautionary Tale From the '80s for Today's Loan Participations," was overall misleading in its warnings about the current market for leveraged loans and loan participations, and demonstrates a misunderstanding about how the loan market works. In assessing the risk of participations exposed to the energy market or other sectors, one must consider the following important facts. First of all, Whalen's concerns about leveraged loans to the oil and gas industry overlook the limited exposure of the leveraged market to the energy sector. The exposure of the broadly syndicated loan market to oil and gas comprise slightly more than 4% of outstanding leveraged loans, according to Thomson Reuters LPC. Although that industry is clearly going through tough times, given that it represents such a small percentage of outstanding loan issuance in the leveraged loan market, its overall impact on the loan market is entirely manageable. Secondly, Whalen's characterization of the practice of selling participation in leveraged loans as "widespread" was also misleading. That is because no widespread practice of selling participations exists in the leveraged loan market. Indeed, market participants generally estimate that considerably less than 5% of all leveraged loan trades settle as participations. In fact, nearly all loan trades in the leveraged loan market do not even settle as participations. They settle as "assignments," where the existing lender assigns its rights and obligations to the buyer, who then stands in for — and has no further exposure to — the old lender. Moreover, in the rare instances when a loan trade is settled as a participation, a model form of participation agreement developed by the Loan Syndications and Trading Association seeks to preclude further risk. Under the LSTA's framework, which is universally used in the U.S. loan market, the buyer acquires 100% participation interest in the loan, and the seller retains only the loan's bare legal title.

Can Philosophy Stop Bankers From Stealing? - naked capitalism - Yves here. I hate to be more strict that usual, but I ask that you read the entire post before commenting, since I know some of you will be inclined to react to the headline (which came from the Institute for New Economic Thinking and I didn’t have any bright ideas as to how to tweak it).  The problem is that the proper headline of this piece would be “Can Morality Stop Bankers From Stealing?” And these days, that sounds like the answer Maine natives allegedly give when asked for directions: “You can’t get there from here.” It seems impossible to go from the openly corrupt world in which we live now to one that values reputation, probity, and fair dealing.  Yet dramatic swings in values can happen in a generation, or even less. The conservative 1950s in the US were followed by the 1960s. The libertinism of France on the eve of the revolution led, after the upheavals of the revolution proper, to an era of circumspection under Napoleon and the Restoration. And as I often joke, when I was on Wall Street (the early 1980s), it was criminal only at the margins.  The Sanders campaign has already had an impact, in that it has made socialism, or at least social democracy, popular among the young. It’s apparently cool for kids in high school to call themselves socialists, and I know parents roughly my age who are haute technocrats who lament that their college age kids are pinkos. Long-standing high unemployment levels among the young will do that sort of thing. It is also important to recall that the shift in social norms to our current weird idea that markets are more important than communities or social relationships did not just happen. As I recounted in ECONNED, extreme conservatives started working in the 1960s to roll back the New Deal.  And that’s before you get to the fact that taking economics leads students to become less altruistic (being trained to see people as atomized actors might have something to do with that result). But the first step, as this article indicates, is to start calling things by their proper names. And there is now much less inhibition about calling out predatory conduct and using words like “fraud”, “stealing,” and “corruption”. And yes, it’s hard to talk about getting bankers to behave in a more upstanding manner when we have Presidential contenders that are sorely wanting in that category.

Will a Cyberattack Cause the Next Big Bank Failure? | Bank Think: As the threat of cyberattacks against financial institutions has grown, the response by industry and government has matured. Banking agencies, trade groups, law enforcement authorities and others have developed protocols for identifying, limiting, reporting and otherwise responding to attacks. But a newer type of threat is growing that has so far received scant focus from the industry and government. The attention on cyberattacks has so far focused mainly on data breaches and so-called "denial-of-service" attacks, in which an institution's computers or servers are rendered temporarily or indefinitely unavailable to its customers. Less attention has been paid to what might be termed "denial-of-system" attacks, which can make enterprisewide information systems completely inoperable. Such attacks have occurred, and the possibility of a catastrophic failure at a "systemically important financial institution" resulting from such an attack poses a serious risk to the stability of the U.S. financial system. To date, the paradigmatic cyberattack has involved a data breach, and the primary concern has been that pirated data may be used to conduct unauthorized transactions. A related concern is that, once inside a financial institution, hackers may search for and exploit more sensitive business data. This is suspected to have occurred when the central bank of Bangladesh's credentials were stolen and used to initiate Swift transactions. The scheme reportedly succeeded in stealing over $80 million from the central bank's account at the Federal Reserve Bank of New York. What has received less attention has been the evolution of denial-of-service attacks from an externally based business disruption to denial-of-system attacks in which malicious and intrusive software or malware is inserted into a financial firm's information system to potentially cause widespread infrastructure damage and global chaos in financial markets.

The Next President Can Change Banking with One Pick | American Banker: — The next president could significantly reshape the regulation of financial services with a single appointment: the Federal Reserve's vice chairman for supervision. The post was created by the Dodd-Frank Act but never filled, giving the winner of this year's presidential election a huge opportunity to define the role. Exactly how much power that job has is unclear and in part may depend on how much leeway the eventual vice chair is afforded by Fed Chairman Janet Yellen. "Because of the ambiguity of the way it's structured in the statute, it really does heavily depend on the two personalities that are there as chair and vice chair," said Mark Calabria, director of financial regulation studies at the Cato Institute. "A different chair and vice chair could operate very, very differently." The job was created by the financial reform law in order to shepherd the additional regulatory and supervisory requirements outlined in the law. But the White House chose not to select a nominee, instead leaving the job for Gov. Daniel Tarullo — who heads the Federal Reserve Board's supervisory committee — to fill on a de facto basis. Tarullo and Yellen have what appears to be an implicit but stable arrangement regarding their spheres of influence — Yellen is the public face of the Fed's monetary policy and Tarullo acts as the public face of the Fed's regulatory policy, and neither gets in each other's way. Yellen said during testimony before the House Financial Services Committee in November that Tarullo was doing an "outstanding job" heading the board's banking supervision committee, but she was quick to push back on assertions that he was acting as vice chairman for supervision.

Central Banks Can't Ignore Blockchain's Obvious Lure -- We all know that virtual currency resides on the blockchain. But what about regular currency? It may be just a matter of time before blockchain money is a reality. Pragmatism and (ironically) central bankers may propel it. I recently participated in the fintech conference for 100 global central bankers co-hosted by the Federal Reserve, World Bank and the International Monetary Fund. The conference included sessions about blockchains. Fed Chair Janet Yellen opened her welcoming remarks by discussing cybersecurity, which is top of mind in light of the recent Swift hacks. She also encouraged central bankers to learn about financial innovations such as bitcoin and blockchains. The apparent interest of central bankers in blockchains could be an enormous benefit. And when the first major country issues fiat currency on a blockchain, that nation will gain a substantial competitive advantage. An obvious strength is cybersecurity, especially in light of the Swift attacks. Blockchains use decentralized IT architecture, which is harder to hack than centralized, single-point-of-failure systems. And the bitcoin blockchain is robust IT architecture. Although it has lived fully exposed in the warzone of Internet security, and has a $9 billion capitalization sure to tempt hackers, it has survived seven years without a single successful attack on the core protocol. A central bank that issues money on a blockchain will find that its domestic financial system suddenly becomes transnational. Capital will flow in. It will become the key hub of global payments. The pragmatic benefits would be immediate. In contrast to the delays, cost and opacity that multinational companies face today when moving money globally, they would rejoice over a truly global payments platform. The voices of these companies matter in currency markets because, through their day-to-day activities, their payments underlie foreign exchange volumes.

B of A's Bessant on AI, Blockchain, Patents and Swift | American Banker: — Cathy Bessant, the chief operations and technology officer of Bank of America, says banks shouldn't see themselves as fintech companies. They use technology, for sure, but they are not pure fintech in her view for one major reason: Their customers have much higher expectations of reliability. Fintech can be experimental, and it can fail without making much of a difference. Bank of America has no such luxury. "The potential cost of failure at scale is something to be avoided," Bessant said. Banks can still be innovative, she said, pointing out that "not all wine that is great is made in Napa." In other words: Banking innovation happens outside Silicon Valley fintech firms, too. After her talk she sat down with American Banker to cover a variety of tech-related topics. Here is an edited transcript of that conversation... Clients want to give third parties access to their banking data. The customer demand is not something to be denied. Our stated objective is making our customers' financial lives better, so if a customer wants to give an aggregator access to their financial data, it's our job to figure out how to do that safely and in a way that we can continue to operate. Screen scraping is low-grade technology. It is not really scalable. The key is an API-based way. That allows third parties to access data in a scalable way without using up all of our bandwidth. That's the best forward-looking thing to say. To do that, we have to work with the individual aggregators. There is no one-size-fits-all. But there are risks associated with the system today. We can't control how often aggregators come in. Sometimes it is hard to tell good traffic from bad traffic. [...]There's no question that blockchain is really interesting as a technological advancement. In banking, an at-scale use case has yet to be made. It is likely that we'll find that faster and cheaper in terms of the digitalization of middle- and back-office functions will be a really good use case, but is yet to be made. As it relates to closed-loop distributed ledgers versus public ledgers, there is a lot left to learn and think through in terms of commercializations and how to protect customers in those arenas.

Fed Lays Out Groundbreaking Rules for Insurance Companies | American Banker: – The Federal Reserve Friday issued a pair of proposals Friday that would subject insurance firms under its jurisdiction to capital and prudential standards for the first time – a highly anticipated step toward more uniform capital rules. One plan laid out standards for insurance companies designated as systemically important financial institutions, while an advance notice of proposed rulemaking details how the agency wants to implement capital requirements on both SIFI firms and smaller insurance firms under its purview. Fed Chair Janet Yellen said that the capital proposal takes pains to distinguish the capital needs of insurance firms from those of more traditional banking institutions. "The ANPR presents potential capital frameworks that are adapted to the unique nature of the liabilities and risks of companies significantly engaged in insurance activities," Yellen said. "I believe this proposal is an important step toward capital standards that are both appropriate for our supervised insurance firms and that enhance the resiliency and stability of our financial system." Fed Gov. Daniel Tarullo, who heads the board's Supervisory Committee, said in a prepared statement that the proposal envisions different standards for systemically risky institutions than for firms which only fall under the Fed's umbrella because they have both banking and insurance affiliates. Tarullo said comment from industry at this early stage is encouraged.

Fed Envisions a Lighter Touch for Insurance Requirements | American Banker: — The Federal Reserve's proposals to set prudential and capital rules for insurance companies designated as systemically risky and smaller insurers with depository affiliates are sending a simple message: We can be tough, but fair. During a board meeting Friday, Vice Chairman Stanley Fischer pointedly asked whether the prudential standards being proposed would have kept AIG from the brink of insolvency during the financial crisis. "If the general framework for insurance companies had been in place just before late August 2008, would they have prevented the [liquidity crunch] at AIG?" Fischer asked. Thomas Sullivan, associate director of the Fed's division of banking supervision and regulation, replied that the "combination of the two proposals before you would have addressed the risks and the stress that was confronted by AIG at the time of the crisis." But the Fed also made careful distinctions in its plans. Mark Van Der Weide, deputy director of the Fed's division of banking supervision and regulation, said the capital and prudential regimes outlined do not contemplate many of the quantitative liquidity rules, such as the liquidity coverage ratio and net stable funding ratio, that the agency has required for banks. "We've spent a lot of time thinking about whether it makes sense to do some kind of liquidity rule, for the systemically important firms in particular," Van Der Weide said. "To the extent we do want to do something like that, it will clearly be far different form a cut-and-paste of the LCR and the NSFR, because of the very different nature of insurance company liabilities."

How are Regulations Affecting Small Banks? - The Subcommittee on Economic Growth, Tax, and Capital Access of the Committee on Small Business met Thursday morning to address concerns surrounding the regulatory effect on small banks. Witnesses at the hearing included Shan Hanes President and CEO, First National Bank of Elkhart, Roger M. Beverage President and CEO Oklahoma Bankers Association, and Marcus Stanley, Policy Director, Americans for Financial Reform. The hearing, titled “Bearing the Burden: Over-regulation’s Impact on Small Banks and Rural Communities,"  first dives into where the uptick in regulation began: the crisis. According to a memo for the hearing, the The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 was enacted to establish a more regulated and trusted banking system, but its effects have trickled down to small banks. The memo noted that over 80 percent of small banks have reported seeing their annual compliance costs increase at least 5 percent. "Generally, regulatory burdens and compliance costs are greater for small firms that have less revenue and a small employee base to spread over costs," the memo stated. "Given this, small financial institutions such as community banks have been forced to bear a severe regulatory burden." In his testimony, Hanes focused on the following points surrounding small bank regulation:

  • Banks compete with competition on an uneven playing field.
  • Banks must deal with the daily impact of new and enhanced bank regulations and impediments to growth for rural communities.
  • Bank’s specific impediments to growth and impact on rural lenders.
  • The current issues with appraisers in rural America and the impact on our business as lenders.

ABA Highlights Harmful Effects of Excessive Regulation -- In testimony before a House Small Business Committee panel today, banking industry leaders offered examples of the harmful effects of excessive regulation on America’s hometown banks, including those serving rural communities.“Regulation shapes the way banks do business,” said Roger Beverage, president and CEO of the Oklahoma Bankers Association, who testified on ABA’s behalf. “Bank regulatory changes — through each and every law and regulation, court case and legal settlement — directly affect the cost of providing banking products and services to customers. Even small changes can have a big impact on customers by reducing credit availability, raising costs and driving consolidation in the industry that limits consumer choice.” Beverage urged lawmakers to support a number of measures — all of which are part of ABA’s Agenda for America’s Hometown Banks — that would help to alleviate the regulatory burden on financial institutions. These measures include the TAILOR Act of 2015, which would tailor regulation to banks’ business models; the Portfolio Lending and Mortgage Access Act, which treats all loans held in portfolio as Qualified Mortgages; and other legislation targeted at addressing the cumulative effects of new regulations. In addition, Beverage recommended that the Consumer Financial Protection Bureau address the uncertainties surrounding the TILA-RESPA integrated disclosures and that Congress re-evaluate the necessity of Basel III’s complex capital calculations for highly capitalized banks.

Consumer-Credit Growth Isn't All Good News -- Consumers are stepping up their borrowing, an encouraging sign for near-term economic growth. But as the credit party heats up, there are emerging risks for lenders. Consumer credit, excluding mortgages, leapt by an annualized 10% in March, by $29.7 billion, according to Federal Reserve data. Consensus forecasts for April’s figure, due Tuesday, are for a more subdued but still solid $18 billion. The data are volatile month to month, so it is best not to put too much focus on any single reading. The bigger picture is one of steady expansion. Recently, a return of credit-card borrowing has fed the growth. In March, revolving loans, which mainly means credit cards, was up an annualized 14.2%; nonrevolving loans like auto rose 8.5%. This is a positive indication that consumers are spending more in response to falling unemployment and lower gas prices. The weak results reported by department stores and other retailers would seem to indicate that Americans are instead treating themselves to travel, entertainment and other experiences. Banks, desperate to lift their meager returns, also are pushing out more consumer loans. Lenders such as Citigroup and Bank of America Corp. are explicitly aiming to extend more credit-card loans, which carry higher interest rates. These lenders are competing hard for card users, offering better and better rewards or cash back incentives. But these are eating into the fees, typically around 2% to 2.5%, that card issuers charge merchants. This means banks can really only make a profit on card issuance if consumers carry balances.. At J.P. Morgan Chase. for instance, the net charge-off rate on credit cards was 2.6% in the first quarter. Last week, J.P. Morgan chief James Dimon said a more normal rate would be around 3.5%.

Identity Fraud: Back with a Vengeance, Harder to Stop | American Banker: New-account fraud is growing fast and forcing banks and their data brokers to rethink the way they verify the identities of new customers. The opening of fake accounts using stolen or made-up (aka synthetic) identities more than doubled in 2015, according to a Javelin Strategy & Research report. Crooks stole the identities of, or appropriated personal information from, 1.5 million consumers — up from 700,000 in 2014 — to create fraudulent checking, credit card, loan and other accounts. "I can tell you with 100% conviction that identity proofing is the biggest fraud problem out there," said Avivah Litan, a vice president at the research and advisory firm Gartner. "Fraud has become an identity problem." The U.S. migration to EMV chip cards is one factor, as it is forcing criminals who used to create counterfeit cards to change their MOs. "The impetus for identity thieves has increased generally because the chip card has created a situation where you can't mass produce counterfeit plastic with compromised data," said Richard Parry, principal at Parry Advisory. "That has got a lot of criminals thinking, if I can't manufacture one, why don't I get a real one?" Data that can be used to create synthetic identities or set up new accounts based on stolen identities is plentiful. According to the Javelin study, 7 million individuals last year reported having their Social Security numbers breached within the prior 12 months, 63% more than in 2014. Since Social Security numbers maintain their value for the entire life of the associated individual, these represent lasting vulnerabilities.

Could a National KYC Registry Be in the Cards?  Dimon's on Board | American Banker: Don't look now, but the concept of a national know-your-customer registry just got a little closer to reality thanks to the backing of perhaps the most well-known U.S. banking executive. JPMorgan Chase's Jamie Dimon this week openly embraced the idea of a shared database that banks could access to simplify the knotty chore of vetting customers or potential customers for anti-money-laundering and other risks. Banks could save an enormous amount of time and money by pooling their knowledge about consumers and businesses, Dimon said. "Obviously it's still our job to analyze the data, but why do you have to go through this process 10 times?" the JPMorgan chairman and chief executive said Thursday at a Sanford Bernstein conference in New York, according to a transcript. "So it would reduce our cost. It would reduce your cost. It would reduce error rates. So there are things like that that we are going to figure out to try to drive down the cost, which we need to do." Dimon's comments echoed long-held frustrations by bankers, who often have to invest substantial resources in authenticating (and re-authenticating) customer information, legal records and reams of other data. Customers themselves often get frustrated with having to repeatedly provide the same data at different banks they do business with. There have been several attempts to establish such registries; the industry-owned groups Swift and the Depository Trust & Clearing Corp. each have their own registries, and commercial companies like Thomson Reuters, Strevus and a joint venture between Markit and Genpact have created them as well. But there is yet to be a national registry that can be accessed by all U.S. banks.

Starbucks has more customer money on cards than many banks have in deposits -  Some people keep their money in banks. Some keep cash beneath a mattress. Now there’s another place that people are depositing their money: their Starbucks accounts. The Wall Street Journal recently reviewed data from S&P Global Market Intelligence to determine where people are stashing their money these days, including banks, entities like PayPal Holdings Inc. and other nonbanks. Starbucks, for one, had $1.2 billion loaded onto Starbucks cards and the Starbucks mobile app as of the first quarter of 2016, according to the data. This money can be used to purchase items including drinks, food and other merchandise. See also: This is what would happen if the America totally abandoned cash As of the second quarter of fiscal 2016, 41% of Starbucks transactions in the U.S. and Canada were conducted using a Starbucks card (24% of transactions at company-operated retail stores U.S. used the Starbucks mobile app), according to figures Starbucks provided to MarketWatch. The company had 12 million active loyalty members in the U.S. in the second quarter.

CFPB Takes Aim at Payday Loan Debt Traps: For two decades, the payday loan industry has preyed on low-income workers by offering short-term loans with sky-high interest rates and fees. Now the five-year-old Consumer Financial Protection Bureau is taking the first major steps to curb the sector’s predatory practices. Under the proposed regulations announced this week, payday lenders must ensure that a borrower can afford the loan and meet his or her major financial obligations and basic living expenses. The rules would also limit the number of times a lender may withdraw money from a borrower’s bank account without reauthorization after two unsuccessful attempts. The final rules are expected to take affect in late 2017. Typically, a borrower goes to a payday lender company and writes the lender a check for a specific sum of money—on average, Americans write payday loan checks for $375. The borrower then receives cash. The lender cashes the check or, on the individual’s next payday, withdraws the funds from the borrower’s bank account. Payday lenders do not require borrowers to offer proof of financial ability to repay a loan: To qualify, a borrower only needs to provide checking account details, valid identification, and pay stubs or other proof of employment. The proposed regulations would prohibit payday lenders from providing funds to borrowers who have not been prequalified for short-term high interest loans. The payday loan industry rakes in $7 billion in fees annually. According to the CFPB, the median fee for every $100 borrowed is $15. Interest rates are astronomical, averaging about 300 percent or higher. Coupled with the repeated attempts to withdraw funds from the borrower’s account, which lenders are permitted to do once the repayment period begins, repaying the loan can quickly become unmanageable.

CFPB Payday Rule Addresses the Problems, Not the Solution | Bank Think: Payday loans, as widely practiced, rarely end with the borrower simply paying the lender back. Instead, the product typically creates a downward spiral of debt, long past the receipt of the borrower's next paycheck. Therefore, the Consumer Financial Protection Bureau has taken an admirable step to eliminate many of the worst practices in the small-dollar credit market with the proposed rule it released last week. The agency's proposal protects borrowers from unaffordable loans, cycles of reborrowing, and exorbitant fees—all positive steps in reducing consumer harm. But if the final rule doesn't create a clear lane for good lenders to step in with a variety of new loan product designs, the CFPB risks leaving important consumer needs unfulfilled. Not everyone who can get a payday loan today should be getting credit, but the proposed rule may ultimately leave too many people behind. The needs that drive consumers toward payday lenders, after all, will remain. A Center for Financial Services Innovation study found that more than a third of all households say they frequently or occasionally run out of money before the end of the month. Further, more than four in 10 households struggle to keep up with their bills and credit payments. Optimally, the bureau's rulemaking – which is in response to the current state of payday lending – is a unique opportunity to point the way to what a better small-dollar lending market could look like in the future. What if the CFPB took a blank page and made room for some blue-sky thinking? The CFPB has significant authority to reimagine what high-quality small-dollar credit looks like, which it could promote in its final rule along with consumer protections. To get there, the CFPB could look at CFSI's compass guide to small-dollar credit, to help define lanes and pathways for well-intentioned providers.

Better Data Is Key to Bank Alternatives to Payday - Walk down your average street in this country, and you'll find it easier to take out a loan than buy a coffee. With 22,000 payday lending locations in the U.S., Starbucks would have to grow three times in size to compete. Since the 1990s, annual loan volume has bloated to an estimated $27 billion. That's a lot of coffee. Despite their growth, payday lenders are obviously controversial. Perceived as unfair and even predatory, payday lenders have been targeted by regulators, consumer advocates and lawmakers who object to their pricing, which leaves borrowers in a debt spiral. However, most payday lenders act legally. And the Consumer Financial Protection Bureau's small-dollar loan proposal may not be the solution.So what alternative to further regulation will make small-dollar lending safer while ensuring consumers can still get loans? My suggestion: Fintech firms and incumbents should collaborate on using alternative data sources to qualify more borrowers for bank-issued small-dollar loans. This collaboration would provide fair short-term loans to individuals, and would force payday lenders to become more competitive in their pricing.The average payday loan borrower is largely misunderstood.   It is too simple to describe payday borrowers as foolish for the financial choices they make.  Data from the Pew Charitable Trusts shows that payday loan borrowers are not necessarily chancers. They're responsible people who just fall outside credit structures. They're likely to be divorced, for example. But that shouldn't be a barrier to building good credit. They're also likely to come from ethnic minorities – again, not a barrier.

How a scorned industry of lenders plans to keep the 400 percent loan around - WaPo - When federal regulators last week took their first ever step to protect consumers who use payday lenders, many experts described the move as a fatal blow to the industry. The payday trade association said “thousands of lenders” would be forced to “shutter their doors.”But larger payday lenders have already concluded in recent days they will be able to withstand the regulatory onslaught — and keep alive the most controversial loan in the United States: one with an annualized interest rate of 390 percent or more.“It’s certainly our intention to survive,” said Patrick O’Shaughnessy, chief executive of Advance America, at a Springfield, Va., branch this week.The Consumer Financial Protection Bureau proposed tough new rules last week to end what it calls “payday debt traps” that embroil consumers in an escalating cycle of high-priced loans. The CFPB, which projects that the proposed rules could shrink payday loan volume by as much as two-thirds, attempts to limit the type of serial borrowing that accounts for most payday transactions and the bulk of the industry’s profits. It does not limit interest rates.Interviews with executives from several payday lenders provide a window into how one of the most scorned industries in the United States will try to contend with the regulatory attack. In the past, payday lenders have shown a chameleon-like ability to adapt under threat. In Ohio, for instance, a 2008 law placed a rigid cap on short-term loans; payday lenders entered into the “mortgage” business, offering similar loans under similar terms. Ultimately, payday lenders say they are almost certain to take legal action against the CFPB to block the proposed rules, which experts say are likely to resemble the final product. But even if they lose, some of the biggest firms are already eyeing ways to make up for what all sides agree would be a massive plunge in business, by shifting to longer-term loans with similarly high interest rates or by plucking away business from smaller competitors.

CFPB Sues Payment Processor Intercept for Unfair Practices | American Banker: The Consumer Financial Protection Bureau filed a lawsuit Monday against the payment processer Intercept Corp. and its two top executives for allegedly enabling clients to withdraw millions of dollars' worth of illegal charges from consumer bank accounts. The lawsuit, filed in the U.S. District Court for the District of North Dakota, alleges that Intercept's top two executives "knew or consciously avoided knowing" that many client transactions "were fraudulent or illegal." The CFPB said the Fargo, N.D., third-party payment firm processed electronic funds transfers on behalf of payday lenders in states where payday loans are illegal. Payment processors are required to monitor merchant return rates and other suspicious activity, the CFPB said. Craig Dresser, the CEO and co-owner of Intercept, and Bryan Smith, the president and co-owner, did not immediately return calls seeking comment. "Intercept and its executives Bryan Smith and Craig Dresser ignored clear signs of brazen fraud, including illegal withdrawals from consumer accounts, and need to clean up their act," CFPB Director Richard Cordray said in a statement. "Companies cannot turn a blind eye to wrongdoing when they process payments from consumer banking accounts on behalf of clients that are breaking the law." The CFPB alleges that Dresser and Smith ignored blatant warning signs of potential fraud including repeated consumer complaints and unusually high rates of returned payments for insufficient funds or unauthorized debits. High return rates may indicate that consumers did not consent to the payments or terms, the CFPB said.

CFPB Needs a Rule to Regulate Debt Collection -- Debt collectors are facing increasing pressure from the Consumer Financial Protection Bureau through aggressive regulation by enforcement. In the past few years, the CFPB has entered into consent orders with debt buyers, banks and other lenders. The orders limit debt sales, increase data requirements and forbid various collection practices. The CFPB's enforcement actions are positive developments toward eradicating problematic collection practices. Severely limiting debt sales and data loopholes are great moves. So is limiting the volume of phone calls to borrowers. But without the agency offering an alternative to these commonly used tools, preferably through rulemaking, debt collectors resort to the next "best" alternative they know of to settle a debt: lawsuits.. In the last few years, collection suit numbers have soared and the CFPB has responded by closing or fining what they call "lawsuit mills." Consumers will still end up losing by being subjected to aggressive yet absolutely legal tactics in the collection process. For collection agencies to have alternatives to "lawsuit mills," the CFPB must define acceptable collection practices. This should include what form of electronic communications can be used to contact borrowers. The rules should allow good actors to still operate within reasonable limits. Without such rules, leading debt collection companies likely will not change their operating playbooks if they worry that certain practices will subject them to enforcement. The upfront investment is huge for debt collectors to adopt new communications routes, such as texting and sending emails to consumers, so clearer guidelines are needed from the CFPB to sanction which kinds of communications are allowed.

"I'm Considering Filing Bankruptcy" - St. Louis Proves A Harbinger Of Things To Come For Subprime Auto Lending - "Subprime lending is a calculated risk - we know that some of the customers won't pay, we just don't know which at the time the loan is made. With higher default rates come higher expenses, and higher interest rates are necessitated to remain solvent." That's a quote made in a statement by Midwest Acceptance corporation, who specializes in high interest car loans for subprime borrowers in the St. Louis area. Stories like the one involving William Lesinski are becoming all too common in the St. Louis region. Lesinski's story begins with taking out a ridiculously high interest rate loan for a car to be given as a graduation present for his son, and ends with his wages being garnished - beyond the amount of the court judgement.Wanting to buy his son a car as a high school graduation gift, Lesinski put $1,750 down and drove off the lot in a 2003 Ford Mustang. The loan for the car was $11,367, and it carried 29 percent annual interest over nearly four years.His son would make the payments, but the loan was in Lesinski’s name. After paying the balance down to a little more than $10,000, his son, who had stopped making insurance payments, wrecked the car, Lesinski said. In 2011, after more than $4,000 in interest had accrued, Car Credit City’s in-house finance arm, General Credit Acceptance, sued Lesinski. Factoring in attorney fees, the court judgment came to more than $15,000. After Lesinski fell behind on a payment plan later that year, General Credit Acceptance began garnishing a portion of his check from a Fenton painting company. It hasn’t stopped since. As of Friday, the company has taken $22,600 of Lesinski’s wages. Because Missouri court judgments can carry the interest from the initial contract, little of that money has gone toward principal. Lesinski assumed the balance was near zero. In fact, he still owes almost $13,000.

Title Agents Press CFPB to Change Title Fee Disclosures: A bipartisan group of lawmakers is urging the Consumer Financial Protection Bureau to change how it calculates title insurance fees as part of the new integrated mortgage disclosures. Seventy-four members of Congress signed a letter to CFPB Director Richard Cordray arguing that consumers are receiving "incorrect" title insurance premium disclosures. At issue is how the Truth-in-Lending Act/Real Estate Settlement Procedures Act integrated disclosures, or TRID, defines title insurance fees. The rule does not allow for the calculation of what's known as the "simultaneous issue," the rate title insurance companies provide to consumers when they purchase a lender's and owner's title insurance policy at the same time. In many cases, the consumer receives a discount on such transactions, but would not see that reflected on the mortgage disclosure form. The CFPB's recent proposal asking for feedback on TRID "is a great opportunity to fix this issue and ensure that your new forms serve as a credible source of accurate information about the true costs of buying a home for consumers," the lawmakers said in the letter, which was signed by Reps. Dennis Ross, R-Fla., and Ed Perlmutter, D-Colo., among others. The letter is being pushed by the American Land Title Association, which says the CFPB's calculation is confusing. "We do not think that showing the consumer the actual number they will pay and putting a totally different number on the disclosure is accurate or fair to the homebuyer who already has questions about the transaction,”

Housing Groups Ask Watt to Give GSE Reform More Play: Fearing that housing finance reform has fallen off the congressional priority list, bank and housing trade groups sent a letter to Federal Housing Finance Agency Director Mel Watt on Wednesday to draw attention to the issue. "We believe that the current state of conservatorship has provided stability, but policymakers and stakeholders need to continue to work together on the important efforts to advance housing finance reform through a legislative solution," said the letter from the American Bankers Association, Mortgage Bankers Association, National Association of Home Builders, National Association of Realtors and the National Housing Conference. In a February speech, Watt warned that Fannie Mae and Freddie Mac were on an unsustainable path and called on Congress to once again pursue reform of the government-sponsored enterprises. The letter from the trade groups said they "strongly agree with the view" Watt expressed in that speech and offered to work with him to "ensure that consumer access and liquidity are at the forefront of this effort." In the speech, Watt also said a preferred stock arrangement between Fannie and Freddie and the Treasury Department as part of the terms of the 2008 bailout was making operations difficult and putting the two firms at risk of needing to draw from a line of credit.

 Black Knight: First Time Foreclosure Starts Lowest on Record - Black Knight Financial Services (BKFS) released their Mortgage Monitor report for April today. According to BKFS, 4.24% of mortgages were delinquent in April, down from 4.72% in April 2015. BKFS also reported that 1.17% of mortgages were in the foreclosure process, down from 1.63% a year ago. This gives a total of 5.41% delinquent or in foreclosure. Press Release: Black Knight’s April Mortgage Monitor: Cash Transactions Account for Over 60 Percent of Low-Priced Home Sales This month, Black Knight looked at the cash share of residential real estate transactions by core-based statistical areas (CBSAs), breaking each CBSA into five equal price tiers. While the data showed that overall cash sales are slowing, they still account for the bulk of transactions on homes in the lowest 20 percent of property values. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, there is significant disparity between high- and low-end markets nationwide in this regard. “As the inventory of distressed properties has dried up nationwide, the overall share of cash sales has been on the decline as well,” said Graboske. “From a peak of 45 percent of all real estate transactions back in Q1 2011, cash sales accounted for just 35 percent of home purchases in the first quarter of 2016. What’s striking though, is the disparity between the high and low ends of the market. At the national level, cash sales made up approximately 30 percent of transactions on properties in the top 20 percent by value of their respective markets. For those in the lowest 20 percent of property values, over 60 percent of sales were cash transactions. While down significantly from its peak of 75 percent of all transactions at the bottom of the housing market, this is still quite high for cash sales, historically. The prevalence of cash sales at the low end of the market can likely be chalked up to two primary factors. First, negative equity is still higher than average among this segment of the market, resulting in increased distressed discounts for buyers. Second, lower-priced homes simply require less capital to purchase outright, making cash sales possible for more people.”

Zillow: Negative Equity Rate declined in Q1 2016 -- From Zillow: Q1 2016 Negative Equity Report: Rust Belt Overtakes Sand States as Nation's Nest of Negative Equity The national negative equity rate – the share of all homeowners with a mortgage who are underwater, owing more on their mortgage than their home is worth – fell to 12.7 percent in the first quarter of 2016, according to the first quarter Zillow Negative Equity Report. The U.S. negative equity rate is down from 13.1 percent in Q4 2015 and 15.4 percent a year ago, and has fallen or stayed flat from the prior quarter for 16 straight quarters after peaking at 31.4 percent in Q1 2012 (figure 1). The following graph from Zillow shows a time series for negative equity. From Zillow:  The steady decline in negative equity nationwide has been driven by a consistent recovery in home values over the past several years. But while home values have risen to some extent in a large majority of U.S. markets, some markets have recovered much more quickly than others, and the concentration of negative equity nationwide has shifted from the Southwest and Southeast to the Midwest.

CoreLogic: "268,000 US Homeowners Regained Equity in the First Quarter of 2016" -- From CoreLogic: CoreLogic Reports 268,000 US Homeowners Regained Equity in the First Quarter of 2016 CoreLogic ... today released a new analysis showing 268,000 homeowners regained equity in Q1 2016, bringing the total number of mortgaged residential properties with equity at the end of Q1 2016 to approximately 46.7 million, or 92 percent of all mortgaged properties. Nationwide, home equity increased year over year by $762 billion in Q1 2016. The total number of mortgaged residential properties with negative equity stood at 4 million, or 8 percent of all homes with a mortgage, in Q1 2016. This is a decrease of 6.2 percent quarter over quarter from 4.3 million homes, or 8.5 percent, in Q4 2015 and a decrease of 21.5 percent year over year from 5.1 million homes, or 10.3 percent, compared with Q1 2015. ... For the homes in negative equity status, the national aggregate value of negative equity was $299.5 billion at the end of Q1 2016, falling approximately $11.8 billion, or 3.8 percent, from $311.3 billion in Q4 2015. On a year-over-year basis, the value of negative equity declined overall from $340 billion in Q1 2015, representing a decrease of 11.8 percent in 12 months....“In just the last four years, equity for homeowners with a mortgage has nearly doubled to $6.9 trillion,” said Frank Nothaft, chief economist for CoreLogic. “The rapid increase in home equity reflects the improvement in home prices, dwindling distressed borrowers and increased principal repayment. These are all positive factors that will provide support to both household balance sheets and the overall economy.” Nevada had the highest percentage of homes in negative equity at 17.5 percent, followed by Florida (15 percent), Illinois (14.4 percent), Rhode Island (13.3 percent) and Maryland (12.9 percent). Combined, these top five states account for 30.2 percent of negative equity in the U.S., but only 16.5 percent of outstanding mortgages.

Wells Fargo launches 3% down payment mortgage: First-time buyers and low- to moderate-income buyers have largely been sidelined by today's housing recovery. The common cry is too-tight credit. Lenders have kept the credit box restrictive because they are gun-shy from the billions of dollars in buy backs and judicial settlements stemming from the mortgage crisis that they still face today. Now, the nation's largest lender, Wells Fargo, says it is opening that box with a new low down payment loan — a loan it claims is low-risk to the bank. "We are fully underwriting the borrowers, we are partnering with Fannie Mae to originate and sell these loans, we are ensuring the borrowers have an ability to repay and that they're qualified for home ownership, but we're simplifying things for the homebuyer," said Brad Blackwell, executive vice president and portfolio business manager at Wells Fargo.Branded "yourFirstMortgage," Wells Fargo's new product has a minimum down payment of 3 percent for a fixed-rate conventional mortgage of up to $417,000. Down payment help can come from gifts and community-assistance programs. Customers are not required to complete a homebuyer education course, but if they do, they may earn a 1/8 percent interest rate reduction. The minimum FICO score for these loans, which are underwritten according to Fannie Mae standards, is 620. Mortgage insurance can either be rolled in to the cost of the loan or purchased separately by the borrower. Blackwell said either way, the monthly payment is less than a government-insured FHA loan. More importantly, it's simpler than other 3 percent down payment products already in the market, some of which have specific income and counseling requirements.

MBA: "Mortgage Applications Increase in Latest MBA Weekly Survey" - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 3, 2016. This week’s results include an adjustment to account for the Memorial Day holiday. . .The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 12 percent from one week earlier. The unadjusted Purchase Index decreased 12 percent compared with the previous week and was 6 percent lower 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 3.83 percent from 3.85 percent, with points decreasing to 0.33 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity was higher in 2015 than in 2014, but it was still the third lowest year since 2000. Refinance activity increased a little this year when rates declined. The second graph shows the MBA mortgage purchase index.

Mortgage Rates and Ten Year Yield --With the ten year yield falling to 1.65%, there has been some discussion about whether mortgage rates will decline to new lows. Based on an historical relationship, 30-year rates should currently be around 3.55%.  As of yesterday, Mortgage News Daily reported: Mortgage Rates Even Closer to All-Time Lows If rates are able to move any lower from here, that will put them in line with all-time lows. That would connote an average conventional 30yr fixed rate of 3.375%, which isn't too far away considering more than a few lenders are quoting 3.5% on top tier scenarios today. 3.625% remains slightly more prevalent. The graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.  Currently the 10 year Treasury yield is at 1.65% and 30 year mortgage rates were at 3.60% according to the Freddie Mac survey last week.  The Freddie Mac survey will  probably show lower rates this week. To reach new lows (on the Freddie Mac survey), mortgage rates would have to fall below the 3.35% lows reached in 2012.  For that to happen, based on the historical relationship, the Ten Year yield would have to fall to around 1.5%. So I don't expect new lows on mortgage rates unless the Ten Year yield falls further - but rates are getting close.

CoreLogic: House Prices up 6.2% Year-over-year in April -- The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA). From CoreLogic: CoreLogic US Home Price Report Shows Prices Up 6.2 Percent Year Over Year in April 2016 Home prices nationwide, including distressed sales, increased year over year by 6.2 percent in April 2016 compared with April 2015 and increased month over month by 1.8 percent in April 2016 compared with March 2016, according to the CoreLogic HPI....“Low mortgage rates and a lean for-sale inventory have resulted in solid home-price growth in most markets,” said Dr. Frank Nothaft, chief economist for CoreLogic. “An expected gradual rise in interest rates and more homes offered for sale are expected to moderate appreciation in the coming year.”  This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.8% in March (NSA), and is up 6.2% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase. The index is still 7.9% below the bubble peak in nominal terms (not inflation adjusted). The second graph shows the YoY change in nominal terms (not adjusted for inflation). The YoY increase had been moving sideways over the last year. The year-over-year comparison has been positive for fifty one consecutive months.

April 2016 CoreLogic Home Prices Year-over-Year Growth Rate Now 6.2%.: CoreLogic's Home Price Index (HPI) shows that home prices in the USA are up 6.2 % year-over-year year-over-year (reported up 1.8 % month-over-month). Last month's 6.7 % year-over-year gain was revised downward to 5.5 % [revisions to previous months lately have been significantly downward so I would not take the 6.2 % to the bank]. CoreLogic HPI is used in the Federal Reserves's Flow of Funds to calculate the values of residential real estate. This month Corelogic reindexed - and lowered the HPI values significantly - however, there was little change to the trendlines. Dr Frank Nothaft, chief economist for CoreLogic stated: Low mortgage rates and a lean for-sale inventory have resulted in solid home-price growth in most markets. An expected gradual rise in interest rates and more homes offered for sale are expected to moderate appreciation in the coming year.  Anand Nallathambi, president and CEO of CoreLogic stated:  The appreciation in home prices over the past year reflects the gathering pace of the recovery in housing in most states and regions in the U.S.. The rate recovery does vary somewhat based on local conditions. Price increases in a significant number of states in the Northeast and Mid-Atlantic regions lagged the national average with Connecticut, Maryland, Pennsylvania, West Virginia, New Jersey and Vermont registering gains of 1 percent or less over the past year.

The Overinflated Fear of Being Priced Out of Housing -- Robert Shiller -- Rising home prices set off fears that real estate will become even more expensive, making it impossible ever to buy a home in a given city. It’s easy to understand how such worries spread, but the historical record suggests that these fears are generally exaggerated. ... There is another wrinkle, however. Demand lately has tilted toward homes in central cities, where land is scarce, rather than in more spacious distant suburbs. This creates imbalances. ... While living space is constrained in the heart of large, high-priced cities like New York, builders elsewhere have usually been able to accommodate people’s demands for cheap large homes roughly where they want them.  Given these facts, why do people still worry that home prices are getting out of reach? The answer can’t be found in the housing data. Instead, these fears may reflect anxieties about other issues — like income inequality, globalization and the threat of job losses because of robots and artificial intelligence. In prosperous cities, rising prices may connote economic exclusion.After all, American society is increasingly divided according to educational attainment and income. In some circles, rarefied home prices may set off worries about being unable to live in choice locations shared with successful people. Home prices may, unfortunately, be viewed as a measurement of success in life rather than merely of floor space, and fear of being priced out of housing may well be rooted in deeper broodings about maintaining a position in the social hierarchy

Merrill Lynch: Some Signs of Slowing at Housing High End  --A brief except from a research piece by Michelle Meyer at Merrill Lynch: The ding of the trolley [R]ecent data smells of a slowdown in San Francisco. ... [D]ata suggest inventory remains limited [in San Francisco] so it is not a story of excess supply, but perhaps one of weakening demand given stretched affordability....Despites weak signals, it is much too early to call the peak in the San Francisco housing market. We have seen these types of wiggles before in the data and this could just be a bump along the way. That said, we think it is prudent to keep a close eye on the upcoming data in the region. ... the trajectory in the housing market in San Francisco could give early indications of trends in other high-end metro areas, which have also shown some signs of weakening at the very high end.  CR note: Prices have increased sharply in many coastal communities along the West Coast. As Meyer notes, inventory is still limited, so this is probably softening demand (perhaps "stretched affordability"). If it is stretched affordability, prices will probably just flatten out. However if inventory starts to increase significantly, we could see some mild price declines (I don't expect this).

It’s Not Just Millennials Who Aren't Buying Homes - Atlanta Fed's macroblog - In recent years, much attention has been focused on the growing tendency of millennials to rent. Theories for the decrease in homeownership among young adults abound. They include rising student debt levels that crowd out additional borrowing, a tendency to live in more urban areas where the cost to buy is relatively high, a generally tougher credit environment, and even shifts in the perception of homeownership in the wake of the housing bust. The ideas have been widely debated, and yet no single factor seems to neatly explain the declining share of the millennial population opting to buy a house. (See this webcast by the Atlanta Fed's Center for Real Estate Analytics for a discussion of these issues.) To the extent that these factors are true, they may be affecting the decisions of other generations as well. Chart 1 below shows the overall average homeownership rate and homeownership rates by age group from 1982 to 2015. It's clear that homeownership rates have declined for everyone during the past 10 years, not just for millennials.  In fact, homeownership among young Generation Xers has fallen by a bit more than the millennial generation since the housing peak—declining 11 percentage points since 2005 compared with a decline of 9 percentage points for those under 35 years old. Another interesting point of comparison is the mid-1980s to mid-1990s, a period in which the United States had a relatively stable share of owner-occupied housing of around 64.0 percent. During the subsequent housing boom, the homeownership rate climbed to a peak of 69 percent in 2004, only to fall back down to 63.7 percent in 2015, a level similar to that prevailing before 1995. However, each age group under age 65 has a somewhat lower homeownership rate than their same-aged peers had during the 1986–94 period.

Update: Framing Lumber Prices Up Year-over-year --Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs.  The price increases in early 2013 were due to a surge in demand (more housing starts) and supply constraints (framing lumber suppliers were working to bring more capacity online).  Prices didn't increase as much early in 2014 (more supply, smaller "surge" in demand). In 2015, even with the pickup in U.S. housing starts, prices were down year-over-year.  Note: Multifamily starts do not use as much lumber as single family starts, and there was a surge in multi-family starts.  This decline in 2015 was also probably related to weakness in China. Prices are now up year-over-year. This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through May 2016 (via NAHB), and 2) CME framing futures. Right now Random Lengths prices are up about 15% from a year ago, and CME futures are up about 20% year-over-year.

Leading Index for Commercial Real Estate shows gain in May --Note: This index is a leading indicator for new non-residential Commercial Real Estate (CRE) investment, except manufacturing. From Dodge Data & Analytics: Dodge Momentum Index Moves Higher in May The Dodge Momentum Index rose 2.4% in May to 119.4 from its revised April reading of 116.6 (2000=100). The Momentum Index is a monthly measure of the first (or initial) report for nonresidential building projects in planning, which have been shown to lead construction spending for nonresidential buildings by a full year. The increase for the Index in May was due to a 6.5% gain for projects entering planning in the commercial sector, which more than offset a 3.4% decline for such projects in the institutional sector. May’s increase places the overall Index 3.6% higher than its year-ago level, suggesting further growth in construction activity in 2016 despite the subdued first quarter GDP report and signs that lending standards are beginning to tighten for commercial projects. The commercial portion of the Index rose in May for the second consecutive month and is at its highest level since September 2015. This recent improvement for commercial projects provides some evidence that construction plans are moving forward after the severe drop-off in planning that occurred with the financial market instability in late 2015. At the same time, institutional planning is 1.3% lower than it was in May 2015, settling back for now from the heightened activity reported in late 2015 and early 2016.

Why Are Fewer People Getting Married? -June kicks off the U.S. wedding season. Whether you love nuptials or hate them, an astounding trend is occuring: fewer couples are tying the knot. The number of U.S. marriage ceremonies peaked in the early 1980s, when almost 2.5 million marriages were recorded each year. Since then, however, the total number of people getting married has fallen steadily. Now only about two million marriages happen a year, a drop of almost half a million from their peak. As a result, barely more than half of adults in the U.S. say they’re living with a spouse. It is the lowest share on record, and down from 70 percent in 1967.  What’s behind this trend? Is marriage becoming obsolete? Why should we care? The drop in marriages is even more dramatic when the rapid growth in the U.S. population is taken into account. In fact, the marriage rate is the lowest in at least 150 years.The figure below shows the number of marriages per 1,000 people for the last century and a half. It does not matter if it is a person’s first, second or even third marriage. The rate simply tracks the number of weddings that occurred adjusted by the population. The range of culprits is quite large.  Some blame widening U.S. income and wealth inequality. Others point the finger at the fall in religious adherence or cite the increase in education and income of women, making women choosier about whom to marry. Still others focus on rising student debt and rising housing costs, forcing people to put off marriage. Finally some believe marriage is simply an old, outdated tradition that is no longer necessary. But given that this is a trend happening across the globe in a wide variety of countries with very different income, religious adherence, education and social factors, it’s hard to pin the blame on just a single culprit.

Fed's Flow of Funds: Household Net Worth increased in Q1 - The Federal Reserve released the Q1 2016 Flow of Funds report today: Flow of Funds. According to the Fed, household net worth increased in Q1 compared to Q4: The net worth of households and nonprofits rose to $88.1 trillion during the first quarter of 2016. The value of directly and indirectly held corporate equities decreased $160 billion and the value of real estate rose $498 billion.  Household net worth was at $88.1 trillion in Q1 2016, up from $87.2 trillion in Q4 2015.   The Fed estimated that the value of household real estate increased to $22.5 trillion in Q1. The value of household real estate is back to the bubble peak in early 2006 (not adjusted for inflation, and not including new construction).The first graph shows Households and Nonprofit net worth as a percent of GDP. Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q1 2016, household percent equity (of household real estate) was at 57.8% - up from Q4, and the highest since Q1 2006. This was because of an increase in house prices in Q1 (the Fed uses CoreLogic). Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 57.8% equity - and several million still have negative equity.

Americans' Total Wealth Hits Record, Federal Reserve Report Says - The wealth of Americans reached a record of $88.1 trillion in the first quarter, with rising home values offsetting stock-market wobbles at the start of the year. The boost to wealth was driven by a $498 billion increase in residential real-estate values around the U.S., while the overall value of equities declined by $160 billion, according to a Federal Reserve report released Thursday. The figures aren't adjusted for inflation, but with inflation generally low in recent years, wealth has rapidly outpaced inflation. The Fed report, known as the "Flow of Funds," tracks the aggregate balance sheet of U.S. households, to show how the components of wealth shift over time. It provides no breakdown of the distribution of these assets among households or different demographic groups. Many assets such as stocks and bonds are disproportionately held by the wealthiest U.S. households. Homes, however, are owned broadly by middle-income households. The U.S. homeownership rate is 63.7%, so an increase in home prices is likely benefiting many middle-class households. One key difference between the increase in asset values today versus a decade ago is that Americans aren't taking on as much debt. Total liabilities rose only $17 billion in the first quarter, and remain lower than their level during the financial crisis. In recent years, mortgage balances have grown slowly, while home prices have increased steadily. The total home equity that Americans have in their real estate has almost recovered to its level at the housing bubble's peak. The total value of homeowner real estate surpassed $13 trillion in the latest report.

Mortgage Equity Withdrawal Slightly Negative in Q1 - The following data is calculated from the Fed's Flow of Funds data (released today) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures). For Q1 2016, the Net Equity Extraction was a negative $30 billion, or a negative 0.9% of Disposable Personal Income (DPI) .  MEW for Q2 and Q3 in 2015 was slightly positive - the first positive MEW since Q1 2008 - and MEW will probably be positive in Q2 and Q3 again this year too (there is a seasonal pattern for MEW).This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method. Note: This data is still heavily impacted by debt cancellation and foreclosures.The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $17 billion in Q1.  The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, MEW will likely turn positive.

April 2016 Consumer Credit Annual Rate of Growth At The Lowest Level Since March 2014.: The headlines say consumer credit rate of annual growth declined from last month - and came in well below market expectations The annual rate of growth of unadjusted consumer credit is the lowest since March 2014, and remains well above income growth (and economic growth in general). The headline said: In April, consumer credit increased at a seasonally adjusted annual rate of 4-1/2 percent. Revolving credit increased at an annual rate of 2 percent, while nonrevolving credit increased at an annual rate of 5-1/2 percent. Overall takeaways from this month's data:

  • There were significant backward revisions. The published data values for consumer credit growth last month was 6.7 % (unadjusted) and 6.5 % (seasonally adjusted) Vs. the current revised values of 6.6 % (unadjusted) and 9.6 % (seasonally adjusted).
  • Student loan year-over-year growth rate has been decelerating gradually since the beginning of 2013.
  • Student loans growth rate was unchanged month-over-month and year-over-year growth is 11.2 % year-over-year.
  • Revolving credit (credit cards and this series includes no student loans) and has been slightly accelerating since 2010..

The market expected (from Bloomberg) consumer credit to expand $14.0 to $20.6 billion (consensus = $18.0 billion) versus the seasonally adjusted headline expansion of $13.4 billion reported. Note that this consumer credit data series does not include mortgages. The Econintersect analysis is different than the Fed's:

  • an effort is made to segregate student loans from consumer credit to see the underlying dynamics;
  • this analysis expresses growth as year-over-year change, not one month's change being projected as an annual change - which creates significant volatility and distortion.
  • where our analysis expresses the change as month-over-month, month-over-month change is determined by subtracting the previous month's year-over-year improvement from the current month's year-over-year improvement.
  • The commonality between the Fed and Econintersect analysis is that consumer credit is expanding whether one considers student loans or not.

Credit card debt could hit $1 trillion by the end of 2016 - With the economy improving and driving up consumer confidence, many people are spending more but shirking basic responsibilities like paying their credit card bills. If things continue at this rate, U.S. households will accumulate $1 trillion in outstanding debt by the end of 2016, the most ever, according to a study by credit card search and comparison website, CardHub. But some experts say it isn’t yet a worrisome trend.   Over the first quarter of 2016, consumers only paid $26.8 billion in credit card debt, which is 38% of the $71 billion added during 2015. This is also the smallest first-quarter debt reduction since 2008 and is nearly 25% below the post-recession average, CardHub said in its report.Things are going right for the economy, and wrong for the consumer, said Jill Gonzalez, an analyst with personal finance website — and CardHub’s sister company — WalletHub. The increase in consumer confidence is leading to higher spending, she added. For the second quarter of 2016, the amount of debt paid by consumers could be $30 billion, Gonzalez said.  Consumer spending accounts for more than two-thirds of U.S. economic output, and economists say that credit-card spending in particular shows that people are feeling more confident about their job security and the economic recovery. However, some experts believe that this is not anything to be alarmed by. Problems arise when consumers aren't able to pay off their cards in full when, for example, they lose their job or there’s a sudden downturn in the U.S. economy. Some 35% of American households carry forward their credit card debt month to month, However, he added that credit card debt is still not as high as the $1.3 trillion in student debt.

U.S. Consumer Spending Remains Healthy in May:  -- Americans' daily self-reports of spending averaged $93 in May, similar to the average $95 in April as well as in May 2015 ($91). The latest number indicates consumer spending remained elevated after an uptick in April, but did not increase further. The May results reflect two larger trends in Gallup tracking of consumer spending habits: generally higher spending in the spring months than in the winter months, and higher spending in recent years than from 2009 through early 2012. During that earlier period, as the U.S. suffered through recession and high unemployment, average daily reports of spending consistently held below $80. In late 2012, consumer activity began to pick up and continued to do so into 2013. Since May 2013, average spending has been $90. Gallup asks Americans each night as part of Gallup Daily tracking to report how much they spent or charged "yesterday," excluding normal household bills and major purchases such as a home or vehicle. The estimate gives a sense of Americans' discretionary spending. The surge in Gallup's daily spending reports in April was confirmed by a subsequent Department of Commerce report finding an unusually large spike in retail spending in April. That increase came after sluggish spending in the first quarter, resulting in weak economic growth. Gallup's latest spending estimate suggests there was not a major falloff in spending in May. Spending changes between April and May have not followed a consistent pattern in Gallup's trend. In most years, the two figures are similar, but there have been two instances, in 2008 and 2014, of increases in May. Those surges came after relatively weak April estimates, suggesting the usual spring increase may have been delayed in those years. The May 2008 spike was also likely primed by government rebate checks sent to all Americans, beginning in late April, as part of the economic stimulus plan.

Gallup US Consumer Spending Measure June 6, 2016: In May, Americans' daily self-reports of spending averaged $93, similar to the average $95 in April as well as in May 2015 ($91). The latest number indicates consumer spending remained elevated after an uptick in April but did not increase further. The May results reflect two larger trends: generally higher spending in the spring months than in the winter months, and higher spending in recent years than from 2009 through early 2012. During that earlier period, as the U.S. suffered through recession and high unemployment, average daily reports of spending consistently held below $80. In late 2012, consumer activity began to pick up and continued to do so into 2013. Since May 2013, average spending has been $90. Gallup has yet to see an increase in average spending from May to June in any of the prior eight years that it has tracked consumer spending. Thus, if history is a guide, one would expect June spending this year to be at or below May's level.

U.S. Economic Confidence Index Flat in May, at -14: -- Americans' confidence in the U.S. economy was flat in May. Gallup's U.S. Economic Confidence Index averaged -14 -- the same as in April, which was a seven-month low. The latest index score was quite a bit lower than the -7 registered one year earlier, in May 2015. This year's monthly scores have consistently been lower than the comparable months in 2015, and Americans' views of the national economy have consistently skewed negative since March 2015. Still, monthly index scores from the past couple of years have been well above most of the readings in Gallup's eight-year trend, particularly the dismally low ones recorded in the years after the Great Recession. Examining the index on a weekly basis, however, reveals that confidence has recently improved somewhat. The past two weeks have both registered at -12, a minor improvement from the -14 to -16 weekly readings from mid-April to mid-May. Gallup's U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans say the economy is doing poorly and getting worse.

Consumer Comfort in U.S. Climbs to Highest Since Early April - Household confidence increased for a second week, reaching the highest level since early April as Americans felt better about the economy and the buying climate, according to the weekly Bloomberg Consumer Comfort Index released Thursday. Key Points:

  • Consumer comfort gauge rose to 43.5 in the period ended June 5 from 43.2 the prior week
  • Measure of views on the economy climbed to a six-week high of 32.9 from 32.2
  • Index of personal finances was little changed at 57.4, a more than two-month high, from 57.3 
  • Gauge of the buying climate, showing whether this is a good time to purchase goods and services, advanced to 40.3, the strongest reading since week ended Feb. 21, from 40.1

Preliminary June 2016 Michigan Consumer Sentiment Better Than Expected: The University of Michigan Final Consumer Sentiment for May came in at 94.3, a 0.4 point decrease from the 94.7 May Final reading. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumers were a bit less optimistic in early June due to increased concerns about future economic prospects. The recent data magnified the growing gap between the most favorable assessments of Current Economic Conditions since July 2005, and renewed downward drift of the Expectations Index, which fell by a rather modest 8.6% from the January 2015 peak. The strength recorded in early June was in personal finances, and the weaknesses were in expectations for continued growth in the national economy. Consumers rated their current financial situation at the best levels since the 2007 cyclical peak largely due to wage gains. Prospects for gains in inflation-adjusted incomes in the year ahead were also the most favorable since the 2007 peak, enabled by record low inflation expectations. On the negative side of the ledger, consumers do not think the economy is as strong as it was last year nor do they anticipate the economy will enjoy the same financial health in the year ahead as they anticipated a year ago. A sustained reduction in the pace of job creation could prompt consumers to hold down spending to increase their precautionary savings. Overall, the data still indicate that real consumer expenditures can be expected to rise by 2.5% in 2016 and 2.7% in 2017. See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Hotels: Occupancy Rate Tracking just behind Record Year --On occupancy from STR: US hotel results for week ending 4 June The U.S. hotel industry reported mostly negative year-over-year results in the three key performance metrics during the week of 29 May through 4 June 2016, according to data from STR. Affected significantly by a Memorial Day calendar shift, the industry’s occupancy decreased 6.8% to 64.6%. Average daily rate was flat at US$118.45. Revenue per available room dropped 6.8% to US$76.56. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. 2015 was the best year on record for hotels.  So far 2016 is tracking just behind 2015, and well ahead of the median rate.  The occupancy rate should increase over the Summer travel period.

America Is Hitting the Road Again - The great American road trip is back.It’s partly that gasoline this driving season is cheaper than it has been in 11 years, according to the AAA motor club, and that the reviving economy is making people more willing to part with their money. But there is more than that at play here. This may be a cultural shift, as Americans experiment with the notion that maybe money can, in fact, buy happiness, at least in the form of adventures and memories. It is a change that appears to have taken root in the years since the 2008 financial crisis.  “There’s a sense that you can take away my job, you can take away my home, but you can’t take away my memory.”  Whatever their motivation, Americans last year drove a record 3.15 trillion miles, according to the Department of Transportation, beating the previous mark, set in 2007. So far this year, both travel and gasoline consumption are up again.  The desire to get behind the wheel still comes as something of a surprise. The conventional wisdom was that driving mileage had probably peaked in 2007. The demographic bulge represented by the baby boomers is aging out of the driving years; people typically drive less as they hit retirement. At the same time, millennials were not sharing the passion for the open road that previous generations of young adults had. Many, in fact, preferred to live in the nation’s downtowns, eschewing personal cars in favor of shared Ubers, or walking to their work and play. But it turns out that both generations are driving more than anyone expected. “A lot of millennial behavior was really deferred assimilation,”   In other words, just like Mom and Dad, they were destined for a more traditional lifestyle — the marriage, the home, the garage — they just took a little longer to get there.

New trends taking shape for cargo theft - Cargo theft is a $15 billion to $30 billion a year problem according to the Federal Bureau of Investigation, and still on the rise. If you want to know why, take a look at the recent spate of nut thefts in California and new theft hot spots like the city of Dallas, TX.  The first highlights the greater focus cargo thieves are placing on food and beverage freight shipments, the second recognition by thieves that regional development can create ideal targets and conditions for stealing freight. “Why target food and beverage?” asks Scott Cornell, transportation business leader and crime/theft specialist for Travelers Insurance. “Because there are no serial numbers on pistachios, for example.  There is no RFID tag attached to them or hidden in their packaging.” “There’s no tracing of almonds over the internet. There’s often not a high enough ‘trigger point’ in terms of value to meet some companies’ requirements for heightened security protocols,” Cornell added. “Also, the ‘evidence’ gets consumed and fairly quickly at that. You can find TVs and computers – they last for a long time. With food and beverage, though, there is a much shorter window for recovery.” The second deals with the “regionalization” of cargo theft activity as certain areas of the country can present more “ideal” targets and conditions for stealing freight, .“Holistically, [the city of] Dallas has become a huge distribution hub for Texas; there’s a lot of short haul freight being pooled in that area now. It has become a big ‘pick and hold’ area for freight shipments,” he explained to Fleet Owner

Total U.S. weekly rail traffic down 17.3% for week ending June 4 - For the week ending June 4, 2016, AAR reports total U.S. weekly rail traffic was 455,346 carloads and intermodal units, down 17.3% compared with the same week last year. The Association of American Railroads (AAR)  further reports total carloads for the week ending Jun. 4 were 224,258 carloads, down 16.6% compared with the same week in 2015, while U.S. weekly intermodal volume was 231,088 containers and trailers, down 17.9% compared to 2015. Two of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were grain, up 2.3% to 18,628 carloads; and miscellaneous carloads, up 0.5% to 9,008 carloads. Commodity groups that posted decreases compared with the same week in 2015 included petroleum and petroleum products, down 29.1% to 9,706 carloads; coal, down 23.0% to 68,008 carloads; and motor vehicles and parts, down 20.9% to 15,411 carloads. For the first 22 weeks of 2016, U.S. railroads reported cumulative volume of 5,274,449 carloads, down 13.7% from the same point last year; and 5,648,851 intermodal units, down 2.1% from last year. Total combined U.S. traffic for the first 22 weeks of 2016 was 10,923,300 carloads and intermodal units, a decrease of 8.1% compared to last year. North American rail volume for the week ending Jun. 4, 2016, on 13 reporting U.S., Canadian and Mexican railroads totaled 307,051 carloads, down 14.8% compared with the same week last year, and 300,037 intermodal units, down 15.8% compared with last year. Total combined weekly rail traffic in North America was 607,088 carloads and intermodal units, down 15.3%. North American rail volume for the first 22 weeks of 2016 was 14,327,661 carloads and intermodal units, down 7.7% compared with 2015.

Rail Week Ending 04 June 2016: Rail Contraction Accelerates: Week 22 of 2016 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The improvement seen last week evaporated, and was likely due to the a holiday falling into different weeks between years. The deceleration in the rail rolling averages began over one year ago, and now rail movements are being compared against weaker 2015 data.A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 455,346 carloads and intermodal units, down 17.3 percent compared with the same week last year. Total carloads for the week ending Jun. 4 were 224,258 carloads, down 16.6 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 231,088 containers and trailers, down 17.9 percent compared to 2015. Two of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were grain, up 2.3 percent to 18,628 carloads; and miscellaneous carloads, up 0.5 percent to 9,008 carloads. Commodity groups that posted decreases compared with the same week in 2015 included petroleum and petroleum products, down 29.1 percent to 9,706 carloads; coal, down 23 percent to 68,008 carloads; and motor vehicles and parts, down 20.9 percent to 15,411 carloads.​ For the first 22 weeks of 2016, U.S. railroads reported cumulative volume of 5,274,449 carloads, down 13.7 percent from the same point last year; and 5,648,851 intermodal units, down 2.1 percent from last year. Total combined U.S. traffic for the first 22 weeks of 2016 was 10,923,300 carloads and intermodal units, a decrease of 8.1 percent compared to last year.

Wholesale Trade June 9, 2016: Wholesales inventories rose a very sharp 0.6 percent in April in a result that will lift early estimates for second-quarter GDP. And the build (risking a double negative) is not unwanted as sales in the wholesale sector rose a very strong 1.0 percent. The mix actually points to a leaner level of inventories with the stock-to-sales ratio down to 1.35 from 1.36. Sales of autos were especially strong in the wholesale sector during April, up 1.6 percent and making for a 0.4 percent decline in inventories in a draw that will, based on solid unit sales data for May, have to be replenished. This report, like jobless claims earlier today, is a surprise on the upside, contrasting with what has been a recent downside run of economic data.

Wholesale inventories rise 0.6% in April versus 0.1% rise expected: U.S. wholesale inventories recorded their largest increase in 10 months in April as stocks of machinery and farm products rose, suggesting inventories could be a boost to economic growth in the second quarter. The Commerce Department said on Thursday that wholesale inventories increased 0.6 percent. Inventories for March were revised up to show a 0.2 percent gain instead of the previously reported 0.1 percent rise. Economists polled by Reuters had forecast wholesale inventories nudging up 0.1 percent in April. Sales at wholesalers jumped 1.0 percent in April after advancing 0.6 percent in March. With sales increasing solidly for a second straight month, it would take wholesalers 1.35 months to clear shelves, down from 1.36 months in March. Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP - wholesale stocks excluding autos - increased 0.8 percent in April. Inventories have been a drag on GDP growth since the third quarter of 2015. Businesses accumulated record inventory in the first half of 2015, which outstripped demand. Though the pace of accumulation slowed, inventories remained high in the second half of 2015 and the first quarter of 2016.

April 2016 Wholesale Sales Improves? Inventory Growth Above Expectations.: The headlines say wholesale sales were up month-over-month with inventory levels remaining at levels associated with recessions. Our analysis shows an improving trend of the 3 month averages but we see deceleration with this month's data. Note that Econintersect analysis is based on the change from one year ago:

  • unadjusted sales rate of growth decelerated 5.9 % month-over-month.
  • unadjusted sales year-over-year growth is down 5.3 % year-over-year
  • unadjusted sales (but inflation adjusted) down 4.9 % year-over-year
  • the 3 month rolling average of unadjusted sales accelerated 0.6 % month-over-month, and down 1,3 % year-over-year.
  • unadjusted inventories up 0.9 % year-over-year (up 0.6 % month-over-month), inventory-to-sales ratio is 1.37 which is historically is at recessionary levels.

US Census Headlines based on seasonally adjusted data:

  • sales up 1.0 % month-over-month, down 2.6 % (last month was reported down 0.2 %) year-over-year
  • inventories up 0.6 % month-over-month, inventory-to-sales ratios were 1.31 one year ago - and are now 1.35.
  • the market (from Bloomberg) expected inventory month-over-month change between -0.1 % to 0.3 % (consensus +0.1 %) versus the +0.6 % reported.

Wholesale Inventories Rise Most In 10 Months, Sales Miss; Ratio Only Higher Post-Lehman -- Wholesale inventories rose more than expected in April (up 0.6% MoM vs 0.1% exp) - the biggest monthly jump in 10 months - but sales disappointed (rising only 1.0% versus a 1.1% expectation). This sales growth topping inventory growth is a positive but for context the inventory-to-sales ratio remains at 1.35x - the highest level ex-Lehman on record. They just keep building inventories... even as sales remain lower YoY... The absolute "wholesale trade gap" did drop modestly... While inventory-to-sales ratio did drop modestly, we remind 'investors' that the only time it was higher than this was in the immediate aftermath of Lehman...

US trade deficit widened in April net exports likely to boost overall economic growth in Q2 --US trade deficit widened in April net exports likely to boost overall economic growth in Q2 - EconoTimes: The US recorded a trade deficit of USD 37.4 billion in April, widened from March’s downwardly revised deficit of USD 35.5 billion. Consensus projection was for a deficit of USD 41 billion. US exports grew 1.5% m/m in nominal terms, whereas imports grew 2.1% m/m. Exports, in terms of volume, were up 2% in sequential terms; however, it declined 1.6% y/y. Growth in export was widespread. Services was the only category that saw a small decline. Meanwhile, volumes of imports increased 2.2% in sequential terms; however, they declined 1.6% y/y. The monthly increase in the volumes of import was widespread. Even if the trade deficit broadened in April, exports data was quite upbeat, registering the biggest growth in more than two years. The curbing of the strength of the US dollar, earlier in 2016, might have provided support to US exporters, along with petroleum exports. Annual revision indicates that the deficit in real trade contracted sharply in March. This provides a favorable base for the second quarter. If the real trade deficit in June and May continue to be the same as in April, net exports is likely to stimulate the real GDP growth in Q2, said Wells Fargo in a research report. However, net trade is likely to face challenges said TD Economics in a research report. As domestic demand of the US is expected to surpass several of its trading partners, trade deficit will keep widening over the rest of 2016. Returning to trade data for April, exports of goods and services increased USD 2.6 billion, whereas imports grew by USD 4.5 billion. Exports of industrial supplies and material grew by USD 1.8 billion, partially due to higher commodity prices. However, capital goods exports increased over USD 100 million, whereas consumer goods exports rose almost USD 200 million. Automotive vehicles and parts' exports rose USD 839 million in April.Meanwhile, a sharp growth in imports in April reversed the sharp decline registered in March. Recovery in oil prices assisted in increasing the petroleum imports’ value in April. However, non-oil imports also surged, along with imports of automotive vehicles and parts and consumer goods imports that grew around USD 500 million each in April. Capital goods imports recovered in April, growing USD 2.5 billion, following a noticeable decline in March. However, the real import growth trend in recent months has been quite weak, noted Wells Fargo.

The Semi-Surprising Weakness of U.S. Imports -- I suspect the big jobs report meant that last Friday’s trade release got a bit less attention than normal. The dollar’s strength continues to have the expected impact on real exports, more or less. Excluding petrol, real goods exports are down 2.5 percent in the first four months of the year (relative to the same period in 2016). And real exports are falling as a share of U.S. GDP. This is pretty common when the real dollar is strong. It also happened in the early part of the 2000s. The real dollar, looking at the BIS data, is about between 10 and 15 percent points higher than it was in early 2014. I am surprised though at how flat imports continue to be. Real goods imports are about half a point lower in the first four months of 2016 than in the first four months of 2015 (import prices are down, so the headline fall is over 3 percent). Real goods imports haven’t really changed at all for say the last 15 or so months. They have averaged about $165 billion chained 2009 dollars a month (a bit higher in q2 of last year). While real GDP growth hasn’t been spectacular, demand has continued to grow. Over the last 3 quarters goods imports added marginally to U.S. growth (meaning imports fell), while final demand increased by about 2 percentage points (at an annualized rate). Looking at the last four quarters, goods imports have subtracted somewhere between 5 and 10 basis points on growth even with final domestic demand increasing by close to 2.5 percentage points of GDP.

Why the U.S. Steel Industry Is Molten Hot Over China’s Trade Practices --John Ferriola, chief executive of U.S. steel giant Nucor Corp., is skeptical China will soon fix what he calls the biggest problem facing his industry: excess production capacity. “The Chinese government is…engaged in economic warfare against the U.S. and sadly, they are winning,” Mr. Ferriola said in an interview ahead of high-level U.S.-China talks kicking off in Beijing Monday. The trouble, he says, is China’s “illegal, unfair” subsidizing of an industry the U.S. government recently accused of dumping, or selling products below production cost to improperly gain market share. From outright government ownership to an array of illegal subsidies, Chinese steel companies are being propped up at the expense of U.S. and other producers, American officials and firms complain. When U.S. Treasury Secretary Jacob Lew presses Beijing on the matter, Chinese officials will likely reiterate recent promises to gradually cut annual production by 100 million to 150 million tons over the next five years.  But Nucor is taking a “seeing is believing” approach. China two months ago set a new production record after spending two years promising to cut production, the Charlotte, N.C., company contends. “We don’t need any more promises,” said Mr. Ferriola. “What we need is for China to provide a capacity reduction plan that provides timelines and a mechanism to verify that cuts have occurred.”

US Steel Given Green Light to Seek China Import Ban. - The US has given the go-ahead for the country’s largest steel producer to seek a ban on imports from Chinese rivals, in the first known case in which trade sanctions could be used in retaliation for alleged China government-backed hacking of commercial secrets.  In a decision last week the US International Trade Commission gave the go-ahead for the case to proceed, setting the stage for a legal battle that experts say will probably take more than a year for an administrative judge to decide.  This timeframe could lead to a decision related to arguably the US’s most important commercial relationship early in the next president’s first term. Under the law, US presidents are given 60 days to block ITC decisions on Section 337 cases, although according to the ITC “such disapprovals are rare”. “We strongly believe that Chinese steel producers have engaged in illegal unfair methods of competition, which have created a force with which no market economy can compete,” Mario Longhi, the company’s president and CEO, said in a statement welcoming the ITC decision. “We remain confident that the evidence will prove the Chinese steel producers engaged in collusion, theft and fraud and we will aggressively seek to stop those responsible for these illegal trade actions.” Trade experts say that the case also represents the potential escalation of what has been a creeping protectionism in recent years with steel a growing target of anti-dumping cases. But a wholesale ban on US imports of Chinese steel would be materially different and could set a protectionist tone for the next US presidency, said Simon Evenett, a professor of international trade at the University of St Gallen in Switzerland, who oversees the Global Trade Alert, a monitoring service for protectionist measures. “The big thing is really the potential scale of this case versus the pin pricks that we have seen unleashed over the past nine months,”

Why the Economic Payoff From Technology Is So Elusive - Your smartphone allows you to get almost instantaneous answers to the most obscure questions. It also allows you to waste hours scrolling through Facebook or looking for the latest deals on Amazon.More powerful computing systems can predict the weather better than any meteorologist or beat human champions in complex board games like chess.But for several years, economists have asked why all that technical wizardry seems to be having so little impact on the economy. The issue surfaced again recently, when the government reported disappointingly slow growth and continuing stagnation in productivity. The rate of productivity growth from 2011 to 2015 was the slowest since the five-year period ending in 1982.One place to look at this disconnect is in the doctor’s office. Dr. Peter Sutherland, a family physician in Tennessee, made the shift to computerized patient records from paper in the last few years. There are benefits to using electronic health records, Dr. Sutherland says, but grappling with the software and new reporting requirements has slowed him down. He sees fewer patients, and his income has slipped.“I’m working harder and getting a little less,” he said.  The productivity puzzle has given rise to a number of explanations in recent years — and divided economists into technology pessimists and optimists. The most prominent pessimist is Robert J. Gordon, an economist at Northwestern University. His latest entry in the debate is his new book, “The Rise and Fall of American Growth.” Mr. Gordon contends that the current crop of digital innovations does not yield the big economic gains of breakthrough inventions of the past, like electricity, cars, planes and antibiotics.

Next Time Someone Says Nothing Is Made In The USA Anymore, Show Them This - Who says nothing is made in the USA anymore? Certainly not the well-heeled denizens of the State Department’s diplomatic corps. And they should know. That’s because they’re stationed on the frontlines of the ongoing battle to preserve Uncle Sam’s dominant market share of the global weapons trade. Luckily for the Military-Industrial Complex, it turns out that “Made In the USA” inspires a lot of brand loyalty, even if actual loyalty is often a harder sell (paging Saudi Arabia). To wit, not only was America the world’s leading arms dealer in 2014 with $36.2 billion in sales, but it topped that 35% surge in sales over 2013 with yet another profitable spike to $46.6 billion in 2015. As Stockholm International Peace Research Institute (SIPRI) determined in its recent report on the global arms trade, the United States maintains a commanding “33% share of total arms exports” and is the world’s top seller for five years running. And its customer base includes “at least” 96 countries, which is nearly half of the world’s nations. A robust 40% of those exports end up in the Middle East. Perhaps that’s why the State Department is so darn bullish on the prospects of Uncle Sam’s booming business of selling things that go “boom!” That’s the takeaway from a recent report in Defense News highlighting the marketing push by “Commercial Officers” stationed at the US embassy in Jordan. They worked the crowd at the kingdom’s eleventh bi-annual Special Operations Forces Exhibition and Conference (SOFEX).  Like many of the nearly 100 military-themed “trade shows” held around the world this year alone, SOFEX offered the profiteers of doom an opportunity to display their merchandise and to cut deals with bellicose browsers ready to pull the trigger on a deadly impulse buy. Some of the bigger, “glitzy” trade shows — like the International Defence Exposition and Conference(IDEX) held yearly in Abu Dhabi — are full-on one-stop-shopping destinations for the up-and-coming military power on the move, the newly-minted pro-Western junta eager to armor-up, and the forward-thinking “Coalition Partner” looking for the latest in “kinetic warfare.”

Wolf Richter: What Makes This Jobs Report So Truly Ugly?  - The Labor Department was expected to report, according to Wall Street economists, a “moderate” gain of 158,000 jobs in May, “moderate” given that the Verizon strike kept 35,000 workers off their jobs. The “whisper number” was around 200,000 jobs. The BLS reported that the economy had added 38,000 jobs, the lowest since September 2010. Furthermore, the April job gains of 160,000 were chopped down by 37,000 and the March job gains of 208,000 were chopped down by 22,000. Hence, with 59,000 jobs revised away, and with only 38,000 jobs “created” in May, the net total in today’s report was a net loss of 21,000 jobs. We haven’t seen that since the Financial Crisis. “Shockingly weak,” and “In one word, ‘Ouch’” is how MarketWatch put it so elegantly. It was ugly all around. A number of sectors, including manufacturing, shed jobs, and the labor participation rate dropped for the second month in a row, to 62.6%. Just about the only good number was the magic headline unemployment rate, which fell sharply, from 5% in April to 4.7%, the lowest since the Great Recession began, leaving some folks scratching their heads and searching for answers. But here’s where the report really spread gloom:  The number of temporary jobs plunged by another 21,000. Temporary employment is a harbinger for future employment trends, on the way up and on the way down. The temporary-help sector was a major – and much lamented – driver of jobs growth after the Financial Crisis. The sector began adding jobs in September 2009. It was an early sign that companies were starting to hire again but didn’t want to commit to more permanent jobs, even as the economy overall continued shedding jobs until February 2010. From the low point in August 2009 at 1.75 million temporary jobs, the sector added 1.2 million jobs by December 2015, when it peaked at 2.94 million. But then it started shedding jobs. With May’s loss of 21,000 jobs, the sector is down 63,800 from December: This also happened in 2007, when the temporary help sector started shedding jobs even as the overall economy was still adding jobs until right up to the official beginning of the Great Recession. And it happened in 2000, before the 2001 recession kicked it. Staffing agencies are cutting back because companies no longer need that many workers. Total business sales in the US have been declining since mid-2014. Productivity has been crummy and getting worse. Earnings are down for the fourth quarter in a row. Companies see that demand for their products is faltering, so the expense-cutting has started. The first to go are the hapless temporary workers.

US labor markets take a turn for the worse  Friday's US payrolls report, which to a large extent represents a latent effect of the US dollar rally over the past couple of years, was rather dismal. On a relative basis, hiring Americans has become more expensive. An elevated level of uncertainty, driven in part by risks associated with the US monetary policy as well as the presidential elections, has not helped. Let's look at some trends in the labor markets.

  • 1. The job market's weakness has now spread to the services sector.
  • 2. After a strong showing over a previous couple of months, US labor force participation has turned lower.
  • 3. Even as the headline unemployment rate (U-3) declined to lows not seen since 2007, a broader measure of unemployment, which includes marginally attached workers plus those employed part-time for economic reasons (U-6), has stalled.
  • 4. Related to the above, here is part-time employment for "economic reasons".
  • 5. US manufacturing jobs growth has worsened again on a year-over-year basis.
  • 6. Wage growth is back below 2.5% (YoY). Unless the non-demographic component of labor force participation begins to climb again, it's difficult to see a significant jump in hourly earnings growth.
  • 7. The next chart shows the average weekly hours worked by US employees on a year-over-year basis. Even with a positive hourly wage growth (above), declining hours could mean less cash in households' pockets.
  • 8. For what it's worth, the headline unemployment rate is now below the 'Natural Rate of Unemployment". According to classical economic theory, inflation should begin to rise at this point. But given some of the labor market challenges shown above, price increases - outside the recent increase in energy and agricultural commodities - should remain benign.

Separately, the ISM Services PMI weakened in May. This provides more evidence that the soft patch in the US economy is not limited to manufacturing and energy. The ISM Non-manufacturing Employment Index is consistent with Friday's poor payrolls report (above). The ISM services sector new orders index is also shown. Is this consistent with the projected 2.5%-3.0% US GDP growth in Q2?

Why Did the Unemployment Rate fall Sharply with Few Jobs Added?  --An interesting question is why the unemployment rate fell so sharply in May, even with relatively few payroll jobs added (38,000 jobs added in May).  First, it is important to remember that there are two separate surveys for the Employment Situation Summary. The headline payroll jobs number comes from Current Employment Statistics (CES: payroll survey), a sample of "approximately 145,000 businesses and government agencies representing approximately 623,000 worksites". The unemployment rate and the participation rate comes from the Current Population Survey (CPS: commonly called the household survey), a monthly survey of about 60,000 households. To understand how the surveys are conducted, here is an explanation from the BLS about the household survey, and an explanation about the establishment survey.So the estimated number of people in the labor force declined by 458,000 in May, and the number of unemployed dropped by 484,000. A small portion of this decline was due to higher employment, but most of the decline in the unemployed was due to the decline in participation (even while the population increased). Does this mean 458,000 people dropped out of the labor force in May?  Probably not.   There is a lot of month-to-month volatility in the household survey (the establishment survey is much better for jobs). The following table shows a comparison to May 2015 (year-over-year change). This makes more sense. About one third of the decline in the unemployment rate over the last year is due to the declining participation rate, and about two-thirds is due to more employment.  As I've noted before, the participation rate is expected to decline due to demographics and long term trends.

Trends in the Teenage Workforce Update - dshort - Last July, CNN Money featured an article with the optimistic and intriguing title "More American teens are getting jobs. That's good for everyone." The article opens with an example of 16-year-old Lauren Miller, who loves her minimum wage job at Hershey Lodge in Pennsylvania, "roasting s'mores and organizing activities for kids." The article goes on to quote Diane Swonk, chief economist at Mesirow Financial: "The trend is moving in the right direction," says Swonk. The teenage economy "is certainly something I'm watching more closely" [link]. After reading the article, we revised one of our monthly charts on Labor Force Participation to include the age 16-19 cohort — one we elsewhere combine with the 20-24 year-olds. The first chart below features the three-month moving averages of the non-seasonally adjusted participation rates to better highlight the trends.Clearly evident in the chart above is the summer skew for both the teenage workforce and, to a lesser extent, the college age 20-24 year olds. Now let's take a longer look back at the teenage workforce with a snapshot of the complete data series, which the Department of Labor began tracking in 1948. Note that the seasonally adjusted data smooths out the summer spikes. The general trend reversal around 1965 was to some extent a result of the Title VII of the Civil Rights Act of 1964, which prohibits discrimination by race, color, religion, sex, or national origin. Here is the same chart with a gender breakdown. We see in the chart above that its was not until the early years of the 21st century when the gender spread seems to have disappeared. However, when we zoom in on the teen genders since 2000, we see that there remains a small but statically consistent spread. But now it’s the women who have the higher labor force participation. The next chart shows the cumulative percent change of the six-month moving average since June of 2000.

WSJ Survey: Economists Sharply Lower Estimates of Job Growth in the Next Year - WSJ: The job gains of recent years, when the economy routinely added more than two million jobs annually, may be a thing of the past. Forecasters have sharply lowered their expectations for job growth in the coming year after employers added just 38,000 jobs in May, according to The Wall Street Journal’s latest survey of academic, business and financial economists. They now expect the economy will add about 155,000 jobs a month over the next year, a pace of about 1.9 million annually. That is the third consecutive month of lowered expectations for the jobs outlook. Their estimates fell from about 180,000 in May, 185,000 in April and 190,000 in March. If their forecast proves correct, it would be the worst year for job growth since 2010. “The economy right now is navigating this period where there’s going to be lower growth overall and lower profit margins,” said Brian Bethune, an economist at Tufts University.  Economists were caught off guard by the weakness of the most recent jobs report. Before the report, they had estimated the economy would add 120,000 more jobs in May than it actually did. But while the jobs market data can bounce around greatly from one month to the next—in the past year the economy has gained as many as 295,000 jobs in one month and as few as 38,000—it tends to converge over time to clearer trends that are easier to predict. Over the past year, for example, job growth has averaged 200,000 a month; economists had predicted growth of 219,000.

Goldman Crushes Democrat's Dreams: Shows Obamacare Has Cost "A Few Hundred Thousand Jobs" --We suspect Lloyd Blankfein will be receiving a call from The White House (or Treasury) very soon as Goldman Sachs' economists did the unthinkable in the age of political correctness - while investigating the state of under-employment in America, the smartest people in the room found that ObamaCare has led to a rise in involuntary part-time employment, estimating that "a few hundred thousand workers" have been forced to cut hours and has "created disincentives for full-time employment." Goldman's Jan Hatzius explains that they find mixed evidence to support the theory that the employer mandate under the Affordable Care Act (ACA) has contributed to the elevated level of involuntary part-time work. Our estimates of the effect by industry do show signs of an effect, particularly among the sectors that had the greatest gaps in required health insurance coverage prior to implementation of the mandate, but the relationship is weak. It is possible that the level of involuntary part-time workers could be a few hundred thousand higher than it would be otherwise as a result of the mandate, which is a small share of the 6.4 million workers employed part-time involuntarily, but potentially a much larger share of the “underemployment gap”.Their research into the relative slack in the labor force notes that... The share of workers who would like to work full-time but are only able to find part-time work for economic reasons has declined much more slowly than the unemployment rate, raising the possibility that structural factors could be keeping the involuntary part-time rate elevated (Exhibit 1). If true, this would suggest that there is currently even less slack remaining in the labor market than we have assumed.

Weekly Initial Unemployment Claims decrease to 264,000  - The DOL reported: In the week ending June 4, the advance figure for seasonally adjusted initial claims was 264,000, a decrease of 4,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 267,000 to 268,000. The 4-week moving average was 269,500, a decrease of 7,500 from the previous week's revised average. The previous week's average was revised up by 250 from 276,750 to 277,000.  There were no special factors impacting this week's initial claims. This marks 66 consecutive weeks of initial claims below 300,000, the longest streak since 1973.  The previous week was revised up to 268,000.
The following graph shows the 4-week moving average of weekly claims since 1971.

Employment Trends Index™ (ETI) | The Conference Board -- The Conference Board Employment Trends Index™ (ETI) decreased in May, after rebounding in April. The index now stands at 126.81, down from an upwardly revised 128.53 in April. The change represents a modest 0.7 percent gain in the ETI compared to a year ago. “The Employment Trends Index decreased in May. Its continued weakness suggests that job growth will remain modest in the coming months,” said Gad Levanon, Chief Economist, North America, at The Conference Board. “Despite softening in the ETI, its recent decline is not nearly as large as those that have preceded past employment contractions.” May’s decrease in the ETI was fueled by negative contributions from six out of eight components. In order from the largest negative contributor to the smallest, these were: Ratio of Involuntarily Part-time to All Part-time Workers, Initial Claims for Unemployment Insurance, Percentage of Respondents Who Say They Find “Jobs Hard to Get,” Percentage of Firms With Positions Not Able to Fill Right Now, Number of Employees Hired by the Temporary-Help Industry, and Job Openings. The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

Fed’s job market index in negative territory for fifth month in a row - The measly 38,000 gain in new jobs in May might not be the only bad news on the labor front. The slowdown in U.S. job creation in the past few months is likely to persist during the summer, according to a pair of employment bellwethers. A Federal Reserve index that tracks 19 labor-market indicators was negative in May for the fifth straight month. The last time the so-called labor market conditions index performed so poorly was in the waning stages of the Great Recession in early 2009. Another employment gauge compiled by the nonprofit Conference Board also declined in May, to 126.81 from 128.53 in April. “Its continued weakness suggests that job growth will remain modest in the coming months,” said Gad Levanon, the board’s chief economist for North America. On Friday, the government said just 38,000 were created in May, though the gain would have twice as large if not for a major strike at Verizon last month. Even if the strike is factored out, the pace of hiring was the weakest in two and a half years. What’s more, the paltry number of new jobs created in May followed a lackluster 123,000 gain in April. Net hiring has slowed to a 116,000 average in the past three months from post-recession high of 282,000 in December.

Labor Market Conditions Index forecasts further deceleration in jobs growth, but no recession: The Labor Market Conditions Index has suddenly got a lot of attention. I happen to think that is because it has turned negative for 5 months now, attracting Doomer attention like moths to a flame, rather than because of any difference in its inherent value. As I noted when I started covering the Labor Market Conditions Index last August, the LMCI shows promise as a long leading indicator, as 40 years worth of data shows it turning negative usually a year or more before the onset of a recession. Typically it has fallen to a value of -10 or worse by the time a recession starts (although in 1980 and 2001 it was less than -5 but fell below -10 within several months after the onset of the recession). In the graph below I am showing this by adding +10 to the value so that a -10 reading shows as 0: Further, please note that the LMCI fell to -5 readings in 1994 and 2002 without a recession occurring. So the poor readings so far this year do not imply that we are in a recession now, and don't necessarily imply that it will continue to worsen. The bad news is that the "less bad" readings from February and March that I noted last month in the below graph: have been revised away. Here's what the last 12 months look like now:

This Job Market Slump Started a While Ago -  The sharp May hiring slowdown revealed in Friday's employment report took a lot of people -- including me -- by surprise. It shouldn't have. Things have actually been on the downswing for the U.S. labor market for months, according to the Federal Reserve's Labor Market Conditions Index.  The LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. ... As you can see from the chart, the index has now declined for five straight months -- its worst performance since the recession. The index does get revised a lot. ... Though the signals coming from the U.S. labor market have been mostly negative for several months now, according to the LMCI, they'll have to get much worse before it indicates that the economy is falling into a recession. Still, this is clearly more than just one off month. Not many people were paying attention, though. Fed Chair Janet Yellen is apparently a fan of the LMCI,  . It was a good reminder, as were a lot of the other presentations at the conference, that the headline jobs numbers that get the lion’s share of attention -- the monthly change in payroll employment and the unemployment rate -- aren’t always the best places to look for information on the state of the jobs market. One of the indicators included in the LMCI, for example, is employment in temporary help services, which tends to start rising and falling before overall employment does. Well, watch out: It looks like it may have peaked in December.

Fed Sees Labor Market Deteriorating At Fastest Pace In 7 Years --Last month's major divergence between payrolls and The Fed Labor Market Conditions Index (LMCI) has closed somewhat with the collapse in jobs on Friday. However, as this morning's LMCI print at -4.8 indicates, labor market conditions in the US are deteriorating at their fastest pace in 7 years. The 19-factor labor market conditions index developed by The Fed is not singing from the same Koombaya "everything is awesome" hymn-sheet that The White House would prefer... The -4.8 print was considerably worse than the -0.8 expectation.  Is it any wonder the market-implied labor-focused Yellen Fed rate-hike odds are plunging...

BLS: Jobs Openings increased in April -- From the BLS: Job Openings and Labor Turnover Summary The number of job openings was little changed at 5.8 million on the last business day of April, the U.S. Bureau of Labor Statistics reported today. Hires edged down to 5.1 million while separations were little changed at 5.0 million. Within separations, the quits rate was 2.0 percent, and the layoffs and discharges rate was 1.1 percent. ....The number of quits was little changed in April at 2.9 million. The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.  This series started in December 2000.Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for April, the most recent employment report was for May. Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover. When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs. Jobs openings increased in April to 5.788 million from 5.670 million in March. The number of job openings (yellow) are up 4% year-over-year compared to April 2015. Quits are up 9% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits"). This is another strong report, and job openings were tied with the record high set in July 2015.

April 2016 JOLTS Job Openings Year-over-Year Growth Rate Significantly Decelerated.: The BLS Job Openings and Labor Turnover Survey (JOLTS) can be used as a predictor of future jobs growth, and the predictive elements show that the year-over-year growth rate of unadjusted private non-farm job openings declined from last month. The growth rate trends declined in the 3 month averages.This is the exact opposite of last month's graph - all due to significant downward backward revision.  There was no market expectations published by Bloomberg this month.

  • the number of unadjusted PRIVATE jobs openings - which is the most predictive of future employment growth of the JOLTS elements - shows the year-over-year growth significantly decelerated. The year-over-year growth of the unadjusted non-farm private jobs opening rate (percent of job openings compared to size of workforce) also decelerated.
  • The graph below looks at the year-over-year rate of growth for job opening levels and rate.

The relevance of JOLTS to future employment is obvious from the graphic below which shows JOLTS Job Openings leading or coincident to private non-farm employment. JOLTS job openings are a good predictor of jobs growth turning points. The graph below uses year-over year growth comparisons of non-seasonally adjusted non-farm private BLS data versus JOLTS Job Openings - and then compare trend lines.

Streak of underwhelming economic news continues with JOLTS --Not surprisingly, given the rash of ho-hum economic reports we’ve seen recently, the Job Openings and Labor Turnover Survey (JOLTS) for April 2016 was underwhelming. On the plus side, job openings ticked up slightly as layoffs fell. On the downside, the hires rate has fallen precipitously two months in a row, while the quits rate ticked down slightly. The figure below shows the dynamics of the key top-line numbers. The positive news on layoffs is clear. The layoffs rate—the number of layoffs as a share of total employment—is now down to 1.1, better than the rate over the last entire business cycle, 2000-2007, when its trough was 1.2. That’s great news. Unfortunately, hires and quits remain below full employment levels—hires peaked at 4.0 in 2006 and 4.4 in 2001, while quits peaked at 2.2 in 2006 and 2.6 in 2001. It is particularly troubling that the hires rate has fallen for two months running, from 3.8 in February down to 3.5 in April, but it’s not surprising given the weak Employment Report for April. Unfortunately, the even weaker Employment Report for May suggests that hires may fall even further when the JOLTS report comes out in July. While increasing job openings is a good thing, it needs to translate into hires for workers to see the effects of that increase. The quits rate fell slightly in April from 2.1 to 2.0. In a stronger economy, workers would feel more confidence to quit their job in search of a better one. For many years now, workers have continually stayed in their job rather than finding what might be a better match.

A Hiring Decline in April Points to Broader Labor Market Woes -- A new report from the Labor Department confirms troubling trends underlying the labor market, with a decline in the number of people hired to start a new job in April. The headline report from the Labor Department on the health of the U.S. economy showed deterioration in April and May, with the monthly pace of job growth slowing to just 123,000 in April and 38,000 last month. Those figures are the net change in the total number of jobs. Today, the Labor Department follows up that report with a look at the labor market’s churn — the millions of people each month that quit or lose one job, or start a new one, each month. In general, during times of economic health, the labor market is characterized by rising levels of job turnover, as many people quit jobs to take better jobs. The number of people hired in April fell to 5.1 million, down from 5.3 million in March and 5.5 million in February. That works out to a hiring rate of 3.5%, the slowest pace since August of 2014. While the hiring rate has improved since the worst periods of 2009 and 2010, employers have yet to return to hiring at the pace they did a decade ago. In recent years, the report, known as the Job Openings and Labor Turnover Survey, or Jolts, has portrayed a hiring market that never fully regained its vigor after the economic downturn of 2007-2009. A persistent puzzle in the data: employers report having a record number of job openings available but the hiring rate shows people are not actually being hired into those jobs. That puzzle remained in today’s report. The pace of hiring declined, while the number of jobs available at the end of April climbed to 5.8 million from 5.7 million.

April JOLTS report: mature cycle deceleration, again -- Wednesday's JOLTs report (note: for April) gives us a more granular look at the jobs market.  For most of the last 12 months I have noted that the pattern was similar to that in late in the last expansion, and the April report was more of the same. First, here is a comparison of job openings (blue) and hires (red).  Because there is only one compete past business cycle for comparison, lots of caution is required. But in that cycle, hires peaked first and then openings continued to rise before turning down in the months just prior to the onset of the Great Recession: The same pattern shows up in the YoY comparisons, where actual hires turned flat well before YoY openings declined to zero: So far 2016 looks very much like 2006. After making a new post-reession record three months ago, quits have since fallen back at their late 2015 level. For comparison, in the last cycle, quits made a high in November 2006 as indicated below: On the one hand, the increasing trend over the last several years of Quits appears intact. On the other hand, the pullback of the last few months is consistent with the 2006 or early 2007 flatness in the last cycle.Quits (blue) also appear very consistent with, and to slightly lead, the unemployment rate (red): If the uptrend in Quits continues, then we should expect a continuing decline in the unemployment rate. If on the other hand the recent pullback is establishing a new flat (or worse!) trend, then the unemployment rate has probably made its cycle low. Unfortunately, I suspect that the latter, rather than the former, is more likely the case. In summary, the JOLTS reports have been adding to the accumulating evidence that we are getting late in the expansion, but on the positive side, if we follow the 2001-07 template, there is stll another 6 - 24 months to go of jobs growth.

Productivity and Costs June 7, 2016: Productivity remains a key weakness of the economy and is especially evident during the low output of the first quarter. The second estimate of first-quarter nonfarm productivity came in at a quarter-to-quarter annualized decline of 0.6 percent. Output during the quarter rose 0.9 percent but the increase was outmatched by a greater increase for hours worked, up 1.5 percent. Not only did hours exceed output, compensation rose at the same time, up 3.9 percent to lift unit labor costs by 4.5 percent. Trends in the data show less weakness with year-on-year productivity up 0.7 percent and unit labor costs up 3.0 percent. Here output, up a year-on-year 2.3 percent, exceeds hours worked, up 1.6 percent. Compensation is up a year-on-year 3.7 percent with unit labor costs up 3.0 percent. American workers did not perform well in the first quarter, reflecting to a significant decline lack of business investment in new equipment.

1Q2016 (Final): Headline Productivity Contracts, Labor Costs Up: A simple summary of the headlines for this release is that the growth of productivity contracted while the labor costs grew (headline quarter-over-quarter analysis). The year-over-year analysis also shows labor costs increasing much faster than productivity. I personally do not understand why anyone would look at the data in this series as the trends are changed from release to release - and many times significantly between the preliminary and final release..The headlines annualize quarterly results (Econintersect uses year-over-year change in our analysis). If data is analyzed in year-over-year fashion, non-farm business productivity was up 0.7 % year-over-year, and unit labor costs were up 3.0 % year-over-year. Bottom line: the year-over-year data is saying that costs are rising faster than productivity. Although one could argue that productivity improvement must be cost effective, it is not true that all cost improvement are productivity improvements. [read more on this statement] Further, the productivity being measured is "capital productivity" - not "labor productivity". [read more on this statement here] Even though a decrease in productivity to the BLS could be considered an increase in productivity to an industrial engineer, this methodology does track recessions. [The current levels are well above recession territory. Please note that the following graphs are for a sub-group of the report nonfarm > business.

American Worker Productivity Drops (Again) -- For the second quarter in a row, US worker productivity fell in Q1 (down 0.6% QoQ). Outside of 2015's weather-driven debacle, this is the weakest two quarter tumble in productivity since Q4 2012. Unit labor costs rose 4.5% QoQ in Q1 (revised up from 4.1%) as output actually fell 0.6% (implying a 3.9% rise in compensation). This is the 3rd quarterly drop in output in a row. As we detailed previously, the US became an unsustainable service sector based economy from the 1970s onward when service sector employment diverged from manufacturing without a corresponding boost in productivity. Even Alan Greenspan has warned that America is "in trouble basically because productivity is dead in the water..." There are numerous reasons for this plunge in worker-productivity, from perverted inventives not to work to unintended consequences of monetary policy enabling zombies, but perhaps the most critical driver is exposed in the following dismal chart... 51% of total time spent on the Internet is on mobile devices - in 2015, first time ever mobile is #1 - to make a total of 5.6 hours per day snapchatting, face-booking, and selfying... So, while every effort can be made by Ivory Tower academics to solve the problem of American worker productivity, perhaps it can be summed up simply as "Put The Smart-Phone Down!" As we detailed previously, adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold.

Global Development and Environment Study Finds TPP Will Cost US Nearly 500,000 Jobs  -The Trans-Pacific Partnership (TPP) trade agreement is being portrayed as a boon for all 12 of the countries involved. But opposition to the agreement may be the only issue that the remaining US presidential candidates can agree on, and Canada’s trade minister has expressed serious reservations about it. Are the TPP’s critics being unreasonable? In a word, no. To be sure, the TPP might help the US to advance its goal of containing China’s influence in the Asia-Pacific region, exemplified in US President Barack Obama’s declaration that, “With TPP, China does not set the rules in that region; we do.” But the economic case is not nearly as strong. In fact, though the TPP will bring some benefits, they will mainly accrue to large corporations and come at the expense of ordinary citizens. For our study, my colleagues and I used the PIIE’s own 2012 estimates of trade-related gains, despite our reservations, along with more realistic economic specifications, including for income distribution and employment. We projected downward wage pressure, which, by depressing domestic demand, would lead to lower employment and higher inequality in all country groupings. Projected job losses would total some 771,000 across the TPP countries, including 448,000 in the US alone. These losses would offset any growth benefits, with the US and Japan suffering small net income losses (-0.5% and -0.1%, respectively).Even if the TPP is found to conflict with the national or public interest, participating countries are obliged to follow its provisions. Powerful lobbies, mainly from the US, made sure of that. And, unfortunately, that is not all they did.

Jobs Threatened by Machines: A Once ‘Stupid’ Concern Gains Respect - They replaced horses, didn’t they? That’s how the late, great economist Wassily Leontief responded 35 years ago to those who argued technology would never really replace people’s work. Cutting horses’ oat rations might have delayed their replacement by tractors, but it wouldn’t have stopped it. All that was left to do, for those who cared for 20 million newly unemployed horses, was to put them out to pasture. Most economists still reject Professor Leontief’s analogy, but the conventional economic consensus is starting to fray. The productivity figures may not reflect it yet but new technology does seem more fundamentally disruptive than technologies of the past. Robots are learning on their own. Self-driving cars seem just a few regulations away from our city streets. As the idea sinks in that humans as workhorses might also be on the way out, what happens if the job market stops doing the job of providing a living wage for hundreds of millions of people? How will the economy spread money around, so people can afford to pay the rent? What if, say, the bottom quarter of the population in the United States and Europe simply couldn’t find a job at a wage that could cover the cost of basic staples? What if smart-learning machines took out lawyers and bankers? Or even, God forbid, journalists and economists?  If you read my column last week you know the dim view I take of the Universal Basic Income — a minimum level of money offered to every citizen — as a tool to combat poverty in a country like the United States where there is still plenty of work for most people to do. Paying for it would require either shredding the safety net as we know it or raising taxes to Scandinavian levels.But that doesn’t end the case for a universal income, as many of the brightest minds in Silicon Valley will tell anyone who asks. If we are facing a not-so-distant future of robot-fueled growth and rising potential for mass disemployment, maybe it’s time to start thinking about how to provide a lot more income that isn’t directly tied to a job.

Oil Industry Drove US Wage Growth. Now that Is Over  -- A report from Pew Research Center reveals that between the third quarter of 2000 and the same period of last year, wages across the U.S. rose by an impressive 7.4 percent in real terms, driven largely by the oil and gas industry. Wages in energy-dependent communities rose by the most, in some cases more than twofold, such as in Texas. This shouldn’t be surprising as the period reviewed coincides with the peak of the shale boom in the country, even though it also covers two periods of recession. Related: Why Oil CEOs Are Overpaid But those positive effects are starting to disappear. The energy industry is cutting spending, and it has very little need for new personnel, to say the least. Even if crude rebounds to $60, which some analysts say will happen before the year’s end, E&Ps and their associates from oilfield services will most likely tread cautiously. The industry, in other words, is dealing with its very own depression and will hardly be able to continue to drive wage increases in the short- or medium-term. Does it matter that the energy industry drove the wages increase between 2000 and 2015? Historically, yes. This is important data, revealing patterns and trends in the U.S. economy made possible by an unprecedented advance in oil and gas production. Does it matter for the future? Not really, besides perhaps in predictive modeling.As of the start of February, layoffs in the U.S. energy industry had reached 100,000. The people who remained in employment may have continued to get fat paychecks, but there were a lot fewer of them. To add some scale, global energy industry layoffs have been calculated at a little over 350,000 since the start of the price rout. That’s a conservative estimate, but even so, U.S. energy layoffs accounted for almost a third of all job cuts in the industry as of February 2016.~

Migrant workers in US seafood industry exposed to forced labor conditions - The use of migrant workers in the US seafood supply chain has led to the creation of exploitative conditions that are equivalent to forced labor, according to a report released on Wednesday. The report was released by the National Guestworker Alliance (NGA) and is based on previous findings as well as interviews with 126 seafood processing workers in New Bedford, Massachusetts, and a range of in-depth case studies. In order to succeed in a highly competitive global market, US seafood processors have increasingly come to rely on temporary labor. Such workers include H-2B visa laborers as well as undocumented workers. Their immigration status makes these workers vulnerable to exploitation. The NGA found that these workers were unlikely to report abuse on the job due to threats from employers not to hire them in subsequent seasons and sponsor them for H-2B visa. Undocumented workers have been threatened with immigration enforcement. “This new research exposes a reality that workers know all too well,” said Daniel Castellanos, former H-2B guest worker and a co-founder of the NGA. “Seafood processing workers are routinely subjected to severe forms of exploitation by companies producing cheap seafood for major retailers and food distributors like Walmart. And when they speak out or try to resist abuse, they are punished severely for it.”

Equality: Childless Woman Demands Maternity Leave -- Meghann Foye, a childless woman, demands that people without children get maternity leave too. The purpose, Foye explains, is to allow all workers the same sort of "self-reflection" that parents of small children apparently enjoy in abundance. Writes Foye:  The more I thought about it, the more I came to believe in the value of a “meternity” leave — which is, to me, a sabbatical-like break that allows women and, to a lesser degree, men to shift their focus to the part of their lives that doesn’t revolve around their jobs. Foye's position is that women with children get special treatment and are allowed to work less while people like her pick up the slack. In Foye's world, parents — especially mothers — are constantly getting more time off to tend to their families. Essentially, Foye believes, mothers with children are being subsidized by those who work late and don't take work time off to tend to sick children and other types of non-wage work outside the office. I say "office," of course, because in Foye's world, everyone works a white-collar job in which "if you poured your heart and soul into your career, you would eventually get to a director level and have the flexibility, paycheck and assistants beneath you to begin to create a work-life balance." Working class women with children who clean houses or serve food for a living are invisible.

Inside an Amazon Warehouse, the Relentless Need to “Make Rate” - Over the past few years, we have published anonymous accounts from just about every kind of Amazon employee, from the blue collar pickers to the white collar office workers. Today we hear from a different kind of warehouse worker about the ceaseless demands of “rate.” Previous warehouse workers have described physical strain, corrosive management practices, and the insanity of the holiday rush in Amazon’s vast “fulfillment centers,” where customer orders are filled and shipped. But there is another type of Amazon warehouse: equally vast “sortation centers,” also known as cross docks, which are meant to streamline Amazon’s supply chain by collecting and sorting huge numbers of orders for delivery to specific U.S. post offices. (A description of their purpose can be found here.) As Amazon’s supply chain specialization increases, so too do the variety of ways its workers can be ground down. The following story is from an Amazon warehouse worker in California who wishes to remain anonymous. As you read it, it is worth keeping in mind that Amazon went to the Supreme Court to win the right to not pay its employees for all the time they spend at work. This is just one person’s perspective on how America’s 18th biggest company is operating.

The Working Class Won’t Be Majority White for Much Longer - Much has been made of the support presumptive Republican presidential nominee Donald Trump has gotten from “angry white men” in 2016: working-class white, male voters in industrial states whose livelihoods were threatened by trade and technology. A new report shows how quickly they’re shrinking as a group. The working class — defined as people in the workforce with less than a bachelor’s degree — will soon be “majority-minority,” or majority people of color, well ahead of when the general population crosses over. The transition to a majority-minority working class will happen in 2032, 11 years ahead of when America’s population at large becomes mostly nonwhite. Economist Valerie Wilson of the left-leaning Economic Policy Institute reached these findings using historical patterns for educational attainment and long-term projections on the workforce. Because African-Americans and Latinos currently have lower educational attainment, their growing share of the population will shift the makeup of the working class even more rapidly.m “The working class is now already more diverse than is perceived in terms of the images you see of the disgruntled working-class white male, but that population is going to become even more diverse in the future,” Ms. Wilson said. As of 2013, two-thirds of working Americans were working class, and the working class was 62.6% white.  As overall educational attainment continues to climb, that share of the working population will fall to 57.8% by the 2032, the year it becomes majority-minority.

Obama's Overtime Rule Defies Econ 101 - The Barack Obama administration recently changed the rules for overtime pay. The rule affects only salaried workers, since hourly workers already receive overtime. Specifically, the new dictum mandates overtime pay for people earning salaries between $23,660 and $47,476, who previously weren’t guaranteed this benefit.How should we expect this change to affect the economy and the workplace? The answer isn’t easy. The temptation is to analyze it using the kind of simplistic intuition that often goes by the misnomer of econ 101. This is the idea that government rules about labor always end up pushing down wages and throwing people out of work. But that crude mental model just doesn’t work in the case of overtime rules.The reason is that the econ 101 model of labor supply and demand assumes the price of labor is a single wage. But under overtime, there are actually two wages, not one. There’s the base wage, and there’s the wage paid on hours worked over the limit. With overtime rules in place, if you have 30 employees working 40 hours a week, that costs less than having 20 employees working 60 hours a week. So there’s no simple hourly wage, like in econ 101 -- it matters not just how many hours of labor you buy, but who you buy them from. We can almost certainly expect overtime to push base wages down. This is because companies will try to adjust base wages lower so that employees’ total compensation stays about the same. Of course, this isn't always possible -- wages are “sticky,” meaning that it’s easier to give people raises than pay cuts. But it will mean that employers will restrain base wages from growing as much as they otherwise would.

The Nation’s Capital Is Setting a $15 Minimum Wage, Double the Federal Level -  The nation’s capital is poised to be the first East Coast city to approve a $15 minimum wage. District of Columbia council members are expected to give final approval later this month to a measure raising the minimum wage to $15 an hour from the current $10.50. The bill was approved unanimously in a preliminary vote Tuesday, and Mayor Muriel Bowser has voiced her support for the measure that (by 2020) would set D.C.’s pay floor at more than double the federal rate of $7.25 an hour. “The district can be an expensive place to live and therefore the concern about the minimum wage is more acute than would be the case is other areas of the country,” said Council Chairman Phil Mendelson. Twenty-one states follow the federal rate. Others have set higher levels, including New York and California, which approved an eventual $15 levels earlier this year. A handful of cities have approved their own $15 minimums, but all are concentrated on the West Coast including Seattle, San Francisco and Los Angeles. New York City is prevented by state law from acting on its own to raise wages (but will reach $15 in 2019 under state law). Philadelphia and Boston follow statewide rates. In 2014, Chicago approved a $13 minimum by 2019, the highest rate set west of the Mississippi River. Pay floors in the Northeast have generally been set at the state level, including Massachusetts, which will have an $11 an hour minimum wage next year. Southeastern states mostly follow the federal mandate.

Who Would Pay $300,000 for a Handbag? - The New York Times: — In a packed bidding room last Monday, Christie’s Hong Kong hosted its 30th-anniversary auction. The tightly curated catalog featured 30 lots, each chosen for its desirability and origin in categories such as fine art, ancient ceramics, jewelry, watches and rare wines.And handbags.One of the auction’s stars was a 12-inch Hermès Birkin matte Himalayan crocodile handbag, with white-gold hardware set with 245 F-color diamonds weighing close to 10 carats. With a presale estimate of $190,000 to $260,000, it was billed as “the most valuable handbag in the world.”The standing-room-only crowd, mostly from mainland China, with a smattering of collectors from Taiwan and Japan, watched with barely bated anticipation as Jussi Pylkkanen, the global president for Christie’s, presided from the podium over bidders who drove prices for the Birkin quickly past $128,679 (or about 1 million Hong Kong dollars). In a mere four minutes, the bag was sold (to a private collector), and a record set, at $244,490, before a buyer’s premium (for a total of $300,168, just over the standard retail price of $280,000).

Puerto Rico Debt Crisis 2016: House Vote Nears For Bill To Restructure Island’s $70 Billion Debt --Legislation to tackle Puerto Rico’s debt crisis is advancing in Congress this week as the threat of another major default looms over the island. The U.S. House of Representatives is expected to vote Thursday or Friday on a bill that would establish a seven-member control board to restructure Puerto Rico’s $70 billion debt and oversee the territory’s finances. The measure, known as PROMESA ("promise" in Spanish), has drawn fierce opposition from Puerto Ricans wary of meddling by mainland politicians and bondholders seeking to reclaim their full investments. But proponents in the House and Senate say the bill is the best shot at keeping the U.S. territory's long-simmering debt crisis from boiling over into a catastrophe. Puerto Rico, which defaulted on a $422 million payment to bondholders in May, next faces a July 1 deadline for $2 billion in principal and interest payments. The chances that Puerto Rico will scrape together enough funds to meet those obligations and future payments are slim to none, experts say.“They’re bankrupt. And what’s gonna happen if we don’t act is there’s going to be another demand for a taxpayer bailout, which I’m unalterably opposed to,” said Sen. John Cornyn, R-Texas, Bloomberg reported. “So this is the only alternative I know of.”

Most Americans Don’t Know the Citizenship of Puerto Ricans -   Puerto Ricans are U.S. citizens, but only 43% of Americans answered correctly in a recent Economist/YouGov poll. Some 41% said they were citizens of Puerto Rico, while another 15% weren’t sure. The statistic underscores one challenge Congress has faced as it considers legislation to address the island’s debt crisis: The issue hasn’t been a high priority for lawmakers partly because their constituents aren’t aware that Puerto Ricans are U.S. citizens. The island’s government says it cannot afford payments on its $70 billion debt, and its public corporations aren’t eligible to seek protection from creditors in federal bankruptcy court because it isn’t a state. The House is set to vote Thursday on a bill that would authorize a federal oversight board with managing what could be the largest municipal-debt restructuring in U.S. history. The legislation followed months of negotiations between lawmakers and the Treasury Department. The poll found that a narrow plurality of respondents believe Puerto Rico should join the U.S. as the 51st state, with 29% supporting that option. Another 25% said Puerto Rico should maintain its current status as a federal territory, while 20% supported making Puerto Rico an independent nation. Some 39% of Democrats backed statehood, compared to 25% of Republicans. The legislation before Congress wouldn’t authorize federal funds to be spent on Puerto Rico. Instead, it would empower a seven-member oversight board with stabilizing the island’s finances, including by authorizing a court-supervised debt restructuring for any of the island’s 18 classes of debt.

Oklahoma Cops Can Now Seize Money From Prepaid Debit Cards, Without Filing Criminal Charges - Law enforcement agencies in Oklahoma have purchased devices that allow police to seize and freeze funds electronically, which may dramatically expand their power to permanently confiscate property using asset forfeiture. Manufactured by the Texas-based ERAD Group, the devices work on “open loop” prepaid debit cards, like those offered by Visa or American Express. However, “debit cards attached to a valid checking account or valid credit cards cannot be processed” by an ERAD (Electronic Recovery and Access to Data) system. One contract obtained by Oklahoma Watch states that the Oklahoma Department of Public Safety will pay ERAD Group $5,000 for implementation and $1,500 for training on how to use the devices. In addition, ERAD Group will also receive a “processing fee” of 7.7 percent of all money seized using the readers. That incentive to seize also mimics Oklahoma law, which allows police and prosecutors to keep up to 100 percent of the proceeds from forfeited property, even if the owner was never convicted or indicted. Records obtained by the Institute for Justice show that in 2012, 70 percent of all forfeiture expenditures in Oklahoma funded salaries for law enforcement.

Cuomo bans business with Israel-boycott companies, swipes at Sanders: Governor Andrew Cuomo signed an executive order today banning the state from doing business with any group that formally cuts ties to the state of Israel as part of the Boycott, Divestment and Sanctions movement. “We are against the BDS movement. ... If you boycott against Israel, New York will boycott you,” Cuomo said at an event in Midtown this morning where he signed the executive order. Story Continued Below Cuomo cast the move today — hours before the annual Salute to Israel parade in Manhattan— as part of a broader effort to firm up the Democratic Party’s alliance with Israel. The governor — a longtime supporter of presidential candidate Hillary Clinton — took a swipe at her opponent in the primary, Vermont senator Bernie Sanders, who has questioned Israel’s response to terrorist attacks. Cuomo said today, “I’m sad as a Democrat. As a Democrat. I always took for granted that there was a natural relationship with Israel that was unquestioned and was that way for many, many years.” But, he said, “You now have aspects of the Democratic Party that are being critical of Israel as being disproportionate in its response.”

Goldman Sachs is sponsoring a Scientology-based jail ‘re-education’ program — and it’s growing: A few years ago, Abe Bergman’s 19-year-old son was court-ordered into a residential treatment program in Washington State for co-occurring mental illness and “substance abuse.” Bergman called and asked: “Can I come visit my son?”  “I thought,” Bergman says, “with someone with mental illness, wouldn’t it be good to have their family there? They said, ‘No. We run something call Moral Reconation Therapy here.’” Bergman, a retired pediatrician and faculty member at the University of Washington, never was able to visit his son. He wondered, what was this mysterious-sounding “Moral Reconation Therapy” (MRT)? So he talked to “six or seven mental health professionals—psychiatrists.” He asked them, “Do you know about MRT?”None of them did. He called the person who then ran the mental health office for Washington State. They’d never heard of it. Finally, he talked to someone who worked in the criminal justice system. They’d heard of it, because MRT is used widely—according to the website of Correctional Counseling, the company that promotes and sells MRT—“in parole and probation, with juvenile offenders, in schools, halfway houses, drug treatment programs, jails, and venues covering the entire range of corrections.” It can also be employed “anywhere there’s substance abuse,” as someone associated with the program, who didn’t want their name used, told me. In fact, according to the website, it is the primary drug treatment used in the US criminal justice system. MRT is used in all 50 states, and in six other countries besides the US.

Chicago Water District sells bonds as pensions cost it AAA grade -  Chicago's pension holes are so deep they're even tainting the water. The Metropolitan Water Reclamation District of Greater Chicago sold $427 million of bonds yesterday, paying a top yield of 2.86 percent on securities due in 2045, or 0.42 percentage point more than top-rated securities, according to data compiled by Bloomberg. The sale was the district's first since the loss of its AAA ranking from S&P Global Ratings last month because of the financial squeeze underfunded retirement plans are putting on governments in northern Illinois. The district, an independent agency that now carries S&P's second-highest rating, manages wastewater treatment for Chicago and most of Cook County, both of which owe billions to their workers' pensions. “No borrower in the state can escape the pension talk,” Adam Buchanan, senior vice president of sales and trading at Ziegler, a broker-dealer in Chicago. Even so, he said, “it's obviously the strongest credit in Chicago because of the revenue stream that it leverages.” Chicago's more than $20 billion of unfunded liabilities led Moody's Investors Service to cut its rating to junk in May 2015, causing investors to demand higher yields as the city sold more than $3 billion of bonds. While Chicago has since enacted a record property-tax increase for police and firefighters pensions, it's still not paying enough to keep its debt to those funds from growing, nor has it put in place a plan to cut the cost of its other pensions after previous changes were thrown out in court.

A Weekend in Chicago: Where Gunfire Is a Terrifying Norm -  Julia Rhoden, 53, is sitting on her bed, exhausted from another long day at the health care center where she works as a nurse's aide. There is a loud boom and then another and then another. She feels a sting as a bullet enters her back. "I been shot! I been shot!" she cries out to her children in the next room, as blood soaks through the summer dress she wears as a nightgown. That same night, 15-year-old Veronica Lopez is hit as she rides in a Jeep that is speeding along a waterfront drive. "Babe, they shot me in the stomach," the girl tells a friend, who later says he covered her body with his own as the gunfire continued. “Help, I’ve been shot!” another teenager screams as he limps down a darkened street, a bullet having torn through his leg. It is Friday night in Chicago, and the Memorial Day weekend is just getting started. There is no stopping the gunfire, which comes in bursts and waves, interrupting holiday barbecues, igniting gang rivalries, engulfing neighborhoods, blocks, families. From Friday evening to the end of Monday, 64 people will have been shot in this city of 2.7 million, six of them fatally. In a population made up of nearly equal numbers of whites, blacks and Hispanics, 52 of the shooting victims are black, 11 Hispanic and one white. Eight are women, the rest men. Some 12 people are shot in cars, 11 along city sidewalks, and at least four on home porches. It is a level of violence that has become the terrifying norm, particularly in predominantly black and Latino neighborhoods on the South and West Sides. With far fewer residents, Chicago has more homicides than Los Angeles or New York.

Gov. Rauner calls some Chicago schools ‘crumbling prisons’ -- Governor Bruce Rauner says even though the state does not have a budget, he wants Republicans and Democrats to pass education funding. But the politics are complicated. The governor is locked into a fierce battle with people who support extra money for Chicago Public Schools. And today there were more sharp words. Today, Governor Rauner and Mayor Rahm Emanuel were back at it, trading nasty barbs. The war of words escalated when the governor said this: “When you look objectively at the status of Chicago Public Schools many of them are inadequate. Many of them are woeful and some are just tragic. Many of them are basically just crumbling prisons.”Not long after Governor Rauner spoke, Mayor Emanuel hit back. “Now it sounds like he’s auditioning to be Donald Trump’s running mate.” Outraged CPS parents chimed in, tweeting images of children with the hashtag, "#Notaprison." In a statement Alderman Raymond Lopez said, “…I am actually astonished by the brazen, racist insults which Gov. Rauner has leveled at our Chicago Public Schools.” And CPS CEO Forrest Claypool said, “Frankly, the Governor’s comments comparing Chicago schools to ‘crumbling prisons’ are disrespectful and beneath his office.”

Just Released: Mapping the Differences in School Spending in New York City – NY Fed - This morning, the Federal Reserve Bank of New York released a set of interactive visuals that present data on school spending and its various components—such as instructional spending, instructional support, leadership support, and building services spending—across all thirty-two community school districts (CSD) in New York City and map their progression over time. A key feature of these interactive visuals is that they present the data in two forms: as adjusted data, which control for student categories that receive differential funding from the City based on their needs, and as raw data that do not include this adjustment. The interactive features allow the user to easily view (and compare) the adjusted and raw data, to observe trends for different spending categories, and to compare spending profiles across community school districts for each form of data. Demographic and socioeconomic characteristics of each CSD can be viewed by clicking on the district of interest. Our purpose is to make data on education finance and education indicators more accessible to a broader audience, including education researchers. Among the many factors that contribute to funding allocation are the percentage of students eligible for free or reduced-price lunch, the percentage of special education students, the percentage of English language learners, the percentage of students with individualized education programs, and the grade distribution of a CSD’s student population (in other words, the percentage of students in grade ranges K-5, 6-8, and 9-12), and our adjusted data control for these. Other formula components include larger weights for low-performing students and differential weights for high schools with special missions, such as career and technical education schools. All figures in the adjusted data are presented relative to New York City as a whole.

Choosing a School for My Daughter in a Segregated City  - In the spring of 2014, when our daughter, Najya, was turning 4, my husband and I found ourselves facing our toughest decision since becoming parents. We live in Bedford-Stuyvesant, a low-income, heavily black, rapidly gentrifying neighborhood of brownstones in central Brooklyn. The nearby public schools are named after people intended to evoke black uplift, like Marcus Garvey, a prominent black nationalist in the 1920s, and Carter G. Woodson, the father of Black History Month, but the schools are a disturbing reflection of New York City’s stark racial and socioeconomic divisions. In one of the most diverse cities in the world, the children who attend these schools learn in classrooms where all of their classmates — and I mean, in most cases, every single one — are black and Latino, and nearly every student is poor. Not surprisingly, the test scores of most of Bed-Stuy’s schools reflect the marginalization of their students.I didn’t know any of our middle-class neighbors, black or white, who sent their children to one of these schools. They had managed to secure seats in the more diverse and economically advantaged magnet schools or gifted-and-talented programs outside our area, or opted to pay hefty tuition to progressive but largely white private institutions. I knew this because from the moment we arrived in New York with our 1-year-old, we had many conversations about where we would, should and definitely should not send our daughter to school when the time came.

Why Kids Who Misbehave Earn More Money as Adults - (video) Rule-breaking, defiant kids often end up richer than their more responsible peers, according to a new study. The WSJ's Lee Hawkins explains why.

How to Teach Students Grit - The Atlantic - In 2013, for the first time, a majority of public-school students in this country—51 percent, to be precise—fell below the federal government’s low-income cutoff, meaning they were eligible for a free or subsidized school lunch. It was a powerful symbolic moment—an inescapable reminder that the challenge of teaching low-income children has become the central issue in American education. The truth, as many American teachers know firsthand, is that low-income children can be harder to educate than children from more-comfortable backgrounds. Educators often struggle to motivate them, to calm them down, to connect with them. This doesn’t mean they’re impossible to teach, of course; plenty of kids who grow up in poverty are thriving in the classroom. But two decades of national attention have done little or nothing to close the achievement gap between poor students and their better-off peers.In recent years, in response to this growing crisis, a new idea (or perhaps a very old one) has arisen in the education world: Character matters. Researchers concerned with academic-achievement gaps have begun to study, with increasing interest and enthusiasm, a set of personal qualities—often referred to as noncognitive skills, or character strengths—that include resilience, conscientiousness, optimism, self-control, and grit. These capacities generally aren’t captured by our ubiquitous standardized tests, but they seem to make a big difference in the academic success of children, especially low-income children. My last book, How Children Succeed, explored this research and profiled educators who were attempting to put it into practice in their classrooms. Since the book’s publication, in 2012, the idea that educators should be teaching grit and self-control along with addition and subtraction has caught on across the country. Some school systems are embracing this notion institutionally. In California this spring, for example, a coalition of nine major school districts has been trying out a new school-assessment system that relies in part on measurements of students’ noncognitive abilities, such as self-management and social awareness.

The biggest threat to education today isn’t school segregation - AEI - Diamonds are forever. Desegregation orders will be, too, if our end goal for Brown v. Board of Education and the Civil Rights Act of 1964 is merely to color-code American classrooms rather than to create equality of opportunity. The latest case comes from the state of Mississippi. On May 13, to meet a desegregation order that began in the 1960s, a U.S. district judge ordered the state’s Cleveland School District to consolidate its two middle and high schools beginning in the 2016-’17 school year. According to Judge Debra M. Brown, Cleveland’s failure to consolidate its largely racially separate schools in the past had “deprived generations of students of the constitutionally guaranteed right to an integrated education.” This is just one of hundreds of cases like it; the Justice Department currently has 177 open desegregation cases. Enforcing desegregation orders is important because desegregation’s effects on American schooling have been positive. For example, a 2015 report found that black children born between 1945 and 1968 who attended a desegregated school were more likely to complete college, more likely to earn a higher salary, less likely to be incarcerated and had better health than their peers. Yet if this race-balancing philosophy is the guiding logic for desegregation cases moving forward, a recent Government Accountability Office report on racial and economic disparities in public schools shows that progress will be an uphill battle. According to the report, between 2000 and 2014, the percentage of public schools with 75 percent to 100 percent poor black or Hispanic students increased from 9 percent to 16 percent. To rectify discrimination in high-poverty, segregated schools, the Education Department and Justice Department have supported the continuation of desegregation orders.

Gates’ Common-Core mea culpa and the school reform divide - AEI -- Over the past few weeks, the world of “school reform” has been consumed by a heated back-and-forth over whether the left-leaning majority is trying to shove right-leaning types out of the tent. The debate has swirled mostly around questions of race, but those can distract from more fundamental philosophical differences. After all, progressives tend to assume that ambitious programs and policies are the engine of social progress. Conservatives tend to be more concerned about the limits of social engineering, unanticipated consequences, and the unintended damage that well-intended efforts can do. Conservatives believe meaningful social progress tends to be incremental and gradual, the product of local communities, private associations, dynamic markets, and individual initiative. This is why folks on the right get irate when progressives launch a passionate crusade, sow conflict and division, trample on communities, expand bureaucracies, and then, when things don’t work out, plead unforeseeable complications.  A nice illustration has been unfolding in real time. Just days before the left-right imbroglio blew up, Gates Foundation CEO Sue Desmond-Hellmann used her annual letter to issue a much-discussed mea culpa regarding the Foundation’s efforts on behalf of the Common Core. Desmond-Hellmann explained that the Common Core’s rocky path had been a surprise to the Gates team and “a challenging lesson for us to absorb, but we take it to heart.” Kudos to Desmond-Hellmann for her honesty.Missing, however, was an acknowledgment that some observers were not, in fact, blindsided. Conservatives expect these problems, look for them, and anticipate them. In fact, my AEI colleague Mike McShane and I were among those who publicly and repeatedly tried to call attention to these issues early on, only to be dismissed or ignored by Team Common Core.

Generation Snowflake: Safe Spaces, Trigger Warnings And The Wussification Of Our Young People - Why do so many of our young people instantly break down in tears the moment anything seriously offends them?  Have we raised an entire generation that has been so coddled and that is so spineless that it is completely incapable of dealing with the harsh realities of the modern world?  At colleges and universities all over America, students are now demanding “safe spaces” where anything and everything that could possibly make them feel “uncomfortable” is banned.  And “trigger warnings” are being placed on some of our great literary classics because they might cause some students to feel “unsafe” because they may be reminded of a past trauma.  In this day and age, our overly coddled young people have come to expect that they should be automatically shielded from anything that could remotely be considered harmful or offensive, and as a result we now have an entire generation that is completely lacking in toughness. That may be fine as long as you can depend on Mom and Dad, but how in the world are these young men and women going to handle the difficult challenges that come with living in the real world? Author Claire Fox has a great deal of experience dealing with these overly sensitive young people, and she has dubbed them “Generation Snowflake”Claire Fox, head of a thinktank called the Institute of Ideas, has penned a coruscating critique of “Generation Snowflake”, the name given to a growing group of youngsters who “believe it’s their right to be protected from anything they might find unpalatable”. She said British and American universities are dominated by cabals of young women who are dead set on banning anything they find remotely offensive.

There’s nothing wrong with young adults living with their parents. -- In May, the Pew Research Center reported that for the first time in over 100 years, more American adults ages 18–34 live with their parents than in any other arrangement: 32 percent, narrowly edging out marriage and cohabitation at 31 percent. According to Pew, the usual suspects—a sluggish job market, repercussions of the Great Recession, widening income inequality—are not technically responsible for this trend. That honor goes instead to falling marriage rates and rising housing costs (which, of course, aren’t unrelated to a bad job market and widening income inequality).  The reaction in the American press has primarily taken the form of handwringing. “The empty nests are filling up,” warned the New York Times. A Money article explored what’s “to blame” for “boomerangers” being “stuck in the nest.” (Answer: falling marriage rates and rising housing costs!) The only “silver lining”? According to Forbes, it’s that your slacker children might start cooking for you. Here’s an idea: Instead of bemoaning re-nesters, why don’t we all admit that living with your parents as a young adult is a perfectly fine thing to do? And not just because, yes, it saves a metric butt-ton of money. The problem isn’t that American young adults live with Mom and/or Dad. It’s how. The primary issue is that American parents have long championed emptying the nest as a sign of successful childrearing. And for their part, American young people buy into a strange mythology that they must relocate far from their families and reinvent themselves at risk of otherwise being stuck as their young selves forever. But this is a ridiculous social construct. It’s not the norm in Europe, where nearly half of all young adults age 18–29 live at home.

Google Scholar citations from clueless people - I was looking recently on Google Scholar at who cited me, and a recent citation I got was from a phd thesis from some for-profit school (probably online), in some clown-ass field like "organizational social international management." The person clearly has no idea what they are citing. Not like they just don't understand the paper, they clearly just picked my paper to put in as a citation so it looked like they actually did research. Here is an obfuscated version that gives the spirit of the citation and its relationship to my paper: Imagine my paper (Me, 2015) is from a 2nd tier applied-metrics field journal, and it's about estimating parameters in a panel-data model when the true value of the coefficient of a lag of the dependent variable shrinks to one at rate sqrt(n). Then imagine this person cited me with the following line: "Given a sample of observations, the mean of the sample is usually of great interest. However, since my sample is a collection of names from a phone book, I cannot calculate a mean (Me, 2015)." It's really just cringeworthy more than anything else, and it makes me aware of how bad things are at the extreme lower tail of "academia." Anyone else find these kinds of citations on Google Scholar?

Foreign Students Seen Cheating More Than Domestic Ones - WSJ: At Ohio State University, a Chinese student took tests for Chinese classmates for cash last year, guaranteeing an A. At the University of California, Irvine, some international students used a lost-ID-card ruse to let impersonators take exams in place of others. At the University of Arizona, a professor told of Chinese students handing in multiple copies of the same incorrect test answers. A flood of foreign undergraduates on America’s campuses is improving the financial health of universities. It also sometimes clashes with a fundamental value of U.S. scholarship: academic integrity. A Wall Street Journal analysis of data from more than a dozen large U.S. public universities found that in the 2014-15 school year, the schools recorded 5.1 reports of alleged cheating for every 100 international students. They recorded one such report per 100 domestic students. Students from China were singled out by many faculty members interviewed. “Cheating among Chinese students, especially those with poor language skills, is a huge problem,” In the academic year just ending, 586,208 international undergraduate students attended U.S. colleges and universities, according to the Department of Homeland Security. More than 165,000 were from China. South Korea and Saudi Arabia were the source of nearly 50,000 each and India of about 23,500. Faculty and domestic students interviewed said it appears that substantial numbers of international students either don’t comprehend or don’t accept U.S. standards of academic integrity. At the University of Arizona, the staff works hard to explain academic integrity to those from abroad, but “our students don’t always understand what plagiarism is,” said Chrissy Lieberman, associate dean of students. Citing the Freedom of Information Act, the Journal asked 50 public universities with large foreign enrollments how many reports of alleged academic-integrity violations they recorded for international undergraduates and how many involving U.S. undergraduates. At nearly all that provided data, the rate of such cheating reports was at least twice as high for foreign as for domestic students, ranging up to over eight times as high.

College Loan Glut Worries Policy Makers - WSJ: The U.S. government over the last 15 years made a trillion-dollar investment to improve the nation’s workforce, productivity and economy. A big portion of that investment has now turned toxic, with echoes of the housing crisis. The investment was in “human capital,” or, more specifically, higher education. The government helped finance tens of millions of tuitions as enrollment in U.S. colleges and graduate schools soared 24% from 2002 to 2012, rivaling the higher-education boom of the 1970s. Millions of others attended trade schools that award career certificates. The government financed a large share of these educations through grants, low-interest loans and loan guarantees. Total outstanding student debt—almost all guaranteed or made directly by the federal government—has quadrupled since 2000 to $1.2 trillion today. The government also spent tens of billions of dollars in grants and tax credits for students. New research shows a significant chunk of that investment backfired, with millions of students worse off for having gone to school. Many never learned new skills because they dropped out—and now carry debt they are unwilling or unable to repay. Policy makers worry that without a bigger intervention, those borrowers will become trapped for years and will ultimately hurt, rather than help, the nation’s economy. Treasury Deputy Secretary Sarah Bloom Raskin compares the 7 million student-loan borrowers in default—and millions of others who appear on the same path—to homeowners who found themselves underwater and headed toward foreclosure after the housing crash.. “We want to stabilize this generation of student borrowers and revive their prospects for the future. I think students are essential to our future economic growth and contributions to productivity.”

Here’s the thing about debt: It’s not nearly as bad as everyone says it is. - Jared Bernstein - Taking on debt can be a terrible idea or a wonderful idea. More precisely, taking on debt is how we borrow against future resources to pay for current investment or consumption. And therein lies the rub: There have to be future resources against which to borrow. Whether it’s a college student, a homeowner (see “The Big Short”), a country (see Greece), a city (Detroit) or a “territory” (Puerto Rico), the reason debt becomes unsustainable is because earnings or growth fail to materialize.That’s the recipe for a debt spiral, when paying what you owe to your creditors is not just tough, it’s increasingly impossible because your debt burden is growing faster than your income. I was reminded about these dynamics by this Wall Street Journal piece from Sunday, from which the following figure is drawn. There’s a lot in there, so let’s start unpacking. First, student loan delinquencies are now higher than those of the other types of debt shown in the figure. You may be aware of that, as student debt burdens have become a campaign issue, at least for Hillary Clinton and Bernie Sanders (Donald Trump’s response to debt issues tends to be some variation of: Just default … that’s what I do!). But the key point in the article is that many of these borrowers “never learned new skills because they dropped out.” They can’t finance their loans because they’re paying off “an asset they never received,” i.e., a college diploma. For-profit colleges have generated particularly serious problems in this space. Researchers “tracked the earnings of some 1.4 million students who left a for-profit college in the two years through September 2008. Seventy percent of them dropped out. Those who enrolled in associate’s and bachelor’s programs earned an average of $600 to $700 a year less in the six years after leaving school compared with the six years before they entered.”

When Your 401(k) Is Better for Your Employer --Gretchen Morgenson -- Is your retirement plan set up to benefit you or your employer? Such a question may seem out of place. After all, the Employee Retirement Income Security Act of 1974, known as Erisa, requires overseers of 401(k) plans and other benefit programs to ensure they are run safely, soundly and in participants’ best interests. But class-action lawsuits against retirement plan sponsors in recent years have generated significant payouts, and legal experts say some employers are responding by modifying the terms of their plans. The goal? To help shield them from litigation. Changes that companies have made to their programs include reducing the amount of time a participant has to bring a legal action and requiring that such an action be brought in a court that is convenient to the plan sponsor but not necessarily to a beneficiary. This is known as forum selection. Such requirements do more than make it harder for beneficiaries to receive the benefits they are owed, said Norman Stein, senior policy adviser at the Pension Rights Center, a nonprofit consumer organization in Washington. They also prevent participants from holding plan overseers accountable.“It’s been a slowly growing problem from the perspective of participants,” Mr. Stein said in an interview. “If you have a plan and you want to do everything you can to immunize yourself against suits, you can take these measures.”Such immunization is possible because of how Erisa was written and how courts interpret it, Mr. Stein explained.

Nearly 100,000 Left Without Insurance In Colorado Due To Obamacare - We have covered the complete disaster that is Obamacare in great detail recently,from premiums skyrocketing in 2017, to the largest US Health Insurer throwing in the towel on Obamacare exchanges, and even Insurance companies suing the government over subsidiesthe government promised if the firms lost money as a result of being in the exchange. And now for the most recent Obamacare debacle we look to Colorado, where more than 92,000 people will be losing their Obamacare health care coverage in 2017. Four large health insurers - UnitedHealthCare, Humana Insurance, Rocky Mountain Health Plans, and Anthem Blue Cross and Blue Shield - will either not be offering individual plans or reducing offerings in 2017, leaving individuals scrambling to find another plan. From the Colorado Division of Insurance As noted in a May 13 release, UnitedHealthcare and Humana Insurance will not offer individual plans in 2017, which impacts approximately 20,000 consumers in Colorado (UnitedHealthcare – 10,549; Humana – 9,914). In addition, Rocky Mountain Health Plans (RMHP) determined that it will reduce individual plan offerings for 2017, offering individual plans only in Mesa County, only via its Monument Health affiliate. Approximately 10,000 people currently enrolled in an individual RMHP plan will have to find another plan for 2017. In addition, Anthem Blue Cross and Blue Shield decided it will not offer its PPO (Preferred Provider Organization) individual plans for 2017, which impacts 62,310 people. However, Anthem will continue to offer HMO (Health Maintenance Organization) individual plans statewide, and these plans will be available to all consumers affected by the PPO decision. All of these companies will continue to offer their small and large group plans for employers.

Interesting Phenomena -- According to the New York Fed Reserve Bank the PPACA appears to be doing what it was intended to do besides grant more people healthcare. States that opted into the Medicaid expansion and the PPACA have experienced a decrease in the number of billings going to collection agencies. “We see that between 2009 and 2015, the series is statistically and economically indistinguishable from zero in every quarter, which is consistent with the constant and parallel trends of the series in the first chart. This means that collections in counties that did not expand Medicaid grew along similar trends as in counties that did. However, starting in the first quarter of 2015, the difference in differences turns sharply negative. By the fourth quarter of 2015, the chart indicates that, on average, collections declined by more than $100 per capita in the counties most affected by the Medicaid expansion relative to less affected counties. This is a sizable decline, given that the mean of collection balances over our sample period is $280 (and the standard deviation is $186). Note that the declines do not start as soon as the ACA is implemented (in the first quarter of 2014)—this should not be surprising since bills can take many months to enter collections.”

Public Health Must Not Resuscitate the Trans-Pacific Partnership: Two recent high-profile statements attempt to drum up support for the unpopular Trans Pacific Partnership (TPP) based on faulty analyses of provisions that greatly concern public health: tobacco control, and access to medicines. The U.S. electorate is massively opposed, across the political spectrum, to the proposed TPP. Hatched during the market triumphalism of the 1980s, modern era trade agreements like the TPP have contributed to the most lopsided inequality in income distribution since the Great Depression. They created the commercial and legal framework for outsourcing living-wage jobs, escalating the prices of critical medicines, and assigning corporate privileges globally that undermine national and local government laws and regulations on climate and the environment, labor standards and occupational safety and health, controls on tobacco, alcohol and obesogenic foods and beverages, and privatizing services such as health, education, social services, water, and corrections.The TPP would continue and extend these policies, which significantly undermine the social and economic determinants of the public's health. In fact, even the recent analysis by the usually complacent International Trade Commission concedes that the TPP would add virtually nothing to U.S. economic growth, while further eroding jobs in 16 out of 25 U.S. economic sectors in agriculture, manufacturing, and services. Public health must not collude with efforts to resuscitate the TPP.

John Oliver buys and forgives $15 million in debt - — Some 9,000 people stuck with delinquent medical bills had their debts forgiven courtesy of HBO host John Oliver. Oliver, on his "Last Week Tonight" program Sunday, took the action to illustrate a story about the practices of companies that purchase the records of debtors and attempt to collect on them. The show set up its own company to acquire $15 million worth of debt owed to hospitals in Texas, paying $60,000. Oliver added a little showbiz flair, pressing a big red button to symbolize the debt forgiveness. He described it as eclipsing the $8 million giveaway by talk-show host Oprah Winfrey when she gave a car to each member of her studio audience one day, making it the biggest ever. "Are you ready to make television history?" Oliver said. "Let's do this!" Oliver said it was "disturbingly easy" for his show to set up a company, which it called Central Asset Recovery Professionals, and incorporate it in Mississippi to make the purchase. Oliver's show engages in a form of investigative comedy, this week examining an overlooked industry. Institutions often sell their debt for pennies on the dollar to companies who then attempt to collect on the bills. These companies operate with little regulation and sometimes employ shady and abusive collectors who try to intimidate people into paying, he said.

Tranparency International Reports on Massive Corruption in the Pharmaceutical Sector – Media Hardly Notices -Transparency International (TI) defines corruption as Abuse of entrusted power for private gain In 2006, TI published a report on health care corruption, which asserted that corruption is widespread throughout the world, serious, and causes severe harm to patients and society. the scale of corruption is vast in both rich and poor countries. Also,  Corruption might mean the difference between life and death for those in need of urgent care. It is invariably the poor in society who are affected most by corruption because they often cannot afford bribes or private health care. But corruption in the richest parts of the world also has its costs. The report did not get much attention.  Since then, health care corruption has been nearly a taboo topic in the US.  When health care corruption is discussed in English speaking developed countries, it is almost always in terms of a problem that affects benighted less developed countries.  On Health Care Renewal, we have repeatedly asserted that health care corruption is a big problem in all countries, including the US, but the topic remains anechoic. Yet somehow, a substantial minority of US citizens, 43%, seemed to believe that corruption is an important problem in US health care, according to a TI survey published in 2013 (look here).  But that survey was largely ignored in the media and health care and medical scholarly literature in the developed world, and when it was discussed, it was again in terms of results in less developed countries.  Health Care Renewal was practically the only source of coverage in the US of the survey’s results.

Veterans Affairs Wants To Provide Sex-Reassignment Surgeries For Transgender Vets --As the nation struggles over which restroom to use when you're 'undecided', the Department of Veterans Affairs has decided to chime in on the issue of gender dysphoria as it plans to lift a ban on sex reassignment surgeries for transgender veterans. Watch the latest video at The VA says the surgical procedures were not deemed to be "medically necessary" in the past and there were questions over their safety and effectiveness. However, as themilitary prepares to allow transgender troops to serve openly and President Barack Obama's administration wrangles with states over the rights of transgender people to use the restrooms of the their choice, it appears, as reports, that transition-related surgeries may soon be covered..."However, increased understanding of gender dysphoria and surgical techniques in this area have improved significantly, and surgical procedures are now widely accepted in the medical community as medically necessary treatment for gender dysphoria," the VA wrote in the notice. The department called it a serious medical condition with severe consequences for patients if treatment is not provided. Current VA rules prohibit the department from covering or performing any surgical procedures considered to be gender alterations.

Americans Have Never Been Fatter - And It's Getting Worse - Two recent reports from the Centers for Disease Control (CDC) show that efforts to encourage Americans to lose weight aren't working.  In one study of more than 5,400 adults, the results show that 33% of US adults are overweight, and 38% of US adults are obese. Breaking the data down a bit further, the report writes that "the age-adjusted prevalence of obesity in 2013-2014 was 35% among men, and 40.4% among women." Additionally, more than 5% of men and nearly 10% of women came in morbidly obese. For adults, people are considered overweight when their body mass index reaches 25, obese when it hits 30, and morbidly obese when it reaches 40. As an example, someone who is 5-foot-5 and weighs 149 pounds has a body mass index of 24, which is considered a healthy weight according to NBC News. If a pound is added, and that same person has a BMI of 25, the person is considered overweight. At 180 pounds that individual would have a BMI of 30 and would be considered obese. In a second study done on children and teens, the results showed that 17% are obese and 5.8% were extremely obese. Obesity in kids is measured a little bit differently, it's how heavy they are compared to other kids the same age and height - those weighing more than 95% of kids the same age are considered obese. People who are obese have higher rates of heart disease, diabetes, some cancers, arthritis, and Alzheimer's disease, however despite a lot of effort and millions of dollars spent, there is not much evidence the epidemic is diminishing.

U.S. Births decreased slightly in 2015 --From the National Center for Health Statistics: Births: Preliminary Data for 2015. The NCHS reports: The preliminary number of births for the United States in 2015 was 3,977,745, a decrease of less than 1% (0.3%) from 2014 (3,988,076). This decline followed the increase in births from 2013 to 2014, which was the first increase since 2007 ... The preliminary general fertility rate (GFR) for the United States also decreased less than 1% in 2015, to 62.5 births per 1,000 women aged 15–44, from 62.9 in 2014. This decline follows an increase in the rate from 2013 to 2014, the first increase since 2007. Here is a long term graph of annual U.S. births through 2015 ...

Behind the Ongoing U.S. Baby Bust, in 5 Charts - The newest official tally  from the National Center for Health Statistics showed an unexpected drop in the number of babies born in the U.S. in 2015. The report was a surprise: Demographers had generally expected the number of births to rise in 2015, as it had in 2014. Instead, the U.S. appears to still be stuck in something of an ongoing “baby bust” that started with the recession and housing collapse and has yet to reverse. Here’s a look at the trends behind this bust.  The general fertility rate fell in 2015 to tie the lowest level on record. Fertility, defined as the number of live births per 1,000 women ages 15-44, has never been lower than the rate recorded last year and in 2013.  It’s no surprise that Americans are having fewer babies than in the years after World War II, when there was an incredible baby boom. And it’s of course well known that people generally have smaller families today than in the past. Add the severe economic recession that began in 2007 to the picture, and you have the elements to push the birth rate to record lows. (The abortion rate climbed sharply in the 1970s but has declined by almost half since the 1980s.)  The birth rate is only part of the story. Because there are simply more people now than in the past, the total number of births is still fairly high, with just under 4 million people born in 2015. That’s still more babies than in the mid-1990s as well as most of the 1970s and 1980s. The record years for U.S. births were 2007 with 4.32 million and 1957 with 4.3 million new babies. While there’s clearly a baby bust under way, it’s worth keeping some perspective that it’s not at all comparable to the size of the bust between the 1960s and 1970s. That time period demarcates the final births of the baby boomers and the first births of Generation X — the line between those two generations is generally drawn in 1965. During that period, the number of births declined by more than 1 million per year.

Colombia makes move on drug price : The Colombian government seems to be facing its fears in announcing it will issue a “declaration of public interest” lowering the price on imatinib, a drug sold under the brand name Gleevec that is used to treat leukemia and other cancers. The decision stops short of a compulsory license that would have stripped the drug’s patent to allow for generic production — Colombia had feared that move would lead the U.S. to pull financial support in other areas, such as Colombia’s peace talks. Colombian embassy officials previously complained of pressure from U.S. congressional staff over the issue. Story Continued Below The declaration was prompted after negotiations between the government and the drug’s manufacturer, Swiss-based Novartis, broke down, Colombian Health Minister Alejandro Gaviria told reporters Thursday at a conference in Cartagena. The U.S. Chamber of Commerce condemned the action late Thursday, saying it moves Colombia closer to the more drastic action of issuing a compulsory license. “These actions are inconsistent with Colombia’s history as a stable, pro-growth economy. We urge the Government of Colombia to abandon this destructive course and reject Minister Gaviria’s declaration,”

The Untold Story of America’s Opioid Addiction -- We learned Thursday that Prince died of an opioid overdose—specifically from fentanyl, a synthetic opioid often prescribed to people who have built up a tolerance to oral opioids. While the toxicology report has not yet been made public—and may never be—it’s possible that Prince, who had a reputation for living substance-free but also suffered from debilitating hip and knee pain, got his drugs from his doctor, not a dealer.   There’s no question that opioids are effective at managing certain types of pain. But American medicine has become far too reliant on the potentially dangerous drugs for the wrong reasons. About 15 years ago, hospital watchdog groups grew concerned that physicians were not taking pain management seriously enough. The solution to this perceived epidemic of pain in the early 2000s was opioids. These strong painkillers became the drug of choice as ibuprofen (the active ingredient in Advil, Motrin, and similar products) had fallen out of favor thanks to overblown concerns about the risks of internal bleeding. Around the same time, pharmaceutical companies noticed a now infamous study from 1986 suggesting that opioids were less addictive than previously thought. The author of that paper has since publicly recanted its conclusions, calling the sample size of 38 individuals too small. But pharmaceutical companies used this small, now roundly debunked study to convince professional medical organizations, and eventually hospital regulators, that it was safe to give opioids to more patients. Since the early 1990s, the annual number of opioid prescriptions has tripled. Opioid overdose deaths have quadrupled. Today, Americans consume 80 percent of the world’s (legal) opioids, despite accounting for less than 5 percent of the world population.

Senate Proposal Would Expand Mandatory-Minimum Drug Sentencing -- Again: In a move that would reinvigorate one of the most harmful innovations of the drug war, Sen. Kelly Ayotte (R-New Hampshire) is pushing to vastly expand mandatory-minimum sentencing for those convicted of possessing the opiate drug fentanyl. Her proposal is facing fierce opposition from public health and civil rights advocates eager to end the war on drugs. Nearly 100 organizations sent a letter to Senate leadership this week opposing the legislation, which they say would extend harsh punishments to low-level drug sellers and users struggling with addiction. Mandatory-minimum sentencing laws became a central feature of the drug war during the anti-drug hysteria of the 1980s and '90s, and require judges to set minimum sentences for certain crimes. These sentences cannot be lowered regardless of circumstance, and now drug offenders make up 60 percent of the federal prison population. Fentanyl is a potent synthetic opioid that is sometimes mixed into illicit heroin supplies or used to make fake prescription painkillers. The drug has been in the news a lot lately because it reportedly killed pop star Prince, and has contributed to a spike in overdose deaths in parts of the country hit hard by rising rates of opioid misuse -- including Senator Ayotte's home state of New Hampshire, where she faces a challenger in a Republican primary race. The clash over Senator Ayotte's fentanyl proposal also comes as Republicans and Democrats in the Congress are uniting around an enthusiasm for sentencing reform and some states are rolling back mandatory-minimum sentencing for drug crimes. Meanwhile, the Obama administration is signaling that the country's highly publicized opioid problem should be addressed more as a public health issue than a criminal one.

Orange-Flavored, Dissolvable Amphetamine for Children Approved by FDA -- Adzenys XR-ODT™ is the newest ADHD medication to be approved by the FDA. Chemically similar to Adderall, the drug is now available by prescription for children over the age of six throughout the United States. But Adzenys differs from previous generations of ADHD drugs in one major way—it is the first orange-flavored, orally dissolvable iteration of an amphetamine-based stimulant. The release of Adzenys has caused concern among doctors and parents due to the fact that the medication is a Schedule 2 Controlled Substance, and the drug’s main selling point—its ease of use—may facilitate abuse.  It’s especially ironic given the scrutiny over THC-medicated edibles in places like Colorado, Oregon, and Vancouver, where lawmakers see their ease of use as problematic for children.  Some in the medical community insist that creating an ODT (orally disintegrating tablet) version of an ADHD drug is a natural course of action for a group of medications with such a widespread use as stimulants; Dr. Ben Biermann of the University of Michigan told STAT that “it’s simply another delivery mechanism.” ODTs have many benefits for those who suffer from difficulty swallowing or have compliance issues, and notably can be taken without liquid.  Adzenys is not the first scheduled drug to come as an ODT. Pharmaceutical companies have previously produced chewable stimulant medications such as Methylin, an ADHD treatment chemically similar to Ritalin. Klonopin, a benzodiazepine, and Abstral, a fentanyl-based opioid, both come in ODT form. But it does seem to be one of the first drugs that is controlled, dissolvable, flavored, and approved and marketed for children.

Empathy Is Killed By Popular Painkiller Found In 600 Different Drugs - Acetaminophen — commonly known as Tylenol in the US and paracetamol elsewhere — reduces people’s empathy for the pain of others, new research finds. Acetaminophen is an ingredient in over 600 different medications, including being the main constituent of Tylenol. The ubiquitous painkiller does not just kill pain, it also kills our fellow-feeling. Dr Dominik Mischkowski, the study’s first author, said: “These findings suggest other people’s pain doesn’t seem as big of a deal to you when you’ve taken acetaminophen. Acetaminophen can reduce empathy as well as serve as a painkiller.” Previous research has also found that the drug can reduce the positive emotions of those taking it. Dr Baldwin Way, a study co-author, said:“We don’t know why acetaminophen is having these effects, but it is concerning. Empathy is important. If you are having an argument with your spouse and you just took acetaminophen, this research suggests you might be less understanding of what you did to hurt your spouse’s feelings.” The research was carried out on 80 college students.

What is doctors’ compliance rate for hand hygiene procedures? --According to a new study, when they know they are being watched it is 57 percent. When they don’t know they are being watched, it is 22 percent. What I find shocking is not the difference, which fits readily into the economic way of thinking.  It is that direct observation of doctors still does not get the rate above 57 percent.

Military discloses at least 11 troops infected with Zika virus this year:  At least 11 U.S. troops have been infected with the Zika virus since January, nearly all of whom traveled to countries where the mosquito-born illness is prevalent, a Pentagon health report published Friday disclosed. In addition, four dependents of servicemembers — which can include spouses and children — and two military retirees contracted the illness, according to the report. It underscored the risks to military personnel of child-bearing age exposed to the virus during deployments. A fetus infected with the Zika virus during the first three months of pregnancy has about a 1% to 13% chance of developing microcephaly, an abnormally small head usually caused by incomplete brain development, according to the Centers for Disease Control and Prevention. Among the 17 infected are four women, though none were pregnant, said Dr. Jose Sanchez, deputy chief of Armed Forces Health Surveillance Branch. Troops suffering from the Zika were four soldiers, three Airmen, a Marine and three members of the Coast Guard, according to Sanchez. The first confirmed case was diagnosed in late January, the report said. Fifteen of the 17 had traveled to South America or the Caribbean. They included four who visited Columbia, three who went to the Dominican Republic and three who visited Puerto Rico. One person had traveled to Brazil, which is dealing with a Zika epidemic.

Nantucket wants to fight a nasty disease by releasing genetically modified mice on the island - This exclusive summer playground could become the site of an unprecedented experiment to combat Lyme disease by releasing genetically modified mice on the island. Nantucket boasts some of the highest Lyme infection rates in the country, and the idea unveiled Monday would involve modifying the genes of tens of thousands of mice to keep them from spreading the Lyme bacterium to ticks, which in turn infect people. Any release is years away, but an MIT professor presented the idea to the Nantucket board of health and an audience of about 20 residents and scientists, who were broadly favorable.If the project is realized, it might be the first release into the wild of animals modified with the cutting-edge gene-editing technique CRISPR.“We are considering deliberate alteration of the local environment.”Lyme disease is a significant problem for residents of Nantucket: The island had the highest rate of Lyme of any county from 1992 to 2001, and finished in third place from 2002 to 2006, according to government data. And Dr. Tim Lepore, a surgeon at a Nantucket hospital who has been seeing patients with Lyme since the 80s, estimates that many more are infected than the CDC reports. An average year brings about 150 patients to his office, he said, and sometimes twice as many. Esvelt hopes to reduce the prevalence of Lyme disease by focusing on the white-footed mouse, which is a critical host for Lyme-carrying ticks. Ticks bite the mice, pick up the bacteria, and then transmit it to other mice and to humans. If scientists can stop Lyme from spreading between the mouse and the tick, then they could break the cycle of transmission and Lyme disease rates might plummet.

US bid to grow human organs for transplant inside pigs - BBC News: Scientists in the United States are trying to grow human organs inside pigs. They have injected human stem cells into pig embryos to produce human-pig embryos known as chimeras. The embryos are part of research aimed at overcoming the worldwide shortage of transplant organs. The team from University of California, Davis says they should look and behave like normal pigs except that one organ will be composed of human cells. Creating the chimeric embryos takes two stages. First, a technique known as CRISPR gene editing is used to remove DNA from a newly fertilised pig embryo that would enable the resulting foetus to grow a pancreas. This creates a genetic "niche" or void. Then, human induced pluripotent (iPS) stem cells are injected into the embryo. The iPS cells were derived from adult cells and "dialled back" to become stem cells capable of developing into any tissue in the body. The team at UC Davis hopes the human stem cells will take advantage of the genetic niche in the pig embryo and the resulting foetus will grow a human pancreas. "Our hope is that this pig embryo will develop normally but the pancreas will be made almost exclusively out of human cells and could be compatible with a patient for transplantation." But the work is controversial. Last year, the main US medical research agency, the National Institutes of Health, imposed a moratorium on funding such experiments. The main concern is that the human cells might migrate to the developing pig's brain and make it, in some way, more human. Pablo "We think there is very low potential for a human brain to grow, but this is something we will be investigating."

World’s First ‘Spotty Dog’ and Cow-Like Sheep Created Using Gene Editing -- Researchers at the state-run Xinjiang Academy of Zootechnical Science in China have bred five sheep with different coat colors using the new gene-editing tool known as CRISPR-Cas9. According to Xinhua, two of the sheep have black and white fur “like cows,” another two have black with white spots like “spotty dogs” and the fifth sheep has brown and white like “unstirred cappuccino.” This is the first time that scientists have altered the coat colors of large animals using the controversial technique, the Chinese publication noted. Color alteration has been previously achieved on mice. “The lambs, born in March, have become our lovely pets,” head researcher Liu Mingjun told Xinhua, adding that with the CRISPR-Cas9, pet owners can order their pets with customized fur coloring. He also noted that consumers will be able to buy wool products in various colors that doesn’t need to be dyed.

Gene Drives That Tinker with Evolution Are an Unknown Risk, Researchers Say - MIT Technology Review -- The technology is inspired by natural phenomena through which particular “selfish” genes are passed to offspring at higher rate than is normally allowed by nature in sexually reproducing organisms. There are multiple ways to make gene drives in the lab, but scientists are now using the gene-editing tool known as CRISPR to very rapidly and effectively do the trick. Evidence in mosquitoes, fruit flies, and yeast suggests that this could be used to spread a gene through nearly 100 percent of a population. The possible ecological effects, intended or not, are far from clear, though. How long will gene drives persist in the environment? What is the chance that an engineered organism could pass the gene drive to an unintended recipient? How might these things affect the whole ecosystem? How much does all this vary depending on the particular organism and ecosystem? Research on the molecular biology of gene drives has outpaced ecological research on how genes move through populations and between species, the report says, making it impossible to adequately answer these and other thorny questions. Substantially more laboratory research and confined field testing is needed to better grasp the risks. The authors of the report call on researchers to use extreme caution to prevent gene-drive modified organisms from being accidentally released into the wild. They also warn that the technology will challenge governments, which haven’t developed laws that are adequate to deal with gene drives. Kevin Esvelt, a biologist and professor at the MIT Media Lab, says that although the report gets a lot right, it should have gone further in its recommendations. Since it’s possible for a single organism to spread a gene drive throughout an entire species, “a release anywhere may well be equivalent to a release everywhere,” he says. That means anyone planning to make a gene drive should be obligated to make those plans public before performing experiments.

Chemical Safety Reform Bill Headed to Obama’s Desk Let’s Down Women With and at Risk of Breast Cancer by Karuna Jaggar - Cost. Quality. Color. These are some of the things we consider when choosing which products to buy. We shouldn’t also have to consider whether the chemicals in the products are linked to cancer.  I run a breast cancer watchdog organization, which for 26 years has been a leader in calling for protections from chemicals that can increase the risk of cancer. The outreach flyer for the first meeting to form Breast Cancer Action read: “Our goals are education and political action to prevent a further rise in the incidence of breast cancer; indeed, we hope that our efforts will serve in the future to lower the breast cancer rate in the United States.” You would think that our founders, only one of whom is alive today, would be pleased then to see that long-overdue updates to chemical safety regulations are nearing the president’s desk. Unfortunately, the compromise bill that resulted from approximately a dozen years of negotiations puts industry interests first and lets down women at risk of and living with breast cancer. Most of us assume that anything that makes it onto store shelves is fully regulated and appropriately safety tested to ensure that we aren’t harmed from using them. Unfortunately, that has never been true. And despite much-touted reforms to chemical safety laws, it is still “buyer beware” when it comes to chemicals linked to breast cancer.

At least 33 US cities used water testing 'cheats' over lead concerns | Environment | The Guardian: At least 33 cities across 17 US states have used water testing “cheats” that potentially conceal dangerous levels of lead, a Guardian investigation launched in the wake of the toxic water crisis in Flint, Michigan, has found.Of these cities, 21 used the same water testing methods that prompted criminal charges against three government employees in Flint over their role in one of the worst public health disasters in US history. The crisis that gripped Flint is an extreme case where a cost-cutting decision to divert the city’s water supply to a polluted river was compounded by a poor testing regime and delays by environmental officials to respond to the health emergency. The Guardian’s investigation demonstrates that similar testing regimes were in place in cities including Chicago, Boston, Philadelphia, Detroit and Milwaukee. On Thursday, the Hagens Berman law firm filed a class action lawsuit against the city of Philadelphia, alleging that water department testing protocols “temporarily hide” lead contamination and that the city does not test enough high-risk homes. The Guardian investigation concerned thousands of documents detailing water testing practices over the past decade. They reveal:

  • Despite warnings of regulators and experts, water departments in at least 33 cities used testing methods over the past decade that could underestimate lead found in drinking water.
  • Officials in two major cities – Philadelphia and Chicago – asked employees to test water safety in their own homes.
  • Two states – Michigan and New Hampshire – advised water departments to give themselves extra time to complete tests so that if lead contamination exceeded federal limits, officials could re-sample and remove results with high lead levels.
  • Some cities denied knowledge of the locations of lead pipes, failed to sample the required number of homes with lead plumbing or refused to release lead pipe maps, claiming it was a security risk.

Dry Taps and Lagoons of Sewage: What America’s Water Crisis Looks Like - In Lowndes County, Alabama, thousands of people live with raw sewage in their yards or near lagoons of human waste. Only 20 percent of the county’s residents have access to municipal sewers, leaving them responsible for maintaining their own septic systems. The soil in the former cotton-producing region is made of clay, which doesn’t drain well, and above-ground septic systems can cost up to $30,000—an impossible sum for many residents, 27 percent of whom live below the poverty line. Between 40 and 90 percent of homes in the county have failing systems or none at all. Recently, researchers at the Baylor College of Medicine found evidence in residents of intestinal parasites, including hookworm, a tiny, four-fanged nematode that spreads from human waste to the soil and back again to the human body through the skin, particularly bare feet.   Lowndes County is one of several areas highlighted in a new report from the Unitarian Universalist Service Committee titled “The Invisible Crisis: Water Unaffordability in the United States.” The report documents the impact of rising water costs and inadequate infrastructure, which are putting millions of people at risk for shutoffs, illness, foreclosure, and even of losing their children, as lack of running water can be considered child neglect in 21 states. Those affected are disproportionately poor people of color, because of historic underinvestment in those communities. “US water and sewer infrastructure, much of which is over 80 years old, has often excluded low-income and minority neighborhoods and towns, Native-American communities, and low-income rural areas,” reads the report.  "There is no federal statute or policy in the United States that ensures access to water for the poor."  According to UUSC, water costs account for 5 to 20 percent of what the poorest 20 percent of Americans earn each year. In Seattle, for instance, the 94,000 people who live below the poverty line pay an average of $3,720 a year for water service, or at least 15 percent of their income.

EU Fails to Approve ‘Technical Extension’ for Weed-Killer Glyphosate --A proposal for a temporary “technical extension” of the EU approval of the herbicide glyphosate failed today to secure the support of a majority of EU governments. “We applaud those EU governments who are sticking to their guns and are refusing to authorize this controversial toxic herbicide,” Bart Staes, Green environment and food safety spokesperson, said. “There are clear concerns about the health risks with glyphosate, both as regards it being a carcinogen and an endocrine disruptor. Moreover, glyphosate’s devastating impact on biodiversity should have already led to its ban.   “Three strikes must mean the approval of glyphosate is finally ruled out. After the third failed attempt, the Commission must stop continuing to try and force through the approval of glyphosate. Such a move would raise major democratic concerns about the EU’s decision-making process. The process of phasing out glyphosate and other toxic herbicides and pesticides from agriculture must begin now, and this means reorienting the EU’s Common Agricultural Policy towards a more sustainable agricultural model.” With the current approval of glyphosate set to expire at the end of June and insufficient support from EU governments for re-approval, the European Commission had proposed a “technical extension” of the current approval until after the European Chemicals Agency delivers its opinion on glyphosate (12-18 months). European Chemicals Agency is expected to deliver its opinion by autumn 2017. The “technical extension” means the commission has dropped the proposal for a longer term re-approval. The failure to agree on this today means the future for glyphosate is uncertain. The European Commission could try to force the proposal through an “appeals committee.”

Atrazine and Glyphosate More Harmful Than Scientists Once Thought --Monsanto marketed its potent weed killer glyphosate—the active ingredient in Roundup—and the corn and soybeans genetically engineered to withstand it, by claiming it would replace other, more toxic weed killers such as atrazine. But, it didn’t happen. Since the mid-1990s, American farmers have reduced the amount of atrazine spread on corn fields by just 22 percent, from 0.83 to 0.64 pounds per acre. At the same time they have increased their glyphosate usage by 3,000 percent, from 0.03 pounds per acre to just more than 1 pound per acre. Glyphosate has become the most popular agricultural herbicide in the U.S. and globally. Last week the U.S. Environmental Protection Agency released a document—technically, a “draft assessment”—warning that atrazine threatens wildlife. This was no surprise to scientists who have studied the harmful effects of atrazine for decades. Researchers have found substantial evidence that the chemical contributes to the feminization of male frogs and to reduced sperm count in men.  Because of atrazine’s health hazards and its persistence in groundwater, the European Union has banned it in agriculture. Recent scientific research suggests that both atrazine and glyphosate are more harmful than scientists once thought. For instance, several studies have shown that frequent exposure to glyphosate doubles a person’s risk of developing a blood cancer known as Non-Hodgkin lymphoma. Last year, the World Health Organization classified glyphosate as a “probable human carcinogen.” In light of new evidence on the dangers of glyphosate, yesterday (June 6), European Union nations failed to pass a short-term extension of glyphosate’s license for agricultural use. The pesticide could be barred in the EU as soon as next month.

First Commercial Crop of GMO Arctic Apples About to Hit Market -- The first commercial crop of Arctic Applesgenetically modified (GMO) apples that won’t turn brown when sliced—are about to hit the market. The apples stirred up major controversy in February 2015 when the USDA deemed both the Arctic Golden Delicious and Arctic Granny varieties safe for human consumption. It was the first time the federal agency approved an aesthetically-improved genetically engineered food. According to Good Fruit Grower, a publication from the Washington State Fruit Commission, after 20 years of development, Okanogan Specialty Fruits is expecting to harvest its first commercial crop of about 50 bins of Arctic Golden Delicious in Washington this year. The Canadian company will also plant its first Arctic Granny Smiths this year and is awaiting approval from the U.S. Department of Agriculture (USDA) for a third variety, the Arctic Fuji. Neal Carter, company president and founder, told Good Fruit Grower that his company has planted roughly 15 acres of Goldens in Washington, which will yield a small crop this fall. The blossoming venture plans to add more acreage mostly in Washington this year for its Arctic Golden and Arctic Granny varieties, with even more in other states and Canada in the following few years. Carter said that the first apples will be test marketed in select stores this year. As production ramps up, more apples will by distributed to locations in the U.S. and Canada. Carter declined to name which growers, packers or retailers will be working with Arctic Apples. Good Fruit Grower reported that once regulatory agencies have approved the apple varieties, the company may promote its flagship product like any other apple you see in the market.

Changing Direction, Big Food Decides to Label Products Containing GMOs - More than 60 countries have implemented genetically modified organism (GMO) labeling laws, according to the Center for Food Safety. This group of countries does not include the United States, which currently does not have a national labeling standard. Following a recent legislative win for GMO labeling in Vermont, and in response to the continued lack of a nationwide standard, major food companies are opting to implement GMO labeling for their products in the U.S. The U.S. Food and Drug Administration estimates that GMOs are present in 93 percent of soybeans and 88 percent of corn. The decisions of General Mills, Kellogg’s, ConAgra Foods, and Mars, Inc. to label products containing GMOs comes just months before Vermont’s labeling law goes into effect, on July 1, 2016. The law, called Act 120, was passed on May 9, 2014, and requires food to be labeled as produced completely or partially from genetic engineering. Violators of the regulation face a penalty of up to US$1,000 per day, per product. Opponents of obligatory GMO labeling have expressed concerns that products with a mandated label could dissuade customers from purchasing the labeled food and beverages. Gregory Jaffe, Director of Biotechnology at the Center for Science in the Public Interest, explains that “many organizations have provided misinformation to consumers suggesting that the ingredients made from GMOs are harmful. Putting even neutral information about GMOs on food labels might be harmful to a product’s marketability because of the misinformation that many consumers may have been exposed to.”

Brazil Won’t Buy U.S. GMO Corn, Highlights Worldwide Divide Over GMOs -- While genetically modified (GMO) foods seem to proliferate across the U.S., many other nations do not allow such products to enter or grow within their borders.A Bloomberg article illustrated how the world’s vast patchwork of GMO regulations can deter international trade.  Case in point, even though the Brazilian chicken industry is suffering from a domestic corn shortage this year, companies refuse to buy corn from the U.S. because of Brazil’s stringent regulations on GMOs. “In recent years, some of the largest commodity trading companies have refused to take certain GMO crops from farmers because the seeds used hadn’t received a full array of global approvals, something that can lead to holdups at ports or even the rejection of entire cargoes,” the article stated. Brazil happens to be the second largest producer of GMO crops in the world after the U.S., and grows 29 varieties of GMO corn. However, the South American country has had a contentious history over GMOs and does not allow certain varieties to enter the country—the U.S. cultivates 43 types of GMO corn. Brazil also mandates that all products containing GMO ingredients carry a label and, earlier this year, the Brazilian Ministry of Justice fined major food manufacturers including Nestle, PepsiCo and a Mexican baking company for concealing the presence of GMOs in their products. 

No room in grain silos means dumping wheat in parking lots -- Some American wheat farmers are not only going to lose money on every bushel they harvest this month, many won’t have a proper place to store it. U.S. grain silos still hold surpluses from last year. Combined stockpiles for major crops — corn, soybeans, wheat and sorghum — are the biggest for this time of year since 1988. With demand slowing and output rising, space will get tighter, especially for wheat, which is the first one harvested. Some growers may dump grain in parking lots or vacant buildings. “It will be the worst storage crunch in the 30 years I have been trading wheat,”  . “A lot of grain will end up in ground piles.” While farmers expanded storage in recent years, that’s been undermined by global crop surpluses and a strong dollar. Once the world’s biggest wheat exporter, the U.S. saw its shipments in the year through Tuesday drop to the lowest since 1972. With inventories up 30 percent and expected to swell further, the price outlook is getting more bearish. Chicago futures tumbled for three straight years and in February touched the lowest level since 2010. The glut may only get bigger. Global supply, including production and inventories, will exceed consumption by the most ever in the year that ends in June 2017, with the harvest expected to be the second-highest on record, the International Grains Council said May 26. For many growers, the slump means they are spending more to grow wheat than they can collect when the grain is sold, according to analysts at Societe Generale, which forecast Chicago wheat futures will average $4.52 a bushel in the third quarter, compared with $4.8675 now. Kansas State University estimates each bushel costs $3.90 to $5.18 to produce. Moneys managers have been betting prices will fall for almost 10 straight months.

What About this War on Meat?  -- Kay McDonald - There has been a war on meat, especially on beef, over the past few years, and, especially in the context of "sustainability" and "climate change". I wish I had a nickel for every prominent headline I've seen from just about every prominent news source and writer proclaiming with one fell swoop that meat is "the problem" and if we'd just stop eating it we'd solve water, greenhouse emissions, food supply, and health problems. Just today another major story, or study, hit the press, this from World Resources Institute, "Shifting Diets from Meat to Plants Can Cut Environmental Impacts Nearly in Half."  First and foremost, you can't make a broad sweeping generalization proclaiming that meat is the problem when "meat" encompasses such a wide range of types and ways in which it was produced.  If we speak globally, then much of the red meat eaten in the world is goat meat. Goats are pretty resilient animals capable of producing both milk and meat for subsistence farmers. Is that bad? In Peru, some cultures keep guinea pigs next to their houses for quickly accessible meat. In the Middle East, pigeon houses are set up to be accessed for meat to cook with. Currently, in Zimbabwe there is a craze to raise quail for meat. Are these things bad? Pastured or free ranging livestock or poultry including beef, lamb, goat, pork, bison, and chickens are healthier meats to eat than those produced in industrial settings. These humanely raised animals convert grass to protein and add manure back to the landscape as Nature intended and as the large herbivores like bison once did. By encouraging and subsidizing a higher quality standard of meat production we could remedy much of what ails industrial agriculture here in the U.S. Another big problem with the war on meat articles is that many things are being ignored about plant based diets. Last week, economist Tim Taylor wrote "Tradeoffs of Cultured Meat Production" in which he discussed this very thing, raising the question that a shift away from meat and toward fruits and vegetables could create larger environmental effects.

Deadly moth attacks tomato crops in Nigeria - Tomatoes are often found in Nigerian cooking, and it even forms part of the country's national dish. But a deadly moth known as Tuta Absoluta is destroying Nigeria's tomato crops, sending prices soaring 700 per cent and forcing the local government to declare a state of emergency. "When you're buying one tomato for a 100 naira (S$0.86), you might as well resort to eating food that does not require tomatoes," . The outbreak is so bad that farmers in Nigeria's Kaduna state, the country's biggest tomato growing region, is calling it their tomato ebola. Eighty per cent of the tomato crops there have already been lost to the pestilence. Many farmers live on less than US$2 (S$2.71) a day. "We should have a strategic tomato reserve, we should have a strategic maize reserve to ensure staples consumed by most Nigerian households can meet at least one whole year's demand should there be any crisis," said economic analyst Bolaji Okusaga.

What tiny plastic particles are doing to tiny fish -- Yet another study is adding to scientists’ growing suspicions that tiny bits of plastic in the ocean are causing big environmental problems. A paper published Thursday in the journal Science suggests that microplastics — small plastic particles less than 5 millimeters in diameter — could be hurting the survival of European perch, and likely other species as well. Plastic waste in the ocean is a well-documented — and growing — problem around the world.  When plastic goes into the ocean or other bodies of water, it doesn’t exactly decompose — rather, it tends to break down over time into smaller and smaller parts. These tiny microplastics are believed to be especially dangerous for marine life because they’re so easy to ingest. They’ve been found in the bodies of all sorts of animals, from filter feeders like clams and mussels to small fish and birds. The problem is that scientists are still largely in the dark about how these microplastics are affecting the animals that eat them and how these effects might scale up and impact whole populations. .The new study, conducted by a pair of researchers from Uppsala University in Sweden, starts to address these questions in a particular species of fish known as the European perch. . The researchers found that the fish fared worse under higher concentrations of microplastics in every experiment they conducted. Fish eggs that had been exposed to microplastics had a lower hatch rate — 89 percent under the average concentration and 81 percent under the high concentration, as opposed to 96 percent when no microplastics were present. Fish exposed to microplastics also tended to be smaller and less physically active. Some of the most worrying results had to do with the fish’s response to predators. Healthy perch are able to use chemical cues in the water, which they can detect when another fish is attacked nearby, to avoid predators. However, the researchers found that fish exposed to an average concentration of microplastics displayed a weaker response when the researchers injected these chemical cues into their water — and fish exposed to the high concentration didn’t display any response at all.

For young fish, plastic is basically the McDonald’s all-day breakfast — What do young fish and human teenagers have in common? They both prefer eating fast food to the detriment to their health. That’s the conclusion on a recent study analyzing the impact of large volumes of plastic from human trash that plague the seas, which raises fears about what plastic can do to vital marine life. Researchers from Uppsala University in Sweden reared larval fish in different concentrations of microplastic particles. The findings, published in the journal Science, showed that fish exposed to high concentrations of microplastic particles while developing went on to display abnormal behaviors. These went on to only eat plastic, ignoring their natural food. Researchers were especially surprised that they preferred plastic to their natural food source. “They are basically fooled into thinking it’s a high-energy resource that they need to eat a lot of,” lead author Dr Oona Lonnstedt told BBC News. “I think of it as unhealthy fast food for teenagers, and they are just stuffing themselves.” Fish who ended up eating more plastic were significantly smaller than fish reared in average concentrations of microplastic particles, were much less active than fish reared in waters that contained no microplastic particles, and ignored the smell of predators—which made them more vulnerable. Currently, the world produces an estimated 311 million tons of plastic every year. It’s made its way into our food, and is set to be here long after we’re gone. Researchers are becoming increasingly concerned about the accumulation of plastic in the sea, and for good reason. By 2050, there will be more plastic than fish in the sea.

Hawaii's beloved beaches are covered in huge amounts of plastic, survey finds - A new study of the Hawaiian Islands has made a disturbing, if not entirely surprising, discovery: Hawaii’s paradisal beaches have a major plastic problem. The results of an aerial survey, released this week by the state’s Department of Land and Natural Resources (DLNR), identified more than 20,000 bits of debris on the main Hawaiian islands — and most of it is plastic, a form of waste that’s considered particularly harmful to marine life.The study, which was commissioned by the DLNR and the North Pacific Marine Science Organization, aimed to determine how much debris from the Tohoku earthquake and tsunami, which struck Japan in 2011 and is perhaps most famous for triggering the Fukushima nuclear disaster, was washing up on Hawaiian shores. Debris from the tsunami has turned up throughout the Pacific over the past few years, and the new survey was intended to serve as part of a wider effort to investigate the ecological effects of tsunamis.Between August and November 2015, researchers conducted surveys by plane, using mapping software to identify debris along the shorelines. Although the researchers didn’t walk along the shore examining debris by hand, they achieved a high image resolution from their flights, at about 2 centimeters per pixel. They classified each bit of debris by size, with the largest bits having an area greater than two square meters — about 21 square feet — and the smallest ones being less than half a square meter, or about 5 square feet.The survey found that very little of the debris on the Hawaiian coastline was associated with the 2011 tsunami. In fact, most of it seemed to be ordinary garbage carelessly tossed away by humans. Altogether, the island of Niihau suffered the most, with nearly 8,000 pieces of debris identified along its shores, 46 percent of which was plastic. Most of the shoreline had a trash density of anywhere from one to 175 bits of debris per square mile, and the majority of the debris spotted fell into the smallest size category.

The US Is Dumping Hazardous Electronic Waste Into Asia -- US exports of goods and services may be decreasing, but one export that appears to be hanging in there is hazardous electronic waste. According to a recent investigation conducted by the Seattle-based e-waste watchdog group Basel Action Network (BAN), much of the hazardous electronic waste discarded in America is not being recycled properly - and by not recycled properly he means dumped in a junkyard in southeast Asia.  Jim Puckett who leads BAN said that "most of the public still thinks that they're going to recycle e-waste right there in America. They have the right to know where their stuff goes." Last year the investigation inserted GPS tracking devices inside 200 discarded computers, printers and TV's. The devices were dropped off at donation centers, recyclers, and electronic take-back programs across the country. What the investigation found was that about a third of the items were illegally exported from the US, generally ending up in independent shops and junkyards in southeast Asia. Using a mapping app on an iPad, Puckett tracked several of the items, including one left with Dell Reconnect, to the outskirts of Hong Kong.From SputnikPuckett's investigation led him to a site on the outskirts of the city of Hong Kong,where workers without protective gear, wearing aprons dusted with extremely poisonous toner ink, were dismantling, and in some cases simply smashing, large piles of old printers. The salvage locations were littered with the broken white fluorescent tubes used to illuminate LCD flat-screen monitors on the printers. When broken, these items release highly-toxic mercury vapor. Through his translator, Puckett learned that the workers were not made aware that they were dealing with toxic materials, or that their health was at risk.

This Is How Many Years Air Pollution Will Cut From Your Life Expectancy in India - Living in India’s capital city New Delhi could shorten your life by six years because of the intensity of the air pollution there, a new report says. Inhaling tiny air pollutants reduces the life expectancy of Indians by an average of 3.4 years, with Delhi residents losing 6.3 years, the most of all states, according to a new study by the Indian Institute of Tropical Meteorology. Those living in West Bengal and Bihar, which have high levels of air pollution, face a reduction in life expectancy of 6.1 years and 5.7 years respectively. The study, which used data from the latest population census of 2011, found that exposure to particulate matter 2.5 results in 570,000 premature deaths each year with an additional 12,000 caused by exposure to ozone. PM 2.5 is tiny particulate matter that is smaller than 2.5 micrometers in diameter. The air pollutants, originating from dust, soot and smoke, can penetrate deep into the lungs, increasing the risk of heart and lung diseases.

Air pollution now major contributor to stroke, global study finds -- Air pollution has become a major contributor to stroke for the first time, with unclean air now blamed for nearly one third of the years of healthy life lost to the condition worldwide. In an unprecedented survey of global risk factors for stroke, air pollution in the form of fine particulate matter ranked seventh in terms of its impact on healthy lifespan, while household air pollution from burning solid fuels ranked eighth. Valery Feigin, director of the National Institute for Stroke and Applied Neurosciences at Auckland University of Technology, said that while he expected air pollution to emerge as a threat, the extent of the problem had taken researchers by surprise.“We did not expect the effect would be of this magnitude, or increasing so much over the last two decades,” he said. “Our study is the first to demonstrate a large and increasingly hazardous effect of air pollution on stroke burden worldwide.” The result is particularly striking because the analysis is likely to have underestimated the effects of air pollution on stroke, as the impact of burning fossil fuels was not fully accounted for. Emissions from fossil fuels are more harmful to the cardiovascular system than the fine particulate matter the team analysed, Feigin said. Scientists in the field said the “alarming” finding, published in the journal Lancet Neurology, showed that harm caused by air pollution to the lungs, heart and brain had been underestimated. About 15 million people a year suffer a stroke worldwide. Nearly six million die, and five million are left with permanent disabilities, such as loss of sight and speech, paralysis and confusion.

What’s happening to the fireflies? -- Every time I write about fireflies, readers roundly comment about seeing fewer and fewer of the twinkling insects as the years go by. And I agree. I remember summers at my grandmother’s house on the lake where the nighttime air was so thick with the coruscating light of fireflies it was nearly sufficient to illuminate the way in the dark. What’s going on? Bees are on the decline; butterflies are suffering, could fireflies be facing tough times as well?  The scientific and citizen consensus is "yes." Malaysia even holds an international symposium dedicated to conservation of the firefly; it includes experts in the fields of taxonomy, genetics, biology, behaviour, ecology and conservation of fireflies as well as members of government agencies, non-governmental organisations, educational institutions, and various corporations – all in the name of saving the firefly. As the New York Times so succinctly puts it, “Scientists have for years been warning that the world’s estimated 2,000 species of fireflies are dwindling.” And is it any wonder? As the manmade environment continues its undying march into the natural world, where are these things supposed to live? Fireflies breed and exist in the woods and forests, along lakes and streams, in dense gardens and unruly meadows. Where are they supposed to do their firefly thing when those places are paved over and built upon?  Not to mention pesticides and the ungodly fact of light pollution, which has been shown to hamper with their flirting and seduction behavior.

23,716 Industrial Projects Replace Forests Over 30 Years | IndiaSpend -Over the last 30 years, forests nearly two-thirds the size of Haryana have been lost to encroachments (15,000 sq km) and 23,716 industrial projects (14,000 sq km), according to government data, and artificial forests cannot be replacements, as the government recently acknowledged.  The government’s auditor has said conditions under which these projects are given forest land are widely violated, and experts said government data are under-estimates.  “It (government figure) is just the tip of the iceberg,” T.V. Ramachandra, associate faculty, Centre for Ecological Sciences, Indian Institute of Science, Bangalore, said. “Our study shows dense forest areas in northern, central and southern Western Ghats have decreased by 2.84%, 4.38% and 5.77% respectively over the last decade.” Currently, up to 25,000 hectares of forests–250 sq km, or more than twice Chandigarh’s area–are handed over every year for “non-forestry activities”, including defence projects, dams, mining, power plants, industries and roads, the government recently told Parliament. The rate of “diversion”, as the process is called, varies across states.  Punjab diverted about half its forest land since 1980, compared to Maharashtra, West Bengal and Tamil Nadu, which diverted less than 1% of their area.

Environmental crime growing at 'alarming pace': police body | Reuters: - Criminal gangs are plundering the Earth's natural resources faster than previously thought, with the value of environmental crimes estimated to be as high as $258 billion annually, U.N. and police officials said on Saturday. The value of stolen natural resources - including fish, timber, gold and other minerals - has risen by 26 percent in the last year, according to a report from the United Nations Environment Programme (UNEP) and Interpol, the largest international police organization. "Environmental crime is growing at an alarming pace," Interpol Secretary General Jurgen Stock warned in a statement. The world's fourth most valuable criminal enterprise after drug smuggling, counterfeiting and human trafficking, environmental wrongdoing undermines local land rights, threatens sustainable development and finances conflicts, U.N. officials said. Weak laws and poorly funded security forces are enabling international criminal networks and armed rebels to profit from a trade that also damages ecosystems and threatens species with extinction, the report said. Today, environmental crimes are worth between $91 billion and $258 billion, up from between $70 billion and $213 billion in 2014, UNEP and Interpol said. The illegal small arms trade, in contrast, is worth around $3 billion annually.

A major Native American site is being looted. Will Obama risk armed conflict to save it?  - First came archaic hunter-gatherers who worked in Glen Canyon Linear, a crude geometrical style dating back more than 3,500 years. Then about 2,000 years later, early ancestral Pueblo farmers of the Basketmaker period used more subtle lines to produce a man in headdress. A little more than 700 years ago came their descendants, who used the same kind of hard river stone to make drawings of bighorn sheep and a flute player in the ancient rock.Now, President Obama is weighing whether and how he can leave his own permanent imprint on history by designating about 2 million acres of land, known as the Bears Ears, as a national monument.And despite the uniformly acknowledged historical significance of the area, some people regard the conservation efforts by the White House as classic federal overreach. In the current-era conflict between Washington and rural Westerners, the idea of a Bears Ears national monument has produced warnings of a possible armed insurrection.In a state where the federal government owns 65 percent of the land, many conservatives already resent existing restrictions because they bar development that could generate additional revenue. Out-of-state militias came to San Juan County two years ago, when Commissioner Phil Lyman helped lead an all-terrain-vehicle protest ride through a canyon the Bureau of Land Management had closed to motorized traffic in 2007. In the case of Bears Ears, there is no question that the area is imperiled by the kind of looting and pillaging that first inspired the Antiquities Act, as well as more modern threats, such as ATVs and motorbikes tearing through the desert terrain.

What really happened at Thailand's Tiger Temple? - Al Jazeera -- Tanya's mornings typically involved being inside the temple grounds where she helped to feed and observe some 137 tigers who were under her partial care. It had been her routine for six years and, from the passion with which she speaks about it, it seems to be where her heart lies.  But on the morning of Monday, May 30, more than 500 officers, wildlife officials, vets and police were waiting patiently outside the main entrance to the place better known as Thailand's "Tiger Temple". By the main road, a few officers sheltered from the heat under a nine-metre-high yawning tiger head sculpture.It started as an impasse, but within six days, all 137 tigers would be taken in an unprecedented raid, which also unearthed dead tiger cubs, a dead bear and various animal horns. Thailand's Department of National Parks, Wildlife and Plant Conservation (DNP) was finally acting after years of allegations by multiple NGOs. Tiger Temple has long been a staple attraction for tourists and backpackers looking for the perfect photo-op. A romantic picture was painted of ochre-clad monks and endangered tigers living together in a relationship of numinous unity. The message: "You too can partake in the harmony" - for a price.   With an entrance fee of anything from 600 baht ($17) to 5,000 baht ($140) per person, millions of dollars have flowed into the temple over the years. During the raid, a two-page DNP declaration was handed out to members of the press. It explained that, legally, every tiger in the country is a "national asset" and Tiger Temple has a long history of "exploiting the property of the government for personal gain without permission from the government".

Thailand closes dive sites over coral bleaching crisis - Thailand has shut down 10 popular diving sites in a bid to slow a coral bleaching crisis, an official said Thursday, in a rare move to shun tourism profits to protect the environment. The tropical country’s southern coastline and string of islands are home to some of the world’s most prized white sand beaches and scuba sites, and the booming tourism industry props up Thailand’s lagging economy. But warming waters and ever-growing swarms of visitors have damaged coral reefs and local ecosystems. The National Parks department has now indefinitely closed at least 10 diving spots after a survey found bleaching on up to 80% of some reefs. “The coral reefs are affected by unaware tourists – when they go diving they may touch or step on the reef. Closing those spots will help the reefs recover naturally,” National Park officer director, Reungsak Theekasuk, told AFP. The diving sites lie off beaches stretching from Rayong province in the east down to Satun in the far south. Coral bleaching, primarily caused by warming waters, has been wreaking havoc on the region for years. It occurs when corals come under environmental stress – such as stronger than normal sunlight and warmer sea temperatures – and respond by shedding the algae that give them their brilliant colours. Corals can survive bleaching but they become more vulnerable to further damage while the condition persists.

'Sad truth': Great Barrier Reef may never rebound to previous health: scientists: The Great Barrier Reef is unlikely to recover fully from the huge bleaching event that has killed off more than half its corals in some northern reefs as temperatures rise, scientists say. Research, including by Tracy Ainsworth from James Cook University, has found that corals have natural mechanisms helping them to acclimatise to rising sea-level temperatures and avoid bleaching.However, the ability to cope with heat stress will be overwhelmed by the expected increase in frequency and temperature extremes, according to research published last month in the journal Science by a team led by Dr Ainsworth. Tom Di Liberto, a meteorologist with the US National Oceanic and Atmospheric Administration, used the findings to argue this week that the rising greenhouse gases are likely to reduce corals' use of "practice runs" in the future. "[If] ocean waters warm by as little as 0.5C overall, as predicted for the near future, there won't be a pre-stress practice run," Mr Di Liberto wrote in a NOAA blog." Without it, corals are at a greater risk of dying during bleaching, which means reefs are more likely to see a faster decline in coral cover." "While some recovery will occur over time, the sad truth is that ongoing ocean warming may keep some reefs from ever recovering their previous level of health, diversity, and productivity," he wrote.In the charts below, NOAA adapted Dr Ainsworth's research to show how the frequency of so-called "protective" moderate heat stress periods on the Great Barrier Reef would decrease as global temperatures increased.

The Great Barrier Reef: a catastrophe laid bare -- It was the smell that really got to diver Richard Vevers. The smell of death on the reef.  “I can’t even tell you how bad I smelt after the dive – the smell of millions of rotting animals.” After diving for 30 years in his spare time, he was compelled to combine his work and hobby when he was struck by the calamities faced by oceans around the world. Chief among them was coral bleaching, caused by climate change.  His job these days is rather morbid. He travels the world documenting dead and dying coral reefs, sometimes gathering photographs just ahead of their death, too. With the world now in the midst of the longest and probably worst global coral bleaching event in history, it’s boom time for Vevers. Even with all that experience, he’d never seen anything like the devastation he saw last month around Lizard Island in the northern third of Australia’s spectacular Great Barrier Reef. As part of a project documenting the global bleaching event, he had surveyed Lizard Island, which sits about 90km north of Cooktown in far north Queensland, when it was in full glorious health; then just as it started bleaching this year; then finally a few weeks after the bleaching began.“It was one of the most disgusting sights I’ve ever seen,” he says.  “The hard corals were dead and covered in algae, looking like they’ve been dead for years. The soft corals were still dying and the flesh of the animals was decomposing and dripping off the reef structure.”  It’s the sort of description that would be hard to believe, if it wasn’t captured in photographs. In images shared exclusively with the Guardian, the catastrophic nature of the current mass bleaching event on previously pristine parts of the Great Barrier Reef can now be revealed.

Agencies say 22% of Barrier Reef coral is dead, correcting 'misinterpretation' -- Almost a quarter of the coral on the Great Barrier Reef is now dead, according to two government agencies, with the previously pristine remote northern sections worst affected. The data from in-water surveys, released on Friday afternoon, was from the two agencies that were part of the national coral bleaching taskforce. Earlier this week their non-government partner – the Australian Research Council centre of excellence for coral reef studies – released broadly similar data. Guardian Australia understands the three data sets were planned for release together, but the two government agencies pulled out at the last minute, unhappy with the emphasis of the associated release. The media release distributed with the government agency data focused on dispelling perceived exaggerations of the damage, and on the ability of coral to recover, rather than on the size of the environmental disaster. “Despite reported claims and counter claims over the last month about the ‘death’ of large swathes of the Great Barrier Reef, the true impact of this summer’s major coral bleaching event is now emerging,” it read. In the release, John Gunn, chief executive of the Australian Institute of Marine Science, said the impacts of the bleaching were still playing out. “And while we know many corals in the northern sector will die, others will recover from bleaching over the coming months and we’re hopeful that in areas where bleaching has been minor the Reef will bounce back well.” The chairman of the Great Barrier Reef Marine Park Authority, Russell Reichelt, said in the release: “We’ve opted to release results ahead of final completion of surveys because of widespread misinterpretation of how much of the Reef has died.” Reichelt said 22% of the coral along the length of the reef appeared to be dead. He said 85% of that mortality was in the region north of Lizard Island, where half the coral had died. In the area immediately to the south – which covers most tourist destinations, including Cairns and Port Douglas – about 16% of the coral had died.

Great Barrier Reef authority says media, not activists, misinterpreting the data -- The chairman of the Great Barrier Reef Marine Park Authority, Russell Reichelt, has played down a report that said he accused activist scientists and lobby groups of distorting maps and data to misrepresent the extent of coral bleaching on the reef. The authority withdrew from a joint announcement from the national coral bleaching taskforce about the extent of coral bleaching earlier in the week because Reichelt believed maps accompanying the research did not depict the full picture.  The taskforce said mass bleaching had killed 35% of corals on the northern and central Great Barrier Reef.  “I don’t know whether it was a deliberate sleight of hand or lack of geographic knowledge but it certainly suits the purpose of the people who sent it out,” Reichelt told The Australian. “This is a frightening enough story with the facts, you don’t need to dress them up. We don’t want to be seen as saying there is no ­problem out there but we do want people to understand there is a lot of the reef that is unscathed.” But the taskforce’s data was broadly similar to data from in-water surveys from the authority and the Australian Institute of Marine Science released on Friday afternoon that found almost a quarter of the coral on the Great Barrier Reef was now dead. Reichelt told Guardian Australia on Saturday that he did not mean to imply in his comments to The Australian that activists and lobbyists were being misleading. Rather, it was the media that was misinterpreting the data it received from scientists, lobbyists and activists, he said.

Ocean Heat Comes Back to Haunt Coral Reefs -- As I predicted in August last year, the powerful El Niño of 2015-2016, in tandem with global warming, has seen a worldwide coral bleaching event unfold across the tropics. On Australia's Great Barrier Reef the bleaching is easily the worst on record with 93% of reefs experiencing bleaching ranging from minor to severe. However we won't know the full extent of  this global event until the end of the year, or perhaps 2017, when the bleaching is expected to have ended. Reports throughout the Pacific and Indian Ocean, however, hint that it could be the worst global bleaching event on record too, with a high rate of mortality likely.  My prediction was rather stating the obvious as the oceans are warming and research in the last few decades has established that reef-building corals are near a high temperature tolerance threshold. Summer, combined with El Niño, is when sea surface temperatures in the tropics of each hemisphere tend to peak. As explained in my previous post, this has to do with year-to-year fluctuations in the rate at which the subtropical cell in the ocean transports heat poleward (meridionally) out of the tropics. The relaxation of the westward blowing trade winds, which accompanies El Niño, also allows heat buried in the subsurface ocean of the western tropical Pacific to surface and become entrained in the ocean's surface circulation. Accordingly, the climate model-based projections at NOAA's Coral Reef Watch were warning of thermal stress on the Great Barrier Reef, and elsewhere, as early as November 2015.

Surveying Damage on World Oceans Day, Experts Say Worst is Yet to Come -- Threatened by climate change, pollution, overfishing, and oil spills, the world's oceans are suffering, scientists warned on Wednesday—the day designated by the United Nations as one to honor the deep blue sea. From widespread coral bleaching to floundering fish species to garbage stretching across the water's surface and hundreds of feet down, it's clear that human activity is taking its toll on the world's oceans, which cover more than 70 percent of the Earth's surface.   Indeed, dead coral reefs "are perhaps the starkest reminders—like the melting Arctic—that a thickening blanket of greenhouse gases is irrevocably changing the face of the Earth," Inside Climate News wrote on Wednesday.  And, as the National Oceanic and Atmospheric Administration's Coral Reef Watch warned in April, those "ghostly underwater graveyards" are only going to grow. "There's even worse news ahead," Mark Eakin, coordinator of NOAA's Coral Reef Watch, told Inside Climate News. "There are a lot of places with similar mortality rates. We've got bleaching going on from the east coast of Africa to French Polynesia. Right now, it's basically covering half the Southern Hemisphere."  A separate study published Tuesday in the journal Nature found that overfishing and polluted run-off from farms and lawns made corals more vulnerable to above-average temperatures. "Although the research showed that controlling pollution and overfishing can help corals survive in a warming world," John Upton reported on the study for Climate Centeral, "the scientists said curbing pollution from fuel burning, farming and deforestation, which is causing water temperatures to rise, would be the best way to protect them in the long run."

Our Precious Marine Biodiversity - The Huffington Post has a new section called What's Working, and there's a subsection covering the oceans. I read an article called What’s Working? Inspiring Ambitious Coalitions for the Ocean and Climate. Here's the blurb I found at the bottom of the page.  This post is part of a series produced by The Huffington Post in partnership with Ocean Unite, an initiative to unite and activate powerful voices for ocean-conservation action. The series is being produced to coincide with World Ocean Day (June 8), as part of HuffPost’s “What’s Working“ initiative, putting a spotlight on initiatives around the world that are solutions oriented. To read all the posts in the series, read here. Follow the conversation on Twitter with the hashtag #MakeASplash. There you go — they are highlighting initiatives around the world that are "solutions oriented." So I went in search of solutions, but couldn't find any. I did find these paragraphs in the article cited above. In 2016 we are already seeing results. The IPCC has established its work program for the 6th Assessment Cycle, with the Ocean as a major priority. It also announced the preparation of a new special report dedicated to interactions between climate, ocean and the cryosphere. Our recommendations in Paris are becoming a reality!  Another special report on the oceans? That's a solution?   And now... After all, it is about time the Ocean was fully integrated into the climate field. It captures and stores over 2 billion tonnes of CO2 every year, an entirely free service valued at around US$148 billion a year. We cannot afford to lose the precious marine biodiversity that, as well as providing food and livelihoods is saving us by fixing this carbon, avoiding even more acute, faster climate impacts. Experience has often taught me that if I don't say something, no one else on Earth will. Once again, I feel obligated to say something. Here it is. Humans just put a dollar value on an essential part of the Earth's carbon cycle.

El Niño, rising sea spur record 'clear-sky' flooding in 7 cities: El Niño and rising sea levels linked to global warming spurred a record number of days of "nuisance flooding" last year in seven coastal U.S. cities, according to a federal report. Wilmington, N.C., recorded an all-time high of 90 days, or one-quarter of the year, partly underwater from the "clear-sky" flooding, which isn't caused by heavy rain from a storm, the National Oceanic and Atmospheric Administration (NOAA) said in the report released Wednesday. Charleston, S.C., also topped its record with 38 days and Key West, Fla., with 14 days. William Sweet, a NOAA oceanographer, said the historically high waters aren't anything new. "Last year we broke several records, and trends show that we'll likely continue to do so in the future," he said. Nuisance flooding leads to road closures, overwhelmed storm drains and damaged property. It occurs with high tides in many locations due mainly to climate-related sea-level rise. The loss of natural barriers and land subsidence — a gradual settling or sudden sinking of the Earth's surface due to underground movement of soil, rock and other materials — also contribute.

China says important glacier is melting due to climate change | Reuters: A glacier that is one of the largest at the source of China's Yangtze River is fast retreating because of climate change, state media said. The Jianggudiru Glacier on Geladaindong Mountain in a remote part of the western province of Qinghai has shrunk 34 meters (38 yards) over the past six years, Pu Jianchen, a researcher at the Chinese Academy of Sciences, told the Xinhua news agency. The glacier started to shrink slowly in the 1970s, then expanded between 1989 and 1994 before retreating more quickly from 1995, Pu said, Xinhua reported late on Tuesday. Yang Xin, president of the Green River Environmental Protection Association, told Xinhua the glacier retreated two meters a year in the 1980s and 1990s but about six meters a year over the past several years. "This is direct evidence of global climate change," he said. Pu said the Yangtze would get more water in the short term as that glacier and others melt, but eventually no more water would flow from them.

Droughts and floods: India's water crises demand more than grand projects -- India is facing one of its most serious droughts in recent memory – official estimates suggest that at least 330m people are likely to be affected by acute shortages of water. As the subcontinent awaits the imminent arrival of the monsoon rains, bringing relief to those who have suffered the long, dry and exceptionally warm summer, the crisis affecting India’s water resources is high on the public agenda. Unprecedented drought demands unconventional responses, and there have been some fairly unusual attempts to address this year’s shortage. Perhaps most dramatic was the deployment of railway wagons to transport 500,000 litres of water per day across the Deccan plateau, with the train traversing more than 300km to provide relief to the district of Latur in Maharashtra state. The need to shift water on this scale sheds light on the key issue that makes water planning in the Indian subcontinent so challenging. While the region gets considerable precipitation most years from the annual monsoon, the rain tends to fall in particular places – and for only a short period of time (about three months). This water needs to be stored, and made to last for the entire year. In most years, it also means that there is often too much water in some places, resulting in as much distress due to flooding as there currently is due to drought. So there is a spatial challenge as well – water from the surplus regions needs to reach those with a shortfall, and the water train deployed in Maharashtra is one attempt to achieve this. The current crisis has led the Indian government to announce that it hopes to resurrect an ambitious plan to try and link the major river basins of the country, under the Interlinking of Rivers (ILR) Project. The scale and magnitude of this exercise, both financial (it is estimated to cost more than £100 billion) and in engineering terms (involving the transfer of 174 billion cubic metres of water annually) is unprecedented. Critics suggest that it is unlikely to work and is likely to create further ecological and social disruption, especially due to the uncertainties in weather and precipitation patterns due to climate change. .

India Heat Wave: Temperatures Continue to Soar above 116°F: Despite the onset of the monsoon in several parts of the country, India continues to reel under a brutal heat wave that has now lasted more than two months and claimed dozens of lives.  On Monday, temperatures rose to more than 47°C (116.6°F) in the western state of Rajasthan — which also recorded India’s hottest day ever at 123.8°F last month — the Press Trust of India reported.Some respite is expected, however, with the India Meteorological Department (IMD) predicting the onset of annual rains, called the Southwest Monsoon, across India later this week. Local Met departments in the capital Delhi, where temperatures rose to 42.6°C (108.7°F), also anticipated thunderstorms late Monday, as did authorities in other north Indian states like Punjab, Haryana and the union territory of Chandigarh.  More than 130 people have now died from the heat wave and resultant drought affecting large swathes of the country.

Alaska Continues to Bake, on Track For Hottest Year -- Alaska just can’t seem to shake the fever it has been running. This spring was easily the hottest the state has ever recorded and it contributed to a year-to-date temperature that is more than 10°F (5.5°C) above average, according to data released Wednesday by the National Oceanic and Atmospheric Administration. The Lower 48, meanwhile, had its warmest spring since the record-breaking scorcher of 2012. While May as a whole was only slightly above average — thanks in part to whiplashing weather from the beginning of the month to the end — every state in the contiguous U.S. had warmer-than-normal temperatures for the spring as a whole. The main area of relative cool in May was in the Central and Southern plains, where considerable rains fell during the month. Storm systems generally tend to drag in cooler air and cloudy days help to keep a lid on temperatures.  "In addition, when soils are waterlogged it prevents afternoon temperatures from rising as high as they would if soils were dry,” Deke Arndt, chief of the monitoring branch of NOAA’s National Centers for Environmental Information, said in an email

Alaska Is Having Hottest Year Since Records Began -- Like the rest of the world, Alaska has been unusually hot this year—and it’s about to get hotter. That’s according to the most recent data released by the National Oceanic and Atmospheric Administration (NOAA), as Climate Central reported.  Between March and May of this year, the meteorological spring, the entire state has been about 10 degrees hotter than normal, with an average temperature of 32 F. “That may sound cold,” Climate Central noted, “but warmth is a relative term. That temperature handily beat the previous record hot spring of 1998 by 2 F (1 C), according to NOAA.” The cities of Anchorage, Fairbanks and Juneau have experienced their hottest springs since records began.  Frightening effects of a warming Alaska include melting permafrost, increasing wildfires, an acidifying ocean and depletion of habitat for critical species, scientists have warned. “Alaska isn’t only experiencing the hottest temperatures on record by a huge margin,”observed Gizmodo: “The state’s frozen rivers broke up earlier than ever before. The growing season shifted earlier than ever in recorded history. The state is also drying up quick, with only the very lowest coastal regions not in active drought right now.”

Arizona Could Be Out of Water in Six Years - Arizona is bone dry, desiccated by the worst drought ever seen in the state's 110-year long observational record. The Grand Canyon State has been in drought conditions for a decade, and researchers think the dry spell could hold out for another 20 to 30 years, says the City of Phoenix. That people have not been fleeing Arizona in droves, as they did from the plains during the 1930s Dust Bowl, is a miracle of hydrological engineering. But the magic won't last, and if things don't start to change Arizona is going to be in trouble fast, says the New York TimesA quarter of Arizona's water comes from the Colorado River, and that river is running low. There's not enough water in the basin to keep Arizona's crucial Lake Mead reservoirs topped up. If changes aren't made to the entire multi-state hydrological system, says the Times, things could get bad. If upstream states continue to be unable to make up the shortage, Lake Mead, whose surface is now about 1,085 feet above sea level, will drop to 1,000 feet by 2020. Under present conditions, that would cut off most of Las Vegas’s water supply and much of Arizona’s. Phoenix gets about half its water from Lake Mead, and Tucson nearly all of its. Aside from the Colorado and other rivers, Arizona does get about 44 percent of its water from groundwater. As a fall-back, some cities have already turned to pumping this water out of the ground. Yet groundwater is only renewable to an extent, so relying on it long term is not a real solution. Even if the current problems can be solved, though, that doesn't mean Arizona will be free of water-related woes. According to the Environmental Protection Agency, climate change is going to make everything worse. Warming has already contributed to decreases in spring snowpack and Colorado River flows, which are an important source of water for the region. Future warming is projected to produce more severe droughts in the region, with further reductions in water supplies.

Scientists: 2016 likely to be hottest year on record despite looming La Niña - Carbon Brief: The phenomenon known as El Niño, which combined with human-caused warming to supercharge global temperature in 2015/16 and brought chaotic weather worldwide, is officially on its way out. But stepping quickly into El Niño’s shoes is its cooler counterpart, La Niña. Carbon Brief has been speaking to climate scientists about what it all means. Despite La Niña’s propensity to drag down global temperature, so exceptional is the warming we’ve seen so far this year that 2016 is still likely to top the charts as the hottest year on record. But we should expect 2017 to be cooler than 2016, as the world begins to feel the full force of La Niña, scientists say. The El Niño that left such a mark on weather, crop yields and water supplies in 2015/16 is firmly on its way out. Australia’s Bureau of Meteorology this week became the first of the world’s major weather organisations to officially declare it dead. The high sea surface temperatures that have characterised the equatorial eastern Pacific Ocean are waning and relative calm is on its way to being restored, say scientists.  This El Niño was no ordinary event. Prof Adam Scaife, head of monthly to decadal prediction at the UK’s Met Office, tells Carbon Brief: “The recent winter peak of El Niño was a near-record event, and the strongest El Niño for nearly 20 years.” The departing El Niño rivalled the massive 1997/8 event as the strongest on record and it was unexpectedly tenacious, says Prof Kim Cobb, whose work at Georgia Tech University involves reconstructing past temperatures in the tropical Pacific using corals. Cobb tells Carbon Brief: “I’ve been surprised at how long this El Niño event has lasted. Central Pacific sea-surface temperatures were still ~1C warmer than average through late April.”

Barack Obama Warns Americans ‘To Be Prepared For A Disaster’ -- When Barack Obama speaks to the public, it is very rare that he does so without a specific purpose in mind.  So why is he urging Americans “to be prepared for a disaster” all of a sudden?  On May 31, Obama took time out of his extremely busy schedule to deliver an address at the FEMA National Response Coordination Center in Washington.  During his speech, he stressed that every American is responsible for preparing for disasters, and that includes “having an evacuation plan” and “having a fully stocked disaster supply kit”.  These are basic steps that I have been encouraging people to do for years, but if they won’t listen to me, perhaps they will listen to the man currently residing in the White House.  The following excerpt from Obama’s speech comes directly from the official White House websiteOne of the things that we have learned over the course of the last seven and a half years is that government plays a vital role, but it is every citizen’s responsibility to be prepared for a disaster.  And that means taking proactive steps, like having an evacuation plan, having a fully stocked disaster supply kit.  If your local authorities ask you to evacuate, you have to do it. Don’t wait. This speech was timed to coincide with the beginning of the hurricane season, although hurricanes have not posed much of a threat lately.In fact, a major hurricane has not made landfall in the United States for 127 straight months. But without a doubt, we all need to be preparing for disaster.  Hurricanes can create a short-term emergency that can last for a few days, but there are other threats that could create a major emergency that could potentially last for an extended period of time.  That list of potential threats includes a major volcanic eruption, a natural or engineered pandemic, a west coast earthquake, a New Madrid earthquake, a tsunami on either the east or west coasts, a meteor impact, Islamic terror, war, an EMP burst that takes down the power grid, cyberwarfare, economic collapse, and civil unrest resulting in the imposition of martial law. Of course the items that I just mentioned are not mutually exclusive.  In fact, in different scenarios we could actually see multiple events happen in rapid succession.

NASA studies details of a greening Arctic: The northern reaches of North America are getting greener, according to a NASA study that provides the most detailed look yet at plant life across Alaska and Canada. In a changing climate, almost a third of the land cover - much of it Arctic tundra - is looking more like landscapes found in warmer ecosystems.With 87,000 images taken from Landsat satellites, converted into data that reflects the amount of healthy vegetation on the ground, the researchers found that western Alaska, Quebec and other regions became greener between 1984 and 2012. The new Landsat study further supports previous work that has shown changing vegetation in Arctic and boreal North America. Landsat is a joint NASA/U.S. Geological Survey program that provides the longest continuous space-based record of Earth's land vegetation in existence. "It shows the climate impact on vegetation in the high latitudes," said Jeffrey Masek, a researcher who worked on the study and the Landsat 9 project scientist at NASA's Goddard Space Flight Center in Greenbelt, Maryland. Temperatures are warming faster in the Arctic than elsewhere, which has led to longer seasons for plants to grow in and changes to the soils. Scientists have observed grassy tundras changing to shrublands, and shrubs growing bigger and denser - changes that could have impacts on regional water, energy and carbon cycles. With Landsat 5 and Landsat 7 data, Masek and his colleague Junchang Ju, a remote sensing scientist at Goddard, found that there was extensive greening in the tundra of western Alaska, the northern coast of Canada, and the tundra of Quebec and Labrador. While northern forests greened in Canada, they tended to decline in Alaska. Overall, the scientists found that 29.4 percent of the region greened up, especially in shrublands and sparsely vegetated areas, while 2.9 percent showed vegetation decline.

Arctic sea ice reached record low level for May - CBS News: The National Snow and Ice Data Center (NSIDC) reports that May saw the Arctic sea ice recede to its lowest levels in 38 years. The figures are particularly bleak in that they set the stage for what could ultimately be the smallest Arctic sea ice extent ever. While these numbers are still tentative given that the center used preliminary satellite data, the figures were backed up by other data sources. On its website, the center's researchers wrote that these below-average conditions have been pushed primarily by an abnormally sea ice retreat in the Beaufort Sea and warm air pockets flowing into the Arctic from northern Europe and eastern Siberia. "We just didn't break the old May record, we're way below the previous one," Mark Serreze, the center's director, told Climate Central. The center reported that May's average ice extent is about 224,000 square miles below the previous record-low for May that was set back in 2004. It is also 537,000 square miles below the long-term average from 1981 to 2010.The NSIDC satellite and survey data revealed that ice thicknesses in parts of the Arctic aren't very different from those that were recorded in 2015, but what is shocking is that the entire Arctic region is thinner compared to the last five years.

CO2 Levels Hit Record High As Arctic Sea Ice Hits Record Low -  Last month saw the biggest year-over-year jump in atmospheric levels of heat-trapping carbon dioxide on record — 3.76 parts per million. And that, reports NOAA, took May 2016 to the highest monthly levels of CO2 in the air ever measured — 407.7 ppm.  At the same time, the National Snow and Ice Data Center reports the warming-driven death spiral of Arctic sea ice hit a staggering new May low (see figure). May 2016 saw Arctic sea ice extent drop “about 600,000 square kilometers (232,000 square miles) below any previous year in the 38-year satellite record.” “We’ve never seen anything like this before,” explained NSIDC director Mark Serreze. “It’s way below the previous record, very far below it, and we’re something like almost a month ahead of where we were in 2012.” Whether this September beats the record minimum Arctic sea ice extent set in September 2012 depends on the weather this summer, which makes predictions difficult. That said, “Persistent Arctic and sub-Arctic warmth expected to continue for months,” as Alaska Dispatch News recently reported. So we don’t see a record melt, we’re likely to come close. The Arctic has been setting records for warmth (see my March post). In May, key portions of the Arctic ocean were 4-5°C (7-9°F) above the 1981 to 2010 average.  Climate models have always predicted that human-caused warming would be at least twice as fast in the Arctic as in the planet as a whole thanks to Arctic Amplification — a process that includes higher temperatures melting highly reflective white ice and snow, which is replaced by the dark blue sea or dark land, both of which absorb more solar energy than ice and lead to more melting.

Record Greenland Melting Caused by Surprising Feedback Loop: Two days after Arctic sea ice hit a new record low extent for May, a new study hints at how this accelerating trend could make melting in Greenland even worse, with serious consequences for global climate and sea level rise. Satellite observations published by the U.S. National Snow and Ice Data Center on Tuesday reveal that Arctic sea ice covered an area of just 4.63 million square miles (12 million square kilometers). That’s about 5 percent lower than the previous record low, set in May 2004, and more than 10 percent lower than the average sea ice extent from 1981 to 2010. “It’s pretty worrisome,” says climate scientist Jennifer Francis of Rutgers University. “We’re in uncharted territory, in terms of the human experience.” May 2016, the fourth month this year to set a monthly record low, also saw ice melting far faster than historical averages. This past month, the Arctic lost some 23,600 square miles (61,000 square kilometers) of ice per day, about 30 percent faster than the long-term average of 18,000 square miles (46,600 square kilometers) per day. The melting of Arctic sea ice poses dangerous long-term threats to climate because sea ice plays a huge role in reflecting solar radiation away from Earth. As climate change warms the oceans and melts the sea ice, the Arctic becomes darker on average, increasing its ability to absorb more heat and causing further warming of the oceans—a runaway feedback loop called Arctic amplification. And as the new study—published on Thursday in Nature Communications—shows, Arctic amplification may play a role in Greenland’s melting ice, as well, potentially contributing to future sea level rise

Melting Permafrost Is Turbocharging Climate Change -  Discussions of global warming often center on the release of greenhouse gases like carbon into the atmosphere, mostly from burning fossil fuels. There’s talk of “leaving it in the ground,” locking potential gases up in benign obscurity as untapped coal or oil reserves, but rarely does one see carbon slowly and steadily unlocking itself. In the Goldstream Valley in central Alaska, you can see it almost everywhere you look. There is the frozen carbon, locked in place. Should this tunnel warm, that grass and all the rest would begin the rapid cycle of decomposition, releasing all its stores of carbon into the atmosphere. That’s already happening aboveground.Worse yet, when permafrost thaws beneath a lake, where oxygen is scarce, the microbes decompose the organic material and convert it to methane gas instead of carbon dioxide. Methane is an extraordinarily potent greenhouse gas, with up to 25 times the warming power of carbon dioxide. None of the permafrost thawing beneath millions of lakes across the Arctic is accounted for in global predictions about climate change—it’s “a gap in our climate modeling,” says Katey Walter Anthony, a University of Alaska Fairbanks researcher who studies permafrost thaw across Alaska and Siberia. She’s become famous in certain circles for finding methane bubbling up beneath the ice in frozen-over permafrost lakes, cutting a hole ice-fishing style and lighting the highly flammable gas on fire, sending up a column of flames 10 feet high. But most of the time, Walter Anthony is flying between dozens of Arctic lakes, lowering tiny handmade rigs fashioned from plastic valves, fishing line and 2-liter Coke bottles into holes cut into the ice, to capture and count how much methane is bubbling up.

SE Asia’s damaged peat swamps could release 8.7 gigatons of CO2 -- Clear-cut rainforests and homeless orangutans make for powerful images, but it’s what you don’t see — hidden just below the surface — that may be the most sinister threat from tropical development. Long after the last tree is harvested from a peat swamp, decomposition of the soil continues to release carbon dioxide into the atmosphere. Now, alarming new models show us how much is at stake, and how quickly it is being lost. Just over half of the world’s tropical peat is found in Southeast Asia, where swamps began forming 6-8,000 years ago. The organic material accumulates at a rate of 0.2-2.0 millimeters per year, locking in large quantities of carbon. There it safely remains — unless the land is drained for agriculture or development. By 2010, oil palm plantations had replaced 2.1 million hectares (8,100 square miles) of the region’s peat forests, while another 2.3 million hectares had been logged and abandoned. Combined, that is just smaller than Denmark. According to new models published by a team of researchers with the U.S. Forest Service and Universities of New Hampshire and Oregon State, that land will release 8.7 gigatons of carbon dioxide over the next 100 years. To put this in perspective, that is equal to 23 power plants consuming 47 million train car-loads of coal during the same period. To offset this, we need to keep 18 million cars off the roadways for a century, or prevent every car on the planet from driving for two years. “Any drainage causes peat subsidence from oxidation, consolidation and compaction…and increases vulnerability to fire,” the lead author, Matthew Warren, explained to Mongabay. “Emissions are pretty much independent of peat depth, so converting shallow (1-2m) peat still releases a whole lot of carbon.”

More CO2, fewer droughts? It could happen: A study from the U.S. Geological Survey (USGS) has shown that plants requiring less water could help to mitigate the "drying effect" of a future warmer climate. According to a news release from the USGS on Monday the study, published in Nature Climate Change, showed that while carbon dioxide is "the main driver of climate warming" it is also a key "food" for plants. With air that has more carbon dioxide, plants will not need to open the pores of their leaves as much as would be necessary in a lower carbon dioxide environment, the USGS said. "The one big job of leaves is to take in food in the form of carbon dioxide," Chris Milly, a USGS scientist and one of the study's authors, said in a news release. "But the execution of this process allows water to leak out of the leaves," Milly added. "Well-fed plants don't need such leaky leaves to get their food, so they leave more water in the ground, where it can both support streamflow and recharge groundwater supplies." The USGS' release went on to say that this "slight" but nevertheless important increase in the presence of water in soil could result in future droughts being "less frequent and less intense than many past studies have predicted." The impacts of drought can be significant. The United States Environmental Protection Agency states that economic losses as a result of drought in 2012 were "in the billions."

Rise in global CO2 emissions from energy use slowed in 2015 -BP | Reuters: Carbon dioxide emissions from energy consumption grew by 0.1 percent last year in their smallest advance since 2009 due to lower coal use and sluggish growth, BP said on Wednesday in its annual energy review. Last year's rise, which slowed from 0.5 percent in 2014, took global CO2 emissions from energy use to around 33.508 billion tonnes, BP said in its annual Statistical Review of World Energy. "Last year saw a flattening of carbon emissions from energy consumption. That's come about from slowing demand growth and a shift away from coal to natural gas and renewables in the energy mix," Chief Executive Bob Dudley said on a webcast. "But it is only a very small step in the right direction given the scale of the challenge (to reduce emissions)," he said. Global primary energy consumption rose by 1 percent in 2015, below a 1.1 percent rise in 2014 and the 10-year annual average of 1.9 percent, the review showed. Coal consumption fell by 1.8 percent versus a 10-year annual average of 2.1 percent growth. Coal's share of global primary energy consumption fell to 29.2 percent, taking its lowest share since 2005. Emissions growth was below average in every region except Europe and Eurasia, BP said. Eurostat, the Statistical Office of the European Union, estimated last month that the EU's CO2 emissions from energy use in 2015 increased by 0.7 percent.

Texas Wants To Be The First State To Sue The EPA Over Commonsense Methane Regulations --Texas, so fond of seeing the environmental regulators in court that it has sued the Environmental Protection Agency dozens of times, wants to take the EPA to court for a brand new reason.  The Texas Railroad Commission recommended that the state’s attorney general, Ken Paxton, file another lawsuit targeting new EPA regulations seeking to limit methane emissions. Texas would be the first state to do so.  “The action of the Railroad Commission shows once again how much our state leaders put the interest of industry ahead of public health, and how blind they are to the realities of climate change,” said David Foster, the Texas state director for Clean Water Action, in a statement. Last month, the EPA also finalized their methane regulations for new oil and gas infrastructure. In December, the Railroad Commission warned against the “federal overreach” of the methane rules. Paxton has not said what his intentions are, but he will find support from his governor. “This latest rule is just more hot air from the Obama administration in an attempt to line the pockets of their buddies in green energy, while ignoring the interests of hardworking Americans,” John Wittman, spokesman for Gov. Greg Abbott, told reporters in regard to the methane rules last month. reports that Paxton has until mid-July to file. Seven states sued the EPA in 2012 for failing to issue methane regulations — the EPA responded with a new regulatory process three years later.

Scientists Seek a New Measure for Methane. Here’s Why. - There may be a significant problem with the measuring stick scientists use to account for how much methane is affecting climate change, according to a recent study led by researchers at Oxford University. The long-term effect of methane emissions might appear to be a lot greater than it really is when compared to carbon dioxide in terms of both gases’ potential to warm the climate. The Oxford researchers suggest a new way to account for methane that highlights the considerable differences in how each gas turns up the atmospheric furnace. Methane is a powerful greenhouse gas, and the way scientists account for its climate impact is critical to the Obama administration’s efforts to regulate the energy industry’s methane emissions. It is also an important part of countries’ emissions reduction pledges under the Paris Climate Agreement. Using so-called “carbon dioxide equivalents,” scientists commonly account for methane and carbon dioxide as if they are the same, and that has implications for how countries prioritize which climate pollutant to cut. Should countries concentrate mainly on cutting carbon dioxide emissions, which will have the greatest long-term effect on the climate? Or, should they expend just as much effort cutting methane — a gas that affects the climate a lot more than carbon dioxide in the near future?

GOP to rule out carbon tax - House Republicans this week will vote to condemn taxes on carbon dioxide emissions, slamming the door on an idea that some members of their party have flirted with in the past. The nonbinding resolution, sponsored by Majority Whip Steve Scalise (R-La.), lists numerous problems with a carbon tax, declaring, “It is the sense of Congress that a carbon tax would be detrimental to American families and businesses, and is not in the best interest of the United States.” The election-year proposal responds to years of pressure from Democrats and economists across the political spectrum who have endorsed the idea. A carbon tax also has the backing of some conservatives, who argue it would be a simple way to reduce greenhouse gases without new regulations or more government. Numerous think tanks, including the R Street Institute and the Niskanen Center, have been pressuring GOP lawmakers to endorse a carbon tax. The American Enterprise Institute held closed-door meetings in 2012 to get additional groups on board with little success. But with the GOP broadly skeptical of climate change science and new taxes, Republican lawmakers have avoided endorsing a carbon tax, and the House’s resolution is meant to make clear where they stand.. “There aren’t many issues around here that unite the Republicans more than energy issues.”

Debate: Is “Degrowth” the Way to Reduce Greenhouse Gases?  - Naked Capitalism - (video & transcript) Yves here. This Real News Network segment (hat tip John G) gets at some issues that are debated regularly by members of the NC commentariat. A key questions is what is the best mix of conservation versus investment in newer, cleaner tech, which requires an initial environmental cost.  For the first time since the industrial revolution, we are seeing rising GDP without further increase in greenhouse gas emissions, the stated goal of the United Nations Sustainable Development Agenda. According to a recent report from the World Resource Institute, 21 countries have managed to reduce carbon emissions while growing their gross domestic product. There are, however, two camps in the world of green economics. One says that we can continue to grow our world and national economies while reducing greenhouse gas emissions through the use of cleaner technology and green jobs, and those who say to achieve the stated goals that the scientists say we must achieve to curb CO2 emissions, degrowth is necessary for ecological sustainability. With us to discuss these two positions are key figures in the debate: Professor Robert Pollin and Professor Peter Victor. For sustainable growth we have Robert Pollin, who is a Distinguished Professor of Economics and co-director of the Political Economy Research Institute at the University of Massachusetts, Amherst. Hes the author of several books, including Greening the Global Economy. And for degrowth position we have Peter Victor. He is an environmental studies professor at York University in Toronto, and he has served as assistant deputy minister of the Environmental Sciences and Standards Division of the Ontario Ministry of the Environment, and hes a fellow of the Royal Society of Canada. Gentlemen, thank you both for joining me today.

How Guilty Should We Feel About Our Air Conditioners? My experience was typical: in 1993, 32 percent of US homes had no form of A/C whatsoever.  In 2009, the year with the most recent statistics available, 87 percent of US homes were air conditioned. But the experiences of my childhood, and my knowledge of climate change, cause a pang of guilt whenever I crank on my A/C at home, and I’m not the only one who feels like this.  Anyone who uses air conditioning knows the familiar summer spike in their electricity bills, so it must suck up a lot of energy, which we know contributes to greenhouse gas emissions. This raises the question: is it ethical to use it? In allowing ourselves to be indulgently comfortable for a few weeks of the year (or months, depending on where you live), are we hastening the construction of a world that will be not just uncomfortable, but uninhabitable for future generations? “It’s something that we’re using to relieve some of the effects of climate change, which in the process is going to ensure that summers get even hotter and heat waves longer,” “It’s a nasty feedback loop.”  Climate change is causing each year to be hotter. It may seem like air conditioning would just be a drop in the bucket compared to the energy consumption of things like cars and air travel, but it contributes significantly to global greenhouse gas emissions. Home air conditioners consume about 5 percent of all the electricity generated in the US and produce 100 million tons of carbon dioxide annually, according to the Department of Energy. And that’s just in the home.  “When you add up home, commercial, and public building air conditioning, as well as vehicle air conditioning, it’s about 500 million tons of carbon dioxide per year,” Meanwhile, we haven’t curbed our usage either—Cox estimates that, including all the different sources, air conditioning is responsible for 20 percent of electricity consumption in the US. Globally, we need to reduce our greenhouse gas emissions by 26 to 28 percent, so cutting back on A/C would make a significant dent in that goal.

Climate accord 'irrelevant,' and CO2 cuts could impoverish the world: Scientist: The world's historic effort to reduce carbon emissions is likely to be a costly if not quixotic endeavor, according to one expert, whose recently published research warns that decarbonizing the globe could have devastating consequences on the world's way of life. In a report published this week, the International Energy Agency issued a call for "concrete action" to match the ambitions of last year's landmark climate change agreement, which was recently ratified by nearly 200 countries. The energy watchdog said the transition to a low-carbon future would require "massive changes in the energy system" to prevent the globe's temperature from rising by more than 2 degrees Celsius. Yet the agency also put a steep price tag on efforts to combat climate change. In order to decarbonize the power sector within the next 40 years, the world would have to invest at least $9 trillion — and an additional $6.4 trillion to make other industries more environmentally friendly.Those vast sums are why M.J. Kelly, a University of Cambridge engineering professor, recently wrote that the push to restrict carbon "is set to fail comprehensively in meeting its avowed target, and a new debate is needed." For that reason, Kelly is skeptical that initiatives like the 21st Conference of the Parties (COP21) in Paris will achieve its lofty goals.  In peer-reviewed research, Kelly argued carbon dioxide should be considered the byproduct of the "immense benefits" of a technologically advanced society. Cutting carbon, he added, could result in a dramatic reduction in the world's quality of life that would usher in mass starvation, poverty and civil strife. Massive decarbonization is "only possible if we wish to see large parts of the population die from starvation, destitution or violence in the absence of enough low-carbon energy to sustain society." 

Globalization made economic production more vulnerable to climate change: The susceptibility of the global economic network to workers' heat-stress has doubled in the last decade, a new study published in the journal Science Advances finds. The analysis by the Potsdam Institute for Climate Impact Research and Columbia University shows for the first time how enhanced connectivity of the global network of supply can amplify production losses, as these losses can be spread more easily across countries. "Climate damages do not only depend on the warming of our planet, but also on the resilience of our societies and economies," says lead author Leonie Wenz. "Our study shows that since the beginning of the 21st century the structure of our economic system has changed in a way that production losses in one place can more easily cause further losses elsewhere." The study examines the example of local heat-stress-related productivity reductions causing global effects. Across the world, production is interlinked. "What is self-evident for us today is really a phenomenon of the last two decades," Wenz explains. Typhoon Haiyan in the Philippines destroyed more than half the world's production of coconut oil which is one of the two most commonly used vegetable fats in food production worldwide. The 2011 flood in Queensland stopped production in the fourth biggest coal exploration site on Earth for weeks, with economic repercussions well beyond Australia. While single major shocks to economic networks like these illustrate how economic activity is globally linked, the researchers focused on the effects of small daily perturbations due to extreme temperatures leading to heat-stress among workers in construction, agriculture and other economic sectors. Previous research shows that increasing temperatures decrease productivity, because, for instance, workers get exhausted more rapidly.

Donald Trump once backed urgent climate action. Wait, what? - As negotiators headed to Copenhagen in December 2009 to forge a global climate pact, concerned U.S. business leaders and liberal luminaries took out a full-page ad in the New York Times calling for aggressive climate action. In an open letter to President Obama and the U.S. Congress, they declared: “If we fail to act now, it is scientifically irrefutable that there will be catastrophic and irreversible consequences for humanity and our planet.” One of the signatories of that letter: Donald Trump. Also signed by Trump’s three adult children, the letter called for passage of U.S. climate legislation, investment in the clean energy economy, and leadership to inspire the rest of the world to join the fight against climate change. In every conceivable way, the letter contradicts Trump’s current stance on climate policy. On the campaign trail, Trump has said he is “not a big believer in man-made climate change.” Last fall, after Obama described climate change as a major threat to the United States and the world, Trump said that was “one of the dumbest statements I’ve ever heard in politics — in the history of politics as I know it.” The 2009 ad also argues that a shift to clean energy “will spur economic growth” and “create new energy jobs.” But these days, Trump contends that U.S. action to limit greenhouse gas emissions would put the country at a competitive disadvantage. In 2012, he went so far as to claim: “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.” The Copenhagen conference that inspired the open letter was part of the same two-decade-long U.N. negotiating process that led to a global climate deal in Paris last year. But whereas in 2009 Trump supported the process via the ad, now he wants to sabotage it, promising recently to “cancel” the Paris accord. The Trump campaign did not respond to a request for comment on Wednesday. Trump’s signature on the ad, which ran in the Times on Dec. 6, 2009, stands out on a list dominated by liberal media and business figures, including the founder of Patagonia, the cofounders of Ben & Jerry’s, the president of CREDO Mobile, the executive producer of Al Gore’s An Inconvenient Truth, celebrity chef Tom Colicchio, actors Kate Hudson and Adrian Grenier, media heavyweights Martha Stewart and Graydon Carter, and New Age author Deepak Chopra.

Trump to Obama in 2009: “If We Fail to Act Now … There Will Be Catastrophic and Irreversible Consequences for Humanity and Our Planet” -- Republican Presidential nominee Donald Trump was a signatory to an open letter to President Obama and the U.S. Congress in 2009 that back urgent climate action. A full-page ad by U.S. business leaders and liberal personalities in the New York Times read, “If we fail to act now, it is scientifically irrefutable that there will be catastrophic and irreversible consequences for humanity and our planet.” The letter contradicts Trump’s attacks on Obama’s climate commitments and his pledge to undo the Paris climate agreement. The letter is also signed by his three adult children. News: Grist  Commentary: New York Times, Andrew Revkin column

Jill Stein to Bernie Sanders: Run on the Green Party Ticket -- (video & transcript) As Bernie Sanders prepares to meet with President Obama, we speak to Green Party presidential candidate Jill Stein, who has also been reaching out to the Vermont senator. With Hillary Clinton claiming victory in the Democratic race, Stein is attempting to start a dialogue with the Sanders campaign.  In an open letter in April, Stein wrote, “In this hour of unprecedented crisis—with human rights, civilization and life on the planet teetering on the brink—can we explore an historic collaboration to keep building the revolution beyond the reach of corporate party clutches, where the movement can take root and flourish, in the 2016 election and beyond?” Stein joins us from Albany ahead of this weekend’s New York Green Party convention. Watch here: Here’s the transcript of the interview:

EPA’s plan to boost ethanol use in gasoline gets hearing (AP) — The Obama administration’s proposal to boost the amount of ethanol and other renewable fuels blended into gasoline produced at least one consensus Thursday during the matter’s only public hearing: Few, if anyone, is entirely satisfied by the plan. Ethanol advocates, largely from Midwest farming states, testified that the Environmental Protection Agency’s target for biofuels next year again falls short of what Congress had in mind. Oil companies countered that the market, not the government, should dictate how much ethanol goes into gas, and that the target should be lowered. The head of a renewable fuels trade group said Thursday he was “increasingly confident” the EPA could be swayed to push the targets upward, citing the weight of roughly 140 people registered to testify — the bulk pressing the EPA to call for the even larger increase when it issues its final rule expectedly by the end of the year. “If they don’t (boost the goal), you have to question the commitment of the administration,” Bob Dinneen, the Renewable Fuels Association’s president and CEO, told reporters as the hearing unfolded in a Kansas City, Missouri, hotel. The EPA oversees the decade-old Renewable Fuel Standard program commonly known as the ethanol mandate, which sets out how much corn-based ethanol and other renewable fuels refiners must blend into gasoline. The program’s intent was to address suspected global warming, pare dependence on foreign oil and bolster the rural economy by requiring a steady increase over time. While almost 700 million gallons more than 2016’s requirement, next year’s target of 18.8 billion gallons of renewable fuels, mostly ethanol, is less than the 24 billion-gallon threshold set in law.

For India to Cut Emissions It Will Need American Help, Modi Says Mr. Modi suggested that in order for India to cut its rate of pollution, it will need help from the United States. “The protection of the environment and caring of the planet is central to our vision of a just world,” he said, adding, “for us in India to live in harmony with Mother Earth is part of our ancient beliefs.” But, he said, “our partnership aims to balance responsibility and capacity, and focuses on new ways to increase availability of renewable energy.” Mr. Modi has vowed to greatly increase the growth of solar power in India, but Indian diplomats have pushed for commitments from the United States to make new solar power technologies cheaper, either by waiving intellectual property fees or providing favorable financing. “This has been the goal of our efforts in G20 and climate change summits,” Mr. Modi said, to a mixed ovation — lawmakers on the Democratic side of the aisle stood and clapped, while lawmakers on the Republican side stayed mostly seated.

China: US should do more to help poor countries on climate change - China wants the United States to do more to help developing nations combat climate change and to make sure the Paris agreement on greenhouse gases is enforced."I believe the U.S. government can do better," said Xie Zhenhua, China's special representative on climate change, told Bloomberg. In particular, Mr. Zhenhua said the US could transfer technologies to help developing countries and fund their efforts to curb climate change and extreme weather events. "As the largest developed country in the world, the U.S. has done a lot in climate change and needs to be recognized. But at the same time, of course, there [is] a lot more work to do," he said.  In 2010, the US and China disagreed about how to handle climate change, while Republican politicians opposed environmental agreements, such as the Kyoto Protocol, targeted at reducing fossil fuel pollution. Eventually, President Obama and Zhenhua helped re-establish climate talks at the United Nations level, which resulted in the Paris deal, an agreement among more than 190 countries pledging to reduce fossil fuel emissions and take tangible steps to curb climate change and global warming.

Groups urge U.S. Congress to reject TPP over environmental concerns | Reuters: -- More than 450 groups on Monday called on Congress to reject the Trans-Pacific Partnership if it comes up for a vote this fall, saying the trade deal would allow fossil fuel companies to contest U.S. environmental rules in extrajudicial tribunals. The groups, most of them environmental organizations, warned that companies could challenge U.S. environmental standards in tribunals outside the domestic legal system under provisions of the 12-nation TPP and the proposed Transatlantic Trade and Investment Partnership (TTIP) with Europe. Congress is expected to vote on the TPP after the Nov. 8 election during a lame-duck session. President Barack Obama wants the agreement ratified before he leaves office on Jan. 20, but opposition to the deal has grown during this year's presidential campaign. "We strongly urge you to eliminate this threat to U.S. climate progress by committing to vote no on the TPP and asking the U.S. Trade Representative to remove from TTIP any provision that empowers corporations to challenge government policies in extrajudicial tribunals," the groups wrote in the letter to every member of Congress. Obama's political ally and Democratic presidential candidate Hillary Clinton has said she wants to renegotiate the TPP to include stronger rules on currency manipulation. Voter anxiety over the impact of trade deals on jobs and the environment has helped power the campaigns of Donald Trump, the likely Republican nominee, and U.S. Senator Bernie Sanders, who is running against Clinton for the Democratic nomination.

‘Free Trade’ Will Kill Progress on Climate Change, 450 Groups Warn Congress -  Warning against dangers to “workers, communities and our environment,” more than 450 environmental advocacy groups called on Congress to reject the controversial Trans-Pacific Partnership (TPP) and Trade and Investment Partnership (TTIP). Specifically warning against the Investor-State Dispute Settlement (ISDS) provisions, which allow multinational corporations sue nations in private, clandestine tribunals for passing laws they don’t like, the groups sent a letter Monday that stated: “We strongly urge you to stand up for healthy communities, clean air and water, Indigenous peoples, property rights and a stable climate by committing to vote no on the TPP and asking the U.S. Trade Representative to remove from TTIP any provision that empowers corporations to challenge government policies in extrajudicial tribunals.”  The letter was signed by organizations both large and national and small and local, ranging from the Sierra Club, Food & Water Watch and to groups such as Bold Nebraska, Catskill Citizens for Safe Energy and Kauaians for a Bright Energy Future, among many others.“The TPP would let foreign oil and gas companies undermine the will of hundreds of communities that have worked tirelessly to protect themselves from the environmental and public health hazards associated with fracking,” Food & Water Watch Executive Director Wenonah Hauter said. “These trade deals give the worst climate scofflaws new and powerful weapons to wield against the broad-based grassroots movement to stop fracking and fight for a clean energy future.”Pointing out the precedent set by TransCanada’s $15 billion lawsuit against the U.S. for its rejection of the Keystone XL tar sands pipeline, the groups detailed the stark dangers the ISDS provision poses to the environmental movement.“By empowering many more firms to launch ISDS cases against the U.S.,” the letter continued, “the TPP and TTIP would pose a major threat to efforts across the country to restrict fossil fuel activities,”

Energy bill prospects dim in dispute over drilling, drought (AP) — Congressional efforts to approve the first major energy bill in nearly a decade are in jeopardy amid a partisan dispute over oil drilling, water for drought-stricken California and potential rollback of protections for the gray wolf and other wildlife. A bipartisan bill approved by the Senate in April would boost oil and natural gas production while encouraging renewable energy sources, such as wind and solar power, and increased energy efficiency. Sen. Lisa Murkowski, R-Alaska, chairwoman of the Energy and Natural Resources Committee, called the overwhelming 85-12 Senate vote “a significant victory that brings us much closer to our goal of modernizing our nation’s energy policies,” while Sen. Maria Cantwell of Washington, the panel’s senior Democrat, said the measure was “urgently needed.” But the bill’s prospects dimmed after the House approved a series of election-year amendments last month that promote Republican priorities, such as increased drilling for oil and gas and overriding protections for the gray wolf and other species under the Endangered Species Act. The House bill also would promote hunting and fishing on federal lands, shift more water to California farmers and cut the flow for threatened fish. The House proposal includes at least seven measures that the White House strongly opposes or has threatened to veto. House leaders have named 40 lawmakers to serve on a joint House-Senate committee to negotiate a final agreement, but Democrats are threatening to use a procedural motion to scuttle Senate action unless the GOP amendments are withdrawn.

Statement on Mosul Dam Emergency Preparedness - Baghdad, Iraq - Embassy of the United States: The Embassy of the United States of America is today releasing a fact sheet on the Mosul Dam, offering a detailed overview of the risk of a potential failure and, as a contingency, recommendations for how residents in Iraq should respond in the event of an emergency. Mosul Dam faces a serious and unprecedented risk of catastrophic failure with little warning. Recognizing the gravity of this challenge, the Iraqi government under Prime Minister Abadi’s leadership is preparing to take actions to mitigate the potential threat of the dam’s failure, particularly following the Da’esh attack on the facility in August 2014. We welcome the Prime Minister’s commitment to undertake all necessary measures to rapidly finalize and implement a contract in order to address the structural integrity of Mosul Dam. We would also like to acknowledge the considerable efforts of the Italian government in supporting ongoing efforts to stabilize the dam. We have no specific information that indicates when a breach might occur, but out of an abundance of caution, we would like to underscore that prompt evacuation offers the most effective tool to save lives of the hundreds of thousands of Iraqis living in the most dangerous part of the flood path in the event of a breach. Proper preparation could save many lives.

Norway to 'completely ban petrol powered cars by 2025'  - Norway will ban the sale of all fossil fuel-based cars in the next decade, continuing its trend towards becoming one of the most ecologically progressive countries on the planet, according to reports. Politicians from both sides of the political spectrum have reportedly reached some concrete conclusions about 100 per cent of Norwegian cars running on green energy by 2025. According to Norwegian newspaper Dagens Naeringsliv, "FRP will remove all gasoline cars", a headline which makes reference to the populist right-wing Framstegspartiet, or Progress Party. Renewable energy is making waves in Europe Yet there is some denial from other right-wing representatives that the move has been confirmed. If passed, it would be particularly significant because a large proportion of Norway's funds rely on the country's petroleum industry. The report also follows the announcement that Norway will become the first country in the world to commit to zero deforestation. Speaking about the possible 2025 ban on non-electric cars, Elon Musk, chief executive of US electric car company Tesla Motors, lauded the announcement. "Just heard that Norway will ban new sales of fuel cars in 2025," he wrote. "What an amazingly awesome country. You guys rock!!".

Instead Of Cleaning Up Coal Ash Sites, North Carolina Legislators Want To 'Bail Out' Duke Energy -- North Carolina’s biggest utility has 14 different coal ash storage sites in the state, and none of them are safe. That means the chemicals and heavy metals — including mercury and arsenic — in coal ash, a byproduct of burning coal for power generation, can leach into local water supplies. The safety issue was demonstrated in dramatic fashion a few years ago, when a coal ash storage pond ruptured, sending millions of gallons of poisonous sludge into North Carolina’s Dan River.Environmentalists have long been trying to force Duke Energy, the state’s massive utility, to clean up its coal ash sites, but after the Dan River disaster, more legislators got on board, passing the Coal Ash Management Act.It hasn’t exactly gone well.Among other things, the act set up a commission to oversee Duke’s coal ash clean-up efforts, but last year, Gov. Pat McCrory (R), a former Duke executive, sued to dismantle the commission — and won. The judge found that the way the commissioners were appointed did not meet the state’s constitutional requirements, because it bypassed the governor’s office. Now, North Carolina legislators are trying to set up the commission again — as well as force Duke to provide water for people who live within a half mile of the coal ash ponds. The state Senate on Tuesday passed the new bill, which will now go to McCrory for his signature. McCrory is expected to veto the bill — which he said was “not good for our environment or for the rule of law in North Carolina.”

Coal Production Hits 35-Year Low -  Coal production in the first three months of 2016 was 173 million short tons, the lowest quarterly level in the United States since a major coal strike in the second quarter of 1981. Among the regions tracked by the EIA, the Powder River Basin (PBR) in Montana and Wyoming saw the largest decline both in terms of absolute tonnage and as a percentage of the previous quarter. Demand for coal has dropped off steeply as natural gas becomes the primary fuel source for electrical generation. Electricity generation accounts for more than 90% of domestic coal use, but environmental regulations have caused the fuel source to fall out of favor. Compounding the problem for coal producers, electricity demand is growing more slowly, while historically-low natural gas prices are making it easier for electricity generators to switch to the cleaner burning fuel, reports the EIA.   A 17% decrease in coal production from the previous quarter marked the largest quarter-over-quarter decline since the fourth quarter of 1984. Mild winters both this year and last were likely responsible for the steep decline in production in the beginning of this year. Electric power plants purchased more coal than they needed throughout the fourth quarter of 2015, resulting a 34 MMst build in coal stockpiles, the highest Q4 net increase on record. Electric power generators were encouraged to burn coal from their stockpiles rather than purchase more from coal producers in the first quarter of the year. Data from the American Association of Railroads showed coal carloads were down 20% quarter-over-quarter as power generators ordered less coal.

Coal export terminal suffers second big setback: State permit is denied - The controversial proposed Gateway Pacific coal expert terminal suffered its latest body blow on Monday with denial of its application for an aquatic land lease at the Cherry Point site north of Bellingham. The denial follows and stems from rejection of the terminal last month by the U.S. Army Corps of Engineers, which found that the terminal would impact treaty fishing rights of the Lummi Nation. Because the Corps denied a permit, and the project must have "all necessary federal permits," the state Department of Natural Resources "cannot approve the lease application," State Land Commissioner Peter Goldmark wrote to project developers. "Accordingly, DNR will take no further action on the application," Goldmark added. The $700 million coal terminal, designed to export as much as 48 million tons of coal a year, once seemed to be on the path to approval. It was to be located in an industrial area that is already home to two oil refineries and a big aluminum plant. The hard-pressed coal industry was anxious to export coal mined in Montana and Wyoming. The promise of jobs secured labor and business support. A Bellingham community leader served as the project's public face. Public affairs and law firms with liberal Democratic roots were hired as advocates and fixers. Opposition grew, however, first in Bellingham and later from Puget Sound area cities worried about mile-long coal trains. Environmental activists grow concerned over climate impacts, that U.S. coal would keep polluting Chinese power plants in operation. China is the world's largest source of greenhouse gas emissions.

Regulators Fear $1 Billion Coal Cleanup Bill - Regulators are wrangling with bankrupt coal companies to set aside enough money to clean up Appalachia’s polluted rivers and mountains so that taxpayers are not stuck with the $1 billion bill.The regulators worry that coal companies will use the bankruptcy courts to pay off their debts to banks and hedge funds, while leaving behind some of their environmental cleanup obligations.The industry asserts that its cleanup plans — which include turning defunct mines back into countryside — are comprehensive and well funded. But some officials say those plans could prove unrealistic and falter as demand for coal remains weak.The latest battle is over Alpha Natural Resources, once a high-flying coal company that borrowed hundreds of millions when the coal market was booming but imploded in the face of competition from cheaper natural gas and tougher environmental regulations.West Virginia faces perhaps the greatest fallout from the flood of coal bankruptcies that have hit the courts in the last year because many of its mines are scheduled to close and will require extensive cleanup. The state took the unusual approach of hiring a seasoned bankruptcy lawyer from New York who grew up in West Virginia to represent its Department of Environmental Protection in the Alpha case.“The goal is to make sure the coal companies clean up the mess when they leave,” said the lawyer, Kevin W. Barrett of Bailey & Glasser, who was named a special assistant attorney general for West Virginia and is taking the lead on the Alpha case.

China sets regional ‘red lines’ to cut coal, water and energy use --   China will set regional “red line” limits on energy and water consumption and land use for industrial development, ­according to a document published jointly by nine ministries this week. The authorities will also set targets for cutting coal use in key industrial areas as part of moves to comply with the top leadership’s call to meet “ecological red lines”. Local governments will be responsible for defining the caps and targets, which will need the approval of the State Council. The document said the red lines should be revised only in exceptional cases, and all such changes would also need the State Council’s approval. Regions including the Beijing-Tianjin-Hebei area and the Yangtze and Pearl river deltas, as well as other provinces hit hard by air pollution, such as Shandong, had to set specific targets, including the percentage of coal use in total energy consumption, the document said. Dai Yande, deputy director at the National Development and Reform Commission’s Energy Research Institute, said the aim of the targets was “not to limit energy consumption”, but to improve the efficiency and quality of energy use.  The targets would still allow “reasonable growth” of energy use in various regions, Dai said. He said the limits were being put on energy use because the existing pricing system could not reflect the true ecological costs of consumption.

Japan's export bank agrees $3.4-billion loan for Indonesian coal station | Reuters: The Japan Bank for International Cooperation (JBIC) agreed on a $3.4 billion loan for the controversial Batang coal power project, after years of delay, the publicly funded Japanese bank said. JBIC will contribute just over $2 billion to the loan to fund the 2,000 megawatt coal-fired power plant in Central Java. Other Japanese banks including Sumitomo Mitsui, Mizuho and Bank of Tokyo-Mitsubishi are also joning the loan, JBIC said in a release late on Friday. Financial close of the loan for the coal-powered station was delayed two months, just one of many hitches for the project. Indonesia's Supreme Court had earlier thrown out a landholders' lawsuit on technical grounds, paving the way for the government to take over the remaining land for the project. Construction was meant to begin in 2012, but has been repeatedly delayed as dozens of landowners refused to give up their paddy fields for the power plant. Japan is one of the few industrialized economies that still promotes coal heavily, including technology to reduces carbon emissions from the world's dirtiest fossil fuel. Critics say the reductions are too small to justify the expense, especially as renewable energy sources become cheaper.

Major utility to close 2 nuclear power plants - Exelon Corp. said Thursday it will close two nuclear plants in Illinois because they are no longer profitable to operate. The retirement of the Clinton and Quad Cities plants before their useful life is over will take nearly 3,000 megawatts of generating capacity offline, potentially making it harder for Illinois to meet its greenhouse gas reduction requirements under the federal Clean Power Plan.  Exelon specifically blamed Illinois’s Legislature for the closings, saying legislation that’s been under consideration but hasn’t passed would have made keeping the plants open more feasible. “This is an extremely difficult day for the 1,500 employees who operate these plants safely and reliably every day, and the communities that depend on them for support,” Chris Crane, Exelon’s president, said in a statement. “We have worked for several years to find a sustainable path forward in consultation with federal regulators, market operators, state policymakers, plant community leaders, labor and business leaders, as well as environmental groups and other stakeholders,” he said. “Unfortunately, legislation was not passed, and now we are forced to retire the plants.” The proposed legislation would, among other measures, allow utilities to use nuclear power to meet requirements for renewable power generation under state law. The Legislature’s annual session ended Tuesday without the bill passing.

Nuclear Industry Worldwide Faces Escalating Battle to Keep Ageing Reactors Running --Life extensions to nuclear plants in Europe and North America are repeatedly being granted by safety regulators. But, according to nuclear plant owners, 25 percent of parts are now obsolete, so keeping the reactors going is becoming an increasing problem as components wear out. This is the background to the Nuclear Power Plant Optimisation Summit being held in Brussels tomorrow and Wednesday, when 150 of the world’s top nuclear executives will share experience on how to keep their stations open. In theory, it makes economic sense to keep running a nuclear reactor well beyond its original design life, so long as it does not pose safety problems. With the capital cost of building the reactor written off decades earlier, profits can be substantial if the running costs can be kept low. In France, where 75 percent of electricity supply comes from 58 reactors, the government announced in February that it was prepared to raise the limit on the life of reactors from 40 to 50 years. Also in February, two reactors in the UK that began generating in 1983 and are due to close in 2019 had their lives extended to 2024. Two others commissioned in 1988 will now work on until 2030. In all four cases, the owner can apply for further life extensions after that. But nuclear power plants built across the world in the 1970s and 80s rely on computer technology and components now long out of production. Replacing worn-out parts is becoming a serious problem, causing an increasing number of unplanned and expensive shutdowns while components are updated.

TV: “Truly unsettling” discovery at Fukushima… problem “far greater than previously thought” — Boss reveals 600 tons of fuel melted, can’t find it -- ABC Australia, May 24, 2016 (emphasis added): [ABC's Mark Willacy] has been invited on a tour of [Fukushima Daiichi]… What Willacy discovers is truly unsettling… retrieving hundreds of tonnes of melted nuclear fuel turns out to be far greater than previously thought. ABC Australia transcript excerpts, May 24, 2016:

  • Gregory Jaczko, former Chairman of the US Nuclear Regulatory Commission: This really is unchartered territory. Nobody really knows where the fuel is… There’s no playbook – they’re making this up as they go along.
  • Masuda: There has never been an accident at a nuclear plant like the one at Fukushima where three reactors had meltdowns. We are currently working on a timetable to decommission the reactors over the next 30 to 40 years.
  • Willacy: [At Reactor 3 there was an] explosion right after the nuclear fuel melted… What happened inside [Reactor 2] no-one really knows… [Reactor 1] is where probably the worst meltdown occurred. They don’t know where the nuclear fuel is.
  • Masuda: It’s estimated that 200 tonnes of debris lies within each unit… 600 tonnes of melted debris fuel and a mixture of concrete and other metals are likely to be here. 
  • Jaczko: It may be possible that we’re never able to remove the fuel. You may just wind up having to leave it there and somehow entomb it as it is. I mean that’s certainly a possibility. There is no playbook, they’re making this up as they go along.
  • Naoto Kan, Former Prime Minister: If all the reactors had had a meltdown, there was a risk that half or all of Japan could have been destroyed… the accident took us to the brink of destruction.

ABC Australia, May 24, 2016: Fukushima clean-up chief still hunting for 600 tonnes of melted radioactive fuel… [TEPCO] has revealed that 600 tonnes of reactor fuel melted during the disaster, and that the exact location of the highly radioactive blobs remains a mystery… [C]hief of decommissioning at Fukushima, Naohiro Masuda, said the company hoped to… begin removing it from 2021… “But unfortunately, we don’t know exactly where (the fuel) is” [said Masuda]. [Gregory Jaczko, Chairman of the US NRC] at the time of the meltdowns at Fukushima doubts the fuel can be retrieved… “Nobody really knows where the fuel is… It may be possible that we’re never able to remove the fuel. You may just have to wind up leaving it there and somehow entomb it as it is.”… For the first time, TEPCO has revealed just how much of the mostly uranium fuel melted down… [Masuda said] “about 600 tonnes of melted debris fuel and a mixture of concrete and other metals are likely to be there.”

EPA Proposal Allows Radiation Exposure in Drinking Water Equivalent to 250 Chest X-Rays a Year - The U.S. Environmental Protection Agency (EPA) quietly issued proposals Monday to allow radioactive contamination in drinking water at concentrations vastly greater than allowed under the Safe Drinking Water Act. The new guidance would permit radiation exposures equivalent to 250 chest X-rays a year. Environmental groups are calling the proposal “shocking” and “egregious.”  The EPA proposed Protective Action Guides (PAGs) would allow the general population to drink water hundreds to thousands of times more radioactive than is now legal. For example, radioactive iodine-131 has a current limit of 3 pico-curies per liter (pCi/L), in water but the new guidance would allow 10,350 (pCi/L), 3,450 times higher. For strontium-90, which causes leukemia, the current limit is 8 pCi/L; the new proposed value is 7,400 pCi/L, a 925-fold increase. “Clean water is essential for health,” Dr. Catherine Thomasson, executive director of Physicians for Social Responsibility, said. “Just like lead, radiation when ingested in small amounts is very hazardous to our health. It is inconceivable that EPA could now quietly propose allowing enormous increases in radioactive contamination with no action to protect the public, even if concentrations are a thousand times higher than under the Safe Drinking Water Act.”  The Bush Administration in its last days unsuccessfully tried to put forward similar proposals, which the incoming Obama Administration pulled back. Now, in the waning months of the Obama Administration, the EPA’s radiation office is trying again. “These levels are even higher than those proposed by the Bush Administration—really unprecedented and shocking,” The Bush Administration proposal for strontium 90 was 6,650 pCi/L; the new proposal is 7,400 pCi/L. For iodine-131, the Bush proposal was 8,490 pCi/L; the new proposal is 10,350 pCi/L. For cesium-137, the proposal was for 13,600 pCi/L; Obama “beats” Bush with a value of 16,570 pCi/L.

Westerners lack education on nuclear disaster risks, expert warns  -- Western societies would not respond well to a Fukushima-style nuclear disaster due to a lack of public information, a leading disaster expert has warned. Christopher Abbott said he firmly believed that the public ought to be better educated over the hazards and risks they may face. Illustrating his point, he referred to the Fukushima disaster of 2011 in which 160,000 people were evacuated from the vicinity of the plant as experts attempted to tackle the emergency. The evacuation worked, said Abbott, because “the Japanese educate the public”. “I just don’t see that it would have worked as successfully in western society,” he added. “[It’s] a very personal opinion but one that is backed up by Japanese colleagues.”  Abbott, chairman of the Emergency Planning Society CBRN professional working group, made the remarks while giving evidence to a science and technology select committee hearing at the House of Commons on chemical, biological, radiological or nuclear incidents. “We need to better educate the public, because a well-educated public will respond better,” he said.

Imagine being responsible for the balance sheet of the company driving the nuclear fiasco slowing deployment of green energy in the UK -- The speed with which the renewables industries will be able to grow in the years ahead will be much affected by the course of the gas and nuclear industries’ efforts to grow. Having considered gas in my last column, let me turn to nuclear, and focus on a project that will have much to do with nuclear’s prospects globally: EDF’s Hinkley Point C plant.  I start with a set of numbers surely destined to become a classic case history for business schools. Imagine you are the CFO of a company that has a market capitalisation of €18 billion. You are being asked to find investment of €22 billion for a new nuclear plant, the first of a whole new fleet. Without that fleet your company cannot hope to grow, assuming it sticks with nuclear generation, and therefore without that one plant its business model will be exposed as broken.  Yet your plant is the most expensive power station in the world, and one of the most expensive human construction projects ever, in real terms. And here is the thing: you carry €37 billion of net debt on your balance sheet.  You have two further problems. The first is €55 billion in estimated liabilities to keep a fleet of aging reactors, of earlier generations, open beyond their long-scheduled closedown dates. The second is an unknown number of further billions to fix a grave safety flaw in the steel of a pressure vessel in the forerunner of the new plant you must build. What do you do? You resign, of course.

Ohio's Attempt at Power Plant Bailouts Should Alarm Conservatives  (with Ohio power station map) In a recent victory for consumers, federal regulators blocked bailout plans by two of the nation’s largest power companies, who hoped to subsidize their unprofitable power plants on the backs of Ohio ratepayers. The deals, brought forth by American Electric Power (AEP) and FirstEnergy Corp., would have resulted in higher bills, environmental damage, stifled innovation, diminished value for customer choice and less competitive markets for Ohio. Unfortunately, the rationale behind the Ohio decision still threatens to turn this kind of irresponsible, anti-competitive plan into a broader movement. This should outrage conservatives. Over the past decade, cheap natural gas drove some of AEP and FirstEnergy’s coal and nuclear power plants into the red. The companies sensed an opportunity to seek subsidies for these plants through mandatory ratepayer charges, chanting the motto of "rate stability" and appealing to keep in-state power plants online. The companies received their bailouts in an alarmingly unanimous vote by the Public Utilities Commission of Ohio. Safeguarding in-state jobs is undoubtedly a worthwhile concern, but mandating subsidies to do so is not the solution. It inhibits companies from creating the kinds of modern jobs that have a place in the efficient energy future. Allowing unprofitable enterprises to shut down creates room for new, profitable ones to innovate and thrive in competitive markets. Cheap natural gas is currently the primary catalyst of this transition in the electricity industry. But clean, renewable energy is also becoming highly competitive. Markets, if left to their own devices, will harness these forces to maximize economic growth. Market signals, not political favoritism, should drive investment decisions.

Cleveland Soon to Be Home to the Nation’s First Offshore Wind Farm in Fresh Water - North America’s first offshore freshwater wind project has received a $40 million boost from the U.S. Department of Energy (DOE). In somewhat of a surprise decision, the funding was awarded to Lake Erie Energy Development Co (LEEDCo) for its “Icebreaker” project, which consists of six 3.45-megawatt turbines located 8-10 miles off the coast of Cleveland.  The local wind power firm was chosen over Dominion Resources, which had proposed a two-turbine, 12-megawatt project off Virginia, and Principle Power, which had proposed a five-turbine, 30-megawatt project off Oregon. LEEDCo was previously considered one of the “alternate” projects. According to, “LEEDCo’s decision to adopt the European-designed ‘Mono Bucket’ foundation, which eliminates pile driving in the bedrock below the lake bed, may have been crucial to the DOE’s decision to fully fund the project.”  A DOE analysis stated that the “innovative Mono Bucket foundation will reduce installation time, costs, and environmental impacts compared to traditional foundations that require pile driving. The Mono Bucket not only is a solution for the Great Lakes, but also has broader national applicability for offshore wind installations off the Atlantic and Gulf Coasts.”

Watch group hosts tour - The Star Beacon  -- Two vans filled with people criss-crossed the county on Saturday afternoon stopping at spots that highlight present and past environmental dangers in Ashtabula County, according to organizers of the event sponsored by Ashtabula County Water Watch. The “Toxic but Terrific Tour” was organized by the ACWW to view Superfund sites, operating injection wells and earthquake epicenters they believe are connected to injection well operation, according to information the group shared during a lecture at Harbor-Topky Memorial Library in Ashtabula before the tour began. The group formed after the gas and oil drilling technique called fracking was rumored to be coming to Ashtabula County. The possibility of fracking in Ashtabula County still exists, but market conditions have slowed the rush to drill in the county. Organizers of the ACWW said they are also concerned about the growing number of injection wells in Ashtabula County that are used to bury the waste from fracking sites in southern Ohio and surrounding states. Gabrielle Kaplan, president of Life Watch Group based in Cleveland, said people need to know that injection wells increase the likelihood of earthquakes. “If we are going to do anything about these toxins we need to organize,” said John Wright who is one of ACWW’s leaders who lives in Sheffield Township. He said the group is interested in new members and meets again from 5:30 p.m. to 7 p.m. on June 16 at the Jefferson Recreation Center. Vanessa Pesec, president of the Network for Oil and Gas Accountability and Protection, gave an overview of concerns relating to the oil and gas industry. She said fracking can have negative effects on the environment because of the many stages of a well’s existence and the many chances for a problem to manifest itself over many years. Pesec also questioned legislation that she believes governs the oil and gas industry too loosely. She said oil and gas companies do not have to release all the chemicals used in the fracking process that are then buried in injection wells.

Environmentalists hold Toxic Tea Party to protest fracking (WKBN) – Environmentalists made several stops Tuesday to protest natural gas fracking in Ohio. Frack-Free Mahoning Valley held an anti-fracking “Toxic Tea Party” in Vienna Township. Group leaders said their focus is getting the Ohio Department of Natural Resources (ODNR) to close down the injection well in Vienna. They also want to make sure a closed well in Niles never reopens. One of the protesters, Michele Garman, lives near a fracking well. She said she’s upset that property owners can’t stop wells from moving in next door. “ODNR came in and gave them all their permits, the state said there’s nothing you can do about it. It’s not their water that’s going to end up poisoned,” Garman said. Other stops on the protesting tour included downtown Youngstown and the site of an injection well in Weathersfield Township, the well that sparked earthquakes throughout the area.

Calls for Better Fracking Regulations on Day of Action - – While oil and gas drilling has slowed in Ohio in the past year, fracking opponents say the impacts continue to threaten the fabric of communities. The Frackfree America National Coalition, based in Youngstown, on Tuesday is sponsoring a National Day of Action on fracking with events scheduled in Ohio and other states to call attention to problems associated with fracking, including toxic waste, pipelines, spills and leaks, and earthquakes linked to injection wells. Amalie Lipstreu, policy program coordinator for the Ohio Ecological Food and Farm Association, says communities need more protection. "People who depend on our government to protect us from these harmful environmental impacts are concerned because we don't have those necessary regulations in place to protect communities from the harmful impacts of fracking," she states. Lipstreu notes that most gas drilling and extraction is exempt from the Safe Water Drinking Act, the Clean Air Act and the Clean Water Act. More than a dozen actions will be held Tuesday in Ohio, including an event at Bluebird Farm in Harrison County, an organic operation currently threatened by the proposed Utopia pipeline. Supporters argue fracking supports more than 2 million jobs nationally and boosts local economies. But Lipstreu counters that the short-term benefits do not outweigh the long-term costs to the water and land that communities rely on. "The land is our grocery store, the grocery store for our families and communities,” she stresses. “And for those communities to thrive and survive, we really depend on that healthy land. " Lipstreu adds organic farms, which must meet strict guidelines for certification, are particularly vulnerable to the impacts of fracking with 20 percent of all organic farms in the U.S. located within close proximity to a hydraulic fracturing operation.

Enviro-groups demand that feds halt new ‘fossil-fuel leasing’ - Environmental groups last Wednesday called on the federal Bureau of Land Management (BLM) to halt all new fossil-fuel leasing in Ohio’s Wayne National Forest over concerns about the harmful impact of fracking, according to a news release. The Sierra Club, the Center for Biological Diversity, Ohio Environmental Council and Friends of the Earth are also challenging BLM’s plans to lease up to 40,000 acres of the Marietta Unit of the Wayne’s Athens Ranger District. That would pave the way for oil and gas operations to apply for drilling permits on specific sites, which then would go through a individual approval process. The drilling presumably would employ horizontal hydraulic fracturing (fracking) into deep-shale layers. In its environmental assessment, the BLM proposed a “finding of no significant impact.” That finding, the environmental groups claim, failed to take into account the impacts that fracking would have on air quality, water quality, wildlife, and climate change. The Wayne National Forest is home to rare and endangered species including bobcats, Indiana bats, timber rattlesnakes and cerulean warblers, the release said. “It’s unconscionable that we could ever permit drilling in Ohio’s only national forest,” Jen Miller, director of Sierra Club Ohio, stated in the release. “This forest is owned by the people for their enjoyment – not for the oil and gas industry to destroy. Permitting fracking will disrupt wildlife, threaten clean water resources and reduce recreation and tourism. It should and must be preserved for this generation and those to come.”

Forest chief is failing to protect Wayne forest from fracking  - When Tony Scardina was the Bradford District Ranger on the Allegheny National Forest in Pennsylvania, he refused to consider the “reasonably foreseeable” impacts of extreme hydrocarbon shale oil and gas extraction (fracking) on water, air, soils, wildlife habitat and recreation. Even though fracking was occurring on lands surrounding the Allegheny National Forest, Scardina adopted the Forest Service’s head-in-the-sand approach to fracking. If a developer hadn’t submitted an actual fracking plan for the Allegheny, the threat to public resources didn’t exist. Under the National Environmental Policy Act (NEPA) Ranger Scardina was required to consider the impacts of present and “reasonably foreseeable” future impacts to the Public’s lands. He refused to do so on the Allegheny National Forest and is adopting the same head-in-the-sand approach to fracking on the Wayne National Forest. The before and after photos of the Allegheny show what the public can expect on the Wayne National Forest with Scardina’s poor judgment. The Allegheny Forest is industrialized with roads, well pads, pipelines, electric utilities, tank farms, stone pits for road construction, generators, compressor plants, gas processing plants, heavy truck traffic, and water impoundments that generate toxic air and water pollution. Water withdrawals from streams for fracking are unregulated with one shale gas well requiring more than seven million gallons of water for one fracking operation. Studies on the Allegheny National Forest show that increased oil and gas drilling increases stream sedimentation impacts. There is simply no reason for the BLM to be leasing federal ownership of minerals it holds in trust for the public on the Wayne. While Supervisor Scardina tells the public that it’s the responsibility of other agencies to protect the Wayne, he knows that the Forest Service abruptly halted its rule-making process to establish regulations for oil and gas drilling on the public’s national forests. So the Forest Service has no protections in place for the public’s land and resources on the Wayne or any other national forest.

Briefs -- EnLink Midstream, Ohio Lawsuit, Frack Ban, Chesapeake - Natural Gas Intelligence - Ohio Attorney General Mike DeWine has filed a lawsuit against Ben W. Lupo, who was sentenced to 28 months in federal prison in 2014 and ordered to pay a $25,000 fine for directing his employees to dump tens of thousands of gallons of oilfield waste down a storm drain in Youngstown, OH, that emptied into a major river. The lawsuit, filed in Mahoning County Common Pleas Court, seeks to recover financial penalties from Lupo along with two of his former companies and three of his former employees. Lupo's sentence brought an end to an investigation that began in February 2013 after inspectors at the Ohio Department of Natural Resources received an anonymous tip about the dumping, which took place at the headquarters of several companies owned by Lupo, including D&L Energy Inc. and Hardrock Excavating LLC (see Shale Daily, Aug. 6, 2014). Regulators discovered that Lupo had ordered his employees to dump the waste down the storm drain on dozens of occasions. A coalition of environmental advocacy groups has delivered more than 90,000 petitions to the Democratic National Committee demanding that a ban on "fracking" be included in the party platform. It's unclear exactly if the groups want all forms of well stimulation banned or the technology that generally applies to unconventional shale wells. The groups did not specify in a press release issued this week, but they alluded to a ban on high-volume hydraulic fracturing. Petitions were collected and delivered by staunch oil and gas industry opponents, such as Food & Water Watch, and, among several others. They said the Democratic party has been "complicit in the U.S. fracking boom which is poisoning communities and our climate." They also said "a massive anti-fracking protest" is planned for Philadelphia on July 24, a day before the Democratic National Convention begins. Vermont Sen. Bernie Sanders has called for a ban on horizontal hydraulic fracturing during his time in office and during his presidential campaign, but the party's presumptive presidential nominee, Hillary Clinton, has identified natural gas as a bridge fuel and has said she favors robust regulation of the extraction industry.

Random Update Of The Marcellus - Utica -- June 10, 2016  This post is added to put the Piceance Basin in western Colorado in perspective. See this link to the Piceance, June 9, 2016.  Utica:

  • EIA produces new maps of the Utica shale, May 2, 2016. Some data points:
    • the Utica includes two formations: the Utica formation and the deeper Point Pleasant formation
    • 60,000 square miles: Ohio, West Virginia, Pennsylvania, New York
    • the deeper Point Pleasant is more often targeted right now, more productive
    • most of the most productive Point Pleasant in eastern Ohio, western Pennsylvania
    • Point Pleasant deepest in SW Pennsylvania; depths more than 13,000 feet
    • most productive wells in the Utica formation: 5,000 to 11,000 feet
    • Utica: as thick as 200 - 300 feet in northwest Pennsylvania
    • Point Pleasant: more than 200 feet thick in central Pennsylvania
  • 2012, USGS survey: 38 trillion cubic feet; 940 million bbls oil technically recoverable
  • From a July, 2015, West Virginia study
    • original gas-in-place (OGIP): 3,192 trillion cubic feet
    • original oil-in-place (OOIP): 82,903 million bbls (sic)
    • gas: 782 trillion cubic ft (vs USGS estimate of 38 trillion cubic feet)
    • oil: 1.96 billion bo (vs USGS 940 million bo)

Shell commits to western Pennsylvania ethane cracker plant — Shell Chemical Appalachia says it is building a petrochemical plant in northwestern Pennsylvania that will create up to 6,000 construction jobs and 600 permanent jobs once it begins production early next decade. The company has been buying various rights and property, including a former zinc smelting site in Potter Township, Beaver County, where the plant will be built. The plant will process ethane gas from Marcellus and Utica shale wells to create polyethylene, a plastic used in food packaging and auto parts. Shell says construction will begin in the next 18 months, with the goal of bringing the plant online early in the 2020s. Former Republican Gov. Tom Corbett in 2012 OK’d legislation to give Shell tax credits worth $1.7 billion to build the plant.

Evaluating the economics of a new gas pipeline. - We’ve spent a lot of time here in the RBN blogosphere discussing the trials and tribulations of natural gas producers in the Marcellus and Utica shales who are “trapped behind the pipe,” unable to get sufficient takeaway capacity to move supply to market (both within and outside the U.S. Northeast region) where they could get a higher price for their gas. Pipeline companies have ponied up billions of dollars to build lots of pipe to alleviate these constraints and much more investment is planned. Of course, those pipelines and their committed shippers hope that the investment will pay off long-term – that the economics for building the pipe will justify the cost.   The pipeline will have scores of engineers, lawyers and accountants to figure that out.  But what if you just want to make a quick-and-dirty estimate of the economics?  Well, there is a way. In today’s blog, we walk through the factors you need to consider when your boss runs in and asks, “Hey—what would it cost to move gas there in a new pipe?”

EIA: Constructing a natural gas plant is cheaper than other options -- The U.S. Energy Information Administration (EIA) recently began collecting data on the cost to construct electric power generators, showing gas capacity to be the cheapest widely-used generation and wind to be the least-expensive renewable resource. In 2013, the first year for which the agency collected data, natural gas generation on a capacity-weighted basis averaged $965/kW, compared with $1,895/kW for wind and $3,705/kW for solar. More than 7,400 MW of gas capacity was added that year, compared with 2,600 MW of solar and 860 MW of wind. EIA's data on construction costs does not paint a complete picture — utilization rates, subsidies and fuel costs are also a big part of plant operations — but the numbers help illustrate natural gas' recent dominance and the extent to which solar may still lag the cost of wind."Construction costs alone do not tell the full story of the relative economics of each electricity generation technology," EIA noted.  But even while natural gas enjoys an advantage today due to historically-low commodity prices, EIA's data shows the plants are also among the cheapest to construct. Only plants fueled by petroleum liquids are less expensive, and there was only 71 MW installed in 2013.

IEA sees slower global gas demand growth to 2021 | Reuters: Growth in natural gas demand will slow to an average 1.5 percent a year globally through 2021, as stagnation in Europe and uncertainty about Chinese consumption offsets robust growth in India, the International Energy Agency (IEA) said on Wednesday. After growth of 2.5 percent over the last six years, gas is facing competition from renewable energy and cheap coal, meaning the global gas market will remain over supplied. In Europe, Russian gas export monopoly Gazprom will be challenged by the prospect of a glut of liquefied natural gas (LNG) as export capacity rises 45 percent by 2021, even as demand drops in key markets in Japan and Korea. "Developments are pointing to a period of oversupply," IEA head Fatih Birol said in the agency's annual medium term gas outlook. "The next five years will witness a reshaping of global gas trade." Growth will be led by India, at an average of 6 percent per year, while Chinese demand is likely to recover, spurred by a switch from coal to gas-fired power generation, the IEA said. However, new supplies are also limited as production shrinks in Europe and U.S. gas production hovers around flat next year as lower gas prices cut into investment. Longer term, the U.S. shale industry is expect to help drive recovery in production to reach 100 billion cubic metres (bcm) by 2021, or one-third of the global supply rise over the period.

Natural Gas Futures Jump After Inventory Data - WSJ: Natural gas futures jumped Thursday after weekly U.S. data showed stored supplies rose less than expected. The U.S. Energy Department said natural gas stockpiles rose 65 billion cubic feet in the week ended June 3, well short of the 79 billion-cubic-foot increase projected in the consensus estimate of analysts surveyed by The Wall Street Journal. The lower-than-expected increase meant the surplus of stored gas, while large, is not as big as expected at 32.1% above average for this time of year. Still, supplies remain hefty, with nearly 3 trillion cubic feet of gas in U.S. storage. Natural gas futures had been toggling between gains and losses before the data’s release but rocketed higher afterward. The market recently traded up 4.3% at $2.5750 a million British thermal units on the New York Mercantile Exchange. Natural gas prices have surged about 15% since late May on expectations of strong summer weather-driven demand for gas-fired electricity generation to meet air conditioning needs. After a tepid winter of limited heating demand that left supplies bloated, there has been a spate of above-normal temperatures across the U.S. this spring. Meanwhile, lower production, the switching of power plants from coal to gas-fired generation and burgeoning exports are improving the demand side of the equation, combined with hotter temperatures so far this season. “The warmth we saw has triggered [air conditioning] loads,” said Gene McGillian, senior analyst at brokerage Tradition Energy. “The power sector is eating up the gas.”

Natural Gas Is Already Losing To Renewables - For years natural gas has been likened to a “bridge fuel,” a source of electricity generation that can tide us over until renewables are ready to carry the full load. When it is burned natural gas emits about half of the CO2 as coal, making it a preferred alternative to coal, which has long dominated U.S. power generation. Environmentalists have criticized natural gas because although it is cleaner than coal, it still is a fossil fuel that emits greenhouse gases. Methane is also released during production and transmission, a particularly potent greenhouse gas. Moreover, the idea of a “bridge fuel” is a not as neat as is often claimed, environmentalists argue, because investing billions of dollars into long-lived assets – pipelines, power plants, processing facilities – will leave us locked into that infrastructure for decades. Nevertheless, the coal-to-gas switch got underway, largely due to incredibly low natural gas prices after a boom in shale gas production. The switch allowed U.S. CO2 emissions to fall over the past decade or so. However, now a funny thing is starting to happen. The opportunity for natural gas is starting to run out. That conclusion comes from the IEA’s latest Medium-Term Gas Market Report, which projects the construction of natural gas-fired power plants to stall, upending conventional wisdom about the future of U.S. electricity markets. In a forecast for the period between 2015 and 2021, the IEA sees gas consumption almost unchanged over that time frame. “The projected stagnation in gas-fired power generation is the most striking difference relative to the trend of the previous six years, when gas consumption in the sector increased by 90 bcm.”

More Than 5 Gas Tankers a Week Seen Crossing Wider Panama Canal - -- Panama said it expects 20 million tons of liquefied natural gas to pass through its canal annually once the newly widened waterway is opened this month. That’s almost a tanker of gas a day traveling through, based on Bloomberg calculations. “The canal opens the possibility for that gas to reach Asian markets in a more competitive way because the Panama Canal route is the shortest,” said Manuel Benitez, deputy administrator of canal authority, in an interview in Panama City on Wednesday. “We’ve already seen that many very large gas carriers have already made reservations.” The $5.3 billion expansion to the canal is set to be inaugurated June 26, allowing it to handle the kind of massive tankers that transport liquefied natural gas. Its debut is fortuitous for U.S. gas producers as the shale boom has sent domestic supplies surging and drillers are looking to get their fuel to markets abroad. The expanded canal will help U.S. gas producers by cutting the shipping time to markets in Asia,  “It helps the shipping company if you can cut ten days rather than going around South America,” “It is more profitable for the shipper and that’s good for Cheniere.” The volume projected by the Panama Canal Authority represents about 8 percent of global LNG trade and is equivalent to nearly 300 ships a year, said Bloomberg New Energy Finance analyst Anastacia Dialynas. Next year the U.S. will export about 8 million tons, she said. Prices in the Pacific aren’t currently high enough to create a large arbitrage opportunity to send gas from the U.S. Gulf Coast to Asian markets, LNG prices in Asia and Europe have plunged in line with oil prices, the surge of new gas export capacity and weakening demand from China and other Asian markets.

After Keystone XL: TransCanada Building North American Fracked Gas Pipeline Empire -  Steve Horn - Though President Barack Obama and his State Department nixed the northern leg of TransCanada’s Keystone XL tar sands pipeline in November, the Canadian pipeline company giant has continued the fight in a federal lawsuit in Houston, claiming the Obama Administration has violated the North American Free Trade Agreement (NAFTA). As the NAFTA lawsuit works its way through pre-trial hearings and motions — and as Keystone XL has become a campaign talking point for Republican Party presidential candidate Donald Trump — TransCanada has quietly consolidated an ambitious North America-wide fracked gas-carrying pipeline network over the past half year. North of the U.S. border, TransCanada landed the last permits it needed from the British Columbia Oil and Gas Commission on May 5 to build its proposed Coastal GasLink pipeline project. Coastal GasLink aims to carry gas obtained via fracking from the Montney Shale westward to LNG Canada’s proposed liquefied natural gas (LNG) export facility in Kitimat, B.C.  Coastal GasLink awaits a final investment decision from LNG Canada by the end of the year. If it gets the green light, pipeline construction of the 416-mile line will begin in early 2017. In the U.S., while TransCanada’s NAFTA lawsuit drags on, the corporation also announced a major $13 billion buy-out acquisition of pipeline behemoth Columbia Pipeline Group on March 17.  Columbia maintains a gargantuan 15,000-mile network of gas pipelines running across the U.S., with a crucial hub of crisscrossing pipelines based in the prolific Marcellus Shale basin, an epicenter for fracking in the northeast, particularly Pennsylvania. In a press statement announcing the deal, TransCanada's CEO Ross Girling pointed out just how big his company’s gas-carrying pipeline capacity has become in the U.S. and its nascent potential ability to carry that gas to U.S.-based LNG export terminals.

Massachusetts Senate Passes 10-Year Fracking Moratorium - The Massachusetts Senate approved a bill yesterday to place a ten-year moratorium on fracking and the disposal of fracking wastewater in the Commonwealth. “Across the country, fracking is polluting drinking water and making families sick,” said Ben Hellerstein, State Director for Environment Massachusetts. “We applaud Senate leaders for taking steps to ensure this dirty drilling and its toxic waste never come to Massachusetts.”  Fracking, or hydraulic fracturing, is a method of drilling that involves injecting millions of gallons of water, often laced with toxic chemicals, deep underground to fracture rock formations and release oil and gas. In a single year, fracking across the country produced at least 14 billion gallons of wastewater containing toxic and often radioactive elements — wastewater for which there is no known failsafe disposal or treatment method. Although fracking is not currently happening in Massachusetts, the Hartford Shale, a rock formation under the Connecticut River Valley, may contain deposits of gas suitable for drilling. A growing number of documented cases show individuals suffering acute and chronic health effects while living near fracking operations — including nausea, rashes, dizziness, headaches and nose bleeds. Additionally, methane leaks from fracking wells and associated infrastructure are a significant source of global warming pollution. More than 1,000 health professionals have called on state and federal officials to protect the public from the harms posed by fracking.

Maryland sets public meetings on gas drilling rules (AP) — The Maryland Department of the Environment says it will hold three public meetings this month to discuss proposed regulations for hydraulic fracturing for natural gas in the state. The agency said in a statement Thursday evening that the first meeting will be held June 22 in Cumberland. Subsequent meetings are scheduled June 27 in Baltimore and June 29 in McHenry. The agency is required by law to adopt regulations by Oct. 1, but no drilling would be permitted before Oct. 1, 2017. The department says it’s considering revisions to regulations it proposed in 2015. The proposed revisions will be described in documents the department says it will release before the June 22 meeting.

One woman's fight to save her land from a pipeline that tore a region apart - For this house, there have been two pivotal moments in recent memory. The first occurred in December 1977, when a 19-year-old Virginia native named Heidi Cochran first laid eyes on the home and its four acres. The view was so lovely she didn't even go inside before telling the real estate agent they'd take it. The second pivotal moment occurred 36 years, six months, two husbands (and two separations), four children, 29 horses, 19 dogs and seven cats later on a sunny afternoon in May 2014, when Cochran walked down the long gravel driveway to her mailbox. Cochran, 55, had become a self-employed electrical contractor. Her skin was now chapped from the sun, her hands calloused, but her braided hair still hung to her waist. She called herself "the old fat lady back in the hollow." Over the years she had purchased two adjoining plots, bringing her slice of paradise to 16 acres, enough to hope one of her four children might one day build a home next door. She didn't know it yet, but that fantasy was in great peril. In the mailbox she found a letter from Dominion Energy. She read something about a natural gas pipeline, then tossed it aside. What do I need with natural gas? she thought. She heated with a wood stove. But Cochran misunderstood: Dominion wasn't offering her anything. It wanted something from her. Dominion's proposed Atlantic Coast Pipeline -- 560 miles long from the hills of Harrison County, West Virginia, to the red clay of Robeson County, North Carolina - would carry natural gas to southeastern power plants that are phasing out coal. At 42 inches in diameter, the pipeline would be part of a new generation of American mega-pipelines built to transport our dizzying windfall of natural gas. At full pressure, it would move 1.5 billion cubic feet of natural gas per day. It would be almost as large as American pipelines come.

'No fracking way': Protesters demand landowner rights — Armed with signs and banners, a group of environmentalists lined a sidewalk along South Horner Boulevard on Tuesday, one wearing a gas mask, another dressed as a red bird from the "Angry Birds" video game. Cars would honk periodically as they sped by. Later the protesters began to chant. "No fracking way. No fracking way. No fracking way." Frackfree America National Coalition, based in Ohio, held a “Freedom from Toxic Fracking Waste and Earthquakes” national day of action Tuesday, and EnvironmentaLEE officials organized a local rally to show opposition against hydraulic fracturing, commonly known as fracking. "It's going to be a fight but we've won so far and we're going to keep fighting," said John Womble, one of the protesters, at the event. "Whoever [is elected U.S. president], we've got to keep these fights going because it isn't going to happen from the top it's going to happen from the bottom." The rally was held at MLK Memorial Park and it was the only protest held in North Carolina as part of the event. "It's been busy. We've had a lot of people honk and wave in support," said Terica Luxton with EnvironmentaLEE. A number of supporting organizations turned up for the event, Luxton said, including the Raging Grannies, Chatham Citizens against Coal Ash, and the Blue Ridge Environmental Defense League, which EnvironmentaLEE is a chapter of. The groups are involved in a number of local environmental issues, including the deposits of coal ash and the use of fracking, a process by which water forcefully is injected into the ground to facilitate oil and gas extraction. "What do we want?" Ed Harris, a Lee County land owner who has protested fracking since 2011, asked the protesters. "Clean water and clean air for all our children and grandchildren and every tree in front of us."

Whistleblower Says EPA Officials Covered Up Toxic Fracking Methane Emissions for Years -- Why has the U.S. Environmental Protection Agency (EPA) failed to take adequate action against disastrous, climate-warming methane emissions from the fracking industry? An environmental watchdog alleges that the answer may be a years-long, systematic cover-up of the true data surrounding these toxic emissions. That cover-up, the group says, was at the hands of at least one EPA researcher who accepted payments from the oil and gas industry. In an incendiary federal complaint filed on Wednesday with the EPA’s Inspector General, the 28-year-old North Carolina-based group NC WARN wrote that “there has been a persistent and deliberate cover-up that has prevented the agency from requiring the natural gas industry to make widespread, urgently needed and achievable reductions in methane venting and leakage (’emissions’) across the nation’s expanding natural gas infrastructure.” “Studies relied upon by EPA to develop policy and regulations were scientifically invalid,” the organization charged. Specifically, wrote NC WARN in a press statement, “Dr. David Allen, then-head of EPA’s Science Advisory Board, has led an ongoing, three-year effort to cover up underreporting of the primary device, the Bacharach Hi-Flow Sampler and a second device used to measure gas releases from equipment across the natural gas industry. Allen is also on the faculty of the University of Texas at Austin, where he has been funded by the oil and gas industries for years.” “The EPA’s failure to order feasible reductions of methane leaks and venting has robbed humanity of crucial years to slow the climate crisis,” said Jim Warren, director of NC WARN. “The cover-up by Allen’s team has allowed the industry to dig in for years of delay in cutting emissions—at the worst possible time.”

Bipartisan Congressional Group: If We’re Not Going To Drill, Why Are We Testing For Offshore Oil?  Environmentalists rejoiced when the Obama administration’s five-year plan for ocean management cut out the possibility of offshore drilling in the Atlantic — but the fight is not over.  Now, lawmakers are urging the president not to allow seismic testing in the region. Seismic testing is used to find oil and gas reserves by bouncing loud blasts of sound off the ocean floor. Airguns get towed behind ships, using dynamite-like blasts to produce sound waves 100,000 times louder than a jet engine underwater every ten seconds. It has been shown to damage populations of fish, mammals, mollusks, and other sea life.  South Carolina’s Rep. Mark Sanford, a Republican, cowrote the letter with Virginia’s Rep. Gerry Connolly, a Democrat.  “If one is not going to do something, it doesn’t strike me as reasonable to prepare to do that something. Accordingly, it makes little sense to conduct seismic testing off the Atlantic coast, when the Atlantic Ocean has been excluded as a possible site for offshore drilling by the Department of Interior,” Sanford said in a statement. “It should not move forward, if nothing else, because allowing seismic testing to proceed goes counter to the coastal communities I represent. They have spoken clearly that they do not want this blasting.” This spring, the Atlantic coastal communities banded together to oppose offshore drilling, which was being considered for the Bureau of Ocean Energy Management's five-year plan, released in March, as well as seismic drilling. While the Atlantic was cut out of the drilling plan, though, eight applications for seismic testing are currently awaiting federal approval.

Oil Drilling and Wetlands Don’t Mix—Especially in Big Cypress - With only 150 individuals left in the wild, the Florida panther is teetering on the brink of extinction. About a fifth of the big cats that do remain tread the damp soils of Big Cypress National Preserve in southwestern Florida. Unlike its neighboring Everglades, Big Cypress is still a relatively pristine wetland ecosystem, one that provides sanctuary for the critically endangered panther as well as the endangered red-cockaded woodpecker, the threatened wood stork, and the endangered snail kite. But beneath their paws and claws is a muddied front line between commercial and environmental interests. While everything above the soil is entrusted to the National Park Service, what lies below belongs to the Collier family, the descendants of Barron Collier, who bought more than a million acres of land in southwestern Florida early in the last century (Big Cypress is found within Collier County). When the Colliers imparted the land that became the preserve to the government in 1974, they kept the mineral rights. That means the NPS has a legal obligation to provide reasonable access to the minerals, even though the agency doesn’t receive any compensation in connection with the drilling. Last month, the NPS approved a plan by Burnett Oil, a Texas company, to undertake seismic testing on 110 square miles of the 1,126-square-mile preserve. The decision has many Floridians and conservationists questioning whether the Park Service gave its mandate to protect natural resources enough consideration. “This is going in a direction that we absolutely don’t want them to go in,” says Matthew Schwartz, executive director of South Florida Wildlands, an outspoken advocacy group for the preserve. “They [the NPS] are obligated to put resource protection above extractive activities. At the very least, they should have prepared a full-blown environmental impact statement.” The Park Service conducted a two-year environmental assessment and found that the seismic testing would have “no significant impact” on Big Cypress’s forests, wetlands, or wildlife.

LOOP June storage auction sees lower prices, interest as storage demand falls -  As summer driving season boosts refinery run rates and contributes to a regional drawdown in crude stocks, open interest in NYMEX LOOP storage futures fell from a record high seen during May's auction to 22,714 contracts Tuesday, CME data showed Wednesday. Total open interest for the 12 months on the board was down 910 lots from May 3, with open interest data being delayed by one day. The futures contract, launched in March 2015, is based on crude storage capacity at the Louisiana Offshore Oil Port's Clovelly Hub in Louisiana. The contract allows the buyer the right, but not the obligation, to store crude for a calendar month at LOOP. Coinciding with a lower level of open interest, Tuesday's auction also saw lower prices than a month ago. A total of 6.1 million barrels of storage space for July, August, September, the fourth-quarter 2016 strip, the first-quarter 2017 strip and the second-quarter 2017 strip were offered, according to auctioneer Matrix Markets. The level of space offered was down 100,000 barrels from the amount auctioned off during May. The June auction offered 3,100 physical forward agreements ranging between 17 cents/b and 25 cents/b, compared with the May auction, which offered 3,400 PFAs between 22 cents/b and 50 cents/b. Capacity auctioned during the June 7 event also included 3,000 block futures contracts ranging between 15 cents/b and 18 cents/b, compared with the May auction, which offered 2,800 block futures contracts between 18 cents/b and 25 cents/b.

Health effects of fracking -- The head of the Texas Oil & Gas Association thinks that any study pointing out the health effects and dangers of fracking and oil refining is “junk science.” Surprised? Neither are we. But we agree with Mr. Staples that decisions about oil and gas extraction and refining should be based on facts and sound science. So let’s review the facts on what scientists, the industry itself, and regulators policymakers say about the impact oil and gas has on health and the environment. Fracking uses an enormous amount of water and chemicals. According to data self-reported by industry, oil and gas companies have injected 10 billion pounds of chemicals, including hydrochloric acid, benzene, and methanol, underground and used 120 billion gallons of water to frack 54,958 oil and gas wells in Texas since 2011. Those chemicals are harmful. A recent analysis by researchers at the Yale School of Public Health identified 157 chemicals used in fracking that are toxic; the toxicity of 781 other fracking chemicals examined by the researchers is unknown. Toxic substances in fracking chemicals and wastewater have been linked to cancer, endocrine disruption and neurological and immune system problems. Oil and gas drilling has polluted our rivers, lakes, streams and groundwater. Pollution occurs from surface leaks and spills of fracking fluid, well blowouts, the escape of methane and other contaminants from the well itself into groundwater, and the long-term migration of contaminants underground. According to the Texas Commission on Environmental Quality’s Joint Groundwater Monitoring and Contamination Report, the state documented 557 instances of groundwater contamination due to oil and gas production in 2014. For example, according to the Railroad Commission (the state’s primary regulator of the oil and gas industry), fracking wastewater injected into a disposal well contaminated the Cenozoic Pecos Alluvium Aquifer near Midland.

Oklahoma City energy company files for bankruptcy protection -     (AP) — An Oklahoma City-based oil-field services company has filed for Chapter 11 bankruptcy protection as it aims to eliminate more than $1 billion in debt. Seventy Seven Energy Inc. announced Tuesday that it filed for bankruptcy protection in federal court in Delaware. The company, which was spun off in 2014 from Chesapeake Energy Corp., says it expects to complete the reorganization within 60 days. Seventy Seven Energy is the latest Oklahoma energy company to file for bankruptcy protection because of the downturn in oil and natural gas prices. Last month, both SandRidge Energy and Chaparral Energy filed for Chapter 11 bankruptcy protection.

Police: Not enough evidence to prove Chesapeake CEO’s death intentional - (AP) — Investigators did not find enough evidence to prove whether a vehicle crash that killed prominent businessman Aubrey McClendon the day after he was indicted by a grand jury was intentional or not, the Oklahoma City Police Department said Tuesday. Police spokesman Capt. Paco Balderrama told The Associated Press that investigators have ruled out homicide, but could not rule out the possibility that McClendon took his own life or had a medical emergency in the crash on March 2. The medical examiner’s report is still pending. “We don’t know if he meant to do it,” Balderrama said. “We could not rule out suicide with 100 percent certainty, but we just were not able to find any evidence which directly pointed to it.” Police previously said the former Chesapeake Energy CEO and part owner of the NBA’s Oklahoma City Thunder was driving 78 mph when his SUV hit a bridge support and burst into flames and that there was no evidence suggesting he tried to avoid the crash. The vehicle’s data recorder showed McClendon was driving 88 mph and then tapped his brakes before impact, police had said previously. McClendon had his gas pedal floored until 1 ½ seconds before impact, when he reduced it from 99 to 25 percent depressed, they said. Investigators found tire tracks but no skid marks. The state medical examiner’s office said previously that McClendon died from multiple blunt force trauma, but has yet to reveal the official manner of death or toxicology test results.

Iowa board votes to allow pipeline work to begin in state (AP) — A Texas company may begin construction on an oil pipeline in areas for which the company has approval but are not under federal jurisdiction, the Iowa Utilities Board said Monday despite opposition from environmental and citizen action organizations and landowners who are suing to stop the project. The three-member board voted 2-1 to approve an order allowing Dakota Access LLC, a subsidiary of Dallas-based Energy Transfer Partners, to begin laying pipe in areas that aren’t among 60 parcels of land for which the U.S. Army Corps of Engineers must issue. Those parcels include river crossings and a recently discovered Native American burial site in northwest Iowa. Board members Elizabeth Jacobs and Nick Wagner voted in favor of allowing the project to begin. Board chairwoman Geri Huser, who expressed concern last week that the board no longer has legal jurisdiction over the project since several lawsuits have been filed, said she would file a document later Monday explaining her opposition. Iowa law says once a utilities board decision is appealed to district court, the board can take no further action. To that end, environmental group Sierra Club Iowa Chapter filed a document with the board Monday agreeing with that assessment that alleges the board’s action is illegal. The group’s attorney, Wallace Taylor, said he may file a legal challenge. Construction on the 1,150-mile, $3.8-billion pipeline has already begun in Illinois, North Dakota and South Dakota. It will carry oil from northwest North Dakota to a tank storage facility in south-central Illinois. At least three lawsuits have been filed challenging the board’s authority to allow Dakota Access to use eminent domain for the project, including one by the Sierra Club and two separate landowner groups. About 160 landowners have refused to allow the pipeline to cross their land, and Dakota Access has begun condemnation proceedings which prompted several individual landowner lawsuits.

Work on Dakota Access begins in Iowa, protesters vow nonviolent acts (AP) — Work has begun in Iowa on an oil pipeline despite repeated attempts by landowners and environmental groups to stop it, a spokeswoman for the Texas company building the pipeline said Thursday. The Iowa Utilities Board signed a final order Wednesday allowing construction on the $3.8 billion, 1,150-mile pipeline that spans four states, and work began shortly after that, according to Lisa Dillinger with Texas-based Dakota Access. “We have provided the proper notifications in Iowa, allowing us to begin immediately,” she said. “Construction activities have begun along the route in all four states.” Iowa was the last state to approve construction on the pipeline, which will carry oil from the Bakken oil fields in North Dakota across South Dakota and Iowa before ending at a storage facility in Illinois. Work began last month in the other three states. Dakota Access has not received permits from the U.S. Army Corps of Engineers for river crossings and other federal land in Iowa, including a parcel that is under investigation as a possible Native American burial site. Plus, the project faces at least five lawsuits in Polk County District Court in Des Moines, and individual landowners along the route have said they plan to challenge in court the company’s use of eminent domain. The first condemnation hearings begin next week. Pipeline opposition group Bold Iowa said Thursday that 60 members have signed a pledge to risk arrest if necessary in nonviolent protests. “In the tradition of other great American struggles for freedom, from the Boston Tea Party to the March to Montgomery to the Farm Crisis, when farmers stood with their neighbors to block foreclosure auctions, we ask Americans passionate about defending our land and liberty to step forward to stop the Bakken Pipeline,” said Ed Fallon, the group’s director. Iowa Citizens for Community Improvement, a citizen activist group in Des Moines, will join Bold Iowa’s protest, political director Adam Mason said, adding that action could begin as early as July.

For-Profit Pipelines Are Growing And So Are Eminent Domain Battles - When an oil pipeline now poised to cut through four Midwestern states was first proposed in 2014, the project quickly got pushback from environmentalists and some landowners on the pipeline’s route.  For one group, this piece of fossil fuel infrastructure was a poor investment in a time of human-caused climate change and increasing pollution. For the other, it was a threat to their land and their property rights. Residents thought it was clear from the beginning that Dakota Access, the developer, intended to claim land by condemning it via eminent domain if allowed to, and build a line intended to transport oil from North Dakota’s Bakken Formation to a market hub near Patoka, Illinois. The project, known as the Bakken pipeline, is one of many fossil fuel lines across the nation that traditionally raise concerns about their environmental and safety risks. That’s because oil transportation largely relies on trains and pipelines and out of those two, pipelines spill more often than trains. Yet since the Bakken pipeline mostly avoids wildlife, it has become an example of how for-profit developers in need of private property ignite disputes when awarded the controversial use of eminent domain.  The government usually uses eminent domain to build bridges or freeways, though oil and gas companies have often benefited from this power in the past, particularly during the first pipeline development surge of the 1950s.  No governmental agency gathers data on eminent domain permits given to corporations, but experts said a new wave of pipeline investment is pitting landowners against corporations and regulators in growing numbers, and the trend will likely continue. “The conventional wisdom is that we are having more [eminent domain controversies] in recent years because of the oil and natural gas,”

US says Colorado has 40 times more natural gas than thought - DENVER (AP) - Western Colorado has 40 times more natural gas than previously thought, but an immediate boom is unlikely because of low gas prices, government and industry experts said Wednesday. The U.S. Geological Survey said the Mancos Shale formation in Colorado's Piceance (PEE'-yahns) Basin holds about 66.3 trillion cubic feet of gas, up from 1.6 trillion estimated in 2003. USGS cited data from commercial drilling companies and new research for the revision.A trillion cubic feet of natural gas is enough to heat 15 million homes for a year, the U.S. Energy Department says.David Ludlam, executive director of the West Slope Colorado Oil and Gas Association, said he doesn't expect a rush to drill in western Colorado because current natural gas prices are too low. If prices rise significantly, companies would likely begin drilling, he said.  The U.S. also needs more facilities to export natural gas to Pacific nations to help make the Colorado gas competitive, Ludlam said, citing the proposed Jordan Cove Liquid Natural Gas terminal at Coos Bay, Oregon. The Piceance Basin, which spans much of western and northwestern Colorado, already has multiple well sites, pipelines and processing plants in place from a previous round of drilling in a shallower formation, Ludlam said. Much of the basin is federal land managed by the Bureau of Land Management, and getting approval from the BLM to drill is often more difficult than getting private landowners to agree, said Kathleen Sgamma of the Western Energy Alliance, an industry group.

USGS Estimates 66 Trillion Cubic Feet Of Natural Gas In Colorado’s Mancos Shale Formation: The Mancos Shale in the Piceance Basin of Colorado contains an estimated mean of 66 trillion cubic feet of shale natural gas, 74 million barrels of shale oil and 45 million barrels of natural gas liquids, according to an updated assessment by the U.S. Geological Survey. This estimate is for undiscovered, technically recoverable resources. The previous USGS assessment of the Mancos Shale in the Piceance Basin was completed in 2003 as part of a comprehensive assessment of the greater Uinta-Piceance Province, and estimated 1.6 trillion cubic feet of shale natural gas. “We reassessed the Mancos Shale in the Piceance Basin as part of a broader effort to reassess priority onshore U.S. continuous oil and gas accumulations,” said USGS scientist Sarah Hawkins, lead author of the assessment. “In the last decade, new drilling in the Mancos Shale provided additional geologic data and required a revision of our previous assessment of technically recoverable, undiscovered oil and gas.”The Mancos Shale is a significant potential source of natural gas. For comparison, the assessed mean resources in the Mancos Shale of the Piceance Basin are the second-largest assessment of potential continuous gas resources that the USGS has ever conducted. Since the last USGS assessment, more than 2,000 wells were drilled and completed in one or more intervals within the Mancos Shale of the Piceance Basin. In addition, the USGS Energy Resources Program drilled a research well in the southern Piceance Basin that provided significant new geologic and geochemical data that were used to refine the 2003 assessment. The Mancos Shale is more than 4000 feet thick in the Piceance Basin, and contains intervals that act as the source rock for shale gas and oil, meaning that the petroleum was generated in the formation. Some of the oil and gas migrated out of the source rock and into tight (low permeability) reservoirs within the Mancos, as well as into conventional reservoirs both above and below the formation. Oil and gas also remained in continuous shale gas and shale oil reservoirs within the Mancos.

Bombshell -- Stick With Me -- Read This Closely -- The Piceance In Colorado May Rival The Marcellus In The Northeast -- USGS  -- This defies ... I don't know what it defies but it defies something.... maybe "my imagination." The story was posted 22 hours ago. I follow energy news pretty closely. I have a fair number of folks who send me notes on energy, and yet, this story seems to have been missed by almost everyone. The only reason I think it is not getting national attention is because the numbers are just too hard to believe. Maybe I'm missing something, or misreading something. Maybe I'm being inappropriately exuberant.  This is what makes these stories confusing:

  • the numbers are huge to begin with (trillions)
  • crude oil and natural gas are measured in different units (bbls vs cubic feet)
  • combining both crude oil and natural gas, there is still a different unit: bbls of equivalent oil (boe)
  • original oil in place (OOIP) vs technically recoverable oil (and same for natural gas)

But this seems incredible. Almost beyond one's imagination. To bring you up to speed, read about the Piceance Basin in western Colorado at this post.  Twenty-two hours ago, this USGS headline. USGS Estimates 66 Trillion Cubic Feet of Natural Gas in Colorado’s Mancos Shale Formation. The headline fails to note that the previous USGS assessment was less than 2 trillion cubic feet of natural gas. The report begins: This is the second-largest assessment of potential shale & tight gas resources that the USGS has ever conducted. [Natural gas: Marcellus was probably the largest?] Then this bombshell:The Mancos Shale in the Piceance Basin of Colorado contains an estimated mean of 66 trillion cubic feet of shale natural gas, 74 million barrels of shale oil and 45 million barrels of natural gas liquids, according to an updated assessment by the U.S. Geological Survey. This estimate is for undiscovered, technically recoverable resources. The primary target of gas development has been the Williams Fork Formation of the Mesaverde Group, of Cretaceous age. The Williams Fork is a several-thousand-foot thick section of shale, sandstone and coal deposited in a coastal plain environment.

Is Colorado Ground Zero For The Next Shale Gas Boom?  --A new estimate from the U.S. Geological Survey finds that Colorado could actually hold 40 times more natural gas than previously expected. The so-called Mancos Shale formation holds an estimated 66.3 trillion cubic feet (tcf) of natural gas, sharply up from the 1.6 tcf in the previous 2003 estimate. The Mancos formation is part of the greater Uinta-Piceance Province, and the large upward revision puts the Mancos basin second only to the Marcellus Shale in terms of the largest total gas reserves in the U.S. “We reassessed the Mancos Shale in the Piceance Basin as part of a broader effort to reassess priority onshore U.S. continuous oil and gas accumulations,” said USGS scientist Sarah Hawkins, lead author of the assessment. “In the last decade, new drilling in the Mancos Shale provided additional geologic data and required a revision of our previous assessment of technically recoverable, undiscovered oil and gas.” For now, prices are likely to be too low for companies to begin drilling to any large extent. According to David Ludlam of the West Slope Colorado Oil and Gas Association, drillers probably need natural gas prices near $3.50 per million Btu (MMBtu). That is much higher than Henry Hub spot prices, which have traded near $2/MMBtu for the last several months, although they have surged lately as storage levels are climbing much slower than expected for this time of year. Natural gas prices jumped to $2.60 on Thursday after the latest data from the EIA showed another smaller-than-expected inventory build. But even if prices did rise to those levels needed for Colorado’s Mancos Shale, producers would have trouble finding a way to get that gas to market. The best bet would be for LNG export terminals on the West Coast, but previous proposals for such projects have gone nowhere. The Jordan Cove LNG export terminal in Oregon recently was denied a federal permit and is stuck on the drawing board.

Friends of Earth USA : 139-square-mile fracking plan in Wyoming prompts legal protest - Conservation groups filed a formal administrative protest on Thursday challenging a massive Bureau of Land Management plan to auction off 139 square miles of publicly owned fossil fuels in Wyoming on Aug. 2. Most of the area, about 100 square miles, is located in habitat for imperiled greater sage grouse. The protest calls for canceling the auction entirely. 'New fossil fuel leases lock in more climate disruption, more air and water pollution, and further declines for the iconic sage grouse,' said My-Linh Le of the Center for Biological Diversity. 'Plans that worsen the climate crisis and sage grouse declines aren't in the public interest. Climate leadership means keeping untapped fossil fuels in the ground, and our public lands are where Obama should start.' The protest, filed by the Center for Biological Diversity, Friends of the Earth, Great Old Broads for Wilderness and the Sierra Club, calls on the BLM to halt the auction and all new federal fossil fuel leasing to preserve any chance of averting catastrophic climate disruption. It challenges the Bureau's failure to adequately analyze the environmental impacts relating to water, sensitive wildlife and greenhouse gas pollution that would result from its decision to auction the fossil fuels. 'We think it's time for public lands to be part of the solutions to climate change, not part of the problem,' said Shelley Silbert, executive director of Great Old Broads for Wilderness. 'Not only has the BLM failed to analyze impacts of new oil and gas extraction on Wyoming's water, wildlife and public safety, but new leasing commits us to dangerous climate impacts for decades to come.' In addition to causing greenhouse gas pollution, the auction and subsequent drilling, fracking and industrialization will fragment and destroy wildlife habitat and threaten imperiled species. Fracking and wastewater injection could pollute air, surface and groundwater and cause harmful earthquakes. The Bureau's failure to analyze those impacts is raised in the protest.

The Epicenter of America’s Oil Bust Is Drawing Buyers - WSJ: The vultures are descending on North Dakota. Investors hoping for a bargain are buying up oil and gas wells from cash-strapped operators in the state’s Bakken Shale, a bet they will eventually be able to profit off one of the country’s hardest-hit oil plays. Hundreds of wells have changed hands or are in the process of being sold, state figures show, to a grab bag of fortune seekers ranging from industry experts to first-time wildcatters. They are picking up properties as more established producers scale back or shed assets to pay creditors. Houston-based Lime Rock Resources, founded by a former Goldman Sachs Group Inc. banker and an oil-industry veteran, bought more than 340 North Dakota wells from Occidental Petroleum Corp. in November. The firm says it has at least $1.6 billion in private-equity money to invest, a portion of which it has spent on the Bakken. In another pairing of Wall Street and oil-patch veterans, NP Resources LLC bought 53 wells from Whiting Petroleum in December and is looking for more Bakken acreage. “In this slump there’s definitely opportunities to acquire second-tier unconventional reservoirs,” said Eddie Rhea, chief executive of another buyer, Foundation Energy Management LLC, which operates more than 3,000 wells nationwide on behalf of endowments and pension funds. “We buy the ‘strip mall,’ pretty it up and sell it. We leave it to other companies to build from scratch.”

Oil slump brings bargains, buyers to Bakken assets -- As the oil price slump continues, investors are hunting for bargains on the hope they will eventually profit from the nation’s second largest oil play, reports the Wall Street Journal (WSJ).  According to state data, hundreds of wells have been bought and sold in recent months. Those placing bets on long term profitability in the Bakken range from major O&G players to first time buyers. In November last year Anadarko Petroleum CEO Al Walker told Reuters, “We’ve not really seen good distressed assets make their way into the market.” In the time since, however, there have been various assets changing hands across the nation. In one of the largest exchanges to happen in North Dakota, Occidental Petroleum Corp. sold all its Bakken assets to private equity firm Lime Rock Resources for $600 million. Also late last year, Whiting sold a collection of wells to NP Resources LLC, according to the WSJ.Amidst the asset sales there have also been several companies filing for bankruptcy protection, illustrating the continued high costs of operations in the remote North Dakota oil patch. The state’s largest oil producer, Whiting Petroleum, is among the ranks of operators waiting for prices to reach the $60 to $70 per barrel range before activity continues. But as oil prices settled around the $50 mark yesterday, activity remains in a lull. As of Wednesday June 8, North Dakota had only 26 active drilling rigs. Four years earlier there were 214.

After 350,000 Layoffs Oil Companies Now Face Worker Shortages -- There could be a growing shortage of skilled workers in the oil industry. That may seem counterintuitive in an industry that has been rapidly shedding workers, with more than 350,000 people laid off in the oil and gas industry worldwide. Texas is one place feeling the pain. Around 99,000 direct and indirect jobs in the Lone Star state have been eliminated since prices collapsed two years ago, or about one third of the entire industry. In April alone there were about 6,300 people in oil and gas and supporting services that were handed pink slips. Employment in Texas’ oil sector is close to levels not seen since the aftermath of the financial crisis in 2009. "We're still losing big chunks of jobs with each passing month," Karr Ingham, an Amarillo-based economist, told The Houston Chronicle. But the damage to the oil industry’s workforce could be exactly why companies could face a skills shortage in the months and years ahead. North Dakota had nearly 1,000 drilled but uncompleted wells as of March, and more companies are showing some signs that they might step up completions now that oil prices are above $50 per barrel. But they might find it difficult to ramp up the rate of completions if they cannot field enough workers. There are only about eight fracking crews left in the state, down from 45 two years ago, according to Reuters. Fracking crews are brought in to frack and complete wells for oil producers. A recent survey of oil companies in the Bakken revealed concerns from the industry about the dismantling of fracking crews. “Even if prices went to $100 per barrel of oil, you don’t have any frack crews available to complete all the wells that need fracking,” one survey respondent told Hart Energy Market Intelligence.

Oil Sheen Seen on River After Oregon Crude-Train Derailment - Environmental officials worked to contain a small sheen of oil on the Columbia River on Saturday after a Union Pacific Corp. train carrying a load of Bakken crude derailed near Mosier, Oregon, according to the company. Access to the site remains limited as the train continues to cool off following a fire that broke out after Friday’s accident, the Federal Railroad Administration said Saturday in aTwitter post. No injuries were reported after 16 of the 96 cars on the train came off the tracks near the river, which forms most of the border between Washington state and Oregon. The Washington state Ecology Department conducted a flyover to assess the extent of the sheen on the river, the Associated Press reported. The FRA had said earlier Saturday that there were no reports of oil on the river from the train, which originated in Eastport, Idaho, and was carrying crude from North Dakota to Tacoma, Washington, south of Seattle. Officials are also taking water samples, Justin Jacobs, a spokesman for Union Pacific, said by phone Saturday. It’s unclear what caused the derailment. An inspection four days ago turned up nothing unusual in the segment of track where the derailment occurred and the section has been inspected six times since March 21, Jacobs said. Friday’s derailment renewed the scrutiny of oil-by-rail shipments following a series of incidents including the 2013 Lac Megantic accident and fire in Quebec, which killed 47 people and leveled much of a small town. Most of the U.S. crude shipped by train comes from North Dakota’s Bakken shale region, which lacks enough pipelines to handle all the local output.

Critics: River route no place for oil trains after crash (AP) — A fiery oil train derailment in Oregon’s scenic Columbia River Gorge drew immediate reaction from environmentalists who said oil should not be transported by rail, particularly along a river that is a hub of recreation and commerce. At least eleven cars derailed Friday in the 96-car Union Pacific train and the company said several caught fire. The crash released oil alongside tracks that parallel the Columbia River and sent a plume of black smoke high into the sky that spurred evacuations and road closures No injuries were reported. All the cars were carrying Bakken oil, a type of oil that is more flammable than other varieties because it has a higher gas content and vapor pressure and lower flash point. “Moving oil by rail constantly puts our communities and environment at risk,” said Jared Margolis, an attorney at the Center for Biological Diversity in Eugene, Oregon. It wasn’t immediately clear if oil had seeped into the river or what had caused the derailment. Aaron Hunt, a spokesman for the railroad, did not know how fast the train was traveling at the time, but witnesses said it was going slowly as it passed the town of Mosier, Oregon, about 70 miles east of Portland. Response teams were using a drone to assess the damage, said Katherine Santini, a spokeswoman with the U.S. Forest Service. Crews were continuing to suppress the fire, which they expected to do overnight. Gov. Kate Brown activated additional state resources including water tenders and the coordination efforts of the Oregon State Fire Marshal to assist firefighters at the scene.

Track failure likely cause of oil train derailment (AP) — Track failure was likely the cause of the oil train derailment in Oregon, an official with Union Pacific Railroad said Sunday. A failure of the fastener between the railroad tie and the line was likely the problem, but more investigation will be required before railroad officials know for sure, Raquel Espinoza said Sunday. Union Pacific inspects the tracks that run through Mosier, Oregon, twice a week, and the most recent inspection took place on May 31, Espinoza said. Union Pacific had completed a more detailed and technical inspection of this section of track at the end of April and found no problems. The railroad is focused on removing the crude oil from the damaged cars as safely and quickly as possible, Espinoza said. Its priority is to bring people home safe to Mosier, where 16 of 96 tank cars train derailed Friday and started a fire in four of the cars. “We’re doing everything we can to get you back home, but we’re not going to risk your safety,” Espinoza said at a news conference. When asked if she knew how much the cleanup was going to cost the company, Espinoza said, “I don’t know and it doesn’t matter.” “Our priority here is bringing people home. Nothing else matters,” she added. Repairs to a water treatment system, which runs under the tracks, would need to be completed before people could return to their homes, the railroad said. About a hundred people — a quarter of the town’s population — have been evacuated from their homes since Friday in an area about a quarter mile around the train.

Mosier oil train derailment: 65 truckloads of crude oil cleared, 25 more to go -- Crews have so far removed hundreds of thousands of gallons of crude oil from the Union Pacific train that derailed last week in Mosier, authorities said Tuesday. More than 65 trucks have ferried the oil to The Dalles, where it's being loaded back onto train cars that will eventually travel to the original destination in Tacoma, said officials with Union Pacific and the Environmental Protection Agency. Workers still have at least another 25 truckloads of oil to remove until the 13 derailed cars still at the site are empty, said Judy Smith, an EPA spokeswoman. That could happen by the end of Tuesday, she said. Each truck can hold a capacity of up to 5,000 gallons of oil. The derailed cars are sitting on the side of the tracks, allowing freight trains to resume service. Sixteen cars on the 96-car train derailed Friday shortly after noon near the Columbia River Gorge town of 430. Four cars caught on fire and the same amount of cars leaked 42,000 gallons of Bakken crude from North Dakota. Workers recovered 10,000 gallons from the town's wastewater system near the site, but there may be more oil in the sewer lines, authorities said. The rest vaporized, was captured by oil booms in the Columbia or seeped into the soil. After workers remove the remaining cars, the soil will be cleaned up and crews will look at the town's wastewater lines to permanently fix sewer service, authorities said.It's not clear when that will all happen. Mosier's wastewater is temporarily being collected and trucked about 7 miles to Hood River for disposal. Bans on showering, using toilets and a boil water advisory in Mosier were all lifted by Monday night. The derailment caused the two-day evacuation of a nearby 76-unit mobile home with nearly 300 people, but no one was hurt. A preliminary investigation shows a failure with a bolt that fastens the rail to the railroad ties caused the crash.

Northwest tribal leaders highlight risks of oil trains (AP) — Leaders of several Pacific Northwest tribes gathered Thursday near the site of last week’s fiery oil train wreck in Oregon to condemn the shipping of fossil fuels through the Columbia River Gorge, a scenic homeland and sacred fishing ground for the Yakama Nation and others over the millennia. “We do not want fossil fuels at all coming through the Columbia River Gorge — at all,” said Yakama Nation Chairman JoDe Goudy. “We truly see what is at hand. … We are sacrificing and putting at risk the long-term benefit and well-being of future generations, our children, our grandchildren, those yet to come.” A 96-car train carrying volatile crude oil from the Northern Plains’ Bakken region to Tacoma, Washington, derailed June 3 along the Columbia River, which forms most of the boundary between Washington and Oregon. No one was hurt, but four cars caught fire, prompting the evacuation of a nearby school, forcing the closure of an interstate, and enraging local officials and residents. Some of the oil made it to the river, where it was captured by absorbent booms, officials said. The Yakama and other tribes have opposed the movement of oil and other fossil fuels through the Columbia Gorge, a canyon carved out of the region’s volcanic rock by the river and by violent Ice Age floods. Oil trains pose grave threats to public safety, the environment and their treaty-reserved fishing rights, the tribes say. Union Pacific Railroad spokesman Justin Jacobs said the company takes the concerns seriously, but the railroad is federally obligated to transport crude oil and other commodities for its customers. Davis Yellowash Washines, chairman of the Yakama Nation general council, rang a bell before leading the group in what he called a “messenger song,” which the tribe used to honor a small bird whose arrival signified the return of the spring salmon run in the Columbia River each year. “This is his song that we use,” Washines said. “It’s a messenger song and I hope that from this day the message gets stronger. This is for the land, the water, the children.”

A timeline of recent oil train crashes in the US and Canada - The derailment of an oil train in Oregon’s Columbia River Gorge follows a string of fiery accidents in the U.S. and Canada as shipments of crude by rail have increased with more domestic oil production:

  • — July 5, 2013: A runaway Montreal, Maine & Atlantic Railway train that had been left unattended derailed, spilling oil and catching fire inside the town of Lac-Megantic in Quebec. Forty-seven people were killed and 30 buildings burned in the town’s center. About 1.6 million gallons of oil was spilled. The oil was being transported from the Bakken region of North Dakota, the heart of an oil fracking boom, to a refinery in Canada.
  • — Nov. 8, 2013: An oil train from North Dakota derailed and exploded near Aliceville, Alabama. There were no deaths, but an estimated 749,000 gallons of oil spilled from 26 tanker cars.
  • — Dec. 30, 2013: A fire engulfed tank cars loaded with oil on a Burlington Northern Santa Fe train after a collision about a mile from Casselton, North Dakota. No one was injured, but more than 2,000 residents were evacuated as emergency responders struggled with the intense fire.
  • — Jan. 7, 2014: A 122-car Canadian National Railway train derailed in New Brunswick, Canada. Three cars containing propane and one car transporting crude oil from western Canada exploded after the derailment, creating intense fires that burned for days. About 150 residents were evacuated.
  • — Jan. 20, 2014: Seven CSX train cars, six of them containing oil from the Bakken region, derailed on a bridge over the Schuylkill River in Philadelphia. The bridge is near the University of Pennsylvania, a highway and three hospitals. No oil was spilled and no one was injured. The train from Chicago was more than 100 cars long.
  • — April 30, 2014: Fifteen cars of a crude oil train derailed in Lynchburg, Virginia, near a railside eatery and a pedestrian waterfront, sending flames and black smoke into the air. Nearly 30,000 gallons of oil were spilled into the James River.
  • — Feb. 14, 2015: A 100-car Canadian National Railway train hauling crude oil and petroleum distillates derailed in a remote part of Ontario, Canada. The blaze it ignited burned for days.
  • — Feb. 16, 2015: A 109-car CSX oil train derailed and caught fire near Mount Carbon, West Virginia, leaking oil into a Kanawha River tributary and burning a house to its foundation. The blaze burned for most of week.
  • — March 10, 2015: Twenty-one cars of a 105-car Burlington Northern Santa Fe train hauling oil from the Bakken region of North Dakota derailed about 3 miles outside Galena, Illinois, a town of about 3,000 in the state’s northwest corner.
  • — March 7, 2015: A 94-car Canadian National Railway crude oil train derailed about 3 miles outside the northern Ontario town of Gogama. The resulting fire destroyed a bridge. The accident was 23 miles from the Feb. 14 derailment.
  • — May 6, 2015: A 109-car Burlington Northern Santa Fe crude oil train derails near Heimdal, North Dakota. Six cars exploded into flames and an estimated 60,000 gallons of oil spilled.
  • — July 16, 2015: More than 20 cars from a 108-car Burlington Northern Santa Fe oil train derailed east of Culbertson, Montana, spilling an estimated 35,000 gallons of oil.
  • __ Nov. 7, 2015: More than a dozen cars loaded with crude oil derail from a Canadian Pacific Railway train prompting the evacuation of dozens of homes near Watertown, Wisconsin.
  • — June 3, 2016: A Union Pacific train hauling crude oil derails in Oregon’s Columbia River Gorge, sparking a large fire.

Refinery issues push Los Angeles jet differential to highest level since April -  Refinery issues pushed the Los Angeles jet fuel differential to its highest level in a month and a half Monday. S&P Global Platts assessed Los Angeles jet fuel up 1.25 cents/gal to the NYMEX July ULSD futures contract minus 25 points/gal, or $1.5044/gal outright. That is the highest level that differential has reached since April 26, when it was also minus 25 points/gal. Trades at NYMEX minus 2.50 cents/gal and minus 2.25 cents/gal were reported early Monday morning, around Friday's levels when news of Chevron's 269,000 b/d refinery near Los Angeles losing power broke. However, by mid-day the differential had come back up to trade flat to the front-month NYMEX ULSD contract. By the close of trading it was being offered flat, prompting the Platts assessment. West Coast jet fuel sources disagreed on the cause of Monday's volatile market. "Not sure [why]," said one source. "Heard there may have been some problems still at Chevron el Segundo." A second source said: "Nope, the opposite. I heard the FCC started back up." A third source said, "I guess issues at Tesoro refinery." An unspecified unit experienced a breakdown at Tesoro's 265,000 b/d Carson, California, refinery Monday morning and caused unexpected flaring, a filing with the South Coast Air Quality Management District said.

Obama's Proposed Drilling Expansion May Cost Us More Than The Oil Is Worth - The Obama administration's proposed expansion of oil and gas drilling in the Arctic Ocean and Gulf of Mexico would result in hefty climate-related social costs, a new report found. In fact, those costs, estimated at $58.6 billion to $179.2 billion, may outweigh the economic benefits of selling the energy, according to Tim Donaghy, lead author of the report.  The proposed oil and gas program for 2017 to 2022 includes 13 potential lease sales -- 10 in the Gulf and one each in Alaska’s Cook Inlet, Beaufort Sea and Chukchi Sea. In March, the White House abandoned plans to include the Atlantic Coast in the upcoming sale.  With emissions from existing oil reserves already capable of pushing the planet beyond the 2 degrees Celsius threshold climatologists say would result in drastic impacts, searching of more oil would be a step backward, Donaghy, a senior research specialist at Greenpeace USA, told The Huffington Post. "Climate change isn't just this abstract thing," Donaghy said. "It's going to actually affect our daily lives."The Cook Inlet basin contains large oil and gas deposits including several offshore fields.  The 16-page report, released Thursday by Greenpeace USA and Oil Change International, finds that consumption of the oil produced under the five-year program would increase global carbon emissions by roughly 850 million metric tons of CO2 -- equivalent to that of 3.6 million cars over a 50-year period. "These carbon emissions will impose high costs to society in coming decades related to human health, flood damages, agricultural productivity and other impacts," the report says.

Sempra’s Ienova Rallies on Likelihood of $2 Billion Pipeline Win -  The prospect of building an underwater pipeline from Texas to Mexico is making Sempra Energy’s Ienova one of the top-performing stocks south of the border. Infraestructura Energetica Nova SAB, as the unit is formally called, had the second-biggest gain on the Mexican Stock Exchange since announcing plans on May 19 to bid to develop the $2.1 billion project in a joint venture with TransCanada Corp. The venture was the sole bidder to qualify for a June 13 auction of the project, boosting optimism that Ienova, the country’s only publicly traded energy company, will sustain the rally throughout the year. "It’s very likely that the Ienova and TransCanada bid will have a favorable outcome in the auction for the pipeline,” Jean-Baptiste Bruny, BBVA Research analyst, said in a telephone interview from Mexico City. "The company’s shares are likely to have a positive impact if they win rights to the project." The 800-kilometer (497-mile) pipeline will run from the U.S.-Mexico border to the Tuxpan port, a shipping hub for tankers supplying petroleum products to state-run Petroleos Mexicanos, or Pemex. The line will transport natural gas to power plants in northern and central Mexico and is forecast to be completed in 28 months. Last year, TransCanada won a bid for a gas pipeline connecting Tula, where Pemex’s second-largest refinery is located, to Tuxpan.

Last Oil Company Pulls Out Of Arctic Offshore Drilling Efforts In Chukchi Sea -  It’s often hard to find good news when it comes to the world’s oceans. Overfishing, coral bleaching, dead zones, acidification, pollution, oil spills, melting sea ice, sea level rise, the odd Cold War-era Russian rocket crashing into Baffin Bay with some leftover toxic fuel in the tank.  So on World Oceans Day a bit of positive news is a breath of fresh air. Repsol, a Spanish oil company which owned a significant portion of the drilling leases for Alaska’s Chukchi Sea, abandoned 55 of them last week and plans to drop the remaining 38 next year. “Repsol is in the process of relinquishing its Chukchi Sea acreage position offshore Alaska,” Repsol spokeswoman Jan Sieving said in a statement.After eight years, billions of dollars, and significant controversy, we’re back to a clean slate in the Chukchi sea. The Spanish company joins the rush of oil drillers — Shell, ConocoPhillips, Eni, and Iona Energy — departing the Arctic region after concluding that offshore drilling is not worth the expense or the risk. After Shell spent over $4 billion attempting to develop offshore Arctic oil and completing just one exploratory well, it said it was done in the Chukchi “for the foreseeable future.”  Apart from one token Shell lease block that the company is retaining to keep the information it gained from its failed 2015 exploratory well, Repsol’s leases were the last blocks remaining in the Chukchi.  “Last month we figured out that Shell and a bunch of other companies had given up their leases,” said Mike Levine, Oceana’s Pacific senior counsel, told ThinkProgress. “After eight years, billions of dollars, and significant controversy, we’re back to a clean slate in the Chukchi sea.”

Shell to cut more costs as a result of merger with BG Group. (AP) — Energy company Royal Dutch Shell will cut more costs, more quickly than previously planned, as a result of its merger with BG Group Plc this year. The Anglo Dutch company made the announcement Tuesday as it tried to assure investors that it could handle the debt that came with its $54 billion takeover. Critics have questioned the deal following a drop in oil prices. “Integration is gathering pace, and today we expect to deliver more synergies, and at a faster rate,” Shell CEO Ben van Beurden said. Shell argues the deal, which increased the company’s proven reserves of oil and natural gas by 25 percent, provided opportunities to cut costs by eliminating duplication. Thousands of jobs have been cut and investments have been postponed. Van Beurden said Tuesday that synergies in absorbing BG would result in $4.5 billion in savings by 2018, up from $3.5 billion estimated earlier. The deal has caused concerns because it came as the price of oil was dropping. Brent Crude, the benchmark for international oil, hit a 12-year low of $27.10 a barrel in January after trading above $100 as recently as September 2014. It traded at $50.97 on Tuesday. Prices are down because production has remained high despite slower economic growth, particularly in China. Van Beurden set out priorities intended to improve returns and cash flow, which has been hit by low oil prices. Investment for 2016 is expected to be $29 billion, excluding the purchase price for BG — or 35 percent lower than what Shell and BG combined had spent in 2014. He described deep water drilling and chemicals as being growth priorities. The company announced a final investment decision in a new plant in Pennsylvania.

Royal Dutch Shell Plan To Exit Up To 10 Countries Signals Deeper Anxiety About Oil Market Recovery:  Close Royal Dutch Shell’s new plan to exit oil and gas operations in up to 10 countries signals a deepening uncertainty about how and when the crude oil market will break from its persistent slump. The Anglo-Dutch energy giant said Tuesday it plans to sell 10 percent of its oil and gas production assets, worth about $30 billion, by around 2018. Shell, which is active in more than 70 countries, said it also hopes to focus on operations in 13 countries where it is reaping good returns, including the United States, Brazil and Australia.“Our portfolio is probably more diverse and spread around the world, and in some parts more mature than we would like it to be,” Simon Henry, Shell’s chief financial officer, said in a Tuesday press conference cited by Reuters.  In the coming years, Shell said it will target shale oil and gas production in North America and Argentina, and develop clean energy technologies such as biofuels, hydrogen, and solar and wind power in a separate unit. Shell will also slow new investment in its integrated gas business, including in liquefied natural gas, which the company said has reached “critical mass” following its $54 billion merger with British gas giant BG Group.

Activists Deliver 90,000+ Petitions Calling on DNC to Add Fracking Ban to Party Platform – A coalition of climate and environmental justice groups delivered over 90,000 petitions to the Democratic National Committee demanding that a ban on fracking be included in the party platform. The DNC platform committee is holding a public forum to receive input on this year’s platform today in Washington D.C. Petitions were collected and delivered by Food & Water Watch, Climate Hawks Vote, Environmental Action, Honor the Earth,, and“The Democratic Party has been complicit in the U.S. fracking boom which is poisoning communities and our climate,” said Emily Wurth, Water Program Director for Food & Water Watch. “Any serious plan to combat climate change must include a ban on fracking, and as the committee develops the platform, they should heed the calls of the growing movement to ban fracking and keep fossil fuels in the ground.”In addition to the petitions delivered Wednesday, a massive anti-fracking protest is planned for Philadelphia on July 24, the day before the Democratic National Convention begins. The March for a Clean Energy Revolution is expected to draw thousands, and is demanding a ban on fracking, keeping fossil fuels in the ground, and a just transition to 100% renewable energy. The march and its demands have been endorsed by over 400 organizations.“The climate crisis and the need for more urgent action are accelerating. The science is in: fracked natural gas, like other extreme energy, is a climate killer. The Obama-era ‘all of the above’ energy policy needs to end, beginning with the party platform,” said RL Miller, cofounder of Climate Hawks Vote. More than 137,000 fracking wells have been drilled in the U.S. since 2005, putting over 15 million Americans within a mile of an oil or gas well. This boom was in part a result of President Obama’s “all of the above” energy policy, which promoted the increased use of natural gas.

Fires near Fort McMurray are reducing Canada’s oil sands production - Today in Energy - U.S. (EIA): While evacuees from the ongoing fires in Fort McMurray have begun to return to the city, a state of emergency remains in place throughout Alberta, Canada, and the temporary shutdown of the area's oil sands production sites continues. EIA estimates that disruptions to oil production averaged about 0.8 million barrels per day (b/d) in May, with a daily peak of more than 1.1 million b/d. Although projects are slowly restarting as fires subside, it may take weeks for production to return to previous levels. EIA expects disruptions to average 400,000 b/d in June.  The oil sands facilities are located mostly to the north of the fires and initially were not physically threatened by the fires. However, as winds pushed the fires northward, oil sands facilities and work camps had to be evacuated. Oil sands production companies operating near Fort McMurray either shut down completely or operated at reduced rates. Although the fires have not been contained, they have moved away from Fort McMurray, but dangerous air quality conditions at facilities and surrounding towns have slowed the return of workers. As conditions improve, facilities located farther north of Fort McMurray have begun to restart production, although not at full capacity.  Local pipeline capacity was also shut down in response to the fire, reducing crude oil takeaway capacity. Oil sands production yields very thick crude oil that often requires liquid diluent such as natural gas condensates to reduce viscosity so that the crude oil can flow in pipelines. Because this diluent is delivered to the production area by pipeline, the pipeline shutdowns also affected this diluent supply. So far, the Fort McMurray fires have not significantly affected the regional crude oil price, Western Canadian Select (WCS). The price difference between WCS and the global crude oil benchmark Brent has narrowed slightly since the fires began, but WCS still remains at least $10 U.S. dollars per barrel less than Brent. The effect of the fire was most likely moderated by high inventories of crude oil in both the United States and Canada. Crude oil imports from Canada have fallen, but to a lesser extent compared with the oil sands production outage.

BP: Oil gained global market share in 2015 for first time in 16 years - Although crude oil prices in 2015 recorded their largest annual decline on record in dollar terms and their largest percentage decline since 1986, oil gained market share for the first time since 1999, according to the 65th edition of BP PLC's Statistical Review of World Energy. The multinational firm’s comprehensive review of energy markets notes that prices for all fossil fuels declined last year, prompting adjustments in the energy markets. In some markets, demand was lifted while curtailing supply and shifting the fuel mix in others. Oil remained the world’s leading fuel, accounting for 32.9% of global energy consumption. Global oil consumption grew 1.9 million b/d, or 1.9%, nearly double the recent historical average of 1% and significantly stronger than the increase of 1.1 million b/d seen in 2014. The relative strength of consumption was driven by countries in the Organization for Economic Cooperation and Development, where consumption increased 1.1%, compared with an average decline of 1.1% over the past decade. Growth was well above recent historical averages in the US at 1.6% and the European Union at 1.5%. Down 3.9%, Japan recorded the largest decline in oil consumption. Outside of the OECD, net oil importing countries recorded significant increases. Up 6.3%, China once again accounted for the largest increment to demand, while India, rising 8.1%, surpassed Japan as the world’s third-largest oil consumer. But this was offset by slower growth in oil producers such that oil demand growth in the non-OECD as a whole, up 2.6%, was below its recent historical average.

On US Petroleum Exports -- Al Troner's Article In Oil & Gas Journal On Light Ends -- From Al Troner's June 6, 2016, article in Oil & Gas Journal: Almost unheralded, the US has emerged as the largest exporter of oil products, based on Gulf Coast refiners' use of relatively inexpensive, domestically produced tight oil. The product-export flood has been paralleled by large-volume NGL sales, with LPG (liquid petroleum gas) leading the way, in particular propane. US sales have not only saturated the Atlantic Basin market but also become important to Asia Pacific supply. At mid-2015 China was the biggest single customer for US propane. And the opening of a revamped and enlarged Panama Canal by yearend will likely increase westbound LPG exports from the Gulf Coast even further. By 2018 US exports of LPG exports will likely equal or exceed those of the United Arab Emirates and Qatar combined.  Canada remains the top condensate US export market. APEC expects US supply to dominate Canadian diluent use until at least end-decade. Yet domestic condensate output has been growing rapidly in Canada, based on tight oil and shale gas development, in a trend APEC expects will gradually back out US sales in the coming decade. A steadier though smaller market emerged for slightly refined condensate in Europe, where refiners use the material regularly to fill out crude slates. By 2018 US condensate exports will exceed overseas sales by Saudi Arabia, and possibly by the kingdom and Qatar combined.  Ethane exports have begun as US sellers pioneered waterborne ethane shipments to buyers in the UK, Norway (Ineos and Sabic), and Sweden (Borealis). This has been followed by sales to India (Reliance) and China (Orient Energy). The emergence of the light-ends space has not been solely a western market phenomenon. It has had East of Suez impacts as well, much of it centered on the Persian Gulf.

Backhaul Economics Encourage U.S. Crude Shipments on VLCCs to Asia -  Back in December 2015, the U.S. crude oil export ban was lifted to a warm welcome from producers and free market enthusiasts. Lifting the ban fulfilled the wishes of many in the oil industry who argued that unfettered markets were the most efficient.  But there were a couple of unintended consequences.  First, with the U.S still importing millions of barrels of crude per day, for every barrel exported a replacement barrel would have to be imported.  And second, for exports to make sense, the price for crude oil in the U.S. would have to be cheaper than the price of competing grades in global markets.  In other words, domestic grades would have to be cheap enough to justify putting that oil on ships, paying the cost of moving those ships a considerable distance, and arriving at their destination at a final, delivered cost below that of competitors that traditionally served those markets. Partly as a consequence of lifting the export ban, exporters found pricing differentials were moving against them just as they were getting ready to start selling abroad.  Now that U.S. Gulf Coast crude could be exported to higher value markets, it helped bump the price up slightly, even though volumes actually exported didn’t increase substantially.  That is, just the act of releasing domestic grades from the confinement of the U.S. market brought their prices more into line with the international market.  The Brent – West Texas Intermediate (WTI) differential - a measure of the competitiveness of U.S. grades with West African and North Sea crudes - flipped from a premium in favor of Brent to a discount of Brent to WTI.   The fact that it takes two months to sail around South Africa's Cape of Good Hope and on to China, in itself, is not an impediment. After all, it takes five weeks to get from the Middle East Gulf to the Gulf of Mexico, and there is about one Very Large Crude Carrier (VLCC)--a ship that can carry 2,000,000 barrels (2 MMbbl)-- completing that journey every 18 hours or so.  The problem is that such long journeys make economic sense only when the shipper is using a VLCC or the even larger Ultra Large Crude Carrier (ULCC).  The larger the ship, the lower the cost per barrel.  VLCCs are around 1,500 feet long.

Chile environmental watchdog probes GeoPark for illegal fracking | Reuters: Chile's SMA environmental regulator said on Friday it was investigating Latin America-focused oil and gas explorer GeoPark Ltd for alleged violations, including fracking activities without having the necessary permits. Inspections in 2014 and 2015 of GeoPark's hydrocarbon project in the Fell block, located in the southern Magallanes region, detected "hydraulic fracturing activities in different wells, without the environmental permits required by law for this type of activity," the regulator said. GeoPark is also accused of having faulty systems in place for avoiding soil erosion and managing spills of hazardous materials, and of damaging archaeological findings. "We will fully cooperate with Chile's SMA environmental regulator and are confident that all of our drilling activities in the region are fully compliant with the relevant laws and regulations," GeoPark said in an emailed statement. "We look forward to presenting our compliance plan to the SMA in the coming days and quickly resolving this matter," the company added. GeoPark has 10 days to present a compliance plan to the SMA or 15 days to present a legal defense.

North Sea crude oil to remain pressured as French strikes continue -  North Sea spot differentials for Brent blend, Forties and Ekofisk -- together with Brent CFDs -- are expected to continue their recent slide as French strikes that have brought several French refineries to a standstill continued into their third week. Despite signs that more French refining capacity would be operational this week, spot differentials for BFOE grades would likely fall further as large North Sea crude buyer Total remained out of the market, traders said. "There's still a long way [down] to go [for spot differentials] for Brent, Forties and Ekofisk," a trader said. Brent Blend, Forties and Ekofisk spot differentials slid 2 cents/b, 0.5 cents/b and 5 cents/b respectively Monday on the back of offers from BP and Vitol. "The French strike is not helping the overall picture, light sweet [crude] is under pressure," a second trader said. The restart Sunday of operations at the 274,000 b/d Grandpuits refinery -- together with a preliminary restart at some units at Gonfreville and Feyzin -- are not expected to see differentials rebound in the immediate future. "The effect of the French [strikes] is still feeding through, they're going to have oil that they bought but didn't run for the last three weeks... it's unplanned so they hadn't under-bought, they bought oil to run and now its backing up on boats still looking to discharge... July buying will be very slow," the first trader said.

How Corruption And Oil Crime Are Tearing Nigeria Apart | Political risk has always been a part of oil business, and today’s situation in Nigeria is no exception. Over the past several months the insurgency in the Niger River delta has devastated the Nigerian oil industry, with the country’s production being halved from 2.2 to 1.4 million barrels per day. The severity of attacks not only affected Nigeria’s oil production, but also the global markets. Accordingly, Angola has surpassed Nigeria as Africa’s largest oil producer while global oil prices have hiked to $49 per barrel.  The on-going armed insurgency is a direct result of the government’s decision to cut subsidies for former rebel soldiers who were involved in a similar conflict that ended in 2009. But the root of the current rebellion against the government of President Muhammadu Buhari and the Nigerian federal state is a combination of long-standing social and economic grievances that have beset the region ever since oil production began in the late 1950s.  The Nigerian oil industry is plagued with endemic corruption. In the latest scandal involving the Nigerian National Petroleum Corporation (NNPC), the country’s official audit revealed that around $19 billion of oil revenues went missing through corruption and oil theft in 2014 alone. According to some estimates, around $400 billion has vanished in a similar fashion since the country gained independence in 1960, making oil industry crime the second largest industry in the country, right after the oil industry itself. It is estimated that around 200,000 barrels a day are stolen by a sophisticated network of former warlords, local businessmen, and corrupt officials.

The petrodollar drawdown quantified -- Izabella Kaminska - To what degree is the collapse in oil prices responsible for the contraction in cross-border financial activity and over-the-counter derivatives?  According to the BIS’ latest quarterly review, the slowdown — which began in earnest in early 2015, coinciding with the oil drop — broadened in the last quarter of 2015 to a $651bn contraction. Of that, the biggest drop in cross-border claims was on euro area countries, at $276bn, whilst the overall advanced economy contraction was $361bn. China, meanwhile, experienced its second quarterly drop in inbound cross-border lending as it dropped $114bn, pushing its annual growth rate down to –25 per cent. With respect to deposits placed with BIS reporting banks by residents of oil-exporting countries, however, these fell by a much more modest $79bn during the Q4 2015, with US dollar-denominated deposits accounting for about two thirds of this decline. As the BIS noted: The quarterly contraction was concentrated among some oil-exporting countries. Depositors from Russia (–$27 billion) and Norway (–$26 billion) withdrew the highest absolute amounts. Internationally active banks also reported considerable declines in cross-border deposits held by residents of Saudi Arabia (– $17 billion), the United Arab Emirates (–$7 billion) and Mexico (–$7 billion). But the BIS stresses that even after this latest quarterly decline, the cross-border deposits of oil exporting countries still stood at some $966bn at the end of 2015 and that more than half of that amount was accounted for by the residents of four countries: Saudi Arabia ($214bn), the United Arab Emirates ($129bn), Russia ($109bn) and Mexico ($107bn). If that sounds smaller than you’d expect, the BIS agrees. The figures are likely understated because some of those drawdowns will have been offset by loans to oil exporters, which rose by $15bn in the period. Accounting for those, the total reduction is closer to $94bn.Meanwhile, $7tn ($1tn x 7) is becoming an increasingly familiar number for those tracking international balances.

EIA continues to raise oil-price forecasts for 2016-17 - North Sea Brent crude oil prices averaged $47/bbl in May, a $5/bbl increase from April and the fourth consecutive monthly increase since reaching a 12-year low of $31/bbl in January. Growing global oil supply disruptions, rising oil demand, and falling US crude oil production have contributed to the price increase. In the June Short-Term Energy Outlook, the US Energy Information Administration forecasts Brent crude oil prices to average $43/bbl in 2016 and $52/bbl in 2017, $3/bbl and $1/bbl higher than forecasts in last month’s STEO, respectively. West Texas Intermediate crude oil prices are forecast to average slightly less than Brent in 2016 and to be the same as Brent in 2017. EIA estimates that global petroleum and other liquid fuels inventory builds will average 1 million b/d in 2016 and 300,000 b/d in 2017, compared with an average of 1 million b/d in 2016 and 200,000 b/d in 2017 forecast in last month’s STEO.  Global consumption of petroleum and other liquid fuels is now estimated to have risen 1.4 million b/d in 2015, 100,000 b/d higher than previously estimated and reflecting upward revisions to 2015 growth in both China and India. EIA now expects global oil consumption to rise 1.5 million b/d in both 2016 and 2017. Overall consumption of petroleum and other liquid fuels in countries outside of the Organization for Economic Cooperation and Development increased by an estimated 900,000 b/d in 2015, and it is expected to be 1.3 million b/d in 2016 and 1.4 million b/d in 2017. China’s consumption of petroleum and other liquid fuels is forecast to increase 400,000 b/d in both 2016 and 2017, driven by demand for hydrocarbon gas liquids as additional propane dehydrogenation (PDH) plants come online. Consumption growth in India is expected to be between 300,000 b/d and 400,000 b/d in both 2016 and 2017. OECD petroleum and other liquid fuels consumption rose 500,000 b/d in 2015. OECD consumption is expected to increase 200,000 b/d in 2016 and less than 100,000 b/d in 2017. Consumption growth in the US and South Korea more than offsets decreases in consumption in OECD Europe and Japan in 2016 and 2017.

Oil hits 2016 high on U.S. draw forecasts, Nigeria worry | Reuters: Oil prices continued their climb on Tuesday, hitting eight-month highs, as expectations of U.S. crude draws underpinned a market already worried about potential supply shortages from attacks on Nigeria's oil industry. U.S. crude stockpiles likely fell by 3.5 million barrels last week to mark a third straight week of declines, a preliminary Reuters poll showed.[EIA/S] Trade group American Petroleum Institute is expected to cite a drawdown as well in its inventory report due at 4:30 p.m. (2030 GMT), before official stockpiles data slated for Wednesday from the U.S. government. Crude oil rallied in the past two sessions after rebels in Nigeria's Niger Delta vowed to halt output in the country, which until last year was Africa's biggest producer turning out about 2 million barrels per day (bpd). The Nigerian government said on Tuesday it was initiating talks with the rebels. "The market remains concerned about unscheduled supply interruptions with the latest coming from additional shut-ins in Nigeria," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said. "With the industry projecting a decline in total U.S. crude oil stocks in this week's reports, the market bears are remaining on the sidelines."

Crude Slides After Unexpected Inventory Build In Gasoline, Distillates -- For the 3rd week in a row, crude inventories saw a drawdown (API reports -3.56mm vs -3mm expectations) and so did Cushing (-1.3mm vs -900k exp) but crude is slipping as both Distillates and Gasoline saw unexpected builds. This is the first build in Distillates in 8 weeks.  API:

  • Crude -3.56mm (-3mm exp)
  • Cushing -1.3mm (-900k exp)
  • Gasoline +760k (-100k exp)
  • Distillates +270k

First build in distillates in 8 weeks...Charts: Bloomberg

Oil Doubles From February Lows - Between Doha hopes (and nopes), Nigerian supply 'disruptions' which apparently cannot be stopped (conveniently for many oil producers, equity bulls, and central bank inflation watchers), and non-transitory Chinese 'demand', WTI crude has topped $51 this morning - almost doubling off the February lows. While still down YoY, oil prices have recovered to 11-month highs, soothing credit-driven anxiety in markets (even though bankruptcies continue) and enabling hedgers to pile in (crushing the crude curve). With rig counts rising once more (and global GDP being slashed), one questions how sustainable this frothy bounce will be... A larger than expected inventory draw from API last night sparked the latest impulse...As Reuters reports, Supply disruptions caused by a string of attacks by the Niger Delta Avengers militant group in Nigeria have brought the oil exporter's production to its lowest level in 20 years.The group said on Wednesday it had attacked another oil well owned by U.S. oil group Chevron, adding to assaults on oil infrastructure owned by Shell and ENI.Nigerian Oil Minister Emmanuel Ibe Kachikwu said output had dropped to 1.5-1.6 million barrels per day (bpd), down from 2.2 million at the start of the year.At the same time, May trade data on Wednesday showed the biggest jump in China's crude oil imports in more than six years, adding to hopes that the economy of the world's second-largest oil consumer may be stabilising. "China's economic activity is not slowing down as much as expected, which is a support to the market," said Kaname Gokon at brokerage Okato Shoji.

Crude Chaotic After Inventories Drop But Production Rises By Most In 2016 -- When the machines saw that US crude production rose by the most since Jan 1st, prices plunged back below $51... but the machines didn't like that, and following last night's API-reported draw, DOE confirmed the 3rd weekly drop in inventories for overall crude and Cushing (the latter more than expected) which juioed oil prices back higher. However, DOE also showed considerably larger than expected builds in Gasoline and Distillates(biggest in 2 months). DOE:

  • Crude -3.23mm (-3mm exp)
  • Cushing -1.36mm (-900k exp)
  • Gasoline +1.01mm (-100k exp)
  • Distillates +1.75mm

Third weekly draw in a row for overall crude inventories and Cushing but Distillates and Gasoline surprised with a large build... In aggregate though, it is noteworthy that total crude and product stocks rose +3.2 million bbl last week reversing the prior week -2.7 million bbl decline  But production rose for the first time in 18 weeks and by the most since Jan 1st...

Oil rises, hits 2016 highs; U.S. gasoline build worries some | Reuters: Crude futures rose on Wednesday, hitting 2016 highs above $50 a barrel and settling up for a third straight day on worries about sabotage of oil facilities in Nigeria, although a build in U.S. gasoline stocks amid peak summer demand could pressure prices. U.S. crude stocks fell for the third consecutive week, sliding by 3.2 million barrels versus analysts' expectations for a 2.7 million-barrel drawdown, government data showed. [EIA/S] But gasoline inventories grew by 1 million barrels and distillates, which include diesel and heating oil, rose by 1.8 million barrels, versus forecasts of drawdowns. This indicates a sentiment that gasoline demand will weaken more than expected or that the crude glut will be reflected by a gasoline glut, said Troy Vincent, crude oil analyst for New York-headquartered energy data provider ClipperData. Brent crude settled up $1.07 at $52.51 a barrel. It extended gains in post-settlement trade, reaching $52.60 a barrel by 3:55 p.m. EDT (1955 GMT), the highest since October. U.S. crude futures rose 87 cents, or 1.7 percent, to settle at $51.23 a barrel. The session high was $51.34, a peak since July. "The gasoline build was a big surprise, specially since the driving season is underway,"

Oil down after three-day rally; dollar rise sparks profit-taking | Reuters: Oil prices settled down on Thursday, snapping a three-day rally after notching another 2016 high, as a strong dollar sparked profit-taking in crude futures by investors. Continuous threats by militants against Nigeria's oil industry and fear of more security incidents that could hit supplies worldwide, however, limited losses in crude. Brent crude oil futures LCOc1 settled down 56 cents at $51.95 a barrel, after falling nearly $1 earlier. It hit a 2016 high of $52.86 during the session. U.S. crude's West Texas Intermediate (WTI) futures CLc1 fell 67 cents to settle at $50.56, after dropping $1 at the session low. WTI's intraday peak was $51.67, the highest for this year. Profit-taking emerged in crude as the dollar index .DXY rose nearly half a percent, the most in three weeks, from jittery global financial markets that sent investors toward safe haven currencies. A stronger dollar makes greenback-denominated oil less attractive to holders of the euro and other currencies. "So far this looks like a modest technical correction following three days of gains, rather than a major reversal," said Tim Evans, energy futures specialist at Citi Futures in New York. Crude futures have almost doubled since the 13-year lows of $27 for Brent and $26 for WTI in the first quarter. Some analysts anticipate headwinds for oil in coming weeks as Canadian supplies return after last month's wildfires in Alberta's oil sands region and other oil imports grow to slow use in U.S. crude stockpiles.

OilPrice Intelligence Report: The Rally Could Continue Beyond $50: Oil prices closed and opened above $50 per barrel this week, the first time that has happened in 2016. The highest supply outages in years have rapidly shrunk the global surplus, providing bullish momentum to WTI and Brent. Prices fell back on Friday due to a stronger dollar, however, and speculators also appeared willing to pocket some profits and take a breather on the rally. Some Canadian oil production is coming back online but the fundamentals continue to firm up. The EIA reported inventory drawdowns for the third week in a row, providing some clearer direction on which way the markets are heading. Demand is strong. Oil demand looks bright, with record gasoline consumption taking place in the United States. Also, global refining demand is nearing record highs as the world takes advantage of cheap fuel. In August, Reuters projects that global refining demand could hit 101.8 million barrels per day, which would be a new all-time high. Record demand combined with falling supply offers clear signs that there is strong bullish momentum behind crude oil.  Not everyone agrees that the rally will continue. Top analysts from Argus media and S&P Global, among others, among others, are not convinced that oil prices will move higher, arguing that the rally could be running out of room. Supply outages in Canada are starting to be resolved. Also higher oil prices could restart some drilling in the shale patch. The dollar could strengthen, putting downward pressure on prices. And oil inventories are still at record highs.

US Rig Count Rises 6 This Week to 414, 2nd Week of Gains - ABC News: The number of rigs exploring for oil and natural gas in the U.S. rose by six this week to 414, the second consecutive week the count has increased after a slide that lasted months and pushed the count to record-low levels amid collapsed energy prices. A year ago, 859 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 328 rigs sought oil and 85 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, North Dakota and Texas each gained two rigs and Alaska, Ohio, Oklahoma and Utah each gained one. Pennsylvania declined by one rig. Arkansas, California, Colorado, Kansas, Louisiana, New Mexico, West Virginia and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981.

Oil Down Over 2% As U.S. Rigs Increase - The U.S. rig count continued to increase this week, according to information from Baker Hughes Inc. The total number of active rigs in the United States reached 414, up six from last week. Increases were in both oil and gas rigs this week, with BHI reporting three more of each active in the week ended June 10, 2016. Oil rigs reached 328 while gas rigs are now at 85 total in the country. Slowly recovering oil prices had many concerned that U.S. oil and gas operators might start bringing more production back to the market. The higher oil price appears to have encouraged a few more active rigs, but has also pushed oil prices back down today. U.S. crude oil benchmark WTI is down over 2% today at $49.31 after both WTI and Brent crude oils broke their three-day streak of gains Thursday. Supply disruptions continue to help balance the market, but concerns over renewed drilling activity in North America may continue to exert downward pressure on prices. Most of the added rigs this week were in the Haynesville, Mississippian and Williston, each of which reported two new active rigs. The Eagle Ford, Granite Wash and the Utica all reported one additional rig this week as well. The Arkoma Woodford, Cana Woodford, DJ and Marcellus all reported fewer rigs this week than last. The Permian, the most active basin in the U.S., reported no change in its rig count at 142 this week.The Canadian rig count increased by more than 50% week over week, according to BHI. The total rig count in Canada now stands at 65, up 24 from last week.  Total North American drill rigs now number 479, down 507 from this time last year.

Oil Gives Up Post-Payrolls Gains As Rig Count Rises For 2nd Straight Week --Following last week's unexpected rise in US oil rigs - and the biggest increase in US Crude production since the first week of January - the lagged price of oil suggested that rig counts would continue to rise this week, and it did - up 3 to 328. Oil prices had dropped from over $51.50 to almost $49 - erasing the post-payrolls gains- ahead of the rig count data and were relatively unimpressed by the print. Production rose last week for the first time in 18 weeks and by the most since Jan 1st: As rig counts increased by the most since December and for the 2nd week in a row... leaving oil unchanged since payrolls... Charts: Bloomberg

US oil plunges 2.9 percent after rig count rises for 2nd straight week: U.S. oil prices fell about 3 percent on Friday as the U.S. rig count rose for the second straight week and as a strong dollar again weighed on demand for crude futures. A slide in equity prices on Wall Street also pressured futures of Brent and U.S. crude's West Texas Intermediate (WTI). The number of rigs operating in U.S. fields rose by 3 to 328 in the previous week, oilfield services firm Baker Hughes reported. At this time last year, drillers had 635 rigs online.  More sabotage of Nigeria's oil industry by rebels had limited losses in Brent and WTI earlier in the session. The Niger Delta Avengers group blew up the Obi Obi Brass trunk line for oil run by ENI, adding to the woes of Africa's largest oil economy.  International Brent crude oil futures fell $1.43, or 2.8 percent, to $50.52 per barrel. U.S. West Texas Intermediate (WTI) futures settled 2.9 percent lower, or $1.49, at $49.07. Baker Hughes said last week U.S. oil drillers added 9 rigs in the week to June 3, bringing the count up to 325, as oil prices traded above or near $50. Prior to that, drillers cut on average 10 oil rigs per week this year, after reducing on average 18 rigs per week last year, on worries of oversupply.

Militants claim blast of another Nigeria oil pipeline(AP) — Nigerian militants say they have blown up another crude pipeline owned by Italian oil company Agip. The Niger Delta Avengers announced the early-morning blast in Bayelsa state in a tweet Friday. The latest blast comes a few days after the militants rejected the government’s offer of peace talks. Nigeria’s government had ordered the military to halt attacks in the oil-producing south and urged the militants to halt the bombings to allow a dialogue. But the militants say they will not negotiate. They also have blown up installations of Dutch-British Shell and U.S.-based oil company Chevron, halving Nigeria’s production to about 1.2 million barrels a day. The assaults have ended years of relative peace in the delta and have lost Nigeria its place as Africa’s biggest oil producer to Angola.

Second Militant Group Threatens Niger Delta Oil -- The Ultimate Warriors of the Niger Delta, a new militant group operating from its namesake river delta, is demanding that the Nigerian government give 60 percent of oil and gas revenues to the people native to the Niger Delta region, according to a Wednesday report by The group presented the order as a condition for a possible ceasefire after attacks it has committed, along with those perpetrated by the Niger Delta Avengers, have caused a 50 percent fall in national oil production.‘Gen’ Sibiri Taiowoh, the group’s spokesperson, said on Wednesday that attacks on oil facilities would continue until the $16 billion Export Processing Zone and the Federal Maritime University projects that former President Goodluck Jonathan began had been fast-tracked for completion. The next targets would be Chevron BOP, Okan Platform, MEREN Gas Gathering Compression Platform and the Chevron Tank Farm if the government did not meet the group’s demands within two weeks, according to the statement.“We are also behind the recent pipeline bombing in the Niger Delta region and I can assure you we will not stop until the Export Processing Zone (EPZ) project and the Maritime University are totally completed and start operations,” the document read. "We would resist any attempt to give surveillance contracts of pipeline in our backyard to foreigners. We want the pipeline jobs to be given to our indigenous people.” The group, which, like the Niger Delta Avengers, vows not to kill innocents and cause only property damage, also spoke out against what they consider to be the misdistribution of oil profits, as 80 percent of the money has been given to regions in non-oil producing areas. Since the people of the Niger Delta suffer “the brunt of oil pollution and degradation in the region,” the group insists that residents should receive at least half of the oil profits.

Oil Exporters Learn to Live with Cheaper Oil -- iMFdirect The significant and prolonged drop in oil prices since mid-2014 has changed the fortunes of many energy-exporting nations around the world. This applies particularly to countries of the Middle East and Central Asia, because these regions are home to 11 of the world’s top 20 energy exporters. Budgets have generally turned from surpluses to large deficits (Chart 1), growth has slowed, and financial stability risks have increased. In such a challenging environment, a policy of “business as usual” will not suffice—policymakers will need to adopt significant measures to put public budgets on a sounder footing, address risks to liquidity and the quality of assets in the financial sector, and improve growth prospects. This will be a difficult long-term process, but the good news is that many countries have made a strong start, especially in terms of budget policies.  In the early stages of the oil price decline, most countries appropriately used their savings to cope with the shortfall in oil revenues. As it became clear that the oil price decline would persist, oil exporters made significant spending cuts, an obvious area to target since public expenditures had ballooned during the oil-price boom. The budget plans for 2016 indicate that deficit-reduction efforts will deepen further, with sizable adjustment measures planned especially in Oman, Qatar, and Saudi Arabia. Countries have generally aimed for savings in both current and investment expenditures. Cross-country evidence suggests that reviewing both spending categories is sensible—for instance, the Gulf countries, Algeria, and Central Asian oil exporters all have higher capital expenditure levels than their emerging market counterparts (Chart 2).

Saudi Oil Chief Khalid al-Falih Tells OPEC Changes Are Coming - — The new oil minister in Saudi Arabia, the de facto leader of the OPEC countries, had a message for the global market: Don’t expect us to influence the price of crude oil by adjusting supplies.“I think managing in the traditional way that we tried in the past may never come again,” the minister, Khalid al-Falih, said on Thursday. “Certainly we will not go with certain price targets.”The message — which came after the decision on Thursday by the 13-nation Organization of the Petroleum Exporting Countries to maintain high levels of oil production — is central to the changing strategy of the Saudi crude-oil complex. And it could foreshadow a period of volatility for oil prices because OPEC’s policies and the Saudis’ sway have long helped guide the markets.In a sweeping directive in April, Saudi Arabia set forth plans to diversify its economy, reduce its dependence on oil and pull back on its government handouts. And what Mr. Falih does with Saudi Arabia’s oil — how much the kingdom decides to pump and where the money goes — is the biggest piece of the puzzle. The global markets received a sneak peak at Thursday’s OPEC meeting, Mr. Falih’s first since his appointment last month as the head of an expanded energy, industry and mining ministry. While other OPEC members have been urging the freezing or lowering of oil production, Mr. Falih is pushing to keep it high and plow the money into other industries that might prove profitable for Saudi Arabia. He wants the cartel to rethink its longstanding approach and assumptions that it can manage global oil supplies and prices. It runs counter to the longtime stance of his predecessor, Ali al-Naimi, who presided over an era when OPEC was largely content to restrain production to try to drive prices up.

Saudi Aramco, a race to the bottom? - It’s a theory at least, courtesy of a new Bernstein long read on the reported listing of 5 per cent of the state owned oil and gas giant by 2018. The final highlighted bit being the point, with the question being “why now?”: Often the simplest explanation is the most likely to be correct. With Saudi running a significant budget deficit, the listing of Aramco is one way to plug a gap in government finances. More broadly the listing of Aramco could be an example to other state owned firms, as Saudi reaches its ‘Thatcher’ moment in seeking to privatize state owned companies to increase efficiency as part of their plan to move beyond oil. The problem for oil markets is that privatized state companies tend to grow more quickly following privatization. Perhaps Aramco’s growth will be focused on refining and natural gas, but it is possible that Saudi have also realized that demand is likely to run out before supply and it makes more sense to deplete their own reserves ahead of others. While this is pure conjecture at this point, it could have bearish implications for oil markets. In the near term however, Saudi will not want to list Aramco at a low oil price. In the run up to 2018, we expect that Saudi will do everything in its power to ensure oil markets remain balanced and prices stable. This could be positive near term for oil equities. If that last theory is correct, it’s a solid end of the oil age gambit that is based in part on an eventual race to produce kicking in.

Saudi Authorities Panic - Ban Speculation On Riyal Devaluation Amid Banking Crisis -- With Saudi Riyal forwards plunging back above 3.81, dramatically weaker than the current peg, Bloomberg reports that Saudi authorities are cracking down on currency traders as speculation mounts that the world’s biggest oil exporter won’t be able to maintain the riyal’s peg to the dollar as revenue plunges. Saudi Arabia ordered banks in the kingdom to stop selling some products that allow speculators to bet against its currency peg just days after demanding information from lenders on the offerings, according to people with knowledge of the matter. The Saudi Arabia Monetary Agency sent a circular to banks this week saying that dollar-riyal forward structured contracts are banned with immediate effect, said the people, asking not to be identified because they are not authorized to comment publicly. Forward foreign-currency transactions backed by actual goods and services will still be allowed, the people said.The regulator, also known as SAMA, has asked lenders for details on derivative deals dating to January, saying they hadn’t informed the central bank about some products. An e-mailed request for comment to the agency outside of normal office hours on Friday wasn’t immediately returned. "The directive shows the continuing disconnect between the Saudi foreign-exchange policy and market expectations," Raza Agha, VTB Capital’s chief economist for the Middle East and Africa, said by e-mail. "SAMA appears committed to the exchange-rate peg despite the cost to foreign-exchange reserves, large fiscal deficits and consensus forecasts that see only a very gradual rise in oil prices."

Saudi Arabia to Cut Public-Sector Wage Bill in Post-Oil Plan - Saudi Arabia plans to reduce the public-sector wage bill as well as subsidies by 2020, scaling back the state largesse that helped ensure political loyalty in the largest Arab economy. The reductions are a pillar of the National Transformation Program the Saudi cabinet approved on Monday. A major component of the Vision 2030 plan unveiled by Deputy Crown Prince Mohammed bin Salman in April, its targets include reducing public-sector wages to 40 percent of spending by 2020, from 45 percent today. Public debt is seen climbing to 30 percent of economic output from 7.7 percent currently. The slump in oil revenue prompted Prince Mohammed to lead the biggest economic shakeup in the kingdom’s history by seeking to reduce the reliance on hydrocarbons. He proposed measures eschewed by previous rulers, who used some of the windfall from oil exports over the past decade to create government jobs. “The plan provides targets, but generally does not tell us how they will be met,” said Mohammed Abu Basha, a Cairo-based economist at regional investment bank EFG-Hermes Holding Co. “The drop in the wage bill is a surprise, that there will be a nominal cut by 5 percent in the coming five years, especially when taking into consideration the expected elevated inflation.” A higher debt-to-GDP ratio “means that they are targeting to raise an additional $200 billion in debt in the coming five years,” Abu Basha said. Encouraging Saudis to seek private-sector jobs has been a long-term challenge in the kingdom, where even after decades of attempts to diversify, more than 70 percent of government revenue came from oil in 2015. The state still employs two-thirds of Saudi workers.

Saudi Arabia To Tax Millions Of Foreign Residents To Raise Cash -- The troubles that Saudi Arabia has been facing due to the plunge in oil prices have been discussed many times, most recently when Saudi authorities ordered banks to stop allowing speculators to bet against the Riyal. Liquidity worries have also surfaced, as late last month Saudi Arabia indicated that it was considering paying contractors with government issued bonds - read: IOUs. GDP growth has slowed significantly...While debt to GDP has soared relative to prior years And Riyal forwards have plunged as bets on devaluation soar (despite government bans) Against that backdrop, although oil has rebounded off the recent lows, budgets are still light and in an attempt to help raise revenues in the short term (and transition away from dependency on oil in the longer term), the government is weighing an income tax on expat workers. As Bloomberg reports, in a proposal released this week for the country's National Transformation Plan, the kingdom is seeking to tax millions of foreign residents. The tax is only "an initiative that will be discussed" Finance Minister Ibrahim al-Assaf said. However as Bloomberg notes, the fact that the tax was included in the proposal means that Deputy Crown Prince Mohammed bin Salman is considering the idea. Prince Mohammed has already taken steps to reduce spending, recently cutting fuel and utility subsidies and has proposed reducing the public sector wage bill. The kingdom is also joining other members of the six-nation Gulf Cooperation Council in imposing value-added taxation starting from 2018.

Minister: Saudi Aramco Could Import Gas To Boost Use In Energy Mix  (Reuters) - Saudi Aramco could invest in importing gas into the kingdom, but the priority would be on finding new sources of gas domestically through exploration, Saudi Arabia's energy minister said on Tuesday. Even though it is the world's largest oil exporter, Saudi Arabia has struggled to keep pace with domestic gas demand in recent years as increased use from industry and power generation put pressure on supplies. "Gas makes up 50 percent of our energy mix now and we aspire to raise this to 70 percent from all sources, be it local or, if it is possible, from a source to import from at a competitive price," Khalid al-Falih told a news conference announcing the kingdom's National Transformation Plan. Falih, who is also Aramco's chairman, indicated earlier this month that the energy giant would be interested in investing in international upstream opportunities, particularly in gas. While Aramco has several overseas joint ventures in the refining and petrochemical sectors with foreign oil companies, it has not pursued similar deals in upstream initiatives.

Iran Oil Exports Soar As Offshore Tanker Armada Comes To Tehran's Rescue --Back in mid-April, when Iran was desperate to start exporting the millions of barrels it was pumping each day out of the ground, it found it has an unexpected problem: not only did it not have enough spare tankers, but few if any shipping companies were willing to move the cargo. There were two key reasons for this.

  • The first hurdle was residual U.S. restrictions on Tehran which are still in place and prohibit any trade in dollars or the involvement of U.S. firms including banks - a major hurdle for the oil and tanker trades, which are priced in dollars. As a result, by mid-April only eight foreign tankers, carrying a total of around 8 million barrels of oil, had shipped Iranian crude to European destinations since sanctions were lifted in January. That equates to only around 10 days' worth of sales at the levels of pre-2012, when European buyers were purchasing as much as 800,000 barrels per day (bpd) from the OPEC producer. 
  • The second and far bigger problem, were implicit Saudi Arabian threats for shippers not to transact with Iran or risk losing Saudi business. "It’s seen as an unknown risk,” said one shipbroker. “No one wants to disrupt their relationship with the Saudis." Iran admitted as much.

As Reuters said at the time, Iran's problems may not be resolved any time soon, adding that two other sources with other leading oil tanker operators echoed the above concerns and said they were not doing Iran deals at the moment. Fast forward a little over a month later, and somehow all the issues have been resolved.  According to an update from Reuters, more than 25 European and Asian-owned supertankers are shipping Iranian oil, allowing Tehran to ramp up exports much faster than analysts had expected following the lifting of sanctions in January. As noted above, "Iran was struggling as recently as April to find partners to ship its oil, but after an agreement on a temporary insurance fix more than a third of Iran's crude shipments are now being handled by foreign vessels." It appears that, whether with or without outside pressure, Saudi Arabia relented. "Charterers are buying cargo from Iran and the rest of the world is OK with that,”

Does Iran Have The Upper Hand In OPEC Oil War | Traditional rivals, Saudi Arabia and Iran, continue to fight to prove their supremacy in OPEC. Neither gives up an opportunity to hurt the other, whenever and wherever they can, and oil seems to be their favourite playground. With Saudi Arabia scuttling any chances of a production freeze in Doha in April, Iran has followed suit by thwarting attempts by Saudi Arabia to introduce a production ceiling on OPEC production in Thursday’s meeting held in Vienna. Iran, which is close to its pre-sanction levels of production, had earlier agreed to discuss being part of any production freeze after it reached its desired output. However, in yesterday’s meeting, Iran refused to adhere to any production ceiling, which led to OPEC abandoning the idea. Iran has been a dark horse since the lifting of sanctions, increasing its market share quickly to the surprise of many investors. Iran has resorted to offering large discounts to its Asian customers, undercutting the Saudi and Iraqi prices to levels not seen since 2007-2008 in order to regain their market share, reports Reuters.  Iran shipped 2.3 million b/d in April 2016, the highest level since 2012. These figures are 15 percent higher than the International Energy Agency (IEA) forecast. Iran has been successful in its strategy until now, but increasing its market share further might prove difficult..

Saudis Threaten To Leave U.N. Over Human Rights Criticism In Yemen - Saudi Arabia threatened this week to break relations with the United Nations and cut hundreds of millions of dollars in assistance to its humanitarian relief and counterterrorism programs to strong-arm the U.N. into removing Riyadh and its allies from a blacklist of groups that are accused of harming children in armed conflict. The threat — which has not been previously reported — worked, and the U.N. subsequently dropped the Saudis from a rogues’ gallery of the world’s worst violators of children’s rights in conflict zones. In their Monday warning, senior Saudi diplomats told top U.N. officials Riyadh would use its influence to convince other Arab governments and the Organization of Islamic Cooperation tosever ties with the United Nations, the officials said. The threats were issued in a series of exchanges between top Saudi officials in Riyadh, including Saudi Foreign Minister Adel al-Jubeir, according to U.N.-based officials. The Saudi mission to the United Nations did not respond to a request for comment Tuesday afternoon. Riyadh was enraged after U.N. Secretary-General Ban Ki-moon included the Saudi-led military coalition in Yemen on a list of countries, rebel movements, and terrorist organizations that killed, maimed, or otherwise abused children in conflict. The 40-page report — which was issued last week and primarily written by Leila Zerrougui, the U.N. chief’s special representative for children and armed conflict — claimed the coalition was responsible for about 60 percent of 1,953 child deaths and injuries in Yemen since last year.Hoping to mollify the Saudis, Ban issued a statement Monday saying he would remove the Saudi-led coalition from the list, pending a review of the matter by a joint U.N. and Saudi panel. The reversal triggered a wave of criticism of the U.N. from human rights groups, who accused Ban of caving to Saudi intimidation.

The Latest Attempt to Whitewash the Saudi-Led Coalition’s Crimes in Yemen -- The U.N. has made a humiliating, disgraceful reversal in its reporting on the Saudi-led coalition’s crimes in Yemen: The United Nations said on Monday it had removed the Saudi Arabia-led coalition fighting in Yemen from a child rights blacklist pending a joint review by the world body and the coalition of the cases of child deaths and injuries. The U.N. report on children and armed conflict – released last Thursday – said the coalition was responsible for 60 percent of child deaths and injuries in Yemen last year, killing 510 and wounding 667, and half the attacks on schools and hospitals. Following a complaint by Saudi Arabia, however, U.N. Secretary-General Ban Ki-moon agreed to a joint review by the world body and the coalition of the cases cited in the annual report of states and armed groups that violate children’s rights in war. The Saudis and their allies have been very effective in getting their way at the U.N. on Yemen, and they have been helped in this by the reliable diplomatic support that the U.S., Britain, and others have provided to them. When the Netherlands pushed for an independent inquiry into war crimes and abuses in Yemen by all sides last year, the Saudis were able to scuttle the Dutch resolution with tacit U.S. backing and propose instead that the Saudi-backed Yemeni government-in-exile would be responsible for investigating the coalition’s wrongdoing.  Last week, the U.N. added the Saudi-led coalition to a blacklist that includes states and groups (including the Houthis) that violate the rights of children in conflicts around the world. The listing of the coalition was based on the fact that it has been responsible for more than half of child deaths and injuries in the conflict since last March. The Saudis have carried out an indiscriminate bombing campaign and used cluster bombs in civilian areas, and the campaign has included strikes on schools and hospitals.   It should also be added that the Saudi-led blockade of the country has had an enormously destructive effect on the well-being of Yemen’s children by causing a huge increase in malnutrition and the creation of near-famine conditions in the country. Millions of children are being starved because of the Saudi-led blockade. This is the story of one such child.

Why the U.N.’s Decision to Cave Under Saudi Pressure Matters - The U.N. Secretary-General addressed the decision to remove the Saudi-led coalition from the U.N. blacklist of violators of children’s rights in conflicts: Ban said his decision to temporarily remove the coalition from the list was “one of the most painful and difficult decisions I have had to make,” and that the threats to pull funding raised “the very real prospect that millions of other children would suffer grievously.” “Children already at risk in Palestine, South Sudan, Syria, Yemen and so many other places would fall further into despair,” he told reporters. “It is unacceptable for member states to exert undue pressure,” he added. “Scrutiny is a natural and necessary part of the work of the United Nations.” The Saudis and their allies put the U.N. in a difficult position in truly despicable fashion, but yielding to what Ban calls “unacceptable” pressure rewards these governments for exerting it. While the U.N. says that it stands by the content of the original report, conceding the Saudis’ demand to be removed lets them and their allies off the hook for documented violations in Yemen, it allows them to claim that they have been cleared of wrongdoing when the opposite is true, and it encourages other states to use the same pressure tactics when they are called to account for abuses. If scrutiny is a “natural and necessary” part of what the U.N. does, it shouldn’t be caving in to threats from the very abusive governments whose violations it is reporting on.

ISIS Taxes Sockless Women & Beardless Men In Desperate Attempt To Raise Cash - As we have detailed in the past, the dramatic reduction in cash flow from oil sales has taken a tremendous toll on ISIS. A shortage of oil revenues has led to ISIS becoming so desperate for cash that it has even killed its own fighters in order to sell their organs. Now, it appears that another method is being tried to raise funds, this time by taking a page out of the standard government playbook: when you run out of cash, simply find ways to raise taxes on everyone. RT is reporting that ISIS has now enacted new taxes on those that live in territories under the group's control (which has dropped from 9 million to 6 million people over the past year), and each tax is more bizarre than the next.  For leaving a door open, $100. If one were to fail a random Sharia test, $20 per wrong answer.For women, $30 for not wearing socks, and $25 if a cloak is too tight - for men, a quick trimming of the beard will get you hit with a $50 tax. And if someone is a non-sunni muslim or used to work for the government, then there is a special "repentance" certificate that needs to be paid for, and that will cost anywhere from $200 to $2,500. "There are fewer people and business activities to tax, the same applies to properties and land to confiscate." Said Columb Strack, senior analyst at IHS. "This is a big indicator of the group's financial difficulties. Taxation makes up about 50 percent of the Islamic State's monthly revenue sources and encompasses almost every aspect of the population's life" added Ludovico Carlino, also of the IHS.Speaking of every aspect of the population's life, there are even taxes related to livestock. For example, if a bell is found around a sheep's neck, that's a $10 fine for the owner, and the animal will be confiscated.  As ISIS is under pressure in both Iraq and Syria, it may lose even more territory. If and when that happens, who knows what kind of outlandish scheme the group will come up with at that point.

The US is Raiding its Global Bomb Stockpiles to Fight ISIS - Defense One: The U.S. military is raiding its smart-bomb stockpiles around the world to continue its nearly two-year-old airstrike campaign against the Islamic State in Iraq and Syria, Pentagon officials said. Defense Department officials are trying to figure out “how we balance the weapons we have,” U.S. Air Force Lt. Gen. Charles Brown, the man overseeing the airstrikes, said Thursday. “We have to do some analysis of where we take risk,” Brown said in a video conference with reporters from Al Udeid Air Base in Qatar, home to the American-run combined air and space operations center. “What I mean by that is: where do we pull some weapons from that we were saving for other contingencies,” he said. “And do we use them now or do we save them for later?” The coalition has conducted 12,453 airstrikes in Iraq and Syria since August 2014, according to Operation Inherent Resolve, the task force overseeing the counter-ISIS campaign. More than 8,500 of the strikes have occurred in Iraq and nearly 4,000 in Syria. American warplanes and drones alone have conducted 9,495 of the strikes, with allies accounting for the remaining 2,958. More than 41,697 bombs have been dropped in those strikes. And the U.S. has loaned bombs to allies participating in the strikes.

U.S. Deploys Two Aircraft Carriers To Mediterranean To "Send A Clear Message To Russia" - Over the weekend we noted that US aircraft carrier, the USS Harry Truman, which has served as a launching point for a near-constant barrage of airstrikes on Islamic State targets in Iraq and Syria and which since November has accounted for a little more than half of the total sorties flown over those two countries by the U.S. military, recently crossed the Suez Canal in an unplanned trip to the Mediterranean, had begun striking at various Islamic State targets from the Mediterranean Sea. This marked the first time a carrier group has launched airstrikes from the area since the 2003 invasion in Iraq.But it turns out the carrier strike group had another, far more important mission when it entered the Mediterranean. According to the WSJ, this 20-story-tall aircraft carrier with a crew of 5,000 made an unplanned diversion from the Gulf to the eastern Mediterranean last week: a quick pivot intended to send a clear message to Russia. A military official in Washington said the Truman’s shift was a signal to Moscow and a demonstration of the Navy’s operational flexibility and reach.

Destroyers will break down if sent to Middle East, admits Royal Navy -- The Royal Navy’s fleet of six £1bn destroyers is breaking down because the ships’ engines cannot cope with the warm waters of the Gulf, defence chiefs have admitted. They also told the Commons defence committee on Tuesday that the Type 45 destroyers’ Rolls-Royce WR-21 gas turbines are unable to operate in extreme temperatures and will be fitted with diesel generators. Rolls-Royce executives said engines installed in the Type 45 destroyers had been built as specified – but that the conditions in the Middle East were not “in line with these specs”. Earlier a Whitehall source told Scotland’s Daily Record: “We can’t have warships that cannot operate if the water is warmer than it is in Portsmouth harbour.” The problem with the engines, which the Ministry of Defence initially dismissed as “teething problems”, first became clear when HMS Daring lost power in the mid-Atlantic in 2010 and had to be repaired in Canada. The ship, built by BAE Systems, needed repairing again in Bahrain in 2012 after another engine failure. The first warning signs emerged in 2009 when the Commons defence committee warned that “persistent overoptimism and underestimation of the technical challenges combined with inappropriate commercial arrangements” would lead to rising costs.

Erdoğan lifts Turkish MPs' immunity in bid to kick out Kurdish parties -- The Turkish president, Recep Tayyip Erdoğan, has signed a bill lifting lawmakers’ immunity from prosecution – a constitutional change likely to remove a pro-Kurdish opposition party from parliament. Erdoğan has accused the pro-Kurdish HDP, parliament’s third-biggest party, of being the political wing of militants who have waged a three-decade insurgency in Turkey’s largely Kurdish south-east. Kurdish militant groups have been blamed for bombings in Turkish cities. The HDP denies links with militants of the outlawed Kurdistan Workers Party (PKK). It fears an overwhelming majority of its 59 deputies could be jailed under the new law, mostly for views they have expressed.   Lawmakers have until now enjoyed immunity from prosecution. The new law allows prosecutors to pursue any of the 138 members of parliament who are currently under investigation. Of those, 101 are from the HDP or Turkey’s main opposition party CHP. Erdoğan’s opponents say the lifting of immunity is part of a strategy to push the HDP out of parliament, strengthen the ruling AK Party – which he co-founded more than a decade ago – and consolidate support in the assembly for an executive presidential system he has long sought. The legislation has increased concerns in the European Union about Turkey’s record on democracy and human rights at a time when the EU is also trying to implement a controversial deal with Ankara aimed at stemming illegal migration to Europe from Turkish shores.

The world lost more than $13 trillion last year because of war - Violence and worsening conflict cost the world more than $13.6 trillion last year, according to an annual study of the toll of violence worldwide. That figure amounts to some 13 percent of global GDP.  The analysis can be found within the Global Peace Index 2016 report, which is put out each year by the Institute of Economics and Peace, an Australia-based think-tank. It ranked 163 countries on the degree of peace within their borders. The results since the initiative began are not encouraging: "The last decade has seen a historic decline in world peace, interrupting the long term improvements since WWII," a press release indicates.  Moreover, peace and safety, like the incomes of the rich and poor, are growing more unequal, with prosperous, relatively harmonious countries improving, according to the index, and countries already wracked by conflict and violence getting worse. An image from the report's precis charts this trend:  The five most precipitous declines don't even include Syria, which is in the grips of a brutal five-year civil war that has killed more than 250,000 people and triggered an unprecedented regional refugee and security crisis.  “The historic 10-year deterioration in peace has largely been driven by the intensifying conflicts in the [Middle East and North Africa],” says the report. “Terrorism is also at an all-time high, battle deaths from conflict are at a 25-year high, and the number of refugees and displaced people are at a level not seen in 60 years."

India Overtakes Japan as World's Third Largest Oil User After US, China -- India, Asia's second biggest energy consumer since 2008, has overtaken Japan as the world's third largest oil consuming country in 2015, supported by an 8.1 percent year-on-year increase in daily consumption to 4.159 million barrels, data released Wednesday by BP Statistical Review of World Energy 2016 showed.The South Asian nation, now Asia's second largest oil consumer, accounted for 4.5 percent of daily global oil demand last year, marginally higher than Japan's 4.4 percent, which was equivalent to 4.15 million barrels.The region's economic powerhouse China retained its position as Asia's top oil consumer last year, registering 6.3 percent growth to 11.968 million barrels per day and accounting for 12.9 percent of global demand despite a slowing economy as well as a shift from an industrial to a service-driven economy."Chinese consumption slowed further, but still recorded the world’s largest increment in primary energy consumption for the fifteenth consecutive year ... China once again accounted for the largest increment to (oil) demand, while India surpassed Japan as the world’s third-largest oil consumer," the Review said.In 2008, India surpassed Japan as Asia's second largest energy user after China, consuming 515.2 million tons of oil equivalent (MMtoe) compared to 469.0 MMtoe for the region's second largest economy. The growth in Indian energy use has been impressive. The gap in energy use between India and Japan widened further last year, with the former consuming 700.5 MMtoe compared to 448.5 MMtoe for the East Asian nation.Elsewhere, the Review said the U.S. remained the world's top oil consumer with a daily demand of 19.396 million barrels in 2015, up 1.6 percent from a year ago. The U.S. consumption made up 19.7 percent of global demand of 95.008 million barrels per day in 2015, up 1.9 percent from 93.109 million barrels in 2014.

China Oil Imports Drop To Four Month Low As Demand Is Expected To "Moderate Significantly" In 2016 - One of the bright spot of demand for oil in recent months has been China, where teapot refineries have been firing on all fours following the recent loosening of import restrictions, and buying up every last barrel of oil they could find abroad (courtesy of the recent massive credit injection by the PBOC) resulting in an unprecedented glut of gasoline.  That is no longer the case. According to Bloomberg, oil imports by China, the world’s biggest consumer after the U.S., fell to a four-month low in part due to congestion at one of its biggest ports curbed purchases from independent refiners. Inbound shipments in May totaled 32.24 million metric tons, data from the Beijing-based General Administration of Customs showed on Wednesday. That’s equivalent to 7.62 million barrels a day , down 4.3 percent from the previous month, and the lowest since January. Net oil-product exports fell by almost one-third from April to 810,000 tons. This validates what we noted two months ago when we looked at the unprecedented glut of full tankers lying in wait in places like the Persian Gulf and the Straits of Malacca, waiting for higher prices to make landfall. As we noted then, "It's not just the Persian Gulf though: shocking sights can be seen in in Asia, where many ports have not been upgraded in time to deal with ravenous demand as consumers take advantage of cheap fuel. "It's the worst I've seen at Qingdao," said a tanker captain waiting to offload at the world's seventh busiest port, adding that his crew was killing time doing maintenance work. " This has now been confirmed. According to Bloomberg,  "Qingdao port in Shandong province, where most teapots are based, has been congested this year from “unprecedented” tanker traffic, according to Liu Jin, general manager of Qingdao Shihua Crude Oil Terminal Co., which operates oil berths at the port." “The congestion at the Qingdao port is highlighting the need to slow the pace of buying,” Michal Meidan, an Asia energy analyst at Energy Aspects Ltd., said by e-mail. “Prices have gone up, so teapots will use this to take stock of their buying patterns thus far.”

Copper Is Crashing After Huge Spike In Inventories - Copper futures are tumbling by the most in 2 months (testing back towards 4 month lows) after the biggest two-day increase in copper stockpiles monitored by LME since 2004. Dr.Copper is sick... As LME Copper inventories explode higher... As Bloomberg details, Copper held in Asian warehouses tracked by the London Metal Exchange jumped 50 percent in the past two days, the most in seven years. Supplies are moving to Singapore, South Korea and Taiwan from China, where stockpiles tracked by the Shanghai Futures Exchange have almost halved since mid-March. Base metals are still trading at "relatively low levels," Jens Naervig Pedersen, a senior analyst at Danske Bank in Copenhagen, said by e-mail. "Uncertainty over the outlook for global manufacturing is outweighing the positive effect of the lower dollar," he said. Whether this is more CCFD unwinds or the hangover from the massive speculative bubble of the last 3 months is unclear but the inventory spike in almost without precedent. This plunge in copper prices is especially notable as the reflation trade appears to have got hold of China commodities once again with Dalian up over 3% overnight, Rebard up over 2% and Shanghai Iron Ore up almost 3%.

Copper Stockpiles Rise Most Since 2004 as Metal Flows From China  --  Copper stockpiles rise to highest level since February Zinc little changed after rising for eight consecutive days Share on Facebook Share on Twitter Copper led losses in industrial metals after data showed the biggest two-day increase in stockpiles since 2004. Copper slid 1.6 percent to $4,611.50 a metric ton as of 11:11 a.m. in London. Inventories in warehouses monitored by London Metal Exchange have risen almost 30 percent in two days, according to data compiled by the bourse. While stockpiles had fallen for most of this year, they’re now at the highest level since February. "What possibly happened is that some inventories from Shanghai exchange moved to London, making the traders nervous," Dmitry Kolomytsyn, chief commodities strategist at Sberbank CIB, said by phone from Moscow. Some metal poised for China may be diverted to the LME due to smaller premiums and price gaps between the bourses, while Chinese demand typically picks up in the second quarter, Citigroup Inc. analyst David Wilson said in April. Stockpiles monitored by the Shanghai bourse have fallen almost 50 percent since mid-March. Commodities entered a bull market yesterday, ending a five-year rout, as supply constraints drove up prices in everything from soybeans to zinc. The asset class has outperformed bonds, currencies and equities so far in 2016. Citigroup Inc. said last month that commodities had turned a corner, increasing its forecasts for metals to grains amid an oil-led recovery.

The World’s Most Extreme Speculative Mania Unravels in China - From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors. But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame. What started as a logical bet -- that China’s economic stimulus and industrial reforms would lead to shortages of construction materials -- quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu. Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing. ‘ “You have far too much credit, money sloshing about, money looking for higher returns,” “Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.”

U.S. to Press China to Curb Industrial Output - The Obama administration plans to use annual talks with leaders in Beijing to push for cuts in excess Chinese industrial output, which has inundated foreign markets with discounted steel, aluminum and other products, Treasury Secretary Jacob J. Lew said in Beijing on Sunday ahead of the meeting. The talks, known as the U.S.-China Strategic and Economic Dialogue, bring together senior American and Chinese officials every year to discuss a broad range of economic, foreign policy and security concerns. On the economic side of the talks, China’s exchange rate controls and intellectual property violations will be high on the American agenda, while North Korea and the South China Sea are expected to dominate the security talks. But Mr. Lew said the economic track of the meeting in the Chinese capital this year would also take up China’s flood of exports of steel and other products, which have spilled into the international marketplace, provoking anger from producers, unions and politicians. “Excess capacity is not just a domestic issue,” Mr. Lew told an audience of students and academics at Tsinghua University ahead of the start of the dialogue on Monday.“The question of excess capacity is one that really has an enormous effect on global markets for things like steel and aluminum,” he said. “We’re seeing distortions in global markets because of excess capacity.” A senior Chinese official said last week that his side was prepared to discuss excess capacity but was vague about how China would respond.

China's Debt Load Is (Much) Higher Than Previously Thought, Goldman Says - Count total social financing (TSF) as another Chinese statistic of increasingly dubious value, according to analysts at Goldman Sachs Group Inc. With many investors grappling to understand the degree to which China's economic growth has been fueled by debt, efforts to get a grip on measures of new credit creation have gained fresh urgency. To date, many have relied on the TSF invented by the Chinese authorities in 2011 as a way of capturing a larger slice of the country's shadow banking activity, but Goldman analysts led by M.K. Tang cast fresh doubt, in a note published on Wednesday, on the measure's ability to gauge credit creation. They identify a discrepancy between China's official TSF and Goldman's new proprietary estimates of credit, describing the increasing difference as "an uncomfortable trend that has gotten more discomforting." Of particular issue is the rise in opaque loans given noises surrounding China's circular financing schemes, which involve banks lending to nonbank financial institutions (NBFIs) as opposed to directly to companies. While this "round-tripping," as Goldman dubs it, does help boost bank profits, it also means more investments on bank balance sheets and more money meandering through the financial system as opposed to moving into the real economy through an increase in M2 money supply. Faced with an increasingly tangled system of financing and a money supply measure that doesn't fully encapsulate new credit creation, the Goldman analysts opt to take a slightly different approach to gauge the strength of China's recent credit boom. They look at the (adjusted) flow of money emanating from households and companies and going into various financial investments. On that basis, China's credit creation came in at 24.6 trillion yuan ($3.7 trillion) last year—far outstripping the 16 trillion yuan increase in money supply and the 19 trillion yuan of TSF.

Goldman Finds That China's Debt Is Far Greater Than Anyone Thought - When it comes to China's new credit creation, at least the country is not shy about exposing how much it is. To find the credit tsunami flooding China at any given moment, one just has to look up the latest monthly Total Social Financing number which include both new bank loans as well as some shadow banking loans. As we reported in April this amount had soared to a record $1 trillion for the first quarter ... ... although as we followed up last month, it tumbled in April as suddenly Beijing slammed the brakes on uncontrolled credit expansion. It is unclear why, although the following chart may have had something to do with it: increasingly less of credit created is making its way into the broader economy. No matter the reason for these sharp swings in credit creation, one thing that was taken for granted by all is that unlike China's GDP, or most of its "hard" macroeconomic data, at least its credit creation metrics were somewhat reliable, and as such provided the best glimpse into Chinese economic inflection points. That appears to no longer be the case. In an analysis conducted by Goldman's MK Tang, the strategist notes that a frequent inquiry from investors in recent months is how much credit has actually been extended to Chinese households and corporates. He explains that this arises from debates about the accuracy of the commonly used credit data (i.e., total social financing (TSF)) in light of an apparent rise in financial institutions’ (FI) shadow lending activity (as well as due to the ongoing municipal bond swap program). Tang adds that while it is clear that banks’ investment assets and claims on other FIs have surged, it is unclear how much of that reflects opaque loans, and also how much such loans and off-balance sheet credit are not included in TSF. By the very nature of shadow lending, it is almost impossible to reach a conclusion on these issues based on FIs’ asset information.

China's massive piling-on of debt is reminiscent of the lead-up to the GFC | As senior US and Chinese officials huddle in Beijing for high-level talks aimed at soothing growing trade tensions, financial markets are becoming increasingly nervous about China's burgeoning debt levels. In the closed-door talks US officials have raised their concerns about the massive surplus capacity in China's heavy industry. US Treasury Secretary Jack Lew, complained that this rampant surplus capacity in industries such as steel and aluminium was having "a distorting and damaging effect on global markets". His counterpart, Chinese Finance Minister Lou Jiwei shrugged off the criticism, telling reporters China's industrial overcapacity had been "the subject of much hype around the world", and that Beijing was "confronting the issue squarely". The focus on overcapacity comes as China – the world's biggest steel producer – is ramping up its exports of steel and other goods, pushing global prices lower. The US has already slapped hefty tariffs on some Chinese steel imports, while the European Union has imposed some duties on low-price Chinese steel imports. But while US officials worry about Chinese industrial overcapacity, financial markets are becoming increasingly concerned about China's burgeoning debt levels. A report by Charlene Chu, a highly regarded analyst from Autonomous Research Asia, argues that Chinese banks are ramping up the creation of wealth management products (WMPs), which they sell to those customers who want a better return than the paltry yield on bank deposits. The report says that 7.3 trillion yuan ($1.5 trillion) of WMPs were issued last year, which represents almost 40 per cent of the country's total 19 trillion yuan ($3.92 trillion) credit growth in 2015, according to the Wall Street Journal.

China’s May Reserves -- The change in China’s headline reserves is actually one of the least reliable indicators of China’s true intervention in the foreign currency market. Valuation changes create a lot of noise. And it is always possible for China to intervene in ways that do not show up in headline reserves. Last fall, for example, much of the intervention came from changes in the banks’ required foreign currency reserves. The change in the foreign assets on the PBOC’s balance sheet, and the State Administration on Foreign Exchange’s (SAFE) foreign exchange settlement data are more useful. Still, there is valuable information in today’s release. The roughly $30 billion fall in reserves to $3,192 billion (not a very big sum) is more or less explained by a $20 billion or so fall in the market value of China’s euros, yen, pounds, and other currency holdings. Actual sales appear to have remained low.  That is interesting and perhaps a bit surprising, as the yuan depreciated in May against the dollar. And in past months, yuan depreciation against the dollar has been associated with large sales of dollars, and strong pressure on the currency. We need the full data on China for —the “proxies” for true intervention that should be released over the next couple of weeks—to get a complete picture. But if it is confirmed that China’s reserve sales were indeed modest, I can think of three possible explanations:

  • 1) Renewed enforcement of controls on the financial account are working. They limited outflows.
    2) Chinese companies have mostly finished hedging their foreign currency debts. They now have had three quarters to pay it down, or to hedge.
  • 3) Managing against a basket (at least some of the time) is working. The depreciation against the dollar came in the context of the renminbi’s appreciation against the basket, and thus did not generate expectations that the move against the dollar was the first step in a much bigger devaluation.

What Does China's Demographic "Problem" Mean? - Dean Baker  -- The NYT has another piece that talks about China's demographic problem due to an aging population. I went through the arithmetic on this last week. The basic point is simple: China has had extraordinarily rapid productivity growth over the last three and a half decades. The impact of this growth on raising wages and living standards swamps any conceivable negative effect from a declining ratio of workers to retirees. The math is about as simple as it gets, but I'm still curious how the bad story is supposed to manifest itself. Keep in mind, the story is supposed to be a labor shortage. What does that mean? That's a serious question, how does an economy know it's having a labor shortage? Presumably it means that the lowest paying jobs end up going unfilled because people have better options. So what? Many retail stores will go out of business, so will some restaurants, and other low wage employers. Why would we care? Remember, no one is going unemployed. These businesses are going under because they can't find workers willing to work at the wage they are offering. Instead, workers are going to better paying, higher productivity jobs. That's unfortunate for these businesses, but hey, that's capitalism. There is an issue that much of the support for retirees may go through the government, which means that China would have to increase taxes. There may be a Chinese Grover Norquist who will make any tax increases very difficult politically, but that is a political issue, not an economic one. Workers who have seen their real wages double or triple in the last couple of decades can certainly afford to pay somewhat higher taxes to support their retired parents. So again, what exactly is the problem?

China May exports fall 4.1 percent, but imports beat expectations | Reuters: China's exports fell more than expected in May as global demand remained stubbornly weak, but imports beat forecasts, adding to hopes that the economy may be stabilising. Exports fell 4.1 percent from a year earlier, the General Administration of Customs reported, saying the foreign trade environment remains a challenge. Imports dropped 0.4 percent from a year earlier, the smallest decline since they turned negative in November 2014, likely reflecting higher commodities prices but also suggesting that domestic demand has picked up as Beijing increases spending on big infrastructure projects to support growth. That resulted in a trade surplus of $49.98 billion in May, versus forecasts of $58 billion and April's $45.6 billion. Economists polled by Reuters had expected May exports to fall 3.6 percent, after a 1.8 percent decline in April, and expected imports to fall 6 percent, following April's 10.9 percent decline. China's official manufacturing activity survey last week showed signs of steadying in May but remained weak amid soft demand at home and abroad, with new orders expanding more slowly and growth in export orders stalling. The trade data is the first to be released by China for May.

WTF Chart Of The Day: Chinese Trade Data Lies Exposed (Again) -- If March's 116.5% surge in China imports from Hong Kong didn't raise eyebrows as the veracity of the trade data, then perhaps following last night's data drop, this month's 242.6% explosion year-over in China imports from Hong Kong must at minimum deserve a second glance. As Bloomberg's Tom Orlik previously noted, the implausible 242.6% YoY surge screams that China is clearly disguising capital flows...Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows. The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows. Does this look "real"? Of course, no one actually looks at the details of the data of course - headlines are all that matters when the powers that be need an all-time-high to prove everything is awesome and give The Fed room to hike rates into this profit recession.

China to submit 'negative list' for U.S. investment treaty talks next week | Reuters: China will submit next week its "negative list" offer of sectors that would remain off-limits to U.S. investment in a U.S.-China bilateral investment treaty (BIT), Vice Premier Wang Yang said on Monday. Wang made the comments in opening remarks to the economic track of the Strategic and Economic Dialogue talks in Beijing. U.S. officials have said a negative list that greatly reduces the number of off-limits sectors is critical to reaching a deal. U.S. Treasury Secretary Jack Lew also said he looked forward to seeing the new negative list when U.S. and Chinese BIT negotiators meet next week in Washington. "The United States stands ready to advance the ongoing bilateral investment treaty negotiations provided that China is prepared to move forward in negotiating a high-standard and mutually beneficial agreement," Lew said. Lew also urged China to remain clear in its communications about foreign exchange policy and implementation. "A market-determined exchange rate with two-way flexibility will help foster a more efficient allocation of capital," he said.

Now China’s Fake Island Has a Farm - China is clearly militarizing in the strategic South China Sea—causinginternational alarm and increased defense spending among neighbors. But as it asserts its claim to the region, it’s also throwing some softer elements in amid the militaristic buildup—including lighthouses, a tourist resort, and a hospital. The latest awkwardly placed civilian outpost is a farm.The farm sits upon a manmade island that China has built atop the contested Fiery Cross Reef, according to a new report (link in Chinese) in the state-owned news portal Xinhua. About 500 livestock have been raised there—including pigs, chicken, and geese. There’s a vegetable garden covering about 4,000 square meters. There’s even a fish pond. Fiery Cross Reef (known as Yongshu to the Chinese) is part of the Spratly archipelago, to which neighboring nations have competing claims. China claims most of the South China Sea as its own territory, using a “nine-dash line” map drawn after World War 2 as part of its justification. But in the coming weeks that claim will likely be rejected by an international tribunal, whose authority on the matter Beijing has refused to recognize. In the meantime China is working to bolster its presence with both military and civilian features in the sea.  Fiery Cross Reef will also get a hospital, now under construction and expected to be finished later this month. It covers 160,000 square meters and has its own garden with coconut trees and tropical plants, according to Xinhua. The new facilities will come equipped with modern medical equipment and communications gear for consulting with mainland medical experts about major operations or rare diseases.

China tells U.S. to play constructive South China Sea role | Reuters: China told the United States on Tuesday that it should play a constructive role in safeguarding peace in the disputed South China Sea, as U.S. Secretary of State John Kerry called for talks and a peaceful resolution. China claims most of the South China Sea, through which $5 trillion in ship-borne trade passes every year. The Philippines, Vietnam, Malaysia, Taiwan and Brunei have overlapping claims, as well as close military ties with the United States. China has been angered by what it views as provocative U.S. military patrols close to islands China controls in the South China Sea. The United States says the patrols are to protect freedom of navigation. Speaking at the end of high-level Sino-U.S. talks in Beijing, State Councillor Yang Jiechi, China's top diplomat who outranks the foreign minister, said China had the right to safeguard its territorial sovereignty and maritime rights. "China respects and protects the right that all countries enjoy under international law to freedom of navigation and overflight," Yang told reporters. Disputes should be resolved by the parties involved through consultation, he said.

The Pentagon’s Great Wall of Impotence - Pepe Escobar -- No one ever lost money betting on the Pentagon refraining from exceptionalist rhetoric. Once again the current Pentagon supremo, certified neocon Ash Carter, did not disappoint at the Shangri-La Dialogue – the annual, must-go regional security forum in Singapore attended by top defense ministers, scholars and business executives from across Asia. Context is key. The Shangri-La Dialogue is organized by the London-based International Institute for Strategic Studies (IISS), which is essentially a pro-Anglo-American think tank. And it takes place in the privileged aircraft carrier of imperial geostrategic interests in South East Asia: Singapore.As expressed by neocon Carter, Pentagon rhetoric – faithful to its own estimation of China as the second biggest “existential threat” to the US (Russia is first) – revolves around the same themes; US military might and superiority is bound to last forever; we are the “main underwriter of Asian security” for, well, forever; and China better behave in the South China Sea – or else.This is all embedded in the much ballyhooed but so far anemic “pivoting to Asia” advanced by the lame duck Obama administration – but bound to go on overdrive in the event Hillary Clinton becomes the next tenant of 1600 Pennsylvania Avenue.   Real threats are predictably embedded in the rhetoric. According to Carter, if Beijing reclaims land in the Scarborough Shoal in the South China Sea, “it will result in actions being taken by the both United States and ... by others in the region.”

How Many Treasuries Does China Still Own? - Quick answer. A lot. Between $1.3 trillion and $1.4 trillion, or about 40 percent of China’s reserves. The last year has made it abundantly clear that Belgium’s holdings of Treasuries aren’t from Belgian dentists. China’s reserves started to fall last summer. Yet China’s reported holdings of Treasuries in the custodial data barely budged. Belgium’s holdings, by contrast, fell by around $200 billion. It is now standard among those who care about this stuff to add Belgium’s holdings (between $80 and $90 billion in long-term Treasuries, and $154 billion if you count Treasury bills) to those of China ($1245 billion).  A more interesting question, one that takes a bit more technical wizardry to report, is how many U.S. assets China holds. The right answer, I think, is at least $1.8 trillion and perhaps more. That is somewhat less than China used to hold—but still quite a lot. In addition to Treasuries, China has $200 billion or so in Agencies, and $200 billion or so in U.S. equities, and close to $100 billion on deposit in U.S. banks. That is more or less in line with expectations for a country with $3.2 trillion in reserves. I actually lied about the technical wizardry required. Now that the Treasury reports monthly custodial holdings of all kinds of debt along with custodial holdings of U.S. equities, the amount of skill required isn’t very high. You just need to know where to look. (Historical data is here) If you want a continuous time series that goes back to the start of China’s reserve accumulation, you need to extrapolate between the annual custodial surveys from 2002 to 2012. Using, in broad terms, the methodology outlined here, that can be done with a fair amount of sweat, toil, and tears. After 2012, the Treasury provides a continuous monthly data series. The resulting graph of China’s U.S. portfolio holdings (really a close up of the initial graph) relative to the amount of dollars China would need to hold to have a dollar share of reserves in line with the global average does tell a set of stories.**

'All China's assets in the US might be annulled', warns ex-BoE chief, urging countries to diversify  - Washington may be forced to renege on its huge debt to Beijing under catastrophic circumstances, says the former head of the Bank of England Mervyn King. He suggests governments could mitigate risk by diversifying their assets. “Who knows what the future holds, but China and other countries do not want to be in a situation where all their international assets are in effect dependent on the US,” said King, who was the Governor of the Bank of England from 2003 to 2013, in an article for Gold Investor magazine.“Of course the US would not want to renege on its debts, but if some awful conflagration occurred, then all China’s assets in the US might be annulled,” said the former BoE chief, adding that China and other countries should diversify their portfolios, making them less dependent “on the goodwill of other countries.”China is the biggest holder of US debt with $1.245 trillion, according to US Treasury data. Over the past 12 months Beijing has cut its Treasury securities 1.3 percent from $1.261 trillion seen last year. According to the most recent data from March, global central banks sold off $17 billion in US Treasuries. Since the beginning of the year the sell-off has reached $123 billion, which is the quickest pace since 1978.

China Orders 1,000 Heavy Transport Aircraft "Based On The Experience Of The United States And Russia" --As tensions escalate to dangerous levels in the South China Sea and in eastern Europe, an interesting decision has been made be the Chinese government. According to Sputnik, back in January the People's Liberation Army Air Force was preparing to develop a new fleet of stealth fighters and heavy transport aircraft. The heavy transport aircraft, the Xian Y-20 transport, was going to be built in order to give Beijing a "fast and reliable platform" to deliver arms and soldiers over long distances. During a technology exhibition in Beijing, Aviation Industry Corporation of China (AVIC) elaborated on the governments plans for the Y-20. Although originally thought that Beijing would want only 400,  "More than 1,000 Y-20s will be needed" said Zhu Qian, head of AVIC's large aircraft development office - the reason? "Based on the experience of the United States and Russia" Zhu says. Now that's an interesting nugget of information. So due to the fact that the US and Russia are at odds, China needs 1,000 heavy transport aircraft - why would that be, is China planning on getting involved if ever the US and Russia got into a military dispute? The Y-20 weighs roughly 220 tons, has four turbofan engines, and can carry up to 66 tons of cargo at a range of about 3,230 miles. This means the heavy transport aircraft can reach everywhere in Europe and Asia, the US state of Alaska, Australia, and North Africa.

Currency Wars Re-Escalate As Bank Of Korea Shocks Market With Rate Cut - With the 655th rate-cut globally since Lehman, the Bank of Korea stunned the market tonight and cut rates 25bps to 1.25% (a record low). Only 1 of 18 economists expected a rate cut as it appears record highs in US equities signal nothing about the underlying turmoil in the world's economy. After 6 straight days stronger (against the USD), the Won is sliding back above 1160 as it seems the currency wars are reigniting in AsiaPac... The 25bps cut, the first reduction since June 2015, shocked the market as only one BOK board member said at the May decision (according to the minutes) that there was a need to cut rates in near term.. which makes us wonder just what changed so quickly.

Korea aims to be world's third-largest shipping industry despite billion-dollar losses -  South Korea’s shipping industry brought in revenues of $34.5bn during 2015, some $7.8bn behind the 2012 figure due to the depressed market, the Korean Shipowners Association (KSA) says. In spite of this, Korea still aims to be the world’s third-largest shipping industry by 2025, the KSA’s vice-chairman Kim Young-moo told the Korean-Hellenic Maritime Cooperation Forum in Athens today. The country aims to achieve $100bn in annual revenue and a fleet totalling 150m gross tons (GT), said Kim, who conceded that it would be difficult in the current economic climate. One industry figure who would agree is outspoken Euronav CEO Paddy Rodgers, who blasted South Korea’s grand ambitions on Tuesday, saying “Korea has never had an economy that would have warranted the size of the shipbuilding industry it has today”. Rodgers predicted shipyards will close en masse in Korea and China, causing a big reduction in vessel production capacity. “The Korean and Chinese governments have come to terms with the fact that things need to change,” he told the TradeWinds Shipowners’ Forum. South Korea is currently home to the world’s fifth-largest shipping industry. Its fleet has grown from 760,000 GT in 1970 to 43m GT today, according to KSA data. Some 52 of the KSA’s member companies reported financial losses during the fiscal year 2015, while 99 reported profits, and a pattern has emerged between tramp and liner companies operating different vessel sizes, Kim told the forum,

People in Japan are being paid to have babies, and it seems to be working  -- Japan's nationwide fertility rate just hit its highest level in 21 years. The total rate increased to 1.46 in 2015, slightly up from the previous rate of 1.42 in 2014, according to the health ministry. The biggest contribution to the increase came from women 30 to 34, according to Bloomberg. This is no doubt a good sign for a country struggling with a looming demographic crisis. But what's particularly interesting about this spike in fertility is that there was a correlation with cash incentives for new parents. Christopher Wood, author of CLSA's weekly Greed & Fear newsletter, pointed out in his latest installment that the highest fertility rate among Tokyo's wards was in the Minato Ward, where parents get one-time cash payouts of up to 180,000 yen — about $1,684 — a birth. Moreover, he noted that the biggest improvement in fertility in the country was in a town called Ama on the island of Nakanoshima, which has a "leveraged scheme to incentivize mating": parents get 100,000 yen (about $940) for the first baby, but get 1 million yen (about $9,400) for the fourth kid. The town's fertility rate bumped up to 1.80 from 1.66 between 2014 and 2015.  Wrote Wood in the note: This fits a point made by GREED & fear before, namely that the best way to deal with Japan's demographic issue is via financial incentives, with ¥10 million per child seeming to [us] about the minimum level of incentive required in central Tokyo given the costs of parenthood, a reality [we are] well aware of.

U.S. ambassador: Vietnam could act soon on TPP -- Vietnam’s National Assembly could ratify the Trans-Pacific Partnership either in July or October with an eye toward “systematically — and occasionally slowly — moving toward implementation,” U.S. Ambassador to Vietnam Ted Osius said Wednesday.  The process of implementing a plan to comply with the TPP’s labor obligations will take place in "partnership with us, with other TPP members and with the private sector," the ambassador added, "because the private sector has lots to gain from full implementation of all of the TPP commitments, and particularly the labor commitments." "I don't think the process will be easy, but I think the political will is absolutely there to complying fully with what Vietnam agreed to in TPP, especially on the labor provisions," Osius said in remarks at the Center for Strategic and International Studies. Osius said the TPP requirement for Vietnam to allow the formation of labor unions was actually welcomed by officials in the country’s ruling Communist Party. Vietnam is required to initially allow workplace-specific unions and within five years allow those unions to affiliate nationwide across a specific industry and form federations and confederations of unions of various industries. Workers have engaged in thousands of “wildcat” strikes and many in the government saw the prospect of engaging with organized unions advantageous, he said.

Modi: Get on board the India train : Indian Prime Minister Narendra Modi urged U.S. investors Tuesday night to bet on his country’s future, telling corporate America the world’s largest democracy is moving ahead with business-friendly reforms. Story Continued Below “This is a time when the world needs new engines of growth,” Modi said in a speech to the U.S.-India Business Council, taking a gibe at the slowing economy in China and lackluster growth in many other economies around the world. “From the point of view from the world’s oldest democracy, obviously it would be nice if the new engines are democratic engines.” Modi, who will give a speech today to a joint session of Congress, said New Delhi is weeding out corruption, lowering barriers to defense trade and working to improve the investment climate and the ease of doing business on the huge subcontinent. But in an apparent reference to recent U.S. hikes on H-1B visa fees that have hurt a number of Indian technology firms, the prime minister said India expects trade with the United States to be a two-way street. “It is very important for us that developed countries open their markets not only to goods from ... India, but also to services,” Modi said.

Jeff Bezos Says Amazon To Invest $3 Billion More In India: After struggling for market share in China — the world’s most populous country and the second-largest economy — e-commerce giant Amazon Inc. is trying to make sure it fares better in India — currently the world’s second-most populous country, projected by the United Nations to overtake China by 2022, and the ninth-largest economy in 2014, according to the World Bank. Having invested $2 billion in India in the first tranche in 2014, Amazon CEO Jeff Bezos announced Tuesday that the company would invest another $3 billion in the South Asian nation. Bezos was speaking in Washington, D.C., at a meeting of U.S. business leaders with visiting Indian Prime Minister Narendra Modi. Modi, who met U.S. President Barack Obama earlier in the day, has been trying to push for increased foreign investments in India and has portrayed a more business-friendly image of the country earlier viewed as a difficult place for doing business. Bezos reportedly said at the meeting that India was the company’s fastest growing market. He added that Amazon would open a Web Services Cloud Region later this year in India. The company’s software and development center in Hyderabad in south India would soon be its largest outside the United States, he said. “We have already created some 45,000 jobs in India and continue to see huge potential in the Indian economy. Our team is surpassing even our most ambitious planned milestones,” Bezos said.

India Seeks To Renegotiate 47 Investment Treaties Because Of Their Corporate Sovereignty Clauses  -- Corporate sovereignty has become a big issue as a result of its inclusion in TPP and TAFTA/TTIP, but it's present in hundreds of other trade and investment treaties.The heated discussion of investor-state dispute settlement (ISDS) chapters in those negotiations has led some countries to realize that corporate sovereignty could prove very costly to them one day. As we've written, both South Africa and Bolivia have decided to dismantle the ISDS provisions by renegotiating treaties, and according to a new report in The Economic Times, India has decided to do the same on a large scaleIndia has written to 47 countries to nullify the existing bilateral investment agreements and ink fresh treaties that will make it mandatory for foreign investors to exhaust local judicial remedies before seeking arbitration. Forcing foreign investors to use domestic courts is designed to stop them circumventing Indian's laws by going outside the system to arbitration tribunals. Among the 47 treaties that India wants to renegotiate are relatively new ones, as well as others that can be cancelled quite easily. The Economic Times provides some information on the growing magnitude of India's ISDS problem: The government amended the text after being dragged into international arbitration by as many as 17 companies or individuals including Deutsche Telekom of Germany, Vodafone International Holdings BV, Sistema of Russia, Children's Investment Fund and TCI Cyprus Holdings. India even lost an international arbitration case involving White Industries of Australia.

What India’s GDP growth does — or doesn’t — mean --India’s central bank chief Raghuram Rajan was criticized for comparing the country’s economy to a one-eyed man leading the blind, but he was at least partly right. India announced 7.6% GDP growth for fiscal year 2016, drawing attention from global investors desperate for growth somewhere. But the figure has been misinterpreted and more misinterpretation is likely.  Start with the positive. On the official numbers, the brightest spot in the economy involves consumption. Unsustainable government consumption thankfully slowed while private consumption strengthened. Stronger electricity generation over the fiscal year is also reassuring.  Then it gets messy. A simple mistake is to contrast current results to previous, as a senior Indian official did. The central government changed accounting methods at the start of 2015 and is suspiciously late in offering a full comparison of the old and new GDP series. We can’t say FY16 growth is similar to or different than FY06, because they are not yet comparable. A more understandable error is to assume faster GDP growth is bringing greater prosperity. This is a flaw with GDP more than anything regarding India but it has important implications. The most vital is for ordinary people: the quality of employment data is poor but jobs growth is very likely slowing, while the number seeking work continues to be enormous. In addition, the net funds available for government initiatives are effectively unchanged. While tax revenue rose and energy subsidies plummeted thanks to oil prices, the government still barely made its already excessive 4% of GDP fiscal deficit target. If oil prices climb again, the government will probably be forced to cut existing spending, despite reporting high growth.

Bangladesh home minister suggests Israel behind spate of killings - BBC News: Bangladesh home minister suggests Israel behind spate of killings 6 June 2016From the section Asia Image copyright AFP Image caption Regular protests have been held following the attacks Bangladesh Home Minister Asaduzzaman Khan has suggested an Israeli link to the recent killings of secular bloggers and minorities. He said an opposition politician had met an Israeli intelligence agent and there was evidence of an "international conspiracy" against Bangladesh. He gave no more evidence. Israel says the claim is nonsense. Critics say the government is in denial about the killings, most of which have been blamed on or claimed by Islamists. Mr Khan's comments come a day after the wife of a senior police officer investigating the deaths was shot dead. The governing Awami League has sought in the past to link the opposition to the attacks. Relations with the opposition Bangladesh National Party (BNP) remain fraught following the disputed 2014 general election. Muslim-majority but officially secular Bangladesh has no diplomatic relations with Israel and supports the Palestinians.

Back To Square One: Obama Approves Greater Military Role In Afghanistan - In early 2014 the White House announced to the Pentagon that it should be making plans to complete an orderly withdrawal of all US troops from Afghanistan by the end of the year. Just a year later, that strategy shifted to leaving 9,800 troops in Afghanistan (slightly more than zero) through 2016, and ramping down to "just" 5,500 troops in 2017 (again, slightly more than zero). The White House blamed a surge in violence and uneven performance by Afghan forces as the reason for the strategic change. And now, the 2009 Nobel Peace Prize winner is well on his way to having the US back to square one in Afghanistan. As Reuters reports, president Obama has approved giving the US military greater ability to accompany and enable Afghan forces battling the Taliban insurgency, in a move to assist them more proactively on the battlefield. Under the old rules of engagement in Afghanistan, limits were imposed on US forces' ability to strike at insurgents.  The decision is a departure from current U.S. rules of engagement in Afghanistan, which impose limits on U.S. forces' ability to strike at insurgents.

Nation of Debt: New Zealand sitting on half-trillion-dollar debt bomb: New Zealand now owes almost half a trillion dollars in debt - and a growing chunk of it belongs to ordinary households, mainly borrowing to buy property. In the start of a week-long series Tamsyn Parker spells out the problem. By Tamsyn ParkerNew Zealand is sitting on a half-a-trillion-dollar debt bomb and Kiwis are increasingly treating their houses like cash machines, piling on the debt as they watch the value of their properties soar. Reserve Bank figures show household debt, excluding investment property, has risen 23 per cent in the past five years to $163.4 billion. Incomes have risen only 11.5 per cent. Households are now carrying a debt level that is equivalent to 162 per cent of their annual disposable income - higher than the level reached before the global financial crisis.

Albino people are being hunted for their body parts - CBS News -- She is haunted daily by the image of the decapitated head of her 9-year-old son. Police asked Edna Cedrick to identify it after the boy, who had albinism, was snatched from her arms in a violent struggle. The death in February was one in a recent surge in killings and abductions of people with albinism in this southern African country. They are targeted for their body parts, which are sold to be used in potions made by witch doctors who claim they bring wealth and good luck.  At least 18 albino people have been killed in Malawi in a "steep upsurge in killings" since November 2014, and five others have been abducted and remain missing, according to a new Amnesty International report released Tuesday. The toll is likely much higher because many killings in rural areas are never reported, according to the report. Malawi police also have recorded cases where the bodies of people with albinism have been illegally exhumed.   Cedrick, the mother of the murdered boy, recounted his abduction to The Associated Press last month while holding the murdered boy's surviving twin brother, who also has albinism. In the middle of the night, she said, she woke to the sound of people kicking down the door of the house. Her husband was away. "Before I could understand what was happening, they sliced the mosquito net and grabbed one of the twins," the 26-year-old said, tears in her eyes. "I held on to him by holding his waist, at the same time shielding the other with my back."When they could not overpower her, one assailant hacked her in the forehead with a machete, she said. "This dazed me, and I lost hold of my son and he was gone. I shouted for help, but when my relatives rushed to our house, they were gone." The boy's twin keeps asking where his brother is, she said. She lies, saying he will return.

The U.S. is causing a major controversy in the WTO - The World Trade Organization and its dispute-settlement system usually operate quietly in the background — but there was a great deal of controversy last month over an Appellate Body (AB) judge’s reappointment. What happened here is part of a larger trend, but what does it really mean for international courts?  The WTO system provides a legal forum in Geneva for states to file complaints against other members for alleged violations of WTO law.  But on May 12, the U.S. government announced that it would block the reappointment of South Korean Judge Seung Wha Chang to a second term. The Office of the U.S. Trade Representative (USTR) objected to Chang’s role in a series of decisions with which the United States disagreed. Although AB members issue rulings as a collective three-judge panel, the United States accused Chang of making “wrong” decisions, as well as decisions that went beyond what was needed to settle an individual dispute based on the parties’ specific arguments. What’s at stake here is not just the fate of Chang but the independence of the international judiciary, in the WTO and beyond. Social science and legal research has documented past episodes of the U.S. politicization of WTO judicial appointments, as well as examples of the politicization of international courts more generally. International courts, however, are coming under increasing assault from their member states in response to unwelcome rulings. In the past decade alone, states have launched increasingly virulent attacks on the European Court of Human Rights and the International Criminal Court, among others.  International courts, it turns out, remain fragile. Although countries may agree in principle on the need for independent international judicial bodies to resolve disputes regarding human rights, trade and other issues in an increasingly globalized world, individual states (and, in particular, powerful ones) can and still do act to undercut them in light of perceptions of their (at least short-term) interests. Whether the principle of judicial independence will survive in the WTO will depend on the actions of the United States and other WTO member states in the days and weeks to come.

Global activity steady, but the US slows again - Gavyn Davies -- This month’s regular update from the Fulcrum nowcast models shows that global economic activity is growing fractionally below its trend rate, and is little changed from last month’s report. Global recession risks have therefore fallen recently to more normal levels, compared to the elevated risks seen in February. However, neither the advanced economies nor the emerging markets appear to be sustaining a break-out to above trend growth. The overall picture is therefore one of steady but disappointing growth, with little indication of a major cyclical acceleration at present. In particular, growth in the US remains subdued, and seems to be running at or below the 2 per cent threshold apparently required by the Federal Reserve to justify a June/July increase in interest rates. Although the jury is out on this point, Friday’s weak employment data have given extra weight to the subdued nature of our recent US nowcasts. We also report for the first time forecasts for global GDP growth over the next 12 months derived from the dynamic factor models that are used to produce the nowcasts. These forecasts are a natural extension of the nowcast models. They should be used in conjunction with other forecasting methods to assess the statistical likelihood of activity “surprises” relative to consensus forecasts in the months ahead.  The latest results suggest that US GDP growth in the period ahead may well come in below the latest consensus forecasts. The full set of the latest global nowcasts is available here.

The Global Economy’s Dismal Outlook in 6 Charts -- The World Bank has issued a dismal outlook for the global economy, warning of a rising risk of a sharp slowdown as it cut growth forecasts across the globe. Here are six charts from the Global Economic Outlook that help detail trends in the world economy. The New Mediocre: The U.S., Europe and Japan have been unable to revive growth to pre-crisis levels despite unprecedented efforts by central banks. Meanwhile, emerging markets have been hit by the commodity price plunge and a broad-based slowdown, including in the world’s second largest economy, China. Poverty Extended: The weak-growth era has pushed back the time it will take emerging and frontier markets to catch up with the U.S. GDP per capita, delaying it 30-70 years. Crisis Legacies: Advanced economies are still struggling to escape from debt problems, spur investment and give markets confidence about future growth. Bad loans in Europe, for example, weigh on lending. Economically Impolitic: Political tensions in the U.S., Europe and across the globe are driving market uncertainty and dampening investment. Exporter Blues: While emerging-market commodity importers appear to be weathering global economic turbulence, exporters face deepening budget deficits. Closing Doors: Weak growth is spurring anti-trade policies that could further weigh on the global expansion.

Does Bilderberg Really Run The World? One Chart To Help You Decide -- With the Bilderberg 2016 meeting now humming along at the Taschenbergpalais hotel in Dresden, deep behind closed doors and protected by heavily-armed guards, many have wondered: just how hyperbolic are allegations that the Bilderbergs run the world. To help readers decide, here is a chart laying out the linkages and various connections - financial, political, statutory and otherwise - between the handful of people who comprise the Bilderberg core and the rest of the world.

Global Governments Are Boosting Spending at the Fastest Rate Since 2009 - The world's governments are stepping up to the plate to relieve monetary policymakers of some of the burden of supporting persistently slow-growth economies, according to HSBC Holdings PLC. Around the world, government spending is poised to grow by more in 2016 than any year since 2009, when fiscal authorities embarked upon a coordinated plan of boosting expenditures to deal with the damage wrought by the financial crisis. Source: HSBC"Overall we now have a fiscal stimulus in the global economy," writes Global Chief Economist Janet Henry. "It is not large, but it is getting bigger and, for the first time since 2010, we estimate that global government spending will grow more quickly than global GDP." This news is music to the ears of international organizations such as the International Monetary Fund as well as financial heavyweights like former Fed Chair Ben Bernanke and BlackRock's Larry Fink, who have long argued that governments should play a larger role in driving growth. The reasons for the pick-up in spending are manifold: Chinese authorities are pulling fiscal levers to buoy activity, state-level spending has increased in the U.S., Germany has been forced to expand spending in light of the refugee crisis, France's leaders have cut corporate taxes in a pre-election year, and in Canada, a new government is increasing investments in infrastructure. With central banks around the world resorting to unconventional policy like the introduction of negative interest rates to kick-start their economies, this fiscal boost potentially allows them to ease up on the monetary accelerator and reduces the odds of reaching their effective lower bounds.

Brazil Prosecutor Seeks Arrests of Top Members of Interim President’s Party - WSJ: Brazil’s attorney general requested the arrest of four senior members of interim President Michel Temer’s party in connection to the country’s long-running corruption probe, a person familiar with the matter said, creating new political uncertainty for the government that stepped in for the country’s impeached leader. The politicians include the former speaker of the lower house, Eduardo Cunha, who is accused of interfering with congressional affairs though he was suspended from his post in May in an earlier phase of the corruption investigation. The others, Senate President Renan Calheiros, Sen. Romero Jucá and the former President José Sarney, are accused of trying to interfere in the probe. Mr. Sarney’s lawyer denied any attempt by his client to interfere with the investigation. Mr. Calheiros and Mr. Jucá in written statements both denied any wrongdoing. Mr. Cunha has in the past denied wrongdoing. The arrest requests further complicate Mr. Temer’s difficult first month in office. The 75-year-old former vice president stepped in for President Dilma Rousseff after she was suspended from office to face an impeachment trial in the Senate. Two cabinet ministers under Mr. Temer, including Mr. Jucá, have stepped down amid accusations in media reports that they wanted to interfere with the investigation.The arrest requests “restrict Mr. Temer’s [political] power because the requests involve important people” from his party, said Rafael Cortez, a political analyst at the consulting firm Tendencias. “It could delay important decisions by the government for measures that require Congress’s approval.”  Under Brazilian law, Attorney General Rodrigo Janot must ask the Supreme Court to approve the arrest of politicians, because the constitution gives them special protections from prosecution. The court declined to confirm or deny the report, and it is unclear how long it could take for a ruling to come.

Scandals in new Brazil government offer Rousseff hope of survival - A wave of scandals buffeting Brazil's interim government is weakening the resolve of some senators to oust suspended President Dilma Rousseff, offering the leftist leader hope of surviving an impeachment trial in the upper house. Soccer-star-turned-Senator Romario shocked the government last week when he announced he was no longer certain to vote in favor of removing Rousseff. Brazil's first female leader was placed on trial by the Senate last month on charges of breaking budget rules. His announcement followed a flurry of gaffes, policy missteps and scandals that have rocked the three-week-old administration, including the resignation of two ministers after leaked recordings suggested they tried to block a massive anti-graft investigation at state oil company Petrobras before taking office. The recordings, taped secretly by a defendant in the Petrobras probe who made a plea bargain deal with prosecutors, appeared to support Rousseff's claim that her impeachment was an opposition conspiracy to seize power and avoid prosecution. A prosecutor's request on Tuesday for the arrest of four senior members of Temer's PMDB party for allegedly obstructing the investigation - including the Senate speaker and a former Brazilian president - could sway senators who are reconsidering whether to convict Rousseff and permanently dismiss her. According to surveys by Brazilian media, up to a dozen of the 55 senators who voted last month to put Rousseff on trial are now undecided. If just a couple of those change sides, the Temer camp would lose the 54 votes it needs - two-thirds of the 81-seat Senate - to convict Rousseff. She would then be able to serve out her term until 2018, though many in Brasilia think she would be too weak to govern and would have to call early elections.

Venezuela economic crisis, depression, sees middle class Venezuelans eating from dumpsters - -- Until recently, Julio Noguera worked at a bakery. Now he spends his evenings searching through the garbage for food. "I come here looking for food because if I didn't, I'd starve to death," Noguera said as he sorted through a pile of moldy potatoes. "With things like they are, no one helps anyone and no one gives away meals." Across town, unemployed people converge every dusk at a trash heap on a downtown Caracas sidewalk to pick through rotten fruit and vegetables tossed out by nearby shops. They are frequently joined by small business owners, college students and pensioners - people who consider themselves middle class even though their living standards have long ago been pulverized by triple-digit inflation, food shortages and a collapsing currency. Venezuela's poverty had eased during the administration of the late President Hugo Chavez. But a study by three leading Caracas universities found that 76 percent of Venezuelans are now under the poverty line, compared with 52 percent in 2014. Staples such as corn flour and cooking oil are subsidized, costing pennies at the strongest of two official exchange rates. But fruit and vegetables have become an unaffordable luxury for many Venezuelan families.While some search through the garbage piles for food they can eat, many more are drawn by the opportunity to fetch a few bolivar bills by rescuing and reselling bruised produce.

'We want food!', Venezuelans cry at protest near presidency | Reuters: Venezuelan security forces fired teargas at protesters chanting "We want food!" near Caracas' presidential palace on Thursday, the latest street violence in the crisis-hit OPEC nation. Hundreds of angry Venezuelans heading toward Miraflores palace in downtown Caracas were met by National Guard troops and police who blocked a major road."I've been here since eight in the morning. There's no more food in the shops and supermarkets," one woman told pro-opposition broadcaster Vivoplay. "We're hungry and tired." The government accused opposition politicians of inciting the chaos but said security forces had the situation under control. Despite their country having the world's biggest oil reserves, Venezuelans are suffering severe shortages of consumer goods ranging from milk to flour, soaring prices and a shrinking economy. Maduro blames the fall in global oil prices and an "economic war" by his foes, whom he also accuses of seeking a coup. "Every day, they bring out violent groups seeking violence in the streets," he said in a speech at the indigenous rally, which went ahead near Miraflores later in the day. "And every day, the people reject them and expel them."

The fall in commodity prices hits the Canadian banks - With the release of Canadian banks’ second-quarter results, investors are beginning to measure the impact of the oil price collapse on the domestic financial industry. Widespread are the write-downs and other provisions the banks are taking in response to the weakened credit quality of many clients in the oil patch. This blog looks at this issue and its implications for future bank stock performance. On the whole, the Canadian banks turned in a profitable second quarter, although in some instances profits declined ( e.g. Scotiabank and BMO Montreal). The banking sector continues to show respectable results in its retail and consumer loan divisions. Also, their mortgage portfolio remains healthy, supported, to a great measure, by good loan-to-value measures and mortgage insurance. Finally, the banks’ capital ratios meet international standards as the they continue to improve in this area. Where the banks face the biggest challenge is with their loans to the energy and commodity sectors in Canada and the United States. Provisions for Loan Losses (PCL). Chart 1 measures the loan losses for the major Canadian banks in terms of a percentage of the average loans outstanding. PCLs represent loans that have been written down for non-performance. There has been a dramatic increase since 2015 Q4 results as the slump in th oil prices take its toll.

Obama Slams Door In Putin's Face, Refuses To Discuss "Very Dangerous" Missile Defense System - Actions speak louder than mere words, and U.S. President Barack Obama has now acted, not only spoken. His action is to refuse to discuss with Russian President Vladimir Putin, Russia’s biggest worry about recent changes in America’s nuclear strategy - a particularly stunning change that is terrifying Putin. On Sunday June 5th, Reuters headlined “Russia Says U.S. Refuses Talks on Missile Defence System”, and reported that, “The United States has refused Russian offers to discuss Washington’s missile defence programme, Russian Deputy Defence Minister Anatoly Antonov was quoted as saying on Sunday, calling the initiative ‘very dangerous’.” Russia’s concern is that, if the “Ballistic Missile Defense” or “Anti Ballistic Missile” system, that the United States is now just starting to install on and near Russia’s borders, works, then the United States will be able to launch a surprise nuclear attack against Russia, and this system, which has been in development for decades and is technically called the “Aegis Ashore Missile Defense System”, will annihilate the missiles that Russia launches in retaliation, which will then leave the Russian population with no retaliation at all, except for the nuclear contamination of the entire northern hemisphere, and global nuclear winter, the blowback from America’s onslaught against Russia, which blowback some strategists in the West say would be manageable probems for the U.S. and might be worth the cost of eliminating Russia.  That theory, of a winnable nuclear war (which in the U.S. seems to be replacing the prior theory, called “M.A.D.” for Mutually Assured Destruction) was first prominently put forth in 2006 in the prestigious U.S. journal Foreign Affairs, headlining “The Rise of Nuclear Primacy” and which advocated for a much bolder U.S. strategic policy against Russia, based upon what it argued was America’s technological superiority against Russia’s weaponry and a possibly limited time-window in which to take advantage of it before Russia catches up and the opportunity to do so is gone.

Trump Victory Would Mend US-Russian Relations: Top Moscow Senator - While the US political and financial establishment has been firmly opposed to a Trump presidency, an unexpected supporter for the presumptive GOP candidate has emerged in Russia, where the head of the Russian Upper House Committee for Foreign Relations, Konstantin Kosachev, said that a victory for Donald Trump in the US presidential elections would provide the "shake up" Washington needs and could be the catalyst to reverse the rapidly deteriorating trend in US-Russian relations. At the same time, even the Russians are convinced that there is no hope for the global geopolitcal stalemate and rising military tension and escalation to be resolved under Hillary as she would merely perpetuate the “democracy messianism” or, the reorganization of the whole world so that it could better serve the purposes of a select few individuals.

Switzerland rejects unconditional basic income in vote - CBS News: - Swiss voters overwhelmingly rejected a proposal that would have guaranteed everyone in the Alpine nation an unconditional basic income, according to projections published Sunday by public broadcaster SRF1. The plan could have seen people in this wealthy nation of 8 million people receive about 2,500 Swiss francs ($2,560) per month - enough to cover their basic needs. Proponents argued that a basic income would free people from meaningless toil and allow them to pursue more productive or creative goals in life. Critics said the plan would explode the state budget and encourage idleness, arguments that appear to have convinced voters. Based on a partial count of results from 19 Swiss cantons (states), the gfs.bern polling group calculated that 78 percent of voters opposed the measure against 22 percent in favor. The Swiss government itself advised voters to reject the proposal put forward by left-wing campaigners who collected the necessary 100,000 signatures to force a vote on the issue. But the idea has won over some economists, who say it could replace traditional welfare payments and give everybody the same chances in life. Salaried workers who earned more than basic income would have received no extra money, while children would have received one-quarter of the total for adults.

Why Helicopter Money is a “Free Lunch” - Claudio Borio and colleagues (2016) have recently posted a very interesting and thought-provoking comment on the currently highly debated topic of “helicopter money” (HM) and its use to fight secular stagnation in advanced economies. Their contribution does not take on the question of the efficacy of HM as a demand management tool relative to alternative instruments. Rather, the points they make concerns the fiscal cost of using HM and its implications for monetary policy. They argue that a money-financed fiscal program becomes more expansionary than a debt-financed program only if the central bank credibly commits to setting policy at zero once and for all. Thus, as typically envisioned, HM comes at the heavy price of giving up on monetary policy forever. In their view, therefore, there is no such thing as a free lunch associated with HM. Below I take issue with their arguments, trying to make the case that indeed

  • HM is a “free lunch” policy option available to policymakers to help stagnating and heavily indebted economies to grow out of large output gaps and persistent low inflation, and
  • its adoption does not imply any surrender of monetary policy.

France mobilize a revolt - Oil shortages and threats to cuts in electricity supply due to stoppages in nuclear centrals On Thursday, May 26, France experienced a new day of demonstrations and stoppages as part of the unions’ protest against Francois Hollande’s labour reform. To express their firm rejection to the labour reform, unions have taken to the streets. There’s scarcity of fuel in over 4,000 gas stations, harbors and oil refineries are blocked and nuclear centrals are possibly going to be paralyzed. Violence has erupted in half a dozen cities. The government considers these actions to be nothing more than the expression of a minority that “illegally” threatens the productive activity in the country, and therefore announced “very firm” reactions against them. Truck drivers, railroad workers, comptrollers and employees of the energy sectors have, once again, been the most active ones in the protests. Over a third of the trains haven’t made their routes and 15% of the flights haven’t taken off. On Wednesday 25, workers also voted in favor of making stoppages and demonstrations in the 19 nuclear centrals of the country, which produce 75% of the electric power of the country.

Media Blackout As France Witnesses Biggest Revolution In 200 Years --Hundreds of thousands of citizens have taken to the streets in France, amounting to what some are calling the new French Revolution amid a total media blackout in Western news outlets. reports: The first collaborative protest against the Socialist government since Hollande came to power in 2012, kicked off on 9 March. On March 31, nearly 400,000 people took to the streets, disagreeing with the sweeping changes to labor laws; though organizers put the number at 1.2 million. On April 9, about 120,000 people marched in Paris and across France for a sixth time, protesting against contested labor reforms. Organizers called for yet another strike on April 28, and a massive protest on May 1, Labor Day.  Reports of police officers clashing with protesters, deploying tear gas in several French cities, and protesters burning vehicles, smashing windows flooded the Internet.  Demanding a complete withdrawal of the draft reform bill, French workers stepped up protests, rallies and blockades in the third week of May.  As per the latest updates, one in three gas stations across the country run dry, causing long queues at normally well-stocked stations. There are blockades at 5 of France’s 8 oil refineries. Nearly 1/5th of nuclear power output is cut by striking staff. Since the nation’s electricity supply has dropped, the government is forced to dig into its emergency reserves. On May 26, more than 150,000 marched against the government’s plans to make it easier for firms to hire and fire. Reuters reports:In the southwestern city of Bordeaux, about 100 people targeted a police station, throwing objects and damaging a police car. In Paris and in the western city of Nantes, bank windows were broken and protesters clashed with police.

Europe Is Slamming Its Doors Shut to a Growing and Historic Humanitarian Crisis - Over the past week, the UN Refugees Agency says that eight hundred and eighty people died in the Mediterranean Sea. They had been trying to get to Europe–for many, the beacon of a future that they have not been able to build in their own countries. These migrants left from the Sabratha region—the northwestern coast of Libya–where the local economy now relies upon the refugee trade. Almost fifty percent of the Gross Domestic Product for this region comes from the human traffickers. Europe worries about what is perceived in the continent to be an invasion into its lands. Far Right groups are open about their antipathy, but they reflect–in some measure–the petty bigotry of sections of society. It is easy to turn on the migrants and refugees, for their desperation makes them prey to all kinds of fantasies–that they steal jobs or are violent or that they are importing antique social mores into civilized Europe.  Last year, close to ninety per cent of the million refugees and migrants who attempted to enter Europe did so through Greece. Harsh retribution along the axis of Eastern Europe and terrible illiberalism by the Greek government has now substantially closed off that pathway. A European Union deal with Turkey on 18 March has now pushed the refugees to camps in Turkey. Those who risk the journey do so at great peril. But Turkey has been no real haven.

Migrants Responsible For 69,000 Crimes In Germany In The First Quarter: Police Report -- In the latest development that is certain to raise the heat under Merkel's cabinet and may lead to even higher support for Germany's anti-immigrant AfD party, Reuters reports that migrants in Germany committed or tried to commit some 69,000 crimes in the first quarter of 2016, according to a police report "that could raise unease, especially among anti-immigrant groups, about Chancellor Angela Merkel's liberal migrant policy." The report from the BKA federal police showed that migrants from northern Africa, Georgia and Serbia were disproportionately represented among the suspects. Absolute numbers of crimes committed by Syrians, Afghans and Iraqis - the three biggest groups of asylum seekers in Germany - were high but given the proportion of migrants that they account for, their involvement in crimes was "clearly disproportionately low", the report said. In other words, just because there was so many of them, it is difficult to give a clear picture of the criminal recidivism resulting from the latest immigrant wave. The report gave no breakdown of the number of actual crimes and of would-be crimes, nor did it state what percentage the 69,000 figure represented with respect to the total number of crimes and would-be crimes committed in the first three months of 2016.

Germany reaches negative rate milestone - - The average yield on German government bonds has fallen below zero for the first time as the phenomenon of negative interest rates intensifies across global financial markets. So-called “umlaufrendite”, the average rate across outstanding bonds published once a day by Germany’s Bundesbank, hit a new low of minus 0.02 per cent on Monday, surpassing its previous low of zero reached in April. The milestone comes as the European Central Bank’s purchases of bonds has pushed prices higher and yields deeper into negative territory.  Investors buying negative-yielding debt are certain to lose money if they hold the bonds to maturity. Despite the prospect of losses when bonds mature and concerns over long-term returns for pension funds and insurance companies, many investors have made money this year on rising prices. “All you’re doing is just pulling returns from the future to the present,” said . “As an investor, there are more risks now than I can remember for some time. You’re storing up significant problems further down the line.” Until the economy moves into a new phase where the recovery looks more robust, the universe of negative yields bonds will continue to expand

Negative interest rates 'really starting to bite' - Blackrock | Reuters: Rock-bottom interest rates, with some $10 trillion of sovereign bonds carrying negative yields, are fast becoming the biggest worry for investors, asset manager Blackrock said on Thursday. "Interest rates are really starting to bite. Cash is now expensive," said Stephen Cohen, global head of fixed income beta at the world's largest asset manager, said at a briefing. "Cross-border flows are being driven by 'how do I get away from negative yields'," he told reporters in London. Cohen said low yields and interest rates are creating distortions in global fixed income markets. His colleague Owen Murfin, co-lead manager for global bond strategies, said "high quality" income streams offered by investment grade bonds and U.S. mortgage bonds were among the most attractive areas to invest. Sergio Trigo Paz, Blackrock's head of emerging market fixed income, said he liked debt issued by Russia, Brazil and Indonesia as inflation turned more benign in these countries.

Desperate' ECB risks destroying European project with negative rates, warns Deutsche Bank -- 'Desperate' ECB risks destroying European project with negative rates, warns Deutsc: The European Central Bank's loose monetary policy risks destroying the European project, Deutsche Bank has warned. In a blistering attack, Deutsche suggested the ECB had "los[t] the plot" and that its "desperate" actions raised the risk of a potentially "catastrophic" mistake by the central bank. David Folkerts-Landau, Deutsche's chief economist, said negative interest rates and quantitative easing had hurt savers and allowed politicians to delay badly-needed structural reforms. "ECB policy is threatening the European project as a whole for the sake of short-term financial stability," he said in a note titled "The ECB must change course". It said: "The longer policy prevents the necessary catharsis, the more it contributes to the growth of populist or extremist politics. "The benefits from ever-looser policy are diminishing while the litany of distortions, perversions and disincentives grows by the day. Savers are punished and speculators rewarded. Bad companies survive while good companies are too scared to invest." The German economist also warned that the "whatever it takes" stance taken by president Mario Draghi and the ECB had "distorted the market-based pricing of government bond yields". The ECB slashed all three of its interest rates in March and ramped up its quantitative easing programme to €80bn a month, from €60bn in a bid to ward off deflation. Mr Folkerts-Landau said: "After seven years of ever-looser monetary policy there is increasing evidence that following the current dogma, broad-based quantitative easing and negative interest rates, risks the long-term stability of the eurozone. "Worse, by appointing itself the eurozone’s 'whatever it takes' saviour of last resort, the ECB has allowed politicians to sit on their hands with regard to growth-enhancing reforms and necessary fiscal consolidation.

Banks Rebel Against Negative Interest Rates  - Central bankers are pressing onward with their failed negative interest rate experiment, oblivious to the damage that it is doing to banks and long-term investors like life insurers and pension funds.  Even more bizarre is the central bank assumption that by charging banks for reserves, they can force banks to lend. First, the very need to resort to negative interest rates results from crappy fundamentals. Entrepreneurs are not going to borrow to invest in new projects just because money is on sale. They invest because they see market opportunities; the cost of money being too high can constrain investing, but cheap money won’t produce loan demand in the absence of attractive projects. The only exception is activities where the cost of money is the biggest cost of doing business. That is the case for levered speculation.  Economists are way way late in the game acknowledging the need for more demand by calling for more fiscal spending.  But central banks ex the Fed act as if they can force business to take up the slack, as if banks can noodle them full of loans like geese and they will be forced to invest and hire as a result.  Second is that banks have to be leery of making any long-term loans now, they know if the monetary authorities ever are in a position to increase interest rates, they will show losses on intermediate and long-term assets unless they have adjustable interest rates. And the losses will be biggest on the riskier loans, since credit spreads typically widen in a tightening cycle.   So it should come as no surprise that banks are starting to try to find ways to circumvent the central bankers’ nutty scheme. As we reported in March, some small Barvarian banks said earlier this year they were looking into keeping cash on premises rater than pay for parking deposits with the Bundesbank. Yesterday, Commerzbank saber-rattled that it might follow suit. . Japanese banks are also trying to slip the leash. From the Financial Times: The move by Commerzbank to consider stashing cash in costly deposit boxes instead of keeping it with the European Central Bank came at the same time as Tokyo’s biggest financial group warned it was poised to quit the 22-member club of primary dealers for Japanese sovereign debt…The policy cost German banks €248m last year, according to the Bundesbank….

The Rise Of Negative Interest Assets -  -- An article buried deep in the Weekend Financial Times reports that the total of public bonds bearing negative yields has now passed US $ 10 trillion.  I have made an effort to check on the current global  size of such issues. I found a 2012 number that put it at 56 trillion, so maybe this number has now risen to 70 trillion of higher.  But I am sure it is still well below 100 trillion.  So, this total of negative yield public bonds is well over 10%, whatever precisely it is.  It is now a non-trivial portion of the total. I am one of those who early on became aware that we might have nominal negative interest rates (as well as negative prices) with these first appearing momentarily publicly in the mid-1990s in Japan, even as the vast majority of economists declared such a phenomenon to be impossible.  I have been someone not all that bothered by this phenomenon and have even welcomed moves by central banks to use them.  However, I confess that seeing a rising portion of public assets bearing such negative yields, I  become concerned about longer run if this continues.  Yes, boring annuities and insurance companies and such entities, and all that, but they have trouble doing what they are supposed to  do if there are not some positive interest rate assets around out there.  I imagine that the vast majority will  remain positive, so probably this is not a big deal.  If the world economy will just get growing more solidly, these negative yield bonds will  disappear, and I am not a fan of  some of parts of the insurance industry, such as the US health care part.  But if in fact positive yield bonds become scarce, there will be a lot  of things society will  have to do, such as taking over  insuring against fire, theft, and many other things.  This is probably silly paranoia, but then I was aware of the reality of negative interest rates long before most thought such were even remotely possible.

Bill Gross: $10 trillion negative yield 'supernova' will 'explode': Bond guru Bill Gross believes the growing global move toward negative yields will have dire consequences. In a tweet from his firm, Janus Capital, Gross goes back half a millennium to assert that the current situation with the world's debt market is unprecedented and dangerous:  Gross tweet  The warning comes as yields on Japanese government bonds and German bunds hit record lows. While it's unclear what database Gross used to track bond yields back to the 16th century, there has been some academic research done on the topic. Bryan Taylor, chief economist for Global Financial Data, has done work on the subject and found generally that yields have declined over time.  In recent days, private banks have revolted over the growth of negative yields in Europe and Asia, a trend that has helped push big money inflows to U.S. corporate and government debt. Gross runs the $1.4 billion Janus Global Unconstrained Bond Fund, which has returned 3.3 percent year to date. He will be on CNBC Friday at 2 pm.

Euro zone growth revised back to 12-month high of 0.6 percent | Reuters: The euro zone economy grew by 0.6 percent in the first quarter of 2016, the highest rate for 12 months, supported by household spending and private sector investment, data from the European statistics agency Eurostat showed on Tuesday. In a second revision of its figures, Eurostat said that gross domestic product (GDP) increased by 0.6 percent from the previous quarter and by 1.7 percent year-on-year. That compared with its initial "preliminary flash" figures of 0.6 and 1.6 percent on April 29 and subsequent downward cut in its flash estimate to 0.5 and 1.5 percent on May 5. The rate of growth matched the level in the first quarter of 2015, a pace only surpassed at the start of 2011, when the euro zone economy raced ahead at 0.9 percent. The greatest contributions to overall euro zone GDP were household spending and private sector investment. Inventory changes and public sector spending were also positive, but imports increased by more than exports. Quarter-on-quarter growth was at a healthy 0.7 percent in Germany, the euro zone's largest economy, 0.6 percent in France and 0.3 percent in Italy. The only euro zone nation suffering contraction was Greece, whose economy shrank by 0.5 percent.

Greece’s young employees (18-29) earn less than €500/month: Almost half of young employees between 18 and 29 years old earn less than €500 net per month despite the laws for over 25 saying otherwise. In a survey conducted by human resources and job seekers website among 5,208 respondents aged 18-35, students and University/technical college graduates the results are: Only 8% of young Greeks want oa job in the public sector 53% of young people wish to work in Greek company 45.6% (employees aged 18-29 ) earn net salary below 500 euros* One in Two said that the economic crisis has affected his personal life The most important reason for people to resign from a job is “lack of fairness” (84%), while on fifth position is “the salary” (69%). The survey was conducted in April and May 2016. *Unfortunately I have no more information but I suppose, the salary is for full time job. Minimum wage is 586 gross for over 25 and 510 gross for below 25. And it is worth noting, that also university graduates earn the minimum possible. On the other hand, it is easy to exploit labor force as youth unemployment ισ 51.4%. With less than 500 euro, it is hardly possible to start a family.

Gov't edges closer to bailout funds after signing Elliniko deal - The government said on Tuesday that it had met the “final condition” set by the country’s creditors for the disbursement of a 7.5-billion-euro tranche of bailout money after announcing it will move ahead with the sale of Athens’s former international airport at Elliniko. Government spokesperson Olga Gerovasili said the signing of a memorandum of understanding between TAIPED, the country’s privatization agency, and an international consortium consisting of Greece’s Lamda Development, Abu Dhabi’s Al Maabar and Fosun from China should pave the way for the unlocking of an installment of rescue funds by next week. The 915-million-euro deal – expected to be finalized in November – was initially signed in November 2014 but was held up by bureaucracy and protests by local authorities. It is projected to create 10,000 jobs in the short term with a potential of 70,000 when the development is completed. According to TAIPED officials, the total investment at Elliniko will reach 8 billion euros in the long run. The signing of the agreement was one of several actions taken by the leftist-led coalition on Tuesday in compliance with creditor demands. These included the transfer of a 5 percent stake in OTE telecom to TAIPED, and an agreement to give the Hellenic Statistical Authority (ELSTAT) greater access to General Secretariat for Public Revenue data relating to tax collection

End of QE to cause problems for Italy, Portugal -Greek finmin warns | Reuters: The eventual winding up of the European Central Bank's massive bond-buying programme will create problems for highly indebted euro zone countries such as Italy and Portugal, the Greek finance minister said on Thursday. Euclid Tsakalotos warned that their borrowing costs could surge when the ECB ends the now 80-billion-euro-a-month stimulus programme it launched in January 2015 and which has driven down sovereign bond yields across the euro zone. "Quantitative easing has problems and will not last forever," Tsakalotos told a conference in Brussels. The ECB has pledged to maintain its stimulus programme until March 2017, and possibly beyond, to counter ultra-low inflation in the 19 countries of the currency bloc. "It is very important that we remember that when QE does finish there will be a lot of economies that are now high-debt economies that will have a problem," Tsakalotos told the Brussels Economic Forum. "Interest rates of Portugal or Italy now reflect the fact they have got QE." Greece has so far not been a beneficiary of quantitative easing, but it aims to join the programme soon after the conclusion of a reform review under a bailout programme negotiated with euro zone lenders.

The eurozone cannot escape political and fiscal union - Wolfgang Munchau -- If your only tool is a hammer, every problem is a nail. It is no surprise, then, that many economists regard the problem of the eurozone as essentially one of insurance — a technical problem in need of a technical fix. No prizes for guessing which profession will be employed to solve it. An insurance-based approach involves doing the least amount of integration necessary. It would not need full-blown political or fiscal union, but merely a few additional backstops to insure against banking crises or shocks affecting some members but not others. If a crisis hits, the insurance kicks in. The idea is not entirely stupid but the idea of insurance as an alternative to political union is wrong. Implicit in any economic model of insurance is the presence of a legal framework, and of a state that ensures the insurance pays out or protects against fraud. Since such legal frameworks exist in most countries, there is no need for economists to care much about legal enforcement. But we are dealing here with insurance among sovereign states. There is no state above them that can impose legal certainty. Insurance can be regulated through multilateral contracts or treaties but these can be unilaterally rescinded. The idea of crisis resolution through insurance suffers from an internal contradiction. The intention is to create something lighter than a political union, but you need a political union to provide the legal and political framework to make insurance possible. My guess is that advocates of insurance underestimate the intelligence of German policymakers. Advocates of insurance-based systems also tend to ignore an important political reality. If you want to co-opt Berlin into writing an insurance policy for you, then you will have to accept a loss of sovereignty. And the only place to which any sane person would want to transfer this sovereignty would be a political union, not the German state. Advocates of insurance-based systems also tend to ignore an important political reality. If you want to co-opt Berlin into writing an insurance policy for you, then you will have to accept a loss of sovereignty. And the only place to which any sane person would want to transfer this sovereignty would be a political union, not the German state. My conclusion is that there is no way around a political and fiscal union in the long run, even if the idea is growing less fashionable. Without it, I see no counterweight to a rise in German power in the eurozone and no end to the rise in intra-eurozone imbalances.

The use of ECB liquidity | Bruegel: (graphic) German banks were the main receivers of Eurosystem liquidity prior to the crisis, receiving 60% of total liquidity provided in 2007. However, at the height of the debt crisis, in July 2012, Spanish, Italian and French banks were the biggest users of the Eurosystem’s liquidity operations: out of the almost €1.2 trillion of liquidity given to euro-area banks, 34% was given to Spanish banks, 24% to Italian banks, and 15% to French banks. Since then, the amount of liquidity being provided by the Eurosystem has declined to 2009 levels, to roughly €500 billion, but Italian, Spanish and French banks remain the largest receivers, with 30%, 26% and 17% respectively.

Mario Draghi Is Now Buying Junk Bonds - A few days after the ECB unexpectedly announced its CSPP, or corporate bond buying program which based on its definition was limited to investment grade, non-financial debt, we explained "Why The ECB Will Be Forced To Buy Junk Bonds", saying that "the reasons to believe Draghi will take the plunge into non-IG corporate credit go beyond the “MOAR is always better” line. As BofAML’s Barnaby Martin explains, the EU corporate sector’s penchant for bond buybacks may ultimately force Draghi further down the ratings ladder lest the ECB should end up entangled tender offers or else end up without enough debt to monetize." This was confirmed on the very first day of the ECB's bond purchases. As Bloomberg writes, purchases on the first day included notes from Telecom Italia SpA, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. Telecom Italia’s bonds are in Bank of America Merrill Lynch’s Euro High Yield Index and credit-default swaps insuring the notes against losses are part of the Markit iTraxx Crossover Index linked to companies with mostly junk ratings. Moody’s and S&P have ranked Telecom Italia one level below investment grade, at Ba1 and an equivalent BB+ respectively, since 2013. Fitch puts the company at the lowest investment-grade rating and only revised its outlook on that level to stable from negative in November.“This dispels any doubts investors may have had about the commitment of the ECB and the central banks to tackle lower-rated names,” said Alex Eventon, a Paris-based fund manager at Oddo Meriten Asset Management which oversees 46 billion euros ($52 billion). “Telecom Italia is firmly at the weak end of the spectrum the ECB can buy.”

The Land Below Zero: Where Negative Interest Rates Are Normal (BBG) - In Copenhagen, bicycles take undisputed priority over cars and even pedestrians. A sizzling restaurant scene has made foodie fetishes of moss, live ants, and sea cucumbers. Despite a minimum wage not far below $20 an hour and some of the world’s steepest taxes, unemployment is almost the lowest in Europe. Parents happily leave infants unattended in strollers on the sidewalk while they stop in to cafes. Clearly the usual rules tend not to apply in Denmark. So it’s no surprise that the country in recent years has added a major new entry to its sprawling repertoire of eccentricities: Since 2012 it’s been a place where you can get paid to borrow money and charged to save it. Scandinavia’s third-largest economy (the population is 5 million, and there are about as many bikes) is deep into an unprecedented experiment with negative interest rates, a monetary policy tool once viewed by mainstream economists as approaching apostasy, if not a virtual impossibility. Companies—though not yet individuals—are paying lenders for the privilege of keeping funds on deposit; homeowners, in some cases, are actually making money on mortgages. Most private-sector forecasters don’t expect Denmark’s central bank to go positive again until 2018 at the earliest, making the country a long-term petri dish for what happens when the laws of financial gravity are inverted.  A certain amount of financial weirdness aside, their country is mostly free of the distortions economic theory tells us to expect, suggesting negative rates may deserve to move from taboo to the standard monetary policy toolbox.

Societe Generale ordered to pay €450K in damages to the rogue trader who bankrupted the company (AFP) - A French tribunal on Tuesday ordered Societe Generale to pay 450,000 euros in damages for firing rogue trader Jerome Kerviel -- whose actions almost bankrupted one of Europe's biggest banks. In its judgement, the labour tribunal said Kerviel had been fired "without genuine or serious cause" and that the bank had full knowledge of his shady dealings long before he was fired in 2008.A lawyer for Societe Generale, Arnaud Chaulet, said he would appeal the "scandalous" decision, recalling that Kerviel had been found guilty of gambling away 4.9 billion euros ($5.5 billion) of the bank's money. Kerviel has long argued he had been made a scapegoat in the case. His lawyer, Julien Dami Lecoz, said his client was "very happy" with the ruling. The trader was sentenced to three years in prison in 2010, but was released in September 2014 after spending less than five months behind bars. He was convicted of breach of trust, forgery and entering false data, but claimed his bosses turned a blind eye as long as the profits kept rolling in. Kerviel was also initially ordered to compensate Societe Generale for the full amount of the money he lost, but an appeals court later overturned the order, arguing that the bank's internal oversight mechanisms had failed.

Is Frexit Next? Why Do So Many Europeans Dislike the EU?: On June 23 the U.K. will hold a referendum to decide whether to exit the European Union, a vote dubbed Brexit. Debate on the vote has served to harden views, either favorably or unfavorably, across Europe. This week, the Pew Research Center released a survey which found that 61 percent of the French hold an unfavorable view of the EU, leading to speculation that there may be demands for a referendum (Frexit) in France to seek a vote on leaving the EU. In fact, a French presidential candidate, Bruno Le Maire, wrote recently in the French publication, Le Monde, that if elected president, he would support holding a referendum vote on the issue. The Pew Research Center study, as well as corporate media, have focused the growing resentment of the EU on its handling of economic and refugee issues. The Pew study found that overwhelming majorities in every country studied disapprove of how the EU has dealt with the refugee issue. The refugee related disapproval ranged from a high of 94 percent among Greeks, to 88 percent of Swedes, 77 percent of Italians, to 70 percent among the French. Majorities in the UK, Sweden, Spain, France, Italy, and Greece disapprove of the EU’s handling of the economy according to the Pew study.

Why Britain Is Edging Toward ‘Brexit’ - It may now be time to seriously consider what would happen if Britain left the European Union.For months, opinion polls indicated that Britons would vote on June 23 to remain within the 28-nation union. But recent polls have shown a lead for the “leave” camp, including one that puts it five percentage points ahead. “Brexit,” as Britain’s potential exit from the European Union is known, would be a big deal. It could batter global markets, weigh on economic growth, alter the balance of power in Europe, and affect the United States’ relations with the Continent. President Obama took it upon himself to urge Britain to stay within the union.  Just as it would be a mistake to read much into a few polls, the recent move toward Brexit should not be dismissed out of hand.  First off, the polls may be more accurate than their critics give them credit for. True, the betting markets are predicting that there is a 72 percent chance that Britain will vote to stay in. But bettors seem less sure after the recent polls.  Sometimes, just one issue can have a big influence on an election. Immigration may turn out to be that issue for the Brexit vote. The “leave” campaign’s recent surge in the polls appears to have been prompted by the release of new numbers on net migration into Britain. The latest figures showed a net inflow of 333,000 people in 2015. The numbers had been riding high for months, so it was hardly a surprise. But those in favor of leaving have brandished the figure to try to damage the standing of Britain’s prime minister, David Cameron, who wants Britain to remain in the European Union. His opponents pointed out that he had said he was aiming for migration numbers that were far lower.

Brexit might trigger run on Britain's record financial debts, S&P warns:  Britain is the world’s most vulnerable state on a key measure of short-term debt and credit markets might suddenly seize up if voters opt for Brexit, Standard & Poor’s has warned. The US credit rating agency is crystal clear that Britain will be stripped of its coveted AAA status immediately and may face a double-barrelled downgrade if the country takes a leap in dark, jeopardizing its trading and financial ties to its biggest market. “We are categorical about this,” said Moritz Kraemer, the agency’s head of sovereign ratings. There is no clear ‘Plan B’ in the UK and we are not going to wait until we find out what the British position actually is Moritz Kraemer, S&P “There is no clear ‘Plan B’ in the UK and we are not going to wait until we find out what the British position actually is. We could potentially see a two-notch downgrade,” he told The Daily Telegraph. Mr Kraemer said the British financial system is extremely dependent on external financing. This is the Achilles Heel for an economy that relies so heavily on the City of London, and has a current account deficit above 5pc of GDP – the highest in Britain’s peace-time history. The level of debt coming due over the next 12 months is 755pc of the country’s external receipts, the highest for all 131 sovereign states rated by S&P. This compares to 318pc for the US and 316pc for France, the next two states most exposed.

MPs 'considering using majority' to keep UK in single market - BBC News: Pro-Remain MPs are considering using their Commons majority to keep Britain inside the EU single market if there is a vote for Brexit, the BBC has learned. The MPs fear a post-Brexit government might negotiate a limited free trade deal with the EU, which they say would damage the UK's economy. There is a pro-Remain majority in the House of Commons of 454 MPs to 147. A Vote Leave campaign spokesman said MPs will not be able to "defy the will of the electorate" on key issues. The single market guarantees the free movement of goods, people, services and capital. The BBC has learned pro-Remain MPs would use their voting power in the House of Commons to protect what they see as the economic benefits of a single market, which gives the UK access to 500 million consumers. Staying inside the single market would mean Britain would have to keep its borders open to EU workers and continue paying into EU coffers.

Jeremy Corbyn promises to kill TTIP, will work in parliament to stop trade deal -- Jeremy Corbyn has vowed to kill the Transatlantic Trade and Investment Partnership (TTIP), doing further damage to the controversial deal.  Mr Corbyn has pledged to scrap the EU’s trade deal with the US. He joins a range of European politicians and campaigners in fighting against the partnership, which attempts to harmonise regulation between the two regions but also appears to weaken consumer protections and privilege companies. The Labour leader has promised to stop the adoption of the deal if he is elected prime minister before it is completed. And he will also attempt to lead a rebellion in parliament, alongside dissident Tories and the Scottish nationalists.Supporters of the deal argue that it is a necessary way of bringing US and EU regulations into line to allow companies to trade more easily. But while talks on the deal have remained secret, campaigners have argued that the deal will pose a huge threat to the NHS, privacy, the environment and other issues. Since then, documents have shown that huge divisions exist between the various sides the are negotiating the deal. After that, politicians in France and Germany suggested that the deal would be killed if it remained in its current state, apparently signalling that the country may use its veto to oppose it. "Many thousands of people have written to me, with their concerns about the Transatlantic Trade and Investment Partnership (or TTIP) the deal being negotiated, largely in secret, between the US and the EU," he said during a speech as part of the Remain campaign. "Many people are concerned rightly, that it could open up public services to further privatisation – and make privatisation effectively irreversible.  Others are concerned about any potential watering down of consumer rights, food safety standards, rights at work or environmental protections and the facility for corporations to sue national governments if regulations impinged on their profits."

No comments: