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

Saturday, September 17, 2016

week ending Sep 17

Incompetent But Not Weak: "The Fed Doesn't Know Whether To Shit Or Go Blind" - The outlook for the US economy is deteriorating, yet the Fed is trying to raise overnight rates to keep unseen inflation from rising. Success in its strategy could force consumption lower, unemployment higher, and exacerbate real output contraction. But, as 's Paul Brodsky explains, we should not mistake apparent incompetence for weakness. The August Purchasing Managers Index (PMI) came in at 49.4 last week, a level that signals contraction, not just slower growth. Within the PMI, new orders fell 7.8%, production fell 5.8%, and employment dropped 1.1% from July. Only six of eighteen industries reported an increase in new orders while only eight reported an increase in production. The report followed PMI plunges in Chicago (to 51.5 from 55.8), Richmond (to a 3-year low of -11.0 from 10.0), Dallas (to -6.2 from a 19 month high of -1.3), and New York (to -4.21 from 0.55). The weak manufacturing report follows a weaker than expected service sector report in August, which now hovers only slightly above the level of contraction.August US auto sales were also reported last week and appear to be rolling over. Meanwhile, ZeroHedge posted the graph at right to argue that the US soon fell into recession each of the seven times since 1970 when US construction spending rolled over, which it is doing now. These data points go hand-in-hand with struggling output growth. Real GDP has labored over the last three quarters to break above a 1% annual growth rate, and the most recent data lend credence to our view that a secular slowdown is now upon us. The Fed has very few plays left when it comes to stimulating the economy and so it is punting. Indeed, output is not even in the Fed’s formal jurisdiction. Its dual objectives are stable prices and full employment. We may agree or disagree with its mandate, method and execution, but we cannot run from the reality that the expansion or restriction of credit is the Fed’s only means of trying to tweak GDP. It cannot stimulate economic activity when funding rates are already near zero percent and QE is currently off the table. Fed activity recently reminds one of a Rube Goldberg rhetoric machine. Between meetings its regional presidents peck the media with knowing hints an innuendo, only to have their cryptic wisdom swatted away by the markets. Nothing obvious in its current policy and operations seem able to affect output, prices or employment. In fact, there is a bit of illusion.The market should not underestimate the Fed’s power based on its apparent incompetence.

Hilsenrath: Fed "Inclined to Stand Pat" -A few excerpts from an article by Jon Hilsenrath at the WSJ: Divided Federal Reserve Is Inclined to Stand PatFederal Reserve officials, lacking a strong consensus for action a week before their next policy meeting, are leaning toward waiting until late in the year before raising short-term interest rates....Officials release updated projections next week, and those could come down as officials coalesce around a view that rates will rise at an exceptionally gradual pace in the months ahead. Two rate increases in 2016 look especially unlikely.At the same time, the Fed could present a more optimistic view about risks to the economic outlook. Early in the year, officials worried that a range of issues could derail growth and hiring. That included market turbulence tied to worries about China’s economy and to Britain’s decision to leave the European Union. Those worries have dissipated.After flagging their worries for several months about risks to the economic outlook, officials could revert to calling these risks “balanced,” meaning the central bankers have become more open to raising rates later this year, as long as the economy doesn’t stumble in the weeks ahead.And from Goldman Sachs chief economist Jan Hatzius: Lack of a Clear Signal from the FOMC Lowers Odds of a September Hike A series of speeches by Fed officials concluded today with remarks by Governor Brainard. A common theme was the absence of a clear signal that the FOMC is likely to hike in September. The lack of a signal is meaningful because if action were likely, the committee would normally make an effort to nudge the market toward anticipating a hike.  Goldman sees a 65% change of a rate hike by December.

Goldman Slashes September Rate-Hike Odds As Hilsenrath Warns Of Divided Fed - Goldman Sachs' estimate of September rate-hike odds continue to collapse faster than Hillary Clinton as the absence of a clear signal from a series of speeches by Fed officials (concluding with Lael Brainard's headfake). Goldman have reduced their subjective odds for a hike next week to 25% from 40% previously (still above market expectations of 13%) but remains hopeful for December. However, as Fed-whisperer WSJ's Jon Hilsenrath warns, Yellen faces record levels of dissent as she "confronts a divided group of policy-makers." As Goldman's Jan Hatzius explains, over the last several days many Fed officials have expressed their views on the outlook for policy, concluding with Governor Brainard yesterday.Policymakers expressed a wide range of views, but a common element was the lack of a clear signal that the FOMC is prepared to raise rates as soon as next week’s meeting. If action were likely, we would normally see an effort to raise market expectations, such that a rate increase did not startle markets. Thus, the lack of a signal is meaningful, and lowers the probability of an increase. We are further reducing our subjective odds for a hike next week to 25% from 40% previously, and nudging up the odds that the next increase comes at the December meeting to 40% from 30%. Together these changes lower our cumulative odds of at least one increase this year to 65% from 70%.

The Fed Is About to Make a Mistake - Narayana Kocherlakota -- Next week, officials at the U.S. Federal Reserve will hold a crucial meeting on whether to raise interest rates. Whatever they do, it will probably be a mistake. More than seven years after the recovery began in mid-2009, inflation remains below the central bank's 2-percent target, indicating that the economy is still operating below potential. As of July, consumer prices were up just 0.8 percent from a year earlier. Excluding volatile food and energy goods and services, they were up 1.6 percent. Worse, markets appear to be losing confidence that the Fed will ever reach its target: Yields on Treasury bonds suggest that traders expect inflation to average less than 2 percent five to 10 years from now. As the experience of the Bank of Japan indicates, restoring such confidence is not easy. The Fed is also falling short of its goal of "maximum" employment. Although the unemployment rate has returned to its 2007 level of 5 percent, the fraction of Americans in their prime working years who have a job remains well below its pre-recession level. All this argues for the Federal Open Market Committee, the central bank's policy-making arm, to provide added stimulus by cutting interest rates a quarter percentage point at its Sept. 21 meeting. This is all the more important because the Fed's capacity to respond to further shocks is limited, given its reluctance to take interest rates below zero and the large amount of bond-buying that it has already done. It should thus do all it can to ensure that the economy is healthy enough to weather whatever may come. Unfortunately, I'm confident that the Fed won’t cut rates. Doing so now might require officials to raise rates more rapidly in the future -- an outcome that they are, for reasons that are unclear to me, determined to avoid. So the central bank will either raise rates by a quarter percentage point or do nothing. The latter appears more likely, given that two Fed governors have spoken out in favor of caution.

 The "New Normal" and What It Means for Monetary Policy – Fed Governor Lael Brainard – Speech At the Chicago Council on Global Affairs, Chicago, Illinois - Watch live  In the months ahead, my colleagues and I will continue to assess what policy path will best promote the sustained attainment of our goals. With that in mind, I would like to start by describing the contours of today's economy that will be particularly important in shaping the appropriate path of policy before reviewing recent developments. These contours represent noteworthy departures from the "old normal" that prevailed in the decades prior to the financial crisis. I would argue that policy today must rely less on the old normal as a guidepost and instead be sensitive to the contours that shape today's "new normal."1

Fed Governor Lael Brainard: "Asymmetry in risk ... counsels prudence in the removal of policy accommodation" -- Live Stream for Speech by Fed Governor Lael Brainard: The Economic Outlook and Monetary Policy Implications From Fed Governor Lael Brainard: The "New Normal" and What It Means for Monetary Policy  In today's new normal, the costs to the economy of greater-than-expected strength in demand are likely to be lower than the costs of significant unexpected weakness. In the case of unexpected strength, we have well-tried and tested tools and ample policy space in which to react. Moreover, because of Phillips curve flattening, the possibility of remaining labor market slack, the likely substantial response of the exchange rate and its depressing effect on inflation, the low neutral rate, and the fact that inflation expectations are well anchored to the upside, the response of inflation to unexpected strength in demand will likely be modest and gradual, requiring a correspondingly moderate policy response and implying relatively slight costs to the economy. In the face of an adverse shock, however, our conventional policy toolkit is more limited, and thus the risk of being unable to adequately respond to unexpected weakness is greater. The experience of the Japanese and euro-area economies suggest that prolonged weakness in demand is very difficult to correct, leading to economic costs that can be considerable. This asymmetry in risk management in today's new normal counsels prudence in the removal of policy accommodation. I believe this approach has served us well in recent months, helping to support continued gains in employment and progress on inflation. I look forward to assessing the evolution of the data in the months ahead for signs of further progress toward our goals, bearing in mind these considerations.

Read this now: Fed governor Lael Brainard’s speech on the “new normal”/asymmetric risk --Jared Bernstein - Don’t have time to do justice to this speech given today by Fed governor Lael Brainard, but it’s just a beautiful merging of common sense and very smart, contemporary macro and monetary policy. I’m try to give more commentary later, but for now, I’ll pull some key quotes: With the Phillips curve appearing to be a less reliable guidepost than it has been in the past, the anchoring role of inflation expectations remains critically important. On expected similar to realized inflation, recent developments suggest some reasons to be concerned more about undershooting than overshooting. …we cannot rule out that the sustained period of undershooting the inflation target along with global disinflationary pressures are weighing on inflation expectations.The apparent flatness of the Phillips curve together with evidence that inflation expectations may have softened on the downside and the persistent undershooting of inflation relative to our target should be important considerations in our policy deliberations. In particular, to the extent that the effect on inflation of further gradual tightening in labor market conditions is likely to be moderate and gradual, the case to tighten policy preemptively is less compelling. This uncertainty about the true state of the economy suggests we should be open to the possibility of material further progress in the labor market. We cannot rule out that estimates of the natural unemployment rate may move even lower.Of particular significance, the prime-age labor force participation rate, despite improvement this year, remains about 1-1/2 percentage points below its pre-crisis level, suggesting room for further gains.…in the presence of uncertainty and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market.

 Fed President Brainard on Labor Market Slack --Although we have seen important progress on employment, this improvement has been accompanied by evidence of greater slack than previously anticipated. This uncertainty about the true state of the economy suggests we should be open to the possibility of material further progress in the labor market. Indeed, with payroll employment growth averaging 180,000 per month this year, many observers would have expected the unemployment rate to drop noticeably rather than moving sideways, as it has done. It is true that today's unemployment rate of 4.9 percent is only 0.1 percentage point from the median SEP participant's estimate of the longer-run level of unemployment. However, the natural rate of unemployment is uncertain and can vary over time. Indeed, in the SEP, the central tendency of the projection for the longer-run natural rate of unemployment has come down significantly, from a range of 5.2 to 6.0 percent in June 2012 to 4.7 to 5.0 percent in June 2016--a reduction of 1/2 to 1 percentage point.5 We cannot rule out that estimates of the natural unemployment rate may move even lower.In addition, the unemployment rate is not the only gauge of labor market slack, and other measures have been suggesting there is some room to go. The share of employees working part time for economic reasons, for example, has remained noticeably above its pre-crisis level. Of particular significance, the prime-age labor force participation rate, despite improvement this year, remains about 1‑1/2 percentage points below its pre-crisis level, suggesting room for further gains. While it is possible that the current low level of prime-age participation reflects ongoing pre-crisis trends, we cannot rule out that it reflects a lagged and still incomplete response to a very slow recovery in ‎job opportunities and wages.6  This possibility is reinforced by the continued muted recovery in wage growth. Although wage growth has picked up to about a 2-1/2 percent pace in recent quarters, this pace is only modestly above that which prevailed over much of the recovery and well below growth rates seen prior to the financial crisis.7 

 The Fed Is Planning for Another Slow Recovery - Narayana Kocherlakota -- Last month, U.S. Federal Reserve Chair Janet Yellen gave an important address at the Jackson Hole public-policy conference. She argued in part that, thanks to its new tools of forward guidance and long-term asset purchases, the Fed would be able to offset the next recession, even if interest rates eventually stabilized at historically low levels. (Her assessment was criticized by others, perhaps most notably by Larry Summers, as unduly optimistic.)  Yellen’s speech reveals that the Fed remains dangerously unwilling to pursue with appropriate vigor its objectives of 2 percent inflation and maximum employment.  Yellen accompanied her speech with an elegant slide show. Her third figure was taken from a recent working paper by long-time Fed staff economist David Reifschneider:  These charts are generated from the Fed’s baseline model. The black line in each one represents the outcome of the Fed’s response to a recession by using what Yellen terms an “aggressive” policy rule for its target interest rate, along with forward guidance and asset purchases. She views this black-line outcome as a demonstration that the Fed’s existing tools would be “sufficient” (to use her word) for the Fed’s purposes.   It’s worth thinking carefully about Yellen’s statement. The black line in the bottom left panel shows that the unemployment rate would remain above 5 percent for four years. The black line in the bottom right panel shows that the inflation rate would be below the Fed’s target of 2 percent for more than a decade.  Two years into this hypothetical recession, the Fed would be refusing to provide more accommodation, even though the unemployment rate would be above 9 percent and it would be expecting the inflation rate to be falling further below its target for another three years.   How can the Fed view these unemployment and inflation outcomes as acceptable? One answer is that the Fed can’t do any better. But inside the model used to generate Yellen’s slide, the Fed can always push down the unemployment rate and raise the inflation rate by promising to keep its target interest rate lower for longer, buying more long-term assets or both.

Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates? - Ben Bernanke -  Nominal interest rates are very low, and in a world of excess global saving, low inflation, and high demand for safe assets like government debt, there’s a good chance that they will be low for a long time. That fact poses a potential problem for the Federal Reserve and other central banks: When the next recession arrives, there may be limited room for the interest-rate cuts that have traditionally been central banks’ primary tool for sustaining employment and keeping inflation near target.That concerning possibility has led to calls for a new monetary policy framework, including by Fed insiders like John Williams, president of the San Francisco Fed. In particular, Williams has joined Olivier Blanchard and other prominent economists in proposing that the Fed consider raising its target for inflation, currently 2 percent.[1] If the Fed targeted a higher average level of inflation, the reasoning goes, nominal interest rates would also tend to be higher, leaving more room for rate cuts when needed. Interestingly, some advocates of a higher inflation target have been dismissive of the use of negative short-term interest rates, an alternative means of increasing “space” for monetary easing. For example, in a recent interview in which he advocated reconsideration of the Fed’s inflation target, Williams said: “Negative rates are still at the bottom of the stack in terms of net effectiveness.” Williams’s colleague on the Federal Open Market Committee, Eric Rosengren, also has suggested that the Fed may need to set higher inflation targets in the future while asserting that negative rates should be viewed as a last resort. My sense is that Williams’s and Rosengren’s negative view of negative rates is broadly shared on the FOMC. Outside the United States, Mark Carney, governor of the Bank of England, has expressed openness to targeting nominal GDP (which essentially involves targeting a higher inflation rate when GDP growth is low), but has also made clear that he is “not a fan” of negative interest rates.As I explain below, negative rates and higher inflation targets can be viewed as alternative methods for pushing the real interest rate further below zero. In that context, I am puzzled by the apparently strong preference for a higher inflation target over negative rates, at least based on what we know now.

Bernanke Urges Use Of Negative Rates When Next Recession Strikes - Two months after Bernanke's unexpected trip to Japan failed to unleash the "helicopter money" many expected his visit to the BOJ would deliver, Bernanke is back with another shocking policy appeal, this time not as a result of a trip to the Pacific Rim, but in a post on his Brookings Institute blog, titled "Modifying the Fed’s policy framework: Does a higher inflation target beat negative interest rates?" The post, when one cuts out the noise, is nothing short of praise for NIRP as an alternative to inflation targeting, and a strong suggestion that it should be implemented in the US if and when the US economy slides into recession next. Bernanke starts off by saying that while much of the recent "shift" in unconventional thinking has been to  advocate a higher inflation target, he believes that negative rates present an as good if not better option. The former Fed chairman says that "when the next recession arrives, there may be limited room for the interest-rate cuts that have traditionally been central banks’ primary tool for sustaining employment and keeping inflation near target. That concerning possibility has led to calls for a new monetary policy framework, including by Fed insiders like John Williams, president of the San Francisco Fed. In particular, Williams has joined Olivier Blanchard and other prominent economists in proposing that the Fed consider raising its target for inflation, currently 2 percent. If the Fed targeted a higher average level of inflation, the reasoning goes, nominal interest rates would also tend to be higher, leaving more room for rate cuts when needed. " Here Bernanke expresses his surprise that some of his "erudite", Ivy-educated peers have already dismissed the use of negative rates in the future. We assume he has purposefully ignored the repeated, ever louder complaints by Deutsche Bank and Credit Suisse as well as virtually every pension fund in the world, lamenting that they are slowly going out of business due to the twilight zone of unorthodox monetary policy:

Thomas Palley: The Fed’s Misguided Approach to Tightening - naked capitalism - Yves here. The William Gibson observation, “The future is already here — it’s just not very evenly distributed,” apples to America’s so-called recovery. The Fed has clearly been eager for some time to “normalize,” and has been eagerly seizing on shreds of data that confirm that stories it wants to tell, namely that its policies have been a great success and that it can now start rolling them back.  However, some experts have said that members of the central bank for the most part recognize that its QE and ZIRP experiments haven’t worked out as expected. Banks, who are suffering from a collapse in net income margins, the lifeblood of their profits, have been pressing the Fed to back out of its policy experiments and has been looking for any sign of improvement in the labor markets as an excuse to start raising rates. Even though some readers may question Thomas Palley’s acceptance of the Fed’s claims about the strength of the economy (for instance, claims about the difficulty of finding skilled workers has to be taken with a fistful of salt, since very narrow hiring specifications are a relatively recent development), he’s correct to point out that way the Fed proposes to go about it is half baked. Using the blunt instrument of a Fed funds rate increase is likely to do more harm than good and ignores better options.

Hillary Clinton and the Church of the Sacred Fed -- Dean Baker --Last week Hillary Clinton denounced Donald Trump for his comments on the Federal Reserve Board. Since Donald Trump called on the Federal Reserve Board to raise interest rates, which would slow the economy and destroy jobs, denunciations were certainly appropriate. But that is not the reason Clinton criticized Trump. Clinton said: "You should not be commenting on Fed actions when you are either running for president or you are president." If you're wondering where this view came from, it's known as the guiding doctrine of the "church of the sacred Fed." This religion is most closely associated with Robert Rubin, the notorious Wall Street banker and treasury secretary under President Bill Clinton. According to church doctrine, political figures, as mere mortals, are not supposed to talk about the interest rate policy pursued by the Federal Reserve Board. They are supposed to leave this in the hands of the select group of people who have been anointed into the church of the Fed. Many of us have problems with Robert Rubin's doctrine. First and foremost there is a serious issue of who gets anointed. The Federal Reserve Board's Open Market Committee (FOMC) that decides interest rate policy has 19 members. Twelve of these members (five of the voting members) are the presidents of the Fed's 12 district banks. They are selected through a process that is largely dominated by the banks in the district.  This is a problem for monetary policy since bankers are likely to be more concerned about inflation and less concerned about unemployment than the rest of us. At least two of the bank presidents have been yelling for years that the Fed needs to raise interest rates to stem inflation, even as inflation has consistently come in well below the Fed's targets.

Fed's Kashkari: The Fed's not the problem; this is why the economy isn't growing - Minneapolis Federal Reserve President Neel Kashkari told CNBC on Monday that the tepid economic growth in the U.S. is related to an aging population, lack of technological innovation and "psychological scarring coming out of the crisis," rather than monetary policy.  "We are seeing trends all around the world, low interest rates, low inflation, sluggish recovery amongst virtually all the advanced economies, and I am asking like many people are, why is that? What is the explanation?" said the Republican Fed governor. "The rule of thumb was, the deeper the recession, the stronger the recovery; yet we had the weakest recovery since the Great Depression."  Kashkari, a nonvoting member of the Fed's policymaking committee, believes the explanation for sluggish economic growth goes beyond the Fed's actions, and instead pertains to underlying issues such as a rapidly aging workforce. "Demographics is not a monetary policy problem. We are not going to solve demographic problems with low interest rates," he said. In this extensive interview ahead of the Fed's September policy meeting next week, Kashkari also discusses:

  • Whether the upcoming U.S. election influences the Fed's policies
  • His views on negative interest rates and inflation
  • Immigration reform and why it could strengthen the U.S. workforce

Key Measures Show Inflation close to 2% in August - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning: According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.8% annualized rate) in August. The 16% trimmed-mean Consumer Price Index also rose 0.2% (2.6% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.4% annualized rate) in August. The CPI less food and energy rose 0.3% (3.1% annualized rate) on a seasonally adjusted basis. Note: The Cleveland Fed has the median CPI details for August here.

Least productive sectors only thing keeping inflation going -  Central bankers think steady price increases are a good thing. After all, inflation makes it easier for employers to cut real labour costs and helps monetary policy boost the economy without having to lower (nominal) interest rates below zero. Whether or not you agree, we thought it would be interesting to look at which products explain the rise of American consumer prices since 1990. As it turns out, just as the bulk of the growth in employment can be attributed to a few sectors where productivity is either low or unmeasurable, a whopping 88 per cent of the total rise in the price level boils down to four sectors of the US economy: In January 1990, those four product categories only accounted for 30 per cent of the money spent on consumption by the average American. (Housing was about half that.) Even after more than a quarter-century in which prices of these goods and services rose significantly faster than everything else, these four sectors still account for less than 40 per cent of total consumer spending. Put another way, the Federal Reserve would have completely failed at both of its economic objectives had it not been for the dramatic expansion of a handful of low-productivity sectors.(The data used throughout this post and any that follow in this vein come from tables 2.4.3U, 2.4.4U, and 2.4.5U of the Bureau of Economic Analysis’s underlying detail tables, which provide monthly frequency and much higher granularity than the standard National Income and Product Accounts. Thanks to James Sweeney of Credit Suisse for pointing them out to us.) Relatively few dollars are spent on education compared to everything else, but inflation across the entire sector has consistently been far faster than in the rest of the economy. (The only thing that comes close is tobacco, which has been heavily influenced by changes in sales taxes.) This is all the more striking since the BEA estimates real spending on education hasn’t budged since the start of 2000, even though nominal spending grew at an annual average rate of 5.5 per cent:

Rate-Hike Odds Continue To Dip After Weak US Economic News -- Softer-than-expected data continues to weigh on the August economic profile for the US. Retail sales slumped last month as did industrial output; translating the numbers into year-over-year changes reveals a downside bias. Initial jobless claims remain a bright spot, although the August payrolls report that was published earlier in the month posted a sharp deceleration in growth. Although the macro trend for the US is still on track to remain positive, recent numbers raise the possibility that growth will remain sluggish. As a result, the Federal Reserve is unlikely to raise interest rates at next week’s monetary policy meeting.  By some accounts, the 0.3% slide in retail sales last month is perplexing. “The underlying fundamentals for the consumer remain quite strong,” says Stephen Stanley, chief economist at Amherst Pierpont. “That makes August’s clunker of a report a little hard to explain.”  Maybe so, but retail spending in year-over-year terms continues to drift lower. The 1.9% increase last month vs. the year-earlier level is close to the slowest annual growth rate in seven years (red line in chart below).  Meanwhile, industrial production’s contraction shows no signs of ending any time soon. Output fell last month for the first time since May, pushing the year-over-year change deeper into the red (blue line in chart above). Industrial activity’s annual pace has been negative for 11 straight months, dipping 1.1% in August vs. the year-earlier level.  The weekly numbers on jobless claims, by contrast, rose less than forecast and continue to print at levels that are near a 43-year low. Looking at the data in year-over-year terms (via inverted monthly averages) still points to healthy growth for the labor market. But as we learned earlier a few weeks ago, there’s still a fair amount of uncertainty for the labor market after learning that job growth in August slowed after perking up sharply in the previous two months. No surprise, then, that the Atlanta Fed yesterday trimmed its third-quarter GDP estimate to a 3.0% growth rate (seasonally adjusted annual rate). That’s still a healthy gain vs. the tepid 1.1% advance in Q2. But in the wake of recent numbers, it’s debatable if the upbeat projection will hold up by the time the Bureau of Economic Analysis publishes its preliminary Q3 GDP estimate on Oct. 29.

   Hostage to a Bull Market – WSJ - Ken Rogoff is a chaired Harvard economics professor, a one-time chief economist at the International Monetary Fund and (to boot) a chess grandmaster. He laid out his case against cash in a Saturday essay in this newspaper two weeks ago. By abolishing large-denomination bills, he said there, the government could strike a blow against sin and perfect the Federal Reserve’s control of interest rates.   Terrorists traffic in cash, Mr. Rogoff observes. So do drug dealers and tax cheats. Good, compliant citizens rarely touch the $100 bills that constitute a sizable portion of the suspiciously immense volume of greenbacks outstanding—$4,200 per capita. Get rid of them is the author’s message. In a deep recession, Mr. Rogoff proposes, the Fed ought not to stop cutting rates when it comes to zero. It should plunge right ahead, to minus 1%, minus 2%, minus 3% and so forth. At one negative rate or another, the theory goes, despoiled bank depositors will stop saving and start spending. According to the worldview of the people who constitute what Mr. Rogoff fraternally calls the “policy community” (who elected them?), the spending will buttress “aggregate demand,” thus restore prosperity.   You may doubt this. Mr. Rogoff himself sees difficulties. For him, the problem is cash. The ungrateful objects of the policy community’s statecraft will stockpile it.  What would you do if your bank docked you, say, 3% a year for the privilege of holding your money? Why, you might convert your deposit into $100 bills, rent a safe deposit box and count yourself a shrewd investor. Hence the shooting war against currency. If the author has his way, there will be no more Benjamin Franklins, only Hamiltons, Lincolns and George Washingtons. Ideally, says Mr. Rogoff, many of today’s banknotes will take the future form of clunky, base-metal coins “to make it even more difficult to carry large quantities of currency.”

Negative Rates Get a Second Look -  While the odds that the Federal Reserve will hike interest rates soon have fallen recently, so too has the likelihood that it will turn to another unpopular strategy to address the ailing economy: negative rates.Negative yields, which are particularly onerous to retirees who live off income from their bonds and cash accounts, flip the idea of interest on its head. Rather than getting paid on deposits, banks, businesses and savers can be charged a small amount for parking their cash. That penalty–critics call it a hidden tax on savers–is designed to encourage spending, investing and risk taking in hopes of promoting economic growth.Economic policymakers in Europe and Japan may be frustrated that the private sector is doing the opposite of what was expected. But by and large, businesses and consumers have been behaving in their own best interests. “Put yourself in the shoes of a consumer who is driving around in an 11-year-old car,” says James Paulsen, chief investment strategist and economist at Wells Capital Management. “If central banks around the world are having to resort to a policy so extreme that it wasn’t even used in the Great Depression, that will probably scare you to put more into savings and put duct tape on the car.” Lately, though, there have been signs this unconventional policy is backfiring. In Switzerland, negative rates are spurring businesses not to spend but rather to hoard cash outside the banking system. In Japan, which turned to negative rates in January in hopes of weakening its currency to spur exports, the yen actually strengthened against the dollar and is up 15% this year. In Denmark and Sweden, household-savings rates are rising, not falling, in response to this experimental policy. “This is another example of the rational economist not understanding the real world,” says Robert Pozen, a senior lecturer at MIT’s Sloan School of Management. He thinks it would be unwise for the Fed to turn to negative rates.

Negative Rates & The War On Cash, Part 4: "Financial Totalitarianism" - Nicole Foss -

In attempting to keep the credit bonanza going with their existing powers, central banks have set the global financial system up for an across-the-board asset price collapse: QE takes away the liquidity preference choice out of the hands of the consumers, and puts it into the hands of central bankers, who through asset purchases push up asset prices even if it does so by explicitly devaluing the currency of price measurement; it also means that the failure of NIRP is — by definition — a failure of central banking, and if and when the central bank backstop of any (make that all) asset class — i.e., Q.E., is pulled away, that asset (make that all) will crash. It is not just central banking, but also globalisation, which is demonstrably failing. Cross-border freedoms will probably be an early casualty of the war on cash, and its demise will likely come as a shock to those used to a relatively borderless world: The same confused, greedy and corrupt central authorities which have set up the global economy for a major bust through their dysfunctional use of existing powers, are now seeking far greater central control, in what would amount to the ultimate triumph of finance over people. They are now moving to tax what ever people have left over after paying taxes. It has been tried before. As previous historical bubbles began to collapse, central authorities attempted to increase their intrusiveness and control over the population, in order to force the inevitable losses as far down the financial foodchain as possible. As far back as the Roman Empire, economically contractionary periods have been met with financial tyranny — increasing pressure on the populace until the system itself breaks: Such attempts at total financial control are exactly what one would expect at this point. A herd of financial middle men are used to being very well supported by the existing financial system, and as that system begins to break down, losing that raft of support is unacceptable. The people at the bottom of the financial foodchain must be watched and controlled in order to make sure they are paying to support the financial centre in the manner to which it has become accustomed, even as their ability to do so is continually undermined:

 Why Governments Want a Central Bank-Issued Digital Currency - Why do central banks, which already fully control the issuance of currencies, need to bother with its own digital currency?  Unlike Internet banking and third-party payment services using traditional electronic payment tools to facilitate fiat money transmission, digital currencies represent a new class of technology. They are developed out of a number of brand new and groundbreaking technologies — they are not tools to transmit money; they are arguably money themselves.  Governments hate cash. This is to a great degree the reason that the governments want the central banks to issue their own digital currencies. For government, although cash is the original form of its fiat money, it has some obvious shortcomings. When compared funds stored in financial institutions, cash is less controlled by the government. Once cash leaves the banks, it becomes hard to trace. The government can’t know the location of each bank note, who owns it, or even if it still exists. This made cash easy to be used for drug dealing, smuggling, tax evasion, money laundering, and even funding terrorist activities. Meanwhile, cash owned by individuals can also be the target of burglars and robbers. What’s more important is that cash can undermine the effectiveness of the government’s negative interest policy. When the negative interest rates dropped to a unbearable level, savers would abandon the convenience and security of depositing money in banks — they may withdraw their money and store it at home in cash. This makes it hard to implement the negative interest rate policy. This is the very reason why the European Central Bank decided to stop issuing the 500-euro note while Lawrence Summers, the former US Treasury Secretary, advocated abolishing the 100-dollar note — prior to it, the US already stopped issuing the 500-dollar note and larger ones in 1945. However, as long as the public still have the ability to withdraw cash from banks, no matter how the government restricts the use of cash, there will still be a large amount of cash outside the government-controlled finance system. This is not something that the government wants to see. But, in a society where central bank-issued digital cash is fully adopted, CBDC can replace traditional form of money and achieve the central bank’s goal of removing cash. Once that comes true, the government can monitor its citizen’s personal financials down to every single transaction and invalidate ones that are deemed to be illegal. It also makes it impossible for people to withdraw cash and store it at home in response to negative interest rates. This will only serve to worsen the financial exploitation.

Deutsche Bank: The US May Now Be In A Recession - Three months ago, we presented an analysis which showed something disturbing: according to Deutsche, the "current business cycle is already the fourth longest in the post- WWII period, and the corporate debt-to-GDP ratio suggests that imbalances are building", and that worse, as a result of soaring corporate debt and rolling-over profit margins, "a recession could hit as soon as the second half." Overnight, and three months since its last such analysis, Deutsche Bank has published an update. It shows that, as illustrated in the chart below, profits per worker have generally trended higher over time. This is a function of productivity gains and inflation. However, this has changed in recent years.  "In the current business cycle, margins peaked at $18,752 per worker in Q4 2014. This compares to a ratio of $16,487 per worker as of Q2 2016. Margins have fallen because corporate profits have declined -6.3% annualized over the past six quarters, while private sector job growth over this period has been very steady at around 2.1%." As of the latest sector-level data available through Q1 of this year, domestic profits excluding petroleum and coal products and Federal Reserve Banks were down -5.2% compared to a year ago. In fact, this series has been declining in year-over-year terms since Q2 2015. This means that recent overall margin compression has had less to do with the strengthening dollar and depressed energy prices, and more to do with weak domestic demand coupled with near-zero growth in nonfarm business productivity. From Q4 2014, when profit margins peaked, to Q2 2016, domestic profits have declined by a little less than $200 billion. As we can see in the charts below, this compares to a negligible $10 billion decline in profits from outside the US over the same period. Not surprisingly, the decline in profit growth has occurred alongside a deceleration in domestic demand. The year-over-year growth rate of real final sales to private domestic purchasers peaked at 3.9% in Q1 2015 and has since slowed to 2.3% as of last quarter.

 Business Roundtable CEOs See Election as Latest Impediment to Stronger Growth -- WSJ: Chief executives see the economy stuck in slow-growth mode and appear to have little optimism November’s election will spark better gains. The Business Roundtable’s quarterly survey of CEOs, released Monday, shows the economic outlook among leaders of America’s largest businesses is little changed from a year ago. The coming election is one reason businesses are reluctant to increase capital investment or hire at a stronger pace, said Doug Oberhelman, CEO of Caterpillar Inc. and the group’s chairman. “At this time of every election cycle, especially after a two-term president, there is a degree of uncertainty,” he said. “We don’t have any direct way of knowing, whether it’s related to one candidate or another.” Regardless of which candidate wins the presidential election, Mr. Oberhelman said the business advocacy group’s agenda for 2017 will not change. The group will push for expanding free-trade agreements, lowering business taxes and reducing regulation. But neither Democratic candidate Hillary Clinton nor Republican nominee Donald Trump support the Trans-Pacific Partnership trade deal, a top priority for the group. Roundtable president John Engler said the group is pushing for Congress to vote on the deal before the end of the Obama administration. President Barack Obama supports the pact.

 RecessionAlert Weekly Leading Index Update --The latest index reading comes in at 19.4, down from the previous week's revised 20.7.RecessionAlert has launched an alternative to ECRI's Weekly Leading Index Growth indicator (WLIg). The Weekly Leading Economic Index (WLEI) uses fifty different time series from these categories: Corporate Bond Composite, Treasury Bond Composite, Stock Market Composite, Labor Market Composite, Credit Market Composite. RecessionAlert emphasizes that WLEI is a growth index and its data is no more than a week old, as is ECRI's WLIg.Here is an excerpt from the description: Being a weekly growth index, it provides data with at most a 1-week lag, which is far more timely than the lag found on monthly economic indicators. Additionally, it is published on Thursday afternoons, a full 18 hours before the widely known ECRI Weekly Leading Index. As with all weekly indices though, the data is far more volatile than monthly or quarterly indicators and the WLEI components are therefore subject to more false positives (calling recession when one does not occur.). The WLEI is heavily weighed toward financial market data, but the obvious advantage of this is that data revisions are minor and isolated to the Labor Market Composite and small portions of the Credit Market Composite.  RecessionAlert plans to add to the WLEI as they believe the categories are not broad enough to accurately predict all recessions. Link to description The first chart uses data going back to 1973 and includes recession starts.

The Charade That Deters the Use of “Direct Spending” to Fund Federal Operations -- J. D. Alt - Everyone realizes and acknowledges that sovereign nations which issue their own fiat currency can, technically, “print money” and spend it—but the vast majority of economic minds, especially in the western capitalist democracies, also view this possibility with something akin to a rational and moral horror, as they would view, say, the idea of burning down a house to get rid of the cockroaches. Part of the reason for this abhorrence is the myth that the practical result of “printing money” is, inevitably, the economic chaos of hyper-inflation. (This in spite of the fact that historical analysis demonstrates that the root causes of hyper-inflation—the infamous Weimar Republic or Zimbabwe, for example—have not been caused by “money printing” but, instead, by the collapse of the production capabilities creating things for the money to buy.) Another—and substantial—part of the psychological-economic anathema to the idea of “direct sovereign spending” seems to be a residual brain-circuitry from the era of the gold-standard—when printed money had to stand for some fixed amount of actual gold and, if it didn’t, the “printed money” was a fake. This is a mind structure that requires there to be in the world, at any given moment, a fixed amount of “money” that everyone must compete to have a share of. The idea of creating actual, “real” money out of thin air is simply not a possible reality—just like the alchemist’s dream of making gold out of lead is an ephemeral fantasy.So there are real cognitive disconnects involved here. But I think it goes deeper than that, and I believe if we are ever, as a society, going to take full advantage of the pure, sovereign, fiat money system we actually have been using for the past half century, we have to understand what that deeper issue is—and, most important, whether or not there is a way to overcome it. A possibility I’d like to explore here is that underlying our insistence that the federal government has to collect tax dollars (or borrow them) in order to have dollars to spend is an elaborate and elegant charade which has evolved to protect our bedrock values as individuals (private property and free-enterprise) against the coercive power of the state—a power we granted (with significant reluctance, no doubt) the day we signed our social contract. This charade has evolved to become an intricate form of social cooperation, supported by a complex, institutionalized, set of operations, measurements, social norms, and code words specifically designed to accomplish one primary goal: to keep the federal government perpetually short of spending power and, therefore, perpetually constrained in what it can undertake to impose upon our individual freedoms. To acknowledge that the state, in fact, actually creates the money we use—and therefore has no need, for the purpose of spending, to collect it back from us as taxes—would potentially unleash a monster that we fear (with real, historical, justification) might put us in chains. Unfortunately, in a functioning democracy, that monster is ourselves, and what we lose in keeping it encumbered is our ability to undertake an enormous range of cooperative tasks—activities and projects which would not only provide us with huge collective and personal benefits, but would, by the acts of doing them, enable us to employ every able-bodied person (and many disabled persons, as well) in work that is useful, interesting and, most important, payable of a living wage.

Obamacare will increase federal debt, not reduce it --The president has mostly avoided talking about the federal budget during his time in office, but he did promise that the Affordable Care Act — ObamaCare — would help lower deficits in the short and long term. CBO backed him up on this claim in 2010, estimating that the deficit would be reduced by 0.5% to 1.0% of GDP over the medium term. But the agency’s new forecast shows why the law is more likely to make the deficit worse, not better.The law’s spending is certain, and growing. Paying for it is another matter.A major source of revenue to finance the ACA is the “Cadillac” tax, a 40% excise tax on high-cost insurance plans. CBO estimated that the Cadillac tax would generate revenue equal to 0.6% of GDP annually by 2046. That’s almost the entirety of the expected deficit reduction CBO said the ACA would generate.The Cadillac tax will generate substantial revenue because the thresholds that determine whether insurance is “high cost” are indexed to general consumer inflation instead of health care cost growth. This was done to generate a growing wedge of federal revenue over time to offset the rising costs of ObamaCare. But the Cadillac tax is already on life support, before one dollar has ever been collected. The tax was supposed to go into effect in 2018 but was delayed until 2020 — a delay the president agreed to in response to strong opposition from businesses and unions. Few expect the Cadillac tax to survive, and there are good reasons to dislike it. The tax is unfair. The same 40% excise tax will apply to plans offered to CEOs and hourly wage workers. A better approach would limit the existing tax break for job-based insurance. That would promote more efficient and less costly insurance without imposing an unreasonable tax burden on lower-wage workers, but the prospects for this sensible reform are dim.

Doing Time: Prison, Law Schools, and the Membership of the US Supreme Court -- naked capitalism by Jerri-lynn Scofield -I was thinking about Obama’s stalled Supreme Court nomination of Merrick Garland the other day, and that conference in South Africa came to mind. And my memory of that made me realize exactly what I think was so wrong in Obama’s choice of Garland as his nominee for former Justice Antonin Scalia’s old seat– and in fact, in a wider sense, what’s missing from political debates about who should serve on the Court. Obama often seems to be shadowboxing with himself, and his pathological– and somewhat naive, IMHO insistence on bipartisanship– caused him to stumble badly in making this nomination. And not that I make that statement, I’m not viewing the appointment through the lens of identity politics that is common for assessing such appointments. When considering Supreme Court justices– all of whom usually share common elements of background and similar experience– we tend to use aspects of identity as a proxy for experience. Our current Supreme Court membership lacks any of the breadth of experience (not to mention any progressive sensibility) that characterized former members of the Court (with perhaps the exception of Justice Ruth Bader Ginsburg, who successfully litigated several important gender rights cases). But where is our Louis Brandeis– the so-called People’s Lawyer, who pioneered the use of science, and social science, in his “Brandeis brief”, and frequently acted on behalf of progressive legal causes that challenged monopolies and corporations and litigated aspects of workplace safety and pro-labor laws? And how about Thurgood Marshall, who successfully argued many cases key civil rights cases, the most famous being Brown v. Board of Education.  Merrick Garland is obviously intellectually able enough to serve on the Court (but more on that in a moment). He did, after all, graduate at the top of his Harvard College class. But at 63, he’s too old, too bland, too typical of the current mode of US Supreme Court justices, to be an apt choice for the position. Now, by too old, I don’t mean to imply he’s too old intellectually. But Presidents get very few chances to shape the membership of the Supreme Court, and Obama should have opted for someone younger, who would be expected to serve a longer term.

Building the case for greater infrastructure investment - Lawrence Summers - The case for infrastructure investment has been strong for a long time, but it gets stronger with each passing year, as government borrowing costs decline and ongoing neglect raises the return on incremental spending increases. As it becomes clearer that growth will not return to pre-financial-crisis levels on its own, the urgency of policy action rises. Just as the infrastructure failure at Chernobyl was a sign of malaise in the Soviet Union’s last years, profound questions about America’s future are raised by collapsing bridges, children losing IQ points because of lead in water and an air traffic control system that does not use GPS technology.  The issue now is not whether the US should invest more in infrastructure but what the policy framework should be. There are five key questions.

  • How much more do we need to invest? For the foreseeable future, there is no danger that the US will overinvest in infrastructure. An increase in investment of 1 per cent of gross domestic product over a decade would total $2.2tn and permit substantial steps both to catch up on deferred maintenance and embark on new projects.
  • What is the highest priority? The fastest, highest and safest returns are likely to be found where maintenance has been deferred. Maintenance outlays do not require extensive planning or regulatory approvals, so they can take place quickly. And they tend naturally to take place in areas where infrastructure is most heavily used.
  • How should investment be financed? There is a compelling case that infrastructure investments pay for themselves by expanding the economy and increasing the tax base. The McKinsey Global Institute has estimated a 20 per cent rate of return on such investments. If the return is only 6 per cent and the government collects about 25 cents on every dollar of GDP, it will earn 1.5 per cent on investments. This far exceeds the real cost of borrowing even over a horizon of 30 years.
  • What about the private sector? Some infrastructure priorities, such as replacing coal-fired power plants with renewables, expanding broadband networks or building pipelines, are clearly the responsibility of the private sector. Policy frameworks that streamline regulatory decision-making and reduce uncertainty could spur investment in these sectors.
  • How can we be sure investment is carried out efficiently? There is legitimate scepticism about this, and there is no silver bullet for this problem. Transparency of the type adopted for the Obama administration’s fiscal stimulus should become the norm.

 Report: Nearly $5 trillion and counting spent on Iraq and Afghanistan wars - -- The wars in Iraq and Afghanistan have cost U.S. taxpayers nearly $5 trillion and counting, according to an independent analysis conducted by a political science professor at Brown University. The calculations by Dr. Neta Crawford extend beyond the typical accounting of overseas contingency operations for the Defense and State Departments, which amounts to $1.7 trillion through 2016, according to her report issued late last week. Crawford also tabulated base and future budgets for the Defense Department, along with war-related Department of Homeland Security and Department of Veterans Affairs spending, which ballooned as the wars escalated and troops rotated home with injuries. The estimate includes budget requests in 2017 for operations in Afghanistan, where President Barack Obama has slowed troop reduction this year, and in Syria and Iraq, where airstrikes pound Islamic State group positions ahead of operations in Mosul and elsewhere to retake territory from the terror organization. The Pentagon requested $66 billion for operations in those three countries next year, according to the report. A strict count of dollars spent on ongoing conflicts “understate the wider budgetary impact of the wars and their long-term implications for U.S. federal and state government spending,” Crawford wrote. For instance, Crawford cites a $1 trillion price tag for VA costs through 2053 as the agency continues to add younger veterans seeking care despite a dip in overall veteran population. VA “had not anticipated the number nor the complexity of the new veterans’ medical needs,” the report stated, alluding to combinations of traumatic brain injury, post-traumatic stress disorder and complex blast injuries such as amputations, which were less survivable in earlier conflicts and require expensive lifetime care.

When pork flies: The F-35, the Pentagon’s $1.1 trillion flying money pit, is (sort of) ready for duty - Twenty years since the Pentagon began taking bids from defense contractors, the F-35 fighter jet — the most expensive weapon ever made — is finally ready to see active duty over the Pacific Ocean. The U.S. Marine Corps expects to deploy 16 of the stealthy high-tech warplanes early next year at Iwakuni Air Station in Japan. From there, U.S. pilots will begin testing the jets in regular noncombat operations from the Navy’s USS Wasp amphibious assault vessel in what one commanding general has described as the “school of hard knocks.”It’s a curious choice of words considering the checkered history of the much-maligned and madly over-budget F-35, which has basically been taking knocks since it was first  conceived.Years of delays, management shakeups, engine and software problems — and most important — cost overruns have made this Lockheed Martin jet initiative a punching bag and pork barrel project. As far back as 2001, the cost of the program was termed astronomical, with initial estimates pegged at $233 billion. The price tag has ballooned to about $400 billion, with plenty of glitches still to be worked out. (A high-ranking member of the Pentagon is denigrating the jets for their defects even as they’re being declared ready for combat.) Throw in the average price of $135 million a plane and pilot helmets that will run $400,000 apiece, and the total cost of the F-35 program will exceed $1.1 trillion.  In case you’ve been wondering where your hard-earned tax dollars go, now you know.

Kremlin: Obama's Trump criticism anti-Russian, won't foster better ties | Reuters- The Kremlin said on Wednesday it viewed U.S. President Barack Obama's recent statements on Republican presidential candidate Donald Trump as anti-Russian and said they were unlikely to improve fragile relations between Russia and the United States. Obama on Tuesday strongly criticized Trump for praising Russian President Vladimir Putin and for appearing on a TV channel, RT, funded by the Russian government. "Unfortunately, we see continued displays of often hard-core Russophobia," Kremlin spokesman Dmitry Peskov, commenting on Obama's intervention, told a conference call with reporters. "We can only express regret in this regard. "This rhetoric, which is being formulated in electoral campaign style ... is unlikely to help fledgling fragile attempts to build at least some sort of mutual trust."

Fooled Again - by Chris Hedges --The naive hopes of Bernie Sanders’ supporters — to build a grass-roots political movement, change the Democratic Party from within and push Hillary Clinton to the left — have failed. Clinton, aware that the liberal class and the left are not going to mount genuine resistance, is running as Mitt Romney in drag. The corporate elites across the political spectrum, Republican and Democrat, have gleefully united to anoint her president. All that remains of Sanders’ “revolution” is a 501(c)(4) designed to raise money, including from wealthy, anonymous donors, to ensure that he will be a senator for life. Great historical events happen twice, as Karl Marx quipped, first as tragedy and then as farce.   The multibillion-dollar extravaganza of our electoral Circus Maximus is part of the smokescreen that covers the ongoing devastation of globalization, deindustrialization, trade deals such as the Trans-Pacific Partnership, endless war, climate change and the intrusion into every corner of our lives by the security and surveillance state. Our democracy is dead. Clinton and Donald Trump do not have the power or the interest to revive it. They kneel before the war machine, which consumes trillions of dollars to wage futile wars and bankroll a bloated military. To defy the fortress state is political suicide. Politicians are courtiers to Wall Street. The candidates mouth the clichés of justice, improvements in income equality and democratic choice, but it is a cynical game.   Once it is over, the victors will go to Washington to work with the lobbyists and financial elites to carry out the real business of ruling.  While there is a difference in the temperament of the two major presidential candidates, that difference will play out only in how our poison will be delivered. Political personalities serve global corporate centers of power. They do not control them. Barack Obama illustrates this.   Corruption may be more naked and cruder in Afghanistan or Iraq, but it has its parallel in the for-sale politicians and political parties that dominate the United States and Europe. The common good—the building of community and solidarity — has been replaced through decades of corporate indoctrination with the callous call to amass all you can for yourself and leave the stranger bleeding on the side of the road.   Is the Goldman Sachs commodity trader, who hoards futures of rice, wheat, corn, sugar and livestock to jack up prices on the global market, leaving poor people in Africa, Asia, the Middle East and Latin America to starve, any less morally repugnant than the drug trafficker? Are F-16 pilots who incinerate families in Raqqa morally distinct from jihadists who burn a captured Jordanian pilot in a cage? Is torture in one of our black sites or offshore penal colonies any less barbaric than torture at the hands of Islamic State?   Are the decapitations of children by military drones any more defensible than decapitations of Egyptian laborers on a beach in Libya by self-described holy warriors?

Obama rallies TPP supporters in the Oval - President Barack Obama is scheduled this morning to host a handful of prominent government, business and national security leaders from both sides of the aisle at the White House, where they’re set to discuss the embattled trade deal, its benefits and what they can collectively do to get it implemented. At the top of the invite list are Ohio Gov. John Kasich, a former Republican presidential candidate, and former New York Mayor Michael Bloomberg, who considered an independent bid for the presidency this election cycle. Both Kasich and Bloomberg are longtime fans of free-trade deals and have spoken in support of the TPP in the past. So for Obama, the meeting appears less about convincing those in the room on the merits of the deal and more about winning broader support for it among establishment politicians, particularly Republicans. Notably, the meeting comes just a few days before U.S Trade Representative Michael Froman heads to Dallas to discuss the deal at the George W. Bush Institute and meet with the former president. During the meeting today, Obama will also talk about his recent trip to Asia — "which only underscored how important the TPP is to our leadership role in the region" — and discuss how the United States' standing in the Asia-Pacific region will be damaged if the deal is not passed, a White House official said. Read the full story from yours truly previewing the meeting here.

WikiLeaks’ Guccifer 2.0: Obama Sold Off Public Offices to Donors -- On September 13, WikiLeaks lived up to its promise of releasing more Democratic National Committee (DNC) documents. This time they were from hacker Guccifer 2.0, serving as a teaser for larger and likely more embarrassing leaks from the DNC and Hillary Clinton campaign.  Both the Democratic Party and Clinton campaign have attempted to insulate themselves from the content of the releases by alleging the hacks were organized by the Russian government. The claims are a mix of paranoia and PR/damage control, and will have enduring consequences. It may lead to what former Secretary of Defense William Perry referred to as a drift back into Cold War mentalities.The leaks include more evidence of overt corruption within the DNC. One email dated May 18, 2016, from Jacquelyn Lopez, an attorney with the law firm Perkins Coie, asked DNC staff if they could set up a brief call “to go over our process for handling donations from donors who have given us pay to play letters.”Included in the leak was a list of high-profile donors from 2008 and the ambassadorship they received in exchange for their large donation to the DNC and Barack Obama’s Organizing For Action (OFA). Essentially, Obama was auctioning off foreign ambassador positions and other office positions while Hillary Clinton served as secretary of state. The largest donor listed at contributions totaling over $3.5 million, Matthew Barzun, served as U.S. Ambassador to Sweden from 2009 to 2011, served as President Obama’s National Finance Chair during his 2012 reelection campaign, and now serves as U.S. Ambassador to the United Kingdom.  The second largest donor, Julius Genachowski, donated just under $3.5 million to the DNC and OFA, and in exchange was appointed chairman of the FCC by Obama in 2009.The third largest donor on the list, Frank Sanchez, donated just over $3.4 million and exchange was appointed to Undersecretary of Commerce for International Trade by Obama in 2010.

This Is How Much It 'Costs' To Get An Ambassadorship: Guccifer 2.0 Leaks DNC 'Pay-To-Play' Donor List After addressing a cybersecuirty conference in London, notorious hacker 'Guccifer' shared over 500Mb of documents detailing 100,000 DNC donors contact info and donations. A large number of the largest donors received senior diplomatic or political positions following thge donations, ranging from UK Ambassador to Assistant Attorney General. The DNC released a statement pre-emptively claiming that this was the work of Russia (and reigniting Trump's links to Putin). Source: The documents contained detailed lists of a 100,000 donors, addresses, and phone numbers, and well as amounts donated.. Source: imgur Here is the first cut of the major donors on the leaked documents and the positions they received (via

  • #1 Matthew Berzun … Ambassador to UK
  • #2 Julius Genachowski … Former chairman to FCC
  • #3 Frank Sanchez…. Under secretary of commerce
  • #8 Kirk Wagner… Ambassador to Singapore
  • #9 Alan Solomont … Ambassador to Spain
  • #11 John Roos… Ambassador to Japan
  • #12 Nicole Avant… Ambassador to Bahamas
  • #13 Eileen Chamberlain Donahoe … Ambassador to the UN
  • #16 Steve Westly – CFO of California
  • #17 Don Beyer – Ambassador to Switzerland
  • #21 Don Gips – Ambassador to South Africa
  • #22 Howard Gutman – Ambassador to Belgium
  • #24 Cynthia Stroum – Ambassador to Luxembourg
  • #27 Mark Gilbert – Ambassador to New Zealand
  • #31 Norm Eisen – Ambassador to Czech Republic
  • #37 Bruce Oreck – Ambassador to Finland
  • #43 Tony West – deputy Attorney General
  • #45 Bill Kennard – Ambassador to EU

How-To Discover Pay-to-Play Appointment Pricing -- You have seen one or more variations on:

You may be wondering why CNN, the New York Time and the Washington Post aren’t all over this story?  While selling public offices surprises some authors, whose names I omitted out of courtesy to their families, selling offices is a regularized activity in the United States.   So regularized that immediately following each presidential election, the Government Printing Office publishes the United States Government Policy and Supporting Positions 2012 (Plum Book) that lists the 9,000 odd positions that are subject to presidential appointment.   From the description of the 2012 edition:  Every four years, just after the Presidential election, “United States Government Policy and Supporting Positions” is published. It is commonly known as the “Plum Book” and is alternately published between the House and Senate.  The Plum Book is a listing of over 9,000 civil service leadership and support positions (filled and vacant) in the Legislative and Executive branches of the Federal Government that may be subject to noncompetitive appointments, or in other words by direct appointment.   These “plum” positions include agency heads and their immediate subordinates, policy executives and advisors, and aides who report to these officials. Many positions have duties which support Administration policies and programs. The people holding these positions usually have a close and confidential relationship with the agency head or other key officials.  Even though the 2012 “plum” book is currently on sale for $19.00 (usual price is $38.00), given that a new one will appear later this year, consider using the free online version at: Plum Book 2012.

Analysis: By 2025, 99.6% of Paul Ryan’s tax cuts would go to the richest 1% of Americans -- The House Republicans' proposal for tax relief could force the government to borrow trillions of dollars to continue operating and might even weaken the economy, according to a new analysis from the nonpartisan Tax Policy Center. By 2025, when the reductions would be fully implemented, 99.6 percent of the tax cuts would benefit the wealthiest 1 percent of Americans, according to the analysis. This group would enjoy the greatest relief as a share of their income (increasing their incomes after taxes by 10.6 percent on average) and in terms of dollars (an average annual savings of $240,000 for each household). Poor and working-class households would gain more modest benefits. The poorest 20 percent of Americans would see an average increase of 0.5 percent in their incomes, or about $120 a year. Households in the upper middle class, those in the 60th percentile through the 95th percentile, would pay more in taxes on average. The Republican proposal would reduce tax rates on marginal income, eliminate the estate tax and modify the corporate tax system to allow businesses to immediately write off any capital investments while also eliminating the deduction for interest payments. The plan was published earlier this year as part of House Speaker Paul Ryan's effort to lay out a comprehensive conservative agenda amid a presidential campaign that has been lacking in detailed debates over public policy.

Confused About Taxes – James Kwak - In the Times a couple of days ago, Gregory Mankiw made a half-hearted case for eliminating the estate tax that was so weak I’m not even sure he convinced himself. The core of his argument is that the estate tax violates the principle of horizontal equity, according to which “similar people should face similar burdens.” The problem, on his view, is that between two rich couples that each amass $20 million, the Profligates who consume their wealth before death end up paying lower taxes than the Frugals who maintain a modest lifestyle. “To me, this does not seem right,” Mankiw concludes.  First of all, it’s not even clear why this example violates horizontal equity. The Profligates and the Frugals are not “similar people”—Mankiw specifically constructed the example that way. They may have each earned the same amount of money, but they have vastly different consumption habits. Second, it’s not clear that the Frugals are paying more tax than the Profligates. Their estate will pay higher taxes, but by then they are dead; the estate tax does not directly limit their personal consumption in the slightest. In fact, the ones whose estate will pay the tax are the ones who apparently are not interested in consumption in the first place. Now, the defense of Mankiw is that the Frugals do care about how much money they can pass on to their children, so the estate tax does affect their utility. But that brings up the third, and most important point . . . Only an economist, and an economist of a certain type, could evaluate the fairness of the estate tax by comparing two wealthy families. Mankiw’s point is that the estate tax is unfair to the Frugals—as compared to whom, exactly? Remember, Mr. and Mrs. Profligate spent most of their money before they died; their children get next to nothing. The Frugals’ kids end up with about $16 million ($20 million less the 40% federal estate tax on the amount above the exemption), but they’re still the richest people in the story. The Profligates’ kids get the remaining crumbs of the parents’ once-impressive fortune—yet we’re supposed to feel sorry for the Frugals.

The Estate Tax Debate We Shouldn't Be Having - Barry Ritholtz -- Greg Mankiw, the Harvard professor and former adviser to President George W. Bush, has called for abandoning the estate tax. His argument, supported by anecdotal evidence and some wonky explanations, isn't terribly persuasive. But he did remind us that Democratic presidential candidate Hillary Clinton wants to "increase the tax by reducing the threshold to $3.5 million and raising the rate to 45 percent," while Republican nominee Donald Trump wants to eliminate it. At the very least, we should be thinking about what really should matter to the incoming administration. There are many other tax issues that are far more important than the estate tax. The current corporate tax system is a structural mess, and it is the most important tax issue facing the U.S. today. For proof of its absurdity, look no further than the egregious carried interest loophole.  The estate tax makes for a fun debate, despite the noise surrounding it. Ultimately it is not much of a priority for anyone other than hardcore ideologues. Unless you are an ailing billionaire who lacks appropriate professional advisers, it is simply not a pressing issue.  A few details that seem to get overlooked in these discussions: All estates are subject to federal tax laws, but nearly all do not pay any federal taxes (state taxes vary widely). Indeed, of the 2.5 million annual deaths in the U.S., only 5,000 estates are subject to the tax. As I previously noted, calling it the "death tax" is utterly misleading, considering 99.8 percent of all estates are exempt from it. We could go the opposite direction and call it the “Paris Hilton tax cut,” as E.J. Dionne Jr. did some time ago, but I prefer to call it the “no lawyer or accountant/who is your financial adviser/why don’t you do basic planning/are you an idiot?” tax.

 Report: Why We Need to Tax Corporations Now, More Than Ever -- naked capitalism Yves here. For a fiat currency issuer like the US federal government, taxes do not fund spending but serves other important purposes, like regulating economic activity. For instance, deficits are generally necessary to make up for systematic private sector underinvestment. Taxes serve to provide incentives (depreciation tax shields to encourage investment) and disincentives (“sin” taxes). This article, originally published at the Tax Justice Network, debunks many of the arguments used to claim that taxing companies at a lower rate is desirable: Last year we published a document entitled Ten Reasons to Defend the Corporate Income Tax, outlining how the tax is under constant attack, in country after country, and explaining why it is one of the most precious of all taxes. Now there’s another fascinating paper, rich in insight and detail, from US economist Kimberly Clausing, entitled “Strengthening the Indispensible U.S. Corporate Tax. While US-focused, it contains a lot of material that provides extensive further support for our own generic document, and argues that the corporate income tax is becoming more, rather than less, important in our tax system(s). It also argues that tax rates for capital, which is currently taxed at lower rates than labour is, should be harmonised with the labour rate, and supports so-called ‘formulary apportionment‘ approaches to taxing U.S. corporations internationally. One of the commonest lines of attack against the corporate income tax is a sensible-sounding argument that goes like this: investors in corporations receive dividends from corporate profits, and they pay taxes on those profits. So why not just tax the investors directly, the argument goes — instead of taxing the corporation itself? Like many sensible-sounding arguments, it falls apart under examination. This graph makes clear: only around a quarter of the owners of US corporate stock are taxable on those dividends. So not taxing corporations would be a massive handout.  There’s no particular reason why a similar pattern or worse wouldn’t be encountered in other countries: generally speaking, in smaller countries foreigners tend to own a larger share of equities. 

With data comes responsibility – macromom -- Cathy O'Neil's blog, mathbabe, has long been one of my favorites. She's a mathematician by training and her focus on data science speaks to the "empirical revolution" in economics.   Her first book, Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy, came out last week and I highly recommend it to economists working with Big (or small) Data. She discusses several examples of opaque, large-scale models which have proved costly and unfair to some individuals. (See also several reviews here.) Think of it as tales from the dark side of Big Data.  And with economists flocking to work with Big Data, hers is a timely read.  O'Neil is careful not to point a finger at either "Big Data" or "algorithms" in general but rather she is critical of how some models are designed and used, of the objectives set by people. I agree. It is a non-starter to blame our tools. Computers are stupid; they do exactly what we tell them to do. Excel spreadsheets don't make mistakes. I do. Like when I accidentally overwrote a number in a cell a few weeks ago. And that's not just in Excel. I have told computers to do stupid things with data in SAS, Visual Basic, Stata, Rats, R, etc. ... See a pattern? It's me. It's us. Not our algorithms. And yet, people are also the ones who set the goals, care enough to fix mistakes, and think about what it all means.  I see O'Neil's book as a useful counterweight to the positive news from economists on Big Data, machine learning, and the consumer benefits from data-driven algorithms. Levitt's analysis of Uber is just one recent example. And while his results may not be all that novel, the richness of the Big Data does open up a lot of potential to study behavior. But with this potential comes responsibility.  This bit near the end of her book captures the big picture well:"Big Data processes codify the past. They do not invent the future. Doing that requires moral imagination, and that's something only humans can provide. We have to explicitly embed better values in our algorithms, creating Big Data models that follow our ethical lead. Sometimes that will mean putting fairness ahead of profit."

  American Antitrust Is Having a Moment: Some Reactions to Commissioner Ohlhausen’s Recent Views: Over the summer, Federal Trade Commissioner Maureen Ohlhausen took me and several others to task in a speech, subsequently published as a journal article... The theme we’d all written about is whether we in the United States have a “monopoly problem,” and whether federal policy should try to do something about it. ...  Commissioner Ohlhausen had some pretty strong words. Specifically, she implies a very strong presumption against public interference in private markets, as indicated by her argument that there is not yet sufficient evidence that we have a monopoly problem. The argument seems to be that we must wait until we are very, very sure, beyond any reasonable econometric doubt, apparently, that there’s something wrong before we step in. ...She is mistaken, and she ignores roughly a library-full of well-known, sophisticated empirical work.In the end, the irony of these remarks is captured in this point: Commissioner Ohlhausen is pretty witheringly dismissive of a certain kind of evidence of market power, and implies that it would not support increased enforcement unless it can overcome a high methodological bar. But for her own countervailing evidence that in fact American markets are “fierce[ly] competiti[ve],” she says this:  “Consider the new economy, which is a hotbed of technological innovation. That environment does not strike me as one lacking competition.” In other words, the presumption against antitrust is so strong that evidence of harm must meet the most exacting standards of social science. To prove that markets are in fact competitive, however, needs nothing more than seat-of-the-pants anecdotes. Again, I mean no disrespect, and I think we have an honest difference of opinion. But this stance is not social science, and it is not good, empirically founded public policy. It is just ideology. ...

DOJ Proudly Trumpets Its Completely BS 91% FOIA Response Rate -- Lies, damned lies, and the DOJ's FOIA fulfillment rate.   Tom Susman, a member of the FOIA Advisory Committee, emailed the heads of the Justice Department’s Office of Information Policy (OIP) and Office of Government Information Services (OGIS) on the discrepancy between the misleading 91 percent FOIA release rate commonly cited by OIP – and repeated by the rest of the government – and the more accurate release rate calculated by the Archive and others of between 50 and 60 percent.  The only entity that believes the DOJ has fulfilled 9 out of 10 FOIA requests is the DOJ. Anyone on the receiving end of its "responses" finds this number laughable.   First off, the DOJ's apparently including the thousands of requests it fulfills years after they've been requested. It's also including partial responses. And its hit rate is greatly padded by "releases" in which nothing was actually released. In one recent example from the Department of Education, the agency “released” 200 pages of documents to a FOIA requester, only two of which were not totally redacted, and those two were correspondence from the requester. This, of course, would be counted as “released” under the 91 percent tally, but not in my universe. Also likely included in the DOJ's inflated sense of self-worth:

    • - Fulfillments where "no responsive documents can be found," even when it's clear there are documents to be found
    • - Responses where the DOJ has claimed it can't find documents it has already released publicly
    • - Responses where the DOJ has been forced to turn over documents by court decisions

The number released by the DOJ is just plain dishonest. It gives the "most transparent administration" a win it clearly hasn't earned and misrepresents the FOIA experience to the general public. It gives the DOJ something to further ward off FOIA reform attempts and implies that those who do complain about its general unresponsiveness are probably blowing things out of proportion.   As Lauren Harper of Unredacted points out, the touting of this bogus success rate only makes it less likely the federal government will seriously address its constant FOIA shortcomings.

Senator Elizabeth Warren Requests Formal Investigation About Why The Obama Administration Did Not Prosecute Wall Street: Massachusetts Senator Elizabeth Warren on Thursday requested a formal investigation into why the Obama administration did not bring criminal charges individuals and corporation involved in the 2007-2008 financial crisis. In a letter sent Thursday to Michael E. Horowitz, the Inspector General of the Department of Justice, Warren said her staff had found that members of the Financial Crisis Inquiry Commission (FCIC) had referred 25 cases to the Justice Department for potential prosecution. None of those referrals were pursued. “The Department has failed to hold the individuals and companies... accountable,” Warren wrote. “This failure requires an explanation.” Warren also wrote to the head of the FBI, James Comey, and asked him to release records of FBI investigations into financial misdeeds in the wake of the crisis, to further illuminate why the Obama administration decided not to prosecute firms linked to the financial crisis. The FCIC was a 10 member investigatory body tasked by Congress in 2009 to look into the root causes of the economic collapse. In 2011, the FCIC turned over a mountain of evidence to the Justice Department -- including whistleblower testimony, and internal bank documents. Though the FCIC wasn’t allowed to launch criminal investigations, it did make prosecutorial suggestions to the Department of Justice. Phil Angelides, who chaired the FCIC, applauded Warren’s demand for an investigation into why the referrals were not followed up. “This is in the public interest,” he told International Business Times. “We need to see if there was a fair investigation into what was happening on Wall Street.”

Elizabeth Warren Opens Pandora’s Box With Midnight Letters to DOJ and FBI -  In a 20-page letter to the Inspector General of the Department of Justice, Michael E. Horowitz, Senator Warren asked for an investigation into why the DOJ had failed to indict any of the Wall Street executives that had been referred to it for potential criminal prosecution by the Financial Crisis Inquiry Commission (FCIC). In a separate letter, Warren asked FBI Director James Comey for his related files.The FCIC released thousands of documents in March of this year, showing that it had made multiple criminal referrals to the DOJ. Warren wrote in her letter:“A review of these documents conducted by my staff has identified 11 separate FCIC referrals of individuals or corporations to DOJ in cases where the FCIC found ‘serious indications of violations[s]’ of federal securities or other laws.  Nine individuals were implicated in these referrals (two were implicated twice). The DOJ has not filed any criminal prosecutions against any of the nine individuals. Not one of the nine has gone to prison or been convicted of a criminal offense. Not a single one has even been indicted or brought to trial. Only one individual was fined, in the amount of $100,000, and that was to settle a civil case brought by the SEC.” This particular paragraph is a Pandora’s Box by a factor of $2.5 trillion. The two individuals Warren refers to who were “implicated twice” in the FCIC’s criminal referrals are Robert Rubin, the former Treasury Secretary in the administration of Bill Clinton, who in the lead up to the crash of Citigroup in 2008 served as Executive Committee Chair of Citigroup’s Board of Directors. (After advocating for the repeal of the Glass-Steagall Act, which allowed Citigroup to own both an insured depository bank, an investment bank and brokerage firm, Rubin went straight from his post as Treasury Secretary to the Board of Citigroup, where he collected $126 million in compensation over the next decade.) The other individual whose name appears twice is Chuck Prince, Citigroup CEO during its implosion. A third Citigroup executive’s name appears as well on the list: Gary Crittenden, the Chief Financial Officer of Citigroup at the time of its crash.

 A Dodd-Frank Rollback Bill Clears a House Committee - — A House committee on Tuesday approved a bill to roll back significant portions of the financial-crisis-era overhaul known as the Dodd-Frank Act in a vote that was largely down party lines.The legislation, the Financial Choice Act, is not expected to be adopted this year. But it could influence the broader debate over financial reform and provide a starting point for its sponsor, Jeb Hensarling, Republican of Texas and the chairman of the House Financial Services Committee, whose leadership role on the panel is set to end in two years.“He’s trying to frame the debate going forward and lay some groundwork for next year,” said Mark A. Calabria, director of financial regulation studies at the Cato Institute, and a former Republican staff member in the Senate. “This is your last window before the election.”The Financial Choice Act split the banking panel with a vote of 30 to 26, with just one Republican, Representative Bruce Poliquin of Maine, siding with the committee’s Democrats against it.Mr. Hensarling has been a prominent critic of Dodd-Frank and other changes after the 2008 financial crisis, including the creation of the Consumer Financial Protection Bureau to regulate the consumer finance industry. “It has been six years since the passage of Dodd-Frank. We were told it would lift our economy, but instead we are stuck in the slowest, weakest, most tepid recovery in the history of the Republic,” said Mr. Hensarling at Tuesday’s session. “The economy does not work for working people.”The legislation, which was unveiled in June, calls for numerous changes to Dodd-Frank. One provision would allow some of the largest banks to exempt themselves from some regulatory standards if they maintained an important ratio of capital to total assets at 10 percent or more. The bill would also repeal the Volcker Rule, which aimed to stop banks from making risky bets with their own money, and replace regulators’ authority to wind down troubled banks with a new chapter of the bankruptcy code. In addition, it would remove the Durbin Amendment, which set a limit on certain fees retailers are charged for debit card transactions.

You Couldn't Pick a Worse Time to Weaken Bank Regulation | Bank Think: This week the U.S. House of Representatives took up a bill to revise the Dodd-Frank Wall Street Reform and Consumer Protection Act that was passed after the global financial crisis of 2008. It will never become law. Even if the House passes it, the Senate probably won't — and if both do President Obama has vowed to veto it. Good. It's dumb legislation. I won't go into all the reasons why it is foolish to scrap the Volcker rule that puts up some barriers to permitting banks to borrow at near-zero interest rates from the Fed and use that money to speculate, or why it's not smart to end the authority of the Financial Stability Oversight Council to designate financial firms as "too big to fail," or any of the other many reasons why politicians are on the wrong side of this one. You would have thought that last week's announcement that Wells Fargo had agreed to pay $185 million in penalties over claims employees had opened unauthorized customer accounts would be enough to remind policymakers that we need regulations. And I'm a banker. The politicians supporting this legislative weakening of restrictions are supported and even pushed by a number of pundits as well as many of my brethren on Wall Street who seek to weaken major parts of Dodd-Frank and resist any return to the days of Glass-Steagall — the Depression-era law that prevented banks from taking excessive risk and that was repealed during the Clinton administration. These politicians, pundits and bankers insist that the separation of banking from risk-taking is unnecessary and puts the U.S. at a disadvantage compared to our European and Asian counterparts. As evidence, some assert multiple reasons why neither Dodd-Frank nor the evisceration of Glass-Steagall would have prevented Wells Fargo's fraud or the 2008 financial Crisis. Not so fast.I have no argument that thin capital standards, easy Fed policies and politicians contributed mightily to the 2008 housing crisis, the tech crisis in 2000, the savings and loan crisis of the late 1980s and a score of smaller catastrophes. But there can also be no doubt that the risk-taking culture of many banks contributed to these as well as to the recent Wells Fargo fiasco. And there can be no argument that this culture must change. As a start, we need to strengthen, not weaken, all the relevant legislation. And then we need to work on changing culture.

Fed Becomes Latest Cheerleader for Glass-Steagall-Like Reform | Bank Think - Wall Street bankers are not happy, and for a good reason. First, both presidential candidates in this unpredictable campaign season openly endorsed reinstatement of the Glass-Steagall Act that, until its repeal in 1999, kept banks out of risky capital market activities and prevented the growth of huge financial supermarkets. And now, the Federal Reserve has publicly called for Congress to repeal parts of the very same Gramm-Leach-Bliley Act that formally ended the Glass-Steagall era in 1999.In a surprising move, the Fed recommended removing statutory provisions that authorize big banks to operate in-house private equity funds and to run physical commodity empires. Though carefully avoiding any reference to restoring Glass-Steagall, the Fed nevertheless took a crucial step in the direction of much-needed restructuring of the U.S. financial sector. Now, the next presidential administration — whoever is at its helm — has a concrete set of regulator-backed legislative measures on which to start building its Wall Street reform agenda.The Fed's recommendation is part of a long-awaited multiagency report that Congress mandated with Dodd-Frank back in 2010, in an effort to get a clearer picture of what exactly our banks had been doing to grow so big and risky. U.S. bank regulation has traditionally been based on the fundamental principle of keeping banking separate from any and all nonbanking, commercial business. Strict activity limitations are designed not only to protect publicly insured banks from unnecessary risks, but also to ensure that banks allocate credit to commercial firms in a fair and efficient manner. With the passage of Gramm-Leach-Bliley, however, the traditional legal separations between publicly subsidized banking and general commerce became much fuzzier and harder to police. The 1999 law authorized formation of big bank conglomerates with wide-ranging powers not only to trade and deal in securities and other risky financial instruments, but also to invest in purely commercial companies.

Federal Reserve stress test may be illegal: banking group | Reuters - The Federal Reserve may have violated the law in adopting key parts of the bank stress tests, according to a study released on Thursday from a group whose members include large Wall Street banks. The paper from the Committee on Capital Markets Regulation, a not-for-profit organization whose members include executives from banks including Goldman Sachs Group, JPMorgan Chase & Co, Wells Fargo & Co and UBS Group details the latest argument that banks could make if they sued the Federal Reserve over the tests. It is rare for banks to sue their regulators but sources familiar with the matter have said that a potential lawsuit is being considered. The report says that the Fed has likely not complied with the so-called Administrative Procedure Act which states that federal agencies must provide the public notice of proposed rules and an opportunity to comment on them. The Fed's annual stress tests, known as CCAR, evaluate if the largest U.S. bank holding companies have enough capital to withstand an unforeseen crisis, with stock markets dropping precipitously. Since the financial crisis, regulators have been increasing capital requirements for banks with the intention of making the financial system safer.

Fed's Tarullo: Wells Fargo case shows bank behavior hasn't 'changed enough' since crisis - The latest scandal involving Wells Fargo shows that bank behavior hasn't "changed enough" since the financial crisis, said Federal Reserve Governor Daniel Tarullo on Friday. While declining to talk about the specifics of the Wells Fargo case, Tarullo said too many banks still only respond to particular ethical lapses instead of putting in place comprehensive compliance programs. In an interview on CNBC, the Fed governor said he wanted regulators to hold individuals at bank responsible for inappropriate behavior rather than simply have firms pay fines. Even criminal prosecution of bank officers should be pursued "in order to make the point that there is individual culpability," Tarullo said. On Thursday, Wells Fargo was hit with a $185 million fine from the Consumer Financial Protection Bureau after an investigation by federal and local officials found bank employees signed up existing bank customers to credit-card and other accounts without their knowledge in order to meet internal sales targets.

Wells Is Exhibit A of Employee Incentive Failures | Bank Think: "You get what you incent." That's the common theme behind most financial scandals, including Wells Fargo's $185 million settlement with federal regulators and the Los Angeles city attorney over allegedly unauthorized account openings. The improper practices, known as "bundling" and "sandbagging" by Wells employees, were fueled by an incentive system that paid employees based on the number of accounts opened. Incidents like these are an inevitable byproduct of modern management's attempts to "reverse engineer" corporate performance by breaking broad corporate goals into component parts and pushing those parts down the organization structure, layer by layer. Those key performance indicators, or KPIs, become the biggest component of employee performance evaluations and the key to how much money individual employees make. It seems like a perfectly reasonable way to translate broad strategy into individual performance goals. But as KPIs move down the management structure and are embedded in compensation decisions at lower and lower levels, they become increasingly narrowly focused, more and more detached from broader goals. Keep in mind that front-line employees have no real input into their own goals, which are set for them, but receive constant feedback on "how they're doing" on KPIs communicated from the layer above. It's no wonder they resort to gaming the KPIs for personal advantage—whether to make more money or avoid being fired. From their perspective, the whole system looks like a game, unrelated to their day-to-day experience with customers. That's clearly what happened at Wells Fargo. By the time the corporate goal of maximizing the number of product relationships per customer—the sacred "cross sale ratio" that had been Wells' best calling card with equity analysts for years—made it to the front line, it incented those employees to create bogus accounts to drive up their KPI numbers. Over 5,000 Wells employees ended up losing their jobs when all this was uncovered. One hopes that more than one or two of these were senior managers, although Wells is not telling.

Wells' Risk Management Tools Should Have Caught This Sooner | Bank Think -- As a risk professional who has admired Wells Fargo for many years as a paragon of risk management, reading the Consumer Financial Protection Bureau's press release regarding the bank's alleged pervasive and fraudulent practices of opening unauthorized deposit and credit card accounts was like finding out your favorite professional athlete just failed a drug test. What lessons can be learned from this episode? First, the extensive set of risk governance practices imposed on the largest banks in the country failed miserably. Regulatory lapses must be plugged. And, if the banking sector is ever going to extricate itself from periodic bouts with stupidity, investors, regulators and bankers must address incentive compensation plans squarely. What's interesting about Wells Fargo is that they have historically managed risk well. But unlike credit or market risk, which both can be measured and monitored fairly well, the bank clearly was unable to identify the degree to which employee business practices were creating extensive operational, reputational and regulatory risk for the firm. Now, a collective set of penalties totaling $185 million isn't even a flesh wound to the bank's net income, which in the second quarter of 2016 was $5.6 billion. But the fallout for a company like Wells Fargo, notwithstanding its status as a favorite of Warren Buffett, is costlier in terms of the tarnish to a great brand. When another bank with strong risk management roots, JPMorgan Chase, stepped into major headline risk with the London Whale scandal, the company faced massive scrutiny (albeit well after the fact) by the Office of the Comptroller of the Currency, an angry Congress and investor turmoil for some time. However, Wells Fargo finds itself in a bit of a different predicament as the incident wasn't just some arcane derivatives trading gone wrong but a pervasive effort to create a massive number of unauthorized consumer accounts. This activity severs the very foundation of the bond between customer and bank that even in the digital age is priceless.

  Wells Fargo Case Throws Harsh Spotlight on 'Managing to Metrics' | American Banker: Banks' cross-selling and employee incentive practices are in for a thorough reappraisal following the revelation that thousands of Wells Fargo employees opened unauthorized bank and credit card accounts. The habit of "managing to the metric," in which salespeople focus on quotas and incentive goals while executives obsess about earnings targets, was the likely culprit behind Wells employees' attempts to game the system, critics said. As a result, regulators, analysts and investors are likely to take a hard look at how other banks push employees to sell multiple products to customers. "The industry may face more scrutiny as it relates to cross selling and the underlying incentives that spur that cross selling activity on the part of employees," Allen Tischler, senior vice president at Moody's Investors Service, said in an interview. Wells appeared to already reach the conclusion that sales goals were part of its problem. The bank announced Tuesday that it was eliminating product sales goals for employees in retail offices. "We want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers," Wells CEO John Stumpf said in a statement. The move comes ahead of scrutiny on Capitol Hill and policymakers. The Senate Banking Committee is expected to hold a hearing Sept. 20 on the enforcement action, which will likely focus on executive compensation. Treasury Secretary Jack Lew on Tuesday signaled he was also concerned with improper incentives.

 Wells Fargo scandal: Elizabeth Warren wants answers - Wells Fargo CEO John Stumpf is being called on by Senator Elizabeth Warren and her Senate colleagues to testify on his bank's stunning fake account scandal. Warren joined four other Senate Democrats on Monday in demanding the U.S. Senate banking committee hold "immediate" hearings to "fully investigate the matter." "This was a staggering fraud," Warren told CNN's Jake Tapper last week. "The magnitude of this situation warrants a thorough and comprehensive review," reads the Senators' letter to Richard Shelby, the Republican chairman of the committee. The call for Stumpf to testify comes amid national outrage after federal regulators last week said Wells Fargo (WFC) secretly created millions of unauthorized bank and credit card accounts since 2011. The bank said it has fired 5,300 employees over the past few years for improper sales tactics. The Consumer Financial Protection Bureau, the regulatory brainchild of Warren, slapped Wells Fargo with a record $100 million fine over the illegal activity. All told, including fines from other authorities, the bank has to pay penalties totaling $185 million. It's not clear if Stumpf will agree to testify nor if an actual hearing will be held. A Wells Fargo spokesperson said she hadn't seen the letter yet. Warren, a longtime proponent of breaking up big banks, expressed skepticism that Wells Fargo management was unaware of the illegal activity. "Come on...this went on for years and they didn't smell anything in the air about fake accounts?" she said.  If Wells Fargo senior executives were truly in the dark, Warren said that means "this is simply a bank that is too big to manage."

Wells Fargo Exec at Center of Scandal Gets Huge Payday - Wells Fargo & Co’s “sandbagger”-in-chief is leaving the giant bank with an enormous pay day—$124.6 million.In fact, despite beefed-up “clawback” provisions instituted by the bank shortly after the financial crisis, and the recent revelations of massive misconduct, it does not appear that Wells Fargo is requiring Carrie Tolstedt, the Wells Fargo executive who was in charge of the unit where employees opened more than 2 million largely unauthorized customer accounts—a seemingly routine practice that employees internally referred to as “sandbagging”—to give back any of her nine-figure pay.On Thursday, Wells Fargo agreed to pay $185 million, including the largest penalty ever imposed by the Consumer Financial Protection Bureau, to settle claims that that it defrauded its customers. The bank’s shareholders will ultimately have to swallow the cost of that settlement. The bank also said it had fired 5,300 employees over five years related to the bad behavior.Tolstedt, however, is walking away from Wells Fargo with a very full bank account—and praise. In the July announcement of her exit, which made no mention of the soon-to-be-settled case, Wells Fargo’s CEO John Stumpf said Tolstedt had been one of the bank’s most important leaders and “a standard-bearer of our culture” and “a champion for our customers.”On Thursday, Richard Cordray, the head of the CFPB, said, “It is quite clear that [the actions of Tolstedt’s unit] are unfair and abusive practices under federal law. They are a violation of trust and an abuse of trust.”A spokesperson for Wells Fargo said that the timing of Tolstedt’s exit was the result of a “personal decision to retire after 27 years” with the bank. The spokesperson declined to comment on whether the bank was considering clawing back Tolstedt’s back pay.

Wells Fargo Exec Who Oversaw Fake Accounts Received $125 Million Upon Recent Retirement, Praise from CEO; Senate Hearings Next Week - Yves Smith - Sanctimonious Wells Fargo, which was a major perp in foreclosure abuses, has finally managed to go too far. Even normally complacent institutional investors are disturbed by the desperation of Wells Fargo to throw customers illegally under the bus to wring some incremental revenues out of them.  Adding fuel to the fire is the revelation by Fortune that the officer on whose watch this abuse took place, one Carrie Tolstedt who conveniently resigned at the end of July, identified by an alert NC reader the day the scandal broke, made off with a cool $125 million. From the Fortune story: When Tolstedt leaves Wells Fargo later this year, on top of the $1.7 million in salary she has received over the past few years, she will be walking away with $124.6 million in stock, options, and restricted Wells Fargo shares. Some of that hasn’t vested yet. But Tolstedt gets to keep all of it because she technically retired. Had she been fired, Tolstedt would have had to forfeit at least $45 million of that exit payday, and possibly more.  That stands in contrast with $185 million in fines paid to the CFPB, the Los Angles City Attorney, and the OCC, and does not include the multi-million amounts she also received in annual pay.  The Fortune article also states that:Tolstedt was in charge of community banking during the entire time the “sandbagging” operation took place Her success in cross selling was repeatedly cited in annual proxies as the reason for her ~ $9 million in yearly.  When she resigned, “John Stumpf said Tolstedt had been one of the bank’s most important leaders and ‘a standard-bearer of our culture’ and ‘a champion for our customers.’ ” Fortune stresses that the Wells’ post-crisis clawback policy would appear to give it the power to rescind some of Tolstedt’s pay, yet management appears to have no intention to do so. One has to wonder if that’s because if she really has retired, she’s already stashed away enough millions that she could afford to wage a court battle to argue that she was acting with the knowledge and authorization of top management and thus should not bear the full brunt of financial punishment. And it’s not hard to see that any serious pursuit of who knew what when would almost certainly implicate top level executives, and Stumpf in particular. One sour note in Fortune article is the failure to question the bank’s claim that 5,300 employees who engaged in cross selling abuses were fired. That figure covers terminations over the period that the regulators and City Attorney investigated, from 2011 through 2015.

Wells Fargo CEO Throws Employees Under The Bus: "There Was No Incentive To Do Bad Things" Earlier today we reported that as a result of the public (and market) outrage following news that Wells Fargo rewarded Carrie Tolstedt, the head of the group that was recently exposed as creating some 2 million fake credit card and bank accounts so it could churn late fees, and was in charge of what the bank's employees called "sandbagging", was leaving the bank with a $125 million package, this morning a panicked Wells Fargo said that it would eliminate all product sales goals in retail banking, starting next year. That, however, was as far as CEO John Stumpf was willing to go. As the WSJ reported, the CEO of what until today was America's largest bank by market cap, but is no more after a 4% drop in its stock price that sent JPM to the top position, spoke publicly Tuesday for the first time since the bank was slapped with a $185 million fine last week over its sales practices, defending the firm and the work he said it had already been doing to weed out bad behavior.  However, the one question everyone wanted answered - who did the buck stop with at Wells Fargo - remained unanswered as Stumpf "deftly" redirected. In his WSJ interview, Stumpf wouldn’t comment on who was ultimately responsible for the practices and sales-driven culture that led employees to open as many as two million accounts without customers’ knowledge. Mr. Stumpf said that at the bank, “There was no incentive to do bad things."  Yes, he really said that, clearly unaware that no manager ever "incentivizes his workers to do bad things", and yet banks have paid over a quarter of a trillion in legal fees and settlements since the financial crisis for doing "bad things": In any case, since Stumpf's story was that managers did not "incentivize" employees to engage in criminal activity, the fault lay with the workers themselves. As the WSJ writes, "Mr. Stumpf appeared to lay blame for the problems with the employees involved than with any flaw in Wells Fargo’s systems or culture. He said that some employees won't “honor” the bank’s culture and that the bank had changed its sales goals to put in more discipline and to take “more risk off the table."

Wells Fargo CEO John Stumpf Blames Nasty, Scheming Employees for Fake Accounts Scandal  -Yves Smith --What happened to hoary old ideas of leadership like “The buck stops here”? In our Brave New World of elite impunity, if Wells Fargo’s John Stumpf had been the captain of the Titanic, not only would the crash be the fault of the iceberg, but he would also make sure he got the first seat on the lifeboat.  In an exclusive interview with the Wall Street Journal, Stumpf made the intelligence-insulting claim that the opening of a total of over 2 million bogus accounts was the result of nefarious plotting by ruthlessly clever employees, victimizing Stumpf as much as the customers themselves. From the Journal: Chief Executive John Stumpf defended the firm and the efforts it had taken to stop the behavior, which included opening accounts for customers without permission. “There was no incentive to do bad things,” Mr. Stumpf said in an interview with The Wall Street Journal. He called the conduct that led to last week’s settlement with federal and local authorities “not acceptable,” adding that the bank doesn’t “want one dime of income that’s not earned properly.” At the same time, the San Francisco bank said it would soon eliminate the practices at the center of the controversy: branch-level sales goals that encouraged employees to cross-sell products to customers.  As we’ve stressed, retail banks are highly controlled organizations. Lower level staff and their supervisors are closely monitored and have very little discretion. Branch-level activities are subject to strict protocols designed and rolled out across the entire retail banking operation. Needless to say, it wan’t hard for the Journal to find sources that disputed Stumpf’s flattering account: Many of the employees felt pressure to sell customers multiple products or services—for example, home-equity lines to certificate of deposit holders—to stay in their jobs or earn bonuses tied to sales goals, according to interviews with current and former Wells Fargo workers. Some branch employees met with their managers several times a day to report their progress on meeting cross-selling targets, they added… As members of the commentariat pointed out, and we neglected to mention in our coverage, most of the 5,300 employees that Wells piously claims were fired for cross-selling abuses from 2011 to 2015 were almost certainly booted for missing targets or other issues. The Los Angeles City Attorney didn’t begin its investigation until early 2014, which means it’s highly unlikely anyone was terminated prior to then for being overly zealous.  Even the normally pro-big-business, anti-regulatory readers of the Wall Street Journal weren’t buying Stumpf’s spin. The comments were overwhelmingly skewed against him. Some examples:

How Regulation Failed with Wells Fargo - The New Yorker - If you Google the phrase “bank cross-selling,” you don’t get many hits about the recent Wells Fargo scandal, in which thousands of bank employees were fired for the most blatant sort of corporate fraud. “Team members,” as Wells Fargo prefers to call its employees, had strict mandates to sign existing customers up for additional products. Someone with a savings account should be convinced to open a checking account, get a credit card, transfer a 401(k), and maybe even take out a mortgage. The sales targets were so high that many employees found them impossible to meet, until someone hit upon an ingenious solution: ignore the customers’ wishes, as well as banking law and basic ethics, and open up new accounts even when the clients had asked them not to. In some cases, customers were charged late fees on accounts they hadn’t requested and that they didn’t know they had. But none of that comes up in a search for “bank cross-selling.” Instead, that search gives you a quick peek at the pressures that employees of every bank must be feeling. Here are the top results when I conducted that search: “9 Keys to Bank Cross-Selling Success,” “7 Common Sense Ways to Increase Bank Cross-Selling,” “8 Steps to Improved Bank and Credit Union Cross-Selling,” “Kicking it up a notch: Taking retail bank cross-selling to the next level.” It goes on for pages. It’s a simple idea. The average account—checking, savings, credit, whatever—doesn’t bring in much profit to a bank.  But banks make a huge amount on some of their products, like mortgages. By increasing the average number of products each customer has at Wells Fargo, the bank has a much higher chance of attaining the truly high-value ones.  Wells Fargo has about seventy million customers. In the past thirteen years, during its cross-selling mania, Wells has increased the average number of products, per customer, from about four to more than six. That means it has sold a hundred and forty million more products than it would have otherwise, transferring more of its accounts from that forty-one-dollar low end toward the thousand-dollar high end. Cross-selling gained Wells Fargo enormous sums of money—as well as praise and envy—from its rivals in the banking industry. The fines against the bank are just a tiny fraction of the profits they earned. The message seems quite clear: encourage aggressive cross-selling at all costs, even if it leads to some fraud. The basic math of financial regulation is heartbreaking, a sign of just how little effect even the harshest penalties have on the industry. The relative size of the two groups—the watchdogs and those they watch—is fundamentally lopsided. The entire budget of the C.F.P.B. is a little more than six hundred million dollars a year. Wells Fargo’s revenues are more than eighty billion dollars. And Wells is just one of thousands of banks, insurance companies, and other institutions that the C.F.P.B. is mandated to monitor.

Wells Fargo Can Make Pivot Needed in Wake of Scandal, CFO Says - Wells Fargo & Co. can adapt to adjustments needed to deal with claims the bank opened 2 million customer accounts without authorization, violations that weren’t revenue-generating, Chief Financial Officer John Shrewsberry said. “We think we can adapt our business model, take sales goals out and still have a growth culture with people trying to deepen relationships with customers,” Shrewsberry said Tuesday at a conference in New York. “I think we can make this pivot in a way that protects our business model.”  Chief Executive Officer John Stumpf, 62, was asked to testify in Washington on the bank’s alleged misconduct after it agreed to pay $185 million in fines over claims that it opened the unauthorized accounts. The San Francisco-based company eliminated sales goals, effective Jan. 1, and instructed U.S. call center workers to temporarily halt cross-selling of financial products. “These bad practices were not a revenue-generating activity, it was really more at the lower end of the performance scale where people apparently were making bad choices to hang on to their job,” Shrewsberry said. “Ninety-nine percent were getting it right, 1 percent of people in community banking weren’t.” The CFO said about 10 percent of the 5,300 employees terminated as a result of the problem were managers. The bank refunded $2.6 million in fees for about 115,000 unauthorized accounts, or about $25 per account, he said. Two-thirds of those affected were in the U.S. Southwest, according to Shrewsberry. Wells Fargo increased staffing at call centers to deal with an expected increase in customer questions and complaints about the matter, and “got very little feedback,” Shrewsberry said.

Wells Fargo is 'too big to regulate, manage,' says trade group CEO - Wells Fargo's scandal over unauthorized accounts shows that the bank is "too big," according to one expert. Officials announced last week that Wells Fargo will pay $185 million in penalties and $5 million to customers for opening fee-generating accounts without authorization. Over a five-year period, 5,300 Wells Fargo employees were fired over the practice cited by the Consumer Financial Protection Bureau, CNBC confirmed with Wells Fargo. The activity occurred in the company's community banking division. "This is the dictionary definition of too big to manage and too big to regulate, isn't it? That's what too big to manage and too big to regulate looks like," Camden Fine, president and CEO of Independent Community Bankers of America said Wednesday on CNBC's "Power Lunch." The ICBA is a trade group that represents thousands of community banks. The number of employees involved indicates this was a systemic issue and not just overambitious staffers, Fine said. He explained that it is a company's senior leadership that sets the culture and expectations. "So either Mr. Stumpf and his senior executives set an inappropriate culture and expectations or they can't get their arms around their own organization. It's as simple as that," Fine said. Leaders of the bank should be held accountable in whatever way regulatory authorities determine is appropriate, he said.

 Wall Street Today: Fake Accounts, Fake Money, Fake Courts, Fake Regulators -- Pam Martens  --Last Thursday, the Consumer Financial Protection Bureau (CFPB) announced that Wells Fargo was paying $185 million in fines and penalties for allowing its employees to open “more than two million deposit and credit card accounts” that were not authorized by its customers. The employees were attempting to “hit sales targets and receive bonuses.” In one of the most audacious forms of bank fraud, according to the CFPB, employees actually “transferred funds from consumers’ authorized accounts to temporarily fund the new, unauthorized accounts.”  Fake accounts are just the latest alchemy on Wall Street. Let’s not forget that Bernard Madoff was generating fake statements to thousands of clients showing that $65 billion in fake money was in their accounts as the industry’s top watchdog, the Securities and Exchange Commission (SEC), ignored the repeated warnings from whistleblower Harry Markopolos for years. But Ponzi schemers are not the only source of fake money on Wall Street. Just consider how the Federal Reserve secretly funneled $13 trillion in cumulative, below-market-rate loans to some of the most hubristic banks on Wall Street and on foreign shores during the 2007 to 2010 financial crisis. How did the Fed create that money without any appropriation from Congress? It simply pressed a button.  Wall Street is able to sustain its business model of fraud because it has fake courts to hear cases brought by its customers and employees. Wall Street is the only industry in America which universally requires by written contract that its customers and employees agree to use its private justice system prior to opening an account or getting a job. That system, called mandatory arbitration, is overseen by Wall Street’s crony self-regulator, Finra, and offers none of the protections of the nation’s taxpayer-funded courts where juries are randomly selected from a broad  base of the population, decisions are based on case law, and higher courts can hear appeals. Gloria Steinem once called the system “McJustice.”  Then there are the fake regulators of Wall Street who seamlessly move from their multi-million dollar pay packages at corporate law firms to head the SEC and Justice Department. On June 2 of last year, Senator Elizabeth Warren sent a 13-page letter to the SEC Chair, Mary Jo White, listing her abysmal failures and conflicts of interest in doing the job of a tough cop on the beat. Wall Street On Parade has also repeatedly pointed out the impossible conflicts of Mary Jo White and her husband, John White, who between them have represented every major Wall Street firm. Last year, the New York Times reported that in a span of two years as head of the SEC, Mary Jo White had recused herself from more than four dozen enforcement investigations as a result of her conflicts or those of her husband. And yet the Obama administration ignores this untenable situation as serial crimes continue to pile up on Wall Street.

DoJ Opens Investigation Into Wells Fargo Fake Accounts; Why Top Execs Are Responsible -Yves Smith - Wells Fargo CEO John Stumpf may come to regret believing his own PR. The bank chief backed himself into a corner by insisting that the creation of over 2 million of bogus customer accounts over a four year period was the doing of a whole posse of rogue employees, no one had any incentives to do bad stuff, Wells has a perfectly upstanding corporate culture and senior management had no idea what these bad apples were up to. And Stumpf was so confident that this scandal would blow over that he managed to let the executive who supervised the operation in question retire while the settlement talks with regulators and the Los Angeles City Attorney were at an advanced stage, with her nearly $125 million payday intact. But now the Department of Justice, and critically, the elite Southern District of New York (along with the Northern District of California) are in the early stages of an investigation. As the Wall Street Journal, which broke the story, reported:While in early stages, the investigation by federal prosecutors is focusing on whether someone senior within the bank directed employees to falsify documents in conjunction with the opening of accounts and products without consumers’ knowledge or authorization.  The fees generated by this brazen fraud were chicken feed, a mere $2.4 million, which means that was not the point of this exercise. The object was to meet targets so that the bank show continued growth in the number of accounts and in the average number of products sold per account, both of which were metrics the bank touted with analysts. In other words, the targets were the mechanism to drive staff to show numbers to analysts to keep Wells’ growth story alive and well. And they delivered!  In other words, senior management benefitted directly from this chicanery, far more than branch staff did (although keeping from being fired for not meeting your goals is plenty motivating).  The story that Stumpf is peddling to the media, and presumably to the DoJ and the Senate Banking Committee, is that employees were gaming the system. Adam Davidson, the Lord Haw-Haw of the 1%, dutifully chimes in to claim that a “for a large bank to monitor every one of its quarter million employees,” when in fact it was doing just that with the staff in question as far as their sales metrics were concerned.  The reason this scandal has gotten traction is that it is obvious that a supposedly well run bank could not miss the creation of millions of phony accounts, particularly when many had clearly bogus Wells Fargo e-mail addresses like,, or Reader Clive describes how banks, even back to the stone ages of paper-based systems, had checks to catch instances of employees selling customers bank services they hadn’t intended to buy:

Wells Fargo faces scrutiny over lack of sales scandal disclosure | Reuters: A phantom account scandal at Wells Fargo & Co has put the U.S. bank's disclosure policies under a harsh spotlight. Despite press reports that a federal regulator and the Los Angeles prosecutor were investigating sales practices at retail branches of the San Francisco-based lender, the bank, which agreed to a $190 million settlement, gave investors no indication of the scale of the problem. The surprise spooked investors and has lopped roughly $19 billion off its market value since the probe disclosed last week that Wells employees had created roughly 2 million accounts for customers without their knowledge in order to meet internal sales targets. The bank has fired 5,300 people over the scandal. While the settlement barely makes a dent in the $23 billion of profit the bank earned last year, the scandal's aftermath has caused a 7.5 percent drop in Wells' stock compared with a roughly 2.4 percent decline for the Dow Jones US Banks Index. Investors, analysts and legal experts who spoke to Reuters said Wells Fargo' silence did not mean it had broken the law. But there is broad agreement that it made matters worse by not being more forthcoming with Chief Executive John Stumpf under pressure to explain why this happened on his watch. "Look, they're lawyered up to the sky. They did the minimum legally required. Do I think that that's fair to investors or that that's all that investors need to know or want to know? No I do not,"

Q&A: Former LA Times reporter on story that led to $185 million Wells Fargo fine - Columbia Journalism Review - The Consumer Financial Protection Bureau last week slapped Wells Fargo with $185 million in fines for creating fake accounts and secretly issuing credit cards without customers’ consent. Included in the ruling was a $100 million penalty, the largest ever levied by the agency.The shady practices of one of the nation’s largest banks, which date back to 2011, first gained national attention through the work of former Los Angeles Times business reporter E. Scott Reckard.Reckard, who has since retired from journalism, worked the business beat at the Times for almost two decades. In CJR’s 2009 post-collapse autopsy of the financial press, Dean Starkman singled out Reckard’s work as one of the few positive examples of a reporter doing the dogged work to hold Wall Street responsible for the practices of its lender-clients. Starkman called Reckard’s 2005 exposé of mortgage lender Ameriquest, “the real thing, a 3,220-word investigation that kicks in the door.” The day after Wells Fargo was chastised by federal banking regulators, Reckard spoke to CJR about his reporting on Wells Fargo, the satisfaction that comes from seeing real-world outcomes of one’s work, and the state of the financial press in 2016. This interview has been edited and condensed for length and clarity.

How Wells Fargo’s High-Pressure Sales Culture Spiraled Out of Control - WSJ: For more than 15 years, selling more products to customers has been a driving force of the San Francisco company. The term “cross-sell” appears 20 times in the latest annual report by Wells Fargo, which calls its branches “stores” and has the highest return on equity of any large U.S. bank. Related Video Wells Fargo is facing a $185 million fine following widespread illegal sales practices including opening accounts for customers without their knowledge. WSJ’s Emily Glazer joins Lunch Break to discuss. Photo: Getty The sales culture rooted itself so deeply among employees in Wells Fargo branches that it eventually spiraled out of control. Federal regulators and the Los Angeles City Attorney’s office announced last week that Wells Fargo opened as many as two million deposit and credit-card accounts without customers’ knowledge. The problems affected most of the product types sold in the bank’s 6,000 branches, but few of the accounts made money because customers rarely used them. “If you could sell, you had a job,” says Scott Trainor, who worked at Wells Fargo in several different jobs until he quit in 2014. He says he was fed up with sales pressure and unethical practices. Managers suggested to employees that they hunt for sales prospects at bus stops and retirement homes, according to Mr. Trainor and other former Wells Fargo employees. John Stumpf, Wells Fargo’s chairman and chief executive, denies that the company’s culture is obsessed with nonstop selling that ran amok. “Could we have done more, faster, better? Of course,” he says. Mr. Stumpf says he “feels accountable” but adds that some employees didn’t honor the bank’s values. The scandal mars the reputation of a bank so renowned for its sales prowess that rivals have long tried to emulate it. Large banks have become far more sales-conscious in hopes of squeezing additional revenue from customers. The mess at Wells Fargo isn’t likely to change that. The bank said this week it will make major changes to its incentive system but won’t back away from cross-selling.

How the SEC Enabled the Gross Under-Reporting of CEO Pay -- Yves Smith - Think it’s scandalous that the average 2014 pay of the CEOs of the 500 biggest companies was 373 times that of the typical worker, as the AFL-CIO reported? You aren’t scandalized enough. Their take home pay, which is reported in the bowels of SEC filings, as opposed to the Summary Compensation Table that the AFL-CIO, along with most analysts and reporters rely on, was a stunning 949 times that of the average worker in 2014.How did this massive disparity come about, and why is the SEC on the side of such gross understatement?  An important new paper by William Lazonick and Matt Hopkins, which is recapped in detail in The Atlantic, explains this gaping disparity. The culprit is the differences in the approach used to measure stock-related compensation, which is the bulk of top executive pay.The widely-used, readily accessible pay reports in the SEC-mandated Summary Compensation Table uses an approach called “estimated fair value” (ESV), which is a Black-Scholes options value based method. That may sound technical and therefore be presumed to be accurate, but Black-Scholes models are based on all sorts of efficient markets assumptions, namely, that everyone has the same access to information, which is clearly not operative with CEOs. Not only do corporate insiders have an information advantage, but CEOs can and do take active steps to boost stock prices, like engaging in buybacks, and they have advanced knowledge of when those programs are to be announced. So it should come as no surprise that CEOs can time when they execute their option on when to sell stock far better than an ordinary investor. And that’s confirmed by the results shown in the obscure Option Exercises and Stock Vested table, which is based on “actual realized gains” or ARG. And this is a real, hard dollar figure. Per the Atlantic story: ARG is a figure that permits the calculation of senior executives’ actual take-home pay—the number they report in their personal-income tax filings with the Internal Revenue Service. Moreover, the disparity in favor of ARG is consistent over recent years:

1 In 5 CEOs Are "Successful Psychopaths" "We hope to implement our screening tool in businesses so that there’s an adequate assessment to hopefully identify [these successful psychopaths]- to stop people sneaking through into positions in the business that can become very costly..." That is the cunning plan of Australian psychologists following a study that found that aboutone in five corporate executives are psychopaths – roughly the same rate as among prisoners. As The Telegraph reports,The study of 261 senior professionals in the United States found that 21 per cent had clinically significant levels of psychopathic traits. The rate of psychopathy in the general population is about one in a hundred. Nathan Brooks, a forensic psychologist who conducted the study, said the findings suggested that businesses should improve their recruitment screening.He said recruiters tend to focus on skills rather than personality features and this has led to firms hiring “successful psychopaths” who may engage in unethical and illegal practices or have a toxic impact on colleagues.“Typically psychopaths create a lot of chaos and generally tend to play people off against each other,” he said.“For psychopaths,  it [corporate success] is a game and they don’t mind if they violate morals. It is about getting where they want in the company and having dominance over others.”  The global financial crisis in 2008 has prompted researchers to study workplace traits that may have allowed a corporate culture in which unethical behaviour was able to flourish... ironic indeed as Wells Fargo CEO Stumpf blames 5300 of his employees for 'nasty' behavior and is unable to see any top-down ethical collapse as behind the systemic fraud. To help CEOs "self-identify" as psychopaths, here is a quick test...

 Bond Markets Just Waking Up to Their Own Craziness - The bond market has been turned on its head by central banks—and the market’s tantrum shows it. Last week brought a string of events that could be read as clear signals of overheating in credit markets. There was the bizarre sight of French drugmaker Sanofi and German consumer-goods company Henkel issuing debt at negative yields. And in the European high-yield market, bearings maker Schaeffler and packaging group Ardagh sold large payment-in-kind notes where interest can be paid in additional debt under certain circumstances, traditionally a sign of a frothy market. Yields on “junk”-rated euro-denominated debt hit a record low of 3.35% last week. Yet it was a selloff in risk-free government-bond markets that caused turmoil as inaction by the European Central Bank and the looming U.S. Federal Reserve meeting led investors to fret about the end of easy money. Traditional signals of risk aren’t as reliable as they might be in markets that have been so distorted by central-bank policies. Take the developments in junk bonds. Ultralow yields and issuance of PIK notes might usually suggest a market that is too bullish for its own good. Demand was so strong for Schaeffler’s sale that it was able to sell €3.6 billion of debt in euros and dollars, versus an originally planned €2.5 billion; in the process it refinanced debt that carried rates ranging from 5.75% to 6.875% with notes paying from 2.75% to 4.75%. Moreover, in Ardagh’s case, some of the proceeds were used to pay a dividend to shareholders, another sign that borrowers have the upper hand. But equally, the high-yield market doesn’t feel frothy on its own, and issuers are far from fully exploiting these conditions. Issuance in aggregate in Europe is actually sharply lower this year, even as borrowing conditions have improved: year-to-date high-yield sales are running at €39 billion, down some 40% on the same period of 2015, according to J.P. Morgan.  The feeding frenzy seen in high-yield markets before the global financial crisis is absent. High-yield spreads are far from record territory.

Paul Singer warns of mounting risks as central banks turn aggressive - Investors are facing greater risks than ever before in history due to aggressive central bankers who are resorting to unconventional methods to keep interest rates low, according to Paul Singer of Elliott Management. “What they have done is create a tremendous increase in hidden risk, risk that investors don’t exactly know or have faced about their holdings,” said the hedge-fund manager on Tuesday at the Delivering Alpha conference hosted by CNBC and Institutional Investor. “It’s a very dangerous time in the global economy and global financial markets,” he added. Singer also believes the Federal Reserve was arrogant when the central bank ignored his warning of an impending crisis in 2008 and in hindsight, they can only claim that the situation would have been worse had they not acted as they did. Singer urged central banks to proceed with caution on future policy decisions. “With roughly $15 trillion on the major central bank balance sheets, with all of these rates at zero or even crazily below zero, you have a very delicate situation which cannot be solved by a sledgehammer,” Singer said.

Fed Like a “Cowardly Scarecrow” as Corporate Debt Bubble Expands - Michael Shedlock - Thanks to massive stimulus that the Fed can never seem to unwind despite promising to do so for years, the Corporate Bond Deluge Rolls and Leverage Soars to New Heights. What has the analysts uneasy isn’t just the speed at which leverage is climbing, but that it’s happening while the economy continues to grow.“Leverage tends to rise most in a recession — so the fact that it is this high in a ‘healthy economy’ is even more concerning,” the analysts wrote. In other words, they said, “mistakes are both more likely and more costly.” Corporate-bond issuance this year is on pace to exceed last year’s record $1.3 trillion, data compiled by Bloomberg show. That would push sales during the past five years to more than $6 trillion. Companies that sold dollar bonds this week included Home Depot Inc., Cox Communications Inc. and TJX Cos.Total debt at companies grew steadily at about 10 percent year-on-year since 2009 and accelerated to 16 percent year-on-year at the end of 2015. As that happened, Ebitda fell 4 percent for twelve months through the end of 2015, according to the report. Debt loads are swelling across most all industries, the analysts said. But it’s been most pronounced among energy and healthcare companies. Companies have also borrowed to buyback stock rather than investing, a factor that contributed to weak productivity in the U.S. economy, and that does not “bode well for earnings,” the analysts wrote. Prior to Fed governor Lael Brainard’s speech, I was highly skeptical the Fed would hike. It’s now a near certainty the Fed won’t hike.The Fed is like a talking statue that cannot think clearly or ever move.

Some of the Biggest Hedge Funds Are Bleeding Cash - Some of the biggest and best-known hedge funds can’t hang on to client capital. Richard Perry, who started his hedge fund 28 years ago, has seen assets in his Perry Capital shrink to $4 billion, from $10 billion last September. That 60 percent drop comes as the firm’s main fund fell 18 percent from the end of 2013 through July.  Perry isn’t the only manager struggling. John Paulson’s assets, on the decline since 2011, are down an additional 15 percent this year. And Dan Och, who like Perry cut his teeth at Goldman Sachs Group Inc., is now managing $39.2 billion at his Och-Ziff Capital Management Group, compared with $44.6 billion at the start of the 2016.  Hedge funds have suffered their biggest withdrawals since the financial crisis, with investors pulling $23.3 billion in the first half of the 2016, according to data from Hedge Fund Research Inc. While the redemptions equal less than 1 percent of the $2.9 trillion industry, the biggest funds are bearing the brunt of the damage as pension plans and other large institutions that flocked to the name-brand firms during the heyday in the last decade are now retreating after years of lackluster returns. Perry, 61, wagers on corporate actions such as takeovers and bankruptcies. He’d never had a losing year until 2008, when his main fund slumped 28 percent. Since then, the Pop Art collector has posted only four winning years. Last September, David Russekoff, the chief investment officer, left the firm after almost 14 years. He was replaced by an investment committee that includes money managers Todd Westhus, Maulin Shah and Todd Gjervold.

Libor’s Reaching Point of Pain for Companies With High Debt - Bloomberg: Short-term borrowing rates are rising to the point where some heavily indebted U.S. companies can no longer ignore them. A benchmark for near-term borrowing, the three-month U.S. dollar London interbank offered rate, has risen above 0.75 percentage point. That’s a key threshold for junk-rated companies with about $230 billion of loans outstanding according to data compiled by Bloomberg -- with Libor above that level, the borrowers will have to pay more interest over time. The increase so far could amount to about an extra $230 million of total interest expense annually for the companies. Companies that took out floating-rate loans knew they would have to pay more to borrow once rates started rising, but they haven’t experienced real increases for years. Even when the Federal Reserve started hiking rates in December, many companies did not have to pay higher rates on their loans until Libor breached key levels, because of the way their floating rates are calculated. Rising interest payments would only add to pain for U.S. borrowers that are already suffering from falling profits and higher default rates. And Libor could rise further-- JPMorgan Chase & Co. strategists recently forecast it could reach 0.95 percentage point by the end of this month. There will be some companies “for which it might become an issue," said Neha Khoda, a high-yield credit strategist at Bank of America Corp. With Libor having risen above key levels like 0.75 percentage point, many issuers have to think about how they will pay the extra interest, she said. Three-month Libor now stands at 0.85 percentage point, and has been rising as new money market fund rules curb investor demand for companies’ short-term debt.

Latest oil and gas bankruptcies hit lenders hard - Investors’ losses from US oil and gas company bankruptcies since 2015 have been proportionally greater than in previous downturns as the industry’s debt-fuelled boom has gone into reverse, according to Moody’s, the rating agency. In 15 defaults studied by the agency, lenders have recovered just 21 per cent of the face value of their debt on average, compared with a 58.6 per cent average recovery for all defaults before 2015.Holders of unsecured oil company bonds in default have on average recovered less than 6 per cent of their face value. Although a tentative recovery in the US oil industry is under way, with the number of active rigs rising since May, the flow of bankruptcies is expected to continue. The very low default rates reflect the weak market for oil and gas assets being sold out of bankruptcy and the high debt levels that were loaded on to companies during the boom that collapsed as crude prices slumped in the second half of 2014. Between 2010 and 2014, the leading US independent oil and gas production companies added $84bn to their net debt, taking the total to $189bn, according to company data compiled by Bloomberg. Between the start of 2015 and the end of July this year, 90 US oil and gas producers went into bankruptcy, with total debt of $66.5bn, according to Haynes and Boone, the law firm. The largest bankruptcies were Sandridge Energy, which owed $8.3bn, and Linn Energy, which owed $6.1bn. Almost half the money spent on acquisitions in the US oil production industry this year has gone to the Permian Basin of west Texas, according to Wood Mackenzie, the research company, while another significant piece has gone to the “Stack” area of Oklahoma.

 Oil Bankruptcies Leave Lenders With ‘Catastrophic’ Recovery Rate - U.S. oil bankruptcies haven’t been this “catastrophic” for lenders in a long time, in what may be the worst bust of any industry this century, according to Moody’s Investors Service. Creditors are recovering an average 21 percent of what they lent, compared with about 59 percent in past decades, the credit-rating agency said Monday in a report that looks into lending to 15 exploration and production companies that filed for bankruptcy protection in 2015. That may be on par with, or worse than, the telecommunications industry collapse in 2001 and 2002, the study led by David Keisman said. High-yield bonds recovered a mere 6 percent, compared to 30 percent in previous years going back to 1987. Defaults in the oil and natural gas industry have been rising through a market slump that has exceeded two years as companies lacked the cash to make interest payments on their debt. Bankruptcies among U.S. producers so far this year are about twice the number among companies rated by Moody’s in all of 2015, the report said. The oil and gas figures have helped propel U.S. corporate defaults to the highest since 2009.  Less than half of the companies that negotiated distressed-debt exchanges in 2015 to try to stave off bankruptcy succeeded, the analysts wrote. Among those that did such deals only to file for bankruptcy protection this year are Halcon Resources Corp., SandRidge Energy Inc. and Goodrich Petroleum Corp. Their debt will probably have very weak recoveries, they said. “Given our view that prices have somewhat stabilized, and will likely gradually increase, it appears that the E&P sector is unlikely to deteriorate further,” the report said. “Although the worst is likely behind us, the E&P sector still remains stressed.”

A Teachable Moment As Endowment Strategies Stumble - Knowing why an investment strategy has stumbled is just as important as recognizing why it succeeded. This obvious-but-often-unheeded bit of wisdom comes to mind after reading yesterday’s Bloomberg story that seven large, public US university endowments posted disappointing results for the year through the end of June 2016. “It was a bit of a bloodbath,” said Jagdeep Bachher, chief investment officer at the University of California system. The weakness is surprising because the year through the end of this year’s first half generated a modest upside bias for the Global Market Index (GMI), an unmanaged benchmark that holds all the major asset classes in market-value weights.  But that upside bias was nowhere in sight for the endowment funds, as a chart in the Bloomberg article reminds. You can’t tell much from one-year returns, of course—especially for portfolio strategies run by endowments. These tend to be complicated beasts, which is probably the source of the trouble. In any case, crunching the numbers across various time windows and focusing on multiple risk dimensions is essential for understanding what’s going on. That said, there are legitimate issues of concern when a strategy falls well short of a simple benchmark that, in theory, is a reasonable yardstick for an investment mandate. With that in mind, GMI posted a 1.2% total return for the 12 months through June 30, 2016, as originally reported here. That’s a weak result, but the source of GMI’s weakness for that period is clear: low and negative returns in the passive benchmark’s major allocations, particularly for foreign stocks. For perspective, let’s review the table of performance data for GMI’s components at that point in time.

"Stock Trading Whiz Kid" Fined $1.5 Million By SEC For Being a "Paper Trading" Fraud  --One of the most amusing "investor" types to emerge as a result of the Fed's 7-year-long attempt to centrally plan the market, has been the infamous 17-year-old "hedge fund" manager, who while not actually trading for lack of cash and, of course, the remotes clue what to do, was happy to advise others of his paper trades on twitter or via newsetters, and collect a fee for such "services." And while it was easy to pretend trade for years and years as long as the Fed injected trillions into the "market", levitating stocks every higher, lately it has been far more difficult, not only for real trader, but also for "paper traders" too. Case in point, "stock trading whiz kid" Manuel E. Jesus, aka "Manny Backus" - and apparent chess prodidy based on his photo - and his newsletter company Wealthpire Inc.This is how WealthPire describes, or rather, described itself:Wealthpire, Inc. was founded by expert trader Manny Backus. Manny had a vision to establish a company that focused on helping the average street-level investor to succeed in the stock market. Manny used his knowledge and expertise to form a company that did just that.Jump 10 years later and Wealthpire has went from just one service with 10 subscribers, to over 8 services with thousands of satisfied customers.Wealthpire, Inc. was recently inducted into the Inc. 500 list of fastest growing companies.Our headquarters are located in sunny Santa Monica, California.This whiz kid was so good, he had no problem passing through the extensive vetting protocol of Seeking Alpha: There was just one problem for Manuel Jesus, aka "whiz kid" - he was a fraud, at leastaccording to the SEC, which announced yesterday "that a self-p roclaimed “stock trading whiz kid” and his stock newsletter company in Los Angeles have agreed to pay nearly $1.5 million to settle charges that they defrauded subscribers through false statements and misrepresentations."

How 2008 Lending Shutdown May Explain Today's Growth - In earlier posts to BankThink, I have pointed out why loan growth may be too good to be true and that lending may be booming for worrisome reasons.  Yet viewed through a different lens, the cause of the loan growth may not be that troubling.  In August, I identified three possible reasons for loan growth sharply outpacing the overall rate of growth in the economy: banks are increasing their risk profile at the wrong time; banks are looking to boost short-term earnings even if that means long-term returns decline; or, finally, borrowers are enticed by cheap credit, which is not necessarily a problem unless commerce becomes overwhelmed by leverage.  But now I would like to pinpoint a fourth possible reason. When using long-term metrics to track the loan growth, one finds lending overall could simply be reverting to the pre-crisis mean. In other words, with the credit markets ceasing activity in 2008-10, lending is potentially just coming back to more historical levels. Yet, if growth is due to this seemingly benign reason, it still has enormous implications to bankers and regulators the next time there is a serious downturn in the economy. Let me explain further. The Federal Deposit Insurance Corp. reported on Aug. 30 that loans grew 6.7% year over year as of the second quarter. During the same period GDP grew roughly 1%. Historically, bank profits eventually suffer when loan growth gets too far ahead of the overall health of the economy.  A close examination of the quarterly FDIC data shows that bank lending froze up beginning in the second half of 2008. Total bank loans peaked on June 30, 2008, at $8 trillion. Lending did not return to that level until the second quarter of 2014.  While banks effectively stopped lending during the Great Panic, loan-loss provisions hit unprecedented highs. From 1984 to 2006, the ratio of provisions to assets — on an annualized basis — averaged 0.53%. During the Great Panic, the ratio reached a high point of 1.95% and averaged 1.52% from 2008-10. In 2014, the ratio fell below 0.20% for the first time in history.One big reason loan-loss provisions fell so significantly beginning in 2011 is because so many loans were charged off from 2007 to 2009. In fact, the historic record indicates too many loans were charged off.

Central bankers say Basel on right track with bank capital rules - (Reuters) - Regulators are heading in the the right direction in reforming the way banks calculate how much capital they must hold to stay solvent, a group of central bankers said on Sunday. The reforms have been heavily criticised by lenders who say they will lead to hefty increases in capital requirements, an outcome the central bankers said should be avoided. The world's top central bankers said on Sunday that completion of remaining post financial crisis reforms to bank capital was going in the right direction and the focus should be on avoiding large increases in requirements. The Basel Committee of banking supervisors is finalising rules on how much capital lenders should hold to withstand shocks without needing the taxpayer handouts that many were given during the 2007-09 financial crisis. The committee is facing hefty pushback from banks and some governments, especially in Europe. The Group of Central Bank Governors and Heads of Supervision, or GHOS, met on Sunday to scrutinise progress so far on finalising the Basel III reforms ushered in by the financial crisis. Its members include the Federal Reserve, the Bank of England, and the European Central Bank (ECB). "The GHOS endorsed the broad direction of the Committee's reforms," it said in a statement.  "The GHOS discussed the Basel Committee's ongoing cumulative impact assessment and reaffirmed that, as a result of this assessment, the committee should focus on not significantly increasing overall capital requirements."  Banks have dubbed the remaining reforms Basel IV, meaning a step change in requirements that they say will make it harder to increase lending to the economy.

 The Fintech Honeymoon Is Over; Now What? | Bank Think -- Young fintech companies are facing a harsh new reality. After years of unbounded growth fueled by billions in venture capital, the market dynamics that made it all possible have changed. Two trends underscore this market recalibration. First, new fintech investments are tapering off as the broader funding market cools. Second, we're seeing banks, once flummoxed, finally starting to get the hang of digital innovation. To survive the down market will require upstarts to take a long, hard look at their business models and make key investments in these three areas: regulatory compliance, bank partnerships and excellent customer experiences. Failing to invest in compliance is one of the single biggest mistakes fintech upstarts make. Many upstarts view compliance as an expensive waste of time and resources — or, they don't look at it at all. It goes against their very nature as market disruptors.  But when it comes to competing in a highly regulated market like financial services, the traditional Silicon Valley model breaks down. In fintech, compliance is table stakes for those serious about transforming the future of banking. As we've seen time and time again, ignoring compliance is a losing strategy. It slows business to a crawl when regulators come calling (and trust me, they will). Further, the more successful your business, the faster regulators appear. Right or wrong, this happens for many reasons. A common reason of late is because a company is perceived to have unfair or deceptive business practices, for instance.

Banks Tinker with Ways to Push Business Customers into Digital Era | American Banker: Banks might need to give their business customers a little nudge into digital payments. Although payments have been one of the hottest part of fintech, much of the commercial world is still relying on cash and checks. For banks, this presents an opportunity to help their clients, trim expenses and gain further insights into their customers' businesses. The challenge is getting the customer on board. "While there has been a lot of innovation and advancements in the payments space in general, a lot of businesses are making payments the old-fashioned way; nearly 50% of B-to-B payments are made by old paper checks," said Jeff Jones, president of U.S. Bank Corporate Payment Systems. "We try and support their existing legacy needs while also trying to migrate them to the future." U.S. Bank is just one of many institutions and fintech startups seeing the world of commercial payments as ripe for disruption. Banks like Wells Fargo and KeyCorp are focusing more on commercial payments, while fintech firms like Currencycloud and Autobooks are eyeing it, too. Over the summer, U.S. Bank launched AP Optimizer in conjunction with the accounting software firm Sage. The product streamlines multiple payment methods such as check, virtual card, ACH and wire into one process. It also evaluates payments and cash flow data and identifies best times for businesses to make payments. Last year, the bank launched an online receivables management tool that integrates multiple payment types into a single portal to help clients with exception management, cash application and reporting. U.S. Bank hopes providing tools such as these helps spur customers who are still largely dealing in paper-based payments to consider going digital, which saves time and money for both the bank and business.

OCC Takes Big Step Toward Creation of Fintech Charter | American Banker: A receivership proposal released Tuesday "is relevant to any potential future fintech charter that could or may be issued by the OCC," said Comptroller of the Currency Thomas Curry. In a new proposal, the agency detailed how it plans to invoke an obscure banking law to levy receivership powers over noninsured national financial institutions – which could include fintech companies – if they were to fail.

The OCC just took a big step toward creating a national fintech charter. - Such a charter is something we’ve been advocating for some time. In a speech on Tuesday, Comptroller of the Currency Thomas J. Curry didn’t say let on what the OCC was thinking about limited-purpose charters (say, for digital currency exchanges), but he did say that the agency would finalize an innovation framework this fall. More importantly, that same day the OCC issued a proposed regulation “setting forth a framework for placing uninsured national banks into receivership.” From the releaseWhile the OCC has not appointed a receiver for an uninsured national bank in many years, clarifying the framework, process, and authority promotes the orderly resolution of such institutions if required and contributes to the broader stability of the federal banking system. “The OCC has a long history of working successfully to restore strength and viability to institutions that face difficulty,” Comptroller of the Currency Thomas J. Curry said. “In the event those efforts fail and receivership becomes necessary, a clear and efficient process of resolving failing uninsured national banks is in everyone’s best interest.” The proposed rule would apply to all uninsured national banks regulated by the OCC. While the National Bank Act and Federal Deposit Insurance Act specify the Federal Deposit Insurance Corporation as receiver for insured banks and savings associations, the law grants the Comptroller broad authority to choose a receiver for uninsured national banks. What’s notable about this is that any limited-purpose charter that would be granted to digital currency firms would not be federally insured. In the notice, the OCC specifically asked for comment on “the utility of the receivership structure in the proposed rule for receivership of a special purpose bank.” It’s a bit wonky, but with this proposed rulemaking the OCC may be setting the stage for creating the kind fintech charter that would benefit digital currency firms. It’s a great sign, and you can bet Coin Center will be filing comments in this proceeding.

What’s old is new again, fintech news edition -- Izabella Kaminska - What’s the Fintech Times? Why it’s a monthly publication printed in physical form by an organisation called Disrupts Media Ltd.  As the company explains on their website: Why print in a digital age? Simply because

  • It expands awareness of the entire sector
  • It gives the sector more influence as a whole
  • The companies more influence, as leaders
  • Recipients can be targeted with absolute accuracy
  • It brings parts of the whole together in one space

If “bringing parts of the whole together in one space” wasn’t compelling enough of a reason to print a physical newspaper, Fintech News also adds:  People like newspapers. They can be a three-minute read between tube stops, or a Sunday morning in bed. So what kind of newspaper is this? There’s so much happening in fintech, it’s so interesting, and sometimes so complicated, and we think it needs its own monthly newspaper as an industry report. That’s what The Fintech Times is.  The Fintech Times is edited by Katia Lang and Bird Lovegod, the co-founders of Disrupts Media. Explicit advertisers in the May-June edition include conference organisers, lawyers, accelerators, business schools, software developers and presentation consultants.  On the non explicit front, the edition features interviews with Tom Blomfield, CEO of bank challenger Mondo in which the would be banker states:  …we believe that the bank of the future will be a marketplace, where customers have freedom to choose across a range of products and services. However, I don’t believe that any of the existing banks will be able to make the transition this new paradigm.  John Davies, CEO of Just Loans group says:  Banks will either get left behind, partner or acquire.  A full-page editorial by “the Fintech Times” meanwhile informs us that “Apply Financial” — a financial data statistics firm — will help fintechs not to get fined for having fat fingers. Meanwhile, the CEO & Founder of “so-sure” has a two-page spread to tell us that in the coming weeks they are launching a product “which will take peer-to-peer insurance to a new level”. Then there’s another two-pager in which Richard Carter, Chief executive of Nostrum — alongside a Nostrum Group ad — warns IoT devices may just be creating more data that will be under-utilised. And who can help you navigate this data dump? Nostrum.’

 Step Aside London Whale: Goldman Is Now Using Retail Deposits To Fund Investments -- One month ago we last checked in to see how Goldman's brand new FDIC-insured depositor operation was doing: we were surprised to find just how much of a success it had become. As we reported at the time, by mid-August, Goldman has netted $1.8 billion in new deposits thanks to its overly generous 1.05% interest rate which is among the highest on offer anywhere. Some 33,000 people who’ve opened accounts, although since Goldman does not have any retail branches or ATMs, these new depositors can’t write checks from their accounts or take cash out of ATMs.  The immediately following logical question was why does Goldman need this cash?   "why tempt depositors with such abnormally high rates of interest? We ask, because the last time a "healthy" bank was such a substantial outlier to its peers (a JPM High Yield checking account currently yields about 0.01%) it ended up tempting depositors with a [Spiderman towel] before it had to be bailed out." Today, we got the answer. According to an exclusive investigation by Reuters, Goldman has been using the proceeds from the new deposits to directly fund speculative activity such as trading and investments, as well as more conventional activity such as creating looans. According to Reuters, Goldman Sachs built up its consumer bank, it established a team to put its deposits to work on Wall Street, a telling development about Goldman's ambitions for the retail bank.  Led by 40-year-old Goldman partner and credit trading veteran Gerald Ouderkirk, the team's job is to use consumer deposits and other types of funding for trades, investments and big loans to earn profits, people familiar with the matter told Reuters.

CFPB Court Victory Creates Uncertainty for Marketplace Lenders | American Banker: Marketplace lenders that have partnered with banks face more regulatory and legal scrutiny after a federal judge in California handed a legal victory to the Consumer Financial Protection Bureau. A federal district court judge found on Aug. 31 that CashCall, an online loan servicer, engaged in unfair, deceptive and abusive practices when it sought to bypass state usury caps by partnering with an online tribal lender to collect debts from borrowers. The decision raises fresh questions for marketplace lenders that have teamed up with banks to avoid the hassle of getting state lender licenses. Lenders can either invoke a national bank's federal pre-emption or a state bank's right to export interest rates nationwide to charge a uniform rate for all customers. As a result, consumers can end up paying higher rates than what is allowed under state regulations. The question in the CashCall case is what constitutes the "true lender," with courts increasingly looking more closely at how lending partnerships are structured. "It's a pretty big deal because this is going to add another layer of regulatory uncertainty," said Ori Lev, a partner at Mayer Brown. "This will impact lenders' willingness to fund marketplace lending and will cause some companies to change their structures." Lending Club and Prosper, the two largest marketplace lenders, do not originate loans themselves but rather have teamed up with the $378 million-asset WebBank in Salt Lake City, which funds the loans. Both lenders have taken steps to protect themselves against legal challenges to their business models.

CFPB Reform 'Dead on Arrival' Thanks to Wells Fargo | American Banker: — In this political environment, it was always going to be a challenge for bankers to win much-sought structural reforms to the Consumer Financial Protection Bureau. But the revelation that thousands of Wells Fargo employees committed what amounted to bank fraud just put the final nail in the coffin for the effort — at least for the foreseeable future. Democrats on Tuesday wasted no time arguing that the $190 million that Wells paid in fines and restitution clinched the case against reforming the bureau. "We need to look no further than just last week to see why we need a strong Consumer Financial Protection Bureau, which used its authorities under Dodd-Frank to uncover a massive scheme under which millions of consumer accounts at Wells Fargo were fraudulently opened, with the bulk of this fraud perpetrated in my hometown of Los Angeles," said Rep. Maxine Waters, D-Calif., the top Democrat on the House Financial Services Committee. Waters and other Democrats on the committee used the enforcement action as a reason to oppose Chairman Jeb Hensarling's comprehensive regulatory relief bill, called the Financial Choice Act, which includes provisions that would replace the CFPB's director with a five-member commission and subject the agency to the congressional appropriations process. Another provision would remove the CFPB's ability to target "abusive" practices, a new standard that was added in the Dodd-Frank Act. (Regulators could previously just seek out "deceptive" or "unfair" practices, though the difference between those terms and "abusive" are unclear.) "I am particularly disturbed that this bill would take away the Consumer Financial Protection Bureau's ability to penalize companies for practices that are abusive to consumer such as the practices of Wells Fargo." said Rep. Carolyn Maloney, D-N.Y. Banking industry representatives always knew the CFPB provisions would be tough to enact, particularly in the Senate, where the CFPB's founder, Sen. Elizabeth Warren, D-Mass., holds substantial influence. But they had been growing hopeful that at least a few could pass. That now appears highly unlikely, however, according to industry representatives.

 Banks Should Lead the Way to More Small-Dollar Loans | Bank Think: .Banks, weighing factors that include cost-efficient underwriting, keeping credit losses under control, and regulators' caution on products such as deposit advance, struggle to create workable credit products that meet the short-term borrowing needs of low- and moderate-income customers. This prevents those customers from climbing the traditional bank credit ladder, and drives them to seek other options. Consequently, the landscape is saturated with more than 50,000 alternative financial services storefronts and websites that include check cashers, auto title lenders, pawnshops and the like. These alternative lenders are often labeled "fringe," but one in four households use them regularly. While it is tempting to dismiss these households as unbankable or undesirable, two of the requirements needed to obtain a payday loan – income and a checking account – challenge that assumption. The fact that so many bank customers go outside the financial mainstream and pay exorbitant prices to fill a borrowing need suggests banks are missing an opportunity to play a meaningful role in improving those customers financial well-being. The goal needs to be workable rules and the creation of small-dollar credit products that are easily accessed, fairly priced and allow banks to make good credit decisions and a reasonable return on their investment.The Consumer Financial Protection Bureau has been an important catalyst in this dialogue and vocal about the importance of banks offering small-dollar loans to customers. The bureau's encouragement is well-founded as banks have many potential advantages over payday lenders. Banks are able to prescreen and automate much of the lending process, send loan proceeds to customers' checking accounts and schedule payments that coincide with customers' cash flow. These advantages have the potential to allow banks to price these loans significantly lower than payday lenders. But to leverage these advantages, banks need clear guidelines that will enable prescreening and automation, and minimize costly staff time and compliance burdens. The CFPB's proposed rules published in June do offer an ability to better understand a borrower's current financial condition, but they add little predictive value to a bank's underwriting capability while adding cost, regulatory risk and time to the origination process. Compliance could undermine the business case for making such loans. But there is an alternative approach for regulators and bankers to consider more seriously. The CFPB proposal solicited comment on a simpler lending approach with some consumer protections that might open the door to banks offering lower-cost small-dollar loans. That proposal would allow monthly installment payments of up to 5% of monthly income with a maximum term to prevent loans from being excessively costly. The bureau left this alternative model out of the proposed regulation, despite bankers' hopes that it would be included, but the agency's decision to obtain feedback about this strategy still offers hope.

 Durbin Amendment Helps Retailers, Not Consumers | Bank Think - (Randy Neugebauer, R-Tex) - In 2010, the powerful retail lobby went "rent-seeking" and found its champion in Sen. Dick Durbin, D. Ill. His debit interchange fee provision inserted in the Dodd-Frank Act has resulted in the successful transfer of more than $35 billion from one sector of the economy to another. The Durbin amendment, as it has come to be called, mandated that the Federal Reserve cap the "swipe fees" that banks charge retailers for the service of processing electronic payments. These fees go toward maintaining and improving the electronic payment system. Fees can also be used to provide a safety net for consumers impacted by fraud and fund rewards programs for consumers. By winning in the political arena, the retail lobby successfully decreased its operating costs through government price-fixing. In turn, banks and payment networks saw an artificial price cap placed on the services they provide.  The biggest loser in this situation? American consumers, who were used as pawns by the retail lobby to achieve a self-serving objective.  I recently introduced legislation to repeal the Durbin amendment, which has caused a frenzy of lobbying activity by the retail community committed to protecting its bottom line. Debate over the Dodd-Frank provision has been reignited, but the arguments remain the same. Unfortunately for Sen. Durbin and the retailers, their political gains evaporate as one begins to judge the amendment's performance against the retail industry's promises.

DoJ Asks Deutsche Bank to Pay $14 Billion in Mortgage Settlement - Yves Smith - The Wall Street Journal reported that the Department of Justice is seeking $14 billion from Deutsche Bank to settle its claims in a series of mortgage abuses. According to the Journal, Deutsche’s position is that $2 to $3 billion as a reasonable figure. Analysts anticipated that the maximum settlement amount would be in the $4.5 to $5 billion range. A few of the very high profile mortgage settlements have had leaks about the negotiations over the headline amount, such as the $16.6 billion Bank of America settlement for mortgage abuses. In those cases, the final amount was not terribly below the government regulators’ asking amount. One reason is that even though it’s generally understood that the government does not to devote the resources to litigating such complex cases, the flip side is that the defendant is even less able to stand the uncertainty and bad press of having talks break down and having the government move into another phase of discovery in preparation for a trial, which would be hugely damaging from a reputational standpoint. Nevertheless, the fact of the leak and the Journal exposing the apparently big gap between the government’s ask and Deutsche’s bid can cynically be seen as part of the negotiation theater. In some past cases like the settlement negotiations with JP Morgan, the press leak appeared to be to put pressure on the bank to be more realistic, as well as manage shareholder expectations. Here, the dynamics may be different. First, Deutsche is in a weak position politically, not just by virtue of being a foreign bank, but as being widely recognized within the financial services industry and almost certainly by regulators as being awash in managerial and internal control failures. It’s walking wounded.  But the offset is end-of-Presidential term dynamics. For instance, financial regulators are rushing to close settlements before the Administration regime change so that senior staffers can flog their resumes and point to a list of accomplishments. As anyone who has worked on negotiations will tell you, someone who is in haste to close a deal is in a weak bargaining position and will wind up accepting worse terms than a party facing no time constraints. And as we’ve shown, on every past mortgage settlement, there’s been a huge gap between the nominal settlement amount and the real economic cost to the perp.

Deutsche Bank is getting walloped - Deutsche Bank shares are crashing after The Wall Street Journal reported that it has been asked to pay $14 billion to resolve a probe into mortgage securities. Deutsche Bank shares slumped in after-hours trading in New York, falling more than 7%.   The report, from Aruna Viswanatha, Jenny Strasburg and Eyk Henning, said the US Justice Department proposed a "preliminary" figure for Deutsche Bank to settle a series of mortgage-securities probes.The number  is far beyond Deutsche Bank's own expectations, according to The Wall Street Journal. Deutsche Bank said in its second quarter earnings that it had 5.5 billion euros ($6.2 billion) in litigation reserves set aside.Deutsche Bank said it expects to settle the matter at a much lower amount.The bank said in a statement:  Deutsche Bank AG confirms that it has commenced negotiations with the Department of Justice in the United States (“DoJ”) with a view to seeking to settle civil claims that the DoJ may consider in connection with the bank’s issuance and underwriting of residential mortgage-backed securities (RMBS) and related securitization activities between 2005 and 2007. The bank confirms market speculation of an opening position by the DoJ of USD 14 billion and that the DoJ has invited the bank as the next step to submit a counter proposal. Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.

Deutsche Bank: No plan to pay $14B Justice Dept. settlement: Deutsche Bank AG said Friday it does not intend to pay $14 billion to settle civil claims with the U.S. Department of Justice for its handling of residential mortgage-backed securities and related transactions. The bank confirmed in a statement that the Justice Department had proposed a settlement of $14 billion and asked the German bank to make a counter proposal. "Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts," the Frankfurt, Germany-based lender said. Deutsche Bank is among many financial institutions investigated over dealings in shoddy mortgages in the run-up to the 2008 financial crisis. The government has accused the banks of misleading investors about the quality of their loans. Earlier this year, the Justice Department announced a roughly $5 billion settlement with Goldman Sachs over the sale of mortgage-backed securities. Other banks that settled in the last two years include Bank of America, Citigroup and JPMorgan Chase & Co.The banks collectively came under scrutiny for the sale of securities that, while promoted as relatively safe, contained residential mortgages from borrowers who were unlikely to be able to repay their loans. The poor quality of the loans led to huge losses for investors and a slew of foreclosures, kicking off the recession that began in late 2007 as the housing market collapsed and investors suffered billions in losses.

Deutsche Defies DoJ, Says It Won’t Pay Anything Near $14 Billion in Mortgage Settlement -- Yves Smith - Wowsers. Jamie Dimon had a bit of a hissy fit back in the day over the proposed settlement of JP Morgan’s mortgage liabilities. And while the settlement did come in lower, it wasn’t ginormously lower. By contrast, Deutsche Bank has gone out aggressively after the Wall Street Journal reported that the Department of Justice was seeking a $14 billion settlement for crisis-related mortgage liabilities versus the German bank’s position that $3 billion was a reasonable figure. Note that Deutsche Bank has €5.5 billion set aside in litigation reserves and seems to think it can hold the damage to this level.  As we’ve pointed out, the gap between the headline figure for these mortgage settlements and the actual economic value has always been large. So it would not appear to be wise to defy the DoJ by engaging in a media war, particularly since Deutsche is widely seen to be a garbage barge and its CEO is not Obama’s favorite banker. But the bank’s stock has taken a drubbing in the wake of the Wall Street Journal story and desperation may be overruling prudence. From Bloomberg:Deutsche Bank AG slumped after receiving a $14 billion claim from the U.S. Justice Department to settle an investigation into the firm’s sale of residential mortgage-backed securities, a figure the German lender said it’s not willing to pay. “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”   Given that settlements involve not just dollar amounts but can also involve behavioral issues, if CEO John Cryan is willing to admit to bad conduct, fire some executives or claw back pay, the DoJ might be quite willing to trade a lot of settlement dollars against the sort of things that US bank reformers have demanded but have not gotten to any meaningful degree in other settlements. But absent that, Cryan’s argument that Deutsche’s settlement should be lower based on a simple comparison to other banks headline figures isn’t sound. A $14 billion ask in in range. Whether that is fair or not depends on the severity of the bank’s misconduct and also how cooperative it was during the investigation. Deutsche has been the target of a raft of private and government actions for price fixing in foreign exchange, precious metals, and Libor markets. So it’s unlikely to be getting good actor points in the settlement.

Deutsche Bank Says “No” to $14 Billion DOJ Fine: It Must Have Learned Its Negotiating Skills at the Trump Institute -- Pam Martens -  The old adage that when one is already in a hole, one should stop digging, has apparently not found its way to the corner offices of Deutsche Bank. After a non-stop two years of scandals, the Bank has decided to take its shareholders on another heart-thumping cop car chase by publicly feuding with the U.S. Justice Department. After the Wall Street Journal reported in the wee hours this morning that the Justice Department was proposing a fine of $14 billion for Deutsche Bank’s involvement in tricking investors with toxic mortgage backed securities, the Bank had the tenacity to tell Reuters that it was planning to “fight” the demand. This negotiating tactic sounds a little like something that might have been taught at the Trump Institute.  In just the past two years, Deutsche Bank, Germany’s largest bank with a large trading footprint in the U.S., has been terrifying widows and orphans – not to mention its shareholders. Two of its executives, William Broeksmit and Charles Gambino, hanged themselves. In June of this year the International Monetary Fund issued a report calling Deutsche Bank “the most important net contributor to systemic risks” on a global basis. In the same month, the U.S. Federal Reserve indicated that the U.S. unit of Deutsche Bank, Deutsche Bank Trust Corp., had failed its stress test. The Fed cited “material unresolved supervisory issues” as one of the reasons for the failed grade. Last year Deutsche Bank settled charges with British and U.S. authorities for $2.5 billion for rigging the interest rate benchmark known as Libor. It pleaded guilty to the U.S. charges.According to its own report of March 31, 2016, Deutsche Bank is currently under investigation related to its trading of precious metals and over its conduct in U.S. Treasury auctions as well as dozens of other probes and civil lawsuits.Given its recent history and the pitchfork mentality of the U.S. public when it comes to out-of-control behemoth banks, railing against the U.S. Justice Department in print doesn’t seem like a particularly sound strategy for a serial recidivist.

Deutsche Bank Investors Fret Its Legal Reserves Won’t Be Enough - Bloomberg: Deutsche Bank AG is moving closer to settling one of its biggest legal cases. How it manages to pay will depend on whether it can persuade the U.S. to lower its initial request of $14 billion, and by how much. The shares of Germany’s biggest bank plunged on news the Department of Justice is seeking an amount that’s more than twice the 5.5 billion euros ($6.1 billion) Deutsche Bank has set aside for litigation. Aside from the U.S. probe into residential mortgage-backed securities, the lender also faces inquiries into matters including currency manipulation, precious metals trading and billions of dollars in transfers out of Russia. Reaching a mortgage deal would clear a major hurdle for Deutsche Bank, which has paid more than $9 billion in fines and settlements since the start of 2008, according to data compiled by Bloomberg. Still, JPMorgan Chase & Co. analysts said any agreement exceeding $4 billion would raise questions about Deutsche Bank’s capital position. “Deutsche Bank is going to be looking at other options it has,” Chris Wheeler, an analyst at Atlantic Equities, told Francine Lacqua on Bloomberg Television. “Maybe selling some of the assets it doesn’t want to sell, or maybe it can find further investors.” The stock fell 8.5 percent in Frankfurt trading, erasing 1.5 billion euros in market capitalization. The bank’s 1.75 billion euros of 6 percent additional Tier 1 bonds, the first notes that would take losses, fell 5 cents to 78 cents on the euro, the biggest drop since the U.K. voted to leave the European Union. “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” the company said in a statement early Friday in Frankfurt. “The negotiations are only just beginning.”

Berlin urges US to treat Deutsche fairly in mis-selling case - Berlin has sent a thinly veiled warning to Washington that it wants Deutsche Bank to be treated fairly compared with US rivals after Germany’s biggest lender received an unexpectedly large $14bn claim to settle allegations of mis-selling mortgage securities. Shares in Deutsche fell 8.5 per cent to €11.99 on Friday, as investors fretted about the crippling impact of such a fine on a bank with a market capitalisation of only €18bn, but a balance sheet of €1.6tn — one of the biggest in the sector. Deutsche insisted it was not expecting to settle the claims for anything like the $14bn figure, which was first reported by the Wall Street Journal. “Deutsche Bank has no intent to settle these potential civil claims anywhere near the number cited,” it said. “The negotiations are only just beginning. The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”Roy Smith, a former president of Goldman Sachs International and now a professor at NYU Stern School of Business, said: “It is never a good idea to say that [you won’t pay] when you are dealing with the Justice Department.” “They have an astronomically greater amount of power over you [than you, as the bank, do over them]. If they want to be nasty about it, they could stretch this out... Conceivably even raise the stakes on this to criminal, as opposed to civil.”Coming only days after the EU stirred up angry reactions from US politicians by ordering Apple to pay €13bn of back taxes in Ireland, there is some suspicion in financial circles that Deutsche could be the victim of US revenge on Europe. The German finance ministry declined to comment directly on Deutsche’s situation, saying the negotiations were between the two parties. But, noting that the US authorities were negotiating with several banks, it said: “The German government assumes that a fair result will be achieved on the basis of equal treatment.”

A look at the new Wall Street scheme to make money with your home - Do you want Wall Street to get a piece of your house? On Tuesday, the noted venture capitalist Marc Andreesen announced that he’d invested in a startup called Point. Point casts itself as a solution to an intrinsic problem with home ownership: Most Americans have most of their wealth tied up in their home.  There are mechanisms for “taking out” some of the equity built up as a mortgage is paid down, such as home-equity lines of credit or home-equity loans.  But they require paying interest — not to mention having good credit. They also don’t help homeowners diversify their investments.  Diversification was the driver behind an earlier version of what Point offers. Allan Weiss, who helped create the S&P/Case-Shiller price indexes, created a platform he calls “indexed fractional ownership.” His idea came in part from a conversation with a neighbor who said he was looking forward to “cashing out” of an expensive home he’d owned for a long time — just before the housing market crashed.  If you own a home and offer some of the equity to an investor like Point, the idea goes, you could take that money and invest it in a different asset class, like stocks. And what does Point get? If the house appreciates before it is sold, Point benefits. If the house depreciates, according to Andreessen Horowitz’s website, “Point gets paid back after the bank, but before the homeowner, in the event of a sale.”

Foreclosure Inventory at Lowest Level in Nine Years: The foreclosure inventory rate in July reached the lowest level recorded for any month since August 2007, according to data released by CoreLogic. The national foreclosure inventory in July included roughly 355,000 homes, or 0.9% of all homes with a mortgage, down from 501,000, or 1.3%, in July 2015. That represents a 29.1% decline year-over-year, CoreLogic said Tuesday. The decline stemmed from loan modifications, foreclosures and stronger housing and labor markets, according to CoreLogic chief economist Frank Nothaft. Similarly, the number of completed foreclosures nationwide slipped 16.5% year-over-year to 34,000. That figure is also 71.2% lower than the peak of 118,000 recorded in September 2010. "Foreclosure rates declined year-over-year in all states except North Dakota, which experienced a 6% increase in its foreclosure inventory related to the drop in energy-related jobs," CoreLogic President and Chief Executive Anand Nallathambi said in a news release. "Importantly, judicial states like New Jersey and New York have continued to work through their large inventory of homes in foreclosure proceedings." CoreLogic reported yet another decline in the number of mortgages 90 or more days past due including loans in foreclosure or REO, which dropped 17.3% from last year to 1.1 million mortgages.

 US Commercial Real Estate Markets Are Sinking….Again…. - A year and a half ago, I wrote an in-depth article showing why the so-called recovery in the commercial office market was only an illusion. Wall Street and the pundits continued to proclaim the strengthening of the office market. For example, the chief economist of the highly respected data firm, Reis, declared last October that in spite of stubbornly high vacancy rates, the recovery in the office market was “gathering pace.” With weakness becoming more and more obvious in several of the hottest office markets, here’s why large office-market REITs are substantially overpriced. As commercial real estate sales soared in 2015, so did the optimism of investors. In its mid-year Investor Outlook, Preqin reported that 57% of large investors surveyed had a positive perception of the real estate asset class, up from only 37% six months earlier. Only 6% of them had a negative view. Nearly 80% of them intended to commit the same or more capital to real estate over the next 12 months. This chart from Real Capital Analytics shows how buying has soared. By the end of 2015, total commercial real estate sales had almost returned to the levels of the peak bubble year – 2007. The sales growth of 2013-2015 was almost identical to that of 2005-2007. Sales of office buildings in the U.S. climbed to $146 billion in 2015, 40% higher than in 2013.  Real estate busts nearly always begin in the hottest markets. Quite unexpectedly, not enough optimistic buyers bid on the huge supply of properties that are offered by sellers. Prices begin to flatten out as sales weaken. Sub-listing of space soars just as a lot of newly built office space hits the market. Empty space stays on the market longer as prospective tenants balk at the lofty rents still being asked.  Other than Manhattan, the San Francisco Bay area has been the hottest commercial real estate market in the country. San Francisco real estate is inextricably tied to what is happening in Silicon Valley. For nearly five years, that has meant the five giants: Apple, Google (now Alphabet), Facebook, Netflix and LinkedIn. Since 2010, these five companies have leased half of all new office developments either completed or under construction in Silicon Valley. According to Newmark, Cornish & Carey, there is 9.4 million square feet of office space under construction now.The biggest red flag is the soaring amount of sub-lease space hitting the market now. It is offered by firms who grabbed additional space at almost any price during the boom years in anticipation of hiring down the road. They have started to shed what is now clearly unneeded space. Available sublease office space has risen to levels not seen since 2010.

Loan Modifications Continue to Decline: Hope Now: Loan modification activity fell again on a monthly basis, but there are still several states where borrowers need assistance, according to the Hope Now alliance. Hope Now reported Thursday that total nonforeclosure solutions, including loan modifications, short sales, deeds-in-lieu and workout plans, in May added up to 112,000. Conversely, there were only 25,000 foreclosure sales for the month, down 12% from June. Foreclosure starts dropped 5% month-over-month to 51,000. There were roughly 35,000 permanent loan modifications during the month, down 17% month-over-month but up 3% year-over-year. Of these modifications, 23,000 were made via proprietary programs, while more than 12,000 were completed through the Home Affordable Mortgage Program. Short sales fell 10% from June to 5,700, while deeds-in-lieu similarly decreased 16% to 1,400. "Our latest data report indicates that while delinquency continues to decline to pre-crises norms, there still remains a population of homeowners who need assistance. While the data trends certainly suggest that the market is recovering, there remains areas where assistance is still needed. Hope Now continues to focus our efforts in several of these regions including Florida, Georgia, New Jersey and California," said Hope Now Executive Director Eric Selk in a press release.

Modification Program Activity Rises in Second Quarter: Treasury:  Activity under the Making Home Affordable program increased in the second quarter thanks to the introduction of the Streamline Home Affordable Mortgage Program, according to a performance report from the Treasury Department. Cumulative activity for the quarter, including HAMP modifications, government-sponsored enterprise standard modifications and other loss mitigation activities, totaled 60,926 versus 57,582 for the previous quarter. To date, nearly 2.7 million modifications and forbearance plans have been started. The Streamline HAMP program that offers modifications for non-GSE homeowners ushered in 7,811 modifications, making up a large portion of the overall activity. Ocwen Financial Corp. said Friday that it was responsible for 4,112 Streamline HAMP modifications, representing 53% of the total for the quarter. In total, there were 1.6 million Tier 1 and Tier 2 permanent HAMP modifications, the Treasury reported. Ocwen led all other servicers with nearly 325,000 of these modifications, followed by Wells Fargo and Nationstar Mortgage. Ocwen was also responsible for the most HAMP Principal Reduction Alternative modifications of any servicer, with more than 104,000, followed by Wells Fargo and JPMorgan Chase. Altogether seven servicers, including those mentioned above as well as Bank of America, CitiMortgage and Select Portfolio Servicing, made up roughly 85% of non-GSE HAMP modifications in the second quarter. In the report, the Treasury Department also provided its servicer assessment results. Ocwen, JPMorgan, Select Portfolio Servicing and Wells Fargo were found to need minor improvements. CitiMortgage and Nationstar were reported as needing moderate improvements to their programs.

  This Startup Wants a Stake in Your Home, Poor Credit No Problem -  Nicole Bennett wanted to pull cash out of her house in Antioch, California, to reduce a growing mound of debt. When Bennett’s mortgage lender, Wells Fargo & Co., refused the social worker because her credit score was too low, she turned to a technology startup called Point Digital Finance Inc.In October, Bennett got the almost $40,000 she needed to pay down debt that was costing her more than $1,900 a month in car, personal-loan and credit-card payments. In return, Palo Alto, California-based Point -- which is backed by investors including Greylock Partners, Andreessen Horowitz and Vikram Pandit, the former chief executive officer of Citigroup Inc. -- wanted to own a piece of her property. Financing to homeowners is loosening up after a 30 percent increase in property values nationally since the 2012 trough. While many lenders have been letting the most credit-worthy borrowers tap their homes’ equity, Point is targeting customers who have been largely unable to trade accumulated wealth for cash or don’t want to take on the additional monthly payments associated with traditional loans. Since home prices bottomed in 2012, banks have reduced the percentage of cash borrowers can take out when refinancing and tightened credit standards for home-equity lines of credit, HELOCs, requiring higher FICO scores and full documentation. A typical HELOC is a second mortgage, repaid monthly with interest, that homeowners can use in full or draw on as needed. Point is making an investment in the form of equity, so customers have no obligation to pay the firm back until they sell or refinance their homes, for as long as a decade. That type of funding could ultimately cause financial issues for the homeowner, said Sarah Edelman, director of housing policy at the Center for American Progress. “While it may be appealing to get an upfront lump sum of cash, the risk here appears to be that a consumer could end up with a more expensive product with harsher repayment terms than they would with a more conventional loan,” said Edelman, whose Washington-based policy institute promotes economic mobility.

Consumers Are Unaware of Low-Down-Payment Loan Options: Affordability constraints and a lack of awareness about low-down-payment mortgage options are tempering confidence about buying a home, according to data from the National Association of Realtors. The NAR reported in the results of its third-quarter Housing Opportunities and Market Experience survey that 78% of homeowners and 60% of renters say now is a good time to buy. That's down from 80% and 62%, respectively, in the previous quarter. Contributing to this decrease in confidence in part is the low levels of supply and rising prices, according to NAR chief economist Lawrence Yun. "This summer's historically low mortgage rates injected some additional demand into the market, but the dearth of homes for sale continues to keep a lid on sales but not prices," Yun said in a news release Wednesday. "Given the stiff competition and limited homes available at the lower end of the market, it's not surprising at all that those under the age of 34 and in the West are the least confident about it being a good time to buy." But another factor leading many buyers — especially younger ones — to the decision not to buy make be a lack of knowledge about different mortgage financing options that are available, Yun said. Across all age groups, fewer than 20% say that they would need just a 10% down payment to finance a home purchase. And 43% of those 65 and older and 37% of those below the age of 35 think a down payment above 20% is required. The average median down payment for first-time buyers, according to the NAR's Profile of Home Buyers and Sellers, is 5%.

CoreLogic Reports 548,000 US Homeowners Regained Equity in the Second Quarter of 2016 - CoreLogic ... today released a new analysis showing 548,000 U.S. homeowners regained equity in Q2 2016 compared with the previous quarter, increasing the percentage of homes with positive equity to 92.9 percent of all mortgaged properties, or approximately 47.2 million homes. Nationwide, home equity grew year over year by $646 billion, representing an increase of 9.9 percent in Q2 2016 compared with Q2 2015. In Q2 2016, the total number of mortgaged residential properties with negative equity stood at 3.6 million, or 7.1 percent of all homes with a mortgage. This is a decrease of 13.2 percent quarter over quarter from 4.2 million homes, or 8.2 percent, in Q1 2016 and a decrease of 19 percent year over year from 4.5 million homes, or 8.9 percent, compared with Q2 2015. ...For homes in negative equity status, the national aggregate value of negative equity was $284 billion at the end of Q2 2016, decreasing approximately $20.4 billion, or 6.7 percent, from $305 billion in Q1 2016. On a year-over-year basis, the value of negative equity declined overall from $314 billion in Q2 2015, representing a decrease of 9.5 percent in 12 months.Of the more than 50 million homes with a mortgage, approximately 8.6 million, or 17 percent, have less than 20 percent equity (referred to as under-equitied) and approximately 965,000, or 1.9 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are under-equitied may have a difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of shifting into negative equity if home prices fall. “Home-value gains have played a large part in restoring home equity,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The CoreLogic Home Price Index for the U.S. recorded 5.2 percent growth in the year through June, an important reason that the number of owners with negative equity fell by 850,000 in the second quarter from a year earlier.”

Rising Home Values Put Underwater Homeowners on Dry Land: Higher home values have lifted thousands of homeowners out of negative equity in the second quarter. CoreLogic reported Thursday that 548,000 homeowners regained equity in the second quarter of 2016. Altogether, home equity grew $646 billion, for an increase of 9.9% over the second quarter of 2015. The number of homes in negative equity dropped 13.2% from the first quarter and 19% year-over-year to 3.6 million. That equates to 7.1% of all homes with a mortgage. "We see home prices rising another 5% in the coming year based on the latest projected national CoreLogic Home Price Index," CoreLogic Chief Executive and President Anand Nallathambi said in a news release. "Assuming this growth is uniform across the U.S., that should release an additional 700,000 homeowners from the scourge of negative equity."

Mortgage Origination Demand Hit Pre-Crisis High in 2Q: — Home purchase lending hit a post-2007 high in the second quarter as low interest rates and growing consumer confidence continue to support the housing market. "You are seeing the employment picture brighten," said Bob Walters, the chief economist for Quicken Loans. He said consumers are more secure in their jobs and feel more comfortable because home prices are again on the rise. "You go back a few years, people were still afraid home prices could fall again," he said. "So there is a psychological component that is making this home buying season more robust than in the past. Since the crash, this year is the most robust activity that we have seen." A Wells Fargo Securities report said sales of existing homes rose 1.1% in June to a 5.57 million-unit rate, the strongest pace since February 2007. Sales of new homes rose 10.1% in the first six months of the year compared with the first half of 2015, the report said. "June was a breakout month for home sales, with both new and existing home sales reaching fresh post-recession highs," it said. Black Knight reported that lenders originated 1.1 million single-family purchase loans in the second quarter, up from 720,000 in the prior quarter. "It was a particularly strong for purchase originations," said Ben Graboske, executive vice president at Black Knight Financial Services in Jacksonville, Fla. Purchase mortgages totaled $297 billion in the second quarter, up from $195 billion in the first quarter.

 MBA: "Mortgage Applications Increase in Latest Weekly Survey" -- From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey  Mortgage applications increased 4.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 9, 2016. This week’s results included an adjustment for the Labor Day holiday. ... The Refinance Index increased 2 percent from the previous week. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index decreased 15 percent compared with the previous week and was 8 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) increased to 3.68 percent from 3.67 percent, with points increasing to 0.37 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The first graph shows the refinance index since 1990. Refinance activity has increased this year since rates have declined. However it would take another significant move down in mortgage rates to see a large increase in refinance activity. Based on the increase in mortgage rates over the last few days, I'd expect refinance activity to decline soon. The second graph shows the MBA mortgage purchase index. The purchase index is "8 percent higher than the same week one year ago".

Mortgage Rates "Pushing into Post-Brexit Highs" -- From Matthew Graham at Mortgage News Daily: Mortgage Rates Still Pushing Into Post-Brexit Highs Mortgage Rates were only slightly higher today, and in some cases were right in line with yesterday's. In fact, if you caught a lenders' rate sheet earlier this morning, chances are it was in better shape than yesterday. That stood to reason, considering bond markets (which drive mortgage rates) were also in slightly better shape to start. But bonds tanked in the afternoon (meaning prices fell, and yields rose), thus implying higher rates. When bond markets move enough during the day, lenders often 'reprice' and send out updated rate sheets. That was indeed the case today, but the changes didn't leave us in significantly worse shape than yesterday. That's the positive way to look at it. The negative way is to observe that rates moved just a little bit more into the highest levels in more than 2 months (before Brexit).During the best moments of the range over that time, conventional 30yr fixed rates on top tier scenarios have been as low as 3.25%. The most prevalent rate was 3.375%. While that's still available today for a few of the most aggressive lenders, you're more likely to see 3.5%-3.625%. Bottom line, the past few business days have solidified a shift higher of roughly an eighth of a percentage point. Here is a table from Mortgage News Daily: Home Loan Rates  View More Refinance Rates

FNC: Residential Property Values increased 5.4% year-over-year in July - FNC released their July 2016 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.8% from June to July (Composite 100 index, not seasonally adjusted).   The 10 city MSA increased 0.8% (NSA), the 20-MSA RPI increased 0.8%, and the 30-MSA RPI also increased 0.8% in July. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data. The index is still down 10.0% from the peak in 2006 (not inflation adjusted). This graph shows the year-over-year change based on the FNC index (four composites) through July 2016. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.Housing Market Moves More Toward More Buying - A slowdown in the upward climb of home prices allowed the housing market as a whole to move more toward buying a home than renting one during the second quarter, according to a quarterly report from professors at Florida Atlantic University and Florida International University.The Beracha, Hardin & Johnson Buy vs. Rent Index for the country came in at negative 0.17 on a scale of positive 1 to negative 1 where negative values indicate a preference toward homeownership, according to the report. That compares to values of negative 0.16 the quarter prior and negative 0.21 in the second quarter of 2015."Housing prices, in general, continue to slow and when considered in light of the recent trends in the Buy vs. Rent Index signal that ownership remains an excellent investment for the majority of Americans," said Ken Johnson, one of the index's authors and an associate dean of graduate programs and professor in FAU's College of Business, in a news release Tuesday.  Of the 23 markets the index's authors studied, 15 trended toward ownership since the first quarter.

What The Homeownership Rate Really Tells Us About U.S. Housing - A hard half-decade after the bottom of the housing bust, several fundamentals of the U.S. housing market point to a recovery that is nearly complete: Home values in many markets are near or even above pre-recession levels, demand for homes is high and sales are up. But one key piece is missing. The U.S. homeownership rate - at all-time highs just a decade ago - remains stuck today at a 50-year low.  Which begs the question: Why? And what does the homeownership rate's failure to launch tell us about the true dynamics of the U.S. housing market?  Some attribute low homeownership to more Americans choosing to (or being forced to) delay major life decisions that typically precede buying a home, like getting married and starting families. Others blame rising rents and home values, which make it difficult to save enough to buy a home. A look at the demographics of those Americans that do own homes today, and those that do not, relative to past decades suggests both of those theories may be true to some extent.  Critically, it also reveals that homeownership tilts markedly toward older, whiter Americans. Americans are living longer. In 1990, the typical adult was 40 years old; today, they are 47. As the adult population ages, so do renters and homeowners (figure 1). But even though typical renters and homeowners both have gotten older, their respective trajectories over the past 25 years have been different. Renters in the United States have steadily gotten older, closely mirroring the trajectory of the adult population overall. This could suggest that more Americans who turned to renting when first starting out are staying renters longer, either because of financial constraints or simply lifestyle choices that preclude the need to own a home. The typical age of a homeowner, however, stayed constant around 50 or 51 - right up until the peak of the housing bubble in 2006, when the age of a typical homeowner started rising rapidly. This tells us that throughout the housing bust and subsequent recovery, those Americans most able to successfully buy or hold onto a home have largely been older. It was these older Americans that accumulated enough wealth before the Great Recession, or paid off their homes before the bubble burst, allowing them to stay relatively insulated from the worst effects of the economic downturn. And a good part of the recent surge in median homeowner age is attributable to retirees (aged 65 and older), the lone age group in which homeownership has stayed more or less constant since the height of the housing bubble (figure 2).

  Why Homebuilding Isn t Keeping Up With Demand: New homes aren't being built, and construction and development lending trends may be to blame, according to Kroll Bond Rating Agency's Christopher Whalen. Regulations have changed the equation for banks when it comes to where they focus their C&D lending activity. And because of the fundamentals underpinning the markets for single-family homes versus other sectors, a significant portion of today's C&D lending is going to multifamily developments instead, Whalen argued in a research note. "Post-crisis lending and capital regulations are discouraging banks from underwriting loans on 'dirt,'" Whalen wrote, using the generic term for C&D loans. "Many smaller banks in the Southeastern U.S. failed as a result of C&D lending and regulators are vigilantly watching for institutions that allocate excessive amounts of their balance sheets to single-family C&D lending." The fundamentals in multifamily development are more favorable though. For starters, many of these properties cater to relatively more affluent homeowners than single-family homes. Housing affordability dynamics also come into play — though they will likely trend negative in the future, rental growth and vacancy rates seem to be at a high point for this housing cycle, Whalen said. "We believe that the multifamily sector will continue to be aided by less homeownership (in part brought on by the lack of availability of home loans to nonprime borrowers)," Whalen wrote.And with noncurrent rates falling to just 0.23% in the second quarter of 2016 for the multifamily loan asset class, banks may be more confident insofar as risk is concerned with these C&D loans.

Why the Homeownership Rate Will Never Return to Pre-Crisis Peak - Over the past four decades, the U.S. has seen a dramatic increase in the proportion of homeowners to the U.S. population, peaking just short of 70% in the first quarter of 2005, according to the U.S. Census Bureau. Since then, homeownership has declined to the low 60s. The rate of homeownership is likely to continue to decline further into the mid-to-low 50s as changes in demographic trends, increased regulation and stagnant real incomes all work to make the dream of homeownership more difficult to achieve. The housing boom of the 2000s was a bubble supported not just by easy credit, but also by a wave of Americans entering peak childbearing and household-spending years. As these relatively affluent households age and migrate away from single-family homeownership, there is an insufficient supply of new homeowners to replace them. While the recovery of U.S home prices from their nadir in 2012 was largely driven by a lack of supply, the longer term challenge facing the industry will be a dearth of demand — namely, homebuyers and mortgage credit. Along with the demographic headwinds facing the housing market, increased regulation will also be a drag on housing. The Dodd-Frank Act marked an expansion of federal oversight over the housing market that excludes roughly one-third of all Americans from the possibility of getting a mortgage. More stringent regulation has also reduced the willingness of depositories to make new loans to borrowers with less than pristine credit or to support the secondary markets for mortgages. Federal housing finance regulation has increased the cost of originating and servicing a mortgage loan several-fold, resulting in a drain of capital out of the housing sector. As Kroll Bond Rating Agency noted in "Mortgage Servicing Rights: Catching the Falling Knife," the markets for MSRs, as well as the cash markets for securities issued by Fannie Mae, Freddie Mac and Ginnie Mae, presently are seeing an alarming reduction of liquidity. Banks are no longer willing to buy MSRs. Only three of the top 25 seller/servicers in the Federal Housing Administration loan market, for example, are depositories and this number is likely to fall further.

Increasing Student Loan Debt Affecting Millennial Renters: Homeownership is on the decline [1], especially among the younger age group, while rental household formation has been rising, and millennials are a major share of this growing rental population. CoreLogic Rental Property Solutions tracks rental applicant data, and new analysis reveals that 60 percent of rental housing applicants applying from 2011-2015 were millennials. Student loan debt has become a growing burden nationwide, particularly with millennials, many of whom are trying to rent an apartment, condo or home. The aggregated outstanding student loan debt in the U.S. has more than tripled over the past decade, increasing from $380 billion in 2004 to $1.3 trillion in 2015 [2], which is the second-highest level of consumer debt only behind mortgages. For millennials applying for rental properties, CoreLogic took the application data, extracted detailed tradeline information from the credit bureaus and generated a lease default score. CoreLogic data shows that the average student loan balance reached $31,900 in 2015 for age group 20-34 (Figure 1). This is a 41.8 percent increase compared with the average balance of $22,500 in 2008. At the same time, the median student loan balance for the same age group increased 53.7 percent to $18,600 in 2015 from $12,100 in 2008. The Joint Center for Housing Studies at Harvard University published the 2013 student loan balance of U.S. households [3]. The average balance and median balance of renter households for age group 20-39 was $28,173 and $16,000, respectively. CoreLogic data shows the average student loan balance in 2013 for rent applicants in the same age group was $30,263 and the median balance was $16,400. These numbers are very close to each other.

U.S. Households Make Long-Awaited Gains in Housing Recovery - Middle-class families are starting to see their biggest housing challenges ease. Housing affordability is finally improving after years during which the struggle to pay rent swelled to crisis levels for many poor and middle-class Americans, according to an analysis of American Community Survey data released Thursday. Jed Kolko, chief economist at job-site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley, said just over 49% of renters were cost-burdened in 2015, meaning they spent more than 30% of their incomes in rent, compared with about 50% a year earlier—the lowest level since 2008. Indeed, across the board, there are signs that affordability challenges are beginning to ease. Some 33.6% of households were cost-burdened in 2015, meaning they spent more than 30% of their incomes on housing costs, down from 34.6% a year earlier, the fifth straight year of declines. Much of the reason for the improvement in affordability for homeowners was low mortgage rates. Renters also appear finally to be seeing income gains that are outpacing rent growth. There was also a surprising decline in the popularity of single-family rentals, which until now have seen the strongest gains of all housing stock coming out of the recession, with a 34% jump between 2006 and 2015. That trend may finally be starting to reverse as 16.8% of single-family homes were rented in 2015, down from 17% a year earlier–the first decline since 2006, according to Mr. Kolko’s analysis. This is likely due to the fact that families who lost their homes during the foreclosure crisis and were forced to rent instead are once again becoming eligible to get mortgages and returning to homeownership.

House Prices to Median Household Income --  The Census Bureau released the Income, Poverty and Health Insurance Coverage in the United States: 2015 this morning. The report showed a significant increase in the real median household income and a decline in poverty.  For an overview, see from Nick Timiraos and Janet Adamy at the WSJ: U.S. Household Incomes Surged 5.2% in 2015, First Gain Since 2007 and from Jason Furman, Sandra Black, and Matt Fiedler at the CEA: Income, Poverty, and Health Insurance in the United States in 2015 One of the metrics to follow is a ratio of house prices to incomes.   The following graphs use annual averages of house prices indexes - Case-Shiller and CoreLogic - and the nominal median household income (and the mean for the fourth fifth income) through 2015.  Note: Most reporting today is on the REAL median household income (adjusted for inflation over time).  These graphs use nominal income since we are comparing to nominal house prices.This graph shows the ratio of house price indexes divided by the Median Household Income through 2015 (the HPI is first multiplied by 1000). This uses the annual average CoreLogic and the National Case-Shiller index since 1976. As of 2015, house prices were above the median historical ratio - but far below the bubble peak. The second graph is similar but uses the mean of the fourth fifth household income (if we separate households into fifths, this is the second highest income group). These are key households since they are more likely to be homeowners (and home buyers). Using this group, prices are well below the bubble peak. Going forward, I think it would be a positive if incomes outpaced house prices, or at least kept pace with house prices increases for a few years.

Fed's Flow of Funds: Household Net Worth increased in Q2 - The Federal Reserve released the Q2 2016 Flow of Funds report today: Flow of Funds. According to the Fed, household net worth increased in Q2 compared to Q1:  The net worth of households and nonprofits rose to $89.1 trillion during the second quarter of 2016. The value of directly and indirectly held corporate equities increased $452 billion and the value of real estate increased $474 billion. Household net worth was at $89.1 trillion in Q2 2016, up from $88.0 trillion in Q1 2016.  The Fed estimated that the value of household real estate increased to $22.3 trillion in Q2. The value of household real estate is just below the bubble peak in early 2006 (not adjusted for inflation, and including new construction).  The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is higher than the peak in 2006 (housing bubble), and above the stock bubble peak.   This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Household Net Worth Hits A Record $89 Trillion... There Is Just One Catch - As part of its quarterly Flow of Funds update, earlier today the Fed released snapshot of the US "household" sector as of June 30. What it revealed is that with $103.8 trillion in assets and a modest $14.7 trillion in liabilities, the net worth of the average US household rose to a new all time high of $89.1 trillion, up $1.1 trillion as a result of an estimated $474 billion increase in real estate values, and mostly $750 billion increase in various stock-market linked financial assets like corporate equities, mutual and pension funds. Household borrowing rose at a 4.4% annual rate, with total household liabilities grew growing by $200 billion from $14.5 trillion to $14.7 trillion, the bulk of which was $9.6 trillion in home mortgages. The breakdown of the total household balance sheet as of Q2 is shown below.  And while it would be great news if wealth across America had indeed risen as much as the chart above shows, the reality is that there is a big catch: as shown previously, virtually all of the net worth, and associated increase thereof, has only benefited a handful of the wealthiest Americans. As a reminder, from the CBO's latest Trends in Family Wealth analysis, here is a breakdown of the above chart by wealth group, which sadly shows how the "average" American wealth is anything but.

Mortgage Equity Withdrawal Slightly Positive in Q2 -- The following data is calculated from the Fed's Flow of Funds data (released today) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation (modifications, short sales, and foreclosures).  For Q2 2016, the Net Equity Extraction was a positive $7 billion, or a positive 0.2% of Disposable Personal Income (DPI) .  With revisions, this is the first positive MEW since Q1 2008 - and MEW will probably be positive in Q3 this year too (there is a seasonal pattern for MEW).This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method. Note: This data is impacted by debt cancellation and foreclosures, but much less than a few years ago. The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $56 billion in Q2.  The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With a slower rate of debt cancellation, MEW will likely stay positive.

 You May Be Broke and Not Know It -There are really two ways to be poor. Some people just don’t earn much money. Almost 15 percent of Americans, or 47 million people, live below the poverty line1, according to the U.S. Census Bureau. Then there are the people loaded up with debt. Even people with good jobs can owe so much on credit cards, student loans, or mortgages that, on paper, they’re worth less than zero. About 14 percent of U.S. households fall into this category, with a negative net worth, according to an analysis this month by the New York Federal Reserve. Add up all their possessions—cash, property, retirement accounts—and subtract all their debts, and one in seven Americans ends up in the red. Overall, U.S. households have $12.3 trillion in debt, according to another New York Fed report, released this week. At least Americans are doing better at managing their debt than during the dark days of the housing bubble that led to the Great Recession. The total debt load is up 10 percent from the middle of 2013 but is 3.1 percent below its 2008 peak. The biggest improvement since the recession has been in housing debt, which is still more than $1 trillion below its peak. Credit cards have become more manageable as consumers have paid down debts (and switched to debit cards), regulations have gotten stricter, and banks have become more cautious about giving cards and other credit to borrowers with low credit scores. In mid-2008, 68 percent of Americans had at least one credit card. That’s now at 61 percent. Credit card balances have fallen, and since 2008, total credit card debt is down 14 percent, to $730 billion. Delinquency rates have fallen to levels not seen since the tech boom years of 1999 and 2000. Still, about 14 percent of U.S. households have a credit card balance of more than $10,000, and student loan balances have soared. From the middle of 2008 to the middle of 2016, Americans’ total student loan debt went from $590 billion to $1.26 trillion.  It turns out credit cards and student loan debt are the main reasons Americans are ending up with a negative net worth. Mortgages are a minor factor, the New York Fed found. Only 19 percent of people with negative net worth are homeowners, compared with 75 percent of those with positive net worth.

Retail Sales decreased 0.3% in August - On a monthly basis, retail sales decreased 0.3 percent from July to August (seasonally adjusted), and sales were up 1.9% from August 2015.
From the Census Bureau report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $456.3 billion, a decrease of 0.3 percent from the previous month, and 1.9 percent above August 2015. ... The June 2016 to July 2016 percent change was revised from virtually unchanged to up 0.1 percent.This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales ex-gasoline were down 0.3% in August. The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Year-over-year change in Retail Sales Retail and Food service sales ex-gasoline increased by 3.1% on a YoY basis. The decrease in August was below expectations of no change for the month.

August Retail Sales Continue to Disappoint - The Census Bureau's Advance Retail Sales Report for August released this morning was once again disappointing. Headline sales came in at -0.3% month-over-month to one decimal, a 0.35 point decline at two decimal places from last month. The consensus was for -0.1%. Core sales (ex Autos) came in at -0.1% MoM. The consensus was for a 0.3% decrease. Here is the introduction from today's report: The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $456.3 billion, a decrease of 0.3 percent (±0.5%)* from the previous month, and 1.9 percent (±0.7%) above August 2015. Total sales for the June 2016 through August 2016 period were up 2.4 percent (±0.5%) from the same period a year ago. The June 2016 to July 2016 percent change was revised from virtually unchanged (±0.5%)* to up 0.1 percent (±0.2%)*. Retail trade sales were down 0.5 (±0.5%)* from July 2016, and up 1.4 percent (±0.7%) from last year. Nonstore retailers were up 10.9 percent (±1.4%) from August 2015, while Health and Personal Care Stores were up 7.8 percent (±2.3%) from last year. [view full report] The chart below is a log-scale snapshot of retail sales since the early 1990s. The two exponential regressions through the data help us to evaluate the long-term trend of this key economic indicator.

Headline Retail Sales Down In August 2016 - But Our Analysis Says Otherwise.: Retail sales were down according to US Census headline data - and well under expectations. Our analysis paints a much better picture of retail sales - with the three month rolling averages showing 2.5 % year-over-year growth. Using the unadjusted data and the three month rolling averages - this was not a bad report with growth up 2.5 % year-over-year. Backward data revisions were slightly up. Econintersect Analysis:

  • unadjusted sales rate of growth accelerated 2.1 % month-over-month, and up 3.1 % year-over-year.
  • unadjusted sales 3 month rolling year-over-year average growth accelerated 0.5 % month-over-month, 2.5 % year-over-year.
  • unadjusted sales (but inflation adjusted) up 2.1 % year-over-year
  • this is an advance report. Please see caveats below showing variations between the advance report and the "final".
  • in the seasonally adjusted data - there was only strength in food services and clothing.

Retail Sales Growth Tumbles To 6 Month Lows, Stuck In Recession Territory - Having warned that retail sales could be weak (based on BofA's credit card data), year-over-year growth in retail sales rose just 1.9% (its weakest since March's plunge) and worryingly in historical recession territory. MoM data was disappointing across the entire spectrum with actual contractions versus expectations of gains (Core -0.1% vs +0.3% exp, and Control -0.1% vs +0.4% exp). While clothing and food services saw spending increase, a drop in gasoline spending along with a tumble in 'retailers' down 2.4% MoM and sporting goods weighed the overall index down.

  • Retail sales less autos fell 0.1% in Aug., est. 0.2% - MISS
    Retail sales fell to $456.321b in Aug. vs $457.669b in July - MISS
    Retail sales ex-auto dealers, building materials and gasoline stations unchanged in Aug. - MISS
    Retail sales ‘control group’ fell 0.1% m/m in Aug., est +0.4% – MISS

The Big Four Economic Indicators: Real Retail Sales Weaken - With the release of this morning's Consumer Price Index, we've updated this commentary to include the Real Retail Sales data for August.  Month-over-month nominal sales were negative in August (-0.29% to two decimals). Real Retail Sales, calculated with the seasonally adjusted Consumer Price Index, were also negative (-0.492% to three decimals), an overall decline from the July real MoM 0.10% increase. The chart gives us a close look at the monthly data points in this series since the end of the last recession in mid-2009. The linear regression helps us identify variance from the trend.  The early 2014 dip in sales was generally written off as a temporary result severe winter, and the return to trend sales growth gave credence to the explanation. The early 2015 dip triggered the same explanation, but following the subsequent recovery, Real Sales have difted upward, but below trend.  The chart and table below illustrate the performance of the generic Big Four with an overlay of a simple average of the four since the end of the Great Recession. The data points show the cumulative percent change from a zero starting point for June 2009.

U.S. business inventories unchanged as stocks at retailers drop - (Reuters) - U.S. inventories were unchanged as stocks at retailers fell, suggesting an anticipated boost from inventory investment to third-quarter economic growth could be modest. The Commerce Department said on Thursday the flat reading in inventories followed an unrevised 0.2 percent increase in June. Economists had forecast inventories, a key component of gross domestic product, edging up 0.1 percent in July. Retail inventories fell 0.3 percent in July, instead of decreasing 0.4 percent as reported in an advance report published last month. They rose 0.4 percent in June. Retail inventories excluding autos, which go into the calculation of GDP, also fell 0.3 percent in July after rising 0.2 percent in June. An outright drop in inventory investment subtracted almost 1.3 percentage points from GDP growth in the second quarter, the largest drag in more than two years, restricting the rise in output to an anemic 1.1 percent pace. Economists expect inventory accumulation will rebound in the third quarter and account for much of the anticipated acceleration in GDP growth. The Atlanta Federal Reserve is currently forecasting the economy growing at a 3.3 percent rate in the third quarter. Inventories have weighed on GDP growth since the second quarter of 2015 as businesses sold stockpiles of unwanted goods, helping to undercut manufacturing activity. Business sales fell 0.2 percent in July, the biggest drop since February, after rising 1.0 percent June. At July's sales pace, it would take 1.39 months for businesses to clear shelves, unchanged from June. That is still a high ratio that poses a risk that the inventory correction could extend into the third quarter.

Michigan Consumer Sentiment: September Preliminary Unchanged from August Final -- The University of Michigan Preliminary Consumer Sentiment for September came in at 89.8, unchanged from the August Final reading. had forecast 90.8. Surveys of Consumers chief economist, Richard Curtin, makes the following comments:Confidence was unchanged in early September from the August final and barely different from the July reading. Small and offsetting changes have taken place in the third quarter 2016 surveys: modest gains in the outlook for the national economy have been offset by small declines in income prospects as well as buying plans. While income gains expected during the year ahead have edged upward, declines in inflation expectations were the main reasons future financial prospects improved, as both near and long term inflation expectations fell to near record lows. Nonetheless, buying plans suffered from the perception that no additional price discounts would be offered. Even the more optimistic outlook for the economy had little if any impact on the expected growth rate in new jobs. Importantly, all of these changes were relatively minor. Overall, consumers remain reasonably optimistic about their economic prospects. Real personal consumption expenditures can be expected to grow by 2.6% through mid 2017. [More...] See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

 UPS to hire 95,000 seasonal workers to handle peak volumes – UPS Inc. said today it plans to hire about 95,000 seasonal employees to work the upcoming peak holiday shipping season—a level that, if it holds, will have kept the company's peak staffing needs constant for the third straight year. The Atlanta-based transport and logistics giant will hire for full- and part-time positions—mostly package handlers, drivers, and driver-helpers—for an anticipated ramp-up in holiday volume that will start in November and run through January. UPS will not forecast its 2016 holiday peak volumes until late next month.After difficult peak seasons in 2013 and 2014,UPS did a better job last year of calibrating costs with end demand, in part by handling fewer parcels that were tendered very late in the cycle that could have unduly stressed its network. UPS was sharply criticized in 2013 for significant delivery delays. It invested heavily to add infrastructure for the 2014 peak season, only to find that volumes came in below anticipated levels. Though customers lauded UPS' 2014 performance, the increased costs without the volumes to match resulted in a hit to the company's bottom line. Peak-season labor demand is expected to rise this year, along with workers' hourly wages, according to staffing firm ProLogistix. Demand for peak hourly labor is projected to increase by about 28 percent over the third quarter, while companies will pay a $1.50 to $3 hourly premium to attract and retain good warehouse and DC workers to work the season, the firm said.

 Moody's: Sears' and Kmart's shutdown is imminent -  Moody's analysts say Sears and Kmart don't have enough money — or access to money — to stay in business. In a note published Wednesday, the analysts downgraded Sears' liquidity rating, saying the company is bleeding cash and will have to continue to rely on outside funding or the sale of assets, such as real estate, to sustain operations. "We recognize the risks associated with relying on these sources and continued shareholder support to finance its negative operating cash flow which is estimated by Moody's to be approximately $1.5 billion this year," the analysts wrote. Kmart in particular is at risk of shutting down, according to Moody's. "The ratings... reflect our view on the uncertainty of the viability of the Kmart franchise in particular given its meaningful market share erosion," the analysts wrote. Sears said in August that its cash and equivalents have fallen to $276 million from $1.8 billion one year ago. As a result, the retailer was forced to accept $300 million in financing from Sears CEO Eddie Lampert's hedge fund, ESL Investments, in the most recent quarter. The company is losing cash as sales plunge at its namesake and Kmart stores.  Net sales fell 8.8% to $5.7 billion in the second quarter. Same-store sales plunged 7% at Sears stores and dropped 3.3% at Kmart stores. Sales have been falling for years.  Sears' sales dropped from $41 billion in 2000 to $15 billion in 2015.   Kmart, which merged with Sears in 2005, has seen its sales plunge from $37 billion to $10 billion in the same period.  Moody's analysts noted that Sears has a sizable asset base, but "its debts are significant with approximately $3.5 billion of funded debt as well as an unfunded pension and post-retirement obligation of $2.1 billion."  The company's minimum pension contributions are an immediate threat to its cash flow. In 2016 and 2017, minimum pension contributions total approximately $596 million, analysts said.

CPI increased 0.2% in August, Core CPI up 2.3% YoY --From the BLS: The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.1 percent before seasonal adjustment.
The seasonally adjusted increase in the all items index was caused by a rise in the index for all items less food and energy. It increased 0.3 percent in August, as the indexes for shelter and medical care advanced. ... The all items index rose 1.1 percent for the 12 months ending August, a larger increase than the 0.8-percent rise for the 12 months ending July. The index for all items less food and energy rose 2.3 percent for the 12 months ending August.
This was above the consensus forecast of a 0.1% increase for CPI, and also above the forecast of a 0.2% increase in core CPI.

August 2016 CPI: Year-over-Year Inflation Rate Now 1.1%: According to the BLS, the Consumer Price Index (CPI-U) year-over-year inflation rate was 1.1 % - lower than last month's 0.8 %. The year-over-year core inflation (excludes energy and food) rate increased 0.3 % to 2.3 %, and remains slightly above the target set by the Federal Reserve. Interesting this month is a moderate spike in the year-over-year inflation rate lead by utilities and medical care. On the other hand, food for consumption at home, oil prices, and used cars prices moderated.As a generalization - inflation accelerates as the economy heats up, while inflation rate falling could be an indicator that the economy is cooling. However, inflation does not correlate well to the economy - and cannot be used as a economic indicator. The major influence on the CPI was energy prices. The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.1 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was caused by a rise in the index for all items less food and energy. It increased 0.3 percent in August, as the indexes for shelter and medical care advanced. The energy and food indexes were both unchanged in August. Major energy component indexes were mixed, with increases in the indexes for natural gas and electricity offsetting declines in the gasoline and fuel oil indexes. The food at home index declined for the fourth month in a row, offsetting an increase in the index for food away from home. The 0.3-percent increase in the index for all items less food and energy was the largest rise since February 2016. Along with shelter and medical care, the indexes for motor vehicle insurance, apparel, communication, and tobacco all increased. In contrast, the indexes for used cars and trucks, household furnishings and operations, recreation, and airline fares all declined in August. The all items index rose 1.1 percent for the 12 months ending August, a larger increase than the 0.8- percent rise for the 12 months ending July. The index for all items less food and energy rose 2.3 percent for the 12 months ending August. The food index was unchanged over the last year, while the energy index declined 9.2 percent.

Core CPI Highest Since Lehman (Above Fed Mandate) As Rent, Healthcare Costs Soar - Core CPI - among The Fed's favorite inflation indicators - surged to +2.3% YoY, the highest since Sept 2008. This is the 10th month in a row above the Fed's mandated 2% 'stable' growth as shelter and healthcare costs continue to surge. Core CPI growth above Fed mandate for 10th month in a row...Healthcare and Rent are soaring (bottom right)... As the cost of living under a roof at night continues to outpace headline inflation... And Medical Services rose the most since Nov 1982 MoM... The index for all items less food and energy increased 0.3 percent in August, following a 0.1-percent increase in July. The shelter index continued to rise, increasing 0.3 percent after a 0.2-percent advance the prior month. The indexes for rent and owners' equivalent rent both rose 0.3 percent in August, as they did in July. The index for lodging away from home turned up in August, increasing 2.0 percent after a 2.4-percent decline the prior month. The medical care index rose sharply in August, increasing 1.0 percent. The hospital services index rose 1.7 percent, and the index for prescription drugs advanced 1.3 percent. The index for motor vehicle insurance continued to rise in August, increasing 0.5 percent. The apparel index increased 0.2 percent, and the index for tobacco rose 0.7 percent after falling in July. In contrast to these increases, the index for used cars and trucks continued to decline, falling 0.6 percent in August, its sixth consecutive decrease. The indexes for household furnishings and operations, for recreation, and for airline fares all fell slightly in August, each decreasing 0.1 percent. The indexes for new vehicles and for alcoholic beverages were unchanged in August.

Medical costs jump in August by largest amount in 32 years, CPI shows - Higher rents and surging medical and prescription-drug costs are putting a dent in the wallets and pocketbooks of American consumers, new government data show. The consumer price index rose 0.2% in August, according to a government index that tracks the cost of living. Economists polled by MarketWatch had expected a 0.1% advance. More expensive housing, especially rent, and medical care was behind the increase. Medical care rose 1%, the fastest rate since 1984, the Labor Department said Friday. The cost of prescription drugs also soared 1.3%, bringing the increase in prices over the past year to 6.3%. That’s the largest year-over-year increase in two years. Higher drug prices have drawn criticism from lawmakers in Washington, especially Democrats, in the wake of a controversy involving Mylan, the maker of the EpiPen. The company jacked up the price so much that a public uproar ensued, forcing the company to scale back the increases. Auto insurance has also gotten more expensive. The cost of insurance jumped 0.5% in August and it’s risen 6.5% in the past year. Excluding the volatile food and energy categories, so-called core consumer prices climbed 0.3%.

Import and Export Price Year-over-Year Deflation Moderated Again in August 2016.: Import and export prices continue to deflate year-over-year - although the rate of deflation moderated this month. Both import and export price deflation is moderating when looking year-over-year. The month-over-month figures given in the headlines only confuse. At the current rate of moderation of deflation (trend line) - both imports and export prices should start inflating by the end of the year. Import Oil prices were down 2.1 % month-over-month, and export agricultural prices down 3.4 %, with import prices down 0.2 % month-over-month, down 2.2 % year-over-year; and export prices down 0.8 % month-over-month, down 2.4 % year-over-year.. There is only marginal correlation between economic activity, recessions and export / import prices. Prices can be rising or falling going into a recession or entering a period of expansion. Econintersect follows this data series to adjust economic activity for the effects of inflation where there are clear relationships. Econintersect follows this series to adjust data for inflation.

US Import Prices Tumble For 25th Month In A Row As China's Deflationary Impulse Hits Fresh 6 Year Lows Great news America - it's been over 2 full years since the cost of imported goods roseyear-over-year (dropping 2.2%in August as expected). The month-over-month drop of 0.2% was bigger than expected and was the first drop since February as US airfares reportedly tumbled (especially to Europe).China's deflationary contagion hit fresh 6 year lows but prices from almost every region declined. Import prices from Japan saw the biggest MoM increase - up 0.3% MoM - but by product US import prices fell the most in Fuels & Lubricants and Food & Beverage categories.

August Producer Price Index: Little to No Change - Today's release of the August Producer Price Index (PPI) for Final Demand came in at 0.0% month-over-month seasonally adjusted, up from last month's 0.4% drop in July. It is also at 0.0% year-over-year versus the -0.2% YoY last month. Core Final Demand (less food and energy) came in at 0.1% MoM, up from -0.3% the previous month and is up 1.0% YoY. MoM consensus forecasts were for 0.1% headline and 0.1% core. Here is the summary of the news release on Final Demand: The Producer Price Index for final demand was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.4 percent in July and rose 0.5 percent in June. On an unadjusted basis, the final demand index was unchanged for the 12 months ended in August. (See table A.) In August, a 0.1-percent advance in the index for final demand services offset a 0.4-percent decrease in prices for final demand goods. Prices for final demand less foods, energy, and trade services increased 0.3 percent in August after no change in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2 percent, the largest rise since climbing 1.3 percent for the 12 months ended December 2014. More… The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates. As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Why the Stimulus from Low Oil Prices Never Really Boosted the Economy - Two years on, it’s not at all clear that oil prices provided a major net boost to economic growth. As oil prices declined, many U.S.-based oil producers were forced to sharply curtail their drilling activity. Waves of layoffs followed in the oil and gas industry. The drop presented both good and bad news for the overall U.S. economy. A new paper, being presented Friday at a Brookings Institution conference, crunched the numbers to show just how closely these two factors offset each other. The paper estimates that higher discretionary income, thanks to low oil, boosted consumption by 0.61%. They estimate that the collapse of oil drilling reduced investment by 0.62%. In plain English, the boost to consumer-spending power from low oil prices almost exactly equaled the hit to investment from low oil prices. The paper finds “the net stimulus since June 2014 has been effectively zero.” The economists examine a range of other factors that could have significantly boosted or dented the economy, but find the evidence lacking. An increasing propensity to buy automobiles and a change in the U.S. trade balance had small impacts on the economy. They find no evidence that non-oil-producing sectors of the economy stepped up investment, which could have been a positive.They find no evidence that banks were forced to tighten credit because they’d made bad loans to oil producers, which would have been a negative. Perhaps most intriguingly, the paper argues this should have been largely predictable — because what’s happened in the U.S. over the past two years is quite similar to an oil-price decline that hit the economy in 1986.

Food-Price Shocks Outweigh Oil Surges - Economists and policy makers scrutinize oil prices because of the commodity’s outsize impact on consumer spending, business investment, inflation and overall economic activity. But crude oil has nothing on food, according to new research to be presented at the Brookings Institution. “The impact of a rise in real food commodity prices on economic activity is roughly twice as large as the impact of a rise in crude oil prices of equal size,” Ghent University’s Jasmien De Winne and Gert Peersman write in a new paper. Using data from 1963 to 2013, the authors find that a 5% jump in food commodity prices leads to higher inflation and slower economic growth equivalent to a 10% oil-price increase. While not the main driver of business cycles, the authors find a surge in food prices contributed to post-World War II downturns in 1974, 1982, the early 1990s, 2001 and the Great Recession. By contrast, lower food prices boosted gross domestic product during periods in the mid-1980s, 1997-2000 and 2003-05. “In sum, the macroeconomic repercussions of food market disturbances have been important for the U.S. economy,” the authors said. The findings come amid a broad commodity glut. U.S. farmers are expected to produce bumper crops of corn and soybeans this year, adding to stockpiles and extending a price slump that has kept food costs and farm incomes low. U.S. food-price inflation in July fell to the lowest level in more than six years. Crude oil prices, meanwhile, have barely breached $50 a barrel this year, leaving oil at its lowest level since the latest recession. So there doesn’t seem to be much urgency on the commodity front for policy makers. But longer term, the study offers new insight for policy makers as they cope with unexpected shifts in commodity prices.

Rail Week Ending 10 September 2016: Rolling Averages Generally Weaker: Week 36 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. This week, most rolling averages' were decelerating. We review this data set to understand the economy. If coal and grain are removed from the analysis, rail is declining a around 5% (this week 4.9%). Under normal circumstances one should consider this recessionary as trucking tonnages are down also. This illustrates the dangers of using one one sector to gauge the economy - but it does say that a major dynamic change has occurred in the economy that has caused a significant decline in shipping volumes. The contraction in rail counts began over one year ago, and now rail movements are being compared against weaker 2015 data - and this is the cause periodic 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: For this week, total U.S. weekly rail traffic was 482,894 carloads and intermodal units, down 5.4 percent compared with the same week last year. Total carloads for the week ending September 10 were 252,627 carloads, down 6 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 230,267 containers and trailers, down 4.8 percent compared to 2015. Three of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were grain, up 26.3 percent to 22,599 carloads; miscellaneous carloads, up 16.1 percent to 8,593 carloads; and nonmetallic minerals, up 2 percent to 35,407 carloads. Commodity groups that posted decreases compared with the same week in 2015 included petroleum and petroleum products, down 26.5 percent to 10,452 carloads; coal, down 15.7 percent to 87,058 carloads; and metallic ores and metals, down 4.5 percent to 19,644 carloads. For the first 36 weeks of 2016, U.S. railroads reported cumulative volume of 8,921,199 carloads, down 11 percent from the same point last year; and 9,272,945 intermodal units, down 3.1 percent from last year. Total combined U.S. traffic for the first 36 weeks of 2016 was 18,194,144 carloads and intermodal units, a decrease of 7.1 percent compared to last year.

LA area Port Traffic: Exports Increased in August -  Note:  Now that the expansion to the Panama Canal has been completed, some of the traffic that used the ports of Los Angeles and Long Beach will eventually go through the canal. This could impact TEUs on the West Coast in the future.  Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.  The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was down 0.4% compared to the rolling 12 months ending in July. Outbound traffic was up 0.9% compared to 12 months ending in July. The downturn in exports over the last year was probably due to the slowdown in China and the stronger dollar. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). In general exports might have started increasing, and imports are gradually increasing.

The Ghost Ships of Hanjin and Why They’re Spoiling Christmas -- Hanjin Shipping Co., South Korea’s biggest container line, is roiling the supply chain for goods such as sneakers and T-shirts from Nike Inc. and Hugo Boss AG, and monitors and home appliances from Samsung Electronics Co. After Hanjin filed for bankruptcy protection, about half its fleet was stranded. The container shipping industry is in the midst of its busiest time of the year, with retailers moving goods for Christmas shopping, which starts in the U.S. around Thanksgiving. About 89 Hanjin ships are stuck at sea without enough money to pay fees to offload their goods. Ports in the U.S., Asia and Europe have turned the ships away.  Apparel, handbags, televisions and washing machines are among goods stranded at sea. Samsung says its home appliance and visual display business divisions had about $38 million of goods stuck in two Hanjin ships in the U.S. and it would have to charter at least 16 planes to transport products if the cargo can’t be offloaded immediately. LG Electronics Inc., the world’s second-largest manufacturer of televisions, is also trying to find new carriers for its goods. September and October are part of the key period when manufacturers and suppliers, including those in Asia, deliver holiday-season goods to retailers, such as those in the U.S. (The effort to identify this year’s hottest holiday-season toy is well under way.) The Hanjin logjam is expected to have minimal impact if it’s resolved within a matter of weeks. Citigroup, in a research note, predicts that inventory shortfalls for the holiday season "are unlikely."  Vessels carry as many as 24 crew each and pack enough food, fresh water and other essentials for several extra weeks. While sailors aren’t starving, at least one captain in international waters said his ship was refused a request for food and water. Other ships anchored at ports in Rotterdam and Singapore are receiving food, water and daily necessities from Hanjin.   Prices for shipping containers have surged, with the cost to transport a box to Los Angeles from Hong Kong jumping 40 percent to the most in more than a year.

Don’t Believe the Hype: U.S. Agricultural Exports Lag under Past Trade Deals, Belying Empty Promises Now Being Recycled for the TPP - (pdf) Time and again, U.S. farmers and ranchers have been promised that “free trade” agreements (FTAs) would provide a path to economic success by boosting U.S. exports while imports from trade partners would only increase minimally. Time and again, these promises have been broken. Data from the U.S. Department of Agriculture (USDA) reveal that U.S. agricultural exports have lagged, agricultural imports have surged and family farms have disappeared under existing FTAs. Undeterred by its own data, USDA has repeated the standard FTA sales pitch with claims that the Trans-Pacific Partnership (TPP), which would expand the status quo trade model, would “support expansion of U.S. agricultural exports, increase farm income, generate more rural economic activity, and promote job growth.”1 Those promises contradict the actual outcomes of past FTAs that served as the model for the TPP. U.S. agricultural exports decline under Korea FTA: Before the 2011 passage of the U.S.-Korea FTA, which U.S. negotiators used as the template for the TPP, U.S. Agriculture Secretary Tom Vilsack declared: “we believe a ratified U.S. Free Trade Agreement [with Korea] will expand agricultural exports by what we believe to be $1.8 billion.”2 In reality, exports to Korea of all U.S. agricultural products fell $1.4 billion, or 19 percent, from the year before the FTA took effect to its recently-completed fourth year of implementation. During that same period, total U.S. agricultural exports to the world only declined by 9 percent.3 Agricultural trade surplus turns into a trade deficit under NAFTA: The U.S. agricultural trade balance with North American Free Trade Agreement (NAFTA) partners has fallen from a $2.5 billion trade surplus in the year before NAFTA to a $4.2 billion trade deficit in 2015 – the largest NAFTA agricultural trade deficit to date. Even if one includes agricultural trade over the preceding several years, when ag export values were inflated by anomalously high international food prices, the average U.S. ag trade balance with NAFTA countries over the last five years still fell 94 percent below the average balance in the five years before NAFTA.Agricultural exports to FTA partners lag behind exports to the rest of the world: USDA data show that U.S. food exports to FTA partners have trailed behind food exports to the rest of the world in recent years.4 This is an important caveat to USDA’s claims that “in countries where the United States has free trade agreements, our exports of food and agricultural products have grown significantly.” The volume of U.S. food exports to non-FTA countries rebounded quickly after the 2009 drop in global trade following the financial crisis. But U.S. food exports to FTA partners remained below the 2008 level until 2014. Even then, U.S. food exports to FTA partners were just 1 percent higher than in 2008, while U.S. food exports to the rest of the world stood 4 percent above the 2008 level.

State-by-State ISDS Liability -At the heart of the Trans-Pacific Partnership (TPP) are new rights for thousands of multinational corporations to sue the U.S. government before a panel of three corporate lawyers. These lawyers can award the corporations unlimited sums, including for lost future expected profits, to be paid by America's taxpayers. The corporations need only convince the lawyers that a U.S. federal or state law, court ruling or regulatory decision violates the extraordinary new rights the TPP would grant them. The decisions are not subject to appeal. This shocking process, called “investor-state dispute settlement” (ISDS), empowers multinational corporations to attack the laws we rely on for a clean environment, financial stability, affordable medicines, safe food and decent jobs. The United States has largely avoided ISDS attacks because past treaties were with nations that did not have many investors here. But the TPP and a similar deal with European nations, called the Transatlantic Trade and Investment Partnership (TTIP), would change that. Under existing U.S. treaties, other countries have paid nearly $3 billion to corporations for toxics bans, water and timber policies, land-use rules regulatory permits, and more. Another $70 billion in claims are now pending against climate and energy laws, medicine pricing policies, pollution cleanup orders and other public interest policies. Nationwide, the TPP would roughly double U.S. exposure to ISDS attacks and a TTIP would quadruple the exposure, spelling an unprecedented increase in U.S. ISDS liability. Under all existing ISDS-enforced pacts, the total number of firms that can currently launch ISDS cases against the U.S. government is about 4,100 foreign corporations that own about 9,829 U.S. subsidiaries. The TPP would newly empower more than 3,682 additional corporations in TPP countries that own more than 10,085 subsidiaries here, to launch cases against the U.S. government. The TTIP would newly empower more than 12,100 European Union parent corporations that own more than 26,961 U.S. subsidiaries, to go to the panels of corporate lawyers and demand U.S. taxpayer compensation. How could your state be threatened? Click the map above to find out.

Update: U.S. Heavy Truck Sales Slump Continues - The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the August 2016 seasonally adjusted annual sales rate (SAAR). Heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April and May 2009, on a seasonally adjusted annual rate basis (SAAR). Then sales increased more than 2 1/2 times, and hit 479 thousand SAAR in June 2015. Heavy truck sales have since declined - probably mostly due to the weakness in the oil sector - and were at 331 thousand SAAR in August. Even with the recent oil related decline, heavy truck sales are only about 10% below the average (and median) of the last 20 years.

Ford Is Moving Small Car Production to Mexico - — Ford Motor Co. says it’s moving all of its U.S. small car production to Mexico.Ford CEO Mark Fields confirmed the long-expected move Wednesday during an event for investors and Wall Street analysts.Ford currently makes its Fiesta subcompact in Mexico, but its Focus and C-Max small cars are made in suburban Detroit. Making them in Mexico would boost company profits because of low wages there.The company is building a new $1.6 billion assembly plant in San Luis Potosi, Mexico. It will make small cars there starting in 2018.Ford’s Michigan Assembly Plant, which currently makes the small cars, will be getting new products under a contract signed last year with the United Auto Workers union. They will likely be larger, more profitable vehicles like the Ford Ranger pickup.

Collision Course: Motor Vehicle Production +0.5%, Motor Vehicle Sales -4.4% Year-Over-Year - Michael Shedlock - In the third poor economic report today, we learned industrial production declined 0.4% vs. an Econoday Consensus of -0.2%. Diving into the Industrial Production and Capacity Utilization – G.17 Federal Reserve Report we also learned July was revised from +0.7 to +0.6 and manufacturing from +0.5 to +0.4%. The standout pair of numbers is industrial production at -0.4% vs. motor vehicle production at +0.5%. There was some life in the factory sector during July but it proved brief, at least for production. Held down by a 0.4 percent decline in the manufacturing component, industrial production also fell 0.4 percent in data for August. But motor vehicles continue to be a plus in the report, rising 0.5 percent and offsetting a 0.5 percent decline in hi-tech production. And mining is an increasing plus in the report, emerging from deep weakness with a second straight gain and a solid one at plus 1.0 percent. Utility production, which had up in prior months, fell back 1.4 percent in August. Total capacity utilization edged 4 tenths lower to 75.5 percent. This report isn’t as weak as the headline readings suggest but, given weakness in other data including this morning’s Philly Fed and Empire State reports, won’t build much confidence that the factory sector will contribute much to the nation’s third-quarter growth. Industrial production showed solid life in both June and July with respective gains of 0.4 and 0.7 percent and including gains for manufacturing production of 0.3 and 0.5 percent. The latter included strong gains for vehicle production and hi-tech production along with promising gains for business equipment. Broad strength in the July durable goods report should support further improvement. Apart from manufacturing, utility output has been strong with mining beginning to trend higher. Capacity utilization, at 75.9 percent in July, has also been on the rise. As is typically the case, the Econoday robot put a positive spin on this with a quip “This report isn’t as weak as the headline readings suggest.” Say what? How could it be worse? Motor vehicles sales are sinking while production is up. And despite a huge increase in motor vehicle sales factory production sank big.

Fed: Industrial Production decreased 0.4% in August --From the Fed: Industrial production and Capacity Utilization Industrial production decreased 0.4 percent in August after rising 0.6 percent in July. Manufacturing output also declined 0.4 percent in August, reversing its increase in July; the level of the index in August is little changed from its level in March. Following two consecutive monthly increases, the index for utilities fell back 1.4 percent in August. Even so, the index was 1.7 percent above its year-earlier level, as hot temperatures this summer boosted the usage of air conditioning. The output of mining moved up 1.0 percent in August, its fourth consecutive monthly increase following an extended downturn; the index, however, was still about 9 percent below its year-ago level. At 104.4 percent of its 2012 average, total industrial production in August was 1.1 percent lower than its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5 percent, a rate that is 4.5 percentage points below its long-run (1972–2015) average. This graph shows Capacity Utilization. This series is up 8.8 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 75.5% is 4.5% below the average from 1972 to 2015 and below the pre-recession level of 80.8% in December 2007. The second graph shows industrial production since 1967. Industrial production decreased 0.4% in August to 104.1. This is 19.4% above the recession low, and is at the pre-recession peak. This was below expectations of a 0.2% decrease.

August 2016 Industrial Production Remains In Contraction Year-over-Year: The headlines say seasonally adjusted Industrial Production (IP) declined. Headline manufacturing declined also. A decline was expected this month in industrial production. The manufacturing surveys have been weak - and employment growth has evaporated. This sector remains slightly in a recession.

  • Headline seasonally adjusted Industrial Production (IP) decreased 0.4 % month-over-month and down 1.1 % year-over-year.
  • Econintersect's analysis using the unadjusted data is that IP growth decelerated 0.6 % month-over-month, and is down 1.1 % year-over-year.
  • The unadjusted year-over-year rate of growth accelerated 0.1 % from last month using a three month rolling average, and is down 0.7 % year-over-year.
  • The market was expecting (from Bloomberg / Econoday):

IP headline index has three parts - manufacturing, mining and utilities - manufacturing was down 0.4 % this month (down 0.4 % year-over-year), mining up 1.0 % (down 9.3 % year-over-year), and utilities were down 1.4 % (up 1.7 % year-over-year). Note that utilities are 10.8 % of the industrial production index, whilst mining also is 10.8 %.

The Big Four Economic Indicators: Industrial Production Shows Decline Following Rebound - Today's report on Industrial Production for August shows a month-over-month decrease of 0.4 percent, which was worse than the consensus of -0.3 percent. The previous month's 0.7 increase was revised downward to a 0.6 percent increase. The August advance marks a decline after two months of improvements and has contracted for 14 of the last 20 months and on a quarterly basis, Industrial Production has contracted for the past three quarters. Here is the overview from the Federal Reserve: Industrial production decreased 0.4 percent in August after rising 0.6 percent in July. Manufacturing output also declined 0.4 percent in August, reversing its increase in July; the level of the index in August is little changed from its level in March. Following two consecutive monthly increases, the index for utilities fell back 1.4 percent in August. Even so, the index was 1.7 percent above its year-earlier level, as hot temperatures this summer boosted the usage of air conditioning. The output of mining moved up 1.0 percent in August, its fourth consecutive monthly increase following an extended downturn; the index, however, was still about 9 percent below its year-ago level. At 104.4 percent of its 2012 average, total industrial production in August was 1.1 percent lower than its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5 percent, a rate that is 4.5 percentage points below its long-run (1972–2015) average. [view full report] The chart below shows the year-over-year percent change in Industrial Production since the series inception in 1919, the current level is lower than at the onset of 15 of the 17 recessions over this time fame of nearly a century.

Empire State Manufacturing Edged Lower in September - This morning we got the latest Empire State Manufacturing Survey.The diffusion index for General Business Conditions at -2.0 (-1.99 to two decimals) shows a slight increase from last month's -4.2, and signals declining activity.The forecast was for a reading of -1.00.The Empire State Manufacturing Index rates the relative level of general business conditions in New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.Here is the opening paragraph from the report. Business activity edged lower in New York State, according to firms responding to the September 2016 Empire State Manufacturing Survey. The headline general business conditions index held below zero, and was little changed at -2.0. The new orders index fell eight points to -7.5 and the shipments index fell eighteen points to -9.4— developments that pointed to a marked decline in both orders and shipments. Labor market conditions weakened, with both employment levels and the average workweek reported as lower. Price indexes remained close to last month’s levels, and indicated ongoing moderate input price increases coupled with a continued slight increase in selling prices. Indexes for the six-month outlook suggested that firms generally expect conditions to improve in the months ahead. [sourceHere is a chart of the current conditions and its 3-month moving average, which helps clarify the trend for this extremely volatile indicator:

September 2016 Empire State Manufacturing Index Remains Slightly In Contraction: The Empire State Manufacturing Survey remained in contraction. However, Important internals are also in contraction. This survey is only slightly in contraction. Let us call manufacturing flat in region. Expectations were for a reading between -1.50 to 0.50 (consensus -1.0) versus the -2.0 reported. Any value above zero shows expansion for the New York area manufacturers. New orders subindex of the Empire State Manufacturing Survey returned to expansion, whilst the unfilled orders sub-index improved but remains in contraction. This noisy index has moved from -14.7 (September 2015), -11.4 (October), -10.7 (November), -4.6 (December), -19.4 (January 2016), -16.6 (February), +0.6 (March), 9.6 (April), -9.0 (May), +6.0 (June), +0.6 (July), -4.2 (August) - and now -2.0. As this index is very noisy, it is hard to understand what these massive moves up or down mean - however this regional manufacturing survey is normally one of the more pessimistic. Econintersect reminds you that this is a survey (a quantification of opinion). Please see caveats at the end of this post. However, sometimes it is better not to look to deeply into the details of a noisy survey as just the overview is all you need to know

Empire Fed Mysteriously Rises Even As All Components Deteriorate -- Over the past year we have seen numerous occasions where regional Fed diffusion indexes posted a headline rebound despite all their components deteriorating. Today was one such day, when moments ago the NY Fed released the Empire State Mfg Survey, which "somehow" rose from -4.21 to -1.99 (it still missed expectations of a -1.00 print). We say somehow because the "rise" happened even as every component in the index declined, to wit:

  • New orders fell to -7.45 vs 1.04
  • Shipments tumbled to -9.38 from 9.01
  • Unfilled Orders fell to -11.61 from -9.28
  • Delivery time fell to -4.12 from -6.25
  • Inventory fell to -12.5 vs -4.12
  • Number of employees fell to -14.29 vs -1.03
  • Work hours fell to -11.61 vs 2.06
  • Prices received fell to 1.79 from 2.06

There was just one component which rose - the one which should fall, namely prices paid, which rose from 15.46 to 16.96, and since this is the one component which cuts into profits (as prices received declined),  one can summarize that effectively every single component in the Empire Fed declined. And yet, the headline index rose.

 September 2016 Philly Fed Manufacturing Survey Rises Further Into Expansion.: The Philly Fed Business Outlook Survey climbed further into expansion. Key elements were mixed. The only other manufacturing survey released so far for this month was in contraction. There was significant strength in this survey - and stands in stark contrast to the New York Fed's survey which remained in contraction. But the trend in both surveys was improvement. This survey was well above expectation. This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently. The index improved from +2.0 to +12.8. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -3.0 to 4.9 (consensus +2.0). Results from the Manufacturing Business Outlook Survey suggest that regional manufacturing conditions continued to improve in September. Indicators for general activity and new orders were positive and increased from their readings last month. Indicators for shipments and employment, however, were negative, suggesting weaker performance for the sector. Firms remain optimistic about growth over the next six months and were more positive about increasing employment.

Philly Fed Manufacturing Index Continues to Improve in September - The Philly Fed's Manufacturing Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. While it focuses exclusively on business in this district, this regional survey gives a generally reliable clue as to direction of the broader Chicago Fed's National Activity Index.The latest Manufacturing Index came in at 12.8, up from last month's 2.0. The 3-month moving average came in at 4.0, up from 1.3 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. The Six-Month Outlook came in at 37.5, a decrease over the previous month's 45.8.Today's 12.8 came in better than the 1.0 forecast at is the introduction from the survey released today:Results from the Manufacturing Business Outlook Survey suggest that regional manufacturing conditions continued to improve in September. Indicators for general activity and new orders were positive and increased from their readings last month. Indicators for shipments and employment, however, were negative, suggesting weaker performance for the sector. Firms remain optimistic about growth over the next six months and were more positive about increasing employment. (Full Report) The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012, and a shallower contraction in 2013. Last year saw a contraction with an improvement in 2016. In the next chart we see the complete series, which dates from May 1960. For proof of the high volatility of the headline indicator, note that the average absolute monthly change across this data series is 7.7.

 NFIB: Small Business Optimism Index decreased Slightly in August --From the National Federation of Independent Business (NFIB): Political Climate as Negative Factor Hits Record High in Monthly NFIB Index of Small Business Optimism The Index of Small Business Optimism declined two-tenths of a point in August to 94.4, with owners refusing to expand; expecting worse business conditions; and unable to fill open positions, according to the National Federation of Independent Business (NFIB). Another major problem for small business owners is finding qualified workers to fill open positions. According to the survey, 15 percent said that finding qualified workers was their biggest problem. Thirty percent said they had job openings that they couldn’t fill. That’s the highest level since the recovery.

 NFIB: Small Business Survey: "No Signs of Strength in the Small Business Sector" -  The latest issue of the NFIB Small Business Economic Trends is came out Tuesday morning. The headline number for August came in at 94.4, down 0.2 from the previous month's 94.6. The index is at the 24th percentile in this series. The index is at the 25th percentile in this series. Today's number came in below the forecast of 94.9.Here is an excerpt from the opening summary of the news release.The Index of Small Business Optimism declined two-tenths of a point in August to 94.4, with owners refusing to expand; expecting worse business conditions; and unable to fill open positions, according to the National Federation of Independent Business (NFIB)."Once again, the NFIB survey showed no signs of strength in the small business sector," said NFIB Chief Economist Bill Dunkelberg. "Uncertainty seems to be the major enemy of economic progress and the political climate is a major contributor to the high levels of uncertainty that we’ve seen. The current economic environment is not a good one for strong or sustained growth." The first chart below highlights the 1986 baseline level of 100 and includes some labels to help us visualize that dramatic change in small-business sentiment that accompanied the Great Financial Crisis. Compare, for example the relative resilience of the index during the 2000-2003 collapse of the Tech Bubble with the far weaker readings following the Great Recession that ended in June 2009.

 Weekly Initial Unemployment Claims increased to 260,000 - The DOL reported: In the week ending September 10, the advance figure for seasonally adjusted initial claims was 260,000, an increase of 1,000 from the previous week's unrevised level of 259,000. The 4-week moving average was 260,750, a decrease of 500 from the previous week's unrevised average of 261,250.There were no special factors impacting this week's initial claims. This marks 80 consecutive weeks of initial claims below 300,000, the longest streak since 1970.The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

 More Weeks of Unemployment Benefits Don’t Lead to Better-Paying Jobs - Newly unemployed Floridians receive less generous jobless benefits for fewer weeks than allotted in most states. The result? They find new employment more quickly, and those jobs pay as well as positions found by workers in other states, according to data the JPMorgan Chase Institute released Thursday. In Florida, the maximum length of unemployment-insurance benefits is tied to the unemployment rate in the state. Last year it was 14 weeks. This year it’s 12 weeks. Florida is one of a number of states that has cut the maximum amount of benefits in recent years. Most states provide the newly jobless 26 weeks, or six months, of support. What’s more, Florida’s benefit payments are about 30% smaller than those made in other states the institute studied.  The shorter duration and smaller payments appear to cause Florida workers to cut back more sharply on spending after losing their jobs. Florida recipients cut their spending by 13% upon job loss, compared with 5% among people in states with six months of benefits, the report found.  But four months after receiving the first payment, when benefits would have been exhausted last year, Floridians who had been on unemployment rolls began to see their incomes rise again. That suggests more found new jobs. In states with six months of payments, incomes didn’t start to improve until after seven months. “For those states providing less benefits, like Florida, the unemployed face a lot more initial hardship,” said Diana Farrell, chief executive of the institute. But “they get back to work more quickly….It’s a trade off.”

JOLTS and Labor Market Conditions Index still unimpressive - I remain unimpressed with the Job Openings and Labor Turnover Survey (JOLTS), as I have been for for over a year, and like many others I have found the Labor Market Conditions Index a source of concern. First, the LMCI, with the exception of one month ago, has been relentlessly negative all this year: At the same time, in the past it has almost always taken an LMCI reading of -10 or worse to be consistent with a recession. So the LMCI is just telling us that the labor market continues to decelerate. The JOLTs report, which was updated for July, also shows continued deceleration. For over a year I have noted that the pattern was similar to that in late in the last expansion, and the July report was more of the same. First, here is a comparison of job openings (blue), hires (green), and quits (red). Because there is only one compete past business cycle for comparison, lots of caution is required. But in that cycle, hires and quits peaked first and then openings continued to rise before turning down in the months just prior to the onset of the Great Recession: Through July, 2016 continues to look very much like 2006, or even early 2007. Although I won't post it this month, in the past I have pointed out that quits in particular seems to correlate well with the unemployment rate a few months later -- and since quits has gone nearly flat, I expect the unemployment rate to remain essentially steady. Finally, I wanted to repost this self-explanatory graph from Barry Ritholtz:

Labor Force Participation and Video Games - Here is more from Erik Hurst discussing his new research: On average, lower-skilled men in their 20s increased “leisure time” by about four hours per week between the early 2000s and 2015. All of us face the same time endowment, so if leisure time is increasing, something else is decreasing. The decline in time spent working facilitated the increase in leisure time for lower-skilled men. The way I measure leisure time is pretty broad; it includes participating in hobbies and hanging out with friends, exercising and watching TV, sleeping, playing games, reading, and so on. Of that four-hours-per-week increase in leisure, three of those hours were spent playing video games! The average young, lower-skilled, nonemployed man in 2014 spent about two hours per day on video games. That is the average. Twenty-five percent reported playing at least three hours per day. About 10 percent reported playing for six hours per day. The life of these nonworking, lower-skilled young men looks like what my son wishes his life was like now: not in school, not at work, and lots of video games. How do we know technology is causing the decline in employment for these young men? As of now, I don’t know for sure. But there are suggestive signs in the data that these young, low-skilled men are making some choice to stay home. If we go to surveys that track subjective well-being—surveys that ask people to assess their overall level of happiness—lower-skilled young men in 2014 reported being much happier on average than did lower-skilled men in the early 2000s. This increase in happiness is despite their employment rate falling by 10 percentage points and the increased propensity to be living in their parents’ basement. It’s hard to distinguish “push” unemployment that is made more pleasant by video games from “pull” unemployment created by video games. I’m not even sure that distinction matters very much, at least if we aren’t talking about banning video games to increase employment. If elderly people started playing a lot of video games (as soon they will) would we worry that this was making retirement too much fun? I’d be interested in knowing how much video games have displaced television. I watch more television than my kids, who play more video games. It’s not obvious that this is to their detriment.

Berkshire is accused in New York lawsuit of workers' compensation 'siphoning' | Reuters: Berkshire Hathaway Inc has been sued by a New York bicycle courier company over an alleged illegal scheme to cheat employers buying workers' compensation policies. The complaint, filed late Friday by Breakaway Courier Systems, came as Berkshire's Applied Underwriters unit faces scrutiny over its workers' compensation policies, including some that have been banned by California, Vermont and Wisconsin. Breakaway, with about 300 employees, accused Berkshire and Applied of "siphoning" premiums through a web of illegal shell companies, with diverted premiums going to unlicensed out-of-state insurers. The plan amounted to a "reverse Ponzi scheme" where unsuspecting employers expecting to buy affordable policies instead bought costly "reinsurance" requiring them to cover each other's losses, leaving taxpayers on the hook for shortfalls when too many workers are injured on the job, Breakaway said. "Breakaway thought it was purchasing a workers' comp policy with a profit-sharing component if its losses were low," Raymond Dowd, its lawyer, said in an interview. "Instead it purchased a complex derivative swap labeled misleadingly as a 'reinsurance participation agreement' that put all the risk on Breakaway. "Berkshire's schemes break multiple laws, including that you cannot collect insurance premiums if you are not licensed," Dowd added.

 AI will eliminate 6 percent of jobs in five years, says report: Within five years robots and so-called intelligent agents will eliminate many positions in customer service, trucking and taxi services, amounting to 6 percent of jobs, according to a Forrester report. "By 2021, a disruptive tidal wave will begin," said Brian Hopkins, VP at Forrester, in the report. "Solutions powered by AI/cognitive technology will displace jobs, with the biggest impact felt in transportation, logistics, customer service, and consumer services." Intelligent agents, chat bots and digital assistants include Amazon's Alexa, Apple's Siri, Alphabet's GoogleNow and Facebook's Messenger bots. They are powered by artificial intelligence and they can already understand a person's behavior, interpret their needs and even make decisions for them. AI-based services and apps will eventually change most industries, resulting in a redistribution of jobs, Forrester found. Self-driving cars, for example, will have wide-ranging impacts on both the auto and transportation industries. Facebook and Google are soaking up top talent and building huge bodies of data to train algorithms that will power all kinds of new services, the report found. They are already able to take things like images and video and convert that "unstructured data" into insights, like labeling objects in images.The bots of 2021 will be much better at understanding human language, and they will be better at learning from users and increasingly able to handle more complex scenarios. Those expanded cognitive abilities will make intelligent agents much more useful to people, and drive widespread adoption over the next three to five years, the report found.

Are unpredictable schedules harming U.S. workers’ health? -  Working too few hours to make ends meet. Scrambling to arrange childcare around a schedule that is constantly shifting. Commuting to work only to be sent home without pay. These are some of the big hurdles confronting millions of workers in the U.S. retail and service sectors as they seek to build stable livelihoods. Increasingly, more and more employers are using scheduling systems that match the number of workers on the job with predicted consumer demand, which often wreak havoc on workers who have little control over a schedule that changes at a moment’s notice. The consequences of unpredictable schedules have been well-documented by the media and researchers alike, and many accounts have suggested that these kind of worker schedules may have consequences for health as well. Now, a new working paper from Equitable Growth by sociologists Daniel Schneider of the University of California-Berkeley and Kristen Harknett at the University of Pennsylvania looks specifically at the health and well-being of workers who work unpredictable and variable hours. The results are overwhelmingly negative, with the variability of work hours being strongly associated with a host of physical and mental health issues as well as financial instability.  Somewhat unsurprisingly, the authors find that those workers with greater variation in their weekly work hours were significantly more likely to prefer more work hours compared to those who had set shifts. Schneider and Harknett also find that unstable and unpredictable work schedules are negatively associated with household financial insecurity, even when controlling for hourly wage and overall household income. That’s because workers’ pay fluctuates from week to week depending on how many hours they are given, which affects everything from the ability to put food on the table to engaging in any long-term financial planning.

U.S. Household Income Grew 5.2 Percent in 2015, Breaking Pattern of Stagnation - The New York Times: — Americans last year reaped the largest economic gains in nearly a generation as poverty fell, health insurance coverage spread and incomes rose sharply for households on every rung of the economic ladder, ending years of stagnation.The median household’s income in 2015 was $56,500, up 5.2 percent from the previous year — the largest single-year increase since record-keeping began in 1967, the Census Bureau said on Tuesday. The share of Americans living in poverty also posted the sharpest decline in decades.The gains were an important milestone for the economic expansion that began in 2009. For the first time in recent years, the benefits of renewed prosperity are spreading broadly. [Page B1.]The data was released into a heated presidential race, where Democrats seized on the statistics to promote Hillary Clinton’s candidacy and undercut Donald J. Trump’s dark assessment of the nation’s well-being.“It has been a long slog from the depths of the Great Recession, but things are finally starting to improve for many American households,” said Chris G. Christopher Jr., director of consumer economics at IHS Global Insight. He said the gains had continued this year. The economic recovery, however, remains incomplete. The median household income was still 1.6 percent lower than in 2007, adjusting for inflation. It also remained 2.4 percent lower than the peak reached during the boom of the late 1990s. The number of people living in poverty also remained elevated, although it shrank last year by about 3.5 million, or roughly 8 percent.

New Census data show strong 2015 earnings growth across the board, with black and Hispanic workers seeing the fastest growth - Today’s Census Bureau report on income, poverty, and health insurance coverage in 2015 shows that median household incomes for all race and ethnic groups increased between 2014 and 2015. Encouragingly, groups that, by and large, had seen the worst losses in the years since the Great Recession saw the biggest earnings gains in 2015. Real incomes increased 6.1 percent (from $42,540 to $45,148) among Hispanics, 4.4 percent (from $60,325 to $62,950) among non-Hispanic whites, 4.1 percent (from $35,439 to $36,898) among African Americans and 3.7 percent (from $74,382 to $77,166) among Asians. While the increase in incomes was statistically significant for all groups except Asians, racial income gaps remained unchanged between 2014 and 2015. The median black household earned just 59 cents for every dollar of income the white median household earned, while the median Hispanic household earned just 71 cents. Meanwhile, households headed by persons who are foreign born saw an increase in incomes of 5.3 percent between 2014 and 2015 (from $49,649 to $52,295), compared to an increase of 4.4 percent (from $54,741 to $57,173) among households with a native-born household head. Based on EPI’s imputed historical income values (see the note under Figure A for an explanation), real median household incomes for all groups, except Hispanics, remain well below their 2007 levels. Between 2007 and 2015, median household incomes declined by 6.8 percent (-$2,686) for African Americans, 3.2 percent (-$4,662) for whites and 5.4 percent (-$7,158) for Asians, but increased 5.4 percent ($2,310) for Hispanics. Asian households continue to have the highest median income, despite large income losses in the wake of the recession. The primary driving force behind the slow return to pre-recession income levels has been stagnant wage growth. Real wages had been essentially flat since 2000, but wage growth received an added boost in 2015, as a result of low inflation. From the start of the recovery in 2009 through 2015, real earnings of men working full-time, full-year are up for all race and ethnic groups—white men (1.5 percent), Hispanic men (7.0 percent), and black men (3.4 percent). As a result, the black-white male earnings gap is unchanged, but the Hispanic-white male earnings gap narrowed. Black men earned 70 cents for every dollar earned by white men in 2015 (compared to 69 cents/dollar in 2009) and Hispanic men earned 63 cents on the dollar (compared to 60 cents/dollar in 2009).

American Incomes Rise 5.2% After Years of Stagnation: — Americans finally got a raise last year after eight years of stagnating incomes.The Census Bureau says the typical U.S. household’s income rose 5.2 percent in 2015 to $56,516. That is still below the median household income of $57,423 in 2007, when the Great Recession began. The median is the point where half of households fall below and half are above.The proportion of Americans in poverty also fell sharply last year, as 2.4 million more people found full-time, year-round jobs.The poverty rate was 13.5 percent in 2015. That’s a drop of 1.2 percentage points from 2014, the largest decline in poverty since 1999. There were 43.1 million people in poverty, 3.5 million fewer than in 2014.

U.S. Poverty and Income Inequality in 9 Charts -- Incomes in the U.S. climbed for the first time in eight years, and the poverty rate fell to a postrecession low, according to the Census Bureau’s annual report on income and poverty—the authoritative source on those topics. But despite a sharp improvement compared with 2014, historical context shows that many measures of income and poverty in 2015 remain worse than what the U.S. economy has achieved in the past.The income of the median household climbed by 5.2% to $56,516. That’s one of the biggest increases in recent years, though still leaves median incomes below their levels prior to the recession and below the all-time peak reached in 1999.The poverty rate declined to 13.5%. As with median incomes, that’s the biggest improvement in recent years, but leaves poverty higher than prior to the recession and still well above poverty rates close to 11% that were seen in the 1970s and in the year 2000.For those age 65 and older, poverty is only about one percentage point higher than its record lows. The poverty rate among children and working-age people, however, has much further to recover. Among working-age people, poverty is about four percentage points higher than in 2000. Among children, it’s about five percentage points higher.Poverty rates have improved for whites, blacks, Hispanics and Asians in recent years, but none have poverty rates that have returned to their record lows. While 13.5% of Americans live below the poverty line, an additional  18% have incomes only somewhat higher. Consider that the poverty line for a family of three is $18,850. Thus a family earning 25% above that has about $23,500 to support three people. At 50% above poverty that works out to $28,275, and 75% above the line is about $33,000. While families with these incomes are not officially in poverty, they could face pretty significant economic difficulties, especially in places with a high cost of living.While incomes improved for households in the middle of the income distribution, that hasn’t begun to reverse the long-standing trend of an increasing share of income going to households in the top 20%, roughly speaking the upper-middle class and the rich.The incomes of households at the 80th, 90th and 95th percentile have never been higher.The past 25 years have seen a growing split between households with different levels of educational attainment. The median household led by someone with a master’s degree earns $7,655 more per year than in 1991. Those with some college, but no degree, earn $7,768 less and those with a high-school diploma but no further education earn $6,316 less. The median Asian family earns $14,000 more than the median white family, which earns nearly $18,000 more than the median Hispanic family, which earns about $8,000 more than the median black family.

Gender Wage Gap Narrows to Smallest on Record - The gap in earnings between men and women was the narrowest on record last year. But a woman working full time still earned just 80 cents for every dollar earned by a man working full time, the Census Bureau said Tuesday. The median male, full-time worker, age 15 and older, earned $51,212 last year. The same female worker earned $40,742.The ratio of female-to-male earnings, 79.6% last year, rose by a percentage point from 2014. However, the wage ratio is not statistically different than in 2007, when it was 77.8%. As recently as 1980, women working full time earned less than 60 cents for every dollar earned by a comparable man.  The gap narrowed fairly sharply over the next decade and then more slowly until just before the most recent recession began in 2007. The latest figures are likely to be repeated this fall because both major-party presidential candidates have raised the issue. Democratic nominee Hillary Clinton frequently makes mention of the 79 cents figure, the 2014 number, as part of wider appeal that includes support for paid family leave and protection of abortion rights. In a speech at the Republican National Convention, Ivanka Trump, the daughter of nominee Donald Trump, made specific reference to the pay disparity for mothers versus those without children.

 Good News! We’re as Rich as We Were in 1998 -Even for an economist, Larry Mishel is famously grumpy.  He is the president of the Economic Policy Institute, a progressive think tank devoted to analyzing and improving the economic lives of poor, working, and middle-class Americans. Which is to say, in his hundreds of academic papers, blog posts, and interviews, “I haven’t written anything about the U.S. economy this positive in many years. Probably since the late nineties. That was the last time there was really good, across-the-board income and wage growth.” Until today. At 11:03 this morning, shortly after the Census Bureau released its annual report on household income in the U.S., he tweeted, “I can’t remember feeling such glee on seeing a new economics data report.” He then spent forty-three minutes reading more details of the data and tweeted, at 11:46 A.M., “I’m especially thrilled at the fast growth at the bottom. WOW,” and linked to a chart showing that the poorest ten per cent of Americans had experienced the most growth, seeing their cumulative earnings rise by 7.9 per cent in 2015. Nearly a million fewer Americans were reported as living under the poverty threshold. There was a steady flow of happy tweets throughout the day, filled with words Mishel isn’t used to typing, like “superb” and “great.”   Economists will be unpacking today’s Census report for days, and will likely be discussing it in decades. It is a marvel. Americans at nearly every income level, in nearly every part of the country, saw their incomes rise an average of 5.2 per cent, to a median of $56,500—a huge nationwide increase for a one-year period and the first time since 2007 that average household income rose at all. Often, in reports such as these, one group’s gains can appear to have come at the cost of others. But that is not the case this time. The rich got richer, the poor got richer faster, and the middle did quite well, too. The Census tracks non-Hispanic white, black, and Hispanic households, all of which made considerably more in 2015 than in 2014, with Hispanic families seeing the greatest increase. Young people and older people, women and men, immigrants and the native-born all saw their incomes rise in something like lockstep.

Yay! We’re Almost as Rich as We Were in 1998! - There’s been a fair amount of triumphalism about the Census Bureau’s recent report on income and poverty, which showed a 5.2% increase in median real household income from 2014 to 2015. For example, Jason Furman :   I usually try to be restrained, but this is unambiguously the best Income, Poverty & Health Insurance report ever.  But, and I don’t think Jason Furman would disagree, this is not particularly strong evidence that everything is rosy, or that “America is already great,” as some would have it. As many people have pointed out, median household income in 2015 was only back to its 1998 level. Actually, when you take into account a methodological change in 2013, it’s still 5% below its 1999 peak. Also, if you’re going to celebrate the good years, you should acknowledge the bad years. Here is the annual change in median income for every year since 1985, ranked from best to worst: The years in red are the years of the current recovery. As you can see, this is the first time annual growth has exceeded 0.3%, despite the fact that the economy has been growing every year. Now, it’s possible that 2015 will be the first of several good years. Maybe unemployment has finally reached the point where companies have to offer higher wages to workers, instead of telling them to apply for government benefits. On the other hand, going simply by how long recoveries usually last, we are due for a recession—which would mean another economic cycle in which ordinary households became worse off.

The real, timely "real median household income" just stood up: Sentier Research - In April of this year, I wrote a piece entitled "Would the real real median household income please stand up?" discussing three separate measures from the Census Bureau, the BLS, and private think tank Sentier Research. By now you have probably already read elsewhere that yesterday the Census Bureau reported that real median household income rose 5.2% in 2015 -- the biggest annual increase since the 1960s.  Here are the opening two paragraphs of the report, that pretty much say it all:

  • household income in the United States was $56,516 in 2015, an increase in real terms of 5.2 percent from the 2014 median of $53,718. This is the first annual increase in median household income since 2007, the year before the most recent recession.
  • In 2015, real median household income was 1.6 percent lower than in 2007, the year before the most recent recession, and 2.4 percent lower than the median household income peak that occurred in 1999. (The difference between the 2007 to 2015 and 1999 to 2015 percentage changes was not statistically significant.)
The problem is, this report is so tardy as to already be outdated.  After all, it is only issued once a year, so we just learned about the 2015 average -- but we are already only 3 1/2 months away from 2017! A similar problem afflicts a second measure of median income, from the Consumer Spending Survey, which is released only once a year in April of the next year.  Pew Research wrote about the 2014 results just a couple of weeks before the 2015 report was issued, and here is what they found:But there is a third source of information as to real median household incomes:  Sentier Research, a private facility where two former Census Bureau researchers compile a monthly update from the Household Survey (the source of statistics like the unemployment rate and the employment to population ratio in the monthly jobs report). Real median household income is higher still in 2016 than it was in 2015, but in the last several months it has stumbled.  One year from now, that is probably about what the Census Bureau will tell us.

Nationwide increases in income are visible at the state level -- Earlier this week the Census Bureau released data from the Current Population Survey (CPS) showing strong national income growth in 2015. State income data from the American Community Survey (ACS), which the Census Bureau released today, show similar results across the United States, with a 3.8 percent increase in real (inflation-adjusted) median household income for the country as a whole. This translates to an increase of $2,062 in the annual income of the typical U.S. household. (The ACS has a different sample and covers a somewhat different timeframe than the CPS, leading to slightly different estimates between the two surveys.) Real median household income increased in 39 states and the District of Columbia between 2014 and 2015. Between 2014 and 2015, the largest percentage gains in household income occurred in Montana, where the typical household income grew by $3,128—an increase of 6.7 percent. Tennessee (6.4 percent), Oregon (5.9 percent), Massachusetts (5.7 percent), Rhode Island (5.7 percent), Wisconsin (5.6 percent), Hawaii (5.5 percent), New Hampshire (5.5 percent), District of Columbia (5.4 percent), Wyoming (5.4 percent), Kentucky (5.1 percent), and Vermont (5.1 percent) all had increase of 5 percent or more. In 11 states, median household income was unchanged over the year. There were no states that had a statistically significant decrease in median household income. After years of wage stagnation, incomes have finally started to recover. The labor market recovery in 2015 included lower unemployment, more hours of work, and strong inflation-adjusted wage growth.

Wolf Richter: That 5.2% Jump in Household Income? Nope, People Aren’t Suddenly Getting Big-Fat Paychecks -- We’ll be hearing and reading about this for a long time, in all kinds of iterations: “Americans last year reaped the largest economic gains in nearly a generation,” the New York Times gushed. “Household incomes surged 5.2% in 2015, first gain since 2007,” the Wall Street Journal raved. Everyone was happy. Poverty rates dropped 1.2 percentage points. Finally, some good data in that beleaguered sector! The middle class and those below had been getting hammered for too long. The impetus of these happy moments in the US economy is the Census Bureau’s Income and Poverty survey for 2015. It reported that median household income – 50% of households earn more, 50% earn less – rose 5.2% to $56,516, adjusted for inflation via the Consumer Price Index. Median household income had been declining in fits and starts since the peak in 1999. But even after this phenomenal rise in 2015, it was still 1.6% lower than in 2007 and 2.4% lower than in 1999.  Nevertheless, it was welcome news, after years of dreary data points on this topic – though it left me scratching my head. Something didn’t quite add up, given other data we have on wage increases, which have remained a dreary topic. Then I checked with Lee Adler at The Wall Street Examiner, and he sent me back to the drawing board.  The 70-page report was based on survey data on a sample of 95,000 addresses across the US. The sample is very large for a survey, which makes the results more reliable and allows plenty of room to drill down into the details, and split the numbers by age, race, gender, and so on, and still have a sufficiently large sample size in each group. To show some aspects of the range of the data: The median income of “family households” was $72,165. Within that group, “married couple households” made $84,626. “Non-family households” – a single person, for example – made only $33,805. And then there were the crucial data points that explained the bout of head-scratching earlier. People are not suddenly getting big-fat paychecks:  “Men with earnings” saw their income rise only 1.5% “Women with earnings” saw their income rise 2.7%. Women have come a long way since the 1980s, in terms of median income, though not nearly far enough. Adjusted for inflation, it went from $30,000 in 1980 to $40,742 in 2015. And I hope women will make more progress going forward.

Deconstructing Median Income Bullshit -- When I learned yesterday, 55 days before the 2016 election, that the Census Bureau and the White House had announced an historic leap in real (inflation-adjusted) median household income, my bullshit detector went into the red, went right off the scale and then ceased functioning. I'll have to get a new one.   Look at that jump! The biggest since 1967 when record keeping began.  How fucking likely is that?  My first clue appeared in the Los Angeles Times.  The clue is circled. Redesigned income questions? And while I'm quoting the Los Angeles Times, there is this— Obama, stumping for Clinton at a campaign event Tuesday in Philadelphia, did not pass up the moment to spotlight the census report. Obama said the uninsured rate was the lowest on record as was the pay gap between men and women. "So, now, let's face it; the Republicans don't like to hear good news right now," Obama said. "But it's important just to understand this is a big deal. More Americans are working, more have health insurance, incomes are rising, poverty is falling, and gas is $2 a gallon. … Thanks, Obama!" Keep those gasoline prices in mind. OK, this time I searched for "redesigned income questions" and found exactly one article at the New York Post. That's not the New York Times. No, that's the New York Post. (I added the links.)Economic data that come out of Census, including the monthly unemployment report, should be scrutinized more carefully than they are — because they are what hurt Americans the most day to day, ruin dreams of hardworking families and, when the numbers are played with to present a better picture, erode trust in government.Here are some details on just two points.First, the 5.2 percent increase came during 2015 compared with the previous year. The Census Bureau doesn’t have up-to-date numbers.But an outfit called Sentier Research, manned by ex-Census workers, does.And while Sentier’s numbers confirm the increase in 2015, household income this year has slackened off, they told me Tuesday. We'll look at the Sentier data below. Follow the link to see the swan dive in gasoline prices which began in 2014 and continued into and throughout 2015. Use the 5-year chart. You'll see an insignificant seasonal rise in the summer months in 2015. The second knock is that Census moved the goal posts. Ah, make the data look better by doing the measurement differently. The usual move.

 Income gains in 2015 don’t reverse long-run trend toward greater inequality -- In recent decades, the vast majority of Americans have experienced disappointing growth in their living standards—despite economic growth that could have easily generated faster gains in their living standards had it been broadly shared. Today’s excellent news on family income growth over the past year doesn’t make up for this long legacy of rising inequality. It is certainly a good start. But, we’ll need a run of years like this to restore the income losses suffered during the Great Recession for most American families, let alone make up for a generation of income growth that lagged far behind the economy’s potential. As with most economic analysis, assessing the growth of living standards for the vast majority requires specifying benchmarks against which to measure actual performance. I offer up two reasonable benchmarks. The first is how income growth differs for families at different parts of the income distribution. What we have seen since the last business cycle peak in 2007, before the Great Recession hit, is growing income inequality. Today’s news about income growth in 2015 is a welcome break from this trend, but does not yet overturn the general pattern that we have seen since 2007. The second benchmark I posit is income growth relative to that of earlier historical epochs. What this benchmark shows is that in the three decades following World War II, income growth was both much faster as well as more broadly shared than it has been since 1979. The chart below illustrates these points in greater detail. What we see in the dark blue is an early period of far more equal growth. In those three decades following World War II, income growth was relatively strong and uniform across the income distribution. From 1979 to 2007, however, the slower income growth that prevailed was concentrated in the top 20 percent of the income distribution, with most of it going to the top 5 percent. The stair-step pattern shows that each consecutive income group saw an increasing amount of growth. Since the last business cycle peak in 2007, the Great Recession has devastated incomes for the vast majority. Again, here we see a stair-step pattern—this time nearly all below zero. The largest income losses occurred at the bottom, with only the very top of the income distribution experiencing any gains between 2007 and 2015.

Poverty Among Seniors Has Dropped -- Fewer American retirees are living in poverty, new research shows. The positive turn occurred in 2015, which also brought a significant upturn in median worker income. Just 8.8% of Americans ages 65 and older were living in poverty last year—down from 10% in 2014 and among the lowest senior poverty rates of the past 60 years, the U.S. Census Bureau reports. Coupling that data with the rise in worker income, 2015 may mark an important turning point in what had been a slow recovery from the financial crisis and Great Recession. Median household income for a U.S. family was $56,500, up 5.2% from the previous year and the first annual gain since 2007, the Census Bureau said. The overall poverty rate also fell—to 13.5% from 14.8%. The good news across the board is largely the result of more jobs and more people working, Census Bureau officials said.The news would be even better for retirees if not for the escalating out-of-pocket costs of health care. In a supplemental report that looks at a variety of factors not included in the official report, the Census Bureau noted a more accurate poverty rate for seniors is 13.7%—much higher than the official rate of 8.8% but down from the supplemental poverty rate for seniors of 14.4% in 2014. Much of the difference between the official report and the supplemental report is an adjustment for health care costs, which pushed more than 11 million people (and 2.7 million seniors) into poverty. Work expenses also pushed a small number of seniors into poverty, a sign that some people working longer before leaving the workforce are not feeling much benefit. Social Security is credited with lifting 26.6 million people (and 17.1 million seniors) above the poverty level.

 Hillbama Administration Plans To Admit At Least 110,000 Refugees In 2017 --- According to the Washington Post, a source close to Secretary of State Kerry revealed plans by the Obama administration to increase the number of refugees admitted into the U.S. to 110,000 in 2017, representing a 30% increase over the 2016 target and a 57% increase from 2015. Kerry briefed lawmakers Tuesday on the new goal, which is an increase from 85,000 in fiscal 2016 and 70,000 in the previous three years. It represents a 57 percent increase in refugee arrivals since 2015, as ongoing conflicts in Syria, Iraq and elsewhere have spurred an exodus of migrants seeking asylum in Europe, Canada and other regions.A senior administration official, who asked for anonymity because the policy has not yet been officially announced, said the target "is consistent with our belief that all countries should do more to help the world's most vulnerable people."The official added that Kerry told lawmakers "that if it is possible to do more" in terms of accepting refugees, "we would."Hillary has confirmed her support for increasing refugee targets calling for the admittance of 65,000 refugees from Syria alone versus only 10,000 in 2016.  Of course, Trump's position on the issue has been controversial, to say the least, from the start.  Trump originally called for a ban on all Muslm immigrants and then modified his stance to call for the U.S. to "suspend immigration from areas of the world where there is a proven history of terrorism against the United States, Europe or our allies."

The number of people on food stamps is plummeting at the fastest rate ever after the government made a key change : Fewer and fewer Americans are on food stamps, and the decline is only getting faster. According to Paul Trussell, an analyst at Deutsche Bank, the number of people utilizing the Supplemental Nutrition Assistance Program, or SNAP, in June 2016 was down 4.7% from the same month a year before, and the number of households using SNAP was down 5.2% year-over-year. "The month of June represents the biggest YOY decline in persons and households participating in SNAP in the program's history," Trussell wrote in a note to clients on Thursday. The primary driver, according to Trussell, is the reinstitution of work rules by states. During the financial crisis, the federal government allowed states to waive requirements regarding employment for SNAP recipients as the unemployment rate soared. Recently, however, this policy has changed as the unemployment rate has now dropped to below 5% for the country. "In 2009, the federal stimulus bill allowed states to waive the work requirement, which limited out-of-work adults to three months of SNAP benefits before they must find a job, in areas with high unemployment," the note said. "These waivers continue to end in many states either because 1) the federal government has not extended the waivers, or 2) state governors are opting out of them." Twenty-two states have implemented new work rules in 2016, in addition to 15 that had already put them back in place.

Thieves are stealing catalytic converters out of cars for their precious metals - Thieves in some cities in the US have been stealing catalytic converters at an alarming rate. Why? Because the converters—which contain small amounts of valuable metals like platinum, palladium, or rhodium—command a good price as scrap metal, with some converters selling for as much as $640 on the black market (PDF). The National Insurance Crime Bureau (NICB) released these statistics last week, showing that catalytic converter thefts are more common than one might think, with 25,394 such thefts in the US since 2008. Just last year there were 3,986 catalytic converter thefts, making it the second-highest year for such thefts. 2014 saw the most thefts, clocking in at 4,370. The NICB also notes that its numbers might be low, because the organization can only count the number of thefts that have involved the car owner’s insurance provider.  “An aggressive thief can easily collect 10-15 or more converters in a single day,” the NICB wrote in a press release. “They often target sport utility vehicles (SUVs) because their ground clearance is sufficient for the thief to gain access to the converter without having to deploy a jack. And that saves time.” But in California, which had the most catalytic converters stolen in the eight-year tracking period of any state, "Almost all the thefts involved Priuses," according to the Los Angeles Times. That's because Priuses also have easily accessible catalytic converters. LAPD Lieutenant Tim Torsney told the Times that some crews in the LA area are capable of removing the converters in less than a minute. Most catalytic converters sell for between $20 to $240 each. Repairs usually cost between $500 and $2,300, but the NICB noted that this number can skyrocket because often “vehicles are significantly damaged in the theft process.” One person the LA Times spoke to said an auto repair shop charged $2,700 to replace the stolen catalytic converter on their Prius and build a steel cage around the component to discourage future theft.

DNA Dragnet: In Some Cities, Police Go From Stop-and-Frisk to Stop-and-Spit - Over the last decade, collecting DNA from people who are not charged with — or even suspected of — any particular crime has become an increasingly routine practice for police in smaller cities not only in Florida, but in Connecticut, Pennsylvania and North Carolina as well. While the largest cities typically operate public labs and feed DNA samples into the FBI’s national database, cities like Melbourne have assembled databases of their own, often in partnership with private labs that offer such fast, cheap testing that police can afford to amass DNA even to investigate minor crimes, from burglary to vandalism. And to compile samples for comparison, some jurisdictions also have quietly begun asking people to turn over DNA voluntarily during traffic stops, or even during what amount to chance encounters with police. In Melbourne, riding a bike at night without two functioning lights can lead to DNA swab — even if the rider is a minor. “In Florida law, basically, if we can ask consent, and if they give it, we can obtain it,” said Cmdr. Heath Sanders, the head of investigations at the Melbourne Police Department. “We’re not going to be walking down the street and asking a five-year-old to stick out his tongue. That’s just not reasonable. But let’s say a kid’s 15, 16 years old, we can ask for consent without the parents.” In Bensalem Township, Pennsylvania, those stopped for DUI or on the street for acting suspiciously may be asked for DNA. Director of Public Safety Frederick Harran credits the burgeoning DNA database Bensalem now shares with Bucks County’s 38 other police departments with cutting burglaries in the township by 42 percent in the first four years of the program. Plus, Bensalem pays for the testing — which is conducted by a leading private lab, Bode Cellmark Forensics — with drug forfeiture money, making it essentially free, Harran added.

DOJ Study Finds "Real And Nearly Unprecedented" Spike In Homicides Around U.S. - We have frequently written about rising violent crime around the U.S. with an emphasis on the soaring homicides in Chicago which are up nearly 50% YoY (see recent posts here and here).  Now it seems as though others in the mainstream media are starting to take notice. The New York Times recently compiled data from around the country and found there were nearly 6,700 homicides reported in the 100 largest cities in 2015, a YoY increase of 950 or roughly 17%, with nearly half of the rise — 480 of the 950 — coming from seven cities.  Their study is tied to a June 2016 report published by the National Institute of Justice in which Richard Rosenfeld, a criminology professor at the University of Missouri-St. Louis, declared that“the [2015] homicide increase in the nation’s large cities was real and nearly unprecedented." Murder rates rose significantly in 25 of the nation’s 100 largest cities last year, according to an analysis by The New York Times of new data compiled from individual police departments. The findings confirm a trend that was tracked recently in a study published by the National Institute of Justice. “The homicide increase in the nation’s large cities was real and nearly unprecedented,” wrote the study’s author, Richard Rosenfeld, a criminology professor at the University of Missouri-St. Louis who explored homicide data in 56 large American cities. In the Times analysis, half of the increase came from just seven cities — Baltimore, Chicago, Cleveland, Houston, Milwaukee, Nashville and Washington. The map below highlights the cities with the biggest spikes in YoY murder rates from 2014 to 2015.  That said, the data doesn't speak to the continued rise in violence so far in 2016 with Chicago homicides up nearly 50% YoY.

Safety Net Cut Poverty Nearly in Half Last Year: Safety net programs cut the poverty rate nearly in half in 2015, lifting 38 million people — including 8 million children — above the poverty line, our analysis of Census data released yesterday finds. The Census data show the impact of a broad range of government assistance, such as Social Security, SNAP (formerly food stamps), Supplemental Security Income, rent subsidies, and tax credits for working families like the Earned Income Tax Credit (EITC) and Child Tax Credit. The figures rebut claims that government programs do little to reduce poverty.Government benefits and taxes cut the poverty rate from 26.3 percent to 14.3 percent in 2015. Among children, they cut the poverty rate from 26.8 percent to 16.1 percent... This analysis uses the Census Bureau’s Supplemental Poverty Measure (SPM), which counts various government non-cash benefits as income, as most analysts favor. ...These figures understate the safety net’s effectiveness because they don’t correct for households’ underreporting of government... In 2012, the most recent year for which we have data corrected for such underreporting, the safety net lowered the SPM poverty rate from 29.1 percent to 13.8 percent — a poverty rate 2.2 percentage points lower than in SPM data without these corrections.  Policymakers negotiating budget and tax priorities should keep in mind that the safety net keeps millions of children, adults, and seniors of all races and ethnicities from falling below the poverty line. Deep cuts to these programs would make them much less effective at reducing poverty and would push the U.S. poverty rate substantially higher.

 Poverty declined in 2015 by all measures; government programs, once again, kept millions above the poverty line -- The official poverty rate fell by 1.2 percentage points from 2014 to 2015, as annual earnings and household incomes rose significantly for the first time since 2007. Since 2010, the U.S. Census Bureau has also released an alternative to its official poverty measure known as the Supplemental Poverty Measure (SPM). As shown in Figure A, the SPM has consistently indicated that poverty in America is more extensive than the official poverty measure reports. The good news is that the SPM data do show a similar decline in poverty last year to that reported in the official poverty measure. This year’s SPM release reported that in 2015, 45.7 million people were in poverty—roughly 14.3 percent of Americans. Under the “official” poverty measure, 43.5 million people were in poverty, or 13.7 percent of all Americans.The SPM data also show a lower rate of child poverty than the official statistics, primarily as a result of the SPM’s inclusion of noncash income from government assistance in its calculations. In 2015, the official child poverty rate was 20.1 percent—a decline of 0.6 percentage points from 2014. Under the SPM, the child poverty rate was 16.1 percent, also 0.6 percentage points lower than in 2014 although the Census Bureau reports that these reductions in the child poverty rate are not statistically significant.

Nearly Half of American Children Living Near Poverty Line - Nearly half of children in the United States live dangerously close to the poverty line, according to new research from the National Center for Children in Poverty (NCCP) at Columbia University’s Mailman School of Public Health. Basic Facts about Low-Income Children, the center’s annual series of profiles on child poverty in America, illustrates the severity of economic instability and poverty conditions faced by more than 31 million children throughout the United States. Using the latest data from the American Community Survey, NCCP researchers found that while the total number of children in the U.S. has remained about the same since 2008, more children today are likely to live in families barely able to afford their most basic needs.“These data challenge the prevailing beliefs that many still hold about what poverty looks like and which children in this country are most likely to be at risk,” said Renée Wilson-Simmons, DrPH, NCCP director. “The fact is, despite the significant gains we’ve made in expanding nutrition and health insurance programs to reach the children most in need, millions of children are living in families still struggling to make ends meet in our low-growth, low-wage economy.”According to NCCP researchers, the number of poor children in the U.S. grew by 18 percent from 2008 to 2014 (the latest available data), and the number of children living in low-income households grew by 10 percent. NCCP defines a low-income household as one where incomes fall below 200 percent of the Federal Poverty Threshold (e.g., $48,016 for a family of four with two children in 2014). A family is considered poor if its earnings are below 100 percent of the poverty threshold (e.g., $24,008 for a family of four with two children in 2014). Published annually since 2009, Basic Facts about Low-Income Children profiles demographic and socioeconomic conditions of poor and low-income children in fact sheets for five age groups, from infants and toddlers to adolescents. Fact sheet data are widely cited by policymakers, researchers, advocates, and the media as authoritative. NCCP’s annual fact sheets on child poverty in America are available online at

Money for Nothing -- In 2008, the governments of the city of Chattanooga, Hamilton County, the state of Tennessee, and the United States all collaborated to provide Volkswagen (VW) with a $577 million subsidy package, the largest taxpayer handout ever given to a foreign-headquartered automaker in US history. The bulk of the subsidy package, $554 million, came from local and state sources. The federal government also threw in $23 million in subsidies, bringing the grand total of taxpayer money that VW received in 2008 to $577 million.  According to the “subsidy tracker” at the website of watchdog group Good Jobs First, the package provided to VW included “$229 million from the state for training costs and infrastructure; $86 million in land and site improvements from the city and the county; state tax credits worth $106 million over 30 years; and local tax abatements worth $133 million over the same period.” In exchange for this massive infusion of public wealth onto Volkswagen’s corporate balance sheets, the company promised to create two thousand jobs in Chattanooga, bringing the price tag for each promised job to $288,500. When asked to respond to concerns about VW’s record-shattering subsidy package, then Tennessee governor Phil Bredesen, a Democrat, unabashedly replied, “I don’t know whether it’s fair that a Mercedes Benz costs $90,000, I just know if I want one that’s what I’ve got to pay.” Tennessee’s senator, Lamar Alexander, a Republican, applauded the deal as another significant mile marker on the way towards “Tennessee’s future” of becoming the “the No. 1 auto state in the country.” The political logic is pretty clear: massive subsidies are just the price that the public is expected to pay in exchange for the limited number of jobs made available to them within the “free enterprise” system. The VW subsidy deal is just one example of how large corporations leveraged the widespread suffering caused by the Great Recession, the longest and deepest economic crisis since the 1930s, to bleed the funds of state governments in exchange for jobs.

 US teens often forced to trade sex work for food, study finds - Teenagers in America are resorting to sex work because they cannot afford food, according to a study that suggests widespread hunger in the world’s wealthiest country. Focus groups in all 10 communities analysed by the Urban Institute, a Washington-based thinktank, described girls “selling their body” or “sex for money” as a strategy to make ends meet. Boys desperate for food were said to go to extremes such as shoplifting and selling drugs. The findings raise questions over the legacy of Bill Clinton’s landmark welfare-reform legislation 20 years ago as well as the spending priorities of Congress and the impact of slow wage growth. Evidence of teenage girls turning to “transactional dating” with older men is likely to cause particular alarm. “I’ve been doing research in low-income communities for a long time, and I’ve written extensively about the experiences of women in high poverty communities and the risk of sexual exploitation, but this was new,” said Susan Popkin, a senior fellow at the Urban Institute and lead author of the report, Impossible Choices. “Even for me, who has been paying attention to this and has heard women tell their stories for a long time, the extent to which we were hearing about food being related to this vulnerability was new and shocking to me, and the level of desperation that it implies was really shocking to me. It’s a situation I think is just getting worse over time.”

Unions Enter the World of Online Charter Schools - Charter schools often tout their “innovation,” the enterprising spirit they bring to public education. Can they also spur unions to innovate? A new organizing victory at a controversial “cyberschool” offers lessons on how the labor movement fits in the brave new world of “virtual classrooms.” Hundreds of teachers at Agora Cyber Charter school voted overwhelmingly to join the Pennsylvania State Education Association (PSEA) in May. The social workers and family coaches are also in the process of a union election, following the unionization of staff counselors.  One of Pennsylvania’s largest charters, with some 8,500 online students, Agora has for years been wracked by mismanagement and instability. Unionization is giving the teachers, who work remotely through digital networks, a collective voice in a virtual workplace.  Unions are rare in charter schools, which are generally publicly funded but run by for-profit firms with a start-up mentality that is unfriendly to labor. In addition to breaking new ground by organizing Agora teachers and support staff, teachers at Pennsylvania Cyber Charter School and Young Scholars of Central Pennsylvania Charter School have also unionized with PSEA.  For science teacher Melissa Hoffman-Long, who worked with the early organizing committees, what initially drove teachers to organize was a realization among staff that, while charters touted “cutting edge” programs, there was “incongruity between the for-profit business model and the public mission of a school…. We felt like having a union would help balance out and give the staff a united voice when shady things started going down.”   Shadiness has tainted Agora’s virtual schooling model for years. Founder Dorothy June Hairston Brown and other Agora executives were indicted in 2012 on more than 60 federal charges, including financial fraud, obstruction of justice, and witness tampering. The alleged fraud amounted to $6.5 million at three different taxpayer-supported Pennsylvania charters.

Does Free College Threaten Our All-Volunteer Military? - Throughout the current presidential campaign season, there have been repeated calls for free college.  Channeling a long-held position by Sen. Bernie Sanders and his supporters, the Democratic candidate, Hillary Clinton, said that families making under $125,000 per year should be able to send their kids to college tuition-free.  As someone who graduated college tens of thousands of dollars in debt, I am inclined to sympathize with this proposal. Student debt is a critical issue.Opponents to Clinton’s proposal rightly cite the immense expense that these policies would impose on the federal budget.  To date, however, a serious potential implication of free college for lower and middle income students has been ignored: the impact on military recruiting.  Mirroring higher education’s path to the middle class, military service remains one of the surest means to a college degree.  In its latest form, the Post-9/11 GI Bill provides up to $20,000 per year for tuition.  To compensate for time without an income, it also provides a living stipend adjusted for the local cost of living. Many of those who join the military do so, at least in part, to obtain access to the G.I. Bill and the financial means to obtain a degree.  According to a 2011 Pew Research Survey, 75 percent of those who enlisted said they did so to obtain educational benefits.  That statistic has risen from the pre-9/11 era when it was just 55 percent — likely because college has become that much more expensive! As of 2014, 48 percent of Iraq and Afghanistan veterans utilized the G.I. Bill, with 59 percent of female veterans doing so (a demographic the military wants to see grow in its ranks). If college became free, the incremental value of the G.I. Bill would be dramatically reduced.  The effect would be similar for the Yellow Ribbon program, which provides money for education to those who have already served, ROTC scholarships, which provide funds to pay for a bachelor’s degree for aspiring officers, tuition assistance programs for those already on active duty, and the various programs to fund graduate education for officers. Without the G.I. Bill as a serious inducement to enlist, the military is likely to experience substantially more difficulty in recruiting new personnel.  This will, with little doubt, require us to pay more to recruit tomorrow’s force and sustain the qualitative edge of our superb military

The Dumbing Down of College Curriculums: There once was a time when employers could be reasonably certain that college graduates had a basic sense of the world and, as a minimum, could write a coherent business letter. That is simply no longer the case, as some academic leaders appear ready to admit.Harvard’s former president, Derek Bok, mildly broke ranks with the academic cheerleaders when he noted that, for all their many benefits, colleges and universities “accomplish far less for their students than they should.” Too many graduates, he admitted, leave school with the coveted and expensive credential “without being able to write well enough to satisfy employers … [or] reason clearly or perform competently in analyzing complex, nontechnical problems.”Bok noted that few undergraduates can understand or speak a foreign language; most never take courses in quantitative reasoning or acquire “the knowledge needed to be a reasonably informed citizen in a democracy.” Despite the massive spending on the infrastructure of higher education, he conceded, it was not at all clear that students actually learned any more than they did 50 years ago.Indeed, a recent survey of the nation’s top-ranked public universities by the American Council of Trustees and Alumni found that only nine of them required an economics course for graduation; just five required a survey course in American history; and only 10 required that students take a literature course. Despite the lip service given to “multiculturalism” on campus, the study found that: “Fewer than half required even intermediate study of a foreign language.”By 1990, the cost of four years at an elite private college had passed the median price of a house in the United States. But a survey sponsored by the National Endowment for the Humanities in 1989 found that a majority of college seniors would flunk even a basic test on Western cultural and historical literacy: 25 percent could not distinguish between the thoughts of Karl Marx and the United States Constitution (or between the words of Winston Churchill and those of Joseph Stalin), 58 percent did not know Shakespeare wrote “The Tempest,” and 42 percent could not place the Civil War in the correct half-century.

  FiveThirtyEight puts the blame for higher university tuition on decreases in state funding ... it shouldn't -- Doug Webber: The rapid increase in the cost of college in recent decades — and the associated explosion in student debt, which now totals nearly $1.3 trillion nationally — is all too familiar to many Americans. . Many commenters, particularly in the popular press, focus on ballooning administrative budgets and extravagant student amenities. Those elements have played a role, to be sure, but by far the single biggest driver of rising tuitions for public colleges has been declining state funding for higher education. It is true that today’s students enjoy better amenities .... It is also true that today’s universities employ far more administrators and staff who don’t have any direct role in either research or instruction. ... And it is also true that professors (at least those on the tenure track) are paid better than the people who held those same jobs years ago. ...  All of those trends add to the cost of college, but not by that much. At most, about a quarter of the increase in college tuition since 2000 can be attributed to rising faculty salaries, improved amenities and administrative bloat. By comparison, the decline in state support accounts for about three-quarters of the rising cost of college. Here is the data for the states with the biggest funding decrease per student (all of the states are in the article): The "three-quarters" number is close to the unconditional mean of the share of tuition hike explained by cuts (mean = 82) which is the logic that I think is being used by 538. The share of tuition hike column is the negative of state funding per student divided by the increase in tuition.   Another way to think about the data is with a linear regression (my SPSS output is below). A model of the increase in tuition (dT) as a function of the change in state funding per student (dS) holding starting tuition constant (T0 = current tuition - increase in tuition) is:  dT = 1.357 - 0.248*dS + 0.313*T0    This model tells us that the increase in tuition rises $248 for each $1000 dollar decrease in state funding per student and states with higher tuition before 2000 tend to raise tuition more than states with lower tuition. The R-squared is 0.47 which tells us that 47% of the variation in the tuition increase is due to variation in changes in state funding per student and starting tuition. A regression model with only the change in state funding per student included has an R-square of 0.304.  So, I think that decreases in state funding explain about 25% (using the regression coefficient) or 30% (using the R-squared) of the increase in tuition instead of "three-fourths."

Trends in Expenditures by US Colleges and Universities - Cleveland Fed - Why have college costs been rising in recent years? One set of explanations is related to questionable spending on amenities for students, salaries for administrators, or other expenditures that are outside the traditional teaching and research focus of colleges and universities. Other explanations are related to economy-wide forces that the higher education industry has little direct influence over. For example, higher education may be an industry that is impacted by Baumol’s cost disease. Under this idea, productivity improvements in some sectors of the economy lead to higher wages in those sectors. But then other sectors will also need to raise wages in order to compete for workers, even if these other sectors—and higher education may be one example—do not experience productivity improvements of their own. An earlier Economic Commentary (Hinrichs 2016) studied the employment mix in higher education. That piece found that the proportion of college faculty who are full-time employees has declined over time and that, contrary to popular belief, there has not been a large change in the share of employees who hold administrative positions. These employment results may provide some insight into changes in spending by higher education institutions, but they do not provide the complete picture. First, not all spending by colleges is paid out to employees. Second, there may be changes in wages or salaries for employees that impact the overall wage bill for colleges but are not reflected in employment counts.This Economic Commentary studies trends in spending by US colleges and universities in broad expenditure categories between 1987 and 2013. The results reveal that spending per student has risen in most major spending categories. This is true for both public institutions and private institutions. However, spending has risen more dramatically in some categories than others. For example, research is one category that has witnessed among the highest spending growth, and in percentage terms, there has also been a large increase in student services spending.

Hillary Clinton’s free college isn’t better with student work requirements – AEI - Since arriving on the scene during the 2016 campaign trail, “free college” has come under fire from all sides. Critics – ourselves included – charge that it’s not actually free and would disproportionately benefit well-off students and families.Hillary Clinton might even concede that “free” is too generous. After all, she’s eager to point out that tuition will only be free under her plan for those willing to work for it. As Clinton explained to the Des Moines Register last year, “I am not going to give free college to wealthy kids. I’m not going to give free college to kids who don’t work some hours to try to put their own effort into their education.”The media has barely covered the work requirement in Clinton’s “New College Compact.” It specifies that students must work 10 hours a week in order to receive free public college tuition. The logic: Students who receive the benefit of free tuition should contribute at least some of their own resources while in school. (Ten hours per week is also less than the level of work that researchers and advocates caution interferes too much with school.) Clinton hasn’t provided any additional information, so exactly how a work requirement would operate remains unclear.While we wait for more details, it’s worth examining  who would be affected by such a policy. What can we learn about the college students who do not work while enrolled? One source on the topic, the Department of Education’s National Postsecondary Student Aid Survey, includes a wealth of information about the undergraduate student population, including how much students work.

University to buy $1 million football scoreboard with thrifty librarian’s money, outraging critics -- Robert Morin had his quirks: a regular breakfast of Fritos and a Coke; a refusal to give up on the 1992 Plymouth that he drove to his job as a library cataloger; the 18-year span, from 1979 to 1997, during which he watched more than 22,000 movies — an average of about three a day. Morin read in chronological order every book published in the United States between 1930 and 1938, excepting only textbooks, children’s books and cookbooks.  Such habits were part of the librarian’s thrifty lifestyle. He spent little on food or clothes. When he passed, at age 77 in March 2015, it was revealed he had accumulated an unusually impressive sum: $4 million in savings, as The Washington Post reported. He bequeathed it all to his employer and alma mater, the University of New Hampshire. The university announced the donation at the end of August, once it was approved by probate court.  But in the weeks since this cockle-warming tale of philanthropy surfaced, other University of New Hampshire graduates cooled on the donation. The way the university will spend its new cash, these critics feel, is not in keeping with Morin’s lifelong love for books.  Morin was committed to the library and to the school, which he graduated from in 1963. He worked as a cataloger in the university’s Dimond Library for almost 50 years, and was a common presence on campus. “And he was very committed to the student workers who worked in our main library.”  As Mantz wrote to the Huffington Post in an email, “His whole life was the library.”  It was natural, then, that he would specify a gift to the building where he spent so many years writing DVD descriptions and cataloging sheet music. Of the $4 million, $100,000 was earmarked for the Dimond Library. Outside, a bench now bears a plaque with his name. The vast majority of the donation will be spent elsewhere at the university: $2.5 million to expand the school’s student career center. And $1 million, a quarter of the bequeathed money, on a video scoreboard at the school’s Wildcat Stadium.

University of California hires India-based IT outsourcer, lays off tech workers - The University of California is laying off a group of IT workers at its San Francisco campus as part of a plan to move work offshore. The layoffs will happen at the end of February, but before the final day arrives the IT employees expect to train foreign replacements from India-based IT services firm HCL. The firm is working under a university contract valued at $50 million over five years. This layoff may have huge implications. That's because the university's IT services agreement with HCL can be leveraged by any institution in the 10-campus University of California system, which serves some 240,000 students and employs some 190,000 faculty and staff. UCSF, which runs professional schools in dentistry, medicine, nursing and pharmacy as well as a medical center, has a 565-member centralized IT department. This layoff affects 17% of UCSF's total IT staff, broken down this way: 49 IT permanent employees will lose their jobs, along with 12 contract employees and 18 vendor contractors. This number also includes 18 vacant IT positions that won't be filled, according to the university. UCSF has also been relocating some IT equipment to a Dell data center in Quincy, Wash., under a separate agreement. Similar to the HCL contract, the Dell contract can also be used by other university IT departments. It has also signed a contract with security provider FireEye.

Women earned majority of doctoral degrees in 2015 for 7th straight year and outnumber men in grad school 134 to 100 -- The Council of Graduate Schools (CGS) released its annual report today on US graduate school enrollment and degrees for 2015 and here are some of the more interesting findings in this year’s report:

  1. For the seventh year in a row, women earned a majority of doctoral degrees awarded at US universities in 2015. Of the 76,240 doctoral degrees awarded in 2015 (Table B.25), women earned 38,933 of those degrees and 51.8% of the total, compared to 36,296 degrees awarded to men who earned 48.2% of the total (see top chart above). The 51.8% female share of doctoral degrees in 2015 was slightly lower than the 52.2% share in the previous three years (2012, 2013 and 2014). Women have now earned a majority of doctoral degrees in each year since 2009.
  2. By field of study, women earning doctoral degrees in 2015 outnumbered men in 7 of the 11 graduate fields tracked by the CGS (see top chart above): Arts and Humanities (52.4% female), Biology (52.4%, and one of the STEM fields that we hear so much about in terms of female under-representation), Education (67.9%), Health Sciences (69.7)%, Public Administration (65.5%), Social/Behavioral Studies (61.8%) and Other fields (51.8%). Men still earned a majority of 2015 doctoral degrees in the fields of Business (54.8% male, down from 57.1% in 2014), Engineering (76.2%), Math and Computer Science (70.6%, down from 73.9% in 2014), and Physical Sciences (64.8%).
  3. The middle chart above shows the gender breakdown for master’s degrees awarded in 2015 (from Table B.24) and the gender disparity in favor of females is significant – women earned 58.9% of all master’s degrees in 2015, which would also mean that women earned nearly 143.3 master’s degrees last year for every 100 degrees earned by men. Like for doctoral degrees, women outnumbered men in the same 7 out of the 11 fields of graduate study and in some of those fields the gender disparity was huge. For example, women earned more than 402 master’s degrees in health sciences for every 100 men, and more than 320 master’s degrees in both education and public administration for every 100 men.
  4. The bottom chart above displays total enrollment in 2015 by gender and field for all graduate school programs in the US (certificate, master’s and doctoral degrees from Table B.13), showing that there is a significant gender gap in favor of women for students attending US graduate schools. Women represent 57.4% of all graduate students in the US, meaning that there are now about 135 women enrolled in graduate school for every 100 men.

For-profit Bridgepoint Education forced to forgive $24 million in private student loans - Thousands of students who took out private loans to attend Ashford University and the University of the Rockies, a pair of for-profit colleges run by Bridgepoint Education, will have their debt forgiven and payments refunded, the Consumer Financial Protection Bureau said Monday. Publicly traded for-profit colleges have been butting heads with state and federal regulators over allegations of steering students into high-cost loans, misleading consumers about their programs and aggressive marketing tactics. The scrutiny, coupled with a series of government lawsuits and depressed student enrollment, is placing tremendous pressure on the industry  — and leading some of the largest schools in the sector, such as ITT Technical Institute, to close up shop.  In the case of Bridgepoint, the CFPB is making the company pay more than $24 million to refund and discharge debt that students accumulated through an in-house loan program that used deceptive marketing to lure borrowers. CFPB officials say the company misrepresented the total cost of the loans by telling prospective borrowers that they could pay them off by sending as little as $25 a month. But the typical payments on the loans were far higher than that amount, according to the consent order. “Bridgepoint deceived its students into taking out loans that cost more than advertised, and so we are ordering full relief of all loans made by the school,” said CFPB Director Richard Cordray. Students who are eligible for refunds and loan discharges will be contacted by Bridgepoint. The company ran the private loan program from 2009 until 2013, lending more than $24 million and collecting roughly $5 million in principal and interest from these loans. Nearly $19 million remains outstanding.

 What Comes After for-Profit Colleges’ ‘Lehman Moment’? Possibly an Education Crash - Rana Foroohar - Just as the fall of Lehman Brothers in 2008 heralded a much larger economic crash, the September shuttering of the ITT Technical Institute chain of for-profit colleges signals a broad crisis in higher education. ITT, which taught electronics, computer-based design, criminal justice and other careers to 45,000 Americans last year, had collected $5 billion in federal aid since 2010. Last month, citing failures of financial responsibility and federal fraud charges, the Department of Education tightened its oversight of ITT by requiring the school to boost its cash reserves. That ultimately led to its shuttering. For-profit schools are facing a reckoning after years of meteoric growth. Headline-making cases at these schools abound, including the continuing scandal around Trump University and allegations that Donald Trump paid off Florida’s attorney general to nix an investigation into possible fraud. The Washington Post revealed this month that Bill Clinton took home $17.6 million to serve as a consultant and “honorary chancellor” of the for-profit college company Laureate International Universities. There are big differences between ITT, Trump U and Laureate, but all underscore the tendrilous nature of the for-profit boom. Since 2000, overall educational outcomes have fallen while debt and student defaults have risen. And for-profits have become ground zero for the student-debt crisis, representing roughly 75% of the increase in student defaults. The $1.2 trillion student-debt bubble represents a much smaller part of the consumer-credit market than housing did on the eve of the 2008 financial crisis. And yet the financial crisis and the student-debt crisis are quite similar. As was the case in subprime real estate, the for-profit education market is opaque: there are no clear (let alone complete) national figures on exactly who’s holding all the debt. Borrowers–this time students and their parents–lack an understanding of terms. Thanks to complex and ever shifting aid deals, only a quarter of first-year college students can predict their own debt loads within 10% accuracy. Conflicts of interest are rife because of a revolving door between the Department of Education and both the nonprofit and for-profit education sectors. Meanwhile, higher education has aggressively lobbied, just as financial institutions have, to keep the status quo.

Soaring Student Debt Prompts Calls for Relief – WSJ - The industry warnings are urgent and often dire: The housing market could stall. Marriages are being postponed. Workers won’t have the savings to retire. The nation’s food supply will be disrupted. They point to one threat: soaring student debt. A tripling of student debt over the past decade to more than $1.3 trillion has unleashed a torrent of Washington lobbying from outside the education sector, with various industries describing a “crisis” requiring federal intervention. Real-estate agents, farmers, architects, startup lenders, lawyers, tech companies, benefits administrators—even podiatrists—have sent lobbyists to Capitol Hill over the past two years to push for legislation to forgive or at least reduce what workers and consumers owe on their student loans. The efforts reflect the federal government’s unique position as the nation’s primary lender to college and graduate students. Its student-loan portfolio—topping $1 trillion—is big enough to rival the holdings of some banks, but it is controlled by elected leaders who are subject to the kind of political pressure that private lenders aren’t. And while colleges and universities have long been a big lobbying presence on Capitol Hill, increasingly the pressure is coming from the private sector. “If you like to eat, this is pretty darn important, especially looking 10, 20, 30 years out,” Zachary Clark, a lobbyist for the National Farmers Union, says of the pitch he gives lawmakers on student debt. The typical farmer makes a healthy $64,000 a year, government data show. But Mr. Clark’s group argues many farmers are retiring and their younger replacements might not qualify for business loans due to their high student-debt burdens. It has asked Congress to classify farmers as public-sector workers, making them eligible for a program that forgives big portions of student debt alongside public defenders and teachers.Congress has responded to the frenzy with bills that would likely add up to billions in taxpayer costs. The proposals, which have gained bipartisan support, would forgive huge sums of student debt for some workers, slash interest rates and provide tax breaks to encourage employers to pay down their workers’ balances. The bills have largely stalled, though at least some are expected to face votes next year after the new president and Congress take office.

Early Look at 2017 Cost-Of-Living Adjustments and Maximum Contribution Base --Bill Mcbride - The BLS reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.7 percent over the last 12 months to an index level of 234.909 (1982-84=100). For the month, the index increased 0.1 percent prior to seasonal adjustment.  CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA).
• In 2014, the Q3 average of CPI-W was 234.242. In the previous year, 2013, the average in Q3 of CPI-W was 230.327. That gave an increase of 1.7% for COLA for 2015.
• In 2015, the Q3 average of CPI-W was 233.278. That was a decline of 0.4% from 2014, however, by law, the adjustment is never negative so the benefits remained the same this year (in 2016).
Since the previous highest Q3 average was in 2014 (not 2015), at 234.242, we have to compare Q3 this year to two years ago. This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year. Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year). CPI-W was up 0.7% year-over-year in August, and although this is early - we need the data for July, August and September - my guess is COLA will be slightly positive this year.

This Loophole Ends the Privacy of Social Security Numbers - Federal law is supposed to protect the privacy of your Social Security number from government inquiries -- but apparently that doesn’t extend to a check on whether you’ve paid back taxes and child support. In a decision with worrying implications for those who oppose a single national identification number, a divided federal appeals court has rejected a lawyer’s refusal to submit his Social Security number along with his renewal of Maryland bar membership. The state says it needs Social Security numbers to make sure lawyers’ child support and taxes are up to date. The court’s majority said that was enough to fit the Social Security number under the federal law that allows states to use your number for tax purposes. That definition is so loose that it enables states to ask for your Social Security number pretty much whenever they want -- even when their records have been hacked. The test case was initiated by a Washington-based lawyer named Michael Tankersley, who is a member in good standing of the Maryland bar. He got legal help from the watchdog group Public Citizen, which among other things is interested in promoting privacy-rights litigation.In Maryland, anyone who wants to practice law has to pay a fee that goes to the client protection fund run by the state bar. Along with the annual fee, the lawyer’s Social Security number must be disclosed. That’s by order of the Maryland Court of Appeals, which has responsibility for attorney registration in the state. The Court of Appeals says that it’s necessary so that the state can ensure that its lawyers have paid back taxes and child support that they might owe. Tankersley paid the fee but never disclosed his Social Security number. He says he’s worried about identity theft generally, and points out that Maryland agencies have had data stolen in cyberattacks. The state authorities suspended his license.

 17th Obamacare Co-Op Exits Due To "Hazardous Financial Conditions" - Only 6 Left -- Obamacare is making huge progress of sorts. Of the original 23 co-op sponsors the score is 17 down and only 6 to go. Watch the latest video at Please consider Another ObamaCare Co-Op Folds, Leaving Only 6 Remaining.Health Republic Insurance of New Jersey is folding after the state’s insurance commissioner put the Obamacare co-op in “rehabilitation” due to its hazardous financial condition.The co-op had a liability of $46.3 million under the Affordable Care Act’s risk adjustment program, according to the New Jersey Department of Banking and Insurance.The closing will force 35,000 customers served by the New Jersey co-op to find a new plan in 2017.The co-op was initially awarded $107.2 million in taxpayer-funded loans in 2012 and received an additional $1.9 million in 2013.The New Jersey co-op is the 17th Obamacare co-op to collapse, joining other co-ops that have failed including two in Oregon, one each in Illinois, Connecticut, Arizona, Colorado, Kentucky, Michigan, Nevada, New York, Ohio, South Carolina, Tennessee, Louisiana and Utah, as well as a co-op that served both Iowa and Nebraska.This leaves only six co-ops in existence of the 23 that were originally created under Obamacare.

Why Obamacare Didn’t Work - News broke late last month that yet another of the nation’s largest health insurers, Aetna, is pulling out of state health exchanges in 2017. The company’s action marks the failure of every market-based reform included in the Affordable Care Act (ACA). The insurers that remain in the exchanges find themselves with unprecedented leverage to demand double-digit premium increases next year, which will leave eleven million patients with few options. The collapse of policies designed to increase competition between health insurers should serve as a lesson in an election year when both candidates, Donald Trump and Hillary Clinton, have been running on the promise of even more such reforms. The first market-based reform to collapse was the introduction of CO-OPs, new consumer-owned health insurers designed to compete with large commercial plans. Of the twenty-three CO-OPs launched for 2014, sixteen have already closed their doors or been shut down by state regulators. The CO-OPs failed in part because they expected government subsidies that never arrived, but more importantly they didn’t have the size or leverage to negotiate rates with large hospital and physician groups, paying more for the same patient care than the dominant insurers they were competing with.Most countries put hospitals on fixed budgets under a universal health-care system, but the few with private health insurers set uniform rates so market power doesn’t matter for the price of care. The Wild West capitalism that characterizes health care in the United States actually works against competition, rewarding mergers and consolidation by both insurers and providers, and undermines competition-based policy initiatives like the CO-OPs. The exchanges themselves are an additional lesson in the ACA’s failed competition policies. The promise of the exchanges was to replace insurance brokers, who traditionally helped small businesses and individuals shop for health insurance, with a single marketplace that makes plans easier to compare (the bronze, silver, gold, and platinum tiers). The reality from study after study is that very few people are able to select the plan that’s best for them (including one that found only Columbia MBA students chose insurance plans better than randomly picking a plan out of a hat would). The vast majority choose the plan with the lowest premium in a tier, the plan that’s listed first on the website, or the plan they’re already enrolled in, even if it will leave them with higher total costs or poor access to care they’ll need.

 A college tuition payment for your spare kidney? -- Twenty-two people die each day because they cannot survive the wait for an organ; 12 of those die from lack of a kidney in particular.  The core of the problem is that prospective donors are legally required to relinquish an organ in the spirit of “altruism.” Despite the risk they take on, they are not allowed to benefit materially in any way. This mandate is part of the 1984 National Organ Transplant Act, the law that established the national system of organ procurement and distribution. Any exchange of an organ for any sort of “valuable consideration,” is a felony punishable by up to five years in prison and/or a $50,000 fine.  The original law was intended in good faith. The point was to prevent a classic free market where only wealthier patients could afford to buy organs; it also sought to avert the scenario where poor donors were the “suppliers” for the well-off. Understandably, legislators wanted to give an altruistic system a chance to work. But more than enough time has now elapsed to conclude with certainty that an altruism-only system is sorely inadequate. And as in so many realms, it is the poor (especially poor minorities) that have suffered the most because of the deficit. They are less likely to be referred for transplant, more likely to die on dialysis, and less likely to receive an organ from the national pool even when they are referred. For decades now, the transplant community has mounted educational efforts, improved its procurement efforts at the time of death of potential donors, and so on. Yet, the number of donors each year, living and deceased combined, remains mostly flat. There has been a relatively recent growth in so-called organ “swaps and chains.” A swap is when willing donors don’t match with their intended recipients, so donors are swapped to make a match and both patients end up with a kidney. A chain is essentially a series of swaps, but the logistics involved in setting one up is very complicated. Last year, swaps and chains combined accounted for roughly 550 transplants—an exciting innovation but a modest one given the total number of people in need.It is clear that a new policy is imperative, and fortunately one could soon be on its way. In May, Pennsylvania Rep. Matt Cartwright introduced a bill called the Organ Donor Clarification Act of 2016. Its goal is to permit study of the effect of rewarding people who are willing to save the life of a stranger through living donation: Not through a free market with direct cash payments, which would bring up insurmountable ethical concerns, but through other regulated and limited means. The bill establishes that five-year pilot studies could be conducted without breaking the 1984 law, so long as they pass ethical scrutiny by an independent board under auspices of the Department of Health and Human Services.

 Scientists just got closer to understanding the genetic roots of crime — and it's making them nervous - There is no easy explanation for why some people commit crimes and others don't.  Similarly, there's no easy answer to the question of why some people end up in jails and prisons while others do not. It's a mathematical reality that the American criminal justice system disproportionately punishes poor people and black people for the same crimes as wealthier and white people.  But at the same time, the population of people who end up in prison do share some traits. And scientists have now traced one common criminal trait to specific genes.  Antisocial Personality Disorder (ASPD) is wildly overrepresented in prisons. Take a crowd of 100 people of the street, and chances are just one to three of them will have ASPD. Take 100 people from a prison, and you can expect 40 to 70 of them to have the disorder. That's significant, because ASPD has been linked with aggression, irritability, disregard for rules, disregard for other people, and dishonesty.  It's a controversial diagnosis — broad, ill-defined, and overlapping heavily with other disorders like psychopathy.  But there's reason to take it seriously. Twin studies suggest that genetics explain about half of the variance in ASPD diagnoses, and environmental factors the other half. And a new study has begun the task of identifying which genes are most likely involved in ASPD, with significant success.  An international team of Finnish, American, British, and Swedish researchers examined data from the Finnish CRIME sample — a database of psychological tests and genetic material from 794 Finnish prisoners taken between 2010-2011.  Of the 794 prisoners,  a full 568 screened positive for ASPD. By comparing that group's genetic material to a large control sample from the general population, the researchers identified a number of genes that may play a role in at least some ASPD cases.  But just as interesting are the concerns the researchers express about how their research might be misused.   "The findings of this study cannot be implemented for any prediction purposes, or brought into courthouses to be given any legal weight," they write.

The US Military Has "Never Been Fatter" -- The men and women serving in the U.S. military are getting fatter at an alarming rate.  Could this trend be a simple reflection of the fact that pilots sitting in a command center far away from the battlefield flying drones in today's modern military just don't require the same level of physical fitness?  Or, perhaps our military leaders, like our college professors, have shied away from committing "micro-aggressions" against our soft-skinned millennial soldiers by asking them to do things like exercise.  While it may not be exactly clear why it's happening, according to data published by the Military Times, the fact is that America's military is packing on the pounds. (graphs) As the Military Times points out, compared to the U.S. civilian population, the rate of overweight troops is far smaller.  While that may be true, there's a reason we don't ensure our national security to overweight, pampered, unemployed millennials living at home with mom...they probably wouldn't be very good at it.  But just to confirm the stats, the map below from The State of Obesity, highlights that over 30% of the civilian population in many states is technically obese.

How the Sugar Industry Shifted Blame to Fat - The sugar industry paid scientists in the 1960s to play down the link between sugar and heart disease and promote saturated fat as the culprit instead, newly released historical documents show. The internal sugar industry documents, recently discovered by a researcher at the University of California, San Francisco, and published Monday in JAMA Internal Medicine, suggest that five decades of research into the role of nutrition and heart disease, including many of today’s dietary recommendations, may have been largely shaped by the sugar industry. “They were able to derail the discussion about sugar for decades,” said Stanton Glantz, a professor of medicine at U.C.S.F. and an author of the JAMA paper. The documents show that a trade group called the Sugar Research Foundation, known today as the Sugar Association, paid three Harvard scientists the equivalent of about $50,000 in today’s dollars to publish a 1967 review of research on sugar, fat and heart disease. The studies used in the review were handpicked by the sugar group, and the article, which was published in the prestigious New England Journal of Medicine, minimized the link between sugar and heart health and cast aspersions on the role of saturated fat. Even though the influence-peddling revealed in the documents dates back nearly 50 years, more recent reports show that the food industry has continued to influence nutrition science. Last year, an article in The New York Times revealed that Coca-Cola, the world’s largest producer of sugary beverages, had provided millions of dollars in funding to researchers who sought to play down the link between sugary drinks and obesity. In June, The Associated Press reported that candy makers were funding studies that claimed that children who eat candy tend to weigh less than those who do not.

Sugar industry bought off scientists, skewed dietary guidelines for decades -- Back in the 1960s, a sugar industry executive wrote fat checks to a group of Harvard researchers so that they’d downplay the links between sugar and heart disease in a prominent medical journal—and the researchers did it, according to historical documents reported Monday in the journal JAMA Internal Medicine.One of those Harvard researchers went on to become the head of nutrition at the United States Department of Agriculture, where he set the stage for the federal government’s current dietary guidelines. All in all, the corrupted researchers and skewed scientific literature successfully helped draw attention away from the health risks of sweets and shift the blame solely to fats—for nearly five decades. The low-fat, high-sugar diets that health experts subsequently encouraged are now seen as a main driver of the current obesity epidemic.The bitter revelations come from archived documents from the Sugar Research Foundation (now the Sugar Association), dug up by researchers at the University of California, San Francisco. Their dive into the old, sour affair highlights both the perils of trusting industry-sponsored research to inform policy and the importance of requiring scientists to disclose conflicts of interest—something that didn’t become the norm until years later. Perhaps most strikingly, it spotlights the concerning power of the sugar industry.“These findings, our analysis, and current Sugar Association criticisms of evidence linking sucrose to cardiovascular disease suggest the industry may have a long history of influencing federal policy,” the authors concluded.In a statement also issued today, t he Sugar Association acknowledged that it “should have exercised greater transparency in all of its research activities.” However, the trade-group went on to question the UCSF researchers’ motives in digging up the issue and reframing the past events to “conveniently align with the currently trending anti-sugar narrative.”

Detroit paper uncovers dirty surgical tool problem at city hospitals -- Stories about medical dangers often rely on anecdotes about specific patients at risk. But in a recent investigative series, reporters Karen Bouffard and Joel Kurth of The Detroit News showed another way to tell a compelling, high-impact narrative: Backed by key documents and interviews, they demonstrated persistent, systemic problems with dirty surgical instruments at a hospital network in the city. The series has prompted a joint state-federal investigation, spurred a flurry of coverage in other Detroit news outlets, and could galvanize an important discussion about public disclosure of hospital safety data.  In the first article of the series, published August 26, Bouffard and Kurth get right to the point: They have about 200 pages of emails and reports that depict years of complaints about dirty instruments from staffers and surgeons at Detroit Medical Center’s Midtown campus: The records show improperly sterilized tools complicated operations from appendectomies and brain surgeries to cleft palate repair and spinal fusions. Patients were kept under anesthesia for up to an hour as staffers replaced instruments. Dozens of operations were canceled at the last minute, some after anesthesia was administered. At least twice a child’s chest or skull was open for surgery when doctors discovered dirty instruments. In January 2015, open-heart surgery for a 7-month-old girl was interrupted at Children’s Hospital of Michigan because a tube leading to a bypass machine was clogged with blood from a previous operation.  Those details grab your attention, but what the reporting drives home is how long the concerns persisted, even as doctors and other staffers repeatedly sounded the alarm. The News has Laura Cortner, a former director of the center’s Central Sterilization Department, saying that “huge challenges” have lasted for years with “no prolonged effort” to fix them. In a memo from mid-2015, highlighted in a timeline accompanying the story, the chief surgeon at Children’s Hospital tells top hospital officials, “We are putting patients at risk frequently and now canceling up to 10 cases this week…promises just aren’t cutting it.”

First human head transplant set for 2017: The idea of a human head transplant may seem like science fiction. However, the proof-of-concept study is edging closer to reality, with one surgeon claiming that he plans to undertake the procedure next year. In 2013, surgeon Sergio Canavero surprised the medical field by stating his ambition was to perform a human head transplant. This was seen as something near impossible at the time. A head transplant is a surgical operation which involves the grafting of one organism's head onto the body of another. Head transplantation involves decapitating the patient.  Pushing forward his idea, Canavero has now proposed a two-part procedure. He describes the two procedures as: HEAVEN, or head anastomosis venture; and Gemini, or the subsequent spinal cord fusion.  Canavero has described how the procedure might work for the journal Surgical Neurology International. Following this, Canavero has presented the concept to the American Academy of Neurological and Orthopaedic Surgeon’s 39th annual conference. According to the website Gineers Now, the first head transplant will take around 36 hours to complete and it will require a surgical team of 150 people, and at a cost of $20 million. Apparently the recipient of the first transplant has been identified. This is Valery Spiridonov, a 31-year-old Russian program manager who suffers from the rare muscular atrophy disorder Werdnig-Hoffman disease. The chance of success has been stated by Canavero as around 90 percent. However, the idea of a head transplant has proved controversial with the medical establishment. Canavero has been criticised on ethical grounds and also by those who think it simply will not work.

Zika Is Here, And America Has No Plan to Fight It -- There have been more than 18,000 cases of Zika in the U.S. and its territories. Congress, however, still hasn’t allocated one penny of funding to fight the disease.  Researchers are using what resources they have to better understand both the virus—how it enters the body, how it behaves, and how it’s passed to other people—and the mosquitoes that carry it. While there are many paths to conquering the growing threat, one thing experts agree on is a need for more public education on how to avoid infection. What people will learn is that the seemingly mundane task of making sure your backyard doesn’t have standing water is the most critical component of this strategy. “The Aedes aegypti,” one of the primary delivery devices of the Zika virus, “is both the easiest and most difficult mosquito to control,” says Joe Conlon, a spokesperson for the American Mosquito Control Association and a retired U.S. Navy entomologist with global experience in mosquito control. “It breeds exclusively in man-made habitats.” Get rid of the habitats, says Conlon, get rid of the mosquito. No mosquito, no Zika. But eradicating those habitats—containers of standing water that could be as large and purposeful as a water tank or as small and accidental as a Frisbee—is no easy feat. And researchers who have tried to do just that in other countries combating dengue, another virus carried by A. aegypti, say it’s not just a tough battle, but very possibly a losing one. The virus causes fever, rash, and joint pain in adults that lasts days or weeks, but it can have dire consequences for the unborn children of pregnant women. An anti-Zika educational campaign would have three main messages, says Dan Markowski, vice president of Vector Disease Control International, a mosquito fighting service based in Little Rock, Ark., that has worked with individual cities and the U.S. Centers for Disease Control to help fight the spread of Zika. “Drain, dress, and DEET,” he says.

Household dust is laced with toxic chemicals, study finds --Household dust does more than collect in corners and on bookshelves full of novels you haven’t gotten around to reading. A new study shows it can expose people to a wide range of potentially toxic chemicals.  In what the authors are calling the first study of its kind – a meta-analysis of more than two dozen previous studies on chemicals in dust – they report that 90 percent of dust samples taken from houses in 14 states contain harmful chemicals, including one that’s known to cause cancer.  “Most studies only measure a few chemicals so it makes it hard to understand typical exposures in homes and work places,” said the study’s lead author Ami Zota, an assistant professor of environment and occupational health at Milken Institute School of Public Health at the George Washington University, in Washington, D.C. The chemicals studied come from all sorts of common consumer goods, including furniture, personal hygiene products, flooring, baby products, cleaning supplies, fast food and food packaging. Zota said the chemicals are released into the air and then seep into dust that settles on furniture and floors. People can inhale or ingest small particles of dust or even absorb them through the skin.   Ten harmful chemicals were found in 90 percent of the dust samples tested. Phthalates, used in toys and vinyl flooring, among other products, occurred in the highest concentrations.  They were followed by phenols, often used in cleaning products. Then came flame retardants, fragrances and perflouroalkyl substances, which are used in carpets, textiles, and leather to make them water-, oil- and stain-repellent and to create grease-proof and waterproof coatings for products such as paper plates and food packaging.  “Phthalates are linked to multiple health hazards, including reproductive,” Signla said. “And some flame retardants are linked to cancer.”

Millions rely on cheap cloth masks that may provide little protection against deadly air pollution - Anyone who has stepped off an airplane in one of the major cities of the developing world has encountered profound and noxious air pollution. In New Delhi, Jakarta, Accra, Kathmandu and many other cities, diesel exhaust and burning garbage foul the air. The most serious concern is particulate matter (PM) – microscopic particles, much smaller than a human hair, usually produced when chemicals from fuel combustion react in the atmosphere. Once these particles form, winds can transport them over long distances. Exposure to particulate matter causes nearly six million premature deaths every year. Most of these deaths occur when PM exposure causes heart attacks, strokes or lung disease, so many people do not realize that air pollution is the underlying cause. As a result, many people view air pollution as a quality of life issue, not as a global health concern. At my laboratory we study how air pollution affects public health. We recently analyzed how effectively several types of face masks – including versions widely used in heavily polluted cities – protect users from hazardous levels of PM. Our results showed that no mask is 100 percent effective, and the cheap cloth masks that many people in developing nations use sometimes provide very little protection. These findings highlight the need to reduce air pollution in communities, and to provide better protection strategies by educating people about ways to avoid exposure.

The High Hidden Costs of Fast Fashion - Jerri-lynn Scofield - The fashion industry conceals many dirty little secrets. Its labour practices have long been notorious, with many low-cost producers relying on sweatshop production and in some cases, child labor. These and other problems have only worsened with the rise of fast fashion– cheap, shoddy clothes intended not for the long haul, but to be worn for a short while, and then discarded in favour of the next new thing. A recent Newsweek cover story, Fast Fashion is Creating An Environmental Crisis, spotlights another series of problems for the ethical consumer to ponder: the environmental costs that fast fashion imposes. The article is an eye-opener and although I summarize some of the main points here, it is well-worth reading in full. As Newsweek describes, perhaps the most significant of these problems is outright waste: Americans are blithely trashing more clothes than ever. In less than 20 years, the volume of clothing Americans toss each year has doubled from 7 million to 14 million tons, or an astounding 80 pounds per person. The EPA estimates that diverting all of those often-toxic trashed textiles into a recycling program would be the environmental equivalent of taking 7.3 million cars and their carbon dioxide emissions off the road. The situation is much the same in the UK, with 350,000 tonnes of clothing ending up in landfills and the average person only wearing 2/3 of his or her wardrobe. Unfortunately, it is extremely difficult using current technology to recycle the fibers used to make clothes into a form where they can be reused to produce pleasing clothes. SIn the absence of a strong market for secondhand clothes, most discarded textiles in the US end up in the trash: the Environmental Protection Agency (EPA) estimates that 84 percent of unwanted clothes in the United States in 2012 went into either a landfill or an incinerator. What happens to them there? Well, it depends on whether they’re made from natural or synthetic fibres. Natural fibres– cotton, linen, silk– or semi-synthetics made from plant cellulose such as rayon, behave much like food waste in a landfill, producing methane as they degrade, thus contributing to global warming. The situation for synthetic fibres is worse. They are essentially plastics and take generations, at minimum, to break down and ultimately blend back into the ecosystem rather than remaining as chunks of discrete rubbish.

 $90 Billion Whistleblower Suit Filed Against Four of the Nation's Largest Chemical Companies -- Four of the country's largest chemical companies have been accused of selling billions of dollars worth of harmful isocyanate chemicals but intentionally concealing their dangers to consumers and the U.S. Environmental Protection Agency (EPA) over the past several decades. BASF Corporation, Bayer Material Science LLC, Dow Chemical Company and Huntsman International LLC have been named in a False Claims Act (FCA) lawsuit brought by New York law firm Kasowitz, Benson, Torres & Friedman LLP on behalf of the U.S. government.  EcoWatch learned that the recently unsealed whistleblower lawsuit was served on the chemical companies on Wednesday. The lawsuit was originally filed under seal in federal court in Northern California.  Kasowitz brought this action on behalf of itself and the federal government to recover more than $90 billion in damages and penalties under the FCA, which imposes penalties for concealing obligations to the government.  According to a copy of the lawsuit seen by EcoWatch, "Each of these companies is separately liable to the United States Government for billions of dollars in civil reporting penalties, which continue to accumulate by tens of thousands of dollars daily, and for billions of dollars in similarly increasing breach of contract damages." In the suit, the law firm said that the defendants manufacture and sell isocyanate chemicals such as methylene diphenyl diisocyanate (MDI), polymeric MDI (PMDI) and toluene diisocyanate (TDI). These raw materials make up polyurethane products such as liquid coatings, paints and adhesives; flexible foam used in mattresses and cushions; rigid foam used as insulation; and elastomers used to make automotive interiors.  Occupational Safety and Health Administration (OSHA) states that exposure to isocyanate can irritate the skin and mucous membranes, cause chest tightness and difficult breathing. Isocyanates also include compounds classified as potential human carcinogens and is known to cause cancer in animals.   As alleged in the complaint, the defendants, the isocyanate industry and the EPA have long known that inhalation of isocyanates, including MDI, PMDI and TDI, can cause harm to human health.  Kasowitz believes that the chemical giants obtained scientific evidence that their widely used isocyanate chemicals can cause serious health injuries in ways not known to the EPA or the public, but failed to disclose this information to the EPA, thereby breaching their obligations under the Toxic Substances Control Act.

Unintended consequences of creating the world’s first semisynthetic organism —In 2014, the incorporation of two artificial letters of genetic code into the DNA of Escherichia coli gave the bacteria the distinction of becoming the world's first stable semisynthetic organism. The modification was intended to illustrate the possibility of enabling organisms to incorporate and replicate an artificial base pair for the future biosynthesis of novel proteins. But now in a new study, scientists have discovered that the artificial base pair has an unintended consequence on living cells: phototoxicity. The new results show that the artificial base pair makes living cells more susceptible to damage from low doses of sunlight and standard fluorescent light bulbs, leading to a significant decrease in cell survival and growth.  Crespo-Hernández told "Our work clearly cautions scientists that care must be exercised when efforts are made to expand the genetic alphabet, especially if the synthetic organisms may be exposed to light—a fact that has been hitherto overlooked."The artificial base pair consists of two nucleosides (which are nucleotides without a phosphate group) called d5SICS and dNaM. These artificial nucleosides have different chemical structures than the natural nucleosides, which are those made of the adenine, guanine, thymine, and cytosine nucleobases. Due to their different chemical structures, the artificial and natural nucleosides absorb light at different wavelengths. The artificial nucleosides strongly absorb light with wavelengths in the near-visible range, or just under 400 nm. In contrast, natural nucleosides absorb light most strongly at higher energies, those with wavelengths less than 300 nm.  To investigate how this light absorption difference may affect living cells, the researchers in the new study performed an experiment with living cancer cells from human skin (epidermoid carcinoma cells). When exposed to a low dose of near-visible light, cells that had not been treated with the artificial nucleoside d5SICS exhibited no change in cell survival. Cells that had been treated with the artificial nucleoside, but not exposed to near-visible light, were similarly unaffected. But cells containing the artificial nucleoside that were briefly exposed to near-visible light exhibited a substantial decrease in cell proliferation, indicating that the artificial nucleoside had photosensitized these cells to near-visible light, resulting in photochemical damage.

Glyphosate Found in Childhood Vaccines – Glyphosate, the active ingredient in Monsanto's flagship herbicide Roundup and hundreds of other herbicides, has been found in vaccines. Moms Across America received preliminary screening results from Microbe Inotech Laboratories Inc . of St. Louis, Missouri, which showed:

  • MMR II (Merk) vaccine had 2.671 parts per billion (ppb) of glyphosate
  • DTap Adacel (Sanofi Pasteur) vaccine had 0.123 ppb of glyphosate
  • Influenza Fluvirin (Novaris) 0.331 ppb of glyphosate
  • HepB Energix-B (Glaxo Smith Kline) 0.325 ppb of glyphosate
  • Pneumonoccal Vax Polyvalent Pneumovax 23 (Merk) had 0.107 ppb of glyphosate

The MMR II vaccine had levels up to 25 times higher than the other vaccines. Following our test, additional independent tests have confirmed these findings at or above the same levels. The tests were conducted using the ELISA method .Vaccines contain many ingredients that could be genetically modified (GMO). More than 80 percent of GMOs are genetically engineered to withstand glyphosate-based herbicides and the U.S. Environmental Protection Agency (EPA) allows glyphosate on 160 non-organic food and feed crops. These facts made us wonder if glyphosate could be contaminating not only our water, urine, breast milk , food, soil, beer and wine , but also vaccines.

 FDA Finds Glyphosate in Honey -- The U.S. Food and Drug Administration (FDA) has found residues of the weed killer glyphosate in samples of U.S. honey, according to documents obtained by the consumer advocacy group U.S. Right to Know through a Freedom of Information Act request. Some samples showed residue levels double the legally allowed limit in the European Union. There is no legal tolerance level for glyphosate in honey in the U.S., so any amount of detectable glyphosate in honey could technically be considered illegal. Some of the honey tested by the FDA had glyphosate residues at 107 parts per billion, well more than the 50 parts per billion set as a maximum allowed in the European Union, the documents state. Records obtained from the FDA, as well as the U.S. Environmental Protection Agency and the U.S. Department of Agriculture, by U.S. Right to Know detail a range of revelations about the federal government's efforts to get a handle on rising concerns about glyphosate . In addition to honey, the records show government residue experts discussing the prevalence of glyphosate found in soybean samples and the belief that there could be a lot of "violation for glyphosate" residue levels in U.S. crops. Glyphosate, the key ingredient in Monsanto 's Roundup herbicide, is the most widely used herbicide in the world and concerns about glyphosate residues in food increased after the World Health Organization in 2015 said its cancer experts determined glyphosate is a probable human carcinogen . Other international scientists have raised concerns about how heavy use of glyphosate is impacting human health and the environment.

Bayer to Buy Monsanto Creating World's Largest Seed and Pesticide Company --Monsanto has finally agreed to be purchased by Bayer AG in a historic $66 billion all-cash takeover. The agreement, which both corporations have confirmed, will form the largest seed and pesticide company in the world.  The German pharmaceuticals and chemicals giant had been courting the St. Louis-based seed maker for roughly four months, with the aspirin-maker sweetening the pot with ever-growing sums of money. Bayer finally plans to pay $128 a share for Monsanto, up from its initial May offer of $122 a share.  Not only is this the largest foreign corporate takeover ever by a German firm, it's the largest cash bid on record, as Reuters reported. A successful merger would create the world's largest agrichemical firm, which will control more than one-fourth of the combined global market for seeds and pesticides. According to Bloomberg , "The deal gives Bayer more than 2,000 varieties of seeds for crops such as corn, soybeans, and wheat. Adding that portfolio to its own vegetable, rice, cotton and oilseed offerings give Bayer a virtually unassailable position at the head of the market."  The Monsanto-Bayer combination is yet another example of the rapidly consolidating agricultural industry, with only a handful of companies controlling the sector. Alongside slumping crop prices, DuPont Co. and Dow Chemical Co. have agreed to merge, as did China National Chemical Corp. and Syngenta AG.

Monsanto and the Poisonous Cartel of GMOs in India -- India is steeped in a synthesized controversy created by Monsanto on the first GMO crop supposedly approved for commercialization. Engaged in litigation on many fronts, Monsanto is trying to subvert India's patent laws: Protection of Plant Variety and Farmers Right Act , Essential Commodities Act and Competition Act . It is behaving as if there is no Parliament, no democracy, no sovereign laws in India to which it is subject. Or it simply doesn't have any regard for them.  In another theatre, Monsanto and Bayer are merging . They were one as MoBay (MonsantoBayer), part of the poison cartel of I.G. Farben. The controlling stakes of both corporations lie with the same private equity firms. The expertise of these firms is in war. I.G. Farben, Adolf Hitler's economic powerhouse and pre-war Germany's highest foreign exchange earner, was also a foreign intelligence operation. Hermann Schmitz was president of I.G. Farben, Schmitz's nephew Max Ilgner was a director of I.G. Farben, while Max's brother Rudolph Ilgner ran the New York arm as vice-president of Chemnyco.   They made explosives and lethally poisonous gases using shared technologies and sold them to both sides in the two world wars. The same war chemicals were bought by the Allied and Axis powers, from the same manufacturers, with money borrowed from the same bank.  MoBay supplied ingredients for Agent Orange in the Vietnam War. Around 20 million gallons of MoBay defoliants and herbicides were sprayed over South Vietnam. Children are still being born with birth defects, adults have chronic illnesses and cancers, due to their exposure to MoBay's chemicals. Monsanto and Bayer's cross-licensed Agent Orange resistance has also been cross-developed for decades. Wars were fought, lives lost, nations carved into holy lands — with artificial boundaries that suit colonization and resource grab — while Bayer and Monsanto sold chemicals as bombs and poisons and their brothers provided the loans to buy those bombs.

Wheat, one of the world’s most important crops, is being threatened by climate change --One of the biggest concerns about climate change is the effect it will have on agriculture. Many studies have suggested that rising temperatures could be harmful to farms around the world, although there’s plenty of uncertainty about how bad things will get and which food supplies we should worry about most.   Now, a new study published Monday in Nature Climate Change reiterates concerns that wheat — the most significant single crop in terms of human consumption  — might be in big trouble. After comparing multiple studies used to predict the future of global crop production, researchers have found that they all agree on one point: rising temperatures are going to be really bad for wheat production.Scientists use a wide range of techniques to make predictions about the future of the environment, including a variety of models and statistical analyses. Often, though, there’s debate about which technique produces the most accurate results.  The authors of the new study, who included dozens of scientists from institutions in China, the U.S., Europe and elsewhere around the world, decided to compare three different methods used to assess the impact of temperature changes on wheat production. These included a type of statistical analysis that relies on historical observations of climate and global wheat yields to make inferences about the future, as well as two different types of model simulations.For the purposes of this comparison, the researchers focused only on the effects of temperature, without incorporating other climate-related factors such as rising carbon dioxide levels or changes in precipitation. Specifically, all the techniques suggested that a global temperature increase of 1 degree Celsius would lead to a worldwide decline in wheat yield by between 4.1 and 6.4 percent. The world currently produces more than 700 million tons of wheat annually, which is converted into all kinds of products for human consumption, including flour for bread, pasta, cakes, breakfast cereals and more. A reduction of just 5 percent would translate to a loss of about 35 million tons each year.

 Lower crop yields test market forces -  Food will cost the consumer more as a result of climate change, but it is not at all clear that farmers will profit accordingly, says a new study.Ultimately, what happens will depend on national and international responses – but as temperatures rise and crop yields fall, producers will have to spend more to meet demand later this century.Although the same basket of food would cost more, the losses to the consumer would be greater than the gain for the grower, according to the study of global agriculture and climate change by scientists at the Potsdam Institute for Climate Impact Research (PIK), Germany.“Agriculture is very sensitive to climate change,” says the report’s lead author, Miodrag Stevanović, a PIK mathematician who has been looking at the economic problems of agriculture.“Even a small increase of global mean temperatures can have significant effects on regional crop yields, affecting both the profitability of agricultural production and the share of income spent on food.“Our study quantifies economic impacts and analyses the role of international trade as an adaptation measure. We find that economic losses in agriculture could add up to the annual amount of roughly 0.8% of global GDP at the end of the century with a very restricted trade regime. “As small as this percentage sounds, it actually translates to losses of US$2.5 trillion and is comparably higher for regions with limited agricultural resources with respect to growing agricultural demand − for example, the Middle East, Africa and India.”

Cocoa Production Could Be Devastated by Climate Change, Experts Warn - WSJ: The cocoa industry must try to adapt to climate change or risk disastrous effects on global production, a group of cocoa industry experts and scientists said Thursday, speaking at the European Cocoa Association forum. “I believe this is one of the main challenges we have to face” in this industry, said Joseph Larrose, head of sustainable sourcing at French cocoa processor Touton. “We have a responsibility to tackle this.” Rising temperatures and unpredictable rainfall patterns will render some areas of West Africa, which produces more than 70% of the world’s cocoa, unsuitable for cocoa production by 2030, and dramatically change the climates of other regions, said Christian Bunn, postdoctoral fellow at the International Centre for Tropical Agriculture, a global research partnership. To make cocoa crops more resilient, the industry needs a greater long-term focus on genetic diversity, which will allow plants to better withstand and adapt to changes in climate, said Brigitte Laliberté an expert on cocoa genetic resources at Biodiversity International, a global research-for-development organization. Genetic diversity in the West African region is low, she said, and while a focus on better agricultural methods can help yields in the short term, in the long term there must be better research and funding for breeding more resilient varieties, she said. The warnings come at a critical time for the industry. This year’s El Niño phenomenon resulted in high temperatures, little rain and a particularly strong harmattan, a dry seasonal wind, in West Africa over the 2015-16 season. Because of dry weather, the industry widely expects a substantial cocoa deficit in the current season, which ends this month, with the International Cocoa Organization forecasting demand outstripping supply by 212,000 metric tons.

 Nigeria Facing 'a Famine Unlike Any We Have Ever Seen' - The whimpers from skeletally thin babies too weak to cry are a harbinger of worse things to come: A quarter of the children lucky enough to make it to this emergency feeding center are dying. They are the latest victims of Boko Haram's Islamic insurgency. No one knows how many more children are dying of starvation in refugee camps and areas too dangerous to access because of the extremists' presence, according to Doctors Without Borders, which runs the emergency feeding center. The aid group first sounded the alarm of a humanitarian crisis of "catastrophic" proportion in northeast Nigeria as Boko Haram lost its grip on some areas and its victims began to emerge. "These are kids that basically have been hungry all their lives, and some are so far gone that they die here in the first 24 hours," said Jean Stowell, an American midwife in charge of the center in Maiduguri, the biggest city in this largely Muslim region. The 110-bed center has quadrupled in size in recent weeks, but each time it expands it rapidly fills. Nearly a quarter of a million children are severely malnourished because Boko Haram has disrupted trade and farming, U.N. Assistant Secretary-General Toby Lanzer warned at a meeting in Brussels on Thursday. About 2 million people in the region have not been reached, "and we can't assess their situation. We can estimate that it's awful." With Nigeria in a recession and without speedy outside help, "we will see, I think, a famine unlike any we have ever seen anywhere," he said. One million refugees from Boko Haram are crowded into camps in Maiduguri. Outside the camps, fresh produce is cruelly bountiful. Markets are filled with pineapples, oranges, cabbage, green beans, tomatoes and carrots. But most refugees cannot afford them, and Nigeria's government is investigating reports of officials stealing food aid. Elsewhere, 1 million children are trapped in areas too dangerous to reach because of Boko Haram, the U.N. children's agency estimates. Its effort to reach some of them was put on hold in July when the extremists attacked a military-escorted humanitarian convoy on a major highway and a rocket hit the windshield of an armored car.

Mass Fish Die-Offs Are the New Normal: Climate Change Shuts Down a Montana River: Early in the morning on August 19, 2016, Chad Jacobson, a 36-year-old Montanan, lifelong fisherman and soon-to-be father received a text message from a friend who is one of Montana's many fly-fishing guides. "Can you believe they shut down the Yellowstone?" said the text. Jacobson grew up in a family of fishermen and makes it a priority to get out on the rivers as often as possible throughout the year. He was stunned. "I mean, you see this kind of stuff happening in rivers around here, it's something you can be almost sure will happen: low water and high temperatures leading to river closures and dead fish. But I don't think that anyone was prepared for it to happen on the longest undammed river in the United States. It was a shock," Jacobson told Truthout. Reports of dead fish floating and collecting on the banks of the iconic Yellowstone River began coming into Montana Fish, Wildlife and Parks (FWP) in early August. The Yellowstone flows for 692 miles from Absaroka mountain range in Wyoming, through Yellowstone National Park, into the prairies of eastern Montana and finally, the Missouri River. Alarmed, on August 12, 2016, state officials began surveying the river and found thousands of dead mountain whitefish, a native fish and known indicator species for river health. Indicator species signal a change in the biological condition of a particular ecosystem and are used as a way to diagnose the health of an ecosystem.

Can a new vaccination stem the frog apocalypse? – ‘We’re staring at what could be the extinction of a significant fraction of the world’s amphibians’ – A deadly fungus that’s been devastating frog populations is still spreading across the globe. In California, the chytrid fungus has moved inexorably across the Sierra Nevada from west to east, leaving thousands of frogs dead. But Bay Area scientists are trying to turn the tide against the fungus with an experimental treatment, one that could matter to frogs worldwide. They’re making a last-ditch effort to save the endangered mountain yellow-legged frog by immunizing it against chytrid. Mountain yellow-legged frogs, found only in California’s alpine lakes, have been in steep decline due to the fungus as well as predation by non-native trout. More than 90 percent of the population has disappeared. “When it hits, it’s within weeks that they’re just gone, just literally gone,” says Jessie Bushell, director of conservation at the San Francisco Zoo. Bushell is part of an emergency search-and-rescue operation for the frogs. L “It’s the best chance that we know how to give them,” says Roland Knapp, a biologist with UC Santa Barbara who has tracked frog die-offs across the Sierra as the chytrid wave has moved through. “Thousands of dying frogs. Carcasses of frogs all over the place. It was pretty rough to see.” […] “We’re staring at what could be the extinction of a significant fraction of the world’s amphibians,” Knapp says. “So if we can do something to reverse that, even for a few species here and there, we should try to do that.”

1.5 Billion Birds Lost in North America Since 1970s -- North America has lost more than 1.5 billion birds over the past 40 years, says the most comprehensive survey of landbird populations in Canada and the U.S. to date, and 86 species are threatened with total extinction—all thanks to human-caused habitat destruction and climate change. "Among those 86 species, 22 have already lost at least half of their population since 1970 and are projected to lose another 50 percent of their numbers within the next 40 years," reported the Canadian Press. " For at least six species, this 'half-life' window is fewer than 20 years." "The information on urgency is quite alarming," study co-author Judith Kennedy of Environment Canada said to the Canadian Press. "We're really getting down to the dregs of some of these populations." "I don't want my grandchild to go out in the forest and not hear the songbirds in the spring and that seems to be where we're headed right now," Andrew Couturier, senior analyst at Bird Studies Canada and a co-author of the report, told the Globe and Mail. The report by Canadian conservation group Partners in Flight was released in August but was first widely reported on Wednesday by the Canadian Press and Globe and Mail. The California condor, Gunnison sage grouse, ivory-billed woodpecker and Bachman's warbler are a few of the more well-known species on Partners in Flight's "Red Watch List," meaning they are the most at risk of extinction.  Those facing the most dramatic population declines are grassland birds, sagebrush and desert scrub species "and forest species dependent on specialized structural features or natural disturbance," the report says.

Will the U.S. Government Kill 45,000 Wild Horses? -- Our nation's management of wild horses has been a long-running debacle of poor execution layered over questionable intentions and flagging resolve. Those problems have been compounded by violence toward horses by ranchers and other private resource users. The latest incident involves an attack on a number of wild horses living on a ranch overseen by the philanthropist and wild horse advocate Madeleine Pickens.   Since 1971, the Bureau of Land Management (BLM) has had the task of managing wild horses, who are now classed, for administrative purposes, into 179 Herd Management Areas in 10 western states. The bureau's primary strategy over the past 20 years has largely consisted of rounding up and removing the animals from our public lands, ostensibly in an effort to protect the range from overgrazing.  The original plan was to adopt out horses to private parties—which has been fraught with its own set of problems—but the removals have happened at a volume that not even a spirited adoption program can offset. This has resulted in approximately 45,000 wild horses and burros being maintained in government-financed holding facilities throughout the U.S.  Because the captive horse management has cannibalized so much of the funding, the BLM has scarce funds for protecting horses remaining on the range, including fertility control programs that offer the only real hope of humane population management.   Last week , in an attempt to solve this financial crisis—a self-inflicted wound created by serial round-ups—a volunteer body called the National Wild Horse and Burro Advisory Board (the majority of whose members' main focus is not and has never been, the humane treatment of wild horses) made a recommendation that the BLM consider euthanizing all unadopted horses in holding facilities . That's a prescription for mass slaughter on an almost unimaginable scale and it would perhaps make the U.S. the biggest horse killing enterprise in the world.

Graph of the Day: Deforestation in the Brazilian Amazon, July 2015-June 2016 (Imazon) – Forest mega-degradation by burning detected in June 2016 by SAD was confirmed with more detailed analyses of satellite images. Degraded area is greater than double the average of deforestation detected by satellite from 2010 to 2015: 15,043 km² of accumulated forest degradation area detected by SAD during August 2015-July 2016. More intense and frequent droughts may increase the risk of forest megafires in the Amazon.  See the INFOGRAPHIC:

 Study finds ‘catastrophic declines’ of wilderness worldwide – ‘The amount of wilderness loss in just two decades is staggering and very saddening’ – A University of Queensland-led international study released today reports catastrophic declines in wilderness areas around the world over the past 20 years.  UQ School of Geography, Planning and Environmental Management and Wildlife Conservation Society researcher Associate Professor James Watson said findings demonstrated alarming losses comprising a 10th of global wilderness since the 1990s.  He said the Amazon and Central Africa were hardest hit.  “The findings underscore an immediate need for international policies to recognise the value of wilderness and to address the unprecedented threats it faces,” Dr Watson said. “Globally important wilderness areas are completely ignored in environmental policy, despite being strongholds for endangered biodiversity, for buffering and regulating local climates, and for supporting many of the world’s most politically and economically marginalised communities.  The researchers mapped wilderness areas around the globe, with “wilderness” defined as biologically and ecologically intact landscapes free of significant human disturbance.   They compared their map of wilderness to one produced by the same means in the early 1990s.  The updated map shows a total of 30.1 million km2 (more than 20 per cent of the world’s land area) remains as wilderness, with the majority in North America, North Asia, North Africa, and Australia.  Comparisons between the two maps showed an estimated 3.3 million km2 (almost 10 per cent) of wilderness area had been lost since the early 1990s, with a 30 per cent wilderness loss in  South America and a 14 per cent loss in Africa.

Obama Creates Atlantic Ocean’s First Marine Monument - President Obama on Thursday created the Atlantic Ocean’s first United States marine monument, preserving an expanse of sea canyons and underwater mountains off the New England coast as he races to use his executive power to protect vast stretches of land and water before he leaves office.Mr. Obama announced the designation of the Northeast Canyons and Seamounts Marine National Monument at an ocean conservation meeting in Washington, shortly after issuing a proclamation protecting an area roughly the size of Connecticut that sits 130 miles off the coast of Cape Cod.“If we’re going to leave our children with oceans like the ones that were left to us, then we’re going to have to act, and we’re going to have to act boldly,” Mr. Obama said at the State Department, recalling his childhood spent in Hawaii, bodysurfing in the Pacific Ocean and gazing out at its waters.The new monument lies in an area of the Atlantic where ocean temperatures are projected to warm as much as three times as fast as the global average, and is home to endangered whales and turtles, ancient deep-sea coral and species of fish unique to the region. Mr. Obama said protecting it was a vital step to counteract increasingly grave trends taking hold as the planet warms. “Dangerous changes in our climate caused mainly by human activity; dead zones in our ocean caused mainly by pollution that we create here on land; unsustainable fishing practices; unprotected marine areas in which rare species and entire ecosystems are at risk — all those things are happening now,” Mr. Obama said.

For the first time, U.S. and Mexico take stock of the underground water they share — High Country News: An unknown number of aquifers dot the border along the U.S. and Mexico, groundwater both sides use for agriculture, irrigation, and cities. Likewise, how much border communities rely on them and the ways they are managed by either country remain largely unclear. For a decade, researchers have attempted to study these transboundary aquifers, but limited funding from the U.S. government and a dearth of information have hampered their efforts. Now, though, the first leg of research is wrapping up on two major water systems: the San Pedro and Santa Cruz aquifers along the Arizona-Sonora border. Researchers can now present a more unified picture of groundwater systems and collaborate on their management – an increasingly pressing challenge in the age of climate change, shifting precipitation patterns and extended drought. In 2006, the two countries signed the Transboundary Aquifer Assessment Act, which allowed for assessment of major aquifers along the borders of Texas, Arizona and New Mexico: the Hueco Bolson and Mesilla Basin aquifers below El Paso and Ciudad Juárez and Arizona’s San Pedro and Santa Cruz aquifers. Congress authorized $50 million from 2007 to 2016 for the project, but ended up providing only a fraction of that. Despite the limited budget, the research team from the U.S. Geological Survey, Mexico’s National Water Commission, the University of Arizona and the University of Sonora in Mexico finished a report about the San Pedro Aquifer. The San Pedro study, a preliminary version of which was released in January, focused on land ownership, water and soil quality, and precipitation. It marked the first time the two countries collaborated aquifer research. The complete version will be published later this year, and a similar study on the Santa Cruz Aquifer is expected early next year.

Indonesia: ‘Haram’ to burn land for clearing, say Muslim clerics - RELIGIOUS authorities in Indonesia have declared the burning of land forbidden among Muslims in a fatwa or edict aimed at curbing illegal land clearing. According to Channel News Asia, the Indonesian Ulema Council (MUI) issued the fatwa in its bid to influence social change as part of a moral movement. “The act of burning forests and land, which can cause damage, environmental pollution, economic losses, affect health, and other negative impacts is haram (forbidden),” Professor Huzaemah Yanggo, chairperson for fatwa from the Indonesian Ulema Council, was quoted as saying. Huzaeman, who was speaking at a media conference on Tuesday, said the council was confident that the ruling can help change attitudes towards the illegal burning of land. SEE ALSO: Indonesia: Haze investigators held captive, threatened with death The council denounced the traditional practice, saying it goes against Islamic teachings, and instructed clerics and religious teachers to spread the message.

Toxic Slime Spreads Across World’s Oceans as Climate Disruption Continues Apace (from a long summary) The massive "blob" of overheated water in the Eastern Pacific that has been afflicting marine life along the US West Coast and Alaska for the last several years, persists. It has now become just another example of a growing global phenomenon of oceanic "heat waves." One has been impacting Australia recently as well.Off the coast of Australia, the Great Barrier Reef recently experienced a massive coral bleaching event that killed off more than one-fifth of the reef.Another recent report showed that ocean slime, composed of toxic algae blooms, is rapidly spreading across Earth as a result of warming ocean waters. The toxic algae is worsening dead zones and wiping out parts of the food chain for marine life, causing collapsing populations of sea lions, seals, various bird species and fish around the planet.Meanwhile in the Arctic, fish populations are shifting rapidly as the sea ice dwindles. According to a recent report from the USGS and the US Bureau of Ocean Energy Management (BOEM), at least 20 different species have now found their way into Arctic waters that had previously never been found there. Additionally, another 63 species have changed their ranges from what they used to be.A recent study also showed that the Greenland Ice Sheet continues to melt extremely rapidly, losing the equivalent of 110 million Olympic-size swimming pools worth of water each year. In other words, 270 gigatons of ice have melted per year from 2011 to 2014. The study also showed that the melting in Greenland is continuing to accelerate with time.Down in the Antarctic, a recent report showed that a massive rift is growing across the fragile Larsen C Ice Shelf. As the crack continues to spread at an accelerating rate, it threatens to release an iceberg the size of Delaware. More importantly, it will eventually destabilize an even larger area of ice, roughly the size of Scotland. Back in the continental US, a massive fish kill in Yellowstone National Park caused authorities to close off a 183-mile portion of the river and its tributaries. The parasite that caused the die-off was helped along by the ACD-warmed river water.

La Niña fizzles, making record warm global temperatures more likely: With stabilizing sea surface temperatures in the eastern tropical Pacific Ocean, climate forecasters announced Thursday that they have canceled the La Niña watch that had been in effect since April. The diminished likelihood of a La Niña event starting this fall and lasting into the winter has ramifications far beyond the Pacific, including how the Atlantic hurricane season may evolve along with U.S. winter weather patterns. Importantly, it also means there will not be a natural brake placed on the planet's increasing fever, fed by human-caused global warming. La Niña events, which are characterized by cooler-than-average sea surface temperatures in the central and eastern tropical Pacific Ocean, tend to lower global average surface temperatures. The lack of a La Niña, or even just the presence of a weak La Niña as opposed to a strong one, means the current record-long string of hottest months may continue through the end of 2016 and into next year. According to the latest forecast issued Wednesday by the Climate Prediction Center and the International Institute for Climate and Society (IRI), there is just a 43 percent likelihood of a La Niña developing during August, September and October.  By November, December and January, the odds of a La Niña decrease to 39 percent, with a 57 percent probability of so-called "ENSO-neutral" conditions, meaning that there is neither an El Niño or La Niña present. Some forecasters refer to this as "La Nada."

La Niña Might Not Be Coming After All-- After promising biblical rains and instead giving California crabs, El Niño passed away quietly last spring. But while early data suggested La Niña would rise to fill the chasm El Niño’s departure had left in our meteorological newsfeeds, NOAA is now starting to think La Niña might not happen at all.  As early as last winter, climate forecasters told us they were “reasonably confident” La Niña conditions would emerge by late 2016. As the spring wore on, our confidence in the anti-El Niño climate pattern grew stronger, bolstered by the expansion of a telltale, cold water undercurrent in the equatorial Pacific. When that cold water mass started to breach the surface last May, ending the reign of El Niño’s hot blob once and for all, climatologists forecasted a 75 percent chance La Niña would be here by the end of the year. But late last week, NOAA’s Climate Prediction Center poured some cold water on our hope that lots and lots of cold water would spread across the Pacific’s midsection, perhaps even making a temporary dent in our global, carbon emissions-fueled heat wave. Last week, the La Niña watch was officially taken down. Forecasters are now placing their bets on ENSO-neutral conditions (aka, neither El Niño nor La Niña) persisting through the winter. What changed? As a blog post by NOAA explains, we’re still measuring cooler-than-average temperatures across the so-called Niño 3.4 region of the tropical Pacific, which are considered typical for La Niña. But that temperature dip hasn’t been accompanied by the La Niña atmospheric response. By this point, we should be seeing an amping up of the Walker circulation pattern, meaning cool air should be sinking more vigorously in the central and eastern Pacific as warm air rises more vigorously over the western Pacific.

A market-roiling La Nina is dividing world weather forecasters -- Global weather agencies can’t agree on whether to expect a La Nina event in coming months. The U.S. has backed off its prediction, Australia remains watchful, while Japan has decided La Nina is already here. Disagreements arise because each nation has different standards for measuring the weather. The ocean-cooling phenomenon -- a shift from last year’s warming El Nino -- can roil commodities markets with dramatic shifts in weather that wreak havoc on demand and supplies. The yes-no-maybe confusion is giving heartburn to natural gas, coal and agricultural traders who depend on forecasts to place bets on whether prices will rise or fall. “There are billions of dollars of capital at stake,” said Teri Viswanath, managing director of natural gas at PIRA Energy Group in New York. Gas traders are already banking on a La Nina to help deliver the frostiest U.S. winter since the "polar vortex," a chill that sent prices surging across the U.S. in 2014. And Australia’s coal is headed for the first annual gain in six years, in part on speculation that a La Nina will curb supplies. The last La Nina flooded coal mines in Indonesia and Australia, the world’s two largest exporters of the fuel. La Nina is just one phase in a larger three-part cycle known as the El Nino Southern Oscillation, or ENSO for short. La Nina represents the cool phase, El Nino is when the equatorial Pacific warms, and ENSO Neutral is in-between. After 2015’s strong El Nino, the Pacific has been cooling, nudging the ocean toward borderline La Nina conditions, The weak trend leaves plenty of room for interpretation. “Different groups of experts are reading the tea leaves slightly differently and coming up with different evaluations of where we are headed,”

Pacific Ocean’s response to greenhouse gases could extend California drought for centuries -- Clues from prehistoric droughts and arid periods in California show that today's increasing greenhouse gas levels could lock the state into drought for centuries, according to a study led by UCLA professor Glen MacDonald. The study, published today in the journal Scientific Reports, looked at how natural climatic forces contributed to centuries-long and even millennia-long periods of dryness in California during the past 10,000 years. These phenomena—sun spots, a slightly different earth orbit, a decrease in volcanic activity—intermittently warmed the region through a process called radiative forcing, and recently have been joined by a new force: greenhouse gases.  As long as warming forces like greenhouse gases are present, the resulting radiative forcing can extend drought-like conditions more or less indefinitely, said MacDonald, a distinguished professor of geography and of ecology and evolutionary biology. "Radiative forcing in the past appears to have had catastrophic effects in extending droughts," said MacDonald, an international authority on drought and climate change. "When you have arid periods that persist for 60 years, as we did in the 12th century, or for millennia, as we did from 6,000 to 1,000 B.C., that's not really a 'drought.' That aridity is the new normal."  Researchers tracked California's historic and prehistoric climate and water conditions by taking a sediment core in the Sierra Nevada mountains. They pulled a 2-inch-wide, 10-foot-deep cylinder of sediment from the bottom of Kirman Lake and analyzed it in third-of-an­-inch sections, creating the most detailed and continuous paleoenvironmental record of California. What they found was not only that periods of increased radiative forcing could produce drought-like conditions that extended indefinitely, but that these conditions were closely tied to prolonged changes in Pacific Ocean surface temperatures.

Toasty nights propel Maryland and several Northeast states to hottest August on record - (see graphics) The highly-populated Northeast corridor of the United States sweated through its hottest August in 122 years of records. Nights that refused to appreciably cool down played a big role in the historic heat. The record-breaking heat spanned from Maryland to Massachusetts. In all, eight states in the Northeast United States simmered through their hottest August. Cities experiencing their hottest August included Boston, Atlantic City, Philadelphia, Harrisburg and Buffalo. August temperatures in Allentown and Providence ranked second hottest, and third hottest in New York City (Central Park). The summer overall (June through August) closed as the fourth hottest on record for the Northeast United States and tied for fifth hottest for the lower forty-eight. The southwestern U.S. was the hottest region of the county as California endured its most sweltering summer. The most striking feature of the summer climate — both in the Northeast and throughout many parts of the country — was record-breaking nighttime temperatures. The average low (or minimum) temperature averaged over the lower forty-eight ranked warmest on record. USA Today’s Doyle Rice offered additional detail on the stifling nights: The national average low temperature rested at a balmy 60.8 degrees, about 2.4 degrees above average, said climate scientist Jake Crouch of NOAA’s National Centers for Environmental Information. … The reason for the nighttime swelter, especially in the East, was unusually high levels of humidity due to a persistent flow of moisture-laden air off the Gulf of Mexico and Atlantic Ocean, Crouch said. Temperatures don’t drop as much at night when the atmosphere is humid. Nighttime (or low) temperatures have warmed at a feverish pace over the lower forty-eight states in recent decades.  “In a climate warmed by increasing greenhouse gases, computer models and basic theory agree that nights should warm more quickly than days,” explained Weather Underground’s Bob Henson. “In large part this is because of increasing atmospheric moisture that keeps nighttime temperatures up, even when that moisture doesn’t actually produce rain.”

Report: U.S. had record summer of heat, global warming blamed: Newly released data from the National Oceanic and Atmospheric Administration (NOAA) shows that the U.S. experienced its fifth warmest summer on record in 2016. The summer also saw record temperatures in some states and global warming may be the reason.The summer actually tied for the fifth warmest with the summer of ten years ago, 2006. The U.S. also experienced its second wettest August and 24th wettest summer overall since such record-keeping began 122 years ago. "The average summer U.S. temperature was 73.5 degrees F, 2.1 degrees above average, according to scientists from NOAA’s National Centers for Environmental Information," the NOAA said in a press release. "Every state in the continental U.S. and Alaska were warmer than average this summer." The NOAA called the summer "oppressively hot." Eight states in the Northeast and Mid-Atlantic region recorded the hottest month of August they've experienced in those 122 years of record-keeping and two of those states, Connecticut and Rhode Island, had a record summer of heat overall. Forty-five cites had the hottest summer they've ever had.  "The year to date (January-August) for the contiguous U.S. was the 3rd warmest on record with an average temperature of 56.7 degrees F, 2.8 degrees above average," the NOAA said. "All Lower 48 states and Alaska observed above-average temperatures during this eight-month period."   Since the NOAA released the report Thursday many online and print publications have speculated global warming is responsible for the plethora of heat records being set and called for further government action.  An editorial in USA Today said the data "provides further evidence, as if any were needed, that global warming is a here-and-now problem, not something to worry about in the distant future." And already there is data to suggest that is so.  A federal report released last week attributed much of the year's weather to global warming, including the Louisiana floods that caused 13 deaths and $8.7 billion in damage, damaged 150,000 homes. The Red Cross called it the worst natural disaster in the U.S. since Hurricane Sandy.  That federal report was coordinated by the research organization Climate Central and the chief scientist there, Heidi Cullen said the odds of such a disaster have increased by 40 percent, or more, due to global warming.

Last month was hottest August on record, NASA says - Last month was the warmest August on record globally, NASA’s Goddard Institute for Space Studies announced on Monday. That means that it was the warmest August since 1880, when record keeping began. August of this year bested August of 2014 by just a tiny margin— it was less than a third of a degree Fahrenheit hotter.August was also tied with July of this year as the hottest month on record. Scientists use a global network of about 6,300 stations to determine on average what the temperatures is globally, and compare modern temperatures to an average over a time period in the past, in this case 1951-1980.  NASA added that this record makes it 11 months in a row in which a month has broken a temperature record."Monthly rankings, which vary by only a few hundredths of a degree, are inherently fragile," Gavin Schmidt, the director of the Goddard Institute for Space Studies, said in a statement. "We stress that the long-term trends are the most important for understanding the ongoing changes that are affecting our planet." Last month, NASA announced that July was both the hottest July ever, as well as the hottest month in history. The space agency also said that a low amount of Arctic sea ice, while not record-breaking, was the “new normal.”

August Ties July for Hottest Month on Record - It just keeps getting hotter.August has tied July for the distinction of being the hottest month since record-keeping began in 1880, NASA said in a news release on Monday.And there’s a good chance 2016 will become the third year in a row of record heat.An increase in greenhouse gas emissions and El Niño, a weather pattern that warms parts of the Pacific Ocean, has contributed to temperature increases in 2016, scientists said earlier this year.“But we’ve had El Niños before, they haven’t given us the record-warm temperatures like this,” said Gavin Schmidt, the director for NASA’s Goddard Institute for Space Studies.The records being set continue to stack up.

  • • August and July are now the hottest months on record.
  • • Every month since October 2015 has set a new monthly high-temperature record.
  • • The first six months of this year beat 2015 for the hottest half-year ever recorded.
  • • Both 2014 and 2015 set new heat records, and 2016 is on pace to continue the trend.

Mr. Schmidt cautioned against putting too much significance on monthly rankings and emphasized that the long-term warming trend is more significant.“This year really does stand out in comparison with all the other years,” Mr. Schmidt said.The streak of record highs could end — for a while at least — if a weather pattern known as La Niña, in which sea surface temperatures fall below normal, takes hold soon, but Mr. Schmidt said it’s not clear that will materialize.

Hot Whopper: Crikey! Hottest August on record - vies with July for hottest month ever!  --According to GISS NASA, the average global surface temperature anomaly for August was 0.98 °C, which is 0.16 °C higher than the previous hottest August in 2014. Because July is the hottest month of the year, I've seen this July reported as the hottest month ever in recorded history! I asked the question whether August beat July and was told it's too close to call. The average for the 8 months to the end of August is 1.05 °C, which is 0.25 °C higher than any previous January-to-August period. The previous highest was last year, which with the latest data had an anomaly of 0.8 °C.  There are now 11 in a row of "hottest months" from October 2015 to August 2016 (that is, hottest October, hottest November, etc.). If we could look back over the entire Holocene, it's probably more than 7,000 years since there was a similar run of hottest months on record, that is, not since the Holocene climatic optimum. (It's probably hotter now than it was back then).  Here is a chart of the average of 12 months to August each year. The 12 months to August 2016 averaged 1.03 °C above the 1951-1980 mean and was 0.23 °C hotter than the 12 months to August 2015:   Below is a chart of the month of August only. Hover over the chart to see the anomaly in any August: Now no La Niña? You can see the global mean temperature trend by month in the chart below, for the strongest El Niño years since 1950, which were followed by a La Nina. I've included the 2015/16 period for comparison. NOAA has called off the La Nina watch. The BoM ENSO update is due out later today. Not counting 2015/16, of the 7 very strong, strong, and strong-to-moderate El Ninos since 1950, there were only 3 that were followed by a La Nina. The chart spans a 3-year period. That is, for the 2015-16 El Niño and subsequent, it goes from January 2015 to December 2017. (For a more detailed explanation see the HW articles: El Niño to La Niña years with more detail here.)

August Was The Hottest Month Ever Recorded. Again. -  Surprise, surprise: Last month was the hottest August ever recorded, marking the 11th straight month that global heat records have been shattered, according to NASA data. The agency broke the bad, though perhaps not entirely unexpected, news on Monday. August had a global average surface temperature of about 1.76 degrees Fahrenheit above average, NASA said. It also tied with July as the warmest month ever recorded since record-keeping began in 1880. “We are well on our way to the warmest year recorded,” the Union of Concerned Scientists wrote in an email to The Huffington Post this week. If deemed the hottest year ever, 2016 will be the third year in a row to boast this unfortunate title. But though every month — and each year — appears to bring the same news about “hottest” this and that, experts are warning against apathy and fatigue regarding record-breaking temperatures. “While there may be a tendency to be complacent about the recurring record temperatures, with each month come more climate-related consequences that cannot be ignored,” wrote UCS climate scientist Astrid Caldas in a blog post.   “We are feeling climate change impacts right here, right now,” Caldas continued. “From wildfires and droughts to devastating floods, climate change fingerprint is all around us and does play a role in making events more extreme. An example are this summer’s floods in Louisiana, caused by intense rains which were “at least 40 percent more likely to happen because of climate change,” according to research.

Earth Hasn’t Heated Up This Fast Since the Dinosaurs’ End: Carbon is pouring into the atmosphere faster than at any time in the past 66 million years—since the dinosaurs went extinct—according to a new analysis of the geologic record. The study underscores just how profoundly humans are changing Earth’s history. The carbon emissions rate is ten times greater today than during the prehistoric hot period that is the closest precedent for today's greenhouse warming. That period, known as the Paleocene-Eocene Thermal Maximum (PETM), was marked by a massive release of the Earth's natural carbon stores into the atmosphere. (It’s not clear what caused the PETM, but volcanic eruptions and methane gas release are suspects.) The excess carbon triggered a 5°C (9°F) temperature increase, along with drought, floods, insect plagues, and extinctions. (Read more about this period of “Hothouse Earth.”) The new analysis of the sediment record concludes that the carbon rush at the start of the PETM extended over at least 4,000 years. That translates to about 1.1 additional gigatons of carbon per year. Today, fossil fuel burning and other human activity release 10 gigatons of carbon annually.

 Oceans Are Absorbing Almost All of the Globe’s Excess Heat - (heat maps) This year is on track to be the third consecutive hottest year on record. Where does that heat go? The oceans, mostly. Ocean temperatures have been consistently rising for at least three decades. Scientists believe that global sea surface temperatures will continue to increase over the next decade as greenhouse gases build up in the atmosphere. According to a report by the International Union for Conservation of Nature released last week, the Southern Hemisphere has experienced intense warming over the past decade, with strong heat accumulation in the midlatitude regions of the Pacific and Indian Oceans. Natural patterns such as El Niño and La Niña can have year-to-year effects on temperatures. Individual storms can also influence ocean temperatures for months or longer. But the overall temperature trends by decade reveal a backdrop of human-caused warming.

 Louisiana Republicans: This isn’t like Sandy -- Louisiana lawmakers are defending their 2013 votes against aid for Hurricane Sandy relief — even as they request billions of dollars to help their state recover from last month’s floods. GOP Sen. Bill Cassidy and Republican Reps. John Fleming and Steve Scalise — all of whom voted against the Sandy bill in 2013 — are now asking for more than $2 billion for flood aid for Baton Rouge and other cities in their state. Fleming and Cassidy say they voted against the $50 billion Sandy bill ­because it included $33 billion for programs unrelated to the storm damage. They say the Louisiana request has no such extraneous spending. Gov. John Bel Edwards (D) formally asked Washington this week to provide up to $2.8 billion in emergency aid after the August floods, which destroyed more than 100,000 homes and killed 13. The White House mostly supports the effort and formally submitted a request Tuesday for $2.6 billion in emergency spending for the state. The proposal also has the approval of the congressional delegation, which wrote a letter to the president asking him to remember the state during spending battles between now and the end of the fiscal year, on Sept. 30. The question now is whether Congress will do anything with the request and if members detect any hypocrisy in funding disaster relief for a state where most members have voted against it in the past.

Asian typhoons becoming more intense, study finds - The destructive power of the typhoons that wreak havoc across China, Japan, Korea and the Philippines has intensified by 50% in the past 40 years due to warming seas, a new study has found. The researchers warn that global warming will lead the giant storms to become even stronger in the future, threatening the large and growing coastal populations of those nations. “It is a very, very substantial increase,” said Prof Wei Mei, at the University of North Carolina at Chapel Hill, who led the new work. “We believe the results are very important for east Asian countries because of the huge populations in these areas. People should be aware of the increase in typhoon intensity because when they make landfall these can cause much more damage.” Typhoons can have devastating impacts in east Asia. In 2013, typhoon Haiyan hit the Philippines, killing at least 6,300 people and affecting 11 million. Typhoon Nina struck China in 1975, dumping 100cm of rain in a day and leading to 229,000 deaths and 6m destroyed buildings. Last week typhoon Lionrock left 11 people dead in northern Japan and caused power blackouts and property damage, while in July typhoon Nepartak hit Taiwan and China, killing at least nine people and leaving a trail of destruction. In the new research, published in Nature Geoscience, the scientists took data collected independently by centres in Japan and Hawaii and, after accounting for differences in the way it had been collected, showed that typhoons in the north-west Pacific had intensified by 12–15% on average since 1977. The proportion of the most violent storms - categories 4 and 5 - doubled and even tripled in some regions over that time and the intensification was most marked for those storms which hit land. The intensity of a typhoon is measured by the maximum sustained wind speed, but the damage caused by its high winds, storm surges, intense rains and floods increases disproportionately, meaning a 15% rise in intensity leads to a 50% rise in destructive power.

Category 5 Super Typhoon Meranti is strongest storm of 2016 --Churning the waters of the Northwest Pacific is the strongest tropical cyclone of the 2016 Northern Hemisphere season: Super Typhoon Meranti. It is the fourth Category 5 storm on Earth this year, which is close to the annual average of between four and five such storms. Super Typhoon Meranti, which according to the Joint Typhoon Warning Center had maximum sustained winds of 155 knots, or nearly 180 miles per hour, as of Monday evening eastern time, has southern Taiwan and coastal China in its sights for the middle of the week.   Fluctuations in the storm's intensity are likely before Meranti makes its closest pass to southern Taiwan on Wednesday, but it is likely to still be a powerful Typhoon at that time. Taiwan's second-most populous city, Kaohsiung City, is located in the southwest part of the island. Super Typhoon Meranti is the seventh category 4 or 5 storm to form during the Northern Hemisphere's 2016 storm season, but beat Super Typhoon Nepartak in terms of its estimated maximum sustained winds.

Typhoon Meranti hits China after battering Taiwan - Al Jazeera: Super Typhoon Meranti has made landfall in southeastern China, bringing strong winds and rain in what state media has called the strongest storm of the year globally.The typhoon arrived in the early hours of Thursday near the major city of Xiamen after sweeping through southern Taiwan on Wednesday and killing one person.Pictures on state media showed flooded streets in some parts of the province of Fujian, where Xiamen is located, fallen trees and crushed cars.Xinhua news agency said it was the strongest typhoon to hit that part of the country since the founding of Communist China in 1949 and the strongest so far this year any where in the world. As it passed Taiwan, Meranti had sustained winds of 290km an hour (kph) and gusts of 350kph [AFP] In some parts of Xiamen, including both urban and rural areas, power supplies had been cut off, it said.Meranti was a Category 5 typhoon, the strongest classification awarded by Tropical Storm Risk storm tracker, before it made landfall on the mainland and has since been downgraded to Category 2.Dozens of flights and train services have been cancelled, state television said, inconveniencing people at the start of the three-day mid-autumn festival holiday.Meranti will continue to lose strength as it pushes inland and up towards China's commercial capital of Shanghai, but will bring heavy rain.

Typhoon Meranti's path in Asia to signal warm official start to autumn in eastern US - More warmth is in store for the eastern half of the United States during much of the balance of September, due to the path of Typhoon Meranti in Asia. "Cool shots, like the one spanning Thursday and Friday in the northeastern U.S. this week, will be brief up until around the end of the month," according to AccuWeather Long-Range Meteorologist Mike Doll. Cool air will generally be bottled up near and north of the Canada border. As normal temperatures trend downward during the month, actual temperatures will climb to above-average levels during multiple days this weekend and next week in many areas. The warmth will continue past the first official day of Autumn, which is Thursday, Sept. 22. High temperatures during multiple days will be in the 80s F in cities such as New York City, Philadelphia, Pittsburgh, Washington, D.C., Atlanta, Nashville, Indianapolis, Cleveland and St. Louis. It is possible some locations in the South, mid-Atlantic and the Midwest flirt with 90 on one or more days. Temperatures can reach 80 or higher in Boston during a few days. The warm surge during the middle and latter part of next week will be largely fueled by the path of Meranti, which blasted Taiwan on Wednesday and made landfall in China early Thursday, local time.When tropical storms and typhoons fail to re-curve to the east and away from Asia, the corresponding weather pattern across the Pacific and North America favors a buildup of warmth in the eastern part of the U.S. six to 10 days later. The path of Meranti will correlate to the warmth forecast for the middle and latter part of next week. Conversely, when tropical storms and typhoons take the curved path and avoid hitting mainland Asia, the weather pattern thousands of miles farther to the east tends to deliver much cooler weather in the eastern U.S. six to 10 days later."One such typhoon, Malakas, is projected to curve away from Asia this weekend into early next week, which would set into motion much cooler air in the eastern U.S. just prior to the end of September," Doll said.

 Soaring ocean temperature is 'greatest hidden challenge of our generation' - The soaring temperature of the oceans is the “greatest hidden challenge of our generation” that is altering the make-up of marine species, shrinking fishing areas and starting to spread disease to humans, according to the most comprehensive analysis yet of ocean warming. The oceans have already sucked up an enormous amount of heat due to escalating greenhouse gas emissions, affecting marine species from microbes to whales, according to an International Union for Conservation of Nature (IUCN) report involving the work of 80 scientists from a dozen countries. The profound changes underway in the oceans are starting to impact people, the report states. “Due to a domino effect, key human sectors are at threat, especially fisheries, aquaculture, coastal risk management, health and coastal tourism.” : “What we are seeing now is running well ahead of what we can cope with. The overall outlook is pretty gloomy. “We perhaps haven’t realised the gross effect we are having on the oceans, we don’t appreciate what they do for us. We are locking ourselves into a future where a lot of the poorer people in the world will miss out.” The scale of warming in the ocean, which covers around 70% of the planet, is “truly staggering”, the report states. The upper few metres of ocean have warmed by around 0.13C a decade since the start of the 20th century, with a 1-4C increase in global ocean warming by the end of this century.The ocean has absorbed more than 90% of the extra heat created by human activity. If the same amount of heat that has been buried in the upper 2km of the ocean had gone into the atmosphere, the surface of the Earth would have warmed by a devastating 36C, rather than 1C, over the past century.

Global warming making oceans sick, spreading disease in humans and animals, scientists warn - Global warming is making the oceans sicker than ever before, spreading disease among animals and humans and threatening food security across the planet, a major scientific report said. The findings, based on peer-reviewed research, were compiled by 80 scientists from 12 countries, experts said at the International Union for Conservation of Nature (IUCN) World Conservation Congress in Hawaii."We all know that the oceans sustain this planet. We all know that the oceans provide every second breath we take," IUCN director general Inger Andersen said at the meeting, which has drawn 9,000 leaders and environmentalists to Honolulu."And yet we are making the oceans sick."The report, Explaining Ocean Warming, is the "most comprehensive, most systematic study we have ever undertaken on the consequence of this warming on the ocean", co-lead author Dan Laffoley said.The world's waters have absorbed more than 93 per cent of the enhanced heating from climate change since the 1970s, curbing the heat felt on land, but drastically altering the rhythm of life in the ocean, he said.  Mr Laffoley, marine vice chair of the World Commission on Protected Areas at IUCN, said "the ocean has been shielding us and the consequences of this are absolutely massive".The study included every major marine ecosystem, containing everything from microbes to whales, including the deep ocean.It documents evidence of jellyfish, seabirds and plankton shifting toward the cooler poles by up to 10 degrees latitude. Mr Laffoley said the movement in the marine environment was "1.5 to five times as fast as anything we are seeing on the ground."

Melting Glaciers Are Wreaking Havoc on Earth’s Crust - You've no doubt by now been inundated with the threat of global sea level rise. At the current estimated rate of one-tenth of an inch each year, sea level rise could cause large swaths of cities like New York, Galveston and Norfolk to disappear underwater in the next 20 years. But a new study out in the Journal of Geophysical Research shows that in places like Juneau, Alaska, the opposite is happening: sea levels are dropping about half an inch every year. How could this be? The answer lies in a phenomenon of melting glaciers and seesawing weight across the earth called “glacial isostatic adjustment.” You may not know it, but the Last Ice Age is still quietly transforming the Earth’s surface and affecting everything from the length of our days to the topography of our countries. During the glacier heyday 19,000 years ago, known as the Last Glacial Maximum, the Earth groaned under the weight of heavy ice sheets thousands of feet thick. These enormous hunks of frozen water pressed down on the Earth’s surface, displacing crustal rock and causing malleable mantle substance underneath to deform and flow out, changing the Earth’s shape—the same way your bottom makes a depression on a couch if you sit on it long enough. Some estimates suggest that an ice sheet about half a mile thick could cause a depression 900 feet deep—about the depth of an 83-story building.   The displaced mantle flows into areas surrounding the ice sheet, causing that land to rise up, the way stuffing inside a couch will bunch up around your weight. These areas, called “forebulges,” can be quite small, but can also reach more than 300 feet high. The Laurentide Ice Sheet, which weighed down most of Canada and the northern United States, for example, caused an uplift in the central to southern parts of the U.S. Elsewhere, ancient glaciers created forebulges around the Amazon delta area that are still visible today even though the ice melted long ago.As prehistoric ice sheets began to melt around 11,700 years ago, however, all this changed. The surface began to spring back, allowing more space for the mantle to flow back in. That caused land that had previously been weighed down, like Glacier Bay Park in Alaska and the Hudson Bay in Canada, to rise up. The most dramatic examples of uplift are found in places like Russia, Iceland and Scandinavia, where the largest ice sheets existed.At the same time, places that were once forebulges are now sinking, since they are no longer being pushed up by nearby ice sheets.

This is what Greenland’s melting ice looks like — up close   -- For the past two weeks two Washington Post reporters, Chris Mooney and Whitney Shefte, have been exploring Greenland, an enormous Arctic island that has scientists increasingly troubled as it continues to slowly melt. The two had an opportunity to tag along with a scientific team who were conducting research on the diminishing ice sheet.Over the course of their travel, Mooney and Shefte have been documenting their adventure and observations on The Washington Post’s Instagram account.  The start of their arctic journey began in New Jersey, where the pair hopped on a C17 plane from McGuire Air Force Base and flew to Thule Air Force Base located in the northwest section of the island.  There, they explored the surrounding area for a few days, snapping pictures of glaciers in the North Star Bight and near the Wolstenholme Fjord before heading up the island to one of the most northern towns in the world: Qaanaaq. Here are some of the stunning scenes they came across during their travel.

Arctic ice shrinks by size of England in a single day -- The melting of the Arctic ice cap last week accelerated to one of the fastest rates ever seen, with more than 46,000 square miles lost in one day — three times the usual rate. Scientists have confirmed that surging temperatures and violent storms have ripped apart the floating ice so its area has plummeted to the second lowest ever recorded — with a week of melting still to go. The 46,000 square miles of ice lost over September 6-7 is almost the area of England. The collapse of sections of the ice cap was spotted by the National Snow and Ice Data Centre (NSIDC) in Colorado. It uses satellites to track the annual summer shrinkage of the cap and its winter regrowth.   Professor Mark Serreze, director of the NSIDC, said: “This is a radical late summer decline. Why it’s happening is not entirely clear at this point but it’s likely related to [extra] heat in the ocean.”  In August the ice cap usually shrinks by a rate of 15,000 square miles a day. In 2012, when it shrank to the lowest summer extent so far recorded of 1.32m square miles, this shrinkage rate almost doubled to 29,000 miles a day.  The NSIDC said that in the first five days of September the ice cap had shrunk by 22,000 square miles a day as a tongue of sea ice in the Chukchi Sea, west of Alaska, broke up. This then accelerated to 46,000 square miles of ice in a day. Julienne Stroeve, who works with Serreze at the NSIDC, said the ice had been attacked from below by a surge of warm water and from above by air temperatures well above freezing. It means the ice cap now measures 1.58m square miles — the second smallest ever seen.  The ice has not only shrunk in extent but what is left is also thinner. Andy Shepherd, a professor at Leeds University and director of the Centre for Polar Observation and Modelling, said: “The ice cap this spring was close to the thinnest we have ever seen.”

Arctic sea ice cover set to be second lowest ever recorded, data suggests  -Arctic sea ice cover could be confirmed within days as the second lowest ever recorded, the latest data suggests. According to the US national snow and ice data centre (NSIDC) the ice which forms and disperses annually has been close to its minimum extent for the year for several days and has begun to grow again as autumn sets in. It was measured by satellite as 4.169m sq km on 12 September, a slight increase on the 4.139m sq km on 11 September. As the Arctic winter closes in, the ice cover will climb, reaching around 15m sq km by March. Ice scientists said the figures were the “new normal” and confirmed the long-term downward trend towards ice-free Arctic summers.“This year has shown there is no correlation between what happens in May and September. May was the lowest ever, but 2016 did not end up the lowest,” said Stroeve. “The ice has definitely been thinner this year. Thinning ice is keeping the extent lower than it would otherwise have been.”

Arctic sea ice hits second-lowest extent in satellite record - Alaska Dispatch News: Arctic sea ice this month slipped to its second-lowest extent since satellite observations began, matching almost precisely the mark set in 2007 but not as low as in the record-setting summer of 2012, scientists reported.Extent, the area where ice covers at least 15 percent of the sea surface, fell to the year's low point of 4.14 million square kilometers (1.598 million square miles) on Saturday, the National Snow and Ice Data Center said. The 2007 minimum extent was 4.15 million square kilometers (1.602 million square miles), the Boulder, Colorado-based center said.The result is considered a statistical tie because the difference lies within the margin of error for the satellite data, said NSIDC Director Mark Serreze.This year's minimum extent was about a third lower than the 1981-to-2010 average, according to the NSIDC.The big ice loss was remarkable because Arctic weather conditions were cloudy and cool earlier in the summer, Serreze said. Such conditions would normally favor ice preservation, not the big meltdown that occurred, he said.It signals an important shift — possibly because thinner ice overall is more susceptible to melt from warmer waters beneath it, he said."I think that this is telling us that the old rules are changing," he said.

Arctic Ice Shrinks to Summer Low (time lapse video) Arctic sea ice shrank to just 1.60 million square miles this week, hitting its summer low point and reaching a statistical tie with 2007 for the second lowest extent on record. This year's minimum is approximately one million square miles less than the 1979 to 2000 average. "What this year shows us is that we're primed for much greater ice losses in the near future," Ted Scambos, lead scientist with National Snow and Ice Data Center, said. National Snow and Ice Data Center Director Mark Serreze said he wouldn't be surprised if the Arctic were "essentially ice free" by 2030. For More News: Washington Post, AP, Climate Central, USA Today, TIME, Alaska Dispatch News, BBC,Carbon Brief, Climate Home

Arctic death spiral: Icebreakers reach North Pole as sea ice disintegrates  - Arctic sea ice continued its long-term death spiral in 2016, thanks to warming-driven ice melt. As the ice sheet shrinks and thins, it’s becoming easier and easier for icebreakers to reach the North Pole. The Arctic has been setting records for warmth and sea ice loss and Greenland ice sheet melt, as we’ve been reporting all year long. Last week, 46,000 square miles of sea ice (almost the size of England) disintegrated in one day, which is triple the normal rate. The result is that the Arctic sea ice minimum has hit the second lowest level on record, as this chart from Tamino shows:  The trend of long-term decline is pretty clear. Of course, the climate science deniers look at this chart and see a “rebound” from the superlow sea ice extent minimum of 2012.Tamino has an excellent chart for the ostrich crowd. He averages the sea ice extent over 12 months — the September-through-August period. As this chart shows, this most recent year was the lowest on record: Sea ice extent averaged from September-through-August. As the Arctic air and waters warm, ice thickness decreases, too. As one leading expert pointed out, “The ice cap this spring was close to the thinnest we have ever seen.” The region around the North Pole, in particular, has been disintegrating. Icebreakers from Canada and Sweden visited the pole as part of a joint scientific expedition (see top photo from the Government of Canada’s official science portal, Icebreakers have been visiting the pole for years, but as Mark Serreze, director of the U.S. National Snow and Ice Data Center, told Mashable, this year even a sailboat “could actually sail nearly all the way to the North Pole, since sea ice cover is largely absent to about 86 degrees north.” Here is an image (from that Ph.D. candidate Zack Labe tweeted out about revealing “the fragmented Arctic sea ice near the North Pole”:

Chinese Prepare to Use the Northwest Passage - Earlier this spring, the Chinese government turned heads in Canada by publishing a lengthy guidebook to shipping through the Northwest Passage. Entitled Arctic Navigation Guide (Northwest Passage), the work was produced by China’s Maritime Safety Administration to assist the Chinese shipping companies that, it was assumed, would soon be using the northern route as a shortcut from the Pacific to Europe or to the U.S. Eastern Seaboard. Ministry spokesman, Liu Pengfei, was widely quoted in the Canadian media saying that Chinese ships will sail through the Northwest Passage “in the future,” and “once this route is commonly used, it will directly change global maritime transport and have a profound influence on international trade, the world economy, capital flow and resource exploitation.” The Canadian reaction, across media, blogs, and comment sections, was generally a mixture of concern for sovereignty and anger at the government’s inability to stop such foreign incursions. Rob Huebert—one of Canada’s most prominent Arctic experts—told the Globe and Mail that China’s encouragement of Northwest Passage shipping could pose “the biggest direct challenge to Canadian sovereignty in the Northwest Passage.” This assessment was based on the understanding that uncontrolled shipping through Canadian waters, thus treating the region as an international strait, would set a dangerous precedent that might ultimately damage Canada’s sovereignty. How valid are these concerns? Are Chinese ships about to flood into the Canadian Arctic, damaging national sovereignty? How threatening is this new move of Beijing’s? In contrast to the highly publicized hand-wringing and lamentation found in much of the media, I argue that this report, and Chinese shipping more generally, is not only far less dangerous that it would first appear, but might also be just what Canada needs.

See the giant crack that could collapse part of an Antarctic ice shelf --  A large crack in an Antarctic ice shelf has grown by 13 miles in the past six months, threatening to detach an area of ice larger than Delaware. Images of the Larsen C shelf captured by NASA’s Terra satellite show a fault line that now stretches 80 miles in length, according to a report from the U.S. space agency. A portion of the ice shelf—the continent’s fourth largest—could disconnect.  Scientists are working to understand the immediate changes that created the giant crack—and have led it to grow so quickly. Project MIDAS, a U.K. group dedicated to studying the Larsen C shelf, notes that a warming climate has changed the structure of the ice, threatening the possibility of collapse.  The Larsen B ice shelf partially collapsed in 2002 and has furthered weakened in recent years. Scientists studying Antarctica expect it to collapse within a decade.

Debate Rises over Real Source of Higher Methane Emissions - Scientific American - The jury is still out on the culprit behind the recent increase in global methane emissions. A new study published yesterday found that fossil fuel production has emitted significantly more of the potent greenhouse gas since 2000 and could account for much of the unexplained uptick in global atmospheric methane since 2007. That is an opposite finding from other recent research, which has blamed sources like agriculture, animal husbandry and wetlands instead.“What’s going on in the gas and oil sector has been the big question with methane,” said Andrew Rice, a researcher at Portland State University and the lead author of the new research, published in the journal Proceedings of the National Academy of Sciences. “It’s not settled, but we give some new pieces to the puzzle.”The back-and-forth results have electrified the debate over President Obama’s expanded regulations on the energy industry.U.S. EPA is preparing rules to curb methane leaks from existing oil and gas sources, pointing to its data that show increasing methane emissions from fossil fuel extraction points in the United States. House Republicans will likely question those data at a Thursday hearing on the regulations titled “A Solution in Search of a Problem.” Scientists around the world have been trying to figure out whether oil and gas production, particularly a boom in the United States, could be responsible for the global rise in methane. It is one of the most enduring mysteries in the planet’s atmosphere. Global levels of methane, a greenhouse gas many times more potent than carbon dioxide, have more than doubled since the Industrial Revolution. But growth slowed to zero in the 1990s. Levels began climbing again in 2007. About 17 teragrams more methane is now emitted every year compared to the annual emissions between 2000 to 2006.

Why 'overregulated' California is leading the way - Ideologues hate it when the facts get in the way of their theories. California's Gov. Jerry Brown signed trailblazing legislation last week that commits the state to audacious greenhouse gas emission reductions by 2030 of 40 percent below 1990 levels. Not surprisingly, longstanding critics from the business community were howling once again about how California's business climate will deteriorate as a result. The law extended efforts under California's previous cap-and-trade bill which set emission targets for 2020 to match 1990 levels. Predictions of doom for the California economy are a perennial staple of California politics. But is there any truth to them? First, here are the bald facts. Growth of California's 'overregulated' economy has frequently exceeded the U.S. economy as a whole since 1998. Annual growth in gross domestic product shown in the linked graphs is not a perfect measure of economic vitality, but it shows that fears that California is somehow stunted by its so-called excessive regulatory and tax burden isn't supported by the growth numbers. Moreover, states that rank highest in typical business-oriented think tank ratings such as North Dakota and Wyoming saw their economies shrink by 6.7 and 2.9 percent respectively in 2015 as California led the nation with an expansion of 4.2 percent.   It's probably true that carbon emissions intensive industries will now think twice about expanding their presence in California. But those industries aren't really the future that California is seeking. Instead, the state is becoming a leader in solar and wind energy and energy efficiency technology and policy. These are cutting edge industries that other states should envy California for. One has to look no further than the coal industry to see what's in store for the fossil fuel industry as a whole and the economies that rely on them. As carbon emission rules grow more stringent, the sun is setting on those industries that don't adapt. That puts California in the vanguard of adaptation forcing California businesses to adapt and innovate--yes, innovate. Regulatory pressures actually spur business innovation and investment, creating jobs and new wealth. And, that innovation makes California a magnet for business investment as it extends its leadership as a worldwide provider of cutting-edge technologies, energy-related and otherwise.

Fed judge to decide whether climate change lawsuit proceeds (AP) — A federal judge in Eugene, Oregon, is considering arguments about whether a lawsuit brought by a group of children and a leading climate scientist can go forward. The plaintiffs’ lawsuit alleges that the federal government has known for more than 50 years that carbon pollution causes climate change, but it has failed to implement plans to phase out greenhouse gas emissions. Instead, government officials have promoted the development and use of fossil fuels, the plaintiffs allege. The defendants — including the federal government and trade groups representing energy giants such as Exxon Mobil and BP — have asked the judge to dismiss the case, arguing that emissions policy should be determined by lawmakers and federal agencies, not by the court. They also argue they already comply with the federal Clean Air Act and the plaintiffs don’t have legal standing. U.S. District Judge Ann Aiken heard arguments Tuesday and is expected to issue a ruling by November. She could adopt, reject or modify an earlier ruling by U.S. Magistrate Judge Tom Coffin, who in March declined to dismiss the case, The Register-Guard reported Wednesday ( The plaintiffs include 21 youths who were between the ages of 8 and 19 when the suit was filed last year, as well as climate scientist James Hansen. They are seeking a court decision that finds the government is violating their constitutional rights to life, liberty and property by allowing dangerous emissions to be released into the atmosphere. They’re also seeking a court order that requires the government to create a plan to dramatically slash greenhouse gas emissions released by the burning of fossil fuels.

Climate change poses 'significant risk' to US military, report says | Fox News- U.S. military officers and national security officials reportedly believe climate change pose a very real threat to U.S. military operations and could increase the danger of international conflict.  A Washington-based think tank, the Center for Climate and Security, said in a statement that climate change “presents a strategically-significant risk to U.S. national security, and inaction is not a viable option.” According to Reuters, the statement was endorsed by more than a dozen former senior military and national security officials. The group wants the next president to create a cabinet position to deal with climate change and its potential impacts on national security. The Center for Climate and Security published a separate report, arguing that “extreme weather” poses a threat to coastal military bases. "The complex relationship between sea level rise, storm surge and global readiness and responsiveness must be explored down to the operational level, across the Services and Joint forces, and up to a strategic level as well," according to the report. Another report revealed earlier this year that faster sea level rises in the second half of the century could make tidal flooding a normal occurrence for some military installations.

Americans Appear Willing to Pay for a Carbon Tax Policy - The stumbling block in Congress for confronting climate change has perpetually been the economic challenge. There has been little support for paying to reduce greenhouse gas emissions. But now, there is some evidence of a quiet undercurrent of support for a carbon policy, whether it be a tax, cap-and-trade or regulations. The Energy Policy Institute at the University of Chicago (EPIC) — which, in full disclosure, I direct — and The Associated Press-NORC Center for Public Affairs Research released a poll Wednesday on how Americans feel about various issues related to climate and energy.  One of the questions looked at willingness to pay for a carbon policy. The results, on the surface, are not very encouraging to any of its advocates: 43 percent of Americans aren’t willing to pay anything to fund such a policy.Most people would infer from this that putting a price on carbon is challenging. And, politically, it is. But buried in the polling data is a striking revelation: Many people are willing to pay real money for a carbon policy. In fact, on average, Americans appear willing to pay more than a robust climate policy is projected to cost.Let’s take a look at the results of the poll. Respondents were asked if they would support a fee on their monthly electricity bill to combat climate change, and they were offered fees at various levels: $1, $10, $20, $30, $40 and $50. (Each household was asked about only one of these levels.) The responses were that 57 percent would pay at least $1; 39 percent would pay at least $10; 29 percent would pay $20; 24 percent would pay $30; 17 percent would pay $40; and 20 percent would pay $50.  Yes, 43 percent of the people surveyed said they were unwilling to pay even $1 per month, and that tells us something about the political challenges facing adoption of a climate policy. But the intensity of preferences of the other 57 percent also tells us something important.The net result is that, on average, American households are willing to pay $15 to $20 per month more on their electricity bill. The $15 is a lower bound because it assumes that the entire 20 percent of respondents who accept at least $50 are willing to pay $50, while the $20 figure assumes that this group is willing to pay $75 on average.

The House Science Committee’s Anti-Science Rampage -- Last year, scientists at the National Oceanic and Atmospheric Administration published a paper in Science that showed, using new and more definitive data, that the claimed “pause” hadn’t taken place.  Not long after the paper was published, something odd happened. Kathryn Sullivan, the head of N.O.A.A., received a subpoena. It came from Lamar Smith, the Texas congressman who chairs the House Committee on Science, Space, and Technology, and it demanded that the N.O.A.A. scientists turn over records and internal communications. They had already turned over their data in response to previous requests but refused to turn over scientists’ correspondence. In a statement, Smith accused the N.O.A.A. scientists of falsifying their data:  It was inconvenient for this administration that climate data has clearly showed no warming for the past two decades. The American people have every right to be suspicious when NOAA alters data to get the politically correct results they want. . . . NOAA needs to come clean about why they altered the data to get the results they needed to advance this administration’s extreme climate change agenda. From climate change and evolution to sex education and vaccination, there has always been tension between scientists and Congress. But Smith, who has been in Congress since 1987 and assumed the chairmanship of the Science Committee in 2013, has escalated that tension into outright war. Smith has a background in American studies and law, not science. He has, however, received more than six hundred thousand dollars in campaign contributions from the oil-and-gas industry during his time in Congress—more than from any other single industry. With a focus that is unprecedented, he’s now using his position to attack scientists and activists who work on climate change. Under his leadership, the committee has issued more subpoenas than it had during its previous fifty-four-year history.

Obama Again Sounds Climate Change Alarm But Continues To Support Fossil Fuel Industry -- On September 8, The New York Times published an interview with President Barack Obama in which he discussed the rapidly approaching, and already present, dangers of climate change, along with the threats that Republican presidential nominee Donald Trump would pose to the environment as president.  Reflecting on his climate legacy in the interview, President Obama reinforced his concerns about and dedication to acting on climate change, but his rhetoric fails to match up with his broader record, which notably includes overseeing the United States’ rise to the top spot among fossil fuel producers worldwide. The article goes on to discuss the number of ways that the president has reached out to other countries to help fight climate change, and how he’s talked about the issue at length, especially during his second term as president. But there is one vital piece of information missing from The Times’ coverage of Obama’s climate legacy: The fact that he has done even more for the fossil fuel industry than his predecessors, including the ones who literally used to work for oil companies. There are two very distinct issues here: The first is the president’s limited success in actually reining in carbon emissions and protecting the environment, and the other is his simultaneous approval and expansion of fossil fuel projects. Perhaps President Obama’s shortcomings on climate change action could be forgiven or even dismissed, if it weren’t for his administration’s willingness to open up federal lands and waters to fossil fuel industry exploitation. That’s where the real disappointment lies. Looking at some of the numbers on this issue reveals a pro-industry approach toward energy production. When President Obama took office in 2009, domestic oil production was at about 5.1 million barrels a day. By April of 2016, that number had climbed to 8.9 million barrels a day, which CNN notes is a 74 percent increase in just 7 years. Under President Obama’s watch, the United States has become the largest fossil fuel producer on the planet when accounting for both oil and liquefied natural gas production. Meanwhile, the government is still auctioning offshore oil and gas leases, even after President Obama presided over the largest ever oil spill in U.S. waters. Fracking continues its incredible boom, despite reports showing a rise in human-caused earthquakes related to fracking wastewater injections.

Brazil ratifies Paris Agreement to reduce greenhouse gases  (AP) — The Brazilian government on Monday ratified its participation in the Paris Agreement on climate change, a significant step by Latin America's largest emitter of greenhouse gases that could spur other countries to move forward.With a landmass a little bit larger than the continental United States, Brazil emits about 2.5 percent of the world's carbon dioxide and other polluting gases, according to United Nations data."Our government is concerned about the future," said President Michel Temer during a signing ceremony in Brasilia. "Everything we do today is not aimed at tomorrow, but rather at a future that preserves the living conditions of Brazilians."Temer said Brazil's ratification would be presented formally to the U.N. later this month. The Paris Agreement will enter into force once 55 countries representing at least 55 percent of global emissions have formally joined it. Climate experts say that could happen later this year.  Countries set their own targets for reducing emissions. The targets are not legally binding, but nations must update them every five years. Using 2005 levels as the baseline, Brazil committed to cutting emissions 37 percent by 2025 and an "intended reduction" of 43 percent by 2030.

India dithers as China and the US ratify Paris climate pact - As the world’s two worst greenhouse gas polluters announced ratification of the Paris Climate Agreement during the recent G20 summit, the third was conspicuous by its silence. The government of India has decided to use ratification of the agreement as a bargaining chip as it attempts to enter the Nuclear Supplies Group.  Indian officials are justifying the move by saying the country cannot meet its Paris commitments without using nuclear power. It is a debatable contention. But be that as it may, it was clear to observers in India that Prime Minister Narendra Modi would not announce ratification of the Paris agreement at a summit hosted by China, the country that stymied India’s recent attempt to enter the NSG. Now that China and the US have announced ratification, the failure by India to do so is not likely to hold up the Paris Agreement. The agreement enters into force after 55 countries that account for at least 55% of global GHG emissions deposit their instruments of ratification to the United Nations. The US and China account for 38% of global emissions. Twenty-four other countries have ratified already, and it is likely that many more will follow before the next UN climate summit is held in Morocco in November. Indian climate negotiators know this and are talking informally about possible ratification by the end of October. But they may still have to battle their foreign ministry colleagues who continue to see the ratification as a bargaining chip for NSG membership. At the closed door meetings to draft the G20 summit resolutions, Indian diplomats fought hard to keep the ratification section vague. They will not take kindly to ratification without a quid pro quo, so the whole issue may stay in limbo. The situation is not helped by the fact that Anil Dave, India’s Minister for Environment, Forests and Climate Change, is new to the job.

India takes U.S. renewable energy dispute to the WTO | Reuters - India has complained to the World Trade Organization about support given to the renewable energy industry in eight U.S. states, the WTO said in a statement on Monday. The complaint alleges the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota prop up their renewables sector with illegal subsidies and domestic content requirements - an obligation to buy local goods rather than imports. The WTO statement did not give details of the complaint and there was no immediate comment from India's trade ministry. But India has voiced concerns in the past about U.S. support for its solar power industry. The race to build national solar capacity and grab a chunk of a new global market has become a major new cause of trade friction between big trading powers. India lost a case at the WTO earlier this year after the United States complained about New Delhi's national solar program. India has appealed that ruling. In 2013, India filed questions at the WTO about suspected subsidies in solar programs in four U.S. states - Delaware, Minnesota, Massachusetts and Connecticut - as well as local content requirements in Michigan and California's renewable energy programs. It was not immediately clear that Monday's complaint was on the same grounds as India's earlier questions. By filing the complaint, India has triggered a 60-day window for the United States to settle the dispute, after which India could ask the WTO to adjudicate.

India wants to build 10 gigawatts of pumped hydro storage to support solar - India is embarking on a plan to build out gigawatts of pumped hydro facilities to help store the massive levels of renewable energy it will be producing within a decade. S.D. Dubey, chairperson of India’s Central Electricity Authority, last month confirmed plans for 10 gigawatts of pumped hydro storage across the country. The plan will cost 80,000 crore rupees (about $17.2 billion) over the next five to six years according to The Economic Times.   Dubey said pumped hydro storage costs could be a fraction of the cost of lithium-ion batteries. He said the capital costs of the plants would be between 6 and 8 crore rupees ($1.3 million and $1.7 million) per megawatt.  This compares to a per-megawatt capital cost for solar projects between 5 and 6 crore rupees ($1.1 million and $1.3 million). India has a potential for up to 90 gigawatts of pumped hydro storage, said the report. Although supporting solar is a goal, Indian renewable energy analyst Madhavan Nampoothiri said the pumped hydro reserves would be a boon for the grid in general.  “Considering a target of 175 gigawatts of renewables capacity by 2022, India will need to be ready with all technologies at its disposal to manage the grid, which will have to handle a progressively increasing quantum of intermittent solar and wind energy,” he said.

Wind power is going to get a lot cheaper as wind turbines get enormous - In a nugget of very good news for the renewable energy sector, a survey of 163 wind energy experts has found that in the coming decades, the cost of electricity generated by wind should plunge, by between 24 and 30 percent by the year 2030, and even further by the middle of the century. One key reason? New wind projects are about to get even more massive, in both the offshore and onshore sectors. As turbines get taller and access stronger winds, and as rotors increase in diameter, it becomes possible to generate ever more electricity from a single turbine.“Our experts clearly anticipate a significant potential for further cost reductions, both onshore and offshore,” said Ryan Wiser of Lawrence Berkeley National Laboratory, who conducted the study with colleagues from several other institutions, including the National Renewable Energy Laboratory, the University of Massachusetts, Amherst, and an International Energy Agency task force on wind energy. The study, published Monday in the journal Nature Energy, provides a boost to those concerned that a renewable energy transition needs to happen as soon as possible. The cheaper that technologies like wind and solar become relative to coal and natural gas, the faster they can be adopted, not just in the wealthy U.S. but in developing nations across the world, which are expected to see some of the largest growth in renewable installations going forward. By 2030, the research finds, experts expect the average onshore wind turbine to stand 115 meters tall (from the ground to the “hub,” where the rotor attaches) and to have a rotor diameter of 135 meters. Offshore turbines will be even larger, at 125 meters tall with an average rotor diameter of 190 meters.

  Investment threats in a changing climate - - Earlier this month, presidents Barack Obama of the US and Xi Jinping of China made an important symbolic gesture when they committed their countries, the two largest greenhouse gas emitters, to the Paris climate agreement. It was the clearest signal yet to investors worldwide that they need to think about the implications of global warming for their portfolios.  On Friday afternoon there was an example of what that might mean when Mr Obama’s administration issued an order temporarily blocking construction on a section of the Dakota Access oil pipeline. The move was a response to local concerns raised by the Standing Rock Sioux Tribe about potential damage to historic sites and the threat of oil spills. But it is the global issue of climate change that has raised the profile of Dakota Access, making it into a cause célèbre for US environmental campaigners. Bill McKibben of, which played a key role in the successful effort to stop the Keystone XL pipeline from Canada, has suggested that Mr Obama could block Dakota Access permanently, on the grounds that it would exacerbate the threat of climate change. The case that it would add to global greenhouse gas emissions will be harder to make than for Keystone XL, which would have brought crude from the high-emitting oil sands of western Canada, but the campaigners are certain to try. If Dakota Access is stopped, it will have a significant impact not just on Energy Transfer Partners, the company leading the project, but on all North Dakota oil producers and their customers, who will be forced to use more expensive rail transport. Climate change is now an unavoidable business issue. In an excellent paper last week, BlackRock, the world’s largest fund manager, set out some of the ways that investors can reduce their exposure to the risks and benefit from the opportunities that it creates. The paper is a landmark in the rising awareness of the issue among mainstream investors. It is one thing when a philanthropic fund with assets of a few hundred million takes a stand on climate issues, quite another when the warnings come from a company with about $4.9tn under management.

Saudi Arabia warns UN over 1.5C climate study -   Science should not be the sole basis on which efforts to tackle climate change are assessed1, the Saudi Arabian government has said in a letter to the UN. In a 2-page submission the oil-rich Kingdom argues socioeconomic factors facing individual states should be given equal weighting to scientific reports and data. “Policy makers need to be informed of the projected social and economic costs associated with different pathways of combating climate change in addition to environmental costs,” said the letter, dated 8 September. “Furthermore, policy makers need to be informed of the availability and feasibility of various means of implementation, such as technology and finance, to enable them to make practical and effective decisions.”   The intervention comes weeks after the UN’s Intergovernmental Panel on Climate Change met to start work on a report into the potential avoiding strategies and impacts of 1.5C of global warming. Last December, 195 countries agreed to limit temperature rises to “well below” 2C and set a new aspirational goal of 1.5C above pre-industrial levels.One study published this year suggested no new fossil fuel plants could be built beyond 2017 for the world to have a chance of avoiding 2C. Saudi Arabia is the world’s top petroleum exporter and has long argued its reliance on hydrocarbon revenues means it would suffer in a carbon-constrained world.

Parliament calls for carbon capture to revive British industry and slash climate costs - A high-level Parliamentary inquiry has called for a massive national investment in carbon capture to revive depressed regions of the North and exploit Britain's perfectly-placed network of offshore pipelines and depleted wells. Lord Oxburgh's cross-party report to the Government has concluded that the cheapest way to lower CO2 emissions from heavy industries and heating is to extract the carbon with filters and store it in the North Sea oil. The advisory group said the technology for carbon capture and storage (CCS) is ready to go immediately and should cut costs below £85 per megawatt hour by the late 2020s if launched with sufficient conviction and on a large scale, below the strike price for the Hinkley Point nuclear project. It could be fitted on to existing gas plants or be purpose-built in new projects, and could ultimately save up £5bn a year compared to other strategies. Unlike other renewables CCS does not alter with the weather or suffer from intermittency. It can be “dispatched” at any time, helping to balance peaks and troughs in power demand. UK CO2 emissions 2015 Electricity generation Industry Heat Transport “I have been surprised myself at the absolutely central role that CCS has to play across the UK economy,” said Lord Oxburgh, a former chairman of Shell Transport and Trading. “We can dramatically reduce our CO2 emissions, create tens of thousands of jobs, and give our domestic industry a great stimulus by making use of technologies which are now well understood and fully proved,” he said. No other country is likely to take the plunge first since few have the magic mix of industrial hubs, teams of offshore service specialists, and cheap, well-mapped, sea storage sites all so close together. “CCS technology and its supply chain are fit for purpose. There is no justification for delay,” says the report, to be released today. Lord Oxburgh said the state must take the lead and establish the basic infrastructure in the early years.

France Inflicts Massive Blow To Global Warming With Plastic Cutlery Ban - Turmoil and global conflict, at many times in history, have had a way of coalescing people around a common goal propelling nations to accomplish feats never before imaginable.  As an example, World War II transformed America from a largely isolated nation into a global military and manufacturing powerhouse. Today, Europe finds itself in the throes of a heated political debate over open border policies which have already led to Brexit and threatens the stability of the entire European Union.  Faced with such adversity, French legislators, like the men and women who rushed off to war in the 1940s, have come together in a fierce display to solidarity to....wait for it....that's right, to ban disposable cutlery.  Seriously, ever wonder how these folks convince themselves that the most pressing issue facing their entire nation is plastic spoons?  Perhaps the people of Calais, France are really not so worried about the 7,000 migrants living in a makeshift "jungle" in their town after all...but throwing plastic cutlery on the ground, that kind of aggression will not stand, man.  Per the AP, France recently passed the new legislation that gives producers until 2020 to ensure that all disposable dishes sold in France are made of biologically sourced materials that can be composted.  The ban apparently follows a prior ban on plastic bags back in July.  The ban was initially proposed by the Europe Ecologie-Greens Party and was adopted by French lawmakers with the aim of reducing the energy consumed and waste produced by the plastic processing industry, as well as the pollution caused by plastic litter. The measures will ban sales of single-use plastic cups, plates and glasses unless they are made of bio-sourced materials that can be composted in a domestic composting unit.

Obama Administration Drastically Restricts Renewables in Southern California Desert - After eight years of work, the Bureau of Land Management's (BLM) Desert Renewable Energy Conservation Plan (DRECP) will effectively foreclose development of renewable energy resources on millions of acres of federally managed lands in Southern California, said a coalition of renewable energy and labor groups in response to the federal government's release of the plan. The plan abandons the initial promise to balance renewable development with preservation of desert land. The American Council on Renewable Energy (ACORE), the California Wind Energy Association , theCalifornia & Nevada State Association of Electrical Workers , Large-scale Solar Association (LSA) and theSolar Energy Industries Association (SEIA) said the plan will significantly and permanently limit solar and wind energy development on these public lands, and could hamstring existing state and federal environmental goals, as well as any future, more ambitious goals that could engender further growth of the clean energy economy. Since the initiation of the DRECP in 2008, California has substantially increased its renewable energy and carbon reduction goals, and the Obama administration has declared even more ambitious plans to combat climate change . Unfortunately, the DRECP never changed to address the need for additional renewable energy. "The DRECP has simply failed to adapt to enormous changes in law and policy that mandate a significant and urgent increase in renewable energy development on public lands and elsewhere," said Shannon Eddy, executive director of LSA. "The DRECP issued by the BLM today is a Model T in a Tesla world. Rather than fostering sustainable clean energy development as a part of a conservation plan, it severely restricts wind and solar." Of the nearly 11 million acres of public lands that the BLM studied as part of the DRECP, the final plan sets aside less than 388,000 acres for renewable energy development, much of which BLM acknowledges is not appropriate for solar and wind projects.

Senate water bill could weaken coal ash rules, advocates say - A $9.4 billion senate spending bill for the nation’s water infrastructure is likely to be approved this week, authorizing millions of dollars to cope with the lead-contaminated water crisis in Flint, Michigan, the California drought, and the algae bloom that prompted a state of emergency in two Florida counties. But an amendment lurking within the Water Resources Development Act (WRDA) could also weaken newly-established rules on coal ash, the toxic byproduct of burning coal for power, advocates say. Federal coal ash regulations were unveiled in late 2014, more than half a decade after the massive Tennessee coal ash spill in 2008 that inspired the rules, put millions of cubic yards of the slurry substance into the Emory and Clinch rivers. It was the nation’s largest coal ash spill. The cleanup cost the Tennessee Valley Authority $1.2 billion, and $11.5 million in fines. “Our big fear is that this [bill] will just leave us where we were before the rule, which is a patchwork of regulations that don’t adequately protect the environment from the coal ash,” Abel Russ, attorney at the Environmental Integrity Project, told ThinkProgress. The Senate voted 90–1 on Monday night to end debate on WRDA, signaling easy passage, though House leadership has not indicated whether the bill will be a priority in the coming weeks.  Coal ash, which contains toxic chemicals like arsenic, lead, and mercury. It’s the second-largest form of waste generated in the United States and for the past couple of years it’s been regulated similarly to household garbage.  For decades energy companies dumped coal ash into usually unlined ditches before filling these holes with water, which is the most economic way to store ash while keeping it from blowing away.

 Energy secretary: Administration working hard for coal power (AP) — U.S. Energy Secretary Ernest Moniz says the “war on coal” political messaging is untrue, adding that the Obama administration is working to keep coal an important part of a low-carbon energy future. Moniz spoke Monday at West Virginia University during the Mid-Atlantic Region Energy Innovation Forum. He also toured Longview Power’s coal-fired plant with Sen. Joe Manchin and Congressman David McKinley. Moniz beckoned Congress to pass billions of dollars in tax credits to help burn coal more cleanly and meet the administration’s carbon emissions limits to combat global warming. He said credits would help provide long-term certainty for utilities planning investments. Republicans and some coal-state Democrats decry the carbon limits as a “war on coal.” Moniz points at cheap natural gas prices as the principal driver in coal’s downturn.

Coal CEO: Drop climate debate, focus on coal’s role in emissions reduction --  Cloud Peak Energy Inc. President and CEO Colin Marshall appealed to a rail and coal gathering Sept. 13 to stop arguing over the reality of climate change and start pushing for a potential solution to the issue involving coal, specifically through support for carbon capture and sequestration technology. Speaking to the fall meeting of the National Coal Transportation Association in Denver, Marshall declared that the debate about whether climate change exists was over and appealed to industry advocates to push for greater involvement in combating the impact of emissions. "Climate change is a political and public reality," Marshall stated in this presentation. "Debating the science of climate change has been a costly distraction for fossil fuel supporters."  The continued debate over climate change has allowed environmentalists to "demonize coal," Marshall said, insisting that it was up to the industry to change the discussion and focus on a "technical solution" to curbing emissions from power generation. "We need to stop coal being defined as the 'problem' and make it part of 'the answer' to climate change," said the executive of the Powder River Basin coal producer. "If you ask, 67% of the country believes that CO2 plays a role and I'd say fair enough — that's the reality that we have to deal with."

Massive Sinkhole Opens In Florida Releasing Millions Of Gallons Of "Slightly Radioactive" Water -- Floridians are no strangers to massive sinkholes opening up in their porous terrain often resulting in damage to surface infrastructure built on what was thought to be stable ground.  But, for the latest massive sinkhole that just opened up in Mulberry, Florida, the problem isn't what damage was caused on the surface but rather what was allowed to leak into the Floridan aquifer.  Measuring in at a massive 40 feet in diameter, the latest Florida sinkhole opened up directly underneath a gypsum stack at Mosaic's phosphate fertilizer producing New Wales facility about 30 miles east of Tampa.  According to local news reports, the retention pond was holding 215 millions of gallons of contaminated water that drained into the Floridan Aquifer.  The water was described by Mosaic employees to be contaminated with phosphoric acid and is thought to be "slightly radioactive."  As long as it's only "slightly radioactive" then it's probably OK. Of course, per NBC, despite taking a week to discover the sinkhole and admitting they have no idea where the contaminated water flowed once underground, Mosaic has assured nearby homeowners, many of whom rely on well water, that there is no cause for concern.  Mosaic even offered to test the water of worried homeowners, free of charge.  Isn't that incredibly nice?  Mosaic also confirmed to the Tampa Bay Times that the "sinkhole reaches the Floridan aquifer" but maintained that they have found "no off-site impact from the water loss."  "A sinkhole formed under the west cell that we believe damaged the liner system at the base of the stack," the company said in a news release. "The pond on top of the cell drained as a result, although some seepage continues. We estimate that the hole is approximately 45 feet in diameter and believe the sinkhole reaches the Floridan aquifer."

 Japan’s lurch away from nuclear hasn’t caused fossil fuels to boom - Given that Japan had recently relied on nuclear for over a quarter of its electricity, the expectation is that emissions would rise dramatically. But that hasn't turned out to be the case. While coal use has gone up, it hasn't risen by more than 10 percent. And a heavy dose of conservation has cut Japan's total electricity use to below where it was at the end of last decade. Based on the graph, it appears that nuclear was playing a decreasing role in Japan's energy mix even prior to Fukushima, being displaced in part by natural gas and in part by petroleum. But that may be an artifact of the chart, given that nuclear was shut down entirely immediately after Fukushima, but the chart shows it persisting. In either case, post-Fukushima conservation efforts dropped Japan's electricity use below a PetaWatt-hour, and further efforts have turned the drop in electricity use into an ongoing trend. Fossil fuel use has gone up, but not by as much as might be expected. Coal rose by eight percent, and natural gas (transported in its liquefied form) rose by nine percent. These have largely reversed the expansion of petroleum use that began prior to the meltdown at Fukushima. Non-hydro renewables have also more than doubled their electrical production since that time. Combined with hydroelectric plants, they now provide more electricity than petroleum. The net result of all of this? Carbon emissions have been relatively flat and have not exceeded the nation's record year back in 2007. Thus, if nuclear plants are brought back online in significant numbers, Japan's emissions should begin to drop considerably. If the growth of renewables and general conservation continue as well, Japan should see the drop in emissions accelerate. And that's going to be needed, given that Japan has pledged to drop its carbon emissions significantly from their recent peak.

Bloomberg Gadfly Weighs In On Hinkley Point C -- By now everyone should have heard about the new nuclear power plant the UK approved earlier this week. Bloomberg has a great essay from a contributor regarding this project. There are some interesting graphics at the link. The article begins:It is a reasonable bet that the $24 billion Hinkley Point C nuclear power project in the U.K., due online in 2025, will neither be ready by 2025 nor cost just $24 billion. Indeed, it's so reasonable that, as fellow Gadfly Chris Bryant lays out here, the stock market appears to be making that very same bet. Leave aside the also reasonable conspiracy theories about London buttering up Paris and Beijing by approving the project and focus on the ostensible reason for doing it: maintaining security of energy supply. That's been a big theme this week. On Wednesday, the International Energy Agency released a hefty tome concluding, among other things, that "the scale and speed of cuts" in upstream oil and gas investment mean we could be caught out by price spikes again, despite $583 billion in spending last year. It's curious that, despite this apparent need for investment, oil majors continue to pull back. Hinkley Point actually helps explain why. Added bonus: The oil and gas industry's experience reveals one more insidious risk facing the nuclear project. There's a reason EDF demanded the U.K. government guarantee an electricity price for Hinkley Point's output at double the current wholesale price. Financing a $24 billion project that won't produce a cent of revenue for a decade is really tough -- especially in an industry carrying as much historical baggage on busted budgets and timescales as nuclear power does. Subsidies and guarantees help bridge the risk gap. This is what concerns the contributor (this graph is an interactive graph at the linked article):

 Iran Begins Construction of 2nd Nuclear Power Plant: Iran has begun building its second nuclear power plant. Russia is helping Iran with the construction of the facility near the southern port city of Bushehr, the site of Iran's other operational nuclear plant. Construction of the site is expected to take about 10 years and cost up to $10 billion. The facility is Iran's first nuclear power plant to be built since signing a deal with world powers last year restricting Iran's nuclear capacity. U.S. President Barack Obama has called the pact a success, saying, "All of Iran's pathways to a nuclear weapon remain closed." He said the deal, implemented in January, has pushed the time-frame for Iran to develop a nuclear weapon if it violated the agreement from two or three months to "about a year." U.S. opponents of the deal have not changed their view that the agreement would not force Iran to end its military activities in the Middle East or ultimately block it from developing a nuclear weapon. Iran has removed thousands of centrifuges that had been used to enrich uranium and shipped out the majority of its existing stockpile. World powers lifted their sanctions, unlocking billions of dollars for Iran and clearing the way for new business opportunities there. Iran has complained that despite the lifting of sanctions that once barred financial institutions from doing business with the country, foreign banks remain reluctant to be involved in transactions. The agreement spells out a 10-year limit on Iran's centrifuges, a 15-year limit on how much it can enrich uranium and a 25-year period for U.N. inspectors to have access to Tehran's nuclear facilities, all pushing the deal's major effects beyond certain changes in leadership among the nations involved in the negotiations.

 Campaign launched against proposed Community Bill of Rights-: Voters in Youngstown will get to decide on the Community Bill of Rights for the sixth time this November.The charter amendment is being placed on the ballot again by the group that’s opposed to fracking and injection wells.Tuesday, the Mahoning County Coalition for Job Growth and Investment launched its campaign against the Community Bill of Rights at the Teamsters’ Union Hall.“Voters have rejected the Community Bill of Rights five times and this is the sixth time, and I expect they’re going to reject it this fall,” said Youngstown Mayor John McNally.The charter amendment would ban most oil and gas activity, along with fracking in the city limits. Opponents have said they don’t think that’s constitutional.“To get to that argument, you have to have an issue that gets approved by the voters and I don’t think that’s going to happen over the next month, month and a half,” McNally said.The city doesn’t have the right to regulate the oil and gas business. That job falls with the state.“This is an unenforceable amendment to a charter that oversees the operations of the city,” said Ron Massullo, vice chair of the Mahoning County Democratic Party.At the same time, Bill of Rights supporters gathered outside the union hall to protest. They say the idea has grown on voters. Last time, it lost by less than 300 votes.

Coalition wants Youngstown voters to reject anti-fracking amendment proposal - — A coalition of business, labor, political and religious leaders are urging Youngstown voters to reject the anti-fracking “Community Bill of Rights” charter-amendment proposal, saying it could hurt the city’s economy if approved. Members of the Mahoning Valley Coalition for Job Growth said today the ballot issue wouldn’t just ban fracking – none exists in the city – but gives people the right to sue based on perceived violations of environmental pollution. Supporters say their charter-amendment proposal strengthens people’s rights to drink clean water, breathe clean air and to self-govern. This is the sixth time the proposal is on the city’s ballot. It failed twice in both 2013 and 2014, and in the November 2015 election. The last time it was in front of voters, however, it lost by only 2.46 percentage points. If it loses again, backers of the proposal say they will put it on the ballot until it wins - no matter how many times it takes.

Meigs commissioners vote to put charter on ballot, protest filed - — The Meigs County Board of Elections on Thursday complied with an Ohio Supreme Court order and approved a resolution to place a 2015 county charter proposal on the ballot. However, a protest filed the same day has sent the matter to Ohio Secretary of State Jon Husted, who last year rejected similar county charter proposals from other counties, including Athens County. The Ohio Supreme Court upheld Husted’s decision in 2015 regarding the other charters, although the court did not agree with all his reasoning. In response to the protest filed Thursday, Husted issued an advisory that set a deadline of 10 a.m. this Monday for filing briefs for and against the 2015 charter proposal. As The Messenger previously reported, the Meigs County Board of Elections last year voted that the petition seeking to put the charter on the ballot was valid and had enough signatures, and relayed that information to the county commissioners. The commissioners would not pass a resolution to place it on the ballot, saying their decision was based on the elections board missing the deadline for properly submitting the information to the commissioners. However, in a split 4-3 opinion the Ohio Supreme Court ruled last week that an earlier letter sent to the commissioners by the elections board was sufficient to require the commissioners to place the charter on the ballot. The commissioners voted Thursday to do that, but a protest was filed by Daniel Lantz of Route 684, Pomeroy. Lantz argues that the proposed 2015 charter does not meet requirements for establishing a form of government.The charter seeks to make it illegal to use injection wells to dispose of fracking waste from high-volume horizontal hydraulic fracturing, and illegal to use water from the counties for that oil and gas drilling process.

Supreme Court says no to Athens County charter proposal - The Ohio Supreme Court said Tuesday it will not order that a proposed Athens County charter be placed on the Nov. 8 ballot. It was a 6-1 majority opinion which also applies to charters proposed in Meigs and Portage counties. "It's pretty discouraging," said Dick McGinn, a spokesman for the Athens County charter committee. "I think that basically they got the law wrong ..." Charter supporters in the three counties had asked the Supreme Court to order Secretary of State Jon Husted and election boards of the counties to place the charters on the ballot. The boards had ruled the charter petitions invalid, and Husted had upheld their decisions. In Tuesday's ruling, the court agreed with Husted's position that the proposed charters failed to meet a threshold requirement that they create a form of government that includes the powers and duties required of county government and officials by state law. The court also did not agree with the argument of charter supporters that any pre-election review of the charters violates their First Amendment rights. The court noted that in a 2015 decision it recognized the authority of election officials to determine if a charter initiative meets the threshold requirements to be on the ballot. Also, charter supporters had argued that their right to local self-government was being violated. Charter proponents "failed to persuasively demonstrate why we should recognize a new fundamental right in the current proceeding," states the court's opinion. "Moreover, there is no indication that the boards of elections or the secretary of state attempted to thwart the principles of local self-government." McGinn said he was pleased to see Justice William O'Neill's dissenting opinion.

Ohio Supreme Court Keeps Anti-Drilling Petitions Off Ballot - The Ohio Supreme Court ruled Tuesday that Secretary of State Jon Husted and the election boards from three counties did not violate the law when they rejected proposed county charters that, if successful, could have led to local bans on oil and natural gas development. In a slip opinion, the state's high court ruled 6-1 that supporters of the proposed charters were not entitled to a writ of mandamus that would have placed the charters on the ballot in November. The case is State ex rel. Coover v. Husted [No. 2016-Ohio-5794]. According to court records, election boards in Athens, Meigs and Portage counties rejected the proposed charters for a variety of reasons last year. Husted subsequently invalidated similar petitions in Athens, Fulton and Medina counties (see Shale Daily, Aug. 14, 2015). "There is no indication that the boards of elections or the secretary of state attempted to thwart the principles of local self-government," Chief Justice Maureen O'Connor wrote for the majority. "They did not deny relators the right to establish a charter form of county government; instead, they merely examined the charter initiatives to determine whether they met the threshold requirements for inclusion on the ballot." Justices Judith French, Judith Ann Lanzinger, Terrence O'Donnell and Paul Pfeifer concurred with O'Connor. Justice Sharon Kennedy concurred in judgment only. In a dissenting opinion, Justice William O'Neil said the majority "would prefer that relators reinvent the wheel of government in one document. I disagree... "The secretary of state does not have the power to veto charter petitions on behalf of the oil and gas industry simply because the citizens did not pick exclusively from the two forms of county government delineated in [the state's Revised Code]. This is a usurpation of power from the people that we should not indulge."

Supreme Court flushes county charters yet again - For the second year in a row, a proposed anti-fracking county charter amendment will not appear on the Athens County ballot, as a result of a decision by the Ohio Supreme Court. This continues a pattern of failure in Ohio courts for charter amendments advanced by anti-fracking “community rights” groups. Local charter committees, including the one in Athens, receive legal help and guidance from a Pennsylvania public-interest group, the Community Environmental Legal Defense Fund (CELDF). Community rights supporters decried Tuesday’s decision by the Supreme Court that tossed out similarly crafted charter amendment petitions submitted by Bill of Rights Committees in Athens, Meigs and Portage counties. Dick McGinn, representing the Athens County Bill of Rights Committee, charged the state Supreme Court with inconsistency in its reasons for rejecting the charter amendments. “Last year, we advanced rights-based county charter initiatives in Athens, Medina, and Fulton Counties,” he said in a prepared release. “The Supreme Court determined they could not go on the ballot due to a technicality in the format. Yet they remained unclear in defining exactly what was required.” McGinn continued, “We drafted new charters this year, using the ambiguous direction given by the Supreme Court. One has to wonder: How convenient to deny there are clearly articulated rules on creating a charter, and then avoid providing clarity.” He said the varying legal bases for rejecting the charter measures “leave the people chasing a moving target and unable to vote on their own county initiative, year after year.” Tish O’Dell, community organizer for CELDF, said the decisions compromise democracy and justice. “The people’s right to alter or reform their government is meaningless when the same government that the people want to alter, acts as gatekeeper, restricting access to direct democracy as they so choose,” she said.

Local residents, students occupy Forest Service meeting over fracking concerns - About 30 Ohio University students and Athens County residents occupied Saturday’s National Collaboration Cadre Workshop, held in Grover Center. They occupied the workshop to protest the possible fracking in Wayne National Forest.  In 2011, the U.S. Bureau of Land Management announced the purchase of land for oil and gas drilling purposes, according to a previous Post report. Since then, the federal government has gone back and forth considering developing a fracking plan. The workshop, coordinated by the U.S. Forest Service and themed “Working Together to Improve the Quality of Life in Southeast Ohio,” invited dozens of groups from around the Wayne National Forest area to discuss topics ranging from economic development to forestry and wildlife issues. The occupiers asserted that the invitation-only event excluded members of the community who wish to participate in environmental conversations, particularly about fracking.   “While we are completely supportive of the inclusion of community groups in the U.S. Forest Service’s decision-making process, we believe that sitting down with the oil and gas industry is not in the best interests of our community,” the Appalachian Ohio Group of the Sierra Club said in a news release.Although occupiers were not invited to the meeting, they were permitted to take part in the workshop’s group discussions once they arrived, and some participants in the workshop supported their cause. “I think (the occupiers) should be here,” Roxanne Groff, a Bern Township trustee, said. “They have a voice.”   While conversations turned to fracking, occupiers were still not satisfied with the discussion that happened. “Obviously this decision (to frack) has already been made,” . “It’s not a democratic process.” Some local residents and business owners also came without invitation. Madeline Fitch, a Millfield resident and landowner, said the occupiers were showing the U.S. Forest Service they would show up when those discussions are being had, regardless of invitation.

Researchers just discovered an entirely new bacteria species in multiple fracking sites -  Researchers have discovered an unknown species of bacteria living in shale oil and gas wells used for fracking, which they’ve named frackibacter. The genomes of species living in two separate fracturing wells in Ohio were analysed, and despite the fact that they are hundreds of kilometres apart, the two bacterial communities were surprisingly similar. A total of 31 different types of bacterial genome were found at the two sites, including Candidatus frackibacter. "We thought we might get some of the same types of bacteria, but the level of similarity was so high it was striking,” said one of the researchers, Kelly Wrighton, from Ohio State University. “That suggests that whatever's happening in these ecosystems is more influenced by the fracturing than the inherent differences in the shale.”The types of environments that these bacterial colonies thrive in are very inhospitable, with high temperatures, pressure and salinity.  "We think that the microbes in each well may form a self-sustaining ecosystem where they provide their own food sources," Wrighton explained.  "Drilling the well and pumping in fracturing fluid creates the ecosystem, but the microbes adapt to their new environment in a way to sustain the system over long periods."  The researchers say that the microbes are protected from the salinity by creating compounds called osmoprotectants to keep them from bursting apart. The bacterial communities also form a type of symbiotic relationship with each other in these unwelcome conditions. When the cells die, their osmoprotectants are eaten by other microbes, such as frackibacter, which then produce food for the other bacteria called methanogens. This ultimately produces methane, which is a main component of natural gas.  The researchers are looking into how the new-found bacterial colonies could be used to increase the methane output of the fracking sites.

Ohio Supreme Court sides with mineral rights holders in oil and gas reserve cases — In a hefty release Sept. 15, the Ohio Supreme Court sided with longtime mineral rights holders in more than a dozen decisions involving oil and gas reserves in the eastern part of the state. The bottom line: Owners of mineral rights don’t automatically abandon those rights absent surface owners following procedures outlined in state law. And that could mean a lot of future court cases, as surface owners try to sort out whether they really hold the mineral rights to their land. “There will certainly be a lot of activity as people sort out the implications of the decision and where they stand on their mineral right interest relative to the decisions,” said Webb Vorys, who served as a legal adviser to the Ohio Oil and Gas Association in the case. The lead case, Corban v. Chesapeake Exploration LLC, focused on mineral rights in Harrison County, but that opinion was cited in 13 other pending cases involving the state’s Dormant Mineral Act. The ownership issues came to light as companies turned to horizontal hydraulic fracturing, or fracking, to drill for oil and gas reserves in shale formations deep underground. In Corban, justices ruled that the current surface owner of about 165 acres was not entitled to compensation for minerals extracted by a company that long held oil and gas rights to the property, despite decades of inactivity at the site. Other cases decided Sept. 15 pitted current property owners against companies that have held mineral rights but did not launch exploration work for years. The former alleged the companies had abandoned their mineral rights, with a prior state law automatically shifting those rights to the surface owner. The latter held that those rights were reserved and properly documented or held and were not automatically abandoned. In the Sept. 15 decisions, a majority of justices sided with the mineral rights holders, saying that a 1989 state law did “not automatically transfer the interest from the mineral rights holder to the surface owner by operation of law… Rather, a surface holder seeking to merge those rights with the surface estate under the 1989 law was required to commence a quiet title action seeking a decree that the dormant mineral interest was deemed abandoned.”

Ohio Supreme Court issues key decisions on pending Dormant Mineral Act cases - This week, the Ohio Supreme Court issued key decisions on its pending Dormant Mineral Act (DMA) cases. The Supreme Court Announcement itemized the various decisions released this morning, which were further detailed in Court News Ohio . Only three cases received full opinions: Corban v. Chesapeake Exploration, L.L.C., Walker v. Shondrick-Nau and Albanese v. Batman, while the remaining cases were disposed of based on the authority of those three opinions. Overall, the Corban opinion addresses the issues that were most anticipated by oil and gas lawyers around the state, finding that the 1989 version of the DMA applied a fixed look back from its effective date, and that it was only operative until its amendment in 2006. Critically, the Court also held that the 1989 DMA is not self-executing and that a surface owner was required to obtain a judicial determination of abandonment of a severed mineral interest under the 1989 DMA. However, now that the 2006 version of the DMA has completely displaced any right to proceed under the 1989 DMA, only the 2006 version applies today.

Ohio Supreme Court Reconciles Application of the 1989 and 2006 Versions of Dormant Mineral Act - On September 15, 2016, the Supreme Court of Ohio issued its much-anticipated decisions in multiple appeals dealing with the Ohio Dormant Mineral Act, Ohio Revised Code § 5301.56 (DMA).  Using Corban v. Chesapeake Exploration, L.L.C. (Slip Op. No. 2016-Ohio-5796), as the lead case to determine the pivotal legal issues, the Supreme Court held:

  • The 1989 version of the DMA is not self-executing, and, therefore, did not cause ownership of mineral rights to automatically transfer to the owner of the surface rights;
  • Because the 1989 DMA is not self-executing, a surface owner must bring a quiet title action to obtain a judicial decree that a mineral interest has been abandoned and is merged with the surface estate pursuant to the 1989 DMA; and
  • The 2006 DMA, and not the 1989 DMA, applies to all claims asserted after June 30, 2006, the effective date of the 2006 amendments to the statute.

The Court applied its holding in Corban to all of the pending DMA appeals, but provided specific commentary only in its decisions in Walker v. Shondrick-Nau (Slip Op. No. 2016-Ohio-5793), and Albanese v. Batman and Lipperman v. Batman (combined) (Slip Op. No. 2016-Ohio-5814).  The remaining decisions merely reference the result (affirmance or reversal of the appellate court decision), with a cursory reference to Corban, Walker, or the Court’s previous decision in Dodd v. Croskey (143 Ohio St.3d 293).  In Corban, the Supreme Court was tasked with answering the following certified question of state law from the United States District Court for the Southern District of Ohio: “Does the 2006 version or the 1989 version of the [Dormant Mineral Act] apply to claims asserted after 2006 alleging that the rights to oil, gas, and other minerals automatically vested in the surface land holder prior to the 2006 amendments as a result of abandonment?” The Court answered the certified question and concluded that the 2006 DMA applies to all claims asserted after June 30, 2006.  In comparing the 1989 DMA to the Ohio Marketable Title Act, the Supreme Court did not equate the former’s use of the word “deemed” with the latter’s use of “extinguish” and “null and void.”  Rather, the Court determined that the 1989 DMA creates a conclusive presumption (i.e., an evidentiary device) as to the abandonment of severed mineral interests.  Therefore, the surface owner must bring a quiet title action in order to terminate abandoned mineral rights pursuant to the 1989 DMA.  The Court believed that the Ohio General Assembly did not intend that mineral rights would automatically transfer to surface owners outside of the record chain of title.

It's been a really bad week for fracking opponents in Ohio - No, landowners of Ohio, you cannot stop frackers on your own property. No, voters of Ohio, you cannot create your own oil and gas regulations.  That’s the news this week out of the state Supreme Court, which handed down decisions Wednesday and Thursday that benefit the fracking industry. They are the most recent in a series of moves by the state government that have boosted the natural gas industry, often at the expense of everyday Ohioans. At one point, the state’s Department of Natural Resources was working to discredit environmentalists in a push to allow fracking in state parks.  People have responded by seeking local ways to curb the practice, two of which were highlighted this week.   The first decision is the more complicated one, and deals with local governance: Last year, the state Supreme Court ruled that Medina County voters could not legally ban fracking using zoning laws. Voters passed the now-defunct ban using zoning laws because, in Ohio, only two out of 88 counties have a charter, which offers a system known as home rule. In those two counties, and in municipalities such as Youngstown and Cincinnati, changes to the charter can include such self-determination as a local ban on fracking. So in an attempt to get around the court’s 2015 ruling, a Medina County group — as well as groups in three other counties — proposed a ballot measure to establish their own county charter.But Ohio Secretary of State Jon Husted ruled that the counties cannot even put these new charters to a vote. Husted argued that the proposed charters are not clear enough about how the counties would operate, and the state Supreme Court agreed. Last week, it decided not to revisit the issue, and on Wednesday denied yet another motion, killing the counties’ last chance to put the measure on the November ballot.   Not content to stop there, the state Supreme Court issued another series of opinions on Thursday, finding in three different cases that property owners did not have mineral rights — that is, rights to the fossil fuels or other minerals — beneath their land. Those decisions, in turn, nullified arguments in 10 other contested cases.  The court found that the Ohio Dormant Mineral Act, a 1989 law governing mineral rights that have been abandoned, does not automatically go into effect. Instead, the landowner must get a judicial degree. In one case, the court found that an Ohio man who had inherited 164.5 acres in Harrison County could not prevent drilling on his land. The property was purchased more than 50 years ago from a coal company that retained rights to the oil and gas deposits. Even though there was no activity between 1959 and 2011, the court found that the rights did not revert to the owner.

 Gas Drillers Look to Use Ford City Brownfields - Vacant land near the Ford City Veterans Bridge may be in-use by next year for Marcellus Shale operations if an agreement is made.Last night at Ford City Borough Council’s regular meeting, PennEnergy Resources Land Manager Zach Dixon and Construction Compliance Manager Joe Schwab discussed preliminary conversations to lease up to five acres in the Ford City brownfields.“Generally, this facility will withdraw clean water from the Allegheny River, hold it in a tank facility and will then be used at PennEnergy’s operations in-and-around the region,” Dixon said. “With about 48-50,000 acres under lease around Ford City, we have a significant demand for water – these facilities are important for our operation and keeping the oil and natural gas operations continuous in nature.“We have facilities that are operating basically 24/7 on creeks around Freedom Borough, Butler County, for a very, very similar type of withdrawal from the Ohio River.”If approved, Ford City Borough would receive an upfront bonus of $10,000, plus a $2,400 annual payment depending on the number of acres utilized.

 Firm: Faster-than-expected corrosion led to pipeline blast  AP) — Faster-than-expected corrosion caused a Pennsylvania natural gas pipeline blast that scorched 40 rural acres in April and badly burned a man whose home was destroyed, the Texas energy company that owns the pipeline said. Andy Drake, the vice president of operations and environmental health and safety with Houston-based Spectra Energy Corp., shared those findings Tuesday night in Salem Township, Westmoreland County. The 30-inch pipeline burst there April 29. The pipeline showed some corrosion during a 2012 inspection but not enough to warrant action until 2019. That’s because officials anticipated corrosion would grow 2 to 3 percent annually. Instead, the line corrosion increased about five times faster, or 10 to 15 percent each year, said Drake, who apologized for the failure. “We’ve never seen anything like this before,” Drake told the township’s board of supervisors, as well as federal and state regulators, at a meeting that drew about 80 residents. “This is the challenge we’ve put to ourselves: Imagine a person standing next to this pipe — your son, your mother. Are we comfortable that this pipe is absolutely safe everywhere?” Drake said. Spectra is reviewing 625 other sites along the 265-mile pipeline that runs from a gas transmission station in nearby Delmont to Lambertville, New Jersey. Spectra has dug up 400 of those sites where potential problems have been found and repaired problems found in about a third of those areas. But the company hasn’t found corrosion comparable to what caused the blast, officials said. The company estimates the digging and repairs will eventually cost $75 million to $100 million.

Decision to delay Dakota Access construction worries backers of natgas projects - Advocates of the US natural gas pipeline industry expressed concern Tuesday over an Obama administration decision to delay construction of a controversial crude oil pipeline, fearing the move could have negative implications for natural gas pipeline development. The US Justice and Interior departments and the US Army Corps of Engineers on Friday issued a joint statement halting construction of a portion of the Dakota Access project, a 1,172-mile, 30-inch oil pipeline being built to carry crude oil from North Dakota's Bakken and Three Forks producing fields across four states to a major refining area in Illinois. The project is about 60% complete and Energy Transfer Partners remains committed to finishing it, despite the halt in construction, CEO Kelcy Warren told employees in memo Tuesday. The administration action came after a federal judge ruled against a bid by the Standing Rock Sioux Indian tribe to block pipeline construction. The tribe and their allies in the environmental community had been staging protests along the pipeline route, which they said would travel over sacred Native American sites. While the Federal Energy Regulatory Commission's process for siting gas pipelines differs substantially from the process to approving crude oil pipelines, gas pipeline advocates worried that the administration's action could have a negative knock-on effect on the gas industry."With its decision, the administration has turned the process for pipeline infrastructure projects that just engage in National Historic Preservation Act Section 106 tribal consultations into a moving target," Cathy Landry, a spokeswoman for the Interstate Natural Gas Association of America, said in an email Monday. "Regulatory approvals for these expensive infrastructure projects should be predictable and transparent. It is not good public policy to change the rules or expectations midstream," Landry said. Landry said the administration's action in the Dakota Access has cast unnecessary doubt on the future of that project.

NY regulators order full environmental review for pipeline  (AP) — New York state regulators say a proposed dual pipeline from Albany to New Jersey oil refineries requires a full environmental review. The Department of Environmental Conservation and the Thruway Authority announced its finding Wednesday, saying the Pilgrim Pipeline project has the potential for significant adverse impact on the environment and communities. The pipelines would carry North Dakota crude oil to New Jersey refineries and return gasoline and other fuels to Albany. Connecticut-based Pilgrim Holdings LLC says it’s a safer alternative to Hudson River barge transport. Environmental groups and numerous communities oppose the pipelines, citing environmental and safety concerns. About 79 percent of the project would lie within the New York State Thruway right of way. A public comment period will be held to determine the scope of the environmental review.

Pipeline Spill Triggers Supplier 'Red Alert' in Alabama, Georgia -- Last week's Colonial Pipeline spill has prompted Alabama Gov. Robert Bentley and Georgia Gov. Nathan Dealto both declare states of emergency over gasoline shortages on Thursday. Aerial photo of two of the three mine water retention ponds at the site of a pipeline leak that spilled an estimated 250,000 gallons of gasoline in Shelby County, Ala. The retention pond on the right is where the gasoline has been contained. Colonial PipelineThe Sept. 9 break has leaked 6,000 barrels (approximately 250,000 gallons) of fuel into Shelby County, Alabama, the operator estimated , up from its original estimation of 1,000 barrels. The cause of the leak is currently unclear. Colonial Pipeline , the largest refined products system in the nation, operates 5,500 miles of underground pipe and above ground storage tanks and pump stations, delivering more than 100 million gallons of refined petroleum products a day. Their customer base is an estimated 50 million Americans, between Houston and New York City. CNN Money said that the disruption "threatens to drive up prices and leave service stations without fuel to sell." In response to the spill, the Alpharetta, Georgia-based company closed its main gasoline line, Line 1, that runs from refineries in the Gulf Coast to the East Coast. About 500 employees and contractors are currently working to clean up the site and repair the impacted segment of pipe.The Birmingham Business Journal reported that most of the spilled gasoline has been contained in a nearby mining retention pond as workers skim the pond to remove the gasoline. Underflow dams are also being constructed to prevent gasoline seepage into the nearby Cahaba River.However, Billy McDanal, a landowner living near the river, spoke to over his concerns about the spill. "That's our water," he said. "I guess in a way I am worried about the drinking water."

Why East Coast Gas Prices Are About To Explode --As Native Americans protesters face arrest in North Dakota for blocking the construction of the Dakota Access Pipeline, TheAntiMedia's Carey Wedler reports a gasoline pipeline spill is currently unfolding in the South. The leak has prompted Alabama Gov. Robert Bentley, Tennessee Gov. Bill Haslam, and Georgia Gov. Nathan Deal to declare states of emergency. The Colonial Pipeline, which runs from Houston to New York, began leaking on September 9, spilling 250,000 gallons of gasoline, or 6,000 barrels. The pipeline was built in 1962, and the current leak in Helena, Alabama, is the largest one Colonial Pipeline has experienced in 20 years, Reuters reported that according to the Colonial Pipeline company’s spokesperson, Bill Berry, the pipeline could still be leaking:“The leaking pipeline was shut down [last] Friday after the leak was discovered, but Berry said there may be additional gas still inside the pipeline. The leaking section of pipeline hasn’t been excavated yet due to safety precautions, so Berry said the condition of the pipeline and cause of the leak is still unknown.”  Hundreds of employees and contract workers face health risks from inhaling vapor as they work overtime to clean up the spill, which the company says is contained to a mining retention pond. reports “the leak was discovered at the inactive mine site by employees of the Alabama Surface Mining Commission.” The governors of Georgia, Tennessee, and Alabama have declared states of emergency, not due to environmental concerns, but over the gas shortage that will result from the leak. After Colonial Pipeline announced Thursday there would be a delay in restarting the pipeline because “work activity was intermittent overnight due to unfavorable weather conditions that caused gasoline vapors to settle over the site,” the price of gasoline futures rose six percent... even as crude futures prices tumbled... As CNN reports, The major pipeline, one pipe of which has been severed, provides gasoline for an estimated 50 million people on the East Coast each day, according to company estimates. The cause of the leak has yet to be determined, according to the company's most recent statement.

Shell begins production at world's deepest underwater oilfield. - Royal Dutch Shell has started production at the world’s deepest underwater oil and gas field, 1.8 miles beneath the sea surface in the Gulf of Mexico. The first oil pumped from the Stones field, 200 miles south of New Orleans, comes after billions of dollars of investment from Shell over the last three years.  The achievement will anger many climate change campaigners, but will boost annual pay for Shell’s chief executive, Ben van Beurden, under the group’s controversial performance bonus arrangements. The field is in much deeper water than the Macondo prospect, where six years ago BP’s Deepwater Horizon rig exploded and sank, killing 11 workers and causing environmental disaster. The latest costly addition to Shell’s production capacity comes despite Van Beurden’s repeated pledges on climate change. In May, he said: “We know our long-term success … depends on our ability to anticipate the types of energy that people will need in the future in a way that is both commercially competitive and environmentally sound.” Faced with low oil prices and increased pressure from climate change activists, Shell has retreated from some of its most expensive production projects. In the autumn last year, it ditched drilling operations in the Alaskan Artic and abandoned a tar sands project in Alberta, Canada.  But the group has told shareholders it will continue spending heavily on pioneering deep water projects, which will provide a major source of future growth.  Shell has forecast that its deep water production will increase to the equivalent of more than 900,000 barrels of oil a day by the early 2020s from already discovered, established reservoirs. Major projects the group is working on include Coulomb Phase 2 and Appomattox in the Gulf of Mexico and Malikai off the coast of Malaysia. Shell began the costly Stones project in 2013, two years after the International Energy Agency (IEA) warned that two-thirds of proven fossil fuel reserves will need to remain in the ground to prevent the earth from warming 2C above pre-industrial levels – a proposed temperature limit beyond which scientists warn of spiralling and irreversible climate change.

 Anadarko Goes Deeper in GOM with $2B Deal -- Anadarko Petroleum Corp. is diving even further into deepwater Gulf of Mexico with a $2 billion acquisition of assets from Freeport McMoran Oil & Gas, the company announced Monday. The deal, effective Aug. 1, will be immediately accretive, Anadarko CEO Al Walker, said in a news statement. It is expected to close by the end of the year. The $2 billion buy will achieve several objectives for the Houston-based exploration and production company (E&P), including:

  • doubling Anadarko’s ownership in the Lucius development to about 49 percent;
  • expanding the company’s infrastructure throughout the Gulf of Mexico;
  • generating $3 billion in incremental cash flow during the next five years at current prices; and
  • enabling the company to accelerate investment in Anadarko’s Delaware and DJ basin assets.

The Delaware basin made headlines recently when another Houston-based E&P, Apache Corp., announced a major find in the region. All told, Anadarko’s Gulf position will have net sales volumes of about 155,000 barrels of oil equivalent per day (boepd), 85 percent of which is oil, Walker said.  For their part, Freeport McMoran CEO Richard Adkerson said in a news statement the deal brings the company’s total asset sales in 2016 to more than $6 billion. Freeport McMoran is focusing on dedicating capital and management resources to its global copper business, he said.

Cynthia: Flesh-Eating Synthetic Bacteria that has Gone Wild --  One could recall that back in April 2010 an explosion at a British Petroleum oil rig resulted in millions of barrels of oil contaminating the Gulf of Mexico. Despite the drastic measures taken to prevent an environmental catastrophe, an oil slick produced by the Deepwater Horizon oil spill covered over sixty thousand square miles. As one of the means of addressing the environmental catastrophe on their hands, Washington decided to take drastic measures, regardless of the possible consequences of those actions. It was at that time when an artificially created microorganism nicknamed Cynthia was unleashed, without any kind of examination of the possible threat it may pose to the environment.  Cynthia is the brainchild of the J. Craig Venter Institute — which was engaged in genetic engineering experiments since the beginning of the 21st century — and Synthetic Genomics Inc, and was created and funded directly by BP. It was believed that Cynthia feeds on oil, but it turns out now that it is equally willing to consume all forms of organic life as well… In 2011, Cynthia was unleashed in the Gulf of Mexico and in its initial stages of life it was absorbing oil slicks at breathtaking speed. In January, 2011 the Register reported that scientists were particularly impressed by the speed with which the bacteria was eating up its “meal”. But then this bacteria mutated and soon was feeding on organic lifeforms. Strange reports started coming from the US, like five thousand birds falling victims of an “unknown disease” in Arkansas, or more that a hundred thousand dead fish found off the coast of north Louisiana. It was also reported that a total of 128 British Petroleum employees that participated in the liquidation of the oil slick were struck by some mysterious illness. According to various sources they were forbidden to seek relief in public hospitals, to prevent them from talking to anyone about what has happened to them… Soon it was recorded that the disease and the symptoms that are now associated with the coastal zone of the Gulf of Mexico began spreading to the continental United States – for example, people who were caught by heavy rains that came from the Gulf of Mexico were also exposed to it.  In fact, such disturbing reports have become pretty common, in spite of the restrictive measures taken by the US government to prevent this information from spreading. In particular, it’s been reported that certain individuals who were unfortunate enough to take take a swim in the Gulf of Mexico often found themselves covered with itching sores only to die in agony a few days later due to extensive internal bleeding.

France Banned Fracking, So Biggest Oil Company Headed To Texas - France’s largest oil company is about to become the only company with hydraulic fracturing, or fracking, operations in Texas’s Barnett Shale formation. The oil company Total will soon be the sole Barnett Shale fracker after Chesapeake Energy stopped drilling new wells in the shale formation because natural gas prices were too low. Total will pay pipeline company Williams Partners $420 million for a “a fully restructured, competitive gas-gathering agreement.” “With the new conditions created by the exit of Chesapeake and the associated restructuring of the midstream contracts, we believe that we can extract significant value from the substantial, well-located resource base of the play,” José Ignacio Sanz, Total’s president of U.S. operations, told The Wall Street Journal. The move is expected to boost the company’s total U.S. production up another 65,000 barrels per day, from its current 89,000 barrels a day. Fracking in the Barnett Shale has produced more than 15 trillion cubic feet of natural gas since 2003, enough to heat 225 million homes for a year. The fracking industry in Texas produces $11.8 billion in annual economic output and has created more than 107,000 permanent jobs.  With current fracking technology, the Barnett Shale has an estimated 172 million barrels of shale oil and 176 million barrels of natural gas liquids, according to a December study by the U.S. Geological Survey. To put those reserves in some context, Saudi Arabia’s total proven oil reserves are estimated to be 268 billion barrels, according to the CIA.

  Saudi Bid on a Houston Oil Refinery Is a Big Strategic Bet  -— The Saudi national oil company is making a bid to significantly expand its operations in the United States at a critical moment in the always uneasy relations between the United States and Saudi Arabia. The company, Saudi Aramco, aims to strengthen its position on the Gulf of Mexico coast by buying a large oil refinery in the Houston Ship Channel that LyondellBasell is putting up for sale. And despite geopolitical tensions between Riyadh and Washington, Saudi Aramco sees the potential acquisition as a way to shore up its exports at a time of erosion in the oil business on which the Saudi economy is still largely reliant. Because of plunging prices, the value of Saudi oil sales has shrunk in recent years. And Saudi Arabia’s archrival, Iran, is becoming a more potent commercial competitor now that it is exporting substantial quantities of crude. Four years ago Saudi Aramco completed a $10 billion expansion of a giant oil refinery in Port Arthur, Tex., in a joint venture with Royal Dutch Shell called Motiva Enterprises. The converted plant is now the biggest producer of gasoline, diesel and other petroleum products in the United States.  This time, Saudi Aramco wants to do a deal on its own. But its negotiations with LyondellBasell, a Dutch company, come as Congress is moving to allow families of victims of the Sept. 11, 2001, terrorist attacks to sue Saudi Arabia for supposed ties between government officials and the terrorists, most of whom were Saudi citizens. The Obama administration has threatened to veto the measure, although an override is possible.

How The Oil And Gas Industry Awakened Oklahoma's Sleeping Fault Lines - It was either February or March of 1952 when an Oklahoma City petroleum geologist named William Atkinson took the unusual step of getting an earthquake insurance policy for his house. Today, that seems a bit eerie in its prescience — in 2014, the state had more big earthquakes than California, and on Saturday it was rattled by its largest earthquake in the modern record, a magnitude 5.8. But consider this: The only reason anyone knows about Atkinson’s insurance policy is because his weird choice became newsworthy on April 9, 1952, when Oklahoma City rocked and swayed its way through an earthquake that might have been almost as powerful as the one last week. Eerie doesn’t cut it. In his predictive accuracy, Atkinson was downright unnatural.  Or maybe he was just good at his job. Susan Hough, a seismologist with the United States Geological Survey, has studied the historical context surrounding Atkinson’s decision. In a paper published this year, she concluded that two factors could have led a person with Atkinson’s expertise to buy earthquake insurance. First, oil and gas extraction, even the old-fashioned, non-fracking kind, has the potential to shift the forces affecting fault lines. Second, Oklahoma is positively lousy with fault lines. Before 2008, Oklahoma had maybe a couple of earthquakes of magnitude 3 or greater each year, said George Choy, a research geophysicist with the USGS who studies human-caused quakes. In 2015, it had around 900. The evidence studied by scientists like Choy and Hough strongly suggests that this increase was caused by the practice of injecting wastewater from oil and gas extraction — both conventional and fracking — back into the earth. To understand why that is, and why those same scientists can’t tell you whether any individual earthquake was caused by the petroleum industry, you have to pay attention to the faults. Because of the way you learned geology in grade school, you may be used to thinking of faults as places where two of the tectonic plates that make up the Earth’s crust meet.   But faults exist in other places, as well. On our map, you can see an estimation of the known faults that crack the surface of Oklahoma like an overbaked cheesecake. “Any part of the crust has a bunch of faults in it that are old faults. They were created in past geologic times,” Hough told me. Oklahoma’s faults are tens or even hundreds of millions of years old, dating to times when the boundaries between tectonic plates were in very different places. “There’s a mountain range in southeastern Oklahoma, called the Ouachita, that was actually the remnants of an old collision zone,” Hough said.

 Past time for Oklahoma to wake up to earthquake causes - A week after the earth shook many Kansans out of bed on a Saturday morning, we’re once again questioning when Oklahoma is going to wake up to the dangers it has caused with slow regulation of oil and gas production. An earthquake Sept. 3 near Pawnee originally measured at 5.6 and was then upgraded to 5.8 – the strongest in Oklahoma’s history and the worst among the 48 contiguous states in two years. It was felt across Kansas and as far away as Chicago and Arizona. It caused damage to rattled houses and buildings close to the epicenter. In Kansas, we’re getting used to feeling the tremors from our neighbors to the south, but it’s becoming tiresome. We have quakes in Kansas, too, but they’re not as strong and don’t come as often since our state began tightening regulations on oil and gas wells last year. The spike in earthquake activity over the past five years has corresponded to wastewater from oil and gas, caused both by traditional wells and those that use the technology of hydraulic fracturing – also known as “fracking.” High-pressure injections into underground rock formations force out oil and gas but also create a wastewater solution that is injected into underground wells. Seismologists say that puts pressure on old faults and triggers the earthquakes. Gas and oil are huge factors in Oklahoma’s economy. They’re important to many Kansans, too. But this state has taken strong steps to regulate activity, which has lessened the shock. Oklahoma has been slow to follow. For years, political leaders said the causes were unclear, and the state’s Corporation Commission has requested the oil industry to cut back. But the state showed it can move when it wants to, shutting down three dozen wells within 500 miles of the earthquake last week. It was the first time the state had ordered such a stoppage in production related to earthquakes.

Even with disposal well shutdowns, Oklahoma's seismicity set to rumble for 'many years' - Tulsa World: Latest Earthquake Information From The U.S. Geological Survey: Some critics have shouted for state regulators to place a blanket moratorium on wastewater disposal from oil and gas production, which industry officials argue would be crippling, and science points to seismicity remaining for untold years even in that scenario. Oklahoma’s earthquake energy released in 2016 slowed to 2014 rates, and its quake frequency dipped about 20 percent at the halfway mark compared to 2015’s banner year, according to U.S. Geological Survey data. Regulations contributing to unprecedented cutbacks in wastewater disposal volumes linked to man-made quakes apparently have played a significant role in the decline. But then a week ago the powerful 5.8-magnitude quake near Pawnee struck in a relatively weak seismic area, shaking Oklahoma and several surrounding states. The episode served as a reminder of the state’s precarious situation despite the recent downward rumbling trends. Dan McNamara, a USGS research geophysicist, published a peer-reviewed paper in October 2015 that is a clear indicator induced seismicity can be managed based on a study of Cushing. But McNamara cautioned last week that quakes can continue rattling off for years after disposal is reduced or stopped. “So even if you shut down all wells, there will be seismicity for many years,” he said.

Oklahoma, EPA officials revise well shut-in plans after earthquake - Natural Gas | Platts News Article & Story: Based on new geological data, state and federal officials lowered by 22 the number injection wells ordered to be shut in an area of Oklahoma near the city of Pawnee, where a 5.8-magnitude earthquake occurred September 3. Monday's action was a collaborative effort involving the Oklahoma Corporation Commission's Oil and Gas Division and the US Environmental Protection Agency, as it involves Osage County, where the injection wells are under EPA jurisdiction. The wells to be closed include 27 under OCC jurisdiction and five under EPA jurisdiction. State officials said the 27 wastewater wells ordered to be shut compared with the shutdown of 37 wastewater injection wells that OCC the announced within hours of the quake earlier this month. Meanwhile, the EPA ordered the shut-in of five wells in its area of jurisdiction, down from 17 shut-ins the agency announced earlier this month. At the same time the OCC expanded the area of concern from a 725-square-mile area around the city of Pawnee to a 1,116-square-mile area.The mandatory shut-ins are expected to last at least six months and may become permanent, depending on new data that is collected, officials said. The OCC action follows and clarifies an emergency action the commission's OGD announced the day of the quake, the largest in state history. Monday's order will result in the shutting in of 40,000 b/d of wastewater injections in the wells within the oil and gas division's jurisdiction, according to an OCC statement. There are 67 injection wells that dispose into the deep Arbuckle formation in the geological area of interest where the officials are considering taking action, 48 within OCC's jurisdiction and 19 within EPA's jurisdiction.

Fracking Thanks: Experts Urge US Midwest to Prep for Earthquakes like California  --- Oklahoma was hit on Saturday with a significant 5.8 magnitude earthquake, the largest ever in the state, and now, thanks to oil extraction practices including fracking, the US Geological Survey is warning the region to prepare for more earthquakes, in the same manner quake-prone California does. According to reports, odds are high that the quake was triggered by fracking operations in the region, due to the injection of fracking wastewater below the subsurface.  Now, the USGS has produced a 2016 seismic hazard forecast which includes natural as well as fracking-induced earthquakes. In it, they warn that injection of water can induce earthquakes of larger magnitudes, particularly if there are nearby pre-existing faults reactivated by upsetting subsurface pressure. The USGS warns that if the fracking-induced seismicity continues unabated, areas in Kansas and Oklahoma may face similarly damaging earthquakes as those seen in California. “Conversion of ground shaking to seismic intensity indicates that some places in Oklahoma, Kansas, Colorado, New Mexico, Texas, and Arkansas may experience damage if the induced seismicity continues unabated,” the report warns. “The chance of having Modified Mercalli Intensity (MMI) VI or greater (damaging earthquake shaking) is 5–12 percent per year in north-central Oklahoma and southern Kansas, similar to the chance of damage caused by natural earthquakes at sites in parts of California.”

Adequacy of Current State Setbacks for Directional High-Volume Hydraulic Fracturing in the Marcellus, Barnett, and Niobrara Shale PlaysPDF Version (367 KB) Abstract

  • Background: There is an increasing awareness of the multiple potential pathways leading to human health risks from hydraulic fracturing. Setback distances are a legislative method to mitigate potential risks.
  • Objectives: We attempted to determine whether legal setback distances between well-pad sites and the public are adequate in three shale plays.
  • Methods: We reviewed geography, current statutes and regulations, evacuations, thermal modeling, air pollution studies, and vapor cloud modeling within the Marcellus, Barnett, and Niobrara Shale Plays.
  • Discussion: The evidence suggests that presently utilized setbacks may leave the public vulnerable to explosions, radiant heat, toxic gas clouds, and air pollution from hydraulic fracturing activities.
  • Conclusions: Our results suggest that setbacks may not be sufficient to reduce potential threats to human health in areas where hydraulic fracturing occurs. It is more likely that a combination of reasonable setbacks with controls for other sources of pollution associated with the process will be required.

 The Regulation of Hydraulic Fracturing on Federal and Indian Land: Wyoming v. Department of the Interior The Bureau of Land Management (BLM) of the Department of the Interior (DOI) is responsible for overseeing oil and gas development on approximately 700 million acres of subsurface mineral estate and 56 million acres of Indian land, in addition to millions more above ground.[13] Until 2012, the BLM did not separately regulate hydraulic fracturing on federal or Indian lands, which remained under individual Indian and state regulation. The BLM regulated the surface effects of using hydraulic fracturing in oil or gas extraction but generally did not regulate the subterranean aspects of that technique.[14] On March 26, 2015, the BLM adopted regulations to govern hydraulic fracturing on federal and Indian land.[15] The bureau summarized the goals of the rule as follows:   To ensure that wells are properly constructed to protect water supplies, to make certain that the fluids that flow back to the surface as a result of hydraulic fracturing operations are managed in an environmentally responsible way, and to provide public disclosure of the chemicals used in hydraulic fracturing fluids.[16] The BLM Fracking Rule seeks to achieve that result in several ways. It imposes additional drilling and construction requirements on shale mining companies for operations on federal or Indian lands. It requires disclosure of the chemicals and propping agents used in hydraulic fracturing. And it imposes new management requirements for the surface-operation aspects of hydraulic fracturing, including the use of above-ground storage tanks, instead of below-ground pits, to hold “flowback” (returned drilling fluid) and “produced water” (briny water found in shale containing oil and gas).[17] The primary effects of the rule would land on seven western states where some 98 percent of hydraulic fracturing operations on federal lands take place.[18] The vast majority of BLM land is located in the West, leaving fracking operations in other areas of high activity like Pennsylvania, Texas, and Ohio mostly untouched by the BLM’s rule. The rule would therefore give eastern states a competitive advantage in the extraction process and could render some drilling in the western states unprofitable.

North Dakota tribe's request to stop work on pipeline denied (AP) — The Standing Rock Sioux Tribe’s attempt to halt construction of the four-state Dakota Access oil pipeline near their North Dakota reservation was denied Friday the 9th by a federal judge. The tribe had challenged the Army Corps of Engineers’ decision to grant permits at more than 200 water crossings for Dallas-based Energy Transfer Partners’ $3.8 billion pipeline, saying that the project violates several federal laws, including the National Historic Preservation Act, and will harm water supplies. The tribe also says ancient sacred sites have been disturbed. U.S. District Judge James Boasberg in Washington denied the tribe’s request for a temporary injunction in a one-page ruling that included no explanation. It ordered the parties to appear for a status conference on Sept. 16. Attorney Jan Hasselman with environmental group Earthjustice, who filed the lawsuit in July on behalf of the tribe, said in the days before the ruling that it’ll be challenged. “We will have to pursue our options with an appeal and hope that construction isn’t completed while that (appeal) process is going forward,” he said. “We will continue to pursue vindication of the tribe’s lawful rights even if the pipeline is complete.” Energy Transfer Partners officials didn’t return The Associated Press’ phone calls or emails seeking comment. The 1,172-mile project will carry nearly a half-million barrels of crude oil daily from North Dakota’s oil fields through South Dakota and Iowa to an existing pipeline in Patoka, Illinois.

NDPC Statement on Dakota Access Pipeline Decisions– North Dakota Petroleum Council President Ron Ness issued this statement today in response to U.S. District Court Judge James Boasberg’s ruling today: “The NDPC is pleased with Judge Boasberg’s ruling today that upholds what a vast majority of North Dakotans have known and believed all along: that this is a legal project that has met and exceeded the requirements of four states and the federal government. We are, however, disappointed with the U.S. Department of Justice, the U.S. Department of Interior and the U.S. Army Corps of Engineers’ decision to intervene in this lawfully approved project and continue to postpone the construction of this infrastructure that is so vital to our nation’s energy future. “For too long, this project has been mired in a campaign of misinformation and violence that does not consider the greater interests of national security and the state and nation’s economic prosperity. We regret that this decision, which is yet another flagrant overreach by federal government and this administration, will only allow this rancor to continue and result in more trucks and rail cars moving oil. While we support the efforts to bolster meaningful and open-minded discussions with tribal governments, this project has already met the rigorous requirements and demands of not only the federal government, but four separate states and provided ample opportunity for comments. This project is critical to our nation’s energy future and is in the best interest of the state and nation. We are hopeful that reason will prevail and construction can go on as planned so that North Dakota’s oil resources can be transported safely and responsibly via this pipeline, helping relieve the impacts to our roads and rails and continuing to support our economy, tax revenues and national security.”

Federal intervention on oil pipeline project unprecedented: (AP) — The Standing Rock Sioux's effort to block a four-state oil pipeline got a lifeline when the federal government temporarily stopped the project, a move some say likely may forever change the way all energy infrastructure projects are reviewed in the future. Just minutes after U.S. District Judge James Boasberg denied the Standing Rock Sioux tribe's attempt to halt the construction of the Dakota Access oil pipeline that skirts the reservation in southern North Dakota, three federal agencies appealed to the pipeline company to "voluntarily pause" work on a segment that tribal officials say holds sacred sites and artifacts. Tribal officials challenged the Army Corps of Engineers' decision to grant permits for Dallas-based Energy Transfer Partners' $3.8 billion pipeline that is intended to carry oil from North Dakota to Illinois. Friday's ruling by Boasberg, who was appointed by President Barack Obama, came amid growing protests over the pipeline, which would cross the Missouri River less than a mile upstream of the reservation. The statement by the Departments of Justice, Army and Interior said it would "reconsider any of its previous decisions" on land that borders or is under Lake Oahe, one of six reservoirs on the Missouri River and the drinking water source for the tribal members on the Standing Rock Sioux Reservation. The statement from the federal departments also said the case "highlighted the need for a serious discussion" about nationwide reforms "with respect to considering tribes' views on these types of infrastructure projects." Troy Eid, a former U.S. attorney in Colorado who now specializes in Indian law, said the action was unprecedented and a "significant setback" for the pipeline's builders.He said the lack of tribal consultation on the Dakota Access pipeline "is a textbook example of how not to do a project."

The fight over the Dakota Access Pipeline, explained - For months, the Standing Rock Sioux Tribe in North Dakota has been waging a pitched battle against a proposed oil pipeline that would run near their reservation — arguing that it could endanger both their water supplies and sacred sites.  The fight over the Dakota Access Pipeline encompasses everything from the federal government’s historically appalling treatment of Native Americans to broader debates over fracking and climate change. The cause has attracted a vast array of tribes, activists, and environmentalists from across the country, and tensions have soared. On September 3, private security for the company building the pipeline used dogs and pepper spray on protesters trying to block bulldozers. Opponents have taken the fight to court, hoping to alter or block the project. The DC Circuit Court is currently hearing a major legal challenge to the pipeline, with the Standing Rock Sioux arguing that the Army Corps of Engineers did not properly consult them before greenlighting the section near their reservation. In the meantime, construction is grinding to a halt: On Friday, September 9, a federal judge denied an request by the Standing Rock Sioux to put a freeze on construction. But an hour later, the Obama administration surprised everyone by stepping in and ordering the Army Corps of Engineers to hit pause until it could revisit the controversial portion near the reservation. Further protests are expected in the coming days and months, and politicians like Bernie Sanders are joining the fray.  This is becoming a bigger and bigger story. So here’s a guide to how we got this point.

Dakota Access Pipeline: The Wrong Side of a Long, Long History of Resource Extraction -- Thanks to abundant coverage by social media, the nation watched this week as activists protesting the construction of a pipeline to transport oil through the Dakotas, Iowa and Illinois put their own safety at risk to protect a Native American cultural site. A Pinkterton-esque goon squad used pepper spray and attack dogs to clear the site for unscheduled excavation, resulting in injuries, hospitalizations, and an outraged public. Energy Transfer Crude Oil Company—the developer of the Dakota Access or Bakken Oil Pipeline—asserts a public need for the 1,172-mile pipeline and promises jobs, tax revenues, and a boost to the economies of the affected states. Advocates arguing against this pipeline’s construction have found these claims to be unfounded. Energy Transfer bases its statement that the Dakota Access Pipeline is necessary on the business opportunity to get more Bakken oil to market sooner, and not on any public need that would be served by a greater flow of oil from the Dakotas to Illinois. The company’s claim that farmers need the pipeline to open up space to ship grain on trains that currently transport oil was soundly debunked by expert witnesses and even by Iowa’s Utility Board in issuing its approval of the project. There is no reason to believe either that Midwest grain shipments will be curtailed in the future or that building the pipeline would reduce any rail shipping constraints should they arise. Energy Transfer’s case for a public benefit in new jobs and tax revenue is difficult to credit after reading local economists’ critiques of the company’s underlying analysis. After studying Energy Transfer’s cost-benefit analysis of Dakota Access as well as post hoc assessments of recent, similar projects, Dave Swenson of Iowa State University found that the company had presented inflated jobs and economic benefit projections. More generally, Swenson found that pipeline projects are large but “labor-stingy” and most of their economic stimulus leaks out of the region in which they are built. Energy Transfer’s assessment also fails to look at the cost to local environments and human communities. The planned route for the Dakota Access Pipeline was re-located away from the more densely populated Bismarck area because of health and safety concerns while dangers to the rural communities impacted by its new route have been ignored. Toxic water pollution and the permanent loss of cultural heritage sites have important effects on public well-being. Any complete accounting of the costs and benefits of pipeline construction must be broad enough to include these external, or non-market, costs.

Warrant Issued for Amy Goodman’s Arrest for DAPL Reporting: Watch Your Back! - Jerri-lynn Scofield - I guess that you might expect a film showing security guards unleashing dogs and pepper spray on those protesting the Dakota Access oil Pipeline (DAPL) would be bound to get someone’s attention. Surely it might lead to an arrest or at minimum, disciplinary measures against those who employed such tactics against non-violent protestors. After all, the optics of such measures surely rebound against those who order them to be unleashed (anyone remember Selma, for example?)Well, if you thought that, you would be wrong. We don’t live in sane times. Instead, a warrant has been issued in Morton County, North Dakota for the arrest of award-winning journalist Amy Goodman, host and executive producer of Democracy Now!, on a charge of criminal trespassing, a Class B misdemeanor offense, as reported by the local Dickinson Press. Goodman and her team have been in the forefront of covering the DAPL protests. On September 3, they filmed security personnel working for the pipeline company using dogs and pepper spray to attack protesters. That graphic report, which may be viewed here, went viral and was rebroadcast widely by CBS, NBC, NPR, CNN, MSNBC and the Huffington Post, among other outlets. “This is an unacceptable violation of freedom of the press,” said Amy Goodman in a statement. “I was doing my job by covering pipeline guards unleashing dogs and pepper spray on Native American protesters.” So much for heeding the reminder that the First Amendment applies as spelled out in the statement issued by the Department of Justice, Department of the Army, and the Department of the Interiors on Friday that asked for “voluntary” suspension of DAPL construction within a forty mile area surrounding Lake Oahu:

Security Firm Guarding Dakota Access Pipeline Also Used Psychological Warfare Tactics for BP - Steve Horn - G4S, a company hiring security staff to guard the hotly contested Dakota Access pipeline (DAPL), also works to guard oil and gas industry assets in war-torn Iraq, and has come under fire by the United Nations for human rights abuses allegedly committed while overseeing a BP pipeline in Colombia and elsewhere while on other assignments. Recently, the UK-based G4S placed job advertisements on its website, announcing it would be hiring security teams to work out of offices in Mandan and Bismarck, North Dakota. These two locales are only a 45-minute drive away from the ongoing Standing Rock Sioux Tribe-led encampment unfolding along DAPL's route in Cannon Ball, North Dakota. First among the list of required experience for both locations is service related to military police, elite military forces, or “any support role in a combat zone.”  Monica Lewman-Garcia, Director of Communications for G4S Secure Solutions in North America, told DeSmog, “G4S Secure Solutions is providing fewer than 10 security officers, assigned to remote sites and providing limited short-term unarmed patrol services.”  Lewman-Garcia also stated that G4S was not on the scenes at the now-infamous Labor Day weekend incident in which private security forces used pepper spray against and allowed their dogs to bite Dakota Access pipeline protesters, adding that the company had not deployed its K9 units and that those involved worked for a different company. G4S also said it could not comment on whether it was hired to be in North Dakota by Dakota Access LLC, by another company altogether, or by one of the local police departments.   Dubbed the “Chaos Company” in an April 2014 Vanity Fair article, G4S is often brought into the stickiest situations, such as overseeing security for the Basrah Gas Company, an Iraqi natural gas company which Shell, Mitsubishi, and South Oil Company jointly own.  An article published by The Telegraph (UK) detailed that G4S had been hired to bring 500 personnel and 220 armored vehicles to protect Basrah Gas Company properties in Iraq. Those properties include two gas plants, a liquefied petroleum gas storage facility, a shipping terminal, and — paralleling the Dakota Access situation — the pipelines between them.

Tribe asks judge to side with feds in oil pipeline pause (AP) — The Standing Rock Sioux Tribe wants a federal judge to recognize three federal agencies’ request for a developer to “voluntarily pause” work on a segment of the Dakota Access pipeline that the tribe says holds sacred sites and artifacts. The tribe said in court documents filed Monday it wants U.S. District Judge James Boasberg to “formalize” the agencies’ requested work stoppage for 20 miles on both sides of the Missouri River at Lake Oahe in southern North Dakota. Boasberg had denied the tribe’s attempt to halt the construction of the pipeline Friday minutes before the agencies made their request in a statement, which also said work would stop on Army Corps of Engineers’ land around and underneath Lake Oahe. The company hasn’t signaled its position on the government’s request.

Erased by False Victory: Obama Hasn’t Stopped DAPL -  Truthout -- All Native struggles in the United States are a struggle against erasure. The poisoning of our land, the theft of our children, the state violence committed against us -- we are forced to not only live in opposition to these ills, but also to live in opposition to the fact that they are often erased from public view and public discourse, outside of Indian Country. The truth of our history and our struggle does not match the myth of American exceptionalism, and thus, we are frequently boxed out of the narrative. The struggle at Standing Rock, North Dakota, has been no exception, with Water Protectors fighting tooth and nail for visibility, ever since the Sacred Stone prayer encampment began on April 1. For months, major news outlets have ignored what's become the largest convergence of Native peoples in more than a century. But with growing social media amplification and independent news coverage, the corporate media had finally begun to take notice. National attention was paid. Solidarity protests were announced in cities around the country. The National Guard was activated in North Dakota. And then came Friday's ruling, with a federal judge finding against the Standing Rock Sioux, and declaring that construction of the pipeline could legally continue. It was the ruling I expected, but it still stung. I felt the sadness, anger and disappointment that rattled many of us as we received the news. But then something happened. Headlines like, "Obama administration orders ND pipeline construction to stop" and "The Obama Administration Steps In to Block the Dakota Access Pipeline" began to fill my newsfeed, with comments like, "Thank God for Obama!" attached to them. Clearly, a major plot twist has occurred. But it's not the one that's being sold. To understand that this isn't the victory it's being billed as, you have to read the fine print in the presently lauded joint statement from the Department of Justice, the Department of the Army and the Department of the Interior: "The Army will not authorize constructing the Dakota Access pipeline on Corps land bordering or under Lake Oahe until it can determine whether it will need to reconsider any of its previous decisions regarding the Lake Oahe site under the National Environmental Policy Act (NEPA) or other federal laws." Note what's actually being said here, what's being promised and what isn't.

Dakota Access Pipeline Would Lock In Emissions of 30 Coal Plants - The Dakota Access Pipeline would carry oil from the Bakken formation in North Dakota to Gulf Coast refineries and export terminals via Patoka, Illinois. With a maximum capacity of 570,000 barrels per day (bpd), it could carry more than 50 percent of North Dakota's current oil production. Ultimately, the net greenhouse gas (GHG) impact of the pipe would depend on what future actions we take to end our fossil fuel addiction and address climate change. Building a large, new pipeline that reduces the cost of delivering a large oil reserve to market would undermine our climate goals. Meeting the targets set out in the Paris agreement, now signed by more than 180 countries around the world, will not be possible if we continue to lock into new fossil fuel infrastructure like the Dakota Access Pipeline. In response to the ongoing protests in North Dakota and the concerns raised regarding the approval process, construction of the project within 20 miles of Lake Oahe has been suspended, yet construction activities continue elsewhere on the route. The statement from the Departments of Justice, Army and Interior that ordered the suspension indicates that a review of the process by which the remaining permits can be considered will be conducted including "under the National Environmental Policy Act (NEPA) or other federal laws." Given the White House recently issued guidance on how federal agencies should assess climate impact, it makes sense that a climate test should now be applied to this misguided project.

Thousands Rally Nationwide Demanding Permanent End to Dakota Access Pipeline --Thousands of people across the country joined more than 200 rallies in nearly all 50 states to call on President Obama to stand with the Standing Rock Sioux Tribe in their fight to protect their water and sacred cultural sites from the Dakota Access Pipeline .  At a rally in front of the White House, Sen. Bernie Sanders joined Native American leaders and activists to show his solidarity with the growing movement.  "It is vitally important that we show our solidarity with the Native American people of this country," said Sen. Sanders. "We cannot allow our drinking water to be poisoned so a handful of fossil fuel companies can make more in profits. This pipeline must be stopped. I am calling on President Obama today to ensure that this pipeline gets a full environmental and cultural impact analysis."  "We are here to tell the President stop Dakota Access. This is a violation of human rights and indigenous rights," said Tara Houska with Honor the Earth, who addressed the crowd of thousands in DC. "This pipeline cannot and should not happen. We are here to protect our drinking water and sacred sites for indigenous people."  Indigenous groups such as Honor the Earth and the Indigenous Environmental Network joined with national groups like the Sierra Club, CREDO Action and to organize Tuesday's national day of action. At rallies across the country, many local organizers connected their solidarity rallies to local fights against fossil fuel infrastructure.   "Regardless of the decision that was made, we aren't going anywhere until the pipeline is dead," said Kandi Mossett with the Indigenous Environmental Network. "We're not here just to stop one section, we are here to stop the pipeline in it's entirety. President Obama: the fossil fuel industry is dying. Help us invest in renewables and divest from fossil fuels. What will your legacy be? Stand with us for future generations or stand with the fossil fuel industry. Right now, politicians are bought out by the fossil fuel industry and our resistance here in North Dakota should be a wake up call. We won't stand for this any longer."

Did an Industry Front Group Create Fake Twitter Accounts to Promote ND Pipeline? - Steve Horn -- A DeSmog investigation has revealed the possibility that a front group supporting the controversial Dakota Access Pipeline (DAPL) — the Midwest Alliance for Infrastructure Now (MAIN) — may have created fake Twitter profiles, known by some as “sock puppets,” to convey a pro-pipeline message over social media. And MAIN may be employing the PR services of the firm DCI Group, which has connections to the Republican Party, in order to do so.   DeSmog tracked down at least 16 different questionable Twitter accounts which used the #NoDAPL hashtag employed by protesters, in order to claim that opposition to the pipeline kills jobs, that those protesting the pipeline at the Standing Rock Sioux Tribe's encampment use violence, and that the pipeline does not pose a risk to water sources or cross over tribal land.  On September 13, people began to suspect these accounts were fake, calling them out on Twitter, and by September 14, most of the accounts no longer existed. The Dakota Access Pipeline is set to carry oil obtained via hydraulic fracturing (“fracking”) from the Bakken Shale basin in North Dakota across the Dakotas, Iowa, and Illinois. Its owner, Energy Transfer Partners (ETP), says it plans to talk to the Obama administration and “reiterate [its] commitment to bring the Dakota Access Pipeline into operation.” It will do so despite the administration requesting that the company halt construction “voluntarily — particularly around the contested sacred tribal sites located 20 miles east and west of Lake Oahe and the Missouri River — until further notice.” In his memorandum announcing his company's plans to do so, ETP CEO Kelcy Warren espoused many of the same arguments that were deployed by the Twitter sock puppets, which calls into question whether his company helped spearhead the social media campaign behind the scenes in order to create the appearance of grassroots support, a technique known as “astroturfing.” In that memo, Warren said his company plans to engage more aggressively in the PR sphere.

At Camp with the Standing Rock Pipeline Protesters (photo essay) I first made the 1,600-mile journey from Berkeley, California, to the Standing Rock Sioux Reservation in late August and again in early September to document this latest skirmish in the fight to shield fresh water from pollution, to keep fossil fuels in the ground, and to ensure greenhouse gasses stay out of the atmosphere.  When I arrived, I realized there are two major stories unfolding here on the windswept prairie of North Dakota. One of them, the one that has drawn the most media attention, plays out in rallies and hashtags, Facebook Live streams, and confrontations with pipeline security workers. The other is more difficult to see unless you visit the camp itself, where old friends and long estranged tribes have reunited, and people share songs, prayers, and stories as they articulate a future in which tribal lands are no longer national sacrifice zones and the zero-sum logic of industry is not taken for granted.

Pipeline protest site a city unto itself with school, meals - (AP) — Tribal flags, horses, tents, hand-built shelters and teepees dominate one of the biggest, newest communities in North Dakota, built in a valley on federal land near the confluence of the Missouri and Cannonball rivers. It’s a semi-permanent, sprawling gathering with a new school for dozens of children and an increasingly organized system to deliver water and meals to the hundreds, sometimes thousands, of people from tribes across North America who’ve joined the Standing Rock Sioux in their legal fight against the Dakota Access oil pipeline to protect sacred sites and a river that’s a source of water for millions of people. “This is better than where most people came from,” said 34-year-old Vandee Kahlsa, referencing the oft-harsh conditions of reservations across the United States. The Santa Fe, New Mexico, resident, who is Osage and Cherokee, has been at the camp for more than a month.She joins Standing Rock Sioux members who have been here since April, people from other tribes and non-tribal members from as far away as Asia and Europe who’ve vowed to stay as long as it takes to block the four-state, $3.8 billion pipeline’s construction. Though the Dallas-based pipeline company says it intends to finish the project, protesters have some hope: Three federal agencies are reviewing their construction-permitting process, temporarily blocking work on a small section not too far from the encampment site and asking Energy Transfer Partners to temporarily stop work on a 40-mile (64 km) span. But given North Dakota’s brutally cold winters, people will need more than the campfires warming them these days. “I’m pretty sure by winter there will be some buildings up,” said Jonathon Edwards, 36, a member of the Standing Rock tribe who lives in South Dakota and has been here since April 1, when snow was on the ground. “People who came here came here to stay.” The encampment has averaged about 4,000 people recently, he estimated; only 25 of North Dakota’s 357 towns have more than 2,000 people. It’s been called the largest gathering of Native Americans in a century, and the first time all seven bands of Sioux have come together in since Gen. George Custer’s ill-fated 1876 expedition at the Battle of Little Big Horn, Edwards and others say.

More than 30 oil pipeline protesters arrested in last 2 weeks (AP) — Authorities in southern North Dakota say more than 30 protesters have been arrested in the last two days at a Dakota Access pipeline construction site north of Almont. The site is about 70 miles (113 kilometers) northwest of the main protest site near the Standing Rock Sioux Reservation. Morton County authorities say eight people were arrested Wednesday, including three cited for locking themselves onto construction equipment. The county says 69 people have been arrested since protests began last month. A federal judge declined last week to block the pipeline, but the government halted work near Lake Oahe in order to re-examine approval of the pipeline on Army Corps of Engineers’ land. Morton County Sheriff Kyle Kirchmeier says his office will keep pursuing charges against protesters who attach themselves to equipment.

Why the Native American pipeline resistance in North Dakota is about climate justice - Over the past months, hundreds of indigenous persons and their allies have gathered near the crossing of the Missouri and Cannon Ball rivers in the ancestral territories of the Standing Rock Sioux tribe. Using nonviolent means, their goal is to stop the building of the Dakota Access Pipeline (DAPL) that would connect production fields in North Dakota to refineries in Illinois. Their primary fear is that an oil leak would threaten water quality for many members of the tribal community. On Sept. 9, a federal judge denied the tribe’s request for an injunction to halt completion of the pipeline. But shortly after, federal officials said they would temporarily stop construction pending further review.  As a scholar of indigenous studies and environmental justice, I’ve been following these developments closely. The pipeline’s construction has already destroyed some of the tribe’s sacred burial grounds. During protests, the protectors – as many gatherers prefer to be called – have endured violence, including being pepper-sprayed, attacked by dogs, denied nourishment and threatened by lawsuits.  But despite the national attention to this case, one point has gone largely ignored in my view: Stopping DAPL is a matter of climate justice and decolonization for indigenous peoples. It may not always be apparent to people outside these communities, but standing up for water quality and heritage are intrinsically tied to these larger issues.  Climate justice – the idea that it is ethically wrong for some groups of people to suffer the detrimental effects of climate change more than others – is among the most significant moral issues today, referenced specifically in the landmark Paris Agreement of the United Nations Framework Convention on Climate Change.Climate scientists, through organizations such as the Intergovernmental Panel on Climate Change and U.S. Climate Assessment, are finding more evidence of climate change from human activities, such as burning fossil fuels and deforestation. . The same climate science organizations also show that indigenous peoples are among the populations who will suffer more, on average, than other communities from changing environmental conditions. Some are suffering right now.

The Death Of The Bakken Field Has Begun: Means Big Trouble For The U.S. - The Death of the Great Bakken Oil Field has begun and very few Americans understand the significance. Just a few years ago, the U.S. Energy Industry and Mainstream media were gloating that the United States was on its way to “Energy Independence.” Unfortunately for most Americans, they believed the hype and are now back to driving BIG SUV’s and trucks that get lousy fuel mileage. And why not? Americans now think the price of gasoline will continue to decline because the U.S. oil industry is able to produce its “supposed” massive shale oil reserves for a fraction of the cost, due to the new wonders of technological improvement. I actually hear this all the time when I travel and talk to family, friends and strangers. I gather they have no clue that the Great Bakken Oil Field is now down a stunning 25% from its peak in just a little more than a year and half ago: The mighty Bakken oil field located in North Dakota reached peak production in December 2014 at 1.26 million barrels per day (mbd) and is now down to 942,000 bd. This decline is no surprise to me or to my readers who have been following my work for the past several years. I wrote about the upcoming crash of the Bakken oil field in my article.  I ended the article with these sobering words: There are only so many drilling locations available and once they run out, the Great Bakken Field will become a BUST as the high decline rates will push overall oil production down the very same way it came up. Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles. . Well, the Bust of North Dakota economy has arrived according to the article, “The North Dakota Great Recession“:

North Dakota oil output up about 2,375 barrels daily in July (AP) — North Dakota’s oil production increased by about 2,375 barrels a day in July, after dropping by about 20,000 barrels the month before. The Department of Mineral Resources says the state produced an average of 1.029 million barrels of oil daily in July, up from 1.027 million barrels in June. North Dakota’s production record was set in December 2014 at 1.22 million barrels daily. North Dakota also produced 1.69 billion cubic feet of natural gas per day in July, up from 1.66 billion cubic feet daily in June. The July tally is the latest figure available because oil production numbers typically lag at least two months. There were 33 drill rigs operating in North Dakota’s oil patch on Friday, which is up two rigs from the July average.

Judge asked to restore cancelled energy lease in sacred area - (AP) — A Louisiana energy company is asking a federal judge to reverse the cancellation of a 33-year-old oil and gas lease on land considered sacred to the Blackfoot tribes of the U.S. and Canada. Solenex LLC of Baton Rouge filed court papers Monday seeking a judgment in the case that’s before U.S. District Judge Richard Leon in Washington, D.C. The 6,200-acre lease is in the Badger-Two Medicine area of the Lewis and Clark National Forest. It’s just outside Glacier National Park and the Blackfeet Indian Reservation. U.S. Interior Department officials cancelled the lease in March. They said it was improperly issued in part because environmental studies did not consider the effects of drilling on the tribes. Government attorneys must respond to the company’s request to restore the lease within two weeks.

For Some California Kids, Back-to-School Means Back To The Dangers of Fracking Wells - As of this week, American kids are back in the classroom. Some—with summer still on their minds—will gaze longingly out the window, wishing to be anywhere but school. In Kern County, California, where 10 school districts sit less than a mile from fracking wells, that view is often obstructed by a giant metal beak bobbing up and down to extract natural gas.   This sight is a common one to children living in predominantly Latinx Kern County, which is also more than 20 percent foreign-born from Latin America and Asia. In 2015, Kern County approved permits for nearly 2,000 fracking wells in their backyard. Each emits hydrogen sulfide, benzene and xylene, all chemicals that are dangerous to human health. While the problem is concentrated in Kern County, a 2014 study found that throughout California, 352,724 students attended school within one mile of an oil and gas well. Madeline Stano, an attorney with the Center on Race, Poverty and the Environment (CRPE), visited Seqouia Elementary School in Shafter, California, in April 2013 to celebrate a new garden on the school's property. While there, she was struck by a well looming in the background. During the party, she could smell fumes emanating from the site. "It’s really heartbreaking to see young students of color on the playground surrounded by all sorts of industries that are polluting them and influencing what's happening in their lives without anyone choosing or planning that," Stano says.  Those chemical emissions, coupled with diesel truck emissions and other pollutants, gives Kern and the surrounding San Joaquin Valley some of the poorest air quality in the nation. The county suffers from an active asthma prevalence of 10.7 percent among adults, according to the California Department of Public Health. That is 3 percent higher than the state's, while the national rate of asthma is 7.4 percent.  We have wells next to elderly care facilities and hospitals, schools for the mentally disabled.

EPA Official Blasted White House Over Fracking Regulations - A senior Environmental Protection Agency official used an expletive — a term for male genitalia used to describe a foolish or contemptible person — when he called those in the White House who resist efforts to regulate fracking "********," according to a report in The Washington Free Beacon. In a text message obtained by the Energy and Environment Legal Institute through the Freedom of Information Act, then EPA policy chief Michael Goo wrote to Sierra Club lobbyist John Coequyt about difficulties with the White House Office of Management and Budget (OMB), saying, "If you want any hope of regulation of fracking then give us more time to try and remove the gun from our head and talk sense into OMB "********"  Goo, who worked with Coequvt in an effort to draw up EPA policies, sent the message in 2012 as the agency was trying to establish new rules to restrict the oil and gas industry, including the first major fracking regulations. Eventually rules were made that submitted fracking to additional emissions regulations. The Obama administration has generally been supportive of fracking as a way to boost domestic energy production, Politico reports, with former White House adviser John Podesta summing up the policy by saying, "If you oppose all fossil fuels and you want to turn that switch off tomorrow, that is a completely impractical way of moving toward a clean-energy future." However, since Podesta left his position early last year to chair Hillary Clinton's presidential campaign, the Obama administration has become more willing to back efforts to tighten regulations, the Beacon reports.

Top EPA Official Slams 'Dickheads' At White House For Not Regulating Fracking -- A former senior EPA official known for coordinating with environmentalists slammed the White House for pushing back on agency plans to regulate hydraulic fracturing for oil and natural gas, text messages show. Michael Goo, EPA’s policy chief at the time, texted Sierra Club lobbyist John Coequyt that if environmentalists “want any hope of regulation of fracking then give us more time to try and remove the gun from our head and talk sense into OMB dickheads.”  “If you want the oil and gas nsps to give fracking a free pass, as OMB would like then don’t give us the extension,” Goo texted Coequyt, referring to proposed EPA New Source Performance Standards (NSPS) for oil and gas fracking, according to The Washington Free Beacon. OMB refers to the White House’s Office of Management and Budget.The texts were obtained through a Freedom of Information Act request by the Energy and Environment Legal Institute (EELI). This is the latest EELI release from the Goo files. Previous email releases show how Goo used his private Yahoo email account to coordinate with environmental activists.

Researchers to strengthen water-stewardship for US energy production: Every year in the U.S., a whopping 20 billion barrels of water are generated as a byproduct of domestic oil and gas recovery, according to the U.S. Department of Energy.Safe and environmentally responsible management of this "produced water" is important to energy companies, farmers, ecosystems and everyday people whose drinking water comes from associated aquifers. Now, a joint research effort founded by the University of Kansas and West Virginia University—funded by a new $4 million grant from the National Science Foundation—aims to develop cutting-edge strategies for better management, treatment, protection and recovery of produced water. The scientists behind the work hope to establish a permanent center focused on research-proven best practices for handling produced water nationwide. "Obviously, we need energy," said Edward Peltier, KU associate professor of civil, environmental and architectural engineering, who is the primary investigator of the new project. "We use energy resources every day, and we'll continue to use them. That means the better job we do producing energy in an efficient, clean manner—and not affecting other resources like water quality—the better off we are." Paul Ziemkiewicz, co-PI of the new grant and director of the West Virginia Water Research Institute at WVU, pointed out that until now there has been no nationally coordinated research effort to address issues tied to produced water. "NSF's support will create a national center for technology development as well as training and outreach to recruit a new generation of specialists to address this challenge," he said.

US shale’s resilience touted despite output decline: Fuel for Thought - Last week’s announcement by US company Apache of a major find in West Texas’ Permian Basin seemed to vindicate the optimism about shale heard the previous week at a conference in Norway. Scott Douglas Sheffield, chief executive of shale driller Pioneer Natural Resources, played the role of spoiler-in-chief at the ONS conference, harrying big oil with some uncomfortable assertions. The bad news, for those in the industry who missed out on shale and expected it to fade with low prices, is that the Permian should be able to increase its output from 2 million b/d to 5 million b/d in the next 10 years, assuming prices reach $56/b in 2025, Sheffield said. Pioneer itself is growing its output by 27-30% annually. “It’s in that [price] strip that I see the Permian adding 300,000 b/d per year in US supply,” he said. Emphasizing his contrarian stance, he said he doubted some of the higher forecasts of long-term oil demand growth due to global warming, alternative energy and electric vehicles, while boasting of the company’s use of wind power in its own operations and the solar panels on his home. In Sheffield’s view, the dip in US production has been misconstrued, with some underestimating the Permian as output falters in the Eagle Ford and the Bakken. What some have failed to appreciate is that rig reductions in the Permian have happened partly because of reduced drilling at conventional, non-shale sites, rather than in shale, he said. The Spraberry-Wolfcamp shale, where Pioneer operates, remains resilient and Pioneer’s own breakeven price is below $25/b. Prices paid for shale acreage have been rising, in some cases, to levels higher than in 2013-2014, he said.

Sizing up the shale revolution footprint  - Let’s face it — for producers, the last couple of years have stung, with low-slung energy prices allowing little-to-no returns on drilling investments in most parts of the major shale basins. A side effect of the low price environment in the past two years has been the shrinking geographic footprint of the Shale Revolution. About 50% of all onshore rigs in the Lower 48 currently are clustered in the top 20 counties for drilling activity. In effect, this also means a lot of the new production growth will come primarily from these same 20 counties, with the potential for all sorts of implications for infrastructure and regional price relationships. In today’s blog, we take a closer look at rig counts by county to see how much the geographic focus of the Shale Revolution has narrowed.  Before we jump into current drilling activity, let’s take a step back and briefly review the pricing dynamics that have led to the current situation using Figure 1, which puts the price of crude oil, NGLs and natural gas on a common denominator - $/MMbtu. .Less than a decade ago, back in 2007-09 — the Before Shale Era (yellow area in Figure 1) — the prices of natural gas (blue line), natural gas liquids (NGLs; green line) and crude oil (black line) generally moved in tandem. In the commodity run-up of early to mid-2008, prices for all three commodities blew out, and when the financial crisis hit later that year, all three crashed.

Look How Operating Cost / Bbl Of US Shale Crude OIl Compares With That Of Saudi Arabia -- -- Note the operating cost/bbl for US tight oil. For more on this graphic, see this post: By the way, in the graph above, we are not provided the denominator for calculating the CAPEX costs for a bbl of oil. Over time, those CAPEX costs will come down immensely at the same time production capacity will be seen to increase.  One last point made by the reader who sent me the article: when one considers the shipping costs (Saudi oil to the US gulf coast) vs the pipeline costs (Permian crude oil to Houston), $5 Saudi oil might be at a competitive disadvantage to $8 Permian oil. Perhaps not a disadvantage, but certainly helps level the playing field.

Buffett's firm buys nearly 1 million more Phillips 66 shares - (AP) — Warren Buffett’s company has bought nearly 1 million more shares of oil refiner Phillips 66. Berkshire Hathaway said in a regulatory filing that it owned 80.67 million Phillips 66 shares after the latest purchases this week. Berkshire now controls 15.4 percent of Phillips 66 stock. Berkshire has been investing in Houston-based Phillips 66 since 2012. After building up a sizeable stake, Berkshire traded about $1.4 billion of its Phillips 66 stock for an additive business in 2013. Buffett’s company resumed buying Phillips 66 stock when prices became attractive. The most recent purchases were done at prices between $76.77 and $77.65. The latest purchases made this week are worth roughly $78 million. Besides investments, Berkshire owns about 90 subsidiaries in a variety of industries, including insurance, utilities, railroads, and manufacturing.

NY AG Launches Probe Why Exxon Hasn't Written Down Oil Reserves --Back in January, when oil was plunging, we reported that the Dallas Fed and the OCC quietly met with US banks and advised them to suspend Mark-to-Market, allowing banks to avoid taking sharp, substantial charge offs on their loan books as a result of the dramatic selloff in crude. Incidentally the Dallas Fed first denied this meeting ever happened, only for its lies to be then revealed by the WSJ and others. That's ok: we - and everyone else - are used to being lied to by the Fed. What was surprising, however, is that neither the Dallas Fed, nor the OCC, told the actual energy majors to similarly fabricate their energy exposure, and yet, in at least in one case, they did. According to WSJ, the NY Attorney General Eric Schneiderman is probing why Exxon Mobil hasn’t written down the value of its assets, two years into a pronounced crash in oil prices. Indeed, out of the 40 biggest publicly traded oil companies in the world, Exxon is the only one that hasn’t booked any impairments in the last 10 years, according to S&P Global Market Intelligence. Schneiderman’s office, which as the WSJ notes, has been probing "Exxon’s past knowledge of the impact of climate change and how it could affect its future business", is also examining the company’s accounting practices, according to people familiar with the matter. An Exxon spokesman declined to comment about the investigation by the Democratic attorney general but said Exxon follows all rules and regulations. To be sure, it is very likely that Scheiderman is merely looking for another career-boosting witch hunt, ideally one which allows him to engage in a long-running legal battle with Exxon, the same way the Democrat launched a probe into Donald Trump's foundation earlier this week, while ignoring the far greater documented fraud committed over nearly 20 years by the Clinton Foundation.  Still, it does bring up a good point: while most other energy companies have dramatically reduced and written down the value of their assets, Exxon has been immune, at least in the view CEO Rex Tillerson.

 How 'Zombie' Oil Companies Stay Alive in Life-or-Death Debt Markets   - Beneath the surge in corporate defaults lies a surge in distressed exchanges.  Such exchanges — defined by Moody's Investors Service as when a troubled company offers its lenders new or restructured debt, securities, cash, or other assets, that amount to a smaller commitment than the original IOU — could have big implications for debt markets as they stretch out the current credit cycle and result in even greater losses for investors. The trend is most apparent in the energy sector where oil and gas companies have been deploying a raft of creative measures to stay afloat amid lower crude prices that have crimped profits and threatened their survival. Such measures have included swapping unsecured debt for secured, offering discounted buybacks of existing debt, or junior-lien debt that gets paid after other creditors."While these [distressed exchanges] do result in some level of loss to bondholders, unlike missed payments and bankruptcy filings the bonds typically remain eligible for inclusion in the high-yield index," Kai Gilkes and Anneli Lefranc, analysts at CreditSights Inc, wrote in new research. They note that the 12-month default rate rose to 7.2 percent for U.S. junk-rated bonds in August. That's an increase of 30 basis points compared to July's default rate of 6.9 percent, spurred on by six corporate defaults last months — including a trio of U.S. energy companies.  "Distressed exchanges have contributed greatly to the rise in default rates," they add, with 38 of the 75 U.S. high-yield defaults over the last 12 months coming from such deals.The degree to which distressed exchanges are propelling defaults higher is apparent in the below CreditSights chart, which shows the U.S. and European default rate excluding the swaps.

Quest project captures a million tonnes of CO2 in the oilsands: Shell | CTV News: -- Shell Canada says the first carbon capture project in the oilsands has successfully stored one million tonnes of carbon dioxide deep underground after a year of operation. The company, which developed the $1.35-billion Quest project with the help of $745 million from the Alberta government and $120 million from Ottawa, says the project is operating ahead of schedule and under budget. "There isn't a metric that hasn't finished very strongly in green," said Zoe Yujnovich, executive vice-president for heavy oil at Shell. "I don't think we can say that about many projects." The Quest project is designed to capture about a third of the emissions from Shell's Scotford Upgrader near Fort Saskatchewan, Alta., turn that into a near-liquid, and then pump it over two kilometres underground into porous rock formations. The development, and carbon capture operations in general, have been significantly criticized as high-cost, stop-gap measures that rely heavily on government funding. But Yujnovich says the technology provides an important bridge as part of a long-term transition towards renewable energy. "The question for all of us is to say in the meantime, with the demand that still exists for oil products, 'How do we go about being as efficient as possible at extracting the oil from the ground?"' she said. "I think the use of something like carbon sequestration, and the ongoing operational improvements that we're constantly committed to, are a part of us navigating across that bridge."

Oil disaster investigator alarmed by BP Great Australian Bight response -A leading global expert on oil disasters has said the response to concerns about potentially faulty equipment in offshore drilling planned for the Great Australian Bight by BP is an early warning sign of problems that could potentially lead to disasters. Bob Bea, an emeritus professor and founder of the center for catastrophic risk management at Berkeley, said what BP, its subcontractor Diamond Offshore Drilling and the Australian regulator had said in response to concerns about faulty bolts was “very alarming”.  Bea has investigated major oil disasters around the world including the Exxon Valdez oil spill and BP’s Deepwater Horizon explosion and oil spill in the Gulf of Mexico. He helped establish the field of “forensic engineering” and has worked in dozens of countries, including Australia. He told the Guardian the process surrounding BP’s “high risk” application to drill for oil in the Great Australian Bight lacked adequate transparency, proper regulatory processes had not been followed and that responses from the companies involved were “inadequate” and “very alarming”. Bea said the way BP referred questions about the equipment failures to its subcontractor – which were then referred to the contractor’s equipment manufacturer – revealed a lack of responsibility being taken by BP and “a pervasive lack of effective engagement”. On Monday, the Guardian revealed BP could conduct its drilling operations in the Great Australian Bight using critical items of equipment – huge “connector bolts” – that have been failing since 2003. The US regulator said the fault appeared to be “systemic” and something that has been “plaguing subsea equipment”. Brian Salerno, the head of US Regulator the Bureau of Safety and Environmental Enforcement (BSEE) said it was just down to luck that the faulty bolts had not caused a major oil spill yet, and that it was just a matter of time until they did.

Asian LPG market firms on China buying, anticipated winter demand in Q4 -  The Asian LPG market has firmed in recent weeks from the 13-year lows seen last month, as Chinese buyers emerged to buy September cargoes, reducing some of the hefty supply glut in the region, market sources said Thursday. Buyers in China were replenishing stocks as plants resumed operations after the G20 meeting in Hangzhou. "Demand side, we see some more requirements from China compared with one to two months ago," said a Singapore-based trader. "Originally, China didn't buy because their inventories were high. Now, they see some space in their tanks," he said.Apart from Chinese buying, sources also noted a slight improvement in demand from Japan, as stocks were gradually drawn down over the past few weeks, resulting in some storage space becoming available, the trader said. A rally in flat prices on the back of crude fuelled some bargain hunting, and expectations of winter demand for cargoes loading October onwards lifted sentiment, sources noted. The physical price of propane on a CFR Singapore-Japan basis was assessed at $317/mt at the Asian close Wednesday, up almost 16% from a 13-year low of $273.50/mt assessed on August 11, S&P Global Platts data showed. Front month ICE Brent crude, on the other hand, rose by 8.8% over the same period from $43.55/b to $47.37/b.

The return of LNG imports as a backstop for US pipeline gas -  California and New England are two of the nation’s quirkier regions when it comes to energy –– and we mean that in the nicest way possible. So maybe it’s not too surprising that, at a time when the U.S. is just beginning a big push to export natural gas as LNG, the Golden State and “Yankeeland” (as some still refer to New England) are turning to imported LNG to help them deal with possible gas shortages during peak demand periods this coming winter. In neither case is liquefied natural gas considered to be a long-term fix, but –– for now at least –– LNG may be playing a role in keeping the pilot lights lit and the electric lights on. Today, we look at how the stockpiling and use of LNG can still make sense in a nation with an abundant supply of gas. Just a few years ago, before the dawn of the Shale Era, just about everyone thought that U.S. natural gas production had peaked and that our energy future would involve increasing volumes of imported LNG. That sparked the development of a number of LNG import terminals, most of them along the Gulf and Atlantic coasts. Mexico, anticipating a similar fate, developed a few import terminals too, including one –– Energía Costa Azul –– in Baja California, just south of San Diego, CA. As we all know, the Shale Revolution turned LNG-importing plans on their head (at least in the U.S.), and several of those LNG import terminals are being converted into liquefaction/LNG export terminals with the aim of selling a significant portion of U.S. gas production overseas. All this makes it somewhat ironic that, given the vast volumes of gas being produced domestically today, LNG imports are making a bit of a comeback, if only temporarily and for a special purpose –– namely, as a backup source of gas in the event that existing regional infrastructure cannot supply enough traditionally piped-in natural gas during short periods of very high demand.

Latin America may not be usual draw for US refiners eager to export product - Colonial Pipeline's outage has US Gulf Coast refiners looking to sell excess gasoline into Latin America, but sources said Thursday that limited demand and high freight rates may hamper that plan. "There's a lot on offer due to Colonial issues, but only limited space to put it. This could turn ugly," a trader with a major trading house said. "Lat Am demand is already covered." Colonial Pipeline's main gasoline line from Houston carries 1.37 million b/d -- equal to four and a half cargoes a day -- through the US Southeast into New York Harbor. It was shut September 9 on a leak -- estimated at 250,000 gallons -- in Alabama. A projected restart late this week was pushed back Thursday to sometime next week. A second line that usually carries distillates will share space with gasoline in the interim. "All cargoes will point to the East Coast, while Gulf refiners will scramble to export if they can't get on Colonial or will cut runs," a US market source said."The rise in freight rates closed the trans-Atlantic arb, so Latin America should benefit," a second US market source said. He cited Mexico as likely the most opportunistic buyer. But a second trader echoed the first trader's comments that the market may wait out the issue, especially given skyrocketing freight rates. "There are lots of offers, but very little demand," he said. "Regular outlets are filled up."

 Sagging condensate margins affecting new Kinder Morgan splitters. --Two new 50-Mb/d, Kinder Morgan-owned and -operated condensate splitters came online during the first seven months of 2015, backed by a 10-year BP commitment to process a total of 84 Mb/d through the units. Located in the Houston Ship Channel’s refinery row, the splitters were expected to provide a profitable outlet to process growing volumes of the ultra-light crude oil known as condensate. Instead, average plant throughput through July 2016 has been only 71% of capacity, well below the 90% average operating level of neighboring refineries. The relatively low level at which these units have been operating reflects sagging condensate processing margins. Today, we detail how Kinder Morgan’s new splitters have been run during their first year or so of operation.   This blog follows the recent Shooting Star post reviewing the impact of falling production on waterborne movements of the superlight crude known as condensate. As noted in that blog, there has been a drop-off in condensate export volumes—as tallied by our friends at ClipperData—and changes in the international and domestic destinations of condensate moved over water in 2016.  Recent changes in condensate movements reflect broader trends in condensate production, which has declined significantly in the face of lower crude prices and narrowing differentials between condensate and “regular” light sweet crudes such as the Gulf Coast benchmark, Light Louisiana Sweet (LLS). We explored these themes in Part 1 of our Faded Love series on condensates, where we looked at the impact of lower prices on condensate production and infrastructure in the Eagle Ford, and in Part 2, where we considered detailed condensate production data from the newly enhanced Energy Information Administration (EIA) EIA-914 dataset. Today’s post (based on a recent note published by Morningstar Commodities and Energy Research) zooms in on the fate of condensate splitters on the Gulf Coast, a few of which are up and running and a few more of which are due online in the next year or two. In particular, we look at the Kinder Morgan-operated splitters along the Houston Ship Channel that came online between March and July 2015.

Pemex spending, crude output, exports all slashed in 2017 Mexican budget -  Mexico's 2017 budget proposal will cut Pemex's budget by $5.3 billion to $20.7 billion, causing the state-controlled company's crude production to drop to 1.928 million b/d, the lowest since 1980, and 43.3% below the 3.4 million b/d peak posted in 2004. The budget, submitted by Mexico's finance minister Jose Antonio Meade to legislators Thursday night, called for total cuts of $12.9 billion. Pemex's crude production has now fallen for 11 straight years. Through July of this year, the company's production averaged 2.2 million b/d. And, according to Pablo Medina, head of Latin America upstream research at Wood Mackenzie, targets set in the 2013-4 energy reforms now appear distant."The reform's 2018 objective was 3 million b/d, we will be at 1.9 million b/d. Why? Oil price crash and Pemex's fiscal regime," Medina tweeted. Exports of crude, according to the document sent to the Congress, are expected to be 771,000 b/d next year, also the lowest since 1980. So far in 2016, exports have averaged 1.14 million b/d.

Ecuador begins drilling for oil in pristine corner of Amazon: (Reuters) - Ecuador began drilling for oil on Wednesday near an Amazon nature reserve known as Yasuni, a site that President Rafael Correa had previously sought to protect from development and pollution under a pioneering conservation plan. Correa in 2007 asked wealthy countries to donate $3.6 billion to offset revenue lost by not drilling in the Yasuni National Park. But the initiative was scrapped in 2013 after it brought in less than 4 percent of the amount requested. Correa's government blamed the international community for the failure of a plan once seen as a possible model for other developing countries seeking to resist the lure of oil money. Wednesday's drilling by the state oil company Petroamazonas began in the ITT (Ishpingo-Tambococha-Tiputini) block at Tiputini, which is just outside Yasuni. Ishpingo and Tambococha are within the Yasuni reserve itself. Correra has said previously that drilling would affect less than 1 percent of the reserve. "It's the start of a new era for Ecuadorean oil," said Vice President Jorge Glas after a tour of the site on Wednesday. "In this new era, first comes care for the environment and second responsibility for the communities and the economy, for the Ecuadorean people," he told reporters, adding that the cost of production was less than $12 per barrel. Ecuador is OPEC's smallest member and has suffered heavily from the fall in oil prices. Around half its income comes from oil, according to the World Bank. It is also one of the world's most biodiverse nations, boasting Amazon rainforest, Andean mountains and the Galapagos Islands.

Norway Forced To Cancel Arctic Drilling Plans - Norway has pushed the oil and gas boundaries further north in recent years, opening up the Arctic for drilling. But low oil prices and environmental opposition are forcing a rethink in the Arctic nation.  Norway’s government retreated on a plan to open up new parts of the Arctic for exploration. Environmentalists and local fisherman beat back a proposal to allow drilling near the Lofoten Islands, a picturesque area that is crucial to fish spawning and has the largest cold-water coral reef in the world. The government had previously left out the Lofoten Islands from any exploration plans, so the decision to push forward sparked outrage. Norway’s oil minister, in the face of opposition, recently scrapped those plans in order “to create calm,” as the FT reports. Johnny Berfjord, chairman of the Norwegian Fishing Vessel Owners Association, in an interview with the FT, described his anger about the move to open up new areas for drilling: “Of course, it’s an act of war. It’s a stupid act. This kind of politics belongs to 20 years ago. They are missing what is happening in the world.” The pressure to open up more of the Arctic for drilling is coming from Statoil, the state-owned Norwegian oil company, which faces long-term decline in oil production unless it can find new reserves. Statoil has been struggling with low oil prices and mature oil fields in the North Sea. It plans on slashing another 1,500 positions this year and has even offered all of its 22,000 employees the option to apply for a severance package. Statoil does have the Johan Sverdrup field under development, which could eventually reach peak production at 550,000 to 650,000 barrels per day. The field is expected to come online in 2019.

Russia to Stop Exporting Oil Through Foreign Baltic Ports - Russia will stop exporting its oil through foreign ports sitting on the Baltic Sea by 2018, according to a new report by Reuters. Nikolai Tokarev, head of the Russian pipeline monopoly Transneft, told President Vladimir Putin about the plan during a meeting on Monday. "Last year, around 9 million tonnes were shipped through the Baltic ports, while this year the figure was 5 million tonne,” Tokarev told Putin, according to the meeting’s official transcript on the Kremlin’s website. "By 2018, we will reduce this flow to the Baltic ports to zero and will direct it to our ports instead, as we have surplus capacity.”“Good,” Putin replied. Crude supplies currently shipped through the Latvian cities of Riga and Ventspils will be redirected to Russian ports on the Baltic Sea with excess capacity, the oil executive said. The suspension of Russian imports to Latvia, Estonia and Lithuania would hurt the former Soviet republics’ transit revenues. Vitol, the world’s largest oil trader, currently operates out of Ventspils. The three European Union-member countries have been dependent on Russian oil since gaining independence from the Soviet Union in 1991.

 Fracking halted in the Northern Territory | SBS News: The Northern Territory government has imposed a moratorium on fracking while it conducts an independent inquiry. Chief Minister Michael Gunner says the move delivers on an election promise from Labor. "It's clear that Territorians are concerned about the effects of fracking on our land, water and environment. My government is acting on those concerns," Mr Gunner said on Wednesday. "We heard loud and clear the concerns of everyday Territorians, pastoralists, amateur and commercial fishermen, tourism operators, traditional owners, Indigenous rangers and environmental groups." The ban on fracking will take immediate effect and applies to all hydraulic fracturing of unconventional oil and gas reservoirs, either for exploration or extraction. It does not apply to any existing operations though the government says only one is still ongoing and the fracking component has been completed. The investigation will be conducted by a panel including experts in geology, and environmental regulation with its deadline to report back to the government yet to be determined.

S Korean gasoline exports fall sharply in August on export availability, prices - South Korea is close to being overtaken by China as North Asia’s biggest gasoline exporter after its gasoline shipments in August tumbled by 36% year on year, pulled lower by stronger domestic demand and yield switching by refiners. Total exports fell to 539,249 mt from 848,801 mt a year ago, and were also down from July’s 928,994 mt, data from the country’s Customs Service showed Wednesday. South Korea’s monthly average export of 796,651 mt of gasoline between January-August is only marginally higher than China’s 773,915 mt between January-July, according to the latest available customs data. China is expected to export 800,000 mt to 1 million mt of gasoline per month for the rest of the year, trade sources have estimated, which would easily surpass South Korea for the whole year and make it the biggest gasoline exporter in Northeast Asia. South Korea’s exports to all major destinations fell in August while it made no direct shipments of gasoline to Indonesia for the first time in at least five years. Average monthly flows from South Korea to Indonesia between January-July were 75,927 mt. Shipments to Australia halved from July’s year-to-date high of 240,474 mt, while Singapore received 51,457 mt of Korean gasoline compared with the year-to-date monthly average of 162,607 mt.

OPEC says its Aug crude oil output 33.24 mil b/d as market balance improves - OPEC crude oil production in August fell from its record July levels, with the producer group reporting Monday that secondary sources had pegged its output for the month at 33.24 million b/d. Meanwhile, non-OPEC production will be far more robust in both 2016 and 2017 than had been expected, OPEC said in its closely watched monthly oil market report, due to increases in output from Kazakhstan, Norway, the UK and Canada. For 2016, non-OPEC supply has been revised upward by 190,000 b/d from the organization's August forecast to 56.32 million b/d, and 2017 supply revised upward by 540,000 b/d to 56.52 million b/d.The projection indicates that the market's lingering oversupply is likely to extend into next year, as OPEC said it expects the call on its crude for 2016 to average 31.7 million b/d, more than 1.5 million b/d below what it produced in August. For 2017, if OPEC crude output remains at August levels, that gap would remain about 740,000 b/d, as the producer group expects the call on its crude next year at 32.5 million b/d. The organization slightly revised upward its expectations of world oil demand for 2016, which it pegged at 94.27 million b/d. In 2017, world oil demand will grow a further 1.15 million b/d to hit a new record of 95.42 million b/d, OPEC said in its report.

Libyan general seizes key oil terminals from militia (AP) — Libyan forces loyal to a powerful general say they have seized a third oil terminal from a rival militia in the east, giving the divisive leader a bargaining chip in negotiations with rival U.N.-backed authorities in the capital, Tripoli. Forces led by Gen. Khalifa Hifter said late Sunday that they had seized the Zueitina terminal from a militia known as the Petroleum Facilities Guards, hours after capturing the nearby terminals of Ras Lanuf and al-Sidra. Most of Libya’s oil exports went through the three terminals before the militia seized them more than two years ago. Hifter’s army units urged the state-run oil corporation, which is based in Tripoli, to resume oil exports. Libya drifted into chaos following the 2011 uprising that toppled and killed longtime dictator Moammar Gadhafi, and today is split between rival parliaments and governments in the east and west, each backed by a loose array of militias and tribes. Hifter enjoys the support of the internationally-recognized parliament, which meets in the east. The parliament has refused to approve the formation of a U.N.-backed government in Tripoli, in the west, in part because of differences over Hifter’s future role in Libya. The capture of the oil terminals could strengthen Hifter’s hand, making it more difficult to ignore demands from him and others in the east for more clout in a power-sharing government.

Geopolitical Oil Glut: What Happens When Libya Exports 600,000 bpd in 4 Weeks? | —Only a day after the head of the Libyan National Army (LNA) took over Libya’s key oil ports to the dismay of Western powers trying to gain support for a Government of National Accord (GNA), the recently reunified National Oil Corporation (NOC) of Libya has announced that it will start exporting 600,000 barrels of oil per day in just four weeks. Late last night, the NOC also announced that it will ramp up production and exports to 950,000 barrels per day before the end of the year. That’s up from the approximately 250,000 bpd the country is exporting right now. The announcement follows the seizure, two days ago, of four major oil terminals by the forces of the LNA, led by General Khalifa Haftar. The LNA managed to take control of the ports of Sidra, Ras Lanuf, Zuetina and Al-Brega in a military operation that resulted in zero casualties. In a statement late last night, NOC head Mustafa Sanallah said: "We welcome statements from the Libyan National Army allied with House of Representatives and the president of the HoR, Aguila Saleh, that the ports should be placed under NOC's control." “Our technical teams already started assessing what needs to be done to lift force majeure and restart exports as soon as possible." LNA spokesman, Colonel Ahmed Mesmari told a press conference earlier yesterday that the army has nothing to do with the oil facilities and will hand them all over to the reunified NOC to operate and resume production freely.

Nigeria's Qua Iboe crude oil exports to resume soon; ExxonMobil offers cargo for Oct loading -  Loadings of Nigeria's Qua Iboe crude could resume in the next two to four weeks, trading sources said Wednesday, up to three months after a suspected attack on a pipeline shut in the country's biggest export grade crude. Sources said ExxonMobil, operator of the Qua Iboe terminal, was offering a cargo of this grade for October 8-16 loading at Dated Brent plus $1.80/b. By late-afternoon, Vitol said it was offering a 950,000-barrel stem of Qua Iboe for October 4-5 loading at Dated Brent plus $1.35/b. Traders said they expected a Qua Iboe October loading program to emerge in the next few days. A spokesman at ExxonMobil declined to comment on a time frame but said the "force majeure remains in effect." Qua Iboe has been under force majeure since July 14 and the last cargo was exported on July 12, according to data from cFlow, S&P Global Platts trade flow software. ExxonMobil said at the time this was because of a "system anomaly." But earlier that week, the Niger Delta Avengers militant group had claimed an attack on the Qua Iboe export pipeline. Typically Nigeria exports some 300,000-340,000 b/d of Qua Iboe but since the pipeline outage production has been minimal. Traders active in the West African crude market said, besides the ExxonMobil cargo, there could be another Qua Iboe as early as late September or early October, but details of this could not be immediately confirmed. The offers by ExxonMobil surprised traders who said a month ago they expected Qua Iboe exports to only resume by either November or December as pipeline repairs were still ongoing.

 Oil rises on dollar, U.S. equities; crude inventories eyed | Reuters - Oil prices ended nearly 1 percent higher on Monday as a softer dollar and stronger U.S. equity markets helped crude futures rebound from an early drop pressured by worries about increased drilling activity for oil in the United States. Forecasts that U.S. shale oil production could fall for an 11th straight month in October also supported oil prices, although gains were capped by expectations that U.S. stockpiles may have built again last week after a sharp drawdown the previous week. Brent crude LCOc1 settled up 31 cents, or 0.7 percent, at $48.32 per barrel. U.S. West Texas Intermediate crude CLc1 rose 41 cents, or nearly 1 percent, to settle at $46.29. While some oil traders bet on more near-term gains, others were positioning to sell ahead of bearish U.S. government oil inventory data on Wednesday. Analyst polled by Reuters forecast a 4.5 million-barrel build in U.S. crude stockpiles for the last week, after an unexpected 14.5 million-barrel slump the previous week, the biggest drop since 1999. "If we get to $47.50 on WTI, I'm shorting it as it seems to be a channel top," said Phil Davis, a trader at PSW Investments in Woodland Park, New Jersey. "Fundamentally, there's little support for crude despite its attempts to hold to a bottom channel of $45 on empty OPEC talk of production cuts."

WTI Oil Prices Mostly Unchanged Year-over-year, Little Drag on Inflation - Fed Governor Lael Brainard mentioned oil prices earlier today:  The stabilization of the dollar and oil prices should lead inflation to move back toward our target in coming quarters. This graph shows the year-over-year change in WTI based on data from the EIA.  Currently WTI is down about 1% year-over-year.  Five times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.   WTI oil prices are mostly unchanged year-over-year.The second graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).  According to Bloomberg, WTI is at $46.05 per barrel today, and Brent is at $48.15.   Prices really collapsed at the end of 2014 - and then rebounded a little - and then collapsed again at the end of 2015 and in early 2016.  Unless prices fall sharply again like happened at the end of 2015, oil (and gasoline prices) will be up year-over-year soon and no longer a drag on inflation.

IEA backtracks on oil market rebalancing forecast - The International Energy Agency on Tuesday pushed back its expectations of the global oil market finding balance to beyond the first half of next year, saying it expects demand to grow by just 830,000 b/d in the current quarter and 1.3 million b/d this year. In its latest monthly oil market report, the IEA said OPEC output had surged, with Saudi Arabia now the world's top oil producer and crude output at record levels in Kuwait and the United Arab Emirates. On the demand side it highlighted "vanishing" growth in the OECD group of developed countries, coupled with China and India's demand slowdown. Oil inventories in the OECD reached a new record high of 3.111 billion barrels in July, with crude oil stocks remaining unusually flat for much of the summer amid lackluster refining activity in the US and Europe, the IEA said.Elsewhere it said the global crude glut was being exacerbated by Brazil, Iran, Iraq and Russia increasing crude output while reducing their domestic refinery throughput. As recently as June, the IEA had forecast that "assuming no further surprises, in H2 16 we expect the oil market to be balanced." The latest report however highlighted "sharply deteriorating" demand in Europe in July and forecast a 120,000 b/d decline in European oil demand year on year in the third quarter. The data suggests "a return of the previously long-entrenched trends of falling European demand," it said. While a weather-related uptick in global demand is likely in the fourth quarter, the current supply-demand dynamic "may not change significantly in the coming months," it said.

 Crude Crumbles On Weak IEA Data -- The IEA crushed the hopes of oil bulls on Tuesday when it published its September Oil Market Report. The Paris-based energy agency said that global oil demand is growing a much slower pace than it previously expected, lowering its forecast for 2016 to just 1.3 million barrels per day, or about 100,000 barrels per day lower than last month’s estimate. The IEA said that the oil market’s “balance” will be delayed, citing discouraging trends – demand is actually slowing while supply has begun to rise. As a result, oil “stocks of oil in OECD countries are swelling to levels never seen before,” the IEA said. China and India are “wobbling” and the momentum in the U.S. is also slowing. The result is that supply will continue to exceed demand through at least half of next year. Bad news for oil prices. $45 to $55 is the “new range.” One often-cited range for oil prices in this era of abundance has been $50 to $60. That is a range that OPEC has been rumored to target. But as many oil producers show resilience in the face of low oil prices, that range could be a bit optimistic. Amrita Sen, chief oil analyst at Energy Aspects, says that $45 to $55 is the “new range” that oil will trade between. High inventories and record production from OPEC has put a ceiling on oil prices at that upper bound, preventing any rally beyond that point.  One of the world’s most expensive oil projects, the Kashagan oil field, could finally come online (again) in October. The project has taken 16 years, cost more than $50 billion, and has had several false startups. It was supposed to begin operations a decade ago, but has suffered from delays, massive cost overruns, and technical problems. Nevertheless, the Caspian Sea oil field is massive, and could add 370,000 barrels per day of supply to global markets within a year. It is being jointly developed by Royal Dutch Shell, Total, ExxonMobil, Eni and the Kazakh government, with Eni in the lead. Wood Mackenzie is not as confident in those production figures, however; the consultancy only sees Kashagan bringing 154,000 barrels per day online next year and then only exceeding 300,000 barrels per day sometime in the 2020s. The project, despite its huge reserves, could continue to pose challenges for its owners. Total has called it the “the mother of all projects,” and instead of its real name, The Economist once dubbed it “Cash All Gone.”

 OPEC points to larger 2017 oil surplus as rivals keep pumping | Reuters: OPEC raised its forecast of oil supplies from non-member countries in 2017 as new fields come online and U.S. shale drillers prove more resilient than expected to cheap crude, pointing to a larger surplus in the market next year. Demand for crude from the Organization of the Petroleum Exporting Countries will average 32.48 million barrels per day (bpd) in 2017, OPEC said in a monthly report on Monday. That is down 530,000 bpd from the previous forecast. The prospect of a larger surplus than expected adds to the challenge of OPEC and non-members such as Russia, who are making a renewed attempt to restrain supplies. Oil LCOc1 is trading at $47 a barrel, half its level of mid-2014, as a supply glut that OPEC hoped cheap oil would banish sticks around. OPEC revised up its 2016 and 2017 non-OPEC supply forecasts, citing factors including the start up of Kazakhstan's Kashagan oilfield and a lower-than-expected decline in U.S. shale output, and said the immediate outlook was for more production. "It is expected that there will be higher non-OPEC production in the second half of 2016 compared to the first half," OPEC said in the report. OPEC expects non-OPEC supply to rise by 200,000 bpd in 2017, versus a previously forecast 150,000 bpd decline. The revision is mostly due to Kashagan, OPEC said, as the long-delayed giant field finally starts up. On top of that, the forecast for this year was revised up by 180,000 bpd.The Organization of the Petroleum Exporting Countries is meet non-OPEC members at an industry event in Algeria on Sept. 26-28 to discuss a production freeze that few analysts expect will materialize.

Oil prices hit by downward revision to global oil demand  (AP) — Oil prices took a pounding Tuesday after a leading industry group said global oil demand growth is slowing by more than previously thought, largely because of a more pronounced economic slowdown during the third quarter of the year. In its September oil market report, the Paris-based International Energy Agency reduced its forecast for global demand growth to 1.3 million barrels a day in 2016 — 100,000 below the previous forecast. And it also anticipates a further slowdown next year, down to 1.2 million barrels a day “as underlying macroeconomic conditions remain uncertain.” The organization, which represents 29 major oil-importing nations including the U.S., also noted that supplies from the OPEC oil cartel are running at near-record levels as Kuwait and the United Arab Emirates pump at their highest levels ever. It added that non-OPEC supply is expected to return to growth next year. All in all, the alteration in the demand-supply balance anticipated by the IEA has weighed on oil prices. A barrel of benchmark crude was down $1.10, or 2.4 percent at $45.20 while Brent crude, the international standard, fell 93 cents, or 1.9 percent, to $47.42 a barrel. The renewed pressure on prices follows a period when oil prices have recovered from multiyear lows and subsequently broadly stabilized. Last week’s revelation that the world’s two largest oil producers, Russia and Saudi Arabia, have agreed to act together to stabilize global oil output helped shore up prices though it remains unclear what the two have in mind. “News last week may have helped lift oil prices back towards the August highs but this data once again adds to the bearish case for oil, regardless of any “cooperation” between Saudi Arabia and Russia,”

Oil Slides After IEA Turns Pessimistic, Sees Oversupply Extending On "Dramatic Deceleration" In Crude Demand One of the great oddities in oil price forecasts and analysis in the past year has been the fascination with the supply side of the oil market, which is perhaps understandable following the relentless chaos coming out of OPEC nations. However, as we have long contended, the true wildcard is the demand side, which has been deteriorating over the past 6 months, driven primarily by a slowdown in Chinese demand, coupled with a US peak driving season which was far less exciting than many had expected. We were glad to see the IEA finally realizing just how important the demand side also was, when in its latest report released earlier today, the Paris-based organization revealed a much more pessimistic outlook on the state of the oil market, predicting that a sharp slowdown in global oil demand growth, coupled with ballooning inventories and rising supply means the crude market will be oversupplied into late 2017. The IEA had previously expected the market to show no surplus in the second half of 2016. "Our forecast in this month's report suggests that this supply-demand dynamic may not change significantly in the coming months. As a result, supply will continue to outpace demand at least through the first half of next year," the Paris-based adviser said in its monthly report. “As for the market’s return to balance -- it looks like we may have to wait a while longer.”

Oil tumbles 3 percent after both IEA, OPEC see glut persisting | Reuters: Oil prices fell as much as 3 percent on Tuesday after both the world's energy watchdog and OPEC revised forecasts that signaled the global crude glut could persist for much longer than expected. The International Energy Agency (IEA), which advises oil-consuming countries on their energy policies, said a sharp slowdown in oil demand growth, coupled with ballooning inventories and rising supply, means the market will be oversupplied at least through the first half of 2017. The IEA's comments follow a surprisingly bearish outlook from the Organization of the Petroleum Exporting Countries on Monday that also pointed to a larger surplus next year due to new fields in non-member countries. U.S. shale drillers are also proving more resilient than expected to cheap crude, OPEC said. [OPEC/M] "It seems the situation has deteriorated strongly in the eyes of OPEC, as well as the IEA," said Commerzbank head of commodities strategy Eugen Weinberg. "I wouldn't be surprised to see this price weakness continue for a while, because that was not on the cards, in our opinion." A stronger dollar also weighed on crude and other commodities denominated in the U.S. unit, making them less affordable to holders of currencies such as the euro. U.S. equity markets were down nearly 2 percent, extending the bearish sentiment across risky markets.

Crude Chaos Strikes On Disappointing Post-Hurricane Rebound In Inventories - Following last week's epic crude inventory drawdown, the market expected a post-hurricane build of 4mm barrels, but API reported a mere 1.4mm build. However, a massive build in Distillates inventories (+5.3mm - biggest in 8 months) confused the machines. WTI had fallen back to a $44 handle - erasing all the inventory-draw-spike gains - before API data hit; but then spiked to last week's API levels, tumbled, then spiked again... API

  • Crude +1.4mm (+4mm exp)
  • Cushing -1.12mm (-300k exp)
  • Gasoline -2.4mm (-1.1mm exp)
  • Distillates +5.3mm

After last week's (storm-driven) massive inventory draw, expectations were for a build, but the build disappointed. However Distillates saw the biggest build in 8 months... Notably, WTI had fallen back and erased all of the post-inventory bounce. As Price Futures' Phil Flynn noted, the market "is worried about a post-hurricane rebound in supply."

 US crude oil imports continue to rise - Net crude oil imports to the U.S. Gulf Coast in 2016 have been running well above the pace set last year, the increase driven by a combination of lower U.S. crude oil production, rising import levels and relatively flat export volumes. The trend toward higher net imports –– an outgrowth of the end of the ban on U.S. crude exports –– is significant in that it affects oil inventories and oil prices. What’s driving this trend, and how soon might net imports peak? Today, we survey recent developments on the crude oil import/export front, with a focus on the Gulf Coast. Crude oil traders and the audience at the U.S. Open in Flushing Meadows, NY had one thing in common recently: their heads have been whirling, side to side and up and down. In the case of crude oil traders this was due to a sharp drop in imports in the week ending September 2, followed by a sharp rise the following week. The rollercoaster was caused primarily by the coincidence of three factors: a hurricane preventing discharges at Chevron's Pascagoula, MS refinery and disrupting offloading at the Louisiana Offshore Oil Port; the Labor Day holiday slowing operations elsewhere; and the decision by importers in Texas to reduce their intake of imported barrels ahead of the ad valorem tax assessment on September 1. Soon after tax day, the crude came flooding back in.  Refiners typically would be expected to take in less crude oil in September ahead of maintenance season in the fall. So far, this is not panning out. Waterborne imports in the first 12 days of September are at 3.24 MMb/d, compared to 3.22 MMb/d in August. Based on the number of vessels currently sailing toward the U.S. Gulf Coast, we expect the week ending September 16 to see a dip in imports, followed by a rebound in the week ending September 23, and an equally strong showing in the final week of September. Looking at the entire month, we expect September to show imports about 500 Mb/d higher than in the same month of 2015. This is a wider gap than the 300-Mb/d excess of August 2016 over August 2015. So, if there is to be an inflection point suggesting lower imports, it doesn’t appear likely to happen in September.

 How Big An Impact Will A Rate Hike Have On Oil Prices? --  Oil prices could be facing a significant jolt after Federal Chair Janet Yellen, in her annual speech at the Jackson Hole economic symposium in Wyoming, said that the case to increase interest rates had strengthened. The extent of the jolt that may be felt is far from certain however. Due to the quotations of crude oil in U.S. dollars, there is often a bind between the fate of the greenback and the costs of oil per barrel, as the balance of oil trade and the effect on market psychology can be hugely influential. There are, however, other significant factors in the oil price equation, including high production rates and inventories. Spencer Welch, director of downstream energy consulting at IHS Markit explained that “a rate hike would strengthen the U.S. dollar, which would make oil more expensive globally, so this would tend to reduce oil demand slightly, but it takes a while for this effect to play out, and would therefore likely reduce oil market price.” “By how much? That depends on the size of the interest rate increase. It is likely to be less than $1/bbl in oil price impact, but that is not based on historical statistics.” Different nations Welch believes, are effected by a rate rise in varying ways, depending if they are net exporters or importers of oil. Importers are more likely to be hurt by a rate rise as oil would become more expensive due to a rising dollar, net exporters of oil would benefit as a result of selling oil in dollars, with the dollar being stronger.

Oil Plunges As Libya, Nigeria Supply Set To Worsen Glut -  Oil prices are extending their losses this morning as disappointing US economic growth indicators combined with expectations of a surge in supply from Nigeria and Libya are adding to fears about increasing overhang of oil stocks. As Bloomberg reports,Amid the most enduring global oil glut in decades, two OPEC crude producers whose supplies have been crushed by domestic conflicts are preparing to add hundreds of thousands of barrels to world markets within weeks.Libya’s state oil company on Wednesday lifted curbs on crude sales from the ports of Ras Lanuf, Es Sider and Zueitina, potentially unlocking 300,000 barrels a day of supply. In Nigeria, Exxon Mobil Corp. was said to be ready to resume shipments of Qua Iboe crude, the country’s biggest export grade, which averaged about 340,000 barrels a day in shipments last year, according to Bloomberg estimates. On top of that, a second Nigerian grade operated by Royal Dutch Shell Plc is scheduled to restart about 200,000 barrels a day of flow within days.While there are reasons to be cautious about whether the barrels will actually flow as anticipated, a resumption of those supplies -- more than 800,000 barrels a day in all -- could more than triple the global surplus that has kept prices at less than half their levels in 2014. It would also come just as members of the Organization of Petroleum Exporting Countries and Russia are set to meet in Algiers later this month to discuss a possible output freeze to steady world oil markets.“If you have some restart of Nigeria and some restart of Libya, then the rebalancing gets pushed even further out,” Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland, said by phone. “It complicates matters a lot before the meeting in Algeria.” And combined with crappy US data, oil prices are sliding after an early spike...

OilPrice Intelligence Report: Oil Down As Glut Fears Return: Oil prices posted another down week after the IEA dashed hopes that the global supply and demand picture would come into balance this year. The Paris-based energy agency said demand is much slower than it previously expected, and supplies are also surprising on the upside, mostly due to record OPEC production. The end result? The supply surplus might not be worked through until the middle of next year. Oil prices plunged on the news earlier this week and have struggled to regain ground. Goldman pessimistic on oil prices. Jeff Currie, the head of commodities research at Goldman Sachs, sees low oil prices sticking around for a while. Not only that, but Currie says the risk to oil is on the downside, not the upside. He sees a dearth of bullish catalysts, and unexpectedly high output from Saudi Arabia, Iran and Russia adding to global supplies.  He predicts oil will trade within a narrow range of $45 to $50 per barrel. “It really looks similar to the period of the early 1990s, when we were at $20 oil,” he said. “Is $45 to $50 the new $20? I am not ready to say we are in this new equilibrium environment, but it sure does feel like we’re moving in that direction.” The negative sentiment echoes the latest monthly report from the IEA, which surprised the markets with its downbeat assessment, predicting a rise in crude oil inventories through much of next year.. After several oil ports were briefly taken over by a rival general in Libya’s east, the government lifted a block on sales from three ports, which could see exports rise by 300,000 barrels per day relatively quickly. That would take output up to 600,000 barrels per day, and Libyan officials are targeting further increases to 950,000 barrels per day by the end of the year, or about triple current levels. Libya has repeatedly failed to follow through on such promises, but the prospect of a return of some Libyan supply is weighing on oil prices. Also, violence in the Niger Delta is finally calming a bit. ExxonMobil said that it would resume shipments of its Qua Iboe crude, the largest Nigerian grade. Royal Dutch Shell is also expected to bring an additional 200,000 barrels per day back in Nigeria.

 Goldman Sachs Crushes Hopes Of Oil Price Recovery | Goldman Sachs has been extremely pessimistic about the oil market over the last year and a half, and the latest from their head of commodity research, Jeff Currie, is no exception. According to Currie, crude will continue to trade within the US$45-50 band over the next 12 months. Any improvement above US$50 is highly unlikely. The analyst noted that the primary reason for the gloomy forecast is the simple lack of any upside potential for oil at present. He also suggested that the market may have already balanced itself at the current price levels, comparing the overall environment to that in the early 1990s when a barrel of crude sold for US$20. Currie told Bloomberg that OPEC’s meeting in Algeria, scheduled for September 27, when the cartel will discuss a potential freeze with Russia, will not have any notable impact on oil prices, whatever the outcome. Shale, he said, has taken the upper hand, because production in the shale patch can be ramped up or reduced much quicker than conventional oil. This development, according to Currie, has taken much of the leverage that previously was at the disposal of conventional oil producers. Currie’s remarks come on the heels of the latest Oil Market Report of the International Energy Agency, which warned that the growth in demand for crude will be slower than previously forecast this year. The IEA added that the supply will continue to be excessive through the end of the first half of 2017 at least. Of course, a lot of this supply will continue to come from the current top producers globally, but there may be additional barrels coming from Libya as well, which will certainly aggravate the glut and possibly drag prices down below US$45. Nigeria is also putting a lot of effort into resolving its problems with Niger Delta militants, and although success remains highly uncertain, it is still a possibility. In light of this, Currie’s forecast can actually be seen as cautiously optimistic.

US rig count down 2 this week to 506 (AP) — The number of rigs exploring for oil and natural gas in the U.S. declined by two this week to 506. A year ago, 842 rigs were active. Depressed energy prices have sharply curtailed oil and gas exploration. Houston oilfield services company Baker Hughes Inc. said Friday that 416 rigs sought oil and 89 explored for natural gas this week. One was listed as miscellaneous. Among major oil- and gas-producing states, Oklahoma gained three rigs and Alaska was up one. Louisiana declined by two rigs and North Dakota and Texas fell by one each. Arkansas, California, Colorado, Kansas, New Mexico, Ohio, Pennsylvania, Utah, West Virginia and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.

    Oil continues its decline after data show weekly U.S. oil-rig count up by 2 - Oil futures continued to decline Friday after data from Baker Hughes revealed that the number of active U.S. rigs drilling for oil climbed by 2 to 416 rigs this week. They have now posted increases in 11 out of the last 12 weeks. However, the total active U.S. rig count, which includes oil and natural-gas rigs, edged down by 2 to 506, Baker Hughes said. October crude CLV6 was at $42.97 a barrel on the New York Mercantile Exchange, down 94 cents, or 2.1%, from Thursday's settlement. It traded around $42.93 before the rig data.

    BHI: US oil rig count up 100 since May 27 - - The Baker Hughes Inc. count of active US oil-directed drilling rigs this week added the 99th and 100th units to come online since the drilling rebound began following the week ended May 27.  Now having gone nearly 3 months without recording a loss, the tally of oil-directed rigs rose 2 units to 416. The modest increase, however, wasn’t enough to prevent the overall US rig count from declining for just the third time in 17 weeks. The overall tally during the week ended Sept. 16 fell 2 units to 506, still up 102 units since May 27 (OGJ Online, Sept. 9, 2016).  The overall count’s recent upward momentum has come on the back of oil-directed rigs and particularly those in the Permian basin, where all 65 of the units to start operations during the rebound have targeted oil and firms continue to advance plans to mobilize drilling activity. In tandem with its $2-billion agreement this week to acquire Freeport-McMoRan Inc.’s Gulf of Mexico assets, Anadarko Petroleum Corp. reported plans to add 2 more rigs later this year in each of the Permian's Delaware basin and the DJ basin of Colorado and Wyoming, with the intent of further ramping up activity thereafter (OGJ Online, Sept. 13, 2016).Anadarko had previously said it planned to keep 6 rigs working in the Delaware basin instead of reducing the count to 4 as originally intended. The firm cited improved efficiencies and lower drilling costs as reasons for maintaining the higher count. During this week, the Permian gained 2 units to 202 while the DJ-Niobrara edged up a unit to 16. Coinciding with the increased Permian drilling activity in recent weeks is a growing number of drilled but uncompleted (DUC) wells, according to new estimates by the US Energy Information Administration.The Permian’s tally of DUC wells posted a monthly increase of 38 in August to 1,348 (OGJ Online, Sept. 13, 2016). EIA also forecasts the basin’s crude production to rise 22,000 b/d in October from its September total to just fewer than 2 million b/d. The basin represents more than a quarter of the 5,031 DUC wells counted for August in the major US oil and gas producing regions, and about two thirds of the entire US rig count increase since the drilling rebound began.

    WTI Crude Tumbles To One-Month Lows As Libya, Nigeria Supply Looms --Concerns over Libya, Nigeria compounding the already record high global crude surplus (glut) has sent WTI Crude futures to $43.50 - one-month lows...Stocks are ignoring crude's collapse for now...As Bloomberg notes, OPEC members Libya and Nigeria, whose supplies have been reduced by domestic conflicts, are preparing to boost exports within weeks. The oil surplus will last longer than previously thought as demand growth slumps and output proves resilient, the International Energy Agency said Tuesday. “Oil prices keep trading in a narrow range,” said Michael Poulsen, an analyst at Global Risk Management Ltd. “A short spike yesterday is erased this morning as supply glut worries rule.” World oil stockpiles will continue to accumulate through 2017, a fourth consecutive year of oversupply, according to the IEA. Just last month the agency predicted the market would return to equilibrium this year.

    Oil ends at mid-August low, logs a more than 6% weekly loss - Oil futures on Friday settled at lows last seen more than a month ago, suffering a sharp loss for the week as traders braced for an expected increase in oil exports from Libya and Nigeria. October West Texas Intermediate crude fell 88 cents, or 2%, to settle at $43.03 a barrel on the New York Mercantile Exchange. That was the lowest finish since Aug. 10 and the U.S. oil benchmark ended the week down 6.2%, according to FactSet data. November Brent crude on London’s ICE Futures exchange fell 82 cents, or 1.8%, to $45.77 a barrel. That was its lowest finish month to date. It fell about 4.7% for the week. “Expectations are rising for Nigerian and Libyan oil exports to increase after geopolitical tensions have crippled the [Organization of the Petroleum Exporting Countries’] exports,” said Daniel Holder, commodity analyst at Schneider Electric. “This additional supply is sending the crude complex lower.” Nigeria and Libya are both preparing to ramp up their oil exports. Royal Dutch Shell and Exxon Mobil have both lifted force majeure on Nigerian exports after militants had caused the shut-in of supply. Libya’s state oil company also lifted curbs on sales from three ports on Wednesday, ANZ Bank said.The news on the two OPEC producers come just over a week ahead of an informal meeting of major oil producers on the sidelines of an energy forum in Algeria set for Sept. 26-28. Friday’s decline “indicates that expectations of a deal between OPEC member countries and Russia. are already low and falling fast,” said Colin Cieszynski, chief market strategist at CMC Markets. “Uncertainty over the outlook for U.S., Chinese and global demand also continues to drive swings in energy markets.” Traders expect the oil producers to discuss a potential cap on production levels, but producer concerns surrounding the loss of market share have continued, especially following an increase in last week’s U.S. crude output.

    Saudi Arabia Ousts U.S. as Biggest Oil Producer, IEA Says - Bloomberg: Saudi Arabia has retaken the position of the world’s top oil producer from the U.S., according to the International Energy Agency. “Saudi Arabia’s elevated oil production has allowed it to overtake the U.S. and become the world’s largest oil producer,” the Paris-based IEA said in its monthly report on Tuesday. While Saudi Arabia added 400,000 barrels a day of output from low-cost fields since May, about 460,000 barrels a day of “high-cost” production was shut down in the U.S. America has been the world’s largest producer of crude and other liquid hydrocarbons since April 2014 following the shale oil boom. U.S. output in August stood at 12.2 million barrels a day, including natural gas liquids, according to the IEA. That compared with Saudi Arabian production of 12.58 million barrels a day the same month. The drop in U.S. production came as the number of rigs drilling for oil and gas fell to a record low of 404 on May 20, according to data from Baker Hughes Inc. That number has since recovered to 508 as of Sept. 9. Saudi Arabian crude supply climbed to 10.65 million barrels a day in July, before easing to 10.6 million in August. Production has averaged 10.36 million barrels a day in the first eight months of this year, almost 200,000 barrels a day higher than the year-earlier period.

    Do Saudis Dump '$750B' After US 9/11 Bill Passes? -  Earlier this year, Saudi Arabia warned that they stood ready to unload hundreds of billions worth of American assets were the US congress to pass a bill allowing families of victims of the 9/11 attacks to sue Saudi Arabia for damages. Maintaining that their country had no direct involvement in the attacks, Saudi officials threatened to sell off up to "$750 billion" in American assets. From the NY Times in April: Adel al-Jubeir, the Saudi foreign minister, delivered the kingdom’s message personally last month during a trip to Washington, telling lawmakers that Saudi Arabia would be forced to sell up to $750 billion in treasury securities and other assets in the United States before they could be in danger of being frozen by American courts. Several outside economists are skeptical that the Saudis will follow through, saying that such a sell-off would be difficult to execute and would end up crippling the kingdom’s economy. But the threat is another sign of the escalating tensions between Saudi Arabia and the United States. Fast-forward to the present time and US lawmakers have not taken Saudi threats seriously as the bill passed unopposed through the lower house:  The unopposed House vote Friday to allow families of Sept. 11 victims to sue Saudi Arabia begins a diplomatic nightmare for President Barack Obama. The legislation is sure to antagonize a key U.S. ally in the Middle East which already has tense relations with the administration. While Obama is likely to veto the bill, the House’s passage by voice vote raises the possibility Congress could override him, for the first time in his presidency, and make the measure law. The bill passed the Senate by a voice vote in May. The bill would carve out an exception to sovereign immunity -- the legal doctrine which protects foreign governments from lawsuits -- if a plaintiff claims to have suffered injury in the U.S. from state-sponsored terrorism. It would be up to the 9/11 victims suing KSA to demonstrate culpability via a money trail, which appears difficult to establish. What is more immediately interesting though is whether the Saudis merely bluffed about dumping American assets. Treasury records indicate that the country holds $98.3 billion in US Treasuries as of June 2016. Saudi Arabia may hold more though through indirect purchases:   Saudis can also sell off tangible investments in the US, though the stock of FDI of Middle Eastern countries as a whole in the US appears to make $100B a stretch. Moreover, hard assets are not as liquid and take time to sell.  So the questions for Saudi Arabia over the next few days are as follows: First, US lawmakers having called their bluff, will the Saudis really unload "hundreds of billions" worth of assets? Second, do they really have $750B to unload in US assets? From the limited data available to me, I'd be hard-pressed to say they have even a third as much to dispose.

    Saudis Threaten US: "Passage Of Sept 11 Law Will Lead To Instability, Chaos And Extremism" - When Congress unanimously passed a bill last Friday known as "Justice Against Sponsors of Terrorism Act," or JASTA, allowing families of 9/11 victims to sue Saudi Arabia in U.S. courts, there was confusion whether Obama would still veto said bill, as he had threatened to previously, even though by sheer numbers Obama's veto may be overruled, leaving him hanging and appearing to support a Saudi position over that of the US people. Then on Monday we got the answer when White House press secretary Josh Earnest announced that Obama would still veto said bill. "That is still the plan," Earnest said. "The president does intend to veto this legislation." The Saudis, however, are not taking any chances, and are back to engaging in the same verbal warnings they unleashed in April of this year, when they suggested passage of the law would force the kingdom to sell its US-denominated reserves: threats. As Reuters reports, a senior Saudi policy adviser on Wednesday condemned a U.S. bill that would allow families of victims of the Sept. 11 attacks to sue the kingdom for damages, "warning it would stoke instability and extremism." In other words, if Obama fails too stop a law which everyone in Congress voted for, the US would suffer.

    Saudi Press Just Accused US Govt Of Blowing Up World Trade Centers As Pretext To Perpetual War - In response to the U.S. Senate’s unanimous vote to allow 9/11 victims’ families to sue Saudi Arabia in federal court, a report published in the London-based Al-Hayat daily, by Saudi legal expert Katib al-Shammari, claims that the U.S. masterminded the terror attacks as a means of creating a nebulous “enemy” in order garner public support for a global war on terror.  The report by al-Shammari, translated by the Middle East Media Research Institute (MEMRI), claims that long-standing American policy is “built upon the principle of advance planning and future probabilities,” which the U.S. has now turned toward the Saudi regime after being successfully employed against first the Taliban and al-Qaeda, then Saddam Hussein and his secular Baathist controlled Iraq.  Al-Shammari claims the recent U.S. threats to “expose” documents implicating the Saudi government are simply the continuation of a U.S. policy, which he refers to as “victory by means of archive.” He highlights that during the initial invasion of Iraq, under George H.W. Bush, Saddam Hussein was left alive and in power to be used as “a bargaining chip,” but upon deciding that he was “no longer an ace up their sleeve” Washington moved to topple his government and install a U.S.-backed ruling party. The terrorist attacks of 9/11 are now the “ace up the sleeve” of the U.S. government, according to al-Shammari. “September 11 is one of winning cards in the American archives, because all the wise people in the world who are experts on American policy and who analyze the images and the videos [of 9/11] agree unanimously that what happened in the [Twin] Towers was a purely American action, planned and carried out within the U.S. Proof of this is the sequence of continuous explosions that dramatically ripped through both buildings… Expert structural engineers demolished them with explosives, while the planes crashing [into them] only gave the green light for the detonation – they were not the reason for the collapse. But the U.S. still spreads blame in all directions. [This policy] can be dubbed ‘victory by means of archives.”

    Now the Saudis Have Killer Drones, Too -- Saudi Arabia is the world’s newest drone power. And that could be a problem, since the Saudis are in the midst of a rather nasty war.Riyadh has signed a contract with Chinese firm Chengdu for an unspecified number of Pterodactyl drones, Saudi media reported in late August and early September.The 30-foot-long, propeller-driven Pterodactyl, which Chengdu apparently modeled on America’s iconic Predator and Reaper drones, can fly for hours at a time carrying cameras and missiles. Operators on the ground control the unmanned aerial vehicle via satellite.As far as killer drones go, the Pterodactyl probably isn’t terribly sophisticated—its sensors are certainly less capable than U.S.-made models—and that can mean the difference between life and death for innocent people caught in the crossfire as flying robots hunt militants on the ground.Just ask people in Iraq. The Baghdad government acquired rudimentary CH-4 killer drones from China in late 2015. On one of the type’s very first missions against suspected ISIS terrorists in January, the drone’s operators accidentally targeted pro-government militamen, killing nine fighters and wounding 14. The Saudi drone acquisition, for its part, could mean “grim news, especially for Yemenis,” Andrew Cockburn, author of Kill Chain: The Rise of the High-Tech Assassins, told The Daily Beast. Saudi Arabia’s Sunni regime has been bombing Shia rebels in Yemen for years, with a major escalation beginning in March 2015. The Saudi air campaign has killed thousands of civilians and destroyed irreplaceable ancient sites.

    The Horrifying Starvation of Yemen Continues - Much of the civilian population of Yemen is being starved to death. As I have said many times before, the Saudi-led blockade is primarily responsible for cutting Yemen off from its food supply. These are some of the consequences:  A boy lies on a hospital bed in Yemen’s port city of Al-Hudaydah. His eyes are full of life, but his skinny body tells another story: His arm is so thin that he can wrap his lips around it. His ribs stick out under his skin. He is one of 1.5 million children in Yemen who are suffering from malnutrition.  The scale and severity of Yemen’s humanitarian crisis are staggering, and both will only continue to worsen unless the situation changes dramatically and very soon. Not only are the lives of millions of people at risk of being lost right now, but the future development and health of an entire generation are being destroyed as well. Even if the immediate crisis is addressed with an end to the blockade and a massive infusion of aid, Yemen will be living with the destructive effects of this intervention for decades. If the international response remains as limited and halting as it has been, Yemen will suffer massive loss of life from a man-made famine that need never have happened and could have been prevented. This is what the Saudis and their allies have wrought with our government’s help.  Yemen’s ongoing starvation by the Saudi-led blockade is horrifying, but what makes it even worse is that the humanitarian crisis created by the intervention was entirely foreseeable and many warned about it when the Saudi-led war began. The disaster consuming Yemen was entirely to be expected, and it didn’t have to happen, but the Saudis and their allies went ahead and made it happen. U.S. backing for this appalling war is by far the worst thing Obama has done overseas as president, and it stands out as one of the most shameful episodes of modern U.S. foreign policy.

    Saudi Arabia Fights To Maintain Access To U.S. And British Arms Sales -- Saudi Arabia, which is fighting a brutal war in Yemen, is having to fight on a second, diplomatic front to maintain access to British and American-made arms. Foreign minister Adel Al-Jubeir was in London in early September, giving media interviews, speeches and trying to charm MPs away from supporting an arms embargo on the country. His visit coincided with news that a parliamentary committee was preparing to issue a report which called for arms sales to Riyadh to be halted. A draft version of the report seen by the BBC concluded that it was “inevitable” that British-made weapons had been used to violate international humanitarian and human rights laws in Yemen and that arms exports to Saudi Arabia should be suspended.In the U.S., there has also been considerable opposition to a $1.15bn deal to sell tanks and other equipment to Saudi Arabia, led by Republican Senator Rand Paul. The relationship is big business for defence companies in the U.S. and Britain. The two countries are by far the largest suppliers of arms to Riyadh, accounting for $2.6bn of the $3.2bn spent by Saudi Arabia on weapons last year, according to the Stockholm International Peace Research Institute. Since 2010, the U.S. has sold $4.9bn worth of arms, while Britain has sold $3.5bn.

    Saudi prince warns Iran against using force to pursue rivalry | Reuters: A senior Saudi official, responding to Iranian criticism of Riyadh's management of the haj pilgrimage, urged Iran to end what he called wrong attitudes toward Arabs and warned it against any use of force in its rivalry with the kingdom. Mecca province governor Prince Khaled al-Faisal, in remarks likely to be seen as a reference to Iran, added that the orderly conduct of the pilgrimage this year "is a response to all the lies and slanders made against the kingdom". The remarks carried by the official Saudi Press Agency (SPA) on Wednesday evening follow an escalating war of words between Shi'ite Muslim Iran and Sunni Saudi Arabia since a crush at the annual haj pilgrimage a year ago in which hundreds of pilgrims, many of them Iranians, died. SPA quoted Prince Khaled as telling journalists his message to the Iranian leadership was "I pray to God Almighty to guide them and to deter them from their transgression and their wrong attitudes toward their fellow Muslim among the Arabs in Iraq, Syria, Yemen and around the world". "But if they are preparing an army to invade us, we are not easily taken by someone who would make war on us.""When we desire, and with the help of God Almighty, we will deter every aggressor and will never relent in protecting this holy land and our dear country. No one can defile any part from our country if any one of us remains on the face of the earth."

    Exclusive: Iranian oil output stagnates for third month amid OPEC bargaining | Reuters: Iran's steep oil output growth has stalled in the past three months, new data showed, suggesting Tehran might be struggling to fulfill its plans to raise production to new highs while demanding to be excluded from any OPEC deals on supply curbs. Iran's oil output soared to 3.64 million barrels per day in June from an average of 2.84 million bpd in 2015 following the easing of Western sanctions on Tehran in January, adding to a global crude glut which has slashed oil prices. But since June, output has stagnated and reached just 3.63 million bpd in August, according to fresh OPEC data based on secondary sources, which include consultants and industry media, and seen by Reuters. Iran also told OPEC it produced 3.63 million bpd in August, according to an OPEC source. Iran became the main stumbling block to an initiative by OPEC and non-OPEC Russia earlier this year to freeze output globally. Tehran said it needed to first regain market share lost while it was under sanctions. OPEC's largest producer Saudi Arabia insisted all nations should join and the freeze deal collapsed in April.

     US military: Iranian behavior getting worse in Persian Gulf (The Hill)  Iran has stepped up its harassment of U.S. Navy ships in the Persian Gulf, angering the U.S. military and members of Congress.  Since the international nuclear deal with Iran was implemented in early January, the number of incidents involving U.S. and Iranian ships in the Gulf has approximately doubled.  The Navy has counted at least 31 interactions with Iranian naval forces deemed “unsafe”, “unprofessional”, or both, according to a defense official.  That's about as many such interactions that occurred all of last year.  And those are also only counting interactions that have met the criteria of “unsafe” or “unprofessional”.  Overall, there were more than 300 interactions between U.S. and Iranian forces last year.  That figure includes incidents in which Iranian vessels waited for and followed U.S. ships transiting in the Persian Gulf, or sailed by with their weapons uncovered, in addition to other incidents of muscle flexing considered routine. 

     Iran threatened to shoot down US Navy spy planes in the Persian Gulf | Fox News: Iran threatened to shoot down two US Navy surveillance aircraft flying close to Iranian territory in the Persian Gulf over the weekend, the latest in a series of recent provocations between Iran and the US military in the region, three US defense officials with knowledge of the incident told Fox News. On Sept. 10, a Navy P-8 Poseidon with a crew of nine and an EP-3 Eries with a crew of roughly 24, were flying a reconnaissance mission 13 miles off the coast of Iran, through the Persian Gulf, Strait of Hormuz and Gulf of Oman, according to officials who call the boundary Iran’s “black line.” Iran’s territorial waters—like all nations--extend 12 miles into the sea, according to international maritime law. At some point during the flight, the Iranian military warned the two aircraft to change course or risk getting shot down. The US military planes ignored the warning and continued flying in international airspace, although close to Iranian territory, the officials told Fox. “We wanted to test the Iranian reaction,” one US official told Fox News when asked why the US jets were flying close to Iran.

    Israel will reportedly get a record $38 billion in military aid from the US - The United States is reportedly about to give its biggest-ever pledge of military assistance to Israel. According to sources who spoke to Reuters, the two countries recently came to a final agreement on a new military assistance pact that will see the US give Israel at least $3.8 billion a year for a decade. Under the previous deal, which expires in 2018, Israel received more than $3.1 billion annually. In addition to being America's largest-ever grant of military aid to its longtime ally, the new agreement, which is set to be signed within days, contains several firsts. The funding includes money set aside for Israeli missile defense, which in the past had been funded ad-hoc by US Congress to the tune of up to $600 million annually. And in exchange for the military package, Israel will refrain from lobbying Congress for additional funds throughout the duration of the new pledge — though sources told Reuters the wording of the deal may allow exceptions to be made in the event of war. Sources said that Israel made several concessions in the deal. Israeli prime minister Benjamin Netanyahu originally asked for at least $4.5 billion each year. And as part of the new deal, Israel will have to scale down the amount of American military aid money it spends on its own defense industry. Currently, Israel spends about 26 percent of US aid on domestic military contractors; Washington wants that to go to US companies instead. Decades of US aid has helped Israel raise one of the world's most formidable military forces. A 2015 report from Credit Suisse ranked the Israeli military the world's 14th most powerful.

    New Tricks Make ISIS, Once Easily Tracked, a Sophisticated Opponent - WSJ: Weeks before Islamic State militant Abdelhamid Abaaoud led the Nov. 13 terror attacks in Paris, French authorities thought he was holed up in northern Syria. Western Intelligence agencies pursuing Abaaoud had tracked him there using cell-phone location data and other electronic footprints. The Paris attacks, which killed 130 people, showed how badly they were fooled. Abaaoud had slipped past the dragnet and entered the city unnoticed. Drawing from a growing bag of tricks, Islamic State accomplices located in Syria likely used phones and WhatsApp accounts belonging to Abaaoud and other attackers to mask the group’s travel to Europe, said a Western security official: “We relied too much on technology. And we lost track.” Terror attacks in Europe, which have killed more than 200 people in the past 20 months, reflect new operational discipline and technical savvy by the Islamic State terrorists who carried them out, security officials said.The extremist group’s communications, once commonly conducted on phones and social media accounts easily tracked by authorities, have evolved into a mix of encrypted chat-app messages over WhatsApp and Telegram, face-to-face meetings, written notes, stretches of silence and misdirection.  These techniques helped protect attackers from Western intelligence agencies by leaving few electronic clues in a sea of intercepted data.  In recent months, Europe has been convulsed by a string of simple yet lethal attacks. Some were committed by people who appear to have received little direct training from Islamic State. The suspects in a failed plot in France last week were “remotely controlled” from Syria by the group, prosecutors said Friday. Officials worry such attacks could be a way to distract intelligence services while militants prepare more complex plots.

    What Happens After ISIS Falls? - It is easy to think that Islamic State is still on the march. It isn’t. Over the past year, the territory under its control—once roughly the size of the U.K.—has shrunk rapidly in both Iraq and Syria. Islamic State has lost the Iraqi cities of Ramadi and Fallujah, the ancient Syrian city of Palmyra and the northern Syrian countryside bordering on Turkey. Its militants in Libya were ousted in recent weeks from their headquarters in Sirte. In coming months, the group will face a battle that it is unlikely to win for its two most important remaining centers—Mosul in Iraq and Raqqa in Syria.  It may be tempting fate to ask the question, but it must be asked all the same: What happens once Islamic State falls? The future of the Middle East may well depend on who fills the void that it leaves behind both on the ground and, perhaps more important, in the imagination of jihadists around the world. Oone likely consequence of the demise of ISIS (as Islamic State in Iraq and Syria is often known) will be to revive its ideological rival, al Qaeda, which opposed Mr. Baghdadi’s ambitions from the start. Al Qaeda may yet unleash a fresh wave of terrorist attacks in the West and elsewhere—as may the remnants of Islamic State, eager to show that they still matter.  “Simply having ISIS go away doesn’t mean that the jihadist problem goes away,” said Daniel Benjamin of Dartmouth College, who served as the State Department’s counterterrorism coordinator during the Obama administration. “Eliminating the caliphate will be an achievement—but more likely, it will be just the end of the beginning rather than the beginning of the end.”

    Hopes fade for peaceful Eid in Syria as over 100 killed -  Ruinous violence has raged in several parts of Syria, shortly after the US and Russia sealed an ambitious agreement aimed at breathing life back into a stuttering peace process.More than 100 people were reported killed in a series of bombing raids on rebel-held parts of Aleppo province in the north of the country, and in Idlib in the north-west.The worst strikes were in Idlib city, the capital of the province of the same name, where they hit a market, killing 55 civilians."A Russian fighter jet targeted a residential area and a market in Idlib," said Al Jazeera's Adham Abu al-Husam, reporting from the city as civil defence forces, firefighters and paramedics worked to pull survivors from the rubble. "The marketplace was full of civilians shopping for the upcoming Eid holiday."In Aleppo, at least 46 civilians, including nine children, were killed in a bombardment of opposition-held areas, an Al Jazeera correspondent in the city said.The raids on Idlib and Aleppo were believed to have been carried out by Syrian army fighter jets, or those of its main ally Russia.

    Syria war: Cessation of hostilities comes into effect - BBC News: A cessation of hostilities has come into effect in Syria, although it is unclear how widely it will be observed. The Syrian army says it is implementing the truce, which began at sunset, but rebel groups have been more guarded. US Secretary of State John Kerry, who helped broker the deal, warned it could be the last chance for peace in a united Syria. Humanitarian groups are hoping to make aid deliveries to the worst-hit areas, especially the war-torn city of Aleppo. Mr Kerry, speaking at the state department in Washington, said early reports indicated "some reduction in violence". But he said that it was too early to draw a definitive conclusion about how effective the truce would be. Just after the ceasefire came into effect at sunset on Monday, the Syrian army announced a seven-day "freeze" on military operations.  The Syrian Observatory for Human Rights monitoring group reported that calm appeared to be prevailing on most front lines. The deal was struck on Friday in Geneva after months of talks between Russia and the US. It also requires both sides to allow unhindered access for humanitarian aid to besieged areas.

    Details of Syria Pact Widen Rift Between John Kerry and Pentagon - — The agreement that Secretary of State John Kerry announced with Russia to reduce the killing in Syria has widened an increasingly public divide between Mr. Kerry and Defense Secretary Ashton B. Carter, who has deep reservations about the plan for American and Russian forces to jointly target terrorist groups.Mr. Carter was among the administration officials who pushed against the agreement on a conference call with the White House last week as Mr. Kerry, joining the argument from a secure facility in Geneva, grew increasingly frustrated. Although President Obama ultimately approved the effort after hours of debate, Pentagon officials remain unconvinced.On Tuesday at the Pentagon, officials would not even agree that if a cessation of violence in Syria held for seven days — the initial part of the deal — the Defense Department would put in place its part of the agreement on the eighth day: an extraordinary collaboration between the United States and Russia that calls for the American military to share information with Moscow on Islamic State targets in Syria.“I’m not saying yes or no,” Lt. Gen. Jeffrey L. Harrigian, commander of the United States Air Forces Central Command, told reporters on a video conference call. “It would be premature to say that we’re going to jump right into it.”White House officials were also dubious. “I think we’d have some reasons to be skeptical that the Russians are able or are willing to implement the arrangement consistent with the way it’s been described,” Josh Earnest, the White House press secretary, said Monday at a briefing. He added, darkly, “But we’ll see.” In Mr. Kerry’s view, the administration has needed to do everything it can to restrain the forces of President Bashar al-Assad of Syria from continuing to bomb civilians. Once the Russians entered the war, that meant making the deal with President Vladimir V. Putin — one in which the Russians would pressure Mr. Assad to stay out of the skies.

    US Troops Forced To Flee Town After US-Backed Rebels Threaten To "Slaughter" Them --  US special forces soldiers were reportedly forced to flee a town in northern Syria after Free Syrian Army fighters threatened to "slaughter" them for their "invasion",according to videos and reports posted on social media on Friday.Full video of #FSA chasing #US #SOF of #AlRai #Aleppo "We're going to slaughter u. Ur coming to invade #Syria" The US soldiers were working with Turkish forces as they advanced on al-Rai, Aleppo, in preparation for an offensive against nearby al-Bab, which is controlled by the Islamic State group.The FSA is allied with Turkish forces and ostensibly supported by the US as a "moderate" rebel group fighting against the government of Bashar al-Assad.However, Friday's confrontation highlights the complex nature of the war in Syria.  In the video, fighters from the FSA chant that US forces are "pigs", "crusaders" and "infidels". "Dogs, agents of America," one man can be heard to say in Arabic, while others chant "They are crusaders and infidels", "Down with America", "'Get out you pigs" and "They are coming to Syria to occupy it". A voice on a megaphone can be heard to say there will be a "slaughter". The US forces were reportedly forced to leave the town after the protests.The video was posted on Twitter hours after pictures showing men in US military uniform in al-Rai. Another video showed US soldiers in a column of armoured vehicles and Turkish tanks speeding out of al-Rai, which is known in Turkish as Cobanbey.

    Russia may rise to super power status again following US deal over Syria - Russia could be poised to become a super power again after agreeing with the US to launch what amounts to a joint air campaign against the two main extreme Islamist groups in Syria. If the ceasefire that starts at sunset on Monday holds for seven consecutive days and the UN is able to deliver aid to besieged people in Aleppo, then the US and Russia will establish “a joint implementation centre” that will organise joint military targeting by American and Russian aircraft directed against Isis and Jabhat al-Nusra, the Syrian branch of al-Qaeda which has relabelled itself – with al-Qaeda publicly assenting to a break with its affiliate – as Jabhat Fateh al-Sham.    For the US and Russia to plan and implement what may be a lengthy air campaign in Syria is perhaps the most striking aspect of the deal announced in Geneva early on Saturday morning. If the plan goes ahead, it goes a long way towards elevating Russia back to the status of a superpower – at least in the Middle East – that it lost with fall of the Soviet Union in 1991. Military partnership with the US, though in pursuit of the single objective of attacking Isis and al-Nusra, is a powerful incentive for Moscow to insist that the Syrian air force stop combat missions over all opposition areas, aside from those held by Isis.

    US to pay '$1.2m' to Italian family of drone strike victim - The US government has agreed to pay €1.1m ($1.2m; £934,000) to the family of an Italian aid worker killed by a drone strike in Pakistan, reports say. Aid worker Giovanni Lo Porto, 37, was killed while being held hostage by al-Qaeda in 2015.US aid worker Warren Weinstein, 73, being held with him also died in the operation.The White House has confirmed that payments were made to both families, without releasing details.  President Barack Obama admitted the deaths in April last year, saying that he profoundly regretted them. It was announced that compensation would be paid to the families.  Officials said at the time that the operation had targeted an al-Qaeda compound in the border region of Afghanistan and Pakistan, and that they had believed there were no civilians present. But according to La Repubblica newspaper (in Italian) and the Guardian newspaper, the agreement states that Mr Lo Porto was killed inside Pakistan. US military commanders have long tried to make condolence payments to families of innocent people who've been killed in operations in Iraq and Afghanistan. Making these payments has been harder when the civilians were killed in drone strikes in Pakistan, Libya and other places where the US is not officially at war, however. The drone strikes themselves were kept secret, and determining whether - or how - to provide money for victims' families has been fraught.

    Is China Deliberately Trying To De-Rail The Russia/Saudi Oil Deal? -- China, the world’s largest oil consumer, has been increasing oil imports and feasting on the low crude oil prices. Could Russia and Saudi Arabia’s plan to stabilize crude oil prices cut into China’s oil hoarding plans?  Chinese oil imports have increased to 32.85 million tons in August, the second highest figure after the record 33.19 million tons import figures of December 2015. It’s a 7 percent increase over the same period last year, and a 6 percent increase over July. Currently, the Asian giant imports 66 percent of its crude oil requirements.  “Chinese oil majors are no longer under orders to increase domestic production, as they were doing so at a loss,” said Adam Ritchie, executive general manager for supply at Caltex Australia Ltd. “China’s change to let economics decide between imports and domestic production is a big change,” reports Bloomberg. Russia and Saudi Arabia, the two largest suppliers, have been battling it out to increase their market share in China. While Russia has increased its market share in China from 12.6 percent last year to 13.6 percent this year, Saudi’s have seen their share dip from 15.1 percent to 14 percent during the same period.“There’s a market-share battle going on mainly among the Middle East producers and Russia,” Olivier Jakob, managing director of Petromatrix, said by phone from Zug, Switzerland. “Rivals are making a big push into China,” reports Bloomberg. An agreement between both the competing producer nations reduces the bargaining power of the Chinese refiners, who had started to choose the spot sales offered by Russia against the long-term contracts policy of Saudi Arabia.Nevertheless, the Chinese can breathe easy, because like many other experts globally, even the Chinese analysts are not confident that the deal between Saudi Arabia and Russia will result in any substantive action. "It will be very difficult to implement this agreement, as the volume for each exporter country is different. Many countries - producers of oil and gas rely on exports, so they are unlikely to agree to the terms of the agreement," a senior consultant for Sinopec Yang Qixi said.

    China's peak oil problem --  First, an update on China's peak oil problem -- Chinese oil production has tanked; lowest in six years -- Forbes. I first posted a "China's peak oil" problem back on August 26, 2016. This from Forbes dated today's date. Some data points:

    • China: world's second largest crude oil importer
    • China: fifth largest crude oil producer
    • China: domestic production fell nearly 10% in the past 12 months -- the lowest in more than six (6) years
    • second consecutive month of decline in production
    • but look at this: Chinese production is in the same ballpark as the Bakken unfettered
    • Bakken unfettered: 2.2 million bopd
    • Chinese production: 3.87 million bopd
    • Chinese imports reaching record highs
    • up 16% this past year
    • on glide path to pass US as the world's largest oil importer

     Analysis: China crude oil imports rebound in Aug despite lower runs, pushes excess to tanks - China's crude oil imports rebounded in August despite lower crude throughput at both state-owned and independent refineries, implying that the excess imported barrels likely made their way to storage tanks. China imported a total of 32.85 million mt, or 7.77 million b/d, of crude in August, up 5.7% from July, the first rebound after three consecutive month-on-month declines since April, when 7.96 million b/d of crude was imported, S&P Global Platts' calculation based on customs data showed. China's state-owned oil refiners Sinopec, PetroChina and China National Offshore Oil Corporation, planned to operate their plants at an average of 80% of nameplate capacity in August, down two percentage points from the planned run rate of 82% in July, according to a Platts survey. The actual average operating rate in August may, however, be lower than 80%, as some of the refineries under maintenance were not included in the survey, Platts previously reported.In addition, the 38 independent refineries in Shandong that were surveyed also lowered primary throughput in August to an average of 46.5% of their processing capacities, down from 47.2% in July, data from Beijing information provider JYD showed. Lower crude throughput last month was mainly due to maintenance at some of the refineries, market sources said.

    Analysis: China's refinery throughput seen rebounding in Sep on seasonal demand - China's refinery throughput is expected to rebound in September as refinery maintenance comes to an end and the country gears up to meet seasonal revival in demand, sources said. The country has been registering downward slides in throughput over the past two months -- preliminary data released Tuesday by the National Bureau of Statistics showed August throughput fell 2.3% month on month to 44.28 million mt, or 10.47 million b/d. It was the second consecutive monthly drop in throughput, which hit a historic high of 11.02 million b/d in June 2016, S&P Global Platts calculations based on NBS data showed.The volume was in line with a S&P Global Platts monthly survey in August, which highlighted the downward trend in state-owned refineries' crude throughput. "China's throughput is expected to rebound in September given the fact that several refineries of Sinopec and PetroChina will resume operations after maintenance, while runs at independent refineries will also rise due to better oil products demand," a Shanghai-based analyst said. China's state-owned oil refiners -- Sinopec, PetroChina and China National Offshore Oil Corporation -- planned to operate their plants at an average 80% of their nameplate capacity in August, down two percentage points from the planned run rate of 82% in July, according to a Platts survey.

     China vows to cut aluminum output, but producers plan growth | Fox News: China's leaders are promising to rein in aluminum production that is flooding global markets and threatening jobs in the United States and Europe, but its producers have ambitious plans to expand. The glut has cut costs for Western buyers of aluminum used to make lighter cars and aircraft. Prices have fallen so low, though, that U.S. and European smelters are closing, prompting demands for trade penalties. An array of Chinese industries from aluminum, steel and coal to makers of solar panels and glass mushroomed over the past decade until supply vastly exceeded demand. The surplus has widened as China's economy cooled. The Communist leadership has been promising since 2009 to cut overcapacity and reduce reliance on energy-guzzling heavy industry. But they face resistance from local officials who are reluctant to lose jobs and tax revenue. Plans issued in February call for shrinking the steel and coal industries at a loss of 1.8 million jobs. The Cabinet says it plans to close 45 million tons of steel production this year and has done about one-third of that so far. Beijing agreed at the Group of 20 meeting of major economies this month to cooperate more closely on steel by forming a global forum to exchange information on the status of efforts to shrink its industry. But it avoided any binding commitments. Beijing has yet to issue plans for other industries but affirmed its pledge to reduce excess capacity at an earlier G20 meeting in July. Despite that, Chinese smelters that make more than half the world's aluminum are adding millions of tons of capacity, supported by what Western competitors complain are improper subsidies including low-cost power. Output in June hit a monthly record of 2.7 million tons

    China's Infrastructure Planners are on a Road to Nowhere - Bloomberg: For all the roads, bridges and railways that China builds every year in an effort to keep the economy humming, the massive splurge may not be having the desired effect. That's because more than half of China's infrastructure investment has destroyed economic value instead of generating it, according to a study from the University of Oxford's Saïd Business School. "The evidence suggests that for over half of the infrastructure investments in China made in the last three decades the costs are larger than the benefits they generate," according to Atif Ansar, one of the study's co-authors. What's more, unless China shifts its focus to fewer and higher quality types of public works that leave a positive legacy "the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy," according to the analysis that's published in the Oxford Review of Economic Policy. China spent more than $10.8 trillion in infrastructure in the last decade alone, according to Bloomberg calculations based on official data of investment in categories such as transport, storage, power supply and water conservation. The Oxford study's findings jar with views that China's aggressive government-led infrastructure spending is vital to keep growth on track. Researchers examined 21 large rail projects and 74 road projects whose starting dates ranged from 1984 to 2008. They then compared the economic value of those to 806 transport projects built in rich democracies. Instead of finding a long lasting, positive economic legacy, the Oxford study found that 75 percent of the transport projects in China exceeded budget. While one third of the roads built were congested, 41 percent of them have low usage. Both extremes are equally undesirable because "large unused capacity equals waste, as does too little capacity," according to the paper. The buildup has also exacerbated China’s swelling debt as cost overruns equal about a third of the nation’s $28.2 trillion debt mountain, according to the paper.

    How China’s Past Stimulus Is Dogging Its Growth Prospects - Weaker economic growth in China can be traced to the way it deployed fiscal stimulus to fight the financial crisis, an approach that enabled local governments to misallocate capital, new research says. China’s fiscal stimulus in the years following the 2008 collapse of Lehman Brothers was implemented by local governments and mostly financed by the relaxation of financial constraints, according to the paper, “The Long Shadow of a Fiscal Expansion,” to be presented Friday at a Brookings Institution conference. Local governments were allowed to create off-balance-sheet companies known as local financial vehicles in 2009 and 2010 to fund the stimulus spending. Off-balance-sheet liabilities can be a source of uncertainty as they potentially obscure debt loads that aren’t included in officially reported numbers. The study by Chong-En Bai of Tsinghua University, Chang-Tai Hsieh of the University of Chicago and Zheng Michael Song of the Chinese University of Hong Kong says only a quarter of China’s stimulus spending shows up on the government’s balance sheet. Three quarters of the spending was conducted by entities that were off local governments’ balance sheets. The new local financing vehicles bridged the gap between an increase in the investment rate and the budget deficit, the paper says. That explains a small increase in the Chinese government’s budget deficit despite higher spending on public infrastructure projects. Despite the stronger investment rate after 2008, aggregate growth rates declined significantly after fiscal stimulus ended in 2010.“In short, the fiscal stimulus was really partial financial liberalization,” the paper says, since financial constraints were lifted only for local governments, and not for private financial institutions or for state-owned banks.

    A killer plan to solve China's huge debt problem includes orchestrating defaults - China has a huge debt problem but analysts at Nomura have come up with a radical series of policies to solve the problem, including sparking defaults before they would normally happen. Craig Chan and his team at Nomura released a note on Tuesday entitled "China: Solving the debt problem." They laid out some key ways in which China could pull itself back from the brink of a major crisis:

    Donald Trump Is A Few Years Behind on the China Currency Problem - Republican presidential candidate Donald Trump says he’ll label China a currency manipulator if he’s in the White House. He’s a little late. “They are a manipulator, grand master level,” Mr. Trump said Thursday in a speech at the Economic Club of New York. “I am going to instruct my Treasury Secretary to label China a currency manipulator, and to apply tariffs to any country that devalues its currency to gain an unfair advantage over the United States.” Few U.S. economists would disagree China kept the yuan undervalued over the last two decades. But many economists–including some of the strongest advocates for action against Beijing––say the yuan is now close to fair value. Beijing appreciated the yuan from 2005 to 2014. Anytime during that period, when the yuan was widely considered undervalued, the U.S. could have labeled the country a currency manipulator in the Treasury Department’s semi-annual currency report That could have opened the door to sanctions. But both Republican and Democratic administrations chose to take a more diplomatic tack, trying to cajole Beijing into action. Now, China’s economy is cooling and many analysts fear growth could slow substantially. Those worries are putting strong downward pressure on the currency.

    China Ups the Game in the South China Sea: The Joint Sea-2016 started this Monday; that’s the fifth annual China-Russia naval drill, featuring stalwarts from both navies in action at the eastern waters of Zhanjiang, in Guangdong province, the HQ of the People’s Liberation Army (PLA) Navy Nanhai Fleet.Considering this is the first time that the Joint Sea is happening in the South China Sea, apocalyptic alarms from the usual suspects could not be more predictable – and thoroughly dismissed by the Beijing leadership. The Joint Sea-2016 intervenes just after a quite significant holding hand moment last week in Laos. Hand holders were no less than China’s premier Li Keqiang and Filipino President Rodrigo Duterte, a.k.a. The Punisher, clad for a change in full suit and tie regalia.There were good reasons for such camaraderie. After all China and ASEAN had just agreed that the framework for a legally binding code of conduct in the South China Sea will be in effect before the end of the year. Singapore lobbied “vigorously” for this key development. Beijing regards Singapore as “a key partner for cooperation in the region”, as Li told Xinhua. The Punisher’s own press secretary, Martin Andanar, squared the circle; “Our president also expressed his approval of having a framework for a code of conduct.” The setting — Laos — could not be more strategically appropriate for China. For three years now China is Laos’s biggest investor – mostly in energy and mining, including the construction of the $868 million Nam Ngiep 1 hydropower project. Key planned projects include the $1.6 billion Luang Marsh Special Economic Zone (SEZ) near Vientiane, and — what else – a 472 km railway between Kunming in Yunnan province and Vientiane, with an extension to Thailand, to be completed by 2021. That will be part of the Southeast Asian branch of the New Silk Roads.

     BOJ to make negative rates centerpiece of future easing: sources | Reuters: The Bank of Japan will consider making negative interest rates the centerpiece of future monetary easing by shifting its prime policy target to interest rates from base money at its review next week, sources familiar with its thinking say. The change would underscore growing concerns in the central bank and financial markets over the limits to the BOJ's economic stimulus efforts, as more than three years of aggressive bond buying is draining market liquidity. It would also be a shift away from the BOJ's unique monetary experiment that attempted to crush yields across the curve and try to convince the public that its massive money printing will boost economic activity and prices. "Among the BOJ's policy tools, the priority will likely shift more towards interest rates and away from huge bond purchases," said one of the sources on condition of anonymity. The Nikkei reported earlier on Wednesday that the BOJ will put more emphasis on negative rates as a tool for future easing. The BOJ is unlikely to abandon its current base money target, which is the amount of money it commits to print each year, or adopt an explicit cap on long-term rates, they said. Still, by shifting its policy focus to negative rates, the BOJ hopes to dispel growing market views that the unpopularity of negative rates among the public would discourage it to cut rates, even if it would arrest unwelcome rises in the yen. A prolonged period of indecision by the Federal Reserve could undermine the dollar and push up the yen, which has already surged nearly 17 percent so far this year, pressuring Japan's export machine. There is no consensus in the BOJ yet on whether to deepen negative rates at the Sept. 20-21 meeting, when it conducts the comprehensive assessment of its policies, the sources said.

    The alchemists who turn negative bond yields into profit - Gillian Tett, FT - Why on earth would anyone buy a bond that yields a negative interest rate? That is the $12.6tn question gripping global markets as the pile of negative yielding bonds mounts. If you ask investors, they typically offer two replies: “desperation” (they cannot think of anywhere else to park their funds) or “regulation” (they have to buy bonds to comply with financial supervision rules or investment mandates).  But there is a third explanation: some investors have found ways to make those negative yields pay — and not just through traders “churning” bonds to generate commission.  The real cause is that government intervention to reinvigorate stagnant economies has left markets so peculiarly distorted that there is potential for canny alchemy — and profits. For one example of this, look at dollar-yen cross currency swaps. This rather esoteric corner of finance normally goes unnoticed by the wider world. But right now there are two reasons it merits greater attention.  First, the Bank of Japan will publish on September 21 a hotly anticipated report about the impact of negative rates. Second, it is evident that recent developments in this swaps market have been bizarre. The issue at stake is the spread — in effect, the cost of converting short-term yen contracts into dollars. Three decades ago, this spread was around zero, since demand for dollars and yen was evenly balanced. But when the Japanese financial crisis erupted in 1997-98 the country’s banks grew increasingly stigmatised and the one-year spread widened to minus 35 basis points, meaning in effect that anyone converting yen into dollars paid a penalty.  After 1999, the spread returned to zero. It has subsequently widened twice at points when financial crises have sparked a global dash into dollars. In 2008 it hit minus 70bp; and in 2011 during the eurozone debt crisis it touched minus 50bp.  In between, the spread shrank — as you would expect when markets are calm and functioning normally.  What is peculiar now, however, is that since 2015 that spread has widened and stayed at that level, hitting minus 70bp for one-year swaps. That is in part because Japanese institutions are keen to get hold of dollars, to enable them to buy assets that might produce a return at a time when yen rates are negative.

    Hanjin’s Fall Is Lehman Moment for Shipping, Seaspan CEO Says -- The fall of South Korea’s biggest container line Hanjin Shipping Co. is similar to the 2008 collapse of Lehman Brothers Holdings Inc. and has materially impacted the shipping industry, Seaspan Corp. Chief Executive Officer Gerry Wang said.   Seaspan, the Hong Kong-based container-ship leasing company that has three vessels chartered to the distressed line, is evaluating all options and examining systemic risks resulting from Hanjin’s bankruptcy filing, Wang said in an interview with Bloomberg Television. In June, Wang had rejected Hanjin’s requests for charter-rate cuts before the shipping line filed for court receivership last month.  “The fallout of Hanjin Shipping is like Lehman Brothers to the financial markets,” Wang said. “It’s a huge, huge nuclear bomb. It shakes up the supply chain, the cornerstone of globalization.”  With about 93 ships, including 79 container vessels, stranded at 51 ports in 26 countries, the gridlock at Hanjin has disrupted global supply chains during “peak season” when stores in the U.S. stock up before the year’s busiest holiday shopping season. The owner and Hanjin’s parent are in the process of injecting funds to help the beleaguered company offload cargo stuck aboard many ships and break the impasse. The impact on Seaspan has been small, Wang said, adding he is seeing a “silver lining” as freight rates improve in the short term. The vessels he has leased to other shippers are more than 90 percent full ahead of the holiday season, he said. Seaspan has an operating fleet of about 90 vessels.   “There’s a tremendous flight to safety,” he said. “Freight rates have shot up like crazy over the short term, the long term I don’t know. But one thing’s for sure: This fallout will help demand and supply.” Hanjin Chairman Cho Yang Ho completed infusing 40 billion won ($36 million) to help the tottering unit, three days after group affiliate Korean Air Lines Co., the biggest shareholder, approved pumping 60 billion won. A former chairwoman of Hanjin Shipping pledged 10 billion won on Monday from her personal wealth as relief to the company. The South Korean government estimates Hanjin Shipping needs at least 600 billion won to cover unpaid costs like fuel and cargo handling.

     Hanjin Brings One of World's Busiest Shipping Terminals Close to Standstill - Bloomberg: The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships. Last week the terminal, as big as 100 football fields, came to a virtual standstill. In front of hundreds of containers stacked four-high, Seo Seong Deok, a 35-year-old driver of the port tractors, wondered if he would ever get to move them again. “We have no work now,” said Seo, one of about 1,000 tractor drivers without work. “This Hanjin terminal used to be always bustling with trucks and ships. Now, I heard some fresh food such as mango or banana is rotting in Hanjin container ships drifting somewhere in the ocean.” Since the world’s seventh-largest container line filed for protection from creditors on Aug. 31, the port has been paralyzed as unshipped boxes piled up. The collapse has come at the worst time: September is peak season for the industry as manufacturers look to stock store shelves for holidays like Thanksgiving and Christmas. Port officials say cargo owners have been scrambling to find alternative ways to send goods. For a map of Busan, click here. The port in Busan, on the tip of the Korean peninsula about 325 kilometers (200 miles) southeast of Seoul, handles more than 70 percent of the containers that enter or leave South Korea, according to local government data. Until last week, Hanjin alone accounted for about 10 percent of goods that flow through its wharves.

    Three ships chartered to troubled Hanjin sold, more on the block | Reuters: Three ships chartered to Hanjin Shipping Co Ltd (117930.KS) have been sold and two more vessels are up for sale, ship brokers said on Wednesday, kicking off an asset sale sparked by the failure of the world's seventh largest container shipper. Around $14 billion of cargo has been tied up globally as ports, tugboat operators and cargo handling firms worried about not being paid refuse to work for Hanjin, which filed for receivership in a Seoul court on Aug 31. While some ships have been offloaded since then, bottlenecks are forming at some ports and truck yards as containers pile up. Three bulk carriers, used for carrying commodities such as iron ore, coal and grain, were sold by lessors for a total of almost $39 million, according to data from ship valuation firm VesselsValue. The largest, the 180,000 deadweight tonne (DWT) capesize Hanjin Matsuyama, was sold by Japanese shipping firm Kumiai Senpaku to Singapore-based Winning Shipping for $22.75 million, according to the data. An official at Winning said the deal had not yet been completed. The five-year old ship, last tracked off South Korea, was sold charter-free, meaning it is no longer chartered by Hanjin Shipping, a ship broker told Reuters. The two smaller 37,000 DWT handyside vessels have been sold to Greek buyers, also charter-free, the broker said. Vessels that are sold can be bought by their new owners with existing charter, or rental, agreements in place or charter-free, meaning they can be hired out to new firms such as commodities companies.

    Philippines: Duterte blasts former colonizers in front of Obama -- PHILIPPINE President Rodrigo Duterte has reportedly taken another swipe at the United States in a thinly veiled jibe, saying former colonizers who committed atrocities in the country historically are now raising human rights concerns with his administration. Reports said Duterte veered off his speech Thursday at the Association of Southeast Asian Nation (ASEAN) summit in Laos, and launched into another tirade in the presence of US President Barack Obama and several world leaders.According to the Associated Press, two Philippine Cabinet officials said Duterte did not criticize any country or leader by name in his speech. Other diplomats who heard the speech, however, felt he was referring to the United States, which colonized the Philippines after defeating its former ruler, Spain.  An Indonesian diplomat said Duterte held up a picture of Filipinos killed in colonial times to underscore his point. The diplomat spoke to reporters on condition that he not be named because of the sensitivity of the issue.

    Indonesia gets green light to ‘blow up’ pirates in Philippine waters -- PHILIPPINE President Rodrigo Duterte said Friday that Indonesian maritime authorities will be allowed to enter his country’s territorial waters to capture pirates. The Filipino leader, speaking in Jakarta after arriving from the Asean and East Asia summits, explained that this was the agreement made with his Indonesian counterpart Joko “Jokowi” Widodo during their Laos meet. “We can make it clear that if the chase begins in Indonesia and continues in international waters, and inside Philippine waters, they can go ahead and blast them off. “That’s the agreement, blow them up, that’s my word actually with Widodo, I said, ‘Blow them up’,” Duterte was quoted saying in Straits Times.

     Duterte says he wants U.S. special forces out of southern Philippines | Reuters: President Rodrigo Duterte on Monday called for the withdrawal of U.S. special forces troops from a group of islands in the southern Philippines, saying their presence could complicate offensives against Islamist militants notorious for beheading Westerners. Duterte, who was in the spotlight last week over a televised tirade against the United States and President Barack Obama, said the Americans still in Mindanao were high-value targets for the Islamic State-linked Abu Sayyaf militants as counter-insurgency operations intensify. "They have to go," Duterte said in a speech during an oath-taking ceremony for new officials. "I do not want a rift with America. But they have to go." He added: "Americans, they will really kill them, they will try to kidnap them to get ransom." The comments by Duterte, a former southern mayor known for his terse words and volatile temperament, add to uncertainty about what impact his rise to the presidency this year will have on one of Washington's most important alliances in Asia. A spokesman for the U.S. State Department, John Kirby, said it was not aware of any official communication by Manila calling for a withdrawal. He said Washington remained committed to the alliance. Another U.S. official said there were only a "handful" of special forces in the Mindanao acting in limited liaison roles.

    Philippines leader 'ordered 1,000 killings' as mayor: Philippines President Rodrigo Duterte ordered the killings of around 1,000 criminals and political opponents while he was a city mayor - and shot one of them himself, a former assassin has claimed. Edgar Matobato, 57, told the country's Senate that he personally carried out about 50 abductions and deadly assaults. "We'd remove their clothes, burn the bodies and chop them up," he said. One of the victims - a suspected kidnapper - was apparently fed alive to a crocodile in 2007 in southern Davao del Sur province. Others were buried at a quarry owned by another member of the Davao Death Squad (DDS), which was made up of policemen and ex-communist rebels. Speaking under oath, Mr Matobato said: "Our job was to kill drug pushers, rapists, snatchers." But he added that the targets were not always criminals. One was apparently the boyfriend of Mr Duterte's sister, another was a local broadcaster who had criticised the then Davao City mayor, and four were a local rival's bodyguards, he claimed. Mr Matobato alleged that an additional pair were enemies of Mr Duterte's son Paolo, who is now vice mayor of Davao City.

    Philippines president ordered murders and killed official, claims hitman -- The Philippines president, Rodrigo Duterte, ordered members of a death squad to kill criminals and opponents and even personally “finished off” a justice department employee with a submachine gun, a self-confessed former assassin has testified.  Edgar Matobato, 57, told a nationally televised senate committee hearing that he had heard Duterte order some of the assaults that left around 1,000 people dead from 1988 to 2013 in Davao city, where Duterte was mayor for more than two decades.The inquiry is being led by senator Leila de Lima, a staunch critic of Duterte’s anti-drug campaign that has left more than 3,000 suspected drug users and dealers dead since he assumed the presidency in June.Duterte, who is known as both “the Punisher” and “Duterte Harry” for his bloody stance on fighting crime, has previously denied involvement in extra-judicial killings, but also made contradictory statements that he either condones or is even part of the vigilante group known as the Davao Death Squad.The presidential spokesman Martin Andanar rejected Matobato’s accusation on Thursday, saying the government had investigated Duterte’s time as mayor. “I don’t think he’s capable of giving a directive like that. The Commission on Human Rights already investigated this a long time ago and no charges were filed,” he said. The justice secretary, Vitaliano Aguirre, called the allegations “lies and fabrications”.   Matobato told the senate hearing that he had carried out about 50 of the killings, including that of a man who was fed to a crocodile in 2007. “I didn’t kill anyone unless ordered by Charlie Mike,” he said, telling the senate it was the vigilante squad’s code name for the then-mayor.

    SUMMARY: Allegations of ‘DDS’ member in Senate hearing - Here’s a summary of the allegations of 57-year-old Edgar Matobato, who said he was hired by Duterte as one of the “Lambado Boys” in 1988, which eventually evolved into the infamous DDS:

    • -Matobato said he was a “ghost employee” at the Davao City Hall for 24 years as part of the Civil Security Unit, whose job was only to kill criminals.
    • -Matobato said Duterte ordered to ambush Sen. Leila de Lima in 2009 when the Commission on Human Rights investigated the vigilante group in Davao City.
    • -The witness claimed Duterte ordered the abduction and killing of four bodyguards of his political rival, former House Speaker Prospero Nograles.
    • -Matobato said Duterte ordered to kill Muslims suspected in the 1993 bombing of the Davao cathedral. Matobato said he himself threw a grenade in a mosque, abducted Muslim suspects, and killed and buried them in the Laud quarry.
    • -Matobato said he and five others kidnapped suspected terrorist Sali Makdum in Samal in 2002 by hanging him and chopping his body.
    • -Matobato said Duterte’s son and Davao City Vice Mayor Paolo ordered to kill a man who overtook the latter’s vehicle in a traffic altercation
    • -The witness, who said he had worked with Davao police for 34 years, claimed that part of the cops’ modus was to plant guns on the crime scene. “Ang pulis laging may reserba na baril para ‘pag may mapatay, lalagyan (The police always had a reserved gun so that when a person is killed, the gun can be planted),” he said.
    • -In 2013, Matobato said Duterte ordered the killing of a fixer at the Land Transportation Office, whose body, he said, was dumped in San Rafael village in 2013
    • -Matobato said they abducted three women from their house in 2013 and dumped their bodies on a road in San Rafael village.
    • -On the orders of five mayors including Duterte, Matobato said they killed a member of a religious group named Jun Barsabal, who he said was killed because “he was squatting on lands.” Barsabal’s body, he said, was buried at Ma-A quarry.
    • -Matobato said Vice Mayor Paolo Duterte ordered the killing of billionaire hotelier Richard King in 2014 over a certain “Ochoa,” a woman they were both pursuing. He said rebel returnees Joel Tapales and Loloy Gabas were given P500,000 for King’s assassination.
    • -Matobato said they killed more than a thousand individuals from 1988 to 2013.
    • -Matobato said Duterte ordered the killing of radio broadcaster Jun Pala, a vocal critic of the longtime mayor.
    • -The alleged DDS member said Duterte also ordered the killing of a dance instructor, supposed boyfriend of Duterte’s sister Jocelyn, who was abducted in Jacinto street. Matobato said he and six others handcuffed the instructor and killed him at the Ma-A quarry.

     Duterte Turns Back On US, Orders Philippines To Buy Weapons From Russia And China -  While until now the verbal outbursts of the outspoken, "vulgar" Philippines president Rodrigo Duterte, who last week called president Obama a "son of a whore" (before he  were mostly bark, and no bite, something changed yesterday. In an abrupt departure from his nation’s longstanding military reliance on the U.S., Duterte said the Philippines would pursue "independent" foreign and military policies separate from US interests in the region, and ordered his defense secretary to seek weapons from suppliers in China and Russia to fight drug traffickers and insurgents. In another dramatic shift, the WSJ notes that the president also said Tuesday that the Philippines would stop patrolling the South China Sea alongside the U.S. Navy, to avoid upsetting Beijing. Instead, he said the nation’s military would focus on combating drugs and terrorism, handing a major diplomatic victory of Beijing and a symbolic loss to the US and its support of non-Chinese territorial claims to the South China Sea.

    NAM and NaMo: Skipping the Summit Is a Miss for India - Prime Minister Narendra Modi’s decision to skip the 17th Non Aligned Movement (NAM) summit reflects poorly on his  ability to utilise strategic levers that have served the country well in the past and continue to have relevance even today. Some analysts may see the decision to give the meeting in Margarita, Venezuela a miss as driven by an aversion to the bloc’s perceived anti-West posturing. Were that the case, however, the Ministry of External Affairs would not have embarked on an energetic and highly successful outreach endeavour to the BRICS countries, that began with India assuming the presidency of the five-nation grouping this year. Could it be, however, that NAM is too closely identified with the Congress for the prime minister to want to engage with it?  Modi’s sights are set not on the many Congress prime ministers who flew to NAM summits out of some sense of obligation to the leagcy of the party’s first family, but on Jawaharlal Nehru himself. If Nehru was the architect of independent India’s external relations with the world, he also steered the country away from great power politics, positioning New Delhi as an interested observer. Modi appears personally committed to re-orienting India’s foreign policy in the 21st century, driven squarely by its engagement with major powers, be it the United States, Russia, Iran or China. This is a commendable objective – perhaps even commensurate to India’s rise globally – but there is no reason that India’s participation in the NAM summit at the highest level has to be a casualty of cross-party differences. Instead of staying away, the prime minister should have used the latest summit to turn around India’s recent history of largely symbolic and vacuous engagement with the NAM into real benefits.

    US report warns of imminent Aussie housing collapse-- The Washington-based International Strategic Studies Association is the latest to warn of settlement risks in the apartment market, warning that “changes in local banking policies” could see foreign investment in the property sector “decline markedly”, precipitating a “market collapse”. From “We estimate that Australia has about six weeks or so to turn this situation around, otherwise there would be a massive hit on property valuations and the building trades,” he said. “The urgency is, I believe, based on the fact that this is about how long it will take for the banks’ policies to start switching off a lot of existing and planned contracts for Australian properties.  “The banks clearly believe Australian real estate values will decline, so they are attempting to avoid that risk. They’ve learned from the US collapse that seizing real estate collateral is a no-win scenario when the volume is great and the market slow. “In so doing, they precipitate the market collapse but are less exposed to it.”…“it is much more likely to be a self-fulfilling prophesy by depressing demand, creating oversupply and putting downward pressure on prices, thereby creating paper losses at the settlement date which would tempt buyers to walk away”. I have little doubt that Australia will experience a clean out in the apartment sector at some point, but within six weeks or so sounds heroic. 2017-18 seems more likely to me, given the massive number of apartments still to flood the market.

    Venezuela's "Death Spiral" - A Dozen Eggs Cost $150 As Hyperinflation Horrors Hit Socialist Utopia

    • The question of whether Socialism can be an effective economic system was famously raised when Margaret Thatcher said of the British Labor Party, "I think they've made the biggest financial mess that any government's ever made in this country for a very long time, and Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalise everything."
    • There are dire reports of people waiting in supermarket lines all day, only to discover that expected food deliveries never arrived and the shelves are empty.
    • There are horrific tales of desperate people slaughtering zoo animals to provide their only meal of the day. Even household pets are targeted as a much-needed source for food.
    • President Maduro is doubling down on the proven failed policies and philosophies of "Bolivarian Socialism," while diverting attention away from the crisis -- pointing fingers at so-called "enemies" of Venezuela such as the United States, Saudi Arabia and others.
    • A dozen eggs was last reported to cost $150, and the International Monetary Fund "predicts that inflation in Venezuela will hit 720% this year.

    For many Venezuelans, by every economic, social and political measure, their nation is unravelling at breakneck speed. Severe shortages of food, clean water, electricity, medicines and hospital supplies punctuate a dire scenario of crime-ridden streets in the impoverished neighborhoods of this nearly failed OPEC state, which at one time claimed to be the most prosperous nation in Latin America. Today, a once comfortable middle-class Venezuelan father is scrambling desperately to find his family's next meal -- sometimes hunting through garbage for salvageable food. The unfortunate 75% majority of Venezuelans already suffering extreme poverty are reportedly verging on starvation.

    Brazil makes big push in Asia - Brazilian Ag Minister Blairo Maggi planned to make the most of a trip with Brazilian President Michel Temer to the G-20 Summit in China. With a group of about 100 Brazilian businesspeople in tow, Maggi will meet with Asian importers until later this month in South Korea, China, Thailand, Vietnam, India and other regional countries in an attempt to reach the administration’s stated goal of increasing Brazil’s share of the world agriculture market to 10% (from its current estimate of 7%) within five years.   The China meetings are clearly the most important for Brazil, with China not only buying beans but showing a great deal of interest in helping the South American country with its export infrastructure. But with USDA’s recent approval of fresh beef imports from areas certified free of hoof and mouth, Maggi thinks the Chinese might increase beef imports from Brazil. And he thinks more Brazilian pork can be bought by the Koreans.  “I’ve got Hyundai cars, a Samsung TV… I’m a typical consumer of Korean products. We want to increase trade with Korea. But, to do that, it’s necessary that your country, in turn, increase its purchase of Brazilian products,” the minister told a group in Seoul. Korean approval of Brazilian pork imports has been stalled for years, but Maggi indicated after the visit that officials told him Korean government technicians would inspect some Brazilian processing plants before the end of this year. That would bring market opening one step closer.

    Developing Countries Emulate The US, Turn Citizens Into Debt Slaves - One of the big advantages of being a Latin American or Asian country used to be - somewhat counter-intuitively - the lack of credit available to most citizens. The banking system in, say, Brazil or Thailand simply wasn’t “advanced” enough to offer credit card, auto, or mortgage loans on a scale sufficient to turn the locals into US-style debt slaves. But that, alas, is changing as those countries adopt their rich cousins’ worst habits. Brazil, for instance, was once seen as a Latin American success story and future world power. But then it ramped up government spending and started encouraging its people to become “consumers.” And the rest is familiar, if depressing, history. The following article is from 2015, about the Brazilian government’s response to its suddenly-overleveraged middle class: (Bloomberg) – Brazilian household debt has swelled to a record. The government has a way to help: Payday lending. Brazilian President Dilma Rousseff signed a decree this month making it easier to use payday loans from banks to refinance credit cards. In the U.S., the credit lines have earned a bad rap for high fees and shady marketing, but in Brazil they let borrowers cut interest rates by two-thirds. That doesn’t mean the rates are low — at least not by global standards. In the U.S., credit cards charge an average of about 15 percent a year. In Brazil — where formal credit is still a relatively new concept for much of the population — consumers pay 85 percent for cards and 27 percent for payday loans, the central bank says. Ratcheting up what for many is a credit line of last resort underscores just how heavy the debt burden has become for many Brazilians. As unemployment rises and interest rates climb, rising household debt threatens to exacerbate the downturn in an economy that’s already on course for its worst recession in a quarter century. Brazilian household debt as a percentage of disposable income swelled to 46.3 percent in April, the highest since at least 2005 when the central bank started tracking the data. Since the above article was written, Brazil is fallen into a capital “D” Depression, with no end in sight. And now it’s China’s turn to emulate the US: Chinese consumers, once averse to debt, embrace credit to stoke car sales (Auto News) – Chinese households, traditional savers with an aversion to debt, are rapidly warming to the idea of borrowing to buy a car, as automakers push financing deals to boost sales and margins in an increasingly competitive market. Nearly 30 percent of Chinese car buyers bought on credit last year, up from 18 percent in 2013, according to analysts from Sanford C. Bernstein and Deloitte, helping a rebound in the car market after a sticky 2015.

     2016’s already a record year for country downgrades—watch out for more: Fitch: With over three months to go, 2016 looks set to be a record year in terms of the number of sovereign downgrades by Fitch Ratings. Twenty countries have had their ratings cut so far this year by the major ratings agency. So far, this matches the tally for the whole of 2011 and the most since Fitch started record keeping in 1994. Furthermore, the number of countries on "negative outlook" — at risk of downgrade — outstrips those on "positive outlook" across the world. In developed markets, for instance, Belgium, Japan and the U.K. are on negative outlook by Fitch.At a conference in London Tuesday, Fitch's head of sovereigns said that developed countries, particularly European ones, faced unfavorable debt dynamics despite low funding costs. James McCormack highlighted that real gross domestic product (GDP) growth in the U.K., France, Spain, Portugal, Italy, Greece and Canada was lower than the real effective interest rate, posing challenges to repayment of debt. Meanwhile, Japan, the U.S., France, Spain and the U.K. have primary deficits (defined as the fiscal deficit, which is the difference between government revenue and expenditure, minus interest payments). Among the challenges facing Europe included "austerity fatigue," euroskepticism (criticism of the European Union or membership of the euro zone), high levels of migration and security concerns, McCormack said. The U.K., meanwhile, faced a weaker growth outlook and prolonged legal and regulatory uncertainty after its vote to leave the European Union in June. Fitch downgraded the country to AA with negative outlook from AA+ immediately after the referendum.

     The Only Sure Conclusion About the G20 Summit: The G20 summit in China came and went with the usual pompous statements at the end: “The communiqué reiterates the essential role of structural reforms in boosting productivity and output, as well as in promoting growth in G20 countries. The choice and design of structural reforms are consistent with countries’ specific economic conditions,” the People’s Daily sums up one of the points on the agenda. The other points where the G20 reached some kind of consensus were trade, anti-corruption, financial reform, investment, industrialization, entrepreneurship, climate change, innovative growth, and development.Don’t hold your breath for any of consensus decisions to be implemented anytime soon. Most countries are fighting to solve problems on their home turf in any and every aspect except for one: The push of the global elites to make the International Monetary Fund‘s (IMF) Special Drawing Rights (SDR) the next global reserve currency. “The communiqué supports the ongoing examination of the broader use of the SDR and welcomes the inclusion of the yuan in the SDR currency basket,” the People’s Daily states. The Chinese currency will become part of the basket representing the SDR on Oct. 1.

    The World Bank’s Uncontested Election Turns Back the Clock -- Four years ago, the World Bank held its first contested presidential election in the development institution’s seven-decade history. Wednesday, the closing of the nomination period for the latest leadership appointment marks a return to the past. Jim Yong Kim is set to win a second five-year term, running unopposed in a shortened, open selection process after securing early backing from most of the development institution’s largest shareholders. The 2012 election gave emerging markets an opportunity to back an alternative candidate after the board overhauled the selection process to make it more “transparent” and “merit-based.” The revamp of the process didn’t change the outcome: Mr. Kim’s appointment marked the 12th consecutive American leading the institution. This time, emerging markets didn’t even try.“Given the contents of Kim’s political tool kit, this match was never going to be played on a level field,” said Devesh Kapur, a political science professor at the University of Pennsylvania. The current process, he said, is the “World Bank’s recipe for irrelevance.”  By unwritten agreement, the U.S. has always appointed the World Bank chief while Europe has always selected the head of its sister institution, the International Monetary Fund. (Christine Lagarde also went uncontested in her second term, with strong, universal support for her leadership.) “President Kim spearheaded needed reforms at the World Bank to better leverage knowledge within the bank and enhance the use of the financial resources that shareholders provide,” U.S. Treasury Secretary Jacob Lew said in re-nominating the former Dartmouth College president.

    Almost a million Canadians couldn't handle a 1-point interest rate rise, TransUnion says -   CBC News: Almost a million Canadians wouldn't be able to handle even a one percentage point increase in the interest rate they pay on their debts, new research says. According to a report from credit-monitoring firm TransUnion, 26 million Canadians have some form of debt, including mortgages, lines of credit, and credit-card debt. The average debtor, the company says, has 3.7 different credit products. Company research released Tuesday says that roughly 718,000 of those people wouldn't be able to keep their financial heads above water if their interest rate went up by as little as 0.25 percentage points. And another 253,000 on top of that would go under if the rate they must pay on their debt increased by a slightly larger amount — a full percentage point. Considering that interest rates are currently at record lows, that's a precarious position to be in. "Hundreds of thousands of borrowers traditionally believed to be low-risk consumers may suddenly become risky," said Jason Wang, TransUnion's director of research and industry analysis in Canada.TransUnion estimates that roughly seven million Canadians have a variable rate on their debt, a little over a quarter of all accounts. That's a group that's especially vulnerable to a rate hike, as the impact of any rate move is immediate. "It is unfortunate almost a million Canadians would struggle if mortgage interest rates increased even a small amount," said Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada. "I know cutting back on expenses may be tough from the outset however every little bit helps. It can be a difference between managing or struggling with your debt load."

     Ukraine and Poland: A Tortured History – And What It Means For Today -- Sorting out what is going on in the Ukraine is one of the toughest jobs out there due to its complex history, multitude of ethnicities, neighbors, shifting borders over the centuries, religious squabbles, wars, and age-old resentments.  In this regard, it is as complex, or more, than the Middle East.Trust us, we have spent many an long evening trying to understand this, and the work is reminiscent of looking at a bone which has fractured and splintered in many places, causing great pain.  So we are very grateful for this submission from Mr. Dublanica, who is of Galician descent, and provides some valuable insight into this key part of the puzzle. It is this extreme complexity that leads us to our opinion, that in the long run, the Russians will beat out the US in the Ukraine proxy struggle, because they understand it better.  The US just doesn't have the expertise needed to make the right moves...

    The transatlantic trade deal TTIP may be dead, but something even worse is coming - George Monbiot - TTIP – the Transatlantic Trade and Investment Partnership – appears to be dead. The German economy minister, Sigmar Gabriel, says that “the talks with the United States have de facto failed”. The French prime minister, Manuel Valls, has announced “a clear halt”. Belgian and Austrian ministers have said the same thing. People power wins. For now. But the lobbyists who demanded this charter for corporate rights never give up. TTIP has been booed off the stage but another treaty, whose probable impacts are almost identical, is waiting in the wings. And this one is more advanced, wanting only final approval. If this happens before Britain leaves the EU, we are likely to be stuck with it for 20 years. The Comprehensive Economic and Trade Agreement (Ceta) is ostensibly a deal between the EU and Canada. You might ask what harm Canada could do us. But it allows any corporation that operates there, wherever its headquarters might be, to sue governments before an international tribunal. It threatens to tear down laws protecting us from exploitation and prevent parliaments on both sides of the Atlantic from legislating. To say that there is no mandate for such agreements is an understatement: they have received an unequivocal counter-mandate. The consultation the EU grudgingly launched on TTIP’s proposal to grant new legal rights to corporations received 150,000 responses, 97% of which were hostile. But while choice is permitted when you shop for butter, on the big decisions there is no alternative. It’s not clear whether national parliaments will be allowed to veto this treaty. The European trade commissioner has argued that there is no need: it can be put before the European parliament alone. But even if national parliaments are allowed to debate it, they will be permitted only to take it or leave it. The contents are deemed to have been settled already. Only once the negotiations between European and Canadian officials had been completed, and the text of the agreement leaked, did the European commission publish it. It is 1,600 pages long. It has neither a contents list nor explanatory text. As far as transparency, parity and comprehensibility are concerned, it’s the equivalent of the land treaties illiterate African chiefs were induced to sign in the 19th century. It is hard to see how parliamentarians could make a properly informed decision.

    Rush of Chinese Investment in Europe’s High-Tech Firms Is Raising Eyebrows - — After a customer canceled a large order at the last minute, shares in Aixtron, a German high-tech company, sank fast. Months later, with the stock still reeling, a Chinese investor agreed to buy the company.If only it were as simple as smart deal-making.Financial filings and public statements indicate a web of relationships among the customer, the buyer and the Chinese state. The links highlight the blurred lines between increasingly acquisitive Chinese companies and Beijing’s long-term industrial policy.“The Aixtron case makes it very clear: It is not regular investment that is at work here,” said Sebastian Heilmann, president of the Mercator Institute for China Studies, a think tank based in Berlin. “Instead, we see governmental-program capital working behind the scenes.”Chinese leaders have made clear their intention of using state funds to acquire technological capabilities overseas and bring them home, and a series of purchases in recent years have highlighted that strategy.That has led to questions about how to treat bids that cross between private investment and state-orchestrated takeovers. It has also fed into broader suspicions about the fate of the takeover targets, and whether national champions will ultimately be absorbed into the supply chain in China.Aixtron — one of a growing number of European businesses with cutting-edge technologies that have recently been targeted by a surge in Chinese overseas investment — provides a case study. A university spinoff, it employs hundreds of highly skilled engineers and has a decades-long history of making the advanced tools needed to make semiconductors. Its systems can deposit layers of chemicals just atoms thick that grow the crystals needed to make chips and light-emitting diodes.

    ECB Instructs Banks in How to Shed Mountain of Soured Loans --The European Central Bank ramped up efforts to tackle the mountain of soured loans that weighs on many euro-area banks, seeking to repair damage caused by years of lax supervision and feeble economic growth.The ECB’s draft guidelines aim to help euro-area banks get out from under 1.1 trillion euros ($1.2 trillion) of doubtful and non-performing loans. The proposals issued on Monday address the “main aspects regarding strategy, governance and operations” needed for banks to reduce their stocks of bad loans, and set out best practices that will “constitute the ECB’s supervisory expectations going forward,” the central bank said in astatement. Daniele Nouy, head of the ECB’s supervisory arm, has made tackling non-performing loans a priority since the Frankfurt-based central bank began overseeing euro-area banks in 2014. The problem, which is particularly acute in Italy, has been exacerbated by factors including the anemic economy, “poor banking practices, flawed legal frameworks for debt recovery and a lack of capacity in the judiciary system,” Nouy said in June.  Markus Ferber, a German lawmaker in the European Parliament, said the ECB is “alarmingly late to consider the problem,” and it’s “clear that new ECB guidelines alone will not do the trick unless countries such as Italy commit to painful restructuring.” Non-performing exposures are a “big drag on lending and economic activity,” and the huge volume of soured loans on the books of euro-zone banks shows that supervisors like the ECB “have failed to do their job for years,” Ferber said.

     There Really Is No Reason for Germany Not to Do a Fiscal Stimulus - Brad Setser --Back in May, Greg Ip of the Wall Street Journal argued that Germany didn’t need to stimulate its economy through an increase in public investment as its economy was already growing at a decent clip, and unemployment was low. I wasn’t convinced then, and I am still not convinced. A stimulus is needed to reorient Germany’s economy away from exports, to keep private wage growth up and to open up space for Germany’s trade partners in the euro area to adjust without falling into a deflationary trap. Adjustment doesn’t happen magically. There is solid evidence that Germany’s level of public investment is a bit too low for its long-term health.And now there is also a growing cyclical case for a German stimulus. German growth is projected to slow significantly in 2017. Reuters reports:“DIW … lowered its 2017 growth forecast for Germany to 1.0 percent from 1.4 percent.”Other forecasts are a bit more optimistic, but all expect some slowdown in growth. And the 2016 surplus is on track to top a percentage point of German GDP. In nominal terms, the surplus should exceed last years’s €30 billion surplus. Germany is clearly not fiscally constrained.

     Michael Pettis Calls Surplus Trade Statements by German Finance Minister “Utter Lunacy” – Mish - A few days ago I pinged global trade expert Michael Pettis with my post Germany’s Finance Minister Blames ECB For German Trade Surplus; Why the Eurozone Will Destruct. His reply was interesting but not at all unexpected. Pettis labeled Wolfgang Schaeuble’s comments “utter lunacy”.  Schaeuble Recap: Germany has no plans to reduce its export surplus, Finance Minister Wolfgang Schaeuble said on Friday, as the European Central Bank (ECB) has not changed its monetary policy which has led to a weaker euro which in turn boosts German exports. “Even before the European Central Bank decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus,” Schaueble told reporters. When asked whether he had any plans to decrease Germany’s export surplus, Schaeuble said: “I haven’t heard that the ECB is changing its monetary policy.” Pettis Comments What utter lunacy. It is one thing to defend the existing surplus by pretending to believe that it was not caused by income distortions at home but rather by foreign laziness, but to say that it is German policy to grow the surplus further is outrageous. Now that they have bankrupted Europe, and developing countries are in trouble, who but the US can possibly be forced into absorbing it? If the US were ever to decide that it cannot continuing absorbing everyone else’s deficient demand at the expense of becoming more like peripheral Europe, the consequences for Germany (and China and Japan) would be devastating.

     Do Not Count (European) Fiscal Chickens Before They Hatch -- Brad Setser --The Wall Street Journal, building on a point made by Peterson’s Jacob Kirkegaard, seems convinced that the policy mood has shifted, and Europe is now poised to use fiscal policy to support its recovery. I, of course, would welcome such a shift. The eurozone runs an external surplus, is operating below potential (in large part because of a premature turn to austerity in 2010 that led to a double-dip recession) and in aggregate has ample fiscal space. And the public policy case for such a fiscal turn keeps getting stonger. Jan in ‘t Veld’s new paper suggests that a sustained fiscal expansion in Germany and the Netherlands could have a substantial impact on the rest of the eurozone. A sustained 1 percent of GDP increase in public investment in Germany and the Netherlands helps raise output and lower debt in their eurozone partners.* in ‘t Veld writes: “Spillovers to the rest of the eurozone are significant … GDP in the rest of the eurozone is around 0.5% higher.” But it seems a bit too early to break out the champagne.  Actual 2017 fiscal policy has not been set in the key countries, but it is not clear to me that the sum of the fiscal decisions of the main eurozone countries will result in a significant fiscal expansion across the eurozone. Indeed, I cannot even rule out a small net consolidation.  Germany has put forward its 2017 budget. Schauble’s rhetoric has changed a bit. But Citibank estimates that it only would reduce Germany’s structural fiscal surplus by about 0.1 percent of GDP (10 basis points of GDP). It is a step in right direction, but only a baby step. Real loosening doesn’t seem on the cards before 2018. I do not think the Dutch have put forward their 2017 budget. But their 2016 stability report suggests that they are aiming for a structural fiscal consolidation of about 0.3 percent of GDP. They still want to bring their structural deficit down to around one percent of GDP.  The French would likely need to do a bit of consolidation if they still intend to get their 2017 fiscal deficit under 3 percent of GDP, but I will grant that Hollande is likely to get a bit of flexibility heading into the election.  Renzi would certainly like to provide a fiscal jolt to Italy’s economy. But the pressure on the Italians from the Commission and others is still to consolidate. Rules and all. The Commission’s target for Italy’s fiscal deficit in 2017 is 1.8% of GDP.

    Italy has become Europe’s €2.2 trillion ‘whatever it takes’ headache - Italy is in the middle of a period of amazing political and financial turmoil. The country faces a constitutional referendum that could lead to the fall of its government. Its banking system is experiencing unprecedented problems thanks to a huge surfeit of non-performing loans, despite a rescue package for its weakest lenders. All this turmoil adds up to make Italy the "biggest headache" for the rest of Europe, according to research from staff at Citi. "While Italy needs Europe to get out of the woods, Europe might struggle to survive with a key partner lost in the woods. Five years into the crisis which led to the ousting of Silvio Berlusconi, Italy is still Europe’s biggest headache. And the headache might intensify in the coming months should Renzi’s government collapse."   In their latest analysis of the situation: "Talking About Italy Flirting with the Past: Is Italy Europe’s Sleeping Risk?" — Citi analysts led by Mauro Baragiola, Tina Fordham, Jonathan Stubbs, and Giada Giani, discuss Italy in depth, covering everything from the luxury goods sector in the country, all the way to the massive problem the country has with debt. Within the note, Citi staff discuss the five big issues that make Italy Europe's main "headache."

    Germany’s Efforts to Integrate Migrants Into Its Workforce Falter - WSJ: —As the flow of asylum seekers entering Germany started to break historic records last fall, Continental AG CTTAY 0.39 % rushed to tap some of the newcomers for its workforce. But one year after the tire maker began advertising an internship program designed for 50 migrant workers, only 30 of the positions have been filled as it struggles to find suitable candidates or vet their qualifications. Continental isn’t alone. Answering calls from Berlin to help in the country’s massive integration effort, German companies big and small have scouted refugee shelters and job centers for potential employees. Yet because of administrative bottlenecks and a mismatch in needed skills, the number of migrants in jobs with benefits was only about 25,000 higher in June than a year earlier, despite more than 736,000 arrivals in that time. “It is a huge effort,” said Ariane Reinhart, Continental’s executive board member for human relations. Frustrated with the slow pace of hiring, Chancellor Angela Merkel invited senior executives from the 121 companies behind a jobs-for-refugees initiative called “Us Together” to discuss their progress and difficulties on Wednesday. More than 80 business leaders attended the three-hour meeting. Among those questioned by Ms. Merkel were top executives at Deutsche Bank and Lufthansa. “It is our common target to integrate more and more refugees into the labor market,” she said beforehand. “If we succeed, it will be a benefit for all.”

    "There Will Be More Attacks" French PM Warns 15,000 Being Radicalized  -- With anti-EU right-wing Front National leader Le Pen surging in the polls, French PM Manuel Valls appears to be taking a populist shift to more radically right also. During a TV interview this weekend, Valls said there were at least 15,000 people "on the radar of police and intelligent services who were in the process of being radicalized," but argued that Sarkozy's plan to "systematically place French citizens suspected of having militant links in special detention facilities" was the wrong solution.French Prime Minister Manuel Valls said on Sunday there would be new attacks in France but proposals by former president Nicolas Sarkozy to boost security was not the right way to deal with threats. As Al Arabiya reports,The French capital was put on high alert last week when French officials said they dismantled a “terrorist cell” that planned to attack a Paris railway station under the direction of Islamic State.“This week at least two attacks were foiled,” Manuel Valls said in an interview with Europe 1 radio and Itele television on Sunday.Valls said there were 15,000 people on the radar of police and intelligent services who were in the process of being radicalized. “There will be new attacks, there will be innocent victims...this is also my role to tell this truth to the French people,” Valls said.

    European Civil War Looms: French Professor Fears Growing "Jihad Generation" Among Unemployed Muslims - "The long-term goal of the Jihad Generation is to destroy Europe through civil war and then build an Islamic society from the ashes..." warns Professor Gilles Kepel, who is a specialist on Islamic and contemporary Arab world. As The Sun reports, Kepel, from the Sciences Po in Paris, claims a growing number of Muslims with poor job prospects are forming a “Jihad Generation” to continue to commit acts of terror across Europe.  According to German newspaper Die Welt, Kepel said the terror group’s aim is toincite hatred towards Muslims from the rest of the society which would eventually radicalise others to the point that Europe could enter into full-blown civil war.  Kepel, who is a specialist on Islamic and contemporary Arab world, added these ISIS fanatics not only want to destroy Europe, but to eliminate more moderate Islamic opposition.  “The terrorism is above all an expression of a war within Islam,” he explained.  Most Salafists are not violent, Kepel says, "But they preach a cultural break with Western societies that are considered non-believers. That attracts people who see this break as an outlet for their social frustration and engage on this basis on a course towards violence." He believes their strategy is similar to the expansion of Islamic State in Syria, Iraq, and Libya where the terrorist organisation was able to use the chaos of civil war to slowly build its forces, grow in power, and rapidly seize territory.

    VOTE FRAUD: Austrian election POSTPONED over dodgy envelopes as far-right heads polls - AUSTRIA’S hotly contested presidential election re-run could be postponed after an embarrassing technical gaffe involving glue. The second vote was called after the initial election result in May was scrapped by Austria’s highest court due to allegations of serious "voter fraud". But the controversy surrounding Austria's election continues to rage on, as the re-run looks set to be delayed because the glue on postal vote envelopes is not sticking, making the letters invalid. The Eurosceptic Freedom Party claimed their right wing candidate, Norbert Hofer, lost to former Greens leader Alexander Van der Bellen due to widespread vote mis-counting, prompting a court to order an election re-run. Mr Hofer received 51.9% of the initial result, not counting absentee votes - a total that was described as a “political earthquake” - but the absentee votes, like postal votes in the British election system, were added up incorrectly, handing the victory to Mr Van der Bellen. The independent candidate, Mr Van der Bellen, was then adjudged to have beaten Mr Hofer by a mere 31,000 votes. The country’s Constitutional Court upheld the Freedom Party’s appeal, meaning new elections are to be held on October 2. But now it will likely be pushed back due to glue on postal votes not sticking – making them invalid.

    Brexit or not, only a fool ignores the march of Europe’s new goose-steppers - “Brexit is a fantastic opportunity for us. We are at a historic cultural moment. There is a possibility of a cultural counter-revolution right now.” Thus Viktor Orban, Hungary’s nationalist prime minister, spoke last week.  I’d like you to go to YouTube, right now, and type in “Visegrad awakes” or something similar, and then roam around some of the films that pop up. It’s better to see them than be told about them, but you will come across lots of sentimental and martial music; long columns of marching — indeed, goose-stepping — soldiers; film of tanks on exercises, dramatic reconstructions of charging hussars and medieval knights; girls posing in paramilitary uniforms; current eastern European leaders being blessed by the Pope and bishops; many flags and much razor wire; churches and meadows and patriotic statues; and quite a bit of vigorous folk dancing.  There is a whole sub-genre of similar films coming out of Poland, Hungary and other former communist countries. To a western eye, the militarism and goose-stepping makes it all a bit . . . how to put this? . . . 1933.  There is a lot of nonsense on the internet, all kinds of mad conspiracy theories and nutty personal agendas. But these films show us the spirit of the new anti-liberal nationalism sweeping the eastern parts of the European Union. Combined with solid electoral successes in the Czech Republic, Hungary, Poland and Slovakia (the so-called Visegrad group), they can’t quite be shrugged off. Their prime and immediate target is Muslim immigration — much smaller, of course, there than in the rest of the EU. Trawl through Visegrad-related films and you find foaming hostility to Muslims, and the impression that these countries are on the front line against a new Ottoman invasion. Robert Fico, Slovakia’s prime minister, put it bluntly earlier this year: “Sorry — but Islam has no place in Slovakia.”

    Divided European leaders struggle with post-Brexit vision | Reuters: European leaders, struggling to overcome an historic crisis following Britain's vote to leave the EU, agreed on Friday to explore closer defense cooperation and boost security at their external borders, but could not hide deep divisions over refugees and economic policy. Meeting in the Slovak capital with the British conspicuously absent, the 27 other EU members unveiled a six-month "road map" of measures designed to restore public confidence in Europe's ailing common project. But several leaders, including Italy's Matteo Renzi and Hungary's Viktor Orban, shattered the facade of unity as soon as the meeting ended, underscoring how divided the bloc remains after years of economic crisis, a record influx of migrants and a series of deadly attacks by Islamist militants. "I'm not satisfied with the (summit) conclusions on growth or on immigration," said Renzi, apparently miffed at being excluded from a joint news conference given by Germany's Angela Merkel and France's Francois Hollande at the end of the summit. "To define as a step forward today's document on migrants would require a form of fantasy, a verbal high-wire act," the Italian prime minister added. Orban criticized Merkel for refusing to agree to a ceiling on the number of migrants entering Europe, calling her welcoming stance towards refugees "self-destructive and naive". Until the policy was corrected, the Hungarian premier said, a "suction effect" would continue to draw masses to Europe.

    UKIP plans invasion of the Continent — Arron Banks has a message to chill the blood of Eurocrats everywhere. “We might well go continental with the whole thing,” said the millionaire British insurance salesman, one of the biggest donors to the United Kingdom Independence Party. A close ally of outgoing party leader Nigel Farage, Banks speaks with a lazy insouciance that belies grand ambitions. His vision for the future — one that he shares with Farage — is for the Leave.EU movement which he founded to become a beacon for others across the Continent who have set their sights on shores beyond the Union. Banks wants to see the populist, anti-elite, nativist message that secured Brexit go global. “This message — that you can overturn the political establishment — travels well,” he told POLITICO. Farage, who will step down as leader of UKIP at the party’s yearly conference later this week, is eyeing a future role as “roving ambassador,” according to Banks. “To go to places like Denmark and France and say: ‘It’s possible, you can do it as well.’ The economics of the EU are cracking at the seams. It’s very ripe for that kind of message,” he said. By collaborating with like-minded movements in other countries, the group will seek to foment anti-EU feeling across the Continent. The populist Italian 5Star Movement is cited as a model by both Banks and Farage. In July, after taking the Brexit gospel to Cleveland to speak at the Republican Convention, Farage told POLITICO he would soon be “traveling around Europe, helping other independence movements.” Soon after, he was buoyed by an ego-boosting appearance alongside Donald Trump in Mississippi, and sources close to Farage say he has received numerous invitations to advise political parties and campaign groups around Europe.

    The Brexit bounce that’s making doom-mongers look foolish: Next time it comes to redesigning the PPE course at Oxford, I suggest a module beginning with a quotation from George Osborne. It’s something he said to the Treasury Select Committee in May, back when he was still Chancellor: ‘If you look at the sheer weight of opinion, it is overwhelmingly the case that people who look at the case for leaving the EU come to the conclusion it would make the country poorer, and it would make the individuals in the country poorer, too.’ There might be advantages to Brexit, he said, ‘but let’s not pretend we’d be economically better off’. In other words: it wasn’t just George Osborne’s opinion that Britain would be worse off if we left the EU; it was objective fact. It wasn’t just that he thought he was winning the argument; there was no argument to be had, because the experts agreed beyond all reasonable doubt. Osborne was so sure that he published a draft of the emergency budget which would be needed in the post-Brexit meltdown, and made some startlingly exact predictions. Households, he said, would be £4,300 worse off by 2030 — after the inevitable surge in mortgage rates, property crash, and half a million job losses. It has become a familiar trick in politics: try to claim ownership of the truth. Whether it be David Miliband as environment secretary in 2006 telling us that the science of climate change was ‘settled’, or a committee of MPs trying to claim, on the back of a few low-grade academic papers, that drugs policy had failed beyond all question, we are continually told that it is not possible to disagree with a consensus of experts. Do so, and you are a part of the ‘post-fact society’. There is just one problem with this line of argument: if your experts turn out to be wrong, you end up looking pretty silly. That is exactly where George Osborne and many of his fellow Remainers stand now. We haven’t yet left the EU, of course, and there could well be other economic shocks before we do, but the talk of immediate financial meltdown stands exposed as bunkum. The Financial Times, whose hysteria over the issue has led it to run a weekly doom-o-meter of economic data, has found the figures reporting fairly robust economic health.

    Brexit and the Pound in Your Pocket - Barry Eichengreen – The early returns on Brexit are in, and, contrary to what some have been claiming, they’re not good. In July, following the referendum, consumer confidence collapsed at its most rapid rate since 1990. Surveys of manufacturing and construction dropped precipitously. While August’s data were better, it is too soon to say whether the improvement was just a “dead cat bounce.”   In this topsy-turvy post-referendum world, the one piece of good news is sterling’s fall on the foreign exchange market. A lower exchange rate will make British exports more competitive. Faced with higher import prices, consumers will shift their spending toward domestic goods. This, too, will give a boost to the British economy.  The question is how big a boost. Skeptics caution that Britain relies heavily on exports of financial services, which are not especially price-sensitive, and that the scope for growth of merchandise exports is limited by the subdued global demand.  Britain has been here before, so this is a question on which history can shed light. In 1931, when the UK abandoned the gold standard, sterling plummeted by 30%. Like now, the country relied heavily on exports of services – not just banking services but also shipping and insurance. And the external environment was even more unfavorable than it is now.  Yet, despite these headwinds, the merchandise trade deficit fell by a quarter between 1931 and 1932. By 1933, the services balance was strengthening as well. At this point, the economy was on the road to recovery.  Three circumstances made this possible. First, excess capacity enabled companies to ramp up production. Second, Britain was able quickly to put in place a set of favorable trade deals, negotiated with Commonwealth countries at the Ottawa Conference in 1932. Third, political uncertainty fell sharply, as the Labour government, widely blamed for the 1931 crisis, was replaced by a Conservative-dominated cabinet with broad popular support.   Clearly, none of these conditions is present today. Excess capacity in traded-goods sectors is low. In today’s more complicated legal environment, it will take years to negotiate trade deals with the EU and then other partners. Political uncertainty is high, and there is no prospect of a general election to resolve it anytime soon. Investors have every reason to adopt a wait-and-see attitude.

    Liam Fox is right: we need to talk about Britain’s trade problem - When Theresa May appointed three of the most outspoken and free-minded Brexiteers to her Cabinet, her fellow Remainers were delighted. Surely the only question is what they’d do first: implode or disembowel each other? Ever since, the speeches they’ve made have been seen through this narrative. First, David Davis was seen to have gaffed for pointing out that it’s “improbable” that the UK stays in the European single market. And today, we have Liam Fox’s remarks to Conservative Way Forward about Britain’s trade problem. A friend of mine was at the event, and took a video. Here’s the transcript: CoffeeHousers can judge for themselves if his remarks are really so outrageous.It was noteless speech, intended for a small audience of MPs. He had known it would be broadcast in front of the nation, he’d have probably dropped the golf course gag. But this was a speech aimed at specific audience: Eurosceptic Tory MPs, perhaps feeling a little too complacent about Brexit. Perhaps imagining that leaving the EU will, in and of itself, propel us to greater trade deals and more prosperity. It’s a lazy assumption. The history of free trade deals tells a very different story: you need reform at home, then you negotiate. And what Fox was saying was simple: we need reform at home. Britain is not the tethered tiger of Eurosceptic fantasy; in fact, when it comes to exports, we’re rather lame.

    David Davis admits possibility of UK exiting EU without trade deal -- David Davis, the Brexit secretary, has admitted the UK could have to revert to World Trade Organisation tariffs if it leaves the EU without having struck a trade deal with the bloc. The cabinet minister said this was not a very likely outcome but still a possibility if the UK was not successful in talks with the EU. The Labour MP Chuka Umunna, chair of the campaign group Vote Leave Watch, said Davis had “let the cat out of the bag [about] a real possibility that we could fall out of the EU with no trade deal, and face swingeing and destructive tariffs on key exports.” Davis told a Commons foreign affairs committee hearing on Tuesday: “If you’re after a factual statement of what the outcome could be, I guess it’s what is commonly known in the world at large as World Trade Organisation rules. “That’s, I guess, the conclusion of what the situation would be if we were outside the union with no deal. But I would not want anyone to think that that was in my view a very likely outcome.” He acknowledged that one “obvious negotiating risk” that could jeopardise the outcome was that the European commission could win a battle for power in Europe against leaders of individual member states.

    Recap: why Brexit still faces extraordinary challenges -- Due to a complicated array of trade, security and foreign, environmental, economic and financial, and other interconnections in play, it’s speculated that the process of Britain completely shedding itself of EU institutions could last a decade. Former British Foreign Minister, and now Chancellor, Philip Hammond noted a more optimistic estimate of up to six years, with four years for the treaty ratification process across the EU. In addition to completion of a divorce settlement and new arrangement with the European Union, Britain must secure new trade deals with the 60 countries with whom it currently enjoys preferential trade within the EU. Even the default to WTO trade relations, widely viewed as the safe fall back option, would not be automatic and would require complex talks with WTO parties. Given the exceptional horizon involved, it’s important to note that if Article 50 is invoked and the two years allocated expire absent an agreement, negotiations can be extended if all 28 EU member states agree. It would presumably be in no one’s benefit for the UK to enter some form of legal limbo, in which it exits without new laws arranged. To make onerous talks more feasible, negotiations could moreover be phased in, and interim transition relationships be considered, like perhaps temporarily the arrangement that Norway has with the EU. Given the unlikelihood that the UK can achieve its ideal solution within any restricted time boundary, such transition arrangements may be crucial. Even so, when we touch on a process of the complexity of Brexit, politics will represent a major hurdle. In the Bloomberg article, Lars-Emil Johansen, Greenland’s former business minister who spearheaded Greenland’s exit negotiations alongside Ellemann-Jensen, recalled how political havoc broke out in year two of the exit process, when the withdrawal arrangement was panned by a broad part of the population unhappy that it maintained fishing rights for EEC nations on Greenland waters. The opposition parties called this a ‘sellout’ and ousted the minority government in a vote of no confidence, forcing a new election in 1984. In the decisive election, Johansen’s Siumut party was re-elected and the island left the European Communities the following year.

    Parliament may have to ratify Brexit legislation - Davis | Reuters: Britain's parliament may well have to ratify part of the legislation needed for the country to exit the European Union, Brexit Secretary David Davis told a parliamentary committee on Tuesday. "There has to be some legislation (to enact Brexit), no doubt about that," said Davis, whose formal title is Secretary of State for exiting the European Union. "There are various stages, firstly some legislation to deal with the European Communities Act 1972 ... There may well have to be at least parliamentary ratification under the relevant 2010 legislation, the so-called CRAG legislation, but that's the absolute minimum I can see," he said. He was referring to the Constitutional Reform and Governance Act 2010. The issue of parliamentary ratification is sensitive because a majority of MPs voted for Britain to remain in the European Union.

    British expats may need permits to live in Europe after Brexit -- British expats could be forced to apply for long-term residency visas if they want to live in Europe post-Brexit, Home Office sources have said. The changes, which will form part of the Brexit negotiations, would mean British pensioners who want to retire to Spain or Italy would have to apply for a residency permit and could be forced to prove their income in order to settle. People who already live abroad are unlikely to be affected by the changes under reciprocal agreements expected to be signed when the UK leaves the union. But Home Office sources have confirmed they expect the new system for people seeking to move abroad permanently would be similar to the one currently operating for non-EU nationals. Expats could be forced to demonstrate their income and savings in order to get a residency visa to live in an EU state. There could also be requirements around family links with the country. The source said: "It is likely there would be a system of long-term permits and residency. We want what is in the best interests of the British people but this will form part of the discussion." They added that the Home Office will be seeking an "easy and workable system" to ensure that people who want to retire abroad can do so.

    Brexit fallout: markets v economists - Rarely have economists and markets seemed as much at odds as they do today over one of the biggest issues facing the UK — the country’s prospects after its vote to leave the EU. Despite predictions of recession from both the Treasury and many mainstream economists, economic indicators in recent weeks have consistently been better than expectations. Some market bulls have hailed a “Brexit bounce” — a triumph for British resilience in the face of misplaced warnings. “I recall that the entire ‘establishment’ declared total catastrophe in the UK in the event of Brexit,” says Stephen Jen, partner at Eurizon SLJ Capital, who notes caustically that Britain still “has not sunk into the Atlantic Ocean after Brexit”.A Treasury analysis of the “immediate economic impact” of a vote to leave warned in May that such a decision would risk recession and a rise in unemployment in the two years after the vote. At first, the Treasury’s warnings seemed to hit the mark. The overwhelming majority of indicators were indeed weak in the immediate aftermath of the referendum. Purchasing managers’ numbers pointed directly to recession. But strong retail figures published on August 18 marked a turn in the tide. Since then, the positive signals have barely stopped and sterling has rebounded. At about $1.32, the pound is still about 13 per cent below its pre-referendum level against the dollar, but its performance has belied predictions of a continued slide and it is comfortably above its July low of $1.28. Meanwhile, equity markets — even the domestically oriented FTSE 250 — have hovered near record highs, above their levels on referendum day.

    The City Will Decline—and We Will Be the Poorer for It -- naked capitalism - Yves here. Since an increasing number of studies have concluded that an overly-large financial sector is a negative for economic growth, many readers might take the view that the hand-wringing about the damage that Brexit would do to London’s status as a financial center is overdone.  However, even if you accept the view that Leave voters accepted the warnings of the Remain campaign, that a departure would entail economic costs, the members of the Government tasked to manage Brexit seem to be in denial that there will be much in the way of transition costs of a Brexit. And as a result, they seem to be equally unwilling to accept the idea that Britain would need an explicit national strategy during its economic restructuring, as opposed to the neoliberal answer of a national strategy by default (i.e., one in the hands of the politically best connected industries).  This article, cross posted from Bruegel, sketches out at a high level how dependent the UK has become on the City and how even the optimists’ estimate of how much business it would lose in a Brexit would still have a big impact on tax receipts and incomes. And it illustrates why the financial markets are complacent about Brexit. The clear bet is that it won’t happen, with the cynics believing that the Tories never planned to follow through, and others anticipating that once the party leaders come to grips with the risks and the costs, they will be forced to find a way to back out.

    The top plan to tackle Britain's pension crisis would costs retirees £20,000 each — and still wouldn't solve things --Britain is in the midst of an unprecedented pensions crisis, with figures out this week showing the funding deficit is approaching half a trillion pounds. The gap between how much companies have promised to pay employees when they retire and how much they will have when that happens is estimated by the Pension Protection Fund (PPF) at £459 billion ($606 billion). Graham McLean, head of pension scheme funding at Willis Towers Watson, said wearily in an emailed statement: "Another month, another record UK pension deficit," giving you an idea of how bad the problem is. Pensions are in such a bad shape because of low interest rates. Funds invest money hoping to make a certain level of return that, over time, will cover them to pay out on pensions. But interest rates are at a rock-bottom 0.25%, making returns hard to find, and many bonds, the favoured investment instrument of funds, are offering negative returns — you actually lose money investing in them. That is bad news for anyone with a defined benefit (DB) pension scheme, which promises retirees a set level of inflation-linked payout. It is the gold standard of pensions and companies do not really offer them anymore because they are such a liability. Even in climates like today's, the business is still bound to give pensioners a certain level of inflation-linked retirement income.Companies with DB schemes currently face two unpalatable choices: shovel money that could be used for wage growth and investment into the pension schemes to meet the shortfall; or simply watch their deficits grow.

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