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

Saturday, August 9, 2014

week ending Aug 9

Fed Balance Sheet August 7, 2014 -  For the August 6 week, the Fed balance sheet rebounded $3.5 billion after slipping $4.1 billion. Treasuries rose $2.3 billion after gaining $6.7 billion prior period. "Other assets" (largely those denominated in foreign currencies) grew $1.3 billion. Mortgage-backed securities were unchanged in the latest week. Total assets for the August 6 week came in at $4.410 trillion. Reserve Bank credit for the August 6 week increased $1.9 billion after edging up $0.2 billion the July 30 week.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--August 7, 2014 - Federal Reserve Statistical Release: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Fed Watch: Fed Hawks Squawk -- How much leeway does Fed Chair Janet Yellen have in her campaign to hold interest rates low for a considerable period after asset purchases end later this year? If you listen to Fed hawks, you would believe that she is quickly running out of room. Dallas Federal Reserve President Richard Fisher argued that the liftoff date for interest rates is creeping forward. From Reuters: "I think the committee is coming in my direction, so I didn’t feel the need to dissent,” Dallas Federal Reserve Bank President Richard Fisher said. "We are going to have to move the date of liftoff further forward than had been projected the last time we issued the 'dots'.  At the time of the June FOMC meeting, the most recent read on the unemployment rate was 6.3% (May), while the July rate was just a nudge lower at 6.2%. The inflation rate (core-PCE) at the time of the June FOMC meeting was 1.43% (April), compared to 1.49% in June. So the Fed is arguably just a little closer to its goals, but enough to dramatically move forward the dots just yet? Not sure about that, but a downward lurch of unemployment in the next report would likely elicit a reaction in the dots. If the dots don't move, Fisher promises a dissent at the next FOMC meeting.The pace of the tightening, however, is in my opinion more important than the timing of the first rate hike. Richmond Federal Reserve President Jeffrey Lacker argues that the pace of rate hikes will be more aggressive than currently anticipated by market participants. Via Bloomberg: Investors may be underestimating the pace at which the Federal Reserve will raise interest rates over the next two years, said Jeffrey Lacker. Short-term interest-rate markets have for months priced in a slower tempo of increases than policy makers themselves forecast. That’s risky because the misalignment, a bet against a rate path that the central bank alone controls, could lead to volatility if traders have to adjust rapidly, Lacker said.“When there is that kind of gap, it gets your attention,” . “It wouldn’t be good for it to be closed with great rapidity.”

Fed’s Lockhart: Fed Remains on Track for Second Half 2015 Rate Boost -- Although the economy is clearly growing at a respectable rate, Federal Reserve Bank of Atlanta President Dennis Lockhart said Wednesday it is premature to start planning an early exit from the central bank’s ultraeasy policy stance. “I’m not ruling out” the idea the Fed may need to raise short-term interest rates earlier than many now expect, Mr. Lockhart said in an interview with The Wall Street Journal. But, at the same time, “I’m a little bit cautious” about the policy outlook, and still expect that when the first interest rate hike comes, it will likely happen somewhere in the second half of next year. “I remain one who is looking for further validation that we are on a track that is going to make the path to our mandate objectives pretty irreversible,” Mr. Lockhart said. “It’s premature, even with the good numbers that have come in…to draw the conclusion that we are clearly on that positive path,” he said. “You want to have a lot of confidence” before concluding the Fed needs to increase borrowing costs sooner than many now expect, he said. Mr. Lockhart’s comments come as central bankers and many in financial markets are increasingly weighing the question of whether a solidly growing U.S. economy may be moving forward the timing of the first increase in short-term interest rates. Currently, most central bank officials reckon that they will raise short-term interest rates off of their current near zero percent level some time next year. But some policymakers, such as St. Louis Fed chief James Bullard and Dallas Fed leader Richard Fisher, have said if the U.S. can continue to add jobs and grow at a healthy pace, it may be time to start thinking about lifting rates more quickly. At last week’s policy meeting, the Fed said, yet again, it expects to keep rates very low for a “considerable time” after completing its bond-buying program.

Economists Still Betting on Mid-2015 Fed Rate Rise, WSJ Survey Shows - The Federal Reserve is likely to hold off raising interest rates from rock-bottom lows until summer of next year despite recent improvement in the labor market, according to a survey of economists from The Wall Street Journal published Thursday. In its July meeting statement issued last week, the Fed nodded to a pickup in U.S. inflation, which has been undershooting the central bank’s target, toward its 2% objective. However, it also noted that “a range of labor market indicators suggests that there remains significant underutilization of labor resources.”That was seen by many economists as another sign that policy makers are trying to downplay the recent drop in the unemployment rate to 6.2%, pointing to broader measures of job-market activity as still showing significant weakness. Fed Chairwoman Janet Yellen has flagged elevated long-term unemployment and involuntary part-time employment as symptoms of a still-soft jobs picture. When the Fed does begin raising official borrowing costs, which have been effectively at zero since Dec. 2008, it will do so gradually, economists say, taking officials’ indications that they will do so at face value. Survey respondents saw rates rising to just 2% by June of 2016, and inching closer to 3% by the end of that year.

The Fed to pay foreign banks to keep the Fed Funds market alive - The FOMC continues to insist that the Fed Funds Target rate rather than the reverse repo program (see discussion) will play a central role in the upcoming rate normalization. Let's revisit the concept of the Fed Funds arbitrage (discussed in item 4 here) to show why that's a problem. The Fed Funds rate (currently at about 9bp) is determined by the overnight interbank lending market in which banks provide liquidity to each other. The market has shrunk dramatically since the financial crisis (see post), with the activity now limited to a few players with specific needs. US federal home-loan banks (FHLBanks) who, unlike commercial banks, do not receive interest on excess reserves at the Fed are the largest participants. In order to earn any interest at all on their excess liquidity they lend it to a handful of banks that use the funds for arbitrage. In particular foreign banks operating in the US have been active in this game, which nets them around 16bp in riskless profits.  It's easier for foreign banks to engage in this activity because many do not take in US deposits and therefore are not subject to FDIC fees. Because Fed Funds arbitrage involves increasing the balance sheet (and leverage) of the borrowing bank, US depositary institutions engaging in this are subject to higher FDIC fees. Foreign institutions on the other hand may not be as concerned about this. Bloomberg: - “The only people that are really arbitraging at the moment would be the foreign banks without domestic deposits that need to get insured,” . “Ultimately, you're allowing the arbitrage to continue and giving money” to foreign banks rather than domestic ones, he said.Let's put this another way. The Fed is paying foreign institutions to participate in this market and bank federal home-loan banks' overnight liquidity.

Fed’s Fisher: FOMC Moving Toward Hawkish Stance - Federal Reserve Bank of Dallas President Richard Fisher said Tuesday he didn’t need to dissent at last week’s monetary policy meeting because his fellow central bankers are increasingly gravitating toward his hawkish interest rate outlook. Mr. Fisher is a voting member of the monetary policy setting Federal Open Market Committee. He has also been a long-standing critic of the central bank’s ultra-easy money policy stance, arguing rock bottom interest rates put in place by the Fed are creating increasing risks for the economy. Many thought Mr. Fisher might dissent at last week’s policy meeting given his concerns, but that didn’t happen. He told Fox Business Network he refrained from voting against his colleagues because “things have been coming my way” and Fed officials are increasingly in agreement with the idea that if the economy continues to improve, the time to raise short-term interest rates may be approaching. Mr. Fisher said he was happy the Fed is pressing forward with its effort to wind down its bond-buying stimulus program, and that officials are considering when to starting pushing monetary policy back toward more historically normal levels. The official said if the Fed debate “doesn’t keep moving in my direction, I will dissent.” Mr. Fisher also said that if economic data continues to come in strong, “we are going to have to move forward the date of liftoff.” Most on the Fed currently believe the first increase in rates will come some time in 2015, but there’s increasing talk the central bank may have to act sooner given continued strong job gains, solid growth and rising price pressures.

Inflation Hawks: The Job Killers at the Fed - Dean Baker: Discussions of inflation and Federal Reserve Board policy take place primarily in the business media. That's unfortunate, because these discussions can have more impact on the jobs and wages of most workers than almost any other policy imaginable. The context of these discussions is that many economists, including some in policy making positions at the Fed, claim that the labor market is getting too tight. They argue this is leading to more rapid wage growth, which will cause more inflation and that this would be really bad news for the economy. Therefore they want the Fed to raise interest rates. The part of this story that few people seem to grasp is that point of raising interest is to kill jobs. If that sounds like a bizarre accusation to make against responsible people in public life then you need to pick up an introductory economics text. The story line there is that we get inflation if too many people are employed. There are all sorts of ways of making the story more complicated, and many people get PhDs in economics doing just that, but the basic point is a simple one: at lower rates of unemployment workers have more bargaining power and are therefore able to push up their wages. If higher wages get passed on in higher prices then we see more inflation. If workers demand higher wages to compensate for higher prices then we will see still more inflation. Pretty soon inflation is jumping into the double-digits and then we have Zimbabwe-style hyper-inflation where our dollars become worthless.

How the incipient inflation freak-out could wreck the recovery, by Dean Baker and Jared Bernstein: As predictable as August vacations, numerous economists and Federal Reserve watchers are arguing that the nation’s central bank must raise interest rates or risk an outbreak of spiraling inflation. Their campaign has heated up a bit in recent months, as one can cherry pick an indicator or two showing slightly faster growth in prices or wages.  But an objective analysis of the recent data, along with longer-term wage trends, reveals that the stakes of premature tightening are unacceptably high. The vast majority of the population depends on their paychecks, not their stock portfolios. If the Fed were to slam on the breaks by raising interest rates as soon as workers started to see some long-awaited real wage gains, it would be acting to prevent most of the country from seeing improvements in living standards. To understand why continued support from the Fed is unlikely to be inflationary, consider three factors: the current state of key variables, the mechanics of inflationary pressures and the sharp rise in profits as a share of national income in recent years, along with its corollary, the fall in the compensation share.

America's recovery: A tight spot | The Economist - WE WILL miss QE when it's gone. Oh, recent economic news has been good, it is true. It's becoming harder and harder to understand that first quarter figure for American output. In the first three months of the year, the Bureau of Economic Analysis tells us, America's economy shrank at a 2.1% annual pace. Yet many of the nation's other economic indicators suggest the economy is having the best year of its recovery. Over the past 12 months, employers added 2.5m workers to payrolls: the best 12-month period since April of 2006. In the second quarter, according to the BEA's first estimate, America's GDP grew at a 4.0% annual pace. And the hot streak looks to continue; the most recent estimates of economic activity in both the manufacturing and service sectors of the economy roared ahead in July. Revisions to past data could change the picture, as they have many times in the past. But for now it looks like the American economy is finding that higher gear it's been unable to reach since recovery began six years ago. And that, unsurprisingly, is leading to conversation that the Federal Reserve will seize the opportunity to get things back to normal a shade faster than it had anticipated would be a possible a year or two ago. Indeed, perennial Fed hawk Richard Fisher, president of the Federal Reserve Bank of Dallas, opted not to dissent during the most recent monetary policy meeting given a perception that the rest of the committee was migrating in a hawkish fashion. "[T]hings have been coming my way", he noted. But are they? Last week was by any measure a blockbuster one for American economic data. And yet market expectations of the date of the Fed's first interest rate rise hardly budged; indeed, for a brief moment markets thought the first increase might come in October of 2015 rather than September, though contracts soon settled back on a September date. Meanwhile, the Fed is on track to halt its asset purchases this fall, but despite that prospect and despite the uptick in growth, yields on American government debt remain at remarkably low levels; the 10-year is currently yielding 2.48%.

Why Is the Economy Still Weak? Blame These Five Sectors :  The economy keeps underperforming. Yes, new G.D.P. data last week were better than expected. But the United States is still producing around $800 billion a year less in goods and services than it would if the economy were at full health, and as a result millions of people aren’t working who would be if conditions were better. But why? Where is this gap coming from? To get at an answer, we needed a more basic question: What would the economy look like right now if it were fully healthy, and how is the actual reality of the economy right now different from that?We started by examining how large a proportion of G.D.P. that various sectors have accounted for historically — over the two decades ending in 2013, to be precise. (Initially, we looked at the full history of G.D.P. data, going back to 1947, but the economy was sufficiently different in the immediate postwar period compared with today that it seemed more sensible to limit it to more recent history.)Then we multiplied those percentages by the Congressional Budget Office’s estimate of what the United States’ potential output was in the second quarter of this year. That gives us a sense of what output “should” be in each sector if we had a healthy economy and those historical proportions held.As it turns, six of 11 sectors we analyzed are doing fine, with output that is either stronger than or not too much worse than our model predicts. The following, however, are the five pieces that are the major culprits in the nation’s economic malaise, each vastly undershooting what they would look like in our model of a healthy economy: residential investment; consumption of durable goods; state and local government spending; business investment in equipment; and federal government spending

What's Holding the Economy Back: Revised Version -- Dean Baker - In the NYT Upshot section Neil Irwin had an interesting piece assessing which sectors are most responsible for the weakness of the economy. His culprits (in order) were residential invesment (housing), state and local government, durable goods consumption, business equipment investment, and federal spending. Irwin's methodology was to take the Congressional Budget Office's estimate of potential GDP (roughly 5 percent higher than the current level) and then assume that each component has the same share of this potential as its average of GDP over the two decades from 1993 to 2013. The difference between this hypothetical level of demand from a component and the actual level of demand from that component in the second quarter of 2014 is the basis for determining the shortfall.  I decided to do a similar exercise with a couple of minor differences. The table below shows the difference between each component's average share of GDP in the period from 1990-2013 (this was an accident -- misread Irwin's start point) and the average for the first two quarters of 2014. The two quarters are taken together because for many components a strong second quarter offset a weak first quarter. I have also lumped components together (e.g. the categories of consumption are all together). The categories in bold are the major components that together add to GDP. There are a few points that can be made from this table. First, the items that have fallen substantially as a share of GDP are government spending, which had roughly equal dropoffs at the federal and state and local levels, and residential construction. Net exports are also down as the import share had grown more than the export share. Non-residential investment is at its average level for the 1990-2013 period. The big gainer in shares is consumption, which had a 2.3 percentage points larger share of GDP in 2014 than its average in the prior period.

Chart of the Day: How Austerity Wrecked the Recovery --I've previously nominated a version of the illustration below as chart of the year, and last year I wrote an entire piece for the print magazine as basically just an excuse to get it in print. Bill McBride's version focuses on public sector payroll, not total public sector spending, but it tells the same story: after every previous recession of the past 40 years, the subsequent recovery was helped along by increased government outlays. In the 2007-08 recession—and only in this recession—the recovery was deliberately hobbled by insisting on declining government outlays. This is despite the fact that it was the worst recession of the bunch.The result, of course, was that there was no Obama Miracle in 2011. In fact, there was barely even an Obama Recovery. If you think that's just a coincidence, I have a bridge to sell you.

Have Most Economic Indicators Improved Under Obama? -  First, if the performance of stock markets since the day the president took office are a referendum on his economic policies, then stocks have remained enthusiastic. Some might argue, however, that stocks are more driven by Federal Reserve interest rate policy, and may be disconnected from the health of the real economy. Mr. Obama in his CNBC interview also mentioned unemployment, which is lower than it was when he took office, and said that “we’ve seen the housing market recover, although not as fast as we would like.” By many of the most closely-watched overall measures of the economy, the U.S. has, indeed, improved over the past 6 years. Home prices, the economy’s gross domestic product, the total number of jobs and industrial production have all risen from when he took office. Yet it’s also not that hard to find indicators that do not show the U.S. significantly better off. In the CNBC interview, Mr. Liesman rattled one off the top of his head to Mr. Obama. “Median family incomes, that’s one that is not doing better,” he said.Indeed, adjusted for inflation, incomes declined around the turn of the century and never quite regained their previous peak under President George W. Bush. Since Mr. Obama took office, the median income rate has continued to decline, according to Census Bureau data through 2012. The president agreed with Mr. Liesman that incomes have fallen and touted proposals to raise the minimum wage and invest in American infrastructure as policies that could reverse the decline. Another measure that hasn’t improved under Mr. Obama’s presidency is the share of the population that participates in the labor force. Much of this decline may be the result of the aging population. The enormous Baby Boom generation is, indeed, reaching retirement age. Yet aging is not the whole story. Workers far too young to retire are also sitting out the labor force.

S&P: Wealth gap is slowing US economic growth -  (AP) — Economists have long argued that a rising wealth gap has complicated the U.S. rebound from the Great Recession. Now, an analysis by the rating agency Standard & Poor's lends its weight to the argument: The widening gap between the wealthiest Americans and everyone else has made the economy more prone to boom-bust cycles and slowed the 5-year-old recovery from the recession. Economic disparities appear to be reaching extremes that "need to be watched because they're damaging to growth," said Beth Ann Bovino, chief U.S. economist at S&P. The rising concentration of income among the top 1 percent of earners has contributed to S&P's cutting its growth estimates for the economy. In part because of the disparity, it estimates that the economy will grow at a 2.5 percent annual pace in the next decade, down from a forecast five years ago of a 2.8 percent rate. The S&P report advises against using the tax code to try to narrow the gap. Instead, it suggests that greater access to education would help ease wealth disparities.

Inequality Is a Drag, by Paul Krugman  -- For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth. ...But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate. Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources. And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.

Marginally confusing - When the efficacy of (unconventional) monetary policy is discussed, the point that is often raised is that QE is ineffective because it directs money to the rich, who have a lower marginal propensity to consume than the poor. People argue that if only we could direct money to the poor - perhaps by throwing money out of helicopters into deprived areas - monetary stimulus would be far more effective.The same argument appears in debates about the effect of inequality on growth. Consumption drives growth (well, it's not quite that simple, but bear with me); inequality concentrates income in the hands of a few at the expense of the many; the rich few have a lower marginal propensity to consume than the (relatively) poor many, so spending is less than it would be if inequality were lower. Therefore rising inequality impedes growth. But here is John Cochrane:"Didn't Milton Friedman demolish the whole concept of "marginal propensity to consume" 70 years ago?"Well, did he? This is serious. If the concept of "marginal propensity to consume" is as dead as the dodo, how come people keep relying on it to support arguments that inequality reduces growth and monetary stimulus is ineffective?

Quadrillions and Quadrillions - Paul Krugman -- I figured that I could count on Dean Baker to debunk Larry Kotlikoff’s “Eeek! Debt!” column. But Dean doesn’t go far enough. What Kotlikoff does is calculate the present discounted value of predicted funding gaps in federal programs, point out that they are really, really big numbers, and declare America bankrupt. As Dean says, this is silly, disingenuous, or both. The US economy is expected to grow a lot in the future; meanwhile, real interest rates are expected to be only slightly above growth rates. So any persistent gap between spending and revenues as a percentage of GDP will be a huge number if converted to present values. However, the present value of expected future GDP is also immense — at least a couple of quadrillion dollars. So is the gap big compared with the resources available to cover it? Kotlikoff gives us no way to judge. The questions you should ask are how the fiscal path is likely to play out in reality, and what if anything we should be doing now to make the story better. It’s true that if current policies are continued with no change, we’re highly likely to face an unsustainable fiscal gap — a gap that can’t go on forever — if we look far enough away. Stein’s Law therefore applies: if something can’t go on forever, it will stop. Sooner or later, we will have some combination of benefits cuts and/or revenue increases. Saying that this means that the United States is bankrupt is hyperbole; more important, it’s not helpful. What, exactly, should we be doing right now?

Fed's Reinvestment Plans Leave Uncertainty at Treasury - The U.S. Treasury is looking ahead to a funding gap of as much as $775 billion beginning in 2016 as Federal Reserve officials debate what to do with a $4.4 trillion portfolio of bonds set to peak later this year. After years of being one of the biggest buyers of Treasuries, the Fed is on course to stop adding to its portfolio in November. A significant amount of the central bank’s holdings start maturing in 2016, and if the Fed decides not to roll it over into new debt, the Treasury would be forced to borrow an extra $675 billion from the public over a three-year period, according to Treasury Borrowing Advisory Committee estimates. Even if the Fed does reinvest, the Treasury would still face having to close a $100 billion funding gap because the budget deficit is projected to start widening again in 2016. The additional supply of debt for sale to private investors if the Fed doesn’t reinvest could put upward pressure on interest rates, economists said. “It’s kind of a perfect storm,” . “Everything seems to be hitting in 2016. Depending on what the Fed does, you could either see a modest funding gap that Treasury has to close, or it could be quite large.”

The Ever-Expanding Government, Revisited - John Fund, in National Review Online, writes of: “…an ever-expanding government that chokes off economic opportunities for the middle class and those who aspire to it. Time for some data. Figure 1 shows Federal government current expenditures normalized by the size of the economy.  Federal government expenditures are now at 22.7% of GDP, far below the 25% recorded in 1982Q4 during the Reagan administration.  One point that all can agree on — even if there is no agreement on how to deal with the issue — is the deficient level of public investment. The American Society of Civil Engineers (ASCE) provided an assessment in 2013; their current estimated funding requirement through 2020 is $3.6 trillion. Figure 2 presents real investment as a log ratio to output.   Note plotted are real quantities for real government investment (which includes intellectual property products, such as software). On an annual basis, over this 3.25 year period, investment was growing 5.2% faster. Since 2011Q1, the log ratio has plunged to -5.03, which is a cumulative decline of 21% over a 3.25 year period. On an annual basis over this period, this is a 6.5% rate of decline. A lot of concern has focused on the decline in government investment in physical capital — bridges, roads, sewer systems, etc. That concern is focused not only on Federal investment but also state and local. I haven’t had time to generate the real investment ex-intellectual property products series, so I present in Figure 3 investment in structures and equipment as a share of nominal GDP.

Government failed to report $619 billion in spending to transparency site, report says -- The White House budget office launched USASpending.gov in 2007 to track federal spending after scores of lawmakers, including then-Sen. Barack Obama, successfully pushed through a bipartisan bill to ensure greater transparency with the funding.  At last check, less than 8 percent of the site’s spending information was accurate, and federal agencies had failed to report nearly $620 billion in grants, loans and other forms of assistance awards, according to a recent report from Congress’s nonpartisan Government Accountability Office. The Federal Funding Accountability and Transparency Act of 2006, sponsored by Sen. Tom Coburn (R-Okla.) and signed into law by President George W. Bush, required the Office of Management and Budget to set up a Web site with data on federal awards and develop guidance on reporting requirements. President Obama later set a goal of 100 percent accuracy by the end of 2011.  But the legislation is not working as well as lawmakers and the administration had hoped. The GAO said a review of the 2012 data found “significant underreporting of awards and few that contained information that was fully consistent with the information in agency records.”

$619 billion missed from federal transparency site == A government website intended to make federal spending more transparent was missing at least $619 billion from 302 federal programs, a government audit has found. And the data that does exist is wildly inaccurate, according to the Government Accountability Office, which looked at 2012 spending data. Only 2% to 7% of spending data on USASpending.gov is "fully consistent with agencies' records," according to the report. Among the data missing from the 6-year-old federal website:

  • • The Department of Health and Human Services failed to report nearly $544 billion, mostly in direct assistance programs like Medicare. The department admitted that it should have reported aggregate numbers of spending on those programs.
  • • The Department of the Interior did not report spending for 163 of its 265 assistance programs because, the department said, its accounting systems were not compatible with the data formats required by USASpending.gov. The result: $5.3 billion in spending missing from the website.
  • • The White House itself failed to report any of the programs it's directly responsible for. At the Office of National Drug Control Policy, which is part of the White House, officials said they thought HHS was responsible for reporting their spending.

Does Congress Really Care About the Deficit? Not When It Comes to Vets and Highways. - Next time a lawmaker starts to pontificate about the desperate need to reduce the budget deficit, remind him (or her) about what Congress did just before it left town last week. It passed two bills that are extremely important, but didn’t pay for either of them. And they are likely to add tens of billions of dollars to the flow of red ink over the next decades. The first was the Veterans Access to Care Act. There is broad agreement across the political spectrum that vets are struggling to get care through the VA system. And, in a rare show of bipartisanship, Congress passed a measure in July that promises to improve vets’ access to health care. But of the law’s $16 billion in new spending, only about $6 billion is paid for. Thus, it would add $10 billion to the deficit over the next 10 years, according to official congressional scoring. In reality, it is very likely to add much more than that. Lawmakers didn’t fully pay for even this limited bill because they deemed it an “emergency,” and thus not subject to the usual congressional requirement that new spending be offset with cuts in other programs or by new taxes.  Then, there is the infamous Highway Trust Fund fix. That sad story is well known to regular Tax Vox readers. Unable to raise the gas tax, or broadly reform the way road and transit construction is financed, Congress agreed to a temporary funding patch that will last only to next spring. And where did it get the money? It let businesses delay their contributions to their worker’s pensions.

As Congress Adjourns, GOP Declares “Omission Accomplished” -- Our long national nightmare is over – for the moment. Congress has adjourned for summer recess after a session that can safely be described as “historic,” both for its historic lack of accomplishment and the historically low regard in which it is now held by the public. But let’s be clear: This shameful record is not an example of “government failure.” It is a demonstration of what happens when people who are opposed to government, for reasons of both ideology and self-interest, are given positions of power within it and do not face a sufficiently eloquent and well-organized opposition.Doing nothing is not a bug for Republicans in Congress. It is a feature. They appear to be evolving from a rhetorically extreme but ultimately self-interested body – a phenomenon that is disturbing in its moral implications but at least somewhat predictable in its behavior – into something else altogether: a rhetorically extreme group that actually believes its rhetoric.

How Fixing Government Could Lift Economic Gloom - - Wall Street Journal-NBC News polling out this week found that 85% of voters favor tax incentives that  would encourage companies to bring jobs back to the U.S. from overseas and that 70% support reducing regulations that add to the cost of doing business in this country. These views are almost certainly tied to the feeling that things are not good in the U.S. economy; the poll found that 71% of Americans are dissatisfied, that 76% lack confidence that life will be better for their children, and that 60% believe that this country is in decline. Fifty-four percent of Americans believe that the widening gap between the wealthy and everyone else is undermining the American dream. Public views on how tax policy can address this are mixed. Sixty-four percent said they support the idea of raising taxes on the richest 1% of Americans to reduce taxes on the middle class, but about the same share–66%–favor keeping business taxes low to create a more favorable economic climate. There has been much debate about how to talk about income inequality, economic opportunity and the idea of fairness.  According to the poll, 78% of Americans want tougher fines and jail time for financial executives who have broken the law and profited; 80% think college should be more affordable, with lower-cost student loans and more flexibility for those paying off college debt; and 60% support raising the minimum wage to at least $10 an hour.Americans may be divided about whether government programs are the way to address major problems, but 75% favor increased federal spending on infrastructure projects.

Let's Do It! Let's Bring Back Earmarks!- For the past several years, Congress has been operating under a formal ban of earmarks -- tiny bits of spending that members previously enjoyed inserting into legislation to benefit projects and constituents in their home states. Earmarks have always had a checkered history. On their best days, they get referred to as "pork-barrel spending," as if having a barrel of delicious pork is somehow a bad thing. On their worst days, then-House Majority Leader Tom DeLay was riding herd over the process and using it as his own personal means of meting out rewards and punishments.  "This is corrupt!" said a bunch of people repeatedly, and so round about 2010, Congress began "reforming" earmarks. Spurred on by well-meaning good-government types and hacky deficit hysterics -- along with political partisans who enjoyed characterizing their opponents' earmarks as an abuse of the process -- the whole notion of getting rid of earmarks started to sound like a good idea. But it actually was a terrible and stupid idea, and we need to un-reform earmark reform just as hard as we can. We should not stop until earmark reform is sorry for ever having existed.

Treasury’s Tax Powers Could Limit Benefits of Inversions - If the Treasury Department was trying to scare investors away from corporate inversions by saying the U.S. would examine ways to stop the deals, it worked. Stock markets yesterday punished companies pursuing inversions and investors have genuine reason for concern about the prospects for cross-border mergers that limit U.S. corporate taxes. The policy landscape on inversions has shifted significantly since last week, when lawmakers -- deadlocked on tax policy -- left Washington for a five-week break. The lack of congressional action and the Obama administration’s reluctance to move on its own had given companies and investors confidence that pending deals wouldn’t be affected by government action. President Barack Obama said yesterday he wants the U.S. to act “as quickly as possible” to discourage inversions using whatever authority the government already has.

Half-Trillion-Dollar Exodus Magnifies Treasury Bill Shortage - One of the biggest winners in the push to make money-market funds safer for investors is turning out to be none other than the U.S. government. Rules adopted by regulators last month will require money funds that invest in riskier assets to abandon their traditional $1 share-price floor and disclose daily changes in value. For companies that use the funds like bank accounts, the prospect of prices falling below $1 may prompt them to shift their cash into the shortest-term Treasuries, creating as much as $500 billion of demand in two years, according to Bank of America Corp. Boeing Co., the world’s largest maker of planes, and the state of Maryland are already looking to make the switch to avoid the possibility of any potential losses. With the $1.39 trillion U.S. bill market accounting for the smallest share of Treasuries in six decades, the extra demand may help the world’s largest debtor nation contain its own funding costs as the Federal Reserve moves to raise interest rates. “Whether investors move into government institutional money-market funds or just buy securities themselves, there will be a large demand” for short-dated debt,  “That will lower yields.”

US banks warn on ‘excessive’ risk-taking - FT.com:  An influential group of Wall Street banks has warned the US Treasury that low volatility in many markets is creating a feedback loop that exacerbates “excessive risk-taking” by investors. A member of the Treasury Borrowing Advisory Committee – a group of banks and investors selected to help advise on markets and the economy – made the warning in a presentation this week. The caution from the TBAC comes as volatility in the markets has drifted to historic lows due to central bank policies that suppress sharp market movements and dissuade investors from hoarding cash. The concern now is that large investors may have grown too complacent following years of one-way markets that encourage them to take on ever greater amounts of risk to hit their return targets. Sales of riskier investments – such as the junk bonds sold by low-rated companies – have subsequently soared thanks to demand from yield-hungry investors. “Against [an] environment of low vol[atility] and low returns, the only way to achieve the same return targets is to take on more risk,” TBAC said in its presentation.

Only Now Does Influential Bank Group Complain That Low Volatility is Producing Too Much Risk-Taking -- Yves Smith -- The spectacle of banks wring their hands about how low volatility is leading them as well as investors to take on too much risk bears an awfully strong resemblance to a child who has killed his parents asking for sympathy for being an orphan. Do they honestly think their audience has managed to forget why the Fed and other central banks drove interest rates super low and started intervening massively in financial markets, and now are having trouble figuring out how to undo their handiwork? It was to rescue them from their risk binge that produced the financial crisis. It’s no secret that the aim of the central bank ministrations was to to goose asset values and more specifically to drive investors into risky financial products, both to engineer the appearance of healthy bank balance sheets, and out of a misguided belief that the combination of cheap borrowing costs and the confidence fairy effect would produce a solid real economy recovery. The Financial Times summarized a presentation on volatility, or more accurately, the lack thereof, to the Treasury Borrowing Advisory Committee: The concern now is that large investors may have grown too complacent following years of one-way markets that encourage them to take on ever greater amounts of risk to hit their return targets.Sales of riskier investments – such as the junk bonds sold by low-rated companies – have subsequently soared thanks to demand from yield-hungry investors.Assets invested into hedge funds, which typically undertake riskier strategies, have ballooned to $2.8tn in the second quarter of this year, up from about $1.75tn just before the financial crisis, TBAC said. Meanwhile conservative investors such as pension funds are still trying to reach an average return target of a little less than 8 per cent, at a time when yields on benchmark US Treasuries are at 2.45 per cent.

Not all Native Americans are Doing, Let Alone Getting Rich Off, Payday Loans - The Wall Street Journal has run several stories over the past few years about how Indian Tribes are getting rich off payday lending. These stories always tell a fraction of this story, leaving readers with the misperception that all tribes do this lending and that those who do, get rich. The reality is that only a small percentage of Native people do payday lending, and the only people getting rich off these operations are non-tribal lenders that use tribes to get around state laws. A week or two ago, it happened again. The Wall Street Journal published Payday Loans Have Brought Jobs and Revenue, but Tribal Leaders Say Government Crackdown Jeopardizes Business, once again claiming that tribes are getting rich off this business. The article, also about operation choke point, claims that payday loan revenues make up one-fifth of the revenue on some tribal lands, but give no details on the dollars made. The story quotes one tribal member making $10 an hour, as well as the head of the Native American Financial Services Association, which represents just 19 of the 566 federal registered Indian Tribes. These people like tribal payday lending. But they are but one tiny voice in the debate as most tribes neither engage in nor condone this business. A July 17, 2014, an Al Jazeera story also covered operation choke point but told a very different story. This article entitled When tribes Team Up With Payday Lenders, Who Profits describes exactly how tribal payday lending (part of the four billion dollar online payday loans industry) works. Little of the revenue flows to the tribe, sometimes 1% of the loan, or even just a finder’s fee of $2.50 to $5.00 per loan.

Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending - Federal prosecutors have begun a civil investigation into the booming business of subprime auto lending, focusing on the packaging and selling of questionable loans to investors.The inquiry is being undertaken amid worries among some regulators that checks and standards are being neglected as the subprime auto loan market surges, in a small, yet disturbing, echo of the subprime mortgage crisis. Those concerns — and signs that some borrowers’ loan applications had false information about income and employment — were the subject of a front-page article in The New York Times last month. General Motors’ finance subsidiary disclosed in a securities filing on Monday that it had received a Justice Department subpoena for documents on the origination and the securitization of subprime loan contracts since 2007. The subpoena asks for the underwriting criteria and how the loans were represented to those who were pooling them and assembling securities to be sold to investors.The office of Preet Bharara, the United States attorney for the Southern District of New York, also is looking at other companies, say people briefed on the matter. In the G.M. investigation, Mr. Bharara is reviewing whether the lender sold questionable auto-loan investments to investors, they said. At the center of the investigation, the people said, is whether the lender fully disclosed to investors the credit worthiness of the borrowers whose loans made up the complex securities.

Merger Mania Meets Junk Unease With $56 Billion of Loans --Dealmakers planning to borrow about $56 billion to finance the biggest spree of acquisitions since 2007 are starting to get pushback as investors sour on junk debt. Cerberus Capital Management LP-controlled Albertsons boosted the interest rate it will pay on about $4.6 billion of loans by as much as 0.75 percentage point for its purchase of grocer Safeway Inc., among the biggest deals this year where funding costs have risen. Apollo Global Management LLC did the same on $620 million of debt to back its takeover of the television programmer Endemol, data compiled by Bloomberg show. As speculative-grade loans suffer the first monthly loss in a year, debt investors lulled by almost six years of near-zero interest rates by the Federal Reserve are starting to demand better terms. The timing can hardly be worse for junk-rated borrowers that need to finance purchases in what stands to be the busiest year for deals since before the credit crisis. “The market has gotten a little sloppy,” “Things are going to have to price at the wide end.”

Stampede of Mergers Could Mean Growth, or Irrationality, Ahead - Something big is happening on Wall Street that is making investment bankers richer. It is also supposed to signal better times ahead for the rest of the country. A boom in mergers and acquisitions is taking place, and the stampede is expected to continue even after two headline-grabbing deals — Rupert Murdoch’s bid for Time Warner and Sprint’s attempt to buy T-Mobile — crumbled this week. A sharp upturn in deal activity is often thought to herald a stronger economy and a buoyant stock market. The theory: Corporate chieftains see strength building in their business lines, which gives them the confidence to pursue ambitious acquisitions of other companies. “The corporate sector has been kind of out of it in creating any sort of growth,”  “So maybe this is the first salvo in a corporate-spending-driven economic recovery.” So far this year, $2.2 trillion in deals has been announced globally, according to data from Thomson Reuters. That total represents a 67 percent increase from the same period last year, and it is setting up 2014 to be a robust year for deal makers. While the surge creates a hefty payday for investment bankers, it is also one more piece of data — along with figures showing job growth — that suggest the American economy is poised to accelerate out of the doldrums that followed the financial crisis of 2008.

Margin Debt - Is It Fuelling the Stock Market? - I have posted on this subject before but given the current somewhat volatile behaviour from the stock market, I think that an update is in order.  Thanks to the NYSE, we have a history of margin debt that has been used by stock market investors going back to 1959.  Here is a small sample of the data, showing the amount of margin debt since 2000:In June 2014, margin debt was at its second highest level ever, coming in at $464.311 billion, down just over $1 billion from February's record of $465,720 billion.  Just before the bottom fell out of the stock market in 2009, margin debt hit a record of $334.9 billion in February 2008.  It fell to a low of $173.3 billion one year later in February 2009 as millions of investors saw the value of their stocks take a beating and received that dreaded margin call from their brokers.  Margin debt is a mug's game, a game that you are more likely to lose than win.  It is also a game that has been influenced strongly by the Federal Reserve in two ways:

  1. 1.) Investors are desperate to get a reasonable yield on their investments and have viewed equities as the only way to get a return above 1 or 2 percent, even though that return is far from guaranteed.
  2. 2.) By pushing interest rates down to near-zero, the interest charged by brokerage houses on margin debt has dropped as well, luring more investors into borrowing to buy that "hot tip".

Dodd-Frank Financial Reform Is Working, by Paul Krugman - The Dodd-Frank reform bill is working a lot better than anyone listening to the news media would imagine. Let’s talk, in particular, about two important pieces of Dodd-Frank: creation of an agency protecting consumers from misleading or fraudulent financial sales pitches, and efforts to end “too big to fail.” The decision to create a Consumer Financial Protection Bureau shouldn’t have been controversial, given what happened during the housing boom. Of course, that obvious need didn’t stop the U.S. Chamber of Commerce, financial industry lobbyists and conservative groups from going all out in an effort to prevent the bureau’s creation or at least stop it from doing its job, spending more than $1.3 billion in the process. But what happens if a crisis occurs anyway?The answer is that, as in 2008, the government will step in to keep the financial system functioning; nobody wants to take the risk of repeating the Great Depression. But how do you rescue the banking system without rewarding bad behavior? The answer is that the government should seize troubled institutions when it bails them out, so that they can be kept running without rewarding stockholders or bondholders who don’t need rescue. In 2008 and 2009, however, it wasn’t clear that the Treasury Department had the necessary legal authority to do that. So Dodd-Frank filled that gap, giving regulators Ordinary Liquidation Authority, also known as resolution authority, so that in the next crisis we can save “systemically important” banks and other institutions without bailing out the bankers.

Paul Krugman Just Made the Worst Call of His Career - Krugman, who is typically spot on in the arena of monetary and economic issues, could be forgiven for his self-imposed myopia of a President who ran not once, but twice, on a populist message and then enabled the greatest wealth inequality in our nation’s history through his obsequious servility to Wall Street. Krugman cannot be forgiven for his latest missive, however. There is simply too much at stake for our nation to allow Krugman’s misguided musings to stand. Krugman starts off with the subtitle “Dodd-Frank Financial Reform Is Working” and ends with this stunning pronouncement: “For all its limitations, financial reform is a success story.” Judging by the comments section to Krugman’s column, that last leap of fantasy brought a gasp from readers of the Times business section who are greeted daily with one or another Wall Street crime cartel looting the country through some new derivative scheme or appropriately named “dark pool,” or “fixing.” One commenter, Gary Henscheid wrote “…investment bankers will run amok until Congress restores Glass-Steagall.”  Another reader, Mark Thomason, wrote in the comments section: “Financial reform …did not go anywhere near far enough. It is not just the Republicans. The Democrats too, Obama insiders too, they all want to feed on the money they need in politics. None of them have a taste for real reform…They did nothing that displeased the bankers. They just papered it over and pretended.”

Krugman v. Morgenson on Too Big to Fail -- Paul Krugman has a thing where you know what his column will look like on Monday based on what goes on his blog that Friday. Sure enough, he transformed this blog post on the Government Accountability Office’s report on too big to fail into this column yesterday with the humble title “Dodd-Frank Financial Reform is Working.” I pretty much called the reaction to the GAO’s report Friday, when I wrote: The report as a whole is a little maddening, because it’s so hedged that pretty much anyone could take the findings and wield them as supporting their viewpoint (even as the report blares “important limitations remain and these results should be interpreted with caution”). And Krugman didn’t disappoint in this regard. In the blog post, he gives the nickel summary of what Dodd-Frank’s resolution authority is supposed to accomplish, and really only offers this single paragraph to explain the GAO report’s contribution. GAO has the goods. There was indeed a large-bank funding advantage during and for some time after the crisis, but it has now been diminished or gone away — maybe even slightly reversed. That is, financial markets are now acting as if they believe that future bailouts won’t be as favorable to fat cats as the bailouts of 2008.  So let’s see how this blog post, witnessed by a relatively modest set of readers, gets transformed into the newspaper column, presumably witnessed by more. Here’s the relevant exchange.And a new study from the Government Accountability Office shows that while large banks were able to borrow more cheaply than small banks before financial reform passed, that advantage has now essentially disappeared. To some extent this may reflect generally calmer markets, but the study nonetheless suggests that reform has done at least part of what it was supposed to do.Well, no, the report did not say that the advantage has “essentially disappeared.” GAO ran 42 models to try and assess the subsidy. In 2013, 18 of those models effectively tested positive for the subsidy, 8 tested negative, and 16 showed nothing. That’s fairly inconclusive, and not at all as definitive as Krugman makes it.

Dodd-Frank: Unfinished and Unstarted Business - The Dodd-Frank financial reform law  was not actually a "law."  Instead, the legislation told regulators to write rules in 398 areas.  In turn, there are laws that govern the writing of such rules, like specified time periods for comments and feedback and revision So it's not a huge surprise, four years later, that the rule-making is not yet completed. Still, it's a bit disheartening to read the  the fourth-anniversary report published by the Davis Polk law firm, which has been tracking the 398 rule requirements in Dodd-Frank since is passage. The report notes: "Of the 398 total rulemaking requirements, 208 (52.3%) have been met with finalized rules and rules have been proposed that would meet 94 (23.6%) more. Rules have not yet been proposed to meet 96 (24.1%) rulemaking requirements." For example, bank regulators were required by the law to write 135 rules, of which 70 are currently finalized. The Commodity Futures Trading Commission was to write 60 rules, of which 50 are finalized. The Securities and Exchange Commission was to write 95 rules, of which 42 are finalized. Various other agencies were responsible for 108 rules, of which 46 are finalized.Well, at least 208 rules are completed, right? Not so fast. A completed rule doesn't mean that business has yet figured out how to actually comply with the rule. For example, there is a completed rule which requires that banking organizations with over $50 billion in assets write a "living will," which is a set of plans that would specify how their business would be contracted and then shut down, without a need for government assistance, if that situation arose in a future financial crisis. The 11 banks wrote up their living wills, and the Federal Reserve and the Federal Deposit Insurance Corporation rejected the plans as inadequate. They wrote up second set of living wills, and a few days ago, the Federal Reserve and FDIC again rejected the plans as inadequate.

Regulators Reject Living Wills of 11 TBTF Banks, a 100% Fail Rate -- Yves Smith -- Mirabile dictu, it looks like Elizabeth Warren’s grilling of Janet Yellen on the Fed’s failure to make progress on Dodd Frank resolutions, also known as living wills, has had some impact. From the Wall Street Journal: In a sweeping rebuke to Wall Street, U.S. regulators said 11 of the nation’s biggest banks haven’t demonstrated they can collapse without causing broad, damaging economic repercussions and ordered them to show “significant” progress by July 2015. The Federal Reserve and the Federal Deposit Insurance Corp. said bankruptcy plans submitted by big banks make “unrealistic or inadequately supported” assumptions and “fail to make, or even to identify, the kinds of changes in firm structure and practices that would be necessary to enhance the prospects for” an orderly failure. The regulators raised the specter of slapping banks with tougher capital, leverage and other rules—and even eventually forcibly breaking them up—absent significant progress to address the shortcomings. The findings applied to 11 banks with assets greater than $250 billion, all of which will get letters detailing shortcomings in their so-called “living wills.” The firms have until July 1, 2015 to file significantly improved plans or face consequences such as higher capital requirements, borrowing limits, or potentially an order to restructure their firm. Mind you, this is a 100% failure rate. Per the joint statement of the Fed and the FDIC, the regulators issued this verdict on the “second round” of resolution plans submitted by 11 banks in 2013, namely Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street Corp., and UBS.

It’s Official: Too Big to Fail Is Alive and Well --  In recent months, we’ve heard how Wall Street’s Blood-sucking Vampire Squids have reformed themselves. They no longer pose any danger to our economy. They’ve written “living wills” that describe how they’ll safely bury themselves without Uncle Sam’s help next time they implode. You see, it doesn’t matter that they remain big—indeed, the biggest behemoths are much bigger than they were before they caused the last Global Financial Crisis. They are no longer “too big to fail” because they’ve all got plans to unwind their dangerous positions when stuff hits the fan. This is very important to Wall Street and Washington because Dodd-Frank requires downsizing and simplification of the Vampire Squids if they remain a threat. Big financial institutions that are highly interconnected can cause a relatively small problem with one bank’s assets to snowball into a national and international crisis that forces Uncle Sam to intervene to bail-out the miscreants. We know that the biggest half-dozen US banks are huge and have highly interconnected balance sheets. We know they have legacy garbage on their balance sheets, and they are creating massive quantities of new trashy assets every day they remain open. That’s their business model. They love that model because it enriches a handful of top management at each institution. As Bill Black says, these are run as control frauds—their motto is “Frauds R Us.” Nearly every day one of them gets caught red-handed in yet another fraud. They pay peanuts in fines and go about their fraudulent business. Nice work if you can get it.

Wall Street Isn't Fixed: TBTF Is Alive And More Dangerous Than Ever - Stockman - Practically since the day Lehman went down in September 2008 Washington has been conducting a monumental farce. It has been pretending to up-root the causes of the thundering financial crisis which struck that month and to enact measures insuring that it would never happen again. In fact, however, official policy has done just the opposite. The Fed’s massive money printing campaign has perpetuated and drastically enlarged the Wall Street casino, making the pre-crisis gamblers in CDOs, CDS and other derivatives appear like pikers compared to the present momentum chasing madness. In a nutshell, the Fed’s prolonged regime of ZIRP and wealth effects based “puts” under risk assets has destroyed two-way markets. The market’s natural mechanism of risk containment and stabilization—-short sellers—has been driven from the casino. Accordingly, carry-trade speculators engorged with free money funding have taken the market to lunatic heights, while leaving it vulnerable to a violent collapse upon an unexpected drop because the market’s natural braking mechanism—short sellers taking profits—- has been eviscerated. At the same time, the giant regulatory diversion known as Dodd-Frank has actually permitted the TBTF banks to get even bigger and more dangerous. Indeed, JPM and BAC were taken to their present unmanageable size by regulators—ostensibly fighting the last outbreak of TBTF—who imposed or acquiesced to the shotgun mergers of late 2008.

Progress, Yet No Progress: The Two Lines of Defense Against Too-Big-To-Fail -- It’s been a week of whiplash when it comes to the issue of Too Big To Fail (TBTF). First the GAO released a report saying that it is difficult to find any bailout subsidy for the largest banks, implying that there's been progress on ending TBTF. Then, late Tuesday, the FDIC and Federal Reserve released a small bombshell saying that the living wills submitted by the 11 largest banks “are not credible and do not facilitate an orderly resolution under the U.S. Bankruptcy Code.” These living wills were designed to make sure that banks could fail without causing chaos in the economy, and this report implies TBTF is still with us. One of them has to be wrong, right? In order to understand this contradiction it's important to map out where the actual disagreement is. Doing so will also help explain how the battle over TBTF will play out in the near future. So look - a large, systemically risky financial firm is collapsing!  What has happened and will happen?

Regulators: Banks' Optimism Killed 'Living Wills' - WSJ: The failure of the biggest U.S. banks to convince regulators they can go bust without bringing down the financial system is likely to further strain an already tense relationship between Wall Street and Washington. On Tuesday, the Federal Reserve and the Federal Deposit Insurance Corp. told 11 of the largest banks to address significant shortcomings in so-called living wills they submitted showing how they can be dismantled under bankruptcy and without government support. Bank officials were surprised by the public rebuke. A senior executive at one of the banks noted his firm got a 19-page memo less than three hours before the public release by the Federal Reserve and FDIC. The executive said there was no communication with regulators beforehand. "This widens the gap" of trust between banks and their regulators, something that the banks are working desperately to close, he said. For their part, regulators say the banks have a lot more work to do before they prove they can cope with another financial debacle. Much of regulators' displeasure stemmed from a concern that Wall Street remains too sanguine about its ability to avoid some of the problems that contributed to the 2008 financial crisis. Regulators also said the 11 firms so far had failed to overhaul their structures or practices in ways necessary to forestall the damaging consequences of a giant financial firm's bankruptcy. Among the areas of concern: Banks' views about how counterparties and foreign regulators would react during a crisis, and the banks' ability to produce information they would need to achieve a quick resolution. Regulators felt that banks, in some cases, took an unrealistic approach to the potential problems regulators previously had asked them to address. These assumptions, in turn, led some firms to avoid making changes that would address those risks.

Financial Stability Monitoring - In a recently released New York Fed staff report, we present a forward-looking monitoring program to identify and track time-varying sources of systemic risk. Our program distinguishes between shocks, which are difficult to prevent, and the vulnerabilities that amplify shocks, which can be addressed. Drawing on a substantial body of research, we identify leverage, maturity transformation, interconnectedness, complexity, and the pricing of risk as the primary vulnerabilities in the financial system. The monitoring program tracks these vulnerabilities in four sectors of the economy: asset markets, the banking sector, shadow banking, and the nonfinancial sector. The framework also highlights the policy trade-off between reducing systemic risk and raising the cost of financial intermediation by taking pre-emptive actions to reduce vulnerabilities.   The remainder of this post summarizes the main points of the staff report. We first provide a few examples of measures of vulnerabilities that could be tracked in each of the four sectors named just above. We then turn to potential policy responses.

‘No more bank bailouts’ cannot be an empty slogan -  Sheila Bair - Sometimes it is hard to state the obvious. Your spouse’s middle-aged bulge. Your boss’s bad breath. You are aware of it but you are afraid to say it, fearing the awkwardness that will result if you speak up. So it was this week, when two US regulatory authorities announced that they were not convinced by contingency plans put forward by 11 big banks, which are supposed to demonstrate that the institutions in question could go into bankruptcy without disrupting the broader financial system. The statement issued by the authorities revealed nothing that informed observers did not already know. What is surprising is that the Federal Reserve Board and the Federal Deposit Insurance Corporation actually, finally, said it. Two years have passed since systemically important financial institutions were required to present US authorities with “living wills”, procedures for winding them down in the event of a bankruptcy. Not a peep had been heard from regulators on those plans until this week. Confessing that these behemoths still cannot be wound down in an orderly bankruptcy process was a courageous act in itself, which should be applauded. The public are entitled to know. So are the banks’ investors, creditors and counterparties, who need to make informed judgments about the risks they face. Transparency is essential if we are to break free of the pernicious doctrine that some banks are too big to be allowed to fail, and must be rescued at public expense. Yet, even now, the authorities are giving mixed messages. The joint announcement issued by the Fed and the FDIC breathed fire, directing the banks to simplify their legal structures, align legal entities with business divisions and revise derivatives contracts to stop their trading partners from disrupting the system by walking away from their obligations in the event of a failure. But in a separate declaration the Fed doused the message with cold water, expressing legalistic reasons why it did not plan to be too tough.

Prosecuting bankers would be a start - FT.com: Bank chief executives like to distance themselves from the waves of litigation washing over their companies by saying they stem from “legacy issues” predating their time in charge. But can serial allegations of bankers’ misconduct still be dismissed as ancient history? At Royal Bank of Scotland, for instance, the list of “litigation, investigations and reviews” in last week’s interim report stretched to 17 pages – up from two paragraphs a decade ago and less than half a dozen pages five years ago. Some of these cases do date back to the financial crisis, such as the alleged mis-selling of US mortgage securities. Many, however, concern more recent activity, such as the investigations by at least 15 regulators and prosecutors around the world into collusion and market-rigging in the $5.3tn a day foreign exchange market. Almost three dozen staff have been suspended, placed on leave or fired by 10 banks, which launched internal probes into forex market rigging only last year. Not exactly a legacy issue. This laundry list of post-crisis banking misconduct is now fuelling debate about how to make the industry clean up its act. So far, authorities have mostly gone after the banks rather than the bankers. The penalties have been growing – highlighted by the $9bn in fines paid in May by France’s BNP Paribas for violating sanctions. US prosecutors have also started securing guilty pleas from lenders, such as BNP and Credit Suisse, albeit without the previously automatic withdrawal of their banking licences. But is this the right approach? If bankers paid a heavier price for wrongdoing, by having to repay their bonuses or go to prison, would that provide a stronger deterrent than imposing big fines on their employers, which hits shareholders hardest?

Bank Lending Still Tight, S.F. Fed Study Finds - Banks are still reticent about making new loans more than five years into the U.S. economic recovery, suggesting business borrowing remains relative costly despite the Federal Reserve’s prolonged policy of low interest rates. Those are the findings of a new study from the San Francisco Fed, which says interest rates on commercial and industrial loans are still fairly high relative to benchmark borrowing costs set by the central bank. “While the spread of the interest rates charged on C&I loans over the federal funds rate has been declining, it still remains above the historical average,” writes San Francisco Fed economist Simon Kwan in a report released Monday entitled “Long Road to Normal for Business Lending.” “Business loans may be more available, but they are not offered at terms that are considered cheap,” Mr. Kwon adds. Many economists have traced the weakest economic expansion in generations to the aftermath of the 2007-2008 financial crisis, which led to a deep scarring of the financial system that stifled the flow of credit.  Fed critics worry the central bank’s expanded balance sheet could lead to overheating in financial markets or the economy. Fed Chairwoman Janet Yellen has flagged the leveraged loan market as one pocket officials are watching closely. But the San Francisco Fed study suggests broader lending activity remains subdued.

Fed Survey: Banks eased lending standards, "broad-based pickup in loan demand" - From the Federal Reserve: The July 2014 Senior Loan Officer Opinion Survey on Bank Lending Practices The July survey results showed a continued easing of lending standards and terms for many types of loan categories amid a broad-based pickup in loan demand. Domestic banks generally continued to ease their lending standards and various terms for commercial and industrial (C&I) loans. In contrast, foreign banks reported little change in standards and in most of the surveyed terms for C&I loans on net. Domestic respondents, meanwhile, also reported having eased standards on most types of commercial real estate (CRE) loans on balance. Although many banks reported having eased standards for prime residential real estate (RRE) loans, respondents generally indicated little change in standards and terms for other types of loans to households. However, a few large banks had eased standards, increased credit limits, and reduced the minimum required credit score for credit card loans. Banks also reported having experienced stronger demand over the past three months, on net, for many more loan categories than on the April survey.

Unofficial Problem Bank list declines to 451 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Aug 1, 2014.  Actions by the Federal Reserve were responsible for the two changes to the Unofficial Problem Bank List this week. There was one removal lowering the list count to 451 institutions with assets of $145.7 billion. A year ago, the list held 726 institutions with assets of $260.9 billion. The Federal Reserve terminated the Written Agreement against Peoples Bank & Trust Co., Troy, MO ($424 million) and they issued a Prompt Corrective Action order against Premier Bank, Denver, CO ($44 million), which has been under a Written Agreement since April 2010. We expect few changes to the list over the next week and it will not be until August 15th until the OCC provides an update on its enforcement action activity.Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The list peaked at 1,002 institutions on June 10, 2011, and is now down to 451.

Trustees to accept $4.5 billion JPMorgan settlement - A proposed $4.5 billion settlement between JPMorgan Chase (JPM) and investors over losses sustained due to JPMorgan’s misrepresentation of the makeup of pools of residential mortgage-backed securities is one step closer to fruition, according to a report from Reuters. The report states that the trustees representing the defrauded investors are set to accept the settlement for a “vast majority” of the trusts that they represent. The settlement was originally agreed to in November 2013.The seven trustees overseeing the securities will accept the deal for all but perhaps two dozen of the 330 trusts included in the offer, the person said. Trustees may poll bondholders in some trusts to see if they would pursue claims if the offer is rejected, the person said.The settlement stalled out in January when investors were slow in agreeing to the settlement terms, but they appear to be prepared to accept the settlement now. The trustees, including Bank of New York Mellon, Deutsche Bank National Trust Co. and HSBC Bank USA face a August 1 deadline for a decision on whether to accept the offer.JPMorgan does not have to go through with the deal if the number of trusts that reject the deal are in excess of a confidential limit the parties negotiated.

Bank of America Offers U.S. Biggest Settlement in History -- After months of lowball offers and heels dug in, it took only 24 hours for Bank of America to suddenly cave in to the government, agreeing to the largest single federal settlement in the history of corporate America. The tentative deal — which people briefed on the matter said would cost Bank of America more than $16 billion to settle investigations into its sale of toxic mortgage securities — started to take shape last week after the Justice Department rejected yet another settlement offer from the bank. Then, a wild card entered the fray.  Judge Jed S. Rakoff, a longtime thorn in the side of Wall Street and Washington, issued an unexpected ruling in another Bank of America case that eroded what was left of the bank’s negotiating leverage. Judge Rakoff, of Federal District Court in Manhattan, ordered the bank to pay nearly $1.3 billion for selling 17,600 loans, many of which were defective. Bank of America had previously lost that case, which involved its Countrywide Financial unit, at a jury trial.The bank’s top lawyers and executives, who made the ill-fated decision to fight that case in Judge Rakoff’s court rather than settle, appeared to recognize that another courtroom battle would not only be futile but extremely expensive, according to two of the people briefed on the matter. The remaining cases, which by contrast would involve billions of dollars in securities backed by home loans, could have cost the bank multiples more than Judge Rakoff’s penalty, perhaps even more than a settlement with the Justice Department.

UPDATE: Bank of America Fined Another $16 Billion for Fraud - Bank of America just agreed to pay another $16 Billion fine for one of its frauds—selling trashy securities to its investors. Another day, another fraud exposed. No surprises there. This is so routine it barely deserves a headline.  According to Bloomberg, that raises the total it has agreed to pay for its mortgage lending frauds to $70 billion. Most of this is related to its purchase of Countrywide, where Mairone oversaw much of the fraud. See here. BofA rewarded Mairone for creating Countrywide’s “Hustle” fraud by hiring her. So far that woman’s criminal expertise contributed toward mounting costs to BofA of $70 billion. Quite an accomplishment!  The Bloomberg editorial goes on to note that these settlements provide no incentive to the Banksters to change behavior. First, they’ve insured themselves against their frauds, so insurance companies pay much of the fine. Second, while the fines sound big, they are peanuts compared to what the banks raked-in as they sucked wealth out of the housing sector. Banksters view this as a cost of doing (fraudulent) business. Third, at worst, stockholders suffer, not top management. Fourth, the Attorney General refuses to go after the top management, so none of those who actually benefitted from the control frauds have been prosecuted for criminal activity. Indeed, they haven’t even been held personally liable for civil fines. And Fifth, all these negotiations and the settlement details are Top Secret—so no one really knows what was admitted. That is no way to make an example of fraudsters. Mairone was the exception, and the judge in the case clearly meant to make an example of her.

NY Fed Announces New Test Program for Trading in Mortgage Securities - The Federal Reserve Bank of New York said Tuesday it is launching a test program to find small financial firms with whom it can trade mortgage bonds. The new effort, known as the Mortgage Operations Counterparty Pilot Program, is another chapter in the Fed’s long-running effort to broaden the universe of firms it can trade with. It follows in the footsteps of a recently completed test effort that employed similarly small firms to trade Treasury bonds with the central bank. Firms eligible to participate in the mortgage program are smaller than the Wall Street giants that comprise the Fed’s primary dealer roster. The Fed has long relied on these mega-banks to serve as its main trading partners when it buys, borrows and sells Treasury and mortgage bonds. The securities purchases affect borrowing costs in the U.S. economy, and are the primary way in which the central bank influences the economy’s trajectory. The Fed says it is looking for a “small number” of participants for the mortgage program. Eligible firms must be a registered U.S. broker-dealer or chartered bank with capital levels between $1 million and $150 million. The firm must stand ready to buy and sell mortgage bonds. The New York Fed said it expects to announce the names of the firms no later than the first quarter of 2015.

Fannie and Freddie Results in Q2: REO inventory declines, "modest increase in REO prices" -- From Fannie Mae: Fannie Mae reported net income of $3.7 billion and comprehensive income of $3.7 billion for the second quarter of 2014.  Fannie Mae expects to pay Treasury $3.7 billion in dividends in September 2014. With the expected September dividend payment, Fannie Mae will have paid a total of $130.5 billion in dividends to Treasury in comparison to $116.1 billion in draw requests since 2008. Dividend payments do not offset prior Treasury draws. Foreclosed property income decreased in the second quarter and first half of 2014 compared with the second quarter and first half of 2013 due to a decrease in gains recognized on dispositions of our REO properties. During the second quarter and first half of 2014, we experienced a modest increase in REO prices compared with a significant increase in REO prices in the second quarter and first half of 2013. From Freddie MacNet income was $1.4 billion – the company’s eleventh consecutive quarter of positive earnings, compared to $4.0 billion in first quarter of 2014.  Based on June 30, 2014 net worth of $4.3 billion, the company’s September 2014 dividend obligation will be $1.9 billion, bringing total cash dividends paid to Treasury to $88.2 billion.Here is a graph of Fannie and Freddie Real Estate Owned (REO). REO inventory decreased in Q2 for both Fannie and Freddie. Delinquencies are falling, but there are still a large number of properties in the foreclosure process with long time lines in judicial foreclosure states. Fannie noted there was only a "modest increase in REO prices" in Q2.

Lawler: Fannie, Freddie in Q2 - From housing economist Tom Lawler:  Yesterday Fannie Mae and Freddie Mac both released their quarterly financial results for the second quarter of 2014. On the earnings front Fannie reported that both GAAP net income and comprehensive income last quarter were $3.7 billion, meaning that Fannie expects to pay Treasury $3.7 billion in dividends in September. That payment would bring total dividends paid to Treasury of $130.5 billion, compared to $116.1 billion in cumulative cash draws from Treasury since 2008. Freddie Mac reported GAAP net income of $1.4 billion and comprehensive income of $1.9 billion, meaning that Freddie expects to pay Treasury $1.9 billion in dividends in September. That payment would bring total dividends paid to Treasury of $88.2 billion, compared to $71.3 billion of cumulative cash draws from Treasury since 2008.Here are some summary delinquency rate stats for the conventional SF mortgage books of both companies. Fannie Mae reported that for foreclosures completed in the first six months of 2014, the average number of days from the borrowers’ last paid installment on their mortgage to when the related properties were added to Fannie’s REO inventory was 918 – or slightly over 2 ½ years. Average days to foreclosure were especially long in New York (1,371), Florida (1,332), and New Jersey (1,307).  Freddie Mac reported that for foreclosures completed in the first six months of 2014, the average number of days from the borrowers’ last scheduled payment to when the related properties were added to Freddie’s REO inventory was 875 days. Average days to foreclosure ranged from 403 in Missouri to 1,337 in New Jersey.

Black Knight releases Mortgage Monitor for June  - Black Knight Financial Services (BKFS, formerly the LPS Data & Analytics division) released their Mortgage Monitor report for June today. According to BKFS, 5.70% of mortgages were delinquent in June, up from 5.62% in May. BKFS reports that 1.88% of mortgages were in the foreclosure process, down from 2.93% in June 2013. This gives a total of 7.58% delinquent or in foreclosure. It breaks down as:
• 1,728,000 properties that are 30 or more days, and less than 90 days past due, but not in foreclosure.
• 1,155,000 properties that are 90 or more days delinquent, but not in foreclosure.
• 951,000 loans in foreclosure process.
For a total of ​​3,834,000 loans delinquent or in foreclosure in June. This is down from 4,785,000 in May 2013. This graph from BKFS shows percent of loans delinquent and in the foreclosure process over time. Delinquencies and foreclosures are moving down - and might be back to normal levels in a couple of years. The second graph from BKFS shows foreclosure inventory by foreclosure process . From Black Knight: An analysis of the month’s mortgage performance data showed that the nation’s inventory of loans in foreclosure is disproportionately distributed in states with judicial foreclosure processes. According to Kostya Gradushy, Black Knight’s manager of Research and Analytics, while foreclosure inventories have been declining nationwide, judicial states’ foreclosure inventories are 3.5 times that of their non-judicial counterparts.

MBA: Delinquency and Foreclosure Rates Decrease in Second Quarter -- From the MBA: Delinquency and Foreclosure Rates Decrease in Second Quarter The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.04 percent of all loans outstanding at the end of the second quarter of 2014. The delinquency rate decreased for the fifth consecutive quarter and reached the lowest level since the fourth quarter of 2007. The delinquency rate decreased seven basis points from the previous quarter, and 92 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey.  The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 2.49 percent, down 16 basis points from the first quarter and 84 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the first quarter of 2008. The percentage of loans on which foreclosure actions were started during the second quarter fell to 0.40 percent from 0.45 percent, a decrease of five basis points, and reached the lowest level since the second quarter of 2006.  The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 4.80 percent, a decrease of 24 basis points from last quarter, and a decrease of 108 basis points from the second quarter of last year. “Delinquency and foreclosure rates fell to their lowest levels in more than six years, and the rate of new foreclosure starts is at its lowest level since 2006,”  This survey has shown steady improvement in delinquency and foreclosure rates, but it will take a few more years to work through the backlog - especially in judicial foreclosure states. Most of the remaining problems are with loans made in 2007 or earlier: "75 percent of seriously delinquent loans were originated in 2007 and earlier" and are in judicial foreclosure states.

Foreclosure Starts Hit Pre-Crisis Low - The proportion of home loans that entered foreclosure in the second quarter of this year hit its lowest point since early 2006, before the crisis began, according to data released Thursday by the Mortgage Bankers Association. The low rate is another sign that higher home prices and an improving job market are helping to put the mortgage crisis in the rearview mirror, said MBA Chief Economist Mike Fratantoni. At the crisis’s worst point, in the third quarter of 2009, servicers started foreclosures on 1.42% of home loans. Last quarter, they began foreclosures on only 0.4% of loans, the lowest rate since the second quarter of 2006. The delinquency rate–loans that have at least one late payment but are not in the foreclosure process—decreased to 6.04% after adjusting for seasonality, reaching its lowest level since the end of 2007. Don’t celebrate just yet. Banks and homeowners still have a daunting backlog of already-foreclosed-upon homes to work through. In the second quarter, 2.49% of homes were in the foreclosure process, down from the peak of the crisis, but still well above the 1% or so rate before the crisis began. The Mortgage Bankers Association found that some states have larger tasks ahead than others. While fewer than 1% of loans were in foreclosure in Virginia, Colorado and Arizona, in the first quarter, in New Jersey, more than 8% of loans were, nearly 7% of loans in Florida and almost 6% of loans in New York were in foreclosure.

U.S. Foreclosures Dip in Q2, Delinquencies at Six-Year Lows - According to the Mortgage Bankers Association's (MBA) National Delinquency Survey, U.S. delinquency rates for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 6.04 percent of all loans outstanding at the end of the second quarter of 2014. The delinquency rate decreased for the fifth consecutive quarter and reached the lowest level since the fourth quarter of 2007. The delinquency rate decreased seven basis points from the previous quarter, and 92 basis points from one year ago. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the second quarter was 2.49 percent, down 16 basis points from the first quarter and 84 basis points lower than one year ago. This was the lowest foreclosure inventory rate seen since the first quarter of 2008. The percentage of loans on which foreclosure actions were started during the second quarter fell to 0.40 percent from 0.45 percent, a decrease of five basis points, and reached the lowest level since the second quarter of 2006. The serious delinquency rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 4.80 percent, a decrease of 24 basis points from last quarter, and a decrease of 108 basis points from the second quarter of last year. Similar to the previous quarter, 75 percent of seriously delinquent loans were originated in 2007 and earlier. Loans with vintages started in 2011 and later only accounted for six percent of all seriously delinquent loans.

Comments on Q2 National Delinquency Survey: About 2 Years until Normal Levels - Earlier today the MBA released their Q2 National Delinquency Survey: Delinquency and Foreclosure Rates Decrease in Second Quarter.  One of the key questions for housing is when will delinquencies and foreclosures be back to normal? As Joel Kan, MBA’s Director of Economic Forecasting, said this morning:   “Some states hardest hit by the crisis, for example California and Arizona, now have foreclosure inventory rates that are both back to pre-crisis levels and less than half the current national rate. On the other hand, despite declines last quarter, states with slower-moving judicial foreclosure regimes, like New Jersey, Florida and New York, have foreclosure inventory rates two to three times the national average." So the answer about when delinquencies and foreclosures will be back to normal depends on the state and foreclosure process.  Some states have already recovered and others are lagging behind. A key point to remember is that most of the problem loans were originated in 2007 or earlier (a long time ago), and the lenders are just working through the backlog.  From the MBA:  ... 75 percent of seriously delinquent loans were originated in 2007 and earlier. Loans with vintages started in 2011 and later only accounted for six percent of all seriously delinquent loans. This graph shows the percent of loans delinquent by days past due. The percent of loans 30 days and 60 days delinquent are back to normal levels. The 90 day bucket peaked in Q1 2010, and is about two-thirds of the way back to normal. The percent of loans in the foreclosure process also peaked in 2010 and is close to two-thirds of the way back to normal. So it has taken about 4 years to reduce the backlog by two-thirds, so a rough guess is that delinquencies and foreclosures will be back to normal in about 2 years.

US banks told to steer billions to hard-hit areas - FT.com: Big US banks will have to offer billions of dollars more in relief to the communities hardest hit by the financial crisis, as US authorities demand new terms for settling claims of mortgage sales abuses. The Department of Justice and Department of Housing and Urban Development are adding provisions aimed at directing aid to distressed areas and community redevelopment efforts as they resolve outstanding investigations into mortgage sale abuses.  The change of focus comes as US officials are moving closer to a record $16bn-plus deal with Bank of America over mis-selling mortgage securities that would steer as much as $7bn to homeowners, people familiar with the matter have said. Including the BofA deal, banks will have paid $59bn in fines and consumer relief since the crisis to settle mortgage cases, according to FT research. At least seven other banks remain under investigation for mis-selling mortgage securities. “We want to focus on lower to moderate income borrowers to make sure we’re getting at the smaller loans. So many years after the crisis there are still so many homeowners that are struggling,” said a DoJ official. Authorities are trying to direct relief to poorer neighbourhoods after criticism that buyers of higher-priced homes received too much of the mortgage relief set aside under 2012’s $20bn agreement between federal and state authorities and five financial institutions accused of improper foreclosure practices. “The relief has not trickled down to the communities that were hardest hit by the crisis,”

Extending Unemployment Benefits During The Recession Prevented 1.4 Million Foreclosures -- Extending unemployment insurance during the recession didn’t just give the unemployed some extra income, but actually prevented millions from being foreclosed on, according to a new study from Joanne W. Hsu, David A. Matsa, and Brian T. Melzer. Given that different states have different amounts they’ll pay out in unemployment benefits — in 2011 it ranged from $6,000 in Mississippi to $28,000 in Massachusetts — the researchers looked at what impact more generous benefits had on mortgage delinquency. They found that for every $1,000 extra in maximum benefits, the likelihood that an unemployed worker’s mortgage would go into delinquency declines by 25 basis points. Getting benefits for a longer period has a similar effect, as each additional week decreases the chance of delinquency by 34 basis points. “Based on this variety of tests, we conclude that the estimated effect of UI generosity is causal,” they write, meaning that bigger checks reduce the chances of going into delinquency directly. They also found that the effect isn’t just a temporary forestalling of an inevitable foreclosure, but that it has a lasting impact on keeping people in their homes. “The effect seems to be long term,” they write, “as UI [unemployment insurance] benefits not only mitigate loan delinquency, but also reduce homeowner relocations and evictions.” Each additional $1,000 in benefits reduces the chance of an unemployed person’s mortgage going into default by 2.4 to 11 basis points. “We find that UI helps not only to postpone delinquency but also to keep laid off homeowners in their homes,” they conclude.

Default Risk Rises on 20% of Boom-Era Home-Equity Loans - As much as 20 percent of home equity lines of credit worth $79 billion are at increased risk of default as their payments jump a decade after the loans were made during the U.S. housing boom, according to TransUnion Corp. Borrowers face rate shocks as payments on the credit lines, known as HELOCs, switch from interest-only to include principal, causing monthly bills to surge more than 50 percent, according to a report today by the Chicago-based credit information company. The 20 percent of borrowers most in danger of default are property owners with low credit scores, high debt-to-income ratios and limited home equity, said Ezra Becker, TransUnion’s vice president of research. Maturing home equity lines, which allow borrowers to use the value of their home as collateral on loans for personal spending, are the last wave of resetting debt from the era of high property values and easy credit before the 2008 financial crisis. The three biggest home equity lenders -- Bank of America Corp. (BAC), Wells Fargo & Co., JPMorgan Chase & Co. (JPM) -- held 36 percent of the $691.5 billion debt as of the first quarter, according to Federal Reserve data. “It’s nothing trivial for the consumers who end up in default or the banks that potentially have large portfolio concentrations,” Mark Fleming, chief economist for CoreLogic Inc., said in an e-mail. “But an impactful risk to the mortgage finance system or our housing market, that’s harder to see.”

Q2 2014 GDP Details on Residential and Commercial Real Estate - The BEA has released the underlying details for the Q2 advance GDP report. Investment in single family structures is now back to being the top category for residential investment (see first graph).  Home improvement was the top category for twenty one consecutive quarters following the housing bust ... but now investment in single family structures is the top category once again. However - even though investment in single family structures has increased significantly from the bottom - single family investment is still very low, and still below the bottom for previous recessions. I expect further increases over the next few years. The first graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes). Investment in single family structures was $188 billion.  Investment in home improvement was at a $179 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (just over 1.0% of GDP). The second graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased recently, but from a very low level. Investment in offices is down about 49% from the recent peak (as a percent of GDP) and increasing slowly. Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 59% from the peak. The vacancy rate for malls is still very high, so investment will probably stay low for some time. Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 67%. With the hotel occupancy rate at the highest level since 2000, it is likely that hotel investment will probably continue to increase.

Suddenly, Wall Street Is Bailing On Housing - Among this week's most notable moves was the decompression of high-yield credit spreads to near 9 month wides (and continued outflows). What went notably-under-reported by the mainstream media, however, was an even bigger selloff in US mortgage bonds. While JPMorgan is unable to see "any fundamental reason" for the plunge in prices, the worrying indication from the magnitude of the drop relative to volumes is that liquidity has evaporated. As Bloomberg notes, with dealer inventories sold down (due to new regulations that make repo and agency securities unpalatable), they have no way to 'smooth' the selling when investors want to exit positions. Weakness of this magnitude when the 10Y gained only 2bps on the week is a big wake-up call that traders are looking for the exits from housing debt and the door is very narrow. Bloomberg warns, prices of a new type of U.S. mortgage bonds are plunging this month, teaching investors a lesson on the risks to markets wrought by the growing constraints on Wall Street banks.

How Student Loans Are Shaping Mortgage Approvals - One of the biggest fears today in the real-estate industry goes something like this: Rising student debt is going to freeze millennials out of the housing market. Data from a top national lender shows that loan applicants with student loans aren’t being turned down more often than those without debt. But the data also show that even small changes in the size of a loan applicant’s monthly debt payments can make a big difference in whether a loan gets approved. The Wall Street Journal received data from LoanDepot.com, a nonbank mortgage lender that started up five years ago and recently cracked into the top 30 mortgage lenders, as tracked by Inside Mortgage Finance. LoanDepot provided data for nearly 46,000 loan applications for home purchases that it processed since 2010 for first-time home buyers. Of those loan applications, more than three quarters were approved and funded. The data, of course, is limited only to those who want to buy homes. There’s no way to measure how many borrowers with student loans have deferred plans to buy homes. With that caveat in mind, here’s what they found: First, there’s little difference between the share of student borrowers in the two groups of loans—those that were and weren’t funded. Some 27.3% of the borrowers whose loans were approved had student debt, while 26% of those whose loans weren’t funded had student debt. The loan-application data show clear signs of growing student-debt burdens. Through the first half of this year, applicants with student debt carried more than $35,000 in student loans. But there is very little difference in total debt burdens between the funded and not-funded pools.

Why Student Loans Are Crushing The Housing Recovery In 1 Chart -- As The WSJ reports, loan-application data show clear signs of growing student-debt burdens. A key metric that mortgage underwriters use to evaluate a borrowers' ability to repay a loan is their total debt-to-income ratio. It’s this metric that can make student loans a big negative in the loan approval process since new rules that took effect this year place greater legal liability on lenders to properly verify 'affordability' (or debt-to-income ratio). As the following chart shows, "between the approved universe and the denied universe, a few hundred dollars in student loan debt can push the debt-to-income above the approved threshold." Simply put, homeownership rates will face pressure until student borrowing slows or until mortgage investors and lenders come up with either more flexible underwriting tools or new loan products (and that never ends well).

How Millennials Are Poised to Help the Housing Recovery - Because the meltdown in housing was at the center of the financial crisis and subsequent Great Recession, much attention during the recovery has been focused on the pickup in single-family housing starts.  Starts plummeted from an annual rate of 1.4 million units in 2007 to about 300,000 in 2010. Since then, they have been climbing back slowly and were within striking distance of an annual rate of 600,000 in June. While it is unreasonable to expect starts to return to the pre-recession high–which was inflated by unrealistic expectations about further price increases and lax mortgage-underwriting standards–the housing recovery clearly has a ways to go.Worrywarts are concerned that impending increases in interest rates will crimp housing prices and thus the rate of new single-family starts.  But as Mark Carter, a senior researcher at the Federal Reserve Bank of Atlanta, wrote earlier this year, the good news is that there is huge pent-up demand from millennials who have delayed buying a house until they believe the economy’s improvement is for real. Rarely is anything about the economy clear-cut, with all factors pointing in the same direction. Housing is no exception, but at least there is a positive long-run factor favoring more home purchases that should partially or conceivably more than offset any increase in interest rates when they come. And they may not come, because a rise in short-term rates engineered by the Fed could stabilize inflation expectations and keep long-term interest rates, such as the mortgage interest rate, reasonably stable for some time.

More Evidence Supporting the House of Debt - Our book, House of Debt, makes an evidence-based case for what caused the severe Great Recession and what explains the continued economic weakness. The debt-fueled housing boom artificially boosted household spending from 2000 to 2006, and then the collapse in house prices forced a sharp pull-back because indebted households bore the brunt of the shock. The lack of policies targeting this problem exacerbated the effects of the housing crash on consumer spending. The BEA released state-level personal consumption expenditure data today, and it strongly supports our view. In the charts below, we take the 20% U.S. states that had the largest decline in housing net worth from 2006 to 2009, and we compare them to the 20% states U.S. states that had the smallest decline over the same time period. The states with the largest decline are: Arizona, California, Florida, Michigan, and Nevada. The states with the smallest decline are: Arkansas, Iowa, Kentucky, Louisiana, Nebraska, North Carolina, North Dakota, Oklahoma, Pennsylvania, South Dakota, and Wyoming. We make sure each group contains 20% of the population,  which is why there are more states in the smallest decline category. Here is total consumption, indexed to 2006, for the biggest decline and smallest decline states:

WSJ Survey: More Worry that Housing Will Cave In - A housing boom? Fuhgeddaboudit.At the start of 2014, the panel of economists in The Wall Street Journal’s survey had high hopes for the housing sector. Starts were expected to average 1.11 million, a 20% jump from 2013’s pace. And 9% of the respondents thought housing could be stronger than expected, adding upside risk to economic growth in 2014. Instead, homebuilding has struggled in the first half. One problem was harsh weather conditions in early 2014, but demand for new homes also has not taken off as expected. As a result, economists have reined in their enthusiasm for housing. The consensus view expects start will average 1.01 million this year. Additionally, more economists worry that housing now is a potential negative to growth. In the August survey, 20.6% of economists mentioned housing as a downside risk. That’s up from less than 5% saying that in January.

MBA: Mortgage Refinance Applications Increase in Latest MBA Weekly Survey -- From the MBA: Refinance Applications, Share Increase in Latest MBA Weekly Survey Mortgage applications increased 1.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 1, 2014. ... The Refinance Index increased 4 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. ... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.35 percent from 4.33 percent, with points decreasing to 0.22 from 0.24 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
The first graph shows the refinance index. The refinance index is down 74% from the levels in May 2013. As expected, refinance activity is very low this year. The second graph shows the MBA mortgage purchase index. According to the MBA, the unadjusted purchase index is down about 14% from a year ago.

Weekly Update: Housing Tracker Existing Home Inventory up 13.6% YoY on Aug 4th --Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.The Realtor (NAR) data is monthly and released with a lag (the most recent data released was for June and indicated inventory was up 6.5% year-over-year).    Fortunately Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data, for 54 metro areas, for the last several years.This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year before declining seasonally during the holidays. Inventory in 2014 (Red) is now 13.6% above the same week in 2013. (Note: There might be an issue with the Housing Tracker data over the last few weeks - Ben is checking - but inventory is still up significantly). Inventory is also about 2.4% above the same week in 2012. According to several of the house price indexes, house prices bottomed in early 2012, and low inventories were a key reason for the subsequent price increases. Now that inventory is back above 2012 levels, I expect house price increases to slow (and possibly decline in some areas).

U.S. Home Prices Slowed Down in June - U.S. home prices have slowed down from their breakneck growth pace of the past year, according to CoreLogic’s price index. Prices were up 7.5% for the year ended in June. That’s down from a revised 8.3% year-over-year increase reported for May, which was initially reported as an 8.8% gain. By contrast, home prices last June had advanced 11.4% on a year-over-year basis. The deceleration is probably good news, given that more housing markets have begun to look slightly overvalued on a price-to-income measure. And excluding 2013, the June year-over-year gain is still better than any since 2005. Home price indexes can also be distorted by the share of homes selling out of foreclosure. Those homes tend to sell for less because they’re not as well maintained and banks are less patient than traditional sellers. As the share of distressed-property sales rose in 2008 and 2009, home prices declined sharply. As the share of distressed-property sales has slowed over the last three years, home prices have rebounded strongly. But as foreclosures fade from more housing markets, prices won’t be influenced as heavily by these sales in either direction. Meanwhile, inventories of homes being offered for sale are rising slightly, a development that could slow the pace at which prices are running up.

CoreLogic: House Prices up 7.5% Year-over-year in June --  The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).  From CoreLogic: CoreLogic Reports Home Prices Rose by 7.5 Percent Year Over Year in June Home prices nationwide, including distressed sales, increased 7.5 percent in June 2014 compared to June 2013. This change represents 28 months of consecutive year-over-year increases in home prices nationally. On a month-over-month basis, home prices nationwide, including distressed sales, increased 1.0 percent in June 2014 compared to May 2014...Excluding distressed sales, home prices nationally increased 6.9 percent in June 2014 compared to June 2013 and 0.9 percent month over month compared to May 2014. Also excluding distressed sales, all 50 states and the District of Columbia showed year-over-year home price appreciation in June. Distressed sales include short sales and real estate owned (REO) transactions.“Home price appreciation continued moderating in June with its slight month-over-month increase,” said Mark Fleming, chief economist for CoreLogic. “This reversion to normality that we are finally experiencing is expected to continue across the country and should further alleviate concern over diminishing affordability and the risk of another asset bubble.”

Trulia: Asking House Prices up 8.1% year-over-year in July -- From Trulia chief economist Jed Kolko: Home Price Gains Now Driven More By Jobs Than By Rebound Effect The month-over-month increase in asking home prices of 0.8% was in line with the average monthly gain over the past year, settling back down after a 1.2% month-over-month in June. ... Although prices aren’t rising as fast as they did in spring 2013, price increases continue to be widespread, with 97 of 100 metros posting year-over-year price gains, and 94 posting quarter-over-quarter gains. As the rebound effect diminishes, local housing markets need to depend more on job growth, which is a more sustainable driver of housing demand. So are they? We compared year-over-year asking price gains in July 2014 with year-over-year job gains in December 2013, from the Bureau of Labor Statistics’ Quarterly Census of Employment and Wages (QCEW) in the 100 largest U.S. metros. Clearly, housing markets with higher asking-price gains have faster job growth ... A year ago, the pattern was different: in July 2013, home price changes were more highly correlated with the peak-to-trough price decline than with job growth (year-over-year in December 2012). Over the past year, therefore, the rebound effect has weakened, and as prices continue to return to long-term normal levels the rebound effect will continue to fade. Local housing markets will rely more on jobs and wages to support housing demand and home prices – which is another step on the road to recovery.

Goldman Sachs' Hui on House Price Seasonal Adjustments --A few excerpts from some analysis by Goldman's Hui Shan: "Are investors getting too pessimistic about US housing"  This month’s housing data showed weakness in both price and activity measures. On the price side, market consensus expected 0.3% month-over-month growth in the S&P Case-Shiller 20-City Composite. The actual print was -0.3%, the first decline since January 2012 when house prices bottomed. ... In our previous research, we showed that seasonal adjustments have become a tricky business for housing owing to heightened distressed sales over the past few years  In the US housing market, more people buy and sell homes in the summer than in the winter because of the school calendar. Normally, such adjustments are within the range of plus/minus one percentage point. The recent housing downturn is the most severe in US history since the Great Depression, featuring a wave of distressed sales. According to the National Association of Realtors, at the worst of the crisis, nearly half of home sales were distressed. Because distressed sales take place throughout the year while non-distressed sales are more concentrated in the summer, distressed sales account for a larger share of total sales in the winter than in the summer. As the housing market recovers and the share of distressed sales drops, the true underlying seasonal pattern is normalizing. However, seasonal factors are usually derived using data from the past 5-7 years. In other words, we are using the amplified seasonal factors to adjust more muted seasonal patterns, meaning pushing up house prices too much in the winter and also pushing down house prices too much in the summer.  This seasonal adjustment problem is likely to persist in coming months, causing the next few months’ house price prints to appear softer than they really are.

Tight rental market holding back household formation - The latest data on US households is out (through Q2) and the story remains the same. Household formation has stalled. US population is growing at about 0.7% per year while households grew at an annualized rate of 0.34% over the past two years.  Part of the problem is weak residential construction spending which is keeping the supply of rental housing relatively tight.  As a result, rents are now rising at over 1% per year faster than wages, pricing many potential households out of the market. The chart below shows the rent component of the CPI minus the year-over-year average hourly wage growth in the US. The longer this goes on, the more out of reach affordable rental housing will become for new households. As discussed before (see post), this is going to become a major issue for the US in years to come.

These 7 Charts Show Why the Rent Is Too Damn High -- More Americans than ever before are unable to afford rent. Here's a look at why the rent is too damn high and what can be done about it.  Part of the problem has to do with simple supply and demand. Millions of Americans lost their homes during the foreclosure crisis, and many of those folks flooded into the rental market. In 2004, 31 percent of US households were renters, according to HUD. Today that number is 35 percent. "With more people trying to get into same number of units you get an incredible pressure on prices," says Shaun Donovan*, the former secretary of housing and urban development for the Obama administration.

Federal Reserve finds US households are unwell - The Federal Reserve has just released its first “Report on the Economic Well-Being of U.S. Households“. It provides some useful context for the ongoing debates about the income distribution and excess savings. A few particularly dispiriting highlights:

  • Among Americans aged 18-59, only a third had sufficient emergency savings to cover three months of expenses.
  • Only 48 per cent of Americans could come up with $400 on short notice without borrowing money or sell something.
  • 45 per cent of Americans save none of their income.

Also noteworthy is the demographic breakdown of how people expect to retire, based on their current age. Young people are optimistic they will be able to stop working when they get older and live off their nest egg, while those on the verge of retiring are much more likely to expect having to toil for the rest of their lives:  The insufficient savings of many older Americans helps explain why the labor force participation rates of people aged 55 and older has steadily increased over the past quarter-century even as the labor force participation rates of those aged 25-54 has fallen over the same period.

Fed Survey: A Third of Americans Say They’re Worse Off Post-Recession - More American households say they are worse off  rather than better five years after the recession, a new Federal Reserve survey found. The report, released for the first time on Thursday, found 34% of households said they were “somewhat worse” or “much worse” financially in 2013 compared to 2008. Only 30% reported being better off to some degree.  Considering that respondents were asked to compare their incomes to 2008, during the depths of the recession, “the fact that over two-thirds of respondents reported being the same or worse off financially highlights the uneven nature of the recovery,” the Fed report said.That data comes from the Fed’s Survey of Household Economics and Decision Making. The survey was conducted for the first time last year as part of the central bank’s effort to monitor America’s recovery from the recession and identify any risks to households’ financial stability. The new report offers a view of how households assess their own situations that is not found in other U.S. data sources. Despite relatively few Americans feeling their finances are improving, most appear to be faring relatively well. The survey found 23% reported “living comfortably” and 37% said they were “doing OK.” Less than 40% said they were “just getting by” or otherwise struggling.

Fed Study Finds 2 million in "Forced Retirement", 48% Cannot Afford an Unexpected $400 Expense - I have talked about "forced retirement" 174 times over the course of the past few years. I defined the term as those who retired because they had to, not because they wanted to. These people should be considered unemployed, but they are not. Instead they dropped out of the labor force. We can now put some numbers on "forced retirement" thanks to a Fed study that shows 40% of households show signs of financial stress Four out of 10 American households were straining financially five years after the Great Recession -- many struggling with tight credit, education debt and retirement issues, according to a new Federal Reserve survey of consumers.  The survey found, for example, that 15% of those who had retired since 2008 had retired earlier than planned because of the downturn.  "This suggests that some of the folks who dropped out of the labor force during the recession will not be returning," The Fed report on the Economic Well-Being of U.S. Households in 2013, released today, is 200 pages long.  Key Findings:

  • Over 60 percent of respondents reported that their families are either “doing okay” or “living comfortably” financially; another one-fourth, however, said that they were “just getting by” financially and another 13 percent said they were struggling to do so
  • The effects of the recession continued to be felt by many: 34 percent reported that they were somewhat worse off or much worse off financially than they had been five years earlier, 34 percent reported that they were about the same, and 30 percent reported that they were somewhat or much better off.
  • Among those who had savings prior to 2008, 57 percent reported using up some or all of their savings in the Great Recession and its aftermath
  • Only 48 percent of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money
  • Almost half of respondents had not planned financially for retirement, with 24 percent saying they had given only a little thought to financial planning for their retirement and another 25 percent saying they had done no planning at all
  • 31 percent of respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64, and 25 percent didn’t know how they will pay their expenses in retirement

The Federal Reserve Is Telling Us The Economy Is Pitiful -- Fewer than one-third of Americans report being better off financially than they were five years ago, with weak household savings and hefty debt burdens holding back large segments of the economy, according to a new Federal Reserve survey.  Just 30 percent of survey respondents described themselves as better off than they were in 2008, with 34 percent saying they were doing about the same and 34 percent saying they were worse off. The results of the nationwide survey, which the Fed conducted last September, highlight the degree to which Americans continue to fight financial headwinds several years after Wall Street excess drove the economy into the most punishing recession since the Great Depression. Although the national unemployment rate has been steadily declining since late 2009 amid modest economic growth and booming financial markets, large swaths of the nation have not shared in those gains -- presenting a challenge for policymakers hoping to jump-start the recovery. Some 77 percent of respondents said they either didn't expect a raise in the next 12 months or expected their income to decline. About 30 percent of Americans said their household income for 2012 was lower than what they'd expect in a normal year.  "Large-scale financial strain at the household level ultimately fed into broader economic challenges for the country," the report said, "and the completion of the national recovery will ultimately be, in part, a reflection of the well-being of households and consumers."

Consumer Borrowing Posts Slower Growth in June - Consumer borrowing outside of mortgages climbed at the weakest rate in four months in June, raising questions about Americans’ confidence and economic well-being. Americans’ total outstanding debt—excluding home loans–rose at a 6.48% annual rate in June from a month earlier to $3.21 trillion, the Federal Reserve said Thursday. That marked the slowest rise since February. The report reflects what Americans owe in credit-card debt, auto loans and student loans. Still, consumers are steadily adding debt over the longer run. Consumer debt rose at a 7.8% pace in the second quarter after climbing 6.7% in the first three months of the year. The report sent mixed signals about the state of consumers. Americans added to their debt loads for the fourth consecutive month, indicating they may be feeling more secure as the labor market and broader economy strengthen. But the gains have eased in recent months, clouding the outlook for consumer spending in the fall. “Those with jobs feel more secure about holding jobs and are more willing to pull out their credit cards to make purchases,” Credit Suisse economist Dana Saporta said. But she added that the slower gains in recent months could portend slower spending ahead, a development that would limit economic growth. “There’s a lot going on in the world right now that may be shaking consumer sentiment,” she said. Credit-card use eased in particular in June. Revolving credit, reflecting total credit-card balances, climbed at a 1.3% pace in June after rising 2.4% in May and 12.3% in April. Non-revolving credit—generally auto loans and student loans–increased at a 8.43% rate in June, a solid gain but down from the prior month’s 9.32% increase. Many Americans have been replacing aging cars after holding off such purchases during the recession and early in the recovery. Student debt also has grown as Americans rely less on savings to cover college and graduate-school costs.

Consumer Credit Growth Tumbles, Misses By Most In 8 Months -- Growth in Consumer Credit dropped for the 2nd month in a row (at $17.25bn) missing expectations by the most since November 2013. The March/April credit impulse has now completely faded. Revolving credit dropped to its lowest since February as spend-what-you-don't-have appears to be fading also. And while the now conventional source of credit, namely Uncle Sam's car and student loans, was solid, adding $16.3 billion in non-revolving loans - loans which will never be repaid and will see an Executive Ordered payment moratorium long before America's conversion to a socialist paradise is complete -  it was the all important credit card debt, that closest proxy to a confident consumer, that posted its weakest growth in June since February, rising by only $942 million, and a far, far cry from the $8.8 billion outlier surge in April which will surely be revised away in a few months.

Credit card debt growth exceeds wage growth in the US - Over the past three months, the year-over-year growth in credit card debt has exceeded wage growth in the United States. This is the first time we've seen this trend since the Great Recession. While it clearly indicates improved US consumer confidence (and all the spending helps boost China's trade surplus), in the long run this is not going to be sustainable.

Credit score changes will affect millions -- Changes are coming to the FICO credit-scoring system, potentially allowing millions of people to take out loans.  The Wall Street Journal reported that Fair Isaac, which produces the FICO score, will no longer include failures to pay bills when calculating a score if the issue has since been resolved. The tabulation also will take unpaid medical bills less into account, according to the Journal.  These changes—which are meant to stimulate consumer lending—are the result of discussions between Fair Isaac, the Consumer Financial Protection Bureau, and lenders, the Journal reported.  Out of the 106.5 million Americans with a payment collection on their report, 9.4 million had no current balance, which means their credit scores will be bolstered by the new system, according to the Journal. Still, not everyone supports the changes.  "A lot of people really just can't handle credit—you're not really helping them by allowing them to dig themselves into debt," "It's like a sharp knife—if you don't know how to use it, you can cut yourself."

The Slow Recovery in Consumer Spending - NY Fed - One contributor to the subdued pace of economic growth in this expansion has been consumer spending. Even though consumption growth has been somewhat stronger in the past couple of quarters, it has still been weak in this expansion relative to previous expansions. This post concentrates on consumer spending on discretionary and nondiscretionary services, which has been a subject of earlier posts in this blog. (See this post for the definition of discretionary versus nondiscretionary services expenditures and this post for a subsequent update.) Discretionary expenditures have picked up noticeably over recent quarters but, unlike spending on nondiscretionary services, they remain well below their pre-recession peak. Even so, the pace of recovery for both discretionary and nondiscretionary services in this expansion is well below that of previous cycles. One explanation is that weak income expectations continue to constrain household spending. The chart below shows the extent of the decline in real per capita discretionary services expenditures from their previous peak—a zero value in this chart indicates that expenditures are above their previous peak. Although the process has been halting at times, these expenditures have continued to recover from the extraordinary decline (more than 8 percent at the trough) during the Great Recession. In particular, the recovery over 2013:Q4 and 2014:Q1 has been sizable, moving from about 5 percent below the previous peak to about 3½ percent—among the more rapid improvements since 1959. However, it is also evident that the recovery in these expenditures still has a considerable way to go to return to pre-recession levels:

States enjoying gas, oil booms see consumer spending soar - Consumer spending has soared since the Great Recession ended five years ago in states with oil and gas drilling booms and has lagged in states hit especially hard by the housing bust. The figures come from a new annual report the government issued yesterday that for the first time reveals consumer spending on a state-by-state basis. The numbers point to substantial shifts in the economy since the recession ended. Spending jumped 28 percent in North Dakota, the largest gain nationwide, from 2009 through 2012, the latest year for which figures are available. It surged nearly 16 percent in Oklahoma. By contrast, spending eked out a scant 3.5 percent increase in Nevada, the weakest for any state and far below the 10.7 percent national average. Arizona’s 6.2 percent increase was next-weakest. Home values plummeted in both states once the housing bust hit in 2006. In Ohio, consumer spending over the three years rose 12.2 percent, above the national average, according to the report. The 3.7 percent increase in 2012 was slightly above the U.S. average of 3.6 percent.

Hotels: Occupancy up 4.5%, RevPAR up 11.0% Year-over-Year -- From HotelNewsNow.com: STR: US hotel results for week ending 2 August The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 27 July through 2 August 2014, according to data from STR.In year-over-year measurements, the industry’s occupancy rate rose 4.5 percent to 76.3 percent. Average daily rate increased 6.2 percent to finish the week at US$118.70. Revenue per available room for the week was up 11.0 percent to finish at US$90.54. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The occupancy rate probably peaked for 2014 during the last week in July at 77.9%.  Before this year, the previous weekly high for the occupancy rate was late in July 2000 at 77.0%. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average

Is There Really a Shortage of Construction Workers? - One of the mysteries of the housing market’s uneven rebound centers on what home builders say is a shortage of qualified workers. Anecdotal concerns about a shortage don’t quite add up for many economists, who say if there was truly a shortage of skilled construction workers, then the share of construction workers who say they’re seeking employment and can’t find any would be lower. July’s report on the job market shows that the unemployment rate for construction workers has fallen to 7.5%, back to 2007 levels. Still, that level is higher than pre-recession norms, and the ratio of construction workers to housing starts stands roughly 40% above the pre-crisis level, suggesting considerable slack. And if employment for construction workers was tight, then wages would be rising faster; much of the recent pick-up in residential construction wages has barely recouped the big drop in average paychecks during the bust. If labor shortages “were truly having a first-order effect on retarding growth in the housing market, one would naturally expect to see wages for construction workers and prices of construction supplies rapidly accelerating,” said economists at J.P. Morgan Chase & Co. in a June report. “Nothing like this is even remotely occurring in the data.”

Don't Believe the Haters—The Truth About the U.S. Post Office -- One public service that people really like and count on is the post office -- which literally delivers for us.  Antigovernment ideologues and privatization dogmatists, however, hate the very word "public," and they've long sought to demonize the U.S. Postal Service, undercut its popular support and, finally, dismantle it. Their main line of attack has been to depict it as a bloated, inefficient, outmoded agency that's a hopeless money loser, sucking billions from taxpayers. Never mind that USPS doesn't take a dime of tax money to fund its operation -- it's actually a congressionally chartered, for-profit corporation that earns its revenue by selling stamps and providing services to customers. And here's something that will come as a surprise to most people: The post office makes a profit -- expected to be more than a billion dollars this year.   Yet, the media keeps reporting that the USPS is losing billions of dollars each year. What they fail to mention is that those are phony paper losses manufactured by Congress at the behest of corporate privatizers.    Late in 2006, the lame duck Republican Congress rammed into law a cockamamie requirement that the Postal Service must pre-fund the retiree health benefits of everyone it employs or expects to employ for the next 75 years. Hello? That includes workers who're not even born yet! No other business in America is required to pre-fund such benefits for even one year. To add to Congress' cockamamie-ness, the service is being forced to put up all of that money within just 10 years -- which has been costing USPS more than $5 billion a year. That artificial burden accounts for 100 percent of the so-called "losses" the media keep reporting.

Summer Gas Prices Down Despite Geopolitical Turmoil, Higher Demand -- The American Automobile Association (AAA) has reported that the average pump price of a gallon of gasoline was $3.52 at the end of July, the lowest since March. In fact, July prices dropped more than they have in six previous Julys.That’s not what analysts have been predicting. Although the U.S. Energy Information Agency (EIA) said July 24 in its weekly petroleum report that in the past two weeks, refineries took in record amounts of crude -- 16.8 million barrels per day, beating a 2005 record -- analysts say global demand also is rising, and refiners aren’t cutting the costs they charge oil companies, so they’ve been forecasting no drops in pump prices. Summer is also when more Americans hit the road than at any other time of the year, and the increased demand for gasoline ordinarily leads directly to an increase in its retail price. Contributing to that rise is the federal mandate that refineries produce a cleaner, more expensive blend of gasoline in the summer -- a cost that’s passed on to the retail customer. This summer also hasn’t been a quiet one for some major oil-producing countries; There’s the conflict between Russia and Ukraine, which could threaten gas supplies to Europe, and violence in northern Iraq spurred by militants of the Islamic State, formerly the Islamic State of Iraq and Syria (ISIS).  All of this would normally contribute to keeping prices high, because regardless of oil’s source, it’s fungible, so all oil prices rise or fall to a fairly uniform level worldwide. These prices did remain fairly high, but only in previous months, according to AAA spokesman Michael Green, not in July.

Gasoline Price Update: Down Another Two Cents - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium both dropped another two cents, the fifth week of price declines. Regular is up 32 cents and Premium 31 cents from their interim lows during the second week of last November.  According to GasBuddy.com, two states (Hawaii and Alaska) have Regular above $4.00 per gallon, unchanged from last week, and three states (California, Washington and Oregon) are averaging above $3.90, unchanged from last week.

A Toxic Mix Hits Auto Sales in America - New vehicle sales in July disappointed our dreamy analysts. The seasonally adjusted annual rate (SAAR) of 16.48 million vehicles sold was down 2.4% from June’s revised rate of 16.90 million, which had been the highest since July 2006. The decline touched all categories – cars and light trucks, domestic and foreign. In dollar terms, sales were even less rosy. The motor vehicle component of the retail sales report by the Commerce Department already showed a drop of 0.3% for June, when unit sales were still rising. Now that unit sales have begun to taper as well, dollar sales are likely to drop even further, to drag down overall consumer spending in July. Inventories are piling up, and new models are coming down the pipeline, and dealers have to move the iron. So the industry has been whipping sales with all its might, largely through aggressive lending – particularly subprime auto loans – and the bane of automakers: incentives. In a mad scramble, dealers are stuffing people with bad credit into cars they can’t afford, and finance companies are eager to lend to them. Loan-to-value ratios now average over 100% across the industry. Dealers roll everything into these loans: title and taxes, credit life insurance, and other fluff-and-buff, plus the amount buyers are upside-down in their trade-in. To bring the payments down on these monster loans, lenders lengthen the terms. Subprime auto lending is booming, and charge-offs are rising. “Signs of increasing risk are evident,” the Office of the Comptroller of the Currency had warned in June.  Loans that blow up in the future are a cost that will be eaten by a variety of players, including banks, and if all else fails, by the taxpayer. Incentives are costs – or rather a reduction in revenues – that are eaten on the spot by manufacturers. The incentives in June caused the dollar sales decline in the motor vehicle component of the June retail report. And July is looking even worse. Overall, TrueCar estimates that the average transaction price (ATP) for light vehicles in July dropped 1.2% from a year earlier, to $30,636. 

Who Really Bought a Car in July? -- July was another hot month for car sales, with today's data releases showing the market remains on track to set a new post-recession high of almost 17 million units this year. Longer loan terms, lower lending standards and growing lease rates have the new car market racing toward its redline, and there's talk of a bubble forming in car sales. That concern is well-founded. Like a well-tuned engine, the car market's performance upgrade must be matched with better safeguards against overheating and misfiring. Unfortunately, the quality of car sales data in the U.S. has not been improved to meet the specifications of our hopped-up market. Even to those who regularly cover it, the U.S. auto-sales reporting system remains dauntingly, and unnecessarily, complex and opaque (note the major correction on this "insider's guide to auto sales reporting"). Here's what U.S. car sales are not: registration numbers. In other mature auto markets such as Europe and Japan, every new car "sale" reported monthly is backed by a registration. Not so in the U.S., where a gap of almost 1 percent between the sales reported by dealers and the number of new vehicles registered is tolerated as normal. Last year, more than 140,000 new cars were officially sold to U.S. retail customers but never entered the fleet. This became an issue when Mercedes accused BMW of inflating its 2012 sales, running up a gap between sales and registration by including cars sold to dealers for loaner fleets.. In response to discussion of cash discounts dealers received in July 2012 to purchase vehicles for loaner fleets, the chief executive officer of BMW North America argued, "everyone does it." The subtext: These data discrepancies are in the short-term interest of every executive who occasionally finds himself a few hundred (or thousand) units short of a bonus at month's end. .

The Mystery Behind Strong Auto "Sales": Soaring Car Leases - When it comes to signs of a US "recovery" nothing has been hyped up more than US auto companies reporting improving, in fact soaring, monthly car sales. On the surface this would be great news: with an aging car fleet, US consumers are surely eager to get in the latest and greatest product offering by your favorite bailed out car maker (at least until the recall comes). The only missing link has been consumer disposable income. So with car sales through the roof, the US consumer must be alive and well, right? Wrong, because there is one problem: it is car "sales" not sales. As the chart below from Bank of America proves, virtually all the growth in the US automotive sector in recent years has been the result of a near record surge in car leasing (where as we know subprime rules, so one's credit rating is no longer an issue) not outright buying.

Putting cars into reverse | The Economist - THE “cash for clunkers” program, introduced during the depths of the downturn, was supposed to be a policy two-for-one. By paying people to trade in their old fuel-guzzling cars for new efficient ones, the scheme was supposed to jump start consumption of durable goods, boost the hard-hit car industry, and improve the fuel efficiency of America’s fleet. The eight-week programme generated an immediate spike in car sales, with almost $3 billion spent on the popular rebates. However, a new paper suggests that the programme may have actually decreased total spending on new motor vehicles creating a net drag on the economy.   The study examined the difference between consumers who were on the border-line of being eligible for the scheme. To qualify as a ‘clunker’, a vehicle needed to achieve less than 18 miles per gallon. Thus by comparing households whose cars were just under this threshold, with those who were just over it, the authors were able to measure the impact of the scheme on consumption patterns. Unsurprisingly, they found that the scheme dramatically increased the car purchases for eligible households over the 8 weeks. But this was largely due to households changing the timing of their purchase. Instead of stimulating new car sales, the spike was mostly attributable to sales that would otherwise have occurred over the subsequent 11 months. The authors show that after one year the proportion of households that had bought a new car was the same, regardless of whether they qualified for the subsidy.

US Factory Orders Rise 1.1 Percent in June -  Orders to U.S. factories increased in June, led by demand for aircraft, industrial machinery and computers and electronics. Orders rose a seasonally adjusted 1.1 percent compared to the previous month, the Commerce Department reported Tuesday. Factory orders had fallen 0.6 percent in May after three straight months of gains. An 8.4 percent jump in demand for commercial aircraft fueled the latest gains. But there were additional increases outside this volatile category that point to businesses investing with the expectation of economic growth. Orders for machinery rose 2.9 percent. Iron and steel mills had a 1.7 percent increase in demand, while orders for computers and electronic products were up 2.9 percent. Excluding military hardware, factory orders rose 1 percent in June from May. Over the past year, factory orders were up 2.5 percent. The improved outlook for business spending has helped drive growth. The economy grew at an annual rate of 4 percent in the April-June quarter, after slipping 2.1 percent during the first three months of the year when brutal winter weather closed some assembly lines. Manufacturing has rebounded as the weather improved. The Institute for Supply Management, a trade group of purchasing managers, reported Friday that its manufacturing index rose to 57.1, up from 55.3 in June. A reading above 50 signals that manufacturing is growing.

Factory Orders Climb 1.1% in June - New orders for U.S. factory goods rose more than expected in June as demand increased across the board, pointing to a strengthening in manufacturing activity. The Commerce Department said on Tuesday new orders for manufactured goods increased 1.1 percent after a downwardly revised 0.6 percent decline in May. Economists polled by Reuters had forecast new orders received by factories rising only 0.6 percent after May's previously reported 0.5 percent fall. Manufacturing is expanding strongly, helping to keep the economy on solid ground. A survey last Friday showing new orders at the nation's factories surged in July. Automobile production is also accelerating. But businesses amassed huge piles of stocks in the second quarter, which they will probably need to work through before placing more orders. That could take some edge off factory activity and overall economic growth. The economy grew at a 4.0 percent annual pace in the April-June period, and growth estimates for the third quarter are currently around a 3 percent rate. Orders excluding the volatile transportation category jumped 1.1 percent in June, the largest increase since July of last year, as bookings for primary metals, machinery and electrical equipment, appliances and components rose. Orders for computers and electronic products also increased. Unfilled orders at factories rose 1.0 percent. Order backlogs have increased in 14 of the last 15 months.

Factory Jobs Still Falling Short of President’s Goal - American factories are finally producing more of something that’s been in short supply: Jobs. Manufacturers last month added 28,000 workers, boosting the total added this year to 107,000, according to Friday’s jobs report from the Labor Department. That’s a nice step up from last year, when the sector added only 88,000 jobs for the full twelve months. Last year included a rough patch from April to July, when manufacturers actually shed 25,000 jobs. While the latest numbers are an improvement, they underscore how much more hiring needs to occur for the U.S. to achieve one of President Barack Obama’s more ambitious economic goals: To add 1 million manufacturing jobs during his second term. The Alliance for American Manufacturing, which tracks progress on this, notes the U.S. remains 805,000 jobs short of that goal. “Manufacturing punched above its weight in July, showing that a rebound in the sector is possible,” said the group’s president, Scott Paul. “But we still have a long way to go.” The alliance—an advocacy group for U.S.-based production funded by both business and labor—notes the U.S. will need to add an average of 27,758 each month for the rest of President Obama’s term to meet the goal.

Trade Deficit decreased in June to $41.5 Billion  - The Department of Commerce reported: [T]otal June exports of $195.9 billion and imports of $237.4 billion resulted in a goods and services deficit of $41.5 billion, down from $44.7 billion in May, revised. June exports were $0.3 billion more than May exports of $195.6 billion. June imports were $2.9 billion less than May imports of $240.3 billion.  The trade deficit was smaller than the consensus forecast of $45.0 billion. The first graph shows the monthly U.S. exports and imports in dollars through June 2014.Imports decreased and exports increased in June. Exports are 18% above the pre-recession peak and up 3% compared to June 2013; imports are about 2% above the pre-recession peak, and up about 5% compared to June 2013. The second graph shows the U.S. trade deficit, with and without petroleum, through June. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. Oil imports averaged $96.41 in June, up from $96.12 in May, and down from $96.87 in June 2013. The petroleum deficit has generally been declining and is the major reason the overall deficit has declined since early 2012. The trade deficit with China increased to $30.1 billion in June, from $26.7 billion in June 2013.

June Trade Deficit Smaller Than Expected, Ex-Petroleum Deficit Near Record -- Moments ago the BEA reported that the June trade deficit (which is the last month of Q2 GDP) came in $3 billion better than expected, declining from $44.7 billion to $41.5 billion, beating consensus $44.8 billion, as exports increased and imports decreased. The previously published May deficit was $44.4 billion. The goods deficit decreased $3.0 billion from May to $60.3 billion in June; the services surplus increased $0.1 billion from May to $18.7 billion in June. But perhaps most importantly, the trade deficit excluding the shale boom, i.e., America's reduced petroleum import needs which may last for a few more years before shale oil too is exhausted - just printed close to record highs. In other words, US trade ex oil is about as bad as it has ever been!

U.S. Exports to Russia Plummet 34% Amid Escalating Sanctions Battle - The escalating U.S. sanctions battle against Russia appears to be taking a toll on trade with the country, with June data showing both sides of the ledger falling as Washington ratcheted up the financial pressure on Moscow.  U.S. Commerce Department data released Wednesday underscored that sanctions are a double-edged sword: U.S. exports took the hardest hit, plummeting 34% on the month to the lowest level since January last year. Imports from Russian firms, meanwhile, fell nearly 10%, the third consecutive month of declines in U.S. purchases. That asymmetric fall between buying and selling pushed the trade gap with Russia up 25% to $1.13 billion.  Still, given that U.S. trade with Russia is only a tiny fraction of its total global trade, the pain for the U.S. economy should be minimal for now, barring a major acceleration in tensions that weighs on European growth or pushes up oil prices. The Russian economy is bearing the brunt. Although U.S. sanctions directly affecting Russian firms in June cover just a small share of the economy, the fear of additional sanctions often has a much broader impact on the economy. The combined effect of sanctions and falling investment has pushed the country into recession and sparked an investor exodus the International Monetary Fund says could translate into a $100 billion in capital fleeing out of Russia this year. The falling-trade trend may continue in July: Washington, along with its European partners, ratcheted up the sanctions again last month and analysts say more may be coming. President Vladimir Putin this week announced his own round of retaliatory penalties.

There Goes Q2 GDP - Wholesale Inventories Miss By Most In 16 Months - Against expectations of a further rise in inventory build of 0.7%, wholesale inventories rose only 0.3% in June (the same pace as in May) missing by the most since February 2013. With GDP now basically an exercise in inventory expansion and contraction (Q2 inventory estimate amounte to 40% of GDP), this 'miss' offers little hope for the initial Q2 rebound to hold its exuberance. In addition, wholesale sales also missed (up only 0.2% against expectations of a 0.7% rise) with growth slowing for the 3rd month in a row...and here's why Q2 GDP estimates will fall...as we note before... The result is that of the $675 billion rise in nominal GDP in the past year, a whopping 52%, or over half, is due to nothing else but inventory hoarding. Once again, enjoy the sugar high that inventory accumulation always generates in the current quarter. Just don't expect it to last.

ISM Non-Manufacturing Index increased to 58.7% - The July ISM Non-manufacturing index was at 58.7%, up from 56.0% in June. The employment index increased in July to 56.0%, up from 54.4% in June. Note: Above 50 indicates expansion, below 50 contraction.  From the Institute for Supply Management: July 2014 Non-Manufacturing ISM Report On Business®  "The NMI® registered 58.7 percent in July, 2.7 percentage points higher than the June reading of 56 percent. This represents continued growth in the Non-Manufacturing sector. This month's NMI® is the highest reading for the index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 62.4 percent, which is 4.9 percentage points higher than the June reading of 57.5 percent, reflecting growth for the 60th consecutive month at a faster rate. This is the highest reading for the index since February 2011 when the index registered 63.3 percent. The New Orders Index registered 64.9 percent, 3.7 percentage points higher than the reading of 61.2 percent registered in June. This represents the highest reading for the New Orders Index since August 2005 when it registered 65.3 percent. The Employment Index increased 1.6 percentage points to 56 percent from the June reading of 54.4 percent and indicates growth for the fifth consecutive month. The Prices Index decreased 0.3 percentage point from the June reading of 61.2 percent to 60.9 percent, indicating prices increased at a slightly slower rate in July when compared to June. According to the NMI®, 16 non-manufacturing industries reported growth in July. Respondents' comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses." This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

ISM Non-Manufacturing: July Composite at Record High - Today the Institute for Supply Management published its latest Non-Manufacturing Report. The headline NMI Composite Index is at 58.7 percent, up from last month's 56.0 percent and a record high for this relatively new indicator, which goes back to January 2008, the second month of the Great Recession. Today's number came in well above the Investing.com forecast of 56.3.Here is the report summary:"The NMI® registered 58.7 percent in July, 2.7 percentage points higher than the June reading of 56 percent. This represents continued growth in the Non-Manufacturing sector. This month's NMI® is the highest reading for the index since its inception in January 2008. The Non-Manufacturing Business Activity Index increased to 62.4 percent, which is 4.9 percentage points higher than the June reading of 57.5 percent, reflecting growth for the 60th consecutive month at a faster rate. This is the highest reading for the index since February 2011 when the index registered 63.3 percent. The New Orders Index registered 64.9 percent, 3.7 percentage points higher than the reading of 61.2 percent registered in June. This represents the highest reading for the New Orders Index since August 2005 when it registered 65.3 percent. The Employment Index increased 1.6 percentage points to 56 percent from the June reading of 54.4 percent and indicates growth for the fifth consecutive month. The Prices Index decreased 0.3 percentage point from the June reading of 61.2 percent to 60.9 percent, indicating prices increased at a slightly slower rate in July when compared to June. According to the NMI®, 16 non-manufacturing industries reported growth in July. Respondents' comments indicate that stabilization and/or improving market conditions have positively affected the majority of the respective industries and businesses."   The chart below shows Non-Manufacturing Composite. We have only a single recession to gauge is behavior as a business cycle indicator.

Non-Manufacturing ISM Soars To 9-Year Highs Months After Hitting 4-Year Lows -- US Services PMI fell from June's 61.0 level to 60.8 (slightly below the flash print of 61.0 suggesting modest weakness in the latter end of the month) ending a two-month streak of post-weather exuberance as new orders and jobs data slowed, and Markit warns "growth may have peaked." Factory Orders rose 1.1% for the biggest beat in 9 months. ISM Services smashed expectations and surged to Nov 2005 highs (from 4-year lows just 4 months ago - volatile?) with most sub-indices improving except new export orders fell to 4-month lows.

July 2014 Employment, More EUI Data, Data on Too-High Wages, and Conceptual Problems with Interpreting Job Creation  -- Oops...so much for that gap down.  Pictures and discussion below the fold. First, here are the unemployment durations. Kind of a bump up across the board. This looks like a bit of noise to me, for several reasons. The rise from 6.1% - 6.2% can generally be attributed to a rise in the 0-4 week category, and, if anything, signs of recently initiated unemployment have been very low. If this isn't noise, it could be from an increase in Quits, which would be a positive sign. But, I don't think a monthly change in Quits would have much effect on unemployment. Quits usually move quickly back into employment. Here are unemployment flows. Whereas the very positive April unemployment report had the fortune of all six net flows moving in its advantage, this month had five of the six moving against it. These series reflect some of the noise in the monthly employment data. Looking at reported unemployment compared to the forecast unemployment rate coming from unemployment insurance claims, in April, the forecast called for a fall of 0.2%, but instead there was a fall of 0.4%. In July, the model called for a fall of 0.1%, but instead there was a rise of 0.1%. I think the flows data suggests that a lot of this variation is noise. I continue to see the declining insured unemployment level as a signal of declining total unemployment. Here are a couple other graphs comparing unemployment insurance and total unemployment. The first one is one I post frequently. Again, this month looks like an anomaly, which is part of the reason I expected a better number this month. Either this month is an anomaly, or all of the past five months were an anomaly. Obviously, the likelihood is that we see a snap back in the next couple of months which takes us under 6.0%. The other graph compares the unemployment rate and the ratio of continued unemployment insurance claims to initial unemployment insurance claims. This ratio gives us a measure of how difficult it is for job losers to become re-employed.

The REAL "real unemployment rate" for July 2014: Today, let's update the "real real unemployment rate" for July. This is my corrective for those commentators who have put together metrics that either assume there is no retiring Baby Boom, or rely upon nearly decade-old estimates. There's simply no need for doing so, when every month the Census Bureau publishes the seasonally adjusted number of people who have completely stopped looking for work, but would nevertheless like a job now. The first important thing to note is that, since the US Congress cut off extended unemployment benefits at the end of last year, this number, which had been in significant decline in 2013, has completely stopped and in fact has started to rise again: This means that the "real real unemployment rate" (red) has declined less than the official U3 unemployment rate (blue) as shown in the graph below: Since last November, while U3 has declilned by -0.8% from 7.0% to 6.2%, the "real" unemployment rate has only declined -0.5% from 10.3% to 9.8%. Here's the close-up of that: Aside from the thoroughly preventable human tragedy, this has negative multiplier effect on consumer spending, and so is a self-inflicted drag on the economy. The U6 calculation of underemployed vs. the "real underemployment rate" follows the same trajectory.

Weekly Initial Unemployment Claims decline to 289,000, 4-Week Average Lowest since February 2006  --The DOL reports: In the week ending August 2, the advance figure for seasonally adjusted initial claims was 289,000, a decrease of 14,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 302,000 to 303,000. The 4-week moving average was 293,500, a decrease of 4,000 from the previous week's revised average. This is the lowest level for this average since February 25, 2006 when it was 290,750. The previous week's average was revised up by 250 from 297,250 to 297,500.  There were no special factors impacting this week's initial claims.  The previous week was revised up to 303,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

How Low Can Jobless Claims Go? - The number of people filing new claims for unemployment benefits fell to 289,000 last week, the second-lowest level of the year. Over the past four weeks the average for claims was 293,500. To put this in perspective, during their worst week of the recession in March 2009 claims were 665,000. While other indicators of labor-market strength have yet to completely return to normal, the level of jobless claims is not only the lowest of the recovery, but it’s near some of the lowest levels of previous (and much stronger) recoveries as well. The two longest stretches of economic growth in the last half century were the booms in the 1980s and 1990s. And jobless claims today are now near the lowest levels reached in those historic expansions. Jobless claims can often be distorted around this time of year due to the patterns in which auto makers temporarily lay off workers while retooling their factories.The Labor Department, however, said no such patterns were distorting the numbers this week.

US job gains could be ready to pick up speed - The US economy has added 200,000 jobs or more for six straight months. That hasn’t happened since 1997. Job gains during the streak have averaged 244,000 monthly. Back in 1997, gains for the entire year averaged 283,000 monthly (the equivalent of 345,000 with today’s larger population.) Improving jobless claims numbers could be hinting at acceleration. RDQ Economics: Initial jobless claims were below forecasts falling 14,000 to 289,000 in the week ending August 2nd.  The four-week average of claims declined 4,000 to 293,500, the lowest level since February 2006. … Unemployment claims are signaling a potential pickup in net job creation (from an already fairly strong pace) and a further drop in the unemployment rate. The four-week average of claims has dropped for five straight weeks, to its lowest level since February 2006, and the insured unemployment rate has been at 1.9% for four consecutive weeks, which is within 0.1 percentage point of the cycle low for the last expansion (which occurred in 2006-07 when the unemployment rate was around 4½% and the short-term unemployment rate was between 3½% and 4% (currently at 6.2% and 4.2%, respectively).

A Jobs Indicator to Watch - The job market’s improvement in 2014 has been a welcome development, but we are still a long way from the ideal: a market in which anyone who wants to work can quickly find a job and anyone who wants to hire can, for the right price, find a willing employee.  One troubling aspect of the job-market recovery is that labor force participation fell continuously from 2008 to 2013, even when total employment was on the rebound. As was shown in a 2013 Heritage Foundation study and a 2014 White House Council of Economic Advisers report, part of the decline is the result of the retirement of the baby boomers–a predictable demographic shift. Total labor force participation will not get back to its 2007 level even with a strong economy. The simplest way to gauge changes in labor force participation is by checking the Bureau of Labor Statistics’ civilian labor force participation rate for people ages 25 to 54, or what BLS calls “prime age workers.” The indicator shows a decline of about two percentage points from 2008 to 2013. Since last autumn, prime-age participation has been flat (though noisy). Watch this indicator for the next six months. If it begins to rise, the labor market might be getting back to its pre-recession footing. But if it remains low, that is a strong indication that some of the damage of the recession and the policies of the past five years will be permanent.

U.S. Labor Force: Where Have All the Workers Gone? - IMF Blog - It’s not supposed to be this way. As the U.S. economy recovers, hirings increase and people are encouraged to look for jobs again. Instead, the ratio of the adult population with jobs, or looking for one—what’s called the labor force participation rate—has been falling, standing at 62.9 percent in July 2014 (Figure 1). This represents a 3 percentage point decline since the Great Recession and the lowest rate since 1978. What is more remarkable is that fully one-half of the gains in participation rates between 1960 and 2000—those driven by sweeping social changes such as the post-war baby boom and the entry of women into the work force—have been reversed in the last six years. The equivalent of 7.5 million workers have been lost from the U.S. labor force. The dynamics of the U.S. labor market is perhaps the most critical—and uncertain—issue in economics today. It matters for two crucial reasons. First, the future size of the labor force will be central in determining the pace of U.S. economic growth over the medium term. Second, the extent to which the recent declines in participation rates are reversible will be the principal factor in deciding future wage and price inflation and, as a result, the timing and pace at which the Fed raises interest rates

Demographics: Prime Working-Age Population Growing Again  -- Earlier this year, I posted some demographic data for the U.S., see: Census Bureau: Largest 5-year Population Cohort is now the "20 to 24" Age Group and The Future is still Bright! I pointed out that "even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics). The good news is that will change soon." Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story in coming years. Here is a graph of the prime working age population (this is population, not the labor force) from 1948 through July 2014. There was a huge surge in the prime working age population in the '70s, '80s and '90s - and the prime age population has been mostly flat recently (even declined a little). The prime working age labor force grew even quicker than the population in the '70s and '80s due the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s! So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply). The prime working age population peaked in 2007, and appears to have bottomed at the end of 2012. The good news is the prime working age group has started to grow again, and should be growing solidly by 2020 - and this should boost economic activity in the years ahead. The second shows prime and near-prime working age population in the U.S. since 1948 (this is population, not labor force).

A Primer: What’s Going on with Part-time Work? - Part-time work—by definition, working less than 35 hours in a week—rose fairly steeply in the recession, but has remained roughly flat for the last five years. Currently, part-time employment makes up 19 percent of total employment, compared to 17 percent before the recession began.To understand what’s driving those trends, it’s important to distinguish between two kinds of part-timers:

  1. People who work part time for “noneconomic reasons.” These are workers who work part time by their own preference, because they want or need a part-time schedule given other interests or obligations. This is often referred to as “voluntary” part-time work. Most part-time work is voluntary. Before the recession, 82 percent of part-time work was voluntary. Due to trends discussed below, that dropped to 66 percent in the immediate aftermath of the recession, and has since been recovering. Currently, 72 percent of part-time work is voluntary.
  2. People who work part time for “economic reasons.” These are workers who want and are available for full-time work but have had to settle for a part-time schedule, because their employer doesn’t give them enough hours or because they can only find a part-time job. This is often referred to as “involuntary” part-time work.

The figure below shows trends in full-time, voluntary part-time, and involuntary part-time work in the recession and recovery (specifically, it shows the growth rate in each type of job since December 2007, the official start of the Great Recession).

The Core Workforce Part-Time Employment Ratio Continues to Improve: Let's take a close look at last week's employment report numbers on Full and Part-Time Employment. Buried near the bottom of Table A-9 of the  government's Employment Situation Summary are the numbers for Full- and Part-Time Workers, with 35-or-more hours as the arbitrary divide between the two categories. The focus is on total hours worked: Full-time status may result from multiple part-time jobs. The Labor Department has been collecting this since 1968, a time when only 13.5% of US employees were part-timers. That number peaked at 20.1% in January 2010. The latest data point, four-and-a-half years later, is only modestly lower at 19.2% last month, although this is a new interim low. Here is a visualization of the trend in the 21st century, with the percentage of full-time employed on the left axis and the part-time employed on the right. We see a conspicuous crossover during Great Recession.Here is a closer look since 2007. The reversal began in 2008, but it accelerated in the Fall of that year following the September 15th bankruptcy of Lehmann Brothers. In this seasonally adjusted data the reversal peaked in January of 2010. The two charts above are seasonally adjusted and include the entire workforce, which the CPS defines as age 16 and over. A problem inherent in using this broadest of cohorts is that it includes the population that adds substantial summertime volatility to the full-time/part-time ratio, namely, high school and college students. Also the 55-plus cohort includes a subset of employees that opt for part-time employment during the decade following the historical peak spending years (ages 45-54) and as a transition toward retirement. The next chart better illustrates summertime volatility by focusing on the 25-54 workforce. Note that the government's full-time/part-time data for this cohort is only available as non-seasonally adjusted. To help us recognize the summer seasonality, I've used a lighter color for the June-July-August markers, which are the most subject to temporary shifts from part-time to 35-plus hours of employment. I've also included 12-month moving averages for the two series to help us identify the slope of the trend in recent years.

Part-time workers find full-time jobs elusive — Monica Alexander needs a full-time job.A certified nursing assistant, she just started working about 28 hours a week as a home companion in Wake County, N.C. That’s a major improvement over the eight hours she had been clocking each week for six of the past seven months. Alexander is one of 7.5 million Americans struggling to find full-time work who settle for part-time jobs, amid an atmosphere of stress, depression and low finances. Their numbers remains stubbornly higher in the current economic recovery, compared with the peaks of the recessions over the past three decades.Indeed, the number of unemployed people is 24 percent higher now than it was in December 2007 when the recession began. But the number of people like Alexander, known as involuntary part-time workers, is 66 percent higher, more than double what it was back then.One reason is a gap in the kinds of skills needed to find work in an increasingly technological workplace. Many employers also remain uncertain about the economy and hesitant about deeper financial commitments.And hiring part-time instead full-time employees is one way that some businesses are getting around the costs of a mandate in the health care law that requires employers with 50 or more full-time workers to provide insurance coverage beginning in January. “The pace of decline in part-time employment is smaller now than what we’ve seen in other recoveries,”. “Businesses have been cautious about moving workers from part time to full time.”

Multiple Jobholders as a Percent of the Employed: Two Decades of Trends: The Bureau of Labor Statistics has two decades of historical data to enlighten us on that topic, courtesy of Table A-16 monthly Current Population Survey.. As of the latest monthly data, multiple jobholders account for less than 5% of civilian employment. The survey captures data for four subcategories, the current relative sizes of which I've captured in a pie chart below. Note that the distinction between "primary" and "secondary" jobs is subjective one. Not included in the statistics are the approximately 0.04% of the employed who work part time on what they consider their primary job and full time on their secondary job(s). Let's review the complete series to help us get a sense of the long-term trends. Here is a look at all the multiple jobholders as a percent of the civilian employed. The dots are the non-seasonally adjusted monthly data points and a 12-month moving average to highlight the trend. The moving average peaked in the summer of 1997 and is currently at its trough. The next chart focuses on the four subcategories referenced in the pie chart. The trend outlier is the series illustrated with the red line: Multiple Part-Time Jobholders. Its trough was in 2002 and has been trending higher long before Obamacare. We also see a significant change for the employed whose hours vary between full- and part-time for either their primary or secondary job. Here is a closer look at the two cohorts that have changed the most since the mid-2000s. The Great Recession noticeably increased the percentage of multiple part-time jobholders. This metric leveled out in 2010 and 2011, but it has subsequently resumed its upward trend. I seems likely that the downward trend for the cohort whose hours vary for their primary or secondary job (the green line) has to some extent contributed to the rise of the exclusively part-timers (the red line). It is certainly possible that the Affordable Care Act (aka Obamacare) has been a factor in these trends as companies weigh burden of regulations in their decisions about the full- and part-time employment.

Demographic Trends in the 50-and-Older Work Force -- In my earlier update on demographic trends in employment, I included a chart illustrating the growth (or shrinkage) in six age cohorts since the turn of the century. In this commentary we'll zoom in on the age 50 and older Labor Force Participation Rate (LFPR).But first, let's review the big picture. The overall LFPR is a simple computation: You take the Civilian Labor Force (people age 16 and over employed or seeking employment) and divide it by the Civilian Noninstitutional Population (those 16 and over not in the military and or committed to an institution). The result is the participation rate expressed as a percent. For the larger context, here is a snapshot of the monthly LFPR for age 16 and over stretching back to the Bureau of Labor Statistics' starting point in 1948, the blue line in the chart below, along with the unemployment rate.The overall LFPR peaked in early 2000 at 67.3% and gradually began falling. The rate leveled out from 2004 to 2007, but in 2008, with onset of the Great Recession, the rate began to accelerate. The latest rate is 62.9%, back to a level first seen in 1978. The demography of our aging workforce has been a major contributor to this trend. The oldest Baby Boomers, those born between 1946 and 1964, began becoming eligible for reduced Social Security benefits in 2008 and full benefits in 2012. Job cuts during the Great Recession certainly strengthened the trend. It might seem intuitive that the participation rate for the older workers would have declined the fastest. But exactly the opposite has been the case. The chart below illustrates the growth of the LFPR for six age 50-plus cohorts since the turn of the century. I've divided them into five-year cohorts from ages 50 through 74 and an open-ended age 75 and older. The pattern is clear: The older the cohort, the greater the growth.

Why So Few People Are “Marginally Attached” to the Labor Force - Economists attempting to dissect the U.S. labor market in recent years have been perplexed by the number of people leaving the labor force entirely. In a little over a decade, the number of people either working or actively looking for work has declined to 62.8% from 67.3%. The decline started in 2000 and has accelerated since the recession began in 2007. The question for economists: will these people return if the economy strengthens? Recently the White House Council of Economic Advisers weighed in on this debate.  They argued that slightly more than half of the decline of the labor force is due to the aging of the population. And aging clearly has a role. More and more of the Baby Boomer generation, born after World War II, are reaching their 60s (the oldest Boomers are nearly 70) and retiring. But many economists believe the decline in labor force participation is about more than retirements. Many workers, they say, are simply giving up on the labor market in frustration because the economy has been weak for so long. The Department of Labor’s definitions of unemployment are critical for understanding this debate.The headline unemployment rate, which rose to 6.2% in today’s report, tells only part of the story because it defines as unemployed only those people who have searched for work in the past 4 weeks. Beyond that may be a “shadow labor force” of people who want to work but have given up.

4 Million Fewer Jobs: How The BLS Massively Overestimated US Job Creation - When it comes to the all-important monthly payrolls number which sets the tone for risk over the next month, one of the biggest variables in the BLS' "estimate" (because all jobs numbers are that: statistical estimates) of US jobs is the monthly birth-death adjustment. What this monthly fudge factor is, in a nutshell, is the BLS' estimation for how many new businesses are created over the period offset by older "dying" businesses, leading to incremental jobs that are only polled by the BLS with a substantial lag.  To be sure, in a normal, vibrant, growing and most importantly, entrepreneurial economy, incorporating business creation vs business deaths is a perfectly reasonable statistical adjustment to the actual number of underlying jobs via the BLS business sampling that takes place every month. There is one problem: the Fed's centrally-planned abortion of an "economy", in which the rigged, bubble market is the only leading indicator that everyone focuses on and from which everything else "flows", is anything but normal. The latest proof of just how broken the economy has become, and serves as a big flashing red question mark about just how massively overestimated job creation is due to a wildly erroneous birth/death estimator, comes from a research report by the Brookings Institution titled: "The Other Aging of America: The Increasing Dominance of Older Firms."

“Are Jobs Obsolete?” - Sandwichman has a history of writing on the topic of “Lump of Labor” at Econospeak. “Are Jobs Obsolete” is another in a long series working less due to technological achievement minimizing the need for Labor in Manufacturing and/or Services processes. Speaking as a “throughput analyst” who has done brownfield and Lean” analysis, the need for Labor will lessen even more going into the future.  Citing Rushkoff’s 2011 CNN.com article “Are Jobs Obsolete?”, CEO co-Founder Larry Page also brings up the topic of the need of potentially working less. This is nothing new given Sandwichman’s plethora of posts over the years of fewer hours required in the work week.  While Rushkoff hesitates in saying the obvious, I am not afraid to sign up to it: “but since when is unemployment really a problem? I understand we all want paychecks — or at least money. We want food, shelter, clothing, and all the things that money buys us. But do we all really want jobs? We’re living in an economy where productivity is no longer the goal, employment is. That is because, on a very fundamental level, we have pretty much everything we need. America is productive enough that it could probably shelter, feed, educate, and even provide health care for its entire population with just a fraction of us actually working.

A better measure of labor utilization -- Every month there seems to be a debate about the strength, or lack thereof, of the recovery in jobs since the depths of the Great Recession.  Professor Paul Krugman's back of the envelope measure has been the employment to population ratio in the 25 to 54 age group.  This takes care of the confounding issue of Boomer retirements, but on the other hand, it doesn't take into account changes in, for example, the trade off between work and child care costs in terms of employment decisions.With that in mind, I've been working on a better, more detailed metric for labor utilization.  It seems to me that a better, more granular view of labor utilization can be obtained by measuring the hours of work available in the economy to those who are  working or want to work.  This can be obtained by dividing aggregate hours worked by the total of the civilian labor force plus those not in the labor force but want a job now. Here's what that looks like:

Relying on online listings, young Americans struggle to find jobs - For 24-year-old Miriam Braverman, pounding the pavements to answer Craigslist ads, every day is a jobs day – until she finds a job. It’s a task that many young college graduates are used to: the job search. In July, the unemployment rate for younger workers, those 20 to 24 years old, including many recent college graduates, was 11.3% – five percentage points higher than the overall unemployment rate in America. Finding a job, for young workers, however, is not what it used to be. The defining factor of the millennial generation – technology – is thwarting many young people in their search for jobs, as they contend with the randomness of Craigslist, the cruelty of email black holes, and the increasing importance of personal connections. And then there’s the pay: low. And the job security: nonexistent. Firms prefer freelance workers because they are protected from having to pay for unemployment, taxes or benefits. Companies no longer hire temps to work just days or weeks, but instead opt to keep them for months at a time. “These jobs are what I call ‘permorary’,” says Phil Press, executive vice-president at Temporary Alternatives. “People think that temping is a quick fix, but it’s not. Not any more.” Technology, once thought to be the saviour of job searches, is now thwarting them. Mike Fisher, a 25-year-old college graduate who lives at home, has dedicated the past few months to his job search. He used to work as a department manager at Walmart, but didn’t drop off his resume because the companies resolutely shuffle job-searchers back to their websites. It has limited his options.

Emergency Unemployment Insurance Post Mortem - When I originally looked at the North Carolina Emergency Unemployment Insurance topic (NC terminated the program 6 months early, in June 2013), it looked like the state experienced both strong gains in employment and some decreases in labor force participation, combining for very strong declines in unemployment. But, when I last looked at it, after data revisions that came out in February, the unusual gains in employment disappeared in the revised data.  NC still saw very large decreases in unemployment, but they now appeared to be almost entirely from a decrease in the labor force. This suggested that, if the same trend was going to hold for the US after the end of EUI in December 2013, we would see an acceleration in the declining Unemployment Rate, but that this would come substantially from declining Labor Force Participation.  Further, I noted that, since EUI participation seems to skew older, that to the extent LFP did dip, that decline would come in the older age groups.  The decline in LFP that happened earlier in the recession skewed younger, and we should see this LFP in the younger ages recover or level out, even as EUI ended.The July employment report seems like a good place to review the data and see what has actually come to pass.

Economic Gains Likely to Tighten Job Market, Push Up Wages - Dallas Fed - Economic indicators released over the past two months present a picture of modest growth thus far in 2014. In its first estimate, second-quarter gross domestic product (GDP) growth came in at an annualized 4 percent, putting first-half average growth at 0.9 percent. Job gains decelerated slightly from June to July, but payrolls are still expanding at a healthy pace. Meanwhile, the unemployment rate increased slightly to 6.2 percent in July. Among major components, the lone negative contributor to real GDP growth in the second quarter was net exports, subtracting 0.6 percentage points (Chart 1). Real personal consumption expenditures (PCE) added the most to growth (1.69 percentage points). Positive contributions from residential (0.2 percentage points) and nonresidential fixed investment (0.7) were a welcome turnaround from weaker contributions in the prior quarter that were caused by unusually harsh winter weather. The volatile inventory investment component contributed 1.66 percentage points, which indicates downside risk to growth if upheld in future estimates. The estimate of strong second-quarter output growth contrasts with the contractionary growth of the first quarter. As can be seen in Chart 1, the downward revision to first-quarter real GDP growth was mostly the result of a drop in real PCE. This was due largely to an overestimate of expenditures on medical services in the first and second releases (the possibility of which was suggested in May’s National Economic Update).[1]

Q2 US Labor Costs Miss After Massive "One-Off" Spike Revision In Q1 - On expectations of a 1.0% rise, US unit labor costs rose a disappointing 0.6% (missing for the 3rd of last 4 quarters). This should come as no surprise as despite the constant barrage of bullshit from the mainstream media's talking heads about wage growth around the corner, July saw the first annual decline in real wages since 2012. What is most worrisome for the serial extyrapolators about today's unit labor costs data is the massive revision to Q1 dats - up from a 5.7% rise to an almost record-breaking 11.8% rise. This is clearly a one-off and means wage growth (which was never really growing) is now fading rapidly.

Are Wages Really Rising or Has Wall Street Knee Jerk Media Missed The Story Again? --The Wall Street-Washington, self congratulatory media echo chamber press release repeaters got all excited this morning about a bump in the seasonally adjusted headline number for the BLS employment cost index. That number rose by 0.7% on a quarter to quarter basis. The Wall Street economist crowd’s consensus guess was for an increase of 0.4%. Seasonally adjusted numbers are fictional and subject to repeated after the fact revisions, so there’s really no way to know whether they accurately represent reality or not. The only way to do that is to do a little technical analysis on the actual, not seasonally adjusted data. That’s much easier than trying to analyze a number which does not exist in the real world and which will be changed several times as subsequent data becomes available. The year over year gain in actual employment costs for all civilian workers was, are you ready for this–2%! That, indeed, is the highest it has been since 2011, when it spent the 2nd through 4th quarters rising at rates of 2-2.25%. Last year it never got above 1.9%. It’s a breakout! Or maybe not quite. This number is still within the same range of growth rates that it has been since the second quarter of 2010. The gain, such as it was, was driven by gains of more than 2% in 6 major employment sectors. On the other hand, 4 broad sectors rose by less than 2%, and they can’t seem to get out of their own way. 3 of them have been wallowing below 2% since early 2011 and all 4 have been since early 2012. Here’s a breakdown of the actual, not seasonally adjusted annual rate of gain by major sector. Here’s how it looks on a graph.

Real Earnings of Private Employees Declined Again in July: First, here is a chart of the Average Hourly Earnings. I've included a linear regression through the data to highlight the trend. Hourly earnings increased at a faster pace through 2008, but the pace slowed from early 2009 onward. But the hourly earnings above are nominal (not adjusted for inflation). Let's look at the same data adjusted for inflation using the Consumer Price Index. Since the government series above is seasonally adjusted, I've used the seasonally adjusted CPI, and I've chained the series to the dollar value of the latest month of hourly wages so that the numbers reflect the purchasing power in today's dollars. Since an official CPI for the most recent month hasn't been released, I've extrapolated that value from the percent change of the two previous months. As we see, the difference is amazing. The decline in real wages at the onset of the recession accords with our expectations. But why the rise in the middle of the recession when the Financial Crisis began unfolding in earnest? Let's add another data series to the mix: Average Hours per Week. About eight months into the recession, hours per week began to fall. The number bottomed a few months before the recession ended and then began increasing a few months after it ended. The post-recession real annual earnings peaked in September 2010, hit an interim low in August 2011 and a lower low in October 2012. It subsequently rebounded in March of this year to an interim high just below the 2010 peak. The last two months have registered small declines.In Summary…

  • Nominal average hourly earnings are up one cent from the previous month.
  • Real average hourly earnings are 33 cents below the December 2008 high.
  • Hypothetical real weekly earnings are $5.75 below the previous high in September 2010.
  • Hypothetical real annual earnings are $288 below the September 2010 peak.

The Earnings Gap Between Married and Non-Married Moms is Widening - It’s probably no shocker that working moms make less money than women not weighed down by kids. There are reasons for this—new mothers often take long stretches off work, and move into more flexible, part-time positions—decisions that hurt their work experience and pay over the long-term. Researchers have put this so-called “motherhood wage penalty” at anywhere from 3% to 15%. When you zero in, though, a more troubling trend emerges: Married working moms are taking a much smaller pay cut these days, while working moms who have never been married are actually seeing a sharply bigger one. In a study released Tuesday, Columbia University and Russell Sage Foundation scholar Jane Waldfogel finds that U.S. mothers in their prime-working years (usually defined as 25 to 44 years old) face a roughly 5% “motherhood wage penalty” in the workplace relative to childless women workers, a figure she estimates hasn’t improved much since the late 1970s. Dividing the working moms into married and never-married women, she finds that the penalty for married women, which used to be around 8% in the late 1970s—meaning these women made 8% less in hourly wages than a married, childless female worker—shrank to around 3% by 2007, just before the recession. The same penalty for never-married women shot up from basically zero to 10.5%.

Work and Worth - Robert Reich - What someone is paid has little or no relationship to what their work is worth to society.  Does anyone seriously believe hedge-fund mogul Steven A. Cohen is worth the $2.3 billion he raked in last year, despite being slapped with a $1.8 billion fine after his firm pleaded guilty to insider trading? On the other hand, what’s the worth to society of social workers who put in long and difficult hours dealing with patients suffering from mental illness or substance abuse? Probably higher than their average pay of $18.14 an hour, which translates into less than $38,000 a year. How much does society gain from personal-care aides who assist the elderly, convalescents, and persons with disabilities? Likely more than their average pay of $9.67 an hour, or just over $20,000 a year. What’s the social worth of hospital orderlies who feed, bathe, dress, and move patients, and empty their ben pans? Surely higher than their median wage of $11.63 an hour, or $24,190 a year. Or of child care workers, who get $10.33 an hour, $21.490 a year? And preschool teachers, who earn $13.26 an hour, $27,570 a year?  Yet what would the rest of us do without these dedicated people?  I don’t mean to sound unduly harsh, but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs (unless you consider having more money as basic human need) or enriching our culture (except through the myriad novels, exposes, and movies made about greedy hedge-fund managers and investment bankers).

The NFL Cheerleaders Should Be Your Fair-Pay Heroes -- Cheerleading might sound like a fun job, but as lawsuits against five NFL teams this year show, there’s lots of hard work that goes into the smiling faces and crisp routines—work that is barely rewarded. Cheerleaders for the Oakland Raiders, Buffalo Bills, Cincinnati Bengals, and New York Jets allege that they are paid less than minimum wage—saying their annual salaries sometimes come to just $2 an hour, when time spent at games and practices are taken into account—and that they have been made to use that small sum of money to buy their own travel, hair styling, and makeup. But cheerleaders aren’t the only ones getting screwed over by low pay. We’re all working very hard. And many of us aren’t getting a whole lot in return. The bottom 60 percent of the workforce hasn’t gotten a raise in a decade, and, for some, pay has even fallen. That’s in spite of the fact that productivity has continually climbed higher, as have corporate profits—both outpacing wage growth by a long shot. The basic bargain that Americans put in a hard day’s work and share in some of the bounty they produce has been broken. The current status of wages in America is even more galling if you consider the myriad tools we have to make sure work pays enough to live on. One incredibly simple way is to raise the minimum wage (although Republicans have stood in lockstep against an increase during the Obama years despite their support under Bush). It would put millions more in the pockets of working people. In the 1960s, the minimum wage kept a family of three out of poverty; now it’s not enough to keep a parent, working full time, year round, above that level. And it wouldn’t just benefit those at the very bottom. Millions making just above that wage level would also likely see a raise as pay levels adjust to take the new floor into account. Those who oppose the wage warn that the benefits would be offset by job losses, but there’s reason to believe damage would be minimal or perhaps even nonexistent.

Inequality Is Damaging the U.S. Economy, S&P Study Says - U.S. income inequality is harming U.S. economic growth by excluding large swaths of the population from its cumulative benefits, Standard & Poor’s Ratings Services says in a new report. Tackling an unusual subject for a credit-rating firm, S&P combines a review of recent studies on inequality with its own analysis to find that the gap in earnings between rich and poor can have lasting economic consequences. “The current level of income inequality in the U.S. is dampening GDP growth, at a time when the world’s biggest economy is struggling to recover from the Great Recession and the government is in need of funds to support an aging population,” the firm said in the report published Tuesday.. Tracing some familiar themes for those studying the issue of inequality, S&P highlights a wide education gap as one fundamental underlying cause of income disparities. “The findings suggest that last generation’s inequalities will extend into the next generation, with diminished opportunities for upward social mobility,” the report says. S&P does not outline specific policy measures to address inequality. But it does offer some broad outlines of the types of steps that should be taken to mitigate the problem, which gained attention after the deep 2007-2009 recession that put nearly 9 million Americans out of work. “Some degree of rebalancing—along with spending in the areas of education, health care, and infrastructure, for example—could help bring under control an income gap that, at its current level, threatens the stability of an economy still struggling to recover,” S&P concludes.

Inequality: Don't Blame the Market - Dean Baker - Zachary Goldfarb has an interesting analysis of trends in before and after-tax income inequality in the Obama years. However he is mistaken in attributing the rise in before-tax inequality to the market rather than deliberate policy choices.  For example, the big banks still exist today because the government had a policy of saving them from the market. They would have managed to put themselves into bankruptcy in 2008 without huge amounts of below market loans and implicit and explicit guarantees from the government. In the wake of this history, the income and wealth of most of the financial sector can hardly be viewed as a market outcome. (The financial sector also profits by being exempted from taxes that apply to other industries.)  Globalization has increased inequality because of the way the government structured trade. It has designed trade agreements to put downward pressure on the wages of manufacturing workers by putting them in direct competition with their much lower paid counterparts in the developing world. It could have designed trade agreements to make it as easy as possible for people in the developing world to train to our standards as doctors, lawyers, and other professionals and then to compete freely in the U.S. market with native-born professionals. This pattern of trade would have yielded enormous benefits to the economy by reducing the cost of health care and other services, while reducing inequality. The fact that we did not go this way was a policy decision, not a market outcome.

Inequality and Growth: What I Think We Know and Don’t Know | Jared Bernstein - This new S&P study on inequality and growth is creating a bit a buzz, mostly because it’s from a firm we associate with financial markets, not inequality analysis. I found the study to be a worthy collection of the arguments that have been brought to bear on this interesting question of growth and inequality. Though in an earlier study I raised some questions about the claim that high inequality dampens growth, I clearly think there’s something there, especially as regards mobility barriers (e.g., underinvestment in low-income children), over-leverage leading to inevitable busts, and the interaction of wealth concentration and money-in-politics. And for the record, it actually makes sense that financial firms would worry about this. If inequality above a certain point leads to slower growth or for that matter, greater social upheaval, that could “queer the deal” for them too. Also, inequality-driven populism can come from the right as well, as in the drive to shutter the Export-Import bank—if you don’t see market linkages there, recall the sharp decline in Boeing’s stock the day after Rep. Cantor, a Republican ally of the bank, lost his primary. What follows is my brief overview of the basic channels by which economists think inequality hurts growth, with a few thoughts on the evidence in support of each factor:

The inequality debate avoids asking who is harmed - Adam Posen - Outrage about inequality is big these days, and for good reason. Despite this justified attention, the discussion has been much too polite and limited. We should care about injustice, and not all forms of inequality are unjust per se – some are far more unfair than others. We still should do something about insecurity, the now largely forgotten theme of the 2008 US presidential campaign. That remains the real threat to poor Americans from inequality, not the (sometimes vast) wealth of some other people. And we should care about inclusion, which means recognising that many individuals are still excluded from economic security – let alone wealth – because of race, region, ethnicity or gender. In short, noticing who is actually hurt, and how, is left out of the current inequality furore. The consistent omission of insecurity and inclusion is a moral failure, and one that results in policy mistakes. We obsess about the aggregate magnitude of economic disparities. But we cannot understand the risks of inequality, or identify the right policy response, unless we pay as much attention to the identity of those excluded from economic opportunity. It is striking how the public discussion of inequality has been careful not to differentiate between citizens except by wealth or occasionally by the skill needed for their work. In most of the serious recent discussions on inequality, the idea that someone’s economic fortunes might depend upon race, gender or ethnicity is nodded to in passing, at best. Another blind spot is persistent regional backwardness – as besets West Virginia and Alabama, southern Italy and Portugal.

There's No Defense for Today's Income Inequality - Our political discourse today is riven by the issue of inequality. Some commentators embrace inequality as an inevitable byproduct of free markets. Others say inequality is greatly overstated. Both claims are harmful and deceptive. Defenders of inequality begin with an incontrovertible fact: Free markets rely on inequality. It inspires those who have less to work harder. But this doesn't explain why inequality was much lower a generation ago. In 1979, chief executive officer pay was 29 times higher than the typical worker's; in 2011, it was 231 times higher. Nor does it tell us how much inequality is enough. As measured by two leading researchers, Thomas Piketty and Emmanuel Saez, inequality has grown when examining tax-return data. Tax returns are useful when looking at changes at the highest-income levels because the Census Bureau, the only other good data source, treats everyone over a certain figure (currently $250,000) as earning the threshold amount. Piketty and Saez tell us that average incomes (in constant dollar terms) increased 15 percent over the 33 years to 2011. The minimum income required to join the 1-percent club increased 62 percent over that period. And the average income of the 1-percent club increased 129 percent. “The market made me do it” isn't a complete response to these facts. So the question really is: What defense can be mounted, not to inequality in general, but to current levels of inequality?

The 1% May Be Richer Than You Think - The 1 percent is literally rich beyond measure, depriving nations of billions in tax revenue and obscuring shifts in global inequality. Research conducted separately by European Central Bank economist Philip Vermeulen and London School of Economics’ Gabriel Zucman show the wealth of the super-affluent -- hidden by tax shelters and nonresponse to questionnaires -- is undercounted. Correcting for similar lapses in income data almost erases progress made from 1988 to 2008 in narrowing the gap between the world’s rich and poor, World Bank research found. “We always suspected there was some low-balling of the top 1 percent,” said Joseph Stiglitz, a Nobel-prize winning economist and author of “The Price of Inequality. “There’s a growing sense that our system is rigged and unfair.” Failure to get a better handle on the actual amount of wealth and income means economists and policy makers don’t have a proper understanding of the degree of disparity, which represents a hurdle in addressing it. For instance, knowing that earnings and assets are more concentrated could spur support for changing the tax structure, Zucman said.

The Real Solution to Wealth Inequality - The wealth controlled by the top tenth of the top 1 percent has more than doubled over the past thirty years in the United States, approaching levels not seen since the 1920s. The left’s two recent intellectual blockbusters—Thomas Piketty’s bestselling Capital in the Twenty-First Century and Ta-Nehisi Coates’s “The Case for Reparations”—published by The Atlantic—indicate the profound uneasiness with this trend. Wealth is the ownership of the productive economic elements in society, such as land and corporations. The wealthy control the direction of the economy, and they claim an increasing share of what it produces. But as their influence increases, they avoid being held to the same standard of accountability under a system of democratic politics, while those of us without wealth find ourselves vulnerable. Democrats and Republicans advocate different solutions to inequality, but both seek to shift financial risk from the state to the individual. Republicans promote the “ownership society,” in which privatizing social insurance, removing investor protections and expanding home ownership align the interests of workers with the anti-regulatory interests of the wealthy. Democrats focus on education and on helping the poor build wealth through savings programs. These  Instead of just giving people more purchasing power, we should be taking basic needs off the market altogether.

The Pragmatic Libertarian Case for a Basic Income Doesn't Add Up - Cato Unbound has a symposium on the “pragmatic libertarian case” for a Basic Income Guarantee (BIG), as argued by Matt Zwolinski. What makes it pragmatic? Because it would be a better alternative to the welfare state we now have. It would be a smaller, easier, cheaper (or at least no more expensive) version of what we already do, but have much better results.Fair enough. But for the pragmatic case to work, it has to be founded on an accurate understanding of the current welfare state. He describes a welfare state where there are over a hundred programs, each with their own bureaucracy that overwhelms and suffocates the individual. This bureaucracy is so large and wasteful that simply removing it and replacing it with a basic income can save a ton of money. And we can get a BIG by simply shuffling around the already existing welfare state. Each of these assertions are misleading if not outright wrong.  Obviously, in an essay like this, it is normal to exaggerate various aspects of the reality in order to convince skeptics and make readers think in a new light. But these inaccuracies turn out to invalid his argument. The case for a BIG will need to be built on a steadier footing.

Central American migrants face grueling journey north: They carry almost nothing — a bottle of water, maybe a T-shirt, usually a scrap of paper with the name of a relative in case something happens to them. They are dependent even more than usual on the good will of others for food and shelter, adding to the challenge of an already desperate trek north. The ride aboard the trains, known collectively as la bestia, The Beast, or tren de la muerte, Train of Death, is harrowing. Over the years, many migrants have fallen from the trains or been caught beneath their wheels, losing limbs and often their lives. Criminals have preyed on the helpless passengers, who face the threat of robbery, rape or death. In addition to making train travel more difficult for migrants, Mexico has taken other steps, hardening the border with Guatemala, checking travelers’ documents aboard buses and other means of transport, and stepping up the rate of deportation. Last year, Mexico deported 89,000 Central Americans, including 9,000 children, mostly from Honduras, Guatemala and El Salvador, officials said. Those numbers are expected to increase by as much as 30 percent this year. The efforts appear to be working. Shelters report that the number crossing the border into Mexico is down sharply, from up to 400 a day in June to about 150 a day in July. But with people stranded, the shelters are more crowded. The way north is more challenging than ever. Over four days, I traveled along some of southern Mexico’s busiest migrant routes. By car and bus, I followed the path of The Beast, talking to migrants along the way. I saw throngs of men, women and children clustered by the tracks like “rats” — as one Honduran teen described the scene. At every stop, I collected their stories.

“No Tatoos, Go Home” Dreamer (video) Two illegal immigrants Erika Andiola and Cesar Vargas engage Republican Representative Steve King on staying in the US. Watch tough guy Rand Paul scamper away after Erika announces she is a “Dreamer.”  She appears to challenge Steve King to get rid of her and offers he business card. In answer to her challenge, Steve King announces this is not what he does. Of course he doesn’t, he leaves that up to others to get rid of people after he points the finger. Back to the two Dreamers: Cesar volunteered to enlist and defend the US. Erika talks about earning her degree at ASU, about her mother being beaten by her father and coming to the US years ago to protect her. The only things Steve King can say is apply for asylum in Mexico, did you come from a lawless country, I am sorry you lived in a lawless country, and you are importing lawlessness to the US. what he doses.  In the background all you can hear from the moronic supporters of Steve King is “Go Home.” At the very end, you hear “No Tatoos, Go Home.”  Looks like two good citizens to me and a great economic addition to the US. Of course by 2050 when Hispanics are ~50% of the population, there may not be room for the Kings and Rands of the world in the US anymore.

The Naked Inhumanity of the Reactionary Xenophobes - One slice of the hard right wing of the Republican party and the core Republican base voter look at tens of thousands of kids stranded at our border because where they came from was so horrifying, and see a crisis of American insecurity that can only be solved by keeping these kids in jail and thrusting them back into their terrifying realities as fast as possible. These reactionary xenophobes look at tens of thousands of kids who don’t look like them, don’t speak their language, come from far away and see… aliens. As in alien lifeforms. They look at kids cut off from their parents, family, friends and really, their entire experience, and they don’t see children of the same species. Pretty much everybody else looks at these same traumatized and profoundly vulnerable children and sees… children. Children who need to be taken care of; children deserving of love and care simply because they are. All of these people see a profound humanitarian crisis and many are stepping up to help. A subset of the the jail and airmail the kids back crowd–particularly elected folk and those funding them–are such psychopaths that they tout this inhumane policy to their base purely because they believe it helps them win elections and thus gain access to immense power. I do mean psychopaths: they pick access to power over the lives of tens of thousands of kids. Don’t believe me? Watch the Rachel Maddow show segment below, doing yourself the favor of skipping the irrelevant, snark-filled first 6+minutes. Start around 6:50 in, when she starts talking about Dallas, TX reacting to the crisis. After that it’s less than 15 minutes long and pretty much all of it is relevant. 

Holes in the welfare hammock - Catherine Rampell - Our welfare state has indeed grown over time; federal social safety net spending per capita has more than quadrupled since 1970. The expansion, though, has disproportionately gone not to the unemployed and very poor, but to the working “near-poor,” the middle class and, in some cases, high- income Americans. That’s partly because of demographics (a large share of social spending goes to old people, whatever their incomes, and the United States is aging), and partly because of policy changes (e.g., imposing five-year caps on how long most families can receive welfare payments, or creating tax breaks that primarily benefit the wealthier Americans who itemize their taxes).  Myths about the beneficence of the social safety net and the demographics of its beneficiaries are persistent, among libertarian tea partyers and (presumably) ultraliberal New York theater audiences alike. In the spirit of debunking some of these, I’ve compiled a few factoids that people often get wrong. See how you do on the quiz:

Private Prisons, Public Cash -- It’s fait accompli that conservatives and neoliberals will want to solve America’s alleged immigration problems by building walls and prisons. As frustrating as their proposed “solutions” are, they shouldn’t come as entirely shocking. They have at their core the same punitive catchall approach that they take to everything else, including the economy. We shouldn’t expect anything new. But an important distinction deserves to be made here between the populist vitriol and the entities that benefit financially from it. Behind every rowdy reactionary mob there’s a good business opportunity.A recent American Civil Liberties Union (ACLU) report, titled Warehoused and Forgotten: Immigrants Trapped in Our Shadow Private Prison Industry, goes a long way toward illustrating the horror of the profit-from-misery industry. The report resulted from an extensive four-year investigation into the conditions of prisons known as “Criminal Alien Requirement” (CAR) prisons in Texas and elsewhere. CAR prisons are private establishments, operating outside of the purview of the Bureau of Prisons, that were built specifically to house non-citizens. This study consists of thousands of anonymous interviews with prisoners and finds allegations of overcrowding, abuse, and lack of proper health care. Reform, of course, sounds appealing. A little bit more oversight certainly couldn’t hurt. But the deeper problem is that the very business model of private prisons incentivizes these abuses: more prisoners with minimal care equal greater profits.

Detroit's bankruptcy tab tops $50 mln, likely to grow (Reuters) - The tab for the first nine months of Detroit's historic bankruptcy case is at least $51.19 million, according to a report on fees and expenses charged by the city's team of lawyers and consultants from July 2013 through March 2014. Some of the numbers in the report, which was released late Tuesday night, will change and possibly send the total higher. There were no March fees and expenses listed for Jones Day, indicating that the law firm's eventual charges will exceed the report's $17.35 million. Meanwhile, the report only included fees and expenses from accountants Ernst & Young for January through March of this year, $3.69 million. The firm has revised and redacted monthly invoices for July through December 2013, and the fee examiner will file supplements on those numbers in coming days, according to the report. true The city's emergency manager Kevyn Orr has said he hopes the final price tag for the largest municipal bankruptcy in U.S. history will not reach the hundreds of millions of dollars. Jefferson County, Alabama, which was the largest municipal bankruptcy before the Motor City filed for protection in July 2013, spent only about $25 million on its two-year case.

Chicago Mayor Rahm Emanuel Cuts Schools, Pensions While Preserving Fund for Corporate Subsidies - Months after Chicago Mayor Rahm Emanuel said budget constraints forced him to push for pension cuts and mass school closures, an analysis of government documents reveals the city has $1.71 billion in special accounts often used to finance corporate subsidies. While the Emanuel administration has rejected open records requests for details of the subsidies, evidence suggests at least some of them have flowed to companies connected to Emanuel’s campaign donors. The analysis conducted by the TIF Illumination Project evaluated the city’s 151 tax increment financing, or TIF, districts, which divert a share of property taxes out of accounts obligated to schools and into special accounts under the mayor’s control.  The report shows $412 million was diverted last year alone into the TIF accounts and out of traditional property tax funding streams, many of which are dedicated to the city's schools. In 21 of those districts, the report says 90 percent or more of all property taxes were diverted into the TIF accounts.  Citing Chicago subsidies offered to S&C Electric Co., LaSalle Street Capital, United Airlines and the Chicago Mercantile Exchange, an earlier study from the taxpayer watchdog group Good Jobs First found in the last 25 years, $5.5 billion of taxpayer money has gone into TIF accounts, and “much of the city’s TIF revenue was spent on subsidizing corporations, nonprofits and developers.”  The amount of money diverted into TIFs has exploded in the last decade, and transparency advocates say under Emanuel, TIF projects have been shrouded in more secrecy than ever.

6 Ways Wall Street Is Hosing Chicago Teachers -- During Andrew Cuomo’s tenure as attorney general of New York, he noted, “In New York, the biggest pool of money is the state pension fund.” This is true with public pension funds across the nation—and Wall Street firms have leaped to take advantage of the bounty, often in unsavory ways. Over the last five years, the Securities and Exchange Commission (SEC) has routinely unearthed “pay-to-play” scandals, in which overseers of pension funds make investment choices based on personal gain. In most cases, politicians control the investment-making decisions at pension funds. A select few, however, are controlled by their members—meaning they could invest in projects for the public good on Main Street rather than private investment funds on Wall Street.  One such fund is the Chicago Teachers’ Pension Fund (CTPF), a nearly $10 billion pool charged with assuring the retirement security of tens of thousands of education professionals. Despite a Board composed of 12 member-elected trustees, however, Wall Street still has its hands in the kitty. Here are six ways America’s biggest investment firms have the potential to sink Chicago teachers—and just how the CTPF board can stop that from happening.

Without reform, too many US schools will continue to prepare kids to be 20th century factory workers - Pew has a really fascinating survey looking at how the tech community sees automation affecting the labor force. More on it later, but this bit really jumped out at me: Howard Rheingold, a pioneering Internet sociologist and self-employed writer, consultant, and  educator, noted, “The jobs that the robots will leave for humans will be those that require thought  and knowledge. In other words, only the best-educated humans will compete with machines. And  education systems in the U.S. and much of the rest of the world are still sitting students in rows  and columns, teaching them to keep quiet and memorize what is told to them, preparing them for life in a 20th century factory.” And there are plenty of educators who would keep schools in factory mode. AEI’s Rick Hess: In short, progressives worked hard to import the best practices of private industry to American education. (This is why the familiar school model bears such an uncanny resemblance to the early 20th-century factory.) That model made some sense at the time, helping to manage a massive expansion of schooling in a world lacking modern data tools and communications technology.Since that era, though, K-12′s routines and rules have been largely preserved, as if in amber. Intrusive regulations, petty bureaucracy, and balky decision making have bizarrely come to be treated as part of the schoolhouse culture.

U.S. Firms Put Teens To Work To Keep Them From Dropping Out of School -  A failure to obtain a high school diploma can be a costly decision for the person who drops out and for society as a whole. That’s why some businesses are getting involved by putting teens to work, as a story in the Journal showed today.Americans without a high-school diploma over the age of 16 face a 14% unemployment rate, according to Labor Department data. For those between the ages of 16 and 19, more than one in four can’t find jobs.  (The nation’s overall unemployment rate was 6.2% in July.)Those fortunate enough to find employment usually find themselves condemned to low-paying service jobs and bleak earnings prospects. Average yearly earnings for people who attended high school but failed to graduate were $21,384 in 2012, according to Commerce Department data. Those with a high school diploma earned $32,630, while those with a bachelor’s degree or more made $70,523. A program run by Southwire Company LLC and the school district in Carrollton, Ga., has helped to improve local graduation rates by offering hundreds of teenagers jobs at the cable manufacturer and an academic curriculum that has been adapted to complement what they learn on the factory floor. Several European companies with operations in the U.S. are working with local school districts to replicate the apprenticeship programs directed at high-school students that are common in their home countries. In Charlotte, N.C., an administrator for a group of high schools said that participation in Apprenticeship 2000, a program run by a group of eight mostly European firms, has helped improve local graduation rates.

Why teachers have a tougher job than doctors - Vox: It's no secret that Japanese kids perform much better on international math tests than Americans do. Japan is ranked second in the world, while the US is far below average. But there's a surprising twist. Japanese teachers' methods for teaching math were developed in the United States, yet never caught on here. Why not? Perhaps because many Americans assume good teachers are born, not trained; that teaching well requires innate talent, or recruiting the best and brightest to begin with. Elizabeth Green, who founded the education news site Chalkbeat.org and serves as its editor and CEO, spent five years researching those assumptions. She visited the classrooms of talented teachers and charter schools renowned for high test scores, and traveled to Japan to watch math teaching methods in action. Her book, Building a Better Teacher, argues that teaching is perhaps the most complex profession there is, but that training, not talent, can create exceptional educators. What follows is a transcript of our conversation, lightly edited for clarity and length.

Student Debt Linked to Worse Health and Less Wealth: -- Gallup -- College graduates who carry a high amount of student debt appear to face long-term challenges that stretch beyond just their finances. A new analysis of Americans who graduated college between 1990 and 2014 shows that graduates who took on the highest amounts of student debt, $50,000 or more, are less likely than their fellow graduates who did not borrow for college to be thriving in four of five elements of well-being: purpose, financial, community, and physical. Although graduates with no student loan debt are slightly more likely than their indebted peers to be thriving socially, the differences are not statistically significant. Gallup finds the starkest differences among these groups in the areas of financial and physical well-being. Higher debt signifies lower likelihood of thriving in these two areas of well-being. Graduates who went the deepest into debt to obtain their college degree, for instance, are far less likely to be thriving than graduates who took out no debt, by 15 percentage points in financial well-being and 10 points in physical well-being. The pattern is similar for graduates' sense of purpose, although those who borrowed over $50,000 are just as likely to be thriving in this element as those who borrowed $25,001 to $50,000. The relationship is less straightforward for graduates' community well-being, though again, graduates who took on the most debt for their degree are less likely to be thriving in this element than those who did not take out any loans for their undergraduate education.

What We Mean When We Say Student Debt Is Bad - Once again, the headlines are filled with claims that student loans are bad. Several articles have highlighted results from a Gallup poll that shows that college graduates who borrow for college are less happy, healthy and wealthy than debt-free graduates. The Gallup report (which is cautious in its interpretation of the data) has been drawn into a rising chorus of news media reports on the negative consequences of borrowing: Student loans not only make you sick but also hamper homeownership and delay marriage.Student loans need reform. But recent reports obscure the key benefit of borrowing for college: a college education. The highlight of the Gallup report is a comparison of the well-being of college graduates who did not borrow and those who borrowed more than $50,000. As I discussed in this New York Times article in June, 43 percent of undergraduates borrow nothing, and 98 percent borrow less than $50,000. The report is therefore comparing the 43 percent of undergraduates who borrow nothing with those with the highest debt loads. Here is an uncontroversial proposition: If you take $50,000 away from a college graduate, she will be less happy. She could have used that $50,000 to make a down payment on a house, or buy a car, or to do the many other things that people do with their money.

Education Department to ease college loan rules (AP) — The Department of Education said Thursday it will try to make it easier for students and parents with troubled credit histories to get college loans.New rules would ease restrictions on college students seeking loans from the government's direct loan program.The change would let people get loans more easily even if they have up to $2,085 in debt that is in collections or has been written off by creditors, and it would shorten the length of time their history of such bad debt is scrutinized from five years to two.Currently, students with that much "adverse debt" are automatically denied, though they can appeal and get loans if they demonstrate extenuating circumstances. Such borrowers may be required to have loan counseling.The five-year "lookback" would continue to apply to more serious credit problems like bankruptcy and foreclosure.The department said about 370,000 more borrowers would clear the government's credit check under the new standards."These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them," Education Secretary Arne Duncan said

Some Public Pension Funds Making Big Bets On Hedge Funds : NPR: Public pension funds have been doing something new in recent years — investing in hedge funds.  Hedge funds are often secretive investment firms led by supposedly supersmart fund managers. Though, sometimes they implode spectacularly — think Long-Term Capital Management. Another prominent firm, Galleon Group, recently got shut down for rampant insider trading.Those may be rare examples, but one thing that's true about nearly all hedge funds is that they charge high fees. And some experts are questioning whether public pension funds should be investing this way.A Recent TrendTen years ago, public pension funds stayed away from hedge funds. Maybe hedge funds seemed too pricey or opaque or exotic. After all, public pension funds invest money so they can afford to keep sending checks to retired schoolteachers, police officers and firefighters."They didn't have anything in hedge funds," says David Kotok, the chief investment officer at Cumberland Advisors. .Hedge funds claim to be able to provide a good return — while protecting the investor if, say, the stock market crashes. That's why they're called "hedge" funds — as in hedging your bets.And in recent years more pension funds have invested in them. But Kotok says, "our concern has been that in some cases this seems to have become a fad."If it is a fad, it's a very expensive one.

CalPERS Rescinds $700 Million Investment With Private Equity Fund Headed By Doctor With No Private Equity Experience You cannot make stuff like this up. The giant public pension fund CalPERS didn’t just make a “what were they smoking” private equity investment. The turkey deal was also stunningly large.  As Pension360 writesYou probably trust your doctor with your life. But with your money? Many people might balk at the notion of their doctor making their investment decisions for them.But back in 2007, CalPERS made a big bet: a $705 million investment in a private equity fund, Health Evolution Partners Inc., specializing in health care companies.The CEO of the fund, David Brailer, is a nationally renowned physician who had previously been the “health czar” under George W. Bush. But this was his first foray into the investment space, and he had no experience running an investment fund or making private equity investments.Still, he reportedly promised the CalPERS board healthy returns in excess of 20 percent.But through seven years, the fund has never managed to exceed single-digit returns. And portions of CalPERS’ investment have actually experienced negative returns. That has led CalPERS to cut ties with the fund, according to Pensions & Investments

U.S. Treasury to put public pensions under scrutiny -- The Treasury Department's new office on state and local finance will scrutinize public pensions, appointing a specialist in the area and becoming a resource for retirement planning, its inaugural director said in a speech on Monday. State and Local Finance Office Director Kent Hiteshew told a meeting of the Council of State Governments that he had appointed the chief investment officer of Maryland's pension fund as a policy adviser who "will substantially strengthen our office's understanding of the critical challenges facing a system upon which approximately 23 million Americans depend ... for their retirement security." Saying that state and local pensions now have enough money to cover only 72 percent of their costs, in comparison to nearly 100 percent in 2000, Hiteshew added that very few pensions are well-funded. "While the current underfunding started prior to the Great Recession, this was exacerbated by both market forces and trying fiscal times during the last few years," he added. Public pensions had $4.89 trillion in assets in the first quarter of 2014, the highest on record, according to data from the U.S. Federal Reserve. But they also had the largest liabilities on record going back to 1945 - $5.03 trillion - and their funding gap has widened since the 2007-2009 recession.

GRAVE ROBBERS: How online obituary firms steal and monetize your family story, with or without your knowledge, leaving you with no rights or recourse -- There is a quiet war going on in America, with hundreds of millions of dollars per year at stake. Nobody is being killed, thank goodness. They're already dead. The battle is over which online company will get fabulously wealthy exploiting the anguish of those left behind, by selling them colorful, compelling interactive obituaries that portray the grand and beautiful lives that their loved ones lived. If you don't buy one for your family member, they put one online anyway. They feature it prominently in search engines, and urge "visitors" to buy tokens of sympathy in your honor. These are cynical, profiteering schemes -- yet another aspect of our notoriously predatory “death industry,” which takes such ghoulish advantage of people‘s grief. They underhandedly wrest ownership of our loved ones' lives and legacies, claiming rights to use their stories to make money, in any manner whatsoever, forever. How can we allow this IDENTITY THEFT to go on without a legal challenge? The obituary's journey from personal news story to grand robbery is complicated, but it provides a fascinating glimpse both into our attitudes about the value of individuals, and into our culture's monetization of everything.

Florida Blue is raising exchange rates an average of 17.6 percent - Florida Blue, the state’s largest health insurer, is increasing premiums by an average of 17.6 percent for its Affordable Care Act exchange plans next year, company officials say. The nonprofit Blue Cross and Blue Shield affiliate blames higher health costs that are a result of attracting older adults this year who previously lacked coverage and are using more services than expected. Florida insurance regulators plan to release rate information for all companies next week. The exchange plans cover individuals who are not covered by employer-based policies. Critics of the health law have predicted big rate hikes in the second year of the online marketplaces. Florida Blue CEO Patrick Geraghty noted that premiums in the individual market have been going up for years. “In the individual market, this type of average rate increase is typical,” he told Kaiser Health News. “It is not aberrant.”  Next year will mark the fourth consecutive year Florida Blue has increased premiums by an average of at least 11 percent for people under 65 who buy coverage on their own. Florida Blue increased rates an average of 16.5 percent in 2014, 16 percent in 2013 and 11.5 percent in 2012, the company said. Florida Blue signed up 339,000 customers through the Affordable Care Act’s federal marketplace this year — about 34 percent of the almost 1 million who enrolled in the state, the company said. Florida does not operate its own exchange.

Health care subsidies issue rushed to Court - SCOTUSblog: UPDATE Friday 3:51 p.m. The Obama administration went ahead on Friday with its plan to ask the U.S. Court of Appeals for the D.C. Circuit to reconsider, before the full en banc court, the decision that would bar tax subsidies to purchase health insurance on the “exchanges” operated by the federal government in thirty-four states. The filing can be found here. The government estimated that, so far, some 5.4 million people have obtained insurance on the federal exchanges, and eighty-seven percent of them did so with tax subsidies. That works out to about 4.7 million individuals affected by this dispute. The government counts thirty-four states as having federally run exchanges. It is unclear, at this point, what effect — if any — this filing would have on the Supreme Court’s willingness to hear the petition discussed in the post below. If it chose to await the outcome of the D.C. Circuit case, that could delay action on the underlying subsidies question.

If You Like Your Exemption, Keep It: 90% Of Uninsured Won't Pay Obamacare Penalties -- No insurance, no penalty appears to be Obamacare's new meme as The Wall Street Journal reports almost 90% of the nation's 30 million uninsured won't pay a penalty in 2016 because of a growing batch of exemptions to the health-coverage requirement. In the interests of socialism, the Obama administration has provided 14 ways people can avoid the fine (on top of exemptions carved out under the 2010 law for groups including illegal immigrants, members of Native American tribes and certain religious sects). The exemptions are worrying insurers, as they could make it easier for younger, healthier people to forgo coverage, leaving the pools overly filled with old people or those with health problems. That, in turn, could cause premiums to rise.

Still Failing To Fail - Paul Krugman - Jonathan Cohn looks at the evidence so far on health insurance premiums, and finds things not too bad: Coverage will get more expensive for the majority of consumers, as it almost always does. Changes in premiums will vary enormously, from state to state and from plan to plan. But, overall, the 2015 premiums increases will not be significantly worse than they were in the past. They might even be a little better.Charles Gaba finds much the same. Furthermore, there’s a clear trend within the trend: states that did their best to make Obamacare work are also delivering good deals to their residents. California is heading for an increase of only 4.2 percent. On the other hand, things are not looking too good in Florida: In Florida, by contrast, the Republicans in charge did very little to promote the law and, at times, seemed determined to undermine it. Never was this more clear than in 2013, when the legislature passed and Governor Rick Scott signed a bill that suspended state government’s ability to reject excessive premium increases. Overall, yet more evidence that this reform works wherever politicians let it work.

Rising rates of hospice discharge in U.S. raise questions about quality of care - At hundreds of U.S. hospices, more than one in three patients are dropping the service before dying, new research shows, a sign of trouble in an industry supposed to care for patients until death. When that many patients are leaving a hospice alive, experts said, the agencies are likely to be either driving them away with inadequate care or enrolling patients who aren’t really dying in order to pad their profits. It is normal for a hospice to release a small portion of patients before death — about 15 percent has been typical, often because a patient’s health unexpectedly improves. But researchers found that at some hospices, and particularly at new, for-profit companies, the rate of patients leaving hospice care alive is double that level or more. The number of “hospice survivors” was especially high in two states: in Mississippi, where 41 percent of hospice patients were discharged alive, and Alabama, where 35 percent were. “When you have a live discharge rate that is as high as 30 percent, you have to wonder whether a hospice program is living up to the vision and morality of the founders of hospice,”

Feds stop public disclosure of many serious hospital errors -- The federal government this month quietly stopped publicly reporting when hospitals leave foreign objects in patients' bodies or make a host of other life-threatening mistakes. The change, which the Centers for Medicare and Medicaid Services (CMS) denied last year that it was making, means people are out of luck if they want to search which hospitals cause high rates of problems such as air embolisms - air bubbles that can kill patients when they enter veins and hearts - or giving people the wrong blood type. CMS removed data on eight of these avoidable "hospital acquired conditions" (HACs) on its hospital comparison site last summer but kept it on a public spreadsheet that could be accessed by quality researchers, patient-safety advocates and consumers savvy enough to translate it. As of this month, it's gone. Now researchers have to calculate their own rates using claims data. Before the change, the Hospital Compare website listed how often many HACs occurred at thousands of acute care hospitals in the U.S. Acute care hospitals are those where patients stay up to 25 days for severe injuries or illnesses and/or while recovering from surgery. Now, CMS is reporting the rate of occurrence for 13 conditions, including infections such as MRSA and sepsis after surgery, but dropping others.

Why Are Dope-Addicted, Disgraced Doctors Running Our Drug Trials? -- If I were to volunteer for a trial, I’d want to be sure that I was putting my welfare in the hands of someone at the top of their game. Yet what I knew about the business of clinical research made me pause. I use the word “business” because that’s what it is. The days when most trials were run by eminent researchers at prestigious medical institutions are gone. Costs have spiraled, and academic facilities have high overheads. Over the past couple of decades, work has been largely outsourced to regular doctors, often hired by firms that do nothing but manage trials for the drug industry. Some of these doctors are specialists; others are the family physicians who prescribe you antibiotics and administer your annual flu jab. They supply patients, and are usually paid according to how many complete the trial. This trend has helped industry control its costs. But I suspected that it might have had consequences for patient safety. Finding out wasn’t easy. The U.S. Food and Drug Administration collects data on doctors hired to run clinical trials, but the records it makes public are censored and incomplete. Still, once I had the data, I was able to check it against disciplinary actions taken by the medical boards of the four most populous states: California, Texas, New York, and Florida. What I discovered confirmed my suspicions.

No Treatment or Vaccine for Ebola, but a $1000 Pill for Hepatitis C  The Ebola virus epidemic in West Africa continues to grow, and now appears to be the worst known epidemic of that disease to date.  In the US and Western Europe, press reports are now raising concerns that the disease could spread there.  For example, CNN, in an article entitled “Ebola Fears Hits Close to Home,” was a section headed “Could Ebola spread to the US?” An ABC article was entitled, “How the US Government Could Evacuate Americans with Ebola.” Reasons for fear of spread are the increased mobility of people made possible by air travel, and the lack of specificity of early symptoms of Ebola, so infectious people may not realize the dangers their travel might pose.  A US citizen with Ebola was on his way back to the US via several connections, and made it as far as Lagos, Nigeria before becoming too ill to travel further (per CNN).  Making the fears worse are the high fatality rate of Ebola, with an expected mortality rate of 68%.  Finally, there is no known effective treatment or vaccine for the Ebola virus. The reason there are no vaccines or treatments available for Ebola does not appear to be the scientific difficulty involved in developing them.  Vox also published a discussion for the economic genesis of the problem: Bausch says that the obstacle to developing an Ebola vaccine isn’t the science; researchers have actually made really great strides in figuring out how to fight back against Ebola and the Marburg virus, a similar disease.  The problem, instead, is the economics of drug development. Pharmaceutical companies have little incentive to pour research and development dollars into curing a disease that surfaces sporadically in low-income, African countries. They aren’t likely to see a large pay-off at the end — and could stand to lose money.

Mapping the acceleration of Ebola in West Africa in five charts -  The Ebola pandemic plaguing Sierra Leone, Guinea, and Liberia got more international attention this week, when two American medical workers fell sick and details emerged about the Ebola patient who died in Lagos, an international air travel hub. But perhaps the scariest news comes in the latest Ebola data from the World Health Organization. Between Jul. 24 and 27, Ebola claimed 57 lives and infected 122 people. The virus’s spread has been gaining speed: That brings the body count to 729 people, with more than 1,300 infected. To put that in historical context, those killed and infected by Ebola in 2014 alone account for one-third of the total deaths and infections in the 20-some outbreaks since 1976. And it’s only August; the head of the US’s Centers for Disease Control says the outbreak will rage for another three to six months.This is scary because, as viral public health menaces go, Ebola should be easy to contain. Unlike airborne viruses like, say, swine flu, it’s not exactly sneaky. Ebola is spread only when infected bodily fluids come into contact with someone’s mucus membranes or open cuts. And it tends to broadcast the risk of infection pretty clearly; the symptoms include vomiting, diarrhea and, in some cases, hemorrhaging of mucus membranes.  That made Ebola relatively easy to contain when it flared up in remote forests of central and eastern Africa, which are sparsely populated. But this new pandemic is a totally different story:

Prices soar as Liberia struggles to contain Ebola - Shoppers in Liberia complained Tuesday that traders were using the Ebola epidemic to profiteer by raising prices as the country enforced tough new measures to stem the spread of the disease.  The impoverished nation is at the centre of the world's worst-ever outbreak, alongside neighbouring Guinea and Sierra Leone, with almost 900 people dead since the start of the year. President Ellen Johnson Sirleaf has announced a raft of new rules aimed at halting the tropical virus, which passes from person to person through bodily fluids, including bans on bush meat and crowded taxis. She also said anyone caught selling soap, bleach or chlorine at inflated prices would be prosecuted. But residents of the capital Monrovia say they have seen goods and services more than double in price since the enforcement of the new measures. More than 300 Liberians have been infected by the tropical virus since the start of the year, and more than half of them have died.

Ebola Deaths Go Exponential; Nigeria Demands Experimental Drug From US, Saudi Death First In Arab World - The official Ebola death toll is now at 932 with over 1,700 reported cases but as the WHO reports, in the last 48 hours, deaths and cases have exploded (48 and 108 respectively). As the charts below show, this epidemic is going exponential. What is perhaps most worrisome is, while playing down the threat in Nigeria (most especially Lagos - which the CDC Director is "deeply concerned" about), officials have formally asked the US for the experimental Ebola drug, which suggest things are far worse than the 3 deaths reported so far in Nigeria would suggest. Finally, as we warned yesterday, Saudi Arabia is suffering too as the main who was hospitalized yesterday with symptoms has died - the first reported casualty in the Arab world. As The BBC reports, It is the world's deadliest outbreak to date and has centred on Guinea, Liberia and Sierra Leone.  Eight people are currently in quarantine in Nigeria, Africa's most populous country, and two have died there.

Why do two white Americans get the Ebola serum while hundreds of Africans die? - What should happen if a massive viral outbreak appears out of nowhere and the only possible treatment is an untested drug? And who should receive it? The two American missionaries who contracted the almost-always-fatal virus in West Africa were given access to an experimental drug cocktail called ZMapp. It consists of immune-boosting monoclonal antibodies that were extracted from mice exposed to bits of Ebola DNA.  Now in isolation at an Atlanta hospital, they appear to be doing well. It’s an opportunity the 900 Africans who’ve died so far never had. Is there a case to suspend ethical norms if lives might be saved by deploying an experimental drug?  The reasons for different treatment are partly about logistics, partly about economics and, partly about a lack of any standard policy for giving out untested drugs in emergencies. Before this outbreak, ZMapp had only been tested on monkeys. Mapp, the tiny, San Diego based pharmaceutical company that makes the drug stated two years ago: “When administered one hour after infection [with Ebola], all animals survived…Two-thirds of the animals were protected even when the treatment, known as Zmapp, was administered 48 hours after infection.”

Washington: CDC ramps up its Ebola response effort as new cases are confirmed in Nigeria - The Centers for Disease Control and Prevention has placed their emergency operations center in Atlanta on the highest response level due to the worsening Ebola outbreak in West Africa, the agency reported Wednesday afternoon.The move comes as more cases of the deadly virus have migrated from rural villages and towns in Guinea, Liberia and Sierra Leone to densely populated urban areas in Nigeria where it could spread more quickly.The CDC is sending 50 additional disease control experts to the four affected African nations to help treat patients and contain the disease. As of Monday, August 4, six CDC officials have already been deployed to Guinea, 12 to Liberia, four to Nigeria and nine to Sierra Leone.On Tuesday, the CDC issued an Alert Level 2 Travel Notice for Americans visiting Nigeria. Travelers to Nigeria are being asked to practice careful hygiene and avoid contact with blood and body fluids of people ill with Ebola.A Warning Level 3 Travel Notice is also in effect for Guinea, Liberia, and Sierra Leone. The CDC is advising Americans to avoid nonessential travel to these countries.Upon request from the World Health Organization, the CDC is taking a more active role in providing technical assistance to the Ebola response effort.

Nigeria Declares State Of Emergency: "Everyone In The World Is At Risk" From Ebola, CDC Issues Level 1 "All-Hands Call" - With over 932 dead, the US Centers for Disease Control and Prevention has issued its highest level alert for an all-hands on deck response to the crisis in West Africa (that is spreading across the world). While President Obama proclaimed we are prepared and itis "not easily transmitted," it appears that is not entirely true. Meanwhile, CDC Director Frieden's "deep concerns" have been confirmed as Nigeria’s health minister has declared a health emergency as the deadly Ebola virus gained a foothold in Africa’s most populous nation, according to news reports. Nigerian authorities moved quickly late Wednesday, gathering isolation tents as five more cases of the Ebola Virus were confirmed in Lagos (the world's 4th most populous city with 21 million people). Most international flights from West Africa are also now screening passengers.

‘Don’t Touch the Walls’: Ebola Fears Infect an African Hospital - So many patients, nurses and health workers have died in the government hospital that many people in this city, a center of the world’s worst Ebola epidemic, see it as a death trap. Now, the wards are empty in the principal institution fighting the disease. Ebola stalks the city, claiming lives every day, but patients have fled the hospital’s long, narrow buildings, which sit silent and echoing in the fading light. Few people are taking any chances by coming here.“Don’t touch the walls!” a Western medical technician yelled out. “Totally infected.”Some Ebola patients still die at the hospital, perhaps four per day, in the tentlike temporary isolation ward at the back of the muddy grounds. But just as many, if not more, are dying in the city and neighboring villages, greatly increasing the risk of spreading the disease and undermining international efforts to halt the epidemic.  “People don’t die here now,” said the deputy chief of the hospital’s burying team, Albert J. Mattia, exasperated after a long day of Ebola burials. “They are dying in the community, five, six a day.” Mr. Mattia was particularly disturbed that many of the bodies his team were putting in the ground had come from outside the hospital, thwarting attempts to isolate patients and prevent them from passing the disease to others. “It’s very, very dangerous, very hazardous; it is contributing to the Ebola dead,” he said as his two deputies nodded glumly in agreement. “You go to the wards, there are no patients.”

Ebola Response Too Slow as Tally of the Dead Nears 1,000 - The international response to the Ebola outbreak that has killed almost 1,000 Africans has been slow and inadequate, and the World Health Organization is at least partly to blame, said spokesmen for two key aid groups. The WHO yesterday designated the outbreak as an international public health emergency, eight months after it began. On May 18, when the situation seemed to be stabilizing, the Geneva-based organization said the outbreak “could be declared over on May 22.” The WHO’s leaders “need to do a reality check and step up,” Koen Henckaerts, a health expert at the European Commission’s humanitarian aid division, said in a telephone interview from the Liberian capitol of Monrovia. “There is a lack of coordination among all the different partners.”

Spreading Ebola epidemic has widening economic ramifications - -- The World Health Organization declared Friday that the Ebola epidemic is an international health emergency. Although the outbreak is concentrated in West Africa, a case of Ebola infection has been confirmed in the Middle East. Given the increased mobility of people in economically developing Africa, there is a risk of the virus spreading. With that comes the risk of wider economic impact as well. Unlike past Ebola outbreaks, which occurred in remote areas, this time the virus is showing up in cities. What's more, Ebola has been confirmed in Nigeria -- Africa's most populous nation with a developing economy. An infected person from Liberia came to Nigeria and subsequently died from the virus, but not before infecting a Nigerian doctor who provided care. Although Ebola is not as contagious as the H1N1 flu virus, there is no denying the risk of travelers spreading the disease.  Meanwhile, worries are mounting about the economic impact of the epidemic. The International Monetary Fund predicts GDP growth in Guinea will be 3.5% instead of 4.5%, as canceled flights hamper business and some farmers leave their fields to escape the virus.

Concerned about Ebola? You’re worrying about the wrong disease - A deadly disease is set to hit the shores of the US, UK and much of the rest of the northern hemisphere in the coming months. It will swamp our hospitals, lay millions low and by this time next year between 250,000 and 500,000 worldwide will be dead, thousands of them in the US and Britain. Despite the best efforts of the medical profession, there’s no reliable cure, and no available vaccine offers effective protection for longer than a few months at a time. If you’ve been paying attention to recent, terrifying headlines, you may assume the illness is the Ebola virus. Instead, the above description refers to seasonal flu – not swine or bird flu, but regular garden variety influenza. Our fears about illness often bear little relation to our chances of falling victim to it, a phenomenon not helped by media coverage, which tends towards the novel and lurid rather than the particularly dangerous. Ebola has become the stuff of hypochondriacs’ nightmares across the world. In the UK, the Daily Mirror had “Ebola terror as passenger dies at Gatwick” (the patient didn’t have Ebola), while New York’s news outlets (and prominent tweeters) experienced their own Ebola scare. Even intellectual powerhouses such as Donald Trump have fallen into panic, with the mogul calling for the US to shut off all travel to west Africa and revoke citizens’ right to return to the country – who cares about fundamental rights during an outbreak? Not to be outdone, the endlessly asinine “explanatory journalism” site Vox informed us that “If the supercontinent Pangaea spontaneously reunited, the US would border the Ebola epidemic”.

Government Fails to Protect American’s from Superbug Epidemic -- Back on Sept. 11, nearly 3,000 people lost their lives in the attacks on the World Trade Center, Pentagon, and in Shanksville, Pennsylvania. Since 9/11, our government has spent more than $7.6 trillion on military and homeland security operations in response to the deaths of those roughly 3,000 souls. Now, compare that to the fact that each year, 23,000 Americans die from antibiotic-resistant infections, and another 2 million get sick. That’s the equivalent of nearly eight 9/11′s per year. But our government isn’t doing a thing about it. Each year, Big Agriculture feeds millions and millions of pounds of antibiotics to factory farm animals, all to slightly increase their profits by plumping up their meat. In 2011 alone, nearly 30 million pounds of antibiotics were purchased by Big Agriculture, to promote growth in the animals, and to reduce the spread of disease in the horrific factory ­farm conditions. That 30 million pounds is a staggering four times the amount of antibiotics that were prescribed to humans that year. These are otherwise healthy animals, but they’re getting dosed daily with low­ levels of antibiotics anyway. As a result, this widespread and unnecessary use of antibiotics in factory­farm animals is creating a major public health crisis here in the U.S by breeding antibiotic resistant infections caused by bacteria referred to in the media as superbugs.

U.S. Government Caught Using Humanitarian HIV Program As Front To Foster Cuban Dissent -- Regular readers will recall that earlier this year we highlighted how the U.S. government covertly created a “Cuban Twitter” called ZunZuneo in a failed attempt to overthrow the island nation’s regime. The elaborate plot was implemented under the umbrella of the U.S. Agency for International Development (USAID), which is responsible for overseeing billions of dollars in U.S. humanitarian aid. Well we now know that USAID went a lot further than that. Another scheme to unseat the Cuban government has now been revealed. This time with even more immoral foundations, and which could disrupt genuine humanitarian relief efforts the world over. Incredibly, the U.S. government used an HIV program as a front to foster dissent amongst Cuba’s youth. The HIV-prevention workshop was even referred to as the “perfect excuse to recruit political activists.” Despicable.

New Rules Say Poultry Plants Can Conduct Own Checks - — The Agriculture Department released long-awaited poultry-inspection rules on Thursday that will give plant operators the option of conducting their own inspections for bird defects and feces on the processing lines and allow government inspectors to concentrate on other food-safety issues in the plant.Agriculture Secretary Tom Vilsack said the new rules were the most significant change in food-safety inspections in nearly 60 years. They “will increase the chances of us detecting problems by placing the burden of finding contaminates such as salmonella on the plants,” he said.  The Agriculture Department has run a pilot program since 1998 testing a system that gives plants the responsibility of inspecting the birds. Under existing procedures, inspectors from the department’s Food Safety and Inspection Service are stationed along poultry plant assembly lines to examine the birds for blemishes, feces or visible defects before they are processed. Not all plants may choose to inspect themselves under the new rules, in which case a government inspector would remain on the processing line.The department also announced that it would limit speeds on poultry plant lines to 140 birds per minute to protect workers from repetitive-stress injuries like carpal tunnel syndrome. The current average is about 130 birds a minute, officials said, but food-safety groups were worried because earlier proposals indicated the limit would be significantly raised.Some groups said the new rules will not protect workers or improve food safety.

Tap Water Ban Continues for Toledo Residents - Residents of Toledo, Ohio’s fourth-largest city, spent the weekend under a water advisory after tests revealed toxins in the city’s water supply, likely caused by algae growing in Lake Erie.The city issued an urgent water notice on Saturday morning after testing at a city water treatment plant found unsafe levels of microcystin, a toxin that can cause diarrhea, vomiting or abnormal liver function. They urged residents to seek medical attention if they thought they had been exposed. City officials said that a harmful algae bloom in Lake Erie likely contaminated the water. The blooms are often caused by runoff from overfertilized fields, malfunctioning septic systems or livestock pens, the notice said. The citywide tap water ban was the first for Toledo, which is on the western edge of Lake Erie near the Michigan border. Environmental groups have been concerned about algae blooms in recent years because Lake Erie supplies water for 11 million people who live near the lake.

Toledo-area water advisory expected to continue through Sunday as leaders await tests; water stations to remain open - Toledo’s public water will remain under a do-not-drink advisory until at least 6 a.m. Sunday pending the return of results from test samples sent out to three different laboratories, Mayor D. Michael Collins said during an evening news conference. Results from tests sent to the U.S. Environmental Protection Agency in Cincinnati and to a state laboratory in Columbus were expected in later today, but test results from Lake Superior State University in Sault Ste. Marie, Mich., won’t be in until Sunday morning, the mayor said. City officials also have sent a second sample to U.S. EPA at that agency’s request, Mr. Collins said. From those three samples, Mr. Collins said, city officials hope to “triangulate” the condition of Toledo’s treated water, which city tests conducted Friday night and early Saturday indicated is contaminated with microcystin toxin, a product of burgeoning algae blooms on Lake Erie. The result was a water crisis that has affected 500,000 water users in and around Toledo and caused Ohio Gov. John Kasich to declare a state of emergency. The data from the two city tests, the mayor said, “is very confusing for everyone” -- a key reason why Toledo has sought outside analysis.

7 Things You Need To Know About The Toxin That’s Poisoned Ohio’s Drinking Water - Approximately 400,000 people in and around Toledo, Ohio are being warned not to drink their tap water after high levels of a dangerous toxin were discovered in the water supply Saturday, according to the Toledo-Lucas County Department of Health.  The toxin is called microcystin, the high levels of which were caused by massive increases in algae on Lake Erie. The increases in algae, called “algae blooms”, are poisonous if consumed — causing abnormal liver function, diarrhea, vomiting, nausea, numbness, and dizziness. Boiling the water doesn’t help — in fact, it increases the presence of the toxin. As of now, it’s unclear when Toledo residents will have clean water again. According to the Toledo Blade, fresh water samples are being flown to a specialized U.S. Environmental Protection Agency laboratory in Cincinnati, which will determine the extent of the contamination.  Here are 7 things you need to know about microcystin — what it does, why it’s there, and why it’s spreading in the five Great Lakes that form the largest system of fresh water in the world.

More Water Contaminated with Agricultural Runoff: Algae Blooms Create Toxins in Toledo’s Water by K. McDonald -- The ink was barely dry on my post “More Shrimp Less Corn” concerning the agricultural runoff which creates a Dead Zone in the Gulf of Mexico each year when headlines broke this weekend saying that residents of Toledo were without drinking water.  The reason? Again, agricultural runoff into Lake Erie, and experts tell us that it won’t be the last time this happens. Weather, rains, and poor farming practices all contribute. Better management of waterways would help a great deal. PBS Newshour explains, here in “How weather and nutrient pollution create fertile conditions for toxic algae blooms”:

And Now, The Farm Pollution Gets You  -- I have written several times over the years about our insane policies with regard to so-called "pollution", which utterly ignore and in fact propagate some of the worst pollution of our water supplies ever invented.  I am specifically referring to farming interests using fertilizers and not being held responsible for that which escapes their lands and winds up in public waterways.  This is responsible for the Gulf of Mexico "dead zone", as algae blooms are "fed" by said fertilizers and then die off, with their decay creating a hypoxic condition in the water column that essentially prohibits animal life (think FISH folks!) in that region.  This is an outrageous act of pollution undertaken for the specific purpose of profit, and yet it is nearly completely unregulated. Now it has led to one where one of the species of algae involved (and the natural bacteria that come with it) produces a toxic byproduct and that has gotten into the water supply. Unlike a biological contaminant you can't boil the water to get rid of it, because it isn't alive, and in fact boiling the water might result in its concentration rising instead of falling.  The particular "bad guy" here is microsystin, a family of amino acids that are toxic to the liver.  The molecule is large enough that reverse-osmotic filtering should get rid of it without incident, and chlorination may be sufficient as well (by oxidizing it), but then you have to get rid of the chlorine after treatment.  As a result there are solutions that work for individual use, but in a large-scale water supply environment it's far more difficult.  Common filtration, I note, does not remove all of these toxins -- it will block the bacteria that contain them but if you kill the bacteria then the toxin will be released and ironically becomes much harder to get out of the water. Some day we might actually start demanding that the large-scale dumping of huge amounts of fertilizer on lands stop, and start assessing the cost of getting this crap out of the water back against the big factory farm interests. 

Toledo Water Ban Lifted, But Is the Water Safe and What Caused the Toxic Algae Bloom? --The City of Toledo issued a “Do Not Drink” advisory to more than 400,000 residents last weekend after chemical tests confirmed the presence of unsafe levels of the algal toxin Microcystin in the drinking water in three counties in Ohio and one in Michigan. Last night on MSNBC’s the Ed Show, Ohio Rep. Marcy Kaptur and Dr. Jeffrey Reutter, director of Ohio Sea Grant College Program at Ohio State University, discussed the possible causes, including farm fertilizer runoff and sewage treatment plants. “In order to solve this, we have to reduce the amount of phosphorus leaving our farm fields, coming out of our sewage treatment plants, failing septic tanks … The biggest source in the Maumee River, because that river drains four and a half million acres of agricultural land, is agriculture runoff,” said Reutter.  Also speaking on this issue from the Toledo area is Sandy Bihn, executive director of Lake Erie Waterkeeper. She provided me this statement this morning: The heroes of the devastating Do Not Drink Toledo’s water are the Toledo, Oregon, Carroll Township and Ottawa County water plant operators who took it upon themselves to voluntarily test for the toxin microcystin. Last year, Carroll Township, a city that draws water from Lake Erie, issued a Do No Drink the Water advisory. There was an outcry from water plant operators for federal and state microcystin standards, and testing and treatment guidelines. But, nothing happened. The federal government and the state of Ohio needs to determine what the safe drinking water standard is for microcystin rather than relying on the World Health Organization

Phosphate Memories - Krugman - Does anyone remember this, from Erick Erickson of Red StateWashington State has turned its residents into a group of drug runners — crossing state lines to buy dish washer detergent with phosphate. At what point do the people tell the politicians to go to hell? At what point do they get off the couch, march down to their state legislator’s house, pull him outside, and beat him to a bloody pulp for being an idiot? At some point soon, it will happen. Yes, because there’s no possible reason meddling politicians should interfere with Americans’ God-given right to use phosphates however they like. Oh, wait. It took a serendipitous slug of toxins and the loss of drinking water for a half-million residents to bring home what scientists and government officials in this part of the country have been saying for years: Lake Erie is in trouble, and getting worse by the year. Flooded by tides of phosphorus washed from fertilized farms, cattle feedlots and leaky septic systems, the most intensely developed of the Great Lakes is increasingly being choked each summer by thick mats of algae, much of it poisonous. What plagues Toledo and, experts say, potentially all 11 million lakeside residents, is increasingly a serious problem across the United States. It’s true that farms are the biggest problem, but every little bit hurts.

Ohioans Demand Action After Toxic Algae Water Crisis -The toxic algae bloom in Lake Erie that poisoned the water of about 400,000 people in Toledo, Ohio over the weekend has residents calling for change. There’s been some movement already on the issue. On Monday, Sen. Sherrod Brown (D-OH) announced that Lake Erie was being considered for Farm Bill funding that would help Ohio, Michigan, and Indiana put measures in place to cut down on the amount of phosphorus — one of the main drivers of algal blooms in Lake Erie — that enters the basin. It’s not certain yet whether the basin will be selected for funding, but Brown’s office said in a statement that the senator is “urging USDA to approve this application.” Ohio State Rep. Dave Hall (R) is planning hearings on what should be done to prevent algal blooms like this from happening in the future. And Oregon state Rep. State Rep. Mike Sheehy (D) announced this week that he’s introducing a bill that would seek to reduce farm runoff into Lake Erie. “I urge my colleagues to support any efforts to reduce run-off and stop the growth of toxic algal blooms from creating a cycle of public health crises along the Lake Erie shoreline,” Sheehy said in a statement. “This particular bloom isn’t expected to fully mature until September, so we must expedite our discussions of how to manage our state’s most precious natural resources and keep our citizens out of danger.”

Why New Yorkers should be worried about their water supply  (2 part video) - A water main burst near UCLA last week, spilling 20 million gallons of water, flooding cars, and blasting a 15-foot hole into Sunset Boulevard. The 30-foot geyser was the result of a cracked pipe, which burst in the midst of California’s ongoing drought, wasting water that could have supplied 100,000 people. It took a very visible failure of water infrastructure in a major city to get the public and politicians interested in the invisible, and increasingly creaky, infrastructure. Public figures such as Los Angeles Councilman Mitch Englander have voiced their concern, calling the flooding part of the city’s larger “infrastructure crisis.” Experts estimate that water systems countrywide will need to be replaced, at the tune of $1 trillion over the next 25 years. But while the flooding in Los Angeles captured headlines around the country, the inconvenience it caused pales in comparison to the threat facing America’s biggest metropolis: New York City.Every day, more than 9 million New Yorkers consume more than 1 billion gallons of some of the purest water in the U.S. Called "the champagne of urban water supplies," it requires no filtration. The secret to its purity is the pristine condition of the protected watersheds upstate. Located more than 100 miles north of the city, this water is collected by a vast system of 19 reservoirs in the Croton, Catskill and Delaware watersheds that feed an intricate system of more than 6,000 miles of pipes, shafts and subterranean aqueducts.

Aguanomics: American politicians sacrifice citizens for ethanol -- I've opposed subsidies to corn production and ethanol blending mandates for many years (this and this argument), but these disastrous programs continue to destroy the environment, destabilize agricultural commodity markets, and raise the price of food for the world's poorest.

Canadians Can’t Drink Their Water After 1.3 Billion Gallons Of Mining Waste Flows Into Rivers - Hundreds of people in British Columbia can’t use their water after more than a billion gallons of mining waste spilled into rivers and creeks in the province’s Cariboo region. A breach in a tailings pond from the open-pit Mount Polley copper and gold mine sent five million cubic meters (1.3 billion gallons) of slurry gushing into Hazeltine Creek in B.C. That’s the equivalent of 2,000 Olympic swimming pools of waste, the CBC reports. Tailings ponds from mineral mines store a mix of water, chemicals and ground-up minerals left over from mining operations.  The flow of the mining waste, which can contain things like arsenic, mercury, and sulfur, uprooted trees on its way to the creek and forced a water ban for about 300 people who live in the region. That number could grow, as authorities determine just how far the waste has traveled. The cause of the breach is still unknown.  So far, water-use bans have been issued for the town of Likely and for people living near Polley Lake, Quesnel Lake, Hazeltine Creek (which flows into Quesnel Lake), and Cariboo Creek, as well as the Quesnel and Cariboo River systems. Authorities so far haven’t issued water bans for the Fraser River — B.C.’s longest river — which is linked to the Quesnel River, (which flows from Quesnel Lake) saying it’s not yet clear whether the effluent has made it to the waterway.

Disaster at the Polley Mine in British Columbia - Ecological disaster struck Sunday morning when “4.5 million cubic meters of toxic silt and 10 million cubic meters of water” were released due to a breach up at Imperial Metals’ Mount Polley Mine tailings dam in British Columbia (see map and detail map). BC Indian Chiefs Grand Chief Stewart Phillip comparied this event to the Exxon Valdez disaster, saying: “The frightening fact is both environmental disasters could have been prevented by vigorous government oversight by an effectively resourced agency bound by robust legislative and environmental safeguards.” The liquid effluent containing “nickel, arsenic, lead and copper and its compounds” from the open-pit copper and gold mine leaked into nearby Polley Lake, which feeds through Hazeltine Creek into Quesnel Lake “near a heavy spawning ground for sockeye salmon,” an estimated 2-1/2 half million of which are just now entering the Fraser River, headed upstream (see map).  Back in late May, BC officials “warned the mine about excessive water levels in the tailings pond,” apparently the latest in a series of various warnings over the past two years.  The tailings pond, 4-kilometers wide, was built with an earthen dam.

Massive Spill at Canadian Gold Mine Detected By Satellite - (video) On Aug. 4, an approximately 580 acre impoundment failed at a Canadian gold and copper mine near Likely, British Columbia. The breach at Imperial Metal’s Mt. Polley mine dumped an estimated 1.3 billion gallons of toxic mine waste into the surrounding environment. On Aug. 5, Landsat 8 acquired an image of the mine showing that grey sludge from the tailings dam has entered Polley Lake, saturated the entire length of Hazeltine Creek and entered Quesnel Lake more than five miles downstream of the failed impoundment.  The spill has prompted drinking water bans throughout the region, since the pond contains a slurry laden with arsenic, lead, mercury, selenium and other toxic metals and compounds.  Local citizens anticipating the arrival of a salmon run now fear the worst for the environment and tourism, especially as they begin to document dead fish in Quesnel Lake.  Environmental groups across North America will be watching this story closely given the similarities to the proposed Pebble Mine in Alaska’s Bristol Bay watershed, the world’s most productive wild salmon fishery. Tailings ponds at Pebble mine would cover a surface area 13 times larger than the Mt. Polley impoundment and would have similar earthen dams taller than the Washington Monument.

British Columbia Declares A Local State Of Emergency After Massive Mine Waste Spill -- A massive mining waste spill caused by a breach in a tailings pond has prompted a local state of emergency in part of British Columbia. The Cariboo Regional District announced the emergency declaration on its Facebook page Wednesday, saying it was doing so in order to “access additional capacity that may be necessary to further protect the private property and government infrastructure in the town of Likely.” Likely is the name of one of the small B.C. towns placed under a water ban after about 2.6 billion gallons of water and about 1.18 billion gallons of “metals-laden fine sand” spilled from a tailings pond into nearby creeks, rivers and lakes.  The spill happened following years of warnings to Imperial Metals about Mount Polley’s tailings pond from the British Columbia Ministry of Environment and an environmental consulting group. Environment Canada has opened an investigation into the spill, trying to figure out what caused the tailings pond to breach in the first place. A clean-up plan and report on the spill, which must include a section on long-term impacts to the local environment, is due from the company by Aug. 15, and the company must also submit a plan for how to stop tailings from spilling out of the pond by August 13.

West Virginia Wants $2 Million From Company That Caused Historic Chemical Spill =The state of West Virginia is asking a federal bankruptcy judge to approve $1.8 million in claims against the company that let 10,000 gallons of a mysterious coal-related chemical leak into the Kanawha River back in January, poisoning the drinking water supply for 300,000 people. According to the Associated Press, West Virginia Attorney General Patrick Morrisey said Freedom Industries owes money to a number of state agencies for the trouble they went through following the spill. The $1.8 million claim would be spread across multiple agencies, though the largest amount — $940,000 — would go to the state Department of Health.  In the aftermath of the January spill, nearly 600 people checked themselves into local hospitals with what federal epidemiologists called “mild” illnesses, such as rash, nausea, vomiting, abdominal pain, and diarrhea. Long-term health effects from the chemical, called crude MCHM, are unclear — there is currently no data on crude MCHM’s carcinogenic effects, ability to interfere with human development, or its ability to cause DNA mutations and physical deformities.  The Associated Press noted that the $1.8 million claim would not include costs incurred by the state Department of Environmental Protection, as that agency would seek its own claims against the company.

Corn, Soybeans, Wheat, and Cotton Prices Down 4 to 19 Percent in 2014/15 | Big Picture Agriculture: Though constantly in flux, the USDA’s projections for the four largest commodities are all trending down this year. As a consequence, farmland prices and machinery sales are also impacted. Some expect that this year’s corn crop may reach 14.5 billion bushels and yield around 173 bushels an acre. Last year, we had a record corn crop with 13.9 billion bushels. The expected soybean crop in the U.S. is for 3.8 billion bushels with a yield of 46 bushels an acre. The previous soybean record was 3.4 billion bushels in 2009. In addition, China, a largest consumer of DDG product, has stopped buying DDG which may contain GM traits they have not approved, causing a huge recent price drop in this niche corn export market product. The oversupply and lower prices of corn and soybeans also makes it very doubtful that biofuels mandates (and subsidies) will be reduced by the EPA, since lobbyists have a strong foothold around those regions of D.C.

Two Superweed Choices are Dismal - K. McDonald --One positive claim that has been touted loudly from the industrial monoculture crop fields the past decade, or so, has been the more widely adopted no-till farming method. However, the no-till method goes hand-in-hand with herbicides. Only with liberal use of herbicides is tilling unnecessary.  With the emergence of super weeds, however, farmers are getting back to deep tillage as a method of weed removal. That means more soil erosion. Might a return to deep tillage also mean a return to seeds which could care less about their relationship to glyphosate? Another approach or solution, is for the “emergence” of a new herbicide tolerant crop that would be resistant to both a choline salt of 2,4-D and glyphosate, called Enlist Duo from Dow. As the USDA is considering the deregulation of corn and soybeans that will not be affected when sprayed with Enlist Duo, fifty Democratic members of Congress are speaking out against EPA and USDA approval of this new herbicide and its related genetically engineered crops.

Megadrought: Huge Surge of Pacific Heat Fails to Start El Nino, Heats Planet to 3 Warmest Months: Chances of a western north America megadrought of an intensity not seen since before the arrival of European explorers just went up. The largest surge of heat ever recorded moving west to east in the Pacific ocean along the equator just dissipated heating the planet to the warmest 3 months in history, but failing to produce an El Nino. Strong El Nino events intensify the jet stream across the Pacific, bringing rain to California and the southwestern U.S. Although a number of climate models still predict an El Nino, the chance of a drought breaking strong El Nino has gone way down with the passing of this huge Kelvin wave. One hundred percent of California is in severe or worse drought. The failure of this Kelvin wave to trigger a strong El Nino means that there is no end in sight to this drought. The liklihood of drought worsening across the southwestern U.S. has gone up because a strong El Nino would likely bring rains from California to Texas. Instead of a warm tropical Pacific  pulling the jet stream down, warm water in the subtropics and temperate zones has pushed north in the northern hemisphere. This movement of heat will tend to move the jet stream poleward, leaving California and the southwest in drought.

Bad News For California: NOAA Lowers Chance Of El Niño To 65%, Predicts A Weak One -- The best chance for ending the brutal California drought — a big El Niño — seems to be disappearing.  Back in the spring, you may recall, NOAA said the chances of an El Niño developing this year were at almost 4 out of 5. And there was some evidence suggesting it might be a strong El Niño, the kind that generally brings a lot of rain to California. But earlier this week NOAA’s Climate Prediction Center (CPC) released its monthly “El Niño/Southern Oscillation (ENSO) Diagnostic Discussion,” which proclaimed, “The chance of El Niño has decreased to about 65% during the Northern Hemisphere fall and early winter.” And if we do see one, it’s likely to be either weak or moderate. An El Niño is “characterized by unusually warm ocean temperatures in the Equatorial Pacific,” as NOAA explains. That contrasts with the unusually cold temps in the Equatorial Pacific during a La Niña. Both are associated with extreme weather around the globe. So what happened to El Niño this year? NOAA explains that “most of the Niño indices” of ocean surface temperature for different regions of the Equatorial Pacific dropped toward the end of July. The result: Instead of looking like the ideal El Niño image above, as it started to earlier this year (see here), it starting looking more like this:

A modern-day Dust Bowl - Bob Taylor was barely 2 years old when his parents packed as many belongings as they could into their rickety old car and headed west from New Mexico toward California. It was 1936, the height of the Dust Bowl, when the worst drought the country had ever seen forced tens of thousands of families to abandon their parched farmlands and head west in the hope of finding jobs and a more stable life.The terrible struggle of Dust Bowl refugees was later immortalized by John Steinbeck, who based “The Grapes of Wrath” on the experiences of people like Taylor’s parents. Photographers like Dorothea Lange documented the heartbreaking plight of migrant farm families, as they escaped the drought only to suffer extreme poverty and discrimination as they tried to rebuild their lives out west. But the most important testimony of that era may rest with Taylor and other children of the Dust Bowl, the last generation of Americans who understand in a way many never will the quiet danger of a sustained drought and how devastating it can be to the land, its industry and people. Destitute pea pickers in California, 1936. Mother of seven children. Age thirty-two. Nipomo, California. (Dorothea …It’s those stories he heard as a child that Taylor has been thinking about lately as he’s driven the back roads of Kern County, the heart of California’s central farming valley, where his family resettled and he’s spent his entire life working in agriculture.

Governor Proposes $6 Billion Water Bond for California - California Governor Jerry Brown called on lawmakers to put a $6 billion “no-frills” bond measure on the November ballot, about half the size of a pending proposal, to secure the water supply amid a record drought. Brown’s plan would take the place of an $11.1 billion bond offering, scheduled for a vote in November, approved in 2009 by lawmakers and then-Governor Arnold Schwarzenegger. Brown said California can’t afford the $750 million a year it would add to the state’s $8 billion in annual bond debt service. “I’m proposing a no-frills, no-pork water bond that invests in the most critical projects without breaking the bank,”  More than 80 percent of California is experiencing extreme drought after three years of record low rainfall. Reservoirs are 45 percent below normal and declining. Brown declared a state of emergency in January and called for a voluntary, 20 percent reduction of water use. California lawmakers have been trying for months to agree on a smaller bond measure to upgrade aqueducts, water storage and pipelines that link the Sacramento-San Joaquin River Delta to population centers in Southern California and supply the $44.7 billion-a-year agriculture industry.

Land Grabbing – A New Political Strategy for Arab Countries - Food price rises as far back as 2008 are believed to be the partial culprits behind the instability plaguing Arab countries and they have become increasingly aware of the importance of securing food needs through an international strategy of land grabs which are often detrimental to local populations.    Arab countries, which appear to have started losing confidence in normal food supply chains, are now relying on acquisitions of farmland around the world. Globally, land deals by foreign countries were estimated at about 80 million ha in 2011, according to figures provided by the World Bank. The 2008 international food price crisis caused alarm among policy-makers and the public in general about the vulnerability of Arab countries to potential future food supply shocks (such as, for example, in the event of closure of the Straits of Hormuz) as well as the perceived continued sharp increase in international food prices in the long term, explains Sarwat Hussain, Senior Communications Officer at the World Bank. Increasing food prices are caused by entrenched trends that include population growth combined with high urbanisation rates, depleting freshwater sources, increased demand for raw commodities and biofuels, as well as speculation over farmland. To face such threats, Arab countries have worked on buying or leasing farm land in foreign countries. “Investment in land often takes the form of long-term leases, as opposed to outright purchases, of land. These leases often range between 25 and 99 years,” says Hussain. Currently, the United Arab Emirates accounts for around 12 percent of all land deals, followed by Egypt (6 percent) and Saudi Arabia (4 percent), according to GRAIN.

“Land Grabs” – Economists’ Justifications of Agricultural Expropriation --  Yves Smith - Robert Heilbroner described economics as the study of how society resources itself. It’s hard to think of a resourcing issue more basic than food. Not surprisingly, food and the means of producing it were the source of traditional wealth (the so-called landed aristocracy). Similarly, expropriation of rights that yeoman farmers had enjoyed, such as hunting rights and access to common pasture land, were the main devices that early industrialists used to end the farmers’ self-sufficiency and force them to sell their labor as a condition of survival. Even though similar land grabs are justified now under the idea that large-scale farming is more efficient than cultivation by smaller operators, Tim Wise contends that evidence is not conclusive, particularly in emerging economies.  The trend of large-scale ownership of agricultural land by foreign investors is troubling, given both the practical issues (do they have the acumen and contacts to hire the right people to manage the operation and supervise them well?) and the political ones (they lack the incentives to be good citizens and could well take steps that hurt the local population). But this post illustrates how easy it is to find an economist that will paint a happy face on a dubious policy.  As critical resources like water come more and more under pressure, expect debates over food security and landholding, which once were the province of development economists, to become a subject of mainstream debate and concern

Fools at the Fire -More than 250,000 acres have burned in the largest fire in the state’s history, the Carlton Complex. About 300 homes have been destroyed. A small army of firefighters, at a cost of $50 million so far, is trying to hold the beast in the perimeter, between days when the mercury tops 100 degrees.  Smart foresters had been warning for years that climate change, drought and stress would lead to bigger, longer, hotter wildfires. They offered remedies, some costly, some symbolic. We did nothing. We chose to wait until the fires were burning down our homes, and then demanded instant relief.  We have a Congress that won’t legislate, an infrastructure that’s collapsing, a climate bomb set to go off. We won’t solve the immigration crisis even as desperate children throw themselves in the Rio Grande. Income inequality threatens to make a great democracy into an oligarchy.The nation that built an interstate highway system, and cleaned up its filthiest rivers and most gasp-inducing air, has become openly hostile to long-term investment or problem-solving, says Paul Roberts in “The Impulse Society — America in the Age of Instant Gratification,” a cautionary tale to be published next month.“We can make great plasma screens and seat warmers and teeth whiteners and apps that will guide you, turn by turn, to the nearest edgy martini bar,” writes Roberts. “But when it comes to, say, dealing with climate change, or reforming the financial system, or fixing health care, or some other large-scale problem out in the real world, we have little idea where to start.”

Air pollution and climate change could mean 50 per cent more people going hungry by 2050, new study finds -- The combination of rising temperatures and air pollution could substantially damage crop growth in the next 40 years, according to a new paper. And if emissions stay as high as they are now, the number of people who don't get enough food could grow by half by the middle of the century. Feeding the world's rapidly growing population is a serious concern. Research shows rising temperatures are likely to lead to lower crop yields. Other work suggests air pollution might reduce the amount of food produced worldwide. But nobody has considered both effects together, say the paper's authors. The two effects are closely related as warmer temperatures increase the production of ozone in the atmosphere. Here's lead author Professor Amos Tai from the Chinese University of Honk Kong to explain.  The new study looks at global yields of the four principle food crops - wheat, rice, corn and soybean - and how they're expected to change by 2050 under different levels of future emissions.Together, these provide nearly 60 per cent of all the calories consumed by humans worldwide. The maps below show some of the results.  The top panel is an optimistic scenario in which greenhouse gases stabilise at 630 parts per million (ppm) by 2100. For reference, we're at about 400 ppm now.The team compared this with what might happen if greenhouse gases continue to rise as rapidly as they are now. That's the bottom panel.

NOAA: Ocean Acidification Rises, Marine Economy Sinks -- The waters off the U.S. state of Alaska are some of the best fishing grounds anywhere, teeming with salmon and with shellfish such as crab.But a new study, funded by the U.S. National Oceanic and Atmospheric Administration (NOAA), says growing acidification of Alaska’s waters, particularly those off the southern coast, threatens the state’s whole economy—largely dependent on the fishing industry.The oceans act as a “carbon sink,” absorbing vast amounts of carbon dioxide. Acidification occurs when amounts of carbon dioxide are dissolved into seawater, where it forms carbolic acid. Scientists say the oceans are now 30 percent more acidic than they were at the beginning of the industrial revolution about 250 years ago. Among the sea species most vulnerable to acidification are shellfish, because a build-up of acid in waters prevents species developing their calcium shells. Alaska’s salmon stocks are also at risk as one of the main ingredients of a salmon diet are pteropods, small shell creatures.Jeremy Mathis, an NOAA oceanographer and a lead author of the study, told the Alaska Dispatch News that whereas past reports had focused on the consequences of increased acidification on ocean species, the aim of this one was designed to examine the wider economic impact.

As more male bass switch sex, a strange fish story expands - At first she was surprised. Then she was disturbed. Now she’s a little alarmed. Each time a different batch of male fish with eggs in their testes shows up in the Chesapeake Bay watershed, Vicki Blazer’s eyebrows arch a bit higher. In the latest study, smallmouth bass and white sucker fish captured at 16 sites in the Delaware, Ohio and Susquehanna rivers in Pennsylvania had crossed over into a category called intersex, an organism with two genders.“I did not expect to find it quite as widespread,” said Blazer, a U.S. Geological Survey biologist who studies fish. Since 2003, USGS scientists have discovered male smallmouth and largemouth bass with immature eggs in several areas of the Potomac River, including near the Blue Plains Advanced Wastewater Treatment Plant in the District.The previous studies detected abnormal levels of compounds from chemicals such as herbicides and veterinary pharmaceuticals from farms, and from sewage system overflows near smallmouth-bass nesting areas in the Potomac. Those endocrine-disrupting chemicals throw off functions that regulate hormones and the reproductive system. In the newest findings, at one polluted site in the Susquehanna near Hershey, Pa., 100 percent of male smallmouth bass that were sampled had eggs, Blazer said.

Mercury Levels In The Ocean Are Now 3 Times Higher Than Before The Industrial Revolution -- The ocean’s upper levels contain three times the amount of mercury as they did before the industrial revolution, according to a new study.  The study, published this week in Nature, is the first to create a comprehensive overview of the mercury in the ocean. The study also determined where the mercury was coming from, finding that human activities, including burning fossil fuels like coal, and mining for gold and coal, are the main drivers for the increase in the ocean’s mercury, causing the substance to increase by a factor of 3.4 in the ocean’s upper levels since the Industrial Revolution started.  The research team figured out the mercury’s relationship to human activities by comparing it to the well-documented levels of CO2 over the last few decades. The researchers found that the ratio of added mercury to added CO2 stays about the same in the ocean, so by using data of how much CO2 is in the ocean, they were able to estimate how much mercury has been added over the last several decades. Because the increase in mercury is driven by human activities — settling into the ocean from air pollution or being carried via streams and rivers — the upper 100 meters (328 feet) of the ocean is the region that’s most quickly accumulating the dangerous element. But the increase in the ocean’s surface levels means that, as humans emit more mercury, the deep ocean is going to be less and less able to store the mercury, study co-author Carl Lamborg told Nature.

Naomi Klein: 'Our Economic Model Is at War with Life on Earth' The book's title is not elusive: 'This Changes Everything: Capitalism vs. the Climate' Due for release in September, the anticipated new work by Canadian journalist, activist and public intellectual Naomi Klein has now been previewed in a video trailer that appears to lay out its main themes and central argument. "In December of 2012, a complex systems scientists walked up to the podium at the American Geophysics Union to present a paper," the narrator of the video—Klein herself—says as footage begins of urban high rise developments and burnt out croplands. And the voice-over continues: The paper was titled, "Is the Earth Fucked?" His answer was: "Yeah. Pretty much." That's where the road we're on is taking us, but that has less to do with carbon than with capitalism. Our economic model is at war with life on Earth. We can't change the laws of nature, but we can change our broken economy. And that's why climate change isn't just a disaster. It's also our best chance to demand—and build—a better world. Change or be changed. But make no mistake... this changes everything. Watch:

Paul Ryan Says Climate Change Is Just An Excuse For Obama To Raise Taxes -- Rep. Paul Ryan (R-WI) said Wednesday that “climate change occurs no matter what,” but that the EPA’s recent efforts to reduce emissions from existing power plants are “outside of the confines of the law,” and “an excuse to grow government, raise taxes and slow down economic growth.” Rep. Ryan said that he would argue that the “federal government, with all its tax and regulatory schemes” can’t do anything about climate change. He said that what climate regulations “end up doing is making the U.S. economy less competitive.” The EPA’s proposed rules to curb carbon emissions from existing power plants do not fall outside the confines of the law but rather adhere strictly to the wording and intent of the Clean Air Act while at the same time attempt to accommodate state-level flexibility. Congress passed the law, the President is enforcing it, and the courts have upheld it. Section 111(d) of the Clean Air Act requires the EPA to develop regulations for “air pollution which may endanger public health or welfare.” In 2007 and again in 2011, the Supreme Court ruled that carbon pollution fits under that category.

Arctic sea ice minimum will be among 10 lowest --That’s according to Julienne Stroeve, a scientist at the National Snow and Ice Data Center in Boulder, Colo. “It’s likely that it will be among the top 10 lowest,” Stroeve told Climate Central in an email. Stroeve is one of many scientists who monitor the seasonal waxing and waning of the ice. The annual summer minimum in ice extent has been closely watched as its precipitous decline in recent decades has stood as a stark example of the effects of global warming in the Arctic, which can in turn impact global climate and weather, as well as throwing polar ecosystems out of whack. The Arctic could become seasonally ice-free by mid-century, according to some estimates. The area of the ocean basin covered by sea ice went on a steep decline in late June and early July, edging toward the low extent it hit at the same time in 2012. But the rate of ice loss has leveled off in the later part of the month, according to daily records kept by the NSIDC. The rate of ice loss tends to slow further in August, as summer draws to a close, making it unlikely that the seasonal low for 2014 will surpass the 2012 record,

How Antarctica shows we're at the point of no return -- Recent satellite observations have confirmed the accuracy of two independent computer simulations that show that the West Antarctic ice sheet has now entered a state of unstoppable collapse. The planet has entered a new era of irreversible consequences from climate change. The only question now is whether we will do enough to prevent similar developments elsewhere. What the latest findings demonstrate is that crucial parts of the world’s climate system, though massive in size, are so fragile that they can be irremediably disrupted by human activity. It is inevitable that the warmer the world gets, the greater the risk that other parts of the Antarctic will reach a similar tipping point; in fact, we now know that the Wilkes Basin in East Antarctica, as big or even bigger than the ice sheet in the West, could be similarly vulnerable. There are not many human activities whose impact can reasonably be predicted decades, centuries, or even millennia in advance. The fallout from nuclear waste is one; humans’ contribution to global warming through greenhouse gas emissions from burning fossil fuels, and its impact on rising sea levels, is another.

'We're F'd': Methane Plumes Seep From Thawing Arctic Ocean Seabed --Researchers surveying the Arctic Ocean's seafloor have discovered something particularly unsettling for many climatologists. Plumes of methane, a particularly potent greenhouse gas, are rising in tiny ominous bubbles from the ocean floor. Why exactly this is happening remains unclear, but initial speculation is tying it to warning temperatures and ice melt. (Photo : Pixabay)Researchers surveying the Arctic Ocean's seafloor have discovered something particularly unsettling for many climatologists. Plumes of methane, a particularly potent greenhouse gas, are rising in tiny ominous bubbles from the ocean floor. Why exactly this is happening remains unclear, but initial speculation is tying it to warning temperatures and ice melt.Researchers from Stockholm University have recently been plowing through the Laptev Sea in the icebreaker ship Oden, closely measuring the air and water around the East Siberian Arctic Ocean." The SWERUS-C3 expedition is really well equipped to detect the release of methane," chief scientist Örjan Gustafsson wrote a week into his expedition."For 72 hours now, we have been in the thick of extensive investigations of methane releases from the outer Laptev Sea system," he wrote on July 20, 2014.  According to Stockholm University, the discovery of these releases came as a bit of a surprise, not because the plumes were unexpected, but because of their concentration. An increased concentration of methane release, Gustafsson suspects, may be coming from collapsing "methane hydrates" -- pockets of the gas that were once trapped in frozen water on the ocean floor.

Dark Age America: Climate - John Michael Greer -- Over the next year or so, as I’ve mentioned in recent posts, I plan on tracing out as much as possible of what can be known or reasonably guessed about the next five hundred years or so of North American history—the period of the decline and fall of the civilization that now occupies that continent, the dark age in which that familiar trajectory ends, and the first stirrings of the successor societies that will rise out of its ruins. That’s a challenging project, arguably more so than anything else I’ve attempted here, and it also involves some presuppositions that may be unfamiliar even to my regular readers.  To begin with, I’m approaching history—the history of the past as well as of the future—from a strictly ecological standpoint. I’d like to propose, in fact, that history might best be understood as the ecology of human communities, traced along the dimension of time. Like every other ecological process, in other words, it’s shaped partly by the pressures of the senvironment and partly by the way its own subsystems interact with one another, and with the subsystems of the other ecologies around it. That’s not a common view; most historical writing these days puts human beings at the center of the picture, with the natural world as a supposedly static background, while a minority view goes to the other extreme and fixates on natural catastrophes as the sole cause of this or that major historical change.   Neither of these approaches seem particularly useful to me. As our civilization has been trying its level best not to learn for the last couple of centuries, and thus will be learning the hard way in the years immediately ahead, the natural world is not a static background. It’s an active and constantly changing presence that responds in complex ways to human actions. Human societies, in turn, are equally active and equally changeable, and respond in complex ways to nature’s actions. The strange loops generated by a dance of action and interaction along these lines are difficult to track by the usual tools of linear thinking, but they’re the bread and butter of systems theory, and also of all those branches of ecology that treat the ecosystem rather than the individual organism as the basic unit.

Reducing Carbon by Curbing Population - NYTimes.com: When population was growing at its fastest rate in human history in the decades after World War II, the sense that overpopulation was stunting economic development and stoking political instability took hold from New Delhi to the United Nations’ headquarters in New York, sending policy makers on an urgent quest to stop it.In the 1970s the Indian government forcibly sterilized millions of women. Families in Bangladesh, Indonesia and elsewhere were forced to have fewer children. In 1974, the United Nations organized its first World Population Conference to debate population control. China rolled out its one-child policy in 1980.Then, almost as suddenly as it had begun, the demographic “crisis” was over. As fertility rates in most of the world dropped to around the replacement rate of 2.1 children per woman — with the one major exception of sub-Saharan Africa — population specialists and politicians turned to other issues.By 1994, when the U.N. held its last population conference, in Cairo, demographic targets had pretty much been abandoned, replaced by an agenda centered on empowering women, reducing infant mortality and increasing access to reproductive health.  Well, concerns about population seem to be creeping back. As the threat of climate change has evolved from a fuzzy faraway concept to one of the central existential threats to humanity, scholars like Professor Cohen have noted that reducing the burning of fossil fuels might be easier if there were fewer of us consuming them.  An article published in 2010 by researchers from the United States, Germany and Austria concluded that if the world’s population reached only 7.5 billion people by midcentury, rather than more than nine billion, in 2050 we would be spewing five billion to nine billion fewer tons of carbon dioxide into the air.

Population Growth Makes It Harder to Address Global Warming - Dean Baker -That one should be obvious, but for some reason almost no one ever says it. This is why it is very nice to see Eduardo  Porter's piece making the point in the NYT today. The basic point is probably too simple for economists to understand, but if we have 20 percent fewer people in 2050 than in a baseline scenario, then they all can emit 20 percent more greenhouse gas (GHG) emissions in that year and have the same amount of total emissions. Alternatively, if we have the same amount of per capita emissions, we will have 20 percent less total emissions.Restraining population growth is not going to solve the problem. We have to sharply reduce the amount of GHG emissions per person, but reaching whatever targets we set will be much easier with a smaller population. It is remarkable how frequently news stories decry evidence of slowing population growth or shrinking populations as implying some sort of catastrophe. This is nonsense. It simply implies a tighter labor market with a rising ratio of capital to labor. In this scenario, workers switch from low productivity jobs (e.g. restaurant work, house cleaning, and retail clerks) to higher productivity jobs. This is a problem for the people who want to hire cheap labor, but will likely be seen as good news by almost everyone else.

TEPCO: Nearly all nuclear fuel melted at Fukushima No. 3 reactor - Almost all of the nuclear fuel in the No. 3 reactor of the Fukushima No. 1 nuclear power plant melted within days of the March 11, 2011, disaster, according to a new estimate by Tokyo Electric Power Co. TEPCO originally estimated that about 60 percent of the nuclear fuel melted at the reactor. But the latest estimate released on Aug. 6 revealed that the fuel started to melt about six hours earlier than previously thought. TEPCO said most of the melted fuel likely dropped to the bottom of the containment unit from the pressure vessel after the disaster set off by the Great East Japan Earthquake and tsunami. The utility plans to start fuel removal operations at the No. 3 reactor no earlier than in the latter half of fiscal 2021. “(The new estimate) does not mean we are now facing a higher risk (in the planned removal work),” a TEPCO official said. “It is still impossible for us to evaluate the potential impact (of the findings) on the decommissioning of the reactor.”

Fukushima Watch: Regulator Says Tepco Must Focus on Trench Water - The head of Japan’s nuclear regulator said Tokyo Electric Power needs to get its priorities straight when it comes to work to decommission the stricken Fukushima Daiichi nuclear power plant and that it must place a greater emphasis on solving issues that carry bigger risks.“The biggest risk is the trench water. Until that matter is addressed, it will be difficult to proceed with other decommissioning work,“ Shunichi Tanaka, chairman of the Nuclear Regulation Authority, said on Wednesday at his weekly news conference. “It appears that they are getting off track,” he told reporters. Tepco has been trying to remove some 11,000 metric tons of water that contains dangerous radioactive materials such as uranium and plutonium from a trench that runs from the Fukushima Daiichi plant’s No.2 reactor building.The company planned to remove the water after plugging one of the trench’s ends, which connects to the underground floor of the reactor building, by freezing the water around the entrance by circulating coolant via underground pipes.Tepco was hoping to plug the hole so that new contaminated water wouldn’t flow into the trench. The utility would then fill the trench with concrete once the existing water was pumped out. While the work started in April, the coolant didn’t end up freezing the water and Tepco resorted to dumping ice and dry ice near the end in July. While Tepco has been working to resolve this issue, it has also been expending what Mr. Tanaka deemed to be considerable resources on less important activity, such as continually monitoring radiation throughout the site regardless of levels of contamination and covered soil.

Methane Leak Rate Proves Key to Climate Change Goals - If President Obama’s Clean Power Plan is going to work, lots of things will have to fall into place. Perhaps the most important is the reduction in greenhouse gases that is expected from increased use of natural gas to generate electricity.Under the plan, which aims to reduce electricity sector emissions by 30% by 2030, the EPA projects that coal-fired power will drop more than a quarter from its current 40% share of U.S. electricity generation. Most scenarios project that natural gas will pick up the majority of that gap. The generally accepted climate benefit of natural gas is that it emits about half as much CO2 as coal per kilowatt-hour generated. But this measure of climate impact applies only to combustion, it does not include methane leaks, which can dramatically alter the equation. Methane is a potent greenhouse gas that forces about 80 times more global warming than carbon dioxide in its first 20 years in the atmosphere. Methane’s warming power declines to roughly 30 times CO2 after about 100 years.No one has any idea how much methane is leaking from our sprawling and growing natural gas system. This is a major problem, because without a precise understanding of the leak rate natural gas could actually make climate change worse, but we would never know.

Ohio Utilities Take Renewable Energy Fight to State Supreme Court - A case going before the Ohio Supreme Court could have a major impact on distributed generation in the state, while raising questions about corporate separation and possible conflicts of interest for regulated utilities.The Public Utilities Commission of Ohio (PUCO) recently confirmed that net-metering customers are entitled to the full value of the electricity they feed back into the grid from renewable energy and other distributed generation technologies.However, FirstEnergy and American Electric Power (AEP)’s Ohio utilities are trying to reduce the amounts customers will get for that excess electricity. The utilities, along with Dayton Power & Light and Duke Energy, also raised other objections to the rules. On July 23 the PUCO denied FirstEnergy’s third request for rehearing. AEP’s Ohio Power Company has already appealed the case to the Supreme Court of Ohio. FirstEnergy has not yet announced whether it will appeal as well.

US: A dozen states file suit against new coal rules— Twelve states filed a lawsuit against the Obama administration on Friday seeking to block an Environmental Protection Agency proposal to regulate coal-fired power plants in an effort to stem climate change. The plaintiffs are led by West Virginia and include states that are home to some of the largest producers of coal and consumers of coal-fired electricity. Republicans have attacked the E.P.A. proposal as a “war on coal,” saying that it will shut down plants and eliminate jobs in states that depend on mining. But the rule is also opposed by the Democratic governors of West Virginia and Kentucky. “This lawsuit represents another effort by our office to invalidate the E.P.A.’s proposed rule that will have devastating effects on West Virginia’s jobs and its economy,” the state’s attorney general, Patrick Morrisey, said in a statement. The suit was filed in the United States Court of Appeals for the District of Columbia. The other plaintiffs are Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota and Wyoming. The E.P.A. rule, announced by President Obama on June 2, is aimed at slashing carbon emissions from coal-fired power plants, the nation’s largest source of planet-warming pollution. Under the rule, each state would have to design and submit a plan to cut carbon pollution, which must then be approved by the E.P.A.

Fracking the Farm: Scientists Worry About Chemical Exposure to Livestock and Agriculture: From rural areas of Texas to Colorado to Pennsylvania, fracking often takes place in close proximity to agricultural uses. Without further studies, however, it's unknown right now whether leaks or long-term exposure to chemicals from fracking could be harming the food supply for humans by tainting dairy products or meat. "Are there any issues with food safety? Right now we don't know the answer to that," Cornell University professor of molecular medicine Robert E. Oswald told Truthout. It's also unknown if strategies such as a setback zone around agricultural areas would adequately protect farms from possible risks, Oswald said. In 2012, Oswald co-authored one of the first studies looking at impacts of gas drilling on animal health. If funding is secured, some of Oswald's future research could tackle the question of possible food supply impacts that proximity could lead to. But right now there are more questions than answers. If a cow does drink or eat from a source that contains certain chemicals or toxins, do those chemicals end up in the cow's muscle mass or milk? "I have not seen any study looking at livestock contamination from hydraulic fracturing process and whether it is getting into the food supply," Shonkoff said. "That is a major concern to me as an environmental and public health scientist. It's a big, big question, and huge data gap."

Sand Mining Takes Toll on Wisconsin As Fracking Escalates Nationwide -- How is mining related to fracking?  Well, the process of hydraulic fracturing forces fluid into the rock at extremely high pressure.  To keep these fractures from snapping shut when the fracking operation is completed and the pressure is eased, you need to prop them open with something. That’s why fracking fluid—a highly engineered fluid that is mostly water by volume, but can contain dozens of different chemicals—always includes a “proppant.” The drilling industry has developed manufactured proppants, but often the proppant of choice is a clean, consistent, well-rounded, tough, fine-grained sand. A typical fracking operation in the Eagle Ford Shale in Texas, for example, can use 4 million pounds or more of sand. Where is all the sand coming from? As you might expect, Texas is one place where sand-mining is booming. But surprisingly, most of this sand comes from a place more famously associated with beer and brauts: Wisconsin. The rapid proliferation of sand-mining operations is getting a lot of attention there and raising concerns about public health and safety, property values, quality of life and environmental impacts. Responding to these concerns, the Wisconsin Department of Natural Resources (DNR) just published an interactive map showing the locations of all the facilities, active and inactive, involved in the mining and processing of sand in that state.  But when we asked, the DNR promptly gave us the facilities data. so we could make our own map using Google Maps Engine:

Two Colorado Democrats Reach A Deal On Fracking - Two Colorado Democrats announced a deal Monday over fracking in the state, an agreement that means Rep. Jared Polis will withdraw his support of two ballot initiatives that would curb fracking in the state, while Sen. Mark Udall will attempt to get a state oil and gas agency to abandon a lawsuit against a city in Colorado that banned fracking. One of the ballot measures would have required drilling rigs to be located 2,000 feet or more from homes, and the other would have inserted an “environmental bill of rights” into Colorado’s constitution. Polis previously supported the measures, spending millions of dollars to help keep them afloat. The lawsuit that Udall will seek to discard involves the Colorado Oil & Gas Association suing Fort Collins and Lafayette over their fracking bans, and attempts to block the bans completely. Instead of the two ballot initiatives, a new task force will be created that will aim to figure out how to best avoid conflicts between oil and gas drillers and existing homes and schools. It comes after months of Democrats trying to work out a compromise on the issue.  “This approach will put the matter in the hands of a balanced group of thoughtful community leaders, business representatives and citizens who can advise the legislature and the executive branch on the best path forward.” The American Petroleum Institute, which has opposed previous attempts at a fracking deal in Colorado, told the Wall Street Journal that it supports the new task force, and called the ballot initiatives “short sighted.”

Colorado Democrats avoid fracking fight -- Colorado Democrats avoided a politically costly fight over oil and gas drilling after a quid pro quo deal pitched by the state's fracking-friendly governor prompted groups to drop their dueling ballot proposals. The cease-fire compromise from Gov. John Hickenlooper was announced with great fanfare at the state Capitol Monday morning with U.S. Rep. Jared Polis, a fellow Democrat who helped finance two initiatives that sought to limit hydraulic fracturing, or fracking. He agreed to back off his proposals, and groups pitching two pro-fracking proposals said later in the day they would end their campaigns as well. A ballot-battle over drilling had Democrats worried about the implications. Taking the issue to voters could have negatively impacted Democrats in November by increasing fundraising for Republicans who favor oil and gas development and possibly boosting GOP turnout. Hickenlooper is running for re-election, and incumbent Democratic U.S. Sen. Mark Udall is in a closely watched contest against Republican U.S. Rep. Cory Gardner. The race could help determine control of the Senate. As a compromise to avoid the ballot fight, Hickenlooper said an 18-member task force would issue recommendations to the Colorado Legislature next year on how to minimize conflicts between residents and the energy industry.

Colorado governor unveils plan to head off fracking bans; oil shares rise  (Reuters) - Colorado Governor John Hickenlooper said on Monday he has brokered a deal between environmentalists and the energy industry that could avoid two ballot initiatives that would have curtailed oil and gas drilling. Share prices of oil producers rose on word of the agreement, which Hickenlooper, a Democrat, said will include a task force with members from industry, environmental groups and local communities to set standards for the state's growing petroleum industry. true "This approach will put the matter in the hands of a balanced group of thoughtful community leaders, business representatives and citizens who can advise the legislature and the executive branch on the best path forward," he said. The compromise was seen as a positive for energy companies with big operations in Colorado such as Noble Energy Inc and Anadarko Petroleum Corp, sending their share prices up more than 5 percent. Several Colorado municipalities worried about environmental issues have sought to ban the practice of hydraulic fracturing, or fracking, which uses a mix of pressurized water, sand and chemicals to unlock hydrocarbons from rocks. But those efforts have faced challenges, with lawyers and courts saying their legality would depend on the state's own laws for fracking.

Colorado Fracking Opponents Losing Local Control Fight  - Colorado’s compromise with drilling opponents has dealt a blow to environmentalists’ expanding battle to give local communities more control to limit fracking. Governor John Hickenlooper and Representative Jared Polis agreed to a deal that weakened the prospects for two proposed ballot initiatives aimed at restricting oil and gas activity, the two men said at a news conference in Denver yesterday. Polis, who was expected to help finance the campaign for the measures, agreed to withdraw his support after Hickenlooper promised to create a task force to study the industry’s impact on local communities. “Responsible oil and gas development in Colorado is critical to our economy, our environment, our health and our future,” said Hickenlooper. The Democrat, who told a Senate committee last year that he drank fracking fluid to prove its safety, has been a strong proponent of drilling. Colorado crude output grew faster than in any other state in 2013.

 Outrage in Colorado over Fracking Betrayal of Top Democrats - In what is being slammed as a hijacking of the democratic process—and a cave to pressure by the oil and gas industry—top Colorado democrats have pulled two anti-fracking initiatives from the state's November ballot despite huge grassroots support behind the proposals. On the day Rep. Jared Polis (D-Colo.) was expected to hand in nearly 300,000 signatures in favor of ballot initiatives 88 and 89, which sought to provide greater local control over fracking operations, he announced that he had dropped support for the measures in favor of a deal brokered by Democratic Gov. John Hickenlooper. Instead of allowing citizens to vote on shale oil and gas drilling in their communities, the politicians announced during a joint press conference that they are establishing a task force—led by XTO Energy President Randy Cleveland and taking input from business groups along with the oil and gas industry—that will craft drilling regulations. Polis' about-face met with immediate condemnation from residents who supported the measures. “We are outraged to see politicians once again prioritizing political expediency over the health and well being of Coloradans. The proposed compromise represents a failure on the part of both Polis and Hickenlooper to protect Coloradans from the dangers of fracking,” said Russell Mendell of Frack Free Colorado. Local environmentalists responded with an open letter to Polis, charging, "Your actions prove that we not only have an environmental crisis, but also a democracy crisis." The letter continues: You have said, in essence, that 'we the people' should not have the right to protect our communities from fracking. You, left us naked and unarmed to protect ourselves from what, by default, are non-sensible regulations which violate rights to safety. In Colorado we have 52,000 active oil and gas wells, 74,000 abandoned wells, 13 inspectors, 500 spills a year. That’s two a day now, Jared.

Colorado Cave-In On Local Control - If there is no local control over fracking, anybody can get fracked. Step One in the Fracker’s playbook is to disarm local communities. Fracking Regulations work like this:

  • 1. The Feds do not regulate fracking because of the Halliburton Loophole
  • 2. States do not adequately regulate fracking because state agencies are revolving doors to the industry
  • 3. That leaves municipalities alone to protect people, live stock and the environment
  • 4. Without #3, local control, see #1 and #2 above.

That is why the frackers are so afraid of local control – it’s the one government group they cannot buy off.  So any compromise that does not include the right to Local Control is a cave-in. Full stop.

Judge Overturns Fort Collins Five-Year Fracking Ban -- A judge overturned Fort Collins’ five-year moratorium on hydraulic fracturing Thursday, making it the third big blow to efforts by grassroots groups and politicians working to ban fracking in communities throughout the state. District Judge Gregory M. Lammons ruled on the lawsuit filed in late 2013 by the Colorado Oil and Gas Association challenging the bans passed by voters in Fort Collins and Longmont stating that the Fort Collins moratorium is preempted by the Colorado Oil and Gas Conservation Act because it “impedes a state interest and prohibits what the state law allows.”  “The City’s five-year ban effectively eliminates the possibility of oil and gas development within the City,” Lammons writes. “This is so because hydraulic fracturing is used in ‘virtually all oil and gas wells’ in Colorado. To eliminate a technology that is used in virtually all oil and gas wells would substantially impede the state’s interest in oil and gas production.”

Oklahoma Earthquake Tied To Fracking Wastewater Draws First Lawsuit, Joins Growing Legal Effort In Arkansas, Texas -- Sandra Ladra was sitting in her Oklahoma home on a November morning in 2011 when the walls suddenly shook and her chimney toppled, sending bricks tumbling down on her legs. The earthquake, she later learned, was triggered by injections of oil-and-gas wastewater in a nearby well. Now, nearly three years later, Ladra is suing dozens of energy companies for the damages, seeking at least $75,000 to compensate for her injuries.  The lawsuit, first reported by the Journal Record, is the first case related to the 2011 Prague earthquake, according to a search of county court records. It also joins the small but growing legal effort to link damaging earthquakes to wastewater injection wells used in drilling operations like fracking. In Dallas, Texas, two families filed suit last year against drilling companies and well operators over quake-related damages to their homes and properties. And in Arkansas, nearly 40 homeowners are suing Chesapeake Operating Inc. and BHP Billiton after a swarm of minor earthquakes shook the state in 2010 and 2011. “The people in my lawsuits … are concerned about more earthquakes and bigger earthquakes,” Scott Poynter, the attorney for the Arkansas homeowners and a partner at Emerson Poynter LLC, previously told Law360.  The 5.7-magnitude Oklahoma quake was the most powerful of the hundreds of temblors that have rippled across the state since the boom in oil and gas production got underway in 2008. So far this year, Oklahoma has experienced more than 290 earthquakes of magnitude 3.0 or greater, up from an earlier state average of just two a year.

How Man-Made Earthquakes Are Changing the Seismic Landscape - Scientists have known about man-made earthquakes for decades. They've blame some reservoirs for seismic activity because reservoir water that trickles underground ends up lubricating faults that then slip—or, quake—as a result. These days, there appears to be a more common and growing culprit: fracking. (Scientists believe it's the deep disposal of wastewater from fracking that incites seismic events.) Some states where fracking is on the rise are in turn experiencing more and more earthquakes—which is why earthquake scientists believe the big one could strike Oklahoma any moment. "People are starting to compare Oklahoma to California in terms of the rate of magnitude-threes and larger," said Robert Williams, a geophysicist for the U.S. Geological Survey. For people on the ground in Oklahoma, the priority has been to prepare for more earthquakes—including the big one that seems destined to come. From an earthquake-tracking Facebook group called Stop Fracking Oklahoma:   my fear is people are far from being prepared for a 5.0+ quake in Oklahoma. Do you know how to shut off your gas meter? Have you 5 days of drinking water stored? Should you stay in your brick house during a quake, or any house in Oklahoma (I can't believe any are built well enough to stand up to a strong quake)? Unfortunately, building to withstand a tornado doesn't mean it is quake proof.

The Fracking Industry Accuses Texas Town of Consorting with Russia While they Consort with Russia -- The fracking industry and their supporters have accused the Frack Free Dentongrassroots organization that is seeking a ban on fracking in the Denton city limits of receiving money from Russia.…Texas Railroad Commission Chairman Barry Smitherman sent the Denton City Council a letter denouncing the ban. In the four-page letter, Smitherman suggests that Russia may be behind the local grass roots effort,… If you heard a woman’s mAnIciAL laughter this morning I confess it was mine. I’ve been too busy with local Texas issues lately to focus deeply on the happenings in Europe. This morning a friend pointed out that any sanctions the U.S. places on Russia will likely have an effect on U.S. oil companies consorting with Russia. Exxon and Shell won’t like it if President Obama messes up their consorting. For more information on U.S. fracking industry consorting in Russia, see the U.S. Energy Information Administration.

Why Denton fracking ban is not a taking and not illegal - Despite the really crazy rhetoric coming from industry, based on established Texas law and federal law, the Denton fracking ban is not illegal and is not a taking. Earthworks commissioned a legal opinion from Jordan Yeager the attorney who successfully defended Pennsylvania’s cities’ right to regulate fracking. You can read that legal opinion below. My comments at the public hearing summarized that opinion. Here is an excerpt: In order to show that this ordinance is a taking under Texas law and federal law, the proponents of this industrial activity would have to show either:

  1. That the regulation eliminates all economically beneficial or productive use of the property,
  2. or that the regulation creates a taking under factors established by the U.S. Supreme Court that balance private economic interests with the community’s right to protect the public

Proponents of fracking would fall flat under either test. First, a prohibition on hydraulic fracturing does not eliminate all economically beneficial use. It does not even eliminate all mineral extraction uses, or impact the existing production from wells that have been fracked already. Many other lawful uses of the property will remain. Second, under the Supreme Court’s multi-factor approach, Denton’s interest in protecting water supplies and other community interests would be a strong basis for a prohibition on fracking while at the same time, the prohibition would have a limited impact on mineral rights owners because it would not affect existing royalty streams flowing from already-producing wells, nor would it impact the extraction of oil and gas without the use of hydraulic fracturing. Finally, the City can persuasively argue that no one has a reasonable expectation to invest in an activity that is inherently polluting and injurious to the community, and that, at a minimum, carries uncertain risks due to the current state of science.

Flash fire burns four people; methane contamination in water source possible cause – A flash fire in a well house Saturday sent four people to area hospitals with burns. Palo Pinto County Fire Marshal Larry O'Neil said a family of four near Oran was injured by a fire that flared up in their well house. Cody Murray, who was airlifted by helicopter to Parkland Burn Unit in Dallas, remained in fair condition at the hospital, according to hospital officials. Ashley Murray and her 4-year-old daughter, Alyssa, were airlifted to Cooks Children's Hospital in Fort Worth; and James Murray was taken by ambulance to Palo Pinto General Hospital, O'Neil said. A spokesman at Cook's was unable to provide condition reports on Alyssa Murray and Ashley Murray. O'Neil said the family saw water running out of the well house and went to investigate and found the well casing engulfed in flames. The fire's cause was not known, he said, but there is a possibility methane had contaminated the water and had contact with something that caused the gas to ignite.

Are Cancer Rates Elevated Near Texas Fracking Sites?  - Flower Mound, population 65,000, sits atop the Barnett Shale, one of the largest and most heavily drilled onshore reserves of unconventional natural gas in the U.S. with more than 12,000 gas wells. Most of these wells have been horizontally drilled and hydraulically fractured (fracked) to stimulate gas flow since 2004. Residents asked for an investigation into what they thought to be an unusually high number of diagnoses for cancer including leukemia, brain and breast cancer. After initial investigations in 2010 and 2011, the Texas Department of State Health Services (DSHS) concluded that although the breast cancer rate among women was elevated, there was no reason for concern and not enough evidence of a cancer cluster. But residents were not convinced, arguing that the cancers in their community included rare types and affected children and young adults—demographic groups in which most cancers are typically rare.

Prosecutors seek 3-year sentence in fracking case - (AP) — Federal prosecutors are seeking a three-year sentence and a $250,000 fine for the owner of a northeast Ohio oil and gas drilling company accused of dumping large amounts of toxic brine down a storm sewer and into a creek that feeds the Mahoning River. Sixty-four-year-old Ben Lupo of Poland, Ohio, pleaded guilty in March to one count of unpermitted discharge into U.S. waters. His sentencing is Tuesday in Cleveland. Prosecutors wrote in a motion that Lupo had employees dump drilling fluids down a storm sewer 33 times between October 2012 and January 2013. The fluids contained chemicals such as benzene, toluene, barium and chlorides. Lupo's attorneys argue their client made poor choices because of his numerous health problems and that he should receive probation or home detention instead of prison.

Man who dumped fracking waste into river gets prison term: -- The owner of a Youngstown-based company was sentenced to more than two years in prison for violating the Clean Water Act by dumping fracking waste into a tributary of the Mahoning River, said Steven M. Dettelbach, the United States Attorney for the Northern District of Ohio. Benedict W. Lupo, 64, of Poland, Ohio, was found guilty earlier this year of one count of making an un-permitted discharge. U.S. District Judge Donald Nugent sentenced Lupo to 28 months in prison and fined him $25,000.  The dumping took place between Nov. 1, 2012 and Jan. 31, 2013, according to court documents. "Clean air and fresh water is the birthright of every man, woman and child in this state," Dettelbach said. "Intentionally breaking environmental laws is not the cost of doing business, it's going to cost business owners their freedom." "Ben Lupo put his own interests ahead of everyone else's, and he deserved to face a severe penalty for his actions," Ohio Attorney General Mike DeWine said. "The recent water crisis in Toledo is a grave reminder of how important it is to protect our waterways. Those who commit crimes against the environment jeopardize the health and safety of Ohioans, and our natural resources and wildlife. They must be held accountable."

Drilling Company Owner Gets 28 Months In Prison For Dumping Fracking Waste Into River --The owner of a small Ohio oil and gas drilling company who ordered his employees to dump tens of thousands of gallons of fracking waste into a tributary of the Mahoning River was sentenced to a 28 months of prison on Tuesday, according to a Cleveland Plain Dealer report. U.S. District Judge Donald Nugent also ordered 64-year-old Benedict Lupo, owner of Hardrock Excavating LLC, to pay $25,000 for unlawful discharge of pollutants under the U.S. Clean Water Act. Lupo pleaded guilty to the charges in March, admitting to having his employees dump fracking wastewater into the Mahoning River tributary 33 times. According to the Dealer, the wastewaster consisted of “saltwater brine and a slurry of toxic oil-based drilling mud, containing benzene, toluene and other hazardous pollutants.” The recurring pollution had a devastating effect on the creek’s ecosystem, according to assistant U.S. attorney Brad Beeson.“Even the most pollution-tolerant organisms, such as nymphs and cadis flies, were not present,” Beeson said in a court document. “The creek was essentially dead.” The pollution ultimately flowed into the Mahoning River, which is a source of public drinking water for the cities of Newton Falls and Sebring — a combined population of more than 9,000.

Youngstown contractor sentenced to 28 months for dumping fracking waste | cleveland.com: – The owner of a Youngstown oil-and-gas-drilling company was sentenced Tuesday to 28 months in prison for ordering employees to dump tens of thousands of gallons of fracking waste into a tributary of the Mahoning River. U.S. District Judge Donald Nugent also fined Benedict Lupo, 64, of suburban Poland $25,000. Nugent rejected defense attorney Roger Synenberg's request for home detention and a harsh fine. Synenberg said Lupo is frail and extremely ill, as he requires dialysis treatments daily and suffers from chronic pain and diabetes. "If he goes to jail, it's the death penalty for him,'' Synenberg said. But Nugent cited the fact that Lupo ordered two employees to dump the waste and lie about it. The employees tried to talk Lupo out of it, but he refused. He also pointed out a prosecutor's pictures that detailed six weeks of clean-up in an oil-soaked creek. "All you have to do is look at those photographs to see the damage that was done,'' Nugent said. In March, Lupo pleaded guilty to the unpermitted discharge of pollutants under the U.S. Clean Water Act. His company, Hardrock Excavating LLC, stored, treated and disposed waste liquids generated by oil and gas drilling. As the stored waste liquids piled up at his company in the fall of 2012 and into 2013, Lupo ordered employees to purge waste tanks into a storm-water drain that flowed to tributary. Two employees dumped waste 33 times. In some instances, they drained only a portion of a tank; most times, however, they dumped all of it, said Brad Beeson, an assistant U.S. attorney.  On Jan. 31, 2013, state authorities, acting on a tip, caught one of Lupo's employees dumping the waste. Beeson, in court records, said the impact of the dumping was devastating. Officials found the creek "void of life,'' the prosecutor said.

Anti-fracking group seeks bill’s passage 4th time: A group of Youngstown activists hopes the fourth time is the charm after seeing the Community Bill of Rights defeated three times at the polls. People representing Frack Free Mahoning Valley submitted 2,045 signatures today at city hall, which is more than the 1,126 required to get the charter amendment on the November ballot, assuming the signatures are all valid. Each of the previous times the issue has appeared on the ballot, it has been defeated, however the vote also has been closer in terms of percentage of the vote each time. “The only way we lose is if we give up,” said Susie Beiersdorfer. The bill would call for fracking, and any activities related to the practice, to be banned in the city limits. The state has said the bill is unenforceable because state law gives the Ohio Department of Natural Resources sole discretion in licensing oil and gas activity in the state. Beiersdorfer said things such as the bill of rights need to pass so the issue of state versus local control can be decided in court.

FirstEnergy building transmission substation to power Marcellus industry in West Virginia - Akron’s FirstEnergy Corp. is building a transmission substation in Doddridge County, W.Va., to power the growing Marcellus Shale industry and a natural gas-processing facility. The $36 million project also will improve electric reliability for 6,000 Mon Power customers along the U.S. 50 corridor in Doddridge and neighboring counties. Crews have completed the foundation work and have erected steel structures at the 11-acre substation site near Sherwood. The project includes a short transmission line to connect the substation with an existing 138-kilovolt line. “FirstEnergy’s infrastructure enhancements help support the increased Marcellus gas activity in West Virginia,”  The new substation will be connected to MarkWest’s Sherwood processing facility via two, four-mile transmission lines. The still-growing Sherwood plant is a facility that separates natural gas into dry and liquid components. The refinement and separation processes typically use large amounts of electricity.

Chesapeake happy with Ohio oil results, to drill in W. Va. for gas - Drilling - Ohio: Oklahoma-based Chesapeake Energy Corp. is pleased with initial test results for oil in Tuscarawas County and is planning to drill its first Utica shale well for natural gas in West Virginia’s Wetzel County. Those were among the items that company officials discussed on Wednesday in an earning call with analysts and the media. Chesapeake and other companies are trying to tap into the oil area in southern Stark, western Carroll and eastern Tuscarawas counties. Chesapeake is "encouraged with what we’re seeing" in results from its Parker well in Perry Township in the southeast corner of Tuscarawas County, said CEO Doug Lawler. The company, the No. 1 player in the Utica shale, intends to drill two to four additional oil test wells in the next six months as it tries to delineate the boundaries of the oil area, he said. Chesapeake has between 80,000 and 100,000 acres of leased land in that area that could yield oil, he said. He said the possibility of finding oil in "a forgotten part of the Utica and drive value for this company is really exciting for me." Getting to the oil will require optimizing lateral placements, modifying fluid chemistry, volumes and hydraulic fracturing or fracking techniques.

McClendon joins Regency Energy in $500 million Utica pipeline - Drilling - Ohio: Regency Energy Partners announced today that they have entered into a joint venture agreement for the construction and operation of Regency’s previously announced Utica Ohio River Project. In addition, RGP and American Energy – Utica, LLC (AEU) will enter into a gathering agreement for gas produced from the Utica Shale in eastern Ohio by AEU. Regency and AEU will contribute all previously signed agreements to the joint venture. These agreements include volume commitments and large acreage dedications. As a result, Regency and AE-MidCo will upsize the project to accommodate over 2 Bcf/d of firm volume commitments. These commitments represent the majority of the projected volumes in the 52-mile footprint of the pipeline. The upsized project will include construction of a 52-mile, 36-inch gathering trunkline that will be capable of delivering up to 2.1 Bcf/day to Rockies Express Pipeline (REX) and Texas Eastern Transmission on the southern end of the line. Additionally, there is the potential to connect to the interstate grid on the northern end of the trunkline which would increase overall system deliverability to 3.5 Bcf/day. The project will also consist of the construction of 25,000 horsepower of compression at the REX interconnect. The full project is expected to be completed in the third quarter of 2015.

Another natural gas pipeline is proposed to cross northern Ohio - Another pipeline has been proposed to carry Utica shale natural gas from eastern Ohio to Midwest markets. Dallas-based Energy Transfer Partners LP wants to route the line through southern Stark and Wayne counties en route to Defiance in northwest Ohio, where the line would connect with existing pipelines to other points in the Midwest. A separate pipeline is planned to send some of the natural gas from Defiance to the Detroit area and into Ontario. The first leg of the Rover Pipeline Project would run west from the Leesville natural gas processing plant under construction in southwest Carroll County for 186 miles to Defiance. That line could be operational by December 2016. The pipeline would include six laterals extending 197 miles into western Pennsylvania and northern West Virginia to tap into the Marcellus shale. The Michigan-Ontario leg would be an additional 194 miles to the natural gas hub near Sarnia, Ontario, and could be operational by June 2017. The proposed Rover pipeline system would cover 577 miles with pipelines from 24 to 42 inches in diameter. There would be five new compressor stations and six new meter stations along the mainline in northern Ohio, plus five compressor stations along the supply laterals.

Needed pipelines for Utica, Marcellus gas are couple years away - Drilling - Ohio: It could take a "couple of years" to build enough pipelines to handle surging natural gas production from the Marcellus and Utica shale formations, the chief executive officer of Spectra Energy Corp. said. Spectra, which owns 22,000 miles (35,400 kilometers) of oil and gas pipes, is rushing to alleviate a glut that has helped depress profits for drillers unable to get their product to market, CEO Greg Ebel said today in a phone interview. Lack of pipeline capacity to New England should have the region "very concerned" about a repeat of shortages last winter that drove up prices for gas and propane, Ebel said after the Houston-based company announced quarterly earnings. "There's no doubt that the challenge producers have at getting gas out of Marcellus and Utica is having an impact on the margins they are realizing," Ebel said. "The industry is moving about as fast as it can to put pipe in the ground." His company is seeking commitments from drillers to build four new pipelines from the Utica and Marcellus shales to the Midwest, Canada, the Southeast and the Northeast. Chesapeake Energy Corp. said today that its profit plunged in the second quarter thanks to an oversupply in the Marcellus that slashed gas prices by 51 percent. Gas production in the region, which stretches across Pennsylvania and West Virginia, hit a record in July, topping 15 billion cubic feet a day, the U.S. Energy Department reported yesterday.

Shale Shyster Jumps Shark on Home Rule - Chesapeake’s lobbyist in Albany, Tom West  has filed a motion with New York’s highest court, the Court of Appeals, to re-argue the Dryden Home Rule decision based on a lower court ruling in another state (Colorado). This is beyond desperation, this is just pure political grand standing – with no basis at law. The Longmont, Colorado case which West relies on can be distinguished in many ways from the Dryden decision. The case itself is from a trial court in Colorado, which has no precedent in that state, much less New York, and the ruling has been stayed in Colorado pending appeal to an appellate court – in Colorado.  So it is not legally binding in Colorado. Also, in Longmont, the town had issued an outright ban against “fracking” whereas in the Dryden case, the Town used its land use (zoning) powers to exclude all heavy industry, which includes fracking, a crucial distinction.  Also in Longmont, the ban applied to drilling underground from neighboring towns, an issue which which was not pressed by the towns in the Dryden decision because the towns were concerned with land use – ie. surface impacts under their zoning powers. To top is all off, the motion has been filed late under the court rules. . . so four strikes and the shale shyster is DOA on this publicity stunt.  Here’s a copy of the motion - Motion to Re-Argue Dryden Home Rule Decision. File it under “Fracking Publicity Stunt #22″

Fracking Farce Majeure Appeal Filed -- -- As part of the on-going implosion of the Law Farce of Tom West, an appeal has been filed on the farce majeure (which means ‘major farce’ in Latin) case, whereby oil and gas companies are claiming that their leases are still in effect because New York state’s de facto moratorium on fracking has kept them from fracking the leases. There are just a few fundamental fracking factual problems with their arguments, to wit:

  • 1. There is no moratorium on fracking in New York State. (Surprise !) The “moratorium” is only on fracks over a certain number of gallons. A well could be fracked below that amount with slick water, or with propane. Wells have been drilled into shale to test the formation – Carrizo did that. Gastem did that. So did Norse.  But the operators claiming farce majeure never even bothered to drill a well.
  • 2. There is no moratorium on drilling a horizontal well thru shale in New York State. (Still surprised ?) There is no limit on drilling horizontal wells. An operator could drill one under Central Park.
  • 3. The operators never bothered to file for a drilling permit on the leases in question. Courts have held in other states (to my complete astonishment) that merely filing a permit will hold the lease. But the New York plaintiffs never actually bothered to file an application to drill a well.  The only thing they did was call Tom West to defend their bogus farce majeure claim. Irene Weiser, “The Irene” (the tiara is implied) sent me this notice of appeal, here’s a copy of the appeal Wherein the Law Farce of Tom West goes  0-13 as the Losingest Fracking Lawyer in America.

New report: Pennsylvania prioritizes fracking at expense of law, health, environment- The environmental and health impacts of gas development have been connected for the first time with a lack of state oversight on a site-by-site basis in a new report released by Earthworks. A year in the making, Blackout in the Gas Patch: How Pennsylvania Residents are Left in the Dark on Health and Enforcement documents and analyzes the permitting, oversight, and operational record of 135 wells and facilities in seven counties--and identifies the associated threats to water and air that are harming the health of nearby residents. Blackout’s findings, based primarily on documents and data from the Pennsylvania Department of Environmental Protection (DEP)--are a clear indication that the state:

  • Prioritizes development over enforcement: Steep DEP budget cuts and pro-fracking political leadership exemplified by Governor Corbett’s 2012 executive order mandating permitting on very short deadlines send a clear message.
  • Neglects oversight: Many of the wells examined for this report had never been inspected. Statewide, DEP left approximately 58,000 active wells (89%) uninspected in 2008; in 2013, more than 66,000 active wells (83%) weren’t inspected.
  • Fails to consider known threats: Despite increasing density and proximity of oil and gas development to residences, DEP issues permits without considering the cumulative impacts on air and water quality.
  • Undermines regulations: . DEP issues waivers without justification for practices that would otherwise violate the law.
  • Prevents the public from getting information: Many documents that operators are required to file and DEP maintains are missing from files and not included in public databases.

WellWiki shines light on North America's oil and gas wells -- When residents of America's fracking communities want to know if a particular oil or gas well in their neighborhood has a good environmental track record, they usually face the cumbersome task of searching through state records, which can take hours.Now, a new website called WellWiki is trying to eliminate that frustration by making user-friendly data just a click away. Created by Joel Gehman, an assistant professor at the University of Alberta's business school, WellWiki currently lists data on more than 250,000 oil and gas wells drilled in Pennsylvania since 1859.  But Pennsylvania is just the beginning. Gehman plans to expand the site, which was launched in March, to cover all North American wells drilled since 1859 - about 4 million. He expects to add data about West Virginia, Ohio and New York by September.The goal is for WellWiki to grow into "the Wikipedia of everything oil and gas-related," Gehman said.Other sites also offer oil and gas data to the public. SkyTruth and FracTracker provide maps and satellite images of drilled regions, and FracFocus is a registry where operators disclose certain information about the chemicals they use during fracking. WellWiki is different, however, because it combines data extracted from state databases and a Wikipedia-like mentality that allows the public to contribute their own stories.Each well has its own wiki page with information about its operator, state inspections, violations, waste stream and the amount of oil and gas produced. The Pennsylvania data were extracted from the state's Department of Environmental Protection (DEP) website using open-source software that automatically updates each page.

Deep water fracking the next oil frontier - Energy companies are taking their controversial fracking operations from the land to the sea - to deep waters off the United States, South American and African coasts.Cracking rocks underground to allow oil and gas to flow more freely into wells has grown into one of the most lucrative industry practices of the past century. The technique is also widely condemned as a source of groundwater contamination. The question now is how will that debate play out as the equipment moves out into the deep blue. For now, caution from all sides is the operative word."It's the most challenging, harshest environment that we'll be working in," said Ron Dusterhoft, an engineer at Halliburton, the world's largest fracker. "You just can't afford hiccups."  Offshore fracking is a part of a broader industry-wide strategy to make billion-dollar deep-sea developments pay off. The practice has been around for two decades yet only in the past few years have advances in technology and vast offshore discoveries combined to make large scale fracking feasible.  While fracking is also moving off the coasts of Brazil and Africa, the big play is in the Gulf of Mexico, where wells more than 100 miles from the coastline must traverse water depths of a mile or more and can cost almost $100 million to drill.

New Oil and Gas Drilling Financed Largely With Debt - Major oil and gas companies are taking on an increasing share of debt in order to maintain drilling momentum, according to data from the U.S. Energy Information Administration.   Beginning around 2010, energy companies have been increasing their spending, particularly in the United States, as the tight oil revolution took off. Major firms snatched up acreage in oil-rich shale formations like the Bakken and the Eagle Ford and began drilling at a frenzied pace.  The significant outlays required to ramp up such an operation were offset by the rising price of oil, which allowed oil companies to expand their operations without having to take on substantial volumes of debt.  But after several years of increases, global oil prices began to plateau in mid-2011 and have stayed relatively steady since then. In fact, 2013 experienced the least oil price volatility since 2006.  And oil prices in 2014 have remained remarkably consistent, especially taking into account record levels of global demand and the abundance of geopolitical tension around the globe, from Ukraine to Iraq and Syria.   As a result of oil prices trading in a narrow band – roughly between $100 and $120 for Brent Crude and $90 and $105 for WTI – revenues for oil and gas companies flattened out even as their costs continued to rise.  From 2012 through the beginning of 2014, average cash from drilling operations increased by $59 billion over the same average seen in 2010-2011. But spending rose at a faster clip: up more than $136 billion. The yawning gap that opened up between spending and revenues has largely been closed by the acquisition of more debt.

More Oil Companies Abandoning Arctic Plans, Letting Leases Expire - After years of mishaps and false starts, some oil companies are giving up on drilling in the Arctic. Many companies have allowed their leases on offshore Arctic acreage to expire, according to an analysis by Oceana that was reviewed by Fuel Fix. Since 2003, the oil industry has allowed the rights to an estimated 584,000 acres in the Beaufort Sea to lapse It wasn’t supposed to happen this way. The oil industry was once enormously optimistic about drilling for oil in the Beaufort and Chukchi Seas, off the north coast of Alaska. The U.S. Geological Survey estimated in a 2008 study that offshore Alaska holds almost 30 billion barrels of oil and 221 trillion cubic feet of natural gas.  Shell Oil has been the leader in the Arctic, venturing into territory where other oil companies were unwilling to go. It promised billions of dollars in revenue and enhanced energy security.  But it ran into a seemingly endless series of accidents and setbacks.  In 2009, the Department of Interior approved Shell’s drilling plan. But the following summer, a court suspended Shell’s lease until the offshore regulators could conduct a more thorough scientific review. After providing more detail, Shell received another go-ahead, with high expectations for drilling in the summer of 2012. But that proved to be a fateful year for Shell’s Arctic campaign (the events are nicely summed up by Climate Progress here). In July 2012, Shell temporarily lost control of its Noble Discoverer rig, which almost ran aground. Shell’s oil spill response ship also failed inspections, which delayed drilling.  Shell ultimately had to throw in the towel for the year as the summer season drew to a close. Finally, on December 31, Shell’s Kulluk ship ran aground as the company was towing it out of Alaskan waters.

Oil Traders Flee Brent as Prices Signal Glut: Chart of the Day - Oil traders are fleeing Brent crude at the fastest pace in eight years as signs of a glut undermined bets that the Islamist insurgency in Iraq would threaten supply. The CHART OF THE DAY shows how the number of outstanding contracts in Brent crude collapsed in July as the forward curve on the ICE Futures Europe exchange moved into a structure called contango, where immediate prices are cheaper than later ones. The shift surprised traders, prompting them to close positions taken to benefit from an expected premium on immediate deliveries because of Iraq, according to Natixis SA. “Positioning had built up quite heavily on the escalation in geopolitics, but then as the physical market softened, it was a rush to the exits,” The move to contango may also hurt demand among financial investors as it removes the “roll yield” available when short-term prices trade at a premium, Mahesh says. This is the profit traders get when they can sell costlier immediate contracts and buy cheaper longer-dated ones. When the situation reverses into contango, investors pay a premium to switch from the immediate contracts. Open interest, or the number of outstanding positions that haven’t been closed, in Brent futures tumbled by 20 percent in July to 1.32 million contracts, the biggest plunge since July 2006, exchange data show. Iraq’s exports rose last month, the nation’s oil ministry said Aug. 4.

Biden and fracking in Ukraine - Via The Real News: Michael Hudson: Well, one of the things that has not been in the news is that a recent Senate bill, 2277, directed the U.S. Agency for International Development to begin guaranteeing loans for the fracking of oil and gas in the Ukraine. And Vice President Biden’s son has become the head of the biggest fracking company in the Ukraine. And what’s not usually known is that the armies from Kiev that are marching into the Eastern of Ukraine have been basically protecting the fracking equipment. Now, for the last nine months, local cities in the east in Ukraine have said, wait a minute, we want local control over the fracking. The people in the city of Sloviansk wanted to oppose the shale gas field from being developed, ’cause they said, look, this is going to destroy our water supply and our land. And essentially what Kiev is doing is saying, well, you’re terrorists if you’re opposing the oil drilling.

Michael Hudson: The Fracking/World Bank/IMF/Hunter Biden Dismantling Plan for Ukraine - by Yves Smith - Richard Smith was early to take a dim view of R. Hunter Biden becoming a director of a Ukraine's biggest private gas producer, Burisma Holdings:  This has to be a hoax, right? It’s so bizarre that you almost have to assume it’s a hoax. It sounds more like a cliched movie plot — a shady foreign oil company co-opts the vice president’s son in order to capture lucrative foreign investment contracts — than something that would actually happen in real life. But the indications as of this afternoon are that the board appointments actually happened, and that a Ukrainian energy company has retained the counsel of the vice president’s son and the Secretary of State’s close family friend and top campaign bundler.  Michael Hudson reports in a Real News Network interview that the commercial and geopolitical logic behind the Biden role, and the bigger US and World Bank/IMF program, is to push fracking onto a decidedly unreceptive population in eastern Ukraine.

Can Europe Survive Without Russian Gas? -- Tensions rise in Eastern Europe, as the western world hits Russia with new sanctions. Late last month, President Obama and the European Union imposed sanctions in hopes of deterring President Putin from further aggression and putting an end to his support of Ukrainian separatists. The aim of previous sanctions was to focus on specific individuals and businesses, while the newest ones are aimed at major pillars of the Russian economy. The oil industry is a major target, as Russia has become the world’s largest oil producer and it accounts for a large portion of the Russian economy.However, the sanctions against Russia do not target the country’s natural gas sector or its state-owned Gazprom, as about one-third of Europe’s gas supplies come from Russia. Last year, Gazprom exported 162 billion cubic meters of gas to Europe.The escalations in oil sanctions have the potential for major price hikes for Europe, especially since the winter season approaches, which is the peak gas consumption period. If Russia cuts off gas to Europe, then many nations will be scrambling to find alternative gas suppliers and it will inevitably drive up prices.Also, , President Putin signed a $20 billion oil deal with Iran to mitigate western oil sanctions. The deal will see the two nations cooperate on the production and sale of oil, and Russia will help develop Iran’s energy infrastructure and equipment.

Ukraine May Block All Transit from Russia in Sanctions Row - Ukraine ready to impose sanctions against any transit via its territory, including air flights and gas supplies to Europe, Prime Minister Arseniy Yatsenyuk said Friday.Kiev has also prepared a list of 172 Russian citizens and 65 companies predominantly Russian to put under sanctions for “sponsoring terrorism, supporting the annexation of Crimea, and violating the territorial integrity of Ukraine,” Yatsenyuk said at a briefing on Friday.Proposed sanctions include asset freezes, bans on certain enterprises, bans on privatizing state property, refusing to issue licenses, and a complete or partial ban on transit- both aviation and gas.“We simply have no other choice,” the Prime Minister said, adding that Ukraine will use part of the planned $17 billion IMF aid to achieve energy independence, and may go to the World Bank for help. The country, which is on the brink of economic default, received the first $3.2 billion tranche in May. Ukraine wants to “put a stop” to its gas dependence on Russia, its main source for energy to heat homes and buildings, but understands it will not be an “easy” process, Yatsenyuk told reporters.The Prime Minister estimates Ukraine could stand to lose $7 billion as a result of imposing sectorial sanctions against Russia, its biggest trading partner after the European Union.

Ukraine Prepares To Impose Russian Gas Transit Ban, Commit Economic Suicide - While Ukraine has long since ceased being a customer of Gazprom (for the simple reason being that it can't afford to pay for historical gas purchases let alone future ones, and with a long cold winter just 3 months ahead, Kiev is praying that its brand new Western "allies" will give it the loans it needs to buy Europe-sourced gas), the bulk of Russia-sourced gas into Europe still transits through Ukraine. Not surprisingly, Ukraine correctly understands this is the last trump card it has in any negotiation with the west, or the east. It is this trump card that went into play moments ago when Ukraine's Prime Minister who recently resigned and whose resignation was not accepted, said that Ukraine is considering banning the transit of all Russian "energy resources", i.e. European gas.  More: Ukraine ready to impose sanctions against any transit via its territory, including air flights and gas supplies to Europe, Prime Minister Arseniy Yatsenyuk said Friday. Ukraine's Parliament will vote on the sanctions on Tuesday. Kiev has also prepared a list of 172 Russian citizens and 65 companies predominantly Russian to put under sanctions for “sponsoring terrorism, supporting the annexation of Crimea, and violating the territorial integrity of Ukraine,”

Who Needs Russia? Ukraine Will Destroy Itself With New Gas Tax -- Ukraine doesn’t need Russia to take it down—Kiev is doing fine destroying itself, most recently with a new tax code that doubles taxes for private gas producers and promises to irreparably cripple new investment in the energy sector at a time when reform and outside investment were the country’s only hope. Ukrainian President Petro Poroshenko on August 1 signed off on a new tax code that effectively doubles the tax private gas producers in Ukraine will have to pay, calling into question any new investment, as well as commitment from key producers already operating in the country. According to the Kyiv Post and Ukrainian law firms, the new code will remain in force until the end of 2014 during which time gas drillers will be required to pay 55 percent of their subsoil revenue for extracting under five kilometers. This is up from 28 percent--so it’s a significant hit for producers. Additionally, for any extraction beyond five kilometers, the tax will be 28 percent--up from 15 percent.The only saving grace here is that this wasn’t the worst possible scenario: An early version of the bill called for a 70 percent tax on gas extraction.

Three Reasons Why Europeans Aren’t Too Worried About Putin’s Energy Power -- Has a tit-for-tat spiral begun? After Europe launched tougher sanctions against Russia at the end of July, Russian President Vladimir Putin this week banned food imports from Europe. Some fear this might only be the beginning of a long-term Russian retaliation. Putin eventually could cut energy exports. Many Europeans would then suffer a hard winter.That’s at least the theory. In practice, Europeans—and in particular Germans—aren’t too worried about Putin’s unquestionable energy power. Why? Here are three reasons:

  • 1. Stopping energy exports would severely damage the Russian economy and destabilize Putin’s power. In 2012, the country exported almost $300 billion in oil and gas. These products accounted for about two-thirds of all Russian exports. The country needs the money. Half of the government’s budget depends on income from energy exports.
  • 2. Putin is more dependent on Europe than vice versa. Almost 80% of its oil and almost all of its gas exports go to Europe, especially to Germany. Even if more than one-third of Germany’s imports of oil and gas come from Russia, Germany depends less and less on that source of fuel because it has heavily expanded its renewable energy sector. In 2013, roughly 24% of Germany’s energy came from the sun, wind and water.
  • 3. History may be instructive. Even in the darkest days of the Cold War, the Soviet Union never stopped its energy exports. Money was more important than conviction — even for the Communist Party. And oil and gas play a more import role for exports in Putin’s Russia than they did in 1980.

Oilprice Intelligence Report: Exports And Sanctions, Criss-Crossing The Atlantic - It’s been a busy week in energy, particularly on the geopolitical front, with Washington at a loss over exactly whose side to take in the Iraq-Kurdish oil showdown, the implications of new sanctions against Russia unclear at best, and continued conflict and chaos in Iraq, Syria and Libya that has speculators reaching the limits of their predictive powers. On Monday, a Texas judge ordered US Marshalls to seize a tanker carrying a million barrels of Kurdish oil off the US coast—at the behest of the Iraqi authorities in Baghdad--but two days later the story is that the tanker is too far offshore to be in Texas’ jurisdiction, so some more time has been bought for the Kurds to sell their wares on the international market. There is some suggestion that Washington is not united on this particular issue. From the onset of the Kurdish gamble on independence through unilateral oil exports bypassing the Iraqi central authorities, Washington has warned the Kurdistan Regional Government (KRG), fearful that the eventual division of Iraq would push Baghdad closer to Iran. Baghdad had threatened to sue anyone who tried to buy “illegal” Kurdish oil, and was counting on US support to that end. However, the conflict in Iraq and the Kurds’ seizure of the oil-rich disputed area of Kirkuk—the last piece of the Iraqi Kurd independence puzzle—largely spells the end of this game, and Kurdish oil exports will happen with or without American help in making it difficult for it to reach international markets. Meanwhile, the rest of Iraq is burning. In northern Iraq, government security forces have managed to keep the Islamic State (IS) from moving further inwards passed Tikrit, but the Sunni extremists have created a pincer movement, and are now moving steadily towards Baghdad from the south.

Exxon Drilling Russian Arctic Shows Sanction Lack Bite -- Sanctions, what sanctions? Exxon Mobil Corp. will start drilling a $700 million well in the Arctic Ocean tomorrow, Russia’s government said, showing that for all the talk of action against Vladimir Putin’s oil industry, the largest U.S. energy company is undeterred. As Russia’s relations with Europe and the U.S. deteriorated to the lowest point since the Cold war over the conflict in Ukraine, the European Union imposed a third round of sanctions last week, restricting the export of equipment used for offshore oil production. That doesn’t affect Exxon’s plans because the contract to hire the rig was signed before the measures were announced. Developing the Arctic is vital for Russia, where energy provides half the state’s revenue, to maintain oil production near a post-Soviet high of more than 10 million barrels a day. For Exxon, where output fell to a five-year low in the second quarter, a discovery would offer a vital new source of crude. “The well is very important, it’s probably one of the most interesting wells in the global oil industry for many years,” James Henderson, a senior research fellow at the Oxford Institute for Energy Studies, said in a phone interview.

Making Sense Of The US Oil Story - We frequently see stories telling us how well the United States is doing at oil extraction. The fact that there are stories in the press about the US wanting to export crude oil adds to the hype. How much of these stories are really true? If we believe the stories, the US is now the largest producer of oil liquids in the world. In fact, it has been the largest producer since the fourth quarter of 2012. One of the issues is that a few years ago, the US created a new oil-related grouping, combining valuable products with much less valuable (lower energy content, less dense) products. Using this new grouping, the US was able to show much improved growth in total “oil” supply. The US EIA now calls the grouping “Total Oil Supply.” I refer to it as “Total Liquids,” a name I find more descriptive. Besides “crude and condensate,” the mixture includes “other liquids,” “natural gas plant liquids,” and “refinery expansion.” “Crude and condensate” is the original grouping. Often, it is just referred to as “crude oil.” “Other liquids” is primarily ethanol from corn. Natural gas plant liquids (NGPL) are the liquids that condense out of natural gas when they are chilled and compressed in the natural gas processing plant. Refinery expansion occurs when a refinery breaks long chain hydrocarbons into shorter ones. The resulting products take up more volume, but don’t really have more energy content.  The process of breaking (cracking) long hydrocarbon chains is a valuable service to those producing heavy oils, because it makes valuable products from crude that otherwise would not have been useful for most purposes. The cracking process uses natural gas. Because natural gas in the US is inexpensive relative to its price in most other countries, the US can perform this process more cheaply than other countries. Because of this, it makes financial sense for the US to import heavy crude oil and process it in this way, whether or not US citizens can afford to buy the finished products. (Cracking is not useful on very light oil, such as Bakken oil, since it has primarily short chains to begin with.) If US citizens can’t afford the finished products, they are exported to others.

Kemp: Forecasts For Higher Oil Prices Misjudge The Shale Boom: (Reuters) - "The world of energy may have changed forever," according to Professor James Hamilton of the University of California. "Hundred dollar oil is here to stay." Hamilton, who is one of the most respected economists writing about oil, made his bold prediction in a paper on "The Changing Face of World Oil Markets", published on July 20.   The shale revolution will turn out to be only a pause in the upward trend in prices, Hamilton argues, as growing demand from emerging economies and stagnant supplies from conventional oil fields push prices higher in the long term. The problem with Hamilton's analysis is that it largely ignores the impact of the shale revolution on the economics of oil production and understates the tremendous variability in real oil prices in response to changes in technology. The professor devotes just 400 words out of almost 4,000 to discussing the production of crude oil and gas from shale formations. Most of that discussion focuses on the high cost of drilling and fracturing shale wells; the rapid decline in production; the alleged unprofitability of shale wells; and question of whether the conditions that produced the shale revolution in North American can be replicated in other parts of the world. But this part of the paper is also the weakest, and it highlights the fundamental limitations with Hamilton's entire argument about the increasing difficulty and costs of producing crude oil.

IDF's Gaza assault is to control Palestinian gas, avert Israeli energy crisis --  Yesterday, Israeli defence minister and former Israeli Defence Force (IDF) chief of staff Moshe Ya'alon announced that Operation Protective Edge marks the beginning of a protracted assault on Hamas. The operation "won't end in just a few days," he said, adding that "we are preparing to expand the operation by all means standing at our disposal so as to continue striking Hamas." This morning, he said: "We continue with strikes that draw a very heavy price from Hamas. … The campaign against Hamas will expand in the coming days, and the price the organization will pay will be very heavy." But in 2007, a year before Operation Cast Lead, Ya'alon's concerns focused on the 1.4 trillion cubic feet of natural gas discovered in 2000 off the Gaza coast, valued at $4 billion. Ya'alon dismissed the notion that "Gaza gas can be a key driver of an economically more viable Palestinian state" as "misguided." The problem, he said, is that: "Proceeds of a Palestinian gas sale to Israel would likely not trickle down to help an impoverished Palestinian public. Rather, based on Israel's past experience, the proceeds will likely serve to fund further terror attacks against Israel… A gas transaction with the Palestinian Authority [PA] will, by definition, involve Hamas. Hamas will either benefit from the royalties or it will sabotage the project and launch attacks against Fatah, the gas installations, Israel – or all three… It is clear that without an overall military operation to uproot Hamas control of Gaza, no drilling work can take place without the consent of the radical Islamic movement."

Conflict Leaves Industry in Ashes and Gaza Reeling From Economic Toll - During Israel’s monthlong air-and-ground assault on the Gaza Strip, the world’s attention has focused on the more than 1,800 Palestinians killed and the more than 30,000 homes destroyed or damaged. But as a temporary truce held and talks toward a longer-term cease-fire began Wednesday, business leaders said that 175 of Gaza’s most successful industrial plants had also taken devastating hits, plunging an already despairing economy into a deeper abyss. Ali Hayek, head of Gaza’s federation of industries, said these factories directly provided perhaps 5,000 of the most stable jobs in this impoverished Palestinian sliver, where the latest estimates of unemployment are as high as 47 percent. The collateral damage is exponential: Sabha, Gaza’s only producer of tomato paste, has contracts with 5,000 farmers, Mr. Hayek said. Legions of drivers will be without cargo. Rebuilding anything is that much harder with 63 construction companies offline, including several cement makers.The destruction of Al Awda alone threatens its suppliers of milk, plastic wrapping, flour and cardboard boxes. Then again, Hamada, a huge flour mill in Gaza City, and Khozendar, Gaza’s only carton-maker, are also gone, Mr. Hayek said, along with 21 food companies, 10 clothing manufacturers and the entire industrial zone in the northern town of Beit Hanoun. “After 30 days of war, the economic situation has become, like, dead,” said Mr. Hayek, whose group represents 3,900 businesses employing 35,000 people. “It seems the occupation intentionally destroyed these vital factories that constitute the backbone of the society.”

ISIS Captures Iraq's Biggest Dam: Baghdad Water Supply In Jeopardy -- Islamic State fighters seized control of Iraq's biggest dam, an oilfield and two more towns on Sunday after inflicting their first major defeat on Kurdish forces since sweeping through the region in June. Local officials said militants with the extremist group Islamic State took control of the towns of Zumar and Sinjar near the city of Mosul on Sunday, waging fierce clashes with Kurdish forces. The French news agency AFP quoted a United Nations spokesman saying 200,000 people have fled Sinjar and said there are grave concerns for their safety.

ISIS Marches On (And The Saudis Are Getting Nervous) -- The fundamentalist retro-gang that has conquered Northern Iraq has decided it needs to go Taliban on cultural monuments it disapproves of. In short, the group is not only killing people that don't conform to its harsh version of Islam, it is also trying to erase all traces of their history and culture - "The demolition of structures erected above graves is a matter of great religious clarity." It is quite ironic that Saudi Arabia, allegedly one of the main financial backers of ISIS, is finally getting worried a bit in light of all these events. Luckily, there is absolutely nothing to worry about. Not only do the Saudis believe that “ISIS will run out of steam” just before it gets to Mecca (see above), but more importantly, “the US State Department also issued a statement that it was “actively monitoring” the Iraqi situation” (apparently it neglected to “actively monitor” the Lebanese situation though). What could possibly go wrong?

U.S. warplanes strike Islamic State artillery to protect Kurds (Reuters) - U.S. warplanes struck Iraq on Friday for the first time since American troops pulled out in 2011, attacking Islamist fighters advancing towards the Kurdish region after President Barack Obama said Washington must act to prevent "genocide." The fighters had advanced to within a half hour's drive of Arbil, capital of Iraq's Kurdish region and a hub for U.S. oil companies. A Pentagon spokesman said two F/A-18 aircraft dropped laser-guided bombs on a mobile artillery piece used by Islamic State fighters to shell Kurdish forces defending Arbil.

Xi's 'shockingly harsh' Politburo speech signals tensions over anti-graft crackdown - President Xi Jinping told top officials he was disregarding “life, death and reputation” to fight corruption in a terse speech signalling a possible dispute and doubts among party elites over the campaign. An official mainland newspaper and a person familiar with the matter confirmed the president’s statement. Xi was believed to have made the remark in a closed-door Politburo meeting on June 26, the details of which were publicly revealed only when the city newspaper Changbaishan Daily on Monday reported that local officials received instructions from the president. ”[I] had left life and death, as well as my personal reputation, out of consideration in the combat against corruption,” Xi said, according to Changbaishan city’s party chief, Li Wei. Li said the top leadership’s remarks emphasised a sense of crisis, and some of the words were “shockingly” sharp and harsh. However, he did not provide more details.

Expert: China Economic Growth to Cost $3.2 Trillion to Keep - A recent Chinese Academy of Social Sciences (CASS) report shows that China needs a $3.2 trillion stimulus package to maintain a 7.4 percent economic growth rate this year. Additionally, new loans may exceed the $1.6 trillion mark. Debt still lingers from the 2008 financial crisis, when $586 billion in stimulus was injected to boost the economy. To reach the 7.5 percent GDP growth target set by Chinese Premier Li Keqiang, the Chinese Communist Party (CCP) has to increase the previous investment to boost the economy. On July 25, CASS released its report on China's economic growth for 2013 to 2014. The report says that this year's economic growth rate will be 7.4 percent, which is the slowest increase in 24 years. Deputy director Zhang Ping of the CASS institute of economics, says that the 7.4 percent economic growth rate can't be kept up this year without $3.2 trillion in capital. According to China central bank, in the first half of this year, the Aggregate Financing to the Real Economy (AFRE) is $1.7 trillion, which is $67.1 billion more than last year's. Among them, loans in the first half year increased by $928.9 billion which is $106.6 billion more than last year.

Early Look: China’s Economy Seeing a Summer Rebound - China’s economy likely did well in July, according to the latest data and economists’ forecasts, thanks to a combination of government stimulus and resurgent demand for Chinese exports. Since growth showed signs of slowing earlier this year, Beijing has upped its spending on infrastructure projects like railways and social housing, while putting pressure on local governments to step up their own investment projects. At the same time, policymakers have tried to make it clear that they haven’t given up on planned economic reforms, releasing more details of changes to the household registration system and approving three private banks (though the three have yet to actually get their banking license). “The structural headwinds to China’s growth are real. We expect the ongoing economic rebound to peter out before the end of the year,” said Capital Economics in a research note this week.   Chief among those headwinds is the housing market. Real estate is still in trouble, despite the efforts of local governments around the country to prop it up. Of 46 cities that created home purchase restrictions to tame the market during the boom times, 31 have now at least partly rolled them back, according to an analysis by North Square Blue Oak, a boutique investment bank and research firm. This week the government of Chengdu even announced that it would offer subsidies to banks that give cheap mortgages to first-time home buyers.

Chinese services sector fails to grow for first time on record - Chinese services sector growth is now at its weakest level since records began, failing to grow for the first time in almost nine years, according to the HSBC services Purchasing Managers' Index (PMI). Headline PMI fell to 50 in July, marking a poor start to the third quarter for the region’s economic powerhouse. Any number above 50 would imply that the sector was growing, while any value below that would suggest contraction. Unbroken years of growth in the sector since HSBC launched the series now seems to be over, as the indicator has fallen to its lowest levels since records began, in November 2005. "The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities", said HSBC's chief economist for China, Qu Hongbin. The news will bring fears of a slowdown to the forefront of investor's minds, as the prospect of weaker growth could see global demand negatively affected. Yet while the poor performance is worrying, surveys of China's services sector are considered to be far less important than manufacturing indicators. On that front, Chinese performance remains positive. Data released last Friday saw manufacturing PMI at 51.7. While somewhat weaker than analyst expectations, the reading saw the pace of growth firm from 50.7 in June.

China Services PMI Crashes To Record Low - At this point these soft-survery-based PMIs are becoming a running joke. Japanese macro surprise data has done nothing (and we mean nothing) but disappoint recently and currently stands at 3-month lows. So it makes perfect sense that July Japan Services PMI would print its first expansion since March. On the other hand, after exploding to 18-month highs in June, China Services PMI collapsed to a 2005 record low. As BofA warned previously, it is important to understand how crude these surveys are - these data get way too much air time. They give a timely, rough read on the economy, but should get little weight once hard data are released.

China Services PMI Lowest Since 2005 as Housing Slumps; Manufacturing Expands - An interesting divergence is underway in China with manufacturing in expansion while the service sector is at the lowest reading since November 2005 according to HSBC China Composite PMI HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a third consecutive monthly expansion of Chinese business activity in July. That said, the rate of increase eased from June‟s 15-month high and was moderate overall. This was signalled by the HSBC Composite Output Index posting at 51.6 in July, down from 52.4 in the previous month. The latest expansion of composite output was led by manufacturers, as business activity at service providers was unchanged from the previous month. Furthermore, it was the strongest expansion of manufacturing output in 16 months. This contrasted with a stagnation of services activity, which was signalled by the HSBC China Services Business Activity Index posting at the no-change mark of 50.0 in July. This was down from 53.1 in June and the lowest index reading in the near nine-year series history.  “The headline HSBC China Services PMI came in at 50.0 in July, the lowest reading since the series began in November 2005. Both the new business and outstanding business indices declined from their levels in June. The weakness in the headline number likely reflects the impact of the ongoing property slowdown in many cities as property related activity, such as agencies and residential services, see less business. Meanwhile, the employment and business sentiment indices remain stable. In the coming months, we think the service sector may get some support from the recovery in investment.”

Meet China’s Boomerang Kids: One-Third of Graduates Rely on Parents, Survey Says - Caught amid a glut of job applicants fresh out of college, many of China’s newly minted graduates are choosing a time-worn path the world over: relying on their parents for hand-outs. According to a new survey conducted by Peking University, more than one-third of recent Chinese graduates continue to live off their parents. A still-greater number are failing to save any money, the survey found, with 40% reporting that they live paycheck to paycheck. The survey, which covered some 350,000 respondents, found that students graduating nationwide this year had an average monthly salary of 2,443 yuan ($396) — approximately enough to buy half of an iPhone in China, as the Beijing Youth Daily put it. The figure marked an increase of 324 yuan from the previous year. In big cities such as Beijing, figures were slightly higher, with recent graduates commanding an average starting salary of 3,019 yuan. Part of the problem for graduates is that despite China’s booming economy, there’s a persistent mismatch between the skills needed on the job market and the ones taught in schools. In recent years, many college students have joked—accurately—that their starting salaries are often lower than that of migrant workers. Over the past decade, China has embarked on a college-building spree that has seen many vocational schools turned into four-year colleges, a boom fueled by rising incomes that have enabled more families to finance such degrees. This year, more than 7 million students graduated across the country with college degrees and expectations to match—creating a thundering level of competition among jobseekers.

Chinese banks get serious about risk of bad debts: Chinese banks are scrambling to get on top of bad debts they have downplayed for years, cutting off riskier borrowers, further tightening lending terms and, in one case, deploying teams of investigators to assess the risk of loan defaults. China's banks keep reporting bad loan levels well below what most analysts consider realistic, but their recent actions suggest the slowing economy may be squeezing borrowers and lenders harder than thought only a few months ago. China's fifth-largest lender, Bank of Communications, assembled research teams last month to look over the assets of troubled borrowers in Zhejiang province, according to bank sources and an internal document. The province is a hotbed of China's credit stress. BoCom denied that special teams had been set up or that there was any surge in potential bad loans in an email to Reuters. The bank said it had always placed great importance in its risk control efforts. Bankers from other major listed lenders said they were further cutting lending to riskier borrowers, in particular smaller private companies.

China Trade Balance Explodes To Record High As July Exports Double Expectations -- Filed in the "are you kidding us" folder... Chinese exports rose an astounding 14.5% YoY in July (the biggest surge since April 2013 and double the 7.0% YoY expectations). Chinese imports plunged 1.6% to 4-month lows, dramatically missing expectations of a 2.6% YoY gain. These miracles of goalseek.xls and fake trade invoicing left the Chinese Trade Balance for July at $47.3 Billion - its highest ever (ever) and almost double the $27.4bn expectations. In the midst of collapsing European economies, plunging Russia, and stumbling 'hard' US macro data, the Chinese government would have us believe the world (net) bought the most stuff ever from them in July...

What the Latest Economic Data Say About China’s Changing Growth Model - In decades past, surging export growth, declining imports and a record trade surplus would have been a cause for joyous celebration in China as Beijing honed its mercantilist model en route to becoming the world’s factory floor. These days, however, things are a bit more complicated. On one side of the ledger, China’s 14.5% year-on-year export growth in July is certainly good news. Combined with reports of better July export growth in South Korea and Taiwan in recent days, if offers early hope that global trade is starting to pick up. July exports were up 17% to the European Union, 12.3% to the United States, and 11.9% to Southeast Asia.“The improvement in export growth was broad-based in July,” HSBC said in a research note. “If this can be sustained for the next few months, this could be the beginning of a turnaround in regional trade.” But China’s 1.6% contraction in July imports signals continued weakness in domestic demand, a concern as China scrambles to recover from the economic slippage seen early this year, suggesting that Beijing will continue its targeted stimulus measures.

China Beating the U.S. in Asian Trade - China is leaving the U.S. in the dust when it comes to exporting goods to the rest of Asia. That’s the assessment of Ernest Preeg, a senior advisor for international trade and finance at the MAPI Foundation in Arlington, Va. In a new report, Mr. Preeg tracked the value of U.S. exports to 13 Asian countries other than China and compared that to China’s trade with those nations. The bottom line is that while both the U.S. and China have boosted exports to these countries, China has surged ahead far faster. Between 2009 and 2013, America’s merchandise exports grew 37% to the 13 countries. That’s far slower than the 52% increase in U.S. exports to the rest of the world. China, meanwhile, hiked exports to those 13 countries by 85%. “Chinese exports grew 40% faster to South Korea, roughly doubled U.S. export growth to Japan and India, grew three times faster to Vietnam, and grew five times faster to Malaysia,” Mr. Preeg noted in the report. The MAPI Foundation is the research arm of the Manufacturers Alliance for Productivity and Innovation, a public policy group funded mainly by large manufacturers. The trend continued in recent months. Between January and May of this year, Mr. Preeg noted, U.S. exports to the region grew 3%–compared to China’s 9% growth. The numbers reflect a slide in U.S. competitiveness, wrote Mr. Preeg. While exports to the region have grown, U.S. imports from those countries have increased even more. “In four years, the U.S. trade deficit with the 13 countries rose by 63% to $160 billion in 2013, even faster than the 40% increase in the deficit with China to $318.4 billion,” he wrote.

Obama woos African leaders to counter growing Chinese influence-  Barack Obama is convening the largest ever gathering of African leaders in Washington on Monday – 50 have been invited – for a summit billed by the White House as "elevating our engagement" with a continent increasingly under China's influence. But it's likely to prove a challenging few days for a president viewed with a mix of pride and frustration in African countries, where he is sometimes less well regarded than his predecessor in the White House and accused of taking insufficient interest in the continent in which his father was born. Obama has visited Africa just twice during his presidency and his administration has been accused of lecturing rather than listening to the leaders of nations being rapidly changed by democratisation, trade and technology. Some African delegations are disgruntled before the meetings have even started because Obama has ruled out one-on-one talks with heads of state who wish to press interests not necessarily of concern to the wider continent. Washington has invited all but five African leaders. The presidents of Zimbabwe, Sudan, the Central African Republic, Eritrea and Western Sahara were excluded because of objections by the US or the African Union. It is not clear how many will turn up, although the presidents of some of the most important nations to the US – Nigeria, South Africa and Kenya – have confirmed their attendance. Three west African leaders cancelled because of the Ebola outbreak in the region.

Beijing invites US to link up over Africa - FT.com: China has invited the US to co-operate in financing and building infrastructure in Africa and other parts of the developing world, an unprecedented proposal that has potentially sweeping implications for the future of international development aid. Chinese officials first approached Washington last year to discuss working together on a $12bn dam project in the Democratic Republic of Congo, US officials said, but the talks gathered momentum at the annual China-US summit in July in Beijing. The putative partnership is challenging: a bid for what could be the world’s largest hydropower complex, in one of the world’s least developed countries. While the World Bank has recently funded a report to evaluate the project, proposals for the Inga-3 dam have been discussed for years without resolution. The Chinese approach, nonetheless, signals a possible change of approach by Beijing as it indicates a desire to recalibrate its relationship with Africa. It comes as the White House seeks to step up US engagement in the region, home of six of the world’s 10-fast growing countries, hosting this week the first ever US-Africa summit. Chinese officials have faced mounting accusations in the West and Africa in recent years over its engagement strategy with the region. It has been accused of pursuing a “cheque book” policy, lending money to states largely to benefit its own construction groups, which have built everything from roads to hospitals on the continent. China appeared to embrace a more multilateral approach earlier this year, when it launched a $2bn fund with the African Development Bank, but that is a fraction of its bilateral deals. US officials say that a partnership with China on Inga-3 or another dam would be an important breakthrough in collaboration at a time when military rivalry between the two countries in Asia is growing. However, they stress that parts of President Barack Obama’s administration, Congress and the multilateral financial institutions remain wary over US involvement.

Step Aside Panama Canal: China To Build Nicaragua Canal, "World's Largest Infrastructure Project Ever" - A month ago, a Nicaraguan committee approved Chinese billionaire Wang Jing's project to create The Nicaraguan Canal. With a planned capacity to accommodate ships with loaded displacement of 400,000 tons (notably bigger than The Panama Canal), the proposed 278-kilometer-long canal that will run across the Nicaragua isthmus would probably change the landscape of the world's maritime trade. "The project is the largest infrastructure project ever in the history of man in terms of engineering difficulty, investment scale, workload and its global impact," Wang told reporters. As China Global Times reports,The Nicaragua Canal, which is about four times the length of the Panama Canal, will connect the Atlantic Ocean and the Pacific Ocean upon its completion. The project is estimated to cost $50 billion.  "Our canal lock is 15-meter-thick, hard steel. Imagine its size. [It'll be] the world's largest," the 41-year-old Wang said. The Nicaragua Canal project is just one of many giant infrastructure projects commenced by Chinese around the world. There are at least another five megaprojects that are currently being planned or under construction, including the $32 billion China-Pakistan economic corridor and the $1.7 billion Baltic Pearl Project, according to media reports

Korean Revivalism: Choinomics, Not Abenomics  I haven't had this feeling since the Clone Wars: South Korea together with its fellow Asian tigers have gained a reputation for following trends set in Japan, the archetypal story of development. There is even a theory based on the idea that Japan's example is sequentially emulated by others in earlier stages of development, the "flying geese model." Despite modern-day Japan being much different from its go-go (grow-grow?) days, trends established there still have a way of being copied by other Asian countries. It's not just manufactures for export that they emulate but also services as well as governance trends.  Today's case in point is economic reform. While I have bashed Abenomics as a half-hearted set of reforms that will only swell Japan's astronomical national debt--already over 200% of GDP and counting--Abenomics has the usual novelty appeal of reform measures. (The key to success for a debt-laden country is to pile on even more debt!) That is, they promise change after years and years of same old, same old. Especially after the Korean ferry tragedy, the general's daughter Park Geun-hye  has been looking to make changes. Hence the installment of a new finance minster, the titular Mr. Choi, who has been a dervish since gaining the position less than a month ago:  Economists say bolder measures to reform structural weaknesses are needed to head-off what Choi warns is a serious threat that Asia's fourth-largest economy could slide into Japan-style stagnation. The veteran lawmaker's plan combines extra spending with an easing of mortgage curbs to boost the property market, a proposal to tax excess corporate cash reserves, and not-so-subtle pressure on the central bank to ease interest rates.

Asian Infrastructure Investment Bank and Korea's position: Chinese President Xi Jinping requested Korean President Park Geun-hye to join the Asian Infrastructure Investment Bank (AIIB) during his first official visit to Seoul in July. It appeared that the Korean government has yet to make up its mind about China’s offer, despite the fact that the partnership could give it more say and influence within the new international bank. After the summit talks, presidential spokesman Min Kyung-wook announced that the Korean government would decide whether to join AIIB, depending on the outcome of negotiations scheduled ahead. However, the U.S. has reportedly expressed “deep concern” about South Korea’s participation, which it views as being a part of efforts by Asia’s biggest economy to reshape the global financial architecture to ensure that its power and interests are reflected. Some experts claim that the new multilateral bank will rival established institutions, including the World Bank and the Asian Development Bank, which are under the sway of the United States and Japan. So far, 22 countries across the region, including several wealthy states in the Middle East, which China refers to as “West Asia,” have shown interest in the multilateral lender, which would be known as the Asian Infrastructure Investment Bank. It would initially focus on building a new version of the “silk road,” the ancient trade route that once connected Europe to China, including a direct rail link from Beijing to Baghdad. So far, China has discussed its plans for an AIIB with countries in Southeast Asia, the Middle East, Europe and Australia and it has also contacted the US, India and arch-enemy Japan, according to people familiar with the matter.

Adam Posen on Japan’s Recovery: Going Right, Just Not Going Well -  A year and a half after Prime Minister Shinzo Abe launched his program to end Japan’s long slump, a number of economists are turning skeptical about prospects for success. One remaining optimist — albeit with some caveats — is Adam Posen, president of the Washington D.C.-based Peterson Institute for International Economics, and a long-time student of Japanese economics and finance. He also sits on the panel of economic advisers to the U.S. Congressional Budget Office and is a former member of the Bank of England’s monetary policy committee. The Wall Street Journal sat down with Mr. Posen in Tokyo recently to get his assessment of how the “Abenomics” experiment is working. The gist of Mr. Posen’s argument is that despite some short-term setbacks, there are plenty of positive signs Japan is on track to return to steady growth and end deflation. But progress will be slow and unsteady, in part because he believes Japan must balance its growth strategy with a plan to curb its debt. Current disappointment is partly the fault of the “spin” that higher prices would lead to a self-reinforcing cycle of higher wages, spending, and investment, he said. “It would be nice to have. But it wasn’t virtuous cycle or death spiral. We’re out of the death spiral. That’s good.” Here are edited excerpts from the interview:

Japan's monetary base touches another record high -- The monetary base grew 42.7 percent in July from a year earlier to ¥243.11 trillion, reaching a fresh record high on the Bank of Japan’s aggressive monetary easing to boost the economy, data released by the central bank showed Monday. The average daily balance of the money that the BOJ provides to the economy, such as cash in circulation and the balance of current account deposits held by financial institutions at the bank increased for the 27th straight month. The balance of current account deposits, or the sum of money those institutions can use freely, rose 84.8 percent to ¥152.19 trillion as the BOJ purchases from the lenders massive amounts of Japanese government bonds and other financial assets as part of the monetary easing, introduced in April 2013.

Goldman Warns Of 6.5% Japanese GDP Collapse, Worst Since LehmanJust as Abenomics is preparing to hit its 2-year anniversary, Japan's economy is on the verge of recession. And here is Goldman's punchline, one whose arrival we warned was only a matter of time.  The greater-than-expected weakness in the consumption snapback signals significant downside risk to our forecast of 4.6% decline for Q2 real GDP (sequential annualized). While we expect lower imports, higher inventories, and other factors to support GDP to some extent, we see negative real GDP growth of around -6.5% as likely, based on the data currently available. Considering in Q1, Japan's GDP grew by a front-loaded 6.7%, the nearly 13% plunge to a -6.5% annualized contraction would be the biggest sequential GDP drop in Japan's history. As we showed two weeks ago:

In Asia, Corporate Cash Piles Come Under Attack -  Investors have long criticized many of Asia’s corporate giants for hoarding billions of dollars. Now those cash piles are under attack from governments that want them put to better use driving economic growth. Last month, Korea announced that as part of a $40 billion economic stimulus package, it would impose a tax on companies that keep piling up savings instead of paying them out to workers or shareholders. In Japan, Prime Minister Shinzo Abe has pushed companies to raise payouts to shareholders and workers, and Beijing has ordered state-owned behemoths to boost their dividends to the government to help pay for expanded social-welfare programs. The International Monetary Fund took aim at the issue this month in its latest report on Japan, calling on Friday for better corporate governance to help “unstash Japan’s corporate cash.” The IMF estimates Japanese companies are sitting on record amounts of cash, equivalent to more than 9% of gross domestic product. The idea is that by unleashing these corporate cash lodes onto shareholders and employees, they will either invest it more profitably in other parts of the economy, or simply spend it – either of which is better for growth than having it sit in the bank.

RBI’s Rajan Sees Risk of Financial Markets Crash - Reserve Bank of India Governor Raghuram Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense. The difference: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster. Now, as then, “demand shifting” has taken the place of “demand creation,” the Indian policymaker said. As was the case in the 1930s, the lack of coordination between policymakers is producing spillovers that may be difficult to control, and the world’s financial system may soon face fresh turbulence at a time when central banks have yet to repair the damage that the 2008 financial crisis caused to developed economies. “We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,” said Mr. Rajan in an interview with the Central Banking Journal. A sudden shift in asset prices could happen in a variety of ways, Mr. Rajan said. The most obvious route would be as a result of investors chasing higher yields at a time when they believe central bank policies will protect them against a fall in prices. “They put the trades on even though they know what will happen as everyone attempt to exit positions at the same time – there will be major market volatility,” said Mr. Rajan. A clear symptom of the major imbalances crippling the world’s financial market is the over valuation of the euro, Mr. Rajan said.

RBI Governor Fears Market Crash With "World Less Capable Of Bearing The Cost" -- Outspoken non-status-quo thinker Reserve Bank of India Governor Raghuram Rajan may be set to have his central banker card revoked... for telling too much truth (here in 2012, here in 2013, and most recently here). Having previously noted that "international monetary cooperation has broken down," the WSJ reports that Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense. Simply put, he concludes, "we are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost."  As The Wall Street Journal reports, Rajan explains the difference between now and 1930 is: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster.  Now, as then, “demand shifting” has taken the place of “demand creation,” the Indian policymaker said

GFC Seer Raghuram Rajan Warns of New Crash - Yves here. There has been so much anticipation of the seemingly inevitable next financial markets crash that it’s easy to brush off yet another market call. But given Rajan’s track record, it’s worth at least listening to his reasoning.  It’s noteworthy, however, that post author Llewellyn-Smith sees no crash detonator prior to 2016, which might as well be 2025 as far as most investors are concerned. I have no idea what the timing will be, but the focus on financial/asset markets as the trigger seems unduly narrow. Geopolitics are vastly more fraught than in the runup to the global financial crisis, and we also have more unstable weather, such as the drought in California, which is certain to put pressure on food prices in the US. In other words, it appears that real economy risks, which are often wild cards, are not adequately factored into these “when might the wheels come off” exercises.   The Wall Street Journal is reporting that: Reserve Bank of India Governor Raghuram Rajan warned Wednesday that the global economy bears an increasing resemblance to its condition in the 1930s, with advanced economies trying to pull out of the Great Recession at each other’s expense.The difference: competitive monetary policy easing has now taken the place of competitive currency devaluations as the favored tool for playing a zero-sum game that is bound to end in disaster. Now, as then, “demand shifting” has taken the place of “demand creation,” the Indian policymaker said.As was the case in the 1930s, the lack of coordination between policymakers is producing spillovers that may be difficult to control, and the world’s financial system may soon face fresh turbulence at a time when central banks have yet to repair the damage that the 2008 financial crisis caused to developed economies. “We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,” said Mr. Rajan in an interview with the Central Banking Journal.

RBI keeps policy rate unchanged, sounds tough on inflation (Reuters) - The Reserve Bank of India (RBI) kept its key policy repo rate unchanged on Tuesday as widely expected, and voiced a commitment to bringing down inflation that convinced many analysts that markets will have to wait until next year for the next cut in rates. The RBI left the repo rate at 8.00 percent, as expected by nearly all 43 economists surveyed by Reuters for a poll published last week. The repo rate has been unchanged since January, when the RBI increased it by a quarter percentage point. true "The upside risks to the target of ensuring CPI inflation at or below 8 percent by January 2015 remain, although overall risks are more balanced than in June," Governor Raghuram Rajan wrote in the RBI statement on its policy review. "It is, therefore, appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged." Rajan stressed that the next goal was to bring inflation down to 6 percent by January 2016, while warning of upside risks to that target also.

India’s Toilet Race Failing as Villages Don’t Use Them -  Sunita’s family in the north Indian village of Mukimpur were given their first toilet in February, one of millions being installed by the government to combat disease. She can’t remember the last time anyone used it. When nature calls, the 26-year-old single mother and her four children head toward the jungle next to their farm of red and pink roses, to a field of tall grass, flecked with petals, where the 7,000 people of her village go to defecate and exchange gossip. Only dalits, the lowest Hindu caste, should be exposed to excrement in a closed space, “or city-dwellers who don’t have space to go in the open,” said Sunita, who uses one name, as she washed clothes next to the concrete latrine. “Feces don’t belong under the same roof as where we eat and sleep.” Sunita’s view reveals one of Prime Minister Narendra Modi’s biggest challenges in combating the world’s biggest sanitation problem, one that costs India 600,000 lives annually from diarrhea and exposes a third of the nation’s women to the risk of rape or sexual assault. With no toilets for half the population, Modi promised to build 5.3 million latrines by the end of his first 100 days in office -- one a second until Aug. 31, according to the Ministry of Drinking Water and Sanitation. Without education, they’ll make little difference.

How Much of a Short Position Did Paul Singer Take in Argentina? And Who Were the Bagholders? - Yves Smith - With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.  As we’ve discussed regularly on the site, and longer form in ECONNED, the main mechanism that famed subprime shorts like Magnetar and John Paulson used were synthetic and heavily synthetic CDOs. That means their “assets” were mainly or entirely the credit default swaps that were these short sellers’ bets against risky tranches of subprime mortgage bonds. By packaging them into CDOs, they were able to sell BBB risk at close to AAA prices (the AAA tranches of CDOs did carry a higher yield than conventional AAA investments). The really drecky remaining tranches were flogged to clueless investors or rolled into other CDOs. We now see tales emerging of who were the bagholders on the Argentina CDS, as in who were the “protection sellers”. Although the deal structure was different, the general pattern is the same: use a complex credit instrument to shift risk onto naive buyers. FT Alphaville yesterday described one victim, a sole investor in a credit-linked notes deal that provided a premium yield in return for taking on Argentine default risk. The result was that the investment has taken 51% losses. Today, the press seems to have identified the victim. From Bloomberg:Brazilian postal workers became unlikely victims of Argentina’s default last week after a $168 million fund used by their pension plan recorded a loss on most of its assets. The fund operated by Bank of New York Mellon Corp (BK:US).’s local unit wrote down its value by about 51 percent after losses on securities linked to Argentine government debt, according to a regulatory filing yesterday.

Argentina Default Punishes Mailmen as Pension Fund Loses - Brazilian postal workers became unlikely victims of Argentina’s default last week after a $168 million fund used by their pension plan recorded a loss on most of its assets. The fund administered by Bank of New York Mellon Corp’s local unit wrote down its value by about 51 percent after losses on securities linked to Argentine government debt, according to a regulatory filing yesterday. Postalis, the pension manager serving about 130,000 current and former postal workers in Brazil, is adopting legal measures in Brazil and the U.S. to mitigate losses, the fund’s press office wrote in an e-mailed response to questions.   Argentina last week failed to make a $539 million interest payment on its bonds, prompting Standard & Poor’s and Fitch Ratings to declare the country in default for the second time since 2001. The country’s bond prices have since retreated from a three-year high, and the International Swaps & Derivatives Association ruled that payouts must be made on a net $1 billion of derivatives linked to the country’s creditworthiness.

Argentina: Debt Default is a Solution, Not a Problem - Unless you just returned from holiday in some ultra-remote region, you are aware that the government of Argentina defaulted on its external debt on Wednesday. A New York federal court provided the immediate cause of the default with a ruling that rendered illegal an agreement reached between the Argentine government and creditors holding over 90% of the country’s external debt. The principal litigant bringing the case against the government holds less than US$2 billion of the Argentine debt, which by comparison makes a tail wagging a dog seem a credible anatomical interaction. MNL Capital, never lent a cent to the Argentine government (nor to any other). It acquired its one-billion-plus Argentine bonds on the re-sale market, purchasing them at far below face value. Depending on your source of (mis)information, you will think that this default is 1) the result of an feckless, spend-thrift government failing to accept responsibility for its actions (argued for example, in Forbes),  2) the harbinger of deep economic trouble for the Argentines; and/or 3) the consequence of the predatory evil of vulture hedge funds. Taking these three in order, they are 1) false, 2) probably false, and 3) true but not terribly important. The current debt of the Argentine government was accumulated before 2003, much of it under the disastrous presidency of Carlos Menem (forced to resign in 1999) and three short-term successors.  The massive debt accumulation (see chart below) resulted from the hapless attempt to maintain a one-to-one exchange rate between the national currency and the U.S. dollar via a “currency board.” By the rules of this bone-headed currency “regime,” the national money supply must fall when U.S. dollars flow out of the country (for example, if there is a trade deficit or capital flight). Contraction of the money supply invariably means contraction of the real economy. To avoid this, prior to May 2003, the government (under its revolving door of presidents) borrowed U.S. dollars through sales of public bonds, driving the public debt up to almost 200% of national income (measured on the left hand axis of the chart).

No Fly Zone: Russia Plans Airspace Blockade For European Flyovers In Sanction Retaliation - Russia has been quiet, too quiet, since the EU and US unleashed their latest set of sanctions. However, as military drills and troop build-ups occur on Ukraine's borders, Reuters reports that Russian Prime Minister Medvedev is considering a significant retaliation, "any unfriendly measures by the EU, including those in the area of air transportation, we’ll be studied and won’t remain without a response." Russian business daily Vedomosti quoted unnamed sources as saying the foreign and transport ministries were discussing possible action which might force EU airlines into long and costly detours and put them at a disadvantage to Asian rivals by restricting or banning European airlines from flying over Siberia on busy Asian routes. Costs? Over $1.3bn for every months for Lufthansa, BA, and Air France...

Russia to Use Pension Savings as Short-Term Budget Fix for Second Year -- Russia's government has approved a plan to use contributions to employees' privately managed pension funds to plug budget holes for a second year running. The move was confirmed by Labour Minister Maxim Topilin on Tuesday in comments published on the ministry's website. It has been heavily criticized by some officials and analysts, who say it will hurt the pensions industry and financial markets. The decision was taken after government ministers discussed the budget, Topilin said, adding that all obligatory pension contributions would be directed to finance the redistributive state pension system in 2015, including funds originally earmarked for private management. Russia imposed a freeze on defined pension contributions to private fund managers in 2014, diverting about 243 billion rubles ($7 billion) into state coffers. Earlier on Tuesday, Vedomosti, citing an anonymous government source, said that President Vladimir Putin and Prime Minister Dmitry Medvedev had already agreed to extend that freeze, despite opposition from the Finance Ministry and other economic policymakers. The extension into 2015 would provide about 300 billion rubles for the budget next year.

Russian Retaliation: Putin Orders Ban On All Food Imports From Sanctioning Countries For A Year -- Last week we noted Russia was considering banning fruit from Europe (as well as various other sanctions retaliations) but this morning Vladimir Putin has come out swinging by signing 'a decree on countermeasures to Western sanctions': So trade wars escalate externally and price controls internally. It appears the US (and Europe) will indeed feel "tangible losses" despite Jack Lew's promises.

Russia Imposes Sanctions Of Its Own - In response to the multiple rounds of sanctions that the West has imposed in response to Russia’s actions in Crimea and eastern Ukraine, Russia has banned the importation of a broad range of Western food and agricultural products:Russia announced on Thursday that it was banning the import of a wide range of food and agricultural products from Europe and the United States, among others, responding to Western-imposed sanctions and raising the level of confrontation between the West and Moscow over the future of Ukraine.Dmitri A. Medvedev, the prime minister, announced that Russia would ban all beef, pork, fruit, vegetables and dairy products from the European Union, the United States, Canada, Australia and Norway for one year.“We hoped until the very last that our foreign colleagues would realize that sanctions are a dead end and that nobody needs them,” Mr. Medvedev said. “Things have turned out in such a way that we have to implement retaliatory measures.”Russia was still considering various measures involving aviation, including a ban on flights over Siberia, which would affect routes used by European and American airlines that fly to Asia, he told a cabinet meeting broadcast live on state-run satellite news channels.

Russia responds to sanctions by banning western food imports -- Russia has banned fruit, vegetables, meat, fish, milk and dairy imports from the US, the European Union, Australia, Canada and Norway, Russia's prime minister told a government meeting on Thursday. Dmitry Medvedev said the ban was effective immediately and would last for one year. Russian officials were on Wednesday asked to come up with a list of western agricultural products and raw materials to be banned. The agriculture minister, Nikolai Fyodorov, said on Thursday that greater quantities of Brazilian meat and New Zealand cheese would be imported to offset the newly prohibited items. He added Moscow was in talks with Belarus and Kazakhstan to prevent the banned western foodstuffs being exported to Russia from the two countries.

Russia bans all U.S. food, EU fruit and vegetables in sanctions response; NATO fears invasion (Reuters) - Russia will ban all imports of food from the United States and all fruit and vegetables from Europe, the state news agency reported on Wednesday, a sweeping response to Western sanctions imposed over its support for rebels in Ukraine. The measures will hit consumers at home who rely on cheap imports, and on farmers in the West for whom Russia is a big market. Moscow is by far the biggest buyer of European fruit and vegetables and the second biggest importer of U.S. poultry. RIA quoted the spokesman for Russia's food safety watchdog VPSS, Alexei Alexeenko, as saying all European fruit and vegetables and all produce from the United States would be included in a ban drawn up on the orders of President Vladimir Putin to punish countries that imposed sanctions on Russia. Earlier, Alexeenko told Reuters bans on EU and U.S. goods would be "quite substantial", and would specifically include U.S. poultry, although he declined to give a full list of banned goods. He could not be reached again after the RIA report.

Russia’s ban on American food imports is going to hit the U.S. poultry, pork and nut industries the hardest - Russia has aimed its latest cross-Atlantic swing at the American food industry.On Thursday, the country announced the suspension of billions of dollars in food imports from a number of countries — including Norway, Canada, Australia, the United States and the 28-nation European Union — in retaliation for sanctions imposed on it by those nations over the past few weeks. The measure, which targets meat, fish, fruit, vegetable and milk products, and will last a year, is expected to hit food supplies and drive up Russian food prices. Russia spent nearly $10 billion on food from those countries that will now be banned. Going by the Russian agriculture minister's projections, the ban is expect to affect about 10 percent of the country's supply of pork, fish and fruit. But it's also slated to negatively affect a number of U.S. food industries. Overall, the U.S. exported well over $1 billion of food to Russia last year. Poultry exports, the largest in the food category, amounted to more than $300,000 million in 2013; nut exports to Russia topped $173 million; and soy bean exports were over $156 million.

US Dependent on Russia for NASA Launches; Well Guess What? Russia Fires Back With More Sanctions: NASA, Pepsi, McDonald's, Autos in Spotlight  - Not many people realize the US is dependent on Russian Soyuz rockets to ferry astronauts to the international space station.  Former former NASA administrator Michael Griffin told ABC News "We’re in a hostage situation. Russia can decide that no more U.S. astronauts will launch to the International Space Station and that’s not a position that I want our nation to be in.” That bit of news came out late July, and is under review by Russia today.  Itar-Tass reports Russia’s retaliation to foreign sanctions may be heavy. Russia can and must respond to foreign sanctions in a balanced way, but at the same time the retaliation must be strong enough to let the countries that imposed the restrictions feel its effects, says the director of the Globalization Problems Institute Mikhail Delyagin, in the past an aide to Russia’s prime minister. Russian President Vladimir Putin on Tuesday asked the government to consider retaliatory measures in response to western sanctions against Russia, but in a way that would not harm the interests of domestic manufacturers and consumers. The government is now in the process of discussing the possibility of banning European air carriers from flying to Asia and back through Russian air space. The measure was proposed after Russia’s lowcoster Dobrolyot declared it was cancelling all flights due to sanctions - its contracts for leasing Boeing liners of US manufacture had been annulled. Earlier, Vladimir Putin warned that the authorities might take a closer look at who was operating in the Russian energy market and in what way.

Why Have So Many Ukrainians Fled to Russia? Real News Network interview & transcript - About 730,000 Ukrainians have fled to Russia and over 1,300 have died since fighting began in April between Kiev and rebels in the eastern regions of Ukraine, according to the United Nations. The UN is also warning that the deterioration of water, power, and health supplies in the East will impact about 4 million Ukrainians as the fighting continues. NATO has issued another warning regarding a potential outbreak of conflict as 20,000 Russian troops remain near the border with Ukraine. And this comes as Russia announced a yearlong ban of various food imports from the U.S. and E.U. in response to sanctions imposed on them by the U.S. and E.U.  Joining us now to discuss this is Vladislav Gulevich. He is a political analyst and publicist from Ukraine and the author of many articles on geopolitical and philosophical issues. He is also a refugee living in Russia.

Is Europe’s Breadbasket Up for Grabs? -- Amidst an exodus of some 100,000 people from the conflict-torn eastern Ukraine, ongoing fighting in the urban strongholds of Donetsk and Luhansk between Ukrainian soldiers and separatist rebels, and talk of more sanctions against Russia, it is hard to focus on the more subtle changes taking place in this eastern European nation.But while global attention has been channeled towards the political crisis, sweeping economic reforms are being ushered in under the leadership of the newly elected president Petro Poroshenko, who recently brokered deals with the World Bank and International Monetary Fund that have rights groups on edge. After years of dangling a 17-billion-dollar loan – withheld in part due to ousted President Viktor Yanukovych’s refusal to implement a highly contested pension reform bill that would have raised the retirement age by 10 years, and his insistence on curbing gas price hikes – the IMF has now released its purse strings. The World Bank followed suit, announcing a 3.5-billion-dollar aid package on May 22 that the Bank’s president, Jim Yong Kim, said was conditional upon the government “removing restrictions that hinder competition and […] limiting the role of state control in economic activities.” While these reforms include calls for greater transparency to spur economic growth, experts are concerned that Ukraine’s rapid pivot to Western neoliberal policies could spell disaster, particularly in the immense agricultural sector that is widely considered the ‘breadbasket of Europe.’

Recent ECB Policy and Inflation Expectations - St. Louis Fed --On May 8, European Central Bank (ECB) President Mario Draghi stated the ECB would be “comfortable” taking measures to boost inflation.1 On June 5, the policy was resoundingly announced. For example, a press article said that “Draghi unveil(ed) historic measures against deflation threats.”2 The “historic” measures “unveiled” consisted of reducing the ECB’s benchmark rate to 0.15 percent, reducing the ECB’s deposit rate to -0.1 percent and announcing a bank lending facility of roughly $550 billion. The ECB also announced it was working on a plan to potentially conduct outright asset purchases. It can be said that, at least temporarily, the policy spurred several of the typical financial market effects that successful monetary policy is thought to have: Some bond yields fell, the euro depreciated against the U.S. dollar, and stock prices rose in Germany. However, there has been no effect on breakeven inflation expectations. This lack of reaction in inflation expectations can be interpreted as a signal that market participants do not expect the policy to work in terms of boosting inflation. Breakeven inflation expectations are defined as the additional yield provided by nominal debt with respect to the yield on inflation-indexed debt. Many analysts prefer breakeven inflation expectations over self-reported inflation expectations extracted from surveys because they depend on the actual behavior of market participants. The figures below show breakeven inflation expectations implied by sovereign bonds from the eurozone and the U.K

Is There Any Way That Weak Employment Numbers In Europe Might Bolster Concerns That Most Economists Are Right About Government Stimulus -- A New York Times article on new economic data from the euro zone noted a 0.1 percentage point rise in the unemployment rate in France. It told readers that this rise (which is almost certainly not statistically significant): "is likely to bolster concerns that France is stuck in an economic rut and politically incapable of making changes to labor rules or putting in place other overhauls needed to improve economic performance." There is no one quoted making this claim, it is simply an assertion of the article. In this context, it is worth noting a piece in the NYT Upshot section by Justin Wolfers, which was also highlighted in Paul Krugman's column today. Wolfers noted the nearly unanimous view among the economists surveyed by the University of Chicago's Initiative in Global Markets that President Obama's stimulus created jobs and that it was more than worth its cost. In the economics profession there is not much dispute that additional government spending in a depressed economy will lead to more jobs and growth. However, this view appears to have no place in the NYT's reporting on Europe's economy, instead we get unattributed assertions about bolstering concerns.

Europeans Struggle To Pay Their Electric Bills - Europeans are coping with paying their monthly energy bills as prices continue to soar. A survey by a European retail group Kingfisher found that “[h]omeowners in Europe are more worried about energy bills than paying the rent or mortgage,”  reports the BBC. Kingfisher surveyed 17,000 European households and found that many families are worried they won’t be able to pay their soaring energy bills. “There is a staggering increase in the number of people who intend to prioritise energy efficiency,” Kingfisher head Sir Ian Cheshire, told the BBC. “It is soaring bills that is driving this agenda.” So what’s happening in Europe? For years now, European nations have been aggressively funding renewable energy programs. These programs largely focus on deploying more wind and solar energy sources through mandates and feed-in tariffs that charge customers a fee to pay for green energy production. These programs were meant to tackle global warming, but the unintended consequence has been that consumer energy bills have been skyrocketing as green surcharges on their energy bills have grown and Europe begins to use fewer fossil fuels for power production.Germany’s “Energiewende” has cost the country $412 billion over the last decade. But the much vaunted energy revolution did “not provide net savings to consumers, but rather a net increase in costs to consumers and other stakeholders,” according to the Switzerland-based FAA Financial Advisory AG.

How to rip off a country, Espirito Santo style -  In my latest post at Pieria, I took a hard look at the half-year results of Portugal's distressed Banco Espirito Santo. They are pretty grim reading. No, they are worse than that. They read like an instruction manual for how to rip off a bank. It's no surprise that the losses are appalling. But now it seems that Banco Espirito Santo is to be bailed out by the Portuguese government. The rescue plan was announced by the Bank of Portugal late in the evening of 3rd August, and the European Commission confirmed that it complied with existing state aid rules.The Bank of Portugal's statement describes the dramatic events that led to the decision to rescue BES (my emphasis): On July 30, Banco Espírito Santo, SA announced losses which greatly exceeded those anticipated from the information previously provided by Banco Espírito Santo, SA and its external auditors. Results released on July 30 reflect management acts seriously prejudicial to the interests of Banco Espírito Santo, SA and infringement of Bank of Portugal decisions forbidding increased exposure to other entities of the Espírito Santo Group. These events took place during the tenure of the previous administration of Banco Espírito Santo, SA. Management acts at a time when the replacement of the previous administration had already been announced translated into an additional loss of the order of €1.5 billion compared to that expected from the statement of Banco Espírito Santo, SA to the market on July 10 .

Europe's tough new regime for banks fails first test in Portugal -  Portugal’s rescue of Banco Santo Espirito has left taxpayers on the hook for large potential losses, sparing senior bondholders in the first serious test of the EU’s tougher rules for bank failures. The controversial €4.9bn (£3.9bn) bailout over the weekend set off a relief rally on the Lisbon bourse, with bank stocks soaring. It also set off a political furore as opposition parties accused premier Pedro Passos Coelho of bending to the banking elites. “We live in a democracy, not a bankocracy. It is unacceptable for the prime minister to take money from the salaries of workers and pensions, and funnel it to a private bank,” said Catarina Martins, leader of the Left Bloc. European officials pledged last year that taxpayers will never again face losses from a bank failure until all creditors and unsecured depositors have been wiped out first. They seem to have backed away at the first sign of trouble, opting for soft terms rather than the draconian measures imposed on Cyprus. The EU’s new “bail-in” rules do not come into force until 2016, but it was assumed the broad principle would be followed. Portugal’s decision to protect senior bondholders is incendiary in a country already near austerity fatigue. The rescue comes three weeks after the central bank said Espirito Santo’s problems were safely contained. Carlos Costa, the central bank’s governor, said Lisbon was forced to act after the crippled lender revealed shock losses from exposure to the Espirito Santo family empire. The bank’s Tier 1 capital ratio had collapsed to 5pc, well below the 8pc minimum.

Italy slides back into recession with surprise GDP fall - — Italy fell back into recession for the third time in five years, data showed Wednesday, with gross domestic product dropping 0.2% in the second quarter of 2014 from the previous three months. National statistics institute Istat said Wednesday that the decline in Italy’s GDP during the second quarter stemmed from a contraction in all three main sectors of the economy — agriculture, manufacturing and services. Italy’s GDP declined 0.3% from the second quarter of 2013, Istat said, citing preliminary data. An average forecast of economists polled by Dow Jones Newswires had foreseen a GDP increase of 0.2% from the previous quarter and a 0.1% rise year-on-year. “The data show that the economy’s contraction started in the third quarter of 2011 and was interrupted only once in the last quarter of 2013,” an Istat official said. Italy’s economy contracted from 2008 to 2009 and from 2011 to 2013, contributing to the country’s worst economic slump since World War II. GDP grew by 0.1% in the last quarter of 2013 on a quarterly basis, for the first time after a two-year contraction.

Italy Unexpectedly Returns to Recession - Italy unexpectedly returned to recession and German factory orders dropped the most since 2011 as slowing global growth and rising tensions with Russia over Ukraine threaten the euro area’s recovery. Italy’s economy shrank 0.2 percent in the second quarter after contracting 0.1 percent in the previous three months. German orders slid 3.2 percent in June from May. Both reports were worse than forecast by economists in separate Bloomberg News surveys.  The renewed recession in Italy, the euro area’s third-biggest economy, will weigh on the region’s second-quarter gross domestic product figures. The currency bloc’s economy expanded 0.2 percent in the three months through March, and the ECB predicts growth of 1 percent this year.

Italy Falls Back Into Recession, Raising Concern for Eurozone Economy - — The Italian economy shrank in the second quarter, according to an official estimate on Wednesday, taking economists by surprise and provoking concern that violence in Ukraine and tension with Russia could be pushing the broader eurozone back into recession.  Italy’s gross domestic product contracted 0.2 percent from April through June, compared with the first quarter of 2014, Istat, the Italian statistics office, said in a preliminary estimate. It was the second quarterly decline in a row for Italy, meeting the most common definition of a recession. In the first quarter, output shrank 0.1 percent compared with the previous quarter.The decline dashed hopes that Italy, the third-largest eurozone economy after Germany and France, was finally emerging from a decade of stagnation. And it may be one of the first concrete signs of how tension with Russia is hurting the European economy, analysts said. Along with a report of a sharp decline in German factory orders, the data raised new questions about the health of the 18-country eurozone as a whole. Only three of the 18 members of the eurozone — Cyprus, Finland and Greece — had reported two quarters in a row of negative output at the end of March. But the number of countries in recession is bound to increase during the coming week as more of them report second-quarter growth.

A stream of poor economic reports from the Eurozone may be more than the "Putin factor" -- A slew of negative economic surprises across the Eurozone is pointing to significant challenges the area faces on its road to recovery. Three of these surprises are listed below:

  • 1. Italy's GDP unexpectedly contracted last quarter putting the nation into a third recession in 5 years. WSJ: - Italy has slipped into its third recession since 2008, data showed Wednesday, in an unexpected setback that threatens to restrain the broader euro zone's fitful recovery.   Italy's economy contracted at an annualized rate of 0.8% in the quarter ending June 30, according to a first estimate by national statistics institute Istat—the latest sign of how parts of Europe are still struggling to escape the legacy of the global financial crisis. It was the second successive quarter of falling Italian output, which meets the common international definition of a recession.
  • 2. The area's retail sector took an unexpected turn for the worse last month. Markit: - The eurozone retail sector started the second half of the year on a weaker footing. The fragility of consumer spending was exposed by the PMI, particularly in France and Italy where the data showed sharper downturns in sales. Even in Germany, the one area of relative strength, there was an appreciable slowdown from June’s recent peak.
  • 3. German factory orders contracted at the fastest pace since 2011. Deutsche Welle: - German industrial orders fell for the second consecutive month in June at a rate of 3.2 percent, following a similar 1.6 percent contraction in May, the economics ministry in Berlin said Wednesday. According to the data, orders contracted at their fastest pace since September 2011, disappointing analysts who had predicted gains of 0.9 percent in a consensus forecast.

Germany close to recession as ECB admits recovery is weak - German bonds yields plunged to a historic low and two-year rates briefly fell below zero on Thursday on fears of widening recession in the eurozone, and a flight to safety as Russian troops massed on the Ukrainian border. Yields on 10-year Bunds dropped to 1.06pc after a blizzard of fresh data showed that recovery has stalled across most of the currency bloc, with even Germany now uncomfortably close to recession. Commerzbank warned that the German economy may have contracted by 0.2pc in the second quarter and is far too weak to pull southern Europe out of the doldrums. Industrial output fell 1.5pc over the three months.. Mario Draghi, head of the European Central Bank (ECB), said the recovery remained “weak, fragile and uneven”, with a marked slowdown in recent weeks on escalating geopolitical worries over Russia and the Middle East. He said the ECB, which on Thursday held benchmark interest rates at 0.15pc, “stands ready” to inject money through purchases of asset-backed securities and quantitative easing if needed, but would not take further action yet even though inflation had fallen to 0.4pc.

Europe Teeters On The Edge - Ilargi: What did I call yesterday’s article again? Oh, that’s right, I called it Europe’s Tumbling, Who’s To Blame?. Well, I’m not a seer, or clairvoyant, but I might as well have used that exact same title again today. Because the same theme plays out again. In a piece initially called Europe’s Recovery Menaced by Putin as Ukraine Crisis Bites, later renamed Draghi Outlook Menaced by Putin as Ukraine Crisis Bites (what’s not to love), Bloomberg spills it all:The crisis in eastern Europe is showing signs of disrupting Mario Draghi’s economic outlook. Evidence is building that the conflict in Ukraine and European Union sanctions against Vladimir Putin’s Russia are undermining a euro-area recovery that the European Central Bank president already describes as weak. With the ECB expected to keep interest rates on hold near zero today and refrain from any new policy measures, Draghi is likely to face questions on how he plans to keep the economy on track. The ECB may have few tools left to mitigate the impact of political turmoil that European companies from Anheuser-Busch InBev to Siemens say is hurting their business. A volley of measures introduced in June will take time to work, and policy makers have so far shied away from wheeling out a full-scale asset-purchase program. “The euro-zone recovery is very fragile and the macro situation fluid,” said Andrew Bosomworth, managing director at Pacific Investment Management Co. in Munich. “Expect Draghi to elaborate on spillover risks from the Russia-Ukraine crisis.” Note that this was first published before Russia announced its sanctions on the west, and before Draghi held a speech in which he said … nothing much at all.

UK May be Further from Full Employment than BOE Thinks - The Bank of England may be underestimating the amount of slack left in the U.K.’s rapidly-growing economy, according to new research published Tuesday, which suggests the central bank could hold off raising interest rates for longer than expected. A paper published by the U.K.’s National Institute for Economic and Social Research, a nonpartisan think tank, argues that central bank officials have misjudged how much slack remains in the economy because of assumptions about long-term unemployment and the number of “underemployed,” or those working fewer hours than they would like. Authors David Bell of the University of Stirling in Scotland and David Blanchflower, a former BOE policy maker who teaches at Dartmouth College in New Hampshire, say the U.K. labor market is less healthy than officials believe and that the central bank could be at risk of making “damaging mistakes.” The research highlights one of the tricky judgments central banks have to make in choosing when to raise interest rates. Economic slack helps bear down on inflation by keeping a lid on wages and prices. As the economy grows and that spare capacity is eroded, inflationary pressures intensify, necessitating higher interest rates. Investors expect the BOE to raise its benchmark interest rate from a historic low of 0.5% early next year. Unemployment in the U.K. fell to 6.5% in May from 7.8% a year earlier and NIESR predicts it will tumble to 5.8% by the end of the year, according to its latest forecasts, also published Tuesday. The institute said it expects the U.K. economy will expand 3% this year and 2.3% in 2015.

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