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Fed's Balance Sheet 27 August 2014 - No Significant Change from Last Week - Fed's Balance Sheet week ending balance sheet was $4.371 trillion - well below the record $4.389 for week ending 13 August 2014. The complete balance sheet data and graphical breakdown of the cumulative and weekly changes follows the "read more". Read more >>
FRB: H.4.1 Release-- Factors Affecting Reserve Balances -- Thursday, August 28, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks
What did quantitative easing accomplish? -- Roger Farmer has taken a new look at an issue concerning the Federal Reserve's program of large-scale asset purchases (referred to in the popular press as "quantitative easing") that I've been discussing on Econbrowser and in my research with University of Chicago Professor Cynthia Wu for some time. One theory of how LSAP might affect interest rates is that if the Fed takes a large enough volume of long-term securities out of the hands of private investors, the drop in net supply could in principle lower the yields on those securities. In the years since the collapse of Lehman in September 2008, the Fed's total assets more than quadrupled, and the Fed's share of the total Treasury debt that was held in the form of longer-term securities increased significantly. But at the same time that the Fed was buying long-term Treasury debt in order to take these securities out of the hands of private investors, the Treasury was significantly increasing the fraction of debt that it issued that came in the form of longer maturities. The net result was that the fraction of Treasury debt that was of 2-10 year duration and that was held outside of the Federal Reserve actually increased significantly, despite the Fed's bond-buying efforts. Thus according to one theory of how LSAP might affect the economy, all the Fed's LSAP accomplished was to incompletely offset a contractionary impulse originating from the Treasury's separate maturity issuance decisions. The natural reconciliation of this evidence is that it was not the bond purchases themselves that moved the market, but instead it's what the purchases signaled in terms of future Fed decisions on short-term rates. Federal Reserve Bank of San Francisco researchers Michel Bauer and Glenn Rudebusch have provided some interesting evidence consistent with that interpretation. My view is that LSAP did have an effect, but that it was primarily through this signaling channel rather than a direct impact on bond markets of the Fed's purchases of long-term Treasury securities.
Pressure builds within Fed to signal new policy course (Reuters) - Pressure is building within the Federal Reserve for officials to move as early as next month to more clearly acknowledge improvements in the U.S. economy and lay the groundwork for the central bank's first interest rate hike in nearly a decade. According to some U.S. central bankers and their close advisers, signs of economic resilience and growing anxiety about the risks of holding rates too low for too long have set the stage for an intense debate over rewriting their policy statement. It is uncertain whether officials will use their upcoming meeting on Sept. 16 and 17 to scrap key parts of the language they have been using to keep rate-hike expectations at bay, but if they do not, October looks like a good bet. true "Some shift of language is on the table, and should be on the table in the coming meetings," Atlanta Federal Reserve Bank President Dennis Lockhart, a policy centrist, said in an interview. While a handful of officials have argued for prompt changes, Lockhart said he thinks September "is still early." Adding, dropping or adjusting even a few words in the Fed's post-meeting statement is a potentially treacherous task. A miscommunication by the world's most powerful central bank could shock financial markets globally and, in a worst case, reverse the economic recovery it seeks to foster.
At Jackson Hole, central bankers eye varying goals - — The central bankers meeting at their annual conference in Jackson Hole, Wyo., aren't exactly in sync. Many are taking steps that clash with the policies of others. The Federal Reserve is preparing to reduce its economic support. By contrast, the European Central Bank is considering more stimulus. So is the Bank of Japan. The Bank of England seems to be moving toward raising interest rates. It isn't just the biggest economies whose central banks are pulling in different directions. This year, central banks in Mexico, Sweden and South Korea, among others, have lowered rates. Others — in Russia and South Africa, for example — have raised them. It's a long way from the coordinated efforts that major central banks made after the 2008 financial crisis erupted and economies began to stall. As governments slashed taxes and spent stimulus money, central banks shrank rates to unclog credit and avert a 1930s-style depression. Today's diverging central bank strategies aren't without risk. Consider what happened in developing markets last year after Fed officials hinted that they might soon slow the pace of their monthly bond purchases. Those purchases have been intended to keep long-term U.S. loan rates low to encourage borrowing and spur growth.
Job concerns dominate Jackson Hole debate - FT.com: Mario Draghi sat next to Janet Yellen at lunch in Jackson Hole, and when he got up to speak, he began by observing that his speech was actually rather similar to hers. The stereotype, said Mr Draghi, is that all Europe's unemployment is structural – and thus permanent – while all US unemployment is cyclical – and will go away as the economy recovers. The message of both central bank chiefs, he said, is that reality is more complicated. High joblessness – currently about 6.1 per cent in the US – has served to obscure other changes in the labour market, such as, for example, the number of part time jobs. This lack of clarity about the rate of full employment makes it difficult for central bankers to know when to act on interest rates Ms Yellen, the Fed chair, raised a host of questions and offered few answers. How many people had pulled forward their retirement because of the recession? Did the decline of middle-skill occupations mean a permanent rise in part-time jobs? Is a pent-up desire for companies to cut existing wages what is holding them down today? Knowing how far the economy is from full employment is crucial in deciding when to raise interest rates. "Judgements concerning the size of that [employment] gap are complicated by ongoing shifts in the structure of the labour market," said Ms Yellen. Ben Broadbent, deputy governor of the Bank of England, said understanding job dynamics was particularly crucial for the UK, where a slump in productivity growth makes it hard to tell whether the economy is close to maximum output. "To identify what's supply and what's demand you need to see data on the labour market as well," he said.
Yellen, Wages, and Intellectual Honesty - Paul Krugman - Jared Bernstein is a bit puzzled by the piece of Janet Yellen's talk at Jackson Hole in which she suggests that some of the weakness in wages may reflect delayed adjustment rather than unemployment. Since her message was basically that the Fed should keep its pedal to the metal for a while yet, why blur the message? But I think I understand what Yellen was doing — and her willingness to do it underscores the asymmetry between the two sides in this debate.Here's how it works: If you believe that we've spent the past six years suffering from a huge overhang of excess supply, that inadequate demand is the whole story — as Yellen does, I do, and so should you — you do have one slightly awkward question to answer: while inflation has been subdued, why hasn't it turned into deflation? If labor is in huge excess supply, why are average wages still rising, albeit slowly? Doves like me have taken that question seriously, and placed a fair bit of weight on downward nominal wage rigidity. If wages don't fall except in extreme cases, you can explain average wages continuing to rise by the combination of sticky wages for some workers and rising wages for those workers who, for whatever reason, face better-than-average prospects. If that's your story, however, it has other implications, including the one Yellen identified — a sort of delayed wage-depression effect that persists for a while even as markets recover. And Yellen felt compelled to mention that implication, I think basically because she wanted to make it clear that she was engaged in a good-faith analytical exercise, not trying to build a brief for the policy she wanted for visceral or political reasons.
Let's stop deifying the Fed.: This past week marked the annual gathering of bankers, financial officials, and other economic experts hosted by the Kansas City Federal Reserve Bank in Jackson Hole, Wyoming. On Friday, Fed Chair Janet Yellen and European Central Bank head Mario Draghi both spoke; in a slow week for the markets, these speeches received the bulk of the econ media's attention, and Yellen's remarks were heralded for days as the week's major financial event.This emphasis on the utterances of the Fed chair is only one aspect of a deification of the Fed and whoever heads it. The elevation of the Fed chair to current heights is not benign. It fosters an unhealthy dependency and excuses policymakers and market participants from making their own judgments, as well as their own mistakes. More problematic, however, was the topic of Yellen's speech: the labor market. Don't get me wrong. The labor market is a crucial economic topic. But the notion that the Fed should be responsible for the labor market is both new and flawed. The so-called "dual mandate" of the Fed is to focus on price stability and on employment. But the idea that the Fed can do much to affect employment is, at the very least, questionable.
Fed's Bullard: Europe is biggest risk to outlook -- For a few months now, St. Louis Fed President James Bullard has been saying the first rate increase by the U.S. central bank should come at the end of the first quarter 2015. That puts him ahead of the consensus of the Fed's policy committee, which sees a rate hike after midyear. But Bullard is often ahead of his colleagues. He was one of the first Fed officials to spell out the need for bond-buying to support the economy. Former Fed Gov. Laurence Meyer ranks Bullard as the Fed official who moved markets most in 2013. Bullard sat down for an interview on the sidelines of the Fed's Jackson Hole summer retreat. A few highlights: Bullard thinks the economy is on track for 3% growth in the second half, he's worried about the European economy. On the exit strategy, Bullard said that unlike many of his colleagues, he would be prepared to sell assets from the central bank's balance sheet and he is worried that Congress might object to the Fed paying interest to excess reserves that the banks are holding at the central bank.
Why Interest Rates Need to Stay Low - A sharp debate within the Federal Reserve over when to raise interest rates was publicly aired last week at the annual central bankers' conference in Jackson Hole, Wyo. On one side is a small yet vocal minority of Fed officials who want to head off inflation by raising rates sooner rather than later. On the other is a majority that thinks a near-term rate hike would stifle growth and, with it, any chance of restoring health to the labor market. That group includes Janet Yellen, the Fed's chairwoman, and most members of the Fed's policy committee. The economic evidence indisputably favors Ms. Yellen, who has indicated that rate increases should not begin until sometime next year, at the earliest. It will take until then to be able to say with confidence whether recent improvements in growth and hiring are sustainable. For now, the prospects for both are mixed at best, with the preponderance of evidence — including the Fed's own analysis — indicating that growth this year will average out around a still-sluggish 2.3 percent. That is too slow to reliably boost the number and quality of jobs and, as such, too slow to justify raising rates. The debate over interest rates does not stop there. Another argument in favor of near-term rate increases is that the Fed's prolonged low-rate policy is inflating asset bubbles that could burst with harmful consequences. Unlike the inflation argument, for which there is no evidence, concern about bubbles is justified. The answer, however, is not to raise rates, slowing the entire economy in order to tame the markets. The answer, laid out in recent remarks by Ms. Yellen and Stanley Fischer, the Fed vice chairman, is to use bank regulation and financial oversight to ensure that institutions and investors do not use low rates as a springboard for speculating.
Memo to Fed: Interest Rates Are a Sideshow; the Problem is Income Inequality - The time and effort spent by members of the Federal Reserve Board of Governors debating the timing of rate hikes is an utterly wasted exercise in futility – and the historically astute members of the Fed know it. After eight solid months of blathering about when rate hikes might occur, the real muscle in the bond market – the bond vigilantes – are drawing their own conclusions about what is coming down the pike. The benchmark 10-year U.S. Treasury note has moved from a yield of 2.85 percent at the beginning of the year to close last week at 2.38 percent. That's the reaction of a market more worried about constrained income dispersal in the U.S. causing deflation than a market bidding up yields in anticipation of a rate hike. In early August, the Fed's own scholars released a report showing just how fragile the U.S. economy remains as a result of Wall Street's continuing, institutionalized wealth transfer system. The Fed's Division of Consumer and Community Affairs found that 52 percent of Americans would not be able to raise $400 in an emergency by tapping their checking, savings or borrowing on a credit card which they would be able to pay off when the next statement arrived. As we have argued repeatedly at Wall Street On Parade, there is a finite equilibrium of income distribution at which the U.S. economy, or any other economy, can sustain momentum without artificial stimulus. In the U.S., 70 percent of U.S. Gross Domestic Product (GDP) is consumption. When workers are stripped of an adequate share of the nation's income, they cease to be the levers of economic growth.
Dethrone 'King Dollar' -— THERE are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world's reserve currency. It's a core principle of American economic policy. After all, who wouldn't want their currency to be the one that foreign banks and governments want to hold in reserve? But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar's reserve-currency status.The reasons are best articulated by Kenneth Austin, a Treasury Department economist, in the latest issue of The Journal of Post Keynesian Economics (needless to say, it's his opinion, not necessarily the department's). On the assumption that you don't have the journal on your coffee table, allow me to summarize.It is widely recognized that various countries, including China, Singapore and South Korea, suppress the value of their currency relative to the dollar to boost their exports to the United States and reduce its exports to them. They buy lots of dollars, which increases the dollar's value relative to their own currencies, thus making their exports to us cheaper and our exports to them more expensive.In 2013, America's trade deficit was about $475 billion. Its deficit with China alone was $318 billion.Though Mr. Austin doesn't say it explicitly, his work shows that, far from being a victim of managed trade, the United States is a willing participant through its efforts to keep the dollar as the world's most prominent reserve currency.
It Begins: Council On Foreign Relations Proposes That "Central Banks Should Hand Consumers Cash Directly" - "Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly.... Central banks, including the U.S. Federal Reserve, have taken aggressive action, consistently lowering interest rates such that today they hover near zero. They have also pumped trillions of dollars' worth of new money into the financial system. Yet such policies have only fed a damaging cycle of booms and busts, warping incentives and distorting asset prices, and now economic growth is stagnating while inequality gets worse. It's well past time, then, for U.S. policymakers -- as well as their counterparts in other developed countries -- to consider a version of Friedman's helicopter drops. In the short term, such cash transfers could jump-start the economy... The transfers wouldn't cause damaging inflation, and few doubt that they would work. The only real question is why no government has tried them"...
About the Fed Not Trying Hard Enough To Hit Its Inflation Target - It is hard not to be cynical when you see charts like this one. It shows what appears to be a systematic relationship over the past 6 years between changes in the Fed share of marketable treasuries and PCE core inflation: The figure indicates the Fed allows its share of marketable treasuries to change--by either engaging in LSAPs or refraining from doing so as the total share grows--so that core PCE inflation stays in the 1% to 2% corridor. Here is the scatterplot of this data: Now this is just a reduced-form relationship, but it is highly suggestive and consistent with my claim from an earlier post that there really is no 2% target. Rather, there is a 2% ceiling to an inflation target corridor. As I showed in that post, the timings of the QE programs tend to line up with this view. The above chart provides further evidence. For those observers who are so focused on endogenous money that they fail to see how a central bank can shape the medium-to-long run path of inflation recall what we discussed here and here.
Inflation Stays Below the Fed's Target for 27th Straight Month - Consumer prices rose modestly in July, a sign inflation remains in check as the Federal Reserve winds down its bond-buying program. The price index for personal consumption expenditures–the Fed's preferred inflation measure–increased 1.6% in July from a year earlier, the Commerce Department said Friday. Excluding volatile food and energy prices, so-called core prices climbed 1.5% year over year. Both overall and core prices rose at the same annual pace in July as they did in June, suggesting inflation pressures remained at bay. Compared to a month earlier, each measure was up just 0.1%. The report shows inflation continues to run below the 2% target the Fed sets as a gauge of price stability and healthy growth. The PCE price index has run below 2% for 27 consecutive months. Still, prices have picked up since the start of the year, and the Fed projects they'll steadily climb toward its target by the end of 2015. As recently as February, the index showed prices growing at just 1% year over year. Low inflation gives the Fed more flexibility as it winds down its bond-buying program and plots when and how to raise short-term interest rates, which have been pinned near zero since late 2008. Those policies were designed to spur economic growth by encouraging spending, hiring and investment. The Fed has been gradually reducing its bond purchases, which totaled as much as $85 billion a month in the latest round of bond-buying, and is set to wind down the program in October.
US economy: 'pent up wage deflation' blues -- "Pent up wage deflation" is an unfamiliar and somewhat abstruse term dropped into the economic lexicon last week by Janet Yellen at the annual Jackson Hole conference. Originally coined by researchers at the Federal Reserve Bank of San Francisco, the term is destined to be widely discussed because it is clearly influencing the US Federal Reserve chair's thinking. If it exists, it would explain why wage inflation seems abnormally low, given the recent rapid drop in unemployment, and that could eliminate one important reason for keeping US interest rates at zero per cent for the "considerable period" promised by the central bank. Ms Yellen is right to be aware of the concept, and to keep it under review, but in my view the Fed is unlikely to shift in a hawkish direction solely because of it. This blog explains the theoretical and empirical reason why this is the case.
Second-quarter GDP growth revised up to 4.2 percent | Fox Business: The U.S. economy rebounded more strongly than initially thought in the second quarter and details of a report on Thursday pointed to sustainable underlying strength. Gross domestic product expanded at a 4.2 percent annual rate instead of the previously reported 4.0 percent pace, the Commerce Department said, reflecting upward revisions to business spending and exports. It was the fastest pace since the third quarter of 2013. The composition of growth in the second quarter was even more encouraging, with the sources of growth broad-based. Domestic demand increased at a 3.1 percent rate, instead of the previously reported 2.8 percent pace. It was the fastest pace since the second quarter of 2010 and suggested the recovery was more durable after output slumped in the first quarter because of an unusually cold winter. Economists polled by Reuters had expected the second-quarter GDP growth pace would be revised down to 3.9 percent. The economy contracted at a 2.1 percent pace in the first quarter. Gross domestic income, which measures the income side of the growth ledger, surged at a 4.7 percent rate, consistent with strong job gains during the quarter. That was the largest increase since the first quarter of 2012. This alternative growth measure decreased at a 0.8 percent pace in the first quarter. Corporate profits rebounded from a decline that had been spurred by the expiration of a depreciation bonus. Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised at a 2.5 percent rate. Businesses accumulated $83.9 billion worth of inventory in the second quarter, less than the initially reported $93.4 billion. That saw restocking contributing 1.39 percentage points to GDP growth rather than 1.66 percentage points. While trade was a drag for a second consecutive quarter, export growth was raised to a 10.1 percent pace from a 9.5 percent rate. Business spending on equipment and nonresidential structures, such as gas drilling, was revised higher.
Q2 GDP Rises to 4.2% in the Second Estimate - The Second Estimate for Q2 GDP, to one decimal, came in at 4.2 percent, an upward revision from the Advance Estimate of 4.0 percent. The GDP deflator used to calculate real (inflation-adjusted) GDP rose to 2.2 percent, an upward revision from the Advance Estimate of 2.0 percent. Investing.com had forecast a downward revision to 3.9 percent for today's GDP estimate and the deflator to remain unchanged at 2.0 percent. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.2 percent in the second quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 2.1 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 4.0 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; the increase in nonresidential fixed investment was larger than previously estimated, while the increase in private inventory investment was smaller than previously estimated (see "Revisions" on page 3). The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased. [Full Release] Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).
Q2 GDP Revision Unexpected Rises On Alleged Jump In Capex To Highest Since 2011 -- Following the unexpected surge in Q2 GDP, which beat most analyst estimates, there was widespread expectation that based on real-time data, the revised Q2 print would be worse. So perhaps it is appropriate that the Bureau of Economic Analysis punked everyone once again, when moments ago it released the first revision to the Q2 GDP print, which instead of dropping to the consensus expected 3.9%, it instead rose to 4.2%, up from the 4.0% initial report. This was driven not by a change in actual spending, the most important driver of the US economy, which was unchanged from the first estimate at 1.69%, but, amusingly enough, by a jump in fixed investment, i.e., CapEx, which rose from 0.3% in Q1 to 0.91% in the first Q2 GDP estimate to 1.25% currently: this is the highest CapEx print since Q4 2011. How is this possible (especially when one excludes Boeing orders)? Nobody knows, unless the BEA now adds stock buybacks to its definition of fixed investment, which as everyone now knows, is where the bulk of corporate free cash flow has been going.As for inventory, it rose at a slightly lower pace, up 1.39% vs the 1.66% annualized pace reported previously, although on an absolute basis the number was again higher, and as JPM reports, inventories rose by 84 billion versus the $67 billion JPM had expected, "potentially dragging on Q3." Finally, the other two components, Net Trade, were largely unchanged at -0.45%, and 0.27% respectively.
The BEA's Q2 GDP Second Estimate: A Deeper Analysis -- In their second estimate of the US GDP for the second quarter of 2014, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a +4.18% annualized rate, up about a quarter of a percent from their previous estimate. When compared to the prior quarter, the new measurement is now up about 6.3% from a -2.11% contraction rate for the 1st quarter of 2014. This is the largest positive quarter to quarter improvement in GDP growth in 14 years. The largest positive revisions to the growth contributions during the 2nd quarter growth were in commercial fixed investments (+0.34%), imports (+0.11%), exports (+0.08%) and consumer expenditures for services (+0.09%). The increase in consumer services spending was mostly offset by reduced spending for consumer goods (-0.08%), and the improved fixed investment was partially offset by reduced inventory building (-0.27%). The "real final sales of domestic product" growth improved by about a half percent to +2.79%. Real annualized per-capita disposable income was reported to be $37,481 -- up $32 per year from the previous estimate, but still down $388 from the 4th quarter of 2012. As mentioned last month, a significant portion of that increased disposable income went into savings, with the savings rate holding at 5.3% -- the highest savings level since 4Q-2012. For this report the BEA effectively assumed annualized quarterly inflation of 2.15%. During the second quarter (i.e., from April through June) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over one and a third percent higher at a 3.53% (annualized) rate, and the price index reported by the Billion Prices Project (BPP -- which arguably reflected the real experiences of American households) was over a half of a percent higher at 2.72%. Under reported inflation will result in overly optimistic growth data, and if the BEA's numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be growing at a 2.89% annualized rate. If we were to use the BPP data to adjust for inflation, the quarter's growth rate would have been 3.70%.
Real GDP Per Capita Rises to 3.49% - Earlier today we learned that the Second Estimate for Q2 2014 real GDP came in at 4.17 percent (rounded to 4.2 percent), an upward revision from 4.0 percent in the Advance Estimate. Real GDP per capita was somewhat lower at 3.49 percent. Here is a chart of real GDP per capita growth since 1960. For this analysis I've chained in today's dollar for the inflation adjustment. The per-capita calculation is based on quarterly aggregates of mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data is available in the FRED series POPTHM. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale. I've drawn an exponential regression through the data using the Excel GROWTH function to give us a sense of the historical trend. The regression illustrates the fact that the trend since the Great Recession has a visibly lower slope than long-term trend. In fact, the current GDP per-capita is 9.8% below the pre-recession trend but fractionally higher than the 10.1% below trend in Q1. The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession. The standard measure of GDP in the US is expressed as the compounded annual rate of change from one quarter to the next. The current real GDP is 4.2 percent (rounded from 4.17 percent). But with a per-capita adjustment, the data series is currently at 3.49 percent. Both a 10-year moving average and the slope of a linear regression through the data show that the US economic growth has been slowing for decades.
Most Americans Think The Economy Is Permanently Damaged -- Seven out of 10 Americans say the U.S. economy has been permanently damaged by the Great Recession that started at the end of 2007, according to a new poll. When Rutgers University asked people about the recession in 2009, only 49 percent said the economy had settled into a crappy new normal. The percentage has increased each year since then, hitting 71 percent this summer. "Looking at the aftermath of the recession, it is clear that the American landscape has been significantly rearranged," Rutgers professor Cliff Zukin said in a press release. "With the passage of time, the public has become convinced that they are at a new normal of a lower, poorer quality of life."Curiously, while only 12 percent of respondents said workers in general were happy with their jobs, 63 percent said they were satisfied with their own jobs. That result is in line with a recent Gallup survey, which found Americans' satisfaction with their job security had reached historic highs. Nevertheless, just 16 percent in the Rutgers survey said things would be better for the next generation -- down from 40 percent in 2009 and 56 percent when researchers asked the same question in 1999. Two-thirds said the recession had a negative effect on their lives. And few think elected leadership will help, with 78 percent saying they had "not much" or "no confidence at all" that the government would make things better, compared with 59 percent in January 2009.
The economy's doing great, except for the people in it - According to the officials who track this sort of thing, the recession is far behind us. According to half of the public, it's still with us.We learned today that the economy just had a strong quarter, with GDP up 4.2 percent. Corporate profits are doing great, as is the stock market. But paychecks and middle-class incomes … not so much.And according to one poll also out today from Rutgers University, effusively titled "Unhappy, Worried and Pessimistic: Americans in the Aftermath of the Great Recession," people are feeling … well, you get it.The figure below takes a swipe at the question of why the economy's getting better but so many are not feeling it. Each indicator is adjusted for inflation and measured over the economic recovery from the Great Recession, which began, at least according to the officials who date recessions (I don't mean they go out with them), in June of 2009. And yep … that's five years ago, so this expansion is actually longish in the tooth.Since June 2009, the economy writ large, i.e., real Gross Domestic Product, is up 11 percent, but the next two bars show where most of the growth has gone. Corporate profits are up 45 percent and the stock market has close to doubled, up 92 percent. And, of course, the next bar shows where the growth hasn't gone: median household incomes are down 3 percent in real terms over the past five years. And, truth be told, they weren't doing all that great before the downturn.
Economic recovery favors the more-affluent who own stocks | Pew Research Center - The surge in the stock market this year – restoring much of the wealth that had been lost during the financial meltdown that struck in 2007 – has masked the unevenness of the recovery among Americans since 2009. A Federal Reserve board analysis this week spelled out the reason: stock market wealth is held by a relatively small number of the most-affluent and, as a result, "most families have recovered much less than the average amount." This factor is also made clear in Pew Research Center surveys and analyses that show which Americans do or don't own stocks, and how this dividing line has widened the wealth gap in the period since the recovery began to take hold in 2009. A Pew Research survey in March found that 53% of Americans say they have no money at all invested in the stock market, including retirement accounts. Broad majorities of those in households earning $75,000 a year or more (80%) and those with a college degree (77%) say they have money invested in the stock market. By contrast, just 15% of those earning less than $30,000 a year and 25% of those with no more than a high school diploma say they have money in the market.
Here Come The Q3 GDP Downgrades...Following the significantly weaker-than-expected spending data, the sell-side has begun its inglorious downgrades of the exuberant hockey-stick growth expectations they all extrapolated off Q1 lows... Goldman cut from +3.3% to +3.1% and Barclays slashed Q3 GDP expectations from +2.7% to a mere +2.2%. Via Goldman Personal income rose 0.2% in July (vs. consensus +0.3%). The core wages and salaries component increased 0.2% as well. Personal spending was considerably weaker than expected, falling 0.1% (vs. consensus +0.2%). Real spending declined 0.2% on the month. Softness was fairly broad based, evident in durable goods (-0.6%), nondurable goods (-0.2%), and services (-0.1%). Real electricity and gas utilities spending fell 7%, subtracting about a tenth off of the headline, likely due to unseasonably cool summer weather. As a result of income growing more quickly than spending, the personal saving rate moved up three-tenths to 5.7%, the highest level since late 2012. Both the headline and core PCE price index rose 0.1% on a rounded basis, in line with consensus expectations. Over the past year, the headline PCE price index increased 1.6% and the core PCE price index increased 1.5%, a still-subdued pace relative to the Fed's 2.0% target. We reduced our Q3 GDP tracking estimate by two-tenths to +3.1%.
Chicago Fed: "Index shows economic growth picked up in July" -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth picked up in July Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.39 in July from +0.21 in June. Three of the four broad categories of indicators that make up the index made positive contributions to the index in July, and two of the four categories increased from June. The index's three-month moving average, CFNAI-MA3, increased to +0.25 in July from +0.16 in June, marking its fifth consecutive reading above zero. July's CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.
Chicago Fed: Economic Growth Picked Up in July -- "Index shows economic growth picked up in July": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report: Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) rose to +0.39 in July from +0.21 in June. Three of the four broad categories of indicators that make up the index made positive contributions to the index in July, and two of the four categories increased from June. The index's three-month moving average, CFNAI-MA3, increased to +0.25 in July from +0.16 in June, marking its fifth consecutive reading above zero. July's CFNAI-MA3 suggests that growth in national economic activity was somewhat above its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index, which is also a three-month moving average, increased to +0.31 in July from +0.21 in June. Fifty-three of the 85 individual indicators made positive contributions to the CFNAI in July, while 32 made negative contributions. Forty-eight indicators improved from June to July, while 36 indicators deteriorated and one was unchanged. Of the indicators that improved, nine made negative contributions. [Download PDF News Release] The Chicago Fed's National Activity Index (CFNAI) is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. . The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity.
US economy forecast to grow by 1.5 percent in 2014: (AP) — The Congressional Budget Office on Wednesday forecast that the U.S. economy will grow by just 1.5 percent in 2014, undermined by a poor performance during the first three months of the year. The new assessment was considerably more pessimistic than the Obama administration's, which predicted last month that the economy would expand by 2.6 percent this year even though it contracted by an annual rate of 2.1 percent in the first quarter. The economy did grow by 0.9 percent during the first half of 2014. Looking ahead, the CBO said it expected the economy to grow by 3.4 percent over 2015 and 2016, and predicted that the unemployment rate would remain below 6 percent into the future. The economy went into reverse at the beginning of this year, reeling from an unusually harsh winter that disrupted consumer spending, factory production and other business activity. Growth in the gross domestic product, the economy's total output of goods and services, recovered in the second quarter, advancing at an annual rate of 4 percent, according to the government's first estimate. That forecast will be revised on Thursday. Even with the rebound, economists have lowered their outlook for the entire year, given the weak start. Economists at JPMorgan Chase are forecasting that the economy will grow by 1.9 percent this year, when measured from the fourth quarter, down from 3.1 percent in 2013. The CBO also projected that the government would run a deficit of $506 billion for the budget year that ends Sept. 30. That would be the lowest level of Barack Obama's presidency.
Fed payouts to Treasury boost government's fiscal picture -- The government can thank the Federal Reserve in part for a rosier fiscal outlook. The Congressional Budget Office (CBO) reported Wednesday that this year's federal deficit will come in around $506 billion. That number is up slightly from earlier estimates, but down significantly from the $680 billion the government recorded in fiscal 2013. The Fed's payouts to the Treasury Department played a significant role in that improvement, according to the CBO. The budget office reported Wednesday that it expects the Fed to hand over more than $100 billion to the Treasury in fiscal 2014, up $25 billion from fiscal 2013 levels. That's roughly a 33 percent increase from the prior year. The central bank's heftier handout is thanks to the continued expansion of its portfolio from its bond-buying stimulus program and the return on those investments. Under law, whatever profits the Fed makes in the course of its operations must be handed over to the Treasury after covering the central bank's operating costs. As the bank has bought huge numbers of bonds in recent years, the amount of money it reaps in interest similarly has increased. The Fed's balance sheet boomed when the central bank took the unprecedented step of buying hundreds of billions of dollars in bonds in a bid to further lower borrowing costs and spur the economy. According to its latest report, the total stands at roughly $4.4 trillion and is still growing, albeit more slowly. The Fed sent the Treasury $77.7 billion in 2013, slightly below the record amount it sent in 2012 of $88.4 billion.
CBO Projection: Budget Deficits in Future Years to be Smaller than Previous Forecast - The Congressional Budget Office (CBO) released new budget projections today An Update to the Budget and Economic Outlook: 2014 to 2024. The projected budget deficits have been reduced for most of the next ten years, although the projected deficit for 2014 has been revised up slightly (by $14 billion). NOTE: In the previous update, the CBO revised down their projection of the deficit for fiscal 2014 from 3.7% to just under 2.9% of GDP. From the CBO: The federal budget deficit for fiscal year 2014 will amount to $506 billion, CBO estimates, roughly $170 billion lower than the shortfall recorded in 2013. At 2.9 percent of gross domestic product (GDP), this year's deficit will be much smaller than those of recent years (which reached almost 10 percent of GDP in 2009) and slightly below the average of federal deficits over the past 40 years. ... CBO's current economic projections differ in some respects from the ones issued in February 2014. The agency has significantly lowered its projection of growth in real GDP for 2014, reflecting surprising economic weakness in the first half of the year. However, the level of real GDP over most of the coming decade is projected to be only modestly lower than estimated in February. In addition, CBO now anticipates lower interest rates throughout the projection period and a lower unemployment rate for the next six years. The CBO projects the deficit will decline further in 2015, and will be at or below 3% of GDP through fiscal 2019. Then the deficit will slowly increase.
Wonkbook: What you need to know about the CBO's new report on the deficit - - Number of the Day: $506 billion. That's the CBO's newest projection for the fiscal year 2014 federal deficit, up slightly from a previous projection but still down significantly from last year's deficit. This fiscal year's budget deficit: relatively modest. "The federal government is expected to finish its fiscal year with a relatively modest budget deficit as the gap between revenue and spending continues a sharp decline, the Congressional Budget Office said Wednesday. The improvement in the government's financial health has shifted political debate in Washington, and arguments on the midterm campaign trail, from the level of federal spending to the uses of that money. It has frustrated economists who argue that the government's restraint has held back the economic recovery." Video: All you need to know about the federal debt and deficit in 3 minutes. The 10-year outlook has improved, but that may not last. "The agency has also lowered its 10-year deficit forecast....But that improvement is due primarily to...changes in the way CBO calculates interest payments on the debt....Those improvements could be wiped out, however, once lawmakers get back to work this fall. Simply extending the raft of expired and expiring tax provisions could add nearly $900 billion to deficits by 2024, the CBO said. And if Congress eases automatic budget cuts, known as the sequester, the red ink could swell by as much as $900 billion more by the end of the decade."
CBO forecast of 1.5% growth lower than Obama's: — The Congressional Budget Office on Wednesday forecast that the U.S. economy will grow by just 1.5 percent in 2014, undermined by a poor performance during the first three months of the year. The new assessment was considerably more pessimistic than the Obama administration's, which predicted last month that the economy would expand by 2.6 percent this year even though it contracted by an annual rate of 2.1 percent in the first quarter. The economy did grow by 0.9 percent during the first half of 2014. Looking ahead, the CBO said it expected the economy to grow by 3.4 percent over 2015 and 2016, and predicted that the unemployment rate would remain below 6 percent into the future. The economy went into reverse at the beginning of this year, reeling from an unusually harsh winter that disrupted consumer spending, factory production and other business activity. Growth in the gross domestic product, the economy's total output of goods and services, recovered in the second quarter, advancing at an annual rate of 4 percent, according to the government's first estimate. That forecast will be revised on Thursday. Even with the rebound, economists have lowered their outlook for the entire year, given the weak start. Economists at JPMorgan Chase are forecasting that the economy will grow by 1.9 percent this year, when measured from the fourth quarter, down from 3.1 percent in 2013.
CBO "Revises" Its 2014 GDP Forecast, Hilarity Ensues (As Always) - The gross, in fact epic, incompetence of the Congressional Budget Office when it comes to doing its only job, forecasting the future state of the US economy, has previously been extensively documented here (and here and here and here). This incompetence is in the spotlight once again this morning with the CBO's release of its latest forecast revision of its original February 2014 projection. And while every aspect of the revised projection has changed, in an adverse direction of course, the punchline is the chart below: the CBO's revised projection for 2014 GDP. It's one of those "no comment necessary" visuals.
CBO's Spending Projections Map the Coming Fiscal Battle - Without changes in the law, health care, Social Security, and interest on the debt will eat up 85 percent of all new federal government spending over the next 10 years, according to the latest estimates by the Congressional Budget Office. By contrast, CBO expects most of the rest of government, including income security for low-income households, national defense, transportation, health and safety, education, and the like to shrink to its lowest levels—as a share of the economy—since before World War II. Combined, all of government—except for health care, Social Security, and net interest—will absorb only about 7.4 percent of Gross Domestic Product by 2024, down by one-fifth from 2013 and one-third lower than it was in the mid-1970s. Total spending would remain close to the 40-year average of about 21 percent of GDP, despite an aging population that will require more medical care and receive, in aggregate, much more in Social Security benefits. And despite annual interest costs that CBO figures will rise from $230 billion this year to almost $800 billion in a decade, or from 1.3 percent of GDP to 3 percent. While CBO's updated deficit forecast got most of the attention (if you missed it: the short-term deficit is due to shrink, thanks mostly to a rebounding economy), the more interesting story is what is expected to happen to federal spending under current law.
Congress Must Act to Get the Economy Back on Track - A few years back, Federal Reserve Chairman Ben Bernanke gave a speech at the annual Fed gathering in Jackson Hole, Wyo., that devoted a good deal of attention to U.S. fiscal policy. The speech was important not only because it was on target – Mr. Bernanke recommended reforming U.S. tax and spending policies in a gradual way to control the debt without creating "fiscal headwinds" on the recovery (translation: a Simpson-Bowles-like plan) – but also because he stepped beyond the world of pure monetary policy to address legislative issues. This only made sense since the economic recovery so clearly depended on both rational Fed and fiscal policies. Even then, Mr. Bernanke held back from being overly prescriptive because there is such strong a firewall between policies from the Fed and those on Capitol Hill. It seems likely that as Fed Chairwoman Janet Yellen gave her keynote address at Jackson Hole last week focused on labor markets, she, too, would have liked to be able to give lawmakers a gentle nudge—or a shove—in the right direction. Efforts from the Fed alone will not be sufficient to stimulate growth and ensure that growth translates into more and better jobs. The larger lift will have to come through sensible federal policies. We need a medium-term debt deal that focuses not on short-term deficit reduction – where we have already done too much in the wrong areas of the budget – but on gradual changes to spending related to aging and health care. We need immigration, energy, and infrastructure reforms. We need to update and improve our unemployment and worker-retraining programs. And we need tax reform.
Fueling Road Spending with Federal Stimulus - SF Fed - Highway spending in the United States between 2008 and 2011 was flat, despite the serious need for improvements and the big boost to state highway funds from the Recovery Act of 2009. A comparison of how much different states received and spent shows that these federal grants actually boosted highway spending substantially. However, this was offset by pressures to reduce state highway spending due to plummeting tax revenues. In fact, analysis suggests national highway spending would have fallen roughly 20% over this period without federal highway grants from the Recovery Act.
Bipartisan Agreement: Politicians Are to Blame for Economy's Ills -- In the August 2014 WSJ/NBC survey, the pollsters asked: Which of the following statements about the economic problems facing the country best describe your point of view: 23% There are mostly deep and longstanding problems with the economy and it does not really matter what elected officials in Washington do. 71% There are mostly problems with the inability of elected officials in Washington to get things done to help improve the economy. There is partisan unanimity: 76% of Republicans and 73% of Democrats blame the inability of elected officials in Washington. Interestingly, while still a majority, "just" 61% of Independents do so. Of course, that lower number may be a sign that Independents have given up on the concept of D.C. helping to improve the economy. There is no gender or income gap on this issue, but there is a modest generation gap, as seniors in particular are fed up with the inability of elected officials in Washington to get things done to help the economy.
Congress turns Wikipedia into forum for pranks, battle - Even while Congress is in recess, it has found a new battleground for mud slinging: Wikipedia. A string of controversial edits on the online encyclopedia caused one House Internet Protocol (IP) address to be banned three times this summer, most recently for a month. Transparency advocates say that's a depressing signal of Capitol Hill's inexperience with the world's sixth most popular website. Without any clear guidance on how to interact with the site, some staffers have turned to flame wars and anonymous trolling. "We need to figure out what our relationship is with Wikipedia and at this point we just don't know," said Yuri Beckelman, the deputy chief of staff for Rep. Mark Takano (D-Calif.). Advocacy groups from both ends of the political spectrum have tried to fix that by meeting with staffers to discuss ways to use the online encyclopedia as a reliable tool to spread the word about legislative efforts, lawmakers' priorities and goings-on in Congress
One Way to Fix the Corporate Tax: Repeal It - Mankiw - "Some people are calling these companies 'corporate deserters.' " That is what President Obama said last month about the recent wave of tax inversions sweeping across corporate America, and he did not disagree with the description. But are our nation's business leaders really so unpatriotic?A tax inversion occurs when an American company merges with a foreign one and, in the process, reincorporates abroad. Such mergers have many motives, but often one of them is to take advantage of the more favorable tax treatment offered by some other nations.Such tax inversions mean less money for the United States Treasury. As a result, the rest of us end up either paying higher taxes to support the government or enjoying fewer government services. So the president has good reason to be concerned. Yet demonizing the companies and their executives is the wrong response. A corporate chief who arranges a merger that increases the company's after-tax profit is doing his or her job. If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The writers of the tax code have given us a system that is deeply flawed in many ways, especially as it applies to businesses. The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe. National tax systems differ along many dimensions, making international comparisons difficult and controversial. Yet simply cutting the rate to be more in line with norms abroad would do a lot to stop inversions.
Mankiw v. Kleinbard on Corporate Inversions - -- Greg Mankiw discusses the corporate inversion issue: If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe ... A main feature of the modern multinational corporation is that it is, truly, multinational. It has employees, customers and shareholders around the world. Its place of legal domicile is almost irrelevant. A good tax system would focus more on the economic fundamentals and less on the legal determination of a company's headquarters. Most nations recognize this principle by adopting a territorial corporate tax. I find this an incredibly naïve discussion. I'll be the first to admit that the U.S. tax code insistence on a repatriation tax is a bit weird as U.S. based multinationals are incredibly adept at not paying it. So we have an effective territorial system anyway as Eric Kleinbard notes: Corporate executives have argued that inversions are explained by an "anti-competitive" U.S. tax environment, as evidenced by the federal corporate tax statutory rate, which is high by international standards, and by its "worldwide" tax base. This paper explains why this competitiveness narrative is largely fact-free, in part by using one recent articulation of that narrative (by Emerson Electric Co.'s former vice-chairman) as a case study. The recent surge in interest in inversion transactions is explained primarily by U.S. based multinational firms' increasingly desperate efforts to find a use for their stockpiles of offshore cash (now totaling around $1 trillion), and by a desire to "strip" income from the U.S. domestic tax base through intragroup interest payments to a new parent company located in a lower-taxed foreign jurisdiction.
Cutting the Corporate Tax Would Grow Other Problems - The current debate over corporate inversions, in which American companies like Burger King consider renouncing their citizenship for tax-reduction purposes, is only the latest reminder that the United States corporate tax code has deep problems. Ideas for reforming the business side of the tax code abound, but there are those on both the left and the right who argue that it cannot be salvaged and should simply be abolished. N. Gregory Mankiw made the argument from the right on Sunday in The Times. The basic idea behind abolition is that the current corporate tax code is fraught with wasteful loopholes — each of which has politically power defenders — that both lose revenue and distort business decisions. The abolitionists ask: Why not give up on the fiction that we can adequately and efficiently tax companies and instead tax their shareholders at higher income-tax rates? But as imperfect as the corporate tax may be, the end of it would create all kinds of problems and disadvantages. Here is a breakdown of those drawbacks: The corporate tax is an important balancing mechanism in an era of great inequality. According to the Congressional Budget Office, about 80 percent of corporate income is held by households in the top fifth of the income scale, and about 50 percent is held by the top 1 percent. Unless we could replace it with higher taxes on those same households — a daunting proposition, as I'll show in a moment — scrapping or even just lowering the corporate tax rate would increase after-tax income inequality.
Subverting the Inversions: More Thoughts on Ending the Corporate Income Tax - Dean Baker - I see that my friend Jared Bernstein has some more thoughtful (if mistaken) arguments on ending the corporate income tax. I recognize his concerns about giving more money to the people who have the most (hey, it's the American Way), but I still think this is a policy that could be a big winner in the battle against the enemies of the people. I will quickly address two issues Jared raised, the extent to which any of the savings will be passed on in wages and the ability to replace the revenue. However my main focus is the nature of the corporate tax avoidance industry. This is a pernicious drain of economic resources. It is also a major source of upward redistribution. I consider its elimination an enormous benefit – even if on net we give up some government revenue to do it. First, I followed the Tax Policy Center in assuming that 20 percent of the benefits would go to workers in higher wages. Jared rightly pointed out that this will depend on workers bargaining power. However, it is worth noting that even in the worst of times workers have gotten some fraction of productivity gains. And if we look at the last year, the data show that average real hourly compensation increased almost as much as productivity growth (1.0 percent rise in real compensation versus a 1.2 percent increase in productivity). So the Tax Policy Center's 20 percent pass back to wages hardly seems out of line. The second question is how we would make up the lost revenue. The Congressional Budget Office (CBO) projects we will get $351 billion or 2.0 percent of GDP from the corporate income tax in 2014 (Table 4-1). This is the average for the next decade as well. Much of this can be gotten back from eliminating the special treatment of dividend and capital gains income. The major rationale for their special treatment was the argument that it amounted to double taxation since profits were already taxed at the corporate level. Since the corporate income tax will have been eliminated, there is no rationale for special treatment.
When Advocating the End of Corporate Taxes, Consider Your Counterfactual! - Jared Bernstein - How about that? I've got a rare and welcome chance to have a friendly disagreement with an admired friend. That would be economist and my co-author on many projects, Dean Baker, who has some different, and interestingly nuanced, views from my own on getting rid of the corporate tax. First, let me summarize my argument. It's not just that I worry that getting rid of the corporate tax would be a tax cut for the wealthy, as they mostly own the corps and indirectly pay taxes on their profits. It's that we'd lose a lot of needed revenue that would have to be made up somewhere else, either through larger deficits, spending cuts, or tax hikes on the non-wealthy. Dean makes a few counterarguments. First, since some minority share–he says 20%–of corporate taxes fall on wage earners, getting rid of the tax would lift their wages a bit.Jeez, I dunno. Maybe, but I'd bet bargaining power trumps tax-incidence analysis, meaning it's not at all obvious that the owners of capital would share their tax break with workers absent very tight labor markets, more unions, etc. Second, Dean makes the better point that by getting rid of the corporate tax, you'd get rid of the corporate-tax-avoidance industry, including PE shops that make lush pickings off of the current setup. He may well have a point there, but again, I'm skeptical, based on what I wrote in my piece:
More Cheap Thoughts on the Corporate Income Tax - Dean Baker -- The exchange I had with Jared Bernstein and subsequent comments by others have led to me do more thinking on the corporate income tax (CIT). I think the most useful way to think of the CIT is an optional levy placed on corporate income. We tell corporations that they have to pay 35 percent of their income in taxes to the government. It's optional in the sense that we allow them to cut this amount by two-thirds, if they instead pay one-third of this levy to Wall Street investment banks, accounting firms, and tax lawyers. (Using 2014 numbers nominal corporate tax liability would be roughly 6 percent of GDP or $1,050 billion, with actual tax collections around 2.0 percent of GDP or $350 billion.) This is roughly how the tax boils down, with the Government Accountability Office estimating that companies pay about 13.0 percent of their income in taxes to the government, compared to the 35 percent nominal tax rate. This means that 22 percent of their profits are escaping taxation by the government. In fairness, I don't know how much corporate America is actually paying to escape its taxes. (Someone have a good study to send me?) Essentially, I am just assuming that they spend half of their tax savings on avoidance costs. These avoidance costs have real economic consequences. We are paying people lots of money to do activities that have zero value to the economy even though they are hugely valuable to their corporate employers. The people working on tax scams at the major accounting firms, or working out inversion mergers at Goldman Sachs, or creating new tax shelters at private equity companies could all be employed doing something productive. This is like giving companies a tax credit to pay people to dig holes and fill them up again. The difference is that these are highly educated people and they are getting paid really big bucks for the pointless hole-digging.
Stan's Plan: Show Me the Money! - Stan Collender is one of my favorite budget wonks, and I don't say that lightly. So it was with nervous curiosity that I read this post of his advocating the abolition of the corporate tax, as this is something I've been worrying about a lot lately. What with the recent inversion dust-up, this idea to kill the corporate tax and replace it with something better is getting more play. Problem is, as with Stan's plan, that "something better" tends not to withstand scrutiny. Stan's idea, though very clever in one respect (note how he pits the spending-side lobbyists against the tax-side lobbyists), faces the classic "show me the money" problem: he argues that we can pay for revenue we lose from scrapping the corporate tax by cutting all the spending in the budget that supports corporations. Giveth to corporations with one hand, by ending the tax on their income. But taketh away with the other, by cutting all the spending in the budget that flows their way. The problem is that the hand that gives holds way more money than the one that takes. The magnitude of the revenue loss couldn't possibly be made up with the spending cuts because there just isn't enough spending there to make up the more than $300 billion or so that you'd lose on an annual basis from ending the corporate tax.
Burger King the Latest to Jump on the Corporate Tax Inversion Bandwagon - A number of corporations have engaged in corporate tax "inversions" this year, which typically involves a large U.S. company merging with a smaller counterpart in a lower-tax country abroad, then moving the corporate billing address to the lower-tax country to reduce the overall tax burden. The actual headquarters and the executives go nowhere, but the nominal address changes so the company can avoid U.S. tax rates. A number of corporations in the pharmaceutical space have pulled this off in 2014, but it took the drugstore giant Walgreen to flirt with the idea (through a merger with the Swiss company Alliance Boots) for the non-financial press and the public to really catch on. Outcry actually stopped Walgreen from going through with the inversion; they merged with Alliance Boots, but kept their headquarters in the U.S. Clearly, it was easier to rally public scrutiny to a consumer-facing brand attempting to skip out on America while still using the public resources afforded any company selling their wares here. Now, the same coalition that stopped the Walgreen inversion will get another chance with Burger King:
Burger King Inversion - Dealbook Misses the Mark - In addition to that disappointing op-ed from Greg Mankiw, The New York Times missed the facts on the Burger King merger with Tim Horton: … The American corporate tax rate is about 35 percent, while Canada's is about 15 percent. But people briefed on the deal negotiations said that the main driver in the talks was not taxes. Burger King already pays a tax rate of roughly 27 percent, and would shave off only a couple of percentage points by moving to Canada, according to the people briefed on the matter. And Burger King does not have a significant amount of cash held abroad, these people said. Companies often pursue inversions to gain access to their overseas cash without being hit by a big American tax bill. Canada's corporate tax rate is 26.5% not 15%. But if one takes a look at Burger King's 10-K, you'll see that foreign taxes relative to foreign sourced income is around 15%. You'll also see that about 80% of its income is sourced abroad even though half of its stores are in the U.S. This screams out transfer pricing abuse, which of course Greg Mankiw ignored in his op-ed. Burger King has reported an effective tax rate near 27% precisely because they have been paying the repatriation tax, which is likely why they don't have a lot of cash abroad. But without the repatriation tax, their effective tax rate would have been less than 20%. So when the NY Times says this "would shave off only a couple of percentage points", they are incredibly wrong.
Buffett Burger King Funds Flip Obama's Inversion Calculus - Billionaire Warren Buffett was an ally of President Barack Obama during the 2008 presidential campaign and the force behind Obama's "Buffett Rule," designed to increase tax bills for the wealthiest Americans. Now, the second-richest man in the U.S. has dented Obama's effort to stamp out corporate inversions. Buffett's financing of Burger King Worldwide Inc. (BKW)'s $11.4 billion purchase of the Canadian fast-food chain Tim Hortons Inc. (THI) challenges Obama's argument that inversions are unpatriotic and gives defenders of the practice leverage to make their case. "Warren Buffett has nothing to be defensive about -- this looks like a smart investment that should benefit his shareholders," said Tony Fratto, a Treasury Department and White House official in President George W. Bush's administration. "As for the White House and Treasury, I hope they learn something here." The lesson, business advocates say, is twofold: Such deals that move companies' addresses out of the U.S. are often about bigger long-term profits, not just the tax benefits Washington focuses on, and attempts to pressure markets by shaming companies are misguided.
The Biggest Tax Scam Ever - Some of America's top corporations are parking profits overseas and ducking hundreds of billions in taxes. And how's Congress responding? It's rewarding them for ripping us off. In July, the American pharmaceutical giant AbbVie, maker of the world's top-selling drug – the arthritis treatment Humira – reached a blockbuster deal to acquire European rival Shire, best known for the attention-deficit medication Adderall. The merger was cheered by Wall Street, not for what the deal will do to advance pharmaceutical science, but because it will empower the bigger firm, AbbVie, to renounce its U.S. citizenship. Related The Nonexistent Case for Never Raising Taxes At $55 billion, the AbbVie deal is the largest in a cavalcade of corporate "inversions." A loophole in American tax law permits companies with just 20 percent foreign ownership to reincorporate abroad, which means that if a big U.S. firm acquires a smaller company located in a tax haven, it can then "invert" – that is, become a subsidiary of its foreign-based affiliate – and kiss a huge share of its IRS obligations goodbye. AbbVie shareholders will continue to control 75 percent of the company, which will still be managed by executives outside Chicago. But the merged company will now file its tax returns on the island of Jersey – a speck of land in the English Channel, where Shire is incorporated. AbbVie, which racked up more than $10 billion in Humira sales last year, will slash its effective corporate tax rate from 22 percent to 13. The cost to the U.S. Treasury? Possibly as much as $1.3 billion by the year 2020.
Tax Dodge Used by Bain Escapes Scrutiny on Inversions -- Sensata is one of at least 14 firms that have left the U.S. tax system through a sale to an investment fund, according to a tally by Bloomberg News. Although these companies have a combined market value of about $75 billion, this tax-avoidance strategy has gotten less attention in Washington than inversions and may be harder to discourage. These buyouts mean profits for the U.S. private equity firms like Boston-based Bain Capital LLC that orchestrated them. Bain earned more than $3 billion after it took Sensata public as a Dutch company in 2010, with an effective tax rate about one-tenth of some competing manufacturers. For the past three decades, Congress and regulators have adopted rule after rule to limit inversions, and a fresh wave of such deals has prompted discussions about tightening the law again. The Treasury Department is also studying how it can attack inversions without congressional action. The buyout deals promise to be trickier to regulate, because they involve U.S. companies that are technically sold to a foreign acquirer -- typically a shell company set up by the buyout fund in a tax-friendly jurisdiction like Bermuda. Policymakers are loath to penalize takeovers by genuinely foreign acquirers. A 2004 law targeting inversions didn't address the technique at all.
Could The U.S. Fix Taxation of Multinational Corporations With A Sales-Based Formula? -- Corporate inversions have been the topic of the summer for tax wonks (beats jellyfish and beach traffic, I suppose), but the issue is a classic bit of Washington misdirection. Instead of focusing on the real disease—an increasingly dysfunctional corporate income tax—we are obsessing over a symptom—firms such as Burger King engaging in self-help reform by relocating their legal residences overseas. The good news is the tax inversion flap has generated some interesting ideas for broader changes in the way we tax multinational firms. One, raised in a July paper published in Tax Notes by Mike Udell and Aditi Vashist, would base a firm's U.S. taxable profits on the U.S. share of its total worldwide sales.Under such a system, called single sales factor apportionment, a multinational would report income for all its worldwide entities and be taxed on a share of its total worldwide profits. But the tax would be apportioned by the percentage of the firm's worldwide sales that occur in an individual country. For instance, if half of a firm's sales occurred in the U.S., half of its worldwide profits would be subject to U.S. tax. The levy would apply to all corporations, whether based in the U.S. or elsewhere.This would be a dramatic change from today's system, where U.S.-based firms pay tax on current domestic income but defer tax on foreign profits until those earnings are returned to the U.S. while foreign firms pay U.S. tax based on U.S. source income. It would also be a significant shift from current law that treats a multinational corporation's foreign affiliates as independent entities. Multinationals use today's rules to sharply reduce taxes by booking profits to affiliates in low-tax jurisdictions and allocating deductible costs to units in high-tax jurisdictions.
Bloated Executive Pay in 2013 -- What impact would Congress have on corporations if it were to change the amount of tax-deductible executive performance-based compensation downwards from $1 million to $500,000? The portal to the upper 1% of household taxpayers in income is $500,000 in normal income. If Congress were to limit tax-deductible performance-based income to $500,000, the change would put an end to a large portion of the tax write-offs on executive pay by corporations. The JCT estimates $50 billion would be realized in a ten-year period. How serious is the skewing of income to a relative few to avoid corporate taxes? An IPS study found 25 of the 100 highest-paid corporate chief executives in the United States took home more in income than what their companies paid in 2010 federal income taxes. As a part of the PPACA passed in 2010 this provision finally came into play in 2013. The provision "generated an ~ $72 million in additional tax revenue in 2013 from America's 10 largest publicly held health insurance companies" as taken from "57 executives." It is one of the lesser-known provisions of the PPACA which is increasing revenue to fund the PPACA. Sarah Anderson of the The Institute for Policy Studies just released the report of the impact of this provision for 2013. More of those healthcare companies will full under its impact in 2015 as the grandfathered bonuses pre-2010 expire created an ~$5 billion annually.
Buffett hoards cash, individuals' holdings hit 14-year low (Reuters) – Individual investors have been cutting back on cash in portfolios, the exact reverse of what Warren Buffett has been doing at Berkshire Hathaway. Who do you think has got it right? Cash at Berkshire Hathaway stood at just over $55 billion as of June 30, an all-time high and two and a half times the level he's in the past said he likes to keep on tap to meet extraordinary claims at his insurance businesses. That's also up more than 50 percent from a year ago. Buffett's green pile is in sharp contrast to individual investors, who've cut cash in portfolios to 15.8 percent, a 14-year low, according to the July asset allocation survey from the American Association of Individual Investors.
Private equity's goose is 'overcooked' - FT.com: "What wise people do at the beginning, fools do at the end," says William Smead, chief executive and chief investment officer of Seattle-based Smead Capital Management. If any of our readers have recently committed money to private equity, Mr Smead is referring to you. The facts speak for themselves. Globally so-called "dry powder" – money committed to private equity funds but as yet uninvested – stands at a record $1.19tn, up from $1.08tn at the end of 2013 and comfortably above the pre-crisis peak, according to Preqin, the data provider. This suggests an awful lot of money will be chasing the best investments, pushing up prices and potentially forcing some funds to make do with less attractive opportunities. Moreover, this mountain of unspent cash looms at a time when private equity funds are already being forced to pay historically high prices for companies. In the first half of 2014, European deals were struck at an average multiple of 10 times trailing ebitda (earnings before interest, taxation, depreciation and amortisation), above the pre-crisis peak of 9.7, according to figures from S&P Capital IQ LCD. In the US, the multiple was 9.2, not far off the peak of 9.7 in 2007. Laurent Haziza, a Rothschild banker who advises private equity groups, told the FT in May: "Paying 13 or 14 times ebitda for a good asset is not unusual these days; 12 times is the new 10."
World's Biggest Wealth Fund Says U.S. Corporate Debt Boom Ending - The head of debt investment at Norway's $880 billion sovereign wealth fund, the world's largest, said a rally in U.S. corporate bonds may be coming to an end. Looking at "American corporate investment grade bonds, we see that the spread lies around 100 basis points, that is nearly just as low as they were before the financial crisis," Ole Christian Froeseth, head of fixed-income at the oil fund, said in a lecture in Oslo today. "One can argue that there isn't much juice left in this spread, especially not in relation to where we were during the financial crisis." The wealth fund, which gets its investment guidelines from Norway's government, said its corporate bond portfolio returned 2 percent last quarter. Debt issued by companies in the U.S. made a "negative contribution to the relative return," according to the fund. U.S. high-grade bonds yielded 111 basis points more than similar-maturity government debt yesterday, down from a record 656 basis points at the end of 2008 and 33 basis points from an the all-time low reached in 2005, Bank of America Merrill Lynch index data show. There's "still value" as a long-term investor, he said. "But the challenge is that the premium isn't so big any longer and the question is whether we can find a better time to buy these Corporate bonds in the future."
JPMorgan and Other Banks Struck by Cyberattack - A number of United States banks, including JPMorgan Chase and at least four others, were struck by hackers in a series of coordinated attacks this month, according to four people briefed on a continuing investigation into the crimes.The hackers infiltrated the networks of the banks, siphoning off gigabytes of data, including checking and savings account information, in what security experts described as a sophisticated cyberattack.The motivation and origin of the attacks are not yet clear, according to investigators. The F.B.I. is involved in the investigation, and in the past few weeks a number of security firms have been brought in to conduct forensic studies of the penetrated computer networks.According to two other people briefed on the matter, hackers infiltrated the computer networks of some banks and stole checking and savings account information from clients. It was not clear whether the attacks were financially motivated, or if they were collecting intelligence as part of an espionage effort.JPMorgan has not seen any increased fraud levels, one person familiar with the situation said.
The Cyber-Terror Bank Bailout: They're Already Talking About It, and You May Be on the Hook - Bankers and U.S. officials have warned that cyber-terrorists will try to wreck the financial system's computer networks. What they aren't saying publicly is that taxpayers will probably have to cover much of the damage. Even if customers don't lose money from a hacking assault on JPMorgan Chase & Co. (JPM), the episode is a reminder that banks with the most sophisticated defenses are vulnerable. Treasury Department officials have quietly told bank insurers that in the event of a cataclysmic attack, they would activate a government backstop that doesn't explicitly cover electronic intrusions, two people briefed on the talks said. "I can't foresee a situation where the president wouldn't do something via executive order," said Edward DeMarco, general counsel of the Risk Management Association, a professional group of the banking industry. "All we're talking about is the difference between the destruction of tangible property and intangible property." The attack on New York-based JPMorgan, though limited in scope, underscored how cyber assaults are evolving in ferocity and sophistication, and turning more political, possibly as a prelude to the sort of event DeMarco describes. Not simply an effort to steal money, the attack looted the bank of gigabytes of data from deep within JPMorgan's network. And bank security officials believe the hackers may have been aided by the Russian government, possibly as retribution for U.S. sanctions over the Ukraine war.
Exclusive: U.S. options exchanges craft rules to fend off turmoil (Reuters) - A year after Goldman Sachs (GS.N) bungled a software upgrade and lost tens of millions of dollars from unintended trades, the 12 U.S. stock options exchanges have crafted new rules for dealing with erroneous transactions, according to draft documents seen by Reuters. Under the proposed rules, unintended trades placed by professional traders will usually have their prices adjusted to levels as close to their fair market value as possible, while wrong trades by retail customers will be mainly be undone, five sources with knowledge of the matter told Reuters. The rules are meant to protect investors from algorithms gone wild and other sources of market turmoil. Regulators and exchange operators across equities, commodities and other markets have been taking steps to prevent mistaken trades from spiraling into collapses, a rising concern as trading grows increasingly automated. true When market prices are oscillating wildly, technical glitches can create turmoil, said Andy Nybo, head of derivatives research at advisory firm TABB Group. "A cohesive solution for the industry is critical to get in place before we have another technology blowup," he said. In other markets, technical glitches have created big trouble for traders. Knight Capital Group, a stock trading firm now known as KCG Holdings Inc, lost $461.1 million in August 2012 from new software that was improperly installed. The loss forced the company to seek $400 million of rescue capital and eventually led to its sale to a rival firm.
Arbitrage wastes the talents of finance's finest minds - FT.com: In 1997 the late Robin Potts was asked by the International Swaps and Derivatives Association to review the new market in credit default swaps. Potts defined a wager as "a contract by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that dependent on the determination of that event one shall win from the other". Insurance is, in Potts' less felicitous words, "a contract to indemnify the insured in respect of some interest which he has against the perils which he contemplates he will be liable to". He delivered the answer ISDA hoped and expected: credit default swaps were neither insurance (which would have been taxed and regulated as insurance policies) nor wagers (that would have been taxed and regulated as bets). Potts deftly avoided a difficult issue: if credit default swaps were neither wagers nor insurance contracts, what were they? What was the purpose of the transaction? The initial purpose of the credit default swap was to exploit differential regulation of banks and insurers. Banks were required to hold reserves against loans calculated as a proportion of the amount of the loan. Insurers were required to hold reserves calculated as a proportion of the expected losses on the policies. But it was also an extremely safe credit, so that the expected loss on the loan was negligible. Hence there was scope for profitable trade between bank and insurance company. Even after Potts' opinion, doubts remained as to the legality of such transactions by US residents. These were settled by the Commodity Futures Modernization Act of 2000, promoted by then Fed chairman Alan Greenspan and Treasury secretary Lawrence Summers. The explosive growth of credit default swaps, which were at the centre of the financial crisis, followed. Credit default swaps extended far beyond loans to ExxonMobil. When in 2006 Goldman Sachs sold securities linked to subprime mortgages, which the hedge fund manager John Paulson expected to fail, all parties in the transaction were engaged in what Hawkins had described as "a wager".
Rating Agency Regulations: Why the SEC's New Rules Won't Fix Them - Credit rating agencies were the drivers of the financial crisis. Their AAA stamps of approval encouraged investors to purchase massive quantities of subprime mortgage-backed securities. As we now know, these assurances of complete safety led investors right into a toxic meltdown. This was entirely foreseeable: Rating agencies get paid to rate securities by the companies who issue them. This places an inherent conflict of interest at the heart of their business model: If they make it easier for a client to sell questionable securities by rating them highly, then that client will return with future business. Examples of rating inflation abound, and even the Justice Department, which has shown little willingness to go to trial over financial fraud, has an active $5 billion lawsuit against Standard and Poor's for granting AAA ratings to securities the company knew was junk. But despite bipartisan efforts in the Dodd-Frank financial reform law to overhaul the flawed rating agency compensation model, it remains in place four years later. This week, the Securities and Exchange Commission (SEC) tried to attack the conflict of interest issue once again, with new reporting requirements and a broad promise of enforcement. But to believe that the SEC will actually police rating inflation, you would have to ignore all of its recent history.
Washington Recaptured by Simon Johnson - Two hundred years ago, Washington DC was captured by the British – who then proceeded to set fire to official buildings, including the White House, Treasury Department, and Congress. Today, it is a domestic interest group – very large banks – that has captured Washington. The costs are likely to be far higher than they were in 1814. America's largest bank holding companies receive an implicit government subsidy, because they are perceived to be "too big to fail." The authorities will not allow the biggest banks to default on their debts, through bankruptcy or in any other fashion, owing to the need to prevent the financial system from collapsing. This doctrine became starkly apparent in late 2008 and early 2009; it remains in force today. This effective exemption from the risk of bankruptcy means that anyone who lends to the largest half-dozen banks receives a government guarantee – free insurance against the risk of a catastrophe. This allows these banks to obtain more debt financing on better terms (from their perspective). In particular, their executives operate highly opaque firms, with risks effectively masked from outsiders and very little in the way of loss-absorbing shareholder equity. Simply put, without their government backstop, these murky empires could not exist. Democratic Senator Sherrod Brown of Ohio and Republican Senator David Vitter of Louisiana, along with some important colleagues, have long sought to phase out this implicit subsidy. And independent analysts, such as Anat Admati of Stanford University, have explained all of the relevant details of how – and why – this should be done. Those details – for example, in Admati's recent testimony to the Senate subcommittee chaired by Brown – are not in doubt. Thanks to Admati and her colleagues, we have a clear rendering of them in straightforward, non-technical language.
Toward a Universal Ability to Repay Requirement - The latest consumer financial product to come under the regulatory microscope is subprime auto lending, which has seen a boom in the last few years. The subprime auto market's boom underscores a real problem in consumer financial regulation: different consumer financial products have developed different substantive regulatory regimes that are not justified by differences in the products. Most fundamentally, we have an ability-to-repay requirement for mortgages, a different ability-to-pay requirement for credit cards, and nothing else for other products. In light of the changes in all consumer finance markets, in which securitization and sweatbox lending have undermined the traditional lender-borrower partnership that encouraged responsible lending, it is time to consider a universal ability-to-repay requirement for consumer credit. We now have real substantive differences in the way we regulate different types of consumer credit: mortgages and credit cards each have their own regime, which is different from everything else (car loans, overdraft, other short-term/small-dollar products, student loans, etc.). Mortgages and credit cards have sensibly gotten special love from the regulatory system because they are the biggest consumer finance markets. Student lending has always had special concerns because of the government's role in that market, but auto lending, despite being another huge market, has generally fallen through the cracks.
Gillian Tett's Astonishing Defense of Bank Misconduct - Yves Smith - I don't know what became of the Gillian Tett who provided prescient coverage of the financial markets, and in particular the importance and danger of CDOs, from 2005 through 2008. But since she was promoted to assistant editor, the present incarnation of Gillian Tett bears perilous little resemblance to her pre-crisis version. Tett has increasingly used her hard-won brand equity to defend noxious causes, like austerity and special pleadings of the banking elite.Today's column, "Regulatory revenge risks scaring investors away," is a vivid example of Tett's professional devolution. The twofer in the headline represents the article fairly well. First, it take the position that chronically captured bank regulators, when they show an uncharacteristic bit of spine, are motivated by emotion, namely spite, and thus are being unduly punitive. Second, those meanie regulators are scaring off investors. It goes without saying that that is a bad outcome, since we need to keep our bloated, predatory banking system just the way it is. More costly capital would interfere with its institutionalized looting. In other words, the construction of the article is to depict banks as victims and the punishments as excessive. Huh? The banks engaged in repeated, institutionalized, large scale frauds. If they had complied with regulations and their own contracts, they would not be in trouble. But Tett would have us believe the regulators are behaving vindictively. In fact, the banks engaged in bad conduct. To the extent that the regulators are at fault, it is for imposing way too little in the way of punishment, way too late.
The US Is One Of The Last Developed Countries Where It Can Still Take Days For Money To Show Up In Your Bank Account - You know how, when you when you send money to someone else's bank account, the funds aren't available right away? It turns out that the U.S. is one of the last developed countries to have this problem. And while regulators and some financial institutions are finally recognizing this should no longer be the case, it will likely take years for any reforms to take effect. Other countries' same-day services, like those in Switzerland, Japan, India and Mexico, have been around for a decade or more. The U.S. has been using the same technology to settle electronic payments for the last 40 years. It's called the Automated Clearing House (ACH).
Unofficial Problem Bank list declines to 445 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Aug 22, 2014. Quiet week as expected that is front of the FDIC providing an update on its enforcement action activity. This week there were two removals that lower the Unofficial Problem Bank List count to 445 with assets of $141.0 billion. We updated assets figures for q2 financials, so $833 million of the $1.0 billion decline in assets comes from the latest figures. A year ago, the list held 714 institutions with assets of $253.1 billion.Next week, we expect the FDIC to provide an update on its enforcement action activity on Friday and release q2 industry results including the official problem bank list numbers maybe earlier in the week. 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 445.
FDIC: Earnings increased for insured institutions, Fewer Problem banks, Residential REO Declines in Q2 -- The FDIC released the Quarterly Banking Profile for Q2 today. Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $40.2 billion in the second quarter of 2014, up $2.0 billion (5.3 percent) from earnings of $38.2 billion the industry reported a year earlier. The increase in earnings was mainly attributable to a $1.9 billion (22.4 percent) decline in loan-loss provisions and a $1.5 billion (1.4 percent) decline in noninterest expenses. Also, strong loan growth contributed to an increase in net interest income compared to a year ago. However, lower income from reduced mortgage activity and a drop in trading revenue contributed to a year-over-year decline in noninterest income. "We saw further improvement in the banking industry during the second quarter," FDIC Chairman Martin J. Gruenberg said. "Net income was up, asset quality improved, loan balances grew at their fastest pace since 2007, and loan growth was broad-based across institutions and loan types. We also saw a large decline in the number of problem banks. However, challenges remain. Industry revenue has been under pressure from narrow net interest margins and lower mortgage-related income. Institutions have been extending asset maturities, which is raising concerns about interest-rate risk. And banks have been increasing higher-risk loans to leveraged commercial borrowers. These issues are matters of ongoing supervisory attention. Nonetheless, on balance, results from the second quarter reflect a stronger banking industry and stronger community banks."
MBS Settlements--Following the Money - By my counting, there have been some $94.6 billion in settlements announced or proposed to date dealing with mortgages and MBS. This count excludes things like CDO litigation and Lehman Brothers litigation. I've also likely missed some settlements (although not the big ones), and the terms of some settlements are private. I'm also excluding things like the National Mortgage Servicing Settlement (another $25 billion, although a lot isn't cash payment) and OCC/FRB consent orders. Any PMI settlements are also excluded. On the other hand, I'm including some multi-billion proposed MBS trustee settlements that have not gone through yet. In other words, what I'm trying to cover are settlements for fraud and breach of contract against investors/insurers of MBS and buyers of mortgages. Settlements aren't the same as litigation wins, and I don't know the strength of the parties' positions in detail in many of these cases, but $94.6 billion strikes me as rather low for a total settlement figure. Of course, financial crisis litigation hasn't all run its course yet.Beyond the total figure, however, what's interesting is where the money has gone--and where it hasn't. As the graphs below show, the lion's share of settlement dollars has gone to the government and GSEs. Very little has been recovered by private investors and most of that is from the trustee settlements (rotten though the Bank of America-BONY settlement was). What's really astonishing is how little has been recovered in private securities litigation. The RMBS litigation settlements to date total $1.6271 billion. That's a quarter of what the monoline insurers recovered, even though most RMBS did not have bond insurance.
An Unfinished Chapter at Countrywide - Mr. Mozilo, the co-founder and former chief executive of Countrywide Financial, has largely escaped accountability for his outsize role in the mortgage crisis. But he may soon face a civil lawsuit from the Justice Department, according to news reports last week. The possibility of a new case against Mr. Mozilo came almost exactly seven years after the subprime mortgage machine he created and oversaw began to sputter and stall. That process began in earnest on Aug. 16, 2007, when the company disclosed that it was drawing down its entire $11.5 billion revolving credit line. Other lenders had lost confidence in its operations. That was the beginning of the end for Countrywide. It was bought the next year by Bank of America in the single worst corporate acquisition ever. Bar none. It is unclear, of course, if prosecutors will indeed take action against Mr. Mozilo, who is 75. In 2011, the Justice Department mysteriously decided to drop a criminal case against the former executive after a two-year investigation.A lawyer for Mr. Mozilo, David Siegel of Irell & Manella in Los Angeles, said in a statement: "There is no sound or fair basis, in law or fact, to pursue any claim against Angelo Mozilo." The lawyer added that the former executive "stands virtually alone among banking and mortgage executives to actually have been pursued by this government before and already paid a record penalty."
Freddie Mac: Mortgage Serious Delinquency rate declined in July, Lowest since January 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 2.02% from 2.07% in June. Freddie's rate is down from 2.70% in July 2013, and this is the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. These are mortgage loans that are "three monthly payments or more past due or in foreclosure". Although this indicates progress, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.68 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until early 2016. Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).
Fannie Mae: Mortgage Serious Delinquency rate declined to 2.0% in July, Lowest since October 2008 - Fannie Mae reported today that the Single-Family Serious Delinquency rate declined in July to 2.00% from 2.05% in June. The serious delinquency rate is down from 2.70% in July 2013, and this is the lowest level since October 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%. Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in July to 2.02% from 2.07% in June. Freddie's rate is down from 2.70% in July 2013, and is at the lowest level since January 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%. Both Fannie and Freddie's serious delinquency rates will probably be below 2% in August. These are mortgage loans that are "three monthly payments or more past due or in foreclosure".The Fannie Mae serious delinquency rate has fallen 0.70 percentage points over the last year, and at that pace the serious delinquency rate will be under 1% in early 2016.
Black Knight: Mortgage Loans in Foreclosure Process Lowest since March 2008 - According to Black Knight's First Look report for July, the percent of loans delinquent decreased in July compared to June, and declined by 12% year-over-year. Also the percent of loans in the foreclosure process declined further in July and were down 34% over the last year. Foreclosure inventory was at the lowest level since March 2008. Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.64% in July, down from 5.70% in June. The normal rate for delinquencies is around 4.5% to 5%.The percent of loans in the foreclosure process declined to 1.85% in July from 1.88% in June. The number of delinquent properties, but not in foreclosure, is down 344,000 properties year-over-year, and the number of properties in the foreclosure process is down 471,000 properties year-over-year. Black Knight will release the complete mortgage monitor for July in early September.
Mortgage Foreclosures 2015: Why the Crisis Will Flare Up Again -- CoreLogic reports that the national foreclosure rate fell to 1.7 percent in June, down from 2.5 percent a year ago. Sales of foreclosed properties are at their lowest levels since 2008, and the rate of foreclosure starts—the beginning of the foreclosure process—is at 2006 levels. At the peak, 2.9 million homes suffered foreclosure filings in 2010; last year, the number was 1.4 million. So it would be natural to believe that the crisis has receded. But these numbers are likely to reverse next year, with foreclosures spiking again. And it has nothing to do with recent-vintage loans, which actually have performed as well as any in decades. Instead, a series of temporary relief measures and legacy issues from the crisis will begin to bite in 2015, causing home repossessions that could present economic headwinds. In other words, the foreclosure crisis was never solved; it was deferred. And next year, the clock begins to run out on that deferral. First, as the Los Angeles Times reported recently, home equity lines of credit—second mortgages that homeowners took out during the bubble years, essentially using their homes as an ATM—will start to feature increased payments, as borrowers must pay back principal instead of just the interest. TransUnion, the credit rating firm, estimates that between $50 and $79 billion in home-equity loans risk default because of the increased payments, which could add hundreds or even thousands of dollars to payments a month. That's only one of a number of scheduled payment resets in 2015 and beyond. The government's Home Affordable Modification Program (HAMP) provided only temporary interest rate relief to borrowers, and after five years, that relief runs out, with interest rates gradually rising about 1 percent each year. Over 319,000 of these rate resets begin in 2015, according to a report from the Special Inspector General of the Troubled Asset Relief Program (TARP).
Zillow: Negative Equity declines further in Q2 2014 - From Zillow: High Negative Equity Causing Generational Housing Gridlock According to the second quarter Zillow Negative Equity Report, the national negative equity rate continued to decline in 2014 Q2, falling to 17 percent, down 14.4 percentage points from its peak (31.4 percent) in the first quarter of 2012. Negative equity has fallen for nine consecutive quarters as home values have risen. However, more than 8.7 million homeowners with a mortgage still remain underwater. The following graph from Zillow shows negative equity by Loan-to-Value (LTV) in Q2 2014 compared to Q2 2013. From Zillow: Figure 6 shows the loan-to-value (LTV) distribution for homeowners with a mortgage in 2014 Q2 versus 2013 Q2. The bulk of underwater homeowners, roughly 7.9 percent, are underwater by up to 20 percent of their loan value and will soon cross over into positive equity territory. Almost half of the borrowers with negative equity have a LTV of 100% to 120% (7.9% in Q2 2014). Most of these borrowers are current on their mortgages - and they have probably either refinanced with HARP or the loans are well seasoned (most of these properties were purchased in the 2004 through 2006 period, so borrowers have been current for eight years or so). In a few years, these borrowers will have positive equity.
MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 2.8 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending August 22, 2014. ... The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index increased 3 percent from one week earlier... The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.28 percent from 4.29 percent, with points decreasing to 0.25 from 0.26 (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 73% 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 11% from a year ago.
Average 30 Year Fixed Mortgage Rates decline to 4.11%, No "Refi Boom" in Sight - I use the weekly Freddie Mac Primary Mortgage Market Survey® (PMMS®) to track mortgage rates. The PMMS series started in 1971, so there is a fairly long historical series. For daily rates, the Mortgage News Daily has a series that tracks the PMMS very well, and is usually updated daily around 4 PM ET. The MND data is based on actual lender rate sheets, and is mostly "the average no-point, no-origination rate for top-tier borrowers with flawless scenarios". (this tracks the Freddie Mac series). MND reports that average 30 Year fixed mortgage rates declined today to 4.11% from 4.13% yesterday. One year ago rates were at 4.61%, so rates are down 50 bps year-over-year.I've mentioned before that mortgage refinancing tends to pickup when mortgage rates drop by about 50 bps from the recent levels. However rates were only at or above 4.60% for a short period - and many homeowners refi'd when rates were below 4% in 2012 and 2013. So I don't expect a "refi boom" right now. Here is a table from Mortgage News Daily:
Report: Proposal Could Raise Mortgage Costs - Proposed requirements for an obscure, but widely used, corner of the mortgage market would protect Fannie Mae and Freddie Mac rom another financial crisis but could end up raising mortgage costs for thousands of borrowers, according to a report by Moody's Analytics and the Urban Institute released Tuesday. Fannie, Freddie and their regulator, the Federal Housing Finance Agency, are in the midst of establishing new requirements for private mortgage insurers that want to do business with the companies. Borrowers who make a down payment of less than 20% typically must either pay for insurance from private companies or the Federal Housing Administration. The draft requirements are meant to ensure that private mortgage insurers have the ability to pay claims if loans sour. Fannie, Freddie and the FHFA in July released a draft of what those rules could look like, and some mortgage-insurance companies said that the proposal would cause them to raise premiums. The Moody's and Urban report said that as currently drafted, the new rules on average would lead borrowers to pay an extra 0.15 percentage point in mortgage insurance premiums. Borrowers with low credit scores who make a 5% downpayment could pay an extra 0.7 percentage point, while borrowers with high scores who put 10% down might see their premiums drop 0.07 percentage point.
Black Knight (formerly LPS): House Price Index up 0.8% in June, Up 5.5% year-over-year -- The timing of different house prices indexes can be a little confusing. Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From LPS: U.S. Home Prices Up 0.8 Percent for the Month; Up 5.5 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services released its latest Home Price Index (HPI) report, based on June 2014 residential real estate transactions. The Black Knight HPI combines the company's extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.
- Yearly increases in home appreciation continue to slow
- All 20 largest states and 40 largest metros again show month-over-month growth
- Nevada shows largest monthly gain among states, while Colorado and Texas continue to hit new highs
- Reno, Nev. home prices rise nearly 2 percent-- the most of any metropolitan area; Las Vegas still 42 percent off peak
The year-over-year increases have been getting steadily smaller for the last 9 months - as shown in the table below:
Case-Shiller: Comp 20 House Prices increased 8.1% year-over-year in June -- S&P/Case-Shiller released the monthly Home Price Indices for June ("June" is a 3 month average of April, May and June prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities) and the National index. From S&P: Wide Spread Slowdown in Home Price Gains According to the S&P/Case-Shiller Home Price Indices Data through June 2014, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices ... show a sustained slowdown in price increases. The National Index gained 6.2% in the 12 months ending June 2014 while the 10-City and 20-City Composites gained 8.1%; all three indices saw their rates slow considerably from last month. Every city saw its year-over-year return worsen. The National Index, now being published monthly, gained 0.9% in June. The 10- and 20-City Composites increased 1.0%. New York led the cities with a return of 1.6% and recorded its largest increase since June 2013. Chicago, Detroit and Las Vegas followed at +1.4%. Las Vegas posted its largest monthly gain since last summer. ...The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 18.2% from the peak, and down 0.1% in June (SA). The Composite 10 is up 23.8% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 17.4% from the peak, and down 0.2% (SA) in June. The Composite 20 is up 24.5% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. Prices increased (SA) in 7 of the 20 Case-Shiller cities in June seasonally adjusted. (Prices increased in 20 of the 20 cities NSA) Prices in Las Vegas are off 42.7% from the peak, and prices in Denver and Dallas are at new highs (SA). This was lower than the consensus forecast for a 8.4% YoY increase and suggests a further slowdown in price increases.
Housing prices up, but gains are slowing - With their latest annual gain of 8.1%, real estate prices — as measured by the 20-City S&P/Case-Shiller Home Price Index — continued to rise, but the pace of the increase is slowing. The last three sets of numbers reported (for April, May, and June sales) show gains of 10.8%, 9.3%, and now 8.1%, respectively.While that data series does make it easy to forecast how the July numbers will probably come in — anyone want to go out on a limb and guess an annual gain of 7%? — it also leads observers to wonder when this latest run of gains, which started back in 2012, will peter out. While every single city tracked registered price gains, ranging from 0.8% year-over-year for Cleveland to 15.2% year-over-year for Las Vegas, the Index is currently still 17% off its Summer 2006 peak.So is the real estate recovery party headed towards an end? Probably not soon. David Blitzer, Chairman of the committee that puts out the Index, noted in a press release today that "Other housing indicators — starts, existing home sales and builders' sentiment — are positive. Taken together, these point to a more normal housing sector."The National Association of Realtors, which collects a separate set of countrywide statistics, noted in its release of July data that this is the "29th consecutive month of year-over-year price gains," and also cited another factor in the housing recovery in its latest release — rising inventory. As Time.com has previously reported, inventory shortages have been an ongoing problem in many markets. In July, however, there were 2.37 million homes available for sale, according to NAR, up from 2.30 million in June. The volume of home sales is rising too, jumping 2.4% from June to a seasonally adjusted annual rate of 5.15 million, but the additional inventory means that that there is still supply for buyers to choose from.
How Home Prices Have Slowed Down, in Five Charts - U.S. home prices aren't rising as fast as they were a year ago following a slowdown in sales triggered by last year's jump in mortgage rates. The latest S&P/Case-Shiller index shows that home prices rose 6.2% in June from a year earlier. The big questions now are whether, when, and at what level do year-over-year price changes normalize after the volatile decade that began with a sharp spike and then collapse in prices. On a monthly basis, prices rose 1% in the Case-Shiller 20-city index. After adjusting for seasonal factors, prices were down 0.2% for the second straight month in June, though S&P has cautioned that its seasonally adjusted series isn't reliable right now. The unusually high level of foreclosed property sales over the last five years has distorted the seasonal adjustment because those sales don't follow a normal seasonal pattern. The broader picture shows that prices are rising at about the rate that preceded the housing bubble of the past decade. Through the first half of the year, prices were up 4.3%. That's lower than the past two years, but better than the six years that followed the bursting of the bubble in 2006. Nationally, prices are now 9.9% below the peak levels reached in July 2006, but it's a very different picture, of course, depending on the individual market. Prices in Denver and Dallas have pushed to new highs. They're up 7.7% and 8%, respectively. Prices in Las Vegas are down 42% from the peak, and Miami and Phoenix are still down by more than one third.
House Prices: Better Seasonal Adjustment; Real Prices and Price-to-Rent Ratio Decline in June - This morning, S&P reported that the Composite 20 index declined 0.2% in June seasonally adjusted. However, it appears the seasonal adjustment has been distorted by the high level of distressed sales in recent years. Trulia's Jed Kolko wrote last month: "Let's Improve, Not Ignore, Seasonal Adjustment of Housing Data" Sharply changing seasonal patterns create problems for seasonal adjustment methods, which typically estimate seasonal adjustment factors by averaging several years' worth of observed seasonal patterns. A sharp but ultimately temporary change in the seasonal pattern for housing activity affects seasonal adjustment factors more gradually and for more years than it should. Despite the recent normalizing of the housing market, seasonal adjustment factors are still based, in part, on patterns observed at the height of the foreclosure crisis, causing home price indices to be over-adjusted in some months and under-adjusted in others. This graph from Kolko shows the weighted seasonal adjustment (see Kolko's article for a description of his method). Kolko calculates that prices increased 0.1% on a weighted seasonal adjustment basis in June. I've been expecting a slowdown in year-over-year prices as "For Sale" inventory increases, and the slowdown is here! The Case-Shiller Composite 20 index was up 8.1% year-over-year in June; the smallest year-over-year increase since December 2012. On a real basis (inflation adjusted), prices actually declined for the third consecutive month. The price-rent ratio also declined in June for the Case-Shiller Composite 20 index. It is important to look at prices in real terms (inflation adjusted). Case-Shiller, CoreLogic and others report nominal house prices. As an example, if a house price was $200,000 in January 2000, the price would be close to $280,000 today adjusted for inflation (40%). That is why the second graph below is important - this shows "real" prices (adjusted for inflation).
Zillow: Case-Shiller House Price Index expected to slow further year-over-year in July --The Case-Shiller house price indexes for June were released this morning. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Case-Shiller Slowdown Forecasted to Continue The Case-Shiller data for June 2014 came out this morning, and based on this information and the July 2014 Zillow Home Value Index (ZHVI, released August 21), we predict that next month's Case-Shiller data (July 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index increased by 7.0 percent and the NSA 10-City Composite Home Price Index increased by 6.9 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from June to July will be 0.1 percent for the 20-City Composite Index and flat for the 10-City Composite Home Price Index (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for July will not be released until Tuesday, September 30. So the Case-Shiller index will probably show a lower year-over-year gain in July than in June (8.1% year-over-year).
This house market is falling apart - Most real estate experts believe the U.S. housing market is roaring back. Few have anything to negative to say about real estate. But what if they're wrong? Real estate analyst Keith Jurow, author of the Capital Preservation Real Estate Report, is warning that the real estate market is not as strong as it seems. Says Jurow: "I never bought into the idea that we had a recovery at all." His research leads him to conclude that home prices will be heading lower. Why? Largely because home listings are going up but sale prices are not. Jurow discovered that as of June 2014, listings in Ft. Lauderdale increased by 89.3% year-over-year. In Miami, listings are up by 65.7% In Charlotte, N.C. they are up 51%, and in Riverside, Calif. they're up 28.1%. In 10 major metro areas around the country, listings have increased. Jurow gets his data from Redfin.com and Raveis.com. "Many people waited for prices to rise before putting their house on the market, and they have," Jurow says. "But now listings are increasing because everyone has the same idea. Unfortunately, May and June are traditionally the strongest months for sales, and these home sellers have missed the peak season." Jurow points out that Redfin.com's latest figures show that in 21 out of 29 major metro areas, sales volume is down year-over-year. "If sales are weakening and listings are going up substantially, prices will fall," he says.
Sales of New U.S. Homes Unexpectedly Fall to Four-Month Low - New-home sales in the U.S. fell unexpectedly in July for the second month as the housing recovery makes only fitful progress. Sales declined 2.4 percent to a 412,000 annualized pace, the fewest since March and weaker than the lowest estimate of economists surveyed by Bloomberg, after a 422,000 rate in June, the Commerce Department reported today in Washington. Housing has advanced in fits and starts this year, buffeted by tight credit and slow wage growth. A shortage of skilled labor and supply-chain bottlenecks also have hindered construction even as population growth boosts demand for shelter. Bigger gains in employment and wages would stoke a more-rapid recovery. "It's a little bit disappointing," . "The new-home sales data have no traction whatsoever and doesn't seem to be gaining at all." The median forecast of 70 economists surveyed by Bloomberg called for the pace to accelerate to 430,000. Estimates ranged from 414,000 to 470,000. June's pace was revised up from a previously reported 406,000.
New Home Sales at 412,000 Annual Rate in July - The Census Bureau reports New Home Sales in July were at a seasonally adjusted annual rate (SAAR) of 412 thousand. June sales were revised up from 406 thousand to 422 thousand, and May sales were revised up from 442 thousand to 454 thousand. "Sales of new single-family houses in July 2014 were at a seasonally adjusted annual rate of 412,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.4 percent below the revised June rate of 422,000, but is 12.3 percent above the July 2013 estimate of 367,000."The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in July to 6.0 months from 5.6 months in June. The all time record was 12.1 months of supply in January 2009. This is now at the top of the normal range (less than 6 months supply is normal). "The seasonally adjusted estimate of new houses for sale at the end of July was 205,000. This represents a supply of 6.0 months at the current sales rate."The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low. The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).
New Home Sales Drop To Lowest Since March As Northeast Craters; Biggest Supply Since October 2011 -- Following last week's housing starts data, everyone was expecting a new home sales number that was even better than the consensus 430K. Instead, the July print of 412K was not only the 5th miss in the last 6 prints, but also the lowest number since March's 403K. The biggest drop took place in the Northeast where the sequential plunge was some 31% to just 18K new houses, and a whopping 44% from a year ago. There were declines in the Midwest which dropped 8.8% and in the West, which dropped 15.2%, while the only increase was recorded in the South which rose 8.1%. In fact, of all regions, only the South posted an increase from July 2013, surging by 33%, with new home sales in all other regions dropping.
"Widespread Slowdown In Home Price Gains": Case-Shiller Misses, Rises By Slowest Since 2012 -- The fourth (or is it fifth?) dead cat bounce in the US housing market is rapidly fading, as we just confirmed by the latest Case-Shiller Home Price Index data for the month of June, which saw a Y/Y increase in home prices of just 8.07%, below the 8.3% expected, and the slowest increase since December 2012. As the report noted, "for the first time since February 2008, all cities showed lower annual rates than the previous month." On a monthly basis, the NSA index, Case-Shiller's preferred, rose by 1.0% for the 10 and 20-City composite, with the Seasonally Adjusted composite declining for the second consecutive month: the last time there were two consecutive monthly declines during a price declining phase was in late 2010.
Comments on New Home Sales - The new home sales report for July was weak with sales at a 412,000 seasonally adjusted annual rate (SAAR), however combined with the upward revisions for the previous three months, total sales were somewhat above expectations. Sales for April, May and June were revised up a combined 33,000 sales SAAR. The Census Bureau reported that new home sales this year, through July, were 266,000, Not seasonally adjusted (NSA). That is down 0.8% from 268,000 during the same period of 2013 (NSA). Basically flat compared to 2013. Sales were up 12.3% year-over-year in July - but remember sales declined sharply in July 2013 as mortgage rates increased - so this was an easy comparison (I expect sales for July will be revised up too).This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate). The comparisons to last year will be easy for the next couple of months, and I still expect to see year-over-year growth later this year. And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. I expect existing home sales to decline or move sideways (distressed sales will continue to decline and be partially offset by more conventional / equity sales). And I expect this gap to slowly close, mostly from an increase in new home sales.
New Home Prices: 43% of Home over $300K, 8% under $150K -- Here are two graphs I haven't posted for some time ... As part of the new home sales report, the Census Bureau reported the number of homes sold by price and the average and median prices. From the Census Bureau: "The median sales price of new houses sold in July 2014 was $269,800; the average sales price was $339,100. " The following graph shows the median and average new home prices. During the bust, the builders had to build smaller and less expensive homes to compete with all the distressed sales. With fewer distressed sales now, it appears the builders have moved to higher price points. The average price in July 2014 was $339,100, and the median price was $269,800. Both are above the bubble high (this is due to both a change in mix and rising prices). The average is at an all time high. The second graph shows the percent of new homes sold by price. At the peak of the housing bubble, almost 40% of new homes were sold for more than $300K - and over 20% were sold for over $400K. The percent of home over $300K declined to about 20% in January 2009. Now it has rebounded to 43% of homes over $300K. And only 8% of homes sold were under $150K in July 2014. This is down from 30% in 2002 - and down from 20% as recently as August 2011. Quite a change
Some See Price Gap Narrowing Between New, Existing Homes - A persistent price gap between existing homes and newly built homes has given the former an advantage over the latter in recent months. But some economists say that gap will soon will start to narrow. The latest Commerce Department data show new-home sales in July declined 2.4% from a month earlier, leaving the year-to-date total slightly less than the same period of 2013. Meanwhile, sales of existing homes rose by 2.4% in July from June for the measure's fourth consecutive monthly gain.Several economists and builders attribute the differing trajectories to the price gap between new and existing homes. While new homes almost always are more expensive, on average, than their older brethren, that gap widened since the recession.Last month, the median new-home price of $269,800 exceeded the median existing price by 21%. Compare that to July 2008, when the gap was 12.8%. In July 2007, it was narrower still at 7.8%.Many factors caused the gap to widen. In the existing-home market, resales of foreclosed homes at distressed prices pulled down median prices. In the new-home market, the sidelining of many first-time buyers since the recession led builders to focus on building larger, more expensive homes to cater to the better-heeled, move-up buyers who still are buying.The price gap has averaged 36.5% over the past two years as prices of both types of homes have steadily increased. Yet, with new-home prices higher to begin with, new construction lately has entered territory that many buyers can't afford. Thus, economists speculate that would-be buyers of new homes are shifting to cheaper existing homes instead.
NAR: Pending Home Sales Index increased 3.3% in July, down 2.1% year-over-year - From the NAR: Pending Home Sales Pick Up in July The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 3.3 percent to 105.9 in July from 102.5 in June, but is still 2.1 percent below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month. ...The PHSI in the Northeast jumped 6.2 percent to 89.2 in July, and is 8.3 percent above a year ago. In the Midwest the index marginally fell 0.4 percent to 104.6 in July, and is 6.4 percent below July 2013. Pending home sales in the South increased 4.2 percent to an index of 119.0 in July, and is now 1.0 percent below a year ago. The index in the West rose 4.0 percent in July to 99.5, but remains 6.0 percent below July 2013.Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in August and September.
Pending Home Sales Drop YoY For 10th Month In A Row - Pending Home Sales fell 2.7% year-over-year making this the 10th month of falling YoY sales. This print beat expectations of a 3.5% decline but last month's data was revised lower to a 4.7% decline. MoM sales jumped 3.3% but the series has been extremely noisy in the last 6 months as the Northeast saw a seasonally-adjusted gain of 6.2% MoM (and Midwest fell 0.4%).
Comprehensive housing summary for July 2014: prices peak, but lower interest rates are putting an end to the sale slowdown -- Wtih yesterday's report on pending home sales, housing data from the first 7 months of 2014 is in the books. The data clearly shows that earlier this year was the trough of the housing slowdown, and that lower mortgage rates - down over .5% from the beginning of this year - are beginning to have a positive impact. At the same time, it appears that housing prices hit an interim peak earlier this summer, and are stabilizing if not in a slight decline. Both of these graphs show the clear deceleration in the housing market through 2013 and into outright declines in the early part of this year. New and existing home sales have been consistently negative YoY, and permits ended up at midyear only +2% in the first half of 2014 compared with the first half of 2013. But with July's data, we can see that the trough of the housing slowdown is in place, and that there has been a significant positive turn in the last several months. Only pending sales were negative YoY by -2.1%, although they were up month over month for the fifth month in a row. In summary, through July 2014:
- Permits are down -0.9% from their October 2013 high, but up +12.6% from their January 2014 low
- Starts are down -1.1% from their November 2013 high, but up +21.9% from their Januay 2014 low
- New home sales are down -9.8% from their January 2013 high, but up +2.2% from their March 2014 low
- Existing home sales are down -4.3% from their July 2013 high, but up +12.2% from their March 2014 low
- Pending home sales are down -2.1% from their June 2013 high, but up +12.4% from their February 2014 low
Boomer Wealth Dented by Mortgages Poses U.S. Risk - Mortgage-burning parties in the U.S. may be going the way of home milk deliveries and polyester leisure suits. A growing number of homeowners are reaching retirement age still owing money on their houses. The share of Americans 65 and older with mortgage debt rose to 30 percent in 2011 from 22 percent in 2001, according to a May analysis by the Consumer Financial Protection Bureau based on the latest available figures. Loan balances also increased, with the median amount owed climbing to $79,000 from $43,400 after adjusting for inflation, the data showed. "There were old-fashioned beliefs probably 30 years ago" that included "you should pay off your house before you retire," said Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School in Philadelphia. "This is no longer the case." The increase in mortgage debt may influence labor-force dynamics as some older Americans find they're unable to completely retire, needing extra cash to keep up monthly payments. It also diminishes home equity and wealth, making these households more susceptible to swings in the economy and curbing spending on things such as vacations and visits to grandchildren. "When they are hit with a financial downturn or an unexpected cost, they often are in a position where they don't have the ability to recoup whatever losses they may have suffered," said Stacy Canan, the deputy assistant director of the CFPB's Office for Older Americans in Washington. Because a larger portion of income has to go to paying a mortgage, "there has to really be a dialing back of almost all other expenses."
America's most indebted generation? Gen X -- Millennials may owe more in student loans than any American generation, but their Generation X elders are actually the most in debt. That's according to a study released Wednesday by Federal Reserve Bank of St. Louis economists William Emmons and Bryan Noeth. The study showed that the single most indebted birth cohort in the nation are 44 year olds, who owe on average $142,077, most of that composed of mortgage debt. This figure is actually a marked improvement, as every generation, including Generation X, has made progress paying down or discharging debt. For its part, Gen X has reduced what it owes by between 10% and 15% since 2008. But even on this score, they were beaten out by the much-maligned Millennial generation. These folks, also known as Generation Y, reduced debt even more aggressively than Gen Xers, discharging or paying down upwards of 25% of what they owed in 2008. Emmons and Noeth point out that "millennials were very young during the housing boom and presumably had more limited access to borrowing than members of Gen X." But the most striking aspect of the report is just how much more in debt Gen X is than previous generations are now or were when they were the same age that Gen Xers are today.
Despite Aggressive Deleveraging, Generation X Remains "Generation Debt" -Members of Generation X were the most aggressive borrowers during the years leading up to the financial crisis of 2007-09, according to the Federal Reserve Bank of St. Louis. They examined the inflation-adjusted amounts of household debt owed in the first quarters of 2000, 2008 and 2014 according to the age of the oldest person in the household. They found that, on average by 2008, members of Gen X (those born between 1965 and 1980) had accumulated about twice as much total debt at a given age as birth-year cohorts observed at the same age in 2000. Early members of Generation Y (those born after 1980) also borrowed aggressively.Following 2008, the later waves of Gen X and the early waves of Gen Y deleveraged the most. In fact, Gen Y members reduced average debt even more in percentage terms relative to the 2008 benchmark year than did members of Gen X, even though they were very young during the housing boom and presumably had more limited access to borrowing than members of Gen X. Over the full period studied (2000-14), the group with the greatest net increase in real average household debt relative to the life cycle patterns observed in 2000 was the one born in 1970. The average debt of these households was $142,077 in the first quarter of 2014 (that is, approximately age 44), or about 60 percent more than the inflation-adjusted household debt of the 1956 cohort in the first quarter of 2000 (also approximately age 44).
Middle class households' wealth fell 35 percent from 2005 to 2011 - A new US Census Bureau report shows that the median household's net worth fell from $106,591 to $68,839 from 2005 to 2011: That's one of many astounding facts in the report, which focuses on changes in household wealth. For example, it also found that the median net worth of the top 20 percent divided by the median of the second 20 percent was 39.8 in 2000. Today, it's 86.8. In addition, the latter group lost nearly 56 percent of its wealth. And the overall wealth of the bottom 20 percent fell from -$915 to -$6,029. Or, put another way, the median American in that poorest group saw their debt increase more than 6 and a half fold. While people in the top 40 percent lost a fair-sized chunk of assets in the downturn, they are currently above where they were in 2000. Meanwhile, the median household in the middle quintile is still worse off than they were then. In the second quintile, the median household only has half the wealth it did in 2000. And the bottom quintile's median household is far deeper in debt.
'Poor Door' in a New York Tower Opens a Fight Over Affordable Housing - A 33-story glassy tower rising on Manhattan's waterfront will offer all the extras that a condo buyer paying up to $25 million would expect, like concierge service, entertainment rooms, and unobstructed views of the Hudson River and miles beyond. The project will also cater to renters who make no more than about $50,000. They will not share the same perks, and they will also not share the same entrance. The so-called poor door has brought an outcry, with numerous officials now demanding an end to the strategy. But the question of how to best incorporate affordable units into projects built for the rich has become more relevant than ever as Mayor Bill de Blasio seeks the construction of 80,000 new affordable units over the next 10 years. The answer is not a simple one. As public housing becomes a crumbling relic of another era, American cities have grown more reliant on the private sector to build housing for the poor and working class. Developers say they can maximize their revenues, and thus build more affordable units, by separating them from their luxury counterparts.
Americans foresee unending economic doom - Vox: The Great Recession has long been over, but many Americans don't feel that way. In fact, a new report shows that in more than one way, Americans are more pessimistic now than they were at the height of the downturn. In a report released Thursday by Rutgers's Center for Workforce Development, a vast majority of Americans — 71 percent — believe the Great Recession permanently altered the economy. That's up from only 49 percent in November 2009. The below chart shows how Americans' attitudes on this question worsened over time (the timeline here goes right-to-left): Source: Rutgers University. This is the latest report in a series of polls tracking Americans' most recent results come from an online poll conducted this summer, with 1,153 respondents and a margin of error of +/- 3 percentage points. It's not that Americans don't think the numbers will start to return to normal; only 35 percent think unemployment won't return to its pre-recession levels. That's perhaps high, but far larger shares think Americans' senses of job security (53 percent) and ability to retire when they'd like (59 percent) won't return to normal.
Consumer Confidence Rises Again - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through August 14. The headline number of 92.4 was an improvement over the revised July final reading of 90.3, an upward revision from 90.9. Today's number beat the Investing.com forecast of 89.0. The current level is the highest since October 2007, the month the S&P 500 peaked prior to the Great Recession. Here is an excerpt from the Conference Board press release. "Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers' spirits. Looking ahead, consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings. Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market." Consumers' appraisal of current conditions continued to improve through August. Those saying business conditions are "good" edged up to 23.9 percent from 23.3 percent, while those claiming business conditions are "bad" declined to 21.5 percent from 22.8 percent. Consumers' assessment of the job market was also more positive. Those stating jobs are "plentiful" increased to 18.2 percent from 15.6 percent, while those claiming jobs are "hard to get" declined marginally to 30.6 percent from 30.9 percent. Consumers were slightly less optimistic in August about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months held steady at 20.4 percent, while those expecting business conditions to worsen fell to 10.2 percent from 12.1 percent. Consumers, however, were somewhat mixed about the outlook for the labor market. Those anticipating more jobs in the months ahead fell to 17.0 percent from 18.7 percent, although those anticipating fewer jobs also declined to 15.8 percent from 16.6 percent.
Confidence Survey Spikes To 7-Year Highs, Near Record Divergence From UMich Sentiment - The Government's Conference Board Consumer Confidence printed an astounding 92.4 - the highest since October 2007 and handily beating expectations of a modest retracement. The headline beat was driven by exuberance in the moment (up from 87.9 to 94.6) as expectations for the future dropped. Plans to buy a home and car rose but major appliances dropped as did expectations for jobs and income. For those in the middle-incomes, things got a lot worse but less-than-$15k and more-than-50k cohorts surged. What is most worrying on an historical basis is the gaping divergence between this government survey and the UMich confidence - near record highs.
UMich Consumer Confidence Rises On Surge in "Hope" - While the government Conference Board confidence measure remains the most exuberant, University of Michigan Consumer Confidence continues to tread water. August final print rose to 82.5 from the preliminary data (79.2) driven by a surge in "hope" from 66.2 to 71.3 mid-month. Short-term inflation expectations fell on the month. Despite exuberant all-time highs in stocks, UMich has been flat for the entire year and is now at the least exuberant relative to Conference board data in almost 7 years.
Consumers Have Confidence But Not Lots of Cash - The latest reading on consumer confidence, released Tuesday by the Conference Board, shows households are as upbeat about the economy as they were in 2007, as the last expansion was about to end. But that good cheer hasn't translated to stronger spending. As has been the case throughout most of this recovery, the spirit is willing but the wallet is weak. Job growth has been powering the gain in the consumer confidence index which increased to 92.4 in August, the best reading since October 2007. Faster job growth is a good trend for the consumer sector as a whole. But for people with jobs, pay raises remain minimal and barely pacing inflation. Small wage gains have held back spending. Worse still, the board survey shows households don't expect much change in the situation. In August, 15.5% of households expected their earnings would rise in the next six months, down from 17.7% saying that in July and the lowest reading since March. Indeed, since November 2011 (when the board rejiggered the survey), the share of households expecting increased incomes has stayed at around 15%-17%. In past recoveries, the percentages routinely got into the 20s. To be sure, household finances are in better shape than in recent years. One help has been rising home values: U.S. home prices were up 6.2% in the year ended in June, according to the latest S&P/Case-Shiller report. But for most households, paychecks, not wealth or confidence, are the main driver for spending. And unless consumers pick up their purchases, businesses could run into inventory problems in the second half.
Personal Income increased 0.2% in July, Spending decreased 0.1% - The BEA released the Personal Income and Outlays report for July: Personal income increased $28.6 billion, or 0.2 percent ... in July, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $13.6 billion, or 0.1 percent...Real PCE -- PCE adjusted to remove price changes -- decreased 0.2 percent in July, in contrast to an increase of 0.2 percent in June. ... The price index for PCE increased 0.1 percent in July, compared with an increase of 0.2 percent in June. The PCE price index, excluding food and energy, increased 0.1 percent in July, the same increase as in June. The following graph shows real Personal Consumption Expenditures (PCE) through July 2014 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change. The dashed red lines are the quarterly levels for real PCE. PCE is off to a slow start in Q3. On inflation: The PCE price index increased 1.6 percent year-over-year, and at a 1.0% annualized rate in July. The core PCE price index (excluding food and energy) increased 1.5 percent year-over-year in July, and at a 1.1% annualized rate in July.
Personal Spending Suffers First Drop Since January As Consumer Income, Outlays Miss -- Judging by the just released personal income and spending data, consumers are already forecasting a long, harsh winter. With incomes and outlays expected to rise by 0.3% and 0.2% respectively, the July data was a big dud, missing on both expectations, and while income rose by a modest 0.2%, far below the 0.5% in June, it was personal spending which in fact declined by 0.1%, a major drop from the 0.4% increase in the prior month, and the first outright decline in spending since January. As CNBC's Steve Liesman explained the disappointing data: "weather."
The Latest on Real Disposable Income Per Capita: With this morning's release of the July Personal Incomes and Outlays we can now take a closer look at "Real" Disposable Personal Income Per Capita. The first chart shows both the nominal per capita disposable income and the real (inflation-adjusted) equivalent since 2000. This indicator was significantly disrupted by the bizarre but predictable oscillation caused by 2012 year-end tax strategies in expectation of tax hikes in 2013. The July nominal 0.07% month-over-month increase shrinks to -0.01% when we adjust for inflation. The year-over-year metrics are 3.49% nominal and 1.90% real. The BEA uses the average dollar value in 2009 for inflation adjustment. But the 2009 peg is arbitrary and unintuitive. For a more natural comparison, let's compare the nominal and real growth in per capita disposable income since 2000. Nominal disposable income is up 60.3% since then. But the real purchasing power of those dollars is up only 20.7%.
Hotels: Occupancy up 5%, RevPAR up 11.0% Year-over-Year - From HotelNewsNow.com: STR: US results for week ending 23 August The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 17-23 August 2014, according to data from STR.In year-over-year measurements, the industry's occupancy rate rose 5.0 percent to 70.6 percent. Average daily rate increased 5.4 percent to finish the week at US$116.13. Revenue per available room for the week was up 10.7 percent to finish at US$82.04. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room. The occupancy rate has peaked for the year. The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.
More than 1,000 U.S. retailers could be infected with malicious software: More than 1,000 U.S. retailers could be infected with malicious software lurking in their cash register computers, allowing hackers to steal customer financial data, the Homeland Security Department said Friday. The government urged businesses of all sizes to scan their point-of-sale systems for software known as "Backoff," discovered last October. It previously explained in detail how the software operates and how retailers could find and remove it. Earlier this month, United Parcel Service said it found infected computers in 51 stores. UPS said it was not aware of any fraud that resulted from the infection but said hackers may have taken customers' names, addresses, email addresses and payment card information. The company apologized to customers and offered free identity protection and credit monitoring services to those who had shopped in those 51 stores. Backoff was discovered in October, but according to the Homeland Security Department the software wasn't flagged by antivirus programs until this month
Why July Durable Goods Orders Could Be High-Flying - Could new orders for durable goods be up by 20% or more in July? Some economists think so, all because of one company. The Commerce Department is slated to report on the durable goods sector Tuesday. New orders for goods lasting three years or more are expected to be up 7.5% last month, according to the median forecast of economists surveyed by The Wall Street Journal. That's better than the 1.7% increase posted in June, but 11 of the forecasters expect a double-digit gain and six are betting on an orders surge of 20% or more. The reason is the record number of orders booked by Boeing, The aircraft maker publishes demand for its products on its website, and in July it took orders for 324 new planes, mainly its new 777X plane. Tom Porcelli, chief U.S. economist at RBC Capital Markets, calculates that number translates to unadjusted demand of nearly $100 billion. "Now, the folks at [Commerce] could somehow aggressively seasonally adjust this reality away," Mr. Porcelli writes in a research note. "But this would be surprising, given July is typically a down month for [unadjusted] headline orders." The result, he forecasts, could be a "blockbuster" increase of 35% in headline new orders. Other economic shops expecting a huge gain in July new orders include IHS Global (38.1%), Citigroup and Goldman Sachs.
Domestic companies cheer ruling on steel imports: Domestic steelmakers are cheering the recent finding by the International Trade Commission that they've been harmed by cheap imports of steel used in oil and gas exploration. The ruling allows the Department of Commerce to impose tariffs on imports of steel goods from India, South Korea, Taiwan, Turkey, Ukraine and Vietnam – potentially leveling the playing field for domestic steelmakers. The steel pipe is used mainly in drilling oil and gas wells and has figured heavily in the recent U.S. energy exploration boom. The shale oil fields in eastern Ohio, for example, are providing growing opportunity for hydraulic fracturing – "fracking" – and other means of domestic energy production. Imports accounted for nearly 40 percent of the 7 million tons of oil country tubular goods consumed in 2013. Last year, the U.S. market was worth about $10.1 billion and 8,910 workers' employment was tied to the U.S. production of oil country tubular goods. "They have sent a clear message that we are open to trade from all, as long as it is fair," . "It is unfortunate that we had to scale back operations due to the unfairly traded imports. On a level playing field, we can compete with anyone." He expects to see relief in price competition by year's end.
Durable Goods Report: July Data Dominated by Aircraft Orders -- The August Advance Report on July Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in July increased $55.3 billion or 22.6 percent to $300.1 billion, the U.S. Census Bureau announced today. This increase, up five of the last six months, was at the highest level since the series was first published on a NAICS basis in 1992, and followed a 2.7 percent June increase. Excluding transportation, new orders decreased 0.8 percent. Excluding defense, new orders increased 24.9 percent. Download full PDF The latest new orders number came in at 22.6 percent month-over-month, dramatically above the Investing.com forecast of 7.5 percent. The record surge was the result of international aircraft orders. If we exclude transportation, "core" durable goods came in at -0.8 percent MoM, higher than the Investing.com forecast of 0.5 percent. Without the volatile transportation series, the YoY core number was up 6.6 percent. If we exclude both transportation and defense for an even more fundamental "core", durable goods were up 0.6 percent MoM and up 7.3 percent YoY. The Core Capital Goods New Orders number (nondefense capital goods used in the production of goods or services, excluding aircraft) is another highly volatile series. It was down 0.5 percent MoM, but the YoY number was up 8.3 percent. The first chart is an overlay of durable goods new orders and the S&P 500. An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders.
Durables Goods, Excluding Bumper Boeing Orders, Suffer Biggest Drop Of 2014 -- The headline print of a record-breaking 22.6% gain - smashing the 8.0% expectation - hides the extremely obvious factor of the largest civilian aircraft orders (an entirely one-off non-repeatable factor). Durables ex Transportation collapsed from a 3% gain to a 0.8% drop - the biggest drop in 2014, missing expectations by the most in 8 months. Perhaps even more concerning, non-defense ex-aircraft new orders dropped 0.5% (missing expectations of a 0.2% gain).
The Real Reason Companies Are Spending Less on Tech - After the dot-com bubble, investment in software and information processing equipment in the U.S. tumbled, and stayed down. As a percentage of GDP, it's now back to mid-1990s levels: There's a version of the chart above in the much-discussed paper that MIT economist David Autor presented last week at the Federal Reserve's annual Jackson Hole meeting. As part of a thoughtful and generally sanguine look at whether machines are going to take all of our jobs, Autor wrote that whatever might happen in the future, computers and their robot friends didn't seem to be taking our jobs now: As documented in [the chart] the onset of the weak U.S. labor market of the 2000s coincided with a sharp deceleration in computer investment — a fact that appears first-order inconsistent with the onset of a new era of capital-labor substitution. Autor suggested that financial-market troubles (first the dot-com bust, then the global financial crisis) coupled with "China's rapid rise to a premier manufacturing exporter" probably played much bigger roles in U.S. job market troubles of the past decade than new technology had. That seems reasonable enough. But I couldn't help but fixate on that information-technology chart, which seemed to show corporate America giving up on IT. Maybe it was Nick Carr's famous May 2003 HBR article "IT Doesn't Matter" that did it. Or maybe corporate executives found that all that money they were pouring into computers wasn't really paying off, or that even if it did, stock buybacks were an easier and safer path to keeping their paychecks big. Or maybe modern information technology just keeps getting cheaper.
Vehicle Sales Forecasts: Over 16 Million SAAR again in August - The automakers will report August vehicle sales on Wednesday, Sept 3rd. Sales in July were at 16.40 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in August will be above 16 million SAAR again.Note: There were 27 selling days in August this year compared to 28 last year. Here are a couple of forecasts:From J.D. Power: Summer Sizzle Continues as New-Vehicle Sales in August Forecast to Hit Highest Levels of the YearRetail light-vehicle sales are projected to hit 1.3 million units and total light-vehicle sales are expected to reach nearly 1.5 million in August 2014, both a 3 percent increase on a selling day adjusted basis, compared with August 2013. The seasonally adjusted annualized rate (SAAR) for retail sales in August 2014 is expected to be 13.6 million units, an increase of more than 100,000 units from the selling rate in July 2014. The August SAAR marks the sixth consecutive month where the SAAR has exceeded 13 million. Retail transactions are the most accurate measure of true underlying consumer demand for new vehicles. [Total sales forecast at 16.5 million SAAR]From WardsAuto: Forecast: Strong Summer Sales to Continue in August A new WardsAuto forecast calls for August U.S. light-vehicle sales to continue to gain ground on year-ago, as the industry seasonally adjusted annual rate stays in line with recent trend. The report calls for just under 1.51 million LV deliveries this month, equating to a daily sales rate of 55,761 units (over 27 days) – a 4.3% improvement over same-month year-ago (28 days). [Total sales forecast of 16.6 million SAAR]
The recovery in U.S. Heavy Truck Sales - This graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is current estimated sales rate. Heavy truck sales really collapsed during the recession, falling to a low of 181 thousand in April 2009 on a seasonally adjusted annual rate (SAAR). Since then sales have more than doubled and hit 413 thousand (SAAR) in July 2014 (about the same is in April of this year) .The level in April was the highest level since early 2007 (over 7 years ago). Sales are now above the average (and median) of the last 20 years - but still below the peaks - so I expect some more growth in sales.
Dallas Fed Plunges, Biggest Miss In 16 Months As New Orders Collapse - With Philly Fed surging to record highs (along with stocks) but Services PMI dropping "as the recovery fades," it was left to Dallas Fed to split the buy good news or buy bad news dilemma this morning. It was bad news - from 2012 highs, Dallas Fed plunged to 7.1 (against 12.7 expectations) for the biggest miss in 16 months. Production fell, capital expenditure and employment subindices all fell and New Orders collapsed at the fastest rate since April 2013 (to 2014 lows). Even hope faded as the outlook index dropped.
Richmond Fed Manufacturing Composite: "Continued to Improve in August" - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.The August update shows the manufacturing composite at 12, up from 7 last month. Numbers above zero indicate expanding activity. Today's composite number was above the Investing.com forecast of 8. Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 7.7, to facilitate the identification of trends. Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.
Regional Manufacturing Surveys suggest Solid August ISM index - From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Slowed Slightly The Federal Reserve Bank of Kansas City released the August Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity slowed slightly, but producers' expectations for future activity remained solid. "Growth eased a bit from last month's pace," Wilkerson said. "Still, August represented the eighth straight month of expansion in the region, and plant managers remained generally optimistic."...The month-over-month composite index was 3 in August, down from 9 in July and 6 in June. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Here is a graph comparing the regional Fed surveys and the ISM manufacturing index: The New York and Philly Fed surveys are averaged together (dashed green, through August), and five Fed surveys are averaged (blue, through August). The Institute for Supply Management (ISM) PMI (red) is through July (right axis). All of the regional surveys showed expansion in August, and it seems likely the ISM index will be in mid-to-high 50 range again this month.
Chicago PMI Explodes To Biggest Beat In 10 Months, Employment Drops Further - Having collapsed to 13-month lows in July - with the biggest miss on record - Chicago's PMI rebounded the way only US macro 'soft-survey' data can. After plunging from 62.6 in June to 52.6 in July, August printed a magnificent 64.3 - its highest since May - showing up this data's noisy nature as entirely useless. From worst miss on record (and 13-month lows) to best beat in 10 months and 5 month highs... brilliant. It would seem ISM has entirely given up on any credibility at all... However, given this exuberance (in production and new orders), the employment sub-index dropped yet again.
Kansas City Fed Launches New Job Market Index, Sees Improvements - The Federal Reserve Bank of Kansas City launched Thursday a new gauge to track labor market conditions, which signaled in its first outing a hopeful outlook for hiring in the U.S. economy. The bank said that its Kansas City Fed Labor Market Conditions Indicators activity measure moved to -0.6 in July, something the report deemed a "substantial improvement" from the low of -2.1 seen in December 2009, in the depths of the greatest economic and financial downturn seen since the Great Depression. The new gauge also tracks labor market momentum, and found gains there as well. The Kansas City Fed said the biggest contributors to improvement in the job market were the rising number of job openings. The boost in labor market momentum owes in significant part to gains in factory jobs as measured by a monthly survey conducted by the Institute for Supply Management. The new index draws on a broad array of job market measures. In a research note, economists write "in the aftermath of a severe recession featuring significant shifts in employment, relying on one or two traditional labor market variables may not be sufficient to assess underlying labor market conditions." They wrote that the new Kansas City Fed index draws on 24 different variables to take the temperature of the U.S. employment situation. The economists conclude that conditions are improving and will likely be back to some variation of normal by next year. "The level of labor market activity has improved substantially since early 2010 and labor market momentum has been near historically high levels over the past four months," the report said.
Services PMI Drops Most In 6 Months, "Recovery Has Lost Some Momentum", Markit Says -- US Services PMI dropped from multi-year highs to a still expanding 58.5, 3 month lows and the biggest MoM drop in 6 months. This is the 10th month of expansion in a row but employment growth continues to slow, as opposed to the priced-in escape velocity to the moon levels the market expects, even if this particular piece of bad news may just be the good news the "market" needs for that nudge above 2,000. As Markit notes Adjusted for seasonal influences, the Markit Flash U.S. Composite PMI Output Index dipped from 60.6 in July to 58.8 in August, its lowest reading for three months. Slower overall output growth largely reflected a moderation in the service sector, as manufacturing production expanded at a similarly sharp pace to that seen in July. Meanwhile, latest data pointed to a solid increase in private sector payroll numbers, but the rate of employment growth remained weaker than June's post-crisis peak.
Import Competition and the Great U.S. Employment Sag of the 2000s: Even before the Great Recession, U.S. employment growth was unimpressive. Between 2000 and 2007, the economy gave back the considerable gains in employment rates it had achieved during the 1990s, with major contractions in manufacturing employment being a prime contributor to the slump. The U.S. employment "sag" of the 2000s is widely recognized but poorly understood. In this paper, we explore the contribution of the swift rise of import competition from China to sluggish U.S. employment growth. We find that the increase in U.S. imports from China, which accelerated after 2000, was a major force behind recent reductions in U.S. manufacturing employment and that, through input-output linkages and other general equilibrium effects, it appears to have significantly suppressed overall U.S. job growth. We apply industry-level and local labor market-level approaches to estimate the size of (a) employment losses in directly exposed manufacturing industries, (b) employment effects in indirectly exposed upstream and downstream industries inside and outside manufacturing, and (c) the net effects of conventional labor reallocation, which should raise employment in non-exposed sectors, and Keynesian multipliers, which should reduce employment in non-exposed sectors. Our central estimates suggest net job losses of 2.0 to 2.4 million stemming from the rise in import competition from China over the period 1999 to 2011. The estimated employment effects are larger in magnitude at the local labor market level, consistent with local general equilibrium effects that amplify the impact of import competition.
Yes, trade with poor countries has cost US jobs -- Polled in March 2012, top academic economists overwhelmingly agreed that "freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment." This academic consensus has penetrated popular opinion to the extent that some people believe increasing cross-border trade flows is unambiguously good for everyone. Likewise, there is a relatively common — and wrong — belief that the Hawley-Smoot tariffs were a significant factor in the severity of the Great Depression. We don't want to suggest that trade is bad, but it is worth highlighting that the actual views of the experts who study these issues are much more nuanced than what the "pop internationalists" often spew out. For example, a new paper by Daron Acemoglu, David Autor, David Dorn, Gordon H Hanson, and Brendan Price estimates that the sharp increase in bilateral trade between China and the US cost somewhere between 2 and 2.4 million jobs between 1999 and 2011 — about 1 percent of the entire civilian population in 2011. Less than half of those jobs were in manufacturing sectors that directly competed with Chinese businesses.
Weekly Initial Unemployment Claims decrease to 298,000 -- The DOL reports: In the week ending August 23, the advance figure for seasonally adjusted initial claims was 298,000, a decrease of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 298,000 to 299,000. The 4-week moving average was 299,750, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 300,750 to 301,000. There were no special factors impacting this week's initial claims. The previous week was revised up to 299,000. The following graph shows the 4-week moving average of weekly claims since January 1971.
Initial Jobless Claims Drop Back Under 300k, Continuing Claims Rise - "Slack" or "no slack" - initial claims tumbling along the bottom of the lowest levels in a decade suggest the US economy's job creation is as good as it gets. Initial claims was stable at 298k (vs expectations of 300k) down very small from the 299k adjusted data for last week. Continuing claims rose 25k on the week and missed expectations but also continues to tread water at the lowest levels since 2007.
A New Reason to Question the Official Unemployment Rate: A new academic paper suggests that the unemployment rate appears to have become less accurate over the last two decades, in part because of this rise in nonresponse. In particular, there seems to have been an increase in the number of people who once would have qualified as officially unemployed and today are considered out of the labor force, neither working nor looking for work. The trend obviously matters for its own sake: It suggests that the official unemployment rate – 6.2 percent in July – understates the extent of economic pain in the country today. ... The new paper is a reminder that the unemployment rate deserves less attention than it often receives. Yet the research also relates to a larger phenomenon. The declining response rate to surveys of almost all kinds is among the biggest problems in the social sciences. ... Why are people less willing to respond? The rise of caller ID and the decline of landlines play a role. But they're not the only reasons. Americans' trust in institutions – including government, the media, churches, banks, labor unions and schools – has fallen in recent decades. People seem more dubious of a survey's purpose and more worried about intrusions into their privacy than in the past. "People are skeptical – Is this a real survey? What they are asking me?" Francis Horvath, of the Labor Department, says.
Employers Aren't Just Whining – the "Skills Gap" Is Real - Every year, the Manpower Group, a human resources consultancy, conducts a worldwide "Talent Shortage Survey." Last year, 35% of 38,000 employers reported difficulty filling jobs due to lack of available talent; in the U.S., 39% of employers did. But the idea of a "skills gap" as identified in this and other surveys has been widely criticized. Peter Cappelli asks whether these studies are just a sign of "employer whining;" Paul Krugman calls the skills gap a "zombie idea" that "that should have been killed by evidence, but refuses to die." The New York Times asserts that it is "mostly a corporate fiction, based in part on self-interest and a misreading of government data." According to the Times, the survey responses are an effort by executives to get "the government to take on more of the costs of training workers." Really? A worldwide scheme by thousands of business managers to manipulate public opinion seems far-fetched. Perhaps the simpler explanation is the better one: many employers might actually have difficulty hiring skilled workers. The critics cite economic evidence to argue that there are no major shortages of skilled workers. But a closer look shows that their evidence is mostly irrelevant. The issue is confusing because the skills required to work with new technologies are hard to measure. They are even harder to manage. Understanding this controversy sheds some light on what employers and government need to do to deal with a very real problem.
Where the Jobs Are – And Why It Matters to the Fed - The nation's central bankers and leading economists spent last week at the Federal Reserve Bank of Kansas City's annual Jackson Hole conference debating the central issue facing the Fed now: How much slack is left in the labor market? The answer will determine how soon the Fed finally begins tightening the monetary screws by lifting interest rates off the floor where they've been since the financial crisis. But that's only the short-term challenge confronting the nation's monetary authorities. The longer-term challenging is figuring out how fast the economy can grow on a sustained basis over the long-run. The higher that number, the more relaxed the Fed can be without igniting accelerating inflation during the inevitable bouncing around of GDP growth and unemployment data from quarter to quarter. So far, the Fed and the congressional budget scorekeeper, the Congress Budget Office, have been moderately pessimistic about long-term growth: around 2%, which is at least a full percentage point below the potential GDP growth rate projected by many economists in the 1990s and early 2000s. One study just released by the Federal Reserve Bank of Cleveland sheds light on the long-term growth issue – and it is consistent with the Fed's and CBO's slow growth forecasts. Using the Census Bureau's Business Dynamics Statistics database to track where new jobs have been coming from, the three economists reaffirm earlier studies showing a declining share from the creation of new companies. While it's good news that more jobs are being created, the fact that they are increasingly coming from more established firms supports the finding of an earlier study Ian and I published showing that the firm structure of the U.S. economy is aging. This is not a good portent for those who want more breakthrough or disruptive innovations, the kind that really power high rates of growth over the long run.
More Laid-Off Workers Are Bouncing Back, And Fewer are Taking Pay Cuts --More Americans are bouncing back after losing their jobs, and fewer people are accepting a pay cut as the price of returning to work. Some 9.5 million people lost their jobs between January 2011 and December 2013, including 4.3 million who lost jobs they had held for at least three years, the Labor Department said Tuesday in its biennial survey of displaced workers. As of January 2014, 61% were back at work. By comparison, less than half of the 15.4 million workers who lost their jobs from 2007 through 2009, during the recession years, were reemployed at the beginning of 2010.The prospects have gotten brighter for people who find themselves out of work, but many of the recession's scars have been slow to heal. Wages in particular have been stagnant, with inflation-adjusted hourly earnings for private-sector workers unchanged in July from two years earlier, according to Labor Department data. Many workers who lost their jobs took new ones that paid less. Job growth has been robust in some typically low-wage fields, such as food service and temp work. But payrolls remain far below pre-recession levels in traditionally high-paying sectors like manufacturing and government. And some 7.5 million Americans in July were working part-time jobs because they couldn't find full-time work. Slow wage growth can restrain consumer spending, which generates more than two-thirds of U.S. economic output.
This time is not that different, long-term unemployment edition --If we were asked to make the Great Recession look radically different from all other postwar US recessions, we would point to this chart: It looks as if people who lost their jobs in 2007-2009 are much more likely to remain unemployed — 5 years after the recession officially ended — than their predecessors. On top of that, of course, is the massive and sustained decline in the share of working-age people with a job: But an intriguing paper by Jae Song and Till von Wachter presented at this year's Jackson Hole symposium suggests that the impact of the most recent recession on long-term unemployment was not actually that unusual given the number of jobs lost at the outset. The paper also presents some encouraging evidence that many of those who appear to have given up hope of finding a job could rejoin the labour force if the economy keeps expanding, as well as sobering demonstrations of the permanent costs of being laid off.
More Non-Evidence of Part-Time Work Shift - I was thinking about labor supply and demand, and the anecdotal evidence from employers that they are shifting work to part time because of the ACA. I haven't seen definitive evidence of a significant shift to part time work in the data for number of employees. Here is the chart of part time employment from yesterday's post. After an initial shock and a shift from "non-economic" to "economic" reasons, the total number of part time workers has been moving down to about 1% above the pre-recession level. This is typical for a recession. The size of the shift up in "economic" part time workers, and the slow subsequent decline are unusual, but these trends pre-date the ACA, so it seems inaccurate to pin much if any of the trend on the ACA. I have posited that one underappreciated factor here is that the binding constraint here may be the supply of willing part time workers. But, if that is the case, if employers are experiencing higher costs for full time workers, then we should see an increase in pay for part time workers, as labor supply and demand settle at a new equilibrium that accounts for the new cost structure. If the quantity of available part time workers is relatively inelastic, maybe this adjustment would mainly play out in wages. Employers would need to increase the wages on part time jobs to entice workers who preferred full time work to move to a suboptimal work scenario.
Wages Have Fallen for Most Americans in 2014 -- Today, we released a report analyzing the most recent reliable data on wages by decile and by educational attainment. These data are illuminating because they look beneath the overall averages presented in the regular statistical series covered by the media. On the one hand, these recent data look quite a bit like the couple of years of data that come before it—but that is still very revealing of what's going in the economy. Overall, the trends over the last year—from the first half of 2013 to the first half of 2014—show that real, inflation-adjusted wages fell up and down the entire wage scale, with one revealing notable exception. The recovery has not been completely jobless for a while now, but it does continue to be pretty much wage-less, or at least wage-growth-less. Let's start at the top of the wage distribution: those workers with the most education and the highest wages. Over the last year, real wages at the top of the wage distribution fell, by 2.0 percent at the 90th percentile and 0.7 percent at the 95th percentile. Real wages also fell for workers with a 4-year college degree, and even for those workers with an advanced degree. This is important in particular because it sends a clear message to the Federal Reserve Board. If even these groups of highly educated workers facing the lowest unemployment are seeing outright wage declines, there is clearly lots of slack left in the American labor market, and policymakers—particularly the Federal Reserve—should not try to slow the recovery down in an effort to keep wage and price inflation in check: they're both already firmly in check even for the most privileged workers.
Measuring Real Wages: "Lies, Damn Lies, and Statistics" -- Earlier this week I updated my commentary on Five Decades of Middle Class Wages, an analysis of Real Average Hourly Earnings of Production and Nonsupervisory Employees. During the 21st century and especially since the end of the Great Recession, wages have clearly been stagnant. I was, therefore, not surprised when a reader sent me a link to a blog article entitled "Real Wage Stagnation Is a Bit of a Myth." Seriously! The article featured a chart that included the very same earnings data series that I had used, but it came to quite the opposite conclusion: "Contrary to popular belief, wages have been rising a bit faster than prices. In other words, real wages haven't stagnated as widely believed, but have been moving higher, albeit at a slow pace." All it takes is a simple statistical manipulation to paint a smiley face on the real wage data. And what is that? Choose a tame deflator for your inflation adjustment. Here are side-by-side charts of the Average Hourly Earnings of Production and Nonsupervisory Employees stretching back to 1964, the year the Bureau of Labor Statistics (BLS) initiated the series. The chart on the left is my analysis. The one on the right is the optimistic variant that claims stagnation is a "myth" . On the left above, I adjusted for inflation using the Consumer Price Index for Urban Consumers, the deflator we commonly refer to as the CPI. In contrast, the "stagnation is a myth" article used the Bureau of Economic Analysis's Personal Consumption Expenditures Price Index for inflation adjustment. Their PCE deflator and their somewhat similar GDP deflator consistently show lower inflation than the Depart of Labor's BLS. How different? Here is an overlay illustrating the cumulative change in CPI and the PCE Price Index since 1960.
On the Relationships between Wages, Prices, and Economic Activity: Cleveland Fed - Labor costs and labor compensation have garnered considerable attention from economists in the wake of the financial crisis and recession. Across a range of measures, wage growth slowed sharply during the recession. Recently, wage growth has remained near historically low levels despite improvements in the labor market.Subdued wage growth has been variously seen as both a cause and a consequence of the slow pace of economic growth and persistently low inflation rates. It also may have contributed to rising inequality. In some forecast narratives, a pickup in wage growth is viewed as a necessary condition for a stronger recovery and rising inflation. In others, it is a natural consequence of a tightening labor market.This Commentary takes a closer look at the relationships between wages, prices, and economic activity. It finds that the connections among wages, prices, and economic activity are more akin to a tangled web than a straight line. In the United States, wages and prices have tended to move together, and causal relationships are difficult to identify. We do find that wages are sensitive to economic activity and the level of slack in the economy, but our forecasting results suggest that the ability of wages to help predict future inflation is limited. Thus, wages appear to be useful in assessing the current state of labor markets, but not necessarily sufficient for thinking about where the economy and inflation are going. ...
The Cleveland Fed's Puzzle on Future Economic Activity -- Edward S. Knotek II and Saeed Zaman posted a paper at the Cleveland Fed's web site that looked at causal relationships between wages, prices and future economic activity.Their paper arrives at this conclusion: "…subdued wage growth is symptomatic of the existence of slack in the labor market. But given wages' limited forecasting power, they are but one piece in a larger puzzle about where the economy and inflation are going." What Knotek and Zaman have done here is to make an omelet and forget the eggs. One can't have a cogent discussion today about where the economy is going without including the perhaps uncomfortable but essential ingredient – unprecedented wealth and income inequality. Here's an alternative analysis that includes the eggs: Yes, there is slack in the labor market. Yes, that induces fear among workers who resist asking for wage increases. The fact one's neighbor lost his job and has been unemployed for more than a year adds to that fear. The fact that the bright college graduate down the block is working as a waiter also adds to that fear. The reality that unions can't negotiate for higher wages across a broad swath of the labor force because their ranks have been decimated to just 6.7 percent of private sector workers adds further to the downward bias on wages.
No matter how you measure, wages have stagnated - We have a variety of economic data series to track wages, including measures of average wages, median wages, and wages per unit production hour. There are at least 7 such measures. In addition to the monthly average hourly pay report (listed first below), there are 4 quartely series:
- The most commonly known measure is that of average hourly pay for nonsupervisory workers, which is part of the monthly jobs report.
- The Bureau of Labor Statistics, which conducts the household employment survey, also reports "usual weekly earnings" for full time workers each quarter.
- The BLS also measures the Employment Cost Index quarterly.
- The BLS also measures "business sector real compensation per hour" quarterly.
- Another quarterly measure is unit labor costs, which measure how much labor gets paid per unit of output.
There are also two annual series:
- The BLS reports occupational employment statistics which are reported annually.
- Additionally, the Social Security Administration measures annual net compensation from actual W-9 tax withholding forms, but this has only been issued through 2012. This method means that the result is subject to change based on the total hours worked (remember that in the recession we lost 6% of jobs, but almost 10% of aggregate hours).
40 Percent of Restaurant Workers Live in Near-Poverty -- It isn't just fast-food empires that rely on a low-paid, disempowered, and quite-often impoverished workforce. As a stomach-turning new report (PDF viewable here) from the Economic Policy Institute shows, the entire restaurant industry hides a dirty little labor secret under the tasteful lighting of the dining room. Here are some highlights:
- • The restaurant industry is a massive and growing source of employment. It accounts for more than 9 percent of US private-sector jobs—up from a little more than 7 percent in 1990. That's nearly a 30 percent gain.
- • The industry's wages have stagnated at an extremely low level. Restaurant workers' median wage stands at $10 per hour, tips included—and hasn't budged, in inflation-adjusted terms, since 2000. For nonrestaurant US workers, the median hourly wage is $18. Benefits are also rare—just 14.4 percent of restaurant workers have employer-sponsored health insurance and 8.4 percent have pensions, vs. 48.7 percent and 41.8 percent, respectively, for other workers
- • Unionization rates are minuscule. Presumably, it would be more difficult to keep wages throttled at such a low level if restaurant workers could bargain collectively. But just 1.8 percent of restaurant workers belong to unions, about one-seventh of the rate for nonrestaurant workers.
- • As a result, the people who prepare and serve you food are pretty likely to live in poverty. The overall poverty rate stands at 6.3 percent. For restaurant workers, the rate is 16.7 percent. For families, researchers often look at twice the poverty threshold as proxy for what it takes to make ends meet, EPI reports. More than 40 percent of restaurant workers live below twice the poverty line—that's double the rate of nonrestaurant workers.
America's coal heartland is in economic freefall — but only the most desperate are fleeing - For 51 years he'd lived in the same hollow and for two decades he'd performed the same job, mining coal from the underground seams of southern West Virginia. Then, on June 30, Michael Estep was jobless. His mine shut down, and its operator said "market conditions" made coal production unviable. What has come since, for Estep, stands as the new Central Appalachian economic experience: a job-hunt in a region whose sustaining industry is in an unprecedented freefall. "I don't know what to do," Estep said as unpaid bills piled up, his cable cut to black, and his wife withdrew the last $7 from a checking account they'd held for 20 years. What's happening now in America's coal heartland is not just the typical bust. Those in the industry say it's more dire, potentially permanent, caused at once by declining reserves, a cheaper influx of competing gas and looming environmental regulations. More than 10,000 miners have lost jobs over the past two-and-a-half years in southern West Virginia and Eastern Kentucky, and their plight illustrates how, even amid an economic recovery, certain segments of the workforce are being shut out. Miners, modestly educated but accustomed to high pay, are among the hardest group of American workers to retrain. They also tend to challenge one of the tenets of economics logic — that people will go elsewhere to find jobs. Even though the economy is growing in northern parts of West Virginia, driven by a natural gas boom, those in the geographically isolated southern parts have shown a tendency to stay put, even if it means sliding toward poverty. "This is where you grew up; you can fish, you can hunt. Land is cheap. Chances are your grandfather owned that property,"
Why America's Workers Need Faster Wage Growth—And What We Can Do About It The last year has been a poor one for American workers' wages. Comparing the first half of 2014 with the first half of 2013, real (inflation-adjusted) hourly wages fell for workers in nearly every decile—even for those with a bachelor's or advanced degree. Of course, this is not a new story. Comparing the first half of 2014 with the first half of 2007 (the last period of reasonable labor market health before the Great Recession), hourly wages for the vast majority of American workers have been flat or falling. And even since 1979, the vast majority of American workers have seen their hourly wages stagnate or decline—even though decades of consistent gains in economy-wide productivity have provided ample room for wage growth. This paper, hand-in-hand with the overview paper (Bivens et al. 2014) for EPI's Raising America's Pay initiative, explains in detail why we need to raise wages in order to achieve real gains in the living standards of the vast majority of Americans. This paper begins by documenting the pronounced rise in income inequality in recent decades and then examines the implications of this rise in inequality for living standards growth for the vast majority. It then examines the link between wage growth and these wider income trends before undertaking a thorough analysis of wage trends since 1979. It concludes with an examination of the policy changes that have helped spur these wage trends by shifting bargaining power from the vast majority of workers to corporations and CEOs. The paper highlights an underappreciated subset of these policies: changes in labor market policies and business practices.
Widening wealth gap -- Recent census date points to a Widening wealth gap:The Census Bureau released updated data this week on the net worth of American households, drawn from the Survey of Income and Program Participation. These totals reflect all assets including money in checking accounts, owned homes, rental properties, 401ks, stocks and vehicles, offset by liabilities like mortgages, student loans, and medical and credit card debt. Below, I've charted the distribution of net worth by income quintiles for several groups: non-Hispanic whites, blacks, Hispanics and Asians, as well as households headed by workers with a high school degree or more. The Census data suggest that the wealth gap in America has widened over the past decade, regardless of how you slice it. The gap between the bottom and top quintiles in America has widened, as has the gap between blacks and whites, and between workers with only a high school degree and those with much more.
Amid job stagnation, a prosperous class grows - From 2000 to 2012, American workers as a whole had a tough time, as population grew much faster than new jobs and many people gave up looking for work. There was one major exception: jobs paying $100,000 to $400,000 (in 2012 dollars). This is what I call America's new prosperous class. Many of these workers have an advanced degree. They no longer struggle, but they continue to work because their wealth is far from adequate to support their lifestyles. The number of prosperous-class jobs soared to 10.8 million, an increase of 2.1 million since 2000. That is almost 10 times the growth rate of jobs paying either more or less. Most astonishing is how much of the overall increase in wages earned by the 153.6 million people with a job in 2012 went to this narrow band of very well paid workers: Just 7 percent of all jobs pay in this range, but those workers collected 76.9 percent of the total real wage increase. This rise of the prosperous class illustrates a fundamental shift in the economy — as wrenching and potentially enriching as the country's 19th century transition from an agricultural nation into an industrial one. The change this time is to a knowledge economy in which big bang after big, big bang in science rapidly expands our expertise and mastery of our world, both physical and conceptual, and with it our wealth.
A Look at Income Inequality, Hour by Hour - By now, anyone following the debate over income inequality in the U.S. has likely seen the rise of income inequality charted over the years or over decades. But how about income inequality hour by hour? A new study by the Economic Policy Institute, a left-leaning think tank, breaks down Labor Department data on hourly earnings to show income disparity even at the level of hourly wages. Someone earning $8.38 an hour is in the 10th percentile, meaning they earn more than 10% of workers, but less than 90%. At the 50th percentile, workers have been earning $16.59. At the top of the distribution, workers at the 90th percentile earn $40 an hour and those at the 95th percentile earn $52.23. And since the recession began, wages have only been growing (and even then only modestly) for those at the top, according to the analysis by EPI economist Elise Gould. Inflation has been low by most measures in recent years, but wage growth for the majority of workers has been even lower. That means even small amounts of inflation have been painful for vast swaths of the workforce. Only workers in the 80th percentile and up have seen their wage gains outpace inflation, though not by much. "The poor performance of American workers' wages in recent decades — particularly their failure to grow at anywhere near the pace of overall productivity, is the country's central economic challenge," Ms. Gould writes.
The 35.4 Percent: 109,631,000 on Welfare - 109,631,000 living in households taking federal welfare benefits as of the end of 2012, according to the Census Bureau, equaled 35.4 percent of all 309,467,000 people living in the United States at that time. When those receiving benefits from non-means-tested federal programs — such as Social Security, Medicare, unemployment and veterans benefits — were added to those taking welfare benefits, it turned out that 153,323,000 people were getting federal benefits of some type at the end of 2012. Subtract the 3,297,000 who were receiving veterans' benefits from the total, and that leaves 150,026,000 people receiving non-veterans' benefits. The 153,323,000 total benefit-takers at the end of 2012, said the Census Bureau, equaled 49.5 percent of the population. The 150,026,000 taking benefits other than veterans' benefits equaled about 48.5 percent of the population. In 2012, according to the Census Bureau, there were 103,087,000 full-time year-round workers in the United States (including 16,606,000 full-time year-round government workers). Thus, the welfare-takers outnumbered full-time year-round workers by 6,544,000.
The Expanding World of Poverty Capitalism - In Orange County, Calif., the probation department's "supervised electronic confinement program," which monitors the movements of low-risk offenders, has been outsourced to a private company, Sentinel Offender Services. The company, by its own account, oversees case management, including breath alcohol and drug-testing services, "all at no cost to county taxpayers."Sentinel makes its money by getting the offenders on probation to pay for the company's services. Charges can range from $35 to $100 a month. The company boasts of having contracts with more than 200 government agencies, and it takes pride in the "development of offender funded programs where any of our services can be provided at no cost to the agency." In this unique sector of the economy, costs of essential government services are shifted to the poor. In terms of food, housing and other essentials, the cost of being poor has always been exorbitant. Landlords, grocery stores and other commercial enterprises have all found ways to profit from those at the bottom of the ladder.The recent drive toward privatization of government functions has turned traditional public services into profit-making enterprises as well. In addition to probation, municipal court systems are also turning collections over to a national network of companies like Sentinel that profit from service charges imposed on the men and women who are under court order to pay fees and fines, including traffic tickets (with the fees being sums tacked on by the court to fund administrative services). When they cannot pay these assessed fees and fines – plus collection charges imposed by the private companies — offenders can be sent to jail. There are many documented cases in which courts have imprisoned those who failed to keep up with their combined fines, fees and service charges.
Gilian Tett gets it very wrong on racial profiling - Mathbabe - Last Friday Gillian Tett ran a profoundly disturbing article in the Financial Times entitled Mapping Crime – Or Stirring Hate?, which makes me sad to say this given how much respect I normally have for her regarding her coverage of the financial crisis. In the article, Tett describes the predictive policing model used by the Chicago police force, which told the police where to go to find criminals based on where people had been arrested in the past. Her article reads like an advertisement for racist profiling. First she deftly and indirectly claims the model is super successful at lowering the murder rate without actually coming out and saying so (since she actually has only correlative evidence): Here's the thing, it's really hard to actually know why murder rates go up and down. In New York City we've been using Stop & Frisk as the violent crime rates have been steadily lowering in this city (and many others), and for a long time Bloomberg took credit for that through the Stop & Frisk practice. But when Stop & Frisk rates went down, murder rates didn't shoot up. Just saying. And that's ignoring how reliable the police data is, which is another issue. Let's take a look at her evidence for a longer time frame:
More Evidence That State Income Taxes Have Little Impact on Interstate Migration - The New York Times' Upshot blog has published a fascinating set of graphs of Census Bureau data on interstate migration patterns since 1900, bolstering our argument that state income taxes don't have a significant impact on people's decisions about where to live. We plotted the same Census data, which shows which states do the best job of retaining their native-born populations, on the chart below, also noting which states have (or don't have) a state income tax. Our chart shows that taxes have little to do with the extent to which native-born people leave their states of origin.If Heritage Foundation economist Stephen Moore's claim (which other tax-cut advocates often repeat) that "taxes are indisputably a major factor in determining where . . . families locate" were true, states without income taxes would see below-average shares of their native-born populations leaving at some point in their lifetime, while states with relatively high income taxes would see the opposite. But the graph shows no such pattern:
Mississippi taxpayers owe $10,700 apiece for mounting debt « In a new "Financial State of the States" report released by the non-partisan fiscal analysis group Truth in Accounting, that's how much Mississippi taxpayers would each have to contribute to pay off a $7.7 billion budget shortfall. For those keeping score at home, the state's debt stacked in one-dollar bills would ascend 522 miles, or more than twice as high as the International Space Station in low-Earth orbit — between 198 and 215 miles above the Earth's surface. The state's finances were rated as the 19th worst among the "sinkhole" states, which have a high taxpayer burden. The state's most powerful Republican politicians, Gov. Phil Bryant, Lt. Gov. Tate Reeves and House Speaker Phillip Gunn, all mentioned in speeches at the recent Neshoba County Fair their individual commitments to fiscal responsibility, and according to the state's numbers, the budget is balanced. But it doesn't take into account the elephant (no pun intended) in the room. That would be the state's Public Employees' Retirement System, the primary driver of the state's budget woes.Mississippi's balanced budget law says only that expenditures can't exceed revenue. Since the future obligations of payouts to retired employees aren't considered as expenditures in that year's budget, most of the promised benefits — such as $5 billion of pension payments and $690.3 million of health-care costs — lurk beneath the murky fiscal water like a pair of hull-puncturing snags.
Detroit Expected $55 Million in Property Tax Revenue; It Brought in $6.7 Million [Michigan Capitol Confidential]: In the fourth quarter of its fiscal year 2014, the city of Detroit projected it would bring in $55 million in property taxes. Instead, it collected just $6.7 million, about $48.3 million short of what it expected. The city revealed the shortfall in its most recent filing with the Michigan Department of Treasury by Emergency Manager Kevyn Orr. "It's a combination of many factors," said Bill Nowling, spokesman for Orr. "Clearly, collections is an issue, but so it is the assessment process itself. In many cases, the city is carrying assessments for properties that are blighted or abandoned and those amounts go into making up that $55 million number." That shortfall in property taxes played a big role in why the city was $50.2 million in the red in the fourth quarter, which ran from April to June. In the third quarter, the city of Detroit fell $19.3 million short of property tax revenue collections. However, in the first two quarters of FY 2014 (July through December of 2013), the city took in a combined $52.1 million more in property taxes than projected.
Detroit bankruptcy judge tosses hold-out creditor's charges (Reuters) - A U.S. Bankruptcy Court judge late on Thursday removed allegations made by one of Detroit's remaining hold-out creditors against mediators in the city's historic municipal bankruptcy case. Judge Steven Rhodes chastised Syncora Guarantee Inc for claiming in an Aug. 12 court filing that mediators, Chief U.S. District Court Judge Gerald Rosen and attorney Eugene Driker, are biased. "The court finds that the allegations concerning the mediators ... are scandalous and defamatory," Rhodes' ruling stated. It added that the bond insurance company's "highly personal attack" on Rosen was legally and factually unwarranted, unprofessional and unjust. James H.M. Sprayregen, an attorney at Kirkland & Ellis representing Syncora said they "respectfully disagree with Judge Rhodes." "We still have concerns about the fairness of the mediation process," he said in a statement. "These issues will be addressed more specifically in further court proceedings."
Detroit water shut-offs to return -- Detroit can expect more controversy, and more people paying up, as a monthlong moratorium against shutting off water for those behind on their bills expires at the end of the day Monday.Crews are set to resume water shutoffs Tuesday after weeks of promoting how residents behind on their bills can get on a payment plan or get help paying.Other Metro Detroit cities, facing a financial pinch from unpaid bills, have gotten results by halting service to people who don't pay. But that approach, which has produced some positive results, generated outrage among some people in Detroit and beyond, who say access to water should be a right."We've seen a lot more payments," said Randall Blum, Eastpointe's finance director. "They need that little kick in the pants to get in here and do it."The Macomb County city began issuing 30-day shut-off notices in fall 2011 to delinquent customers with the largest bills because its prior policy, rolling unpaid water charges onto property tax bills, wasn't working. On average, about 2,500 of Eastpointe's 13,000 water customers fail to pay on time each month.
Detroit resumes shutting off water service: – Bankrupt Detroit resumed shutting off water to people who have not paid bills after a month long suspension that followed international and local criticism that the practice was unduly harsh to residents of one of the nation's poorest cities. The city said it was scheduled to deny service to 420 customers Tuesday, although it was not immediately clear how many had actually been shut off. Detroit filed the nation's largest-ever municipal bankruptcy last year and has struggled to manage basic services. Nearly 45 percent of the city's 173,000 residential water accounts are considered past due, the city said. Some 25,000 customers have reached payment plans with the city. "The new system seems to be working very well," said John Roach, spokesman for Mayor Mike Duggan. That new system includes simplifying payment plans so that customers only need to present a valid state of Michigan identification. It also waives service restoration fees and late payment penalties while extending operating hours for payment centers. Only 10 percent of past-due balances now are required to enter a payment plan to have water restored. The previous down-payment was 30 percent.
With Half Of City Residents Delinquent, Detroit Restarts Water Shut-Offs -- "Utility disconnection is always considered a last resort, obviously because of consequences for households," but as Detroit News reports, but water-providers can expect more controversy, as a month-long moratorium against shutting off water for those behind on their bills expired last night. Halting service to people that don't pay generate outrage among not just Detroit residents but a wider audience who proclaim 'water should be a right'. However, as one utility director noted, "We've seen a lot more payments...They need that little kick in the pants to get in here and do it." Water industry experts say cities with high delinquency rates sometimes have few other effective options for getting customers to catch up on their bills. Roughly half of Detroit's 170,000 customers were delinquent as of last spring.
Why You Should Take a Week-Long Break From All Screens — Children who spend five days away from their smartphones, televisions and other screens were substantially better at reading facial emotions afterwards, a new study has found. The UCLA study suggests that children's social skills are hurt by spending less and less time interacting face-to-face (Uhls et al., 2014). Professor Patricia Greenfield, who co-authored the study, said: "Many people are looking at the benefits of digital media in education, and not many are looking at the costs. Decreased sensitivity to emotional cues — losing the ability to understand the emotions of other people — is one of the costs. The displacement of in-person social interaction by screen interaction seems to be reducing social skills." The study tested two groups of sixth-grade students at how well they could judge facial emotions in pictures and videos. One group then went off to the Pali institute — a nature and science camp near Los Angeles — for five days. At the camp, the children weren't allowed to use any electronic devices, while the other group went about their normal, everyday lives. It was quite a change for those children who attended the Pali Institute as the usual amount of time they spent texting, watching TV and playing video games was 4.5 hours per day — and that was on a typical school day. After five days at the Institute, the children's ability to read facial emotions improved tremendously in comparison to those who'd had their electronic devices for the week. The number of errors they made on the test reduced by around one-third.
Stigmatizing Poor Kids in Our Public Schools - The new Community Eligibility provision of the National School Lunch Program allows schools and school districts with a sufficient density of poor children to give out free lunches to all of their students. This is a smart change that will make the program more efficient, and it has been in the works for quite a while. Given the recent spate of Republican outbursts regarding free school lunch, it's a wonder conservatives haven't yet blasted the plan as emptying out the souls of children, à la Paul Ryan, or demanded that children affected by the expansion be forced to do janitorial work to earn the lunches, à la Jack Kingston. But for the time being, at least, the anti-poor malice that tends to rally the troops on the right against stuff like this has somehow been kept in check. This surprise turned out to be warranted, as Daniel Payne has taken to The Federalist to shed tears about Community Eligibility: It's bad enough that we'll have more students belly up to the government food trough (if you've never had a taste of "free" government lunch, consider yourself lucky); instead, consider RPS Superintendent Dana Bedden's positive gushing about the new program: "I like it for the health and nutrition aspect, but this also removes the stigma of free lunch. Everyone can eat." Ah, "stigma:" one of the last great impediments to full-blown government dependency. While the city's busy filling its school buildings with vermin and serpents, it might consider inculcating a modicum of self-reliance within its studentry. This sentiment is, of course, cartoonishly silly. I mean, do you really want to make poor children feel bad for eating free lunches? How exactly would a 6-year-old child come to be self-reliant? Doesn't every single child eat free lunch every single day insofar as none of them work for it? And so on.
Back to School, and to Widening Inequality - Robert Reich -- American kids are getting ready to head back to school. But the schools they're heading back to differ dramatically by family income.Which helps explain the growing achievement gap between lower and higher-income children.Thirty years ago, the average gap on SAT-type tests between children of families in the richest 10 percent and bottom 10 percent was about 90 points on an 800-point scale. Today it's 125 points. The gap in the mathematical abilities of American kids, by income, is one of widest among the 65 countries participating in the Program for International Student Achievement. On their reading skills, children from high-income families score 110 points higher, on average, than those from poor families. This is about the same disparity that exists between average test scores in the United States as a whole and Tunisia.The achievement gap between poor kids and wealthy kids isn't mainly about race. In fact, the racial achievement gap has been narrowing.It's a reflection of the nation's widening gulf between poor and wealthy families. And also about how schools in poor and rich communities are financed, and the nation's increasing residential segregation by income.According to the Pew Research Center's analysis of 2010 census tract and household income data, residential segregation by income has increased during the past three decades across the United States and in 27 of the nation's 30 largest major metropolitan areas. This matters, because a large portion of the money to support public schools comes from local property taxes. The federal government provides only about 14 percent of all funding, and the states provide 44 percent, on average. The rest, roughly 42 percent, is raised locally.
The case against school vouchers in one blistering court ruling - Wake County Superior Court Judge Hobgood, ruling in a case brought by the state teachers association and an advocacy group for low-income residents, found the program to be "unconstitutional beyond a reasonable doubt," and designed chiefly to relieve the state of the responsibility for educating the children of low-income families. His decision, issued from the bench Thursday, put an immediate stop to the program's disbursements to private schools. A transcript of the ruling is here. The state says it will appeal. Hobgood distilled the flaws--call them evils--of voucher programs into a series of concise findings. Among them: "Private schools receiving Opportunity Scholarships are not subject to any requirements or standards regarding the curriculum that they teach, are given no requirement for student achievement, are not obligated to demonstrate any growth in student performance, and are not even obligated to provide a minimum amount of instructional time." The voucher law, he observed, doesn't require that the recipient schools "provide their students with instruction in any subject," or that teachers or principals "be trained, certified, or qualified," or that the schools themselves be "certified by any public or private agency." The state legislature, he wrote, "fails the children of North Carolina when they (are) sent with public taxpayer money to private schools that have no legal obligation to teach them anything." Such a scheme "serves only private interests."
Militarized Schooling? "Newtown Was A Nuclear Bomb That Changed Everything" - The following sign on the grass in front of a Texas school sums up where we are with the militarization of education in America. As WSJ reports, public schools nationwide are greeting students for the fall term with a host of new security measures including adding armed guards, giving guns to employees, installing perimeter fencing, and bulletproof glass. "It's kind of the way of the world, unfortunately," notes one parent, but bulking up on security has led some parents and experts to question how it affects students. The idea of "hardening" schools against intruders took on urgency after Dec 2012: "Newtown was a nuclear bomb that changed the whole landscape of everything."
The Gates Foundation Education Reform Hype Machine and Bizarre Inequality Theory - (infographic) For a more immersive experience, readers will find documentation and links to further reading embedded within in the images. Special thanks for the scholarship and insight from: Diane Ravitch (Reign of Error: The Hoax of the Privatization Movement and the Danger to America's Public Schools); Anthony Cody (The Educator and The Oligarch: A Teacher Challenges the Gates Foundation, forthcoming); Paul Thomas (Social Context Reform: A Pedagogy of Equity and Opportunity); Mercedes Schneider (A Chronicle of Echoes: Who's Who in the Implosion of American Public Education); Joanne Barkan (See her must read investigative series in Dissent Magazine). ---This comic accompanies a two-year long Truthout supported series illustrating the education reform debate from an alternative perspective, both ideologically and visually. For previous graphic essays on education by Adam Bessie, see also"This School is Not a Pipe" (with Josh Neufeld); "The Disaster Capitalism Curriculum: The High Price of Education Reform" (with Dan Archer: "Part I: Washington D.C."; "Part II: New Orleans"; "Part III: Finland") and "Automated Teaching Machine: A Graphic Introduction to the End of Human Teachers" (with Arthur King).
Nearly Half Of Parents Think They Can Put Off College Savings Until Just Before High School -- A single year at a private college can set a student (or more likely, a student's family) back over $60,000. Yet Fidelity found in its 8th Annual College Savings Indicator Study that nearly half of parents think they'll be able to save enough for tuition as long as they start "by the time their child starts high school" — only about four years in advance. Considering that you can open a tax-advantaged 529 savings account for a child immediately after he or she is born, these parents are perhaps a little behind schedule. Below, Fidelity has highlighted three of the most pervasive college savings myths uncovered in their study. (infographic)
Small U.S. Cities Prove To Be A Big Draw For Foreign Students - Small cities are among the biggest beneficiaries of a wave of foreign students studying at U.S. universities, according to a Brookings Institution study. Ithaca, N.Y.; Corvallis, Ore.; and Jonesboro, Ark., have among the highest concentrations of foreign students in the country, Neil G. Ruiz, senior policy analyst with the Brookings Metropolitan Policy Program, finds in a new story of the nation's F-1 visa program. Ithaca, home to Cornell University and Ithaca College, includes 71.2 foreign students for every 1,000 enrolled in higher-education programs, the highest concentration of foreign students in the nation. Corvallis, home to Oregon State University, is fourth with 62.6 students per thousand. It also had the fastest-growing population of foreign students between 2008 and 2012, according to Mr. Ruiz. Jonesboro, home to Arkansas State University, was fifth with 62.2 students per thousand. Champaign, Ill., and Lafayette, Ind., were among the top 10. The common denominator in many of these cases is public universities drawing students in science, technology engineering and math (or STEM) programs, often at a lower cost than at private universities. The schools have helped to manage state budget cuts by drawing foreign students, Mr. Ruiz said. In Corvallis — population 54,520 with aggregate personal income of $3.45 billion in 2012 — foreign students were a source of $79 million in income from tuition and local living expenses from 2008 to 2012. Ithaca drew $426 million from foreign students during that span. "Foreign students constitute a large source of export earnings for U.S. metropolitan areas," according to the study.
'Excellent Sheep,' - William Deresiewicz, a recovering English professor who taught for many years at Yale, has indicted America's elite universities. With their stately buildings and soaring trees, their star professors and even starrier student bodies, Ivy League schools look like paradises of learning. Deresiewicz describes them as something very different, and very much worse.The trouble starts at admission. Top universities woo thousands of teenagers to apply, but seek one defined type: the student who has taken every Advanced Placement class and aced every exam, made varsity in a sport, played an instrument in the state youth orchestra and trekked across Nepal. This demanding system looks meritocratic. In practice, though, it aims directly at the children of the upper middle class, groomed since birth by parents, tutors and teachers to leap every hurdle. (The very rich can gain admission without leaping much of anything, as Deresiewicz also points out.)Continue reading the main story Once in college, these young people lead the same Stakhanovite lives, even though they're no longer competing to get in. They accept endless time-sucking activity and pointless competition as the natural condition of future leaders. Too busy to read or make friends, listen to music or fall in love, they waste the precious years that they should be devoting to building their souls on building their résumés.
Generation Later, Poor Are Still Rare at Elite Colleges - Amid promises to admit more poor students, top colleges educate roughly the same percentage of them as they did a generation ago. This is despite the fact that there are many high school seniors from low-income homes with top grades and scores: twice the percentage in the general population as at elite colleges. A series of federal surveys of selective colleges found virtually no change from the 1990s to 2012 in enrollment of students who are less well off — less than 15 percent by some measures — even though there was a huge increase over that time in the number of such students going to college. Similar studies looking at a narrower range of top wealthy universities back those findings. With race-based affirmative action losing both judicial and public support, many have urged selective colleges to shift more focus to economic diversity. This is partly because students are more likely to graduate and become leaders in their fields if they attend competitive colleges. Getting low-income students onto elite campuses is seen as a vital engine of social mobility. "Higher education has become a powerful force for reinforcing advantage and passing it on through generations."It is true that low-income enrollment at some top colleges has been slowly climbing. And some studies suggest that colleges are well intentioned but simply ineffectual in addressing economic diversity. College leaders also point to studies showing that most low-income students with high grades and test scores do not apply to highly selective colleges.But critics contend that on the whole, elite colleges are too worried about harming their finances and rankings to match their rhetoric about wanting economic diversity with action.
Why Are Harvard Grads Still Flocking to Wall Street? - Nichols followed a path that is now well worn by a huge segment of America's "best and brightest." It starts when they arrive as freshmen on elite campuses, full of a sense of idealism and limitless possibility. It quickly leads to a bizarre status game in which they wind up in a frenzied competition with each other over jobs that they had previously never heard of or thought of as dull and lacking much social purpose. The most obvious case in point is the huge number of elite university students who wind up working on Wall Street or in a handful of elite management consulting firms such as McKinsey & Company or Bain. In 2007, just before the global financial meltdown, almost 50 percent of Harvard seniors (58 percent of the men, 43 percent of the women) took jobs on Wall Street. That number contracted sharply during the Great Recession, but after 2009 it began rising again. Among this year's graduating class at Harvard, 31 percent took jobs that will channel their energies into derivatives, mergers, and often destructive outsourcing. And many more tried out for such positions. According to a study by the sociologist Lauren Rivera, a full 70 percent of Harvard's senior class submits résumés to Wall Street and consulting firms. Meanwhile, among Harvard seniors who had secured employment last spring, a mere 3.5 percent were headed to government and politics, 5 percent to health-related fields, and 8.8 percent to any form of public service. Only high-tech fields captured the interest of graduating seniors at anywhere near the level of finance and consulting, and even this seemingly healthy countertrend has problems. (See "Is High Tech the Answer?.)
Why Wall Street and Consulting Firms Win at the Elite College Brain Drain Game - Yves Smith The question of why graduates of prestigious undergraduate schools still wind up, in disproportionate numbers, at places like Goldman and McKinsey may seem so obvious as to be unworthy of notice. These schools are elite institutions, correct? Certainly this was all part of these students' plans. They went to fancy academies to make sure they occupied a good position in society. A new article in Washington Monthly describes why this conventional picture isn't as tidy as it seems. Author Amy Binder and a small research team investigated recruitment processes at two campuses, Harvard and Stanford, and interviewed sixty undergraduates and recent grads who, seemingly by accident, wound up competing for and getting these highly-sought-after jobs. In fact, none of them had any interest in these careers before they encountered a systematic effort, in conjunct with the campus recruitment offices, to groom students for these plum positions. Consider: these firms still are magnets for new graduates: Yet perversely, the students aren't keen about these jobs despite having competed fiercely to land them. As Binder writes:Of the 31 percent of graduating Harvard seniors going into finance and consulting, only 6.39 percent say that they expect to remain in those sectors (0.68 percent of those going into consulting jobs and 5.71 percent of those heading to financial services). It's pretty much a given that way fewer than 6% will drop out. The compensation in these fields is well above those of other jobs that the employees can't leave without taking a serious pay cut. And that pay gap widens further as they advance in these careers. That may not sound like a big sacrifice until you also realize that if someone has gotten married, or (worse from the perspective of mobility) had had kids, they have likely gotten themselves locked into overheads (houses, private schools, spousal expectations) that are very difficult to unwind.
Adjunct professors fight for crumbs on campus - We are the stoop laborers of higher education: adjunct professors.As colleges and universities rev for the fall semester, the stony exploitation of the adjunct faculty continues, providing cheap labor for America's campuses, from small community colleges to knowledge factories with 40,000 students. The median salary for adjuncts, according to the American Association of University Professors, is $2,700 per three-credit course. Some schools raise this slightly to $3,000 to $5,000; a tiny few go higher. Others sink to $1,000. Pay scales vary from school to school, course to course. Adjuncts teaching upper-level biophysics are likely to earn more than those teaching freshman grammar. There is no uniformity, but similarities abound. Benefits, retirement packages, health insurance? Hardly. Job security? Silly question. An office? Good luck. A mailbox? Maybe. Free parking? Pray. Extra money for mentoring and counseling students? Dream on. Chances for advancement? Get serious. Teaching assistants? Don't ask. AAUP reports that part-timers now make up 50 percent of total faculty. As adjuncts proliferate, the number of tenured jobs falls. Why pay full salaries when you can get workers on the cheap?
Retirees' Social Security checks garnished for student loans - Joshua Cohen works with troubled student loan borrowers. What's surprised Cohen lately is the increasing number of gray-haired people walking in his doors with a problem: A portion of their meager Social Security benefits are being taken by the government to pay for old student loans they had mostly forgotten about. It's a growing national trend. Last year, 156,000 Americans had their Social Security checks garnished because of student loans they had defaulted on. It's tripled in number from 47,500 in 2006, before the Great Recession. That's according to analysis done by the U.S. Treasury for CNNMoney. Like Cohen, other groups have noticed the increase too. A leading nonprofit group that works with students on repaying loans, American Student Assistance, has worked this past year with over 1,000 Americans who have had their social security payments garnished to repay outstanding student loans. That's a sharp increase from 200 people in the previous year. For retirees, any cuts to their Social Security benefits really hurts. "Social Security means survival. It means food, shelter, medication,"
New Jersey Funneling Pension Fund Cash to Wall Street Investment Managers - David Sirota has carved out a much-needed niche lately by poking around in the unseemly deals between public pension funds and Wall Street predators, and he brings yet another scoop, this time in New Jersey: Gov. Chris Christie's administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state's pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would "maximize returns while appropriately managing risk." Four years later, New Jersey has secured only half the promised results. The state has sent more pension money to big-name Wall Street firms like Blackstone, Third Point, Omega Advisors, Elliott Associates and Grady's old firm, The Carlyle Group. Additionally, the amount of fees the state pays financial managers has more than tripled since Christie assumed office. New Jersey is now one of America's largest investors in hedge funds. The "maximized returns" have yet to materialize… Had New Jersey's pension system simply matched the median rate of return, the state would have reaped roughly $3.8 billion more than it did between fiscal years 2011 and 2014, says pension consultant Chris Tobe.
Gov. Christie Shifted Pension Cash to Wall Street, Costing New Jersey Taxpayers $3.8 Billion: Gov. Chris Christie's administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state's pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would "maximize returns while appropriately managing risk." Four years later, New Jersey has secured only half the promised results. The state has sent more pension money to big-name Wall Street firms like Blackstone, Third Point, Omega Advisors, Elliott Associates and Grady's old firm, The Carlyle Group. Additionally, the amount of fees the state pays financial managers has more than tripled since Christie assumed office. New Jersey is now one of America's largest investors in hedge funds. The "maximized returns" have yet to materialize. Between fiscal year 2011 and 2014, the state's pension trailed the median returns for similarly sized public pension systems throughout the country, according to data from the financial analysis firm, Wilshire Associates. That below-median performance has cost New Jersey taxpayers billions in unrealized gains and has left the pension system on shaky ground. Meanwhile, New Jersey is now paying a quarter-billion dollars in additional annual fees to Wall Street firms -- many of whose employees have financially supported Republican groups backing Christie's reelection campaign.
Rhode Island Has Lost $372 Million As State Shifted Pension Cash to Wall Street -- As Rhode Island General Treasurer Gina Raimondo promotes her 2014 gubernatorial campaign, she touts her supposed success in putting her state's pension fund on firmer financial ground. That message has helped Raimondo surge to a lead in the polls, as reported by WPRI. What she fails to mention, though, is that the returns from her investment strategy have been far less beneficial for state pensioners than for the Wall Street firms now managing a growing share of Rhode Island's money. According to four years' worth of state financial records, Rhode Island's pension system has delivered an average 12 percent return during Raimondo's tenure as general treasurer. That rate of return significantly trails the median rate of return for pension systems of similarly size across the country, based on data provided to the International Business Times by the Wilshire Trust Universe Comparison Service. Meanwhile, the pension investment strategy that Raimondo began putting in place in 2011 has delivered big fees to Wall Street firms. The one-two punch of below-median returns and higher fees has cost Rhode Island taxpayers hundreds of millions of dollars, according to pension analysts.
Pennsylvania to Purchase Private Care for Its Poor — Pennsylvania will become the 27th state to expand Medicaid under the Affordable Care Act, the Obama administration announced Thursday, using federal funds to buy private health insurance for about 500,000 low-income residents starting next year. Gov. Tom Corbett, a Republican, had proposed the plan as an alternative to expanding traditional Medicaid under the health care law, which he opposes. Now that federal officials have signed off, Pennsylvania will join Arkansas and Iowa in using Medicaid funds to buy private coverage for the poor.The Republican governor of Indiana, Mike Pence, has proposed a similar plan but has not yet received approval from the Obama administration. The so-called private option has increasingly appealed to some conservatives as a free-market alternative to traditional Medicaid, a government-run program that critics say has out-of-control costs. Pennsylvania's plan includes requirements for the Medicaid expansion population that go beyond the traditional program. For example, people with annual incomes above the poverty level — $11,670 for an individual — will have to pay premiums equaling up to 2 percent of their household income starting in 2016.Most states have already received the federal government's permission to charge premiums to some of their Medicaid enrollees, according to the Kaiser Family Foundation, a health care research group. Mr. Corbett had initially wanted to charge premiums to people earning as little as half the poverty level, but federal officials pushed back. He also tried unsuccessfully to require adults who worked fewer than 20 hours a week to search for jobs as a condition of eligibility
Another survey finds manufacturers less willing to hire due to Obamacare - Fresh off a Philadelphia Fed survey of manufacturers finding that the Affordable Care Act is acting as a drag on hiring and increasing part-time employment, a Dallas Fed survey finds the much same thing. Like the Philly Fed survey, it was tacked on to an existing monthly survey of conditions. In this case, a net 23.5% of respondents say the number of workers employed is lower due to the effects of what's commonly called Obamacare. Part-time work is up, the amount of work outsourced is up, wages and salary compensation per worker is down, other benefits are down, and prices charged are higher. One question unique to the Dallas Fed survey was the estimate of the increase in health care costs per worker. The median response was 10% for 2013-14 and 11% for 2014-15. It's important to note that manufacturing employment has gone up this year — by an average of 15,000 per month in 2014, versus 7,000 in 2013. What the surveys are showing is that key executives think they would have ramped up employment even more were it not for the ACA.
Obamacare Enrollment 2015: How Many People Will Sign Up Next Year? (Public Support for Obamacare Is About to Turn a Corner) Part 1 - Thanks to the Affordable Care Act, some 10 million previously uninsured adults gained coverage during the open enrollment period that began on October 1, 2013. Last month, the New England Journal of Medicine reported that the share of Americans who are "going naked" has plummeted from 21 percent in September of 2013 to 16.3 percent in April of this year. Even though open enrollment officially ended on March 31, 2014, people are continuing to sign up. Anyone who experiences a major life change (getting divorced, losing a job, having a baby) can still purchase insurance on the Exchanges this summer. Others are dropping out because they landed a job, married someone with insurance, or turned 65. Earlier this month, Aetna told Investor's Business Daily "the degree of attrition was "scary" and "unexpected," and as a result, enrollment is "shrinking." But enrollment expert Charles Gaba soon put that rumor to rest. Perhaps Aetna is losing customers, but overall, enrollment is holding up. Indeed, ultimately, the Congressional Budget Office (CBO) projects that by the end of 2014, 12 million formerly uninsured Americans will be covered either by the Obamacare insurance they purchased on the Exchanges or by newly expanded Medicaid programs. On November 15, a new open enrollment period begins. Now the big question is this: Will the ACA Be As Popular In 2015 As It Was In 2014? Over at the Huffington Post, Jeffrey Young is pessimistic. In a post headlined "Why Obamacare May Have Trouble Signing Up As Many Uninsured Next Year," he quotes Richard Onizuka, the CEO of the Washington Health Benefit Exchange saying "we got the low-hanging fruit" last year. The people who most needed healthcare signed up right away.
Obamacare Enrollment (part 2) Who Will Remain Opposed to Obamacare in 2015? "Zero-Sum Thinking" -- In 2015, I predict that Obamacare enrollment will soar, matching 2014's success. This may seem counter-intuitive. After all, in recent months, the public's perception of Obamacare seems to have soured. The Henry J. Kaiser Foundation's health care tracking poll for July reveals that 53% of those surveyed last month said they view the Affordable Care Act unfavorably—a jump of 8 percentage points since June. July's results mark the first time since January, that more than half of all Americans opposed the health reform law. Is this because people who have enrolled in the Exchanges are unhappy with the insurance they purchased? No. Just one month earlier a Kaiser Foundation poll showed that "71%" of those who have enrolled in insurance plans that comply with Obamacare's rules "rate their coverage as excellent or good overall," and "more than half (55%) say it is an excellent or good value for what they pay for it." This is in part because in the Exchanges, middle-income as well as low-income customers qualify for government assistance to help cover premiums. As a result, 87% of customers have received subsidies that come in the form of tax credits. Nearly six out of ten of Obamacare's new customers were previously uninsured, Kaiser reports, while the remainder are "plan-switchers" – people who previously had individual market coverage and switched to new coverage after Jan. 1. This group includes people who had their old policies cancelled as the ACA's requirements kicked in, as well as people who switched for other reasons, including the availability of premium subsidies.
Affordable Care Act drafting error could strip health care subsidy from thousands in Wisconsin - A drafting glitch that could strip 5 million people, including thousands in Wisconsin, who have purchased health insurance on the exchange to lose tax subsidies that drastically cut their insurance costs, could land the Affordable Care Act back before the U.S. Supreme Court. The drafting glitch, which the LA Times details in this article, came as a result of a merger between two versions of the health care reform bill that would eventually require everyone to have health insurance. Those that could not afford it would be given a tax subsidy to offset the cost. What many failed to predict was the resistance by most states, including Wisconsin, to set up their own health care exchanges, instead opting for residents to purchase health care on the federal exchange. Last month, two separate rulings from federal courts left the future ability of thousands to continue receiving subsidized health care in limbo, but handing down split decisions on whether residents in states without state-run exchanges should be eligible for a subsidy. Fourteen states established their own exchanges since the Affordable Care Act passed in 2010. The rest, including Wisconsin, did not. Roughly 135,000 Wisconsin residents have insurance on the exchange, with about 90 percent receiving subsidies. Until the litigation is over, subsidies are continuing in all states.
Obamacare-related Tax credits to lower Tax refunds of millions this year -- US President Barack Obama's healthcare insurance law was once seen as a big political advantage for the congressional Democrats as the Affordable Care Act was touted as "the largest tax cut for healthcare in American history." But experts have come up with entirely different arguments about health insurance and tax refunds. According to the experts, the Obamacare has made an already complicated tax system more complex for many consumers as over one third of the nearly seven million American households, receiving tax credits to help pay for Obamacare to get insured, will lose all or a portion of their expected tax refunds this year. George Brandes, vice president for health care programs at Jackson Hewitt Tax Service, said, "More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities." According to The USA Today, there are two basic statistics that bracket the potential exposure:
- • The average tax credit for subsidized coverage on the new health insurance exchanges is USD 264 a month and USD 3,168 for a complete year (full 12 months).
- • The average tax refund is about USD 2,690.
The financial experts explain, the Americans whose income for this year turns out to be bigger than estimated, at the time when they applied for getting insured medically, will pay their taxes on the difference in the tax credits they received.
How the AMA's Price Fixing Distorts Health Care Delivery and Pricing -- It has been a year since we wrote about the RUC, the American Medical Association's Relative Value System Update Committee. There is only one thing new since then. Politico just made another attempt to shed some light on this obscure committee and its outsize effect on health care. To summarize the events so far, all I need to do is cut and paste from our last post on the topic, from July, 2013…In 2007, readers of the Annals of Internal Medicine could read part of the solution to a great medical mystery.(1) For years, health care costs in the US had been levitating faster than inflation, without producing any noticeable positive effect on patients. Many possible reasons were proposed, but as the problem continued to worsen, none were proven. The article in the Annals, however, proposed one conceptually simple answer. The prices of most physicians' services, at least most of those that involved procedures or operations for Medicare patients, were high because the US government set them that way. Although the notion that prices were high because they were fixed to be so high was simple, how the fixing was done, and how the fixing affected the rest of the health system was complex, mind numbingly complex.
TPP: Expansive Rights for Big Pharma, Expensive Medicines for U.S. Consumers -- Leaked draft intellectual property texts for the TPP reveal broad monopoly protections for pharmaceutical corporations, which elevate the costs of medicines and medical procedures. Inserting these sweeping corporate privileges into the pact would undermine U.S. efforts to make healthcare more affordable. Some of the leaked TPP monopoly protections for Big Pharma could require scrapping the Obama administration proposal to save more than $4 billion on biologic medicines. Biologics – the latest generation of drugs to combat cancer, rheumatoid arthritis and other diseases – are exceptionally expensive, costing approximately 22 times more than conventional medicines. Under U.S. law, pharmaceutical corporations enjoy monopoly protections for biologic drugs, even in the absence of a patent, for a 12-year period of "exclusivity." During these 12 years, the Food and Drug Administration is prohibited from approving more affordable versions of the drugs, inflating the cost of these life-saving medicines as pharmaceutical firms accrue monopoly profits. To lower the exorbitant prices and the resulting burden on programs like Medicare and Medicaid, the Obama administration's 2015 budget would reduce the exclusivity period for biologics from 12 to seven years. The administration estimates this would save taxpayers more than $4.2 billion over the next decade just for federal programs.However, at the request of Big Pharma, U.S. trade negotiators are demanding the 12-year exclusivity requirement for biologics in the TPP. This would lock into place pharmaceutical firms' lengthy monopolies here at home. That is, Obama administration negotiators would effectively scrap the administration's own proposal to save billions in unnecessary healthcare costs and lock in rules that would forbid future presidents or Congresses from doing so.
HEARTLESS: medical device patients have no recourse -- If your FDA-approved medical device injures, disables or kills you, that's too bad. The "doctrine of pre-emption" protects manufacturers from all liability. You're on your own. You have no recourse. The multibillion-dollar global conglomerates that design and produce these (often laughably flawed) devices, admit they assumed President Obama would revoke the handy pre-emption escape hatch, which is unfair and irrational -- not to mention cruel -- but it has remained intact. Well-funded lobbyists: priceless. Case in point: Her beloved husband of more than 50 years had a defibrillator implanted in his chest to save his life if his heart stopped beating. Instead, the ultra-sophisticated device killed him. He was feeling pretty good until it malfunctioned, zapping him with 1,400 volts through the right ventricle. He cried out, falling onto the couch. As his wife ran toward him, it surged through him again. She took him in her arms. A third massive jolt slammed him. The defibrillator-gone-mad tore into his heart 30 more times, until both he and the battery were dead. The device had gotten so hot, it burned a hole through his chest. The multibillion-dollar corporation that made the defibrillator wasn't liable. Firms that make life-sustaining medical devices are exempt from prosecution, thanks to their lobbying finesse. Thousands of people every year are injured, permanently disabled or killed by their products. Sorry about that, but you're on your own. There is a good chance that you or someone you know is wired up to one of these gadgets.
Move Along, People, Move Along: There's No Health Care Corruption to See Here - Health care corruption, remains a largely taboo topic, especially when it occurs in developed countries like the US. Searching PubMed or major medical and health care journals at best will reveal a few articles on health care corruption, nearly all about corruption somewhere else than the authors' countries, usually in someplace much poorer. While the media may publish stories about issues related to health care corruption, they are almost never so labelled. Yet Transparency International's report on global health care corruption suggested it occurs in all countries. A recent TI survey showed that 43% of US citizens believe the country has a health care corruption problem (look here). In the last few weeks, there have been two major US news stories that seem to clearly involve allegations of health care corruption, but not in so many words. Both were big because the indicted were sitting governors of big US states. The biggest story seems to be the indictment of Rick Perry, the Republican Governor of Texas. Here is a summary from the Washington Post, There has been a big kerfuffle over this indictment, with the majority seeming to think it is some sort of political stunt that will have little effect on Mr Perry. For example, the Washington Post later ran an editorial calling the indictment "wrong-headed." However, articles in some less prominent outlets suggested that the indictment actually raised questions about possible corruption, actually health care corruption. Meanwhile, the press has been fascinated with testimony in the bribery and corruption trial of former Virginia Governor Robert McDonnell. In 2013, the Washington Post published a long investigative report about how the Governor and his wife seemed to be promoting a dietary supplement called Anatabloc as an anti-inflammatory agent while accepting various favors from the CEO of the company that made it.
Young blood to be used in ultimate rejuvenation trial - IT SOUNDS like the dark plot of a vampire movie. In October, people with Alzheimer's disease will be injected with the blood of young people in the hope that it will reverse some of the damage caused by the condition. The scientists behind the experiment have evidence on their side. Work in animals has shown that a transfusion of young mouse blood can improve cognition and the health of several organs in older mice. It could even make those animals look younger. The ramifications for the cosmetics and pharmaceutical industries could be huge if the same thing happens in people. Disregarding vampire legends, the idea of refreshing old blood with new harks back to the 1950s, when Clive McCay of Cornell University in Ithaca, New York, stitched together the circulatory systems of an old and young mouse – a technique called heterochronic parabiosis. He found that the cartilage of the old mice soon appeared younger than would be expected. It wasn't until recently, however, that the mechanisms behind this experiment were more clearly understood. In 2005, Thomas Rando at Stanford University in California and his team found that young blood returned the liver and skeletal stem cells of old mice to a more youthful state during heterochronic parabiosis. The old mice were also able to repair injured muscles as well as young mice (Nature, doi.org/d4fkt5). Spooky things seemed to happen in the opposite direction, too: young mice that received old blood appeared to age prematurely. In some cases, injured muscles did not heal as fast as would be expected.
Autism Caused By MMR Vaccine says CDC Whistleblower - The link between the MMR (measles-mumps-rubella vaccination) Vaccine and Autism have long been debated in and out of court. The process can be gruesome and even has a special court for a family who has a child injured by a vaccine. The parents cannot simply sue the vaccine maker. In 1986 U.S. Congress created the National Childhood Vaccine Injury Act. Under the 1986 law, Congress took that power away from families to go after the vaccine creator and instead established a "vaccine court", making it improbable to hold the vaccine composers accountable when there are obvious side effects in cases, such as Autism. But now, an epidemiologist at the CDC's National Center of Birth Defects and Development Disabilities who received his doctorate in biochemical engineering, Dr. William Thompson has broken his silence and revealed the truth about the MMR vaccine. The epidemiologist is now taking accountability for his part in the intentional fraud at the Centers for Disease Control. Thompson is alleging criminal wrongdoing on the part of his supervisors, and has expressed deep regret about his role in helping the CDC hide data: (video)
Thyroid cancer diagnosed in 104 young people in Fukushima - The number of young people in Fukushima Prefecture who have been diagnosed with definitive or suspected thyroid gland cancer, a disease often caused by radiation exposure, now totals 104, according to prefectural officials. The 104 are among 300,000 young people who were aged 18 or under at the time of the 2011 Fukushima nuclear disaster and whose results of thyroid gland tests have been made available as of June 30. They were eligible for the tests administered by the prefectural government. Of these 104, including 68 women, the number of definitive cases is 57, and one has been diagnosed with a benign tumor. The size of the tumors varies from 5 to 41 millimeters and averages 14 mm. The average age of those diagnosed was 14.8 when the Great East Japan Earthquake and tsunami triggered the meltdowns at the Fukushima No. 1 nuclear power plant in March 2011. However, government officials in Fukushima say they do not believe the cases of thyroid gland cancer diagnosed or suspected in the 104 young people are linked to the 2011 nuclear accident. The figure can be extrapolated for comparison purposes to an average of more than 30 people per population of 100,000 having definitive or suspected thyroid gland cancer. The figure is much higher than, for example, the development rate of thyroid cancer of 1.7 people per 100,000 among late teens based on the cancer patients' registration in Miyagi Prefecture.
Thyroid Cancer in Young People Surge in Fukushima Since Nuclear Meltdown » The impact of the 2011 Fukushima nuclear reactor meltdown on the region's young people is starting to add up. 104 of the area's 300,000 young people who were under 18 at the time of the disaster have been diagnosed with thyroid cancer, Japanese newspaper The Asahi Shinbun reported yesterday. This form of cancer has been linked to radiation exposure. But, government officials in Fukushima say they do not believe the cases of thyroid gland cancer diagnosed or suspected in the 104 young people are linked to the 2011 nuclear accident. It helps their denial that experts disagree on whether these cases of thyroid cancer can be traced back to the meltdown, which released radiation over a large area. While the slow-developing cancer only appeared in young people four years after the 1986 Chernobyl meltdown in Ukraine, radiation biology professor Yoshio Hosoi told The Asahi Shinbun that better tests allow earlier diagnoses. "Many people are being diagnosed with cancer at this time, thanks to the high-precision tests," he said. "We must continue closely examining the people's health in order to determine the impact of radiation exposure on causing thyroid tumors."
Liberia: Doctor Given Experimental Ebola Drug Dies - ABC News: A Liberian doctor who was among three Africans to receive an experimental Ebola drug has died, the country's information minister said Monday. Dr. Abraham Borbor, the deputy chief medical doctor at the country's largest hospital, had been among three Liberians, and the first Africans, who received the drug, ZMapp. Two Americans received the untested drug and survived. A Spaniard infected with Ebola received the treatment but died. There was no update given on the two other Liberians who took doses of the drug. Borbor "was showing signs of improvement but yesterday he took a turn for the worse," Information Minister Lewis Brown told The Associated Press. It wasn't clear if he died late Sunday or on Monday. Ebola has killed more than 1,400 people across West Africa. There is no proven vaccine or cure for the disease that can cause a grisly death with bleeding from the eyes, mouth and ears. The virus can only be transmitted through direct contact with the bodily fluids of the sick or from touching victims' bodies, leaving doctors and other health care workers most vulnerable to contracting it. Only six people in the world are known to have received ZMapp. The small supply is now said to be exhausted, and it is expected to be months before more can be produced by its U.S. maker.
Ebola Epidemic Numbers Vastly Under-Reported Due To "Shadow Zones", WHO Warns - The stigma surrounding Ebola poses a serious obstacle to efforts to calibrate the outbreak in Liberia, Sierra Leone, Guinea and Nigeria. As Reuters reports, the scale of the world's worst Ebola outbreak has been concealed by families hiding infected loved ones in their homes and the existence of "shadow zones" that medics cannot enter, according to the World Health Organization (WHO). "As Ebola has no cure, some believe infected loved ones will be more comfortable dying at home," the WHO statement said, concluding rather ominously, "frankly, no one knows when this outbreak of Ebola will end."
Congo declares Ebola outbreak in northern Equateur province (Reuters) - Democratic Republic of Congo declared an Ebola outbreak in its northern Equateur province on Sunday after two out of eight cases tested came back positive for the deadly virus, Health Minister Felix Kabange Numbi said. A mysterious disease has killed dozens of people in Equateur in recent weeks but the World Health Organization had said on Thursday it was not Ebola. "I declare an Ebola epidemic in the region of Djera, in the territory of Boende in the province of Equateur," Kabange Numbi told a news conference. true The region lies about 1,200 km (750 miles) north of the capital Kinshasa. Numbi said that one of the two cases that tested positive was for the Sudanese strain of the disease, while the other was a mixture between the Sudanese and the Zaire strain -- the most lethal variety. The outbreak in West Africa that has killed at least 1,427 people in West Africa since March is the Zaire strain. The World Health Organization said on Thursday that the disease which had killed at least 70 people in Equateur was a kind of hemorrhagic gastroenteritis. A WHO spokesperson said the U.N. health agency could not confirm the results of the tests announced on Sunday, which were carried out by the Congolese authorities.
WHO Lied As Congo Admits To Ebola Outbreak While Ebola-Infected Brit Returns Home -- It appears that yet another international organization has been caught lying. Three days ago, in a clear attempt to avoid spreading a panic, a WHO spokesman when asked if the latest Ebola-like disease to claims over 70 lives was the virus in question responded, "this is not Ebola." He lied: Reuters confirms: Democratic Republic of Congo declared an Ebola outbreak in its northern Equateur province on Sunday after two out of eight cases tested came back positive for the deadly virus, Health Minister Felix Kabange Numbi said. "I declare an Ebola epidemic in the region of Djera, in the territory of Boende in the province of Equateur," Kabange Numbi told a news conference. Sadly, this simply means that the WHO is just the latest global organization willing to sacrifice its credibility in order to avoid the spread of social panic, even though the truth always emerges in the end, and when society realizes it can't even trust those mandated with telling the truth, the end panic is orders of magnitude worse.
"Current Ebola Outbreak Is Different," WHO Warns "Unprecedented" Number Of Medical Staff Infected -- The outbreak of Ebola virus disease in west Africa is unprecedented in many ways, including the high proportion of doctors, nurses, and other health care workers who have been infected, warns the World Health Organization. Despite all precautions possible, more than 240 health care workers have developed the disease in Guinea, Liberia, Nigeria, and Sierra Leone, and more than 120 have died. Simply put, they conclude, the current outbreak is different. The loss of so many doctors and nurses has made it difficult for WHO to secure support from sufficient numbers of foreign medical staff. Even WHO admits, if doctors and nurses are getting infected, what chance does the general public have? WHO Statement: In the past, some Ebola outbreaks became visible only after transmission was amplified in a health care setting and doctors and nurses fell ill. However, once the Ebola virus was identified and proper protective measures were put in place, cases among medical staff dropped dramatically. The current outbreak is different. Capital cities as well as remote rural areas are affected, vastly increasing opportunities for undiagnosed cases to have contact with hospital staff. Neither doctors nor the public are familiar with the disease. Intense fear rules entire villages and cities.
Ebola Devastates West Africa: Revenues Down; Markets Not Functioning; Projects Canceled; GDP Plunges 4% - The market, in its infinitely rigged wisdom, has concluded that the worst Ebola outbreak in history is a non-event, even though it has put virtually all of western Africa on indefinite lockdown, and as Reuters reports, is "causing enormous damage to West African economies and draining budgetary resources." In fact the damage from Ebola to Africa is already so acute, it is expected that economic growth in the region will plunge by up to 4 percent as foreign businessmen leave and projects are canceled, according to the African Development Bank president said. Revenues are down, foreign exchange levels are down, markets are not functioning, airlines are not coming in, projects are being canceled, business people have left - that is very, very damaging," African Development Bank (AfDB) chief Donald Kaberuka said in an interview late on Tuesday.
Ebola outbreak: Nigeria closes all schools until October: All schools in Nigeria have been ordered to remain shut until 13 October as part of measures to prevent the spread of the deadly Ebola virus. The new academic year was due to start on Monday. But the education minister ordered the closures to allow staff to be trained on how to handle suspected Ebola cases. Five people have died of Ebola in Nigeria. The West Africa outbreak has centred on Guinea, Liberia and Sierra Leone, killing more than 1,400 people. It is the largest ever outbreak and has infected an estimated 2,615 people. About half of those infected have died. It spread to Nigeria - Africa's most populous country - in July, when a man infected with Ebola flew from Liberia to Lagos. The head of the African Development Bank (AFDB), Donald Kaberuka, has called on airline companies to restart their services to the worst-affected countries. Several African countries and airlines have banned flights to Guinea, Liberia and Sierra Leone despite World Health Organization (WHO) advice that travel bans do not work. Air France has now announced it is suspending flights to Sierra Leone from Thursday, following a request by the French government.
WHO Worker Ebola Infections Mount: Sierra Leone Lab Shut, Senegal Doctor Flown To Hamburg -- There is reason to be concerned "about whether the proposed resources would be adequate," warns a Harvard professor as the World Health Organization 'battle strategy' draft calls for more than $430 million to bring the worst Ebola outbreak on record under control. This morning we hear of yet another health worker infected - and being flown home to Hamburg for treatment from Sengal and the WHO has shut a lab in Sierra Leone after health workers became infected. A glimpse at the following 3 charts should have the entire world throwing money at at them... As Bloomberg reports, More than $430 million will be needed to bring the worst Ebola outbreak on record under control, according to a draft document laying out the World Health Organization's battle strategy. The plan sets a goal of reversing the trend in new cases within two months, and stopping all transmission in six to nine months. It requires funding by governments, development banks, the private sector and in-kind contributions, according to the document obtained by Bloomberg News. There is reason to be concerned "about whether the proposed resources would be adequate," said Barry Bloom, a public health professor at Harvard University who also questioned whether the funds would be made available fast enough, and whether the organization's latest plan "would ensure the expertise from WHO that is needed."
Ebola's heavy toll on study authors - Science - The ongoing Ebola virus disease outbreak is taking an appalling toll on health workers in West Africa. More than 240 have been infected and more than 120 have died. At Kenema Government Hospital (KGH) in Sierra Leone, where the country's first case was diagnosed, more than 2 dozen nurses, doctors, and support staff have died of Ebola. KGH is where many of the samples were collected for a paper published online today in Science that analyzes the genetics of the virus responsible for the disease. Highlighting the danger to those caring for infected people, five of the paper's co-authors—all experienced members of the hospital's Lassa fever team—died of Ebola before its publication. (A sixth co-author, uninfected, also recently died as well.)
Patient Zero Believed to Be Sole Source of Ebola Outbreak --One glaring fact from the latest report on the Ebola outbreak is that five of the many study authors are dead, killed by the disease that is roiling west Africa. The new analysis, published in the August 29 issue of Science, reveals that the current Ebola outbreak stemmed from an earlier initial leap from the wild into humans, rather than the virus repeatedly jumping from a natural reservoir—perhaps infected animals—to humans. By essentially sketching out a high-tech molecular family tree, researchers concluded that the virus spreading in Sierra Leone and nearby countries is the descendent of an original Ebola viral jump, and not new versions of the pathogen that are being repeatedly introduced into the human population. That means the public health response to this outbreak—which focuses on tracking and treating those who have been exposed to people with Ebola, rather than attempting to keep people away from potential animal carriers—has been the right strategy.That conclusion comes from a sweeping analysis of 99 Ebola virus genome sequences that comprise some 70 percent of the Ebola patients diagnosed in Sierra Leone in late May to mid-June. The virus samples were extracted from the blood of 78 patients early in Sierra Leone's outbreak. And the work indicates that the first case of the disease in that country stemmed from the burial of a traditional healer who had previously treated Ebola patients in Guinea. Subsequently, 13 additional women who attended the burial developed Ebola viral disease.
West Africa Ebola outbreak could infect 20,000 people, WHO says (Reuters) - The Ebola epidemic in West Africa could infect more than 20,000 people, the U.N. health agency said on Thursday, warning that an international effort costing almost half a billion dollars is needed to overcome the outbreak. As the World Health Organisation (WHO) announced its strategic plan for combating the virus, GlaxoSmithKline said an experimental Ebola vaccine is being fast-tracked into human studies and it plans to produce up to 10,000 doses for emergency deployment if the results are good. The WHO estimates it will take six to nine months to halt the Ebola epidemic in West Africa, while Nigeria said on Thursday that a doctor involved in treating the Liberian-American who brought the disease to the country had died in Port Harcourt, Africa's largest energy hub, although the cause had yet to be confirmed true. So far 3,069 cases have been reported in the outbreak but the WHO said the actual number in Guinea, Sierra Leone, Liberia and Nigeria could already be two to four times higher. "This is not a West Africa issue. This is a global health security issue," Bruce Aylward, the WHO's Assistant Director-General for Polio, Emergencies and Country Collaboration, told reporters in Geneva. With a fatality rate of 52 percent, the death toll stood at 1,552 as of Aug. 26. That is nearly as high as the total from all recorded outbreaks since Ebola was discovered in what is now Democratic Republic of Congo in 1976.
Gene studies of Ebola in Sierra Leone show virus is mutating fast |(Reuters) - Genetic studies of some of the earliest Ebola cases in Sierra Leone reveal more than 300 genetic changes in the virus as it leapt from person to person, changes that could blunt the effectiveness of diagnostic tests and experimental treatments now in development, researchers said on Thursday. "We found the virus is doing what viruses do. It's mutating," said Pardis Sabeti of Harvard University and the Broad Institute, who led the massive study of samples from 78 people in Sierra Leone, all of whose infections could be traced to a faith healer whose claims of a cure attracted Ebola patients from Guinea, where the virus first took hold. The findings, published in Science, suggest the virus is mutating quickly and in ways that could affect current diagnostics and future vaccines and treatments, such as GlaxoSmithKline's Ebola vaccine, which was just fast-tracked to begin clinical trials, or the antibody drug ZMapp, being developed by California biotech Mapp Biopharmaceutical. The findings come as the World Health Organization said that the epidemic could infect more than 20,000 people and spread to more countries. A WHO representative could not immediately be reached for comment on the latest genetic study.
Ebola Outbreak Evolving "In Alarming Ways," WHO Warns 20,000 Could Be Infected - More than 20,000 people may be infected with the Ebola virus before the outbreak in West Africa is controlled, warns the World Health Organization. As we noted previously, they believe the costs to fight this epidemic will be $490 million (higher than the previous $430 million estimate) as Bloomberg reports the WHO roadmap released today warns "The 2014 Ebola virus disease outbreak continues to evolve in alarming ways." So far, the virus has infected more than 3,000 people, making it the biggest outbreak ever, and has killed more than 1,550. It's on a pace to cause more deaths than all previous outbreaks combined.
Ebola death toll hits 1,552, with 3,069 cases, and continues to accelerate: WHO: - The Ebola outbreak in West Africa has taken 1,552 lives out of 3,069 known cases in four countries and "continues to accelerate", the World Health Organisation (WHO) said on Thursday. "More than 40 per cent of the total number of cases have occurred within the past 21 days. However, most cases are concentrated in only a few localities," the United Nations health agency said in a statement ahead of launching its new strategic plan for tackling the world's worst Ebola outbreak. A separate Ebola outbreak in the Democratic Republic of Congo, identified as a different strain of the virus, is not included in the latest figures which cover Guinea, Liberia, Sierra Leone and Nigeria, it said.
Report: Dogs Eating Dead Bodies Of Ebola Victims On Liberian Streets — Dogs in one community in Liberia are reportedly eating the remains of dead Ebola victims lying on the streets. The New Dawn reports that the Liberian government buried bodies of those suspected to have died from Ebola a few weeks ago in Johnsonville Township, outside of Monrovia. A number of dogs were reportedly seen pulling the bodies out of the graves and eating the remains.Alfred Wiah tells The New Dawn that the government's Health Ministry was called about the incident but that officials did not do anything about it."We are very disappointed in the Health Ministry, especially the government that took an oath to defend and protect us. To see them act in such manner is unacceptable and we'll never allow the government come to bury any longer," Wiah told The New Dawn. "They will be resisted by us because I think the government has failed to protect us. Why bring Ebola bodies and not bury them well?"Dr. Stephen Korsman of the University of Cape Town's medical virology division tells News 24 that dogs can be infected with the Ebola virus but that "infections appear to be asymptomatic.""This means that dogs won't get sick, but they still could carry a potential risk through licking or biting," Korsman explained to News 24.
Ebola's Untold Tragedy: Foreign Families Are Fleeing - Health care is dire in Ebola-affected countries in West Africa. But one of the lesser recognized tragedies is the fact that international families—families of diplomats, missionaries or business people—have fled the country either by choice or at strong recommendation from their homeland. If they don't return, some fear that their exodus could cripple the countries' growing economies. "The health situation in terms of direct risk of infection [for the average person] is really not that bad, but its effects are immense," says Jeff Trudeau, the director of The American International School of Monrovia (AISM), which has lost well over half of its expected students for the start of the 2014 school year, and has delayed its start date to October. Right now, he's only 50% confident they will open then.In Liberia, the government closed public schools. Private schools are subject to fewer regulations and some remain open. However, even if AISM wanted to open on time, it simply no longer has students to fill its chairs. AISM and similar international schools in West Africa cater to kids who come from countries with specific educational standards, typically children of missionary families, diplomats, and international businesses. Last year, 16 embassies were represented at the international school in Liberia. Trudeau says that if the school can't open in October, and doesn't open until, say, January, they will probably have fewer than 50 students. The other students will, by that time, likely have enrolled in other schools in their home countries or elsewhere.
Ebola alert, hospitals stand by as planes with Indians from Liberia land in Mumbai -- As many as 112 Indian nationals suspected to have been exposed to the Ebola virus are expected to land in Mumbai from Liberia on seven different flights Tuesday. Civic authorities, meanwhile, are busy creating an isolation facility in a suburban hospital. According to a spokesperson for the Chhatrapati Shivaji International Airport (CSIA), the seven flights are carrying Indians evacuated from Liberia by the Indian embassy. Liberia is one of the four countries in West Africa affected by the Ebola virus. While three flights will be diverted via Delhi, the remaining four will reach Mumbai directly at different times on Tuesday. All the flights are originating from Johannesburg. The Brihanmumbai Municipal Corporation (BMC) is preparing 120 beds after it received an alert from the CSIA. According to acting executive health officer (EHO) at BMC, Dr Shreedhar Kubal, an action plan has been drawn up. "We are isolating 120 beds. We have been told that more than 100 passengers are suspected to have been exposed to Ebola," Kubal said. BMC's additional municipal commissioner Sanjay Deshmukh said, "While a facility for 120 passengers is being mobilised, we expect that around 20 would need to be quarantined."
Act now on climate change or face growing health risks - UN: - Swift action to tackle climate change would reduce the damage to global health caused by rising air pollution and more extreme weather, top U.N. officials said on Wednesday. Christiana Figueres, head of the United Nations climate change secretariat, told the first global conference on health and climate in Geneva that climate change is an "accelerating phenomenon that is already affecting, in particular, the most vulnerable populations due to impacts that are no longer preventable". "At the same time, climate change is a global reality that threatens to impose much more severe and widespread health impacts, which could be avoided with timely measures," she added. Dr Margaret Chan, director-general of the World Health Organization (WHO), which is hosting the gathering, said there is "overwhelming" evidence that climate change endangers health. . "Solutions exist and we need to act decisively to change this trajectory," she said. The most recent WHO data shows climate change is already causing tens of thousands of deaths every year due to shifting patterns of disease, extreme weather events, such as heatwaves and floods, degradation of water supplies and sanitation, and negative effects on agriculture. Figueres warned that climate change is "not very far" from becoming a public health emergency of international concern, requiring a coordinated response.
The 1,300 Bird Species Facing Extinction Signal Threats to Human Health - Globally, one in eight—more than 1,300 species—are threatened with extinction, and the status of most of those is deteriorating, according to BirdLife International. And many others are in worrying decline, from the tropics to the poles. (Read about threatened species on each continent.) In North America's breadbasket, populations of grassland birds such as sweet-trilling meadowlarks are in free fall, along with those everywhere else on the planet. Graceful fliers like swifts and swallows that snap up insects on the wing are showing widespread declines in Europe and North America. Eagles, vultures, and other raptors are on the wane throughout Africa. Colonies of seabirds such as murres and puffins on the North Atlantic are vanishing, and so are shorebirds, including red knots in the Western Hemisphere.Sandpipers, spoonbills, pelicans, and storks, among the migratory birds dependent on the intertidal flats of Asia's Yellow Sea, are under threat. Australian and South American parrots are struggling, and some of the iconic penguins of Antarctica face starvation. (See an interactive map of birds threatened around the world.) While birds sing, they also speak. Much of their decline is driven by the loss of places to live and breed—their marshes, rivers, forests, and plains—or by diminished food supply. But more and more these days, the birds are telling us about new threats to the environment and potentially to human health in the coded language of biochemistry. Through analysis of the inner workings of birds' cells, scientists have been deciphering increasingly urgent signals from ecosystems around the world. Like the fabled canaries that miners once thrust into coal mines to check for poisonous gases, birds provide the starkest clues in the animal kingdom about whether humans, too, may be harmed by toxic substances.
Cambodian rat meat: A growing export market - A unique harvest is under way in the rice fields of Cambodia where tens of thousands of wild rats are being trapped alive each day to feed a growing export market for the meat of rural rodents. Popularly considered a disease-carrying nuisance in many societies, the rice field rats, Rattus argentiventer, of this small South-East Asian nation are considered a healthy delicacy due to their free-range lifestyle and largely organic diet. Rat-catching season reaches its height after the rice harvest in June and July when rats have little to eat in this part of rural Kompong Cham province, some 60km from the capital Phnom Penh. That lack of food coincides with seasonal rains that force the rodents onto higher ground, and into the 120 rat traps local farmer Chhoeun Chhim, 37, said he set each evening. "Wild rats are very different. They eat different food," said Mr Chhim, explaining with a gourmand's intensity the difference between rice-field rats and their urban cousins, which he considers vermin unfit for the cooking pot. Common rats "are dirty and they have a lot of scabies on their skin," Mr Chhim said. "That's why we don't catch them." Somewhat proudly he listed off the superior eating habits of the rats he had caught the night before: rice stalks, the vegetable crops of unlucky local farmers, and the roots of wild plants.
These 10 Companies Control the World's Food Supply -- The agriculture and food production industry employed more than one billion people as of last year, or a third of the global workforce. While the industry is substantial, a relatively small number of companies wield an enormous amount of influence. In its 2013 report, "Behind the Brands," Oxfam International focused on 10 of the world's biggest and most influential food and beverage companies. These corporations are so powerful that their policies can have a major impact on the diets and working conditions of people worldwide, as well as on the environment. Based on the report, these are the 10 companies that control the world's food. Chris Jochnick, director of the private sector department at Oxfam America, discussed the impact that these 10 companies have on the world. "If you look at the massive global food system, it's hard to get your head around. Just a handful of companies can dictate food choices, supplier terms and consumer variety," Jochnick said. These 10 companies are among the largest in the world by a number of measures. All of them had revenues in the tens of billions of dollars in 2013. Five of these companies had at least $50 billion in assets, while four had more than $6 billion in profits last year. Additionally, these 10 companies directly employed more than 1.5 million people combined — and contracted with far more. Nestle is the largest of these 10 companies. Converted into dollars, Nestle had more than $100 billion in sales and more than $11 billion in profits in 2013. The Switzerland food giant alone employed roughly 333,000 people.
Big Sugar - From Bloomberg: Because of a plunge in U.S. sugar prices amid a hefty crop of sugar beets and cane, the Agriculture Department estimates that it may have to buy 400,000 tons of sugar from processors who might default on $862 million in government loans. Sugar producers have the option of repaying the loans either with cash or with their harvests if prices fall below a certain level. …The sugar, by law, would be sold to ethanol refiners, who would pay 10 cents a pound less than the government paid — an inducement needed to get the ethanol industry to use the sugar. Aside from the ridiculousness of piling one ill-advised subsidy atop another, this would produce a loss of $80 million for the U.S. Treasury. Some industry analysts estimate the government may have to buy as much as 800,000 tons of sugar to restore balance to U.S. stockpiles, potentially doubling the loss.
The fight against Big Ag and GMOs in Ghana -- Big Agriculture has targeted Africa with GMOs. Monsanto and friends, with USAID, are targeting several African countries as insertion points, and Ghana is one of these. Their plan for Ghana is described here: G8 Cooperation Framework to Support The "New Alliance for Food Security and Nutrition" In Ghana PDF, also known as the G8NA. If you read it there is lots of flowery language about helping smallholder farmers and women. The program it spells out does exactly the opposite and will destroy lives and livelihoods. In order to protect the patents and monopolies of Big Ag, the corporations need countries to pass 3 laws: a biosafety law letting GMOS into the country, a seed law that regulates and defines seeds so that only the seeds produced by the big agro-chemical companies meet the legal requirements for use and sale, and a UPOV-91 compliant Plant Breeders Bill, which is a trade agreement. Like many contemporary trade agreements it is less about trade and more about putting the "rights" of corporations above the laws of nations. USAID shepherded a seed law and a Biosafety Act through the Ghana Parliament and got them ratified into law before the citizens of Ghana realized what was going on. However, when the information started getting out people caught on fast. A number of farmers groups and civil society organizations have petitioned Parliament, marched, and declared their opposition to the Plant Breeders Bill and to GMOs in Ghana. Interviews with MPs indicate they really don't know what is in the bill and have been told a number of lies. I have been doing some research and work behind the scenes for Food Sovereignty Ghana, which is a leader in the fight against the Plant Breeders Bill, against GMOs in Ghana, and for an agroecological approach to farming in Ghana. That is why I haven't been blogging through this last year.
Did Drought Lead to 6.0 Quake in California? Residents Wonder - In the wake of a disruptive 6.0-magnitude earthquake that caused widespread injuries and property damage to California's wine country, scientists aren't yet blaming the drought for the event, but residents are worried. Recent reports that the earth's crust covering the Golden State region has risen a sixth of an inch, due to loss of groundwater amid the crippling drought throughout the western United States, has prompted residents in the Greater Los Angeles to start wondering if the lack of water was at least partly responsible for the latest shaker. "I understand the tensions caused to the earth by the drought and also by fracking for oil is leading to increased seismic activity," said Maria, a caller to a recent radio talk show who described herself as a beautician and mother of two. "How can we know for sure what the impact is of anything we're doing to the environment? Are we going to cause 'The Big One?'" Said Tony, another caller to the same afternoon radio talk show: "I think nature's working against us because we're not taking care of nature...it feels like something more is coming...I'll send you my forwarding address." SHARE k The magnitude-6.0 quake, which struck about six miles south of the wine country community of Napa around 3:20 a.m., according to the United States Geological Survey, ruptured water mains and gas lines and damaged some of the region's famed wineries.
Groundwater Depletion Is Destabilizing the San Andreas Fault and Increasing Earthquake Risk -- Depletion of groundwater in the San Joaquin Valley is having wide-ranging effects not just on the agricultural industry and the environment, but also on the very earth beneath our feet. Massive changes in groundwater levels in the southern Central Valley are changing the stresses on the San Andreas Fault, according to research published today. Researchers have known for some time that human activity can be linked to localized seismic effects. In particular, much of the debate about fracking in California in the past few years has centered on evidence that the process of injecting large volumes of liquid underground can lubricate fault lines and increase local earthquake risk. Now geophysicists in Washington, California and Nevada have gathered evidence that human activity can have much farther-reaching seismic consequences. This research was spurred by the observation that the southern Sierra Nevadas and the Coastal Ranges are rising by 1 to 3 millimeters a year. Geologists have been observing this movement, which they call uplift, using a network of GPS sensors planted along these mountain ranges. They've batted around theories about why it might be happening, with no clear answer. "It looks like there's a big bullseye of uplift in the mountains surrounding the south Central Valley," . "What if uplift in the mountains is a response to sucking water out of the ground?" Amos said.Amos and his collaborators found something that goes deeper than that — something that could look to a paranoid environmentalist like a grand unified theory of California problems: drought, water use, and earthquake risk. "We found a link between what humans are doing on the ground and the rate of earthquakes," Amos said. His data and model are published today in the international scientific journal Nature.
How the Golden State's 1 percenters are avoiding the drought -- These days, tankers can be seen barreling down Montecito's narrow country roads day and night, ferrying up to 5,000 gallons of H20 to some of the world's richest and thirstiest folks. As California trudges into its third year of a statewide drought—currently at an alarming Stage 4 level, denoting what the federal government calls "exceptional drought" conditions—few towns have been as hard hit as Montecito. But the plight of this unincorporated community offers ironies—and political lessons—that are as rich as many of its 13,500 residents. The wealthiest 'burb of Santa Barbara county, and indeed one of the wealthiest enclaves in the United States, Montecito is home to Google's Eric Schmidt, Warren Buffett's partner Charlie Munger, entertainment mogul Tom Freston, director Ivan Reitman, and stars Ellen DeGeneres, Dennis Miller, Julia Louis-Dreyfus and Rob Lowe with George Lucas and Kevin Costner owning adjacent beachfront homes. Or, as one local realtor puts it, "just about everyone in the industry." Though gifted with green hills and splendid ocean views, Montecito has the geologic misfortune to have been built on land with precious little water—indeed, less water than any other part of the central coast of California. An aquifer runs nine miles under southern Santa Barbara County, but only a tiny sliver extends into Montecito.
How serious is California drought? Check out these before and after pictures, taken only three years apart
Hundreds Of Californians Have No Tap Water Due To Drought, Receiving Bottled Water Rations - California's extreme drought has dried up tap water supplies for hundreds of people living in rural San Joaquin Valley homes.At least 182 of the 1,400 homes in East Porterville, California have no water or are having "some kind of water issue," the Porterville Recorder reports. The state's drought, which is in its third year, has dried up some of these residents' wells, forcing the county to deliver emergency supplies of water. The wells rely on the Tule River for water, but due to the drought, river flows have plummeted this year. Tulare County Office of Emergency Services delivered 12-gallon-per person rations of bottled water to affected residents Friday, and the county has also provided a 5,000-gallon, non-potable water tank for people to use for bathing and flushing. But the bottled water rations are only supposed to last three weeks, Emergency services manager Andrew Lockman told the AP — after that, low-income residents will need to sign up for a grant program in order to keep receiving water, and the county is asking local companies to make bottled water donations. "Right now we're trying to provide immediate relief," Lockman said. "This is conceived as an emergency plan right now."
Sao Paulo's 22 million inhabitants running out of water - − Outside the semi-arid area of the north-east, Brazilians have never had to worry about conserving water. Year in, year out, the summer has always brought rain. But that has changed dramatically. São Paulo, the biggest metropolis in South America, with a population of almost 20 million, is now in the grip of its worst drought in more than a century − a water crisis of such proportions that reports on the daily level of the main reservoir arefollowed as closely as the football results. The lack of rain is also affecting the dams that produce most of Brazil's energy, highlighting the urgent need to diversify power sources. Brazil is blessed not only with the mighty Amazon and all its huge tributaries, but also with dozens of other lengthy, broad rivers − once the highways for trade and slaving expeditions, but now providing waterways for cargo, power for dams, and water for reservoirs.It has at least 12% of the world's fresh water supply. But five of the principal rivers – the Tiete, Grande, Piracicaba, Mogi-Guaçu and Paraiba do Sul − that cross or border the state of São Paulo, Brazil's wealthiest state, have less than 30% of the water they should have at this time of year, according to data from the regional Hydrographic Basin Committee and from the National Electric System Operator (ONS). Other major water sources – such as the Paraná, South America's second biggest river, and the Paranapanema − are also suffering from the long dry period. The ruins of towns flooded for dam reservoirs have reappeared, fishermen's boats are beached because the fish have disappeared, and navigation is at a standstill.
3,300 ft. Fissure in the Mexican Desert: No Locusts, But You Should Still 'Freak Out' - Last week video emerged of a giant fissure in the Northern Mexican desert, 3,300 feet long and up to 25 feet deep. Speculation centered at first around an earthquake, but the region is not known for seismic activity. I personally checked out the USGS earthquake data because the Buena Vista Copper mine (the fourth largest in the world by output) is only about 150 miles north of the enormous crack, and earlier this month they spilled 40,000 cubic meters of sulphuric acid into two rivers during the worst spill in Mexico's modern mining history. But I found no reports of tremors in the region and authorities were skeptical that this had anything to do with an earthquake. Fast forward to yesterday: the Washington Post posted a story with this headline: "Why no one should freak out about the giant crack that opened in the Mexico desert." The Post reports: The chair of the geology department at the University of Sonora, in the northern Mexican state where this "topographic accident" emerged, said that the fissure was likely caused by sucking out groundwater for irrigation to the point the surface collapsed. "This is no cause for alarm," "These are normal manifestations of the destabilization of the ground." I'm sorry, no. These are not normal manifestations of natural activity, this is the result of human activity run amok. Just because Cthulhu isn't clambering out of the breach to wreak havoc on humankind DOES NOT MEAN we shouldn't be alarmed by the fact we've sucked so much water out of the ground that the surface of the earth is collapsing.
China Has Lost 55% Of Its Most Valuable Resource - A study by China's Ministry of Water Resources found that approximately 55% of China's 50,000 rivers that existed in the 1990s have disappeared. Moreover, China is over-exploiting its groundwater by 22 billion cubic meters per year; yet its per-capita water consumption is less than one third of the global average. This is astounding data. More than 400 major cities in China are short of water, with some 110 facing "serious scarcity". Beijing and other northern cities get most of their water from underground aquifers. Over the last five decades, China has had to drill increasingly deeper to gain access to water. Another challenge China faces is logistics. More than 60% of China's water is in the southern part of the country, but most of the usage is in the north and along the coastlines. When you consider that this is a country that has almost one fifth of the world's population and is soon to become the world's biggest economy, this is rapidly becoming a global problem.
Hot and Getting Hotter: Heat Islands Cooking U.S. Cities Cities are almost always hotter than the surrounding rural area but global warming takes that heat and makes it worse. In the future, this combination of urbanization and climate change could raise urban temperatures to levels that threaten human health, strain energy resources, and compromise economic productivity. Summers in the U.S. have been warming since 1970. But on average across the country cities are even hotter, and have been getting hotter faster than adjacent rural areas. With more than 80 percent of Americans living in cities, these urban heat islands — combined with rising temperatures caused by increasing heat-trapping greenhouse gas emissions — can have serious health effects for hundreds of millions of people during the hottest months of the year. Heat is the No.1 weather-related killer in the U.S., and the hottest days, particularly days over 90°F, are associated with dangerous ozone pollution levels that can trigger asthma attacks, heart attacks, and other serious health impacts.
Don't dismiss a 2014 'super' El Niño just yet -- It looks like it's all over bar the shouting for the chance of this year bringing on a "super" El Niño. Or is it? The Bureau of Meteorology has brought the odds of an El Niño event down to 50%, from 70%. Even if it hits, most authorities are forecasting a weak to moderate event. Not that this should make seasonal weather watchers any less wary. Even a moderate El Niño can significantly affect Australia's rainfall. But are we right to dismiss the chances of a super El Niño this early in the season? We have been caught out before. The second-largest El Niño event on modern record, which hit in 1982/83, developed rather slowly before rapidly picking up in late August. There have been some recent signs that the development of El Niño conditions may be picking up again, so perhaps we shouldn't write off a strong El Niño event just yet. A prediction for a weak El Niño does not mean a strong El Niño is not a possibility.
Atlantic Ocean key to global-warming pause - An apparent slowdown in global warming since the late 1990s may be due to changes in circulation patterns in the Atlantic and Southern oceans, suggests a study published in the 22 August Science. These circulation patterns carry sun-warmed tropical waters into the higher latitudes, where they sink and flow back towards the Equator, says lead author Ka-Kit Tung, an atmospheric scientist at the University of Washington in Seattle. From the 1970s to the 1990s, Tung says, this movement was relatively slow. That allowed the warm water to linger at the surface long enough to lose much of its heat to the air, thereby contributing to rapid global warming. But around 1999, the currents sped up, sending relatively warm water into the ocean depths instead. That is enough, according to Tung and his co-author Xianyao Chen, an oceanographer at the Ocean University of China in Qingdao, to explain why Earth's land and ocean surface temperature seems to have plateaued since the anomalously warm year of 1998.
A Tale of Two Cities: Miami, New York and Life on the Edge - The Miami-Fort Lauderdale area, with 5.6 million people, is "ground zero" in the battle against the rising seas. Perhaps nowhere else in America are the odds lined up so heavily against a region. With a relatively flat, low-lying landscape, and a porous limestone base that precludes levees, the options for this city do not look good. A thousand miles north-east lies New York — another city very vulnerable to sea level rise. But after the wake-up call of Superstorm Sandy, Michael Bloomberg, then the mayor of New York City announced "We cannot, and will not, abandon our waterfront" and launched a $20 billion program to protect the city against the rising seas — at least for a little while. So why can't Miami apply the same formula as New York City, and go back to relaxing on the beach? And what is this concern about sea level rise in the first place? Most of us have heard of climate change or global warming, but what we may not realize is that about 90 percent of the heat being trapped by increasing greenhouse gases is going into the oceans, not the air. And as the oceans become warmer they expand — causing the sea level to rise. Sea level for most of the 20th century rose at the rate of about 6 inches per century. In recent years this rate has approximately doubled to a rate of just over 12 inches per century. Scientists predict that the pace will increase even more as the large ice sheets of Antarctica and Greenland begin shedding more ice to the ocean. Just how fast sea level will rise over the coming decades is undetermined at this point, but scientists agree on two points: the direction is up and the pace will increase.
Climate change a 'major challenge' to South Asia's economic development - report -- India, Sri Lanka, and Bangladesh will face "major challenges" as the impacts of climate change start to bite, according to a new report. The Asian Development Bank's (ADB) 163-page analysis outlines how warmer temperatures and rising seas could hit South Asia's varied economies, home to nearly 1.5 billion people. It concludes that the "impacts of climate change are likely to result in huge economic, social and environmental damage to South Asian countries". Climate impacts ADB uses the Intergovernmental Panel on Climate Change's (IPCC) emissions scenarios to model potential climatic changes in South Asia between now and 2100. It then uses an economic model to estimate how the climate impacts may affect the region's development. The analysis was conducted prior to the release of the three instalments of the IPCC's fifth assessment report - published between November 2013 and April this year - so uses data from the fourth report, released in 2007. What does it show? For starters, the region is expected to get warmer. The region's temperatures could rise two to five degrees above pre-industrial levels by 2100, ADB estimates. The graph below shows the rate at which temperatures are expected to rise. The groups of bars are the different emissions pathways. The different coloured bars refer to temperature during particular months, initialled in the legend.
Scientists warn of dangers from ocean acidification -- The future of Maine's coastal economy is uncertain as the state's most valuable fisheries are at risk. Scientists, legislators and others concerned with coastal ecosystems discussed the threats of changing ocean chemistry before the first meeting of the new ocean acidification commission on Friday at the University of Maine Darling Marine Center in Walpole. Ten scientists addressed the different factors causing ocean acidification and how it affects marine ecosystems during the morning session of the meeting. If left unchecked, ocean acidification could cause major losses to shellfisheries like clams, oysters, lobsters, shrimp and sea urchins and put at risk thousands of jobs and billions of dollars to the state's economy. "Ocean acidification is happening all over the world but nowhere are its potential impacts greater than in Maine," said Dr. Bob Steneck, a professor at the School of Marine Sciences and Pew Fellow in Marine Conservation. "Our coastal ecosystem and marine resources are most at risk." Steneck discussed how ocean acidification may be especially problematic for Maine's marine resources and how certain factors could locally reduce its effects. He pointed out that over 75 percent of the value of Maine's marine resources comes from animals with limestone shells, such as lobsters, crabs, sea urchins, clams, oysters, scallops and mussels.
Methane Is Discovered Seeping From Seafloor Off East Coast, Scientists Say -- Scientists have discovered methane gas bubbling from the seafloor in an unexpected place: off the East Coast of the United States where the continental shelf meets the deeper Atlantic Ocean.The methane is emanating from at least 570 locations, called seeps, from near Cape Hatteras, N.C., to the Georges Bank southeast of Nantucket, Mass. While the seepage is widespread, the researchers estimated that the amount of gas was tiny compared with the amount released from all sources each year.In a paper published online Sunday in the journal Nature Geoscience, the scientists, including Adam Skarke of Mississippi State University and Carolyn Ruppel of the United States Geological Survey, reported evidence that the seepage had been going on for at least 1,000 years.They said the depths of the seeps suggested that in most cases the gas did not reach the atmosphere but rather dissolved in the ocean, where it could affect the acidity of the water, at least locally. But methane is a potent, if relatively short-lived, greenhouse gas, so the discovery should aid the study of an issue of concern to climate scientists: the potential for the release of huge stores of methane on land and under the seas as warming of the atmosphere and oceans continues.
Russian river water unexpected culprit behind Arctic freshening: A hemispherewide phenomenon – and not just regional forces – has caused record-breaking amounts of freshwater to accumulate in the Arctics Beaufort Sea. Frigid freshwater flowing into the Arctic Ocean from three of Russias mighty rivers was diverted hundreds of miles to a completely different part of the ocean in response to a decades-long shift in atmospheric pressure associated with the phenomenon called the Arctic Oscillation, according to findings published in the Jan. 5 issue of Nature. The new findings show that a low pressure pattern created by the Arctic Oscillation from 2005 to 2008 drew Russian river water away from the Eurasian Basin, between Russia and Greenland, and into the Beaufort Sea, a part of the Canada Basin bordered by the United States and Canada. It was like adding 10 feet (3 meters) of freshwater over the central part of the Beaufort Sea. "Knowing the pathways of freshwater in the upper ocean is important to understanding global climate because of freshwaters role in protecting sea ice – it can help create a barrier between the ice and warmer ocean water below – and its role in global ocean circulation. Too much freshwater exiting the Arctic would inhibit the interplay of cold water from the poles and warm water from the tropics," said Jamie Morison, an oceanographer with the University of Washingtons Applied Physics Laboratory and lead author of the Nature paper.
World's Largest Ice Sheets Melting At Fastest Rate Ever Recorded: Greenland and Antarctica are home to the two largest ice sheets in the world, and a new report released Wednesday says that they are contributing to sea level rise twice as much as they were just five years ago. Using the European Space Agency's CryoSat 2 satellite, the Alfred Wegener Institute from Germany has found that western Antarctica and Greenland are losing massive amounts of ice. "Combined, the two ice sheets are thinning at a rate of 500 cubic kilometres per year," said glaciologist Dr. Angelika Humbert, one of the authors of the AWI study, in a press release. "That is the highest speed observed since altimetry satellite records began about 20 years ago."The report, published in the online magazine The Cryosphere, says the CryoSat 2 satellite measured over 200 million elevation data points in Antarctica and 14.3 million in Greenland to track the loss of ice mass over the last several years. "When we compare the current data with those from the ICESat satellite from the year 2009, the volume loss in Greenland has doubled since then," said Humbert. "The loss of the West Antarctic Ice Sheet has in the same time span increased by a factor of three." Somewhat encouragingly, the East Antarctic Ice Sheet is gaining mass. However, those gains are very modest and don't make up for the loss of ice in West Antarctica and Greenland. Greenland is losing 350 cubic kilometers of ice annually, mostly from its southwestern coast, and accounts for almost 75 percent of the total volume lost each year. Together, the flows from Antarctica and Greenland could cover the entire Chicagoland area with 600 meters of ice each year.
'Incredible' rate of polar ice loss alarms scientists -- The planet's two largest ice sheets – in Greenland and Antarctica – are now being depleted at an astonishing rate of 120 cubic miles each year. That is the discovery made by scientists using data from CryoSat-2, the European probe that has been measuring the thickness of Earth's ice sheets and glaciers since it was launched by the European Space Agency in 2010. Even more alarming, the rate of loss of ice from the two regions has more than doubled since 2009, revealing the dramatic impact that climate change is beginning to have on our world. The researchers used 200m data points across Antarctica and 14.3m across Greenland, all collected by CryoSat, to study how the ice sheets there had changed over the past three years. The satellite carries a high-precision altimeter, which sends out short radar pulses that bounce off the ice surface and then back to the satellite. By measuring the time this takes, the height of the ice beneath the spacecraft can be calculated. It was found from the average drops in elevation that were detected by CryoSat that Greenland alone is losing about 90 cubic miles a year, while in Antarctica the annual volume loss is about 30 cubic miles. These rates of loss – described as "incredible" by one researcher – are the highest observed since altimetry satellite records began about 20 years ago, and they mean that the ice sheets' annual contribution to sea-level rise has doubled since 2009, say the researchers whose work was published in the journal Cryosphere last week. "We have found that, since 2009, the volume loss in Greenland has increased by a factor of about two, and the West Antarctic ice sheet by a factor of three,"
Global Climate Inaction Will Mean Economic Turmoil for South Asia, Warns Bank - The first comprehensive study ever issued on the economic costs that uncontrolled climate change would inflict on South Asia predicts a staggering burden that would hit the region's poorest the hardest. "The impacts of climate change are likely to result in huge economic, social and environmental damage to South Asian countries, compromising their growth potential and poverty reduction efforts," said the study, published by the Asian Development Bank. The cuts in regional GDP are so deep that they might ripple around the world, as six developing countries with 1.4 billion people—a third of them living in poverty—pay the price of the world's continuing reliance on fossil fuels. Projections like this feed into the urgency for action as world leaders prepare to meet at the United Nations next month to discuss the climate crisis. Recent warnings show that the steps nations seem willing to take will fall well short of what is needed.
Obama pursuing climate accord in lieu of treaty — The Obama administration is working to forge a sweeping international climate change agreement to compel nations to cut their planet-warming fossil fuel emissions, but without ratification from Congress. In preparation for this agreement, to be signed at a United Nations summit meeting in 2015 in Paris, the negotiators are meeting with diplomats from other countries to broker a deal to commit some of the world's largest economies to enact laws to reduce their carbon pollution. But under the Constitution, a president may enter into a legally binding treaty only if it is approved by a two-thirds majority of the Senate.To sidestep that requirement, President Obama's climate negotiators are devising what they call a "politically binding" deal that would "name and shame" countries into cutting their emissions. The deal is likely to face strong objections from Republicans on Capitol Hill and from poor countries around the world, but negotiators say it may be the only realistic path. "If you want a deal that includes all the major emitters, including the U.S., you cannot realistically pursue a legally binding treaty at this time," Lawmakers in both parties on Capitol Hill say there is no chance that the currently gridlocked Senate will ratify a climate change treaty in the near future, especially in a political environment where many Republican lawmakers remain skeptical of the established science of human-caused global warming.
Peru's dangerous environmental regression -- This December, Peru will host the United Nations Climate Change Conference, during which representatives from 194 countries will convene in Lima to set the stage for a comprehensive international climate change agreement in 2015. The agreement would succeed the 1997 Kyoto Protocol on carbon emission reductions, which is set to expire in 2020. Ironically, in the run-up to the conference, Peru has substantially pared domestic environmental regulations — arguing that this is necessary to attract investment. The Associated Press summarizes the terms of a new law enacted by Peruvian President Ollanta Humala in July: The law … strips Peru's six-year-old Environment Ministry of jurisdiction over air, soil and water quality standards, as well as its ability to set limits for harmful substances. It also eliminates the ministry's power to establish nature reserves exempt from mining and oil drilling. Also, the measure slashes fines for environmental violations, limits the duration of environmental impact assessments and enhances tax incentives for mining corporations.
U.N. Draft Report Lists Unchecked Emissions' Risks - Global warming is already cutting grain production by several percentage points, the report found, and that could grow much worse if emissions continue unchecked. Higher seas, devastating heat waves, torrential rain and other climate extremes are also being felt around the world as a result of human-produced emissions, the draft report said, and those problems are likely to intensify unless the gases are brought under control.The world may already be nearing a temperature at which the loss of the vast ice sheet covering Greenland would become inevitable, the report said. The actual melting would then take centuries, but it would be unstoppable and could result in a sea level rise of 23 feet, with additional increases from other sources like melting Antarctic ice, potentially flooding the world's major cities."Human influence has been detected in warming of the atmosphere and the ocean, in changes in the global water cycle, in reduction in snow and ice, and in global mean-sea-level rise; and it is extremely likely to have been the dominant cause of the observed warming since the mid-20th century," the draft report said. "The risk of abrupt and irreversible change increases as the magnitude of the warming increases." The report was drafted by the Intergovernmental Panel on Climate Change, a body of scientists and other experts appointed by the United Nations that periodically reviews and summarizes climate research. It is not final and could change substantially before release. The report, intended to summarize and restate a string of earlier reports about climate change released over the past year, is to be unveiled in early November, after an intensive editing session in Copenhagen. A late draft was sent to the world's governments for review this week, and a copy of that version was obtained by The New York Times.
IPCC: 'Irreversible' Damage to Planet From Climate Change -- Climate change is here, man-made and already having dangerous impacts, according to leaked drafts of the upcoming UN climate science report. The 127-page final draft of the latest Intergovernmental Panel on Climate Change (IPCC) report shows the effects of global warming are already being felt across all continents and the oceans. It warns that further emission rises will increase the likelihood of "severe, pervasive and irreversible impacts for people and ecosystems." The report will be a synthesis of the IPCC's three comprehensive reports released in the past year, which examined the science of climate change, its impacts and potential mitigation options. The leaked report, which has been circulated to several media outlets, shows temperatures have already increased by 0.85°C since 1880—a more rapid shift in the climate than that which heralded the end of the last ice age about 10,000 years ago.
Why The Washington Post is running a series of editorials on the "existential threat" of climate change - The Washington Post is publishing a week of climate change editorials aimed at sparking action on what editorial page editor Fred Hiatt calls "an existential threat to the planet." In an interview with Media Matters about the ongoing series, Hiatt said that the Post views this as a moment "when the debate could begin to get unstuck." He believes that increasingly dire warnings from scientists about the threat of climate change and new regulations aimed at reducing carbon pollution could lead to new legislation on this issue. "So we wanted to encourage that process and also put forward as you'll see later in the week, a couple of approaches that we think would make a lot of sense and might at some point even be politically feasible."The series marks a major effort from an editorial page that has in the past been criticized by progressives for publishing misleading columns about global warming."Over the long run it is an existential threat to the planet, I believe that, so you don't get much bigger than that," Hiatt said about the decision to run the week of editorials. "That doesn't mean that you can set aside other really big problems that are facing us today, but over time ... the longer we wait to do something about it, the greater the damage is likely to be and the more disruptive the response will be." Monday's first editorial lamented the faltering national debate on this issue, while today's offering explained why the country can't afford to "wait while the world warms."
Why our brains are wired to ignore climate change - Some of the answers are familiar. Humans respond most urgently to threats that are present, concrete and definite — a mugger, say. But climate change is gradual, hard to observe and indefinite, at least in terms of its eventual magnitude and effects on our personal lives. Addressing it requires making palpable sacrifices now in order to prevent unclear costs in the distant future. Global warming also doesn't automatically raise our moral hackles, as there's no clear enemy who wants to destroy our world. If anyone is to blame, the culprit is me, you and everyone we know. So it's in our own self-interest — though perhaps not in the interest of our future selves, those poor schlubs — to play down the danger, if not outright deny it. You might think that environmental campaigns reminding people to be green would, well, make people green. But they communicate individual responsibility, and thus blame, which leads to resentment. One study found that conservatives were less likely to buy a low-energy light bulb when the package said "protect the environment." And people who do buy such light bulbs feel morally licensed to use them more, countering the gains.
Newly Built CO2-Emitting Plants Outpace Closings - Governments around the world may be enacting measures to reduce greenhouse gas emissions, but the energy industry isn't on board with those goals, according to a new report from researchers at Princeton University and the University of California at Irvine (UCI). Their report, published in the journal Environmental Research Letters, says existing power plants fired by coal and gas will generate more than 300 billion tons of atmosphere-clogging carbon dioxide over the next 40 years. They calculate that "committed" emissions – those coming from plants already in operation – will rise by about 4 percent each year as industry builds even more coal and gas fired plants. Their study is the first to quantify the rate at which such emissions grow. The report estimates that just the new plants built around the world in 2012 will emit 19 billion tons of carbon dioxide during their expected four decades of operation. That's significantly more than the 14 billion tons of CO2 emissions produced by all the plants operating worldwide built before 2012.
The World's Existing Power Plants Will Emit 300 Billion Tons Of Carbon Dioxide In Their Lifetimes - Existing power plants across the globe will emit over 300 billion tons of carbon dioxide into the atmosphere before they retire, according to a new study published Tuesday.The new research, as reported by Science Daily, is also the first to quantify how fast these "baked in" emissions are growing as more power plants are constructed — roughly four percent a year. That's a problem because it means construction of new fossil fuel-burning power plants is outdistancing the rate at which old ones are being taken offline.Coal accounts for about two-thirds of those 300 billion tons of emissions, while natural gas takes up much of the remainder at 27 percent — a significant growth over the 15 percent of emissions stemming from natural gas plants in 1980. "Bringing down carbon emissions means retiring more fossil fuel-burning facilities than we build," Steven Davis, assistant professor of Earth system science at the University of California at Irvine and the study's lead author, told Science Daily. "But worldwide, we've built more coal-burning power plants in the past decade than in any previous decade, and closures of old plants aren't keeping pace with this expansion."As a result, humans are doing the exact opposite of what needs to be done to address climate change. "Far from solving the climate change problem, we're investing heavily in technologies that make the problem worse," Davis said.
U.S. Warms To Clean Energy -- A review of monthly figures for new installations of electric power capacity in July shows that renewable energy is quickly becoming the energy source of choice in the U.S. New data from the Federal Energy Regulatory Commission (FERC) shows that 100 percent of new capacity installed in July came from renewable energy. For the month, there were 21 megawatts of new solar, 379 megawatts of wind, and 5 megawatts of new hydropower. Natural gas still accounted for more than half of new capacity for the first half of this year, but renewable energy is quickly catching up. The data is confirmation that the wind industry has rebounded after its downturn in 2013. Only 1,087 megawatts were installed last year, a mere 8 percent of 2012's total. The industry blames the lackluster number on the fact that the production tax credit (PTC) expired, which provided a 2.3-cent per kilowatt-hour subsidy. Despite the slowdown, costs continue to decline. Power purchasing agreements (PPAs) have reached an all-time low. According to a Department of Energy study, wind PPAs sold for only $25 per megawatt hour in 2013 for utility-scale projects in the interior part of the country. PPA prices are higher in other regions, such as the west and northeast, but prices are declining just about everywhere.
The World's Most Dangerous Dams - Hydroelectric dams are a nifty way of producing a huge amount of power, but they do not last forever. This is a tale of two dams that will fail unless they are urgently repaired, and if they fail, catastrophic suffering and loss of life will be the result. The first is the Mosul Dam, which stretches across the Tigris River in a valley north of Mosul, Iraq. As dams go, this one is a civil engineering horror. The dam was captured on Aug. 7 by the Islamic State, and retaken 10 days later by Iraqi and Kurdish forces, with American air support. Should the two-mile-wide dam fail, which is likely, Mosul would be wiped out and the damage would extend to Baghdad. Loss of life could reach 500,000, and millions could be deprived of water and power: an immense catastrophe piled on the daily pain of Iraq. The second dam, in southern Africa on the Zambezi River, is the Kariba. This 55-year-old dam, by some measures, is the world's second largest. It was a civil engineering masterpiece and has held up well, given the spotty maintenance by its owners – Zambia, on the north bank and Zimbabwe, on the south bank. But the Kariba Dam is predicted to fail within three years unless it undergoes massive repair. If it does, surging water would rip a vast trench down the length of the Zambezi River on its route to the Indian Ocean. The wall of water would take out another giant dam, Cahora Bassa, in Mozambique. Loss of life could reach 3.5 million, with untold damage to wildlife. South central Africa would lose 40 percent of its electric supply.
US Energy Sources and Uses Show Limits of Renewable Energy Strategies - Gail Tverberg - On August 6, I wrote a post called Making Sense of the US Oil Story, in which I looked at US oil. In this post, I would like to look at other sources of US energy. Of course, the energy source we hear most about is natural gas. We continue to be a net natural gas importer, even as our own production rises. US natural gas production leveled off in 2013, because of the low level of US natural gas prices. In 2013, there was growth in gas production in Pennsylvania in the Marcellus, but many other states, including Texas, saw decreases in production. In early 2014, natural gas prices have been higher, so natural gas production is rising again, roughly at a 4% annual rate. The US-Canada-Mexican natural gas system is more or less a closed system (at least until LNG exports come online in the next few years) so whatever natural gas is produced, is used. Because of this, natural gas prices rise or fall so that demand matches supply. Natural gas producers have found this pricing situation objectionable because natural gas prices tend to settle at a low level, relative to the cost of production. This is the reason for the big push for natural gas exports. The hope, from producers' point of view, is that exports will push US natural gas prices higher, making more natural gas production economic. If natural gas is cheap and plentiful, it tends to switch with coal for electricity production. We can see this in electricity consumption–natural gas was particularly cheap in 2012: Coal use increased further in early 2014, because of the cold winter and higher natural gas prices. In Figure 2, there is a slight downward trend in the sum of coal and natural gas's share of electricity, as renewables add their (rather small) effect. If we look at total consumption of coal and natural gas (Figure 3), we find it also tends to be quite stable. Increases in natural gas consumption more or less correspond to decreases in coal consumption. New natural gas power plants should be more efficient than old coal power plants in producing electricity, putting downward pressure on total coal plus natural gas consumption.
Power Plants In Europe Could Go Extinct After 2020, Investment Bank Says - Within a few decades, large-scale, centralized electricity generation from fossil fuels could be a thing of the past in Europe. That's the word from investment bank UBS, which just released a new report anticipating a three pronged assault from solar power, battery technology, and electric vehicles that will render obsolete traditional power generation by large utilities that rely on coal or natural gas. According to Renew Economy, which picked up the report, the tipping point will arrive around 2020. At that point, investing in a home solar system with a 20-year life span, plus some small-scale home battery technology and an electric car, will pay for itself in six to eight years for the average consumer in Germany, Italy, Spain, and much of the rest of Europe. Crucially, this math holds even without any government subsidies for solar power. "In other words," the report says, "a German buyer should receive 12 years of electricity for free" for a system purchased in 2020.
Fukushima groundwater bypass operation ineffective: Tepco - A groundwater bypassing operation at the Fukushima No. 1 nuclear plant has yet to produce significant results in preventing groundwater from flowing into the basements of reactor buildings, Tokyo Electric Power Co. said. By last Thursday, about three months after the effort was launched, a total of around 25,000 tons of water had been pumped from underground and released into the sea. Tepco, however, said Monday it is expected to take several more months before the intended effects will be seen. "The amount of groundwater flowing into the basements has not decreased markedly," senior official Isao Shirai said at a news conference. Tepco claimed about a month ago that the effects would be visible in just one or two months. In the operation, groundwater is pumped up from wells near the reactors before it flows into the basements and mixes with highly radioactive water that has accumulated there. The volume of radioactive water at the plant increases by an estimated more than 400 tons per day.
Japanese Public Seen as Biggest Obstacle to Nuke Restart - Japan is facing the toughest test yet in its effort to restore nuclear energy more than three years after the Fukushima disaster: scrutiny from a skeptical population. The Nuclear Regulation Authority vouched last month for the safety of two reactors in Sendai, the first to pass inspections. Still, with Japan going through its first summer in 48 years without atomic power, JPMorgan Chase & Co. is among those predicting more delays to restarts as government approval becomes increasingly dependent on public opinion. Japan's energy bill has ballooned as reliance on fossil fuels such as liquefied natural gas fills the power gap, contributing to record trade deficits. The focus is now on city and prefecture governments and whether they will approve the restart of the Sendai units. More than half of the population remains opposed to resuming nuclear generation after the March 2011 meltdown at the Fukushima Dai-Ichi reactors. "Restarting the Sendai plant is dangerous," said Osamu Mikami, 73, an anti-nuclear activist who is among protesters that have camped for almost three years on the grounds of the Ministry of Economy, Trade and Industry in Tokyo. "I don't want such a reckless act to be carried out," he said in an interview on Aug. 15, vowing to continue demonstrations until Japan gives up plans to begin atomic operations again.
Hearings planned after call for nuke-plant closure - -- A senior federal nuclear expert is urging regulators to shut down California's last operating nuclear plant until they can determine whether the facility's twin reactors can withstand powerful shaking from any one of several nearby earthquake faults. Michael Peck, who for five years was Diablo Canyon's lead on-site inspector, says in a 42-page, confidential report that the Nuclear Regulatory Commission is not applying the safety rules it set out for the plant's operation. The document, which was obtained and verified by The Associated Press, does not say the plant itself is unsafe. Instead, according to Peck's analysis, no one knows whether the facility's key equipment can withstand strong shaking from those faults — the potential for which was realized decades after the facility was built. Continuing to run the reactors, Peck writes, "challenges the presumption of nuclear safety."The NRC, which oversees the nation's commercial nuclear power industry, and Diablo Canyon owner Pacific Gas and Electric Co., say the nearly three-decade-old reactors, which produce enough electricity for more than 3 million people annually, are safe and that the facility complies with its operating license, including earthquake safety standards.
What the Anti-Fracking Movement Brings to the Climate Movement -- Hi, everyone. My name is Sandra Steingraber, and I inhabit the anti-fracking wing of the climate movement. Only a few years ago, that sentence would have sounded strange, even to me, because the fight against fracking has its roots in another place. Those who oppose natural gas extraction via fracking first came together because we didn't want to be poisoned. In New York state, we sought to halt fracking before it started because of what we saw across the border in the gaslands of Pennsylvania: families with nose bleeds and rashes. Sick pets. Horses and livestock with mysterious ailments. Devastated landscapes We had concerns about exploding pipelines, leaking waste pits and about our children's school buses sharing icy roads with tanker trucks hauling toxic fracking fluid.Most of all, we came together to protect our drinking water, and, now that the science is beginning catch up to the speed at which fracking is rolling across the nation, an ever-expanding collection of empirical data shows that our concerns were well founded. But a funny thing happened on the way to the shale gas boom. It turns out that the same unfixable engineering problem that sets the table for contaminating our water also contaminates the atmosphere with climate-killing methane.
Winds of Change: The Zephyr Turns Primary into Plebiscite on Fracking -- Zephyr Teachout has turned the New York gubernatorial primary into a plebiscite on fracking, on reform in Albany, on campaign finance, and clean jobs in New York. Pretty much all the things that matter. Unless you're a lobbyist. Why is Zephyr the safe bet in the September 9th primary ? She's the positive candidate that represents real change and the most opportunity for New York. And because she's the candidate least likely to be indicted by the feds. It's official: The New York Times says we're having "a Teachout moment," by which the paper's editorial board means it's time for Gov. Andrew Cuomo to stop trying to knock progressive challenger Zephyr Teachout off the ballot and to debate her instead. It's a play on "teachable moment," and it makes you wonder what's intended to be taught. Does the paper believe Cuomo should be taught a political lesson in the wake of the Moreland Commission scandal, after a scorching Times report revealed he's being investigated for meddling in and protecting allies from the anti-corruption probe? Or does the Times think that Cuomo should learn that he can afford to play nice, for a moment, and give state voters an opportunity to examine his four years in office, alongside a barely known rival with an odd name who declares that he's been "a failure as a Democrat"?
Leave the Fracking Gas in the Ground -- So says a new study being prepared on global warming. Greenhouse Gas Emissions Growing More Dangerous, Draft of U.N. Report Says The report was drafted by the Intergovernmental Panel on Climate Change, a body of scientists and other experts appointed by the United Nations that periodically reviews and summarizes climate research. It is not final and could change substantially before release. The report, intended to summarize and restate a string of earlier reports about climate change released over the past year, is to be unveiled in early November, after an intensive editing session in Copenhagen. A late draft was sent to the world's governments for review this week, and a copy of that version was obtained by The New York Times. Using blunter, more forceful language than the reports that underpin it, the new draft highlights the urgency of the risks likely to be intensified by continued emissions of heat-trapping gases, primarily carbon dioxide released by the burning of fossil fuels like coal, oil and natural gas. The report found that companies and governments had identified reserves of these fuels at least four times larger than could safely be burned if global warming is to be kept to a tolerable level. That means if society wants to limit the risks to future generations, it must find the discipline to leave the vast majority of these valuable fuels in the ground, the report said.
Shale is not a ponzi - Izabella Kaminska - The FT's Ed Crooks reported this week that fears over the long-term health of America's shale industry could be put to rest thanks to news that independent oil and gas companies have now substantially improved their financial positions. From the story: Cash earned from operations by 25 leading North American exploration and production companies is expected in aggregate to exceed their capital spending next year for the first time since 2008, according to an analysis by Factset for the Financial Times. As Crooks recounts, the longstanding fear was that the industry was shaping up to be a Ponzi scheme, relying on nothing more than excitement over shale to continuously attract new investment, with every likelihood that things would cave in on themselves once the financing for more drilling ran out. Thanks to a shift to more profitable oil extraction over less profitable gas, however, it now looks like shale companies' finances have improved enough to make the business sustainable. Cash shortfalls of about $32.2bn in 2012, and $8.8bn last year, notes Crooks, have now been transformed into a cash excess of about $2.4bn for the leading shale companies in the US.
Shale is not a ponzi, Part 2 -- Izabella Kaminska -- In our last post, we referred to John Kemp's argument that cash-flows in the shale drilling sector are not a good indicator of shale's long-term commercial sustainability. This, he argued, was due to the regular conflation of gas and oil in the metrics, justified by the fact that most companies produce some variety of both. In the last few years, however, producers have shifted their efforts increasingly towards oil production — due to the better margins — improving cash-flows as a result. Nevertheless, peak oilers still contend shale isn't long-term sustainable because of the rapid decline rates for wells. These, they claim, are being depleted much more quickly than conventional wells, speaking of the problem in hand. Not so, according to Kemp, who is back on Friday with another column outlining the weird economics of shale. As Kemp explains (our emphasis):First, oil and gas producers have learned to drill and fracture wells much faster, using mass production techniques borrowed from manufacturing, so the same number of rigs and crews can drill many more wells than before. Second, the sceptics focus too much on the decline rate rather than the total amount of oil and gas recovered from a well over its lifetime, which is more relevant to the sustainability of the shale revolution. The relationship between initial production (IP), the decline rate (DR), and the estimated ultimate recovery (EUR) is subject to a tremendous amount of uncertainty. It varies significantly from play to play, county to county and even well to well. But in general, producers want oil and gas wells with a large EUR, a high IP and a rapid decline rate, because that means they receive more revenue overall, and more of it in the first few months after the well is completed rather than having to wait years and years.
Research shows potential health risk to babies born near drilling - The first research into the effects of oil and gas development on babies born near wells has found potential health risks. Government officials, industry advocates and the researchers themselves say more studies are needed before drawing conclusions. While the findings are still preliminary, any documented hazards threaten to cast a shadow over hydraulic fracturing, or fracking -- the process of blasting chemicals, sand and water deep underground to extract fuel from rock that's helped push the U.S. closer to energy self-sufficiency than at any time since 1985. "It's not really well understood how the environment interacts with genetics to produce these birth defects," said Lisa McKenzie of the Colorado School of Public Health, who conducted research published in January in the journal Environmental Health Perspectives. "We really need to do more study to see what the association is, if any, with natural gas development." McKenzie and her colleagues discovered more congenital heart defects in babies born to mothers living near gas wells in Colorado. Two studies, which have not been peer reviewed, showed infants born near fracking sites in Pennsylvania were more likely to have low birth weight, a sign of developmental problems. In Utah, local authorities are investigating a spate of stillbirths after tests found dangerous levels of air pollution from the oil and gas industry.
Brine firm sues over billboards: Youngstown Vindicator - An Ohio man who uses a biblical reference and a statement against "poisoned waters" on billboards opposing wells for disposal of gas-drilling wastewater is fighting a legal threat from the Texas well owner on free-speech grounds. Austin, Texas-based Buckeye Brine alleges in a July lawsuit that the billboards paid for by Michael Boals, of Coshocton in eastern Ohio, contain false and defamatory attacks against its two wells, which dispose of contaminated wastewater from oil and gas drilling. The complaint by the company and Rodney Adams, who owns the land and operates the well site, contends the wells are safe, legal and meet all state safety standards. The parties object to statements on two billboards along U.S. Route 36, including one that "DEATH may come." "The accusation that the wells will cause 'DEATH' is a baseless and malicious attempt to damage the reputations of the plaintiffs," according to the complaint. "The billboards are also defamatory because they state or imply that Mr. Adams and Buckeye Brine are causing 'poisoned waters' to enter the drinking-water supply."
243 cases in PA where fracking contaminated wells -- Six years into a natural gas boom, Pennsylvania has for the first time released details of 243 cases in which companies prospecting for oil or gas were found by state regulators to have contaminated private drinking water wells. The Department of Environmental Protection on Thursday posted online links to the documents after the agency conducted a "thorough review" of paper files stored among its regional offices. The Associated Press and other news outlets have filed lawsuits and numerous open-records requests over the last several years seeking records of the DEP's investigations into gas-drilling complaints. Pennsylvania's auditor general said in a report last month that DEP's system for handling complaints "was woefully inadequate" and that investigators could not even determine whether all complaints were actually entered into a reporting system. DEP didn't immediately issue a statement with the online release, but posted the links on the same day that seven environmental groups sent a letter urging the agency to heed the auditor general's 29 recommendations for improvement. The 243 cases, from 2008 to 2014, include some where a single drilling operation impacted multiple water wells. The problems listed in the documents include methane gas contamination, spills of wastewater and other pollutants, and wells that went dry or were otherwise undrinkable. Some of the problems were temporary, but the names of landowners were redacted, so it wasn't clear if the problems were resolved to their satisfaction. Other complaints are still being investigated.
Fracking Has Contaminated Drinking Water In Pennsylvania 243 Times, State Agency Reports -- For the first time, Pennsylvania has made public 243 cases of contamination of private drinking wells from oil and gas drilling operations. As the AP reports, Pennsylvania's Department of Environmental Protection posted details about the contamination cases online on Thursday. The cases occurred in 22 counties, with Susquehanna, Tioga, Lycoming, and Bradford counties having the most incidences of contamination. In some cases, one drilling operation contaminated the water of multiple wells, with water issues resulting from methane gas contamination, wastewater spills, and wells that simply went dry or undrinkable. The move to release the contamination information comes after years of the AP and other news outlets filing lawsuits and Freedom of Information Act requests from the DEP on water issues related to oil and gas drilling and fracking.The Pennsylvania DEP has been criticized for its poor record of providing information on fracking-related contamination to state residents. In April, a Pennsylvania Superior Court case claimed that due to the way DEP operates and its lack of public record, it's impossible for citizens to know about cases where private wells, groundwater and springs are contaminated by drilling and fracking. "The DEP must provide citizens with information about the potential harm coming their way," John Smith, one of the attorneys representing municipalities in the lawsuit, told the Pittsburgh Post-Gazette. "If it doesn't record and make available the violations records then it is denying the public accurate information, which is unconscionable."
The Big Fracking Lie Exposed. Again -- The Big Fracking Lie is that shale gas industrialization has never ever once polluted water. Ever. Anywhere. Honest. When we all know that every fracking shale well will pollute the atmosphere and compromise the water supply sooner or later. Just a matter of how much, how soon. The Pennsylvania Department of Environmental Protection has, under duress, finally released their list of water sources contaminated by shale gas industrialization: Just the ones that they will admit to. Just the ones that someone actually reported. Link to the DEP list of contaminated water wells: http://files.dep.state.pa.us/OilGas/BOGM/BOGMPortalFiles/OilGasReports/Determination_Letters/Regional_Determination_Letters.pdf Read more: DEP Releases Details of Water Contamination from Fracking: Six years into a natural gas boom, Pennsylvania has for the first time released details of 243 cases in which companies prospecting for oil or gas were found by state regulators to have contaminated private drinking water wells. The Department of Environmental Protection on Thursday posted online links to the documents since the agency conducted a "thorough review" of paper files stored among its regional offices. The Associated Press and other news outlets have filed lawsuits and numerous open-records requests during the past several years seeking records of investigations into gas-drilling complaints. DEP didn't immediately issue a statement with the online release, but posted the links on the same day that seven environmental groups sent a letter urging the agency to heed the auditor general's 29 recommendations for improvement.
Danger Beneath: 'Fracking' Gas, Oil Pipes Threaten Rural Residents - A construction boom of pipelines carrying explosive oil and natural gas from "fracking" fields to market -- pipes that are bigger and more dangerous than their predecessors -– poses a safety threat in rural areas, where they sometimes run within feet or yards of homes with little or no safety oversight, an NBC News investigation has found. The rapidly expanding network of pipes, known as "gathering lines," carry oil and gas from fracking fields in many parts of the country to storage facilities and major "transmission lines." They are subject to the same risks – corrosion, earthquakes, sabotage and construction accidents -- as transmission lines. But unlike those pipelines, about 90 percent of gathering lines do not fall under federal safety or construction regulations because they run through rural areas, the Government Accountability Office reported in 2012. Safety advocates and regulators have called for new regulations on the pipelines, but energy industry interests have pushed back. Any changes could be years away, if they happen at all, according to an analysis from the Congressional Research Service released early this month. The lack of oversight on rural gathering lines – historically low-pressure steel lines up to 12 inches around – was long justified by the perception that the risk of accidents was minimal. But the fracking boom has led to construction of new gathering lines that are both bigger and under higher pressure, making them virtually identical to transmission lines.
Energy group touts refining opportunities - With news of hydraulic fracturing regulations to be released soon, petrochemical manufacturers are making sure residents know of the energy opportunities throughout the state. "Illinois is in a unique position because of its energy portfolio," said Sarah Magruder Lyle, vice president of strategic initiatives for American Fuel & Petrochemical Manufacturers. "With the exception of hydropower, this is a state that produces and uses just about every kind of energy there is and with four refineries and plants and most of the production happening in this part of the state, it's very important to us." Following a stop in Effingham to speak with the East Central Illinois Development Corporation, Magruder Lyle said the key to taking advantage of the opportunities offered by hydraulic fracturing, or fracking, as well as other uses of energy is in job creation. However, she said many people are focused on the front end of the process while many of the job opportunities come from refinery and manufacturing of petrochemical products, such as plastics. "Our goal is to really draw that connection," she said. "The opportunity is there. Illinois has started to put the pieces together to make sure hydraulic fracturing is done responsibly so that Illinois doesn't miss an opportunity." Creating the connection between employees at all levels of the industry isn't the only piece the group wants people to see. Effingham's location, as well as easy access to interstate highways, railroads and proximity to businesses that use petrochemical materials, most notably Sherwin-Williams in Flora and Effingham, were also important.
State Agency Issues Long-Awaited Fracking Rules — The Illinois Department of Natural Resources released a long-awaited plan Friday to regulate high-volume oil and gas drilling that supporters hope could bring an economic boost to southern Illinois but environmentalists fear may be too lenient.The lengthy report follows months of delays and complaints over the process to draft rules governing hydraulic fracturing, or fracking, in Illinois. Industry officials say southern Illinois has rich deposits of natural gas, but a final draft of the rules — initially touted as a national model of both sides working together — has taken months for the agency to produce as industry groups warned the state was losing business.A 150-page report was given to the 12-member Joint Committee on Administrative Rules, which has 45 days to act, or the rules can take effect. Environmental groups, industry experts and lawmakers also got their first look at the report Friday, and some said they expect to spend hours, possibly days, combing through the details."These are highly technical rules that will require a really close look at the details," Josh Mogerman, spokesman for the Natural Resources Defense Council, said earlier Friday. "Our experts are going to be spending their holiday weekend going through these rules with a fine tooth comb."The new rules would require companies awarded drilling permits to submit lists, some of them redacted, of the chemicals used in fracking. The redacted list would be made available to the public by department and be submitted to the public health department. The industry says releasing the full list would expose trade secrets.
Texas Proposes Tougher Rules On Fracking Wastewater After Earthquakes Surge --The agency that regulates oil and gas activity in Texas is considering new, tougher regulations governing the practice of injecting leftover water used to frack natural gas wells deep into the ground — a process which is believed to be responsible for an increase in human-caused earthquakes across the state. The Texas Railroad Commission's new proposed regulations on wastewater injection wells were heard by members of the Texas House of Representatives' Subcommittee on Seismic Activity on Monday, following complaints that earthquakes have become more frequent over the last several years. Dr. Craig Pearson, the Railroad Commission's new seismologist, told the subcommittee that the regulations would help make sure injected wastewater doesn't migrate onto inactive fault lines and cause man-made quakes."Because we're now dealing with induced seismicity, the worry is not only about water moving up [to our groundwater] but out to dormant faults," Pearson said, noting that current regulations are only designed to protect from groundwater contamination.The controversial technique of hydraulic fracturing, otherwise known as "fracking," uses a great deal more water than conventional drilling. . The leftover wastewater used to frack the well is disposed of by injecting it deep underground, and scientists increasingly believe that this is causing man-made earthquakes — not only in Texas, but across the country. The large amount of water injected into the ground can change the state of stress on existing fault lines to the point of failure, scientists believe, causing earthquakes.
Fracking the Frackers Anti Fracking - Forbes has published the first of a two part series on "what's behind the fractavist" movement – as if there has to be something "behind" what is clearly a grass-roots amorphous effort. The frackers and their spokesman have taken this tack from the outset- that someone or some organization – Gazprom, the Saudi royals, the Park Foundation – has to be "behind" anti fracking. That anti frackers are paid, that they are part of a conspiracy controlled from somewhere. This delusory approach has always amused me. Because if there is some group behind the anti-fracking movement, my paycheck is way way late. http://www.forbes.com/sites/jonentine/2014/08/26/fracking-the-anti-fracking-movement-the-inside-story-of-the-foundation-behind-the-activist-campaign-to-discredit-natural-gas/ They start this series by interviewing Dan Fitzsimmons ? Fitzsimmons is the head of a leasing group in New York, the Joint Landowners of New York, that sued that the State of New York over its supposed delay in issuing fracking regulations with legal expenses bankrolled by the Koch brothers. Fitzsimmons not only is not interested in learning the truths about fracking, he notoriously advised his members to stay away from the presentations we made on New York's shale gas potential – which I lampooned as a Fracking Chickenhawk
Gov. Snyder to convene panel on Michigan's acceptance of low-level radioactive waste -- Gov. Rick Snyder today announced plans to form a panel of experts to look at the state's standards for disposing of low-level radioactive materials. The announcement follows a Free Press article Tuesday on a Pennsylvania oil and gas development company's plans to ship to a Belleville area hazardous waste landfill up to 36 tons of low-level radioactive sludge that's a byproduct of the fracking process. The sludge was rejected by landfills in western Pennsylvania, and its later shipment to a landfill in West Virginia was halted by the state and voluntarily discontinued by the company, Range Resources, as West Virginia reforms its laws for handling such waste. The radioactivity, usually from the metal radium, accumulates from drill cuttings, the soil, rock fragments and pulverized material removed from a borehole that may include fluid from a drilling process. It also can be present in flowback water, which is the brine or other fluid injected into shale formations during Ohio and West Virginia, two states with more intensive fracking activity than Michigan, have strengthened regulations on how to store, treat, process and dispose of radioactive oil and gas drilling wastes. Pennsylvania also doesn't allow the materials in its landfills. Each of the states leaves it to oil and gas developers to find a disposal site. As Ohio tightened its regulations, state officials listed the Wayne Disposal site in Van Buren Township as an option for Ohio drillers.
Michigan to review standards for radioactive waste allowed in Wayne County landfill — Michigan Gov. Rick Snyder on Monday ordered a review of disposal standards for low-radioactivity drilling waste, and a Wayne County landfill that accepts the material announced it will voluntarily suspend disposal until the review is complete. The Detroit Free Press reported last week that up to 36 tons of "sludge" already rejected by other states was heading to the Wayne Disposal landfill near Belleville, which has had approval to accept the waste since 2006. Regulations are tightening in other states, according to the newspaper, making Michigan a more popular destination for "technologically-enhanced, naturally occurring radioactive materials" collected during hydraulic fracturing or other drilling operations. Michigan's disposal regulations were established by an advisory committee in 1996, but with critics raising concerns over the potential impact on ground water, Snyder has directed the Department of Environmental Quality to assemble a panel of experts for review. "We remain deeply committed to protecting public health and Michigan's precious water resources," the governor said in a release.
Food Crops Pushed To The Side As Oil Trains Sail Through - In oil-rich North Dakota, farmers trying to get their crops to market are getting squeezed out of the rail transportation picture. Rail line congestion caused by the oil boom in the Bakken shale oil field of North Dakota and Montana is creating huge backlogs for farmers anxious to get wheat, soybeans, sugar beets, and other crops to markets, and it's driving large production losses for big food companies like General Mills and Cargill. "This rail backlog is a national problem," Sen. Heidi Heitkamp (D-ND) told the New York Times. "The inability of farmers to get these grains to market is not only a problem for agriculture, but for companies that produce cereals, breads and other goods." A study conducted by North Dakota State University at the request of Sen. Heitkamp found that farmers could lose more than $160 million in revenue because of crowded rail lines.The booming production of oil from the Bakken field has meant a huge increase in shipments by rail because the region is not well served by pipelines. About 75 percent of the Bakken production is shipped by rail, including about 400,000 barrels a day to the East Coast.
Steve Horn: State Dept. Overseers of Contentious Enbridge Tar Sands Pipeline Workaround Have Industry, Torture Ties - The Sierra Club, National Wildlife Federation (NWF) and other green groups recently revealed that pipeline giant Enbridge got U.S. State Department permission in response to its request to construct a U.S.-Canada border-crossing tar sands pipeline without earning an obligatory Presidential Permit. Enbridge originally applied to the Obama State Department to expand capacity of its Alberta Clipper (now Line 67) pipeline in November 2012, but decided to avoid a "Keystone XL, take two" — or a years-long permitting battle — by creating a complex alternative to move nearly the same amount of diluted bitumen ("dilbit") across the border. The move coincides with the upcoming opening for business of Enbridge's "Keystone XL" clone: the combination of the Alberta Clipper expansion (and now its alternative) on-ramp originating in Alberta and heading eventually to Flanagan, Ill., the Flanagan South pipeline running from Flanagan, Ill., to Cushing, Okla., and the Cushing, Okla., to the Port Arthur, Texas, Seaway Twin pipeline. Together, the three pieces will do what TransCanada's Keystone XL hopes to do: move dilbit from Alberta's tar sands to Port Arthur's refinery row and, in part, the global export market. Environmental groups have reacted with indignation to the State Department announcement published in the Federal Register on August 18, 2014. The public commenting period remains open until September 17, 2014. Jim Murphy, senior counsel for NWF, referred to it as an "illegal scheme," while a representative from 350.org says Enbridge has learned from the lessons of its corporate compatriot, TransCanada.
Oil spill that fouled Mexican river will take months to clean up - (Reuters) - An oil pipeline spill that contaminated a river in the northern Mexican state of Nuevo Leon will take months to clean up, the country's top water authority said on Thursday. The 24-inch Madero-Cadereyta pipeline, owned by national oil company Pemex, was ruptured when thieves attempted to tap into it, the company said on Sunday. The pipeline feeds crude to Pemex's nearby Cadereyta refinery. David Korenfeld, head of Mexico's national water commission, told reporters in Mexico City that the spill extended across a 6 kilometer (4 mile) stretch of the Rio San Juan, but had been contained by floating barriers. "The clean-up of this stretch will take approximately two to three months," he said. Korenfeld added that residents near the contaminated parts of the river, located about 40 kilometers (25 miles) from the state capital of Monterrey, were advised not to consume the water. true Pemex said in its statement on Sunday morning that an illegal tap on the pipeline caused the spill but that it had been controlled.
Did Demand Concerns Spark The Biggest Drop In US Oil Rig Count Since 2012? - Crude Oil and gasoline prices have been sliding notably recently, but, as Carl Larry, president of Oil Outlooks & Opinions LLC in Houston notes, "the focus is definitely on the U.S. and on concern about demand as we head into the maintenance season." While Brent remains more concerned about Russia and Ukraine, WTI is "focused on supply, demand fundamentals," which with production surging, leaves "everybody wondering if demand will stay steady. People are reducing risk exposure now." What we wonder is - does that explain why the US Oil Rig Count dropped this week by its most since 2012...?
Dearth of oil finds threatens long-term supplies, price (Reuters) - The rate of oil discoveries continues to disappoint after a record low last year and firms could even cut their exploration budgets to save on costs, a risk to long-term supplies and prices, industry executives said. Explorers are finding so little oil, many are retreating from high-risk frontier areas to safer bets like North American shale, executives at a major Norway oil conference said. This will likely force them to buy expensive discoveries once investor sentiment shifts focus to reserves from cash flow. "If you look back on 2013, it was a record low year in terms of discovering new resources," Helge Lund, the CEO of Norway's Statoil, said. "And year to date it's been around 4.4 billion barrels of oil equivalents, the lowest I have seen for decades." Last year only half as much crude was discovered as consumed, according to consultancy Wood Mackenzie. Big exploration campaigns in frontier places like West Africa and the Arctic Barents Sea have yielded little. Just last week Maersk oil, part of Danish shipping conglomerate A.P. Moller-Maersk said it would virtually cease exploration in Brazil and the U.S. Gulf of Mexico after an impairment and dry wells, even though its reserves equal just 4.6 years of production, below an average of 5-10 years for its peers.
Oilprice Intelligence Report: BP Corruption Update, Latest Deals & Alerts: Anti-corruption group Global Witness is claiming a lack of transparency in Angola's use of payments by BP and its partners for a development project. BP and partners including Cobalt International Energy agreed to contribute $350 million, in installments, to be used for a research and technology center, Global Witness said in a statement. BP and Cobalt agreed in December 2011 to provide $350 million to construct a research institute in Angola, as a condition of gaining drilling rights for an offshore block of the African country's coast. So far, the companies have paid half that amount, and the anti-corruption group maintains that there is no indication that the project exists. A new report from the US-based Natural Resource Governance Institute alleges that sub-Saharan governments are selling crude in dubious deals worth hundreds of billions of dollars without accounting for them. The report says that sub-Saharan Africa's top 10 oil-producing countries have sold more than $254 billion in crude through their state-owned oil companies over the past three years, and that the biggest purchasers were large Swiss trading firms, including Glencore, Arcadia and Trafigura. These three accounted for one-quarter of the aforementioned purchases between 2011 and 2013. The institute is calling for new regulations for nationally owned oil companies and big trading firms to disclose their oil deals. "The sales to Swiss traders were worth an estimated $55 billion - more than twice as much money as these 10 countries - Angola, Cameroon, Chad, Côte d'Ivoire, Republic of Congo, Equatorial Guinea, Gabon, Ghana, Nigeria and South Sudan - received in net foreign aid," the report said.
LatAm Allies struggle as Venezuela's free oil runs dry - — Venezuela's shipments of crude oil and fuel to its allies have fallen to a five-year low as a weak economy hits its ability to uphold accords that former president Hugo Chávez struck to lower energy costs for friends and expand his diplomatic clout. Total shipments under cooperation deals with Latin American and Caribbean countries dropped 11 percent in 2013 to 243,000 barrels per day (bpd), the lowest level since 2007, according to recent data from Venezuela's state-owned oil company PDVSA. Several factors are behind the decline: lower oil output and weak economic growth at home, a domestic refinery network that has not fully recovered from a severe accident in 2012, and financing agreements with China that divert much of the OPEC nation's oil production to Asia. Some of the beneficiaries of the cheap oil are now being forced to turn to other sources. In the eights months through August, countries from Jamaica to Argentina that have supply pacts with Venezuela have bought 140 cargoes of crude, components and fuel for transport and power generation on the open market, according to tender information compiled by Reuters. More than two thirds of those were for Ecuador, one of Venezuela's closest allies. The purchases, which have left tankers in short supply, are far costlier than oil obtained through long-term pacts.
Energy reform could increase Mexico's long-term oil production by 75% - On August 11, Mexico's president signed into law legislation that will open its oil and natural gas markets to foreign direct investment, effectively ending the 75-year-old monopoly of state-owned Petróleos Mexicanos (Pemex). These laws, which follow previously adopted changes in Mexico's constitution to eliminate provisions that prohibited direct foreign investment in that nation's oil and natural gas sector, are likely to have major implications for the future of Mexico's oil production profile. As a result of the developments in Mexico over the past year, EIA has revised its expectations for long-term growth in Mexico's oil production. The changes in EIA's assessment of Mexico's liquids production profile are profound. Last year's International Energy Outlook projected that Mexico's production would continue to decline from 3.0 million barrels per day (MMbbl/d) in 2010 to 1.8 MMbbl/d in 2025 and then struggle to remain in the range of 2.0 to 2.1 MMbbl/d through 2040. The forthcoming Outlook, which assumes some success in implementing the new reforms, projects that Mexico's production could stabilize at 2.9 MMbbl/d through 2020 and then rise to 3.7 MMbbl/d by 2040—about 75% higher than in last year's outlook. Actual performance could still differ significantly from these projections because of the future success of reforms, resource and technology developments, and world oil market prices.
Ukraine warns Europe of Russian gas cut-off, Moscow denies (Reuters) - Ukraine warned Europe on Wednesday that Russia could cut off gas to the continent this winter, but Moscow responded that the supply of gas would continue regardless of politics. Ukrainian Prime Minister Arseny Yatseniuk said Kiev knew of Russian plans to halt gas flows this winter to Europe, comments that were promptly denied by Russian Energy Minister Alexander Novak. "The situation in (Ukraine's) energy sector is difficult. We know of Russia's plans to block (gas) transit even to European Union countries this winter, and that's why their (EU) companies were given an order to pump gas into storage in Europe as fully as possible," Yatseniuk told a government meeting, without disclosing how he knew about the Russian plans. true Russia has halted gas flows to Ukraine, a major transit route for EU gas, three times in the past decade in 2006, 2009 and since June this year because of price disputes with Kiev. In the past Russia's Gazprom has insisted it has been a reliable supplier to the European Union, its biggest market, and that flows to Europe were disrupted in 2006 and 2009 only after Ukraine took some of the gas intended for the EU to meet its own winter demand. Ukraine's warning came less than 24 hours after a meeting between Russian President Vladimir Putin, his Ukrainian counterpart Petro Poroshenko and Europe's main energy diplomat, Guenther Oettinger, which included talks to secure Russian gas flows during the peak winter months. Novak called Yatseniuk's comment a "groundless attempt to intentionally mislead or misinform European consumers of Russian gas".
Russia warns of high risk to winter gas deliveries to Europe - (AFP) - Russia's energy minister Alexander Novak warned Friday of a high risk of disruptions to Russian gas supplies to Europe this winter as international tensions over Ukraine mounted."The situation is extremely critical as the heating season approaches," Novak said at a joint press conference with the EU's Energy Commissioner Guenther Oettinger. "There is a high risk that gas delivered by Gazprom for Europe will be illegally taken by Ukraine for its own use," he warned. Russia in mid-June cut its deliveries for Ukraine after a pro-Western government took power and disputes over prices led to what Novak said was the accumulation of a debt of $5.3 billion. That decision heightened concerns about supplies to Europe as a major portion of Russian gas flows through Ukraine. Russia is the EU's top supplier of gas. The 28-nation bloc depends on energy imports for more than 50 percent of its needs, and roughly 40 percent of those imports are supplied by Russia. Moscow has a history of using gas prices as a political weapon and has twice shut off supplies to Ukraine in the past decade, causing supply disruptions to Europe in 2006 and 2009.
Ilargi: EU Gas Supply Is In Real And Imminent Danger - Yves here. This post, while informative, omits a critical piece of the calculus made by the West (or at least the US, in pushing Europe to fall into line) in its escalation of the conflict in Ukraine. Europe depends on Russia for a significant proportion of its energy supplies. Last year, Russia provided roughly 30% of Europe's gas. Half of this gas supply goes through Ukraine. Russia is refusing to send Ukraine more gas until it pays past-due gas bills. Ukraine claims it owes Russia squat. Analysts have pointed out that Ukraine can and probably will syphon gas from supplies in transit to Europe. Russia could also shut the pipeline through Ukraine. Thanks to Europe now having large energy stockpiles, due in part to a mild winter, conventional thinking had it that Europe could go at least six months from the tightening of sanctions before any energy restrictions started to bite. Some analysts (presumably based on official messaging) were confident that Russia would feel serious economic pain and be forced to relent before Russia could even begin to play its European gas supply card. Ilargi's post suggests that as this game of chicken is moving forward, European officials are starting to get nervous.
Chill Winds -- Kunstler - Consider all the damage and destruction that ISIS (or ISIL or IS) has been able to pull off in summer heat that averages 110 degrees in the daytime in that part of the world. Many Americans would have trouble hoisting a jumbo shrimp out of a cocktail cup in that kind of weather, let alone scrambling around a desert with 30 pounds of firearms and extra ammo. The US has once again lulled itself into a false sense of security that it can control a battle theater with air power alone. So, here at summer's end, we're congratulating ourselves for "saving" the Mosul dam with drones and air strikes, but you can be sure that the next move is up to ISIS, and it will be calculated to horrify. East of there, in North Africa, Libya is in the process of completely cracking up. Islamist militias hold the old capital, Tripoli, where they destroyed the main airport and blew up a major oil storage facility. A rump national government fled to Tobruk near the border with Egypt. In between, south of Benghazi, lie Libya's oil fields, a nice potential prize for Islamic maniacs, if they can manage to keep them operating, which is saying a lot. The Libyan fields are managed by the European oil companies Total (France), Eni (Italy), and Repsol (Spain).. Libya contributed 1.6 million barrels a day to world oil production. Lately, it was running around 600,000 b/d. Where will it go from here? Ukraine and Russia stand in an uneasy stalemate at summer's end. Ukraine would like to regain control over the far eastern provinces around Donetsk and Luhansk where a lot of heavy industry from the Soviet days still operates. The trouble is: Ukraine is broke. It can't pay its army. It can barely fuel its planes and tanks. The country faces related challenges getting in its renowned grain harvest this year with no money and little fuel. And it will soon feel the cold fingers of a harsh winter around its throat, with poor prospects for receiving the Russian gas and oil it has always depended on.
How the US Helped ISIS Grow Into a Monster -- US, Western European, Saudi, and Arab Gulf policy is to overthrow President Bashar al-Assad, which happens to be the policy of ISIS and other jihadis in Syria. If Assad goes, then ISIS will be the beneficiary, since it is either defeating or absorbing the rest of the Syrian armed opposition. There is a pretense in Washington and elsewhere that there exists a "moderate" Syrian opposition being helped by the US, Qatar, Turkey, and the Saudis. It is, however, weak and getting more so by the day. Soon the new caliphate may stretch from the Iranian border to the Mediterranean and the only force that can possibly stop this from happening is the Syrian army. The reality of US policy is to support the government of Iraq, but not Syria, against ISIS. But one reason that group has been able to grow so strong in Iraq is that it can draw on its resources and fighters in Syria. Not everything that went wrong in Iraq was the fault of Prime Minister Nouri al-Maliki, as has now become the political and media consensus in the West. Iraqi politicians have been telling me for the last two years that foreign backing for the Sunni revolt in Syria would inevitably destabilize their country as well. This has now happened.
As New Dangers Loom, More Think the U.S. Does 'Too Little' to Solve World Problems | Pew Research - A large majority of Americans think the world is a more dangerous place than it was several years ago. And a terrorist group that was not even on the public's radar a year ago – the Islamic militants known as ISIS or ISIL – today ranks near the top of its list of U.S. security threats. As the public's views of global threats have changed, so too have opinions about America's role in solving world problems. On balance, more continue to think the United States does too much, rather than too little, to help solve world problems. But the share saying the U.S. does too little to address global problems has nearly doubled – from 17% to 31% – since last November, while the percentage saying it is doing too much has fallen from 51% to 39%. Republicans, Democrats and independents all are more likely to say the U.S. does too little to solve world problems, but the shift among Republicans has been striking. Last fall, 52% of Republicans said the U.S. does too much to help solve global problems, while just 18% said it does too little. Today, 46% of Republicans think the U.S. does too little to solve global problems, while 37% say it does too much.
Indonesia's Pertamina halts fuel subsidy programme after panic buying, queues (Reuters) - Indonesia's state-owned Pertamina on Wednesday halted a week-old programme aimed at curtailing the use of subsidized fuel, after its implementation led to panic buying and long queues at petrol stations in Southeast Asia's largest economy. The former OPEC member is struggling to contain ballooning fuel subsidy costs, which have widened the current account deficit and left little room in the budget for president-elect Joko Widodo's much needed reforms. Widodo, who has made the energy subsidy problem his top priority, is meeting with outgoing president Susilo Bambang Yudhoyono later on Wednesday in the hope of reaching a deal to reduce fuel subsidies before the handover in October. Pertamina, the country's main retailer of subsidized fuel, cut the amount of subsidized diesel and gasoline available at fuel stations starting on Aug. 18 to ensure that it didn't surpass its fuel quota for the year. But the measure backfired as drivers did not use more alternative fuels, and instead queued for hours at petrol stations waiting for the limited subsidized gasoline and diesel. Chief Economics Minister Chairul Tanjung instructed Pertamina on Tuesday to halt its programme. "There will be no more limits. If Pertamina is over the quota later
The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan --According to Russia's RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers. Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.
Coal gas boom in China holds climate change risks - (AP) — Deep in the hilly grasslands of remote Inner Mongolia, twin smoke stacks rise more than 200 feet into the sky, their steam and sulfur billowing over herds of sheep and cattle. Both day and night, the rumble of this power plant echoes across the ancient steppe, and its acrid stench travels dozens of miles away. This is the first of more than 60 coal-to-gas plants China wants to build, mostly in remote parts of the country where ethnic minorities have farmed and herded for centuries. Fired up in December, the multibillion-dollar plant bombards millions of tons of coal with water and heat to produce methane, which is piped to Beijing to generate electricity. It's part of a controversial energy revolution China hopes will help it churn out desperately needed natural gas and electricity while cleaning up the toxic skies above the country's eastern cities. However, the plants will also release vast amounts of heat-trapping carbon dioxide, even as the world struggles to curb greenhouse gas emissions and stave off global warming. If all of the plants start up, the carbon dioxide they'd release would equal three-quarters of all energy-related carbon emissions in the U.S., according to U.S. government data and energy experts from Duke and Stanford universities. That is far more than now produced in China by burning coal, the country's main source of power.
Property bubble is 'major risk to China' - FT.com: On desolate salt flats on the far outskirts of China's sixth-largest city, dozens of enormous half-built skyscrapers stand as a monument to the excess and optimism of the Chinese real estate market. As physical manifestations of China's property bubble go, few examples can beat this effort to replicate Wall Street in a wasteland 40km outside Tianjin and 150km from the capital Beijing. Blueprints for the Yujiapu Financial District are intentionally modelled on Manhattan's skyline, complete with an ersatz Rockefeller Center and twin office towers that look uncannily similar to the ones destroyed on September 11 2001. Officials in charge of the project boast that when Yujiapu is eventually finished in 2019 it will be one-third larger than the City of London and more than three times the size of New York's financial district, at least in terms of surface area. But after years of soaring prices and frantic construction across the entire country, China's real estate bubble is showing serious signs of strain and this project's fate is now in question. Chinese banks started issuing home loans in 1997 and as recently as 1994 a central bank official charged with translating an American financial document had to look to Taiwan for a translation since no dictionary in Beijing included a Chinese word for "mortgage". Even before the global financial crisis of 2008 many were already warning of a property bubble in China, prompting the government to introduce purchasing and downpayment restrictions to slow soaring prices. But when the crisis hit and the economy went into freefall, Beijing decided it had no choice but to refill the property bubble with a tidal wave of credit. To understand the scale of the resulting building boom, consider this statistic: in just two years – 2011 and 2012 – China produced more cement than the US did in the entire 20th century.
China's falling real-estate prices trigger protests, clashes - The sharp drop in China's housing prices has led to an outburst of anger among property owners, leading to violent clashes in some cases, according to local media reports Tuesday. In one case, scores of property owners surrounded a Shanghai sales office of Greentown China Holdings to protest the developer's 25% cut to prices within a five-day period, according to a report on the NetEase. Protesters held banners with slogans such as "You cheated us!" and "300,000 yuan [$48,750] worth of assets evaporate within five days — years of work in vain!" according to photographs of the demonstration posted on the site. The report quoted a sales manager from Greentown as saying that the price-cut was aimed to boost sales and "cope with competition" from rival China Vanke Co. 2202, +1.48% the nation's largest residential property developer. In other Chinese cities, such confrontations between buyers and developers have turned violent.
China Will Need Stimulus to Hit 7.5% Growth Target, KC Fed Paper Says --A sputtering housing market threatens China's economic outlook and would probably force the central bank and local governments to intervene if they want to hit the country's 7.5% economic growth target for this year, according to research from the Federal Reserve Bank of Kansas City. The latest figures "indicate the expansion of the real-estate sector has slowed significantly," write economist Jun Nie and research associate Guangye Cao. "Taking both the short- and long-term factors into account, the real estate sector's recent slowdown is likely to continue as housing activity stabilizes at a lower growth path."The authors say housing and construction have played an overwhelming role in China's supercharged growth rates, which have elevated it to the second-largest economy in the world. Real-estate investment grew at an average annual rate of 20.2% since the country's 1998 housing reform, about twice the rate of gross domestic product expansion, Messrs. Nie and Cao write."The slowdown in China's real-estate sector poses a risk to the country's near-term GDP growth. To achieve the 7.5% growth target for 2014, additional policy stimulus from both the central and local governments will likely be needed," they say. The latest figures out of China indicate recent stimulus attempts have yet to relieve distress in lending and real estate markets.
PBOC Resolve Tested as Shadow Banking Industry Sours - Rising stress in China's $6 trillion shadow banking industry is testing central bank Governor Zhou Xiaochuan's resolve to limit monetary easing as risks to the government's growth target climb. In the past three months at least 10 trusts backed by assets spanning coal mines in Shanxi to forests in Fujian have struggled to meet payments, sparking protests by investors outside banks that distributed their products. A slump in new credit in July underscored strains on the industry that funded as much as half of China's recent growth, presenting Zhou with a choice: ease policy to avert a slowdown, or hold the line. "The central bank faces a dilemma," said Ding Shuang, senior China economist with Citigroup Inc. in Hong Kong. "On one hand, it's part of the government and has to do what it can to aid growth; on the other, it knows better than any other government agency the danger of rising debt. It's a tricky balancing act." At stake is Premier Li Keqiang's economic expansion target of about 7.5 percent this year. That's threatened by a slowdown in industrial production and investment growth, a slumping property market, and a pullback in manufacturing. Industrial profits climbed 13.5 percent in July from a year ago, down from June's 17.9 percent pace,
China targets own operating system to take on likes of Microsoft, Google (Reuters) - China could have a new homegrown operating system by October to take on imported rivals such as Microsoft Corp, Google Inc and Apple Inc, Xinhua news agency said on Sunday. Computer technology became an area of tension between China and the United States after a number of run-ins over cyber security. China is now looking to help its domestic industry catch up with imported systems such as Microsoft's Windows and Google's mobile operating system Android. The operating system would first appear on desktop devices and later extend to smartphone and other mobile devices, Xinhua said, citing Ni Guangnan who heads an official OS development alliance established in March. true Ni's comments were originally reported by the People's Post and Telecommunications News, an official trade paper run by the Ministry of Industry and Information Technology (MIIT). "We hope to launch a Chinese-made desktop operating system by October supporting app stores," Ni told the trade paper. Some Chinese OS already existed, but there was a large gap between China's technology and that of developed countries, he added.
China's Baby-Boom Bets Go Bust -- A year ago, when chatter began about China lifting its one-child policy, we explained the implications (and warned of excess exuberance). As Bloomberg reports, it appears China's anticipated baby boom is more of a bust. Nine months after stock-market wagers on a baby boom in China reached record levels, the bets have turned into some of the nation's biggest losers as living costs deter couples from having more than one child - less than 3% of the 11 million Chinese couples eligible for another child applied for permission by the end of May, jeopardizing government efforts to bolster a population that the United Nations predicts will start shrinking by 2030.
Why Are Chinese Patients Violently Attacking Their Doctors? -- Mengnan said that he was going out for a walk. Instead, he went to a nearby store that sold household goods and then returned to the hospital carrying a three-inch fruit knife. He took the elevator up five floors to the rheumatology department, where he'd been turned away. He didn't have a plan, exactly. He later said that he'd been looking for the doctor who had refused to treat him. But when he came out of the elevator he approached the first white coat he saw. Wang Hao was sitting at a computer when Li plunged the blade hilt-deep into his neck. Hospital workers rushed over, and Li turned on them, cutting one doctor's ear and face and slashing two others. Violence against doctors in China has become a familiar occurrence. In September, 2011, a calligrapher in Beijing, dissatisfied with his throat-cancer treatment, stabbed a doctor seventeen times. In May, 2012, a woman attacked a young nurse in Nanjing with a knife because of complications from an operation performed sixteen years earlier. In a two-week period this February, angry patients paralyzed a nurse in Nanjing, cut the throat of a doctor in Hebei, and beat a Heilongjiang doctor to death with a lead pipe. A survey by the China Hospital Management Association found that violence against medical personnel rose an average of twenty-three per cent each year between 2002 and 2012. By then, Chinese hospitals were reporting an average of twenty-seven attacks a year, per hospital.
Is China disguising itself as Belgium to buy US government bonds? – Strange things are afoot in Belgium. Since Jun. 2013, the country of 11 million has doubled its holdings of US Treasury securities. This buying has overlapped with the 541 days during which Belgium lacked an elected government. Share Tap image to zoom This sudden Belgian zeal for US government debt has bumped up its holdings up to about 70% of its GDP. But economists at the Federal Reserve have a hunch that it's not actually Belgium that's been buying. In a recent paper (pdf), the Fed's Carol Bertaut and Ruth Judson link Belgium's "sporadic sizable increases" to a buyer outside Belgium. Who might that buyer be? Some suspect a Russian bid (paywall) to dodge the risk of its US Treasury holdings being frozen in future sanctions. Later in the paper, they note that recent gaps between China's recorded Treasury holdings and its purchases suggest "custodial shifts," meaning that China is no longer placing orders through a US-based office, and is instead using an office abroad.
South Korean Steel and the Trans-Pacific Tariff War - In July, the U.S. Department of Commerce placed anti-dumping duties on steel tubes imported from South Korea, adding 15.75 percent on the price of steel products from Hyundai, 9.89 percent for Nexteel, and 12.82 percent for other South Korean producers. Recognizing both the country's heavy reliance on exports and the growing demand for steel pipes amidst America's oil boom, Seoul sought mediation at the United States' Court of International Trade. However, the court ultimately ruled in favor of the duties on August 22. On the surface, this appears to be a simple trade dispute, one South Korea is prone to encounter due to its massive export of goods that have insignificant demand at home, rendering the assessment of a fair market price difficult for regulators. But digging deeper, it becomes readily apparent that this most recent disagreement was merely the tip of the iceberg, hinting at a more fundamental problem affecting commerce in the Asia-Pacific region.
Fukushima nuclear crisis estimated to cost ¥11 trillion: study - The Fukushima nuclear accident will cost an estimated ¥11.08 trillion, almost double the government projection made at the end of 2011, according to a recent study by Japanese college professors. The figure includes ¥4.91 trillion to compensate affected residents, ¥2.48 trillion for radiation cleanup work, ¥2.17 trillion to scrap the Fukushima No. 1 plant and ¥1.06 trillion to temporarily store radioactive soil and other waste generated by decontamination work, according to the study. Kenichi Oshima, environmental economics professor at Ritsumeikan University in Kyoto, and Masafumi Yokemoto, professor of environmental policy at Osaka City University, calculated the costs based on materials and data released by the government and plant operator Tokyo Electric Power Co. In December 2011, the government said it would cost at least ¥5.8 trillion, but Oshima and Yokemoto included some expenses that the government then said were difficult to estimate, according to the researchers. "The costs for the accident are designed to be borne by the people through taxes and utility bills," Oshima said.
Japan's growth outlook dims further, BOJ policy prospects unclear - Reuters Poll - Japan's economic outlook has dimmed further and inflation is stalling but analysts in a Reuters poll were split on whether the central bank would ease policy this year or wait until 2015 to try and revive growth. While a gradual recovery looks likely, an April sales-tax increase which pushed the economy in the second quarter into its deepest fall since the 2011 earthquake and tsunami had economists downgrading growth forecasts amid an anaemic rise in wages and lacklustre exports. All the analysts in the monthly Reuters survey, taken in the past week, said the Bank of Japan would fail to hit its 2 percent inflation target before April and most said the BOJ would therefore ease further - although they were unsure on the timing. Half the economists said the central bank would add to its massive stimulus measures this year while the other half said it would wait until January at least. "The economy lacks a driving force," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute. "Still the economy will rebound in July-September after a sharp drop in the second quarter."
Japan Escaping Deflation Trap, Central Bank Chief Says - - Japan is gradually escaping a prolonged period of deflation that has impeded economic growth, stifled investment and put downward pressure on wages, Bank of Japan Gov. Haruhiko Kuroda said Saturday. Speaking at the Kansas City Federal Reserve's Jackson Hole, Wyo., conference, Mr. Kuroda said that, unlike the U.S. and Europe, Japan isn't struggling with unemployment, which currently stands at 3.7%. However, he said deflation had led to other forms of economic malaise that continue to plague the Japanese economy, but which Mr. Kuroda said is gradually healing as aggressive economic policies take hold. "Wage-setting practices have changed during the prolonged period of deflation. Wages of regular employees tend to reflect labor market conditions only quite slowly," he said. "Some kind of mechanism, a 'visible' hand, is necessary for wages to rise." Part of such a mechanism is the central bank's aggressive monetary easing, which includes an indication that it will take all steps necessary to return Japan's inflation rate back up to 2% after two decades of falling prices and wages. "The Bank of Japan's price stability target can serve as a benchmark for firms' wage setting," Mr. Kuroda said. He added the policies were having a tangible impact on economic conditions, with labor market conditions improving and firms showing a greater propensity to invest. Still, Mr. Kuroda acknowledged that it could change some time to push up Japanese consumers' inflation expectations after so many years of deflation.
Japan Household Spending Slumps, Output Flat as Tax Pain Persists - Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected. Household spending fell 5.9 percent in July from a year earlier, nearly double the drop forecast in a Reuters poll, as the higher levy and bad weather kept consumers at home instead of going out shopping. Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed. Industrial output rose 0.2 percent in July, much less than a 1.0 percent increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed. That was a tepid rebound from a 3.4 percent fall in June, the fastest drop since the March 2011 earthquake. Japan's economy shrank at an annualized 6.8 percent in the second quarter from the previous three months, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike.Analysts generally expect Abe to approve another tax hike in December, but that decision promises to be politically divisive, coming just as the government hammers out details of a promised corporate tax cut.
Economists React: Japan's Economy Stagnates in July - With the start of the third quarter, hopes were high that the economy would stage a quick recovery from a 6.8% annualized plunge in the April-June period that came after Japan raised its sales tax But a raft of data released Friday raise uncomfortable questions for Prime Minister Shinzo Abe about the state of the economy. Weak figures for retail sales and household spending in July show consumers remain tentative in their outlays without higher wage hikes. Unemployment was higher for a second consecutive months.After recording the biggest drop in over three years in June, Japan's industrial production was supposed to snap back. Snap back it did, but by a meager 0.2% on month against market-expected 1.2%. Core inflation at 1.3% in July, was within the Bank of Japan's target. But there's not much to cheer here. The following are economists' reactions to the data, edited for style:
India's Coalgate, the winners and losers -- Of course, everyone's a winner when judgements start off with prose like this: Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications. So we'll have to make do with degrees when discussing the verdict of India's Supreme Court that, in the words of the FT, saw more than 200 coal mining licences awarded to private industrial groups declared illegal. Some more words from the FT: During the past two decades India has granted coal blocks to a range of businesses in sectors such as power and steelmaking, partly to overcome fuel shortages stemming from its inefficient and state-dominated mining sector. However, the process of allocating those licences, most of which were granted without payment, has become ensnared in allegations of corruption and mismanagement, amid claims that many billions of dollars in revenue have been lost by transferring rights too cheaply.Although Monday's Supreme Court judgment did not formally cancel these rights, it said the process of allocating 218 licences to dozens of private groups since 1993 had been "arbitrary and illegal".
Just How Bad Are India's Official GDP Numbers? - Whatever else the ascent of Prime Minister Narendra Modi has done for India in the last three months, it hasn't changed one basic fact about the country's economy, which is that we often know very little about how it is doing, at least not in real time. Official figures on gross domestic product in India are released with significant delay—Friday's numbers will describe the quarter that ended two months ago—and are revised, often dramatically, for years following the initial release. The data don't get seasonally adjusted, which means longer-term trends can be obscured by things like festivals and harvests. The result is that banks and analysts each end up following their own favorite nontraditional indicators—rail freight, steel production, auto sales, activity on job-hunting websites—to get a better, timelier sense of the economy's direction than the one provided by the official stats. In fact, the challenges of measuring economic activity are so profound in a country like India—where the average firm employs just a handful of people and the overwhelming majority of the adult population works off the books and far from major cities—that even final data that has been revised and revised again should still be taken as only a rough approximation of the true size and composition of the Indian economy. But just how bad are the government numbers, really? One way to find out would be to see how easy it is to recreate them using other widely available data. The precise way in which India's Central Statistical Organization calculates GDP isn't public. But if a relatively small subset of indicators that go into the official calculations can explain most of the movement in the resulting GDP estimates, then we all might as well be looking directly at those figures instead of waiting months for India's statisticians to crunch them and hand them down as a magical official GDP number.
Modi's India: Japan or China as Business Muse - The selection of Najendra Modi as India's prime minister is taken as a sign that the rest of the country wishes to follow in the footsteps of Gujarat state that he used to govern--a liberalizing, open-for-business attitude that has seen it attract a considerable amount of foreign investment. The Japanese, in particular, seems excited. Having invested a lot in Gujarat, they look forward to similar liberalization and FDI-friendly measures being put into place nationwide: Japanese executives at the meeting were also ebullient, praising the business sense and management capabilities of the Gujarat government, which Modi presided over for 13 years. "We don't have a very cordial relationship with China," Japanese attorney Tatsuhiro Kubo said at the Ahmedabad gathering, explaining why Japanese industry likes Gujarat, "so bonding with India is only natural." More than a year ago, Jetro [Japan Export Trade Organization--Japan's trade promotion body] took the rare step of establishing a regional office in Ahmedabad . Suzuki Motor and Hitachi are among the Japanese companies that have invested in Gujarat. "Nearly 50 Japanese companies are in the process of setting up plants in Gujarat," said Mukesh Patel, president of the Indo-Japan Friendship Association.
India Economy: Best of the Broken Brics --Among the members of this much-ballyhooed band of emerging economies, Brazil, Russia, China and South Africa are all slowing down, diseased by relying too much on debt or commodity exports. In contrast, a year after facing crisis, India is starting to revive. Later this week, it should report that broader economic growth ticked up in the June quarter, bottoming out at 4.7% during the fiscal year that ended March. Other indicators are already pointing in that direction. Exports climbed 9.3% between May and July from the same period the year before, while imports of capital goods expanded in May, June and July after contracting the past two fiscal years, suggesting companies are stepping up activity. Electricity demand soared an average 11% year-over-year in June and July after barely growing the year before. Sales of cars and trucks nudged up, too. India's informal economy, as large as the formal one though harder to measure, is changing gears as well. The production of cement, used everywhere including the countryside, jumped 9.6% in the June quarter, three times as fast as last fiscal year. More physical currency changed hands the past three months after adjusting for inflation, meaning more transactions are taking place. These are no doubt promising signs. The problem is that a strong, sustainable rebound in growth will remain elusive. New capital spending announced by companies—a key proxy investors should watch—fell during the June quarter from a year before, according to the Centre for Monitoring Indian Economy. It could be such investments will take time to arrive. But there are reasons to think they will be slow in coming. The state banks who would fund such expansion remain undercapitalized. New Prime Minister Narendra Modi's broader reform agenda remains modest, suggesting no quick growth catalysts. Consumer inflation is stubbornly high at 8%, hemming in hopes for lower interest rates.
India's Modi seeks bank accounts for 75m poor households - FT.com: Narendra Modi on Thursday kick-started a drive to open bank accounts for 75m poor Indian households, part of a campaign to draw all citizens into the formal financial system. Only about 35 per cent of India's almost 1.3bn people have access to bank accounts, compared with a global average of 50 per cent, according to a 2011 World Bank study. Others are susceptible to usurious moneylenders for credit, or pyramid schemes and other dubious, unregulated schemes to invest their savings. The prime minister's people's wealth programme has targeted the opening of 150m new bank accounts – two accounts per household, including one in the name of a woman – for 75m poor rural and urban families over the next year. Each account will have a homegrown debit card, RuPay. The accounts are also expected to offer a Rs5,000 ($83) overdraft facility after six months. State-owned banks, traditionally resistant to opening accounts for small savers because of high transaction costs and limited returns, have been told that they must participate – and will be closely monitored. Raghuram Rajan, governor of the Reserve Bank of India, has long advocated bringing more Indians into the formal financial system, which he has called a "moral and economic imperative". But analysts say Mr Modi is driving the scheme forwards to prepare for an eventual introduction of direct cash transfers of social welfare benefits to the poor. The government currently tackles poverty by distributing subsidised goods such as food and fuel, a practice that is inefficient and vulnerable to corruption. A shift to cash payments could help cut India's bloated fiscal deficit.
South Africa's Subprime Crisis - When banks around the world found themselves exposed to subprime debt through an array of complex and opaque financial arrangements. But here in South Africa's banking system was largely unaffected and insulated from much of the subprime fallout. But South Africa's government failed to take heed of a similar credit bubble, precipitated by the business practices of micro-lenders, growing right under their noses. Seven years later, this failure has come back to haunt the country amid the collapse of African Bank, a small, listed commercial micro-lender with big ambitions. Its implosion — and subsequent bailout — earlier this month has exposed how little South Africa's banks and regulators actually learned from the subprime crisis. In 2006, as the first signs of trouble appeared in the American mortgage market, African Bank began to target low-income earners more aggressively with offers of unsecured credit — mostly small loans not backed by an underlying asset. The interest rates and fees were exorbitant, and borderline usurious, due to the assumed risk of lending to poorer people. But the business model proved so profitable that new competitors and even larger commercial banks got in on the act, causing the total value of unsecured credit in the system to skyrocket from 2007 onwards. It all came undone earlier this month as African Bank announced massive losses and an urgent need for an injection of new capital. The announcement caught investors unaware and caused the company's stock to shed over 90 percent of its value in two days, forcing South Africa's central bank to intervene.
The Link between Default and Depreciation - St. Louis Fed - In the aftermath of the Argentine default (or semi-default, depending on how you look at it), the Argentine peso has fallen considerably, with reports of market expectations that the default would cause 11 percent depreciation in the currency.1 One should not take for granted, however, that currency markets and sovereign debt markets would be inexorably tied: The Argentine peso trades on international markets to facilitate mostly private-sector trade between Argentina and the rest of the world, while Argentine sovereign debt is issued for the government to borrow and its default is a reflection of the public-sector finances. Why is this link so intimate? Are there implications of this linkage? This idea will be fleshed out further, but in this post I will posit that currency depreciation acts as a punishment for default. It makes imports from the rest of the world more expensive and hurts consumers in Argentina. Because this effect is relatively predictable, it acts as a deterrent to default, which in turn makes default less likely and increases countries' borrowing ability. The table below shows that the relationship between currency depreciation and default is rather strong and predictable. In this table, we take the record of defaults (as categorized by Standard & Poor's since 1970) and look at how their exchange rates and trade flows changed. There is obviously variation across countries' experiences, and so the table shows that the vast majority experience some depreciation. Note the depreciation occurs when looking at both nominal and real terms of trade: This is not just an effect of faster inflation in the defaulting country but rather a change in the terms of trade.
Soros's Argentine Bond Bet Revealed in Lawsuit in London - Less than a month after Argentina defaulted for the second time in 13 years, George Soros has suddenly emerged as a key rival of fellow billionaire Paul Singer in the legal fight over the nation's debt. According to court documents filed in London last week, Quantum Partners LP, a fund managed by Soros's family office, has joined a group of investors suing bond trustee Bank of New York Mellon Corp. for failing to distribute 226 million euros ($298 million) of interest payments on Argentine debt. The group, which also includes Kyle Bass's Hayman Capital Management LP, owns more than 1.3 billion of euro-denominated bonds, court documents obtained by Bloomberg News show. At the crux of the dispute is a U.S. court ruling won by Singer's Elliott Management Corp., which blocked Argentina from paying its overseas bonds until the country compensates him and other holders of debt from its 2001 default. While the ruling prevents BNY Mellon from transferring any money deposited by Argentina until Singer is paid, it shouldn't apply to bonds governed by jurisdictions outside of the U.S., the group says. "The trustee isn't acting in its official capacity as trustee," Bass said in a telephone interview from New York. "Our interest payment is governed by U.K. law, which hasn't ruled on this. Until there's a similar injunction in the U.K., they owe us our interest payments."
Want Milk or Toilet Paper? The Venezuelan Government Wants Your Fingerprints -- In a move that will no doubt help further the Venezuelan government's aim of establishing a socialist utopian republic, President Nicolas Maduro announced this week that grocery stores will soon begin the mandatory fingerprinting of customers. The peculiar initiative, which could be implemented by the end of the year, is meant to help combat the hoarding and smuggling of government-subsidized goods. Venezuela exerts stringent currency and price controls on many products in an attempt to keep them affordable for its poorest citizens. Unfortunately, a staggering quantity of this merchandise ends up being secreted out of the country and re-sold at a profit in neighboring Colombia. The oil-rich nation has been experiencing a chronic shortage of food supplies for a long while. Maduro, who succeeded the late Hugo Chavez, accused the political opposition last year of engineering the country's shortages with the help of the CIA in order to undermine his government.
Spain's Silent Reconquest of Mexico - Don Quijones - With the ink still drying on Mexico's historic energy reform, global oil and gas majors are salivating at the prospect of gaining access to one of the world's largest and until recently most nationalized energy markets. One of those companies is the Spanish electricity giant Iberdrola, which expects to massively expand its operations in Mexico through increased investments of close to €1 billion. Now, I know what you're thinking: €1 billion is chicken feed in this age of inflated corporate balance sheets. Indeed, for some corporations such a sum is probably hardly worth getting out of bed for these days. However, in Mexico it can go a very long way, much further than it can in Europe or the US – especially when you have paid moles lobbying for your every interest at the highest level of government.
Ukraine President Dissolves Parliament, Announces It On Twitter -- Last week we were intrigued when the Ukraine Central Bank announced its FX market intervention plans not via 'trader sources" or Bloomberg but through its Facebook account (which later failed as the Hryvnia pushed on to record lows). Today, we hear perhaps even more important news - that Ukraine President Poroshenko has dissolved parliament. This was not entirely surprising news given recent political breakdowns but his chosen medium to disseminate this crucial (and potentiall detsabilizing) news... his Twitter account.
EU Case Against Russia's Import Bans Would Unravel WTO -- If the European Union bites the bullet and challenges Russia's food import bans at the WTO, the bitter battle of sanctions and trade embargoes could claim yet another, unexpected victim — the World Trade Organization itself. After taking a nasty hit from Russia's bans on certain food imports earlier this month, Poland last week filed an official request with the European Commission to contest the bans at the WTO. The commission has said it is considering the move. The real issue at stake, however, is not whether the 28-state bloc throws its weight behind Poland's complaint, but what defense Russia takes if it does, said Hosuk Lee-Makiyama, trade lawyer and director of the European Centre for International Political Economy. Everything rests on a provision known as the "national security exception," which allows any WTO member to essentially throw away the rule book if it claims its national security interests are at stake — which is exactly what Russia did when it announced its import bans on Aug. 7. What makes the article particularly potent is that the WTO itself cannot define what does or does not constitute a security threat. "It's not an objective criteria," Lee-Makiyama said. "Whether these food bans are a national security interest, for instance, is actually entirely determined by Russia itself."
Russia Sanctions Hit German Consumers, "Economic Expectations Completely Collapse" - It starts out un-alarmingly. The optimism of German consumers weakens somewhat, according to the forward-looking Gfk survey, conducted on a monthly basis for the European Commission. So the overall index fell to 8.6 for September, from 8.9 in August. It was the first decline since January 2013. The index bottomed in late 2008 below 2, after a breathtaking crash during the financial crisis. In late 2007, it had hovered above 9. Early 2014 was the first time since the prior bubble that the index broke above 8. And August's level of 8.9 represented an "extremely optimistic economic outlook," as Gfk calls it. German consumers have been feeling good, and according to the headline index, they're still feeling good up there somewhere in the rarefied air above 8. But beneath the surface, there is serious trouble. Gfk reports that the sub-index of economic expectations, "in light of the intensified state of international affairs, completely collapses." It plunged 35.5 points to 10.4. The worst monthly plunge since the beginning of the survey in 1980. In a single month, it nearly wiped out all the gains of the boom of the last 12 months. Gfk cites the escalation of the situation in Iraq, Israel, the Eastern Ukraine, and particularly "the faster rotating sanctions spiral with Russia." Since there appears to be no sustainable solution to any of the trouble spots, consumers are showing increased uncertainty about the possible consequences for the German economy, Gfk reports. "Particularly the sanctions against Russia, which have already hit exports noticeably, could become a real danger for the German economy."
Nightmare of debt deflation stalks Europe - FT.com: Recent disappointing growth and earnings data have underlined how fragile the European economy remains. It has, inevitably, forced a rethink by all those investors who have been enthusiastically driving equity prices up and bond prices down since the euro's existential crisis in 2012. It is not just the simmering crisis in Ukraine that has caused jitters. According to Bank of America Merrill Lynch, consensus earnings expectations for 2014 in Europe have fallen from 12 per cent at the start of the year to little more than 6 per cent now. They may fall further still. Start-of-year broker optimism on earnings is as timeless as the seasons, but there is no gainsaying the deterioration in the economic outlook that the latest miserable figures imply. Sanctions over Ukraine are a factor, but not the primary cause of this trend. With Germany reporting a contraction in gross domestic product in the second quarter, the yield on 10-year German Bunds has fallen below 1 per cent for the first time. In this context, market expectations that the European Central Bank will (and should) come to the rescue with a programme of quantitative easing seem premature and complacent. Some form of QE by the ECB will come in due course, but will it be enough to pull Europe out of the debt deflation nightmare that seems to be on the cards? There are reasons to have doubts. The most obvious one is that the ECB's freedom to manoeuvre is much more limited than that of other central banks. Even in good times, it takes months to build a consensus for action among the key member states, and the issue of QE remains highly contentious, both as to its wisdom and its legality. Second, it is clear that the ECB needs (and wants) to get its stress tests of Europe's banks out of the way before going much beyond the monetary policy measures announced last month. To be credible, publication of the results in October needs to be followed by a period of market review and demonstrable improvements in balance sheets. A QE programme could create conflicts of interest with its bank supervisory role. That makes it virtually certain that, in the absence of some new market-driven crisis, the ECB will inevitably find itself "behind the curve" in implementing a QE programme.
Draghi at Deflation Gulch - Paul Krugman -- I know Mario Draghi, a bit, since we overlapped in grad school, and I both like and admire him; I don't think I'm projecting too much in reading his Jackson Hole speech as the words of a man who knows perfectly well how dire the situation is, and is sailing as close to the wind as he can, but is all too aware of how inadequate that's likely to be. Although he gives a nod to structural factors, he effectively declared that people in Europe are exaggerating the problem: and he basically says that the problem with the euro is inadequate demand: The most recent GDP data confirm that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lacklustre demand. In these circumstances, it seems likely that uncertainty over the strength of the recovery is weighing on business investment and slowing the rate at which workers are being rehired. So he's effectively saying the same thing as Janet Yellen: if unemployment is structural, where are the wage gains? Also, the confidence fairy has vanished from official ECB rhetoric. So has the ECB's trigger-happiness when it comes to any hint of inflation: The risks of "doing too little" – i.e. that cyclical unemployment becomes structural – outweigh those of "doing too much" – that is, excessive upward wage and price pressures. The trouble is, what can he do about it? He appeals for a consideration of euro-wide measures of fiscal stance, which is basically urging Germany to run bigger deficits, but the Germans aren't interested. He says that the ECB will do more, but doesn't promise massive QE, probably because he knows he can't. The point is that even if Draghi is, as I believe he is, a good man and a good economist who gets the situation, the combination of the euro's structure and the intransigence of the austerians means that the situation remains very grim.
Euro zone yields turn negative on Draghi hopes - Borrowing costs across Europe slid further this week, amid raised hopes of a U.S. Federal Reserve-style quantitative easing (QE) program to boost the euro zone's struggling economies. For the first time, yields on several euro zone sovereign bonds turned negative-meaning that investors are effectively paying to governments to hold their money. Finnish, Dutch, Belgian and Austrian 2-year bond yields all turned negative for the first time this week, hitting record lows. German 2-year Schatz (Germany:DE2Y-DE) and 3-year Bunds (Germany:DE3Y-DE) also yielded under 0 percent. Finnish bonds reached a low of -0.010 percent on Tuesday, while Austrian Bunds (Austria:AT2Y-AT) yielded a low of -0.002 percent. Dutch and Belgian bond yields turned negative on Monday, with the former yielding -0.006 percent on Tuesday and Belgium's turning narrowly positive. This came after a stage-stealing speech from European Central Bank (ECB) President Mario Draghi at the Jackson Hole symposium of central bankers on Friday, in which he suggested more would be done to boost the euro zone economy and limit the risk of deflation. His comments have fueled expectations of further easing-potentially as soon as at the central bank's September meeting-and boosted European equities as well as bonds. "The market appears to be pricing a rising probability of further action by ECB,"
Peter Diamond: Stimuli & Unemployment - With unemployment at near-record heights in many depressed European economies, it is "totally indefensible" to argue that stimulus policies are not needed to get the jobless back to work, according to Peter Diamond, the MIT professor who won his Nobel prize in economics in 2010 for his work on labour-market mismatch. Professor Diamond's work has been extremely influential in shaping the approach of the European Commission and many EU governments to tackling unemployment, which focuses on "active labour-market policies", such as job retraining and other help in matching workers to vacancies. But such is the shortfall of demand in Europe, and to a lesser extent the United States, that there is plenty of labour-market slack that better matching of workers to jobs cannot hope to reduce. "If there are 20 applicants for every job and training programmes result in there being 25 applicants for every job, you don't accomplish anything," Professor Diamond said. "But if there are shortages in some areas, as there always are because economies are very diverse, retraining programmes can make a difference." Clearly, investing in workers' skills also delivers future benefits when the economy recovers – and a recession is a good time to train workers as they would otherwise be idle, Diamond points out. "But it is not a substitute for stimulus."
Is this the helicopter drop the euro zone needs? -- Some eyeopening stats from "How to jumpstart the Eurozone economy by Francesco Giavazzi and Guido Tabellini: At the end of 2013, private consumption in the Eurozone was 2% below its 2007 level, [while] private investment was 20% below the 2007 level … In the US, by contrast, GDP and private consumption are 6–7% above where they were six years ago, and investment too is above its pre-crisis level. I call this the QE Difference. So what should the euro zone do now? Giavazzi and Tabellini suggest a helicopter drop: All countries should enact a large tax cut, say corresponding to 5% of GDP. • They should be given several years (say three or four), to reduce the budget deficit created by this tax cut, through a combination of higher growth and lower expenditures. • To finance the additional deficits, members states should issue long-term public debt with a maturity of say 30 years. This extra debt should all be bought by the ECB, without any corresponding sterilisation, and the interest on the debt should be returned to the ECB shareholders as seigniorage. But this seems to be a temporary move, reversed over three or four years. And that may be probematic. Here is David Beckworth on the issue of permanent vs. temporary monetary action: In other words, we should not be surprised that the Fed's QE programs have not packed more of a punch. U.S. monetary authorities have clearly indicated the programs are temporary. (QE3, though, has added some permanency with its data-dependent nature and appears to have offset much of the 2013 fiscal drag.) We should also, then, not be surprised that Abenomics–which has signaled a permanent expansion of the monetary base–is doing so much better than the original Bank of Japan QE program of 2001-2006. Finally, we should also not be surprised as to why FDR's 1933 decision to go off the gold packed such a punch. It permanently raised the monetary base.
Is quantitative easing really going to save the euro? - Last week, at Jackson Hole, ECB President Mario Draghi clearly signaled that he has finally come around to recognizing the threat that deflation would pose to the Eurozone economic recovery. However, before jumping to the conclusion that this recognition removes the risk of yet another and more serious phase in the Eurozone debt crisis, one might want to reflect on two basic questions. The first is whether Mr. Draghi can overcome the strong political and institutional obstacles in the way of the ECB to adopt Federal Reserve-like quantitative easing. The second is whether in the specific European context, aggressive quantitative easing would be sufficient to support a strong enough economic recovery that might place the European periphery's public debt on a sustainable path. Many factors appear to have contributed to Mr. Draghi's change of heart on Europe's deflation risk. Among those were the accumulating evidence that the European economic recovery has run out of steam (as was underlined by dismal second quarter GDP numbers for France, Germany, and Italy); the fact that European unemployment appears to be stubbornly stuck at 11 ½%; and the marked deceleration in overall European inflation to its present level of around one quarter of the ECB's close to but below 2% inflation target. The last straw for Mr. Draghi seems to have been increased indications that European inflation expectations are now becoming unanchored as suggested by the downward drift in the market's 5-year European inflation expectation to less than 2%.
Blogs review: Is this a European U-turn? - Speaking at the Federal Reserve Bank of Kansas City's annual conference Jackson Hole, Wyo., ECB President Mario Draghi made an important speech recognizing that the recovery in the euro area remains uniformly weak and that the euro area fiscal stance was not helping the ECB do its job. Interestingly, French leaders also reintroduced over the weekend the notion of aggregate demand, a concept they had noticeably moved away from with the "Pacte de responsabilite". Joe Weisenthal writes that Draghi's speech is significant because it acknowledges that the eurozone is in a massive ongoing crisis. Only two weeks ago, ECB President Draghi still considered that "the available information remain[ed] consistent with our assessment of a continued moderate and uneven recovery of the euro area economy". This time, Draghi described that the "the most recent GDP data confirm[ed] that the recovery in the euro area remains uniformly weak, with subdued wage growth even in non-stressed countries suggesting lackluster demand." Greg Ip writes that Mario Draghi sounded strangely dismissive of price development concerns after his last press conference. He noted that excluding food and energy inflation was 0.8%, and argued that the decline in inflation expectations was all in the short term, whereas "long-term expectations remain anchored at 2%." At his speech on Friday in Jackson Hole, his tone was much less sanguine. Inflation, he noted, has been on a downward path from around 2.5% in the summer of 2012 to 0.4% most recently. Departing from his prepared text, he said, if "low inflation were to last a long period of time, risks to price stability would increase." He said inflation expectations had experienced a "significant decline at the long horizon," by 15 basis points (five-year inflation starting in five years' time). "If we go to shorter and medium term horizons," the declines "are even more significant.
France Thrown Into Political Turmoil After Government Dissolved - France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government's resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany. The prime minister, a social democrat who has been compared to Tony Blair, acted with characteristic swiftness in a bid to reassert his authority. His aides had let it be known on Sunday that the economy minister, Arnaud Montebourg, had crossed a "yellow line" for his dual crime of criticising both the president of France and a valued ally. Montebourg, 51, fired his first broadside in an interview with Le Monde on Saturday and followed up with a speech to a Socialist party rally the following day. In a veiled reference to President François Hollande, he said that conformism was an enemy and "my enemy is governing". "France is a free country which shouldn't be aligning itself with the obsessions of the German right," he said, urging a "just and sane resistance". He was joined in his criticism by the education minister Benoit Hamon, who on Monday denied that he had been disloyal. A third minister, Aurélie Filipetti, also appeared in danger of losing her job after wishing a "good day" on Twitter to her two dissident colleagues. Hollande, who is politically weakened with his approval rating at an all-time low of 17%, asked Valls to form a new government "consistent with the direction set for the country", which is expected to be announced on Tuesday
France In "Political Turmoil" After Hollande Unexpectedly Dissolves Government -- Earlier this morning, those expecting an out of control European deflationary tumble got one step closer to their goal when French President Francois Hollande asked his prime minister, who only assumed the post a few short months ago in March, to form a new government, following what Reuters reported was him "looking to impose his will on the cabinet after rebel leftist ministers had called for an economic policy U-turn" spearheaded by economy minister Arnaud Montebourg demanding an end to French "austerity." The Guardian is somewhat more direct and to the point: "France has entered uncharted political waters after the prime minister, Manuel Valls, presented his government's resignation amid a political crisis triggered by his maverick economy minister who called for an end to austerity policies imposed by Germany."
Kingslayer Me - Paul Krugman -- OK, this has to be the funniest headline I've seen for a while, on Business Insider: The French Government Has Collapsed, And It's Partly Paul Krugman's Fault. The French prime minister has tendered his resignation amid a dispute set off by the economy minister's decision to go public with opposition to austerity orthodoxy, and since he cited me on the subject, Business Insider has made a funny. The real story, of course, is the combination of the abject failure of austerity at a Europe-wide level, and the intransigence of the policy's instigators: The decision by French Prime Minister Manuel Valls to present his government's resignation on Monday does not make any difference to Germany's focus on economic policies that strive for growth, job-creation and fiscal consolidation, a German government spokesman said on Monday. "We continue to work for stronger growth and employment and our government still believes there is no contradiction between consolidation and growth," said deputy government spokesman Georg Streiter. "Nothing has changed with us." It's hard to believe that more than four years have passed since I called out austerians for their belief in the Confidence Fairy; after all that time, and all the disastrous experiences (not to mention the collapse of whatever intellectual basis there was for the pro-austerity view), nothing has changed.
French Political Turmoil a Harbinger of Unrest Roiling Eurozone During Their New Depression -- I don't know that I'd go so far to say it was Paul Krugman-induced, but the French government has been dissolved, primarily because two senior ministers dared speak the unspeakable and criticize Francois Hollande's continued commitment to austerity, in the face of evidence of its failure. The government shake-up—the second in less than five months—underscores the difficulties Mr. Hollande has had in rallying Socialist Party heavyweights, as well as his parliamentary majority, to a new, pro-business platform aimed at reviving France's stagnant economy. The divisions come amid growing discontent in France and elsewhere in the currency bloc with belt-tightening measures pressed by Brussels and Berlin to meet deficit targets and repair public finances.The open discord came to a head over the weekend after Economy Minister Arnaud Montebourg —who hails from the left wing of Mr. Hollande's Socialist Party—said that budget cuts backed by the French president were choking both French and broader euro-zone growth. He called on France to reject the "trap of austerity" he said Germany was imposing across the Continent. Mr. Hollande responded to the dissent by asking current Prime Minister Manuel Valls to form a new government that is "coherent with the direction he himself has defined for the country," the Élysée presidential palace said in a statement.Specifically, in the comments to Le Monde that set this off, Montebourg did cite Krugman, who said that "The news that industrial production has ground to a halt raises the prospect of a new recession in Europe – its primary cause, austerity." Hollande has a 17% approval rating in France, and this rebuke of the entire left wing of his party could easily lead to further fracturing. The ambitious Montebourg is quite openly splitting with Hollande to position himself for the next election.
What's The Matter With France? - Paul Krugman - As I mentioned this morning, France's President Hollande, after years of passivity, has finally taken strong action – firing anyone who questions his subservience to German and EC demands for ever more austerity. But what's actually going on in the French economy? It is, of course, a catastrophe – hugely uncompetitive, failing to create jobs, etc. etc. – that's what everyone says, so it must be true, right? Actually looking at the data, however, reveals a number of surprises. Let's start with jobs. France has low labor force participation by the relatively old, thanks to generous retirement programs, and by the young, partly because generous aid means that few need to work while in school, partly perhaps because a high minimum wage and other factors discourage youth employment. What about prime-age workers? Figure 1 compares France and the United States. It's a good thing we know that France is the country in crisis, isn't it? Because otherwise you might get confused by employment performance that looks much better than ours.Still, we know that France is highly uncompetitive on world markets. Figure 2 shows the French current account balance as a percentage of GDP, which is in, um, mild deficit, nothing like the deficits the United States ran during the "Bush boom". France – as you can see in Figure 4 — is well below the conventional 2 percent inflation target (which is too low) and falling fast. Mr. Hollande may like to say that the French problem is supply-side, but it sure looks like demand-side by this criterion. OK, you get the picture. French economic data look nothing at all like the story everyone tells. Yes, you can tell stories of excessive regulation, but they don't dominate the macro picture. Yet Mr. Hollande is meekly going along with demands for ever more belt-tightening, reserving his wrath for those who want France to stand up for itself. And the result is a sort of multiplier process in which austerity causes growth to falter, which worsens the budget prospect, which leads to even more austerity.
French unemployment hits new record - The number of unemployed people in France rose 0.8% in July from June, setting yet another record high at a time when President Francois Hollande is struggling to convince the French, and even his political allies, that he has the right recipe to solve the country's economic woes. The number of unemployed--defined as registered job seekers who are fully unemployed--reached 3,424,400 in July. "The rise stems from zero economic growth in the euro zone and in France," labor minister Francois Rebsamen said in a statement. Mr. Rebsamen said state sponsored jobs, particularly for young people, will continue to boost employment. The president's plan to cut taxes for employers to fuel job creation will also help, Mr. Rebsamen said. Mr. Hollande's plans have come under fire from within his own camp in recent days. Dissidents criticized painful public spending cuts and said households, as well as employers, should face more tax cuts. The president reacted quickly by dissolving his government and expelling the dissidents.
The Fall of France, by Paul Krugman -- François Hollande, the president of France since 2012, coulda been a contender. He was elected on a promise to turn away from the austerity policies that killed Europe's brief, inadequate economic recovery... But it was not to be. Once in office, Mr. Hollande promptly folded, giving in completely to demands for even more austerity. Let it not be said, however, that he is entirely spineless. Earlier this week, he took decisive action, but not, alas, on economic policy... Mr. Hollande ... was focused on purging members of his government daring to question his subservience to Berlin and Brussels. It's a remarkable spectacle. To fully appreciate it, however, you need to understand two things. First, Europe, as a whole, is in deep trouble. Second,... France's performance is much better than you would guess from news reports. France isn't Greece; it isn't even Italy. But it is letting itself be bullied as if it were a basket case. ... Why does France get such bad press? It's hard to escape the suspicion that it's political: France has a big government and a generous welfare state, which free-market ideology says should lead to economic disaster. So disaster is what gets reported, even if it's not what the numbers say. And Mr. Hollande, even though he leads France's Socialist Party, appears to believe this ideologically motivated bad-mouthing. Worse, he has fallen into a vicious circle in which austerity policies cause growth to stall, and this stalled growth is taken as evidence that France needs even more austerity.
Christine Lagarde Under Formal Investigation in French fraud case -- IMF chief Christine Lagarde has been put under formal investigation by French magistrates for alleged negligence in a political fraud affair dating from 2008 when she was finance minister. Lagarde was questioned by magistrates in Paris this week for a fourth time under her existing status as a witness in the long-running saga over allegations that tycoon Bernard Tapie won a large arbitration payout due to his political connections. Under French law, magistrates place a person under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial. Lagarde's lawyer, Yves Repiquet, told Reuters he would personally appeal the magistrates' decision. That means Lagarde would not have to return to Paris in the meantime, allowing her to continue her duties as managing director of the International Monetary Fund uninterrupted. The inquiry relates to allegations that Tapie, a supporter of conservative former President Nicolas Sarkozy, was improperly awarded 403 million euros ($531 million) in an arbitration to settle a dispute with now defunct state-owned bank Credit Lyonnais. The inquiry has already embroiled several of Sarkozy's cabinet members and France Telecom's chief executive, Stephane Richard, who was an aide to Lagarde when she was Sarkozy's finance minister.
The DSKing Of Christine Lagarde: IMF Head Formally Charged In Fraud Probe -- Ah, the perils of European power politics. A day after France revealed its new government, the person who so eagerly stepped in after DSK's infamous and choreographed fall from grace and the IMF presidency (not to mention his derailed French presidential ambitions, greenlighting Hollande as what would become the worst French president ever), Christine Lagarde is about to be DSKed herself after "someone" clearly has set their sights on the former French finance minister. Several hours ago the news hit that a French court has put Christine Lagarde, head of the International Monetary Fund, under a formal probe for negligence in a corruption investigation dating back to her days as finance minister.
Hollande entrusts French economy to ex-banker Macron: By making ex-banker Emmanuel Macron his new Economy Minister, French President Francois Hollande will be hoping to boost his pro-reform agenda and end two years of infighting on his economics team. Macron, 36, Hollande's top economic adviser until a few weeks ago, has the business community's ear, although his appointment will not ease the cabinet's relations with rebel lawmakers who want an economic policy U-turn. The contrast could not be starker between Macron, who helped draw up Hollande's pro-business agenda, and the man he will replace, firebrand, anti-austerity advocate Arnaud Montebourg, who was ousted on Monday for slamming the government's economic policy.Macron, a former partner at Rothschild bank, will work alongside Finance Minister Michel Sapin, 62, a close Hollande ally, to try and reinvigorate the euro zone's second-biggest economy. The stagnant economy has forced the government to abandon its growth and fiscal targets for this year, while unemployment is at a record high of over 3 million.
Draghi dials R for Reform. Line is busy -(Reuters) - Two years ago, euro zone government leaders hung on Mario Draghi's every word. Now the European Central Bank chief is struggling to get through to them. What has happened to 'Super Mario's' mojo? For financial markets, Draghi's words still count. But therein lies a problem - his promise in 2012 to do "whatever it takes" to save the euro has reassured investors and driven down government borrowing costs to near record lows. Euro zone governments, however, seem to have forgotten the caveat. Draghi delivered his famous "whatever it takes" speech, and backed it up with a plan to buy "unlimited" amounts of bonds issued by stricken euro members - but only after governments agreed to his call for a "fiscal compact" on tougher budget discipline. Now he is trying to cajole governments into agreeing a common approach to reforming their economies - a drive he sees as necessary to allow the stagnant euro zone to grow with verve.
Eurozone delusions: I have already had a number of interesting comments on my previous post which illustrate how confused the Eurozone macroeconomic debate has become. The confusion arises because talk of fiscal policy reminds people of Greece, the bailout and all that. That is not what we are talking about here. We are talking about what happens when the Eurozone's monetary policy stops working. If Eurozone monetary policy was working, the Eurozone would be experiencing additional (monetary) stimulus everywhere, and average inflation would be 2%. Because Germany through 2000 to 2007 had an inflation rate below that in France and Italy, it now has to have an inflation rate above these countries. Something like 3% in Germany and 1% in countries like France and Italy for a number of years. If ECB monetary policy was working, Germany would get no choice in this, because it is part of what they signed up to when joining the Euro. Monetary policy is not working because of the liquidity trap, so we instead have average Eurozone inflation at about 0.5%, with Germany at 1% and France/Italy at nearer zero. That implies a huge waste of Eurozone resources. That waste can be avoided, in a standard textbook manner, by at least suspending the Stability and Growth Pact (SGP), and preferably by a coordinated fiscal stimulus. Why is this not happening? There are two explanations: ignorance or greed. Ignorance is a non-scientific belief that fiscal stimulus cannot or should not substitute for monetary policy in a liquidity trap. Greed is that Germany wants to avoid having 3% inflation, because it controls fiscal policy.
Divisions Grow as a Downturn Rocks Europe - — Six years after being struck by economic crisis, Europe is facing a fresh downturn, with few new ideas on the table for reigniting growth and deepening political divisions over the austerity policies that many blame for worsening the malaise.Even as the United States economy rebounds from its worst recession since the 1930s, Europe is heading in the opposite direction. A halting recovery that took hold in the 18-nation euro currency bloc in the last year has now gone into reverse as Germany, France and Italy, its three largest economies, stumble anew. Some analysts say the region could be headed for another full-scale recession — a slowdown that could have ramifications in the United States, Europe's biggest trading partner. For American companies that do business in Europe, profits would suffer. Germany, the Continent's economic engine, contracted in the second three months of the year, while the bloc of 18 European Union nations that use the euro failed to grow at all. Political and financial instability related to Russia's confrontation with Ukraine and the effects of escalating economic sanctions between Europe and Russia have further clouded the economic outlook. Unemployment, which in the United States has fallen to 6.2 percent from a peak of 10 percent in 2009, has fallen only marginally in Europe, to 11.5 percent in July from a peak of 12 percent last year, according to figures released on Friday. "Europe is at risk of secular stagnation," said Lawrence H. Summers, referring to a situation in which very sluggish economic growth becomes the new norm. Unless governments find a solution, he added, "there is little chance that reasonable and rapid growth is going to return to the eurozone."
Europe Is Not "Coming Together" in Response to the Euro Crisis. Why? - In this article I ask a question on everyone's lips: Almost everyone agrees that the Eurozone was a one-legged giant; a monetary union lacking a political 'leg' to stabilise it. If so, why has the Euro Crisis (which surely strengthened that view on the back of its ferocity and durability) not strengthen the hand of the federalists? Of those who were, supposedly, waiting to pounce upon any opportunity to create a United States of Europe? Just look at the so-called Banking Union that the EU has agreed. The unification of banking sectors across the Eurozone, which was and is absolutely essential for the survival of the Eurozone, was recently proclaimed in name to be denied in practice. This raises a poignant question: The United States also had serious trouble consolidating its union, its federation. It took a century of deliberation, a bloody civil war, a series of banking crises and depressions and, of course, the Great Crash of 1929, not to mention the civil rights marches in the 1960s (which spawned Lyndon B. Johnson's Great Society) for the United States to achieve proper political unity. But with every crisis, the United States pulled closer together. Europe is doing the opposite. It is coming apart. Even though we came to the brink in 2012, when Mr Mario Draghi, the head of the ECB, admitted that the euro was about to collapse (famously invoking the 'convertibility risk'), not only did we not come closer together but, indeed, we did precisely the opposite, if one looks at the reality behind the rhetoric.
ECB Hires Blackrock For ABS-Buying Advice; Crushes Idea Of Upcoming QE - Just in case futures buying algos forgot what the regurgitated "catalyst" that activated the overnight ramp was, the ECB was kind enough to remind everyone that the main event over the past 12 hours was the Deutsche Bank leak that while the ECB will not announce outright QE any time soon, thus denying the rumor spread in the past weak by the likes of Citi and JPM, the formerly preannounced and thus already priced-in (by the EURUSD which was about to take out 1.40 a few months ago) ABS purchase program, or as DB called it "private QE" is about to be unleashed. The ECB confirmed this earlier this morning when it announced that it had appointed BlackRock, the world's biggest money manager, to advise on developing a program to buy asset-backed securities. In other words, BlackRock wil strongly advise the ECB to purchase all those subprime auto loan and rental-securitized ABS securities that Blackrock currently holds. Keep an eye out for UofPhoenix CCC-rated student loan securitization OWICs. In yet other words, Europe's largest public-sector hedge fund has just hired the world's largest private-sector hedge fund to "fix things."
ECB seen conducting quantitative easing by March by buying ABS-Reuters poll (Reuters) - The European Central Bank will probably launch a quantitative easing programme by March and buy asset-backed securities in a bid to prevent deflation and jumpstart economic growth in the region, a Reuters poll found on Thursday. Speculation that the ECB is preparing a programme of asset purchases has soared after its president, Mario Draghi, last week said the bank was prepared to respond with all its available tools if inflation were to drop further. true Draghi also emphasised the importance of fiscal stimulus saying it would be "helpful for the overall stance of policy" if fiscal policy could play a greater role alongside its own monetary policy. That was widely seen as an about-turn in its stance on imposing fiscal austerity on bailed-out nations like Greece, Ireland, Portugal, as well as a tacit hint at further stimulus. In a snap poll conducted Aug 27-28, economists placed a 75 percent chance the ECB would buy asset backed securities through a quantitative easing (QE) programme. Only five of 39 respondents gave a probability of less than 50 percent. Just two weeks back, a Reuters poll showed only a one-in-three chance of any kind of QE by the end of 2015.
Disappearing euro zone inflation set to heighten ECB concerns - (Reuters) - Euro zone inflation dropped to a fresh five-year low in August, data showed on Friday, something likely to concern the European Central Bank but not force it into immediate policy action. Consumer prices in the 18 countries using the euro rose by just 0.3 percent year-on-year in August, the smallest increase since October 2009, the European Union's statistics office Eurostat said. The number matched market expectations. The ECB targets an inflation rate at below-but-close to 2 percent over the medium term, a level not seen since the first quarter of 2013. It also considers anything below 1 percent over time to be in a "danger zone". Inflation moving ever closer toward zero, a stagnating economy, a double-digit unemployment rate and increasing signs of reform fatigue among euro zone governments are posing a tough challenge for the ECB that it says it cannot solve alone. In a landmark speech at a central banker gathering in Jackson Hole last week, ECB President Mario Draghi said it would be "helpful for the overall stance of policy" if fiscal policy could play a greater role alongside the ECB's monetary policy.
Low Inflation Causes Consumer to Delay Purchases and Undercuts Profits and Jobs - Dean Baker - In an article discussing the drop in the year over year inflation rate in the euro zone to 0.4 percent, the New York Times told readers that the inflation rate could fall further, turning into deflation, which it told readers: "causes consumers to delay purchases and undercuts corporate profits and jobs." That is true of deflation, but it is also true of very low inflation. The reported inflation rate is an average of the inflation rate seen in millions of different goods and services being sold at millions of different outlets. At any point in time roughly half of these inflation rates are more rapid than the average inflation rate and half are less. This means that the prices of a large number of goods and services are already falling. Insofar as this is a factor causing a delay in the purchase of goods, we would already be seeing it. A further drop in the overall rate of inflation to make it negative would change the picture little. In terms of the impact on corporate profits and jobs, the issue here is the real interest rate, which is the nominal interest rate minus the inflation rate. Any drop in the inflation rate means a higher real interest rate and therefore provides a disincentive for investment. Whether the inflation rate crosses zero and turns negative really has no consequence in this story. The point here is important. The euro zone is already suffering from an inflation rate that is way too low, causing real interest rates to be far higher than would be desired given the weakness of its economy. The problems of deflation are not something that it may have to worry about in the future. Those problems are here now. The situation worsens anytime the inflation rate falls further, but crossing zero and turning negative has no particular economic significance.
Spain's economy sinking as deflation deepens - --Spain's economy sank deeper into a spiral of price declines in August, compounding worries that countries on the periphery of the euro zone may be entering a period of deflation as they struggle to rebound from recession. The National Institute of Statistics said Thursday that prices in the euro zone's fourth-largest economy fell by 0.5% on the year in August, the biggest percentage decline since the country experienced a dip in prices in October last year. In July, prices had dropped by 0.3% after a few months of small increases. Spain's European Union-harmonized consumer-price index, which is a slightly different measure than Spain's own, was also down 0.5%. Spain emerged from more than two years of recession last summer, and data released Thursday by the statistics institute showed it had one of the euro zone's fastest rates of gross domestic product growth--0.6% between March and June, and 1.2% over a 12-month period. But economists worry that falling product prices and salaries in Spain and elsewhere in the euro zone will limit growth prospects by making it costlier for debtors to pay back loans. The statistics institute said the drop in Spain's consumer prices was mostly a result of falling fuel prices.
More weak German data as French government implodes on euro zone policy split (Reuters) - The euro zone's flat-lining economy took another hit on Monday when data showed German business sentiment sagging for the fourth month running, while a row over the lack of growth led the French government to resign. Politicians and policymakers, meanwhile, were digesting European Central Bank President Mario Draghi's about-face on Friday, in which he called in a landmark speech for governments to use fiscal stimulus to revive the euro zone economy. His comments were similar, if less direct, than those made on Sunday by leftist French Economy Minister Arnaud Montebourg, who condemned fiscal "austerity" and Germany's "obsession" with budgetary rigour, triggering Monday's government resignation. The euro zone economy registered no growth at all in the second quarter. At the same time, unemployment remains high and inflation is running at such low levels that deflation is a threat. German Chancellor Angela Merkel, visiting one of Europe's few bright spots, recovering Spain, blamed some of her own country's decline in the second quarter on the Russia-Ukraine crisis, over which tit-for-tat sanctions threaten trade.
Germany's Sin - Paul Krugman -- Simon Wren-Lewis has two very good posts about the European situation, first laying out the problem, then taking on those who don't get it. I just want to add a bit to one of his key points: the impossibility of a resolution unless Germany accepts higher inflation. In Germany, there's a strong tendency to moralize, with appeals to the country's own recent economic history. We pulled ourselves out of our late 90s doldrums, the Germans say, so why can't Southern Europe do the same? But a key part of the answer is that Southern Europe now faces a much less favorable environment than Germany did then — and Germany is the reason why.Look at core inflation (excluding energy, food, alcohol, and tobacco). During the years when Germany was gaining competitiveness, euro area inflation was running at around 2 percent, and inflation in Southern Europe was running considerably higher. So Germany could gain competitiveness simply by having lowish inflation — no need to actually deflate. But these days German inflation is only one percent, euro area inflation is lower, and the only way for Southern Europe to gain ground is to have zero or negative inflation:This makes the adjustment problem incredibly difficult, both because wages are downwardly sticky and because deflation worsens the debt burden. Add onto this the fact that the eurozone as a whole remains depressed thanks to fiscal austerity and inadequate monetary expansion, and Germany is in effect demanding that Spain and others accomplish a task vastly harder than the Germans themselves had to achieve. And the worst of it is that there's no sign that Berlin understands, or is willing to understand, this reality. And if the euro fails, that refusal to think clearly will be the fundamental cause.
Italy's unemployment rate rises to 12.6% - --Italy's unemployment rate rose in July, hovering near a 40-year high, due to job losses mainly among men, while the youth jobless rate fell. The official jobless rate advanced to 12.6% in July from 12.3% the previous month, national statistics institute Istat reported Friday, citing preliminary seasonally adjusted data. It added 0.5 percentage point from July 2013. Some 31,000 jobs for working-age men were lost since June, while 4,000 positions for women were shed, according to the data. Taming Italy's high unemployment rate is among the priorities of Prime Minister Matteo Renzi's government as household spending remains weak and families are concerned over possible job losses. Earlier in August, Italy entered its third recession since 2008. Later Friday, the government is expected to approve some measures designed to spur investment in infrastructure and help the job market. Italy's employment rate, the percentage of working-age adults with jobs, decreased to 55.6% from 55.7% a year earlier, while the jobless ranks increased by 4.6% to 3.22 million, Istat said. The youth unemployment rate for those aged 15 to 24, a politically sensitive subject, fell to 42.9% in July. The rate represented a 0.8 percentage point decrease on the month and a 2.9 percentage-point rise on the year, Istat said.
Italy Back In Deflation With Lowest CPI Print In History; European Inflation Lowest Since 2009 - Curious why European bond yields tumble to fresh new lows day after day (with the explicit backstop of the ECB of course, which makes fundamental analysis of sovereign solvency an irrelevant matter)? Then look no further than Italy, where as the chart below shows, not only has the economy "filled the gap" of its economy as tracked by its EU-Harmonized CPI, but at an August print of -0.2%, this is the lowest print in history, worse even than the brief -0.1%, flirt with deflation recorded just in the aftermath of the Lehman crash. But it wasn't only Italy: as Eurostat also reported today, Euroarea inflation also dropped once again, touching 0.3%, down from 0.4% a month ago, the lowest print October 2009.
It's confirmed: Italy is back into recession - --Fixed investments pulled Italy's economy lower in the second quarter, the national statistics institute Istat said on Friday, confirming the country slipped back into recession for the third time since 2008 as indications point to anemic growth this year. Italian gross domestic product slipped 0.2% in the second quarter of 2014 from the previous three months, Istat said, confirming an earlier estimate. Italy's GDP declined 0.2% from the April-June period of 2013, Istat added. This is revised from an earlier estimated drop of 0.3% released at the start of August. "The [GDP] drop is due to the net foreign element [import] as well as negative investments," said an Istat official. "Imports were considerably higher that exports." Fixed investments slipped at a 0.9% quarterly pace, Istat said, indicating that Italian companies are still holding back from spending. The biggest decline was in machinery, down 1.5% on the quarter. Final domestic consumption rose 0.1%, Istat said, the same as in the first quarter of this, in a sign that households might be going back to spending, although the rise was modest. Italy's agricultural sector fell 0.8% from the first quarter, while the manufacturing sector slipped by 0.5% and the services sector shed 0.1%, while the construction sector contracted by 0.8%, Istat said.