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

Saturday, June 25, 2016

week ending Jun 25

(preview)

Soul-searching at Fed is beginning: I have written many times for over a year that the Fed will have a period when they start soul-searching. They will realize that the business cycle got away from them and they will not be able to normalize rates. They just got too far behind the curve. Danielle DiMartino on Boom/Bust said, “I think it was probably one of the most interesting FOMC meetings… I think the fact that Esther George did not descent is telling you that there is an acknowledgement among members of the committee that the United States is probably headed toward a recession.” DiMartino goes on to say that the Fed should never go to zero bound again and maintain a 2% floor for example, so that the banking system can function in a natural way. 0% does not allow the market to discover prices efficiently.  I do not agree with her on that by the way. The Fed rate should be able to go to 0% but then lift off according to the biz cycle of effective demand. In my view, the Fed should have started lifting rates at some point in 2012. There was still some spare capacity available for the economy to adjust to the disciplining of productivity by raising rates.There is hardly any spare capacity left. Profit rates and top line revenue peaked at the end of 2014. The Fed rate is too far behind the curve. The Fed will not be able to raise rates going forward without triggering a contraction. The Fed is frustrated. They want to normalize rates, but won’t be able to. The soul-searching has begun.

A Question For the Fed -  Krugman --There is a near-consensus at the FOMC that rates must eventually move up. But here’s my question: why, exactly? Specifically, which component of aggregate demand do we believe will continue to strengthen in a way that will require monetary tightening to avoid an overheating economy? Here’s a look at two obvious candidates, nonresidential (business) and residential investment. I’ve expressed both as shares of potential GDP, and further normalized by taking deviations from the 1990-2007 average of these shares: Nonresidential investment has basically recovered from the recession-induced slump. Residential investment is still a bit low by historical standards, but not as much as you might think if your baseline is the boom of the mid-naughties. And given the slowing growth of the working-age population — down from more than 1 percent a year to less than 0.5 — should’t we expect some reduction in home construction? So I don’t see an obvious reason to believe that current rates are too low. Yes, they’re near zero — but that in itself doesn’t mean too low. Like others, notably Larry Summers, I think the Fed is trying to return to a normality that is no longer normal.

U.S. may only need single rate hike for now, says St. Louis Fed president - The Globe and Mail: The U.S. economy, stuck in a slow-growth pattern that is likely to persist for the forseeable future, may need no more than a single additional rate hike for as long as 2.5 years, St. Louis Fed President James Bullard said on Friday. Bullard, a former inflation hawk whose views of the economy have been shifting, said he now sees current growth, unemployment and inflation rates as so persistent, there is basically no reason to change the Federal Funds policy rate, currently set in a range of between .25 and .50 percentage points. In a prepared text released early Friday, he said he now estimates the appropriate Federal Funds rate at .63 for the next 2.5 years, the forecast horizon Bullard is using for what he describes as the U.S. economy’s current “regime.” The rate path “is essentially flat over the forecast horizon,” Bullard wrote, with key economic variables likely stuck around their current values, with growth at around 2 per cent, unemployment around 4.7 per cent, and inflation heading towards and likely anchored at the Fed’s goal of 2 per cent. While Bullard had previously been an advocate of earlier rate hikes, he has been rethinking much about his view of the economy, including that the U.S. and other developed countries might be mired in a world of permanently low interest rates. He has now made that view the basis of his policy outlook. The “regime” could change, Bullard wrote, if productivity unexpectedly jumps, for example, or if a recession occurs. But absent some outside shock, he said the economy may have slipped into something like a long-run equilibrium.

Janet Yellen Hints That Fed May Hold Back on Raising Interest Rates - — Weak economic growth in the United States could force the Federal Reserve to hold off on any imminent interest rate increases, the Federal Reserve chairwoman, Janet L. Yellen, told Congress on Tuesday.While Ms. Yellen said that the American economy’s long-term prospects remain favorable, she signaled that headwinds, including slower employment gains in recent months, weak productivity growth and the persistence of a sluggish pace of inflation have prompted the Fed to adopt a more cautious stance.“The latest readings on the labor market and the weak pace of investment illustrate one downside — that domestic demand might falter,” Ms. Yellen said in testimony before the Senate Banking Committee.Ms. Yellen’s overall message on Capitol Hill echoed her comments at a news conference last week after the Fed’s decision to hold rates steady. But her tenor suggested that there was little chance of an increase in the benchmark federal funds rate at the central bank’s next meeting, in July, and that a move when policy makers meet again in September is hardly guaranteed.“Proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace,” she said.  Mirroring the habit of Fed leaders going back decades, Ms. Yellen hedged her bets, emphasizing her positive outlook for the years ahead, if not the coming quarter or two.But she acknowledged influential voices in academia and elsewhere who have warned that long-term growth could be substantially below the pace achieved in the decades before the Great Recession.

FRB: Testimony--Yellen, Semiannual Monetary Policy Report to the Congress--June 21, 2016:  Semiannual Monetary Policy Report to the Congress Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C. June 21, 2016. Chair Yellen submitted identical remarks to the Committee on Financial Services, U.S. House of Representatives, on June 22, 2016.

Yellen says Fed does have legal basis to pursue negative rates - Yellen said she sees significant shortcomings to negative rates, but insists the Fed does have a legal basis to pursue them. That's important because a recession is coming, eventually. The Fed will need to do more at some point and the market will want to know what's in the toolbox. If you assume more actions will eventually be taken, that's good news for gold and bonds. She later added that if the US economy were to be hit by a shock, the Fed would rely on tools it has already used, so there are mixed messages here. More comments:

  • Central banks carrying load in many parts of the world
  • Fed has limited authority to buy municipal debt

Don’t look now! Helicopter money is already being deployed - Apparently Federal Reserve Chairwoman Janet Yellen didn’t get the memo but helicopter money is already at work in the U.S. Last week, Yellen conceded that the Fed may have to “legitimately consider” resorting to unconventional measures in the event of a severe economic downturn. But Torsten Slok, Deutsche Bank’s chief international economist, argues that the Fed has been employing measures similar to helicopter money via its remittances to the Treasury. “The Fed in 2015 paid the U.S. Treasury $117 billion and dividing that by the total number of households (125 million) shows that the Fed is already giving money to U.S. consumers,” he said in a note on Tuesday. That comes out to each U.S. household receiving about $1,000 from the government and equivalent to a 2% tax relief for households falling in the $50,000 median-income bracket, according to Slok.  By law, the Fed is required to remit any excess funds remaining after covering for its expenses to the Treasury Department. Such payments have been made going back as far as 1917, four years after the Federal Reserve was established. Helicopter money in its simplest form calls for a central bank to print money and give it to people, most likely in coordination with fiscal policy like a tax cut or to fund spending. It’s an idea that was first articulated by Milton Friedman in his 1969 paper, “The Optimum Quantity of Money.”

The Fed Gets an Attitude Adjustment - Narayana Kocherlakota - One of the officials responsible for setting interest rates at the U.S. Federal Reserve -- St. Louis Fed President James Bullard -- has signaled a big change: Previously an outspoken advocate for raising rates aggressively, he now thinks the economy is so weak that a mere quarter-percentage-point increase would be enough for the foreseeable future. Although his re-evaluation of the economic situation makes sense, I think his prescription should be more ambitious. Bullard’s rationale focuses on productivity, the amount of goods and services that people produce for each hour worked. Productivity has grown slowly over the past decade, providing much less of a boost to overall economic growth than it has historically. The St. Louis Fed has come to believe that this represents a new regime, in which potential growth -- and the appropriate interest-rate target -- are lower than they otherwise would be. Depressing as this outlook may be, it’s hard to refute given the U.S. economy’s poor recent performance. The question, then, is why Bullard wouldn’t argue for lowering rates to support faster growth. His answer: the Fed has already reached its target of 2-percent annual inflation, so further stimulus would risk overshooting that goal. His justification has two flaws. First, Bullard uses a somewhat obscure measure of inflation developed by the Dallas Fed, rather than the Fed’s preferred measure, which is well below 2 percent and is expected to remain there for the next two to three years. Second, the risk of excess inflation is relatively manageable: The Fed can readily address it by raising interest rates. What’s really troubling is the possibility that, say, global financial instability will require the Fed to rescue the U.S. economy at a time when its capacity to lower rates is severely limited.

Treasury Market’s Inflation Forecast Holds Near 4-Month Low -- Treasury market inflation expectations remain close to the lowest level since February, when economic worries were elevated. The yield spread for the nominal 10-year Treasury Note less its inflation-indexed counterpart was unchanged yesterday (June 22) at 1.43%, based on daily data via Treasury.gov. That’s near the lowest level since February—a sign that the bond market is cautious on the outlook for the US economy. Or is it a byproduct of temporary Brexit fears, which may or may not lift after tomorrow’s referendum in the UK that will decide if Britain remains in the European Union? Whatever the source of the downside bias in Treasury inflation expectations of late, the soft trend contrasts with the recent rebound in the US stock market, which implies that any macro worries are exaggerated for the world’s largest economy. The relatively upbeat mood in equities contrasts sharply with the recent decline in the Treasury market’s inflation forecast. Recent history shows that the two generally track each other, and so the latest divergence may be a sign that old relationship, which has prevailed for much of the post-2008 era, is giving way to, well, something else that has yet to emerge in clear and definite terms.

Three Remarks on the US Treasury Yield Curve - Oliver Blanchard - Conventional wisdom about the US Treasury yield curve goes roughly as follows: Long-run productivity growth appears likely to be low, and productivity growth and interest rates move largely together, so one should expect long rates to be low as well. And the fact that the Federal Reserve’s current policy of near zero rates has generated demand growth barely in excess of potential growth suggests that the United States is not far from these long-run low neutral rates already. Such conventional wisdom should be questioned from a number of angles. Take the statement about productivity growth. Yes, measured productivity growth has decreased, and seemingly not due to measurement error.  The best guess is that productivity growth will indeed remain lower than before the crisis, perhaps by 0.5 to 1 percent. But the uncertainty associated with this best guess is extremely large. From a statistical viewpoint, the correlation between (nonoverlapping) five-year average productivity growth rates is very low, equal to 0.1 for the United States since 1970. From a technological viewpoint, the tension between the current poor productivity numbers and the discussions about robots taking over human jobs is fascinating. So far, both the employment and productivity numbers clearly show that robots have not displaced labor on a large scale, and whatever jobs they have destroyed have been replaced by others. But when one listens to Silicon Valley, one cannot help but expect a substantial probability of a much larger role for robots and artificial intelligence in general, and by implication, much higher productivity gains. Bottom line: Expect lower productivity growth, but be ready to be surprised.

US Federal Reserve should let inflation overshoot targets, IMF recommends - US policymakers should allow inflation to rise above official targets, the International Monetary Fund has recommended, as it warned that the risks of deflation still loom over the world’s largest economy. The fund has said that the Federal Reserve should “accept some modest, temporary overshooting” of its inflation goal, allowing price growth to exceed 2pc for a period. Overshooting a little bit just to make sure you get 2pc strikes me as sensible Charles Evans IMF staff said that this would “provide valuable insurance against the risk of disinflation”, allowing price growth to wane, and fall back towards negative territory. The fund said that “the likelihood and severity” of this risk could force the Fed to retrace its steps in turn, and cut its interest rates back to zero. “At this point in the [economic] cycle, there is a clear case to proceed along a very gradual upward path for the Fed funds rate,” the IMF said. On the measure the central bank tracks, inflation has been below target since 2012. The IMF explained that the Fed should be clear in its willingness to allow inflation to rise above its 2pc objective, and implied that policymakers should be cautious in increasing interest rates, in order to achieve this. It came as the fund slashed its projections for US growth in 2016, from its April forecast of a 2.4pc increase, to just 2.2pc now. The IMF said that a “confluence of forces” threatened to reduce economic growth in the longer term. Christine Lagarde, the IMF’s managing director, said that she was in agreement with Fed chairman Janet Yellen on the appropriate pace of future rate rises. Ms Lagarde said that the Fed should not make abrupt decisions on interest rates, and should instead pay careful attention to what the data say about the health of the US economy.

The IMF’s Warning to the U.S. -- The International Monetary Fund on Wednesday cut its estimate for U.S. economic growth for this year from 2.4 percent to 2.2 percent, and urged several measures to reduce growing poverty in the country. Christine Lagarde, the IMF’s managing director, said the U.S. economy was “overall, in good shape,” but she highlighted four areas of concern: declining labor-force participation, lower productivity growth, income inequality, and “very high levels” of poverty. Here’s more from her news conference: Policies need to help lower income households – including through a higher federal minimum wage, more generous earned income tax credit, and upgraded social programs for the nonworking poor. There is a need to deepen and improve the provision of reasonable benefits to households to give incentives for work, raise the labor supply, and to support families. This should include paid family leave to care for a child or a parent, childcare assistance, and a better disability insurance program. I would just note that the U.S. is the only country among advanced economies without paid maternity leave at the national level and U.S. female labor force participation is 12 percent lower than that for men. Sensible skills-based immigration reform could also raise the labor supply and boost productivity. Boosting productivity growth is another policy imperative. Productivity gains must inherently be based in the private sector. But public policies can help. A better tax system, efforts toward more trade integration, better infrastructure, a stronger and more vocationally oriented education system would all support higher productivity growth.

Federal Reserve on Brexit -- From the Federal ReserveThe Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.  The magnitude of the economic impact on the U.S. of Brexit is unclear, but it probably means the Fed will wait longer to raise rates (maybe December, maybe 2017). Here is an except from a Merrill Lynch note this morning on the impact:

1. Reducing real GDP growth by an average of 0.2pp over the next 6 quarters. This leaves 2016 annual growth of 1.8% but slices 0.2pp from growth next year, bringing it also to 1.8%
2.Fed will delay rate hikes. We expect the Fed to wait until December to hike ...

The Fire Across the River Could Spread  - I'd like to offer a rebuttal to NDDs post about the potential impact of Brexit on the US.  To that end, consider these points from Fed President Lael Brainard: The notable effects of recent crosscurrents from abroad should lay to rest any remaining lore that the United States is a closed economy. Financial linkages between the United States and foreign economies are immediate and extensive. Equity prices, long-term interest rates and risk spreads, and exchange rates show strong reactions to developments abroad, and, in recent months, foreign developments have at times been the dominant factor driving U.S. financial conditions. Weak foreign aggregate demand, as well as accompanying accommodative monetary policies in the euro area and Japan, and diverging expectations have been key among the factors causing a significant 10 percent appreciation of the dollar since last June. To the extent that exchange rate appreciation exerts a tightening force on financial conditions in the United States, it delays the return of U.S. interest rates to more normal levels While trade is a smaller share of the U.S. economy than in many other economies, exchange rate changes of the magnitude seen recently can have large effects on aggregate demand.  We have already seen a large negative contribution of net exports to U.S. GDP growth in the past two quarters. In addition, because some models estimate that exchange rates’ effect on net exports can last up to three years, it is possible that the drag from net exports will persist for some time. And this: Downgrades to foreign growth affect the U.S. outlook through several channels. First, weak growth abroad reduces demand for U.S. exports. Second, the expected divergence in U.S. growth increases demand for U.S. assets, putting upward pressure on the dollar, which, in turn, weighs on net exports. The estimated effect of dollar appreciation on net exports has been shown to be substantial and to persist for several years.  Weak demand weighs on global commodity prices, which, together with the effects on the dollar, restrains U.S. inflation. Finally, the anticipation of weaker global growth can make market participants more attuned to downside risks, which can reduce  prices for risky assets, both abroad and in the United States--as we saw in late August--with attendant effects on consumption and investment

Brexit: the Biggest Global Monetary Shock Since 2008 -- Scott Sumner is right. Brexit is the biggest global monetary shock since 2008. This could be the tipping point that turns the existing global slowdown of 2016 into a global recession. Here is why.  First, Brexit is adding further strength to an already overvalued dollar. The trade weighted dollar had appreciated roughly 25 percent between mid-2015 and early-2016. That is a very sharp increase in so short a time. It has come down some, but not much as seen in the figure below (red line):  The figure also shows that this sudden increase in the dollar is closely tied to the policy divergence between the Fed and the ECB (blue line). That is, as the Fed began talking up interest rate hikes in mid-2014 the ECB was talking up the easing of monetary policy. The rise in the blue line shows this policy divergence.  Brexit is now adding fuel to this dollar fire. The dollar has appreciated almost 4 percent since the Brexit fate became clear last evening, as seen in the figure below.   Why does a strengthening dollar matter? There are two reasons. First, over 40 percent of the world economy ties its currency to the dollar in some form. This can be seen in the figure below. That means when the dollar strengthens, these currencies strengthen too. This is the curse of the so called 'dollar block' countries--they import their monetary policy from abroad. Via this channel, Brexit has just further tightened monetary conditions in all these countries. This added pressure makes it likely China will be forced to devalue soon. And we saw how well that went last time it was tried. The second reason the rising dollar matters is the rapid growth of what the BIS calls the 'parallel dollar system'. This is a system of dollar loans and dollar debt securities that has emerged outside the United States. This dollar credit to and from non-U.S. residents has tripled since 2000, while non-resident Euro and Yen financing has remained relatively stable. In fact, the dollar's share of this non-resident credit growth has increased from 62% to 75% according to BIS data. This means there is a lot of dollar-denominated debt outside the United States that is very vulnerable to dollar shocks. Brexit just increased the real debt burden of these borrowers. A second reason Brexit might be pushing the global economy into a global recession is that it hastening the the frantic race to bottom on safe yields. As I noted in a recent post, yields on safe assets around the world have been going down since the demand for safe assets remain unmet. Given global capital markets this also means there is a race to the bottom on safe yields as noted by Caballero, Fahri, and Gourinchas

Brexit Vote: A Pie in the Face to the Global Elites - Pam Martens - The anti-establishment trend has picked up its pace this morning, showing no signs of abating. Around 2:30 a.m. New York time, Wall Street traders were stunned by the news that U.K. voters had backed leaving the European Union by 51.9 percent versus a remain vote of 48.1 percent in the anxiously anticipated Brexit referendum held yesterday. The outcome slammed markets – leaving many wondering if big banks and hedge funds were going to take heavy losses this morning for placing wrong way trades. Futures markets were doing little to reassure that this wasn’t the case with futures on the Dow Jones Industrial Average showing a loss of over 553 points before the market opened and major Wall Street banks like Citigroup, Morgan Stanley, Bank of America, and JPMorgan Chase off by 6 to 7 percent in premarket trading. In times of crisis, the still untamed mega Wall Street banks serve as proxies of all that remains wrong with global finance: lack of transparency; lack of a competent regulator; trillions of dollars in opaque derivatives; serial frauds against the investing public which have no end in sight, as the charges of outrageous abuses against its customers brought by the SEC against Merrill Lynch yesterday made clear. The Wall Street banks are also tanking this morning because their stealthy outposts in the City of London (the equivalent of Wall Street in the UK) which has allowed a lot of pillaging of the globe beyond the gaze of U.S. regulators (think JPMorgan’s London Whale fiasco where it used U.S. bank deposits to gamble in exotic derivatives and lose $6.2 billion along the way) may no longer provide the access it once did to the whole of Europe under European Passporting rules. As the miscreant banks of global finance were soundly trounced, safe haven assets like gold and the ten-year U.S. Treasury were the beneficiaries. As the price of the 10-year Treasury soared, its yield dropped to 1.52 percent from more than 1.7 percent yesterday.

What Dynamic Is Affecting Economic Growth? - The housing sector, both new and used homes, is well below peaks from before the Great Recession. Is this an effect of weak economic growth or simply reflecting demographic change? Existing home sales appear to be plateauing roughly 2/3's to 3/4's of the pre-recession peak. New one family homes sold (not including multifamily structures) is less than half of the pre-recession peak (multifamily housing is currently the strength in this series). And new home sales contribution to GDP is only 2/3's the pre-recession peak (existing home sales are not included in GDP). There are many dynamics which are affecting home sales - especially the changing tastes of the generations. The boomers generally are downsizing. The majority of Generation X have formed their households. Millennials seems to have urban tastes with a higher propensity to rent than the previous generations.  Household formation has been trending up recently. I used 5 year rolling averages for the data to smooth out this fairly volatile data so that trends would be more obvious. If the current trends continue, household formation rates will recover in 10 to 15 years. Whether this happens or not is beyond my capability to analyze.  Much of consumer spending is household driven - especially for home purchase or renting a home.  A major contributor to the USA's (and the advance economies in general) weak economic growth relates to household formation. New households spend a lot more money than established households. Much of the significant economic growth seen in the 70's and 80's was a direct result of increased spending resulting from household formation. 

Economists Scramble to Reassess Recession Odds - A Wall Street survey of economists in June 2016 suggests there is a 21% chance of recession in the next year. Given that economists have never once predicted a recession in advance, 21% is a high percentage actually. Economists now scramble to assess risk as Economic Gauges Raise Specter of Recession. Hiring is slowing, auto sales are slipping and business investment is dropping. America’s factories remain weak and corporate profits are under pressure. All are classic signs of an economic downturn, and forecasters have certainly noticed. In a Wall Street Journal survey this month, economists pegged the probability of a recession starting within the next year at 21%, up from just 10% a year earlier. Some economists think the risk is even higher. Signs of trouble extend beyond the job market. J.P. Morgan Chase economists have been gauging the odds of a recession using a model that incorporates an array of economic indicators, from business-sentiment gauges to auto sales. As of last week, the model signaled a 34% chance of a recession within 12 months. That was down a bit from 36% earlier in the month but up from 21% back in January. Similar increases preceded the past three recessions. There’s no foolproof tell of a coming recession. Data lags and revisions mean downturns can be difficult to identify even after they start. And rising worry doesn’t always pan out. The recession odds spiked to 33% in September 2011, as tracked by the Journal’s survey of private forecasters. But the economy emerged more or less unscathed from a stretch of weaker hiring, political brinkmanship and financial-market turbulence.

An Arbiter of Recessions Sees ‘Clouds on the Horizon’ for the U.S. Economy -- The U.S. economy may or may not be on the threshold of a new recession. Either way, we won’t know for certain anytime soon. And that’s how the nation’s recession arbiters like it.  The shorthand definition of a recession is two consecutive quarters of contraction in real (inflation-adjusted) gross domestic product, the broadest measure of economic output. But pinpointing the precise start and end dates for U.S. economic expansions and contractions falls to a small group of economists: the Business Cycle Dating Committee of the National Bureau of Economic Research. Its calendar goes back to 1854 and at some as-yet-unknown time in the future, the committee will announce that the current expansion, which began in mid-2009, has officially ended. Don’t expect a swift decision. To ensure accuracy, the committee takes its time in judging when turning points have been reached. It took until September 2010 for the panel to declare that the latest recession — which began in December 2007 — had ended in June 2009. The book wasn’t closed until mid-2003 on the recession that began in March 2001 and ended in November 2001. Real Time Economics talked with Stanford University economist Robert Hall, the committee’s longtime chairman, about the process for calling a recession, how to weigh mixed signals in economic data and the current state of the U.S. economy. Here are excerpts.

IMF Cuts 2016 U.S. Economic-Growth Forecast to 2.2% -- The International Monetary Fund cut its outlook for U.S. economic expansion this year, citing a weak energy sector, a strong dollar and turmoil overseas, and warned the country is at risk of financial turmoil from the U.K. if voters decide to leave the European Union. The IMF said Wednesday that it now expects the American economy to grow 2.2% this year, down from its 2.4% forecast in April and slower than last year’s pace. Although the fund kept its forecast for a pickup in 2017 at 2.5%, it said recent weak data means the Federal Reserve should stay its hand on interest rates for a while. “There is a clear case to proceed along a very gradual upward path for the Fed-funds rate,” the IMF said in its annual review of the U.S.  And despite the continuing, if slower, expansion of the U.S. economy, the fund said the country faces a gloomy growth outlook in years ahead. “A confluence of forces…will weigh on the prospects for continued gains in economic well being” without major overhauls by the government, the IMF said. In the near term, the Fed first must ensure wage and price inflation are rising and remain on guard against globally anemic price inflation, the fund said. Also, IMF economists said a strong dollar could remain a problem for the U.S., particularly with the threat of further economic turmoil overseas, and a slowdown in corporate investment could continue to weigh on growth in the coming quarters. The dollar is 10%-20% higher than economic conditions warrant, and a British vote to exit the EU scheduled for Thursday could fuel a further rise in the greenback, the IMF said.

No, I Don’t Think This Is the Reason BEA is Predicting a Massive Downward Revision in GDP – Menzie Chinn - Political Calculations arrives at an alarming conclusion that real GDP will be downwardly revised by a large amount when the annual benchmark revision comes out in July. In [releas[ing] its estimates of state level Gross Domestic Product through 2015-Q4], the BEA’s data jocks may have provided an unexpected sneak peek of how its estimates of national GDP for the U.S. will be officially changed when the agency releases is annual revisions for that data during the last week of July 2016. The following picture is then displayed. Ironman tries to track down the potential reasons for the differences; one is highlighted in the footnote which indicates that the sum of the state level variables doesn’t take into account overseas (mostly military) activities. He also takes note the fact that the state level series incorporates data yet to be incorporated into the GDP benchmark revision in July.  Ironman has accurately displayed US GDP as reported in the national level NIPA, and the national GDP as indicated in the state level data. However, I think he did not think deeply enough about the data. If there were massive revisions coming in on the real magnitudes, they almost assuredly would show up in the nominal magnitudes. I plot the nationwide GDP and the sum of the state level GDP in Figure 1. Notice the variation in the difference is pretty small – it never varies more than the range 0.53 to 0.73 percentage points.  BEA may very well provide a drastically revised GDP series in its annual benchmark revisions. I highlighted how much can be changed when benchmark revisions occur, in this 2010 post. However, I do not think the state level GDP release has given us any particular insight into the likelihood of a big downward revision.

How U.S. GDP Will "Most Likely" Be Revised in July 2016 – Ironman - How much will U.S. GDP most likely be revised when the U.S. Bureau of Economic Analysis publishes its annual revision to the nation's real GDP on 29 July 2016?  We started working on that question last Thursday, the day after the BEA released its revision of GDP data for the individual 50 states and the District of Columbia, when we identified the "maximum potential" size of the revision to be a -2.0% decline from its value that was recorded at the end of 2015. We updated that post two days later to take into account the contribution to national GDP from the U.S. government's overseas military and civilian activities, which add to the GDP contributed by the 50 states and the nation's capital to be equal to what the BEA should report for the nation's entire GDP. (Although we did that work last Friday, we only just featured that contribution to national GDP in the period from 2005-Q1 through 2015-Q3 yesterday.)  We then used that information along with the BEA's just-revised data for the individual 50 states plus DC to determine the "maximum likely" size of the upcoming revision to the nation's real GDP. The chart below reveals what we found.  But the "maximum likely" revision of -1.4% of previously reported GDP through 2015-Q4 is not the "most likely" size of the upcoming revision to the nation's GDP will be, because the BEA's plans for the revision of the national level GDP data will only cover the period from 2013-Q1 through 2016-Q1.   That means that it will miss the discrepancy that opens up in 2012-Q3 and 2012-Q4 between the just-revised state level GDP and previously indicated overseas federal GDP and its previously recorded national level GDP. That discrepancy is just over $55.1 billion in terms of constant 2009 U.S. dollars in 2012-Q4, which itself is over 24% of the full $225.7 billion discrepancy that our previous calculations indicates between the pre-revised national level real GDP and the post-revised state level GDP data through 2015-Q3.  Because the BEA won't be including that $55.1 billion portion of the discrepancy from 2012, the "most likely" size of the revision that it will report at the end of July 2016 is therefore -1.1%, which is 24% less than the "maximum likely" revision of -1.4% we previously calculated.

May 2016 Leading Economic Index Declines Warning Downside Risks: -- The Conference Board Leading Economic Index (LEI) for the U.S declined this month - and the authors warn "volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth.". This index is designed to forecast the economy six months in advance. The market (from Bloomberg) expected this index's value at -0.1 % to 0.3 % (consensus 0.2 %) versus the -0.2 % reported. ECRI's Weekly Leading Index (WLI) is forecasting slow growth over the next six months. Additional comments from the economists at The Conference Board add context to the index's behavior. The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.2 percent in May to 123.7 (2010 = 100), following a 0.6 percent increase in April, and a 0.1 percent increase in March. "The US LEI declined in May, primarily due to a sharp increase in initial claims for unemployment insurance. The growth rate of the LEI has moderated over the past year," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. "While the LEI suggests the economy will continue growing at a moderate pace in the near term, volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth." The Conference Board Coincident Economic Index® (CEI) for the U.S. was unchanged in May, remaining at 113.5 (2010 = 100), following a 0.2 percent increase in April, and no change in March.

Fed's National Activity Index Plunges In May -- Against expectations of a rise to +0.11, Chicago Fed's National Activity Index plunged to -0.51 (from a revised lower +0.05), hovering at its worst level since January 2014... Under the surface, things are ugly with only 28 of the 85 monthly individual indicators made positive contributions, while 57 indicators deteriorated.

May 2016 CFNAI Super Index Moving Averages Continue to Degrade: The economy's growth declined based on the Chicago Fed National Activity Index (CFNAI) 3 month moving (3MA) average - and remains well below the historical trend rate of growth (but still above levels associated with recessions). The three month moving average of the Chicago Fed National Activity Index (CFNAI) which provides a summary quantitative value for all the economic data being released - declined from -0.25 (originally reported as -0.22 last month) to -0.36. All four of the four elements of this index are in contraction.  This index IS NOT accurate in real time (see caveats below) - and it did miss the start of the 2007 recession. The headlines talk about the single month index which is not used for economic forecasting. Economic predictions are based on the 3 month moving average. The single month index historically is very noisy and the 3 month moving average would be the way to view this index in any event.. This index is a rear view mirror of the economy. A value of zero for the index would indicate that the national economy is expanding at its historical trend rate of growth, and that a level below -0.7 would be indicating a recession was likely underway. Econintersect uses the three month trend because the index is very noisy (volatile).

Chicago Fed: 3-Month US Macro Trend Falls To 4-Year Low In May - Economic activity in the US continued to decelerate in May, according to this morning’s update of the three-month moving average of the Chicago Fed National Activity Index (CFNAI-MA3). Last month’s reading slid to -0.36, the lowest in nearly four years. Despite the recent downtrend, CFNAI-MA3 remains above the tipping point of -0.70 that marks the start of a new recession, according to the Chicago Fed’s guidelines. By this standard, the economy was still expanding last month, although at a rate that’s well below the historical trend. In short, macro momentum has dropped to a dangerously slow pace. The monthly data for the Chicago Fed National Activity Index looks even weaker. Although this metric is quite noisy, the sharp drop for the monthly metric in May is still striking—a decline to -0.51 in May from +0.05 in the previous month. Summarizing the events for May, the Chicago Fed reports that “all four broad categories of indicators that make up the index decreased from April, and all four categories made negative contributions to the index in May.” Overall, it appears that the US economy is close to the edge. It’s debatable if the downside momentum will deteriorate further or rebound. This much is clear: if the June economic profile, which is still largely a mystery, stumbles further, we may be looking at a new NBER-defined recession. An early sign of how the risk profile is shaping up for this month arrives in a few weeks, when the Labor Dept. publishes the June employment report. The key question: Was the dramatic slowdown in last month’s job growth a sign of things to come?

The next recession is already here—and there isn't much the Fed can do—commentary: While investors have been focused on the perennial failed hope for a second half economic recovery, they have been missing the most salient point: the U.S. most likely entered into a recession at the end of last quarter. That's right, when adjusting nominal GDP growth for core consumer price inflation for the average of the past two quarters, the recession is already here. But before we look deeper into this, let's first look at the following five charts that illustrate the economy has been steadily deteriorating for the past few years and that the pace of decline has recently picked up steam. There is no better indicator of global growth than copper. Affectionately referred to as "Dr. Copper," this base metal has traditionally been a great barometer of economic health. Unfortunately, as you can see from the chart below, copper has been in a bear market for the past five years and shows no sign of a recovery from its 55-percent plunge.Next, we have the Baltic Dry Index. This index measures the demand to transport dry commodities overseas. An advancement of this index would represent an increase in global growth. But as you can see, this index has been in a down-trend since the end of 2013 and fallen 75 percent from that point. With both of these vital indicators pointing south, it should come as no surprise that Reuters recently reported that the Organization for Economic Co-operation and Development (OECD) said that global trade would only grow by, "2 percent this year, a level it has fallen to only five times in the past five decades and that coincided with downturns: 1975, 1982-83, 2001 and 2009." There is little debate that the worldwide economy is stagnating, and despite what some would like to argue, the United States has not been immune from this slowdown at all. Look at the spread between the two and 10-year Treasury notes. When this spread is contracting, there is increased pressure on banks' profits, which leads to falling loan growth and less economic activity. The spread has been narrowing since July 2015 and is now the tightest since November 2007.

"Can't We Just Print More Money?" -- Let's talk debt today. Readers will know that we've been keeping a close watch on the global bond markets for a long time now. Contrary to what the politicians would have us believe, there has been no deleveraging after the GFC. Quite the opposite - global debt has been growing steadily by an average of 5% per year ever since 2007 and now stands at an incredible 286% of world GDP. As I said over a year ago, I can’t think of a time when the risk to capital has been greater. And since then that risk has just increased - substantially. Consider this: Goldman Sachs estimates that if Treasury yields were to unexpectedly rose by 1 percentage point, US$1 trillion would be wiped out of the bond market. The leverage in the system is truly unimaginable on any historical perspective. What this means is that should the slightest hiccup in bond markets take place, investors now stand to lose much more than they did during the US housing collapse in 2008. With the increasing likelihood of the Fed taking away the proverbial punch bowl by raising interest rates, if only for a brief period of time, I thought it would be an opportune time to have a closer look at bond markets and how they fit into the current global macro landscape.

Why Are Defense Policy Wonks So Ineffectual? -- Today, America’s foreign policy is a shambles.  Its primary features are (1) a perpetual war on terror, and (2) the seemingly inevitable march into a new and unnecessary cold war against Russia and China.  At the same time, President Obama is leaving his successor with a budget plan containing a front loaded and political engineered* procurement bow wave that guarantees steeply rising defense expenditures well into the next decade and possibly beyond.  Such long term increases in the defense budget can only be justified by a new cold war.  Yet the United States now spends far more on the military than any other country.  Add in the expenditures of our allies, and the spending advantage over any conceivable combination of adversaries becomes overwhelming.   Nevertheless, US citizens are more fearful than they were during the Cold War, and politicians and the yellow journalism of the mainstream media are hyping those fears to a greater extent than they did during the Cold War. What is going on?   Most pundits and policy makers who debate this dismal state of affairs subscribe to the view that fixing foreign policy is the first step toward getting control of the Pentagon and ultimately reducing defense budgets.  In their view, the top priority should be to re-define our foreign policy goals (hopefully in accordance with the criteria for a sensible grand strategy, although these criteria are seldom examined in a systematic way).  The redefined grand strategic goals would then form a basis for defining a rational military strategy to meet these goals.  Once the strategy is settled upon by the policy elites, the drones in the Pentagon can define the force structure to meet the strategy.  That force structure would then provide the template against which the budgeteers can define the budget decisions needed to build and maintain the forces necessary to execute the strategy.  QED.

Is the US Pursuing a Rogue Policy by Waging Undeclared War Against Russia? - Nation contributing editor Stephen F. Cohen and John Batchelor continue their weekly discussions of the new US-Russian Cold War. (Previous installments are at TheNation.com.) Cohen raises three “hypothetical” and heretical questions for discussion. Does the recent escalation of anti-Russian behavior by Washington, from its growing NATO military buildup on Russia’s western borders and refusal to cooperate with Moscow against the Islamic State in Syria to the Obama administration’s refusal to compel its government in Kiev to implement a negotiated settlement of the Ukrainian civil war, reflect an undeclared US war against Russia already underway? Given that many US allies are unhappy with these developments, has Washington gone “rogue”? And does the recent spate of warfare media “information” reflect these new realities?  As evidence, Cohen points to some recent examples: the emerging permanence of NATO’s “exercises” on Russia’s borders on land, sea, and in the air; the Obama administration’s refusal to separate physically its “moderate oppositionists” in Syria from anti-Assad fighters recognized as terrorist groups, despite having promised to do so; the demand by 51 State Department “diplomats” that Obama launch air strikes against Assad’s Syrian army, which is allied with Moscow, even if it might mean “military confrontation with Russia”; the questionable allegation that Russia had hacked files of the Democratic National Committee coupled with a NATO statement that hacking a member state might now be regarded as war against the entire military alliance; and the EU’s renewal of economic sanctions against Russia without any meaningful pretext.  As evidence that many US allies are unhappy with these developments, even opposed them, Cohen cites the German Foreign Minister’s denunciation of NATO’s buildup as “war-mongering”; the stated desire of several major European countries, which (not the United States) pay the economic costs to end the sanctions; the growing political and security relationship between Israel Prime Minister Netanyahu and Putin; and the relative success of the international economic conference in St. Petersburg last week, hosted by Putin, whom the Obama administration continues to try to “isolate.”

Globalization Gets a Bum Rap, But Foreign Investment in U.S. Hits a Record High - - The last year or so hasn’t been the best for economists and politicians who back the freer exchanges of goods, services, people and money among nations. Donald Trump has rallied support by eschewing the trade agreements that President Barack Obama hoped would burnish his legacy, and Congress appears to have cold feet on the administration’s efforts to free up trade in the Pacific under unified commercial rules. U.S. exports are weak, thanks to sluggish demand in Europe, commodity-producing countries and even China, which is facing slowing growth as it seeks to rebalance its economy. Meanwhile, opposition leaders around the world are questioning everything from immigration policies to the status of the U.K. in the European Union. But for the U.S., at least, there’s a major bright spot: The country saw a record $348 billion in foreign direct investment last year, mostly from Europe, and could attract a similar amount this year. In fact, the weakness on the international scene is actually helping the U.S., whose slow-but-steady economic growth helps makes a better investment case than many other big countries can offer, especially when low energy costs and other potential benefits are factored in.

Eyes on Trade: Rock Against the TPP: The corporate forces behind the Trans-Pacific Partnership (TPP) kept the deal as secret as possible for as long as possible. And they would love for that silence to continue as Big Business lobbyists push Congress to vote on this terrible “trade” deal. But We the People will not stay silent. We the People are going to get LOUD. The Rock Against the TPP roadshow — which has already generated buzz in Rolling Stone and Billboard — is a nationwide concert series going on throughout the summer. Audiences at the free shows will be treated to performances by Tom Morello, activist and guitarist of Rage Against the Machine, Audioslave and Prophets of Rage; Evangeline Lilly, advocate and actress best known for Lost and The Hobbit; the infamous political punk rock group, Anti-Flag, and many more. In addition to musicians and celebs, expert speakers from major organizations will explain how the TPP would threaten U.S. jobs, food safety, access to medicines and other aspects of our daily lives. The first show is July 23 in Denver, Colorado.  Other locations after that will be announced — check www.RockAgainstTheTPP.org regularly to see if a city near you is added to the list. Fight for the Future is hosting the concert series, along with help from a diverse coalition of groups including Public Citizen, Sierra Club, the Communications Workers of America, the Citizens Trade Campaign and others.

The Growing Case for Massive Taxes on the Rich -- While candidates bicker and Congress stagnates, the super-rich enjoy the absence of attention paid to one of our nation's most destructive issues.   The richest Americans are takers of social benefits. Yet they complain about paying 12% to 20% in taxes, even as respected researchers estimate an optimal revenue-producing rate of 80% to 90%, and even with the near-certainty that higher marginal tax rates will have no adverse effects on GDP growth.  The super-rich pay little in taxes because, as Senator Lindsey Graham said, "It's really American to avoid paying taxes, legally...It's a game we play...I see nothing wrong with playing the game because we set it up to be a game." In reality, it's a game of theft from the essential needs of education, infrastructure, and jobs.  According to a recent IRS report, an incredible $406 billion annual gap exists between owed and paid taxes, with individuals accounting for over three-quarters of the total, and with the most egregious misreporting coming from the highest income-takers.  That's about $3,000 per U.S. household in annual lost revenue. Yet even though the IRS retrieves well over $100 for every dollar in salaries paid to their agents, the agency has been rapidly losing staff, making the tax avoidance game a lot easier for the biggest cheaters.

The Case for Not Eliminating the Corporate Income Tax - This past Friday, two prominent tax economists released a detailed and thoughtful tax reform proposal, calling for a major overhaul of the U.S. corporate income tax. In a report titled “A Proposal to Reform the Taxation of Corporate Income,” Eric Toder of the Tax Policy Center and Alan Viard of the American Enterprise Institute propose lowering the corporate income tax rate to 15 percent, along with several other promising reform ideas. Perhaps the most interesting aspect of the new report is that just two years ago, Toder and Viard were calling for the corporate income tax to be eliminated completely.  What caused Toder and Viard to switch their position on the U.S. corporate income tax? Last Friday’s report contains a paragraph that may reveal how their thinking has shifted: The disincentive for foreigners to invest in the United States could be completely removed by eliminating the corporate income tax… That would be the optimal policy if the United States were a small economy, with no unique attributes, that provided rents to foreign investors. In that case, the United States would not be able to raise any revenue from foreign investors by imposing a tax on them, as the investors could completely shift the tax to American workers by demanding a higher pretax return. Because the United States has unique attributes as an investment location, however, investors do not regard equity investments in the United States as perfect substitutes for investment in other countries. As a result, foreign investors in US equity cannot fully shift the tax to Americans. It is therefore in the United States’ national interest to impose a low-rate tax on these foreign investors to extract some rents from them. We believe that 15 percent is a reasonable tax rate to achieve this goal. This is a pretty complex line of reasoning, so let’s unpack it.

Trump's Tax Plan Isn't Tough on Wall Street or Carried Interest - Mike Konczal -- Donald Trump has received considerable positive attention for his plan to raise taxes on investment firms by ending the much-maligned “carried interest” loophole. It’s one of the clearest things Trump himself has said about his tax plan, with statements like “I want to do something with the Wall Street guys because some of these guys are making so much money. I want to get rid of carried interest.” And it’s gotten him favorable headlines such as “Trump Lands a Blow Against Carried Interest Tax Loopholes.” All of this has distracted from the very regressive nature of his overall tax plan.  So how much money does Trump’s carried interest proposal raise? When Tax Policy Center ran the numbers, it found that this approach actually lowered tax revenue slightly, giving a tax cut to those who currently claim carried interest. While Trump would remove the carried interest loophole in name, he would replace it with an even more generous policy. Instead of taxing carried interest at the top capital gains rate of 23.8 percent, or his new top marginal income rate of 25 percent, Trump’s plan would ultimately tax carried interest at just 15 percent. Hillary Clinton noted this in her speech on Trump’s economic agenda yesterday, saying that his tax plan “actually makes the current loophole even worse. It gives hedge-fund managers a special tax rate that’s lower than what many middle-class families pay. And I did have to look twice because I didn’t believe it. Under Donald Trump’s plan, these Wall Street millionaires will pay a lower tax rate than many working people.” Let’s discuss why.

Details of the House GOP Tax Plan - This morning, the office of House Speaker Paul Ryan released a blueprint for tax reform that would overhaul major components of the U.S. tax code and lower taxes for households and businesses. The key details of the plan are listed below:

  • Consolidates the current seven tax brackets into three, with rates of 12 percent, 25 percent, and 33 percent (see table below).
  • Provides a 50 percent exclusion of capital gains, dividends, and interest income. This is equivalent to taxing capital gains, dividends, and interest income at half the rate of ordinary income: with three brackets of 6 percent, 12.5 percent, and 16.5 percent.
  • Increases the standard deduction from $6,300 to $12,000 for singles, from $12,600 to $24,000 for married couples filing jointly, and from $9,300 to $18,000 for heads of household.
  • Eliminates the personal exemption.
  • Creates a $500 non-refundable credit for dependents who are not children.
  • Increases the child tax credit to $1,500 per child, the first $1,000 of which is refundable, as under current law.
  • Raises the phaseout threshold for the child tax credit for married households from $110,000 to $150,000.
  • Eliminates all itemized deductions besides the mortgage interest deduction and the charitable contribution deduction.
  • Eliminates the individual alternative minimum tax.

Commerce overhauls export control enforcement - -The Commerce Department’s Bureau of Industry and Security today finalized a regulation that will significantly change how it prosecutes violations of U.S. laws that restrict the export of certain goods. The rule will bring BIS’s enforcement practices in line with Treasury’s Office of Foreign Assets Control and aims to increase transparency in the process of penalizing export control scofflaws, according to a notice published in today’s Federal Register. The rule, part of the administration’s broader effort to streamline the complex export control regime, will cover administrative enforcement of the Export Administration Regulations. A major new feature for BIS will prioritize violations by categorizing them as “egregious” and “non-egregious.” An egregious violation determination would be based on “willful or reckless violation of law” and other criteria, and would be subject to maximum penalties under U.S. law. Another major guiding factor for assessing a penalty will depend on “voluntary self-disclosures,” in which a company or individual would reveal any past violation. Treasury’s OFAC and now BIS will reduce a penalty if a violation is disclosed before the government discovers any wrongdoing.

The Sotomayor and Kagan Dissents in Utah v. Strieff -- In Utah v. Strieff, the Supreme Court has again weakened Fourth Amendment rights. The Sotomayor and Kagan (joined by Ginsburg) dissents are excellent and important. Sotomayor summarizes the basic issue in the case:The Court today holds that the discovery of a warrant for an unpaid parking ticket will forgive a police officer’s violation of your Fourth Amendment rights. Do not be soothed by the opinion’s technical language: This case allows the police to stop you on the street, demand your identification, and check it for outstanding traffic warrants—even if you are doing nothing wrong. If the officer discovers a warrant for a fine you forgot to pay, courts will now excuse his illegal stop and will admit into evidence anything he happens to find by searching you after arresting you on the warrant. Because the Fourth Amendment should prohibit, not permit, such misconduct, I dissent.If outstanding warrants were few and far between and distributed more or less randomly the case would have been wrongly decided but of little practical importance. Outstanding warrants, however, are common and much more common in some communities than others. As I wrote in 2014, in Ferguson, MO a majority of the population had outstanding warrants and not because of high crime:You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.” Sotomayor and Kagan understand all this and the incentives the case now creates for bad policing.

Teen hacks Pentagon websites, gets thanked for finding 'bugs': High school student David Dworken spent 10 to 15 hours between classes on his laptop, hacking U.S. Defense Department websites. Instead of getting into trouble, the 18-year-old who graduated this week was one of two people praised by Secretary of Defense Ash Carter at the Pentagon on Friday for finding vulnerabilities before U.S. adversaries did. "We know that state-sponsored actors and black-hat hackers want to challenge and exploit our networks ... what we didn't fully appreciate before this pilot was how many white hat hackers there are who want to make a difference," Carter said at a ceremony where he also thanked Craig Arendt, a security consultant at Stratum Security. More than 1,400 participants took part in a pilot project launched this year, and found 138 valid reports of vulnerabilities, the Pentagon said. The project invited hackers to test the cyber security of some public Defense Department websites. The pilot project was limited to public websites and the hackers did not have access to highly sensitive areas. The U.S. government has pointed the finger at China and Russia, saying they have tried to access government systems in the past. The Pentagon said it paid a total of about $75,000 to the successful hackers, in amounts ranging from $100 to $15,000.

Guccifer 2.0 DNC’s servers hacked by a lone hacker -- by Guccifer2 - Worldwide known cyber security company CrowdStrike announced that the Democratic National Committee (DNC) servers had been hacked by “sophisticated” hacker groups. I’m very pleased the company appreciated my skills so highly))) But in fact, it was easy, very easy. Guccifer may have been the first one who penetrated Hillary Clinton’s and other Democrats’ mail servers. But he certainly wasn’t the last. No wonder any other hacker could easily get access to the DNC’s servers. Shame on CrowdStrike: Do you think I’ve been in the DNC’s networks for almost a year and saved only 2 documents? Do you really believe it? Here are just a few docs from many thousands I extracted when hacking into DNC’s network. They mentioned a leaked database on Donald Trump. Did they mean this one? (copy posted)

'Guccifer 2.0' claims responsibility for the DNC hack, promises new leaks - Days after the Democratic National Committee claimed its computer network had been breached by Russian hackers, a blog post published by someone calling themselves "Guccifer 2.0" has claimed responsibility, shared additional allegedly stolen documents, and promised to release even more information.  This is the second such post by the alleged hacker known as Guccifer 2.0 - who is not to be confused with "Guccifer," the Romanian-born hacker responsible for breaching a number of politicians' networks in 2013.  After an apparent opposition file containing research on Donald Trump leaked earlier this week, Guccifer 2.0 has followed it up with alleged financial information on the Democratic Party and its donors. Business Insider has not been able to independently verify the leaked documents. Dave Aitel, an ex-NSA research scientist who is now CEO of Immunity, previously told Business Insider that the leak from Guccifer 2.0 was likely an attempt to obfuscate the link between Russian intelligence and the security breach. "There's a possibility that this was a mistake," Aitel said. "The crime of trying to influence a democratic election has massive blowback potential."

Clinton Foundation Says It Was Hacked By Russians, "Foundation Vulnerabilities" Document Leaked - Moments ago the newswires lit up with news that the Clinton Foundation was among the organizations breached by suspected Russian hackers in a dragnet of the U.S. political apparatus ahead of the Nov. election, Bloomberg reports according to three people familiar with the matter.  As Bloomberg adds, attacks on the foundation’s network as well as those of the Democratic Party and Hillary Clinton’s presidential campaign compound concerns about her digital security even as the FBI continues to investigate her use of a personal e-mail server while she was secretary of state. The spokesman for the foundation, Brian Cookstra, said he wasn’t aware of any breach; compromise of the foundation’s computers was first identified by govt investigators as recently as last week.That's the official version, and one which accurately focuses on the porous security at both the DNC and Clinton Foundation servers.  What really happened is that earlier today, the infamous hacker Guccifer2 - who as we reported previously, revealed himself as the individual who penetrated the DNC server (which was also blamed on Russian hackers) and revealed to the world the DNC's "attack files" on Donald Trump, among others, including the Clinton mega donors - released another data dump which he titled as the "Dossier on Hillary Clinton from DNC."  In the post he says the following: This’s time to keep my word and here’re the docs I promised you. It’s not a report in one file, it’s a big folder of docs devoted to Hillary Clinton that I found on the DNC server.The DNC collected all info about the attacks on Hillary Clinton and  prepared the ways of her defense, memos, etc., including the most sensitive issues like email hacks. As an example here’re some files:

We Spoke to DNC Hacker ‘Guccifer 2.0’ -- Last week, a mysterious hacker using the handle “Guccifer 2.0” emerged to claim responsibility for the data breach at the Democratic National Committee, which democrats and several cybersecurity firms attributed to two groups of Russian hackers, likely working for Vladimir Putin’s government.   Now, the hacker is keeping his threat to leak more documents stolen from the DNC’s servers, and, for the first time, has agreed to answer questions.  “I'm a hacker, manager, philosopher, women lover,” Guccifer 2.0 told Motherboard on Tuesday in a Twitter chat. “I also like Gucci! I bring the light to people. I'm a freedom fighter! So u can choose what u like!”  The hacker, who claimed to have chosen the name in reference to the notorious hacker who leaked the George W. Bush paintings and claims to have hacked Hillary Clinton’s email server, denied working for the Russian government, as several experts believe.  “I don't like Russians and their foreign policy. I hate being attributed to Russia,” he said, adding that he was from Romania, just like the first Guccifer.  Guccifer 2.0 said he hacked into the DNC in the summer of 2015. He claimed that he used an unknown vulnerability in NGP VAN, which is a software provider for the DNC, to hack into the DNC servers, which have a Windows architecture. (There's no evidence whatsoever that the hacker really broke through via NGP VAN.) “Then I installed my Trojans on several PCs. I had to go from one PC to another every week so CrowdStrike couldn't catch me for a long time,” he said. “I know that they have cool intrusion detection system. But my heuristic algorithms are better.”  But when we asked him to explain to us how he hacked into the DNC in Romanian, he seemed to stall us, and said he didn’t want to “waste” his time doing that. The few short sentences he sent in Romanian were filled with mistakes, according to several Romanian native speakers. The hacker said he left Russian metadata in the leaked documents as his personal ”watermark.” He also said he got kicked out of the network on June 12, when the DNC “rebooted their system.”

Federal Court: The Fourth Amendment Does Not Protect Your Home Computer - In a dangerously flawed decision unsealed today, a federal district court in Virginia ruled that a criminal defendant has no “reasonable expectation of privacy” in his personal computer, located inside his home. According to the court, the federal government does not need a warrant to hack into an individual's computer.  This decision is the latest in, and perhaps the culmination of, a series of troubling decisions in prosecutions stemming from the FBI’s investigation of Playpen—a Tor hidden services site hosting child pornography. The FBI seized the server hosting the site in 2014, but continued to operate the site and serve malware to thousands of visitors that logged into the site. The malware located certain identifying information (e.g., MAC address, operating system, the computer’s “Host name”; etc) on the attacked computer and sent that information back to the FBI. There are hundreds of prosecutions, pending across the country, stemming from this investigation. Courts overseeing these cases have struggled to apply traditional rules of criminal procedure and constitutional law to the technology at issue. Recognizing this, we've been participating as amicus to educate judges on the significant legal issues these cases present. In fact, EFF filed an amicus brief in this very case, arguing that the FBI’s investigation ran afoul of the Fourth Amendment. The brief, unfortunately, did not have the intended effect. The implications for the decision, if upheld, are staggering: law enforcement would be free to remotely search and seize information from your computer, without a warrant, without probable cause, or without any suspicion at all.

After Orlando, Senate Likely To Pass GOP-Backed Surveillance Bill: The U.S. Senate on Wednesday is likely to pass a Republican-backed proposal to expand the Federal Bureau of Investigation's secretive surveillance powers after the mass shooting at an Orlando gay nightclub last week. The spying bill is the Republican response to the massacre after a push for gun-control measures sponsored by both major U.S. parties failed earlier this week. The legislation would broaden the type of telephone and internet records the FBI could request from companies like Google and Verizon without a warrant. The proposal met opposition from critics who said it threatened civil liberties and did little to improve national security. The bill, which the Obama administration has sought for years, “will allow the FBI to collect the dots so they can connect the dots, and that’s been the biggest problem that they’ve had in identifying these homegrown, radicalized terrorists,’” Senator John Cornyn, the chamber’s No. 2 Republican, said Tuesday. The vote also represents a bi-partisan drift away from policy positions that favored digital privacy, which had taken hold in the three years since former National Security Agency contractor Edward Snowden revealed the breadth of government surveillance programs. The post-Snowden moves included the most substantial reforms to the U.S. intelligence community since the Sept. 11, 2001, attacks, and a refusal to heed the FBI’s call for laws that would undermine encryption. The legislation before the Senate Wednesday, filed as an amendment to a criminal justice funding bill, would widen the FBI’s authority to use so-called National Security Letters, which do not require a warrant and whose very existence is usually a secret.

154 million voter records exposed, revealing gun ownership, Facebook profiles, and more - When we eventually get to look back on 2016, we might be tempted to label it “The Year of Leaking Voter Lists.”   The year began with many people distraught to learn that a database with voter registration records of 191 million voters had been exposed online. Voter registration lists include name, address, political party, telephone number, and whether the voter voted in the last elections and primaries. It appeared that many Americans never knew that these lists were generally considered public records. But while they were adjusting to that piece of information, they also learned that there was a second leaking voter database with more than 56 million voter records that exposed not only voter registration data but personal information such as Christian values, bible study, and gun ownership in 19 million profiles.  Both databases had been uncovered by Chris Vickery, a security researcher at the cybersecurity firm MacKeeper. And they were both eventually secured after Chris Vickery, this reporter, and Steve Ragan of CSO began making some phone calls and trying to track down the source of the leaks. This week, Vickery mentioned that he has uncovered yet another exposed voter list database. This one contained 154 million records and was exposed because of a misconfiguration in a CouchDB installation. Unlike the previous leaky databases that had been hosted on Amazon, this one was hosted on Google. The records in this database contained a slew of personal and sensitive detail. For all individuals, the database included the following fields:

Google Is the World's Biggest Censor and Its Power Must Be Regulated - Google, Inc., isn't just the world's biggest purveyor of information; it is also the world's biggest censor.  The company maintains at least nine different blacklists that impact our lives, generally without input or authority from any outside advisory group, industry association or government agency. Google is not the only company suppressing content on the internet. Reddit has frequently been accused of banning postings on specific topics, and a recent report suggests that Facebook has been deleting conservative news stories from its newsfeed, a practice that might have a significant effect on public opinion – even on voting. Google, though, is currently the biggest bully on the block. When Google's employees or algorithms decide to block our access to information about a news item, political candidate or business, opinions and votes can shift, reputations can be ruined and businesses can crash and burn. Because online censorship is entirely unregulated at the moment, victims have little or no recourse when they have been harmed. Eventually, authorities will almost certainly have to step in, just as they did when credit bureaus were regulated in 1970. The alternative would be to allow a large corporation to wield an especially destructive kind of power that should be exercised with great restraint and should belong only to the public: the power to shame or exclude. If Google were just another mom-and-pop shop with a sign saying "we reserve the right to refuse service to anyone," that would be one thing. But as the golden gateway to all knowledge, Google has rapidly become an essential in people's lives – nearly as essential as air or water. We don't let public utilities make arbitrary and secretive decisions about denying people services; we shouldn't let Google do so either.

Warren as Veep? It Cuts Both Ways for Bankers | American Banker -- At first blush, the image of Sen. Elizabeth Warren as Hillary Clinton's vice president might be enough to send bankers fleeing to the hills. The Massachusetts Democrat has proven to be a powerful force in advancing Wall Street reform, including successfully creating the Consumer Financial Protection Bureau. If she were just one step from the White House, her power and prestige would presumably grow. Or would it? Some argue that as vice president, Warren would have less influence than as a top member of the Senate Banking Committee. While she'd be more visible as vice president, she may also have to toe the line in a Clinton presidency. "She might well be more constrained," said Mark Calabria, director of financial studies at the Cato Institute, a libertarian think tank. "You cannot just go your own way as VP." To be sure, it's still unclear if Clinton would pick Warren as a running mate — or if Warren would accept an offer if it were made. Moreover, it's by no means clear whether a Clinton-Warren ticket would prevail against the presumptive GOP nominee Donald Trump. Yet the pressure for Clinton to choose Warren is growing. Several progressive groups have argued that selecting the former Harvard law professor is a way to bolster support among progressives, many of whom backed Clinton's rival in the primaries, Sen. Bernie Sanders.

Bernie Sanders: Here’s what we want - As we head toward the Democratic National Convention, I often hear the question, “What does Bernie want?” Wrong question. The right question is what the 12 million Americans who voted for a political revolution want.  And the answer is: They want real change in this country, they want it now and they are prepared to take on the political cowardice and powerful special interests which have prevented that change from happening. They understand that the United States is the richest country in the history of the world, and that new technology and innovation make us wealthier every day. What they don’t understand is why the middle class continues to decline, 47 million of us live in poverty and many Americans are forced to work two or three jobs just to cobble together the income they need to survive.  What do we want? We want an economy that is not based on uncontrollable greed, monopolistic practices and illegal behavior. We want an economy that protects the human needs and dignity of all people — children, the elderly, the sick, working people and the poor. We want an economic and political system that works for all of us, not one in which almost all new wealth and power rests with a handful of billionaire families.  The current campaign finance system is corrupt. Billionaires and powerful corporations are now, through super PACs, able to spend as much money as they want to buy elections and elect candidates who represent their interests, not the American people. What do we want? We want to overturn the disastrous Citizens United Supreme Court decision and move toward public funding of elections. We want universal voter registration, so that anyone 18 years of age or older who is eligible to vote is automatically registered. We want a vibrant democracy and a well-informed electorate that knows that its views can shape the future of the country.  What do we want?  We want a criminal justice system that addresses the causes of incarceration, not one that simply imprisons more people. We want to demilitarize local police departments, see local police departments reflect the diversity of the communities they serve and end private ownership of prisons and detention centers. We want to create the conditions that allow people who are released from prison to stay out. We want the best educated population on earth, not the most incarcerated population.

Do You Vote Democrat As A Default Position? BIG Mistake! --What do these 13 Democrats have in common? (list as below, by state) Let’s not start with “they all belong in prison for corruption” because that’s the end of this post. And, not every single one of them is a New Dem; two aren’t. But they all made a concerted effort to get on the House Financial Services Committee– the well-spring of congressional corruption– and, as members of that committee, they all voted for H.R. 5424 last week. And they all take significant bribes from the very Finance Sector that they’re meant to be keeping from ripping off consumers. These 13, in fact, have been among the worst enablers of the financial sector when it comes to ripping off consumers and endangering the country’s financial health. Let’s reorder the list in terms of how much in bribes each one has gotten– this cycle alone– from the Finance Sector:

• Patrick Murphy- $1,413,950
• Jim Himes- $618,150
• Kyrsten Sinema- $589,388
• Ed Perlmutter- $455,157
• Bill Foster- $401,935
• Terri Sewell- $379,400
• David Scott- $368,640
• John Delaney- $351,750
• Gregory Meeks- $338,550
• Brad Sherman- $300,750
• Juan Vargas- $247,549
• Joyce Beatty- $225,050
• John Carney- $164,450

So what is this H.R. 5424 to which I referred? Well, let’s turn to Yves Smith’s Naked Capitalism to get a good read on what Wall Street lobbyists, the Republican Party and these corrupt Democrats called the “investment Advisers Modernization Act.” If it passes and Obama signs it, it “would allow the hedge fund and private equity industry, which are rich enough to pay for the few parking-ticket-level fines the SEC hands out, to escape from virtually all enforcement efforts. Worse, it would considerably weaken protections meant to stop Madoff-type frauds, and leave retail investors exposed.”Dodd Frank stipulated that private equity and hedge funds beyond a modest size be regulated as investment advisers. That subjected them to SEC examinations. The initial round exposed widespread misconduct in private equity, including what would normally be called embezzlement.

Wall Street vulture hedge funds like Elliot Management made billions off Argentina’s debt crisis—bankrupt Puerto Rico may be next --Recently, a resonant legal victory of hedge funds over Argentina has captured the attention of the global community. The hedge funds in this case aren’t run of the mill investment shops, however. Popularly known as vulture funds, their modus operandi is to buy up the debt of countries suffering crises at bargain prices, only to fiercely litigate with them afterwards. They attempt to claim full payment—principal and interest—employing a variety of tactics (including hiring lobbyists) to put pressure on the distressed debtors to satisfy their claims. And in the wake of Argentina’s loss, Puerto Rico may be in their crosshairs next.  It may not seem to matter whether a sovereign debt crisis is resolved quickly or not, but in fact delays in resolution are bad for almost everyone involved. They worsen the situation of the country in distress, and dim prospects for creditors to recover their investments. The small group of notorious Wall Street vulture funds have seized on these national crises to create extraordinary business opportunities for themselves. Over the past twenty years, these companies have raked in billions by undercutting orderly operation of the world’s financial markets. Notorious vulture funds have seized on national crises to create extraordinary business opportunities for themselves.  Describing these hedge funds as “vultures” is likely unfair to the actual birds. Vultures, at least, play an important role in the ecosystem. These Wall Street vultures, on the other hand, play no positive role for the functioning of the international financial system. Instead they undermine it, impeding the finalization of sovereign debt restructurings that are needed for countries in deep distress to put their economies back on track.

(Not) Prosecuting Financial Crimes, by Brandon L. Garrett: It is sobering that discussions about regulatory capture now include the subject of criminal prosecutions. ... That the public is increasingly demanding greater accountability for corporate crimes is a positive development. Take the case of HSBC. The former head of compliance at HSBC announced his resignation at a July 17, 2012 hearing before the U.S. Senate’s Permanent Subcommittee on Investigations. Explaining his decision to leave, he said: As I have thought about the structural transformation of the bank’s compliance function, I recommended to the group that now is the appropriate time for me and for the bank for someone new to serve as the head of group compliance. The Subcommittee’s remarkable investigation described not just a weak anti-money laundering program at the multi-national bank, but billions of dollars diverted to Mexican drug cartels, groups linked to terrorism, sanctioned regimes, and others. The scale of the violations was shocking. Prosecutors described concerted efforts to hide dirty money transactions... The bank was not convicted of any crime, no employees or officers were prosecuted. At the time, then-Assistant Attorney General Lanny Breuer explained: “Our goal here is not to bring HSBC down, it’s not to cause a systemic effect on the economy, it’s not for people to lose thousands of jobs.”  Prominent cries of “too big to jail” greeted the agreement.  Companies cannot literally be put in jail, of course. And that is why adequately holding them accountable for crimes is so important. Responsible officers and employees can be targeted.  Yet many companies pay no fine, and even the biggest payments are often greatly discounted. It is not the case that more companies are being prosecuted each year; on the contrary, fewer and fewer are. Will this change? The U.S. Department of Justice has announced a set of recent changes aimed at increasing the focus on individual investigations. Yet there has not yet been any observable change in the charging data regarding individuals.

Challenges in Measuring Regulatory Capture - RegBlog -- Harvard Business School Professor David Moss and I have, roughly speaking, defined regulatory capture as the result or process by which regulation is consistently directed away from the public interest and towards the interests of the regulated industry. But the “public interest” is hard to define. One possible way to do so is to focus on how the public interest is represented in statutes that Congress has passed and that the President has signed—and which have been upheld by the courts when contested. Capture happens when special interests have shaped policy in ways that advance industry interests rather than statutory intent. Understood this way, capture is not a binary situation, but rather exists on a spectrum, ranging anywhere from weak, to intermediate, to strong. In strong cases of capture, policy is effectively crafted and implemented by industry. In other cases, capture manifests itself in agency policy being pushed in an overly industry-friendly direction at the expense of statutory intent, but to a lesser extent than with strong capture. In still other instances, capture may be weak, such as with medical device regulation at the U.S. Food and Drug Administration today.To say that an instance of capture is weak or strong, though, does not change the fact that it needs to be addressed. Agencies and their leaders should be constantly on guard against letting themselves become overly influenced by the firms they oversee. However, understanding the extent and nature of capture in any given case will become important for devising solutions for the agency to take to resist the pull of corporate power. The good news is that a full-scale dismantling of a regulatory regime, or full-scale deregulation solely on the grounds of the agency’s capture, is rarely called for, however advisable it may be for other reasons.

Preventing Regulatory Capture - RegBlog  -- Regulatory capture arises when regulatory decisions advance private interests over the interests of the public. How do we prevent capture? The best way is often not to regulate at all. But when regulation is truly needed, it should be established through transparent procedures that involve checks and balances. Economists trace the idea of regulatory capture back to the 1970s, to the work of Chicago economists George Stigler and Sam Peltzman. Regulatory capture also forms a core part of the public choice work in economics. More recently, legal scholars, including previous work by historians such as Gabriel Kolko, have started to embrace (or re-embrace) the challenge of preventing capture. Much regulatory capture could be prevented simply by not regulating at all. This is because many regulations are little more than rent-seeking. Much of occupational licensing, for example, falls under this category. Entry restrictions on hair-dressers and florists provide little, if any, public benefit. In instances where regulation is not justified by public benefits, the solution is to simply not regulate all, thus eliminating the potential for capture and its associated costs. But what about cases where there is some potential public benefit to regulatory intervention? Here too, the answer may be to do nothing. For one thing, the likelihood of capture should always be considered when thinking about the costs and benefits of regulation. This should make policymakers more skeptical that the net benefits of a given regulation will be positive. For another, in some cases of capture, the costs of either reducing industry influence or of living with the capture are greater than any benefits possible from the ideal regulation.

Interview: Alan Blinder on Over-Regulating Financial Markets -- Professor Alan Blinder, former Vice Chairman of the Federal Reserve (June 1994 to January 1996), has been studying the financial system for close to 30 years. In 2014 he published a paper that did not get enough attention, but that students of regulation theory may find surprising: In order to get optimal regulation in the financial world, one should seek to over-regulate.7) The idea of cyclical regulatory equilibrium in financial markets is not new, as Blinder immediately admits. In a 2009 paper, Joshua Aizenman wrote that “prudential” under-regulation may expose economies to future financial crises, which means that over-regulation may be the correct course8).  And, of course, Blinder also borrows from the “Minsky cycle”: Hyman Minsky’s idea that periods of financial stability encourage further and further risk-taking, even with borrowed money, until a phase–a “Minsky moment”–where asset values collapse. “Financial regulations and their effectiveness tend to get weakened over time by (a) industry workarounds, (b) regulatory changes, and (c) legislative changes. The main exceptions come during and after financial crises or scandals, when public revulsion against financial excesses enables, perhaps even forces, a tightening of regulation,” Blinder writes. Therefore, in Blinder’s view, over-regulation, when it can be achieved, is actually optimal. Or, in his words: “a simple, but not mathematically accurate, way of thinking about the optimality of over-regulation is that it gets the degree of regulation ‘right on average’ over time.”

SEC Readies Case Against Merrill Lynch Over Notes That Lost 95% - The Securities and Exchange Commission is preparing a civil enforcement case against Merrill Lynch over an investment that fell as much as 95% in value and was marketed in a way that one of the firm’s financial advisers called “borderline crooked,” people close to the probe said. The expected case against the brokerage arm of Bank of America Corp. underscores some of the risks of so-called structured notes, securities custom-built by banks out of options and other derivatives and often sold to retail investors. It also brings to light a dispute between Merrill and two of its brokers who sold structured notes to their clients. With clients complaining after the value of the notes plunged, the brokers secretly taped calls with executives at Merrill, left the firm for rival UBS Group AG and then filed a whistleblower complaint over the notes with the SEC. The probe involves a product called Strategic Return Notes that Merrill sold over a number of months in 2010, raising about $150 million. Linked to a Merrill Lynch index tracking the volatility of the S&P 500 stock index, the five-year notes lost value rapidly after they were issued, as market volatility fell and the cost of buying the options upon which the notes were based rose sharply. Those so-called roll costs averaged about 12% of the principal per quarter in the first half of 2011, before falling to an average of less than 4% per quarter in the second half of the year, according to Merrill. In the calls, the brokers allege they were never told the costs could grow so large. “The roll costs are far larger than we ever understood or were disclosed to us,” Merrill broker Glen Ringwall said, according to the transcripts of the calls he taped with colleague Mark Manion. “This is borderline crooked.” Brian Partridge, head of U.S. product sales for Merrill’s wealth-management division at the time, who wasn’t aware the call was being taped, pushed back. He acknowledged the costs were higher than expected, but said that was due to market conditions and that the product, designed as a hedge, performed as intended, according to the transcripts. The problem, he said, was that the investors were on the wrong side of the market.

‘Flash Boys’ pass: IEX exchange approved by SEC - IEX Group Inc. won regulatory approval Friday to launch a new stock exchange that slows the speed of trading, clinching a hard-fought win for the startup over competitors that said its model threatens investor benefits flowing from ever-faster markets. The Securities and Exchange Commission voted to certify IEX as the U.S.’s 13th national stock exchange, giving it license to challenge Intercontinental Exchange Inc., Nasdaq Inc. and Bats Global Markets Inc. The SEC’s decision resolved a clash over whether its rules, which sped the transition to fully electronic markets, allow IEX to use a “speed bump” that slows orders by just 350 millionths of a second. IEX says its delay is just long enough to protect investors from predatory high-speed trading that can front run the orders of slower investors. Opponents such as Citadel LLC, the hedge-fund manager and electronic market maker, had warned that any delays would create stale prices and the potential for manipulation. Launched in October 2013 as a private trading venue, IEX—and its chief executive, Brad Katsuyama—shot to fame on the back of the 2014 Michael Lewis book “Flash Boys,” which cast its founders as heroes trying to restore balance to the stock market. Lewis’s book argued the market was rigged by other stock exchanges that sold preferential treatment to high-frequency traders. “This is a milestone for all of those who have supported IEX and we look forward to becoming a stock exchange, which will provide us the opportunity to have an even greater impact on the markets,” Katsuyama said in a statement.

FX the next market to normalize after IEX approval -- The recent news that IEX was approved as a 'fair' exchange by the SEC is great news indeed.  Although it seems to be the beginning of a long battle, as lawyers already threatening the SEC with lawsuits.  But anyway - it's a great step in the right direction for fair markets onshore in the US.   The next market to be normalized is Forex.  Forex still trades without an exchange or globally recognized model.  Liquidity is fragmented and although regulations have somewhat stopped retail fraud, the talks to make a fair, FX market as IEX is doing for stocks, it's not even a discussion.  We've tried to start that discussion with the book Splitting Pennies - Understanding Forex. A detailed white paper by major FX exchange LMAX "Restoring trust in global FX markets"outlines examples of how FX markets have shifted in the past few years, and how technology is pushing existing banks & non-bank LPs (Liquidity Providers) to change the way they do business.  Although the paper is biased towards their commercial publisher - it's well done and a must read for any student of FX.  Click here to download / view the report in its entirety.  Some interesting key quotes: “Non-bank market participants have grown by 48% and has become the largest, most active segment in the market” BIS Triennial Central Bank Survey, 2013.  “On an exchange model you get firm prices, and that’s something the regulators like and understand. I think as the regulators turn over more stones in the FX industry they will say ‘wow, I didn’t know it worked like that’ ” David Holcombe, Head of FX Product, Nasdaq. One of the most alarming statements though, not for LMAX but for FX in general, is in the intro written by the CEO: In recent years, the evolution of the market has put greater pressure on LPs to take more risk to benefit from their liquidity service provision and perhaps the line between market making and proprietary trading became too blurred as a result.  There should be such a distinct line between these 2 activities, they should be separate entities - they shouldn't be in the same building even.  Imagine this was the case in stocks - not only HFT firms sucking up liquidity and front-running orders, market makers are also trading for their own book - not as a market making activity but based on algorithms run as a prop shop does, like jump trading.  Anyway that's what we have in FX, banks have become a blurry mix of prop shops and market makers - and they're making a fortune.

Warren, Hensarling Trade Insults Over Dodd-Frank Replacement Plan -- Sen. Elizabeth Warren on Thursday took aim at a Dodd-Frank replacement plan recently put forth by House Financial Services Committee Chairman Jeb Hensarling. Her remarks did not go unnoticed by the Texas Republican, who earlier this month outlined his proposal known as the Financial CHOICE Act. “It should be called the Big Wet Kiss for Wall Street Act,” Warren (D-Mass.) said this morning at a Senate Banking Committee hearing on bank capital and liquidity rules. She said that despite Hensarling’s stance that his plan is tough on Wall Street, “the bill’s proposals come straight off the Wall Street wish list.” The measure, which Hensarling plans to mark up in September, would strip the Financial Stability Oversight Council of its ability to designate systemically important financial institutions, subject financial regulators to the appropriations process and restructure the Consumer Financial Protection Bureau. It also would exempt banks from certain regulations if they meet a 10 percent leverage ratio requirement. Hensarling fired back in a statement Thursday afternoon after promoting his plan at the Heritage Foundation earlier in the day. “It’s funny Elizabeth Warren would launch these attacks since she’s the one who supports Dodd-Frank’s taxpayer-funded bailouts for Wall Street, its small bank-crushing regulations that have helped make the big banks even bigger, and endorsed a candidate for president who personally enriched herself with millions from Wall Street – arguably more than any candidate in U.S. history,” he said, referring to presumptive Democratic nominee Hillary Clinton. “The facts are clear: Professor Warren’s radical liberal policies keep people in poverty and hold back middle income families,” he added. “Unlike Elizabeth Warren, Hillary Clinton and Dodd-Frank, the Financial CHOICE Act will support economic growth for all and bank bailouts for none.

Warren Presses Yellen on Living Wills for Big Banks - Sen. Elizabeth Warren on Tuesday called for the Federal Reserve to take a muscular approach to big banks that have problems with their “living wills,” saying regulators should consider raising capital standards or tightening leverage ratios. The Fed and Federal Deposit Insurance Corp. rejected the bankruptcy plans of five large U.S. banks earlier this year. The lenders face an Oct. 1 deadline to fix their taxpayer-free resolution plans. “Can you commit that if any of these giant banks fail to resolve the problems in their living wills by Oct. 1 that the Fed will use the tools that Congress gave you to reduce the risks posed by these Too Big to Fail banks?” Warren asked Yellen. “I can’t pre-commit today to telling you precisely what our response will be,” Yellen said. “We will work closely with the FDIC, as we have been all along, but we are extremely serious about wanting to see progress.” Warren said she was glad the Fed rejected some of the living wills, but that the failing grade “isn’t going to mean anything” if the Fed doesn’t punish banks flouting deadlines.

Yellen warns banks: 'There will be consequences' after October deadline -- Banks will face the possibility of tougher requirements, including possible higher capital standards, if they have not fixed the shortcomings in their "living wills" by October, Federal Reserve Chairwoman Janet Yellen said Tuesday. Appearing before the Senate Banking Committee, Yelllen was quizzed about the five megabanks that were told in April that they did not have credible plans for failing without the government getting involved. She told lawmakers that she would consider higher capital requirements or other penalties if the banks fell short of an October deadline to correct the problems identified in their living wills. "There will be consequences" if the banks don't improve their plans, Yellen said. The living wills, a requirement of the 2010 Dodd-Frank financial reform law, mandate that the banks spell out how they would pay out creditors and resolve themselves under the bankruptcy code in case they ran into trouble.After several rounds of the living wills process, Yellen said, the banks have "greatly increased their ability to be resolved, in the event of trouble, by bankruptcy" or by through the government's resolution powers. Nevertheless, "I couldn't guarantee at this point" that they could safely go bankrupt, she said. "I would not say at this point that all of them are prepared for resolution under bankruptcy," she later added. The banks whose living wills were deemed "not credible" by the Fed and the Federal Deposit Insurance Corporation were Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo. Under the law, those banks could face escalating consequences if they do not submit credible living wills, including ultimately forced divestitures or breakups.

Mpls. Fed chief skeptical about Fed’s ‘too big to fail’ proposal – Federal Reserve Bank of Minneapolis President Neel Kashkari on Monday criticized a U.S. central bank proposal designed to prevent big banks from becoming “too big to fail,” saying the plan is too complex and deferential to regulators. The proposal, which would require banks to hold minimum amounts of long-term debt that could be converted to equity if the bank fails, “has too many moving parts to work when we need it to,” Kashkari said. The Fed’s “total loss absorbing capacity,” or TLAC, rules “sounded like a plan that requires everything to work out perfectly when we know that in a crisis, that simply does not happen,” he said. Kashkari was speaking at the third in a series of symposiums hosted by the Minneapolis Fed aimed at ending the problem of “too big to fail” banks, or those so large that their collapse threatens the global economy. He said the Minneapolis Fed is committed to releasing a public set of recommendations for addressing the problem by the end of the year. Kashkari said the financial system and large banks need “massive structural changes.” Speaking to reporters after a panel discussion, Kashkari said he welcomed a legislative proposal from House Financial Services Committee Chairman Jeb Hensarling, R., Texas, that would roll back a number of changes required under the 2010 Dodd-Frank law. “We’re looking at that as a set of ideas as we’re considering our own plans,” Kashkari said, noting that the Hensarling proposal would include higher capital requirements for big banks. “I think directionally that’s a good thing … I don’t know what the right level is.” Lawmakers on the left have introduced bills that would reinstate the Depression-era Glass-Steagall law, which separated deposit-taking firms from investment banks. Kashkari said during a question-and-answer session that he wasn’t opposed to that idea, but said he wasn’t convinced the law would have prevented the 2008 financial crisis had it been in place then.

Neel Kashkari: The Shadow Over Janet Yellen’s Head as She Testifies to Congress -- Pam Martens - The shadow is being cast by Neel Kashkari, who took the reins as President of the Federal Reserve Bank of Minneapolis this past January and has effectively transferred the debate on too-big-to-fail banks from the hands of Yellen to his own regional institution. Kashkari has been conducting symposiums and delivering speeches on the issue and has promised a formalized plan to deal with the problem by the end of this year. Just yesterday, Kashkari spoke at the Peterson Institute in Washington, D.C. and shot full of holes Yellen’s plan to shore up big bank capital with convertible debt (the so-called Total Loss-Absorbing Capacity or TLAC plan). Kashkari, who worked at the U.S. Treasury during the 2008 financial crisis and oversaw the Troubled Asset Relief Program (TARP), offered this critique yesterday on why the convertible debt plan will not prevent more taxpayer bailouts of the mega banks: “Do we really believe that in the middle of economic distress when the public is looking for safety that the government will start imposing losses on debt holders, potentially increasing fear and panic among investors? Policymakers didn’t do that in 2008. There is no evidence that their response in a future crisis will be any different…. “A policy analyst recently asked me if we really could resolve a large bank during a crisis. I responded by asking him if he thought we could dismantle an aircraft carrier in the middle of a hurricane. It’s not a perfect analogy, but he got my point… “I object to this approach for two reasons. First, it immediately reinforces my concern about complexity. Second, this approach assumes that all-knowing, well-intentioned regulators, seizing a bank earlier, will somehow reduce the total losses the bank ultimately faces. I vividly remember the collapse of Bear Stearns in March 2008. In a couple of weeks, Bear Stearns went from normal operations to insolvency.”

House Republicans Think the Fed Is In Conspiracy With the Rich: Are They Right? - Pam Martens - Yesterday, four Republicans on the House Financial Services Committee, during the semi-annual monetary policy testimony by Fed Chair Janet Yellen, presented a persuasive argument that it’s really the Federal Reserve that’s sacrificing the poor and middle class in order to benefit the rich and “the Goldman Sachs CEOs of the world.” Congressman Ed Royce, Republican from California, said that he was “concerned that the Federal Reserve has created a third pillar of monetary policy, that of a rising and stable stock market.”  Royce said that Yellen’s predecessor, Fed Chair Ben Bernanke, had told the Committee that the goal of quantitative easing was to increase asset prices like the stock market in order to create a wealth effect. Royce raised the specter that the Fed is actually being held hostage by the stock market and Wall Street, stating: “Every time in the last three years when there has been a hint of raising rates and the stock market declined accordingly, the Fed has cited stock market volatility as one of the reasons to stay the course and hold rates at zero.” Royce is clearly on to something. When the stock market tanks, the share prices of the big Wall Street banks plummet to a greater degree than the overall market because of the trillions of dollars (yes trillions) in derivatives they hold and the lack of transparency as to whether the counterparties on the other side of these trades will be solvent in a plummeting market. The Federal Reserve is in no position to quietly sit back and watch the equity capital of its most dangerous banks melt away in a stock market selloff when it is desperately attempting to boost capital levels at these same mega banks. Secondly, a stock market selloff impacts the confidence of the fragile consumer, millions of whom have at least a little money in their 401(k) plan in the stock market.  Congressman Scott Garrett, Republican from New Jersey, said that the super low interest rates targeted by the Fed have raised the value of the stock market and he asked Yellen pointedly who the beneficiaries of this happen to be. Without waiting for an answer, Garrett cited a Gallup poll which showed that “90 percent of households with incomes over $75,000 own stock. Only 21 percent of households earning under $30,000 own stock.”

This Is What Yellen Told Congress When Asked If The Fed Is Boosting The Stock Market - Today was the second and final day of Janet Yellen's semiannual congressional testimony, after which she was said to have promptly departed to meet her colleagues in Basel, where they the world's key central bankers would meet the outcome of the Brexit vote together on the 18th floor of the BIS tower. But first she had to slog through three hours of questioning. Among the highlights was yet another bipolar shift in Yellen's demeanor who after last week's dramatically gloomy - and dovish - FOMC press conference, shifted into optimism mode and said she believes the recent weakness in job creation is "transitory" and does not reflect an otherwise growing economy.  "We are seeing a pickup in growth. There's been a sharp increase in consumer spending," Yellen told the House Financial Services Committee. "I'm very hopeful that we will see a pickup in growth. We will be watching for that as we assess the economy."  Then there was a fiery exchange with Committee Chairman Jeb Hensarling, who aggressively questioned Yellen over why the rate the Fed pays for reserves that banks store at the central bank is higher than the overnight funds rate, saying that the Fed's IOER subsidy which is above the Fed Funds rate violates a congressional statute.  However, the best, and last, Q&A was with California Rep. Edward Royce who asked whether the Fed was merely propping up stock prices.

  • ROYCE: I'm worried that the Federal Reserve has created a third pillar of monetary policy, that of a stable and rising stock market. And I say that because then-Chairman Bernanke, when he appeared here, stated repeatedly that, "the goal of QE was to increase asset prices like the stock market to create a wealth effect." That seems as though that was goal. It would stand to reason then that in deciding to raise rates and reduce the Fed's QE balance sheet standing at a still record $4.5 trillion, one would have to be prepared to accept the opposite result, a declining stock market and a slight deflation of the asset bubble that QE created. Yet, every time in the past three years when there has been a hint of raising rates and the stock market has declined accordingly, the Fed has cited stock market volatility as one of the reasons to stay the course and hold rates at zero.  So Madame Chair, is having a stable and rising stock market a third pillar or the Federal Reserve's monetary policy if I go back to what I originally heard Ben Bernanke articulate?
  • YELLEN: It is not a third pillar of monetary policy. We do not target the level of stock prices. That is not an appropriate thing for us to do.

FinReg|Alert – Fed Open to Swapping Higher Capital for Simpler Regs: Yellen: Federal Reserve Board Chair Janet Yellen signaled Wednesday that the central bank could support a House Republican effort to reduce banks’ regulatory burden in return for institutions holding higher capital, but said such a deal should only be open to small banks. “It would be worthwhile for community banks to be put in a simplified capital regime,” she said during her semiannual monetary policy hearing in front of the House Financial Services Committee.

Which Big Banks Would Suffer Most If Rates Fell Below Zero? | American Banker: The Federal Reserve will release the first batch of stress-test results this week and among the many things investors and other industry observers will be watching for is how prepared banks are for the prospect of interest rates falling below zero. It's a purely hypothetical scenario — there are lots reasons for the Fed to keep interest rates above zero — but the stress tests are about planning for the most adverse economic conditions. So, for the first time, the Fed this year is requiring the 33 banks subject to the stress tests to show how they would cope with the possibility of rates dipping into negative territory. Results from the Dodd-Frank Act Stress Test are scheduled to be released on Thursday, and the results from the more vigorous and intensive Comprehensive Capital Analysis and Review will come June 29. Both tests are required for banks with at least $50 billion of assets. Analysts say they will be keeping a close watch on the most asset-sensitive banks, which tend to be hit hardest when rates fall. Included in this group are the nation's three custody banks — Bank of New York Mellon, State Street and Northern Trust — and a number of regional banks that have high levels of loans that would reprice faster than liabilities. For example, the $69 billion-asset Comerica, in Dallas, has high levels of commercial loans and core deposits, he said. In a negative-rate situation, Comerica would not get a benefit from a spike in yield from its commercial loans, which are generally tied to the London interbank offered rate, and its funding costs would increase, said Scott Siefers, an analyst at Sandler O'Neill. "Comerica would get hit by both the absence of a tailwind and the introduction of an unprecedented headwind"

MetLife Judge Called Profoundly Mistaken on Too-Big-To-Fail -  The U.S. properly labeled MetLife Inc. as “too big to fail,” the government said, arguing to overturn a ruling that dealt a major blow to efforts to rein in risk in the financial system. A federal judge “was profoundly mistaken” in interpreting the guidelines required to determine whether a financial institution is systemically important, lawyers for the Financial Stability Oversight Council, a regulatory panel led by U.S. Treasury Secretary Jacob J. Lew, said in court papers filed Thursday at a federal appeals court in Washington. The U.S. panel is seeking to reverse a March ruling from U.S. District Judge Rosemary Collyer that dealt a blow to the financial regulation enacted after the 2008 financial crisis. FSOC’s process to designate MetLife as a systemically important financial institution, or SIFI, was “ fatally flawed” since the panel failed to follow its own guidelines when deciding the insurer could be a danger to markets if it’s in distress, she said. SIFIs face stricter regulation than smaller firms, including capital and leverage requirements. “The district court overturned the collective judgment of the heads of the nation’s financial regulatory agencies,” the panel said. “The court’s ruling leaves one of the largest, most complex, and most interconnected financial companies in the country without the regulatory oversight that Congress found essential.”

Government brief rips into recent MetLife ruling — The nation's chief financial agencies late Thursday ripped a federal court’s March decision, which stripped them of authority to oversee Metropolitan Life Insurance Co., as “profoundly mistaken.” The filing, made in the U.S. Distruct Court for the District of Columbia by the Department of Justice on behalf of the Financial Stability Oversight Council, was the opening step in the government’s appeal of the March 31 decision by Judge Rosemary Collyer to throw out the designatation of MetLife as a systemically important financial institution (SIFI). She had declared the government’s decision arbitrary and capricious, and said it had not taken into consideration the additional costs MetLife would bear as a SIFI.The government’s brief was dramatic. “The court’s ruling leaves one of the largest, most complex, and most interconnected financial companies in the country without the regulatory oversight that Congress found essential,” the brief said. “The district court overturned the collective judgment of the heads of the nation’s financial regulatory agencies that material distress at MetLife could pose a threat to the country’s financial stability." Moreover, “Nothing in the district court’s analysis casts any doubt on the reasoning of the council’s 341-page decision,” the government brief added. Amongst its arguments, the government brief held that Collyer “erred” in holding that the council was compelled to assess the costs of designation to MetLife. “The ten statutory factors that the council must consider in making a designation include neither cost nor any other effect of designation on the company,” the brief said.

Dodd-Frank drafters rip MetLife ruling --Several Democratic Congressional leaders joined the amicus, or "friend of the court," brief filed today regarding the status of MetLife's SIFI case.  If sustained, a lower court ruling barring federal financial regulators from overseeing MetLife would “fundamentally undermine” Congressional intent, a liberal-leaning legal trade group said today in a friend of the court brief to the U.S. Court of Appeals for the D.C. Circuit. The brief was filed by the Constitutional Accountability Center in MetLife v. Financial Stability Oversight Council (FSOC) on behalf of the Democratic congressional leadership, including former Sen. Chris Dodd, D-Conn., and former Rep. Barney Frank, D-Mass., named sponsors of the Dodd-Frank Act, the law that created the FSOC. The April 30 decision by Judge Rosemary Collyer would do so by “making it difficult, perhaps impossible, for FSOC to play the role Congress intended it to play — one in which it will use the federal and state government’s combined financial regulatory expertise to make the predictive judgments necessary to target potential causes of a catastrophic financial crisis before it occurs,” the brief said. Its backers “have a strong interest in preserving the regulatory scheme that Congress put in place when it enacted the Dodd-Frank Act(DFA),” the brief added.  “I was surprised that the district court judge substituted her judgment for the FSOC’s on a specific issue that is solely within its jurisdiction and competence,” Frank said. But, he added, “I was shocked that the judge went on to substitute her judgment for that of the entire Congress, by effectively amending the statute.”

Regulators Can't Force Good Risk Management | Bank Think -- Since the crisis, the flood of new regulations — the most expansive since the Great Depression — have largely led to suboptimal economic outcomes. Indeed, policymakers seem to be operating in accordance with the "public choice" model. Such behavior misses the root cause of the crisis: namely a pervasive lack of effective risk governance among key financial market participants. Had such firms embraced a culture of risk management marked by strong corporate governance practices at the highest corporate levels, executive compensation plans aligned with shareholder interests, a long-term view of risk-taking and balanced risk-return management, it is very likely the housing and mortgage market bubble would have been a nonevent. Regulation of bank risk governance practices in the form of the "heightened expectations" and "three lines of defense" standards has attempted to address this concern principally for large banks (i.e., technically applied to those with assets at or above $50 billion). However, mandating good risk governance is not an effective or efficient policy response to the issue. Rather, financial incentives that lead firms to strengthen their risk governance practices would be far more effective in the long term in influencing attitudes and preferences toward risk management. Mandating risk governance standards potentially undercuts the risk management function within an organization as it may be viewed as a regulatory "tax" by virtue of its direct linkage to these regulations and not as a valued business decision. No set of regulations can influence a truly genuine change in a bank's risk management culture. If risk management DNA does not already exist at a firm, financial incentives to inculcate the right attitudes and norms toward investing in good risk governance put management in a better position of leading such change rather than if that governance is forced from the outside.

European bankers to politicians: Save us from the Americans - New post-crisis banking rules that work to the advantage of US rivals will wipe out European banks, they say. European banks are about to launch a last-ditch campaign to prevent regulatory changes that they believe will make them permanent also-rans to American competitors. Their strategy? Enlist sympathetic European politicians to push back against U.S.-dominated global rule-making bodies. After failing to persuade international financial regulators to soften tough new rules that will hamstring their lending and trading operations, the European banking industry will unleash a full-frontal lobbying assault on the corridors of power in Brussels, Frankfurt, London, and Paris in the next few months. Banking executives and lobbyists say the argument to be made to finance ministers, premiers, and Commissioners will go something like this: Unless you change, amend, or delay the new regulatory framework, European banks will be annihilated by U.S. rivals — and the entire EU economy will suffer as a result. U.S. banks and some regulators dismiss such claims as a desperate attempt by European banks to blame the referee for their losses on the field. But European banking executives will tell their political counterparts that the rules are stacked against them and that nothing less than the future of their domestic financial industry is at stake.

The Most Important Agency You’ve Never Heard Of - Among the many lessons learned from the 2008 financial crisis, one thing stands out: ignorance—willful or otherwise—drove the system to the brink of collapse. While banks were busily writing mortgages destined to default, there was a blithe, system-wide failure to recognize what those toxic mortgages could do to the economy. Not only were regulators asleep at the wheel, they didn’t even know the car was moving.The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, took a number of steps aimed at righting the wrongs of the financial crisis. One was the creation of a new agency, the Office of Financial Research (OFR), tasked with ensuring that Washington would never get caught so flat-footed ever again. Headquartered in a nondescript office building in downtown D.C., the 225-person bureau collects data and produces reports aimed at identifying potential threats to the financial system. Although technically part of the Treasury Department, the body is by law independent. Its budget, $99 million in fiscal year 2016, is funded through fees paid by the country’s largest banks. To help the OFR carry out its mission, Congress granted it sweeping powers, including the right to demand certain data from banking regulators and financial institutions, either voluntarily or with a subpoena, as well as from banking regulators. Yet given its vital role, the OFR is a body that is surprisingly—perhaps worryingly—low-key. Its director, Richard Berner, hasn’t testified before Congress since 2014. Its numerous reports are highly technical, specialized, and rarely grab headlines. And given its vast powers, it’s unclear why it hasn’t collected more data from financial institutions or exercised its subpoena power to do so. Nearly six years after its creation, the OFR has yet to establish the credibility and influence its champions had hoped for, leading some to worry whether it will be able to fulfill its mission of averting the next financial crisis.

All 33 Banks Pass The Fed's 2016 Stress Test, Exceeding Minimum Capital Requirements - While hardly coming as a surprise to anyone, moments ago the Fed announced that all 33 banks have enough capital to withstand a severe economic shock, though Morgan Stanley trailed the rest of Wall Street in a key measure of leverage, Bloomberg reports. The biggest bank cleared the most severe scenario handily, with the exception of Morgan Stanley whose projected 4.9% leverage ratio tied for last place alongside a Canadian bank’s U.S. unit, falling within a percentage point of the 4 percent minimum. As a result of today's "test result" many banks will likely win regulators' approval next week to boost dividends. From the Fed: The most severe hypothetical scenario projects that loan losses at the 33 participating bank holding companies would total $385 billion during the nine quarters tested. The "severely adverse" scenario features a severe global recession with the domestic unemployment rate rising five percentage points, accompanied by a heightened period of financial stress, and negative yields for short-term U.S. Treasury securities.  The firms' aggregate common equity tier 1 capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual 12.3 percent in the fourth quarter of 2015 to a minimum level of 8.4 percent in the hypothetical stress scenario. Since 2009, these firms have added more than $700 billion in common equity capital."The changes we make in each year's stress scenarios allow supervisors, investors, and the public to assess the resiliency of the banking firms in different adverse economic circumstances," Governor Daniel K. Tarullo said. "This feature is key to a sound stress testing regime, since the nature of possible future stress episodes is inherently uncertain."

Fed Stress Tests: All Big Banks Clear Bar for Capital Requirements - WSJ: The largest U.S. banks have significantly bolstered their defenses against an economic downturn, and could continue lending even during a deep recession, the Federal Reserve said. That signals that many of those institutions will win regulators’ approval next week to boost dividends to investors. In the first part of the Fed’s annual “stress tests” released Thursday, some of the country’s biggest banks, such as J.P. Morgan Chase & Co. and Citigroup Inc., fared particularly well, with their capital ratios—a key measure of financial strength—increasing briskly from levels seen during last year’s drill and comfortably exceeding the level that the regulator views as a minimum.A senior Fed official, in a conference call with reporters, noted the broad improvement banks had made in recent years, saying they entered this year’s exam with more capital and higher-quality loans. They also benefited as the heavy legal costs from their role in the financial crisis recede. Next week, the Fed will release the second part of the tests, which include regulators’ decisions on whether to allow or block banks’ plans to return capital to shareholders through dividends or share buybacks. Thursday’s results don’t necessarily predict the Fed’s verdict next week, since in the second round the Fed judges banks not just by their balance sheets, but by how officials assess banks’ risk-management practices. Overall, the Fed calculated that 33 of the largest U.S. banks would have loan losses of $385 billion under a hypothetical scenario that envisions the U.S. unemployment rate more than doubling to 10%, the stock market losing half its value and financial markets becoming so topsy-turvy that short-term U.S. Treasury rates turn negative as investors pay the U.S. government to hold their money. Even with those big losses, they would still have enough capital to satisfy regulators, the Fed said.

U.S. banks flex capital muscle in annual stress test | Reuters: Big U.S. banks are proving themselves to be stronger and sounder in an annual regulatory stress test, even as the Federal Reserve changes doomsday scenarios to keep them on their toes. On Thursday, the Fed said each of the 33 U.S. banks that underwent its standardized stress test were able to stay above minimum required capital levels in severe economic and market conditions. Banks that participated last year also passed, but their capital levels have largely improved since then. Overall, the 33 banks would suffer $385 billion in loan losses over nine quarters under the most severe scenario, the Fed said. In aggregate, a key ratio measuring high-quality capital against risk-weighted assets, known as the Tier 1 common equity ratio, would drop to a low of 8.4 percent. That is well above the 4.5 percent minimum set by regulators. (Click here to see how the banks performed: tmsnrt.rs/28QAfLJ) Since the Fed started stress testing banks in 2009, capital levels have risen and credit quality has improved, with bad loans rolling off the books. The Fed creates new inputs for market and economic chaos each year, and shocked investors in January when it included negative interest rates in the worst-case scenario. "Today's results are particularly notable given the more stringent test assumptions above last year's test," said Richard Foster, senior counsel for regulatory and legal affairs at the industry trade group Financial Services Roundtable. "Banks now hold extremely high levels of capital and liquid assets as compared with historical averages."

From BofA to Wells Fargo, Here’s a Breakdown of Bank Stress Test Results - - WSJ: This year’s stress test were unexpectedly less stressful. The Federal Reserve released the results of its stress tests on 33 large banks Thursday. Despite the Fed’s hypothetical “severely adverse” scenario being harsher than last year, the declines in the four capital ratios tested by the Fed were less severe, ranging from 2.6 percentage points to 3.9 percentage points. Last year’s test produced a range of declines from 2.9 percentage points to 5.2. This appears to be driven by projections of higher revenues and lower losses. The Fed projected that the aggregate pre-provision net revenue of the banks would be $384 billion over the nine-quarter period covered by the test. Last year, revenue was projected to be $310 billion—although only 31 banks were tested. The Fed projects the 33 banks banks would suffer an aggregate net loss of $195 billion, an average of $5.9 billion per bank. Last year, 31 banks were projected to lose $222 billion, an average of $7.6 billion. Here’s our breakdown of each bank’s stress test results.

FinReg|Alert – Yellen, Fischer: FDIC Resolution Powers Will Prevent Taxpayer Bailout: The Federal Reserve Board’s top two leaders on Wednesday defended U.S. statutory authority for resolving large company failures against criticism that the policy is a continuation of “too big to fail.” Testifying before the House Financial Services Committee, Fed Chair Janet Yellen said the Dodd-Frank Act provision allowing the Federal Deposit Insurance Corp. to resolve systemically important firms is a benefit to the taxpayer.

FSOC Finds Fintech May Pose Risks to Financial Stability | American Banker: — Financial innovation, including distributed ledger technology and marketplace lending, has emerged as a new source of risk to the U.S. financial system, according to a report issued Tuesday by the Financial Stability Oversight Council. In its annual report, the interagency council assessed the various threats facing banks and other institutions. It concluded that regulatory efforts had greatly mitigated the risk to the economy posed by a failing megabank, but it reiterated warnings about cybersecurity vulnerabilities and the role of central counterparties in financial markets. But the council struck a new tone in its characterization of fintech market players, noting both its promise and its perils. Marketplace lending "is an emerging way to extend credit using algorithmic underwriting which has not been tested during a business cycle," which creates a risk that the industry might not endure a credit crunch, the report said. It also warns that underwriting standards and loan administration standards in the industry could "deteriorate [in an effort] to spur volumes," affecting other market players. Distributed ledgers also came under new scrutiny. Though the council acknowledged the technology's ability to "reduce concentrated risk exposures" and improve the efficiency of settlement systems, it warned that it could "pose certain risks and uncertainties." The technology, by decentralizing parts of the financial system, could also create a more complex environment for supervisors, the council said. "Since the set of market participants which make use of a distributed ledger system may well span regulatory jurisdictions or national boundaries, a considerable degree of coordination among regulators may be required," the report said.Cybersecurity also remains a major risk for the financial system, the council found. It advised regulators and financial institutions to develop common plans for information sharing, responses for a significant cybersecurity incident and a "risk-based approach to assess cybersecurity and resilience" in the firms beyond the National Institute of Standards and Technology's framework.

The Future of the Blockchain in Financial Services Communications - Much has been made about blockchain technology in the world of financial services. The potential implications are limitless – as are the conspiracy theories. But the truth about this new age of security and verification is that there is much that it can do for us. One area where it can have far-reaching effects is in how we communicate sensitive financial information to each other. There are two major aspects of blockchain technology that are realistically going to affect financial market participants. The first is the most useful in the near term and is the core, underlying practice for a large portion of blockchain technology applications. It involves using the bitcoin blockchain model as a permanent, unhackable, unforgeable ledger of timestamps. This is what we are implementing at Harvest Exchange because it answers the challenge of content and idea ownership: How do I prove what I had in the past matches what I have right now without having to disclose or release the subject matter? Or, if it was publicly available, that it hasn’t been doctored by myself or anyone else? As an example, imagine you have top-secret research at your disposal that says some company is going to perform well. Is this something you would want to share with just anyone? Probably not. You are more likely to want to share with paying clients. Then, once the company has fulfilled the positive performance, you can release your research to prove that you knew it was going to do well all along. You can do this using blockchain technology and anyone else can verify that information without having to trust you, know you or use a third party. You can prove you actually did say something 6, 12 or 18 months ago. This is where we are headed for our users. We intend for our publishers and readers to know with a certainty that what was published on a certain date was actually the original content and has not been adjusted. That’s why since our inception, all of our articles have been unmodifiable after posting. This led us to offer additional content verification provided by blockchain.

US regulators warn on bitcoin risks -- A powerful club of US regulators has warned that the growing popularity of bitcoin and other digital currencies is posing potential financial stability risks as it revealed it is putting them under closer scrutiny. A group that includes the Treasury department, the Federal Reserve and the Securities and Exchange Commission used an annual report on the biggest threats to the US financial system to highlight its concerns about digital currencies for the first time on Tuesday, writes US policy correspondent Barney Jopson. Bitcoin has thrived as an alternative to currencies that are managed for governments by central banks, because it functions as a decentralised, or distributed, database for trusted transactions that has no governing institutions.  The Financial Stability Oversight Council, the name for the group of regulators, said: Like most new technologies, distributed ledger systems also pose certain risks and uncertainties which market participant and financial regulators will need to monitor.   Its annual report noted: Market participants have limited experience working with distributed ledger systems, and it is possible that operational vulnerabilities associated with such systems may not become apparent until they are deployed at scale.  Some bitcoin fans have worried that one thing that could thwart the cyber-currency is action by governments worried about it becoming the currency of choice for terrorists and criminals.

What the Attack on the DAO Means for Banks - Changing the rules in the middle of the game. Rescuing the investors who took big risks at the expense of those who behaved prudently. Undermining the credibility of the system. No, we're not reminiscing about the 2008 global financial crisis. All these familiar plotlines resurfaced Friday in the cryptocurrency world in response to a $60 million theft. The situation has profound implications for the viability of distributed systems and smart contracts, and raises questions for banks that have been considering the Ethereum network as a possible basis for their own blockchain solutions. The attacker stole the funds — denominated in ether, the cryptocurrency native to Ethereum — from a kind of automated venture-capital fund called the DAO. The most controversial proposed fix would turn back the clock to before the attack occurred, thereby undoing the theft, like Superman bringing Lois Lane back to life by reversing the rotation of the Earth. This would amount to nothing less than a bailout of the DAO's beleaguered investors, jeopardizing the credibility of Ethereum itself.  Below is a breakdown of what we know about the hack and its consequences, what we don't know and what it means for financial institutions investigating the promise and peril of distributed ledger technology. The DAO, which stands for Decentralized Autonomous Organization, launched in May as an open-source project. The brainchild of Slock.it, a startup in Germany, the DAO takes the form of a smart contract running on Ethereum, a public cryptocurrency blockchain similar to bitcoin. A monthlong crowdsale of DAO tokens, which serve essentially as voting shares in the fund, raised $162 million worth of ether and was hailed by the Ethereum community as the biggest crowdfunding campaign in history. Like other smart contracts, of which there are, as yet, few examples in the wild, the DAO was designed to execute the terms in its code automatically, without the need for human intervention. Indeed, proponents argue that the contract is the code, and that smart contracts — living on a blockchain, viewable by all parties — could be more efficient and more transparent than traditional agreements. What has now become clear is just how devastating the consequences can be if that code is flawed.

A Quick Trip to the Oil Patch Shows Energy-Related Losses Rising - Readers of the latest edition of the Federal Reserve Bank of Dallas's quarterly southwest economy publication might want to keep that quote in mind. News from the oil patch — the 11th Fed district that encompasses the shale heartland — is not encouraging, as it reveals a sharper rise in souring energy-related loans. "The persistence of relatively low oil prices has begun taking a toll on district bank customers," the Dallas Fed said in its report. "Oil-price hedges become less effective the longer prices stay low, and the cushion built by energy firms during the good times gets thinner. Cash flow becomes stretched and collateral loses its value, further pressuring borrowers." That forces them closer to default unless banks are able to keep their lending spigots open. Many of these loans fall under the umbrella of commercial and industrial (C&I) lending — a category which has been surging in conjunction with commercial real estate (CRE) lending in recent years. While regulators have kept a somewhat lazy eye on rising CRE loans since even before the 2008 financial crisis (and certainly after it), the boom in C&I lending has been met with far less scrutiny — resulting in charts which look like this: And this: The ability of C&I lending to grow unconstrained looks set to change, however, as energy-related strains help elevate the amount of loans that are in or close to default. C&I lending in the Dallas Fed district has grown to become the biggest single component of past-due loans at the region's banks — outstripping both noncurrent (also known as non-performing) residential real estate and commerical real estate loans for the first time since 2005. "While noncurrent C&I loans have increased since the beginning of 2014, the pace quickened in the second half of 2015," the Dallas Fed said in its report, noting that the category now accounts for almost a third of district banks' total noncurrent loans — up from just 19 percent as recently as 2014.

FASB Issues Final Loan Loss Accounting Standard | ABA Banking Journal -  -- As long expected, the Financial Accounting Standards Board today issued its new loan loss accounting framework, also known as the current expected credit loss model. Bank regulators have described CECL as the “biggest change to bank accounting ever.” First proposed in 2012, CECL effectively requires bankers to record, at the time of origination, credit losses expected throughout the life of the asset portfolio on loans and held-to-maturity securities. This is in contrast to today’s “incurred loss” accounting, under which losses are recorded when it is probable that a loss event has occurred. Though the exact amount remains unknown, the new standard is expected to increase the allowance for loan and leases losses throughout the industry. CECL will require significant operational changes at all banks, including collecting and analyzing the type of data that supports the modeling of the life-of-loan loss expectation, as well as forecasting and quantifying losses in the future. “While we continue to have strong concerns with the costs related to CECL’s life of loan loss concept, we are committed to working with both regulators and auditors to ensure banks of all sizes can meet the implementation challenges of the new standard,” said ABA President and CEO Rob Nichols. “We appreciate the significant time and consideration FASB has given to bankers’ views as they worked on this extremely complex and difficult issue.” ABA staff have worked closely with FASB to advocate targeted improvements in the standard and to ensure it can be implemented by banks of all sizes. To help bank CEOs understand CECL, ABA has produced a brief introductory video.

If Past Is Prologue, Regulators Hear Small-Bank CECL Concerns - On June 16, the Financial Accounting Standards Board issued its long-awaited Current Expected Credit Loss impairment standard, or CECL. The standard, which requires "life of loan" estimates of losses to be recorded for loans at origination or purchase, has drawn significant concern from community bankers over the new rule's complexity and implementation costs. Regulators, on the other hand, have indicated their intent to reasonably apply the accounting standard based on the size of the institution and in consideration of the nature, scope and risk of the traditional lending activities of community banks.  Economists at the Federal Reserve Bank of St. Louis conducted empirical tests to determine how, under generally accepted accounting principles, regulators have evaluated the methodologies used by banks to manage their allowances for loan losses. Fed economists applied the regulatory expectation that changes in the level of the reserve for loan and lease losses should "be directionally consistent with" concurrent changes in credit quality. This was based on the 2006 Interagency Policy Statement on the Allowance for Loan and Lease Losses. That guidance stated that changes in the level of the allowance should be "directionally consistent" with changes in factors that, taken as a whole, evidence credit losses while also keeping in mind the characteristics of an institution's loan portfolio. The study found that annual changes in allowances for smaller banks, relative to larger banks, are less closely correlated with concurrent changes in nonaccrual loans. This is consistent with the idea that, while regulators expect all institutions to comply with GAAP, regulators have scaled their expectations, allowing smaller banks to operate within a broad "reasonable range of probable credit losses" as described by FASB.

Goodbye, Password. Banks Opt to Scan Fingers and Faces Instead. - The banking password may be about to expire — forever.Some of the nation’s largest banks, acknowledging that traditional passwords are either too cumbersome or no longer secure, are increasingly using fingerprints, facial scans and other types of biometrics to safeguard accounts.Millions of customers at Bank of America, JPMorgan Chase and Wells Fargo routinely use fingerprints to log into their bank accounts through their mobile phones. This feature, which some of the largest banks have introduced in the last few months, is enabling a huge share of American banking customers to verify their identities with biometrics. And millions more are expected to opt in as more phones incorporate fingerprint scans.Other uses of biometrics are also coming online. Wells Fargo lets some customers scan their eyes with their mobile phones to log into corporate accounts and wire millions of dollars. Citigroup can help verify 800,000 of its credit card customers by their voices. USAA, which provides insurance and banking services to members of the military and their families, identifies some of its customers through their facial contours.Some of the moves reflect concern that so many hundreds of millions of email addresses, phone numbers, Social Security numbers and other personal identifiers have fallen into the hands of criminals, rendering those identifiers increasingly ineffective at protecting accounts. And while thieves could eventually find ways to steal biometric data, banks are convinced they offer more protection.“We believe the password is dying,” said Tom Shaw, vice president for enterprise financial crimes management at USAA, which is based in San Antonio. “We realized we have to get away from personal identification information because of the growing number of data breaches.”

Senate Committee Approves Marijuana Banking Measure -— The U.S. Senate Appropriations Committee on Thursday approved an amendment to the Financial Services and General Government Appropriations bill that is intended to ease access to banking and other financial services for state-legal marijuana businesses. The amendment, authored by Sen. Jeff Merkley (D-OR), would prevent the spending of funds to prohibit or penalize banks and other financial institutions for providing services to state-legal marijuana businesses. Currently, many banks are unwilling to open accounts for marijuana businesses because they fear federal penalties, which has resulted in many of those businesses operating on a cash-only basis. “More than half of the U.S. population lives in jurisdictions where marijuana is legal for adult or medical use,” said Robert Capecchi, director of federal policies for the Marijuana Policy Project. “Millions of marijuana consumers are relying on licensed and regulated businesses to provide them with safe and legal access to marijuana. “Current federal policy all but ensures marijuana businesses operate on a cash-only basis, which raises safety concerns for their employees and the surrounding communities,” Capecchi said. “This measure should ease financial institutions’ concerns about opening accounts for these state-legal businesses.” In order to become law, the full Senate must approve the appropriations bill, the House must adopt similar language in its Financial Services and General Government Appropriations bill, and the president must sign it. The Senate Appropriations Committee approved a similar amendment last year, but it was not included in the final spending bill.

Congressional Republicans Block Marijuana Votes - The powerful Congressional committee just prevented two important marijuana law reform measures from being considered on the U.S. House floor. Late Tuesday night, the House Rules Committee blocked amendments that would allow state-legal cannabis businesses to access banking services and let Washington, D.C. spend its own money to legalize, tax and regulate marijuana sales. Advocates were hoping for votes in the full House on Wednesday when the body takes up the Fiscal Year 2017 Financial Services and General Government appropriations bill. Such spending bills typically operate under what’s called an open rule, meaning that any member can bring any germane amendment to the floor. But in the wake of controversy surrounding gay rights amendments on other appropriations bills in recent weeks, House Republican leadership has cracked down, instead bringing bills forward under structured rules that only allow specific amendments to be considered. But even though there won’t be House votes this year on banking services for cannabis businesses and rolling back federal interference with D.C. marijuana laws, it doesn’t necessarily mean that progress on those two issues is dead. When the Senate Appropriations Committee considered its version of the financial services spending bill last week, it adopted an amendment to allow marijuana banking by a vote of 16-14. And unlike the House proposal, it doesn’t contain any provisions preventing the District of Columbia from legalizing cannabis sales. If the relevant language remains intact through passage by the full Senate, the issues will be worked out in a conference committee through which members of both chambers will negotiate and merge the differences between the bills into a single proposal to send to the president.

CFPB Payday Plan Thwarts Success of State Laws - In early June the Consumer Financial Protection Bureau released its proposed rule to regulate payday lenders and other forms of credit, preempting existing payday lending regulations already in place in 36 states. This proposal, spanning an unbelievably convoluted 1,334 pages, was seemingly written to end what the bureau believes is an abusive product specifically designed to ensnare consumers in cycles of debt.  Unfortunately, the proposed rule is evidence the bureau repeatedly failed to perform the due diligence required to study how states like Colorado have worked in this area to create a balanced regulatory framework that both protects consumers from true predatory lending and maintains their ability to access short-term credit. Credit access continues to be a crucial issue for low- and moderate-income Americans as well as the millions of unbanked and underbanked in this country. According to a study by the Federal Reserve published in May 2015, close to half of all American households do not have $400 available in case of an emergency. It is vital to understand both the product and borrowers in this context when discussing regulating small-dollar lending. Thankfully, Colorado undertook the effort necessary to strike the appropriate balance between consumer protections and access to affordable credit when crafting its small-dollar lending regulations. In 2010, the Colorado state legislature passed a bipartisan set of reforms designed to increase protections for consumers while also ensuring the viability of lenders and access to credit. This was the state's second attempt at passing legislation to meet this objective. A previous law passed in 2007 failed to achieve these desired goals but proved to be a useful learning experience in what does and does not work. The 2010 law replaced the two-week loan with a six-month installment loan, requiring more time for the loan to be paid back and spreading costs over the life of the loan. Other reforms also created protections for borrowers' checking accounts, prohibited excessive costs and ensured early repayment was not penalized. These changes have proven to be a success for Coloradans.

Confessions of a Payday Lender: 'I Felt Like a Modern-Day Gangster' -  The new rules announced by the Consumer Financial Protection Bureau are relatively straightforward, if not also a disappointment to some consumer advocates. Already the House Appropriations Committee on June 9 approved an amendment that would delay implementation of any new rules that restrict payday loans. The coming months will offer lenders plenty of opportunity to try and derail the CFPB’s efforts. Which is why the voice of Phil Locke is so critical at this moment, as policymakers debate the future of short-term lending in the U.S. Locke, who opened the first of his 40-plus payday stores in Michigan in 1999, figured he and his investors cleared $10 million in profits in his first 13 years as a payday lender. He built a $1.6 million home in a leafy suburb of Detroit and showered his wife with $250,000 worth of jewelry. For five years, he served as president of the Michigan Financial Service Centers Association, the statewide association formed to defend payday lending there. But by September 2012, he was calling himself “a Consumer and Anti-Predatory Lending Activist,” which is how he described himself in an email he sent to me that month. He had experienced a change of heart, he said, and had turned his back on the industry. He had sold everything to move into an RV with his wife and two young children, bouncing between mobile home parks in Florida. “I really feel my mission in life is to educate lawmakers on what predatory loans do to the working poor,” Locke told me at the time.

Survey: Consumer Financial Protection Bureau Racist, Sexist - One in four of all black, Asian, and female employees surveyed at the Consumer Financial Protection Bureau reported that they had been victims of discrimination, according to a Government Accountability Office report. The bureau, which was created by the Dodd-Frank Wall Street Reform Act, exists to ensure that banks, lenders, and other financial companies treat Americans fairly.  The audit of the agency was conducted after a House Financial Services Committee investigation into disparities in employees’ performance ratings by race, age, and office location, during which employees came forward and testified to Congress about allegations of unfair treatment by agency managers and discrimination.“GAO’s survey found heightened concerns related to fair treatment, trust that employees can raise concerns without fear of reprisal, confidence in complaint processes, and other matters,” the report states.The report found that 27 percent of black respondents said they had personally experienced discrimination, along with 25 percent of Asian respondents, 25 percent of female respondents, and 22 percent of respondents who did not identify their race.Only 12 percent of white respondents said they were discriminated against, and 11 percent of male respondents.The audit also found that 9 percent of employees reported they had personally experienced retaliation by a supervisor, and another 10 percent said they observed retaliation against another employee.“Of the survey respondents who reported that they believed they had experienced discrimination, the most commonly reported bases for discrimination were race or ethnicity (47 percent), gender (47 percent) and age (41 percent),” the report explains.

Hensarling Statement on Continued Discrimination Problems at the CFPB | House Committee on Financial Services - One-quarter of black, Asian and female employees responding to a government watchdog’s confidential survey of employees said they have been the victims of discrimination at the Consumer Financial Protection Bureau (CFPB). The Government Accountability Office (GAO), which did the survey at the request of members of the House Financial Services Committee, has released  its findings. The Committee began an investigation of the CFPB’s treatment of its employees after whistleblowers came forward starting in 2014 with allegations of discrimination and retaliation. Chairman Jeb Hensarling (R-TX) made the following comments about the GAO’s report: “This report from the non-partisan GAO confirms that there are serious problems of discrimination and retaliation by managers against employees at the CFPB. This is exactly what multiple whistleblowers told our committee. “Only one man has the power to fix this immediately, and that’s Richard Cordray. As the report makes clear, this inexcusable behavior at the CFPB continues despite what are, at best, half-hearted attempts by Mr. Cordray to deal with it.For at least three years, Mr. Cordray has been presented time and again with evidence that CFPB managers discriminate and retaliate against his employees – from a report the CFPB commissioned in 2013, from whistleblowers, from Congress, from the Federal Reserve’s Inspector General and now from the Government Accountability Office. Why haven’t heads rolled? Instead of trying to sweep this offensive behavior under the rug, why hasn’t Richard Cordray called someone on the carpet? How can employees expect this to stop if no one in management is going to be held accountable? “There is an alarming lack of accountability at the CFPB. This has got to change.

CFPB issues warning to mortgage servicers: You can't hide behind bad computer systems - HousingWire: The Consumer Financial Protection Bureau just fired a shot across the bow of the country’s mortgage servicers after it found that some servicers are using outdated computer systems that could run them afoul of CFPB rules. The CFPB issued a special supervision report Wednesday focused specifically on mortgage servicers, stating that its investigators discovered that some mortgage services are currently using “failed technology” that has already “harmed” some consumers. The CFPB said that its investigations uncovered numerous violations of its rules because of deficient technology and process breakdowns at mortgage servicers. Specifically, the CFPB said that its examiners identified problems with loss mitigation and servicing transfers. The CFPB report notes that there has been improvement in the mortgage servicing industry in the last several years, but states that the industry has more work to do. “Mortgage servicers can’t hide behind their bad computer systems or outdated technology. There are no excuses for not following federal rules,” said CFPB Director Richard Cordray. “Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”  In 2013, the CFPB established mortgage servicing rules designed to protect consumers against many of the practices that plagued the mortgage servicing industry during and after the housing crisis.According to the CFPB, the rules require servicers to maintain accurate records, give troubled borrowers direct and ongoing access to servicing personnel, promptly credit payments, and correct errors on request.

Pimco Says 'Storm Is Brewing' in U.S. Commercial Real Estate -- U.S. commercial real estate prices may fall as much as 5 percent in the next 12 months amid tightened regulations, a wall of debt maturities and property sales by publicly traded landlords, Pacific Investment Management Co. said in a report Monday. A global surge in demand for U.S. property investments that pushed real estate values to records may wane as slowing growth in China, lower oil prices and dislocated debt markets threaten to halt six years of price growth, Pimco portfolio managers John Murray and Anthony Clarke said in their report, titled “U.S. Real Estate: A Storm Is Brewing.” “Storms form when moisture, unstable air and updrafts interact,” they said. A similar confluence of factors “is creating a blast of volatility for U.S. commercial real estate.” Pimco said there may be opportunities in a real estate shakeout, allowing some buyers to snap up properties at bargain prices. Additionally, a wave of maturing debt from the last decade’s boom starts coming due this year, opening a window for investors to fund borrowers who come up short, according to the report. “For flexible capital, this storm might be a welcome one indeed,” Murray and Clarke wrote.   Signs of a cooling real estate market have emerged across the country since the start of the year. Commercial-property values in big U.S. cities, which have seen the largest increases during the recent boom, have declined 3 percent in the past three months, Moody’s Investors Service and Real Capital Analytics Inc. said in a June 6 report. Real estate transactions in New York, the biggest U.S. property market, are forecast to decline by as much as 30 percent this year, brokerage Cushman & Wakefield said in April.

AIA: Architecture Billings Index increased "Sharply" in May --Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.  From the AIA: Healthy demand for all building types signaled in Architecture Billings Index Led by a still active multi-family housing market and sustained by solid levels of demand for new commercial and retail properties, the Architecture Billings Index has accelerated to its highest score in nearly a year. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 53.1, up sharply from the mark of 50.6 in the previous month. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 60.1, up from a reading of 56.9 the previous month. “Business conditions at design firms have hovered around the break-even rate for the better part of this year,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Demand levels are solid across the board for all project types at the moment. Of particular note, the recent surge in design activity for institutional projects could be a harbinger of a new round of growth in the broader construction industry in the months ahead.”
• Regional averages: West (53.8), South (53.7), Northeast (51.2), Midwest (49.9)
• Sector index breakdown: multi-family residential (53.7), institutional (53.0), commercial / industrial (51.0), mixed practice (51.0)

This graph shows the Architecture Billings Index since 1996. The index was at 53.1 in May, up from 50.6 in April. Anything above 50 indicates expansion in demand for architects' services. Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions. According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment in 2016 and early 2017.

Risky Business: Government Mortgage Insurance Programs - NY Fed - Homeownership has long been a U.S. public policy goal. One of the many ways that the federal government subsidizes homeownership is through mortgage insurance programs operated by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the USDA’s Rural Housing Service (RHS). These programs facilitate home financing opportunities for first-time and low- and moderate-income homebuyers. Virtually all of these government-insured mortgages are securitized by Ginnie Mae, a government agency that guarantees the timely payment of principal and interest of these loans to investors that purchase the securities. That is, the U.S. taxpayers assume the credit risk on these mortgages. In this post, we assess the riskiness of these loans.

NY Fed Warns about Booming Subprime Mortgages, now Insured by the Government - The New York Fed just warned about the ticking mortgage subprime time bombs once again being amassed, and what happens to them when home prices decline. But unlike during the last housing bust, a large portion of these time bombs are now guaranteed by the government. Subprime mortgages are what everyone still remembers about the Financial Crisis. They blew up has home prices fell. Folks who thought they were “owners with equity” found out that they were just “renters with debt.” And they dealt with it the best they could: forget the debt and the rent and stay until kicked out. Cumulative default rates on subprime mortgages spiked to 25% in 2007, according to the report. Banks ended up with the properties and collapsed. Mortgage backed securities based on these subprime mortgages imploded. Bond funds that held them imploded. All kinds of fireworks began. While subprime mortgages didn’t cause the Financial Crisis by themselves, they were an essential cog in a crazy machinery. Now, the machinery is even crazier, subprime mortgages are even bigger, and mortgage-backed securities, chock-full with subprime, are hotter than ever. Only this time, the taxpayer is on the hook.The NY Fed’s chart below shows the plunge in privately-insured subprime mortgages (red line) during the housing bust, and how the government (blue line) piled into this business: The thing is, according to the report: Virtually all of these government-insured mortgages are securitized by Ginnie Mae, a government agency that guarantees the timely payment of principal and interest of these loans to investors that purchase the securities. That is, the U.S. taxpayers assume the credit risk on these mortgages.

Lending to Poor People Didn't Cause the Financial Crisis - Barry Ritholtz -- Two of Donald Trump’s economic advisers, Lawrence Kudlow and Stephen Moore, have revived an idea about the source of the financial crisis that really should have been put to rest long ago.  In a column published and rebroadcast by many politically sympathetic sites, they lay the blame for the credit crisis and Great Recession on the Community Reinvestment Act, a 1977 law designed in part to prevent banks from engaging in a racially discriminatory lending practice known as redlining. The reality is, of course, that the CRA wasn’t a factor in the crisis. What’s so wonderful about their article, which is an attempted take down of the Clintons, is that they miss the very obvious ways Bill Clinton’s administration did contribute to the financial crisis. But doing that would have been at odds with their anti-regulatory philosophy. Here’s the heart of the Kudlow and Moore case: The seeds of the mortgage meltdown were planted during Bill Clinton’s presidency. Under Clinton’s Housing and Urban Development (HUD) secretary, Andrew Cuomo, Community Reinvestment Act regulators gave banks higher ratings for home loans made in “credit-deprived” areas. Banks were effectively rewarded for throwing out sound underwriting standards and writing loans to those who were at high risk of defaulting. If banks didn’t comply with these rules, regulators reined in their ability to expand lending and deposits. They then argue that this was part of a broader campaign to make loans to unqualified low-income folk, which in turn caused the crisis. Let’s just be clear about what the CRA does and doesn’t do. It simply says that if you open a branch office in a low income neighborhood and collect deposits there, you are obligated to do a certain amount of lending in that neighborhood. In other words, you can’t open a branch office in Harlem and use deposits from there to only fund loans in high-end Tribeca. A bank must make credit available on the same terms in both neighborhoods. In other words, a “red line” can’t be drawn around Harlem, a term that dates to when banks supposedly used colored pencils to draw no-loan zones on maps. Showing that the CRA wasn’t the cause of the financial crisis is rather easy...

Home Is Where The Fraud Is - At the height of the housing crisis, one woman’s bureaucratic odyssey to discover who really owns her home leads her to startling revelations about the housing market. Below is an excerpt from Chain of Title, by David Dayen, the true story of how a group of ordinary Americans took on the nation’s banks at the height of the housing crisis, calling into question fraudulent foreclosure practices. Lisa Epstein drove down Highway A1A, along the Intracoastal Waterway, back to her old apartment in Palm Beach. At her side was her daughter Jenna, in a car seat; atop the dashboard was an envelope containing the monthly payment on her unsold co-op. Though her house was in foreclosure, Lisa always paid the mortgage on the apartment, her fallback in case of eviction.  She never wanted to miss mortgage payments; Chase told her to do it and promised assistance afterward, but then put her into foreclosure. The delinquency triggered late fees, penalties, and notifications to national credit bureaus. A damaged credit score affected a mortgage company’s decision to grant loan relief, which hinged on the ability to pay. Even if Lisa managed to finally sell the apartment, even if she could satisfy the debt on the house, the injury from this “advice” would stick with her for years. Chase Home Finance never mentioned the additional consequences, emphasizing only the possibility of aid. The advice was at best faulty, at worst a deliberate effort to seize the home. Lisa spent a lifetime living within her means, guarding against financial catastrophe. Now Chase Home Finance obliterated this carefully constructed reputation. She felt tricked.

Black Knight's First Look at May Mortgage Data; Foreclosure Inventory down 29% YoY - From Black Knight: Black Knight Financial Services’ First Look at May 2016

• Foreclosure inventory now below 575,000 from over 800,000 just 12 months ago
• Foreclosure starts up from 10-year low in April, but at 62,100 remain below pre-crisis levels
• Prepayment speeds (historically a good indicator of refinance activity) continue to trail 2015 levels despite interest rates being lower than last year
• Delinquencies inched up in May; still down by over 13 percent on an annual basis

According to Black Knight's First Look report for May, the percent of loans delinquent increased 0.4% in May compared to April, and declined 13.5% year-over-year. The percent of loans in the foreclosure process declined 3.6% in May and were down 28.8% over the last year.  Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 4.25% in May, up from 4.24% in April. The percent of loans in the foreclosure process declined in May to 1.13%.  The number of delinquent properties, but not in foreclosure, is down 325,000 properties year-over-year, and the number of properties in the foreclosure process is down 229,000 properties year-over-year.

Lawler: Table of Distressed Sales and All Cash Sales for Selected Cities in May -- Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in May. On distressed: Total "distressed" share is down year-over-year in all of these markets.   Short sales and foreclosures are down in all of these areas. The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.

MBA: Mortgage "Rates Drop, Refi Apps Jump in Latest Weekly Survey" --From the MBA: Rates Drop, Refi Apps Jump in Latest MBA Weekly Survey Mortgage applications increased 2.9 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 17, 2016. ...The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 4 percent compared with the previous week and was 12 percent higher than the same week one year ago. ...The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since May 2013, 3.76 percent, from 3.79 percent, with points increasing to 0.33 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Mortgage Rates Near Record Lows -- From Matthew Graham at Mortgage News Daily: Single Best Day For Mortgage Rates in More Than a Year From yesterday's most prevalent conventional 30yr fixed quote of 3.625%, we're now easily down to 3.5% for most lenders. A few of the most aggressive lenders are already down to 3.375% on top tier scenarios. Back in 2012, 3.375% was the lowest rate that was maintained for more than a few days, although there were a few windows of opportunity for 3.25% and 3.125%. Considering some of the higher costs associated with today's mortgages (government guarantee fees and servicing costs), we're effectively back in line with all-time lows.  Here is a table from Mortgage News Daily: Home Loan Rates.  View More Refinance Rates.

FNC: Residential Property Values increased 5.6% year-over-year in April --FNC released their April 2016 index data.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.1% from March to April (Composite 100 index, not seasonally adjusted).   The 10 city MSA increased 1.6% (NSA), the 20-MSA RPI increased 1.5%, and the 30-MSA RPI increased 1.4% in April. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).  From FNC: FNC Index: April Home Prices Up 1.1% The latest FNC Residential Price Index™ (RPI) indicated U.S. home prices rose quickly in April, up 1.1% at a seasonally unadjusted rate. On a year-over-year basis, prices continue to enjoy modest growth, rising 5.6% from a year ago. Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data The index is still down 12.2% from the peak in 2006 (not inflation adjusted).

Existing Home Sales June 22, 2016: The housing sector may not be on fire but it is showing strength. Existing home sales rose 1.8 percent in May to an annualized 5.530 million which, though only modestly above recent readings, is still the best rate of the cycle, since back in February 2007. The year-on-year rate, in line with a long run of flat sales, is soft at only plus 4.5 percent. Details are solid led by prices where the median rose 3.8 percent in the month to $239,700. Still, like sales, the median is up only 4.7 percent on the year. Lack of available homes has been limiting sales though supply did rise 1.4 percent in the month to 2.150 million. This, however, is down 5.7 percent year-on-year. Supply relative to sales is unchanged at a very low 4.7 months. Regional data show strength in the largest region which is the South, up 6.5 percent year-on-year at a 2.280 million rate, and strength for the smallest, the Northeast at plus 11.6 percent for a 770,000 rate. The West is the lagging region, down 1.7 percent year-on-year at a 1.180 million rate. This isn't a spectacularly strong report but it may be a deceptive one. Prices are grinding higher and homes are moving into the market. Housing itself is only moderately strong but relative to other sectors is a standout performer this year.

Existing Home Sales increased in May to 5.53 million SAAR - From the NAR: Existing-Home Sales Grow 1.8 Percent in May; Highest Pace in Over Nine Years Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 1.8 percent to a seasonally adjusted annual rate of 5.53 million in May from a downwardly revised 5.43 million in April. With last month's gain, sales are now up 4.5 percent from May 2015 (5.29 million) and are at their highest annual pace since February 2007 (5.79 million). ... Total housing inventory at the end of May rose 1.4 percent to 2.15 million existing homes available for sale, but is still 5.7 percent lower than a year ago (2.28 million). Unsold inventory is at a 4.7-month supply at the current sales pace, which is unchanged from April. This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993. Sales in May (5.53 million SAAR) were 1.8% higher than last month, and were 4.5% above the May 2015 rate. The second graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 2.15 million in May from 2.12 million in April. Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer. The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.Inventory decreased 5.7% year-over-year in May compared to May 2015. Months of supply was at 4.7 months in May. This was close to consensus expectations. For existing home sales, a key number is inventory - and inventory is still low.

May 2016 Existing Home Sales Were At the Highest Pace in Over Nine Years: The headlines for existing home sales say "the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize". Our analysis of the unadjusted data shows that home sales improved relative to last month, but the rolling averages were unchanged. Sales price rate of growth slowed. Econintersect Analysis:

  • Unadjusted sales rate of growth accelerated 0.9 % month-over-month, up 6.3 % year-over-year - sales growth rate trend was statisically unchanged using the 3 month moving average.
  • Unadjusted price rate of growth decelerated 0.5 % month-over-month, up 3.2 % year-over-year - price growth rate trend declined using the 3 month moving average.
  • The homes for sale inventory grew this month, but remains historically low for Mays, and is down 5.7 % from inventory levels one year ago).

NAR reported:

  • Sales up 1.8 % month-over-month, up 4.5 % year-over-year.
  • Prices up 4.7 % year-over-year
  • The market expected annualized sales volumes of 5.350 to 5.680 million (consensus 5.570 million) vs the 5.53 million reported.

Existing Home Sales Highest Since Feb 2007 As Prices Hit Record High -- On the heels of FHFA reporting a disappointing 0.2% home price appreciation in April (the weakest since Jan 2015), May existing home sales rose, as expected by 1.8% MoM to 5.53mm SAAR - the highest since February 2007. All regions saw median home prices rise MoM (but Northeast -0.1% YoY) but The Midwest stood out with a 6.5% drop in sales. Median home prices jumped to a record $239,700 (up 4.7% YoY) but first time homeowners are disappearing, as NAR's Larry Yun notes a lack of inventory is "pushing prices out of reach for plenty of prospective first-time buyers." Home Sales at highest since Feb 2007... Surpassing the peak median sales price set last June ($236,300), the median existing-home price for all housing types in May was $239,700, up 4.7 percent from May 2015 ($228,900).May's price increase marks the 51st consecutive month of year-over-year gains. Total housing inventory at the end of May rose 1.4 percent to 2.15 million existing homes available for sale, but is still 5.7 percent lower than a year ago (2.28 million). Unsold inventory is at a 4.7-month supply at the current sales pace, which is unchanged from April. Lawrence Yun, NAR chief economist, says existing sales continue to hum along, rising in May for the third consecutive month."This spring's sustained period of ultra-low mortgage rates has certainly been a worthy incentive to buy a home, but the primary driver in the increase in sales is more homeowners realizing the equity they've accumulated in recent years and finally deciding to trade-up or downsize," he said.With first-time buyers still struggling to enter the market, repeat buyers using the proceeds from the sale of their previous home as their down payment are making up the bulk of home purchases right now.""Barring further deceleration in job growth that could ultimately temper demand from these repea t buyers, sales have the potential to mostly maintain their current pace through the summer."

A Few Comments on May Existing Home Sales -For existing homes, inventory is still key.  I expected some increase in inventory last year, but that didn't happened.  Inventory is still very low and falling year-over-year (down 5.7% year-over-year in May). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases. Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. Last year, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply. Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade. The following graph shows existing home sales Not Seasonally Adjusted (NSA).Sales NSA in May (red column) were the highest for May since 2006 (NSA). This is a solid first five months for 2016.

New Home Sales decreased to 551,000 Annual Rate in May  --The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 551 thousand.  The previous three months were revised down by a total of 55 thousand (SAAR). "Sales of new single-family houses in May 2016 were at a seasonally adjusted annual rate of 551,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.0 percent below the revised April rate of 586,000, but is 8.7 percent above the May 2015 estimate of 507,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales since the bottom, new home sales are still fairly low historically. The second graph shows New Home Months of Supply.
The months of supply increased in May to 5.3 months.  The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal).  "The seasonally adjusted estimate of new houses for sale at the end of May was 244,000. This represents a supply of 5.3 months at the current sales rate."  Starting in 1973 the Census Bureau broke inventory down into three categories: Not Started, Under Construction, and Completed.The third graph shows the three categories of inventory starting in 1973.bThe inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate). In May 2016 (red column), 51 thousand new homes were sold (NSA). Last year 47 thousand homes were sold in May.

New Home Sales Plunge Most In 8 Months (From 8 Year Highs) As Prices Fall - Despite exuberance in existing home sales, new home sales just printed 551k SAAR - missing expectations for the first time since Oct 2015 - sliding by the most since Sept 2015. With the last 3 months of exuberant increases - to 8 year highs - now revised drastically lower; and median prices tumbling to the lowest since June 2015, the picture of the US housing recovery is considerably less rosy than before... time for a rate-hike? This is what we said last month when new home sales soared to 8 year highs... Here is what drove the overall surge: a clearly "goalseeked" number resulting from a massive surge in Northeast sales, one which will be promptly revised lower next month.   And now this happens!! With sales dropping the most in 8 months... Even with prices being slashed to 10 month lows... Charts: Bloomberg

May 2016 New Home Sales Decline But Rolling Averages Improve: The headlines say new home sales declined from last month's downwardly revised numbers. The rolling averages smooth out much of the uneven data produced in this series - and this month there was still improvement in the rolling averages. This data series is suffering from methodology issues. Econintersect analysis:

  • unadjusted sales growth decelerated 10.2 % month-over-month (after last month's acceleraton of 12.2 %).
  • unadjusted year-over-year sales up 8.5 % (Last month was 18.8 %). Growth this month was withinr the range of growth seen last 12 months.
  • three month unadjusted trend rate of growth accelerated 2.7 % month-over-month - is up 11.4 % year-over-year.

US Census Headlines:

  • seasonally adjusted sales down 6.0 % month-over-month
  • seasonally adjusted year-over-year sales up 8.7 %
  • market expected (from Bloomberg) seasonally adjusted annualized sales of 500 K to 610 K (consensus 565 K) versus the actual at 551 K.

The quantity of new single family homes for sale remains well below historical levels.

Housing resumes a positive trend: The big story in housing this month was always going to be whether or not last month's post-recession record in new home sales was going to be revised away. And the good news is, it wasn't, although it was revised 30,000 lower. On top of that, a second piece of very good news is that this month's number was higher than every other post-recession number except for last month's: In other words, the most leading number we have for housing shows that an upward trend has at least for now resumed. There was a third piece of fairly good news in housing permits as well. While the overall number declined, revisions to previous months' data made the April number for single family permits a post-recession high: What has happened is that the new highs for single family units have not increased by more than permits for multi-unit structures have decreased. Let's also compare permits and starts. Permits (red in the graph below) spiked in May and June of last year due to the expiration of an NYC program. A second spike in November was also largely due to NY State. But while permits sagged after the spikes, actual starts increased slightly in spring 2015 and have gone sideways since: It's also worth noting that yesterday's existing home sales number also set a post-recession record (graph courtesy Calculated Risk): Finally, let's look at house prices (blue in the graph below).  These have been flat for nearly two years, while housing starts (green) as indicated above, continued to increase until one year ago and have been flat since then:

The U.S. Housing Market in 9 Charts -  The resurgence of the housing market has been a bright spot for the U.S. economy, contributing to employment, investment and overall growth. But by many measures it remains well below historical norms, highlighting the severity of the housing bust while also factoring into low inventories and rising prices. Sales of existing homes rose to their highest level in more than nine years and prices climbed to a new peak in May, underscoring strong demand amid steady job creation and low interest rates. But adjusted for inflation, prices remain well below their bubble-era peak, suggesting the market isn’t overheating. Affordability could become more difficult if interest rates start to rise. One reason home prices have been climbing is lack of supply. From 1970 until the end of 2000—a period that includes five recessions—starts on single-family homes averaged nearly 1.1 million a year. As of May, the rate was only 764,000. Investment in private, residential construction also is below historical norms, even in nominal dollars (not adjusted for inflation). While private spending on multi-family housing has surpassed its bubble-era peak, spending on single-family is still lagging. Builders also have been focusing more on bigger homes. Houses with more square feet and more amenities are more profitable, while also contributing to higher prices and leaving fewer options for first-time home buyers. From 1999 to 2015, the number of new, single-family homes under 1,400 square feet fell by 75%, while the number of new homes 4,000 square feet or more rose 22%. Sliced another way, about 31% of new homes were 3,000 square feet or bigger in 2015, compared with only 17% in 1999. Homes smaller than 2,400 square feet made up 21% of the newly built market last year versus 37% in 1999. Clearly, there’s plenty of demand for homes as more people find jobs, millennials join the workforce and wages rise. But most new households have been renters in recent years, a sharp reversal from the years prior to the recession and a factor behind rising rents in many parts of the U.S. According to data released Thursday, purchases of new, single-family homes fell 6.0% from a month earlier to a seasonally adjusted annual rate of 551,000 in May, the Commerce Department said.

10 years after housing peaked, US is more of a renter nation: . (AP) — It's a troublesome story playing out across America in the 10 years since the housing bubble peaked and then burst in a ruinous crash: As real estate has climbed back, homeowners are thriving while renters are struggling. For many longtime owners, times are good. They're enjoying the benefits of growing equity and reduced mortgage payments from ultra-low rates. But for America's growing class of renters, surging costs, stagnant pay and rising home values have made it next to impossible to save enough to buy. The possible consequences are bleak for a nation already grappling with economic inequality: Whatever wealth most Americans possess mainly comes from home equity. An enlarged renter class means fewer Americans can build that same wealth and financial security. Nearly two-thirds of adults still own homes. And some who rent do so by choice. Yet ownership has become a more distant dream for the many Americans who still regard it as a route to prosperity and pride. The problem has become especially severe in areas that offer the best job prospects as well as those that have been battered by foreclosures. "It doesn't paint a pretty picture," said Svenja Gudell, chief economist at Zillow, the online real estate database company. "You're really blocking out a group of buyers from owning a home. They're truly living paycheck to paycheck, and that does not put them into a good position to buy."

Renters Are Making More, And Landlords Get It All -- A popular narrative of the U.S. housing market has been that big city prices are locking out young buyers, feeding a cycle in which a growing number of people are forced to rent at ever higher rates as demand overwhelms supply. Throw in the fact that wages haven’t kept pace, and you have a world where a wide swath of Americans can't save enough to ever buy that first home. The reality may be a bit more complicated. It's true that, when combined with a lack of government support for affordable housing, this situation has pushed the number of cash-poor renters to a new high. Some 26 percent of U.S. renters paid at least half their income to landlords in 2014, up from 20 percent in 2001, according to the State of the Nation’s Housing report, published on Wednesday by Harvard’s Joint Center for Housing Studies. On the other hand, the number of homeowners who are severely cost-burdened by mortgage payments (paying 50 percent or more of their income) or moderately cost-burdened (paying 30 percent to 50 percent) actually fell from 2013 to 2014, the JCHS study said. And while the poorest renters are more likely to find themselves in dire straits, data suggests that market-rate renters1 are keeping up with those rising rents, and are thus able to put some money away for that eventual first purchase. The median rent-to-income ratio (derived from 4 million apartments tracked by RealPage) has hovered between 22.9 percent and 23.3 percent since 2010. While rents increased over that period, so did the median income of market-rate renters, which rose from $44,000 in 2010 to almost $58,000 so far this year. That’s partly because incomes have risen faster for more affluent renters, Willett said, and partly because changing home-buying behavior has kept higher earners in the rental pool longer. Those trends have been good for landlords, and they show that most renters are able to find apartments that fit their budgets. The poor, however, are still bearing the brunt of a tight market: For the bottom tier of rental units, described as "Class D" in the chart below, the median renter is spending more than 30 percent of his or her income on rent.

Middle-Income Families Are Increasingly Losing Ground on Affordability, Despite a Housing Recovery - Deepening income inequality across the U.S. is dividing the housing market into winners and losers among renters and owners, the middle class and wealthy, and racial groups. An annual report from Harvard University’s Joint Center for Housing Studies, the State of the Nation’s Housing, reveals that even while the housing market begins to recover and regain solid footing, large parts of the country are being left behind. The number of American households paying more than 30% of their incomes on housing – a number that economists consider sustainable — ticked up to nearly 40 million in 2014.  That is particularly concerning because that number had been trending down for three years, suggesting the rental affordability crisis persists despite recent income growth. Middle-income families are increasingly losing ground, facing housing affordability challenges that were once largely limited to the poor. In the 10 highest-cost housing markets, half of renters earning $45,000 to $75,000 a year in 2014 paid at least one-third of their incomes in rent. One reason middle-income renters are struggling to find an affordable apartment: Developers are catering to a growing number of affluent renters. While newer rentals have always commanded higher prices than older units, the premium for new apartments has risen sharply, the Harvard report finds. The median asking rent for new apartments built in 2015 was $1,381 per month, more than 70% higher than the overall median rent. The rent premium for new studio apartments was even more stark, at 90% above the overall price for a studio. “It is just astounding how universal it seems to be” that the majority of new rental apartments in cities across the country are at the high end,

It’s Not Just Millennials Who Aren’t Buying Homes -- In recent years, much attention has been focused on the growing tendency of millennials to rent. Theories for the decrease in homeownership among young adults abound. They include rising student debt levels that crowd out additional borrowing, a tendency to live in more urban areas where the cost to buy is relatively high, a generally tougher credit environment, and even shifts in the perception of homeownership in the wake of the housing bust. The ideas have been widely debated, and yet no single factor seems to neatly explain the declining share of the millennial population opting to buy a house. (See thiswebcast by the Atlanta Fed’s Center for Real Estate Analytics for a discussion of these issues.) To the extent that these factors are true, they may be affecting the decisions of other generations as well. Chart 1 below shows the overall average homeownership rate and homeownership rates by age group from 1982 to 2015. It’s clear that homeownership rates have declined for everyone during the past 10 years, not just for millennials.In fact, homeownership among young Generation Xers has fallen by a bit more than the millennial generation since the housing peak—declining 11 percentage points since 2005 compared with a decline of 9 percentage points for those under 35 years old.Another interesting point of comparison is the mid-1980s to mid-1990s, a period in which the United States had a relatively stable share of owner-occupied housing of around 64.0 percent. During the subsequent housing boom, the homeownership rate climbed to a peak of 69 percent in 2004, only to fall back down to 63.7 percent in 2015, a level similar to that prevailing before 1995. However, each age group under age 65 has a somewhat lower homeownership rate than their same-aged peers had during the 1986–94 period.

We Have Tools to Revive Homeownership -- It s Time to Use Them - Homeownership in America today is at a crossroads. The percentage of homeowners has dropped to 63.5%, down from a peak of 69.1% just before the housing crisis. We know how to safely reverse that trend. Now is the time to act. To improve minority homeownership rates, and in the process bolster the overall homeownership rate, the mortgage industry should begin by taking a careful look at the criteria used to enable homeownership, known in the industry as the three Cs: credit, collateral and capacity. The forecasts of a declining homeownership rate are based on static assumptions about public policy and the effectiveness and growth of private sector and nonprofit programs that would encourage homeownership. By some estimates, the homeownership rate will decline even more sharply in the decade ahead as millennials choose to rent, instead of own, their homes. They ignore the fact that, while most research shows that millennials are not buying homes now, 80% of millennials overall say that owning a home is an important part of the American dream. Additionally, 87% of African-Americans and 84% of Hispanics agree.  For the most part, forecasts of a further decline in homeownership assume that, because homeownership rates for minority groups have trailed that of whites, and because minorities are the fastest growing segment of the overall population, the homeownership rate has to decline. The past does not have to be prologue — and more emphatically, there's no need for past trends to carry forward into the future. Because minority homeownership rates have historically been lower than that of whites doesn't mean that they have to continue along the same path.

Do Demographics Affect Loan Delinquency? - - St Louis Fed - Demographic characteristics such as age, education, and race or ethnicity are correlated with a host of economic and financial behaviors and outcomes, including borrowing and delinquency rates. If demographic factors truly didn’t matter—if all individuals and families faced identical choices and opportunities in what we called a Demographics-Don’t-Matter (DDM) framework—then these correlations simply might reflect a connection between differences in risk preferences and differences in age, education, and race or ethnicity. Groups that more frequently miss loan payments, for example, might just prefer “living close to the edge” financially so that a given economic or financial shock is more likely to represent a tipping point into delinquency. In principle, any member of a delinquency-prone demographic group could mimic the behavior of families that aren’t as likely to be delinquent; most simply choose not to do so. An alternative approach to understanding demographic correlations with delinquency rates is to assume that all groups do not face identical choices and opportunities. Instead, for structural or historical reasons, some individuals and families may live with more risk than others.  Using Survey of Consumer Finances data for the period 1989-2013, we find limited support for the DDM hypothesis. In other words, if we assume that all families face the same opportunities and choices, then differences in a large set of observable financial and nonfinancial variables largely—but not completely—eliminate the role of demographic characteristics in predicting loan delinquency. Under this theoretical framework, groups with high delinquency risks have chosen to take on more risk; they could, if they chose, mimic low-risk groups and eliminate the gap in delinquency rates.

How the Government Hides Inflation, as Housing Costs Soar | Wolf Street: For inflation lovers, the headline numbers that the Bureau of Labor Statistics reported today was benign: The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.2% in May, seasonally adjusted. Over the last 12 months, not seasonally adjusted, the index rose 1.0%. The Atlanta Fed’s “sticky-price” CPI – “a weighted basket of items that change price relatively slowly,” as it says – wasn’t quite that benign. It rose 2.6% for the 12-month period, the hottest increase since April 2009! So prices are rising. Not that this is a surprise to anyone trying to make ends meet on a monthly basis. But now even the official numbers are beginning to limp behind reality. The report by the BLS had a mix of rising and falling prices. Energy got more expensive. The price of oil has jumped since February, and so the price of gasoline rose 2.3% in May, seasonally adjusted, after having soared 8.1% in April. Without seasonal adjustment, it jumped 6.6% in May. Fuel oil jumped 6.2%, natural gas rose 1.7%, electricity edged down 0.2%. But the energy index is still below last year with gasoline down 16.9%. So yes, energy prices are rising, but they’re still down from a year ago. That cannot be said of rents.The Consumer Price Index contains two housing components: “Owners’ equivalent rent of primary residence” (OER) and “rent of primary residence” (Rent). They purport to measure the cost of “Shelter,” which is the “consumption item” that a home provides and is thus included in the CPI. The cost of the home itself and any improvements to the home are considered an “investment,” not consumption, and therefore not part of the CPI. “Owners’ equivalent rent” accounts for 24.2% of total CPI. “Rent of primary residence” accounts for 7.7% of CPI. Combined they account for 31.9% of CPI. “Shelter,” which adds those two and some other items, accounts for 33.2%, by far the largest and most important component of the CPI. The data are obtained by survey. For “owners’ equivalent rent,” homeowners are asked what they think they would have to pay if they were renting the home. A measure of implicit rent. Would homeowners think that rents of their types of homes are increasing? Nope. They’re not renting. They have no idea. They can easily fool themselves.

United States Redbook Index - Redbook Index in the United States increased by 0.90 percent in the week ending June 18 of 2016 over the same week in the previous year. Redbook Index in the United States averaged 2.33 percent from 2005 until 2016, reaching an all time high of 7.60 percent in March of 2005 and a record low of -5.80 percent in July of 2009. Redbook Index in the United States is reported by the Redbook Research Inc..The Johnson Redbook Index measures the growth in the U.S. retail sales. The index is based on the sales data of around 9,000 large general merchandise retailers representing over 80 percent of the equivalent 'official' retail sales series collected and published by the US Department of Commerce. This page provides the latest reported value for - United States Redbook Index - plus previous releases, historical high and low, short-term forecast and long-term prediction, economic calendar, survey consensus and news. United States Redbook Index - actual data, historical chart and calendar of releases - was last updated on June of 2016.

Online Gun Store Sells 30,000 AR-15s In Week After Orlando - In the aftermath of the Orlando shooting, gun sales have started to pick up again, just as the case was in the aftermath of the Newtown tragedy. We first reported that in the aftermath of the Orlando shooting, Adventure Outdoors owner Jay Wallace said that AR-15s and other firearms were flying off the shelves because people are afraid that the government is going to take guns away. This trend is now spreading to other gun stores, as we now learn that online gun store Hunter's Warehouse, based in Bellevue, Pennsylvania sold more than 30,000 AR-15 semi-automatic rifles in one seven day period after the Orlando shooting.  Tom Engle, the owner of Hunter's Warehouse said the shooting itself wasn't pushing up gun sales, rather it was the fear that the government would start banning guns that drove people to purchase now."Shootings don't push up gun sales. It's when the government starts talking about banning particular guns and up go gun sales. When people lose their right to buy a particular gun or a particular type of gun, they go after them and they want them then."

U.S. Economic Confidence Index Edges Down to -15 -- Americans' confidence in the economy declined slightly last week, driven by their worsening views of the economy's direction. Gallup's U.S. Economic Confidence Index score for the week ending June 19 was -15, down from -12 the week before, but still roughly similar to readings since early April. Overall, confidence remains lower than it was in the first half of 2015, when plummeting gas prices boosted Americans' confidence. Gallup's U.S. Economic Confidence Index is averaging -12 so far in 2016, a drop from the average of -8 for 2015, but slightly better than the averages for 2014 (-15) and 2013 (-16). Confidence remains significantly higher than it was in the years during and immediately after the Great Recession, when it averaged -37 from 2008 to 2010. Gallup's U.S. Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans say the economy is doing well and improving, and a theoretical minimum of -100 if all Americans say the economy is doing poorly and getting worse. Americans' views about the economy's momentum soured last week, while their views about current economic conditions held steady. The economic outlook rating of -23, down from -18 the previous week, reflected 36% of Americans saying the economy was getting better and 59% saying it was getting worse. The current conditions rating of -6 reflected 25% of Americans describing current economic conditions as "excellent" or "good," and 31% describing them as "poor."

Final June 2016 Michigan Consumer Sentiment Below Expectations: The University of Michigan Final Consumer Sentiment for June came in at 93.5, a 1.2 point decrease from the 94.7 May Final reading. Investing.com had forecast 94.0. Surveys of Consumers chief economist, Richard Curtin makes the following comments: Consumers were a bit less optimistic in late June due to rising concerns about prospects for the national economy. While no recession is anticipated, consumers increasingly expect a slower pace of economic growth in the year ahead. Importantly, the persistent strength in personal finances will keep the level of consumer spending at relatively high levels and continue to support an uninterrupted economic expansion. Over the past 18 months, the Sentiment Index has shown only minor fluctuations about a very positive trend, with the June 2016 level a bit higher than the overall average (93.5 vs. 92.6). This relative stability stands in sharp contrast to the much more volatile path of GDP. The stability in the overall Sentiment Index reflects a gradual improvement in assessments of current conditions being offset by a downward drift in the economic prospects. The Current Conditions Index reached in the June survey its highest level since January of 2007, while the Expectations Index declined a modest 9.5% from its January 2015 peak. Although the data are consistent with GDP growth falling slightly below 2.0% in 2016, real consumer spending can be expected to rise by 2.5% in 2016 and 2.7% in 2017. See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.

Why this Economy Feels Even Crummier than the Data - Wolf Richter --Total business sales in the US did in April what they’ve been doing since July 2014: they dropped: -2.9% from a year ago, to $1.28 trillion (not adjusted for seasonal differences and price changes), the Censuses Bureau reported on Tuesday. That’s where sales had been in April 2013! This is a barometer of just how tough business has become in the US. These sales are not just corporate sales, but total sales, including those by small operations and sole proprietorships. The data is survey based, and covers only sales in the US, unlike sales reported by S&P 500 companies, which include sales by their ventures overseas. These total business sales are composed of three categories: sales by merchant wholesalers (34% of total), manufacturers (35% of total), and retailers (31% of total).And they were crummy in April: Sales by manufacturers dropped 4.7% year-over-year to $453.7 billion, not seasonally adjusted; sales by retailers rose 2.1% to $394.3 billion; and sales by merchant wholesalers dropped 5.3% to $430.6 billion. Among wholesalers, sales in the biggest durable-goods categories all dropped year-over-year: automotive -4.1%, professional equipment -0.7% (including computer equipment -6.6%), electrical equipment -7.4%, and machinery -2.2%. Non-durables did just as badly, except for drugs, which rose 2.9%. They’re the largest of all wholesale categories at $52.7 billion! They accounted for 12.2% of total wholesales! This is where the US economy is headed. Drug sales increase no matter what, based on rampant price increases by state-protected monopolistic structures that continue to gain heft via incessant mergers and acquisitions. It gets worse: These sales are not adjusted for price changes. But over the four-year period, the Consumer Price Index increased 4.2%. So in real terms, chop off another piece of that miserable sales pie.

Boeing Signs Deal to Sell Planes to Iran: The proposed deal could be the biggest a U.S. manufacturer has made with Iran since the easing of sanctionsAfter months of talks, Boeing has signed a tentative agreement to sell jetliners to Iran, in a deal that could be worth up to $25 billion.The proposed deal with state-owned Iran Air could be the biggest a U.S. manufacturer has made with the country since the easing of trade sanctions, reports the Wall Street Journal. Boeing is one of the many plane makers eyeing the Iranian market. In January, the European Airbus Group SE announced a 118-jet agreement with Iran, which has yet to be completed.Iran Air said on Monday that pending approval from its government and the U.S., it planned to lease single-aisle 737 and long-haul 777 planes. But such a deal could be months from completion due to lenders’ uncertainty over financing projects with the Islamic Republic and the need for the U.S. to sign off on any sale to Iran.

LA area Port Traffic Increased in May, Busiest May in Port of Los Angeles History --Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic. From the Port of Los Angeles: Double-Digit Growth Propels Port of Los Angeles to Busiest May in Port History Overall cargo volumes at the Port of Los Angeles increased nearly 11 percent in May compared to the same period last year, marking the busiest May in the Port’s 109-year history. Total volumes registered at 770,409 Twenty-Foot Equivalents (TEUs), with container growth of 8.7 percent for the first five months of 2016 compared to last year.  The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).  To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.   On a rolling 12 month basis, inbound traffic was up 0.7% compared to the rolling 12 months ending in April. Outbound traffic was up 0.4% compared to 12 months ending in April. The downturn in exports over the last year was probably due to the slowdown in China and the stronger dollar. The 2nd graph is the monthly data (with a strong seasonal pattern for imports). Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March (depending on the timing of the Chinese New Year). In general exports are moving sideways and imports are gradually increasing.

Crude rail shipments down but not out -- With lower crude oil prices, North Dakota drillers dramatically cut production over the past winter and spring, but trains continue to roll through Midwestern communities loaded with the volatile cargo. Data released this week by the U.S. Energy Information Administration show that even as overall volumes of crude rail shipments fell last year, the amount of crude on the nation’s rails last year was still higher than in any year prior to 2014. The 325.8 million barrels was more than twice what was shipped in 2012 and 16 times the level in 2010. In the first three months of this year, more than 33.6 million barrels of oil were shipped by rail from Midwestern rigs. That works out to more than five fully-loaded trains each day. At the peak of the Bakken oil boom it was about 12 trains per day.Overall U.S. oil production in the first quarter of 2016 was down only 4 percent from the all-time peak in 2015. For perspective, trains carry less than 5 percent of the nation’s oil supply (the majority flows through pipelines). But most of the crude that is shipped by rail comes from the 13-state Midwest region, and more than 80 percent of that comes from North Dakota, which last year pumped out more than 428 million barrels. That volatile Bakken oil ends up in refineries around the country, but more than half goes to the East Coast, and the most direct rail routes run through Minnesota and Wisconsin. Two of those lines — the BNSF and Canadian Pacific — intersect in La Crosse. Midwestern crude rail shipments were down less than a percent in 2015, according to the EIA, and there was a slight increase in the amount moved from the Midwest to the East Coast.

Rail Week Ending 18 June 2016: Rail Contraction Continues With Rolling Averages Mixed: Week 24 of 2016 shows same week total rail traffic (from same week one year ago) contracted according to the Association of American Railroads (AAR) traffic data. The short term rolling average's contraction is moderating. The deceleration in the rail rolling averages began over one year ago, and now rail movements are being compared against weaker 2015 data.A summary of the data from the AAR: For this week, total U.S. weekly rail traffic was 516,096 carloads and intermodal units, down 6.3 percent compared with the same week last year. Total carloads for the week ending Jun. 18 were 250,748 carloads, down 8.5 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 265,348 containers and trailers, down 4.2 percent compared to 2015. Three of the 10 carload commodity groups posted an increase compared with the same week in 2015. They were grain, up 24.3 percent to 22,711 carloads; miscellaneous carloads, up 16.8 percent to 10,454 carloads; and motor vehicles and parts, up 0.1 percent to 18,700 carloads. Commodity groups that posted decreases compared with the same week in 2015 included petroleum and petroleum products, down 24.8 percent to 10,627 carloads; coal, down 20.6 percent to 75,606 carloads; and metallic ores and metals, down 8.9 percent to 22,944 carloads. For the first 24 weeks of 2016, U.S. railroads reported cumulative volume of 5,773,236 carloads, down 13.3 percent from the same point last year; and 6,179,631 intermodal units, down 2.4 percent from last year. Total combined U.S. traffic for the first 24 weeks of 2016 was 11,952,867 carloads and intermodal units, a decrease of 8 percent compared to last year.

Trucking Tonnage Data Improved in May 2016: Truck shipments were reported up in May - even though the BLS employment data was very weak.  The American Trucking Associations' (ATA) trucking index increased 2.1 % in May, following a decline in April. From ATA Chief Economist Bob Costello: Following two consecutive decreases totaling 6 percent, May was a nice increase in truck tonnage. Better consumer spending in April and May certainly helped, but economic growth remains mixed and I'd expect the recent choppy pattern in tonnage to continue for the next quarter or two. We recently received good news on the inventory cycle, with the total business inventory-to-sales ratio declining for the first time in nearly a year. While one month doesn't make a trend, this was good news for the trucking industry.  Compared with one year ago, seasonally adjusted tonnage increased 5.7 %. Econintersect tries to validate ATA truck data across data sources. It appears this month that jobs growth says the trucking industry employment levels were down month-over-month. Please note using BLS employment data in real time is risky, as their data is normally backward adjusted significantly. Cass:  The May freight shipments index rose 1.3 percent from April. This represents the high point so far for 2016, but it was still 5.8 percent below May 2015 and 7.0 percent lower than May 2014. This year we have failed to see the robust growth in shipments that we expect to see this time of year. In May, railroad carload shipments and container shipments were up 1.9 and 2.1 percent respectively. The Association of American Railroads (AAR) reported that May carloads were 10.3 percent lower than in the same month in the 2015, while intermodal container shipments were 3.3 percent lower than last year. Truck tonnage continues to slide for both linehaul and spot markets. Port activity improved slightly in May, but not enough to contribute to a great increase in domestic movements. Industrial production dropped 0.4 percent in May, with the biggest declines in manufactured goods, especially autos. The decline was much larger than had been forecast.

Werner Issues "Disturbing" Warning About State Of Trucking And Logistics Industry -- Following ongoing warnings of the dismal reality surrounding heavy, Class 8 trucking, reality finally hit overnight when trucking and logistics company Werner Enterprises warned that a sluggish freight market and increases to driver pay would hurt its second-quarter earnings, leading to a plunge in its stock price. Werner said it now expects to report a profit of 21 cents to 25 cents a share, which includes a pretax gain of $3.4 million from the sale of real estate; this was nealy 50% below the consensus forecast of 40 cents a share. Werner also said market conditions have led to “difficult” customer rate negotiations. The announcement was a confirmation of the company's Q1 warning when the company said market conditions could make it tough to attain year-over-year rate increases during the next few quarters. Werner was not alone: its peer Knight Transportation and Swift Transportation all saw double-digit profit declines in the first quarter, partly because of rising driver wages. Knight and Swift shares also declined in sympathy in after-hours trading Monday. Werner said Monday that it is focusing on cost-management initiatives. The company is moving toward a goal to reduce the average age of its truck fleet to about 1.5 years by Dec. 31, but it doesn’t plan to expand its truck fleet until freight and rate markets “show meaningful improvement.”

Chemical Activity Barometer indicated "Solid Growth in June" --Here is an indicator that I'm following that appears to be a leading indicator for industrial production. From the American Chemistry Council: Chemical Activity Barometer Continues Solid Growth in June; Signals Higher U.S. Business Activity Through End Of The Year The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), expanded 0.8 percent in June following a revised 0.9 percent increase in May and 0.7 percent increase in April. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB remains up 2.5 percent over this time last year, a marked deceleration of activity from one year ago when the barometer logged a 2.7 percent year-over-year gain from 2014. On an unadjusted basis the CAB jumped 0.4 percent in June, following a similar 0.4 percent gain in May. The CAB is signaling higher U.S. business activity through the end of the year. (graph).

Chemical activity points to a stronger economy: The Chemical Activity Barometer, published monthly by the American Chemistry Council since 1919, has jumped 3% in the past 3 months, and is up 2.5% in the past year. This strongly suggests that industrial production—which has been quite weak for the past year or so (due in part to the big slowdown in oil drilling and exploration)—will pick up in coming months. This should go hand in hand with stronger GDP numbers over the course of the year as well. Definitely good news. The chart above shows the Chemical Barometer Activity index for the past 8 years. The recent uptick is significant. The chart above shows the index going back to 1960. It tracks overall economic activity pretty closely. The index also appears to do a good job of leading the growth in industrial production, and by inference, the overall economy. For more detailed information, see Calculated Risk. Truck tonnage, shown in the chart above, has also picked up this year. The February spike had looked a bit anomalous, but the May reading confirms that activity has picked up over the course of the year. Chemical activity and truck tonnage both track actual physical activity in the economy, and both are pointing to improvement.

US durable goods orders fell 2.2% in May vs. 0.5% drop expected: Orders for long-lasting factory goods fell more sharply than expected in May, amid a huge drop in defense aircraft orders. Durable goods orders tumbled 2.2 percent in the month, steeper than the 0.5 percent drop expected and following a revised 3.3 percent in April. Defense aircraft orders plunged 34 percent, while orders that excluded transportation were down 0.3 percent. Excluding defense, orders fell 0.9 percent.

Durable goods orders, Consumer sentiment, UK comments - May proved to be a generally weak month for the factory sector. Minus signs spread across the durable goods report with total new orders down a very sizable 2.2 percent and ex-transportation orders, which exclude aircraft and vehicles, down 0.3 percent. The worst news comes from capital goods, a sector where weakness points to weakness in business investment and ultimately the nation’s productivity. Orders for core capital goods fell 0.7 percent in the month while shipments, which are inputs into the nonresidential investment component of GDP, fell 0.5 percent. Overall shipments also fell, down 0.2 percent with inventories in thankful contraction, down 0.3 percent and holding the inventory-to-shipments ratio unchanged at 1.65. Unfilled orders, which outside of April’s 0.6 percent gain have not been strong, rose a modest 0.2 percent in May. Vehicles, like they were in the industrial production report, were once again very weak with orders down 2.8 percent and shipments down 3.4 percent. Vehicle sales, however, have been solid and point to a rebound for the related factory data. Orders and shipments for commercial aircraft remain solid with orders in May up an unusually tame 1.0 percent. Machinery orders, at the heart of the capital goods group, are down for a second month with both primary and fabricated metals showing order declines. The decline in capital goods is certain to pull back second-quarter GDP estimates which, in the 2 percent range, aren’t that strong to begin with. The dollar’s decline this year has not done much to lift exports or the factory sector which going into Brexit, and the ensuing spike in the dollar, was simply flat.

Durable-goods orders sink across the board in May: -- Orders for long-lasting goods critical to U.S. economic growth declined across the board in May, raising further doubts about the health of the economy in the wake of the weak May jobs report. U.S.-made durable goods orders fell a seasonally adjusted 2.2% last month after a revised 3.3% gain in April, the government reported Friday (http://www.census.gov/economic-indicators/#durable_goods ). The government previously reported a 3.4% increase for April.  Core capital orders sank 0.7% in May, a sign that companies are still not investing as much as they normally do when the economy is growing. This key reading has been down five of the last seven months. Fed Chairwoman Janet Yellen has described the weakness in domestic business spending as "surprising." The decline in the sector may undermine the Fed's confidence that the economy will rebound over the rest of the year. Read: Yellen says risks justify cautious approach to raising interest rates. Shipments of core capital goods, meanwhile, fell 0.5% in May, reversing a 0.6% gain in April. The number is used to help determine how fast the economy is expanding. The increase in shipments in May suggests business investment will be a drag on second-quarter gross domestic product. Overall, transportation orders led the drop in May, falling 5.6%. Orders for autos fell 2.8%. Even excluding that volatile sector, orders for durable goods fell 0.3%. Excluding defense, orders were down 0.9%. One bright spot was orders for communications equipment, which rose 4.7%, the biggest gain since January 2015.

Durable Goods New Orders Declined in May 2016?: The headlines say the durable goods new orders declined. The unadjusted three month rolling average improved this month and remains in expansion. Our view of this data is mixed but better than the headline view. . The big drag this month was defense new orders. Econintersect Analysis:

  • unadjusted new orders growth accelerated 3.6 % (after accelerating 2.7 % the previous month) month-over-month , and is up 4.9 % year-over-year.
  • the three month rolling average for unadjusted new orders accelerated 0.1 % month-over-month, and up 1.6 % year-over-year.
  • Inflation adjusted but otherwise unadjusted new orders are up 1.4 % year-over-year.
  • Backlog (unfilled orders) accelerated 0.8 % month-over-month, but is still contracting 0.8 % year-over-year.
  • The Federal Reserve's Durable Goods Industrial Production Index (seasonally adjusted) growth declined 0.7 % month-over-month, down 0.3 % year-over-year [note that this is a series with moderate backward revision - and it uses production as a pulse point (not new orders or shipments)] - three month trend is decelerating, but the trend over the last year is relatively flat.

Vehicle Sales Forecasts: Sales to be Over 17 Million SAAR again in June  -- The automakers will report June vehicle sales on Friday, July 1st. Note:  There were 26 selling days in June, up from 25 in June 2015.  From WardsAuto: Forecast: June Sales to Reach 11-Year High A WardsAuto forecast calls for U.S. automakers to deliver 1.57 million light vehicles this month. The expected daily sales rate of 60,314 over 26 selling days represents a 2.5% improvement from like-2015 (25 days), with total volume for the month rising 6.6%...The report puts the seasonally adjusted annual rate of sales for the month at 17.3 million units, shy of last month’s 17.37 million SAAR, but ahead of the current 3-month SAAR (17.0 million) and the year-to-date SAAR through May (17.2 million).  From TrueCar: June Auto Sales Likely to Rebound From May’s Shortfall on Buoyant Retail Demand The seasonally adjusted annualized rate (SAAR) for total light vehicle sales in June is an estimated 17.2 million units, up from 17 million units a year ago.

Kansas City Fed: Regional Manufacturing Activity "Increased Slightly" in June - From the Kansas City Fed: Tenth District Manufacturing Activity Increased Slightly The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Megan Williams, survey manager and associate economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity increased slightly. “Regional factory activity posted a positive reading for the first time since January 2015, as energy prices have stabilized somewhat and orders have increased,” said Williams. “Additionally, firms continue to expect further improvements for the months ahead.” ..The month-over-month composite index was 2 in June, up from -5 in May and -4 in April ... The employment index edged up from -13 to -4, its highest level in over a year The Kansas City region was hit hard by lower oil prices.  Now that "energy prices have stabilized somewhat", manufacturing has stopped contracting (at least for one month).

June 2016 Kansas City Fed Manufacturing In Expansion For the First Time in 18 Months: Of the three regional manufacturing surveys released for June, all are in expansion. There were no market expectations reported from Bloomberg - and the reported value was +2. Any value below zero is contraction. . "Regional factory activity posted a positive reading for the first time since January 2015, as energy prices have stabilized somewhat and orders have increased," said Williams. "Additionally, firms continue to expect further improvements for the months ahead."  Tenth District manufacturing activity increased slightly, posting a positive reading for the first time in eighteen months. Expectations for future activity remained generally solid, and most price indexes rose modestly The month-over-month composite index was 2 in June, up from -5 in May and -4 in April (Tables 1 & 2, Chart). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The improvement came from both durable and nondurable goods-producing plants, particularly aircraft, food, plastics, and electronic equipment. Most month-over-month indexes increased markedly. The production index jumped from -11 to 12, and the shipments, news orders, and order backlog indexes also rose considerably. The employment index edged up from -13 to -4, its highest level in over a year. The finished goods inventory index edged up from -12 to -5, while the raw materials inventory index was unchanged.

PMI Manufacturing Index Flash June 23, 2016: Activity this month is moving higher from a cycle low in May for Markit's U.S. manufacturing sample where the June flash is at 51.4, up from 50.7 in final May and from 50.5 for the May flash. Key components all are accelerating including new orders, backlog orders, production and also employment. Special strength is being registered in new export orders where growth is at 2-year high and likely reflecting the benefits from this year's decline in the dollar. Price data are showing life with raw material costs rising, in part due to steel, and selling prices showing the strongest increase since January. But the sample is still managing inventories tightly, with inputs falling at the fastest pace in 2-1/2 years and finished goods also dropping. There's plenty of indications on the manufacturing sector and, though only one among them, the manufacturing flash is pointing to modest traction for a factory sector that has been stumbling so far this year.

US Manufacturing PMI Jumps In June But "Domestic Demand Remains Worryingly Weak" -- Great news... Markit's US Manufacturing PMI (flash) for June beat expectations, rising to 51.4 from 50.7, driven by the fastest rise in exports since Sept 2014 (cough weaker dollar cough) as Input costs rose by the most in 18 months. Small bounces in production and employment do nothing to dismiss the "worrying weak" domestic demand picture; and, as Markit warns, "the three months to June has seen the worst quarter for manufacturing in terms of both production and employment growth since 2009." "Off the lows"?The latest increase in new business was the strongest since March, although subdued in comparison to the post-crisis average. New orders from abroad expanded at the fastest pace for almost two years, suggesting an additional boost to growth from greater export sales in June. Despite stronger new business growth, a number of manufacturers noted that heightened economic uncertainty had led to delayed decision making and greater risk aversion among clients in June. Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said: “The flash PMI for June brought welcome news of improved performance of manufacturing, but the sector still looks to have acted as a drag on the economy in the second quarter, leaving the economy reliant on the service sector and consumers in particular to drive growth. “Any improvement could be largely traced to better export sales, in turn linked to the weakening of the dollar compared to earlier in the year. Domestic demand was again worryingly weak, especially from business customers, meaning overall growth of order books remained subdued.

The U.S. Cities Where Manufacturing Is Thriving - Forbes: Perhaps no sector in the U.S. economy generates more angst than manufacturing. Over the past quarter century, manufacturing has hemorrhaged over 5 million jobs. The devastation of many regional economies, particularly in the Midwest, is testament to this decline. If the information sector has been the golden child of the media, manufacturing has been the offspring that we pity but can’t comfortably embrace. Yet manufacturing remains critically important. Over the period from 1997 to 2012, labor productivity growth in manufacturing—3.3% per year—was a third higher than the rest of the economy. Clearly manufacturing is no technological laggard, accounting in 2012 for 68.9% of all R&D expenditures by U.S. businesses and employing 36% of the nation’s scientists and engineers, the largest share of any industry. So even as employment has declined or stagnated, the impact of manufacturing on local economies remains profound. Manufacturing has the highest multiplier effect of any sector of the economy. According to the Commerce Department, a dollar of final demand for manufacturing generates $1.33 in output from other sectors of the economy, considerably higher than the multiplier for information ($0.80) and more than twice as high as such fields as retail trade ($0.66) and business services ($0.61). Other estimates place this impact far higher. Our list of the fastest-growing manufacturing regions differs considerably from our rankings of the best cities for jobs overall, and of the strongest information economies. To avoid the distortions and wild swings that can occur in economies with few industrial jobs, we focused on the 48 metropolitan statistical areas with at least 50,000 manufacturing positions.

Can Big Business Dismantle the Joint Employer Standard? - As the National Labor Relations Board’s landmark Browning-Ferris Industries joint-employer standard nears its one-year anniversary, its potentially far-reaching implications have business interests and conservatives shaking (or at least, vibrating) in their boots. Republicans continue to take political aim at the Board, which they argue has a legal agenda to bolster organized labor’s interests. Meanwhile, the business lobby is ramping up efforts to get the ruling thrown out in federal court.  The NLRB’s ruling declared that Browning-Ferris was legally a joint employer of the workers hired by a contractor to staff the company’s recycling center, because “it exercised control over terms and conditions of employment indirectly through an intermediary.” This overturned a joint-employer precedent that had required “direct” control. In short, it put businesses on the hook for their contractors’ treatment of their workers. The ruling, labor advocates say, is an important step in increasing employer accountability in a highly fragmented economy. However, Browning-Ferris (the company, not the decision) has since refused to comply with the August 2015 ruling and a subsequent ruling by a NLRB panel in January that largely upheld the decision. The company has now brought its case before the D.C. Circuit, which is currently reviewing the appeal.   With the business lobby worried that it could lose a legal shield that has been used by companies to minimize costs (by subjecting workers to lower pay and limited protections), it has sprung into action. Last week, Microsoft, Texas Governor Greg Abbott, and usual suspects like the Chamber of Commerce, the International Franchise Association, and the National Restaurant Association filed a friend-of-the-court brief asking for the ruling to be overturned.

Big Tech Squashes New York’s ‘Right To Repair’ Bill --Major tech companies like Apple have trampled legislation that would have helped consumers and small businesses fix broken gadgets. New York state legislation that would have required manufacturers to provide information about how to repair devices like the iPhone failed to get a vote, ending any chance of passage this legislative session. Similar measures have met the same fate in Minnesota, Nebraska, Massachusetts and, yes, even previously in New York. Essentially, politicians never get to vote on so-called right to repair legislation because groups petitioning on behalf of the electronics industry gum up the proceedings."We were disappointed that it wasn't brought to the floor, but we were successful in bringing more attention to the issue," New York state Sen. Phil Boyle (R), a sponsor of the bill, told The Huffington Post Friday. Gay Gordon-Byrne, executive director of The Repair Association, a group of nonprofits and businesses that backed New York's right to repair legislation, blamed the lack of a vote on lobbyists for major tech companies.

Why You Should Discount Obama’s Retail Hiring Boom - Economists have been puzzled all year over how retail employment has surged despite the fact that Wal-Mart (WMT), Macy’s (M), Kohl’s (KSS) and other major players were closing stores and laying off thousands of workers.The retail hiring boom has been happening even as customers have accelerated their shift to nonstore retailers like Amazon (AMZN). Meanwhile, Home Depot (HD), the leader in a category that has done relatively well in fending off online competition, stopped opening new stores in the U.S. more than a year ago. Nevertheless, retailers have added 323,300 workers over the past year — a spurt of growth that’s nearly the best since 2000.Getting to the bottom of this mystery is important because the explanation suggests that the job market hasn’t been quite as strong as it appears, yet there may be less slack in the labor market due to Obama administration policies than dovish Federal Reserve policymakers suspect. Early in June, Jefferies fixed-income economists Ward McCarthy and Thomas Simons noted the “incongruous” retail job gains of more than 50,000 per month during the first quarter, and they predicted some payback with a weak reading in May’s employment report. Yet even though the overall report was lousy, with a net 25,000 private-sector jobs added, retailers accounted for nearly half of those gains.Given the sector fundamentals, it makes little sense that retailers would need to bolster their ranks in a big way. But upon closer examination, they really haven’t: While they may have more workers, they aren’t doing more work. Since August, the retail sector has added more than a quarter-million jobs, but aggregate hours worked haven’t budged. While seasonally adjusted retail employment has climbed 1.6%, those nearly 16 million workers are clocking 1.6% fewer hours, as the workweek has slumped from 31.5 hours to 31.0.

Weekly Initial Unemployment Claims decrease to 259,000 -- The DOL reported: In the week ending June 18, the advance figure for seasonally adjusted initial claims was 259,000, a decrease of 18,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 267,000, a decrease of 2,250 from the previous week's unrevised average of 269,250. There were no special factors impacting this week's initial claims. This marks 68 consecutive weeks of initial claims below 300,000, the longest streak since 1973.  The previous week was unrevised. The following graph shows the 4-week moving average of weekly claims since 1971.

Would America Have Fewer Missing Workers if It Were More Like France? - What if the very thing that is often viewed as one of the United States’ sources of dynamism — flexible labor markets — is the driving force behind the economy’s greatest weakness: millions of people who are neither working nor looking for a job?That is a provocative idea that Obama administration economists explore in a new report looking at one of the crucial flaws in what on the surface is a healthy job market. Even as the unemployment rate has fallen to 4.7 percent — low by historical standards — millions of working-age Americans have pulled out of the labor market entirely. They neither work nor count as unemployed.These missing workers are predominately less educated men, and their numbers have been mounting for decades. The White House Council of Economic Advisers calculates that in 1964, 97 percent of men with a high school degree or less in the so-called prime-age working years of 25 to 54 were working or seeking work. That is now down to 83 percent.In the United States, there is less standing in the way between an employer who wants to hire someone and a person who wants to work than in most Western European countries or Japan.Many economists have traditionally viewed this as positive. Yes, it means that workers are more vulnerable to being fired when the economy slumps, and many jobs come with fewer benefits like paid vacation and sick leave. But that should help the economy adapt to a changing world more quickly and ultimately lead to higher incomes. A mainstay of American and British economic commentary is preaching to the likes of France and Italy that they need more flexible labor markets.

Was May's Drop in Labor Force Participation All Bad News? - Atlanta Fed's macroblog - The unemployment rate declined 0.3 percentage points from April to May, and this was accompanied by a similar drop in the labor force participation rate. It is tempting to interpret this as a “bad” outcome reflecting a weakening labor market. In particular, discouraged about their job-finding prospects, more unemployed workers left the labor force. However, a closer look at the ins and outs of the labor force suggests a possibly less troubling interpretation of the outflow from unemployment.  To get a handle on what is going on, it is useful to look at the number of people that transition among employment, unemployment, and out of the labor force. It is not that unusual for an individual to search for a job in one month and then enroll in school or assume family responsibilities the next. In fact, each month millions of individuals go from searching for work to landing a job or leaving the labor force, and vice versa.  The U.S. Bureau of Labor Statistics (BLS) publishes estimates of these gross flows. Analyzing these data shows that there was indeed an unusually large number of unemployed persons leaving the labor force in May. Curiously, the outflow was concentrated among people who had only been unemployed only a few weeks. It wasn't among the long-term unemployed. Therefore, it seems unlikely that discouragement over job-finding prospects was the main factor. Although it is plausible that people who say they are now doing something else outside the labor market feel disheartened, the number of unemployed who said they gave up looking because they were discouraged was largely unchanged in May.

The decline in US male labour force participation — what not to blame --  A new report from the US Council of Economic Advisors doesn’t solve any of the mysteries about the steep decline in the share of prime-age men (ages 25-54) who are either working or looking for work. But it does usefully describe the trend in detail and convincingly rules out some commonly cited but unsupported factors. The report’s main conclusion is that “reductions in the demand for labor, especially for lower-skilled men, appear to be an important component of the decline in prime-age male labor force participation”. And this reduction in demand “could reflect the broader evolution of technology, automation, and globalization in the US economy”.Whether globalisation or technology deserves more of the blame, and the precise ways that those trends inflict their particular devastation on this demographic group, are still murky issues.In addition to emphasising the dramatic divergence in the labour force participation of men with differing educational attainments, the report also reviews the horrible toll of high US incarceration rates and offers ideas for how to boost labour market demand, reform the criminal justice system, train workers for the right jobs, and make it easier for them to find these jobs, among others.But where the report is most helpful is in ruling out some factors that are occasionally mentioned as possible explanations — that many men have become disincentivised to work because of government assistance programs, or they avoid pursuing work in favour of being stay-at-home husbands and fathers.These factors have only a small influence at most.

As Low-Skilled Jobs Disappear, Men Drop Out of the Workforce - Why aren’t men in the prime of their lives working more? Working-age males have been sitting on the sidelines in greater numbers for decades, a trend that accelerated during the latest recession and has broad implications for individual well-being as well as the overall economy. A new White House study highlights the sharpest decline among men with lower levels of educational attainment and concludes much of the cause is a loss of economic opportunity for those would-be workers. “No single factor can fully explain this decline, but analysis suggests that a reduction in the demand for less skilled labor has been a key cause of declining participation rates as well as lower wages for less skilled workers,” the Council of Economic Advisers said in the report.Labor-force participation among men between the ages 25 to 54 topped out at 97.9% in 1954. For about five decades, it has been heading steadily lower, punctuated by steeper falls during recessions. That’s a troubling phenomenon for individuals who should be at their peak, improving prospects for themselves and their families and contributing to the economy. Participation appears to have stabilized but it’s still below levels at the end of the recession despite years of steady job creation, falling unemployment rates and signs of a tighter labor market.

Men Exiting Workforce as Low-Wage Jobs Vanish -- Yves Smith - A new Council of Economic Advisers study released by the White House on the fall in labor force participation among men of prime working age (25 to 54) should be subtitled, “It’s the Neoliberal Economy, Stupid.”  The report does a useful job in documenting where the level and nature of the decline in male workforce participation, which peaked at 98% in 1954 and is now at 88%, the third lowest among OECD countries. The decline is concentrated among less educated: Blacks have been hit harder than other groups:And the general outlook for employment has been deteriorating over time. However, bear in mind that this decay somewhat overlaps with the story that less educated groups have been harder hit. US educational attainment has fallen over time. The report dismisses the myths that access to Social Security disability or that men are not choosing to work as culprits. More than a third were in poverty. Fewer that 25% of the men not working have a spouse supporting them and that percentage has dropped in the last 50 years. The CEA’s analysis find that Social Security disability explains at most 0.5% of the reduction.  The cause is the state of the job market:

    • • Participation has fallen particularly steeply for less-educated men at the same time as their wages have dropped relative to more-educated men, consistent with a decline in demand.
      • o In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80 percent of the amount earned by workers with at least a college degree to less than 60 percent

While doing a fine job dimensioning profile of the groups that have been hit the worst, the authors, after invoking hoary neoliberal defenses, as in these workers are the losers in a globalized market, the paper gives a coded acknowledgment that policies that are hostile to workers have produced the expected result:

Underneath Five-Star Veneer, High-End Restaurant Employees Get Worked Over - A relatively small number of high-end waiters do very well. But working for tips can make for precarious living. Servers’ hours can be cut on short notice depending on the flow of business. Some fine-dining waiters, Jayaraman says, make the bulk of their money around the holiday season and are forced to scrape by the rest of the year. And by being forced to depend on the goodwill of well-heeled patrons, women working in the front-end are often subject to constant sexual harassment—misogyny doesn’t disappear with a Michelin star. On top of that, lucrative tips can expose front-of-the-house employees to rampant exploitation from employers. In most restaurants, tips are pooled together and then divvied up between servers, bartenders, bussers, barbacks, and other front-end service employees at the end of the night. At gourmet restaurants with high-dollar tabs, the pool can grow to an impressive sum and there is potential for big payouts. A major problem, however, is that restaurant bosses often skim from that tip pool to pay managers, maître d's, and kitchen staff. Despite being a violation of federal labor law, “Skimming off the tip pool happens so blatantly and everywhere,” says Maimon Kirschenbaum, a New York City employment lawyer who has filed hundreds of wage-violation lawsuits on behalf of employees at some of the city’s most well known restaurants. “It’s surprising considering how long these issues have been litigated. But the stakes are big.” Owners can save a lot of money on payroll expenses if they pay managers, maître d's, and other staff in part from the tip pool. “They’re taking advantage of the situation. They say, ‘These guys are waiters—they shouldn’t be getting so rich anyway, so let’s divide up that money to other people,” Kirschenbaum explains. Additionally, many restaurants charge waitstaff for breaking glassware and plates by taking the costs out of their tips, and for their uniforms and the cost of laundering them. 

IMF Warns That Inequality, Poverty, Low Productivity Growth, Falling Workforce Participation Will Drag on US Growth - The IMF’s Christine Lagarde presented the results of IMF’s latest consultation with the US, in which it cut its 2016 growth forecast from 2.4% to 2.2% and endorsed the Fed’s newly cautious stance on interest rate increases. Press stories focused on her discussion of the “four headwinds” that threaten to impede US growth over the long haul: declining labor force participation, high poverty rates, rising inequality, and falling productivity growth. What Lagarde has done is describe some of the drivers of what is already acknowledged as the “new normal” or “secular stagnation”. And to the agency’s credit, it did not treat inequality and poverty as inevitable result of technological change, which is often the excuse invoked to put a Panglossian face on an economic system that has been reengineered to favor the few at the expense of the many. The report recommends a set of policy changes, but not surprisingly, is unwilling to flag underlying drivers, like a lack of labor bargaining power; the serious cutbacks of government investment in research and development; weak anti-trust enforcement, which allows businesses to extract economically unproductive rents; and overfinancialization, which the IMF has called out in earlier reports. Nevertheless, for an analysis from an authoritative body that does not break neoliberal china, this is still pretty stern stuff. The report is more pointed than the media summaries and I encourage you to read it in full. For instance: However, the recommendations are a dog’s breakfast of what I liked to call at McKinsey, “cutting edge conventional wisdom,” including ideas that clearly do not work, like cuts in corporate and individual income taxes to “revitalize business dynamism and investment”, and worse, greater use of “indirect” meaning sales taxes, which are highly regressive. If you want to address poverty and inequality, this the polar opposite of what you’s want to implement.

If You Want More Jobs And More Job Stability: Disrupt More, Not Less - Charles Hugh-Smith --Reducing disruption to protect the privileged status quo is akin to poisoning the patient to "protect them from harm." Two recent studies reflect the ongoing rapid transformation of the U.S. economy: The New Map of Economic Growth and Recovery (eig.org)The U.S. Labor Market Is Far More Stable Than People Think (itif.org) I've addressed the dynamic mix of technical and entrepreneurial skills, social and financial capital and infrastructure of opportunities required to successfully navigate this transformation in my books Get a Job, Build a Real Career and Defy a Bewildering Economy and The Nearly Free University and the Emerging Economy: The Revolution in Higher Education.Here's the problem in a nutshell: job growth, new businesses and wage gains are becoming increasingly concentrated in a small number of geographic regions and a narrow class of workers / entrepreneurs while the overall economy struggles to maintain productivity gains, which are ultimately the only sustainable source of prosperity.  the productivity growth rate has been slumping since 2005.

More older Americans are working since 2000 -   More older Americans are working than at any time since 2000. About 9 million people, or 18.8%, of Americans age 65 and up report being full- or part-time employees, according to a new report by the Pew Research Center. By comparison, in 2000, only 12.8% of those 65 and up were working — about 4 million people. For the most part, these workers are men. Although men make up less than 45% of the over-65 population, about 55% of older workers are male. Moreover, these workers are more likely to hold employment in management, legal, and community/social-service jobs than the overall workforce, and less likely to be in food preparation, construction, and math/computer jobs. Still, the most interesting thing about this rise in older workers is that it's basically the opposite of what's happened with the rest of the population in the US. The employment-population ratio of the adult population as a whole has yet to bounce back to pre-financial-crisis levels. As of May 2016, the ratio was 59.9% — below May 2008's 62.5%, and May 2000's 64.4%. So while more over-65 adults are working compared to 16 years ago, the same can't be said for the overall US population.

House rejects effort to ban illegal immigrants from military service - In a break from previous votes on the issue, the House on Thursday rejected two GOP proposals to prevent the Obama administration from enlisting young illegal immigrants to serve in the military. Lawmakers voted down two measures offered by immigration hard-liners Reps. Steve King (R-Iowa) and Paul Gosar that would have prohibited the use of federal money to enlist young illegal immigrants who have been granted work permits under President Obama's Deferred Action for Childhood Arrivals (DACA) program. More than 30 Republicans with more centrist views on immigration joined all Democrats in opposing the two amendments offered to a Defense Department spending bill. The amendments failed narrowly with votes of 207-214 and 210-211, respectively. Certain young illegal immigrants qualify for DACA if they came to the U.S. as minors and have worked toward at least a high school education, among other requirements.  The Obama administration has already enlisted some DACA recipients through a program, Military Accessions Vital to the National Interest (MAVNI), that recruits immigrants with valued foreign language or medical skills to serve in the military. Gosar said the Pentagon confirmed to his office that it had recruited 141 DACA recipients as of April. The amendments would have blocked the Obama administration from using the MAVNI program to enlist people in the DACA program.

Questioning Immigration is Not Racism --naked capitalism - Yves here. One of the things that is routinely airbrushed out of official discourse on the immigration in the US is that our immigration policy to a significant degree is designed to lower labor costs. It should not be surprising that at a time when average wages are stagnant, most middle and lower income Americans are debt-burdened, face short job tenures and are living paycheck to paycheck that anxiety about immigration is at a high level.  Having said that, it is also true that 15 years of relentless political and media focus on terrorism has increased xenophobia. As one of my contacts put it, “What do you expect when you train people to think that the woman behind the checkout counter who wears a headscarf has an AK-47 at home?” And that isn’t much of an exaggeration. Earlier this evening, I happened to be on the treadmill when a CNN documentary, “Why Do They Hate Us?” was running. Let’s start with the “When did you stop beating your wife?” nature of the question. The fact that the US has created failed states all over the Middle East didn’t get a mention. The show was all about what the Administration likes to call “radical jihad.” It started with a long opening sequence of violent scenes from Middle-East-related terrorism, starting with 9/11. The next section featured Muslim “reformers” arguing against the Muslim “moderate” position that Islam is not a violent religion. It then cited sections of the Quran (of the “kill the infidel” sort) and compared them with equally bloodthirsty passages from the Bible, and claimed that Christianity does not operate from that (these days) and then proceeded to discuss the culture of jihadists, and said many were formerly unemployed, drug addicts, not well educated, and didn’t understand the religion qua religion, they’d just latched onto these organizations. That was as far as I got.  The problem I had was that this video was heavy on scary images, like a guy with knife next to person about to be beheaded, when they were only tangentially related to the narrative at that point.

Deadlocked Supreme Court Blocks Obama Immigration Plan –- In one of today's widely anticipated rulings by the Supreme Court, the highest US legal institution dealt a blow to President Obama on Thursday, after it was deadlocked over the legality of the president's controversial immigration programs. In a one-sentence decision, the court affirmed a lower court's ruling blocking the programs from going forward. The U.S. Supreme Court divided evenly over President Barack Obama’s plan to shield as many as 4 million unauthorized immigrants from deportation, a deadlock that effectively kills the initiative for the rest of his presidency.The 4-4 split leaves intact an appeals court ruling that said Obama overstepped his authority, along with a trial judge’s order preventing the program from taking effect. As The Hill adds, the justices grappled during oral arguments over whether Texas and 25 other states had a legal basis to challenge the expansion of the Deferred Action for Childhood Arrivals (DACA) and the creation of the Deferred Action for Parents of Americans (DAPA) initiative, which allows undocumented immigrants who are parents of U.S. citizens or lawful permanent residents to stay in the country for three years and apply for a work permit. Both programs have been on hold since February 2015. The states claimed they would be burdened by having to spend more on public services like healthcare, law enforcement and education if undocumented parents of both American citizens and legal permanent residents are allowed to stay in the country. Texas, specifically, said it would be hurt by having to issue more drivers licenses, a benefit that’s now subsidized.

Supreme Court immigration decision means millions of workers will be deprived of crucial labor protections  --This morning the Supreme Court of the United States issued its decision in United States v. Texas, the State of Texas’s challenge to the most significant of the executive immigration actions—known as the DAPA and DACA+ initiatives—which were announced by President Obama on November 20, 2014. The Court was deadlocked in a 4-4 tie, which results in the Fifth Circuit’s decision being upheld, which had affirmed the District Court’s preliminary injunction that prevented the president from moving forward with DAPA and DACA+.At issue in U.S. v. Texas was the president’s authority to defer the deportation of unauthorized immigrants who are the parents of children who are either U.S. citizens or legal permanent residents, if the parents have resided in the United States for at least five years, and are not an enforcement priority for deportation. This is known as DAPA—Deferred Action for the Parents of Americans and Legal Permanent Residents. The president also would have updated and expanded DACA, the Deferred Action for Childhood Arrivals initiative (in place since 2012), which to date has provided deferred action to over 700,000 people who entered the country as minors without authorization. Combined, over five million people are eligible for DAPA, DACA, and expanded DACA (sometimes referred to as DACA+), out of a total unauthorized immigrant population of 11 million. Since implementation of the DAPA and DACA+ initiatives has been prevented, millions of unauthorized immigrants will not be eligible to apply for and obtain an employment authorization document from the Department of Homeland Security that allows them to work legally. This means that millions of workers will continue to lack access to basic labor standards and employment law protections—a terrible outcome for both unauthorized immigrants and American workers.

Philly Fed: State Coincident Indexes increased in 38 states in May -- From the Philly FedThe Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2016. In the past month, the indexes increased in 38 states, decreased in eight, and remained stable in four, for a one-month diffusion index of 60. Over the past three months, the indexes increased in 42 states, decreased in seven, and remained stable in one, for a three-month diffusion index of 70.  Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:  The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

They’re some of the unluckiest places in America - You might think the Great Recession is long over. But nearly a decade on, its effects still linger, especially in certain areas of America. And if the current pace of recovery continues, these places may see employment depressed for years — adding up to a “lost decade” for some parts of the country.  In a newly revised paper posted online this week, Danny Yagan, an economist at the University of California at Berkeley, follows the trajectory of more than 2 million American workers to see how their employment fluctuated before, during and after the Great Recession. To make sure that these workers are comparable, he looks at employees of national chains, such as Starbucks and Walmart, who would have earned the same wages doing identical tasks in different parts of the country.The paper finds evidence of a “great divergence” between some parts of the United States that were fairly resilient to the recession — like much of Montana, Arkansas, Oklahoma and Louisiana — and places that were not as resilient. Yagan calculates that workers who started the recession in hard-hit parts of the country, such as areas of Florida and Arizona, were 1.3 percent less likely to be employed in 2014, compared with workers who started the recession elsewhere.In other words, workers who appeared mostly identical in 2007 — and, by virtue of having the same jobs, probably had similar levels of education — ended up in very different situations seven years later, depending on where they started the recession. The data suggest that it was the fortune, or misfortune, of where people lived in 2007 that had a large effect on whether they were employed in 2014. Hard-hit areas may have ended up depressing the employment prospects of people who lived there.The map below, which is based on Yagan’s data, shows the parts of the United States that were most affected by job losses. Sun Belt states, such as Arizona, California and Florida, and Rust Belt states, such as Michigan and Ohio, were among the places where employment was hit the hardest.

Wolf Richter: Worst “Zombie States” in America “Deteriorate Faster, Further” --During the Financial Crisis, it was California that made the headlines with “out-of-money dates” and fancy-looking IOUs with which it paid its suppliers. The booms in the stock market and the startup scene – the state is desperately hooked on capital-gains tax revenues – but also housing, construction, etc. sent a flood of moolah into the state coffers. Now legislators are working overtime to spend this taxpayer money. Gov. Jerry Brown is brandishing recession talk to keep them in check. Everyone knows: the next recession and stock-market swoon will send California back to square one. Now Puerto Rico is in the headlines. It’s not even a state. And it’s relatively small. But look at wild gyrations by the federal government and Congress to deal with it, to let the island and its bondholders somehow off the hook.But Puerto Rico may just be the model. Big states are sliding deeper into financial troubles, particularly New Jersey, Connecticut, and Illinois. These three states hold the top positions in the “Zombie Index” that Bill Bergman, Director of Research at Truth in Accounting, developed two years ago. California has dropped to 7th place. Whew!!! The Zombie Index for the 50 states is based on three main factors:

  • Truth in Accounting’s “Taxpayer Burden” measure of state finances
  • The timeliness of state financial reporting
  • And the share of total debt effectively “hidden” off the balance sheet.

This “taxpayer burden” is not a reflection of actual state taxes paid, but of the state’s total liabilities per taxpayer – such as outstanding bonds and loans and off-balance-sheet liabilities such as for pensions. In explaining the Zombie Index, Bergman writes in his article, “Zombie states deteriorating faster and further”:

How Prison Labor is the New American Slavery and Most of Us Unknowingly Support it -- American slavery was technically abolished in 1865, but a loophole in the 13th Amendment has allowed it to continue “as a punishment for crimes” well into the 21st century. Not surprisingly, corporations have lobbied for a broader and broader definition of “crime” in the last 150 years. As a result, there are more (mostly dark-skinned) people performing mandatory, essentially unpaid, hard labor in America today than there were in 1830. With 5 percent of the world’s population and 25 percent of the world’s prison population, the United States has the largest incarcerated population in the world. No other society in history has imprisoned more of its own citizens. There are half a million more prisoners in the U.S. than in China, which has five times our population. Approximately 1 in 100 adults in America were incarcerated in 2014.  Out of an adult population of 245 million that year, there were 2.4 million people in prison, jail or some form of detention center. The vast majority – 86 percent – of prisoners have been locked up for non-violent, victimless crimes, many of them drug-related. While prison labor helps produce goods and services for almost every big business in America, here are a few examples from an article that highlights the epidemic:

  • Whole Foods – You ever wonder how Whole Foods can afford to keep their prices so low (sarcasm)? You know that $12-a-pound tilapia you thought you were buying from “sustainable, American family farms?” It was raised by prisoners in Colorado, who were paid as little as 74 cents a day. And that fancy goat cheese? The goats were raised and milked by prisoners too.
  • McDonald’s – The world’s most successful fast food franchise purchases a plethora of goods manufactured in prisons, including plastic cutlery, containers, and uniforms. The inmates who sew McDonald’s uniforms make even less money by the hour than the people who wear them.

McDonald’s: you can sneer, but it’s the glue that holds communities together - Few understand celebrating at a McDonald’s, but for Omar and Betty it made sense. They don’t have a lot of money, and McDonald’s is part of their life. It is that way in many poor and middle-income neighborhoods, where McDonald’s have become de-facto community centers and reflections of the surrounding neighborhood. When many lower-income Americans are feeling isolated by the deadening uniformity of things, by the emptiness of many jobs, by the media, they still yearn for physical social networks. They are not doing this by going to government-run community service centers. They are not always doing this by utilizing the endless array of well-intentioned not-for-profit outreach programs. They are doing this on their own, organically across the country, in McDonald’s. < Walk into any McDonald’s in the morning and you will find a group of mostly retired people clustering in a corner, drinking coffee, eating and talking. They are drawn to the McDonald’s because it has inexpensive good coffee, clean bathrooms, space to sprawl. Unlike community centers, it is also free of bureaucracy.  Almost all of them name their group with variations of a self-deprecating theme: in suburban El Paso it is the Old Folks’ Home, and in rural New Mexico it is the Morning Brigade. In the small rural town of Natchitoches, Louisiana, it is the Romeo club, an acronym for Retired Old Men Eating Out.

Workers with Disabilities See Long-Delayed Improvement as Job Market Tightens --Workers on the margins of the labor pool often get a second look as the job market heats up. After years of steady job creation, are we now at that point in the business cycle?A new report from the Labor Department suggests the answer could be “yes.” For working-age persons with disabilities, rates of employment and labor-force participation increased between 2014 and 2015, following steady declines in both measures in the period following the recession, through roughly the end of 2014. (The report’s figures are not adjusted for seasonality.)For example, men aged 16-64 with a disability saw their employment-to-population ratio, or the share of the overall population that is employed, fall from an average of 31.7% in 2009 to 28.1% in 2014. In May it hit 32%, up sharply from 30.1% in May 2015. For their non-disabled peers, the same measure hit bottom in 2010 and has risen each year since.In one sense, the sluggish recovery of persons with disabilities so long after the recession ended reflects similar experiences among other workers on the fringes of the labor market. Workers who are 25 years and older and have less than a high school diploma, for instance, saw their labor-force participation start rising again only in 2015. But the upturn in 2015 follows a longer-term trend of falling employment and labor-force participation among people with disabilities, said Richard Burkhauser, an economist. A separate 2015 report from the nonpartisan think tank the American Institutes for Research found that labor force participation and employment rates among people with disabilities have steadily fallen since 2001, from 25% to less than 17% among workers aged 21-65. Mr. Burkhauser attributes that decline to a “tremendous increase” in the share of workers with disabilities who receive disability insurance, which rose to 9 million people as of 2014, up from 5.3 million people in 2001. That discourages them from working, he said, with people using the disability insurance program as “a long-term unemployment program.”

Why some of America's richest people are living in the middle-of-nowhere -  It’s widely known that income inequality has grown rapidly in recent decades. As it stands in the U.S., an average member of the top 1 percent of earners makes 25 times more money than an average member of the remaining 99 percent. But this is just a national figure; across the country, the ratio ranges from 5 all the way up to 233.  What might be more surprising is precisely where income inequality hits those peaks. Yes, a lot of inequality is where you’d expect it: in big cities along the coasts. The super-wealthy live cosmopolitan lifestyles near the financial centers where they work, alongside the poor who live in the city for its social services, job opportunities and inexpensive transportation. Counties with a population over 1 million are twice as unequal, on average, than those with populations under 1 million. But there is also a more hidden inequality in America, deep pockets of extreme income gaps in a place where it might not be expected: rural America.  Look at the dark blue spots in the map below – which shows the level of inequality in every U.S. county – and you’ll see zones of surprising inequality far from coasts and big urban centers.The data comes from the Economic Policy Institute, which last Thursday put out a report calculating income inequality county-by-county. Almost all similar studies have looked only at major metropolitan areas.  This rural inequality seems to come in two forms. One, which I’ll call “home-grown” inequality, is where the local industries create large income disparities. The other, which I’ll call “flown-in” inequality, is where rich people who made their income elsewhere take up residence.

Not Just the 1%: The Upper Middle Class Is Larger and Richer Than Ever -  A range of data after the recession and the housing bust supported the idea that only a tiny elite of U.S. society, generally seen as the top 1%, had rebounded and was doing well. But a growing body of evidence suggests the economic expansion since the 2007-2009 financial crisis has enriched a much larger swath of the upper middle class, and that a deeper income divide is developing between that top quarter or so of the population and everyone else. The latest piece of evidence comes from economist Stephen Rose of the Urban Institute, who finds in new new research that the upper middle class in the U.S. is larger and richer than it’s ever been. He finds the upper middle class has expanded from about 12% of the population in 1979 to a new record of nearly 30% as of 2014.  There is no standard definition of the upper middle class. Many researchers have defined the group as households or families with incomes in the top 20%, excluding the top 1% or 2%. Mr. Rose, by contrast, uses a more dynamic method similar to how researchers calculate the poverty rate, which allows for growth or shrinkage over time, and adjusts for family size. Using Census Bureau data available through 2014, he defines the upper middle class as any household earning $100,000 to $350,000 for a family of three: at least double the U.S. median household income and about five times the poverty level. At the same time, they are quite distinct from the richest households. Instead of inheritors of dynastic wealth or the chief executives of large companies, they are likely middle-managers or professionals in business, law or medicine with bachelors and especially advanced degrees.

Enforcement of Puerto Rico’s Colonial Debt Pushes Out Young Workers -- At least 23 of the 49 people killed in the mass shooting that took place at Pulse nightclub in Orlando on June 12 were born in Puerto Rico. While the horrendous hate crime targeted LGBT people of all ethnicities, the large proportion of island-born casualties is not surprising, as the central Florida city has become a preferred destination of Puerto Rican migrants over the past two decades. Steadily growing since the onset of the island’s current “fiscal” crisis in 2006, yearly out-migration from Puerto Rico now surpasses that of the 1950s. The island’s total population has begun to decline for the first time in its history.  Nearly a third of the island-born victims of the Orlando massacre were 25 or younger, most of them students employed in services or retail. This is the population group that will be hit hardest when the ironically named Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) comes into effect. Among its other “promises” for working-class Puerto Ricans, PROMESA will cut the minimum wage in Puerto Rico for those under 25, from the current federally mandated $7.25 to $4.25 per hour, and scale back the federal nutritional assistance program on the island. Purportedly aimed at “job-creation,” these measures will likely intensify the outflow of able-bodied “low-skilled” workers. Ongoing out-migration has already decimated the number of available healthcare and other professionals on the island. Puerto Rico’s 2013 median household income of $19,183 was barely half that of Mississippi, the poorest U.S. state (at $37,479), despite a cost of living that rivals that of most major cities in the United States. Inequality on the island is also greater than in any of the states.

Debt talks between Puerto Rico, creditors end without deal | Reuters: Puerto Rico disclosed on Tuesday that negotiations with creditors ended without an agreement to restructure some of the island's $70 billion debt load. The two sides remained far apart over how to resolve a debt exchange on both the General Obligation debt issued by the U.S. commonwealth and debt backed by sales tax receipts referred to as COFINA. A government statement said the talks with certain groups of creditors "are no longer continuing" on a non-public basis. In a statement on Tuesday night, Puerto Rico Governor Alejandro Garcia Padilla urged the U.S. Congress to take action on legislation to resolve the credit crisis, while chiding the bondholders for offering what amounted to only short-term debt relief. "Put another way, these counterproposals would have simply scooped up the economic problems of today and tossed them to some later date for our children to solve," he said. On July 1, Puerto Rico faces a $1.9 billion payment on a collection of bonds that Garcia Padilla has said it cannot pay.

Disruptive Robocalling - Three months ago, I wrote up a worst case scenario for how the US could end up in a civil war this fall.  Unfortunately, nothing has changed.  The conditions that make the scenario possible are still valid.   In fact, in one way it has gotten worse:  one of the theoretical methods of disruption that I featured in the scenario was recently used in the real world.  In my scenario, robocalling was used to shut down polling places to skew election results and plunge the US into chaos: Robocalls pour in to police departments and polling places in heavily (Rep or Dem) polling locations with bomb/terrorist threats. Widespread poll closures occur. Calls continue until late. This speculation became reality last month when threatening robocalls were used to shut down dozens of schools in at least 21 U.S. states: Colorado, Delaware, Florida, Illinois, Iowa, Maine, Massachusetts, Minnesota, Montana, New Hampshire, North Dakota, Maryland, New York, Oregon, Rhode Island, South Dakota, Utah, Vermont, Washington, Wisconsin and Wyoming. As many as 10 schools received the threats in some states.  Further, in the UK, several schools received a 90-second recorded call from a voice with an American accent promising that "shrapnel" would "take children's the heads off," according to multiple news reports. This was the first time we've ever seen a nation-wide/international use of this technique.  It's also likely we'll see it again since:

  • it works,
  • there isn't a clearing house for threats of this type,
  • responders/bureaucrats are extremely risk averse (even more so since Orlando and San Bernardino), and (most importantly)
  • the US phone system is easy to hack.  

Michigan governor signs $617 million Detroit schools bailout (AP) — Michigan's governor signed a $617 million bailout and restructuring plan for Detroit's public schools on Tuesday, two years after the state committed money to help end the city's bankruptcy. The debt-ridden Detroit Public Schools has been managed by the state for seven years, yet has continued to face plummeting enrollment, deficits and this year, teachers calling out sick in protests that closed numerous schools for several days. "This marks a new day for Detroit families, with DPS free from debt and strong accountability measures for all schools in the city that promises a brighter future for all of Detroit's children," Republican Gov. Rick Snyder said in a written statement, nearly two weeks after the plan narrowly cleared the GOP-controlled Legislature. Democrats, the teachers union and others opposed the plan, saying it won't do enough for the district's roughly 46,000 students and nearly 100 schools. Under the new laws, the district will be divided on July 1, similarly to how Detroit-based General Motors was split into two companies after bankruptcy. The existing district will stay intact for tax-collection purposes to retire $617 million in debt over 8½ years, including $150 million for transitional startup costs to launch a new district and to ensure it has enough cash flow to operate. The new district, which will receive the $617 million infusion of money to cover the lost tax revenue, will educate students. A new school board will be elected in November, and a commission of state appointees that oversees city budgets will also review the schools' finances.

DA declines to prosecute arrested Alabama players: (AP) — The district attorney's office has decided not to prosecute Alabama offensive lineman Cam Robinson and reserve defensive back Laurence "Hootie" Jones on drug and weapons charges, with the district attorney saying he didn't want to "ruin the lives" of the two football players. Prosecutor Neal Johnson cited insufficient evidence in court documents filed on Monday, but district attorney Jerry Jones told KNOE-8 he did not want to prosecute the men because of their athletic backgrounds. "The main reason that I'm doing this is that I refuse to ruin the lives of two young men who have spent their adolescence and their teenage years working and sweating while we were all home in the air conditioning," Jones said. Calls to the district attorney's office by The Associated Press were not immediately returned.

Teens should have summer jobs, the less glamorous the better - Quartz  - Well-off kids who don’t have to work or take care of a sibling during the summer can embark on elaborate journeys to find or foster their passion. They can volunteer for an HIV program in Africa, study health care in the Caribbean or immerse themselves in Mandarin in China. They can code at camp, hone up on Graph Theory and Combinatorics at Harvard or do an internship at the Stanford Medical School (beware: last year 1,300 kids applied for 70 spots.) Or, they could get a job. Not an internship at their uncle’s architecture firm, or a glorified filing job at their neighbor’s investment bank: jobs like scooping ice cream or flipping burgers, where no kid is too special, they actually earn money, and they get to see life through a radically different lens. “The lessons are huge,” said Richard Weissbourd, a lecturer and researcher at Harvard’s Graduate School of Education. “You see how hard people work, how rude and unthinking people can be to them.” “It’s a real lesson in how to treat people,” he added. Weissbourd, who wrote a report on how to change the college-admissions process to stem the insanity it breeds, said that many parents think that high-profile internships broaden horizons. Not so: “We are narrowing their options,” he countered. “Those are the only jobs that are elevated as having meaning.” Starting in high school, many parents wonder how to structure their kids’ summers. The iterations are endless: academic enrichment or sports? Music or animation? Hip hop or gaming? Should parents let kids free-range it, and take a break from their amped up school-year schedules? Or should they hone up on biochemistry while prepping for the SAT and practicing the oboe? And beneath all of that: What do colleges value? “Colleges will forever find holding a job more attractive, and far sexier than going to Costa Rica to build houses and surf in the afternoons,” said Susan Warner, an independent college counselor in New York City.

Tuitions are rising, and it’s not because of overtime pay -- Some university officials are complaining about the cost of the new overtime rule, which requires that salaried employees who make less than $47,476 and who work more than 40 hours a week get paid for their overtime. But the costs associated with the new overtime rule will have a minimal impact on universities and colleges. The majority of workers at universities, including faculty, graduate student assistants, and adjuncts, are exempt from the overtime rules. Claims that paying more overtime will cause tuition to rise strains credulity because, as the figure below shows, as overtime protections eroded over the last 40 years and removed the guarantee of overtime pay from millions of salaried employees, tuition soared. Tuition has risen dramatically without any contribution from overtime regulation.  Digging into the numbers Michael Rounds of the University of Kansas (KU) brought to a congressional hearing, the estimated number of affected workers (354) amounts to just seven percent of its employees. Of the 354 affected employees, 92 are postdoctoral fellows, employees who conduct research for the institution after receiving a Ph.D. Many of these positions are funded by grants offered by the National Institutes of Health, which has pledged to increase the grants to encourage compensation among postdocs to reach or exceed the new overtime salary threshold. Consider some of the estimates of purported costs by some university systems: Kansas University ($2.9 million), Iowa Community Colleges ($12.6 million), and the State University System of Florida ($62 million). As a share of these school systems’ budgets, even these grossly exaggerated1 costs are rather manageable at just 1.2 percent, 1.5 percent, and 0.6 percent of their budgets, respectively.

What’s the value of a college degree? A new interactive website provides some answers and much needed transparency - Mark Perry of AEI - There’s a new website called “Launch My Career Colorado” that went live on June 10 and is a first-in-the-nation, interactive web tool that allows students and parents to determine the estimated “Return on Investment (ROI)” from various post-secondary college degrees and certificates. ROI is defined here not as a percent return, but rather as the estimated additional income during the next 20 years earned by a college graduate over and above the earnings of a high school graduate. The website is endorsed by the state of Colorado (Gov. John Hickenlooper helped introduce the website) and was partly funded by the US Chamber of Commerce. It will eventually be expanded to 12 other states “to help students and their families, policymakers, and post-secondary institutions make more informed decisions about the training and skills that provide the greatest value to students and their communities.” According to a US Chamber of Commerce spokeswoman: At a time when student debt is mounting and employers are struggling to find the right people with the right skills, it is imperative that students make informed decisions about the best way to prepare for in-demand jobs. This tool will allow consumers to easily identify careers, majors, and institutions of interest and compare the value of each program. Based on data obtained from the website, the table above (click to enlarge) displays a sample of various 2-year and 4-year college degrees from colleges in Colorado, along with the average number of years to complete the degree, the ROI (from highest to lowest), the starting post-graduate salary, and the total student cost to earn the degree. A few comments:

Goldman Sachs to drop on-campus interviews - Goldman Sachs is abandoning the time-honoured practice of on-campus interviews for undergraduates at elite schools and will now ask students to use pre-recorded interviews to pitch for a job at the bank. The Wall Street bank announced the new initiative on Thursday along with a range of other innovations it says will make its recruitment more consistent and rigorous. “The number one priority is how do we find more terrific people that are potential candidates for the firm,” said Edith Cooper, global head of human capital management at the bank. “Leveraging technology will help you get to more places.” Goldman attracts more than 250,000 applications from students annually, including almost 225,000 from undergraduates. But more than half of the undergraduates it traditionally hires comes from a group of less than 50 “target” schools, including prestigious Ivy League colleges. Under the new approach, candidates from any school will instead use a pre-recorded interview programme called HireVue, which JPMorgan uses in its retail bank. The bank will then invite second-round candidates to a ‘structured interview’ where questions will be more prescriptive to allow for candidates responses to be more easily benchmarked against each other.

For-profit medical schools are coming to the US (AP) - For-profit medical schools are starting to pop up around the country, promising to create new family doctors for underserved rural regions. Rural states like Idaho need more general practitioners, with the baby boom generation aging and expanded insurance coverage under the Affordable Care Act making health care more accessible. But critics of the new schools question whether companies can properly train the nation's next crop of doctors. "On face value, it looks like a pretty good deal" because for-profit schools promise to bring benefits without relying on taxpayer dollars, said Dr. Ted Epperly, who runs a family practice residency program in Boise, where a new for-profit school plans to start accepting students in 2018. "But it's a little bit like Wal-Mart moving into a small community with mom-and-pop shops - it damages the existing workforce producers." Proponents contend challenges the new schools face are surmountable, and any stigma about for-profit medical training is born of fear, not fact. Dr. Robert Hasty, dean of the newly created Idaho College of Osteopathic Medicine, notes for-profit hospitals also were once stigmatized but now make up about a quarter of all U.S. hospitals. "We have such a need for doctors, and if we have to make this investment, it's worthwhile," Hasty said. Thirty-one new medical schools opened in the country between 2002 and 2014, according to an article in the New England Journal of Medicine. Most were nonprofit or public.

The PhD Bubble Has Burst: Graduating 'Doctors' Are Having Trouble Finding Work -- Spending nearly a decade in college, racking up significant amounts of debt, and emerging with that coveted PhD designation isn't what it used to be... in fact it is safe to say the PhD bubble has burst.  The percentage of new doctorate recipients without jobs or plans for future study climbed to 39% in 2014, up from 31% in 2009 according to a National Science Foundation survey. Those graduating with doctorates in the US climbed 28% in the decade ending in 2014 to an all-time high of 54,070, but the labor market - surprise surprise - has not been able to accommodate that growth. . Of course the labor market isn't able to accommodate those PhD's, unless of course their chosen concentration is bartending, which in that case would mean that opportunities are plentiful (although paying back those loans may pose a problem). As a reminder, since December 2014, while all of those new PhD's were emerging from a decade of lecture halls and academic circle jerks, the only jobs that have been created in any meaningful way have been in the service industry. There have been pockets of growth elsewhere, but even those higher paying jobs were primarily part-time roles. As employment opportunities become increasingly more difficult to find, those that committed their time and future consumption capabilities (ie: took on a lot of debt to finance the degree) are also finding that median salaries are falling as well as a glut of those with a doctorate degree have flooded the market looking for work. Median salaries for PhD's working full-time fell 6% between 2010 and 2013 the WSJ reports, which doesn't bode well with the fact that those who obtained the degree thought it would be a hedge against stagnating wages and unemployment. While PhD's still earn a premium over others in the labor market, median salaries have declined significantly. As the WSJ notes, Computer scientists earned $121,300 in 2013, down from $129,839 in 2008; engineers earned $120,000, down from $125,511, and so on.

An Expensive Law Degree, and No Place to Use It - By most measures, John Acosta is a law school success story. He graduated from Valparaiso University Law School — a well-established regional school here in northwestern Indiana — in the top third of his class this past December, a semester ahead of schedule. He passed the bar exam on his first try in February.Mr. Acosta, 39, is also a scrupulous networker who persuaded a former longtime prosecutor to join him in starting a defense and family law firm. A police officer for 11 years in Georgia, Mr. Acosta has other life skills that are attractive to people running into problems. Yet in financial terms, there is almost no way for Mr. Acosta to climb out of the crater he dug for himself in law school, when he borrowed over $200,000. The government will eventually forgive the loan — in 25 years — if he’s unable to repay it, as is likely on his small-town lawyer’s salary. But the Internal Revenue Service will probably treat the forgiven amount as income, leaving him what could easily be a $70,000 tax bill on the eve of retirement, and possibly much higher. Mr. Acosta is just one of tens of thousands of recent law school graduates caught up in a broad transformation of the legal profession. While demand for other white-collar jobs has grown substantially since the start of the recession, law firms and corporations are finding they can make do with far fewer in-house lawyers than before, squeezing those just starting their careers.

How Many Law Schools Need To Close? (Spoiler Alert: Plenty!) - The only solution for the surplus of workers with law degrees is a massive, permanent reduction in the issuance of new law graduates. America is in the opening stages of a massive surplus of over-credentialed workers. The default setting for 50 years has been: if you want a secure upper-middle class salary, get a law degree, MBA, PhD or other graduate-level professional degree. The massive surplus is now apparent in J.D.s (law degrees) and PhDs. The writing is already on the wall: there aren't enough jobs for law school graduates, and this scarcity of high-paying legal jobs will only increase going forward. These two articles provide the context:

The only solution for the surplus of workers with law degrees is a massive, permanent reduction in the issuance of new law graduates. The only way to achieve this result is for a significant percentage of law schools to close their doors. What's the percentage that must close to restore some balance? An unfettered market would discover the price of attending law school and the number of schools needed to fulfill diminishing demand for workers with law diplomas. But we don't have an unfettered market--we have a government-sanctioned system of debt-serfdom. Law students can borrow up to $200,000 for a three-year law program, and so surprise, surprise, the cost of that three-year program is--yup, $200,000.

Hey Recent Grads, Don’t Let the Real World Kill Your Dreams - I graduated from Rutgers University in 2011. I'd spent college living at home, delivering pizzas, and working as a garbage man to save money. I took $100 community college courses that transferred to $1,000 credits at Rutgers, and hacked the add-drop system to take more core classes than I should have been allowed, to avoid loans and to get the hell out of college, and into the real world, as quickly as possible.  When I did, my friends and I all assumed we were destined for greatness. The reality was that the national unemployment rate was 9 percent, and almost 13 percent for recent college grads. My journalism degree seemed worthless, and I got by selling sperm three times a week at $100 a pop.  My friends, who I thought were going to change the world, were shucking shingles off roofs or, if they were lucky, working at boring office jobs like their parents. They viewed those jobs as temporary—a way to pay off some of their loans or save up to travel later on—but years later they got comfortable with, or became addicted to, the stability of a steady paycheck and were never able to break away. It's a bleak picture of the "real world," but for recent graduates, the post-college world seems significantly more hopeful. In many ways, you little shits don't know how good you have it: The national unemployment rate is under 5 percent—the lowest it's been since 2007—and less than 2.5 percent for college grads. There's opportunity to change jobs, even careers, more frequently than anyone before you. Gas is cheap, travel is within reach for just about anyone, and technology is making it easier than ever to work remotely.  . After all, you're not graduating in the middle of a recession like we were—what's to stop you from following your dreams? But for every one of you who joins the Peace Corps or decides to travel the country in a Winnebago after graduation, there will be a thousand more of you who will wind up working 50-hour workweeks at soul-sucking desk jobs, just like my graduating class, and just like your parents.

A Family-Friendly Policy That’s Friendliest to Male Professors - The underrepresentation of women among the senior ranks of scholars has led dozens of universities to adopt family-friendly employment policies. But a recent study of economists in the United States finds that some of these gender-neutral policies have had an unintended consequence: They have advanced the careers of male economists, often at women’s expense. Similar patterns probably hold in other disciplines, too. The central problem is that employment policies that are gender-neutral on paper may not be gender-neutral in effect. After all, most women receive parental benefits only after bearing the burden of pregnancy, childbirth, nursing, and often, a larger share of parenting responsibilities. Yet fathers usually receive the same benefits without bearing anything close to the same burden. Given this asymmetry, it’s little wonder some recently instituted benefits have given men an advantage.To combat these disparities, many universities have adopted tenure-extension policies that give new parents greater flexibility. Typically, this means extending the seven-year period of tenure evaluation, usually by an extra year for each child. In practice, these policies are usually gender-neutral, giving dads an extra year to establish their reputations, just like moms. Universities typically adopted such policies in the 1990s and early 2000s, while about one-fifth chose not to do so.  Three economists evaluated evaluated these gender-neutral tenure-extension policies in important new research. The policies led to a 19 percentage-point rise in the probability that a male economist would earn tenure at his first job. In contrast, women’s chances of gaining tenure fell by 22 percentage points. Before the arrival of tenure extension, a little less than 30 percent of both women and men at these institutions gained tenure at their first jobs. The decline for women is therefore very large. It suggests that the new policies made it extraordinarily rare for female economists to clear the tenure hurdle. The authors found that men who took parental leave used the extra year to publish their research, amassing impressive publication records. But there was no parallel rise in the output of female economists.

The Workforce That Won't Retire —The term “gray-haired professor” may seem like a cliché, but there’s some truth to it. Academia has long had a disproportionate number of employees older than 65, and the average American professor is getting even older. The share of people older than 65 teaching full time at American colleges and universities nearly doubled between 2000 and 2010. College professors are now among the oldest Americans in the workforce. Job satisfaction, job protection due to tenure, and concern about their retirement nest eggs are all reasons they cite for sticking around longer. And while their experience is valuable in its own way, the cost of paying senior professors in an era of rising expenses and shrinking endowments has led universities to borrow a budget-cutting strategy from the corporate world: buyouts. A growing number of private and public universities are resorting to offering large sums of money to faculty and staff in exchange for early retirement (or, if they prefer, heading back to the job market). In the past year alone, Oberlin College here in Oberlin, Ohio; the University of Wisconsin, Eau Claire; and theUniversity of North Dakota, all offered some sort of voluntary separation-incentive deal to faculty members.  One reason academia has seen so much aging has to do with federal law. In 1986, Congress barred employers from enforcing mandatory retirement ages, but colleges and universities were exempt for a while. They were able to impose a retirement age of 70 until the exemption expired in 1993. A recent survey of college professors now shows that 60 percent plan to work past the age of 70.

Are student loan defaults getting better or getting worse? -- The US Department of Education reported what seemed to be some good news last week about its $1.3 trillion student loan portfolio. “New defaults continue to decrease,” read the headline from the agency’s press release. Yet the same data also reveal that defaults increased this past quarter and now stand at a record high. One in five borrowers with a loan due is in default, totaling some $124.8 billion in debt. Confused? Let me explain. The contradictory trends are actually both true, but depend entirely on how you slice the data. The Obama administration is highlighting the flow of borrowers defaulting — the number of borrowers who defaulted this past quarter compared with the same time last year. And that flow is slowing, but just barely. According to the administration, last year at this time 1.9% of borrowers in repayment entered default. Most recently 1.8% entered default.  What the press release doesn’t tell you, though, is that the stock of defaulted loans — all outstanding loans currently in default, which includes defaults from any point in time that have never been resolved or collected — continues to grow to record levels. Despite a slowing default rate, more loans and borrowers still enter default than leave each quarter. A report on the Department’s collections efforts says it cured or collected $2 billion of defaulted loans last quarter, significantly less than the $9 billion added to the pool.

Why it’s so hard for students to have their debts forgiven - Outstanding student loan debt in the United States reached a record US$1.35 trillion in March, up six percent from a year earlier. About 10 million people who borrowed from the government’s main student loan program – 43 percent – are currently behind or no longer making payments, with more than a third of them in default. Some students are especially at risk, such as those who attended for-profit institutions. Meanwhile, the loan default rates widely reported by the U.S. Department of Education fail to account for borrowers who default more than three years after repayment begins. These rates also fail to account for the millions of borrowers who are struggling or unable to repay their loans but aren’t included in the numbers because they’ve claimed an economic hardship deferment. These unsettling numbers raise the question of what happens to borrowers unable to repay their student loans. While individuals with debt they cannot repay often turn to bankruptcy, this discharge option is frequently unavailable in the case of student loans. Such debtors must first demonstrate “undue hardship,” an exacting standard few borrowers are able to satisfy and one not applied to most types of unsecured debt in bankruptcy. Credit card debt, for example, can be easily discharged as long as a person qualifies to file for bankruptcy protection. The standard also leaves student-loan debtors without the types of options open to businesses in bankruptcy to work with creditors to reduce debt. Some student-loan borrowers may soon have some relief, however. The Department of Education proposed a new rule this week, for example, that would make it easier for students who are defrauded by their colleges to have their debt forgiven. That’s a step in the right direction. But more needs to be done.

CalPERS returns likely to be flat’ - CalPERS, the biggest U.S. public pension fund, plans to announce its annual returns for the 12 months ending June 30 in mid-July. Eliopoulos warned CalPERS Investment Committee that the coming three to five years will be a challenging market environment for us. “It is going to test us,” he said at the board meeting. CalPERS lowered its performance expectations in each major asset class. The fund’s primary pension consultant, Wilshire Associates, predicted that the total fund, estimated to be worth $293.6 billion, will return 6.4 per cent annually over the next decade, reduced from a 2013 forecast of 7.1 per cent.

Kentucky Pension Fund: “Like a 3rd World Country with 2 Different Governments Claiming Power” --  Yves Smith -  By way of background, the Kentucky Retirement System is the worst funded in the US, with assets at only 19% of its projected needs. Former trustee Chris Tobe, author of Kentucky Fried Pensions, which described corruption on both the investment and funding side, has provided us with periodic updates, as well as the quote in the headline. The current state of play is that the Republican governor and the Democratic attorney general are engaged in a turf war over whether the governor can exert control over the fund. By law, the trustees are supposed to be independent. Yet the new governor used an executive order to remove the board’s chairman in March. From the Financial TimesArmed police officers are not a usual sight at pension board meetings. Yet last month a number of state troopers were on standby when the board of Kentucky’s second-largest public pension scheme, which oversees $16bn of assets, convened. Some of those attending the meeting assumed the law enforcement officers were accompanying the US state’s governor, Matt Bevin, to the session.

The State of American Retirement: How 401(k)s have failed most American workers - Today, many Americans rely on savings in 401(k)-type accounts to supplement Social Security in retirement. This is a pronounced shift from a few decades ago, when many retirees could count on predictable, constant streams of income from traditional pensions (see “Types of retirement plans,” below). This chartbook assesses the impact of the shift from pensions to individual savings by examining disparities in retirement preparedness and outcomes by income, race, ethnicity, education, gender, and marital status. The first section of the chartbook looks at retirement-plan participation and retirement account savings of working-age families. The charts in this section focus on families headed by someone age 32–61, a 30-year period before the Social Security early eligibility age of 62 when most families should be accumulating pension benefits and retirement savings. The second section looks at income sources for seniors. Since many workers transition to retirement between Social Security’s early eligibility age and the program’s normal retirement age (currently 66, formerly 65), the charts in the second section focus on retirement outcomes of people age 65 and older.

Statement on the 2016 Social Security Trustees Report - Dean Baker -  The 2016 Social Security Trustees Report is little changed from the 2015 Report. It shows a small decrease in the projected 75-year shortfall of 0.02 percentage points. Changes in the disability program, along with small changes in projections more than offset the increase of 0.6 percentage points due to shifting the projection period by a year. (The new projection adds 2093, a year with a large projected deficit, and loses 2015, a year with a surplus.) While reporters and politicians routinely focus on the projected shortfall, what will matter far more to the people covered by Social Security is the projected growth in real wages and their distribution. As has been pointed out, almost 40 percent of the projected shortfall in the program is attributable to the upward redistribution of income over the last four decades. This has pushed a larger share of wage income over the taxable maximum. For this reason, the finances of the program are directly affected by the distribution of income. ... This means that workers have vastly more at stake in whether they will receive their share of wage growth over this period, than whether it is necessary to raise the Social Security tax rate at some point. ... (Of course any shortfall in Social Security could be covered through other mechanisms than increases in the payroll tax.)

Americans Overwhelmingly Prefer This Presidential Candidate's Healthcare Plan, Study Shows --  We're now officially less than five months away from Election Day, and voters are turning their attention to where the candidates stand on specific issues. Among the issues expected to garner a lot of attention this election season is what should be done with healthcare in America. Outgoing President Barack Obama could wind up being most remembered for his implementation of The Affordable Care Act, or Obamacare as it's best known. Obamacare wound up turning the prior healthcare system on its head by making health insurance plans as transparent as possible within an online marketplace. In turn, consumers saw their obligations increase via the individual mandate. This essentially means consumers need to purchase insurance or face a penalty come tax time. In 2016, this penalty had grown to the greater of $695 or 2.5% of modified adjusted gross income. But is Obamacare right for America? That was the roundabout question posed by national pollster Gallup to more than 1,500 Americans last month. Gallup's poll sought Americans' opinions on the three remaining presidential candidates' healthcare plans, giving respondents the choice of answering whether they "favored," "opposed," or had "no opinion" on each candidate's plan.  According to Gallup, 48% favored keeping the Affordable Care Act, while 49% opposed it. This probably comes as no big surprise, given Obamacare's low favorability numbers since it was first signed into law in March 2010. Some 51% of respondents favored repealing Obamacare, while 45% opposed the idea. In other words, Trump's healthcare proposal would appear to have a little more steam than Clinton's. However, the overwhelming favorite was the single-payer plan offered by Bernie Sanders. Overall, 58% of respondents favored the idea, with just 37% opposing it and another 5% having no opinion.

This study is forcing economists to rethink high-deductible health insurance - In 2006, about one in 10 employees had a health insurance deductible over $1,000. Today? About half do.  To health economists, this sounded like good news; they've long theorized that higher deductibles would force down health-care costs. The idea was that higher deductibles would make patients become smarter shoppers: If they had to pay more of the cost, they'd likely choose something closer to the $1,529 appendectomy than the $186,955 appendectomy (yes, some hospitals really do charge that much). This would push the really expensive doctors to lower their prices so cheaper physicians didn't steal their business. This was, however, just a theory. And a massive new study suggests it might have been all wrong. Economists studied a firm that, in 2013, shifted tens of thousands of workers into high-deductible insurance plans. This was a perfect moment to look at how their patterns of care changed — whether they did, in fact, use the new shopping tools their employer gave them to compare prices. Turns out they didn't. The new paper shows that when faced with a higher deductible, patients did not price shop for a better deal. Instead, both healthy and sick patients simply used way less health care. "I am a little bit surprised at just how poorly patients were able to do when looking at very similar products, like MRI scans, and with a shopping tool," says Kolstad, an economist at University of California Berkeley and one of the study's co-author. "Two years in, and there's still no evidence they're price shopping." This raises a scary possibility: Perhaps higher deductibles don't lead to smarter shoppers but rather, in the long run, sicker patients.

Corruption of FDA Clinical Trials Reports: The Problem and a Proposed Remedy -- There is a disconnection between the FDA’s drug approval process and the reports we see in medical journals. Pharmaceutical corporations exploit this gap through adulterated, self-serving analyses, and the FDA sits on its hands. I suggest we need a new mechanism to fix the problem – by independent analyses of clinical trials data. When they analyze and publish their clinical trials in medical journals, pharmaceutical corporations have free rein to shape the analyses. The FDA conducts independent analyses of the data submitted by the corporations, and it may deny or delay approval. But the FDA does not challenge the reports that flood our medical journals, both before and after FDA approval. It is no secret that these publications are routinely biased for marketing effect, but the FDA averts its gaze. That failure of the FDA – a posture known as enforcement discretion – has been well documented. The question is why? At the same time, exposing the biases has been difficult for outsiders because the data are considered proprietary secrets. Now, a detailed example of deliberate corporate bias has finally been documented, through materials released in litigation. This exposé was reported by Drs. Jon Jureidini, Jay Amsterdam, and Leemon McHenry. Their findings were recently published, and their article is freely available on-line. This example concerned a clinical trial of an antidepressant drug in children and adolescents.

For More Children, Puberty Signs Start at 8 - WSJ: When Frank Biro walks into a class of second- or third-graders these days, there are almost always a couple of girls who look different than the rest. “There will be quite a few girls that look like they’re going into early puberty,” says Dr. Biro, a professor of pediatrics at Cincinnati Children’s Hospital Medical Center who gives talks about puberty at schools occasionally. Dr. Biro researches a phenomenon that has increasingly captured the attention of researchers: Puberty appears to be starting earlier in healthy girls, and possibly even boys. At Kaiser Permanente in Northern California, clinicians begin assessing girls for changes related to puberty at age 6.“In general, we think that 7 is now probably a normal age to have some signs of puberty,” says Louise Greenspan, a pediatric endocrinologist at Kaiser Permanente who also researches puberty. “So the cutoff for precocious puberty is a gray zone now.”Precocious puberty is a medical term for puberty that begins in girls under 8 and boys under 9, sometimes from an underlying condition, such as a brain tumor. Often the cause remains unknown. Treatment is often used to halt or slow it down.The health consequences of earlier onset of puberty are myriad. A study published in the journal Pediatrics in May found that girls who started puberty earlier had a higher risk of depression in early adolescence.“We know that the early-maturing girls are at an increased risk of some of these risk-taking behaviors: alcohol use, smoking, drug use and earlier engagement in sexual behaviors,” Dr. Biro says. “We also know some of the longer-term consequences. As adults they’re at higher risk for having obesity, Type 2 diabetes and breast cancer.” Experts speculate this change is due to a longer lifetime exposure to estrogen.

Heroin Use In The United States Reaches A 20 Year High -- The war on drugs in the United States is always a topic of debate, however what isn't debatable according to the UN's World Drug Report is that a heroin epidemic is gripping the United States. Whatever the war on drugs is accomplishing, it certainly was not keeping one million people in 2014 from using heroin in the United States, which according to the UN report is almost three times as many users as in 2003. Additionally, heroin related deaths have increased five-fold since 2000. Angela Me, the chief researcher for the report said "There is really a huge epidemic (of) heroin in the US. It is the highest definitely in the last 20 years." According to Reuters, Me named two potential reasons for the uptick in usage. One being that the US legislation introduced in recent years has made it harder to abuse prescription opioids such as oxicodone, a powerful painkiller that can have similar effects to heroin. A second reason is that the supply in the US from Mexico and Colombia is greater, and prices have been depressed in recent years. In 2014, at least 207,000 deaths globally were drug related, with heroin use and overdose-related deaths increasing sharply also over the last two years according to the UN Office on Drugs and Crime (UNODC) "Heroin continues to be the drug that kills the most people and this resurgence must be addressed urgently." said Yury Fedotov, executive director of the UNODC.

Now we know what happens to teens when you make pot legal -- Rates of marijuana use among Colorado's teenagers are essentially unchanged in the years since the state's voters legalized marijuana in 2012, new survey data from the Colorado Department of Public Health and Environment shows.  In 2015, 21 percent of Colorado youths had used marijuana in the past 30 days. That rate is slightly lower than the national average and down slightly from the 25 percent who used marijuana in 2009, before legalization. The survey was based on a random sample of 17,000 middle and high school students in Colorado.  "The survey shows marijuana use has not increased since legalization, with four of five high school students continuing to say they don’t use marijuana, even occasionally," the Colorado health department said in a news release.

After Legalizing Recreational Weed, Teen Use In Colorado Lower Than Rest Of Country -- Cannabis prohibitionists have long cautioned that legalizing the plant will inevitably lead to increased use among teens, couching their restrictive beliefs in concern for the youth. While some of these concerns may be genuine, a recent survey from the Colorado Department of Public Health and Environment demonstrates — for the second year in a row — that youth in Colorado do not use cannabis any more than teens in other parts of the country. In fact, by at least one measure, they use less. The Healthy Kids Colorado survey is a “voluntary survey that collects anonymous, self-reported health information from middle and high school students across Colorado,” according to the initiative’s website. Over 17,000 middle- and high-schoolers throughout the state were randomly selected to participate. The survey is conducted every other year, and the 2015version, released this week, confirmed the 2013 findings that marijuana use among teens in Colorado had fallen flat. As the Denver Post reported: “The 2013 version of the survey found that 19.7 percent of teens had used marijuana in the past month. The 2015 version puts that number at 21.2 percent, but Larry Wolk, the executive director of the Colorado Department of Public Health and Environment, said that increase is not statistically significant — meaning it could be a wiggle in the data and not a meaningful increase. In 2009, at the beginning of the state’s boom in medical marijuana stores, the rate was 24.8 percent.

Fix for 3-billion-year-old genetic error could dramatically improve genetic sequencing -  For 3 billion years, one of the major carriers of information needed for life, RNA, has had a glitch that creates errors when making copies of genetic information. Researchers at The University of Texas at Austin have developed a fix that allows RNA to accurately proofread for the first time. The new discovery, published June 23 in the journal Science, will increase precision in genetic research and could dramatically improve medicine based on a person's genetic makeup. Certain viruses called retroviruses can cause RNA to make copies of DNA, a process called reverse transcription. This process is notoriously prone to errors because an evolutionary ancestor of all viruses never had the ability to accurately copy genetic material. The new innovation engineered at UT Austin is an enzyme that performs reverse transcription but can also "proofread," or check its work while copying genetic code. The enzyme allows, for the first time, for large amounts of RNA information to be copied with near perfect accuracy. "We created a new group of enzymes that can read the genetic information inside living cells with unprecedented accuracy," says Jared Ellefson, a postdoctoral fellow in UT Austin's Center for Systems and Synthetic Biology. "Overlooked by evolution, our enzyme can correct errors while copying RNA."

Doctor’s Plan for Full-Body Transplants Raises Doubts Even in Daring China - — Six years ago, Wang Huanming was paralyzed from the neck down after being injured wrestling with a friend. Today, he hopes he has found the answer to walking again: a new body for his head.Mr. Wang, a 62-year-old retired gas company worker, is one of several people in China who have volunteered for a body transplant at a hospital in the northern Chinese city of Harbin.The idea for a body transplant is the kind of thinking that has experts around the world alarmed at how far China is pushing the ethical and practical limits of science. Such a transplant is impossible, at least for now, according to leading doctors and experts, including some in China, who point to the difficulty of connecting nerves in the spinal cord. Failure would mean the death of the patient.The orthopedic surgeon proposing the operation, Dr. Ren Xiaoping of Harbin Medical University, who assisted in the first hand transplant in the United States in 1999, said he would not be deterred. In an interview, Dr. Ren said that he was building a team, that research was underway and that the operation would take place “when we are ready.” His plan: Remove two heads from two bodies, connect the blood vessels of the body of the deceased donor and the recipient head, insert a metal plate to stabilize the new neck, bathe the spinal cord nerve endings in a gluelike substance to aid regrowth and finally sew up the skin. Whether or not he performs the operation, leading medical experts have condemned the plan.

‘Superbug’ found in Illinois meatpacking facility - Scientists have discovered a third instance of a bacteria resistant to one of the strongest antibiotics available, raising concerns about the spread of so-called “superbugs.” Researchers found E. coli bacteria resistant to the antibiotic colistin a pig at an Illinois slaughterhouse, a U.S. Department of Agriculture spokesperson said earlier this week. Colistin is often used against bacteria that fail to respond to more common antibiotics. Previously, a team of scientists had identified cases of similar resistance in a pig in South Carolina and in a woman in Pennsylvania. In each of the three U.S. instances, the gene responsible for the resistance was carried by a different strain of bacteria. The worry is that this resistance will spread to bacteria that are also resistant to other drugs, effectively making bacteria immune to antibiotics. The gene that confers resistance to colistin, known as mcr-1, was first identified in China in the fall 2015. Many researchers believe resistance to colistin has built up in part due to its wide use in livestock in China. The USDA says it is currently testing for the gene in thousands of samples from food-producing animals, in an effort to gauge its spread.

These 16,000 Foods May Contain the Hormone-Disrupting Chemical BPA - For consumers who want to avoid bisphenol A, Environmental Working Group (EWG) has created the first easily, searchable database of nearly 16,000 processed food and drinks packaged in materials that may contain this hormone-disrupting chemical, better known as BPA. The list was compiled from a little-known food industry inventory and is now available at EWG’s Food Scores database. BPA acts like estrogen in the body and is especially dangerous for pregnant women and children in critical stages of development. Independent scientific studies link it to cancer, infertility, diabetes, obesity and brain, nerve and heart disorders and it’s just been listed by California as a chemical known to cause reproductive problems. “Our new database shines a light on just how pervasive BPA is in our food system and will help Americans navigate the supermarket armed with more information.” Most concern about BPA has focused on its use in polycarbonate plastic bottles and canned food linings. But the voluminous list of products brought to light by EWG shows that Americans are exposed to BPA in food packaging far more widely than previously known. The array of products from 926 brands includes:

  • The lids of glass jars for baby food, pickles, jelly, salsa and other condiments;
  • Aerosol cans for whipped toppings and non-stick sprays;
  • Bottles and tins of cooking oil;
  • Aluminum beverage cans, metal coffee cans and even beer kegs.

Food packaging is the largest source of exposure to BPA. The U.S. Centers for Disease Control and Prevention found it in the urine of more than 90 percent of Americans sampled. In 2009, tests commissioned by EWG were the first to find BPA in the umbilical cords of nine of 10 infants sampled.

Scientists just doubled the number of known contagious cancers  - All along the western Canadian coast, mussels are dying. Their blobby bodies are swollen by tumors. The blood-like fluid that fills their interiors is clogged with malignant cells. They're all sick with the same thing: cancer. And it seems to be spreading.For all its harrowing, terrifying damage, the saving grace of cancer has always been that it dies with its host. Its destructive power comes from turning victims' own cells against them and making them run amok.But when molecular biologist Stephen Goff biopsied these mussels, he found something strange. The tumor cells didn't have the same DNA as their host. Instead, every mussel was being killed by the same line of cancerous cells, which were jumping from one individual to the next like a virus. The mussels, as well as two other species of bivalve examined by Goff and his colleagues, are dying from contagious cancer.  Goff's study, which was published Wednesday in the journal Nature, doubles the number of species known to suffer from transmissible cancers. And in one case, clams were being killed by cancer cells that come from an entirely different species.The results, Goff said, suggest that this communicable form of the disease isn't as rare as scientists once thought."I guess that many, many of the cancers that are known will turn out to be of this type," said Goff, who is based at Columbia University Medical Center. "How many other marine species might turn out to suffer from this, we don't really know."

Congo declares yellow fever epidemic, 1,000 suspected cases | Reuters: Democratic Republic of Congo declared a yellow fever epidemic in three provinces including the capital Kinshasa on Monday after confirming 67 cases of the disease, with another 1,000 suspected cases being monitored. Health Minister Felix Kabange said seven of the proven cases were autochthonous, while 58 were imported from Angola, where the outbreak began. A further two cases came from remote forested areas not linked to the current outbreak. Five people in total have died, Kabange added. "I declare today a localized epidemic of yellow fever in the provinces of Kinshasa, Kongo Central and Kwango," Kabange told a news conference. Kinshasa is the main concern for global healthcare officials, because it has a densely packed population of more than 12 million and poor health infrastructure. Yellow fever is transmitted by the same mosquitoes that spread the Zika and dengue viruses, although it is a much more serious disease. The "yellow" in the name refers to the jaundice that affects some patients. The global stockpile of yellow fever vaccines has already been depleted twice this year to immunize people in Angola, Uganda and Congo. It currently stands at 6 million doses but this may not be enough if there are simultaneous outbreaks in multiple highly populated areas.

Health advisories in Zika-affected countries may have prompted more women to seek abortions - Women who live in some Latin American countries where the Zika virus is spreading are increasingly seeking access to abortion — even though, in many instances, abortion is illegal or restricted. Since November 17th, 2015, when the Pan American Health Organization (PAHO) issued an epidemiological alert about Zika, the number of requests for abortion medications has increased significantly, sometimes even doubling, scientists have found. The Zika virus causes microcephaly, a condition in which babies conceived by infected moms are born with abnormally small heads. Since no Zika vaccine has been approved, some infectious disease specialists think that delaying or avoiding pregnancies is the only safe way to avoid giving birth to babies with brain damage. The PAHO alert prompted several Latin American countries to declare national emergencies, caution citizens about Zika-related birth defects, and urge women to avoid pregnancies. The researchers behind today’s study, published in The New England Journal of Medicine, wanted to see whether those government advisories were actually affecting women’s behavior — and prompting them to seek more abortions. So, they compared the number of requests coming in to what they’d normally expect to see in these countries. They found that in countries like Brazil, Colombia, and Ecuador, where Zika is locally transmitted, abortion is restricted, and government officials have issued health advisories, requests for abortion increased by 36 to 108 percent since November 2015.

6 Million Tropical Fish Imported Into U.S. Each Year Are Exposed to Cyanide Poisoning -- A new analysis by the Center for Biological Diversity and For the Fishes finds that 6 million fish tropical marine fish imported into the U.S. each year for the pet trade have been exposed to cyanide poisoning. The findings come ahead of the release of Disney/Pixar’s Finding Dory, which is likely to fuel a rapid increase in the sale of tropical reef fish, including royal blue tangs like Dory. The groups’ new report, Poisoned Waters, examines the destructive practice of cyanide poisoning in places like the Philippines and Indonesia that supply the tropical aquarium-fish market in the U.S. “Finding Dory is almost certainly going to trigger a consumer drive to buy tropical fish like the ones seen in the movie. Sadly this business has a dark and dangerous side that ruins coral reefs and devastates tropical fish populations,” Nicholas Whipps of the Center for Biological Diversity said. To catch fish with cyanide, crushed cyanide tablets are placed in squirt bottles filled with seawater. The dissolved cyanide is then sprayed directly onto the reefs near the targeted fish to stun the fish and make it easier to scoop them up. In some cases 55-gallon drums of cyanide have been dumped overboard to capture fish.As much as 50 percent of all nearby fish are killed on contact, as well as nearby corals. Most of the fish that survive are then shipped to the U.S. and sold for aquariums.

Ocean viruses may have impact on Earth’s climate -- Viruses—already the bane of human existence—may also be having an impact on Earth’s climate. A new study reveals that the pathogens steal energy from ocean bacteria, preventing them from sucking up the greenhouse gas carbon dioxide. As a result, viruses could be responsible for billions of metric tons of extra carbon dioxide every year, though the impact on the environment is unclear.  The ocean is full of microbes that breathe in carbon dioxide and get their energy from the sun. In fact, by converting this carbon into the building blocks of bodies, so-called cyanobacteria and other ocean microbes sequester—or “fix”—about half of the carbon dioxide on Earth. But viruses can impact this process. When they attack cyanobacteria, they inject their genetic material, turning the microbes into virtual virus factories. The injected DNA includes photosynthetic genes, suggesting that the viruses—known as cyanophages—might be changing how the bacteria process carbon. To find out whether that’s the case, scientists at the University of Warwick infected one of the smallest and most abundant photosynthetic microbes on the planet—Synechococcus—with cyanophages from either the English Channel or the Red Sea. They fed the bacteria baking soda, or sodium bicarbonate, which served as a source of CO2. Several hours after the scientists introduced the viruses, carbon fixation stalled, they report this month in Current Biology. Bacteria infected with the Red Sea and English Channel phages fixed 4.8 and 2.3 times less carbon, respectively, than uninfected hosts. Carbon fixation fell no matter how much light was hitting the bacteria.

2.6 Million Dead Bees Delivered to EPA Headquarters - A truck full of dead bees made its final stop at a rally outside the headquarters of the U.S. Environmental Protection Agency (EPA) Wednesday, culminating a coast-to-coast tour to raise awareness about recent massive declines in pollinators.  While the millions of dead bees stayed in the truck, advocates and beekeepers delivered more than 4 million signatures urging an immediate ban on bee-killing pesticides.  “In the five years since I started keeping bees, I’ve seen many hives killed by pesticides,” said James Cook, a Minnesota-based beekeeper who has been driving the truck across the country since last Monday. “If some fundamental things don’t change, it’s going to be really hard for beekeepers to adapt to the environment around us.” Bees pollinate most of the world’s most common crops, including summer favorites like peaches and watermelon. But more than 40 percent of U.S. honeybee hives die each year, costing the farming and beekeeping industry more than $2 billion annually.One culprit in the bee die-off is the widely-used class of pesticides called neonicotinoids or neonics. Last spring the EPA began a process to assess four types of neonics and their impacts on pollinators. In January the agency acknowledged that imidacloprid could indeed harm bees, but the remaining assessments are still outstanding. “Given the facts we have at hand about the links between neonics and bee die-offs, officials should move boldly and swiftly to stop any and all uses of these dangerous chemicals,” said Anna Aurilio, the director of the Washington, DC, office of Environment America.

Buzz Kill: How the Pesticide Industry Blocks Bee Protections Nationwide -- There’s a nationwide buzz in the air about saving bees and other pollinators, but the pesticide industry has been working hard to silence this growing call for reform.  Bees, vitally important to food production, are dying at unsustainable rates — an unprecedented average 30 to 40 percent of all honeybee colonies each year. In the face of this growing crisis, a new investigation by Friends of the Earth, Buzz Kill: How the Pesticide Industry is Clipping the Wings of Bee Protection Efforts Across the U.S. has found that the pesticide industry is stifling urgently needed reforms that would help these essential pollinators survive and rebuild their numbers. Bees and other pollinators are essential to our food system, to our food security and to ecological sustainability. They pollinate and help produce one in every three bites of our food, such as some of our most nutritious foods including apples, almonds and blueberries.  Despite growing public concern and scientific evidence about mass bee die-offs and pollinator declines, the pesticide industry has weakened and delayed federal and state measures to protect these key players in food security and ecological health. Due in part to vigorous pesticide industry lobbying, pollinator protection efforts across the U.S. remain a patchwork of largely voluntary, unenforceable measures that fail to limit or restrict pesticide use.  A growing body of scientific research shows that neonicotinoids — the world’s fastest-growing and most widely-used class of insecticides — play a significant role in pollinator deaths and population declines. These insecticides (often applied as seed coatings) are systemic and persistent — absorbed throughout the stems, leaves and flowers of a growing plant, with toxins that can linger for years in the environment. The pesticide, used on the majority of corn and a large percentage of soy, wheat and canola seeds along with 140 varieties of crops, can kill bees outright by attacking the nervous system, while low levels of exposure have been shown to disrupt foraging abilities, navigation and other life-preserving activities. Neonicotinoids also suppress bees’ immune systems, making them more vulnerable to diseases and pests such as the Varroa mite.

USDA quietly opened the door on a brave new era of genetic engineering in agriculture this spring.-- USDA quietly opened the door on a brave new era of genetic engineering in agriculture this spring. Buried deep in a dry form letter to DuPont Pioneer dated April 18, the Animal and Plant Health Inspection Service (APHIS) informed the company that it would not be regulating a Pioneer corn hybrid produced by a popular new gene-editing technique called CRISPR-Cas9. "APHIS has no reason to believe that this CRISPR-Cas waxy corn is a plant pest," the letter concluded. "Therefore...APHIS does not consider the CRISPR-Cas waxy corn to be regulated pursuant to 7 CFR part 340." With that bureaucratic flourish, the agency made a strong statement on a simmering controversy on how genetically modified organisms (GMOs) should be regulated in the U.S. They also unleashed a powerful new technology into the agricultural marketplace. The CRISPR-Cas9 gene editing technique has been likened to the cut-and-paste function of a Word document. The letters CRISPR stand for "clustered regularly interspaced short palindromic repeats," that is, snippets of DNA. They are found in many varieties of bacteria, where researchers first noticed them. They work as part of the bacteria's defense system, in partnership with a group of special, DNA-cutting Cas ("Crispr-associated") proteins and RNA molecules. Pioneer's new CRISPR-Cas waxy corn hybrid is missing a gene known as Wx1. Without the gene, corn plants produce a large amount of amylopectin, a certain kind of starch, which gives the corn kernels a waxy appearance. This specialty grain is milled into starch, which is used in a variety of processed foods, adhesives and high-gloss paper

The enormous threat to America’s last grasslands — Over the past few years, Neil Shook has watched his world burn acre by acre.Hundreds of acres of rolling green grasslands in North Dakota were being intentionally burned, plowed and planted in a matter of days. Shook, who manages the U.S. Fish and Wildlife Service’s Chase Lake National Wildlife Refuge and surrounding conservation area, watched as landowners backed out of federally funded conservation programs, opting instead to cash in on the state’s economic boom.“This was all grass,” Shook shouted as he wildly gestured toward a vast expanse of plowed, brown farmland near the wildlife refuge in June. “Now, what do you see?”In the mid-2000s, a perfect storm of conditions led to a decade of grassland destruction in North Dakota’s share of the prairie pothole region, a vast expanse of grassland and wetlands that stretches from eastern Alberta to northern Iowa. Corn and soybean prices were high, climate change had extended the growing season and genetically modified crops could now survive in the northern plains. And then the oil boom hit.Between 2005 and 2015, more than 160,000 acres of Stutsman County mixed grass prairie — an ecosystem that can support more than 100 plant species per square mile — was converted into single-crop farmland. In just six years, North Dakota lost half of its acreage that was protected under the U.S. Department of Agriculture’s Conservation Reserve Program (CRP) as biodiverse grasslands fell to the plow.  Regionwide, between 2006 and 2011, North Dakota, South Dakota, Nebraska, Minnesota and Iowa combined lost more than 2,000 square miles of grass-dominated land — a habitat loss rate equal to that of high-profile deforestation rates in Brazil and Malaysia, according to a 2013 study from South Dakota State University.

Cotton subsidies: Gifts that keep on giving - The United States Department of Agriculture has just awarded cotton producers “one-time only” payments that cover “cotton ginning costs” based on their 2015 production. Anyone with experience in policy history, an attribute most farmers possess, knows that temporary subsidies have a strong tendency to become permanent in one form or another. It is therefore valuable to consider the background and implications of this new program. The new cotton ginning cost subsidies grew out of cotton industry dissatisfaction with the subsidies to which they have had access for the last couple of years compared to cotton policy history. Before the price spikes of about a decade ago, for about 70 years cotton farms had traditionally relied on government payments for half or more of their annual revenues. As a part of the settlement of a WTO dispute, the 2014 Farm Bill offered cotton farmers a new, heavily subsidized county-based revenue insurance program (named STAX) to replace long-standing price-based subsidies. But despite an 80% subsidy on the insurance premiums, most cotton farms (accounting for about 70% of aggregate cotton acreage) have chosen not to sign up for STAX. Simply put, despite the heavy subsidy, STAX has failed to satisfy the subsidy habits of the cotton industry.

Climate Impacts From Farming Are Getting Worse - As signs emerge that the global energy sector is beginning to rein in what once had been unbridled levels of climate-changing pollution, new United Nations figures show pollution from farming is continuing to get worse. Greenhouse gases released from the growing of crops and livestock directly increased by a little more than 1 percent in 2014, compared with a year prior, the newly updated data shows. Burning fossil fuels for energy grew by about half that amount during the same period, research published in December showed, with further reductions anticipated for 2015. That’s seen as a key first step toward achieving the vast pollution reductions needed to start to stabilize the climate.“Historically, it’s been the opposite — fossil fuel emissions have grown exponentially and agricultural emissions have grown linearly,” said Francesco Tubiello, a team leader in the statistics division of the Food and Agriculture Organization of the United Nations, which compiles the data.The new U.N. figures do not include greenhouse gas impacts from deforestation or other clearing of land to make space for farms, which are slowly being reduced overall.

Interactive Map Shows How 6,500 Factory Farms Put North Carolinians at Risk - A first-of-its-kind interactive map revealing the locations of more than 6,500 concentrated animal feeding operations or CAFOs, across the state of North Carolina was released Wednesday by Waterkeeper Alliance, North Carolina Riverkeeper organizations and Environmental Working Group (EWG).   In addition to swine and cattle CAFOs, the project documents the locations of more than 3,900 poultry operations, which up until now have been shielded from the people of North Carolina. The maps, which EWG and Waterkeeper Alliance researchers spent more than three years making, provide a never-before-seen aerial view of the CAFOs blanketing the state. This includes the manure lagoons from swine operations, detailing how close they are to streams, rivers and other public water sources. “For far too long, North Carolinians have been kept in the dark about the true impact these industrial factory farms are having on communities and waterways,” Marc Yaggi, executive director of Waterkeeper Alliance, said. “Information is power and now that these sites are definitively identified, we will hold accountable the North Carolina Department of Environmental Quality and the U.S. Environmental Protection Agency for enforcing the Clean Water Act and fixing these massive pollution problems.” The maps feature satellite photos of each of the thousands of facilities.

The Myth that Cattle are a Climate Change Catastrophe -- Sometimes the rules of simple cause and effect don’t apply. Take, for instance, the fact that cattle are ruminants, and like all ruminants they utilize a wonderfully complex digestive system to turn forages and grain into meat and milk. A major side effect of all that fermentation on four legs is the production of methane, which is a potent greenhouse gas.  So cattle are major villains in the global climate change crisis, right? Not necessarily. In fact, according to a major research editorial in the Journal of Soil and Water Conservation, ruminants could hold one of the keys to developing a food production system that reverses the impacts of releasing so many greenhouse gases into the atmosphere. This is just the latest recognition that agriculture has a huge potential role in bringing greenhouse gasses - carbon dioxide, methane and nitrous oxide — under control. According to a paper published in the journal Nature in 2016, land use in general contributes about a quarter of total human-caused greenhouse gas emissions. Roughly 10 percent to 14 percent of emissions come directly from agricultural production and another 12 percent to 17 percent from land cover changes, including deforestation. The good news is that soils can sequester a lot of greenhouse gases. For example, our soil holds three times the amount of carbon dioxide currently in the atmosphere, and 240 times the amount of gases emitted by fossil fuels annually. Increasing the amount of carbon stored in soil by just a few percent would produce massive positive benefits. And since farmers deal directly with the land, they could play a significant role in developing what authors of the Nature paper call “climate-smart soils.”

3.2 Million Animals Killed by Wildlife Services in 2015 -- The highly secretive arm of the U.S. Department of Agriculture known as Wildlife Services killed more than 3.2 million animals during fiscal year 2015, according to new data released by the agency.  The total number of wolves, coyotes, bears, mountain lions, beavers, foxes, eagles and other animals killed largely at the behest of the livestock industry and other agribusinesses represents a half-million-animal increase more than the 2.7 million animals the agency killed in 2014.  Despite increasing calls for reform a century after the federal wildlife-killing program began in 1915, the latest kill report indicates that the program’s reckless slaughter continues, including 385 gray wolves, 68,905 coyotes (plus an unknown number of pups in 492 destroyed dens), 480 black bears, 284 mountain lions, 731 bobcats, 492 river otters (all but 83 killed “unintentionally”), 3,437 foxes, two bald eagles and 21,559 beavers. The program also killed 20,777 prairie dogs outright, plus an unknown number killed in more than 59,000 burrows that were destroyed or fumigated. “Despite mounting public outcry and calls from Congress to reform these barbaric, outdated tactics, Wildlife Services continues its slaughter of America’s wildlife with no public oversight,” Michael Robinson of the Center for Biological Diversity said. “There’s simply no scientific basis for continuing to shoot, poison and strangle millions of animals every year—a cruel practice that not only fails to effectively manage targeted wildlife but poses an ongoing threat to other animals, including pets.” Agency insiders have revealed that the agency kills many more animals than it reports.

A record 66 million trees have died in Calif., increasing fire risk: California is a tinderbox of dead trees, which is fueling the fire risk in the state. According to a report released Wednesday, 26 million trees have died in the southern Sierra Nevada since October 2015. The deaths are in addition to the 40 million trees that died across the state from 2010 to October 2015, bringing the total to at least 66 million dead trees. The report, which was prepared by the U.S. Forest Service, was released as several wildfires continue to char thousands of acres across the state, with thousands of Californians ordered to flee their homes. Four straight years of severe drought in California, a dramatic rise in bark beetle infestation and warmer temperatures are leading to historic levels of tree die-off, according to the report. According to the forest service, only 77,000 trees have been felled. "Tree dies-offs of this magnitude are unprecedented and increase the risk of catastrophic wildfires that puts property and lives at risk," said U.S. Department of Agriculture Secretary Tom Vilsack in a statement. The forest service is part of the Agriculture Department. A 2014 study from the forest service said there were an estimated 11 billion live trees on forest land in the entire state of California. "While the fire risk is currently the most extreme in California because of the tree mortality, forests across the country are at risk of wildfire and urgently need restoration requiring a massive effort to remove this tinder and improve their health," Vilsack said.

Mafia members attaching petrol-soaked rags to cats to start fires in Sicily - Cats in Sicily could have had petrol-soaked rags attached to them by people linked to the Mafia before being set alight and released into forests to start huge fires, according to the island's national park officials. Dozens of forest fires which broke out within hours of each other in Sicily on Thursday are believed to have been begun by mobsters or their collaborators. Firefighters had to tackle at least 30 blazes in national parks and woodland. Schools and homes have been evacuated and water and power supplies cut. Several children have been treated for smoke inhalation. The fires all broke out at around the same time on Thursday, which has led the island's national park officials to suggest a co-ordinated plan was behind the blazes. The effects have been exacerbated by temperatures of up to 40C while the 'sirocco', a strong wind which comes from Africa and affects parts of Europe in the summer, has fanned the flames. Sicilian authorities have pointed the blame at various groups they say have motives for starting the fires, including the mafia, property developers, and disgruntled former forest rangers.

Corn Belt Could Have ‘Flash Drought’ This Summer - There’s a chance the Corn Belt could see a “flash drought” over the summer as temperatures across the U.S. may be higher than normal through the next three months, according to government forecasters. Above-normal temperatures may combine with a drop in rainfall across the region that extends from Nebraska and Kansas in the west to Ohio in the east,  “For the seasonal drought outlook, we’re not expecting drought to be there at the end of September, but it is certainly possible in the next couple of months,” . “It’s not uncommon to have flash droughts over the Plains states.” From July to September, most of the contiguous 48 U.S. states, except a small part of Texas, may have higher-than-normal temperatures, the climate center said in a seasonal outlook. Alaska also could have a warmer summer than usual.  The regions with highest chances for warmth are the Northeast, Southeast and the states west of the Rocky Mountains, the center said. Above-normal summer temperatures in large population areas tend to lead to increased electricity consumption as more people use air conditioners to cool homes and businesses. This in turn can lead to higher demand for natural gas and other power-plant fuels. The rainfall outlook isn’t as clear, with most of the country having equal chances of too little, too much and just about normal. However, there is a possibility that the Pacific Northwest, including parts of Montana, could have less rain, making drought likely to develop in Oregon and Washington, Pugh said. The coast of the Gulf of Mexico from Texas to Florida, as well as parts of South Dakota, could get more rain.

This US City’s Move to Divert Great Lakes Drinking Water Is Just the Beginning - The drinking water of Waukesha, Wisconsin, is contaminated. On Tuesday, the suburban city won its 13-year-long-bid to divert water from the Great Lakes, by way of Lake Michigan, to appease its thirsty inhabitants. Environmentalists are worried the diversion will have a devastating impact on the lakes that so many people rely on—and critics say it could pave the way for similar requests. It’s just the beginning of what many worry will be growing fights over who has the right to clean drinking water from the Great Lakes. A panel of representatives from eight states that sit alongside the Great Lakes voted unanimously on the decision. An existing compact meant that Waukesha, which is outside the Great Lakes watershed, had to get special permission for the diversion, becoming the first to challenge the compact in this way. (Ontario and Quebec both expressed concern over the plan, and Ontario conducted its own assessment, but neither had a final say in it.) Mayor of Leamington, Ontario John Paterson expressed his concerns on Twitter. @chicagotribune @GLSLcities Is California next? Say goodbye to the Great Lakes! Wrong decision made by the USA.

The Dead Sea is Shrinking at Alarming Rate, a Record Low-Point for Earth - No the Dead Sea is not dying; it’s drying. Well, more like shrinking, by 3 feet each year. The Dead Sea—the lowest point on Earth at roughly 1,300 feet below sea level—is known for its high salt and mineral content and allowing swimmers to float effortlessly on the surface. The amount of space available for easy floating is shrinking. The good news is it will probably never dry up completely, the BBC said. As the water level drops, the sea’s density and saltiness rise. Eventually the rate of evaporation will reach a kind of equilibrium and it will stop shrinking. Just because the Dead Sea is not going to disappear entirely, though, doesn’t mean its shrinking isn’t a concern. During World War I, according to the BBC, British engineers scratched initials on a rock to mark the sea’s level of water. Now, those marks are on a bone-dry towering rock. BBC’s Kevin Connolly explains where the water level is now compared to back then: To reach the current water level you must climb down the rocks, cross a busy main road, make your way through a thicket of marshy plants and trek across a yawning mud flat. It’s about 2km (1.25 miles) in all.“The sea was right here when I was 18 years old, so it’s not like we’re talking about 500 or a 1,000 years ago,”

New crop varieties 'can't keep up with global warming' - BBC News: Crops yields around the world could fall within a decade unless action is taken to speed up the introduction of new varieties. A study says temperatures are rising faster than the development of crop varieties that can cope with a warmer world. In Africa, researchers found that it can take 10-30 years before farmers can grow a new breed of maize. By the time these new crops are planted, they face a warmer environment than they were developed in. The scientists behind study, published in the journal Nature Climate Change, looked closely at the impact of temperature rises on crop duration - that's the length of time between planting and harvesting. They found that in a warmer world durations will be shorter meaning these varieties will have less time to accumulate biomass and yields could be affected.  In their paper, the researchers write that crop duration will become significantly shorter as early as 2018 in some regions but by 2031, the majority of maize-growing areas of Africa will be affected. "The actual changes in yield may be different but this effect is there, the impact of this change in duration will occur unless breeding changes," said lead author Prof Andy Challinor from the University of Leeds. "The durations will be shorter than what they were bred for - by the time they are in the field they are, in terms of temperature, out of date." New varieties of maize need between 10-30 years of development before they are ready to be grown by farmers.

Update on the Palestinian Water Crisis  -- Access to water is one of the most fundamental and least discussed issues underpinning the Israeli - Palestinian conflict (as well as the recurring pattern of Israel’s conflicts with Syria and Lebanon).  Control of the West Bank’s water resources is intimately tied into the growing pattern of the Israeli settlements in the West Bank and, if left unchecked, Israel’s inevitable annexation of Area C (60%) of the West Bank (thereby formalizing the Gazification of Areas A&B).   Water resources are also intimately woven into the pattern of destruction in Israel’s siege of the Gaza ghetto.  Most Americans remain unaware of water’s central importance in this conflict. Yet a fair and equitable solution to this issue is a necessary albeit not sufficient condition for ending the Israeli-Palestinian conflict on terms that do not sow the seeds for future conflict.  The parameters of the water question in the Jordan River Valley have been long understood, if ignored, by American policy makers (see the 1955 Johnston Plan and the Johnston Plan Revisited).  Indeed, in its current context, the these parameters reach back to the 3 February 1919 Zionist proposal to Versailles Peace Conference for a Jewish national home (do a word search for “water” and think about the implications of the highlighted text).  More generally, the history of access to water in this region reaches back to the dawn of civilization and the creation of agriculture.  The Jordan River drainage system (along with Lebanon’s surface water systems) together with the aquifers in the highlands of the West Bank (and of Lebanon) connect the two wings of the Fertile Crescent stretching from the Nile River system in the West to Tigris and Euphrates River systems in the East.  It is no accident that the location of one of the world’s oldest cities, the Palestinian canton of Jericho, was determined in large part by its access to the wells and springs in the center of this link. The attached analysis by Camilla Corradin in Aljazeera is an excellent update of this steadily worsening question.  The links in her report are particularly important sources of information.  I urge readers to read the links as well as her essay.

Traditional irrigation keeps water flowing in drought-hit India | Reuters: - Ask the farmers in remote Baksa district, in the northeast Indian state of Assam, whether they are affected by climate change and they usually respond with a look of surprise. Across much of India, farmers are struggling to adapt as their crops fail season after season as a result of increasingly unpredictable and often dry weather. But in Baksa, along Assam’s border with Bhutan, farmers have never seen their harvest ruined by drought or delayed rainfall, despite having no access to irrigation pipes or water pumps. Their secret is a 100-year-old indigenous irrigation system called dong bandh – a network of canals that uses the downhill flow of the area's rivers and streams to bring water to villagers and their fields. Built, monitored and maintained by locals, the system gives the district's residents access to clean water even as droughts devastate many other areas of the country. "I have 1.6 hectares (3.9 acres) of cultivable land, and in that I cultivate rice, maize, and vegetables," said farmer Monindra Choudhury, 44, whose farm gets its water from the dong bandh in Okaladonga Barnadi Ashama Aranga. "I am able to grow three crops a year, and this is solely as a result of this irrigation network,” he said. The district in the Bhutan foothills is particularly reliant on the rivers and streams that crisscross it, carrying water down from the hills, because digging for underground water is challenging in the area. "This area is rocky and it is very difficult to dig wells or install hand pumps,"

Indian farmers demand action as lightning kills 93 people in two days -- Farmers in east India are calling for action from the government after at least 93 people died in lightning storms across the country in two days. A storm in Bihar state killed at least 56 people and injured another 28, mostly in rural areas, and authorities said a further 37 people had died in the states of Uttar Pradesh, Jharkand and Madhya Pradesh. Lal Babu Usvaha, a farmer from Kanti Butiya village near the city of Muzaffarpur in Bihar, said: “Work is work. We can’t stop because of the weather. We have to keep working in the fields. But we feel scared when we see so many clouds, so much electricity in the sky.” Saffan Kumar, another farmer, said: “We can’t stay at home and we can’t go out. We’re stuck. We are willing to do anything, if the government can help us. We’re prepared to do what they say.” Lightning strikes are relatively common in India during the June to October monsoon, which hit the southern coast earlier this month, but this week’s toll is particularly high.

Deadly heat wave hits southwest U.S. - CNN.com Four people have been killed in a record-setting heat wave that's plaguing the Southwest.  A handful of raging wildfires have also popped up in New Mexico, California and Arizona. The fatalities were all in Arizona, but temperatures of 120 degrees will be possible in the desert Southwest early this week, the National Weather Service reported.  On Monday a new fire, dubbed the "Reservoir Fire," quickly grew and now along with an adjoining fire has consumed 3,500 acres in the Angeles National Forest outside Los Angeles. The blaze sent enormous plumes of smoke into the sky while being battled by the Los Angeles County Fire Department and the U.S. Forest Service. The two fires are expected to merge Monday night and authorities have dedicated 350 personnel on the ground and aircraft to fight the flames, which so far have not moved toward houses. [...] The rescue effort in Ventana Canyon was one of three major rescue efforts conducted Sunday. A woman from out of state also died Sunday in Arizona's Pima County due to the heat, according to sheriff's spokeswoman Courtney Rodriguez.A 28-year-old woman hiker died Sunday in Phoenix, according to Larry Subervi, a Phoenix Fire Department spokesman. And on Saturday a 25-year-old male hiker died, he said. Monday saw little relief in terms of scorching temperatures, which set records Sunday:

  • Santa Fe's high of 102 degrees tied its hottest all-time temperature on record (from June 27, 2013, although there are gaps in its record).
  • Tucson's high of 115 degrees tied its third hottest temperature of all time.
  • Yuma's high of 120 degrees tied for its fourth hottest day recorded.
  • Phoenix's high of 118 degrees tied for its fifth hottest day.

Climate Signals | Southwest US Extreme Heat June 2016 - Global warming dramatically increases frequency of the most extreme heat events Extreme heat events, such as this heat wave, are the kind of weather events that increase the most as the climate warms. The more extreme the heat wave, the more likely it is due to the change in the climate. And global warming has led to a dramatic surge in the frequency of the most extreme heat events. Because of the way global warming shifts the climate, the very most extreme events are the weather events most affected by climate change. As the average global temperature rises and the climate shifts, temperatures that were extreme under the old climate are closer to the middle of the new temperature range. Under the earth's climate system events closer to the midpoint occur much more frequently than events closer to the extremes, as shown in the graphic on the right. Thus a small shift in climate leads to a dramatic increase in the frequency of temperatures at the high end. The shifting bell curve also leads to the occurrence of never-before-seen extremes in high temperatures.[1][2][3]"...it is the rarest and the most extreme events - and thereby the ones with typically the highest socio-economic impacts - for which the largest fraction is due to human-induced greenhouse gas emissions."[4] Due to global warming, the most extreme heat events now impact a global area 10 times greater than in the period 1951-1980.[2]

Record-setting heat wave leads to blackouts in Los Angeles - Thousands of Los Angeles residents lost power Monday as scorching temperatures kept people inside while running fans and air conditioners that strained the power grid, officials said. As of 9:30 p.m., about 6,200 Department of Water and Power customers lost electrical service, department spokeswoman Christy Holland said. The vast majority of those experiencing power outages -- about 5,500 customers -- reside in the San Fernando Valley, Holland said. The rest were scattered in pockets across metropolitan L.A. Sweltering heat strained the city’s electrical system, and the DWP said in a statement that Monday’s peak demand, 6,080 megawatts, was more than 50% higher than energy demand on a usual June day.  California's power grid operators warned homes and business on Monday to conserve electricity as rising demand for air conditioning stoked by a record-setting heat wave across the U.S. Southwest tested the region's generating capacity. The so-called Flex Alert was posted until 9 p.m. Pacific time during a second day of triple-digit temperatures expected to strain Southern California's energy production, creating the potential for rolling blackouts on the first official day of summer.  The alert was the first big test of power generators' ability to meet heightened energy demands in the greater Los Angeles area without natural gas supplies normally furnished by the now-crippled Aliso Canyon gas storage field, effectively idled since a major well rupture there last fall.

Blackouts Loom With California In Power Grid Emergency: "Customers Should Expect 14 Days Without Power." -  The entire Los Angeles metropolitan area and most of Southern California can expect blackouts this summer. The power grid is under direct threat as a result of the unprecedented, but little reported, massive natural gas leaks at Alisco Canyon that was ongoing for four months as an intense summer heat wave sets in. According to Reuters: California will have its first test of plans to keep the lights on this summer… With record-setting heat and air conditioning demand expected in Southern California, the state’s power grid operator issued a so-called "flex alert," urging consumers to conserve energy to help prevent rotating power outages - which could occur regardless. Electricity demand is expected to rise during the unseasonable heatwave on Monday and Tuesday, with forecast system-wide use expected to top 45,000 megawatts, said the California Independent System Operator (ISO), which manages electricity flow through the state. That compares with a peak demand of 47,358 MW last year and the all-time high of 50,270 MW set in July 2006. That could put stress on the power grid, particularly with the shut-in of Aliso Canyon, following a massive leak at the underground storage facility in October ... The large-scale natural gas disaster - which curiously escaped media frenzy and widespread environmental concern - has resulted in the shutdown of key storage facilities that supply most of the power for the southern portion of the state. As summer demand for electricity to cool homes and businesses kicks into high gear, power plants are planning to shut down, with supply shortages triggering controlled blackouts and brownouts. Reports say that "all customers" should expect to be without power a total 14 days - 2 weeks time - out of this summer. Some 21 million Californians stand to be directly affected.

L.A. heatwave could mean more pollution for communities of color | Grist: The Southwest is sweating through record-breaking temperatures, so demand for electricity to keep air conditioners running is exceptionally high. In preparation, Los Angeles’s local air quality watchdog made the unusual decision to allow certain power plants to burn dirty diesel if necessary, in order to avoid blackouts. And guess what? All three authorized plants happen to be located in communities of color. Blackouts happen when people try to take more power from the grid than what’s available. If demand is too high, the entire grid can collapse. While it’s annoying not to be able to run your air conditioner or charge your phone, blackouts can cause much more serious trouble. A hospital without power is in real danger. If stoplights go out, major accidents can bring traffic to a stop. All that refrigerated food — not just in your fridge, but also in the grocer’s fridge and the wholesaler’s fridge — goes bad pretty quickly. And good luck if you happen to be in an elevator when a blackout hits. The Los Angeles Department of Water and Power (LADWP) runs four generating stations that burn natural gas to supply more than two million customers with electricity. Thanks to the Aliso Canyon leak earlier this year, less natural gas may be available this summer. So last week, the South Coast Air Management District, or AQMD, made a move. Its hearing board quietly decided that in order to meet energy needs — and avoid up to 14 blackout days — it would allow three of the department’s four plants to burn diesel this summer. One plant, operating in the exclusive and almost all-white beachside community of El Segundo, lacks the infrastructure to burn diesel. That means the remaining generating stations in Long Beach, Sun Valley, and Wilmington — all communities of color — may get saddled with the particulate matter and nitrogen oxides that comes from burning diesel fuel.

Southwest scorcher: 100-plus degrees by 7 a.m. - If you were hankering for some breakfast at 7 a.m. in Needles, Calif., you probably could fry an egg on the sidewalk – or at least scramble one. Temperatures in the California city climbed over 100 degrees by 7 a.m. Tuesday, as a stifling heatwave continued to envelop the Southwest. The record-setting heat that came in like an inferno on the first day of summer has killed at least five people, strained power demands and helped fuel massive wildfires in several states. And it won't let up any time soon: The weather service has issued an excessive heat warning until 9 p.m. Thursday for most of Arizona, southeastern California and southern Nevada. High temperatures in the 110s, and possibly approaching or exceeding the 120s, will continue in the Desert Southwest much of this week, weather.com predicted. On Monday, the heat set records. Needles tied its all-time record high of 125 degrees Monday afternoon before cooling down to a positively chilly 98 degrees overnight, the National Weather Service said. The temperature at Phoenix Sky Harbor International Airport reached 116 degrees at 3 p.m. Monday, breaking the previous daily record of 115 degrees set in 1968. Palm Springs, Calif., missed its all-time record high by one degree on Monday, as the city topped out at 122 degrees. Only Death Valley, home of the world-record high of 134 degrees, could boast of comparatively mild temperatures. The legendary locale clocked in at 126 degrees on Monday, 8 degrees below its all-time record high. The heat exacerbated more than 20 raging wildfires in eight western states on Tuesday, the National Interagency Fire Center reported. A pair of fires charred more than 5,000 acres near Los Angeles. Extreme heat in Arizona sent power demand soaring Sunday and Monday for utility companies such as the Salt River Project and Arizona Public Service Co., with record demand reported on Sunday. In Colorado, the heat buckled roads in Denver.

El Nino and climate change a dire recipe for Africa - ABC News -  The most powerful El Nino weather event in half a century is officially over but its impact will be felt most severely in Africa, which is now in the grip of its most devastating drought in 35 years. Families across southern and eastern Africa had barely recovered from two years of erratic and failed rains, only to be hit by drought and dire food shortages. The United Nations said the food crisis is ruining lives on a staggering scale and estimated at least 50 million people in 13 African countries were at risk. Hot, dry weather conditions brought by the El Nino weather cycle since last year have ruined crops, dried up water supplies, killed livestock and led to severe malnutrition across southern and eastern Africa. The UN predicted food insecurity would peak in Africa by December, but the humanitarian crisis would continue well into 2017.Food and water shortages have had a devastating impact on health, sanitation and education. The UN Children's agency UNICEF said children have been hardest hit, with 1.2 million under the age of five suffering from acute malnutrition. Another 25 million children in 10 countries are at risk of malnutrition, water shortages and disease.

The Historic Coral Bleaching That’s Happening Around The World Is Getting Worse  -- Warmer-than-usual waters have been causing major stress for corals around the world for the past two years, and they aren’t likely to get a break anytime soon.  On Monday at the International Coral Reef Symposium in Hawaii, scientists from the National Oceanic and Atmospheric Administration (NOAA) unveiled projections that show that water temperatures will be high enough in the coming months to carry the global bleaching event into a third year. Already, the bleaching event, which started in 2014, is the longest in global history — stretching into a third year would be “unprecedented,” NOAA says.   Bleaching is a grave threat to coral reefs. Corals, which are made up of tiny polyps that live symbiotically with photosynthetic algae, expel that algae when they get stressed by things like pollution or too-warm or too-cold water. This algae gives the coral its color, so when it’s expelled, the coral turns white. Its photosynthetic abilities also provide food for the coral, so without the algae, the coral is greatly weakened; if ocean temperatures don’t fall quickly enough for the algae to recolonize the coral, it can die.  Right now, wide swaths of the world’s coral are being bleached, thanks to warm water temperatures brought on by climate change and El Niño. According to NOAA, as of April, 93 percent of the Great Barrier Reef in Australia was bleached. This bleaching has stressed corals in the Great Barrier Reef so heavily that over a third have died.Now, as there’s a high possibility of a La Niña weather pattern developing this year and bringing high temperatures to the western Pacific Ocean, NOAA is warning that far more corals are at risk of being exposed to the warm waters that cause bleaching. The bleaching, according to the agency, “will hit the U.S. hard, especially in Hawaii, Guam, the Commonwealth of the Northern Mariana Islands, Florida Keys, U.S. Virgin Islands and Puerto Rico. The deeper reefs in the Flower Garden Banks National Marine Sanctuary, 100 miles off the coast of Texas in the Gulf of Mexico, are also in the crosshairs.” There’s also a 90 percent chance that coral reefs in Palau and Micronesia will see widespread bleaching during La Nina.

‘Unprecedented': Third straight year of global coral bleaching to target U.S. reefs, scientists say - The longest-lasting known global coral bleaching event has caused vast damage so far — including large swaths of dead corals in the northern sector of the iconic Great Barrier Reef. Now federal scientists expect the coral bleaching to continue across key reefs in U.S. states and territories this summer, in some cases for a third straight year — a likelihood the scientists call “unprecedented.” “All Northern Hemisphere U.S.-coral reefs are on alert for coral bleaching this year,” said Mark Eakin, who coordinates the National Oceanic and Atmospheric Administration’s Coral Reef Watch. “If we see bleaching in Florida or Hawaii this year it will be three years in a row.” Here’s a global outlook for the coral bleaching risk in coming months from NOAA. In the images below, Alert Level 1 means “bleaching expected” and Alert Level 2 means “widespread bleaching and some mortality expected”: And here’s a closer look at the Caribbean and Gulf region:Coral bleaching occurs when the stresses caused by unusually warm ocean waters disrupt the relationship between corals and symbiotic algae, called zooxanthellae, which live inside coral cells and engage in photosynthesis, providing the corals with energy and food. The zooxanthellae give corals their color, but during bleaching, they are evacuated from the corals’ bodies, leading the animals to turn white.

NOAA: World’s Worst Coral Bleaching Event to Continue ‘With No Signs of Stopping’ - The National Oceanic and Atmospheric Administration (NOAA) predicts 2016 will be another year with significant coral bleaching; and scientists see no end in site. NOAA expects the bleaching event to hit the U.S. hard, especially in Hawaii, Guam, the Commonwealth of the Northern Mariana Islands, Florida Keys, U.S. Virgin Islands and Puerto Rico, according to a June 20 news release. The administration’s Coral Reef Watch believes there’s a 90 percent chance of widespread bleaching in the Pacific island nations of Palau and the Federal States of Micronesia. The Pacific islands’s corals are likely to suffer from La Nina. NOAA predicts there’s a 75 percent chance La Nina will develop this year, bringing above normal water temperatures to the western Pacific.  NOAA said 2016 marks the third consecutive year with ocean water temperatures hotter than normal. This episode of coral bleaching began in mid-2014, making it “the longest and most widespread coral bleaching event on record.” During this period, the administration reported, 70 percent of U.S. coral reefs have been exposed to prolonged high temperatures that can cause bleaching. Ninety-three percent of Australia’s Great Barrier Reef was bleached as of this April. Coral bleaching in the world’s largest reef system could cause it to be a “dead ecosystem” in 20 years, EcoWatch reported previously. The largest coral atoll in the world, Kiritimati, has lost 80 percent of its coral in the past 10 months due to this coral bleaching event. Last month, Thailand announced it was closing 10 popular dive sites due to coral bleaching.

A curious cold spot in the Atlantic has scientists thinking their worst fears have come true  -- Scientists have observed record high temperatures around the world all summer long. People everywhere are suffering from the intense heat, and the higher temps have contributed to the increasing western drought, wildfires, and all manner of environmental destruction. All points on the globe seem to be hitting new peaks on the thermostat, except for one. There is a curious cold spot in a map of ever-warming ocean waters, showing a “blob” of cooler-than-expected water in the northern Atlantic Ocean, and it has climate scientists more than just a little freaked out. The National Oceanic and Atmospheric Administration (NOAA) reported data from the first eight months of the year that illustrates the severity of rising global land and ocean temperatures. An area just south of Greenland and Iceland actually registered the coldest months in recorded history. How can one spot on earth be getting colder, while the rest of the globe is heating up? The cold spot in the Atlantic is likely a symptom of a problem climate scientists have been fearing for years. Record cold temps in this condensed area of the ocean suggests that the circulation of water currents in the Atlantic is slowing. Warm and cold water should be mixing to normalize water temperatures, but the currents are functioning the way they need to. They rely on differences in temperature and salinity, which basically means that cold salty water in the North Atlantic sinks (it’s really dense) and warmer southern waters move northward to take its place. When a large influx of cold, fresh water is introduced to the picture, the system goes haywire and the water circulation patterns are weakened because the sinking doesn’t occur. And where is the fresh water coming from? The melting glaciers, of course. If the trend continues, it could mean rising sea levels along the East Coast and a change in temperature for Europe and North America.

Scientists say Greenland’s vast melt hasn’t slowed down the Atlantic Ocean’s circulation — yet  -  Last year, a bombshell scientific study suggested a scenario that has long worried scientists was coming to pass: a slowdown in the North Atlantic ocean currents that usually redistribute warm and cold waters, thanks to massive ice melts in Greenland and other Arctic changes. If this is really happening, it’s a big deal. The circulation, sometimes called the Atlantic meridional overturning circulation or AMOC, transports enormous amounts of warmth northward from lower latitudes. If it slows down, there will be less heat transport to Europe and higher latitudes, as well as key consequences for warming and sea level rise along the U.S. east coast. However, this is a vast, enormously complicated and inadequately studied ocean system, and there are well-known patterns of natural variability in the Atlantic that could also drive things. Indeed, the circulation had already been observed to be slowing over the past decade, but it is less clear whether this slowdown is the result of climate change or, simply, part of that variability (or both). And now, in the journal Nature Geoscience, a new paper has emerged suggesting that while Greenland has already contributed enough water to the ocean to begin to freshen seas  (specifically, the Labrador Sea between Greenland and Baffin Island), there hasn’t been enough freshwater yet to slow the AMOC, which is driven by differences in the density of cold and warm salt water. The researchers used an estimate of 3,200 billion tons of freshwater that has poured out of Greenland between 1995 and 2010, and a prediction that due to increasing melt, that will total 7,500 billion tons by 2020. Their study then uses a high-resolution ocean circulation model of the region to determine where that freshwater has gone, or will go, and what it has done to the nature of the ocean. So while the remaining freshwater is probably having an effect, the researchers say, it’s not big enough yet to cause major changes. “The buildup of freshwater in the Labrador Sea is relatively slow, and according to our calculation, it cannot have any significant effect, up to now,”

New methods are improving ocean and climate measurements: I have often said that global warming is really ocean warming. As humans add more heat-trapping gases to the atmosphere, it causes the Earth to gain energy. Almost all of that energy ends up in the oceans. So, if you want to know how fast the Earth is warming, you have to measure how fast the oceans are heating up. Sounds easy enough at first, but when we recognize that the oceans are vast (and deep) we can appreciate the difficulties. How can we get enough measurements, at enough locations, and enough depths, to measure the oceans’ temperatures? Not only that, but since climate change is a long-term trend, it means we have to measure ocean temperature changes over many years and decades. We really want to know how fast the oceans’ temperatures are changing over long durations. But that isn’t all. Throughout the years, we have made changes to the measurement methods. From old canvas buckets that were dipped into waters which were then measured, to insulated buckets, to temperature probes on the hulls of ships, devices that would be dropped into deep ocean waters, and now the ARGO fleet, which is approximately 3,000 autonomous devices that are more-or-less equally distributed across the oceans. Each of these devices measures temperatures a little differently; they have biases. As you change from one set of instruments to another, you might see a cooling or warming effect related to the change in instruments, not because the water temperatures are changing.

95% of glaciers on Tibetan plateau receded - Times of India - Due to degradation of their fragile eco-systems and impact of climate change, the deserts are undergoing a slow transformation which is having far reaching impact on flora, fauna and humans. This issue was discussed at a conference held at the Wildlife Institute of India to commemorate World Day to Combat Desertification (WDCD) on Friday. Neeta Shah, wildlife scientist, shared some shocking revelations. "Tibetan plateau, known for gold mining, has seen a rise of 0.3 degrees Celsius in temperature with each passing decade. Due to this, 95% of glaciers in the region spread across lakhs of sq kilometers, have retreated, leaving scores of springs dried up, affecting pastures and leading to scarcity of water for local people." She said it was due to the same reasons that the small size species are fast declining. "Amphibians are extinct in Ladakh. Snow is not seen much on the peaks of mountains. Diseases like malaria have made in-roads in saline deserts of Runn of Kutch in past five years and made life of people involved in making 35% of country's table salt miserable. Due to canal system introduced in Kutch, lakhs of flamingos have begun moving away from this place for nesting. Proposies, the invaded species have dominated slow growing native vegetation," she said. She added that increased anthropogenic pressure, which includes nomads starting to travel by trucks, have degraded the deserts which are already fragile due to poor rainfall, sparse vegetation, low organic culture and rain-fed farming. Speaking on the occasion, V B Mathur, Director, WII said that over 2.6 billion people in the world depend directly on agriculture, out of which over 1.5 billion people are globally affected by land degradation. Approximately 40% of the world's degraded land occurs in areas with the highest incidence of poverty affecting almost 74% of the world's poor. He further added that a global effort is needed to reverse the impacts of land degradation which affect the sustainability of the entire world. "Land resources - soil, water and biodiversity - are the foundation upon which our societies and economies grow and prosper."

Permafrost soil under North Slope lakes is about to thaw - Alaska Dispatch - In northernmost Alaska, permafrost is steadily warming and large amounts of thaw are expected by the end of the century. But for some spots, the thaw is about 70 years ahead of that predicted pace, new research shows. The soil on the beds of several North Slope lakes has already passed the thaw threshold or is on pace to get there much earlier than the nearby dry permafrost, according to a University of Alaska Fairbanks-led study now onlinein the journal Geophysical Research Letters.Soil at the bed of the very shallow lakes that dot the Slope has warmed by 4.3 degrees in the last 30 years, the study found. In five of the last seven years, mean annual lake-bed temperature was above freezing, the study found.Warmer air temperatures and more snow are cited as reasons for the progression toward thaw.Those lakes, no more than 1.1 yards deep, have ice that freezes to the bottom each winter, but in recent years that ice layer is getting thinner. Air temperature, meanwhile, is getting higher – with the change more pronounced in winter than in summer – and more heat-insulating snow is falling, the study saidSnowpack is a big driver, said Christopher Arp of UAF, the lead author."It makes a big difference, especially if you get snow that accumulated on the lakes early in the winter," he said.The fastest warming is in lakes that are about 1 yard deep, where soil temperatures in the beds have averaged above freezing for eight of the last 38 years, according to the study. That warming is at an average place of 1.44 degrees per decade, matching the rise in air temperature at Barrow over the past 37 years, the study said.

Amid melting Arctic ice, Kerry sees looming climate catastrophe | Reuters: Standing near Greenland's Jakobshavn glacier, the reputed source of the iceberg that sank the Titanic over a century ago, U.S Secretary of State John Kerry saw evidence of another looming catastrophe. Giant icebergs broken off from the glacier seemed to groan as they drifted behind him, signaling eventual rising oceans that scientists warn will submerge islands and populated coastal region. Briefed by researchers aboard a Royal Danish Navy patrol ship, Kerry appeared stunned by how fast the ice sheets are melting. He was struck by the more dire warnings he heard about the same process underway in more remote Antarctica. "This has been a significant eye-opener for me and I've spent 25 years or more engaged in this issue," Kerry said on the deck of the ship with Danish Foreign Minister Kristian Jensen during a two-day visit that ended late on Friday. Kerry made his first visit to this part of the Arctic to witness the effects of climate changes and press the need to implement the Paris climate accord. He has called it "the world's most fearsome weapon of mass destruction".

Arctic melting feeds on itself – Scientists have established at least one factor in the record melting of northern Greenland in 2015. The Arctic itself played a hand in what happened.   In a process that engineers call positive feedback, high atmospheric pressure and clear skies over the Arctic region practically committed the northwest of Greenland to an episode of melting at record rates.  And because the Arctic is the fastest-warming region on Earth, and because atmosphere and ocean influence each other, the steady loss of sea ice each year has forced a change in wind patterns. This in turn has played back into the climatic machinery, according to a new study in Nature Communications.  “How much and where Greenland melts can change depending on how things change elsewhere on Earth,” said Marco Tedesco, of Columbia University’s Lamont-Doherty Earth Observatory, who led the research.  “If loss of sea ice is driving changes in the jet stream, the jet stream is changing Greenland, and this, in turn, has an impact on the Arctic system as well as the climate. It’s a system, it is strongly interconnected, and we have to approach it as such.” The process works like this. The Arctic is warming faster as the sea ice disappears. This is because solar radiation which would have been reflected by a sheet of ice is being absorbed by blue water, which speeds up the warming further.  And since the temperature difference between the Arctic and the tropics is narrowing, and since it’s the temperature difference that drives wind and ocean currents, then the jet stream that normally whizzes around the Arctic circle – thus keeping frozen air in one place and separating it from the warm breezes of the south – is, the theory goes, slowing, thus allowing warm moist air to penetrate into the north. And, it seems, to melt even more of Greenland.

Melt ponds suggest no Arctic sea-ice record this year - BBC News: Arctic sea-ice extent is unlikely to see a new record this summer, claim polar experts at Reading University, UK. The floes have experienced much reduced winter coverage and go into the warmest months tracking below the all time satellite minimum year of 2012. But the Reading team says current ice extent is actually a poor guide to the scale of the eventual September low point. A better correlation is with the fraction of the floes in May topped with melt ponds - and that metric suggests 2016 will not be a record year. Ponding water accelerates melting by changing the reflectivity, or albedo, of white ice. The darker liquid absorbs more energy from the sun, promoting further melting and a larger fraction of standing water… and so on. However, despite some remarkable conditions during the Arctic winter, this feedback process has not become a dominant factor in the right places and at the right time to really suppress sea ice in the coming weeks, contends Dr David Schroeder from the Nerc Centre for Polar Observation and Modelling (CPOM). "2016 certainly looks to be an interesting year when you consider how low the extent has been through the winter, together with the strong sea-surface temperature anomalies. But the winter months are not when melt ponds start forming; this happens in the second half of May and the beginning of June. And during this period, although there were still positive anomalies in some locations, in the most important areas for melt pond fraction - such as in the east Siberian sea towards the central Arctic, for example - the temperatures were not very high."

Discovery exposes fragility of Antarctica’s Larsen C ice shelf  -- Scientists have unearthed a 100m-thick river of ice beneath Antarctica’s Larsen C ice shelf, which they fear could accelerate its path to eventual collapse.  A team led by Prof Bryn Hubbard, director of the centre for glaciology at Aberystwyth University in Wales, lived on the ice shelf for several months examining what it looks like from the inside.Their new paper describes how the layer of solid ice could be speeding up the flow of ice to the ocean, potentially leading Larsen C towards a similar fate to its now-collapsed sister ice shelves, Larsen A and B. In January, Hubbard was awarded the prestigious Polar Medal in recognition of his services to polar science.  For more than 25 years, Hubbard has been studying the world’s icy expanses, venturing out each year to live and work on the ice for months at a time.  Hubbard’s latest study has taken him to Larsen C ice shelf in Antarctica, a floating mass of ice protruding from the Antarctica Peninsula in the northern part of the continent. Several major ice shelves have collapsed almost completely, losing the vast majority of their mass in just a few months. The most widely reported of these “catastrophic breakup events” were the Larsen A and B ice shelves, which collapsed in 1995 and 2002, respectively.  Larsen C is the next ice shelf in line, geographically-speaking. It is also the largest of the three sister shelves, with a surface area two and a half times the size of Wales. Hubbard tells Carbon Brief: “We started the work on Larsen C Ice Shelf for the simple reason that satellite images and a small number of aircraft flyovers indicated that melt ponds were forming on their surface regularly.”

Scale of climate damages 'could dwarf tobacco lawsuits' -- Governments will face rising demands for climate compensation unless they crack down on coal, oil and gas companies operating within their authority That was the conclusion of a report by Australia-based NGO the Climate Justice Programme on Tuesday. Victims of global warming such as citizens from small island states will increasingly look for redress in the courts, it warned. The scale of damages could dwarf previous mass actions like those against tobacco and asbestos companies. “Although there is this group of fossil fuel corporations who have been the primary actors in climate change, governments have colluded to allow them to continue to be so embedded in the economy,” Australian lawyer and report co-author Keely Boom told Climate Home. “If governments don’t take action against fossil fuel companies it is likely they will be targeted themselves.” It is an issue that divides top US public lawyers, who are meeting this week in Vermont. Seventeen attorneys general are investigating allegations that ExxonMobil misled the public about the dangers of climate change caused by burning fossil fuels.Thirteen of their Republican colleagues have hit back, arguing in a letter that renewable energy companies had conversely exaggerated the risks. “Using law enforcement authority to resolve a public policy debate undermines the trust invested in our offices and threatens free speech,” they wrote.

People don’t trust hypocritical climate scientists, study finds -- Climate scientists face a conundrum: To get their message out and conduct research, they often have to hop on a plane — but flying is exactly the sort of carbon-intensive behavior they discourage others from doing. And according to a new study from Indiana University, climate researchers lose credibility with their audience when they don’t follow their own advice. That inconsistency is one that the general public is starting to notice. Shahzeen Attari, an author of the study, told Grist she was presenting on energy consumption a couple of years ago when an audience member asked her, “Hey, how did you come to the conference? Did you fly here?” She was inspired to look into hypocrisy and how it changes the dynamic between climate experts and their audiences. Through two online surveys taken by almost 5,000 Americans, participants read a narrative about a researcher who offers advice on reducing personal energy use by flying less, conserving energy at home, and taking public transportation. The survey included one of several of statements about the researcher’s personal energy consumption. For example: You later find out that the researcher flew across the country to the talk that you attended and that he/she regularly flies to lectures and conferences all over the world. Flying like this leads to increased negative climate impacts.

U.S. Gasoline Demand Is Likely to Slide - WSJ - Electric cars are poised to reduce U.S. gasoline demand by 5% over the next two decades—and could cut it by as much as 20%—according to a new report being released Monday by energy consulting firm Wood Mackenzie.  The U.S., which currently uses more than nine million barrels of gasoline a day, could see that demand drop by as much as two million barrels a day if electric cars gain more than 35% market share by 2035, according to the report. That aggressive case assumes Tesla Motors and other auto makers begin to deliver lower-cost electric vehicles that can travel longer distances in relatively short order, said the report’s author, Prajit Ghosh. A more likely scenario is a 5% drop in U.S. gasoline demand as electric cars build to more than 10% of the U.S. vehicle fleet by 2035, he said. Even the low end of the forecast by Wood Mackenzie, which provides in-depth analysis for a wide range of clients including large oil companies, utilities and banks, is a more bullish outlook for electric-car adoption than many oil-and-gas companies have espoused.  Spencer Dale, the chief economist of energy company BP, said last week in Houston that while he expects electric cars to start gaining traction, the internal-combustion engine still has significant advantages over electric alternatives and widespread adoption won’t happen in the next two decades. The electrification of the automobile has evolved more slowly than some expected, in part thanks to low fuel prices and limited battery life that meant drivers had to recharge every 100 miles. But more capable cars are coming to market as tightening air-pollution regulations in places such as Europe and China force auto makers to engineer better electric vehicles.

California lawmakers unplug the state's electric car program.  A few months ago, Gabriel Lua purchased a 2013 Chevy Volt to replace his 1987Honda Civic, which had been giving him exhaust headaches and made him worry about the health of his children, ages 3 and 5.  Lua said he couldn’t afford to replace it until he learned about a state incentive that helps low-income residents in California’s most polluted communities replace their dirty cars. The state covered more than half the new car’s price tag.  Lua’s experience is exactly what Gov. Jerry Brown and lawmakers were aiming to achieve when they decided to spend money from the state’s greenhouse gas reduction fund on subsidizing the purchase of low- and zero-emission vehicles. But now they’re cutting off the cash, the result of a political impasse and questions over the future of the state’s climate change programs. Without the funds, California could have a harder time meeting its ambitious goals for getting cleaner vehicles on the roads and protecting public health in smog-ridden areas of the state.

Volkswagen to Pay More Than $10 Billion to Settle Emissions Claims - WSJ: Volkswagen is nearing a $10 billion civil settlement, the largest in the auto industry’s history, to compensate U.S. owners of vehicles affected by the German car maker’s emissions-cheating scandal, said people familiar with the matter. Under the proposed deal, Volkswagen would offer to buy back cars and provide additional compensation for owners of almost 500,000 diesel-powered vehicles with two-liter engines that contain software capable of duping government emissions tests, the people said. In addition, Volkswagen is expected to pay more than $4 billion for environmental impacts and to promote so-called zero-emission vehicles, the people said. Volkswagen faces other government penalties in the U.S. and around the globe. “If VW succeeds in settling the case, it will take a big step forward but have many more ahead of it,” said Erik Gordon, a professor at University of Michigan’s Ross School of Business. “The enormity of VW’s world-wide problems are hard to estimate but already are many times what management originally thought.” Volkswagen is offering to either buy back vehicles at their market value before the scandal emerged in September or make affected vehicles compliant with environmental regulations. The car maker will also provide additional cash whether owners choose to sell or keep their cars, the people said.

U.S. Ethanol in Gasoline 2016 - Big Picture Agriculture - From the EIA: [Almost all U.S. gasoline is blended with 10% ethanol]-- Blends of petroleum-based gasoline with 10% ethanol, commonly referred to as E10, account for more than 95% of the fuel consumed in motor vehicles with gasoline engines. Ethanol-blended fuels are one pathway to compliance with elements of the federal renewable fuel standard (RFS). The total volume of ethanol blended into motor fuels used in the United States has continued to increase since 2010, albeit at a declining rate of growth. Meanwhile, the use of ethanol-free gasoline (E0) by fuel consumers has declined. Domestic disposition of E0, calculated as domestic production plus inventory withdrawals plus net trade (imports minus exports), was 494,000 b/d (7.6 billion gallons) in 2015. However, actual use of E0 in vehicles, boats, and other equipment with gasoline-burning engines was likely below that level because some volumes of E0 that enter the domestic market may have been blended with ethanol at smaller terminals that are out of scope for EIA reporting or blended at the point of retail sale.

Cheap Energy Storage Is Set To Undermine Fossil Fuels - What exactly is wrong with renewables, and why aren’t we all-green already? Subsidy abuse and insufficient economic viability in the face of cheap oil are two of the most common criticisms thrown at the renewable industry.  These, however, are nothing compared to the biggest challenge that the green energy industry has encountered: the impossibility to store power produced—at least not in an affordable and reliable enough way. This is about to change as a growing number of companies – from leading utilities such as E.ON and GE to startups like California-based Stem – are working on developing cheaper energy storage solutions aimed at eliminating a challenge that’s been putting a spoke in the wheels of renewable energy for decades. Sensing which way the winds are blowing, some utilities and energy industry majors have not wasted time entering this promising segment. Total bought into Stem last year and acquired French energy storage systems maker Saft. Earlier this month, GE announced the acquisition of a stake in Germany’s Sonnen, a successful peer of Saft.This M&A activity is paralleled by a flurry of studies and surveys, all pointing to the game-changing potential of energy storage solutions. Bloomberg’s latest New Energy Outlook, for example, notes that the constantly declining cost of lithium-ion batteries, thanks to the rise of electric vehicles, will play a leading role for the wider adoption of renewable energy solutions. Then there is this survey by Navigant Research, which has projected that by 2025, the overall size of installed energy storage systems (ESS) will reach 21.6 GW, from 1.1 GW this year. That’s a huge increase—driven mainly by the Asia-Pacific. Navigant Research explains that ESS and renewable energy adoption are reinforcing demand for one another: the more renewable energy is being produced, the greater the need for reliable ESS, and the more widely available these ESS, the greater the demand for renewable energy becomes.

The World Nears Peak Fossil Fuels for Electricity - The way we get electricity is about to change dramatically, as the era of ever-expanding demand for fossil fuels comes to an end—in less than a decade. That's according to a new forecast by Bloomberg New Energy Finance that plots out global power markets for the next 25 years.  Call it peak fossil fuels, a turnabout that's happening not because we're running out of coal and gas, but because we're finding cheaper alternatives. Demand is peaking ahead of schedule because electric cars and affordable battery storage for renewable power are arriving faster than expected, as are changes in China's energy mix.  Here are eight massive shifts coming soon to power markets.

  • 1. There Will Be No Golden Age of Gas. The costs of wind and solar power are falling too quickly for gas ever to dominate on a global scale, according to BNEF. The analysts reduced their long-term forecasts for coal and natural gas prices by a third for this year's report, but even rock-bottom prices won't be enough to derail a rapid global transition toward renewable energy.  "You can't fight the future," said Seb Henbest, the report's lead author. "The economics are increasingly locked in." The peak year for coal, gas, and oil: 2025.
  • 2. Renewables Attract $7.8 Trillion. Humanity's demand for electricity is still rising, and investments in fossil fuels will add up to $2.1 trillion through 2040. But that will be dwarfed by $7.8 trillion invested in renewables, including $3.4 trillion for solar, $3.1 trillion for wind, and $911 billion for hydro power.  Already, in many regions, the lifetime cost of wind and solar is less than the cost of building new fossil fuel plants, and that trend will continue. But by 2027, something remarkable happens. At that point, building new wind farms and solar fields will often be cheaper than running the existing coal and gas generators. "This is a tipping point that results in rapid and widespread renewables development," according to BNEF.

We need lots more power lines. Why are we so bad at planning them? -- One of the fastest and easiest ways to boost renewable energy is to improve and expand electricity transmission, i.e., power lines. Smart transmission, in addition to its many other benefits, reduces both the engineering challenges and the cost of integrating renewables. (For a recent example, check out this post on a new power line across the Midwest, which is unlocking Oklahoma wind power.) Unfortunately, the way transmission is planned today threatens to squander many of those potential benefits. Transmission planning badly needs to be reformed if the US wants to hit its ambitious carbon targets for 2030 and beyond. I realize "electricity transmission planning" isn't exactly a subject of fascination for most people (I wish Donald Trump would say something stupid about it!), so I'll be brief. For the longer version, check out this new report from the Brattle Group, which I'm drawing on here.Today's transmission planning is somewhat blinkered and myopic. It:

  • usually takes place within a single region;
  • focuses on a five- to 10-year horizon;
  • focuses almost exclusively on reliability;
  • does not take into account the risks of insufficient flexibility;
  • considers only a small sliver of benefits.

To the extent there's any interregional planning, it replicates these mistakes and makes them even worse.This guarantees piecemeal, incremental, uncoordinated growth in the transmission system. It misses long-term policy and technology trends and sacrifices the potentially enormous benefits of a more holistic vision.

GOP Blocks Pentagon Climate Plan - House Republicans passed an amendment Thursday blocking the Department of Defense (DOD) from financing its climate change and national security plan. The amendment passed 216-205, with not a single Democrat voting in favor. DOD and other national security experts have warned that climate change is a national security threat, but Republicans who voted against funding the Pentagon’s climate plan said it was a distraction from other threats. Experts say the DOD climate directive, which was released in January, would save the organization money in the long run and help the U.S. prepare for climate change. “It’s actually crazy to me and it should be crazy to anyone in the military, that Congress is telling them not to do this,” Andrew Holland, the senior fellow for energy and climate at the American Security Project, said.

Why the GOP is trying to stop the Pentagon's climate plan: As far as back as the George W. Bush administration, the Defense Department was warning that global warming posed a threat to U.S. national security, and that the military needed to be preparing accordingly. This year it went further, laying out a new game plan that assigns specific top officials the jobs of figuring out how climate change should shape everything from weapons acquisition to personnel training. Last week, however, House Republicans voted to block it. By a 216-205 vote Thursday, the House passed an amendment prohibiting the department from spending money to put its new plan into effect. Not a single Democrat voted for the amendment, which was attached to the defense spending bill. It’s the second time in just a few weeks that the House GOP has tried to halt the Pentagon’s climate policies; a similar measure attached to the House’s defense authorization bill, which also received no Democratic votes, passed in May. Supporters of the amendment say it’s necessary to ensure the Department of Defense doesn’t lose focus on the biggest threat facing the U.S. today—the Islamic State. But critics say the provisions, if they became law, would dangerously tie the hands of the Defense Department as it prepares for future threats.  Republicans say the directive is a distraction from the real threats the Pentagon should be focused on, particularly terrorist groups in the Middle East. “The military, the intelligence community [and] the domestic national security agencies should be focused on ISIS and not on climate change,” said Rep. Ken Buck (R-Colo.), who sponsored the amendment to block the funding. “The fact that the president wants to push a radical green energy agenda should not diminish our ability to counter terrorism.” “The president has talked about an increase in the climate temperature on the planet,” he said. “It is a fraction of a degree every year. How that is a current threat to us is beyond me.”

The huge flaw in how Congress is approaching burning wood for energy  --  Along with 196 other countries around the world, the United States has made a number of ambitious climate commitments that experts say will depend heavily on the expansion of renewable energy and the increasingly stringent regulation of carbon output. But some potential new legislation, which critics claim relies on scientifically questionable assumptions, has scientists and environmentalists worried about taking a step backward when it comes to climate goals.The controversy centers on a specific provision in the House appropriations bill for fiscal year 2017 regarding the burning of biomass (typically wood and other plant material) for energy. The bill proposes that the Environmental Protection Agency treat biomass energy as carbon neutral —that is, the agency would assume the practice does not contribute any extra greenhouse gas emissions to the atmosphere — under certain conditions. Biomass is, in fact, generally regarded as a renewable energy source, since more trees can be grown after the old ones have been harvested for energy. However, renewable energy and clean energy are not always one and the same. Burning biomass for energy actually releases substantial amounts of carbon into the air — in fact, some research has suggested that it may even be worse for the climate than burning coal. The proposed legislation suggests that biomass energy be treated as carbon neutral as long as national forest stocks are stable or increasing. The rationale is that trees serve as a carbon sink, taking up carbon from the atmosphere and storing it away — so if more trees are growing, they’ll cancel out the carbon emissions released by burning other plant matter. Scientifically, though, the argument has a lot of problems, experts say.“It takes decades to centuries for carbon to accumulate in what I call the forest carbon bank,”

Historic UK Vote Casts Uncertainty on Future of Climate Policy -- The UK voted 52 percent to 48 percent to leave the European Union in a historic referendum last night. Prime Minister David Cameron is resigning in the wake of the vote and markets reacted immediately, as the pound fell to its lowest level against the dollar in 30 years. Many climate and energy experts, including Christiana Figures, had been outspoken about the potential danger for EU and UK climate policy if the UK were to leave. Without the UK involved, it is unlikely that the EU would revise up its current 40 percent emissions reduction target, experts say. The “leave” vote and change in government also raises uncertainty about domestic policies. Craig Bennett, head of Friends of the Earth, said the leave vote was a “red alert” for the environment.Glencore sees strong coal demand despite climate policies - The world needs to slash greenhouse gas emissions, but don’t expect coal demand to radically fall as a result. That’s the nub of a climate change report by commodities giant Glencore, which cites energy plans in 20 countries including China, India and Japan as evidence coal’s demise has been exaggerated. It expects more than 100 gigawatts of new coal power plants to be built in the Asia-Pacific region, boosting demand for seaborne traded coal by 360 million tonnes a year.  New, lower emission power plants and investment in technologies to capture carbon emissions at source will ensure coal remains a “viable” energy option. “The realities of future global energy demand and supply will continue to support our business, fully utilising coal reserves and supporting future optional investment in resource conversion,” it says. The report is the result of concerted pressure from investors allied to the Aiming for A initiative, a coalition worth US$8 trillion that is demanding greater transparency from companies. “It’s the most comprehensive response a company mining coal has produced to challenge by investors and others on the risk of stranded assets,”

Meet the activist getting sued for complaining about a coal-ash dump | Grist -- Esther Calhoun lives in Uniontown, a small town in Alabama where more than nine out of ten residents are black, and half live below the poverty line. Her family has been there for as long as she knows. Her parents and grandparents worked as sharecroppers on a plantation, and generations of her ancestors were buried in the town’s cemetery. Uniontown is also home to the Arrowhead Landfill, a dump that draws tons of coal ash — a byproduct of burning coal — from across the country every day. A 53-year-old black woman who describes herself as a freedom fighter, Calhoun and a group of friends formed an organization, Black Belt Citizens Fighting for Health and Justice. They started a Facebook page to raise awareness about the dump and a host of other local environmental hazards, like the raw sewage spilled into Cottonwood Creek. Arrowhead’s owner, Green Group Holdings, slapped them with a $30 million lawsuit, complaining that it had been defamed by the group’s online comments. Black Belt Citizens is trying to get the suit dismissed with the help of the American Civil Liberties Union.

Berta Cáceres's name was on Honduran military hitlist, says former soldier -- A unit trained by US special forces was ordered to kill the environmental activist who was slain in March, according to an ex-member who now fears for his life.  Berta Cáceres, the murdered environmental campaigner, appeared on a hitlist distributed to US-trained special forces units of the Honduran military months before her death, a former soldier has claimed. Lists featuring the names and photographs of dozens of social and environmental activists were given to two elite units, with orders to eliminate each target, according to First Sergeant Rodrigo Cruz, 20. Cruz’s unit commander, a 24-year-old lieutenant, deserted rather than comply with the order. Cruz – who asked to be identified by a pseudonym for fear of reprisal – followed suit, and fled to a neighbouring country. Several other members of the unit have disappeared and are feared dead.“If I went home, they’d kill me. Ten of my former colleagues are missing. I’m 100% certain that Berta Cáceres was killed by the army,” Cruz told the Guardian.  Cáceres, an indigenous Lenca leader who won the prestigious Goldman Environmental Prize in 2015 for a campaign against the Agua Zarca hydroelectric dam, was shot dead in her home in March. Before her murder, she had reported 33 death threats linked to the campaign and had warned international human rights delegates that her name was on a hitlist.   According to Cruz, Cáceres’s name appeared on a list given to a military police unit in the Inter-institutional Security Force (Fusina), which last summer received training from 300 US marines and FBI agents.

Energy Dept Plans Advanced Reactor Surge - Forbes: The Department of Energy quietly released a draft this month of a plan to double America’s nuclear power capacity, not only with the small modular reactors championed by Secretaries Ernest Moniz and Steven Chu, but also with advanced reactors that do not rely on water for cooling. DOE’s “Draft Vision and Strategy for the Development and Deployment of Advanced Reactors” seems to have escaped media attention until now. It calls for two advanced reactor concepts to be licensed and ready for construction in the early 2030s as the first phase of a strategic deployment.The advanced reactor technologies favored by DOE include:

  • Sodium-Fast Reactors (SFRs)
  • High Temperature Gas-Cooled Reactors (HTGRs)
  • Lead or Lead-Bismuth Cooled Fast Reactors (LFRs)
  • Gas-Cooled Fast Reactors (GFRs)
  • Molten Salt Reactors (MSRs)
  • Super-Critical Water Cooled Reactors (SCWRs)

Asked if thorium reactors were included in the MSR category, Sofu said, “They could be.” Light-water reactors are already struggling to compete with cheap natural gas and renewables. Exelon announced plans earlier this month to close two plants in Illinois.  DOE intends to support the advanced reactor concepts financially, and it made an $82 million downpayment on that support on Thursday. The agency will grant developers increased access to experts at the national laboratories, stage demonstration projects, tackle technical risks, develop fuel pathways, lubricate financing and lower regulatory hurdles.

Nuclear new-build not fast enough to curb global warming: report | Reuters: Nuclear reactors are not being built rapidly enough around the world to meet targets on curbing global warming, a report by the World Nuclear Association, an industry body, said on Tuesday. The association, which represents the global nuclear industry, says 1,000 gigawatts of new nuclear capacity needs to be added by 2050 so nuclear can supply around 25 percent of global electricity. Last year, more nuclear reactors were under construction and came online than at any other time in the past 25 years and building times have improved. However, the rate of new grid connections will have to increase significantly to provide enough clean energy to meet globally agreed climate change targets. In December last year, countries agreed to limit the global average temperature rise to less than 2 degrees Celsius above pre-industrial levels and to pursue efforts toward a 1.5 degree limit. However, greenhouse gas emissions continue to rise and a 2 degree limit would require the almost total decarbonization of the world's energy supply. "The rate of (nuclear) new build is insufficient if the world is to meet the targets for reducing the impacts of global warming...," the report said.

California Might Close Its Last Nuclear Plant - California's biggest electric utility announced a plan on Tuesday to shut down the state's last remaining nuclear power plant within the next decade. The plant, Diablo Canyon, has been controversial for decades and resurfaced in the news over the last few months as Pacific Gas & Electric approached a deadline to renew, or not, the plant's operating license. "California's new energy policies will significantly reduce the need for Diablo Canyon's electricity output," PG&E said in a statement, pointing to the state's massive gains in energy efficiency and renewable energy from solar and wind. The most significant part of the plan is that it promises to replace Diablo Canyon with a "cost-effective, greenhouse gas free portfolio of energy efficiency, renewables and energy storage." As I reported in February, some environmentalists were concerned that closing the plant could actually increase the state's carbon footprint, if it were replaced by natural gas plants, as has happened elsewhere in the country when nuclear plants were shut down: As the global campaign against climate change has gathered steam in recent years, old controversies surrounding nuclear energy have been re-ignited. For all their supposed faults—radioactive waste, links to the Cold War arms race, the specter of a catastrophic meltdown—nuclear plants have the benefit of producing huge amounts of electricity with zero greenhouse gas emissions… A recent analysis by the International Energy Agency found that in order for the world to meet the global warming limit enshrined in the Paris climate agreement in December, nuclear's share of global energy production will need to grow from around 11 percent in 2013 to 16 percent by 2030. (The share from coal, meanwhile, needs to shrink from 41 percent to 19 percent, and wind needs to grow from 3 percent to 11 percent.)

PG&E to close Diablo Canyon, California's last nuclear power plant: California’s last nuclear power plant will be phased out by 2025, under a joint proposal announced Tuesday morning by Pacific Gas & Electric Co. and labor and environmental groups. Under the proposal, the Diablo Canyon Power Plant in San Luis Obispo County would be retired by PG&E after its current Nuclear Regulatory Commission operating licenses expire in November 2024 and August 2025. The power produced by Diablo Canyon’s two nuclear reactors would be replaced with investment in a greenhouse-gas-free portfolio of energy efficiency, renewables and energy storage, PG&E said in a statement. The proposal is contingent on a number of regulatory actions, including approvals from the California Public Utilities Commission. The Diablo Canyon nuclear plant, built against a seaside cliff near Avila Beach, provides electricity for Central and Northern California. It produces about 2,160 megawatts — enough to power some 1.7 million homes. Tuesday’s announcement comes after a long debate over the fate of the plant, which sits near several earthquake fault lines. The Hosgri Fault, located three miles from Diablo Canyon, was discovered in 1971, three years after construction of the plant began.

Diablo Shutdown Marks End of Atomic Era - As worldwide headlines have proclaimed, California’s Pacific Gas & Electric (PG&E) says it will shut its giant Diablo Canyon reactors near San Luis Obispo, and that the power they’ve been producing will be replaced by renewable energy. PG&E has also earmarked some $350 million to “retain and retrain” Diablo’s workforce, whose union has signed on to the deal, which was crafted in large part by major environmental groups. On a global scale, in many important ways, this marks the highest profile step yet towards the death of U.S. nuclear power and a national transition to a Solartopian green-powered planet. For Californians, as we shall see, there’s an army of devils in the details, which cannot be ignored. But let’s deal with the big picture first. The three most important lines on nuke power’s Diablo tombstone may be these:

  • 1. A major U.S. utility has admitted that the energy from a nuke—one of the world’s biggest—can be effectively replaced with renewables. Over the past decade the nuke industry has spent more than $500,000,000 hyping an utterly failed “nuclear renaissance” partly on the premise that green power can’t make up for the energy production lost by shutting reactors. One of the world’s top nuclear utilities has now signed a major public document saying that this is not true.
  • 2. A major union has approved an agreement that provides retraining for soon-to-be-displaced workers at a soon-to-be-shut nuke. For years the International Brotherhood of Electrical Workers (IBEW) and other unions representing atomic workers have fought reactor shut-downs because of lost jobs. The IBEW’s partnership in this agreement shows that with planning and funding, a smooth transition for displaced reactor workforces can be charted.
  • 3. The agreement was crafted with leadership from two major national environmental organizations—Friends of the Earth (FOE) and the Natural Resources Defense Council (NRDC).

State OKs 2nd fuel storage pad at closed nuclear plant - (AP) — The Vermont Public Service Board has approved a request to build a second dry fuel storage pad at a closed Vermont Yankee nuclear power plant in Vernon. The board on Monday issued a certificate of public good for the project, which will give plant owner Entergy Corp. additional capacity to store spent nuclear waste. Entergy already has a single pad for spent fuel. The company had asked to construct a second pad to build additional dry cask storage units for the nuclear waste. Entergy officials say the decision will allow the company to achieve a goal of transferring all the spent nuclear fuel to dry casks by the end of 2020. It hopes to have the second pad built before the end of 2017.

Florida gives FPL 10 years to clean up cooling canals | Miami Herald: Florida Power & Light will have 10 years to clean up a massive underground plume of saltwater threatening drinking water well fields near its Turkey Point plant under a deal struck with state environmental regulators. In a 25-page order issued Monday, the Florida Department of Environmental Protection spelled out a plan that requires the utility to begin freshening and improving the efficiency of the 5,900-acre loop of canals used to cool two nuclear reactors at the plant. The plan also requires FPL to install a network of extraction wells to halt and ultimately shrink the plume, which has migrated more than five miles inland over the decades. To ensure the measures work, DEP officials included periodic milestones that require the utility to provide evidence that the salt front is retreating. But even with checkpoints built in, critics who have pushed the state for more oversight say plenty of questions remain over whether the plan goes far enough or works fast enough.“It appears to be different than some of the conversations we had with DEP about how it’s going to work,”  The order comes amid increasing regulatory action against the utility after neighboring cities, the county, environmentalists and Atlantic Civil sued. Miami-Dade County is reviewing its own cleanup plan, ordered after county staff in March found the canals had leaked into Biscayne Bay and caused an increase in ammonia, which can harm marine life.

It’s the first new U.S. nuclear reactor in decades. And climate change has made that a very big deal.  — As control rods lift from the water in the core, and neutrons go about the business of splitting uranium atoms, life comes to the Watts Bar nuclear plant — the first in the country since its sister reactor here was licensed in 1996. By summer’s end, authorities expect the new reactor at this complex along the Chickamauga Reservoir, a dammed section of the Tennessee River extending northward from Chattanooga, to steadily generate enough electricity to power 650,000 homes. Although the opening of a new nuclear facility used to draw protesters and angry rhetoric, the Tennessee Valley Authority’s Watts Bar reactor has been mostly welcomed by local residents — and even some advocates concerned about climate change.  But while nuclear reactors account for the lion’s share of the carbon-free electricity generated in the United States, the industry faces this new set of circumstances in a state of near-crisis. A combination of very cheap natural gas and deregulated energy markets in some states has led to a growing number of plant closures in recent years. Even as Watts Bar engineers and planners busily tested their new reactor, Exelon, the nation’s biggest utility for nuclear, with 23 reactors, announced that it would be closing two plants in Illinois, citing financial losses and the state’s failure to pass energy legislation that would help support nuclear plants .The turn for the industry could represent bad news for U.S. carbon emissions: As more plants shut down, and with wind and solar not yet able to offset the electricity-generating capacity of nuclear, emissions could actually increase in certain regions.Yet even if the country decided tomorrow to recommit to nuclear power plants in the name of climate change, it would still take many years to build more of them. They also would be difficult to finance in many electricity markets.

Was Chernobyl the best thing that ever happened to Europe's environment? - A few years ago I would have thought the question posed above was absurd. Of course if operated safely, nuclear power can actually be good for the environment. And yet despite the fact that it is an almost carbon free form of energy, nuclear power is opposed by most environmental groups. Apparently the consequences of a catastrophic nuclear accident are so dire that it's not worth the risk, despite the lack of carbon emissions from nuclear power plants. But what if it were the case the nuclear power were good for the environment when operated safely, and even better for the environment when subject to catastrophic accidents emitting large quantities of radiation. Preposterous? Not according to the BBC, the Independent, the National Geographic, The Guardian, Reuters, and other news sources.  Just to be clear, the radiation from Chernobyl has caused some damage to wildlife. But it's also created Europe's largest nature reserve, of over 1600 sq. miles. The bottom line seems to be that radiation does far less damage than humans, and thus a nuclear accident that forces humans out of an area is actually good for the environment. Here is The Guardian: Wildlife is abundant around the site of the Chernobyl nuclear plant, despite the presence of radiation released by the world's most catastrophic nuclear explosion nearly three decades ago, researchers have found.  The number of elk, deer and wild boar within the Belarusian half of the Chernobyl exclusion zone today are around the same as those in four nearby uncontaminated nature reserves. Wolves, which are commonly hunted in the region because of their impact on livestock, were seven times as abundant with the zone, according to a study published on Monday. "What we do, our everyday habitation of an area - agriculture, forestry - they've damaged wildlife more than the world's worst nuclear accident," said Prof Jim Smith, one of the paper's authors.

Utica Shale Gas Production Sees Another Impressive First Quarter -  The Ohio Department of Natural Resources (ODNR) recently released the data for natural gas production in the first quarter of 2016. Once again the numbers don’t disappoint: they show an 80 percent increase in the amount of gas produced in 2016 compared with the first quarter of 2015. There were 1,302 wells reporting production this quarter. That’s also a nine percent increase in the amount of gas that was produced in the final quarter of 2015, which also saw an 80 percent increase over the previous year. Looking back on last quarter compared with the latest production results shows that Rice Drilling’s Mohawk Warrior 12H, 8H and 10H in Belmont County continue to hold the top three producing well spots for the state. Here’s a breakdown of the top ten producing wells for this quarter:  As is evident by the top producing wells, Belmont County has continued to be the top producing county in the state, followed by Monroe, which also had one of the top 10 producing wells. Here are the individual county breakdowns:< The data also show the top producing shale gas operators in the state. Interestingly, although Rice Drilling had seven of the top 10 producing wells in the state, Chesapeake Exploration actually had the most production overall. Here’s the breakdown by operator for first quarter 2016:

Utica shale yields higher output with fewer wells for drillers - One deep Utica shale well has the potential to produce as much natural gas as three wells drilled into the Marcellus layer above it.   It's why many producers pinched by sustained low gas prices are spending their precious money on fracking the high-pressure, high-producing Utica in eastern Ohio and Southwestern Pennsylvania.  Getting more gas from fewer, bigger wells was a theme of many comments during Hart Energy's annual Developing Unconventionals conference in Downtown Pittsburgh on Wednesday. Cecil-based Rice Energy, operator of the top three Utica wells in Ohio, is producing more gas from fewer wells than any of its competitors, said President and Chief Operating Officer Toby Rice.  “The Utica will be a significant contributor to growth in this space,” said Tim Dugan, chief operating officer at Cecil-based Consol Energy, which stopped drilling wells last year because of the price collapse but continues to bring online previously drilled Utica wells.   The push into the Utica is not without challenges, though. Over a decade, companies have greatly reduced the time it takes to drill into the Marcellus and the related cost while fine-tuning technology and techniques to get the most out of those wells.  Drillers have less time and money to perfect their approach to the deep Utica — especially in Pennsylvania, Dugan said. The depressed prices have cut deeply into drilling budgets the past two years, and companies face pressure to maintain or even increase production until prices improve in a year or two.  “We'll all be challenged to reach the point of optimization much quicker in the Utica than we did in the Marcellus,” Dugan said. “We can no longer afford to wait for 12 to 24 months of production data to understand if the landing zone is optimal or the completion technique is effective.”

Consol Energy Hopes To Develop Utica Acres in Monroe County - — Since selling five West Virginia coal mines for $3.5 billion in 2013, Consol Energy has also unloaded Virginia’s Buchanan Mine for $460 million — all in an effort to help set new Marcellus and Utica shale natural gas production marks in Monroe County.  During the first quarter of 2016, Consol reached a company record for natural gas production at 97.5 billion cubic feet. This is a 36-percent increase from the 71.6 billion the firm pumped at the same time last year.“We are in position to be a dominant player in the Utica Shale for years to come,” Consol Chief Operating Officer Tim Dugan said. “Our initial area of focus has been Monroe County, Ohio.”  Dugan said Consol used substantial portions of the proceeds from selling the coal mines to become a major player in the oil and natural gas business. Information he provided indicates Consol controls 622,000 acres for Utica development.  “At Consol, we are quite proud of our work in the Utica,” he said.  Consol’s “Switz 6” pad in Monroe County produced 5.69 billion cubic feet of natural gas from January through March from its four Utica wells, with the best-performing well accounting for 1.77 billion cubic feet of the production.  The company also has the “Moundsville 6H” well in Marshall County that yielded 39 million cubic feet of natural gas during its first 24 hours. The well features a horizontal shaft nearly two miles in length underground.Marcellus production volumes in the quarter for Consol were 51.2 billion cubic feet, while the firm pumped 22.9 billion cubic feet from the deeper Utica formation.

New Chemical Plant Promises Jobs, But Could Turn Back The Clock On Air Quality - 90.5 WESA - On a road overlooking the Ohio River, Michael McDonald gazes out over swarms of backhoes, bulldozers and piledrivers. He points to a large patch of bare ground. “That’s where the actual cracker units will be,” he says. This site is the future home of Shell’s new “ethane cracker”—a multi-billion dollar petrochemical complex the company is building near Monaca, Pennsylvania, about 30 miles west of Pittsburgh. The facility will make plastic from the region’s vast natural gas resources. The plant will stand along a stretch of the Ohio River in Beaver County that once housed miles of steel mills. In those days, there were plenty of jobs for people like McDonald, who’s now a business manager with the Beaver County Laborers’ Union Local 833.  So McDonald was breathing a sigh of relief when Shell announced it would be building the new plant. His union will supply many of the workers to build it.  McDonald thinks this single plant could breathe life back into his union—and bring industry back to the river in Beaver County. This is no ordinary plant—it will take upwards of 6,000 people to build. And Shell will receive what could be a $1.7-billion tax break from the state over the next 25 years.  But not everyone here is happy about the cracker. Myron Arnowitt of Clean Water Action says the cracker will be one of the region’s biggest sources of volatile organic compounds (VOCs). These are compounds that can form ozone, or ground-level smog, which can exacerbate breathing problems for people with asthma and other lung problems.

'Virtually unregulated': Radioactive fracking-waste rules in the US slammed in report - RT - States involved in the fracking boom employ a patchwork of laws to deal with radioactive drilling waste, according to a new report. The US government does not fully regulate disposal, and industry is largely left to self-regulate.   Ohio, Pennsylvania, West Virginia, and New York handle many tons of radioactive fracking byproduct in a variety of ways, according to a new report by the Center for Public Integrity (CPI), and there is no federal agency that fully regulates drilling waste. Thus, energy companies and their interests end up taking control in the race to attract more drilling business in the region, experts told CPI.  “Nobody can say how much of any type of waste is being produced, what it is, and where it’s ending up,” said Nadia Steinzor of the group Earthworks, which is involved in a lawsuit that seeks to compel the US Environmental Protection Agency to take a larger role in tracking and regulating hazardous drilling waste. Fracking is billed as a new frontier in the search for cheap energy in North America, but it has also come under heavy scrutiny for potential negative impacts, such as groundwater contamination and upticks in earthquake activity, among other concerns.  What to do with "hot" radioactive fracking waste has been a struggle for Marcellus states, CPI reported, resulting in a permissive culture where state regulators are slow at attempting to understand the risks involved with waste exposure while energy industry players make the important decisions about reporting and policing waste disposal.  “There’s been such a push to expand the industry and to drill as much as possible,” said Steinzor. “No one has had the desire or political will to slow the industry down long enough to figure out what the risks truly are.”

Fracking produces tons of radioactive waste. What should we do with it? - Grist - The Marcellus Shale has transformed the Appalachian Basin into an energy juggernaut. Even amid a recent drilling slowdown, regional daily production averages enough natural gas to power more than 200,000 U.S. homes for a year.  But the rise of hydraulic fracturing over the past decade has created another boom: tons of radioactive materials experts call an “orphan” waste stream. No federal agency fully regulates oil and gas drilling byproducts — which include brine, sludge, rock, and soiled equipment — leaving tracking and handling to states that may be reluctant to alienate energy interests. “Nobody can say how much of any type of waste is being produced, what it is, and where it’s ending up,” said Nadia Steinzor of the environmental group Earthworks, who cowrote a report on shale waste. The group is among several suing the U.S. Environmental Protection Agency to regulate drilling waste under a federal system that tracks hazardous materials from creation to final disposal, or “cradle to grave.” The EPA declined to comment on the lawsuit but is scheduled to file a response in court by early July. An analysis by the Center for Public Integrity shows that states are struggling to keep pace with this waste stream, relying largely on industry to self-report and self-regulate. States have also been slow to assess and curb risks from exposure to the waste, which can remain radioactive for millennia. Excessive radiation exposure can increase cancer risks; radon gas, for example, has been tied to lung cancer.

Pennsylvania Declares Victory on Oil and Gas Regs While Failing to Protect Residents Health -- Thanks to a bill passed this June by the state legislature, Pennsylvania now has the dubious distinction of being the only state in the nation to abandon oil and gas regulations after they’ve been fully developed and publicly reviewed. While other states have modernized oil and gas oversight in the wake of the shale boom, no other state has exempted a major part of the oil and gas industry in the process. But that’s exactly what SB 279 does. Called the Penn Grade Crude Development Advisory Council bill, it wipes out updated environmental protection requirements for conventional oil and gas operations (known as Chapter 78). In effect, 178 state representatives and senators just overturned what it took five years, 12 public hearings, 30,000 public comments and affirmative votes by public regulatory commissions and the legislature to accomplish. Unfortunately, Gov. Wolf just signed SB 279 into law, sounding the death knell for Chapter 78 in the process. Equally unfortunate, official statements from his administration have completely ignored the negative impact SB 279 will have on Pennsylvanians—even as the Governor declares victory for new rules that will go into effect only for unconventional oil and gas operations. Such political spin may be Harrisburg’s status quo, but in this case it’s a dangerous affront to Pennsylvanians whose air, water and health is damaged by oil and gas development..On the same day as the SB 279 vote, the Clean Air Task Force (CATF), Earthworks and the FracTracker Alliance released OilandGasThreatMap.com. Using state well location data and U.S. Census Bureau data, it shows that nearly 25 percent of Pennsylvania’s population lives within a half-mile of oil and gas wells and facilities—a distance at which serious health impacts are most clearly linked, according to the majority of peer-reviewed science.

Rural Pennsylvanians Say Fracking 'Just Ruined Everything' - . — Sixty years after his service in the Army, Jesse Eakin still completes his outfits with a pin that bears a lesson from the Korean War: Never Impossible. That maxim has been tested by a low-grade but persistent threat far different than the kind Eakin encountered in Korea: well water that’s too dangerous to drink. It gives off a strange odor and bears a yellow tint. It carries sand that clogs faucets in the home Eakin shares with his wife, Shirley, here in southwestern Pennsylvania.The Eakins told the state environmental agency about their bad water nearly seven years ago and hoped for a quick resolution. Like thousands of others who live in the natural gas-rich Marcellus Shale, however, they learned their hopes were misplaced. Today, the state is still testing their water. The results of those tests will dictate whether a gas exploration and production company is held responsible for providing them with a clean supply. Meanwhile, the Eakins drink donated bottled water and in late 2014 began paying for deliveries of city water to avoid showering in contaminants such as lead and manganese. Since 2007, at least 2,800 water-related complaints have been investigated by the Pennsylvania Department of Environmental Protection’s Oil and Gas Program. Officials found ties to the drilling industry in 279. Another 500 or so cases, including the Eakins’, are open. While regulators try to catch up to natural gas exploration, some residents of the state have gone months, even years, without access to clean water at their homes.  Responding to a public-records request by the Center for Public Integrity, the Department of Environmental Protection, or DEP, provided data on 1,840 complaints lodged since 2010. More than half took longer than the agency’s target of 45 days to resolve. Almost one in 10 took more than a year.

Get Your Pipeline Out of My Yard - For two years the Hollerans tried to get Williams to make alterations to the route, which initially ran through the middle of their house. Williams diverted the pipeline away from the house, but not from the grove of mature maple trees that supply the family’s burgeoning syrup business.  In December 2014, Williams secured federal approval for Constitution, which gave it the right to enforce eminent domain on the Hollerans and seize their property in the name of the public good. Over three days in early March 2016, chain saw crews cleared 3.5 acres of the Hollerans’ land, including hundreds of trees and 90 percent of their maples. State police blocked off nearby roads. U.S. marshals with bulletproof vests and assault rifles stood guard. Then, seven weeks later, on Earth Day, New York state denied Constitution water quality permits, claiming that Williams hadn’t provided adequate details on its plans to bury the pipe beneath some 250 streams. Williams disputes this and is suing the New York State Department of Environmental Conservation. Technically, the pipeline isn’t dead, but it’s effectively on life support. To Megan Holleran, the victory is bittersweet. “Those trees will never grow back in my lifetime,” she says. “We’ll never be able to produce syrup on that land again.” That same week in April, Texas energy giant Kinder Morgan canceled its $3 billion Northeast Energy Direct project, a 420-mile natural gas pipeline planned to run roughly parallel with Constitution. . But unlike Constitution, Kinder’s pipeline wasn’t killed by politics or local opposition or even a denied permit; it was doomed by basic economics. The company couldn’t persuade power plants and factories in the Northeast to sign long-term contracts to buy the gas it would deliver. As the industry presses for even more capacity, it’s time to consider whether there is both a need for more pipelines and enough political and popular will to go on building them.

In the Birthplace of U.S. Oil, Methane Gas Is Leaking Everywhere - In Pennsylvania, birthplace of the U.S. oil industry, century-old abandoned oil wells have long been part of the landscape. At least 3.5 million wells have been drilled in America since operators plumbed the first hole in the small Pennsylvania town of Titusville back in 1859. Nobody gave much thought to it when many were left unplugged or filled haphazardly with dirt, lumber and cannon balls that slipped or rotted away. But the holes -- hundreds of thousands of them pockmark the state -- are the focus of growing alarm, especially those in close proximity to new wells fracked in the Marcellus shale formation, the nation’s largest natural-gas field. They leak methane, which contaminates water, adds to global warming and occasionally explodes; four people have been killed in the past dozen years. “We had so much methane in our water, the inspector told us not to smoke a cigar or light a candle in the bath,” said Joe Thomas, a machinist who lives with his wife, Cheryl, on a 40-acre farm with at least 60 abandoned wells. Patches of emerald-hued oil leech to the surface, transforming the ground into a soupy mess. Now the state’s attorney general is reviewing rules requiring drillers to document wells within 1,000 feet of a new fracking site. This puts Pennsylvania among states such as California, Texas, Ohio, Wyoming and Colorado confronting the environmentally catastrophic legacy of booms as fracking and home development expand over former drilling sites. As the number of fracked wells increases, so does the chance they might interact with lost wells. Pennsylvania regulators have documented several instances of fracking too close to an abandoned hole, causing methane to leak into homes, the air or water. 

Methane Emissions From Onshore Oil and Gas Equivalent to 14 Coal Plants Powered for One Year -- When we talk about climate change all too often we focus on carbon dioxide, the main greenhouse gas. But there is a much more potent greenhouse gas, methane, which is much more efficient at trapping radiation than CO2. Some estimates put it at 87 percent more potent over a 20 year lifetime than carbon dioxide. And who is the biggest culprit for releasing methane in the U.S.? It is the oil and gas industry, which is the largest industrial source of methane pollution in the country, releasing 33 percent of all methane emissions in 2014.There are a staggering amount of old and new wells with the potential to release methane. At least 3.5 million wells have been drilled in the U.S., with a quarter of those still active. Many old and new ones are leaking the potent greenhouse gas. Adding to the problem, there will be thousands of old wells leaking methane which the authorities do not even know the whereabouts of. First let’s look at existing wells. A new report, published by the Center for American Progress on Monday, reveals that the onshore oil and gas industry’s methane emissions totaled more than 48 million metric tons of carbon dioxide equivalent or CO2e, in 2014.  To put this into perspective, this is the equivalent of 14 coal-fired power plants powered for one year. The worst culprits were ranked in order and came out as: ConocoPhillips, Exxon, Chesapeake Energy, EOG Resources and BP.

You Will Recognize The Names Of The Companies That Emit The Most Methane --Frackers across the country — in places like Texas, Colorado, North Dakota, and Oklahoma — are spewing millions of tons of methane, a potent greenhouse gas, into the atmosphere, nullifying any climate impacts of cleaner-burning natural gas.  The biggest names in natural gas, including ConocoPhillips, BP America, and Exxon, are responsible for more than half the methane released during onshore natural gas production in the United States. Natural gas is 80 percent methane, which traps heat 86 times more effectively than CO2 over a 20-year period. So, when the invisible, odorless gas leaks during drilling, it has an outsized climate effect. A new report from the Center for American Progress found that total natural gas production — drilling, fracturing, pumping, and compressing at well sites — released methane emissions equivalent to running 14 coal-fired power plants for one year. Fracking has already been shown to have a rash of environmentally degrading impacts, from water contamination to habitat destruction. This week, an investigation from the Center for Public Integrity found that the Marcellus Shale region in Pennsylvania is struggling with disposing of the radioactive material brought up during the fracking process.  According to the EPA, the oil and gas industry is responsible for a third of the country's methane emissions (other sources include cows, rice, and melting permafrost). The Obama administration has a goal of reducing methane emissions from oil and gas by 40 to 45 percent from 2012 levels by 2025. In pursuit of that goal, the EPA finalized a new methane rule on new oil and gas infrastructure back in May, which the EPA expects will reduce methane emissions by the equivalent of 11 million metric tons of CO2 annually by 2025. Perhaps it goes without saying, but none of the existing wells covered in the CAP report will be subject to that rule.

Proposed rules to govern fracking in Maryland draw criticism from environmentalists and energy industry - Baltimore Sun - The Hogan administration is proposing rules that would limit the hurdles that energy companies must overcome before they could start the gas-drilling process known as fracking, while also requiring more protections against groundwater contamination. In revising a plan crafted by the administration of then-Gov. Martin O'Malley, state environmental regulators on Wednesday endorsed speeding the review of natural gas wells, allowing them closer to homes and waterways and reducing the amount of environmental testing required before drilling could begin. The state will impose guidelines by Oct. 1, one year before a temporary ban on hydraulic fracturing in Maryland is set to expire. The proposal pleases neither environmental advocates nor the energy industry. Environmentalists say it would weaken safeguards already deemed insufficient; business leaders say Maryland's regulations would still be the toughest in the country on natural gas extraction. State environmental regulators say dissatisfaction on both sides is a sign that the plan is fair. "The market is going to determine whether or not there's interest in drilling and fracking" in Maryland, said Ben Grumbles, Maryland's secretary of the environment. "With the regulations, what we're striving for is a balanced and workable approach that will protect the environment and public health ... and the standards would be achievable."

Oil canals in national preserve in Louisiana to be filled (AP) — In the heyday of oil exploration on Louisiana’s coast after World War II, companies dug about 10,000 miles of canals as straight as Kansas highways through a natural world that’s unraveling today — due, in part, to those canals. Soon, about 16.5 miles of canals are to be filled in the Barataria Preserve — making a small dent in a massive problem.Interior Secretary Sally Jewell on Monday toured canals in the preserve by airboat. She called the work crucial. The National Park Service is using $8.7 million from civil penalties drawn from the catastrophic BP Gulf of Mexico oil spill in 2010 to do the work.   Long ago, oil companies abandoned the canals and spoil banks, which have interfered with hydrology and funneled salt water inland ever since.

Louisiana Supreme Court rejects hearing appeal on local fracking ban - RT The Louisiana Supreme Court has refused to hear a case brought by a locality that opposes the state's approval of drilling operations. The parish government says it could lead to hydraulic fracturing that could possibly imperil its drinking water.  In a 4-3 decision on Friday, the state Supreme Court upheld previous court decisions, saying it would not hear an appeal brought by the group Concerned Citizens of St. Tammany. In March, the 1st Circuit Court of Appeal upheld a district court's ruling that zoning regulations passed by a locality — in this case, the St. Tammany Parish government — do not supersede state government authority.  The St. Tammany Parish government had passed a local ordinance outlawing oil and gas exploration, such as hydraulic fracturing, or fracking. Residents are concerned that fracking — a process that, in order to unleash oil or natural gas, requires blasting large volumes of highly pressurized water, sand, and other chemicals into layers of rock — would cause environmental damage and imperil the parish's drinking-water aquifer, among other complaints.Concerned Citizens of St. Tammany, which joined the lawsuit filed by the parish in 2014 against Louisiana Commissioner of Conservation James Welsh, said it would appeal the decision. However, the Louisiana Supreme Court ruling likely ends the challenge of plans to drill and possibly frack in a wooded, residentially-zoned area around Mandeville, Louisiana. The lawsuit was filed to halt drilling operations by Helis Oil & Gas Co., which proposed the fracking well and received a drilling permit from Commissioner Welsh. Helis is now expected to begin exploratory drilling in St. Tammany Parish on June 29, according to NOLA.com.

I Still Haven't Found All the Crude Storage I'm Looking For - An Update -- More new crude oil storage capacity came online in the U.S. in the fourth quarter of 2015 and the first quarter of 2016 than in any half-year period in memory, and still more capacity is being planned. Even with all this new capacity—and the slowdown in crude oil production—the storage utilization rates at Midwest/Mid-continent and Gulf Coast tank farms, underground salt caverns and refineries are at or near record highs too. And tens of millions more barrels of storage capacity are on the drawing boards in anticipation of further incremental needs. But the energy sector is pulling back, right? What gives? Today, we begin an update on crude storage trends and crude storage facilities in Petroleum Administration for Defense Districts (PADDs) 2 and 3, which together account for 82% of U.S. crude storage capacity.  According to a May 31 (2016) report by the U.S. Energy Information Administration (EIA), 34.3 MMbbl of “working storage capacity” for crude oil became operational at refineries, tank farms and underground storage caverns between October 1, 2015 and March 31, 2016, bringing the national total to a whopping 585.5 MMbbl. (Working storage capacity, as defined by EIA, is the difference between the bottom of a tank or cavern and the maximum safe fill line—in other words, a fair representation of what a storage facility could reasonably hold.) Of the 34.3 MMbbl of capacity added in that recent half-year period, 18.7 MMbbl was in PADD 2, a 15-state region (from Ohio south to Oklahoma and west to North Dakota) that includes the Cushing, OK storage and distribution mega-hub and that now has 162.5 MMbbl of crude storage online—50% more than it did five years ago. Most of the rest of the storage capacity added in the fourth quarter of 2015 and first quarter of 2016—12.8 MMbbl—was in the six-state PADD 3 (Texas to Alabama, plus New Mexico and Arkansas), which now has 315.1 MMbbl of capacity in operation (28% more than it had five years ago; see Figure 1).

Oil bust leaves states with massive well cleanup: (AP) — The worst oil bust since the 1980s is putting Texas and other oil producing states on the hook for thousands of newly abandoned drilling sites at a time when they have little money to plug wells and seal off environmental hazards. As U.S. rig counts plunge to historic lows, and with at least 60 oil producers declaring bankruptcy since 2014, energy-producing states are confronting both holes in their budgets and potentially leaking ones in the ground. In Texas alone, the roughly $165 million price tag of plugging nearly 10,000 abandoned wells is double the entire budget of the agency that regulates the industry. The problem is forcing states to get creative: Texas regulators now want taxpayers to cover more of the clean-up, supplementing industry payments. Wyoming and Louisiana are riling drillers with steeper fees. Oklahoma is reshuffling money among agencies in the face of a $1.1 billion state budget shortfall, while regulators also grapple with earthquakes linked to oil and gas activities. "As downturns go, this one happened faster and accelerated. It moved downward faster than the big downturn we had in the '80s," said John Graves, a Houston oil consultant. "For some people in our industry, it's been more intense." Crude prices that peaked above $100 a barrel in 2014 plunged by 60 percent in just six months. But these responses — if they even wind up working — are still years from meeting the growing backlog of untended wells. Texas officials predict the number of orphaned wells could soar to 12,000, which would be nearly 25 percent more than what regulators can't keep up with now. Landowners, meanwhile, are growing restless with abandoned pump jacks and damage while drillers warn that crackdowns would only put them out of business faster at a time when oil has finally crept from below $30 a barrel to about $50.

Permian Basin Break-Even Price Is $61: The Best Of A Bad Lot - Forbes: The break-even price for Permian basin tight oil plays is about $61 per barrel (Table 1). That puts Permian plays among the lowest cost significant supply sources in the world. Although that is good news for U.S. tight oil plays, there is a dark side to the story. Just because tight oil is low-cost compared to other expensive sources of oil doesn’t mean that it is cheap. Nor is it commercial at current oil prices. The disturbing truth is that the real cost of oil production has doubled since the 1990s. That is very bad news for the global economy. Those who believe that technology is always the answer need to think about that. Through that lens, Permian basin tight oil plays are the best of a bad, expensive lot.The tight oil plays in the Permian basin are not shale plays. Spraberry and Bone Spring reservoirs are mostly sandstones and Wolfcamp reservoirs are mostly limestones. Nor are they new plays. All have produced oil and gas for decades from vertically drilled wells. Reservoirs are commonly laterally discontinuous and, therefore, had poor well performance. Horizontal drilling and hydraulic fracturing have largely addressed those issues at drilling and completion costs of $6-7 million per well. The Permian basin is among the most mature producing areas in the world. It has produced more than 31.5 billion barrels of oil and 112 trillion cubic feet of gas since 1921. Current production is approximately 1.9 million barrels of oil (mmbo) and 6.6 billion cubic feet of gas (bcfg) per day.

WTI Midland, WTS Midland crudes assessed at parity - - Permian crudes WTI Midland and WTS Midland were assessed at parity Monday for the first time since early February. WTI Midland rose 17 cents/b to be assessed at WTI cash minus 55 cents/b, as WTS Midland increased by 12 cents/b to finish at the same amount. The last time the two crudes were neck in neck in early February, the matching assessment was in positive territory at WTI cash plus 9 cents/b. Since then, the two crude grades have continued to weaken. WTI Midland, normally assessed at a premium to WTS Midland, fell below its sour counterpart for a brief period in mid-May before recovering its premium. A climbing Permian rig count combined with a falling production estimate have added downward pressure recently to both crude grades, countered by upward support from summer driving season and increased regional crude runs. Crude production in the Permian Basin is expected to fall 7,000 b/d month on month to 2.013 million b/d in July, according to the US Energy Information Administration's monthly drilling productivity report. At the same time, the drilling rig count in the Permian Basin has continued to rise, most recently adding four rigs week on week for a total 146 rigs, according to Baker Hughes' weekly rig count report June 17.

Federal Judge Blocks Major Fracking Rule, Calling It 'Contrary To Law' -- A federal judge in Wyoming has permanently blocked a rule that sought to regulate hydraulic fracturing, commonly known as fracking, on millions of acres of public and tribal lands. A coalition of states and oil and gas producers challenged the U.S. Bureau of Land Management's fracking rule in court, contending it had no basis in existing law. U.S. District Judge Scott Skavdahl on Tuesday agreed, ruling that the federal agency's claim that it had "implicit" congressional authority for the regulations "lacks common sense." "Congress has not delegated to the Department of Interior the authority to regulate hydraulic fracturing," Skavdahl wrote in a 27-page order. "The BLM's effort to do so through the Fracking Rule is in excess of its statutory authority and contrary to law." That language seemed to be a direct rebuke to the Obama administration, which touted the fracking rule last year as "commonsense" while noting that states and localities should fill in the gaps it left open. The government received more than 1 million public comments during the rule-making process. The rule sets standards on well construction and wastewater storage, among other requirements. But Skavdahl said the government's policy intentions were irrelevant to the question of what power it had to promulgate them in the first place. "Congress’ inability or unwillingness to pass a law desired by the executive branch does not default authority to the executive branch to act independently, regardless of whether hydraulic fracturing is good or bad for the environment or the Citizens of the United States," he wrote. The judge had already put the rule on hold twice last year while the litigation proceeded, giving other states, industry and environmental groups a chance to pick sides in the dispute and offer their arguments as the case moved forward. The U.S. Court of Appeals for the 10th Circuit is presently considering an appeal of one of these earlier orders, and a second appeal of Tuesday's ruling is also likely.

Judge Rules Federal Government Can’t Regulate Fracking On Public Land -- A federal judge ruled Tuesday against the Obama administration’s proposed regulations on fracking, on the grounds that the Department of Interior does not have the authority to regulate fracking on federal lands.  The decision comes over a year after President Barack Obama’s administration finalized regulations for fracking on public lands. Judge Scott Skavdahl of the District Court of Wyoming sided with the oil and gas industry and a handful of western states, who argued that the Interior cannot regulate fracking according to a 2005 law. The judge’s decision means the Interior can no longer enforce the rule, but the agency could still appeal the decision. In his opinion, Judge Skavdahl wrote that the “Constitutional role of this Court is to interpret the applicable statutory enactments and determine whether Congress has delegated to the Department of Interior legal authority to regulate [fracking].” Three simple words can sum up his 27-page paper: “It has not.”   The law Skavdahl cites is the 2005 Energy Policy Act. The federal fracking regulations were shot down largely because of an amendment to the Safe Drinking Water Act (SWDA) within the 2005 law. Originally, the EPA had regulatory authority over fracking under the SDWA because of how “underground injection,” which is part of the fracking process, was defined. The amendment redefined the SDWA’s definition of “underground injection” to exclude fracking, which took away regulatory power from the EPA.  “There can be no question that Congress intended to remove hydraulic fracturing operations … from EPA regulation,” Skavdahl wrote.  This removal of regulatory authority from the EPA applies to the Interior too, according to Skavdahl’s ruling. In legal terms, the Wyoming court has decided that the executive branch cannot enforce these regulations without changing the law — which would require Congress’ action.

Obama administration decries judge's fracking ruling - (AP) - The Obama administration on Wednesday decried a ruling by a federal judge that blocks rules for hydraulic fracturing, saying the decision prevents regulators from using "21st-century standards" to ensure that oil and gas operations are conducted safely on public lands. Jessica Kershaw, a spokeswoman for the Interior Department, said "modernized fracking requirements" imposed by Interior Secretary Sally Jewell reflect best industry practices and are aimed at ensuring adequate well control, preventing groundwater contamination and increasing transparency about the materials used in fracking.  Kershaw's comments came after a judge in Wyoming ruled late Tuesday that federal regulators lack authority to set rules for hydraulic fracturing, also known as fracking. The ruling by U.S. District Judge Scott Skavdahl deals another setback to the Obama administration's efforts to tighten how fossil fuels are mined.  Skavdahl said the Bureau of Land Management can't set the rules because Congress has not authorized it to do so. The judge, who was nominated by Obama in 2011, wrote that the court's role is not to decide whether hydraulic fracturing is good or bad for the environment, but to interpret whether Congress has given the Department of Interior legal authority to regulate the practice.  "It has not," wrote Skavdahl, who last year blocked implementation of rules drafted by the agency.

How IOGCC Spawned the Lawsuit That Just Overturned BLM Fracking Regulations on Public Lands - Steve Horn - In a ruling on the Obama Administration's proposed regulations of hydraulic fracturing (“fracking”) on U.S. public lands, U.S. District Court for the District of Wyoming Judge Scott Skavdahl — a President Obama appointee — struck down the rules as an illegal violation of the Energy Policy Act of 2005.  Filed in March 2015 by first the Independent Petroleum Association of America (IPAA) and Western Energy Alliance and then the State of Wyoming (soon joined by North Dakota, Utah and Colorado), the industry and state lawsuits would soon thereafter merge into a single lawsuit. The merger symbolizes the origins of the lawsuit — the 2014 Interstate Oil and Gas Compact Commission (IOGCC) annual meeting in Columbus, Ohio. IOGCC, a collective of state-level oil and gas industry regulators or other official state representatives appointed by governors (sometimes lobbyists or industry executives), merges together industry interests and regulators by bringing them to the table at biannual meetings and providing a network through which to maintain year-round communications and coordination. The majority of IOGCC's at-large members work for the oil and gas industry as lobbyists and executives. And like the American Legislative Exchange Council (ALEC), IOGCC members propose and pass model resolutions.At the 2014 Columbus meeting attended by DeSmog, IOGCC's resolutions committee convened to discuss what to do about the then-proposed U.S. Department of Interior regulation of fracking on public lands. Although a resolution did not pass out of the committee — one was deliberated upon but ultimately tabled until the May 2015 IOGCC business meeting held in Salt Lake City, Utah — an action plan did arise. That plan called for resolutions committee member Lynn Helms, North Dakota's official state representative to IOGCC and the head of its Industrial Commission (and former long-time employee of Hess Corporation), to contact U.S. Sen. John Hoeven's (R-ND) legal counsel and chief-of-staff — Ryan Bernstein — and formulate a plan to stall or block the proposed rules. Emails obtained under North Dakota's Open Records Statute show that indeed, Helms contacted Bernstein to get the ball rolling  to do just that.

White House vows to defend authority on hydraulic fracturing - (UPI) -- White House spokesman Josh Earnest said the federal government would continue pressing its authority over hydraulic fracturing in the courts. From Wyoming, U.S. District Judge Scott Skavdahl found the federal Interior Department's Bureau of Land Management was not granted authority by Congress to regulate hydraulic fracturing on public lands. In his ruling, the judge said the decision was not based on environmental grounds."The constitutional role of this court is to interpret the applicable statutory enactments and determine whether Congress has delegated to the Department of Interior legal authority to regulate hydraulic fracturing," the ruling stated. "It has not." Speaking to reporters after the ruling, Earnest said a case can be made that the government has a duty to ensure hydraulic fracturing, known also as fracking, is done in a way that doesn't harm public interest or health. "When it comes to the legal authority at stake, we'll continue to make our case in the courts," he said. The BLM had required oil and gas companies to disclose the chemical components of fluids used during the fracking process, which involves the injection of small amounts of abrasives and liquids to coax material out of shale basins. Critics have said some of those chemicals are hazardous to public health. Federal regulations extended all the way to the wells themselves. The Ute Indian tribe and four sates -- Colorado, North Dakota, Utah and Wyoming -- have objected to federal regulations. The Independent Petroleum Association of American said it too had argued the government was overstepping its authority.

We must keep local issues under local control - Last year, in at least 29 states, we saw bills introduced to block local control on a variety of issues. Here in New Mexico, it was a bill to stop local communities like Santa Fe from empowering workers with a living wage.One of the biggest proponents of removing the power to self-govern has been the oil and gas industry, which stands to benefit immensely if it can stop individual Americans from deciding for themselves if fracking is appropriate in their neighborhoods. Fracking operators want decisions about their industry made at the state or federal level, but it is local communities that bear the brunt of fracking’s impact.According to The Costs of Fracking by Environment America Research & Policy Center, in one part of Texas, the thousands of trips made by trucks and machinery for fracking operations have required $40 million in road repairs. Fracking has contaminated drinking water in thousands of cases. Residents near fracking operations suffer from a greater risk and huge range of health problems. And another town in Texas saw home values decrease in areas near fracking.And it is becoming more and more common. In 35 states, fracking takes place in residential areas, near homes, schools and playgrounds. The Washington Post reports that more than 15 million Americans now live within a mile of a well that has been drilled since 2000.Many communities take no issue with the practice. But, understandably, many others, weighing such heavy costs against so few benefits, have sought to ban or limit fracking in their neighborhoods. Over 500 cities and counties, from Los Angeles to Washington, D.C., have acted to bar or restrict the risky drilling practice or the disposal of its toxic waste.This did not sit well with the oil and gas industry, whose allies in governments and the courts have fought aggressively to stop local communities from making this choice for themselves.

This 'Pony' Knows More Than One Trick - More Than a Bullet Line from Rockies to Cushing -- Tallgrass Energy Partners’ Pony Express Pipeline provides capacity to move 230 Mb/d of Bakken crude oil received at Guernsey, WY all the way to the mega-hub at Cushing, OK, making it one of the most important pipeline corridors out of the Williston Basin. Possibly because of its moniker ‘Express’, it is often thought of as a bullet line, hauling barrels 760 miles in a straight shot across Wyoming, Colorado, Nebraska, Kansas and into Oklahoma. But there is much more to Pony, including a major outlet for Niobrara crude (the 90 Mb/d Northeast Colorado Lateral) and an expanding capability to deliver oil to refineries and other facilities on the way to Cushing. In Part 2 of our blog series covering pipelines out of the Bakken/Rockies region, we examine what the changes in crude production and flow patterns have meant to Pony Express and how this pipeline can be expected to respond to changes in regional crude oil supply and demand.. As we said in Episode 1, for years prior to the Shale Revolution, long-existing pipeline capacity out of the Bakken could handle the modest volumes of conventional oil being produced there. By 2011 though, Bakken tight-oil production had begun a steep, rapid rise, quickly outstripping available pipeline capacity (much of which had to be shared with crude heading south/southeast from western Canada). As a result, pipeline congestion and significant price discounting festered while Bakken producers and midstream companies scrambled to develop alternative routes to market. The solution was the development of rail loading terminals—they could be built quickly and at relatively modest costs, and they could use existing rail lines. Crude-by-rail (CBR) also allows for destination flexibility; in other words, if a producer could achieve higher netbacks (the crude sale price minus transportation costs from the wellhead) by railing its crude to the East Coast or the West Coast (neither of which is connected to crude producing regions via pipeline) instead of the Midwest or the Gulf Coast then, heck, rail it to the East or West Coast.

Bakken Update: Eagle Ford Hedges Could Provide Short-Term Resistance To Oil Prices Around $50/bbl - Summary:

  • Permian operators began hedging oil prices at $40/bbl and continue at $50/bbl with additional hedging from Eagle Ford names.
  • Increased volumes of hedging provide a short term ceiling to oil prices, at least until operators have enough revenues guaranteed to satisfy banks.
  • Given the large number of barrels unhedged through 2016 and into 2017, this could continue for a couple of months, but could take longer if oil prices pullback.

There are significant discrepancies among analyst oil price estimates. There were more bears than bulls through the recent run that saw the price of WTI almost double since its low in February. This has created some fairly impressive gains in the US Oil ETF.  Contango has dampened some of these gains, but it still was a healthy move. We are currently well over the 200-day moving average. If we use this as our guide, it is possible to see a considerable pull back. If the price retraces, we could touch the low $40s. Be prepared, as a pullback could translate to a 20% move to the downside.

32K gallons of saltwater spilled, recovered near Tioga (AP) — North Dakota’s Oil and Gas Division says more than 32,000 gallons of what is known as produced water spilled and was cleaned up at an oil field site in Mountrail County. Produced water is a mixture of saltwater and oil that can contain drilling chemicals. Hess Bakken Investments II LLC reported the spill at a tank battery about 7 miles north of Tioga on Tuesday. The company estimates that 770 barrels spilled, was contained and recovered on site. A barrel contains 42 gallons. The company says an equipment malfunction caused tanks to overflow.

Rail safety provisions included in Senate transportation bill - A $56 billion transportation and housing spending bill that recently cleared the U.S. Senate includes a handful of provisions designed to improve safety along oil train routes. The bill would provide $500,000 to help the Federal Railroad Administration develop a rail bridge inventory and create an online form for railroads to submit data on the age and condition of their bridges. The bill encourages the agency to target inspections in the areas of highest risk. The FRA leaves bridge inspection to the private railroads but does audit their reports. The bill would also expand the use of automated track inspection on crude oil routes, such as the BNSF and Canadian Pacific lines that carry an average of about four fully-loaded oil trains per day across Minnesota and Wisconsin, and fund federal testing of the tank cars used to transport crude. The FRA’s safety and operations budget would increase by nearly 5 percent to $208.5 million under the bill. It also establishes a December 2016 deadline for the Department of Transportation to develop plans for responding to a worst-case oil spill.

Union Pacific to resume oil trains in Columbia River Gorge (AP) — Heavy-duty trains with thousands of gallons of crude oil in tow will begin rolling through the scenic Columbia River Gorge this week for the first time since a fiery derailment in early June. Union Pacific on Wednesday announced plans to resume operations at some point this week. The June 3 derailment of one of its trains caused a 42,000-gallon oil spill and subsequent fire. Nobody was hurt, but it forced evacuations and disruptions to water systems in Mosier, Oregon, a small town about 70 miles east of Portland. The rail company’s announcement comes as local officials plead with the federal government to halt the use of railroads to transport crude oil, a practice they say can never be completely safe for communities in the trains’ path. Union Pacific officials have concluded that faulty “lag bolts” — fasteners used to attach the rail to the rail tie on a curved section of track — caused the problem in Mosier. Federal authorities are also investigating. The company defended its decision to restart operations in a statement, reiterating the federal obligations it’s under and highlighting the tiny fraction of its Oregon shipments — less than 1 percent — that come from oil trains. “Railroads provide the infrastructure, flexible networks and efficiency needed to move crude oil from locations where oil is recovered to customer facilities,” said Wes Lujan, a public affairs vice president for Union Pacific. “The federal common carrier obligation requires railroads to transport crude oil and other hazardous materials. If a customer delivers a crude oil tank car in conformity with U.S. Department of Transportation requirements, we are obligated to transport the rail car to its destination.”

Just Weeks After A Major Derailment, Oregon Oil Train Traffic Is Starting Back Up - Less than three weeks after a fiery oil train derailment in Mosier, Oregon spilled 42,000 gallons of Bakken crude into the Columbia River and forced the evacuation of hundreds of residents and schoolchildren, Union Pacific — the company behind the derailment — announced that it would resume sending oil trains through the Columbia Gorge. In the time since the Mosier disaster, there have been no significant changes to the safety picture.  Union Pacific had temporarily stopped shipping oil by rail over the tracks where the derailment occurred, but had resumed shipping other cargo just days after the incident, even before the derailed train cars had been fully removed from the site of the accident.  Following the June 3rd derailment, Oregon Gov. Kate Brown (D) called for a temporary moratorium on oil train traffic through the Columbia Gorge until rail safety could be ensured; she reiterated those concerns in light of news that oil shipments would restart sometime this week.“As I said last week and again as oil begins to roll through our Gorge, I call on federal authorities to ban the transport of oil by rail until safety can be greatly improved and our first responders have the tools they need,” Brown said in a statement to local news station KATU. Last week, Sens. Ron Wyden (D) and Jeff Merkeley (D) joined Brown’s call for a temporary moratorium, requesting that the United States Federal Railroad Administration (FRA) halt oil train shipments until a full investigation into the Mosier derailment has been conducted.

The Fight Over Oil Trains In The Pacific Northwest Is Heating Up  --Twenty-one activists were arrested on Saturday while protesting the practice of shipping crude oil by rail in Vancouver, Washington. The group was booked and charged with criminal trespass in the second degree by BNSF police, after spending more than three hours blocking rail cars near the BNSF Railway and Amtrak Station. Around 100 other protesters also participated in the event Saturday, but did not block the train tracks and were not arrested. The protest, organized by the Fossil Fuel Resistance Network, comes just weeks after a Union Pacific train carrying Bakken crude oil derailed outside of the small town of Mosier, Oregon, some 70 miles east of Vancouver. In the wake of the spill, local Oregon officials — from the mayor of Portland to the Multnomah County Chair — have called for a permanent moratorium on oil trains throughout the state.  Following the release preliminary findings related to the Mosier derailment, the Oregon Department of Transportation has also asked the federal government to place an indefinite moratorium on oil trains, until rail companies are better able to detect potential failures in the system. Investigators believe that the Mosier derailment — which sparked a fire and sent 42,000 gallons of crude oil spilling into the Columbia River — was caused by a number of broken screws along the tracks, which Union Pacific failed to detect despite performing an inspection just weeks before the incident.

Prosecutor: Pacific Gas ignored regulations to cut costs (AP) — Pacific Gas & Electric Co. ignored pipeline safety regulations to cut costs and tried to cover up its illegal practices by misleading federal officials investigating a deadly explosion of one of its natural gas pipelines in the San Francisco Bay Area, a prosecutor said Friday as a criminal trial against the utility giant got underway. PG&E knew exactly what to do to comply with regulations but didn’t do it, Assistant U.S. Attorney Hallie Hoffman said in her opening statement. “Instead, it chose a cheaper method that did not ensure the safety of pipelines running through high-consequence areas,” Hoffman said. PG&E attorney Steven Bauer said the company’s employees did what they could in the face of ambiguous regulations they struggled to understand.

Even With The Demand, SRE Able To Inject Some Natural Gas Into Storage -- Truly Amazing -- From SeekingAlpha:

  • Sempra Energy's (NYSE:SRE) SoCalGas has passed its first test of the summer since the closure of its Aliso Canyon storage facility following October's massive gas leak, keeping fuel supplies flowing amid blazing temperatures early this week.
  • SoCalGas says it delivered ~3.3B cf of gas and received 3.2B cf from pipelines on Monday, but with cooler weather on Tuesday, deliveries fell to ~2.9B cf while pipeline receipts reached 3.1B cf, allowing some injections back into storage.
  • The utility's three remaining storage facilities have a combined withdrawal capacity of 1.7B cf/day but cannot make up for all of Aliso Canyon's capability to support demand in the Los Angeles area because they are smaller or located too far away.
  • SoCalGas has said it hopes to return Aliso Canyon to partial service by the end of the summer, but cannot inject gas into the field until it inspects all 114 wells.

BREAKING: Thousands Of Gallons Of Crude Oil Have Spilled From A Southern California Pipeline -- According to the Ventura County fire department, up to 700 barrels of crude oil — some 29,000 gallons — have spilled from a pipeline in southern California. The leak was spotted at about 5:30 a.m. PST, and has been seen flowing towards a nearby beach. Initial reports placed the amount of oil spilled from the pipeline at 5,000 barrels, or 210,000 gallons, but those totals were revised as of Thursday morning. Officials are relying on a natural catch basin that exists in the area to capture the oil while crews build larger barriers, according to the Los Angeles Times#VenturacityFD @VCFD responding to crude oil spill #GroveInc #Ventura. Up to 5,000 barrels — HazMat teams on scene. pic.twitter.com/FHAxrWEjKb . Officials are reporting that the operating line for the pipeline has been shut down. The oil belongs to Aera Energy, an oil production company jointly owned by Shell and ExxonMobil. It is one of California’s largest oil producers, accounting for nearly 25 percent of the state’s oil production, according to the company’s website. The pipeline belongs to Crimson Pipeline, which operates in California and Louisiana.  A year ago, California suffered the largest coastal oil spill in the state in 25 years just west of Ventura, when an oil pipeline ruptured in Santa Barbara County, with some 143,000 gallons of crude flowing to the coast. Thursday’s spill is also located just 15 miles southeast of the site of the 1969 Santa Barbara oil spill, which sent some 3 million gallons of crude into the Pacific Ocean and is largely credited with launching the modern environmental movement.

Pipeline Ruptures Spilling 29,000 Gallons of Oil, Just Hours After Obama Signs PIPES Act -- On Wednesday, President Obama signed the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 into law. The bill, known as the PIPES Act, reauthorizes the federal government to move swiftly in the event of a pipeline leak or rupture. Specifically, the Secretary of Transportation is allowed to issue emergency orders if the unthinkable happens.The reauthorization was in response to the natural gas pipeline rupture in California where an estimated 97,000 tons of gas were released from the Aliso Canyon pipeline near Porter Ranch. The bill also includes new mandates on construction to insure the safety of future pipelines and to reduce the chances of another massive leak.  Ironically and very disturbingly, less than 24 hours after the bill was signed into law, an oil pipeline in Ventura County, California ruptured and current estimates put the amount of oil leaked at more than 200,000 gallons, though that number continues to rise. According to the LA Times: The oil was flowing out near the beach at San Jon Road and the 101 Freeway, Lindbery said. But the area has a natural catch basin that crews are relying on to capture the oil while they build larger barriers with bulldozers and hand crews, officials said. The oil belongs to Aera Energy and was flowing through a pipeline owned by Crimson Pipeline, Lindbery said. Crimson Pipeline operates in California and Louisiana. The oil company owns 1,000 miles of pipelines in Ventura, Los Angeles, Orange, Kern and in some Northern California counties, according to its website. When the leak was discovered, the company shut the pipeline down, but the oil remaining in the pipeline continues to flow out.

Pipeline spews crude in California but none reaches beach – An underground pipeline spewed thousands of gallons of crude oil Thursday near the Southern California coast but the foul-smelling goo was contained in a lengthy stretch of ravine and never reached nearby beaches. About 29,000 gallons of oil spilled and flowed at least a quarter-mile in the canyon near Ventura, fire authorities said. Resident Kirk Atwater said he called 911 after smelling and hearing the flowing crude. "We started getting this horrendous smell and I knew right away what it was," he said. Atwater, 56, said he went up the canyon on his motor scooter and found the oil gushing from an above-ground box that he surmised covers equipment. "It was just pouring out like water coming out of a fire hydrant," he said. He said he found a posted phone number and reported the leak to the pipeline company. Fire crews responded and a pump house operating the line was shut down. Firefighters built a dam of dirt to keep the oil from moving farther. The oil left a black stain down the brush- and tree-filled arroyo.

Firm: California spill went undetected due to pipeline work — The operator of a pipeline that spewed tens of thousands of gallons of crude oil into a Southern California ravine said Friday it didn't detect the leak because the line was undergoing maintenance. Crimson Pipeline said the remotely monitored line was emptied on Wednesday to replace valves. Oil was flushed back in, but the pipeline wasn't at full capacity when the spill occurred and there wasn't enough oil in the line to detect a drop in pressure, company spokeswoman Kendall Klingler said. Workers shut down the line after receiving a call from a resident who was in his Ventura backyard when he noticed a noxious odor and rode his motor scooter through the ravine until finding the source of the leak.. At least 25,000 gallons of crude flowed Thursday into a brush- and tree-filled arroyo. Firefighters were able to stop the crude before it could reach the ocean by building a dirt dam. The cause of the spill is under investigation. It occurred near a valve on the underground line that runs from Ventura to Los Angeles. The spill was the 11th for Denver-based Crimson since 2006, according to records filed with the Pipeline and Hazardous Materials Safety Administration. A total of 313,000 gallons of crude were released, causing $5.9 million in property damage.

California crude prices depressed by pipeline woes -  Indigenous crude prices from California's oil fields in Kern County are being weighed down as inventories build on pipeline shut-ins, S&P Global Platts data showed Thursday. Kern River crude was pegged at a $10.00/b discount to US futures benchmark WTI on Thursday, according to Platts assessment data. In May, the discount averaged $6.02/b. The Kern River discount began widening after the late-May shutdown of Shell's San Pablo crude pipeline -- which carries the heavy crude north to San Francisco Bay Area refineries -- pushed more barrels of crude into storage. The discount widened further after Thursday's shutdown of another leaking crude pipeline, the Crimson. The San Pablo line is expected to be back up by mid-July, shippers said. The line's shipping calendar showed July 10 as the restart date, but sources said that the actual start-up date will be July 18, barring any further discoveries of problems. Company spokesman Ray Fisher said in email the line is still being tested and gave no timeline for restart.  The 210,000 b/d San Pablo line usually carries about 140,000 b/d of the heavy crude north to three Bay Area refineries: Shell's 156,400 b/d Martinez refinery; Tesoro's 166,000 b/d Golden Eagle refinery in Martinez; and Valero's 145,000 b/d Benicia refinery. These refineries have ways to get crude from other countries, so the San Pablo outage is not seen impacting output of gasoline and diesel.

The Latest: CEO denies fracking will harm endangered belugas - The chief executive officer of a Texas company that plans to drill below Alaska's Cook Inlet says there's no threat to endangered beluga whales from proposed hydraulic fracturing. Benjamin Johnson of Fort Worth-based BlueCrest Energy says he doesn't even consider the company's plans to be offshore drilling. Johnson says the company will drill about four miles horizontally from a well on shore to reach oil deposits. He says drilling 7,000 feet below the ocean bottom presents no danger to belugas from chemical leaks, noise or earthquakes. Johnson responded to a letter sent Wednesday by the Center for Biological Diversity to the National Marine Fisheries Service. The environmental group wants the agency to block BlueCrest's plans for fracking, the extraction of oil from rock through injection of high-pressure mixtures of water, sand and chemicals. . A national environmental group is asking federal fisheries officials to block a drilling company's plans for offshore hydraulic fracturing in Alaska's Cook Inlet. The Center for Biological Diversity says fracking by BlueCrest Energy will threaten endangered beluga whales. The group says no hydraulic fracturing by the Fort Worth, Texas-based company should be allowed unless there's additional environmental review.

Fight over fracking, threat to beluga whales grows in Alaska  - There is a dispute brewing in Alaska as to whjether belugas whales in Cook Inlet might be threatened by fracking. An eco-group says yes; the Texas-based company behind the project, BlueCrest Energy, says no. Here is the statement from the Center for Biological Diversity that was released this week — The Center for Biological Diversity today urged federal officials to block an oil company’s plans to drill multiple new wells and conduct the first large, multistage offshore fracking ever done in Alaska’s environmentally sensitive Cook Inlet.In a letter to the National Marine Fisheries Service, the Center noted that the unprecedented offshore fracking planned for this summer threatens Cook Inlet beluga whales — among the most endangered whales in the world­.BlueCrest Energy’s plan for what it calls a “huge multistage frack” would be the first project of its kind in the inlet, according to state oil regulators and the company itself.“Fracking in Cook Inlet threatens beluga whales and their prey due to the toxic chemicals used in fracking fluid,” read the Center’s letter. The company needs a permit from the agency to legally conduct oil and gas activities in the Inlet. “Cook Inlet belugas already face a barrage of man-made hazards threatening their survival — the last thing they need is offshore fracking,” said Kristen Monsell, a Center attorney. “If federal officials are truly committed to saving these incredible animals, they need to step in and prohibit oil companies from fracking Cook Inlet.”  Offshore fracking blasts vast volumes of water mixed with toxic chemicals beneath the seafloor at pressures high enough to fracture rocks and release oil and gas. The practice increases environmental damages beyond those of conventional oil drilling by increasing pollution and the risks of oil spills and earthquakes. Cook Inlet belugas are especially vulnerable to these threats through direct exposure and through the killing or harming of their prey.  [...] Of the five genetically unique beluga populations in Alaska, Cook Inlet belugas number the fewest. The species is under great duress from the industrialization of their habitat near Anchorage. In recent years the population has plummeted from approximately 1,300 to just over 300 whales.

One Way to Solve Fracking's Water Problem: Don't Use Water  |  Rigzone - The shale gas revolution brought the U.S. both energy-superpower status and a short list of headaches. There are engineering challenges, many wells have a disappointingly short productive lifetime, and those lifetimes can vary even within the same field. Then there are the much-debated environmental trade-offs. Hydraulic fracturing, or fracking, requires copious water. And while gas-fired power plants produce less CO2 than coal-fired plants, environmentalists are quick to point out that methane itself is a potent greenhouse gas and leaks needlessly from aging infrastructure. An Australian researcher and two scientists from France, which has banned fracking, now suggest there may be a better way. And it's a twofer, at least. Their germ of an idea, published today in the journal Nature Communications, would simultaneously reduce or eliminate drilling's water footprint, make wells more productive, and trap carbon dioxide underground. How? Substitute high-pressure CO2 for water. The scientists go to great lengths in the paper and in conversation to qualify their research as preliminary. It's a theoretical study, run on computer models of molecular behavior, and requires experiments on laboratory scales before anyone ever tries it out on an actual shale deposit. But it's a provocative theory.The three co-authors use sophisticated software that simulates how molecules interact. What they found in their simulation is that while water initially flushes out the gas, eventually it becomes a kind of molecular seal, trapping the gas in the deposit.

With oil price near $50, resilient U.S. shale producers eye new chapter | Reuters: Two years into the worst oil price rout in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil nears $50 a barrel, confounding OPEC and Saudi Arabia with their resiliency. That shale giants Hess Corp, Apache and more than 25 other companies have beaten back OPEC's attempt to sideline them would have been unthinkable just months ago, when oil plumbed $26 a barrel and collapses were feared. To regain market share, the Organization of the Petroleum Exporting Countries in late 2014 pumped more oil despite growing global oversupply. It aimed to drive prices lower and force higher-cost producers out of the market, with shale oil seen as especially vulnerable. The pain was acute. Industry revenue fell more than 30 percent in 2015 from the previous year, the U.S. drilling rig count dropped by more than 70 percent from when oil was still above $100 per barrel, stock valuations plunged and scores of small producers filed for bankruptcy. But so far no U.S. producer that pumps more than 100,000 barrels per day (bpd) has gone bankrupt. The survival of these big producers partly explains why overall U.S. production has slipped only about 10 percent since peaking at 9.69 million bpd. Their agility - which required slashing costs in half while doubling down on improved techniques to squeeze more oil from each new well - is now allowing the industry to cautiously focus on growth again. But this time, U.S. producers say they will stay focused on capital returns, having abandoned a culture of maximizing production regardless of costs.

NYMEX July gas settles 12.4 cents higher Monday at $2.747/MMBtu -  The NYMEX July natural gas futures contract climbed 12.4 cents Monday to settle at $2.747/MMBtu, the highest price since it settled at $2.758/MMBtu on September 14, 2015. The July gas futures contract has rallied over the past several weeks, climbing about 36 cents since June 1. "Bullish weather is pushing demand higher and supporting the contract's upward momentum, which is likely to continue on short covering and strong fundamentals," . The US National Weather Service's eight- to 14-day forecast called for a high probability of above-normal temperatures across most of the country. The Southwest and Pacific Northwest are forecast to be very hot, more than 15 degrees Fahrenheit above normal, while the Northeast and Appalachia are expected to be around seasonal norms. The middle portion of the country is also forecast to be hotter than usual. Total demand is expected to increase throughout the week as warmer than normal temperatures blanket most of the country. Demand picked up for Monday's evening cycle estimates to nearly 70 Bcf/d, driven by higher power burn levels, according to S&P Global Platts unit Bentek Energy. Power burn could hit above 35.0 Bcf/d over the next few days if current weather forecasts hold. Southwest power burn could be especially strong and rise close to 5.5 Bcf/d this week, which is 2.2 Bcf/d above the 30-day average for the region, as a strong heat wave settles in.

Natural Gas Is On Fire - Natural Gas Daily -  July contracts are moving higher… again. Current 8-14-day outlook validates the bullish sentiment as cooling demand is expected to spike over the next several weeks. Click to enlargeCurrent weather runs by Bespoke Weather also point to a very hot July. Lingering El Nino was a bit of concern last week for the month of July, but the resumption of the La Nina trend resolved all concerns. If El Nino lasted a bit longer or the trend towards La Nina slowed, July temps could've been adversely affected to the cooler side. We are obviously oversimplifying this, but if you want to learn more, visit Bespoke Weather. RBN Energy has once again lowered its end-of-injection storage estimate. Forecasters are currently predicting that by 7/15, storage surplus should narrow by 154 Bcf relative to last year. All of these bullish revisions resulted in the spike in price today. Despite a rebound in natural gas prices, natural gas supply has been anemic. Supply by several estimates we've seen ranges from 0.15 Bcf/d to 0.25 Bcf/d from last week. The bullish supply figures also contributed to the overall bullish sentiment today. Going forward, we continue to monitor the different changes in weather estimates. The current range of end-of-injection storage figures are still averaging around 4.15 Tcf, so in order for natural gas to go above $3/MMBtu, we would need these forecasts to materially move lower than 4 Tcf. We think the psychological effects attached to 4 Tcf is quite remarkable, and many of the physical gas traders we've spoken to point to the 4 Tcf mark as the point of bullish or bearish sentiment.

The Natural Gas Rally, Coal-Gas Competition and Power Burn --- Over the past 20-some days, U.S. natural gas prices have gone from being the lowest in more than a decade to very close to last year’s levels. The July 2016 CME/NYMEX Henry Hub natural gas futures contract on Thursday (June 23) settled at $2.698/MMBtu, up about 70 cents (36%) from where the June contract expired ($1.963/MMBtu on May 26) and also up nearly 50 cents (23%) from where the July contract started as prompt month on May 27 (at $2.169). Market buying to unwind short positions initially kick-started the rally, but since then hot weather and a boost in power demand has kept the rally going. National average temperatures have averaged nearly 8 degrees (Fahrenheit, or F) higher in June to date versus May, and in the past week they’ve climbed above the peak summer levels normally not seen until mid- to late-July. Gas consumption on a temperature-adjusted basis also soared in the first half of June, led by power burn (gas use for power generation). The combination of hot weather and higher gas usage per degree of demand has been practically made-to-order for the oversupplied gas market, and has led to record power burn in June to date. But higher prices have the potential for bearish consequences—the recent gains have catapulted natural gas prices well above prices for coal on a cost-per-MMBtu basis—making the latter fuel more economically competitive in the power generation sector. That’s welcome news for coal producers, but what will it do to natural gas demand and in turn gas prices? Today, we look at the shift in the coal-gas price relationship and the potential impact to power burn and the gas market.

Weekly Natural Gas Storage Report - 'Down Goes The Surplus' - EIA reported injection figures of +62 Bcf bringing total storage to 3.103 Tcf. This compares to the +77 Bcf build last year and the +88 Bcf for the five-year average.   Market participants were expecting injections of between 55 Bcf - 63 Bcf, so this week's build came in at the high end of the range. Part of the miss comes from the increased Canadian gas imports which we reported. AECO basis differential remains wide despite recent price strengthening. We expect gas imports from Canada to remain above 6 Bcf/d as long as the basis differential remains wide. At 3.103 Tcf, gas storage remains 618 Bcf higher than last year and 678 Bcf higher than the 5-year average. Prior to this release, total injection this year is 561 Bcf versus the 5-year average of 731 Bcf and 936 Bcf from last year. Demand is finally catching up with supply and we expect this to continue. Associated gas production is finally rolling over, and given that it comprises nearly 20+% of US gas production, the decline has been meaningful. We think US gas production is on pace to decline below 70 Bcf/d by mid-July, and we are forecasting a decline to 68 Bcf/d by year-end.

US set to become major global natgas supplier as exports soar: DOE official - Demand for US natural gas for export -- including both pipeline and LNG exports -- is set to skyrocket through the next few decades, a US Department of Energy official said Thursday, adding the country was on a path to become a top supplier to the international market. "We're going to have substantial increase in pipeline exports to Mexico and LNG exports are going to explode," Carmine Difiglio, DOE deputy director for energy security, said at Hart Energy's DUG East Conference in Pittsburgh. US gas production peeked last year at an average of around 80 Bcf/d before beginning to decline somewhat. However, the production drop-off is expected to be short-lived as demand for gas for export increases, Difiglio said. "We expect the growth will resume on a fairly steady basis and reach 83 Bcf/d by the end of 2017," he said. Difiglio noted that the dramatic increase in shale gas production over the last decade and a half is responsible for growing gas supplies beyond what is needed to meet US demand. Shale gas has grown from being less than 5% of total US gas supplies in 2000 to 56% of supplies today, he said."The Marcellus and Utica shale basins continue to be the most productive for natural gas and especially impressive is the increase between last July and now," Difiglio said. "Year-on-year growth from 2015 to 2016 was greatest in Pennsylvania, Ohio, West Virginia, Oklahoma and North Dakota, but production was declining in the rest of the United States." While natural gas prices, which over the past several years have declined substantially in line with oil prices, are starting to come back up, Difiglio said there were signs that the increase would be gradual over the span of several years. "As production has been maintained and prices have been coming down, our storage now is very high and this will be a factor going forward in price recovery," he said.

Natural Gas: Don't Get Too Comfortable - The best laid plans often go awry for natural-gas companies. A testament to that is billions of dollars of infrastructure around the world that is rusting or draining owners’ finances because someone extrapolated the status quo. Why should this time be different? The latest big shift in natural gas has been a swing from a seller’s to a buyer’s market for seaborne liquefied natural gas. The 2011 Fukushima disaster that hobbled Japan’s nuclear industry and breakneck growth in demand from countries such as China and India eager to wean themselves off coal had created a tight market. The average wholesale price for natural gas in Japan, for example, was nearly $16 a million British thermal units in 2014 and spot cargoes went for as much as $20 MMBTU. That made LNG projects very attractive.  Now a slowdown in emerging markets and a boom in supply from new exporters such as Australia has created a glut. The Japan/Korea Marker price for LNG is about $4.80 MMBTU, according to Platts. Facing dismal returns, a large Australian LNG project was canceled in March, but the market faces at least a few years of tough sledding. The International Energy Agency recently cut its global gas demand growth forecast to 1.5% annually through 2021 compared with 2.5% for the preceding six years.That hasn’t done anything to change the conventional wisdom about evolution of the U.S. gas business, but perhaps it should. Years of oversupply have led to predictions the U.S. will become a big export player, and the first LNG export terminal started operating this year.U.S. prices, at about $2.50 MMBTU, are still low compared with Europe and Asia, and companies fret about chronic oversupply. That is a huge contrast to 2005 when U.S. prices briefly topped $15 and companies, including today’s pioneering exporter Cheniere Energy were rushing to build LNG import terminals to cope with an anticipated shortage.But don’t rule out the possibility that huge investments are once again being made based on a glut that may not persist.

A propane-laden VLGC inaugurates the expanded Panama Canal -- After the $5 billion-plus expansion of the Panama Canal is dedicated this Sunday, June 26, the first “New Panamax” vessel scheduled to pass through the canal’s new, longer, wider locks will be the Lycaste Peace, a Very Large Gas Carrier (VLGC) that is transporting propane from Enterprise Products Partners’ Houston Ship Channel export terminal to Tokyo Bay in Japan. What remains to be seen, though, is how many other supersized vessels carrying propane, liquefied natural gas (LNG) or other hydrocarbons will follow, and how soon. Today, we mark the formal opening of the newly enlarged Atlantic-Pacific short-cut with a look both at the game-changing potential of the expanded canal and the realities of today’s energy and shipping markets. The international energy trade has been shifting toward larger and larger sea-going vessels, seeking to maximize economies of scale and minimize shipping costs. That shift has been stymied somewhat, though, by the Panama Canal’s inability—until now—to handle the vast majority of the world’s LNG and liquefied petroleum gas (LPG) carriers. As we said in our recent Run Through the Jungle blog series and Here She Comes, Full Blast blog, until new, larger locks were built and other improvements were made along the canal, the manmade waterway was limited to vessels no larger than 965 feet long and 106 feet wide; and their drafts (or depth below water level) were capped at just under 40 feet. (Ships up to this size and draft are known as “Panamax” vessels.) When the new canal locks open for business this weekend, the “New Panamax” dimensional limits of ships using the canal increases to 1,200 feet in length, 160 feet in width, and 50 feet of draft. That’s a game-changer for both LNG and LPG. Until now, less than 10% of the world’s 400-ship fleet of LNG carriers can use the canal, but starting on Sunday more than 90% will be able to.

Modest changes to crude oil and petroleum product flows expected from expanded Panama Canal - EIA - On June 26, the Panama Canal Authority, the body that operates the Panama Canal, will open a third set of locks that will facilitate transit of larger ships, the first such expansion since the canal was completed in 1914. However, because of the economics of shipping, trade patterns, and the types of ships used to transport crude and petroleum products, this latest expansion is expected to have a limited effect on most petroleum markets. The economics of shipping crude oil and petroleum products improve as the ship size and the distance travelled increase. Crude oil is typically loaded on vessels classified as Very Large Crude Carriers (VLCC) or Ultra-Large Crude Carriers (ULCC), each of which, when fully laden, is too large to transit the new locks of the Panama Canal. Petroleum products are typically loaded on smaller vessels, some of which can transit both the existing and new locks, depending on the ship's hull design and draft (depth in water). This means that most of the petroleum-related traffic through the canal will continue to be petroleum products, rather than crude oil. The latest canal expansion comes at a time when petroleum product (clean) tanker rates are at their lowest levels since 2009, in part because of elevated global product inventories. From January through May of 2016, rates for a shipment of product from the Arabian Gulf to Japan, a general indicator for global tanker rates, have averaged about $21 per metric ton, after averaging more than $30 per metric ton in 2015 (Figure 5). Lower prices for bunker fuel, as a result of lower oil prices, reduce the ship owners' cost for a longer, less direct journey and result in lower freight rates paid by the shipper.

Extreme Oil Prices May Be Costly to the Climate -- When oil and gas prices go to extremes, such as when they crashed two years ago, scientists begin to look for answers about what those prices mean for climate change — especially when cheap oil encourages people to guzzle more gasoline in less fuel-efficient vehicles.  A new study shows that if oil and gas prices remain at either extreme — very high or very low — for long periods of time, they are likely to prevent countries from keeping global warming from exceeding 2°C (3.6°F). That’s especially the case if countries do not have climate policies, such as carbon pricing, that try to aggressively cap carbon emissions.  If oil and gas prices remain low — less than $55 per barrel — for decades, it will be a disincentive to develop renewable energy and decarbonize the global economy, according to the research by the World Bank and the International Institute for Applied Systems Analysis (IIASA). If oil and gas prices stay high for decades — $110 per barrel or more — oil demand still won’t be knocked down sufficiently to drastically reduce carbon emissions. High oil and gas prices encourage some renewables development, but their climate benefits are partially cancelled out by coal production. Coal gets a boost from high oil prices because it’s a cheaper alternative to natural gas, the research shows.

Big Banks Betting Against Climate Change Policies, Spending Billions On Fossil Fuel Projects: Report (interactive graphic) Major U.S. and global banks say they are steadily scaling back support for new coal projects to help confront global warming. But many of the same financial institutions are still investing billions of dollars in fossil fuel supplies that, if burned, would drastically boost global greenhouse gas emissions. A new review of 25 large U.S., Canadian and European banks found the financial institutions invested a combined $784 billion from 2013 to 2015 on “extreme” oil projects — such as Arctic drilling and Canadian oil sands mining — as well as infrastructure to export liquefied natural gas (LNG), coal mines and large coal-fired power plants. The combined projects could undermine the global goal to limit global warming to well below 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, environmental groups said.“These investments are only going to pay off for the financial industry if these fossil fuels get burned,” said Amanda Starbuck, the San Francisco-based climate and energy program director for Rainforest Action Network, one of authors of Tuesday’s report. “Banks are placing a bet that we are going to fail to address climate change,” she added. Rainforest Action Network had previously tallied only bank investments in coal projects for the group’s first six finance reports. But after nearly 200 nations agreed to join a landmark climate change deal in Paris last December, the organization decided to expand its focus to include unconventional oil production and LNG exports. Scientists estimate that 82 percent of today’s fossil fuel reserves must be left underground in order to stave off catastrophic levels of global warming, according to research published in the journal Nature in January.

Global oil investment gap widens by $1 trillion: Wood Mackenzie -- Falling oil prices have led to a $1 trillion investment gap in oil and gas development worldwide. “The impact of falling oil prices on global upstream development spend has been enormous. Companies have responded to the fall by deferring or cancelling projects and costs have also fallen,” said Malcolm Dickson, Principal Analyst at Wood Mackenzie in a press release. Future upstream development spending from 2015 to 2020 has dropped by 22% since oil prices started to fall in late 2014. (Upstream development refers to investment in the initial steps of extracting oil, including finding, testing and drilling.) Global upstream investment has been cut by US$740 billion and conventional exploration investments fell by US$300 billion. Capital expenditures are also down by US$340 in 2016 and 2017, meaning that the price drop is affecting oil companies’ assets. According to Wood Mackenzie, nearly every oil producing country has seen some form of cuts to capital investment. The largest capex cuts were in the continental United States, where capital spending was halved in 2016 and 2017 as a result of a cut in onshore drill rig count of over 50%.“Although exploration investment has more than halved since 2014…costs have not been cut as much and as quickly as we expected. Some deepwater exploration spend has been protected by long rig contracts, but as these unwind we expect sharper cuts than in non-deepwater," said Andrew Latham, Vice President of exploration research at Wood Mackenzie. These global cuts to capital assets required to extract and refine oil have ultimately affected global production. Wood Mackenzie has projects a production deficit of 7 billion barrels of oil between 2016 and 2020 with onshore U.S. drilling to account for 70% of the fall.

German government agrees to ban controversial fracking practice - The German government has chosen to take aggressive action on fracking. After years or derisive talks, the coalition government has decided to ban fracking for shale gas indefinitely. The ban aims to address concerns regarding the damage that this practice can cause to the environment. While some environmental groups have praised the decision, others believe that the ban does not go far enough. Some of these groups have vowed to fight the ban in order to promote more aggressive measures that target fracking.  The process has generated significant controversy in recent years. In the United States, fracking has been linked to seismic activity in areas where earthquakes had once been very rare. Moreover, critics of fracking have raised concerns that the chemicals used in the process could contaminate the environment, leading to polluted water tables and other issues. While the German government has agreed to ban fracking, the legislation required for this to become a reality must still be approved by the parliament. Similar legislation was introduced a year ago, but failed to gain traction due to political disagreements. If the ban is approved, German states would still have the ability to approve or deny test drilling for shale gas, but the federal government would not support the practice

South Sudan Announces Plans To Restart Oilfields Shut In By Violence In 2013 - South Sudan has announced plans to restart oilfields in the former Unity state that were shut in by violence in December 2013. “We are starting work today [Thursday] and shall complete it in five months,” oil minister Dak Duop Bichiok told journalists after meeting with vice president James Wani Igga in Juba. The shut in of Unity’s oilfields has reduced South Sudan’s crude oil production to 165,000 b/d from 245,000 b/d before the conflict. Prior to the outbreak of violence, Unity state, which has now been split into three administrative units, produced 45,000 b/d of Nile blend crude. The light, sweet and waxy crude blend is popular with Asian traders. In their meeting, Igga and Bichiok discussed preparations for repairs to oil facilities in Unity and plans to resume work on a refinery. Russian company Safinat won a contract to build a $1.8 billion, 50,000 b/d refinery at Akon in a joint venture with state-run Nile Petroleum Corporation, for which the foundation stone was laid in 2010. It was to be geared to produce mostly diesel. Safinat also completed construction of a $100 million refinery in Bentiu in Unity state to produce 3,000 b/d of diesel and gasoline for local consumption, but the 2013-2015 conflict prevented it from starting up. Bichiok said 87 South Sudanese oil technicians had now graduated in Malaysia and would be deployed as soon as possible to the refinery in Bentiu.

Further Cost Reduction Needed on Vaca Muerta Play  - Argentina’s Vaca Muerta unconventional play ranks among the top shale plays in terms of rock quality, but high costs are inhibiting the pace of development. When benchmarked against North American plays, Shell’s Argentina shale wells rank among the top one to two percent, Laurens Gaarenstroom, Royal Dutch Shell’s general manager, emerging basins, Latin America, told reporters during a media event Monday in Houston. But costs to develop Argentina’s Vaca Muerta resource are way too high versus North America. The high costs are due to a lack of native oilfield services industry in Argentina – meaning that most equipment has to be imported – and high labor costs. Shell had to spend a significant amount of money initially on data acquisition to learn about the basin, the company said. But it has managed to reduce its well costs – which were running more than $30 million each – by 50 to 60 percent. Shell is continuing its journey to further reduce costs as it continues to learn about Argentina’s subsurface, Gaarenstroom said. Gaarenstroom said Shell believes the estimated ultimate recovery for its black oil wells is close to one million barrels. Gaarenstroom credits Shell’s results in Argentina with the power of its shale operations and personnel being together in Houston as one unit, and the ability to learn from other operations. In addition to lowering costs, the oil and gas industry will need to work with key stakeholders such as government agencies to try and stimulate more competition. “While we won’t get the capitalism on steroids level that we see in the Permian, more choice for the industry is needed,”

Two Hundred Indigenous U'Wa Occupy Gas Plant in Colombia - Global Justice Ecology Project: Two hundred Indigenous U’wa men, women, and children have occupied Colombian state oil company Ecopetrol’s Gibraltar I gas plant south of the Colombia-Venezuela border in Norte de Santander department, to demand that the government honour a set of agreements from May 2014. After waiting two years for the government to follow through with its demands, which include full recognition of the U’wa’s ancestral territory and the clean-up of reserves affected by oil spills, the U’wa occupied the gas plant on May 31, 2016. The U’wa declared the lands were “invaded by Oxidental Colombia (sic.) and today by ECOPETROL”. Vladimir Moreno, the President of Asou’wa, the U’wa Traditional Authorities and Councils, stated, “We are going to retake the land and arrange it for a productive project.” The U’wa say that gas extraction in the region is altering the local climate and negatively affecting the U’wa’s health. Mariela, an U’wa nurse taking part in the occupation, told IC, “We’re here defending our territory, as always. We’ll continue with the defense of our territory.” “There’s a lot of pollution, lots of diseases.” Mariela continued, “Our children are getting sick with illnesses like diarrhoea and acute respiratory infections.” Apart from this, she added that there is little support for healthcare from the government. “The government basically pays no attention to us, because sometimes there is no medicine.”

Slavery At Sea: The Ugly Underbelly Of Oil Shipping  - The words “slavery” and “oil”, when used together, are usually reserved for use in the context of palm oil, but the offshore oil and gas industry isn’t immune to modern-day slavery—as evidenced by the detention of a BP-charted offshore oil supply vessel in Scotland, which was found to have a group of unpaid workers on its crew. The Malaviya Seven offshore supply vessel (OSV) was detained in Aberdeen, Scotland, earlier this week, with trade union representatives calling it a “blatant example of modern day slavery”. Owned by Mumbai-based GOL Offshore, the vessel was chartered by BP from 1 June to 15 June. Among its crew were 15 Indian workers who had been unpaid for months. According to the General Secretary of the National Union of Rail, Maritime and Transport Workers (RMT) the incident “exposes the shameful practices in the exploitation of our natural resources”. These “ships of shame”, as RMT spokesman Mick Cash dubbed them, “are a blatant abuse of migrant workers […]” adding that such activities also act as “a catalyst for the dumping of UK seafarers, many thousands of whom are now drawing benefits from the state”. The slave ship incident has now prompted another investigation into a second vessel owned by the same company, the Malaviya Twenty, which is at the British port of Great Yarmouth. Meanwhile, the Malaviya Seven will remain locked down at the Albert Quay until its staff are paid. According to the International Labor Organization (ILO), almost 21 million people are victims of forced labor today. Of those, nearly 19 million are exploited by private individuals or enterprises, compared to slightly over 2 million who are exploited by the state or rebel groups. Overall, says the ILO, forced labor in the private economy generates $150 billion in illegal profits every year.

German Government Agrees to Ban Fracking Indefinitely  |  Rigzone (Reuters) - Germany's coalition government agreed to ban fracking for shale gas indefinitely on Tuesday, after years of fractious talks over the issue, but environmental groups said the ban did not go far enough and vowed to fight the deal. Test drilling will be allowed but only with the permission of the respective state government, officials said. German industry is keen to keep the door open to fracking - which involves blasting chemicals and water into rocks to release trapped gas - arguing it could help lower energy costs, but opposition is strong in the country, where a powerful green lobby has warned about possible risks to drinking water. If the law is approved by parliament, Germany will follow France, which has banned fracking, whereas Britain allows it subject to strict environmental and safety guidelines. Germany was on the verge of a parliamentary vote on similar legislation to ban fracking a year ago, but the effort stalled amid disagreements between Chancellor Angela Merkel's conservative Christian Democrats (CDU) and the left Social Democrats (SPD). The two parties agreed on Tuesday to an indefinite ban, but the compromise legislation calls for the German parliament to reassess whether the decision is still valid in 2021, said Thomas Oppermann, who heads the SPD's parliamentary group. CDU officials confirmed that a compromise had been reached. Friends of the Earth Germany (BUND) criticised the proposal and said that by setting a date for a fresh look, the coalition had essentially agreed to allow fracking in five years. "The coalition's agreement on a fracking permission law is hair-raising. The law must be stopped and replaced with a true fracking ban," . Further details of the compromise legislation were not immediately available.

German Government Agrees to Ban Fracking but Keep Door Open -- The German government has agreed to ban fracking for shale gas for an indefinite period, but would allow test drilling to be carried out if state governments permit it, news agencies reported on Tuesday.The two parties in Germany’s ruling coalition—the Christian Democrats (CDU) and the Social Democrats (SPD)—agreed to what is being called an “indefinite” ban, but the agreement calls for a review in five years, leaving the door open for a possible lifting of the ban.Parliament must still approve the ban. Environmental groups are not satisfied with the agreement, and have vowed to step up opposition."The coalition's agreement on a fracking permission law is hair-raising. The law must be stopped and replaced with a true fracking ban," Hubert Weiger, who heads the environmental group, said in a statement carried by Reuters. France has banned fracking, while the United Kingdom has gone back and forth over the issue. In late May, a local English government approved the first fracking permit in Western Europe for natural gas since 2011. The last fracking incident in Britain occurred in 2011, when the U.K.-based oil and gas company Cuadrilla Resources admitted that two minor earthquakes in north-west England had been caused by the company’s use of the controversial drilling practice.

Rosneft's crude oil market share in Europe steady, to grow strongly in Asia: CEO -  Russia's biggest oil producer Rosneft sees its position in the European market stable despite concerns on growing competition from Middle East crude producers for market share, while it pushes more actively for a greater role in new Asian markets where the competition is much higher. The company continues to show solid operational and financial results despite the tough economic situation and is aiming at strengthening its positions on the markets, Rosneft CEO Igor Sechin said in an interview with the state-run Russia 24 TV network broadcast Wednesday. He estimated the crude price was likely to remain volatile in the near future, although growing to around $50-$55/b by the end of this year and possibly to $65/b by end-2017."We are glad that we've managed to maintain our positions on traditional markets, primarily in Europe," Sechin said pointing out to recent agreements with PKN Orlen to increase deliveries to Poland and the Czech Republic. "Despite some concerns, we consider our positions [in Europe] quite stable because we've linked with the consumers by the infrastructure, including southern and northern branches of the Druzhba pipeline, which provide a competitive advantage for us," he added. Some Russian officials raised concerns late last year over maintaining market share as low oil prices and rising production by some key competitors was threatening Russian supplies to Europe. Sechin said then Saudi Arabia was actively dumping to win new markets in Europe. PKN's refineries primarily refine sour Russian Urals crude, which is delivered through the Druzhba pipeline, but the Polish company recently started looking more actively for alternative grades, including from Saudi Arabia and Iraq.

Peak Oil Consumption Dead Ahead (But Price is Anybody's Guess): I have no idea nor will I take any guess as to the price of oil going forward.  There are too many variables to make an educated guess.  If you want a bullish or bearish POV on price...this isn't likely the article for you.  All I do know is the world is likely very near peak oil demand.  Details and evidence follow...  The combined 34 OECD nations (list HERE) plus China, Russia, and Brazil represent 70% of global oil consumption while they represent about 40% of global population (chart below).  In comparison, Africa and India (combined) make up 8% of oil consumption despite being 33% of global population and certainly beyond 2/3rds of all present net population growth (all population data is via OECD.stat HERE...and oil consumption via EIA HERE). The chart below shows the EIA (Energy Information Administration) historic and estimated global oil consumption by OECD vs. China+Russia+Brazil vs. India+Africa vs. RoW. From 2015 to 2040, the EIA anticipates global oil consumption to increase by over 27 million barrels a day. Of that, the OECD to represent 2% of the growth, China+Russia+Brazil 25%, India+Africa 27%, and the RoW 46%. To begin, I'll focus on the present consumers of 70% of the worlds crude, the OECD+China+Russia+Brazil. And if we check the annual change to their combined 0-64yr/old population (blue line in the chart below), 0-64yr/old population growth has decelerated 90% since the '88 peak and cumulatively turns to outright annual declines by 2019. The annual declines accelerate indefinitely from there. I also show total 0-64yr/old annual global growth (black columns) and 0-64 growth among the RoW or Rest of the World (red line).

Kemp: Global Oil Demand Shows No Sign of Peaking  |  Rigzone -- "Peak oil demand" has become a fashionable concept among climate campaigners but the evidence suggests oil consumption is growing at the fastest rate for a decade and shows no sign of letting up. Global oil consumption increased by nearly 1.9 million barrels per day (bpd) in 2015, the largest annual increase since 2004, apart from the post-crisis bounce recorded in 2010. Most forecasters predict consumption will grow by another 1.5 million bpd in 2016 and a similar amount in 2017, which would make it the strongest sustained period of growth since 2004-2006. Oil consumption in the advanced industrial economies that are members of the Organisation for Economic Cooperation and Development (OECD) peaked at 50 million bpd as far back as 2005. Between 2006 and 2014, OECD consumption declined in seven out of nine years. By 2014, OECD oil consumption had fallen by around 5 million bpd, or 10 percent ("BP Statistical Review of World Energy," 2016). In the OECD countries, consumption does indeed seem to have "peaked" thanks to a combination of high and rising oil prices, energy efficiency mandates and prolonged economic weakness.

Inventory Drawdowns Won’t Boost Oil Prices - During the next three months, various analysts expect crude oil inventory drawdowns to increase, providing support to crude oil prices. However, post-September, inventory build-up is likely to accelerate, putting a cap on the oil rally. With expectations of restoration of Canadian supply, supply outages are likely to reduce. Oil production is likely to be supported by high oil prices while demand increase is already priced in. The main variable that will affect prices is the crude oil inventory, something which traders are likely to follow closely.The chart above shows the seasonal crude oil inventory drawdowns from June to September. Even last year, crude oil drawdowns were large, yet the surplus continued to inch higher, which eventually led to a drop in crude prices. The current season starts with crude oil inventories at 531.5 million barrels as of 10 June, according to the EIA. The latest weekly drawdown was only -900,000 barrels against an expectation of -2.26 million barrels. The current inventory levels are 152 million barrels above the 2010-2014 average, according to a Deutsche Bank research report. The bank believes that after slow draws in the next two weeks of June, the drawdowns will increase from July and pick up pace in August. By September, they expect the inventories to reduce to 135 million barrels above the average. The Bank expects a larger crude oil inventory drawdown of -2.88 million barrels every week, compared to the historical average of -1.65 million barrels every week, but it will be insufficient to notably shrink the surplus.In order for the elevated inventory levels to reach historical norms by Labor Day, crude oil stocks will have to decline by 12 million barrels every week, according to S&P Global Platts analysis.

Nigerian government agrees ceasefire with militants in oil-rich Niger Delta: official - The Nigerian government has agreed a ceasefire with militants in the oil-rich Niger Delta, including the Niger Delta Avengers, as renewed militancy has dragged the country's oil output close to 30-year lows, a Nigerian oil ministry official said Tuesday. The official told S&P Global Platts the oil minister had "succeeded in extracting a deal for a cease fire with militants" and these talks have been taking place "over the past two weeks with people close to the Niger Delta Avengers." Reports have said government negotiators, led by the junior oil minister Emmanuel Kachikwu have agreed to a 30-day ceasefire allowing President Muhammadu Buhari's administration more time to come up with a comprehensive plan to tackle militancy in the Niger Delta. Niger Delta Avengers had previously said it would only agree to talks with the government if foreign countries including the US, UK and France were part of the negotiations. The government formed a panel a few weeks ago led by National Security Adviser Babagana Monguno to negotiate with rebels who attacked oil installations in the region. The Nigerian government and the nine states of the Niger Delta region agreed in mid-May to raise a joint security team to curb growing militancy. Nigerian oil output had slumped from 2.2 million b/d to around 1.4 million b/d in early-May, and production was now in a range of 1.5 million-1.6 million b/d as militant attacks have intensified with the emergence of a new organization calling itself the Niger Delta Avengers. Nigeria produced  1.42 million b/d in May this year, the lowest since January 1989, according to Platts OPEC survey data, as exports and production of popular crude exports grades like Qua Iboe, Forcados, Bonny Light, Brass River and Escravos were all affected.

WTI Crude Tumbles To $48 Handle After Nigeria 'Ceasefire' With Militants -- While crude has short-squeezed over 7% higher since the death of UK lawmaker Jo Cox, it is stumbling on fundamentals overnight as Reuters reports Nigeria has agreed a one-month ceasefire with militants including the Niger Delta Avengers in the oil-producing southern region, despite the NDA denying it a week ago. As Reuters reports, Militant groups including the Avengers, who have claimed responsibility for a string of attacks on oil and gas facilities in recent weeks, could not immediately be reached for comment.They say they want a greater share of Nigeria's oil wealth to go to the impoverished Delta region. Crude sales make up about 70 percent of national income and the vast majority of that oil comes from the southern swampland.The latest attacks have pushed production to a 30-year low.Last week the Avengers said they would negotiate with the government if independent foreign mediators were involved."It was very difficult getting the Niger Delta Avengers to the negotiating table but we eventually did through a proxy channel and achieved the truce," said the official, who asked not to be identified. A second government official, who also wished to remain anonymous, said a "a truce was agreed" with militants.  One wonders why suddenly the NDA decided to play ball with the hyperinflating government? Perhaps the same 'people' behind the sudden mysterious rise of the freedom fighters who control global oil prices is now more worried about the state of the global economy being able to handle higher oil prices?

WTI Crude Spikes Above $50 On Massive Inventory Draw -Having v-shape recovery-ed intraday - as Nigeria news came and was denied - WTI Crude (Aug) was hovering around $49.90 before API data hit. Following 4 weeks of crude draws in a row, and with expectations of a 1.7mm draw, API reported another - this time massive - 5.2m barrel draw - the most in 6 months. Across the entire complex, inventories drew down more than expected, sending WTI surging back towards $50.50.API:

  • Crude -5.22m (-1.7m exp.)
  • Cushing -1.311m (-50k exp.)
  • Gasoline -1.47m (-300k exp.)
  • Distillates -1.699m (+300k exp.)

And the reaction in crude is clear as August WTI has surged from $46.50 to $50.50 in 3 days.

Oil ends down, then rises after settlement on big draw | Reuters: Oil prices settled lower on Tuesday on profit taking after a two-day rally, then rose in post-settlement trade after data showing a larger-than-expected draw in U.S. crude stockpiles. Crude inventories fell by 5.2 million barrels for the week ended June 17, the American Petroleum Institute said. The trade group's figures were triple the draw of 1.7 million barrels forecast by analysts in a Reuters poll.   The U.S. government's Energy Information Administration (EIA) will issue official stockpiles data on Wednesday. [EIA/S] Early in the session, oil prices dropped as much as 2 percent as investors took profits on a two-day rally fed by speculation that Britain would not vote to leave the European Union in a referendum this Thursday. But a rebound in gasoline lifted crude off session lows, and oil settled the session only slightly lower.   Gasoline prices rose after Royal Dutch Shell Plc ( shut its gasoline-producing fluidic catalytic cracking unit at the 316,600 barrel per day (bpd) Deer Park, Texas refinery. Oil prices were also supported by worries about the possibility of global crude supplies tightening from the economic crisis in Venezuela. Denial by rebels sabotaging Nigeria's crude exports that they had agreed to a month-long ceasefire was another supportive factor.

Oil Markets Are Balanced But Bracing For Brexit: Oil prices retreated in mid-June as the rising likelihood of a Brexit raised concerns about the economic fallout in Europe. The prospect of a Brexit also strengthened the dollar as major currency traders moved out of the sterling and euro into the safe haven of the U.S. dollar, depressing oil prices. But since the tragic murder of a British MP at the hands of an apparent Brexit fanatic, the markets are betting that the “Remain” camp could prevail. Oil prices and global equity markets jumped at the end of last week, with WTI and Brent up by more than 4 percent on Friday. Iran boosts oil exports, but further gains much more difficult. Iran has shocked analysts’ expectations on its rapid resurgence in oil production and exports this year following the removal of international sanctions. Production has climbed by 25 percent from roughly 2.8 million barrels per day to 3.5 million barrels per day. Iranian officials have targeted 4 million barrels per day of output before the year is out. Antoine Halff, a senior fellow at the Center on Global Energy Policy at Columbia University, told Bloomberg that although Iran has surprised global oil markets up until now, further production increases will be much more difficult to achieve and exceeding “pre-sanctions levels would require investment and technology and that’s a much longer-term proposition.” Iran wants to attract $100 billion in investment from international oil companies but the extent to which it can achieve that goal depends on the stability of its new oil contract model as well as assuring oil companies that they won’t be vulnerable to reprisals from western governments for doing business in Iran. Either way, in the near-term, Iran could have trouble keeping up its impressive streak of production gains.

WTI Slides Below $50 After DOE Data Disappointment Despite Production Drop - Following last night's major inventory draws across the board (via API), which sent WTI surging back above $50, this morning's DOE data was markedly different. Both Gasoline and Distillates saw inventory builds and Crude saw notably smaller inventory draws (DOE -917k vs API -5.22mm). US crude production fell 0.44% (having fallen for 21 of the last 22 weeks) to the lowest since Sept 2014. Notably, Genscape additionally reported EU crude storage saw a notable build to the highest inventory in 3 years (suggesting US shifting stock to Europe). WTI crude has slide back below $50 erasing API's spike. API

  • Crude -5.22m (-1.7m exp.)
  • Cushing -1.311m (-50k exp.)
  • Gasoline -1.47m (-300k exp.)
  • Distillates -1.699m (+300k exp.)

DOE

  • Crude -917k (-1.5m exp.)
  • Cushing -1.28m
  • Gasoline +627k
  • Distillates +151k

DOE data notably less exuberant than API...

A Rise in Oil Imports Sunk the EIA Inventory Report (Video) - We would have had a nice large drawdown in Oil stocks if it wasn't for the massive year over year increase in Oil Imports this past week.

US Rig Count Down 3 This Week to 421 - ABC News: The number of rigs exploring for oil and natural gas in the U.S. declined by three this week to 421, snapping three weeks of gains after a slide that lasted months and pushed the count to record-low levels amid depressed energy prices. A year ago, 859 rigs were active. Houston oilfield services company Baker Hughes Inc. said Friday 330 rigs sought oil and 90 explored for natural gas. One was listed as miscellaneous. Among major oil- and gas-producing states, Texas gained three rigs, North Dakota two and Alaska and Colorado one each. Louisiana declined by five, Oklahoma four and West Virginia one. Arkansas, California, Kansas, New Mexico, Ohio, Pennsylvania, Utah and Wyoming were unchanged. The U.S. rig count peaked at 4,530 in 1981. It bottomed out last month at 404.

US oil drillers cut rigs after 3 weeks of additions: Baker Hughes: U.S. oil drillers cut rigs this week for a 20th week this year after three weeks of additions, according to a closely followed report on Friday, as crude prices pull back after a recent rally to an 11-month high over $51 a barrel. Despite a decline in U.S. crude to below $48 a barrel on Friday after Britain voted to leave the European Union, several companies said recently they plan to boost spending on new drilling with futures for the balance of the year and 2017 topping $50 a barrel. Analysts and producers have said U.S. crude prices over $50 was a key level that would trigger a return to the well pad. Drillers removed seven oil rigs in the week to June 24, bringing the total rig count down to 330, compared with 628 a year ago, according to Baker Hughes. Before this week, drillers added oil rigs in only four out of 24 weeks this year, cutting on average eight rigs per week for a total of 199. Last year, they cut 18 rigs per week on average for a total of 963, the biggest decline since at least 1988.  Analysts, however, expect the rig count to climb in most weeks for the rest of this year with prices expected to rise in prices months. Looking forward, futures for the balance of the year were trading below $49 while calendar 2017 was nearly at $51.  To capture those rising prices, several producers in recent weeks said they plan to spend more money on new drilling and the completion of already drilled wells to boost output, including Devon Energy Corp, Pioneer Natural Resources Co and Energen Corp.

'Brexit' vote delivers sharp shock to oil markets - - The UK's vote in favor of leaving the EU sent oil prices plunging on Friday as the result heightened concerns about the global economy. However some commentators played down the long term impact on oil markets, as the UK itself entered what could be a prolonged period of uncertainty.Friday's price rout partly reflected fears that the UK vote would trigger renewed political and economic instability in Europe. Europe's oil demand amounts to about 14% of the global total and was unchanged on the year in 2015. However, the continent is not the focus of demand growth expectations, with the long-term outlook already viewed as subdued in terms of European oil consumption and growth mainly driven by Asian economies such as China and India. "The actual impact following from this decision would be more gradual, and did not have much to do fundamentally with crude oil," Victor Shum, vice president Asia-Pacific at IHS Energy, said. "The global physical crude oil market is still well on its way to rebalance -- what we are seeing at the moment is an immediate knee-jerk reaction, or market psychology unfolding." To leave the EU, the UK must formally notify Brussels of its decision, triggering potentially two years of negotiations and a lengthy process of legal changes. However Friday's result has dealt a blow to UK political stability that makes a timeline for any Brexit process unclear. Among the uncertainties is whether the UK would seek a looser association along the lines of non-EU members Norway and Switzerland, but free movement of labor is a likely sticking point.

OilPrice Intelligence Report: What Are The Long Term Consequences Of The Brexit - British voters shocked the world with yesterday’s vote to leave the European Union, thrusting the global financial markets into turmoil. British Prime Minister David Cameron said that he would step down later this year. The “Leave” decision also presents enormous political, economic, and legal questions in Europe, all bad news for commodity markets.  In the short run, the dollar is appreciating as a safe haven asset and the British pound is suffering a large sell off. The pound was down more than 11 percent after the result of the vote was tallied, trading at its lowest level to the dollar since 1985, although it has clawed back some of the losses. The result will be lower oil prices, at least in the immediate aftermath of the vote. WTI and Brent briefly plunged more than 5 percent in early market trading on Friday, but have regained some lost ground. Major oil companies also saw their share prices dive, both because of the broader financial turmoil and because of the huge drop in oil prices. North Sea oil producers suffered worse than others: In early trading Royal Dutch Shell (NYSE: RDS.A) was down 5.35 percent, Statoil (NYSE: STO) was off 6.15 percent, and BP (NYSE: BP) dropped 4.13 percent. The silver lining for these companies could be cheaper costs in the North Sea from a weaker British pound, but that may not provide much solace to many oil executives today. The fundamentals of supply and demand for crude oil will not appreciably change due to a Brexit. Unless the UK’s decision to leave Europe sparks wider economic malaise or lasting financial turmoil, the effects on oil could be fleeting. On the other hand, it is entirely possible that the UK’s decision to leave Europe leads to more votes in other European countries to follow in Britain’s footsteps, which will spark more economic volatility. “This could be a new Lehman moment,” Saker Nusseibeh, chief executive at Hermès Investment Management, told The Wall Street Journal. “If other European countries start talking about referendums, all bets are off.”

The Oil Glut Is Over, Says World’s Most Powerful Oil Man - Newly appointed Saudi Oil Minister Khalid Al-Falih declared the oil glut over during a visit to Saudi Aramco facilities in Houston, Texas, today. Speaking to the Houston Chronicle about the oil crisis the and the supply glut, Al-Falih said, “We are out of it,” and noted that we would continue to see gradual upward movement in the price of oil. “The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out,” the oil minister was quoted as saying. Others are also expressing bullish sentiments. Raymond James & Associates is forecasting that West Texas Intermediate (WTI) could hit targets between US$70 and US$80 by the end of next year. Their rational is that even though prices are rising and this tempts U.S. producers to start pumping again and revive the supply glut, they will not be able to do this immediately.  The Energy Information Administration (EIA) today reported a 900,000 barrel draw on U.S. crude inventories, but that still leaves a 530.6-million-barrel stockpile that will take some time to chip away at, according to the Saudi oil minister. "The question now is how fast you will work off the global inventory overhang. That will remain to put a cap on the rate at which oil prices recover. We just have to wait for the second half of the year and next year to see how that works out," the Minister told the Houston Chronicle. Al-Falih also noted on the Saudi Aramco website that due to the Saudi kingdom’s “strategic importance” it will “be expected to balance supply and demand once market conditions recover.”

Saudi Arabia Declares Cease-Fire in Oil War -- The new Saudi oil minister, Khalid Al-Falih, says the oil glut is over. That means the kingdom's war against U.S. shale producers is coming to an end, too. Who won it is a  tough question to answer; on balance, it's probably the Saudis, but they have paid a huge price, and the surviving U.S. frackers have also benefited. In September 2014, Saudi Aramco, the kingdom's state oil company, simultaneously increased output and discounts to Asian customers, making it difficult for producers with higher costs to compete. The U.S. shale industry responded with desperate bravado, cutting costs, perfecting technologies and pumping like crazy to avoid defaulting on its debts. Yet, according to Haynes and Boone's Oil PatchBankruptcy Monitor, 81 North American oil and gas companies have filed for bankruptcy since the beginning of 2015. In Texas alone, there have been 41 bankruptcies, representing $24.3 billion in debt.  As a result, U.S. oil production has declined to late 2014 levels, while Saudi Arabia has defended and indeed increased its market share. Last year. it maintained its export volume to the U.S., while sales to China grew by 4.5 percent and to India by 18 percent.  The North American shale industry knows now that it's at the mercy of Saudi Arabia. The kingdom has more than two million barrels a day -- perhaps even three million if necessary -- of spare production capacity that it can use to flood the market again, drive down prices and render any ambitious American plans useless. Al-Falih takes a long-term view and expects the oil market to grow, not decline, in absolute terms in the next two decades, despite adverse changes in the energy mix. "Even if the share of oil goes down from, say, 30 to 25 percent, 25 percent of a much bigger global demand means a much higher absolute number of barrels that will be in demand by 2030 or 2040," he told The Houston Chronicle. So it makes more sense to fight for long-term market share rather than a momentarily high price. In that regard, the Saudis have won the oil war.

Persian Gulf state producers issue debt to keep investments on track -- Arabian Peninsula oil and gas producers are tapping international markets for unprecedented amounts of cash as they strive to broaden their economies and further strengthen their strategic petroleum sectors. While seeking economic diversification, Gulf oil producers also realize that the key to their future prosperity lies not in supplanting their petroleum sectors but in making them more efficient and globally competitive. With an eye to optimizing financial reward as oil prices recover, they are therefore attempting to keep investment levels in their strategic oil and gas sectors high, even as state finances are squeezed. In April, Abu Dhabi, the leading UAE emirate which produces nearly all the OPEC member’s crude, raised $5 billion from the sale of five- and 10-year securities in what was then the region’s biggest international bond sale. A month later, leading international LNG exporter Qatar launched what still stands as the region’s largest bond sale when it sold $9 billion of Eurobonds in three tranches. That pushed total 2016 debt offerings by Middle East and North Africa region states to $29.3 billion. Oman, the largest Arab oil producer outside OPEC, earlier this month raised $2.5 billion from its first international bond sale since 1997, selling $1 billion of five-year notes and $1.5 billion of 10-year bonds. All are likely to be outdone by Saudi Arabia, which local and international media have reported is planning to issue as much as $15 billion in bonds this year on international markets. Sovereign entities are also seeking to tap foreign debt markets, which are currently seeing an influx of capital due to the volatility of global equities and commodities.

US, Russian Warplanes "Clash" Over Syria  - While the focus on the Islamic State has shifted in recent months to the terrorist organization's offshore activities, including ISIS-inspired terrorist activites in both the US and Europe, the war above the Islamic State continues, perhaps nowhere more so than in the skies over the controlled territory in Syria and Iraq, between US and Russian air forces. As the LA Times reported last week, Russian warplanes hit Pentagon-backed Syrian fighters with a barrage of airstrikes earlier this week, allegedly disregarding several warnings from U.S. commanders "in what American military officials called the most provocative act since Moscow’s air campaign in Syria began last year." The strikes hit a base near the Jordanian border, far from areas where the Russians were previously active, and targeted U.S.-backed forces battling the Islamic State militants. These latest strikes occurred on the other side of the country from the usual Russian operations, around Tanf, a town near where the borders of Jordan, Iraq, and Syria meet. The Russian strike hit a small rebel base for staging forces and equipment in a desolate, unpopulated area near the border. About 180 rebels were there as part of the Pentagon's program to train and equip fighters against Islamic State. When the first strikes hit, the rebels called a U.S. command center in Qatar, where the Pentagon orchestrates the daily air war against Islamic State.  As Moon of Alabama adds, the U.S. jets came and the Russian jets went away. The U.S. jets left to refuel, the Russian jets came back and hit again. Allegedly two U.S. proxy fighters were killed and 18 were wounded. However there was appears to be more to this latest brush up between US and Russian warplanes. According to The Daily Beast, U.S. and Russian fighter jets "clashed" bloodlessly in the air over Syria on June 16 as the American pilots tried and failed to stop the Russians from bombing U.S.-backed rebels in southern Syria near the border with Jordan

Israeli Intelligence chief: We do not want ISIS defeat in Syria - Israeli intelligence Chief, Major General Herzi Halevy, said that the last three months have been the most difficult for ISIS since its inception. In a speech delivered at “Herzliya” conference yesterday , Halevy explicitly said “Israel” does not want the situation in Syria to end with the defeat of ISIS “, the Israeli NRG site reported. “Withdrawal of the super powers from the region and letting Israel alone in front of Hezbollah and Iran that possess good abilities Will make “Israel” in a hard position” . Therefore, we’ve to do all we can so as not finding ourselves in such situation”, the Israeli chief intelligence added.

China seeks to renegotiate Venezuela loans -- China is renegotiating billions of dollars of loans to Venezuela and has met with the country’s political opposition, marking a shift in its approach to a nation it once viewed as a US counterweight in the Americas.  Venezuela is facing one of the worst crises of its 200-year history, with a collapsing economy and political deadlock stoked by the oil price slump. China, which is Caracas’s biggest creditor and has loaned the country $65bn since 2005, has already extended the repayment schedules for debts backed by oil sales.Beijing has also sent unofficial envoys to hold talks with Venezuela’s opposition, in the hope that if President Nicolás Maduro falls his successors will honour Chinese debts, sources on both sides of the negotiations told the Financial Times. Its recognition of Mr Maduro’s fragile position and the rising clout of the opposition, led by Henrique Capriles, is another sign that the diplomatic noose is tightening around Caracas’s socialist government. “One fact we shouldn’t overlook is that Venezuela really doesn’t have the money,” . “I think there will be a rational solution for both parties, be it loan repayment extension or a loan restructuring.” Fears that Venezuela might default on its internationally-traded debt continue to rattle markets, where its bonds trade at distressed prices. The benchmark 2022 bond currently yields 33 per cent.Venezuela wants a grace period whereby the country would pay only the interest due on Chinese loans, Reuters reported last week. But China also wants approval from the opposition-held national assembly, thus tying the opposition to any deal.

Analysis: State-owned refiners boost June runs; more oil products exported -  China's state-owned oil refiners boosted their crude runs in June amid positive refining margins and as the maintenance season ended, against an expectation of increased oil product exports due to steadily weak domestic demand. Three major state-owned refiners -- Sinopec, PetroChina and China National Offshore Oil Corporation -- plan to operate their plants at an average run rate of 80% of nameplate capacity in June, up from a 30-month low of 75% in May, an S&P Global Platts monthly survey showed. The month-on-month jump in June is likely a seasonal phenomenon in line with an increase of seven and six percentage points in 2015 and 2014, respectively, Platts data shows.China's state-owned refineries usually schedule maintenance in April and May, when temperature becomes warm enough to conduct turnaround while oil consumption is relative lower than other seasons. According to Platts data, China's apparent oil demand in June has recorded month-on-month growth since 2013, at 5%, 8% and 5% in 2013, 2014 and 2015, respectively. Conversely, run rates at independent refineries in May is barely changed from May. Their run rates averaged 52.75% in the first half of June in Shandong, the home of China's independent refinery, unchanged from May, data from Beijing-based information provider JYD showed.

China’s ‘Land Kings’ Return as Housing Prices Rise -- The “land kings” are back. That had been a nickname for Chinese developers paying sky-high prices for land parcels during China’s property boom earlier this decade, which left so-called ghost cities of unsold housing across China. Now, with housing prices in China’s larger cities again rising rapidly, frothy bids for land parcels are back. On June 8, Logan Property Holdings Co. agreed to pay 14.1 billion yuan ($2.14 billion) for a piece of land in Shenzhen’s Guangming district, the largest-ever price tag in the southern Chinese city. Logan says it didn’t overpay, calling the price “relatively favorable” in a hot market. Earlier in June, a joint venture between two firms, one of which is backed by state-owned Power Construction Corp. of China, outbid 17 rivals with an 8.3 billion yuan offer for a plot in Shenzhen’s Longhua district. The soaring land prices show the challenges facing the government as it tries to prevent property bubbles. Moves to stimulate China’s slowing economy and to trim excess housing in smaller cities across the country—such as interest-rate cuts and eased mortgage rules—have fed into speculative demand for homes in top-tier cities that are now scrambling to cool prices. Average housing prices in 70 Chinese cities were about 5% higher in May than a year earlier, the fifth straight month of increases. In top-tier cities, prices were up 19% to 53%. But land prices are shooting up not just in Shenzhen, Shanghai and Beijing, but also in lower-profile cities such as Hangzhou, Hefei and Zhengzhou.

China’s New Supercomputer Puts the US Even Further Behind - THIS WEEK, CHINA’S Sunway TaihuLight officially became the fastest supercomputer in the world. The previous champ? Also from China. What used to be an arms race for supercomputing primacy among technological nations has turned into a blowout. The Sunway TaihuLight is indeed a monster: theoretical peak performance of 125 petaflops, 10,649,600 cores, and 1.31 petabytes of primary memory. That’s not just “big.” Former Indiana Pacers center Rik Smits is big. This is, like, mountain big. Jupiter big. TaihuLight’s abilities are matched only by the ambition that drove its creation. Fifteen years ago, China claimed zero of the top 500 supercomputers in the world. Today, it not only has more than everyone else—including the United States—but its best machine boasts speeds five times faster than the best the US can muster. And, in a first, it achieves those speeds with purely China-made chips. Think of TaihuLight, then, not in terms of power but of significance. It’s loaded with it, not only for what it can do, but how it does it.

Whatever happened to the China crisis? - In January, the markets panicked about a hard landing in China, accompanied by fears of a sudden devaluation of the renminbi that could spread deflationary pressure throughout the rest of the world. In the event none of that happened, and the markets rallied sharply. Why did China-related risks suddenly dissipate, and might they return?  One reason why the risks abated had little to do with China itself, and everything to do with the Federal Reserve. In the midst of the global market melt-down in February, key members of the FOMC, led by Bill Dudley, realised that financial conditions in the US were excessively tight as a result of the rising dollar, and they suddenly adopted a far more dovish tone. Many people think that an international “meeting of minds” occurred at the Shanghai G20 conference in late February. As a result, the Federal Reserve delayed its rate increases, the Bank of Japan and the ECB desisted from “devaluationist” monetary policies, and China set its face against a sudden devaluation of the renminbi. All this eased global financial conditions and, in a period of dollar weakness, calmed the currency markets. This improvement in global financial relations may not last forever. It is true that the FOMC is beginning to recognise the importance of foreign economic conditions for its own domestic policies (see David Beckworth). The bond and equity markets of Japan and Germany continue to show all of the symptoms of worsening deflationary pressures that might force the hands of their central banks in the not too distant future, even without the added headaches from Brexit. On the good news side, the balance of policy has generally shifted in a favourable direction in the course of 2016. Some months ago, I suggested that the right policy mix for China would involve six key elements: accelerated closure of excess manufacturing capacity; an urgent clean-up of the banking system; easier monetary policy; easier fiscal policy; a controlled devaluation of the exchange rate; and a continuation of market-oriented structural reforms.

More on China’s May Reserves --The best available indicators of China’s activity in the foreign exchange market—the People’s Bank of China’s (PBOC) balance sheet data, and the State Administration of Foreign Exchange’s (SAFE) foreign exchange settlement data—are out. They have confirmed that China did not sell much foreign currency in May. The PBOC’s balance sheet data shows a fall of between zero and $8 billion (I prefer the broadest measure—foreign assets, to foreign reserves, and the broader measure is flat). And SAFE’s data on foreign exchange (FX) settlement shows only $10 billion in sales by banks on behalf of clients, and $12.5 billion in total sales—both numbers are the smallest since last June.The settlement data that includes forwards even fewer sales, as the spot data included a lot of settled forwards.  A couple of weeks ago I noted that May would be an interesting month for the evolution of China’s reserves.  May is a month where the yuan depreciated against the dollar. The depreciation was broadly consistent with the basket peg. The dollar appreciated, so a true basket peg would imply that the yuan should depreciate against the dollar.And in the past any depreciation against the dollar tended to produce expectations of a bigger move against the dollar, and led to intensified pressure and strong reserve sales. That though doesn’t seem to have happened in May. All things China have stabilized.

China's onshore defaults could spill over to offshore bonds-S&P | Reuters: Defaults in China's domestic bond markets are likely to continue rising as corporate profitability remains under pressure and debt burdens increase, rating agency S&P Global said in a report on Tuesday. The agency said that the impact of such defaults could spread to global bonds issued by Chinese companies as the investor and issuer bases converge. "Defaults have dashed the widespread perception of implicit government guarantees for bonds, particularly those of SOEs," the agency said in the report. As the economy slows, China's corporates - including some owned by the central government - in hard hit sectors are having trouble making debt payments. It said the number of bond defaults in the year to date period has already exceeded the total for all of 2015, with more than 20 bonds in default after more than 10 issuers missed their interest or principal payments. The knock-on effect of these defaults was reflected in wider spreads and a drop in new issuance, but such a benign situation is unlikely to last, S&P said. It noted redemptions have exceeded issuance in May for the first time since 2011.

Why China Does Not Have a Trade Surplus: The expected large Chinese trade surpluses are always referred to as both proof of the strength of the Chinese economy and its financial foundation as money continues to flow in.  In nominal RMB terms, the trade surplus amounted to 5.5% of GDP or 79% of total GDP growth.  In other words, in 2015 China is almost entirely dependent on maintaining a large trade balance to drive GDP growth. However, what if the assumed trade balance did not actually exist?  In fact, how would it change our understanding of the Chinese economy and financial markets if the assumed trade surplus was actually a trade deficit?  Unfortunately, this is not a counterfactual but the reality.  China is running a small trade deficit. The widely cited international trade data is provided by Chinese customs records.  The value of goods leaving and entering and China is recorded by the Customs Bureau.  According to Customs data, China imported $1.69 trillion (10.45 trillion RMB) and exported $2.27 trillion (14.14 trillion RMB) for a resulting trade balance of $593 billion (3.7 trillion RMB).  These often repeated numbers form the basis for why China is running a large trade surplus. Before explaining why China has no trade surplus, it is important lay some related groundwork.  By now China watchers knows about the practice of trade misinvoicing.  This is the practice where, as originally executed, capital was either moved into or out of the country based upon fraudulently invoicing an import or export.  For instance, by over invoicing an export, capital can flow into China as the foreign counter party is over paying for the good and vice versa for imports

Indonesian Navy Fires Warning Shots At Chinese Fishing Boats In The South China Sea - The Indonesian navy said that it had fired warning shots on Friday at Chinese fishing boats operating in the Natuna Sea, an area that Indonesia claims as an exclusive economic zone. The incident is the third confrontation of its kind this year the FT reports. China's foreign ministry said that one boat had been damaged and one sailor shot (a claim that Indonesia has denied) during the altercation, which China believes to have occurred in "traditional Chinese fishing grounds."  Indonesia's fisheries minister Susi Pudjiastuti reportedly said on Twitter that the shots were fired "according to procedure" as the navy defended Indonesia's sovereignty.  Aaron Connelly, a Southeast Asian researcher at the Lowy Institute added some insight as to why the Chinese fishing vessels were down near the Natuna Sea "Chinese fishing fleets, whether directed by the state or not, are going further and further south because they have overfished the waters near Hainan. It may also be strategically driven because Indonesia has stepped up fisheries enforcement in the Natuna Sea and China may want to send a message that it won't be pushed around." Again we note that it is critical to understand that China is quite focused on mitigating any further social unrest, and as pork prices have increased, another source of protein would be from the fishing industry. If the waters near Hainan are indeed overfished, then it makes complete sense that the vessels would extend further south. As a quick reminder, here is a map showing the overlapping claims that many countries believe they have in the South China Sea:

The US Will Not Allow China to Reduce Its Strategic Vulnerability - Pepe Escobar - Not a day goes by without some sort of turmoil in the South China Sea. Let’s cut to the chase: war is not about to break out. In a nutshell, the non-stop drama, as ASEAN (Association of Southeast Asian Nations) diplomats told me, is all about“escalation-management protocols.” Translation: how to prevent any unilateral outburst that could be interpreted as warlike. Compounding the problem is that ASEAN can’t seem to manage its own internal protocols. This past Tuesday offered a graphic illustration, after a special ASEAN-China Foreign Ministers’ meeting in Yuxi. First ASEAN issued a communiqué. Then it retracted it. As much as that reflects internal dissent among the 10 nation group, it also happens to puncture the Pentagon myth of China’s “isolation”. Meanwhile, a D-Day is approaching; the ruling, by the Permanent Court of Arbitration in The Hague, on a territorial dispute brought by the Philippines in 2013. The ruling should come by late July or early August. Even if – as expected – it goes against Beijing that still should not be reason to install an insurmountable ASEAN-China divide.  Connie Rahakundini, president of the Indonesian Institute for Maritime Studies (IIMS), framed the question for Xinhua. There is an ‘ASEAN plus’ mechanism already in place – which is a sort of debate forum including China. And ASEAN is also establishing a code of conduct to prevent unilateral moves

China Warns The US That It Is "The Wrong Opponent To Play Games With" -- Two US aircraft carriers, the John C. Stennis and Ronald Reagan, began joint operations in the seas just east of the Philippines over the weekend the US Navy announced on Monday. The operations come during a tense time in the region, as China recently announced that it would not adhere to any unfavorable ruling that may come from The Hague regarding the Philippines formal challenge of territorial claims in the South China Sea. China has been very clear in its position that the US should stay out of the maritime disputes in the region, however the US has already made it clear that it intends to be the policeman in the region for decades to come, so the move comes as no surprise. Admiral John Richardson, the chief of US Naval Operations said that it was not often the US had two carrier strike groups in the same waters and it was a sign of US commitment to regional security. According to Reuters, Richardson made a correlation between the Asian deployment and the deployment the US recently sent to the Mediterranean Sea in order to send a message to Russia."Both here and in the Mediterranean, it's a signal to everyone in the region that we're committed, we're going to be there for our allies, to reassure them and for anyone who wants to destabilize that region. And we hope there's a deterrent message there as well."

SCO Set to Widen Fold of "Shanghai Spirit" - - The Shanghai Cooperation Organization (SCO) in the world of international politics is a very significant regional multilateral but close knit organization which has six members from the Eurasian region. Originally it was called that Shanghai Five with China, Kazakhstan, Kyrgyzstan, Russia and Tajikistan as its members. The Shanghai Five took shape on 26 April 1996 with the signing of the Treaty on Deepening Military Trust in Border Regions in Shanghai. In 2001 when Uzbekistan was also inducted as a member making the Shanghai Six and this lead to the signing of the Declaration of Shanghai Cooperation Organization on 15 June 2001. The Organization has expanded over the years since its inception in 2001; it has quite a few “observer states” and countries with “dialog partner status”.  Afghanistan, India, Iran, Mongolia, Pakistan and Belarus are the SCO observer states. Turkey, Sri Lanka, Azerbaijan, Armenia, Cambodia and Nepal have dialogue partner status. This year marks the 15th anniversary of the organization and this year it will be the first time that the organization will be extending its membership and enlarging the scope of its cooperation. This year it is expected that an accession memorandum with Pakistan and India will be signed making them full member states. President XI upon his arrival in Uzbekistan stated that he sees this expansion and the 16th Summit as a cogent and “a new starting point to enhance cooperation among members.” President Xi also expressed in an article published in a local newspaper that “this year's summit is of great significance in summarizing experiences and charting future cooperation plans.”

IMF Advises Japan to Adopt Wage Hike Policy to Achieve Inflation Target -- The International Monetary Fund said Japan needs a "coordinated policy upgrade" to address its weak economic outlook. The statement was released today in conclusion to the IMF's regular visit to Japan. The organization said that while recent government policies - comprised mainly of monetary and fiscal policies such as the negative interest rate, adoption of a fiscal stimulus, and the postponement of the scheduled 2017 sales tax hike - were likely to help the economy, the growth outlook for the country remains subdued. Excluding the impact of the planned supplementary budget, the IMF expects the Japanese economy to expand by about 0.5% in 2016 before slowing to 0.3% in 2017. Growth in Japan's core consumer price index has been hovering between the positive and negative territories since 2005, with consumer prices dropping 0.3% in April, barely scratching Bank of Japan's 2% inflation goal first set in 2013. Prices have fallen in two out four months this year. The central bank now expects the economy to achieve the target in 2017. In addition to monetary and fiscal policies, the IMF said income policies and labor market reforms should come to the forefront. It advised Japan to adopt a policy to ensure that profitable companies raise annual salaries by at least 3% to help the economy achieve its long overdue 2% inflation goal. "Monetary and fiscal policies in isolation cannot achieve the inflation target in the envisaged time frame," the IMF said, emphasizing that income policies and labor market reforms should come to the forefront. "Reinvigorating wage-price dynamics can generate sustained cost-push inflation, a powerful tool to first raise actual and then expected inflation."

BOJ April minutes show risks to economy, price growth persist | Reuters: Some Bank of Japan policymakers believe overseas economies continue to pose downside risks to Japan's economy and prices, minutes of its April policy meeting showed on Tuesday. At the meeting, held on April 27-28, the BOJ held off on expanding monetary stimulus even as global headwinds, a strong yen and soft consumption threatened to derail Japan's fragile economic recovery. The BOJ cut its inflation forecasts in a quarterly review of its projections, and once again pushed back by six months the timing for hitting its 2 percent price target, saying it may not happen until March 2018 at the latest. Members said the central bank should carefully examine risks from overseas economies in the future and ease monetary policy without hesitation if needed. One member said the BOJ's decision to keep policy on hold at the April meeting should not be seen as the central bank changing its thinking on monetary policy, suggesting the member wished to avoid giving an impression the BOJ had become reluctant to ease. But overall, BOJ members were sanguine despite lowering their consumer price forecasts, saying they could keep policy on hold because it would take time to see the benefits.

Japan's June flash manufacturing PMI contracts for fourth straight month | Reuters: Japanese manufacturing activity contracted in June at roughly the same pace as the previous month, a preliminary survey showed, but concerns remain due to supply chain disruptions from an earthquake in April and falling exports. The Markit/Nikkei Japan Flash Manufacturing Purchasing Managers Index (PMI) was a seasonally adjusted 47.8 in June, little changed from a final reading of 47.7 the previous month. The index remained below the 50 threshold that separates expansion from contraction for the fourth straight month. The preliminary index for new orders was 45.8, higher than 44.7 in the previous month, but still showing five consecutive months of contraction. "Latest survey data pointed to a further deterioration in manufacturing conditions in Japan. Both production and new orders declined at marked rates, led by a sharp drop in international demand," Markit said. It said the earthquakes in April continued to have a negative impact on the PMI data. Strong earthquakes struck the southern manufacturing hub of Kumamoto in mid-April, which destroyed houses, triggered landslides and disrupted production at electronics and car parts factories in the area. Japan's economic growth is expected to ease to an annualized 0.5 percent in the second quarter from 1.9 percent the previous quarter as exports slow, a Reuters poll of economists showed.

The Rapidly Changing Nature of Japan’s Public Debt  - NY Fed - Japan’s general government debt-to-GDP ratio is the highest of advanced economies, due in part to increased spending on social services for an aging population and a level of nominal GDP that has not increased for two decades. The interest rate payments from taxpayers on this debt are moderated by income earned on government assets and by low interest rates. One might think that the Bank of Japan’s purchases of government bonds would further ease the burden on taxpayers, with interest payments to the Bank of Japan on its bond holdings rebated back to the government. Merging the balance sheets of the government and the Bank, however, shows that the asset purchase program alters the composition of public debt, with reserves in the banking system replacing government bonds, but not the amount of the debt taxpayers must pay interest on.Japan’s government has been a net borrower since 1993. The chart below shows the persistent gap between revenue and expenditures, both represented as a share of GDP, as calculated by the International Monetary Fund (IMF). Expenditures trended higher over the course of the 1990s while revenues trended down. Part of this gap is due to efforts to offset the dramatic slowdown in growth, which fell from an average annual rate of 4.5 percent in the 1980s to 1.5 percent in the 1990s. Another factor behind deficit spending is that higher health care costs from an aging population and higher health care prices put upward pressure on total expenditures, with government health care spending rising from 4.5 percent of GDP in 1990 to 9.5 percent in 2010, according to IMF estimates. More recently, the government increased its spending during the global financial crisis to sustain growth and then implemented an increase in the sales tax in April 2014 to narrow the budget deficit.

Japanese Finance Minister Reminds Elderly "Hurry Up & Die" -- Everyone knows that Japan, whose population is now declining for the first time in its history... ...sold more adult than baby diapers for the first time in 2012, and is "older" than any nation in the world, has a "demographic problem." What few may know, however, is that it also has a secret plan to fix said "demographic problem" - a solution that would make Hitler, Goebbels and Stalin proud.  In 2013, then Deputy PM Taro Aso, 72 years young at the time, suggested that the elderly in Japan should just "hurry up and die" because "You cannot sleep well when you think it's all paid by the government." Well, the now death-defying 75-year-old finance minister took another swing at the elderly... saying last week that he wondered how much longer a 90-year-old person intends to live. The outspoken Aso, who is also deputy prime minister, made the comment at a Liberal Democratic Party rally in Otaru, Hokkaido, on Friday, where he said: “I recently saw someone as old as 90 on television, saying how the person was worried about the future. I wondered ‘How much longer do you intend to keep living?’ “ His comments, part of a speech urging wealthy elderly citizens to spend more to spur the economy, drew immediate fire from Democratic Party President Katsuya Okada. “This is an insult to the nation’s elderly,” Okada told reporters in Yufu, Oita Prefecture, on Saturday. “It’s extremely disheartening that someone who cannot understand the public’s concerns about nursing care is serving as finance minister.” During the Otaru rally, Aso pointed to the more than ¥1.7 quadrillion of personal assets held nationwide, saying the money needs to be spent. “The biggest problem at the present is how everyone is staying put,” he said. “If you don’t spend the money you have, that money will mean nothing.What’s the point of accumulating more wealth? Just looking at the money you have?” So hurry up and die already...

Hard to Pay for Imports Without Exports (BRICS Trade Contraction) -- Over the past twenty years, the biggest shocks to the global economy have come from sharp swings in financial flows: Asia; the subprime crisis and the run out of shadow banks in the United States and Europe; and the euro area crisis. All forced dramatic changes in trade flows. Emerging Asia went from running a deficit to a surplus back in 1997. The global crisis led to a significant fall in the U.S. external deficit. The euro area crisis led to the disappearance of current account deficits in the euro area’s periphery. And one risk from Brexit is that it would cause funding for the U.K.’s current account deficit to dry up, and force upfront adjustment. The biggest shock to the global economy right now though has come not from last summer’s surge in private capital outflows from China, large as the swing has been,* but rather from an old fashioned terms-of-trade shock. Oil, iron, and copper prices all fell significantly between late 2014 and today. Yes, oil has rebounded from $30, but $50 is not $100 plus. $50 versus $100 oil means the oil-exporters collectively have something like $750 billion-a-year less to spend—either on financial assets, or on imports—than they did a couple of years ago. Add in natural gas and there has been another $100 billion plus fall in export income for the main oil-exporting economies. The fall in traded iron ore prices has had a big impact on Brazil and Australia, but in absolute terms oil’s impact dwarfs that of iron. Brazilian and Australian iron receipts in the balance of payments are down a total of $30 to $40 billion. Big, but not the huge impact of oil. And the old fashioned terms-of-trade shock has had a much bigger global impact than I suspect is commonly realized. Consider a plot of non-oil imports of the “BRICS” (the world’s large emerging economies).

It’s amateur hour in Narendra Modi’s India -- Is Narendra Modi still India’s great economic hope? This is the question raised by the tawdry drama leading up to the announcement Saturday by Raghuram Rajan, the governor of the Reserve Bank of India, that he will return to academia in September. Mr. Rajan’s decision came after the government signaled that it would not give him a customary two-year extension to complete a five-year term like his immediate predecessors. For foreign and Indian observers alike, the announcement came as a shock. It dents what was meant to be Mr. Modi’s strongest qualification: His purported ability to run Asia’s third-largest economy better than his predecessors. Combined with doubts about the quality of economic-growth statistics and the government’s timid approach to long-pending structural reforms, Mr. Rajan’s departure will likely nudge investors to revisit bullish assumptions about India’s economic trajectory.

India Paves the Way for Multinationals With Wide-Ranging Foreign Investment Reforms -- India announced several key reforms aimed at easing foreign direct investment (FDI) on Monday, as Prime Minister Narendra Modi’s government sought to attract international business to further boost the country’s economic growth. The new measures allow for 100% FDI in several sectors such as defense, food products, broadcasting and civil aviation, according to a statement issued by the government.  The announcement comes just two days after the sudden resignation of India’s top central banker Raghuram Rajan, who said he would not be staying on for a customary second term as governor of the Reserve Bank of India. Rajan, a former chief economist at the International Monetary Fund and a highly respected figure both at home and abroad, had faced increasingly personal attacks by an outspoken member of Modi’s Bharatiya Janata Party that many say led to his stepping down.  The changes in the defense sector, where foreign entry into the Indian market and ownership of Indian firms is now a distinct possibility, have been hailed as particularly significant as the South Asian nation looks to revamp its military. The pharmaceutical industry will also greatly benefit, with up to 74% foreign ownership in Indian companies now receiving automatic approval. . This will pave the way for giants like Apple and Ikea to set up shop in India, which the current regulations have thus far prevented them from doing. The Modi government has made a concerted effort to remove India’s notorious red tape and make it a more attractive investment destination following his 2014 campaign promise to turn the country’s economy around, recording FDI inflows over $55 billion last year compared with $36 billion in 2014. However, it has also been criticized for failing to enact key measures like a national goods and services tax (GST) and a land acquisition bill — both of which remain stuck in a parliamentary logjam. Monday’s reforms, however, do not require parliamentary approval.

Hoping Jobs for India Follow, Modi Clears Investors’ Path - — The Indian government announced sweeping changes on Monday to throw open its economy to foreign investment, providing a new path for global titans like Apple and Ikea to capitalize on the country’s growth, the fastest among the major emerging markets.The long-awaited rules, instituted through executive order, reinforced the government’s plan to develop more business-friendly policies as the country looks to spur job creation and maintain its momentum. Domestic and international companies have long complained about the difficulty of doing business in India, a factor that has stymied investment and growth.While the economy is still hampered by the country’s infrastructure deficiencies and sprawling bureaucracy, the changes represent a greater shift away from the socialist and protectionist policies of India’s modern post-independence history. The new rules will allow foreign investors to establish 100 percent ownership in companies involved in defense, civil aviation and food products, although with government approval.Foreign investors will also be permitted to buy up to 74 percent of Indian pharmaceutical companies without seeking government approval. The government similarly relaxed regulations that had made it difficult for companies like Apple and Ikea to establish retail operations in India.AdvertisementContinue reading the main story The election of Prime Minister Narendra Modi in 2014 was widely expected to lead to more market-friendly policies, which he had championed in his years as the chief minister of the state of Gujarat. The delay in bringing them about had led to widespread criticism that Mr. Modi was not moving fast enough to stimulate the economy.India’s latest reports on job creation may have tipped the scales in favor of further economic liberalization, some experts said. Domestic data showed weak employment numbers in the last quarter of 2015 in jewelry, automobiles and information technology, compared with a year earlier.

Pakistan’s ‘University of Jihad’ is getting millions of dollars from the government - After terrorists killed more than 100 Pakistani school children 18 months ago, the country’s leaders vowed to crack down on religious seminaries that are recruiting grounds for domestic and international Islamist militant groups.U.S. officials have also continued to pressure Pakistan in their decade-long effort to get the government to deny safe-havens to insurgent groups destabilizing Afghanistan, especially the Taliban and its brutal offshoot, the Haqqani network.Despite all of that, Pakistan’s Khyber Pakhtunkhwa provincial government is giving $3 million to the Darul Uloom Haqqania seminary, also known as the “University of Jihad.”At a provincial assembly meeting last week, Khyber Pakhtunkhwa’s leaders announced the grant and said it was needed to keep one of the world’s most controversial Islamic seminaries operational. Government leaders noted the seminary currently enrolls and houses about 4,000 students, and their parents expect they will be taken care of.“A large number of students study, live and eat in this seminary, and it's doing great service for the poor people,” Mushtaq Ghani, Khyber Pakhtunkhwa’s information minister, said in an interview with The Washington Post.By subsidizing one of the world’s most controversial Islamist institutions, Ghani said the government will be helping to “mainstream it” as part of a broader reform of what 3 million Pakistani children learn in more than 100,000 madrassas.But critics are blasting the move, saying it threatens to renew doubts about whether Pakistan can ever be trusted as a reliable partner in the global fight against terrorism.

The US Government Will Spend $1.25 Million To Develop A Propaganda Cartoon For Pakistan -- As the US government cuts into people's social security payments in order to reduce costs, it is not lost on everyone that the US is simultaneously jacking up expenses for things such as massive warships that cost taxpayers $4.4 billion, and extending the war in Afghanistan which will cost another $10 billion. However, it's not only the massive defense spending projects that the government does that bleeds US taxpayers dry, it's little one's as well. As the Washington Free Beacon reports, the State Department plans on spending $1.25 million in order to produce two 13-episode seasons of a superhero cartoon. Oh, and the cartoon will be "fully immersed in Pakistani culture" and will air on public television in Pakistan. Why would the US government spend hard earned taxpayer dollars on a cartoon to be aired in Pakistan rational minds may wonder - why to engage in propaganda of course. The State Department's International Narcotics and Law Enforcement Affairs (INL) division issued a grant solicitation for two seasons of an animated series in order to "promote security and stability" in Pakistan. To make a long story short, with the intended target audience being ages 14-25, the US is engaging in propaganda in order to try and deter teenagers in Pakistan from joining terrorist organizations.

U.S. will seek billions more to support Afghan military efforts — America’s longest war is about to include more cash for Afghanistan’s army and police force — without any new conditions to try to ensure it doesn’t get gobbled up before making it to the battlefield.At a NATO summit in Warsaw that begins July 8, the United States and its allies will try to raise $15 billion to fund Afghan security forces through 2020. About $10.5 billion of that is expected to come from the United States, a continuation of commitments to pay and clothe Afghan security forces while supplying them with fuel, weapons and ammunition to fight Taliban insurgents. But even though billions of dollars have been wasted or stolen here over the past 15 years, NATO leaders will probably not link the money to new benchmarks or anti-corruption standards for the Afghan military, said Maj. Gen. Gordon “Skip” Davis Jr., commander of Combined Security Transition Command-Afghanistan, which oversees coalition support for Afghan security forces. The U.S.-led coalition, for example, will still seek to fund 352,000 Afghan soldiers and police, even though auditors have repeatedly questioned whether Afghanistan has that many security personnel.  

Record 65.3 Million People Were Displaced Last Year: UNHCR - (Reuters) - A record 65.3 million people were uprooted worldwide last year, many of them fleeing wars only to face walls, tougher laws and xenophobia as they reach borders, the United Nations refugee agency said on Monday. The figure, which jumped from 59.5 million in 2014 and by 50 percent in five years, means that 1 in every 113 people on the planet is now a refugee, asylum-seeker or internally displaced in a home country.Fighting in Syria, Afghanistan, Burundi and South Sudan has driven the latest exodus, bringing the total number of refugees to 21.3 million, half of them children, the UNHCR said in its "Global Trends" report marking World Refugee Day. "The refugees and migrants crossing the Mediterranean and arriving on the shores of Europe, the message that they have carried is that if you don't solve problems, problems will come to you," U.N. High Commissioner for Refugees Filippo Grandi told a news briefing. "It's painful that it has taken so long for people in the rich countries to understand that," he said. "We need action, political action to stop conflicts, that would be the most important prevention of refugee flows." A record 2 million new asylum claims were lodged in industrialized countries in 2015, the report said. Nearly 100,000 were children unaccompanied or separated from their families, a three-fold rise on 2014 and a historic high.

MSF: Nearly 200 die of starvation at Nigerian refugee camp - Doctors Without Borders (MSF) on Wednesday warned of a "catastrophic humanitarian emergency" unfolding at a camp sheltering refugees who fled the Boko Haram militant group in northeast Nigeria."Since 23 May, at least 188 people have died in the camp - almost six people per day," MSF said in a statement, adding that the deaths were mainly caused by starvation and dehydration. The aid organization said the camp hosts 24,000 people, including 15,000 children. Roughly one in five of over 800 children MSF examined had acute malnutrition. "This is the first time MSF has been able to access Bama but we already know the needs of the people there are beyond critical," said Ghada Hatim, the organization's head of mission in Nigeria. "We are treating malnourished children in medical facilities in Maiduguri and see the trauma on the faces of our patients who have witnessed and survived many horrors," Hatim added. Maiduguri is the Borno state capital 70 kilometers (45 miles) to the northwest of Bama.

Nigeria’s naira plunges 30pc after central bank gives up on dollar peg: - Nigeria’s naira lost nearly a third of its value overnight, after policymakers decided to scrap the currency's peg against the US dollar. The Central Bank of Nigeria had defended a peg of 197 to 199 naira to the US dollar for 15 months, but gave up on Monday morning, after spending more than $2.7bn (£1.9bn) of reserves this year supporting the naira. Godwin Emefiele, governor of the Central Bank of Nigeria, had promised a “more flexible” foreign exchange regime, but the decision to remove all controls on the currency came as a shock to markets when it was announced last week.  Yvonne Mhango, a Renaissance Capital economist, said: “We never imagined a free-floating naira”. The Nigerian currency tumbled by 30pc once trading began on Monday, leaving the naira at 261 to the US dollar. Analysts expect the currency could weaken further over the coming weeks, perhaps to as little as 390 naira to the dollar. The plunge could aid the oil-reliant economy, which has been battered by diving crude prices. Ratings agency Moody's said that "an immediate consequence of the naira depreciating is likely to be a significant increase in oil-related revenue". Ms Mhango said that floating the naira freely would “release a pressure valve for the economy”, which would in turn “see the economy beginning to thaw and green shoots emerge possibly as soon as a year from now”.

How can the world bridge its infrastructure gap? - Mckinsey infographic vis Barry Ritholtz

How Barclays Aims to Bring a Billion Unbanked into the Fold | American Banker: Barclays Africa Group has a market penetration problem. Though its parent company, the $1.8 trillion-asset Barclays PLC, has had operations in Africa for more than 100 years, today Barclays Africa has only 12 million customers, about 1% of the continent's total population. Clearly, said Stephen van Coller, Barclays Africa's chief executive for corporate and investment banking, "you've got an opportunity to bank significantly more people than you currently are banking." But to reach the other 99% — to bank the next billion customers — will require more than marketing efforts, more than simply better outreach, van Coller said. It will require building an entirely new bank, a "virtual bank" that will strip out legacy costs and offer new products and services, such as faster, cheaper payments, tailored to the needs of people at "the bottom of the pyramid." For more than a year now, Barclays Africa has been engaged in building this bank, partnering with Deloitte and various fintech startups to get it done. At a time when bank profits often seem to depend more on reducing costs than on growing revenue, Barclays is taking a long-term view: that a dramatic improvement in its bottom line depends on plugging the unbanked en masse into the global economy. "If you can create financial inclusion for the 80% of the [African] population that doesn't have financial inclusion today, imagine what that does to the GDP," van Coller said. "And if I can grow the GDP, even if my business does nothing better, I'll grow my business." Barclays' effort to bank the unbanked has implications far beyond Africa. Some 2 billion people worldwide have little or no access to banking services, and many live in countries where Barclays already has a presence.

Brazil eyes long-term budget freeze - An ambitious constitutional amendment to freeze budget spending would cut the uncertainty over public finances that is the root cause of Brazil’s deep recession, according to the country’s new finance minister. “With this kind … of tough fiscal policy … everyone will be able to project the numbers,” Henrique Meirelles said in an interview with the Financial Times. “A lot of the uncertainty is coming down.” The plan to eliminate real increases in budget spending for up to 20 years is the central plank of a number of reforms — from fiscal policy to rules on pensions and the operation of Petrobras, the scandal-hit state oil company — that the government of interim president Michel Temer is rushing through congress. Elevated to power by an impeachment process brought against President Dilma Rousseff for allegedly manipulating the budget, Mr Temer is staking his leadership on stabilising the economy and stemming an alarming rise in public debt. Once a fast-growing emerging market, Brazil’s gross domestic product shrank 3.8 per cent last year and is expected to decline by the same amount this year. Many blame Ms Rousseff’s government, which through the granting of ad hoc tax breaks and intervention in the economy sharply increased gross public debt to 67.5 per cent of GDP from just over 52 per cent in mid-2014. The uncertainty over Brazil’s public finances has left the country with credit default swap spreads, a measure of the likelihood of default, of 345 basis points. This was down from highs of near 500bp earlier this year during the political crisis leading up to Ms Rousseff’s impeachment, but still above other emerging markets with similar credit ratings, such as Russia with 258bp. Mr Meirelles said this measurement could fall rapidly if confidence returned.

Venezuelans Ransack Stores as Hunger Grips the Nation - — With delivery trucks under constant attack, the nation’s food is now transported under armed guard. Soldiers stand watch over bakeries. The police fire rubber bullets at desperate mobs storming grocery stores, pharmacies and butcher shops. A 4-year-old girl was shot to death as street gangs fought over food.Venezuela is convulsing from hunger.Hundreds of people here in the city of Cumaná, home to one of the region’s independence heroes, marched on a supermarket in recent days, screaming for food. They forced open a large metal gate and poured inside. They snatched water, flour, cornmeal, salt, sugar, potatoes, anything they could find, leaving behind only broken freezers and overturned shelves. And they showed that even in a country with the largest oil reserves in the world, it is possible for people to riot because there is not enough food.In the last two weeks alone, more than 50 food riots, protests and mass looting have erupted around the country. Scores of businesses have been stripped bare or destroyed. At least five people have been killed.This is precisely the Venezuela its leaders vowed to prevent. The economic collapse of recent years has left it unable to produce enough food on its own or import what it needs from abroad. Cities have been militarized under an emergency decree from President Nicolás Maduro, the man Mr. Chávez picked to carry on with his revolution before he died three years ago.

'We're living worse than in a war': Venezuela's deepening economic crisis - World - CBC News: The outlook for Venezuela appears to be dimming every day, and it's not just because of the country's daily four-hour mandatory blackouts. The oil-exporting South American country is caught in a perfect storm of droughts, food and power shortages, and devastating inflation and recession caused by plummeting crude prices. "We're not at war and we're living worse than in a war situation," Becky Jordan, a private school teacher in Caracas, told CBC's The Current. "I really have no idea how much longer people can take this."  President Nicolas Maduro, who took over following the death of longtime leader Hugo Chavez in 2013, faces mounting criticism and opposition as he tries, sometimes rather unconventionally, to find a solution. Venezuela, an OPEC nation, relies heavily on oil for export earnings, and plummeting world prices have helped push its state-led economy into a deep recession. "Since Venezuela is about 96 per cent dependent on oil, we're only receiving about a third of the hard currency we were receiving as recently as a couple of years ago,"

Venezuela Default "Highly Likely," Moody's Says -- Venezuela's external funding gap implies it is highly unlikely there will be sufficient hard currency available to fully redeem debt service obligations this year, said Moody's Investors Service. Still, the ratings agency noted that a default could be avoided. In a new report, Moody's examined the relationship between the government of Venezuela (Caa3 Negative) and Petroleos de Venezuela (PDVSA, Caa3 negative), analyzing how a potential credit event could play out in the near future with a focus on PDVSA's role as a possible trigger of a credit event involving the sovereign. The relationship between the two is complex and intertwined, with the sovereign's indirect ownership of oil assets -- the main source of hard currency inflows into Venezuela -- via PDVSA. "Of the two debt issuers, PDVSA and Venezuela, the oil company is more likely to default first given that it owes significantly more than the sovereign in debt service in 2016-2017, with large payments due this year," said Moody's Vice President Jaime Reusche. PDVSA's hefty payment calendar through 2017 includes almost $4 billion in debt service in Q4 2016 when $3 billion in principle payments come due: $1 billion in October and another $2 billion in November. By contrast, the sovereign has only interest payments due on its global bonds from now through the end of 2017. The report acknowledges that a default by the PDVSA would very likely be followed by a default of the sovereign as well.

Tensions Between US/NATO & Russia Are Flaring Dangerously - Chris Martenson - As if there weren’t enough crises to worry about in the world already, from shooting rampages to accelerating species loss, the US and NATO continue to ‘poke the bear’ and risk an outbreak of war with Russia. I wish this were idle speculation. But if you haven’t been paying close attention, you'll probably be shocked at just how much direct military and diplomatic provocation has been going on between NATO/US and Russia over the past several years -- and in recent weeks, in particular. Even more shocking is that no one in power can provide us with a compelling reason for exactly why these tensions are flaring. It seems that Russia’s main sin is in not entirely, completely and immediately giving the US/NATO anything and everything they request. In other words, it’s imperial hubris and petulance that seems to be driving the ship of state. That’s a dangerous thing. The bottom line is this: If you're not already mentally and physically prepared for the prospect of a NATO/US war with Russia, you really should be. Perhaps the chances of outright war are still low on a relative scale, but the costs would be catastrophically high -- making this worthy of your attention. A low risk of a catastrophic outcome is the very reason we all buy insurance – life, auto, and home.  Not because we wish things to go wrong in our lives, but because they sometimes do nonetheless. The list of aggressive provocations by NATO that have been received as belligerent acts by Russia is quite long. It stretches back several years and continues to grow rapidly, making the chance for an ‘accident’ or unplanned incident quite high. I was impressed with a recent piece penned and signed by eight prominent writers and blogger with Russian heritage. Titled A Russian Warning, it ran on a wide variety of blogs knowledgeable about the Russian situation including Dmitry Orlov’s and The Saker’s. I encourage you to read the whole thing. Right now, if you've got the time. I can wait. To cut to the chase, the harsh conclusion of the piece is this: “If there is going to be a war with Russia, then the United States will most certainly be destroyed, and most of us will end up dead.”

"The US Is Sleepwalking Towards A Nuclear Confrontation" -- Following his cautionary analysis on the increasing tension between the US/NATO and Russia, Chris interviews Dmitry Orlov this week about the potential likelihood for actual direct conflict to break out between the world powers. Orlov was born and raised in Leningrad in the former Soviet Union and immigrated to the United States in the mid 70s, He has spent the past several decades traveling back and forth between the two countries, writing about the collapse of the Soviet Union and the many similarities he sees between that and the secular decline happening in the West. Orlov recently co-authored a stark warning with a number of other experts on Russia, concerned that the US is recklessly provoking a military confrontation it cannot win: The United States is sleepwalking towards a nuclear confrontation with Russia. It is astounding in its stupidity this approach. What's going on is an effort by the US military and by NATO officials to extract as much money as possible out of Eastern Europe, to continue financing weapons and generally extract military spending out of Europe. The neocons have a very stiff ideology of world domination. Basically they took over the US government because it's the largest and most vulnerable democracy in order to realize their insane dreams of world domination. It hasn’t gone that well. But there's no convincing them. There isn’t a feedback loop from experience to what they do next. One defeat causes them to organize for the next defeat without realizing it. So they don’t realize that what they have done in the Middle East has been completely counter-productive. They don’t realize, for instance, that trying to promote democracy and secular regimes in Islamic countries doesn’t produce democracy or secular regimes – what it produces is jihadism and radicalization and things like ISIS. They can’t process that thought because their ideology says "democracy is the weapon we use".  There is no stopping them. They are like zombies. Until somebody shoots them in the head they are going to keep moving. Now in Russia a military drill can be called without warning at any time, and everything better work. Basically the entire military is at a high state of readiness.The US media has missed the fact that what the Russians did in Syria with a really, really small contingent is something that the US couldn’t possibly have done and NATO couldn’t possibly have done. Russia is ready. What is even more scary is that the Russian people are ready. There are all these groups all over Russia that do stunts like they run marathons off road. The marathons sometimes include some tactical objectives too. So this is like paramilitary training for lots and lots of young people in the country. Some of them don’t even like the government that much but that doesn’t mean that they won’t take orders if orders are given. Even if there isn’t a nuclear confrontation and NATO rolls into Russian territory they will bleed and they will bleed to death just like it has always happened with people who invaded Russia. There isn’t a happy outcome, there isn’t a face saving outcome for the United States or for NATO. There is just basically the choice between death and humiliation.  Click the play button below to listen to Chris' interview with Dmitry (51m:18s)

John Helmer: US Strategy for Russia – Wage War but Not Declare It  - Until February 21, 2014, President Barack Obama’s (right) whispers were audible; President Vladimir Putin (left) didn’t believe what he was hearing. Now there is armed US war against Russia on the Ukraine and Syria-Turkey fronts; exchanges of armed signals in the Black and Baltic Seas; and an all-fronts war against Russian capital. For the US, no declaration; for Russia, no way back. Putin said as much at last week’s St. Petersburg meetings: “People feel no danger and that is alarming for me. Why can’t we see that we are dragging the world into an utterly new dimension? This is the problem.” “I am not interested in laying blame now. I simply want to say that if this policy of unilateral actions continues and if steps in the international arena that are very sensitive to the international community are not coordinated then such consequences are inevitable.” By consequences, Putin meant war, undeclared by the US against Russia, compelling Russia to forestall in its defence. “If we continue to act according to this logic, escalating [tensions] and redoubling efforts to scare each other, then one day it will come to a cold war.” Cold is not the kind of war Putin means. “I don’t know where it [the deployment of the U.S. missile defense system in Europe] might lead to but I know for sure that we will have to respond.” For the precedents of undeclared US warmaking, provoking the Japanese attack on Pearl Harbour, and that as the intended backdoor to US war with Germany, it’s necessary to open, The Challenge of Grand Strategy. This is a little-known collection of essays by US historians of the period between World War I and World War II. Open it here.

"I Don't Need A War In The Black Sea” - Another NATO Member Folds As Bulgaria Refuses To Join Naval Task Force -- Days after it was revealed that the US had dispatched the destroyer USS Porter to the Black Sea, in what the US Navy said was "a series of drills with allies and forces of partner nations in what the United States called a routine deployment", Russia responded that Moscow would respond with "unspecified measures", adding that this and other US deployments were designed to ratchet up tensions ahead of a NATO summit. So how did the US respond? Reuters reports that the United States "decided it would maintain its presence in the Black Sea despite a Russian warning that a U.S. destroyer patrolling there undermined regional security, the U.S. Navy Secretary said." The USS Porter entered the Black Sea this month, drawing heavy criticism from Moscow. Turkey and Romania are expected to push for a bigger NATO presence in the Black Sea at the NATO summit in Warsaw next month. Aboard the USS Mason, another U.S. destroyer, in the Mediterranean on Thursday, Navy Secretary Ray Mabus told Reuters that it was the U.S. Navy's job to deter aggression and keep sea lanes open. However, for all the escalating rhetoric, a major schism appears to be taking place below the placid surface. Following Germany's scandalous statement accusing NATO of "warmongering" toward Russia and revealing how deep the European fissures within NATO truly are, Reuters added that NATO-member, and Black Sea coast country Bulgaria "appeared to buckle to Russian pressure on Thursday" when its Prime Minister Boiko Borisov said he would not join a proposed NATO fleet in the Black Sea "because it should be a place for holidays and tourists, not war." “I always say that I want the Black Sea to see sailboats, yachts, large boats with tourists and not become an arena of military action ... I do not need a war in the Black Sea,” Reuters cited Bulgaria's Prime Minister as saying at a media briefing. “To send warships as a fleet against Russian ships exceeds the limit of what I can allow,” Borisov told reporters in Sofia on Thursday, as cited by Bloomberg. “To deploy destroyers, aircraft carriers near [the resort cities of] Bourgas or Varna during the tourist season is unacceptable.”

The Surprising Relevance of the Baltic Dry Index -   On January 11th of this year, online financial circles lit up with dire news. “Commerce between Europe and North America has literally come to a halt,” one blogger wrote. “For the first time in known history, not one cargo ship is in-transit in the North Atlantic between Europe and North America. . . . It is a horrific economic sign; proof that commerce is literally stopped.” Although the Web site that first broadcast this information is prone to hysteria—there are, in fact, many cargo ships on the world’s oceans, in plain sight—more pessimistic market experts, such as Zero Hedge and the Dollar Vigilante, eagerly quoted it for their millions of readers.  But if sober-minded, mainstream economists were tempted to dismiss this ostensible trade calamity outright, they found that they couldn’t. The index that inspired these warnings, known as the Baltic Dry Index, was until recently viewed as a credible, if obscure, source—one that has accurately signalled prior systemic failures, and one that economists of all stripes have routinely consulted as a trusted proxy for trade activity. Based in London, this gauge reflects the rates that freight carriers charge to haul basic, solid raw materials, such as iron ore, coal, cement, and grain. As a daily composite of the tonnage fees on popular seagoing routes, the B.D.I. essentially mirrors supply and demand at the most elementary level. A decrease usually means that shipping prices and commodities sales are dropping (the latter because shippers are competing over fewer consignments). Shipping is a direct indicator of whether people want goods, and softness in shipping prices is therefore a sign of weakness in manufacturing and construction.

Greece’s Asylum Appeals Committees denounce changes to facilitate mass deportations to Turkey: Following pressure by the European Union, the Greek Government changed the composition of the Asylum Appeals Committees last week. The EU has been claiming that the existing committees were not sending refugees back to Turkey, because they did not consider Turkey a safe third country for each applicant as the implementation of the EU-Turkey refugee deal imposes and put pressure to facilitate mass deportations. An Asylum Appeals Committee is a three-member quasi-judicial body, consisting of a Civil Servant as Chairman, a member indicated by the United Nations High Commission for Refugees and a member selected by the Ministry of Interior from a list drawn up by the National Commission on Human Rights (E.E.D.A.), an independent advisory body to the state. After the last minute amendment of June 16th 2016, some members of the Asylum Appeals Committees denounced the changes and criticized not only the provisions of the EU Turkey Deal as contradictory to Asylum Law but also describing the changes of the Committees as “affront and insult.” Below the Press Release by signed by 18 member of the existing Asylum Appeals Committees

Greek current account gap shrinks in April on lower trade deficit | Reuters: Greece's current account deficit shrank in April from the same month a year earlier, helped by a lower trade gap and an income account surplus, the Bank of Greece said on Tuesday. "The goods balance deficit fell by 276 million euros year-on-year as a result of a lower net oil bill. Net payments for purchases of ships rose," the central bank said. The data showed the deficit reached 822 million euros ($931.8 million) from 1.038 billion euros in April 2015. Tourism revenues fell slightly to 443 million euros from 477 million in the same month a year earlier. In 2015 as a whole, Greece posted a current account deficit of 7.5 million euros, helped by higher tourism revenues - its biggest foreign currency earner.

ECB corporate debt buys unexpectedly high in first full week | Reuters: The European Central Bank bought 1.9 billion euros worth of corporate bonds in its first full week of purchases, at the upper end of market expectations, signalling a strong start to its latest measure designed to revive inflation. Unveiled in March as part of a 1.74 trillion euro asset-buying plan, the ECB started buying investment grade, non-bank corporate bonds on June 8. It hopes that lowering corporate borrowing costs will induce companies to invest, boosting inflation and economic growth. On the programme's first day, the ECB bought 348 million euros worth of corporate debt, an unexpectedly large figure that was seen by analysts as unsustainable over the long term but was considered to show its strong commitment to the scheme. Sources with direct knowledge had earlier said the ECB was hoping to lure new issuers to the market and would buy 5 billion to 10 billion euros worth of corporate debt per month if new debt sales ramped up. If it fails to prompt more borrowing by firms, however, its purchases could level off in the 2-3 billion euros range, the sources said. Many analysts have argued that the limited supply of corporate debt means it would be difficult for the ECB to go above 5 billion euros per month without causing serious distortions to the market.

The doom loop is back: Europe’s banks are still buying more of their own governments’ debts: -- Europe’s banks are still buying more of their home governments’ bonds, even though the enormous exposures between states and financial institutions risk re-starting the so-called ‘doom loop’ that damaged the Greek economy so badly. Banks have doubled their holdings of their own states' debt since 2008, according to Standard and Poor's, despite plans over the past five years to cut back on the exposures. When banks invest heavily in one government’s debt, the banks become dependent on the government’s good performance, and the governments depend on the banks purchasing the debt. If either one falters, the consequences can be dire for both. For example, in Greece, broken banks needed bailing out, but few other investors wanted to lend money to the Greek government. When the Greek government was bailed out and defaulted on its debts, the very banks it had tried to support were hit hardest, as they were the holders of that debt. In the wake of the Greek crisis, banks and policymakers wanted to end that mutual dependence and reduce the chance of another doom loop developing. Yet figures from credit ratings agency Standard and Poor’s show that banks across the EU have been investing more heavily in government debt, increasing their exposures. Western European banks have more than doubled their holdings of their own governments’ debt from a low of €355bn in September 2008 to €791bn today. Among southern European banks in the EU, the number is up from €272bn to €722bn. Banks in central and eastern EU countries have increased their holdings more gradually to €148bn, while those in Nordic countries have held a more steady amount, barely budging over recent years at a current level of €30bn.

ECB Balance Sheet Hits Record High (With Stocks At 18-Month Lows) - The European Central Bank's balance sheet has reached a new record high this week - surpassing the chaotic expansion peak in 2012 - as Mario Draghi prepares to unleash TLTRO-II, which will definitely increase this time (just like LTRO and NIRP didn't!)  Given the utter failure to create any 'real' economic gains via the expansion of the ECB balance sheet, the plunge in stock prices (and thus crushing the trickle-down wealth-creation mandate) leaves Draghi in the same boat as Yellen - utterly impotent.

Negative interest rates are a 'seeping poison' for the world's most important financial institutions -- Negative interest rates are a "seeping poison" for the business models of many of the world's most important financial institutions, and could affect their long-term "viability," according to new research from analysts at Citi. In a new note from Citi Research, analysts Willem Buiter and Ebrahim Rahbari argue that institutions across the insurance, pensions, and banking sector are being threatened by the persistently low and negative rates. Citing the words of Felix Hufeld, the boss of the Federal Financial Supervisory Authority, Germany's equivalent of the UK's Financial Conduct Authority, Citi argues that the "seeping poison" could mean that many institutions, especially money market funds — funds comprised of safe, short-term debts often used by retail investors as a way of making money on a very safe investment — are no longer viable in the long term. As Citi notes: "Viability in its strong sense means profitability (a rate of return on equity at least equal to the cost of capital). In its weak sense, viability means solvency." Basically, Citi is warning that the negative rates may stop institutions being able to make money, which in turn would hit their ability to pay out on things like pensions and insurance policies. Here is the key quote from analysts at Citi (emphasis ours): "For instance, on May 10, 2016, the President of BaFin, Germany’s financial regulator, warned that low interest rates were threatening the viability of German pension funds and insurance companies and were a “seeping poison” for Germanys banking system. In this note, we argue that the diagnosis of a threat to German pensions funds and insurance companies is probably correct and that banks too may have their profitability damaged by persistent negative policy rates unless the effective lower bound (ELB) on interest rates is removed or, at least, lowered significantly or business models are changed radically."

Some German banks are doing the 'unthinkable' - One of Germany's largest banks is seriously considering stockpiling cash. Sources within Commerzbank have told Reuters they are "examining the possibility" of hoarding billions of physical euros in secure vaults.  This is truly bizarre. Under normal conditions, holding cash is anathema to commercial bankers. They keep as little as possible on hand; they certainly don't go out of their way to hold more.  Yet, here we see a major bank considering doing just that.  Why would a financial institution hoard cash? Given the lending rules in Europe, this tactic makes sense. Hoarding cash allows banks to avoid the -0.4% NIRP penalty for parking cash with the ECB. Nonbank financial institutions are also storing cash. Munich Re, one of the world's leading reinsurers, said back in March it would store both physical cash and gold to avoid paying negative interest rates. Although management framed the move as a minor test at the time, you don't conduct a test like that unless you see some chance that you'll need to hold cash on a larger scale.Perhaps not coincidentally, the ECB announced plans to remove 500-euro notes after 2018. The ostensible reason is that the large notes could "facilitate illicit activities." However, few believe the deterrence of crime was the bank's main objective. The ECB knows that discontinuing larger bills makes cash storage more expensive and less feasible for banks. It also knows that the presence of large amounts of physical cash in an economy is inconvenient for any central bank that wants to push interest rates negative.

Surging Far-Right Movements Across Europe Are Making Hitler Popular Again - An Argentinian man has purchased more than 50 items of Nazi memorabilia from a controversial auction in Munich. The single purchase, said to have totaled more than $683, 000 (£462,000), included a jacket owned by Adolf Hitler and silk underwear that once belonged to Nazi military leader Hermann Goering. Though the event was closed to press following public outcry, the items under the hammer were sold under the theme, “Hitler and the Nazi Grandees — a look into the abyss of evil,” and hailed from the private collection of John K. Latimer, the physician at the Nuremberg trials. According to Bild, 50 people attended the auction of more than 169 Nazi relics. An undercover journalist from the German newspaper reported the room was filled with young couples, elderly men, and muscular men with shaved heads and tribal tattoos. The buyer reportedly used the number 888 — the neo-Nazi code for “Heil Hitler” — to make his purchases. One of the items he bought was a brass container Goering used to kill himself with hydrogen cyanide.

Italy's Anti-Establishment 5-Star Movement Delivers Dramatic Victories In Key Mayoral Races -- Until now, Italy's 5-Star Movement has been viewed a protest and opposition party, however a second round of mayoral elections on Sunday changed that.  As we reported earlier this month, the anti-establishment 5-Star Movement candidates in the key cities of Rome and Turin had advanced to the second round of voting in each mayoral race. In Rome, the largest stage for voters to show displeasure with politics as usual under Prime Minister Matteo Renzi, residents were seeking new leadership to put an end to the recent turmoil which included corruption allegations, poor management, and political upheaval. On Sunday, voters in Italy's capital decided quite definitively that it was time to move in a new direction. 5-Star Movement candidate Virginia Raggi, a 37-year old lawyer, was elected Rome's first female mayor by winning a stunning 67% of the vote in the second round. Raggi trounced Roberto Giachetti (Prime Minister Renzi's Democratic Party candidate) who took down just 33% of the vote the WSJ reports. The election of an anti-establishment 5-Star Movement candidate is a statement in itself, however by taking 67% of the vote over Renzi's candidate, a resounding message has been sent that the voters want change.

Hollande Capitulates to EU Pressure on Labor Laws Risking His Own Presidency - Real News Network (video & transcript) As you know, we've been reporting on the growing labor protests in France. And one of the key issues that we are dealing with in these protests is the effort on the part of the French government to conform to the requirements of the European Union, as they were trying to do in France, when it comes to labor conditions. Now joining us to talk about all of this from Paris is Renaud Lambert. He is the editor of the monthly paper Le Monde diplomatique.

The European Dead End: European construction began as the dream of European elites and has become the nightmare of European peoples. For a number of European intellectuals and politicians, the dream was to transform Europe into a sort of Superstate, capable of rivaling the United States. For others, the idea was to get rid of the Nation-State once and for all, since it was considered chiefly to blame for the woes of the 20th century.However, aside from the fact that this dream always enjoyed strong United States support, which casts doubts on its claim to constitute an alternative to American domination, it suffers from a fatal flaw: the nonexistence of a European people. That is, an overwhelming majority of European citizens feel part of their respective Nation-States, or of even smaller entities (Scotland, Catalonia, Flanders, etc.), much more than they feel “European”.Advocates of European construction have two answers to that objection: either that the feeling of belonging is an historic construction (in the case of modern Nation-States) and is being changed into a “European” sense of belonging, or else that the sense of belonging does not really matter, inasmuch as political decisions must be taken on the basis of economic rationality (the liberal view) or class interests (the Marxist view), rather than on the basis of sentiments.As for a sense of being European, it is perfectly possible that it may develop over the course of coming centuries, just as the various national sentiments did in the past. But one should not have illusions concerning the time scale. Such processes take centuries, and the Scottish example shows that even within a democratic State such as Great Britain, with equal rights for all and sharing the same language, centuries may not be enough to eradicate national feeling.

To Stay Open, Europe Needs to Close Its Doors - The United States has something important to teach Europe about the migration crisis. Right now, though, Europe isn’t listening. Recently, I wrote about the deal that the European Union reached with Turkey to stanch the flow of refugees and, at least in theory, significantly improve their treatment in Turkey. But even as the EU-Turkey deal has drastically diminished the number of asylum-seekers coming through Turkey, and thus the death toll in the Aegean, the numbers dying on the route from Libya to Italy have shot up. From Jan. 1 to June 12, according to the International Organization for Migration, 2,438 migrants died on that route, 650 more than died in the first six months of 2015. Tens of thousands more have been pulled from the sea. The United States has no lessons to offer on refugees, having accepted only 2,805 Syrians since last fall, but it does have something to offer on the equally vexed problem of illegal migration. And many of the people setting sail from Libya are Africans fleeing misery, rather than Syrians or Iraqis fleeing war. That is, they are migrants, not refugees. One thing Americans know is that the politics of migration can be lethal, no matter what the facts. Over the past several years, stopping illegal immigration became a rallying cry, first for the Tea Party, and then for Donald Trump, even as the actual problem had slowed to a trickle. Illegal crossings from Mexico are now at a 40-year low.  Europeans don’t need to be told about the poisonous effect of migration flows on national politics: Anger over migration may propel Great Britain out of the European Union this week. But the American lesson is that political leaders will not be able to move publics to embrace sensible reform so long as migrants themselves seem to be dictating national policy. Demetrios Papademetriou, former president of the U.S. think tank Migration Policy Institute and a leading scholar on the issue, says, “You must demonstrate to your populace that you are choosing most of the people who are coming to your country to give the public a sense that the government is in control.”

Why do people want less EU immigration? - Why will around half of the UK vote for Brexit? The answer you will hear time and again is EU immigration. But why do people dislike EU immigration? Of course people fear the unfamiliar, and that is a fear that can be played upon, but is that really why people dislike EU immigration? Not according to this poll.   More people think that EU immigration has been good for them personally than think the opposite. I’ll repeat that: more people think that EU immigration has been good for them personally than think the opposite. More people think the culture of Britain has been improved by EU immigration than the opposite. The reason people think EU migration has been bad for Britain is the impact on the NHS, and therefore by inference other public services. It is commonsense to many people that EU immigration increases the pressure on the NHS and public services, and it is confirmed by the newspapers they read: here is one example, and here are some more.  What people miss is that EU migrants pay tax, which could fund public services. Indeed EU migrants tend to be young, so they are likely to pay more tax in than they are likely to take out from using public services. It is why the OBR believes that restrictions on immigration would hurt the public finances. Which means that in reality EU migration creates more resources that allows the government to spend more on the NHS and other public services. Not only do EU migrants pay for themselves in this respect, they also make access easier for natives. Add in the negative impact of making trade with the EU more difficult, and it is clear that Brexit would have a negative impact on public services. No wonder Dr Sarah Wollaston switched sides.

Britain Votes to Leave E.U.; Cameron Plans to Step Down - — Britain has voted to leave the European Union, a historic decision sure to reshape the nation’s place in the world, rattle the Continent and rock political establishments throughout the West. Not long after the vote tally was completed, Prime Minister David Cameron, who led the campaign to remain in the bloc, appeared in front of 10 Downing Street to announce that he planned to step down by October, saying the country deserved a leader committed to carrying out the will of the people. The stunning turn of events was accompanied by a plunge in the financial markets, with the value of the British pound and stock prices plummeting. The margin of victory startled even proponents of a British exit. The “Leave” campaign won by 52 percent to 48 percent. More than 17.4 million people voted in the referendum on Thursday to sever ties with the European Union, and about 16.1 million to remain in the bloc. But it was not clear that the United Kingdom could survive withdrawal from the European Union intact. There was immediate pressure for another referendum on independence from Britain for Scotland, which voted overwhelmingly on Thursday to stay with Europe.

Brexit: The Crisis Begins -- Yves Smith - British voters delivered a stunning repudiation to their political and economic elites by voting to leave the European Union by a margin of 52 to 48. The fallout has already started. The pound is down by over 11%, and some experts anticipate that it could ultimately fall to as low as 1.05 to the dollar, its low in the early 1980s sterling crisis. British bank stocks are down by roughly 25%. Safe haven investments have spiked: gold is up 6% and the yen has traded through 100 to the dollar. The Nikkei fell by 8% and US stock futures suggest that the Dow could open down by 600 points. But Brexit represents something much bigger than an economic or political crisis. Although UKIP played shamelessly on the anti-immigration fears, many of the Leave campaigners argued for national sovereignity and self-determination. And the Northern areas that came in strongly for Leave have been left behind as London and environs prospered.  In fact, the very reason that so many UK citizens rejected the dire warnings of what was in store for them if they dared press the red Leave button was that those experts devised and implemented the neoliberal policies that have increased inequality, reduced their economic stability and accelerated political and social change.  Brexit is a crippling blow to the neoliberal order of unfettered trade and capital flows, and citizens being reduced to being consumers who have to fend for themselves in markets, and worse, increasingly isolated worker who are at the mercy of capitalists who are ever more determined to reduce labor costs and hoard the benefits of productivity gains for themselves. Whether they recognize it or not, and we’ll find out over the coming months and years how well different Leave voters saw the choice they made, they have chosen a lower standard of living as a price worth paying for a hope of more control over their destinies. Sadly, these voters are likely to realize the first part of that equation rather than the second.  What happens next is very much in play. In a radical departure from a failed prime minister stepping down immediately, Cameron plans to remain for 90 days to sort out party leadership. That sounds like a misguided set of priorities, and could possibly serve as cover for a rearguard effort to extract some concessions from the EU and try to schedule another referendum. Even if that is part of the plan, it seems unlikely to succeed, given that Cameron got almost nothing from his pre-referendum negotiations to extract waivers, and the German insistence that the British must be made to suffer as much as possible for this vote pour decourager les autres.

Holy &%$# — now what? Questions for the day after - That’s it. That thing that seemed first impossible, then worryingly plausible, then shockingly probable — it’s actually happened. The stunning vote for Leave hasn’t just cratered financial markets. It also introduces a period of baffling uncertainty that, we suspect, far too many advocates of Remain have been too complacent about ever having to face one day. But ready or not, it’s here. As far as we can tell, these are the immediate questions raised by the stunning outcome:

  • – What is the bottom for markets? Expect dramatic fluctuations in the initial hours and days. To the extent that market participants accurately try to anticipate broader economic outcomes, they have a challenging task ahead. Consider the many estimates for how much Brexit would force the UK to deviate from baseline economic growth. A drop of 2 per cent was commonly cited, but for instance this argument from the Economist Intelligence Unit that the likelier number is 6 per cent seems just as reasonable.
  • – Will Mark Carney move swiftly to loosen monetary policy if liquidity dries up quickly? The decline in the pound will do some of the initial work here — as Kit Juckes at SocGen said, “the view of policymakers will be that a weaker pound is a vital economic shock absorber” — but the severity of its drop will surely also prompt the BOE to not only loosen policy (questions about raising interest rates to combat drop valid at some point, of course, but we’re not sure when) but to add reassurances about shoring up liquidity. At this point it’s not crazy to wonder if the UK will beat even the BOJ to using helicopter money, as some analysts have suggested.
  • – How will the ECB respond? More on the political side at the bottom, but you’d expect uncertainty and sovereign spreads to widen in the periphery. The ECB, per our inbox, will probably grant unlimited liquidity. And per BNP Paribas, who are out with a quick reaction note: “A temporary increase in monthly sovereign bond purchases is likely. And a persistent rise in risk aversion in periphery markets would require OMT activation (but it will take more time).”
  • – How will the Fed and other central banks respond? Janet Yellen explicitly noted that the possibility of Brexit factored into the Fed’s decision to hold rates steady at the last meeting. If the reverberations are powerful enough, will the world’s central bank be forced to respond more forcefully — either with mild reassurances of maintaining global liquidity or with more aggressive promises to keep policy loose?

BoE: “We have taken all the necessary steps to prepare for today’s events.” - Statement from Carney: The people of the United Kingdom have voted to leave the European Union. Inevitably, there will be a period of uncertainty and adjustment following this result. There will be no initial change in the way our people can travel, in the way our goods can move or the way our services can be sold. And it will take some time for the United Kingdom to establish new relationships with Europe and the rest of the world. Some market and economic volatility can be expected as this process unfolds. But we are well prepared for this. The Treasury and the Bank of England have engaged in extensive contingency planning and the Chancellor and I have been in close contact, including through the night and this morning. The Bank will not hesitate to take additional measures as required as those markets adjust and the UK economy moves forward. These adjustments will be supported by a resilient UK financial system – one that the Bank of England has consistently strengthened over the last seven years. The capital requirements of our largest banks are now ten times higher than before the crisis. The Bank of England has stress tested them against scenarios more severe than the country currently faces.

Does Leave really mean Leave? -- Basically… yes, according to Morgan Stanley, who have however outlined one tortuous alternative path: We do see a political route to reversing the decision – a new parliament with a majority for a pro-Remain party which is either elected on a reversal platform or subsequently holds and wins a new referendum on reversing the decision. But this is quite an ask: First, the reversal of the decision probably has to be done before the UK actually exits, since at that point the UK may lose its special status (its opt-outs from the euro and Schengen and the rebate), which would significantly reduce the attractiveness of EU membership. This, in turn, would require early dissolution of parliament. That would requires some Conservative MPs to vote against the government, given that the condition for early dissolution is: a) A two-thirds majority of MPs voting in favour of a new election, or b) That the government loses a vote of confidence(and that another government cannot be formed within two weeks). Second, there is a risk that if the EU and UK get into an acrimonious divorce, then UK political sentiment will harden behind Leave. As we went to pixel, David Cameron was telling the nation that he would step down by October (when the Conservative party’s conference will be held). He will leave it to Britain’s next prime minister to notify the European Council of the two-year withdrawal period provided for under Article 50. The UK is delaying already. And that’s assuming the next prime minister avoids an election in the meantime as Britain’s politics goes through its most extraordinary period since the end of the war…

Brexit earthquake has happened, and the rubble will take years to clear” -  There is a difference between measuring the height of a drop and the sensation of falling; between the sight of a wave and hearing it crash on to the shore; between the knowledge of what fire can do and feeling the heat as the flames catch. The theoretical possibility that Britain might leave the European Union, nominally the only question under consideration on the ballot paper, turns out to prefigure nothing of the shock when the country actually votes to do it. Politics as practised for a generation is upended; traditional party allegiances are shredded; the prime minister’s authority is bust – and that is just the parochial domestic fallout. A whole continent looks on in trepidation. It was meant to be unthinkable, now the thought has become action. Europe cannot be the same again. The signs were always there, even if the opinion polls nudged Remainers towards false optimism at the very end of the campaign. Brexit had taken the lead at times and always hovered in the margin of error. But the statistical probability of an earthquake doesn’t describe the disorienting feeling of the ground lurching violently beneath your feet. That is what has happened, although there is no geographical epicentre of the Brexit vote. The first tremor was in the north-east, Sunderland, but it was soon clear that towns across England where remain needed to notch up a steady tally of votes were tilting the other way, sometimes dramatically.  But the practical reality of UK participation in European institutions felt almost beside the point as great cultural and geographical fault lines cracked the political landscape open. Although the vote has to be interpreted as an instruction to withdraw from the EU, it sounded in the early hours of Friday more like a howl of rage and frustration by one half of the country against the system of power, wealth and privilege perceived to be controlled by an elite residing, well, elsewhere. Westminster was the target as much as Brussels. But even that account doesn’t quite do justice to the complexity of what unfolded, or rather, what crumbled.

"Worse Than Lehman" - European Bank Bloodbath Sparks Dollar Funding Crisis - For European banks, today is worse than Lehman with a 13%-plus collapse in the broad index. The major banks - like Credit Suisse and Deutsche Bank - have crashed over 15% to record lows as "Lehman moments" loom. This crisis prompted massive demand for USDollars, sending basis swaps (and other funding vehicles) spiking which it appears is why The Fed said it was ready to provide liquidity. The broad EU banking system is collapsing... Led by the majors... Raising "Lehman moment" alarms again... And sparking desperate demand for USDollars... And Sterling was sold hard into the European close (down 200 pips) As counterparty risk looms again... Which explains why The Fed stepped up already with swap lines...Earlier today we said that it was inevitable that the Fed would join the world's other central bankers in providing backstops to global markets, the only question is whether it would take place before or after the open. We now have the answer. Before.. The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy. Because free, impartial, efficient, and unmanipulated markets. Also we can finally stop holding our breath on those two Fed rate hikes which the FOMC anticipates in 2016.

Nomura Warns "Do Not Underestimate The Global Contagion" From Brexit -- In a nutshell, Nomura expects the global impact of the Brexit to be more through the financial, confidence and psychology channels than simply through trade. Their warning is to not underestimate the depth and reach of global financial market contagion, which seems to have increased since 2008... To assess the global impact of this surprise result, it is important to look beyond the trade channel. Once the financial, confidence and psychology channels are taken into account our warning is to not underestimate the depth and reach of financial market contagion to Asia. A globally coordinated central bank response to a global financial market meltdown is quite likely, such as liquidity support through FX swap arrangements and possible FX intervention,but with policy credibility at such a low it is unclear how successful these emergency measures would ultimately be when there is extreme market risk aversion. Do not underestimate the global contagion.  At first glance, it would seem that the financial and economic impact of this result should be largely confined to the UK, given that its economic size is quite small at less than 4% of world GDP and world imports in 2015. However, we believe that this is too simplistic of a view and that the impact of the Brexit will be far reaching and long lasting, for two main reasons. First, we expect non-trivial spillover to the euro area economy and financial markets.While the value of merchandise exports from the rest of the EU to the UK is only 3% of the rest of the EU’s GDP1, the UK’s position as a global financial hub – UK financial sector assets account for more than 8x its GDP – leaves the rest of the EU much more exposed to the UK in terms of financial and investment linkages, in part reflecting the UK’s relatively liberalised domestic market and its strong legal framework and institutions.

The ‘Brexit’ Vote Means It’s Crunch Time for the Global Economy -Rana Foroohar - It’s quite telling that the markets were only pricing in about a 25% chance that Britain would vote to leave the European Union. As studies have shown, there’s a larger trust gap than ever before between global elites and the mass populations in various countries. The fact that Wall Street so badly misinterpreted the desires of Main Street is, in some ways, no surprise. Markets have been terrible at predicting populism in the last few years, both in Europe and in the U.S.  But it doesn’t make the result any less painful, both because it’s the end of the E.U. as we know it—which was the most benevolent experiment in globalization ever—but also because markets are already having a very painful reaction to the news. Stocks everywhere are down, the pound has plunged (and may have further to go, according to estimates by the ECB and predictions by folks like George Soros). I expect that we’ll be in for a very volatile day and indeed, few weeks, in part because this may be the beginning of the larger market correction that many of us have been expecting for some time.  Let me explain why: The recovery we currently have isn’t a real recovery. It’s one that’s been genetically engineered by the world’s central bankers, who were forced, thanks to a lack of fiscal action on the part of politicians, to pour $29 trillion into global markets over the last eight years in order to offset a longer recession or even depression. But monetary policy can’t fix things on the ground—it can only buy policy makers and business people time to do that themselves. Sadly, there has been political gridlock in most major capitals (just look at the floor of Congress over the last few days, not to mention the heated politics of our presidential election cycle), and business is sitting on its cash. As behavioral economist Peter Atwater told me this morning: “The financial markets and the global financial and political elites are only just waking up to the extreme confidence gap amongst the public at large. Today’s market reaction is just the beginning of this; by the time everyone understands [how angry the public has been] the markets will be substantially lower.”

Why Brexit is worse for Europe than Britain - Larry Summers  -- For Britain, the economic effects are two sided.  On the one hand, a major jolt has been delivered to confidence, to future unity and down the road to trade.  On the other, the currency has become more competitive, and liquidity will be in very ample supply.  I would expect that a significant deterioration in growth and a recession beginning in the next 12 months has to be a substantial risk though short of an odds on bet.  As suggested by the fact that stock markets in Italy and Spain are down almost twice as much as in the UK, the prospects for Europe may in some ways be worse than for the UK.  There is the real risk of “populist exit contagion” in a number of countries.  A credit crunch is a serious risk.  Unlike in Britain, the trade weighted exchange rate is unlikely to decline very much.  The central bank has less room for incremental policy measures. The effects on the rest of the world will depend heavily on psychology.  I continue to be alarmed as I wrote in this space a few days ago that this unexpected outcome in the UK will raise the spectre of “Trump risk”.  If the UK can vote for Brexit perhaps the U.S. can vote for Donald Trump.  I fear this possibility will lead to a freezing up of spending decisions particularly on the part of internationally oriented businesses.  The odds of U.S. recession beginning within the next 12 months are I think now in the 30 percent range.  Also noteworthy is that an environment of increased risk aversion and flight to quality will complicate Japan’s problem of generating inflation, and China’s challenge of attaining currency stability. To an extent that is underestimated in some quarters and understated in others, the world economy is far more brittle than usual because of the inability almost everywhere to lower interest rates substantially.  Normally in response to incipient downturns central banks lower rates by 400 basis points or more.  Nowhere do they have that kind of room.  Nor is there large scope for reducing term and credit spreads given their very low levels.  This is no time for austerity.  Greater use of fiscal policy should be on the agenda almost everywhere and certainly with the change of government in the UK.

With a single vote, England just screwed us all - Felix Salmon -- I’m grieving. Because that world—the world of hope, the world of ever-closer union among countries which for centuries would kill each other by the million—came to a shattering end on Thursday. It happened with a wholly unnecessary vote, which was called by Britain’s gormless prime minister, David Cameron, for the sole purpose of trying to engineer a tactical advantage in last year’s general election. The Brexit referendum—the referendum that sealed the fate of an entire continent—should never have happened in the first place. But even though the decision to call the referendum was truly idiotic, the responsibility for the outcome still rests on the shoulders of the British people—and, specifically, of the English people. Northern Ireland voted to remain in the EU; Scotland voted overwhelmingly to remain. England drove this result, and specifically Little England—the older, whiter areas outside the big cities. The Leave campaign might have paid superficial lip service to the idea of a global Britain with more room for Bangladeshi immigrants, but make no mistake: this was a racist campaign that ended up causing both death and disaster.The world’s bond markets (and, even more, its foreign-exchange markets) tell you everything you need to know about the financial implications of this vote: recession in the UK, quite possibly recession in Europe, and extremely nasty spillover effects in the rest of the world, including the U.S. The small-minded burghers of rural England have managed to destroy trillions of dollars of value globally, including to their own investments, pension plans, and housing values. And things will get worse before they get worse: it’s going to take a while for all the subsequent shoes to drop.

Frankfurt, Paris...In Search of a *Real* EU Banking Center -  With the non-London English and Welsh effectively taking the UK out of the EU, London's place as a banking center--at the very least an EU banking center--has been thrown into question. With big things afoot, where will London bankers and others now decamp that's truly European? The two early contenders are two cities which London actually vanquished in the 80s and 90s--Frankfurt, Germany and Paris, France. That said, those relocating from London will probably need to get used to a lower standard of living: London-based bankers considering a possible relocation if Britain votes out of the European Union would suffer pay cuts of up to 80 percent if they were to move to Frankfurt or Paris, data from salary-benchmarking site Emolument showed. Analyzing 8,065 salaries for front-office banking roles in London, Frankfurt and Paris, Emolument found that London bankers earned higher salaries than their German or French peers, from entry-level analyst jobs right up to coveted managing director positions.  That said, lower wages are partly offset by lower costs of living on the continent:  London-based associates earned 100,000 pounds ($146,570) on average, compared with 71,000 pounds and 70,000 pounds for their contemporaries in Frankfurt and Paris respectively, while directors earned 280,000 pounds - 98,000 pounds more than peers in Frankfurt and 114,000 pounds more than Paris-based directors.  Despite the broad pay gaps, Emolument said some bankers could be financially better off if they moved to Frankfurt, where the cost of living is 60 percent lower than in London. In Paris, however, a 35 percent reduction in living costs compared to London would not fully offset the steep pay cuts a move to the French capital would entail.  I am certain that, in the aftermath of this vote, many bankers will not want to leave London. However, they have no choice now.