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

Saturday, August 6, 2016

week ending Aug 6

 Admitting a Weak Economy, the Fed Keeps Rates Low -- Last week, the Fed's Federal Open Market Committee announced it would leave the target Federal Funds Rate unchanged. During 2014 and 2015, the Fed repeatedly hinted that it would raise rates "soon" and that it would return the target rate to more normal levels. Throughout most of 2015, the Fed repeatedly put off increasing the target rate, and then, feeling pressured to actually take action after many months of claiming it would take action, the Fed raised the target rate from 0.25% to 0.5% in December of 2015. Since then, though, after months of claiming that the economy was improving, the Fed has refused to raise the target rate any further. The Fed was obviously spooked by what anyone can see is a very fragile economy, although FOMC statements continue to contain phrases like "growing," "moderate," "gains" and other language that would lead one to believe that the economy is stable and strong. The reality, of course, is something different which is why the Fed kept the target rate at 0.25% for seven years, and why is refuses to move above 0.5% percent now. And lest we forget just how low 0.5% is, we should remember that as recently as 2007, the target rate was above 5%. The obvious posturing of the Fed in the past, however, has not been enough to shame the Fed's spokespeople who are now proceeding with exactly the same rhetoric we saw back in 2014 with the Fed repeatedly claiming the economy is strong and solid, while apparently being too fearful to take any action of allowing interest rates to rise closer to what is surely a higher natural rate.

Prospect of US rate rise recedes as key Fed voter urges caution -- The prospect of a further rise in US interest rates has receded after one of the Federal Reserve’s most influential policymakers said caution was needed due to lingering risks to the US economy. While New York Fed president William Dudley said it was “premature” to rule out a a rate hike this year, he told a conference in Indionesia that negative shocks were more likely than positive ones due to the fallout from Britain’s vote to leave the European Union, a strong dollar, and because it was safer to delay a move with rates so low.  All three of these reasons – evidence that US monetary policy is currently only moderately accommodative, the fact that US financial conditions have been influenced by economic and financial market developments abroad, and risk management considerations – argue, at the moment, for caution in raising US short-term interest rates,” said Dudley, a close ally of Fed chair Janet Yellen and a permanent voter on US policy. The comments, including a reference to uncertainty around the US presidential election in November, suggested the central bank was leaning toward standing pat on rates until perhaps December – which would mark one year since it raised rates for the first time in nearly a decade. Dudley warned that it was becoming increasingly clear that some headwinds from the post-global financial crisis era were likely to be permanent.

Fed''s Dudley Warns it is Premature to Rule out an Interest-Rate Increase This Year - Federal Reserve Bank of New York President William Dudley argued for continued caution over the path of U.S. interest rates, given uncertainty over the global outlook, but warned that traders who have been ruling out an interest- rate increase later this year are growing too complacent. In remarks prepared for a joint central-bank seminar in Bali between the New York Fed and Bank Indonesia, Mr. Dudley also laid out a defense of the Fed's communications to Wall Street amid recent criticism that they have left traders increasingly out of step with the central bank. Mr. Dudley said this dynamic does not show the Fed's inability to transmit policy guidelines to the market effectively, but rather highlight how expectations about the path of rates have shifted relative to one year ago. At their rate-setting meeting last week, Fed officials left its short-term rates unchanged. But they opened to door to an increase later this year, possibly as early as September, concluding that risks to the outlook appear to have diminished. Mr. Dudley attributed changing market bets partly to the Fed holding interest rates steady for longer than many expected. But he said his own baseline outlooks for growth and inflation had not changed notably in recent months. "Compared to the start of the year, the expected timing of any further Fed interest rate hikes has been pushed back," he said in prepared remarks. "Directionally, the movement in investor expectations towards a flatter path for U.S. short-term interest rates seems broadly appropriate." Mr. Dudley warned some traders were putting insufficient weight on the potential for near-term rate rises and said futures prices indicating the Fed will only be raise another quarter of a percentage point before the end of 2017 appeared "complacent." Given the potential for faster adjustment in policy if financial conditions ease, he warned, "It is premature to rule out further monetary policy tightening this year."

Why Goldman Is Shocked By What Bill Dudley Said: "This Can't Be In The Best Interest Of The US" - One would expect anything that former Goldman managing director, and current head of the NY Fed, Bill Dudley says would not come as a surprise to Goldman Sachs, for obvious reasons. However, that was not the case when looking back at a speech delivered by Bill Dudley on Sunday night titled "The U.S. Economic Outlook and the Implications for Monetary Policy." In fact, Goldman's Robin Brooks - who has been consistently bullish on the dollar for the past year - was admittedly shocked by what he saw was a remarkably dovish speech from NY Fed President Dudley, which discussed the idea that the Natural Interest Rate, or R-Star, may be around zero.  Incidentally, as we have pointed out in the past, the Natural Interest Rate may now well be negative due to the tremendous debt load, which is why as explained before, any attempts to hike rates are likely doomed from the onset. What a near-zero R* means it that US monetary policy is only moderately accommodative, even as rates are near zero. But the real punchline in Brooks' interpretation of what Dudley said is the following: "More striking, at least in our eyes, was his language on the Dollar, where he essentially made the case that weaker fundamentals elsewhere require a dovish offset from the Fed, to prevent the Dollar from appreciating. This language comes very close to “Dollar targeting,” which the speech was quick to deny, and is a substantial about-face for President Dudley, as Exhibit 1 shows."

QE-forever cycle will have an unhappy ending - Policymakers have chosen to ignore the central issue of debt as they try to resuscitate activity. Since 2008, total public and private debt in major economies has increased by over $60tn to more than $200tn, about 300 per cent of global gross domestic product (“GDP”), an increase of more than 20 percentage points. Over the past eight years, total debt growth has slowed but remains well above the corresponding rate of economic growth. Higher public borrowing to support demand and the financial system has offset modest debt reductions by businesses and households. If the average interest rate is 2 per cent, then a 300 per cent debt-to-GDP ratio means that the economy needs to grow at a nominal rate of 6 per cent to cover interest. Financial markets are now haunted by high debt levels which constrain demand, as heavily indebted borrowers and nations are limited in their ability to increase spending. Debt service payments transfer income to investors with a lower marginal propensity to consume. Low interest rates are required to prevent defaults, lowering income of savers, forcing additional savings to meet future needs and affecting the solvency of pension funds and insurance companies. Policy normalisation is difficult because higher interest rates would create problems for over-extended borrowers and inflict losses on bond holders. Debt also decreases flexibility and resilience, making economies vulnerable to shocks. Attempts to increase growth and inflation to manage borrowing levels have had limited success. The recovery has been muted.

`Helicopter Money' Is Coming to the U.S. – Gary Shilling  - Several years of rock-bottom interest rates around the world haven't been all bad. They've helped reduce government borrowing costs, for sure. Central banks also send back to their governments most of the interest received on assets purchased through quantitative-easing programs. Governments essentially are paying interest to themselves.   Since the beginning of their quantitative-easing activities, the Federal Reserve has returned $596 billion to the U.S. Treasury and the Bank of England has given back $47 billion. This cozy relationship between central banks and their governments resembles “helicopter money,” the unconventional form of stimulus that some central banks may be considering as a way to spur economic growth.  I’m looking for more such helicopter money -- fiscal stimulus applied directly to the U.S. economy and financed by the Fed --no matter who wins the Presidential election in November.   It’s called helicopter money because of the illusion of dumping currency from the sky to people who will rapidly spend it, thereby creating demand, jobs and economic growth. Central banks can raise and lower interest rates and buy and sell securities, but that’s it. They can thereby make credit cheap and readily available, yet they can’t force banks to lend and consumers and businesses to borrow, spend and invest. That undermines the effectiveness of QE; as the proverb says, you can lead a horse to water, but you can't make it drink.   Furthermore, developed-country central banks purchase government securities on open markets, not from governments directly.   The market intervenes between the two, which keeps the government from shoving huge quantities of debt directly onto the central bank without a market-intervening test. This enforces central bank discipline and maintains credibility.

Monetary policy as a system of connected lakes (a post for John Hussman) -- I always like reading fund manager John Hussman because he writes very well, but I feel like he's dug himself into a bit of an intellectual rut—a situation that happens to all of us. For a number of years now Hussman has been accusing the Federal Reserve of setting off a massive bubble in equity markets. But if you ask me, his claim really doesn't square with the observation that we haven't seen a shred of consumer price inflation over that same time frame. Let's explore more. Hussman recently penned an admirable description of the hot potato effect, the process that is set off by an easing in central bank policy: Initially, central banks focus on purchasing the highest-tier government securities (such as Treasury bonds in the case of the U.S. Federal Reserve). Central banks buy these interest-bearing securities, and pay for them by creating “base money” - currency and bank reserves. Now, having traded their high-quality, interest-bearing securities to the central bank in return for zero-interest cash, a portion of those investors will simply hold the cash in the form of currency or bank deposits, but some investors will feel uncomfortable earning nothing on those holdings, and will try to pass the hot potatoes onto someone else. To do so, these investors now have to buy some other security that is lower on the ladder of credit quality, and more speculative. The sellers of those securities then get the zero-interest cash. Some of those sellers, unwilling to reach for yield in even more speculative securities, hold the cash, but some climb out to a further speculative limb. Ultimately, the process stops when yields on speculative securities have fallen low enough that investors are indifferent between holding zero-interest cash and holding low-yielding but more speculative securities. At that point, all of the new base money is passively held by somebody. A nice way to think of this is to imagine a system of lakes connected by channels, the water level representing prices. When water is poured into one lake the system is disturbed. Water quickly flows out of the first lake through the various channels into the other lakes, the water level of each body of water rising until they are equal. The agitated water becomes stagnant again. Likewise, when the Fed creates and spends new money it quickly courses through the various asset market until the price of each security has risen to a point that all new money is willingly held.

While Q2 GDP Is Bad News, the Revisions are Worse --Robert Oak - The first Q2 GDP estimate shows a surprising sputtering 1.2% of economic growth.  That is a much weaker second quarter than most expected as investment declined -9.7% from the first quarter and the price index was much higher.  Worse, GDP was revised for 2016 Q1 back to 0.8%.  GDP for years 2015, 2014 and 2013, were all revised higher.  Yet since Q2 2015, quarterly GDP was revised lower, showing quite the sluggish slowdown going on for at least a year.  The revised annual GDP figures are now 2012:  2.2%, 2013:  1.7%, 2014:  2.4% and 2015:  2.6%.  The below graph shows economic growth has been anemic since Q2 2015.  As a reminder, GDP is made up of: Y= C + I + G + (X- M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars. The below table shows the GDP component comparison in percentage point spread from 2016 Q1 to 2016 Q2.  There are always two revisions after the initial quarterly GDP report release.  This will happen in spite of the annual revisions going back three years of GDP.   The first Q2 GDP estimate shows a surprising sputtering 1.2% of economic growth.  That is a much weaker second quarter than most expected as investment declined -9.7% from the first quarter and the price index was much higher.  Worse, GDP was revised for 2016 Q1 back to 0.8%.  GDP for years 2015, 2014 and 2013, were all revised higher.  Yet since Q2 2015, quarterly GDP was revised lower, showing quite the sluggish slowdown going on for at least a year.  The revised annual GDP figures are now 2012:  2.2%, 2013:  1.7%, 2014:  2.4% and 2015:  2.6%.  The below graph shows economic growth has been anemic since Q2 2015. Consumer spending, C was clearly the bright spot for Q2. With a 2.83 percentage point increase, that is the largest contribution to GDP since Q4 2014. Below is a percentage change graph in real consumer spending going back to 2000. The breakdown of consumer spending was spread fairly evenly across categories. Goods spending was 1.45 percentage points. Durables was 0.60 percentage points by themselves. Services was a 1.38 percentage point contribution. Within services, health care was a 0.44 percentage point contribution to Q2 GDP, whereas housing and utilities was 0.52 percentage points.  Graphed below is PCE with the quarterly annualized percentage change breakdown of durable goods (red or bright red), nondurable goods (blue) versus services (maroon). Imports and Exports, M & X show a surprisingly positive 0.23 percent point contribution. This is the advance GDP estimate, hence actual trade data hasn't come in yet and imports are almost always revised upward, even with petroleum imports declining as a trend. We expect this to be revised to be a drag on GDP. Government spending, G contributed -0.16 percentage points to Q2 GDP with e state and local governments subtracting -0.14 percentage points. Investment, I is made up of fixed investment and changes to private inventories and this is where disaster struck for Q2 GDP. Overall gross investment was a -1.68 percentage point drag on GDP. The change in private inventories alone was a -1.16 percentage point contribution.

U.S. Economy Was Growing at the Slowest Pace Since WW II; Now It’s Worse -- According to the National Bureau of Economic Research, the Great Recession (that was brought on by the implosion of Wall Street) ended in June 2009. What we’ve been in since that time is supposed to be the “recovery” part of the cycle. But for tens of millions of Americans, it has been hard to tell the recovery from the crisis in terms wealth accumulation, wage growth, or ability to earn a decent rate of interest on savings. On Friday the Commerce Department released second quarter Gross Domestic Product data, showing that the U.S. economy grew at a 1.2 percent annual rate. That tepid number came on the heels of an anemic 0.8 percent rate of GDP growth for the first quarter. It has now been more than a decade since the U.S. economy grew at an annualized rate of 3 percent or better – the longest subpar growth stretch since the end of World War II. Long stretches of anemic performance suggest that a “cyclical” situation may have given way to a “secular” or long-term trend. As a result, we are seeing the words “secular stagnation” used increasingly to describe the U.S. economy. We’ve had throughout this recovery an approximate two percent rate of growth. Now, averaging together the first and second quarters of 2016, we have half that rate of growth – one percent.

That second quarter GDP report: should we be worried? -- I didn’t much like that GDP report from last Friday, showing that the economy expanded at an annual rate of 1.2% in the second quarter. OTEers know my methods: I prefer to smooth out the quarterly noise by looking at year-over-year trends. However, as the figure below shows, that doesn’t help so much. In fact, by that measure real GDP growth has decelerated for each of the last six quarters. But before getting too wound up, consider the following:

  • –Real inventories were a big negative last quarter, reducing the top-line number by 1.2 ppts. Inventories are far the most volatile component of GDP growth, and over the long term tend to balance out around zero. You can see what I mean in the figure below which looks like an EKG from someone who’s consumed a few too many grande lattes. Why are inventories such a noisy component of GDP? Because unlike all the other components, the underlying inventory measure is already a “delta”—a change, i.e., an inventory build-up or draw-down—so the quarterly change is a “change-in-a-change,” which is invariably more variable and thus indubitably more doubtable in any given quarter.)
  • –The next question should then be: OK, what’s the trend in real “final sales,” which leaves out the noisy inventory component. That’s averaged a steady 2% over the past four quarters, which is about the economy’s trend growth rate right now, though in the prior four quarters, real final sales grew a point faster.
  • –The Obama economics team, while they’ve obviously got an angle, provide thoughtful and objective summaries of these reports (you just have to get past the usual “President Obama wakes up every morning thinking about how to boost non-residential fixed investment!”—JK, CEA!). They argue, based on statistical evidence, that a stripped-down version of GDP, comprised of just consumption and investment outside of inventories, provides the best take on where the economy is heading (this breakdown is called “private domestic final purchases” or PDFP).  So, while I don’t love the deceleration in top-line GDP (Figure 1 above) one bit, I’m not wetting the bed over it either.

Deutsche Bank Says U.S. GDP Flop Is a Sign of Secular Stagnation - Bloomberg: You can now add the rates strategy team at Deutsche Bank AG to the growing list of Wall Street analysts who reckon the U.S. economy is probably ensnared in secular stagnation. In a research note published on Friday, Deutsche Bank strategists, led by Dominic Konstam, say the Federal Reserve risks a "big policy error" if it hikes interest rates in September as the latest GDP numbers mark an imminent labor market-driven slowdown for the U.S. economy. The world's largest economy expanded by just 1.2 percent in the second quarter while first-quarter expansion was revised down to 0.8 percent from an initial 1.1 percent estimate. The second-quarter rate of expansion was less than half the advance forecast by economists in a Bloomberg survey. "If the economy can only muster growth in the vicinity of 1 percent when the labor market is at full employment, one must take the secular stagnation thesis more seriously," the Deutsche Bank analysts write. "In other words, perhaps the 2.1 percent average growth rate of the present cycle has been an over-performance. If productivity continues to underwhelm, we will likely see downward revisions to potential growth, telling us after the fact that we have been closing the output gap faster than we thought." Secular stagnation is the contentious view that economic growth and the natural rate of interest for the U.S. economy is structurally low or in negative territory, and promoting full employment — in the absence of sustainable final demand — risks financial stability. The Deutsche strategists paint a negative picture on U.S. productivity prospects, noting that the "non-consumer portion of the economy is shrinking not only in real terms but also in nominal terms."

Jamie Dimon questions accuracy of GDP data - Jamie Dimon is in it for the long haul and isn’t being hassled by short-term data, even to the point of questioning whether quarterly GDP numbers are accurate anymore. The chief executive and chairman of J.P. Morgan Chase told CNBC in an interview Monday that he isn’t bothered by second-quarter GDP growth of 1.2%  at an annual rate, a reading that was well below forecasts. Pointing to job creation, rising wages, increased household spending, and other signs that the economy is firming up, Dimon played down the GDP reading as a short-term data point. “I wouldn’t overreact to short-term data,” Dimon said. “I’m not even sure GDP data is actually that accurate anymore.” Dimon, however, did express that he wished it was growing faster, more in the neighborhood of 2%. Returning to that theme of not getting wrapped up in the short term, Dimon also said he’s not that concerned about a bond-market bubble as the yield on 10-year Treasury notes malingered in 1.50% territory. “Look, I’m not a buyer of 10-year bonds,” Dimon said. “I would be a little worried about drastic actions in 10-year bonds.”

Worst recovery in post-war era largely explained by cuts in government spending  - In a story in the Wall Street Journal last Friday, reporter Eric Morath notes that the recovery from the Great Recession has been historically slow. “In terms of average annual growth,” he writes, “the pace of this expansion has been by far the weakest of any since 1949.” Missing from this story is the fact that our historically weak recovery has been accompanied by historically deep cuts in government spending. The figure below compares the strength of expansion for each recovery since 1949 with changes in government spending (it includes data on the strength of each expansion, as reported by Morath). You can see that almost every other recovery was accompanied by an increase in federal, state, and local government spending. During a recession, changes in government spending have a “multiplier effect” on output and income: each dollar of additional spending increases—and each dollar cut spending decreases—GDP by much more than one dollar. The Great Recession of 2008-2009 was the worst on record since the Great Depression of the 1930s, in terms of both total decline in real GDP, and total increase in the unemployment rate between the previous peak and the beginning of the subsequent recovery. The economy was in a very deep hole in 2009, and had we spent the way we did after previous recessions, we would have experienced substantial increase in GDP since then. Instead, cuts in government spending over the last eight years have had a pernicious, negative impact on output and income, as well as on jobs and wages, which depend on the level of spending in the economy. If it weren’t for these cuts, the economy would likely be fully recovered by now, and the expansion would have equaled or exceeded the Bush recovery.

Atlanta Fed Sees Dramatic Surge In Economy, Pegs Q3 GDP At 3.8% --With jobs surging, stocks at record highs, volatility near record lows, China stable, and Brexit behind us, today's shocking upgrade of the US economy by The Atlanta Fed (to +3.8% growth) leaves The Fed with little to no excuse for hiking rates at least once if not twice this year... This is the highest forecast for US GDP growth since January 2015... how did that guess work out? (Hint it collapsed to ZERO by quarter-end) This is dramatically higher than the +2.2% consensus estimates, (and well above the NY Fed's +2.6% estimate) as The Atlanta Fed explains: The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2016 is 3.8 percent on August 5, up from 3.7 percent on August 4. After this morning's employment situation release from the U.S. Bureau of Labor Statistics and this morning's international trade report from the U.S. Census Bureau, the forecast for third-quarter real gross private domestic investment growth increased from 8.1 percent to 8.8 percent. In addition Goldman increases their odds of a rate hike this year... With payrolls, unemployment claims, consumer sentiment, vehicle sales, and a number of business surveys in hand, our preliminary read for the July Current Activity Indicator is +2.3%, up from +2.1% in June. The three-month moving average edged up to 1.8% from 1.7% in June. In light of the stronger-than-expected jobs report, we revised up our subjective odds of a rate increase at the September FOMC meeting to 30% from 20% previously. We kept the probability of an increase in December at 45%--implying a roughly 75% chance of at least one rate increase this year. So if hiking rates sends stocks higher and cutting rates is supposed to send stocks higher, what is the point of The Fed?

Aging and productivity growth - macromom -- Interesting, new research by Maestas, Mullen, and Powell measures the effect of population aging on growth -- and contrary to previous studies finds a sizeable drag on productivity growth from aging. Specifically, from the paper:  "We find that a 10% increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5%. Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth. Our results imply annual GDP growth will slow by 1.2 percentage points this decade and 0.6 percentage points next decade due to population aging." This broad-based hit to productivity is also consistent with the "spillovers" that I sketched out in an earlier post on aging. The new research doesn't clarify the mechanism (why productivity broadly declines when the share of the elderly rises) ... but it does suggest that this channel is sizeable and thus merits more attention. It is already common for forecasters to model the depressing effect of aging on labor supply and thus trend output growth ... but it is less common to tie labor productivity to population aging. That may need to change, or at least be revisited, particularly with the meager productivity gains in recent years. This chart from the paper shows that the fraction of the population above age 60 has been rising for more than a century. The only exception to the aging trend is the 1990s when the Baby Boomers were in middle age.

U.S. Treasury to borrow $201 billion in July-September quarter | Reuters: The U.S. Treasury Department said on Monday it expects to borrow $201 billion in net marketable debt in the July-September quarter, about $47 billion higher than its estimate in May, due to lower anticipated receipts and an increased cash balance on Sept. 30. The Treasury said it expects to end the quarter with a $350 billion cash balance, up from the previous estimate of $300 billion. During the October-December quarter, the department said it plans to issue $182 billion in net marketable debt, which assumes a $390 billion cash balance on Dec. 31. The Treasury said it paid down $25 billion in net marketable debt during the April-June quarter, ending the period with a cash balance of $364 billion. The pay-down was $40 billion lower than previously estimated.

Is there a deficit of deficit hysteria? – Jared Bernstein - I hope so, and it’s what I wrote about yesterday in the WaPo. Let me entertain OTEers with a few more thoughts on the topic, including feedback I got yesterday. One response was: “You’re endorsing fiscal recklessness! There’s nothing “progressive” going on here; it’s just politicians not giving a crap about our troubled fiscal accounts.” Surely, there’s some truth to that. There are a lot of what I call deficit-chicken-hawks out there–they pretend to care about budget deficits, but as I wrote in the piece, that’s just a ruse to cut spending and shrink government. They’re happy to pass unpaid-for tax cuts all day.But my point is that even if they’re doing the right thing for the wrong reason, the outcome will be improved. To the extent that deficits become less of an obsession, we have the potential for better fiscal policy. And I was careful in piece to avoid going too far in the other direction. In the long term, spending must be paid for. The point is that the time for deficit reduction is when the economy is at full strength, as opposed to “always,” which is the mindless view of too many hawks, chicken or otherwise. This raises another good question I got: why is our political system so obsessed with “payfors,” meaning there’s no proposing anything without also proposing how you’re going to pay for it? Part of this is a function of “pay-as-you-go” rules that insist Congress offset certain spending and tax cut proposals, those these rules often get waived. To me at least, insisting on payfors for permanent tax cuts or spending increases makes sense, at least in theory (where “permanent” means something that isn’t intended to phase out, like a discretionary countercyclical program or one-time infrastructure investment). It’s in sync with that business above about outlays roughly equaling receipts over the long run.

 What if everything doesn't go as expected? -- I like a good contrarian argument. So I was open to Ryan Avent's post on Trump's fiscal policy proposals (which combine massive tax cuts with big spending increases.) $34 trillion in new debt over the next two decades would be a lot, without question. It probably wouldn't be a catastrophic amount, however. The Congressional Budget Office estimates that American GDP will be around $40 trillion in two decades. That suggests that Mr Trump would raise the ratio of gross debt to GDP by about 80 percentage points relative to what it would otherwise be. On top of the growth CBO already projects for American government debt over the next two decades, that would push up gross debt to GDP to about 220%.  That's a lot! On the other hand, it implies that America would have a ratio of debt to GDP two decades from now that is 30 percentage points less than Japan's government debt is right now.  In the end, Ryan isn't trying to defend Trump's proposals, but rather to make a different point:  The point here is not that Mr Trump's plans are sensible. To be clear: they are ridiculous. It is to illustrate an uncomfortable truth, though, which is that the world economy right now is also a little ridiculous. Countries are not supposed to be able to borrow like Japan is borrowing. So while playing to people's gut instinct that fiscal sobriety is good is probably good politics, it might also be an obstacle to political efforts to respond in a sensible way to the weirdness of the economic moment: by making a positive case for deficit-financed public investment and for a change in central bank targets to something better suited to the moment, for example. Dangerous demagogues like Mr Trump thrive in conditions like those now afflicting the global economy. If the adults in the room remain unwilling to take macroeconomic challenges seriously, Mr Trump's debts will be the least of our worries.Notice that Ryan alludes to the fact that the US debt ratio is currently expected to rise to about 140% of GDP over the next few decades, even without Trump's tax cuts. This trend has worried many economists, and there's a rough consensus today that we need to get a better handle on entitlement spending. On the other hand, Japan's gross debt is already 250% of GDP, and there are no obvious signs that this level of debt is unsustainable.

Amazon CEO Jeff Bezos joins a group led by ex-Google CEO Eric Schmidt to advise the Pentagon -- Amazon CEO Jeff Bezos is the latest member to join the Defense Innovation Advisory Board, a Pentagon initiative led by ex-Google CEO Eric Schmidt to bring Silicon Valley's top minds to the US military, the Washington Post reported last week. Alongside Bezos, astrophysicist and "StarTalk Radio" host Neil deGrasse Tyson will also join the board. Amazon declined to comment on Bezos' appointment. Launched in March 2016, the Defense Innovation Advisory Board boasts a star-studded line up of tech leaders on its 15-man team. Aside from Bezos, Schmidt, and Tyson, LinkedIn cofounder Reid Hoffman, Google executive Milo Medin, Instagram COO Marne Levine, and Aspen Institute CEO Walter Isaacson are all part of the board, according to the Washington Post.

 Obama administration denies Iran cash payment was a ransom | Reuters: The Obama administration said on Wednesday that $400 million in cash paid to Iran soon after the release of five Americans detained by Tehran was not ransom as some Republicans have charged. The five, including Washington Post reporter Jason Rezaian, were released on Jan. 16 in exchange for seven Iranians held in the United States for sanctions violations. The prisoner deal coincided with the lifting of international sanctions against Tehran. At the time, the United States said it had settled a longstanding Iranian claim at the Iran-U.S. Claims Tribunal in The Hague, releasing $400 million in funds frozen since 1981, plus $1.3 billion in interest that was owed to Iran. The funds were part of a trust fund Iran used before its 1979 Islamic Revolution to buy U.S. military equipment that was tied up for decades in litigation at the tribunal. Representative Jason Chaffetz, chairman of the House of Representatives Committee on Oversight and Government Reform, on Wednesday sent a letter to Secretary of State John Kerry asking him to appear at a future committee hearing to discuss the payment. White House spokesman Josh Earnest rejected suggestions the money transfer to Iran was ransom or a secret. "The United States, under President Obama, has not paid a ransom to secure the release of Americans unjustly detained in Iran and we're not going to pay a ransom," he said in response to a Wall Street Journal article that said Washington secretly organized the cash airlift.

Russia Expert Stephen Cohen: Trump Wants To Stop The New Cold War, But The America Media Just Doesn't Understand -- Stephen F. Cohen, professor emeritus of Russian studies at NYU and Princeton, spoke with CNN's 'Smerconish' Saturday morning about Donald Trump, Vladimir Putin, and the 'New Cold War.' Cohen says the media at large is doing a huge disservice to the American people by ignoring the substance of Trump's arguments about NATO and Russia, and buying the Clinton campaign's simplistic smear that Trump is a Russian "Manchurian candidate." "That reckless branding of Trump as a Russian agent, most of it is coming from the Clinton campaign," Cohen said. "And they really need to stop." "We're approaching a Cuban Missile Crisis level nuclear confrontation with Russia," he explained. "And there is absolutely no discussion, no debate, about this in the American media." "Then along comes, unexpectedly, Donald Trump," he continued, "Who says he wants to end the New Cold War, and cooperate with Russia in various places... and --astonishingly-- the media is full of what only can be called neo-McCarthyite charges that he is a Russian agent, that he is a Manchurian candidate, and that he is Putin's client."

Let’s Talk About Trade, Baby… Jodi Beggs I’ve been thinking about trade a lot because of recent discussions regarding the Trans-Pacific Partnership. Turns out I’m not alone:  As put forth by economists, strictly speaking, I’m not even sure that I buy the “trade is good” argument. I know, I know, but hear me out. For the most part, economists focus on efficiency (i.e. what maximizes the size of the economic pie to go around) rather than equity or distribution (i.e. what is fair). The reason for this is simple- what is efficient has a (relatively) scientific answer, whereas what is fair is a matter of opinion and values (read, no right answer). In a perfect world, economists would be leveraged in two ways:

  • Tell us what is efficient and we’ll try to make it work for everyone.
  • Tell us how much value we sacrifice to make things fair so we can decide whether the tradeoff is worthwhile (or where the appropriate balance is).

This division of labor, if you will, is usually not how things work. Instead, this last step is omitted and the economists’ contributions to the discussions are rejected. Case in point: the observation that trade is efficient. To see how, let’s work through the logic. Consider a good where the US would want to import from foreign countries if it were opened to trade. Opening up to trade helps consumers via lower prices, but it hurts producers due to low-priced competition. That said, consumers win more than producers lose, making trade the efficient outcome.  BUT…trade creates a clear distribution problem, where there are a large number of consumers who gain a little and a smaller number of producers (or, somewhat equivalently, workers) that lose a lot on a per-producer basis. This doesn’t have to be the case- the fact that the winners win more than the losers lose means that the winners could compensate the losers and create a situation where everyone is better off. BUT…this doesn’t happen automatically, and the transfer probably introduces its own inefficiency. Overall, thankfully, the distribution of gains and losses isn’t likely an unsolvable problem that makes “to hell with trade” the right answer. Yes, I recognize the hyperbole, so let me try again- the distribution of gains and losses isn’t likely an unsolvable problem that makes “institute trade restrictions so that potentially displaced workers are essentially receiving consumer-financed work-based welfare.” 

Will Obama’s Signature Trade Deal Fail? --  American Conservative -- Last week, Virginia Gov. Terry McAuliffe tried to assure supporters of the Trans-Pacific Partnership that Hillary Clinton will back the massive trade agreement if she becomes president. Even though it’s become hugely unpopular, Obama still has to push for ratification to save face. And the deal may still fail in the end. The agreement won’t go into effect if the U.S. doesn’t ratify it within two years, and at this point, practically speaking there are only two ways that can happen. President Obama and Congress could get it done during the lame-duck session. Or alternatively, Hillary Clinton could win and change her mind after the election. Edward Luce of the Financial Times calls this second scenario “virtually inconceivable,” though as Eamonn Fingleton has explained in these pages, flip-flopping on trade is something that Clinton does, if not well, at least frequently. She helped negotiate the deal, after all. So what does the treaty do, and what tradeoffs does it pose? Naturally, the TPP will require nations to break down barriers to trade such as tariffs and other restrictions on imports. It also seeks to “harmonize” the ways that different countries structure their economies, including environmental regulations, intellectual-property protections, “state-operated enterprises,” and even corruption laws.   Most estimates suggest it could add marginally to America’s economy—somewhere in the general vicinity of 0.5 percent, a small gain because the U.S. already has low trade barriers with most of these countries—and boost exports in industries such as agriculture and manufacturing. If the analysis of the World Bank is to be believed, low-skill wages here will grow 0.4 percent while high-skill wages grow 0.6 percent thanks to the treaty.

U.S. negotiators made sure the TPP agreement reflects U.S. interests. Here’s how we checked, line by line. -- The 12-country Trans-Pacific Partnership (TPP) has become an unexpected lightning rod this campaign season. This important new trade agreement has prompted heated exchanges between U.S. presidential candidates and provoked infighting among Democratic and Republican party-platform writers. There’s even a multi-act music tour to protest the agreement. Criticism of the TPP comes from strange political bedfellows, ranging from Bernie Sanders, who has called the TPP “disastrous,” to Donald Trump, who consistently refers to it as “a terrible deal.” Congressional critics like Senate Finance Committee Chairman Orrin Hatch express similar concerns “that the administration may have missed a pivotal opportunity with the TPP to get the best deal possible for the American people.”  By contrast, President Obama has lobbied repeatedly for the agreement — touting it in interviews, speeches, and op-eds. He calls the TPP a “new type of trade deal” that will give the United States “a leg up on our economic competitors.” Not surprisingly, political leaders from New Zealand, Canada, Japan and other TPP signatories also claim the new agreement is a good deal for their countries.We tackle this question head-on in a recently published paper, finding that the TPP trade rules are skewed heavily in favor of the United States. Our primary discovery is that much of the language in the actual TPP agreement is copy-pasted verbatim from earlier U.S. trade agreements. This is particularly true for controversial issues like investment, where up to 90 percent of the text from past U.S. investment chapters is inserted word-for-word into the TPP text. These findings call into question critics’ claims that U.S. negotiators failed to adequately represent U.S. interests in the TPP.

Six key GOP House members reverse support for Obama’s trade agenda -- President Obama's renewed pitch for the Trans-Pacific Partnership (TPP) on Tuesday ran into blunt reality when six House Republicans urged him not to send the trade accord to Congress for a vote this year.  The request, made in a letter to the White House, represents another potentially serious blow to the president's trade agenda, whose prospects have dimmed in an election year. All six GOP members had supported legislation last year to give Obama greater trade authority, and their defections would make TPP ratification even more difficult.  "Some in your Administration reportedly believe passage of TPP should be attempted following November’s election.  We respectfully, but strongly, disagree," the letter stated. It was signed by Reps. Candace Miller and Dave Trott of Michigan, Bill Shuster and Tim Murphy of Pennsylvania, Ed Whitfield (Ky.) and Ted Yoho (Fla.).  The members called on the administration to reopen negotiations on the 12-nation accord and add language that specifically bars member nations from manipulating their currency. The White House has objected to such provisions because trade pacts are not typically used to set monetary policy and other countries could try to use the TPP to influence decisions by the U.S. Treasury and Federal Reserve.  "A 'lame duck' Congress should not vote on an agreement of this consequence — it would be an end-run around the American people immediately following an election," the members wrote. "We urge you not to send TPP implementing legislation to Congress in 2016."

GOP anti-TPP letter fails to draw a crowd -- A letter sent from House Republicans to President Barack Obama this week urging him not to force a lame-duck vote on the TPP gained only six signatures despite being open for nearly two months, according to private-sector and congressional sources — a possible indication of low appetite among Republican lawmakers to protest the trade deal. Sources told POLITICO that the letter, which was dated Monday and released Tuesday, was opened to Republicans in June and pushed by Ford Motor Company, a vocal TPP opponent that lobbied for signatures. The letter came from the office of Rep. Candice Miller of Michigan, where Ford is based, and was billed as a means of “underscoring the widespread concern about the Trans-Pacific Partnership.” Other signatories include fellow Michigan Rep. Dave Trott, Pennsylvania Reps. Tim Murphy and Bill Shuster, Kentucky Rep. Ed Whitfield and Florida Rep. Ted Yoho. All six lawmakers voted for Trade Promotion Authority last year, and half of them — Miller, Trott and Whitfield — represent districts where the auto industry has a heavy presence. The lawmakers cited a lack of enforcement against currency manipulation in the TPP as one of the chief reasons they are against it. “Notably, the TPP does not include enforceable rules to stop currency manipulators," the lawmakers wrote. "Once America has given up the leverage of gaining full access to its consumer markets, the possibility of prohibiting currency manipulation — or reaching equitable agreements in many other areas — will be lost forever.”

Paul Ryan warns that the GOP is engaged in a ‘fight for the soul of our party’ over free market principles — House Speaker Paul D. Ryan (R-Wis.) warned Monday that Republicans were engaged in a “fight for the soul of our party” when it comes to championing free-market principles and combating the influence of special interests, heralding his policy agenda as a bulwark against “forms of progressivism” seeping into the GOP. Speaking before a group of 400 wealthy conservatives participating in one of the Koch network’s twice-a-year seminars, the House speaker did not mention GOP presidential nominee Donald Trump by name. But Ryan touted the importance of free trade, an issue Trump has railed against, and said it was essential that party leaders make a better case for the free market. Trump argues that free trade agreements have hurt American workers, and that better deals are needed. The GOP is “trying to restore ourselves as protectors of the market, and not of the business, and that is the fight for the soul of our party we are in the middle of having right now,” Ryan said. The House speaker is clearly a favorite of the Koch donor network, and he was received with a standing ovation and whoops. The audience interrupted him several times with hearty applause. The Washington Post and other news outlets were invited to cover portions of the Koch seminar, on the condition that they did not name donors in attendance without their permission. 

Obama says Trans-Pacific Partnership will succeed after election dust settles | McClatchy DC President Barack Obama dismissed Hillary Clinton’s opposition to the Trans-Pacific Partnership trade agreement Tuesday and suggested that her disapproval of the deal may be politically motivated. “Right now, I’m president, and I’m for it,” he said at a news conference with Singaporean Prime Minister Lee Hsien Loong. “And I think I’ve got the better argument.” Later, he continued, “Hopefully, after the election is over and the dust settled, there will be more attention to the actual facts behind the deal, and it won’t just be a political symbol or a political football.” If ratified, the pact, known commonly as the TPP, would seek to strengthen economic ties across the world’s largest ocean by slashing more than 18,000 tariffs between 12 Pacific Rim nations: the United States, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. Together, these countries comprise about 40 percent of the world’s economy. Noticeably absent from the TPP is China.

Six Things to Know About the Trans-Pacific Partnership (TPP)

  • 1. The TPP is not mainly about trade at all: Only six of its 30 chapters cover trade matters while most provide specific new rights and powers for corporations.
  • 2. There are few remaining tariffs left between TPP nations to cut, which is why pro-free trade economists say there are very limited economic gains to be had from the TPP. From Paul Krugman to Joseph Stiglitz to Robert Reich to Jeffrey Sachs to Simon Johnson and beyond, prominent economists who supported the North American Free Trade Agreement (NAFTA) and other past pacts say there would be few economic upsides from the TPP.
  • 3. The TPP’s key provision grants new rights to thousands of multinational corporations to sue the U.S. government before a panel of three corporate lawyers that would be empowered to award the corporations unlimited sums to be paid by America’s taxpayers, including for the loss of expected future profits. Were the TPP enacted, multinational corporations need only convince the tribunal of private sector lawyers that a U.S. law or safety regulation violates their TPP rights. The tribunals’ decisions are not subject to appeal and the amount awarded has no limit..
  • 4. Even the official U.S. government assessment of the TPP, the U.S. International Trade Commission (ITC) report released on May 18, projected few economic gains but estimated that 36 of 55 U.S. economic sectors would suffer declining trade balances under the TPP.
  • 5. The “TPP covers 40 percent of the global economy” line is a misdirect: The six TPP nations with existing U.S. free trade pacts account for more than 80 percent of the trade counted in the 40 percent.
  • 6. Environmental, consumer, faith, senior, family farm, LGBTQ, Internet freedom, small business, human rights, online activism, and other organizations have made stopping the TPP a major priority because it would undermine decades of their policy achievements and foreclose future progress by requiring signatory countries to conform domestic laws to hundreds of pages of non-trade rules promoted by the corporate interests involved in negotiations.

 Chamber of Commerce Sues Treasury on Inversion Regs - ataxingmatter by Linda Beale - Back in April, the Chamber of commerce suggested that it might sue the Treasury Department for violating the Administrative Procedures Act (APA) over the new inversion regs that were issued in April (T.D. 9761, REG-135734-14).  See Fortune article (Apr. 6, 2016).   Well, now they have, not surprisingly in federal court in Austin, Texas, where business lawsuits against government regulations tend to get a favorable view.  See e.g., Business groups sue over new U.S. limit on tax-driven foreign buyouts, Reuters (Aug. 4, 2016); Liz Moyer & Leslie Picker, Tax-Avoiding Mergers Find Champion in U.S. Chamber of Commerce, N.Y. Times (Aug. 4, 2006); Alison Bennet, Businesses Launch First Suit Against Inversion Rule, Bloomberg BNA (Aug. 4, 2016); U.S. Chamber Sues So American Firms Can Move Overseas and Dodge Taxes, (linking to Washington Post article).  The  U.S. Chamber of Commerce and the Texas Association of Business have initiated a suit against the Treasury Department over the new regulations .  The complaint, filed on August 4, 2016, is available on BNA at the following link: Chamber of Commerce of the U.S. v. IRS, W.D. Tex., No. 1:16-cv-00944. The business groups claim that the regulations are making business harder for big companies to carry out transactions, referencing the proposed merger between U.S. drugmaker Pfizer and Ireland pharmaceutical company Allergan (both members of the Chamber of Commerce).  That merger, projected to save the U.S. company about $35 billion in taxes, fell apart immediately after the new regs were released. See Michael Merced and Leslie Picker, Pfizer and Allergan Are Said to End Merger as Tax Rules Tighten, NY Times (Apr. 5, 2016).  the lawsuit claims that Treasury did not have authority to issue the regulations and that there was insufficient notice to taxpayers under the Administrative Procedure Act.

Exclusive: Stiglitz quits Panama Papers probe, cites lack of transparency | Reuters: The committee set up to investigate lack of transparency in Panama's financial system itself lacks transparency, Nobel Prize-winning economist Joseph Stiglitz told Reuters on Friday after resigning from the "Panama Papers" commission. The leak in April of more than 11.5 million documents from the Panamanian law firm Mossack Fonseca, dubbed the "Panama Papers," detailed financial information from offshore accounts and potential tax evasion by the rich and powerful. Stiglitz and Swiss anti-corruption expert Mark Pieth joined a seven-member commission tasked with probing Panama's notoriously opaque financial system, but they say they found the government unwilling to back an open investigation. Both quit the group on Friday after they say Panama refused to guarantee the committee's report would be made public. "I thought the government was more committed, but obviously they're not," Stiglitz said. "It's amazing how they tried to undermine us." The Panamanian government defended the committee's "autonomous" management in a statement issued later on Friday, and while it said it regretted the resignations of Stiglitz and Pieth, it chalked them up to unspecified "internal differences."

Paul Craig Roberts Rages "The Democratic Party As We Knew It No Longer Exists" --The Democratic Party that once was concerned with workers’ rights, the elderly, civil rights, and the constitutional protections of America liberty no longer exists. As the just completed Democratic presidential primaries and the Democratic presidential convention have clearly demonstrated, the United States now has two Republican parties in service to the One-Percent. The organized Democrats–the Democratic National Committee–have shown themselves to be even more venal and corrupt than the Republicans. Leaked emails document that the Democratic National Committee conspired with the Hillary campaign in order to steal the nomination from Bernie Sanders. It is clear that Sanders was the choice of Democratic Party voters for president, but the nomination was stolen from him by vote fraud and dirty tricks. The DNC and the media whores have tried to discredit the incriminating emails by alleging that the leaked emails resulted from a plot by Russia’s President Vladimir Putin in behalf of “Putin’s American agent,” Donald Trump. “A vote for Trump is a vote for Putin,” as the presstitute scum put it. This diversionary tactic has not worked. Not even Americans are stupid enough to fall for it. Consequently, the corrupt “leader” of the DNC had to resign and was unable to deliver her speech at the nominating convention from fear of being booed off the stage.

Hillary Officially Accuses Russia Of Hacking DNC As Assange Says She Conspired To "Subvert An Election" The formal accusation has officially been launched. Following days of feverish allegations that Russia was behind escalating hacks of Democratic servers, first that of the DNC, then the DCCC and finally that of the Hillary campaign itself, Hillary Clinton accused Russian intelligence services of hacking into Democratic National Committee computers, while at the same time bashing Donald Trump for showing support for Russian President Vladimir Putin."We know that Russian intelligence services hacked into the DNC and we know that they arranged for a lot of those emails to be released and we know that Donald Trump has shown a very troubling willingness to back up Putin, to support Putin," Clinton said in an interview with "Fox News Sunday." Wait, we "know" that? Just yesterday we reported that the NSA has launched a campaign to determine if, indeed, as many have claims Russia is behind the hacking.  In fact, none other than Director of National Intelligence James Clapper told the audience at the Aspen Security Forum Thursday that the U.S. intelligence community was "not quite ready to make a call on attribution," though he said there were "just a few usual suspects out there." The next day CIA Director John Brennan said that attribution is "to be determined" and a lot of people were "jumping to conclusions."

EXCLUSIVE – NSA Architect: Agency Has ALL of Clinton’s Deleted Emails -  The National Security Agency (NSA) has “all” of Hillary Clinton’s deleted emails and the FBI could gain access to them if they so desired, William Binney, a former highly placed NSA official, declared in a radio interview broadcast on Sunday. Speaking as an analyst, Binney raised the possibility that the hack of the Democratic National Committee’s server was done not by Russia but by a disgruntled U.S. intelligence worker concerned about Clinton’s compromise of national security secrets via her personal email use. Binney was an architect of the NSA’s surveillance program. He became a famed whistleblower when he resigned on October 31, 2001, after spending more than 30 years with the agency. He was speaking on this reporter’s Sunday radio program, “Aaron Klein Investigative Radio,” broadcast on New York’s AM 970 The Answer and Philadelphia’s NewsTalk 990 AM. Binney referenced testimony before the Senate Judiciary Committee in March 2011 by then-FBI Director Robert S. Mueller in which Meuller spoke of the FBI’s ability to access various secretive databases “to track down known and suspected terrorists.”  Stated Binney: “Now what he (Mueller) is talking about is going into the NSA database, which is shown of course in the (Edward) Snowden material released, which shows a direct access into the NSA database by the FBI and the CIA. Which there is no oversight of by the way. So that means that NSA and a number of agencies in the U.S. government also have those emails.”

Whistleblower's Stunning Claim: "NSA Has All Of Hillary's Deleted Emails, It May Be The Leak" -- Over a year before Edward Snowden shocked the world in the summer of 2013 with revelations that have since changed the everything from domestic to foreign US policy but most of all, provided everyone  a glimpse into just what the NSA truly does on a daily basis, a former NSA staffer, and now famous whistleblower, William Binney, gave excruciating detail to Wired magazine about all that Snowden would substantiate the following summer. Which is why we are confident that at least a subset of the US population will express great interest in what Binney said earlier today, when the famous whistleblower said in a radio interview on Sunday that the NSA has “all” of Hillary Clinton’s deleted emails and the FBI could gain access to them if they so desired, William Binney, a former highly placed NSA official.  Speaking on Aaron Klein's Sunday radio program, “Aaron Klein Investigative Radio,” broadcast on New York’s AM 970 The Answer and Philadelphia’s NewsTalk 990 AM, Binney raised the possibility that the hack of the Democratic National Committee’s server was done not by Russia but by a disgruntled U.S. intelligence worker concerned about Clinton’s compromise of national security secrets via her personal email use.

Lead Attorney In Anti-Clinton DNC Fraud Case Mysteriously Found Dead -- Call it conspiracy theory, coincidence or just bad luck, but any time someone is in a position to bring down Hillary Clinton they wind up dead. In fact, as we noted previously, there’s a long history of Clinton-related body counts, with scores of people dying under mysterious circumstances. While Vince Foster remains the most infamous, the body count is starting to build ominously this election cycle - from the mysterious "crushing his own throat" death of a UN official to the latest death of an attorney who served the DNC with a fraud suit.  As GatewayPundit's Jim Hoft reports, on July 3, 2016, Shawn Lucas and filmmaker Ricardo Villaba served the DNC Services Corp. and Chairperson Debbie Wasserman Schultz at DNC’s headquarters in Washington, D.C., in the fraud class action suit against the Democrat Party on behalf of Bernie Sanders supporters (this was before Wikileaks released documents proving the DNC was working against the Sanders campaign during the 2016 primary).  Shawn Lucas was thrilled about serving the papers to the DNC before Independence Day...  Shawn Lucas was found dead this week…According to Snopes Lucas was found dead on his bathroom floor.  We contacted Lucas’ employer on 4 August 2016 to ask whether there was any truth to the rumor.  According to an individual with whom we spoke at that company, Shawn Lucas died on 2 August 2016. The audibly and understandably shaken employee stated that interest in the circumstances of Lucas’ death had prompted a number of phone calls and other queries, but the company had not yet ascertained any details about Lucas’ cause of death and were unable to confirm anything more than the fact he had passed away.  This follows the death of 27 year-old Democratic staffer Seth Conrad Rich who was murdered in Washington DC on July 8. The killer or killers appear to have taken nothing from their victim, leaving behind his wallet, watch and phone. Shortly after the killing, Redditors and social media users were pursuing a “lead” saying that Rich was en route to the FBI the morning of his murder, apparently intending to speak to special agents about an “ongoing court case” possibly involving the Clinton family.

How Glass-Steagall Crashed the 2016 Conventions - American Banker (slides) The Glass-Steagall Act of 1933 was an unexpected and prominent part of the Democratic and Republican conventions this year, as both parties added a call to reinstate the law as part of their party platforms. But that will be easier said than done, considering that lawmakers from both sides of the aisle have shown little interest in the idea. Following is a look at how a Depression-era law found its way to Cleveland and Philadelphia.

The Right Wants Glass-Steagall for the Wrong Reasons - Mike Konczal -- It’s impossible to look at any single financial regulation without understanding the problem it is trying to solve and how it would hang together with the rest of the financial regulatory regime. This is why cost-benefit analysis of financial rules isn’t very useful, as any rule depends on all the other rules. It also means that two people who agree on one idea for regulation could still bring about two very different worlds, one significantly worse than the other. This has happened with Glass-Steagall, the Depression-era separation of commercial and investment banking. Both the Republicans and Democrats endorsed its return in their party platforms. But there are two ways to talk about the reform, a Left and a Right way to imagine what problem Glass-Steagall would solve and what kind of financial regulatory regime you would have after it was reinstated. I think the Right’s way is wrong, dangerously so, and would leave us with a split regulatory regime and a world very similar to 2007.  The Right’s Approach to Glass-Steagall: The protections around commercial banking caused the financial crisis. Federal backstops for consumer deposits mingled with normally boring investment banking to make both far riskier than they would have been otherwise. Commercial banking obligations, such as the Community Reinvestment Act, made it worse. As Thomas Hoenig argues, “A safety net was extended beyond commercial banks to bank holding companies and broker-dealers […] The Federal Deposit Insurance Corporation (FDIC) fund and the taxpayer are the underwriters of this private risk-taking [leading up to the crisis].”  I personally think the idea that FDIC insurance was responsible for the crisis is difficult to justify on any number of grounds, but the important thing about this story is that it absolve investment banking of any systemic risk. The Left’s story is about the risks investment banks pose to commercial banks; the Right’s story is about the risks commercial banks pose to investment banks. If commercial banking regulation lead to the crisis, you wouldn’t want to extend it to investment banks.

Americans for Financial Reform Calls Out Private Equity Broker-Dealer Abuses as Latest Example of SEC’s Weak, Selective Enforcement  --Yves Smith - It’s gratifying to see that more and more organizations are recognizing the need to make private equity adhere to long-established regulations, their own disclosures, and widely-accepted norms in investment management, such as acting as a fiduciary. The latest example, a letter by Americans for Financial Reform, urging the SEC to take action on long-standing broker-deealer abuses by private equity firm. This document, which we’ve embedded at the end of this post, points out that even though the investors in private equity are typically major institutional investors like public pension funds, these monies are being deployed on behalf of large numbers of individuals of modest means, so this is clearly a matter of public interest.  We’ve written about the peculiar failure of the SEC to target private equity firms for acting as unregistered broker-dealers. The agency finally roused itself in June and fined a tiny firm, Blackstreet Capital Management. Given how selective the agency’s private equity enforcement actions have been, despite senior officials saying they found serious misconduct at half the firms included in its first round of exams, it’s likely that the SEC simply putting the industry on notice. In fact, as the AFR argues, this approach is inadequate in light of other private equity abuses that it describes in considerable. In other words, this is the last group that deserves “Trust me” treatment. The AFR letter is short and well-argued; I urge to to read it in full. AFR-Letter-to-SEC-on-Potential-Unregistered-Broker-Dealer-Activity-at-PE-Firms

Financialization and its Discontents - Perry Mehrling - Financialization is not new, nor is discontent with it.  Fifty years ago, Minsky zeroed in on instability as the central flaw of the financial system of his time, and located the source of that instability in excessive business borrowing and bank lending. But his was an economist’s discontent. Non-economists go farther, in at least three dimensions. Polanyi (1944) famously zeroed in on the way that the logic of markets gets extended to “fictitious commodities” – land, labor, and money – and the way that society reacts defensively to that illegitimate extension. Today, arguably, it is the logic of finance that has been so extended, turning everything it touches into an asset with a speculative price. Brandeis (1914) objected differently to the way that accumulations of financial wealth – “other people’s money” – tend to undermine democratic political forms (among other problems). Today, arguably, it is the institutionalized character of those accumulations (TBTF) that threatens political forms. Bryan (1896) famously drew attention to the “cross of gold”, the deflationary effect of the international gold standard on domestic farm prices in the emerging market economy of the United States. Today, arguably, the analogous issue is the hegemony of the US dollar imposing discipline on emerging market economies, most importantly the BRICS–Brazil, Russia, India, China, South Africa.All three of these non-economist discontents are concerned with the boundary between the market system and something else–non-market goods, the political system, national developmental priorities–boundaries on which they see the market system encroaching. To the extent that capitalism is essentially a financial system, they fear extension of its logic and wish to keep it safely confined. All three see markets and finance as something separate from society, at least in principle. The money view, by contrast, sees markets and finance as essential infrastructure for modern society.

 "It Takes A Village To Maintain A Dangerous Financial System"  -- Reassurances that regulators are doing their best to protect the public are false,warns Stanford's Anat Admati in her latest report on the collusive dissonance within financial markets. She discuss the motivations and actions (or inaction) of individuals in the financial system, governments, central banks, academia and the media that collectively contribute to the persistence of a dangerous and distorted financial system and inadequate, poorly designed regulations.  The underlying problem is a powerful mix of distorted incentives, ignorance, confusion, and lack of accountability. Willful blindness seems to play a role in flawed claims by the system’s enablers that obscure reality and muddle the policy debate. Excerpts... In banking, the public interest in safety conflicts with the incentives of people within the industry. Protecting the public requires effective regulations because market forces fail to do so. Without effective regulations, dangerous conduct is enabled and perversely rewarded. Because the harm is difficult to connect to specific policy failures and individuals, it persists. Even if a crisis occurs, the enablers of the system can promote narratives that divert attention from their own responsibility and from the fact that much more can be done at little if any social cost to make the system safer and healthier. The narrative that crises are largely unpreventable shifts attention to emergency preparedness and away from better rules to reduce the frequency of emergencies in the first place. Many aspects of the financial system in developed economies are unjust because they allow powerful, better informed people to benefit at the expense of people who are less informed and less powerful. The injustice can be described from a number of perspectives. First, the system contributes to distortions in the distribution of income and wealth, as some of those who benefit from it are among the most privileged members of society, while those who are harmed include the poorest. Second, by allowing the privatization of profits and the socialization of losses, the financial system distorts basic notions of responsibility and liability. Financial crises affect employment and the economic well-being of many segments of society, but those who benefit most from this system and who enable it tend to suffer the least harm. The persistence of this unjust system illustrates how democracies sometimes fail to serve the interest of the majority of their citizens.... It takes many collaborating individuals, each responding to their own incentives and roles, to enable a dangerous financial system. Who are the enablers and what are their motivations? Enablers work within many organizations, including auditors and rating agencies, lobbying and consulting firms, regulatory and government bodies, central banks, academia and the media.

And the Award for Best Financial Crisis Book …(by James Kwak)… goes to Chain of Title, by David Dayen (with apologies to Jennifer Taub, Alyssa Katz, Michael Lewis, and many others, including my co-author, Simon Johnson).  Chain of Title isn’t primarily about the grand narrative of the financial crisis: subprime lending, mortgage-backed securities, collateralized debt obligations, credit default swaps, synthetic CDOs, the collapse of the global financial system in 2008, and the frenzied bailout that followed. Instead, it’s about foreclosure fraud: how mortgage servicers, banks, and the law firms they hired systematically broke the law to force people out of their homes. At the same time, it’s about securitization fraud: the fact that an untold number of securitizations were not properly executed, meaning that they violated the terms of their underlying agreements, meaning that their investors should have been able to force rescission of the entire deal. The substance of the argument has been well known for years, so I’ll try to pack it into one sentence: The banks creating mortgage-backed securities failed to properly transfer notes (the documents proving a borrower’s obligation) to the trusts that issued the MBS, so not only was the securitization itself faulty, but the trust did not have legal standing to foreclose on homeowners—so the banks paid third-party companies to forge the required paper trail, and lawyers knowingly submitted fraudulent evidence to courts, who usually accepted it.

Bailed Out Citigroup Is Going Full Throttle into Derivatives that Blew Up AIG -- Pam Martens -  Having closely observed how Citigroup collapsed under the weight of its own corruption and risk-taking hubris in 2008 and spread its contagion across Wall Street, a headline we never dreamed we would see in our lifetime is shown above from Risk Magazine’s web site. The article under the heart-stopping headline is dated January 27, 2016 and informs readers that Citigroup is now viewed by clients as one of the top-three market makers in single name Credit Default Swaps in both North America and Europe. Credit Default Swaps are the instruments that blew up the giant insurance company, AIG, in 2008, requiring the U.S. government to bail out the company to the tune of $185 billion. The bailout money went in the front door of AIG and was then funneled out the backdoor to the big Wall Street banks that had used AIG as their counterparty to guarantee their bets on Credit Default Swaps. The AIG bailout was effectively a backdoor bailout of the biggest banks on Wall Street. Credit Default Swaps also played a role in Citigroup’s implosion in 2008, which necessitated the following government bailout: $45 billion in equity infusions; over $300 billion in asset guarantees; and more than $2 trillion in cumulative, below-market-rate loans from the Federal Reserve. Citigroup, then and now, holds insured savings deposits while at the same time engaging in high risk trading at both its investment bank and commercial bank. This is an excerpt of what Sheila Bair had to say about Citigroup’s management of risk and its Credit Default Swaps: If you wanted to make a definitive list of all the bad practices that had led to the crisis, all you had to do was look at Citi’s financial strategies…What’s more, virtually no meaningful supervisory measures had been taken against the bank by either the OCC or the NY Fed…Instead, the OCC and the NY Fed stood by as that sick bank continued to pay major dividends and pretended that it was healthy.” The OCC and the New York Fed are doing the exact same thing today – cowering under the lobbying and political clout of Citigroup – which perversely just hired Mervyn King, the former head of the Bank of England, the U.K.’s central bank, now that former Treasury Secretary Robert Rubin has collected his $120 million from Citigroup and moved on.

This Boring Service Is Suddenly a Big Concern for Treasurys - WSJ: J.P. Morgan Chase’s retreat from a mundane but crucial settlement role in the $13 trillion U.S. Treasury market poses a fresh challenge for regulators seeking to bolster the market’s capacity to withstand shocks. The New York bank’s decision, announced July 21 and due to be complete next year, leaves rival Bank of New York Mellon Corp. BK -0.36 % as the lone firm handling the settlement of U.S. government debt for big bond brokers. Having just one firm in the business of making sure traders deliver cash and securities as expected will pose a fresh test for a sprawling market whose functioning has come under scrutiny since the financial crisis. Many analysts already worry that liquidity, the capacity to trade quickly without moving prices, has been falling when markets come under stress. Following J.P. Morgan’s exit, Bank of New York will settle transactions including the majority of Treasury debt sold at U.S. government auctions, the majority of Treasurys traded in the secondary market and most U.S. government debt exchanged in the overnight “repo” market, a key source of funding in which financial institutions use the bonds as collateral for cash loans. Officials at both banks said they had been in touch with the Federal Reserve and the Treasury Department to reassure them the moves wouldn’t disrupt trading in U.S. Treasurys or the $2.2 trillion daily market for repos. But the move could inflame concerns that there already weren’t enough options for traders, potentially exposing the market to a shutdown in the event of an outage at a large settlement firm. “

Author Michael Lewis: Rigged Markets Show Signs of a Desperate Slumlord -- Pam Martens - In the Afterword that appears in the paperback edition of “Flash Boys,” author Michael Lewis writes that following the publication of the hardcover edition of the book in 2014 and his appearance on 60 Minutes (in which he called the U.S. stock market rigged and mapped out the case against high frequency trading) “it has sounded like a desperate bid by a slumlord to gussy the place up to distract inspectors. In any case, the slumlords seem to realize that doing nothing is no longer an option: Too many people were too upset.” Doing nothing while going through the motions of doing something perfectly defines the Securities and Exchange Commission. Today the Securities and Exchange Commission is continuing its illusion of dealing with the rigged structure of the U.S. stock market by holding a meeting of its Equity Market Structure Advisory Committee, some of whose members have themselves been charged with rigging the market. The deeply conflicted SEC Chair, Mary Jo White, will deliver opening remarks. As part of the day’s agenda, Venu Palaparthi, a Senior Vice President at Virtu Financial is scheduled to appear on a panel addressing “market quality.” This is what Senator Elizabeth Warren had to say about Virtu: “For me the term high frequency trading seems wrong. You know this isn’t trading. Traders have good days and bad days. Some days they make good trades and they make lots of money and some days they have bad trades and they lose a lot of money. But high frequency traders have only good days. “In its recent IPO filing, the high frequency trading firm, Virtu, reported that it had been trading for 1,238 days and it had made money on 1,237 of those days…The question is that high frequency trading firms aren’t making money by taking on risks. They’re making money by charging a very small fee to investors. And the question is whether they’re charging that fee in return for providing a valuable service or they’re charging that fee by just skimming a little money off the top of every trade…You have all your eggs in one basket here, and if you’re the Fed, that has to be a little disconcerting, because you don’t want any hiccups in this market,”

A New Low: The New York Times’ Children’s Bedtime Story of Private Equity -- Yves Smith - The New York Times’ Dealbook has managed to outdo itself, and not in a good way.  On Monday, the Grey Lady published This is Your Life, Brought to You by Private Equity, a slide show apparently intended to stand in place of a bona fide reported story to close off a recent series on the industry.   The disgrace isn’t just that it took so many writers (four) and such a clearly costly presentation to convey so little substance. The style of presentation, the at best mildly concerned tone, the inaccuracies and understatements, and the thinness of information were worse than a whitewash or conventional agnotology. The story came off as an arch promotional piece for private equity, with a few necessary ugly disclosures worked in, as if the reporters had been pwned. As a lawyer who has written extensively on private equity said, “Did David Rubenstein [of Carlyle Group] write this?”   A long standing staple of corporate advertising, going back to before World War II, is the seeminlgy faceless major corporation such as “Better Living Through Chemistry” DuPont, showing citizens how its products, unbeknown to viewers, supposedly improved their daily lives. In other words, corporate influence is pervasive…but consumers are told again and again and again all and only for the good. Thus in the absence of concrete information otherwise, the fact that private equity firms now have their fingers in lots of pies the way, say a conglomerate like GE does, won’t sound any alarms.* From the standpoint of the overwhelming majority of readers, it’s at worst dog bites man. For instance (each mini-paragraph is a separate slide, with a fitting cute image with the text: Let’s say that, like most Americans, you drive to work. These roads, bridges and highways are increasingly maintained by Wall Street investors. They either own the road, or manage it on the government’s behalf.

Multi-manager hedge funds suffer losses in first-half 2016 | Reuters: It only took six months for some of the world's most prominent team-based hedge funds to go from winners to losers. Blackstone Group's Senfina Advisors, Citadel's Global Equities Fund and the Visium Global Fund were among the so-called multi-manager funds that cut into last year's sizable gains with deep losses over the first half of the year, data seen by Reuters show. Senfina dropped 15 percent in the January-June period after a 12 percent gain in the second half of 2015, which had helped the fund end last year with a return of roughly 20 percent. Folger Hill Partners, run by former Steven Cohen deputy Solomon Kumin, lost about 7 percent in the first half while Alyeska Investment Group, run by Anand Parekh, was off about 8 percent, the numbers show. The HFRI Equity Market Neutral Index - a strategy benchmark - is flat for the first six months of 2016 while the Standard & Poor's 500 index climbed 2.9 percent. The returns mark a turnaround for a strategy that was an industry darling in 2015 when strong performance and a promise of more diversification attracted pension funds and other investors to add billions of dollars in fresh capital. Multi-manager funds use a stable of small portfolio manager-led investment teams paired with central risk oversight. They seek to avoid broad correlation to the rise and fall of stocks and other securities through a multitude of offsetting bets, or a so-called market neutral approach.

Berkshire Said to Draw Fed Scrutiny Over Wells Fargo Investment - Warren Buffett’s Berkshire Hathaway Inc. is well known as a tapestry of modern capitalism for its ownership of dozens of companies and investments in dozens more. Now that interconnected web is prompting U.S. regulators to examine whether Berkshire’s stake in one of its biggest holdings, Wells Fargo & Co., violates rules for how much credit banks can extend to corporate insiders, according to two people familiar with the review. Wells Fargo provides financing to many in Berkshire’s sea of subsidiaries. The relationships have triggered questions from agencies including the Federal Reserve into whether legal limits are being exceeded for how much a bank can lend to entities controlled by someone who owns a big chunk of its stock. An arrangement raising particular concern is Berkshire’s 16 percent investment in American Express Co., which does substantial business with Wells Fargo, said the people, who requested anonymity because the examination isn’t public. Spokesman for the Fed and Wells Fargo’s main banking regulator, the Office of the Comptroller of the Currency, declined to comment. Buffett didn’t respond to a request for comment sent to an assistant. Wells Fargo values Berkshire “as a long-term shareholder and customer, and we appreciate the confidence that Berkshire’s executive team has shown” in the bank, company spokesman Mark Folk said in an e-mailed statement. He declined to comment on the regulatory review.

Commodities attract biggest bets since 2009 - Investors have pumped more than $50bn into commodities this year, chasing a recovery in oil prices while falling interest rates have increased the attraction of haven assets like gold. The inflows mark the best start to a year since 2009, when commodity assets were at the start of a three-year boom, according to figures compiled by Barclays. The new money, combined with rising prices, have pushed total commodity assets under management to $235bn, up from a low of $161bn reached at the end of 2015. While that appears to be a vote of confidence in commodities as an asset class, most of the gains have been driven by investors looking for exposure to oil and gold. Oil prices have rallied sharply from January lows as the market has started to slowly rebalance, while gold has shone in the wake of shocks like the Brexit vote and uncertainty about the outcome of the US Presidential election. “Much of the investor demand this year been tactical and, unless the asset class continues to generate strong returns in the second half then outflows could resume,” said Barclays analyst Kevin Norrish. “Our price forecasts for key commodities like copper and oil suggest a flat to negative second half of the year, which is likely to encourage some net liquidation.” Commodities were the best performing major asset class in the first half of the year, outpacing global bonds and equities. Total returns from the Bloomberg Commodity Index (BCI) were over 14 per cent during the six months to June. The index pushed higher thanks to strong gains for key components such as oil, which almost doubled from its January lows, soybeans, zinc and gold.

Trading changes how brain processes selling decisions - UChicago News - Experience in trading changes how the human brain evaluates the sale of goods, muting a well-established economic bias known as the endowment effect, according to researchers at the University of Chicago. The findings, to be published this week in the Proceedings of the National Academy of Sciences, come from a set of experiments on why traders are less susceptible to the effect—a phenomenon in which people demand a higher price to sell a good than they’re willing to pay for it. Such behavior contradicts standard economic theory, distorting prices and reducing market activity. Researchers found that while selling, experienced traders had reduced activity in an area of the brain often associated with pain and negative emotions. A separate experiment showed a similar reduction in brain activity after people previously inexperienced in trading were given incentives to trade objects on eBay for two months. The results suggest such experience reduces the emotional pain tied to selling objects, mitigating the role the endowment effect plays in economic decision-making. “We were excited to see that our brief intervention can reduce the endowment effect, both in terms of the behavioral response and the brain mechanisms involved. The brain activation patterns of the subjects who were incentivized to trade on eBay began to look very similar to that of experienced traders,”

Global Earnings Tumble as Companies Dig Deeper for Cost Savings - Corporate earnings are heading for a fifth straight quarter of declines, dragged down mostly by energy companies’ struggles with low oil prices and a tepid global economy that threatens to throttle sales growth in many industries. U.S. companies as varied as hamburger chain McDonald’s Corp. and Honeywell International Inc., a maker of gas-processing equipment and cockpit controls, have slashed costs and bought back shares to help earnings. Amid a worldwide sales slog, European pay-TV operator Sky Plc and South Korea’s Hyundai Heavy Industries Co. are crimping expenses to boost profit.. Companies have grappled with a lackluster economy for several years as the U.S. manufacturing recovery sputtered, the world economy slowed and oil prices fell to $50 a barrel from more than $100 in 2014. “There hasn’t been a lot of what you might call real, honest earnings growth through sales and business improvement and expansion of operations,”  . “They just keep digging deeper into the hat and finding hidden rabbits and new ways to generate earnings.” The global economy is forecast to expand 2.9 percent this year, according to the average estimates of economists surveyed by Bloomberg. That’s the lowest rate since 2009, with the U.S., European Union, China and Mexico all expected to post slower growth this year from 2015. With about two-thirds of Standard & Poor’s 500 Index members having reported, earnings have declined 3.3 percent from a year earlier and sales have slumped 0.5 percent. Excluding results from energy companies, earnings have risen 1.1 percent and sales have gained 3 percent.

US corporate defaults on course to hit 2009 levels - Moody's | Reuters: (IFR) - Oil and gas company defaults are pushing total corporate defaults to levels not seen since 2009, said Moody's Investors Service on Monday. A total of 16 oil and gas companies defaulted in the second quarter of 2016, helping to push the sector's default count to 30 for the first half of the year, Moody's said. "We saw the amount of defaulted debt jump 123% to US$45bn, which matched the highest quarterly dollar amount since the recession," John Puchalla, Moody's senior vice president, said. The overall US speculative-grade default rate rose to 5.1% from 4.4% in the second quarter and is projected to jump to 6.4% - its highest level since June 2010, Moody's reported. The US speculative commodity default rate rose to 23.9% in the second quarter from an already high 19.9% in the prior quarter. "A growing US economy and the ongoing benefits of receptive capital markets over the last few years has constrained much of the stress to the commodities sector," the rating agency said. Excluding commodities, the US speculative-grade default rate rose to 2.3% from 2.0% in the second quarter. "While sector default risk remains heavily concentrated in commodity companies, the default rate and credit strains outside of commodities are edging up, but remain far less pronounced,"

Junk Bond Issuance Collapses in the US and Europe | Wolf Street - At a breath-taking pace. Default rate spikes. US stocks at record. Standard and Poor’s default rate of US high-yield corporate bonds – the more appealing moniker for junk bonds – jumped to 4.5% in July, the worst since August 2010. But no problem. The S&P Distressed High-Yield Corporate Bond Index – comprised of 470 bond issues so troubled that they’re trading at a yield that is at least 10 percentage points higher than the Treasury yield – has rallied 48% since February 12. This includes the 2.5% swoon on Friday, when some of the hot air was let out. Default rates blowing out to crisis proportions while institutional investors are piling into distressed junk bonds and drive up prices despite soaring defaults – these are the kinds of out-of-sync movements that our era of interest rate repression, QE, and the relentless search for yield is becoming famous for. And so, in the same out-of-sync manner, despite rising junk bond prices and falling yields, US high-yield bond issuance in July dropped 32% from June, to $14.9 billion, according to LCD of S&P Global Market Intelligence. For the first seven months of the year, total issuance plunged to $196 billion, down 32% from a year ago. In Europe it’s even worse. According to LCD, high-yield issuance this year through July plunged nearly 50% year-over-year, to just €27.5 billion.

CEOs make 276 times more than typical workers -- The compensation of the CEOs of the largest firms has grown much faster than stock prices, corporate profits and the wages of the top 0.1 percent. But the most dramatic difference is between the compensation of CEOs and the compensation of typical workers is that from 1978 to 2015 CEO compensation grew 941 percent while the compensation of a typical worker grew just 10 percent.  The gap in pay between CEOs and employees can be illustrated by tracking the ratio of CEO compensation to that of the typical worker as shown in the figure above. CEOs of major U.S. companies earned 20 times more than a typical worker in 1965; this ratio grew to 30-to-1 in 1978 and 59-to-1 by 1989, and then it surged in the 1990s, hitting 376-to-1 by the end of the 1990s recovery, in 2000. The fall in the stock market after 2000 reduced CEO stock-related pay (e.g., realized stock options) and caused CEO compensation to tumble until 2002 and 2003. CEO compensation recovered to a level of 345 times worker pay by 2007, almost back to its 2000 level. The financial crisis in 2008 and accompanying stock market decline reduced CEO compensation after 2007–2008, and the CEO-to-worker compensation ratio fell in tandem. By 2014, the stock market had recouped all of the value it lost following the financial crisis and the CEO-to-worker compensation ratio in 2014 had recovered to 302-to-1. A dip in the stock market and the value of associated stock options led to a decline in CEO compensation in 2015 and, correspondingly, the CEO-to-worker pay ratio fell to 276-to-1, similar to what happened in other stock market declines at the start of the new millennium and during the Great Recession. Though the CEO-to-worker compensation ratio remains below the peak values achieved earlier in the 2000s, it is far higher than it was in the 1960s, 1970s, 1980s, and 1990s.

Goldman Subpoenaed For Global Corruption -- Subpoenas were issued to Goldman Sachs for its alleged connections to a global corruption ring, according to reports Friday.  Goldman Sachs, a worldwide leading investment bank with ties to the 2008 banking crisis, faces subpoenas from the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) on Friday concerning its relationship with a Malaysian consortium at the heart of a global corruption scandal, reports the Wall Street Journal.  Goldman has cooperated thus far with authorities, providing the necessary documents to both the SEC and the DOJ.  In addition to the documents in question, authorities want to interview both current and former bank employees who have connections with the Malaysian group–1Malaysia Development Bhd (1MDB).  The investigation focuses on compliance with the US Bank Secrecy Act, an act that requires domestic financial institutions to “assist U.S. government agencies to detect and prevent money laundering.”  Goldman is being investigated specifically regarding the $2.5 billion in profits it earned from 1MDB bond sales, which were “diverted from the fund to shell companies controlled by influential figures in Malaysia and Abu Dhabi,” reports the Wall Street Journal.  It isn’t just U.S. authorities looking into the matter. Singapore’s central bank stated Saturday that it too is investigating.  The investment bank has ties to 1MDB dating back to 2009 with some $6.5 billion in bond acquisitions over the course of the relationship.

Goldman Sachs Subpoenaed by U.S. Agencies for Documents Related to 1MDB - WSJ: U.S. authorities have issued subpoenas to Goldman Sachs Group Inc. GS -1.07 % for documents related to the bank’s dealings with a Malaysian investment fund at the center of an international corruption scandal, a person familiar with the matter said. Goldman received the requests for information earlier this year from the U.S. Justice Department and the Securities and Exchange Commission, the person said. Investigators have also subpoenaed a Goldman banker who worked closely with the Malaysian fund, The Wall Street Journal reported in March. Under the subpoenas, Goldman is providing documents to the investigators, the person said.  The authorities also want to interview current and former Goldman employees in connection with the inquiries, though by Friday none of those meetings had occurred, people familiar with the matter said. Goldman Sachs is also providing information to the Monetary Authority of Singapore, the city-state’s central bank and financial regulator that also has inquired about the firm’s work for the fund in question—1Malaysia Development Bhd., or 1MDB, the person said. The Justice Department and the SEC, along with the New York State Department of Financial Services are looking into Goldman’s role in a series of bond sales it managed for 1MDB, the Journal has reported, citing people familiar with the matter. Some $2.5 billion of the proceeds from those offerings was diverted from the fund to shell companies controlled by influential figures in Malaysia and Abu Dhabi, the Justice Department alleged last week in lawsuits seeking to seize some of those assets. 1MDB on Tuesday said its “board remains confident that no wrongdoing has been committed by 1MDB and that the past audited financial statements continue to show a true and fair view of the company’s affairs at the relevant points in time.”

Goldman Fined 0.1% Of Revenue For "Criminal Theft" Of Confidential Fed Information -- Last October, we reported that "Wall Street Was Shocked As Feds Bring Criminal Case Against Goldman Banker Over Fed Leaks." Briefly, because as we also reported several months later, nobody actually ended up going to prison for the infamous story of Goldman Sachs obtaining classified NY Fed documents as a result of the revolving, ended up with two workers getting slaps on the wrist in some modest penalties.  Today the story got its closure, when the Fed announced that Goldman Sachs has agreed to pay $36.3 million to settle allegations by the Federal Reserve that it obtained and used confidential regulatory materials from the central bank two years ago. This amounts to 0.1% of the firm's 2015 revenue of $33.8 billion. In levying the fine on Goldman Sachs, the Board found that the firm's personnel improperly used confidential supervisory information of the Board in presentations to its clients and prospective clients in an effort to solicit business for the firm. Further, the Board found that from at least 2012, the firm did not have sufficient policies, procedures, or adequate employee training in place to ensure compliance with current laws prohibiting the unauthorized use or disclosure of confidential supervisory information. The Board's order requires Goldman Sachs to put in place an enhanced program to ensure compliance with Board regulations concerning the receipt, use, and dissemination of confidential supervisory information. The Fed also found that "a Firm employee engaged in the criminal theft of confidential supervisory information of the Board of Governors and other banking regulators, and disseminated such information to multiple employees within the Firm; "

Prosecuting Corporate Criminals - - Judge Jed S. Rakoff - It is difficult to escape the inference that the Great Recession, which caused and even still continues to cause much suffering, was in substantial part the result of fraudulent misconduct, whereby dubious loans were camouflaged as highly rated securities, thus creating a classic “bubble.” Yet, even though the government, after much delay, finally brought legal actions against some of the large financial institutions involved in this fraud, few prosecutions or regulatory proceedings have been brought against the individuals who actually perpetrated the fraud—much less against any high-level executives who initiated, approved, or blindly disregarded the fraud. This, then, raises the question, why have the individuals who inflated that bubble not yet been brought to justice?  There are several possible reasons for the dearth of individual prosecutions. For one, prosecutors may simply lack the stamina, will, and resources to bring cases against individuals. To trace a complicated fraud all the way up to those who approved the conditions that created it typically takes years, with no guarantee of ultimate success. By contrast, large institutions cannot afford to be at war with the government for any extended period of time, and so will, sooner rather than later, “cut a deal.” Such deals provide prosecutors with ready-made, politically appealing press packages: they can publicly trumpet that they have reached an agreement with some large company or financial institution that is going to pay a hefty fine, increase internal compliance measures, and agree to be monitored. The upshot is that, over the past decade, the and a variety of regulatory agencies increasingly have focused their energies on cutting deals with large companies, rather than pursuing difficult and time-consuming investigations of high-level individuals.

Bitcoin worth $78m stolen from Bitfinex exchange in Hong Kong -- Almost 120,000 bitcoin worth around $78m has been stolen from Hong Kong-based Bitfinex, one of the most popular cryptocurrency exchanges, causing a 20% drop in the value of the currency. The hack, which is the largest of its kind and limited to bitcoin wallets held by the company, forced Bitfinex to cease trading and report the theft to law enforcement, the company said in a statement on its website. Bitfinex said in a statement on its website: “We are investigating the breach to determine what happened, but we know that some of our users have had their bitcoins stolen. We are undertaking a review to determine which users have been affected by the breach.” Zane Tackett, director of community and product development for Bitfinex, said: “The [119,756 bitcoin] was stolen from users’ segregated wallets.” The value of bitcoin plunged nearly 20% on the news, according to data from CoinDesk. The 120,000 bitcoin account for around 0.75% of all bitcoin in circulation. Antony Lewis, a bitcoin expert in Singapore, said: “It’s the biggest USD exchange, so outside China it’s the one that everyone has an account with. It’s very liquid, folk can trade on margin, lots of daily volume.“ It is not yet clear whether the theft was an inside job or whether hackers were able to gain access to the system externally.

Latest Bitcoin Hack Proves 'Buyer Beware' Is Flawed Defense | Bank Think -- Bitcoin holders were stunned Tuesday when Bitfinex, the highest-volume non-Chinese bitcoin exchange, abruptly halted trading and explained it had fallen victim to a hack in which user funds were stolen. This theft, amounting to nearly 120,000 bitcoin (approximately $70 million), is one of the largest heists in the currency's short history and the largest since the notorious implosion of Mt. Gox over two years ago. It is an utter failure of custodial protection and a violation of consumer trust. It is also a watershed moment for all leading exchanges and wallets in the digital currency space that had over the past two years managed to gain the trust of a steadily increasing number of consumers while avoiding, for the most part, highly restrictive regulatory action.While it remains unclear precisely how this hack was executed, its success seems to contradict what we've been told and taught about the security virtues of multi-signature transactions. This is a much more concerning development than simply discovering that Bitfinex had implemented bad security protocols, as was the case with Mt. Gox. We expect and hope that the investigation will reveal that this is not a vulnerability that affects all accounts secured by multiple signatures, but it is too early to tell at this point. There is also evidence that Bitfinex changed its protocols for securing consumer funds as an indirect result of a settlement with the Commodity Futures Trading Commission (CFTC). The $75,000 judgment from the CFTC presented Bitfinex with the choice of migrating from a hot/cold wallet setup (in which a portion of bitcoins are kept in inaccessible wallets) to unique accounts for each customer, or go through the arduous process of registering as a Swap Execution Facility (SEF). Bitfinex chose not to pursue obtaining SEF status, which potentially opened the exchange up to the potential of this attack. If this is the case, it may be the first example of an analog regulation being applied to a digital currency company that had the net effect of making that company's digital assets more vulnerable.

Did Regulatory Meddling Cause Bitfinex Hack? | American Banker: — While it's unclear who robbed the Hong Kong bitcoin exchange Bitfinex, stealing $72 million worth of the cryptocurrency, some have already decided U.S. regulators are at least partly to blame. Critics point to a Commodity Futures Trading Commission action against Bitfinex earlier this summer that they argue made the firm more vulnerable to the Tuesday night attack. "Bitfinex had settled with the CFTC just two months ago, which forced them to end their practice of stashing coins away securely offline," tweeted Leo Weese, a digital currency advocate in Hong Kong. "Instead, they had to 'deliver' coins daily between Bitcoin accounts assigned to each user. Tell me again how regulation 'protects' you." The situation is complex and turns on whether the CFTC inadvertently pushed Bitfinex to adopt a weaker security system than it had been using. If so, the story is a stark reminder of how legacy regulatory models are an awkward fit for emerging technologies. However, several security experts said the way the exchange chose to use the new system was significantly flawed. In any event, the debacle seems likely to draw more regulatory scrutiny to the nascent cryptocurrency industry. In June, the CFTC fined Bitfinex $75,000 for facilitating margin trading without being registered as a futures commission merchant. But the agency gave Bitfinex a way out, saying it had to register "unless the entity offering the transactions — such as Bitfinex — can establish that actual delivery of the bitcoins results within 28 days." Last year, Bitfinex, possibly aware of the CFTC's investigation, began changing how it handled bitcoin so that it could effectively exchange them, thus avoiding the need to register.Instead of keeping customers' funds in so-called cold storage, where the private keys are kept offline, it moved to multisignature bitcoin wallet provider BitGo. In a June 4, 2015, blog post, nearly a year before the fine, the company promised "complete segregation of all customer bitcoins" as a result of the technology. Critics argue Bitfinex opened itself up to attack when it switched over to BitGo. The CFTC declined to comment and BitGo could not be reached.

 Time to reevaluate blockchain hype by Izabella Kaminska - The Hong-Kong based Bitfinex exchange is short 119,756 bitcoins after being hacked on Tuesday, though nobody can be sure what’s really happened because ‘hacking’ is a loose term and can encapsulate almost anything, including an internal security breach. (Do see the case of Mt Gox.) The mark-to-market value of the stolen coins is roughly $70m, but again who can really tell their true worth. Bitcoin is an asset class where the liquidation of 119,756 (approximately 0.8 per cent of the total bitcoin circulation) can move the market more than 20 per cent, suggesting a certain fantastical element to the valuation. What is worth noting is that the hack follows a CFTC action against Bitfinex operations in the US which found:…that from April 2013 to at least February 2016, bitfinex permitted users to borrow funds from other users on the platform in order to trade bitcoins on a leveraged, margined, or financed basis. Bitfinex did not actually deliver those bitcoins to the traders who purchased them. Instead, Bitfinex held the bitcoins in deposit wallets that it owned and controlled. Therefore, Bitfinex engaged in illegal, off-exchange commodity transactions and failed to register as a futures commission merchant, in violation of Sections 4(a) and 4d of the Act, 7 U.S.C. §§ 6(a) and 6d. The regulators at the CFTC, in other words, were unhappy with the fact that the exchange was acting more like a margin-taking balance-sheet deploying broker-dealer than a conventional matching broker or exchange. Bitfinex promised to change its ways and run a more robust system in future. None of this “off chain” business, however, should be a surprise to FT Alphaville readers. We’ve been noting for years that bitcoin aficionados suffer from an acute form of cognitive dissonance when it comes to their “full-reserve banking trumps fractional-reserve banking” obsessions. This is because most of the exchanges and wallet services they depend on operate on a fractional reserve basis, netting flows “off chain”, taking balance sheet risk for liquidity provision purposes and issuing their own liabilities to customers in lieu of actual bitcoin.

What Doesn't Kill the Blockchain Will Make It Stronger -- A lot of debate is going on today around the Decentralized Autonomous Organization ("the DAO"). Some pessimists consider the situation around the DAO to be the proof that blockchain is a passing fad and will never be fit for use in financial markets. We believe that there are no fundamental problems with blockchain per se, that the mistakes were not really specific to blockchain and that the industry will use the whole experience to learn how to use blockchain properly. The DAO was a self-governing investment community managing its assets solely through open and (supposedly) immutable rules embodied in software. It runs on top of Ethereum, a public blockchain platform — which recently split into two nearly identical versions — that aims to provide a programmable transaction functionality superior to bitcoin's. The key proclaimed benefit of the DAO was its reliance on smart contract technology for deal settlement, supposedly making it immune to human error and malice. Alas, relying on software did not protect the investments made into the DAO, as on June 17 a mysterious actor managed to find a loophole in the DAO's contracts and to siphon substantial amounts in ether, the cryptocurrency of Ethereum, out of the system.  Not surprisingly, most observers are extremely worried. There are some who say that the debacle demonstrates the blockchain as a whole to be a no-go. Others, while more optimistic, state those blockchain-based systems cannot deliver on their key promise — a completely decentralized environment where transaction execution and contract enforcement happen without involvement of any supreme authority. They say that we will always need human institutions outside the "system boundary" of blockchain to protect the interests of transacting parties. As Matt Levine wrote in his Bloomberg column, "Financial systems are supposed to work for humans. If the code rips off the humans, something has gone wrong." Is such pessimism justified? We do not think so. Ironically, we believe that the most accurate description of these events is provided in the open letter published anonymously by the alleged "attacker," where he expresses hope that what's happened to the DAO will become a "valuable learning experience for the Ethereum community."

Day three post Bitfinex hack: Bitcoin bailouts, liabilities and hard forks -- On Wednesday, we argued that the loss of approximately $70m worth of bitcoin from customer segregated accounts held at Bitfinex should give the banking industry pause for thought with respect to adopting blockchain and bitcoin-based financial technologies.  Today, we’re going to look at the wider implications of the hack, and the potential fallout in terms of legal risk. The hack, to put it bluntly, is massive. The Mt.Gox collapse which lost $500m in value may still technically exceed the $70m loss suffered by Bitfinex, but the impact in terms of real economic losses is arguably equally as great if not greater. What has to be remembered is that Mt.Gox losses came on the back of a bitcoin price explosion which many suspect was engineered by the exchange’s own potentially fraudulent actions. Much of the lost economic value was thus of the paper profit variety — hence reflective of lostunrealised gains rather than a true loss of principal invested. This time round, however, the principal losses are likely to be much greater, since there’s been more time for new buyers to step into the market in exchange for real economic value. But there’s also another significant difference.  In the Mt.Gox case, clients were (even if unwittingly) holding liabilities of Mt.Gox rather than bitcoins because of the way company pooled and controlled customer funds directly on their behalf. When Mt.Gox went bust, clients consequently had an ongoing claim over the company and whatever assets it had left. In the Bitfinix case, however, client funds were fully segregated since at least 2015, something that potentially changes the legal liabilities in play. Indeed, lawyers we’ve spoken to mostly agree victims will probably be unable to pursue claims over Bitfinex, or any of its remaining assets because the contractual arrangements were custodial rather than based on title transfer.

LexisNexis, Elliptic Want to Make Bitcoin Safe for Banks | American Banker: Elliptic, a startup that monitors the bitcoin network for suspicious patterns, has introduced anti-money-laundering data into its service through a partnership with LexisNexis Risk Solutions. The combined offering is being pitched as a way for banks to comfortably do business with bitcoin exchanges and other companies that deal in the digital currency. Such firms have struggled to get or keep bank accounts in recent years as financial institutions shun various industries and regions perceived as high risks for money laundering — a worldwide phenomenon known as de-risking.  The vendors' partnership was announced Wednesday amid one of the bitcoin ecosystem's periodic crises — in this case, the theft of more than $70 million worth of the digital currency from Bitfinex, an exchange in Hong Kong. Elliptic provides data and analytics services to financial institutions and law enforcement agencies. It was a winner of the Swift Innotribe Start-up Challenge in 2015. LexisNexis Risk Solutions, a unit of Relx Group (formerly known as Reed Elsevier), services 100 of the top U.S. banks, it says, as well as 80% of U.S. federal agencies. The alliance allows Elliptic to apply bank-grade risk management practices by identifying registered users of bitcoin businesses that match individuals on money laundering, terrorism and drug dealing lists, among other links to risky behavior that brought the digital currency to notoriety,

How Bots Can Connect Banks and Millennials | American Banker: Imagine that before responding to a co-worker's Slack message about going to lunch, consumers could ping their bank from the popular office messaging system to ask if a $12 burrito bowl at Chipotle fits within their budget. The bank's bot says the bowl is OK, but maybe skip the guacamole. After all, that's extra. That's the future a handful of banks and fintech startups are envisioning as they look to be on the forefront of using the next generation of artificial intelligence software, which promises to go beyond their not-so-great predecessors. and firms like Digit, Penny, Trim and Kasisto use artificial intelligence to let customers ask their bank-related questions through their bots on a handful of platforms: SMS text, Facebook Messenger, Slack and other third-party messaging channels that particularly appeal to millennials. Banks are dabbling in the conversational language trend, too. USAA and Ally Bank have virtual assistants on their own mobile apps, while American Express and Bank of America have announced their plans to use chat bots on Facebook Messenger — an app that has one billion users. The bot trend transcends fintech and banking. According to Gartner, an estimated two-thirds of consumers in developed markets will use virtual personal assistant services such as Apple's Siri or Google's Google Now daily by the end of this year. By 2019, the research firm predicts, requests for customer support through consumer mobile messaging apps will exceed requests for customer support through traditional social media.

Here's why banks are embracing cloud technology -- Singaporean bank DBS has signed an agreement with Amazon Web Services (AWS) to leverage its cloud technology. DBS plans to create a hybrid cloud environment that it will use alongside its existing data centers.  DBS has said that using cloud will help it better meet customer needs and speed up the pace of innovation. It is one of a growing number of financial services firms that are testing or using AWS cloud, including Capital One and JPMorgan. Here are some reasons why banks are using cloud technology: 

  • Flexibility. Using both cloud and data centres allows banks to choose where they want to run systems. For operations that require a high level of security, they can use existing data centres, which are known to be secure but have limited capacity. For operations that have lower security requirements but require high levels of processing power — like experimenting with new products — banks can choose to use the cloud. 
  • Scale. Cloud technology enables banks to quickly scale processing capacity up or down in order to react to changes in customer demand. This also means that the bank has less need for physical data infrastructure. The first department of DBS to leverage AWS will be Treasury and Markets. The cloud integration will allow the business unit to more effectively handle short-term trading surges, like those caused by Brexit.
  • Risk. A hybrid cloud can mean either a combination of private or public cloud, or a combination of cloud and legacy infrastructure. In either case, a hybrid cloud environment can be used to create create a level of redundancy in critical systems. That means if one element of the environment goes down, the bank's systems are not taken completely offline.

FDIC Seeking Comment on Proposed Guidance for Third-Party Lending -- The FDIC is seeking comment on proposed Guidance for Third-Party Lending to set forth safety and soundness and consumer compliance measures FDIC-supervised institutions should follow when lending through a business relationship with a third party. The proposed guidance is intended to supplement the FDIC's existing Guidance for Managing Third-Party Risk, which is applicable to any of an institution's third-party arrangements, including lending through a third party.This Financial Institution Letter applies to all FDIC-supervised institutions that engage in third-party lending. Highlights:

  • The proposed guidance defines third-party lending as an arrangement that relies on a third party to perform a significant aspect of the lending process. Categories include (but are not limited to): institutions originating loans for third parties; institutions originating loans through third parties or jointly with third parties; and institutions originating loans using platforms developed by third parties.
  • An institution's board of directors and senior management are ultimately responsible for managing third-party lending arrangements as if the activity were handled within the institution. However, managing and controlling risks can be challenging when origination volumes are significant or there are numerous third-party relationships.
  • The proposed guidance emphasizes that institutions should establish a third-party lending risk management program and compliance management system (CMS) that is commensurate with the significance, complexity, risk profile, transaction volume, and number of third-party lending relationships. Consistent with existing guidance, the risk management program and CMS should address risk assessment, due diligence and oversight, and contract structuring when selecting and managing individual third-party lending relationships.
  • For institutions that engage in significant lending activities through third parties the proposal includes increased supervisory attention, including a 12-month examination cycle, concurrent risk management and consumer protection examinations, offsite monitoring, and possible review of third parties.
  • Comments are sought on the entire proposed guidance with particular emphasis on those areas outlined in the introductory letter. Comments will be accepted until September 12, 2016. Comments should be sent to and will be posted on the FDIC's website at

How to Explain the Sudden Boom in Bank Lending | Bank Think: In case you didn't notice, banks are lending money. Lots of it. My review of second-quarter earnings reports and analyst calls for 80 banks shows that just over half are reporting double-digit loan growth for either their entire loan portfolio or key loan categories. At SunTrust, consumer loans are up 15.5%. Commercial real estate loans are up 14.6% at Associated Bank in Green Bay, Wis. Commercial and industrial loan originations grew 109% in the quarter compared to a year earlier; at Banc of California in Irvine At JPMorgan Chase, "core" loans are up 23% in the "consumer and community banking" business. Across the country banks of all sizes are booking impressive loan growth. How can so many banks book so many loans in an economy that grew by 1.2% in the second quarter and by only 0.8% in the first quarter? There appear to be three possible explanations. The answer likely is some combination of all three. First, some banks are taking on more risk. Not unlike investors hungry for yield in a low interest rate environment, some banks are expanding their risk appetite. The second possible reason for the loan growth is that some banks have lowered their return expectations. Hungry for higher-earning assets, some lenders are willing to book loans that fail to generate a return sufficient to cover a 9-10% cost of capital common to most banks. A third possible explanation for the enormous disparity between bank loan growth in the U.S. and sluggish GDP growth may be because highly qualified borrowers are eager to jump on the opportunity to lock down loans when interest rates are at historic lows.

Forcing Creditors to Take Losses Is How We'll End TBTF | Bank Think: It seems like politicians, regulators and economists — from Sen. Elizabeth Warren to Federal Reserve Bank of Minneapolis President Neel Kashkari — have a new proposal almost daily for how to deal with the big banks. Some urge breaking up the largest banks, while others suggest imposing punitive and unworkable levels of required capital. At least one academic, John Cochrane of the Hoover Institution, believes banks should be financed 100% with equity. But none of the critics are suggesting a realistic way to end "too big to fail" without inflicting serious damage to economic growth.  We need a system that assumes bank failures will occur and requires that the failures be handled in a way that punishes excessive risk-taking without devastating the economy or resulting in taxpayer bailouts. Requiring large firms to increase their equity capital to breathtaking levels, say above 10% of assets, is not the answer. That will lower return on equity to the point that banks will be unable to raise sufficient capital to support growth and will be forced to shrink their balance sheets. This will result in the very companies and individuals who most need bank loans being denied access to banks. This is already happening throughout Europe and the U.S. today. Unlike debt, equity capital is permanent and therefore marginally effective in imposing discipline. Equity investors cannot declare an "event of default," meaning they cannot demand their money back before it was previously due. Moreover, equity holders have upside profit potential and are therefore more tolerant of risk than creditors. The solution is to require all creditors, other than insured depositors, to have to face risk of loss in a bank failure so that neither the Federal Deposit Insurance Corp. nor taxpayers lose any money. Moreover, regulators should make clear that any term debt issued by insured banks or any other holding company subsidiary is at risk of loss in the event of their failure, not just debt at the holding company. Unfortunately, some regulators appear to favor the latter approach in resolution planning policies following the crisis, but that just creates moral hazard for creditors at the subsidiary level. The last thing we need is for the market discipline of term debt holders to apply only to the parent company — term creditors of bank and non-bank subsidiaries should also be at risk.

Some Debt Collections Just Aren't Worth It | Bank Think - More than 70 million Americans have some type of debt in collections.Each year, financial institutions recoup some of these debts by selling defaulted accounts to debt buyers or outsourcing them to third-party collection agencies. However, these firms can and do use collection agents who barrage bank customers with phone calls at all hours with threats of lawsuits and prosecution.Unsurprisingly, these one-size-fits-all bullying tactics aren't enticing customers in the era of the individual to pay their debt any faster. For example, the 60-plus-day delinquency rate among subprime car loans packaged into bonds over the past five years climbed to 5.16% in February, the highest level in nearly two decades.Instead of paying, these tactics are inspiring consumers to complain. Debt collection generates more complaints to the Consumer Financial Protection Bureau – which is in the midst of its plans to reform the industry – than any other financial product or service. It's an issue so prevalent that John Oliver recently profiled it on his television show. It's not good for banks. By automatically sending collection agencies on debtors, banks risk harming their relationships with customers who could be in good financial standing overall. Generally reliable customers may cease using the company because of a bad experience with a debt agency. Rather than hounding debtors, financial institutions should examine each borrower's total relationship with the company. Today, a single delinquent account from a customer otherwise in good standing with a bank can be sold off to a third-party creditor who may subject the customer to the aforementioned harassment. Banks should look at the debtor, not just their single debt, in order to realize the debtor's true financial standing and determine if it's worth the risk to outsource the debt.

Dangerous Haze: Banking Is Not Yet Going to Pot | American Banker: Sundie Seefried sees herself as a pioneer who's pushing her Denver-based credit union — and by extension, the financial services industry — into uncharted territory. . Seefried, who is the chief executive of the $300 million-asset Partner Federal Credit Union, has done something few bankers dare: launch a program to openly serve the fast-growing marijuana industry. Even though pot has been legal in Colorado since 2014, it remains illegal under federal law and frowned upon by much of society. That makes it a dicey business for banks. . "The question I get most often is, 'How do you deal with the discrepancy between federal and state laws?' It's a real Pandora's box."  Think of it as reefer madness, banking style. The intersection of marijuana and financial services is filled with enough it's-legal-but-it-isn't ambiguity to make it a problem for everyone involved — marijuana-related businesses, the government, financial institutions and society at large — and the sense of urgency around finding a solution is growing. To date, 25 states and the District of Columbia have made it legal to purchase or possess medicinal marijuana, while four states — Alaska, Colorado, Oregon and Washington — have legalized sales of recreational or "adult use" cannabis to anyone of age.

The Financial Firm That Cornered the Market on Jails -- Brown is currently the lead plaintiff in a class-action suit filed against Numi Financial’s parent company in US District Court. A judge ruled in February against Numi’s request for arbitration. Veronica Thompson, a 31-year-old social worker, was arrested at another Justice Center protest a few days after Brown and was released as the sun rose the next morning. Eager for a quick bus ride home, a hot meal, and sleep, she was likewise handed a Numi card instead of her $15.50 in cash. Thompson says the correctional officer told her, “‘It works like a debit card.’ He didn’t say, ‘Hey, there’s a bunch of fees attached.’” Thompson attempted to get cash at a nearby convenience store, but the cashier refused her. With no money, she walked the three miles home. “It was cold,” she says. “I had been awake for 24 hours. I was so mad that my money was taken.” At least 10 companies now offer release cards or inmate banking services to correctional systems. In the following days, determined to avoid charges, Thompson used the card for no-fee purchases like groceries. But she hadn’t yet spent all her money when the monthly fee drained her balance. Transaction histories and bank receipts from seven people arrested in Portland over a 16-month period who received Numi cards show they lost from 7 percent to 67 percent of their money to fees. Numi is one of many for-profit players in an increasingly privatized prison industry. State spending alone on corrections hit $52.4 billion in 2012. Hundreds of private-sector contractors now provide food, clothing, riot gear, phone service, computers, and health care, in addition to directly operating many correctional facilities. In addition, prisoners and their families pay for numerous services, including phone calls, a $1.2 billion-a-year business, according to The New York Times.

Instant Payment Services – Payer Beware --When I read articles like this one Under Pressure, Big Banks Vie for Instant Payment Market in The New York Times, it is all I can do not to weep.  If you accept my premise that the only point of serious journalism, blogging or broadcasting is to both educate and inform their audiences, this piece fails on each count. There’s nothing wrong with offering entertainment, of course. But if you market yourself as a serious source of information, you shouldn’t publish half-baked stories that make you look like one of those grocery store magazines running a constant diet of showbiz stories.  Giving The New York Times’ piece the benefit of the doubt, it is highlighting both the rapid growth in non-traditional payment systems which it refers to, incorrectly, as Instant Payment Systems. It rightly criticises the incumbent industry players – these are mostly the Too Big to Fail banks (TBTFs) – for their lack of innovation.  But it cuts far too much slack to the non-traditional payment systems, ignoring their weaknesses and not highlighting the risks to their users. I’ll start by saying something that should be obvious but which ends up being completely obscured to such a degree and with such regularity that I cannot help but think it is at times deliberate obfuscation. If you want to, for example, send me some money, when you use a traditional payment system, such as cash, checks or bank wire transfers you pay me. These payment systems are highly regulated and have the benefit of well-settled law behind them. Counterfeiting notes and passing bad checks are felony crimes and treated as such by law enforcement. Bank transfers are regulated in most jurisdictions such as in the U.S. and the U.K.  Conversely, in non-bank payment systems or, as the New York Times refers to them, Instant Payment Services, you pay the Payment Service who pays me.

Make Algorithms Accountable - The New York Times: Algorithms are ubiquitous in our lives. They map out the best route to our destination and help us find new music based on what we listen to now. But they are also being employed to inform fundamental decisions about our lives.Companies use them to sort through stacks of résumés from job seekers. Credit agencies use them to determine our credit scores. And the criminal justice system is increasingly using algorithms to predict a defendant’s future criminality.Those computer-generated criminal “risk scores” were at the center of a recent Wisconsin Supreme Court decision that set the first significant limits on the use of risk algorithms in sentencing.The court ruled that while judges could use these risk scores, the scores could not be a “determinative” factor in whether a defendant was jailed or placed on probation. And, most important, the court stipulated that a presentence report submitted to the judge must include a warning about the limits of the algorithm’s accuracy.This warning requirement is an important milestone in the debate over how our data-driven society should hold decision-making software accountable. But advocates for big data due process argue that much more must be done to assure the appropriateness and accuracy of algorithm results.  An algorithm is a procedure or set of instructions often used by a computer to solve a problem. Many algorithms are secret. In Wisconsin, for instance, the risk-score formula was developed by a private company and has never been publicly disclosed because it is considered proprietary. This secrecy has made it difficult for lawyers to challenge a result.

Want to Protect Consumers? Mandate Financial Literacy | Bank Think: In May, the Federal Reserve Board issued a lengthy paper on the economic well-being of U.S. households. Among the findings, the report said, "Forty-six percent of adults say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money."  Perhaps most shocking, the survey found nearly 20% of those making more than $100,000 per year could not cover an unexpected $400 expense. Such financial insecurity for high wage-earners suggests a lack of priorities when it comes to savings and other aspects of individual financial management. It also suggests that many wage-earners need more and better financial literacy. A simple two-pronged formula to address financial consumer protection concerns is equipping bankers with an ethical foundation when serving customers, and also equipping bank customers with the knowledge and skills to be savvy consumers of financial products. In a perfect world, these two attributes would make the Consumer Financial Protection Bureau obsolete. I believe community bankers adhere to very high ethical standards; bankers and bank trade associations must make this a more high profile expression of who we are and what we expect from those who work in banking. We need to have the ability to speak up when one of our own falls short.  But bankers can also use their skills to be part of the remedy for subpar financial literacy among consumers. One approach is through financial literacy education in schools for children and young adults, empowering them with skills that will serve them well throughout their life. Bankers throughout the country, state banking associations, federal regulators and national banking associations, among many others, promote, teach and exhort the benefits of fiscal fitness.

CFPB Punts on TRID Errors, But Offers Plenty More for Lenders: The Consumer Financial Protection Bureau's proposal to update its mortgage disclosure rule did not give lenders what they most wanted: the ability to correct errors after a loan has closed and a release from liability for technical violations. But the 293-page plan did provide a number of critical revisions to the CFPB's "Know Before You Owe" mortgage disclosure rule that will aid in compliance and allow the industry to close more loans. The proposal would extend the rule's coverage to all co-op units so lenders do not have to defer to state law. It would also add tolerance provisions of total payments that potentially would help lenders reduce liability. Importantly, the proposal would also address what lenders have called the "black hole" problem, when a borrower pushes back a loan's closing date after the final Closing Disclosure has been made, potentially forcing a lender to absorb increased costs through no fault of its own. Under the plan, a lender could use the closing disclosure to reflect changes in costs that would otherwise justify issuing a revised estimate. "That's a big win for the industry," said Ben Olson, a partner at BuckleySandler and a former CFPB deputy assistant director in the Office of Regulations. Other revisions include exempting down payment assistance programs from a 1% limit for recording fees and transfer taxes, which experts said could solve many compliance issues for housing finance agencies. The proposal also includes a variety of minor changes and technical corrections to affiliate charges, calculating cash to close, construction loans and even decimal places and rounding issues that have caused problems.

Fed Survey: Banks tightened Standards on Commercial Real Estate, Residential Real Estate demand strengthened -- From the Federal Reserve: The July 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices Regarding loans to businesses, the July survey results indicated that, on balance, banks tightened their standards on commercial and industrial (C&I) and commercial real estate (CRE) loans over the second quarter of 2016. The survey results indicated that demand for C&I loans was little changed, while demand for CRE loans had strengthened during the second quarter on net. Regarding loans to households, banks reported that standards on all categories of residential real estate (RRE) mortgage loans were little changed, on balance, except for those eligible for purchase by government-sponsored enterprises (known as GSE-eligible mortgage loans), for which a moderate net fraction of banks reported having eased standards, and for subprime residential mortgages, for which a moderate net fraction of banks reported having tightened standards. Banks also reported, on net, that demand for most types of RRE loans strengthened over the second quarter. In addition, banks indicated that changes in standards on consumer loans were mixed, while demand strengthened across all consumer loan types...In addition, banks continued to report in the July 2016 SLOOS that the levels of standards for all types of RRE loans are currently tighter than the midpoints of the ranges observed since 2005. Moreover, banks indicated that consumer loans to subprime borrowers are currently still tighter than their midpoints, while consumer loans to prime borrowers are currently easier than those reference points.

Regulatory De Ja Vu All Over Again -- Adam Levitin -- A new CMBS issuance is set to test whether regulators will treat the 5% retained credit risk under Dodd-Frank as loans or bonds. The difference matters because there are different capital charges for loans and bonds.  If regulators treat the retained credit risk as bonds (which matches the technical form of the retained interest), then the risk retention requirement will be much more onerous.  If they treat the retained credit risk as loans, it is just as if the bank securitized only 95% of the loans, rather than 100%.   Here's the thing:  we've been through this issue before.  In the 1980s the Federal Home Loan Bank Board had to decide whether S&L's junk bond investments were to be treated as bonds or as loans.  S&Ls were limited to hoping 1% of their assets in junk bond, but the FHLBB permitted them to count junk bonds as "commercial loans", which had a 10% asset cap, and thus have up to 11% of their assets in junk bonds. Bill Bratton and I documented this in a paper about the development of the synthetic CDO several years ago:  This story did not end well for the S&Ls...or the FHLBB.  Some S&Ls gorged on junk bonds, seeking higher yield to offset the mismatch between their mortgage assets'  earnings and their deposit funding cost.  Others gorged even more because they were part of the Michael Milken daisy chain.  This all turned out very badly as the junk bonds proved to be, well, junk, and only deepened the S&Ls' insolvency.  The FHLBB paid the price's no longer around, having become the OTS (mainly), which is now (mainly) merged into the OCC.  

Regulatory Capture is Not “Inevitable” - William Black --A Wall Street Journal editorial asserted the “inevitability” of regulatory capture and called for replacing financial regulation with “simple rules” that “can’t be gamed.” “Once one understands the inevitability of regulatory capture, the logical policy response is to enact simple laws that can’t be gamed by the biggest firms and their captive bureaucrats. This means repealing most of Dodd-Frank and the so-called Basel rules and replacing them with a simple requirement for more bank capital—an equity-to-asset ratio of perhaps 15%.”  The editorial specifically invoked George Stigler as the authority for this claimed “inevitability.” It cited no source for its facially absurd claim that reported capital levels cannot be “gamed.” George Akerlof and Paul Romer emphasized this absurdity in their 1993 article on looting—and explained why it was strange that they had to emphasize such an “obvious” point. Top bankers, of course, have always understood this “obvious point.” Jamie Dimon (JPMorgan’s CEO), made the point in his March 30, 2012 letter to shareholders:  “Low-quality revenue is easy to produce, particularly in financial services. Poorly underwritten loans represent [fictional] income today and losses tomorrow.”   The WSJ passage quoted above inadvertently illustrates the true face of financial regulatory “capture” during the run-up to the financial crisis—ideological idiocy about finance and financial elites. The federal regulators, particularly Alan Greenspan and Timothy Geithner, did not fail to regulate because they were “captured” by the banks they were supposed to regulate. They were captured by their ideology, which saw the elite banks and bankers as the solution rather than the problem. The banks and the bankers were supposed to provide the “private market discipline” that made markets and contracts efficient, and their paramount concern for “reputation” was supposed to keep them acting as if they were honest and as if they were seeking to help their customers.

Loan Standards Tighter than a Decade Ago, Fed Finds - Lending standards for most business and residential real estate loans as well as subprime consumer loans are tighter than the 10-year average, according to a survey of senior bank loan officers released by the Federal Reserve Board. The central bank's quarterly Senior Loan Officer Opinion Survey included a series of special questions concerning the overall strength of lending standards today versus the average since 2005, effectively asking loan officers to gauge whether the lending atmosphere today is more or less stringent than it has been in the last 10 years. Responding officers said that for most categories, lending conditions are more stringent today than they had been. "Banks continued to report in the July 2016 SLOOS that the levels of standards for all types of RRE loans are currently tighter than the midpoints of the ranges observed since 2005," the report said. "Moreover, banks indicated that consumer loans to subprime borrowers are currently still tighter than their midpoints…[and] also generally indicated that standards on all types of CRE loans are currently tighter than the midpoints of their respective ranges." There were some exceptions. Commercial and industrial lending standards have generally eased since 2005, according to the survey, as have consumer and residential real estate loans for prime borrowers. But for all business loans, fewer respondents said that standards had gotten easier than loan officers asked the same question a year ago. The survey's results come as observers are increasingly concerned about the potential for a consumer credit bubble caused by a macroeconomic environment where money is cheap and economic growth is slow.

U.S. Appeals Ruling That Throws Out Crisis-Era Bank of America Case - WSJ —The Justice Department asked a federal appeals court to reconsider its ruling throwing out a civil mortgage-fraud case against Bank of America Corp., in an uphill effort to rescue one of its highest-profile cases tied to the financial crisis. The U.S. attorney’s office in Manhattan said in a Thursday filing the court had “overlooked a wealth of evidence” in reaching a May decision that found the government hadn’t proven fraud by Bank of America’s Countrywide unit over a program dubbed “Hustle.” The court said at the time the case amounted only to breaches of a contract, a stunning setback for the government’s efforts to levy tough fines on corporations and executives. The court also threw out a related penalty against a Countrywide executive, one of the few individuals fined for alleged misdeeds during the crisis. The Justice Department said the unanimous ruling by a three-judge panel at the Second U.S. Circuit Court of Appeals in New York had overlooked the terms of the contract that support its case. It asked the court to reconsider the case and send it back for another trial if it reached the same conclusion. The government had initially faced a deadline last month to decide whether to appeal the case but had sought more time, saying the case was of “particular concern” for the Justice Department and that it needed input from other officials. Some agency officials privately expressed skepticism any appeal would be successful, since appellate panels rarely reconsider unanimous rulings, according to people familiar with the discussions. The stakes in this case appear high for the government: The ruling potentially raises the bar for the government to prove fraud against companies and individuals, weakening a weapon the Justice Department has used to push Wall Street to agree to big mortgage settlements. Legal experts have viewed the ruling as potentially affecting not just similar civil fraud cases, but also criminal fraud cases that involve contracts.

 The Secret Sauce to Some Home Loan Bank Earnings: — Settlements related to court fights over private-label mortgage-backed securities are significantly boosting the bottom lines at a few Federal Home Loan banks. Settlements made up 80% of the $419 million of net income reported by the Federal Home Loan Bank of Des Moines for the first half of the year, totaling $337 million. They also helped increase the Chicago Home Loan Bank's total $104 million net income in the second quarter by $38 million. The San Francisco Home Loan Bank, meanwhile, reported net income of $231 million in the first quarter thanks to a $211 million settlement in private-label litigation. Though the settlements are acting as a benefit to some Home Loan banks, they are hard to predict, making it difficult to know how they will affect future earnings. "There is no way to determine when or if those lawsuits will settle. Trial dates are tentatively set for later this year," said a Des Moines Home Loan Bank spokeswoman. The Des Moines bank has seen the largest benefit so far, in part because it acquired the rights to the Seattle Home Loan Bank's litigation interests when the two banks merged last year.

The New Thorn in the Sides of Big Banks – WSJ -  Joel Liberson’s mortgage lawsuits against Bank of America and Wells Fargo follow a now-familiar template: accuse big banks of targeting minority borrowers with unfair loans that fed a housing crisis. What is unusual is his client. Mr. Liberson, a 52-year-old lawyer who has devoted much of his career to defending apartment dwellers from eviction, is suing on behalf of the city of Miami. In the lawsuits, Miami blames the banks for widespread declines in property values and tax revenue, and increased expenses for police, fire and other services, due to the burdens of mass foreclosures. The banks, which already shelled out tens of billions of dollars for mortgage-related settlements with federal and state governments since the financial crisis, have challenged whether the city has the right to sue. The Supreme Court in June agreed to take up the question and is likely to hear oral arguments in the fall and will decide by July 2017. The court’s decision potentially could reshape the breadth and use of the Fair Housing Act, a landmark civil-rights statute that forbids discrimination in real-estate lending, rental property and other areas of the housing industry. The banks said Miami is stretching the bounds of a law meant to integrate neighborhoods, not fill tax coffers. They also dispute that Miami has proved its economic woes are a direct result of the banks’ actions.The banks believe a Supreme Court decision siding with Miami will leave them vulnerable to a torrent of mortgage litigation from anyone who said they were harmed by the housing bubble.

IBM: Illegally Bleeding Mortgages (...allegedly) -- IBM has found itself in the crosshairs of the US government after one of its subsidiaries has been accused of financial fraud. A lawsuit [PDF] filed in the US District Court of Southern New York accuses both Big Blue and its Seterus loan servicing company of taking more than $13m from Fannie Mae in reimbursements it was not entitled to. According to the complaint made through a whistleblower filing by former Seterus employee William Lawrence, the loan servicing company had agreed to help collect on loans and assist in the foreclosure process on some subprime mortgaged homes. Lawrence said that he and other Seterus employees were asked to inflate the numbers on certain expenses that Seterus claimed with Fannie Mae as part of its collections process on delinquent loans. In particular, Lawrence said, Seterus filed thousands of fake forms in order to claim $500 payouts that would go unnoticed by the massive government agency. When those expenses were paid back by the government, Seterus was able to get a bonus of just under $13m when, according to Lawrence's own calculations, Fannie Mae only really owed Seterus around $4.8m. Though the actions were undertaken by a subsidiary, the complaint notes that IBM is also being charged in the case in large part because of how closely the two companies work together.

Has CRA Reform Missed Its Moment? -- In a campaign season when income inequality and the banking industry are topics with an unusually high profile for both major political parties, notably absent is any mention of CRA. While most observers said the law has been a success in ending racial and socioeconomic redlining, many are scratching their heads about what is keeping the issue on the sidelines. "This is a no-brainer, softball pitch to a hardball batter — asking or demanding that the banks do more safe and sound lending to blue collar workers," . "This should be in the Democratic mainstream — let the Republicans defend their banker friends. You would think that, if they're trying to appeal to [blue collar and minority voters], they'd be all over this."    Nikitra Bailey, who oversees coalition building and constituent services at the Center for Responsible Lending, said that if bringing unbanked or underbanked Americans into the financial mainstream is a part of addressing income inequality, building off the CRA would be a logical place to start. "It's clear that if CRA got some teeth, it could be a useful instrument for driving people into the mainstream financial services sector," Bailey said. "What we see is a lot of people who should be in the mainstream financial services sector aren't, and that is problematic because … it's a strain for families when they have to pay more for basic financial services." The CRA, passed in 1977, was designed to compel banks to extend services and loans to qualified low- and moderate-income communities in the areas they serve. The law facilitates this by periodically requiring each bank's regulator to assess a bank's performance in those communities in its assessment area, based on three categories: services, investment and lending. Banks with a less than satisfactory grade may be barred from future mergers or acquisitions.

New Housing Law Offers Homeownership Opportunities for Welfare Recipients: — President Barack Obama has signed a housing reform bill that will open the door for welfare recipients to use federal rent vouchers to purchase manufactured homes and become homeowners. Currently, low-income families can use their Department of Housing and Urban Development section 8 vouchers to rent a manufactured home. But the bill signed by Obama on Friday allows vouchers to be used to make mortgage payments and to pay property taxes and insurance on manufactured homes. "A Section 8 voucher holder will now have the option to use their federal housing assistance to cover the full annual cost of purchasing a manufactured home. This change provides families the opportunity to become homeowners, rather than only being allowed to use Section 8 vouchers for rent payments," said Lesli Gooch, senior vice president and chief lobbyist for the Manufactured Housing Institute. Gooch noted that passage of the legislation is an important step in helping low-income families achieve homeownership. The next step is to "work with public housing agencies and HUD to make families aware of this option and to work with lenders, including state housing finance agencies and the Rural Housing Service, to make sure borrowers are able to secure the mortgage with the financial help of the voucher," she said in an interview. RHS currently finances the purchase of manufactured homes if the loan is secured by land. Leases also are permitted if the term of the lease is for 99 years.

Banks See Big Benefits in Low-Income Housing Tax Credit Bill -- Congress is considering the first significant increase in years to a staple affordable housing program. For banks, that would mean more opportunities to put money to work and to fulfill regulatory requirements. If passed, the Senate bill would expand the Low Income Housing Tax Credit program by 50%, helping to create or preserve an additional 400,000 affordable units beyond the 900,000 the program is already expected to provide over the next decade. By helping to defray the high construction costs that so often make affordable-housing projects economically infeasible for developers, the LIHTC expansion could unleash a boomlet in development aimed at low- and moderate-income renters. As a result, banks would have more projects to invest in. Such investments are crucial to meeting their obligations under the Community Reinvestment Act — obligations that a dearth of affordable housing has at times made tough to meet. "We are here, we are available, we have the capital available," said Robert Likes, the head of community development lending and investing at Cleveland-based KeyBank, a subsidiary of KeyCorp. "One of the constraints is, there just aren't enough projects." He called the proposed legislation a "huge" boon to struggling families. The bill, introduced in May by Democratic Sen. Maria Cantwell and Republican Sen. Orrin Hatch, with additional features added in mid-July, has strong bipartisan support in Congress. It would be the first major expansion of the LIHTC program since 2001.

Nonbank Mortgage Sector Experiences Surge in Hiring: Independent mortgage banking and brokerage firms added a whopping 5,900 full-time employees to their payrolls in June, according to a report issued Friday by the Bureau of Labor Statistics. Employment in the nonbank mortgage and brokerage sector rose to 307,000, its highest level since 2008. The surge in hiring came as some mortgage lenders reported record earnings for the second quarter and home sales took off. "June was a breakout month for home sales, with both new and existing home sales reaching fresh post-recession highs. Still-low mortgage rates and favorable credit conditions also remain supportive for home sales," according to economists at Wells Fargo Securities in a July 29 Housing Chartbook report. The positive results track with what mortgage firms have been reporting. Wholesale originations totaled $561.8 million in second quarter, up 31% from the first quarter, according to Stonegate Mortgage Corp. Chief Executive Jim Smith. "We posted another record earnings quarter," Smith told investors during a conference call Thursday. The giant mortgage servicer Nationstar Mortgage Holdings is on track for its best origination year since 2012, according to the company's Chief Executive Jay Bray. "With reduced mortgage rates, the mortgage market continues to be strong," Bray said during Wednesday's conference call.

CFPB: Foreclosure Relief Shouldn't End When HAMP Does: The Consumer Financial Protection Bureau added its voice Tuesday to a chorus of other regulators in calling for sustainable foreclosure relief when the Home Affordable Modification Program expires at yearend. The bureau released "guiding principles" for mortgage servicers and investors that were almost identical to those described in a white paper last week from the Treasury Department, the Department of Housing and Urban Development and the Federal Housing Finance Agency. Still, the bureau was careful in pointing out that its principles do not constitute a binding legal requirement for mortgage servicers or investors. Instead, the principles are intended to be part of the ongoing discussion about creating a universal loss mitigation program framework for the future. "We aim to help consumers avoid foreclosures, which upset their personal and financial lives," CFPB Director Richard Cordray said in a press release. "The modification program was put in place to provide alternatives to foreclosure. Our principles will serve as helpful guardrails for servicers, investors, and regulators to consider as we continue to protect consumers who are struggling to pay their mortgages." The CFPB is calling for mortgage lenders, housing finance agencies and investors to create affordable and sustainable loss mitigation programs that are accessible and transparent for borrowers. The bureau said the principles are flexible enough to apply to an array of approaches including forbearance, repayment plans and loan modifications, as well as short sales and deeds-in-lieu of foreclosure.

Cheat Sheet: How CFPB Is Changing Mortgage Servicing (Again): The Consumer Financial Protection Bureau on Thursday issued a final rule for mortgage servicers that provides greater protections to struggling borrowers, surviving family members and borrowers in bankruptcy. The changes also add protections to consumers when their mortgage is transferred to another servicer, a major pain point for the industry. "The consumer bureau is committed to ensuring that homeowners and struggling borrowers are treated fairly by mortgage servicers and that no one is wrongly foreclosed upon," CFPB Director Richard Cordray said in a press release. "These updates to the rule will give greater protections to mortgage borrowers, particularly surviving family members and other successors in interest, who often are especially vulnerable." The CFPB first issued mortgage servicing rules in 2014 to address widespread problems after the financial crisis, but the agency wanted to go further to protect troubled borrowers. The new requirements have been in the works since late 2014. They make several big changes. Among them, mortgage servicers would have to offer loss mitigation to borrowers more than once over the life of the loan, but only if the borrower became current on their mortgage and ran into trouble again, perhaps years later. The final rule clarifies when a borrower becomes delinquent and how a servicer can prevent wrongful foreclosures and avoid dual-tracking of borrowers. The rule also specifies several requirements for early intervention, loss mitigation, information requests, and prompt crediting of payments, as well as the small servicer exemption. Additionally, it exempts servicers from providing periodic statements under certain circumstances when the servicer has charged off the mortgage.

Black Knight June Mortgage Monitor: "Brexit’ Effect Increases Refinanceable Population to 8.7 Million"  --Black Knight Financial Services (BKFS) released their Mortgage Monitor report for June today. According to BKFS, 4.31% of mortgages were delinquent in June, down from 4.79% in June 2015. BKFS also reported that 1.10% of mortgages were in the foreclosure process, down from 1.56% a year ago. This gives a total of 5.41% delinquent or in foreclosure. Press Release: Black Knight’s Mortgage Monitor: ‘Brexit’ Effect Increases Refinanceable Population to 8.7 Million; Auto Debt Among Mortgage Holders at Highest Level in at Least 10 Years   Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of June 2016. After the United Kingdom voted to leave the European Union on June 23, 2016, increased investor interest in U.S. Treasury Bonds again drove down mortgage interest rates. In light of this development, Black Knight analyzed the effect that new multi-year lows in rates are having on the population of 30-year mortgage holders who could both likely qualify for and benefit from refinancing. As Black Knight Data & Analytics Executive Vice President Ben Graboske explained, in the current rate environment, the effect of even slight declines in mortgage interest rates have proven to have far-reaching impact on the refinanceable population, though much less than one might think on home affordability.  “The reality is that, post-‘Brexit,’ mortgage interest rates declined by about 15 basis points – not significant in the grand scheme of things,” said Graboske. “But for 2.8 million borrowers with current rates right at 4.25 percent, this modest decline was enough to put them 75 basis points above today’s prevailing rate, the point at which we consider a borrower to have incentive to refinance. Of these, 1.2 million also meet broad-based eligibility criteria -- loan-to-value ratios of 80 percent or less, credit scores of 720 or higher and are current on their mortgage payments -- bringing the total refinanceable population to 8.7 million, the highest level we’ve seen since late 2012. However, unlike the 66 percent of borrowers Black Knight identified a few months ago, who could have both likely qualified for and had incentive to refinance in the spring of 2015 but for whatever reason didn’t do so, the vast majority of these new candidates did not have such incentive last year. This has produced a nearly 50 percent increase in the number of borrowers with newfound incentive to refinance, which may well be creating a more pronounced impact on refinance applications and originations as these borrowers rush to take advantage.”

Trouble Looms Ahead for Fannie After Strong 2Q: Bolstered by reduced rate-driven fair value losses and higher home prices, Fannie Mae recorded a second consecutive quarter of positive earnings, making $2.9 billion. While up from $2.4 billion in the first quarter, it was lower than a year earlier, when the government-sponsored enterprise made $4.6 billion. "We expect to remain profitable on an annual basis for the foreseeable future," said CEO Timothy Mayopoulos during a conference call Thursday with reporters. But he reiterated past warnings that there may be more quarter-to-quarter volatility reflecting changes in interest rates and home prices, as well as an increased possibility of losses because of regulatory directives to reduce capital to zero by 2018. That issue is also faced by Freddie Mac, but because it is smaller and has a different balance-sheet makeup, it has experienced a small net loss under generally accepted accounting principles in two of the last four quarters. It was profitable in the most recent one. Some lender groups remain concerned about the GSEs’ earnings volatility, urging the Treasury Department to change the "sweep agreement" that requires them to pay all their profits to the government.  “Today's earnings report shows how contrived the Sweep Agreement is. A loss next quarter just slightly higher than this quarter's gain would result in a Treasury advance even though they balance each other out," said the Community Home Lenders Association in a press release responding to Freddie's recent earnings results. "The simple answer is that the GSEs should be able to keep these modest profits in good quarters to balance potential small losses in future quarters."

Fannie and Freddie: REO inventory declined in Q2, Down 33% Year-over-year --Fannie and Freddie reported results this week. Here is some information on Real Estate Owned (REOs). Freddie Mac reported the number of REO declined to 13,284 at the end of Q2 2106 compared to 19,484 at the end of Q2 2015. For Freddie, this is down 82% from the 74,897 peak number of REOs in Q3 2010. For Freddie, this is the lowest since 2007. Fannie Mae reported the number of REO declined to 45,981 at the end of Q2 2016 compared to 68,717 at the end of Q2 2015. For Fannie, this is down 72% from the 166,787 peak number of REOs in Q3 2010. For Fannie, this is the lowest since Q1 2008.Here is a graph of Fannie and Freddie Real Estate Owned (REO).  REO inventory decreased in Q2 for both Fannie and Freddie, and combined inventory is down 33% year-over-year.  Delinquencies are falling, but there are still a number of properties in the foreclosure process with long time lines in judicial foreclosure states - but this is getting close to normal levels of REOs.

The Time Has Come to Turn the GSEs into Utilities | Bank Think: In the aftermath of the financial crisis, the concept of government-sponsored enterprises such as Fannie Mae and Freddie Mac has become toxic in many political circles. But eight years after the companies were taken over by the federal government and put into conservatorship, it is time to return Fannie and Freddie to their status as privately owned public utilities. This is not only consistent with their original legal and economic mandate; it also makes policy and logical sense. From their founding in 1939 and 1970, Fannie and Freddie were chartered by the government to create and maintain a secondary mortgage market so that during times of economic stress, when banks weakened, homebuyers could still attain mortgage credit. For generations, these firms acted like utilities and provided investors with stable earnings, lenders with liquidity, and homebuyers with the ability to get a 30-year loan regardless of economic conditions. It was only when the companies' executives pushed them to become growth stocks that they went off the rails. From 1992 until the 2008 financial crisis, the companies suffered weak oversight and transformed from conservative utilitylike entities into growth companies promising investors a 20% annual return. Congress directed them to take on more leverage and risk by creeping into more direct competition with primary market lenders. The financial crisis, when it arrived, decimated both companies. Now, however, Fannie and Freddie should operate as the privately owned public utilities they are, for the benefit of all market constituents. This will avoid the costs and risks of alternative economic approaches to ensuring nationwide mortgage availability.

 FHA, Lenders Clash Over Financing Greener Homes -- A battle is brewing over the best way to finance the retrofitting of homes to make them more energy efficient.The outcome could make or break the fledgling industry of administrators for Property Assessed Clean Energy programs, which are funded by local governments and repaid via annual assessments on owners' property tax bills.It has particular relevance in California, home to some of the nation's most expensive housing markets. Since 2010 dozens of counties and municipalities in the Inland Empire, an area of five million residents stretching from Riverside to San Bernardino, have made hundreds of millions of dollars of energy efficiency loans. The municipal bonds that finance this lending are themselves bundled into collateral for asset-backed securities, providing Wall Street with a relatively high-yielding investment product that can be marketed as "environmentally friendly." Last week, the Federal Housing Administration, part of the Department of Housing and Urban Development, said it would insure mortgages on homes encumbered by Property Assessed Clean Energy liens. Department of Veterans Affairs followed suit. The July 19 announcements were part of a broader initiative by the Obama administration to increase access to solar energy and promote energy efficiency, particularly in low- and moderate-income communities.The FHA's endorsement of PACE upset mortgage lenders, who have long objected to this form of financing. Since both types of lenders have claims on the same collateral, the borrower's home, a PACE lien could potentially reduce a mortgagee's recovery in a foreclosure. Moreover, a tax assessment is generally considered to be a type of "super lien" that takes priority over all current and future encumbrances.

MBA: "Mortgage Applications Decrease in Latest Weekly Survey" --From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 29, 2016.  ... The Refinance Index decreased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier to the lowest level since February 2016 while the seasonally adjusted Government Purchase Index fell to the lowest level since November 2015. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 6 percent higher than the same week one year ago. ...  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.67 percent from 3.69 percent, with points decreasing to 0.30 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.


         Home loans for poor leave some feeling misled - Al Butts and his wife thought they were becoming homeowners when, in 2011, they moved into their Decatur residence. “It sounded too good to be true, because it was such an achievement for me,” Butts said. “They said, ‘This is your house.’ ” The too-good-to-be-true part could be right..”  The Butts didn’t have a mortgage loan on the home but rather something called a “land contract,” a little-known form of lending marketed to people who can’t get regular financing. People with a land contract put money down, make regular payments plus interest, and pay taxes and insurance. If they make payments all the way to the end of the contract, they will own the home. If they don’t they can be evicted and lose everything they put into it. That’s what could happen to Butts and his wife, who this summer got an eviction threat after some late payments. “It’s a 30 year contract. You could make payments every month and lose it in year 29,” said Kristin Tullos of Atlanta Legal Aid, which is representing the couple as they try to stay in the home. Georgia, like most states, does not regulate land contracts, which are also known as “contracts for deed.” Critics say companies offering them target credit-starved, minority neighborhoods and deceive consumers. The deals typically carry interest rates well above those for mortgages. No one has recent numbers, but 3.5 million people bought a home through a land contract in 2009, according to the U.S. Census. “Evidence suggests that land contracts are making a resurgence in the wake of the foreclosure crisis,” a recent report from the National Consumer Law Center said. Equity firms and real estate companies bought thousands of depressed properties as investments, renting them until the market made a resale lucrative. A small group of companies have added “contract for deed” deals as a profitable variation aimed at minorities, according to the group’s report.

Housing Recovery Still Working Its Way Back to Normal: Home sales rose to their highest level since before the financial crisis and were 25% higher than a year earlier, the Census Bureau said last week. But while news of a 592,000 annual rate was positive, economists cautioned not to break out the champagne for the housing market quite yet. "This maybe is an important milestone for the housing recovery, but historically, it is well short of what should be normal," said Lawrence Yun, chief economist for the National Association of Realtors. Considering population and job growth, new home sales should be around 800,000 or 900,000 a year, according to Yun. During the boom years, new home sales topped out at nearly 1.3 million in 2005. But that was "unsustainable," Yun acknowledged. Other market indicators show the housing recovery is progressing, but still a long way off from normal. Single-family starts registered a 778,000 seasonally adjusted annual rate in June, up 4.4% from the prior month and up 13.4% from June 2015. That's moving in the right direction, said Frank Nothaft, senior vice president and chief economist at CoreLogic. "But they are still running at a recession level. It is not running at a depression-level like five years ago. But we still have single-family starts below a million," Nothaft said. While home ownership continues to struggle, there has been substantial growth in rental household formations. Multifamily construction in particular has been on a tear, while the homeownership rate has fallen to just below 63%, a 50-year low.

CoreLogic: House Prices up 5.7% Year-over-year in June  -- 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 5.7 Percent Year Over Year in June 2016 Home prices nationwide, including distressed sales, increased year over year by 5.7 percent in June 2016 compared with June 2015 and increased month over month by 1.1 percent in June 2016 compared with May 2016, according to the CoreLogic HPI. ..."Home prices continue to increase across the country, especially in the lower price ranges and in a number of metro areas," said Anand Nallathambi, President and CEO of CoreLogic. "We see prices continuing to increase at a healthy rate over the next year by as much as 5 percent.” This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100. The index was up 1.1% in June (NSA), and is up 5.7% over the last year. This index is not seasonally adjusted, and this was a solid month-to-month increase. The index is still 6.7% 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 two years. The year-over-year comparison has been positive for fifty three consecutive months.

Homeownership at 51-Year Low: The Feds Have Failed -- Americans have long regarded owning a home to be largely synonymous with the so-called "American dream" although high homeowernship rates are not necessarily synonymous with a high-income prosperous society. Switzerland and Germany, for example, have homeownership rates well below that usually found in the US. Nevertheless, the US government has long made increasing homeownership an important policy goal, and this has led to a number of large and costly programs and institutions including Fannie Mae and Freddie Mac, FHA, and a plethora of federal regulations surrounding mortgage lending and banking. Judging by the government's own criteria, it has all been a failure. According to the most recent homeownership data from the US Census Bureau, the homeownership rate in the United States is now at the lowest level it's been since the bureau began tracking quarterly data in 1965. As of the second quarter of 2016, the homeownership rate in the United States was, according to the Bureau, 62.9 percent. That's exactly equal to the rate recorded during the third quarter of 1965 — nearly 51 years ago:  From an economic perspective, a decline in the homeownership rate doesn't necessarily tell us much. Declining homeownership rates could be affected by changing demographics, such as a decline in marriage and child-rearing. Or it could be affected by simply a decline in the demand for homeownership — for non-economic reasons — among potential buyers.  Nevertheless, the fact remains that homeownership has long been a goal of both fiscal and monetary policy in the United States. This has led to numerous negative affects, including the housing bubble which led to the 2007-2009 recession, and which continues to dampen the very weak recovery we are now living through. The policy orientation toward increasing homeownership also led to massive malinvestment into the real estate economy, which eventually led to a jobs bubble and, predictably, joblessness for many after the bubble burst.

 Q2 2016 GDP Details on Residential and Commercial Real Estate -- The BEA has released the underlying details for the Q2 advance GDP report this morning. The BEA reported that investment in non-residential structures decreased at a 7.9% annual pace in Q1.  However most of the decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $62.4 billion annual rate in Q1 to a $50.2 billion annual rate in Q2 - and is down from $106 billion in Q2 2015 (declined more than 50%). Excluding petroleum, non-residential investment in structures increased at a 5.5% annual rate in Q2.The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level. Investment in offices increased in Q2, and is up 22% year-over-year -increasing from a very low level - and is now above the lows for previous recessions (as percent of GDP). Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down slightly year-over-year.   The vacancy rate for malls is still very high, so investment will probably stay low for some time. Lodging investment increased further in Q2, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future.  Lodging investment is up 19% year-over-year.

 A $350 million skyscraper in San Francisco is tilting and sinking — here's why - San Francisco seems to have its own leaning tower. It's called the Millennium Tower, and according to the San Francisco Chronicle, it has sunk 16 inches into the ground and tilted two inches to the northwest since its completion in 2008. The 58-story luxury skyscraper is home to many millionaires and billionaires, including famous quarterback Joe Montana and several leading Silicon Valley investors.Though the tower houses some of the most expensive apartments in the city — condo prices range from $1.6 million to $10 million — it has a few  critical design flaws.  As The Chronicle notes, the skyscraper's frame uses huge slabs of concrete instead of steel, and the former is much heavier than the latter. Its location is also not ideal — the $350 million tower is built on top of muddy land near the bay's shoreline. The construction crew filled mud holes on the site with gravel or cement, but the work hasn't held up. The building's owners blame the neighboring bus and rail center that's set to be completed in 2017, however. They say that the 2010 excavation of the site — a half-mile tunnel that's 60 feet underground — caused  the Millennium Tower to sink. While the sinking and tilting doesn't pose any immediate safety risk for the residents, it may be a problem for future buyers and investors. Since San Francisco is susceptible to earthquakes, people likely won't want to pay to live in a building that's not upright.

Construction Spending August 1, 2016: Highlights: Construction spending has to show the strength based on other data including housing starts and permits. Spending fell 0.6 percent in June vs expectations for a 0.6 percent gain. Revisions are mixed with May revised upward from a 0.8 percent drop to a decline of only 0.1 percent but April revised from minus 2.0 percent to a drop of 2.9 percent. Spending on single-family construction fell 0.4 percent in June to extend a surprisingly negative streak that goes back to March. Year-on-year, construction spending on single-family homes is up only 4.8 percent vs a 16.4 gain for multi-family units where monthly data for June, however, also show contraction, at minus 1.5 percent. A plus for housing data in this report is strength in home improvements as residential spending excluding new homes rose 1.2 percent in the month. Non-housing is also soft in the report, down 1.3 percent for private non-residential spending which is up only 2.5 percent year-on-year. Manufacturing is showing the most weakness, down 4.5 percent in the month with the on-year rate down 10.4 percent to underscore stubborn weakness in business investment. Public spending is also soft with education down 0.5 percent and highways & streets down 1.4 percent. Overall construction spending is up only 0.3 percent year-on-year to deepen what is a declining trend. These results will weigh on the expectations for the first revision to second-quarter GDP which came in at a very soft plus 1.2 percent in last week's initial estimate. But there's definitely upward pressure building in other housing data, pressure that points to eventual strength in construction spending.

Construction Spending decreased 0.6% in June --Earlier today, the Census Bureau reported that overall construction spending decreased 0.6% in June compared to May: The U.S. Census Bureau of the Department of Commerce announced today that construction spending during June 2016 was estimated at a seasonally adjusted annual rate of $1,133.5 billion, 0.6 percent below the revised May estimate of $1,140.9 billion. The June figure is 0.3 percent above the June 2015 estimate of $1,130.5 billion. Private and public spending decreased in June  Spending on private construction was at a seasonally adjusted annual rate of $851.0 billion, 0.6 percent below the revised May estimate of $856.6 billion. ... In June, the estimated seasonally adjusted annual rate of public construction spending was $282.5 billion, 0.6 percent below the revised May estimate of $284.3 billion.. This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted. All three categories have slumped recently. Private residential spending has been generally increasing, but is 34% below the bubble peak. Non-residential spending is only 2% below the peak in January 2008 (nominal dollars). Public construction spending is now 13% below the peak in March 2009. The second graph shows the year-over-year change in construction spending. On a year-over-year basis, private residential construction spending is up 3%. Non-residential spending is up 2% year-over-year. Public spending is down 6% year-over-year. Looking forward, all categories of construction spending should increase in 2016. Residential spending is still fairly low, non-residential is increasing (except oil and gas), and public spending is also generally increasing after several years of austerity. This was well below the consensus forecast of a 0.6% increase for June, and construction spending for the previous two months were revised down.

June 2016 Construction Spending Simply Bad: The headlines say construction spending slowed, and was significantly below expectations. The backward revisions make this series wacky - but the rolling averages significantly declined. Private construction now has little growth while public construction is in contraction. Econintersect analysis:

  • Growth deceleration 2.8 % month-over-month and unchanged year-over-year.
  • Inflation adjusted construction spending down 2.0 % year-over-year.
  • 3 month rolling average is 1.5 % above the rolling average one year ago, and decelerated 4.5 % month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.
  • Backward revision for the last 3 months was downward.

US Census Analysis:

  • Down 0.6 % month-over-month and Up 0.3 % year-over-year (versus the reported 4.5 % year-over-year growth last month).
  • Market expected 0.2 % to 2.2 % month-over-month (consensus +0.6) versus the -0.6 % reported

Construction spending (unadjusted data) was declining year-over-year for 48 straight months until November 2011. That was four years of headwinds for GDP.

The Fragile U.S. Economy Now Facing a Slowdown in Building Boom -- Construction has been one of the few pockets of strength in the U.S. economy -- until recently. Construction payrolls have declined since March and spending in May rose less than 3 percent from a year earlier, the lowest rate since 2011. Coming after super-charged growth of 10 percent last year, the question now is whether the sputtering is just a blip or something more lasting that portends a significant drag on the economy.  “It’s a deceleration process after two years of fairly decent growth,” said Robert Murray, chief economist of Dodge Data & Analytics, which gathers data on construction.  Last year’s boom was spurred by housing and office construction. Residential spending alone contributed almost 0.3 percentage point to the U.S. economy’s 2.4 percent growth rate. New industries, such as e-commerce, also drove construction work, including two Amazon fulfillment centers in California that will be 1 million square feet each. Yet construction may be a victim of its own success. A torrid pace of apartment building has saturated some markets. Foreign investment, looking for returns, has poured into high-rise condos in Miami and hotels in New York, creating some overcapacity. In one example, Pollack Shores Real Estate Group, a privately held group, put on hold plans to build a 315-unit apartment complex in the Atlanta area as several new buildings cropped up. Regulators have flagged a heightened risk of lending to commercial real estate, noting that hundreds of banks increased loans to the sector by more than 50 percent during the last three years.

NAHB: Builder Confidence "Remains in Positive Territory" for 55+ Housing Market in Q2 --This is a quarterly index that was released yesterday by the the National Association of Home Builders (NAHB). This index is similar to the overall housing market index (HMI). The NAHB started this index in Q4 2008 (during the housing bust), so the readings were initially very low. From the NAHB: Second Quarter Results Show 55+ Housing Market Remains in Positive Territory Builder confidence in the single-family 55+ housing market remains in positive territory in the second quarter with a reading of 57, up one point from the previous quarter, according to the National Association of Home Builders' (NAHB) 55+ Housing Market Index (HMI) released today. This is the ninth consecutive quarter with a reading above 50.“Builders and developers for the 55+ housing sector continue to report steady demand,” said Jim Chapman, chairman of NAHB's 55+ Housing Industry Council and president of Jim Chapman Homes LLC in Atlanta. “However, there are many places around the country facing labor and lot shortages, which are hindering production.”...“Much like the overall housing market, this quarter’s 55+ HMI results show that this segment continues its gradual, steady recovery,” said NAHB Chief Economist Robert Dietz. “A solid labor market, combined with historically low mortgage rates, are enabling 55+ consumers to be able to sell their homes at a favorable price and buy or rent a home in a 55+ community.”

Which Households Have Negative Wealth? – NY Fed -At some point in its life a household’s total debt may exceed its total assets, in which case it has “negative wealth.” Even if this status is temporary, it may affect the household’s ability to save for durable goods, restrict access to further credit, and may require living in a state of limited consumption. Detailed analysis of the holdings of negative-wealth households, however, is a topic that has received little attention. In particular, relatively little is known about the characteristics of such households or about what drives negative wealth. A better understanding of these factors could also prove valuable in explaining and forecasting the persistence of wealth inequality. In this post, we take advantage of a special module of the Survey of Consumer Expectations to shed light on this issue.  The Survey of Consumer Expectations (SCE), which was introduced in 2013 and uses a monthly rotating survey panel of roughly 1,300 respondents, focuses on collecting subjective expectations about the economy and the respondents’ behavior. As part of the SCE, a special module on household finance is fielded once a year. This module collects detailed data on the composition of respondents’ financial assets and debt, as well as their expectations about how these might change in the future. The special household finance survey has been conducted twice, in August 2014 and in August 2015. The micro-data from the 2014 module has just been released on the SCE website. The analysis conducted in this post is based on the August 2015 module.

Student, Auto Loans Hit Record High As Credit Card Debt Surges -- The Fed's latest consumer credit report revealed that in the month of June, overall household credit rose a smaller than expected $12.3 billion, below the $17 billion expected, and below last month's $17.9 billion increase. The reason for the miss in credit growth was entirely due to the unexpected slowdown in non-revolving credit, which rose by only $4.6 bilion, the second lowest monthly increase since 2012 with just December 2015 posting a slower rate of increase. It is possible that the decline in new non-revolving, i.e., auto credit creation was the reason for the slowdown in auto sales over the past several months. The flipside, however, was the jump in revolving credit, which rose by $7.7 billion in June, the second highest monthly increase since the financial crisis, and confirms what we observed previously, namely that as US personal savings are declining at a rapid pace, consumer have had no choice but to "charge it." In any case, with the Fed releasing its quarterly update on both auto and student loans, we have two new records: a new all time high in both car loans at $1.1 trillion, and a record for student loans, which just hit $1.4 trillion.

Personal Income and Outlays August 2, 2016: Highlights: The consumer continues to spend though income isn't that strong. Personal income, for a second month in a row, inched 0.2 percent higher in June, in contrast to spending which, also for a second month in a row, rose 0.4 percent. The gain in spending was funded to a degree by savings as the savings rate is down 2 tenths to 5.3 percent. There isn't much positive movement in inflation data with both the overall PCE index and the core index (ex-food ex-energy) up only 0.1 percent. Year-on-year shows no improvement at all with the overall rate unchanged at plus 0.9 percent and unchanged at plus 1.6 percent for the core. Turning back to income, wages & salaries did improve a bit, up 1 tenth for a plus 0.3 percent gain. Details on spending show an outsized 0.7 percent increase in nondurables in a gain, however, tied in part to higher oil prices, not increased demand. Service spending rose a very solid 0.5 percent for a second straight month while durable goods fell 0.3 percent in June following a 0.4 percent decline in May, both reflecting weak vehicle sales. Durable goods are a sleeper here for July, possibly bouncing back should vehicle sales prove strong (July unit vehicle sales will be posted through the day). This report is moderate. The strength in spending needs to continue for the economy but spending won't have much legs if income doesn't pick up

Personal Income increased 0.2% in June, Spending increased 0.4%  -- The BEA released the Personal Income and Outlays report for June:  Personal income increased $29.3 billion (0.2 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $24.6 billion (0.2 percent) and personal consumption expenditures (PCE) increased $53.0 billion (0.4 percent). ...Real PCE increased 0.3 percent. ... The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.  On inflation: The PCE price index increased 0.9 percent year-over-year partially due to the sharp decline in oil prices. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in June (same as in May).

US Personal Income Growth Slumps To Lowest Since 2013, Spending Rises -- Savings are slumping (which means credit is surging) as the American consumer keeps on spending (+3.7% YoY near highest since May 2015) despite income growth at its slowest since Dec 2013 (+2.7% YoY). The diverging trend of the last 6 months (higher spending, lower income) is unlikely to last but with the savings rate at 5.3% (down from 6.2%)at March 2014 lows, we suspect the run way is running out.Spending is all that matters of course, because debt is wealth in the new normal...

June 2016 Personal Consumption Growth At Expectations, But Income Softens: The headline data this month continues to show consumer expenditure growth. This continues to be postive for 2Q2016 GDP if one considers GDP as a good measure of the economy. The negative of the headlines are that income grew at half the rate of expenditures. And just to add confusion, this whole series underwent annual revision and pretty much changed what you thought you knew.

  • The monthly fluctuations are confusing. Looking at the inflation adjusted 3 month trend rate of growth, disposable income growth rate trend decelerated while consumption's growth rate is accelerating.
  • Real Disposable Personal Income is up 2.2 % year-over-year (published 3.2 % last month - now revised to 2.3%), and real consumption expenditures is up 2.8 % year-over-year (published 2.7 % last month - now revised to 2.5%)
  • this data is very noisy and as usual includes moderate backward revision (effects of annual revision detailed below) - this month the changes modified the year-over-year trends.
  • The advance estimate of 2Q2016 GDP indicated the economy was expanding at 1.2 % (quarter-over-quarter compounded). Expenditures are counted in GDP, and income is ignored as GDP measures the spending side of the economy. However, over periods of time - consumer income and expenditure grow at the same rate.
  • The savings rate continues to be low historically, and declined to 5.3 % this month.

US Consumer Spending Rises A Solid 0.4% In June -- US economic growth remains sluggish, as last week’s disappointing Q2 GDP report shows, but you can’t blame the weak macro trend on consumers. Personal consumption expenditures continued to increase at a modest rate in June, rising 0.4% for the second month in a row, the Bureau of Economic Analysis reports. The gain pushed the annual pace up to 3.7%, close to the strongest year-over-year advance in nearly a year. There are any number of challenges weighing on the economy, but weak spending on Main Street isn’t one of them. “The consumer is on a solid track,” says Thomas Simons, an economist with Jefferies LLC. “The momentum is going to continue into the third quarter and is fueled by strength in the labor market.” But if you’re looking for reasons to worry, the softer year-over-year gains for disposable personal income (DPI) in recent months should be on the short list. DPI’s annual pace slipped to 3.1% in June—the slowest in more than two years. If the slide continues, it’s only a matter of time before the downside bias pinches consumer spending.  On the plus side, private-sector wage growth’s annual growth rate ticked higher, inching up to 3.3% in June. The gain is only marginally higher than May’s advance, but perhaps the increase is a sign that income growth is set to stabilize and perhaps accelerate. In any case, Joe Sixpack doesn’t seem worried, which is no trivial factor at the moment. The tepid 1.2% rise in Q2 GDP is worrisome, but until or if the consumer sector stumbles the US will probably avoid a recession for the foreseeable future. As for the anemic GDP increase in the April-to-June period, that was largely due to inventory drawdown. But echoing today’s monthly report, personal consumption expenditures (PCE) show no sign of stress in the quarterly data. In fact, PCE growth rebounded sharply to 4.2% in Q2 (seasonally adjusted annual rate), well above Q1’s 1.6% gain. Gross private domestic investment, by contrast, continued to fall, posting an unusually heavy 9.2% decline in Q2–the third quarterly decline in a row.

Consumer Spending Outpaces Income Growth Again -- Robert Oak - (13 graphs) The June personal income and outlays report shows a 0.4% increase in consumer spending.  When adjusted for inflation, consumer spending rose 0.3%.  Personal income increased 0.2% while real disposable income increased 0.1% for the month.  This is decent growth in PCE.  From a year ago, real consumer spending has increased 2.8% while real disposable income has increased 2.2%.  Once again income is blunted while spending soars.  Consumer spending is roughly two-thirds of GDP.   Real means adjusted for inflation and is called in chained 2009 dollars  Disposable income is what is left over after taxes and increased 0.1% when adjusted for prices.  Graphed below are the monthly percentage changes for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue).Below are the real dollar amounts for real personal income (bright red), real disposable income (maroon) and real consumer spending (blue) for the last year. Real personal income also increased 0.1% for the month.Consumer spending encompasses things like housing, health care, food and gas in addition to cars and smartphones.  This month the increases in PCE were due to healthcare spending, electricity and gas while new motor vehicle spending declined.   Graphed below is the overall real PCE monthly percentage change. Below are the real monthly percentage changes in 2009 chained dollars:

  • Durable goods: 0.4%
  • Nondurable goods: 0.3%
  • Services: 0.3%

Price indexes are used as divisors to adjust for inflation and price changes.  The price index increased 0.1%, while May's price index increased 0.2%   The price index is now up 0.9% from a year ago.  Minus energy and food, the price index increased 0.1% from last month and is up 1.6% from this time last year.  The PCE price index represents inflation,but is different from CPI, although the two typically mirror each other. Graphed below is the PCE price index, in red, scale on the left, and the PCE price index minus food and energy in blue, scale on the right.  This is the percent change from one year ago.

Hidden In Today's Revised Personal Income Data, A Troubling Trend For The US Consumer - Just days after the BEA admitted it had found a "problem" with the way it calculates GDP, leading to a dramatic revision to GDP data and a preliminary Q2 GDP estimate that was less than half what consensus had forecast, earlier today the same BEA released personal income and spending data that was also revised. Materially. And while we reported earlier the deterioration in the annual change, what was more notable is how the adjustment impacted historical disposable personal income, if not so much spending. This is what the BEA reported at 8:30am this morning:

  • DPI was revised upward $0.2 billion, or less than 0.1 percent, for 2013, $108.8 billion, or 0.8 percent, for 2014, and $116.6 billion, or 0.9 percent, for 2015. The percent change from the preceding year in real DPI was the same as previously published in 2013, decreasing 1.4 percent. It was revised upward from an increase of 2.7 percent to an increase of 3.5 percent in 2014, and was the same as previously published in 2015, increasing 3.5 percent.
  • Personal outlays was revised downward $30.0 billion, or 0.3 percent, for 2013. It was revised upward $3.0 billion, or less than 0.1 percent, for 2014, and $18.7 billion, or 0.1 percent, for 2015. Revisions to personal outlays primarily reflected revisions to PCE.

Visually, while the personal outlays revisions were practically negligible...... Personal income saw some dramatic changes for the years 2014 and 2015.... even as it has since converged with the pre-revision number. What the revised personal income data showed is that while wages may have grown faster in the period 2014 and 2015 than originally estimated, on a net basis, incomes have slowed down enough to catch up to the pre-revision number. In fact, the annual growth in revised personal income is now the lowest since 2013. That in itself should be a big red flag, and a troubling hint why the US consumer has been feeling under the weather over the past year.What's more, after the release of the revised data, we know that the savings rate has just hit the lowest level in over 2 years.

Where Americans spending oil crash savings -  : Americans are savings a lot of money on gas, and it looks like they are getting out there and spending that cash. According to Paul Trussell at Deutsche Bank, gas prices have sunk 19.2% in the past twelves months. Even recently, oil has dived back into a bear market, indicating more cheap gas to come. The average American has saved $700 over the past year from the cheaper gas. While a good chunk of this extra cash has gone to savings accounts (roughly 17%, or $119 of the $700), many consumers have also increased their spending. According to Trussell's research using data from the JPMorgan Research Institute, it appears that Americans are spending less on everyday items and more on discretionary goods. "According to the JPMorgan Research Institute, it appears that Americans are spending less on everyday items and more on discretionary goods. "According to the JPMorgan Chase Institute, which analyzed data from 25 million debit and credit card users, while the average U.S. household saved $700 last year, only 5% went back toward discount stores," wrote Trussell. "We acknowledge a prior over-optimism in 2015 that shoppers would buy more basics."  In fact, the largest sub-category for gas savings spending has been restaurants, which have captured 18% of the gas savings (or $126 of the $700 of savings). Additionally, entertainment spending grabbed another 7%.

The Bait-and-Switch Confusopoly Economy - Scott Adams -- I recently blogged about the impossibility of buying a Chevy truck with the features you want. The quick summary is that there are so many truck features and options that it would be almost mathematically impossible for a dealer to have the truck you want on the lot. Likewise, there are generally no nearby trucks at other dealerships that your local dealer can ship in for you.So how does the dealership handle the fact they have no trucks you want?They first tell you they do have the truck you want, right on the lot. Then you find out they were “mistaken” or the truck “just got sold.” But they can sell you a truck with the wrong features today!When you say no to buying the wrong truck, they offer to find your exact truck at another dealer. Then they fail at that, all the while trying to convince you to buy a different truck they can find. Eventually they wear you down because – mathematically speaking – the truck you want doesn’t exist, and you really want a truck. So you give in and live with the bait-and-switch.After I blogged about my truck-not-buying experience, many readers emailed to tell me how they beat the system and got a great deal. I almost cried reading those messages because every one of them got screwed with obvious dealership scams, yet they feel they won. The most obvious scam is going through the fleet sales person at the dealership. People think that’s the backdoor to a clever bargain. It isn’t. The dealership makes sure that suckers who go in that backdoor pay an average price higher than a consumer who negotiates hard. Likewise, there is sometimes an “Internet sales” person at the dealership who purports to give good prices to people who shop online. Same scam. The best way to know the dealer screwed you is to ask yourself if you think you got a great deal. If you did, they not only took your money, but they also made you love them for it.

 Gallup US ECI August 2, 2016: Highlights For the month of July, the average score was minus 15, the lowest for any month in the past year. This is essentially on par with the minus 14 average recorded in April, May and June. However, though the ECI had a mostly lackluster July, the measure saw dramatic improvement last week, fueled by Democrats' increasing optimism about the economy. Whether Democrats and other Americans will hold on to this rosier economic view remains to be seen. Friday's second-quarter GDP estimate, firmly below the consensus estimate of 2.5 percent, serves as a reminder that the economic recovery, though long by historical standards, remains tepid.  The Gallup Economic Confidence Index (ECI) is a broad indicator of Americans' confidence in national economic conditions, comparable to the Conference Board's Consumer Confidence Index and the Thomson Reuters/University of Michigan Consumer Sentiment Index.

Copyright Office Intent On Changing The Part Of Copyright That Protects Libraries & Archives, Even Though No One Wants It Changed --It's no secret that the US Copyright Office has been acting pretty nutty lately. For decades, the office has basically carried the water of the legacy copyright/entertainment industries, but at least they would sometimes try to appear marginally balanced. Now it appears that all caution has been thrown to the wind and the entire office is actively looking to suppress and attack user rights and innovation. In just the past few weeks and months, we've pointed out a series of really bad ideas on reforming the notice-and-takedown safe harbors of the DMCA, a separate plan that would effectively strip tons of websites of their DMCA safe harbors by requiring them to remember to keep re-registering, and a disturbing willingness to totally misrepresent the copyright issues at play with regards to the FCC's set-top box proposal.  So, perhaps, we shouldn't be all that surprised that the Copyright Office appears to be making a move to screw over libraries now, too. Section 108 of the Copyright Act has explicit carve-outs and exemptions for libraries and archivists. These are stronger than fair use, because they are clear exemptions from copyright, rather than fuzzy guidelines that have to be adjudicated in court. Section 108 is super important for libraries and archives (including the Internet Archive). So why does the Copyright Office want to change it? That's a bit of a mystery in terms of public explanations, but it's not hard to take some guesses.

  Trade groups, AT&T urge U.S. court to reverse 'net neutrality' rules | Reuters: Trade associations representing wireless, cable and broadband operators on Friday urged the full U.S. Court of Appeals for the District of Columbia to reverse a ruling upholding the Obama administration's landmark rules barring internet service providers from obstructing or slowing consumer access to web content. A three-judge panel in June, in a 2-1 decision, backed the Federal Communications Commission's so-called net neutrality rules put in place last year to make internet service providers treat all internet traffic equally. Wireless trade association CTIA said in a court filing on Friday seeking a rehearing that "few final rules of any federal administrative agency have ever had so much potential to affect the lives of so many Americans." AT&T also urged the court to reverse the ruling. And in a separate petition, US Telecom and CenturyLink Inc (CTL.N) asked the court to reconsider the ruling, as did the National Cable & Telecommunications Association and American Cable Association. The cable groups said the court should correct "serious errors" in a decision "that radically reshapes federal law governing a massive sector of the economy, which flourished due to hundreds of billions of dollars of investment made in reliance on the policy the order throws overboard."

Trade Deficit at $44.5 Billion in June --Earlier from the Department of Commerce reported: The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $44.5 billion in June, up $3.6 billion from $41.0 billion in May, revised. June exports were $183.2 billion, $0.6 billion more than May exports. June imports were $227.7 billion, $4.2 billion more than May imports. The trade deficit was larger than the consensus forecast of $43.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through June 2016.  Imports and exports increased in June. Exports are 10% above the pre-recession peak and down 4% compared to June 2015; imports are down 2% compared to June 2015. It appears trade might be picking up a little. The second graph shows the U.S. trade deficit, with and without petroleum. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $39.38 in June, up from $34.19 in April, and down from $53.76 in June 2015. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined a little since early 2012. The trade deficit with China decreased to $29.8 billion in June, from $31.8 billion in June 2015. The deficit with China is a substantial portion of the overall deficit.

June 2016 Trade Data Is Mixed: A quick recap to the trade data released today continues to paint a relatively soft view of global trade. The unadjusted three month rolling average value of goods exports decelerated with the three month rolling averages in contraction., The unadjusted three month rolling average value imported goods accelerated with the rolling average in contraction IF oil is excluded. Many care about the trade balance which worsened. . Import goods growth has positive implications historically to the economy - and the seasonally adjusted goods and services imports were reported up month-over-month. Econintersect analysis shows unadjusted goods (not including services) growth decelerated 2.8 % month-over-month (unadjusted data) - down 3.7 % year-over-year (up 1.2 % year-over-year inflation adjusted). The rate of growth 3 month trend is accelerating. Exports of goods were reported slightly up, and Econintersect analysis shows unadjusted goods exports growth acceleration of (not including services) 2.1 % month-over month - down 4.6 % year-over-year (down 1.1 % year-over-year inflation adjusted). The rate of growth 3 month trend is decelerating.

  • The change in seasonally adjusted (but not inflation adjusted) exports was insignificant (but could be attributed to civilian aircraft). Import increase was due to oil, cell phones, civilian aircraft and pharmaceuticals.
  • The market expected (from Bloomberg) a trade deficit of $-43.6 B to $-42.1 B (consensus $-43.0 billion deficit) and the seasonally adjusted headline deficit from US Census came in at a deficit of $44.5 billion.
  • It should be noted that oil imports were down 21 million barrels from last month, and up 21 million barrels from one year ago.
  • The data in this series is noisy, and it is better to use the rolling averages to make sense of the data trends.

The headline data is seasonally but not inflation adjusted. Econintersect analysis is based on the unadjusted data, removes services (as little historical information exists to correlate the data to economic activity), and inflation adjusts. Further, there is some question whether this services portion of export/import data is valid in real time because of data gathering concerns. Backing out services from import and exports shows graphically as follows:

U.S. Light Vehicle Sales increase to 17.8 million annual rate in July - Based on a preliminary estimate from WardsAuto (ex-Jaguar and Porsche), light vehicle sales were at a 17.78 million SAAR in July. That is up about 2% from July 2015, and up 6.5% from the 16.69 million annual sales rate last month. This graph shows the historical light vehicle sales from the BEA (blue) and an estimate for July (red, light vehicle sales of 17.78 million SAAR from WardsAuto). This was above the consensus forecast of 17.3 million SAAR (seasonally adjusted annual rate). The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. Sales for 2016 - through the first seven months - are up almost 2% from the comparable period last year. A solid month for auto sales.

US Auto Sales Decline In July. But Collectively, GM Had Best July Retail Sales Since 2007 -- From The Detroit News: The automotive industry’s hot auto sales cooled off in July.  Ford Motor Co. on Tuesday said its July sales fell 2.8 percent compared to the same month a year ago, while crosstown rival General Motors Co. said sales fell 1.9 percent. Fiat Chrysler Automobiles reported a slight gain of 0.3 percent.  FCA, which recently switched its sales reporting practices, said it sold 180,727 vehicles compared to 180,124 the same period a year ago. It was driven by its Jeep and Ram brands, which rose 5 percent each. Chrysler sales fell 4 percent, Dodge sales fell 10 percent, and Fiat sales fell 14 percent.  Sales rose at all GM brands except for Chevrolet, which saw a 5.3 percent sales dip. GM’s brands collectively had their best July retail sales performance since 2007, the company said. Meanwhile, US consumer spending rose 0.4% in June for second month in a row.

July U.S. Auto Sales - The Good, The Bad, & The Downright Ugly -- Ford (-3.0% vs. -0.5 est), GM (-1.9% vs. -1.0 est) and Fiat Chrysler (+0.3% vs. 1.9% est) all posted headline misses on July auto sales with a modest "beat" from Toyota (-1.4% vs -1.9% est) even though its sales were still down YoY.  Looking past the headlines, however, the data is even worse.  Ford sales to retail customers (i.e. stripping out fleet sales where they make no money) were down 6% while Fiat Chrysler was down 2%.  GM managed to grow retail sales 5% YoY but only after increasing incentive spending 29% over the competition to 14.2% of total retail value....WINNING!  Ford and GM stocks were punished on the misses. According to headline data, truck sales took a big leap higher in July...but the devil is in the details.  Most of the truck gains for Ford came from cargo vans which were up 35% YoY while its F-Series pickup truck was down 1% and SUVs were down 5.3%.  GM posted higher unit sales of trucks, albeit on higher incentive spending, but mix shifted from the higher MSRP Silverado (units down 4% YoY) to the lower priced Colorado and Canyon models which were up 27.5% and 33.1%, respectively.  Chrysler reported a 2% YoY increase in Dodge Ram sales. Overall, July sales were slightly positive YoY but stripping out fleet sales would paint a very different picture.

July Auto Sales Stoke Fears of Market Plateau - WSJ: Sales for the top three auto makers selling in the U.S. slipped in July as the strong growth rate that defined the past six years slows to a crawl, another indication the industry is entering its first sustained plateau since the decade leading to the financial crisis. Declines at General Motors Co., Ford Motor and Toyota Motor overshadow increases by smaller rivals, including Nissan Motor Co. and Honda Motor Co.   The run of sales gains in the U.S. since 2009 has allowed most auto makers to limit reliance on discounts and keep inventories lean, padding profits generated by increased demand for trucks and sport-utility vehicles. Analysts say sales incentives and fleet sales need to play a bigger role in the market to keep the current pace afloat, particularly after a disappointing June. Overall sales increased modestly in July, rising 0.7% to 1.52 million, according to research firm Autodata Corp., translating to a seasonally adjusted annualized selling pace of 17.9 million. While higher than the prior July, the adjusted sales pace has leveled off compared with the sizable year-over-year increases from 2015’s final six months, which drove the U.S. light-vehicle market last year to its first record in a decade and a half. The auto industry’s recovery has been a bright spot for the U.S. economy, with high factory utilization spurring new jobs, investment in American facilities and wage growth for Detroit’s auto workers. Car buyers spent $49 billion on light vehicles in July, according to TrueCar Inc., amid longer loan terms and a boom in subsidized auto leases—trends that keep monthly payments on par with a decade ago even as sticker prices go up.

Class 8 Truck Orders Plunge To Lowest Level Since February 2010 - For those investors that have relentlessly defended equity valuations, shunning hard data in favor of the Fed narrative that lower borrowing costs should move discount rates ever closer to 0% and equity valuations therefore ever closer to infinity, might we suggest you turn your heads now because Class 8 truck orders just dropped a huge dose of economic reality that you might want to promptly ignore.  For everyone else, July Class 8 trucks orders were, in a word, abysmal.  According to ACT research, Class 8 truck orders for July came in at 10,500 which is down 57% YoY and 19% sequentially compared to June.  July marked the 17th consecutive month of YoY declines and the lowest reading since February 2010. Perhaps even more shocking is the fact thatJuly orders were 77% lower than the peak shipping month recorded in October 2014.According to comments made by Dan Ake, VP of Commercial Sales at research firm FTR, to theWall Street Journal the industry was hit with “several significant order cancellations” which was described as “uncharacteristic” for this time of year.  Dan added that the “high cancellations are likely the result of fleets placing large orders at the end of 2015, for delivery a year out.” Steve Tam, VP at ACT Research, added that: “Too many trucks [are] chasing too little freight.  I think the trucking community had an expectation that [growth] was going to continue.  But with 20/20 hindsight, that did not happen.  Freight has been very flat for basically the last year.  There is anecdotal signs that freight is improving very modestly, but I would liken it to treading water but still below surface at this point.”

Rail Week Ending 30 July 2016: Month Down 7.9%, Week Down 4.9% Year-over-Year: Week 30 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 13 week rolling averages' contraction continues to moderate - but the four and 52 week rolling averages continue to degrade. The contraction began over one year ago, and now rail movements are being compared against weaker 2015 data - and this is the cause some acceleration in the short term rolling averages. Still, rail is weak to very week compared to previous years.A summary of the data from the AAR: Carload traffic in July totaled 1,025,367 carloads, down 8.8 percent or 99,530 carloads from July 2015. U.S. railroads also originated 1,002,401 containers and trailers in July 2016, down 6.9 percent or 74,482 units from the same month last year. For July 2016, combined U.S. carload and intermodal originations were 2,027,768, down 7.9 percent or 174,012 carloads and intermodal units from July 2015. In July 2016, four of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with July 2015. These included: grain, up 15.3 percent or 12,641 carloads; waste and nonferrous scrap, up 25.9 percent or 3,400 carloads; and miscellaneous carloads, up 12.9 percent or 2,880 carloads. Commodities that saw declines in July 2016 from July 2015 included: coal, down 17.5 percent or 70,479 carloads; petroleum and petroleum products, down 22 percent or 11,926 carloads; and crushed stone, gravel and sand, down 11.6 percent or 11,765 carloads. Excluding coal, carloads were down 4 percent or 29,051 carloads in July 2016 from July 2015. Total U.S. carload traffic for the first 30 weeks of 2016 was 7,320,583 carloads, down 11.9 percent or 986,109 carloads, while intermodal containers and trailers were 7,715,404 units, down 2.8 percent or 221,538 containers and trailers when compared to the same period in 2015.

Factory Orders August 4, 2016: Anecdotal reports on the factory sector have shown isolated strength that actual government data have yet to show. Factory orders fell a sizable 1.5 percent in June following a downward revised 1.2 percent decline in May. Core capital goods (nondefense ex-aircraft) have been especially weak though orders did rise 0.4 percent in June. Shipments for this category, however, slipped 0.2 percent following a downward revised 0.7 percent decline in June in readings that will not boost revision estimates for second-quarter GDP. Orders for nondurable goods were a plus in June, rising 1.0 percent but reflect price effects tied to energy products. Durable goods fell 3.9 percent in the month which is one 1 tenth lower than last week's advance report for this component. Orders for computers & electronics were especially weak in the month as were orders for transportation equipment with civilian aircraft, which is always volatile month to month but nevertheless has been weakening on trend, falling 59 percent. Vehicles are a plus in the report, with orders up 3.2 percent. A major negative in the report is a 0.8 percent drop in total unfilled orders where contraction is a negative for factory employment. Total shipments are a positive, up 0.7 percent in a gain that may not be repeated should orders stay weak. A plus is that inventories edged lower, pulling down the inventory-to-shipment ratio to 1.35 from 1.36. The factory sector, held down by weak exports and weak business investment centered in energy, has shown isolated signs of life but has yet to pull its weight so far this year.

June 2016 Manufacturing New Orders Declined: US Census says manufacturing new orders declined. Our analysis agrees. The rolling averages declined. Most of the sectors within manufacturing were soft.  US Census Headline:

  • The seasonally adjusted manufacturing new orders is down 1.5 % month-over-month, and down 2.6 % year-to-date (last month was down 1.9 % year-to-date)..
  • Market expected (from Bloomberg / Econoday) month-over-month growth of -2.3 % to -0.3 % (consensus -1.8 %) versus the reported -1.5 %.
  • Manufacturing unfilled orders down 0.8 % month-over-month, and down 1.9 % year-to-date.

Econintersect Analysis:

  • Unadjusted manufacturing new orders growth decelerated 5.3 % month-over-month, and down 5.6 % year-over-year.
  • Unadjusted manufacturing new orders (but inflation adjusted) down 2.7 % year-over-year.
  • Three month rolling new order rolling averages decelerated 0.2 % month-over-month, but is down 2.0 % year-over-year.
  • Unadjusted manufacturing unfilled orders growth decelerated 1.1 % month-over-month, and down 2.9 % year-over-year
  • As a comparison to the inflation adjusted new orders data, the manufacturing subindex of the Federal Reserves Industrial Production growth accelerated 0.5 % month-over-month, and up 0.7 % year-over-year.

Another Bad Month for Factory Orders -- Robert Oak - The Manufacturers' Shipments, Inventories, and Orders report shows factory new orders declined by -1.5% for June.  That's after May new orders decreased by -1.2%.  Durable goods new orders by themselves plunged by -3.9% for June after an May -2.9% decrease.  That ain't good folks.  Transportation new orders plunged by -10.5% as nondefense aircraft and parts dropped by -58.8%.  The year to date in comparison to the same time period in 2015, new orders are down -2.6% while just durable goods new orders have had no year to date change.  Inventories continue to be down as well, not a good sign.  The Census manufacturing statistical release is called Factory Orders by the press and covers both durable and non-durable manufacturing orders, shipments and inventories.  While transportation equipment new orders plunged by -10.5% , motor vehicles bodies & parts new orders increased by 3.2%.  Volatile aircraft new orders decreased -58.8% in nondefense and declined in defense aircraft new orders by -6.7%.  Ships and boats new orders increased by 6.7%.  There are other categories of transportation equipment not listed in the report, so don't blame it all on volatile aircraft, although the increase in autos & parts is a saving grace. Core capital goods new orders increased by 0.4%.  The previous month showed a -0.6% decrease and April showed a -0.9% decline.  Core capital goods are capital or business investment goods and excludes defense and aircraft.  This is all pretty weak, although a positive increase in the midst of such declines is another silver lining.  Nondurable goods new orders increased by 1.0%.  Manufactured durable goods new orders, decreased -3.9%, shown below.  Shipments overall increased 0.7% for June.  Durable goods shipments increased 0.4%.  Nondurable goods shipments increased 0.1%.  Core capital goods shipments decreased by -0.2%.  Core capital goods shipments go into the GDP calculation.  Below is a graph of core capital goods shipments.  Inventories for manufacturing overall were down slightly by -0.1%, the same decline for May and April.  Durable goods is much worse, with a -0.3% decline and have dropped 11 of the past 12 months. Core capital goods inventories increased 0.1%.  Nondurable goods inventories increased 0.2%, but are down -3.8% for the same time a year ago.  For the same time this year, overall manufacturing inventories have declined by -3.7%.  Durable goods inventories have dropped by -3.7% also for the year. The inventory to shipments ratio was 1.35, whereas May was 1.36.  When ratios increase it can imply economic sluggishness.

Factory Orders Plunge For 20th Month In A Row - Longest Streak In US History --Despite a small beat in MoM data (-1.5% vs -1.9% exp), US factory orders plunged 5.6% YoY - the worst drop since September 2015. This extends the period of annual contraction to 20 months - a record streak of declines in US history and one which has always, without exception, coincided with recession... The big drop was driven by a plunge in non-defense aircraft and parts... (even with a surge in car orders)

What Do Inventories Suggest About Q3 GDP? Can Drones Cure The "Inventory Crisis"? --In the second quarter inventory subtracted 1.2% from GDP. It was supposed to add to GDP. When it didn’t, Bloomberg promptly noted that a rebound in inventory build-up will add to third quarter GDP.   It won’t, because inventory-to-sales numbers remain in the stratosphere. This is something I have commented on for months. Last week, someone else noticed. Joseph Calhoun, at Alhambra Investment partners took a look at inventory and other factors and asked is this As Good As It Gets? The last two years we have seen a pattern of a weak first quarter – for which economists have been searching frantically for an explanation – followed by a second and third quarter rebound. Fourth quarters have tended to the weak side. This cycle was a kind of mini inventory cycle within the larger business cycle. Businesses, told by the Fed and Wall Street economists – possibly redundant – to expect the ever elusive economic acceleration to finally arrive, built inventories in anticipation of what never came. It appears now that US businesses may have finally reached their limit of credulity when it comes to Fed forecasting. There was no inventory build in the second quarter; indeed inventory subtracted 1.2% from GDP in the quarter. As did almost every other investment category; intellectual property was the lone exception. That isn’t exactly comforting when one considers the nebulous nature of that category. The press almost universally reported the inventory GDP subtraction in positive terms, i.e. inventory contractions are followed by expansions of production to build them again. That is, I believe, the triumph of robotic article generation, algorithms copying what has been said in past articles, ignoring the context. It is often true that inventory contractions are followed by increases in production – but not when inventory/sales ratios remain elevated even after a contraction. And slowing of inventory accumulation has not yet reduced those ratios to levels associated with recovery and certainly not enough to warrant an increase in production.

Did Manufacturing Output Grow Faster than We Thought? - Writing this post was kind of depressing, because all it did was highlight for me how many things I’ve got in my reading list to think about and digest. I was reading Brad DeLong’s recent post on manufacturing’s share in output, and realized that I’ve got about four more posts from Brad stacked up in the queue, along with all the other stuff I’ve been meaning to read more carefully. So, respectfully, Brad, please stop saying interesting things related to growth. I need time to catch up. How about a nice run of posts about the history of monetary policy or something like that? DeLong’s motivating fact(s) are about manufacturing’s share of output, both in nominal and real terms. He grabbed the following from the BEA and developed the path of the real share by making a crude calculation. As he freely admits in the post, this isn’t exactly how one would want to calculate the real share of manufacturing in output. But, for the purposes of his post, I don’t think it makes a huge difference.Anyway, he establishes three main facts that he wants to understand. First, note that the nominal share of manufacturing in nominal output has been declining steadily since the late 1940’s. He gets a value of -1.4% per year as the growth rate of the nominal share. Second, the relative price of manufactured goods (compared to aggregate output) has been declining by -1.4% per year as well. This gives us the final fact, that the real share of manufacturing in real output has not grown (or shrunk) over time, as you can see in the figure.DeLong then proceeds to ask himself how to reconcile all of these three facts.My brain moves a little slower than DeLong’s, so here’s how I worked through his reasoning.

PMI Manufacturing Index August 1, 2016: Highlights: The manufacturing PMI posted a sizable improvement in July, at 52.9 for both the month's final and flash readings vs 51.3 in June. The 52.9 result is far from robust but robust is the word the report uses to describe new orders where strength includes export orders which posted their best showing in nearly 2 years. Employment is also a plus, rising at its best rate since July last year, while output also shows strength. Price data show a little strength with inputs, boosted by steel prices, at a 4-month high though selling prices remain flat. The rise in export orders is a major positive in this report, underscoring the benefits of this year's depreciation in the dollar and also perhaps hinting at a general rebound in global demand. Watch for the ISM manufacturing report to be posted later this morning at 10:00 a.m. ET.

Markit Manufacturing PMI: Relatively Strong Start to the Third Quarter  - The July US Manufacturing Purchasing Managers' Index conducted by Markit came in at 52.9, unchanged from the preliminary reading and up from 51.3 in June. Today's headline number matched the consensus of 52.9. Markit's Manufacturing PMI is a diffusion index: A reading above 50 indicates expansion in the sector; below 50 indicates contraction. Here is the opening from the latest press release:  U.S. manufacturers signalled a relatively strong start to the third quarter of 2016. Output growth picked up markedly since June, driven by a robust and accelerated expansion of incoming new work. While domestic demand remained the key source of growth in July, there were also signs of renewed momentum in external markets. Reflecting this, new export sales expanded at the fastest pace since September 2014. Increased workloads also contributed to rising payroll numbers and a solid upturn in input buying during July. [Press Release] Here is a snapshot of the series since mid-2012.

ISM Mfg Index August 1, 2016: Highlights Employment fell slightly and delays in delivery times eased, two factors that held down the July ISM index to 52.6 vs June's 53.2. But that's not the important news. The important news is the new orders index which remains extremely solid, at 56.9 and pointing to future strength for employment as well perhaps as slowing for future deliveries (slowing in deliveries is an indication of strength in demand, of congestion in the supply chain). Export orders are not as strong as domestic orders but they are respectable, at 52.5 which is safely above breakeven 50 to indicate monthly growth. The reading here echoes even stronger export results the manufacturing PMI which was released earlier this morning. Production is solid in this report, at 55.4 for a 7 tenths gain in the month. Inventories are flat and prices for inputs are showing modest pressure. But it's the new orders index that is the standout in this report and which hints at badly needed improvement in government data where new orders have yet to show strength. If the ISM orders pan out, the economy looks to get a second-half lift from its lagging sector, the factory sector.

 ISM Manufacturing index decreased to 52.6 in July  - The ISM manufacturing index indicated expansion for the fifth consecutive month in July. The PMI was at 52.6% in July, down from 53.2% in June. The employment index was at 49.4%, down from 50.4% in June, and the new orders index was at 56.9%, down from 57.0% in June. From the Institute for Supply Management: July 2016 Manufacturing ISM® Report On Business® Economic activity in the manufacturing sector expanded in July for the fifth consecutive month, while the overall economy grew for the 86th consecutive month. "The July PMI® registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent. The New Orders Index registered 56.9 percent, a decrease of 0.1 percentage point from the June reading of 57 percent. The Production Index registered 55.4 percent, 0.7 percentage point higher than the June reading of 54.7 percent. The Employment Index registered 49.4 percent, a decrease of 1 percentage point from the June reading of 50.4 percent. Inventories of raw materials registered 49.5 percent, an increase of 1 percentage point from the June reading of 48.5 percent. The Prices Index registered 55 percent, a decrease of 5.5 percentage points from the June reading of 60.5 percent, indicating higher raw materials prices for the fifth consecutive month. Manufacturing registered growth in July for the fifth consecutive month, as 12 of our 18 industries reported an increase in new orders in July (same as in June), and nine of our 18 industries reported an increase in production in July (down from 12 in June)." Here is a long term graph of the ISM manufacturing index.

July 2016 ISM Manufacturing Survey Decline But Remains In Expansion: The ISM Manufacturing survey remained in expansion for the fifth month after 5 months in contraction - but slightly declined. The key internals likewise declined. The PMI manufacturing Index, also released today, is also in positive territory and marginally improved. The ISM Manufacturing survey index (PMI) marginally declined from 53.2 to 52.6 (50 separates manufacturing contraction and expansion). This was slightly below expectations which were 52.0 to 54.0 (consensus 53.2). Earlier today, the PMI Manufacturing Index was released:

  • Manufacturing PMI rises to 52.9 in July, up from 51.3 in the previous month
  • Manufacturing output growth accelerates to eight-month high
  • Faster growth of output, new orders and employment
  • Subdued rates of input cost and prices charged inflation continue

The regional Fed manufacturing surveys are mixed, and now the ISM indicates manufacturing shows expansion. Relatively deep penetration of this index below 50 has normally resulted in a recession. The noisy Backlog of Orders declined and now is in contraction. Backlog growth should be an indicator of improving conditions; a number below 50 indicates contraction. Backlog accuracy does not have a high correlation against actual data. Excepts from the ISM release: The July PMI® registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent. The New Orders Index registered 56.9 percent, a decrease of 0.1 percentage point from the June reading of 57 percent. The Production Index registered 55.4 percent, 0.7 percentage point higher than the June reading of 54.7 percent. The Employment Index registered 49.4 percent, a decrease of 1 percentage point from the June reading of 50.4 percent. Inventories of raw materials registered 49.5 percent, an increase of 1 percentage point from the June reading of 48.5 percent. The Prices Index registered 55 percent, a decrease of 5.5 percentage points from the June reading of 60.5 percent, indicating higher raw materials prices for the fifth consecutive month. Manufacturing registered growth in July for the fifth consecutive month, as 12 of our 18 industries reported an increase in new orders in July (same as in June), and nine of our 18 industries reported an increase in production in July (down from 12 in June).

 Midwest economic survey points downward again: — Figures from a monthly survey of supply managers in nine Midwest and Plains states suggest slow or little economic growth ahead, according to a report released Monday. The Mid-American Business Conditions index fell to 47.6 last month, down from 50.1 in June. This is the first time since January the reading has fallen below growth neutral 50.0, the report said. More than one-third of those surveyed named global economic conditions as the greatest factor weighing on company sales and business conditions over the past year. Economic optimism, as reflected by the July business confidence index, sank to 47.0 from June's 51.9. "Global economic uncertainty, including June's Brexit vote, was a significant economic concern for a large share of supply managers in our survey," said Creighton University economist Ernie Goss, who oversees the survey. More than 20 percent of those surveyed named downturns in the farm economy as the largest factor slowing company sales and growth. The survey results are compiled into a collection of indexes ranging from zero to 100. Survey organizers say any score above 50 suggests economic growth, while a score below that suggests decline. The survey covers Arkansas, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. The index for new export orders rose to 52.5 from June's 47.6 and May's 52.1. The import index for July jumped to 51.0 from 47.8 in June. "Expansions among global trading partners more than offset a relatively strong U.S. dollar," Goss said. "A strong U.S. dollar makes U.S. goods less competitively priced abroad. "However, I do expect the strength of the dollar to continue to weigh on export orders. At the same time, the relatively strong U.S. dollar, making foreign goods more competitively priced in the U.S., boosted imports for the month."

PMI Services Index August 3, 2016: Highlights Slow growth is the verdict of Markit's U.S. service sample whose composite index came in only slightly above breakeven 50, at 51.4 for final July which is unchanged from June and up 5 tenths from the July flash. Growth in new orders is, however, a major negative for July with a bounce back for employment, which hit a deep low in June, a standout positive. Another positive, one especially for employment, is an uptick in the year-ahead outlook. Inflation data are once again subdued. This report, especially for orders, has not been running very strongly this year, in contrast to the ISM non-manufacturing report which will be posted at 10:00 a.m. ET this morning.US Services Purchasing Managers' Index (PMI) is based on monthly questionnaire surveys collected from over 400 U.S. companies which provide a leading indication of what is happening in the private sector services economy. It is seasonally adjusted and is calculated from seven components, including New Business, Employment and Business Expectations.

ISM Non-Manufacturing Index decreased to 55.5% in July --The July ISM Non-manufacturing index was at 55.5%, down from 56.5% in June. The employment index decreased in June to 51.4%, down from 52.7% in June. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management:July 2016 Non-Manufacturing ISM Report On Business® Economic activity in the non-manufacturing sector grew in July for the 78th consecutive month, "The NMI® registered 55.5 percent in July, 1 percentage point lower than the June reading of 56.5 percent. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.3 percent, 0.2 percentage point lower than the June reading of 59.5 percent, reflecting growth for the 84th consecutive month, at a slightly slower rate in July. The New Orders Index registered 60.3 percent, 0.4 percentage point higher than the reading of 59.9 percent in June. The Employment Index decreased 1.3 percentage points in July to 51.4 percent from the June reading of 52.7 percent. The Prices Index decreased 3.6 percentage points from the June reading of 55.5 percent to 51.9 percent, indicating prices increased in July for the fourth consecutive month. According to the NMI®, 15 non-manufacturing industries reported growth in July. The majority of the respondents’ comments reflect stability and continued growth for their respective companies and a positive outlook on the economy."

July 2016 ISM Services Index Growth Marginally Slows.: The ISM non-manufacturing (aka ISM Services) index continues its growth cycle, but declined from 56.5 to 55.5 (above 50 signals expansion). Important internals improved and remain in expansion. Markit PMI Services Index was released this morning, was statistically unchanged and remains in expansion.. This was below expectations (from Bloomberg / Econoday) of 55.5 to 57.0 (consensus 56.0). For comparison, the Market PMI Services Index was released today - and was statistically unchanged. Here is the analysis from Bloomberg:  There are two sub-indexes in the NMI which have good correlations to the economy - the Business Activity Index and the New Orders Index - both have good track records in spotting an incipient recession - both remaining in territories associated with expansion.This index and its associated sub-indices are fairly volatile. The Business Activity sub-index declined 0.2 points and now is at 59.3.

Hiring is soft spot, but ISM services gauge finds most U.S. companies are growing - MarketWatch: Companies in the U.S. that offer services, such as health care, retail goods and entertainment, grew, albeit at a slightly more subdued pace, in July, though they are not adding as many new workers as they were at the end of last year, according to a survey of senior executives. The Institute for Supply Management said its nonmanufacturing index fell to 55.5% last month from 56.5% in June.Any reading over 50% signals that more businesses are expanding instead of contracting. Last month, 15 of the 18 service sectors tracked by the ISM were expanding. The new-orders index rose slightly to a very strong 60.3%, a good sign for the broader economy. The vast majority of Americans are employed in service-oriented businesses that account for much of U.S. growth. “Business conditions have remained consistent over the past month,” said an senior executive at a retail outlet. However, the economy isn't growing as fast as it was last year, and companies appear to have become more selective about hiring. The ISM services employment index dipped 1.3 points to 51.4%. The index has been hovering just north of 50% for most of 2016 after hitting a postrecession peak last October. One executive in the financial industry cited the Brexit vote in the U.K. as a potential challenge “to deals in our industry” but said “it’s a bit too early to tell.” The survey is compiled from a questionnaire of the executives who buy supplies for their companies and it tends to rise and fall in step with the broader economy.

 Weekly Initial Unemployment Claims increased to 269,000 -- The DOL reported: In the week ending July 30, the advance figure for seasonally adjusted initial claims was 269,000, an increase of 3,000 from the previous week's unrevised level of 266,000. The 4-week moving average was 260,250, an increase of 3,750 from the previous week's unrevised average of 256,500.There were no special factors impacting this week's initial claims. This marks 74 consecutive weeks of initial claims below 300,000, the longest streak since 1973. The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Challenger Job-Cut Report August 4, 2016: Highlights: A renewed surge of cuts in the energy sector drove Challenger's lay-off count to 45,346 in July, up from a 34,000 average in the prior two months but in line with the prior trend. Layoffs out of energy, which eased off in June and May, surged again, up 17,725 to suggest that the Spring jump in oil prices, which has now faded, did little to boost employment. Computers are second in July's layoff count, at 9,875 for their highest total since April. This report won't be changing expectations for tomorrow's employment report but it does raise the question whether the oil patch, instead of stabilizing, will continue to erode.

Gallup Good Jobs Rate August 4, 2016: Highlights - July Good Jobs rate improved to 47.1 percent from June's 46.0 percent. The current rate is also 1.6 percentage points higher than in July 2015, suggesting an underlying increase in full-time work beyond seasonal changes in employment. The unemployment was 5.1 percent -- the best rates Gallup has recorded for each since 2010. Workforce participation was 67.8 percent, the highest since June 2013. The unadjusted U.S. unemployment rate was 5.1 percent in July, down nominally from June's 5.3 percent. July's unemployment estimate is the lowest for any month since Gallup began tracking the measure in 2010, besting the 5.2 percent measured in April of this year. The measure of underemployment in July was 12.7 percent, down from 13.6 percent in June and also the lowest Gallup has recorded since 2010. July's rate also marks the fifth straight month of declining underemployment from February's rate of 14.7 percent.

 ADP: Private Employment increased 179,000 in July -- From ADP: Private sector employment increased by 179,000 jobs from June to July according to the July ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis....Goods-producing employment was down by 6,000 jobs in July, following June losses of 28,000. The construction industry lost 6,000 jobs, following June losses of 4,000 jobs. Meanwhile, manufacturing gained 4,000 jobs after losing 15,000 the previous month.Service-providing employment rose by 185,000 jobs in July, fewer than June’s 203,000 jobs. The ADP National Employment Report indicates that professional/business services contributed 59,000 jobs, down from June’s 78,000. Trade/transportation/utilities increased by 27,000 jobs in July, down from 41,000 jobs added the previous month. Financial activities added 11,000 jobs, following last month’s gain of 9,000 jobs. ...Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth remains strong, but is moderating as the economy approaches full employment. Businesses are having a more difficult time filling open job positions, which are near record highs. The nation’s biggest economic problem will soon be the lack of available workers.” This was above the consensus forecast for 165,000 private sector jobs added in the ADP report. 

ADP Employment Report Shows 179,000 Private Sector Jobs for July --  Robert Oak - ADP's proprietary private payrolls jobs report gives a monthly gain of 179,000 private sector jobs for July 2016.  This is less than the 12 month ADP private sector average and about the same as June.  All of the job gains were in the service sectors whereas the goods producing jobs were lost.  The largest gains were in professional and business services with construction jobs contracting.  This report does not include government, or public jobs. ADP's reports in the service sector alone job gains were 185,000 private sector jobs. The goods sector lost -6,000 jobs. Unfortunately ADP does not give a lot of breakdown in their job categories but clearly other areas of the goods producing sector lost jobs. Professional/business services jobs grew by 59,000. Trade/transportation/utilities continues to grow with 27,000 jobs. Financial activities payrolls added 11,000 jobs. Graphed below are the monthly job gains or losses for the five areas ADP covers, manufacturing (maroon), construction (blue), professional & business (red), trade, transportation & utilities (green) and financial services (orange). ADP reports payrolls by business size. Small business, 1 to 49 employees, added 61,000 jobs with establishments having less than 20 employees adding 22,000 of those jobs. ADP does count businesses with one employee in there figures. Medium sized business payrolls are defined as 50-499 employees, added 68,000 jobs. Large business added 50,000 to their payrolls, and companies with 1,000 or more workers added 33,000 of those jobs. ADP added a new report, franchise employment and franchises added 21,200 jobs for the month. Franchises are places like auto dealerships, chain restaurants, etc. where the brand and products are licensed to a small business owner and the facility is not run by the main company themselves. Below is the graph of ADP private sector job creation breakdown of large businesses (bright red), median business (blue) and small business (maroon), by the above three levels. For large business jobs, the scale is on the right of the graph. Medium and Small businesses' scale is on the left. One of the more interesting aspects of the ADP report is the breakdown of the private sector by service producing and goods producing jobs. The service sector are disproportionately lower paying jobs as a whole in comparison to goods producing jobs, even while including the financial, professional and business services sectors are part of services.  Below is the graph of ADP service sector (maroon, scale left) jobs against their goods production jobs (blue, scale right).

July 2016 ADP Job Growth Is 179,000 - Above Expectations: ADP reported non-farm private jobs growth at 179,000. The rate of growth continues in a downtrend. The market expected from Bloomberg / Econoday160,000 to 185,000 (consensus 150,000) versus the 165,000 reported. These numbers are all seasonally adjusted;

  • In Econintersect's July 2016 economic forecast released in late June, we estimated non-farm private payroll growth at 105,000 (based on economic potential) and 150,000 (fudged based on current overrun of economic potential);
  • This month, ADP's analysis is that small and medium sized business created 72 % of all jobs;
  • Manufacturing jobs increased 4,000.
  • All of the jobs growth came from the service sector as goods producing sector contracted;
  • June report (last month), which reported job gains of 172,000 was revised up to 176,000;

The three month rolling average of year-over-year job growth rate has been slowing declining since February 2015 - it is now 1.93% (lower than last month's revised 2.00%)  ADP changed their methodology starting with their October 2012 report, and ADP's real time estimates are currently worse than the BLS. Per Mark Zandi, chief economist of Moody's Analytics: Job growth remains strong, but is moderating as the economy approaches full employment. Businesses are having a more difficult time filling open job positions, which are near record highs. The nation's biggest economic problem will soon be the lack of available workers.

July Employment Report: 255,000 Jobs, 4.9% Unemployment Rate --From the BLS: Total nonfarm payroll employment rose by 255,000 in July, and the unemployment rate was unchanged at 4.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, and financial activities. Employment in mining continued to trend down.... The change in total nonfarm payroll employment for May was revised from +11,000 to +24,000, and the change for June was revised from +287,000 to +292,000. With these revisions, employment gains in May and June combined were 18,000 more than previously reported.... In July, average hourly earnings for all employees on private nonfarm payrolls increased by 8 cents to $25.69. Over the year, average hourly earnings have risen by 2.6 percent. The first graph shows the monthly change in payroll jobs, ex-Census (meaning the impact of the decennial Census temporary hires and layoffs is removed - mostly in 2010 - to show the underlying payroll changes). Total payrolls increased by 255 thousand in July (private payrolls increased 217 thousand). Payrolls for May and June were revised up by a combined 18 thousand. This graph shows the year-over-year change in total non-farm employment since 1968. In July, the year-over-year change was 2.45 million jobs. A solid gain. The third graph shows the employment population ratio and the participation rate.

July Jobs Report – The Numbers - WSJ -- The U.S. economy just completed its best two-month stretch of job growth since late last year, the Labor Department said Friday. The jobless rate, calculated from a separate survey of American households, held steady. Here are the details. Employers added 255,000 jobs in July. Job growth was also stronger in May and June than previously thought. Employers added 292,000 jobs in June, up from the initially estimated 287,000. They added 24,000 in May, up from the prior estimate of 11,000. Over the past three months, job growth has averaged 190,000. In 2015, growth averaged 229,000.  The jobless rate held firm at 4.9% in July. Hiring was strong enough to absorb an increase in the number of Americans in the labor force without causing the jobless rate to rise. Federal Reserve officials believe that the economy, in the longer run, will average between 4.7% and 5% unemployment.   A broader measure of unemployment rose to 9.7% in July from 9.6% in June. This measure reflects jobless workers, those stuck in part-time jobs, and those too discouraged to look for work. The measure stood at 10.4% a year ago.  The average hourly earnings of private-sector workers grew 2.6% in the year through July. That matched the strongest 12-month gain since July 2009. Wages have been growing steadily in recent months, suggesting the job market is tightening. Wages grew 8 cents, or 0.3%, in July from June, settling at $25.69.  The share of American adults either working or actively looking for jobs climbed a tenth of a percentage point to 62.8% in July. That suggests the stronger hiring is nudging more Americans to re-enter the job search, but participation is still depressed historically. The share hovered around 66% before the recession. Much of the decline has been due to the retirement of baby boomers, though participation has also fallen sharply among prime-age workers.

Employment Again Rises Sharply in July -- Dean Baker -- The Labor Department reported the economy added 255,000 jobs in July. With the June number revised up to 292,000, the average for the last three months now stands at 190,000. The household survey also showed a positive picture, with employment rising by 420,000. With new people entering the labor force, the employment-to-population ratio (EPOP) edged up by 0.1 percentage point to 59.7 percent, while the unemployment rate remained unchanged at 4.9 percent.  The job gains in the establishment survey were broadly based. ... Other news in the establishment survey was also positive. The length of the average workweek edged up by 0.1 hours leading to an increase in the index of aggregate weekly hours of 0.5 percent. There also is some evidence of more rapid wage growth. The year-over-year increase in the average hourly wage was 2.6 percent. The annual rate comparing the average for the last three months with the prior three months was 2.8 percent. If this continues, workers will be able to get back some of the share lost to profits in the downturn. While the household survey is mostly positive, there are some aspects that continue to suggest labor market weakness. The duration measures of unemployment all increased in July, with the average duration of unemployment spells rising from 27.7 weeks to 28.1 weeks and the median from 10.3 weeks to 11.6 weeks. These durations are more consistent with a recession than a strong labor market. Similarly, the number of people involuntarily working part-time rose slightly to 5.94 million. This followed a sharp drop in June, but it is nonetheless quite high for a labor market with an unemployment rate of 4.9 percent. Also, the percentage of unemployment due to voluntary job leavers remained at 10.7 percent. This compares with peaks of more than 12.0 percent before the recession and over 15.0 percent back in 2000. One interesting note is that the least educated workers appear to be the biggest beneficiaries of recent job growth. The EPOP ratio for workers without high school degrees rose by 2.1 percentage points for the month and is 1.6 percentage points above its year ago level. The unemployment rate for this group is 1.9 percentage points below the year ago level. By contrast, the EPOP ratio for college grads is down by 0.5 percentage points from its year ago level while the unemployment rate is unchanged. The unemployment rate for workers with just a high school degree fell by 0.5 percentage points over the last year.  One positive item in this report is a sharp drop in black teen unemployment from 31.2 percent to 25.7 percent. These data are highly erratic, but the June level was a sharp reported rise from a low of 23.3 percent in February.

Unemployment Statistics Have a Good Month -- Robert Oak - The July 2016 unemployment report shows a pretty good month of statistics.  The unemployment rate remained the same at 4.9%.  Yet this month, unlike others, the low unemployment rate is not due to more people dropping off of the statistical radar.  Instead the labor participation rate ticked up a tenth of a percentage point as more people entered the labor force.  Another piece of promise is the number of people who entered the labor force almost equaled those newly employed.  One month does not a pattern make, especially with BLS statistics, yet seeing less people dropping out of the labor force is a welcome change.  This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS, or current population survey.  The CPS survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of sampling error.  This part of the employment report is not about actual jobs gained but people and their labor status.Those employed now stands at 151,517,000, a monthly increase of 420 thousand.  From a year ago, the ranks of the employed has increased by 2.172 million.  That's a huge monthly gain and more in line with the monthly gains earlier in the year.  Those unemployed number 7,770,000, a monthly -13,000 decline.  From a year ago the unemployed has decreased by -479,000.  That the status quo on this figure hasn't changed much isn't surprising since the real unemployment problem is with those no longer counted. Those not in the labor force is 94.333 million.  The below graph are the not in the labor force ranks.  Those not in the labor force has increased by 572,000 in the past year, which pundits like to blame on baby boomers but we know better.  It is people who need a job who have stopped trying to get one in addition to retirees.  The labor participation rate is 62.8%.  This is a 0.1 percentage point increase from last month.  Pre-recession, the January 2008 labor participate rate was 66.2% a far cry from what we see today.  Ignoring labor participation rates after 2008, one has to go to the late 1977 to find rates this low.  We consider this the most telling on where those people swept under the labor rug have really gotten too. Below is a graph of the labor participation rate for those between the ages of 25 to 54.  The rate is 81.2% and had no change from the June.  These are the prime working years where people are not in retirement or in school full time commonly, so one should not see record low participation rates.  In January 2008 the prime working years labor participate rate was 83.3%.The civilian labor force, which consists of the employed and the officially unemployed, increased by 407,000 to stand at 159,287,000.  The civilian labor force has grown by 2,744,000 over the past year.  This is actually high annual growth, we hope it stays that way because those long cast aside are finally becoming employed again.  We hope it is not artificial growth since the BLS counts those on guest worker Visas and even illegal workers mixed in with permanent resident and citizen workers.  Below is a graph of those not in the labor force, (maroon, scale on the left), against the noninstitutional civilian population (blue, scale on the right).   Notice how those not in the labor force crisscrosses the noninstitutional civilian population in growth.  The civilian noninstituitonal population is from where all other labor statistics have sprung, so to see strong acceleration in those not counted as participating in the labor force than the pool of population possible to be part of the labor force in the first place has been the bad sign of the last eight years.

July 2016 BLS Jobs Growth Was Good For The Second Consecutive Month: The BLS job situation headlines showed a second month of tremendous jobs growth. Unfortunately the unadjusted numbers were much uglier - this is the largest discrepancy seen recently between the adjusted and unadjusted data. Economic intuitive sectors were positive. The rate of growth for employment accelerated this month (red line on graph below). This is a year-over-year analysis which has no seasonality issues.

  • The unadjusted jobs increase month-over-month about average for times of economic expansion.
  • Economic intuitive sectors of employment were positive.
  • This month's report internals (comparing household to establishment data sets) was inconsistent with the household survey showing seasonally adjusted employment improving 420,000 vs the headline establishment number of growing 255,000. The point here is that part of the headlines are from the household survey (such as the unemployment rate) and part is from the establishment survey (job growth). From a survey control point of view - the common element is jobs growth - and if they do not match, your confidence in either survey is diminished. [note that the household survey includes ALL jobs growth, not just non-farm).
  • The household survey added 407,000 people to the workforce.
  • The NFIB statement on jobs growth this month is at the end of this post.

A summary of the employment situation:

  • BLS reported: 255K (non-farm) and 217K (non-farm private). Unemployment rate was unchanged at 4.9 %.
  • ADP reported: 179 K (non-farm private)
  • In Econintersect's July 2016 economic forecast released in late June, we estimated non-farm private payroll growth at 105,000 (based on economic potential) and 150,000 (fudged based on current overrun of economic potential);

US Private-Sector Job Growth Remains Strong In July -- US employment growth is looking resilient after all. Companies added 217,000 jobs in July, the Labor Department reports. Although that’s down from June’s 259,000 gain, it’s clear that the economy is still minting new positions at a healthy pace. As a result, the surprisingly dark profile in May, when private sector employment contracted by 1,000, looks like noise.  The firm rate of growth for payrolls suggests that the prospects are a bit brighter for expecting better news for GDP in the third quarter. In fact, the Atlanta Fed’s GDPNow model is projecting  a dramatically stronger Q3 growth rate: 3.7% vs. just 1.2% in Q2 (as of Aug. 4 and before factoring in today’s employment report). The case for optimism certainly looks stronger given the latest news for jobs. Note, however, that the year-over-year rate of growth for nonfarm payrolls continued to dip, albeit fractionally, through July. Employment increased 1.91% in the first month of Q3 vs.  a year ago, down a touch from June’s pace and matching May’s increase for the lowest in three years. A mildly slower growth rate isn’t particularly worrisome at this stage since the downshift is probably cyclical and reflects the natural aging process that confronts every economic recovery. The peak year-over-year growth rates are almost certainly behind us, but there’s no reason to assume at this point that the decline won’t be slow.

The job market just keeps on getting stronger. -- Jared Bernstein - Employers added 255,000 jobs last month and the unemployment rate held steady at 4.9% in yet another strong report on the conditions of the US labor market. The job market is clearly on the path to full employment and solid monthly gains are particularly evident once we average out the monthly volatility in the data (see smoother below). Importantly, this is happening without any signs of overheating: inflation remains low, consistently below the Fed’s target rate. Today’s report yields many positive indicators:

  • –The pace of job growth over the past 3, 6, and 12 months is around 190,000-200,000, a strong trend that should put downward pressure on the jobless rate.
  • –Payroll gains were revised up slightly—by 18,000—over the prior two months. May’s 24,000 blip up on payrolls was clearly an outlier.
  • –In one of the indicators I’m watching most closely, the labor force participation rate has ticked up slightly over the past couple of months. It’s too soon to recognize this as a trend, but it’s consistent with the tightening job market pulling in previously sidelined workers and thus promising.
  • –Wage growth is responding to the tightening job market. A year ago, wages were growing around 2% per year; they’re now up 2.6% over the past year and as the figure below shows, there’s a recognizable trend there. With overall inflation running around 1%, that translates into real wage gains (“Yellen’s benchmark” refers to her statement that wage growth of 3.5% is consistent with stable inflation).
  • –In another sign of growing labor demand, average weekly hours ticked up slightly, while 64% of private sector industries added jobs last month, a tick up from June’s 62%.

The smoother shows the positive trend in payrolls: as noted above, averaging over various time horizons, we’re adding about 190K-200K per month.

July Payrolls Soar By 255K, Smashing Expectations As Wages Rise More Than Expected: Rate Hike Eyed --So much for payrolls tracking tax withholdings. With many expecting a payrolls whisper number to come below the consensus print of 180K, moments ago the BLS reported that July payrolls soared by 255K, a number made even more impressive by the upward revision to the June print from 287K to 292K. The unemployment rate remained flat at 4.9%, on expectations of a modest drop to 4.8%. Finally, making a strong case for a September rate hike was the average hourly earnigs which rose 0.3%, above the 0.2% expected, and well above last month's 0.1%  The market reaction, as we previewed in the case of a substantial beat, is one which suggest a rate hike may come sooner than later.

July Employment: Strength in Numbers (9 graphs) The Bureau of Labor Statistics announced that non-farm payroll employment for July increased 255,000, beating the “expected” job gains of 180,000. In addition, both May and June were revised up, 13,000 and 5,000, respectively. The bulk of the gains came from service sector jobs, up 201,000 with the majority of those in business and professional services.Employment in manufacturing (+9,000) and construction (+14,000) rose while  mining continued its decline (-7,000), consistent with continued weakness in the energy sector and oil prices. The continued strength in the labor market also showed up in an increase in average weekly hours and average hourly earnings.  Earnings are now increasing at a rate of over 2.5% year over year. Labor market dynamics from the household survey revealed an encouraging increase in labor force participation and employment and a decline in the number of persons unemployed, resulting in essentially no change in the unemployment rate at 4.89%. This means that fewer people are sitting on the sidelines. While the news is, on the whole, positive, the number of persons unemployed more than 27 weeks increased for the third straight month. The big puzzle is how to reconcile the continued strength in the labor market  with the very weak GDP growth reported last week and how the parse the impact of this on the decision making of the Fed.  Most likely the reason for these diverging signals will be become clearer over the next few months. The widespread view is that the continued strength of the labor market makes it likely that there will be a rate increase in 2016, although the weak GDP numbers will keep the market guessing.

The July Jobs Report in 15 Charts -- Employers added 255,000 jobs in July and the unemployment rate held steady at 4.9%, marking the second strong jobs report after May’s clunker. With July’s reading, the economy has added 186,000 jobs per month on average this year, down from more than 228,000 last year or 241,000 two years ago. Hourly earnings for employees on private nonfarm payrolls were up around 2.6% from a year earlier, the best pace since the recession ended in 2009. . The standard measure of unemployment, at 4.9% in July, only counts people who are working or actively looking for work. Broader measures of underemployment include discouraged and marginally attached workers who would like to work but have given up their job search. The broadest unemployment gauge also includes part-time workers who would prefer full-time work, and this measure edged up to 9.7% last month. . There’s considerable variation in unemployment rates by educational background, with significantly lower jobless rates for workers with more education. Still, unemployment rates for each group have fallen considerably over the last five years. . The unemployment rate also varies significantly by race and gender, though the rates for each group are nearing the lowest points recorded during the last expansion eight years ago. . Before the sharp downturn in oil prices in late 2014 hit the energy belt, employers were increasing payrolls by around 2.2% from a year earlier, the highest level since 2000. Since then, payroll expansion has moderated to around 1.7%. . The share of Americans in the labor force, or those over the age of 16 who are working or looking for work, was little changed at 62.8% last month. The share of Americans who were employed was essentially unchanged. . Employment and labor-force participation rates are higher for people between 25 and 54 years old because they haven’t yet retired and are less likely to be in school. . The share of unemployed people who left the labor force has been steadily declining, and has now fallen to its lowest share since 2001. . The share of people who weren’t in the labor force and found a job had been trending up in recent years, but it peaked in March. . The median spell of unemployment has fallen sharply from its 2010 highs but is still quite high by historical standards. . Looking at the change in the unemployment rate by the duration of workers’ jobless spell shows that levels of short-term unemployment are below their 2007 level but long-term unemployment is still higher. . Compared with December 2007, when the last recession began, the number of new part-time positions is still above the level of full-time positions. . Almost all of more than 10 million jobs added since the recession officially ended in mid-2009 have been full-time positions. . The share of jobs that are full-time positions is still slightly higher than the year-earlier share, but the rate of increase has slowed in recent months. .

Where The July Jobs Were: "Obamacare Again Offset Weak Industrial, Consumer Sector" --While last month's outlier spike in Information-related jobs, which saw 42K tech sector created in June, has come and gone, the breakdown of the July job additions confirms that some recently well-known trends continue, namely that the bulk of new jobs added remain in low-paying industries. Not only that, but some frank question marks emerge, like for example how did the government add 27K education jobs in July (out of a toal 38K) at a time when shools don't hire. The answer: seasonal adjustments and model quirks. So where were the July jobs? As our friends at Southbay Research point out, "Obamacare jobs offset weak Industrial and Consumer payrolls"   The breakdown:

  • Consumer demand is wobbly
    • Construction: Weak
    • Retail: Weak
  • Industrial Sector and related ecosystem remains weak but has bottomed
    • Mining (-7K)
    • Manufacturing (+9K)
    • Truck & Rail (+1k)
    • Temp (+17K)
    • Obamacare to the rescue: Healthcare +49K
      • Leisure & Hospitality (+45K) surges on extra convention-related hiring
    • Construction: Despite claims of a strong housing market, Construction payrolls are the weakest since 2012, consistent with SouthBay data which shows a sudden sharp decline in hiring at homebuilders. Reflecting the slowdown, Building Material Retail jobs were also weak (-1K).
    • Retail (+15K): Peak Auto sales is evident in Auto payrolls (+1K)
    • Temp (+17K)
    • Election Year Payrolls: Advertising (+3K)

    And the full breakdown:  

    "Jobs Data Nowhere As Strong As Headline" - Analysts Throw Up On Today's Seasonal Adjustment -- One week ago, the BEA admitted that it had "found a problem" when it comes to calculating GDP numbers. Specifically it blamed "residual seasonality" adjustments for giving historical GDP numbers a persistent optimistic bias. This came in the aftermath of last week's shocking Q2 GDP report which printed at 1.2%, less than half of Wall Street's consensus. Today, seasonality made another appearance, this time however in the much anticipated July number, which unlike the woeful Q2 GDP number, was the opposite, coming in far higher than expected. In fact it was higher than the top Wall Street estimate.  And, just like in the case of GDP, it appears that seasonal adjustments were the culprit for today's blowout headline print which excluding the Arima X 13 contribution to the headline number, would have been notably weaker. As Mitsubishi UFJ strategist John Herrmann wrote in a note shortly after the report, the "jobs headline overstates" strength of payrolls. He adds that the unadjusted data show a “middling report” that’s “nowhere as strong as the headline" and adds that private payrolls unadjusted +85k in July vs seasonally adjusted +217k. In Herrmann’s view, the government applied a “very benign seasonal adjustment factor upon private payrolls to transform a soft private payroll gain into a strong gain.” He did not provide a reason why the government would do that. Courtesy of Southbay Research, which also blasted today's seasonal adjustment factor, this is how the seasonal adjustments look like relative to history. We leave it up to readers to decide just why the government may want to represent what would otherwise have been a far weaker than expected report, into a blowout number, one which merely adds to the economic "recovery" narrative, which incidentally will come in very useful to Hillary's presidential campaign.

    Wolf Richter: Why this Job Market is Still Terrible: The Politically Incorrect Numbers Everyone is Hushing up - Today we got what was called a “stellar jobs report”: Non-farm payrolls rose 255,000 in July. In the other component of the report, the household survey showed that 420,000 new jobs were created. There are now a record 123.9 million full-time jobs. Government hiring was strong. Numerous sectors added to payrolls. And the unemployment rate remained stuck at 4.9%, with 7.8 million people deemed officially unemployed. So everyone was happy. Well, certainly the stock market was. The S&P 500 closed at a new high. The Treasury market started worrying about a Fed rate hike, and the 10-year yield rose to 1.59% But on an individual basis, on a per-capita basis – and this is what people feel when they’re looking for a job or asking for a raise – these “stellar” figures depict a job market that is only a little better than at the worst moment of the Great Recession.On its population clock, the Census Bureau estimates that the US population on August 5, 2016, at 4:49 p.m. ET (yup, down to the minute) was 324.17 million.That’s up from 308.76 million in April 2010. Since the darkest days of the Great Recession, the US population has grown by 15.4 million. The Census Bureau also estimates that there are currently 8.6 births per minute, minus 4.6 deaths per minute, plus 2 arriving immigrants (“net”) per minute, for a gain of nearly 6 folks per minute. Everyone ages, so the young ones move into the labor force, but the baby boomers are fit and healthy and don’t feel like retiring, and so they hang on to their jobs for as long as they can, despite the rampant age discrimination they face in many sectors, particularly in tech, though obviously not in politics. In 2010, 24% of the people were under 18. That was 74 million people. Millions of them have since moved into the labor force, elbowing each other while scrambling for jobs, as have those millions who were then between 18 and their twenties and in college or grad school. These millennials have arrived on the job market in very large numbers.In April 2010, there were 130.1 million nonfarm payrolls. In today’s July report, there were 144.4 million. Hence, 14.3 million jobs have been added to the economy over the time span, even as the total population has grown by 15.4 million. So that’s not working out very well. On average, 205,300 jobs need to be created every month just to keep up with population growth and not allow the unemployment situation to get worse.

    A Realistic Look at July’s Nonfarm Payrolls - Pam Martens and Russ Martens: August 5, 2016 The Bureau of Labor Statistics (BLS) released its nonfarm payroll data this morning, showing that 255,000 jobs were created in July. The unemployment rate remained at 4.9 percent. May data was revised up from the eyebrow-raising low number of 11,000 jobs to 24,000 jobs while June was also revised upward from 287,000 jobs to 292,000.  That brought the monthly average to 190,000 jobs over the past three months. Unfortunately, drilling down into the more granular details, a far less rosy picture emerges; a picture which is far more consistent with an economy feeling the continued weight of unprecedented wealth and income inequality; a picture that is far more correlated to an economy where “58 percent of all new income since the Wall Street crash has gone to the top 1 percent,” to quote Senator Bernie Sanders. The data for July shows that the U-6 unemployment number is 10.7 percent of the nation’s workforce, more than double the official number of 4.9 percent. The U-6 unemployment rate includes the number of people unemployed; plus individuals just marginally attached to the labor force; plus those employed part-time for economic reasons. (The Bureau of Labor Statistics provides the following definition of marginally attached: “Persons marginally attached to the labor force are those who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the past 12 months. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for work.) But a far bigger problem with the BLS data is what constitutes an “employed” worker to our Federal government’s numbers crunchers. According to the Bureau of Labor Statistics, you could be an out of work MBA graduate but if you help your brother in his deli for 15 hours in a week while living in his home, you’re counted as employed. (The BLS says that a worker who makes no money at all donating his or her services to a family business for 15 hours or more per week is considered employed.) Let us translate that twisted logic a bit further: you may have no equity stake at all in this business; you may never expect to reap a dime for your labors; you may not even get paid for your gas traveling to and from the family business – but your government considers you employed. Or, if you’re not working for a family member making no money at all but earn at least $20 working for a stranger for at least an hour in a week – you’re counted as an employed worker. You could be an out of work electrical engineer who installs a smoke alarm for the elderly woman next door and accepts $20 for your gesture of help; you now have a job in your government’s view. You don’t have to take our word for this Alice in Wonderland logic. Here’s the exact language from the Bureau of Labor Statistics web site:

    Employment Comments: Another Strong Report ---The headline jobs number was strong, and there were upward revisions to job growth for prior months.  Both the participation rate and employment-population ratio ticked up, and wages increased. A few negatives were U-6 increased slightly, and the number of both long term unemployed and part time workers increased slightly.  But overall this was a strong report.  In July, the year-over-year change was 2.45 million jobs.This graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation. The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 2.6% YoY in July.  This series is noisy, however overall wage growth is trending up. Note: CPI has been running around 2%, so there has been real wage growth.The number of persons working part time for economic reasons increased slightly in July. This level suggests slack still in the labor market. These workers are included in the alternate measure of labor underutilization (U-6) that increased to 9.7% in July. This graph shows the number of workers unemployed for 27 weeks or more. According to the BLS, there are 2.020 million workers who have been unemployed for more than 26 weeks and still want a job. This was up slightly from 1.979 million in June. This is generally trending down, but is still high. There are still signs of slack (as example, elevated level of part time workers for economic reasons and U-6), but there also signs the labor market is tightening. Overall this was a strong report. Job growth averaged 274,000 over the last two months, and 186,000 per month this year.

     The Reluctance of Firms to Interview the Long-Term Unemployed -- NY Fed - Estimates from the Current Population Survey show that the probability of finding a job declines the longer one is unemployed. Is this due to a loss of skills from being unemployed, employer discrimination against the long-term unemployed, or are there characteristics of workers in this segment of the workforce that lower their probability of finding a job? Studies that send out fictitious resumes find that employers do consider the length of unemployment in deciding whom to interview. Our recent work examines how such employer screening based on unemployment duration ultimately affects job-finding rates and long-term unemployment.  In the chart below, the solid red line plots the probability of finding a job by unemployment duration relative to the job-finding rate for the newly unemployed. The job-finding rate declines by roughly 50 percent within eight months. This negative relationship continues to hold even when we control for various observable characteristics such as age, race, education, and gender to prevent composition bias. For example, less educated workers have lower job-finding rates than more educated workers, remain unemployed for longer, and become overrepresented in the pool of long-term unemployed, which mechanically lowers the job-finding rate in the population. Controlling for education therefore flattens out the relationship between job-finding rates and unemployment duration (as seen in the blue line below), though a significant decline remains.

     How Low-Skilled Workers Could Rescue the U.S. Economy - : Remember those low-skilled workers, the ones who are disappearing from the work force because globalization and technology have passed them by? The ones whose economic frustration is driving populist politics around the world? New research by Harvard economist Dale Jorgenson offers a cheerier outlook for both them and economic growth. His new study, which breaks down the forces propelling U.S. growth since 1947—the year the transistor was invented—and projects them forward to 2024, anticipates a boom in low-skilled work that rekindles economic growth to the tune of 2.49% a year from now till then, a little above the 2.34% experienced from 1990 to 2014. Those workers will fill service jobs in a growing economy, he suggests. While the average quality of the labor force will begin to flat-line, the number of hours worked will rebound as employment-participation rates flick back to near where they were before the Great Recession, the paper says. Among men and women ages 25 to 35 with only high-school qualifications, these rates are still 10 percentage points below their peaks in the early 2000s (at just under 80% and 60%, respectively). “There are a lot of hours out there that aren’t being employed properly and they will be employed,” Mr. Jorgenson said in an interview, noting participation rates were already starting to rise as wages rose and employers struggled to fill positions.

    Jobs Grow in Big Cities, But So Does the Jobless Rate in Some - Over the year, the country’s largest metro areas have steadily added jobs, the Labor Department said Wednesday. That growth has expanded the workforce in many places as people come off the sidelines to hunt for job opportunities they might not have seen a year ago, or new arrivals move to where the jobs are. In some cities, that’s pushed up the jobless rate, if the economy can’t immediately put all those new entrants to work. In the year to June, nonfarm employment rose in all 51 of the U.S. metropolitan areas with a 2010 Census population of 1 million or more. Of those 51, eight saw their unemployment rates creep up. Some of the cities with higher jobless rates were in the oil patch or reliant on manufacturing, which has been facing headwinds from the strong dollar. Others were metro areas that in June 2015 had some of the lowest jobless rates in the country, suggesting they may have attracted job-seekers from other areas or recent college graduates in the intervening year. The national unemployment rate in June was 5.1%, down from 5.5% a year earlier. All figures are not seasonally adjusted. Oklahoma City, Okla., and Houston, Texas, two metro areas with major energy industries, saw their unemployment rates rise, by 0.5 and 0.7 points, respectively. That brought their unemployment rates up to 4.7% and 5.5%. Rust Belt cities Pittsburgh, Pa., and Cleveland, Ohio, both saw their unemployment rates creep up. Pittsburgh’s rose to 5.8% from 5.5% a year ago. In Cleveland, the jobless rate rose 0.1 point to 5.5%. Minneapolis, Minn., and Salt Lake City, Utah, both saw their unemployment rates rise, but both cities still had jobless rates below 4%. The labor-force participation rate rose 0.1 point to 62.7% in June 2016 from a year earlier, the Labor Department reported in early July. Those figures are seasonally adjusted.

    78 percent of Americans say sacrificing 1,000 foreign jobs for 1 U.S. job is worth it - Americans are overwhelmingly eager to sacrifice foreign jobs if that's what it takes to help our own country's workers, reports a new study soon to be published in the journal International Organization.   The research findings reveal that opposition to free trade is widespread and crosses partisan lines. Most remarkably, some 78 percent of Americans said they would support a hypothetical trade policy even if it sacrificed 1,000 foreign jobs for every one job gained for U.S. workers, according to a nationally representative survey.   The poll also found only 11 percent believe trade benefits both the United States and our trading partners, while 30 percent said trade has no effect and 50 percent said it only helps foreigners. "Our domestic policy in the United States of America should be take care of our own first, PERIOD!" wrote one study participant to explain this anti-trade view. "When there is no longer a line at the unemployment office or people living in homeless shelters or children going to be hungry then Americans should consider a trade policy that benefits those that live outside our country."

     These Government Rules Trap Millions of Americans in Poverty --Susanne Brasset has $5 in her bank account. She’s scared to save more.  Brasset, a 39-year-old freelance photographer in Denver, has cerebral palsy, which limits her ability to work. To pay her bills, she relies on Social Security, which she gets because of her disability. But the program monitors her bank accounts to make sure she's not putting away too much money. With more than a few thousand in the bank, she'd be disqualified for the program, as well as for Medicaid and other crucial benefits. Unable to plan for the future, Brasset said her finances put her in a "constant state of anxiety and fear." “There’s more money I could be making,” she said. “But I’m discouraged by all the rules I need to adhere to.”   Brasset is caught in a bind familiar to many people with disabilities. Their well-being relies on government benefit programs, but these programs impose strict limits on how much recipients can earn and save. Rules intended to bar freeloaders end up keeping disabled people in a permanent state of poverty, unable to put money away for emergencies, retirement, and other life goals. It's hardly a fringe issue—some 50 million Americans have disabilities, ranging from depression and other mental health conditions to chronic illnesses such as lupus and physical impairments like cerebral palsy and spinal cord injury—and the problem is starting to get more attention. Last week's Democratic National Convention featured disability rights advocate Anastasia Somoza, who has cerebral palsy and spastic quadriplegia, taking the stage in her wheelchair to deliver a searing speech, as well as video of Donald Trump apparently mocking a disabled reporter by waving his arms around spasmodically.

    America's hidden homeless: Life in the Starlight Motel - Tiffany and her fiancée Mark Maraccini have been living in the Starlight Motel in Wareham, Massachusetts, on and off since 2009. Their current stint started in the summer of 2015. Their daughter, Sofiya, who was born in 2011, lives with them.Like many considered homeless by the government, the family lives in a motel because - at $200 a week - it is cheaper than a normal apartment, and they have bad credit.The rooms are an average of about 13sq ft by 13sq ft, with one bathroom and no kitchen. Some residents, such as Tiffany, make do with microwaves.Like most motels, the Starlight wasn't built for long­-term stays. But all the rooms at the Starlight, and the other motels in Wareham, are filled by homeless occupants. Most consider this preferable to the other options available to them: "tent cities" in the woods or homeless shelters. No one knows exactly how many homeless people there are in Wareham because the state doesn't have any accurate data for the town. They rely on the information homeless shelters and charitable organisations are able to gather. But Thomas Fitzpatrick of Turning Point, a homeless outreach organisation based in Wareham, says: "We always have the rule of thumb that if there are 25 people [we know about], there are always 25 you don't know about."The stigma attached to homelessness leaves many feeling uncomfortable asking for help and means their homelessness is often hidden from the official statistics. Although cramped, the motel is home to Tiffany and her family. And while she'd rather be living in a real apartment, she says she knows that isn't an option considering their "horrible credit".

    Obama Just Granted Hundreds Of Drug Offenders Freedom. Dozens Would Have Died Behind Bars.: ― President Barack Obama on Wednesday commuted the sentences of 214 federal prisoners who were incarcerated on drug charges. The White House said the announcement meant Obama had commuted 562 sentences, more than the past nine presidents combined. Of that group, 67 had been given life sentences, meaning that up until Wednesday they were living behind bars believing they would die there. As part of the Obama administration’s clemency initiative, the president had shortened the sentences of dozens of individuals in 2016, including in March and in June. The White House said the 214 number was the highest number of commutations announced in a single day since at least 1900, according to Buzzfeed News. Obama has now commuted more sentences than any president since Calvin Coolidge.

    Why Americans Think Crime Is Worse Than It Is - Justin Fox - Crime is on the rise everywhere, except in the crime statistics.  The number of homicides in the 50 largest cities in the U.S. did rise 17 percent in 2015, with some cities seeing further increases this year. And though the Federal Bureau of Investigations nationwide crime totals for 2015 wont be out till fall, the FBI reported in January that murders were up 6.2 percent and overall violent crime up 1.9 percent in the first six months of last year.  Still, as my Bloomberg View colleague Noah Smith showed Monday, the general trend in violent crime in the U.S. has been down, down, down for a quarter century. Yet a recent Gallup poll found that the percentage of Americans who say they worry "a great deal" about crime is, at 53 percent, the highest it’s been in 15 years.  Why the disconnect? I have three theories:

    • 1. People are reacting to the latest information. As noted, violent crime does seem to have risen in the U.S. since 2014. This may just be statistical noise, or it may mark the end of the Great American Crime Decline. We won’t know that for a few years, but it’s not crazy to think it’s the latter. Yes, such thinking may be evidence of "recency bias" -- putting too much weight on the latest information -- but sometimes those who jump to conclusions do turn out to be right.
    • 2. People watch too much television. Local TV news in the U.S. is heavy on violence and tragedy ("if it bleeds, it leads," the saying goes), and there’s evidence that those who watch more local TV news are more prone to worry about violent crime. Over the past few years the country has also experienced repeated mass killings that dominated the national news as well. This information tends to be more compelling (more salient, the psychologists would say) than the FBI's crime statistics.
    • 3. Crime trends are different in different places. The violent crime epidemic of the 1970s and 1980s was concentrated in big cities, and the crime decline that followed was concentrated there, too. As someone who lives in a big city and remembers the 1980s, I can attest that the change has been dramatic, almost miraculous. But if you live in the suburbs, as most Americans do, the decline has been much less pronounced. And if you focus just on outer suburbs and exurbs, you'll find that violent crime has actually risen since 1990.

     The Sordid Ways Death-Penalty States Obtain Execution Drugs -- One afternoon, Donnie Calhoun, owner of Calhoun Compounding Pharmacy in Anniston, Alabama came back from a meeting to find a strange request from the Alabama Department of Corrections.  Did he want to make a lethal-injection drug that would be used to carry out an execution?  He called them back and let them know that he would not make a drug that could be used to kill. "For me, as a healthcare professional, I want to help people live longer. The last thing I want to do is help someone die."  Other sterile-compounding pharmacists in the state were similarly unenthused about requests to help Alabama execute its death-row inmates. Of the nearly 30 compounding pharmacies contacted by the state, all refused, according to court records. "Of course, we said absolutely not," says one of the owners of Eagle Pharmacy in Hoover, Alabama. "It's something no one wants to do, and it's quite understandable." Life is getting increasingly complicated for officials in states intent on carrying out the death penalty.   For the past few years, executions have been hindered by an unlikely obstacle: the moral compass of the pharmaceutical industry—or, more precisely, Pharma's concern over bad PR.  This is especially evident in Europe, where there's widespread opposition to the US death penalty. The EU, which bans capital punishment, also prohibits the sale of drugs for lethal executions in America, so pharmaceutical companies that do business in Europe have to actively take steps to ensure their products aren't used in American executions. Many large companies not only refuse to make drugs for lethal injection but make their distributors sign contracts forbidding them from selling drugs to US Departments of Correction.

    More Defaults Likely to Come: What Puerto Rico Owes on Aug. 1 -  The commonwealth and its agencies owe about $346 million in bond payments on Aug. 1, most of which goes toward repaying sales-tax supported debt. The deadline follows the island’s July 1 default on nearly $1 billion of principal and interest, the largest such payment failure in the history of the $3.7 trillion municipal bond market. While sales-tax investors are set to be repaid with funds already in the bond trustee’s account, the Government Development Bank, which defaulted in May, faces another payment deadline. Some Puerto Rico entities started skipping payments a year ago, leading up to the commonwealth missing $780 million due on general obligations at the start of the month. Puerto Rico and its agencies racked up $70 billion of debt after years of borrowing to paper over budget shortfalls. President Barack Obama on June 30 enacted a law to create a federal control board that will oversee any debt restructuring and monitor the island’s budgets. It also prohibits creditors from suing the commonwealth for repayment of debt.

    NYPD Chief Bratton Resigns After Angry "Black Lives Matter" Protests - One day after about a 100 protesters from the Black Lives Matter movement gathered in Lower Manhattan Monday, calling for an end to police brutality and the firing of NYPD Commissioner William Bratton, they got just what they wanted and moments ago NYPD Commissioner, news broke that Bill Bratton is set to resign later today according to ABC. Mayor Bill de Blasio is expected to announce Bratton’s departure today, along with his succession by NYPD chief James P. O’Neill. Bratton's resignation would represent the biggest departure yet for New York's mayor Bill de Blasio, which is not to say that the two officials have been friendly. As we reported last week, it's no secret to New Yorkers that Mayor de Blasio had a "strained" relationship with the NYPD and its Commissioner, William Bratton.  Mayor de Blasio and Commissioner Bratton have publicly butted heads over a whole host of issues from Black Lives Matter, to the size of the police force, to the effectiveness of the City Council.  Early last year the NYPD famously turned their backs on Mayor de Blasio as he delivered the eulogy for a fallen police officer. Just yesterday, about 100 members of the group "Millions March NYC" went to the southern tip of City Hall Park to push for greater police accountability. They called for the removal of Bratton and his 'Broken Windows' policy, aimed at cracking down on low level crimes as a way to prevent more serious crime in urban neighborhoods. It is part of the platform being pushed by the Black Lives Matter movement.

    Open government lawsuits against city, pension fund cost taxpayers more than $2 million - By year’s end the Jacksonville Police and Fire Pension Fund and the city of Jacksonville will have spent at least $1.82 million in taxpayer money after being sued over public records- and meetings-laws violations. The city has been sued twice and the pension fund four times since 2010. Throw in the 2,406.2 billable hours that attorneys for the city have expended defending its cases, and the total value of not following the state laws is more like $2.16 million. Times-Union Editor Frank Denton filed a lawsuit in 2013 against the city of Jacksonville, Mayor Alvin Brown and the Jacksonville Police and Fire Pension Fund’s board of trustees after learning that the two governmental entities had met in secret some 70 miles away to hammer out pension benefits. No notices of the meetings were given to the public ahead of time. In fact, the public only learned about the meetings after a pension reform bill was put up for a City Council vote.

    Chicago's budget gap: $137.6 million - The city continues to whittle its budget deficit, but it's still projected to hit $137.6 million next year, according to a financial analysis released today by the mayor's office. That's more than double the amount for the corporate fund a decade ago but 75 percent less than the $654.7 million during the aftermath of the financial crisis in 2011. However, the city says the operating budget shortfall could grow to $581 million in 2018 and $780 million the following year under a negative scenario that assumes a stagnant economy, declining tax and non-tax revenue and rising expenditures. Under a positive outlook, the deficit would shrink further in 2018, to $102 million, but rebound in 2019 to $144 million. Sign up for the free Today's Crain's newsletter The report said that for the first time since 2001, the gap "is put forward without separate consideration of the city's pension funds" after "balanced funding solutions," including last fall's passage of a four-year property tax increase, were identified for three of the city's four funds. Debt-service for general obligation bonds will rise to $711.8 million in 2019 from $694.7 million this year. During the early years of this decade, the annual figure was between $300 million and $400 million. Mayor Rahm Emanuel said the city planned by 2019 to end the “scoop and toss” practice of stretching out pension payments. To do so, it began increasing debt-service payments with this year's budget. For 2017, corporate fund revenues are expected to decline by less than two percent, to $3.51 billion, while expenditures rise by 2.9 percent, to $3.65 billion.

    Federal appeals court rules police officer was justified to arrest a seventh-grader who was BURPING too loudly in his classroom -- A federal appeals court has upheld the petty misdemeanor arrest of an Albuquerque student accused of repeatedly disrupting his middle-school class with loud burps.The 10th Circuit Court of Appeals decision on Monday ruled that the officer and educators named in the lawsuit were entitled to immunity, and the arrest was justified under a New Mexico law that prohibits anyone from interfering in the education process.The student was a seventh-grader at Albuquerque's Cleveland Middle School at the time of the May 2011 arrest. He is not named in court documents.  His mother, who also isn't named, filed the lawsuit against the then 13-year-old's principals and the police officer who escorted him to his patrol car before patting him down, cuffing him and taking him to a juvenile detention center. He was held for an hour before his mother arrived. She argued her son's arrest was unlawful and resulted in excessive force.  'At worst, (the boy) was being a class-clown and engaged in behavior that would have subjected generations of school boys to an after-school detention, writing lines, or a call to his parents,' a complaint filed by her attorneys said.

    Cash-strapped Chicago schools pay big premium in $150 million bond deal | Reuters: Chicago's cash-starved public schools borrowed $150 million to pay for capital projects in a privately placed deal with a yield of 7.25 percent, the nation's third largest school district announced on Friday. The 30-year bonds were priced 513 basis points over Municipal Market Data's benchmark triple-A scale, indicating Chicago Public Schools continues to pay a big penalty to sell debt. The system said the unlimited tax general obligation bonds that mature in December 2046 would not be used to balance CPS' budget. J.P. Morgan purchased the bonds, which were sold under an existing authorization from CPS' school board. “Today, CPS sold $150 million in bonds for capital projects at a significantly more favorable interest rate than its last issuance,” Ron DeNard, CPS’ senior vice president of finance said in a prepared statement. “These bonds will fund critically needed capital work.” CPS’ last bond sale for $725 million in February represented one of the biggest "junk" bond offerings the municipal market has seen in years and carried an 8.5 percent interest rate. That yield for bonds due in 2044 with a 7 percent coupon was slightly below the 8.727 yield for 21-year bonds in the municipal market's last big junk bond sale - a $3.5 billion Puerto Rico issue in March 2014.

    Ed Groups Worry Over Proposed Federal Sanctions for High Opt-Out Rate - Education groups, dismayed by the federal education secretary’s threat to punish schools in New York with high opt-out rates for standardized tests, say he’s re-igniting controversy that state education officials have been trying to calm for the past year. Education Secretary John King was New York’s education commissioner until about a year ago. Under King’s tenure in the state, controversy over the implementation of the Common Core learning standards escalated. It led to a boycott movement for the third- through eighth-grade standardized tests that resulted in about one-fifth of students opting out last year. This year, a slightly higher percentage of students skipped the tests —22 percent, compared to 20 percent in 2015. The new state education commissioner, Mary Ellen Elia, tried to minimize the boycott. Elia issued a recorded statement late last Friday, when the test results were released. She tried to stick to the positive, saying the test results improved over 2015. “We’re very pleased with the performance this year,” said Elia, who noted English scores improved by 6.6 percent and math results by 1 percent. Nevertheless, the test results still show nearly two-thirds of third- through eighth-grade students are less than proficient in English and math.. The boycott could have some adverse consequences for schools with high numbers of students skipping the tests. King said in July that schools where fewer than 95 percent of students take the tests should be labeled as low-performing and possibly face fines or even a takeover.

     Media coverage of charter schools has become more negative in the past decade - In a new study, AEI’s director of education policy studies Rick Hess, and researchers Jenn Hatfield, and Kelsey Hamilton find that press coverage of charter schools has dramatically changed from 2005 to 2015. Despite the fact that public opinion of charter schools has become more positive in the last 10 years, media coverage has not followed suit and has become much more negative — with opinion pieces playing a big role.Hess concludes that while the media plays an important role in relaying education news to families, media bias or balance must be taken into consideration regarding the coverage of charter schools. The report’s findings include: In 2005, 73 percent of articles were neutral and 12 percent were negative, whereas by 2015, 53 percent were neutral, and 28 percent were negative.Opinion pieces made up a much larger share of charter school coverage in 2015 than in 2005. In addition, the topic of race became much more prominent in charter school coverage over time, with the share of articles that mentioned race rising from 7 percent in 2005 to 16 percent in 2015. Read the full report here: How Media Coverage of Charter Schools Changed in the Past Decade

     The Common Core Costs Billions And Hurts Students - Diane Ravitch - FOR 15 years, since the passage of George W. Bush’s No Child Left Behind act, education reformers have promoted standardized testing, school choice, competition and accountability (meaning punishment of teachers and schools) as the primary means of improving education. For many years, I agreed with them. I was an assistant secretary of education in George H. W. Bush’s administration and a member of three conservative think tanks. But as I watched the harmful effects of No Child Left Behind, I began to have doubts. The law required that all schools reach 100 percent proficiency as measured by state tests or face harsh punishments. This was an impossible goal. Standardized tests became the be-all and end-all of education, and states spent billions on them. Social scientists have long known that the best predictor of test scores is family income. Yet policy makers encouraged the firing of thousands of teachers and the closing of thousands of low-scoring public schools, mostly in poor black and Hispanic neighborhoods. As the damage escalated, I renounced my support for high-stakes testing and charter schools. Nonetheless, I clung to the hope that we might agree on national standards and a national curriculum. Surely, I thought, they would promote equity since all children would study the same things and take the same tests. But now I realize that I was wrong about that, too. Six years after the release of our first national standards, the Common Core, and the new federal tests that accompanied them, it seems clear that the pursuit of a national curriculum is yet another excuse to avoid making serious efforts to reduce the main causes of low student achievement: poverty and racial segregation. The people who wrote the Common Core standards sold them as a way to improve achievement and reduce the gaps between rich and poor, and black and white. But the promises haven’t come true. Even in states with strong common standards and tests, racial achievement gaps persist. Last year, average math scores on the National Assessment of Educational Progress declined for the first time since 1990; reading scores were flat or decreased compared with a decade earlier.

    The Economic Consequences of Denying Teachers Tenure - Political and legal battles surrounding teacher tenure and seniority have been raging in California over the past couple of years. In 2014, in Vergara v. California, a Los Angeles County Superior Court judge ruled that a variety of teacher job protections worked together to violate students’ constitutional right to an equal education. This past spring, in a 3–0 decision, the California Court of Appeals threw this ruling out. The American Prospect’s Rachel Cohen interviewed Jesse Rothstein, the former chief economist at the U.S. Department of Labor and a current public policy and economics professor at the University of California, Berkeley, who testified during the Vergara trials in defense of California’s teacher tenure and seniority statutes. This conversation has been edited and condensed. Texas allows guns in college classrooms under new law | Reuters: A new law went into effect in Texas on Monday that allows certain students to bring guns into classrooms, with supporters saying it could prevent mass shootings and critics saying the measure will endanger safety on campuses. The so-called state "campus carry" law allows people 21 and older with a concealed handgun license to carry pistols in classrooms and most buildings throughout public universities, including the University of Texas system, one of the nation's largest with an enrollment of more than 214,000 students. The law took effect as the university held a memorial to mark the 50th anniversary of one of the deadliest U.S. gun incidents on a college campus. On Aug. 1 1966, student Charles Whitman killed 16 people in a rampage, firing from a perch atop the clock tower at the University of Texas at Austin, the state's flagship public university. Governor Greg Abbott, a Republican who supports campus carry, said a gunman could already bring a firearm on to campus, and the law could prevent mass shootings because someone with a licensed concealed weapon could be ready to confront a gunman.  "What campus carry does is that it only authorizes those who go through the special training and background" to carry firearms, his office quoted him as saying.University of Texas professors lobbied unsuccessfully to prevent the law, arguing the combination of youth, firearms and college life could make for a deadly situation. University President Gregory Fenves reluctantly allowed campus carry, saying he was compelled to do so under state law.

    Student Body Vice President Suspended After Saying "#ForgetBlackLivesMatter, More Like AllLivesMatter" - Meet Rohini Sethi. She is the elected vice president of the student government at the University of Houston. Following the tragic shooting of five police officers in Dallas, she decided to exercise her first amendment right on Facebook to write “#ForgetBlackLivesMatter; more like AllLivesMatter.” Although the post was later deleted, it was too late. The politically correct, crybaby generation did what they do best: whine. “'Her post and subsequent actions were very divisive,' student body President Shane Smith told theWashington Post. “It caused some in our student body to become very upset with her. They lost faith in her ability to represent them because they felt that she did not understand or respect the struggles in their lives” Another student decried “For her to say on her social media ‘forget black lives matter,’ it’s almost as if to say if all of us were to die tomorrow, she wouldn’t care.” Keep in mind these kids will one day join the American work force. “Just for her to say, ‘forget Black Lives Matter,’ is a punch in the stomach”, student Nala Hughes told ABC 13 News in Houston. “As of today, African American students do not feel welcome, comfortable, represented, valued or even acknowledged at the University of Houston,” read a statement provided to the Post. “Students at the University of Houston want to feel adequately represented. They do not feel that this is being accomplished as long as Rohini Sethi is in office.” Evidently, to keep the mobs appeased,  Rohini had to be punished. She was therefore suspended from all student government activities for 50 days. On the positive side, she will still be allowed to attend classes.

    Campus builds escape hatch for Dirks’ office in California Hall | The Daily Californian: Last weekend, an emergency exit was built near Chancellor Nicholas Dirks’ office as a security measure against potential protesters. The door, which cost $9,000, is located outside a short hallway between his conference room and his office in California Hall. Campus spokesperson Claire Holmes said in an email that the exit in California Hall was installed as a security measure to “provide egress to leave the building.” Construction of the door was requested about a year ago in response to a protest in April 2015 when protesters stormed the chancellor’s suite. During the protest, students staged a sit-in outside Dirks’ office where they banged on desks and chanted loudly. They were eventually escorted out of the building, some in handcuffs, by UCPD officers. Later that day, protesters marched from Sproul Hall to the area in front of University House, the chancellor’s residence. ASUC Senator-elect Chris Yamas said there have been many protests on campus throughout the tenure of several different chancellors, but no instances when a chancellor was physically harmed.

    Household Incomes: The Value of Higher Education - dshort - What is the value of education for household income? The Census Bureau's annual survey data for 2014 published last month gives us some interesting insights into this question. The median income for all households with a householder age 25 and older was $55,283. The chart below shows the median annual household income for nine cohorts by educational attainment. We've rounded the data points to the nearest $100, e.g. $55.3K for all households.A particularly notable feature in the chart above is that the Bachelor's Degree median at $82.8K is double the High School grad's $41.4K. A Master's Degree increases the median by $18K. A Professional Degree (Law and Medical being the major ones) adds another $33.2K. Here is the same chart, this time illustrating the Mean (average) household incomes for the same cohorts. For a better sense of the mean skew, here is a side-by side comparison of the median and mean. As we would expect, the mean is larger than the median for all cohorts. The educational attainment of householders has clearly increased over the time frame of the Census Bureau's annual data. The current survey questionnaire dates from 1991. Here is a pair of pie charts that highlight the difference in the cohort percentages in 1991 versus the present. The column chart below gives us a clearer comparison of the individual cohorts. For example, we see that nearly 22% of householders had less than a High School degree in 1991. That number has just about been cut in half. Associate Degree holders are up 84%, Bachelor's up 44%, and Master's up 58%. Educational attainment has clearly advanced over the 23-year time frame of this Census Bureau series, and the income benefits are obvious. Of course, the cost of post-High School education is substantial. Here is a snapshot of inflation comparisons since 1991. Advanced educational attainment correlates with higher household incomes. But the cost of that education has soared.

    The college debt crisis is even worse than you think - The Boston Globe: IT’S ONE OF THE MOST enduring selling points for the value of higher education: The best route out of poverty is through the college quad. Spend four years in college, and all that book learning, mind opening, and network expanding will help even the lowest-income student jump up several rungs on the economic ladder.  In fact, there’s more myth than truth. That’s been especially so in recent years, as nonselective private colleges from around the region have increasingly filled their freshman classes with low-income students — often the first generation in their families to go to college — from Boston and other urban areas. Quite a few of these small schools are former junior colleges and women’s colleges with rich histories of opening doors to students traditionally shut out from higher education, an admirable pursuit that officials refer to as “access.” Many of the colleges are also in tough financial straits, struggling with rising costs, stunted endowments, and declining enrollments.So whether they are actively recruiting these low-income students for reasons of open-the-door altruism or keep-the-lights-on capitalism — or, more likely, some combination of the two — there has been a huge, largely hidden byproduct of this dramatic increase in access: These students are often being loaded up with staggering debt that is completely out of whack with the earnings boost they’ll likely get from a degree at a nonselective or less selective college. Already, average student loan debt is higher in Boston than any other metro area in the country, 44 percent above the national average, according to Credit Karma. But  more troubling, many of these low-income students — and, at some colleges, most of them — are not graduating. That means these non-completers are leaving campus saddled with lots of debt but none of the salary gains that traditionally come with a bachelor’s degree.

    NY Fed Finds 15% Of Americans Have Negative Net Worth; Student Loans Contribute To Record US Wealth Inequality -- Two weeks ago, the White House released a report that led to loud heckles among the more pragmatic economic community. As the WSJ described its conclusion: "The growing stack of $1.3 trillion in student debt is helping, not hurting, the U.S. economy" (there was much more in the full report which to many was nothing short of propaganda seeking to spin a $1.3 trillion debt bubble into a good thing). Today, none other than the NY Fed took the White House to task with a surprisingly accurate(to an extent) analysis, based on a Survey of Consumer Finances, according to which not only do student loans contribute substantially to an emerging problem in US society, namely rising negative household net worth, but is also a key driver behind wealth inequality. This is how the NY Fed explains the methodology: With respect to assets, we ask respondents how much money is in their defined contribution plan(s)—including 401(k), 403(b), 457 or thrift savings plans—and Individual Retirement Arrangement accounts, which cover the most common channels through which Americans save for retirement. We also ask the respondents about their total savings and investments, such as money in their checking accounts, stocks, and other financial instruments they may possess. Homeowners are asked to self-appraise the current value of their home. Finally, we ask for self-appraised valuations of any additional land, businesses, vehicles, or other assets the respondent’s household may own. The measure of total assets is then the sum of financial wealth, retirement wealth, home value, and other assets. With respect to debt, we ask respondents about their home mortgages and home equity lines of credit, as well as non-housing personal debt in categories such as credit card, student loans, and auto loans, among others. The sum of all these debts constitutes our measure of total debt. We classify households as having negative wealth if their total debt exceeds their total assets, according to our measurements.  What the Fed found is that 15.1% of the households in the U.S. population have net wealth less than or equal to zero, while 14.0 percent have strictly negative wealth.

    Student-Loan Defaulters in a Standoff With Federal Government - WSJ: The U.S. government desperately wants Mr. Osborne and his wife to start repaying their combined $46,500 in federal student debt. But they are among the more than seven million Americans in default on their loans, many of them effectively in a standoff with the government. These borrowers have gone at least a year without making a payment—ignoring hundreds of phone calls, emails, text messages and letters from federally hired debt collectors. Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market. Their failure to repay—in many cases due to low wages or unemployment, in other cases due to outright protest at what borrowers see as an unfair system—threatens to leave taxpayers on the hook for $125 billion, the total amount they owe. The Osbornes say they are the victims of a for-profit school that made false promises and a predatory lender—the government. “Do you think I’m going to give them one penny I’m making to pay back the loan for a job I’m never going to hold?” said Mr. Osborne, 45 years old, who studied to be a health-care worker but can’t find a job as one. The rising number of borrowers in default weakens the economy as underwater homeowners did after the housing crash: by damaged credit, an inability to spend and save for the future, and a lack of resources to move to better jobs.

    Student Loan Recipients Blame Defaults On Failure Of Nanny State -- As the 2016 election cycle heats up, we suspect the debate over student loan forgiveness will become an ever bigger issue with the Hillary camp looking to woo young voters that aren't quite as "enthusiastic" about her Presidency as they were about Obama's.  We also suspect that students, helpless "victims" of predatory lenders looking to give them $200,000 to pursue their dreams of becoming anthropologists while consuming copious amount of free beer at frat parties, will grow increasingly vocal in asking why the Nanny State would have given them so much money to pursue non-existent "careers".  To put the student loan issue into perspective, there is roughly $1.3 trillion of student loans outstanding to 43mm Americans, an average balance of $30k per student.  Roughly 16% of borrowers are currently in long-term default with outstanding balances totaling $125 billion, or an average balance of $18k per student. To our point above, the Wall Street Journal recently recounted the story of Jason Osborne and his wife, a Medford, Oregon couple, who took out $46,500 in student loans to take classes at Abdill Career College to become phlebotomists.  After completing their studies the couple said they couldn't find steady work in the healthcare industry had to look elsewhere.  Mr. Osborne now makes $13 an hour in selling solar panels and his wife works as a maid.  The couple is now asking why the government would loan them so much money to pursue a career with such limited opportunity?  "The government should have never extended [us] so much debt for jobs that are in low demand." “Do you think I’m going to give them one penny I’m making to pay back the loan for a job I’m never going to hold?”

    Report: Most of Illinois universities' state funds go toward pensions | Lake County Gazette: This past academic year has been nothing short of trying for Illinois’ state universities, which rely heavily on the state for funding. The lack of a state budget for an entire year caused delays in funding and forced school administrators to lay off workers and cancel classes. But the real financial strain crippling Illinois' public universities is funding pensions and professors’ salaries. A 2014 analysis of higher education funding by the Illinois Department of Insurance revealed that all of the money public universities get from the state essentially goes toward funding university retiree pensions. The report said $6.9 billion in tax-based funding has subsidized university pensions over the past decade, with $1.51 billion spent in 2014 alone. Since state universities received $1.24 billion in general state aid that year, the pension subsidy shortfall of $270 million was covered by students through their tuition. The state’s contributions to the State University Retirement System (SURS) on behalf of the state’s 69,436 university employees in 2014 was $21,644 per employee – five times higher than the $4,077 university employees contributed to their own pensions.

    Oregon’s unfunded PERS liability climbs to $21.8 billion | The Oregon Catalyst: – Today, the Oregon Public Employee Retirement System (PERS) Board will receive a report from their financial actuary firm Milliman showing PERS’ unfunded liability has risen to $21.8 billion. PERS is now only 71% funded, dropping 15% in just two years. As a result, schools, local governments, and state agencies will be forced to pay almost $1 billion more for PERS in the 2017-19 biennium, the PERS board will learn at their 1 p.m. meeting. “This PERS crisis will cost schools $365 million, the equivalent of hiring more than 2,000 new teachers,” said Senate Republican Leader Ted Ferrioli (R-John Day). “Unsustainable and escalating PERS costs will not lead to reducing class sizes, adding school days, or making our communities safer. We need fair and constitutional PERS solutions that reduce costs, ensure the long-term stability of the system to protect retirees, and allow for investments in education.” PERS rates are expected to increase by an average of almost 5% for school districts in 2017 with continued increases expected in future years. Excessive payouts, like an OHSU professor’s $663,354 per year retirement benefit, the Oregon Supreme Court’s 2015 decision to overturn $5.1 billion in PERS reforms, and overly optimistic investment assumptions contribute to rising PERS costs.

    CalPERS Admits to Guilt in Misleading Beneficiaries and Taxpayers About Its Returns by Changing Report After Being Called Out - Yves Smith - Wow, I took my eyes off CalPERS and managed to miss them trying to pull a fast one about their long-term returns. Fortunately, blogger W.C Varones caught it and Michael Shedlock promoted his find. And in an admission that Varones and Shedlock were correct, CalPERS removed the claims they deemed to be misleading…and substituted a different on that is just as deceptive.  And what has CalPERS done? Quickly edited its site to try to maintain the pretense that its return targets are achievable, when in fact we are in a “new normal” that is punitive to long term investors, be they pension funds, insurers, or individuals. CalPERS has been on the defensive since it reported preliminary returns for its fiscal year just ended of 0.6%, when its target is 7.5%. Even though the final return is certain to be a smidge higher thanks to private equity doing well in the quarter where the data is not yet in, it’s clearly not going to change the overall dismal picture. Moreover, this result is particularly disturbing that governor Jerry Brown pushed CalPERS, to no avail, to lower its target to a somewhat more realistic 6.5%. The giant pension fund responded by creating a Rube Goldberg formula that (in crude form) will lower the target in years where performance exceeds 7.5%. With central banks locked in super low, and tending to negative rates, and any exit from those rates leading inevitably to large losses on assets unless one is heavily in cash (which CalPERS will never do), pray tell where where does this outperformance fantasy come from? For instance, fiscal year 2015-16 looks to be a last hurrah for bonds, with CalPERS having earned 9.29% in fixed income. But none other than bond maven Bill Gross has since warned that record-low bond yields “aren’t worth the risk.”

    Poor pension returns to cost New York City $700 million | Crain's New York Business: After earning only 1.5% on its pension funds for the 2017 fiscal year ended June 30, the city will have to contribute an additional $732 million to the plans over the next three fiscal years. It's a lot of money. The details on the investment return for the past fiscal year were contained in City Comptroller Scott Stringer’s budget review released Wednesday and first reported by the Empire Center's E.J. McMahon.  Here are the three most important things to know about the issue: Two years in a row. This is the second consecutive year that the city has fallen well short of its investment return target of 7% and well below fiscal 2015’s return of 3.4%. While the city’s performance beat the two big California pension funds, it is more underfunded compared with the New York state pension plans and therefore the shortfall is more important than weak performance for the state funds. No one knows what the markets will do in the coming years, but the past two years of very small gains came amid record levels in the stock market, increasing the odds of continued investment shortfalls. More than 10% of the budget. Pension costs now account for 11% to 12% of all spending and one in every five dollars spent on personnel. The contribution can’t be reduced. Soaring tax revenues as a result of the strong economy have allowed the city to absorb the increases without forcing reductions elsewhere. But when the economy falters and revenues decline, the pension contribution remains fixed, forcing bigger cuts in other spending.

    Who Will Pay For the Pension Benefit Guaranty Corporation's Huge Losses? The government's pension insurance company, the Pension Benefit Guaranty Corporation (PBGC), is broke. Because its creditors can't demand their money immediately, it won't have spent ​its last dollar for "a significant number of years" yet (maybe ten) -- but its liabilities of $164 billion are nearly twice its assets of $88 billion: there is no way it can honor all its obligations. The PBGC has two programs, one insures single employer pensions and the other multiemployer, union-sponsored pensions. Both are insolvent, but the multiemployer program is in far worse shape: it is well and truly broke. Its liabilities of $54 billion are 27 times its assets of $2 billion. There are on top of that "reasonably possible" losses of another $20 billion. The PBGC was supposed to be, according to its charter act, financially self-supporting: obviously it isn't. Also according to the act, its liabilities are not obligations of the United States government: but it couldn't continue to exist even for a minute except as part of the government. Will the taxpayers end up paying for its losses-or if not, who? A month ago (June 17, 2016), Labor SecretaryThomas Perez, who chairs the PBGC board, wrote disingenuously to the Congress, that the board wants to work with Congress "to ensure the continued solvency of the multiemployer program." A forthright statement would have been: "to address the disastrous insolvency of the multiemployer program." In the background of the PBGC's huge net worth deficit are a large number of deeply underfunded multiemployer pension funds. "Overall," Perez's letter admitted, "plan assets in the multiemployer pension system are now less than half of earned benefits." You could call that underfunding with a vengeance.

    The Idiosyncrasies Of Government; No Text-Enable Cell Phone, No Access To On-Line Social Security Account; Want To Vote? Just Give Us A Name, Any Name Will Do --The federal government and the courts seem not to worry about identify theft when it comes to voting -- "no photo IDs required" seems to be the "rule."   But when it comes to access Social Security on-line, one needs to have a smart phone, or at least a text-capable phone as of August 26, 2016. Those of us, without a text-enabed phone, will not be able to access our on-line account. From the SSA yesterday: Starting in August 2016, Social Security is adding a new step to protect your privacy as a my Social Security user. This new requirement is the result of an executive order for federal agencies to provide more secure authentication for their online services. Any agency that provides online access to a customer’s personal information must use multifactor authentication. When you sign in at with your username and password, we will ask you to add your text-enabled cell phone number. The purpose of providing your cell phone number is that, each time you log in to your account with your username and password, we will send you a one-time security code you must also enter to log in successfully to your account. Each time you sign into your account, you will complete two steps: Step 1: Enter your username and password. Step 2: Enter the security code we text to your cell phone (cell phone provider's text message and data rates may apply). The process of using a one-time security code in addition to a username and password is one form of “multifactor authentication,” which means we are using more than one method to make sure you are the actual owner of your account.  If you do not have a text-enabled cell phone or you do not wish to provide your cell phone number, you will not be able to access your my Social Security account.

     Social Security and Disability Insurance...A 29% Reduction in Benefits Already Mandated by Law...More Cuts to Come -- In 2010, Social Security (OASDI) unofficially went bankrupt. For the first time since the enactment of the SS amendments of 1983, annual outlays for the program exceeded receipts (excluding interest credited to the trust funds). The deficit has grown every year since 2010 and is now up to 8% annually and is projected to be 31% in 2026 and 44% by '46. The chart below highlights the OASDI annual surplus growth (blue columns) and total surplus (red line). This chart includes interest payments to the trust funds and thus looks a little better than the unvarnished reality. For a little perspective, the program pays more than 60 million beneficiaries (almost 1 in 5 Americans), OASDI (Old Age, Survivors, Disability Insurance) represents 25% of all annual federal spending, and for more than half of these beneficiaries these benefits represent their sole or primary source of income. The good news is since SS's inception in 1935, the program collected $2.9 trillion more than it paid out. The bad news is that the $2.9 trillion has already been spent. But by law, Social Security is allowed to pretend that the "trust fund" money is still there and continue paying out full benefits until that fictitious $2.9 trillion is burned through. To do this, the Treasury will issue another $2.9 trillion over the next 13 years to be sold as marketable debt so it may again be spent (just moving the liability from one side of the ledger, the Intergovernmental, to the other, public marketable). However, according to the CBO, Social Security will have burnt through the pretend trust fund money (that wasn't there to begin with) by 2029. Below, the annual OASDI surplus (in red) peaking in 2007, matched against the annual growth of the 25-64yr/old (in blue) and 65+yr/old (grey) populations. The impact of the collapse of the growth among the working age population and swelling elderly population is plain to see. And it will get far worse before it eventually gets better.

    Expand Social Security, get rid of 401Ks - Cathy O’Neil- Here’s a fact: most people aren’t seriously saving for retirement. Ever since we chucked widespread employer based pension systems for 401K’s and personal responsibility, people just haven’t done very well saving. They take money out for college for their kids, or an unforeseen medical expense, or they just never put money in in the first place. Very few people are saving adequately.  Next: it’s actually, mathematically speaking, extremely dumb to have 401K’s instead of a larger pool of retirement money like pensions or Social Security. Instead, we should think about how much more efficient it is to pool retirement savings. Then lots of people die young and are relatively “cheap” for the pool, and some people live really long but since it’s all pooled, things even out. It’s a better and more efficient system.  Most pension plans work like this, but they’ve fallen out of favor politically. And although some people complain that it’s hard to reasonably fund pension funds, most of that is actually poorly understood. Even so, I don’t see employer-based pension plans making a comeback. Social Security is actually the best system we have, and given how few people have planned and saved for retirement, we should invest heavily in it, since it’s not sufficient to keep elderly people above the poverty line. And, contrary to popular opinion, Social Security isn’t going broke, could easily be made whole and then some, and is the right thing to do – both morally and mathematically – for our nation.

    Medicaid Spending On Long-Term Care 'Not Sustainable' - Donna Nickerson spent her last working years as the activity and social services director at a Turlock, Calif., nursing home.But when she developed Alzheimer's disease and needed that kind of care herself, she and her husband couldn't afford it: A bed at a nearby home cost several thousand dollars a month.   "There's no way I could pay for that."  About half of all people turning 65 today will need daily help as they age, either at home or in nursing homes. Such long-term care will cost an average of $91,100 for men and double that for women, because they live longer.In California and across the U.S., many residents can't afford that, so they turn to Medicaid, the nation's public health insurance program for low-income people. As a result, Medicaid has become the safety net for millions of people who find themselves unable to pay for nursing home beds or in-home caregivers. This includes middle-class Americans, who often must spend down or transfer their assets to qualify for Medicaid coverage.Medicaid, known as Medi-Cal in California, was never intended to cover long-term care for everyone. Now it pays for nearly 40 percent of the nation's long-term care expenses, and the share is growing. As baby boomers age, federal Medicaid spending on long-term care is expected to rise significantly — by nearly 50 percent by 2026

     Aetna Posts $300 Million Obamacare Loss, Warns May Exit Altogether -- After every other major US health insurance provider already admitted to generating substantial losses on the Affordable Care Act, known as Obamcare, earlier today Aetna became the latest to report that its annual loss on Obamacare plans would be more than $300 million, and said it had scrapped plans to further expand its Obamacare business next year. More ominously, Aetna joined the biggest US health insurer UnitedHealth in reviewing how, if at all, it would continue providing ACA services in the 15 states it's currently in. The move, coming after a similar shift in tone last week by Anthem, is the latest sign of instability and financial pressures in the marketplaces that are at the heart of the health law. It also confirms that in its current iteration, Obamacare simply does not work and will require a major overhaul by the next administration, one which could lead to even higher premiums for plan participants as well as for subsidy providers, i.e., taxpayers. Aetna, which had previously expressed relative optimism about the ACA exchanges, said it was setting up a reserve of $65 million to account for expected losses on individual plans over the rest of 2016.  The company also said it no longer expects to reach breakeven in 2016 on individual plans. Aetna's shift represents a significant revision to its previous position on Obamacare. In April, the insurer said that after a loss last year, it was aiming to roughly break even on its exchange business this year and move toward profitability in 2017. Then, Mr. Bertolini called its position in the ACA marketplaces a “good investment.” The five new states in which Aetna was considering expanding were Maine, Oklahoma, New Jersey, Kansas and Indiana.  Not so much anymore: according to Bertolini, "we are evaluating our footprint as it exists today to understand what solutions we can put forward to either fix the business or exit the business.”As the WSJ adds, Aetna’s darkening perspective on the ACA business echoes comments by Anthem, which last week went from projecting a slight profit this year to expecting a mid-single-digit loss on ACA plans. Anthem roughly broke even on individual plans in 2015 and had a positive margin in 2014. Anthem said it expected improvement on its results next year, but also that it would re-examine its full-on commitment to the exchanges. UnitedHealth Group Inc. and Humana have in recent weeks deepened their projected 2016 exchange losses and confirmed they will largely withdraw from the business next year.

    It's Way Past Time We Stopped Deluding Ourselves About Private Health Insurers: I didn't think it was possible for me to get more disgusted with the industry I used to be a cheerleader for, but I was wrong. Health insurers--more specifically, the big for-profit health insurers that want to get even bigger through two pending mega-mergers (Anthem wants to buy Cigna and Aetna wants to buy Humana)--once again are demonstrating that nothing--absolutely nothing--is more important to them than making their rich shareholders even richer. If that means making it more difficult for low- and middle-income Americans to get the medical care they need, so be it. "Too bad, so sad," to use a phrase one of my former colleagues used to say when people complained about the way health insurers routinely screw their customers. What turned my stomach today and compelled me to write this were comments Aetna's executives made during a call with Wall Street financial analysts (who else?) following the release of the company's second quarter 2016 profits. Here's the bottom line: Aetna made significantly more money between April 1 and June 30 of this year than it made during the same period last year--far more than even those Wall Street analysts had expected (in other words, the profit "exceeded their expectations"). But Aetna executives said that because some of the people enrolled in the Obamacare exchanges were sicker than they had anticipated, consequently making it necessary for them to pay more in medical claims than they had wanted to pay--it was thinking about pulling out of a lot--maybe even most--of the Obamacare markets next year.

    Will Health Insurance Companies Succeed Where the GOP Couldn’t—in Killing Obamacare? - Congressional Republicans have tried in vain over the years to repeal or overturn all or part of the Affordable Care Act — President Barack Obama’s keystone legislation that has given more than 20 million Americans health insurance coverage in the world’s costliest health care market — since it was signed into law in 2010. But where GOP has failed time and again, private insurers may be succeeding. In the past two days, Aetna and Humana, two of the country’s five largest health insurers (they’re currently involved in merger negotiations), have announced they’re pulling out of Obamacare’s public insurance exchanges — a key component of the legislation aimed at reeling in costs to Americans not covered by employer policies or otherwise unable to afford premiums and other expenses. Humana, the country’s fifth-largest insurer by revenue, said Wednesday in its quarterly earnings report that next year it will cover “no more than 156 counties, down from its 2016 presence in 1,351 counties.” It’s pulling out completely from fourof the 15 states in which it’s currently participating.  Only a day earlier, Aetna, the country’s No. 3 insurer, announced it was re-evaluating its involvement in exchanges in 15 states and dropping previously reported plans to expand its coverage via exchanges. “We believe it is only prudent to reassess our level of participation on the public exchanges,” Mark Bertolini, Aetna chairman and CEO, said in a conference call with analysts on Thursday. “Our initial action will be to withdraw our 2017 public exchange expansion plans.”   They both follow the path set by UnitedHealth, the nation’s top health insurance provider, which announced in April that it would be exiting most Obamacare exchanges in 2017. Other major insurers have made similar announcements, citing customer bases that are too sick and too costly to insure.

    Raising the minimum wage could improve public health - Burgeoning research in economics and epidemiology suggests that raising the minimum wage will improve the health of many Americans, especially low-income Americans, and this improvement should help bend the cost curve for medical care. In a paper published by the University of Chicago Press, David Meltzer and Zhou Chen analyzed the relationship between obesity rates and the minimum wage, using data from the Behavioral Risk Factor Surveillance System (BRFSS) from 1984-2006. The BRFSS interviews more than 350,000 adults each year, making it the largest health survey in the world. Meltzer and Chen test whether changes in the inflation-adjusted minimum wage are associated with changes in body mass indexes of adults. They find that gradual erosion in the inflation-adjusted value of minimum wages across states explains about 10 percent of the increase in average body mass since 1970. DaeHwan Kim and I found additional evidence that low wages predict increases in obesity in the Panel Study of Income Dynamics (PSID). The PSID is a nationally representative sample of 5000 American families, who have been followed since 1968 by the University of Michigan’s Survey Research Center. Obesity is estimated to cost $190 billion in medical bills each year. A 10 percent decrease in obesity would result in a $19 billion of savings every year.

    Opioid-related insurance claims rose more than 3,000 percent 2007 to 2014 - Health insurance claims for people hooked on prescription painkillers and heroin skyrocketed as the number of Americans who fatally overdosed on those opioids hit record highs, a new analysis reveals. The number of private health insurance claims related to opioid dependence diagnosis soared by 3,204 percent from 2007 to 2014, the analysis found.  The same analysis by Fair Health also found other disturbingly sharp spikes upward in the number of private insurance claims related to opioid abuse, drug dependence by pregnant women and heroin overdoses since 2011. "The United States is in the midst of an epidemic of opioid dependence, abuse and overdose," notes the analysis by Fair Health, a nonprofit group that focuses on transparency in health-care costs and health insurance information. The group also pointed out that "unlike earlier opioid abuse epidemics, the present crisis is disproportionately affecting white, middle-class people in nonurban settings, including those with private health insurance." More than 28,000 people died from opioid overdose deaths in 2014, which was a record, and a prime reason that Congress in late July passed the Comprehensive Addiction and Recovery Act. CARA is aimed at supporting efforts to limit opioid addiction, increase treatment and recovery, and expand access to a drug, naloxone, that reverses opioid overdoses.

    More Coca-Cola Ties Seen Inside U.S. Centers For Disease Control: In June, Dr. Barbara Bowman, a high-ranking official within the Centers for Disease Control and Prevention, unexpectedly departed the agency, two days after information came to light indicating that she had been communicating regularly with - and offering guidance to - a leading Coca-Cola advocate seeking to influence world health authorities on sugar and beverage policy matters. Now, more emails suggest that another veteran CDC official has similarly close ties to the global soft drink giant. Michael Pratt, Senior Advisor for Global Health in the National Center for Chronic Disease Prevention and Health Promotion at the CDC, has a history of promoting and helping lead research funded by Coca-Cola. Pratt also works closely with the nonprofit corporate interest group set up by Coca-Cola called the International Life Sciences Institute (ILSI), emails obtained through Freedom of Information requests show. Pratt did not respond to questions about his work, which includes a position as a professor at Emory University, a private research university in Atlanta that has received millions of dollars from the Coca-Cola Foundation and more than $100 million from famed longtime Coca-Cola leader Robert W. Woodruff and Woodruff's brother George. Indeed, Coca-Cola's financial support for Emory is so strong that the university states on its website that "it's unofficially considered poor school spirit to drink other soda brands on campus."

    An elephant sedative 10,000 times stronger than morphine is being sold as heroin — and it's killing people -Fentanyl, the opioid painkiller that killed Prince and is 50 times stronger than morphine, pales in comparison to a new drug called carfentanil.   Carfentanil is a drug so strong that it's used to sedate elephants. It's 100 times as potent as fentanyl, which makes it roughly 10,000 times stronger than morphine. And now it's showing up on the street. Last week, a 36-year-old Ohio man suspected of selling carfentanil as heroin was indicted in connection with a death on July 10, the Associated Press reported. But carfentanil is just one part of the far bigger issue of painkiller use and abuse. Read on to find out where the deadly drug is likely being made, what it looks like, and what it does: View As: One Page Slides

     Why do so few Amish kids get asthma? U. of C. scientists take aim at the answer - Forget Fluffy and Fido. Bessie the cow just might make a healthier pet. That idea stems from new research by University of Chicago scientists in two farming-based religious communities that shun modern ways but have dramatically different childhood asthma rates. The goal was to find an explanation for why asthma is so uncommon among Amish communities, where children run barefoot in dairy barns and farm fields, but much higher in the other group. Blood samples, house dust and mice experiments revealed some tantalizing clues, suggesting something in the dust was protecting the Amish children. The study was published in Thursday's New England Journal of Medicine. It involved 60 school-aged children — 30 each from an Amish community in Middlebury, Indiana, and from a Hutterite colony near Mitchell, South Dakota. Amish and Hutterites both originated in Europe, share old-style Protestant beliefs and lifestyles and have similar genetic ancestry. But Hutterites live on large highly industrialized communal farms, use modern agricultural machinery, and children are more isolated from livestock. By contrast, the Amish have family-run farms, they use horse-drawn plows, their barns often are located near their homes and their children have daily exposure to farm animals, the researchers explained. No Amish children and six Hutterites had asthma. Other studies have found rates of about 5 percent in Amish school-aged children versus up to about 20 percent in Hutterites and 10 percent for U.S. kids. Blood tests confirmed both groups of children had similar genetic profiles. But Amish children had far more white blood cells called neutrophils — important in fighting infections. Plus, these cells looked younger in Amish kids, suggesting their immune system was constantly stimulated by exposure to germs to produce more.

    Barnyard Dust Offers a Clue to Stopping Asthma in Children - Scientists say they may have found a sort of magic ingredient to prevent asthma in children: microbes from farm animals, carried into the home in dust. The results of their research, published on Wednesday in The New England Journal of Medicine, were so convincing that they raised the possibility of developing a spray to do the same thing for children who do not have regular contact with cows and horses.  It is a pressing problem because as many as 10.6 percent of grade-school children have asthma, according to data from the Centers for Disease Control and Prevention. And there is no cure for this chronic and frightening disease.The discovery originated with an idea that has been around for years: that a growing number of children were developing asthma because their daily environments were simply too clean.  If children are exposed to microbes that stimulate their immune systems in the first few years of life, they will be protected against asthma, the hypothesis says. As asthma rates climbed, researchers published study after study supporting what has become known as the hygiene hypothesis.  The most consistent findings were from studies that compared children who grew up on farms — less asthma — with children who grew up in other environments.  What was missing was evidence that one essential factor in the environment was protecting children. And what was needed was a reason it had exerted its effect. The new study provides this, asthma researchers say, which is what makes its results so spectacular.

    U.S. Government To Lift Ban On Part-Human, Part-Animal Embryos --Here’s your feel-good story of the day... From an NPR article published this morning:The federal government announced plans Thursday to lift a moratorium on funding of controversial experiments that use human stem cells to create animal embryos that are partly human. The National Institutes of Health is proposing a new policy to permit scientists to get federal money to make embryos, known as chimeras, under certain carefully monitored conditions.The NIH imposed a moratorium on funding these experiments in September because they could raise ethical concerns.One issue is that scientists might inad vertently create animals that have partly human brains, endowing them with some semblance of human consciousness or human thinking abilities. Another is that they could develop into animals with human sperm and eggs and breed, producing human embryos or fetuses inside animals or hybrid creatures. But scientists have argued that they could take steps to prevent those outcomes and that the embryos provide invaluable tools for medical research. For example, scientists hope to use the embryos to create animal models of human diseases, which could lead to new ways to prevent and treat illnesses.Researchers also hope to produce sheep, pigs and cows with human hearts, kidneys, livers, pancreases and possibly other organs that could be used for transplants. In addition, the NIH would even consider experiments that could create animals with human sperm and human eggs since they may be useful for studying human development and infertility. But in that case steps would have to be taken to prevent the animals from breeding.The public has 30 days to comment on the proposed new policy. NIH could start funding projects as early as the start of 2017.

    N.I.H. May Fund Experiments With Human Stem Cells in Animal Embryos -- The National Institutes of Health announced on Thursday that it was planning to lift its ban on funding some research that injects human stem cells into animal embryos. The N.I.H. announced its proposal in a blog post by Carrie Wolinetz, the associate director for science policy, and in the Federal Register. The purpose is to try to grow human tissues or organs in animals to better understand human diseases and develop therapies to treat them. Researchers have long been putting human cells into animals — like pieces of human tumors in mice to test drugs that might destroy the tumors — but stem cell research is fundamentally different. The stem cells are put into developing embryos where they can become any cells, like those in organs, blood and bone. If the funding ban is lifted, it could help patients by, for example, encouraging research in which a pig grows a human kidney for a transplant. But the very idea of a human-animal mix can be chilling, and will not meet with universal acceptance. In particular, when human cells injected into an animal embryo develop in part of that animal’s brain, difficult questions arise, said Paul Knoepfler, a stem cell researcher at the University of California, Davis. “There’s no clear dividing line because we lack an understanding of at what point humanization of an animal brain could lead to more humanlike thought or consciousness,” he said.

    Peter Thiel Is Very, Very Interested in Young People’s Blood -- More than anything, Peter Thiel, the billionaire technology investor and Donald Trump supporter, wants to find a way to escape death. He's channeled millions of dollars into startups working on anti-aging medicine, spends considerable time and money researching therapies for his personal use, and believes society ought to open its mind to life-extension methods that sound weird or unsavory. Speaking of weird and unsavory, if there's one thing that really excites Thiel, it's the prospect of having younger people's blood transfused into his own veins.  That practice is known as parabiosis, and, according to Thiel, it's a potential biological Fountain of Youth--the closest thing science has discovered to an anti-aging panacea. Research into parabiosis began in the 1950s with crude experiments that involved cutting rats open and stitching their circulatory systems together. After decades languishing on the fringes, it's recently started getting attention from mainstream researchers, with multiple  clinical trials underway in humans in the U.S. and even more advanced studies in  China and Korea. Considering the science-fiction promise of parabiosis, the studies have received notably little fanfare. But Thiel has been watching closely.

    Zika “active transmission area” in Miami, health department says - Florida’s Department of Health announced there’s a “high likelihood” of four locally-transmitted cases of the Zika virus in Miami-Dade and Broward County, the first locally-transmitted cases in the United States, and “believes there’s an active transmission area” that includes Wynwood, Midtown and the Design District areas of Miami. The department defined the transmission area’s boundaries as U.S. 1 (Biscayne Boulevard) to the east; Northwest Fifth Avenue to the west; 20th Street on the south; and 38th Street on the north. “While no mosquitoes trapped tested positive for the Zika virus, the department believes these cases were likely transmitted through infected mosquitoes in this area,” the department declared in a news release. “The department is actively conducting door-to-door outreach and urine sample collection in the impacted area and will share more details as they become available. The results from these efforts will help department determine the number of people affected. These local cases were identified by clinicians who brought them to the attention of the department. In addition, blood banks in the area are currently excluding donations from impacted areas until screening protocols are in place.”

    4 Zika Cases in Florida Were Likely Spread by Local Mosquitoes, C.D.C. Says - The New York Times: Four cases of Zika infection in Florida are very likely to have been caused by mosquitoes there, the State Department of Health said Friday — the first documented instances of local transmission in the continental United States.“Zika is now here,” Dr. Thomas R. Frieden, the director of the Centers for Disease Control and Prevention, said at a news briefing.The C.D.C. and Florida officials said that for now, the area of concern is limited to one square mile in the Wynwood neighborhood of Miami, a gentrifying area with restaurants and art galleries just north of downtown.Health authorities are not advising people to stay away from the neighborhood, Dr. Frieden said. The four people appear to have been infected in early July; since then, mosquito control efforts have been stepped up in the area, and additional cases have not been identified.“We don’t currently see a situation where we would advise people not to travel there or advise pregnant women not to travel there,” Dr. Frieden said. But he said that this advice could change if the number of cases increased substantially. “We would not be surprised if individual additional cases are reported,” he said. And because Zika infection often does not produce any symptoms, “there may be more cases than we know of now.” The Florida cases signal a new stage in an epidemic that has left a trail of birth defects in Brazil and strained health care resources throughout Latin America. The epidemic is raging in Puerto Rico, C.D.C. officials reported last week: Two percent of blood donors there have been recently infected, and hundreds of pregnant women have tested positive.

    CDC issues a travel advisory to Florida, which has 10 new cases of Zika -- For the first time, the Zika virus has prompted public health officials to warn pregnant women to avoid traveling to a part of the continental United States. The travel advisory comes in response to a growing outbreak of the mosquito-borne disease in South Florida. The state on Monday said there are 10 more people who have been infected with the Zika virus who likely contracted it from local mosquitoes, bringing the total number of such cases in the state to 14. All of the cases have surfaced in a densely populated community north of downtown Miami. [In Miami, Zika’s arrival greeted with worry — and shrugs] Because the virus can have devastating consequences for a fetus, the Centers for Disease Control and Prevention urged pregnant women to avoid traveling to the area, and for pregnant women who live and work there to make every effort to avoid mosquito bites and to get tested for possible exposure during each prenatal visit. It also advised women to use protection during sex, because the virus can be transmitted sexually. Furthermore, the CDC is advising that all pregnant women should be asked about travel to Zika-infested areas during routine prenatal visits. Any pregnant women who have traveled to Zika areas -- including this area of Florida on or after June 15 -- are advised to talk with their healthcare providers and get tested for Zika. For couples trying to have a baby, women and men who traveled to this area should wait at least eight weeks before conceiving a pregnancy. Men with symptoms of Zika virus disease should wait at least six months after symptoms begin to attempt conception.

    Florida to begin aerial spraying of insecticides to control Zika | Reuters: Florida will conduct an aerial insecticide spraying campaign at dawn on Wednesday in an effort to kill mosquitoes carrying the Zika virus, officials in Miami-Dade County said. The campaign will cover a 10-mile area that includes the one-mile-square area just north of downtown Miami that health officials have identified as the hub of Zika transmission in the state, the officials said on Tuesday. On Monday, the U.S. Centers for Disease Control and Prevention issued an unprecedented travel warning, urging pregnant women to avoid travel to the Miami neighborhood at the center of the investigation. The Zika outbreak was first detected last year in Brazil, where it has been linked to more than 1,700 cases of microcephaly, a birth defect marked by small head size that can lead to severe developmental problems in babies. The virus has spread rapidly through the Americas and Caribbean and its arrival in the continental United States has been widely anticipated. Florida health officials announced another non-travel related case of Zika on Tuesday, bringing the total to 15. The aerial spraying campaign was recommended by the CDC in conjunction with the Florida Health Department to reduce adult mosquito populations that might be capable of carrying the Zika virus. In a conference call on Tuesday, CDC Director Dr. Thomas Frieden expressed concern that vector control efforts so far have not been as effective as hoped. A CDC expert is currently conducting tests in Miami to see if mosquitoes in the area have developed insecticide resistance.

    China's 'mosquito factory' aims to wipe out Zika, other diseases | Reuters: Every week, scientists in southern China release 3 million bacteria-infected mosquitoes on a 3 km (two-mile) long island in a bid to wipe out diseases such as dengue, yellow fever and Zika. The scientists inject mosquito eggs with wolbachia bacteria in a laboratory, then release infected male mosquitoes on the island on the outskirts of the city of Guangzhou. The bacteria, which occurs naturally in about 28 percent of wild mosquitoes, causes infected males to sterilize the females they mate with. "The aim is trying to suppress the mosquito density below the threshold which can cause disease transmission," said Zhiyong Xi, who is director of the Sun Yat-sen University Centre of Vector Control for Tropical Diseases and pioneered the idea. "There are hot spots," Xi said. "This technology can be used at the beginning to target the hot spots ... it will dramatically reduce disease transmission." Mosquito-borne diseases are responsible for more than one million deaths worldwide every year and Zika has become a concern for athletes at this year's Olympic Games, which open in Rio de Janeiro on Friday.   An outbreak of the Zika virus in Brazil last year has spread through the Americas and beyond, with China confirming its first case in February.

     Expert to Rio athletes: ‘Don’t put your head under water’ — Just days ahead of the Olympic Games the waterways of Rio de Janeiro are as filthy as ever, contaminated with raw human sewage teeming with dangerous viruses and bacteria, according to a 16-month-long study commissioned by The Associated Press. Not only are some 1,400 athletes at risk of getting violently ill in water competitions, but the AP’s tests indicate that tourists also face potentially serious health risks on the golden beaches of Ipanema and Copacabana. The AP’s survey of the aquatic Olympic and Paralympic venues has revealed consistent and dangerously high levels of viruses from the pollution, a major black eye on Rio’s Olympic project that has set off alarm bells among sailors, rowers and open-water swimmers. The first results of the study published over a year ago showed viral levels at up to 1.7 million times what would be considered worrisome in the United States or Europe. At those concentrations, swimmers and athletes who ingest just three teaspoons of water are almost certain to be infected with viruses that can cause stomach and respiratory illnesses and more rarely heart and brain inflammation — although whether they actually fall ill depends on a series of factors including the strength of the individual’s immune system.

    Rio 2016: Rio de Janeiro's air more deadly than its water, study finds --  Rio de Janeiro's air is dirtier and deadlier than portrayed by authorities and the Olympics' promised legacy of cleaner winds has not remotely been met, an analysis of government data and Reuters' own testing found. Brazil declared in its official bid for the Olympic Games, which open on Friday, that Rio's air quality was "within the limits recommended by the World Health Organization." That was not true when Rio won the right to host the Games in 2009 and it is not true now.Rio for years has surpassed WHO limits for the most dangerous air pollutant - called particulate matter (PM) - spewed from millions of vehicles clogging the city's roads. Thousands die annually in Rio's metropolitan area of 12 million people because of complications related to the air. People exposed to the pollution have higher risks of lung cancer, heart attacks, strokes, asthma and other diseases. "This is definitely not 'Olympic air'," said Paulo Saldiva, a University of Sao Paulo pathologist and member of the WHO committee that set tougher global pollution standards in 2006. Rio 2016: Swimmers need to ingest only three teaspoons of water to be almost certain of contracting a virus "A lot of attention has been paid to Rio's water pollution, but far more people die because of air pollution than the water," he said. "You are not obligated to drink water from Guanabara Bay but you must breathe Rio's air." Rio's contaminated Olympic waterways have drawn attention as the city suffers endemic levels of gastrointestinal diseases from a lack of sewage collection. Reuters recently reported that Rio's Olympic water venues and favourite beaches also tested positive for drug-resistant "super bacteria." But there has been no talk of Rio's air pollution, three-quarters of which is caused by exhaust fumes from the 2.7 million vehicles on its roads, according to Rio state's environmental protection agency, Inea.

    Stem the red tide: researchers say human pollution is behind algal blooms and government should take charge -  Jiao’s research team have been on a quest to find an often neglected source of pollution which they believe may be driving outbreaks of algal bloom, also known as red tides, to counter a government narrative that they are a completely “natural” phenomenon. Jiao, a professor at the University of Hong Kong’s earth sciences department, and his colleague Luo Xin of the Shenzhen Research Institute, have put forth a straightforward hypothesis – groundwater discharges under sea level are loading nutrient pollution into Hong Kong harbour, feeding algal blooms and causing them to proliferate.  “If you want to fix the problem [of red tides], then you can’t ignore this,” Jiao said. “We don’t have a single information source or monitoring point for groundwater and this is very strange for a developed society.” The semi-enclosed bay was once one of the city’s most polluted bodies of water as a result of uncontrolled domestic, industrial and agricultural waste discharges from around the area. Red tide formations were notorious in the 1980s up until the government implemented a discharge control action plan and upgraded a waste treatment works. Red tide occurrences have since fallen, but the harbour still remains a hotbed for blooms.

     ‘I cried…right into my mask': Scientists say Guam’s reefs have bleached four years straight  -- Corals in one of the world’s most diverse corners of the ocean have been ravaged by the ongoing effects of a global bleaching event, scientists say — and nobody’s sure how long it may take them to recover or what they might look like afterwards. The reefs around the U.S. territory of Guam and other nearby islands in what’s known as the Marianas archipelago have been suffering since 2013, and the pattern is only expected to continue through the rest of this summer. If you’re up on your marine biology news (or if you’ve been scanning headlines at all over the past few months), you’ve probably heard that the world’s coral reefs are in trouble. An ongoing global bleaching event — brought on by warming ocean temperatures and the most recent El Niño effects — has been ravaging reefs for several years now, and reports suggest that the pattern is continuing this summer.  But the plight of the corals surrounding Guam and its neighbors has largely gone unreported in mainstream media. Nevertheless, the region is a big area of concern for marine biologists — and has been for going on four years. According to coral ecologist Laurie Raymundo of the University of Guam, the island of Guam is known for having the most diverse coral ecosystems in the world. “Guam is right outside that ring of highest diversity, so the diversity is generally fairly high,” Raymundo said, adding that the area is believed to be home to more than 300 species of coral. Prior to 2013, she said, the corals there had not experienced much of a problem with bleaching like reefs in other parts of the world had. “But in 2013, 2014 and 2015, we have gotten hammered,” she said. “And we’re getting hammered again. For the past four years we’ve had bleaching episodes, and we have not had them to this extent in recent history.” According to Raymundo, recent analyses have suggested that more than 50 percent of the corals there died between 2013 and 2014, and about 85 percent in total had bleached. Those estimates were made in 2015, so Raymundo estimated more corals may have died in the meantime.

    Climate change killing Georgia salt marsh -- Georgia’s salt marsh is disappearing, according to UGA scientists, and climate change is the main culprit. Researchers at the University of Georgia’s Marine Institute on Sapelo Island used satellite imagery over three decades to show that the amount of Spartina alternifolora, or cordgrass, has diminished by 35 percent. The recently released study largely blames climate change with its higher temperatures (on land and in the ocean) and prolonged droughts. The loss of vegetation will ripple through the salt marsh ecosystem. “A decrease in the growth of marsh plants likely affects all of the animals that depend on the marsh, such as juvenile shrimp and crabs, which use the marsh as a nursery,” said Merryl Alber, director of the Marine Institute. “These decreases in vegetation may also affect other marsh services, such as stabilizing the shoreline, filtering pollutants and protecting against storm damage.” Rising seas, another byproduct of climate change, pushes salt water further inland harming the delicate salt-fresh water balance critical for coastal critters and vegetation. Numerous studies predict a minimum three foot rise of the Atlantic Ocean off Georgia by 2100.

    A return to the negotiating table over Southeast water - -- The governors of Alabama and Georgia have returned to the negotiating table and are working out the rough outlines of an agreement that could end 30 years of legislative and legal wrangling over water rights between the two states. As Pro's Annie Snider reports, The longstanding battle has threatened a number of legislative priorities, including last year's omnibus spending deal, as lawmakers from both states have sought to add legislative provisions advancing their interests. Now, the Water Resources Development Act Sens. Jim Inhofe and Barbara Boxer are hoping to move on the floor this September could become a major battleground for the warring states if a deal doesn't shape up soon.  Alabama, Georgia, and Florida have been bickering over a pair of river systems for decades, as the rapid growth of the Atlanta metro region put pressure on water supplies, raising the hackles of managers of Alabama hydropower and Florida fishermen. Governors have come close to striking deals in the past, but the efforts keep falling apart. Alabama Gov. Robert Bentley and Georgia Gov. Nathan Deal were driven to the negotiating table on Tuesday in part by fatigue over the endless dispute, but also by the questions surrounding of an expected regulation from the Army Corps of Engineers whose implications are unclear to everyone. “Neither side knows who has the upper hand, that's why they're coming to the table,” said a source close to the negotiations. “Both sides could get screwed.” Boxer and Inhofe praised the governors for agreeing to meet in a letter sent last month. They need peace to break out in order to ensure the smooth passage of WRDA. Without it, they could face a bitter fight over the bill, with Sen. Richard Shelby moving to insert pro-Alabama language in the Senate version to counteract the pro-Georgia provision in the House version. And with a Senate calendar already jam packed — Congress still needs to fund the government, among other legislative goals — leadership is likely less willing to spend a lot of floor time on a fight over a local issue.

    As Clouds Head for the Poles, Time to Prepare for Food and Water Shocks | World Resources Institute: A changing climate means less rain and lower water supplies in regions where many people live and much of the planet’s food is produced: the mid-latitudes of the Northern and Southern hemispheres, including the U.S. Southwest, southern Europe and parts of the Middle East, southern Africa, Australia and Chile. As WRI-Aqueduct’s future scenarios for water supply show, diminished water supplies will be apparent in these areas by 2020 – less than four years away -- and are expected to grow worse by 2030 and 2040.Now a new study in the journal Nature provides some of the first evidence that this widely-predicted phenomenon – the movement of clouds and rainfall from the mid-latitudes towards the North and South poles -- is already taking place. Just like the retreat of glaciers and polar sea ice, now clouds and rain are retreating poleward.This will have huge implications for agricultural production, industrial and energy output, and municipal water provisioning. Many irrigated agricultural areas are already facing water stress. The climate-driven shift of clouds and rain – known as Hadley Cell expansion – will put those areas under even greater stress in the future. Rain-fed agriculture, which many poor people depend upon, will also suffer as a result of reduced rainfall in the mid-latitude regions.

     Hurricane Drought Hits a New Record - Saturday was a quiet day across the Gulf of Mexico, but not one without note, because a strange record was set: It has been 1,048 days since a hurricane developed in or entered the Gulf. That is the longest streak in the past 130 years, since formal record-keeping began in 1886. The Atlantic hurricane season starts in June and lasts through the end of November. But the last storm in the Gulf was Hurricane Ingrid, which made landfall in northeastern Mexico in September 2013. "You have to have conditions just right for a hurricane to form, and the conditions haven't been ideal in the Gulf of Mexico in the last two years," says Robbie Berg, a hurricane specialist at the National Hurricane Center. The last long Gulf hurricane drought was from October 1, 1929, to August 13, 1932. It was broken by Hurricane 2, which came ashore in Freeport, Texas, as a category 4 storm. Hurricanes usually form when ocean water has been warmed over the summer months to around 25 degrees Celsius or higher. As humid air and clouds accumulate, light, sweeping winds moving westward from Africa can steer the clouds across the mid-Atlantic toward the Gulf.  Several tropical depressions and tropical storms have arisen in the Gulf of Mexico in the past couple years, but none intensified to achieve hurricane status. Winds across the upper levels of the atmosphere have been strong, which can tear clouds apart, keeping storms from strengthening, Berg says.

    For Mass. farmers, the ongoing drought is no joke - The Boston Globe: Despite overcast skies, the past several days of teasing sprinkles haven’t been nearly enough to save Chris Kurth and other Massachusetts farmers from the worst drought in memory. In a normal summer, Kurth gets one inch of rain every week. So far this summer, little more than an inch of rain has fallen on his Sudbury fields. “It’s kind of a play it day-by-day, week-by-week game right now with cutting losses,” said Kurth, owner of Siena Farms, 75 acres on a three-mile loop in Sudbury. After another day of drizzle, Kurth muses that “the rain keeps going north, west, south, everywhere but to us. . . . Maybe it’s forgotten how to rain here.” Many have stretched their finances to bolster irrigation, yet without serious rain ahead, they are looking at harvesting half their normal summer yield. “There’s going to be some catastrophic losses of various crops on different farms, and I honestly believe that some of them may be [driven to] the point where they go out of business,” said Edward Davidian, president of the Massachusetts Farm Bureau Federation. “If we don’t get water soon — it’s right now.” Most years in Massachusetts, farmers can count on nature to keep their crops watered. But most of the state remains in the grip of a “severe drought,” according to the US Drought Monitor; eastern and central Massachusetts received only about a quarter of the normal rainfall for June and July. Many farmers don’t have extensive irrigation systems, relying instead on surface ditches and ponds that are now dried up or close to it. The scarcity is forcing farmers to choose which crops to keep alive and which to let die. They're harvesting wilting greens early, holding off planting potatoes, rationing puny carrots the best they can. “You have farmers making decisions: ‘OK, do I pick that crop over there? Or do I water this one over here?’  Without rain, Kurth is holding off on beets and potatoes that need to go in the ground now. But with just a few weeks left in the planting season, there will be no point if he lingers much longer; they will not grow.

    Unapproved genetically modified wheat found in Washington: Federal authorities say genetically modified wheat that's not approved for sale or production in the United States has been found growing in a field in Washington state. The discovery could affect U.S. trade with countries that have concerns about genetically modified foods. Several Asian countries temporarily banned U.S. wheat imports after genetically modified wheat was found in Oregon in 2013. The U.S. Agriculture Department said Friday that a farmer discovered 22 herbicide-resistant wheat plants growing in an unplanted field. The department says it's taking action and "has no evidence of GE wheat in commerce." The USDA says it's working with the farmer to ensure that none of the modified wheat gets to the market. It's holding and testing the farmer's entire wheat harvest.

    Obama Just Signed A GMO Labeling Law: Here’s What You’re Not Being Told -- Last week, President Barack Obama signed legislation requiring manufacturers of genetically modified (GM) food to provide labeling on their products. But there’s just one problem — err, a couple problems . . . actually a lot of problems. There are a lot of problems with this bill. The new law originated in the Senate as S. 764, “A bill to reauthorize and amend the National Sea Grant College Program Act, and for other purposes.” Lawmakers commonly insert policieson controversial issues into other, more amenable bills to keep them hidden and ensure their passage. Sure enough, the new GM labeling bill, focused around a college program, contains language that appears, on its face, to address the concerns of millions of Americans regarding GM foods.While establishment institutions and experts insist they are safe, others worry not enough research has been conducted to guarantee as much. While the lawmakers who crafted the bill, Sen. Debbie Stabenow (D-Mich.) and Sen. Pat Roberts (R-Kan.), argue it is an appropriate compromise in response to fears surrounding GM products, food advocacy groups found multiple holes in its wording prior to the bill’s passage. The first — and most contentious — is S. 764’s decree that food companies are not necessarily required to label genetically modified products in text form. While doing so is an option, according to the new law, food manufacturers may also choose to denote GM ingredients with a symbol or a QRC (quick response code) that, when scanned by a smartphone,  will take the consumer to a website detailing further information about the product. The QRC method requires the consumer to have both a smartphone and access to the internet.

    India is abandoning Monsanto’s GM cotton for indigenous varieties - India is dumping Monsanto’s genetically modified Bt cotton in favor of “desi”, an indigenous variety, which comes at half the cost and farmers are allowed to save seed to plant next year. Sales of the seed are down by 15% year on year, worth $75 million according to Reuters. Monsanto stands losing the world’s biggest cotton producer and second largest exporter of the fiber. While Monsanto’s Genetically Engineered cotton variety remains dominant,but the government is promoting indigenous varieties. Monsanto may have lost as much as 5% to indigenous varieties this year alone. Additional losses come from Indian farmers dumping the water-intensive cotton in favour of other crops, like pulses and lentils; there has been a 10% in cotton production year-on-year. The main competitive advantage of the Monsanto seed is resistance pest such as the bollworm, but not to the common in India whitefly, especially in dry seasons. Local varieties appear more resistant to whitefly, while Monsanto’s resistance to bollworm is declining.

    Agriculture in 115 Indian districts most at risk from climate change - The Economic Times: As floods ravage eastern and northern India, agriculture in 115 districts across 15 states is "highly vulnerable" to climate change, according to a study published in the Indian Academy of Science journal Current Science. The first to analyse 38 meteorological, agricultural and social data across all of India's 572 rural districts, the study creates a climate vulnerability index for agriculture, divided into five categories of vulnerability: Very high, high, moderate, low and very low. The vulnerability index has already been used by the Indian Council of Agricultural Research to demonstrate climate-resilient agricultural practices in 121 of either the "very high" or "high" vulnerability districts identified by the study, its co-author, Alok K. Sikka, India's representative and principal researcher at New Delhi's International Water Management Institute, told IndiaSpend. While the study is possibly the most comprehensive yet, independent observers said it may yet be inadequate to inform local decision-making on climate change. Most of the "very highly vulnerable" districts come from India's western and peninsular regions. Rajasthan has 25 "highly vulnerable" districts, the most in this category nationwide. Least vulnerable to climate change are districts along India's west coast, northern Andhra Pradesh and the northeastern states. Assam has the highest number of districts, 13, of "very low vulnerability".

    Feds to take new look at Delta, endangered fish species --  Scientists from two federal agencies are about to overhaul the rules governing the Sacramento-San Joaquin Delta, potentially increasing protections for endangered fish populations and limiting the amount of water pumped to Southern California and the San Joaquin Valley. The National Marine Fisheries Service and U.S. Fish and Wildlife Service will re-examine the nearly decade-old environmental regulations covering the Delta water pumps – rules that some experts say have been rendered nearly obsolete by drought and the devastation to endangered species. The old rules will remain in effect during the review, which could take two years or longer. Even so, the fisheries agencies’ work could affect deliberations over Gov. Jerry Brown’s proposal to overhaul the Delta’s existing plumbing system by building a pair of giant tunnelsbeneath the heart of the estuary.  The examination has been widely anticipated and, in some circles, dreaded. In light of five years of drought and the drastic population decline of the Delta smelt and other fish, many water experts believe the agencies will wind up significantly tightening the environmental restrictions on the massive pumping stations near Tracy. That could mean less water shipped via the Delta to customers of the State Water Project and the federal government’s Central Valley Project.

    Soberanes Fire Burns Through Big Sur, Calif., As Thousands Of Firefighters Combat The Blaze -- Pfeiffer Big Sur State Park and seven other state parks and outdoor attractions nearby are closed until further notice because of smoke, fire danger and closed roads. The summer months are usually the high season for tourists visiting the region's rugged coastline. The California Parks Service has also instituted emergency rules for water use in the area. The state is entering its fifth year of drought.  Since the Soberanes fire began nine days ago, it has grown rapidly. Last week, as temperatures soared into the 90s and dry, windy weather fanned the flames, the fire tore through thousands of acres of chaparral in the Los Padres National Forest.  On Saturday, slightly cooler weather and overnight fog slowed the fire somewhat, according to CalFire, the state agency in charge of fighting wildfires. CalFire says 350 people have been evacuated to the nearby town of Carmel from areas east and south of the fire. On Sunday, additional evacuation warnings were announced for residents in the nearby communities of Cachagua and Tassajara, Calif.  A spokesman for the agency, Daniel Berlant, wrote on Twitter more than 5,000 people are now helping to fight the blaze. Fire crews traveled from across California as well as Colorado, Utah, Arizona and Oregon, reports The Monterey Herald

    Deadly 51,000-acre wildfire near Big Sur spreads into footprint of massive 2008 Basin Complex fire - LA Times: deadly wildfire burning along the Central Coast grew overnight to 51,000 acres, spreading into an area scorched in 2008 by one of the state’s largest blazes. Sparked by an illegal campfire, the stubborn Soberanes fire has been burning for nearly two weeks in Monterey County in steep, rugged wilderness. Dry conditions have been fueling the massive blaze, which has remained active at night. The jagged mountains, coupled with unpredictable flames, have made the firefight difficult and allowed the fire to grow rapidly, fire officials said. With containment at only 27%, the wildfire is “now burning into the footprint of the 2008 Basin Complex” fire, according to the National Weather Service. Described as one of California’s largest fires in state history, the lightning-sparked blaze scorched 162,818 acres throughout the Big Sur coastline in June 2008 and destroyed 58 structures.Although the latest wildfire is nowhere near the size of the Basin Complex fire, the Soberanes blaze is just as destructive. So far, flames have torn through 57 homes and 11 outbuildings. The fire also claimed the life of bulldozer operator Robert Reagan III, who died while helping battle the blaze. Acting Gov. Tom Torlakson declared a state of emergency last week to help affected communities obtain aid swiftly. The blaze is threatening 2,000 homes and has prompted 300 residents to evacuate. Raging flames also triggered state park closures along the Central Coast through Saturday, as well as a host of road closures. Trails and roads within Los Padres National Forest’s Monterey District were also closed. More than 300 wildfires burned throughout the state last week, aided by low humidity and a summer heat wave, according to Lynne Tolmachoff, spokeswoman for the California Department of Forestry and Fire Protection. More than 223,000 acres have been burned by wildfires across the state so far this year, according to officials.

    Fires threaten Amazon forests and Brazil's emission targets - India Climate Dialogue: Fires raging across Amazonia could reach unprecedented levels by October if authorities do not clamp down on the practice of starting them in order to clear and maintain pastureland, according to Alberto Setzer, coordinator of fire monitoring at Brazil’s National Institute for Space Research (INPE). The number of fire outbreaks nationwide is already 57% higher than at the same time last year, Setzer said, adding that numbers would probably increase since the fire season intensifies from July through to October. However, figures from other Latin American countries are even more concerning. In Bolivia, fires are up 355% and Peru has experienced a 110% increase.  According to the Brazilian Institute of the Environment and Natural Resources (IBAMA), Brazil is among the countries with the most forest fires in the world today, with an average of 169,000 per year. “This makes Brazil one of the largest greenhouse gas emitters, having a direct impact on goals set internationally to reduce emissions,” said Gabriel Zacharias, coordinator of PrevFogo, an IBAMA program to prevent and combat forest fires. Gilvan Sampaio, a researcher with the climate change group at the Centre for Weather Forecasting and Climate Studies (CPTEC) urged the adoption of tougher policies to prevent the further spread of fires and the increase in CO2 emissions. As well as emitting carbon dioxide, fires release other trace gases such methane (CH4), carbon monoxide (CO), and nitrous oxide (N2O) into the atmosphere.

    Siberia's wildfires seen from 1 million miles away: even the tundra is burning: Greenpeace claim authorities underestimate the scale of destruction, amid warnings of lack of resources to fight fires.These exceptional images show how the smoke trails of wildfires over Siberia can be seen from outer space. The pictures were made by the EPIC camera on NOAA's Deep Space Climate Observatory spacecraft some 975,074 miles - or 1,569,229 kilometres from Earth on 21 July this year. Hovering between the Earth and the Sun, the evidence on such images suggest that the smoke cover is extensive, yet Greenpeace accuses the Russian authorities of massively under reporting the scale of the annual wildfires. Other satellite images confirm the extent of the fires, for example the Suomi NPP spacecraft, orbiting 512 miles (824 km) above Earth. Experts claim that such images show fires are 10 times more widespread than acknowledged by the Russian government. Currently, as we outline below, there are worrying reports of the tundra burning in the Arctic Yamal Peninsula, as well as other damaging fires, for example a 3,000 hectare blaze at the Lena Pillars Nature Park - a UNESCO World Heritage Site - which was finally extinguished in recent days in Yakutia, also known as Sakha Republic. Ecologists say the fires pose a direct threat to the role of Siberian pristine Boreal forests in absorbing climate-warming emissions.  Annually the Russian forests absorb a net 500 million tonnes of carbon from the atmosphere, equivalent to the emissions put off over a year by 534 coal-burning power plants. Yet 'forest fire danger and carbon emissions will double or triple by the end of the century',

    Sizzling Midwest Previews a Hotter Future Climate: Extreme heat waves like the current string of scorching days in the Midwest have become more frequent worldwide in the last 60 years, and climate scientists expect that human-caused global warming will exacerbate the dangerous trend in coming decades. It comes with potentially life-threatening consequences for millions of people. Research has shown that overall mortality increases by 4 percent during heat waves compared to normal days in the U.S. A study in the journal Environmental Health Perspectives in 2011 suggested that rising summer temperatures could kill up to 2,200 more people per year in Chicago alone during the last two decades of the 21st century. Temperatures this week soared into the 90s from Minnesota to Iowa, combining with high humidity to send heat indices well above the 100-degree Fahrenheit mark, considered a threshold for conditions dangerous to human health. Current temperatures in large parts of the Midwest have been rising steadily for more than 100 years, with accelerated warming in the past few decades. According to the 2014 National Climate Assessment, the average temperature in the region increased by more than 1.5 degrees Fahrenheit between 1900 and 2010. Between 1950 and 2010, the rate of increase doubled, and since 1980, the pace of warming is three times faster than between 1900 and 2010.  "The Midwest has not experienced any substantial summer warming and this spills over into heat waves," . "The period of most heatwaves for the Midwest remains the 1930s Dust Bowl era." In North America, there has been an increase in heatwaves west of the Rocky Mountains, but to the east, generally not, he said That leads to fears that the region is unprepared for the dangerous impacts of a stretch this hot. The lack of preparedness was a big reason a heat wave in Europe in 2003 was so deadly, killing more than 70,000 people.

    Land and sea warmest in 2015: 'State of the Climate' report | Reuters: Last year was the warmest year on record for land and sea, partly because seasonal El Nino climate patterns prevailed year-round, and melting ice pushed sea levels to the highest ever, a study based on the work of more than 450 scientists worldwide confirmed on Tuesday. The State of the Climate report, published by the American Meteorological Society, followed a report by two U.S. government agencies which found 2015's global average temperature was the hottest ever by the widest margin on record. The annual study, led by the National Oceanographic and Atmospheric Administration, would likely add fuel to the ongoing debate over global warming policies such as the international agreement forged in Paris in December. The record heat in 2015 was driven by a combination of long-term global warming and one of the strongest El Nino climate patterns in at least half a century, it said. El Nino brings unusually warm water in the Pacific Ocean after late December and can cause catastrophic weather conditions. Last year was the first time that Earth was 1.0 degree Centigrade (1.8 degrees Fahrenheit) warmer than preindustrial times, the report said.

    Environmental records shattered as climate change 'plays out before us' - The world is careening towards an environment never experienced before by humans, with the temperature of the air and oceans breaking records, sea levels reaching historic highs and carbon dioxide surpassing a key milestone, a major international report has found. The “state of the climate” report, led by the National Oceanic and Atmospheric Administration (Noaa) with input from hundreds of scientists from 62 countries, confirmed there was a “toppling of several symbolic mileposts” in heat, sea level rise and extreme weather in 2015.   “The impacts of climate change are no longer subtle,” Michael Mann, a leading climatologist at Penn State, told the Guardian. “They are playing out before us, in real time. The 2015 numbers drive that home.”Last year was the warmest on record, with the annual surface temperature beating the previous mark set in 2014 by 0.1C. This means that the world is now 1C warmer than it was in pre-industrial times, largely due to a huge escalation in the production of greenhouse gases. The UN has already said that 2016 is highly likely to break the annual record again, after 14 straight months of extreme heat aided by a hefty El Niño climatic event, a weather event that typically raises temperatures around the world. The oceans, which absorb more than 90% of the extra CO2 pumped into the atmosphere, also reached a new record temperature, with sharp spikes in the El Niño-dominated eastern Pacific, which was 2C warmer than the long-term average, and the Arctic, where the temperature in August hit a dizzying 8C above average.The thermal expansion of the oceans, compounded by melting glaciers, resulted in the highest global sea level on record in 2015. The oceans are around 70mm higher than the 1993 average, which is when comprehensive satellite measurements of sea levels began. The seas are rising at an average rate of 3.3mm a year, with the western Pacific and Indian Oceans experiencing the fastest increases. These changes are being driven by a CO2 concentration that surpassed the symbolic 400 parts per million mark at the Mauna Loa research station in Hawaii last year. The Noaa report states that the global CO2 level was a touch under this, at 399.4ppm, an increase of 2.2ppm compared to 2014.

    The 10 most startling facts about climate in 2015 — the warmest year on record --Last year was unequivocally the warmest year on record for Earth. The National Oceanic and Atmospheric Administration Tuesday released a 300-page report documenting the historic warmth as well as scores of other aspects of 2015’s climate. The hefty report, State of the Climate in 2015, was produced by more than 450 scientists from 62 countries around the world — more than any previous edition.  Every single direct indicator of temperature described in the report leaves no doubt that 2015’s global surface temperature towered over any year preceding it. Numerous other climate indicators related to temperature exhibited characteristics consistent with such historic warmth. 2015’s exceptional warmth was fueled by a record-challenging El Niño event, in which warmer-than-normal tropical Pacific Ocean waters infused heat into the atmosphere, and by record-setting concentrations of heat-trapping gases from human activity.   Here are the 10 most impressive findings from this report:

    • 1. The global temperature was the highest on record.
      2. The average ocean surface temperature was warmest on record.
    • 3. Upper ocean heat content was highest on record.
      4. Global sea level was highest on record.
      5. The El Niño event was among the strongest on record.
      6. Greenhouse gases were highest on record.
      7. Record number of major tropical cyclones in Northern Hemisphere.
      8. Arctic sea ice had its lowest maximum extent
    • 9. Glaciers continued shrinking
      10. Extreme temperatures were most extreme on record.

    NOAA confirms 2015 highest everything for global warming --From the Socialist Fifth Column, National Oceanic and Atmospheric Administration (NOAA):

    • Greenhouse gases were the highest on record. Major greenhouse gas concentrations, including carbon dioxide (CO2), methane and nitrous oxide, rose to new record high values during 2015. The 2015 average global CO2 concentration was 399.4 parts per million (ppm), an increase of 2.2 ppm compared with 2014.
    • Global surface temperature was the highest on record. Aided by the strong El Niño, the 2015 annual global surface temperature was 0.76–0.83 degrees F (0.42°–0.46°C) above the 1981–2010 average, surpassing the previous record set in 2014.
    • Sea surface temperature was the highest on record. The globally averaged sea surface temperature was 0.59–0.70 degrees F (0.33°–0.39°C) above average, breaking the previous mark set in 2014.
    • Global upper ocean heat content highest on record. Upper ocean heat content exceeded the record set in 2014, reflecting the continuing accumulation of heat in the ocean’s top layers.
    • Global sea level rose to a new record high in 2015. It measured about 2.75 inches (70 mm) higher than that observed in 1993, when satellite record-keeping for global sea level rise began.
    • Tropical cyclones were well above average, overall. There were 101 tropical cyclones total across all ocean basins in 2015, well above the 1981-2010 average of 82 storms. The eastern/central Pacific had 26 named storms, the most since 1992. The North Atlantic, in contrast, had fewer storms than most years during the last two decades.
    • The Arctic continued to warm; sea ice extent remained low. The Arctic land surface temperature in 2015 was 2.2 degrees F (1.2°C) above the 1981-2010 average, tying 2007 and 2011 as the highest on record. The maximum Arctic sea ice extent reached in February 2015 was the smallest in the 37-year satellite record, while the minimum sea ice extent that September was the fourth lowest on record.

    Beyond Heat Waves: What Does 14 Months in a Row of Record Heat Say About Global Warming? Five Key Points to Keep in Mind - The Equation: There is just so much to digest in the latest release of monthly global temperature data by NASA and NOAA, I thought I needed to say something. I just don’t know where to start, so bear with me, please, as this news of temperature records being broken (yet again) is profoundly sobering and worth understanding in detail. It is all hard to grasp and chew on, so I will try to go bit by bit here…

    • 1. It is not just the numbers.  June 2016 was 0.90°C (1.62°F) above the global 20th century average according to NOAA – not a huge amount compared to the previous months in 2016, which were all a record also. But it still beat the previous June record, set in 2015, which is to say yeah, temperatures are still rising. No surprise here.
    • 2. The first six months of 2016 have set the stage for a very possible record warm year.  The period of January-June 2016 had average temperatures 1.3°C (2.4°F) higher than the late 19th century. Every single month in 2016 so far had record warm temperatures for that month. It is no surprise then – again – that it is sure looking like 2016 will be the warmest year ever, a possible La Niña notwithstanding (the probability of La Niña developing – which might lead to some cooling effect on global temperatures – has been lowered from 70% to 60%).
    • 3. June 2016 saw the highest sea surface temperature since 1880
    • The June sea surface temperature global average was 1.39°F above the 20th century monthly average, breaking the previous record set in 2015 by 0.05°F – yeah, sea surface temperatures are also still rising. June 2016 is also the 40th consecutive June with global ocean temperatures above the 20th century average.
    • 4. Five out of these first six months also saw the lowest monthly sea ice extent since recording began in 1979
    • 5.Warmer Arctic temperatures are changing the landscape. The warmer Arctic is leading to an increase in photosynthetic activity in the northernmost regions. The “greening of the tundra” has been observed between 1984 and 2012 (and continued since), and has been attributed to longer growing seasons and less harsh winters. The structure of the vegetation is changing, and that can have multiple effects not only on the vegetation itself but on the ecosystem as a whole. The interactions between vegetation and animals that depend on them can be severely disrupted, and the consequences unknown.

    Melting ice sheet could release frozen Cold War-era waste: Camp Century, a U.S. military base built within the Greenland Ice Sheet in 1959, doubled as a top-secret site for testing the feasibility of deploying nuclear missiles from the Arctic during the Cold War. When the camp was decommissioned in 1967, its infrastructure and waste were abandoned under the assumption they would be entombed forever by perpetual snowfall.But climate change has warmed the Arctic more than any other region on Earth, and a new study finds the portion of the ice sheet covering Camp Century could start to melt by the end of the century. If the ice melts, the camp's infrastructure, as well as any remaining biological, chemical and radioactive waste, could re-enter the environment and potentially disrupt nearby ecosystems, according to the study's authors. Determining who is responsible for cleaning up the waste could also lead to political disputes not considered before, according to the study's authors. "Two generations ago, people were interring waste in different areas of the world, and now climate change is modifying those sites," said William Colgan, a climate and glacier scientist at York University in Toronto, Canada, and lead author of the new study. "It's a new breed of political challenge we have to think about." The new study was published today in Geophysical Research Letters, a journal of the American Geophysical Union.

    Melting ice to expose contaminated U.S. military base in Greenland, Canadian study says -- An abandoned U.S. military base thought to be entombed under the ice of Greenland will likely be exposed by the end of the century, a Canadian-led research team said Thursday. A study spearheaded by York University found that ice melt at the site around Camp Century is due to eclipse net snowfall over the next 75 years. The finding flies in the face of the U.S. military’s plan for the base, which it decommissioned in the 1960s and left nearly fully intact under the assumption that it would be buried forever under accumulated snowfall. Camp Century was established in 1959 in part to test the feasibility of deploying missiles in the Arctic, which represented the shortest route between the U.S. and the former Soviet Union. Situated about 200 kilometres inland from the Greenland coast and built eight metres under the ice, the camp was powered by a nuclear generator and could house up to 200 soldiers at a time. The need for Arctic missiles diminished with the advent of more advanced technology, and the project was ultimately abandoned in 1967. But lead researcher William Colgan said the military did not take many active steps to take the base out of commission. “When it reached end of life, the army just closed the doors on it and left everything in place,” Ice core samples taken while the camp was operational were among the earliest evidence of a warming trend in Arctic ice, he said, describing those early results as one of the initial building blocks of modern-day climate change research. But those results could not have prepared scientists for the pace at which climate change has accelerated, Colgan said, adding the current melting levels in the area will reveal the camp and all its waste materials by the end of the century. Once exposed, the pollutants unearthed at Camp Century could then be released into the local ecosystem and circulate downstream to other countries, including Canada.

    Siberian Heat Wave Thaws Dead Reindeer, Unleashes Anthrax Outbreak -- Unusually high temperatures in a northern region of Russia thawed the carcass of a reindeer, which has led to an outbreak of anthrax in the Yamalo-Nenets region Western Siberia. “Considering the viability of the infectious agent of anthrax - 100 years or more - and its resistance to the change of temperatures professionals assume that animals looking for food came across the site of an animal that died of anthrax and then infected each other,” the regional governor’s office said in a statement to the Siberian Times. More than a dozen people, including children, have been hospitalized and 63 people have been potentially affected by the disease, which has already killed more than 1,000 reindeer. "This part of northwest Russia has seen an extended spell of warm temperatures spanning over two weeks,” said senior meteorologist Jonathan Erdman. Pangody, in the heart of the Yamalo-Nenets region, had high temperatures of at least 82 degrees Fahrenheit 18 straight days from July 6-23, peaking at 92.7 on July 23. The governor’s office told the Times that some of the deaths may be due to heatstroke as “the animals are unaccustomed to such high temperatures.”Russian authorities are evacuating residents, mostly nomadic reindeer herders, to the regional capital of Salekhard. “We have taken all measures to isolate the area,” regional Governor Dmitry Kolybin told the Associated Press. "Now the most important thing is the safety and health of our fellow countrymen — the reindeer herders and specialists involved in the quarantine." A mass vaccination of reindeer is currently underway in the region, but it may be too late, Vladimir Bogdanov, a biology professor with the Russian Academy of Sciences, told NBC News via the RBC news website.

    Outbreak? Russian Bio Warfare Troops Rushed To Arctic Due To "Dangerous Infection" -- The Russian military has reportedly sent biological warfare teams to the Russian arctic in northern Siberia after at least 40 people and 1,200 reindeer died as the result of a violent and rapid spread of what is believed to be Bacillus Anthracis, more commonly known as Anthrax.  Russian officials said the infection may have started after a contaminated corpse was exposed following a warm summer in the Arctic which saw temperatures rise as high as 95 degrees Fahrenheit.  There were dramatic scenes as the Russian army’s Chemical, Radioactive and Biological Protection Corps, equipped with masks and bio-warfare protective clothing, flew to to regional capital Salekhard on a military Il-76 aircraft to deal with the emergency. They were deployed by Defence Minister Sergei Shoigu to carry  laboratory tests on the ground, detect and eliminate the focal point of the infection, and to dispose safely of dead animals. …“As of now, there is no single diagnosis of the dangerous infection,” said a spokesman for the governor of Yamalo-Nenets, Dmitry Kobylkin.

    Anthrax outbreak triggered by climate change kills boy in Arctic Circle - A 12-year-old boy in the far north of Russia has died in an outbreak of anthrax that experts believe was triggered when unusually warm weather caused the release of the bacteria. The boy was one of 72 nomadic herders, including 41 children, hospitalised in the town of Salekhard in the Arctic Circle, after reindeer began dying en masse from anthrax. Five adults and two other children have been diagnosed with the disease, which is known as “Siberian plague” in Russian and was last seen in the region in 1941. More than 2,300 reindeer have died, and at least 63 people have been evacuated from a quarantine area around the site of the outbreak. “We literally fought for the life of each person, but the infection showed its cunning,”the Yamal governor, Dmitry Kobylkin, told the Interfax news agency. “It returned after 75 years and took the life of a child.”The tabloid LifeNews reported that the boy’s grandmother died of anthrax at a nomad camp last week. Authorities said the outbreak was linked to climate change. For the past month, the region has been experiencing abnormally high temperatures that have reached 95F. Anthrax spores can survive in frozen human and animal remains for hundreds of years, waiting to be released by a thaw, according to Alexei Kokorin, head of WWF Russia’s climate and energy programme.

    How the Russians are responding to the Yamal anthrax outbreak (and why) --Via the Yamal-Nenets Autonomous Region government website: We are ready to sign the official laboratory studies on the situation in the Yamal region. Negative outlook medics confirmed. Unedited excerpt from the Google translation, and then a comment: A week after the quarantine ads in Yamal region due to mortality of deer because of anthrax infection research staff special laboratory deployed for operational work in Salekhard on behalf of the chief sanitary doctor of Rospotrebnadzor, gave the official results of the examination of samples taken from patients Salekhard hospital, hospitalized suspected of having the disease.  Recall Yamal health professionals from the first day tundra medical examinations in the quarantine zone have chosen tactics on negative outlook. Everyone with the slightest deviations in health condition (scratches, boils, fleece, runny nose, etc.) is sent to an additional examination in Salekhard district hospital. It was decided to test all children of reindeer herders - even in the absence of sickness. Everyone, without exception, the families of reindeer breeders of the focus of infection with antibiotics and scheduled preventive maintenance. Nomads, Caslano in close proximity to the place of emergency, quickly began to vaccinate. 1000 additional doses of vaccine for the population were ordered, made by order of the autonomous region, delivered in Salekhard from Moscow.  The Yamal peninsula is part of the Yamal-Nenets Autonomous Region, which has an estimated population of 544,000 and about the same number of reindeer. With the economic importance of the region not only to Russia but to many other countries depending on natural gas, it's understandable that the Russians are treating the anthrax outbreak as seriously as they are. Anthrax among natural-gas workers and other urbanites would be a disaster affecting far more than 72 nomadic herders.

    Toxic mercury found in Antarctic sea ice: Australian study - Xinhua |  -- Australian scientists have discovered a toxic form of mercury in the Antarctic atmosphere and sea ice. The study, led by a team from the University of Melbourne, found significant amounts of methylmercury, an especially dangerous strain of mercury, in the Southern Ocean. Caitlin Gionfriddo, a PhD student at the University of Melbourne who worked on the project, said the study reveals that methylmercury released by Antarctic ice into the ocean could be contaminating the food chain. "There are high levels of methylmercury in our ecosystems, especially in the marine environment, but we don't know how it's being produced," Gionfriddo told a University of Melbourne publication on Tuesday. "We're seeing it accumulate in the food web and most of it likely comes from atmospheric deposition of mercury onto sea water." The research, published in the journal Nature Microbiology, said the atmospheric dumping of the mercury occurs all year but is most evident during the Antarctic spring when the most sea ice melts and releases the toxicant. Researchers associated with the project expressed concerns that as global warming continues humans will be subject to greater exposure to mercury by consuming fish from the region.

    Natural forces overpowering Antarctic Peninsula warming --In the latter half of the 20th century, the tip of the Antarctic Peninsula was among the fastest warming places on Earth. But since the late 1990s, this fast-paced warming has been tempered by extreme natural forces, according to new research. So much so, that some parts have switched to cooling. In many ways, the results are unsurprising. Scientists know that natural variability superimposes temporary ups and downs on top of greenhouse gas-induced warming everywhere on Earth. Prof Robert Mulvaney, part of the team of British Antarctic Survey scientists who carried out the research, tells Carbon Brief: “The results are as we would expect.”The authors of the study, published today in Nature, also stress their findings are restricted to a small part of the Antarctic Peninsula, and do not imply cooling across the ice sheet as a whole. Such is the harsh and inhospitable nature of the Antarctic environment that carrying out field research is very difficult. Monitoring stations are few and far between.The data for the new study comes from six research stations situated near the tip of the Antarctic Peninsula – the northernmost part of the Antarctic mainland. It is here that some of the largest temperature rises have been observed. Between 1951-2000, a station known as Vernadsky (formerly as Faraday) recorded an increase of 2.8C. As Professor Tim Naish, director of the Antarctic Research Centre at Victoria University in Wellington, New Zealand, says:“[The new paper] focuses specifically on the temperature records of the Antarctic Peninsula, which has often been referred to as a ‘global warming hot spot’. “

     Sea Level Rise Could Put Millions Of U.S. Homes Underwater By 2100 - Sea level rise may put nearly a trillion dollars of U.S. coastal homes underwater by the end of the century, a new real estate study has found. Storm surges and higher tidal flows caused by climate change could gobble almost 1.9 million houses in hundreds of cities, according to a report by the real estate company Zillow. In total, homeowners could lose some $882 billion by 2100. The report published Tuesday is based on National Oceanic and Atmospheric Administration (NOAA) maps showing which coastal areas will be underwater with a projected sea level rise of six feet, in conjunction with the company’s database of more than 100 million homes nationwide. Six feet is the amount of sea level rise scientists most recently estimated in a study on climate change published in March. Sea level rise stems from human-caused climate change now warming the planet and the oceans, multiple studies have found. Warming waters increasingly melt glaciers and ice sheets, increasing ocean volume around the globe. In addition, climate change is expected to cause more powerful storms and hurricanes, which adds to the problem. The Intergovernmental Panel on Climate Change, a group of scientists backed by the United Nations, has said global mean sea level rise will go on for centuries beyond 2100, unless greenhouse gas emissions are scaled back.

    Rising Sea Levels Could Cost U.S. Homeowners Close to $1 Trillion - Rising sea levels could soak homeowners for $882 billion, according to a new report from real estate website Zillow. The research takes its initial cue from the journal Nature, which in March found sea levels could rise more than 6 feet by the end of the century. In that scenario, Florida could lose close to 1 million homes, or 13 percent of the state’s current stock. That comes out to $400 billion in value—a figure that doesn’t include losses to commercial buildings or public infrastructure or account for future appreciation in home value.  Zillow combined its own home price estimates with sea level projections from the National Oceanic Atmospheric Administration. There’s still a lot of guesswork going on, cautions Zillow Chief Economist Svenja Gudell. Governments could build barriers to protect coastal communities or sea level rise could prove more moderate. But whatever the variables, there will be major losses as the waters move in. Even in Zillow's less calamitous scenario of a 2-foot increase in sea level, the U.S. would still lose $74 billion in home value, with Florida leading the way at $17 billion. The total value of the losses, meanwhile, is determined by the number of homes at risk of flooding and the value of those homes. In the more catastrophic 6-foot-rise scenario, New York City would lose about 32,000 homes at $27 billion in value. Newport Beach, Calif., meanwhile, would lose one-sixth as many homes but $10 billion in value, because median home value there is $1.6 million.

    Zombie Carbon Emissions Haunt the Planet - Deforestation in the Amazon region dropped by 30 percent from 2005 to 2010, sparing trees that soak up carbon dioxide. A big win in the fight against climate change, right? Maybe not big enough to save the planet, or the species on it. After trees are cut down, they gradually decay, releasing carbon, degrading the habitat, and threatening species long after the cutting stops. These lagging emissions have an important impact on the battle against global warming, a study released today in the journal Current Biology finds. Even with the 30 percent reduction in Amazon deforestation, there was only a 10 percent decrease in carbon emissions, the researchers found. And even if tropical deforestation had ended altogether in 2010, there would still be 8.6 petagrams (10 to the 12th kilograms) of emissions released into the atmosphere as trees decomposed, the equivalent of five to 10 years of global deforestation. That's roughly the annual amount of total global emissions, said Abigail Swann, a University of Washington professor who studies climate change and who wasn't involved in the study.Those lagging emissions are lethal. Researchers found that 144 vertebrate species became extinct due to tropical deforestation from 1950 to 2009, about 20 percent more than a previous estimate of extinctions in forest-specific vertebrate groups since 1900. As with trees, species losses occur gradually as habitats change, the researchers found. “No one has ever accounted for this time lag between habitat destruction and the species getting extinct,” said Isabel Rosa, one of the authors of the study and a researcher at the Imperial College of London. “That’s what we aimed for with this study, to understand not only how many species have we lost already as a result of habitat destruction, but also how many more have we committed to extinction due to those fast changes in forest cover.”The effects could be even greater as the spaces where trees die are converted into farmland in many areas, particularly the Amazon, one of three main tropical rain forest areas, along with the Congo Basin and Southeast Asia. As trees, which keep temperatures cooler, die, tropical areas will get even warmer and come to resemble a different climate

    Climate Change Activism: A Post Mortem - As I write these words, much of North America is sweltering under near-tropical heat and humidity. Parts of the Middle East have set all-time high temperatures for the Old World, coming within a few degrees of Death Valley’s global record. The melting of the Greenland ice cap has tripled in recent years, and reports from the arctic coast of Siberia describe vast swathes of tundra bubbling with methane as the permafrost underneath them melts in 80°F weather. Far to the south, seawater pours through the streets of Miami Beach whenever a high tide coincides with an onshore wind; the slowing of the Gulf Stream, as the ocean’s deep water circulation slows to a crawl, is causing seawater to pile up off the Atlantic coast of the US, amplifying the effect of sea level rise. All these things are harbingers of a profoundly troubled future. All of them were predicted, some in extensive detail, in the print and online literature of climate change activism over the last few decades. Not that long ago, huge protest marches and well-funded advocacy organizations demanded changes that would prevent these things from happening, and politicians mouthed slogans about stopping global warming in its tracks. Somehow, though, the marchers went off to do something else with their spare time, the advocacy organizations ended up preaching to a dwindling choir, and the politicians started using other slogans to distract the electorate. The last gasp of climate change activism, the COP-21 conference in Paris late last year, resulted in a toothless agreement that binds no nation anywhere on earth to cut back on the torrents of greenhouse gases they’re currently pumping into the atmosphere. The only commitments any nation was willing to make amounted to slowing, at some undetermined point in the future, the rate at which the production of greenhouse gas pollutants is increasing. In the real world, meanwhile, enough greenhouse gases have already been dumped into the atmosphere to send the world’s climate reeling; sharp cuts in greenhouse gas output, leading to zero net increase in atmospheric CO2 and methane by 2050 or so, would still not have been enough to stop extensive flooding of coastal cities worldwide and drastic unpredictable changes in the rain belts that support agriculture and keep all seven billion of us alive. The outcome of COP-21 simply means that we’re speeding toward even more severe climatic disasters with the pedal pressed not quite all the way to the floor.

    Australia orders climate change U-turn at peak science body | Reuters: Australia's re-elected conservative government has announced a U-turn in its climate change policy, reinstating climate science as the bedrock of its peak science body just months after slashing its funding and axing hundreds of jobs. "It's a new government and we're laying out a direction that climate science matters," new Science Minister Greg Hunt told Australian radio on Thursday. Scientists and climate change advocates cautiously welcomed the news, but remained concerned about the commitment to fight climate change, which could threaten Australia's food security and its ability to feed Asia's growing, affluent middle class. Severe cuts to the Commonwealth Science and Industrial Research Organization (CSIRO) climate change division were announced in February as a result of budget cuts imposed by the previous climate change skeptic prime minister, Tony Abbott. Prime Minister Malcolm Turnbull, who toppled Abbott in a party-room coup in late 2015 and who has championed action against climate change, was elected in July. Hunt said the new policy would see 15 new climate science jobs and research investment worth A$37 million ($28.08 million) over 10 years, but scientists and advocates remained concerned about the CSIRO.

    UN tries to hide involvement in deleting Australia from its climate report  - The United Nations has tried to cover up its involvement in the Australian government’s successful attempt to have all mentions of the country removed from a report on climate change and world heritage sites, freedom of information documents show.In May, Unesco published a report with the UN’s environment program, Unep, and the Union of Concerned Scientists about the impact of climate change on world heritage sites, which were also major tourist attractions.Australia was the only continent not mentioned, despite being home to several important sites, including the Great Barrier Reef, which were being heavily affected by climate change. A Guardian investigation revealed in May that three Australian sites were included in an earlier version of the report, but were removed after the environment department objected.As well, all mentions of Australia were removed from the introduction and other sections. The Guardian later published the draft section on the Great Barrier Reef that had been removed.The department said it had asked for the changes because it was concerned the information could negatively affect tourism.  Now emails between various government agencies and Unesco have been released to the website Climate Home under freedom of information but almost all the content has been redacted.

    U.S. states signed pact to keep Exxon climate probe confidential | Reuters:  A pact that 15 U.S. states signed to jointly investigate Exxon Mobil Corp for allegedly misleading the public about climate change sought to keep prosecutors' deliberations confidential and was broadly written so they could probe other fossil fuel companies. The "Climate Change Coalition Common Interest Agreement" was signed by state attorneys general in May, two months after they held a press conference to say they would go after Exxon, the world's largest publicly-traded oil and gas company, and possibly other companies. The signed agreement has not been made public until now, and Reuters reviewed a copy of it on Thursday. It provides considerably more detail about the prosecutors' legal strategy than the general outline provided at their announcement in March, which was headlined by former Vice President Al Gore. In a nod to the politically charged nature of the inquiry, which quickly spilled over into Congress and corporate shareholders meetings, the pact says signatories of the agreement should keep discussions private and "refuse to disclose any shared information unless required by law." Besides Exxon, the agreement says other entities could be targeted if states felt they were delaying action to fight climate change. The pact says the states may take legal action to "defend Federal greenhouse gas emissions limits" and open investigations of "possible illegal conduct to limit or delay the implementation and deployment of renewable energy technology."

    The entire continent of Australia has shifted — and it's causing problems for GPS systems -- Australia might not be as far away as it used to be because the entire continent has moved 1.5 meters (4.9 feet) since 1994, according to Reuters. How did this happen? Tectonic shifts are the reason. The Australian tectonic plate is the fastest moving continental plate on Earth. Scientists believe that it split from the Indo-Australian plate approximately three million years ago, and today, it is moving 7 centimeters (2.8 inches) northwards and slightly eastwards every year, colliding into the Pacific Plate on its journey. This drags the landmass of the continent just a little bit closer to the equator every year. As the pressure between the Pacific and Australian plates builds and builds, earthquakes will most likely result. While five feet doesn’t seem like a whole lot, it is still enough to disrupt global navigation satellite systems — which were and still are based on Australia’s position in 1994 — putting the continent out of sync. This affects not only the GPS maps on smartphones, but also delivery drones, farmers, meteorologists, and even automated cars. This happens because modern satellite systems provide location data based on global lines of longitude and latitude, and these, unlike continents, are fixed.  Many countries — including Australia — produce maps and measurements with the lines of longitude and latitude fixed to their continent. But as the plates move, this means that over time, local coordinates become out of sync with the global coordinates.

    Trudeau Just Broke His Promise to Canada’s First Nations - Justin Trudeau’s government has quietly issued its first batch of permits for the Site C dam — allowing construction to move forward on the $8.8 billion BC Hydro project despite ongoing legal challenges by two First Nations.  The federal-provincial review panel’s report on Site C found the 1,100 megawatt dam will result in significant and irreversible adverse impacts on Treaty 8 First Nations.  Caleb Behn, who is from West Moberly First Nation, one of the nations taking the federal government to court, says Trudeau has broken his promise.   “These permits suggest very strongly that, at least these ministries, if not Trudeau’s entire cabinet, are unwilling to engage in reconciliation with indigenous peoples. I thought this country could be more.”  Charlie Angus, MP for Timmins-James Bay and NDP critic for Indigenous and Northern Affairs, echoed those sentiments.     “I think this was a real test of the Trudeau government and they failed the test,” Angus said.  “The Liberals seem to be thinking that if they say the right things, it’s somehow the same as doing the right things.”  Trudeau has emphasized building a new relationship with indigenous peoples since taking office in October. But with the issuing of the Site C permits, doubts have been cast on that promise.

    The Ivanpah Solar Electric Generating System Is Burning Insects and Birds - The Ivanpah Solar Electric Generating System is a massive energy installation in the Mojave Desert about 50 miles southwest of Las Vegas. Seen from above, it looks like a futuristic temple built by sun-worshiping Andromedans:  A top-down view reveals vast, concentric circles made from some of the facility’s 170,000-plus heliostats:  These mirrored panels use software to track the sun and reflect its brilliancy at three central, 459-tall solar receivers. At the tops of these towers the energy is concentrated to a ferocious degree—surface temperatures can soar above 900 Fahrenheit—turning water into steam, generating electricity, and channeling it toward thousands of California homes.  Opened in 2014, Ivanpah is the biggest solar thermal power plant on earth and a promising beacon for advocates of green energy. (Though some argue the $2.2 billion project isn’t doing as well as promised.) It’s also slaying a lot of wildlife. An environmental report based on carcasses littering the ground estimated that, in its inaugural year, the facility killed more than 3,500 birds. The major problems: Animals crash into the heliostats or get too close to the solar receivers and are scorched, leaving smoke trails in the sky as they flap away.

    Why Renewable Power Can Still Be Wasteful -- On any given day, a certain amount of wind and solar power is curtailed, as the term of art goes. Wind turbines, for example, get turned off even though the blades are still turning; the production of solar plants sometimes gets dialed down. In early July in California, for about an hour one afternoon, some 292 megawatts of solar capacity was curtailed—enough to power thousands of homes.  Why do we have curtailment? Blame the herky-jerky way we roll out new technologies and build infrastructure in this country.  Inefficiencies in new economic infrastructure aren’t exactly new. Because the state doesn’t centrally plan and roll out new technologies in a completely rational fashion—matching demand, distribution, and supply—wrinkles and bubbles develop. Incentives may be available for one component of the technology but not for others. And so overinvestment in one stage of the process coincides with underinvestment in another stage.. The earliest telegraph lines from Boston to New York City stopped at the Hudson River—and messages had to be carried across the Hudson on a boat. The same has happened with wind and solar. There are significant government incentives to build wind and solar farms in the plains and deserts, where land is cheap and resources are plentiful. The U.S. renewable industries have figured out how to build and finance wind and solar farms at scale. But the transmission and the distribution systems, which don’t benefit from the same incentives, haven’t kept up.

    How Blockchain Technology Could Decentralize The Energy Grid - One day, the energy grid could look completely different than it does today. Instead of big power plants sending electrons over long distances to people's homes, we might generate more power locally using solar panels, and homeowners might become makers and traders of power as well as passive consumers. If so, blockchain technology could help keep track of electrons flowing through the system, energy futurists say. Just as the blockchain has allowed people to track and authenticate Bitcoin transactions, it could help mediate transactions of energy units through a cooperative, decentralized network, they believe. That's the vision painted by Mike Mihaylov, a researcher with the EU-funded Scanergy project. Based at the Vrije Universiteit Brussel (VUB), a university in Belgium, Mihaylov sees "prosumers" buying and selling home-generated power using an alternative currency called NRGcoin, and he's already set up a prototype of what an eventual system might look like.Whenever someone has excess power they don't need, they inject it into a local smart grid, generating one NRGcoin for each kilowatt-hour. If, for some reason, they need more power than their solar panel can produce—perhaps it's a cloudy day—they can buy back one kilowatt-hour at the same price from another actor in the network. If not, they can also sell the NRGcoin on a separate exchange, generating traditional money.

    Light Industry: Toxic Waste and Pastoral Capitalism -- There are two plaques at 844 E. Charleston Road in Palo Alto—one from the Institute of Electrical and Electronics Engineers (IEEE) and one from the state of California—commemorating it as the place where Fairchild Semiconductor revolutionized computer manufacturing in 1959. Aside from some markers for groundwater monitoring wells on the pavement, there isn’t any signage for the restrictive covenant issued for 844 E. Charleston by the California Regional Water Quality Control Board (RWQCB) in January of last year.1 It prohibits the operation of day-care centers, elder-care centers, hospitals, and K–12 schools on the site due to ongoing remediation of contaminated groundwater and soil on the property. The volatile organic compounds discovered in the groundwater may not have been a result of Fairchild, who vacated the property in 1967, expanding to a larger manufacturing facility that, today, is mostly Google offices and a Superfund site. It could have been the work of the following tenant, Advalloy, a company focused on precision metal-stamping for semiconductor production, until going bankrupt in 1991.2 Both ended up being held liable for the contamination in 1989. That a landmark of technical innovation sits atop toxic waste isn’t rare in Silicon Valley. There are twenty-three federal Superfund sites in Santa Clara County, which encompasses most of Silicon Valley, and these sites are connected to semiconductor and electronics manufacturing.3

     From now on, every government agency will have to consider climate change -- In the past several weeks alone, the Obama administration has made multiple new moves to fight climate change. The administration announced new steps to help fill U.S. roadways with electric vehicles. It ruled that greenhouse gas emissions from aircraft endanger human health and welfare. And on the international stage, it moved the world closer to a deal to phase out super-polluting HFCs, chemicals in refrigerants and other industrial substances that warm the climate. But as Obama’s term dwindles, the act isn’t over — on Tuesday the White House released yet another policy to fight climate change, one with potentially far-reaching consequences. The White House’s chief environmental office, the Council on Environmental Quality, finalized a six-year process of shaping how the government’s agencies, across the board, will factor climate change into their decisions. The council’s new guidance involves what activists and environmental lawyers know as “NEPA” — one of those exceedingly wonky policies that is nevertheless critical to how the modern federal government functions. NEPA is short for a foundational 1969 environmental law, the National Environmental Policy Act, that required federal agencies to consider environmental consequences of their actions — all kinds of actions, ranging from granting a permit to drill on public lands to building a new road or bridge. NEPA hails from the Nixon era, when Republicans were environmentalists, too, and when both parties actually agreed about environmental policy (or, at least, a lot more than they agree now). For the most significant federal actions, it requires agencies to prepare an “Environmental Impact Statement,” essentially a report, detailing the consequences of the move and how those consequences might be averted. The federal government wrote 563 of these reports in 2015, according to the White House.

     Environmental safety of corn ethanol up for debate - Corn planted area in the U.S. for all purposes in 2016 is estimated at 94.1 million acres, up 7 percent from last year. It’s everywhere, even on some slopes and soils vulnerable to erosion. According to the U.S Department of Agriculture, this represents the third-highest planted acreage in the United States since 1944. Wisconsin’s share of the total is 4.2 million acres, up from 4 million last year. The surge in corn production is mainly driven by the steady increase in corn ethanol boosted by the ever-increasing Renewable Fuel Standards mandated by Congress. Ethanol is blended in more than 97 percent of the gasoline in the U.S. Somewhere between 40 percent and 50 percent of the crop is now used for ethanol production. The pressures that the ethanol mandate places on the land have renewed the debate over whether the mandates should be repealed. Sen. Ted Cruz caused a stir in Iowa last year when he told the Iowa Agriculture Summit that the federal mandate on ethanol had to end. Pledging allegiance to the mandate had been considered essential for presidential candidates seeking votes in the Iowa caucus. The Wall Street Journal called it “one of America’s worst corporate-welfare cases” in a defense of Cruz’s remarks. U.S. News noted, concerning Cruz’s position, that, “The ethanol mandate makes no sense economically or environmentally. Economists have roundly condemned it for artificially increasing the cost of gasoline without providing any lasting benefits for the environment. The only real purpose of the ethanol mandate is to feather the bed of the farm lobby.” But Cruz got buried by voters in corn-rich Iowa.

    Clinton campaign studying alternative to U.S. ethanol mandate | Reuters: Democratic U.S. presidential candidate Hillary Clinton's campaign has solicited advice from California regulators on how to revamp a federal regulation requiring biofuels like corn-based ethanol be blended into the nation's gasoline supply, according to campaign and state officials. The move is the clearest sign yet that, if elected, Clinton would seek to adjust the regulation, called the Renewable Fuel Standard, possibly hurting her chances in corn-growing states like Iowa where she faces a tough battle against Republican rival Donald Trump in the Nov. 8 election. The Renewable Fuel Standard, created by Congress in 2005, mandates that transportation fuel sold in the United States contain a minimum volume of renewable fuels. It was intended to cut greenhouse gas emissions and expand the U.S. renewable fuels sector while lowering reliance on imported oil. It is opposed by the oil industry and environmentalists and has been criticized as a mere subsidy to corn producers. Clinton advisers have contacted the California Air Resources Board (CARB) to discuss whether a policy like California's Low Carbon Fuel Standard, a market-based system rather than a mandate, could be applied at a national level to replace or augment the Renewable Fuel Standard, and other issues, CARB officials said.A Clinton campaign official, who asked not to be named, confirmed the discussions with CARB but gave no further details. A campaign spokesman, Tyrone Gayle, said the campaign has been seeking advice from "a diverse set of stakeholders." He added that the Clinton campaign "does not support replacing the RFS with a national low-carbon fuel standard” but did not elaborate.

    Storing carbon underground may be safer than we thought -- Few carbon-cutting practices have raised as much controversy, even among clean energy advocates, as the practice of carbon capture and storage. The basic concept is simple enough: catch carbon dioxide from factories and other industrial facilities before it goes into the atmosphere and then either store it indefinitely underground or inject it into oil reservoirs to help pump out more oil. But while many experts have touted the process as an essential factor in the mitigation of climate change, others have argued that it’s too risky, too costly and distracts policymakers from the expansion of renewable energy sources, like wind and solar. While the debate isn’t likely to be resolved any time soon, a new study — just published Thursday in the journal Nature Communications — has addressed at least one of the concerns associated with carbon storage: its safety. In the past, critics have suggested that carbon dioxide stored underground may be able to corrode the rock layers above it and eventually escape, a possibility that’s been supported by some modeling and laboratory studies. This would be bad for the climate, of course, but some environmental and public health advocates have also worried that escaped carbon dioxide in large volumes could damage the water or air quality of nearby communities. But the new study suggests that such concerns may be overblown. The researchers examined a natural carbon dioxide reservoir near Green River, Utah, and found that the carbon dioxide has been trapped underground there for about 100,000 years without dangerously corroding the rocks that are trapping it in place. (For perspective, climate experts have suggested that carbon dioxide must be kept stored underground for at least 10,000 years to keep it from adding to the current global warming. These observations suggest that storing carbon underground may (at least at some sites) be much safer than previous model and laboratory experiments have suggested.

    Utility Won’t Clear Up Toxic Coal Ash Pits Because It’s Too Expensive --  Nearly a decade after the worst coal ash spills in U.S. history, a federally owned public utility is closing 10 toxic coal ash pits across Tennessee and Alabama. But it won’t clear up the toxic residue from the pits, leaving open the possibility of water contamination.  The Tennessee Valley Authority (TVA) said Friday it planned to cap-in-place 10 unlined coal ash at six plants where the ash was dumped for some 50 years. Coal ash is the byproduct of burning coal for energy and contains known carcinogens like arsenic, lead, and mercury. Energy companies dumped coal ash for decades into ditches they then filled with water. Usually unlined and close to waterways, coal ash ponds are known to leak, and went federally unregulated until 2014. Since then utilities all over the country have been moving to close their pits, while often proposing the cheaper option of dewatering ditches before closure. Environmentalists have been adamant to this type of decommissioning because they say it does little to prevent underground leaks. Instead, they say excavating pits and moving toxic residue to a permitted landfill is the better option.  TVA decided to close its coal ash ponds after a rupture at its Kingston Plant in 2008 spilled 1.1 billion gallons of toxic sludge into the Emory and Clinch rivers in Tennessee, according to published reports. The Kingston spill was one of the worst environmental disasters in U.S. history. After more than a year of studies and hearings, TVA determined that capping these ponds was the fastest and cheapest method of closing them. The utility also said this was the safest option.  "Based on our analyses and decades of available monitoring data, we believe that TVA's coal combustion residuals' management activities are not harming human health or the environment," John McCormick, TVA vice president of safety, river management and environment, said in a statement.

    NC toxicologist: Water near Duke's dumps not safe to drink (AP) — North Carolina’s top public health official acted unethically and possibly illegally by telling residents living near Duke Energy coal ash pits that their well water is safe to drink when it’s contaminated with a chemical known to cause cancer, a state toxicologist said in sworn testimony. The Associated Press obtained a copy of the 220-page deposition given last month by toxicologist Ken Rudo as part of a lawsuit filed against Duke by a coalition of environmental groups. The nation’s largest electricity company has asked a federal judge to seal the record, claiming its public disclosure would potentially prejudice jurors. Rudo’s boss, state public health director Dr. Randall Williams, in March reversed earlier warnings that had told hundreds of affected residents not to drink their water. The water is contaminated with cancer-causing hexavalent chromium at levels many times higher than Rudo had determined is safe. “The state health director’s job is to protect public health,” testified Rudo, who has been the state’s toxicologist for nearly 30 years. “And in this specific instance, the opposite occurred. He knowingly told people that their water was safe when we knew it wasn’t.” Rudo also described being summoned for a highly unusual 2015 meeting at the office of Gov. Pat McCrory, a Republican who worked for Duke Energy for nearly three decades prior to his election. McCrory was away and listened in on the phone as his communications director, Josh Ellis, asked Rudo why it was necessary to warn the residents. “Their concern was initially telling people not to drink the water,” Rudo testified. “They felt that was a strong thing to do.” Rudo said the water warnings were required under state law once testing had shown the wells to be contaminated at what he had determined were unsafe levels of a cancer-causing chemical.

    State toxicologist: Claim that NC well water was safe was 'scientifically untrue' - Emails obtained through public-records requests by a conservation group show that State Toxicologist Ken Rudo forcefully resisted the McCrory administration last year as it moved to alter the do-not-drink letters sent to hundreds of well owners near coal-ash pits owned by Duke Energy. In March 2015, after Rudo had drafted the letters advising well owners — many of whom had elevated levels of the carcinogen hexavalent chromium — against using their water for drinking or cooking, department administrators pushed Duke Energy’s position that the water would generally be considered safe to drink under the federal Safe Drinking Water Act. According to Rudo, one of the most experienced health experts in the N.C. Department of Health and Human Services, that claim is just not true. “Since we now have an absolutely scientifically untrue human health statement insofar as it pertains to chromium … I am removing my name from the HRE form (do-not-drink letter),” Rudo said in an email to co-workers on March 15, 2015. “I cannot from an ethical and moral standpoint put my name on a form with this absolutely untrue human health statement, insofar as it pertains to chromium,” he said. The email comments come to light as Duke Energy moves to prevent testimony that Rudo provided earlier this month in a deposition related to coal-ash litigation from being publicly released. Saying that the deposition is not finished and that some of the testimony is based on hearsay, Duke Energy has requested that a judge issue a protective order sealing the testimony.

    Coal Glut, Environmental Pushback Derail West Coast Port Plans - WSJ: Western coal producers once saw exports to Asia as their future. For many, that dream is fading. A global glut has flooded overseas markets that were once expected to buy coal produced along a belt stretching from Utah to Montana that includes the Powder River Basin. The industry is also losing long-sought shipping outlets on the West Coast, where local communities have blocked construction of coal terminals amid concerns about climate change and pollution. Out of seven West Coast export terminals proposed in the past five years—which combined could have handled over 125 million tons of coal annually—not one has opened. The coal companies’ defeats—under pressure from environmental groups—show the limits of miners’ sway over authorities as cheaper natural gas and tighter emissions standards have slashed demand for the fuel. With three of the four largest U.S. producers in bankruptcy and others hampered by debt, the retrenchment has been swift.  Late last month, the city council in Oakland, Calif., gave final approval to a rule blocking coal exports through a new terminal on a decommissioned army base. The future of the $500 million project—backed in part by $53 million of Utah tax revenues—is uncertain, according to a spokesman for the Oakland Global Trade and Logistics Center project. Arch Coal Inc., the nation’s second-largest coal producer after Peabody Energy Corp., sold a 38% stake in Longview-Wash.-based Millennium Bulk Terminals in June, four years after it had originally hoped to start sending coal from the port. Arch paid $25 million for the stake and received no cash compensation for giving it up, though the company acquired the right to ship coal through the terminal.

    Boom and betrayal: Retired coal miners losing health benefits as companies file bankruptcy — Sitting at his kitchen table at his home near Sesser, retired coal miner Jim Miller fumbled around for the right word. Betrayal. That’s the one he settled on. That’s the way he felt when he opened a letter in the mail on July 5 from Alpha Natural Resources, from which he retired in 2007, stating his health care benefits will terminate Aug. 1 — this Monday. Alpha declared bankruptcy in August. A bankruptcy court judge approved the coal company’s request in May to cut worker benefits as part of its Chapter 11 restructuring agreement. Five months prior, a judge reportedly approved the company’s request to award 15 top-level executives metric-based bonuses totaling upwards of about $12 million, which it argued was necessary to retain its leadership team. Miller, who is 71, retired from the Wabash mine in Keensburg in 2007. Foundation Coal Holdings, Inc., a sibling company of Alpha, closed the mine that year as talks broke down with the UMWA over a wages dispute. Miller and his wife Carolyn, both are fourth generation coal-mine employees — she worked in the warehouse for Old Ben Coal Co. — have decorated their Americana styled home with coal mining memorabilia. A “Coal Minin” sign hangs behind the television. Miller said he’d invite the judge that signed off on stripping him of his benefits to pay a visit to his house tucked among farm fields in rural Franklin County, and sit down with him at his kitchen table, which is covered with a red, white and blue table cloth. Perhaps then, he said, the judge and coal executives might truly grasp how their decisions are playing out in people's lives all across the Heartland.

     New York State Aiding Nuclear Plants With Millions in Subsidies - Utility customers in New York State will pay nearly $500 million a year in subsidies aimed at keeping some upstate nuclear power plants operating, regulators in Albany decided on Monday. The subsidies were included in an order from the Public Service Commission to establish new rules on how power consumed in the state is generated.  Mr. Cuomo’s ambition to have New York seen as a national leader in reducing pollution from power generation has been complicated by the declining fortunes of the operators of nuclear plants. A long slump in the price of natural gas, a fuel for other generators, has hurt the profits of many nuclear plants, prompting plans to shut down some in New York.  Exelon has said it may have to close its R. E. Ginna and Nine Mile Point nuclear plants unless it receives financial help from the state. Another company, Entergy, had said that it would close the James A. FitzPatrick plant, which neighbors Nine Mile Point on the shore of Lake Ontario in Oswego County, by early next year. Without those reactors, the state’s distributors of electricity would have to obtain more power from power plants fueled by gas and coal, which emit more carbon and would detract from the governor’s clean-energy goals, said Audrey Zibelman, the chairwoman of the commission. None of the subsidies will go to the Indian Point nuclear plant in Buchanan in Westchester County, Ms. Zibelman said. That plant, she said, “doesn’t have economic need” because electricity prices are much higher downstate. Mr. Cuomo, a Democrat, has pressed federal regulators to shut down Indian Point, arguing that it is unsafe to operate nuclear reactors in a densely populated area so close to New York City. But Entergy, which operates Indian Point, has opposed those efforts.

    Nuclear Power Is Becoming Unprofitable. Should Taxpayers Bail Out The Industry?  by Joe Romm -- Half of existing nuclear power plants are no longer profitable. The New York Times and others have tried to blame renewable energy for this, but the admittedly astounding price drops of renewables aren’t the primary cause of the industry’s woes — cheap fracked gas is.  The point of blaming renewables, which currently receive significant government subsidies, is apparently to argue that existing nukes deserve some sort of additional subsidy to keep running — beyond the staggering $100+ billion in subsidies the nuclear industry has received over the decades. But a major reason solar and wind energy receive federal subsidies — which are being phased out over the next few years — is because they are emerging technologies whose prices are still rapidly coming down the learning curve, whereas nuclear is an incumbent technology with a negative learning curve.  The renewable red herring aside, existing nukes can make a reasonable case on for a modest subsidy on the basis of climate change — though only because they are often replaced by carbon-spewing gas plants. That said, the “$7.6 billion bailout” New York state just decided to give its nuclear plants appears to be way too large, as we’ll see.

    US Begins Upgrading Its Nuclear Bomb Arsenal - The last time we discussed America's B61 nuclear bombs, was in the aftermath of Erdogan's staged coup, after Turkey shut the power and suspended all operations at the local Incirlik NATO airbase, where over 50 of the same nuclear bombs are stored. Now it appears that particular nuclear bomb is about to get a long overdue facelift. According to a statement by the National Nuclear Security Administration, the Obama administration has given the go-ahead for work on upgrading the B61 airborne nuclear bomb, as the Pentagon is eager to embark on a multi-billion-dollar scheme to improve the US nuclear arsenal.The decision by the NNSA authorized the program to enter a post-engineering phase, which comes after four years of work to, in technical terms, "preserve a critical element of the U.S. nuclear triad and the extended deterrent." As a result, the first upgraded bombs are set to roll out by 2020. The B61 has been the principal US airborne nuclear bomb since 1968, when the first version was commissioned. With some of the modifications being canceled over the years and others withdrawn from use, only models 3,4,7,11 and 12 are currently in active service.

    A secret group easily bought the raw ingredients for a dirty bomb – here in America - The clandestine group’s goal was clear: Obtain the building blocks of a so-called radioactive “dirty bomb” – capable of poisoning a major city for a year or more – by openly purchasing the raw ingredients from authorized sellers inside the United States. It should have been hard. The purchase of lethal radioactive materials – even modestly dangerous ones – requires a license from the Nuclear Regulatory Commission, a measure meant to keep them away from terrorists. Applicants must demonstrate they have a legitimate need and understand the NRC’s safety standards, and pass an on-site inspection of their equipment and storage. But this secret group of fewer than 10 people – formed in April 2014 in North Dakota, Texas, and Michigan – discovered that getting a license and then ordering enough materials to make a “dirty bomb” was strikingly simple in one of their three tries. Sellers were preparing shipments that together were enough to poison a city center when the operation was shut down. The team’s members could have been anyone – a terrorist outfit, emissaries of a rival government, domestic extremists. In fact, they were undercover bureaucrats with the investigative arm of Congress. And they’d pulled off the same stunt nine years before. Their fresh success has set off new alarms among some lawmakers and officials in Washington about risks that terrorists inside the United States could undertake a “dirty bomb” attack. Here’s how they did it:

    Baby Teeth of Iraqi Children Tell Troubling Tale of War's Toxic Impacts - In an effort to learn more about the impacts of long-term exposure to heavy metals and other toxins associated with warzone bombardments and military installations, a new study released Friday examined a sample of donated teeth and discovered that the children of Iraq are suffering from alarming levels of such substances, specfically lead. The study—entitled Prenatal Metal Exposure in the Middle East: Imprint of War in Deciduous Teeth of Children—focused on Iraq, invaded by the U.S. and coalition forces over thirteen years ago, due to the amount of bombing its population has witnessed over the last thirteen years and the troubling level of cancers and birth defects now evidenced in the population that could be related to that relentless violence. The Iraqi teeth were compared to donated samples from both Lebanon, which has seen a more moderate level of bombing and warfare during the same time period, and Iran, which has experienced relative peace since the end of the Iraq/Iran War in 1988. "In war zones," the abstract of the study explains, "the explosion of bombs, bullets, and other ammunition releases multiple neurotoxicants into the environment. The Middle East is currently the site of heavy environmental disruption by massive bombardments. A very large number of US military bases, which release highly toxic environmental contaminants, have also been erected since 2003. Current knowledge supports the hypothesis that war-created pollution is a major cause of rising birth defects and cancers in Iraq." Scientifically known as a person's "deciduous teeth," what are also called "baby teeth" are useful to study, the researchers explain, because they "originate in fetal life and may prove useful in measuring prenatal metal exposures." The researchers say their findings confirm the hypothesis that in war-torn Iraq the levels of contaminants found were much higher than in those countries that have seen markedly less violence.

    Toxic legacy of US assault on Fallujah 'worse than Hiroshima' - Dramatic increases in infant mortality, cancer and leukaemia in the Iraqi city of Fallujah, which was bombarded by US Marines in 2004, exceed those reported by survivors of the atomic bombs that were dropped on Hiroshima and Nagasaki in 1945, according to a new study. Iraqi doctors in Fallujah have complained since 2005 of being overwhelmed by the number of babies with serious birth defects, ranging from a girl born with two heads to paralysis of the lower limbs. They said they were also seeing far more cancers than they did before the battle for Fallujah between US troops and insurgents. Their claims have been supported by a survey showing a four-fold increase in all cancers and a 12-fold increase in childhood cancer in under-14s. Infant mortality in the city is more than four times higher than in neighbouring Jordan and eight times higher than in Kuwait. Dr Chris Busby, a visiting professor at the University of Ulster and one of the authors of the survey of 4,800 individuals in Fallujah, said it is difficult to pin down the exact cause of the cancers and birth defects. He added that "to produce an effect like this, some very major mutagenic exposure must have occurred in 2004 when the attacks happened". US Marines first besieged and bombarded Fallujah, 30 miles west of Baghdad, in April 2004 after four employees of the American security company Blackwater were killed and their bodies burned. After an eight-month stand-off, the Marines stormed the city in November using artillery and aerial bombing against rebel positions. US forces later admitted that they had employed white phosphorus as well as other munitions. In the assault US commanders largely treated Fallujah as a free-fire zone to try to reduce casualties among their own troops. British officers were appalled by the lack of concern for civilian casualties. (see: US fired depleted uranium at civilian areas in Iraq war, report)

    Protest filed in Meigs election board's rejection of charter proposal - — A committee seeking to put a proposed Meigs County charter on the November ballot has filed a protest against the county election board’s rejection of the ballot issue. The protest, which was filed with the Meigs County Board of Elections, will go to Ohio Secretary of State Jon Husted to decide, but one of the protest’s arguments is that Husted gave bad advice that might have misled the elections board. The proposed charter seeks to prohibit the use the county’s water for high-volume hydraulic fracturing (fracking) for extraction of shale gas and oil, and prohibit the disposal of fracking waste in the county. The Meigs County board initially voted on the charter petition on July 8, with the two Republicans voting that the petition seeking to put the charter on the ballot was invalid, and the two Democrats abstaining. The board then sought advice from Husted, who told them the board had to make a decision by majority vote. However, Husted also advised the board that an Ohio Supreme Court decision last year stated the board must decide if the charter petition satisfies the threshold requirements for a charter initiative and that the court stated that the Ohio Constitution requires that county charters must provide a form of government. Husted then cited a section of Ohio law (302.02) that requires an alternative form of county government to have a county executive. The proposed Meigs County charter does not have that position.

    Another elections board vetoes charter - The Portage County Board of Elections on Monday became the third Ohio elections board to reject a charter proposal for the November ballot. Boards in Athens County and Meigs County had done so earlier. The reason cited by the Portage County board was the same as that cited by the Meigs board — that the proposed charter failed to meet the requirement of Ohio Revised Code 302.02 that a charter provide for a county executive. In Meigs County, a protest was filed asserting that the board there exceeded its authority by delving into the content of the charter and asserting that there is no requirement that the proposed charter have a county executive. The Athens County Bill of Rights Committee also filed a protest over the local elections board decision declaring the proposed Athens County charter invalid. The elections board ruled that the proposed charter does not alter the county’s form of government, does not take powers of the municipalities and townships and vest those in the county and relies on the Ohio Revised Code to determine qualifications and salaries of officials. Gwen Fischer, of the Portage Community Rights Group, said a protest will be filed there, possibly by Tuesday morning. If that happens, it means that Secretary of State Jon Husted will have three charter protests to decide, as well as breaking a 2-2 tie vote by the Medina County Board of Elections on a charter issue.

    Q2 earnings: Rex Energy started Carroll County production -Rex Energy had a positive balance sheet and started production from two well pads in Carroll County’s Harrison Township during the second quarter.  The company closed the quarter with a profit of $16 million, or 22 cents per share, according to a press release. Rex lost $46 million during the same quarter last year.  The positive earnings were due to a stock conversion that raised $72.3 million. Rex also announced the sale of Illinois Basin assets for $40 million.   The company’s operating revenue was $31.3 million, down 13 percent from the same quarter last year.  Rex spent $23.3 million to drill eight wells, frack four wells and begin production from three wells. The company expects its joint-venture partners to reimburse $11 million for capital spent during the quarter. In Carroll County, Rex started production from its three-well Goebeler pad. The wells were drilled to an average lateral length of 7,360 feet and fracked in 41 stages. Each well had an average 24-hour sales rate equal to 2,100 barrels of oil, with 72 percent of the production from liquids.  Rex also began production from its two-well Perry pad, which was drilled to an average lateral length of 6,350 feet and fracked in 36 stages. The company didn’t provide production figures.  Rex is currently drilling its four-well Vaughn pad in Washington Township with average lateral lengths of 7,200 feet and expects production to start in the first quarter of 2017. The company projects production growth of 5 percent this year. Rex is based in State College, Pa. The company has drilled 42 Utica Shale wells in Ohio, according to the Department of Natural Resources.

    Waste from test fracking wells safe to be on highways, research concludes -- Researchers at West Virginia University studied drilling wastes produced at two research wells near Morgantown and found they are well below federal guidelines for radioactive or hazardous waste. Paul Ziemkiewicz, director of the West Virginia Water Research Institute at WVU, will present these and other findings from the Marcellus Shale Energy and Environmental Laboratory, or MSEEL, at the Appalachian Basin Technology Workshop in Canonsburg, Pennsylvania. Dr. Ziemkiewicz and his research team are studying the solid and liquid drilling wastes that are generated during shale gas development. These include drill cuttings, muds and produced water. Drilling a horizontal well in the Marcellus Shale produces about 500 tons of rock fragments, known as cuttings. WVU researchers have been studying the radioactivity and toxicity of the drill cuttings, which are trucked on public roads to county landfills. MSEEL scientists found that using the "green" drilling mud BioBase 365 at the well site resulted in all 12 cuttings samples passing the U.S. Environmental Protection Agency's test for leaching toxicity, allowing them to be classified as non-hazardous for non-radiological parameters like benzene and arsenic. They determined that the drilling mud exerted a strong influence over the environmental risks associated with handling and disposing of drill cuttings.

    14 states sue EPA over 'job-killing' oil and gas rules - A coalition of 14 states, led by West Virginia, sued the Environmental Protection Agency on Tuesday over its far-reaching regulations for the oil and gas sector, calling the rules a "job-killing attack" on the nation's oil and natural gas workers. The lawsuit asks the D.C. Circuit Court of Appeals to review the EPA's rule regulating methane emissions from new, reconstructed and modified oil and gas wells that use fracking, saying that the agency is exceeding its statutory authority. The states argue that the regulations impose an "unnecessary and burdensome" standard on the oil and natural gas industry, "while setting the stage for further limits on existing oil and gas operations before President Obama leaves office." "This is yet another example of unlawful federal overreach jeopardizing West Virginia jobs and working families," said state Attorney General Patrick Morrisey. "The rules are a solution in search of a problem and ignore the industry's success in voluntarily reducing methane emissions from these sources to a 30-year low."The states argue that the regulations "would raise production and distribution costs and, in turn, force an increase in consumer utility bills" by making fuel costs higher for power plants that are increasingly dependent on low-priced natural gas. "The EPA itself predicts its regulations will cost $530 million in 2025, while other studies project the annual price tag may hit $800 million."

    PA Natural Gas Production Increased In 2015 --  Pennsylvania’s natural gas production volume trended upward in 2015, according to the newly released Department of Environmental Protection (DEP) 2015 Oil and Gas Annual Report. In 2015, more than 4.6 trillion cubic feet of natural gas were produced in Pennsylvania compared to about 1 trillion cubic feet of natural gas produced in 2011. Currently, Pennsylvania is the second largest supplier of natural gas in the nation. “As our report shows, despite the reduction in the number of natural gas wells that were drilled in PA during 2015, the overall volume of natural gas produced continued to increase to a record level,” said Acting Secretary Patrick McDonnell. “We will continue to work with all of our stakeholders to balance the needs of our new energy economy with the imperative that we protect our resources.” The 2015 Oil and Gas Annual Report was created to provide information about DEP’s oil and gas permitting, inspection and compliance programs. In addition, the annual report provides insights of ongoing data trends, outlines significant accomplishments and provides a view of what to expect from DEP during this coming year. To read the full report, click on 2015 Oil and Gas Annual Report.

    Shale drillers produce more gas with less wells in 2015 -- Natural gas production in Pennsylvania is up despite a drop in the number of new wells. The Department of Environmental Protection released its 2015 annual oil and gas report on Monday, detailing such things as the number of wells drilled, locations, and inspections. The state’s shale wells produced 4.6 trillion cubic feet of natural gas in 2015, marking a continued increase since the start of the shale gas boom. This happened despite a drop in newly drilled wells. In 2015, shale producers drilled 785 wells, about half the number developed in 2014, which was 1,372. The top three producers included Chesapeake Energy, Cabot Oil and Gas, and Range Resources. The top counties for shale gas production include Washington, Susquehanna and Greene counties. The report also detailed the drilling activity for the Utica and Point Pleasant Shale Plays, which the DEP says could expand should the market for shale gas improve. Both of those formations lie beneath the Marcellus, and just 55 wells were drilled into those formations in 2015. DEP also reports that while both conventional and unconventional well inspections have increased since 2008, the number of violations has decreased. For shale gas wells, 404 violations were issued by inspectors in 2015, compared to 1,280 in 2010. The number of conventional natural gas well violations more than double the number for shale gas wells, this despite far more unconventional than conventional wells.

    Ramping up is a different formula for each driller - Oil and gas companies are ramping up again. It’s not a feverish pace. The handful of Marcellus Shale drillers that discussed their plans with analysts last week described a cautious return to the fields of Pennsylvania, Ohio and West Virginia predicated on the recent rise in natural gas prices, the long-awaited dip in oil and gas production, and the promise of rising demand from industrial projects and exports.  They all vowed to be swayed not by growth targets but by economics; as the market is finding its footing, they’ll drill where it’s the biggest bang for the buck.  The “where” isn’t necessarily a place but a bucket of conditions unique to each company.  For Downtown-based EQT Corp., it’s in the Marcellus and Upper Devonian shales in Greene, Southern Allegheny and eastern Washington counties.  For Consol Energy Inc., it’s mostly in the dry Utica Shale in Monroe County, Ohio, and some in the Marcellus in Washington County.  For Texas-based Southwestern Energy Corp., it’s split among West Virginia, northeastern Pennsylvania and the Fayetteville Shale in Arkansas. When an analyst asked Southwestern’s CEO why the company isn’t steering all of its activity to West Virginia, where, all things being equal, Southwestern has many more economic locations at current gas prices, Bill Way replied, essentially, that all things aren’t equal. First, there’s natural gas liquids prices to consider. Southwestern’s wells in northeastern Pennsylvania and Arkansas yield dry gas while its West Virginia holdings have wet gas — rich with ethane, propane, butane, and other heavier hydrocarbons. When natural gas liquids prices are good, it justifies the cost of processing them and selling them separately.  And, there’s the practical matter of where the company currently has the permits to drill.  Texas-based Range Resources Corp. said it has permits to drill 42 horizontal wells from pads it has already built, which allows the company to cut down on time and costs when choosing its next targets.

    Chesapeake Energy drops after earnings miss, asset sale plan - Shares of Chesapeake Energy fell more than 3 percent Thursday after its earnings were worse than expected and it raised its asset sales target. Chesapeake now expects to sell more than $2.0 billion in assets this year, well above the upper end of the prior $1.2 billion to $1.7 billion range. The firm said that it plans to sell "selected" Haynesville Shale acreage, located in northwest Louisiana, according to Reuters. The second-largest producer of natural gas posted a bigger-than-expected adjusted quarterly loss of 14 cents a share. Total revenue fell more than 50 percent from the same period last year to $1.62 billion and missed estimates of $1.93 billion, according to Reuters. The energy company also raised its full-year production forecast by about 3 percent. As of Wednesday's close, shares were up 17.5 percent year-to-date but nearly 34 percent lower over the last 12 months.

      Inside FERC Henry Hub August index down 25 cents to $2.67/MMBtu - Natural Gas | Platts News Article & Story: The August bidweek natural average price fell 26 cents to $2.42/MMBtu, as prices in the Northeast made the largest moves lower, data from Inside FERC's Gas Market Report showed Monday. The August bidweek price at the benchmark Henry Hub point fell 25 cents to average $2.67/MMBtu. That came as the NYMEX August futures contract settled at $2.672/MMBtu, down 24.5 cents from the July contract's close of $2.917/MMBtu. In the Upper Midwest, the Chicago city-gates bidweek price fell 13 cents to average $2.67/MMBtu. Elsewhere in the region, Consumers Energy and Michigan Consolidated city-gates both gave up 27 and 28 cents to average $2.62/MMBtu and $2.59/MMBtu, respectively. In Northeast markets, Transcontinental Gas Pipe Line Zone 6 New York traded lower, declining 47 cents to average $1.92/MMBtu.In New England, Algonquin Gas Transmission city-gates fell 46 cents to average $2.66/MMBtu. Elsewhere in the region, Tennessee Zone 6 delivered saw similar move to the downside, also sliding 46 cents to average $2.62/MMBtu. Upstream in the Northeast producing regions, Dominion, Appalachia, declined 70 cents to average $1.28/MMBtu. To the west, prices saw smaller moves lower, as Northwest Pipeline-Rockies averaged $2.51/MMBtu, a 1-cent reduction over last month. Cheyenne Hub also saw a similar move, giving up 4 cents to average $2.48/MMBtu. Along the West Coast, SoCal Gas fell 10 cents to average $2.75/MMBtu. Elsewhere in the region, El Paso, Permian Basin held flat to average $2.56/MMBtu.

    Thanks to high regional prices, South America emerges as key US LNG market - High regional gas prices in South America, most notably Argentina, are attracting US exports of domestically produced LNG, with more than 70% of landed cargoes arriving on the continent so far this year, according to new data compiled by Platts Analytics' Eclipse Energy. The average FOB price of cargoes shipped to South America through May was $3.42/MMBtu, new DOE data shows. At that price, South America has offered the most profitable destination for US exports compared with Europe, the Middle East and Asia where US volumes, less the cost of shipping, have yielded an average price of $3.00, $2.87 and $2.69/MMBtu, respectively. The higher price paid for US LNG in South America comes as regional gas markets, particularly in Argentina, are experiencing elevated prices.Under the recently elected conservative government of Mauricio Macri, Argentina’s domestic gas prices have risen by as much 500% this year. In an effort to stem the decade-long decline in gas production, the Argentine president cut domestic subsidies in December allowing consumer prices to rise to $5.20/MMBtu. Macri also extended a $7.50/MMBtu incentive price for output from newly drilled wells. Last week, Argentina’s government vowed to keep natural gas prices flat through the balance of the year amid a revolt from consumers over increases as high as 1000% on their utility bills.

    Price Tag! - Price Reporting Agencies and the Shrinking World of Fixed-Price Deals -- The latest natural gas transaction data from the Federal Energy Commission (FERC) shows the natural gas market is increasingly relying on published index prices for transacting physical volumes for day-ahead and month-ahead deliveries. Index prices — volume-weighted averages of all eligible prices reported to index publishers by location — are considered representative of the market and mitigate some of the perceived price risk associated with “fixed-price” deals, in which the price is independently negotiated between counterparties. But in order to make their indices representative and grounded in market reality, publishers — or price reporting agencies (PRAs) — rely strictly on prices from those independent fixed-price deals to set the index in the first place. As more of the deals done are based on index, what happens to the index itself? Today, we continue our review of natural gas transactional data and what it says about how the market is evolving.

    Natural Gas Prices Spike, Ending Lower, After Inventory Report - WSJ: Natural gas prices jumped but ended slightly lower on Thursday, despite a government report showing inventories declined for the first time in a summer week in a decade. The U.S. Energy Information Administration said storage levels shrank by 6 billion cubic feet of gas in the week ending July 29, an unexpected result for many analysts who had expected to see inventories grow slightly. It was the first drawdown in a summer week since the period ending Aug. 4, 2006, according to the EIA, and showed a significant decline from the same week last July, when inventories grew 41 bcf. Contracts for September delivery on the New York Mercantile Exchange rose to as high as $2.853 a million British thermal units after the report, before sliding to settle down 0.50 cent, or 0.18%, from a day earlier at $2.834/mmBtu. Some analysts had said they weren’t surprised to see only a brief spike in gas prices following the data. Any rally in natural gas prices would likely be limited, because of the impending end of summer, when demand for natural gas tends to peak, . “There is no summer after September,” Mr. Woods said. “It’s a pipe dream to think we’re going to see this market run for the long haul.” Increased production and high levels of imports from Canada could also pressure prices, analysts said.  Forecasts of warmer weather across large swaths of the country could elevate natural gas prices in coming days, as more gas is used to power air conditioning in homes and businesses.

    BP working to halt excessive waste flow into Lake Michigan from refinery — An operational issue has caused BP’s large northern Indiana refinery near the southern shore of Lake Michigan to discharge about five times more industrial waste into the lake than allowed. The refinery has been dealing with the problem at its wastewater treatment plant since Friday, The Times of Northwest Indiana reported. Problems at the BP Whiting Refinery often cause gas prices to increase because it’s the largest refinery in the Midwest. The company told the Indiana Department of Environmental Management that it discharged more than 8,900 pounds of total suspended solids Monday. It’s allowed to discharge nearly 5,700 pounds per day. BP discovered in another test Tuesday that the total suspended solids discharged rose to more than 26,600 pounds. BP spokesman Michael Abendhoff said the discharge involved wastewater solids, not hydrocarbons. He says the company is working to return the refinery to normal operations as soon as possible. IDEM spokeswoman Courtney Arango said the discharge doesn’t affect people, drinking water or marine life and that it shouldn’t be a concern for visitors of the nearby Whihala Beach County Park.

    Deliberate Toxic Waste Dumping Into Florida Drinking Water Supply Is Approved By Lawmakers -- The Florida Environmental Regulatory Commission, which was entirely appointed by Gov. Rick Scott, raised the limits on the amount of known carcinogens and toxic waste allowed to be dumped into waterways that feed the Florida drinking water supply. The move could poison just about everyone in the state, which is more than 17 million people. Florida’s new pollution guidelines are expected to increase the cancer rate from 1 in 100,00 to 1 in 10,000, for anyone in America who dares to eat Florida seafood more than once a week.Other types of cancer are also likely to increase, due to the fact that the new rules, approved on Tuesday, will permit the dumping of more than two-dozen additional known carcinogens. Among them are benzene, dioxins, pulp manufacturing discharges, and toxic chemicals related to fracking.The inclusion of fracking chemicals suggests that the new rules are a precursor to opening up the state to natural gas exploitation by Big Oil and other ‘dirty’ energy polluters. Fracking pollutes massive amounts of fresh water supplies with hundreds of toxic chemicals that are exempt from the Safe Drinking Water Act, due to the Halliburton Loophole. Since Floridians are almost entirely dependent on underground water for their drinking water supplies, the result of contaminating it would be nothing short of catastrophic.

    LOOP storage auction sees high participation, prices as storage demand intensifies - The August Louisiana Offshore Oil Port storage auction on Tuesday saw high trader participation combined with higher prices versus a month ago, according to industry sources familiar with the Gulf Coast market. During the August event, 6.6 million barrels of storage space for September, October, November, December, the first-quarter 2017 strip, the second-quarter 2017 strip and the third-quarter 2017 strip. Compared to the July auction, the August event sold 250,000 more barrels of storage space for forward months. A widened spread between the spot price and forward delivery months for sour crudes has added upward support for crude storage demand. The front-month/third-month Mars sour crude outright spread closed at minus $1.26/b Tuesday, widening from its close of minus $1.01/b July 5. Moving into fall refinery maintenance season, anticipated seasonal declines in regional refinery runs are driving demand for crude storage, according to a Gulf Coast market source. The auction, which operates on the Dutch auction model, saw an increase in final prices for storage. The August auction offered 4,200 block futures contracts ranging between 20 cents/b and 50 cents/b versus the July auction, which offered 3,300 block futures contracts ranging between 20 cents/b and 35 cents/b.

       Texas Commissions Its Own Study After Report Links Fracking to Quakes | Dallas Observer: Southern Methodist University seismologists recently revealed human-induced earthquakes in North Texas are not only caused by oil and gas operations but also have been occurring since the 1920s across Texas. Oil and gas industry professionals were quick to denounce seismologists findings, and the Texas legislature was quick to take action by calling for its own study, to be conducted by a team of experts appointed by the governor. In their May 2016 report, titled "A Historical Review of Induced Earthquakes in Texas," the study's lead author Cliff Frohlich, an associate director at the Institute for Geophysics at the University of Texas at Austin, pointed out that while earthquakes are caused by oil and gas operations, the specific reasons for these quakes have differed over the decades.“I think we were all looking for what I call the silver bullet, supposing we can find out what kinds of practices were causing the induced earthquakes, to advise companies and regulators,” Frohlich noted in the study. “But that silver bullet isn’t here.”Still, Frohlich said the evidence presented in the study should finally silence the naysayers among state officials. But oil and gas industry officials and think tanks say they doubt the study's conclusions.

    States show they can sometimes stop earthquakes - Kansas and Oklahoma, which acknowledge that humans are causing earthquakes, have shown they can stop them. After restricting oil and natural gas operations in certain hotspots, Oklahoma has an average of two earthquakes a day, compared with about six a day last summer. Kansas is getting about a quarter of the quakes it once did.  Using a growing body of research –– and trial and error –– scientists and state regulators are gradually getting closer to pinpointing the cause of the startling increase in earthquakes in the Central and Eastern U.S., and preventing them. The general cause, scientists have found, is not drilling, but what happens after, when operators dispose of wastewater that comes up naturally during oil and gas extraction. The operators inject the wastewater into disposal wells that go thousands of feet underground, which can increase fluid pressures and sometimes cause faults underneath or nearby to move. Since March 2015, Kansas and Oklahoma have limited how much wastewater each operator in certain areas can dispose of at a given time. To gather more data, Oklahoma, Pennsylvania and Texas are expanding their seismic monitoring systems this year, placing permanent stations across the states and moving temporary stations to new hotspots. And Oklahoma and Texas hired more staff or are contracting with scientists to study the geology of areas where earthquakes are occurring, the details of the quakes that happen, and the oil and gas activity that may be associated with them. About 7 million people in the Central and Eastern U.S. are at risk of man-made earthquakes powerful enough to crack walls, according to a one-year United States Geological Survey forecast released in March. The report outlined the risk from man-made earthquakes for the first time, listing the states with the highest risk in order as Oklahoma, Kansas, Texas, Colorado, New Mexico and Arkansas. The USGS tallied 1,010 earthquakes in the region last year, a number that has increased steadily from 318 in 2009. Parts of the historically aseismic region, such as northern Oklahoma and southern Kansas, are now as seismically active as California. “Every scientist working in the midcontinent of the U.S. is pretty confident that the vast majority of these earthquakes are induced,” said Tandis Bidgoli, assistant scientist and geologist for the Kansas Geological Survey. “Especially where you are having swarms of earthquakes.”

    Trump indicates towns, states should be able to ban fracking | TheHill: Donald Trump seemed to support state and local bans on fracking in a Colorado interview Friday. In a departure from the usual position of Republicans and the wishes of the oil and natural gas industry, the GOP nominee for president said he thinks voters should be able to ban fracking at the state and local level, despite his personal support for the practice.  “I’m in favor of fracking, but I think that voters should have a big say in it,” Trump told Denver television station KUSA in an interview, a portion of which was posted Friday. “I mean, there’s some areas, maybe, they don’t want to have fracking. And I think if the voters are voting for it, that’s up to them.” He went on to say that while fracking is needed, “if a municipality or a state wants to ban fracking, I can understand that.” Republicans around the country have fought fiercely against local and state fracking bans. Localities in both Texas and Colorado have passed bans on fracking within their boundaries. Texas’ legislature voted last year to prevent local fracking bans, and Colorado’s highest court ruled this year that that state’s laws prohibit such bans. Republicans in New York tried for years to get that state to allow fracking, but Gov. Andrew Cuomo (D) banned it in 2014. Trump in April criticized New York’s fracking ban.

    In Colorado, Donald Trump sides with Democrats and environmentalists on fracking - -- Donald Trump waded into Colorado's fracking debate this week, siding with a position popular among Democrats and environmentalists in the state, while leaving many Republicans dismayed.   Trump, who held rallies on Friday in Colorado Springs and Denver, said that while he supports fracking, he believes voters should have a say in whether they want to ban it.   "I think that voters should have a big say in it," he told a local Denver television station. "I mean, there's some areas, maybe, that don't want to have fracking, and I think if the voters are voting for it that's up to them."   Steve House, Colorado’s Republican Party chairman, said the comment from Trump amounts to a misunderstanding of the issue. “While we want the state to be able to control its destiny, we don’t want voters to be able to take mineral rights away from people who own them,” House, who said Saturday, “dozens” of local Republicans have called to express concern over Trump’s comments. .  In recent years, several Colorado towns – mostly in liberal pockets of the state – have either placed bans or moratoriums on fracking. Still, those efforts have not always held up. In May,  the Colorado Supreme Court overturned a five-year fracking moratorium imposed by voters in Fort Collins, Colo., in 2013. Moreover, a ban on fracking supported by voters in Longmont, Colo., about 40 miles north of Denver, was also overturned. In  both cases, the court ruled the efforts “materially impeded” state power.

    Colorado Governor says Trump doesn't understand fracking issue: Denver Post | Reuters: Governor of Colorado John Hickenlooper on Monday criticized Donald Trump's comments about fracking, saying the Republican presidential candidate does not completely understand the issue, the Denver Post reported. Trump, during a campaign in Colorado, said that while he supports fracking, he also believes state and local governments should be able to ban fracking, the Denver Post reported. ( Hickenlooper, a former geologist, called the issue a "tricky thing" when asked why he thought Trump was wrong to support locals' ability to ban fracking, the publication wrote. He also added that if total responsibility is given to local authorities, any oil and gas activity would be voted to be banned, and people who own these private properties with the minerals would lose out, the publication reported. The Colorado Supreme Court has a ruling in force which does not allow local governments to ban fracking.

    Trump rattles industry with fracking position | TheHill: Republican presidential nominee Donald Trump is stirring unease in the oil and natural gas industry with his remarks about hydraulic fracturing. Trump supports fracking but says towns and states should be allowed to ban the drilling practice. That position is at odds with industry groups and congressional Republicans, who say the practice is safe and should be permitted nationwide. Oil industry representatives remain behind Trump, arguing he would be better for energy development than Democratic nominee Hillary Clinton, but his remarks about fracking have raised eyebrows. “It does show that although there’s all this talk about being a businessman, there is a lot of nuance when you’re talking about an industry that he’s not familiar with,” said one lobbyist who requested anonymity to speak freely about the Republican nominee. “I think that there is an education process that the candidate still needs to understand.” Trump’s comments on fracking came in an interview with the Denver television station KUSA. “I’m in favor of fracking, but I think that voters should have a big say in it,” Trump said in the interview. “I mean, there’s some areas, maybe, they don’t want to have fracking. And I think if the voters are voting for it, that’s up to them.” He said the country needs fracking, “but if a municipality or a state wants to ban fracking, I can understand that.”

    Trump Adviser Stephen Moore Compares Fracking To "The Cure For Cancer" - While GOP presidential nominee Donald Trump recently suggested that voters should be allowed to ban fracking at a local or state level, one of Trump’s economic advisers believes that “to be against fracking is like being against a cure for cancer.” During the August 1 edition of C-SPAN2's Book TV, while discussing his new book Fueling Freedom: Exposing the Mad War on Energy, conservative economist Stephen Moore stated that opposing fracking “is like being against a cure for cancer” because it is “one of the great seismic technological breakthroughs” that is “giving us huge amounts of energy at very low prices.” He criticized Florida high school students who oppose fracking, claiming they were “indoctrinated in their high school classes” to think that “somehow fracking is a bad thing.” Moore also dismissed the widespread concerns about fracking contaminating drinking water supplies by claiming that the U.S. Environmental Protection Agency (EPA) “said there were no findings of water contamination from fracking.” But the EPA’s report actually found multiple instances of water contamination from fracking, and that the EPA itself emphasized that its data was “insufficient” to evaluate how often fracking impacts water “with any certainty,” leading its own scientists to call its conclusions into question. Days before C-SPAN2 aired the discussion, Trump told a local Denver television station that “voters should have a say" in whether to allow fracking, adding, "[I]f a municipality or a state wants to ban fracking I can understand that.” Many towns in Colorado have placed local bans or moratoriums on fracking, and Democrats are currently working to place an initiative for a statewide ban on fracking on the November ballot, the Los Angeles Times reported.

    Republican Party : In Denver, Clinton's Stance On Fracking Contradicts Colorado's Interests - Clinton Has Promised That Under Her Presidency There Wouldn't 'Be Many Places In America Where Fracking Will Continue To Take Place' During A March 2016 Democrat Debate, Clinton Said Fracking Was 'Not Sufficiently Regulated,' And Under A Clinton Presidency, There Wouldn't 'Be Many Places In America Where Fracking Will Continue To Take Place.' CLINTON: 'So by the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place. And I think that's the best approach, because right now, there are places where fracking is going on that are not sufficiently regulated. So first, we've got to regulate everything that is currently underway, and we have to have a system in place that prevents further fracking unless conditions like the ones that I just mentioned are met.' (Hillary Clinton, CNN Democratic Primary Debate, Flint, MI, 3/6/16)   The Wall Street Journal Editorial: By Opposing Fracking, Clinton Wants To 'Regulate Out Of ExistenceThe Livelihoods Of Tens Of Thousands' Of American Workers. 'This is a new look for Mrs. Clinton, who promoted fracking around the world as Secretary of State. In 2010 she popped into Krakow to announce a global shale initiative, and in 2012 she dropped by Bulgaria to encourage the parliament to end a fracking moratorium. But now that she wants to be President she would regulate out of existence the livelihoods of tens of thousands in Ohio, Pennsylvania, Texas, Arkansas, and across the U.S.A.' (Editorial, 'Clinton Against American Energy,' The Wall Street Journal, 3/7/16) , Clinton's Position On Fracking Is In Direct Opposition To Gov. John Hickenlooper's Position, Her Top Advocate In Colorado

    Study finds communities need to be proactive about fracking -- What are communities doing to address the potential adverse effects of fracking? Not a lot, according to the results of a new study. Fracking, horizontal high-volume hydraulic fracturing has allowed the United States to become a net energy exporter, but has created substantial problems for local communities hosting fracking operations. Authors surveyed 140 local governments in four states with very active fracking: Colorado, Louisiana, North Dakota and Pennsylvania. The authors set out to determine the kinds of policies these local governments adopted to address the negative impacts of fracking and the role organizational capacity had on how local governments deal with fracking. In “Local Land Use Planning Responses to Hydraulic Fracturing,” Loh and Osland found that the most common local government response was no response at all. Fifty-four of the communities surveyed had not adopted any regulations to address any of the problems caused locally by fracking activities. Of survey respondents that have adopted regulations, the five most common local policies were:

    • – Restricting the location of industrial activities;
    • – Mandating fencing and landscaping around fracking sites;
    • – Preventing vehicles used in fracking operations from traveling on certain roadways;
    • – Requiring special use permits for drilling sites; and
    • – Establishing setbacks for the compressor stations associated with fracking options.

    Pros and cons aside, fracking operations can create substantial management problems for local governments and expose local residents to serious health, safety, and environmental hazards. This leaves local communities that might or do host such operations “scrambling” to address fracking, not trusting the state or federal government to protect them. The authors found that communities could use existing land use, noise and zoning restrictions to regulate fracking operations to some degree, even though survey respondents reported concern there was little they could do to address local fracking impacts.

    Two Towns Battle Colorado for Freedom to Ban Fracking: Two of Colorado's leading critics of natural gas drilling say they didn't know much about fracking until it arrived in their towns. "If you had asked me about community rights or fracking, you would have drawn a blank stare," said Clifford Willmeng, board member of the Colorado Community Rights Network and a resident of Lafayette, a town just outside of Boulder. Tricia Olson agrees. Founder and executive director of the grassroots group Coloradans Resisting Extreme Energy Development, Olson began looking into fracking when she learned that it was coming to her neighborhood. She didn't like what she found. So Olson and Willmeng did some organizing in their communities and achieved some victories. In 2012, the town of Longmont banned fracking. The following year, nearby Fort Collins put a five-year moratorium on it. But oil and gas companies, along with the state government, disputed the decisions, and the Colorado Supreme Court ruled in May that municipalities lack the authority to stop fracking. "A local community can do almost nothing about any oil and gas development that comes into that community," Olson said. That's why she and Willmeng have been leading separate efforts to get initiatives on the ballot this year that give local groups the control they need. These efforts are part of a larger movement to increase the power of local governments, at a moment when many see state-level governments as beholden to business interests.

    Bakken Pipeline financing complete, share sold to pay debt(AP) — Companies building an oil pipeline from North Dakota across the Midwest into Texas say they’ve completed project financing and sold a share of the pipeline to another company to pay down the debt. Energy Transfer Partners, Sunoco Logistics Partners and Phillips 66 said Tuesday they completed borrowing the remaining $2.5 billion needed to complete the Bakken Pipeline project. The project includes the $3.7 billion Dakota Access Pipeline to carry oil from North Dakota to Illinois. A second leg, the $1 billion Energy Transfer Crude Oil Pipeline, will carry oil from Illinois to Texas terminals. The companies say they’ve sold nearly 37 percent of the project to Enbridge Energy Partners and Marathon Petroleum Corp. The $2 billion cash from that deal will help pay down the project debt.

    Enbridge, Marathon Petroleum to buy $2B Bakken pipeline stake - Enbridge, Inc. -

    • Enbridge Energy Partners (ENB, EEP) and Marathon Petroleum (NYSE:MPC) agree to pay a combined $2B for a 49% stake in the Bakken pipeline system from an affiliate of Energy Transfer Partners (NYSE:ETP) and Sunoco Logistics Partners (NYSE:SXL).
    • EEP says it is paying $1.5B for its share in the deal, while MPC says it is contributing $500M in the joint venture project to acquire the stake in the holding company that owns 75% of the pipeline network.
    • The deal follows the startup earlier this year of the Southern Access Extension, linking Enbridge’s mainline terminals near Chicago to the storage hub in Patoka, Ill.
    • The deal gives EEP the ability to move shale oil from the Bakken to refineries along the U.S. Gulf Coast, through connections to its mainline; EEP will seek to set joint tolls to the Gulf.

    Energy Transfer, Sunoco Sell Pipeline Stake to Marathon and Enbridge for $2 Billion --Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL) said late Tuesday that they agreed to sell 36.75% of their Bakken pipeline project in the Rockies to MarEn Bakken Co. LLC, a unit of Enbridge Energy Partners (EEP) and Marathon Petroleum (MPC) , for $2 billion in cash. ETP expects the sale to close in the third quarter, when it will receive $1.2 billion and SXL will get $800 million. The Bakken pipeline entities already arranged a $2.5 billion financing facility to fund the remaining capital needed to complete the project, so ETP and SXL plan to use the proceeds to pay down debt and help fund their current growth projects. All the owners of the project will contribute whatever capital is needed to complete the project based on the size of their stakes, they said. A unit of MPC has committed to participate in a forthcoming Dakota Access/Energy Transfer Crude Oil Pipeline open season and make a long-term volume commitment on the Bakken project. A new open season is expected to be launched in the third quarter. Bakken Holdings Co. LLC, a joint venture between ETP and SXL, owns a 75% interest in Dakota Access LLC and Energy Transfer Crude Oil Co. LLC, or ETCO, which are developing and will own and operate the project. The project consists of 1,172 miles of new 30-inch diameter crude oil pipeline from North Dakota to Patoka, Ill., and more than 700 miles of pipeline converted to crude service from Patoka to Nederland, Texas. Bakken Holdings is selling 49% of its 75% interest in Dakota Access and ETCO. The remaining 25% of Dakota Access and ETCO is owned by units of Phillips 66 (PSX) . ETP and SXL will end up with 38.25% of the project while MarEn will hold 36.75% and PSX will have 25%. ETP continues to oversee construction, which is expected to be completed by year-end, and SXL will operate it.    MPC added that it and Enbridge agreed to cancel MPC's transportation services agreement related to the Sandpiper project and liquidate MPC's indirect ownership interest in North Dakota Pipeline Co. LLC. The move would cancel MPC's commitment to fund any more construction costs for that project, for which it's already contributed $301 million, resulting in an impairment review of the carrying value of the investment in the third quarter.

    Enbridge, Marathon buy into Bakken Pipeline System --Enbridge Energy Partners LP and Marathon Petroleum Corp. this week announced the formation of a new joint venture with Energy Transfer Partners LP and Sunoco Logistics Partners LP to acquire an equity interest in the Bakken Pipeline System. The Dakota Access Pipeline—which will carry about 470,000 barrels of Bakken crude per day from western North Dakota to a terminal in Illinois—and the Energy Transfer Crude Oil Pipeline (ETCOP)—which transports the oil from Illinois to the Texas Gulf Coast—are collectively known as the Bakken Pipeline System. Marathon and Enbridge acquired a 49 percent equity interest in the holding company that owns 75 percent of the Bakken Pipeline System from an affiliate of Energy Transfer and Sunoco Logistics. Under this arrangement, Enbridge and Marathon will indirectly hold 75 percent and 25 percent respectively of the joint venture's 49 percent interest in the Bakken Pipeline holding company. The purchase price of Enbridge’s 27.6 percent interest in the pipeline system is $1.5 billion. The transaction is expected to close in the third quarter of 2016. Construction on the 1,168-mile-long, $3.78 billion Dakota Access Pipeline began in May and is expected to be ready for service by the end of 2016. ETCOP—an existing natural gas pipeline—is being converted by the Energy Transfer Crude Oil Co. to transport oil and is also expected to be in service by the end of the year. Also this week, Energy Transfer, Sunoco Logistics and Phillips 66 announced the successful completion of project-level financing for the Dakota Access Pipeline and ETCOP projects. The $2.5 billion facility is anticipated to provide most of the remaining capital needed to complete the projects.

    Dakota Access Pipeline foes gather at North Dakota Capitol (AP) — Opponents of the Dakota Access Pipeline have gathered on the grounds of the North Dakota Capitol to protest. The Capitol this week is the site of a special session of the Legislature that was called by Gov. Jack Dalrymple to address state budget woes. The opponents are calling for Dalrymple and legislators to put a halt to construction of the pipeline until tribal lawsuits are addressed. The $3.8 billion pipeline being built by Dallas-based Energy Transfer Partners will move oil from North Dakota to Illinois, passing through South Dakota and Iowa. The pipeline has received strong opposition from environmental and landowner rights groups. Energy Transfer Partners maintains the pipeline will be a safe, cost-effective way to transport oil and will create jobs.

    Pipeline construction equipment damage in suspected arson (AP) — Machinery located at three oil pipeline construction sites in central Iowa was found extensively damaged by fire Monday in what the company building the pipeline called a shameful act. There’s little doubt the fires were intentionally set along the Dakota Access pipeline, said Jasper County Sheriff John Halferty. Damage to a bulldozer and other large tracked equipment was estimated at $1 million, he said. The sheriff’s office was alerted around 6 a.m. Monday to a fire in a farm field 4 ½ miles west of Newton. Later, deputies learned of a second pipeline equipment blaze about 2 ½ miles southeast of Reasnor and a third site where four machines were damaged north of Oskaloosa, the Newton Daily News ( ) reported. In a statement, Texas-based Dakota Access said “it’s a shameful act by a group of people trying to disrupt our energy security and independence.” “We have increased security along the route and are actively pursuing the situation with law enforcement. If caught, we will prosecute to the maximum extent allowed by law, both criminally and civilly,” spokeswoman Lisa Dillinger said in a statement. “We will not tolerate this kind of activity.” Environmental, American Indian and landowner rights groups have vigorously fought approval of the pipeline and have vowed to continue protests and acts of civil disobedience. “I’ve made lots of statements on this pipeline over the last two years and I’ve encouraged people to get ready for any nonviolent action possible but torching construction equipment was not on the list,” said Ed Fallon, director of Bold Iowa, a group that promotes renewable energy and fights fossil-fuel expansion projects.

    Is Iowa The Next Nigeria? Arson Suspected in Pipeline Fire -  Attacks against oil infrastructure are all too common in areas like the Niger Delta of Nigeria or Iraq’s northern Kurdish region. But authorities in the United States believe unknown assailants deliberately targeted a pipeline under construction in central Iowa.  According to the Insurance Journal, around US$1 million in equipment at three building sites of the Dakota Access pipeline including heavy machinery were damaged in a series of fires. The Jasper County Sheriff’s Office reported that they were alerted to the first blaze on 1 August at approximately 6:00 AM at a farm field 4.5 miles west of the town of Newton. Deputies were subsequently informed of a second pipeline equipment blaze about 2.5 miles southeast of Reasnor, followed by a third fire where four machines were damaged north of Oskaloosa. Dakota Access of Texas, a subsidiary of Dallas-based Energy Transfer Partners, issued a statement condemning the suspected arson and pledging to reinforce security along the 1168-mile project. “Americans burning American-made equipment, which is owned and operated by American companies, employing American union workers, working on a pipeline owned and operated by an American company for transporting crude oil produced in America for American consumers, is a shameful act by a group of people trying to disrupt our country’s energy security and independence… We will not tolerate this kind of activity, which is a safety hazard to all concerned,” said the communiqué from Dakota Access and cited by the Des Moines Register.

    Enbridge's Sandpiper looks to be latest victim of pipeline overbuild | Reuters: The long-planned and oft-delayed Sandpiper pipeline through the U.S. Midwest may not be dead, but it appears to be on life support, a likely casualty of the oil-and-gas industry's infrastructure overbuild amid a two-year global oil rout. After years of delays, refiner Marathon Petroleum Corp and midstream giant Enbridge Inc on Tuesday announced they would scrap their joint venture agreements and transportation services for the 450,000 barrels per day Sandpiper project, instead agreeing to acquire a portion of the rival Dakota Access Pipeline. That $1.5 billion deal, if successful, will leave Sandpiper without Marathon as its main anchor, even though an Enbridge spokesman said plans for the line are still being evaluated. The project involves two pipeline legs stretching from North Dakota through Minnesota to Wisconsin. Outgoing pipeline capacity from the Bakken is currently at around 641,000 bpd, according to Genscape. Once Dakota Access becomes operational, capacity will rise to 1.21 million bpd. That projected increase comes against the backdrop of a dramatic decline in oil prices that has weighed on production in North Dakota's Bakken play, one of the biggest beneficiaries of the boom in U.S. shale production over the last several years. The Dakota Access Pipeline, slated to stretch from North Dakota to Illinois, is expected to come online in the fourth quarter. With global oil futures down by 70 percent in the last two years, traders and analysts say there just is not enough crude in production in the U.S. Midwest for both pipelines. According to the North Dakota Industrial Commission, the state's oil production fell to 1.05 million bpd in May, down from a peak of 1.23 million bpd in December 2014. Drillers have cut the number of rigs operating in North Dakota to 27, according to Baker Hughes, down from a peak of 203 in June 2012.

    Bakken Update: U.S. Well Costs, Production Improve While One Permian Operator Uses 30 Million Pounds Of Proppant – Summary:

    • The Permian and Anadarko Basins have the lowest breakevens in the US, which is why the most activity is located there.
    • Well economics continue to improve in all basins with lower well costs and higher initial production numbers.
    • Better source rock stimulation creates more fracs per foot, which increases initial production and requires additional proppant and fluids.
    • Matador's most recent Permian wells use 3,000 lbs of proppant per foot, or the equivalent of 30,000,000 lbs of proppant per 10,000 foot lateral.

    Low oil prices have been difficult for the industry, but it has also been positive. Operators have moved to decrease costs. Challenging economics have pushed E&Ps to improve well design. Sliding sleeve completions have decreased in number. A move to cement liners has provided completions crews with more points to frac shale. Fractures are now focused closer to the well bore, which has improved production from induced fracs.  The oil glut has become a refined product glut. This could push refiners to decrease throughput or move to seasonal maintenance early. Refiners have already reported crack spreads tightening even with some reporting record exports of gasoline and diesel. Just five years ago West Texas Intermediate was trading over $100/bbl. As a general rule, oil prices pull back quickly and can rebound the same way. Gluts can also be drawn out like this one. Gluts can be caused by over supply or a drop in demand. Sometimes both occur. Demand based oil gluts can be caused by recessions, or decreased world growth. Demand can wane due to technology. If an engine is developed that increases miles per gallon or uses a different fuel source can cause issues.. Supply gluts are more difficult. When a large, new supply source is introduced prices may drop. When the drop occurs, countries will increase production to make up for lost revenues. The lowest cost producers can drag down the market further. The hope is lower prices will increase demand. Natural demand increases will balance supply and demand at some point. [...] The above slide shows the number of rigs in each of the top four US basins. The 125 rigs in the Permian, 49 in the Anadarko, 30 in the Eagle Ford (Western Gulf), and 24 in the Bakken (Williston). The number of rigs is a general representation of economics. The better the economics, the more operators are motivated to put capex to work in that play. This is also why daily production has surged by 83% in the Permian and 75% in the Anadarko since 2012. The jump in Anadarko production has been quite large from late 2015 to year end. When an operators high-grades, it can either be to better acreage in the same play or another. Operators with acreage in other plays are focusing on the Permian and STACK.

    Mega-Fracks In The Bakken -- Mike Filloon -- August 6, 2016 -- Summary

    • well costs continue to decrease while well designs improve.
    • as operators get better at creating induced fractures, more proppant is required.
    • mega-fracs have shown a significant improvement in recoveries and this is why we are seeing operators complete more wells like this
    • from 2004 to 2013 operators increased proppant usage by 636% in ND
    • in 2011 only one mega-frac was completed, but this increased to 78 in 2014
    First, the definition of a mega-frack. Filloon's 200 hundred biggest fracks by proppant volume in the Bakken/Three Forks:
    • proppant: a range of 8 million to 28 million lbs
    • fluids: a range of 50,000 to 460,000 bbls
    • average amt of proppant: 11 million lbs; weighted toward sand
    • average amt of frack fluids: 166,000 bbls
    The best well design in the Bakken may be: hybrid fracks (large volumes of proppant in concert with slickwater).

    Over 600 DUC wells are intentionally delayed in each of the largest shale oil plays: By looking at the intentionally postponed (abnormal) part of DUC inventory, Rystad Energy observes that all major liquid basins are exposed to completion delays. Bakken was the first play where completion delays became visible already in early 2015. Since then, the abnormal inventory in this play has increased from 150 to 600 wells, thanks to the North Dakota Industrial Commission’s incentive to extend completion delay allowance from 12 to 24 months. The Eagle Ford and the Permian Basin followed the trend in H2 2015 and more than 600 abnormal DUCs have been observed in these plays recently.

    NOG Reports Earnings; NOG Cut CAPEX By 50% Year-Over-Year -- August 5, 2016 -- From their press release:

    • production increased 2.8% sequentially and averaged 13,933 barrels of oil equivalent per day, for a total of 1,267,860 boe 
    • oil and gas sales, including cash from settled derivatives, totaled $62.5 million
    • production expenses, including production taxes, for the second quarter declined 11% per boe compared to the second quarter of 2015
    • capital expenditures totaled $16.5 million during the second quarter, a reduction of 50.5% compared to the second quarter of 2015 
    • quarter-end liquidity totaled $221.7 million, composed of $3.7 million in cash and $218.0 million of revolving credit facility availability

    Across the board, Bakken CAPEX has been cut about 50% year-over-year. 

    Crude Slump Sees Oil Majors’ Debt Burden Double to $138 Billion - When commodity prices crashed in late 2014, oil executives could look at their mining counterparts with a sense of superiority. Back then, the world’s biggest oil companies enjoyed relatively strong balance sheets, with little borrowing relative to the value of their assets. Miners entered the slump in a very different state and some of the world’s largest -- Rio Tinto Plc, Anglo American Plc and Glencore Plc -- had to reduce dividends and employ draconian spending cuts to bring their debt under control. Two years on, you could excuse mining executives for feeling smug. As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other oil giants have seen their debt double to a combined $138 billion, spurring concerns they’ll need to keep slashing capital spending and that dividend cuts may eventually be necessary. Worse, the mountain of debt, which has grown tenfold since 2008, is likely to increase further in the third and fourth quarters, executives and analysts said. “On the debt, it may go up before it comes back down,” Shell Chief Financial Officer Simon Henry told investors last week. “And the major factor is the oil price.”The main concern is that companies have so far failed to stop the increase in debt load,"  “In the absence of an oil price uptick or sizable asset sales, commitments to maintain the dividend will face even more pressure.” The problem for Big Oil is simple: Companies are spending a lot more than they’re earning. Both West Texas Intermediate and Brent crude, the two most prominent benchmark grades, slid into bear markets this week after falling more than 20 percent since early June. The first-half results indicate that oil companies “are likely to generate large negative free cash flows for the full year,”

       Continental Resources Reports Second Quarter 2016 Results - KFDA - Continental Resources, Inc. (NYSE: CLR) (the "Company") today reported a net loss of $119.4 million, or $0.32 per diluted share, for the quarter ended June 30, 2016.  The Company's net loss includes certain items typically excluded by the investment community in published estimates, the result of which is often referred to as "adjusted net loss." In second quarter 2016, these typically excluded items in aggregate represented $53.5 million, or $0.14 per diluted share, of Continental's reported net loss. EBITDAX for second quarter 2016 was $528.1 million. The Company has defined and reconciled adjusted net loss, adjusted net loss per diluted share and EBITDAX to the most directly comparable U.S. generally accepted accounting principles (GAAP) financial measures in supporting tables at the conclusion of this press release under the header Non-GAAP Financial Measures. "Continental once again outperformed production guidance in the second quarter thanks to the exceptional quality and performance of our Bakken, SCOOP and STACK assets, as well as exceptional execution by our teams," commented Harold Hamm, Chairman and Chief Executive Officer. "We are also on track to reduce long-term debt with our agreement to sell a second

    EOG Resources Announces Second Quarter 2016 Results; Increases Premium Well Inventory by 34% - EOG Resources, Inc. (EOG) today reported a second quarter 2016 net loss of $292.6 million, or $0.53 per share. This compares to second quarter 2015 net income of $5.3 million, or $0.01 per share. Adjusted non-GAAP net loss for the second quarter 2016 was $209.7 million, or $0.38 per share, compared to adjusted non-GAAP net income of $153.1 million, or $0.28 per share, for the same prior year period. Adjusted non-GAAP net income (loss) is calculated by matching hedge realizations to settlement months and making certain other adjustments in order to exclude non-recurring items. For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables. Lower commodity prices more than offset significant well productivity improvements and cost reductions, resulting in decreases in adjusted non-GAAP net income, discretionary cash flow and EBITDAX during the second quarter 2016 compared to the second quarter 2015. For a reconciliation of non-GAAP measures to GAAP measures, please refer to the attached tables. Operational Highlights In the second quarter 2016, EOG increased its inventory of net premium drilling locations from 3,200 to 4,300. Premium inventory is defined by a direct after-tax rate of return hurdle rate of at least 30 percent assuming $40 flat crude oil prices. Total premium net resource potential increased from 2.0 billion barrels of oil equivalent (BnBoe) to 3.5 BnBoe. These additions were the result of advances in completion technology, precision targeting, longer laterals and cost reductions.

    EOG boosts fracking plans even with oil price at $40 | Reuters: Shale oil bellwether EOG Resources on Thursday boosted this year's fracking plans by 30 percent, saying it expected big returns on new wells even as oil dipped back to $40 a barrel. The plans are the boldest yet among U.S. shale oil companies, many of which have raised their production forecasts in recent days after posting second-quarter results. The upward revisions highlight how the fittest shale companies, mainly those with the oiliest land, are surviving at a time when dozens of others are filing for creditor protection in the biggest wave of bankruptcies since the telecom meltdown in the early 2000s. Houston-based EOG raised the number of wells it plans to bring online this year to 350 from 270, and lifted by 50 to 250 the number of wells it would drill, while keeping its budget stable around $2.5 billion. Since the start of the worst price crash in a generation in mid-2014, when oil was still above $100 a barrel, many shale producers have cut costs and lifted well productivity by 50 percent or more. Wall Street has also demanded they focus more on capital efficiency rather than just raising output. "The benefits of EOG's premium drilling strategy are beginning to show in our operating performance," CEO Bill Thomas said in a statement. "We are committed to focusing capital on our premium assets." EOG, best known for its South Texas operations, said that greater efficiencies have allowed it to do more for less and earn an after-tax rate of return of more than 30 percent on what it called premium wells, assuming oil prices stay at multi-year lows.

     US Frackers Surprise Themselves As Tweaks Keep Adding Barrels  |  Rigzone Nimble U.S. shale oil producers continue to show an uncanny ability to squeeze more and more crude from new wells, allowing them to do more with less as they try to weather another dip in oil prices to $40 a barrel. Comments from Noble Energy, Devon Energy and Occidental Petroleum on Wednesday were significant because only six months ago many analysts were fretting that shale producers had hit a wall after slashing costs and lifting well output by as much as 50 percent since the steepest price crash in a generation started in mid-2014. Now, while acknowledging that most oilfield services costs cannot fall further, these companies say they are still seeing output gains from improved well designs and fracking techniques. The rising well output means they can produce more oil with each dollar spent. This could help them survive the latest slump in oil prices back to multi-year lows after a partial recovery brought crude back up to about $50 a barrel. Initially, Noble expected to get 390,000 barrels of oil equivalent per day (boe/d) this year on spending of $1.5 billion. Now it expects to spend less and produce 415,000 boe/d. Lately the company has experimented with fracking wells using 3,000 pounds of sand per foot, several orders of magnitude greater than frack jobs a decade ago. Companies have also been fracking even more parts of rock around a wellbore, boosting output. At Occidental, Chief Executive Vicki Hollub said 2016 production would now be at the high end of its forecast for a 4 to 6 percent increase from 2015 levels of 652,000 boe/d - without raising budgeted spending of $3 billion.

    Fracking's Unsung Hero: Sand - One of the many wonderful things about America's shale revolution is the way resilient producers keep refining their methods: the EPA doesn't like wastewater? Fine, we can dispose of it differently. Oil price drops below $50 (er...and $40)? Ok, we can do this cheaper. Today Bloomberg discusses the growing importance of sand in the fracking process, specifically the growing understanding that sand "is a much greater tool in hydraulic fracking than drillers had understood it to be." "Time and again, they’ve found that the more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out." "The message from drillers is 'more, more, more sand,' said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. 'All of the numbers are going up and they’re going up dramatically.' " The bottom line?: “ 'People are uber uber bullish on sand,' said Matthew Johnston, an oil-services analyst at Nomura Securities. 'I get it. I understand where all the euphoria is coming from.' ”

    Alaska North Slope crude shipment leaves Valdez bound for South Korea: cFlow   A shipment of Alaska North Slope crude is making a rare voyage across the Pacific Ocean to South Korea, according to cFlow, Platts trade flow software. The Bahamian-flagged Suezmax, Tianlong Spirit, which was chartered by BP, first entered Valdez, Alaska, on July 28 and set sail on Saturday. On Monday, the tanker was located in the North Pacific Ocean off the coast of Alaska. The ship's destination is listed as Gwangyang, South Korea, and it is set to arrive there around August 12, according to cFlow data. A BP spokeswoman declined to comment on the individual cargo or the destination of the tanker Monday. However, in July she confirmed that the company had chartered the Tianlong Spirit to move ANS out of Valdez.Shifts in global crude benchmark spreads have made it feasible to export crude to Asian markets. Aribitrage opportunities are created with a narrowing of the WTI-Dubai crude swaps spread. The WTI-Dubai swaps spread has been narrowing over the past month.  However, some traders and industry analysts were surprised about the ANS shipment to Asia, noting that despite a narrower WTI/Dubai spread, the economics still are not optimal for exports.

    Costs of new US Arctic regulations may cool offshore oil production plans: The Obama administration unveiled final regulations for drilling in US Arctic waters, but questions remain about the future of oil production there. Will the Arctic be pulled out of the administration's upcoming five-year leasing plan, and will environmental opposition and unfavorable economics hinder development offshore Alaska for a decade or more? And how will the outcome of the US presidential election effect the Arctic’s oil and gas future? Senior editor Brian Scheid interviews Mike Levine, Pacific senior counsel at Oceana, and David Holt, president of Consumer EnergyAlliance, for answers to these questions and more.

    Back in the High Life Again - The Oil Sands Rebound from May 2016 Wildfires - Three months after a series of devastating wildfires wreaked havoc in Alberta’s oil sands region, production is essentially back to normal. The series of wildfires that swept through parts of Fort McMurray, AB and nearby oil sands production areas in early May 2016 caused damage totaling an estimated Canadian $3.6 billion (the equivalent of more than U.S. $2.7 billion), making the event the most expensive natural disaster in Canada’s history (by far, according to a July 2016 report by the Insurance Bureau of Canada). As we said in our initial look at the wildfires’ impact on oil sands production in mid-May (Over the Hills and Far Away), the wildfires consumed hundreds of thousands of acres (ultimately, more than 1 million acres had burned by the time the last, spotty fires were put out the first week of July) and forced tens of thousands of people from their homes. Temporary shutdowns at several production sites initially reduced the oil sands’ output by more than 1 MMbbl/d –– or about one-third the area’s pre-fire production level –– which trimmed inventories and goosed world oil prices. But the short-term closures appear to have had little effect on the Canadian and U.S. refineries that process oil sands-sourced crude. Now, oil sands producers (stung more than many by the collapse in oil prices) are focused again on reducing production costs in an effort to stay profitable in a low-oil-price era. Today, we summarize the current, post-wildfires state of oil sands production and consider the region’s future in the new, tight-oil/Shale Revolution world.

    "Hot Lesbian" Ad Gets Canadian Oil Sands More Publicity Than It Deserves -- Canadian OilSands is lashing out. As's Julieanne Geiger details, in possibly one of the biggest marketing blunders of the millennium, a Canadian Oil Sands group has managed to alienate groups from almost every walk of life with their recent Facebook meme that prompted people to choose Canadian oil over Saudi oil—because, as the meme read, “In Canada, lesbians are considered hot! In Saudi Arabia, if you’re a lesbian, you die!”  The ad went on to query, “Why are we getting our oil from countries that don’t think lesbians are hot?”   You might be thinking that the Coke/New Coke marketing blunder was bad, but the hot-lesbian ad, particularly in today’s politically correct day and age, is sure to bump some of the worst marketing blunders off their top spot. Robbie Picard, the Canadian Oil Sands Community Manager, published an apology for the ad, but that bell is hard to unring. “(We used) a random stock image, but the point was to draw attention to the bigger issue. I was surprised there was so much response to it,” Picard told the National Post—a response could be construed by some as an apology, while proving for others Picard’s disconnect from today’s politically correct culture. The Canadian Oil Sands Community was actually trying to draw the attention to the fact that despite Canada’s huge oil reserves, eastern Canada imports oil from Saudi Arabia (as well as other OPEC members and the US), but failed miserably in their attempt—managing to instead offend almost every group across the globe—from Canada to Saudi Arabia, from Evangelical Christians to the LGBTQ community, to females in general.

    US exported 662,000 b/d of crude in May, highest on record: EIA - Oil | Platts US crude exports jumped to their highest level on record in May, coming in at 662,000 b/d, monthly data from the US Energy Information Administration showed Friday. Exports are up from 591,000 b/d in April and have been up steadily from the 392,000 b/d exported in December, when the US lifted all restrictions on the export of crude oil. A tight ICE Brent/NYMEX WTI spread through May likely didn't stand in the way of exports, despite a strong NYMEX discount often making exports more attractive. That spread averaged just 26 cents/b in May, compared with $1.33/b in April. While exports to Canada -- typically the biggest market for US crude -- remained strong at 308,000 b/d, that represents under half of the total. In May 2015, Canada took 524,000 b/d of the 531,000 b/d total from the US.The Netherlands -- home to the massive Rotterdam port -- imported 110,000 b/d from the US in May, up from 29,000 b/d in April, 20,000 b/d in March and 36,000 b/d in February. While it is unclear which grades make up the export cargoes, S&P Global Platts data shows WTI still delivers into Rotterdam at a sizable premium to Russian Urals and North Sea grades like Forties and Ekofisk. However, Platts yield data shows WTI should be attractive for European refiners. Light Houston Sweet -- essentially WTI ex-Houston -- cracking yields in Northwest Europe have averaged $49.23/b since July 1, compared with $48.60/b for Urals and $48.47/b for Forties. Ekofisk has averaged $50/b.

    Big Oil and the Battle for Our Future - (Real News Network, interview and transcript) ExxonMobil is under investigation in New York and Massachusetts by the state attorney generals for misleading the public and shareholders about what it knew about the link between climate change and fossil fuels some 30 years ago. This week we learned that the oil companies didn't borrow from the big tobacco's playbook about misleading the public on scientific data. It was more the other way around: big oil wrote the playbook. On Wednesday, July 20, the Center for International Environmental Law released a trove of documents that demonstrate proof of collaboration between the tobacco and oil industries as early as 1956. Our next guest, Wenonah Hauter, author of Frackopoly: The Battle for the Future of Energy and the Environment, says that corruption and collusion of the oil industry and the government against the better interests of the public goes back as far as the beginning of the oil industry, and this continues today. So Wenonah Hauter is also the founder and executive director of Food & Water Watch. Wenonah, good to have you with us today.

    Oil giants can’t hide from doomsday market: Exxon Mobil Corp.and Royal Dutch Shell Plc this week reported their lowest quarterly profits since 1999 and 2005, respectively. Chevron Corp.’s third straight loss marked the longest slump in 27 years, and BP Plc lodged its lowest refining margins in six years. Welcome to year two of a supply overhang so persistent it’s upsetting industry expectations that the market would return to a state of balance between production and demand. It’s left analysts befuddled and investors running to the doorways as the crude market threatened to tip into yet another bear market, dashing hopes that a slump that began in mid 2014 would show signs of abating. Exxon missed analyst estimates by 23 cents a share and fell as much as 4.5 percent on Friday before recouping some of that decline.Chevron  posted a surprise $1.47 billion loss after booking $2.8 billion in writedowns. The company’s per-share loss of 78 cents was in stark contrast to the 19- to 41-cent gains expected by analysts. BP and Shell registered similarly gloomy outcomes. “What we’re seeing is that there’s just no place for the supermajors to hide,” . “Oil prices, natural gas, refining, it all looks very bad right now.” Crude prices dropped during the quarter from a year ago amid a global glut in the $1.5 trillion-a-year market. With diesel and gasoline prices also slumping, the companies were deprived of the tempering effect oil refining typically provides during times of low crude prices. Shell reported its weakest quarterly result in 11 years and missed analysts’ estimates by more than $1 billion. BP said earnings tumbled 45 percent amid the lowest refining margins for the second quarter since 2010. U.S. margins, based on futures contracts, plunged 30 percent to a second-quarter average of $17.12 a barrel from $24.42 a year earlier. Refining profits will continue to be under “significant pressure,” BP said. Although Brent crude’s rebound provided some relief compared with the first quarter, CEO Bob Dudley still faces a difficult road ahead as the rally fades amid slowing demand growth and returning production from Canada to Nigeria.

    Growing Oil Glut Shows Investors There’s Nowhere to Go But Down -  They increased bets on falling crude by the most ever as stockpiles climbed to the highest seasonal levels in at least two decades, nudging prices toward a bear market. The excess supply hammered the second-quarter earnings of Exxon Mobil Corp. and Chevron Corp. Inventories are near the 97-year high reached in April as oil drillers boosted rigs for a fifth consecutive week. “The rise in supplies will add more downward pressure,”  “It will be a long time before we can drain the excess.” Hedge funds pushed up their short position in West Texas Intermediate crude by 38,897 futures and options combined during the week ended July 26, according to the Commodity Futures Trading Commission. It was the biggest increase in data going back to 2006. WTI dropped 3.9 percent to $42.92 a barrel in the report week, and traded at $40.23 at 12:02 p.m. WTI fell by 14 percent in July, the biggest monthly drop in a year. The decline since early June was 21 percent in intraday trading. A settlement more than 20 percent off the high would characterize a bear market. U.S. crude supplies rose by 1.67 million barrels to 521.1 million in the week ended July 22, according to U.S. Energy Information Administration data. Stockpiles reached 543.4 million barrels in the week ended April 29, the highest since 1929. Gasoline inventories expanded for a third week to 241.5 million barrels, the most since April. “The flow is solidly bearish,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It reflects a recognition that the market is, at least for the time being, oversupplied.” Exxon and Chevron missed profit and production estimates last quarter, earnings data showed July 29. The biggest U.S. energy companies followed Royal Dutch Shell Plc and BP Plc in posting lower profits as crude’s collapse continued to weigh on the industry.

    The End Of A Trend: Oil Prices And Economic Growth | It used to be that the received wisdom was that low oil prices are good for the overall economy even if they are bad for the oil industry and for countries that are heavily dependent on oil for their revenues. That's what many believed when suggesting that even though high oil prices and an attendant oil boom had underpinned economic recovery in the United States after the 2008 financial crash, low oil prices would now somehow on balance deliver even more recovery. And, low prices would also benefit the rest of the world as well.Nowadays, as the oil price dips into the low $40 range again and economic growth weakens simultaneously, we must re-evaluate. U.S. economic growth declined significantly after oil prices began to fall in 2014. Only last week, U.S. growth for the second quarter of 2016 came in at 1.2 percent (annualized), less than half the forecast of 2.5 percent. First quarter growth was revised down to 0.8 percent from a previous estimate of 1.1 percent. That's down significantly from a peak of 5 percent growth for the third quarter of 2014, the last quarter during which the price of oil was over $100 per barrel.World economic growth instead of speeding up, slowed down slightly from 2.6 percent in 2014 to 2.5 percent in 2015 according to the World Bank. There are many reasons for the subpar growth of the world economy since the Great Recession. Record average daily prices for oil four years running from 2011 through 2014 helped sap the world economy of its strength by siphoning funds from the non-energy economy. Of the other causes, chief of among them is the heavy buildup of private and public debt which may be hindering growth by siphoning funds from consumption and investment into debt service. In the first quarter of this year, U.S. credit growth was $644.9 billion. U.S. gross domestic product growth was $64.7 billion. It took $10 of credit growth for every $1 of GDP growth.

    As Oil Tumbles, Just How (Massively) Overpriced Are Energy Companies? Here Is One Answer -- Back in March, when oil was aggressively rising from its February lows and the market was happily extrapolating a rebound to more traditional levels, around $60-70bbl on hopes of a supply reduction from OPEC, we showed a dramatic chart of the energy sector's forward PE, which had risen to never before seen levels. Since then oil has plateaued and has resumed its descent, recently sliding in a new bear market, and as of this moment flirting with $40/bbl as the realization of an unprecedented gasoline glut, together with ongoing excess supply and weaker than expected demand, pushed back the supposed "equilibrium" date from late 2016 to sometime in 2017 if not later. But while oil has seen a steep pullback, this has not yet impacted junk bonds which have been surprisingly resilient on the back of the ECB's launch of the CSPP program in June at which point the oil-HY correlation broke down, nor has it truly hit energy stocks. That may change soon: as BofA's Michael Hartnett writes, "traders should wait to see if oil can hold $40/bbl before adding risk here. Should oil slice through $40/bbl, attention will quickly switch to weak oil, weak Chinese renminbi and weak credit in a repeat of last summer. EM debt could also be pressured given the massive recent inflows into the asset class. Note that energy stocks have jumped far higher than EPS expectations would justify."

    Slippery Oil Prices Plunge Over Cliff into Bear Market - Oil today plunged unrestrained below $40 per barrel, taking oil prices down more than 20% from their high a little over a month ago. That officially defines a bear market in oil. As of today, oil has also moved below its 50-day, 100-day and 200-day moving averages. July has again turned out to be a huge disappointment for oil producers who mistakenly thought price recovery had come to stay. In addition to the dark clouds I presented last week, here is a list of newly developing reasons and ways that oil prices are continuing to slide toward $30 per barrel … as I’ve predicted all along:

    • Saudi Arabia today lowered its price of oil to Asia in order to compete more fiercely for market share, offering its biggest discount in almost a year … because the kingdom is now backed up with oversupply in its own tanks that it has to move.
    • Asian refineries are lowering their production. According to Bloomberg, some are cutting refinery production by as much as 50%.
    • Short positions for West Texas Intermediate crude (WTI) increased last week by their largest volume on record. Likewise with short positions on gasoline. Hedge funds in particular are betting on a gasoline glut. Summarized Newsmax, “Money managers have never been more certain that oil prices will drop.”
    • The global economy is simply exhausted. Growth in global demand for oil continues slowing, and many nations and people simply cannot afford high oil prices any longer.
    • Thanks in part to Brexit, the global petrodollar continues to rise in value, meaning it takes fewer dollars to buy a barrel of oil.
    • Iran is expected to approve new oil contracts this week that will substantially open the doors to foreign investors in its oilfields, which will improve its supply capacity in years to come.
    • OPEC’s production is expected to reach its highest output in recent history. Throughout 2016, the experts talked about how Saudi Arabia and Russia would reach a deal, how OPEC would soon start tapering back its supply. All along, I said “baloney! There will be no such agreement and no cutback by OPEC.”
    • Libya is now back in the oil business.
    • Gasoline inventories increased yet another week, now five out of six weeks during the busy summer season when gasoline inventories should decline. Soon seasonal driving will start to fall off, increasing the rate at which gasoline inventories build.

    Oil Prices Fall Below $40 As OPEC Ramps Up Output - Global oil prices fell below $40 a barrel on Monday, after Reuters’ new survey tallying oil output from OPEC countries showed outputs for the 13-member bloc at record highs when compared to figures in recent history. The overall increase in global crude output has dragged oil prices down 20 percent since they broke above $50 in June. Friday’s survey found that Iraq increased oil output in July, as the national army made gains against the Islamic State’s (ISIS) oil production and supply network. The former Gulf country’s oil officials confirmed on Monday an increase in crude production from 3.175 million barrels in June to 3.2 million barrels in July.Nigeria - a country that has been inundated by separatist attacks on oil facilities by the Niger Delta Avengers and related groups - upped outputs despite militant efforts.To meet an uptick in seasonal demand for oil, Saudi Arabia - OPEC’s de facto leader and top exporter - kept production levels close to record highs in order to limit Iran while it attempts to regain lost market share. The Wall Street Journal reported that Saudi Aramco had also cut its price per barrel to Asia by sizable margins over the weekend. The Iranian oil minister confirmed the oil glut in a statement to Iranian state television on Monday, but insisted that the balance between supply and demand would be restored in due time.

    Here we go again: Oil plunges back below $40 - Aug. 1, 2016: The era of cheap oil isn't over.  Crude oil prices plunged 4% on Monday, sliding to $39.86 a barrel Monday. It's the first time the price has been below $40 a barrel in nearly four months.  Oil prices are now down more than 22% since topping out above $51 a barrel in early June. That means the closely-watched commodity is officially back in a bear market.  It's the latest setback for oil bulls who thought crude was on a straight shot back to $60 and higher following the crash that began in late 2014. The price had peaked at $107 in June 2014.  The recent selling has been driven by a realization that the epic oil glut remains largely intact -- and some U.S. oil companies may make it worse by starting to drill more. Not only is there an historic oversupply of crude, but gasoline inventories are now at record highs, despite the fact that it's summer driving season. The fear is that the backlog will force refiners to dial back their demand for oil, deepening crude stockpiles. "Crude prices are charging lower to start the week as a plethora of bearish indicators emerge,"

     Crude Oil May Rebound to $57 Next Year, Analysts Say - Oil closed in a bear market Monday, but don’t abandon hope. Analysts are looking beyond the current slide to next year for a rebound. Crude has plunged by more than a fifth in less than two months as refineries created a glut of gasoline while failing to eliminate excess supply of crude. That wrecked refining margins and hurt the earnings of Exxon Mobil Corp., BP Plc and Royal Dutch Shell Plc. Yet, global oil prices will average $57 a barrel in 2017, according to the median of at least 20 analyst estimates compiled by Bloomberg. Progress will be slow. The crude glut will take a long time to dissipate, meaning only gradual price gains, said Michael Hsueh, a strategist at Deutsche Bank AG. West Texas Intermediate, the U.S. benchmark, will average $49.50 in the fourth quarter before breaking decisively above $50 next year, the analysts say.  “We’re looking at a market that’s still in a very slow process of rebalancing and we don’t think that you’ll get a sustainable deficit until the second quarter of 2017,” said Hsueh, who sees oil at $53 next year. “Those deficits are necessary to draw down global inventories, but that will still take until the end of 2018, it appears.”

    OilPrice Intelligence Report: Oil In Freefall On Bearish News From OPEC -- July saw the worst monthly loss for oil prices so far in 2016 and crude started off August right where they left off in July: oil prices sank 4 percent on Monday. WTI and Brent sank on Monday, briefly dipping below $40 per barrel before closing just above that key psychological threshold. The price declines technically pushed oil into bear market territory.  The oil majors took a beating last week, reporting disappointing earnings for the second quarter as low oil prices combined with shrinking refining margins inflicted damage on everyone’s balance sheets. The energy industry saw share prices drop once again on Monday as WTI and Brent sold off amid fears of ongoing oversupply issues. Energy stocks in the S&P 500 dropped by 3.4 percent, the worst single-day performance since June. Iraq reported high oil exports rose to 3.2 million barrels per day in July from its southern port in Basra, up from 3.175 mb/d in June. That might help OPEC report its highest level of oil production on record, a fact that added momentum to the selloff. Saudi Arabia also slashed the price for its oil heading to Asia. And in the U.S., the glut persists – at a time when oil and refined product inventories are supposed to be rapidly falling because of soaring summer demand, they are holding steady, sparking fears of another downturn.  Hedge funds and money managers increased their short bets on crude oil, and sold off their long positions. In fact, hedge funds increased their short bets for the week ending on July 26 by the most ever. “The flow is solidly bearish,” Tim Evans, an energy analyst at Citi Futures Perspective, told Bloomberg. “It reflects a recognition that the market is, at least for the time being, oversupplied.” John Kilduff, founding partner of Again Capital, says oil is going to $35.   Bloomberg reports that despite the nascent rebound in the rig count, many top shale drillers won’t return to the shale patch in a big way until oil prices rise to $60 per barrel. That is a safer price zone than the $50 per barrel that many had signaled they would be willing to live with. Bloomberg cites Pioneer Natural Resources as a prominent example of a company that was previously waiting for $50 per barrel before deploying rigs, who has now said they actually are going to wait until oil rebounds to $60. Other companies targeting $60 per barrel include Anadarko Petroleum and Hess Corp. (NYSE: HES).

    Oil falls, U.S. crude ends below $40 on nagging glut worry | Reuters: Oil prices fell again on Tuesday, erasing early gains and dragging U.S. crude below $40 a barrel as persistent worries of a glut offset the boost from a weak dollar early in the session. U.S. crude futures settled down more than 1 percent after initially rising over 2 percent, traders said. A slide in U.S. equities also weighed. "There is much talk about the product glut replacing the oil glut, and this is a worrisome indicator for crude demand,"   U.S. West Texas Intermediate (WTI) crude settled down 55 cents, or 1.4 percent, at $39.51 a barrel. It had rallied to $40.91 earlier. On Monday, it slid below $40 for the first time since April. Brent crude fell 34 cents, or 0.8 percent, to settle at $41.80, after touching a session high at $43.18. The dollar hit a six-week low, which buoyed oil in early trade, but then U.S. stocks .DJI fell to a three-week trough. "I am bullish here overall but worry about being too early," said Scott Shelton, energy futures broker at ICAP in Durham, North Carolina. "I also wonder if the market is going to chop around a bit first, like it did in late May to June before dropping after many threw in the towel."

    As Oil Crashes Under $40, How Much Further Can It Drop - Well that escalated quickly. Having toyed with the $39-handle yesterday, this morning's plunge has erased those stops: ... and WTI is set to test the early April lows on the way back to 2016 lows... What is next for oil now that key support is broken?: some thoughts from BofA's chief technician, Paul Ciana: Oil has reached the triangle top target (40.80) we reported on in early July. Today oil is extending its decline, breaking the 200d SMA and testing support at the round number of $40. Short term measurements shown in Table 1 and Table 2 suggest oil could bounce this week (as much as a 65% possibility) and test resistance at $43.18 or $44.50. However that bounce may be short lived and we think sold. The weekly chart shows momentum isn’t oversold yet and deeper Fibonacci retracement levels at $38.86 and $35.84 could be reached as a larger oil market bottom pattern forms. Oil in the mid $30’s which is near the 61.8% retracement and bottom of the weekly Ichimoku cloud would be a more technically convenient long trade scenario. Price action has moved to the center of the weekly Ichimoku cloud. The cloud offers support as low as $35.40 and resistance at $44.32. If price were to reverse higher between here and the bottom of the cloud then we could see a potential head and shoulders bottom forming. If the decline were to accelerate lower and break the bottom of the cloud, then a double bottom pattern could form. The below chart shows crude oil’s five, ten and thirty year average trend normalized to the start of the year and compares it to the current year in black. The pressure on crude oil prices is generally down from August through early December giving plenty of time for a right shoulder or double bottom to develop. * * * Finally, why is the breach of $40 important? We go back to what Marko Kolanovic said in the remainder of his note earlier today: While US momentum is positive across the board—and S&P 500 exposure of CTAs likely is at record level—negative momentum in Europe and Japan require a short position in these equity markets. CTA signals for oil recently turned from strongly positive to moderately negative. This has contributed to past-month divergence between S&P 500 and oil (~1.5 standard deviations) and is closely monitored by equity and high yield credit investors. It is our view that the risk of CTAs significantly increasing oil shorts over the next 1 month is low. For oil momentum to further deteriorate, oil would need to drop to ~$30 at which point the medium term momentum (strongest signal) would turn negative and trigger selling.

    Kemp: Why Is Oil Market Rebalancing Taking So Long?  (Reuters) - Rebalancing the oil market is proving a long and frustrating process because the oil-exporting countries hit hardest by the slump were the themselves some of the fastest growing oil consumers before prices tumbled. As oil revenues have shrivelled, their economies have slowed or gone into recession, removing one of the most dynamic drivers of oil demand, and leaving the rest of the world economy to fill the gap. The slowdown in demand from oil-exporting countries has worsened the oversupply situation and prolonged the market rebalancing process ("Commodity slump intensifies risks to emerging markets", Reuters, Oct. 8). Rebalancing has come to rely on production cuts, and stimulating additional demand from China and India, as well as the advanced economies which had showed little or negative growth prior to 2014. The first stage of the rebalancing process is therefore proving exceptionally difficult and slow because it is fighting the headwinds caused by the drop in oil prices. Once prices start rising significantly, however, the market is likely to tighten faster than many analysts expect because oil consumption in emerging markets is likely to accelerate again with the extra oil revenues. Oil-exporting countries accounted for more than one-third of the global increase in oil consumption outside the United States between 2004 and 2014, as rising oil revenues fuelled a boom in their domestic economies. Between 2004 and 2014, oil consumption outside the United States increased by 11.4 million barrels per day (bpd) Fifteen oil-exporting countries identified separately in the BP Statistical Review accounted for 4.2 million bpd of extra demand (Canada, Mexico, Colombia, Ecuador, Venezuela, Norway, Azerbaijan, Kazakhstan, Russia, Algeria, Iran, Kuwait, Qatar, Saudi Arabia and United Arab Emirates). Consumption growth was especially rapid in Saudi Arabia (+1.7 million bpd), Russia (+0.6 million bpd), Iran (+0.5 million bpd) and the United Arab Emirates (+0.3 million bpd). But with the exception of Mexico, every one of the 15 oil exporting countries analysed separately in the review reported increased domestic oil consumption during the decade to 2014. All the rest of global oil consumption growth was attributable to China (+4.4 million bpd), India (+1.3 million bpd) and Brazil (+1.2 million bpd).

    Oil Bounces On Unexpected Cushing Inventory Draw -- Following last week's surprise build in overall crude inventories (after 9 weeks of draws), API reported a smaller than expected drawdown (-1.34mm vs -2mm exp). However, oil prices are extending late-day gains as Cushing reported a major 1.3mm draw (against expectations of a 1mm barrel build). Gasoline drew down but Distillates built. API:

    • Crude -1.34mm (-2mm exp)
    • Cushing -1.3mm (+1mm exp)...Genscape reported a small (<100k) draw for Cushing.
    • Gasoline -450k (-1mm exp)
    • Distillates+593k

    10th weekly draw of last 11 in crude but it was the Cushing draw that was the biggest driver...

    Oil up 3 percent on big U.S. gasoline draw; WTI back above $40 | Reuters: Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer. U.S. crude inventories rose for a second week in row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, the Energy Information Administration (EIA) reported. [EIA/S] Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. U.S. West Texas Intermediate (WTI) crude CLc1 jumped $1.44, or 3.6 percent, to $40.95 a barrel by 12:10 p.m. EDT (1610 GMT). On Tuesday, it settled below $40 a barrel for the first time since April. Brent crude LCOc1 rose by $1.30, or 3.2 percent, to $43.10. It hit a more than three-month low of $41.51 the previous day. "We are not surprised to see spot prices rebounding on the gasoline draw. But I think this will be shortlived," said Tariq Zahir, trader in crude oil spreads at Tyche Capital Advisors in New York. "The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up."

    Oil Dumps'n'Pumps After Unexpected Crude Inventory Build Offset By Production Cut -- A surprisingly large draw at Cushing (according to API) overnight sparked buying in crude ahead of today's DOE data (despite USD strength). Despite API's 1.34mm draw, DOE reported a 1.4mm build in Crude inventories (with a 2mm draw expected). Crude plunged on the data despite a big draw in gasoline (but build in Distillates). But, after 3 weeks of production rises, US crude output slowed this week... sending crude higher once again... DOE:

    • Crude  +1.41mm(-2mm exp)
    • Cushing -1.12mm (+1mm exp)
    • Gasoline -3.2mm (-1mm exp)
    • Distillates +1.15mm

    Crude surprised with a 2nd build in a row:

    How Moving Gasoline Tankers From New York To Florida Fooled Oil-Trading Algos -- One month ago, before the commodity trading world's attention turned to the unprecedented glut in gasoline stocks, we wrote "PADD 1 Is A Holy Mess" - Is This What Finally Drags Crude Oil Lower, in which we showed the historic excess of gasoline stocks on the US East Coast, known as the PADD 1 region. A week later, in a follow up article we explained that as a deluge of Chinese gasoline exports had flooded the world, the PADD1 glut was only getting worse, leading to a pile up of tankers in New York harbor. It got so bad, that gasoline stockpiles in PADD 1 rose to a record 72.5 million barrels in the week ended July 22. Meanwhile, as crack spreads collapsed, concerns about both gasoline and oil demand emerged, leading to a sharp selloff in oil, and the recent bear market in WTI.  However, over the past week, gasoline inventories finally drew down, and as we reported yesterday, commercial gasoline stocks decline by 3.3 million barrels according to the DOE (if a far smaller 450K according to API).To be sure, on one hand, some refiners have indeed curbed or even shut down production. AsBloomberg reports, "facing the region’s worst-ever glut of gasoline, suppliers are beginning to turn off the taps in response to low margins. Profits are gradually starting to rebound, though they remain at a five-year seasonal low."  But as it turns out, the biggest reason why there was a very "bullish" - for oil - gasoline draw is also the simplest: the excess gasoline was simply moved from one, massively overstocked place, to another. Remember that pile up of tankers in NY harbor we wrote about a month ago? Well, they're gone. But not because there is demand for their product - they simply found a different place where to store their excess inventory. From Bloomberg: Gasoline has also shifted south amid cargo diversions and deviations. A 330,000-barrel tanker usually on the Houston-to-Jacksonville, Florida, run last month moved two products cargoes to Florida from New York Harbor, according to vessel tracking data compiled by Bloomberg. Since June, at least eight foreign import cargoes originally booked to supply New York were sent instead to the U.S. Gulf Coast and Mexican West Coast.

     US oil settles 2.7 pct higher, or $1.10, at $41.93 a barrel: Oil prices closed more than 2 percent higher on Thursday on short-covering and after a modest stockpile drop at the delivery hub for U.S. crude futures. The benchmark rose out of technical bear market, after sinking more than 20 percent from its June high in recent days as overproduction and large stockpiles of crude and refined products around the world weighed on markets. Oil prices had seesawed throughout the morning, but moved decisively higher at midday, bouncing off technical levels as crude broke above its 200-day moving average, Again Capital founding partner John Kilduff told CNBC. U.S. West Texas Intermediate (WTI) crude futures settled 2.69 percent higher, or $1.10, at $41.93 a barrel. International Brent crude futures were trading at $44.25 a barrel, up $1.15. or 2.67 percent. "With WTI testing $40 lately and without follow through selling, short positions are likely booking profits and we could see range bound prices after this,"

    OilPrice Intelligence Report: Oil Correction Stalls On Strong Dollar, Rising Rig Count -- Oil briefly dropped below $40 per barrel this week but rebounded following the surprise drawdown in gasoline inventories, a robust decline of 3.3 million barrels. Oil traders were more than happy with that result, ignoring the 1.4 million barrel build in crude oil stocks. As a result, oil traded up 3 percent on Wednesday and posted an additional 2.5 percent gain on Thursday. Some of those gains could have been the result of speculators closing out short positions and pocketing profits, however. "With WTI testing $40 lately and without follow through selling, short positions are likely booking profits and we could see range bound prices after this," Chris Jarvis, analyst at Caprock Risk Management, told Reuters.  Citigroup, Bank of America Merrill Lynch, Wood Mackenzie, and other investment banks predicted that the bear market will be over quickly, citing a dearth of oil supply that is profitable below $40 per barrel. Some analysts are even concerned that today’s cutbacks are too severe, setting up the market for a supply crunch down the line. "We think what's happening in the market is very seasonal. Supply is actually going down pretty quickly, demand is moving higher, and this is going to move the market into a deficit,” said Francisco Blanch, the head of global commodities and derivatives research at Bank of America Merrill Lynch. He says the supply drop off will lead to a “multi-quarter deficit,” which means oil prices will move “quite a lot higher.” But in the short-term, oil traders are not optimistic. On top of the massive volumes of oil and gasoline sitting in storage, the consistent gains in the rig count in recent weeks is giving the market some reason to worry. . In a worrying sign that the oil markets are still oversupplied, the economics of stashing oil at sea to sell at a later date are improving. The contango has widened sufficiently in recent weeks to make floating storage profitable. Bloomberg reports that cargoes for delivery at a later date sell for $2.78 per barrel higher than front-month contracts, enough to pay for storage for half of a year. This market contango is indicative of too much near-term supply, and it is a bearish signal for oil prices.

    Six Weeks In A Row – Rising Rig Count Pushes Oil Down - The US oil and gas rig count, as reported by Baker Hughes on Friday, was up one over last week, bringing the total number of oil and gas rigs to 464. The US oil rig count was up 7 from last week, while the gas rig count fell one, with miscellaneous rigs also losing a rig. Eagle Ford and the Permian saw the strongest rig count increases. Eagle ford was up 4 oil rigs, while The Permian added an additional 5 oil rigs. The Barnett and Niobrara both lost one oil rig over the last week. Although a total increase of one rig is fairly insignificant, and oil rig increase of seven—and an increase to the oil rig count for six straight weeks—may add further worries to an already shaky oil market. Ahead of the rig count data, oil futures stabilized earlier today after whiplash-inducing swings were seen throughout the week as anxious investors lose confidence after agencies such as the API and EIA reported varying figures on US stockpiles. On Tuesday, the API estimated that crude inventories fell by 3.9 million barrels. The following day, the EIA published significantly contradictory information, reporting that crude inventories had increased by 1.4 million barrels—which added to the 1.67 million barrel increase the week prior. Despite the news that crude stockpiles were still increasing, WTI rose both Wednesday and Thursday as gasoline inventory drew drown 3.3 million barrels. But inventory is not the only metric that holds sway in today’s volatile oil market. Last week, the oil and gas rig count, as reported by Baker Hughes, increased by a single rig, with oil rigs up by three and natural gas rigs down by two. Last week was the fifth week in a row to see an increase in the oil rig count, although of the five weeks, last week was the smallest gain.

    Permian spearheads current, planned US rig count increases - The overall US rig count inched up a single unit for the second consecutive week during the week ended Aug. 5, again bolstered by increased drilling activity in the Permian basin of West Texas and New Mexico (OGJ Online, July 29, 2016). The US tally of active rigs now stands at 664 after rising in 9 of the last 10 weeks, according to Baker Hughes Inc. data. The count is now up 60 units since May 27, the week before it recorded its first increase in 41 weeks. Two thirds of that total has come in the Permian alone. While many US exploration and production firms this week continued to report plans to deploy rigs during the second half, light, sweet crude oil prices dipped below $40/bbl for the first time since April. In its North American Shale Report, oil and gas consulting service Rystad Energy noted last week that most commercial wells’ breakeven prices are currently $25-30/bbl, reflecting an average 22% year-over-year drop in the average wellhead breakeven price during 2013-16. Among the major shale regions, the biggest drop is seen in the Permian’s Midland basin, down 33% year-over-year on average during 2014-16. Capital investment has recently poured into the Midland basin, as well as the nearby Delaware basin and Oklahoma STACK play. The US oil-directed count also increased this week for the ninth time in 10 weeks, gaining 7 units to 381—a rise of 65 units since May 27. Compared with its peak in BHI data on Oct. 10, 2014, the count is now down 1,228 units. Gas-directed rigs, meanwhile, fell 5 units to 81. One rig considered unclassified halted operations, bringing that tally to 2.  Land-based rigs rose 3 units to 443, reflecting an 8-unit jump in horizontal rigs to 362, up 48 units since May 27. Directional drilling rigs dropped 4 units to 44. Rigs drilling in inland waters were unchanged at 4. Rising 3 units this week to 217, Texas made up the ground it lost last week after recording its first decrease in 9 weeks. Compared with its May 27 total, the state's count is up 43 units. More than offsetting losses elsewhere around the state were increases from the Permian and Eagle Ford. The Permian’s 5-unit rise to 177 marked its eighth straight weekly increase. The Eagle Ford’s 4-unit jump brought the South Texas play’s count to a 3-month high. In North Texas, meanwhile, the Barnett lost a unit to 4.

    Russia Extends Oil, Gas Reach in Asia Post-Ukraine Crisis -- Strained ties with the European Union (EU) and the United States arising from the crisis in Ukraine in 2014, have prompted Russia – one of the world’s largest oil and gas producers – to turn its attention to Asia as it scoured for market opportunities amid Western sanctions. Major Russian oil and gas firms OAO Rosneft and OAO Gazprom have strived to boost their business relations with countries in Asia, both at the company and governmental level. They are searching for new markets for their crude oil and natural gas, while encouraging Asian investments in their upstream assets. “Asia is an important market for Russia, not only due to the sheer size of the expected growth in the region’s energy consumption over the coming years, but also because it allows Russia to diversify away from overly relying on the European market,” Peter Lee, Asia Oil & Gas Analyst at BMI Research, told Rigzone. The Russian firms are looking beyond traditional markets like China and India as they seek to enhance co-operation with other Asian countries, including Vietnam, Thailand, Indonesia and Singapore. Russia needs outlets for its crude production as the country attempts to maximize output to compensate for the steep decline in oil prices. The move is necessary due to the high breakeven costs of its petroleum projects, Rising energy demand in neighboring China has already offered Russia a huge market for its oil and gas sales. “China's importance to Russia is growing. Its Russia's second largest crude oil market [after the Netherlands], and absorbs about 15.5 percent of Russia’s crude exports annually. This could increase further in the coming years though – for instance, the completion of CNPC’s Mohe-Daqing oil pipeline sometime by 2017 will make it easier for refiners in eastern China to procure Russian crude,” Lee said.

    The town that reveals how Russia spills two Deepwater Horizons of oil each year -- The Komi Republic in northern Russia is renowned for its many lakes, but sites contaminated by oil are almost just as easy to find in the Usinsk oilfields. From pumps dripping oil and huge ponds of black sludge to dying trees and undergrowth — a likely sign of an underground pipeline leak — these spills are relatively small and rarely garner media attention. But they add up quickly, threatening fish stocks, pasture land and drinking water. According to the natural resources and environment minister, Sergei Donskoi, 1.5m tonnes of oil are spilled in Russia each year. That’s more than twice the amount released by the record-breaking Deepwater Horizon oil spill in the Gulf of Mexico in 2010. The main problem, according to the natural resources ministry, is that 60% of pipeline infrastructure is deteriorated. And with fines inexpensive and oversight lax, oil companies find it more profitable to patch up holes and pour sand on spills — or do nothing at all — than invest in quality infrastructure and comprehensive cleanups, according to activists. “The pipelines are very worn out, they’re left over from the USSR,” said Greenpeace research projects coordinator, Vasily Yablokov. “The oil companies have realised they’re losing a lot of oil and are starting to replace them, but it’s laughable. They need to do much more.”  While Russia’s oil and gas production provides more than half the state budget every year, it exacts a huge price on the environment and local residents. A state energy statistics bureau told Greenpeace it had registered 11,709 pipeline breaks in Russia in 2014. In contrast, Canada reported five pipeline accidents (involving human injury) and 133 incidents involving natural gas and oil pipelines in 2014.

    Saudis Slash Oil Prices For Asian Markets; So Much For Solving That Banking Liquidity Crisis -- Shortly after we spoke yesterday about the banking liquidity crisis in Saudi Arabia caused by the "Saudi circ ref" (low oil prices -> budget deficits -> more oil pumping -> even lower oil prices), almost on cue, the state-owned Saudi Aramco, the worlds largest oil exporter, announced the largest price cut for Arab light sweet crude sold into Asian markets in 10 months.  Aramco priced September exports to Asia $1.10 per barrel below regional benchmarks which is a $1.30 cut vs. August pricing.  Oil pricing into Asian markets has come under intense pressure in 2016 as the battle for market share has intensified between the Saudis, Russians and Iranians (a topic we've covered extensively here, here and here). Saudi prices cuts, which we fully anticipate to be matched by the Iranians, come as Iran continues to flood the market with supply in a race to return production to pre-sanction levels of 4 mm barrels per day.  Since international sanctions against Iran were eased in January, 1H16 shipments to Asia have surged with Japan’s purchases up 28%, India up 63%, South Korea up over 100% and China up 2.5%.  Mohsen Ghamsari, director of international affairs at state-run National Iranian Oil Co., said: "Iran is exporting about 2 million barrels of its daily output of 3.8 million.  It has regained about 80 percent of the market share it held before the U.S. and European Union tightened sanctions on its oil industry in 2012."  Iran has already boosted crude production 25% this year and aims to reach an eight-year high for daily output of 4 million barrels by the end of the year.

    Shale Production Has Reduced Energy Prices To Levels Where Saudi Arabia Can't Fund Its Welfare State - Saudi Arabia knew that North American shale production could potentially torpedo their hold on the energy market via oil. So, they decided to trounce the natural gas market by opening the floodgates with petroleum. It didn’t work. The Telegraph now reports that shale production has cut prices so low that they can produce at prices that are lower that what’s required to keep Saudi Arabia’s socioeconomic fabric healthy: Opec's worst fears are coming true. Twenty months after Saudi Arabia took the fateful decision to flood world markets with oil, it has still failed to break the back of the US shale industry.  The Saudi-led Gulf states have certainly succeeded in killing off a string of global mega-projects in deep waters. Investment in upstream exploration from 2014 to 2020 will be $1.8 trillion less than previously assumed, according to consultants IHS. But this is a bitter victory at best. North America's hydraulic frackers are cutting costs so fast that most can now produce at prices far below levels needed to fund the Saudi welfare state and its military machine, or to cover Opec budget deficits.[…]Scott Sheffield, the outgoing chief of Pioneer Natural Resources, threw down the gauntlet last week - with some poetic licence - claiming that his pre-tax production costs in the Permian Basin of West Texas have fallen to $2.25 a barrel. "Definitely we can compete with anything that Saudi Arabia has. We have the best rock," he said.

    Despite Low Oil Prices, Saudi Arabia Stabilizing Economy  -- The Saudi economy is stabilizing after the government implemented pivotal reforms in order to address a fiscal and economic crisis because of plunging oil prices.  Over the past two years, Saudi Arabia cut energy subsidies, slashed public spending, and started to look for new ways to raise revenue outside of the oil sector. The IMF forecasts the Saudi budget deficit to narrow from 13 percent of GDP in 2016 to 9.6 percent in 2017. That is a dramatic improvement from the 16 percent deficit the country posted last year. The improved forecast earned praise from the IMF. “The fiscal adjustment is under way, the government is very serious in bringing about that fiscal adjustment,” Tim Callen, the IMF’s Saudi mission chief, told Bloomberg in an interview. “We’re happy with the progress that’s being made.” Although Saudi Arabia is running a huge deficit, it does not appear to be an emergency. In countries without huge cash reserves, such a deficit would be a major problem. But Saudi Arabia has hundreds of billions of dollars in reserves, allowing it to coast for a while. Saudi Arabia did see its credit rating downgraded earlier this year by Moody’s because of the collapse of oil prices. “A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks,” Moody’s wrote in May. But with the deficit-to-GDP ratio falling, the IMF is not concerned. “We would be worried if the fiscal deficit were to remain at the levels it reached last year for another couple of years, because that would mean there will be large fiscal financing requirements,” he said. But the IMF’s Tim Callen said that balancing the budget by the end of the decade should be “doable.” Oil prices should rebound in the years ahead, which should put cash back into Saudi government coffers.Still, Saudi Arabia is not exactly sitting pretty. GDP growth is still at a moribund 1.2 percent in 2016, with only a modest improvement to 2.25-2.5 percent over the medium-term. That won’t be enough to absorb the bulging population of young people in the country.

    Saudi Arabia Said to Have Offered $4 Billion to Banks - Saudi Arabia’s central bank offered lenders short-term loans in late June to help ease liquidity constraints, according to five people familiar with the matter. The Saudi Arabian Monetary Agency, or SAMA, as the central bank is known, offered about 15 billion riyals ($4 billion), two of the people said, asking not to be identified as the information is private. The loans were offered at a discounted rate, two of the people said. SAMA offered individual banks as much as 1.5 billion riyals, based on their balance sheets, four people said. The loans are for up to one year. “We see this move as an immediate support to boost short-term liquidity and for banks’ ability to lend,” Monica Malik, chief economist at Abu Dhabi Commercial Bank PJSC, said by phone. “We expect to see further measures, such as possibly reducing the reserve requirement ratio or increasing the loan-to-deposit ceiling in the coming days.” Banks in the kingdom are facing a cash squeeze as the government withdraws deposits and sells local-currency debt to fund the budget deficit. SAMA has already taken steps to try to alleviate liquidity pressures, allowing banks to lend the equivalent of 90 percent of their deposits, up from an earlier limit of 85 percent. An official at the central bank declined to comment. The three-month Saudi Interbank Offered Rate has surged 69 basis points this year to 2.24 percent, near the highest level since 2009, according to data compiled by Bloomberg. The rate has risen nine basis points since the end of May, while Brent crude prices fell 15 percent.

    Saudi central bank fights to curb money rate rise | Reuters: Saudi Arabia's central bank is having only mixed success in using money market tools to fight a surge in market interest rates caused by low oil prices, and may need to resort to more radical steps, commercial bankers say. Such steps could include raising the ratio of deposits which commercial banks are permitted to lend out and reducing the amount of reserves which banks must place with the central bank, the Saudi Arabian Monetary Agency (SAMA). By slashing government revenues, low oil prices have cut the volume of petrodollars flowing into the Saudi banking system. Total deposits at commercial banks, which grew continuously for years, were 3.3 percent lower in June than they were a year ago. This has strained liquidity in the banking system, pushing interbank money rates higher. The one-year Saudi interbank offered rate has jumped more than 1.5 percentage points in the past 12 months. That in turn threatens banks' ability to lend to the private sector at affordable rates, a key consideration as the government tries to limit damage to the economy from cheap oil, and raises borrowing costs for the government, which is selling bonds to the banks every month to finance a big budget deficit. "SAMA warned of a liquidity shortage almost a year ago," said a local banker, speaking about central bank policy on condition of anonymity. "Now it is facing such a situation."

      Iran plans new model oil contract launch within six months - Officials at the National Iranian Oil Company hope to launch new upstream contracts within the next six months after the government ratified a new upstream model contract Wednesday. Iran's cabinet signed off a new model oil contract, known as the Iran Petroleum Contract, in the hope it will attract much-needed international investment into the oil and gas sector after international sanctions on the country were lifted earlier this year. "After the approval of the IPC by the cabinet, we will try to make the new model operational as a contract within six months," NIOC managing director, Ali Kardor, told state radio. The new technical services contract replaces Iran's buyback formula, which it had been using for years, but has failed to attract investors looking for longer participation in a developed field or a greater interest. The approval covers the "general terms, structure and model of upstream oil and gas contracts", state-run Shana news agency reported. This came after adopting a number of modifications following objections from parliament, where there is opposition over constitutional restrictions on ownership of natural resources. The original version of the IPC was unveiled to oil companies in December with details of more than 50 projects for which Iran wants international partners. More specific terms for each new contract, such as pricing and duration, will have to be approved separately by the oil ministry.

    Kuwait raises gasoline prices, following Gulf neighbors - (AP) — Kuwait will raise its subsidized gasoline prices by as much as 83 percent beginning in September, becoming the last Gulf nation to do so as low global oil prices continue to gnaw away at governments across the region. Kuwait’s Cabinet announced the decision on Monday, with the biggest price hike coming for its premium-grade gasoline. As of Sept. 1, that octane will cost 165 fils a liter (53 cents) instead of 90 fils (30 cents). That’s 624 fils ($2.05) a gallon as opposed to 340 fils ($1.12) a gallon previously. Kuwait’s cheapest gasoline will increase in price by 41 percent from 60 fils (20 cents) a liter to 85 fils (26 cents). Its mid-range fuel will go up by 61 percent, from 65 fils (21 cents) to 105 fils (35 cents). That puts the new prices at 321 fils ($1.06) a gallon for the cheapest fuel and 397 fils ($1.30) a gallon for mid-range. There are 1,000 fils to the Kuwaiti dinar. One dinar is worth $3.31. The average U.S. price for a gallon of regular gasoline is $2.12, according to AAA. Subsidized gasoline prices long have been viewed as a national right among citizens of this tiny, oil-rich Mideast emirate and their slashing signals the serious financial pressure it faces. A recent report by the International Monetary Fund estimated that Kuwait’s government budgeted about 2.3 billion Kuwaiti dinars ($7.6 billion) to subsidies energy products and water service. On Tuesday, news of the price increase dominated Kuwaiti newspaper front pages and talk on radio stations. Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates all have increased their fuel prices over the last year as crude prices plummeted. Worldwide oil prices now sit around $40 a barrel as inventories remain high and the global economy remains mired in a malaise.

    MENA countries investing $10.3 billion to import LNG - Countries in the Middle East and North Africa (MENA) account for a rapidly rising share of global LNG demand and will invest about $10.3 billion in the “medium term” to meet import needs, says Arab Petroleum Investment Corp. (APICORP). The MENA share of LNG demand will rise to 6.5% by the end of next year from 1% in 2013, according to APICORP Energy Research. LNG imports by MENA consumer countries totaled 10.5 billion cu m in 2015, of which 40% was from Qatar. “But these levels will rise steeply, spurred by the present global supply overhang, which should allow regional buyers to lock in preferential prices and allow them to choose from a wider range of suppliers,” APICORP says. The countries, some of which have problems with creditworthiness, will be cautious about investment in permanent LNG import terminals and increasingly will charter floating storage and regasification units (FSRUs) “as a temporary and lower cost solution.”  Kuwait, the first Gulf Cooperation Council member to import LNG, is an exception. Now using an FSRU, it plans a permanent terminal at Mina Al-Ahmadi with capacity of 15 billion cu m/year, capable of being doubled. In the United Arab Emirates, where LNG imports by Dubai meet peak gas demand during summer, plans for an import facility in Fujairah have been cancelled in favor of a chartered FSRU at Ruwais, Abu Dhabi. APICORP calls that option a “flexible solution” to meeting power shortfalls until four nuclear reactors are completed in the UAE in the early 2020s.

    ISIS Oil Revenues Down By Up To 90 Percent | Recent Iraqi military gains over the Islamic State have dried up oil revenues for the terrorist organization by up to 90 percent, according to a report by Iraqi News on Tuesday. Security sources from the ministry of oil said ISIS had been smuggling at least 50 vehicles full of oil everyday from oilfields in Qayyarah and Najma. The two sites stand south of Mosul—the largest ISIS stronghold and the third largest city in Iraq by population. But new offensives against the terrorist organization have reduced the smuggling rate to five vehicles a day. ISIS’ prices for the smuggled oil, which once stood above $6,000 a vehicle, have now been reduced to $2,000. After ISIS lost control of the Alas and Hamrin oilfields near Tikrit last April, the group’s income declined by an additional $1 million every day. Yesterday, news broke that ISIS fighters may have been responsible for the deaths of five people in an oilfield located in the Kurdish city of Kirkuk, though the organization has not yet claimed responsibility for the attack.  The attackers attempted to take down a gas compression station nearby as well, where they planted bombs after killing four guards. The fifth victim was an engineer working at Bas Hassan, a media report read, citing Iraqi and Kurdish sources. Sources from the Kurdish military forces, the Peshmerga, said that the attack on the gas station was neutralized and that three of the four ISIS terrorists involved in the double hit were killed, one of them managing to blow himself up, causing explosions in oil storage tanks at Bas Hassan

    As 'caliphate' shrinks, Islamic State looks to global attacks | Reuters: Islamic State, losing territory and on the retreat in Iraq and Syria, has claimed credit for a surge in global attacks this summer, most of them in France and Germany. The wave of attacks followed a call to strike against the West during the Islamic holy month of Ramadan in June and July, in an apparent shift in strategy by the jihadist group, which has been hammered by two years of U.S.-led coalition air strikes and ground advances by local forces. Instead of urging supporters to travel to its self-proclaimed caliphate, it encouraged them to act locally using any means available. "If the tyrants close the door of migration in your faces, then open the door of jihad in theirs and turn their actions against them," said an audio clip purportedly from spokesman Abu Muhammad al-Adnani, referring to Western governments' efforts to keep foreign fighters from traveling to the join the group. Radicalized followers have responded to that call repeatedly in the past two months, in countries part of the international coalition battling Islamic State, including shooting people at a Florida nightclub, running them over with a truck in the French Riviera, and hacking them with an axe on a train near Munich. The perpetrators had varying degrees of connection to the Middle East-based jihadists. Some had tried to travel to Syria and were on the authorities' radar, while others displayed few outward signs of radicalism until their deadly acts. "There's a growing understanding that the idea of the caliphate is dying and more and more the leadership is calling on foreign fighters not even to come to Iraq and Syria but to go elsewhere or to commit violence locally,"

    Have U.S. Officials Given Up on ‘Defeating’ ISIS? - You don’t hear national security leaders speak of ISIS like an enemy to be beaten. They talk about the terror group like a chronic illness in the global body politic.   Officially, the Obama administration is still committed to defeating ISIS. But at the annual gathering of national security chiefs in Aspen, no one was talking about beating the terror army and its adherents. Instead, grim resignation and dark warnings of a long hard fight to come dominated the discussion, with every official predicting a global rise in terror attacks, including in the United States. “Do we expect more attacks? Regrettably we do, both in Europe and the U.S.,” said Rep. Adam Schiff (D-CA), a ranking member on the House Intelligence Committee. While some here held out hope for a military triumph over ISIS in Iraq and Syria, they acknowledged that any such advances would represent the first stage in a years-long battle against a group that’s already spread to unstable parts of the Mideast, Africa, and Southeast Asia—and already inspired attacks from Paris to San Bernardino, Orlando to Istanbul. “If we destroy [ISIS] in Syria and Iraq so they don’t have a territory anymore, of course that reduces their influence. But the virtual caliphate has not been destroyed,” said European Union Counterterrorist Coordinator Gilles de Kerchove in an interview, referring to ISIS’s prodigious online presence. “The capacity to inspire in the west will remain for some time.”

    Islamic State calls on members to carry out jihad in Russia | Reuters: Islamic State called on its group members to carry out jihad in Russia in a nine-minute YouTube video on Sunday. "Listen Putin, we will come to Russia and will kill you at your homes ... Oh Brothers, carry out jihad and kill and fight them," a masked man driving a car in the desert yelled while wagging his finger in the last couple of minutes of the video.The video with subtitles showed footage of armed men attacking armored vehicles and tents and collecting arms in the desert. "Breaking into a barrack of the Rejectionist military on the international road south Akashat," read one subtitle. It was not immediately possible to independently verify the video but the link to the footage was published on a Telegram messaging account used by the militant group. It was not immediately clear why Russia would be a target, but Russia and the U.S. are talking about boosting military and intelligence cooperation against Islamic State and al Qaeda in Syria.

    Paris strikes astonishing partnership with secret Isis sponsor tied to Hillary Clinton [EXCLUSIVE] -- The City of Paris has struck a corporate partnership with French industrial giant, Lafarge, recently accused of secretly sponsoring the Islamic State (Isis or Daesh) for profit. Documents obtained by several journalistic investigations reveal that Lafarge has paid taxes to the terror group to operate its cement plant in Syria, and even bought Isis oil for years. Yet according to the campaign group, SumOfUs, Lafarge is the corporate partner and sand provider to the City of Paris for this summer’s Paris-Plages urban beach event. The project run by Office of the Mayor of Paris, Anne Hidalgo, will create artificial beaches along the river Seine in the centre and northeast of Paris. Lafarge also has close ties to Democrat presidential candidate Hillary Clinton. Apart from being a regular donor to the Clinton Foundation, Clinton herself was a director of Lafarge in the early 1990s, and did legal work for the firm in the 1980s. During her connection to Lafarge, the firm was implicated in facilitating a CIA-backed covert arms export network to Saddam Hussein.

    British woman held after being seen reading book about Syria on plane - Free-speech groups have condemned the detention of a British Muslim woman after a cabin-crew member reported her for “suspicious behaviour” while reading a book about Syrian culture on a flight to Turkey. Faizah Shaheen, a psychotherapist in Leeds, was detained by police at Doncaster airport on 25 July, on her return from her honeymoon in Turkey. A Thomson Airways cabin-crew member had reported Shaheen on her outbound flight two weeks earlier, as she was reading the title Syria Speaks: Art and Culture from the Frontline. Police officers questioned Shaheen for 15 minutes under Schedule 7 of the Terrorism Act, under which the police can detain individuals without grounds for suspicion of involvement in criminal activities, including terrorism. Shaheen, whose work in the NHS includes efforts to stop radicalisation among young mental health patients, told the Independent she intends to make formal complaints against the police: “I was completely innocent – I was made to feel like a culprit … I couldn’t understand how reading a book could cause people to suspect me like this. I told the police that I didn’t think it was right or acceptable. I do question if … it would be different if it was someone who wasn’t Muslim.”A collection of essays and writings by more than 50 artists on “challenging the culture of violence” in the country, Syria Speaks was published by British imprint Saqi Books in 2014. It received positive reviews from the likes of musician Brian Eno and author AL Kennedy, who described it as “a wise, courageous, imaginative and beautiful response to all that is ugly in human behaviour.”

      ‘Western media part of political elite, will never report Syrian massacre by US-led forces’ -- Media in the US and Britain are not independent; they are part of the political elite in Washington and London, and their responsibility is to guide policy makers and shape public opinion, says Marcus Papadopoulos, publisher and editor of Politics First. Syria has appealed to the UN, claiming that 45 civilians were killed and 50 injured in US-led airstrikes outside the city of Manbij near Aleppo on Thursday. Following the strike, US Central Command (CENTCOM) admitted the airstrikes “may have resulted in civilian casualties,” but did not provide a figure, pending an investigation. CENTCOM said the aerial strike had been aimed at hitting ISIS forces concentrated in Manjib. Meanwhile, Western media has been quiet about the alleged strikes that reportedly killed dozens of civilians.

    • RT: Why do you think the western media is staying silent on the story, despite the large loss of civilian life?
    • Marcus Papadopoulos: It’s very important for people to understand the relationship between Western governments and Western media. Media outlets in America and Britain are not independent; they are very much a part of the political elite in Washington and London. Their responsibility, their job, their duty is to guide policy makers in America and Britain, to influence them and then to gather domestic support behind American and British foreign policy objectives wherever they are in the world. Why has Western media barely reported on American strikes against civilians in Syria? Well, it’s very simple. Western media is there to do the PR job of the British and American governments. They are there to project America and Britain as beacons of civilization, as the protectors, the guardians of human rights and democracy… It is therefore no surprise that they are not going to cover what was a blatant massacre by the American air force of civilians in Syria.

     US Launches Air Strikes Against ISIS Targets In Libya - In what comes as the most expected geopolitical development in recent years, moments ago the United States announced that it had launched multiple airstrikes against Islamic State militants in Libya on Monday, opening a new, more persistent front against the group at the request of the United Nations-backed government, Libyan and U.S. officials said. The strikes, which allegedly targeted an Islamic State tank and vehicles, come amid growing concerns about the group's increased threat to Europe and its ability to inspire attacks across the region. "The presidency council, as the general army commander, has made a request for direct U.S. support to carry out specific airstrikes," Serraj said. "The first strikes started today in positions in Sirte, causing major casualties." As AP reports, the strikes mark the start of a more intense American role in the fight against IS in Libya, as the U.S. steps in to assist the fragile, U.N.-backed government there. Of course, the government is fragile only because of US involvement 5 years ago (thanks Hillary) to topple Muammar Gadaffi and unleash the political chaos that led to the Arab spring in, according to some, unleashed jihadist organizations such as ISIS.  They were the first strikes by the U.S. on the group in Libya since February.

    Iran's Ayatollah: "The US Created ISIS" -- Even as the Obama administration is embroiled in a scandal involving the paradropping of a crate of cash with $400 million in it in non-USD denominated bills to Iran, the same Iran continues to heap scorn upon the US president, culminating yesterday with Iran’s Supreme Leader, Ayatollah Ali Khemenei, accusing the U.S. of creating and supporting ISIS as a means of creating conflict among Muslims and promoting a false form of Islam in the world. In an English language Twitter account affiliated with Iranian Supreme Leader, the country’s highest authority, tweeted: US aim of making & backing DAESH is to sow discord in Islamic Ummah, defame true Islam & promote Wahabbi Islam which is far from true Islam. — (@khamenei_ir) August 3, 2016 He alleged that the US aim of making and backing ISIS is to sow discord in Islamic Ummah, defame true Islam & promote Wahabbi Islam which is far from true Islam, in fact it is the religion of Saudi Arabia, some of the most ardent supporters of the Clintons. The claim is not the first time Khamenei has accused the U.S. and the West of creating the current conflict in Syria and Iraq. Last December, Khamenei accused U.S. officials of sowing discord among Muslims by “creating terrorist groups like Daesh (the Arabic word for the ISIL) and other groups that have been created through the funding of the US affiliates and their political aids," according to Iran’s state-run media outlet, Fars News.

    U.S. Sent Cash to Iran as Americans Were Freed -- The Obama administration secretly organized an airlift of $400 million worth of cash to Iran that coincided with the January release of four Americans detained in Tehran, according to U.S. and European officials and congressional staff briefed on the operation afterward. Wooden pallets stacked with euros, Swiss francs and other currencies were flown into Iran on an unmarked cargo plane, according to these officials. The U.S. procured the money from the central banks of the Netherlands and Switzerland, they said. The money represented the first installment of a $1.7 billion settlement the Obama administration reached with Iran to resolve a decades-old dispute over a failed arms deal signed just before the 1979 fall of Iran’s last monarch, Shah Mohammad Reza Pahlavi.The settlement, which resolved claims before an international tribunal in The Hague, also coincided with the formal implementation that same weekend of the landmark nuclear agreement reached between Tehran, the U.S. and other global powers the summer before.“With the nuclear deal done, prisoners released, the time was right to resolve this dispute as well,” President Barack Obama said at the White House on Jan. 17—without disclosing the $400 million cash payment.  Senior U.S. officials denied any link between the payment and the prisoner exchange. They say the way the various strands came together simultaneously was coincidental, not the result of any quid pro quo.

     Here’s how Iran could threaten to close the Strait of Hormuz -Iran’s talking tough again, threatening to close the Strait of Hormuz in the event of an attack. This is not the first time such threats have been made. Furthermore, when Iran mined USS Samuel B. Roberts (FFG 58) during Operation Earnest Will, the United States delivered quite the beat-down to the mullahs’ military forces in Operation Praying Mantis. But it raises the question of whether Iran could carry out its threats. Iran’s threat cannot be treated as idle, given that they did try to shut down the Strait of Hormuz during the Iran-Iraq War. Currently, the Iranian Navy has at least five frigates, three Kilo-class submarines, fifty-four guided-missile patrol boats, and at least sixteen mini-submarines. It is a force that could be beaten by the United States Navy – much as was done in 1988 – but that task may be tougher now than it was back then. To understand why just take a look at the map.At less than sixty miles wide for most of its length, Iran can not only count on its naval forces to attack tankers in the Strait of Hormuz, but also truck-mounted and fixed-position anti-ship missile batteries on the coast, primarily consisting of the C-802 and C-201 missiles. Iran’s control of Qeshm and Larak Islands adds further reach to shore-based missiles as well. These bases could also be protected with surface-to-air missiles like the SA-10 “Grumble” that Iran has been trying to buy from Russia for years.  With missiles flying in at 685 miles per hour, even an Aegis vessel will have some problems protecting a supertanker from being hit by an anti-ship missile. The good news is that supertankers are very big, and as a result, they are very tough. Even an 1100-pound warhead from a C-201 won’t sink a supertanker. But it will create one hell of a mess. The hit will cause a fire, and it will send oil spilling out. In the “Tanker War” that took place during the Iran-Iraq War, over 500 commercial vessels were hit.

    Weak crude drags Republic of Congo into default - Plunging oil prices have forced the Republic of Congo to skip a $478 million payment for bonds due at the end of June. As the one-month grace period has passed, the country is officially in default on its debt.The country sometimes referred to as Congo-Brazzaville to differ from its neighbor the Democratic Republic of Congo, had its sovereign credit rating downgraded by S&P to 'SD/D’ (selective default). We are therefore lowering our long- and short-term foreign currency sovereign credit ratings on the Republic of Congo to 'SD/D' (selective default) from 'B-/B', indicating that the Republic of Congo has defaulted on some of its foreign currency obligations,” said a statement from the rating agency. “If and when the Republic of Congo cures the payment default on the notes, we will revise our ratings on the sovereign debt depending on our assessment of residual litigation risk, access to international debt markets, and the sovereign's overall credit profile,” added the agency. According to S&P, the 'SD/D' mark does not carry an outlook because it displays a condition, default, and not a forward-looking opinion of default probability. S&P added the Republic of Congo faces balanced risks, specifically on its local currency debt. In 2014, oil production made up about 70 percent of the country’s total revenue. Crude prices have plummeted from $114 per barrel in mid-July 2014 to slightly over $40 in August 2016.

    Plunging Oil Prices Create Bad-Loan Pain for Singapore Banks - Last week, Swiber Holdings Ltd., a small Singapore company that provides construction services for international oil and gas projects, filed a petition to liquidate its operations, after facing payment demands from creditors at a time when its business was under pressure. DBS Group Holdings Ltd., one of Swiber’s largest lenders, said it only expects to recover about half of the S$700 million ($522 million) it loaned to the firm and its units. Swiber subsequently said it’s dropping the liquidation in favor of a restructure plan. DBS and Singapore’s two other large banks, Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., are exposed to the downturn in the energy sector as a result of their lending to local companies which provide construction, shipping and maintenance services to the oil and gas industry. Many of those companies are suffering as the plunge in crude prices since 2014 curtailed exploration and other activity by oil and gas producers. The financial health of the energy-services companies is the “key concern” for UOB over the next one or two years, Chief Executive Officer Wee Ee Cheong said at a media briefing Thursday on the bank’s second-quarter results. The bank’s exposure to Swiber is “manageable,” Wee said, though he noted that the wider difficulties in the oil and gas services industry were a factor behind the 17 percent climb in UOB’s nonperforming assets for the second quarter.  Swiber said it will drop its liquidation application in a statement on Friday. Instead, the company plans to operate under a judicial management, which would allow it to continue operating under court supervision while it attempts to turn its business around. Some of its lenders had sought judicial management to recover more of their loans, according to people familiar with the talks who asked not to be identified because the discussions were private.

    Cheap Oil Squeezes South Asia’s Cash Lifeline - WSJ: Chronically low oil prices are disrupting a critical financial lifeline across Asia and depriving economies of much-needed hard currency. The flow of cash, or remittances, from Asian citizens working in the Gulf soared when the price of oil was high, boosting growth across the board. The billions of dollars in annual inflows paid for necessities such as schooling and health care and helped propel families into the middle class for the first time. Now that money is disappearing, perhaps permanently, as laborers lose work in oil-driven Mideast countries. That’s adding a new threat to growth in some Asian nations and depriving them of currency inflows they need to balance their national accounts and keep their currencies from depreciating too quickly. A barrel of Nymex crude is now trading at around $41, up from below $30 earlier this year. But prices are a long way from the peak of the boom and aren’t expected to return to previous highs soon. In February 2014, a barrel of crude cost more than $100.  Demonstrating the pressures of sustained low prices, thousands of Indian workers protested in Saudi Arabia on Saturday at being left without jobs, pay and food after they were laid off. The Indian government stepped in over the weekend to hand out food to hungry workers. A drop-off in funds from migrant workers contributed to a crisis in Sri Lanka that forced the government to take a $1.5 billion emergency loan from the International Monetary Fund earlier this year. Falling inflows to Nepal, where transfers from overseas workers are equivalent to about 28% of annual national economic output, are undercutting the impoverished Himalayan country’s ability to rebuild from earthquakes last year.  Weaker remittances are also making it tougher for India to provide jobs for the millions of youngsters that join the workforce each year.

    Analysis: China's record gasoline exports signal worsening domestic glut - Oil | Platts -- China's gasoline exports more than doubled on the year in June to surpass 1 million mt for the first time ever, highlighting growing oversupply due to faltering domestic demand, a trend that is likely to continue in coming months. Chinese gasoline exports in June also rose 46% from May to 1.1 million mt, or 312,000 b/d, the latest data from the General Administration of Customs showed.With the refining sector producing 11 million mt of gasoline in June, it meant that 10% of domestic output was exported, the highest proportion since April 2010, according to S&P Global Platts calculations based on data from the National Bureau of Statistics. Gasoline output has been rising steadily as Chinese producers have altered their production slate, moving away from gasoil, demand growth and output of which have fallen on sluggish economic growth. Refiners lifted gasoline yields to 28.3% in June, from 26.9% a year earlier, with a year-on-year output growth of 8.9%, Platts calculations show. Market participants said domestic gasoline supply was more than just the output from refiners if blended gasoline is also taken into account. Imports of mixed aromatics, a gasoline blending feedstock, remained unusually high at 1.17 million mt in June, more than double year on year, but down from 1.21 million mt in May, customs data showed. Almost all of China's mixed aromatics imports go into the gasoline blending pool.

    Analysis: After a long slide, China's oil demand shows signs of steadying - After a long period of dwindling demand, China's oil consumption showed first signs of stabilizing in June as a rebound in industrial activity helped the country's appetite for fuels such as gasoil recover from previous month's multi-year lows. Total apparent oil demand in the world's second-largest oil consumer averaged 11.32 million b/d in June, up 4% from May and more or less flat with June 2015 levels, down just 0.1%. China's apparent oil demand has been going downhill since December, with the year-on-year fall widening to 2.7% in May, according to Platts calculations based on official data. Over the first six months of the year, cumulative apparent oil demand edged down 0.6% to 11.15 million b/d, but was higher than the average of 11.10 million b/d for the first five months. Platts China Oil Analytics expects the country's oil demand to grow under 1% year on year in 2016. China's GDP in January-June grew 6.7%, which was higher than the expected growth of 6.6%. "The country's economy stabilized in Q2, which was evident when GDP beat market's expectations, and almost all other data points were ahead of estimates as well," a report from Jefferies Equities dated July 17 said. In June, China's real economic activity growth recovered from May, with value-added industrial production growing at 6.2% year on year, which was higher than the growth rates of around 6% in May and in April. Fixed asset investment growth picked up to 9.8% in the year to date, from 9.6% a month earlier. Growth in fixed asset investment and industrial output is related to energy consumption.

    What «Drill, Baby, Drill» Means in the South China Sea - I have examined before how the South China Sea’s history is now colliding with imperatives derived from the Westphalian system, and how the US’s «pivot to Asia» is accelerating conflict. I have also examined how the US Navy’s obsession with «access» actually tramples which sovereign nation is entitled to profit from the surrounding waters of a bunch of islands or «rocks».  And then, there’s that inescapable logic that envelops all energy wars: «It’s the oil, stupid».  The current territorial dispute centered between China and the Philippines – much more than between China and ASEAN – and revolving around what is prescribed by the UN Convention on the Law of the Sea (UNCLOS), will be ultimately solved by a straightforward decision. Manila will have to decide between following The Hague’s ruling to the letter; or to back down, de facto, on sovereignty to the benefit of making gains, sooner rather than later, on energy security – and in partnership with the Chinese. Filipino President Duterte has already given signs that he will opt for pragmatism.  CNOOC and other Chinese oil majors are going no holds barred to exploit oil and gas in the South China Sea. But there’s a huge catch. The absolute majority of geoscientists – for instance, Singapore-based members of the Southeast Asia Petroleum Exploration Society (SEAPEX) – agree that most of the energy resources are actually outside of China’s «nine-dash line», thus nowhere near those disputed rocks, reefs, and «low tide-elevations».  Only a few places in the Spratly islands would qualify as a good deal. Essentially, in the deep, deep water – much deeper, at 6,000 meters, than the «Dragon Hole» – what exists is oceanic crust; no source rock for oil and gas; and worse, no reservoirs in which oil and gas could accumulate.  The US Energy Information Administration estimated three years ago that the South China Sea contains only 11 billion barrels of oil and 190 trillion cubic feet of gas as «commercially viable» reserves.  As a comparison, that would be similar to all the oil that exits in Mexico.  And this applies to the whole South China Sea – including areas that undisputedly belong to some of the littoral nations’ Exclusive Economic Zones (EEZs).  For the Philippines – or even Vietnam – that could be a game-changer. But not for China. Even if all that energy would be shipped in bulk to China in the near future, it would be good enough for only a few years of consumption.

    Chinese Currency Strengthens Most Since 2010 As Services PMI Hits 2016 Highs, Manufacturing At 5-Month Lows) -- In a miracle of modern goal-seeking, China's Manufacturing PMI clung to within an inch of 'stable' 50 level for the 20th month (actually missing expectations of 50.0, printing 49.9) But while manufacturing is its lowest since Feb, the non-manufacturing PMI jumped to 53.9 - its highest since Dec 15. Following the notable USD weakness on Friday (thanks to BoJ disappointment), and the apparent recovery of the Chinese economy (just need another trillion or two of credit to keep the dream alive), PBOC strengthened the Yuan fix by 0.35% - the most since mid-June... extending the 9-day gain to the most since Sept 2010. Manufacturing slipped to a 5-month low... Evercore ISI notes the following a China's most crucial recent developments... 

    • “Severe challenges” in the China economy says Beijing, worse than “persistent downward pressure” – their characterization of the last several months. 
    • Two components to this change.  One, managing expectations down. Two, showing the upcoming G20 (Sep 4-5) attendees that the officials are on the case. 
    • Conflicting Beijing comments.  Saying ‘foundation of stable economic development not solid’ – bad.   Then saying the ‘long-term positive trend in fundamentals has not changed’ – good.   
    • China budget deficit now 4.2% of GDP, vs. 2.2% in worst of 2008-09 global crisis amid a big stimulus program.  More stimulus coming.   
    • CBRC (banking authority) tightening regulations to contain growing risks from sketchy practices in the ‘Wealth Mgmt Products’ arena.  NPL fears also.   
    • Media control even tighter by Beijing.  All original ‘current affairs news’ is now banned by internet portals.  Managing what people see – not the path of modern market economies.    
    • Yuan strengthened this last week, mostly on Friday.  Think of this as more USD weakness than Yuan strength.

    Recession Hits China — Along With 10% Growth -- The long-feared Chinese hard landing has become a reality in rustbelt Liaoning.  The northeastern province, ground zero in China’s multi-year slowdown, saw its economy contract 1 percent in the first half of 2016 as factories splutter and the coal industry groans under the weight of overcapacity. But the hardship remains localized, with regional data for the first six months showing economic growth in 15 of the nation’s 31 provinces perked up from the first quarter. And while the golden age of across-the-board double-digit growth is history, three provinces still maintained such rates, with inland Chongqing again topping the pack. Together, the provincial data add to a picture of stabilization as a recovering property market and fiscal support cushion the drag from stalling old growth engines. For policy makers, the sharpening divergence argues for tailored fiscal and monetary settings rather than nationwide stimulus that risks flooding outperformers with liquidity, brewing bubbles and over-investment.The People’s Bank of China has held its benchmark policy rates unchanged since October, instead channeling money via policy banks tasked with lending for specific, government sanctioned purposes. Meantime, the government -- often by stealth fiscal stimulus -- has poured cash into infrastructure projects to prop up employment in some areas.

    Further questions about Chinese GDP data -- China released its second quarter GDP and the numbers (like all Chinese data) once again provide more questions than answers. Despite agreeing to the International Monetary Fund Special Data Dissemination Standards, there remain large discrepancies between the headline data and the industrial level granular data. Detecting the problems requires digging deep beneath the surface. According to official Chinese data, output in the second quarter in the industrial sector grew 6 per cent in real terms and 2.9 per cent in nominal terms. Given the officially reported 2.6 per cent producer price deflation that appears to basically reconcile. However, if we do dig beneath the surface large discrepancies appear. For instance, industrial output appears to have grown much slower in real terms. A broad cross section of physical industrial output covering 69 types of output provides an average growth rate of 0.1 per cent and a median rate of 0.7 per cent. Nor is this the result of some abnormal distribution of industrial output growth rates. Only 30 per cent of measured output categories had growth rates above the industrial real GDP number of 6 per cent and 49 per cent of all recorded industries reported negative growth. It is very difficult to see how real industrial GDP growth is 6 per cent given that real physical output is essentially zero.

    In China, When in Debt, Dig Deeper - When the going gets tough in China, just get a bank. With profits headed south, heavily indebted Chinese heavy-machinery giant Sany Heavy Industries said this week it won approval to set up a bank in the Hunan province city of Changsha. With 3 billion yuan ($450 million) of registered capital, it will be a relatively large institution as Chinese city-based banks go. Sanyplans to join forces with a pharmaceutical company and an aluminum company. In recent months several city commercial banks in China have been taken over by the likes of tobacco and travel companies, recapitalized and renamed. Banking licenses are scarce in China, and rarely are new banks set up from scratch. Sany’s Sanxiang Bank will be up and running in six months. It will go up against crosstown rival Bank of Changsha, which at the end of last year had substantial 90 billion yuan book of off-balance-sheet loans, more than a quarter of them nonperforming. Sany had better ramp up quickly.

    China, Not Silicon Valley, Is Cutting Edge in Mobile Tech - — Snapchat and Kik, the messaging services, use bar codes that look like drunken checkerboards to connect people and share information with a snap of their smartphone cameras. Facebook is working on adding the ability to hail rides and make payments within its Messenger app. Facebook and Twitter have begun live-streaming video. All of these developments have something in common: The technology was first popularized in China. WeChat and Alipay, two Chinese apps, have long used the bar-codelike symbols — called QR codes — to let people pay for purchases and transfer money. Both let users hail a taxi or order a pizza without switching to another app. The video-streaming service has for years made online stars of young Chinese people posing, chatting and singing in front of video cameras at home. Silicon Valley has long been the world’s tech capital: It birthed social networking and iPhones and spread those tech products across the globe. The rap on China has been that it always followed in the Valley’s footsteps as government censorship abetted the rise of local versions of Google, YouTube and Twitter.But China’s tech industry — particularly its mobile businesses — has in some ways pulled ahead of the United States. Some Western tech companies, even the behemoths, are turning to Chinese firms for ideas.

    Where’s China dumping all of that steel now? -- Despite dozens of trade cases being in play, China’s steel exports continue to expand, crowding out other sources worldwide. Who wins? Those that deliver China’s steel raw materials. Effective switching: China’s steel exports expanded by 4.9Mtyoy (+9%) in 1H16, now annualizing at 115Mt (vs. 2015’s 112Mt), seemingly shrugging off a ballooning set of tradecases worldwide. Yes, China’s steel exports to Europe, Latin America and North America (home of most of thetradelitigators) have fallen in 2016 (by 3Mt in 1H16; -30% yoy). But alternative markets were quickly identified, mostly in Asia – Vietnam,Thailand and the Philippines – lifting exports to the region by 7.5Mt (+20% yoy). Poorly built barriers: Early 2016, the global steel trade hoped that the widespread prosecution of China’s steel exports could cap its growth, helping rebalance markets ex-China. However, our review of the cases in play revealed that only a small proportion of China’s exports was at risk. Why? Most cases were brought by countries that import only tiny volumes from China, and most cases only target very specific products – missing the bulk of the flow. Innocuous capacity cuts: Given the relative stability in China’s domestic finished steel demand (MS 2016e 679Mt, +1%yoy), it was widely expected that the central government-led industry reform program this year (>40Mtpa cut; down to 1,030Mtpa) would effectively deliver a cap (or cut) to exports. But despite 107Mt of capacity cuts since the start of 2015, exports remain a large portion of the industry’s total output (14% in 2015-16 vs. 11.5% in 2014), competing with steel producers worldwide. Who actually wins here? Seaborne-linked iron ore and met-coal traders certainly do. The emerging upside risk to our 2016 China steel production rate (790Mt) potentially alters our forecast demand and prices for steel’s raw materials. In March, we forecast 771Mt of crude steel production in 2016 for China, and a corresponding 60Mt surplus for the seaborne ore trade. Four months later, China’s 1H16 crude steel output’s annualizing at 802Mt ( 30Mt-‘delta’ requires 45-48M textra imported ore, halving our forecast trade surplus); China’s met coal imports are annualizing at 54Mt, +35% vs. our March 2016 outlook – such is the step-change in expectations for China’s 2016 steel production rate.

    Who Supports China in the South China Sea and Why | The Diplomat: The South China Sea arbitration case has elicited almost unanimous public opposition in China. Besides this, it has been reported that 66 countries worldwide have endorsed China’s position on the South China Sea. Yet that figure also caused controversy, especially in the United States. According to our team’s research, we have found at least 70 countries supporting China’s position on various occasions. We find that the reason for the controversy over the figure comes down to different definitions on “China’s position.” But no matter how it is defined, the psychology behind these statements is a desire to avoid taking sides between China and the United States, showing the reality of a fundamental global consensus on peace and wide-spread anxiety toward the potential for conflict in the South China Sea. Thus, we should take every opportunity to go beyond the “zero-sum game” in order to maintain peace in the South China Sea, to seek Asia-Pacific economic cooperation, and to make the “cake” bigger using economic and financial means.There is no doubt that Chinese almost unanimously support their government’s official position on the South China Sea, shown by the firestorm of social media comments soon after the award. Moreover, China’s position is also welcomed and understood by other countries. According to the Chinese government and media, nearly 100 parties from more than 60 countries declared their support for China’s position on the South China Sea issue. China Daily counted 66 countries, as shown in the map below.The figure, however, encountered doubts from American media and think tanks. The Asia Maritime Transparency Initiative argued that the real number was only ten. We personally also received emails expressing similar doubts.

      Asia Pivot? Singapore Warns US on TPP Non-Ratification The Trans-Pacific Partnership is in imminent danger of becoming a non-entity in a manner all too familiar to observers by now: The Yanks rope you into protracted and therefore expensive international negotiations held all around the world. After years and years of negotiations, a deal may even be inked. Then, when the time comes for signatories to these treaties or international trade deals to ratify them at home, the Americans are unable to deliver despite being those who thought up and championed them all along. After assiduously courting the likes of Japan and Malaysia to participate, the US-promoted TPP is in imminent danger of not being ratified by the US, LoN-style. Both US presidential front-runners express wariness about pushing for its ratification at home, leaving the lame duck Obama with ever fewer opportunities to work with his Republican counterparts before the window of opportunity closes and the new president assumes office. Because of the wall-to-wall coverage of the US presidential elections, something important happened over the last few days which the media did not report on which is nonetheless of great significance--especially to us Asians. Singaporean Prime Minister Lee Shien Loong--son of the late Lee Kuan Yew, of course--told Barack Obama in no uncertain words that US credibility was on the line over its ratification of TPP (which was an American creation to begin with):U.S. credibility is on the line over a Pacific trade pact that faces a tough approval process in Congress, Singapore’s Prime Minister said Monday, warning about risks to the U.S.’s reputation in Asia if the deal falls through. As well as being an “economic game-changer,” the U.S.-led Trans-Pacific Partnership, which does not include China, could “add substance to America’s engagement in the Asia Pacific” region, Lee Hsien Loong said in a speech in Washington D.C. The pact has been signed by the 12 member nations but is yet to be ratified by most of them. “For America’s friends and partners, ratifying the TPP is a litmus test of your credibility and seriousness of purpose,” Lee said. “Every one of the TPP signatories has had to make sacrifices in order to accept the TPP agreement, and jointly bring about this win-win outcome.”

    Japan Panics, "Grinds To A Halt" As Officials Issue Massive Earthquake False Alarm -With the government losing faith in the central bank's capabilities, it seems perhaps they should not be throwing stones from their glass house. In a shockingly unsurprising snafu on Monday, trains ground to a halt, a mobile network became jammed, and thousands of citizens began to panic as Japan’s meteorological agency sent an alarm that a massive earthquake was about to strike the capital Kanto Region, home to more than 40 million people... before admitting the false alarm: "it's an error on our part, we sincerely apologize." The warning was issued at 5:09pm local time on Monday, and as RT reports, quickly relayed to mobile apps that warned millions of Tokyo residents about an earthquake measuring 7 out of 7 on the scale used within the country – equivalent to 9.1 on the Richter scale, and as bad or worse than the Tohoku disaster of 2011. Bullet trains began to stop services, in accordance with regulations, and NTT Docomo, the country’s largest mobile provider, reported that for 15 minutes the network was overloaded and went down. But then – nothing happened. “The quake that had been predicted has not taken place. It’s an error on our part. We sincerely apologize,” said Japan’s Meteorological Agency.

    Is Bank of Japan signaling that it’s running out of ammo - Is Kuroda running out of options? The Bank of Japan on Friday disappointed investors by offering up a much smaller-than-expected round of additional stimulus while also announcing a review of its current policy measures, leading some observers to wonder whether policy makers fear they are running out of tools to stoke the Japanese economy. “The message the BOJ is sending is not so much ‘whatever it takes’ as ‘monetary policy’s pretty much played out,’” said Kit Juckes, global macro strategist at Société Générale, in a note. The Bank of Japan under Gov. Haruhiko Kuroda has been an aggressive buyers of bonds and equities. Its decision to implement negative rates earlier this year caught investors off-guard, but the move was seen backfiring as the Japanese yen failed to weaken. The market’s reaction to those earlier moves began to prompt concern that aggressive easing efforts by global central banks were losing their effectiveness or potentially becoming counterproductive. With that in mind, here’s what you need to know about where the BOJ stands right now.

     'Helicopter money' talk takes flight as Bank of Japan runs out of runway | The Japan Times: The Bank of Japan’s review of its monetary stimulus program promised for September has revived expectations it could adopt some form of “helicopter money,” printing money for government spending to spur inflation. The BOJ disappointed market hopes on Friday that it might increase its heavy buying of government debt or lower already negative interest rates, cementing the view that it is running out of options within its existing policy framework to lift prices and end two decades of deflationary pressure. With little to show for three years of massive monetary easing, economists say BOJ Gov. Haruhiko Kuroda’s “comprehensive assessment” of policy could push it into closer cooperation with Prime Minister Shinzo Abe, who announced a fiscal spending package worth more than ¥28 trillion ($275 billion) on Wednesday in a bid to kick-start growth. “The comprehensive review might be the first step toward further collaboration with the government, hinting at helicopter money,” said Daiju Aoki, economist at UBS Securities. “The government could issue 50-year bonds, and if the BOJ makes a commitment to hold them for a very long time, that would be like helicopter money.”

    Japan Announces More Stimulus Measures as Economy Struggles - In the three and a half years since he won the Japanese prime minister’s office on a pledge to rekindle economic growth, Shinzo Abe has tried many tactics to coax the economy into expanding.He persuaded the central bank to flood the country with cheap money. He sanctioned a sharp fall in the value of the yen, a boon for big exporters like Toyota and Panasonic. And he increased government spending, pouring cash into areas as varied as day care and defense.The result has been well short of the renaissance Mr. Abe promised. Now his government is embarking on what may be its biggest spending program yet.On Tuesday, the government detailed a package of financial measures that it said was worth 28 trillion yen, or $274 billion, equal to more than 5 percent of Japan’s gross domestic product. Economists immediately began debating its impact, with many arguing that the jolt it would give to growth would be much smaller than the headline number suggests.Mr. Abe is trying to accelerate an economy that, since he took office at the end of 2012, has created millions of new jobs but little wage growth. Economic output has flip-flopped between expansion and contraction, and deflation — a corrosive decline in consumer prices — remains stubbornly entrenched. “We’ve put together a bold stimulus proposal that is an investment in the future,” Mr. Abe said on Tuesday. It will allocate money to social programs and infrastructure, including the construction of a high-speed train that will use magnetic levitation, or maglev, technology to float above its tracks.The stimulus program represents a redoubling of Mr. Abe’s effort to promote growth and crush deflation, which has dogged Japan since the 1990s.

    Abe’s Fiscal Plan Follows a Long Road of Packages That Failed - Prime Minister Shinzo Abe’s "bold" plan to revive the economy with a $273 billion package leaves him traveling down a well-trod path: it marks the 26th dose of fiscal stimulus since the country’s epic markets crash in 1990, in a warning for its effectiveness. The nation has had extra budgets every year since at least 1993, and even with that extra spending, it has still had six recessions, an entrenched period of deflation, soaring debt and a rapidly aging population that has left the world’s third-largest economy still struggling to get off the floor.While some analysts say the latest round of spending may buy the economy time, few are convinced it will be enough to dramatically change the course. First off, much of the 28 trillion yen announced by Abe last week won’t be spending, but lending. And if previous episodes are any guide, an initial sugar hit to markets and growth will quickly fade amid a realization that extra spending does little to cure the economy’s underlying problems. A Goldman Sachs Inc. study found that markets gave up their gains in the first month after the cabinet approved the stimulus in 18 of the 25 packages it studied since 1990. Skeptics of Abe’s latest plan aren’t hard to find. Instead of adding to a debt pile already more than twice the economy’s size, more should be done to tackle thorny structural problems such as a declining labor force and protected industries, according to Naoyuki Shinohara, a former Japanese finance ministry official. "Looking at the history of the Japanese economy, there have been lots of fiscal stimulus packages," according to Shinohara, who was a top official at the International Monetary Fund until last year. "But the end result is that it didn’t have much impact on the potential growth rate."

    IMF urges Japan to coordinate fiscal stimulus with further BOJ easing | Reuters: The International Monetary Fund said Tuesday Japan should coordinate fiscal stimulus with further central bank easing measures that could include rate cuts and more asset purchases. The Fund's annual report on Japan's economy came as the country's government announced a new fiscal stimulus package of $13.5 trillion yen (about $132 billion) and the central bank announced a comprehensive review of monetary policy, keeping alive expectations for "helicopter money" - printing money for government debt. The IMF's Japan team leader, Luc Everaert, told a news conference in Washington the new stimulus package would "slightly improve" Japan's economic outlook, but it was too soon to assess its full impact. He said that stimulus needed to be part of a full suite of policy actions, including monetary easing, efforts to boost wages and remove structural barriers to full-time work to combat a shrinking labor force, including improved child care benefits. Japan needs to show it will regain fiscal discipline with gradual increases in the consumption tax and an explicit cap on social security spending, he said. "If these policies are not completely implemented, there will be less growth, and there will be less inflation and that means there will be less policy space in the future," Everaert said.

    Here's Goldman's List of Everything Else the Bank of Japan Can Buy - Bloomberg: What will the Bank of Japan do when there are no more Japanese government bonds to buy? That's the question thrust into the spotlight this week as JGB prices take their steepest tumble in more than three years, with the yield on the benchmark 10-year issue now a few basis points away from positive territory. While the technical limits of the BOJ's massive government bond-buying program, known as quantitative and qualitative monetary easing (QQE), have been the subject of much discussion, they are underscored in a new note from Goldman Sachs Group Inc. At issue is the ability of the central bank to pry longer-dated JGBs out of the hands of reluctant sellers, including private pension funds and insurers who require such debt to match their longer-dated liabilities. Market participants have previously speculated that the BOJ's dip into negative interest rate policy (Nirp) was one sign of the central bank coming to terms with the limits of sovereign debt purchases, and last week's call for a "comprehensive assessment" of its monetary policy  has only served to rekindle that narrative. "The sell-off in JGB yields since is a reflection of the market's assessment that the central bank may reconsider its policy mix away from further rate cuts and an expansion in JGB purchases," writes Goldman's Rohan Khanna. "The BOJ's Nirp foray in January led many market observers to question if the shift away from expanding asset purchases signalled that the central bank was constrained by how 'big' it could go on its accumulation of JGBs."

    Rout Sends Every Japanese Company Bond Sold in July Under Water - Bloomberg: Prices for every Japanese corporate bond sold in July dropped below face value as a selloff in domestic government debt rippled through global fixed-income markets. All 63 bonds sold in yen by Japanese companies in July saw their prices fall below par as government notes on Tuesday tumbled by the most in more than three years, data compiled by Bloomberg show. Firms sold more than 2 trillion yen ($19.8 billion) of bonds in July, the most since June 2009, the data show. The rout comes after the Bank of Japan last week opted not to increase its bond buying program or drive interest rates even further below zero, while spending measures announced by the government this week have proven underwhelming for investors. Some Japanese firms have been selling bonds with near-zero yields since the adoption of negative rates by the central bank in January, and investors are now having second thoughts about such debt as sovereign yields rise. While the average yield premium that corporate notes offer over government bonds has shrunk to 39 basis points from 45 last Wednesday, the overall yield on company debentures has spiked to 0.25 percent from 0.10 percent as the collapse in underlying benchmark prices drags down overall prices of credit securities, Bank of America Merrill Lynch Index data show. Movements in government and corporate bond prices were almost perfectly correlated on Tuesday, the data showed.

    Why India Beat China to Homegrown Smartphone OS  -- There's an article in Bloomberg that portrays the success of India's homegrown smartphone operating system Indus OS to harnessing market forces instead of heavy-handed government intervention. To be sure, there are advantages to having one's own operating system instead of relying on off-the-shelf offerings from Apple (iOS) or Alphabet (Android). Aside from being to develop software meeting one's needs and desires, the royalties emanating from software and app sales accrue more to a nation's firms instead of the American tech giants.  Whereas India's Indus OS has overtaken iOS to rank second only to Android through market-friendly adaptations, the Chinese equivalents--there have been many--have been hamstrung by government nannyism and anti-market moves:   For more than 15 years, Chinahas unsuccessfully attempted to come up with a homegrown operating system that would be loved by the masses and allow the country to be freed from the shackles of Western technological imperialism. India has achieved that feat in less than two years. Indus OS is now India's second-most popular smartphone platform with a 6.3 percent market share, behind Alphabet's [formerly Google's] Android. The multilingual system, one of many based on Android itself, reached No. 2 at the end of 2015 and maintained that position in the first two quarters, according to data released this week by Counterpoint Research. It leads iOS and other Android variants including Xiaomi's MIUI and Cyanogen.    With at least 12 major Indian languages supported, Indus OS has tapped into what the market needs, not what a government wants. That's powerful because it means the software is developing and pivoting according to demand. For example, it offers simplified predictive typing and translation between regional languages.

    Modi government let loony nationalists sabotage Snapdeal because of Aamir Khan, reveals Manohar Parrikar — Quartz: A senior member of prime minister Narendra Modi’s cabinet has hinted that last year’s online tirade against e-commerce giant Snapdeal wasn’t some spontaneous show of outrage. Instead, it may have been a concerted campaign that began soon after Aamir Khan’s revelation last November about his wife’s fears over growing intolerance in India. In an already acrimonious environment—weeks after writers, poets, filmmakers, and scientists began returning awards in protest of growing bigotry under the Narendra Modi government—the Bollywood actor swiftly came under attack for his alleged lack of patriotism. Some Modi supporters were so infuriated that they went for the jugular: Khan’s commercial interests. That is how Snapdeal, one of India’s largest e-commerce companies, which then had Khan endorsing it (the contract wasn’t extended), got caught in the crossfire. Within hours, the startup’s ratings on Google Play Store took a dive; around 85,000 users reportedly uninstalled its mobile app. Snapdeal did come up with some damage control PR exercise, but the right-wing “nationalists” had already done their bit. Now, it appears that the entire shenanigan was orchestrated to hurt Snapdeal and, in turn, Khan—with perhaps even the tacit consent of the Modi government.

    India Provides Emergency Food To 10,000 Workers Laid Off And Starving In Saudi Arabia – Eurasia Review: India was providing emergency food rations to an estimated 10,000 of its workers in Saudi Arabia who faced severe food shortages after losing their jobs, officials said Sunday. India’s consulate in the city of Jeddah said its officials worked overnight to distribute food to the laid-off Indians who live in five worker complexes or camps in and around the city. More than 16,000 kilograms of food and other items including eggs, spices and salt were distributed. Indian Foreign Minister Sushma Swaraj intervened in the humanitarian crisis on Saturday evening after a distressed man at a camp in Jeddah sent a direct appeal for help. She said a total of 10,000 Indian workers were facing a food crisis in Saudi Arabia and ordered Indian missions to provide immediate help. Swaraj said a large number of Indians had lost their jobs in Saudi Arabia and Kuwait and that their employers had not paid wages or closed down their factories. As a result, Indians were facing extreme hardships, Swaraj said adding that while the situation in Kuwait is “manageable,” matters are much “worse” in Saudi Arabia. She asked junior foreign ministers VK Singh and MJ Akbar to travel to the region to take up the matter with local authorities. She also appealed to the roughly 3 million Indians in the nation to help their “fellow brothers and sisters.”

    Nigeria Plans to Spend Itself Out of a Slump - Bloomberg: The government is planning 1.75 trillion naira ($5.6 billion) in capital spending for the year, more than four times the amount spent in 2015, according to information from the budget office. The state has spent 248 billion naira so far, the Presidency said on Aug. 1. Nigeria intends to borrow abroad to help plug its 2.2 trillion naira budget gap and make more funds available for capital investments, Finance Minister Kemi Adeosun told lawmakers last month. “It’s up to fiscal policy to soften the downturn,” Yvonne Mhango, a Johannesburg-based economist at Renaissance Capital Ltd., said in an e-mailed response to questions. The Monetary Policy Committee “suggested that there was not much it could do to avert a recession.” Africa’s largest economy will probably contract for the first time since 1991 this year as oil output slumped amid militant attacks on pipelines and foreign-exchange restrictions led to shortages of imported goods, including fuel. The central bank lacks the instruments needed to directly jump-start growth and the government should fast-track the implementation of the 2016 budget to stimulate the economy, Governor Godwin Emefiele said when he announced on July 26 the monetary policy rate will be increased to the highest in at least nine years. The MPC raised its key rate by 200 basis points to 14 percent to curb inflation that accelerated to 16.5 percent in June, the highest since October 2005, and prop up the naira. The local currency lost over a third its value since the central bank removed a peg of 197-199 per dollar after more than a year. It strengthened 0.21 percent to trade at 316.10 against the dollar by 3.29 p.m. in Lagos The economy shrank by 0.4 percent in the first quarter and may contract 1.8 percent this year, according to the International Monetary Fund.

    Venezuela's new decree: Forced farm work for citizens - Jul. 29, 2016: A new decree by Venezuela's government could make its citizens work on farms to tackle the country's severe food shortages. That "effectively amounts to forced labor," according to Amnesty International, which derided the decree as "unlawful." In a vaguely-worded decree, Venezuelan officials indicated that public and private sector employees could be forced to work in the country's fields for at least 60-day periods, which may be extended "if circumstances merit." "Trying to tackle Venezuela's severe food shortages by forcing people to work the fields is like trying to fix a broken leg with a band aid," Erika Guevara Rosas, Americas' Director at Amnesty International, said in a statement. President Nicolas Maduro is using his executive powers to declare a state of economic emergency. By using a decree, he can legally circumvent Venezuela's opposition-led National Assembly -- the Congress -- which is staunchly against all of Maduro's actions. According to the decree from July 22, workers would still be paid their normal salary by the government and they can't be fired from their actual job.  It is a potent sign of tough conditions in Venezuela, which is grappling with the lack of basic food items like milk, eggs and bread. People wait hours in lines outsides supermarkets to buy groceries and often only see empty shelves. With oil prices down to about $41 a barrel from over $100 about two years ago, Venezuela has quickly run out of cash and can't pay for its imports of food, toilet paper and other necessities. Neglected farms are now being asked to pick up the slack.

     Venezuelan Credit Dashboard: $726 Million Comes Due in August - Bloomberg: Venezuela, which has the largest crude reserves on the planet, has defied predictions of default since the oil collapse started in 2014 and analysts are split as to how long the nation of 30 million can hold out. With that in mind, Bloomberg is taking a close look each month at some of the key components that may determine its fate. The government and state oil company Petroleos de Venezuela SA need to pay $726 million this month after lighter payments in June and July, according to data compiled by Bloomberg. Attention will now start to shift toward the last quarter of the year, when interest payments totaling almost $5 billion come due. Whether or not Venezuela can avoid a default may depend on if the government and PDVSA officials can strike a deal to refinance debt coming due over the next year. Rumors are swirling, and investors have been paying close attention. A deal won’t come cheap, though, as PDVSA would need to offer bondholders securities that boost the net present value of their investment.Venezuela’s dollar bonds nearing maturity rallied on speculation of an imminent debt swap, with PDVSA’s bonds due in November 2017 rising 11.3 percent in July to 77.6 cents on the dollar and a yield of 31.5 percent. Longer-dated bonds were more stable last month. The government’s benchmark notes due 2027 ended the month trading at 48.17 cents on the dollar and yielding 21.8 percent.

    Canada sheds 31,200 jobs in July, unemployment rate rises to 6.9% - Business - CBC News: The loonie tumbled Friday, losing more than eight-tenths of a cent against the U.S. dollar, in the wake of a weaker-than-expected Canadian employment report The economy lost 31,200 jobs in July as the number of workers with full-time jobs fell dramatically and fewer younger people were employed, Statistics Canada reported today. Analysts had expected Canada's economy would create about 10,000 jobs last month. The unemployment rate ticked up to 6.9 per cent, up from 6.8 per cent in June, an increase in line with economists' forecasts. The Canadian dollar fell 0.83 cents US to close at 75.96 cents US — as the U.S. economy generated a better-than-expected 255,000 jobs last month, leading to speculation that the Federal Reserve may resume raising U.S. interest rates later this year.  Statistics Canada said the number of full-time workers fell by 71,400 — the biggest one-month decline since October 2011. The loss in full-time jobs was partially offset by an increase of 40,200 part-time jobs, the federal agency said. Younger Canadians also had a tough time finding work, as there were 28,000 fewer jobs for the age 15 to 24 group.Public-sector employment fell by 42,000 in July, while private-sector employment rose slightly.

    Russia debates Turkey - On the night of June 15th-16th, Turkey faced an attempted coup d’etat. According to the country’s authorities, the military men who organized the rebellion were tied to the network of Fethullah Gülen, who has lived in the United States since the late 1990’s and has close links to the CIA. After the coup was suppressed, more than 100 generals and admirals were arrested. The main organizer of the rebellion was found to be Akin Öztürk, former commander of the country’s Air Force. The Air Force, which is most closely of all integrated into NATO structures and has long since been a stronghold of Gülen’s supporters, played a leading role in the coup. Turkish authorities suspect foreign powers of supporting the coup and have hinted at the United States.  It would seem that everything is very clear. However, at the time of the coup in Turkey and afterwards, Russian media was filled with waves of disinformation. Information on the organizers of the coup, its character, and the forces behind it was purposefully distorted. Such a mass and coordinated action allows us to speak of an aggressive strategy aiming to prevent rapprochement between Russia and Turkey rather than a mere epidemic of incompetence affecting Russian experts. In brief, this strategy of disinformation spread the following theses:

    • ·    The coup was organized by Kemalists dissatisfied with Islamist tendencies in Erdogan’s policies (varying between anti-national policies in Syria and in relations with Russia). But, in fact,the coup took place at the moment of rapprochement with patriotic Kemalists and the rejection of neo-Ottomanism.
    • ·         Kemalists are Atlanticists and supporters of the US. In fact, most of today’s Turkish Kemalists are by and large supporters of Turkish national sovereignty threatened by the United States.
    • ·         The coup was revenge by the military for past repression. In fact, the coup was organized by those people who did everything to offset the Eurasian-oriented Kemalists over the “Ergenekon” process and similar trials, when Erdogan, then in alliance with Gulen, replaced the Kemalists in high command posts with his own loyal people.
    • ·         There was no coup. Erdogan plotted the whole operation. This is the official version of Gulen supporters as announced by their leader and spread by Western media.

     Erdogan says to close military schools, rein in armed forces | Reuters: Turkey will shut down its military academies and put the armed forces under the command of the defense minister, President Tayyip Erdogan said on Saturday in a move designed to bring the military under tighter government control after a failed coup. The changes, some of which Erdogan said would likely be announced in the government's official gazette by Sunday, come after more than 1,700 military personnel were dishonorably discharged this week for their role in the abortive July 15-16 putsch. Erdogan, who narrowly escaped capture and possible death on the night of the coup, told Reuters in an interview last week that the military, NATO's second-biggest, needed "fresh blood". The dishonorable discharges included around 40 percent of Turkey's admirals and generals. Turkey accuses U.S.-based Islamic cleric Fethullah Gulen of orchestrating the putsch, in which a faction of the military commandeered tanks, helicopters and fighter jets and attempted to topple the government. Erdogan has said 237 people were killed and more than 2,100 wounded. Gulen, who has lived in self-imposed exile in the United States for years, denies the charge and has condemned the coup. So far, more than 60,000 people in the military, judiciary, civil service and schools have been either detained, removed or suspended over suspected links with Gulen. Turkey's Western allies condemned the attempted putsch, but have been rattled by the scale of the resulting crackdown. "Our armed forces will be much stronger with the latest decree we are preparing. Our force commanders will report to the defense minister," Erdogan said in an interview on Saturday with A Haber, a private broadcaster. "Military schools will be shut down... We will establish a national defense university."

    Erdogan’s purge was too big and too organised to be a mere reaction to the failed coup: No one in Istanbul, or elsewhere in Turkey, can draw comfort from what is happening now. Erdogan’s opponents wonder what kind of future they can have in his Turkey. I think I sensed it, too, in the triumphalist crowds of Erdogan supporters that have been gathering day after day since the coup was defeated. Erdogan’s opponents are not downcast because the coup failed; a big reason why it did was that it had no public support. Turks know way too much about the authoritarian ways of military rule to want it back. The melancholy is because Erdogan is using the coup to entrench himself even more deeply in power. The purge looks too far-reaching, too organised and too big to have been a quick reaction to the attempt on his power. Instead it seems to be a plan that was waiting to be used.The coup did not come out of a clear sky. Turkey was in deep crisis before the attempt was made. Part of the problem has come from Erdogan’s divisive policies. He has led the AKP to successive election victories since it first won in 2002. But the policies of his governments have not been inclusive. As long as his supporters are happy, the president seems unconcerned about the resentment and opposition he is generating on the other side of politics. Perhaps that was inevitable. His mission, as a political Islamist, was to change the country, to end the power of secular elites, including the army, which had been dominant since Mustafa Kemal Atatürk created modern Turkey after the collapse of the Ottoman empire. And there is also the influence of chaos and war in the Middle East. Turkey has borders with Iraq and Syria, and is deeply involved in their wars. The borders do not stop the contagion of violence. Hundreds of people have died in the past year in bomb attacks in Turkish cities, some carried out by the jihadists of so-called Islamic State, and some sent by Kurdish separatists working under the PKK.

    Turkish government has taken over military factories, shipyards, PM says | Reuters: Turkey has taken over factories and shipyards that had been under control of the military general staff as part of a wide-ranging shake-up of the armed forces following last month's abortive coup, Prime Minister Binali Yildirim said on Tuesday. Yildirim, who was speaking to members of his ruling AK Party in parliament, also said the restructuring of Turkey's armed forces would not weaken the military, but put its focus on activities essential for national security. 

    Turkey Surrounds, Blocks Access To NATO's Incirlik Airbase Amid Speculation Of Second Coup -- While it is common knowledge by now that the failed and/or staged Turkish coup two weekends ago was nothing more than an excuse for Erdogan to concentrate even more power and eradicate all political and independent opposition, a story that has gotten less attention is the sudden, and acute deterioration in US-Turkish relations. This culminated two days ago when the Commander of US Central Command (CENTCOM) General Joseph Votel was forced to deny on the record having anything to do with the attempted coup in Turkey following pointed allegations from the very top in the local government that the US orchestrated last Friday's "coup", according to a statement released by the US military on Friday. As Stars and Stripes reported late last week, the recent failed coup and jailing of military leaders in Turkey could impact U.S. operations there against the Islamic State group, Gen. Joseph Votel said Thursday at a security conference in Colorado. Votel said the coup attempt in Turkey two weeks ago left him “concerned” about how U.S. operations and personnel at Incirlik Air Base will be affected. "Turkey of course …sits on an extraordinarily important seam between the central region and Europe,” Votel said at the Aspen Security Forum. “It will have an impact on the operations we do along that very important seam. Obviously, we are very dependent on Turkey for basing of our resources…I am concerned it will impact the level of cooperation and collaboration that we have with Turkey.”

    Turkey files complaint accusing US army chief Gen. Dunford of plotting attempted coup -- Lawyer Mert Eryılmaz from İstanbul Bar Association has filed a criminal complaint against the United States (US) Joint Chiefs of Staff General Joseph Dunford, accusing him of plotting the recent failed coup attempt in Turkey. The criminal complaint was also filed against Director of US National Intelligence James Clapper and the US Army General Joseph Votel on charges that include “violation of Turkish Constitution” and “making propaganda of a terrorist organization.” Eryılmaz filed the complaint accusing US military officials of participating in the July 15 failed coup attempt at the Bakırköy Chief Public Prosecutor’s Office. The lawyer claimed that Turkey’s İncirlik Air Base in Adana, which is primarily used by the Turkish Air Force as well as the US Air Force, was the place where July 15 “imperialist invasion” was orchestrated. Stating that there are “more evidence than he could list” that shows the failed coup attempt was plotted at the İncirlik Air Base, Eryılmaz added that Fetullahist Terrorist Organization [FETÖ] members collaborated with high ranking US military officials for the plot. “It is unthinkable that US armed forces act independently from both the US army chief and the CIA [Central Intelligence Agency]. Therefore, the US Joint Chiefs of Staff General [Joseph Dunford] is directly responsible for the heinous invasion, the attempted coup,” Eryılmaz said in the complaint.

    Turkey Issues a Warrant for Fethullah Gulen, Cleric Accused in Coup - — Turkey issued an arrest warrant on Thursday for Fethullah Gulen, a Muslim cleric based in the United States, who was accused last month of orchestrating a failed coup against the government of President Recep Tayyip Erdogan. The warrant issued by an Istanbul court said Mr. Gulen, who has lived in self-imposed exile in Pennsylvania since 1999, ordered the July 15 coup attempt that resulted in the deaths of more than 250 people, the state-run Anadolu news agency reported.  The order for Mr. Gulen’s arrest is a step toward a formal extradition request to the United States, which Turkish officials say will be submitted after an investigation into the botched coup. Ankara has already sent evidence to the White House that alleges Mr. Gulen plotted the coup. Mr. Gulen has denied those charges. Mr. Erdogan has been calling for the extradition since 2013, when he accused Mr. Gulen’s followers, who held positions in the judiciary, of orchestrating a corruption inquiry that implicated Mr. Erdogan’s inner circle.

     Is the U.S. behind Fethullah Gulen? -- Dani Rodrik  - My conclusion in brief: I don’t think Gulen is a tool of the U.S. or has received support from the U.S. for its clandestine operations. But it is possible that some elements within the U.S. national security apparatus think Gulen furthers their agenda, is worth protecting on U.S. soil, and have so far prevailed on other voices in the establishment with different views. Regardless, the U.S. needs to seriously reconsider its attitude towards Gulen and his movement. Those who believe the U.S. is behind Gulen typically make two arguments. First, they point to how Gulen got his green card in the first place. The long list of individuals who wrote letters of recommendations on Gulen’s behalf includes two long-time CIA employees (George Fidas and Graham Fuller) and a former U.S. ambassador to Turkey (Morton Abramowitz). These individuals write in their individual capacities and their advocacy was based both on Gulen’s persecution by the then-secularist Turkish judiciary and on Gulen’s apparent promotion of a moderate brand of Islam. On the latter question, at least, it is fair to assume that these recommenders had only limited knowledge of Gulen’s full corpus, which includes some fairly incendiary stuff against Jews, Christians, the United States, and Western Europe. (Some years ago I showed one of the letter writers a particularly anti-semitic sermons and asked him if he was aware of it; he said he had no idea.) However, the more important point about his green card -– and one that is overlooked in Turkey -- is that the U.S. administration was in fact opposed to giving Gulen a green card. It rejected Gulen’s application, and then strenuously objected when Gulen’s lawyers appealed. Lawyers for the Department of Homeland Security were scathing about Gulen’s qualifications and argued there was no evidence he was an individual of exceptional ability in the field of education: “far from being an academic, plaintiff seeks to cloak himself with academic status by commissioning academics to write about him and paying for conferences at which his work is studied.”

    Germany Furious After Turkey Issues Ultimatum, Threatens With Refugee Exodus -- Ever since a shocked Europe rushed to sign a "refugee" deal with Turkey's Erdogan in March of this year, according to which it would pay the Turkish ruler €6 billion and offered Turks visa-free travel across the customs union just to contain the 2 million Syrian refugees inside its borders and prevent another mass migration exodus toward Germany, Erdogan knew he has the upper hand in all future negotiations with Europe. This was confirmed yesterday when Turkey announced it would not fulfill its part of the refugee deal with the EU if the bloc does not lift its visa requirements for Turkish citizens by October, Turkey’s foreign minister, Mevlut Cavusoglu, told a German daily.  Turkey’s fulfillment of its commitments under the refugee deal with the EU “depends on the lifting of visa requirements for our citizens that is also a subject of the agreement,”Cavusoglu said during an exclusive interview with Frankfurter Allgemeine Zeitung. The minister also stressed that the Turkish government is waiting for a “specific deadline” to be set for the lifting of visa requirements. “It can be early or mid-October but we wait for an exact date,” he said.  Diplomatically, Cavusoglu emphasized that his words are “not a threat,” but added that “if there is no visa abolition, we will be forced to abandon the agreement struck on March 18 concerning taking back [refugees].”

     Angela Merkel Takes Soft Approach on Erdogan After Coup - SPIEGEL- The chancellor prefers her usual role, as the one calling for calm and levelheadedness. After a phone conversation with Turkish President Recep Tayyip Erdogan, Angela Merkel said there had been "worrisome developments" in Turkey in the wake of the military coup and that the opposition had been treated harshly. But, she said, it was understandable that the government take action against the rebels and mentioned that Turkey had "been exemplary in its treatment of refugees." She argued that the priority should be "to keep the discussion going." As usual, Merkel adopted a let's wait and see approach. The problem is that the chancellor's words didn't find much of an audience. Hardly had they appeared on the news ticker, did German and Turkish politicians set off an angry spiral of insults, threats and accusations. It almost seemed like coup supporters and opponents were now marching in protest in Ankara, Berlin and Brussels. Erdogan's foreign minister, Mevlut Cavusoglu, said the refugee agreement between Turkey and the European Union would be abandoned if Brussels didn't ease travel rules for Turkish people before October. In Germany, many politicians were also on a confrontation course.  Amid the bluster of ultimatums and counterultimatums, people overlooked the fact that the more levelheaded forces in Ankara and in the capitals of the EU were singing a very different tune. There may be no reason to fulfill Erdogan's wishes for the extradition of supposed coup supporters or to excuse his brutal measures against members of the opposition. And there are good arguments for admonishing Erdogan to return to the rule of law.

     European Prisons Fueling Spread of Islamic Radicalism - WSJ: — Paris terror suspect Salah Abdeslam was transferred to a prison cell in France where prison staff had spent three weeks renovating the space, bolting down furniture and installing video cameras to make sure the 26-year-old’s solitary confinement went smoothly. Still, the measures did little to calm the ruckus that erupted in the cell blocks as dusk fell and word spread about the prison’s newest inmate, the last surviving suspect in the Nov. 13 attacks. “Some welcomed him as the messiah,”   The rise of Islamic State has caught Europe’s prison systems flat-footed. Convicted terrorists, some of whom serve prison terms as brief as two years, sit atop the social pecking order in facilities like Fleury-Mérogis. Many use jail time to forge ties with petty criminals from the predominantly Muslim suburbs that ring European cities, authorities say, grooming them for jihad missions in Iraq, Afghanistan and Syria—or attacks at home. Now the return over the past year of an unprecedented number of jihadists from Islamic State territory is placing European prisons in an even bigger bind. To keep militants off the streets, authorities are throwing many of them in jail, but that is injecting battle-hardened radicals into overcrowded prisons. Researchers estimate that 50% to 60% of the roughly 67,000 inmates in the French prison system are Muslims, who represent just 7.5% of the general population. Prison officials are also faced with a difficult choice between absorbing hardened militants into the general prison population, where they might radicalize others, or to concentrate them in special wards where they may be better able to hatch plots. “We’re sitting on a time bomb,” says Adeline Hazan, who heads a state agency tasked with auditing French prisons.

    Donald Trump says Vladimir Putin is 'not going to go into Ukraine,' despite Crimea - Donald Trump said Sunday that Russian President Vladimir Putin won't make a military move into Ukraine -- even though Putin already has done just that, seizing the country's Crimean Peninsula. "He's not going into Ukraine, OK, just so you understand. He's not going to go into Ukraine, all right? You can mark it down. You can put it down. You can take it anywhere you want," Trump said in an interview on Sunday with ABC's George Stephanopoulos on "This Week." "Well, he's already there, isn't he?" Stephanopoulos responded, in a reference to Crimea, which Putin took from Ukraine in early 2014. Trump said: "OK -- well, he's there in a certain way. But I'm not there. You have Obama there. And frankly, that whole part of the world is a mess under Obama with all the strength that you're talking about and all of the power of NATO and all of this. In the meantime, he's going away. He takes Crimea."Trump attempted to clarify his position on the conflict between Ukraine and Russia in a series of tweets Monday morning, after he was criticized for his muddled response in the interview. He explained that when he said Russia wouldn't move into Ukraine, he was referring to a time when he is president.

    Vladimir Putin Just Issued A Chilling Warning To The United States --As the United States continues to develop and upgrade their nuclear weapons capabilities at an alarming rate, America’s ruling class refuses to heed warnings from President Vladimir Putin that Russia will respond as necessary. In his most recent attempt to warn his Western counterparts about the impending danger of a new nuclear arms race, Putin told the heads of large foreign companies and business associations that Russia is aware of the United States’ plans for nuclear hegemony. He was speaking at the 20th St. Petersburg International Economic Forum.  “We know year by year what will happen, and they know that we know,” he said. Putin argued that the rationale the U.S. previously gave for maintaining and developing its nuclear weapons system is directed at the so-called “Iranian threat.” But that threat has been drastically reduced since the U.S. proved instrumental in reaching an agreement with Iran that should put to rest any possible Iranian nuclear potential. The Russian president also highlighted the fact that although the United States missile system is referred to as an “anti-missile defense system,” the systems are just as offensive as they are defensive: “They say [the missile systems] are part of their defense capability, and are not offensive, that these systems are aimed at protecting them from aggression. It’s not true…the strategic ballistic missile defense is part of an offensive strategic capability, [and] functions in conjunction with an aggressive missile strike system.” This missile system has been launched throughout Europe, and despite American promises at the end of the Cold War that NATO’s expansion would not move “as much as a thumb’s width further to the East,” the missile system has been implemented in many of Russia’s neighboring countries, most recently in Romania. Russia views this as a direct attack on their security. “How do we know what’s inside those launchers? All one needs to do is reprogram [the system], which is an absolutely inconspicuous task,” Putin stated.

    Has the global economy (finally) achieved escape velocity? - The latest Fulcrum nowcasts for global economic activity have identified a broad pick-up in growth in many major regions, both in the advanced economies and the emerging markets. The latest estimate shows global activity expanding at an annualised rate of 4.1 per cent, a marked improvement compared to the low point of 2.2 per cent recorded in March, 2016.The synchronised nature of this improvement in growth is notable. Not only have the risks of a global recession in the forthcoming months fallen sharply, there are now some early indications that the world economy could be moving into a period of above trend expansion for the first time since early 2015.If this improvement continues, it might suggest that the global economy is achieving “escape velocity”, in which the recovery becomes self-propelled, without needing repeated doses of monetary and fiscal policy support to prevent a renewed slowdown.However, in view of the frequent disappointments about growth that have occurred in recent years, and the apparent stranglehold that “secular stagnation” has exerted over some parts of the global economy, it would be foolhardy to reach a firmly optimistic conclusion on this at the present time. For now, we would simply note that the activity data have improved since the low points were reached early in 2016, and that global deflation risks are falling.This improving story does not apply to the UK, where a major contractionary shock seems to have taken place following the Brexit referendum on 23 June. This will be met with a major easing of fiscal and monetary policy, and a weaker exchange rate, but the nowcasts suggest that the economy may already have entered a recession. The shock seems likely to be localised to the UK, however.The Japanese economy also remains weak, and appears in need of the major fiscal expansion that the Abe government has promised to announce next week. The full details of the monthly nowcasts for the major economies are, as usual, attached here.

    Central Bankers Float New Currency System, Safety Net at Confab -  Central bank officials from around the world converged on the Indonesian island of Bali on Monday to swap ideas on tools to address global economic and financial risks. The takeaway: it’s time to start thinking outside the box. Policy makers from Switzerland to the Philippines agreed that conventional monetary policy alone is no longer enough to manage growth. They also debated inadequacies in the current global financial safety-net system. Outgoing Reserve Bank of India Governor Raghuram Rajan reiterated his proposal for a new permanent liquidity facility, building on the dollar swap lines that were established between the Federal Reserve and a selection of central banks after the 2008 financial meltdown, to ensure funding during emergencies. "Longer term, we need some agreement between the fund and major central banks,” Rajan said, referring to the International Monetary Fund. The plan “would allow the fund to be a backstop to a liquidity facility from the central banks that don’t come on an individual bilateral basis but on a multilateral consensus.” ‘Target Zones’ There are other, more radical suggestions too. Monetary Authority of Singapore Managing Director Ravi Menon said there’s a case to explore ideas such as "target zones" to help limit currency volatility. “Even if you allow considerable amount of flexibility in exchange rates, are there some kind of target zones that can be set internationally, and an international coordinating mechanism to make sure that exchange rates stay within those target zones?” Menon said. Another argument for the method is that it “conditions market expectations and prevents overshooting and undershooting” of currencies, he said.

    Why the EU stress test is a farce and the Eurozone is set to Implode  - The much expected results of the 2016 EBA’s stress test of the main EU lenders is a farce, and it’s not funny, because the lives of millions could be jeopardised by it. The desperate EU regulators rigged the test to the point of ridicule: first it did not examine lenders from Greece or Portugal, where banks’ balance sheets are akin to a warzone. Second, the test lacked a pass/fail mark. Then EU regulators pretended that the catastrophic NIRP factor (negative interest rates set mainly by the ECB) didn’t exist. Well, if they had, Deutsche Bank would have exploded the test, as NIRP is the reason why Deutsche is falling to bits recently (not to mention that the German juggernaut harbours explosive derivatives to the tune of twenty times the German GDP). But the rigging yesterday went on. EU lenders have amassed some 1.7 trillion euros in Non Performing Loans (NPLs), with Italian banks accounted for 360billion euros of that nightmare. How did Unicredit and Intesa come clean yesterday with 84 and 63 billion euros in rotten loans respectively? The hard truth is that most EU banks emerged alright from this stress tests because they were allowed to. Here are the tricks: set up bad banks, submit “risk adjusted” figures (not the much more reliable “Leverage Ratio” proposed by Britain), establish Special Purpose Vehicles, frantically offload Asset Backed (rotten) Securities to Vulture Funds, and more. Draghi always turned a blind eye on these tricks, exploiting loopholes in the EU regulations, as it happened in the previous banks’ stress test of October 2014. So yesterday’s stress test was shamefully rigged. It had to be, Mr Draghi had no choice. Could he tell the truth and trigger the implosion of the global financial world? No.

    Did Germany Just Blink?  -- A most unusual thing happened in Europe this week. In a rare climb down, Angela Merkel’s government decided not to push the European Commission to impose a punitive fine on Portugal and Spain for their persistent failure to comply with their budget deficit targets, leading one Eurogroup minister to declare that the euro zone’s Stability Pact is “dead.” Of Europe’s 27 commissioners, only four voted in favor of applying the fines; the other 23 voted against. According to El País, the deciding factor in the decision was an impromptu phone call from German finance minister Wolfgang Schäuble to some of the more conservative commissioners, giving them the green light to forego the fine.The U-turn offers Spanish and Portuguese taxpayers a brief but welcome respite from Troika-enforced fauxterity. Schäuble and Juncker would much prefer Mariano Rajoy, a man cut from pretty much the same ideological cloth as themselves, to stay in power. Spain has been an important ally of Germany under Rajoy’s charge and the support of his party was essential in propelling Juncker into the European Commission’s top spot. What’s more, if Rajoy does eventually form a government, a new round of pre-ordained fauxterity will quickly kick in. But there are also signs that Germany may be beginning to marginally soften its stance on austerity, prompting rating agency Fitch to lament Europe’s abandonment, once again, of fiscal discipline and economic reforms. Merkel’s government seems to have realized that for the European project to have any kind of future in a post-Brexit world, it will have to offer a little more carrot and a little less stick. If it doesn’t, the single currency that enables German manufacturers to export at a discount rate all over the world will eventually crumble under the weight of its own contradictions.

    How a Currency Intended to Unite Europe Wound Up Dividing It - It was started in the name of forging a greater sense of union among the disparate nations of Europe. It was supposed to enhance commercial ties, erode borders and foster a spirit of collective interest, furthering the evolution of former wartime combatants into fellow nations of a united Europe. But the euro, in the 17 years since the common currency came into existence, has instead reinvigorated conflicts, yielding new crises, fresh grievances and a spirit of distrust. So argues the Nobel laureate economist Joseph E. Stiglitz in a timely new book, “The Euro: How a Common Currency Threatens the Future of Europe.”  Italy’s banks teeter on the brink of crisis while the euro has become the subject of ceaseless bickering over economic policy. By Mr. Stiglitz’s reckoning, the common currency has made economic inequality worse while dividing Europe into two adversarial camps — debtor and creditor. In his first interview about the book, Mr. Stiglitz described the euro as a tragic mistake, a currency begun without the necessary political integration or clear thinking about its fundamental flaws. The euro was compromised from inception by an ill-conceived structure, and its troubles have been amplified by wrongheaded economic policies imposed by the most powerful countries as conditions for bailing out those worst ensnared by crisis. What follows is an edited and condensed version of our conversation.

    Spain 10-Year Yield Approaching 1% Shows Central Bank Supremacy - Bloomberg: Spain’s 10-year bond yields fell to a record-low level and approached 1 percent even with the country struggling to form a government after seven months of talks and two elections. Yields on similar-maturity Italian debt were little changed, after their longest run of declines in a month. German 10-year bunds -- haven assets that investors favor in times of turmoil -- declined. That pushed their yield compared with Spanish debt to the narrowest spread in more than seven months.  Spain is set to sell as much as 3.75 billion euros ($4.19 billion) in conventional and inflation-linked debt securities on Aug. 4.  About 57 billion euros in interest and repayment of maturing debt will keep “net issuance deeply negative,” according to Commerzbank AG. The ECB said Monday that it bought 69.7 billion euros of public debt in July, short of its 80 billion-euro monthly asset-buying target. “Even at the lower pace due to the seasonality, the ECB will still be active. The overall trend toward more stimulus remains in place.” The yield on Spain’s 10-year bond was little changed at 1.02 percent as of 4:28 p.m. London time. It earlier dropped to a record-low 1.003 percent. Since July 18, the last day the yield rose, it has declined 22 basis points, or 0.22 percentage point. The price of the 1.95 percent security due in April 2026 was 108.57 percent of face value. Spain’s government debt has returned 3.9 percent since June 24, the last trading day before the repeat elections, according to Bloomberg World Bond Indexes. That compares with an average 2.4 percent earned by sovereign-debt securities across the euro area. Italy’s 10-year bond yield was at 1.18 percent, little changed after three days of declines.

    One in five company bonds bought by ECB yielded less than zero | Reuters: One in five company bonds bought by the European Central Bank since June yielded less than zero, the ECB said on Wednesday, raising questions about whether the bank risks fuelling a market bubble and will need to slow the pace of its purchases. The ECB has bought 13.2 billion euros ($14.8 billion) worth of corporate debt since it added credit to its shopping list in June, with the aim of lowering borrowing costs for companies to stimulate hiring and investment. Yields on the bonds it bought ranged from a negative 0.3 percent to more than 3 percent, with just over 20 percent of the total yielding less than zero, the ECB said in its economic bulletin on Wednesday, publishing details of its purchases for the first time. Negative-yielding debt bought by the ECB typically includes paper maturing over the next four years and issued by highly-rated or state-backed companies such as Swiss food group Nestle or French power supplier Engie. The drop in yields since the program was announced in March indicated that the ECB had succeeded in lowering interest rates, at least for the large firms that finance themselves on the market. But it also raised concerns that heavy buying by the central bank was pushing down yields too far, where they may soon no longer reflect the risk of a default by the issuer, weakening market discipline on borrowers and eventually contributing to a bubble.

     Italian Bank Failures Could Disintegrate the EU -- Yves here. Even though the Italian government managed to cobble together a rescue for its number three bank, Monte dei Paschi, the Italian banking system is still very much on the rocks, as this Real News Network interview discusses in detail.

    Why the Crisis in Italy is Not Over - Yves here. This Real News Network interview with Heiner Flassbeck discusses the recent rescue of Monte dei Paschi and why Italy’s banking and economic woes are far from solved. However, as much as Flassbeck makes many sound observations, it’s disappointing to see him take up the neolibaral meme of “competitiveness,” since among other things, it presupposes that every country should be a net exporter.  Servaas Storm has been in an extended debate with Flassbeck and others on this issue, and we’ve posted some of Storm’s key papers here.

    Monte Paschi Clean-Up Would Still Leave Bank in Danger Zone - Banca Monte dei Paschi di Siena SpA’s plan to offload $31 billion in doubtful loans, designed to attract investors to a share sale by reducing the bank’s risk of losses, will still leave it with a bad-debt level considered unsafe by industry standards. The Italian lender intends to issue as much as 5 billion euros ($5.6 billion) of stock after it sells 28 billion euros in bad loans at a 67 percent discount. The plan, the third time in two years that Monte Paschi has tapped shareholders, was announced the same day Europe published stress-test results showing a gap in the bank’s capital. The disposal will reduce Monte Paschi’s so-called Texas ratio by almost 50 percentage points to 104 percent, according to Bloomberg calculations. The measure of financial health looks at non-performing loans as a share of tangible common equity and reserves set aside for bad debt. A ratio exceeding 100 percent is considered a red flag for potential insolvency.The bank plans to spin off all its doubtful loans -- the most troubled non-performing assets -- into a securitization vehicle that will seek investment from outside investors for its senior tranches. The remaining non-performing loans -- overdue exposures including loans unlikely to be paid -- will still make up 17 percent of the total. “You have to believe that the bank will be completely clean after this procedure, that the remaining troubled loans won’t go bad,” said Hugo Cruz, a London-based analyst at Keefe, Bruyette & Woods, an investment bank. “If things don’t go well with the Italian economy, those could go bad too of course. So it’s not an easy buy.” Monte Paschi’s stock is trading at about 8 percent of book value, meaning the market considers the bank worth less than what the lender believes it would get in liquidation. Assuming no further loan losses, the new shares would be at least 40 percent of their book value, much more than many peers, according to Cruz.

    Greece eases back on capital controls in bid to reverse currency flight - More than a year after they were imposed, capital controls in Greece will be substantially eased on Monday in a bid to lure back billions of euros spirited out of the country, or stuffed under mattresses, at the height of the eurozone crisis.   The relaxation of restrictions, whose announcement sent shockwaves through markets and the single currency, is aimed squarely at boosting banking confidence in the eurozone’s weakest member. The Greek finance ministry estimates around €3bn-€4bn could soon be returned to a system depleted of more than €30bn in deposits in the run-up to Athens sealing a third bailout to save it from economic collapse last summer. “The objective is to re-attract money back to the banking system which in turn will create more confidence in it,” said Prof George Pagoulatos who teaches European politics and economy at Athens University. “And there are several billion that can be returned. People just need to feel safe.” As such the loosening of measures initially seen as an aberration in the 19-strong bloc is being viewed as a test case: of the faith Greeks have in economic recovery and the ability of their leftist-led government to oversee it. New deposits will not be subject to capital controls; limits on withdrawals of money brought in from abroad will also be higher; and ATM withdrawals will be raised to €840 every two weeks in a reversal of the policy that allowed

    China stakes a strong claim in the Greek electricity landscape -  The strong presence of Chinese firms came as a surprise in the tender for the concession of 24 percent of power grid operator ADMIE, given that the interest of both Italy’s Terna and France’s RTE had been taken for granted. China entered the race for a stake in the Greek grid through two giants, the State Grid Corporation of China (SGCC) – which was also present in the first tender for 66 percent of ADMIE – and China Southern Power Grid, which was not expected to weigh in as it does not fulfill the basic condition of the tender for participating in the European interconnection system of ENTZO_E. Sources say the latter Chinese company has expressed an interest in entering a consortium with one of the other companies that fulfill the conditions. Government sources describe the Chinese interest as very significant and associate it with Beijing’s strategy to acquire stakes in energy infrastructure projects in Europe. In contacts made by the Greek side during the prime minister’s recent trip to China, Beijing is said to have expressed its interest in the acquisition of a 17 percent stake in Public Power Corporation (PPC) – whose tender will follow ADMIE’s – as well as in the joint construction of new electricity units with PPC in Greece and the Balkans. The Chinese have also shown an interest in the renewable energy sources sector, which they combine with the connection of the Greek islands to the continental network. They appear disposed to finance the cable for the connection of Crete with the Greek mainland, along with other investment plans for the interconnection of the Cycladic islands, which will allow for the optimal utilization of the rich wind and solar capacity of the Greek islands.

    Helicopter money: Are central banks edging closer to dropping cash from the sky?  The Bank of England is expected to cut interest rates from already historic lows this week as it prepares to avoid a recession following the UK's decision to leave the European Union (EU). The governor Mark Carney surprised many economists last month by not cutting interest rates, but on Thursday a rate cut to 0.25% is regarded as a near certainty, and possibly a renewed round of money printing. Bank rate has been held at a record low of 0.5% since March 2009, and the central bank has so far amassed £375bn of government debt in the aftermath of the financial crisis. A number of closely watched purchasing managers' surveys and other reports have shown sharp contractions in construction, services and factory output since the Brexit vote. But many economists argue that central banks are running out of runway to lift fragile economies after the 2007 crisis, even by the unconventional means they have adopted so far. Some say it is time to take up more radical measures, such as helicopter money. This is a term adopted by the economist Milton Friedman in 1969, to describe the idea of a central bank printing money and dropping in onto citizens in order to kick-start the economy. Advocates of this measure say this is a highly effective way of putting "free" money into the hands of ordinary people who will be inclined to spend it, rather than pay off debts.

    Why Is The IMF Pushing Fiscal Consolidation in the Eurozone ? - The eurozone collectively has a substantial external surplus, and its economy is operating below potential. In the framework set out in the IMF’s external balance assessment, that pretty clearly calls for fiscal expansion:“Surplus countries that have domestic slack need to rely more on fiscal policy easing, which would address both their output gaps and their external gaps… Meanwhile, deficit countries should actively use monetary policy, where available, to close both internal and external gaps.” But is the IMF following its own advice (for a currency union that has an external surplus and domestic slack, I am well aware of the fact that the eurozone is not a single country with a single fiscal policy) and actually recommending a fiscal expansion in the eurozone? Best I can tell, no. Not for 2017. The IMF of course is for more fiscal stimulus at the European level. But that is a hope, not a reality. The capacity for a common eurozone fiscal policy conducted through borrowing by the center doesn’t currently exist, and it realistically isn’t going to materialize next year. That means the eurozone’s aggregate fiscal impulse is the sum of the fiscal impulses of each of its main economies. What does the IMF recommend there? In Italy the IMF seems to want about a half a point of structural fiscal consolidation (see paragraph 35 of the staff report). In France, the same (see paragraph 33 of the staff report). In Spain, the last IMF article IV called for a half a point of consolidation as well (see paragraph 33). That though is likely to be ratcheted up, as Spain hasn’t done much consolidation over the past two years and now will need to engage in a major consolidation to get to the Commission’s 3 percent of GDP fiscal target in 2018.Spain, Italy, and France collectively account for a bit more of the eurozone’s GDP than Germany and the Netherlands. So, is the IMF recommending enough fiscal expansion in Germany and the Netherlands to assure a positive fiscal impulse for the eurozone as a whole? No.

    Europe’s Brexit Hangover - Nouriel Roubini -- The market reaction to the Brexit shock has been mild compared to two other recent episodes of global financial volatility: the summer of 2015 (following fears of a Chinese hard landing) and the first two months of this year (following renewed worries about China, along with other global tail risks). The shock was regional rather than global, with the market impact concentrated in the United Kingdom and Europe; and the volatility lasted only about a week, compared to the previous two severe risk-off episodes, which lasted about two months and led to a sharp correction in US and global equity prices. Why such a mild, temporary shock?For starters, the UK accounts for just 3% of global GDP. By contrast, China (the world’s second-largest economy) accounts for 15% of world output and more than half of global growth. Moreover, the European Union’s post-Brexit show of unity, together with the result of the Spanish election, calmed fears that the EU or the eurozone would fall apart in short order. And the rapid government changeover in the UK has boosted hopes that the divorce negotiations with the EU, however bumpy, will lead to a settlement that maintains most trade links by combining substantial access to the single market with modest limits on migration. Most important, markets quickly priced in the conclusion that the Brexit shock would lead to greater dovishness among the world’s major central banks. Indeed, as in the two previous risk-off episodes, central-bank liquidity backstopped markets and economies. But the risk of European and global volatility may have been only briefly postponed. Leaving aside other global risks (including a slowdown in already-mediocre US growth, more fear of a Chinese hard landing, weakness in oil and commodity prices, and fragilities in key emerging markets), there is plenty of reason to worry about Europe and the eurozone.

    Where is the BREXIT impact in Europe? --  Rebecca Wilder -- The Bank of England moved today – and as it should!  But when will the UK’s self-inflicted economic troubles seep into other markets and economies? Like other market participants, I waited for Market’s PMIs for evidence that uncertainty related to BREXIT will hit euro area growth this year. Well, that day came and went with no hint of BREXIT hitting economic progress. Rather, the actual July release was above Bloomberg expectations. At first blush, this means that economic confidence, and especially confidence associated with tradeable goods or the manufacturing sector, will go relatively unscathed in the post BREXIT world. It’s too early to tell…look more closely While current confidence indicators are broadly following a trend already established, there are cracks starting to emerge. Specifically, there is a divergence across markets that is likely attributed to weakness and uncertainty in the UK. Italy, Spanish and Irish manufacturing PMIs have all taken a discrete and trended tumble since April. With the exception of Italy, this move in the PMIs can be associated with dependence on UK final demand, as the OECD’s TiVA data show Ireland  and Spain contributing 12.7% and 9.3%, respectively, to the UK’s 2011 final demand (the latest data point).On the flip side, look at what’s happening in Germany and Austria, both with relatively low dependence on UK final demand. I would say there’s evidence, especially in Ireland and Spain, that BREXIT is impacting European growth. Furthermore, I suspect there is more disappointment from European growth to come – and look more broadly than the Eurozone.

    Brexit: Surge in anti-immigrant hate crime in areas that voted to leave EU | Crime | News | The Independent: The surge in anti-immigrant hate crimes seen after the EU referendum was particularly intense in areas of the country that strongly voted Leave, an investigation by The Independent has found. Disturbing new figures drawn directly from local police forces’ databases show consistent doubling and tripling of relevant hate crimes in the most Eurosceptic parts of Britain. They go even further than the average 57 per cent nationwide increase in hate crimes reported by the National Police Chiefs’ Council (NPCC) in the aftermath of the referendum. The statistics, obtained under freedom of information rules, come as the Home Secretary Amber Rudd announces that Her Majesty’s Inspectorate of Constabulary (HMIC) will look at how officers respond to reports of such crimes.Lincolnshire was the site of the UK’s highest Leave vote, with 75 per cent of voters in Boston voting Out. Other areas in the county such as South Holland and East Lindsey also both posted Leave figures of more than 70 per cent. Police data shows Lincolnshire saw a 191 per cent rise in hate crimes compared to last year. Its police force recorded 22 ethnic and religiously motivated hate crimes in the week corresponding to the EU referendum in 2015, but this year the number surged to 42 such crimes in the week of the EU referendum, and 64 crimes in the week after. The pattern was repeated in other Brexit heartlands. Kent, which recorded a majority Leave vote of nearly 60 per cent, recorded 16 ethnic and religious hate crimes in the 2015 week corresponding to the referendum. This increased to 25 the week of the EU referendum and surged further to 39 the following week – up by 143 per cent.

    More than half a million EU nationals will be forced to leave Britain after Brexit, think tank warns: More than half a million EU nationals, equivalent to a population the size of Glasgow, will be forced to leave Britain after Brexit according to the latest analysis. The Social Market Foundation (SMF) has found  590,000 EU nationals currently living in the UK would not meet the residency requirements to be automatically guaranteed the right to remain if Article 50  is triggered next year and Britain leaves the EU by 2019. However, of the 3.6 million EU citizens currently living in the UK, more than 80 per cent would have been here for five years and would thereby retain the right to stay.  Given the "likely protracted nature" of Brexit, the report says "it is probable" that all EU citizens arriving in the UK before 2014 and continuing to reside here will have permanent residency rights by the time Brexit actually occurs.  The think tank said it would be “very difficult, if not impossible” for the Government to change its permanent residency criteria before Brexit  and deny these people the right to stay. Emran Mian, director of the SMF, said: “Our analysis suggests that, while the majority have or will acquire permanent residence, the right to remain in the UK of almost 600,000 people may be at risk if the UK leaves the EU in 2019.”

    Scotland Disses Theresa May by Reviving Anti-Inequality Law She Loathes - Yves Smith - Scotland has taken upon itself to back a measure passed by Labour that new Prime Minster Theresa May is ignoring, even though, as I read it, it is currently standing law. From the Scotland Herald (hat tip Phil U): SNP ministers are set to reverse one of Theresa May’s key legacies by imposing a legal duty on public bodies to test their policies against their impact on reducing inequality. The new Prime Minister, shortly after she became Home Secretary, branded legislation passed by Labour in the dying days of Gordon Brown’s government “ridiculous” and refused to implement it, saying it would be scrapped “for good”. However, it is to be resurrected by the Scottish Government, with the administration confirming a commitment to reintroduce the so-called socio-economic duty north of the border during the current Holyrood term. The law, part of the Equality Act, sets out a legal duty on key public bodies, including government and local authorities, to ensure they consider the impact that their strategic decisions will have on narrowing class inequalities. Ms May has attacked the proposal, championed by former Labour deputy leader Harriet Harman, as “ridiculous as it was simplistic”, saying it was better to pursue “equality of opportunity” rather than “equality of outcome”. This requirement seems like a nifty idea. It does not require that legislation address inequality, merely that government offices assess the impact of what they are doing in terms of lowering inequality. This does not require them to do anything differently, but does shed light on that aspect of their operations, which in turn opens it up to public debate and the possibility of the legislature intervening if it does not like the results, or if the policies are revealed to be producing unintended bad consequences.

    The £1 trillion pension crisis facing 11m (and they're the lucky ones): Pressure is mounting on the Government to oversee a root-and-branch overhaul of Britain’s company pension schemes in which more than 11 million workers have savings. It comes as these “final salary” schemes are registering their biggest ever funding shortfall, now at almost £1 trillion (£1,000bn). This sum is the gap between the investments these pension schemes own and the likely eventual cost of the pensions they have already promised to pay. Unless solutions are found, experts warn, many hundreds of schemes are likely to fold into the Pension Protection Fund, the lifeboat scheme which provides reduced pension payouts for retired workers caught up in cash-strapped schemes. And while that may be bad news for scheme members, there will be difficulties faced by employers, too, as their ability to invest in current staff and future growth is hampered by a requirement to continually top up a burdensome pension scheme. Increasingly, savers may be required to give up some of their benefits in a compromise deal. For example, firms could promise to pay them more than they might obtain through a PPF rescue – but less than they are entitled to in the letter of their contract. This is something the former pensions minister Baroness (Ros) Altmann, among others, is pushing for. The problem is about to be subject to two major reviews, including one by the influential Work & Pensions Committee of MPs. The outcomes are likely to result in further support for similar compromise measures.

     Rise in consumer debt could leave households in trouble in uncertain Brexit climate - Mirror Online: A boom in borrowing could push households to the brink post- Brexit , a leading debt charity warns. Consumer credit rose by another £1.8billion last month, compared to £1.6billion the year before – a 10per cent jump year on year. Brits also borrowed even more on credit cards where lending was up by £0.6billion, compared to £0.4billion the year before. The Money Advice Trust has warned families are borrowing more amid Brexit uncertainty, and could face problems further down the line because of this. Jane Tully from the Money Advice Trust, the charity that runs National Debtline, commented: “The continued surge in consumer credit is reinforcing our concern that some households risk being left exposed to financial difficulty, if the economy does indeed suffer in the wake of the EU referendum result.“Most people are currently able to handle the extra borrowing they have taken on, but a minority are still struggling with the impact of the last decade’s squeeze on household incomes.“This extra borrowing could become even more difficult to repay if there is a halt to the UK’s economic recovery.

    Britain’s scientists are freaking out over Brexit —  Since the vote in June to leave the European Union, leaders of Britain’s scientific academies are making dire predictions about what could happen to research and innovation here. Damage to British research, the scientists warn, could be among the cascade of unintended — and largely unappreciated — consequences of the vote to exit the bloc. The researchers worry that Britain will not replace funding it loses when it leaves the E.U., which has supplied about $1.2 billion a year to support British science, approximately 10 percent of the total spent by government-funded research councils.  There is a whiff of panic in the labs. Worse than a possible dip in funding is the research community’s fear that collaborators abroad will slink away and the country’s universities will find themselves isolated. British research today is networked, expensive, competitive and global. Being part of a pan-European consortium has helped put Britain in the top handful of countries, based on the frequency of citations of its scientific papers. The heads of British academic societies recently posted a public letter reminding everyone that the country’s universities, many of them among the best in the world, are staffed by legions of top-flight researchers from abroad. Equally, the student bodies, especially graduate students in master’s and doctoral programs, are populated by young scholars from the continent. The community is asking: Will the foreigners continue to be welcome in British laboratories and will British researchers continue be partners with collaborators from abroad?

    If only someone had warned us: The title is pinched from a tweet by Tony Yates, who was one of many economists who did warn of the impact of Brexit. Of course we economists need to ask ourselves if and why our message was ignored, but that is no reason to stop us feeling angry that it happened. This post from the economist who did more than most to try and get the message across, John Van Reenen, expresses that anger better than I could. What John’s work showed, backed up by similar analysis in the Treasury and elsewhere, is that Brexit would not just cause a short term economic downturn: cutting wages and increasing unemployment for just a year or two. By making it harder to trade with our immediate neighbours it will reduce UK trade overall, and the evidence suggests that this will permanently reduce people’s living standards. ...The tricky thing to do now is know how much the current downturn is just a foretaste of that, and how much is something over and above that. To the extent that it is the latter, how much of that is offset by some short term benefit to exporters (before the impact of actual Brexit kicks in) as a result of the depreciation? That is initially the Bank of England’s problem.Their response today, a cut of 0.25% plus more QE, tells us it is not just their problem. We are back at the lower bound for nominal interest rates, which is why the Bank is doing more QE. Because the impact of the QE is extremely uncertain, and in the absence of helicopter money, we now need fiscal action to back up this interest rate cut. ... When interest rates are at the lower bound, forget about the deficit and focus fiscal policy on avoiding a recession. As the Bank’s QE action makes clear, there is no good reason to delay this: it should happen now.

    Bank of England cuts key rate for the first time in over seven years to 0.25%: The Bank of England has cut rates for the first time in over seven years, slashed growth forecasts and launched a new monetary policy weapon in the battle to stop a post-Brexit slump in the U.K. Mark Carney, the governor of the Bank of England, pledged that the bank would "stand ready to act in exceptional circumstances" as he made one of the most dramatic announcements of his tenure. The central bank has made its biggest quarterly downgrade of growth forecasts, reducing expectations for 2017 growth from 2.3 percent to 0.8 percent, citing "substantial uncertainty" after the referendum on the U.K.'s membership of the European Union (EU) in June. The bank has made these forecasts since 1992. Its rate-setting committee cut interest rates for the first time in nearly seven and a half years, from 0.5 percent to 0.25 percent, and signaled a further rate cut before the end of the year. This is likely to be "close to but a little above zero", according to the committee's minutes.  Sterling fell sharply against the dollar after the announcement and hit 1.3140 at around 12:30 p.m. London time. British gilt yields also hit record lows.  Negative interest rates, which have been employed by their counterparts elsewhere in Europe, are increasingly being mentioned as a possible policy option for the U.K. During the fallout from the U.K.'s vote to leave the EU in June, there have been concerns about how much the bank can do to halt a slowdown, given that it has already gone through close to a decade of extraordinary monetary policy measures.  In an effort to stave off some of the potentially worse impacts of very low or negative interest rates, Carney announced a new Term Funding Scheme worth up to £100 billion ($132 billion) and the purchase of up to £10 billion in U.K. corporate bonds.

    Bank of England wields stimulus 'sledgehammer' to beat Brexit blues | Reuters: The Bank of England cut interest rates to next to nothing on Thursday and unleashed billions of pounds of stimulus to cushion the economic shock from Britain's vote to leave the European Union. Acting on its chief economist's wish to use "a sledgehammer to crack a nut", the BoE reduced interest rates by 25 basis points to a record-low 0.25 percent. This first cut since 2009 was accompanied by a pledge to buy 60 billion pounds ($79 billion) of government bonds with newly created money over the next six months, and two new stimulus schemes. One will buy 10 billion pounds of high-grade corporate debt, the other - potentially worth up to 100 billion pounds - is to ensure banks pass on the full rate cut to borrowers. The Bank said most BoE policymakers expected to cut the main interest rate to even closer to zero later this year, and sharply downgraded its outlook for growth next year. "By acting early and comprehensively, the (Bank) can reduce uncertainty, bolster confidence, blunt the slowdown and support the necessary adjustments in the UK economy," BoE Governor Mark Carney told a news conference. Sterling fell as much as 1.6 percent against the dollar following the announcement, while British government bond yields hit record lows and the main share index rose by 1.6 percent. Carney said he had unveiled an "exceptional package of measures" because the economic outlook had changed markedly following the Brexit vote. The Bank expects the economy to stagnate for the rest of 2016 and suffer weak growth next year. By cutting rates to the lowest in its 322-year history, the BoE joins the Bank of Japan and the Reserve Bank of Australia, which both undertook unprecedented stimulus in the past week.

    Brexit Dilemma: Why Did the UK Reduce Interest Rates to Only 0.25 Percent Today? -- The global market was eagerly waiting for the July Monetary Policy Statement of the Bank of England (BoE). Speculation was rife that, post Brexit, the BoE would become the latest entrant into the set of central banks experimenting with negative interest rate policy (NIRP) in a desperate bid to reinvigorate its economy.  Remember that the global financial markets were shaken after the referendum result and the pound plunged to a three-decade low. The BoE governor Mark Carney had to step in with a pledge to provide $345 billion for the financial system of the country. He also issued a statement that “the BoE has put in place extensive contingency plans” to deal with a “period of uncertainty and adjustment.” Analysts had their own predictions regarding the BoE’s possible monetary policy stance. JPMorgan Chase & Co., Goldman Sachs, and ING Bank were of the opinion that the BoE could lower its key interest rate in its July meeting. The result of a Bloomberg survey showed that in the event of Brexit, credit-easing measures such as quantitative easing (QE) and rate cuts may be the immediate options resorted to. The global importance of Brexit could be gauged from the fact that the Fed has had to delay to the fourth quarter of this year its plan of a possible interest rate hike in a bid to support global economic recovery. However, the market was left surprised by the BoE’s decision to maintain its bank rate unchanged. The Monetary Policy Committee at BoE voted 8-1 to leave borrowing costs at 0.5 percent and hinted that it would launch a stimulus package in August. Today, the BoE reduced rates to 0.25 percent. But why did NIRP not find favor with the BoE? After all, by the end of March 2016 as many as six central banks had adopted NIRP in an attempt to counter sluggish growth and deflationary pressures (fig 1). The latest country to join this mad race is the Bank of Japan, which announced in its January 2016 monetary policy statement a negative interest rate of –0.1 percent to current accounts that financial institutions hold at the Bank.

     Ireland jails three top bankers over 2008 banking meltdown (Reuters) - Three senior Irish bankers were jailed on Friday for up to three-and-a-half years for conspiring to defraud investors in the most prominent prosecution arising from the 2008 banking crisis that crippled the country's economy. The trio will be among the first senior bankers globally to be jailed for their role in the collapse of a bank during the crisis. The lack of convictions until now has angered Irish taxpayers, who had to stump up 64 billion euros - almost 40 percent of annual economic output - after a property collapse forced the biggest state bank rescue in the euro zone. The crash thrust Ireland into a three-year sovereign bailout in 2010 and the finance ministry said last month that it could take another 15 years to recover the funds pumped into the banks still operating. Former Irish Life and Permanent Chief Executive Denis Casey was sentenced to two years and nine months following the 74-day criminal trial, Ireland's longest ever. Willie McAteer, former finance director at the failed Anglo Irish Bank, and John Bowe, its ex-head of capital markets, were given sentences of 42 months and 24 months respectively.

    UK is most corrupt country in the world, says mafia expert Roberto Saviano -- Britain is the most corrupt country in the world, according to journalist Roberto Saviano, who spent more than a decade exposing the criminal dealings of the Italian Mafia. Mr Saviano, who wrote the best-selling exposés Gomorrah and ZeroZeroZero, made the comments at the Hay Literary Festival. The 36-year-old has been living under police protection since publishing revelations about members of the Camorra, a powerful Neapolitan branch of the mafia, in 2006. He told an audience at Hay-on-Wye: “If I asked you what is the most corrupt place on Earth you might tell me well it’s Afghanistan, maybe Greece, Nigeria, the South of Italy and I will tell you it’s the UK. “It’s not the bureaucracy, it’s not the police, it’s not the politics but what is corrupt is the financial capital. 90 per cent of the owners of capital in London have their headquarters offshore. “Jersey and the Cayman’s are the access gates to criminal capital in Europe and the UK is the country that allows it. That is why it is important why it is so crucial for me to be here today and to talk to you because I want to tell you , this is about you, this is about your life, this is about your government.”

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