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Saturday, September 20, 2014

week ending Sept 20

Yellen: Fed balance sheet to take years to shrink -  Federal Reserve Chair Janet Yellen says "it could take until the end of the decade" to shrink the Fed's record investment portfolio to more normal levels. The Fed's response to the 2008 financial crisis has swollen its balance sheet to more than $4.4 trillion from less than $1 trillion roughly six years ago. Fed officials responded to the downturn in the economy with three rounds of bond purchases to try to hold down long-term borrowing rates to spur spending. The Fed plans to end its latest round of buying Treasurys and mortgage bonds after its next meeting in October. It would then look to reduce its balance sheet once it begins raising a key short-term rate from its record low near zero.

FRB: H.4.1 Release--Factors Affecting Reserve Balances--September 18, 2014: Federal Reserve statistical release - The Board's H.4.1 statistical release, "Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks," has been modified to reflect the removal of table 5 "Information on Principal Accounts of Maiden Lane II LLC" and table 6 "Information on Principal Accounts of Maiden Lane III LLC." The tables have been removed because the portfolio holdings have been reduced to de minimis balances. Amounts for "Net portfolio holdings of Maiden Lane II LLC," and "Net portfolio holdings of Maiden Lane III LLC" continue to be shown on table 1 "Factors Affecting Reserve Balances of Depository Institutions," and on the renumbered table 6 "Consolidated Statement of Condition of All Federal Reserve Banks" in order to provide information on figures from the previous year. 

The Fed’s “considerable” problem - As the market awaits the Federal Reserve’s statements on Wednesday, the focus is on whether the FOMC will choose to signal a significant shift in a hawkish direction since its last meeting in July. Many investors believe that the key litmus test for this will be whether it chooses to drop two words from its July statement.These words are “considerable time”. If that phrase disappears, then the market will need to absorb the fact that the Fed has deliberately chosen to force an upward adjustment in forward interest rate expectations, for the first time in this economic cycle.This is where “considerable time” appears in the July FOMC statement:The Committee continues to anticipate… that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.What exactly does this mean? The market has drawn a clear inference that the FOMC believes that interest rates will probably remain at zero for at least six months after the date at which asset purchases stop in October. That means that rates are most unlikely to rise before April 2015, which in turn is consistent with the market’s central expectation that the first rate increase will occur in June 2015.The Fed first introduced this statement in December 2012, when it was still trying to give the impression that a very long period would elapse before the first rate increase. When challenged about the meaning of “considerable time” in March, Ms Yellen said that it probably meant something on the order of six months, though she subsequently partially withdrew this.

The Fed can take its time, if it wants to -- By most accounts — the musings of Wall Street strategists and media Fed watchers, speeches by FOMC members, countless online FOMC previews — momentum is building for the Fed to soon change its “considerable time” language, and to give clearer guidance on when and why it will start raising rates. Will such changes be included in the FOMC statement that will be released on Wednesday? Maybe, but it’s worthwhile to recall how inflation and employment indicators have performed in the past few months. Here is year-on-year headline and core PCE inflation (the Fed’s preferred measure) since the start of 2014: And here is headline and core CPI: After accelerating earlier in the year, inflation moderated in the summer, even declining slightly in June and July. Call it an early vindication for Janet Yellen’s comment at the June FOMC presser that some of the inflation pickup was “noisy”. Here’s the past year of monthly jobs growth from the establishment survey: And the unemployment rate: That data are noisy also applies to plateaus and downturns, of course, and these measures all come with big standard errors. But the monthly jobs growth figures have nonetheless disappointed lately, having declined meaningfully for two straight months. The unemployment rate has fallen by a lot in the past year, but it has been flat since June — and, of course, its reliability as an accurate marker of labour market health remains cloudy because of the interminable labour market slack debate.

FOMC Statement: More Tapering, "Considerable Time" before rate increase -  A little more concerned about low inflation ... FOMC Statement: Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. On balance, labor market conditions improved somewhat further; however, the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources. .. Inflation has been running below the Committee's longer-run objective. Longer-term inflation expectations have remained stable. The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in October, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $5 billion per month rather than $10 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $10 billion per month rather than $15 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

Read the Full Text of the Fed’s Statement -- Here is the full statement text from the Federal Reserve’s policy-making committee.

Parsing the Fed: How the Statement Changed -- The Federal Reserve releases a statement at the conclusion of each of its policy-setting meetings, outlining the central bank’s economic outlook and the actions it plans to take. Much of the statement remains the same from meeting to meeting. Fed watchers closely parse changes between statements to see how the Fed’s views are evolving. The following tool compares the latest statement with its immediate predecessor and highlights where policy makers have updated their language. This is the September statement compared with July:

FOMC Projections and Press Conference -- Statement here ($10 billion in additional tapering as expected).  QE3 expected to end in October. Here are the Policy Normalization Principles and Plans As far as the "Appropriate timing of policy firming",  participant views were mostly unchanged (14 participants expect the first rate hike in 2015, and 2 in 2016 - so one participant moved from 2016 to 2015). The FOMC projections for inflation are still on the low side through 2016.Yellen press conference here. On the projections, GDP for 2014 was revised down slightly, the unemployment rate was revised down again, and inflation projections were mostly unchanged.  Note: These projections were submitted before the CPI report this morning. Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated. The unemployment rate was at 6.1% in August, so the unemployment rate projection for Q4 2014 will probably be lowered slightly.   Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.  As of July, PCE inflation was up 1.6% from July 2013, and core inflation was up 1.5%. The FOMC expects inflation to increase in 2015, but remain below their 2% target (Note: the FOMC target is symmetrical around 2%). 

Recap: Federal Reserve Decision and Janet Yellen Press Conference - Real Time Economics - WSJ: The Federal Reserve kept its interest-rate guidance intact on Wednesday, passing up an opportunity to inch closer to exiting its ultra easy monetary policy. Fed Chairwoman Janet Yellen, in a press conference, maintained her dovish stance and avoided upsetting markets with any surprises. See our recap here as we followed the action live.

FOMC statement and the new normal. - The Sept 17 FOMC statement made the usual waves in the when-will-they-raise-rates commentary. But the separate "policy normalization principles and plans" document is, I think, more interesting. And since  the Wall Street Journal called "a new technical plan for how it will raise short-term interest rates" and then moved on, it is I think worth a bit of examination.It confirms the previous plan: During normalization, the Federal Reserve intends to move the federal funds rate into the target range set by the FOMC primarily by adjusting the interest rate it pays on excess reserve balances. What does this mean? The Fed has about $3 trillion of reserves outstanding, and required reserves are about $80 billion. The old way of raising rates would require that they sell off $2.9 trillion of assets, soaking up $2.9 trillion of reserves, so that rates will go up without paying interest on reserves. I illustrated this in the graph on the left. Instead,  the Fed will simply  keep the $3 trillion of reserves outstanding, and just pay interest on them. I illustrated this in the second graph. The idea is, if the Fed pays 5% interest on reserves, banks will compete with each other to get depositors, and thus start paying 4.99% on deposits. Banks wil also charge at least 5% on loans. Depositors will dump their treasuries until those rates go up to 5%. And then Treasury rates will also go up to 5%.  Whether it will work, whether banks are really that large and competitive, will be interesting to see. They sure haven't competed credit card rates down to zero.  And if you decide to raise the minimum wage by paying your gardener $15 per hour, that won't raise the whole minimum wage in the country. But the Fed is bigger, and my guess is that it will work, or at least will appear to work so long as the Fed doesn't try to raise rates 5% overnight. Which it won't.

Fed Signals No Hurry to Raise Interest Rates - — The Federal Reserve is in no hurry to raise interest rates.The economic recovery has stayed on course in recent months, and the Fed’s policy-making committee said on Wednesday that it saw no reason to change its own plans, rejecting calls for a faster retreat from its long-running stimulus campaign.“There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work, and too many who are not searching for a job but would be if the labor market were stronger,” the central bank’s chairwoman, Janet L. Yellen, said at a news conference.As expected, the Fed said it would move to end its most recent bond-buying campaign after adding a final $15 billion in October to its holdings of Treasury and mortgage-backed securities, according to a statement published after a two-day meeting of its Federal Open Market Committee.The Fed also on Wednesday published a description of the plans for the next phase in its slow retreat from its policy to encourage economic growth, including some expected changes in the mechanics of monetary policy.

Most Federal Reserve Officials Still See First Rate Hike In 2015 - Most Federal Reserve officials continue to expect the central bank to first increase interest rates some time next year, according to official projections released Wednesday. In the forecast, 14 of 17 officials said they continue to believe the Fed’s first increase in near zero short-term rates will occur in 2015. One official believes the Fed should boost rates this year, while two think the central bank can hold off until 2016. The September forecasts represent a modest shift from June’s projections, when one hoped the Fed would lift rates this year, while 12 saw 2015 as the most likely point of liftoff. In the forecasts, 11 of the officials see the central bank’s overnight target rate at 1.375% or lower by the end of 2015. The forecasts released by the Fed on Wednesday had officials providing interest rate forecasts in new way, indicating a new strategy in moving interest rates. The projections represent the target level or midrange of the target level expected by policy makers. The Fed’s forecasts were released in the wake of its latest gathering of the monetary-policy setting Federal Open Market Committee. Central bankers announced Wednesday a continued wind down of their bond buying stimulus program. Fed officials also continued to say they expect their ultraeasy monetary policy stance to be maintained for a “considerable time” into the future.

Fed Revises Plans on How it Will Raise Rates - The Federal Reserve on Wednesday announced a revised plan for the mechanics of how it will raise interest rates from near zero when the time comes. As part of the so-called exit strategy, the Fed will continue to rely on its benchmark federal funds rate, an overnight interbank lending rate, as the key rate used to communicate Fed policy. The rate influences other borrowing costs throughout the economy, such as those on mortgages, car loans and credit cards. Raising it tightens credit: lowering does the reverse. But the primary tool for moving the fed funds rate will be the interest rate the Fed pays on the money, called excess reserves, that banks deposit at the central bank. The Fed also will use an interest rate it pays on trades called reverse repurchase agreements, or reverse repos, to help ensure the fed funds rate stays in its target range. The central bank has held the fed funds rate in a range between zero and 0.25% since December 2008 to help encourage businesses and consumers to borrow and spend. When the Fed makes its first rate increase, it will raise its target range for the fed funds rate. The Fed’s intention “has always been to return to a more traditional approach” after the extraordinary actions taken in recent years, Federal Reserve Chairwoman Janet Yellen said in a press conference. Those actions have included three rounds of bond-purchase programs aimed at stabilizing the financial system during the 2008 crisis and holding long-term rates low to spur stronger growth. She stressed the exit plan “is in no way intended to signal a change in the stance of monetary policy.”

Fed’s Fisher: Would Like to See Rate Move Early Next Spring -  Federal Reserve Bank of Dallas President Richard Fisher said Friday he’d like to the see the U.S. central bank begin to raise rates early next year, in an interview on Fox Business Network. When it comes to making the first move to lift interest rates off of their current near zero levels, Mr. Fisher said “I personally expect it to occur in the spring rather than the summer, but we will see.” Mr. Fisher was speaking in the wake of this week’s monetary policy-setting Federal Open Market Committee meeting. At that gathering, the Fed continued to signal that it would be some time before it began to raise rates, although it emphasized any decision would be driven by incoming economic data. Mr. Fisher dissented against the FOMC’s decision because he believed rates would likely to rise sooner than most of his fellow central bankers believe. Philadelphia Fed leader Charles Plosser also dissented on similar grounds. Mr. Fisher has long been uncomfortable with the Fed’s ultra-easy monetary policy stance. In the interview, he welcomed the Fed’s continued wind down of its bond-buying stimulus program. But he remained worried about the state of financial markets, and what happens if the Fed waits too long to raise rates in an economy that’s doing pretty well. When it comes to increasing rates, Mr. Fisher said he was in the “slow and gradual school,” with favored increases most likely coming in quarter percentage point increments. But he warned that waiting too long could mean the Fed has to raise rates “severely” which could drive the economy back into recession, if history is any guide. An very aggressive campaign of rate rises “is the last thing we need.”

Two Dissents from Hawks on Fed’s Forward Guidance -- Two of the Federal Reserve’s most vocal hawks dissented from the central bank’s bank’s September policy decision.  Philadelphia Fed President Charles Plosser dissented for a second straight meeting, and was joined by Dallas Fed President Richard Fisher. The vote on the Fed’s policy statement Wednesday was 8-2. Mr. Plosser again objected to the Fed’s pledge to keep short-term interest rates near zero for a “considerable time” after its bond-buying program ends, mostly likely next month. Mr. Fisher objected on similar grounds, believing that the economic outlook “will likely warrant an earlier reduction in monetary accommodation than is suggested” by the current forward guidance, according to the Fed statement. Both men have been critical of the Fed’s easy-money policies in recent years, and have been regular dissenters at its policy meetings.

IMF Admits QE Encourages Excessive Risk-Taking; Warns "Sharp Downside Risks Are Rising" - With the Fed unleashing its bubble-watchers last week, on the heels of warnings from the Central Bankers' Central Bank (BIS), The IMF has decided it is time to chirp in. As Mises' David Howden notes, after promoting QE for years (see here and here), the IMF is finally coming to realize what has been apparent for years now to almost everyone who doesn’t work for the Fed or the IMF: that low interest rates encourage risky decisions.The IMF warns, "financial market indicators suggested investor bets funded with borrowed money looked 'excessive' and that markets could quickly deflate if there were surprises in U.S. monetary policy or the conflicts in Ukraine and the Middle East."

Wall Street Sees Holes In Fed's New Policy-tightening Plan -  (Reuters) - No sooner did the Federal Reserve reveal its plan for eventually tightening U.S. monetary policy than many on Wall Street flagged problems with the mechanics of the strategy, and said more adjustments would have to come. Some market participants worried that a new limit on the Fed's reverse repurchase facility would hurt efforts to raise interest rates as quarters draw to an end when investors typically hunt for collateral. Others predicted the controversial tool would ultimately play a bigger role than the U.S. central bank let on. In reverse repos, the Fed offers Treasury securities as collateral in exchange for cash from banks, large money market mutual funds and others, temporarily draining cash from the financial system. On Wednesday, the Fed surprised many by updating its policy "normalization" plan, meant to help the public understand exactly how it will raise rates from near zero when the time comes. The process will be unusually tricky given the tremendous amount of liquidity the central bank has pumped into financial markets to try to spur a stronger economic recovery.The Fed also issued a policy statement at the close of a two-day meeting that suggested the first rate hike wasn't due until around the middle of next year. According to the plan, the overnight repo facility, or RRP, would only be "supplementary," used "as needed" to serve as an effective floor under the main federal funds rate, and later shuttered. At the same time, the Fed tripled the amount that each bank or fund could lend into the facility during its current testing and applied an overall $300-billion cap, less than the $340 billion in demand RRP faced at the quarter-end on June 30. The new cap on what had been an unlimited facility raised fears that once the tightening cycle begins, and demand rises, financial markets could face unusual volatility on days that firms scramble for short-term collateral.

Zombie Firms smirk with Fed’s rate decision -- Now that the Fed has sent the message that nominal rates will stay at the ZLB for a considerable time after October, let’s revisit the concept of the Zombie firm. The ZLB Fed rate makes it more likely that zombie firms will continue to limp on…Zombie firms are not good for society. The main reason is that they are very resistant to raising wages, since they must control costs in order to cover their interest expense. They also lack the strength to grow well. They should either die off or be re-structured.  Moreover from (Time to end life support for zombie firms)… “… they depress economic activity by making it difficult for healthy firms to grow rapidly, increase profits and investment, and create jobs. They also block start-ups with new technologies from entering the market. In a word, they impede the process of creative destruction.” “As a result, the presence of zombie firms harms the productivity of an industry. If there is a large presence of zombie companies across industrial sectors, the economy as a whole will suffer. So weeding out zombies is essential to make the economy run efficiently.” “However, this is easier said than done. In the first place, banks have little incentive to kill zombies off. Banks are required to keep their capital ratios high. If they stop providing support to hopeless companies and let them go belly up, they have to set aside more reserves to cover the loans extended to them. This weighs on their balance sheets and lowers their capital ratios.” When demand is weak in an economy, zombie firms struggle more. But banks are in somewhat of a self-interest trap to maintain accommodative monetary policy to keep zombies alive.

The Fed and Inequality - Dean Baker - Charles Lane has a column in the Washington Post arguing that the Fed has contributed to inequality with its low interest policy. Essentially the argument is that low interest rates have helped to push up asset values, most importantly stock prices. Since the rich have stock and most people don't, this means the rich are getting richer relative to everyone else. Since a lot of people who should know better have made this argument, it is worth addressing. First, it is important to understand the nature of the inequality. If we're looking at wealth, the issue is pretty clear. Higher stock prices mean people who own stock are wealthier relative to the population as a whole. But note the nature of the increase implied here. Grabbing our old "other things equal," lower interest rates mean higher stock prices. However, this also means that higher interest rates will mean lower stock prices. Most people expect that at some point interest rates will rise due to a strengthening economy.  So we can expect the wealth inequality the Fed has created with its low interest rate and quantitative easing policies to go away once the economy is approaching its potential level of output. In that case we are looking at an explicitly temporary increase in inequality. Should we be upset by this?  If we count the capital gains in the stock market as income, then we have seen a huge increase in income inequality as stock prices roared back from their 2009 lows. Here also part of this will be reversed as the rich have capital losses when interest rates go back up. It's difficult to see the big problem here. Remember, the economy's problem is too little demand. Let's say that a few more times just in case anyone in a policy position in Washington is paying attention. The economy's problem is too little demand.  The economy's problem is too little demand. The economy's problem is too little demand.

Why Central Banks Should Give Money Directly to the People - In the decades following World War II, Japan’s economy grew so quickly and for so long that experts came to describe it as nothing short of miraculous. During the country’s last big boom, between 1986 and 1991, its economy expanded by nearly $1 trillion. But then, in a story with clear parallels for today, Japan’s asset bubble burst, and its markets went into a deep dive. Government debt ballooned, and annual growth slowed to less than one percent. By 1998, the economy was shrinking. That December, a Princeton economics professor named Ben Bernanke argued that central bankers could still turn the country around. Japan was essentially suffering from a deficiency of demand: interest rates were already low, but consumers were not buying, firms were not borrowing, and investors were not betting. It was a self-fulfilling prophesy: pessimism about the economy was preventing a recovery. Bernanke argued that the Bank of Japan needed to act more aggressively and suggested it consider an unconventional approach: give Japanese households cash directly. Consumers could use the new windfalls to spend their way out of the recession, driving up demand and raising prices. As Bernanke made clear, the concept was not new: in the 1930s, the British economist John Maynard Keynes proposed burying bottles of bank notes in old coal mines; once unearthed (like gold), the cash would create new wealth and spur spending. The conservative economist Milton Friedman also saw the appeal of direct money transfers, which he likened to dropping cash out of a helicopter. Japan never tried using them, however, and the country’s economy has never fully recovered. Between 1993 and 2003, Japan’s annual growth rates averaged less than one percent.

Fed – Forget “Escape Velocity,” Not Gonna Happen, Ever - Wolf Richter - Wall Street’s and the media’s attention was riveted single-mindedly on whether or not the Fed would include in its statement the two words, “considerable time,” the two vaguest, stretchable latex words available that describe absolutely nothing and leave the door wide open for wishful thinkers of every stripe. That’s what the Fed’s gyrations since the financial crisis have so successfully accomplished; they have reduced the market, a place of price discovery, to a crummy joke.The Fed delivered those two words, but during the press conference, Fed Chair Janet Yellen doused them with so many qualifiers that they’ve become even more meaningless, if that were even possible. But beyond its crummy joke, the Fed has done something else: it has removed “Escape Velocity” – the economic surge in the US that has been falsely promised for five years in a row to rationalize soaring stock prices – from its vision of the future.The Economic Projections of Federal Reserve Board members and Federal Reserve Bank Presidents, as the report is called, cut GDP projections for all years to come, as far as the Fed’s eye can see:For 2014, policymakers cut their “central tendency” of GDP growth to 2.0% to 2.2%. That’s down from their June projection of 2.1% to 2.3%. The “range” of GDP growth dropped unceremoniously to 1.8% to 2.3%.While they were at it, they cut the GDP growth projections for 2015 to a central tendency of 2.6% to 3.0%. For 2016, they nudged it down to 2.6% to 2.9%. For 2017, they figured it would languish at 2.3% to 2.5%. And in the “longer run,” GDP growth would even be below that. Here is what the slow-growth economic future of the US, as seen by Fed policymakers, looks like, after $3 trillion in QE and so many years of ZIRP that investors can’t even imagine what life might be like once the cost of capital is actually a decision-making factor again:

The Contractionary[?] Federal Reserve Policies of 2013-2014 - Brad DeLong - Let’s look at the five-year and ten-year U.S. break-even inflation rates–the inflation rates at which an investment in U.S. Treasury bonds held to maturity produces exactly the same return as an investment in U.S. Treasury inflation-protected securities of the same maturity: The most obvious feature of the graph is the liquidity squeeze of 2008–when people were dumping inflation-protected securities at ludicrous prices because they were thought to be less cash-like than Treasuries, and people wanted cash. It is not always the case that the inflation break-even tells us what Ms. Market’s inflation expectations are; it is not always the case that the price of TIPS relative to Treasuries is set by a thick group of rational arbitrageurs focused on trying to profit from others’ misperceptions of likely future inflation: The second thing to note is the relatively sharp drop in Ms. Market’s inflation expectations since the mid-2000s: a delta of about -0.8%-points/year. Back in the mid-2000s we thought: that the labor market was close to full employment; today we think it is still substantially below full employment; that the cushion needed between the inflation target and zero to keep interest rates from hitting the zero lower bound and causing significant macroeconomic distress was low; now we think it is higher; and that the overall price level was about where people had expected it to be ten years before, and thus there were few contracts, expectations, and rules of thumb in the economy that needed a higher price level than we had then in order to function smoothly; today our price level is 4% lower than people a decade ago would have predicted today. All three of these strongly militate for a higher expected inflation path going forward from today than the inflation path anticipated back in the mid-2000s. Yet our anticipated inflation path is not higher but rather 0.8%-points/year lower.

Follow or Break the Rule? - Greg Mankiw -- Lars Christensen plots with recent data a version of the Taylor rule I proposed some years ago (published here).  I suggested this rule as an approximate description of Alan Greenspan's monetary policy in the 1990s. Here is Lars's plot:  Taken at face value, the rule suggests that it is time for the Fed to start raising the federal funds rate. If you believe this rule was reasonably good during the period of the Great Moderation, does this mean the Fed should start tightening now, as the economy gets back to normal? Maybe, but not necessarily. There are two problems with interpreting such rules today. The first and most obvious problem is that odd things have been happening in the labor market for the past several years. The unemployment rate (one of the right hand side variables in this rule) may not be a reliable indicator of slack. The second and more subtle problem is the nagging issue of the zero lower bound. For several years, the rule suggested a target federal funds rate deeply in the negative territory. We are out of that range now, but should the past "errors" influence our target today? An argument can be made that because the Fed kept the target rate "too high" for so long (that is, at zero rather than negative), it should commit itself now to keeping the target "too low" as compensation (that is, at zero for longer than the rule recommends). By systematically doing so, the Fed encourages long rates to fall by more whenever the economy hits the zero lower bound. Such a policy might lead to greater stability than strict adherence to the rule as soon as we leave negative territory. The time for the Fed to raise the target rate may be soon, but I don't think we are quite there.

Fitch: Fed’s Reverse Repo Gains Are A Negative For Europe Short-term Assets -  Periodic surges in demand for a Federal Reserve facility designed to control short-term interest rates appear to come at a loss for European markets. Fitch Ratings said in a report Tuesday that much of the money that regularly flows into what the Fed calls its overnight reverse repurchase agreement facility appears to be driven by large short-term investment funds taking that same cash out of European short-term assets. While the sums are not huge relative to the size of Europe’s short-term asset markets, the ratings firm says a “clear inverse relationship” exists between the Fed effort and European markets. The Fed’s reverse repo program takes in cash from eligible participants in exchange for one-day loans of Treasury securities. The Fed is testing the tool to see whether it can set a floor for short-term interest rates across the economy with the interest rate it pays on these cash loans. While the Fed has indicated another tools, such as the interest rate it pays on bank reserves parked at the central bank, will be its primary tool for raising rates, the reverse repo rate will also be part of the effort. Participation in the reverse repo program is open to qualified large banks and money managers. Fitch notes that money funds constitute about three-quarters of the money involved. Since the testing phase began a year ago, demand has been strong, with interest surging at the end of months and quarters. Recent operations have seen the Fed take in around $150 billion in cash a day. But at the last quarter-end, on June 30, the central bank saw a record $339 billion parked on its books by program participants. The Fitch report tracked how program participants handled their money at month end. The firm found that inflows of cash into the Fed reverse repo program closely matched what money market funds took out of European short-term assets such as bank certificates of deposit, term deposits, and private-sector repo trades. Just as inflows into the Fed reverse repos were largest at quarter-ends, so too were the outflows out of Europe. Fitch found that U.S. short-term investments were unaffected by inflows into the Fed reverse repos.

N.Y. Fed Makes Changes in Overnight Reverse Repo Program Terms - The Federal Reserve Bank of New York announced Wednesday significant changes in the terms of a program designed to provide the central bank with better control over short-term interest rates. The bank said the minimum bidding size available to the large banks and money funds participating in what the Fed calls its overnight reverse repurchase agreement program now stands at $30 billion, from the previous limit of $10 billion. But the Fed also imposed a daily $300 billion overall limit on the effort, and has a formula to deal with large dealer bids in the event that cap is reached. The Fed’s overnight reverse repos, as they are more commonly called, take in cash from program participants in exchange for one-day loans of Treasury securities. The Fed hopes that the rate it pays for these de facto loans of cash to the central bank, currently set at five basis points, will set a floor underneath short-term interest rates. The New York Fed announcement followed the Fed’s monetary-policy meeting held Tuesday and Wednesday. As part of that gathering, central bankers updated their strategy to raise interest rates at some point in the future. The Fed explained how a new set of tools, including the reverse repos, will help it take the stance of monetary policy back to more historically normal levels. The Fed’s strategy formalized that reverse repos will play a supporting role in any campaign to raise rates. In a press conference after the meeting, Fed Chairwoman Janet Yellen said the program “will only be used to the extent necessary and will be phased out when no longer needed to help control the federal-funds rate.”

Lurking Beneath The Taper: More Trouble In Repo Land - Since we are now in the middle of the final month of a quarter, checking repo stats shows what we have come to expect of a fragile liquidity system. Once again, repo fails spiked sharply. The problem for “markets” is that repo is a primary liquidity conduit indicating significant and persistent degradation under, again, very benign conditions. There is no doubt that QE is the primary culprit here and that its removal is not “allowing” a healing process to begin but instead revealing the damage. With the Fed’s reverse repo program having no impact whatsoever, it just adds to the weight of evidence that policymakers don’t really know what they are doing and are just making it up as they go.

Stuck on Inflation - In recent weeks, The Federal Reserve has faced a growing dilemma. Janet Yellen, who became Fed chairwoman early this year, has appeared to support the expansive monetary policies that for the last five years have gradually helped the economy regain its footing. But she is under a lot of pressure from inflation hawks on the Fed’s Open Market Committee to raise interest rates. This would be a huge mistake. Among the most prominent of the inflation hawks are Richard Fisher, President of the Dallas Federal Reserve Bank; Jeffrey Lacker, President of the Richmond Federal Reserve Bank; and James Bullard, President of the St. Louis Federal Reserve Bank. They consistently warn about inflationary pressures and the need for tighter monetary policies, regardless of the state of the economy. They have been wrong for years and they are wrong now. Unemployment remains historically high, growth rates are still tepid, and what expansion we have had is fragile. And some economists—notably Paul Krugman, Laurence Ball of Johns Hopkins, and the progressive economists at the Economic Policy Institute—have strongly criticized the hawks. But they retain influence, especially because the media quote them frequently. Since this summer, Fisher, Lacker, and Bullard have been urging the Fed to raise interest rates soon, if not immediately, and to end the program known as quantitative easing. (Quantitative easing involves buying longer-term bonds to push interest rates down, and has been a successful part of Fed policy to help the economy recover from the recession.) It is far too early to start tightening policy, but to these three Fed presidents, who help set Fed policy, it is never soon enough. The three bankers do not always sit on the Fed’s Open Market Committee, where Fed policy decisions are made, but they are vocal about their hawkish views, and their comments have had wide reverberations in public debate.

Key Measures Show Low Inflation in August - The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% (1.5% annualized rate) in August. The 16% trimmed-mean Consumer Price Index was essentially unchanged (0.3% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers fell 0.2% (-2.4% annualized rate) in August. The CPI less food and energy was essentially unchanged (0.2% annualized rate) on a seasonally adjusted basis.  Note: The Cleveland Fed has the median CPI details for August here. Note that motor fuel prices declined at a 39% annual rate in August, and "Meats, Poultry, Fish & Eggs" increased at a 20% annual rate. This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.2%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for June and increased just 1.5% year-over-year. On a monthly basis, median CPI was at 1.5% annualized, trimmed-mean CPI was at 0.3% annualized, and core CPI increased 0.2% annualized. On a year-over-year basis these measures suggest inflation remains at or below the Fed's target of 2%.

New Sign of Weak Inflation Gives Fed More Room to Maneuver - Consumer prices fell 0.2% in August, as measured by the Labor Department’s CPI index, their first decline in over a year. From the same period last year, August prices rose 1.7%, the smallest increase since March. The report is the latest piece of evidence that inflationary pressures have subsided after starting to build this spring. That will give Federal Reserve officials, who are holding their second day of monetary-policy meetings today, more latitude to keep rates low to stimulate economic growth and job creation

Prices Steady, Suggesting No Urgency for Fed Move - Producer prices were unchanged in August, pointing to muted inflation pressures that may allow the Federal Reserve to bide its time as it considers when to raise interest rates. The Labor Department said on Tuesday that falling gasoline and food prices restrained its Producer Price Index for final demand last month. Prices received by the nation’s farms, factories and refineries edged up 0.1 percent in July.“The Fed has more time to allow monetary policy to work its way through the economy before feeling the need to raise rates,” said Jay Morelock, an economist at FTN Financial. Economists had expected producer prices to gain 0.1 percent last month. In the 12 months through August, they increased 1.8 percent, accelerating a bit from the 1.7 percent rise in the year through July. The Fed’s chairwoman, Janet L. Yellen, and other central bank policy makers gathered Tuesday for a two-day meeting. They have held the Fed’s benchmark overnight rate near zero since late 2008, but are expected to inch toward an increase by the middle of next year.

Inflation, Housing, QE, and the Taper in August -- Inflation in August still leaves open the possibility that the Fed has tapered QE3 too soon, making the same mistake they made with QE2. The recent crisis was marked by a demand crisis that was felt most harshly in real estate credit markets.  So, core inflation (less shelter) is mostly a reflection of demand.  But, since real estate has been limited by the crisis in real estate credit markets, shelter inflation is a reflection of a supply shock.  Further economic recovery will be difficult without further recovery in real estate credit.If the recovery continues to be healthy, we should see rising Core (minus shelter) inflation due to increased demand and falling Shelter inflation due to increases in home supply as home prices continue to recover and new housing starts increase. Unfortunately, now we are seeing the opposite. Here are graphs of Month over Month inflation and Year over Year inflation - Core, Shelter, and Core minus Shelter. What we are seeing now is continued strength in Shelter inflation, reflecting the shortage of housing while strengthening demand bumps up against real estate credit and new home building that are only very slowly recovering. Core minus Shelter inflation was strong in late spring, but has now fallen for four consecutive months, including two months of core deflation. These are noisy series, so there is still hope, but this does leave the possibility open that the taper came too soon and there isn't enough escape velocity in credit markets to push home values high enough to return us to self-sustaining recovery.

Dollar Doomsayers Have Gotten the Fed All Wrong - Let’s ponder for a moment those many critics of the Federal Reserve who have argued with great certainty for several years that low interest rates and gargantuan central bank bond-buying programs would lead to a collapse of the dollar. Boy, have those predictions been wrong. The U.S. currency is up 5.2% this year against a broad basket of currencies, based on the ICE dollar index. It is up 9.7% since the Fed launched a controversial round of bond purchases in November 2010; up 3.1% since it first pushed short-term interest rates to zero in December 2008 and up 7.2% since the collapse of Lehman Brothers on September 15, 2008 unleashed an avalanche of Fed bank rescue programs. It had looked to some like the Fed was debasing the currency by printing so much of it. It is true, as Milton Friedman famously argued, that inflation is always and everywhere a monetary phenomenon. But you can’t just flip that statement around and expect it to still be right. Friedman didn’t argue that whenever there is an abundance of money there is inflation. Nor does money printing necessarily lead to currency devaluation. Other factors play into the purchasing power of a dollar, including the velocity at which dollars are lent out by banks or invested by businesses. Other factors also determine the relative value of a dollar against other currencies. Russia, Europe, Japan, China and the Middle East aren’t looking like very appealing places right now, so households, businesses and governments have become squeamish about storing their assets there. The dollar doomsayers can be forgiven for getting it wrong so far. These are complicated times and everybody makes mistakes. What’s less forgivable is that the surest among them will never admit it.

Why the Rich Hate Inflation: Because They’re Creditors? - Paul Krugman and assorted others have been puzzling at this question recently, one that I’ve been grinding an axe about for some years. For the first time, I think, Krugman’s highlighted the explanation that I keep going on about: Inflation helps debtors and hurts creditors, deflation does the reverse. And the wealthy are much more likely than workers and the poor to be creditors, to have money in the bank and bonds in their portfolio rather than mortgages and credit-card balances outstanding. Higher inflation means debtors pay off their loans in less-valuable dollars. So given an outstanding stock of trillions of dollars in fixed-interest loans/bonds, an extra point of inflation should transfer tens of or hundreds of billions of dollars a year in real buying power from creditors to debtors (without a single account transfer happening). Instantly and permanently.I got some judicious pushback on this thinking in comments from JKH over at Interfluidity, where I had emphasized that rich households own the banks. (The top 20% actual own more like 85% of corporate equity.) While the 20% certainly have debts, they owe them mostly to themselves as bank shareholders, so The-20%-As-Debtors don’t benefit from the cheaper payback caused by inflation; it’s a wash. The 80% do get that benefit (and the 20% suffer), because the 80% owes money, on net, to the 20%.

Pessimism about U.S. growth rates - A growing number of observers are starting to conclude that we’re never going to see the rebound in growth rates that many people had anticipated as the U.S. recovers from the Great Recession. Here I comment on a new paper in which Northwestern Professor Robert Gordon explains the basis for his pessimism. A streamlined version of Gordon’s analysis would decompose the growth rate of output as the sum of growth in productivity (output per hour worked), growth in average hours worked per employee, and growth of number of people working. We received a temporary boost to growth from the second factor as a result of a cyclical rebound in the average workweek since 2010. There might be a further modest contribution from this source if hours per worker get all the way back to their average value over 1988-2008. But more than half of any boost we might hope to see has already been realized at this point.We also have enjoyed a temporary boost in growth from the third term, an increase in the number of people working, as a result of the declining unemployment rate. But with the unemployment rate already back down to 6.1%, it again seems unlikely that further drops in the unemployment rate can make a major contribution to future U.S. growth rates.An alternative source of rising total employment would be a recovery in the labor force participation rate. But the decline in this began well before the Great Recession, and seems largely due to demographic factors that are unlikely to be reversed. Thus a key factor in any prediction of faster U.S. GDP growth would seem to be based on an improvement in productivity. Gordon writes:Forecasters universally predict that actual real GDP growth will increase from the 2.1 percent average of the past five years to between 3.0 and 3.5 percent per year over the next two to three years. For output to grow at that rate without a decline in the unemployment rate to four or even three percent would require some combination of a much slower rate of decline in the labor-force participation rate or even a reversal toward an increasing LFPR, as well as a revival of labor productivity growth well above the 1.2 percent average growth rate of the past decade, not to mention the 0.6 percent average over the past four years.

OECD cuts US growth forecast, warns on risk assets: A stuttering recovery in the U.S. and the continued fragility of the euro zone means that risk assets are "mispriced," the Organization for Economic Cooperation and Development warned on Monday. In its Interim Economic Assessment, the Paris-based research organization became the latest to suggest markets are at risk of a sudden correction, stressing that the current bullishness appeared "at odds" with the "intensification of several significant risks." .The OECD forecast the U.S. would grow by 2.1 percent this year, down from its May projection of 2.6 percent growth. For 2015, the group expects the U.S. economy to grow 3.1 percent, down from earlier estimates of 3.5 percent. The euro area has also been downgraded from 1.2 percent growth in May to 0.8 percent and 1.1 percent for next year, and the stubbornly slow growth in the region is the most "worrying feature" of the OECD's projections.

Slow Growth in Potential GDP for the U.S.? -- Robert Gordon released a paper recently where he presents his estimates of potential GDP for the U.S. going forward. I had planned on writing a longer post discussing about why you should take his projections seriously, but Jim Hamilton put up precisely the post I wanted to write. So the first thing you should do is go read Jim’s post. …and if you are still here, let me provide an uber-quick summary of my own before I talk about how you could convince yourself that Gordon is overly-pessimistic.  So, what does Gordon find? Basically, GDP growth is equal to growth in GDP per hour worked (productivity) times growth in hours worked. Hours worked are unlikely to grow much, given that unemployment has already fallen back to 6%, that average hours per worker have recovered much of their decline, and that the labor force participation rate is unlikely to recover much of its recent decline. So the only way for GDP to grow fast enough to hit our prior level of potential GDP (which is essentially what the CBO projects it will do) is for productivity (GDP per hour) to grow much faster than it has at any time in the last decade.  You can see his implications in the above figure. The red line is Gordon’s projection for potential GDP based on his assumed lower productivity growth rate, which is closer to recent averages. The CBO potential GDP path is driven by what Gordon says are aggressive assumptions about how fast productivity will grow. In short, we aren’t going to recover back to the pre-Great Recession trend line for potential GDP any time soon. One might quibble a little about Gordon’s assumptions, and perhaps we won’t diverge from the prior trend line (the yellow one) as much as he suggests. But it’s really hard to come up with reasonable evidence that the CBO is making the right assumption regarding productivity growth.

What Explains the June Spike in Treasury Settlement Fails? -- New York Fed - In June of this year—as we noted in the preceding post—settlement fails in U.S. Treasury securities spiked to their highest level since the implementation of the fails charge in May 2009. Our first post reviewed what fails are, why they arise, and how they can be measured. In this post, we dig into the fails data to identify possible explanations for the high level of fails in June. We observe that sequential fails of several benchmark securities accounted for the lion’s share of fails in June, but that fails in seasoned securities—which have been trending upward for some time—were also elevated. Settlement fails in U.S. Treasury securities rose to their highest level in more than five years in June (but remained well below fails levels seen in past episodes, as noted in our earlier post). Among the netting membership of the Depository Trust and Clearing Corporation (DTCC), gross fails reached more than $1.2 trillion for the month, as shown in the chart below. So what explains the June spike? It can be broken out into two main components. First, a series of fails in several benchmark (that is, “on-the-run”) securities accounted for the majority ($627 billion) of fails. But a continued trend of elevated fails in seasoned securities, or securities issued more than 180 days prior, accounted for an additional $470 billion of fails. We discuss each in turn.

It wasn’t QE that caused a collateral scarcity this summer - The Liberty Street Economics blog of the Federal Reserve Bank of New York provided a good analysis this week of the summer’s UST settlement fails spike. For those unfamiliar, settlement fails in US Treasury securities rose to their highest level in more than five years in June, with DTCC figures reaching more than $1.2 trillion in gross fails for the month:  But, as the authors note, the spike is unlikely to have been caused by the excessive accumulation of USTs in Fed coffers due to large scale asset purchases. And that’s because, a) the fails mostly took place in securities not owned by the Fed and b) because the Fed is pretty nice about lending its stash out as needed.From the post: Evidence suggests that the Federal Reserve’s sizable holdings of Treasury securities were not a direct contributing factor to the recent increase in settlement fails. The fails in benchmark securities, in particular, occurred in securities not owned by the Fed or owned in de minimis amounts. In fact, market participants suggested that it would likely have been helpful if the Fed’s securities portfolio had held more of these benchmark securities in June as securities held by the Fed are available to be lent every day, and such continuous supply tends to alleviate funding market stress. In any case, the authors also reassure that the collateral scarcity which caused this particular fails spike was short-lived, having a limited impact on the liquidity and functionality of the Treasury market, and via that the cash collateral market. This can be seen, they note, by the fact that bid-ask spreads, which serve as one way of measuring the cost of transacting in the market, remained within recent ranges throughout the episode. nIn other words, as far as they are concerned, there was nothing to see here. What’s more puzzling in their opinion is the longer-running rise in fails of well off-the-run or “seasoned” issue, as per the following chart:

The Next Crisis – Part one -- The present global financial ‘crisis’ began in 2007-8. It is not nearly over. And that simple fact is a problem. Not because of the life-choking misery it inflicts on the lives of millions who had no part in its creation, but because the chances of another crisis beginning before this one ends, is increasing. What ‘tools’  - those famous tools the central bankers are always telling us they have – will our dear leaders use to tackle a new crisis when all those tools are already being used to little or no positive effect on this one? I think it is worth remembering how many financial crises we have had since the economy became globally interconnected and since we began the deregulation of finance and the roll back of all Great Depression safeguards under Reagan and Clinton.  It’s also worth noticing that the causes and pattern of the various crises have an unpleasant ring of familiarity about them – as in – the bank lobbyists making sure nothing gets learned and nothing gets changed.

The Self-Fulfilling Function of Political Dysfunction - Here’s an engaging oped by Jon Grinspan that makes one of my favorite points, one which is obvious but under-appreciated, I think: generalized and pervasive negativity about government perpetuates broken government. As Grinspan puts it: First, we need to realize that surging anger at Washington favors those who would like to drown government in a bathtub. When Democrats blame politicians as a group, they support the idea that our system can’t be trusted to make positive change in Americans’ lives, while pushing candidates into a quiet reliance on big donors.During the latest installment of the debt ceiling crisis, I wrote:  I’m reminded of a particularly pernicious rule of today’s politics: the self-fulfilling prophecy of dysfunction.  Many of today’s conservatives run for office on a platform that government doesn’t work.  And when they’re elected, they work their hardest to prove it true.  They say, “we’re Greece!” when of course we’re nothing like Greece, then they threaten default to make us Greece. This is an alarmingly simple ploy, but once you tune into it you see it everywhere.  The prophets of dysfunction must convince us a spending crisis, an entitlement crisis, and debt crisis despite their factual inaccuracies.  It there’s no crisis—if, as is clearly the case [and this is even more the case now than when I wrote this over a year ago]—our fiscal challenges can actually be met with reasonable policies involving analysis (e.g., squeezing inefficiencies out of health care delivery) and compromise (spending cuts and revenue increases), these hair-on-fire-slash-and-burners have no use. To be completely candid, I myself play into this by occasionally and lazily inveighing against “Congress” as if it’s a monolith and “gridlock” as if everyone is equally implicated. I well know—because I interact with them—that there are members on both sides of the aisle who want to work together to accurately diagnose and try to solve problems. And members who decidedly do not.

Tax Shaming from The Guardian - I bet Greg Mankiw really hates this:  I think the issue is not whether we keep the repatriation tax or not but whether we enforce the arm’s length standard. Medtronic is already getting a low effective tax rate without changing its tax domicile as is a host of the other companies noted here:  Instead, to avoid US taxes, they are parking their earnings offshore, often in tax havens like Bermuda and the Cayman Islands that levy no corporate income taxes. That tactic, which like the inversions is legal, is being employed by companies that position themselves as good corporate citizens — among them Apple, Coca-Cola, General Electric, Google, Microsoft, Nike and PepsiCo … One popular tactic is to grant patents or intellectual property rights to a subsidiary located in a tax haven, and then pay above-market royalties to that subsidiary, thus shifting profits from a high-tax jurisdiction to a low one. Are the royalties really above the market rate? Would not the local tax authorities be able to challenge such royalties? Of course, the real issue is that these companies told the IRS that the fair market value of their intangible assets were low when the intangible assets were migrated to the low-tax jurisdictions. Are the good folks at the IRS properly enforcing section 367(d). But the real issue here is tax shaming:  But shouldn’t good citizens pay their fair share of taxes? Socially responsible investors and watchdog NGOs say tax avoidance carries risks for companies that care about their reputation, as all companies should.  “Companies like Walgreen’s run the risk of being seen as unpatriotic.” : “Even if they are within the law, aggressive tax minimization approaches pose regulatory, reputational and financial risks.”

Another Indictment of U.S. Corporate Taxes - At 39 percent, the United States has the highest statutory corporate tax rate of the 34 Organisation for Economic Cooperation and Development countries. Many who defend the high rate point out that only evaluating the statutory rates provides, at best, a partial picture of countries’ business tax environments. In their new release, the “2014 International Tax Competitiveness Index,” Kyle Pomerleau and Andrew Lundeen of the Tax Foundation provide a holistic view of the 34 OECD countries’ business tax systems. They evaluate over 40 tax policy variables to measure tax burdens and structures. Their conclusion: in terms of its corporate tax rate, the United States has little to celebrate. The United States ranks 32nd in the index, ahead of only Portugal and France. Dragging down the U.S. ranking are its highest-in-the-OECD corporate tax rate, taxation of income earned overseas, imposition of estate taxes, high property taxes, and progressive individual rates.

The 314-Member Club — With $81 Billion in their IRAs - Yesterday the Senate Finance Committee convened a hearing to chew on one humdinger of a new report from the Government Accountability Office (GAO). The GAO report found that 314 taxpayers have squirreled away at least $25 million in their Individual Retirement Account (IRA) for an aggregate of $81 billion for all 314 taxpayers. That puts the average account within the $81 billion at an astonishing $258 million. The GAO used 2011 data, the most current available to them from the IRS, and noted that since some of the tax returns were for joint filers, the term “taxpayer” may mean an individual or a couple. Still, even two IRA accounts tallying up to $258 million is off the charts. The figures are raising eyebrows in Congress. No one can say with any certainty how an IRA could grow to such astronomical sums. IRAs have only been around since 1975. Adding to the perplexity, the GAO calculated that if a person made the maximum IRA contributions from 1975 through 2011 and invested the money in the Standard and Poor’s 500, it would have grown to only $353,379. Senator Ron Wyden, Democrat from Oregon, chairs the Senate Finance Committee and opened the hearing with this assessment of the magical IRAs:  “So how did those massive IRA accounts come to be? In many cases, they’re sweetheart stock deals that most investors would never have access to. Executives buy stocks at a special, rock-bottom price – sometimes fractions of a penny per share – and use an IRA as a tax shelter. The stocks start out dirt cheap, but just like that they turn to gold, and the IRA shoots up in value.”One beneficiary of sweetheart stock deals and a member of the privileged 314-Club is former Presidential contender Mitt Romney. The Washington Post’s Tom Hamburger explained in 2012 how Romney got an estimated $87 million in his IRA when he exited Bain Capital, the private equity firm he founded.

The Overpaid CEO: The compensation of American executives—CEOs and their “C-suite” colleagues—has long been a matter of controversy, especially recently, as the wages of average workers have stagnated and economic inequality has moved to the center of the national debate. Just about every spring, the season of corporate proxy votes, we see the rankings of the highest-paid CEOs, topped by men (they’re all men until number 21) like David Cote of Honeywell, who in 2013 took home $16 million in salary and bonus, and another $9 million in stock options. Rarely, however, does the press coverage go beyond the moral symbolism of a new Gilded Age. Coverage of CEO pay usually fails to show that the scale of CEO pay packages—and the way CEOs are paid—comes at a cost. At the most basic level, the company is choosing to pay executives instead of doing other things—distributing revenues to shareholders, raising wages for workers, or reinvesting in the business. But the greater cost may be the risky behavior that very high pay encourages CEOs to engage in, especially when pay is tied to short-term corporate performance. CEO pay also plays a major role in the broader trend toward radical inequality—a trend that, evidence has shown, precipitates financial instability in turn.

Does America want sharply higher taxes on the rich? - Where are top income tax rates heading? The answer may depend on how Americans view the rich and the reasons behind high-end income inequality. Are the 1% and 0.1% and 0.01% pretty much deserving or undeserving?Or to put it another way: If you believe — mostly — that macro forces such as technology and globalization have boosted top incomes by allowing highly talented and educated individuals to manage or perform on a larger scale, then you might be less inclined to support higher top marginal rates. But if you believe the “rich getting much richer” phenomenon is mostly driven by compliant corporate boards overpaying CEOs and a breakdown of social norms against exorbitant pay, then you might favor sharply higher tax rates.So where are we today? In a new Harvard Business Review essay, Roger Martin argues that American attitudes toward taxation and the rich have moved through four historic eras. From 1932 though 1981, for instance, top tax rates rose from 25% to a high of 94%. During that period, high incomes were thought to be something obtained by owning assets rather than through work. Martin: “According to the theory, most rich people were basically rentiers and their income from owned assets could — and should — be taxed at very high rates with no adverse impact on their behavior or the economy.” Since then, a different economic theory and attitude has held sway, resulting in much lower top tax rates (even with the Obama tax hikes.) Recognizing that the US had become a knowledge-driven economy, “lawmakers finally abandoned the prewar assumption that all rich people were rentiers and recognized that at the prevailing rates talented people were being put off work.” So taxer were lowered to encourage more work.

Tax cuts can do more harm than good -  Tax cuts are the one guaranteed path to prosperity. Or so politicians have told Americans for so long that the claim has become a secular dogma. But tax cuts can do more harm than good, a new report shows. It draws on decades of empirical evidence analyzed with standard economic principles used in business, academia and government. What ultimately matters is the way a tax cut is structured and how it affects behavior. A well-designed tax cut can help increase future prosperity, but a poorly structured one can result in a meaner future with fewer jobs, less compensation and higher costs to society. William G. Gale of the Brookings Institution, a nonprofit Washington policy research house, and Andrew Samwick, a Dartmouth College professor, last week issued the report, “Effects of Income Tax Changes on Economic Growth.” Gale said he expects emailed brickbats from those who have incorporated the tax cut dogma into their views without really understanding the issue. “The idea that tax cuts raise growth is repeated so often it is taken like a form of gospel,” Gale told me. “We are not buying into that gospel” because it fails to consider their total effects.

Fidelity Reviewed Which Investors Did Best And What They Found Was Hilarious - On this week's Masters in Business program on Bloomberg Radio, Barry Ritholtz talks with James O'Shaughnessy of O'Shaughnessy Asset Management. Ritholtz and O'Shaughnessy spend much of their discussion talking about the ways people screw themselves when investing, because nothing gets in the way of returns quite like someone who thinks they have a great idea. O'Shaughnessy discusses a number of interesting analyses he has done with regard to the length of holding periods (spoiler: the shorter you hold a stock, the more likely you are to lose money) among other things. But O'Shaughnessy relays one anecdote from an employee who recently joined his firm that really makes one's head spin.

  • O'Shaughnessy: "Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was..."
  • Ritholtz: "They were dead."
  • O'Shaughnessy: "...No, that's close though! They were the accounts of people who forgot they had an account at Fidelity."

Companies' Stock Buybacks at Biggest Pace Since 2007; Companies Rewarding Investors? -  In yet another sign of market over-exuberance, the Wall Street Journal reports Share Repurchases Are at Fastest Clip Since Financial Crisis Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008. The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares. That is more than twice the long-run trend, according to a person familiar with the matter.Contrary to the above graphic (and common wisdom), companies do not reward investors by buying back shares at inflated prices. Companies bought back the most shares in 2007, right before the crash, and the least shares at the most opportune time in 2009. In practice, insiders buy low and sell high, and pocket cash from options all the way up. Insider activity is exactly the opposite of how companies treat shareholders.

Investment Bombshell: CalPERS Exiting Hedge Funds - Yves Smith -- CalPERS, the largest public pension fund in the US, is widely seen as an industry leader and its practices are emulated by other public pension funds. CalPERS has just announced that it is withdrawing from hedge fund investing entirely. This is a major development in investing-land. Having the giant California investor repudiate the premise that hedge funds are an asset class and therefore a prudent investor is obligated to invest in them will legitimate other investors, including endowments and foundations, questioning the logic of putting funds with hedge fund managers. Key sections of the New York Times account: The $300 billion pension fund said on Monday that it would liquidate its positions in 24 hedge funds and six hedge fund-of-funds — investments that total $4 billion and about 1.5 percent of its total investments under management.The decision,…is likely to reverberate across the investment community in the United States, where large investment funds look to Calpers as a model because of its size and the sophistication of its investments. “Hedge funds are certainly a viable strategy for some, but at the end of the day, when judged against their complexity, cost, and the lack of ability to scale at Calpers’ size,” the hedge fund program “doesn’t merit a continued role,” Ted Eliopoulos, the interim chief investment officer of Calpers, said in a statement.

Who Wins in the Financial Casino? - Yves Smith - I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query: We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino Here’s my thought/question: is there a house? The common wisdom is that the ‘house wins’ in casinos In all likelihood, at least in the great financial crisis, the TBTF banks were the ‘house’… yet, it’s at least a bit different from a casino house because, absent the bailouts, those banks would not have won. So, who or what was really the ‘house’? Was it the Fed? Did the Fed actually ‘win’? Maybe the ‘house’ is the 1% …. or, more precisely, the .01%??? My reply: The producers in finance: the managing directors and heads of trading desks at major banks, the more senior managers who are along for the ride, the hedgies, guys in private equity. The “house” is individuals, not institutions. That is how looting works. Remember, the question is not merely who wins from our current hypertrophied financial system, but who is set up to be the house, as in to win no matter what. The answer in this case is intrinsically linked to looting.

Newsflash To Fed: 122 Billion Bottles Of Beer On The Wall Is About Asset Bubbles, Not Jobs -- While Janet Yellen and her band of money printers work themselves into a tizzy over whether two buzz words - “considerable time” - should be dropped from their post-meeting word cloud, they might be better advised to just read the newspapers. This morning’s WSJ brings word that the lending boom which our monetary central planners are eager to stimulate is apparently off-to-the-races. Well, sort of. The item in question is a $122 billion globally syndicated loan to facilitate an M&A deal between the world’s two largest beer companies - AB InBev with a 20% global market share and SABMiller with 10%.

Ilargi: Subprime is Back With a Vengeance - Three months ago, Tracy Alloway stated the obvious at FT: Doubts Raised Over Rating Agency Reform Fitch, one of three big rating agencies, this week criticised credit ratings given by its competitors to a securitisation containing a loan secured by the Westin – the latest instance of agencies sparring with each other over so-called structured finance deals.... since the financial crisis, regulators have encouraged credit rating agencies to give “unsolicited” opinions on deals that they are not hired to evaluate, as part of an effort to avoid the “ratings shopping” that proliferated before 2008. However, as the rating agencies trade public barbs amid a resurgence of certain types of structured products, questions are being raised as to whether these unsolicited opinions actually have much effect on investors’ thinking. And are the banks that securitise loans simply taking their deals to the agencies likely to give them the highest ratings? Translation: nothing has changed. The ratings agencies are too powerful, because the parties that pay them to issue ratings pay them too much to get rid of or even reform. Which seamlessly takes us to Tracy Alloway today: Ratings Shopping’ Makes A Comeback In The US Sales of subprime mortgage bonds have withered since the financial crisis, but fresh concerns are arising as issuance of some other types of securitisations surges. Sales of bonds backed by loans used to finance car purchases undertaken by the least creditworthy borrowers have reached pre-crisis levels in the US, prompting a Department of Justice investigation. While losses on subprime auto asset-backed securities (ABS) remained low during the crisis, there are concerns that new specialised lending companies are making riskier loans which are then being bundled into the bonds. Fitch warns that a flood of new entrants into the subprime auto lending market are lending to riskier borrowers as they seek to establish a foothold in the market. The creators of such securitisations typically pad the debt with extra cash or introduce other safety features – known as “credit enhancement” – to generate higher ratings on bonds comprised of riskier loans.

Timothy Geithner's Revenge: A Broken Bond Rating System - Dean Baker - One of the factors that made it easy for the housing bubble to be inflated to ever more dangerous levels was the conduct of the credit rating agencies. They gave every subprime mortgage backed security (MBS) in sight top investment grade ratings. This made it easy for Citigroup, Goldman Sachs and the rest to sell their junk bonds all over the world. There was a simple reason the credit rating agencies rated subprime MBS as AAA: money. The banks issuing the MBS pay the rating agency. If the big three rating agencies (Moody's, Standard and Poor's, and Fitch) wanted more business, they knew they had to give favorable ratings. The banks weren't paying for an honest assessment, they were paying for an investment grade rating. There is a simple way around this conflict of interest. Have a neutral party select the rating agency. The issuer would still pay for the review, but would have no voice in selecting who got the job.Senator Al Franken proposed an amendment to Dodd-Frank that would have gone exactly this route. (I worked with his staff on the amendment.) The amendment would have had the Securities and Exchange Commission pick the rating agency. This common sense proposal passed the Senate overwhelmingly with bi-partisan support.Naturally something this simple and easy couldn't be allowed to pass into law. The amendment was taken out in conference committee and replaced with a requirement for the SEC to study the issue. After being inundated with comments from the industry, the SEC said Franken's proposal would not work because it wouldn't be able to do a good job assigning rating agencies. They might assign a rating agency that wasn't competent to rate an issue. (Think about that one for a moment. What would it mean about the structure of an MBS if professional analysts at Moody's or one of the other agencies didn't understand it?) Anyhow, as is generally the case in Washington, the industry got its way so the cesspool was left in place. Timothy Geithner apparently is proud of the role he played in protecting the rating agencies since he touted this issue in his autobiography. Geithner is of course making lots of money now as a top figure at the private equity company Warburg Pincus, so everybody is happy.

Bond funds worldwide post biggest weekly outflows of 2014 -BofA  (Reuters) - Investors worldwide pulled a net $3.8 billion out of bond funds in the week ended Sept. 17 on rising fears of an early rate hike from the Federal Reserve, data from a Bank of America Merrill Lynch Global Research report showed on Friday. The outflows were the biggest so far this year, according to the report, which also cited data from fund-tracker EPFR Global. High-yield bond funds posted $3.2 billion in outflows, marking their biggest withdrawals in six weeks, while funds that mainly hold U.S. Treasuries posted $2.9 billion in outflows, their biggest in 13 weeks. true "There was definitely nervousness, because people see the Fed making baby steps toward what will ultimately kill the Treasury market, and that is rate hikes," said William O'Donnell, head U.S. Treasury strategist at RBS Securities. The Fed renewed its pledge to keep interest rates near zero for a "considerable time" after a two-day policy meeting on Sept. 17. Interest rate projections, however, showed Fed officials expect rate hikes to eventually occur at a quicker pace than previously forecast. Funds that hold floating-rate bank loans, which are protected from rising interest rates, posted $800 million in outflows, marking their 10th straight week of withdrawals.

An Accident Waiting to Happen: The $1 Trillion Leveraged Loan Market - - Yves Smith - A new article in Bloomberg gives a well-researched overview of a mess-in-the-making that regulators are choosing to ignore: the leveraged loan market. For newbies, “leveraged loans” means “risky loans to big companies”. For the most part, they fund private equity buyouts and restructurings. The juicy fees on these financings, 1% to 5% of the amount raised, versus an average of 1.3% for junk bonds, is a big reason why none of the incumbents is particularly eager to change a market that is working just fine for them in its current, creaky form.  The problems with leveraged loans are twofold. The first is that they are in the stone ages from an operational standpoint. It takes an average of 20 days to settle a leveraged loan, up from just under 18 days in the last leveraged loan boom, the eve of the financial crisis in 2007. That contrasts with 3 days or fewer for junk bonds. When investors buy new loan participations, the delays can extend into months since investors make binding commitments to fund the loan but the underlying acquisition can be held up. That also means if interest rates rise between the time of commitment versus when the transaction settles, investors are stuck with having to fund a deal at a rate that is now below market, leaving them in a loss position on a mark-to-market basis from the get-go.  And get a load of this:While buyers and sellers can trade stocks and bonds among themselves, they need the approval of corporate borrowers before they can exchange loans. Clerks must then update loan documents to reflect new lenders.With loans, “there’s a high amount of faxing going on still,” said Virginie O’Shea, a senior analyst at Aite Group LLC in London. “People don’t realize that fax machines are still around in this day and age but they are.” This primitive state of affairs results from the fact that loans are not securities and thus are not subject to the tender ministrations of the SEC, including its rules on settlement. And the Fed and OCC have politely not taken any apparent interest in this market.

In Search of Better Credit Assessments —July 21, 2014 was the fourth birthday of the Dodd–Frank Act (DFA). It is maturing faster than a human, but slower than a dog. Of the nearly 400 rules that DFA requires regulators to write, just over half have been completed. At the end of August, the SEC finished another one – regarding credit rating agencies (CRAs). The result makes us wonder what took so long. (A scoreboard tracking DFA rule-making progress is here.) The Commission issued two specific rules, one on conflicts of interest and the other on transparency. The text itself runs more than 700 pages. We read the 4,000-plus word summary. Before getting to the specifics of the SEC’s rule, let’s back up to recall the central role CRAs played in the financial crisis of 2007-09. Without the complicity of CRAs, it is hard to see how the lending that fed the housing boom could have been sustained. Their high ratings of mortgage-backed securities (MBS) were seen almost immediately as one of the villains in the drama. (For an overview of credit rating agencies, see here.)  CRAs had strong incentives to pump up ratings. The most obvious was the concentration of their paying clients: in the half-dozen years before 2007, the top five MBS issuers accounted for 40% of the market, resulting in a large volume of repeat business. The resulting conflict of interest led to a documented bias toward high ratings. This brings us to the two new SEC regulations intended to address the problems with bond ratings. The first one requires CRAs to establish various internal controls and provide certifications aimed at the conflict of interest arising from the “issuer pays” arrangements. The second is about transparency, and compels the CRAs to publish reams of information about the pools they are rating (anonymized to protect the individual mortgage borrowers).

How Banks Continue FX Rigging Right Under The SEC's Noses -- The good news is that the rigging of the FX markets - now conspiracy fact, not conspiracy theory - has, according to Bloomberg, forced the world’s biggest banks to overhaul how they trade currencies to regain the trust of customers and preempt regulators’ efforts to force changes on an industry tarnished by allegations of manipulation with the "modernization of processes that probably should have been brought in 15 or 20 years ago." However, the FX market is far from 'clean' as Bloomberg notes, while banks can limit access to details about client orders on their computer systems, they can’t keep employees from talking to one another. Some traders also are still communicating with clients and counterparts at other firms via Snapchat, circumventing their company’s controls right under the nose of the SEC. As one trader commented, "these [reform] changes look like fig leaves."

New York Fed Takes Aim at Bank Culture --  Banking regulators have spent much of their post-crisis time focusing on Wall Street balance sheets. Now they’re taking aim at banks’ culture as well. The Federal Reserve Bank of New York will hold a conference on October 20 on bank ethics and culture, according to people familiar with the event. A group of bankers, regulators and academics will hear speeches by New York Fed President William Dudley and Fed Gov. Daniel Tarullo, the Fed’s regulatory point man in Washington. New York Fed President William DudleyBloomberg NewsThe closed-door event, which is also set to include appearances by Morgan Stanley Chief Executive James Gorman and Manhattan District Attorney Cyrus Vance, reflects a growing desire by bank supervisors to move beyond quantitative rules targeting banks’ assets and liabilities. (The New York Fed has now posted the full agenda of the conference.) In an interview earlier this week, U.S. Comptroller of the Currency Thomas Curry, who oversees many large U.S. banks along with the Fed, said having proper accountability and controls inside a bank is part of “the first line of defense before you get to capital, liquidity, making sure there’s adequate reserves.” “You need to have the institution be able to police itself,” Mr. Curry said. The OCC on Sept. 2 formalized that mandate with new “heightened expectations” for the biggest banks that require them to improve risk management and to author and adhere to a written statement about their appetite for risk. The Fed, in this year’s “stress test,” faulted several banks, including Citigroup Inc., over “qualitative” issues, such as failing to adequately monitor risks across all their business lines.

Where Americans Don’t Use Banks (Start With Newark, N.J.) - Newark, N.J., leads the pack of U.S. cities with the highest share of residents who don’t use banks, a new report shows. There have long been concerns—both in the government and in the banking industry—about the number of households that lack access to the U.S. banking system, with many efforts to attract low-income adults falling short. Click to view an interactive map of unbanked rates by America’s largest cities.   New data released this week by the Corporation for Enterprise Development, a nonprofit advocacy group for low-income consumers, shed light on where these households are concentrated, confirming that the highest share of consumers that lack bank accounts are in major cities with large minority populations. Nearly 12 million households, or 8.2% of all households nationwide, manage their finances without a bank, according to a Federal Deposit Insurance Corp. study released in 2012. And the 2008 financial crisis resulted in many upper-income Americans managing their finances without a bank. In major cities — defined as the 111 U.S. cities with a population of more than 200,000 — about 15% of households are “unbanked,” meaning that they lack a checking or savings account, the group found. And nearly a quarter of households in those cities are “underbanked,” meaning that they rely on alternative financial services such as payday loans but have a checking or savings account. In Newark, the unbanked rate was 34%. The lowest rates were in the suburban cities of Scottsdale, Ariz., Fremont, Calif and Irvine, Calif., which all had “unbanked” rates of less than 1%. Philadelphia had the highest rate of underbanked consumers, at nearly 36%, while San Francisco had the lowest rate at 6%.

Unofficial Problem Bank list declines to 435 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Sept 12, 2014. Changes and comments from surferdude808:  Two mergers lowered the Unofficial Problem Bank List to 435 institutions with assets of $137.5 billion. A year ago, the list held 700 institutions with assets of $246 billion. Finding their way off the list by finding a merger partner were United Central Bank, Garland, TX ($1.3 billion) and Idaho Banking Company, Boise, ID ($96 million). Idaho Banking company had also been operating under a Prompt Corrective Action order since February 2011. Next Friday we expect for the OCC to provide an update on its enforcement action activities. CR 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 435.

CoStar: Commercial Real Estate prices increased 11.9% year-over-year in July -- Here is a price index for commercial real estate that I follow.   From CoStar: Commercial Real Estate Prices Advance in July amid Rising Transaction Volume and Improving Liquidity Measures CoStar’s equal-weighted U.S. Composite Index increased by a strong 1.5% in July 2014 and 11.9% for the 12 months ending in July 2014. It has now advanced to within 20% of its prerecession peak reached in 2007, supported by increased investor interest beyond core properties in primary markets. The value-weighted U.S. Composite Index, which is more heavily influenced by higher-value trades, began to recover earlier and is nearly back to its peak levels reached in 2007. As a result, annual pricing gains have moderated slightly over the last several months. The value-weighted Composite Index advanced 0.8% in July 2014, and 8.0% for the 12 months ending in July 2014....Trailing 12-month repeat sale deal volume increased 24% as of July 2014 over the prior 12-month period ending in July 2013, as healthy market fundamentals, low interest rates and increasing allocations to commercial real estate by major investors provide a healthy environment for real estate transactions... Distress sales as a percentage of total sales continued to decline from a peak of over 35% in 2011 to 11% through the first seven months of 2014. This graph from CoStar shows the the value-weighted U.S. Composite Index and the equal-weighted U.S. Composite Index indexes.

Washington Warily Eyes Cities’ Loan-Seizure Proposals - An unorthodox campaign by a handful of cities hardest hit by the housing crash to use the power of eminent domain to write down large mortgage debts has stirred a backlash in Washington. Republicans passed in June a budget bill that included language to bar federal agencies from refinancing loans that been seized by cities via eminent domain. The provision would be a poison pill for plans such as one floated last year in Richmond, Calif., to forcibly write down mortgage debt. In New Jersey, two cities, Newark and Irvington, have voted to consider the eminent-domain gambit, and the plan attracted support this summer from council members in New York City. Mortgage bond investors have long opposed the plan, which first surfaced two years ago. The plan works like this. The city would purchase the mortgage at whatever a court determines is fair value, and then the city would write down the loan and refinance it through the Federal Housing Administration, which has a program that allows such refinances for borrowers with very little equity. Bond investors say the plan only works if the city, working with a private firm, can purchase the loan at enough of a discount to refinance into the government-backed loan. They also object to the fact that the plan primarily targets loans where borrowers are current on their payments, and they say such seizures would lead them to be more conservative on loan terms in cities like Richmond. The Obama administration, for its part, hasn’t taken a firm position, even though it controls the FHA through the U.S. Department of Housing and Urban Development. A top Treasury Department adviser earlier this year suggested there were better ways than using eminent domain to address the problem that cities like Richmond face, though those plans require legislation that has attracted scant attention from Congress.

Homeowners steamrolled as Florida courts clear foreclosure backlog | Center for Public Integrity: Florida Circuit Court Judge Diana Lewis was in a hurry. She had 93 foreclosure cases before her in the next two hours and she made it clear that she wasn’t going to let anything slow them down. “This is a 2009 case. You’ve had years to negotiate,” she told one lawyer trying to delay a foreclosure judgment because his client and the lender were working out a deal.  At least twice that morning at the Palm Beach County Courthouse she refused to delay foreclosure trials in cases where the banks and homeowners together requested extra time. Lewis’ manner may be brusque, but her actions aren’t unusual among foreclosure judges in Florida, who in the last year have been working under explicit directions from the state Legislature and Supreme Court to get rid of old cases and clear the court dockets, largely by awarding tens of thousands of homes to banks. “The state’s entire court system has been compromised,” says Matt Weidner, an outspoken foreclosure defense lawyer who practices in Tampa and St. Petersburg and blogs about the system. “They’re stripping away private property rights and transferring billions of dollars in assets from individuals to large entities.” A year into its latest effort to clear the wreckage left from the housing crash and subsequent recession that left hundreds of thousands of Floridians facing foreclosure, the state’s so-called foreclosure initiative is laser-focused on clearing the court system of cases and cutting the time it takes a bank to foreclose.

Lawler: Table of Distressed Sales and Cash buyers for Selected Cities in August -- Economist Tom Lawler sent me the table below of short sales, foreclosures and cash buyers for several selected cities in August.  He has been sending me this table every month for several years. I think it is very useful for looking at the trend for distressed sales and cash buyers in these areas.  On Orlando, Lawler notes: "MLS-based foreclosure sales in Orlando last month were up 30.1% from last August, while MLS-based short sales were down 64.9%." On distressed: Total "distressed" share is down in all of these markets, mostly because of a sharp decline in short sales. Short sales are down significantly in all of these areas. Foreclosures are down in most of these areas too, although foreclosures are up sharply in Orlando, and up a little in Las Vegas and the Mid-Atlantic. The All Cash Share (last two columns) is mostly declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

Are Subprime Mortgages Coming Back? - Six years ago, a deluge of mortgage lending sparked a credit crisis that led to the worst financial meltdown since the Depression. Now, after years of chastened retreat, we are in the midst of a lending drought. Banks have ratcheted mortgage-qualification standards to the tightest levels since at least the 1990s. The federal government — seeking to formalize this new caution — has imposed a host of rules, starting with requiring banks to document that borrowers can repay the loans. “We’ve locked down mortgage lending to the point where it’s like we’re trying to avoid all defaults,” said William D. Dallas, the chairman of Skyline Home Loans, who has three decades of experience in the industry. “We’re back to using rules that were written for Ozzie and Harriet. And we’ve got to find a way to help normal people start buying homes again.”Laurie S. Goodman, an expert in housing finance at the Urban Institute, a think tank in Washington, D.C., recently calculated that lenders would have made an additional 1.2 million loans in 2012 had they merely loosened standards to the prevailing level in 2001, well before the industry completely lost its sense of caution. As a result, fewer young people are now buying first homes, fewer older people are moving up and less money is changing hands. Instead of driving the economic recovery, the housing business is dragging behind. “An overly tight credit box means fewer individuals will become homeowners at exactly the point in the housing cycle when it is advantageous to do so,” Goodman and her co-authors wrote in their study, published in The Journal of Structured Finance. “Ultimately, it hinders the economy through fewer new-home sales and less spending on furnishings, landscaping, renovations and other consumer spending.”

MBA: Mortgage Applications Increase in Latest MBA Weekly Survey - From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey Mortgage applications increased 7.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 12, 2014. The previous week’s results included an adjustment for the Labor Day holiday. ... The Refinance Index increased 10 percent from the previous week. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. ... “Application volume rebounded coming out of the Labor Day holiday, even as rates increased to their highest level in the last few months,” . “Given the volatility in activity around the long weekend, it can be helpful to look at the change over a two week span: refinance applications are down 1.4 percent while purchase applications are up 2.1 percent. Purchase volume continues to track almost ten percent behind last year’s levels.”The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.36 percent, the highest level since June 2014, from 4.27 percent, with points decreasing to 0.20 from 0.25 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

America's Stalling Housing Market -- One graph from The Urban Institute's Housing Finance Policy Center gives us a good clue about why the improvements in the American housing market seem to be stalling: As you can see, the average FICO score/creditworthiness measure of purchase-only mortgagees of all types (i.e. those that are less creditworthy (10th percentile) as well as those that are considered most creditworthy (90th percentile)) has risen steadily since 2001.  In May 2014, the least creditworthy borrowers needed to have a FICO score of at least 658, up from the low 600s prior to the Great Recession.  Even the most creditworthy borrowers have seen their credit requirements rise from around 790 prior to the Great Recession to 801 in mid-2014.  Average (mean) FICO scores for borrowers has risen from the low 700s prior to the Great Recession to 737 in mid-2014. These tighter credit restrictions have discouraged potential home buyers and led to a situation where cash bids have an advantage.  This means that cash buyers, mainly investors, who are looking to purchase housing units to rent to families that cannot access mortgage funding are the ones benefitting from the current mortgage situation.  Here is a graph from FRED showing the number of houses that were sold for cash:

California Home Sales Dive, Prices Hit Wall, Millennials BlamedWolf Richter: This must be part of the explanation why home sales in the expensive parts of California, which is where most people live, are collapsing: according to a Harris Poll on behalf of electronic broker Redfin, 92% of millennials who don’t already own a home do not plan on buying one in the future. Ever. These people, now between 25 and 34, are in their peak home-buying age. They’re the much sought-after first-time buyers. They’re the foundation of the market. But not this generation. Homeownership rate among them, according to the Commerce Department, already plunged from 41% in 2008 to 36% currently; as opposed to 65% for all Americans [Here’s the Chart that Shows Why the Housing Market Is Sick]. These folks are not “pent-up demand” accumulating on the sidelines, as the wishful thinkers have proclaimed. “Millennials who flock straight from college to San Francisco and other expensive cities are making a choice to spend their income on quadruple-digit rents and eight-dollar gourmet hot dogs from trendy food trucks,” explained Redfin San Francisco agent Mark Colwell. “This means they’re not saving for a down payment, further removing them from the housing market.”

Maps Illustrate Mortgage-Lending Boom and Bust for Minorities -- It won’t come as any surprise that mortgage lending exploded during the early part of the 2000s before crashing in 2008 and 2009 after the housing bust. But a new series of maps from the Urban Institute helps illustrate the severity of that boom and bust by shining a light on metro areas and individual neighborhoods. They show where some 100 million mortgages were made between 2001 and 2012. It also reinforces just how much the lax-lending environment of the mid 2000s fueled a big increase in borrowing by minorities, particularly Hispanics and African-Americans, who tended to have lower homeownership rates, median incomes and overall wealth. Many of those communities were particularly hard hit by the foreclosure crisis, with defaults both from newly minted homeowners as well as those who used rising values to pull cash out of their homes. The Urban Institute report uses federal lending records released annually under the Home Mortgage Disclosure Act. It shows how African-American and Hispanic borrowers accounted for a rising share of mortgage lending just as the housing bust neared its peak.Tighter lending standards since 2009 have squeezed borrowers with less wealth and lower incomes, which means there’s been a corresponding drop in minority borrowing. Overall, lending to blacks and Hispanics increased 83% from 2001 to 2006, and then dropped 68% in the following three years. In Los Angeles, for example, Hispanics accounted for 38% of mortgages in 2005 but just 19% in 2012.  The maps show just how severe the economic crisis has been in Detroit, where population flight out of the largely African-American neighborhoods of the inner-city shows very little new lending. From 2006 to 2012, the number of loans made within the metro area fell 79% for African Americans compared to 11% for whites.

Lawler on 2013 ACS: Headship Rates, Homeownership Rates Fell Last Year From housing economist Tom Lawler:The Census Bureau released the one-year estimates for the 2013 American Community Survey this morning. For various housing and demographic information, the results are estimates of year averages.The ACS estimate of the number of households in 2013 was 116,291,033, up just 321,493 from 2012.If accurate of trends, the report suggests that:
1. household growth last year was very slow
2. homeownership rates continued to decline, with significant declines in the 35-64 year age groups.
To remind folks, here is a comparison of the ACS and the HVS with the Decennial Census for 2010. (see tables) Here are implied “headship” rates by age group from the ACS for 2012 and 2013, with headship rate defined at householders divided by resident population.

House Prices to Decline in 2015?: As we progress to the end of 2014, my skepticism towards the U.S. housing market increases. In fact, the fate of home prices in 2015 is in question. I don’t expect an outright collapse of the housing market like the one we saw in 2007, but I see the momentum in housing prices that began in 2012 and picked up in 2013 dissipating for several reasons. First, according to Fannie Mae’s August 2014 National Housing Survey, the number of Americans thinking “it’s a good time to buy a house now” has hit an all-time low! The chief economist at Fannie Mae, Doug Duncan, explained it best when he said, “The deterioration in consumer attitudes about the current home buying environment reflects a shift away from record home purchase affordability without enough momentum in consumer personal financial sentiment to compensate for it. This year’s labor market strength has not translated into sufficient income gains to inspire confidence among consumers to purchase a home, even in the current favorable interest rate environment.” (Source: “Consumer Housing Sentiment Loses Momentum as Income Growth Remains Stagnant,” Fannie Mae, September 8, 2014.) Secondly, while in 2012 and 2013 we saw a massive influx of financial investors enter the housing market—they bought entire city blocks and bid home prices higher—these investors are no longer as active in the housing market simply because all the “good deals” are gone. Look at the red arrow I have drawn in the below chart of the S&P Case-Shiller Home Price Index. In the chart, you see that since April (where the arrow appears), home prices in the U.S. housing market have actually declined. While the mainstream media was adamant that the housing market was improving, the opposite has happened. New homebuyers are missing from the action and house prices are now in decline again.

Student Debt Could Reduce Home Sales 8% This Year, Report Says -- Higher levels of student debt will reduce U.S. home sales by around 8% this year, according to a report released Friday by John Burns Real Estate Consulting, an advisory firm.The paper examines the impact of student debt on purchase activity for households under age 40. Those households account for around two-thirds of student debt holders. It concludes that sales of new and existing home will total 5.26 million this year, with some 414,000 “lost” households as a result of rising student debt burdens.Higher debt burdens will defer home purchases for many borrowers while requiring others to buy a less expensive home in order to qualify for a loan or save for a down payment. The paper estimates that every $250 per month in student loan debt reduces borrowers’ purchasing power by $44,000, and since 2005, some 3.8 million additional households have at least $250 per month in student debt. Put differently, around 35% of households under age 40 have monthly student debt payments exceeding $250, up from 22% of households in 2005. The typical first-time buyer can qualify for a $234,080 mortgage without any student debt, but that figure falls as the monthly debt burden rises. (The analysis assumes that the traditional first-time buyer has income of $61,000.) Mortgage lenders generally won’t extend credit to borrowers whose total debt payments exceed 43% of their gross incomes.

Goldman's Former Head Of Housing Research Predicts Housing Crash, Recession Within Three Years - When a former Goldman executive and the prior head of its housing research team comes out with a shocking analysis so contrary to what the same individual would do in his "former life" when he would be extolling the "inevitable" rise of home prices from here to eternity and beyond, and also throw in an open letter to none other than president Obama, predicting at least a 15% crash in home prices in the next three years, a move which would without debt catalyze the next US recession, it is time to pay attention. Meet Joshua Pollard, who in February 2009 took over coverage of US Housing at Goldman Sachs.  His point, in short: "House prices are 12% overvalued today. They have already started to decline. Today’s misvaluation matches the excess of 2006-07, just before the Great Recession... 5 of the last 7 US recessions were led by a weakening housing market... I am lamentably confident that home prices will fall by 15% within three years." Or, as some may call it, crash.

Housing Starts decrease to 956 Thousand Annual Rate in August - From the Census Bureau: Permits, Starts and Completions Privately-owned housing starts in August were at a seasonally adjusted annual rate of 956,000. This is 14.4 percent below the revised July estimate of 1,117,000, but is 8.0 percent above the August 2013 rate of 885,000. Single-family housing starts in August were at a rate of 643,000; this is 2.4 percent below the revised July figure of 659,000. The August rate for units in buildings with five units or more was 304,000. Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 998,000. This is 5.6 percent below the revised July rate of 1,057,000, but is 5.3 percent above the August 2013 estimate of 948,000. Single-family authorizations in August were at a rate of 626,000; this is 0.8 percent below the revised July figure of 631,000. Authorizations of units in buildings with five units or more were at a rate of 343,000 in August. The first graph shows single and multi-family housing starts for the last several years. Multi-family starts (red, 2+ units) decreased sharply in August (Multi-family is volatile month-to-month). Single-family starts (blue) decreased slightly in August. The second graph shows total and single unit starts since 1968. The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years.

Housing Starts, Permits Tumble Driven By Collapse In Multi-Family Units - One look at the August housing starts and permits data, and one will wonder just how is it possible that yesterday NAHB homebuilder confidence rose to a 9 year high, when according to the US Department of Commerce both Housing Start and Permits tumbled in the past month, with the housing "leading indicator" that is Permits sliding 5.6% from 1040K to 998K, and declining sequentially in every region of the US, with double digit drops in the Northeast and the Midwest, while Housing Starts tumbled by 14.4% from 1117K, to only 956K, wildly missing Wall Street expectations of "only" a 5.2% drop to 1037K.

Housing: down m/m, but YoY trends show apartments still carrying the market -- The first take from this morning's housing report was that it was poor. Several reports have emphasized a big drop in multi-unit permits and starts. As someone who came to the "Housing Slowdown" party early - i.e., at the end of last year, when most people were bullish, and who now believes that the bottom of the slowdown was early this spring, I see this report as consistent with some improvement in housing in the coming months. First, a quick recap. I turned bearish on housing late last year in the wake of sharply increased mortgage rates. I thought that annualized housing numbers would likely at some point this year be down -100,000 or more. Housing reports duly declined, and turned increasingly negative YoY in winter into early spring. But interest rates declined from January into July, and by midyear were actually lower than they had been a year before. Housing has slowly responded to these lower rates, as shown in the graph below, comparing the YoY change in housing permits (in 100,000's, blue) vs. the YoY% change in mortgage rates (inverted, red): Including the data just reported this morning, there has been mild improvement in the YoY comparisons vs. earlier this year, and I expect housing to follow the positive trend in mortgage rates. Further, today's report only reinforces my view that it is multiunit structures - condos and apartments - that have been carrying the market. Again, to quickly recap, when housing didn't go down as much earlier this year as I thought it would, I went back and examined the data. That convinced me that the difference between this year and most housing declines was the widespread entry of Millennials into the market - more specifically, into the apartment market. Apartment and condo construction isn't as sensitive to changes in interest rates as single family homes.

If Builder Sentiment Is So Bullish, Why Are Housing Starts So Low ? - Home-builder confidence has returned to its highest level since late 2005, near the peak of the housing market, the National Association of Home Builders reported Wednesday.. But housing starts aren’t even half of the way back to the late 2005 level. What’s the deal? Are builders hopelessly optimistic? First, part of the disconnect may have to do with the fact that many smaller builders have either gone out of business or sold themselves to larger suitors during the downturn. Those that remain—having survived the bust—could generally be more optimistic. Second, even though a reading of 50 implies favorable market conditions (September’s reading came in at 59), there’s no explicit definition of favorable conditions. After what builders have lived through during the last few years, favorable conditions in 2014 may be quite a bit different from favorable conditions in 2006. Finally, there’s another group of developers who have plenty of reason to feel good. Multifamily construction is running at its highest level in 25 years. Consider: Single-family housing starts through July, using a three-month moving average, are around 64% below their level at the end of 2005, which is the last time the home-builder confidence survey was this strong. But multi-family starts are running slightly above that level. Charting both the change in single-family and multifamily starts since the end of 2006 tells an interesting story. During the crash, home-builder sentiment was closely tied to what was happening in the single family market. But since 2012, it has been a more reliable gauge of what’s happening in the multifamily market.

Rent Boom: Apartment Construction Hits Highest Level Since 1989 - Housing construction dipped in August, driven by a 32% drop from July in the notoriously volatile multifamily sector. But beyond the month-to-month noise, the trends haven’t changed. Apartment construction over the past year climbed to a new 25-year high. Single-family housing permits through August are running exactly in line with last year’s pace, the Commerce Department reported Thursday. Hopes for a big pick-up in single-family construction, which some economists at the beginning of the year had said would propel the economy to the ever-elusive 3% annual growth mark this year, haven’t materialized. And despite the slide in the seasonally adjusted annual figure for multifamily construction in August, the picture looks different if you look back over the past year. The rental market is booming. Construction of new rentals hasn’t been this high since 1989. Wait a minute, some might say. How do we know that all of these structures are necessarily rental apartments? There’s a Census survey that sheds light on that. Every quarter, the Census publishes estimates on the share of units being built for sale and being built for rent. Third quarter figures aren’t available yet, but in the second quarter, some 94% of units in buildings with two or more structures were being built for rent. That is close to the highest level since record keeping began in 1974; the share hit 95% in the spring of 2011.

A few comments on August Housing Starts - This was a disappointing report for housing starts in August. Starts were only up 8.0% year-over-year in August. There were 670 thousand total housing starts during the first eight months of 2014 (not seasonally adjusted, NSA), up 8.6% from the 617 thousand during the same period of 2013. Single family starts are up 3%, and multi-family starts up 23%. The key weakness has been in single family starts. This graph shows the month to month comparison between 2013 (blue) and 2014 (red). Starts in 2014 have been above the same month in 2013 for five consecutive months. Starts in Q1 averaged 925 thousand SAAR, and starts in Q2 averaged 985 thousand SAAR, up 7% from Q1. Even with the weakness in August, Q3 is averaging 1.037 million SAAR, up 5% from Q2. This year, I expect starts to mostly increase throughout the year (Q1 will probably be the weakest quarter, and Q2 the second weakest). The comparisons will be easy for the next couple of months, and starts should finish the year up from 2013. Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment). These graphs use a 12 month rolling total for NSA starts and completions. The rolling 12 month total for starts (blue line) has been increasing steadily, and completions (red line) are lagging behind - but completions will continue to follow starts up (completions lag starts by about 12 months). This means there will be an increase in multi-family completions later this year and in 2015.

NAHB: Builder Confidence increased to 59 in September, Highest since 2005 -The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 59 in September, up from 55 in August. Any number above 50 indicates that more builders view sales conditions as good than poor.  From the NAHB: Builder Confidence Hits Highest Level Since November of 2005 Builder confidence in the market for newly built, single-family homes rose for a fourth consecutive month in September to a level of 59 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. This latest four-point gain brings the index to its highest reading since November of 2005...All three HMI components posted gains in September. The indices gauging current sales conditions and traffic of prospective buyers each rose five points to 63 and 47, respectively. The index gauging expectations for future sales increased two points to 67. Builder confidence also rose across every region of the country in September. Looking at the three-month moving average for each region, the Midwest registered a five-point gain to 59, the South posted a four-point increase to 56, the Northeast recorded a three-point gain to 41 and the West posted a two-point increase to 58. This graph show the NAHB index since Jan 1985.This was above the consensus forecast of 56 and the highest reading since 2005.

Mortgage Equity Withdrawal Still Negative in Q2 2014  - The following data is calculated from the Fed's Flow of Funds data (released this morning) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation. For Q2 2014, the Net Equity Extraction was minus $45 billion, or a negative 1.4% of Disposable Personal Income (DPI).  This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method. There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding decreased by $7 billion in Q2. Compared to recent years, this was a small decrease in mortgage debt. The Flow of Funds report also showed that Mortgage debt has declined by over $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.

Household Net Worth Hits Record $81.5 Trillion In Q2 Driven By Stock Market Surge - When earlier today, the Fed released its latest Z.1 (Flow of Funds report) for the second quarter, there were few surprises: thanks to the relentless liquidity injections by global central banks (charter here) resulting in record stock market levels, total household net worth rose once more, increasing by $1.4 billion in the quarter (up from a downward revised $1.2 billion in the previous quarter) to a record $81.5 billion. This was the result of a $95.4 trillion in total assets, offset by $13.9 trillion in liabilities, mostly mortgage debt of $9.4 trillion, as well as some $3.2 trillion in consumer credit.

Fed's Q2 Flow of Funds: Household Net Worth at Record High -- The Federal Reserve released the Q2 2014 Flow of Funds report yesterday: Flow of Funds. According to the Fed, household net worth increased in Q2 compared to Q1, and is at a new record high:The net worth of households and nonprofits rose $1.4 trillion to $81.5 trillion during the second quarter of 2014. The value of directly and indirectly held corporate equities increased $1.0 trillion and the value of real estate expanded $230 billion. Net worth previously peaked at $67.9 trillion in Q2 2007, and then net worth fell to $55.0 trillion in Q1 2009 (a loss of $12.9 trillion). Household net worth was at $81.5 trillion in Q2 2014 (up $26.5 trillion from the trough in Q1 2009). The Fed estimated that the value of household real estate increased to $20.2 trillion in Q2 2014. The value of household real estate is still $2.3 trillion below the peak in early 2006. The first graph shows Households and Nonprofit net worth as a percent of GDP. Household net worth, as a percent of GDP, is above peak in 2006 (housing bubble), and above the stock bubble peak. This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations. This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up and increased again in Q2 with both stock and real estate prices increasing. This graph shows homeowner percent equity since 1952. Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008. In Q2 2014, household percent equity (of household real estate) was at 53.6% - up from Q1, and the highest since Q1 2007. This was because of both an increase in house prices in Q2 (the Fed uses CoreLogic) and a reduction in mortgage debt. The third graph shows household real estate assets and mortgage debt as a percent of GDP. Mortgage debt decreased by $7 billion in Q2. Mortgage debt has now declined by $1.32 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The return of the American borrower - The Federal Reserve’s latest flow of funds data shows that US households have rediscovered their credit cards, and lenders are eager to oblige them. Just look at this: That 3.6 per cent (annualised) growth rate is quite modest relative to the pre-crisis period but it is nevertheless the fastest pace since the first quarter of 2008. Within the household sector, there is a striking split between the anemic growth rate of mortgage debt (just 0.4 per cent annualised in the quarter ended) and the incredibly rapid increase of consumer credit, which grew at an annualised rate of 8.1 per cent — faster even than during the boom years. About three-fourths of the growth in consumer debt in the last quarter came from an increase in credit card debt and auto loans. Over the past five years, mortgage debt has shrunk by about $1.2 trillion (11 per cent) while consumer borrowing — autos, schooling, credit cards, etc — has increased by a little more than $600 billion (24 per cent). Much of that increase, especially during the early years of the recovery, could be explained by soaring student debt burdens, which have grown by nearly $500 billion. More recently, the rapid growth of auto debt — $100 billion since the start of 2013, much of it subprime — has also played a major role: What’s new, and potentially encouraging as a sign of better job prospects and higher confidence in future income, is that credit card borrowing has finally begun to accelerate in a meaningful way after shrinking for years:

Debt Growth Can’t Keep Pace with GDP, But Net Worth Can -- Households in the U.S. borrowed more on credit cards, cars and their educations in the second quarter and their collective net worth climbed to a new record, according to a new Federal Reserve report. But the Fed report from which these numbers are drawn, known as the Flow of Funds, does not adjust for the size of the overall U.S. economy. And, after all, it’s only natural that net worth or debt would tend to grow as the economy expands.Consumer credit grew by 3.6% in the second quarter, but that’s slower than the 4.2% growth in the overall economy. And mortgage debt has fallen relentlessly as a percent of gross domestic product in recent years.In Thursday’s report, household home mortgage debt stood just under 55% of GDP, the smallest since 2002, back when the credit-fueled housing bubble was in its adolescence.Overall household debt as a percent of gross domestic product has declined to about 70% from just over 90%.  Other types of debt—primarily those credit cards, student loans and auto loans—have expanded, but still not enough to offset the declines in mortgages. Credit growth has been slower than overall growth in the economy. The same cannot be said for wealth.Adjusted for the size of the economy, the overall net-worth figures remain slightly below the levels reached in 2006 and 2007, but have surged since the economy officially emerged from recession in late 2009. (As often noted, these gains are far from equally shared.) Total net worth has climbed from under 400% of GDP in 2009 to 471% in today’s report.

Letting the Rich Take All The Money - Robert Shiller, who was awarded the 2013 Economics Nobel prize, offered his explanation of the current state of hostilities in the world, comparing it to the 1930s.  The current world situation is not nearly so dire, but there are parallels, particularly to 1937. Now, as then, people have been disappointed for a long time, and many are despairing. They are becoming more fearful for their long-term economic future. And such fears can have severe consequences. The consequences he talks about are the mess in Ukraine and the upheavals in Russia. It isn’t that people don’t have enough, it’s that they fear they are losing out. He discusses a 2005 book by Benjamin Friedman, The Moral Consequences of Economic Growth. The problem, he says, is that people are unhappy when they do not see themselves having an opportunity to better their lives.   Shiller talks about Ukraine and Russia, but it works here as well, and may make even more sense. The middle class has been deteriorating for decades, and lately the deterioration is increasing, as the 2013 Survey of Consumer Finances makes clear. Stagnation and insecurity, and the rising cost of things that matter most, food, education and medical care, make people unhappy. Mental doors long closed by social opprobrium reopen, allowing the expression of racism, virulent sexism, and loathing for the poor.

Debt Among U.S. Seniors Ages 64-75 Skyrocketing - A new financial crisis is plaguing senior citizens; unpaid student loan debt. Four times more seniors carry student loan debt now than they did ten years ago. The debt is delaying retirement and in some cases social security benefits. "The idea is that people will pay off their debt gradually and hit retirement with no debt,"  That's not the case for hundreds of thousands of America's seniors. A new study by the Government Accountability Office shows an immense uptick in federal student loan debt in the 65-74 age group, growing from $2.8 billion dollars in 2005, to $18.2 billion dollars in 2013. "They have not saved up the money to send their children to college as successfully as they wanted to," said Marker, "Their children are going to schools and they don't want their children to be in debt and so they're taking that burden upon themselves." Marker advises parents, and clients to be cautious about taking on student debt. "I understand that having put three kids through school but I also understand that you can't borrow to retire." The G.A.O. study says the number of seniors having their social security benefits offset to pay student loans has exploded, growing 500% since 2002 and forcing tens of thousands of seniors to delay retirement. "A lot of times the plan just won't work if they're trying to retire at 65," Marker said

America's Poor Have Never Been Deeper In Debt - Ever since the Lehman bankruptcy, one of the main reasons given by the perpetual apologists about why i) the so-called "recovery" has been the worst in US history and ii) the Fed has been "forced" to conduct 6 years of wealth transferring policies, boosting the stock market to all time highs and creating a record wealth split in US society between the super rich and everyone else (one that surpasses even that seen during the roaring 20s) is that the US consumer, scarred by the economic crash, has been rushing to deleverage and dump as much debt as possible.  There are two problems with that story:

  • First, as we first pointed out in 2012, US households are not deleveraging, they are defaulting, a huge difference which goes to motive and intent, and shows that instead of actively paying down debt households are instead loading up on as much debt as they can, which at some point they simply stop servicing (for a detailed analysis of this disturbing trend, read our series on the student loan bubble).
  • Second, when it comes to the poorest quartile of US society, some 14 million people, it is dead wrong. In fact, as the Fed's triennial Survey of Consumer Finances, released last week showed, America's poorest have never been more in debt!

One in 10 Americans’ paychecks get docked to pay off debts - One in 10 Americans between the ages of 35 and 44 had money seized from a paycheck and sent off to pay a debt last year, a new report finds. More than one-third of those wage garnishments were for student and consumer loans, like credit card or medical bill debt, according to the payroll processor ADP, which analyzed data for 13 million employees for the first study of its kind. The data comes as American credit card debt hits post-recession highs, with the average household’s balance at about $6,802. And one in three Americans is dogged by collections, or debts more than 180 days past due, for credit card balances, child-support, medical or utility bills. For most people, garnished wages went toward child support (41.5%). After student and consumer loans (35.4%), workers’ pay was also docked to pay off tax debts (18.3%) and bankruptcies (4.9%). Those who earned $25,000 to $40,000 had their wages garnished for consumer debts more often than child support. The data suggest a relationship between blue-collar jobs and pay seizures. “The employees living paycheck to paycheck are often hit with these garnishments,”

New ADP Garnishment Report -- A valuable and groundbreaking source of data on wage garnishment has just been released by ADP, the nation's largest payroll services provider. I immediately recalled a great paper by Rich Hynes about the paucity of wage garnishments in Virginia and Illinois in the mid-2000s. According to ADP, things have changed since the recession, especially for blue-collar (manufacturing and transportation/utilities) workers in the Midwest making between $25,000 and $40,000 a year, of whom more than 10% suffered a garnishment in 2011-2013. About half of these garnishments were for child support, but the other half were for taxes, consumer debts, and bankruptcy cases (presumably wage orders entered for Chapter 13 plans). The report is available here in html and here in pdf and makes for very interesting reading.  An NPR story on this report adds a more personal touch by delving into the garnishment woes of Kevin Evans. For those who continue to posit that garnishment is designed to help creditors fight back against deadbeat debtors intent on evading their obligations, a quote from Kevin is striking: "It's my debt. I want to pay it. [But] I need to come up with large quantities of money so I don't just keep getting pummelled." The quantity of money Kevin is talking about is more than $10,000, the result of a $7000 Capital One credit card debt he incurred while unemployed during the recession, plus accruing interest at 26% and $1200 in attorney's fees. Kevin has paid $6000 this year, nearly $500 per paycheck (25% of his disposable income), but as many Slips readers will know all too well, the total debt just keeps growing further out of control.

Unseen Toll: Wages of Millions Seized to Pay Past Debts - After years of spotty employment, Evans, 58, thought he'd finally recovered last year when he found a better-paying, full-time customer service job in Springfield, Mo. But early this year, he opened his paycheck and found a quarter of it missing. His credit card lender, Capital One, had garnished his wages. Twice a month, whether he could afford it or not, 25 percent of his pay — the legal limit — would go to his debt, which had ballooned with interest and fees to over $15,000. The recession and its aftermath have fueled an explosion of cases like Evans'. Creditors and collectors have pursued struggling cardholders and other debtors in court, securing judgments that allow them to seize a chunk of even meager earnings. The financial blow can be devastating — more than half of U.S. states allow creditors to take a quarter of after-tax wages. But despite the rise in garnishments, the number of Americans affected has remained unknown. At the request of ProPublica, ADP, the nation's largest payroll services provider, undertook a study of 2013 payroll records for 13 million employees. ADP's report, released today, shows that more than one in 10 employees in the prime working ages of 35 to 44 had their wages garnished in 2013. Roughly half of these debtors, unsurprisingly, owed child support. But a sizeable number had their earnings docked for consumer debts, such as credit cards, medical bills and student loans.

Appalling Negligence: Decade-Old Windows XPe Holes Led to Home Depot Hack - In the wake of a stunning data breach at America's largest home improvement retail chain, The Home Depot, Inc. (HD), a stunning picture of negligence is slowly emerging.  Both Home Depot and Target Corp. (TGT) -- whose registers were compromised last December -- appear to have fallen victim to a decade-old exploit of Windows XPe. What's more, these losses -- which may total as many as 100 million customer credit and debit card numbers -- could have likely been prevented by simply paying to upgrade to a more modern Microsoft Corp. (MSFT) operating system, such as Windows 7 for Embedded Systems.  But since Target, Home Depot, and others have refused to protect customers, customers are now paying the price.  Banks are scrambling to try to control the damage of these massive intrusions perpetrated by hackers in Russia and Ukraine.  But much damage is already done and will yet be done due to retailers' appalling technical negligence.

BLS: Producer Price Index unchanged in August -- From the BLS: The Producer Price Index for final demand was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.1 percent in July and 0.4 percent in June. On an unadjusted basis, the index for final demand increased 1.8 percent for the 12 months ended in August. The index for final demand goods moved down 0.3 percent in August, the largest decrease since a 0.7-percent drop in April 2013. Over 80 percent of the August decline is attributable to prices for final demand energy, which fell 1.5 percent. The index for final demand foods decreased 0.5 percent. Prices for final demand goods less foods and energy were unchanged. This was slightly lower than expectations, and was mostly due to a decline in energy products. However this is another indicator a low level of inflation.

Producer Price Index for August Was Unchanged - Today's release of the August Producer Price Index (PPI) for Final Demand was unchanged month-over-month seasonally adjusted. Core Final Demand was up 0.1% from last month. Investing.com correctly forecast Core PPI but was looking for a comparable 0.1% increase in the headline number.  The unadjusted year-over-year change in Final Demand is up 1.8%, up slightly from last month's YoY of 1.7%. Here is the essence of the news release on Finished Goods: The Producer Price Index for final demand was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.1 percent in July and 0.4 percent in June. On an unadjusted basis, the index for final demand increased 1.8 percent for the 12 months ended in August....  In August, a 0.3-percent rise in prices for final demand services offset a 0.3-percent decrease in the index for final demand goods. More…  The Headline Finished Goods for August dropped 0.4% MoM and is up 2.23% YoY, down from last month's 2.90%. Core Finished Goods rose 0.05% MoM (which the BLS rounds to 0.1%) and is up 1.94% YoY. Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increased in 2011 and then eased during 2012 and most of 2013, falling as low as 1.15% last August. It shot up in the early winter near the 2% benchmark and has hovered below that level for the past six months.

Producer Price Increase Lowest In 2014 As Energy Slides -  PPI Final Demand was unchanged in August (+0.0% against expectations of +0.0%) making it lowest monthly gain since December 2013 (after revisions moved May's data). Across the board producer prices rose (or didn't) as expected with Final Demand YoY +1.8%. Energy prices fell 1.5% MoM and was the biggest driver of PPI's relative weakness but notably prices for finished goods fell 0.3% - the biggest drop since August 2013. PPI Final Demand MoM lowest in a year Another way of seeing the drop in wholesale prices: Most of the August decrease can be traced to the index for finished consumer energy goods, which fell 1.4%. Within finished goods, falling prices for gasoline, residential natural gas, eggs for fresh use, home heating oil, pork, and fresh vegetables (except potatoes) outweighed rising prices for pharmaceutical preparations, potatoes, and processed fruits and vegetables. And from the report: Final demand services: The final demand services index climbed 0.3 percent in August after inching up 0.1 percent in July. Eighty percent of the August advance can be traced to a 0.3-percent rise in prices for final demand services less trade, transportation, and warehousing. The index for final demand transportation and warehousing services also increased 0.3 percent. Margins for final demand trade services were unchanged. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Gasoline Price Update: Down a Nickel - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium both fell five cents and are now at their lowest averages since mid-February. Regular is up 21 cents and Premium 20 cents from their interim lows during the second week of last November.  According to GasBuddy.com, only one state (Hawaii) has Regular above $4.00 per gallon, unchanged from last week, and one state (Alaska) is averaging above $3.90, also unchanged from last week. South Carolina has the cheapest Regular at $3.11.

Inflation? Not in August, Thanks to the Drop in Gasoline Prices - The Bureau of Labor Statistics released the August CPI data this morning. Year-over-year unadjusted Headline CPI came in at 1.70%, down from the previous month' 1.99%. Year-over-year Core CPI (ex Food and Energy) came in at 1.72% (rounded to 1.7%), down from the previous month's 1.86%. The non-seasonally adjusted month-over-month Headline number was negative at -0.17%, and the Core number was up a fractional 0.07%. On a seasonally-adjusted basis, the all items index posted its first contraction in 16 months. The decline in energy prices, most notably gasoline, was the key factor in the disinflationary August numbers. For more on that topic, see my latest weekly gasoline update. Here is the introduction from the BLS summary, which leads with the seasonally adjusted data monthly data: The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment.  The seasonally adjusted decline in the all items index was the first since April 2013. The indexes for food and shelter rose, but the increases were more than offset by declines in energy indexes, especially gasoline. The energy index fell 2.6 percent, with the gasoline index declining 4.1 percent and the indexes for natural gas and fuel oil also decreasing.  The index for all items less food and energy was unchanged in August; this was the first month since October 2010 that the index did not increase. While the shelter index increased and the indexes for new vehicles and for alcoholic beverages also rose, these advances were offset by declines in several indexes, including airline fares, recreation, household furnishings and operations, apparel, and used cars and trucks.  The all items index increased 1.7 percent over the last 12 months, a decline from the 2.0 percent figure for the 12 months ending July, and the smallest 12-month change since March. The index for all items less food and energy also rose 1.7 percent over the last 12 months. The food index has risen 2.7 percent over the span, while the energy index has increased 0.4 percent.   [More…]  The first chart is an overlay of Headline CPI and Core CPI (the latter excludes Food and Energy) since the turn of the century. I've highlighted 2 to 2.5 percent range, which the Federal Reserve currently targets for the CPI's cousin index, the BEA's Personal Consumptions Expenditures (PCE) price index.

Bond Yields Slide As Core CPI Weakest In Over 4 Years -- Following yesterday's stagnant PPI, today's CPI is a shocker. Core CPI rose a mere 0.01% MoM - its weakest gain since Jan 2010. The 'weakness' was driven by energy (-2.6%), airline fares (-4.7%), clothing (-0.2%), and used car prices (-0.3%) tumbling. The headline CPI dropped 0.2% MoM (against a 0.0% expectation) - its biggest drop since March 2013. The 1.7% YoY gain (missing expectations) is the weakest rise since March 2014.

Did New Airfare Methodology Skew August Inflation Reading? - A sizable drop in airline fares the past two months has some economists questioning if that small category is skewing broader inflation readings. Consumer prices excluding food and energy were flat last month,  the first time the measure failed to register an increase in nearly four years, the Labor Department said. That caught many economists by surprise. Forecasters surveyed by The Wall Street Journal anticipated so-called core prices would rise 0.2% last month. Following Wednesday’s report, at least a half-dozen economists noted the unusually large drop in airfares. Airfares fell a seasonally adjusted 4.7% in August after a 5.9% drop in July. The combined two-month decline is the largest on record back to 1989. It’s possible that a change in methodology has introduced volatility. The Labor Department is in the process of transitioning how it measures prices for flights. According to an article posted to the Bureau of Labor Statistics website in June, the department is moving from the SABRE reservation system to Web-based pricing. SABRE has its roots in pricing business travel, although its data powers the consumer site Travelocity.com. Ultimately, the Labor Department will capture all prices from Internet sources. Those fares will include all taxes, fuel surcharges, and airport, security and baggage fees. Barclays economist Michael Gapen said the changes “introduced noise and volatility into the series.”

Loosening Oil choke collar + higher nominal wage growth = improving real wage growth - One of my bigger themes over the last few years has been how much the secular rise, and then plateauing, of the price of gas, has impacted the economy. Briefly, gas went from under $1 a gallon in 1998 to $4.25 a gallon in 2008. Although not so sudden as the two "oil shocks" of 1974 and 1979, the end result was a similar impact of consumers' wallets. When gas prices plummeted to about $1.40 a gallon at the end of 2008, they heralded an upturn in consumer spending which was one important contribution factor to the recession bottoming out in mid 2009. Since then, the change in the price of gas has continued to have a large behind-the-scenes affect on consumers and the economy, the latest demonstration being this morning's -0.2% decline in the CPI. First, let's look at the YoY% change in the price of gas (green, divided by 10, better to show the trend) and compare it with the YoY% change in CPI (red) for the last 5 years: It's easy to see that changes in the price of gas have largely determined the trend in the overall CPI. With gas prices actually falling YoYfor most of the last two years, the inflation rate has remained tame. Now let's compare the same YoY% change in the CPI (red) vs. the YoY% change in average hourly wages (blue): While nominal average wage growth fell from 3% before the last recession all the way down to only +1.5% in 2012, and have slowly increased since to nearly +2.5% YoY, fueled by the sharp increase in gas back over $3 to nearly $4 a gallon in late 2011 and 2012, inflation rose even faster than wages. Since then, the slow decline in gas prices has meant that wages have risen faster than inflation. The net result is that after falling about 3% from their end-of-recession peak, real hourly wages bottomed in 2012, and have made up about 2/3 of the loss.

As UPS Knows, It’s Never Too Early to Think About Christmas - Although the U.S. calendar still needs to flip through Halloween and Thanksgiving, retailers and businesses are gearing up for the important holiday shopping season. The latest ornament hung on the selling tree is Tuesday’s announcement from United Parcel Service Inc.UPS +0.35% that it plans to hire up to 95,000 temporary workers to handle the holiday rush. That’s up from the 55,0000 seasonal workers the company initially planned to hire in 2013. Don’t mistake the increased hiring as a sign that U.S. consumers will go on a spending tear this holiday season. The UPS hiring maneuver is a response to last year’s delivery debacle, when a larger-than-expected volume of gifts ordered online resulted in many packages missing the Dec. 24 delivery deadline. Indeed, UPS ended up adding 85,000 temp workers last year to handle the rush, significantly higher than its original employment plan. The UPS news reflects the structural shift in holiday shopping—and retailing in general. According to Commerce Department data, e-commerce sales jumped 15.7% in the year ended in the second quarter, compared to a 4.4% advance for all retail sales. Internet sales now account for 6.4% of all retail purchases.

LA area Port Traffic: Soft in August - Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for August since LA area ports handle about 40% of the nation's container port traffic. The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  Note: From the Port of Long Beach: Shipping surge cools after early ‘peak season’ Container cargo shipments declined by 9.1 percent in August at the Port of Long Beach, reflecting both early shipping by importers this year and the comparison to an August last year that was the Port’s busiest month since 2007. ... The downturn last month followed a surge in Long Beach from April through June 2014, when retailers shipped their products early ahead of the expiration of the longshore contract at the end of June. Last year’s August was very busy and started off the typical August through October “peak season.” That peak season may have occurred earlier this year. The contract was settled fairly quickly in July, and I expect traffic to increase over the next few months. To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average. On a rolling 12 month basis, inbound traffic was unchanged compared to the rolling 12 months ending in July.   Outbound traffic was down 0.5% compared to 12 months ending in July.Inbound traffic has been increasing, and outbound traffic has been moving up a little recently after moving sideways.The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Empire Fed Spikes To 5-Year Highs; Employment Plunges To Worst Since Dec 2013 -- Following last month's biggest plunge in 2 years to 4-month lows, it is likely no surprise that the soft-survey-based Empire Fed index exploded to 27.5 (smashing 15.71 expectations) to its highest since October 2009. Of course - away from the headline exuberance, employment plunged to its lowest since 2013, the average workweek slipped, and new orders barely rose (while Prices Received soared). Seems like seasonal adjustments played a strong hand in this exuberance... given hardly any sub indices jumped.

Fed: Industrial Production decreased 0.1% in August - From the Fed: Industrial production and Capacity Utilization The index of industrial production edged down 0.1 percent in August, and the index for manufacturing output decreased 0.4 percent; the declines were the first for each since January. The gains in July for both indexes were revised down. The declines in total industrial production and in manufacturing output in August reflected a decrease of 7.6 percent in the production of motor vehicles and parts, which had jumped more than 9 percent in July. Excluding motor vehicles and parts, factory output rose 0.1 percent in both July and August. The production at mines moved up 0.5 percent in August, and the output of utilities rose 1.0 percent. At 104.1 percent of its 2007 average, total industrial production in August was 4.1 percent above its year-earlier level. Capacity utilization for total industry decreased 0.3 percentage point in August to 78.8 percent, a rate 1.0 percentage point above its level of a year earlier and 1.3 percentage points below its long-run (1972–2013) average. This graph shows Capacity Utilization. This series is up 11.9 percentage points from the record low set in June 2009 (the series starts in 1967). Capacity utilization at 78.8% is 1.0 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007. Note: y-axis doesn't start at zero to better show the change. The second graph shows industrial production since 1967. Industrial production decreased 0.1% in August to 104.1. This is 24.3% above the recession low, and 3.3% above the pre-recession peak. The monthly change for Industrial Production was below expectations.

NY Fed: Empire State Manufacturing Survey indicates "business activity expanded at a robust pace" in September -  From the NY Fed: Empire State Manufacturing Survey The headline general business conditions index rose thirteen points to 27.5, a multiyear high. The new orders index moved up three points to 16.9, and the shipments index advanced two points to 27.1. ... Employment indexes showed a slight increase in employment levels and hours worked. Indexes for the six-month outlook conveyed a high degree of optimism about future business conditions. This is the first of the regional surveys for September.  The general business conditions index was well above the consensus forecast of a reading of 16.0, and indicates solid expansion (above zero suggests expansion).  The index is at the highest level since 2009.

Empire State Manufacturing Shows a Robust Expansion - This morning we got the latest Empire State Manufacturing Survey. The diffusion index for General Business Conditions continues is expanding at a faster pace. The headline number has increased to 27.5, up from 14.7 last month and its highest level since October 2009. The Investing.com forecast was for a reading of 16.0. The Empire State Manufacturing Index rates the relative level of general business conditions New York state. A level above 0.0 indicates improving conditions, below indicates worsening conditions. The reading is compiled from a survey of about 200 manufacturers in New York state.Here is the opening paragraph from the report. The September 2014 Empire State Manufacturing Survey indicates that business activity expanded at a robust pace for New York manufacturers. The headline general business conditions index rose thirteen points to 27.5, a multiyear high. The new orders index moved up three points to 16.9, and the shipments index advanced two points to 27.1. The unfilled orders index fell three points to -10.9. The prices paid index declined three points to 23.9, indicating a slower pace of input price increases, while the prices received index climbed nine points to 17.4, suggesting a pickup in the pace of selling price increases. Employment indexes showed a slight increase in employment levels and hours worked. Indexes for the six-month outlook conveyed a high degree of optimism about future business conditions.  Here is a chart illustrating both the General Business Conditions and Future General Business Conditions (the outlook six months ahead):

Philly Fed Manufacturing Survey at 22.5 in September - Earlier from the Philly Fed: September Manufacturing Survey The diffusion index for current activity fell from a reading of 28.0, its highest reading since March 2011, to 22.5 this month. The current new orders [to 15.5] and shipments indexes edged higher this month, however, increasing 1 point and 5 points, respectively... The employment index increased 12 points to its highest reading since May 2011. [to 21.2] ... Most of the survey’s indicators of future growth declined from their 22-year high readings reached last month.This at the consensus forecast of a reading of 22.0 for September.Here is a graph comparing the regional Fed surveys and the ISM manufacturing index. The dashed green line is an average of the NY Fed (Empire State) and Philly Fed surveys through September. The ISM and total Fed surveys are through August. The average of the Empire State and Philly Fed surveys was solid in September (highest since 2004), and this suggests another strong ISM report for September.

Philly Fed Business Outlook: Continued Growth - The Philly Fed's Business Outlook Survey is a monthly report for the Third Federal Reserve District, covers eastern Pennsylvania, southern New Jersey, and Delaware. The latest gauge of General Activity came in at 22.5, a decrease from last month's 28.0. The 3-month moving average came in at 24.8, up from 23.2 last month. Since this is a diffusion index, negative readings indicate contraction, positive ones indicate expansion. Today's stunner: The six-month outlook at 56.0, off the 22-year high of 64.4 set last month.Here is the introduction from the Business Outlook Survey released today: Firms responding to the Manufacturing Business Outlook Survey indicated continued growth in the region’s manufacturing sector in September. Although the current activity index fell from its relatively high reading in August, the other broad indicators increased from their readings last month. The survey’s indicators for future manufacturing conditions reflect general optimism about growth in activity and employment over the next six months. (Full PDF Report) Today's 22.5 came in close to the 23.0 forecast at Investing.com.The first chart below gives us a look at this diffusion index since 2000, which shows us how it has behaved in proximity to the two 21st century recessions. The red dots show the indicator itself, which is quite noisy, and the 3-month moving average, which is more useful as an indicator of coincident economic activity. We can see periods of contraction in 2011 and 2012 and a shallower contraction in 2013. The indicator is now above its post-contraction peak in September of last year.

Phillly Fed Misses By Most In 7 Months, Employment Surges -- Once again, there's a little something for everyone in yet another soft survey macro data point. The headline Philly Fed print missed expectations by the most since February and fell from 28 to 22.5 in September. So that's the bad news... The great news is that the employment sub-index surged to iuts highest since May 2011. That great news comes despite a plunge in the average workweek and collapse in hope as the outlook index fell to 3-month lows.

US Industrial Production Follows China; Misses With Biggest Drop Since Jan --But but but... the survey all said record highs... Yet another piece of hard data hits the tape and disappoints. While Fed surveys point to an exuberant economy, Industrial Production fell 0.1% in August (missing +0.28% expectations) for its worst print since January's "weather"-related plunge. This comes on the heels of Chinese Industrial Production at its worst in 6 years... perhaps explaining why global GDP expectations continue to test cycle lows. US Capacity Utilization also dropped to 78.8% (lowest since Feb) and the weakness was all Manufacturing driven as production slumped 0.4% MoM - its worst since Jan. So who you gonna believe? Soft surveys? or Hard data?

What It Looks Like When The Second Auto Subprime Bubble Pops - One can kiss the US subprime-driven "manufacturing renaissance" goodbye. The reason, as we reported moments ago, Industrial Production dropped 0.1%, driven by a -0.4% contraction in manufacturing, the worst print since the "harsh winter collapse" of January 2014. The answer to the key question, what drove the tumble, is simple: what goes up has come down, in this case production of Motor Vehciles and Part, after posting its best number in 5 years, just posted... it worst monthly drop in five years, or since May 2009 to be precise. As the chart below shows, following July's month's 9.3% surge in production of motor vehicles and parts, August has come and wiped out all the gains, with a 7.6% plunge, the bigest collapse since May 2009.

Caterpillar Posts Record 21 Consecutive Months Of Declining Global Retail Sales, Worse Than Financial Crisis --Once upon a time, when such things as industrial production, machinery sales and construction, trade and commercial interactions mattered, today's Caterpillar retail sales, which painted a grusome picture for global manufacturing and industrial production, may have gotten more than a casual comment on page... well, nowehere really.  However, since everyone is hypnotized by a "recovery" on the back of "smart-beta" aka $10 trillion in liquidity injections by central banks, and a global "service" economy in which all tha matters is shuffling every greater numbers of pieces of paper from point A to point B and collecting commissions while clicking on FaceBook ads, it obviously doesn't matter to anyone that according to CAT the mini industrial recovery in the US has plateaued and after retail sales rose 14% Y/Y two months ago, dropped to 11% in July and to 8% most recently (blue bar on chart below), and coupled with a double digit collapse in Asia, EAME and Latin America sales (by -24%, -17% and -29% respectively), the industrial bellwether has now seen a mindblowing 21 consecutive months of declining Y/Y global retail sales.

Of Flying Cars and the Declining Rate of Profit - A secret question hovers over us, a sense of disappointment, a broken promise we were given as children about what our adult world was supposed to be like. I am referring not to the standard false promises that children are always given (about how the world is fair, or how those who work hard shall be rewarded), but to a particular generational promise—given to those who were children in the fifties, sixties, seventies, or eighties—one that was never quite articulated as a promise but rather as a set of assumptions about what our adult world would be like. And since it was never quite promised, now that it has failed to come true, we’re left confused: indignant, but at the same time, embarrassed at our own indignation, ashamed we were ever so silly to believe our elders to begin with. Where, in short, are the flying cars? Where are the force fields, tractor beams, teleportation pods, antigravity sleds, tricorders, immortality drugs, colonies on Mars, and all the other technological wonders any child growing up in the mid-to-late twentieth century assumed would exist by now? Even those inventions that seemed ready to emerge—like cloning or cryogenics—ended up betraying their lofty promises. What happened to them?

Tax doubts dampen hiring by US companies - FT.com: US chief executives see little chance of Congress reforming the country’s tax system after November’s midterm elections, leaving them cautious about hiring and investing for the next six months, a survey of chiefs has found. Randall Stephenson, chief executive of telecoms group AT&T, said pessimism over the prospect of tax reform – which big business wants – explained a “disconnect” between corporate expectations of rising sales and timid spending plans.  The Business Roundtable, a lobby group that Mr Stephenson chairs, released a quarterly survey of 135 chief executives that showed companies scaling back their plans for recruitment and business investment from three months ago. While politicians have railed against US companies using “inversion” takeovers to relocate overseas, Mr Stephenson said those deals were a symptom of broader problems with the tax system, which was driving US companies away. “These inversions do reflect people’s expectations for . . . what taxes will look like in the future,” he told reporters on a conference call. “[If] US businesses anticipated meaningful tax reform, these inversions would begin to taper off very quickly.” Republican leaders, who are broadly supportive of big business, are seeking to take control of the Senate from Democrats in November congressional elections, while maintaining their grip on the House of Representatives. But even if Republicans gain the six Senate seats they need to seize control, independent analysts see little prospect of Republicans co-operating with Democrats and the White House to pass a broad tax reform bill.

Business Roundtable: CEOs Expect To Slow Hiring, Capital Spending - Chief executives downgraded their optimism about the U.S. economy, saying they expect to slow both hiring and capital investments in the second half of the year, according to the Business Roundtable’s third-quarter survey released Tuesday. The survey of 135 CEOs found that just 34% expect add to their company’s payrolls in the next six months, down from 43% in the second-quarter poll. The share expecting to decrease employment rose to 20% from 14% in the prior survey. Meanwhile, 39% expect to increase capital spending in the next six months, down from 44% in the prior survey. The responses “reflect a fairly slow-growth economy that ebbs and flows and stops and starts,” said AT&T Inc. chief executive Randall Stephenson, who is chairman of the Business Roundtable. “We see the economy preforming well below its potential.” CEOs, however, expect demand to remain fairly consistent. In the survey, 73% expect their company’s sales to increase in the next six months, matching the prior reading. The Roundtable compiles an economic outlook index based on sales, hiring and investment projections. The third-quarter reading fell to 86.4 from 95.4 the prior quarter. The current quarter’s reading is the lowest of the year. The CEOs expect gross domestic product to expand 2.4% during 2014, a slight upgrade from the 2.3% reading forecast in the prior survey. The numbers, however, are consistent with the lackluster growth recorded during the first five years of the recovery and don’t suggest an economic breakout in the final months of 2014.

Employment: Preliminary annual benchmark revision shows upward adjustment of 7,000 jobs - This morning the BLS released the preliminary annual benchmark revision showing an additional 7,000 payroll jobs as of March 2014. The final revision will be published next February when the January 2015 employment report is released in February 2015. Usually the preliminary estimate is pretty close to the final benchmark estimate. The annual revision is benchmarked to state tax records. From the BLS:  In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series. The final benchmark revision will be issued in February 2015, with the publication of the January 2015 Employment Situation news release.  For national CES employment series, the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment. The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2014 total nonfarm employment of 7,000 (less than 0.05 percent). ... Using the preliminary benchmark estimate, this means that payroll employment in March 2014 was 7,000 higher than originally estimated. In February 2015, the payroll numbers will be revised up to reflect this estimate. The number is then "wedged back" to the previous revision (March 2013). There are 89,000 more construction jobs than originally estimated. This preliminary estimate showed an additional 47,000 private sector jobs, and 40,000 fewer government jobs (as of March 2014).

Revised Payroll Data Show Better Mix of Jobs, Nearly Same Total - A preliminary annual revision to payroll data, released Thursday, shows an earlier count of how many people were employed in the U.S. in March was off by just 7,000. (Total payrolls equaled 138 million that month.) The adjustment of less than 0.05% would be the smallest annual revision in at least the past 10 years if the preliminary numbers hold when they’re finalized early next year. Typically annual revisions move the total payroll figure by 0.3%, or by a few hundred thousand jobs. The new revisions do show somewhat strong job creation in a few sectors. From April 2013 through March 2014, the construction industry added 89,000 jobs more than previously reported and manufacturing added 44,000 more. The change could be meaningful because those fields provide well-paying, middle-class jobs. Meanwhile, employment in education and health services was revised down by 72,000 and employment in wholesale trade was reduced by 41,000. “The good news is that the goods producing sector—higher paying and more cyclical—was revised upward,”  “While the offset was in the service-producing sector wherein the wage rate is typically lower.” The Labor Department surveys a sample of employers to calculate monthly payroll figures. Those numbers are then revised annually with data from state unemployment insurance tax records that covers nearly all employers. Thursday’s preliminary figure will be followed by a final benchmark revision published in February 2015, with the release of next January’s jobs report.

New Jobless Claims at 280K, Well Below Expectations - Here is the opening statement from the Department of Labor:In the week ending September 13, the advance figure for seasonally adjusted initial claims was 280,000, a decrease of 36,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 315,000 to 316,000. The 4-week moving average was 299,500, a decrease of 4,750 from the previous week's revised average. The previous week's average was revised up by 250 from 304,000 to 304,250.  There were no special factors impacting this week's initial claims. [See full report]Today's seasonally adjusted number at 280K was substantially above the Investing.com forecast of 305K. The 4-week moving average is now only 5,750 above its post-recession low set six weeks ago. Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months.

Initial Jobless Claims Plunge From 3-Month High To 14-Year Low -- Last week's "blip" higher in initial claims to over 300k - its highest in almost 3-months - has been demolished by the always-reliable, never-noisy data this week. At 280k, dramatically better than expectations of 305k, initial claims has only been lower once in the last 14 years... just don't tell Janet. The prior week was upwardly revised leaving a 36k drop this week - the biggest percentage drop since 2005. The all-important 4-week average is back under 300k and the labor department reports nothing unusual about this week's data... apart from the fact that non-seasonally-adjusted claims rose 6k to 241k.

Americans Won't Relax, Even Late at Night or on the Weekend -- A new paper by economists Dan Hamermesh and Elena Stancanelli found that Americans not only work longer hours, but they are more likely to work late at night and on weekends as well.On the weekends, one in three workers in the U.S. were on the job, compared to one in five in France, Germany, and the Netherlands.  They found that on a typical weeknight, a quarter of American workers did some kind of work between 10 p.m. and 6 a.m. That’s a lot, compared with about seven percent in France and the Netherlands. The U.K. is closest to the U.S. on this measure, where 19 percent work during night hours. On the weekends, one in three workers in the U.S. were on the job, compared to one in five in France, Germany, and the Netherlands.All of this adds up: According to the OECD, the U.S. leads the way in average annual work hours at 1,790—200 more hours than France, the Netherlands, and Denmark. That works out to about 35 hours a week, but a recent Gallup poll found the average to be much higher than that—at 47 hours weekly. And perhaps that’s not surprising, when 55 percent of college grads report that they get their sense of identity from their work.  But what's so wrong with working so much? The economists note two setbacks to our hardworking culture: less of a social life, and possibly worse health conditions. Hamermesh, for one, says it's not worth it: "We have driven ourselves to the point where we work more and get less and less for it."

Absent full employment or a bubble, middle class income and wealth will fall. - Robert Samuelson covers some useful ground this morning, reviewing income and net worth trends from the recent Survey of Consumer Finances, a triennial (it comes out every three years) survey of family income and wealth. I wanted to add a few points regarding timing of the trends he cites. First, Samuelson notes that if you look at the endpoints 1989 and 2007, real median family income rose 14%, or 0.7% per year. But it’s worth pointing out, as the figure below reveals (red line, which if you know the DC subway system, is an appropriate color choice), that this growth was wholly a 1990s phenomenon. That’s important for two reasons. First, I’ve often emphasized the relationship between the 1990s full employment labor market and higher median incomes, as both hourly wages and hours worked rose significantly over that period. Such favorable labor market dynamics were notably absent in the 2000s. Second, while Samuelson stresses the damage done by the Great Recession, it’s important to recognize that in fact, middle incomes have stagnated or worse now since 2000, almost a decade and a half, such that they’re now back to their 1989 level.

US Corporate Executives to Workers: Drop DeadYves Smith - The Washington Post has a story that blandly supports the continued strip mining of the American economy. Of course, in Versailles that the nation’s capitol has become, this lobbyist-and-big-ticket-political-donor supporting point of view no doubt seems entirely logical.  The guts of the article: Three years ago, Harvard Business School asked thousands of its graduates, many of whom are leaders of America’s top companies, where their firms had decided to locate jobs in the previous year. The responses led the researchers to declare a “competitiveness problem” at home: HBS Alumni reported 56 separate instances where they moved 1,000 or more U.S. jobs to foreign countries, zero cases of moving that many jobs in one block to America from abroad, and just four cases of creating that many new jobs in the United States. Three in four respondents said American competitiveness was falling. Harvard released a similar survey this week, which suggested executives don’t appear any more keen on American workers today, though. The Harvard grads are down on American education and on workers’ skill sets, but they admit they’re just not really engaged in improving either area. Three-quarters said their firms would rather invest in new technology than hire new employees. More than two-thirds said they’d rather rely on vendors for work that can be outsourced, as opposed to adding their own staff. A plurality said they expected to be less able to pay high wages and benefits to American workers. The researchers who conducted the study call that a failure on the part of big American business. They say the market will eventually force companies to correct course and invest in what they call the “commons” of America’s workforce. “Why, if you were a multinational corporation, would you feel a need to correct that mismatch? Why would you invest in American workers? Why would you create a job here?At what point does it become a rational business decision for American companies to write off most Americans?

John Boehner's Theory of the Leisure Class - Paul Krugman -- John Boehner says that unemployed Americans are pretty clearly malingerers, bums on welfare who have decided that they don’t feel like working: “This idea that has been born, maybe out of the economy over the last couple years, that you know, I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around. This is a very sick idea for our country,” he said. “If you wanted something you worked for it,” Boehner said, adding, “Trust me, I did it all.” I could point to the overwhelming economic evidence that nothing like this is happening — after all, if what we were seeing was a mass withdrawal of labor supply, we should be seeing wages for those still willing to work taking off. What we actually see is this: I could also point to zero interest rates and low inflation as evidence that we’re living in a demand-constrained economy. I could ask how, exactly, Boehner believes that increased willingness to work would conjure more jobs into existence. But what really gets me here is the fact that people like Boehner are so obviously disconnected from the lived experience of ordinary workers. I mean, I live a pretty rarefied existence, with job security and a nice income and a generally upscale social set — but even so I know a fair number of people who have spent months or years in desperate search of jobs that still aren’t there. How cut off (or oblivious) can someone be who thinks that it’s just because they don’t want to work?

The Biggest Economic—and Political—Puzzle: Persistently Flat Wages -- It is in many ways both the ultimate economic puzzle and the great political challenge: Why have American incomes remained so flat, for so long, and what can be done to change that? The latest batch of data, released Tuesday by the Census Bureau, cast a harsh light on the problem. Yes, median incomes ticked up in 2013, ever so slightly, for the first time since the recession (by all of $3.46 a week, to be exact.) And the poverty rate inched down. But in today’s dollars, an American household smack in the middle of the earnings scale is taking in now almost exactly what it did in 2000, and barely more than what it did a generation before that. The deeper trends are more striking. Incomes tended to rise after recession-driven downdrafts in the 1980s and 1990s. But something has shifted since 2000, so that recoveries from the past two recessions have left median incomes worse off.  Not only have the job gains been meeker coming out of the past two downturns, but income gains have been nonexistent for most Americans. The White House tried to pluck the most upbeat news from the annual Census release by highlighting a sharp drop in poverty rates among those under 18, an increase in the number of those with health insurance, and a slight narrowing of the wage gap between men and women. But the president’s economic advisers acknowledged the obvious: The data offered “a clear illustration” of the battering the middle class has taken from the recession. This isn’t just a matter of trauma among lower-skilled or lower-wage workers. Anemic wage growth has plagued virtually all professions for well over a decade. A crunching of data last year found average pay for managers and professionals had nudged up just 2.2% between 2001 and 2012, while it had gone up 2.4% for office administrators and down 1.2% for workers across the rest of the service sector.

Wage Theft is a Much Bigger Problem Than Other Forms of Theft—But Workers Remain Mostly Unprotected - Wage theft—employers’ failure to pay workers money they are legally entitled to—affects far more people than more well-known and feared forms of theft such as bank robberies, convenience store robberies, street and highway robberies, and gas station robberies. Employers steal billions of dollars from their employees each year by working them off the clock, by failing to pay the minimum wage, or by cheating them of overtime pay they have a right to receive. Survey research shows that well over two-thirds of low-wage workers have been the victims of wage theft. In 2012, there were 292,074 robberies of all kinds, including bank robberies, residential robberies, convenience store and gas station robberies, and street robberies. The total value of the property taken in those crimes was $340,850,358. By contrast, the total amount recovered for the victims of wage theft who retained private lawyers or complained to federal or state agencies was at least $933 million in 2012. This is almost three times greater than all the money stolen in robberies that year. Further, the nearly $1 billion successfully reclaimed by workers is only the tip of the wage-theft iceberg, since most victims never sue and never complain to the government.

Obamanomics' Fatal Flaw: Minimum Wage-Hiking States Are Seeing Slower Job Growth -  Who could have seen this coming? While facts are awkward things - especially in the face of populist policies - the data shows that retail trade employment growth since the start of the year is notably slower for 'minimum-wage-hiking' states than 'non-minimum-wage-hiking' states. As ValueWalk's Roger Thomas explains,, Seventeen states increased their minimum wages in 2014. Most of the changes happened early in the year. ... It’s still quite early on evaluating how large the adverse employment effects will be, but it looks like the effects are starting to show up in the retail trade employment numbers. As a note on why retail trade, the effects would likely show up in retail trade before they show up in other industries because retail trade employs a large proportion of the minimum wage workers. Here’s the early evidence. The figure shows the growth in retail trade by state since the start of the calendar year according to whether or not a state imposed new higher minimum wage rates. On the left hand side are states that left things as is, meaning these states did not impose any new minimum wage rates. On the right had side are states that imposed new minimum wage rates. The figure that matters here is the difference in the average employment growth rate. In states that left business as is, employment growth in the retail trade industry is up 0.72%. In contrast, states that imposed higher minimum wage rates saw retail trade employment growth of only 0.43%.

The worst paying fastest-growing job in America - -- On Wednesday, California Governor Jerry Brown signed legislation making the state the second in the nation to institute statewide paid sick leave. At the signing ceremony, Brown said that the legislation—expected to bring paid sick leave to most of the 6.5 million Californians currently without it—“helps people—whether it’s a person working at a car wash or McDonald’s or 7-Eleven.” Well there’s one group of people it doesn’t help: home health care workers. Because of cost concerns, Brown negotiated a last-minute amendment that exempts home health care workers from the law.The carve-out of these workers is not surprising, says Abby Marquand, director of policy research at the Paraprofessional Healthcare Institute, a nonprofit advocacy organization. Why? Workers who care for the elderly and disabled in their homes are “an easy target for holding down costs,” she says. “Collectively, as a society, we haven’t valued the work they do in the way we should.” That’s a problem in and of itself, and it has been amplified by the fact that the home care industry is the fastest-growing sector of the American economy.

Modest Income Growth in 2013 Barely Begins To Offset Lost Decade Driven By Financial Crisis and Decade-Long Wage Stagnation - Wage trends greatly determine how fast incomes at the middle and bottom grow, as well as the overall path of income inequality, as we argued in Raising America’s Pay. This is for the simple reason that most households, including those with low incomes, rely on labor earnings for the vast majority of their income. That is why my initial look at the data from the newly released Census Bureau report{URL} on income and, poverty in 2013 will look at wages and the incomes of working age households.  The Census data show that from 2012 to 2013, median household income for non-elderly households (those with a head of household younger than 65 years old) increased 0.4 percent from $58,186 to $58,448. However, that modest growth barely begins to offset the losses incurred during the Great Recession or the losses that prevailed in the prior business cycle from 2000 to 2007. Between 2007 and 2011, median household income for non-elderly households dropped from $63,527 to $57,627, a decline of $5,900, or 9.3 percent. Furthermore, the disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000-2007, where the median income of non-elderly households fell significantly, from $65,785 to $63,527, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000 to 2013, median income for non-elderly households fell from $65,785 to $58,448, a decline of $7,337, or 11.2 percent. Interactive chart.

Americans' stagnant incomes, in two depressing charts - Vox: Middle-class Americans' incomes barely budged last year. The Census Bureau reported Tuesday that the median household income in 2013 was $51,939. That's just $180 more than the $51,759 recorded in 2012. This is the first increase since 2006, but it's also not a statistically significant increase. In addition, it's a big decline from 2007's $56,436, as well as the peak of $56,895 in 1999. So the new figures come as good news of the most depressing sort: no, incomes didn't really go up last year, but at least they've stopped falling. And though incomes didn't really budge last year for the nation as a whole — and, indeed, they've clearly been stagnant for more than a decade — they are of course changing more for different income groups over time.  Keep in mind that this is just income, not assets. That divide is even bigger. Put another way, the top 20 percent are earning half of all incomes each year, while the bottom 20 percent are taking in 3.2 percent of those incomes. If you follow the economics news at all, none of this is really new.. But what this new information from the Census does provide is an annual portrait of how people are faring in the economy — much broader information than any monthly Labor Department report. The last twelve months of jobs numbers have been largely positive, and stock market gains over the last twelve months have arguably been even better.

Real Median Household Incomes for all Racial Groups Remain Well Below Their 2007 Levels -- Today’s Census Bureau report on income, poverty and health insurance coverage in 2013 shows that real median household income increased more among Latino (+$1,391) and African American (+$793) households than white households (+$433), but declined for Asian households (-$2,568). Between 2012 and 2013, the black-white income gap has narrowed from 58.4 cents for every dollar of white median household income to 59.4 cents for every dollar of white median household income. The Hispanic-white income gap has also narrowed from 68.4 to 70.3 cents on the dollar. This is fairly consistent with the modest labor market gains made by African Americans and Latinos in 2013. According to the Bureau of Labor Statistics, between 2012 and 2013, the share of employed adults increased for each of these populations while the share for whites remained unchanged. Despite these relative improvements, real median household incomes for all groups remain well below their 2007 levels. Between 2007 and 2013, median household incomes declined by 9.2 percent (-$3,506) for African Americans, 5.7 percent (-$2,492) for Latinos, 5.6 percent (-$3,432) for whites and 9.7 percent (-$7,201) for Asians. Asian households continue to have the highest median income in spite of large income losses in the wake of the recession.

Census Report Shows Rise in Full-Time Work, Undercutting Claims by Health Reform Opponents - Yesterday’s Census Bureau report shows that the share of workers with full-time, full-year work rose in 2013, while the share with part-time, part-year work fell.  This finding further undercuts assertions that health reform is causing a large increase in part-time employment — as proponents of a House measure to change health reform’s rules on covering full-time workers claim. Health reform requires employers with at least 50 full-time-equivalent workers to offer coverage to full-time employees — defined as those who work at least 30 hours a week — or pay a penalty.  Critics claim that employers are shifting some employees to part-time work to avoid offering them health insurance.  But the data provide scant evidence of such a shift.To the contrary, part-time work became less frequent last year.  “An estimated 72.7 percent of working men with earnings and 60.5 percent of working women with earnings worked full time, year round in 2013, both percentages higher than the 2012 estimates of 71.1 percent and 59.4 percent respectively,” according to the new Census report.  These data are consistent with a recent Urban Institute analysis that found little evidence that health reform has increased part-time work. The share of involuntary part-timers — workers who’d rather have full-time jobs but can’t find them — tells a similar story.  If health reform were distorting hiring practices, as critics assert, we’d expect the share of involuntary part-timers to be growing.  Instead, as the chart (based on Labor Department data) shows, it’s down by 1½ percentage points from its post-recession peak.  My colleague Jared Bernstein finds that this pattern is typical for this stage of a recovery.

A Rare Drop in the U.S. Poverty Rate Doesn’t Deliver Much Good News - The official U.S. poverty rate declined for the first time since 2006. Census Bureau data for 2013 show 14.5 percent of the U.S. population living in poverty, a slight drop from the 15 percent rate in 2012. “I think the main reason we’re looking at for the drop in the poverty rate is the growth in year-round, full-time employment,” Chuck Nelson, a Census Bureau assistant division chief, told reporters during a Tuesday telephone call. Since the overall population has grown, the total number of U.S. residents in poverty remained roughly unchanged last year, at 45.3 million. Median household income in 2013 was also nearly static, at $51,939. The data for 2013 portray persistent inequalities in U.S. poverty and income. Median income for full-time, year-round, female workers was 78 percent of that earned by male counterparts. The poverty rates for Hispanic and black Americans (23.5 percent and 27.2 percent, respectively) were more than double that of non-Hispanic whites (9.6). “Over the last 40 years, since 1973, income at the 10th percentile was not statistically different, while income at the 90th percentile increased by 37 percent,” Census Division Chief Victoria Velkoff told reporters. The cutoff point for the 10th percentile in household income last year was $12,401; for the 90th percentile, it was $150,000.

The Generation-Long Trend Towards Ever-Greater Income Inequality Continues - Today’s release of data on family income from the Census Bureau reinforces the fact that the generation-long trend towards ever-greater income inequality seems to be firmly underway again, after only the briefest interruption caused by the Great Recession.Several economic commentators noted the decline in income inequality (mostly driven by steep but temporary falls in income at the very top of the distribution) that accompanied the aftermath of both the early 2000s recession and the Great Recession, some even going so far as to suggest that the recessions had somehow solved the problem of rising income inequality. Yet the evidence is clear that this isn’t the case—recessions seem to only suspend the growth of inequality temporarily. This, of course, should not be a shock—declines at the top of the income distribution are driven largely by stock market movements, and the steep stock market declines of the early 2000s and 2008 bottomed out quickly, and stock prices rose relatively quickly thereafter. Figure 1 below shows the long-run rise in family income inequality. It tracks growth in average family income by various income groupings since 1947. A key feature of this figure is the extraordinarily tight distribution of income growth from 1947 to 1979 (all lines move upward in a tight bunch), and the rapid pulling apart of income growth thereafter (the lines start pulling apart from each other).

Census: Poverty Rate declined in 2013, Real Median Income increased slightly - From the Census Bureau: Income, Poverty and Health Insurance Coverage in the United States: 2013 The nation’s official poverty rate in 2013 was 14.5 percent, down from 15.0 percent in 2012. The 45.3 million people living at or below the poverty line in 2013, for the third consecutive year, did not represent a statistically significant change from the previous year’s estimate.Median household income in the United States in 2013 was $51,939; the change in real terms from the 2012 median of $51,759 was not statistically significant. This is the second consecutive year that the annual change was not statistically significant, following two consecutive annual declines....These findings are contained in two reports: Income and Poverty in the United States: 2013 and Health Insurance Coverage in the United States: 2013.From Census:
In 2013, real median household income was 8.0 percent lower than in 2007, the year before the most recent recession (Figure 1 and Table A-1).
• Median household income was $51,939 in 2013, not statistically different in real terms from the 2012 median of $51,759 (Figure 1 and Table 1). This is the second consecutive year that the annual change was not statistically significant, following two consecutive years of annual declines in median household income.

• In 2013, the official poverty rate was 14.5 percent, down from 15.0 percent in 2012 (Figure 4). This was the first decrease in the poverty rate since 2006.
• In 2013, there were 45.3 million people in poverty. For the third consecutive year, the number of people in poverty at the national level was not statistically different from the previous year’s estimate.
• The 2013 poverty rate was 2.0 percentage points higher than in 2007, the year before the most recent recession.

2013 poverty and income results: Rising tide lifts a few boats, but the levee needs work. - They’re out and I’ve got an extensive analysis up at PostEverything. For here, some highlights.  The poverty rate fell more than I expected last year–down half-a-percentage point from 15% in 2012 to 14.5% in 2013. It was fully driven by a sharp decline in child poverty rate, which fell almost two percentage points, from 21.8% to 19.9%, the largest one-year decline since 1966.
I did underscore the possibility of just such an upside risk to the poverty rate, so I’m not too surprised, and the stagnant median income is largely what I expected as well (though families with kids did better on both the income and poverty front, largely from work-based gains).
All told, the fact that middle- and low-income households remain considerably worse off relative to pre-recession levels underscores the point I emphasize in my Post post: “…economic recoveries are taking much longer than in the past to reach the poor and middle class, and that reality poses a fundamental challenge that too many of today’s policymakers are ignoring. If this is the new normal — expansions that for years leave most households behind — then broad swaths of Americans have every right to demand that policymakers stop their seemingly endless partisan squabbling and address the factors blocking shared prosperity.”
–As the figure shows, poverty fell most sharply among Hispanic families. While poverty for families with kids fell less than a percentage point for white (non-Hispanic) and African American families, it fell 3.2 percentage points for Hispanic families with kids. (For the record, Hispanic and black family poverty rates, 27 and 32 percent respectively, are much higher than the rate of 10 percent for white families.)

Median Household Income Growth: Deflating the American Dream -- What is the single best indicator of the American Dream? Many would point to household income growth. The Census Bureau has now published some selected annual household income data in a new report: Income and Poverty in the United States: 2013. Last year the median (middle) household income was $51,939 -- a tiny increase of 0.3% from 2012. Let's put the new release into a larger historical context.  My study of the Census Bureau's historical data shows a 627% growth in median household incomes from 1967 through 2013. The ride has been bumpy, but it equates to a 4.41% annualized growth rate. Sounds impressive, but if you adjust for inflation using the Census Bureau's method, that nominal 627% total growth shrinks to about 22%, a "real" annualized growth rate of 0.46%.  But if we dig a bit deeper into the method of inflation adjustment, the American Dream looks more like an illusion, as in "money illusion". My primary focus on 21st Century monthly median household income was based on the excellent monthly data available from Sentier Research. See Median Household Incomes: Monthly Update. The Sentier Research findings are based on Census Bureau (CB) data and adjusted for inflation using the Bureau of Labor Statistics (BLS) Consumer Price Index for Urban Consumers (CPI-U), However, the CB's own annual data series for household income, which reaches back to 1967, uses  the little-known CPI-U-RS (RS stands for "research series") index to "deflate" the nominal income data. The BLS website has slender information about this index. A site search turns up this page, which contains a link to a PDF file with the index from 1977 through 2013. However, some excellent academic work at the Oregon State University Political Science website has reconstructed the annual index data. I've used their CPI-U-RS conversion metrics in the illustrations below.

Yellen Highlights Deepening U.S. Poverty - Federal Reserve Chairwoman Janet Yellen said Thursday the 2007-2009 recession left lasting scars on the poorest American families that have yet to heal more than five years into the official economic recovery. “We have come far from the worst moments of the crisis, and the economy continues to improve,” Ms. Yellen told a conference sponsored by the Corporation for Enterprise Development, a community development organization. “But the effects of the recession are still being felt by many families, particularly those that had very little in savings and other assets beforehand.” She was speaking just a day after the Fed said it would continue winding down its bond-buying program but signaled it would keep borrowing costs near zero for the foreseeable future to support a recovery that remains at best erratic. Ms. Yellen’s focus on poverty and inequality represents a shift from her predecessors, who were more often seen at banking conferences than community development gatherings. Her first speech as Fed chairwoman earlier this year was to a community reinvestment conference in Chicago. The central bank chairwoman noted median net worth has actually declined since 2010 for households in the bottom fifth of the income ladder despite a growing overall economy and a falling unemployment rate, which now stands at 6.1%. “One reason is that income has continued to fall for these families,” Ms. Yellen said. “Another likely reason for this decline in net worth is the lingering effects of the housing crisis.” She highlighted the importance of savings buffers for households that generally don’t hold financial assets. “A larger lesson from the financial crisis, of course, is how important it is to promote asset-building, including saving for a rainy day, as protection from the ups and downs of the economy,” Ms. Yellen said.

By the Numbers: Income and Poverty, 2013  - Key numbers from today’s new Census report, Income and Poverty in the United States: 2013. All dollar values are adjusted for inflation (2013 dollars). Income

  • -$7,337  (-11.2%)  The decline in median non-elderly household income from 2000 to 2013 in level terms and percentage terms, respectively
  • $52,419 vs. $50,033 Median earnings for a man working full time, full year in 1973 and 2013, respectively
  • $29,687 vs. $39,157  Median earnings for a woman working full time, full year in 1973 and 2013, respectively
  • -6.8% vs. -0.5% The decline since 2000 in median earnings for full time, full year workers age 25 or older with a college degree, men and women, respectively
  • 0.5% ($1,542) Income gains for the top 5 percent over 2009–2013 (this was the only income group to experience gains)
  • -$3,445  (-5.6%) The decline in median white, non-Hispanic household income from 2000 to 2013, in level terms and percentage terms, respectively
  • -$5,533  (-13.8%) The decline in median African American household income from 2000 to 2013, in level terms and percentage terms, respectively
  • -$3,904  (-8.7%) The decline in median Hispanic household income from 2000 to 2013, in level terms and percentage terms, respectively

(more…)

Poverty Unchanged By Wall Street Recovery -- Though the federal government and Federal Reserve moved heaven and earth to ensure the 1% were made whole after the financial crisis, those unable to buy influence in Washington remain frayed. According to the Census Bureau over 14% of Americans remain below the poverty line while financial markets have made a considerable recovery from 2008 lows. There has been a recovery, for some. As the recent Federal Reserve survey shows wealth inequality has actually gotten worse during the recovery. The overwhelming majority of assets are owned by the rich and super-rich so when government policy is used to push the Dow up, few Americans go with it. The justification for pumping up financial markets is typically that the wealth will “trickle down,” that when the rich get richer they will pull up the poor and middle class. But as the data clearly shows that just isn’t happening. And, really, there is no good reason to believe it would. Trickle-down economics has consistently failed everywhere and every time it has been tried. The theory is simply wrong. Though often celebrated by the establishment press and political class as “job creators” the rich generally pump their money into assets not goods and services given they hit consumption limits and have nothing left to buy with their immense wealth. This asset inflation does not just raise the Dow it creates bubbles that burst like the one in 2008. The problem for most people being “success” in the government’s eyes is only good for a very small group of Americans. The majority have been relegated to debt peonage and stagnant wages with little chance for advancement. This is terrible if you believe the federal government and related institutions are supposed to serve the interests of the vast majority of the governed, it is unsurprising if you recognize that America is a commercial oligarchy posing as a republic.

The Fed’s Interest Rate Decisions, Census Data on Income and Poverty… and Occupy Wall Street -  On Tuesday, the Census Bureau released its estimates of household income, poverty, and health insurance coverage for 2013. And on Wednesday, the Federal Reserve released its statement on monetary policy, projections of economic growth, and activity for the next year, and Federal Reserve Chair Janet Yellen held a press conference. Wednesday also marked the informal three-year anniversary of Occupy Wall Street (OWS). To incorrectly paraphrase Neil DeGrasse Tyson: it’s all connected, man. The debate swirling around the Fed these days is how soon they should start raising short-term interest rates to slow economic growth and forestall excessively high wage and price inflation. The answer to this should be simple: not soon at all. Wage and price inflation remain extraordinarily low, with no evidence that they’re accelerating. In fact, wage growth could effectively double from its current pace before really becoming inconsistent with even the Fed’s too-conservative 2 percent overall price inflation target. So if this is what the evidence says, why is there a growing chorus arguing for the Fed to tighten? Here’s where Occupy Wall Street comes in. Tightening now would keep unemployment higher than it would be under genuinely full employment, and stopping job growth short of full employment is a powerful tool to shift bargaining power away from low- and middle-wage workers and keep them from realizing inflation-adjusted wage increases. This tolerance of sub-full employment is a big reason why inflation-adjusted wages for the vast majority have failed to rise at all for most of the time since 1979, and have certainly not risen anywhere near the pace of overall productivity growth.  A key part of this inequality by design was having macroeconomic policymakers—particularly the Fed—slow the economy down before full employment could spur across-the-board wage growth.  If OWS had a grand organizing theme, it was certainly along the lines of the idea that economic policy has helped generate the rising inequality we’ve seen over the past generation. They’re right, and macroeconomic policy that has privileged very low rates of inflation over very low rates of unemployment is part of how policy did it.

Poverty Reduction Stalled by Policy, Once Again: Unemployment Insurance Edition - As EPI’s Elise Gould pointed out back in January, a key barrier to translating overall economic growth in recent decades into rapid poverty reduction has been the rise in income inequality. Were economic growth more broadly shared, the poverty rate would be much lower. Here we make the case that this rise in inequality has large policy fingerprints all over it. Today’s data on income and poverty from the Census Bureau shows how a recent policy choice—specifically cutting back on unemployment insurance (UI) in recent years—has stalled poverty reduction.Unemployment insurance is a key plank of the American social insurance system. During the ferocious period of job loss and historically high unemployment during and immediately after the Great Recession, policymakers responded by significantly expanding the duration of benefits, and the American Recovery and Reinvestment Act (ARRA) included boosts to the generosity of benefits as well. The result was that in 2009, UI benefits kept 3.3 million people out of poverty.However, since 2010, this poverty-fighting impact has eroded, and the share of unemployed workers receiving UI benefits has fallen: Both of these trends are shown in the figure below. This is due to both the extended duration of unemployment for some workers outstripping the UI eligibility period as well as intentional policy changes that reduced UI recipiency. The federal government reduced total weeks available in 2012 and then all long-term benefits (those lasting longer than 27 weeks) were cut off at the end of 2013. (The impact of the long-term benefits cut won’t be seen until next year’s poverty figures are released.) Further, several states have also restricted eligibility. The result is that by 2013 only 1.2 million Americans were kept out of poverty by UI benefits. Interactive

What Cutting Jobless Benefits Wrought - The good news is that the poverty rate declined last year for the first time since 2006. The bad news is that it's still at 14.5 percent, meaning 45 million Americans are living below the poverty line, according to data released yesterday by the Census Bureau. Combined with years of stagnant wages, these numbers reveal that, for way too many Americans, the economic recovery has been anything but.  And one of the saddest stories has yet to be fully told.  Due to the House GOP's refusal to vote on an extension, long-term federal unemployment benefits – those stretching beyond the 27 weeks typically offered at the state level – expired at the end of 2013, after being cut back in 2012. Several red states also decided to cut back on their own state-level programs, including North Carolina and Michigan. Those choices brought about some real consequences. As the Economic Policy Institute's Josh Bivens noted, the proportion of unemployed workers receiving benefits and the number of Americans kept out of poverty thanks to those benefits have plunged over the last few years. This chart shows that, at the height of the recession, more than 60 percent of unemployed workers were receiving unemployment insurance benefits, but now that number is below 30 percent.

The political economy of a universal basic income - Steve Randy Waldman -- I think that UBI — defined precisely as a periodic transfers of identical fixed dollar amounts to all citizens of the polity — is by far the most probable and politically achievable among policies that might effectively address problems of inequality, socioeconomic fragmentation, and economic stagnation. It is not uniquely good policy. If trust in government competence and probity was stronger than it is in today’s America, there are other policies I can imagine that might be as good or better. But trust in government competence and probity is not strong, and if I am honest, I think the mistrust is merited. UBI is the least “statist”, most neoliberal means possible of addressing socioeconomic fragmentation. It distributes only abstract purchasing power; it cedes all regulation of real resources to individuals and markets. It deprives the state even of power to make decisions about to whom purchasing power should be transferred — reflective, again, of a neoliberal mistrust of the state — insisting on a dumb, simple, facially fair rule. “Libertarians” are unsurpisingly sympathetic to a UBI, at least relative to more directly state-managed alternatives. It’s easy to write that off, since self-described libertarians are politically marginal. But libertarians are an extreme manifestation of the “neoliberal imagination” that is, I think, pervasive among political elites, among mainstream “progressives” at least as much as on the political right, and especially among younger cohorts. For better and for worse, policies that actually existed in the past, that may even have worked much better than decades of revisionist propaganda acknowledge, are now entirely infeasible. We won’t address housing insecurity as we once did, by having the state build and offer subsidized homes directly. We can’t manage single-payer or public provision of health care. We are losing the fight for state-subsidized higher education, despite a record of extraordinary success, clear positive externalities, and deep logical flaws in attacks from both left and right.

The Case for Open Borders - Dylan Matthews summarizes the The Case for Open Borders drawing on an excellent interview with Bryan Caplan. Here is one bit from the interview:Letting someone get a job is not a kind of charity. It’s not a welfare program. It’s just the government leaving people alone to go and make something out of their lives. When most people are on earth are dealt such a bad hand, to try to stop them from bettering their condition seems a very cruel thing to do to someone.My elevator pitch has no economics in it, because the economics is actually too subtle to really explain in an elevator pitch. If I had a little bit more time, I would say, “What do you think the effects for men have been of more women in the workforce?” Are there some men who are worse off? Sure. But would we really be a richer society if we kept half the population stuck at home? Isn’t it better to take people who have useful skills and let them do something with it, than to just keep them locked up someplace where their skills go to waste?Isn’t that not just better for them, but better for people in general, if we allow people to use their skills to contribute to the world instead of keeping them shut up someplace where they just twiddle their thumbs or do subsistence agriculture or whatever?

Income Inequality Pressures State Tax Revenue, S&P Says - One of the flashpoints in the debate over the widening income gap has been answering the question, “So what?” What is the real impact of separating wages for the wealthiest Americans and everyone else? Standard and Poor’s Ratings Services  offered a new answer Monday, arguing that a rising share of income to the wealthiest Americans has resulted in less tax revenue than would otherwise be the case, making it harder for states to fund all of their services. States tend to collect large shares of revenue from either income taxes or sales taxes, making their budgets reliant on how much money people earn or spend. S&P found that wealthier Americans, who have seen the most income gains in recent years, also have higher savings rates than many other Americans, meaning they are likely to hold onto a larger share of their money and not spend it. That means a smaller portion of this money ends up as sales taxes collected by states. “And since one person’s spending is another person’s income, the result is slower overall personal income growth despite continued strong income gains at the top,” S&P said. Many economists believe the wage gap began widening in the late 1970s and early 1980s. S & P said from 1980 to 2011, “the portion of total income going to the top percentile doubled to about 20% from roughly 10%. During the same span, the annual average rate of state tax revenue growth declined by half, to below 5% from nearly 10%.”

BLS: State unemployment rates little changed in August - From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were generally little changed in August. Twenty-four states and the District of Columbia had unemployment rate increases from July, 15 states had decreases, and 11 states had no change, the U.S. Bureau of Labor Statistics reported today. Forty-five states and the District of Columbia had unemployment rate decreases from a year earlier, three states had increases, and two states had no change.  ... Georgia had the highest unemployment rate among the states in August, 8.1 percent. North Dakota again had the lowest jobless rate, 2.8 percent.This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement. The states are ranked by the highest current unemployment rate. Georgia had the highest unemployment rate in August at 8.1%. The second graph shows the number of states with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate at or above 11% (red). One state has an unemployment rate at or above 8% (light blue), and 11 states are still at or above 7% (dark blue).

Many States Experience a Summer Slump in Job Growth  - The state and local employment and unemployment data released this morning by the Bureau of Labor Statistics show modest employment growth for most states in August, although there has been slower growth in many states over the last three months than we’ve seen for most of the year. Unemployment rates ticked up in more states over the past three months than they went down in, and the labor force shrank in all but twelve states. Over the period from May 2014 to August 2014, 43 states added jobs, with Arizona (+1.1 percent), Montana (+1.1 percent), and North Dakota (+1.1 percent) seeing the largest percentage gains. Over that same time, 19 states lost jobs: Alaska (-1.7 percent), West Virginia (-1.4 percent), and New Hampshire (-1.0 percent) had the largest percentage losses. In 20 states, the 3-month rolling rate of job growth was slower in August than its average for the preceding seven months of the year. From May to August, the unemployment rate rose in 27 states and the District of Columbia, with states in the Southeast showing the greatest weakness. South Carolina (+1.1 percentage points), Tennessee (+1.0 percentage points), Georgia (+0.9 percentage points), and Louisiana (+0.9 percentage points) had the largest unemployment rate increases. Unemployment fell in 19 states, with Illinois (-0.8 percentage points), Colorado (-0.7 percentage points), and Kentucky (-0.6 percentage points) seeing the largest declines. Four states had no appreciable change in their unemployment rates: Florida, Nebraska, New Hampshire, and Utah. Unfortunately, much of the decline in unemployment rates was not for the right reasons. The labor force shrank in 17 of the 19 states where unemployment went down—meaning that at least some of the decrease in the unemployment rate was due to people giving up looking for work rather than finding jobs. Only Hawaii and New Jersey showed declines in unemployment, growth in jobs, and growth in the labor force.

This State Had Just 2.8% Unemployment In August. Here’s How All 50 States Fared. - The unemployment rate has fallen sharply across the U.S. over the year, but some states performed far better than others. Among the 50 states, joblessness fell fastest in Illinois, which saw its unemployment rate drop to 6.7% in August from 9.2% a year earlier. As of August, North Dakota had the nation’s lowest unemployment rate at 2.8%. Utah, Nebraska and South Dakota tied for the second-lowest rates at 3.6%. Georgia had the nation’s highest rate at 8.1%.Overall unemployment in the U.S. stood at 6.1% in August, down from 7.2% a year earlier. Following is a sortable chart showing each state’s unemployment rate in August and how far it fell over the year.

The Changing State of States' Economies - Atlanta Fed's macroblog - Timely data on the economic health of individual states recently came from the U.S. Bureau of Economic Analysis (BEA). The new quarterly state-level gross domestic product (GDP) series begins in 2005 and runs through the fourth quarter of 2013. The map below offers a look at how states have fared since 2005 relative to the economic performance of the nation as a whole. It’s interesting to see the map depict an uneven expansion between the second quarter of 2005 and the peak of the cycle in the fourth quarter of 2007. By the fourth quarter of 2008, most parts of the country were experiencing declines in GDP. The U.S. economy hit a trough during the second quarter of 2009, according to the National Bureau of Economic Research, but 20 states and the District of Columbia recovered more quickly than the rest. The continued progress is easy to see, as is the far-reaching impact of the tsunami that hit Japan on March 11, 2011, which disrupted economic activity in many U.S. states. By the fourth quarter of 2013, only two states—Mississippi and Minnesota—experienced negative GDP.The map shows that not all states are growing even when overall GDP is growing, and not all states are shrinking even when overall GDP is shrinking. But if we want to know more about which states are driving the change in overall GDP growth, then the geographic size of the state might not be so important. Depicting states scaled to the size of their respective economies provides another perspective, because it’s the relative size of a state’s economy that matters when considering the contribution of state-level GDP growth to the national economy. The following chart uses bubbles (sized by the size of the state’s economy) to depict changes in states’ real GDP from the second quarter of 2005 through the fourth quarter of 2013.

Should we ban states and cities from offering big tax breaks for jobs? - Tesla announced earlier this month that it's planning to build a $5 billion lithium battery factory just outside of Reno, which sounds good for Nevada and bad for losing bidders California, Texas, Arizona and New Mexico. So how did Nevada beat out so many competitors? The state offered the electric-car maker up to $1.3 billion in tax breaks and subsidies in exchange for the highly coveted "gigafactory," which lawmakers hope could bring 20,000 jobs and $100 billion in economic impact to the state over the next 20 years. Governor Brian Sandoval declared that the deal had changed the state's trajectory. Nevada legislators unanimously approved it. "This is arguably the biggest thing that has happened in Nevada," one of them said, "since at least the Hoover Dam."Yet in an alternate universe — one where states don't go to economic war over tech companies, corporate headquarters or auto plants — it seems logical that Tesla would still have to build its battery factory somewhere (maybe even Nevada). And if everyone weren't bidding for the facility, setting off an arm's race of tax abatements and public subsidies, no one would have to pay them.This is the dream of critics who've decried Twitter's tax breaks in San Francisco, or Boeing's demands in Seattle, or IBM's dealings in New York: What if we simply banned states and local governments from poaching jobs from each other, or giving tax dollars to private corporations, or enabling what Greg LeRoy at Good Jobs First calls "job blackmail"? Wouldn't every state and municipality be better off if none of them had to pen costly deals to lure companies that might come anyway, or to quiet existing employers who threaten to leave?

Wages Grew in Most Large U.S. Counties. Did They Grow in Yours? - Average weekly wages went up in most large counties during the first quarter of 2014, reflecting a broader national increase, the Labor Department reported today. Among the 339 largest counties, 323 experienced wage increases from the first quarter of 2013 to the same period this year, according to the Quarterly Census of Employment and Wages. All 10 of the nation’s largest counties also had wage increases, including New York, N.Y., where the financial services industry had the largest impact on its 12% wage increase. Nationally, the weekly average wage was up 3.8% during the period, to about $1,027. Chester County, Pa., a Philadelphia suburb, saw the highest increase — 13.9% — boosted by a nearly 50% leap in trade, transportation and utilities wages. Benton, Ark., experienced the largest decrease in wages: 3.2%. The department reported that a decrease in professional and business services contributed to the decline. The nation’s largest counties are listed below:

Did Your Local Economy Beat the U.S. In 2013? This Chart Will Tell You - The U.S. economy expanded 2.2% in 2013. But growth varied greatly across the nation’s 381 metropolitan regions, and some local economies actually contracted, a new Commerce Department report shows. The Mount Vernon-Anacortes metro area in Washington state grew fastest, with gross domestic product expanding by 10.6% in 2013. (Keep in mind that its $5.4 billion economy is relatively small.) The Commerce Department attributed strength in nondurable goods manufacturing and in petroleum and coal products manufacturing. On the other end, the Peoria, Ill., metro economy contracted 6.8% in 2013. Following is a sortable chart of all 381 metro regions, showing how much their economies expanded or contracted in 2009—the last year of the recession—and in 2013. Combined, all metro-area economies contracted 2.8% in 2009 and grew 1.7% in 2013.

ACS Data Show Almost No Improvement in State Poverty Rates - The American Community Survey (ACS) poverty data that were released by the Census Bureau earlier today showed that poverty rates were essentially unchanged from 2012 to 2013 in virtually every state.1  Only six states had significant changes in their poverty rates: Colorado (-0.7 percentage points), New Hampshire (-1.3 percentage points), New Jersey (+0.6 percentage points), New Mexico (+1.1 percentage points), Texas (-0.4 percentage points), and Wyoming (-1.7 percentage points). All other states had no significant change from their 2012 poverty rates.The increases in poverty in New Jersey and New Mexico are the most troubling, although the lack of any significant decrease in most other states is also deeply frustrating. As shown in the figure below, North Dakota is the only state where the poverty rate has fallen back down to pre-recession levels. In every other state nationwide, poverty rates remain significantly above their 2007 levels.The failure to see any significant reduction in poverty over the last several years is a direct consequence of the continued weakness in the labor market. (It’s not surprising that poverty has fallen in North Dakota given that the state’s unemployment rate has averaged 3.3 percent from the start of the recession to today.) At the same time, however, policymakers have directly stymied poverty reduction by cutting back on unemployment insurance. If we want to start bringing poverty rates down, we need to restore the labor market back to full health, lift wages, and start sharing economic growth more broadly.

Why are there increasing numbers of disabled children? -- Many writers have worried about the increasing number of disabled American adults. Some argue that the social security disability payment system encourages able-bodied adults to drop out of the work force. But the proportion of American children who are disabled is also increasing. Data from surveys of approximately 200,000 families. The error bars represent two standard errors around the estimated disability rates. All graphs are mine, plotted from data in Houtrow et al.’s tables. These data are from Amy J. Houtrow, Kandyce Larson, Lynn M. Olson, Paul W. Newacheck and Neal Halfon based on surveys of parents aged 0 to 17 years. The increase in disability appears to accelerate after 2008, when the recession hit. ‘Disabled’ means that the child had a chronic condition that limited an activity such bathing or walking; or that the child needed special education or early intervention services. Using a somewhat different definition, the CDC also finds increasing rates of childhood disability. What kinds of disorders are causing these disabilities? The researchers classified disabilities as either physical or neurological/mental health. Neurological/behavioral disabilities are much more common. Moreover, it’s the neurological/mental health disabilities that are growing; whereas physical disabilities have actually declined.  Disabilities are also more common among children in poor families. In the next graph, the red line represents families at or below the federal poverty line, while the blue line represents families making four or more times the poverty level. Houtrow and her co-authors note that the rate of disability has increased more quickly among more affluent families than among the poor, but the wide error bars around the estimates for poor families make me skeptical about this claim.

The state of food insecurity for kids in the US -- A recent Brookings piece looks at the issue of food security and poverty for children in the US. The authors, Craig Gundersen and James Ziliak, note that “In 2012, over one in five U.S. children lived in households that were food insecure, defined by the U.S. Department of Agriculture as ‘a household-level economic and social condition of limited access to food.’” Food insecurity levels for children increased during the Great Recession and “have not improved much since then.” Unsurprisingly, insecurity is worse in areas such as the Mississippi Delta and Appalachia. While income is a factor—around 40% of children “in households near or below poverty are in food insecure households”—there are some other variables to consider, write the authors. Here are five other factors they say affect food security:

  • Parental mental and physical health
  • Family structure
  • Child care arrangements
  • Immigrant status
  • Parental incarceration

They conclude: Most studies of government food assistance programs, such as SNAP, suggest that participation in these programs lead to substantial reductions in food security. Unfortunately, the effectiveness of SNAP is limited, due to poor take-up rates in some areas and a formula for determining benefit levels that has not been updated in years…. There are many open questions about the how food insecurity affects households, but given the high numbers of Americans living in food insecure households, it’s clear that we must continue to examine it critically to help policy makers and program administrators better address this significant policy challenge.

James Heckman: Early Interventions Lead To Higher IQs | The Institute for New Economic Thinking: The Jesuits used to argue that if they could get someone in their church by age five, they’d have them hooked for life. Nobel Laureate James Heckman doesn’t go quite so far in his ideas for early childhood education, but he does suggest that the years between birth to preschool are crucial in helping to boost IQ scores, enhancing overall educational standards, and therefore improving the economic future of the less advantaged amongst us. Heckman’s proposals are not particularly radical in terms of major institutional changes in our educational structure. Rather, they are more profoundly social in nature. Enriched parenting, providing children with encouragement, and creating early environments promoting cognitive skills and non-cognitive skills, are the kinds of things that Heckman’s research is designed to promote. But his research also indicates that something as basic as reading to a child on a regular basis, a very simple human activity that many of these disadvantaged kids don’t get, can have significant payoffs in terms of IQ development. Heckman is now extending his research well beyond the United States into countries such as India and China, where the impact could be even more profound from a longer-term perspective given these countries’ huge populations, and their economic ascendancy.

Bible-pushing Christians open the door for Satanic activity books in Florida schools: he Satanic Temple has responded to an Orange County, Florida decision to disseminate religious materials in public school by creating complementary materials that espouse the philosophy and practice of Satanism.  Last month, a Florida judge ruled that if the Orange County school district allowed Christian groups to disseminate Bibles and Christian-oriented religious materials in its schools, it would also have to allow atheist groups to do the same.  David Williamson of the Central Florida Free Thought Community — who recently fought against Brevard County’s attempt to ban atheists from offering invocations at public meetings — sued the district over its initial unwillingness to allow atheist literature with titles like “Jesus Is Dead” and “Why I Am Not a Muslim” in the schools.  A judge dismissed that case after the school board decided to allow the materials.  The Satanic Temple took advantage of this decision, deciding to flood Orange County schools with a pamphlet entitled The Satanic Children’s Big Book of Activities that contains kid-friendly Satanic lessons.

ISIS Bans Teaching Evolution In Schools: (AP) — The extremist-held Iraqi city of Mosul is set to usher in a new school year. But unlike years past, there will be no art or music. Classes about history, literature and Christianity have been "permanently annulled." The Islamic State group has declared patriotic songs blasphemous and ordered that certain pictures be torn out of textbooks. But instead of compliance, Iraq's second largest city has — at least so far — responded to the Sunni militants' demands with silence. Although the extremists stipulated that the school year would begin Sept. 9, pupils have uniformly not shown up for class, according to residents who spoke anonymously because of safety concerns. They said families were keeping their children home out of mixed feelings of fear, resistance and uncertainty. "What's important to us now is that the children continue receiving knowledge correctly, even if they lose a whole academic year and an official certification," a Mosul resident who identified himself as Abu Hassan told The Associated Press, giving only his nickname for fear of reprisals. He and his wife have opted for home schooling, picking up the required readings at the local market.

US school districts given free machine guns and grenade launchers  -- School police departments across the US have taken advantage of free military surplus gear, stocking up on mine-resistant armoured vehicles, grenade launchers and scores of M16 rifles. At least 26 school districts have participated in the Pentagon’s surplus program, which is not new but has come under scrutiny after police responded to protesters in Ferguson, Missouri, with teargas, armour-clad military trucks and riot gear. Amid that increased criticism, several school districts have said they will give some of the equipment back but others plan to keep it. Nearly two dozen education and civil liberties groups have sent a letter to the Pentagon and the justice and education departments urging a stop to transfers of military weapons to school police. The Los Angeles unified school district, the nation’s second-largest at 710 square miles with more than 900,000 students enrolled, said it would remove three grenade launchers it had acquired because they “are not essential life-saving items within the scope, duties and mission” of the district’s police force. But the district would keep the 60 M16s and a military vehicle known as an MRAP used in Iraq and Afghanistan that was built to withstand mine blasts. District police Chief Steve Zipperman told the Associated Press that the M16s were used for training and the MRAP, parked off campus, was acquired because the district could not afford to buy armoured vehicles that might be used to protect officers and help students in a school shooting. “That vehicle is used in very extraordinary circumstances involving a life-saving situation for an armed threat,” Zipperman said. “Quite frankly I hope we never have to deploy it.”

Los Angeles schools police to return grenade launchers to U.S.: L.A. Times newspaper (Reuters) - Los Angeles schools' police said on Tuesday it would give up three grenade launchers it acquired for free through a federal program now facing mounting scrutiny for supplying local agencies with military-grade equipment, the L.A Times newspaper reported. The move follows scrutiny over the Department of Defense's program, begun in 1991, which gives unused equipment to police forces across the U.S., including ones that serve school districts. The Los Angeles School Police Department, which serves the nation's second-largest school system, would keep 61 rifles and an armored vehicle built to withstand roadside bombs, the newspaper said. Reuters could not independently verify the report. A police sergeant who declined to be named confirmed the department had the equipment and said it is needed "for the safety of staff, students, and personnel" but could not confirm what if anything the department was relinquishing. The Mine Resistant Ambush Protected vehicle, and the grenade launchers, would only have been used in "very specific circumstances," he added, without elaborating.

Report: Proposed Texas Textbooks Deny The Truth About Climate Change --  Seven of nineteen proposed social studies textbooks in Texas distort climate science and climate change, a report by the National Center for Science Education found on Monday. Textbooks proposed by both Pearson and McGraw Hill, two of the largest educational material publishers in the country, suggest that scientists are divided on what causes climate change. McGraw Hill’s textbook argues that “scientists agree that Earth’s climate is changing. They do not agree on what is causing the change,” asking if it is “just another natural warming cycle like so many cycles that have occurred in the past? Scientists who support this position cite thousands of years’ worth of natural climatic change as evidence…” However, around 97 percent of climate scientists agree that human activity is mainly responsible for global warming. The Pearson textbook also suggests that only “some” climate scientists believe the human burning of fossil fuels is responsible for climate change.The McGraw Hill textbook also gives the opinions of two employees from a conservative think tank equal weight to the findings of actual scientists. In one of the book’s sections, students are asked to compare two passages: one is from two employees of the Heartland Institute, a think tank that has been described as the “primary American organization pushing climate change skepticism,” while the other comes from the United Nation’s Intergovernmental Panel on Climate Change, which is composed of experts who looked at research from thousands of top climate scientists.

The Teacher Wars & Building a Better Teacher Review - Public school teaching, writes education reporter Dana Goldstein, has “become the most controversial profession in America.” The “ineffective teacher,” she writes, has become “a feared character,” comparable to “crack babies or welfare queens” in earlier eras. Long accustomed to being the punching bag of the right, teachers and teachers unions are newly targeted by Democratic education reformers; the Obama administration, too, has championed a series of center-right reforms fashionable among hedge fund managers. Not surprisingly, between 2008 and 2012, teacher job satisfaction “plummeted from 62 to 39 percent, the lowest level in a quarter century,” Goldstein notes in her smart and valuable new book, The Teacher Wars: A History of America’s Most Embattled Profession.  All of this would be a price worth paying if the currently popular center-right reforms were likely to significantly improve opportunities for disadvantaged students. But the whole enterprise is based on a very weak foundation and faulty thinking, according to Goldstein. In another engaging new book, Building a Better Teacher: How Teaching Works, education reporter Elizabeth Green also suggests that the current emphasis on ranking teachers and quickly dismissing some is misplaced. Taken together, these two young reporters raise grave doubts about the unfortunate bipartisan support for today’s punitive approach toward teachers.

‘A National Admissions Office’ for Low-Income Strivers - Arianna Trickey was opening a piece of mail in her bedroom during junior year of high school when a pamphlet fell out of the envelope. The pamphlet seemed to offer the impossible: the prospect of a full scholarship to several of her dream colleges.The pamphlet was from a nonprofit organization called QuestBridge, which has quietly become one of the biggest players in elite-college admissions. Almost 300 undergraduates at Stanford this year, or 4 percent of the student body, came through QuestBridge. The share at Amherst is 11 percent, and it’s 9 percent at Pomona. At Yale, the admissions office has changed its application to make it more like QuestBridge’s.Founded by a married couple in Northern California — she an entrepreneur, he a doctor-turned-medical-investor — QuestBridge has figured out how to convince thousands of high-achieving, low-income students that they really can attend a top college. “It’s like a national admissions office,” said Catharine Bond Hill, the president of Vassar.The growth of QuestBridge has broader lessons for higher education — and for closing the yawning achievement gap between rich and poor teenagers. That gap is one of the biggest reasons that moving up the economic ladder is so hard in the United States today, as I’ve written before. But QuestBridge’s efforts are innovative enough to deserve their own attention. In addition to the hundreds of its students on college campuses today, hundreds more have graduated over the last decade. They’ve gone on to become professors, teachers, business people, doctors and many other things. Ms. Trickey, a senior at the University of Virginia who is also getting a master’s in education, plans to become an elementary-school teacher in a low-income area.

The Enchanted Land Where Community College Is Free? Welcome to Tennessee in 2015  -- Tennessee Gov. Bill Haslam promised his state something unprecedented: free community college tuition.  The “Tennessee Promise” is now more than a promise: It’s a law Haslam signed in May. The bill provides two years of tuition at a community college or college of applied technology for any high school graduate who agrees to work with a mentor, complete eight hours of community service, and maintain at least a C average. High school graduates will start to reap these benefits in fall 2015. Oregon Sen. Mark Hass is selling the idea to his state, too. He sponsored a bill that passed earlier this year to study whether a similar system in Oregon would work. The results should be out later this year. Hass feels passionate about this bill because his generation didn’t have to deal with the same hardships as today’s young people. When he graduated from Tigard High School in 1975, his friends could score a job at a timber mill and make a decent living for the rest of their lives. In 2013, by contrast, high school grads without a college degree faced an unemployment rate of 7.5 percent, more than 2 percentage points higher than their associate-degree holding peers; their annual income was lower by more than $6,500.

Academic Fraud and the Ponzi Scheme of “Higher Learning” -- It’s another fall and with the school year now in full session, I thought this was a good time provide students and parents an insider understanding of what to expect out of the higher education experience.  I won’t win any accolades from fellow teachers and administrators in higher ed by pointing out the fraud that four year institutions have become, but the message is still needed for the naïve among us.  To be clear, I’ve never argued that a college education is without value.  Rather, the main problem today is the declining value of that education for the cost incurred and the lack of quality that is now endemic in the typical undergraduate experience. It’s sad to say, but U.S. higher education increasingly resembles a pyramid scheme.  The schools at the top continue to compete for elite students, by appealing to prospective applicants via the creation of a slew of amenities (the “climbing wall” phenomenon) and offering a unique college “experience.”  Non-elite colleges and universities are the losers in this process, fighting with each other for a dwindling number of state tax dollars amidst huge increases in tuition costs, due to declining state funding and the obsession with an amenities-based “education.” The massive growth in the administrative apparatus in U.S. schools led to a significant growth in tuition costs.  Administrators across America, elite schools (and professors at those schools), and elite students (whose families can afford exorbitant Ivy League tuition rates) are at the top of the higher ed pyramid.  Teachers at non-elite schools, and non-wealthy students at most educational institutions, make up the proles at the bottom of this pyramid.  They are increasingly sidled with debt for often amounts to a four to five year period of glorified self-indulgence, binge drinking, and diversion from the eventual transition into the “real world.”

The MOOC Revolution That Wasn’t -- Three years ago this week, Sebastian Thrun recorded his Stanford class on Artificial Intelligence, released it online to a staggering 180,000 students, and started a “revolution in higher education.” Soon after, Coursera, Udacity and others promised free access to valuable content, supposedly delivering a disruptive solution that would solve massive student debt and a struggling economy. Since then, over 8 million students have enrolled in their courses. This year, that revolution fizzled. Only half of those who signed up watched even one lecture, and only 4 percent stayed long enough to complete a course. Further, the audience for MOOCs already had college degrees so the promise of disrupting higher education failed to materialize. The MOOC providers argue that completion of free courses is the wrong measure of success, but even a controlled experiment run by San Jose State with paying students found the courses less effective than their old-school counterparts. This shouldn’t have come as a surprise. Online learning long ago solved the access problem: Between the 8 million people who have signed up for MOOCs, and the more than 1 billion downloads from Apple’s iTunesU (Apple is quietly a larger force in online education than any upstart), we already know people want to take online courses. What we don’t know is whether they can be as effective, or more effective, than sitting in a classroom. It’s time to focus on that harder problem: engagement.

Occupy Wall Street Just Made $4 Million of Student Loan Debt Disappear - An Occupy Wall Street campaign says it has abolished almost $4 million in student loan debts, in a Tuesday announcement marking the third anniversary of the Occupy protests that brought renewed attention to the issue of income inequality.  The Rolling Jubilee Fund, an initiative of the Occupy movement, has been accepting donations and buying up student loan debt for pennies on the dollar from debt collectors, and then forgiving the loans altogether. The group has spent about $107,000 to purchase $3.9 million in debt, organizers said.  The debts were held by students who attended Everest College, a for-profit institution part of the Corinthian Colleges network. The fund called Everest College a “predatory” institution that is helping fuel the $1.2 trillion in total student loan debt in the United States.  “We chose Everest because it is the most blatant con job on the higher ed landscape,” the organizers said. “It’s time for all student debtors to get relief from their crushing burden.”  The debt belonged to 2,761 people who had taken at loans at Everest College. The group is only able to purchase private student debt, not the majority of outstanding U.S. student debt that’s backed by the federal government. Corinthian Colleges told CNN it stands by the “high-quality” education it provides and denied charges of predatory lending.

The Occupy Movement Takes on Student Debt - It can be hard to tell what remains, these days, of the Occupy movement. One initiative that came out of the movement, though, the Rolling Jubilee, has shown some staying power. A couple of years ago, a group of Occupy activists who were working to combat the growing debt problem for low- and middle-income people began educating themselves about how debt works. They learned that when companies are owed money—whether in the form of credit-card debt, unpaid medical bills, or student loans—they can sell the obligations to other firms. These forms of credit often aren’t repaid, making them a high-risk purchase, so buyers typically pay only a tiny fraction of the debts’ face value. Then the new owners seek out the original debtors and try to claim the full amount.The activists had an idea: What if they bought the original debt at its usual deep discount, then, instead of going after the debtors, simply cancelled it? They decided to raise fifty thousand dollars but ended up with seven hundred thousand dollars after some high-profile supporters helped spread the word. Their first action was to pay four hundred thousand dollars for nearly fifteen million dollars in medical bills owed by more than two thousand patients. The debtors received letters in the mail from the Rolling Jubilee informing them of their freedom. On Wednesday, the group announced its latest action: the purchase, for about three cents on the dollar, of nearly four million dollars’ worth of private debt from Everest College, which is part of the for-profit Corinthian Colleges system. The debts had been incurred by more than two thousand students. Corinthian had been under federal investigation, and, the day before the Rolling Jubilee’s announcement, the Consumer Financial Protection Bureau had sued it for alleged predatory lending and aggressive collection tactics. “Corinthian lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services,” the bureau said in a press release. “Corinthian then used illegal debt collection practices to strong-arm students into paying back those loans while still in school.”

College Debt Leaves Generation X Grads Less Wealthy Than Parents - Most college-educated 30- and 40-somethings earn more than their parents did at the same age, yet they’re saving less. Student debt is partly to blame. While 82 percent of Generation X Americans with at least a bachelor’s degree earn more than their parents did, just 30 percent have greater wealth. A smaller share of workers without college education -- 70 percent -- have surpassed their parents’ incomes yet almost half had higher wealth, according to a Pew Charitable Trusts report released today. Lackluster saving among the cohort, those born between 1965 and 1980, has come as student-loan balances persist into middle age. Generation X’s financial straits could come with economic aftershocks, making it difficult for parents to afford college for the next generation and forcing workers to hold onto jobs longer or lower their living standards as they age. “They may not be financially secure as they approach retirement,” . “To the extent that Gen Xers are still paying student-loan debt, don’t have the wealth accumulated to invest in themselves, they also don’t have that money to invest in their children.” Pew researches used Panel Study of Income Dynamics data spanning 1968 to 2011 to follow parent-child pairs through part of their economic life cycle. College graduates in Generation X have far more debt than their peers without degrees, the study found. A typical degree holder who earned more than his or her parents had $13,000 in debt in 2011, more than double the $6,000 in debt held by those with less education.

Putting Student Debt in Some Much-Needed Perspective - - The rising total of student debt — now over $1 trillion — has been a hot topic in the news over the past several years. One worry is that with poor job prospects many students won’t be able to pay off their debts. Another is that aging baby boomers are entering their retirement years with student debt still hanging around their necks. For new graduates with big debts, concerns have been voiced that they cannot get started in life – by launching a new business or buying their first home. And still others fear student debt may be the next mortgage crisis, possibly triggering another recession. A recent Brookings study, updating a similar report the authors released earlier this year, injects some sorely needed facts about student debt that should quiet some of these fears by putting the concerns in a larger perspective. The study is based on the Federal Reserve’s Survey of Consumer Finances and comes to similar conclusions as the authors previously found with data running through 2010:

  • –Roughly one-quarter of the increase in student debt is attributable to increases in educational attainment, especially at the graduate level.
  • –Increases in the average lifetime incomes of college-educated workers appear to have more than kept pace with increases in debt loads.
  • –The monthly payment burden faced by student loan borrowers stayed about the same or has even lessened since 1992.

None of this to deny that student debt levels present very real problems for certain individuals and their families, nor should it take away from efforts to contain the rising costs of obtaining a college education (in particular, not to erect artificial barriers against the innovative uses of online educational technologies, which continue to improve). But it is also important not to over-hype a student loan “crisis” that does not appear to exist.

Student Loan Debt Burdens More Than Just Young People - Janet, 72, was surprised when she received her first Social Security benefits seven years ago. About one-fifth of her monthly payment was being withheld and she called the federal government to find out why. She discovered that the deduction from her benefits was to repay $3,000 in loans she took out in the early 1970s to pay for her undergraduate degree. “I didn’t pay it back, and I’m not saying I shouldn’t,” she said. “I was an alcoholic, and later diagnosed with H.I.V., but I’ve turned my life around. I’ve been paying some of the loan back but that never seems to lower the amount, which is now $15,000 because of interest.” She is among an estimated two million Americans age 60 and older who are in debt from unpaid student loans, according to data from the Federal Reserve Bank of New York. Its August “Household Debt and Credit Report” said the number of aging Americans with outstanding student loans had almost tripled from about 700,000 in 2005, whether from long-ago loans for their own educations or more recent borrowing to pay for college degrees for family members.The debt among older people is up substantially, to $43 billion from $8 billion in 2005, according to the report, which is based on data from Equifax, the credit reporting agency. As of July 31, money was being deducted from Social Security payments to almost 140,000 individuals to pay down their outstanding student loans, according to Treasury Department data. That is up from just under 38,000 people in 2004. Over the decade, the amounts withheld more than tripled, to nearly $101 million for the first seven months of this year from over $32 million in 2004.  “Some may think of student loan debt as a young person’s problem,” he said, “but, as it turns out, that is increasingly not the case.”

Why Pensions Went Away: A Theory - Sixty percent of Fortune 500 companies offered defined-benefit pensions to new hires in 1998, according to consulting firm Towers Watson in a report published earlier this month, By the end of 2013, that portion had dropped to 24%. And one more plan just took a bullet. An internal memo from Johnson & Johnson, made public last week, notified workers that pension benefits will be reduced for people hired after January 1, 2015. The company didn’t specify whether the pensions would be dropped entirely. The disappearance of traditional pensions, which place the burden of guaranteed future payouts on a company, and the rise of 401(k) plans that shift risk onto workers, is both cause and effect of a fraying bond between employers and workers, researchers have noted. Loyalty is getting weaker on both sides: Employers are ditching their paternalistic role in favor of lean operations and balance sheets unburdened by the risks of pension payouts, while employees increasingly view themselves as free agents who can switch jobs whenever something better comes along. For those workers, a 401k plan offers more mobility and autonomy, though they lose out on the security of an assured minimum income in retirement to supplement their Social Security checks. So, how did we get here? In his unpublished paper, Cobb proposes that employees have taken a backseat to shareholders in decisions that relate to employee well-being, and tests that idea by examining the ownership structures and retirement plans of large companies from 1982 to 2006.

This Pension Fund Is Daytrading Your Retirement Funds, With Up To 500% Leverage - Some asset managers, such as Pension funds, have a specific bogey they have to hit every single year, in order to maintain a mandated increase in their assets or else suffer the wrath of disgruntled pensioners and overseers. Which probably explains why as Pension360 reports, the Chief Investment Officer of one such pension fund decided to do the unthinkable: daytrade, i.e. gamble, its assets, which happen to be the lifetime savings of hard workers who just happen to be naive enough to believe their retirement money is entrusted into safe hands. Little did they know that instead they have handed the fruit of their lives' labor over to the E-trade baby.

Calpers ditches hedge funds - The message is starting to get through. Calpers, the largest US public pension fund, has said that it will stop investing in hedge funds. It took a while. The $300bn California Public Employees’ Retirement System rejigged its portfolio of hedge funds at least three times since it became one of the first pension funds to embrace the fee structure in 2002. The previous decision had been to halve exposure, rather than elimininate it entirely. Still, public pension fund trustees now have a very visible example to follow. If the largest and best resourced US pension system found the cost and complexity of investing in hedge funds too much to make it worth while, why should they think they can do better?

Why Americans Keep Treating Their 401(k)s Like Piggy Banks - Consumer borrowing is on the rise again, jumping nearly 10% in July—the biggest gain in three years. The largest loan sources were related to auto financings and credit cards. But since the recession, 401(k) plan loans have been rising as well.MORE Australia Foils Alleged ISIS Terror Plot NBC News Will 16-Year-Old Voters Decide the Future of the U.K.? NBC News Escape From Paradise: Missing Bachelorette Party Home Safe NBC News 16-Year-Old Girl Fatally Shoots Gamer For His PS4 While Her Baby Looks On: Cops Huffington Post Best Job Posting Ever Seeks Sex-Loving Pothead Huffington Post One in four American workers with a 401(k) or other defined contribution plan taps their retirement account for current expenses, according to a report from financial website HelloWallet. Much of this money never gets repaid.Such borrowing has significant consequences. Loans that go unpaid are subject to penalties and taxes. Penalized 401(k) distributions increased from $36 billion to almost $60 billion from 2004 to 2010. The penalties aren’t even the worst part. Money pulled from a 401(k) plan may result in years of lost growth, leaving you far short of your savings goals.Roughly a quarter of those who borrow from their plan need the money to pay monthly bills. But a lot of this money is going other places. The most common uses of money from a 401(k) plan, other than monthly expenses, according to a Schwab survey:Down payment on a house (23%) Home improvement (19%) Medical expenses (13%) Discretionary purchase (9%) Vacation (4%) Pay down student loans (2%)

Early Look at 2015 Cost-Of-Living Adjustments and Maximum Contribution Base - From the Bureau of Labor Statistics (BLS): Consumer Price Index - August 2014 The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. ... . The index for all items less food and energy was unchanged in August; this was the first month since October 2010 that the index did not increase. On a year-over-year basis, CPI is up 1.7 percent, and core CPI is up also up 1.7 percent.  This was below the consensus forecast of no change for CPI, and a 0.2% increase in core CPI. The BLS also reported this morning: The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.6 percent over the last 12 months to an index level of 234.030 (1982-84=100). For the month, the index fell 0.2 percent prior to seasonal adjustment.  CPI-W is the index that is used to calculate the Cost-Of-Living Adjustments (COLA). The calculation dates have changed over time (see Cost-of-Living Adjustments), but the current calculation uses the average CPI-W for the three months in Q3 (July, August, September) and compares to the average for the highest previous average of Q3 months. Note: this is not the headline CPI-U, and is not seasonally adjusted (NSA). Since the highest Q3 average was last year (Q3 2013), at 230.327, we only have to compare to last year. This graph shows CPI-W since January 2000. The red lines are the Q3 average of CPI-W for each year.Note: The year labeled for the calculation, and the adjustment is effective for December of that year (received by beneficiaries in January of the following year).Using the average for July and August, CPI-W was up 1.7% compared to Q3 2013.  The contribution base will be adjusted using the National Average Wage Index. This is based on a one year lag. The National Average Wage Index is not available for 2013 yet, but wages probably increased again in 2013. If wages increased the same as last year, then the contribution base next year will be increased to around $120,500 from the current $117,000.

1/3 of Medicare Spending is Wasted -- Dr. Donald Berwick, who headed up Medicare and Medicaid during the 1st half of the Obama administration has said, repeatedly, that at least 1/3 of Medicare dollars ware wasted on unnecessary tests, procedures and drugs that provide no benefit for the patient. He is only one of dozens of health policy experts who have made the same statement. (Google “Health Affairs” the leading medical journal that focuses on health policy and “unnecessary treatments” Over the past 30 years, researchers at Dartmouth have provided stacks of evidence documenting unnecessary care in the U.S.In other countries, doctors and hospitals tend to follow evidence-based guidelines. In the U.S. a great many doctors object to the idea of someone telling them how to practice medicine. (Even though “someone” is “science”) They value their autonomy and prefer to do things the way they have always done them.  Of course, this is not true of all doctors. But even when you look at protocols at our academic medical centers, you find that the way they treat similar patients varies widely.  Here , I’m not talking about how much they charge for a procedure (which also varies widely) but how many tests they order, how often they prescribe spine surgery for someone suffering from low-back pain, how often they tell a woman she needs a C-Section . .

7.3 million enrolled in Obamacare - The administration’s announcement that 7.3 million people are now enrolled in health insurance plans on the Obamacare exchanges immediately ignited a new round of arguments about the success or failure of the health law. The figure — which is the number who had signed up and paid as of mid-August — is a drop from the 8 million who had chosen plans but not necessarily paid by mid-April. But it’s much higher than the 6 million that the Congressional Budget Office forecast would be covered this year, a number that seemed unattainable when the botched launch of HealthCare.gov slowed signup to a crawl last October.Medicare chief Marilyn Tavenner released the first enrollment update since May as she appeared at the House Oversight Committee on Thursday. She pointed to good enrollment news as the administration gears up for the second signup season in November, and as the GOP renews its attack on the Obama administration for security flaws at HealthCare.gov. But Oversight Chairman Darrell Issa (R-Calif.) called the updated figure a “precipitous drop.” Tavenner countered that it’s a “really strong number.” Paul Houchens, an actuary at Milliman who closely tracks the health law, later said in an email that the new number is “about what I would expect based on the initial sign ups and reported payment ratios.”

Administration threatens to cut off ObamaCare subsidies to 360,000 -- The Obama administration announced Monday it will cut off tax subsidies to about 360,000 people if they do not offer proof of their income in the next two weeks. Officials will send final notices this week to individuals who signed up for ObamaCare with income levels that didn’t match government records. The announcement marks the administration's first move to tackle the politically charged issue of income verification, which has remained a key GOP argument against the healthcare reform law. Those who don’t confirm their income levels could lose their tax credit and face higher premiums and higher deductibles. Nearly 90 percent of the 8 million people who signed up for ObamaCare have received government subsidies. The average consumer pays $82 per month for a $346 plan, receiving an average subsidy of $264. The administration had already warned that it would end coverage for the 966,000 individuals whose immigration status could not be confirmed by the government. About 115,000 people will lose coverage this month if they do not submit their paperwork, Andy Slavitt, principal deputy administrator at the Centers for Medicare and Medicaid Services, told reporters Monday. A total of 1.2 million people have had income inconsistencies since the launch of ObamaCare last year. About 800,000 people have since submitted verification.

U.S. to End Coverage Under Health Care Law for Tens of Thousands - The Obama administration said on Monday that it planned to terminate health insurance for 115,000 people on Oct. 1 because they had failed to prove that they were United States citizens or legal immigrants eligible for coverage under the Affordable Care Act. It also told 363,000 people that they could lose financial aid because their incomes could not be verified.The 115,000 people “will lose their coverage as of Sept. 30,” said Andrew M. Slavitt, the No. 2 official at the Centers for Medicare and Medicaid Services, which runs the federal insurance marketplace.Some of them may be able to have their coverage reinstated retroactively if they produce the documents that they were repeatedly asked to provide in recent months, Mr. Slavitt said.  At the end of May, the administration said, 966,000 people were found to have discrepancies in their immigration and citizenship records. Most sent in documents as requested. In mid-August, the administration sent letters to about 310,000 people who had failed to respond. They were supposed to submit documents by Sept. 5, but the 115,000 consumers failed to do so, Mr. Slavitt said.Many consumers and lawyers who work with them said that they had tried to submit immigration and citizenship papers, but that they experienced problems transmitting documents through HealthCare.gov. Other people said they sent the documents by mail to a federal contractor in Kentucky but never heard back from the contractor or the government.“We heard from lots of consumers who told us they sent in their documents multiple times or tried to upload them through HealthCare.gov,”

Health care cost burden is shifting toward consumers - There’s a major shift underway in how health insurance costs will be covered as corporations are transferring more of the burden toward employees. Higher deductibles, spousal surcharges and reduced availability for retirees have become the new reality for millions of Americans since The Affordable Health Care Act – aka, ObamaCare – become law. The annual survey of Towers and the National Business Group found that 80% of the 1,000 employers surveyed in 2012 said they will continue to raise the share employees pay for their health care over the next three years. A recent report by the Kaiser Family Foundation states the cost of medical care per-person in the U.S. is $13,700. The average cost for health insurance benefits was $2.36 per hour worked in private industry, according to a March report from the federal Bureau of Labor Statistics. That represents 7.9% of total compensation. In March 2004, employer costs for health benefits averaged $1.53, or 6.6% of total compensation. Employee share of premiums increased 8.7% between 2012 and 2013 with the dollar burden rising from $2,658 to $2,888, according to the Towers survey. Employees contribute 42% more for health care than they did five years ago and out-of-pocket costs are up 15% over the past two years. Meanwhile, annual incomes rose just 1.6% over the past three years, according to the Towers report. In addition to funding less for employees, corporations are also implementing surcharges for spousal coverage averaging $100 per month. About one-third of the companies surveyed by Towers already do this. Employer subsidies for retiree medical coverage have declined with just 15% of those surveyed still covering it.

How Insurers Are Finding Ways to Shift Costs to the Sick -- Health insurance companies are no longer allowed to turn away patients because of their pre-existing conditions or charge them more because of those conditions. But some health policy experts say insurers may be doing so in a more subtle way: by forcing people with a variety of illnesses — including Parkinson’s disease, diabetes and epilepsy — to pay more for their drugs. Insurers have long tried to steer their members away from more expensive brand name drugs, labeling them as “non-preferred” and charging higher co-payments. But according to an editorial published Wednesday in the American Journal of Managed Care, several prominent health plans have taken it a step further, applying that same concept even to generic drugs.The Affordable Care Act bans insurance companies from discriminating against patients with health problems, but that hasn’t stopped them from seeking new and creative ways to shift costs to consumers. In the process, the plans effectively may be rendering a variety of ailments “non-preferred,” according to the editorial.“It is sometimes argued that patients should have ‘skin in the game’ to motivate them to become more prudent consumers,” the editorial said. “One must ask, however, what sort of consumer behavior is encouraged when all generic medicines for particular diseases are ‘non-preferred’ and subject to higher co-pays.”

The Obama plan for combating antibiotic resistance is out - After several months of intense study, President Obama released a package of actions today designed to combat antibiotic resistance.  The most surprising action item is the creation of a one-time $20 million prize for a new point-of-care diagnostic for highly resistant infections. That is a big deal, on top of the £10 million UK Longitude prize on the same topic. Hopefully, HHS (NIH & BARDA) will coordinate with the UK on this prize. This is very encouraging news.  In the 2014 ERG Report, we found a MRSA rapid point-of-care diagnostic to have a value to society exceeding $22 billion.  These prizes are bargains – if they work, we get an exceedingly valuable diagnostic; if they don’t, no federal money is spent.  President Obama issued an Executive Order to direct federal agencies to implement the President’s Council on Science and Technology (PCAST) Report. We will also have a National Strategy with Cabinet level leadership, led by HHS with Defense and Agriculture. Additional limits are proposed on antibiotic use in agriculture, above and beyond the recent FDA actions, especially for classes useful for humans. This is a “One Health” strategy, using WHO language, a combination of human and animal health, including food safety and the environment. For antibiotics, we are just now understanding the spread of antibiotic resistance genes in the environment and the interaction between animal use and human health is a serious concern. 80% of US antibiotics by weight are used in agriculture.

U.S. Aims to Curb Peril of Antibiotic Resistance - — The Obama administration on Thursday announced measures to tackle the growing threat of antibiotic resistance, outlining a national strategy that includes incentives for the development of new drugs, tighter stewardship of existing ones, and improvements in tracking the use of antibiotics and the microbes that are resistant to them.The actions are the first major White House effort to confront a public health crisis that takes at least 23,000 lives a year, and many experts were pleased that a president had finally focused on the issue. But some said the strategy fell short in not recommending tougher measures against the overuse of antibiotics in agriculture, which, they argue, is a big part of the problem. Researchers have been warning for years that antibiotics — miracle drugs that changed the course of human health in the 20th century — are losing their power because of overuse. Some warn that if the trend is not halted, we could return to the time before antibiotics, when it was common for people to die from ordinary infections and for children not to survive strep throat. John P. Holdren, the director of the White House Office of Science and Technology Policy, told reporters that the new strategy — established by an executive order that President Obama signed on Thursday — was intended to jolt the federal government into action to combat a health crisis that many experts say it has been slow to recognize. Under the order, Mr. Obama created a national task force to be led by the secretaries of health and human services, defense and agriculture, and he required that they deliver a five-year action plan by Feb. 15. He also directed the Department of Health and Human Services to propose regulations requiring hospitals to set up antibiotics stewardship programs.

Pre-diabetes, diabetes rates fuel national health crisis: Americans are getting fatter, and older. These converging trends are putting the USA on the path to an alarming health crisis: Nearly half of adults have either pre-diabetes or diabetes, raising their risk of heart attacks, blindness, amputations and cancer. Federal health statistics show that 12.3% of Americans 20 and older have diabetes, either diagnosed or undiagnosed. Another 37% have pre-diabetes, a condition marked by higher-than-normal blood sugar. That's up from 27% a decade ago. An analysis of 16 studies involving almost 900,000 people worldwide, published in the current issue of the journal Diabetologia, shows pre-diabetes not only sets the stage for diabetes but also increases the risk of cancer by 15%. "It's bad everywhere," says Philip Kern, director of the Barnstable Brown Diabetes and Obesity Center at the University of Kentucky. "You almost have the perfect storm of an aging population and a population growing more obese, plus fewer reasons to move and be active, and fast food becoming more prevalent."

Artificial sweeteners linked to obesity epidemic, scientists say - Artificial sweeteners may exacerbate, rather than prevent, metabolic disorders such as Type 2 diabetes, a study suggests. Calorie-free artificial sweeteners are often chosen by dieters in part because they are thought not to raise blood sugar levels. In Wednesday’s issue of the journal Nature, researchers report that artificial sweeteners increase the blood sugar levels in both mice and humans by interfering with microbes in the gut. Increased blood sugar levels are an early indicator of Type 2 diabetes and metabolic disease. The increase in consumption of artificial sweeteners coincides with the obesity and diabetes epidemics, Eran Segal of the Weizmann Institute of Science in Rehovot, Israel, and his co-authors said. "Our findings suggest that non-caloric artificial sweeteners may have directly contributed to enhancing the exact epidemic that they themselves were intended to fight."

The Dark Web Gets Darker With Rise of the 'Evolution' Drug Market - In the digital drug trade as in the physical one, taking out one kingpin only makes room for another ready to satisfy the market’s endless demand. In the case of the FBI’s takedown of the Silk Road, the latest of the up-and-coming drug kingpins is far more evolved than its predecessor—and far less principled. Since it launched early this year, the anonymous black market bazaar Evolution has grown dramatically, nearly tripling its sales listings in just the last five months. It now offers more than 15,000 mostly illegal products ranging from weapons to weed, cocaine, and heroin. That’s thousands more than the Silk Road ever hosted. And Evolution’s popularity has been driven not only by a more secure and professional operation than its competitors, but also by a more amoral approach to the cryptomarket than the strict libertarian ethos the Silk Road preached. Case in point: About 10 percent of Evolution’s products are stolen credit card numbers and credentials for hacked online accounts. That development represents an unsavory departure from the Silk Road’s rule that only “victimless” contraband could be sold through its anonymous black market—a sign that the traditional cybercriminal underground sees an opportunity to merge its identity theft business with the widening online trade in narcotics. “It’s moved well beyond victimless crime,” says a researcher for the non-profit Digital Citizens Alliance who closely tracks dark web markets and asked not to be identified for legal and security reasons. “The libertarian ideals behind Silk Road were about giving everyone free choice. Now it’s gone past drugs to fraud. It’s just about making money.”

Did you know that some cancer experts think we may be overdiagnosing cancer? -- I suppose I should be happy that the WSJ is writing and publishing this, but it saddens me that this is “news”: Early detection has long been seen as a powerful weapon in the battle against cancer. But some experts now see it as double-edged sword. While it’s clear that early-stage cancers are more treatable than late-stage ones, some leading cancer experts say that zealous screening and advanced diagnostic tools are finding ever-smaller abnormalities in prostate, breast, thyroid and other tissues. Many are being labeled cancer or precancer and treated aggressively, even though they may never have caused harm. As a result, these experts say, many people may be undergoing surgery, radiation, chemotherapy and other treatments unnecessarily, sometimes with lifelong side effects. It’s worth reading the whole thing, but I will be very disappointed if regular readers of TIE find any of it to be surprising.

Generic Hepatitis C Drug Could Help 100 Million People Living with Disease -- Gilead Sciences, a drug company that produces a highly effective but also highly expensive hepatitis C treatment, announced a deal on Monday to license its product to other drug companies to make cheaper versions.Sovaldi, which is the name of Gilead’s drug, was approved for U.S. sale in Dec. 2013 and has been called a “breakthrough” treatment. However, the company has been criticized for the fact that each pill can cost $1,000, which makes it very difficult for developing countries–which have high cases of hepatitis C–to pay for.The deal was made with seven India-based generic pharmaceutical companies to distribute to 91 developing countries. “The countries within the agreement account for more than 100 million people living with hepatitis C, representing 54% of the total global infected population,” says a statement from Gilead Sciences. The World Health Organization (WHO) estimates that 130–150 million people worldwide have chronic hepatitis C.There is currently no vaccine for Hepatitis C and sometimes treatment consists of taking up to a dozen pills a day and antiviral drug injections. The fact that Sovaldi is effective and is only taken once a day is one of the reasons it’s so appealing.

Black Lung Among Coal Miners At Highest Level In 40 Years - Rates of a deadly form of black lung are the highest they’ve been in 40 years among Appalachian coal miners, according to federal experts. Scientists from the National Institute for Occupational Safety and Health published a letter Monday in the American Journal of Respiratory and Critical Care Medicine that stated that levels of progressive massive fibrosis (PMF) have risen to levels not seen since the early 1970s among coal miners in Kentucky, West Virginia and Virginia. The high numbers come just 15 years after the “debilitating and entirely preventable respiratory disease” was “virtually eradicated,” the scientists note.  PMF is caused only by breathing in too much coal mine dust, the letter said, so the increase in rates “can only be the result of overexposures and/or increased toxicity stemming from changes in dust composition.” The letter also notes that 2014 marks the 45th anniversary of the Federal Coal Mine Health and Safety Act, which aimed to curb incidence of black lung among coal workers by implementing dust standards. Current rates of PMF prove that exposure to coal dust continues to be a major health hazard for coal miners, however. “Each of these cases is a tragedy and represents a failure among all those responsible for preventing this severe disease,” the letter reads.

Children's respiratory illness spreads to a dozen U.S. states: CDC: A serious respiratory illness sickening U.S. children has spread to 12 states, the Centers for Disease Control and Prevention said on Tuesday, as it predicted that more states will report cases in coming weeks. The growing list of states with confirmed cases now includes Alabama, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Missouri, New York, Oklahoma and Pennsylvania, the CDC said. Known as enterovirus D68, the somewhat rare virus can cause symptoms ranging from mild fevers to difficulty breathing and wheezing severe enough to require hospitalization. Since mid-August, the CDC has received reports of 130 people with confirmed cases of the virus. There is no vaccine, and infants, children and teenagers have the greatest risk of infection. So far, there have been no reported deaths from the illness, which could be fatal in serious cases. Many of the children who became very ill in Missouri and Illinois, where early outbreaks were seen, had asthma or a history of wheezing, said the CDC, which is working with state health officials to better understand infection trends. U.S. health officials expect more states to confirm cases in the weeks ahead, noting that clusters of illness are under investigation in several states and that testing to confirm the virus takes time.

1 in 10 health-care workers treating Ebola gets infected: – One in 10 health-care workers treating Ebola patients in West Africa is becoming infected with the disease, the World Health Organization announced in Geneva Friday in an international media teleconference at the conclusion of an emergency meeting on the outbreak. The WHO invited medical experts from around the world to the two-day meeting to discuss using experimental and alternative treatments to combat the Ebola crisis, which the U.N. has admitted is out of control. The WHO approved introducing experimental whole blood therapies and convalescent blood serums to treat the Ebola outbreak. The organization said the rush to introduce experimental drugs was “unprecedented” due to the severity of the West Africa outbreak and the need to short-circuit normal government regulatory processes that typically take years.Thursday, the WHO published a list of therapies and vaccines that are now in government regulatory processes.  As WND reported, dozens of experimental drugs that have shown promise in combating Ebola in humans remain in minimum supply because of a regulatory approval process that in the United States can drag on for years and cost tens, if not hundreds, of millions of dollars.

Hundreds of orphans left abandoned in Liberia as mothers die from Ebola: Teenager Lydia, 16, and her young siblings Blessing, 11, Pauline, nine, and Paul, five, can only watch, sobbing, as the body of their mother is taken away in a plastic sheet by masked men resembling crop-sprayers, the standard way to dispose of Ebola victims. Forty-five year old Juana did not die peacefully. She bled and vomited her way to death with no medical assistance, cared for by her children in an isolated corrugated-iron hut in the small town of Voijama, northern Liberia. But the fact that Juana’s four children are now orphans cannot solely be blamed on the deadly Ebola virus that, in the words of Liberia’s Defence Minister Brownie Samukai, is ‘devouring everything in its path’. With no father around to step into the breach, the children are on their own. Liberia’s social problem of broken, single-parent families has existed since the end of the civil war in 2003 – and as the new virus claims its victims, this is now resulting in hundreds of orphaned children. “The large number of single-parent families in Liberia means that as mothers are dying from Ebola, the children lose their sole care-giver, and have no-one to look after them,” . “Once their mother dies, the orphaned children have to leave school, if they were in school in the first place,” adds Oumarou. “They are ostracised by the community, and they have to work, to try to make a living and support themselves.”

Liberian President Pleads With Obama for Assistance in Combating Ebola - The president of Liberia, Ellen Johnson Sirleaf, has implored President Obama for help in managing her country’s rapidly expanding Ebola crisis and has warned that without American assistance the disease could send Liberia into the civil chaos that enveloped the country for two decades.In a letter on Tuesday to Mr. Obama, Ms. Johnson Sirleaf wrote that “I am being honest with you when I say that at this rate, we will never break the transmission chain and the virus will overwhelm us.” She urgently requested 1,500 additional beds in new hospitals across the country and urged that the United States military set up and run a 100-bed Ebola hospital in the besieged capital, Monrovia.Infectious disease experts have sharply criticized as inadequate the Obama administration’s response to the Ebola crisis, particularly in Liberia, a country founded by freed American slaves. Global agencies like the World Health Organization and the United Nations have also come under criticism for responding too slowly to the Ebola outbreak. The epidemic has taken an estimated 2,218 lives out of 4,366 cases in West Africa. So far more than 1,000 people have died of the virus in Liberia.  Ms. Johnson Sirleaf’s request was made several days after Mr. Obama, in an interview on NBC’s Meet the Press, called the disease a national security priority and said the United States must lead the international effort in containing the spread of Ebola in Africa.

U.S. Scientists See Long Fight Against Ebola - The deadly Ebola outbreak sweeping across three countries in West Africa is likely to last 12 to 18 months more, much longer than anticipated, and could infect hundreds of thousands of people before it is brought under control, say scientists mapping its spread for the federal government. “We hope we’re wrong,” said Bryan Lewis, an epidemiologist at the Virginia Bioinformatics Institute at Virginia Tech.Both the time the model says it will take to control the epidemic and the number of cases it forecasts far exceed estimates by the World Health Organization, which said last month that it hoped to control the outbreak within nine months and predicted 20,000 total cases by that time. The organization is sticking by its estimates, a W.H.O. spokesman said Friday.   But researchers at various universities say that at the virus’s present rate of growth, there could easily be close to 20,000 cases in one month, not in nine. Some of the United States’ leading epidemiologists, with long experience in tracking diseases such as influenza, have been creating computer models of the Ebola epidemic at the request of the National Institutes of Health and the Defense Department.

20% Chance Of Ebola In USA By October; 277,124 Global Cases By Year-End, Model Predicts -- "There's nothing to be optimistic about," warns the professor who developed the Global Epidemic and Mobility Model to assess outbreaks, "if the number of cases increases and we are not able to start taming the epidemic, then it will be too late. And then it requires an effort that will be impossible to bring on the ground." As FredHutch reports, the deadly Ebola epidemic raging across West Africa will likely get far worse before it gets better, more than doubling the number of known cases by the end of this month, predicting as many as 10,000 cases of Ebola virus disease could be detected by Sept. 24 – and thousands more after that. “The cat’s already out of the box – way, way out," as the analysis of global mobility and epidemic patterns shows a rougly 25% chance of Ebola detection in the UK by the end of September and 18% it will turn up in the USA. "I hope to be wrong, he concludes, but "the data points are still aligned with the worst-case scenario."

The Mathematics of Ebola Trigger Stark Warnings: Act Now or Regret It - The Ebola epidemic in Africa has continued to expand since I last wrote about it, and as of a week ago, has accounted for more than 4,200 cases and 2,200 deaths in five countries: Guinea, Liberia, Nigeria, Senegal and Sierra Leone.  This now truly is a type of epidemic that the world has never seen before. In light of that, several articles were published recently that are very worth reading.  The most arresting is a piece published last week in the journal Eurosurveillance, which is the peer-reviewed publication of the European Centre for Disease Prevention and Control (the EU’s Stockholm-based version of the US CDC). The piece is an attempt to assess mathematically how the epidemic is growing, by using case reports to determine the “reproductive number.” (Note for non-epidemiology geeks: The basic reproductive number — usually shorted to R0 or “R-nought” — expresses how many cases of disease are likely to be caused by any one infected person. An R0 of less than 1 means an outbreak will die out; an R0 of more than 1 means an outbreak can be expected to increase.) The Eurosurveillance paper, by two researchers from the University of Tokyo and Arizona State University, attempts to derive what the reproductive rate has been in Guinea, Liberia and Sierra Leone. (Note for actual epidemiology geeks: The calculation is for the effective reproductive number, pegged to a point in time, hence actually Rt.) They come up with an R of at least 1, and in some cases 2; that is, at certain points, sick persons have caused disease in two others. You can see how that could quickly get out of hand, and in fact, that is what the researchers predict. Here is their stop-you-in-your-tracks assessment: In a worst-case hypothetical scenario, should the outbreak continue with recent trends, the case burden could gain an additional 77,181 to 277,124 cases by the end of 2014. That is a jaw-dropping number.

1.2 million Ebola deaths projected in 6 months: An econometric simulation model based on the assumption the World Health Organization and others will be unable to control the Ebola outbreak in West Africa predicts 1.2 million people will die from the disease in the next six months.  Six months is the minimum time the WHO projects will be necessary to contain the epidemic. In his analysis, econometrics research assistant Francis Smart at Michigan State University took seriously the conclusions of Canadian researchers who proved the strain of Ebola in the current West African epidemic could go airborne.The Ebola virus could be transmitted between humans through breathing, Smart says. In developing the model, Smart began with WHO’s Aug. 28 statement that the Ebola epidemic in West Africa could afflict more than 20,000 people before it is brought under control. “This [estimate of 20,000] assumes full international backing for an intervention to control the deadly outbreak,” he wrote. “Failure to support the WHO’s plan presumably would cause the disease to continue to spread in a similar manner as it already has.” He continued: “At first a figure as high as 20,000 seems exaggerated, especially when looking just at the number of 3,000 cases reported the same day as the announcement. However, I believe that this estimate is vastly too small and is entirely based on an effective and well-funded international relief mission.”

U.S. to Commit Up to 3,000 Troops to Fight Ebola in Africa - Under pressure to do more to confront the Ebola outbreak sweeping across West Africa, President Obama on Tuesday is to announce an expansion of military and medical resources to combat the spread of the deadly virus, administration officials said.The president will go beyond the 25-bed portable hospital that Pentagon officials said they would establish in Liberia, one of the three West African countries ravaged by the disease, officials said. Mr. Obama will offer help to President Ellen Johnson Sirleaf of Liberia in the construction of as many as 17 Ebola treatment centers in the region, with about 1,700 treatment beds.Continue reading the main story Related Coverage Back to the Slums of His Youth, to Defuse the Ebola Time BombSEPT. 13, 2014 Times Topic: The Ebola Outbreak in West Africa Senior administration officials said Monday night that the Department of Defense would open a joint command operation in Monrovia, Liberia, to coordinate the international effort to combat the disease. The military will also provide engineers to help construct the additional treatment facilities and will send enough people to train up to 500 health care workers a week to deal with the crisis.The American government will also provide 400,000 Ebola home health and treatment kits to Liberia, as well as tens of thousands of kits intended to test whether people have the disease. The Pentagon will provide some logistical equipment for health workers going to West Africa and what administration officials described as “command and control” organizational assistance on how to coordinate the overall relief work. The Army Corps of Engineers is expected to be part of the Defense Department effort.

U.S. pledges 3,000 troops to fight Ebola; experts say more needed  (Reuters) - The United States has pledged to send 3,000 troops West Africa, using its military muscle to battle the biggest ever outbreak of Ebola by building treatment clinics and training health workers to halt the spread of the deadly virus.  President Barack Obama is expected to outline the action later on Tuesday, his second announcement of a major military operation in two weeks after his declaration that Washington would bomb Islamic State fighters in the Middle East.  The U.S. action, which goes far further than previous offers of aid, won praise from aid workers and officials in the region, but health experts said it was still not enough to contain the fast-spreading epidemic.  The death toll from the fever, which spreads rapidly, causes uncontrolled bleeding and fever and typically kills more than half of its victims, has doubled in the past month to 2,461, mostly in three countries in West Africa. The World Health Organization said a "much faster" response was needed to limit the number of cases to the tens of thousands.  "This health crisis we're facing is unparalleled in modern times," WHO Assistant Director General Bruce Aylward told a news conference in Geneva. "We don't know where the numbers are going on this."

Obama To Send 3,000 Ebola-Fighting Boots-On-The-Ground To Africa; CDC Warns America "Now Is The Time To Prepare" - On the heels of yesterday's almost unbelievable forecasts of the exponential rise in Ebola case counts - and warnings of a 20% chance of Ebola reaching the USA by year-end, WHO officials have confirmed that their previous forecasts of 20,000 cases "does not seem like a lot today." This has, according to Reuters, the United States announced on Tuesday that it would send 3,000 troops to help tackle the Ebola outbreak as part of a ramped-up response including a major deployment in Liberia, the country where the epidemic is spiralling fastest out of control. Perhaps even more worrisome - for those who explained how 'contained' Ebola was - is the CDC's release of an Ebola checklist warning American healthcare workers "now is the time to prepare."

Ebola Poses a New Challenge for U.S. Military - WSJ: —President Barack Obama's plan to contain the Ebola outbreak presents the U.S. military with a logistical challenge with few precedents, one that it will be under pressure to execute quickly while ensuring that the 3,000 military personnel involved are protected from the deadly virus. Mr. Obama on Tuesday warned that the epidemic could not only infect "hundreds of thousands of people,'' but carry wide security implications, even though chances of an outbreak in the U.S. are "extremely low.'' "It's a potential threat to global security if these countries break down, if their economies break down, if people panic," Mr. Obama said after a briefing at the Centers for Disease Control and Prevention, which has deployed more than 100 staff to the affected countries, one of the largest deployments in its history. Mr. Obama said the epidemic of the virus is "spiraling out of control…spreading faster and exponentially." The American military has experience responding to humanitarian crises abroad, including the 2010 earthquake and cholera outbreak in Haiti and the 1994 East African refugee crisis created by the Rwandan genocide.But the Ebola crisis in West Africa presents a unique set of challenges, according to J. Stephen Morrison, head of the Global Health Policy Center at the Center for Strategic and International Studies. The operation will require the military to fuse its experience in responding to natural disasters with its training in biowarfare to minimize the risks of Americans contracting the disease. Personnel will bring medical assistance and training, logistical expertise and engineering experience to set up 17 field hospitals with 100 beds each, more than tripling current capacity.

Ebola Drives Up Prices In Worst-Hit Areas of Liberian Capital, Early Data Show - Prices for a bundle of basic goods in areas of the Liberian capital Monrovia hit by Ebola are about 8% higher than in the unaffected areas, a set of early data collected from the ground show. Half a liter of palm oil, a staple in Liberia, costs 117 Liberian dollars (US$1.27) in areas identified as worst-hit by Ebola, more than twice the price it goes for in other parts of the city. The data was collected over the course of one week in September by workers for data tech company Premise Data Corp. It is the latest indication of how the outbreak is hitting consumers. Supply chains are breaking up because the areas worst-hit by the virus are effectively isolated, making daily necessities harder to get and driving up prices. The data showed that prices had not risen significantly overall in Monrovia during the one week of observation—the change had happened within the capital. Some 20 locals are working to collect the data. The 38 goods they’re tracking include food staples like rice, cassava and palm oil, but also chlorine, which is being used to disinfect spaces.

Ebola patients buy survivors' blood from black market - As hospitals in nations hardest hit by Ebola struggle to keep up, desperate patients are turning to the black market to buy blood from survivors of the virus, the World Health Organization warned. The deadliest Ebola outbreak in history has killed at least 2,400 people in Guinea, Liberia and Sierra Leone -- the countries most affected by the virus. Blood from survivors, referred to as convalescent serum, is said to have antibodies that can fight the deadly virus. Though the treatment is unproven, it has provided some promise for those fighting a disease that's killing more than half of those it has infected. "Studies suggest blood transfusions from survivors might prevent or treat Ebola virus infection in others, but the results of the studies are still difficult to interpret," the WHO said. "It is not known whether antibodies in the plasma of survivors are sufficient to treat or prevent the disease. More research is needed."Convalescent serum has been used to treat patients, including American aid worker Rick Sacra, who is hospitalized in Omaha, Nebraska. He got blood from Kent Brantly, a fellow American who survived Ebola. Both got infected when they were helping patients in Liberia.But unlike their situation, patients in affected nations are getting blood through improper channels. The illicit trade can lead to the spread of other infections, including HIV and other blood-related ailments.

Sierra Leone to Start 3-Day Nationwide Lockdown to Stop Ebola - Sierra Leone is set to begin a three-day lockdown tonight at midnight to curb the spread of Ebola, according to Doctors Without Borders. Government authorities have ordered the country's 6 million people to stay in their homes from Sept. 19 through Sept. 21, while volunteers go door-to-door to screen for Ebola and take infected people in hiding to Ebola facilities, according to Doctors Without Borders, which called the endeavor "coercive." "Large-scale coercive measures like forced quarantines and lockdowns are driving people underground and jeopardizing the trust between people and health providers," Doctors Without Borders said in a statement to ABC News. "This is leading to the concealment of cases and is pushing the sick away from health systems."   The Ebola outbreak in West Africa has sickened at least 5,357 people since March, killing 2,630 of them, according to the latest data from the World Health Organization. This is the largest Ebola outbreak since the deadly virus was identified in 1976, and the virus has killed more people in the last six months than it had in the previous 38 years combined. Doctors Without Borders said it will be "extremely difficult" for government health workers to screen patients in this way without proper expertise. And even if the effort was successful, there would be too many Ebola patients to fit into existing facilities.

Eight bodies found after attack on Guinea Ebola education team (Reuters) - Eight bodies, including those of three journalists, were found after an attack on a team trying to educate locals on the risks of the Ebola virus in a remote area of southeastern Guinea, a government spokesman said on Thursday. "The eight bodies were found in the village latrine. Three of them had their throats slit," Damantang Albert Camara told Reuters by telephone in Conakry. However, Guinea's Prime Minister Mohamed Saïd Fofana, speaking in a television message that had been recorded earlier, said 7 bodies of 9 missing people had been found. He said six people have been arrested following the incident, which took place on Tuesday in Wome, a village close to the town of Nzerekore, in Guinea's southeast, where Ebola was first identified in March. true Since then the virus has killed some 2,630 people and infected at least 5,357 people, according to World Health Organization (WHO), mostly in Guinea, neighboring Sierra Leone and Liberia. It has also spread to Senegal and Nigeria.

Ebola Worst-Case Scenario Has More Than 500,000 Cases - Bloomberg: The Ebola outbreak in West Africa could spread to hundreds of thousands more people by the end of January, according to an estimate under development by the U.S. Centers for Disease Control and Prevention that puts one worst-case scenario at 550,000 or more infections. The report, scheduled to be released next week, was described by two people familiar with its contents, who asked to remain anonymous because it isn’t yet public. The projection, which vastly outstrips previous estimates, is under review by researchers and may change. It assumes no additional aid or intervention by governments and relief agencies, which are mobilizing to contain the Ebola outbreak before it spirals further out of control in Liberia, Sierra Leone and Guinea. “CDC is working on a dynamic modeling tool that allows for recalculations of projected Ebola cases over time,” Barbara Reynolds, a spokeswoman for the agency, said in an e-mail. “CDC expects to release this interactive tool and a description of its use soon.”

Exponential: Ebola Cases Now Double Every 3 Weeks; CDC Warns As Many As Half A Million May Be Infected Soon -- Since the start of the outbreak, the Ebola virus has infected 5,357 people, killing 2,630, according to the WHO; and as The UN explains, the outbreak is the largest the world has ever seen with the number of cases is doubling every three weeks. As Sierra Leone instigates a 3-day nationwide shutdown to contain the deadly virus, the UN Secretary-General explains "Ebola matters to us all," as we noted previously the odds of the infection coming to America is around 18% by year-end. The CDC, however, hot on the heels of the UN's proclamation that "the gravity and scale of the situation now require an unprecedented level of international action," has warned that unless government intervention is increased significantly, 550,000 people could be infected by the end of January. "Contained?"

World Bank: Ebola’s Economic Impact Could Be ‘Catastrophic’ -- The economic impact of Ebola could grow eight-fold if the virus continues to spread significantly in Guinea, Liberia, and Sierra Leone, the World Bank said Wednesday, with the disease having a potentially “catastrophic” impact on the three West African countries’ already fragile economies.“The primary cost of this tragic outbreak is in human lives and suffering, which has already been terribly difficult to bear,” said World Bank Group President Jim Yong Kim in a statement. “But our findings make clear that the sooner we get an adequate containment response and decrease the level of fear and uncertainty, the faster we can blunt Ebola’s economic impact.”In its report, the organization said Ebola could have up to an $809 million impact on the three countries’ economies by the end of next year, depending on how the virus is managed. Much of the economic cost of the disease stems from what the World Bank calls “aversion behaviors,” including the tendency for people to drop out of the labor force as they seek refuge from disease. To mitigate Ebola’s costs, the World Bank calls for increased foreign aid to Guinea, Liberia and Sierra Leone, as well as additional screening for and treatment of the disease.“External financing is clearly needed in the three core countries, and the impact estimates suggest that containment and mitigation expenditures as high as several billion dollars would be cost-effective if they successfully avert the worse scenario,” the World Bank’s report reads.

The Ebola Epidemic Silver-Lining: IMF Bailouts For Everyone - Never waste a good crisis. While we already knew a major reason for The West chasing into Africa was to leverage its relatively low credit levels as the last bastion of Keynesian-stimulus-hope in the world (estimated at between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral). And so it is little surprise that, as The WSJ reports, The International Monetary Fund on Thursday warned the West African Ebola epidemic requires a "large scale" global intervention to control a crisis that is ravaging economies in the region. All three major Ebola-suffering countries were already in bailout programs ($200mm loan in 2012 for Guinea, $100mm loan for Sierra Leone, and $80mm credit facility for Liberia) but with the "world community taking forever to respond," The IMF is happy to step in and secure some assets / lend over $100mm more to each nation to fill financing gaps.

USDA Approves Controversial GMO Corn and Soy -- Yesterday, the U.S Department of Agriculture (USDA) gave its final approval to Dow AgroSciences Enlist brand corn and soybeans, genetically engineered to withstand both glyphosate (found in the widely used Roundup weed killer) and massive amounts of 2, 4-D, a key substance in Agent Orange—the defoliant used in Vietnam found to cause a constellation of health problems and birth defects. They did so despite hundreds of thousands of comments and petition signatures from farmers, health professionals and members of the public urging them not to approve the new seeds, and despite acknowledging that approval could increase use of 2, 4-D by as much as 600 percent and possibly affect nearby crops such as tomatoes and grapes not engineered to resist the chemical. “Yesterday the USDA ignored public opposition and its responsibility to protect public health and agriculture,” said Wenonah Hauter, executive director of Food & Water Watch. “The approval of 2,4-D ready crops is one of the most negligent decisions that the USDA has made in the nearly twenty years since genetically engineered crops have been on the market.” As farmers have been encouraged to devote more and more acres to single crops (aka “monocropping”) and use huge doses of glyphosate-based herbicides to deal with weeds, so-called “superweeds” have cropped up that are resistant to the herbicides. But many farmers and food safety advocates fear that increased applications of more powerful herbicides will only cause more resistant weeds to appear.

California Is Burning: Postcards From The Inferno - As if the drought was not disastrous enough for California, a consequence of the state's dryness is that nearly 6,000 firefighters are battling 12 separate wildfires raging across the Golden State. As the Cal Fire chief notes, "We've seen a lot more fires, and with those fires, more and more people are at threat. Every day we continue to see new fires ignite, forcing hundreds to evacuate," and the following images from the infernos suggest there is no end in sight as "we start to see winds pick up and conditions are at their driest."

California’s Record Heat Is Like Nothing You’ve Ever Seen... Yet -  If hot thermometers actually exploded like they do in cartoons, there would be a lot of mercury to clean up in California right now. The California heat this year is like nothing ever seen, with records that go back to 1895. The chart below shows average year-to-date temperatures in the state from January through July for each year. The orange line shows the trend rising 0.2 degrees Fahrenheit per decade. The sharp spike on the far right of the chart is the unbearable heat of 2014. That’s not just a new record; it’s a chart-busting 1.4 degrees higher than the previous record. It’s an exclamation point at the end of a long declarative sentence.  The high temperatures have contributed to one of the worst droughts in California's history. The water reserves in the state’s topsoil and subsoil are nearly depleted, and 70 percent of the state’s pastures are rated “very poor to poor,” according to the USDA. By one measure, which takes into account both rainfall and heat, this is the worst drought ever. (See the chart below.)  While the temperatures are extreme, they’re not entirely unexpected. The orange trend line above is consistent with rising temperatures across the globe. Average surface temperatures on Earth have warmed roughly 1.4 degrees Fahrenheit since 1880, according to NASA. The eastern half of the U.S. has had an unusually cool 2014, but it's a lone exception compared to the rest of the planet.  The International Panel on Climate Change, which includes more than 1,300 scientists, forecasts temperatures to rise 2.5 to 10 degrees Fahrenheit over the next century. That puts California's record heat well within the range of what’s to come, turning this “hot weather” into, simply, “weather.”

Alarm as almond farms consume California's water - Touted as the ultimate superfood and an essential ingredient in everything from mezze to marzipan: the humble almond has never been so popular. But with prices at a nine-year high, almonds are in the frontline of a battle over water as California struggles to cope with one of its worst-ever droughts – stoking fears of an almond shortage over Christmas. Californian farmers, estimated to grow around 80% of the world's almonds, have been accused of siphoning off groundwater at the expense of the state's future water reserves.As rivers and lakes have dried up, with more than 80% of the state in the grip of "extreme" or "exceptional" drought, the state's farmers have resorted to pumping groundwater – underground reserves – to nourish almond trees, vineyards and orchards. David Zetland, economics professor at Leiden University College in the Netherlands, says farmers are pumping water at a rate four to five times greater than can be replenished: "The people of the state of California are more or less destroying themselves in order to give cheap almonds to the world."

California town faces life without water - FT.com: Officials say at least 1,300 people have lost their water in and around East Porterville, nearly three hours’ drive north of Los Angeles, making the town’s residents some of the hardest hit victims of the three-year-old drought. Their plight lies in the private wells they rely on for water, like the one that came with the house Mrs Gallegos and her husband, Macario, a mechanic, bought eight years ago. It sputtered dry five months ago, unleashing unimaginable household dilemmas for the couple and their two daughters, Denika, 10 and Abigail, 6. That includes deciding whether to use precious water hauled from the local fire stations for the “bird baths” Mrs Gallegos says everyone now has instead of showers, or flushing the toilet. “Sometimes,” she says, nodding towards her youngest child, “when she needs to go, I just take her outside.” Private wells have gone dry before in California, but not on a scale such as that in East Porterville this summer, experts say. “It is unusual,” says Thomas Holyoke, a water politics specialist at California State University, Fresno. It underlines the way California’s weak groundwater regulations have allowed more water to be withdrawn from underground reserves than can be returned, he says, a situation exacerbated by a lack of available surface water during the drought that has driven farmers and other big water users to drill deeper wells.

Landmark Groundwater Reform Headed to Governor’s Desk - In a move that some believed may never happen in California, state legislators approved three bills that would — for the first time — regulate the state’s vast underground water resources. “These groundwater bills would be the most significant change in water policy in decades, maybe four decades,” says Lester Snow of the California Water Foundation. Groundwater is California’s “underground reservoir,” providing as much as 60 percent of the state’s water supply during drought years. With this year’s historic drought, groundwater levels have dropped dramatically as farmers and cities have pumped to replace water that would normally come from reservoirs. In some places, groundwater has fallen by 100 feet in the past year, and water wells are going dry. Under California’s current system, landowners can essentially pump as much groundwater as they want to, from under their property. Unlike water taken from rivers and reservoirs, groundwater usage isn’t tracked in many parts of the state. “It’s like having a joint checking account,” Snow says. “Everyone can write checks on it, nobody balances the checkbook and no one is responsible for deposits.”

How should your community manage its water?  -- The first question is whether local people face (or realize they face) a problem with over-consumption of water relative to sustainable supplies. In some places, it appears that people have decided that it’s ok to use too much water, either because they plan to leave the area, have faith in divine intervention, or plan to take water from some other place or people. In others, people agree to set a limit on water use, to ensure their ongoing, independent existence.The next question is how to allocate water and costs. In some places, people pursue “from each according to his ability, to each according to his need” policies, i.e., the rich pay for the cost of water services that others use (e.g., Riyadh, Saudi Arabia). In others, people have decided to charge water users much more than the cost of service, i.e., unit water prices exceed the unit cost of service. Both of these systems are problematic. The former relies too much on outside funding while failing to discourage wasteful use of resources. The latter ends up destabilizing utility finances and encouraging extra use.*  My favorite system aligns system costs with billing charges to customers (with the addition of a surcharge if/when scarcity dictates) to protect reliability. I recommend direct income support to poor people in places where people want to help, since “cheap water” is an inefficient way to help the poor.

Agribusiness Drives Most Illegal Deforestation - Everyday products like beef, soy and palm oil already are widely blamed for spurring massive losses of the world's tropical forests. These products are also frequently linked to clearing that takes place in spite of local laws enacted to protect these forests. But a new report from the environmental nonprofit Forest Trends for the first time attempts to quantify exactly how much of the world's illegal deforestation takes place to make way for palm oil plantations, cattle ranching, soy cultivation and other agricultural commodities. The research team concluded that between 63 and 75 percent of global deforestation between 2000 to 2012 took place to make way for commercial agriculture. Of this, the authors found, 36 to 65 percent was illegal—the result of fraudulent licenses, destructive clearing techniques or other activities formally prohibited—but often overlooked—by local governments. Forest Trends estimates that the international trade of such products is worth an estimated $61 billion each year. Forest Trends' President Michael Jenkins said in an interview that he has long known that commercial agriculture had a role to play in illegal deforestation, but "the scale of it was more than we were expecting." In Paraguay, for example, which has lost 2.4 million hectares (5.9 million acres) of its forests between 2000 and 2012, an estimated 79 percent of this was due to agro-conversion, mostly for industrial soybean plantations, the report states. More than 42 percent of this conversion was illegal, Forest Trends alleges. In Indonesia, which has long struggled to rein in illegal forest clearing used to make way for lucrative oil palm plantations, Forest Trends estimated that 80 percent of forest clearing for commercial agriculture is illegal.

NASA Ranks This August as Warmest on Record -- While this summer may have felt like fall across much of the eastern half of the U.S., worldwide the overall picture was a warm one. This August was the warmest August on record globally, according to newly released NASA temperature data, while the summer tied for the fourth warmest.  Central Europe, northern Africa, parts of South America, and the western portions of North America (including Alaska) were just some of the spots on the globe that saw much higher than normal temperatures for the month. Large parts of the oceans were also running unusually warm. “For the past few months we've been seeing impressive warmth in large parts of the Pacific … and Indian Oceans in particular,” said Jessica Blunden, a climate scientist with ERT, Inc., at the National Climatic Data Center in an email. This warmth was a large factor in August’s chart-topping temperature, which was 1.3°F higher than the 1951-1980 average for the month according to NASA data. NCDC also calculates how much a given month’s temperature varies from average, but their August data won’t be released until Thursday.

NASA: Hottest August Globally Since Records Began In 1880 - Last month was the warmest August globally since records began being kept in 1880, NASA reported Monday. The globe just keeps warming. While it may have seemed like a cool August in this country, the NASA chart shows it was actually just “normal” or very close to the 1951-1980 average over most of the U.S. (other than the warm West, of course). But we’ve become so used to the “new normal” of global warming that when the old normal returns locally, it feels unnaturally cool. Over West Antarctica, however, it was so hot NASA had to put in the color brown to cover the 4°C to 8°C (7°F to over 14°F!) anomalous warmth. Fortunately that is so far away from us why should anybody should get very concerned about it when D.C. had such a mild summer? It’s not like recent studies have found that glaciers in West Antarctic ice sheet “have begun the process of irreversible collapse,” is it?  Significantly, this August record occurred despite the fact we’re still waiting for the start of El Niño. It is usually the combination of the underlying long-term warming trend and the regional El Niño warming pattern that leads to new global temperature records.

NOAA: With Hottest August On Record, 2014 Takes Aim At Hottest Year On Record -- Last month was the warmest August since records began being kept in 1880, the National Oceanic and Atmospheric Administration (NOAA) reported Thursday. NOAA also projected out scenarios for the rest of the year making clear that 2014 is going to be one of the very hottest years on record — and possibly the hottest.As the map shows, the oceans were particularly warm. In fact, ocean warming blew more than one record out of the water: The August global sea surface temperature was 0.65°C (1.17°F) above the 20th century average of 16.4°C (61.4°F). This record high departure from average not only beats the previous August record set in 2005 by 0.08°C (0.14°F), but also beats the previous all-time record set just two months ago in June 2014 by 0.03°C (0.05°F). No millennial has experienced a below average temperature August, since, as NOAA notes, the last one occurred in 1976! NOAA also reports that 2014 year-to-date temperatures currently rank as the third warmest on record:  But NOAA adds that of the years depicted in that chart, “The years 2013 and 2014 are the only years on this list not to begin during a mature El Niño event. The years 1998 and 2010, each of which became the warmest year on record at the time, ended the year in a strong La Niña event, as evidenced by the relative fading of global average temperature later in the year.” But 2014 not only isn’t headed towards a La Niña, it may well end up with a modest El Niño. In any case, temperatures are not likely to fade as they did at the end of 1998 and 2010. That gives 2014 a chance at moving up to ultimately ending higher than the third warmest year on record.

Natural Disasters Displaced 22 Million People Last Year, 3 Times More Than War - In 2013 natural disasters displaced some 22 million people, with more than four-fifths of those being in Asia, according to a new report. Using four decades of data, the study by the Norwegian Refugee Council found that floods, hurricanes, tornadoes, droughts, and other hazards now cause twice as many people to lose their homes as in the 1970s. Over the last decade an average of 27 million people have lost their homes to disaster each year, and in 2010 that number rose to 42 million. In an especially bad year of violent conflict, 2013 saw three times more people lose their homes to natural disaster than war; this ratio has been as high as ten times in the past. “Basically, the combination of mega natural disasters and hundreds of smaller natural disasters massively displaces people in many more countries than the countries that have war and conflict,” Jan Egeland, the secretary of the Norwegian refugee council, told The Guardian.In a statement released with the report, Egeland said that this trend will continue as more people live and work in hazard-prone areas, and that “it is expected to be aggravated in the future by the impacts of climate change.” While no place on earth is safe from natural disaster, Asia is regularly the worst affected area, and in 2013 it composed 87.1 percent of those displaced, or 19 million people. Developing countries account for a similar percentage of the overall statistics, accounting for more than 85 percent of displacement. In the Philippines, in 2013 typhoon Haiyan alone displaced 4.1 million people, a million more than in Africa, the Americas, Europe, and Oceania combined. The United States had 220,000 people lose their homes in 2013 due to extreme storms and tornadoes in Oklahoma and another 100,000 from flooding in Colorado.

EPA: Agricultural Nitrogen and Phosphorus is Reason for Gulf Dead Zone - The EPA’s recent report about hypoxia in the Dead Zone in the Gulf of Mexico is very damaging for agriculture. They tell us that eliminating the pollution-caused hypoxia would require large shifts in food production and agricultural management. As shown in the above graphic, they have determined that 71 percent of nitrogen released into the Gulf is from agriculture, and 80 percent of phosphorus is from agriculture. Furthermore, the states that contribute the most to the farmland induced nutrient pollution of the rivers and gulf are reluctant and resistant to inducing any changes which would reduce the farm runoffs, though they have been asked to do so. Sadly, runoff of these nutrients also translates to loss of our precious topsoil resource in our nation, something every citizen should feel responsible to defend politically. Soil runoff threatens future farmland productivity.  Right policy could reduce farm nutrient runoff, and the biggest culprit right now is the Renewable Fuels Standard, which requires us to grow millions upon millions of acres more corn than we need. Which means the EPA’s plea to reduce the Dead Zone makes no sense because they are also the ones who set the RFS mandated use of corn ethanol. Does their right hand know what their left hand is doing?

The Gulf of Alaska is unusually warm, and weird fish are showing up - Something odd is happening in Northern Pacific waters: They're heating up. In fact, it hasn't been this warm in parts of the Gulf of Alaska for this long since researchers began tracking surface water temperatures in the 1980s, according to the National Oceanic and Atmospheric Administration.   Temperatures have been as high as about 5 degrees Fahrenheit (3 Celsius) above average. Normally storms and winds roll through to cool off the surface of the Northern Pacific, but a weather pattern popped up for a few months in winter 2013 that inhibited those storms from developing, said Nate Mantua, a NOAA research scientist. Then, from October 2013 through January, the weather pattern came back as a ridge of high pressure (the same one connected to the California drought). All of that made the already warm waters in the Alaskan gulf even warmer, a layer about 100 meters thick, Mantua said. And now, strange fish are showing up. In the past year, there have been "unusual fish occurrences" in Alaskan waters, according to NOAA research biologist Joe Orsi, such as the skipjack tuna in the photo above. The last documented skipjack tuna in Alaska was in the 1980s.In August, a thresher shark was caught in the Gulf of Alaska, Orsi noted.  Those sharks are more typical off the coasts of British Columbia and Baja California. Two other threshers were spotted in the past four years in the more southern waters of the Alaskan gulf.

Bluefin Tuna Are Showing Up in the Arctic—and That’s Not Good News - When you throw a net into the ocean, you never know what you’ll pull out. That was the case for researchers cruising the freezing Arctic waters off Greenland in August 2012 in search of mackerel to see if there were enough of the fish to support a commercial fishery. In one haul, three endangered bluefin tuna, each weighing roughly 220 pounds, were pulled onto the ship’s deck amid six metric tons of mackerel. “It was a bit surprising,” The research ship was sailing in the Denmark Strait, between Greenland and Iceland, where water temperatures have historically been too cold for bluefin tuna. More bluefin tuna have been caught off eastern Greenland since then. From June to the end of August of this year, Greenland fishing vessels caught 21 tuna—in addition to 65,000 metric tons of mackerel, according to Greenland Today. The ever warmer Arctic waters could have profound impacts on how fisheries and food webs are managed and conserved in the future as tropical and Mediterranean species migrate into what were once colder waters. With Arctic waters warming and attracting bluefin tuna, Iceland and Norway in 2014 implemented commercial quotas for the prized fish. “It’s small, only 30 [metric] tons each,” said MacKenzie. “But it indicates that the distribution is really changing.”

In A Warmer, More Acidic Ocean, Algae Is One Organism That Will Be Able To Adapt And Survive -- One ocean organism could end up being more resilient to climate change than previously thought, according to a new study. The study, published Sunday in Nature Climate Change, found that one type of marine algae can evolve fast enough to keep up with climate change, becoming able to survive in ocean temperatures and acidification levels projected for the mid-2100s. In fact, the algae tended to grow more quickly once it had adapted to higher ocean temperatures, and ultimately produced a larger algae mass.  The algae, Emiliania huxleyi, reproduces rapidly: it can produce a generation a day, or more than 500 generations each year. They’re also a key food source for other ocean creatures and are carbon sinks, absorbing large quantities of carbon dioxide over their lifetimes. The algae is thought to live in every ocean except those in polar regions, and its blooms can grow so large that they’re visible from space. Though the study provides some hope for the future of the oceans in a warming world, lead author Thorsten Reusch told Reuters that the results shouldn’t be used to make assumptions about the ability of other ocean organisms to survive climate change.

Reuters - Water's edge: the crisis of rising sea levels: Part 2: Despite laws intended to curb development where rising seas pose the greatest threat, Reuters finds that government is happy to help the nation indulge in its passion for beachfront living.Between 1990 – when warnings were already being sounded on rising sea levels – and 2010, the United States added about 2.2 million new housing units to Census areas, known as block groups, with boundaries near the shore, a Reuters analysis found. The analysis did not include Louisiana, Hawaii or Alaska. That 27 percent increase is in line with growth nationwide. But it occurred in block groups near some of the country’s most imperiled shores, sometimes at much higher rates. Florida’s 1,350 miles (2,173 km) of shoreline – the longest in the contiguous 48 states – accounted for a third of new coastal housing built. Huckabee’s house was one of 22,000 housing units added to block groups near Walton County’s shoreline since 1990, a 186 percent increase. The number of people living near the Florida seashore has jumped by about 1.1 million since 1990, to 4.8 million – an increase more than four times greater than in Washington, the state with the next highest increase. And Florida’s increase doesn’t count part-time residents who spend their winters in the state.

Greenhouse gas levels rising at fastest rate since 1984: A surge in atmospheric CO2 saw levels of greenhouse gases reach record levels in 2013, according to new figures. Concentrations of carbon dioxide in the atmosphere between 2012 and 2013 grew at their fastest rate since 1984. The World Meteorological Organisation (WMO) says that it highlights the need for a global climate treaty. But the UK's energy secretary Ed Davey said that any such agreement might not contain legally binding emissions cuts, as has been previously envisaged. The WMO's annual Greenhouse Gas Bulletin doesn't measure emissions from power station smokestacks but instead records how much of the warming gases remain in the atmosphere after the complex interactions that take place between the air, the land and the oceans. Continue reading the main story “ About half of all emissions are taken up by the seas, trees and living things. According to the bulletin, the globally averaged amount of carbon dioxide in the atmosphere reached 396 parts per million (ppm) in 2013, an increase of almost 3ppm over the previous year. "The Greenhouse Gas Bulletin shows that, far from falling, the concentration of carbon dioxide in the atmosphere actually increased last year at the fastest rate for nearly 30 years," said Michel Jarraud, secretary general of the WMO. "We must reverse this trend by cutting emissions of CO2 and other greenhouse gases across the board," he said. "We are running out of time."

Good news on ozone, bad news on greenhouse gases -- First, the good news. In the 2014 version of the Scientific Assessment of Ozone Depletion, the WMO finds that the atmospheric concentrations of most of the chemicals covered by the Montreal Protocol are in decline. The exceptions are hydrochlorofluorocarbons, which are used in refrigeration, and halon, used in fire suppression. The WMO also noted that there must be some unidentified source of carbon tetrachloride to explain its persistence in the atmosphere.In sum, however, the effect has been positive. Chlorine and bromine levels in the stratosphere were down 10-15 percent over the past 15 years. And, after having declined over the course of the 1980s and '90s, the ozone concentrations have been stable since about 2000. If everything continues to go as expected, ozone will return to levels seen in 1980 by the middle of this century...The WMO's Greenhouse Gas Bulletin announced that carbon dioxide emissions reached levels that had last been seen in the mid-1980s, leading to an increase of 2.9 parts per million in 2013. That brings levels up to 396ppm, meaning we're less than two years from clearing the 400 mark (prior to industrialization, concentrations were approximately 280ppm). Levels of nitrous oxide and methane, two other greenhouse gases, also jumped.The bulletin also notes that, beyond greenhouse warming, CO2 emissions also contribute to ocean acidification. As some of the atmospheric CO2 dissolves into ocean waters, it is converted into a weak acid, lowering the ocean's pH. The WMO has included graphs that show a steady downward trend in ocean pH over the last several decades.

The Good and Bad Climate News from Permafrost Melt -- Earth’s subterranean carbon blisters are starting to pop. Carbon inside now-melting permafrost is oozing out, leaving scientists scrambling to figure out just how much of it is ending up in the atmosphere. Whether recent findings from research that attempted to help answer this question are good or bad climate news might depend on whether you see an Arctic river basin as half full of mud — or half empty. Frozen soils known as permafrosts can be found across the planet, and they’re concentrated heavily in the Arctic, which has been warming since the 1980s at twice the global rate. Taken together, permafrosts contain more carbon than is already in the atmosphere. Their warming-induced breakdown is helping to fill the atmosphere with greenhouse gases. In a self-feeding cycle, that's fueling the very climatic changes that are causing permafrost to waste away. “What everyone’s really concerned about is how all this permafrost carbon is going to decompose,”  “If all of that gets turned into carbon dioxide, then we’ll more than double the amount of carbon dioxide in the atmosphere.” A team of U.S. scientists led by Cory studied Arctic waterways and found that nearly half of the carbon that’s eroding from melting Arctic permafrost is flowing through rivers and lakes and ending up in the seas. Eventually, that sea-bound carbon is likely to be gobbled into aquatic food chains or to settle on ocean floors. The rest is being oxidized in waterways into carbon dioxide, floating into the skies instead of out to sea.

Shocking Climate-Change Update (As If the News Could Get Worse)  --Rebecca Solnit at the TomDispatch holds out the candle for us:  Just when no one needed more lousy news, the U.N.’s weather outfit, the World Meteorological Organization (WMO), issued its annual Greenhouse Gas Bulletin. It offered a shocking climate-change update:   the concentrations of long-lasting greenhouse gases in the Earth’s atmosphere (carbon dioxide, methane, and nitrous oxide) rose at a “record-shattering pace” from 2012 to 2013, including the largest increase in CO2 in 30 years - and there was a nasty twist to this news that made it even grimmer. While such increases reflected the fact that we continue to extract and burn fossil fuels at staggering rates, something else seems to be happening as well. Both the oceans and terrestrial plant life act as carbon sinks; that is, they absorb significant amounts of the carbon dioxide we release and store it away. Unfortunately, both may be reaching limits of some sort and seem to be absorbing less. This is genuinely bad news if you’re thinking about the future warming of the planet. (As it happens, in the same period, according to the Yale Project on Climate Change Communication, parts of the American public stopped absorbing information in no less striking fashion:  the number of those who believe that global warming isn’t happening rose 7% to 23%.)

World population to hit 11bn in 2100 – with 70% chance of continuous rise -- The world’s population is now odds-on to swell ever-higher for the rest of the century, posing grave challenges for food supplies, healthcare and social cohesion. A ground-breaking analysis released on Thursday shows there is a 70% chance that the number of people on the planet will rise continuously from 7bn today to 11bn in 2100. The work overturns 20 years of consensus that global population, and the stresses it brings, will peak by 2050 at about 9bn people. “The previous projections said this problem was going to go away so it took the focus off the population issue,” said Prof Adrian Raftery, at the University of Washington, who led the international research team. “There is now a strong argument that population should return to the top of the international agenda. Population is the driver of just about everything else and rapid population growth can exacerbate all kinds of challenges.” Lack of healthcare, poverty, pollution and rising unrest and crime are all problems linked to booming populations, he said.“Population policy has been abandoned in recent decades. It is barely mentioned in discussions on sustainability or development such as the UN-led sustainable development goals,” said Simon Ross, chief executive of Population Matters, a thinktank supported by naturalist Sir David Attenborough and scientist James Lovelock. “The significance of the new work is that it provides greater certainty. Specifically, it is highly likely that, given current policies, the world population will be between 40-75% larger than today in the lifetime of many of today’s children and will still be growing at that point,” Ross said. Many widely-accepted analyses of global problems, such as the Intergovernmental Panel on Climate Change’s assessment of global warming, assume a population peak by 2050.

World Population to Hit 12 Billion in 2100, New Study Predicts - Researchers had been predicting a leveling off of the world’s population, currently more than seven million. But Science, the journal of the American Association for the Advancement of Science, published a paper today projecting that population will continue to grow in this century and could reach 12 billion by 2100. The paper gave an 80 percent chance that world population in 2100 will be between 9.6 billion and 12.3 billion. Such population growth would have strong negative impacts on the environment and hasten climate change, due to the demand for food, water, energy, and space, as cities swallowed up open land, deserts expanded, and once-fertile land was overfarmed. It would also increase political unrest as people competed for scarce resources.  Much of that growth has occurred in Africa, where future growth is predicted as well, as HIV mortality goes down and access to contraception is limited. The population there could grow from one billion to four billion. But the paper’s authors suggest that population could be controlled by contraception and educating women.

Are we on the path of 'Limits to Growth'? - Probably the most important thing you need to know about the 1972 book entitled Limits to Growth is that it makes no predictions. Rather, the much maligned study provides scenarios for thinking about the future of resource use, pollution, population, food, and industrial production. Limits to Growth detailed three scenarios originally, one of them called business-as-usual or BAU. Since then, countless scenarios have been run using the same model--called World3--and some of them are discussed in updates to the book, the most recent published in 2004. Many of the scenarios including BAU result in a collapse of industrial production and population some time this century. What has surprised those reviewing the model used by Limits to Growth researchers is how closely reality has tracked the original BAU scenario. A recent review suggests that the signs of societal collapse may be around the corner based on the observed trends. But the components of that model have yet to turn in deleterious directions which would suggest trouble. The review says that if those indicators follow the path suggested by the BAU scenario, we should begin to see the signs of decline by next year with per capita industrial production falling (but not necessarily total production). The knock-on effects in agriculture and services would result in a rise in the death rate from 2020 onward and a decline in world population starting in 2030. No one can know whether such a scenario will unfold. There are many reasons to believe it will be delayed, perhaps considerably. One of the Limits to Growth authors believes that a collapse will occur only after 2050. According to the review referenced above entitled "Is Global Collapse Imminent?" the thing to watch is the amount of capital we must spend to get resources:

Jason Box, "We're f'd" -- An unusually blunt statement from usually soft spoken Box had gone viral. [In my experience, when scientists start swearing, they are really feeling the import of what is going on.] Brian Merchant had a piece on Motherboard, here’s part of it:This week, scientists made a disturbing discovery in the Arctic Ocean: They saw “vast methane plumes escaping from the seafloor,” as the Stockholm University put it in a release disclosing the observations. The plume of methane—a potent greenhouse gas that traps heat more powerfully than carbon dioxide, the chief driver of climate change—was unsettling to the scientists. But it was even more unnerving to Dr. Jason Box, a widely published climatologist who had been following the expedition. As I was digging into the new development, I stumbled upon his tweet, which, coming from a scientist, was downright chilling:  Box, who is currently a professor of glaciology at the Geological Survey of Denmark and Greenland, has been studying the Arctic for decades. His accolade-packed Wikipedia page notes that he’s made some 20 expeditions to the Arctic since 1994, and served as the lead author on the Greenland section of NOAA’s State of the Climate report from 2008-2012. He also runs the Dark Snow project and writes about the latest findings in the field at his blog, MeltfactorIn other words, Box knows the Arctic, and he knows climate change—and the methane plumes had him blitzed enough to bring out the F bombs.

Extent of Antarctic sea ice reaches record levels, scientists say - Scientists say the extent of Antarctic sea ice cover is at its highest level since records began. Satellite imagery reveals an area of about 20 million square kilometres covered by sea ice around the Antarctic continent. Jan Lieser from the Antarctic Climate and Ecosystems Cooperative Research Centre (CRC) said the discovery was made two days ago. "This is an area covered by sea ice which we've never seen from space before," he said. "Thirty-five years ago the first satellites went up which were reliably telling us what area, two dimensional area, of sea ice was covered and we've never seen that before, that much area. "That is roughly double the size of the Antarctic continent and about three times the size of Australia."

Global Un-Warming? Antarctic Sea-Ice Reaches Record High Levels -- In what appears to be an awkward moment of uncomfortable fact, ABC reports satellite imagery reveals an area of about 20 million square kilometres covered by sea ice around the Antarctic continent - the highest level of coverage since records began. This is the 3rd year in a row that the sea ice coverage has reached a record level - increasing at 1.5% each decade since 1979. However, there is another side to this, as the area covered in sea ice expands scientists have said the ice on the continent of Antarctica which is not over the ocean continues to deplete. The climate is changing, one way or the other.

Fixing Climate Change May Add No Costs, Report Says -- In decades of public debate about global warming, one assumption has been accepted by virtually all factions: that tackling it would necessarily be costly. But a new report casts doubt on that idea, declaring that the necessary fixes could wind up being effectively free. A global commission will announce its finding on Tuesday that an ambitious series of measures to limit emissions would cost $4 trillion or so over the next 15 years, an increase of roughly 5 percent over the amount that would likely be spent anyway on new power plants, transit systems and other infrastructure. When the secondary benefits of greener policies — like lower fuel costs, fewer premature deaths from air pollution and reduced medical bills — are taken into account, the changes might wind up saving money, according to the findings of the group, the Global Commission on the Economy and Climate. “We are proposing a way to have the same or even more economic growth, and at the same time have environmental responsibility,” said the chairman of the commission, Felipe Calderón, the former president of Mexico and an economist. “We need to fix this problem of climate change, because it’s affecting all of us.” The commission found that some $90 trillion is likely to be spent over the coming 15 years on new infrastructure around the world. The big challenge for governments is to adopt rules and send stronger market signals that redirect much of that investment toward low-emission options, the report found.

Errors and Emissions, by Paul Krugman -  This just in: Saving the planet would be cheap; it might even be free. But will anyone believe the good news?I’ve just been reading two new reports on the economics of fighting climate change: a big study by a blue-ribbon international group, the New Climate Economy Project, and a working paper from the International Monetary Fund. Both claim that strong measures to limit carbon emissions would have hardly any negative effect on economic growth, and might actually lead to faster growth. This may sound too good to be true, but it isn’t. These are serious, careful analyses. ... Enter the prophets of climate despair, who wave away all this analysis and declare that the only way to limit carbon emissions is to bring an end to economic growth.  You mostly hear this from people on the right, who normally say that free-market economies are endlessly flexible and creative. But you sometimes see hard scientists making arguments along the same lines, largely (I think) because they don’t understand what economic growth means. They think of it as a crude, physical thing, a matter simply of producing more stuff, and don’t take into account the many choices — about what to consume, about which technologies to use — that go into producing a dollar’s worth of G.D.P.  So here’s what you need to know: Climate despair is all wrong. The idea that economic growth and climate action are incompatible may sound hardheaded and realistic, but it’s actually a fuzzy-minded misconception. If we ever get past the special interests and ideology that have blocked action to save the planet, we’ll find that it’s cheaper and easier than almost anyone imagines.

Carbon Pricing: Good for You, Good for the Planet - IMFdirect -- The time has come to end hand wringing on climate strategy, particularly controlling carbon dioxide (CO2) emissions.  We need an approach that builds on national self-interest and spurs a race to the top in low-carbon energy solutions. Our findings here at the IMF—that carbon pricing is practical, raises revenue that permits tax reductions in other areas, and is often in countries’ own interests—should strike a chord at the United Nations Climate Summit in New York next week. Let me explain how.Ever since the 1992 Earth Summit, policymakers have struggled to agree on an international regime for controlling emissions, but with limited success. Presently, only around 12 percent of global emissions are covered by pricing programs, such as taxes on the carbon content of fossil fuels or permit trading programs that put a price on emissions. Reducing CO2 emissions is widely seen as a classic “free-rider” problem. Why should an individual country suffer the cost of cutting its emissions when the benefits largely accrue to other countries and, given the long life of emissions and the gradual adjustment of the climate system, future generations? This argument crucially ignores immediate domestic environmental benefits from reducing CO2. Fossil fuel combustion, especially coal, is a leading cause of local outdoor air pollution which, according to World Health Organization figures, is estimated to cause over 3 million premature deaths a year worldwide—through increasing the risk of heart disease, lung cancer, and so on. Taxing the carbon content of coal will increase its price, and decrease its use, leading to both fewer CO2 emissions and better public health due to cleaner air. A carbon tax would also increase motor fuel prices, which will reduce traffic congestion and accidents as people economize a bit on their use of vehicles. This again spurs domestic economic benefits, at least in countries where people are not already fully charged for these adverse effects through existing motor fuel excises. These health and other “co-benefits” from reducing fossil fuel use add to the gains in economic efficiency that start with pricing CO2 emissions

How the People’s Climate March Became a Corporate PR Campaign -- I’ve never been to a protest march that advertised in the New York City subway. That spent $220,000 on posters inviting Wall Street bankers to join a march to save the planet, according to one source. That claims you can change world history in an afternoon after walking the dog and eating brunch.Welcome to the “People’s Climate March” set for Sunday, Sept. 21 in New York City. It’s timed to take place before world leaders hold a Climate Summit at the United Nations two days later. Organizers are billing it as the “biggest climate change demonstration ever” with similar marches around the world. The Nation describes the pre-organizing as following “a participatory, open-source model that recalls the Occupy Wall Street protests.” A leader of 350.org, one of the main organizing groups, explained, “Anyone can contribute, and many of our online organizing ‘hubs’ are led by volunteers who are often coordinating hundreds of other volunteers.”I will join the march, as well as the Climate Convergence starting Friday, and most important the “Flood Wall Street” direct action on Monday, Sept. 22. I’ve had conversations with more than a dozen organizers including senior staff at the organizing groups. Many people are genuinely excited about the Sunday demonstration. The movement is radicalizing thousands of youth. Endorsers include some labor unions and many people-of-color community organizations that normally sit out environmental activism because the mainstream green movement has often done a poor job of talking about the impact on or solutions for workers and the Global South. Nonetheless, to quote Han Solo, “I’ve got a bad feeling about this.”

Obama delays key power plant rule of signature climate change plan - Barack Obama applied the brakes to the most critical component of his climate change plan on Tuesday, slowing the process of setting new rules cutting carbon pollution from power plants, and casting a shadow over a landmark United Nations’ summit on global warming. The proposed power plant rules were meant to be the signature environmental accomplishment of Obama’s second term. The threat of a delay in their implementation comes just one week before a heavily anticipated UN summit where officials had been looking to Obama to show leadership on climate change. In a conference call with reporters, the Environmental Protection Agency said it was extending the public comment period on the power plant rules for an additional 45 days, until 1 December. The delay follows heavy lobby by Republicans and industry lobby groups to delay the rule – or withdraw it outright. Fifteen governors had called on Obama and the EPA to withdraw the proposed regulations, which would cut carbon pollution from existing power plants. Some electricity companies had argued that the rules were extraordinarily complex, clocking in at about 1,600 pages, and they needed extra time to study the full implications. But a delay puts the EPA on an even tighter deadline to finalise the rule before Obama leaves office in 2016. Even before Tuesday’s extension, the initial comment period for the new EPA rule was already longer than the norm.

The Oil Industry Thinks The White House Will Raise The Biofuel Mandate To Win A Senate Seat - The oil industry accused the Obama Administration of using the country’s biofuel mandate as a political weapon last week — specifically, that the White House intends to hike up the mandate to help out a Democratic Senate candidate in Iowa. According to The Hill, the oil lobbying group the American Petroleum Institute (API) said that the Administration was likely to reverse its earlier plans to lower the required amount of biofuel for 2014, and instead keep it at 2013′s level. Because most biofuel in America is traditional ethanol made from corn, the Renewable Fuel Standard (RFS) helps keep up demand and thus prices for the crop, which is big business in Iowa. API went on to claim the plans to maintain the RFS were part of a gambit to help Rep. Bruce Braley (D-IA) in his race against Republican Joni Ernst for the senate seat becoming vacant following the retirement of Senator Tom Harkin (D-IA). “There is a strong linkage to what’s going on in the Iowa Senate race,” said Bob Greco, the director of API’s downstream operations. “I think you are starting to see the political calculations. We are very concerned that the signals we are seeing from the administration is that the political calculations are outweighing sound fuels policy.” “You don’t have to be a political insider to see how the Iowa Senate race — and the White House’s fear they will lose control of the Senate — plays into this decision,” Greco continued.

US Power Plants World's Worst Polluters: Report: America's power plants are among the leading global sources of carbon emission than the entire economies of Russia, India, Japan or any other nation put together besides China, a latest report said today. "US power plants are polluters on a global scale," said Elizabeth Ouzts of Environment America Research & Policy Center which released the report "America's Dirtiest Power Plants," ahead of the next weeks United Nations Climate Summit in New York. "It's time to stop ignoring our largest global warming polluter, and start a major transition to clean power," she said, adding that the US power plants are world's third largest carbon polluters, edging out India. According to the report, in 2012, US power plants produced more than six percent of global warming emissions worldwide, more than any other industrialised nation except China and the US as a whole. The 50 dirtiest US power plants produced 30 per cent of all power-sector carbon dioxide emissions in 2012, the same as the entire economy of South Korea, the world's seventh-largest carbon emitter, it said. The 100 dirtiest US power plants produced 19 per cent of all power-sector carbon dioxide emissions, the same as Germany, the 6th largest carbon emitter.

"What Is the Most Efficient Source of Electricity?" - The WSJ's Numbers "guy": The true cost of electricity is difficult to pin down. That’s because a number of inputs comprise it: the cost of fuel itself, the cost of production, as well as the cost of dealing with the damage that fuel does to the environment.Energy Points, a company that does energy analysis for business, factors in the these myriad values in terms of what percentage of the energy input—fossil fuel energy, plus energy for production and energy for environmental mitigation—will become usable electricity. ... In any given area, electricity might come from a number of different sources, including oil, coal, gas, wind, hydropower and solar. Each has its own set of costs, both internal and external. From Energy Points: Energy Points’ methodology measures environmental externalities and calculates the energy it takes to mitigate them. For example, it quantifies the greenhouse gas (GHG) emissions that result from turning coal and natural gas into electricity and then calculates the energy it would take to mitigate those emissions through carbon capture and sequestration. Water scarcity and contamination are quantified as the energy that is required to durably supply water to that area. And in the case of solar or wind energy, Energy Points incorporates the life cycle impact of manufacturing and shipping the panels. This metric is a more rounded calculation than merely cost or carbon footprint. For example, hydro electricity has the lowest carbon footprint (4 gCO2/kWh), but when Energy Points factors in the full lifecycle of the different fuels, wind is the most efficient.

Mexico: Researcher Raises Alert About Environmental Dangers of Wind Farms -- An environmental impact study conducted by the URS Corporation Mexico at the request of Natural Gas Fenosa, which was used to justify the construction of the Biino Hioxo park in Juchitan de Zaragoza, Oaxaca, concluded that the development of a wind farm "in this area of the state of Oaxaca is a clear example of sustainable development" and that "the project is environmentally viable as it utilizes renewable resources and does not generate significant environmental impacts." But while environmental impact reports tend to support the construction of these wind farm parks, local communities and environmentalists are raising concerns that local flora and fauna are being affected. The cases of the Barra Santa Theresa in Alvaro Obregon and San Vicente Beach in Juchitán de Zaragoza are of particular interest. "This is the meeting point of various intimately related aquatic and terrestrial ecosystems, known as 'ecotones.' What occurs in each distinct ecosystem affects the dynamic on a larger scale, placing the existence of the adjoining ecosystems in danger," Mora said. In a detailed interview, the biologist explained what the environmental impact reports omit: the real impacts on the flora and fauna of the Tehuantepec Isthmus. These negative impacts extend not only throughout Mexico, but also into the ecosystems of Central America. Mora even casts doubts about the way in which these environmental studies are conducted. "Generally there are 'agreements' behind closed doors between the consultants or research centers and the government offices before the studies are conducted. They fill out forms with copied information (and sometimes badly copied), lies or half truths in order to divert attention from the real project while at the same time complying with requirements on paper." In the following interview, Mora discusses the realities of the wind farms' impacts - and how environmental impact studies are often manipulated to serve the interests of corporations.

More Problems Found at Leaky New Mexico Nuclear Waste Dump -- The New Mexico dump which holds the nation's dirtiest laundry from nearly 70 years of nuclear weapons production was supposed to be a an accident-proof underground vault that would entomb radioactive waste in a 2,000-foot thick layer of salt for at least 10,000 years.  It's not working out that way. And like most things related to nuclear waste, it looks like the news is going to get worse—and a hell of a lot more expensive—before it gets any better.  Now, officials with the U.S. Department of Energy say that it appears a second drum of plutonium waste has the potential of bursting—if it hasn't already—at the Waste Isolation Pilot Plant (WIPP) near Carlsbad, possibly contributing to a leak from another ruptured drum that left 21 workers exposed to small amounts of radiation earlier this year. On February 14, a drum of plutonium-contaminated waste from Los Alamos National Laboratory overheated and burst open from an apparent chemical reaction between bags of nitric acid (used in the plutonium-extraction process), organic matter and lead—sending radiation up a half-mile long air vent to the surface, where it contaminated the workers. DOE official Joe Franco told state and local officials at a hearing in Carlsbad on Thursday that the second drum was located in an underground waste panel separate from the original ruptured drum. The agency was expected to release details about their plans to cleanup the facility, but the full plan was still under review by officials in Washington.

China to Australia: No More Dirty Coal -  Australia missed the Great Recession. While economies in other developed countries swooned as Lehman Brothers went under, the Lucky Country kept expanding, thanks largely to the apparently endless appetite in China for Australian iron, coal, and other minerals. China is the country’s top trading partner, accounting for 36 percent of Australian exports. In 2009, when the U.S. economy contracted nearly 3 percent, Australia grew 1.8 percent, and last year the Aussie economy expanded 2.4 percent. When it comes to China, though, Australia’s luck may be running out. After years of more than 8 percent growth, the Chinese economy is slowing dramatically. China’s GDP growth last month fell to an annual rate of just 6.3 percent, according to data compiled by Bloomberg, and industrial output increased at the slowest pace in more than five years. That slowdown is hurting demand for Australian minerals. Consider iron ores and concentrates, which account for 26.5 percent of all exports: Prices for iron ore have dropped 35 percent this year, according to a report published today by Moody’s Investor Service (MCO), driven down by overcapacity in China. And now the Chinese government may be depressing demand for Australian minerals even further. Embarrassed by the worsening air pollution in Beijing and other cities, China is taking action to reduce the country’s demand for coal from Australia and other foreign producers. Starting in January, China will ban the import of coal with high ash or sulfur content, according to a regulation that the National Development and Reform Commission posted on its website on Monday.

Council says Ohio EPA is giving gas, coal a pass: An environmental advocacy group says the state wants to loosen permit requirements for several project types that affect waterways, a move the group says would give fracking and coal industries a pass to destroy wetlands. But the Ohio Environmental Protection Agency says it's simply streamlining the process companies are required to follow for certain types of projects. Either way, if Ohio EPA Director Craig Butler approves the proposed changes, water quality in some parts of Ohio could be hurt, Butler acknowledged in his draft of the changes. But he also determined any lessening of water quality was necessary, according to the draft. Butler didn't explain in the draft why it was necessary, but an agency spokeswoman said the agency was trying to cut red tape and support economic growth while protecting the environment. "It's pretty transparent that they're granting special favors to the industries," said Nathan Johnson, attorney for the Ohio Environmental Council, the nonprofit advocacy organization that opposes the changes. The Ohio EPA is asking for changes to nationwide permits regarding pipeline activity, coal remining and linear transportation projects, which include road construction, said Heidi Griesmer, agency spokeswoman. Pipeline activity would include shale gas from fracking, Johnson said. In coal remining, a company could reopen an abandoned mine, Griesmer said. In some remining cases, water quality could actually be improved because the company would have to fix environmental issues created by the mines in the past, she said. A nationwide permit is basically a general permit that covers certain types of projects, Griesmer said. If the Ohio EPA approves the permit changes, larger projects would fit under the nationwide permit and receive less scrutiny and oversight, Johnson said.

Ohio Supreme Court: It’s OK To Strip Mine State Wildlife Areas - This week, the Ohio Supreme Court ruled 6-1 to potentially allow part of a state wildlife area to be strip-mined for coal. The ruling, which settles a dispute involving an esoteric land contract from 1944, could open up $2 million of coal to be dug out of a 651-acre section of the Brush Creek Wildlife Area owned by the Ohio Department of Natural Resources. Appellants Ronald Snyder and Steven Neeley appealed to the Ohio Supreme Court after an appeals court and common pleas court ruled in favor of the state’s claim that the land could not be strip mined unless it was explicitly permitted in the contract. They argued that the only way to get at the coal was to surface mine.  When the 1944 contract was transferred from the landowners to the ODNR the seller “reserve[d] all mineral rights, including rights of ingress and egress and reasonable surface right privilege.” The court found this to be the “ultimate issue” on Wednesday, with Justice Paul E. Pfeifer writing that “some areas of the property at issue were strip-mined before ODNR acquired it:Thus, there is reason to believe that the signatories to the original contract understood that ‘reasonable surface right privileges’ included the right to strip mine, and there is no reason to believe that the signatories intended to exclude strip-mining. Bethany McCorkle, spokesperson for the ODNR, disagrees with Pfeifer’s interpretation. “ODNR is disappointed by the Supreme Court’s decision, which ignored substantial precedent as to this issue,” she told ThinkProgress. “Based on this decision ODNR intends to review all of its deeds to confirm what other surface disturbances, if any, are possible as a result of this outcome.”  In its summary judgement, the common pleas court had found that although the reservation of mineral rights implies the right to remove the minerals, it does not imply the right to remove them by strip mining because “strip mining does not merely use the surface, it destroys the surface.”

America’s Big Bet On Natural Gas And Big Short On Coal --America is betting the kitchen sink on natural gas. No matter which estimate you look at -- the U.S. Energy Information Administration, the International Energy Agency, or Wall Street banks -- two things are clear: the United States is slated to consume enormous amounts of natural gas and the dominant fuel of electricity generation for the last 50 years, coal, is diminishing.  It is difficult to overstate the effect shale gas production has had on the United States. In 2006, shale gas production accounted for about 5 percent of natural gas production. In 2013, it accounted for roughly 40 percent. As industry leaders clamored to take advantage of the vast supply of newly accessible domestic natural gas, analysts began to forecast longer and longer projections of low natural gas prices. The result is big expectations for natural gas.Meanwhile, the outlook for coal continues to appear bleak. This week, the Government Accountability Office released a new report with increased projections for the number of coal plants expected to retire in the coming years. The report estimates that 42,192 megawatts, or 13 percent of coal-fueled summer generating capacity, will retire between 2012 and 2025 as a result of environmental regulations, lower natural gas prices, and decreasing electricity demand. These retirements are on top of the 150 coal-fueled units with a summer generating capacity of 13,786 megawatts that have been retired since 2000. America’s gamble will not affect everyone in the country equally. Almost 40 percent of the retired coal capacity will take place in in Ohio, Pennsylvania, Kentucky, and West Virginia. Fortunately, Pennsylvania, Ohio, and to a lesser degree West Virginia, have economies that will be better prepared for this transition as a result of surging production from the Marcellus and Utica shale plays.For everyone’s sake, let’s hope the gamble pays off. Because if natural gas fails to live up to the high expectations, there will be less coal to back it up.

‘This Changes Everything’ Including the Anti-Fracking Movement -  Sandra Steingraber -  Among its many demonstrations, This Changes Everything, reveals how the grassroots anti-fracking movement is right where it should be—except for decades-old backroom deals between Big Green groups and the oil and gas industry that hold the movement down like a cartoon ball and chain. But I’m getting ahead of myself. So, let me start again: You need to read Naomi Klein’s new book, This Changes Everything, which delivers a message so big that the title alone pushes both the author’s name and the subtitle (“Capitalism vs. the Climate”) right off the front cover. Simply put, This Changes Everything is a literary enactment of the old adage that every crisis is an opportunity in disguise. For Klein, the crisis—and she rightly sees it as a moral one—is the ongoing destruction of our agriculture-enabling, freshwater-providing, weather-regulating, life-nurturing climate system, which is under attack by heat-trapping gasses that are the unpriced, unregulated, untaxed, unmonitored consequences of a global economic system that runs amok on fossil fuels.

President Obama has a huge gas problem - Later this month, hundreds of delegates will gather inside the U.N. to talk about climate change. President Barack Obama plans to attend the climate summit and reportedly wants work on a deal with other world leaders to “name and shame” countries that aren’t actively pursuing serious climate action. But outside the U.N., thousands of activists will be protesting with one message: Whatever Obama accomplishes at the U.N., it won’t be enough to save his climate legacy. The Obama administration has been tough on coal, directing the Environmental Protection Agency to severely limit the amount of CO2 that power plants are allowed to emit. But at the same time, the administration has embraced natural gas. Environmentalists say that embrace has created a chasm between Obama’s rhetoric and his climate-fighting actions. That’s because a growing body of scientific evidence that shows gas development produces significant amounts of methane, a greenhouse gas many times more potent than carbon dioxide.

Experts Call on Obama to Ban Fracking in Lead Up to People’s Climate March - Americans Against Fracking, a coalition of more than 270 national and local groups opposed to hydraulic fracturing, held a media teleconference today to call on President Obama to ban fracking in the lead up to the People’s Climate March. The press call highlighted a new report by Food & Water Watch, The Urgent Case for a Ban on Fracking, providing a comprehensive compilation of research on the harmful effects of fracking. It makes the case that the huge amount of methane released during the fracking process traps 87 times more heat pound for pound than carbon dioxide over a 20-year period.  “Gas wells are like chimneys in the Earth and what they leak goes straight into our atmosphere,” said Sandra Steingraber, science advisor to Americans Against Fracking, and national expert on climate change and scientist at Ithaca college. “Fracked gas wells leak heat-trapping methane into the atmosphere which cripples any chance we have to combat climate change—unless we halt fracking. We’ve underappreciated just how powerful a greenhouse gas methane is. That’s why we’re calling methane the new carbon dioxide.”

EIA: Natural gas storage deficit to 5-year average is narrowing - Oil & Gas Journal: Natural gas storage injections continued to outpace the 5-year (2009-13) average, with inventories as of Sept. 5 at 2.80 tcf, according to data from the Weekly Natural Gas Storage Report (WNGSR) by the US Energy Information Administration. Due to an unusually cold winter during 2013-14, gas inventories ended March 2014 almost 1 tcf lower than the 5-year average. As of Sept. 5, relatively higher weekly net injections into storage reduced that deficit to 463 bcf. EIA's latest Short-Term Energy Outlook (STEO) expects that this trend will continue, with forecast inventories of 3.47 tcf by the end of October, 355 bcf below the 5-year average and the lowest end-October level since 2008. However, increasing new production is expected to mitigate the effect of these lower inventories on winter natural gas markets, as evidenced by decreasing seasonality in natural gas futures contracts. “Although the injection season began slowly, injections have exceeded their average comparable-week levels in each week since April 18,” EIA said. Strong domestic production growth and mild demand have supported strong injections through the summer. Dry natural gas production increased to 70.2 bcf/d in June, up nearly 6% from a year earlier, while mild weather reduced natural gas use for electric generation. Natural gas prices have also fallen during the injection season.

Oilprice Intelligence Report: US Picks up Pace in LNG Race: This week in energy, the prospect of liquefied natural gas (LNG) exports gains momentum in Washington with final federal approval for two more projects in Louisiana and Florida thanks to a tweaking of legislation. On Wednesday, the US  Energy approved final permits for Sempra Energy’s Cameron LNG facility in Louisiana and Carib Energy’s small-scale export project in Florida, making them the second and third LNG export projects to win final federal approval. The first to win a final permit to export LNG to non-Free-Trade Agreement countries was Cheniere’s Sabine Pass project in Louisiana, which was approved in 2012. Since then, some two dozen projects have waited for final approval. Cameron will be allowed to export up to 1.7 billion cubic feet of natural gas for up to 20 years through its $10-billion project. For Cameron, this was some significant fast-tracking helped by pressure from Congress to speed things up and the resulting Energy Department decision in August to streamline and prioritize applications. Essentially, it put those projects that already had environmental reviews and construction permits to the top of the list for federal approval. Cameron had received its construction permit in June. With this tweaking of the process, Cameron would have had to wait for a lengthy public interest determination. The pressure on Washington is indeed growing because the race to the finish for LNG exports is a tight one and will have a major impact on long-term contracts.

LNG Exports Are a Win For All Concerned - Bipartisanship in Washington is not quite dead. Republicans and Democrats both praised the Department of Energy's approval of two new liquid natural gas export projects. With Russian gas exports to Europe slowing, and Russia solidifying its hold on eastern Ukraine, more approvals should be in the pipeline. But bureaucratic red tape from the Federal Energy Regulatory Commission and the Environmental Protection Agency result in two dozen pending applications for natural gas exports, some from 2011. America has enough gas for itself and for export. About a third of natural gas in North Dakota is wasted. The U.S. spot price for natural gas is about $3.90 per million British Thermal Units, compared with $9.14 per million BTUs for Europe. The differential has been higher in the past, making exports worthwhile.  Europe is substantially dependent on Russian gas. Germany gets 37 percent of its gas from Russia, and Poland gets 59 percent. Finland, Lithuania, Latvia, and Estonia are completely dependent on Russian natural gas. Testifying before the Senate Energy and Natural Resources Committee last March, Lithuania's Minister of Energy Jaroslav Neverovič said, "At present, we are completely-100 percent-dependent upon [a] single supplier of natural gas and, as a result, are forced to pay a political price for this vital energy resource....The United States, with your enormous natural gas resources and highly developed infrastructure, has the kind of liquid market that Europe is trying mightily to achieve." Speeding up exports would be a win for America and a win for Europe.

Don’t exaggerate how fracking helps the US economy – AEI - The economic impact of the shale revolution — while a significant positive —  is still often exaggerated. We likely cannot frack our way back to prosperity or 4% GDP growth. (I understand, though, the temptation to make oversized growth claims given the constant push-back from environmentalists.) As Goldman Sachs recently put it:We estimate that the overall impact from the increase in US energy supply on real GDP growth is currently in the range of 0.2-0.3pp per year. Most of this is due to the direct effects from increased energy output and drilling activity, while the spillovers to other industries or via lower household energy bills have been more modest. Now those impacts are hardly beanbag — really, not at all — especially given the continued anemic pace of economic growth. But they shouldn’t preclude all manner of other economic reforms the economy needs. It can’t be cut business taxes, frack more, and call it a day (though that would be quite a productive day.) A new Fed study looks at how fracking is only modestly affecting the nation’s manufacturing industry: Over the past eight years, the use of hydraulic fracturing techniques has significantly increased U.S. natural gas production. This production increase has pushed U.S. natural gas prices down and has also provided a competitive advantage to those U.S. manufacturers that are intensive users of energy. This paper uses industry-level data on capital expenditure, production, employment, producer prices, imports, and exports to offer a preliminary empirical assessment of the impact of the drop in natural gas prices on U.S. manufacturing through this competitiveness channel. … Overall, our estimates suggest that the roughly two-thirds decline in the price of natural gas in the United States relative to the price of natural gas in Europe has boosted activity in the manufacturing sector as a whole by perhaps two to three percent. Although a few industries are expanding, as of yet there does not appear to be a large effect across the entire manufacturing sector.

The Consequences Of Fracking: Two Clashing Views: Two academic studies of the health dangers of hydraulic fracturing, or fracking, have produced different conclusions. One, conducted by Yale University, said people living near fracking sites report increased health problems. The other, by Penn State University, says fracking water stays underground, far below the groundwater supplies that people use for drinking, and poses no threat. Both studies were conducted in Pennsylvania, part of the Marcellus Shale formation in the sprawling Appalachian Basin in the eastern United States. It holds enormous reserves of gas and has been a focus of fracking activity and protests. In the Yale study, former Yale medical professor Dr. Peter Rabinowitz reported in the journal Environmental Health Perspectives that residents living near a fracking site in southwestern Pennsylvania were more than twice as likely to report skin problems and respiratory illnesses than those living farther away. Thirty-nine percent of respondents living within 0.6 of a mile of a gas well reported sinus infections and nosebleeds, compared with 18 percent who said the same and lived more than twice as far away. The difference was even starker for those reporting skin problems: Thirteen percent reported rashes, while only 3 percent of people who lived farther away had the same complaints. The Penn State study concluded that the water and chemicals that are injected into deep shale to help extract gas stays far below the surface and therefore doesn’t pose a serious threat to drinking water supplies.

Kasich vows to 'focus' on hiking fracking tax - The legislature has steadfastly declined to give Gov. John Kasich what he wants regarding a new severance tax on fracking in Ohio, but the governor says he’s only going to push harder if he wins re-election — and end a “rip-off” of consumers at the same time. Lawmakers have given Kasich many of his agenda items over three-plus years, but he and GOP legislative leaders, particularly in the House, have butted heads repeatedly over whether, or how much, Ohio should increase severance taxes on the shale fracking industry spreading across eastern Ohio.  “I think, in the Senate, they want to do something seriously over there,” Kasich told The Dispatch. “The House, I can’t tell you. Give us time to ratchet it up. I need to focus on it.” A divided House in May passed a severance tax, House Bill 375, but Kasich called it “puny” and has continued to push for more. The bill is in the Senate, but few expect that chamber to move the measure in the post-election lame-duck session. “We tried to do it in a way that included everybody,” said Rep. Jeff McClain, R-Upper Sandusky, the chairman of the House Ways and Means Committee who has been mentioned as potential chairman next year of the Finance Committee. “Nobody was really happy about it, but they were supportive."

Lawmaker action with hydraulic fracturing: The head of the Ohio House committee considering legislation that would increase penalties for illegally dumping oil field waste said he hoped to have the bill ready for a floor vote when lawmakers return to session after the November election. Rep. Dave Hall, R-Millersburg, chairman of the House’s agriculture committee, said he hoped to convene a hearing on HB 490 later this month and likely would focus some attention on law changes to combat algal blooms in lakes. The latter comes in response to a Lake Erie algal bloom that left hundreds of thousands of residents without drinkable tap water earlier this month. Among other provisions, HB 490 would expand the Ohio Department of Natural Resources’ authority to revoke or suspend drilling and related activities of those who break the state’s environmental regulations. The legislation also would tighten requirements for transporting brine and increase potential prison time and civil penalties for violators. The bill was offered, in part, in response to a Youngstown-area dumping incident. The man involved, Ben W. Lupo of Springfield Township, was sentenced in August to 28 months in federal prison and fined $25,000. Stiffer penalties: A Democratic lawmaker said the state needs tougher penalties for those who illegally dump oil field waste, in light of Lupo’s conviction. “What we need are more-severe penalties for the bad actors in this industry,” Senate Minority Leader Joe Schiavoni of Boardman, D-33rd, said in a released statement. “This is not the first time illegal dumping has occurred in the state, and those who violate this law are often repeat offenders. ... While I encourage the continued exploration of oil and gas in the Mahoning Valley and throughout the state, we must have strong laws in place to preserve the environment and protect the public.”

What's Pa. hiding on fracking contamination? --  The history behind the Commonwealth of Pennsylvania's recent revelation of at least 243 confirmed cases of water contamination from fracking illustrates how that disturbing number is just the tip of the iceberg in the disaster that has been fracking in Pennsylvania. Buried deep within the Pennsylvania Department of Environmental Protection's website is the long-awaited list of letters of determination telling property owners that their water wells have been contaminated as a result of fracking. The agency recently announced the list's addition to their site, six years after the drilling boom began in Pennsylvania and more than a decade after the first unconventional well was drilled in the state. That's where, for the first time, the agency is admitting that 243 private water sources have been contaminated by fracking. This comes after years of denying any contamination at all from fracking, which is a process where water, sand and chemicals are inserted into rock deep underground at extreme pressures to crack the rock and release natural gas and oil trapped within the rock. The list is just the first stab at transparency in some time for an agency still reeling from a scathing review by the Pennsylvania Auditor General Eugene DePasquale. His report in July concluded that the DEP was "woefully" unprepared to monitor and regulate shale oil and gas development. And this new attempt at transparency comes only after a Scranton Times-Tribune reporter got a court order to review letters to residents informing them whether or not oil and gas drilling was responsible for contaminated water wells.

Well Leaks, Not Fracking, Are Linked to Fouled Water - A study of tainted drinking water in areas where natural gas is produced from shale shows that the contamination is most likely caused by leaky wells rather than the process of hydraulic fracturing used to release the gas from the rock. The study looked at seven cases in Pennsylvania and one in Texas where water wells had been contaminated by methane and other hydrocarbon gases. Both states have extensive deposits of gas-bearing shale that have been exploited in recent years as part of a surge in domestic energy production. Some environmental groups have suggested that hydraulic fracturing, or fracking, could cause the gas to migrate into drinking water aquifers. Shale-gas producers commonly drill a deep vertical well that is then extended horizontally in several directions into the rock, like spokes from a hub. In fracking, water and chemicals are injected at high pressures into these spokes, creating fissures and releasing the natural gas trapped within. But in their analysis, published Monday in The Proceedings of the National Academy of Sciences, the researchers found no evidence that fractured shale led to water contamination. Instead, they said cement used to seal the outside of the vertical wells, or steel tubing used to line them, was at fault, leading to gas leaking up the wells and into aquifers.

Study: Faulty gas wells, not fracking, pollute water: Faulty wells, not deep underground fracking, is the main reason that natural gas extraction from shale rock has contaminated drinking water in parts of Texas and Pennsylvania, says a study Monday by researchers from five universities. As natural gas production increases in the United States, so, too, have reports of well water contaminated with methane. Now a study, the first to make comprehensive use of "stray gas forensics," not only found pollution in multiple wells but also identifies the culprit. "Our data clearly show that the contamination in these clusters stems from well-integrity problems such as poor casing and cementing," says co-author Thomas Darrah, assistant professor of earth science at Ohio State. While a scientist at Duke University, he led the research team, which includes experts from Duke, Stanford, Dartmouth and the University of Rochester. Over a two-year period, the researchers took samples from 130 drinking water wells where contamination had been suspected in the two states. They found contamination in eight clusters of wells — seven in Pennsylvania and one in Texas — from deep underground in the Marcellus shale and from shallower, intermediate levels in both states.

Fracking study: Correctly built wells don’t contaminate water -- Fracking — fracturing shale to free up oil and gas — does not inherently contaminate nearby drinking water with methane, a new study has found. But poorly constructed wells with leaky casings or faulty cement can allow methane to leach into drinking water, according to the study, published yesterday in the Proceedings of the National Academy of Sciences. That means that as long as a well is built correctly, methane is unlikely to move from shale deep beneath Earth’s surface into a drinking-water well, said Thomas Darrah, an assistant professor of geochemistry at Ohio State University who is the study’s lead author. “The implication is that future improvements in well integrity will keep methane out of drinking water,” Darrah said. He and researchers from Duke, Stanford and Dartmouth universities and the University of Rochester analyzed 133 samples from drinking-water wells over the Marcellus and Barnett shale formations.  The researchers found eight clusters of contaminated groundwater wells near shale-drilling sites — seven in the Marcellus region and one in the Barnett.

Bad fracking wells taint water, scientists find — Faulty fracking wells are to blame for drinking water contamination in Texas and Pennsylvania, according to new findings from researchers at five universities.“People’s water has been harmed by drilling,” said Robert Jackson, a professor of environmental and earth sciences at Stanford University. “In Texas, we even saw two homes go from clean to contaminated after our sampling began.”Construction problems with natural gas wells are responsible for the tainted water, the researchers found. That includes poor casing and failed cement jobs meant to seal the steel drilling pipe from surrounding earth and rocks and prevent water contamination.The researchers said there was no evidence the water was contaminated by the process of hydraulic fracturing itself, known as fracking. Fracking is when high-pressure water and chemicals are pumped deep underground to break shale rock and release oil and natural gas.That’s an important finding in the debate over fracking, which has unleashed an American energy boom but also allegations of pollution and health problems.“The good news is that most of the issues we have identified can potentially be avoided by future improvements in well integrity,”

True Cause Of Fracking Leaks Found – Industry Breathes A Sigh Of Relief -- An Ohio State University led study has pinpointed the likely source of most natural gas contamination in drinking-water wells associated with hydraulic fracturing as the walls of the gas well and their well casing seal to the ground. It’s not the source many people may have feared and, if the press can get its facts – truth – and integrity act together, the news should enable the natural gas industry, the state regulators and well engineers an opportunity to solve the public’s anti fracking issue with real results for much improved water well protection. The problem should be fixable with improved construction standards for cement well linings and metal well casings at hydraulic fracturing sites. The team was led by a researcher at The Ohio State University and composed of researchers at Duke, Stanford, Dartmouth, and the University of Rochester. The team devised a new method of geochemical forensics to trace how methane migrates under the earth. The study identified eight clusters of contaminated drinking-water wells in Pennsylvania and Texas. Most important among their findings, published this week in the Proceedings of the National Academy of Sciences, is that neither horizontal drilling nor hydraulic fracturing of shale deposits seems to have caused any of the natural gas contamination. This will not come as much of a surprise to those in the industry and mechanical engineers.“Many of the leaks probably occur when natural gas travels up the outside of the borehole, potentially even thousands of feet, and is released directly into drinking-water aquifers.”

Study Links Water Contamination To Fracking Operations In Texas And Pennsylvania - Faulty casing and cementing in gas wells has contaminated drinking water in Texas and Pennsylvania, according to a new study. The study, which was published in the Proceedings of the National Academy of Sciences but has not yet been made public, looked at cases of water contamination in drinking water wells in the two states and found that it was these casing and cementing failures — not the actual process of fracking — that are to blame for the contamination. Fracking involves drilling a deep well into the earth, then inserting a steel casing tube into the well and pumping cement into the well to seal the casing in place and, in theory, protect groundwater from the gas that travels through the tube to the surface. If that casing or cementing isn’t done correctly, however, it can lead to contamination, the study found.  “This is relatively good news because it means that most of the issues we have identified can potentially be avoided by future improvements in well integrity,” lead author Thomas Darrah from Ohio State University told the Dallas Morning News. In other words, more thorough cementing and casing jobs could protect people who live near fracking wells from contamination.  “Many of the leaks probably occur when natural gas travels up the outside of the borehole, potentially even thousands of feet, and is released directly into drinking-water aquifers” Robert Poreda, another author of the study and professor at the University of Rochester said.

Drinking water contaminated by shale gas boom in Texas and Pennsylvania -- The natural gas boom resulting from fracking has contaminated drinking water in Texas and Pennsylvania, a new study said on Monday. However, the researchers said the gas leaks were due to defective gas well production – and were not a direct result of horizontal drilling, or fracking. The study published in the Proceedings of the National Academy of Sciences validated some of the concerns raised by homeowners in the Barnett Shale of Texas and the Marcellus formation in Pennsylvania about natural gas leaking into their water supply.The film Gasland notoriously showed flames bursting out of a kitchen tap because of high concentrations of natural gas in drinking water. But the researchers said there was no direct causal relationship with fracking itself. “Our data do not suggest that horizontal drilling or hydraulic fracturing has provided a conduit to connect deep Marcellus or Barnett formations directly to surface aquifers,” the authors wrote. Instead, the researchers said the leakage was due to faulty cement casing on natural gas wells. The finding was in line with a number of earlier studies on leaks in the cement casing of natural gas wells. In Pennsylvania, state inspectors found about 9% of steel and cement casings on wells drilled since the start of the natural gas boom were compromised. There was an even higher risk on newer wells drilled since 2009, especially in the north-western part of the state, the inspectors found.

New Study Confirms Every Other Study: Gas Wells Leak . . . Gas ! --  Right up the well bore itself – on outside of the casing and on the outside of the cement sheath. Because the well bore is nothing but a enormous hole in the ground – that opens a pathway through every gas bearing formation that it encounters on the way to the target. And horizontal shale gas wells are ten times more likely to leak than vertical gas wells -because the hole is that much bigger. What a surprise!  Texas Drinking Water Tainted by Natural Gas Wells, Scientists Find The shale-gas boom of recent years has contaminated drinking-water wells in North Texas’ Barnett Shale and the Marcellus Shale in Pennsylvania, a study published Monday concludes. The study, by researchers from five universities, concludes that neither drilling itself nor the hydraulic fracturing that follows it is directly to blame. Instead, gas found in water wells appeared to have leaked from defective casing and cementing in gas wells, meant to protect groundwater; or from gas formations not linked to zones where fracking took place. “Our data do not suggest that horizontal drilling or hydraulic fracturing has provided a conduit to connect deep Marcellus or Barnett formations directly to surface aquifers,” the authors wrote. The study, published in Proceedings of the National Academy of Sciences, adds to a growing body of science that examines the environmental impacts of natural gas production, which has seen a rush of drilling and processing in numerous states over the past decade.

If Natural Gas Wells Used In Fracking Are Contaminating Water, Why Isn’t Fracking To Blame? -- Big news came out this week about fracking: Duke scientists have found that natural gas wells used in fracking caused contamination in eight drinking water wells in Texas and Pennsylvania. Many of you might have seen the videos of people living near gas exploration sites who can light their tap water on fire, because there’s so much methane in it. But the energy industry has solidly defended its position that the gas could be naturally occurring. There’s no evidence fracking caused the contamination. This Duke study is a big deal, because it traced the methane in contaminated water wells to nearby natural gas wells. Thousands of feet beneath those wells, hydraulic fracturing is being used to get the methane from deep underground. You might say that links the drinking water contamination to fracking, but... It technically doesn’t. The average person might be tempted to put the whole shebang – drilling to explore for gas, pumping water and sand and chemicals into the ground to break up the deep gas-filled rock, pumping gas up to the surface – under the “fracking” umbrella. But the oil and gas industry disagrees. As far as it's concerned, fracking is simply the part where they’re spraying stuff to break up the rock. So far, there is no evidence that causes ground water contamination.

Cuomo: I Won't Decide on Fracking Before the Election - —Gov. Andrew Cuomo reiterated Thursday that he would not make a decision on fracking before the election, again rebuking activists who have repeatedly entreated the governor to ban fracking. “No, there won’t be,” Cuomo told reporters at a press event at the Plaza Hotel, on whether he would make a decision about extending the state’s moratorium on hydraulic fracturing before Nov. 7. New York instituted a nonstatutory ban on the controversial oil and natural gas extraction method in 2008, in order to study its effects on the environment. New York’s environmental commissioner could permit fracking as early as April 2015, according to a Bloomberg report. Across the street from the hotel, scores of fracking activists were protesting Cuomo’s indecision, holding posters and chanting slogans against fracking. “We always have the fracking groups outside, some things are constant,” Cuomo said, referring to the persistence of the anti-fracking movement, which has held protests at his visit to SUNY New Paltz and his fundraiser in Webster, Monroe County, just this week.

Fracking Bans Enrage Coloradans Sitting on Energy Riches - Mineral owners left out of the energy boom in Colorado and other states are mobilizing to fight local fracking bans they say are depriving them of billions of dollars in oil and natural-gas royalties. Colorado Governor John Hickenlooper repeatedly invoked the rights of his state’s 630,000 royalty holders to head off ballot measures that would have given local governments more control over energy drilling. Now owners of royalty interests are going public, organizing in an effort to exploit deposits that cities and counties have blocked them from developing. “We have valuable minerals in the Niobrara that may be worth some money -- a lot of money,” Bill Peltier said of rights in an oil shale formation that his family has held for five generations. “They should pay me off for those mineral rights.”  Mineral owners are emerging as a potent force in the escalating battle between residents and producers over how to regulate drilling as it moves closer to residential areas. From California to New York, royalty holders are joining forces with oil companies to make their voices heard in the debate over hydraulic fracturing, or fracking. They are coming together through social media and at town hall meetings, offering to be featured in advertising and campaigning door-to-door against local fracking bans.

Scientists Find ‘Direct Link’ Between Earthquakes And Process Used For Oil And Gas Drilling - A team of scientists with the U.S. Geological Survey have found evidence “directly linking” the uptick in Colorado and New Mexico earthquakes since 2001 to wastewater injection, a process widely used in the controversial technique of hydraulic fracturing, or fracking, and conventional drilling.  In a study to be published in the Bulletin of the Seismological Society of America on Tuesday, the scientists presented “several lines of evidence [that] suggest the earthquakes in the area are directly related to the disposal of wastewater” deep underground, according to a BSSA press release. Fracking and conventional natural gas companies routinely dispose of large amounts of wastewater underground after drilling. During fracking, the water is mixed with chemicals and sand, to “fracture” underground shale rock formations and make gas easier to extract.  The USGS research is just the latest in a string of studies that have suggested the disposed water is migrating along dormant fault lines, changing their state of stress, and causing them to fail.  For their research, the four California-based USGS scientists monitored the 2,200 square mile Raton Basin, which goes from southern Colorado into New Mexico. They pointed out that the Basin had been “seismically quiet” until 1999, when companies began “major fluid injection” deep into the ground. Earthquakes began in 2001 when Colorado wastewater injection rates were under 600,000 barrels per month, and and since then there have been 16 earthquakes that could be considered large (above a magnitude of 3.8, including two over a 5.0 magnitude), compared with only one — a 4.0 magnitude quake — in the 30 years prior.

Wastewater injection is culprit for most quakes in southern Colorado and northern New Mexico: – The deep injection of wastewater underground is responsible for the dramatic rise in the number of earthquakes in Colorado and New Mexico since 2001, according to a study to be published in the Bulletin of the Seismological Society of America (BSSA). The Raton Basin, which stretches from southern Colorado into northern New Mexico, was seismically quiet until shortly after major fluid injection began in 1999. Since 2001, there have been 16 magnitude > 3.8 earthquakes (including M 5.0 and 5.3), compared to only one (M 4.0) the previous 30 years. The increase in earthquakes is limited to the area of industrial activity and within 5 kilometers (3.1 miles) of wastewater injection wells. In 1994, energy companies began producing coal-bed methane in Colorado and expanded production to New Mexico in 1999. Along with the production of methane, there is the production of wastewater, which is injected underground in disposal wells and can raise the pore pressure in the surrounding area, inducing earthquakes. Several lines of evidence suggest the earthquakes in the area are directly related to the disposal of wastewater, a by-product of extracting methane, and not to hydraulic fracturing occurring in the area. Beginning in 2001, the production of methane expanded, with the number of high-volume wastewater disposal wells increasing (21 presently in Colorado and 7 in New Mexico) along with the injection rate. Since mid-2000, the total injection rate across the basin has ranged from 1.5 to 3.6 million barrels per month.

Gas production blamed for rise in Colorado, New Mexico quakes (Reuters) - The deep injection of wastewater underground by energy companies during methane gas extraction has caused a dramatic rise in the number of earthquakes in Colorado and New Mexico since 2001, U.S. government scientists said in a study released on Monday. The study by U.S. Geological Survey researchers is the latest to link energy production methods to an increase in quakes in regions where those techniques are used. Energy companies began producing coal-bed methane in Colorado in 1994, then in New Mexico five years later. The process creates large amounts of wastewater, which is pumped into sub-surface disposal wells. Scientists have long linked some small earthquakes to work carried out below ground for oil and gas extraction, which they say can alter pressure points and cause shifts in the earth. The new study, published in the Bulletin of the Seismological Society of America (BSSA), focused on the Raton Basin, which stretches from southern Colorado into northern New Mexico. The report said the area had been "seismically quiet" until shortly after major fluid injection began in 1999. But since 2001, the scientists said, the area experienced 16 earthquakes of greater than 3.8 magnitude, compared with only one of that strength recorded during the previous three decades. "The increase in earthquakes is limited to the area of industrial activity and within 5 kilometers (3.1 miles) of wastewater injection wells," the study said.

Fracking Advocates Get Homeless People To Pose As Shale Supporters  - Around 30 people wearing t-shirts with pro-fracking slogans showed up to a state hearing in Cullowhee, North Carolina, to support the shale gas industry last Friday. The problem is that many had no idea what fracking was.Representatives from groups that oppose fracking told ThinkProgress that they believe the North Carolina Energy Forum (NCEF) compensated people to attend a state hearing in order to feign grassroots support for hydraulic fracking in the state. A group of people wearing “Yes Shale” t-shirts were bused 200 miles from Winston-Salem, North Carolina, to Cullowhee in order to attend the hearing, activists from Blue Ridge Environmental Defense League (BREDL) and the Jackson County Coalition Against Fracking (JCCAF) told ThinkProgress. Some of the people in the group were homeless, according to anti-fracking activists present at the hearing. North Carolina residents have been in a heated battle with the state government and shale interests ever since a moratorium on fracking that had been in place since 2012 was lifted in July. Hydraulic fracturing is scheduled to begin in 2015 and the mere prospect of fracking is already affecting local communities: “Fracking is already affecting property values; we can no longer insure our wells, and the first rock has not even been cut into yet,” Bettie Ashby of the JCCAF said.

Fracking the Homeless --  Frackers subsidize supporters to come to rally’s – free bus rides, free T shirts, free pizzas – but now they are paying the homeless to pretend to be pro-fracking.  Need a fracking supporter? Hire a homeless person.  In bizarre energy industry news of the day, the North Carolina Energy Coalition seems to have brought in some homeless men to stand in as fracking supporters at a state hearing on developing fracking operations in the state.The men were bussed 200 miles from Winston-Salem to Cullowhee, N.C., where the hearing took place, for the day.  From Asheville’s Citizen-Times: “They were clueless,” said Bettie “Betsy” Ashby, a member of the Jackson County Coalition Against Fracking. “At least two of them I met definitely came from a homeless shelter. One of them even apologized to me and said, ‘I didn’t know they were trying to do this to me.’ One said, ‘I did it for the…’ and then he rubbed his fingers together like ‘for the money.’” Several of the men were wearing turquoise shirts or hats that said “Shale Yes” on the front and “Energy Creates Jobs” and “N.C. Energy Coalition.com” on the back.  It’s not a new tactic: If you can’t find people who actually support your cause, just pay uninformed members of underprivileged groups to fake it!

Shale Industry Resorts to Conspiracy Theories to Explain Opposition to Fracking --As evidence mounts concerning the hazards of fracking, the oil and gas industry is increasingly trying to redirect public discussion of the topic, focusing instead on the funding behind the environmental groups rather than the actual science of the matter. Aside from showing a certain desperation, the tactic is especially disingenuous since this industry has no small experience with astro-turf campaigns and buying faux research to promote its interests. Again and again, it has turned out that scientific research downplaying the risks of fracking or hyping the benefits of the shale gas rush was actually funded by the oil and gas industry, and oftentimes, that funding was not properly disclosed. It's a problem repeated enough that it's often referred to simply in shorthand: frackademia. With all this attention focused on how research is funded, many shale gas boosters, like bloggers at Energy in Depth, a PR organization formed by the oil industry, have begun trying to turn the criticism around. They've focused on the role played by several non-profit foundations, claiming that research funded by these foundations and endowments should be treated just as skeptically as research funded by shale companies. It's a false equivalence, a child's “I'm rubber but you're glue” taunt. But, in some instances, it's helped the industry turn around narratives told in the press.

Shale Fracking Is a “Ponzi Scheme” … “This Decade’s Version of The Dotcom Bubble” … “A Lot In Common With the Subprime Mortgage Market Just Before It Melted Down”-- In 2011, the New York Times wrote: “Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company, wrote to a contractor in a February e-mail. “Reminds you of dot-coms.” A review of more than 9,000 wells, using data from 2003 to 2009, shows that — based on widely used industry assumptions about the market price of gas and the cost of drilling and operating a well — less than 10 percent of the wells had recouped their estimated costs by the time they were seven years old. In 2012, the New York Times pointed out: The gas rush has … been a money loser so far for many of the gas exploration companies and their tens of thousands of investors. Rolling Stone reported the same year: Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. Oil Price reported in March: Shell’s new boss, Ben van Beurden, said bets on U.S. shale plays haven’t worked out for his company. “Some of our exploration bets have simply not worked out,” Shell’s Chief Executive Officer Ben van Beurden said. It was bad management policy to commit close to $80 billion in capital on its North American portfolio and still lose money. Now, he said, it’s time to cut the loss and slash exploration and production investments by 20 percent for 2014.  The Wall Street Journal pointed out this April: These newly public companies are spending more than they make …. Bloomberg wrote in May: Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent. And Tim Morgan – former global head of research at Tullett Prebon – explained last month at the Telegraph: In the future, shale will be recognised as this decade’s version of the dotcom bubble. In the shorter term, it’s a counsel of despair as an energy supply squeeze draws ever nearer.

Commodities Suffer As Oil And Gas Takes Rail Priority - The rapid pace of energy exploration, for both natural gas and oil, in North Dakota is creating a crisis for upper Midwest farmers. Grain shipments have been held up by a vast new movement of oil by rail, leading to millions of dollars in agricultural losses and slower production for everything from breakfast cereals to corn and soybeans. Grain and other agricultural shipments are more perishable than oil, yet they are largely taking a back seat to it as shipments of fuel have overwhelmed an aging railroad infrastructure in a part of the country that’s still largely rural and struggling to keep up with housing and infrastructure for a massive influx of shale oil- and natural gas-drilling workers drawn to the Dakotas to take part in the boom.  North Dakota has a 2.8 percent unemployment rate, the lowest in the nation, yet farmers who have long been the mainstays of the state’s economy are finding themselves at least third in line when it comes to rail transportation priorities. Railroads carry grains and other crops from both North and South Dakota to ports in Portland, Ore., Seattle and Vancouver. From there, the bulk of the grain is shipped across the Pacific to Asia; and to East Coast ports like Albany, from which it is shipped to Europe. Reports the railroads filed with the federal government show that for the week that ended Aug. 22, the Burlington Northern Santa Fe Railway — North Dakota’s largest railroad, owned by Warren Buffett — had a backlog of 1,336 rail cars waiting to ship grain and other products. Another railroad, Canadian Pacific, had a backlog of nearly 1,000 cars. For farmers, the delays often mean canceled orders from food giants that cannot wait weeks or months for the grain they need to make cereal, bread and an array of other products. It can also mean product that is spoiled in the field as the wait for rail cars drags on with highly perishable stock unable to be held for a long wait. A recent study by North Dakota State University concluded that the state’s farmers could lose $160 million as grain backlogs cause prices to fall. The backlogs are also hurting food producers like General Mills and Cargill.

Fracking Woes Stem from Oil Addiction, Not Hydraulic Fracturing - Scientific American (blog) -- Flaming tap water comes from bad wells, and not the drinking-water kind. Folks who live closest to natural gas wells in Pennsylvania suffer ill health. And the uptick in earthquakes in parts of Colorado and New Mexico is entirely human-induced. All of these problems are associated with fracking, yet none of them have anything to do with either the horizontal drilling or cracking rock with high-pressure water that fall under that rubric. Instead, all of these bad outcomes are the simple results of an oil and gas addiction—and the need to get the next fix out of the ground fast—just like subsidence and toxic ash floods result from our addiction to coal. The fossil-fuel addiction is, of course, primarily responsible for climate change as well, but that’s another story.  As more and more research focuses on fracking, the outcome becomes clearer and clearer. It is bad industry practices—poorly finished wells, leaking compressor stations or overdumping of copious wastewater—that lead to trouble. The solution is to either slow industry down or increase its regulation, especially the staff to oversee such operations.

How Hillary Clinton’s State Department Sold Fracking to the World -  Clinton, who was sworn in as secretary of state in early 2009, believed that shale gas could help rewrite global energy politics. "This is a moment of profound change," she later told a crowd at Georgetown University. "Countries that used to depend on others for their energy are now producers. How will this shape world events? Who will benefit, and who will not?…The answers to these questions are being written right now, and we intend to play a major role." Clinton tapped a lawyer named David Goldwyn as her special envoy for international energy affairs; his charge was "to elevate energy diplomacy as a key function of US foreign policy." Under her leadership, the State Department worked closely with energy companies to spread fracking around the globe—part of a broader push to fight climate change, boost global energy supply, and undercut the power of adversaries such as Russia that use their energy resources as a cudgel. But environmental groups fear that exporting fracking, which has been linked to drinking-water contamination and earthquakes at home, could wreak havoc in countries with scant environmental regulation. And according to interviews, diplomatic cables, and other documents obtained by Mother Jones, American officials—some with deep ties to industry—also helped US firms clinch potentially lucrative shale concessions overseas, raising troubling questions about whose interests the program actually serves.

Could This Environmental Risk Derail America's Oil and Gas Boom? - According to the Energy Information Administration, in 2015 the US is expected to produce an average of 9.5 million barrels/day (bpd) of oil, the highest level since 1986. Thanks to this production boom US oil imports fell from 60% of oil consumed in 2005 to just 32% in 2013.  Americans seem to agree with the positive nature of these benefits, according to a Harris poll conducted earlier in 2014:

  • 87% of people think increased U.S. oil and gas production could stimulate the economy.
  • 92% think it will help U.S. energy security.
  • 91% believe it will help create jobs.

However, fracking, which is largely responsible for America's energy renaissance, has proven to be a highly controversial issue, with environmentalists claiming that it pollutes ground water with large numbers of little-studied chemicals and even causes earthquakes. This article examines this last claim with the aim of detailing how this risk, whether true or perceived, might affect the future of America's oil and gas boom.  No one would be surprised to learn that California is America's most seismically active state, however, they may be surprised to discover that coming in at No. 2 is Oklahoma. Though the state has a fault system, according to the U.S. Geological Survey, it shouldn't be experiencing as many earthquakes as it is.  In fact, in 2013, the state experienced 109 quakes larger than 3.0 on the Richter scale, about 50 times the normal level. In the first half of 2014, that number nearly doubled to 200, an annualized rate of 400 quakes.  In July, a joint study from Cornell University and the University of Colorado concluded that the increased seismic activity is likely caused by fracking and a few high-volume waste water injection wells, of which the state has about 4,500, according to the Oklahoma Corporation Commission, which regulates drilling in the state. In fact, according to the Oklahoma Geological Survey, 80% of the state is within nine miles of an injection well.

The Era of Bad Feeling -- Kunstler  - Glance in the rear-view mirror and say goodbye to the Era of Wishful Thinking. This was the time when the USA was inspired by its Master Wish: to be able to keep driving to Wal-Mart forever. Looked at closely, the contemporary idea of Utopia was always a shabby package. On one side, all the pointless driving. For most Americans it was nothing like the TV advertising fantasy of a lone luxury car plying a coastal highway in low, golden light. More like being stuck near the junction of I-55 and I-90 in Chicago at rush hour in July in an overheating Dodge Grand Caravan with three screaming ADD kids whose smart phone batteries just died — plus your fiercely over-filled bladder and no empty Snapple bottle to resort to. On the other side, there’s the Wal-Mart part: the unbelievable cornucopia of insanely cheap plastic goodies, like, somewhere in the 1990s America became one giant loading dock for nearly free stuff. Wasn’t that fun? Now, everybody has got the full rig, from the flatscreen to the salad shooter, but we’re tired of seeing Kim Kardashian’s booty, and nobody really liked salad, even when you could shoot the stuff into a bowl. The thrill is gone, and so is the paycheck that was your ticket to the orgy. It’s especially gloomy over in the food department, where the boxes of Lucky Charms are suddenly half the weight and twice the price. And that was going to be the family dinner! Must be Nature’s way of telling you it’s time for a new tattoo. In this weird liminal time since the so-called Crash of 2008 leadership has depended on lies and subterfuges to prop up the illusion of resilience. One biggie is the shale oil revolution, kind of a national parlor trick to wow the multitudes for a long enough moment to convince them that their troubles with the national energy supply are over. Even people paid to think were hosed on this one. Wait until they discover that the shale oil producers have never made a buck producing shale oil, only on the sale of leases and real estate to “greater fools” and creaming off the froth of the complex junk financing deals behind their exertions. Expect that mirage to dissipate in the next 24 months, perhaps sooner if the price of oil keeps sinking toward the sub $90-a-barrel level, where there’s no economically rational reason to bother drilling and fracking.

Coast Guard says it’s not prepared for Great Lakes oil spill - A Coast Guard commander says the service and other responders are not adequately equipped or prepared for a "heavy oil" spill on the Great Lakes. A major oil spill could spell economic disaster for states in the region, severely damaging the multibillion-dollar fishing and recreational boating industries and killing wildlife, the Detroit Free Press reported.. Rear Adm. Fred Midgette, commander of the Coast Guard's District 9, which includes the Great Lakes, said everyone involved in spill response on the Great Lakes is urgently seeking a plan to address a major spill, but they haven't found a way forward yet. "When you get environmental groups, technical experts, oil spill recovery groups and regulators together, that's how you find what's the best way ahead," Midgette said Tuesday at an international forum attended by a cooperative of oil and chemical spill professionals. Midgette said he was particularly concerned that response plans and organizations "are not capable of responding to heavy oil spills, particularly in open-water scenarios" in an Aug. 20 memo to the Coast Guard's deputy commandant for operations. David Holtz, Michigan chairman of the non-profit Sierra Club, said the problem is serious. "How can Michigan and the Great Lakes be in a position where two large oil pipelines are operating underneath the Straits of Mackinac, and the lead responders — the first responders to an oil spill — say they couldn't respond effectively if something happened to those pipes?" he said.

Will U.S. Oil Exports Grease The Path To Economic Growth? - A flood of oil could leave the country if proponents of more lax export laws get their way. The support, coming from unrelated but influential circles, argues that such rules would lead to huge new investments that would bolster economic output — while actually reducing gas prices. Increasing U.S. oil exports, unquestionably, leads to more production that leads to more jobs — the chorus coming from the big oil producers. But that sentiment is getting echoed in some left-leaning corners as well, which include the Brookings Institution and a former member of President Obama’s inner circle, Larry Summers, who led his National Economic Council. “Lifting the ban generates paramount foreign policy benefits, increases U.S. gross domestic product and welfare and reduces unemployment,” says a report just released by the Brookings Institution. “It is time the United States commits to its position on free trade markets … and allows U.S. crude oil to flow.” Its authors, Charles Ebinger and Heather Greenley, add that any perceived oil shortages created by the embargo of 1973 were never real — and that such history has no bearing on today’s global environment. Oil price volatility during that time had been a function of market constraints placed on oil — not one tied to “scarcity.” Such controls still include the, general, inability to sell U.S. oil overseas, they say.

Alberta’s New U.S. Envoy: Oil Train Disaster Would Spur Keystone XL  -- When asked what it will take to get the northern leg of the Keystone XL pipeline approved, Alberta’s new envoy to Washington, former Alberta MP Rob Merrifield, had a very direct response: It will take a potential — which is devastating — Lac-Mégantic experience in America. [That] would tip it and the Democrats would have no choice and would bail on the President on this one. With Lac-Mégantic, Merrifield is referring to the 2013 oil train crash in the small Quebec town of Lac-Mégantic that killed 47 people and devastated much of the town’s center. He said that an event like this would sway at least the three Democrats needed to approve the pipeline in the Senate. He advised President Obama to consider the possibility of a spill of this magnitude and hopes he will “feel the pressure and understand this is in the best interest of America to approve Keystone.” Before accepting the job as Alberta’s representative to the United States, Merrifield was already spending about half his time in the U.S. as a representative for Prime Minister Stephen Harper’s government. At that job he pushed for Keystone XL approval, and this job “will be a continuation of that work.”

Oil – The Next Commodity Domino? - Yves here. As we’ve written, austerity in Europe and Chinese efforts to rein in construction-related lending have delivered enough of a hit to global growth so as to start denting oil prices, which were holding up in large measure due to tensions in the Middle East. This post suggests that more oil price weakness is in the offing. This is a big negative for the fracking boom, needless to say, and may give environmentalists more time to stymie further development. By David Llewellyn-Smith: The oil price is taking a shellacking today on the terrible Chinese data, down north of 1%:The weekly chart is already through key support and targeting $85: I was one that thought we would see consistent geo-political premium in prices as Iraq deteriorates. However BofAML has an intersting opposite take today:Islamic State could force a rethink of Saudi oil output policyWe recently showed how active management of Saudi oil output has helped keep oil prices above $100/bbl for almost 4 years. Yet recent advances by the Islamic State (IS) have disrupted Middle East politics and shifted incentives for key regional and global players. After all, self-proclaimed caliph al-Baghdhadi, leader of the IS, rejects political divisions established by Western powers at the end of World War I. As such, IS presents a direct threat to Middle East governments at a time of growing social discontent. What could Arab countries offer the West to help contain this threat? Lower oil prices.

Brent weakness is now a thing - This little chart is becoming a major headache for the world’s biggest oil producers:So much so, in fact, there’s a bit of 2008 deja vu going on in certain quarters. First, there’s the return of the contango trade, albeit not in floating form just yet. Second, Russia is once again popping up in OPEC-related headlines as it strives to get the cartel to defend its interests, despite it not actually be part of the cartel compliance system. (Though as the Moscow Times reports, the official spin is that “the talk of closer cooperation with OPEC on prices have long been there”.) Third, Chinese demand, which was supposed to justify the $100 per barrel price, has been temporarily unhinged by the news that Chinese industrial production expanded at its slowest pace since the global financial crisis in August. Nevertheless, as Olivier Jakob at Petromatrix points out in his daily report, Russian crude oil is especially weak (trading around $94 per barrel) and if WTI continues to reduce its discount to Brent, then not only will the flow from the Midwest to the US coasts slow down, but Atlantic Basin crude oils will begin to be appealing substitutes for US coasts.

Is It The Whiskey Or The Oil? - With one week to go before the big referendum, it seems distinctly possible that Scotland will rock Europe by voting to declare independence from Great Britain. And like so many world-historic events of the past century, this one would have lots to do with oil.  Think of Scotland’s most famous exports, and chances are that whiskey comes to mind, followed maybe by wool sweaters, bagpipes, and indie-rock bands. But the region’s most valuable product is the crude oil that sits just offshore in the North Sea. In 2013, those wells yielded about 800,000 barrels of oil per day for Great Britain. That’s not a ton of black gold in the global scheme of things—North Dakota, by comparison, produces more than a million barrels per day—but it’s valuable, yielding billions of pounds in tax revenue every year. If Scotland were to file for geo-political divorce, the consensus is that it would walk away with the rights to more than 90 percent of those oil resources, along with 47 percent of the U.K.’s natural gas. Those hydrocarbons look awfully tantalizing to Scotland’s nationalists. Politically, golf’s ancestral homeland is more liberal than the rest of Great Britain, and its voters especially dislike the ruling Conservative Party led by Prime Minister David Cameron. (In an emotional speech, Cameron himself begged his countrymen not to vote for independence just to “give the effing Tories a kick.”) In its economic case for independence, the Scottish National Party–led regional government—which is charged with handling much of Scotland’s internal affairs—spends page upon page protesting growing income inequality in Great Britain, as well as the Cameron government’s austerity budgets and cuts to the safety net. Post-secession, the nationalists picture Scotland following in the crude-drenched footsteps of Norway, which plows its princely oil revenues into a sovereign wealth fund designed to shore up its substantial welfare state.

Scotland's Oil and Natural Gas - While most people outside of the oil industry tend to think of the Middle East when they think of the world's oil producing nations, in fact, Scotland is a significant producer of both oil and natural gas.  Scotland is the largest producer of oil in the European Union, producing 674 million barrels of oil equivalent (BOE) in 2010 which was comprised of 455 million BOE of oil and 219 million BOE of natural gas from fields in the North Sea on the United Kingdom Continental Shelf (UKCS).  The total tax revenue generated by Scotland's share of the hydrocarbons produced in 2011 - 2012 was £10.6 billion.  In 2011, the oil and gas sector contributed around £25 billion or 17 percent to Scotland's GDP.  Here is a table showing the largest oil producers in Europe in 2010 helping us put Scotland's production into perspective:   In total, Scotland produced 36 percent of Europe's total oil and natural gas produced in 2010.  Here is a map showing the continental shelf territorial boundary between Scotland (in dark blue) and the remainder of the United Kingdom: Here is a map showing North Sea oil (in green) and natural gas fields (in red) and the pipeline infrastructure that is necessary to get the product to market:  According to research by Professor Alex Kemp and the University of Aberdeen, using the territorial boundaries on the map above, in 2011, 96 percent of total United Kingdom oil production and 52.4 percent of United Kingdom natural gas production took place in Scottish waters.

Fresh sanctions will freeze big foreign oil projects in Russia (Reuters) - Fresh U.S. and EU sanctions imposed on Moscow will bring an abrupt halt to exploration of Russia's huge Arctic and shale oil reserves and complicate financing of existing Russian projects from the Caspian Sea to Iraq and Ghana. On Friday, the United States imposed sanctions on Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft, banning Western firms from supporting their activities in exploration or production from deep water, Arctic offshore or shale projects. The new measures, designed to put further pressure on President Vladimir Putin over Russia's actions in Ukraine, are a major broadening of the previous sanctions, which only banned the export of high technology oil equipment into Russia. Projects now in jeopardy include a landmark drilling programme by U.S. giant Exxon Mobil in the Russian Arctic that started in August as part of a joint venture with the Kremlin's oil champion Rosneft. Now this and dozens of other projects that Rosneft and Gazprom Neft agreed with Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI will have to be put on hold. "Cutting off U.S. and E.U. sources of technology and services and goods for those projects makes it impossible, or at least extraordinarily difficult for these projects to continue...There are not ready substitutes elsewhere," a senior U.S. administration official told a briefing on Friday.

New Sanctions Against Russia Could Deal Big Blow To ExxonMobil - On Friday, the United States and the European Union imposed a new round of sanctions on Russia in response to Moscow’s intervention in eastern Ukraine and following its annexation of the Crimean peninsula in March. The goal is to clamp down further on the Russian economy but it will significantly affect the drilling plans of western oil giants ExxonMobil and BP.  In fact, this closes a loophole that allowed Exxon to begin drilling Russia’s first exploratory well in the arctic Kara Sea last month — a well that could have to shut down in less than two weeks. Exxon’s lawyers were reportedly reviewing the sanctions to determine if they would have to alter operations in the Kara Sea and in another consortium-led oil and gas operation on Sakhalin Island. Prior rounds of sanctions have primarily targeted the Russian banking and defense sectors, but in late July, the U.S. and E.U. agreed to crack down on Russia’s access to Western fossil fuel technology for future development of deepwater, Arctic offshore, and shale oil and gas deposits. Russia has the largest combined oil and gas reserves in the world but lacks the oil and gas technology needed to access complex and dangerous deposits like those deep under the waters under Russia’s Arctic coast. So it enters into deals with the Western oil giants — most prominently Exxon — to exploit those resources. Exxon and Russia agreed to a $3.2 billion deal that gives the company access to a Texas-sized chunk of the Arctic.

Former BP CEO Warns "Sanctions Will Bite West" As US Gives Majors 14 Days To Wind Down Russian Activities - while sanctions until this moment had been largely intended to specifically allow energy companies to continue their status quo in Russia, as of this Friday, it is precisely the E&Ps that are being targeted, as we noted on Friday, and as Reuters follows up today, reporting that some of the world's largest companies, namely Exxon, Anglo-Dutch Royal Dutch Shell, Norway's Statoil and Italian ENI, will have to be put their Russian projects on hold:  to wit, the companies will have 14 days to wind-down activities.  And yet Russia may once again have the last laugh: enter Tony Hayward, the infamous former CEO of BP (and current Chairman of Glencore) who may have been disgraced by his handling of the Macondo spill but his comments on how the Russian sanctions will play out, are spot on. As the FT reported moments ago, "US and EU sanctions against Moscow are in danger of turning round and biting the west by constraining global oil supply and pushing up prices in coming years, the former chief executive of BP has warned."

Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter - The fields around Grabova and Debaltseve became the focus of international attention as the crash site of Flight MH17. But along the roads leading to the villages are reminders, on the scarred landscape, of another casualty of Ukraine’s civil war which will have a huge impact in the coming months – the coal mines that have been closed down. An energy crisis, started when Vladimir Putin cut off the gas from Russia, has been severely exacerbated by the disruption of coal supplies. This country is facing the prospect of the grimmest of winters; the threat of cities starved of fuel for heating and delivery of food while, at the same time, facing  artillery and air strikes. Europe has experienced winter conflicts since the Second World War. But while the population of Sarajevo during the siege in the early 1990s was around 430,000, there are more than one million people living in Donetsk alone, along with 440,000 in Luhansk, and, on the edge of the battlezone, 1.43 million in Kharkiv. Cities not directly affected by the fighting, such as the capital Kiev and Lviv in the west, will also be in General Winter’s frontline. Numbers of inhabitants have swollen to three million and 800,000, respectively, as internal refuges arrive from the east and Crimea.

Exxon Halts Oil Drilling in Waters of Russia - NYTimes.com: Exxon Mobil announced on Friday that it was winding down its $700 million exploration in Russia’s Kara Sea, the first major sign that Western sanctions are biting into the company’s ambitious plans to explore for oil and gas in the Arctic Ocean.The drilling suspension came a few days after the latest round of sanctions by Washington and the European Union that ordered companies to cut off help to Russian oil exploration in the Arctic, as well as in deep water and shale fields, all of which require advanced technology. The escalating sanctions are intended to punish Moscow for its involvement in the turmoil embroiling Ukraine.The drilling suspension will not immediately affect oil production for Exxon Mobil or its Russian partner, Rosneft, since the project is aimed at exploring for the presence of oil in the Arctic field and deciding if future production will be economically feasible. But the drilling suspension, should it be lasting, would potentially hurt Russian production in the next decade.

Iraq's oil output revival at stake for want of water (Reuters) - A lack of water threatens Iraq's plans to raise its oil output, boost its stumbling economy and become a leading producer in the region after Saudi Arabia. true A multi-billion dollar common seawater injection scheme designed to boost production from the giant export oilfields in Iraq's south is snarled up in red tape and acrimony. The seawater injection project is core to the development of the southern fields - which account for most of Iraq's production - and aims partly to flush oil to the surface and overcome declines in production at fields such as Rumaila, West Qurna, Zubair and Majnoon. While the Islamist insurgency has hit oil exports from Iraq's northern pipeline, the southern oilfields have not been affected by Baghdad's fight with Islamic State. But the shortage of water is hurting production at two main southern fields: West Qurna-1 and Zubair, official and industry sources told Reuters. Further production declines from both mature fields look likely if water scarcity persists, the sources said.

Struggling to Starve ISIS of Oil Revenue, U.S. Seeks Assistance From Turkey --Western intelligence officials say they can track the ISIS oil shipments as they move across Iraq and into Turkey’s southern border regions. Despite extensive discussions inside the Pentagon, American forces have so far not attacked the tanker trucks, though a senior administration official said Friday “that remains an option.” In public, the administration has been unwilling to criticize Turkey, which insists it has little control over the flow of foreign fighters into Iraq and Syria across its borders, or the flow of oil back out. The victories gained by the militant group calling itself the Islamic State in Iraq and Syria were built on months of maneuvering along the Tigris and Euphrates Rivers. But behind the scenes, the conversations about the Sunni extremist group’s ability to gather vast sums to finance its operations have become increasingly tense since Mr. Obama’s vow on Wednesday night to degrade and ultimately destroy the group.Turkey’s failure thus far to help choke off the oil trade symbolizes the magnitude of the challenges facing the administration both in assembling a coalition to counter the Sunni militant group and in starving its lifeblood. ISIS’ access to cash is critical to its ability to recruit members, meet its growing payroll of fighters, expand its reach and operate across the territory of two countries.“Turkey in many ways is a wild card in this coalition equation,”  “It’s a great disappointment: There is a real danger that the effort to degrade and destroy ISIS is at risk. You have a major NATO ally, and it is not clear they are willing and able to cut off flows of funds, fighters and support to ISIS.”

U.S. Targets Islamic State’s Lucrative Oil Smuggling Operations - With U.S. President Barack Obama’s announcement of an open-ended plan for airstrikes on the Islamic State (IS), the U.S. and its allies will need to degrade the power and influence of the Sunni jihadist group, and that means reducing its incoming flow of oil money. And the Obama administration seems aware of that, according to a New York Times article that reports that the President and U.S. diplomats are pressuring Turkey to cut off the stream of oil smuggled across its border.  IS controls territory in central and northern Iraq, and is thought to be producing between 25,000 and 40,000 barrels per day (bpd). Since they cannot sell this oil legitimately, they smuggle it and sell it on the black market. Some energy analysts think IS could be pulling in between $1.2 and $2 million per day.  “The key gateway through that black market is the southern corridor of Turkey,” Luay al-Khatteeb, a fellow at the Brookings Institute’s Doha Center, told the Times. “Turkey is becoming part of this black economy.” Turkey, no friend of IS, is hesitant to help because 49 Turkish diplomats are currently being held hostage by IS in Iraq. They were taken during the initial IS onslaught in June.  Smuggled oil could be a pivotal issue for the U.S. as it seeks to destroy IS. The militant group sells oil at a reduced price – perhaps around $25 per barrel. At first, it sold the oil to middlemen, who moved the oil to Iran, Syria, Jordan and Turkey. But as IS’ operations grew, they forced out the middlemen, beat back other militant groups, and are now providing security to their own convoys of oil tanker trucks heading out of their territory to market.

Iran refuses to help ‘self-serving’ US fight ISIS Iran has refused an offer from the United States to join a global alliance preparing to combat Islamic State militants, according to Iran’s supreme leader, Ayatollah Ali Khamenei. Khamenei said Monday that the US offered to discuss a coordinated effort with Iran against Islamic State (IS, also known as ISIS or ISIL), a common foe in the region, in the midst of an escalating campaign of violence that continues to claim lives across Iraq in Syria. “The American ambassador in Iraq asked our ambassador (in Iraq) for a session to discuss coordinating a fight against Daesh (Islamic State),” said Khamenei, the state-run Islamic Republic News Agency reported, according to Reuters. “Our ambassador in Iraq reflected this to us, which was welcomed by some (Iranian) officials, but I was opposed. I saw no point in cooperating with a country whose hands are dirty and intentions murky.” According to the Washington Post, Khamenei took issue with what he referred to as Washington’s “evil intentions.”

President Obama is open to talking with Iran president, official says: President Obama would be open to a repeat of last year’s historic conversation with Iranian President Hassan Rouhani at next week’s United Nations General Assembly session, a senior administration official said Thursday. Though no meeting is scheduled during the annual gathering, “the president of the United States is well known to being open to such a meeting," the official told reporters in a briefing. “But the choice is really Iran’s.” The official, who declined to be identified under ground rules set by the administration, said it is “very likely” that Secretary of State John F. Kerry will meet with his counterpart, Iran Foreign Minister Mohammad Javad Zarif, within the next week. Obama and Rouhani had the first high-level contact between the countries’ leaders in decades last September because of their interest in exploring a possible deal over Iran’s nuclear program. This year, the question is even more pressing, because Iran and six world powers are at an impasse over key issues after almost nine months of negotiations and face a Nov. 24 deadline. In addition, U.S. officials have been in touch with senior Iranian officials repeatedly to discuss their joint interest in defeating the Islamic State militant group in Iraq and Syria, even though both countries insist they will not form any kind of military alliance.

Islamic State 101: Why are Arab countries so reluctant to help? - Obama dispatched Secretary of State John Kerry to the Middle East this week to drum up support for military action against the Islamic State, which he outlined in a prime time speech Wednesday. The response has been met with only slightly more than a shrug.This is not necessarily because all the Sunni-led countries of the Middle East are ambivalent about the group that claims to have created a Muslim caliphate across wide swaths of Syria and Iraq, and which beheaded a British aid worker this weekend. But intersecting allegiances and strategic aims mean some Arab countries feel they must tread cautiously.  As a neighbor of both Syria and Iraq, for instance, Turkey would seem to have the greatest interest in stemming the influence of the Islamic State. But doing so might empower the Iraqi Kurds, who are one important line of defense against the Islamic State – and Kurds in Iraq and Turkey are angling for an independent state. Empowering the Kurds could endanger Turkish national unity, the thinking goes.  Meanwhile, in other Arab capitals, similar concerns weigh against strong support for the US: Defeating the Islamic State could give Iran more scope to exert its authority. The Islamic State emerged in part because Sunni Muslim populations in Syria and Iraq chafed under the leadership of non-Sunni governments backed by Iran, the region’s leading Shiite power. Sunni governments in Saudi Arabia and Qatar, for instance, oppose Iran.  And then there’s the deep distrust for the United States in the region.

Sic Semper Tyrannis --- It should be clear by now that IS is inviting the US to return its forces to the ME. That is one of the main purposes of their media operations and most especially the beheadings recorded for all to see. Why, one might ask would a nascent state with 30,000 odd fighters want to directly engage a military power as destructive as the United States? IMO there are two reasons for this seemingly irrational behavior:

  • - If you accept the idea that the psychological impact of the horrible videos is deliberate, then it must be said that this tactic has been effective. American popular interest in seeking the destruction of IS has soared with the progressive revelation of mass murder of prisoners, many of whom were really not opponents of IS. These deaths prepared the way for the three beheading rituals staged thus far.  In any event, the effect of the campaign of media horror has been to focus the US, French, UK and Australian governments on the matter. It appears to me that IS wants the US to come fight them. They may well believe that the US and its Western allies will collapse under the stress as Bin Laden believed we would.
  • -Secondly, these are mightily potent weapons in the struggle for control of the collective Sunni mind. The gesture of defiance explicit in the deeds appeals greatly to people who seek an absolutist answer to the riddle of existence. Fighters and money seem to be joining the cause and the horror of IS actions contributes to that achievement.

Petrodollar Panic: EU Officials Admit Buying Oil From ISIS -- We recently explained how ISIS remains so well funded but what was unclear was who exactly what purchasing their 'recently-provisioned' oil reserves? The assumption being some desperate third-world nation or some scheming offshore hedge-fund arbitrageur; however, as Sott.net reports, a senior European Union official has revealed that some EU member states have purchased oil from ISIL Takfiri militants despite their rhetoric against the group. The official declined to disclose any names but Turkey remains a front-runner (having already shunned President Obama) and potentially France (after their recent anti-Petrodollar comments).

Gas hungry China trims back shale goal — China has halved its 2020 goal for shale gas production. The country faces challenges ranging from difficult geology to shortage of technology in the area meant to quench its ever-growing energy needs. The country is only starting mass production of shale gas, which drastically changed the energy landscape in the US in recent years, with the extraction of 200 million cubic meters annually. In 2012, when Chinese shale gas production was virtually non-existent, Beijing eyed an ambitious goal of 60-80 billion cubic meters (bcm) by 2020, but the latest plans from the Ministry of Land and Resources on Wednesday lowered it to more conservative 30 bcm. A higher figure is possible, but conditional. "China aims to pump at least 30 billion cubic meters of shale gas by 2020. With proper drilling technology, output can increase to 40 to 60 billion cubic meters," Che Changbo, deputy director of the ministry's geological exploration department, said at a news conference in Beijing. Short-term prospects for shale gas production are more optimistic, according to the ministry. It will surpass the old government 2015 target of 6.5 bcm next year and hit 15 bcm in 2017. China has carved out 54 shale gas blocks spanning 170,000 sq km. Producers have drilled 400 wells, including 130 horizontal.

China expects shale to account for 20 percent of gas output - -- Though off to a slow start, the Chinese government said it expected gas production from shale will eventually make up about 20 percent of total output. Beijing said it expected to get at least 60 billion cubic feet of natural gas per day from shale deposits by 2020. Production this year will be around 1.5 bcf, but could increase tenfold within the next two years. "If measures are appropriate, there is hope that production can reach 40 bcm - 60 bcm, accounting for roughly a fifth of total gas output," Peng Qiming, director of exploration of the Ministry of Land Resources, said Wednesday. The Chinese government said its consumption of natural gas should increase as it embraces a low-carbon economy. By 2020, Beijing expects the share of natural gas in the energy mix should be about 10 percent, about double the current footprint. An August briefing from the U.S. Energy Information Administration says China may hold the largest reserves of technically recoverable shale natural gas in the world. Technical and geological challenges, however, could impede full-scale development.

The Great Fracking Forward: Why the World Needs China to Frack Even More - Wired -- There are two main reasons behind China’s newfound zeal for gas. As Michael Liebreich, the founder of New Energy Finance, an energy market analytics firm now owned by Bloomberg LP, put it, “One is to feed the growth. There has to be energy and it has to be affordable in order to continue the growth machine. But the other one is that they’ve got to get off this coal.” Constituting a whopping 70 percent of China’s energy supply, coal has allowed the country to become the world’s second-largest economy in just a few decades. But burning coal has also caused irreparable damage to the environment and the health of China’s citizens. City officials have been forced to shut down roads because drivers are blinded by soot and smog. China’s Civil Aviation Administration ordered pilots to learn to land planes in low-visibility conditions to avoid flight delays and cancellations. Scientists wrote in the medical journal The Lancet that ambient particulate matter, generated mostly by cars and the country’s 3,000 coal-fired power plants, killed 1.2 million Chinese people in 2010. In late 2013, an eight-year-old girl in Jiangsu Province was diagnosed with lung cancer; her doctor attributed it to air pollution. And earlier this year, scientists found that up to 24 percent of sulfate air pollutants—which contribute to smog and acid rain—in the western United States originated from Chinese factories manufacturing for export.“The air quality in China has reached a kind of tipping point in the public consciousness,”

Deep Inside the Wild World of China’s Fracking Boom (9 parts, 4 videos)

  1. I. China's Energy Tipping Point
  2. II. American Profiteers
  3. III. Choking on Coal
  4. IV. "We Call This Shale County"
  5. V. Runaway Growth
  6. VI. Pollute First, Clean Up Later
  7. VII. Can Gas Trump Coal?
  8. VIII. The Struggle Over Land
  9. IX. Unfit for Drinking

China Discovers Gas Field in the South China Sea -- China National Offshore Oil Corp. (CNOOC) has announced its first deepwater gas field discovery in the South China Sea, Xinhua reports. The discovery was made by CNOOC drilling rig HYSY 981, the same drilling platform that sparked a diplomatic spat when it was parked within waters claimed by Vietnam as part of its exclusive economic zone (EEZ).  According to Xinhua, the newly discovered gas field, dubbed Lingshui 17-2, is located 150 kilometers south of Hainan — in other words, not in a disputed area of the South China Sea. The gas field, located at an average depth of 1,500 meters, is classified as an “ultra-deepwater gas field.” Successful exploitation of this gas field would provide a sizable counterpoint to those who doubt CNOOC’s ability to extricate natural gas from deepwater sites. CNOOC representatives told CCTV that China “is now technologically capable of drilling in any place in the entire South China Sea.”

China Is Mass-Producing Islands To Extend Its Strategic Borders A dramatic change is taking place in the South China Sea where, since the beginning of this year, Beijing has created at least five new islands by dredging rock and sand and pumping it into reefs to form new land. By doing so, the Chinese are sending a blunt message to its neighbors and the U.S.: Keep out.As a BBC News special report notes, China's island building is aimed at addressing what it views as a serious strategic deficit:There are many competing claims to territory in the South China Sea, but only China and Taiwan claim to own it all.Beijing's claim….is marked out on its own maps by the infamous "nine-dash line", which encompasses a huge tongue-shaped expanse stretching right up to the coasts of the Philippines and Vietnam and even Borneo.For decades China has done little to enforce its vague and sweeping claim. Now that is changing.In 2012 the Communist Party reclassified the South China Sea as a "core national interest", placing it alongside such sensitive issues as Taiwan and Tibet. It means China is prepared to fight to defend it.

China housing sales down 10.9% on year - Housing sales in China in the first eight months of the year fell 10.9% to 3.43 trillion yuan ($559 billion), according to data from the National Bureau of Statistics issued Saturday. Sales in the first seven months of the year were down 10.5% from a year earlier at 2.98 trillion yuan. Property developers across the country have been struggling with weak sales, bulging inventories and tight credit conditions since the start of the year, and some authorities, mostly at the local level, have been loosening policies to support the sluggish market. Analysts and investors are closely watching for signs recovery in the housing market, which is an important driver of China's economic growth. More than 30 local governments have loosened property restrictions such as limits on second home purchases, but buyers are staying on the sidelines because they expect prices to fall further on rising inventories. Many Chinese property developers said in their first-half earnings reports that they expect to sell the bulk of their inventories in September and October, which are usually the peak months for property sales.

China August industrial growth hits 6-year low - -Those who don’t normally keep track of China’s economic indicators should probably take a look this time: The country’s industrial output growth in August slipped to the lowest level since the 2008 global financial crisis. A series of other indicators, including property, investment and retail, released on the same day, all point to a gloomy economic outlook. That may test Beijing’s tolerance for slower economic growth. Value-added industrial output in China rose 6.9% in August from a year earlier, slowing sharply from a 9.0% increase in July, and below economists’ expectations of 8.7% growth, official data showed Saturday. In particular, electricity output — a closely watched economic indicator by the central government — dropped 2.2% from a year earlier in August. The property market continues to struggle as home buyers expect further price cuts. Housing sales in China in the first eight months of the year fell 10.9% to 3.43 trillion yuan ($559 billion), following a drop of 10.5% in the first seven months of the year.  Economists say that if sluggish growth continues for a few months, policy makers may have to step up its fire power to support growth. Below are some economists’ comments, edited for style.

Calls Grow for More Stimulus, as China August Factory Growth Slows to Near Six-Year Low - China's factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world's second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures. Industrial output rose 6.9 percent in August from a year earlier - the lowest since 2008 when the economy was buffeted by the global financial crisis - compared with expectations for 8.8 percent and slowing sharply from 9.0 percent in July."The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won't be small,"  Some analysts believe annual economic growth may be sliding towards 7 percent in the third quarter, putting the government's full-year target of around 7.5 percent in jeopardy unless it takes more aggressive action. Experts reckon output growth of around 9 percent would be needed to attain such a goal.Reinforcing the tepid economic activity, China's power generation declined for the first time in four years, falling 2.2 percent in August from a year earlier, and pointing to slackening demand from major industrial users. Jiang Yuan, a senior statistician with the bureau, said the dip in August factory growth was due to weak global demand, especially from emerging markets, and the slowdown in the property sector that hit demand for steel, cement and vehicles.

Steel industry on subsidy life-support as China economy slows (Reuters) - Subsidies accounted for four-fifths of the profits reported by Chinese steel companies in the first half of this year, a dramatic increase in reliance on state support that illustrates starkly the industrial weakness that is an increasing drag on the economy. The headwinds faced by China's massive steel sector - falling profit margins and growing dependence on handouts - are shared by other key industrial and infrastructure-related sectors, including aluminum, cement and coal. A Reuters analysis of first-half financial statements from 77 listed Chinese steel, aluminum and cement companies revealed a sharp deterioration in profitability. true For the first half of 2013, subsidies accounted for 22 percent of total profits posted by China's listed steel mills, and reached 47 percent in the full year. In the first six months of 2014, the figure jumped to 80 percent, and, even then, the sector's profit margin halved to just 0.3 percent. The performance of the steel sector, which has been a major driver of China's growth, underlines the massive challenge facing President Xi Jinping as Beijing tries to wean the economy off its dependence on external demand and investment spending. Data out at the start of the week showed China factory output grew at the weakest pace in nearly six years in August, raising fears that the economy may be at risk of a sharp slowdown unless Beijing implements fresh stimulus measures.

China about to miss the 7.5% GDP growth target -- Economic reports from China continue to disappoint. Here are three recent data points:

  • 1. Fixed asset investment growth, while still quite strong relative to the rest of the world, continues to fall.
  • 2. Retail sales year-over-year growth fell below 12% again, making the switch from export-based economy to domestic consumption that much more difficult.
  • 3. More importantly, China's industrial production growth is at the lowest level since the financial crisis.

Analysts are suggesting that China may now miss its target of 7.5% GDP growth unless Beijing puts in place outright stimulus programs. FT: -- ANZ said the data “reinforced our view that China’s growth momentum has decelerated faster than anticipated” on the back of a sluggish property market and slowing credit expansion. It added that China generally needs 9 per cent industrial production growth to boost the economy by 7.5 per cent. “Short of outright policy easing, China will likely miss the 7.5 per cent growth target this year, and a sharp economic slowdown will endanger the undergoing structural reforms,” Liu Ligang and Zhou Hao, ANZ economists, wrote in a research note. “Chinese authorities should further relax monetary policy as soon as possible to prevent the growth momentum from decelerating further.”

And Now China FDI Takes a Breather - China’s monthly foreign direct investment numbers aren’t usually watched that closely given they bounce around quite a bit and one large deal can throw things off. But with the world’s second-largest economy facing headwinds, even minor indicators are taking on more importance. Data released Tuesday showed FDI into China was at its lowest level in more than four years in August. This fits into a pattern of old industrial China feeling its age, as seen in a recent round of weaker indicators involving imports, investment and industrial production. Traditionally, much of China’s FDI flows have gone into building factories or consummating joint-venture manufacturing deals, a part of the economy that is suffering lately as overcapacity and low demand take their toll. Economists also wonder how much impact a recent spate of antitrust probes is having on foreign investor confidence. China attracted $7.2 billion of foreign direct investment last month, the commerce ministry said, down 14% from August 2013. That compares with $7.81 billion in July, which was itself down nearly 17% from a year earlier. FDI in the January-August period, meanwhile, fell 1.8% from a year earlier to $78.34 billion. Year to date inflows were down from most major trading partners, led by Japan, which has slid 43% this year to $3.2 billion. FDI from the E.U. in the first eight months fell 18% to $4.2 billion and the U.S. was down 17% to $2.1 billion. However, there were increases in the January through August period from South Korea, up 31% at $3.0 billion, and the U.K., up 19% at $850 million.

China's leaders refuse to blink as economy slows drastically - China’s leaders have brushed aside warnings of an incipient credit crunch in the Chinese economy, determined to purge excesses from the financial system despite falling house prices and the deepest industrial slowdown since the Lehman crisis. Industrial production dropped 0.4pc in August from a month earlier, a rare event that highlights how quickly China is coming off the boil. The growth of fixed asset investment fell to record lows. “It is a shockingly sharp deceleration,” said Wei Yao, from Societe Generale. “What is surprising is the calm response from Beijing. The new leadership’s tolerance for short-term pain seems to have jumped by another big notch.” Electricity output has dropped 2.2pc over the past year as the authorities continue to force dinosaur industries into closure, chipping away at excess capacity.New credit has fallen 40pc, and there has been an outright contraction of trust loans and undiscounted bankers acceptances over the past two months, the result of a clampdown on parts of the shadow banking nexus. “The shrinking stock of trust loans is particularly dangerous to property developers,”

Chinese firms closing gap on US tech giants like Google -  No Chinese company has wide international brand recognition, but e-commerce giant Alibaba may change that. Its initial public offering in New York on Friday, tipped to be the largest ever in the United States, has understandably gained global attention. If, as expected, US$21 billion is raised, the previous record flotation by Facebook and Visa will have been bested and its valuation could be almost as much as Amazon's. The listing will be a watershed moment for China's technology firms. Alibaba and China's other internet goliaths, Baidu and Tencent, are among the world's biggest tech companies, but their names are barely known overseas. Turnover for Alibaba is greater than American counterparts Amazon and eBay combined; it accounts for 80 per cent of the mainland's online retail sales. Had Hong Kong regulators not rejected the company's IPO application, its name would not have made such a splash in the US media. With a New York listing, its operations and ambitions and those of its Chinese rivals are squarely in the international spotlight. That is not to say that Chinese tech firms have not already been making waves. They have been acquiring high-profile talent and innovative start-ups in Silicon Valley and elsewhere to energise operations. Alibaba's hirings have included Google's head of investor relations Jane Penner and PepsiCo executive Jim Wilkinson, while Android's Hugo Barra has joined consumer electronics firm Xiaomi. Baidu has snared Microsoft's Asia-Pacific research and development chief Zhang Yaqin and Google artificial intelligence expert Andrew Ng.

Could Diabetes Derail China? - China is now home to a quarter of the world's diabetes sufferers. That amounts to more than 100 million people -- nearly 12 percent of the population. And according to The Lancet Diabetes & Endocrinology, the British medical journal which last week published a three-partseries on Chinese diabetes, the patient pool is almost certain to expand dramatically. More than 600 million Chinese suffer fromprediabetes, a condition in which individuals exhibit elevated blood sugar levels that can spark Type 2 diabetes if not treated. These are epidemic conditions, and China is going to have an even harder time getting its crisis under control than the U.S. (where 9.6 percent of the population suffers from diabetes) and other developed nations. Genetic and other biological factors make Chinese "particularly susceptible" to Type 2 diabetes, the Lancet study's authors write. And the country's healthcare system, already struggling to provide affordable access to hundreds of millions of uninsured rural residents, isn’t anywhere near ready to care for tens of millions of chronic disease sufferers. Diabetes treatment in China currently focuses on managing complications and end-of-life care. According to some estimates, the disease could consume more than half of China's health-care spending if all patients were to receive routine, state-funded care.

China's Housing Slump Accelerates, Worst In Over Three Years -- While the rest of the world is focused on what any given "developed" (or Chinese) central bank will do to continue the relentless liquidity-driven rally to new record highs, China has bigger problems as it continues to scramble in its attempts to figure out how to halt the slow motion housing crash that has now firmly gripped the nation. So firmly, that according to overnight data from the National Bureau of Statistics, monthly house prices dropped in some 68 of 70 tracked cities, the most in over three years, since January 2011 when the government changed the way it compiles the data.

Academics Get Caught Up in Debate Over China’s Interest Rates - The central bank’s push to liberalize interest rates is running into an unexpected new problem – opposition from some prominent Chinese economists. The academics, who usually back market-oriented reforms, don’t oppose freeing deposit rates per se. Rather, they say, interest rate liberalization should be a lower priority than other changes. “My argument is that China should achieve much fuller currency flexibility before achieving full interest rate liberalization,” says Guonan Ma, a Chinese-born and educated scholar at the Bruegel think tank in Brussels and a former senior economist at the Bank for International Settlements, an international organization of central banks in Basel Switzerland. Mr. Ma is influential back home on central banking issues. Yu Yongding, a senior economist at the Chinese Academy of Social Sciences, for instance, says he agrees with Mr. Ma’s priorities, as does He Fan, another senior CASS economist. “I am less optimistic than [Chinese central banker] Zhou Xiaochuan on interest rate liberalization,” says Mr. He. Academics are always questioning government priorities, even in a country with as tight political controls as China. But opposition by prominent economists can have big political consequences in Beijing, where many in the government and party are wary that big institutional changes could further slow the economy. Opponents can seize on the academics’ arguments as a rationale to retain the status quo.

What’s Lurking in the Shadows of China’s Banks - IMFdirect - “Shadow” banking: a surprisingly colorful term for our staid economics profession. Intended or not, it conjures images of dark, sinister, and even shady transactions. With a name like “shadow banking” it must be bad. This is unfair. While the profession lacks a uniform definition, the idea is financial intermediation that takes place outside of banks—and this can be good, bad, or otherwise. Our goal here is to shine a light on shadow banking in China. We at the IMF have used many terms. Last year, we had a descriptive one, albeit a mouthful—off-balance sheet and nonbank financial intermediation. The April 2014 Global Financial Sector Report (GFSR) called it nonbank intermediation. This year our China Article IV report used the term shadow banking. Interest in China’s shadow banking…eh, nonbank intermediation…stems mainly from its rapid growth since the global financial crisis in 2008. This is the pink part in Figure 1 which has more than tripled since 2008, albeit from a low base. It has also accounted for half of the increase in overall credit to the economy or total social financing—even more than bank loans.

China Central Bank Appears to Inject $81 Billion Into Top Lenders - — With industrial production growing at the slowest pace since the worst of the global financial crisis and foreign direct investment in a tailspin, China appears to have taken the unusual step of using monetary stimulus in an attempt to forestall further economic weakness.China’s central bank has lent 100 billion renminbi, or $16.2 billion, to each of the country’s five main, state-controlled banks, bankers and economists said Wednesday, although the central bank and the five banks involved stayed silent. The seemingly stealthy decision to inject a total of $81 billion into the banking system this week came as the Chinese economy, like many economies in Europe, has slowed over the summer, although still expanding at a pace that would be the envy of most countries around the world. The move by the central bank, the People’s Bank of China, to transfer the money directly to state-controlled banks drew immediate criticism from economists at international banks. The central bank had been seeking in recent months to reduce the role of bureaucratic guidance in China’s financial sector, relying instead on pushing interest rates up and down and then letting market forces allocate money among borrowers and lenders. The loans this week represented a much more targeted approach, with the money going entirely to five heavily regulated big banks. Those five, which account for at least three-fifths of the market by various measures, are the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications. The banks are likely to lend the money to politically connected industries and individuals, notably those in favored sectors like advanced electronics or the construction of mass-market housing.

PBoC joins other major central banks with unconventional monetary policy action -- Softer than expected economic growth in China (see discussion) has finally spurred the PBoC into action. However, rather than undertaking asset purchases that would inject reserves into the overall banking system, the PBoC forced liquidity directly into state-owned banks. NY Times: - With industrial production growing at the slowest pace since the worst of the global financial crisis and foreign direct investment in a tailspin, China appears to have taken the unusual step of using monetary stimulus in an attempt to forestall further economic weakness.  China’s central bank has lent 100 billion renminbi, or $16.2 billion, to each of the country’s five main, state-controlled banks, bankers and economists said Wednesday, although the central bank and the five banks involved stayed silent. The seemingly stealthy decision to inject a total of $81 billion into the banking system this week came as the Chinese economy, like many economies in Europe, has slowed over the summer, although still expanding at a pace that would be the envy of most countries around the world.This is probably the least effective QE-style action, as state-owned lenders are unlikely to efficiently deliver capital into the private sector. But the fact that the PBoC has taken this action tells us this could be the start of a longer monetary stimulus effort. The markets are not expecting a near-term economic improvement and instead pricing in a prolonged battle to accelerate growth. China's SHIBOR rate swap curve has become more inverted than a month ago with expectations of further rate declines.

PBOC cuts 14-day repo rate in second surprise move - --China's central bank made a second surprise move this week to ease monetary policy with a cut in short-term borrowing costs for banks Thursday, signaling growing concern in Beijing over the weakening economy. The action follows a massive cash injection into the nation's top five lenders and comes just days after reports showed weakness in sectors from industrial production to real estate. It also fuels expectations for more aggressive monetary policy easing down the road, altering the dynamics of a fierce debate among economists over how far Beijing would go to counter slower-than-expected growth. Similar moves in the past by the People's Bank of China have served as harbingers of adjustments to more widely used interest rates. The latest attempt to boost lending and aid growth was in the money markets, with the central bank Thursday lowering the interest rate on the 14-day repurchase agreements, a short-term loan to commercial lenders, by 20 basis points to 3.50%. The central bank uses such market operations, which fall on every Tuesday and Thursday, to adjust the supply and cost of funds in the financial system. "This is a significant policy signal. The chances of a benchmark interest rate cut are rising because the central bank is clearly guiding interbank rates lower now,"

World Bank official urges China to be vigilant over rising debt levels -  Maintaining even a 7 per cent growth rate in the next few years would be a "creditable performance" for the mainland although the government needs to stay vigilant about the fast debt build-up, says World Bank chief economist and senior vice-president Kaushik Basu. Basu's comments come amid calls for Beijing to lower and even cancel its annual growth target starting next year to curb the financial risks related to over-investment. In an interview with the South China Morning Post, Basu also played down concerns about the impact of the Federal Reserve's tapering of its quantitative easing policy on the rest of the world. "The negative shock [of tapering] will in part be countered by the good news of improvements in the US economy, which remains the biggest driver of global growth," he said. The best way for the mainland and other emerging economies to counter negative impact would be to focus on structural reform rather than on fiscal and monetary interventions, he added. "Improving the ethos of doing business, such as the ease of starting a business and having a transparent legal system, is crucial. It is also important to nurture innovation and creativity," he said. The mainland economy has been losing steam after a decade of double-digit growth. Economists say Beijing's economic growth target at "about 7.5 per cent" may be missed this year. The World Bank predicts growth will slow to "just above 7 per cent" per annum over 2015-17.

UK Hints At Next Reserve Currency, To Issue Chinese Yuan-Denominated Bond - Yuanification continues around the world. As The USA attempts to corral its allies in a 'broad coalition', an increasing number of people - including domestic economic policy advisors - are shifting away from the USD as primary reserve currency. However, the move by British Chancellor of the Exchequer George Osborne, announced Friday, is likely the most notable yet in the world's de-dollarization. As Xinhua reports, the British government intend to be the first nation (ex-China) to issue Renminbi denominated bond and to use the proceeds to finance the government's reserves of foreign currency. Osborne described this dialogue outcome as "a historic moment" and a statement of British confidence in the potential of the RMB to become "the main global reserves currency".

Britain gives Chinese renminbi a big endorsement - — Britain has advanced to the forefront of efforts to promote the renminbi USDCNY, +0.02% as an international currency with Friday’s announcement that the British government will become the first Western country to issue a sovereign bond in the Chinese currency. The move breaks new ground in dual fashion because the Treasury will abandon another previous taboo by adding the bond proceeds to the U.K. reserves managed by the Bank of England — giving significant endorsement to the renminbi’s hitherto informal status as a reserve currency, In the week when the future of the United Kingdom is at stake in Thursday’s referendum on Scottish independence, the British government has served notice that London wishes to reinforce its position as a global trading and investment hub for the renminbi. The Chinese currency (also known as the yuan for domestic transactions), which is still formally not fully convertible on the International Monetary Fund’s definition, is making rapid strides towards international status and even — one day — to challenging the dollar as the world’s leading currency. An important part of this process will be the possible inclusion of the renminbi in the IMF’s currency basket, the Special Drawing Right, which will be reviewed in 2015. There is a growing belief that the Chinese currency now conforms to a sufficient number of standards for convertibility that it will be become one of the constituent parts along with the dollar, the euro, yen and sterling.

Renminbi is Already A De Facto Reserve Currency - What is clear from all public statements and official publications is that the United States no longer wishes to hold the world’s primary reserve currency, as it has been both a blessing and a curse. As the now infamous quote by Kyle Bass about killing the dollar has been heard by all interested parties, and some time has passed us by, it can be determined that the dollar he was referring to was the reserve dollar and not the American currency itself. At the same time China has made it absolutely clear that they have no interest in making the renminbi the international reserve currency. They have observed in great detail the path that primary reserve currencies take and do not wish to see their once again burgeoning power in the world wane, as it did in the face of western industrialization. Like currencies are now pegged to the value of the US dollar, other currencies will soon be pegged to the value of the renminbi, but neither currency will be the primary reserve currency by which international trade is balanced. What we are heading towards is the expansion of the Special Drawing Right basket of the International Monetary Fund. The basket currently is valued on four reserve currencies, being the US dollar, Japanese yen, British sterling, and the Euro. Every five years the basket is adjusted and we are now entering the time period when this could happen. Though China doesn’t want the yuan to be the primary reserve currency of the world, they do wish to see it internationalized and become one of the reserve currencies which make up the SDR basket valuation. With the renminbi added to the SDR basket there will be a greater sense of stability in the international monetary system. The events of the last few years are much better understood in this manner.

Bank of Japan Urged to Print More Money - The OECD has urged Japan and Europe to step up money printing, even while the United States attempts to unwind quantitative easing. With the world economy still underperforming, can Asia’s monetary chiefs manage the fallout? Releasing Monday its latest Interim Economic Assessment, the Paris-based group cut its growth forecasts for countries including Japan and the United States, urging more stimulus measures to support an uneven global recovery. “A moderate expansion is underway in most major advanced and emerging economies, but growth remains weak in the euro area, which runs the risk of prolonged stagnation if further steps are not taken to boost demand,” the OECD said in a statement. Compared to its May forecasts, the 34-nation economic group cut its growth forecasts for the United States by 0.5 percentage point to 2.1 percent in 2014, with the eurozone’s projected expansion trimmed by 0.4 percentage point to just 0.8 percent this year. For Asia though, it was a mixed picture, with Japan’s forecast growth cut by 0.3 percentage point to just 0.9 percent this year, improving slightly to 1.1 percent in 2015. China’s expected growth rates were left unchanged at 7.4 percent in 2014 and 7.3 percent next year. “The euro area needs more vigorous monetary stimulus, while the U.S. and the U.K. are rightly winding down their unconventional monetary easing,” the OECD’s deputy secretary-general and acting chief economist Rintaro Tamaki said. “Japan still needs more quantitative easing to secure a lasting break with deflation, but must make more progress on fiscal consolidation than most other countries.”

Yen Slide Quickens as Pensions Head Overseas: Chart of the Day - Japanese pension funds favoring overseas investments are helping send the yen down toward its biggest monthly loss this year, Nomura Securities Co. says. The CHART OF THE DAY shows so-called trust accounts boosted purchases of foreign stocks and bonds to the most since 2009. The accounts capture pension fund flows including the $1.2 trillion Government Pension Investment Fund, Nomura says. The bottom panel shows the yen slumped to a six-year low this month as hedge funds and other large speculators increased bearish bets on the currency to the most since January. “The shift overseas in pension money is accelerating,” said Yunosuke Ikeda, head of currency strategy at Nomura in Tokyo. “With public pensions working toward rebalancing their domestic bond-heavy portfolios, private pensions are highly likely to take the same approach. Hedge funds are betting the changes are already taking place, which is increasing pressure for yen selling as they race to keep up.”

Weaker yen fails to boost exports as Japan logs 26th monthly trade deficit  - Japan on Thursday posted its 26th consecutive monthly trade deficit, with a sharply weaker yen failing to lift exports as the world’s No. 3 economy stalls. Despite narrowing marginally from a year earlier, Japan’s August trade shortfall underscored a mixed picture for exports to key markets including China and the United States, as well as slowing activity at home following April’s sales tax hike. The yen’s sharp fall since Prime Minister Shinzo Abe launched his pro-spending stimulus policy in late 2012 has not translated into a clear pick-up in exports as Japanese companies shift production to lower-cost venues abroad. The finance ministry data showed that Japan’s August trade deficit came in at ¥948.5 billion ($8.7 billion) against a shortfall of ¥971.4 billion a year ago. The narrowing was partly due to a 1.5 percent decline in imports to ¥6.65 trillion as the bill for foreign oil and coal shipments fell. Japan’s fossil fuel imports soared after the 2011 Fukushima nuclear crisis forced the shuttering of nuclear reactors that once supplied more than a quarter of the nation’s power. Part of the energy import downturn was caused by poor summer weather, which translated into lower electricity demand to power air conditioners and other cooling products.

Japan exports knocked by weak US shipments, hurt economic recovery: Japan’s exports declined in August as shipments to the United States contracted, another sign the economy is struggling to rev up after a deep slump in April-June. A further period of lackluster exports and slack domestic demand could force the government and the Bank of Japan to find new ways to prop up the economy. Exports fell 1.3 percent in August from a year ago, less than the median estimate for a 2.6 percent annual decline. That followed a 3.9 percent annual gain in the previous month after having fallen in June and May. The patchy performance has dashed hopes that external demand can offset a consumer spending slump caused by an April sales tax hike to 8 percent from 5 percent, heaping pressure on policymakers to do more to spur economic growt. “The US economy is recovering, so things should not be this bad,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “The data do reflect a shift in production overseas. I don’t think monetary policy easing is needed, but there are doubts about how the overall economy will perform in the third quarter.” Japan’s economy shrank an annualised 7.1 percent in the second quarter hit by the tax hike, the biggest contraction since the 2009 global financial crisis. Underperforming exports have been one of the weak links in the Japanese economy, which is struggling to cope with the April tax hike.

Nuclear Power-less Japan Must Pay for Fuel Imports in Weak Yen -Few are as eager as Prime Minister Shinzo Abe to see Japan’s idled nuclear reactors brought back into operation. Since the country flicked off the switch to its nuclear energy program a little more than a year ago, expensive energy imports, particularly of liquefied natural gas (LNG), have worsened trade deficits. That’s placed an extra burden on an economy that contracted at an annualized rate of 7.1 percent in the second quarter, its worst showing since 2009. Abe’s push to restore Japan’s 48 reactors faces deep opposition from a public that can’t forget the radiation leaks from the Fukushima Daiichi reactor complex following an earthquake and tsunami in 2011. Revelations of the regulatory lapses that led to the leaks galvanized local governments to keep Japan’s other reactors idle after they were shut down for scheduled maintenance. By September 2013 the country was without nuclear power. Japan’s Nuclear Regulation Authority, a new agency charged with overseeing the industry, is moving glacially to restart the idled reactors. So far, it has only deemed Kyushu Electric Power’s Sendai reactor in the southwest ready. Yuji Nishiyama, an analyst with JPMorgan Securities Japan (JPM), says he thinks only half of the 48 reactors will come back, and that might take until 2018. “I don’t have confidence about the timing,” he says. Video: Japan Rejoins World Nuclear Club In the next five years, 12 of the country’s reactors will turn 40 years old, considered a reactor’s operational age limit by Japanese regulators. Another four reactors are stationed only 6 miles from the wrecked Fukushima Daiichi plant, in a radiation no-go zone that most likely renders them inoperable. Work to upgrade the remaining reactors to post-Fukushima technical standards may cost more than $12 billion, a sum the utilities have already pledged.

Japan Needs Higher Returns on Overseas Assets - Despite a more than a two-year stretch in merchandise trade deficits, Japan still brings in more capital from abroad than it sends out, thanks to hefty returns on its overseas investments. Yet economists warn that the country needs to increase its returns on those holdings if it is going to secure capital to fuel economic activity. In July for example, Japan recorded a ¥828.1 billion trade deficit, its 25th in a row. But that was easily overshadowed by a ¥1.85 trillion primary income surplus (a net positive return on overseas investments), according to Ministry of Finance figures. Economists say that as Japan’s red ink mounts, maintaining a strong surplus in the income balance is necessary to supply capital to expand businesses and finance consumption at home. If Japan can bring in more capital by lifting returns on its overseas investments, it can counter the fact that Japan’s workforce is shrinking, they say. “I think we’re looking at a secular trade deficit. In that environment, it’s going to be extremely important to make sure the returns on your international investment holdings are high,” said HSBC economist Izumi Devalier. “Compared with most advanced countries, Japan’s returns are quite low.”

Watch Out, Obama: Only Israelis Believe Trade Will Cut Prices for Consumers -  President Barack Obama and other world leaders are having a tough time selling the benefits of the trade agreements they’re negotiating, in part because much of the public thinks all the talk about trade’s benefits is a bunch of baloney. Out of 44 nationalities surveyed this year, only one — Israelis — tends to believe the basic tenet of economists that increased trade will foster competition and deliver lower prices for consumers. On a broader question of whether increasing trade and business ties with other countries is a good thing, only 68% of Americans agree, compared with 76% worldwide, according to the study released Tuesday by the Pew Research Center.. Despite the economic recovery in the last four years, Americans’ positive views toward trade have increased only slightly and remain well below 2002 levels, when 78% thought growing trade and business ties were good. Among Americans, the poor, women and seniors are less likely to see benefits of trade. To be sure, skepticism about trade is nothing new, and many Americans have watched manufacturing jobs move overseas for a variety of reasons, including international agreements. Part of the problem is political in the U.S. and Japan, which are leading the negotiations to form the Trans-Pacific Partnership. Mr. Obama, who supports the TPP negotiations and similar talks underway with the European Union, leads Democratic lawmakers who have typically opposed recent trade deals, partly over concerns about lost manufacturing jobs. Japanese Prime Minister Shinzo Abe faces similar opposition in his own party over farming profits.

The Return of the Currency Wars - When a country’s economy grows too slowly, the standard short-term remedies are to increase government spending, cut taxes or reduce interest rates. When none of those options is available, governments often resort to pushing down their currencies to make their exports more attractive to foreigners (and, these days, to push up import prices and thus bring inflation back up to desired levels). When the world economy is sputtering, and every big country increases spending, cuts taxes and reduces interest rates, the global economy benefits from the increase in demand. That’s the story of 2009. But when individual countries lean heavily on pushing their currencies down, that tends to shift demand from one place to another rather than increasing the total. That is a “currency war.” And we may be on the verge of one. Last time, the emerging markets were doing the complaining; this time, it may be the U.S.  (OK, I’m oversimplifying, but only a bit.) Japan has already managed to depreciate its currency. The yen is at a six-year low against the dollar.  There is a fine line between pursuing expansionary monetary policy which works (in part) by reducing a country’s currency, and making currency depreciation a primary goal. The U.S. and Europe have tolerated the sinking yen largely because they saw it as part of Prime Minister Shinzo Abe’s broader effort to resuscitate the Japanese economy. Now the spotlight is shifting to Europe.  Europe is growing painfully slowly, if at all.  Unemployment in the countries that share the euro is 11.5%. Among the under-25 crowd, nearly one in four is out of work.

India: IP Slumped in July 2014: The honeymoon for new Prime Minister Narendra Modi may be over. For three months, April though June 2014, Industrial Production in India averaged almost 4.0% real growth year-over-year. The number for July has fallen to 0.5%. The three consecutive months with y-o-y growth 3.4% or higher was the first such period in nearly three years. Click for larger image. Follow up: While the Indian economy has been mired in lower economic growth over the past three years, inlfation has been rampant: The following observations are from Rajesh Kumar Singh, Reuters: The optimism fanned by Modi's rise to power has already brought inflows of nearly $14 billion of foreign funds into Indian equities this year as investors bet that his drive to cut red tape will revive stalled projects and underpin the economic recovery. The 50-share Nifty has gained over 30 percent in U.S. dollar terms this year to become the best-performing equity index in Asia. Goldman Sachs upgraded its target for the index this week, citing optimism over future earnings of Indian firms. To sustain this euphoria, economists say, Modi must overhaul India's strained public finances, stringent land acquisition laws, chaotic tax regime and rigid labour rules. During his first 100 days in office, the new prime minister showed little appetite for such structural changes, and there is concern that sharply higher growth in the last quarter could reduce their urgency. That could be damaging for an economy that is still hobbled by slack consumption and weak business investment. Persistently high inflation and years of stagnant growth have forced consumers to cut discretionary spending.

India's export growth slips to 2.35 per cent at $ 26.95 billion in August - - Continuing the downtrend, India's export growth slipped to 2.35 per cent at $ 26.95 billion in August, pushing up trade deficit to $ 10.83 billion. Gold imports have jumped significantly to $ 2.03 billion during the month under review from $ 738.7 million a year ago. According to the Ministry of Commerce and Industry's data, overall imports grew only 2.08 per cent to $ 37.79 billion. Exports in May and June had registered a growth of 12.4 per cent and 10.22 per cent, respectively. In July, export growth further slipped to 7.33 per cent. In April-August period, exports grew 7.31 per cent to $ 134.79 billion. Imports, however, dipped by 2.69 per cent to $ 190.94 billion during the first five months of this financial year. Trade deficit during the period (April-August) stood at $ 56.15 billion down from $ 70.6 billion during the same period last year. Oil imports declined by 14.97 per cent in August to $ 12.83 billion. However non-oil imports during the month under review were up by 13.82 per cent to $ 24.95 billion.

Indian Trade Deficit Widens as Gold Imports Surge 176% -  India’s trade deficit widened in August from a year earlier as imports of gold surged 176 percent after policy makers eased shipment curbs. The shortfall was $10.8 billion last month, wider than $10.7 billion a year earlier, with exports rising 2.4 percent and imports growing 2.1 percent. Gold shipments surged to $2 billion from $739 million in August last year after the government allowed more banks and traders to buy bullion overseas. India is easing emergency measures taken when the current-account deficit widened to an all-time high, as faster growth boosts inflows. While the shortfall will widen this year through March 2015 after shrinking in the previous 12 months, it will stay sustainable, according to a Reserve Bank of India report last month. “We can manage with monthly gold imports of about $2 billion and the jump in the August number is largely due to last year’s low base after a sudden clamp down,” Shubhada Rao, an economist at Yes Bank Ltd. in Mumbai, said yesterday. “The jump may look alarming, but there is no reason for panic.” Controls on imports will probably be permanent and the government may keep a rule that requires importers to supply 20 percent of their cargo to jewelers for re-export or introduce a system of quotas or licenses

China invests in India’s infrastructure - Narendra Modi’s term as India’s Prime Minister is in full swing, with a ‘Modi bounce’ seen in recent figures for FDI and an upturn in the rate of economic growth.  Optimism is high that change for the better is underway in developing an infrastructure that can support India's 1.2 billion people.  Inward investment has begun to rise with optimism over much needed legal and tax reforms that make it easier for foreign companies to do business, though the entry of UK companies remains sluggish. This week sees China’s President Xi Jinping meet Modi in India for the first time and Thursday’s announcement that China will pump $20bn into India’s infrastructure improvement. Where China can help is in the expertise required to mount the large scale projects that Modi knows are essential to keep India’s population mobile and the labour market more flexible. It will also create jobs. India’s parliament recently approved legislation that means railway investment can be 100% foreign owned and funded. Indian Railways simply hasn’t the funds to rebuild at the scale required. In Mumbai, occasional escalators on Western Railway stations are about the level of progress seen in recent years.

What draws Modi to China: India's dalliance with China gets seriously under way on Wednesday afternoon on the banks of the ancient Sabarmati river in the western state of Gujarat where Chinese president Xi Jinping arrives and India's prime minister Narendra Modi is at hand to receive him personally. Wednesday also happens to be Modi's birthday and Gujarat is his home state and the symbolism of what Xi is doing cannot be lost on the American mind. The widespread expectation in India and abroad had been that the government led by Modi would maintain "continuity" in India's foreign policy. That was expected to be in the direction of galvanizing further India's tilt toward the United States through the past decade of rule under Prime Minister Manmohan Singh's leadership, who was acclaimed to be the most "pro-American" leader India ever had since it became independent 67 years ago. As recently as end-July, the new External Affairs Minister Sushma Swaraj affirmed, "We think that foreign policy is in continuity. Foreign policy does not change with the change in the government." Indeed, India's political culture seldom admits abrupt policy shifts. Maturity and sobriety are synonymous with continuity in the Indian culture, imbued with respect for the past. However, one hundred days into the Modi government, it is becoming impossible to maintain the fa?ade. Navigating through three high-level exchanges in rapid succession through September - with Japan, China and the United States - Modi is casting away rather summarily the lingering pretensions as if dead leaves in an autumnal month.

South Africa Keeps Key Interest Rate at 5.75% as Growth Falters - The South African Reserve Bank kept its benchmark interest rate unchanged as concerns about slowing economic growth outweigh inflation worries. The repurchase rate was kept at 5.75 percent, Governor Gill Marcus told reporters in Pretoria today. Seventeen of the 24 economists surveyed by Bloomberg predicted the decision, while the rest forecast a 25 basis-point raise. Policy makers paused after raising borrowing costs by 75 basis points this year to help bolster an economy battered by strikes and support investor confidence as the threat of credit-rating downgrades loom. The rand’s slide below 11 to the dollar last week, the weakest level in seven months, is complicating the outlook, adding to pressure on inflation as it stays above the central bank’s 3 percent to 6 percent target. The “Reserve Bank is unlikely to be too concerned at this juncture that demand-driven inflationary pressures are getting out of hand,” Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities in Johannesburg, said in an e-mailed note to clients before the rates decision.

Do poor countries really get richer? -- DO POVERTY traps exist? Academics seem to think so. According to Google Scholar, so far this year academics have used the phrase “poverty trap” 1,210 times.   Some of the most innovative work in development economics focuses on how individuals' lowly economic position may be perpetuated (geographical and psychological factors may be important).  But, says a new paper by two World Bank economists, the idea of poverty traps may be overblown. They focus on national economies and present some striking statistics. In the graph below, a country that manages to get to the left side of the line has seen real per-capita income improvement from 1960 to 2010. The vast majority are on the left:  What is more, the bottom 20% of countries in 1960, over the subsequent fifty years, saw an average annual growth rate in real per-capita GDP of 2.2%. (The richest 20% only mustered 2.1%.) In fact, over the last 50 years the poorest 10% of countries have grown at the same rate that America did in the past 200. That fact, argue the economists, “is difficult to square with models of poverty traps.” But I'm not so sure. For instance: let’s compare the bottom quintile of countries in 1960 (of which there were 22) with the bottom 22 in 2010. The average annual per-capita GDP growth rate falls from 2.2% to 0.67%. The very bottom, whichever countries they might be, have not done too well over the past fifty years. Now let’s look at what happens in individual decades, rather than looking at 1960-2010 as a single period. The results are not heartening. In the 1980s, for example, 40% of countries with a per-capita income below $10,000 saw negative income growth. In the 1990s 35% did. (The best period was the 1950s, when only 5% did.) Poor countries did worse than rich: in every decade from the 1950s to the 2000s, proportionally more poor countries than rich ones saw falling living standards.

Conditional cash transfers and child labour: A little extra cash, a lot of extra schooling | The Economist: IN 2012 there were over 168 million child labourers. That's a big decline from a few years ago (see chart), but still a huge number. How best to get it down? Outlawing it is one option. Most countries have had child-labour laws for years; but given that one in ten children worldwide are labourers, the legal system is no silver bullet.  Another way of reducing child labour is to tackle its root causes. Poverty is one. Cash transfers, which can reduce poverty, may be able to help. Governments give poor households small amounts of money. Some cash transfers are "conditional": the recipient has to meet certain conditions to receive the dosh, like ensuring their children go to school or visit a doctor regularly.  Economic theorists disagree over the potential impact of cash transfers on child labour. Some say that cash transfers are a sure-fire way to reduce it. By making households richer, families are less impoverished. They can more easily afford to send their children to school (or forego the income that their children could bring). Nonsense, say others. When very poor families receive money, they will invest it in productive assets—say, by purchasing some livestock. Investment may boost the returns to child labour and thus encourage the child to work even more than before.  It’s an empirical question. A new paper from the World Bank reviews a mass of literature—thirty different studies—on the subject. The conclusions are pretty clear. Cash transfers tend to reduce child labour. Boys tend to experience larger reductions in participation in wage-labour than do girls. That may be because discrimination against educating girls is ingrained; a little extra money makes little difference.  The authors do not find a single conditional cash transfer (CCT) programme that significantly increased child labour.

OECD slashes growth forecasts for leading economies - The global economy faces headwinds from a sluggish eurozone and rising political tensions, including the uncertain outcome of Scotland's independence referendum, a leading thinktank has warned. The Organisation for Economic Co-operation and Development slashed its growth forecasts for advanced economies and called on the European Central Bank (ECB) to use quantitative easing to shore up the eurozone.  The OECD's forecasters slightly downgraded their forecast for UK economic growth this year and said that Scotland remaining part of the country would be "best for all its component parts".  Updating its economic outlook before a G20 meeting of finance ministers in Australia this week, the Paris-based thinktank described continued slow growth in the euro area as the "most worrying feature" of its new projections. Its deputy secretary-general Rintaro Tamaki said: "The global economy is expanding unevenly, and at only a moderate rate. Trade growth therefore remains sluggish and labour market conditions in the main advanced economies are improving only gradually, with far too many people still unable to find good jobs worldwide. "The continued failure to generate strong, balanced and inclusive growth underlines the urgency of undertaking ambitious reforms."

OECD cuts growth forecasts for U.S., big economies - -The Organization for Economic Cooperation and Development Monday cut its economic growth forecasts for the U.S. and other large developed economies, and said the continued weakness of the recovery demonstrated the need for significant changes in economic policy. The Paris-based research body warned that economic growth could prove to be even more disappointing in 2014 and 2015, given an array of risks that include conflicts in Ukraine and the Middle East, the Scottish independence referendum, and the possibility of major shifts in financial flows and sharp exchange-rate movements as investors prepare for a tightening of U.S. monetary policy that is expected next year. But the OECD said the eurozone is once again the most worrisome threat to global growth prospects, with very low inflation rates holding back demand and employment, and increasing the risk of a slide into deflation, or a period of self-reinforcing price falls. In a partial update to its twice-yearly forecasts for economic growth, the OECD cut its 2014 projections for each member of the Group of Seven largest developed economies. It said it now expects the U.S. economy to expand 2.1% this year, having forecast growth of 2.6% in May, while it expects the eurozone economy to expand by just 0.8%, having forecast growth of 1.2% in May. It reserved its biggest recalibration for Italy, and now expects that nation's economy to contract by 0.4% in 2014, having estimated it would grow by 0.5% in May. The OECD also cut its 2015 growth forecasts for five of the G-7, leaving its forecast for Canada unchanged and slightly raising its forecast for the U.K. It still expects economic growth to pick up in most countries next year, and to 3.1% in the U.S.

G-20 talking of 16% to 20% capital adequacy ratio for banks- -- The G-20 is working to raise capital adequacy requirements on banks in the hope of preventing taxpayers from having to bail out any institution that might otherwise go bankrupt. The group of 20 major economies is discussing whether to double the minimum capital-to-asset ratio, to 16% to 20%. The Financial Stability Board, which is joined by financial watchdogs across the world, next week will enter final talks on an interim report to be presented to G-20 finance ministers and central bank governors when they meet Sept. 20-21. An official agreement is expected to be reached at the G-20 summit in Australia in November. Implementation likely would not come before 2019. Under consideration is a requirement for banks to hold more subordinated bonds in line with a bail-in clause. This would make investors bear losses in cases of effective bankruptcy. The intention is to give investors an incentive to help a zombie bank get on its feet before a government bailout is extended. Details on raising the minimum amount of capital banks are required to keep on hand are to be finalized later. Any change could affect bond markets and bank lending. Japan's three megabanks currently maintain capital ratios from 15% to more than 16%. An increase of 1 percentage point would require that a bank keep about an extra 1 trillion yen ($9.3 billion) on hand. If the minimum ratio is set at 20%, the three would need to set aside a combined 10 trillion yen or so.

"Oh Dear Me No, I Couldn't Possibly Hear Another Appeal..." - The Second Circuit has refused to hear Citibank's appeal of Judge Griesa's order enjoining Citi from making payment on USD-denominated, Argentine-law bonds. The Second Circuit's order is a bit... Delphic. Weighing in at all of 56 words, not counting citations, the court simply "decline[d] to find jurisdiction" because the district judge's order "is a clarification, not a modification" of the injunction. The distinction seems a bit fine, given the stakes. Recall that some USD-denominated, Argentine law bonds are Exchange Bonds (and thus subject to the injunction) while some are not. But it seems that it is impossible to tell them apart. Two options, then: (1) forbid Citi to pay anyone, even though NML concededly has no right to block payment on non-Exchange Bonds, or (2) allow Citi to pay everyone, thus allowing a subset of Exchange Bonds to escape the injunction. The district judge chose option one. In theory, the district judge can reconsider (re-clarify?) that decision, but I am not holding my breath.

Pimco cuts eurozone, China growth expectations; keeps U.S. at 2.5-3 percent (Reuters) - U.S. bond firm Pimco cut its growth expectations on Wednesday for the eurozone, China and so-called BRIM countries (Brazil, Russia, India and Mexico) for the next 12 months. Pimco Total Return Fund, run by Bill Gross, is the world's largest bond fund. It said the eurozone economy could grow about 1 percent in the next 12 months. That compares to Pimco's baseline expectation in the spring that the eurozone could grow between 1 percent and 1.5 percent. Pimco added that the firm expects Japan to grow about 1 percent to 1.5 percent in the next 12 months, with China's growth to slow to around 6.5 percent, down from its growth range of 6.5 percent and 7.5 percent earlier this year. true Pimco also expects that as a group, the BRIM economies will grow just 2 percent in 2015, a significant slowdown from the 3 percent to 5 percent growth rates achieved in prior years. Pimco managing director Saumil Parikh, who authored the outlook report, said eurozone projections were downgraded because of its "painfully slow climb out of a double-dip recession." He added: "The cyclical growth and inflation outlooks for the eurozone and Japan remain hostage to significant policy dissonance and geopolitical risk there.

World Bank Pays $500 Million to Ukraine Central Bank Despite Warnings of World Bank Board and IMF Staff - In the picture, the President of the World Bank, Jim Yong Kim, an American, is applauding as the Governor of the National Bank of Ukraine (NBU), Valeriya Gontareva, beats a dead horse. For the metaphorically minded, the dead horse is the Ukrainian banking system. For the literally minded, Gontareva claims the horse is alive and running healthily. Kim, Gontareva, and the horse appear to have their eyes wide open on the scene. Either that — or at least one of them is blinking at the truth. On August 8, the World Bank paid $500 million to NBU. The term is for 16 years, with the first seven a grace period, and a variable interest rate once repayments start. The new money was for the NBU to do what Gontareva has said publicly she has already done; and what the Ukraine mission of the International Monetary Fund (IMF) said on August 29 the NBU cannot begin to do properly. The $500 million comes on top of $1.48 billion the World Bank had already granted in May for purposes the Bank board claims to “to promote good governance, transparency, and accountability in the public sector.” The World Bank board notice, issued on August 7, said the $500 million loan “operation aims to: (i) strengthen the operational, financial and regulatory capacity of the Deposit Guarantee Fund (DGF) for the resolution of insolvent banks; (ii) improve the solvency of the banking system through implementation of bank recapitalization/restructuring plans and timely enforcement action; and (iii) strengthen the legal and institutional framework to improve the resiliency and efficiency of the banking system.” 

European Union Court of Justice Imposes Anti-Rasmussen Rule – Sanctions Cannot Be Imposed by Reason of Fabrication, Lies, Disimulation - In a judgment issued in Luxembourg on Thursday, September 18, the court ruled that the European Union (EU) cannot lawfully introduce sanctions against states, corporations, state organizations, or individuals without stating reasons which can be substantiated in evidence to a standard of proof tested in court.  Rasmussen, a former Danish politician, has been the most active European advocate of sanctions against Russia on claims that Russian forces have mounted an invasion of eastern Ukraine. The evidence Rasmussen has offered has included hearsay intelligence reports and a display of satellite photographs, which NATO published on August 28. The evidential value of the NATO evidence and Rasmussen’s interpretations has been challenged by a group of former CIA analysts. “Accusations of a major Russian ‘invasion’ of Ukraine, “they claim, “appear not to be supported by reliable intelligence. Rather, the ‘intelligence’ seems to be of the same dubious, politically ‘fixed’ kind used 12 years ago to ‘justify’ the U.S.-led attack on Iraq. We saw no credible evidence of weapons of mass destruction in Iraq then; we see no credible evidence of a Russian invasion now.”

Italian bank lending falls for 28th straight month in August (Reuters) - Lending by Italian banks to households and businesses fell for the 28th consecutive months in August, underscoring the scale of a credit crunch which analysts say is helping hold back an economic recovery, banking association ABI said on Tuesday. Loans to families and non-financial companies fell 1.1 percent from a year earlier. The decline was slightly smaller than the 1.3 percent drop recorded in July. Gross bad loans at Italian lenders continued to rise, totalling 172.3 billion euros ($223 billion) in July from 170.3 billion euros a month earlier. (1 US dollar = 0.7727 euro)

Italy’s Growing Debt Looms Over European, and Global, Economies --Looking at Italy’s ballooning debt, Germany’s reluctance to allow the European Central Bank free rein on the cash lever makes some sense.  The International Monetary Fund on Thursday cut its outlook for the Belpaese again, forecasting a 0.1% contraction instead of 0.3% growth this year.  That means a third consecutive year of economic shrinkage.  Absent Teutonic market pressures that ECB action relieves, Rome may keep on its current path. Perhaps like others in Europe, the IMF has consistently been optimistic about Rome’s ability to make the tough economic changes necessary to spur growth and cut debt levels. As a result, the fund’s also been consistently wrong. Its median forecast error for the past eight years is 1.6 percentage points above actual gross domestic product growth.“While growth outcomes in Italy have sometimes tended to be worse than projected, the current growth projections are in line with consensus but below the authorities’ forecasts,” the IMF said in its latest annual economic review of the country.At least for now. But the fund is honest about the risks. Deep structural changes—such as simplifying labor contracts and a more efficient judicial system—are urgently needed to secure a recovery and spur growth, the fund warns. “The risks are tilted to the downside,” it adds. “Italy’s high public debt, large public financing needs and elevated [nonperforming loans] leave the economy vulnerable to financial contagion and/or low growth and inflation.”

ECB: QE or QT (Quantitative Tightening)? -- Charles Wyplosz at VoxEU questions the potential effectiveness of quantitative easing (QE) as recently announced by the ECB. His main concern is that the ECB version of QE is supply driven, as opposed to the one implemented by the other central banks which is demand driven. In the case of the US Federal Reserve or the Bank of England, the central bank buys securities and those securities permanently increase the size of the bank's balance sheet. Liquidity is provided regardless of the actions of commercial banks. In contrast, the ECB so far had always relied on the demand from commercial banks for liquidity. The ECB made loans available to commercial banks, and as long as commercial banks demanded those loans, the balance sheet of the central bank also increased (with the deposits of commercial banks being the liability that appears on the other side). But this means that in many ways commercial banks are driving QE. It is their desire to hold more liquidity the one that determines the expansion (or contraction) in the size of the ECB balance sheet. To understand these dynamics, here are some charts from the ECB web site. First the total size of the balance sheet of the ECB. We can see several steps after 2008 that increased the size of the ECB balance sheet to about 3 trillion Euros. But we can also see that since 2013, the balance sheet has decreased by more than 1 trillion euros (and no one noticed, by the way). What was he ECB doing? Not much. This is simply the outcome of commercial banks returning the loans that they have gotten earlier from the ECB. Here is the chart with those loans ("lending related to monetary policy operations").  And remember that these loans had to be sitting somewhere else on the liability side of the ECB, they appear as deposits of commercial banks (reserves). Here are the balances of the two accounts where these funds are held (current account and deposit facility).

Replaying the 30s in Slow Motion - Paul Krugman - When the 2008 crisis struck, anyone who knew even a bit of history had nightmares about a replay of the 1930s — not just the depth of the depression, but the downward political spiral into dictatorship and war. But this time was different: the banking crisis was contained, the plunge in output and employment leveled out, and modern Europe’s democratic political culture proved more resilient than that of the interwar years. All clear! Or maybe not. In terms of the economics, an effective crisis response was followed by a wrong-headed turn to austerity and, in Europe, a combination of bad monetary policy with a currency system that in some ways is turning out to be worse than the gold standard. The result is that while the first few years of this crisis were far better than the 1930s, at this point Europe’s economic performance is actually worse than it was in 1935. And the political scene is eroding. One European nation has already reached the point where its leader openly declares his intention to end liberal democracy; thanks to austerity, extremist parties are gaining ground in elections, with Sweden (which squandered its early success) the latest shocker; and of course separatist movements are scaring everyone. We’re still nowhere like the 30s politically. But you do start to wonder whether self-congratulation over the political handling of Depression 2.0 will eventually look as foolish as the economic optimism of a few years ago.

The New York Times’ Coverage of EU Austerity Remains Pathetic --  William K. Black -- I have explained in depth why the New York Times’ coverage of the EU troika’s infliction of austerity on the eurozone is dishonest and routinely indifferent to the suffering of the peoples of much of the periphery who have been forced into a second Great Depression.  The latest travesty was in an article entitled “French Premier’s Push Toward Center Opens Rift on the Left.” The article focuses on the betrayal of the people of France and his own Party by President Hollande, but you won’t learn that by reading the article.  Instead, you’ll learn that Hollande is following the pattern of Tony Blair.  Of course, the article doesn’t mention four things about Hollande’s copying Blair’s neo-liberalism, slavish devotion to big finance, his view of even the most helpful and desirable budget deficits as undesirable, and his betrayal of labor. “In the cabinet reshuffle last month, Mr. Hollande ousted Arnaud Montebourg, a populist economy minister, and replaced him with Emmanuel Macron, a wealthy former banker at Rothschild who is seen as more friendly to business.First, Blair was copying Bill Clinton.  Second, Clinton and Blair’s embrace of these policies ended in economic catastrophe.  Third, Blair and Gordon Brown devastated the Labor Party.Fourth, Clinton and Blair had the immense luck of governing during bubbles that collapsed under their successors.  This meant that their devotion to austerity bit their successors.  Brown and Hollande’s refusal to fight for essential stimulus has prevented any meaningful economic recovery and discredited their Parties.  Hollande promised in his campaign to fight against austerity, but when push came to shove he purged the members of his cabinet pushing for stimulus.  He did so at the insistence of Prime Minister Manuel Valls, the greatest advocate of inflicting austerity in France, the de facto leader of France on economic matters. The NYT article description of the purge is inaccurate, but revealing.

The fatal flaw that could doom the European project | FT Alphaville: There have been many failed attempts to unify the European continent by force. More recently, politicians have tried to do it peacefully, with some limited success. The European Union has an elaborate bureaucracy and an elected parliament that together oversee everything from cheese names to foreign affairs. A majority of the EU shares a currency and monetary policy, as well as a common banking regulator. But these supranational institutions are becoming increasingly unpopular among actual Europeans. Moreover, new research presented at the semiannual Brookings Papers on Economic Activity by Luigi Guiso, Paola Sapienza, and Luigi Zingales suggests the traditional strategy for promoting integration has reached a dead end. Instead of “more Europe”, the trend in the near future may be the revival of nationalism. Recall Jean Monnet’s old quip that Europe “will be forged in crises”. He expected individual nation-states to inevitably come closer together as international challenges, economic and otherwise, became increasingly difficult for any single country to handle individually. The emergence of new pan-European institutions were also supposed to encourage further integration: The Brookings paper documents that, in fact, support for “Europe” peaked in the early 1990s. After holding steady from the mid-1990s through the early 2000s, support for the EU has been on a sharp downward trajectory since the enlargement to the east in 2004. Nowadays, fewer than half the citizens in EU-15 countries think that EU membership is good for their country:

Europe shows negative interest rates not absurd – and might work - FT.com: Imagine borrowing money – but paying back less than the original sum. Absurd? Welcome to the new world of continental European financial markets. “Negative interest rates” might appear nonsensical – as negative numbers did to ancient world mathematicians. But the need for action against eurozone deflation threats has forced out the boundaries of financial economics. Earlier this month the European Central Bank went further than the US Federal Reserve or Bank of England ever dared and pushed an important policy interest rate deeper into negative territory. The Swiss central bank, battling to cap the Swiss franc’s appreciation, may not be far behind, although it stopped short of breaking the zero bound on Thursday. As a consequence, interest rates have turned negative not just on very short-term lending, for instance between banks. Yields on two-year government bonds, which move inversely with prices, are negative in Ireland and Belgium as well as Germany. German and Swiss three-year yields have also dropped below zero. In this upside-down world, finance ministers earn money borrowing from markets. The change raises lots of questions. Will negative interest rates encourage borrowers – and not just finance ministers – to act recklessly? Will markets continue to function if lenders lose money on transactions? Or alternatively, and more benignly, has the ECB discovered an exciting new way for central banks to deliver a positive demand shock that perks up sluggish economies? If holding money erodes its nominal value, there is a big incentive to spend fast. The ECB is not thinking of sending interest rates so negative that they are imposed on consumer or business accounts. If it did, there might be a run on banks – the costs of keeping money in accounts would justify spending on safes and security guards to protect piles of bank notes.

UK unemployment rate falls to lowest level since 2008 financial crisis - The City is ruling out a rise in interest rates this year amid evidence that a fresh fall in unemployment to its lowest levels since the height of the financial crisis has failed to reignite pay growth. Data from the Office for National Statistics (ONS) showed that joblessness on the internationally agreed yardstick was 468,000 lower in the three months to July than in the same quarter of 2013 – the biggest annual decline since the Lawson boom was raging in 1988. George Osborne said the 146,000 fall in unemployment marked "another step on the road to full employment" but Labour and the Trades Union Congress (TUC) seized on news that earnings were failing to keep pace with rising prices. Shadow employment minister Stephen Timms said: "Pay excluding bonuses today is the lowest on record. Under this government wages after inflation have already fallen by over £1,600 a year since 2010 and by next year working people will have seen the biggest fall in wages of any parliament since 1874."

UK house prices hit new record as London average breaks £500,000 - House prices hit a fresh record high in July after surging by 11.7% over the last year, according to official figures. The average price of a British home stood at £272,000 following three consecutive months of double-digit price rises. Most of the UK's regions saw house values jump above their pre-financial crisis peaks, fuelling concerns that much of the UK's recovery has been fuelled to a large degree by a booming housing market. Scottish house prices soared to a record high, while the east Midlands, the West Midlands and the south-west joined London, the east and the south-east in having price levels higher than their pre-financial crisis peaks of 2007/08, the Office for National Statistics (ONS) said. Property values in London continue to rise faster than the rest of the country, recording a 19.1% year-on-year jump, and taking the average property price in the capital to £514,000. But the pace of growth slowed from 19.3% in June and hinted at a cooling off in activity during the summer compared to the hectic pace of growth in the same period last year. Several surveys have showed a slowing in activity as a mix of low wage rises and sky-high prices restrict buyers from obtaining mortgages. Emphasising how difficult it has become for new entrants to the market, the ONS said prices paid by first-time buyers in July were 13.5% higher on average than the same month last year. For owner-occupiers moving home, prices increased by 10.9% for the same period. On a month-on-month basis, property values increased by 1.6% across the UK between June and July.

The TTIP deal hands British sovereignty to multinationals -- “It’s a serious threat to British democracy from Brussels.” “Faceless EU bureaucrats threaten to impose laws without the consent of the British people.” Both these statements could succinctly, and accurately, describe the proposed transatlantic trade and investment partnership – TTIP – between the European Union and the United States. But David Cameron is not scuttling to Brussels to display his bulldog spirit as he vetoes an attack on our country’s sovereignty. Nor will you catch Ukip issuing chilling warnings about EU rule. On the contrary, the Ukip MEP Roger Helmer says: “We have no alternative but to support the deal.” And don’t expect any front-page splashes from the Daily Mail – keen as it is to berate the EU over everything from regulations on the shape of bananas to imperial measurements – about the TTIP threat. In fact, there has been all too little media scrutiny of this menace, with the notable exception of my crusading colleague George Monbiot. TTIP is being marketed by its champions as a de facto economic stimulus for ailing Europe, providing up to £100bn in extra growth. It is presented as a free trade agreement, but existing tariffs on either side of the Atlantic are already weak because of common membership of organisations such as the World Trade Organisation. The actual aim is to strip away obstacles to large corporations making profits – such as regulations that protect our privacy, the environment, food safety and the economy from a rapacious financial sector. And – crucially – TTIP further opens up public services to private companies motivated primarily by profit rather than people’s needs.