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

Saturday, March 29, 2014

week ending Mar 29

FRB: H.4.1 Release--Factors Affecting Reserve Balances--March 27, 2014: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

Did Yellen intend to tighten policy last week? - When Janet Yellen was nominated to be Fed Chair in October 2013, the markets viewed her as the most dovish candidate the President could possibly have selected. Based on her decades of published economic research, that judgment seemed amply justified. At around the same time, the FOMC appeared to duck an obvious opportunity to taper its asset purchases in September. The Fed’s extreme dovishness appeared to be baked in. However, in retrospect, last autumn turned out to be the high point for the dovish camp. Asset purchases were tapered in December; Ms Yellen quickly adopted language very close to the mid point of the FOMC, not the dovish end; and the statement after her first FOMC meeting last Wednesday led to an immediate jump of almost 15 basis points in the 5 year treasury yield. Many commentators, including the normally well-informed Robin Harding and Jon Hilsenrath, argued that Ms Yellen had not intended to give such a hawkish signal. Viewed narrowly, that is probably right: Ms Yellen herself claimed there had been no change in policy last week. But in a wider sense there has been an unmistakable shift in the FOMC’s centre of gravity in the past few months. The key to this shift is that the mainstream doves who have dominated policy decisions in the past few years have now essentially stopped arguing against either the tapering of the balance sheet or the start of rate hikes within about a year from now. Only the isolated Narayana Kocherlakota remains in the aggressive dovish corner.  The markets still seem entirely untroubled by this impending headwind for asset prices, but it is the new reality, unless the economy slows sharply.

Fed Watch: Post-FOMC Fedspeak -- First, I did not cover Federal Reserve Chair Janet Yellen's definition of a "considerable period" as six months in my review of the FOMC statement. I did not highlight the issue because when I went back to the tape, it looked clear to me that the bulk of the bond market response came at the release of the statement and projections. To be sure, the equity market stumbled, but here I completely agree with Felix Salmon: So why does everybody think that Yellen blundered? The answer is simple: they were looking at the stock market (which doesn’t matter), rather than the bond market (which does). Stocks fell, briefly; not a lot, and not for long, but enough that people noticed. It is the bond market response that is important, and that response was pre-Yellen. It is not entirely clear that the six months timeline was new information. Or, at least, it wasn't to St. Louis Federal Reserve President James Bullard: “That wasn’t very different from what we had heard from financial markets, so I think she’s just repeating that at that time period,” Second, the more important issue appears to be the interest rate projections, the now infamous dot chart. In her press conference, Yellen attempted to deny the projections contained much useful information in her testimony: But more generally, I think that one should not look to the dot-plot, so to speak, as the primary way in which the committee wants to or is speaking about policies to the public at large. The FOMC statement is the device that the committee as a policy-making group uses to express its – its opinions. And we have expressed a number of opinions about the likely path of rates. Dallas Federal Reserve President Richard Fisher went further. Via Bloomberg: There is a “fixation if not a fetish on the dots,” he said. The change in forecasts by Fed officials came before this week’s meeting, he said. “Somehow, this was read as a massive shift,” Fisher said. “These are our best guesses.” The Fed wants markets to focus on the distance between the bulk of the dots and participants view of normal.

Janet Yellen’s Bigger Problem - Don't blame Janet Yellen for what she said. Blame her for what she's doing.  She said, in answering a question, that the Fed would probably raise interest rates "around six months" after its quantitative-easing program ends. The remark is being called a "gaffe" that caused stocks to fall. The Standard & Poor's 500 Index fell 1 percent in the seconds after she made the comment.Some of Yellen's critics fault her for being too forthright and specific. The Fed often gets knocked for being unclear, they say, but opacity has its virtues. This critique seems off the mark. If the Fed really does intend to tighten monetary policy six months after QE ends -- or roughly next spring, if present trends continue -- the market will have to adjust to that event soon enough. In that case, specificity would be no sin. But Yellen's other remarks at the news conference suggest that the Fed doesn't desire to be ruled by the calendar. Economic conditions will guide its decisions. To the extent Yellen's remarks were problematic, then, it was not because they made the Fed more transparent but because they made it less so. They may have been misleading about the central bank's intentions, making it seem as though the Fed were more eager to tighten money than it is. The Fed's communications strategy is important, and not just because it can produce short-term swings in the stock market. Fed policies work in part -- many economists would say in large part -- through their effect on market expectations. In this case, though, the muddled communications aren't a gaffe. They reflect a muddled policy. The markets are obsessed with every syllable Yellen utters because they're so unsure about what the Fed is going to do. Its behavior is difficult to predict. It has acted in an ad hoc way for the past several years and has never bound itself to any rule.

Inside Fed Statement Lurks Hint on Rates - Yellen caused a stir last week when she suggested the central bank might start raising short-term interest rates a little sooner than investors were expecting. In focusing on that, Wall Street might have glossed over news of greater consequence. In the official policy statement, the Fed said it planned to keep short-term rates below what it sees as appropriate for a normal economy even after the unemployment rate and inflation revert to typical levels officials see the Fed's target short-term interest rate at just over 2% at the end of 2016, well below the 4% they consider appropriate for an economy running on all cylinders In 2016, for example, the Fed projects the jobless rate will reach 5.4%, economic output will be growing at a rate near 3% and inflation will be just below 2%. That level of unemployment would be lower than the average over the past 50 years. Yet officials see the Fed's target short-term interest rate at just over 2% at the end of 2016, well below the 4% they consider appropriate for an economy running on all cylinders.

Business Economists See First Fed Hike Coming By June 2015 - Federal Reserve Chairwoman Janet Yellen caught some investors off guard last week when she signaled the central bank’s first move to raise interest rates in years could come in early 2015. But that timeframe jibes with the forecasts of many business economists. The National Association for Business Economics, in a survey conducted between Feb. 19 and March 5 that captured the views of 48 forecasters, found that almost three-fourths of respondents expect the Fed to raise the federal funds rate by June 2015. The largest share, 40%, expects the increase in the first half of next year. A substantial share expects the interest-rate target to rise this year: 9% of respondents see an increase in the second quarter, 13% in the third quarter and 11% in this year’s fourth quarter. Just 13% think the move will come in the second half of 2015 and 15% expect it to come in 2016 or later. More than one-fourth of respondents, 27%, named rising interest rates as the biggest threat to economic growth over the next two years. Financial instability in emerging markets, federal budget battles and onerous regulations were seen as lesser threats. Still, the forecasters see the economic recovery continuing to gain traction. They forecast year-over-year growth will accelerate to 2.7% in the fourth quarter of this year and to 3.2% in the fourth quarter of next year from 2.5% in the same period of 2013.

Atlanta Fed’s Lockhart Says Second Half of 2015 Is Soonest Rates Could Rise - The Federal Reserve will likely begin to raise interest rates in the second half of 2015, but it could be much longer because the U.S. labor market needs time to fully recover from the recession, Federal Reserve Bank of Atlanta President Dennis Lockhart said Tuesday.  The Fed last week said in a statement it will maintain that rate for a “considerable time” following the end of its bond-buying program, which aims to stimulate the economy by lowering borrowing costs and is on track to wind down this year. Chairwoman Janet Yellen, at a press conference, said that “probably means something on the order of around six months.” Ms. Yellen’s estimate, which could mean an initial rate increase in spring or mid-2015, spooked some investors who expected the Fed would wait longer. Other Fed officials have said it doesn’t represent any change in policy. “The private sector had that kind of number penciled in,” Federal Reserve Bank of St. Louis President James Bullard said Friday. But Mr. Lockhart said Tuesday it could be longer. “I think it’s a question of conditions that actually are achieved over the next two or three years. I think when Chair Yellen, in a sort of offhand way said maybe six months or longer, that is really a minimum, not a maximum,” he said. “We’re not going to flip a switch from easy money to tight money. We’re not going to flip a switch where overnight you go from one environment to a radically different environment. I don’t see that happening,” Mr. Lockhart said at a business conference in Atlanta. “The environment after the beginning of normalization of interest rates is going to remain, I think, very accommodative for some time after that decision.”

Fed should start rate hikes in first quarter 2015, Bullard says (Reuters) - The Federal Reserve, which has kept short-term U.S. interest rates near zero since late 2008, should start raising them early next year with the aim of returning them to normal by the end of 2016, a top Fed official told Reuters on Thursday. "Mine is in the first quarter of 2015, as far as liftoff for the funds rate," St. Louis Federal Reserve Bank President James Bullard told Reuters Insider television, when asked for his view on when the U.S. central bank should make its first rate hike since 2006. "You have to keep in mind I tend to be a more optimistic member of the committee," he said. "I have a probably, a somewhat stronger forecast and a view about policy that suggests that maybe we should get up a bit faster than what some of the other members have." Bullard said he believes that by the end of 2016 the Fed should be targeting a "normal" short-term policy rate of 4 percent to 4.25 percent. By then, he told Reuters, the economy's growth and the labor market will probably have returned to normal, and inflation will have risen back up to the Fed's 2-percent target. That view marks Bullard as the most hawkish of Fed officials as policymakers weigh the delicate decision of when and how quickly to raise short-term borrowing costs.

Fed’s Evans: Interest Rates to Stay Near Zero ‘Well Into 2015′ - Federal Reserve Bank of Chicago President Charles Evans said Friday he supports keeping interest rates near zero until some time next year in a bid to lift inflation from unacceptably low levels. “If the Fed embarked prematurely on more restrictive monetary policy conditions, these adverse actions would work to reduce inflation to further unacceptably low levels,” Mr. Evans said in the text of a speech prepared for delivery to the Credit Suisse Asian Investment Conference in Hong Kong. “That’s going in the wrong direction,” the official said. “I currently expect that low inflation and still-high unemployment will mean that the short-term policy rate will remain near zero well into 2015,” Mr. Evans said. The central banker isn’t currently a voting member of the monetary policy setting Federal Open Market Committee. Mr. Evans has been a steadfast supporter of aggressive action to help spur economic growth. His expectation that short-term rates will remain near zero jibes with those of the majority of other central bankers. “If it were within our capability to set interest rates at negative levels, if we weren’t stuck with the zero-lower-bound, we would have reduced to negative territory, short-term interest rates,” he said in response to questions after his speech. Mr. Evans suggested that economic conditions would have justified a Fed funds rate of minus 5% in 2009.

Fed in No Hurry to Decide Mechanics of Rate Increases -  Federal Reserve officials are moving slowly in discussions about how to manage the mechanics of interest rate increases once they decide to start tightening credit. The  A number of officials, in interviews and public comments following the Fed’s last policy meeting, suggested they have not moved forward on a range of technical decisions they’ll need to make before proceeding on rate increases. Among those questions: What will the Fed’s first rate move look like? The central bank says that it aims to keep its target for its benchmark federal funds rate in a range between 0 and 0.25%. The rate sits just below 0.10% most days. When the Fed first raises the rate, it will have several choices. It could first firm the rate at the upper end of that range, 0.25%, and proceed later to lifting it higher. Alternatively, it could go straight to a higher level of 0.5%. Or it could lift the fed funds rate from a range of 0 to 0.25% to a range of 0.25% to 0.5%. Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, said in an interview with the Wall Street Journal this week he could envision the Fed first moving to firm the fed funds rate around the upper end of the central bank’s target range, at 0.25%, before moving it higher. Mr. Lockhart added he was in no hurry to make decisions. Because he doesn’t see the Fed moving short-term rates up from near zero until the second half of 2015, the issue isn’t pressing, he said. “I think it’s a little premature to have every technical detail ironed out at this time,”

You Can’t Connect the [Fed’s] Dots Looking Forward - John Taylor -- Many commentators view last week’s Fed meeting (including the FOMC statement, the Chair’s press conference, commentary from FOMC members) as another move toward more discretion and away from rules-based policy. Their reasoning is mainly based on the Fed’s change in forward guidance.  Rather than basing the future federal funds rate on a single quantitative measure—the unemployment rate—the Fed said it now would use a broader set of criteria without numerical quantities. John Cochrane wrote about this increased vagueness on his blog and Larry Kudlow and Rick Santelli asked me about it in interviews after the meeting.  They lamented the lack of rules-based policy, and so do I. In my view the recent Fed statements convey about the same degree of discretion that the Fed has been continually engaged in since the panic of 2008 ended. That discretion is clearly revealed by the repeated changes in the forward guidance criteria every year since the recession. Here what the Fed said about the federal funds rate in the past six years.

  • Dec 2008: “Exceptionally low levels…for some time…”
  • Mar 2009: “…for an extended period…”
  • Aug 2011: “…at least through mid-2013…”
  • Jan 2012: “…late 2014…”
  • Sep 2012: “…through mid-2015…”
  • Dec 2012: “…at least as long as the unemployment rate remains above 6 ½ percent…”
  • March 2014:  “…this is the kind of term it’s hard to define, but, you know, it probably means something on the order of around six months or that type of thing…”

Fed Watch: Williams Acknowledges Forecast Change - Earlier today I said: Fourth, the dots undeniably moved forward and steeper, which means individual outlooks on the definitions of "considerable period" or "accommodative" did in fact change in meaningful ways. I am surprised, however, that this was not anticipated by market participants given the rapid decline in the unemployment rate. Along any given Fed objective function, one would expect that a more rapid decrease in unemployment would move forward and steepen the interest rate trajectory, even if just by 25 or 50pb. The Washington Post's Ylan Mui had a sitdown with Federal Reserve President John WIlliams:Logically, given that the unemployment rate is a little bit lower, that suggests a little bit higher interest rate in 2016. Is that a big shift in the timing of the first rate increase? We’re talking about a relatively small change in terms of the forecast, and I wouldn’t see that as a significant shift. When I look at the SEP projections for 2015, I just don’t see much of a change in the views on policy -- definitely not the kind of change in views on policy that represents some shift in our policy framework. The fact that unemployment has come down since December a little more than we thought, this is not news. Everybody knows that.

Ad Hoc Monetary Policy - One of the defining features of U.S. monetary policy over the past five years has been its incredibly ad hoc nature. Over this time, the FOMC has conducted monetary policy with a spate of make-it-up-as-we-go-along programs (QE1, QE2, Operation Twist, QE3, and the Evans Rule) that it hoped would spur a robust recovery. These programs did get progressively better as they became more state dependent, but they were often implemented and ended in a haphazard fashion. This stop-go approach to monetary policy was politically costly and prevented the Fed from fully utilizing its ability to manage expectations of future nominal growth.  A great example of the Fed's ad hoc management of monetary policy is the tapering of QE3. Former Fed chair Bernanke announced it in the Spring of 2013, but the Fed kept the markets guessing for almost nine months as to when it would actually begin. And once it got started, some FOMC members were still uncertain about how much to do. Consider also the Evans Rule. It was implemented to firmly shape expectations about the future path of the federal funds rate. It was, in other words, created to increase certainty. However, when the unemployment threshold in the Evans Rule was no longer was consistent with FOMC preferences, the FOMC simply dropped it. So much for certainty. With decision making like this, FOMC officials themselves are uncertain as to what they will be deciding at the next meeting.

"QE Was A Massive Gift Intended To Boost Wealth", Fed President Admits - With Bernanke gone, the remaining Fed members knowing full well they will be crucified, metaphorically of course (if not literally) when it all inevitably comes crashing down, are finally at liberty with their words... and the truth is bleeding out courtesy of the president of the Dallas Fed, via Bloomberg. Fisher says QE was a 'massive gift' intended to boost wealth ... Which incidentally coincides with Bernanke's heartfelt "admission" that "my natural inclinations, even if it weren’t for the legal mandate, would be to try to help the average person." As long as helped to boost the wealth of the non-average billionaire., all is forgiven. "The result was there are still many people after the crisis who still feel that it was unfair that some companies got helped and small banks and small business and average families didn’t get direct help,” Bernanke said. “It’s a hard perception to break." The truth, as again revealed by Fisher, will not help with breaking that perception. We wonder how President Obama, that crusader for fairness, equality and all time Russell 200,000 highs, will feel about that? In the meantime, just like the Herp, QE is the gift that keeps on giving.. and giving... and giving... to the 0.001%.

Fed's Bullard: Limited Value In Central Bank International Coordination - Federal Reserve Bank of St. Louis President James Bullard said Wednesday that benefits to international coordination between monetary policymakers appear to be limited. Mr. Bullard said the “traditional” view of monetary policy on the international stage holds that “the gains from international monetary policy coordination in this view are small,” and added that he endorsed that view. But he acknowledged that others believe that if policymakers from different nations work together, monetary policy can be more effective and not cause disruptions in other nations. Mr. Bullard acknowledged the 2013 “taper tantrum” when moves by the Fed to begin paring back on its bond-buying stimulus program generated significant turmoil in emerging markets. Many argued that the Fed needed to take better account of how its policies affected other nations. Fed officials noted that they had a legal mandate to achieve job and inflation goals for the U.S. and that other nations needed to pursue policies to suit their domestic needs. Mr. Bullard noted “there is considerable room for debate” about the need for international coordination in monetary policy making. Some of the official’s comments came from slides prepared to accompany a speech that he was to give at a Credit Suisse investment conference in Hong Kong. He did not make forward-looking comments about the U.S. economy or monetary policy. But he did say financial stability concerns were “looming large” in the Fed’s internal debate about when to begin raising interest rates.

Fed’s Dudley: Fed Should Take Better Account of Its International Impact - Federal Reserve Bank of New York President William Dudley said Thursday the U.S. central bank needs to take better account of how its actions affect other countries, although he continues to believe there are limits to how much officials can coordinate policy actions. “Given the role of the dollar as the global reserve currency, the Federal Reserve has a special responsibility to manage policy in a way that helps promote global financial stability,” Mr. Dudley said in the text of a speech to be given before a private event held at his bank. In an address that acknowledged the serious difficulties many emerging markets have suffered as the Fed has moved to wind down its bond-buying program, Mr. Dudley said “our actions often have global implications that feed back into the U.S. economy, and we need to always keep this in mind. We also need to be careful not to underestimate the consequences of our actions.” Fed officials roiled global financial markets last summer when they indicated they were nearing a decision to start scaling back their bond-buying program, which is aimed at boosting U.S. growth by lowering long-term interest rates. Hardest hit were developing economies such as India, Indonesia and Brazil, which suffered sudden and severe outflows of capital, causing their currencies, stock prices and other assets to tumble. Several foreign leaders criticized the Fed for not paying more attention to the global spillover of its actions and not doing more to limit the fallout. Mr. Dudley said many emerging-market countries are now in a much better position, in terms of their economic fundamentals and the sophistication of their policy makers, to navigate volatile international financial conditions, even if the Fed may be a key driver of the tumult.  Mr. Dudley also said that when the Fed gets it right for the U.S. that can help other nations too. While “we are mindful of the global effects of Fed policy,” he said “promoting growth and stability in the U.S., I believe, is the most important contribution we can make to growth and stability world-wide.”

Fed Faces Very Low Risk of Losing Money on Holdings, San Francisco Fed Says - The Federal Reserve’s latest financial report showed it had a very profitable year in 2013, resulting in another big cash infusion for the U.S. Treasury but also raising questions about whether the central bank could post big losses someday when interest rates rise. New research by three economists at the San Francisco Fed should ease such worries. While it is possible the Fed may lose money when interest rates increase, it is pretty unlikely, according an “Economic Letter” posted on the San Francisco Fed website Monday. The authors wrote the probability that what are now large Fed surpluses might turn into deficits is just 0.1%. They added there is only about a 5% chance the Fed won’t make enough money to return excess profits to the Treasury, as it currently does, between 2016 and 2018. The San Francisco researchers identify two kinds of risk to the Fed’s finances from rising interest rates.  First, the market value of the Fed’s bonds and other assets could fall, but they note such losses “would only become realized if the securities were sold.” Fed officials have indicated they are more inclined to let the bonds mature over time rather than sell them. A second risk is that the Fed’s expenses could shoot higher, specifically the interest it pays on excess bank reserves parked at the central bank. A large enough increase might mean the money the central bank pays out could outstrip what it is taking in from its holdings.

Fed’s Pianalto: Still Falling Short on Fed’s Job, Inflation Goals - Federal Reserve Bank of Cleveland President Sandra Pianalto said Thursday she expects continued economic growth this year, and noted the central bank’s easy money policies should help that process. “I see the economy expanding at a slightly stronger rate this year than last. I expect GDP growth this year to be around 3%,” Ms. Pianalto said. “I expect the unemployment rate to fall to 6.2%” from its current level of 6.7%. “Even though we are making some progress, we are still falling short of achieving our objectives for maximum employment and 2% inflation,” she said. “Given elevated unemployment and persistently low inflation, monetary policy remains very accommodative,” Ms. Pianalto said, referring to Fed efforts to hold interest rates very low to encourage economic activity. The Fed has held short-term interest rates near zero since late 2008 and is buying long-term bonds—in gradually declining monthly amounts– to push down long-term rates. The Fed plans to buy $55 billion in long-term bonds in April, down from $65 billion in February and March, $75 billion in January and $85 billion in December. “Even though we are scaling back our asset purchases, we are still buying a sizable amount,” she said. “These sizable asset holdings should continue to maintain downward pressure on interest rates.” Ms. Pianalto said the bond-buying program has helped the economy. “We have seen benefits to our lower interest rate environment,” she said. She added, “you also have to weigh the costs” of such efforts and “we do not see costs currently.”

Has Janet Yellen Given Up On Her 2% Inflation Target? - Or, more precisely, has it become a ceiling rather than a target?  Among those who see Janet Yellen's first press conference as Fed Chair and the reports of the first FOMC meeting she chaired as indicating that 2% is now a ceiling to be approached from below rather than a target that could be approached from above are Tim Duy and Dean Baker.  I am not sure if it is true, but that would suggest that the initial reaction of the market that interest rate rises may be coming sooner than previously thought may be true, despite the welcome abandonment of a 6.5% unemployment rate trigger point, given the continuing declines in labor force participation by working age persons.  If indeed the ceiling argument is correct, what might lie behind this? First we need to remind ourselves where this 2% inflation target came from and Yellen's crucial role in its initial policy adoption by the Fed and its subsequent spread.   In 1990, Janet Yellen convinced Alan Greenspan of this argument in private conversation only revealed later as Fed transcripts became public, with Greenspan shifting from a zero rate of inflation target to the 2% level, even though throughout his Fed chairmanship, there never was any official target level, with this holding even well into the chairmanship of Ben Bernanke, even though it was widely known from not long after 1996 that 2% was effectively the de facto Fed target inflation rate. Given that decision, this target gradually spread throughout most of the other leading central banks, so that in recent years to varying degrees it has been either the official  or de facto target of the Bank of England, the Bank of Japan, the Bank of Canada, and the European Central Bank, among others.  However, in recent years the rate has drifted downward in many of these countries, including the US as well as the Eurozone, closer to 1% than 2% in the latter.  In practice, the rate has been in the 1-2% range for  many of these countries for several years. 

Fed’s Plosser Wants Inflation to Creep Higher - A top Federal Reserve official said Wednesday he wants to see U.S. inflation, which has been undershooting the central bank’s target for some time, to move higher. Charles Plosser, president of the Philadelphia Fed, told Fox Business he is optimistic about growth and employment. He added policy makers must defend their 2% inflation objective – both when price growth is running too high and, as currently, when it is too low. “The economy is in a pretty good place. We’re growing, not as robustly as some people would like to see, but at a pretty steady pace,” said Mr. Plosser, an inflation hawk who has a vote this year on the policy-setting Federal Open Market Committee. Mr. Plosser said he expects gross domestic product to expand around 3% this year. “I would like to see inflation creep up a little bit,” Mr. Plosser said. “I think it’s important that we defend that target, so we are a little low. But I do expect to drift back towards our target.” Mr. Plosser said he expects unemployment, now at 6.7%, to continue moving lower. He downplayed a recent shrinking in the American labor force, arguing it was due primarily to demographic trends.

PCE Price Index Update: Core Inflation Remains Far Below the Fed Target - The Personal Income and Outlays report for February was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate of 0.87% is a decline the previous month's 1.19% (a slight adjustment from 1.18%). The Core PCE index of 1.10% is unchanged from the previous month's upward adjustment from 1.09%. As I've routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be quite troubling to the Fed. After years of ZIRP and waves of QE, this closely watched indicator consistently moved in the wrong direction. Since April of last year has hovered in a narrow YoY range of 1.21% to 1.10% and is now stuck at the bottom of the range.  The adjacent thumbnail gives us a close-up of the trend in Core PCE since January 2012. The first chart below shows the monthly year-over-year change in the personal consumption expenditures (PCE) price index since 2000. I've also included an overlay of the Core PCE (less Food and Energy) price index, which is Fed's preferred indicator for gauging inflation. I've highlighted 2 to 2.5 percent range. Two percent had generally been understood to be the Fed's target for core inflation. However, the December 2012 FOMC meeting raised the inflation ceiling to 2.5% for the next year or two while their accommodative measures (low FFR and quantitative easing) are in place.  I've calculated the index data to two decimal points to highlight the change more accurately. . For a long-term perspective, here are the same two metrics spanning five decades.

Inflation Slows Again, Bouncing Around Four-Year Low - The Commerce Department’s latest read of consumer prices on Friday showed price pressures moving in a direction many Federal Reserve officials find uncomfortable. The personal consumption expenditures price index — the central bank’s preferred inflation gauge — slowed to an annual gain of less than 1%. The PCE index’s 0.9% annual increase in February marked the weakest reading since October, when year-over-year inflation touched a four-year low. The latest data suggests the U.S. faces little risk of rapidly accelerating inflation as the Fed slows the amount of stimulus it’s pumping into the economy. Earlier this month, the central bank said it would lower the pace of monthly bond buying by another $10 billion to $55 billion. Friday’s report showed the pace of food inflation increased in February after holding virtually flat the previous five months. But that gain was largely offset by declining prices for long-lasting durable goods and energy last month. The consumer price index, a separate inflation measure calculated by the Labor Department and released earlier this month, rose 1.1% in February from a year earlier. That, too, was a slowdown from January.

There can be an excess supply of commercial bank money - Nick Rowe - Commercial banks are typically beta banks, and central banks are typically alpha banks. Beta banks promise to convert their money into the money of alpha banks at a fixed exchange rate. Alpha banks make no such promise the other way. It's asymmetric redeemability. This means there cannot be an excess supply of beta money in terms of alpha money. (Nor can there be an excess demand for alpha money in terms of beta money.) Because people would convert their beta money into alpha money if there were. But there can be an excess supply of beta money in terms of goods, just as there can be an excess supply of alpha money in terms of goods. If beta money is in excess supply in terms of goods, so is alpha money, and vice versa. If commercial and central bank monies are perfect or imperfect substitutes, an increased supply of commercial bank money will create an excess supply of both monies against goods. The Law of Reflux will not prevent this. This is in response to David Glasner's good post. David has forced me to be much clearer about what it means to say there is an excess supply of commercial bank money.

Chicago Fed: "Economic activity increased in February" - The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth increased in February Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.14 in February from –0.45 in January. ... The index’s three-month moving average, CFNAI-MA3, decreased to –0.18 in February from +0.02 in January, marking its first reading below zero in six months. February’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Increased in February - "Index shows economic growth increased in February": This is the headline for today's release of the Chicago Fed's National Activity Index, and here are the opening paragraphs from the report:Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.14 in February from –0.45 in January. Three of the four broad categories of indicators that make up the index increased from January, and two of the four categories made positive contributions to the index in February.  The index's three-month moving average, CFNAI-MA3, decreased to –0.18 in February from +0.02 in January, marking its first reading below zero in six months. February's CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.  Fifty-four of the 85 individual indicators made positive contributions to the CFNAI in February, while 31 made negative contributions. Fifty-one indicators improved from January to February, while 33 indicators deteriorated and one was unchanged. Of the indicators that improved, 15 made negative contributions. [Download PDF News Release] The latest headline index at 0.14 came in below the forecast of 0.20. The Chicago Fed's National Activity Index (CFNAI) is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed's website. The index is constructed so a zero value for the index indicates that the national economy is expanding at its historical trend rate of growth. The first chart below shows the recent behavior of the index since 2007. The red dots show the indicator itself, which is quite noisy, together with the 3-month moving average (CFNAI-MA3), which is more useful as an indicator of the actual trend for coincident economic activity. I've added a high-low channel for the MA3 data since 2010. As we can see, the MA3 of the index hit the top of the channel two months ago and has now logged its second month of lower values.

U.S. Reports Modestly Better Economic Growth - The American economy grew by 2.6 percent in the final months of 2013, the Commerce Department said Thursday, a slight uptick from its previous estimate but still well below the pace of growth recorded in the third quarter.The revised data for last quarter, in what was the government’s third and final estimate of economic growth for the period, reflected slightly healthier consumer spending than first thought.The previous estimate for the months of October, November and December, reported in late February, was 2.4 percent. Thursday’s slight upward adjustment was in line with expectations among economists on Wall Street. The pace in the third quarter was 4.1 percent.Still, the 3.3 percent increase in personal consumption expenditures last quarter was the healthiest showing since the fourth quarter of 2010, when consumption rose 4.3 percent.It also came despite wintry weather in many parts of the country during the final weeks of the holiday shopping season, which prompted some economists to conclude that underlying consumer behavior was somewhat more robust than recent data had suggested.

Q4 GDP Revised up to 2.6%, Weekly Initial Unemployment Claims decline to 311,000 -- From the BEA: Gross Domestic Product, 4th quarter and annual 2013 (third estimate); Corporate Profits, 4th quarter and annual 2013 Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.6 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis. ...The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.4 percent. With this third estimate for the fourth quarter, the general picture of economic growth remains largely the same; personal consumption expenditures (PCE) was larger than previously estimated, while private investment in inventories and in intellectual property products were smaller than previously estimated ... Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 2.6% to 3.3%. Private investment was revised down.The DOL reports: In the week ending March 22, the advance figure for seasonally adjusted initial claims was 311,000, a decrease of 10,000 from the previous week's revised figure of 321,000. The 4-week moving average was 317,750, a decrease of 9,500 from the previous week's revised average of 327,250.The previous week was revised up from 320,000.

GDP Q4 Third Estimate at 2.6%, Up from the 2.4% Second Estimate -  The Third Estimate for Q4 GDP, to one decimal, came in at 2.6 percent, up from 2.4 percent in the Second Estimate. The GDP deflator used to calculate real (inflation-adjusted) GDP remained unchanged at 1.6 percent. had forecast 2.7 percent for today's GDP estimate and the deflator to remain unchanged. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.6 percent in the fourth quarter of 2013 (that is, from the third quarter to the fourth quarter), according to the "third" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 4.1 percent.  The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.4 percent. With this third estimate for the fourth quarter, the general picture of economic growth remains largely the same; personal consumption expenditures (PCE) was larger than previously estimated, while private investment in inventories and in intellectual property products were smaller than previously estimated (see "Revisions" on page 3).  The increase in real GDP in the fourth quarter primarily reflected positive contributions from PCE, exports, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.  The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and a deceleration in state and local government spending that were partly offset by accelerations in PCE and in exports, a deceleration in imports, and an acceleration in nonresidential fixed investment. [Full ReleaseHere is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product. I've also included recessions, which are determined by the National Bureau of Economic Research (NBER).

Final Q4 2013 GDP Misses Expectations, Rises 2.6% Annualized - Full Breakdown - And so the various estimates of Q4 GDP have made an almost full circle: starting at 3.22% in the first forecast, plunging to 2.38% in the second, and finally settling at 2.63%, a miss from the expected 2.7%. This is down from 4.1% recorded in Q3 which however as everyone knows by now was purely due to a unprecedented, record inventory build up.  In terms of components, Personal Consumption was the silver lining in this latest economic miss, rising at a 3.3% pace higher than the expected 2.7%. This was driven by greater than expected spending on health and financial services. Yes - higher health insUrance costs are somehow a boost to GDP. How this offsets spending on other end goods and services with a finite and declining disposable income stream remains to be seen. In terms of the actual contribution, Personal Consumption was 2.22%, above 1.73% in the prior revision, offsetting yet another decline in the contribution from Capex, i.e. Fixed Investment, which dropped from +0.58% to +0.43%. By now, however, even Larry Fink has figured out that as long as the Fed is around, there can be no true CapEx growth. Which means it is all about boosting Personal Consumption through the "Russell 200,000" wealth effect channel.The full breakdown of quarterly GDP is shown below.

Visualizing GDP: Dissecting the Third Estimate Upward Revision -- The chart below is my way to visualize real GDP change since 2007. I've used a stacked column chart to segment the four major components of GDP with a dashed line overlay to show the sum of the four, which is real GDP itself. Here is the latest overview from the Bureau of Labor Statistics: The increase in real GDP in the fourth quarter primarily reflected positive contributions from PCE, exports, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.  The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and a deceleration in state and local government spending that were partly offset by accelerations in PCE and in exports, a deceleration in imports, and an acceleration in nonresidential fixed investment.  Let's take a closer look at the contributions of GDP of the four major subcomponents. My data source for this chart is the Excel file accompanying the BEA's latest GDP news release (see the links in the right column). Specifically, I used Table 2: Contributions to Percent Change in Real Gross Domestic Product. To help us understand the Q4 revisions, here's a side-by-side look at the Advance, Second, and Third Estimate subcomponents. PCE was significantly trimmed in the Second Estimate but bounced back in the Third estimate. The reverse was the case for Private Investment. Ultimately net exports was the biggest difference maker between the Advance and Third Estimates, going from 1.33 to 0.99.

First Look at Q4 Domestic Income Shows Labor Share at Record Low, Corporate Profits at Record High -- New data released today by the Bureau of Economic Analysis showed that GDP grew slightly faster than previously estimated in the fourth quarter of 2013, an annual rate of 2.6 percent rather than the previously reported 2.4 percent. Consumption grew more strongly than previously estimated and investment slightly less strongly. Other components were little changed.  Today’s report also includes the first look at the composition of Gross Domestic Income for Q4 2013. The data show a continuation of recent shifts in income shares. As the following chart shows, the share of corporate profits in GDI rose to 12.65 percent, and the share of employee compensation, including wages, salaries, bonuses, and benefits, fell to 52.2 percent. These figures mark record highs and lows for these GDI components since 1947, the earliest year for which data are reported.  The following chart shows trends in the shares of major GDI components over the course of the Great Recession. In addition to compensation of employees and corporate profits, the chart shows the share of proprietors’ income, which includes the net income of proprietorships, partnerships, cooperatives, and other noncorporate enterprises. Proprietors’ income now accounts for 7.9 percent of GDI, up from its low for the recession, but it remains well below the levels of 10 to 15 percent that it reached in the 1950s. Several other small items make up the remainder of gross domestic income, including rental income of persons, net interest, and the net income of government enterprises, which is typically negative.  We can redraw the data in the previous chart to bring out the relative movements in the shares of GDI components more sharply. The next chart assigns a value of 100 to each component’s share in 2007, the year before the recession began. This chart shows that corporate profits were hit hard in the first months of the recession, but began to recover already by the end of 2008, when GDP was still falling. By the time the economy had officially entered the recovery phase in mid-2009, corporate profits were surging to new highs.

Philly Fed Leading Economic Index Suggests Expansion Across 100% of the Nation -- On Monday, the January release of the Philadelphia Fed's State Leading Economic Index came out for all 50 states of the nation. The leading index is a six-month forecast for the state coincident indexes and the January data showed that all 50 states are expected to see their coincident indexes rise over the next six months. This would be an improvement in the coincident data for January which showed that the coincident indexes increased in 48 states and remained stable in two. Not only are more states expected to grow over the next six months compared to growth in January, but the economic growth in most states is set to accelerate. You can visually see this when looking at the above chart of coincident economic growth rates compared to the  leading index chart below in which there are far more dark green states (growth > 1.5%) than in the coincident figure above and even two blue states (growth > 4.5%).  In addition to a diffusion index for all 50 states the Philly Fed also calculates a national economic leading index that aggregates the individual state data where economic growth is seen by numbers greater than zero while economic contractions are associated with readings below zero. The reading for January came in at 1.33 and comfortably sits above zero. The January data for the state leading indexes is important on several fronts. First, it tells us the risk of a recession remains low as readings below zero on the national index are associated with recessions and readings below 0.75 serve as a recession warning. This can be seen below as the zero reading often bookends recession dates while readings south of 0.75 give several months of warning of a coming recession.

Grantham: 'Next Bust Will Be Unlike Any Other' -Veteran fund manager Jeremy Grantham of GMO recently spoke to Fortune Magazine about the state of markets.  In his view, central banks have created an enormous bubble in stocks, by holding rates too low.  Grantham has long been skeptical of Fed actions. But the language he uses here is pretty dire:  We do think the market is going to go higher because the Fed hasn't ended its game, and it won't stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market's mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now...  ...But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money.   And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.  What's more, he explains, Fed actions have actually held back a stronger recovery, explaining that they have failed to boost capital spending while punishing savers.

Markets dismiss the risk of higher rates inhibiting growth  - Many continue to argue that the rate normalization taking place now will slow business activity in the US. There is no question that corporate America had benefited tremendously from extraordinarily low rates. Many US firms have locked in these rates over the past couple of years by refinancing - an interest expense savings that go directly to the bottom line. But what will happen now as rates "normalize"? One approach is to see what the markets are telling us. Let's look for example at the 5-year tenor where a great deal of corporate America borrows. Over the past year, the 5-year treasury yield has almost tripled. The markets however do not seem to imply slower growth. For example one indicator of corporate activity expectations is the Dow Jones Transportation Index (DJTI) - the oldest equity index that is still in use (launched in 1884). Increased transport usage is thought to precede improvements in industrial activity. When the DJTI outperforms the Dow Jones Industrial Average, the market is expecting stronger corporate performance going forward. And in spite of significantly higher rates (chart above), the DJTI outperformance has been quite pronounced.

Foreign Investment in U.S. Hits New Record - Foreign investment in the U.S. hit a fresh record in the final quarter of 2013 as rising stock prices boosted the value of American assets, according to figures released Wednesday.The value of foreign investment in the U.S. hit $26.54 trillion the fourth quarter, up $777.8 billion from the previous quarter and far surpassing a $372.1 billion increase in U.S. investments abroad, the Commerce Department’s Bureau of Economic Analysis said. Adjusting for inflation, the value of foreign investment surpassed the previous record in 2011 and is at the highest level since the data were first collected in 1976. The quarterly report showed foreign investors and companies playing an expanding role in U.S. markets. The development has worried some economists, because it makes the U.S. more vulnerable to major shifts in the global economy. But it also could show strengthening confidence in the American economy. The BEA said most of the quarterly increases were based on rising asset prices, rather than investors plowing more cash into markets. In that period, the Dow Jones Industrial Average rose by around 8% to new highs, buoyed by growing optimism about the U.S. economic outlook. U.S. investments overseas were tempered by lingering concerns about Europe’s economic recovery and worries over tapering growth in large emerging markets.

Q&A: Why the Dollar Remains the Reserve Currency - NYTimes - Economists called it the “dollar trap.” The world is trapped into buying dollars because the United States market is big, liquid and reliable as a safe haven. And America is trapped in an addiction to cheap credit, with foreign demand for the dollar allowing the nation to spend well beyond its means. In his latest book, “The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance,Eswar S. Prasad, the former head of the International Monetary Fund’s China division and now a professor of trade policy at Cornell University, explains how the dollar’s “exorbitant privilege” came into being, why it’s unlikely to face a challenge anytime soon from the euro or China’s renminbi, and why this is so troubling for the future of the global economy. He answered questions from David Barboza, the Shanghai bureau chief of The New York Times.

Belgium, America's Third Largest Creditor [Sort Of] - While researching the previous post, I came across a seemingly astounding finding: Unbeknownst to most, a European country has somehow gained a podium place in the international suckers' competition known as "Major Foreign Holders of [US] Treasury Securities." Topping these hosers was China with a GDP of $8.358 trillion, followed by Japan ($5.96 trillion) and, er, Belgium (483.7 billion)[?!]. $310.3B worth of Treasuries is nothing to sneeze at. The usual suspicion with high-placing Treasury holders without much reason for being there is that others course their transactions through them to disguise their motives and, consequently, their holdings. In past years, the United Kingdom has served this purpose as a lightly regulated money center. . At present, Caribbean offshore entities still perform this function, ranking a combined fourth overall among Treasury holders. So, is Belgium becoming the next major offshore economy? Especially since the European banking crisis, regulations there have certainly tightened, not loosened. What's more, Brussels does not usually count as a financial center--not even for Western Europe. What, then, is going on here? After consulting IPE stalwart Thomas Oatley over at UNC, he points me in the direction of Euroclear,  a massive clearinghouse headquartered in Brussels that was established to facilitate trade in Eurobond markets in the late Sixties. Since then, it has if anything else increased the scale of its operations and now boasts "[e]very 6 days we settle transactions equivalent to the GDP of the EU": The assets we hold for you are valued at €23 trillion. The total value of securities transactions settled for you by the Euroclear group is over €540 trillion per annum. Our multi-lingual, highly trained team of professionals based in Europe, Asia, the Middle East and the Americas are committed to providing personalised support

Shifting focus in the treasury markets -Treasuries once again experienced what amounts to a sharp curve flattening in recent days. The market action resembled what took place after the initial announcement of taper back in December (see post). The yields in the "belly" of the curve have risen sharply as the market prepares for rate "normalization". MarketWatch: - The yield curve’s violent reaction to the Federal Reserve on Wednesday shouldn’t be thought of as a first-day fluke by Chairwoman Janet Yellen. Rather, the rise of intermediate-term Treasury yields is one step in a monetary policy normalization process that will characterize the rest of the year, according to mammoth investment management firm BlackRock.  If last year was all about longer-duration Treasury yields moving higher — the 10-year Treasury yield rose more than a full percentage point and now trades at 2.78% – this year is all about the rise at the front end of the curve, according to Rick Rieder, chief investment officer of Fundamental Fixed Income for BlackRock.  “I think this is a very different year for managing fixed income,” he said in a press briefing Thursday. The MarketWatch article proceeds to describe in detail how rates had moved this year vs. last year. It all however comes down to a single chart which shows daily treasury yield volatility across the curve this vs. last year. A picture is worth, well you know...

5-year treasury cheapest in years after selloff -- The five-year treasury yield hit a multi-year high relative to the average of the two- and the ten-year rates (the 5-year treasury is cheap on a relative basis). The chart below shows a measure of how "concave" the treasury curve has been over time (negative indicates the curve is convex).Given that the five-year tenor is sensitive to the trajectory of the Fed's rate policy in the intermediate term, this is where we should see quite a bit of volatility (see post).  We've come a long way from the days when the 5-year treasury was highly overpriced relative to the rest of the curve (see story from 2012) as the market was pricing in "perpetual" QE.

The Crime of 2010 - Paul Krugman -- The most important paper at the Brookings Panel was probably Krueger et al on the long-term unemployed, which basically confirmed what we’re learning from a number of sources: it’s really hard to get employers to look at people who have been out of work for an extended period, so any sustained increase in long-term unemployment tends to become permanent. The best way to avoid this outcome, then, is to avoid prolonged periods of high unemployment. So let me make the obvious point, just in case anyone missed it: the “pivot” of 2010 — when all the Very Serious People decided that the danger from debt trumped any and all concern for job creation — was an utter disaster, economic and human. It was even a disaster in fiscal terms, because a permanently depressed economy will cost far more in revenue than was saved by slashing the deficit by a few percent of GDP in the short term. And millions of people will still be paying the price for that casual irresponsibility for many years to come.

Should Federal IT Spending be Flat? - In its latest proposed budget , the Obama administration praising itself for limiting the rise in information technology spending by the federal government. This seems peculiar. After all, a number of stories in the news suggest that some additional federal spending on information technology might be needed, like the  the botched and halting roll-out of the health care exchanges in the Affordable Care and Patient Protection Act of 2009, or the rising concerns over cybersecurity, or difficulties for the IRS in handling information and payments. The Washington Post just published a "Sinkhole of Bureaucracy," by David Farenthold, which tells the eyebrow-raising story of how story of how 600 employees of the federal Office of Personnel Management work in an office that is set in an old Pennsylvania limestone mine outside of Pittsburgh, where they file retirement papers of governnment workers entirely by hand, 230 feet underground. The federal government has been making plans to computerize the operation since the late 1980s, but has not succeeded after a quarter-century of trying. More broadly, the federal government is at its heart an enormous information-generating and information-processing organization. Over the last few decades, information technology has progressed by leaps and bounds. It would seem plausible to me that the federal government should be a major consumer of this technology: after all, the private sector has used this technology to provide a wide range of services to consumers while also replacing large numbers of middle managers

Progressives Need to Up Their Game Against Social Security’s Enemies - Yves here. I must confess I find it difficult to counter the simple-minded and inaccurate arguments of the deficit scaremongers. They start from the falsehood that we have been “living beyond our means” when pre-crisis, deficits were running at 1.2% of GDP and the CBO projected that they would rise to and remain at 1.5% of GDP, which was a sustainable level. The Federal debt to GDP ratio would have fallen over time at that level of spending. What made debt levels rise was the global financial crisis. Yet you never, ever, hear this crowd talk about banking industry reform, or for that matter anything other than cutting “entitlements”. The formula is “deficits dangerous, cut spending for ordinary people.” It’s hard to beat the “live within your means” imagery, which is intuitively appealing to most people and difficult to rebut in the soundbites usually allotted for this type of conversation on TV or at conferences. Dean Baker takes the line of explaining that long-term forecasting is prone to error, and that even it Social Security turns out to need fixes, we have plenty of time to do it and it would take at most 1% more of GDP of spending, which is comfortably affordable. And as for Medicare, which is not part of this post, I suggest you read how the Fed’s long term fiscal forecasters have shredded the CBO model that has served as the basis of deficit hysteria. They demonstrate that the spending growth projections are indefensibly aggressive and violate the CBO’s own rules for budget forecasting. by Joe Firestone, Cross posted from New Economic Perspectives

These Charts Show What is Wrong With American Capitalism -  Yves Smith  -- For the last 30 years, neoliberals have fixated on a simple program: “Get government out of the way,” which meant reduce taxes and regulations. Business will invest more, which will produce a higher growth rate and greater prosperity for all. The belief was that unfettered capitalism could solve all ills. Policymakers have dutifully followed this script. Corporations have gotten more and more tax breaks, with the result that the GAO found that their effective Federal tax rate in 2010 was 13% of worldwide income for companies with profits. Corporate income taxes represent a mere 11% of total Federal tax receipts, down from 30% in the mid-1950s. And we’ve also seen substantial deregulation in many sectors of the economy, particularly financial services, transportation, and telecommunications.  So have companies lived up to their half of the neoliberal bargain? Take a look at this chart from Andrew Smithers, which was published at the Financial Times. He prepared it to demonstrate how stock market prices have been driven almost entirely by corporate buying. But it serves to make an additional point: that the stock market for a very long time has not served mainly (or lately, much at all) as a vehicle for companies to raise funds to expand their business. Instead, it serves as a machine for manipulating stock prices.

Favoring Wealth Over Work - Paul Krugman - Consider, as Exhibit A, the Bush tax cuts. Bush did cut the top tax rate on earned income from 39.6 to 35 percent, a 12 percent reduction. But he cut the rate on capital gains from 21 to 15, a 28 percent reduction; he cut the rate on dividends from 39.6 (because dividends were previously taxed as ordinary income) to 15, a reduction of more than 60 percent. And he put the estate tax on a path toward zero — a 100 percent reduction. The estate tax made a partial comeback thanks to the awkward fact that a Democrat was in the White House, and there have been some tax hikes on capital income. The point, however, was that Bush tried to give people living off wealth, inherited wealth in particular, much bigger tax cuts than he gave high earners. And the efforts go on. I know that Paul Ryan likes to lecture the poor about the dignity of work; but his famous initial “roadmap” called for the complete elimination of taxes on interest, capital gains, and dividends, plus elimination of the estate tax. In other words, he proposed eliminating all taxes on income derived from wealth. Now, Ryan casts this as policy that favors saving. But the truth is that it would mainly favor people born on third base or beyond. Even now, 6 of the 10 wealthiest Americans are heirs rather than self-made entrepreneurs — the Koch brothers plus a bunch of Waltons. There’s every reason to believe that the role of inheritance will only grow over time.

A Nation of Takers? - In the debate about poverty, critics argue that government assistance saps initiative and is unaffordable. After exploring the issue, I must concede that the critics have a point. Here are five public welfare programs that are wasteful and turning us into a nation of “takers.” First, welfare subsidies for private planes. The United States offers three kinds of subsidies to tycoons with private jets: accelerated tax write-offs, avoidance of personal taxes on the benefit by claiming that private aircraft are for security, and use of air traffic control paid for by chumps flying commercial. Second, welfare subsidies for yachts. The mortgage-interest deduction was meant to encourage a home-owning middle class. But it has been extended to provide subsidies for beach homes and even yachts. Third, welfare subsidies for hedge funds and private equity. The single most outrageous tax loophole in America is for “carried interest,” allowing people with the highest earnings to pay paltry taxes. They can magically reclassify their earned income as capital gains, because that carries a lower tax rate (a maximum of 23.8 percent this year, compared with a maximum of 39.6 percent for earned income). Fourth, welfare subsidies for America’s biggest banks. The too-big-to-fail banks in the United States borrow money unusually cheaply because of an implicit government promise to rescue them. Bloomberg View calculated last year that this amounts to a taxpayer subsidy of $83 billion to our 10 biggest banks annually. Fifth, large welfare subsidies for American corporations from cities, counties and states. A bit more than a year ago, Louise Story of The New York Times tallied more than $80 billion a year in subsidies to companies, mostly as incentives to operate locally. (Conflict alert: The New York Times Company is among those that have received millions of dollars from city and state authorities.)

Disabled Borrowers Trade Loan Debt for a Tax Bill From the I.R.S. -- Six months after his wife learned that she had a rare vascular disease of the brain, Frank, now 66, lost his job as director of sales of a telecommunications company. His wife, to whom he had been married for 36 years, died just two months later. He was still grieving when he learned that he had kidney cancer. The tumor was operable, but the exam brought to light a long list of other serious problems, including a pulmonary embolism and a heart-rhythm disorder. Two years later, after struggling to pay medical bills not covered by insurance and other debts, Frank filed for bankruptcy. But that did not erase the giant pile of federal Parent Plus loans that he had taken out to help put his three children through college. Since he could no longer work, Sallie Mae, the loan servicer, ultimately suggested applying for a disability discharge, which would cancel the debts. He qualified, and last July, his loans, which had ballooned to $150,000 in forbearance, were wiped away. “I felt like a Buick had been lifted off my shoulders,” said Frank, who lives in upstate New York.But much to his surprise, he received another bill. In January, the Internal Revenue Service sent him a tax form, known as a 1099-C, which said that the loan amount had to be treated as income. According to his calculations on TurboTax, his tax bill for this year is about $59,000. “If I am not capable to work due to a medical disability to pay the student loan, how am I supposed to work to pay the taxes?” said Frank, who agreed to discuss his situation only if his full name was not published. “Now I am somewhat panicked.”

Hong Kong Goes Swiss: Will Disclose American Worker Financial Data To IRS - With Switzerland long dead as an offshore tax haven for US savers unwilling to fund Uncle Sam's central-planning machine (and who can blame them - isn't monetizing the deficit precisely what the Fed is for?) and with Cyprus banks, shall we say, compromised, many have been forced to look for greener tax-evading pastures, as far away as the Pacific Rim, especially that oasis of mega wealth creation, Hong Kong. Only this time the US is paying attention as SCMP reports that Hong Kong tax officials will soon be able to pass information about the finances of Americans working in Hong Kong to their US counterparts under an agreement signed yesterday as part of Washington's global crackdown on tax evasion. In other words, for tax purposes, Hong Kong is now effecitvely under IRS control.

The IRS Will Tax Bitcoin As a Property -- The IRS has announced it will categorize virtual money as property, not as currency. The move will impose significant taxes and regulations on the fledging Bitcoin market, but will likely be a boon for investors, since trading profits will be treated as capital gains The Internal Revenue Service announced on Tuesday that it will categorize virtual currencies like Bitcoin as property, and not as a currency, a move that will impose significant taxes and regulations on the fledging market, but will likely be a boon for investors. Payments made to employees and workers with virtual currency will be subject to federal income tax, and any payment made using virtual currency will now have to be reported in the same way as other payments made in property. But any gains investors make from Bitcoin will be treated as capital gains, meaning they could be subject to lower tax rates. Bitcoin ‘miners’, who verify transactions made with the virtual currency and generate new currency using complex algorithms, will now be forced to pay income taxes on their earnings, as well as payroll taxes to any employees.

IRS Says Bitcoin Is Property, Not Currency - In a notice, the IRS said that it generally would treat bitcoin held by investors much like stock or other intangible property. If the virtual currency is held for investment, any gains would be treated as capital gains, meaning they could be subject to lower tax rates…. The IRS notice also made clear that many people involved in handling virtual currencies—and many transactions involving them—would be subject to the same extensive record-keeping requirements, and taxes, as other people and other deals. Notably, use of bitcoin in a retail transaction typically would be a taxable “event” for many buyers, requiring them to figure out the gain they had made on the virtual currency—and eventually pay tax on it. Tax experts say that could come as a surprise to some investors. It also could put a damper on use of bitcoin for many retail purchases. The IRS also said that bitcoin “miners”–including people who use computers to validate bitcoin transactions or maintain transaction ledgers—also would be subject to tax on payments received in bitcoin. “Mining” that constitutes a trade or business would be subject to self-employment taxes, the IRS said. Other people who receive bitcoin for performing services—including employees as well as independent contractors—also would be subject to tax on the fair market value of the virtual currency, the IRS said. Employers typically would have to report wages on a Form W-2, and the payments would be subject to withholding and payroll taxes, the IRS said.

As Predicted, IRS Deems Bitcoin to be Property, Limiting Its Usefulness in Commercial Transcations -  Yves Smith - We told readers earlier this month that the IRS was well-nigh certain to deem Bitcoin to be property, not a currency, and that would deter its use in commerce. We got pushback from Bitcoin defenders, who tried several lines of argument, basically along the lines of “digital currencies are inevitable” and “the tax authorities are irrelevant”. Today, the IRS has issued a release that states that it regards Bitcoin as tradeable property, which is what tax maven Lee Sheppard had predicted. More important, the fact that Bitcoin is property means it can be taxed at short or long term capital gains rates, or as ordinary income, depending on the holding period of the Bitcoins in question and the status of the holder (investor v. trader v. Bitcoin miner v. business accepting Bitcoin as payment). The record-keeping burden of having to track Bitcon prices against the dollar at the time of acquisition versus the time of use will be a substantial deterrent to their use in commerce.The IRS also stated that its view is retrospective, meaning that Bitcoin users, traders, and miners are expected to report income on their personal income filings due April 15 (I wonder if this also means the IRS is expecting Bitcoin-related businesses to amend the returns they filed on March 15, the due date for corporate returns). We are embedding its release at the end of this post.

Patrick Durusau: Bipartisan Proposal to Eliminate Indexes for the Federal Register and the Code of Federal Regulations - Lambert here: Why, it’s almost like the political class don’t want you to be able to find out what it’s doing! (Either that or less, or more, cynically, they’re creating an opportunity for a private entity to create the FR and CFR indexes using a subscription model because markets. Which amounts to the same thing.) This potential crapification of citizens’ access to the law is part and parcel with the St. Louis Fed’s recent wanton and deceitful destruction of FRED. In the minds of our overlords, there’s no more reason for mere citizens to have free access to professional graphic tools for economic data with FRED than there is for them to have access to Federal rules and regulations. When there’s something you need to know, they’ll tell you. From the post: Last week, the House Oversight and Government Reform Committee reported out HR 4195, the Federal Register Modernization Act (Sponsored by Rep. Darrell E. Issa [R-CA-49], and co-sponsored by Rep. Elijah E. Cummings [D-MD-7] and Rep. Gerald E. Connolly [D-VA-11]). The bill, introduced the night before the mark up, changes the requirement to print the Federal Register and Code of Federal Regulations to “publish” them, eliminates the statutory requirement that the CFR be printed and bound, and eliminates the requirement to produce an index to the Federal Register and CFR. The Administrative Committee of the Federal Register governs how the FR and CFR are published and distributed to the public, and will continue to do so. While the entire bill is troubling, I most urgently need examples of why the Federal Register and CFR indexes are useful and how you use them. Stories in the next week would be of the most benefit, but later examples will help, too. I already have a few excellent examples from our Print Usage Resource Log – thanks to all of you who submitted entries! But the more cases I can point to, the better.

Banker Deaths Leave Industry Concerned As Coroners Probe - Coroners in London are preparing to investigate two apparent suicides as unexpected deaths by finance workers around the world have raised concerns about mental health and stress levels in the industry. The inquest into the death of William Broeksmit, 58, a retired Deutsche Bank AG (DBK) risk executive found dead in his London home in January, will start tomorrow. The inquest for Gabriel Magee, a 39-year-old vice president in technology operations at JPMorgan Chase (JPM) & Co., who died after falling from the firm’s 33-story London headquarters, is scheduled for late May.  The suicides were followed by others around the world, including at JPMorgan in Hong Kong, as well as Mike Dueker, the chief economist at Russell Investment Management Co. in New York. The financial world’s aggressive, hard-working culture may be hurting itself, professionals advising on mental health in the industry say. At greatest risk are “those who have not cultivated friendships, networks, outside of their company,”

Document: JPMorgan Chase Bets $10.4 Billion on the Early Death of Workers - Families of young JPMorgan Chase workers who have experienced tragic deaths over the past four months, have been kept in the dark on many details, including the fact that the bank most likely held a life insurance policy on their loved one – payable to itself. Banks in the U.S., as well as other corporations, are allowed to make multi-billion dollar wagers that their profits from life insurance policies on employees will outstrip the cost of paying premiums and other fees. Early deaths help those wagers pay off. According to the December 31, 2013 financial filing known as the Call Report that JPMorgan made with Federal regulators, it has tied up $10.4 billion in illiquid, long term bets on the death of a large segment of its employees.  The program is known among regulators as Bank Owned Life Insurance or BOLI. Federal regulators specifically exempted BOLI in passing the final version of the Volcker Rule in December of last year which disallowed most proprietary trading or betting for the house. Regulators stated in the rule that “Rather, these accounts permit the banking entity to effectively hedge and cover costs of providing benefits to employees through insurance policies related to key employees.” We have italicized the word “key” because regulators know very well from financial filings that the country’s mega banks are not just insuring key employees but a broad-base of their employees.  Just four of the largest U.S. banks, JPMorgan Chase, Bank of America, Wells Fargo and Citigroup hold over $53 billion in investments in BOLI according to 2013 year-end Call Reports. Death benefits from life insurance is purchased at a multiple to the amount of the investments, meaning that $53 billion is easily enough to buy $1 million life insurance policies on 159,000 employees, and potentially a great deal more. Industry experts estimate that the total face amount of life insurance held by all banks in the U.S. on their employees now exceeds half a trillion dollars.

Bernie Madoff: 'JPMorgan knew' - — The financial world was stunned to learn in 2008 of Bernard Madoff’s years-long, multi-billion dollar Ponzi scheme. But according to Madoff, one Wall Street bank knew long before then that something was wrong — and chose not to do anything. “JPMorgan knew it,” he said as part of a wide-ranging interview last week at a medium-security prison here, where Madoff is serving a 150-year sentence after pleading guilty in March 2009 to massive investment and securities fraud that devastated thousands of clients. JPMorgan Chase served as Madoff’s bank for more than two decades and its role in his infamous Ponzi scheme has been the subject of intense interest to both federal authorities and investors who were victims of his fraud.

U.S. judge rules banks must face lawsuit over alleged rate rigging (Reuters) - A federal judge in Manhattan has ruled that a group of international banks must face complaints that they violated the U.S. Commodity Exchange Act by manipulating yen-denominated interest rate benchmarks between 2006 and 2010. In a ruling on Friday, U.S. District Judge George Daniels also granted the banks' motion to dismiss related claims against them for antitrust violations and unjust enrichment. The banks, which included Mizuho Bank Ltd, JP Morgan Chase & Co, Barclays Bank AG, UBS AG and Citigroup Inc, were sued in 2012 for allegedly manipulating rates that reflect interest on short-term loans denominated in Japanese yen. The interest rate benchmarks, used for pricing a wide array of financial products, are set each day based on rates submitted by banks as the prevailing market rates or the rates at which they could borrow funds. Lawyers for the banks could not immediately be reached for comment.

SEC Probes Electronic Bond Trading Platforms for Possible Manipulation: The Securities and Exchange Commission is examining the practice of dealers showing clients different prices for the same securities on electronic bond-trading platforms. The SEC's Office of Compliance Inspections and Examinations is conducting a probe into the practises of brokers, while selling municipal, corporate and other bonds through electronic platforms. Regulators wants to know whether such practices allow brokers to manipulate bond markets, and whether smaller buyers are given worse prices, a source close to the investigation told Bloomberg. The probe, which is an attempt to get more information on the electronic trading platform rather than build a case for an enforcement action, comes amid a growing appetite among investors for bonds. The size of the US bond market has grown to $39.9tn (£24.1tn, €28.9tn) from $33.6tn in 2008, as the Fed held borrowing costs near zero and bought trillions of dollars of Treasuries and mortgage debt, according to data from the Securities Industry and Financial Markets Association. The probe also stems from the growing concern that the infrastructure of the US bond market has not kept pace with a 23% expansion in the past six years. Much of the bond trading in the country is still conducted through telephone conversations and emails. The enquiry will be focused on those traders who cater to individual investors and dealers trading among themselves.

The SEC Finally Takes an Interest in Collateralized Loan Obligations - Yves Smith - The old saying is “better late than never,” but as we hope to demonstrate, the SEC is awfully late to take an interest in collateralized loan obligations. The problems it has gotten curious about now were discernible years ago. And the failure to take interest until now means that misbehavior that was discussed in the press during the crisis is almost certain to go unpunished, since the statute of limitations for securities law violations has passed.  By way of background, CLOs are a form of structured credit. Their constituent ingredient is leveraged loans, a fancy term for loans to companies that have a lot of debt once the financing is completed. Most leveraged loans are created in private equity acquisitions. The sponsor takes a pool of leveraged loans (100 is a representative number) and creates a series of securities from them. Just like residential mortgage backed bonds, the cash flows from interest and principal payments on the loans are paid out in a specified priority: AAA investors get first dibs, then when the’ve gotten their share, the funds are allocated to AA investors, and so on. In contrast, CDOs were effectively resecuritizations, in that they took risky pieces of a previous structured credit deal (residential mortgage backed securities) that no one wanted (the BBB tranches) and sausage-like, bundled them with a little bit of other credits and ground them up again and sold them.  Due to the leverage-on-leverage and the lack of real diversification, they would fail catastrophically if they failed. By contrast, despite being based on risky loans, CLOs are a first generation structured credit, and hence natively less nasty. But “less bad than a CDO” is hardly a high bar. The SEC is looking into two issues with CLOs. As the Wall Street Journal notes: SEC investigators are looking at whether banks and companies are using the bond deals to hide certain risks illegally, said the people close to the probes. A number of likely cases in that area are in the pipeline, one of the people said. Separately, the government has expanded an inquiry into how Wall Street banks sell the deals, the people added. The securities being examined aren’t traded on any exchanges or open platforms, and their prices are negotiated privately between buyers and sellers.

The Stone Unturned: Credit Ratings -- It’s the one question about the 2008 financial crisis that people still ask me more than any other: Why have regulators done so little to rein in the credit rating agencies? Other institutions that contributed to the mortgage debacle have submitted to new rules and compliance requirements, but Moody’s Investors Service and Standard & Poor’s and their peers remained relatively untouched.   The status quo is especially baffling because the Dodd-Frank financial reform law actually directed the Securities and Exchange Commission to regulate these firms more closely. So why have they been left to operate pretty much as in the past?  In the scrutiny after the financial crisis, it became clear that not only were the ratings inflated, but also that the business model of the rating agencies contained a troubling conflict of interest: The rating agencies are paid by the very issuers whose securities they are rating.  When Dodd-Frank was enacted in July 2010, it directed the S.E.C. to issue rules regarding credit rating agencies within a year. The commission met the deadline, proposing rules in May 2011. Nearly three years later, they are still not final. This month, the Consumer Federation of America wrote to the S.E.C., asking it to do just that. The proposed rules “did not match the scale of the problem they were intended to address,” the letter said, “nor did they deliver the full scope of the credit rating agency reforms that Congress intended when it adopted the Dodd-Frank Act.”  Barbara Roper, director of investor protection at the federation, says that despite the bipartisan support for rating agency reform, apathy has set in, even among those who were eager to reduce the agencies’ clout several years ago. Senator Carl Levin, the Michigan Democrat who heads the Senate’s Permanent Subcommittee on Investigations, is also dismayed by the state of play.

Ben Bernanke Dines With Hedge Fund Billionaires In New York As He Rakes In The Big Bucks -- A couple of months after stepping down from the job in which he is credited with averting a global financial crisis that could’ve eclipsed the Great Depression, Ben Bernanke appears to be enjoying his time alongside billionaires and financiers.  The former Fed Chairman was spotted having dinner with several hedge fund billionaires including David Einhorn, Louis Bacon, and Larry Robbins at a New York hot spot on Wednesday.  Bernanke’s new gig as a public speaker is definitely more profitable than being the most important person in the global financial system: earlier this month, he was paid $250,000 for a 40-minute chat in Abu Dhabi, which is more than his 2013 annual salary. Fresh out of the Fed, Bernanke is a hot ticket.  On Wednesday, he was invited to dine with some of Wall Street’s biggest names: the heads of Greenlight Capital, Moore Capital Management, and Glenview Capital Management were all in attendance, as well as Fortress’ Mike Novogratz and at least four others, The Post’s Page Six reported.

Video: Robert Shiller on Market Bubbles – And Busts - In an interview with contributor David Wessel, Yale economist Robert Shiller describes his thoughts on what actually drives markets—and recalls his encounter with Alan Greenspan just before the Fed chairman’s “irrational exuberance” speech.

Wal-Mart sues Visa for $5 billion over card swipe fees  (Reuters) - Wal-Mart Stores Inc this week sued Visa Inc for $5 billion, accusing the credit and debit card network of excessively high card swipe fees, several months after the retailer opted out of a class action settlement between merchants and Visa and MasterCard Inc. Visa declined to comment on the suit, filed Tuesday in the U.S. District Court for the Western District of Arkansas, where Wal-Mart is headquartered. Visa and other card networks charge retailers fees, called swipe fees or interchange fees, each time a shopper uses a debit or credit card to pay. In December, a federal judge in Brooklyn, N.Y., approved a $5.7 billion class action settlement between merchants and Visa and MasterCard despite the objections of thousands of retailers that complained it was inadequate. Wal-Mart, Inc, and Target Corp were among those opting out of the monetary components of the settlement to have the freedom to seek damages on their own. Those businesses complained about a broad litigation release in the settlement. The release forces all merchants who accepted Visa or MasterCard, and those who will in the future, to give up their right to sue the credit card companies over rules at issue in the case or similar ones they may make in the future. Wal-Mart, the world's largest retailer, is seeking damages from price fixing and other antitrust violations that it claims took place between January 1, 2004 and November 27, 2012.

Do Big Banks Have Lower Operating Costs? - NY Fed - Despite recent financial reforms, there is still widespread concern that large banking firms remain “too big to fail.” As a solution, some reformers advocate capping the size of the largest banking firms. One consideration, however, is that while early literature found limited evidence for economies of scale, recent academic research has found evidence of scale economies in banking, even for the largest banking firms, implying that such caps could impose real costs on the economy. In our contribution to the volume on large and complex banks, we extend this line of research by studying the relationship between bank holding company (BHC) size and components of noninterest expense, in order to shed light on the sources of the scale economies identified in previous literature.

NY Fed finds big banks enjoy taxpayer ‘subsidy’ - The largest US banks have benefited from a significant funding advantage over their smaller peers, according to new research from the Federal Reserve Bank of New York that is likely to invigorate a heated debate over the future of “too-big-to-fail” lenders. The amount of taxpayer “subsidy” enjoyed by large banks, thanks to an implicit assumption that they will be bailed-out by the US government, has become a controversial topic as regulators and lawmakers attempt to reform the banking system in the wake of the financial crisis. According to a paper published on Tuesday by João Santos, a New York Fed vice-president, the biggest US banks enjoyed an extra $60m-$80m of cost savings per average new bond sale over their smaller competitors until 2009. The paper is part of a wide-ranging survey of “large and complex banks” that will be closely read by financial industry participants who are keen for hints about the future direction of banking regulation. While new rules such as the sweeping Dodd-Frank financial reform are supposed to limit future bank bailouts, there is still a substantial movement among some authorities to “break up” the largest institutions. The New York Fed researchers cautioned that regulators would have to consider trade-offs when breaking up systemically-large banks. One paper by the New York Fed’s Anna Kovner, James Vickery and Lily Zhou, warned that limiting the size of the biggest banks could end up increasing the cost of bank services.

Fed Finds TBTF Banks Increase Systemic Risk, Have A Funding Advantage - For some inane reason, about a year ago, there was a brief - and painfully boring - academic tussle between one group of clueless economists and another group of clueless economists, debating whether Too Big To Fail banks enjoy an implicit or explicit taxpayer subsidy, courtesy of their systematic importance (because apparently the fact that these banks only exist because they are too big in the first place must have been lost on both sets of clueless economists). Naturally, it goes without saying that the Fed, which as even Fisher now admits, has over the past five years, worked solely for the benefit of its banker owners and a few good billionaires, has done everything in its power to subsidize banks as much as possible, which is why this debate was so ridiculous it merited precisely zero electronic ink from anyone who is not a clueless economist. Today, the debate, for what it's worth, is finally over, when yet another set of clueless economists, those of the NY Fed itself, say clearly and on the record, that TBTF banks indeed do get a subsidy. To wit: " in fact, the very largest (top-five) nonbank firms also enjoy a funding advantage, but for very large banks it’s significantly larger, suggesting there’s a TBTF funding advantage that’s unique to mega-banks."

Evidence from the Bond Market on Banks’ “Too-Big-to-Fail” -- NY Fed - Yesterday’s post presented evidence on a possible upside of very large banks, namely, lower costs. In today’s post, we focus on a possible downside, that is, whether investors in the primary bond market “discount” risk when they invest in bonds of the too-big-to-fail banks.     In my investigation, I focus on the primary bond market, but I take a different approach to the existing studies that have looked for evidence of a too-big-to-fail subsidy in bond spreads. I test whether investors perceive the largest banks to be too big to fail by investigating whether these banks benefit from a larger cost advantage (relative to their smaller peers) when compared to the similar cost advantage that the largest firms in other sectors of activity may also enjoy when they raise funding in the bond market.

Do “Too-Big-to-Fail” Banks Take On More Risk? - NY Fed - In the previous post, João Santos showed that the largest banks benefit from a bigger discount in the bond market relative to the largest nonbank financial and nonfinancial issuers. Today’s post approaches a complementary Too-Big-to-Fail (TBTF) question—do banks take on more risk if they’re likely to receive government support? Historically, commentators have expressed concerns that TBTF status encourages banks to engage in risky behavior. However, empirical evidence to substantiate these concerns thus far has been sparse. Using new ratings from Fitch, we tackle this question by examining how changes in the perceived likelihood of government support affect bank lending policies.

The Growth of Murky Finance - NY Fed - Building upon previous posts in this series that discussed individual banks, we examine the historical growth of the entire financial sector, relative to the rest of the economy. This sector’s historically large share of the economy today (see chart below) and its role in disrupting the functioning of the real economy during the recent financial crisis have led to questions about the social value of costly financial services. While new regulations such as the Dodd-Frank Act impose restrictions on financial activities and increase their costs, especially those of large firms, our paper  suggests that there may be limits to what regulation can achieve. In particular, we show that financial growth has occurred in the more opaque and harder to regulate sectors: private firms, shadow banks, and small nonbank financial firms. Moreover, we find that the stock market values these opaque areas of finance more, suggesting that they may expand even faster in the future.

Comprehensive Capital Analysis and Review - The Federal Reserve on Wednesday announced it has approved the capital plans of 25 bank holding companies participating in the Comprehensive Capital Analysis and Review (CCAR). The Federal Reserve objected to the plans of the other five participating firms--four based on qualitative concerns and one because it did not meet a minimum post-stress capital requirement.  ..When considering an institution's capital plan, the Federal Reserve considers both qualitative and quantitative factors. These include a firm's capital ratios under severe economic and financial market stress and the strength of the firm's capital planning process. After the Federal Reserve objects to a capital plan, the institution may only make capital distributions with prior written approval from the Federal Reserve...Based on qualitative concerns, the Federal Reserve objected to the capital plans of Citigroup Inc.; HSBC North America Holdings Inc.; RBS Citizens Financial Group, Inc.; and Santander Holdings USA, Inc. The Federal Reserve objected to the capital plan of Zions Bancorporation because the firm did not meet the minimum, post-stress tier-1 common ratio of 5 percent.

Fed Blocks 5 Banks from Raising Dividends - The Federal Reserve is barring Citigroup and four other big banks from increasing their dividends or buying back their own stock because they need better plans for coping with a severe recession. The announcement Wednesday follows last week’s results of the Fed’s annual “stress tests.” The central bank determined that the U.S. banking industry is better able to withstand a major economic downturn than at any time since the financial crisis struck in 2008. The Fed said that only one of the 30 biggest banks in the country needed to take more steps to shore up its capital base. Besides Citigroup, the Fed also ruled against dividend increases or share repurchases at HSBC North America Holdings Inc., RBS Citizens Financial Group Inc., Santander Holdings USA Inc. and Zions Bancorp.

Fed Rejects Citigroup Share Buybacks and Dividend Increase - The Federal Reserve on Wednesday rejected Citigroup Inc's plans to buy back $6.4 billion of shares and boost dividends, saying the bank is not sufficiently prepared to handle a potential financial crisis. Officials at the bank never saw the rejection coming, a source close to the matter said on Wednesday. The rejection underscores that whatever strides Citi's chief executive, Michael Corbat, has made in fixing the bank's difficulties, he still has work to do. Shares of Citigroup, the third-largest U.S. bank, fell 5.4 percent to $47.45 in after-hours trading. Since taking the reins at the bank in 2012, Corbat has been working hard to cultivate close relationships with regulators in Washington. His predecessor, Vikram Pandit, had a famously testy relationship with the Federal Deposit Insurance Corp's then chairman Sheila Bair, among other regulators. But even after mending fences in Washington, Corbat was blindsided by the Fed's decision to nix his plan for paying out money to shareholders. His first hint that something might be awry with the bank's capital plans came last week, when the Fed disclosed its views of how global turmoil would affect the bank's capital levels, the source said. The Fed's projections were much less rosy than Citi's.  Citi was one of five banks whose payout plans were rejected by the Fed on Wednesday. Three were the U.S. units of European banks. The fifth, Zions Bancorp, was expected because it was the only bank last week to fail a model run of a simulated crisis similar to the 2007-09 credit meltdown in the first part of the Fed's stress tests.

Citi stress test hit by audit lapses - Weaknesses in auditing contributed to Citigroup’s failing the Federal Reserve capital assessments, according to executives and others familiar with the matter, adding to fears that there are material lapses in controls at the sprawling US bank. Citi executives are vowing to improve auditing and anti-money laundering processes as well as their forecasts for revenues and losses in the Fed’s stress scenario to try to assuage the concerns that led regulators to veto the bank’s plan to return more cash to shareholders. But there is also simmering tension among the bank’s management, a feature that preceded Mike Corbat’s installation as chief executive in 2012 but which has become more stark since, according to insiders. One senior executive said that Mr Corbat had shown himself to be “overconfident” that he had repaired the bank’s rickety relationship with regulators and had “mistaken a ‘not bad’ relationship for a good relationship”. Another said earlier this week that Mr Corbat was “in a difficult place” and facing “unhappy staff, shareholders and some people who are both – like myself”.

Stress Tests, Lending, and Capital Requirements - Despite the much-publicized black eye to Citigroup’s management, the bottom line of the Federal Reserve’s stress tests is that every other large U.S. bank will be allowed to pay out more cash to its shareholders, either as increased dividends or stock buybacks. And pay out more cash they will: at least $22 billion in increased dividends (that includes all the banks subject to stress tests), plus increased buyback plans. Those cash payouts come straight out of the banks’ capital, since they reduce assets without reducing liabilities. Alternatively, the banks could have chosen to keep the cash and increase their balance sheets—that is, by lending more to companies and households. The fact that they choose to distribute the cash to shareholders indicates that they cannot find additional, profitable lending opportunities. This puts the lie to the banks’ mantra that capital requirements will constrain lending and therefore reduce growth (made most famously in the Institute of International Finance’s amateurish report claiming that increased regulation would make the world’s advanced economies 3 percent smaller). Capital isn’t the constraint on bank lending: it’s their willingness to lend. Let’s look at this a little more closely.

Payday loans trap 80 percent of borrowers in ongoing cycle of debt - A report by a federal watchdog has found that about half of all payday loans are made to people who extend the loans so many times they end up paying more in fees than the original amount they borrowed.  The report released Tuesday by the Consumer Financial Protection Bureau also shows that four of five payday loans are extended, or "rolled over," within 14 days. Additional fees are charged when loans are rolled over.  Payday loans, also known as cash advances or check loans, are short-term loans at high interest rates, usually for $500 or less. They often are made to borrowers with weak credit or low incomes, and the storefront businesses often are located near military bases. The equivalent annual interest rates run to three digits. The report also found that only 15 percent of borrowers who take out payday loans are able to pay off the loan on time, without taking out another loan within 14 days. The remaining 85 percent either default on the original loan or take out a new one, trapping them in a never-ending cycle of debt.

Payday lending: the loans with 350% interest and a grip on America -- Drive down the main streets of the more depressed cities in America, and you probably won’t encounter the logos of Bank of America, Wells Fargo or JPMorgan Chase. Instead, you’ll be bombarded by signs that read more like demands: Instant Loans Here! No Credit Necessary! Payday Advance! These billboards turn out to be a good way to find customers. People are broke: payday lending and other high-cost, small-dollar loan businesses have grown along with the economic desperation caused by the Great Depression and its aftermath. The economy is rough, joblessness is high, and wages are low. The US banking system doesn’t embrace everyone – the high fees and minimum balances imposed by Chase, Wells Fargo, Bank of America and others mean that someone on minimum wage, or living paycheck-to-paycheck, can’t afford to keep a bank account.   But this creates a problem: the US government believes payday lending is predatory, and it is combing the financial system to find ways to do it; the Department of Justice’s attempts to shut down payday lenders and their access to money have stealthy spy-novel names like Operation Chokepoint. The payday lending industry, surprisingly nimble and sprawling in its scope, keeps outrunning the government. In the middle are working-class Americans – shut out of the bland, comfortable worlds of drive-in bank branches and looking for ways to make ends meet while their salaries fall and expenses rise. Cash-strapped borrowers go to payday loan shops because they can get money, quickly, without showing their credit score or proving an ability to repay.

New Data and Thoughts on Payday and Other Alternative Lending - The Consumer Financial Protection Bureau's new study (published 3/25/14) regarding payday loans has received substantial press coverage over the past couple days. The study focuses on repeat customers and finds that 80% of payday loans effectively are rolled over--that is, another loan is taken out within 14 days of repayment of the prior loan. (Some states have legislated cooling-off periods for payday loans; in those states, loans cannot be rolled over, but customers are free to come back a few days later.) The study further finds that the loaned amount goes up as loans are rolled over and that nearly 50% of all loans are in a sequence at least 10 loans long. This means that payday loans generally are not used by customers as short-term "stopgap" loans to keep them out of a cycle of debt. Rather, customers are in debt effectively for months, as Credit Slips contributor Nathalie Martin's research previously has suggested.  The study's release coincided with yesterday's Senate Committee on Banking, Housing and Urban Affairs, Subcommittee on Financial Institutions and Consumer Protection's hearing titled, "Are Alternative Financial Products Serving Consumers?" -- at which Nathalie testified. The hearing raises larger questions about the federal government's role in regulating the landscape of alternative lending. This includes payday loans and, as Nathalie noted in her testimony, similar short-term loans that are designed in part to bypass state laws regulating "traditional" payday loans.

There are almost as many payday lenders as McDonald’s and Starbucks. No, really - Imagine you're making $30,000 a year, with two kids, a 15-year-old car and $1,300 rent. You manage your bills just fine most months, but a busted carburetor has thrown you for a loop. None of your relatives can float you the cash, nor will any bank loan you the money. But your neighborhood payday lender will, charging $15 for every $100 you borrow. All you have to do is repay the money with your next paycheck. But it doesn't work out that way. Instead, a loan that you figured would only take a month tops to repay has taken six. You couldn't afford to repay the entire loan with your paycheck, so you paid a portion and rolled over the rest. In the end, you wind up paying over a hundred dollars in additional fees. This scenario is increasingly a reality for millions of Americans, according to regulators and lawmakers, who are debating how to protect consumers from falling into a debt trap without eliminating their access to small-dollar credit. At a Senate Banking Committee hearing Wednesday, Sen. Sherrod Brown (D-Ohio) said he was concerned that payday companies are marketing their high-cost loans to the very people who can least afford them, much like predatory mortgage lenders did in the run up to the housing crisis.  All most payday lenders require is that you have a steady stream of income and a checking account. They don't weigh  your credit score or ability to repay the loan based on other financial obligations.

Unofficial Problem Bank list declines to 552 Institutions - This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for March 21, 2014.  The OCC provided an update on its enforcement action activities today as anticipated. The release contributed to the majority of the seven removals this week, with six being action terminations. After the removals, the Unofficial Problem Bank List includes 552 institutions with assets of $176.4 billion. A year ago, the list held 797 institutions with $294.3 billion in assets.The Bank of the Lakes, National Association, Owasso, OK ($169 million) found its way off the list through an unassisted acquisition. Actions were terminated by the OCC against Putnam Bank, Putnam, CT ($453 million Ticker: PSBH); The First National Bank of Ottawa, Ottawa, IL ($271 million Ticker: FOTB); First National Bank of Central Alabama, Aliceville, AL ($230 million); The Oculina Bank, Fort Pierce, FL ($162 million); First National Bank of Pasco, Dade City, FL ($145 million); and First National Bank of Southern California, Riverside, CA ($141 million). Next week, the FDIC should provide an update in its enforcement action activity through the end of February 2014. With also being the calendar quarter-end, we will update the transition matrix. Enjoy the weekend and hopefully your bracket is still intact for the $1 billion grand prize.

The changing face of commercial property lenders - US commercial real estate prices have firmed up recently although the recovery remains uneven across the various sectors.Improvements in pricing are giving rise to higher deal volumes as investors chase yield-generating assets. Anecdotal evidence suggests that commercial property transaction volume remains robust for the current quarter. Commercial real estate investing is popular once again. On the other hand, the amount of commercial real estate mortgage backed securities (CMBS) outstanding is still declining after peaking in 2008. Total balances are now at the lowest levels in seven years. Something is off. We know that property purchases are almost always leveraged (very few buy commercial properties with cash - the rental yield is just too low). So who is providing the mortgage financing? In the past many of the large banks would arrange these loans, pool them across multiple properties, and then sell them as CMBS. It seems that in recent years the use of CMBS as a financing tool has become far less prevalent even as commercial property deal volumes pick up. Bloomberg: - ... sales of commercial-mortgage backed bonds are falling short of predictions for the best year since 2007: Issuance slumped to $14.6 billion from $20 billion in the same period last year, according to data compiled by Bloomberg. Bank of America Corp. cut its forecast last week for deals tied to single loans, typically backed by the higher-quality properties that insurers target, as sales plunged 66 percent from last year’s record $9.1 billion,

Bank of America to Pay $6.3 Billion to Settle Mortgage Securities Suit - Bank of America is paying $6.3 billion to settle a lawsuit arising out of troubled mortgage-backed securities it cobbled together and sold to Fannie Mae and Freddie Mac in the run-up to the financial crisis.The bank agreed on Wednesday to pay that sum to settle a lawsuit filed on behalf of the two government-sponsored mortgage finance firms by their regulator, the Federal Housing Finance Agency. As part of the settlement, Bank of America will also repurchase mortgage securities from Fannie and Freddie that are valued at about $3.2 billion.The agreement covers what are known as private-label mortgage-backed securities sold by Bank of America and its affiliated entities like Countrywide Financial and Merrill Lynch.Bank of America said the settlement with the housing regulator was expected to reduce its first-quarter income by about $3.7 billion before taxes. The bank is scheduled to report its earnings on April 16.The settlement with the housing finance agency is the latest in a string of deals that regulators have reached with big banks that sold mortgage securities backed by subprime mortgages, which quickly soured during the housing and financial crises.

Federal judge took Wells Fargo to task over loan filings - A federal judge in New York blasted mega-bank Wells Fargo for submitting a “fraudulent” foreclosure document to the court under penalty of perjury, according to a hearing transcript. Robert Drain, a US Bankruptcy Judge in White Plains, slammed the bank at a March 1, 2012, hearing that was part of the Chapter 13 bankruptcy case of Westchester resident Cynthia Carssow Franklin. Earlier this month, Carssow Franklin’s attorney, Linda Tirelli, put forward an emergency request to reopen the discovery phase of the trial in light of the existence of two watershed documents: a Wells Fargo Foreclosure Attorney Procedures Manual, and a foreclosure-paperwork order form on Wells Fargo letterhead. The Post broke the story on March 12 of Tirelli’s allegations in court papers that the manual provides detailed internal procedures to fabricate foreclosure papers on demand, and that the order form records an improper request for a note endorsement after a bankruptcy case had already started. . Carssow Franklin filed for bankruptcy in New York in 2010 to save her Texas home from foreclosure by Wells Fargo. “It’s been a terrible experience [with Wells Fargo], and it just never ends. … I feel like they’ve ruined my life.” A Wells Fargo spokeswoman said the bank prefers not to comment on pending litigation, adding that Wells “has and will continue to abide by sound processes that ensure we comply with the law.”

Freddie And Fannie Reform – The Monster Has Arrived - As promised, the Johnson/Crapo bill has finally arrived. There are 442 pages of legal mumbo jumbo, guaranteed to cure all forms of insomnia and those suffering from low blood pressure. The agencies have been providing cheap financing to borrowers, courtesy of the Fed. The agencies have been providing cheap and bullet proof insurance for bond investors, courtesy of the Treasury. The Bill somehow expects some mysterious private capital will come in to insure the first loss position and the Government (including the FOMC) can gracefully exit its role in the mortgage monopoly. That is more than overly optimistic. Can anyone quantify that in dollars as well as mortgage rates? In summary, the Bill is going to increase mortgage compliance costs. It will confuse, rather than clarify, the mortgage application and approval process. It is a disaster. Fortunately, we suspect the Bill has no chance of passing in its present form.

Proposed Housing Bill Would Create a Co-op of Mortgage Lenders - Yet another proposal for winding down Fannie Mae and Freddie Mac and overhauling the nation’s housing finance system will be put before Congress on Thursday, this one by Representative Maxine Waters of California, the ranking Democratic member of the Financial Services Committee. The major distinction of Ms. Waters’s proposal is that it would make the mortgage lending system more like a public utility, by creating a co-op of lenders that would be the sole issuer of mortgage-backed securities guaranteed by the government. Such a system would significantly differ from those proposed by the major bills in the Senate, which would allow banks and bond guarantors to participate independently in the market. Both Ms. Waters’s proposal and the Senate ones would establish a new federal regulator. The Waters bill would require private backers to take the first 5 percent loss before the government guarantee kicks in. By contrast, the latest Senate bill, by the Senate Banking Committee’s chairman, Tim Johnson, a Democrat from South Dakota, and Mike Crapo of Idaho, the committee’s ranking Republican, requires private capital to take the first 10 percent loss.  While almost everyone agrees that the housing finance system is in dreadful need of improvement, the bills stand little chance of passing. In the Senate, the Johnson-Crapo bill probably has enough votes to get out of the banking committee, but even if it manages to get to a floor vote it is unlikely to go very far in the Republican-controlled House. The House Financial Services Committee has approved a bill by its Republican chairman, Jeb Hensarling, but the bill does not have enough support to pass. Given the unlikelihood that a Democrat-sponsored bill would have a better chance of passing, Ms. Waters’s bill seems intended mostly as a marker for housing reformers on the left.

Freddie Mac: Mortgage Serious Delinquency rate declined in February, Lowest since February 2009 - Freddie Mac reported that the Single-Family serious delinquency rate declined in February to 2.29% from 2.34% in January. Freddie's rate is down from 3.15% in February 2013, and this is the lowest level since February 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  These are mortgage loans that are "three monthly payments or more past due or in foreclosure". Although this indicates progress, the "normal" serious delinquency rate is under 1%. The serious delinquency rate has fallen 0.86 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2015. Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. So even though distressed sales are declining, I expect an above normal level of distressed sales for another 2 years (mostly in judicial foreclosure states).

Black Knight on Mortgages: "Nearly 1 million fewer loans in U.S. non-current population since last February" - According to Black Knight (formerly LPS) First Look report for February, the percent of loans delinquent decreased in February compared to January, and declined by more than 12% year-over-year.Also the percent of loans in the foreclosure process declined further in January and were down 34% over the last year.Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 5.97% from 6.27% in January. The normal rate for delinquencies is around 4.5% to 5%.The percent of loans in the foreclosure process declined to 2.22% in February from 2.48% in January.   The number of delinquent properties, but not in foreclosure, is down 419,000 properties year-over-year, and the number of properties in the foreclosure process is down 579,000 properties year-over-year.Black Knight will release the complete mortgage monitor for February in early April.

Foreclosure rates are finally back to pre-crisis levels: Here’s a bit of good news that has gone largely unnoticed: The share of home loans going into foreclosure is finally back to its pre-crisis level. .Of course, this is just the flow of new foreclosures; the stock — that is, all the homes that fell into foreclosure in recent years and have not yet completed the process — remains high. According to RealtyTrac, there are currently 1,189,362 properties nationwide in some stage of foreclosure (default, auction or bank-owned).

Pitfalls of Reverse Mortgages May Pass to Borrower's Heirs - Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes that need not be paid back until they move out or die, have long posed pitfalls for older borrowers. Under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. Instead, reverse mortgage companies are increasingly threatening to foreclose unless heirs pay the mortgages in full, according to interviews with more than four dozen housing counselors, state regulators and 25 families whose elderly parents took out reverse mortgages.Some lenders are moving to foreclose just weeks after the borrower dies, many families say. The complaints are echoed by borrowers across the country, according to a review of federal and state court lawsuits against reverse mortgage lenders.Others say that they don’t get that far. Soon after their parents die, the heirs say they are plunged into a bureaucratic maze as they try to get lenders to provide them with details about how to keep their family homes. There is no data on how many heirs are facing foreclosure because of reverse mortgages. But interviews with elder care advocates, the housing counselors and heirs, suggest that it is a growing problem already affecting an estimated tens of thousands of people. And it is one that threatens to ensnare future generations, as older Americans increasingly turn to their homes for cash. Already, the combined debt of Americans from the ages of 65 to 74 is rising faster than that of any other age group, according to the Federal Reserve. And approximately 13 percent of the reverse mortgages outstanding are underwater, according to an estimate from New View Advisors, a New York consulting firm.

Unemployed, and heading toward foreclosure -- Suddenly, in July 2013, Brooks lost her job. Six months later, Congress cut off her unemployment checks. Now she could lose her home, too. “When my unemployment stopped, I stopped paying my mortgage,” she says. Brooks is now among the millions of unemployed homeowners who risk default, foreclosure, and huge debt loads—even if they manage to find a job again. When Congress refusedto renew federal benefits for 1.7 million jobless Americans in December, they also cut a lifeline for homeowners who are now struggling to make their mortgage payments. About 54% of the long-term unemployed live in owner-occupied homes, according to Urban Institute researcher Austin Nichols—a total of 2.9 million Americans, according to the Current Population Survey. So the loss of income may cut off a crucial source of mortgage payments for these households. That means many unemployed Americans and their families have even more to lose, without much of a backstop. A federal program that provided direct loans to unemployed homeowners has expired; many state-run programs have dispersed only a fraction of their funds. For many, the only option may be to buy themselves some more time—time that’s yielded few new opportunities for the long-term unemployed. As a result, new defaults and foreclosures continue to be a drag on the recovery, even though the worst of the housing crisis has long since passed. While bad practices by mortgage companies still cast a shadow over many homeowners, advocates say there’s been a shift with the more recent cases that are starting to come through the system.

Firm buys more Florida rental homes to bundle as bonds for investors  -- Monthly rent checks from hundreds of Florida homes are tied to $513 million in bonds being marketed by Colony American Homes in what is the second securitization of single-family home assets. The deal by the Santa Monica, Calif.-based Colony American Homes, whose parent company is Colony Capital, follows the Blackstone Group, which made history in November when it sold $479 million in bonds that combined cash flows from 3,500 of its rental homes nationwide. Both companies are part of the nascent industry of Wall Street landlords buying single-family homes to rent after the housing market crash. Colony’s bonds, which began marketing this week, include 3,399 homes, 749 of which are in Florida, according to Morningstar Credit Ratings. The other homes are in California, Nevada, Arizona, Georgia, Texas and Colorado. Of the Florida homes, 62 are in Palm Beach, Broward or Miami-Dade counties. Colony owns about 60 homes in Palm Beach County, which it bought under the name ColFin A1-FL 3. Official records show the first home purchased by Colony in Palm Beach County was in April 2013, nearly a year after most Wall Street buyers started picking up homes here.

MBA: Mortgage Purchase Applications Increase, Refinance Applications Decrease -- From the MBA: Purchase Applications Increase in Latest MBA Weekly Survey Mortgage applications decreased 3.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 21, 2014. ...The Refinance Index decreased 8 percent from the previous week, including an 8.1 percent decline in conventional refinance applications and a 5.8 percent decline in government refinance applications; the government refinance index dropped to the lowest level since July 2011. In contrast, the seasonally adjusted Purchase Index increased 3 percent from one week earlier, driven mainly by a 4.0 percent increase in conventional purchase applications....The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.56 percent, the highest level since January 2014, from 4.50 percent, with points increasing to 0.29 from 0.26 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.45 percent from 4.39 percent, with points increasing to 0.27 from 0.19 (including the origination fee) for 80 percent LTV loans. The first graph shows the refinance index. The refinance index is down 72% from the levels in May 2013. With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013. The second graph shows the MBA mortgage purchase index. The 4-week average of the purchase index is now down about 19% from a year ago. The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

Number of the Week: Only Best Credit Scores Getting Mortgages -- 755: The average FICO score for a conventional mortgage Mortgage credit continues to loosen up, but getting a loan to buy a house is still difficult for the average American. This is especially true for people without top credit scores.The average FICO score for a conventional mortgage – one that’s sold to mortgage giants Fannie Mae and Freddie Mac — was 755 in February, according to Ellie Mae’s latest mortgage origination report. The average FICO score for FHA loans – which are backed by the government and attract buyers with lower credit in part because FHA loans require down payment as low as 3% – was 686. The U.S. average FICO score was 711 in October 2013, the latest available data, so conventional mortgages remain difficult to get for most borrowers. A look at the distribution of credit scores shows why this is: Banks continue to avoid the worst borrowers like the plague.The accompanying chart, from CoreLogic, shows the historical credit score distribution of purchase mortgages. As you can see, the largest losses have been among buyers in the lowest two tiers, and they aren’t budging much. Borrowers with FICO scores below 620 accounted for 0.35% or mortgages in January, down from about 13% in February 2003 and a peak of 17% during the frothiest peaks of the housing bubble. The best borrowers, with scores above 780, have taken their place, swelling from about 13% or originations in 2003 to a little less than 30% today.

Average U.S. 30-Year Mortgage Rate Rises to 4.40 Percent— Average U.S. rates on fixed mortgages rose this week in the wake of comments by Federal Reserve Chairman Janet Yellen suggesting that the Fed could start raising short-term interest rates by mid-2015.  Mortgage buyer Freddie Mac said Thursday the average rate for the 30-year loan increased to 4.40 percent from 4.32 percent last week. The average for the 15-year mortgage rose to 3.42 percent from 3.32 percent. A key home-price index showed Tuesday a robust 13.2 percent increase in January compared with 12 months earlier. But the Standard & Poor’s/Case-Shiller 20-city index was down from a 13.4 percent increase in 2013 and was the second straight decline. There have been signs recently that the home-sales market could pick up in the coming months. Most economists expect sales to rebound as the weather improves and the spring buying season begins. Not only does warmer weather bring more traffic to open houses, but families are usually reluctant to move in the middle of the school year.

Why the U.S. Housing Market Is Headed for Trouble in 2014: Compared to the past two years, the U.S. housing market will not have a great year in 2014. In fact, key indicators are now pointing to a top in the housing market recovery: The National Association of Home Builders/Wells Fargo Housing Market Index fell to 47 in March, coming down more than 16% from 56 in January. When this index is below 50, homebuilders view housing market conditions to be poor. This tells me that those who are closest to the housing market -- the homebuilders -- are becoming concerned. And existing-home sales are declining. Existing-homes sales in the U.S. housing market fell 7.1% in February from a year ago and registered at the lowest pace since July of 2012. January's existing-home sales were disappointing, too.  The backbone of any housing market recovery, first-time homebuyers, continue to be absent from the recovery. The president of the National Association of Realtors was quoted as saying, "The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges… In our recent consumer survey, 56% of younger buyers who took longer to save for a down payment identified student debt as the biggest obstacle." Sadly, potential home buyers have more troubles coming their way, as interest rates are expected to rise. Between February of 2013 and February of 2014, the 30-year fixed mortgage rate, tracked by Freddie Mac, has increased by 22%, from 3.53% to 4.30%. What happens if mortgage rates go up to five or six percent as they were in 2007? Home buyers will run further away from the market because homes will become even more unaffordable for them.

Weekly Update: Housing Tracker Existing Home Inventory up 6.2% year-over-year on March 24th --Here is another weekly update on housing inventory ... There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer. The Realtor (NAR) data is monthly and released with a lag (the most recent data was for February).  However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years. This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014. In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year. In 2013 (Blue), inventory increased for most of the year, and finished up about 2.7% YoY. Inventory in 2014 (Red) is now 6.2% above the same week in 2013. Inventory is still very low, but this increase in inventory should slow house price increases.

Housing: The increase in inventory in the West -- Housing Tracker (Department of Numbers) has inventory for a number of cities. Right now we are seeing inventories up sharply year-over-year in several cities in the West. Note: Housing Tracker is reporting total inventory is up slightly year-over-year in Las Vegas. However, non-contingent inventory has doubled year-over-year according to GLVAR. Contingent inventory includes short sales that make remain contingent for a significant period awaiting lender approval.This graph shows the year-over-year change in several cities in the West.Inventory is up 88% in Sacramento, up 57% in Phoenix, up 40% in Riverside, and up 33% in Orange County.However inventory is only up 3% in San Francisco and 9% in San Diego (Las Vegas total inventory is up 3%, but non-contingent inventory has doubled). With more inventory, price increases should slow.

Black Knight (formerly LPS): House Price Index unchanged in January, Up 8.0% year-over-year - Notes: The timing of different house prices indexes can be a little confusing. Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From LPS: U.S. Home Prices Flat for the Month; Up 8.0 Percent Year-Over-Year Today, the Data and Analytics division of Black Knight Financial Services (formerly the LPS Data & Analytics division) released its latest Home Price Index (HPI) report, based on January 2014 residential real estate transactions. ... The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales. The year-over-year increase was less in January (8.0%) than in December (8.4%), November (8.5%) and October (8.8%), so this suggests price increases might be slowing. The LPS HPI is off 14.0% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. Prices increased in 10 of the  20 largest states in January and were unchanged in two. LPS shows prices off 44.3% from the peak in Las Vegas, off 36.8% in Orlando, and 34.9% off from the peak in Riverside-San Bernardino, CA (Inland Empire). "After many months of hitting new peaks, Texas and its major metros backed off trend of consecutive new highs."

U.S. Home Prices Rise 13.2% in January - Appreciation in home prices across the U.S. slowed slightly in January as a harsh winter dampened several aspects of the housing market, according to a report released Tuesday. According to the S&P/Case-Shiller home price report, the home price index covering 10 major U.S. cities increased 13.5% in the year ended in January. The 20-city price index advanced 13.2%, close to the 13.5% gain expected by economists. ... "From the bottom in 2012, prices are up 23% and the housing market is showing signs of moving forward with more normal price increases." [said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.] "Expectations and recent data point to continued home price gains for 2014. Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains," the report said.

Housing Comes Roaring Back to Life - Stating that “expectations and recent data point to continued home price gains for 2014,” David M. Blitzer, the chair of the committee that oversees the S&P/Case-Shiller Housing Price Index, released data that showed a 13.2% increase in prices for the 12 months ended January 2014. That’s a strong performance, especially when compared to the housing market’s plunge from its highs of Spring/Summer 2006. The market in general is only 20% off its peak of eight years ago, and — as noted in the release — Dallas and Denver are within 1% of their all-time highs. However, month-to-month, the index dropped 0.1%, its third consecutive monthly decline. That’s a drop that I’d attribute to winter weather, as the housing market traditionally suffers when cold temperatures come. Certainly cities in the Sunshine State continued to perform, with Miami showing a monthly gain of 0.7% on a not-seasonally adjusted basis (even better, 1.2% when seasonally adjusted), and Tampa rising at 0.4% and 1.0%, respectively.  In fact, given how much snow got dumped on the U.S. in the past few months, it’s easy to predict that the next few monthly releases will show slight drops. Given the index’s two-month lag, it may be June before a month-to-month jump is announced. That said, on a seasonally adjusted basis, the index is up 0.8% from December to January, and every one, yes, every one of the twenty metro areas covered showed a seasonally adjusted monthly jump. Those ranged from incremental (up 0.2% in Boston; up 0.4% in Atlanta, Charlotte, Chicago, Detroit, Los Angeles and Phoenix) to fairly hot (Washington, D.C., is up 1.3% and 9.2% year-over-year, while San Francisco is up 1.7% for the month and a sizzling 23.1% year-over-year).

Case Shiller Home Price Index Declines For Third Month A Row: Longest Negative Stretch Since March 2012 -- Another month, another sequential drop in the Case Shiller NSA index - the one the index creators themselves say should be used, not the Seasonally Adjusted data used by most commentators eager to find the best data. At a sequential decline of -0.08% in January, this was the third drop in a row - the longest consecutive period of sequential declines since March 2012  - and post a year over year increase of 13.24%, down from 13.38% in December, and the lowest since September 2013. Clearly, the pricing gains across the country are slowing.

Comment on House Prices: Graphs, Real Prices, Price-to-Rent Ratio, Cities -- S&P/Case-Shiller's website crashed this morning. For some reason people seem to care about house prices! Here is the website and the monthly Home Price Indices for January ("January" is a 3 month average of November, December and January prices). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). Here is the press release from S&P: Pace of Home Price Gains Slow According to the S&P/Case-Shiller Home Price Indices.  The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 10 index is off 19.5% from the peak, and up 0.8% in January (SA). The Composite 10 is up 21.9% from the post bubble low set in Jan 2012 (SA). The Composite 20 index is off 18.7% from the peak, and up 0.8% (SA) in January. The Composite 20 is up 22.6% from the post-bubble low set in Jan 2012 (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 13.5% compared to January 2013. The Composite 20 SA is up 13.2% compared to January 2013. Prices increased (SA) in 20 of the 20 Case-Shiller cities in January seasonally adjusted. (Prices increased in 7 of the 20 cities NSA) Prices in Las Vegas are off 44.8% from the peak, and prices in Dallas and Denver are at new highs (SA). This was at the consensus forecast for a 13.3% YoY increase. According to Trulia chief economist Jed Kolko, asking price increases have slowed down recently, and Kolko expects that price slowdown will "hit Feb sales prices and get reported in April index releases". It might take a few months, but I also expect to see smaller year-over-year price increases going forward. I also think it is important to look at prices in real terms (inflation adjusted). Case-Shiller, CoreLogic and others report nominal house prices. As an example, if a house price was $200,000 in January 2000, the price would be close to $276,000 today adjusted for inflation (about 38%). That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

A Look at Case-Shiller by Metro Area - interactive table -- Home prices continued posting year-over-year gains in January, even as the pace of growth slowed slightly, according to the S&P/Case-Shiller indexes. The composite 20-city home price index, a key gauge of U.S. home prices, was up 13.2% in January from a year earlier. All 20 cities posted year-over-year gains. Prices in the 20-city index were 0.1% lower than the prior month, but that’s mostly due to the weaker winter selling season. Adjusted for seasonal variations, prices were 0.8% higher month-over-month. Twelve of the 20 cities posted monthly declines, though on a seasonally adjusted basis none saw a drop. Though the gains have continued, the pace has decelerated, and there have been other indications of slowing in the housing market. “We are pretty sure the [Case-Shiller] numbers overstate the rate of increase of existing home prices, which probably now are falling outright in the wake of the drop in sales volumes,”

House Prices and Lagged Data -- Two years ago I wrote a post titled House Prices and Lagged Data.  In early 2012, I had just called the bottom for house prices (see: The Housing Bottom is Here), and in the "lagged data" post I was pointing out that the Case-Shiller house price index has a serious data lag - and that we had to wait several months to see if prices had actually bottomed (the call was correct). Now I'm looking for price increases to slow, and once again we have to remember that the Case-Shiller data has a serious lag. All data is lagged, but some data is lagged more than others.  As an example, the BLS housing starts and new home sales data released recently were for February, so the lag is also a few weeks after the end of the month. The advance estimate of quarterly GDP is released several weeks after the end of the quarter. But sometimes the lag can be much longer.  Two days ago, the January Case-Shiller house price index was released. This is actually a three month average for house sales closed in November, December and January. But remember that the purchase agreement for a house that closed in November was probably signed in September or early October. So some portion of the Case-Shiller index will be for contract prices 6 to 7 months ago! Other house price indexes have less of a lag. But, if price increases have slowed - as Jed Kolko argues using asking prices - then the key point is that the Case-Shiller index will not show the slowdown for some time.   Just something to remember ...

Zillow: Case-Shiller House Price Index expected to show 12.8% year-over-year increase in February - The Case-Shiller house price indexes for January were released today. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.    It looks like the year-over-year change for Case-Shiller will continue to slow. From Zillow: Case-Shiller Forecast Showing Moderate Slowdown in February The Case-Shiller data for January 2014 came out this morning, and based on this information and the February 2014 Zillow Home Value Index (ZHVI, released March 19) we predict that next month’s Case-Shiller data (February 2014) will show that the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 12.8 and 13.1 percent on a year-over-year basis, respectively. The seasonally adjusted (SA) month-over-month change from January to February will be 0.6 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). ... Officially, the Case-Shiller Composite Home Price Indices for February will not be released until Tuesday, April 29. The following table shows the Zillow forecast for the February Case-Shiller index.

There’s No Housing Bubble, but Places Like California Starting to Look Frothy -- Have the nation’s rapidly rising home prices thrown us back into a housing bubble? Fortunately for the economy — if unfortunately for buyers who’ve been frustrated by the rebound in home prices – the answer is no. But some of coastal markets are starting to look frothy. California: We’re looking at you (you too, Florida). A recent Trulia report gauges whether home prices are over or undervalued, and where. Nationally, home prices are still undervalued by about 5%, Trulia estimates. Home prices aren’t as cheap as they were, and interest rates aren’t as low, but both are still low by historical standards. So U.S. housing markets are for the most part affordable — even for middle class buyers.At the same time, the Homes-Are-Crazy-Affordable era has come to a close. When home prices hit their bottom at the end of 2011, national home prices were about 15% undervalued. That’s no longer the case, and in some select markets rising prices are coming unchained from their long-term fundamentals. California is one. There, gains in some of the hottest markets are looking unsustainable. The Orange County metro area is about 16% overvalued, Trulia says. Nearby Los Angeles is 13% overvalued. Six of the nation’s ten most overvalued cities were in California, according to Trulia. What’s in a bubble? Trulia tries to gauge an area’s “fundamental value” through a combination of historical prices, local wages and income streams like rent. So rising prices, even rapidly rising prices, don’t necessarily mean bubble. Things get sketchy when prices rise fast enough to become disconnected from local incomes and rental rates.

U.S. New Home Sale Prices at the Mercy of Mortgage Rates -- Now that the U.S. Census Bureau has finally posted the income data that it collected in January 2014 through the Current Population Survey (over a month late, the Bureau posted its data for February 2014 at the same time), we can now check in on the status of the second U.S. housing bubble. The chart below reveals what we find:  Here, we see that the second U.S. housing bubble continued to inflate through January 2014, although at a slower pace than it did during its initial phase, which ran from July 2012 through July 2013. The pace of inflation would seem to affected by changes in U.S. mortgage rates, which spiked upward in mid-2013 as the Federal Reserve announced its decision to begin tapering its purchases of mortgage-backed securities and U.S. Treasuries, but which have since fluctuated between 4.3% and 4.5%.  That doesn't seem like a big range to drive the trend for median new home sale prices, but in the latter half of 2013 through January 2014, the rate of change of median new home sale prices would appear to be affected by those fluctuations, rising faster when mortgage rates drop to the low end of the range and rising at a slower pace when rates rise.  That, of course, is the result of median new home sale prices being very much at the economic margin, which is the reason why we pay such close attention to them.  We'll close with an updated look at the long-term trends in median new home sale prices in the U.S., which put the recent bubbles in U.S. new home sale prices into better context.

Housing & Inflation Update -Here are updates with the January 2014 Case-Shiller housing data.  I have speculated that when rents and home prices rise or fall together, this might be cyclical behavior; but when rents and home prices are moving in opposite directions, this might be behavior related to the effect of low real and nominal interest rates on home prices. I am using annualized monthly changes of weighted moving averages in order to retain the ability to see recent changes while minimizing the monthly noise in these series.  Home prices and rent are both continuing to increase.  However, home prices have stopped accelerating since mid-2013, roughly coincident with rising interest rates. Current behavior suggests cyclical recovery, although the lack of acceleration in home prices suggests that the recovery phase may be maturing.  I expect both the continued low interest rate environment and the low level of housing starts to continue to push both of these levels up.  This is partly dependent on expansion of bank balance sheets as the Fed winds down QE3.  As the bottom graph shows, this expansion appears to be tentatively gaining traction.

New Home Sales at 440,000 Annual Rate in February - The Census Bureau reports New Home Sales in February were at a seasonally adjusted annual rate (SAAR) of 440 thousand.  January sales were revised down from 468 thousand to 455 thousand, and December sales were revised up from 427 thousand to 441 thousand (November was revised up slightly too).    The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Sales of new single-family houses in February 2014 were at a seasonally adjusted annual rate of 440,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.3 percent below the revised January rate of 455,000 and is 1.1 percent below the February 2013 estimate of 445,000.This was the highest sales rate since 2008. Even with the increase in sales over the last two years, new home sales are still near the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in February to 5.2 months from 5.0 months in January. 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).This graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, but moving up. The combined total of completed and under construction is also very low.

New Home Sales Drop To Lowest Since October, Median Home Price Below Year Ago Levels - It was only a matter of time before, as we said last month, January's reported surge in New Home Sales soared by 10% to 468K (well above the 400K then expected) would be revised lower. This just happened, when moments ago the Census Bureau lowered the January number from 468K to 455K. But what's worse is that last month's seasonally abnormal print was obviously an aberration due to the law of small numbers (explained here in detail), February's print was even worse, printing at 440K, below the 445K expected, and the lowest monthly print since September. Then again looking at the chart below shows why 20K houses up or down is absolutely meaningless in the grand scheme of things, as New Home Sales is the one category that resolutely refuses to bounce from the Depression lows.

High Prices Partly to Blame for Slow New Home Sales -- The spring selling season for newly built homes has started more slowly than many builders and economists anticipated and lofty prices might be as much to blame as unusually harsh winter weather. Builders “were amazingly aggressive in raising prices” in the past year, said Thomas Lawler, an independent housing analyst and former Fannie Mae economist in Leesburg, Va. “And now that we’re heading into the spring selling season, that’s impacting demand.” U.S. home buyers in February signed contracts to buy new homes at a seasonally adjusted annual rate of 440,000, down 3.3% from January’s tally, which itself was revised down, according to U.S. Census Bureau data released Tuesday. Last month’s sales estimate marked a decline of 1.1% from February last year. At the February rate, new-home sales amount to roughly 59% of their annual average since 2000. Prices, in contrast, have reached their earlier peaks, exceeding $300,000 on average in every month of 2013 and so far this year, a threshold they rarely had exceeded since 2008. Several national, publicly traded builders have increased their prices by double-digit percentages in the past year. Early reads on the spring season differ, but many indicate that this spring’s initial pace is just matching last year’s or falling short of it. That has some economists concerned that there is more at play than the supply issues often cited in the past two years, which include shortages of build-ready home lots and construction labor.

A comment on the New Home Sales report -- Bill McBride  - The Census Bureau reported that new home sales in January and February combined were 68,000 not seasonally adjusted (NSA). This is the same as last year NSA - so there was no growth over the first two months of the year. Weather probably played a small role in the lack of growth, but higher mortgage rates and higher prices probably were probably bigger factors. Also this was a difficult comparison period. Sales in 2013 were up 16.8% from 2012, but sales in January and February 2013 were up over 28% from the same months of the previous year! The comparisons to last year will be easier in a few months - and I expect to see solid growth again this year. On revisions: Although sales in January were revised down by 13 thousand, sales in November and December were revised up a combined 18 thousand - so overall revisions were positive. Note: Based on estimates of household formation and demographics, I expect sales to increase to 750 to 800 thousand over the next several years - substantially higher than the 440 thousand sales rate in February.   So I expect the housing recovery to continue. And here is another update to the "distressing gap" graph that I first started posting over four years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next few years.

NAR: Pending Home Sales Index down 10.5% year-over-year in February -- From the NAR: February Pending Home Sales Continue Slide The Pending Home Sales Index, a forward-looking indicator based on contract signings, dipped 0.8 percent to 93.9 from a downwardly revised 94.7 in January, and is 10.5 percent below February 2013 when it was 104.9. The February reading was the lowest since October 2011, when it was 92.2...The PHSI in the Northeast declined 2.4 percent to 77.1 in February, and is 7.4 percent below a year ago. In the Midwest the index rose 2.8 percent to 95.3 in February, but is 8.5 percent lower than February 2013. Pending home sales in the South fell 4.0 percent to an index of 106.3 in February, and are 9.3 percent below a year ago. The index in the West increased 2.3 percent in February to 86.1, but is 16.5 percent below February 2013.A few comments:
• Mr. Yun once gain blamed some of the weakness on the weather (the weather was unusually bad again in February), but the index remained weak in the South too (down 9.3% year-over-year and probably not weather), and in the West (down 16.5% year-over-year partially related to low inventories).
• My view is there were several reasons for the decline in this index: weather in some areas, fewer distressed sales, less investor buying, fewer "pending" short sales, and low inventories.  I think fewer distressed sales, fewer "pending" short sales, and less investor buying are all signs of a healthier market - even if overall sales decline.

Home Sales Plunge Most In 3 Years, Drop 8th Months In A Row - Must be the weather... (though if you want to believe that, do not look at the regional breakdowns)... Pending home sales fell 10.2% YoY - the worst in 3 years (notably worse than the 9% drop expected by the meteorologists in the economics departments of the big banks). This is the 8th month in a row of home sales drops (pre-weather).  Don't worry though - a glimpse at the charts shows things are stabilizing as NAR's Larry Yun suggests.. Lawrence Yun, NAR chief economist, said the recent slowdown in home sales may be behind us, while home prices continue to rise. “Contract signings for the past three months have been little changed, implying the market appears to be stabilizing,” he said. “Moreover, buyer traffic information from our monthly Realtor® survey shows a modest turnaround, and some weather delayed transactions should close in the spring.”

Vital Signs: Housing’s Recovery Is Losing Momentum - The National Association of Realtor’s pending home sales index unexpectedly slipped 0.8% in February, pushing the index 10.5% below its year-ago level. And with the January index revised down, pending home sales have fallen for eight consecutive months. The downtrend foreshadows weakness in future existing home sales. (The pending sales index is based on contract signings, while sales are counted after closings.) While weather may have caused some buyers to hold off from housing hunting, affordability is becoming more of a challenge. Price increases and higher mortgage rates are pricing some potential buyers out of the market. The NAR forecasts existing-home sales will total 5.0 million this year, down slightly from nearly 5.1 million in 2013.

The Favorable Demographics for Apartments - For several years I've been pointing out that demographics are favorable for apartments. This is because a large cohort has been moving into the 20 to 34 year old age group (a key age group for renters).  Also ... in 2015, based on Census Bureau projections, the two largest 5 year cohorts will be 20 to 24 years old, and 25 to 29 years old (the largest cohorts will no longer be the "boomers"). Here are two graphs showing the population in the 25 to 34 year age group, and the 20 to 34 year old age group from 1985 to 2035 (1990 was the previous peak for 25 to 34, 1985 was the previous peak for 20 to 34).  This is actual data from the Census Bureau for 1985 through 2010, and current projections from the Census Bureau from 2015 through 2035. For the 25 to 34 year old age group, the population is just getting back to the previous peak, and will continue to increase significantly over the next 5 years. After 2020, the increase in population for this key age group will slow. The second graph is for the 20 to 34 year old age group. This favorable demographics is a key reason I've been positive on the apartment sector for the last several years - and I expect new apartment construction to stay strong for several more years.

Personal Income increased 0.3% in February, Spending increased 0.3% - The BEA released the Personal Income and Outlays report for February: Personal income increased $47.7 billion, or 0.3 percent ... in February, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $30.8 billion, or 0.3 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in February, compared with an increase of 0.1 percent in January. ... The price index for PCE increased 0.1 percent in February, the same increase as in January. The PCE price index, excluding food and energy, increased 0.1 percent in February, the same increase as in January/  The following graph shows real Personal Consumption Expenditures (PCE) through February 2014 (2009 dollars). The dashed red lines are the quarterly levels for real PCE. Using the two-month method to estimate Q1 PCE growth (first two months of the quarter), PCE was increasing at a 1.3% annual rate in Q1 2014 (using mid-month method, PCE was increasing less than 1.0%).   This suggests weak PCE growth in Q1, but I expect PCE to increase faster in March.

February Personal Outlays Sustained By Service Spending Surge; Durable Goods Spending Slides - Moments ago the BEA reported February personal income and spending which were expected to show a modest pick up following what all economists have classified as the "polar vortex" winter doldrums. While it remains to be seen whether and if spending, and income, will indeed pick up considering the deplorable state of the US household's earnings prospects, both metrics came precisely in line with consensus estimates at 0.3%The personal savings rate picked up by the smallest possible margin, rising from 4.2% to 4.3% in February as a resuit of a downward revision in January spending (from 0.4% to 0.2%), amounting to $544.5 billion in February, compared with $535.9 billion in January. The good news: US consumers can still be tapped for half a trillion in savings when it comes to bean counts of purchases. Next, we highlight the danger of taking any data out of the government at face value. Recall that last month, the spending on services according to spending data, hit an all time record of over $70 billion: Well, the is no longer the case, as the Jan service spending data has been revised well lower, to just $50 billion, however at the expense of a continuation in spending in February, when another $26 billion was forked over for "services" mostly of the healthcare kind: As for spending on real, durable goods? It declined for the third month in a row, down by another $2.3 billion to $1250 billion, the lowest since March of 2013.

Vital Signs: Income Gets a Lift Thanks to Government Assistance - Real Time Economics - WSJ: The 0.3% increases in personal income posted in January and February look positive for the future of the consumer sector until one looks at what’s driving the gains. Almost half of the increase in personal income in the past two months has come from bigger government transfer payments even though that category only accounts for about 16% of all personal income (adjusted for employer and employee payrolls taxes paid). Much of the surge in transfers reflects higher Medicaid spending as more people are covered under the Affordable Care Act. That extra spending has more than offset the decline in unemployment checks once extended-jobless benefits ended. After the ACA enrollment period ends, the lift to income should dissipate. Compensation of employees—mainly paychecks–has grown at a slower pace, reflecting weaker job growth and minimal pay raises. A more balanced consumer sector will depend on wages and salaries growing at a faster clip in coming months.

Graphs of key economic trends - Here are some graphs of economic data that illustrate some interesting trends. Atif Mian and Amir Sufi note that U.S. median family income grew with productivity in the forty years following World War II but has since fallen behind.And Martin Neil Baily and Barry Bosworth note that while U.S. manufacturing output has grown at the same pace as the rest of the economy, U.S. manufacturing employment has not.  In terms of monetary policy, the Federal Reserve Bank of Atlanta is now regularly reporting the Wu-Xia shadow fed funds rate. The latest estimate indicates that a return to higher interest rates was farther away than ever as of the end of last month. For a description of what this series tells us, see my discussion here.  On world oil markets, the Wall Street Journal observes that Iraqi oil production is at its highest level in 30 years. But Peak Oil Barrel notes that’s more than outweighed by recent turmoil in Libya.

Mind the (Spending) Gap - We all know that households cut back on spending dramatically during the Great Recession. Are they spending now? Has spending caught up to the trend the United States was on before? The red line in the chart below plots retail spending in real terms in the United States from 1992 to 2013. We want to get a sense of the trend in spending so we plot spending on a logarithmic scale, and we subtract off the 1992 level to start the line at zero. A logarithmic scale is informative because a straight line in the chart would imply that spending was growing at a constant rate in real terms. Prior to 2007, spending was growing at a constant rate of about 3% real growth per year. The black dots show the pre-2007 trend and where we would be if we had continued on that trend through 2013. The Great Recession is plainly evident in the chart: see the sharp decline in retail spending in 2008 and 2009 that took us well below trend. So are we catching back up to our previous trend? Absolutely not. In fact, in 2013, it looks like the gap may be getting even larger. The gray arrow shows that we are not even close to the trend we were on before the Great Recession hit. This is unusual. In most recessions, strong growth takes us back to the trend we were on before the recession hit. Something about the Great Recession is different.

Consumer Confidence Bounces Back in March -- The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through March 14. The 82.3 reading was above the 78.6 forecast of and 4.0 above the February 78.3 (previously reported at 78.1). This measure of confidence has risen from its interim low of 72.0 in November and it now at a new post-Financial Crisis high.Here is an excerpt from the Conference Board report."Consumer confidence improved in March, as expectations for the short-term outlook bounced back from February's decline," "While consumers were moderately more upbeat about future job prospects and the overall economy, they were less optimistic about income growth. The Present Situation index, which had been on an upward trend for the past four months, was relatively unchanged in March. Overall, consumers expect the economy to continue improving and believe it may even pick up a little steam in the months ahead."Consumers' assessment of current conditions was little changed in March. Those claiming business conditions are "good" increased to 22.9 percent from 21.2 percent; however, those claiming business conditions are "bad" also rose, to 23.2 percent from 22.0 percent. Consumers' appraisal of the labor market was relatively unchanged. Those claiming jobs are "plentiful" decreased marginally to 13.1 percent from 13.4 percent, while those saying jobs are "hard to get" increased slightly to 33.0 percent from 32.4 percent.   [press release]

Consumer Confidence Jumps To 6-Year High (Led By Surge In Hope) - The 'recovery' has reached a new cyclical high in consumer confidence. Despite the economic growth sapping, recovery dampening, Fed tapering, consumers have not been more exuberant since January 2008. Of course, the jump to new highs is all about the future - the Present Situation index dropped while the "Expectations" index jumped 7 points to 83.5 - its highest in 6 months.

Final March Consumer Sentiment at 80.0 (w/ graph) The final Reuters / University of Michigan consumer sentiment index for March decreased to 80.0 from the February reading of 81.6, and was up slightly from the preliminary March reading of 79.9.  This was below the consensus forecast of 80.5. Sentiment has generally been improving following the recession - with plenty of ups and downs - and a big spike down when Congress threatened to "not pay the bills" in 2011, and another smaller spike down last October and November due to the government shutdown. I expect to see sentiment at post-recession highs very soon.

Consumer Confidence Rebounds, but Uncertainty Lingers - THE American economy continues to improve, month after month, according to a survey of consumers. But even as those consumers have become steadily more confident in the present, they have not become more confident about the future. While their optimism now is much higher than it was at the depth of the financial crisis in 2009, it remains below the levels seen as recently as last summer. The Conference Board reported this week that its overall index of consumer confidence climbed to 82.3 in March, the highest reading since January 2008, just as the recession was beginning. But the two components of the index provided two different perspectives, as can be seen in the accompanying charts. The present-situation index has been rising fairly steadily since it hit bottom at the end of 2009, although it slipped slightly in March, according to the preliminary figures. But the expectations index, based on consumer forecasts for six months later, remains well below where it was in early 2011, when enthusiasm grew over prospects for recovery. The present-situations index is based on answers to two questions. The first asks if current business conditions are good, normal or bad. In March, nearly as many Americans characterized the conditions as good (22.9 percent) as saw them as bad (23.1 percent). The second question asks about the state of the job market. Respondents are given three choices — that jobs are “plentiful,” that they are “not so plentiful” or that they are “hard to get.” There, the improvement has not been as visible. But there has been a steady decline in the proportion of people who think jobs are hard to get, from nearly half of respondents at the worst to about a third in recent months.

UMich Confidence Drops To 4-Month Lows, Biggest Miss Since October - While the government's survey of consumer confidence saw new cycle highs - progressing the multiple expansion dream - the University of Michigan (private) survey has been falling for 3 months and is now at its lowest since November. Both current conditions (reality) and expectations (hope) missed expectations (overall index missed by the most in 5 months) but "hope" did rise modestly from 69.4 to 70.0. Must have been a 'winter stormy' week when UMich surveyed consumers...

Are We Really Headed for Deflation?: The Bureau of Labor Statistics (BLS) reports inflation in the U.S. economy increased by 0.1% in February from the previous month. (Source: Bureau of Labor Statistics, March 18, 2014.) As usual, these numbers have again brought up the theory of deflation -- a period when general prices decline. Reasons for the deflation fear? In 2013, inflation for the entire year was 1.5%. In 2012, it was 1.9%. Going back further, in 2011, it was three percent. If we extrapolate the inflation numbers from January and February of this year and assume the increase will be the same (0.1%) throughout the year, we are looking at an inflation rate of 1.2% for 2014. Wells Fargo Securities LLC has gone one step further. Economists at the firm believe there's a 66% chance that deflation in the U.S. economy will prevail and these chances have been increasing since 2010. To me, this is sheer nonsense! The reality of the matter is that the inflation numbers reported by the BLS exclude changes in food and energy prices—the most important things consumer use on a daily basis. When you include food and energy, inflation is running at a much higher rate. The prices of basic commodities are skyrocketing. Take corn prices, for example: since the beginning of the year, corn prices are up more than 15%. Wheat prices are up almost 20% year-to-date. When you look at meat prices, such as lean hogs, you will see they have increased by more than 45% since January. As I see it, deflation is nothing but a farfetched idea for the U.S. economy. (In a recent survey we ran on our homepage,, the average estimate for current inflation from our readers was five percent.)

Pricier beef 'here to stay' as food costs seen higher: USDA - U.S. food prices are expected to rise more rapidly this year after a very tame 2013, led by gains in beef, poultry and egg prices, the U.S. Department of Agriculture said on Tuesday. The food price inflation outlook assumes normal weather, the USDA said, adding that the California drought poses a risk of bigger increases in many food categories, and that high supermarket prices for beef are "here to stay." Related The milk section of a grocery store is pictured in Los Angeles Various measures, including overall food, food-at-home and food-away-from-home prices, are expected to rise by 2.5 to 3.5 percent in 2014. The consumer price index for all food prices rose by 1.4 percent in 2013. The ongoing drought in California could have "large and lasting effects on fruit, vegetable, dairy and egg prices" although that impact has not been seen so far, USDA said. California is the No. 1 U.S. farm state, producing roughly half the nation's fruits and vegetables. The Golden State faces a water crisis after its driest year on record in 2013. Large amounts of farmland are likely to go unplanted this year. In other categories, USDA said farm egg prices have been exceedingly volatile recently, rising by 20 percent in February after falling by 28 percent in January. Farm cattle and wholesale beef prices rose in February, by 1.1 percent and 2.4 percent respectively.

U.S. Gas Prices Have Gone Up $4 Per Tank Over the Last Six Weeks - The average price of gas is up across the country as Spring looms near, bringing warmer temperatures but also an annual spike in how much it costs to top off your tankRegular gasoline rose five cents per gallon on average in the U.S. over the past two weeks to reach a price of $3.56.A survey released Sunday by industry analyst Trilby Lundberg reveals prices have risen 26 cents per gallon over the past six weeks, representing a $4 bump on a typical gas tank.Midgrade costs $3.74 per gallon on average with premium gas at $3.89 and diesel at $4.02.Within the contiguous U.S., Los Angeles has the highest average price at $4 per gallon, while Billings, Mont., comes in lowest at $3.18.

Weekly Gasoline Update: Prices UnchangedIt’s time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium are unchanged after six weeks of price increases.  According to, Hawaii is the only state with regular above $4.00 per gallon, now at $4.17, up two cents from last week. The next highest state average is California at $3.96, up from $3.95 last week. No states are averaging under $3.00, with the lowest prices in South Montana at $3.23, up two cents.

Vehicle Sales Forecasts: March Rebound - Auto sales were clearly impacted by the harsh winter weather in January and February. For an excellent article on weather and auto sales, see Weakening Economy or Just Bad Winter? by Atif Mian and Amir Sufi. Now we will see if sales rebound ... The automakers will report March vehicle sales on Tuesday, April 1st.  Sales in February were at a 15.3 million seasonally adjusted annual rate (SAAR), and it appears there will be a solid increase in March. Here are a couple of forecasts: From Kelley Blue Book: New-Car Sales Expected To Rise 2 Percent In March, Fall 0.3 Percent In First Quarter 2014 New-vehicle sales are expected to rise 2 percent year-over-year to a total of 1.48 million units, and an estimated 15.7 million seasonally adjusted annual rate (SAAR), according to Kelley Blue Book ... A 15.7 million SAAR would mark the seventeenth consecutive month above 15 million and the greatest March since 2007. From J.D. Power: Auto Sales Recovering After Slow Start to 2014 Cold and snowy weather may have depressed new-vehicle sales in January and February of 2014, but customers are returning to dealership showrooms in March, according to a new sales forecast jointly issued by J.D. Power and LMC Automotive. According to the latest forecast, retail sales are expected to demonstrate a 7% increase over March 2013, with 1,148,338 new cars, trucks, SUVs, and minivans rolling into American driveways. Additionally, the average transaction price for those new vehicles remains above $29,300, the highest ever for the month of March and $700 higher than in March 2013, reflecting continued economic strength and improved consumer confidence.At the start of March 2014, automakers had stockpiled an 80-day supply of new vehicles, while a 60-day supply is considered ideal. LMC Automotive isn't concerned, though, and expects a faster selling rate to reduce inventories to normal levels.

US 'flash' manufacturing PMI slips to 55.5 in March: Markit: U.S. manufacturing activity slowed in March after nearing a four-year high last month, but the rate of growth and the pace of hiring remained strong, an industry report showed on Monday. Financial data firm Markit said its "flash" or preliminary U.S. Manufacturing Purchasing Managers Index slipped to 55.5 from 57.1 in February. Readings above 50 indicate expansion. That fell short of economists' expected reading of 56.5 but was still comfortably ahead of 53.7 in January, suggesting the effects of a harsh winter have started to fade. The new orders component fell to 58.0 from 59.6 in February, partly the result of a decline in overseas demand, Markit said. Output edged down to 57.5 from 57.8 while firms took on workers for a ninth consecutive month.The survey "adds to evidence that the sector has shrugged off the weather-related weakness seen earlier in the year,'' said Markit chief economist Chris Williamson, adding the still solid showings for output and new orders was "encouraging news."

Durable goods orders rise, but capex looks weak (Reuters) - Orders for long-lasting U.S. manufactured goods rebounded in February, but a surprise drop in a gauge of planned spending on capital goods pointed to sluggish economic growth this quarter. The Commerce Department said on Wednesday orders for durable goods increased 2.2 percent, ending two straight months of declines. Durable goods are items like toasters and aircraft that are meant to last three years or more. However, orders for non-defense capital goods excluding aircraft unexpectedly fell 1.3 percent after rising 0.8 percent in January. This core capital goods measure is a closely watched proxy for business spending plans. "First-quarter business investment looks to be soft, and it challenges some of the optimism surrounding the idea that capital expenditures were set to advance noticeably in 2014 from their 2013 pace,"  Economic growth in the first quarter is expected to have slowed from the fourth quarter's annualized 2.4 percent rate, with the expansion held back by unseasonably cold weather and an effort by businesses to work through a pile of unsold goods. Some economists trimmed their forecasts of first quarter business investment on the orders data, but held their overall GDP forecasts steady, given an increase of 0.8 percent in durable goods inventories in February.

Durable Goods Report: February Was a Mixed Bag -- The March Advance Report on February Durable Goods was released this morning by the Census Bureau. Here is the Bureau's summary on new orders: New orders for manufactured durable goods in February increased $5.0 billion or 2.2 percent to $229.4 billion, the U.S. Census Bureau announced today. This increase, up following two consecutive monthly decreases, followed a 1.3 percent January decrease. Excluding transportation, new orders increased 0.2 percent. Excluding defense, new orders increased 1.8 percent.  Transportation equipment, also up following two consecutive monthly decreases, led the increase, $4.6 billion or 6.9 percent to $71.4 billion. This was led by nondefense aircraft and parts, which increased $1.8 billion. Download full PDF  The latest new orders number came in at 2.2% percent month-over-month, which was a significantly better than the forecast of 1.0 percent. Year-over-year new orders were up only 0.2 percent. If we exclude transportation, "core" durable goods came in at 0.2 percent MoM and only 1.5 percent YoY. had a forecast a higher 0.3 percent.If we exclude both transportation and defense, durable goods were down 0.5% MoM but up 2.6 percent YoY. The Core Capital Goods New Orders number (captial goods used in the production of goods or services) was down 1.3 percent MoM. The YoY number was up 2.2 percent. The first chart is an overlay of durable goods new orders and the S&P 500.

Vital Signs: Still No Momentum in Business Spending - Makers of capital equipment are still waiting for their break-out moment. The latest data on business spending remains sluggish. Shipments of nondefense capital goods excluding aircraft edged up 0.5% in February, but that followed a 1.4% drop in January. The numbers suggest the business equipment sector is contributing almost nothing to first-quarter gross domestic product growth. Moreover, the capex pipeline doesn’t suggest spending will pick up in the near future. New orders of core capital goods fell 1.3% in February, the second large decline in three months. Demand for machinery, communications equipment and electronics, appliances and parts declined in January and February. Of course, weather may have skewed some of the most recent numbers. But shipments and new orders have been in a holding pattern for the past few months. That’s not a good sign for the capex sector. Economists in general think the business sector will rev up their equipment purchases this year—and there is still plenty of time for the trend to improve. However, economists at J.P. Morgan write in a research note, “The latest data suggest those hopes may have been misplaced; while capex continues to expand at something close to a trend-like pace, there is thus far little evidence of an investment spending surge.”

Richmond Fed: Manufacturing Remained Soft in March - The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank. The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components. The March update shows the manufacturing composite at -7, a slight decline from last month's -6. Not surprisingly, the full report continues to mention bad weather as a factor. Today's composite number was below the forecast of -1.Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at -0.3, to facilitate the identification of trends.Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Kansas City Fed: Regional Manufacturing increased in March - From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Increased The Federal Reserve Bank of Kansas City released the March Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity increased, and producers’ expectations were mostly stable at solid levels. The month-over-month composite index was 10 in March, up from 4 in February and 5 in January. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Manufacturing activity increased at both durable and non-durable goods-producing plants, particularly for plastic and machinery products. Other month-over-month indexes also improved. The production index jumped from 3 to 22, its highest level in 3 years, and the shipments and new orders indexes also climbed higher. The order backlog index edged up from -4 to -1, and the new orders for exports index also increased slightly. The employment index moderated from 3 to 0, and both inventory indexes eased somewhat. The last regional Fed manufacturing survey for March will be released on Monday, March 31st (Dallas Fed). In general - with the exception of the Richmond survey - the regional surveys have been positive in March and suggest improvement in the ISM manufacturing index.

Fracking boom won't create many manufacturing jobs -- The Wall Street Journal has an article entitled; "Gas Boom Rejuvenates Manufacturing." There certainly are some manufacturing sectors that will be helped by the energy boom. However people shouldn't expect too much from this development. In a recent post I pointed out that population growth in Texas had slowed since the onset of the fracking boom. One problem is that as more engineers and skilled workers are drawn into fracking, fewer are available for other industrial jobs. Thus fewer manufacturing firms will move to Texas. The WSJ article expresses a similar concern: In an about-face, the U.S. is drawing foreign manufacturing investments, Mr. Witte said. Inexpensive gas is luring Canada's Methanex Corp. to pack up its one-million-ton-a-year methanol plant in Chile and move it to Louisiana at a cost of $550 million. But all that building could cause construction costs to balloon as companies compete for a limited supply of labor and materials, particularly in Gulf Coast states, according to IHS.

How Technology Creates Jobs - - Conventional wisdom holds that new technology requires highly educated workers. There is little doubt that new technologies have taken a heavy toll on less educated workers not only in manufacturing industries, but also in routine white-collar jobs. In many cases, these workers had accumulated valuable experience that has now become obsolete. Yet it is a mistake for managers to assume that they need to hire highly educated workers to handle new technology; employees gain much critical knowledge about new technologies through experience on the job and such learning often does not require a high degree of education. Managers need to understand the role of technological maturity, the value of experience, and how employees’ technical skills develop under different business models. Indeed, economic research shows that new technology increases the need for more educated workers at first, but, as technology matures, less educated workers are hired in general.

Feds Probe GM Over Ignition Problem Bankruptcy Fraud - Not only is GM facing record high inventories of slow-to-sell cars and the recall of million sof its cars (and a sale halt), Reuters reports that the terrible ignition switch problem - that has caused 13 deaths - may have been known about (and not disclosed) prior to the bankruptcy (and subsequent taxpayer bailout). The Justic Department is investigating whether GM understated (or hid) the information from regulators and committed bankruptcy fraud.Via Reuters, Federal authorities are investigating whether General Motors hid an ignition switch defect when it filed for bankruptcy in 2009, The New York Times reported on Saturday. The Justice Department's investigation of the automaker includes a probe of whether GM committed bankruptcy fraud by not disclosing the ignition problem, a person briefed on the inquiry told the Times on Friday, the paper said. Authorities are also investigating whether GM understated the defect to federal safety regulators, the Times said.

Google, Apple, and Other Tech Titans’ Wage-Suppression Conspiracy Estimated to Cover One Million Workers --  Yves Smith - Technology leaders like acting on a grand scale, and that apparently includes when they engage in criminal conspiracies. As a price-fixing case against the some of the America’s most celebrated companies moves forward, the estimate of the number of employees victimized has grown ten-fold, to nearly one million.  By way of background: the Obama Administration looked to have gotten a spine infusion in pursuing an anti-trust case against Silicon Valley’s elite for conspiring to lower wages of tech rank and file workers. The Department of Justice’s charges hold up pointed to slam-dunk criminal violations.  But this being Team Obama, the tech big boys are getting off on the cheap, with the DoJ content to have them swear that they won’t engage in this sort of bad behavior again.  As we wrote in January: The government’s case, as summarized by Mark Ames at Pando, is chock full of damning e-mails among top executives, which reveal Steve Jobs to have been the lead actor and main enforcer of the pay-containment pact, which dates to 2005. But its real mastermind was George Lucas, who had a similar scheme in place in the 1980s and enlisted Jobs when he sold the computer animation division of Lucasfilm to Pixar. This is the guts of the government’s allegations: Between approximately 2005 and 2009, Defendants Adobe, Apple, Google, Intel, Intuit, Lucasfilm, and Pixar allegedly engaged in an “overarching conspiracy” to eliminate competition among Defendants for skilled labor. The conspiracy consisted of an interconnected web of express bilateral agreements….Defendants memorialized these nearly identical agreements in CEO-to-CEO emails and other documents, including “Do Not Call” lists, thereby putting each Defendant’s employees off-limits to other Defendants. Each bilateral agreement applied to all employees of a given pair of Defendants. These agreements were not limited by geography, job function, product group, or time period. Nor were they related to any specific business or other collaboration between Defendants.  Consider what this means. Here we see the companies that are touted as the epitome of American entrepreneurship, who supposedly fetishize finding and nurturing the best “talent,” instead focusing on containing worker wages as they way to bolster their profit. That’s apparently easier than making superior products.

Revealed: Apple and Google’s wage-fixing cartel involved dozens more companies, over one million employees - Back in January, I wrote about “about “The Techtopus” — an illegal agreement between seven tech giants, including Apple, Google, and Intel, to suppress wages for tens of thousands of tech employees. The agreement prompted a Department of Justice investigation, resulting in a settlement in which the companies agreed to curb their restricting hiring deals. The same companies were then hit with a civil suit by employees affected by the agreements. This week, as the final summary judgement for the resulting class action suit looms, and several of the companies mentioned (Intuit, Pixar and Lucasfilm) scramble to settle out of court, Pando has obtained court documents (embedded below) which show shocking evidence of a much larger conspiracy, reaching far beyond Silicon Valley. Confidential internal Google and Apple memos, buried within piles of court dockets and reviewed by PandoDaily, clearly show that what began as a secret cartel agreement between Apple’s Steve Jobs and Google’s Eric Schmidt to illegally fix the labor market for hi-tech workers, expanded within a few years to include companies ranging from Dell, IBM, eBay and Microsoft, to Comcast, Clear Channel, Dreamworks, and London-based public relations behemoth WPP. All told, the combined workforces of the companies involved totals well over a million employees.

Apple, Google lose bid to avoid trial on tech worker lawsuit -- A U.S. judge on Friday rejected a request from Apple, Google and two other tech companies to avoid a trial in a class action lawsuit alleging a scheme to drive down wages. Tech workers sued the companies alleging they conspired to avoid competing for each other's employees in order to avert a salary war. Trial is scheduled to begin in May. Apple, Google, Intel and Adobe asked for a judgment in their favor without a trial, arguing that any no-hire agreements between the companies were reached independently, and were not part of an overarching conspiracy. U.S. District Judge Lucy Koh in San Jose, Calif., however, rejected that argument. true "That the agreements were entered into and enforced by a small group of intertwining high level executives bolsters the inference that the agreements were not independent," wrote Koh. A representative for Adobe could not immediately be reached for comment. An Intel spokesman said the company is studying the ruling, and representatives for Google and Apple declined to comment.

“Incentives to produce” are incentives to rig the game - That’s obvious, right? But let’s belabor the point. In real life, it’s not so common for comic-book villains to release icky pathogens and then charge for a cure. But it is very common for doctors to restrict entry into their profession and to act politically to inflate the cost of their services. Goaded by “incentives to produce”, participants in the financial industry do a lot of “innovating” that amounts to finding ways of skimming invisible or unexpected fees from people or persuading them to bear underappreciated and undercompensated risks or maximizing the value to them (and costs to others) of guarantees implicitly or explicitly provided by the state. Nearly every industry hires lobbyists to carve out favorable loopholes and subsidies and regulatory schemes at everyone else’s expense. Tech firms make a business model of invasive surveillance and selling information about people who are their users but not their customers. Patent trolls send extortion letters to users and creators of new technology. Politicians “revolve” out of government into perfectly legal, extravagantly compensated sinecures in the private sector, and then often back into government. Senior members of the military become “private sector entrepreneurs”, garnering contracts from friends and former colleagues in a burgeoning defense and intelligence industry, often for work that used to be performed more cheaply internally. Executives collude with friendly boards who rely upon transparently idiotic consulting practices to extract huge salaries. Some of these things contribute to measured GDP, to “growth”, but their effect on the actual well-being of those outside their industries is, um, questionable.

New Jobless Claims Drop to 311K, Beating Expectations - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 311,000 new claims number was a decline of 10,000 from the previous week's 321,000 (revised from 320,000). The less volatile and closely watched four-week moving average, which is usually a better indicator of the trend, also fell 10,000, now at 317,750.  Here is the opening of the official statement from the Department of Labor:In the week ending March 22, the advance figure for seasonally adjusted initial claims was 311,000, a decrease of 10,000 from the previous week's revised figure of 321,000. The 4-week moving average was 317,750, a decrease of 9,500 from the previous week's revised average of 327,250.  The advance seasonally adjusted insured unemployment rate was 2.2 percent for the week ending March 15, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending March 15 was 2,823,000, a decrease of 53,000 from the preceding week's revised level of 2,876,000. The 4-week moving average was 2,862,500, a decrease of 31,500 from the preceding week's revised average of 2,894,000.  Today's seasonally adjusted number at 311K came in well below the forecast of 325K.Here is a close look at the data over the past few years (with a callout for the past year), which gives a clearer sense of the overall trend in relation to the last recession and the volatility in recent months

Initial claims return to post-recession lows; gross domestic income improves - Just a couple of quick hits about data released this morning.First of all, initial claims, at 311,000, caused the 4 week moving average to decline to 317,650, which is the lowest reading since the Great Recession with the exception of 3 weeks last September (and before that, October 2007!).  This bodes well for the unemployment rate in the March or April jobs report, since initial jobless claims tend to lead the unemploymeet rate in the payrolls report. In the rear view mirror, fourth quarter gross domestic income was reported at +2.7%.  Gross domestic income is the mirror image of gross domestic product, and it is generally thought that GDP resolves in the direction of GDI.  Although "old" information, it confirms that we have not been on the verge of contraction. The good initial claims report in particular is potent evidence that the wintertime slump has ended.

Initial Claims Suggest That This Bubble Has Reached Its Limit - The seasonally finagled headline number for weekly initial unemployment claims was 311,000 last week, soundly trouncing the consensus wild guess of the Wall Street conomist crowd, who were looking for 330,000. Seasonally adjusted (SA) data represents an idealized, fictional, dumbed down, smoothed, abstract impressionistic version of reality that is supposed to more clearly represent the trend. Admittedly, sometimes it comes close, but sometimes it doesn’t. Rather than using the faked data that the mainstream media loves to idiotically parrot, I like to look at the actual number of claims reported to the Department of Labor (DOL) each week by the 50 state unemployment departments. When that actual data is plotted on a chart with a few filters it’s easy to see the actual trend. It’s easy to see whether the most recent data shows any material deviation from the trend.  The media ignores it, but the DOL dutifully reports the actual not seasonally adjusted (NSA) data right along with the SA data each week. Here’s what it had to say today about last week: The advance number of actual initial claims under state programs, unadjusted, totaled 273,411 in the week ending March 22, a decrease of 12,559 from the previous week. There were 315,620 initial claims in thecomparable week in 2013. As a critical observer, I want to know how this compares with the trend, along with how this week’s change compares with the same week last year and with the historical average for the comparable week.In that vein, the drop of -12,559 last week compares with an increase of +14,669 in the comparable week last year.The current week was a good deal stronger than the same week last year. The 10 year average for the comparable week was a drop of -8,700. The current week was slightly better than that, not materially so. It was a pretty good week, all told. The year to year rate of change was a decline of 13.4%. That is a significant strengthening from the momentum of the trend since January, which was typically in the zero to -5% range, and had been decelerating toward zero.

US loses edge as employment powerhouse -- The US is losing its edge as an employment powerhouse, where most people have a job or are looking for one, after its labour participation rate fell behind the UK’s  The diverging trends between the US and the UK come as central bankers in both countries try to understand the dynamics in their respective labour markets, a critical factor in how long they should keep interest rates at record lows.  The labour force participation rate – the proportion of adults who are either working or looking for work – started to decline in the US in 2000 and has plunged since 2008 from 66 to 63 per cent.  The equivalent of 7.4m people are no longer part of the labour force. Yet participation in the UK has held up remarkably well despite the country’s prolonged downturn and now stands at 63.6 per cent – the first time in 36 years that it has been higher than the US rate.   Economists have been surprised by the trends, not least because the US labour market has long been seen as one of the most resilient and flexible.  “America is even more flexible than us and yet there is this complete contrast,”  Gary Burtless, a senior fellow at the Brookings Institution think-tank in Washington, said the US used to stand out among rich countries for its high labour force participation but that was no longer the case. “The US used to have a reputation for being very hard working,” he said.

Nafta Still Bedevils Unions -- Two decades after its enactment, the North American Free Trade Agreement — better known as Nafta — remains a source of deep disagreement among economists. Maybe it has led employers to add tens of thousands of jobs. Or perhaps it has caused the loss of 700,000 jobs. Maybe it has been “a bonanza for U.S. farmers and ranchers,” as the United States Chamber of Commerce has said. But perhaps it has depressed wages for millions of working families. Then again, maybe all sides are wrong: “Nafta brought neither the huge gains its proponents promised nor the dramatic losses its adversaries warned of,” wrote Jorge G. Castañeda in an essay for Foreign Affairs this winter. “Everything else is debatable.” But for labor groups, there is no debate: Nafta hurt American jobs and household earnings. And the sweeping trade agreement cast a shadow that persists today, spurring deep skepticism of the major trade deals the Obama administration is negotiating with Europe and a dozen Pacific Rim countries. “We cannot enact new trade agreements modeled on Nafta,” said Richard L. Trumka, the president of the A.F.L.-C.I.O. “No other country pursues trade deals like we do. Nobody else — not India or Germany, Sweden or China — uses these deals to get rid of good jobs.” On Thursday, the A.F.L.-C.I.O. released a report excoriating Nafta and highlighting its deleterious effects on the labor market — a controversial position, but a deeply held one.

Northwestern University Football Players Win Bid To Form Union -- The Chicago regional chapter of the National Labor Relations Board has approved the petition from a group of Northwestern University football players seeking to form a union, a preliminary but unprecedented victory for college athletes that could lead to the formation of the first players’ union in college sports history. The College Athletes Players Association argued in front of the NLRB that college athletes fit the definition of employees under federal labor law and as such should have the right to organize and bargain with their employer, in this case Northwestern University. That university and the NCAA argued that the players are students first, not employees of the university, and shouldn’t have that right. The NLRB examiner agreed with the players. “[P]layers receiving scholarships to perform football-related services for the Employer under a contract for hire in return for compensation are subject to the Employer’s control and are therefore employees,” the decision said.

Expect Surge in Temp Jobs to Continue - The surge in contract and “temp” jobs since the recession ended is likely to continue, a range of experts have said, in part because of slack in the labor market and decisions by many corporations to maximize flexibility in their work force. CareerBuilder and Economic Modeling Specialists Intl. said in a new forecast on Thursday that more than 2.9 million workers had temporary jobs in 2013, up 28% from 2010. Roughly 10% of all new jobs created since the recession ended have been temp or contract jobs, according to various estimates. By many accounts, a record number of Americans now work in these positions, which can lead to full-time positions, but often don’t promise long-term certainty. The biggest increase in temp jobs among major cities has been in Grand Rapids, Mich., according to the two companies, a trend they expect to continue. The number of temp workers in the western Michigan city has more than doubled since 2009 and they expect it to increase another 8% from 2013 to 2014. They also expect sizable increases in Indianapolis, Seattle, Orlando, and a number of other towns.  CareerBuilder and EMSI expected 4% growth in the number of temp jobs among human resources specialists this year, and 3% growth in customer service representatives, construction laborers, administrative assistants, and registered nurses, among others.

Jobless Recoveries in One Chart - Here is a chart from Ed Leamer showing jobless recoveries after the last two recessions. There are several ways to see jobless recoveries in the data, but this one is particularly striking. It may take a little effort to follow it, but it is worth the effort.  On the horizontal axis is the total amount of hours worked. On the vertical axis is the total output of the business sector. Leamer plots hours and output since WWII. Before 2001, we saw a steady expansion of both output and hours–we move in the northeast direction of the chart.  Recessions are times when we move to the southwest of the chart — hours and output drop. Recoveries should be times when we move back to the northeast–output and hours increase. That’s exactly what happened after all post WWII recessions, until 2001. In 2001 and in the Great Recession, the recovery moves us straight north in the chart, not to the northeast. Output recovers, but jobs don’t.

Krugman and DeLong on Avoiding Secular Stagnation - Dean Baker - Brad DeLong and Paul Krugman are having some back and forth on the problem of secular stagnation and what it would have taken to avoid a prolonged period of high unemployment. I thought I would weigh in quickly since I have a better track record on this stuff than either of them.  The basic story going into the crash was that we had an economy that was being driven by the housing bubble. This was both directly through residential construction and indirectly through the consumption that followed from $8 trillion of bubble generated housing equity. Residential construction expanded to a record high of more than 6 percent of GDP at a time when demographics would have implied its share would be shrinking. This led to enormous overbuilding, which is why construction hit record lows following the crash. (There was a smaller bubble in non-residential real estate that also burst in the crash.)  Consumption also predictably plummeted. This is known as the housing wealth effect. (I learned about this in grad school, didn't anyone else?) Anyhow, when people saw their homes soar in value many spent in part based on this wealth. This might have meant doing cash out refinancing, a story that obsessed Alan Greenspan during the bubble years. It might mean a home equity loan, or it might just mean not putting money into a retirement account because your house is saving for you. In any case, when the $8 trillion in bubble generated equity disappeared so did the consumption that it was driving. You can't borrow against equity that isn't there. This cost the economy between $400 billion and $600 billion (@ 3-4 percent of GDP) in annual consumption expenditures. Between the lost construction and lost consumption, it was necessary to replace close to 8 percent of GDP. The effect of lost tax revenue in forcing cutbacks at the state and local level raised the demand loss by another percentage point or so.

Feeding Piketty’s Capital Monster - Piketty describes the growing power of capital income as “patrimonial capitalism”, where an elite gain control through inheritance and gained favor. Beatriz Webb explained this process over a century ago, so it is not a completely new insight. Capital income has been a monster of sorts growing in its power and dominance of the global economy.  Paul Krugman points to the GOP as the culprit who set policies towards patrimonial capitalism… “In short, the GOP is more and more a party that consistently, indeed reflexively, supports the interests of capital over those of labor. But why?” Mr. Krugman is realizing the danger of a falling labor share of national income… “So what we’re seeing is that half the political spectrum now instinctively accords much more respect to capital than to labor, at a time when capital income is growing ever more concentrated in a few hands — and is surely on its way to being concentrated largely in the hands of people who inherited their wealth. What is really curious is why Mr. Krugman and many other progressive economists support a monetary policy that is feeding the patrimonial capital monster. They think that accommodative monetary policy is the proper medicine for the economy, and they even ask for more of it… even to push beyond full employment with it. What they must eventually realize is that accommodative monetary policy is not a medicine but a substantial part of the overall poison that is slowly killing the wonderful economy that once was… when labor was able to influence politics and economic growth.The fall in labor share must be reversed in order to have an effective Fed policy, a healthy inflation, healthy employment, a healthy population, a healthy society… a healthy world.

Working for the Owners - Paul Krugman - I’ve just finished a draft of a long review of Thomas Piketty’s Capital in the 21st Century, which argues that we’re on the road back to “patrimonial capitalism”, dominated by inherited wealth. One slight weakness of the book, however, is that Piketty’s grand framework doesn’t do too good a job of explaining the explosion of income inequality in the United States, which so far has been driven mainly by wage income rather than capital. Piketty does take this on; but it’s kind of a side journey from the central story. I’ve been thinking about this quite a bit, and one thing that strikes me is the remarkable extent to which American conservatism in 2014 seems to be about defending and promoting patrimonial capitalism even though we aren’t there yet.Think back to the Bush administration, whose main economic theme was the “ownership society“: in effect, the message was that you’re not really a full-fledged American, no matter how hard you work, unless you have a lot of assets. Think of Eric Cantor’s famous Labor Day tweet in which he used the occasion to celebrate business owners. More recently, Mike Konczal has pointed out that despite claims that the Tea Party somehow represents a rebellion against business domination of the GOP, the Tea Party agenda corresponds almost perfectly with Wall Street’s goals.Oh, and let’s not forget the long crusade against the estate tax. . In fact, the concentration of income from capital in a few hands has risen sharply. Tucked deep inside the CBO report on trends in the US distribution of income are data on the concentration of various types of income; here’s the one percent’s share of capital income:

American Patrimony - Paul Krugman -- One problem the Piketty work I discuss in today’s column may have — at least in America — is the widespread perception, even among those who take inequality seriously, that it’s all about compensation, that wealth inequality isn’t that big an issue, and that inheritance is also not that big an issue. We think hedge fund managers, not Kochs and Waltons. But is this perception right? A lot of it seems to be based on the Fed’s Survey of Consumer Finances — but this may have trouble tracking really huge fortunes for the same reasons standard income surveys have trouble tracking really high incomes. And the problem is especially acute because wealth distribution is even more skewed than income distribution. So it turns out that Emmanuel Saez and Gabriel Zucman have been developing an alternative procedure for estimating top wealth shares — preliminary slides here (pdf) — and it tells a very different story from the common one. According to their estimates, the wealth share of the very wealthy is in fact all the way back to Gilded Age levels:Meanwhile, focusing on the upper middle class, which is still fashionable among some pundits, misses the whole thing, because everyone below the 99th percentile has actually been left behind:

Long-Run Unemployment Arrives in the U.S. Economy - One lasting consequence of the Great Recession has been that the problem of long-run unemployment has now arrived in the U.S economy. Alan B. Krueger, Judd Cramer, and David Cho present the evidence and some striking analysis in "Are the Long-Term Unemployed on the Margins of the Labor Market?". To get a sense of the issue here are a couple of striking figures from Krueger, Cramer, and Cho. Split up those unemployment rate into three groups: those unemployment for 14 weeks or less, those unemployed for 15-26 weeks, and those unemployed for more than 26 weeks. What do the patterns look like, both over time and more recently?A few patterns jump out here:
1) In the last 65 years, the short-term unemployment rate, 14 weeks or less, has been higher than the middle-term or long-term unemployment rate. But for a time just after the Great Recession, the long-term unemployment rate spike so severely that it exceeded the short-term rate.
2) In the last 65 years, the medium term unemployment rate for those without jobs from 15-26 weeks moved in quite a similar way and at a similar level to the longer-term unemployment rate for those without jobs for more than 26 weeks. But after the Great Recession, the long-term unemployment rate spiked far out of line with the medium-term unemployment rate.
3) Moreover, notice that right after the Great Recession, the long-term unemployment was spiking at a time when the short-term and medium-term unemployment rates had already peaked and had started to decline.
4) The short-term unemployment rate is now below the pre-recession average for the years 2001-2007. The medium term unemployment rate is almost back to its pre-recession average. The long-term unemployment rate, although it has declined in recent months, is still near its highest level for the period from 1948-2007.

When long-term unemployment becomes self-perpetuating - Say it with me: The long-term unemployed are not lazy. Nor are they coddled, hammocked or enjoying a coordinated, taxpayer-funded vacation. They are, however, extremely unlucky — and getting unluckier by the day.  A new Brookings Institution study that tracks the fates of those unlucky workers who don’t manage to find stable new jobs in their first few weeks of unemployment suggests that this post-layoff tailspin is distressingly common.  It was already known that the longer workers have been out of a job, the lower their chance of finding work in the coming month. The Brookings paper — by the former Obama administration economist Alan Krueger and his Princeton colleagues Judd Cramer and David Cho — took this analysis a step further: What about (gulp) these workers’ longer-run prospects?  It turns out that from 2008 to 2012, only one in 10 people who were already long-term unemployed in a given month had returned to “steady, full-time employment” by the time government surveyors checked in on them a little more than a year later. “Steady” in this case means that they were working for at least four consecutive months. And the other nine in 10 workers? They were still out of work, toiling in part-time or transitory jobs or had dropped out of the labor force altogether.  In other words, like Gomez, the vast majority of people caught in long spells of joblessness do not find work again, or at the very least have trouble hanging on to whatever replacement jobs they had initially thanked their lucky stars for.

Who Are America's Long-Term Unemployed? - As has been repeatedly pointed out, the employment picture in this recovery is different than other recoveries and, as shown on this graph, is largely due to the elevated number of Americans that are unemployed for long-periods of time:  A paper "Are the Long-Term Unemployed on the Margins of the Labor Market" by Alan B. Kruger, Judd Cramer and David Cho looks at what has happened to America's long-term unemployed since the so-called "end" of the Great Recession and who they are. America's long-term unemployed are a persistent problem for the economy as you can readily see in the first graph from FRED, and are pushing up the overall unemployment rate.  As you can see on this graph, a very significant 37 percent of America's total unemployed workers have been unemployed for 27 weeks or more: While this is down from its post-Great Recession peak of 45.3 percent in April 2010, it is still three times the average level of long-term unemployed seen between 1948 and the beginning of 2008.  In contrast, as shown on this graph, the number of civilians unemployed for 5 to 14 weeks (the short-term unemployed) is very close to normal levels looking back to the mid-1970s:  Here is a graph showing the percentage of total unemployed Americans that have been unemployed for 5 to 14 weeks:   It's interesting to see that the percentage of workers who have been out of work for 5 to 14 weeks is nearly the smallest proportion of the total unemployed looking all the way back to 1948.  Certain parts of the economy have a higher proportion of long-term unemployed than others; 36 percent were previously employed in sales and service and 28 percent were employed in blue collar jobs.  When these long-term unemployed do return to work, they tend to return to similar occupations that they held prior to being laid off.

Out of Work, Out of Luck -- The nearly 5-year-old economic recovery has so far been too weak to put many of the recession’s victims back to work. And there is mounting evidence that even if the economy accelerated now, it would be too late: Many if not most of the 3.8 million Americans who have been out of work for more than six months will never again hold steady jobs.At the height of the jobs crisis, 6.8 million Americans had been unemployed for more than six months. The number is much smaller today not because the long-term unemployed, as these Americans are defined by the Labor Department, have found jobs, but because they have given up looking for work. And 3.8 million long-term jobless in February is still three times as many as before the recession. Dig deeper into the numbers and a grim picture emerges: Few of the long-term unemployed are finding jobs. Even fewer are finding steady work. Most worryingly, their prospects aren’t improving along with the broader economy, even in parts of the country where the recovery is strongest.The long-term unemployed face major hurdles in the best of times. In the five years leading up to the  2007 recession, when the housing market was booming and the economy was generally strong, only about 15 percent of the long-term unemployed found jobs in any given month, half the rate of the shorter-term unemployed. Economists aren’t sure why being out of work for more than six months makes finding a new job so much harder. By most measures — sex, race, education and occupation — the long-term jobless look a lot like the short-term unemployed, and similar in most respects to the employed, too.1 The evidence suggests that they’re mostly unlucky: They lost their jobs in the midst of a terrible economy, when finding a new job quickly was particularly difficult. Once they cross the six-month threshold, their odds of finding a job drop off dramatically.

The Right’s New ‘Welfare Queens”: The Middle Class - Lindsey’s argument was this: income inequality has risen under every President since Nixon; it rose most dramatically under Clinton. Neither party has been able to solve this problem, so our expectations should be very modest. In spite of large government transfers from the rich to the poor since the nineteen-sixties, and in spite of the rich paying a higher proportion of total income taxes now than they did in 1980, inequality keeps going up. The reason, Lindsey concluded, is the decline in “middle-aged labor-force participation,” especially among men, in the past few years. In other words, lots of people in their thirties, forties, and early fifties have chosen to stop working. In Lindsey’s blunt phrase—which he subsequently denied using—they have chosen not to be self-reliant. They have dropped out of the workforce because tax rates are onerous and government benefits are attractive; they have less incentive to work than to be unemployed. This, the former President’s adviser suggested, is the main cause of inequality: more and more formerly employed people just don’t want to work. It was an updated version of Ronald Reagan’s freeloading welfare queens—only now they’re white and middle class. As for solutions, Lindsey said that nothing the government is trying has worked. He kept urging “modesty” on the senators, which began to sound like “Don’t do anything.” But he had one idea, which he presented as if it had never been tried before: tax cuts for the rich.

The End of Jobs? – Sarah Jaffe - In 2011, I wrote at AlterNet that a future beyond jobs, where we all work less, used to be a major goal of the U.S. labor movement. More freedom, less production for its own sake, would actually create a more sustainable world.  Lowering the amount of hours worked by each person would help distribute jobs better among the people who still don't have them, as economist Dean Baker has repeatedly argued. But I noted that moving beyond jobs would necessitate tackling issues of inequality and concentration of power in the hands of the wealthy. At the moment, the “end of jobs” has meant sustained high unemployment and low wages, not more freedom. The disappearance of jobs in America has as much to do with the power of global capital to move where and when it wants and the ability, post-crisis, of businesses to squeeze more and more productivity out of the few workers they keep, as it does with technology making certain professions obsolete. And the rise of the “free agent” worker has at least as much to do with the desire of businesses to have an easy-hire, easy-fire, just-in-time workforce (as I wrote about in some detail recently) that absorbs—as the port truckers do—most of the labor costs, as it does with workers who simply enjoy the freedom of not having a boss. Fast forward to 2014. The economy has improved only slightly. Unemployment remains high, and the jobs that do exist are often low-wage and part-time. Since 2011, we've seen not only Occupy but the rise of a movement of Walmart and fast-food workers demanding better wages and, often, more hours, so they can take home a full-time paycheck. A shorter hours movement has not materialized, nor has a meaningful jobs program, despite the promises of a bipartisan clutch of politicians. The minimum wage has risen in some states and cities, but workers are still struggling, and the long-term unemployed have seen their benefits cut off by a Congress that continues to squabble about whether or not they deserve to be able to pay bills.

Free Money for Everyone -- How would you like to get $2,000 in free money today, fresh off the government printing presses? And what if I told you it wouldn’t just be a nice windfall for you and your friends and family, but that we’d do it for all Americans on an ongoing basis, and that doing so would solve our crippling problem of mass unemployment? I know what you’re thinking: it would be crazy. But it is not quite as radical as it sounds. The key idea behind such a program has a longstanding, bipartisan economic pedigree.  In 2008, George W. Bush and Nancy Pelosi engineered the tax rebate stimulus, in which everyone received a check in the mail—paid for, eventually, with fresh new money. Studies have found that this stimulus worked quite well; it was just overwhelmed by the Great Recession, and we only received checks once. Mill, Keynes, Friedman, and even Bernanke might argue that we should revive a similar stimulus again—only this time, on a much bigger scale, and on an ongoing basis. Why? Because the economy has evolved to a point where it is vulnerable to mild depressions. In fact, the one we’re in now could persist for decades, as similar conditions have in Japan and other countries. In order to avoid that slow, painful outcome, we need a policy that will jump-start our economy. After three straight years of political gridlock it’s clear that Congress is not going to provide the fiscal stimulus we need, and while the tools the Federal Reserve has at its disposal have helped, they’ve not done enough. If Congress could be persuaded to give the Fed a new tool, one that would let it distribute purchasing power to the broad mass of the population—to “drop money from helicopters,” so to speak—it might be enough to help us escape the nightmare of slow growth and persistent unemployment we’re in now.

WalMart Admits Profits Depend Heavily On Corporate Welfare - It appears that Walmart has admitted the potentially severe adverse impact a reduction in food stamp payments could have on its bottom line. This shouldn’t be a surprise to anyone as we have written about this many, many times. Most notably here McDonald’s Math: You Can’t Survive Working for Us. But now, we have further evidence of this disturbing economic trend straight from the horse’s mouth: Walmart. Simply put, Who’s paying for Wal-Mart’s addiction to paying its employees less than a living wage? You are.

Walmart Admits: 'Our Profits' Depend on 'Their Poverty' -- Although a notorious recipient of "corporate welfare," Walmart has now admitted that their massive profits also depend on the funding of food stamps and other public assistance programs. In their annual report, filed with the Security and Exchange Commission last week, the retail giant lists factors that could potentially harm future profitability. Listed among items such as "economic conditions" and "consumer confidence," the company writes that changes in taxpayer-funded public assistance programs are also a major threat to their bottom line. The company writes: Our business operations are subject to numerous risks, factors and uncertainties, domestically and internationally, which are outside our control ... These factors include ... changes in the amount of payments made under the Supplement[al] Nutrition Assistance Plan and other public assistance plans, changes in the eligibility requirements of public assistance plans ... Walmart, the nation's largest private employer, is notorious for paying poverty wages and coaching employees to take advantage of social programs. In many states, Walmart employees are the largest group of Medicaid recipients. However, this report is the first public acknowledgement of the chain's reliance on the funding of these programs to sustain a profit.

36% of American Workers Have Savings of Less Than $1,000 --I have said it many times in these pages: economic growth in the U.S. economy can only occur when the general standard of living for the average American improves. Sadly, each day, we see more and more evidence suggesting the opposite. Consider the results from the 2014 Retirement Confidence Survey by the Employee Benefit Research Institute. (Source: Employee Benefit Research Institute, March 2014.) This survey asks workers and retirees about how they feel about retirement, among many other things. Here are a few of the highlights:

  • 24% of workers in the U.S. economy are not at all confident about having enough money to retire comfortably. Only 18% believe they can retire comfortably, but almost all who said this are from households who earn a relatively higher income
  • 58% of the workers and 44% of the retirees in the U.S. economy say they are having problems with the amount of debt they hold
  • 36% of the workers say they have less than $1,000 in savings. This number has gone up significantly from 28% in 2013
  • The rising cost of living and day-to-day expense are getting in the way of retirement. 53% of the workers are citing these expenses as the biggest reason they are not saving for retirement

I believe things will get worse for both retirees and workers by the end of this decade. Let me explain why...

Public companies are struggling to post earnings growth this year. At this point, the only way for them to show better corporate earnings is by reducing their expenses. While some have started to lay off employees, others are cutting retirement benefits.

Fewest Americans Earning Minimum Wage Since 2008 - The number of Americans earning the federal minimum wage or less last year fell to the lowest level since 2008, reflecting both broader wage growth and an increasing number of states setting their higher levels. Last year, 3.3 million U.S. workers were paid the federal minimum of $7.25 per hour or less, a recent report from Labor Department said.That represented 4.3% of all hourly workers. The share is down from 4.7% in 2012 and the smallest since 3.0% in 2008, when the last nationwide wage increase was being phased in. The share of hourly laborers earning the lowest pay has trended down significantly in recent decades. In 1980, almost one in six hourly workers was paid at or below the prevailing federal minimum. Last year, just one in 25 earned minimum wage or less. The declining faction of minimum wage earners in part shows that average hourly earnings have grown faster than the minimum wage since the early 1980s. In recent years, states setting minimum wages above the federal level has driven the decline. As of January, 21 states had minimums above the federal level. The states with the smallest portion of hourly workers earning the federal minimum wage, Washington, California and Oregon, all have state minimums well above the federal standard. While states with the highest share—Tennessee at 7.4% and Idaho at 7.1%–are among those in line with federal wage.

Where Did They Get a Raise Last Year? Income growth was the strongest in North Dakota and slowest in West Virginia, according to a Commerce Department report released Tuesday. Nationwide, the average growth of personal income slowed to 2.6% in 2013 from 4.3% in 2012, the report found. Residents in every state saw weaker income growth from a year earlier, ranging from a 7.6% rise in North Dakota to the 1.5% gain in West Virginia. Mining, including oil and gas extraction, was one of the major contributors to earnings growth in North Dakota, Oklahoma and Texas in 2013. The growth rate of earnings in these three states has outpaced the national average every year since the recession ended in 2009, according to the report.The overall slowdown in West Virginians’ incomes was due to declines in mining, heavy-duty manufacturing and construction, the report said. That offset gains in health care and professional services. Nationwide, several factors contributed to the slower overall income growth, including the expiration of a 2% payroll tax “holiday” last year. As a result, many people received salary bonuses and personal dividends in 2012, which boosted that year’s incomes. The personal income report measures everything Americans receive from all sources, including wages, salaries and property income. Earnings grew in 2013 in every industry except civilians who work for the federal government, the report found. Earning growth slowed the most in private-sector industries. The construction and farming sectors were among the few exceptions that saw stronger incomes.

Trickle-up economics - When investment returns exceed economic growth, the rich get richer, increasing inequality. So argues Thomas Piketty, a French economist renowned for analyzing incomes reported on tax returns over the last century, in his excellent new book “Capital in the Twenty-First Century.” The future will be vastly more unequal, Piketty predicts, thanks to tax laws that allow virtually unlimited inheritances to pass from generation to generation. This sort of out-of-control inequality recalls similar class divides in 18th and 19th century France that were reversed only by sharp-edged popular responses. The good news is that such increasing inequality is not inevitable. Piketty shows that the degree of inequality results not from natural forces or individual choices but from government policy. Piketty’s fully developed argument is backed by careful analysis of official data and supplemented by his brilliant use of economic facts pulled from classics of 19th century literature. To his credit, he offers an easy-to-follow model to explain how, even when economic growth is weak, the rich can get richer while the rest of us find ourselves worse off. When an economy grows at 1 percent annually but investment returns are 5 percent, the already wealthy need to reinvest only a fifth of their gains for their fortunes to grow at the same rate as the overall economy. The rest can be spent on a sumptuous lifestyle.

Economic consequences of income inequality -- This is a loaded topic, and I suspect I am going to get a lot of responses claiming that my essay is totally brilliant or totally nonsensical based, mainly, on the political orientation of readers. This entry, however, is not intended to be political. Very few things in economics are good or bad in themselves, but rather can be good under certain conditions or bad under others. I want to try to tease out as logically as I can the conditions under which rising income inequality can be good or bad for the economy. That is all I am trying to do. My logic may be faulty and my assumptions may be wrong, and I invite readers to challenge either, but none of this should be seen as moral or immoral. Income inequality may very well be one or the other for very solid social, political or even religious reasons, but I am interested here only in the logical economic outcomes of income inequality. Digging deeper into the model I use to understand income inequality also allows me to dig deeper into the sources of global imbalances – the two are tightly interlinked – and how these imbalances have driven much of what has happened around the world in the past decade. This model rests on an understanding of how distortions in the savings rates of different countries have driven the great trade and balance-sheet distortions with which we are wrestling today, just as they have in most previous global crises, including those of the 1870s, the 1930s, and the 1970s. Rising income inequality is key to understanding this model. It turns out that it is actually not that hard to work through at least one of the major economic consequences of rising income inequality. I would argue that from an economic point of view the income inequality discussion is mainly a discussion about savings, and when you introduce into the economy a systematic tendency to force up the savings rate, the economy must respond in what are only a limited number of ways.

Piketty's Inequality Story in Six Charts - In this week’s magazine, I’ve got a lengthy piece about “Capital in the Twenty-first Century,” a new book about rising inequality by Thomas Piketty, a French economist, that is sparking a lot of comment and debate. (Brad DeLong has a useful summary of some early reviews.) I’ll go further into that discussion in future posts, but first I thought it might be useful to portray the gist of Piketty’s story in a series of charts. The charts aren’t merely illustrative: they are an essential part of Piketty’s contribution. Fifteen or twenty years ago, debates about inequality tended to be cast in terms of clever but complicated statistics, such as the Gini coefficient and the Theil entropy index, which attempted to reduce the entire income distribution to a single number. One thing that Piketty and his colleagues Emmanuel Saez and Anthony Atkinson have done is to popularize the use of simple charts that are easier to understand. In particular, they present pictures showing the shares of over-all income and wealth taken by various groups over time, including the top decile of the income distribution and the top percentile (respectively, the top ten per cent and those we call “the one per cent”).  The Piketty group didn’t invent this way of looking at things. Other economists, such as Ed Wolff, of New York University, and Jared Bernstein and Larry Mishel, the creators of the invaluable State of Working America series, have long used similar charts and tables in their publications. But partly by using new sources of data, such as individual tax records, and partly by expanding the research to other countries, Piketty and his colleagues have deployed their charts to reshape the entire inequality debate.

Against the Meritocratic Theory of Inequality-- In his latest New York Times column, Paul Krugman declares Thomas Picketty’s Capital in the Twenty-First Century “the most important economics book of the year — and maybe of the decade.” So it’s a good time to read—or re-read—Kathleen Geier’s review of Picketty’s book in the March/April/May issue of the Washington Monthly.  Geier and Krugman agree that one of Picketty’s most important findings is that inherited wealth is rapidly re-assuming its traditional role as the preeminent source of economic power. And Krugman notes this trend is being reflected in conservative economic policy in this country: [T]he great tax-cut push of the Bush years was mainly about reducing taxes on unearned income. And when Republicans retook one house of Congress, they promptly came up with a plan — Representative Paul Ryan’s “road map” — calling for the elimination of taxes on interest, dividends, capital gains and estates. Under this plan, someone living solely off inherited wealth would have owed no federal taxes at all. After years of a bipartisan focus on the appropriate range of tax rates on earned income, this broader focus on public policy treatment of all sources of income—and with it a conservative ideology that to an extraordinary extent values capital over labor as a contributor to economic growth—is truly essential. Conservatives have benefited for decades from the claim that they are the champions of a meritocratic view of economic incentives providing the most efficient—and most morally defensible—distribution of resources. But this position should become increasingly untenable when “merit” is associated with birth privilege, “talent” with power, and “hard work” with success as its own justification.

Warren Buffett's Bold Plan to Fix America's Inequality: According to recent CNN headlines, he said this: "I'd love to see minimum wage at $15 an hour." So yes, when I see a smart guy say something interesting and controversial, I listen... or in this case, click and read the rest of the story. The whole quote: "If you could have a minimum wage of $15 and it didn't hurt anything else, I would love it," he said. "But clearly that isn't the case."As Buffett said, you can love something or want something personally, and it can still be bad economic policy. The same is true of company stocks, so you have to invest with your head, not your heart.  Buffett takes it a step further and offers what he believes to be a better economic solution for the working poor. His advice: Raise the Earned Income Tax Credit (EITC). The EITC provides a tax credit -- and even a potential refund -- to those earning a low to moderate income. This would have less negative effects than the unknowns of raising the minimum wage, according to Buffett. As usual, he pooh-poohs the so-called experts who try and estimate job losses due to a higher minimum wage, admitting, "it's very hard to quantify those losses."

Why the EITC Is No Substitute for the Safety Net, CBPP: The Earned Income Tax Credit is a critically important and highly effective part of the safety net, but it can’t — and wasn’t meant to — stand alone as our answer to poverty, according to our new commentary.  Here’s the opening:House Budget Committee Chair Paul Ryan’s recent report on safety net programs rightly praised the Earned Income Tax Credit (EITC) for reducing poverty and promoting work.  But, Ryan’s report criticizes much of the rest of the safety net.  And, over the past several years, Chairman Ryan’s budget plans have targeted low-income programs such as SNAP (formerly food stamps) and Medicaid for extremely deep cuts.  While it’s heartening to hear Chairman Ryan trumpet the EITC’s success, the EITC alone can’t do what’s needed to ameliorate poverty and hardship. The things that the EITC — and its sibling the Child Tax Credit, which helps offset the cost of raising children — can’t do without other safety net programs include:

  • help people who are out of work or can’t work;
  • help families get health care;
  • help families on a monthly basis;
  • serve as an effective automatic stabilizer for the economy in recessions; and
  • keep large numbers of people out of “deep poverty,” or above half the poverty line.

Some Macro Implications of a Minimum Wage Hike - Minimal employment number impacts and minimal inflation impacts. But I am sure the resistance to having a greater share of income going to labor will continue. From Goldman Sachs, “What to Expect from a Minimum Wage Hike” (3/25, not online), a survey of studies relevant to the debate over employment effects:  Confirming the summaries of the literature contained in CBO and CEA (discussed in this post), most estimates are for quantitatively small impacts on employment, even when the estimates are statistically significant. It’s important to further recall that in the CBO assessment, the distribution of estimates spans positive impacts on employment (for some simple analytics of why this can occur in the short run, see this post; people averse to analytics should steer clear). Regarding the CBO midpoint estimate, the authors remark:  In our view, the CBO estimate is likely a bit toward the upper end of reasonable estimates, for two reasons. First, as Exhibit 3 shows, a large number of economic studies have found no statistically significant effect. Second, demand effects are likely to be particularly pronounced under current conditions in which considerable slack remains in the economy with the funds rate already near zero. As a result, raising the incomes of low-wage workers, who are likely to spend a larger share of their income, should provide a larger-than-usual offsetting boost. That is, for the same reason fiscal policy has a greater impact at the ZLB and when slack exists, [1] boosts to labor income from an increase in the minimum wage can have a meaningful impact.

All Economics Is Local - In the face of congressional inaction, the debate on raising the minimum wage is moving to the local level. Since the mid-1980s, states in every region of the country have raised the local minimum wage, often numerous times. Twenty-one states (and Washington, D.C.) currently have wage floors above the federal level ($7.25), and 11 of these raise them every year to account for inflation. Washington State currently has the highest, at $9.32; California’s is set to increase to $10 on July 1, 2016. More than 120 cities and counties have adopted living wage laws that set pay standards, many of them in the $12 to $15 range. These higher standards usually apply only to employees of city service contractors, like security guards, landscapers and janitors. In some cities, living wage laws cover workers at publicly owned airports or stadiums, as well as at shopping malls subsidized by local development funds. While the impact on the individual workers covered under these laws is often quite significant, their reach is rarely broad enough to affect the local low-wage labor market as a whole. . Cities as varied as Albuquerque, San Francisco, San Jose, Calif., Santa Fe, N.M., and Washington, D.C., have minimum wages ranging from $8.60 in Albuquerque to $10.74 in San Francisco. The District of Columbia, which is raising its minimum wage to $11.50 in 2016, wisely joined with two neighboring Maryland counties to create a regional standard. Many more cities are getting ready to follow suit. Richmond, Calif., Oakland and Seattle are seriously considering setting their own minimum wage. The Richmond City Council just voted an increase that will go to $12.30 by 2017. Advocates in Oakland are aiming for $12.25. Seattle is discussing $15. Prodded by its new mayor, New York City is seeking the right to set its own minimum wage rate, instead of using New York State’s

Connecticut senate approves bill to raise minimum wage to $10.10  (Reuters) - Connecticut's senate on Wednesday approved a bill that would raise the minimum wage to $10.10 an hour, the highest statewide rate in the nation, following a call to action last month by Democratic Governor Dannel Malloy. The bill passed by a vote of 23-13, mostly along party lines with Democrats approving the move and Republicans opposing it. It now awaits a vote by the state's lower house, also controlled by Democrats. Malloy's push comes at a time when Democratic politicians across the United States are raising concerns about the growing gap between the poorest and richest Americans.  "This sends a clear message to the working people in the state of Connecticut that the legislature understands the difficulty they have in doing basic things to live, and we are proud to lead the nation in moving the minimum wage to $10.10 an hour," . Connecticut's minimum wage currently stands at $8.70 per hour, and the bill would phase in the hike to $10.10 over three years. The current highest state minimum wage in the United States is Washington's minimum of $9.32, above the $7.25 federal minimum.

States Most & Least Dependent on the Federal Government - The extent to which the average American’s tax burden would vary based on his state of residence represents a significant point of differentiation between state economies.  But it’s only once piece of the puzzle. What if, for example, a particular state can afford not to tax its residents at high rates because it’s receiving disproportionately more funding from the federal government than states with apparently oppressive tax codes?  That would change the narrative significantly, revealing federal dependence where bold, efficient stewardship was once thought to preside. The idea of the American freeloader burst into the public consciousness when #47percent started trending on Twitter.  And while the notion is senselessly insulting to millions of hardworking Americans, it is true that some states receive a far higher return on their federal income tax investment than others. Just how pronounced is this disparity, and to what extent does it alter our perception of state and local tax rates around the country?  WalletHub sought to answer those questions by comparing the 50 states and the District of Columbia in terms of three key metrics:  1) Return on Taxes Paid to the Federal Government; 2) Federal Funding as a Percentage of State Revenue;  and 3) Number of Federal Employees Per Capita.More information about the significance of these data points as well as a comprehensive state-by-state rankings breakdown can be found below. (tables and charts)

Which States Take the Most From the U.S. Government? - Delaware residents get 50 cents in federal funding for every $1 in federal income taxes they pay. Mississippi  cashes in with $3.07 in federal funding for every dollar paid in income taxes. Those findings come from  a new analysis by WalletHub. The personal finance social network crunched returns on taxes paid to the federal government, federal funding as a percent of state revenue and the number of federal employees per capita to conclude that Red States “are altogether more reliant on federal funding than Blue States.” That often correlates to lower state taxes. “The more dependent a state is on the federal government, the less likely it is to charge high tax rates,” . Some of the results correspond with a recent study by the Tax Foundation, which showed that federal aid accounted for 45.8% of Mississippi’s revenue, ranking it first. The Magnolia state also has among the lowest tax burdens in the nation. Of course, there are exceptions. Kansas, for instance, gets back less than it sends to the federal government. Some 60% of the state’s voters favored Mr. Romney. The above map shows one WalletHub metric: how many dollars in federal funding state taxpayers receive for every one dollar in federal income taxes they pay. The figures exclude loans and guarantees.

BLS: State unemployment rates were "little changed" in February - From the BLS: Regional and State Employment and Unemployment Summary Regional and state unemployment rates were generally little changed in February. Twenty-nine states had unemployment rate decreases from January, 10 states had increases, and 11 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today. Rhode Island continued to have the highest unemployment rate among the states in February, 9.0 percent. North Dakota again had the lowest jobless rate, 2.6 percent. This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession. The size of the blue bar indicates the amount of improvement - Michigan, South Carolina, Nevada and Florida have seen the largest declines and many other states have seen significant declines.   The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at 9% in only one state: Rhode Island.  Illinois is at 8.7%, Nevada at 8.5%, and California at 8.0%. The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 10 states with an unemployment rate above 11% (red).Currently one state has an unemployment rate at or above 9% (purple), four states at or above 8% (light blue), and 13 states at or above 7% (blue).

Unemployment Rates Fall in 29 U.S. States Last Month - Unemployment rates fell in most states in February and two-thirds of the states reported job gains, evidence that most of the country is benefiting from slow but steady improvement in the job market. The Labor Department says unemployment rates dropped in 29 states, rose in 10 and was unchanged in the remaining 11. Meanwhile, hiring rose in 33 states and fell in 17. The rate declines occurred even though unemployment rose nationwide, to 6.7 percent from 6.6 percent. That increase occurred partly for a good reason: more Americans began looking for work, though most weren’t immediately hired. But the fact that they started looking suggests they were optimistic about their prospects. Employers added 175,000 jobs nationwide in February, close to the average monthly gains of the past two years.

North Carolina Had More Job Losses Than Any Other State North Carolina led the U.S. in job losses last month, a sign of stress for a state scaling back its support for its jobless residents. The Tar Heel State shed a seasonally adjusted 11,300 jobs in February from the prior month as it continues to grapple with the decline of its traditional manufacturing, tobacco and textile industries, according to new Labor Department figures released Friday. Employment increased in 33 states, while it decreased in 17 states and the District of Columbia. Nationwide, payrolls rose 175,000 in February. North Carolina’s unemployment rate fell 0.3 percentage point to 6.4%, one the nation’s largest declines, though the fall was primarily the result of a shrinking labor force. The number of people either working or looking for work declined by 64,000 people from February 2013, according to data from the North Carolina Department of Commerce. Some economists attribute North Carolina’s workforce exodus to the expiration in July of long-term unemployment benefits that require the unemployed to continue searching for jobs. A year ago, its unemployment rate stood at 8.6%.

Inequality – Envy or Honest Outrage? - Joe Firestone: Catherine Rampell offered a theory the other day, in a piece entitled: “Income inequality isn’t about the rich — it’s about the rest of us.” She says: Yes, anti-inequality rhetoric has grown in recent years. But it’s not the growing wealth of the wealthy that Americans are angry about, at least not in isolation. It’s the growing wealth of the wealthy set against the stagnation or deterioration of living standards for everyone else. Polls show that Americans pretty much always want income to be distributed more equitably than it currently is, but they’re more willing to tolerate inequality if they are still plugging ahead. That is, they care less about Lloyd Blankfein’s gigantic bonus if they got even a tiny raise this year. She proceeds to review polling data to show that this is so, and then advises the 0.1% that if they want to be left alone then “they should probably support policies that “promote the upward mobility of other Americans. . . “ such as Pell Grants, higher minimum wages, and early chidhood education. That’s not bad advice, of course, but I wonder what people will think of the 0.1 % when they understand more fully that their efforts to get ahead aren’t independent of the 0.1%’s efforts over the years to manipulate both the poitical and economic systems. And that further, the primary cause of the failure of poor people and the middle class to gain ground over the past 40 years is due to the deliberate efforts of the wealthy to structure both economics and politics in such a way that both nominal and real wealth would flow increasingly from the bottom to the top.

Payday loans aren’t the problem. The problem is poverty.:  In all the discussion about how to regulate small-dollar loans -- how to preserve access to short-term credit, while protecting consumers from falling into cycles of debt -- one very important element is getting lost.No person should be living so close to the financial brink that he or she has to borrow against future wages just to pay the bills. This is not the kind of debt people take on to improve their earning potential, like a business or student loan. This is the kind of debt people take on because their tanks have hit empty, and there's nowhere else to turn. And more people are finding themselves in that situation more often these days. Here are three things that have happened in conjunction in America over the past decade: Debt loads have increased. Real earnings have stagnated. And payday lending has exploded -- while storefronts have declined from a high of 22,000 in 2007 to about 18,000 today, online lending has tripled in volume, to almost equal the $5 billion that flows through brick and mortar establishments.

More Evidence that Half of America is In or Near Poverty -- The Charles Koch Foundation recently released a commercial that ranked a near-poverty-level $34,000 family among the Top 1 percent of poor people in the world. Bud Konheim, CEO and co-founder of fashion company Nicole Miller, concurred: "The guy that's making, oh my God, he's making $35,000 a year, why don't we try that out in India or some countries we can't even name. China, anyplace, the guy is wealthy." Comments like these are condescending and self-righteous. They display an ignorance of the needs of lower-income and middle-income families in America. The costs of food and housing and education and health care and transportation and child care and taxes have been well-defined by organizations such as the Economic Policy Institute, which calculated that a U.S. family of three would require an average of about $48,000 a year to meet basic needs; and by the Working Poor Families Project, which estimates the income required for basic needs for a family of four at about $45,000. The median household income is $51,000. The following discussion pertains to the half of America that is in or near poverty, the people rarely seen by Congress.

Self Help is no help for inequality - For all the howls of rage from plutocrats like Tom Perkins and Ken Langone over possible tax rate increases, there has been relatively little public anger about the increasing wealth disparity in the United States — especially compared to the past. During the Progressive era in the early 20th century and the Great Depression, we saw violent strikes and marches on Washington. These days, we have an army of sometimes-intemperate bloggers and a labor movement so bereft the United Auto Workers union recently failed to mobilize workers in a Volkswagen factory in Chattanooga, Tennessee. Occupy Wall Street, meanwhile, is now a distant memory, even as more than half of all Americans say they believe the nation remains in an economic recession. So what changed? Kathleen Geier speculates in the Washington Monthly that the mainstream media no longer reflects the values of the working class. That’s true, but it’s more complicated than that. In fact, the media reflects our values all too well.We’re a nation founded on the Protestant work ethic. Our forefathers came to America with the idea that diligent efforts and thrift demonstrated both godliness and virtue — and would result in worldly success. The self-help industry is the modern secular version of our grounding myth. It’s a $10 billion annual business that sells its services by claiming there is almost no problem — from weight loss to financial struggles — that can’t be overcome with grit, determination and willpower. So if you fail in your goal or fall behind: It’s your own fault.

Private charity and the safety net: Why philanthropy can’t replace government. -- Conservatives like to argue that if we trim the social safety net, private charities will step in and tend to the needy. Paul Ryan—he of the soup kitchen photo-op—especially loves to extol the virtues of volunteers and philanthropy. So I was pleased to see this new piece in Democracy by Roosevelt Institute fellow and Rortybomb blogger Mike Konczal, who lays out precisely why private giving has never been able to fully substitute for government aid in the U.S.—and why it never will. Konczal makes a nuanced, multilayered argument, and I want to draw attention to one particular aspect of it. The problem with charity is that, unlike government programs, it is most likely to fail when the poor need it most: during recessions. Consider our last economic meltdown. Stanford University’s Rob Reich and Christopher Wimer found that in 2008, charitable giving fell 7 percent (as shown in their graph below). It dropped another 6.2 percent in 2009, as Americans flooded the unemployment rolls. Donors did seem to target more of their money to the poor; giving to food banks, for instance, rose 31.9 percent in 2009, to about $1.6 billion. But even that money was only a tiny fraction of the support provided by food stamps, which automatically surged as the job market withered.

Georgia Wants To Make Food Stamp Recipients Pay To Prove They Don’t Do Drugs - The state legislature passed a bill last week imposing drug tests for anyone who raises a “reasonable suspicion” of drug abuse in the minds of state program administrators. Once an administrator decides to make a suspicious person pee in a cup, the law requires the accused party to cover the $17 cost of the test that will exonerate him. The governor is expected to sign the bill into law “based on the fact that he did sign a similar drug testing bill a couple years ago,”  Republicans have proposed drug tests for public assistance programs year after year at both the state and federal level. Five separate state legislatures considered drug tests specifically for food stamps in 2012, according to the National Conference of State Legislatures, and another 23 states weighed drug tests for other forms of assistance. During last year’s food stamps fight in Congress, Republicans tacked on an amendment to require drug tests nationwide. Georgia’s “reasonable suspicion” language and requirement that recipients pay to be tested represents an evolution in the push to tie anti-poverty programs to drug tests. Previous drug testing schemes have been found unconstitutional on the grounds that testing a whole class of people is an illegal search under the Fourth Amendment, a fate Georgia Republicans hope to dodge by lifting the concept of “reasonable suspicion” that underlies other law enforcement tactics such as “stop-and-frisk.” Testing programs billed as fiscal responsibility measures have ended up costing far more than they saved in Florida, Utah, and elsewhere. Georgia would dodge that pitfall by billing poor people directly.

Growth Versus Distribution: Hunger Games - Paul Krugman -- It’s fairly common for conservative economists to try and shout down any discussion of income distribution by claiming that distribution is a trivial matter compared with the huge gains from economic growth. For example, Robert Lucas:Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. The usual answer to this is to point out that we don’t actually know much about how to produce rapid economic growth — conservatives may think they know (low taxes and all that), but there is no evidence to back up their certainty. And on the other hand, we know how to make a big difference to income distribution, especially how to reduce extreme poverty. So why not work on what we know, as at least part of our economic strategy? But even this argument may be conceding too much. A new study finds that in poor and lower-middle-income countries, one of the most crucial aspects of well-being, child malnutrition, isn’t helped at all by faster growth:  An increase in GDP per capita resulted in an insignificant decline in stunting. And when the researchers compared the changes in GDP to the changes in the number of wasting and underweight children, there was no correlation at all.  “It wasn’t that [the association] was just weak or small,” . More striking was the fact that the effect overall “was just practically zero.” Yes, rapid growth is good, but it doesn’t solve all problems even if you know how to make it happen, which you don’t.

The U.S. Cities Where the Poor Are Most Segregated From Everyone Else - Poverty in America is an enormous problem. According to the U.S. Census Bureau, 15 percent of Americans, or 46.5 million people, lived below the poverty line in 2012. And the poor are increasingly isolated across America. As Sean Reardon and Kendra Bischoff have documented, between 1970 and 2009 the proportion of poor families living in poor neighborhoods more than doubled, from 8 to 18 percent. And the trend shows no signs of abating. Less advantaged communities suffer not just from a lack of economic resources but from everything from higher crime and drop-out rates to higher rates of infant mortality and chronic disease. Today I examine the segregation of poverty across America’s metro areas. To get at this, my Martin Prosperity Institute colleague Charlotta Mellander measured the distribution of poverty across the more than 70,000 Census tracts that make up America’s 350-plus U.S. metros for 2010. To calculate the segregation of poverty, she used an index of dissimilarity, developed by sociologists Douglas Massey and Nancy Denton, that compares the distribution of a selected group of people with all other in that location. The more evenly distributed the poor are compared to the rest of the population, the lower the level of segregation. The dissimilarity index ranges from 0 to 1, where 0 reflects no segregation and 1 reflects complete segregation. The MPI’s Zara Matheson mapped the data.

City Orders Church to Stop Caring for the Homeless -- An Illinois city has told a church that it must stop housing the homeless because they’re in violation of municipal codes.  Authorities in Rockford, Illinois gave the news to leaders of the Apostolic Pentecostals of Rockford church last week, even as cold weather continues, the news outlet WIFR reported. “Anytime the temperatures would drop below 30 degrees, we would just open up the doors of the church, so people could come in and get out of the cold,” the church’s Pastor Fredericks told a local news outlet. City officials say the church doesn’t have adequate fire safety and isn’t zoned to serve as a homeless shelter.  It’s the latest example of cities cracking down on those who feed or shelter the homeless.  In February, the city of Columbia, South Carolina announced it would require groups that feed the homeless to obtain a permit and pay a fee.

Detroit Threatens to Cut Water Service to Delinquent Customers— The city’s water department is looking to recoup tens of millions of dollars by cutting service each week to as many as 3,000 customers who have failed to pay their bills. As of March 6, nearly half the customers — such as schools, homes and businesses — holding accounts with the Detroit Water and Sewerage Department were delinquent, meaning the bills are at least 60 days past due or more than $150 behind. That totals about $118 million in unpaid charges, said Darryl A. Latimer, the department’s deputy director. The delinquency problem in this bankrupt city is not new, and while there has been a backlog of uncollected water payments for some time, the number rose over the winter, when the department, fearing frozen pipes, stopped shutting off water to those who had not paid, Mr. Latimer said. With spring, the department sent out shut-off notices this week and will resume cutting service to delinquent customers once the temperature rises above freezing.

Five Offenses That Can Land Kids But Not Adults In Jail - Supporters of the U.S. criminal justice system often justify locking people up in jails and prisons by saying that this promotes public safety. Given how many prisoners are serving extraordinarily long sentences for non-violent offenses, this line of reasoning is questionable to begin with. But what about people who are detained for something that's not even a crime? Across the country, thousands of children are removed from their homes and confined in juvenile facilities for offenses that would not be considered criminal if committed by an adult. A new report from the Texas Public Policy Foundation, "Kids Doing Time for What's Not a Crime," explores the nationwide phenomenon of "status offenses" and the long-term effects this treatment can have on already vulnerable young people.

Goldman Sachs’ Outrageous Scheme to Profit Off Jailed Young Offenders -- In 2012, Mayor Michael Bloomberg announced [3] that New York City would be the site of a new experiment very dear to his billionaire’s heart. He declared that Wall Street megabank Goldman Sachs would provide a loan of nearly $10 million to pay for a program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release (currently almost half reoffended within a year). The city government was short of money, so Goldman Sachs would step in to do what anemic public investment could not accomplish on its own: keep young men out of jail.  If the program succeeded, the giant bank would profit. The more recidivism dropped, the more taxpayers would have to pay Goldman Sachs. On the other hand, if recidivism didn’t drop significantly, Goldman would lose its investment. So far, it’s too early to tell whether or not the program, which focuses on cognitive behavioral therapy, will meet its goals, but according to reports [4] from the Department of Corrections, fighting has already been reduced at Rikers, so Goldman may just cash in. The Rikers experiment is an example of a new trend in what are called “social impact bonds.” Burning questions about who profits and who loses in these schemes have become the subject of debate asl the trend catches hold. Let’s explore.

The Overprotected Kid -- The playgrounds were novel, but they were in tune with the cultural expectations of London in the aftermath of World War II. Children who might grow up to fight wars were not shielded from danger; they were expected to meet it with assertiveness and even bravado. Today, these playgrounds are so out of sync with affluent and middle-class parenting norms that when I showed fellow parents back home a video of kids crouched in the dark lighting fires, the most common sentence I heard from them was “This is insane.” (Working-class parents hold at least some of the same ideals, but are generally less controlling—out of necessity, and maybe greater respect for toughness.) That might explain why there are so few adventure playgrounds left around the world, and why a newly established one, such as the Land, feels like an act of defiance. If a 10-year-old lit a fire at an American playground, someone would call the police and the kid would be taken for counseling. At the Land, spontaneous fires are a frequent occurrence. The park is staffed by professionally trained “playworkers,” who keep a close eye on the kids but don’t intervene all that much. Claire Griffiths, the manager of the Land, describes her job as “loitering with intent.” Although the playworkers almost never stop the kids from what they’re doing, before the playground had even opened they’d filled binders with “risk benefits assessments” for nearly every activity. (In the two years since it opened, no one has been injured outside of the occasional scraped knee.) Here’s the list of benefits for fire: “It can be a social experience to sit around with friends, make friends, to sing songs to dance around, to stare at, it can be a co-operative experience where everyone has jobs. It can be something to experiment with, to take risks, to test its properties, its heat, its power, to re-live our evolutionary past.” The risks? “Burns from fire or fire pit” and “children accidentally burning each other with flaming cardboard or wood.” In this case, the benefits win, because a playworker is always nearby, watching for impending accidents but otherwise letting the children figure out lessons about fire on their own.

Helping Low-Income Children Succeed - Diverging incomes among families lead to diverging destinies among children, undermining the promise of equal opportunity. So contend authors of “Restoring Opportunity: The Crisis of Inequality and the Challenge for American Education,”   Parents today spend more money on “child enrichment expenditures,” like private schools, extracurricular activities and home-learning materials, than ever before. Low-income families simply can’t keep up. In 1972-73, the poorest quintile of families spent, on average, about 24 percent as much as the richest 20 percent in this category. By 2005-06, they spent only 15 percent as much.  Skeptics sometimes assert that poverty itself isn’t bad for children; rather, parents who aren’t very good at earning income are also not very good at helping their children learn. But money does matter. Professors Duncan and Murnane emphasize that several experimental studies that randomly assigned some poor families a significant income supplement revealed significant positive effects on the children’s academic achievement. This finding defuses the claim that education reform alone can eliminate disparities. Vast differences in per capita student spending across school districts, and the institutional weaknesses of large bureaucracies, have greatly reduced the potentially equalizing impact of public education. These problems, the authors say, need to be addressed in unison.  Avoiding simplistic recommendations like “just spend more” or “just promote charter schools,” they point to three success stories that bridged the public and private sectors, increased spending in cost-effective ways and, most importantly, improved the quality of educational instruction for low-income students.

Philly school district broke, but the pay is good -- Salaries for employees in the Philadelphia school district are staggering. The district has 10 superintendents who make a combined $1.64 million annually. Superintendent William Hite tops the list at $270,000, and his deputy makes $210,000. Eight assistant superintendents each make $145,000. For the sake of comparison, Gov. Tom Corbett makes $175,000 annually. And while the district’s budget director makes $128,724, Philadelphia is operating so deeply and persistently in a deficit that students are underserved by actual school personnel. Department heads with titles such as “chief talent officer” and “chief of strategic partnerships” pull in six-figure salaries from the school district, but so do 13 deputy department chiefs. In total, 395 employees on the district payrolls make more than $100,000, although not a single one is a teacher or a staff member who spends the majority of his or her time in the classroom. The list, however, includes 218 principals and 60 assistant principals. The average base salary for a principal is $137,919.

ACLU: Tennessee ‘religious freedom’ law would turn public schools into ‘Sunday schools’ -- Legislators in Tennessee passed a law on Tuesday protecting the rights of religious students in the state’s schools to discriminate against others so long as they are doing so for reasons of faith. The New Civil Rights Movement blog reported Wednesday that the “Religious Viewpoints Antidiscrimination Act” enshrines students’ right to use religion in any way they choose, even if that means expressing condemnation of their classmates, such as LGBT students or atheists. The bill arrived on Gov. Bill Haslam (R)’s desk Wednesday and awaits his signature to be ratified into law. David Badash at NCRM wrote, “The bill states ‘a student may express beliefs about religion in homework, artwork, and other written and oral assignments free from discrimination based on the religious content of their submissions. A student would not be penalized or rewarded on account of the religious content of the student’s work.’” “At a basic level,” Badash wrote, “a student could merely write ‘God’ on a chemistry test as the answer to a question asking where water comes from. A student could also stand in class and say their religion says that gay people are sinners and going to hell, and that speech would be legally protected.”

Report: $1 billion in taxpayer money went to anti-science private schools last year - Taxpayers are helping to pay for courses and textbooks that encourage students to mistrust science, mathematics, and the secular world itself – and those efforts seem likely to expand into other states. Currently, taxpayers in 14 states funnel nearly $1 billion in private school tuition through voucher programs, paying those schools to teach children that Adam and Eve lived alongside dinosaurs less than 10,000 years ago in the Garden of Eden. Politico reviewed hundreds of pages of course outlines, textbooks, and school website and reported Monday that many of these taxpayer-funded, faith-based schools portray science and mathematics as a web of lies. Textbooks popular in Christian schools describe evolution as “a wicked and vain philosophy,” while students practice vocabulary lessons that claim “many scientists today are creationists.” According to the report, schools often distort basic facts about the scientific method, set aside time during math lessons to explore numbers in the Bible, or teach that mathematics laws were ordained by God. The schools make clear that religious instruction is a higher priority than academic learning, which students are taught to mistrust. “Our understanding is not complete until we filter it through God’s Word,” one school assures parents.

Hundreds of Students & Faculty Occupy College Campus to Fight Cuts to Public Higher Ed (Real News video & transcript) On Monday, hundreds of students, faculty, and supporters rallied at University of Southern Maine against the announced layoffs of 20 full-time faculty members. Monday's rally follows a Friday occupation of the school's provost's office, who announced the cuts. Additionally, four academic programs will also be slashed. The cuts are part of a $14 million budget shortfall and a part of broader cuts across the University of Maine system, which expects to cut more than 150 faculty and staff members this year. Now joining us to discuss all of this are our two guests, directly involved with the rally. We have Meaghan LaSala, who is a student at the University of Southern Maine. And also joining us is Rachel Bouvier. She's an associate professor of economics at the University of Southern Maine, and she found out just recently, last Friday, that she was laid off.

College Senior Already Has Grueling 14-Month Employment Search Lined Up After Graduation —Planning ahead to ensure he is adequately prepared for life after college, Ohio University senior Kyle Huber confirmed to reporters Monday that he already has an excruciating 14-month employment search lined up and waiting for him when he graduates this spring. The marketing major stated that, far from exiting school without a clear direction or goal in mind, he has prepared himself to “hit the ground running” right away with a prolonged, demoralizing, and desperate job hunt. “Once I get my diploma this spring, I’m pretty much all set to begin this new, dispiriting chapter in my life on the right foot,” said Huber, who confirmed that he already has firm plans to move to a city where he’ll live with five roommates in a small apartment while hopelessly chasing down leads on unappealing dead-end positions he isn’t qualified for anyway. “I’ve even gotten a head start by setting up a bunch of informational interviews so I can begin to build up a network of contacts who won’t be able to help me find a job.” “As far as my bleak, angst-ridden post-graduation life goes, I think it’s safe to say I have things all nailed down,” he added. The 22-year-old stated that his preparations will allow him, come May, to “dive right in” to fruitless tasks such as scouring online job listings, endlessly revising a résumé no one will ever look at, and submitting 10 to 20 job applications every day to which he will never receive a single reply, positive or negative. Huber added that he is “way ahead” of his classmates in terms of planning for his upcoming unemployment, noting that many of his peers have not yet even begun to think about how they will struggle and fail to secure a source of income upon leaving college. “I even have a start date—May 12—set for my employment search, which means I’ll have to jump right into it without missing a beat,”

Young Women Far More Likely to Have College Degree than Men -- Women at age 27 are far more likely to have a bachelor’s degree than men of the same age, new research shows.  Nearly a third of women — 32% — had a bachelor’s at age 27, compared with 24% of men, the Labor Department said Wednesday. The finding is part of a comprehensive study on employment and education levels of America’s young adults, based on surveys that last occurred in 2012.  A greater share of young women also had at least some college, if not a degree, than did men. More than two-thirds — 70% — of female 27-year-olds had a bachelor’s or at least attended some college, the report said. That compared to 61% of men. The report has other interesting findings:

  • –At age 27, whites were more than twice as likely as blacks or Hispanics to have a bachelor’s. The share of whites with a bachelor’s was 33%, compared with 15% of both blacks and Hispanics.
    –Young adults who were single worked less than those who were married. At age 27, single Americans were employed 70% of the weeks from age 18 to 26. Married people worked 77% of the weeks.
    –Young women with children worked less than young women without children. At age 27, women with children in their household were employed 65% of weeks from age 18 to 26. Women without children worked 76% of the weeks.
    –For men, the opposite was true. Young men with children worked 79% of the weeks while young men without children worked 73%.

Will a For-Profit Degree Help You Get a Job? -  New data from the Education Department suggest that for-profit schools usually don't deliver on their promises to prepare students for successful careers. Of the more than 5,000 career programs for which the agency has recent earnings data, 72 percent offered by for-profits produce graduates who earn less than high school dropouts. (The comparable figure for programs at public institutions is 32 percent.) As it prepares to regulate career programs, the federal agency has collected and published average post-graduation earnings and student-debt information for relevant associate's degrees and lower-level certificates. The data don't include other factors that influence employment, like student demographics, the strength of the local economy, or prior work experience. But they may provide the most detailed picture yet of which career credentials are valuable to employers and affordable for students. It turns out that the short-term programs that for-profit students are most likely to complete are also the most likely to fail the Education Department's proposed "gainful employment" measures. "You've got a bunch of graduate programs that by and large look OK. You've got some bachelor's programs that look OK. Where you see the high failure rate is the associates' and certificate programs," says Ben Miller, senior policy analyst in the education policy program at the New America Foundation, referring to for-profit education.

California college borrower numbers soar -  The number of California undergraduates taking out federal loans to pay for college has soared by 75 percent in the past decade, leading more students than ever to graduate in debt, according to a report released Monday by the Campaign for College Opportunity. By contrast, the amount of debt facing California's college students has held steady since 2003, hovering just above $20,000, on average, when adjusted for inflation. But even though California is considered a "low-debt state" - the third best in the country because state lawmakers have poured money into the Cal Grant program as tuition has risen - the number of students who tumble into debt while earning a diploma has steadily increased. More than 696,000 undergraduates attending a four-year school, or 74 percent of all undergraduates, took out a federal loan in the 2011-12 school year. That's up from 397,497, or 51 percent of all undergraduates, in 2003-04, according to "Borrowing for College," the latest report from the Campaign for College Opportunity on the state of higher education in California. (The new report does not include students who borrow from more costly private lenders.)

Debt Is Piling Up Faster for Most Graduate Students—but Not MBAs -- A degree from one of Bloomberg Businessweek’s top 10 MBA programs will set you back more than $111,000 on average, at least before financial aid. If that kind of price tag causes you to break out in hives, you’re probably not a prospective MBA: New research shows the median debt load of a business school grad remained steady from 2004 to 2012, even as tuition costs increased, indicating that MBAs can generally afford the rising cost of a degree.  MBA grads’ static debt loads make them unique among graduates of advanced degree programs, according to research published on March 25 by the New America Foundation’s Education Policy Program. Median debt loads for graduate school borrowers increased to $57,600 in 2012, from an inflation-adjusted $40,209 in 2004, the study said. Over the same period, the debt load for the typical MBA borrower increased just $627, to $42,000. In contrast, the median debt load for a master of arts graduate rose to $58,539, from $37,965, according to the survey, while the debt load for the typical law student rose to $140,616, up from $88,634.

$1 Trillion Student Loan Debt Widens US Wealth Gap - Graduates who can immediately begin building equity in housing or stocks and bonds get more time to see their investments grow, while indebted graduates spend years paying principal and interest on loans. The standard student loan repayment schedule is 10 years but can be much longer. The median 2009 net worth for a household without outstanding student debt was $117,700, nearly three times the $42,800 worth in a household with outstanding student debt, according to a report co-written by Elliott last November. About 40 percent of households led by someone 35 or younger have student loan debt, a 2012 Pew Research Center analysis of government data found. Student debt is the only kind of household debt that rose through the Great Recession and now totals more than either credit card or auto loan debt, according to the Federal Reserve Bank of New York. Both the number of borrowers and amount borrowed ballooned by 70 percent from 2004 to 2012.

CalPERS’ Private Equity Scandals and the Steptoe & Johnson Report Whitewash - Yves Smith  -- Readers may recall that we published a letter that a beneficiary of the nation’s largest public pension fund, CalPERS, wrote in support of our effort to have CalPERS provide us with data that it has finally admitted it gave to Oxford academics in 2009.  In his letter, our advocate, Tony Butka, stated: What is less commonly known…is that playing fast, loose and in secret with private equity folks got CalPERS into a significant scandal not that long ago. I refer to the 2009/2011 special review of placement-agent activity in the fund which culminated in a March 2011 Steptoe Report. That Report came at a cost to plan members of some $11 million, and ultimately CalPERS wound up in litigation, suffered millions of dollars in losses, and criminal charges ensued. CalPERS’ investments have been controversy-ridden since the early 2000s, but the “pay to play” scandal that Butka alludes to directly implicated the CEO and some board members. The former CEO, Fred Buenrostro, as well as the placement agent, Alfred Villalobos, were indicted in 2011. This is how Matt Taibbi summarized the case: In California, the Apollo private-equity firm paid a former CalPERS board member named Alfred Villalobos a staggering $48 million for help in securing investments from state pensions, and Villalobos delivered, helping Apollo receive $3 billion of CalPERS money. Villalobos got indicted in that affair, but only because he’d lied to Apollo about disclosing his fees to CalPERS. Otherwise, despite the fact that this is in every way basically a crude kickback scheme, there’s no law at all against a placement agent taking money from a finance firm. And the part that has been curiously airbrushed out of every media account of this scandal is Villalobos was engaged in improper conduct, even if he had managed to get the needed sign-offs from CalPERS. He wasn’t a registered broker-dealer, as he was required to be when marketing deals on a regular basis.

Los Angeles Public Pension Fund Tells Us It Is a Happy, Trusting Victim of Private Equity Funds -  Yves Smith -- Our efforts to learn more about the private equity equity industry are revealing how determined public pension funds are to hiding as much as they can, even when they don’t have a legal leg to stand on. Readers may recall our rapidly-expanding public records dispute with America’s largest public pension fund, CalPERS, where we’ve been forced to sue for private equity returns data. At the same time, we’ve been seeking investment records from other public pension funds in California. That has included filing Public Records Act requests for real estate investment contracts with other public pension systems. So far, we’ve hit a brick wall of obstruction and brazen favoritism toward the interests of investment managers who are keen to maintain secrecy. Gee, you think they have something to hide? We’re focusing on California because a court there recently ruled that a real estate limited partnership agreement (LPA) is a public record. That means it must be disclosed when a Public Records Act request is made.  We asked the Los Angeles County Employees Retirement Association (LACERA) for a copy of its real estate fund LPAs and received a blanket denial, shown below.

Who Is And Isn't Saving For Retirement - In the land of the free and the home of the entitled, the sad (but true) nature of income inequality's inexorable rise in the past few years has a somewhat more startling impact on the future. With work being punished for the marginal employee and the wealth effect concentrated in the hands of the great and good, the following two charts show clearly the sad fact that those who need to save for the future the most don't (and likely can't) and those with all the income save the most (and thus 'spend' the least). As we noted previously, the rich have the assets and the poor have the debt (and debt is not wealth).

Your crime: dementia. Your sentence: solitary confinement - Do you ever envision yourself as old and alone? Can you imagine that you -- that active, attractive, sociable you -- might someday essentially be a prisoner in an institution that runs your life? And that nobody will care -- you will be forgotten? Maybe your memory and your volition will have deteriorated, but you will still be you. No one seems to realize that. Each day at the nursing home, you get washed off, spoon fed, strapped into a wheelchair, and abandoned in your room. Deeper and deeper you sink, into inconsequentiality. You grow pale and gaunt. Your eyes are increasingly haunted. You will be here until you die.  I feel quite sure that the old people slumped in nursing-home "cells," lit only by a TV, didn't expect that it would come to this. I bet they assumed they would grow old gracefully, in their homes, with family and friends for enjoyment and support. They probably pictured music and sunshine, houseplants and home-cooked meals, their pets, their own bathroom and their own bed. They dreamed that their favorite things, accumulated over a lifetime, would surround them, even as the infirmities of age descended.   Don't we all?  But the system isn't set up that way: It's 'off you go' to one of the grayest, most spirit-killing environments imaginable. Unless you're rich, the nursing home is your first resort, not your last.

Social security won’t be around long enough for me to collect it - Salon has a couple of interesting articles about millennials. Tim Donovan focuses on the plight of young people without college education who are suffering the combined effects of long-term growth in inequality and the scarring that comes from entering the worst labor market in at least a generation1. Elias Isquith has a piece debunking Rand Paul’s prospects of pulling the millennial vote Despite the fact that a whopping 51 percent of millennials believe they’ll receive no Social Security benefits by the time they’re eligible, and despite the fact that 53 percent of millennials think government should focus spending on helping the young rather than the old, a remarkable 61 percent of young voters oppose cutting Social Security benefits in any way, full stop. It’s now possible for someone to have spent their entire working life believing that Social Security would not last long enough for them to receive it, and now to have retired and started collecting benefits. This belief has been prevalent at least since the early years of the Reagan Administration when it was pushed hard by David Stockman, and I’m going to date it to the first big “reform” of the system in 1977. Someone born in 1952, who entered the workforce in 1977 at the age of 25, would now be turning 62 and eligible to collect Social Security. I’m betting that, in 20 years time, when the 1952 cohort reaches their average life expectancy, having enjoyed their full entitlement to benefits (assuming no ‘grand bargain’ intervenes) that the belief will be just as prevalent

Less than 1% of physicians have formally opted out of Medicare -- And more than 40% of them are psychiatrists. Seriously. Some more data:

  • Only 4% of Medicare beneficiaries do not have a usual source of care
  • 88% of Medicare beneficiaries could usually or always get an appointment for routine care as soon as they needed
  • 92% of Medicare beneficiaries could usually or always get an appointment with a specialist as soon as they needed
  • Of the only 7% of Medicare beneficiaries who sought a new primary care physician, five of them had no problem doing so
  • Of the 14% of Medicare beneficiaries who sought a new specialist, twelve of them had no problem doing so
  • Half as many Medicare beneficiaries reported not getting care or delaying care than privately insured individuals 50-64.

But you know, any day now all the docs are going to quit Medicare. Any day now…

Half of callers to Covered California give up as deadline looms - Nearly half of callers to California's health insurance exchange in February and March couldn't get through and abandoned their call, state figures show. Those service woes could worsen as more people try to beat the March 31 deadline to get Obamacare coverage under the Affordable Care Act.  California has led the nation with more than 1 million people enrolled in health plans through March 17, and it's a bellwether state for the national rollout of the healthcare law. An additional 1.5 million Californians have enrolled or been deemed eligible for an expansion of Medi-Cal, the state's Medicaid program for the poor. On the service front, Lee said the exchange has been able to reduce wait times on the phone from about 50 minutes to 30 minutes. The state has hired more call-center workers and added phone capacity in preparation for a last-minute rush. Still, less than 5% of calls are answered within 30 seconds and about a third of callers get a busy signal, state data show. Overall, 40% of exchange customers surveyed said they found the enrollment process difficult.

Uninsured People Don’t Like or Understand Obamacare - Most people (53 percent) now disapprove of Obamacare, compared with 41 percent who approve. Indeed, just a week before the deadline to buy health insurance on the Obamacare exchanges, opposition to the law is as high as the annual cap on out-of-pocket expenses for a family plan at the Bronze level.The bigger problem? Many uninsured people have no idea what that last sentence means. For a new study released today in the Proceedings of the National Academy of Sciences, researchers asked 3,414 Americans a battery of questions about Obamacare. Since most people get health insurance through work, they also targeted a sub-set that could stand to benefit from the law: people who are eligible for Medicaid, the uninsured, or those who make between 100 and 400 percent of the poverty level and thus qualify for the subsidies to buy health insurance. The results were bleak—just two-thirds of the overall respondents knew that they had to get health insurance this month or face a penalty. Just over half knew about the exchanges to buy health insurance through, and less than half knew there might be subsidies available to help them afford coverage.

Health insurance basics stump many Obamacare shoppers, survey finds - Amid the final frenzy for Obamacare enrollment, a new survey shows that many consumers may be ill-equipped to shop for health insurance. A study published Monday in the Proceedings of the National Academy of Sciences found that 42% of people surveyed could not describe a deductible and 39% didn't understand the relationship between a premium and deductible. Sixty-two percent didn't know that an HMO is more restrictive on choosing doctors than a PPO, or preferred-provider organization plan. The results were drawn from a national survey of about 3,400 people in August and September before enrollment started under the Affordable Care Act. Silvia Barcellos, the study's lead author and an economist at USC, said the lack of information has likely hurt overall enrollment in the federal and state exchanges. The healthcare law requires that most Americans have medical insurance in 2014 or pay a penalty. March 31 is the last day to sign up for individual coverage this year.

Names of Health Plans Sow Customer Confusion - — As Americans race to sign up for health insurance in the final days of open enrollment, many consumers and consumer advocates say the names of plans are unhelpful, confusing and in some cases misleading.A number of insurers sell their plans under names like Select, Preferred, Premier, Exclusive, Enhanced, Essential, Essential Plus, Prime, Ultimate and Deluxe. Multiple offerings from one company may have the same benefits and cover the same share of a consumer’s costs, but go by different names.“Sometimes the names are downright deceptive,” said Betsy M. Imholz, a lawyer at Consumers Union. “Calling a plan ‘exclusive’ makes it sound super-duper, but it may mean that you have a very limited choice of doctors or hospitals.” Hubert B. Gesenhues of Las Vegas, a computer technician who has been researching his insurance options, said the names were, for the most part, “marketing gibberish.” They obscure the fact that many plans do not pay for treatments until consumers have spent thousands of dollars of their own money, he said.

AHIP President Calls For New Level Of Insurance Under Health Law -- A new tier of coverage should be added to the health law’s online marketplaces, or exchanges, that would be less comprehensive than what plans are now required to offer, the head of the health insurance industry’s trade group said Sunday. “I would create a lower tier, so that people could gradually get into the program, so they could be part of the risk pool, so we don’t hold the healthier people outside,” Karen Ignagni, president and CEO of American’s Health Insurance Plans, said in an interview on C-SPAN’s Newsmakers.  “What I would do is give people more choices.” Plans on and off the health law’s exchanges are required to cover a package of essential health benefits, including hospitalization, maternity and newborn care, pediatric care and prescription drugs.  Ignagni said that some people who had not purchased that coverage before don’t want to do so now and want other choices.  Requiring such comprehensive coverage may be “a bridge too far” for some people, she said. The health law features four tiers of coverage – platinum, gold, silver and bronze – plus a catastrophic option open to people under 30, people who qualify for hardship exemptions and some people in the individual market whose plans were cancelled because they did not comply with the health law. In the interview, Ignagni also said while the health law’s website,, is working far better now for consumers than at its technologically troubled Oct. 1 launch, “much work remains” on the “back end” functions that insurers depend on to get information about enrollees and payment information.

A glitch in Obamacare marketplace no one noticed - Nearly six months after the disastrous launch of, with the website running smoothly and more than five million people signed up as open enrollment heads to a close, a new glitch has come to light: Incorrect poverty-level guidelines are automatically telling what could be tens of thousands of eligible people they do not qualify for subsidized insurance. The error in the federal marketplace primarily affects households with incomes just above the poverty line in states like Pennsylvania that have not expanded Medicaid. The mistake raises the price of their insurance by thousands of dollars, making insurance so unaffordable many may just give up and go without. The error, which The Inquirer discovered while running scores of income scenarios through, again raises questions about the site's accuracy that made daily headlines in early winter and that have cost President Obama considerable political capital. It also highlights what some public policy experts say is a troubling lack of transparency in the marketplace's eligibility determinations. "It is almost impossible to work back from a decision and see what they did," said Judy Solomon, vice president for health policy at the Center on Budget and Policy Priorities in Washington. Ideally, she said, a notice would say, "We have found that your income for 2014 will be X, and based on that income your tax credit will be Y." But the official determination letters simply state the amount of your tax credit and resulting insurance premium. "I would have no idea if it's right or wrong," Solomon said.

The Truth About ObamaCare - Robert Reich -- Despite the worst roll-out conceivable, the Affordable Care Act seems to be working. With less than two weeks remaining before the March 31 deadline for coverage this year, five million people have already signed up. After decades of rising percentages of Americans’ lacking health insurance, the uninsured rate has dropped to its lowest levels since 2008. Meanwhile, the rise in health care costs has slowed drastically. No one knows exactly why, but the new law may well be contributing to this slowdown by reducing Medicare overpayments to medical providers and private insurers, and creating incentives for hospitals and doctors to improve quality of care. But a lot about the Affordable Care Act needs fixing — especially the widespread misinformation that continues to surround it. For example, a majority of business owners with fewer than 50 workers still think they’re required to offer insurance or pay a penalty. In fact, the law applies only to businesses with 50 or more employees who work more than 30 hours a week. And many companies with fewer than 25 workers still don’t realize that if they offer plans they can qualify for subsidies in the form of tax credits. Many individuals remain confused and frightened. Forty-one percent of Americans who are still uninsured say they plan to remain that way. They believe it will be cheaper to pay a penalty than buy insurance. Many of these people are unaware of the subsidies available to them. Sign-ups have been particularly disappointing among Hispanics. Some of this confusion has been deliberately sown by outside groups that, in the wake of the Supreme Court’s “Citizens United” decision, have been free to spend large amounts of money to undermine the law.  None of this is beyond repair, though. As more Americans sign up and see the benefits, others will take note and do the same.

White House Gives Americans Extra Time to Sign Up for Obamacare -- The Obama administration is giving an extra window of opportunity to Americans who begin the Affordable Care Act signup process by the March 31 deadline but don’t finish it before the day’s over.  Under the new law, most uninsured Americans must either purchase a health insurance plan or pay a penalty. The White House’s new grace period for signups does not constitute a delay in the institution of that penalty. Instead, it’s being cast as a small window of opportunity for those who begin the process by the deadline day but are unable to finish signing up for technical or other reasons.  “Open enrollment ends March 31,” Health and Human Services spokeswoman Joanne Peters said in a statement. “We are experiencing a surge in demand and are making sure that we will be ready to help consumers who may be in line by the deadline to complete enrollment—either online or over the phone.”

Exchanges With Private Insurers Is a Wasteful Way to Increase Benefits -  While this working paper from Mark Duggan, Amanda Starc, Boris Vabson is about Medicare Advantage I think its provides some insight into the core problem with the entire design of the Affordable Care Act’s coverage expansion. It looks at what was the result off the government overpaying for seniors in Medicare Advantage, which is an exchange where seniors shop for subsidized private insurance. From the summaryOur results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in [Medicare Advantage] plans. Our findings also reveal that only about one-fifth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. If you spend a lot of money on a Rube Goldberg system with middle middlemen some benefits will trickle down to regular people but huge amounts of money will be eaten up in profits and waste. I don’t doubt the Affordable Care Act will actually help some people, but at an exorbitantly inflated price because of how inherently wasteful the design is. This creates a needless burden for all taxpayers and premium payers on the exchanges.

Deadline Near, Health Signups Show Disparity - The online insurance marketplace in Oregon is such a technological mess that residents have been signing up for health coverage by hand. In Texas, political opposition to President Obama’s health law is so strong that some residents believe, erroneously, that the program is banned in their state.But in Connecticut, a smoothly functioning website, run by competent managers, has successfully enrolled so many patients that officials are offering to sell their expertise to states like Maryland, which is struggling to sign people up for coverage.The disparities reveal a stark truth about the Affordable Care Act: With the first open enrollment period set to end Monday, six months after its troubled online exchanges opened for business, the program widely known as Obamacare looks less like a sweeping federal overhaul than a collection of individual ventures playing out unevenly, state to state, in the laboratories of democracy.Continue reading the main story Related Coverage Jobs and Health Bills Make for Busy Day at Capitol MARCH 27, 2014 The White House said on Thursday that more than six million people have signed up for private plans, a significant political milestone for the Obama administration. Independent analysts estimate that an additional 3.5 million Americans are newly insured under Medicaid — figures the law’s backers hail as a success.

Obamacare Fails to Fail - Paul Krugman - Predictably, Republicans are in an uproar over the latest tweak to the Obamcare signups — an extension of the March 31 deadline for people who say that they tried to apply but encountered technical difficulty. As Jonathan Cohn says, the real objection here seems to be not so much that Obama is overstepping his bounds as that this will make it possible for more people to get insurance. But I also have the sense that people in the GOP are still working with a completely wrong narrative — namely, that Obamacare is failing, and that these are desperate ploys to save a sinking ship. The reality is quite different: enrollments have clearly surged in the final month. Charles Gaba is now projecting 6.4 million through the exchanges, and many more directly purchased from insurers. True, we don’t yet know how many signups were previously uninsured, and we don’t know the age/health mix of the people signing up. So we don’t know how well year one of the ACA really worked, and won’t for some time. The point, however, is that the system has evidently overcome most of its teething troubles. How will the GOP respond when the numbers come in? If present behavior is any guide, they’ll spend months listening to “unskewers” claiming that nobody is actually going to pay for policies, or that there are untold millions who lost their insurance and can’t replace it, etc, etc.. There really isn’t any room in their worldview for the possibility that this thing might work.

Obamacare Will Never Be Popular -- A new Kaiser monthly health care poll is out, and the headline is that the surge in unpopularity that followed the Affordable Care Act's botched rollout has mostly dissipated. So the ACA seems headed back to the more boring levels of unpopularity it attracted for most of 2013. The new Kaiser poll registers the law's favorability at 38 percent, with 46 percent of respondents viewing it unfavorably. That's a bit better than it has been doing in HuffPollster’s poll-of-polls estimate.   As Greg Sargent notes in his excellent summary of the Kaiser numbers, they actually contain quite a bit of good news for Democrats. Only a minority supports "repeal" of the ACA, or "repeal-and-replace." A slim majority agrees that it’s time for the country to move on from the issue altogether. Now as ever, most individual provisions of the law (other than the individual mandate) are, as Greg put it, “wildly popular.”  Does that mean Obamacare as a whole will soon be popular? No. For one, fewer than one in five believes the ACA has helped them personally and, as I’ve argued, we’re probably at peak awareness of the law's benefits right now. Even if the ACA works as well as supporters hope, many benefits will be either invisible to consumers or difficult for them to trace to the law. For example, many people won't realize that before the ACA they would have been excluded from insurance because of a pre-existing condition -- even a minor one. Meanwhile, anyone who has anything go wrong with their health insurance will find it easy to blame Obamacare.

The Obamacare report card -  After six months, the first enrollment season is coming to an end. So it’s time to take stock, with POLITICO’s report card that covers the highs and lows of the rollout.  It’s pretty obvious that the Obama administration wasn’t ready for the launch, despite three and a half years to prepare. The political messaging hasn’t impressed anyone; Democrats are scampering away from what was supposed to be a legacy achievement. No one’s going to forget that notion that everyone could keep their plans. But the critics will have to round out their picture of the law, too. The signups have now hit 6 million — a feat that seemed impossible in the worst days of the website failures — and the administration’s outreach efforts are better than they used to be. And although there are lots of complaints about the prices, some low-income customers seem to be genuinely happy with the rates and subsidies they’re getting. It’s also important to judge the rollout against the political headwinds the law has faced. White House officials argue that the battles against Obamacare have been stronger and longer lasting than even the fights against breakthroughs like Social Security and civil rights laws. “There’s no other law that has had to overcome all the obstacles that have been thrown at this law by its opponents,” said White House health care adviser Phil Schiliro. But this is also a program that will affect millions of Americans, and Republicans say it’s such a bad student it should repeat a grade. “For gross incompetence, the thing should be held back a year,” said Brendan Buck, a spokesman for House Speaker John Boehner. “The law is clearly not ready for prime time — not that it ever will be — and that’s why the House has voted to delay it.”

The One Thing That Could Save Obamacare––And The Obama Administration Needs To Do It In the Next Month - To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates. A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, "Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits."  If the health plans do issue double digit rate increases for 2015, Obamacare is finished.  There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.  The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare. Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won't buy them any more enthusiastically next fall than they already have.

The next health-care debate - You never get a second chance to make a first impression. But at the end of this month, the new health-care law will get a third chance to make a decent impression — finally. Everyone who believes that reducing economic insecurity requires a strong government role in guaranteeing health insurance to all Americans should take advantage of this opportunity. This obligation falls on President Obama, but it also encompasses Democratic members of Congress who voted for the law but now fret over the political consequences of a full-hearted embrace of the system they created. They can’t just duck. The first two opportunities to make the case were blown. During the battle to pass the law, its opponents did a far better job of tarring it than its sponsors did of extolling it. Last fall, the crash of the Web site made a hash of its debut.But the end of the enrollment period on March 31 provides an opening to count up the number of Americans who now have insurance because Congress acted. The pace of sign-ups has risen sharply in recent weeks. Many Americans want what the Affordable Care Act (ACA) is offering. And yes, its allies should stop using that politically charged “Obamacare” label. This is about health insurance, not the man in the White House.

‘War on drugs’ is supposed to be a metaphor, not a real war - From The Economist article “Armed and Dangerous“:Early one morning a team of heavily armed police officers burst into the home of Eugene Mallory, an 80-year-old retired engineer in Los Angeles county. What happened next is unclear. The officer who shot Mr. Mallory six times with a submachine gun says he was acting in self-defense—Mr. Mallory also had a gun, though he was in bed and never fired it. Armed raids can be confusing: according to an investigation, the policeman initially believed that he had ordered Mr. Mallory to “Drop the gun” before opening fire. However, an audio recording revealed that he said these words immediately after shooting him. Mr. Mallory died. His family are suing the police. Such tragedies are too common in America. One reason is that the police have become more militarised. Raids by Special Weapons and Tactics (SWAT) units used to be rare: there were only about 3,000 a year in the early 1980s. Now they are routine: perhaps 50,000 a year (see article). The war on drugs creates perverse incentives. When the police find assets that they suspect are the proceeds of crime, they can seize them. Under civil asset-forfeiture rules, they do not have to prove that a crime was committed—they can grab first and let the owners sue to get their stuff back. The police can meanwhile use the money to beef up their own budgets, buying faster patrol cars or computers. All this gives them a powerful incentive to focus on drug crimes, which generate lots of cash, rather than, say, rape, which does not.

What the heck are we supposed to be eating?  -- A week or two ago, my oldest child had an assignment where he had to design meals according to the new MyPlate guidelines. I was struck, because when I was a kid, this was the food pyramid: Remember that? But look at it! 6-11 servings of carbs a day? More carbs than fruits and vegetables combined! Of course, milk gets a mandatory three servings a day. Bow to the power of the milk-industrial complex. But I looked into it, and this wasn’t the first big push. Back during World War II, there were the Basic 7: I mean, wow. Butter and margarine were a food group? And milk, of course. All of this was then replaced with the MyPyramid a couple of years ago: Carbs were reduced significantly, and fruits and vegetables increased. But still, look how much milk you were supposed to get! Why, again? That didn’t last long. Now we’re on to MyPlate: So now half of what we eat is supposed to be fruits and vegetables. Proteins and grains (half of them whole grains) take up the rest. And, of course milk. Soon, I want to spend some real time delving into this. There’s a fascinating history, I’m sure, as to the politics of how this gets decided. But it’s stunning to see the differences in just the last few decades. The 1990′s were not some dark ages of ignorance, and, still, we thought like half our diet should be milk and carbs. Today, most would consider that crazy. I wonder what we’ll consider crazy 20 years from now?

Technology: The $1,000 genome -- In dozens of presentations over the past few years, scientists have compared the slope of Moore's law with the swiftly dropping costs of DNA sequencing. For a while they kept pace, but since about 2007, it has not even been close. The price of sequencing an average human genome has plummeted from about US$10 million to a few thousand dollars in just six years (see ‘Falling fast’). That does not just outpace Moore's law — it makes the once-powerful predictor of unbridled progress look downright sedate. And just as the easy availability of personal computers changed the world, the breakneck pace of genome-technology development has revolutionized bioscience research. It is also set to cause seismic shifts in medicine. In the eyes of many, a fair share of the credit for this success goes to a grant scheme run by the US National Human Genome Research Institute (NHGRI). Officially called the Advanced Sequencing Technology awards, it is known more widely as the $1,000 and $100,000 genome programmes. Started in 2004, the scheme has awarded grants to 97 groups of academic and industrial scientists, including some at every major sequencing company. It has encouraged mobility and cooperation among technologists, and helped to launch dozens of competing companies, staving off the stagnation that many feared would take hold after the Human Genome Project wrapped up in 2003. “The major companies in the space have really changed the way people do sequencing, and it all started with the NHGRI funding,” says Gina Costa, who has worked for five influential companies and is now a vice-president at Cypher Genomics, a genome-interpretation firm in San Diego, California.

Measles outbreak in Orange County, California worst in decades - CBS News: An outbreak of measles in Orange County, California is the worst health officials have seen in two decades. Twenty-one county residents have been diagnosed with measles in 2014, including 7 who have been hospitalized, CBS Los Angeles reports. "It's very contagious, and what we're trying to do is prevent the exposure and spread," said O.C. Health Deputy Agency Director Eric Handle told the station. "The measles virus can cause inflammation in the brain that can appear immediately, or seven years out." Measles is a highly contagious infection that starts with a fever, cough, runny nose and pink eye before progressing to a rash on the face, upper neck that within a few days spreads down to the rest of the body. Approximately 20 percent of cases experience more serious complications such as pneumonia and encephalitis, which is a potentially-fatal swelling of the brain. The disease is spread through infected droplets from a person's nose, mouth or throat that are dispersed in the air.

Alarming spread of drug-resistant TB threatens global health - The medical aid organization Medecins Sans Frontieres/Doctors Without Borders (MSF) has published a briefing paper about the alarming spread of drug-resistant tuberculosis, which they refer to as the "biggest threat to global health you've never heard of." Tuberculosis (TB), which is caused by Mycobacterium tuberculosis, is one of the deadliest diseases in the world, according to the US Centers for Disease Control and Prevention (CDC). Every year, around 8 million people around the world fall ill with TB, and 1.3 million die of it. TB spreads when a person with an active infection in the lungs coughs or sneezes droplets containing the bacteria into the air and these are then inhaled by someone else. The disease usually affects the lungs, but it can also affect other organs. Typical symptoms include persistent coughing, sometimes with blood, weight loss, night sweats, fever, fatigue and loss of appetite. Standard TB is curable, but because of inadequate global response, there is now a growing epidemic of strains that are drug resistant, says the MSF briefing paper.

WHO | 7 million premature deaths annually linked to air pollution - In new estimates released today, WHO reports that in 2012 around 7 million people died - one in eight of total global deaths – as a result of air pollution exposure. This finding more than doubles previous estimates and confirms that air pollution is now the world’s largest single environmental health risk. Reducing air pollution could save millions of lives. New estimates In particular, the new data reveal a stronger link between both indoor and outdoor air pollution exposure and cardiovascular diseases, such as strokes and ischaemic heart disease, as well as between air pollution and cancer. This is in addition to air pollution’s role in the development of respiratory diseases, including acute respiratory infections and chronic obstructive pulmonary diseases. The new estimates are not only based on more knowledge about the diseases caused by air pollution, but also upon better assessment of human exposure to air pollutants through the use of improved measurements and technology. This has enabled scientists to make a more detailed analysis of health risks from a wider demographic spread that now includes rural as well as urban areas. Regionally, low- and middle-income countries in the WHO South-East Asia and Western Pacific Regions had the largest air pollution-related burden in 2012, with a total of 3.3 million deaths linked to indoor air pollution and 2.6 million deaths related to outdoor air pollution.

U.S. Farmers Increase Planting of GMO Corn Banned From China Markets - The wide-scale planting of GMOs that aren’t approved by key importing countries will chip away at the competitiveness of U.S. grain and feed exports.  Six months after China started rejecting shipments of corn made with genetically modified organisms (GMOs), Bunge stated it wouldn't accept deliveries of the variety developed by Switzerland’s Syngenta AG, reports Bloomberg. ADM plans on testing the GMO corn, and may end up rejecting it as well. Regardless, farmers will soon begin planting the crop this spring due to its high yield for the U.S. market.  Bloomberg reports: Exporters and farmers going in two different directions on GMO corn underscores a new set of challenges faced by international agricultural commodity traders. Even as demand continues to grow in line with the global population, China and other countries have been slower than the U.S. to approve new types of crops amid concerns about food safety and threats to biodiversity from [GMOs]. China’s curbs on some modified corn threaten to block millions of tons of imports and in so doing cut into the profits of international trading houses. “It’s a significant issue for major North American traders,” said Andrew Russell, a New York-based analyst for Macquarie Group who recommends buying ADM and Bunge shares. “Anything that puts Chinese growth potential at risk is a significant issue.”

Chinese Pigs Eating Soybeans Cut U.S. Supply to 1965 Low - Barge convoys are heading south along the world’s busiest inland waterway to New Orleans export depots at a record pace as demand surges from pig farmers in China, the largest pork-eating country. Soy stockpiles in the U.S., where farmers harvested the third-largest crop ever just six months ago, are the lowest relative to demand in at least five decades, fueling the second-biggest rally in prices to start the year since 2005.  “Our soybean supplies will be empty by the end of April,” said Scott Meyer, grain department manager at the Ursa, Illinois-based terminal owner, which loads about 35 million bushels of crops annually. “Chinese demand for soybeans was a lot stronger than everyone expected this year.”  The sales jump is boosting profit margins for processors including Bunge Ltd. and Archer-Daniels-Midland Co. (ADM) even as costs rise for buyers including Michael Foods Inc. Goldman Sachs Group Inc. raised its six-month price outlook for soybeans on March 11, predicting “near critically low” supplies before the 2014 harvest.  Soybean futures are up 11 percent this year on the Chicago Board of Trade, to close at $14.365 a bushel today, after touching a nine-month high of $14.60 on March 7. Corn and wheat have rallied 17 percent. The Standard & Poor’s GSCI Index of 24 commodities advanced 2.7 percent since the end of December, while the MSCI All-Country World Index of equities slid 0.7 percent. A Bloomberg Index of Treasuries gained 1.8 percent.

Higher food prices are good for the poor ... in the long run - A few years ago Dani very kindly let me guestblog on some of my work on the global food crisis (see here and also Dani’s much earlier comments here). In that earlier work I used Gallup World Poll data on subjective food security to conclude that the 2007-08 global food “crisis” seemingly had no adverse impact on the world’s poor. As The Economist noted (here), my results were subsequently corroborated by World Bank estimates, which suggested that global poverty continued to fall through the 2007-08 food crisis. In my most recent paper, however, I find an even stronger result: higher domestic food prices predict reductions in poverty (see here). The methods in this paper are fairly simple. I take World Bank national poverty estimates for a broad swathe of countries and regress changes in poverty against changes in domestic food prices (the ratio of the food CPI to the non-food CPI). The main finding is that the elasticity between $1.25 poverty and food prices varies between -0.32 and -0.46 (see Figure below). The result is also a robust one in that it holds for different models, different regressors, different assumptions about the endogeneity of food prices, and different poverty indicators.

How ”Extreme Levels” of Monsanto’s Herbicide Roundup in Food Became the Industry Norm - Food and feed quality are crucial to human and animal health. Quality can be defined as sufficiency of appropriate minerals, vitamins and fats, etc. but it also includes the absence of toxins, whether man-made or from other sources. Surprisingly, almost no data exist in the scientific literature on herbicide residues in herbicide tolerant genetically modified (GM) plants, even after nearly 20 years on the market. In research recently published by our laboratory (Bøhn et al. 2014) we collected soybean samples grown under three typical agricultural conditions: organic, GM, and conventional (but non-GM). The GM soybeans were resistant to the herbicide Roundup, whose active ingredient is glyphosate. We tested these samples for nutrients and other compounds as well as relevant pesticides, including glyphosate and its principal breakdown product, Aminomethylphosponic acid (AMPA). All of the individual samples of GM-soy contained residues of both glyphosate and AMPA, on average 9.0 mg/kg. This amount is greater than is typical for many vitamins. In contrast, no sample from the conventional or the organic soybeans showed residues of these chemicals (Fig. 1). This demonstrates that Roundup Ready GM-soybeans sprayed during the growing season take up and accumulate glyphosate and AMPA. Further, what has been considered a working hypothesis for herbicide tolerant crops, i.e. that, as resistant weeds have spread: "there is a theoretical possibility that also the level of residues of the herbicide and its metabolites may have increased" (Kleter et al. 2011)1 is now shown to be actually happening.

Sri Lanka Bans Monsanto Herbicide After Report Suggests Link to Deadly Kidney Disease - In an abrupt and surprising turn, Sri Lanka has ordered a ban on glyphosate, the active ingredient in Monsanto’s top-selling herbicide Roundup, due to concerns the chemical may be linked to a mysterious kidney disease that has killed scores of agricultural workers, according to the Center for Public Integrity. The announcement came last week after a recent International Journal of Environmental Research and Public Health study found glyphosate was the likely culprit for the illness, known as fatal chronic kidney disease of unknown origin (CKDu). “An investigation carried out by medical specialists and scientists has revealed that kidney disease was mainly caused by glyphosate,” Special Projects Minister S.M Chandrasena told reporters in Sri Lanka. “President Mahinda Rajapaksa has ordered the immediate removal of glyphosate from the local market soon after he was told of the contents of the report.” The paper, Glyphosate, Hard Water and Nephrotoxic Metals: Are They the Culprits Behind the Epidemic of Chronic Kidney Disease of Unknown Etiology in Sri Lanka?, did not offer new scientific evidence; however, it did lay out a detailed theory suggesting that the use of glyphosate in areas with heavy metals in the drinking water can lead to CKDu. The researchers propose glyphosate becomes extremely toxic to the kidneys when it’s combined with “hard” water or metals like arsenic and cadmium, either naturally present in the soil or added externally through the spread of fertilizer.

Renowned NYU Professor: GMOs Could Literally Destroy the Planet - Nassim Taleb, a renowned New York University (NYU) professor recently raised eyebrows when he said genetically modified organisms (GMOs) have the potential to cause “an irreversible termination of life at some scale, which could be the planet.” Taleb, who specializes in risk engineering, has outlined the dangers of GMOs in The Precautionary Principle, a paper recently made available to the public.  Taleb’s primary concern isn’t that ingesting GMOs is necessarily bad for people; rather, he’s focused on what effects the genetic manipulation of nature will have on the worldwide ecosystem. While Taleb concurs the risk of any one GMO seed ruining the planet is incredibly small, he argues that people are underestimating the domino effect of risk that’s involved. For example, if one genetically modified seed produced holds a 0.1 percent chance of causing a catastrophic breakdown of the ecosystem, then the probability of such an event will only increase with each new seed that’s developed. Taleb writes that given enough time the “total ecocide barrier” is bound to be hit despite incredibly small odds. The argument hinges on the fact that GMOs represent a systemic, and not localized, risk. As GMO goods continue to be exported to countries throughout the world, the idea of being able to control GMOs in nature is impossible to guarantee. As Taleb says, “There are mathematical limitations to predictability in a complex system, ‘in the wild,’ which is why focusing on the difference between local (or isolated) and systemic threats is a central aspect of our warnings.”

U.S.-Mexico experiment aims to resurrect the Colorado River delta - The mighty Colorado River, which over millenniums has carved the Grand Canyon, does an unusual thing when it gets south of the Arizona-Mexico border. It dies. The Morelos Dam — sitting on the international boundary — serves as its headstone, diverting nearly all of the river water into an aqueduct that serves agriculture as well as homes in Tijuana. South of the dam, the river channel travels about 75 miles to the Gulf of California. Except when filled by rains, the channel is bone dry. But starting Sunday, the river will flow again, part of an unprecedented experiment by U.S. and Mexican officials.A few days ago, the International Boundary Water Commission, made up of Mexican and U.S. officials, released water from Lake Mead in Nevada to send it toward the Colorado River delta, a region cut off from most of the river's flow by the dams and diversions constructed in the 20th century. Although there have been experimental high-flow water releases in the Colorado River, such as one last year from Lake Powell designed to spread sediment in the Grand Canyon, this is the first "pulse" for the delta.

Where is Groundwater Use Unsustainable in the U.S.? – Kay McDonald - My list of concerns about what’s wrong with farm policies here in the U.S. is fairly long, but if I had to name the two that I think are the most important, those two would be better protection of our soil and our groundwater. At present, there are not policies in place which are guarding either of these adequately, and this is short-sighted.  The California drought story has been featured prominently in the news, and included under that topic, we have seen a few articles about the unsustainable reliance upon groundwater for farming there, which is an under-reported story that has grave implications.  Which is why this new U.S. groundwater study out of Columbia University is important. From the study’s summary: In addition to confirming alarming depletion in well-known hot spots such as the Great Plains and Central California, the study identifies a number of other regions, including the lower Mississippi, along the Eastern Seaboard and in the Southeast where water tables are falling just as rapidly. Overall, the report concludes, between 1949 and 2009 groundwater levels declined throughout much of the continental U.S., suggesting that the nation’s long-term pattern of groundwater use is broadly unsustainable. There are farmers in dryland farming regions of Nebraska and Iowa and other Midwestern states who have recently added wells to their farms following the drought of 2012, to help capitalize on strong commodity prices at the time. There are Iowa communities that have seen their groundwater levels drop because of ethanol plants coming in and using groundwater for their industrial water needs. Many communities in Minnesota are facing the problem of nitrate-polluted water in their wells, so they have to purchase and transport clean water for drinking. In California’s agricultural region of Paso Robles, vineyard owners, who use 67 percent of the basin’s groundwater, sued others to preserve their unrestricted access to their rapidly depleting groundwater. The stories could go on and on.

EPA moves to clean up the Clean Water Act - Under the Clean Water Act, as it’s currently enforced, companies that are prohibited from dumping pollution into major waterways are able to go ahead and dump their pollution into streams that feed into those major waterways instead. It’s a bit of a problem for the over 177 million people who get their water from such streams.  A new rule proposed Tuesday by the Environmental Protection Agency and the Army Corps of Engineers aims to change that. It would clarify that the EPA has jurisdiction over ephemeral and intermittent streams — the kind that only start flowing when it rains — and adjacent wetlands, leading to stricter pollution controls, and thus safer water, in those places. As EPA administrator Gina McCarthy was careful to clarify, the proposed rule doesn’t expand the Clean Water Act at all — it’s simply the matter of the EPA asserting its authority. Despite her reassurances, however, some developers and farmers are accusing the government of overreach. And Media Matters has more on the conservative media’s minor freak-out, under which the proposal is being characterized as ”one of the biggest land grabs by the federal government ever perpetrated on the American public.”

Flood Zone Foolishness -  The billion-dollar storm is the new normal. Eight of the 10 costliest hurricanes in U.S. history have occurred in the past decade, adjusting for inflation, at a staggering toll of more than $200 billion in losses. Sea level rise along the eastern seaboard is happening at the fastest rate in the world. Disaster experts have plenty of good ideas for ways to prepare for the unfolding crisis, but it’s hard to find legislators willing to think long-term. Welcome to disaster politics in the 21st century. It took until the summer of 2012 for Congress to pass the bipartisan Biggert-Waters Flood Insurance Reform Act, a bill aimed at restoring the NFIP to solid financial health. Just a few months later Hurricane Sandy, with its tens of thousands of under-insured victims, made Biggert-Waters look like visionary legislation.Last week, however, lawmakers reversed themselves—and now the future of flood insurance in America is again uncertain. Running a perpetual debt leaves the NFIP and its 5.5 million policyholders prey to both the forces of nature and the whims of politics. To protect them and to make U.S. flood planning rational and solvent, President Obama should refuse to sign the weakened bill. (Update, March 24, 8:45 a.m.: Obama signed the bill.)

How The New Flood Insurance Reforms Make Costly Future Climate Disasters More Likely -- On Friday, President Obama signed into law the Homeowner Flood Insurance Affordability Act, very aptly named as it helps homeowners living in flood zones afford their insurance rates. The only problem is that some homeowners just shouldn’t be living in flood zones, and their rising insurance rates were meant to reflect that. This is especially true in coastal flooding zones where rising sea levels due to climate change, extreme weather events and human-induced erosion and environmental degradation can make the risks outweigh the benefits, and the costs — for which taxpayers are liable — exceedingly high.  The bill comes two years after other recent reforms made to the National Flood Insurance Program (NFIP) which is overseen by FEMA. The 2012 bipartisan Biggert-Waters Flood Insurance Reform Act was designed to make the NFIP more financially stable in part by phasing out long-instituted subsidies for high-risk coastal properties. Starting with Hurricane Katrina in 2005 and building up to Hurricane Sandy, which came a few months after the reforms, NFIP found itself completely fiscally insolvent, exhausting the premium-funded resources of FEMA and requiring around $28 billion in taxpayer-funded bailouts.  Part of the what the 2012 bill did to more accurately reflect risk was scale back subsidies for properties experiencing multiple or extremely severe floods. It also phased out subsidies for vacation homes and properties receiving grandfathered-in rates that no longer reflect their flood risk. After coastal property owners rose up to protest the increased insurance rates for living in a flood zone, with its latest action Congress has now bowed to short-term constituent demand rather than doubling down on confronting the long-term risks and costs of living in flood zones.

A Cold U.S. Winter for Sure, but 8th Warmest Globally -- Despite the frigid temperatures that kept those in the eastern United States shivering all winter, the period from December 2013 to February 2014 was the 8th warmest on record globally, the U.S. National Climatic Data Center reported Wednesday. That warmth early in the year could set the stage for another record or near-record warm year, one NCDC scientist said. And February, which was the 21st warmest globally since record keeping began in 1880, was the 348th consecutive month where temperatures were higher than the global average; the last month with below-average temperatures was exactly 29 years ago, in February 1985, when Ronald Reagan was just beginning his second term as president. While some years have averaged warmer than others, global temperatures have been inexorably rising over the past few decades as manmade carbon dioxide emissions have accumulated in the atmosphere, trapping heat. The high ranking may come as a surprise to those who spent the winter digging out from seemingly never-ending snow storms and blasts of Arctic air courtesy of a wonky jet stream that tipped the infamous polar vortex toward the eastern U.S. and sent cold Canadian air washing over the region. (In fact, parts of Ontario, Canada, experienced a February that ranked among their top 10 coldest in the record books.)

Goodbye Polar Vortex; Hello Solar Vortex - El Nino Is Coming - Thirsty Californians are pinning their hopes that worried farmers in Australia are right. After months of the Polar Vortex dumping snow on the US east coast and drought on the west coast (and crushing the American Dream of an 'escape velocity' economy), The US Climate Prediction Center issued an El Nino watch bring hope of a big rain year for California, floods in South America, and dismal droughts in Southeast Asia. The Australian Bureau of Meteorology said an El Nino could occur during the southern hemisphere winter from May-July. Increased sea surface temperatures suggest an increasing chance of the global weather phenomenon and the great rotation from a Polar Vortex to a Solar Vortex. Aussie Farmers are already struggling and this could be a major problem:Climate models show an increased chance of a 2014 El Nino weather event, said Australia's bureau of meteorology, leading to possible droughts in Southeast Asia and Australia and floods in South America, which could hit key rice, wheat and sugar crops.The Australian Bureau of Meteorology (BOM) said an El Nino could occur during the southern hemisphere winter, May-July, with Australian cattle and grain farmers already struggling with drought which has cut production. The last El Nino in 2009/10 was categorised weak to moderate. The most severe El Nino was in 1998 when freak weather killed more than 2,000 people and caused billions of dollars in damage to crops, infrastructure and mines in Australia and other parts of Asia.

A super El Niño on the way? Subtle signs emerging - Andrew Freedman has penned an intriguing and important piece suggesting the possible El Niño in the pipeline may be a doozy, comparable to the strongest ever recorded: Since climate forecasters declared an “El Niño Watch” on March 6, the odds of such an event in the tropical Pacific Ocean have increased, and based on recent developments, some scientists think this event may even rival the record El Niño event of 1997-1998. Recall an El Niño event is an episodic warming of the eastern tropical Pacific ocean, which often has worldwide weather implications. Freedman interviews two scientists, Eric Blake from the National Hurricane Center and Paul Roundy from SUNY-Albany, who see early indicators reminiscent of the development stages of past whopper El Niño events. One important possible indicator of the lead up to an El Niño is a reversal in the trade winds observed in the equatorial Pacific, from a prevailing easterly (from the east) to westerly (from the west) direction.  In recent weeks and months, there have been strong westerly “bursts”.

Monster El Nino Emerging From the Depths: Nose of Massive Kelvin Wave Breaks Surface in Eastern Pacific - We are observing an extraordinarily powerful Kelvin Wave, one that was likely intensified by factors related to human global warming, traveling across the Pacific. It appears to be an epic event in the making. One that may be hotter and stronger than even the record-shattering 1997-98 El Nino. What this means is that we may well be staring down the throat of a global warming riled monster. Ever since the early 2000s very strong east-to-west trade winds have been blowing across the Pacific. By around 2010, the force of this wind pattern had risen to never before seen records. Over the years, these record winds piled very warm waters in a region of the world east of the Philippines and Australia. As the pool grew warmer, evaporation increased and salinity levels in the hot water pool spiked. Increasing salinity in the zone resulted in a down-welling current that transferred heat into the ocean’s depths. By 2013, this hot water pool had grown into a vast abyss of heat. Cyclones forming over this zone experienced a kick in intensity as the typical upwelling force of their winds only dredged more hot water from the ocean deeps. It was a pattern that is contrary to typical tropical storm dynamics in which cooler waters drawn up by intense storms tend to limit their peak strength. Not so with mega-typhoon Haiyan, the strongest storm ever to strike land. The cyclonic wind pattern only dredged more heat from the extraordinarily deep hot water. And so the storm only grew stronger and stronger, knowing little in the way of limits before it barreled into an already storm-battered Philippines.

El Nino likely in 2014, says Australian Bureau of Meteorology (Reuters) - Climate models show an increased chance of a 2014 El Nino weather event, said Australia's bureau of meteorology, leading to possible droughts in Southeast Asia and Australia and floods in South America, which could hit key rice, wheat and sugar crops. The Australian Bureau of Meteorology (BOM) said an El Nino could occur during the southern hemisphere winter, May-July, with Australian cattle and grain farmers already struggling with drought which has cut production. The last El Nino in 2009/10 was categorized weak to moderate. The most severe El Nino was in 1998 when freak weather killed more than 2,000 people and caused billions of dollars in damage to crops, infrastructure and mines in Australia and other parts of Asia. "The latest climate model survey by the shows that the tropical Pacific is very likely to warm in the coming months, with most models showing sea surface temperatures reaching El Nino thresholds during the southern hemisphere winter," the BOM said in an emailed statement. Australia's outlook echoes similar forecasts from other weather bureaus in Japan and the United States, which each said an El Nino was increasingly like.

El Niño Threatens Australian Crops - Meteorologists from Australia say the chances are increasing that the volatile El Niño weather pattern will return this year, adding to already difficult growing conditions globally that have sparked a rally in agricultural commodities from coffee to palm oil. Australia’s Bureau of Meteorology said Wednesday that it forecasts drier-than-normal weather for parts of the north and east of the country, and wetter-than-normal weather for the southwest, potentially causing problems for the production of crops such as sugar cane and cotton. El Niño is the abnormal warming of the Pacific Ocean that causes droughts in some areas and flooding in others, and happens every three to five years. El Niño last hit in 2009 and typically affects India especially hard because the country is reliant on seasonal monsoon rains for rice and sugar-cane crops. The return of El Niño this year also would add to a strong rally in agricultural commodities prices because of existing droughts in large commodity-growing regions such as Brazil, California and Southeast Asia. Already, dry weather in the U.S., Eastern Europe, Australia and southern Ukraine is a worry and could impact wheat prices this year if there is damage to the crop, said Australian investment bank Macquarie. Wheat futures have risen in recent days because of dry weather in the U.S. southern plains region and persistent cold in the Midwest. “Australia has seen dry conditions build in both the eastern and western portions of the country. Today this isn’t a specific threat to production, but given the country’s generally low moisture profile, dry conditions now could encourage the Australian farmer to reduce planting area,” said Macquarie.

Climate change to disrupt food supplies, brake growth-UN draft  (Reuters) - Global warming will disrupt food supplies, slow world economic growth and may already be causing irreversible damage to nature, according to a U.N. report due this week that will put pressure on governments to act. A 29-page draft by the Intergovernmental Panel on Climate Change (IPCC) will also outline many ways to adapt to rising temperatures, more heatwaves, floods and rising seas. "The scientific reasoning for reducing emissions and adapting to climate change is becoming far more compelling," Rajendra Pachauri, chair of the IPCC, told Reuters in Beijing. Scientists and more than 100 governments will meet in Japan from March 25-29 to edit and approve the report. It will guide policies in the run-up to a U.N. summit in Paris in 2015 meant to decide a deal to curb rising greenhouse gas emissions. The 29-page draft projects risks such as food and water shortages and extinctions of animals and plants. Crop yields would range from unchanged to a fall of up to 2 percent a decade, compared to a world without warming, it says. And some natural systems may face risks of "abrupt or drastic changes" that could mean irreversible shifts, such as a runaway melt of Greenland or a drying of the Amazon rainforest. It said there were "early warning signs that both coral reef and Arctic systems are already experiencing irreversible regime shifts". Corals are at risk in warmer seas and the Arctic region is thawing fast.

Disasters Led to $45B in Insurance Losses in 2013 - Disasters such as floods in Europe, winter storms in the U.S. and typhoons in Asia cost insurance companies $45 billion in 2013, a leading Swiss firm said Wednesday. The sum represents only about a third of the $140 billion in economic losses, not to mention 26,000 lives lost, from 308 catastrophes and disasters around the globe last year, according to Zurich-based Swiss Reinsurance Company Ltd., known as Swiss Re. As a whole, Asia was the region that suffered the most, with $62 billion in economic losses and more than 20,000 victims. But only $6 billion was paid in claims, reflecting the region's relative lack of insurance. Typhoon Haiyan left 7,500 people dead or missing and caused $12.5 billion in damage to the Philippines and Vietnam, with insured losses of just $1.5 billion. Europe suffered the two most expensive natural disasters in insurance terms. The first was the massive flooding in central and eastern Europe in May and June, after four days of heavy rain that caused large-scale damage across Germany, the Czech Republic, Hungary and Poland. It led to $4.1 billion in paid claims on $16.5 billion in economic losses. The second was the hail storm that hit Germany and France in late July, causing $3.8 billion in insurance payments on $4.8 billion in economic losses. Most of those claims — the highest ever caused by hail — came from heavily populated areas of Germany. Altogether, Europe had economic losses worth $33 billion for $15 billion in insurance payouts. The U.S., which suffered severe thunderstorms, tornadoes, hail and winter storms, had a total of $32 billion in damage of which $19 billion was insured.

Extreme Weather Events And Economic Accounting -- Here's a follow-up to yesterday's post The Death Of "Climate Exceptionalism".  Although only a few hundreds of people read it, that post's message was surely a major bummer for anybody who cares about the long-term health of the Earth's biosphere. I want to call your attention to this part of the post.  Indeed, the IPCC finds that climate change poses no substantial economic risk to our ever-growing global economy.And the report is, on the face of it, more optimistic than the famous review of the economics of climate change by Britain’s Nicholas Stern in 2006.Stern put the likely cost to the global economy of warming this century at 5-20 percent of GDP. The new IPCC draft says that a global average temperature increase of 2.5 degrees from pre-industrial levels may lead to a global loss of income of between 0.2 and 2 percent.In so far as global GDP is expected to be 5-10 times larger than it is now by the year 2100, a global loss of income of between 0.2 and 2% is nothing at all. And that's if we reach an equilibrium surface temperature 2.5° centigrade higher than the 19th century baseline.  You might be asking how global GDP can be growing and growing while a warming Earth spawns ever more frequent and destructive extreme weather events. Here's the beginning of an answer.First, economists view destruction or alteration of natural ecosystems as external costs (i.e., as externalities), meaning that they are simply not counted in the measurements (like GDP) of the size of human economies (and see below). This text is taken from IPCC report downplays economic impacts of climate change, reviewer says.

Most Extreme Weather 'Virtually Impossible' Without Man-Made Warming -- Extreme weather systems wreaking havoc across the world would have been "virtually impossible" without man-made climate change, says a report released Monday by the UN's World Meteorological Organization (WMO). The Statement on the Status of the Global Climate in 2013, which is released annually by the WMO, also reports this year that the world has unequivocally warmed dramatically over the last one hundred years and continues to heat up. According to the report, 13 of the 14 warmest years on record all occurred in the 21st century. 2013 was the sixth warmest year on record, in a tie with 2007. Over the last 30 years, each decade has been warmer than the last, "culminating with 2001-2010 as the warmest decade on record," said the WMO. While natural disasters would occur regardless of climate change and have been historically exacerbated my natural changes in weather patterns, this human-induced warming is quickly magnifying those events and making them far worse than they would have been without anthropogenic causes, explained Michel Jarraud, secretary general of the WMO. "Many of the extreme events of 2013 were consistent with what we would expect as a result of human-induced climate change," Jarraud said. "We saw heavier precipitation, more intense heat, and more damage from storm surges and coastal flooding as a result of sea level rise — as Typhoon Haiyan so tragically demonstrated in the Philippines."

13 of 14 warmest years on record occurred in 21st century - Publishing its annual climate report, the UN's World Meteorological Organisation said that last year continued a long-term warming trend, with the hottest year ever in Australia and floods, droughts and extreme weather elsewhere around the world.  Michel Jarraud, the WMO's secretary-general, also said there had been no 'pause' in global warming, as has been alleged by climate change sceptics. “There is no standstill in global warming,” Jarraud said. 2001-2010 was the warmest decade on record, the WMO noted, and added that the last three decades had been warmer than the previous one. The WMO reiterated its earlier finding that 2013 was the sixth warmest on record, with temperatures 0.5C above the long-term average (1961-1990). The southern hemisphere was particularly warm, its report said, with Argentina experiencing its second warmest year on record and New Zealand its third warmest.  Arctic sea ice in 2013 did not reach the record lows seen in 2012 for minimum extent in the summer, but was at the sixth lowest on record. The WMO noted all seven of the lowest Arctic sea-ice extents took place in the past seven years, starting with 2007, which scientists were "stunned" by at the time. "Many of the extreme events of 2013 were consistent with what we would expect as a result of human-induced climate change. We saw heavier precipitation, more intense heat, and more damage from storm surges and coastal flooding as a result of sea level rise – as typhoon Haiyan so tragically demonstrated in the Philippines,"

Global warming to hit Asia hardest -- People in coastal regions of Asia, particularly those living in cities, could face some of the worst effects of global warming, climate experts will warn this week. Hundreds of millions of people are likely to lose their homes as flooding, famine and rising sea levels sweep the region, one of the most vulnerable on Earth to the impact of global warming, the UN states. The report – Climate Change 2014: Impacts, Adaptation and Vulnerability – makes it clear that for the first half of this century countries such as the UK will avoid the worst impacts of climate change, triggered by rising carbon dioxide levels in the atmosphere. By contrast, people living in developing countries in low altitudes, particularly those along the coast of Asia, will suffer the most, especially those living in crowded cities. A final draft of the report, seen by the Observer, will be debated by a panel of scientists set up by the Intergovernmental Panel on Climate Change (IPCC) this week at a meeting in Yokohama, Japan, and will form a key part of the IPCC's fifth assessment report on global warming, whose other sections will be published later this year. According to the scientists who have written the draft report, hundreds of millions of people will be affected by coastal flooding and land loss as global temperatures rise, ice caps melt and sea levels rise. "The majority of it will be in east, south-east and south Asia. Some small island states are expected to face very high impacts." In addition, the report warns that cities also face particular problems. "Heat stress, extreme precipitation, inland and coastal flooding, as well as drought and water scarcity, pose risks in urban areas with risks amplified for those lacking essential infrastructure and services or living in exposed areas." The report adds that this latter forecast is made with very high confidence. In addition, climate change will slow down economic growth, further erode food security and trigger new poverty traps, particularly "in urban areas and emerging hot spots of hunger," it is argued.

Climate change is putting world at risk of irreversible changes, scientists warn -- The world is at growing risk of “abrupt, unpredictable and potentially irreversible changes” because of a warming climate, America’s premier scientific society warned on Tuesday. In a rare intervention into a policy debate, the American Association for the Advancement of Science urged Americans to act swiftly to reduce greenhouse gas emissions – and lower the risks of leaving a climate catastrophe for future generations. “As scientists, it is not our role to tell people what they should do,” the AAAS said in a new report, What we know. “But we consider it our responsibility as professionals to ensure, to the best of our ability, that people understand what we know: human-caused climate change is happening, we face risks of abrupt, unpredictable and potentially irreversible changes, and responding now will lower the risks and costs of taking action.”

The Pacific Ocean Is Turning Sour Much Faster Than Expected, Study Shows - It’s common knowledge among the scientific community that climate change will eventually acidify the oceans and turn them sour. What’s less common knowledge is when exactly it will happen. In the tropical Pacific Ocean, however, the answers are getting a little clearer — and they’re not pretty. According to a study released by the National Oceanic and Atmospheric Administration (NOAA) and University of Washington scientists on Wednesday, the amount of carbon dioxide in the tropical Pacific has increased much faster than expected over the past 14 years, making that part of the ocean much more acidic than previously believed.  “We assume that most of the carbon dioxide increase [in the tropical Pacific] is due to anthropogenic CO2,” Adrienne Sutton, a research scientist with NOAA’s Joint Institute for the Study of the Atmosphere and Ocean at the University of Washington, told E&E News. In other words, scientists say their results show that much of the increase in carbon dioxide concentrations can be attributed to human-caused climate change. This is because, while the amount of CO2 in the atmosphere increases at a rate of about 2 parts per million (ppm) per year, parts of the tropical Pacific saw an increase in CO2 concentrations of up to 3.3 ppm per year. NOAA’s study monitored CO2 levels at seven buoys in the tropical Pacific, starting in 1998. “It was a big surprise. We were not expecting to see rates that strong,”

The Puzzles Involving Sea Ice at the Poles - Arctic sea ice is melting faster than had been foreseen just a few decades ago. Antarctic sea ice is increasing as time goes by, though questions have recently been raised about the accuracy of the data and whether the trend is as large as generally thought. These aren’t the only surprises happening in the climate system — indeed, the current “hiatus” in surface temperatures is one surprise few had foreseen, one that this time happens to be in humanity’s favor — but these three are among the most prominent. The immediate availability of the previous day’s measurements of Arctic and Antarctic sea ice extent is perhaps akin to a horse race, but the phenomena will be unfolding over decades and even centuries. There is no inherent reason that the Arctic and Antarctic should react similarly in a changing climate. Besides greenhouse gases, sea ice is affected also by changes in winds and ocean currents. In addition, the two regions have fundamentally different geographies: the Arctic is a large ocean mostly surrounded by land, and the Antarctic a large land mass surrounded by ocean. In the Arctic, amplified warming is expected as the highly reflective sea ice melts and as the darker ocean water absorbs more heat (the “ice-albedo effect”), and these developments have been observed over the last several decades:

Antarctic Ice Loss Accelerating (also Greenland) - Peter Sinclair: More evidence that the Antarctic Sheet is waking up.  — Six massive glaciers in West Antarctica are moving faster than they did 40 years ago, causing more ice to discharge into the ocean and global sea level to rise, according to new research.  The amount of ice draining collectively from those half-dozen glaciers increased by 77 percent from 1973 to 2013, scientists report this month in Geophysical Research Letters, a journal of the American Geophysical Union. Pine Island Glacier, the most active of the studied glaciers, has accelerated by 75% in 40 years, according to the paper. Thwaites Glacier, the widest glacier, started to accelerate in 2006, following a decade of stability. Here, video from December with several scientist’s views on accelerating ice sheets, and what the Earth’s history says about ice. The study is the first to look at the ice coming off the six most active West Antarctic glaciers over such an extended time period, said Jeremie Mouginot, a glaciologist at University of California-Irvine (UC-Irvine) who co-authored the paper. Almost 10% of the world’s sea-level rise per year comes from just these six glaciers, he said. “What we found was a sustained increase in ice discharge—which has a significant impact on sea level rise,” he said. The researchers studied the Pine Island, Thwaites, Haynes, Smith, Pope and Kohler glaciers, all of which discharge ice into a vast bay known as the Amundsen Sea Embayment in West Antarctica. Below left, A satellite image of Pine Island Glacier shows an 18-mile-long crack across the glacier. Above, NASA video discussing increased mass loss from Pine Island Glacier, the soft underbelly of the West Antarctic ice sheet.

Record early CO2 above 400 ppm at Mauna Loa, report Boulder scientists - Carbon dioxide levels at the National Oceanic and Atmospheric Administration's Mauna Loa Observatory in Hawaii and analyzed in Boulder have reached a disturbing benchmark earlier than last year and have done so for several days running, scientists said. The readings hit 400 parts per million for CO2 every day from Sunday through Thursday. That is a level recorded at that observatory for the first time only last year — and in 2013, it was not reached until May 19. The levels of CO2 in the Earth's atmosphere move in seasonal swings, typically peaking in May and hitting their low point in September. "Each year it creeps up," said Jim Butler, director of the global monitoring division at NOAA. "Eventually, we'll see where it isn't below 400 parts per million anywhere in the world. We're on our way to doing that." Pieter Tans, chief scientist in NOAA's global monitoring division, said, "This problem could become much worse. The climate change we see at this point is just beginning." Mauna Loa has been a premier atmospheric research facility, continuously monitoring and collecting data related to atmospheric change since the 1950s. The undisturbed air, remote location and minimal influences of vegetation and human activity there are considered ideal for monitoring particulates in the atmosphere that can cause climate change.

Top CO2 polluters and highest per capita (list) The biggest absolute emissions come from China, and the United States. In terms of CO2 emissions per capita, China is ranked only ranked 55th, at 6.2 metric tonnes per capita. The US is 8th at 17.6 per capita. India is the third highest country in terms of absolute emissions, but 127th in terms of per capita output with 1.7 metric tonnes per capita. Why don’t countries use the carbon tax?

  • Taxes are generally politically unpopular. A tax on carbon emissions will affect the living costs of many people. This can make the government reluctant to impose the tax.
  • There is also the free rider problem. A small country may think – what is the point in introducing carbon tax when their CO2 emissions are dwarfed by other countries like China and the US? Especially, when these bigger countries don’t seem inclined to do too much about the issue.
  • There is also differing opinions about the potential cost of CO2 emissions to the environment. In the US, there is a strong lobby which argues global warming is not scientifically proven. Therefore, there is a resistance to impeded CO2 emissions.
  • Another factor is that there are significant vested interests in the oil industry / other industries which pollute. They fear CO2 tax will reduce their profitability so they are willing to fight against moves to introduce taxes.
  • Another argument used is that a Carbon tax will harm jobs.

Big Climate Report: Warming Is Big Risk For People  -- "The polar bear is us," says Patricia Romero Lankao of the federally financed National Center for Atmospheric Research in Boulder, Colo., referring to the first species to be listed as threatened by global warming due to melting sea ice.She will be among the more than 60 scientists in Japan to finish writing a massive and authoritative report on the impacts of global warming. With representatives from about 100 governments at this week's meeting of the Intergovernmental Panel on Climate Change, they'll wrap up a summary that tells world leaders how bad the problem is.The key message from leaked drafts and interviews with the authors and other scientists: The big risks and overall effects of global warming are far more immediate and local than scientists once thought. It's not just about melting ice, threatened animals and plants. It's about the human problems of hunger, disease, drought, flooding, refugees and war, becoming worse.The report says scientists have already observed many changes from warming, such as an increase in heat waves in North America, Europe, Africa and Asia. Severe floods, such as the one that displaced 90,000 people in Mozambique in 2008, are now more common in Africa and Australia. Europe and North America are getting more intense downpours that can be damaging. Melting ice in the Arctic is not only affecting the polar bear, but already changing the culture and livelihoods of indigenous people in northern Canada.

Facing Rising Seas, Bangladesh Confronts the Consequences of Climate Change - Though Bangladesh has contributed little to industrial air pollution, other kinds of environmental degradation have left it especially vulnerable.Bangladesh relies almost entirely on groundwater for drinking supplies because the rivers are so polluted. The resultant pumping causes the land to settle. So as sea levels are rising, Bangladesh’s cities are sinking, increasing the risks of flooding. Poorly constructed sea walls compound the problem.The country’s climate scientists and politicians have come to agree that by 2050, rising sea levels will inundate some 17 percent of the land and displace about 18 million people, Dr. Rahman said. Bangladeshis have already started to move away from the lowest-lying villages in the river deltas of the Bay of Bengal, scientists in Bangladesh say. Dr. Rahman’s research group has made a rough estimate from small surveys that as many as 1.5 million of the five million slum inhabitants in Dhaka, the capital, moved from villages near the Bay of Bengal.The slums that greet them in Dhaka are also built on low-lying land, making them almost as vulnerable to being inundated as the land villagers left behind.  Rising seas are increasingly intruding into rivers, turning fresh water brackish. Even routine flooding then leaves behind salt deposits that can render land barren. Making matters worse, much of what the Bangladeshi government is doing to stave off the coming deluge — raising levees, dredging canals, pumping water — deepens the threat of inundation in the long term,  Dr. Pethick found that high tides in Bangladesh were rising 10 times faster than the global average. He predicted that seas in Bangladesh could rise as much as 13 feet by 2100, four times the global average. In an area where land is often a thin brown line between sky and river — nearly a quarter of Bangladesh is less than seven feet above sea level — such an increase would have dire consequences, Dr. Pethick said.

Climate Forecast: Muting the Alarm - The United Nations' Intergovernmental Panel on Climate Change will shortly publish the second part of its latest report, on the likely impact of climate change. Government representatives are meeting with scientists in Japan to sex up—sorry, rewrite—a summary of the scientists' accounts of storms, droughts and diseases to come. But the actual report, known as AR5-WGII, is less frightening than its predecessor seven years ago.  According to leaks, this time the full report is much more cautious and vague about worsening cyclones, changes in rainfall, climate-change refugees, and the overall cost of global warming. It puts the overall cost at less than 2% of GDP for a 2.5 degrees Centigrade (or 4.5 degrees Fahrenheit) temperature increase during this century. This is vastly less than the much heralded prediction of Lord Stern, who said climate change would cost 5%-20% of world GDP in his influential 2006 report for the British government. The forthcoming report apparently admits that climate change has extinguished no species so far and expresses "very little confidence" that it will do so. There is new emphasis that climate change is not the only environmental problem that matters and on adapting to it rather than preventing it. Yet the report still assumes 70% more warming by the last decades of this century than the best science now suggests. This is because of an overreliance on models rather than on data in the first section of the IPCC report—on physical science—that was published in September 2013.

The Death Of "Climate Exceptionalism" - Human psychology is an astonishing thing to behold. For all sorts of reasons I don't want to get into today, the simple rule of thumb says—You can only tell humans what they want to hear. If you try to give them some Bad News, they won't (can't) listen. If you tell them stuff they want to hear, they applaud wildly and then go off and continue doing the stuff which makes the news bad. Nothing changes with humans. A forthcoming IPCC report on climate change impacts beautifully illustrates this simple rule. Those who have seen the almost-final draft have been telling us what it contains. On Yale's Environment 360 website, Fred Pearce gives us the skinny in New UN Report Is Cautious On Making Climate Predictions. What some call "climate exceptionalism" — the idea that climate change is something of an entirely different order to other threats faced by the world — has been rooted out. Here climate change is painted as pervasive, since nobody can avoid it wholly, but as usually only one among many pressures, especially on the poor."Climate exceptionalism" has been rooted out. Our warming climate and, by extension, the extraordinary risk to marine ecosystems due to ocean acidification and many other factors, is now merely one more problem among many (urbanization, poverty, social inequality, etc.). There's nothing special about anthropogenic climate change anymore. Indeed, the IPCC finds that climate change poses no substantial economic risk to our ever-growing global economy.

Renewables Aren’t Enough. Clean Coal Is the Future -Dependence on coal is not just a Chinese problem, though. Countries around the world—even European nations that tout their environmental track records—have found themselves unable to wean themselves from coal. Germany, though often celebrated for its embrace of solar and wind energy, not only gets more than half its power from coal but opened more coal-fired power plants in 2013 than in any year in the past two decades. In neighboring Poland, 86 percent of the electricity is generated from coal. South Africa, Israel, Australia, Indonesia—all are ever more dependent on coal. (The US is a partial exception: Coal’s share of American electricity fell from 49 percent in 2007 to 39 percent in 2013, largely because fracking has cut the price of natural gas, a competing fuel. But critics note, accurately, that US coal exports have hit record highs; an ever-increasing share of European and Asian coal is red, white, and blue.) According to the World Resources Institute, an environmental research group, almost 1,200 big new coal facilities in 59 countries are proposed for construction. The soaring use of coal, a joint statement by climate scientists warned in November, is leading the world toward “an outcome that can only be described as catastrophic.” GreenGen is one of the world’s most advanced attempts to develop a technology known as carbon capture and storage. Conceptually speaking, CCS is simple: Industries burn just as much coal as before but remove all the pollutants. In addition to scrubbing out ash and soot, now standard practice at many big plants, they separate out the carbon dioxide and pump it underground, where it can be stored for thousands of years.

Asahi  Poll: 59% oppose restart of nuclear reactors - -- A majority of respondents continue to oppose bringing idle nuclear reactors back online, despite moves by the Abe administration to allow restarts as soon as this summer, according to an Asahi Shimbun poll. Fifty-nine percent of the respondents said they were opposed to the restart of nuclear power plants, outnumbering the 28 percent who said they supported the move, according to the nationwide telephone poll conducted March 15-16. The Asahi Shimbun randomly contacted 3,402 eligible voters, excluding some parts of Fukushima Prefecture, where the crippled Fukushima No. 1 nuclear power plant is located. It received 1,721 valid responses, or 51 percent of the total contacted. The newspaper asked the same question in previous surveys conducted in July, September last year and this January. In each of the past polls, 56 percent of the respondents opposed the restart of reactors. The latest survey revealed that 39 percent of men supported putting the reactors back online, while 51 percent were opposed. Sixty-six percent of women opposed the move, while 18 percent supported it. Regarding a nuclear phase-out plan, 77 percent said they supported one, while only 14 percent were opposed.

Beneath Cities, a Decaying Tangle of Gas Pipes -  It is a danger hidden beneath the streets of New York City, unseen and rarely noticed: 6,302 miles of pipes transporting natural gas. Leaks, like the one that is believed to have led to the explosion that killed eight people in East Harlem this month, are startlingly common, numbering in the thousands every year, federal records show. Consolidated Edison, whose pipes supplied the two buildings leveled by the explosion, had the highest rate of leaks in the country among natural gas operators whose networks totaled at least 100 miles, according to a New York Times analysis of records collected by the federal Department of Transportation for 2012, the most recent year data was available. The chief culprit, according to experts, is the perilous state of New York City’s underground network, one of the oldest in the country and a glaring example of America’s crumbling infrastructure. In 2012 alone, Con Edison and National Grid, the other distributor of natural gas in the city, reported 9,906 leaks in their combined systems, which serve the city and Westchester County. More than half of them were considered hazardous because of the dangers they posed to people or property, federal records show. (There are more than 1.2 million miles of gas main pipes across the country. Last year, gas distributors nationwide reported an average of 12 leaks per 100 miles of those pipes.)

How The U.S. Natural Gas Boom Just Caused More U.S. Coal Exports - Thanks to the natural gas boom, carbon dioxide emissions dropped in the United States. But those emissions savings were probably completely undone thanks to U.S. coal exports. That’s the finding from new research by CO2 Scorecard, which looked at how the U.S. coal industry increase its exports in order to deal with the rise of natural gas in the nation’s power market. Many, including the White House, have touted natural gas as a “bridge fuel” to renewable power, since burning it only releases about half the carbon emissions as coal. One problem with this argument is methane leaks, which could make natural gas every bit as bad as coal in terms of climate change. But even if the leaks aren’t an issue, the coal that natural gas replaces in the U.S. would need to stay in the ground for the climate to benefit. According to CO2 Scorecard, that didn’t happen. Instead, the coal just went to other countries. The researchers used data from the Energy Information Agency (EIA) to tease out how much coal-fired generation was displaced by natural gas versus other sources of electricity from 2007 to 2012. They then looked at how U.S. exports of coal behaved over the same period. From 2002 through 2006, those exports remained relatively steady. But then they spiked after 2007, following the arrival of America’s natural gas boom: Specifically, the researchers calculated that the rise of natural gas in America’s energy mix cut our carbon emissions by 86 million tons over that time period. But the spike in exports increased carbon emissions from U.S. coal burned abroad by around 149 million tons.

Checkmate for cheap unconventional gas - If you listen to the whisperings in the chancelleries of the great powers of Europe, or the musings of editorialists, US shale gas has become a key strategic asset in the chess game of global power. The US can move its gas castle to block the Russian knight from putting Europe in check . . . or whatever.  One would think this would put US natural gas exploration and production companies in a strong position, one made even stronger in the short term by a long, cold winter. Oh, and the tightening environmental restrictions on coal-fired power stations. It now seems that tighter emissions rules will lead to the shutdown of more than 60GW of coal-fired electric capacity by the end of next year. That would be about equal to peak electricity demand in the UK. Natural gas prices are up, and securities analysts are raising their price forecasts for this year and next. Wow. More shale gas fortunes, right? Well, no – not yet, anyway. The share prices of primarily gas-directed US exploration and production companies are not doing so well this year, at a time when the macro prospects could not be better. Not only are there more equity sellers than buyers, but the junk-rated US E&P companies are selling nearly 80 per cent less public debt this year than they were by the same time last year. Do natural gas investors and lenders know something other people do not? In the short term, as in the next year or so, yes, they do. It is going to take much longer, and require much more money, to get that unconventional gas produced than global strategists presume. Five years ago, investors and lenders were willing to believe any story about shale gas. Now the money people are probably more sceptical than they should be about the price prospects for natural gas, and the profits to be had from producing it. Essentially, the shale gas boom of the past decade turned a set of engineering advances into a property bubble, in which investors were selling development rights to each other, intermediated by the exploration and production companies. The E&P promoters were spending multiples of their operating cash flow on buying properties and drilling them to show more production, then selling more stock and more debt, etc. Eventually, the promoters could not pedal fast enough. After the (temporary) fall of Aubrey McClendon, the most visible promoter, and chief executive of Chesapeake Energy, the most visible shale gas company, the investment world backed away from shale, even as the political world embraced it.

Even Frackers Get the Blues  - After they’ve royally fracked up the place looking for a profitable gashole.  Oil and gas majors now cutting back in U.S. shale gas fields. Yesterday Chesapeake Energy, the second largest U.S. based oil and gas company, filed with the Securities and Exchange Commission to sell off its oilfield services unit which does the majority of the company’s oil and gas exploration, hydraulic fracking and drilling.  Stung with high costs and mired in more than $20 billion in debt on its U.S. shale operations, the company continues to sell off billions in its assets base as it struggles to right itself.  Its actions follow a developing trend of cutbacks, spin- offs, divestures and write downs for oil and gas majors operating in U.S. shale formations.  In the last 10 days, British Petroleum, Chevron, ExxonMobil and Royal Dutch Shell have all announced they will be spending less on oil and gas exploration in the U.S. Allen Brooks, Managing Director of Parks Paton Hoepfl & Brown, an independent Houston, Texas based investment banking firm, stated yesterday, “Chevron is the latest major oil company to implicitly declare that the oil industry has entered a new era – one marked by higher costs and more disciplined capital investment programs,”. Brooks further stated several of the majors have announced plans or are considering separating their North American shale gas operations into stand alone entities, possibly positioning their U.S. operations for sale over time.  These new directions by the oil and gas majors are acknowledgements their energy returns on energy investments are becoming increasingly difficult and hampering their profits despite the initial high expectations for U.S. shale formations over the last several years.

Shell’s Shale Sob Story  - Shell bought a bunch of fracking junk leases in the Marcellus. For billions. Not unlike Williams Exploration. Both of them evidently did not know that total potential gas volume is a function of the shale’s thickness . . and thick shale just ain’t there in Tioga County, Pa. A simple matter that even a retired aerospace systems engineer could have explained to them. A new analysis of the second half 2013 Pennsylvania Marcellus shale oil and gas production shows the vast majority of Royal Dutch Shell’s 630 wells are under performing compared to its peers. In northeast Tioga County, Shell’s wells are producing at less than half the rate of its area competitors.  Its more bad news for Shell as its new CEO Ben Van Beurden announced on Thursday the company would cut its spending in onshore U.S. operations by 20% and begin selling off assets. Van Beurdan stated, “Overall, we are working through the fundamental shake-up of the resources play portfolio and the way we operate,” Shell’s poor productivity results in the Pennsylvania Marcellus is also potentially bad news for the Corbett Administration which has been trying to close a deal with Shell to locate an ethane cracker plant in Monaca, Pennsylvania north of Pittsburgh.  Independent energy analyst Bill Powers commented on Shell’s Marcellus shale performance stating, “Given that Shell has already spent more than $9 billion dollars to get into the Marcellus and drill over 600 wells over the past few years, their production results must be considered extremely disappointing.   According to PA production data, Shell’s wells are less than half as productive as one of their major competitors in their area of the Marcellus. More importantly, Shell’s wells are likely to be uneconomic even with the recent rise in gas prices.” , “I do not believe that Shell will go forward with building an ethane cracker in Beaver County.   According to State data, natural gas liquids production is less than 10,000 barrels a day in Washington County and it is unclear how much ethane will be produced on a long-term basis.   Due to the size of the required investment by Shell and the long lead-time, it is easy to understand why the company would be uncomfortable making such a large commitment to the Marcellus given their weak results to date.”

Hundreds Of Fracking Wells In Pennsylvania Have Been Reported For Air And Water Violations --Hundreds of fracking wells in Pennsylvania have been reported for failures that could lead to air and water pollution, according to a new report. The report, which focused on fracking wells in the U.K. and Pennsylvania, looked at multiple datasets of wells in Pennsylvania to determine their rate of well failures. Researchers found that one-third of a dataset of 3,533 wells in the state had been reported for environmental violation notices between 2008 and 2011. These violations included surface water contamination, land spills, site restoration problems and well barrier failures, including four violations for well blowouts. Another dataset of 8,030 wells contained 506 reports for well barrier failures between 2005 and 2013. The researchers, who are based in the U.K., used this data on Pennsylvania to compare their safety to wells in the United Kingdom. They said there were many unknowns about the safety of fracking wells in the U.K., a finding that pointed to the need for more monitoring and safety precautions for the wells, especially as fracking expands in the country.  “In the UK, wells are monitored by well inspectors but there is no information in the public domain, so we don’t really know the full extent of well failures. There were unknowns we couldn’t get to the bottom of.”

Nervous Energy -- The San Antonio Valley is part of the Monterey Shale, a 1,750-square-mile patchwork of rock that the oil industry calls a potential energy bonanza. A 2011 U.S. government study estimated that the recoverable oil inside the shale far outstrips the reserves fueling the current booms in North Dakota and Texas. That oil is not easily obtained, though. Trapped inside the rock, it needs to be extracted by one of several modern technologies. The best known is hydraulic fracturing, nicknamed “fracking,” which entails drilling deep beneath the earth’s surface and horizontally across the rock, then pumping water, chemicals, and sand underground to fracture the shale and free up the fuel.  A recent study by the International Energy Agency predicted that the United States will become the world’s largest oil producer around 2020 and that North America will be a net oil exporter by 2030. But fracking and related activities have also been linked to water and air pollution, health problems ranging from asthma to low birth-weight babies, wildlife habitat disruption, and boomtown ills such as homelessness and crime. Environmental activists warn that these problems could plague California if the Monterey Shale is exploited. Paula, 71, is no activist. But she worries, in her measured way, that drilling the shale without a better understanding of the risks could jeopardize the San Antonio Valley’s most valuable resource. “What we have in that vineyard is dependent on water,” she says. “If our water is decimated, both in quality and quantity, we pretty much have no fallback position. Once the water is gone, you can’t reclaim it.”

How Many People Are Affected By Fracking? - Forbes: Working with a colleague at the Wall Street Journal, we set out to ask that exact question. The answer: At least 15.3 million Americans lived within a mile of a well that has been drilled since 2000. That is more people than live in Michigan or New York City. Here’s how we did it: we obtained data documenting the locations and drilling dates of more than 2.3 million wells in 11 states from DrillingInfo, a data provider to the oil industry, as well as the Ohio Department of Natural Resources. We figured out which wells were drilled after 2000 — and our data is good through the end of 2012, although a small percentage of the wells were drilled in 2013. We discarded well locations where we couldn’t determine when it had been drilled. Then we used Census block population data from 2000 and 2010. Here’s a link here to the top of my article: Energy Boom Put Wells in America’s Backyards – Russell Gold There’s a video also. For WSJ subscribers, there’s a link to the full article.

What the frack?  - With the state’s earthquake swarm and national exposure adding a heavy workload to the Oklahoma Geological Survey, a new colleague joined the once-solitary seismologist at the survey last month.  Amberlee Darold, who previously worked as a contracted geophysicist for the U.S. Naval Research Laboratory, was added to the University of Oklahoma-based state agency to conduct research with fellow seismologist Austin Holland.  Even having a second seismologist on the staff — which also includes scientists studying water, coal and other geological pursuits — hasn’t seemed to ease the workload.Darold admits she has no time available for anything other than “all the earthquake activity around us.” But Randy Keller, OGS director and OU professor who studies seismic data, could speak about the two seismologists’ research. “We have so many earthquakes, so just processing them and dealing with them is overwhelming,” Keller said. They’re currently studying potential reasons for the significant increase in Oklahoma quakes. Since 2009, the OGS finds seismic activity is 40 times higher than the previous 30 years. An EnergyWire analysis in December reports in the last four years, Oklahoma was No. 2 in the contiguous United States for earthquakes, with 10 percent of activity.

Fracking’s Earthquake Risks Push States to Collaborate - Several U.S. states are banding together to combat the mounting risks of earthquakes tied to the disposal of wastewater from hydraulic fracturing for natural gas. Regulators from Kansas, Texas, Oklahoma and Ohio met for the first time this month in Oklahoma City to exchange information on the man-made earthquakes and help states toughen their standards. “It was a very productive meeting, number one, because it gave the states the opportunity to get together and talk collectively about the public interest and the science,” Gerry Baker, who attended as associate executive director of the Interstate Oil and Gas Compact Commission, a group that represents energy-producing states, said in an interview. “It was a good start in coordinating efforts.” U.S. oil and gas production surged to a two-decade high last year as technological advances such as fracturing, or fracking, let drillers coax liquids from rock formations. The process, in which a mix of water and chemicals is shot into shale to free trapped gas and oil, also generates large volumes of wastewater. As fracking expanded to more fields, reports tied quakes to underground disposal wells from Texas to Ohio. Pumping fracking wastewater underground has been linked to a sixfold jump in quakes in the central U.S. from 2000 to 2011, according to the U.S. Geological Survey.

Viewpoints: Fracking boom could increase California’s earthquake risk - It destroyed more than a dozen homes, injured people and damaged a key highway. But the earthquake that struck near Prague, Okla., in 2011 didn’t just harm one community. This magnitude 5.7 quake shook up people’s peace of mind across the whole state, which was not known for seismic activity. That has changed: Oklahoma is now earthquake country, thanks to the oil and gas industry. A recent study from the U.S. Geological Survey found that the Prague quake appears to be tied to the proliferation of hydraulic fracturing, or fracking, in the state. In fact, scientific research is tying swarms of earthquakes across the country – from Ohio to Texas – to oil companies’ injection of wastewater from fracking into underground wells. Scientists have concluded that the injection of oil and gas wastewater can reduce the natural friction pinning faults in place and trigger earthquakes. And the risk is growing here in California, according to a new collaborative analysis by my organization – the Center for Biological Diversity – and Earthworks and Clean Water Action. Our report, “On Shaky Ground: Fracking, Acidizing, and Increased Earthquake Risk in California,” found that millions of Californians live in areas threatened by oil industry-induced earthquakes.

Jon Stewart Highlights Earthquakes, Chevron’s Pizza and Other ‘Benefits’ of Fracking  -- Examining the pure lunacy within the excuses of pro-fracking companies, politicians and advocates is the only way the practice's well-documented dangers could possibly make for a laughing matter.   Naturally, The Daily Show with Jon Stewart took advantage of this last night with a five-minute, satirical report on the "Benefits of Fracking." Of course, those benefits included the pizza coupons Chevron "awarded" to residents near the Dunkard, PA drilling explosion site earlier this year. Those type of gestures—along with the nosebleeds, dirty air and lack of clean water—surely must have led to Energy Makes America Great Executive Director Marita Noon telling Aasif Mandvi that fracking companies care and are "quite good at self-regulating or policing themselves."  Mandvi goes on to use a collage of news clips to chronicle a few "teeny, tiny snafus" like the fracking-related earthquakes, explosions and drilling accidents that have ravaged various areas of the country in recent years. Clearly, Stewart and Mandvi get it. We're not so sure about Noon. Check out the clip below:

How 11,000 Oil and Gas Wells Gave Utah Community More Ozone Pollution Than Los Angeles -- Clearly, there's no comparing the sparse population of Utah's Uintah Basin and that of the mega-metropolis within the Los Angeles basin. So, how could both places possibly have similar volatile organic compounds (VOCs) levels? Despite an area population of barely 30,000, Uintah County is home to a combined 11,200 oil- and gas-producing wells. Over time, their presence led to researchers' discovery that the area exceeded the U.S. Environmental Protection Agency's (EPA) eight-hour National Ambient Air Quality Standards (NAAQS) level for ozone pollutants for 39 days last winter, placing it above the Los Angeles Basin's typical summertime levels.  Those results were reported in Highly Elevated Atmospheric Levels of Volatile Organic Compounds in the Uintah Basin, Utah, a paper by a group of University of Colorado Boulder researchers like Detlev Helmig and Chelsea Thompson of the Institute of Arctic and Alpine Research. The paper made its way to this month's Environmental Science & Technology journal, published by the American Chemical Society (ACS).

North Dakota pipeline break leaks 34,000 gallons of crude near Alexander — Cleanup workers have contained about 34,000 gallons of crude that spewed from a broken oil pipeline in northwestern North Dakota, state health officials said Friday. North Dakota Water Quality Director Dennis Fewless said the breach occurred Thursday morning on Hiland Crude LLC's pipeline about 6 miles northeast of Alexander. A gasket on the above-ground pipeline appears to have failed near a compressor station, spewing about 800 barrels of crude, Fewless said. A barrel holds 42 gallons. Fewless said about half the oil migrated off the site but has been contained and no water sources are threatened. Hiland gave a lower estimate than state inspectors did for how much oil escaped the site, saying in a statement that "approximately 100 barrels of crude left the location, with an undetermined amount contained on location." The Enid, Okla.-based company said the environmental impact "is limited to contaminated soil, which is being removed from the site." On Friday afternoon, the smell of oil hung in the air as bulldozers loaded contaminated dirt into waiting trucks. The black-stained dirt was being taken to a nearby landfill, said Brady Espe, a health department inspector who was monitoring cleanup efforts at the site. The broken pipeline sent a mist of oil over a Hiland oil and gas facility, and pooled along the sides of a nearby dirt road, Espe said. Fewless said the cleanup likely will continue for a few days.

Texas Barge Collision Spills Up To 168,000 Gallons Of 'Sticky, Gooey, Thick, Tarry' Oil - A barge carrying 924,000 gallons of thick marine shipping oil collided with a ship near the Texas City dike on Saturday afternoon, spilling up to 168,000 gallons and forcing closures on the waterway. “This is an extremely serious spill,” Capt. Brian Penoyer of the U.S. Coast Guard told the Houston Chronicle. “It is a persistent oil.” The barge was being towed from Texas City to Bolivar carrying a substance called RMG 380, “a special bunker fuel oil often used in shipping that doesn’t evaporate easily.” As of 10 p.m. Saturday, the spill had not been contained and the Coast Guard was still investigating the collision. Thus far, Texas City Emergency Management said the dike and all parks on the water are closed until further notice and part of the Houston ship channel was closed to traffic, according to the Coast Guard. The Coast Guard “said officials were closely monitoring the spill area for health-threatening hydrogen sulfide and other dangerous gases that can be emitted by the spill,” the Houston Chronicle reported. Dangerous concentrations of the gases have not been detected but two of the six crew members on the tug were treated for exposure to fumes. Exposure to RMG 380 may cause respiratory tract, eye and skin irritation and the “vapor may contain hydrogen sulfide (H2S) gas which can be harmful or fatal if inhaled,” according to the Material Safety Data Sheet.

Crews Try to Contain Oil Spill in Galveston Bay -- A barge carrying nearly a million gallons of especially thick, sticky oil collided with a ship in Galveston Bay on Saturday, leaking an unknown amount of the fuel into the popular bird habitat as the peak of the migratory shorebird season was approaching. Booms were brought in to try to contain the spill, which the Coast Guard said was reported at around 12:30 p.m. by the captain of the 585-foot ship, Summer Wind. Coast Guard Lt. j.g. Kristopher Kidd said the spill hadn't been contained as of 10 p.m., and that the collision was still being investigated. The ship collided with a barge carrying 924,000 gallons of marine fuel oil, also known as special bunker, that was being towed by the vessel Miss Susan, the Coast Guard said. It didn't give an estimate of how much fuel had spilled into the bay, but there was a visible sheen of oil at the scene. Officials believe only one of the barge's tanks was breached, but that tank had a capacity of 168,000 gallons. "A large amount of that has been discharged," Kidd said. He said a plan was being developed to remove the remaining oil from the barge, but the removal had not begun. The barge was resting on the bottom of the channel, with part of it submerged. He said boom was being set up in the water to protect environmentally-sensitive areas and that people would be working through the night with infrared cameras to locate and skim the oil.

Houston Shipping Channels Shuttered for 3rd Day After Oil Spill: A late-night collision on March 22 between an oil barge and a cargo ship spilled 168,000 gallons of oil into the Galveston Bay in Houston Texas. The spill resulted in the closure of the Houston Ship Channel, which is responsible for servicing one-tenth of the nation’s refining capacity. As of Monday morning, the waterways remained closed as authorities tried to contain the spill.  The oil barge was carrying residual fuel oil, a heavier, more viscous, and dirtier form of oil. When the two ships collided, one of the barge’s tanks was ruptured, and began to leak. The other five tanks on board the ship did not leak and the oil was transferred to another ship.  The closure of the bay has trapped 43 ships in the Port of Houston, with another 38 waiting to come in. Houston is a major exit point for much of the oil and gas extracted in Texas, including fossil fuels from the booming shale regions in the Eagle Ford and Permian basins. ExxonMobil’s huge Baytown, TX refinery, the nation’s second largest, has thus far not had its operations affected. It has a refining capacity of 560,500 barrels per day. Marathon Petroleum Corp. also has an enormous refinery nearby on Galveston Bay, with a capacity of 451,000 bpd, along with a smaller 80,000 bpd refinery in Texas City. Marathon declined to comment on how the spill is affecting its operations.

Texas Oil Spill Expected to ‘Get Much Worse’ for Wildlife  -- The oil spill off the coast of Galveston, TX, has the potential to get a lot worse than previously expected. The 168,000 gallons of thick, sludgy fuel oil that escaped a barge—whose hull was breached after a collision with another ship—is proving extremely difficult to contain. As of yesterday morning, oil was reported as far as 12 miles from the site of the collision. [embed] [/embed]  From the start, wildlife experts have said this spill could not have been in a more sensitive spot in Galveston Bay. The area, particularly a Globally Important Bird Area called the Bolivar Flats, hosts huge numbers of migrating birds from a wide variety of species. The collision occurred in the Houston Shipping Channel. It has bird nesting and roosting sites on both of its banks. “We expect this to get much worse,” Jessica Jubin, a spokeswoman for the Houston Audubon Society, told the Houston Chronicle. Houston Audubon is the manager of the Bolivar Flats preserve. Experts are concerned the true toll of the spill will be known over a period of years, not days. It’s not just the location of the spill that has scientists worried. The spill is occurring at a really bad time. Tens of thousands of wintering birds are collecting in Galveston Bay, especially Bolivar Flats. Clean-up crews are in a race against time to keep the oil from reaching the shoreline and to keep birds out of harm’s way. Many shorebirds dive to catch fish to eat, during which they pass through potentially-oil-clogged water. And shorebirds are not the only species of concern. Birds that fish in open water, including pelicans, loons, grebes and many species of terns, ducks and gulls are at especially high risk. Although oil has begun to was ashore, it still seems to be concentrated in open water.

Texas Oil Spill Is Killing Birds, Threatening Fishing Industry  -- Ship traffic may have reopened on Galveston Bay after a collision between a ship and a barge spilled up to 168,000 gallons of fuel oil into the Gulf of Mexico Saturday, but the effects of the spill on wildlife are only just beginning to be understood. The spill, which dumped what one Texas official referred to as “sticky, gooey, thick, tarry” oil that doesn’t evaporate quickly into Galveston Bay, occurred about eight miles from the Bolivar Flats Shorebird Sanctuary, which attracts 50,000 to 70,000 shorebirds each year. March is right around spring migration for many species of birds, and other birds are still wintering at Bolivar Flats, so tens of thousands of birds are living at the sanctuary, which is designated a Globally Significant Important Bird Area. Cleanup crews are using cannon booms to try to deter birds away from oiled beaches, and so far, oil hasn’t washed up on Bolivar Flats, but birds that have come in contact with oil in the water or on other beaches have been landing there.  Houston Audubon Society volunteers have been tracking the oiled birds they see at Bolivar, and Jessica Jubin, development director at the Houston Audubon Society, told ThinkProgress that the group was “definitely seeing more” oiled birds now than when they first started the day after the spill. She said on Monday, volunteers cataloged 40 to 50 oiled birds at one spot at Bolivar Flats, and on Tuesday, they counted about 100 at the same site. On Wednesday, she said, the number increased to about 140, with most birds ranging from just a few spots of oil on them to half covered in oil.

Oil spills into Lake Michigan from BP refinery (Reuters) - An unknown amount of oil leaked from BP Plc's Whiting refinery in Indiana into Lake Michigan after a mechanical glitch on Monday afternoon, the company confirmed on Tuesday. The discharge had stopped, the leak was contained, and no injuries were reported, the London-based company said in a statement on Tuesday. As crews worked on the cleanup, the effect on Lake Michigan was not immediately clear. About 60 percent of the lake is covered in ice, according to the National Oceanic and Atmospheric Administration. BP laid down boom on the water to keep the leak from spreading and said the oil was confined to a cove between the refinery's wastewater treatment plant and a steel mill. The U.S. Environmental Protection Agency, the Coast Guard and state regulators were at the scene. Oil spills are not uncommon in the United States, where drilling is at an all-time high and energy production is on the rise. Still, Monday's spill will probably spur more environmental opposition to the Whiting refinery, which has been under local scrutiny for releasing pollutants into Lake Michigan.

BP Lake Michigan Oil Spill: Did Tar Sands Spill into the Great Lake? - Steve Horn: Is it conventional crude or tar sands? That is the question. And it's one with high stakes, to boot.  The BP Whiting refinery in Indiana spilled between 470 and 1228 gallons of oil (or is it tar sands?) into Lake Michigan on March 24, 2014, and four days later no one really knows for sure what type of crude it was. Most signs, however, point to tar sands.  The low-hanging fruit: the refinery was recently retooled as part of its “modernization project,” which will “provide Whiting with the capability of processing up to about 85% heavy crude, versus about 20% today.” The low-hanging fruit: the refinery was recently retooled as part of its “modernization project,” which will “provide Whiting with the capability of processing up to about 85% heavy crude, versus about 20% today.”As Natural Resources Defense Council (NRDC) Midwest Program Director Henry Henderson explained in a 2010 article, “heavy crude [is] code for tar sands.” Albeit, “heavy crude” is produced in places other than Alberta's tar sands, with Venezuela serving as the world's other tar sands-producing epicenter. So, in theory, if it's heavy crude that spilled into Lake Michigan, it could be from Venezuela.But in practice, the facts on the ground tell a different story. As a January 2014 article in Bloomberg outlined, the combination of the U.S. hydraulic fracturing (“fracking”) boom and the Canadian tar sands boom has brought U.S. imports of Venezuelan oil to 28-year lows. Which brings us to the next question: how does the Canadian “heavy crude” get to BP's Whiting refinery to begin with? Enter: Enbridge's Line 6A pipeline (includes maps)

Ohio Oil Spill: Mid-Valley Pipeline Leak Released More Than 20,000 Gallons Into Oak Glen Preserve: (AP) — Federal environmental officials now estimate more than 20,000 gallons of crude oil — double the initial estimates — leaked from a pipeline into a nature preserve in southwest Ohio. Meanwhile, Sunoco Logistics said Monday that the pipeline has been repaired and re-opened. Sunoco shut off the stretch of Mid-Valley Pipeline from Hebron, Ky., to Lima, Ohio, early March 18 after a leak was confirmed. Sunoco spokesman Jeff Shields said under a federally approved plan, a specially engineered clamp was placed on the 20-inch diameter pipeline, which had a 5-inch crack that leaked oil. The clamp was tested before oil flow resumed Sunday evening. Cleanup worked continued Monday, with officials at the site reporting that 35,000 gallons of oil/water mix had been collected so far, with some 17,000 gallons of that being crude oil. Sunoco Logistics and federal officials last week used a figure of 240 barrels, or 10,000 gallons, for the leak, but the U.S. EPA increased estimates to about 500 barrels, or some 21,000 gallons, in its latest site update. Shields said Sunoco is still evaluating the oil release totals. He said most of the company's response team remains at the site, and is coordinating with the federal Pipeline and Hazardous Materials Safety Administration and other authorities. "We will be working closely with them," he said, saying plans call for the section of the pipe that cracked to be cut out some time in coming months and sent away to a metallurgical engineering lab "for failure analysis." The 374-acre nature preserve in suburban Colerain Township is part of the Great Parks of Hamilton County system. Wildlife officials say animals including crawfish, salamanders and frogs have been affected by the oil, with a few found dead at the scene. Contaminated animals are being collected, cleaned and released, officials said, adding that colder weather, with freezing temperatures at night, has reduced the number of wildlife moving through the leak area.

Ohio Pipeline Spill Twice As Large As Original Estimate -- 20,000 gallons of crude oil spilled from a damaged pipeline into a nature reserve in southwest Ohio — double the initial estimates — according to officials with the U.S. Environmental Protection Agency. The leak was discovered by Gary Broughton as he was driving on March 17 and smelled a “fuel, oily smell,” the Cincinnati Enquirer reported. “It’s absolutely terrible,” Broughton told the 911 dispatcher. “It made me sick when I saw it.” The crude oil leached into the 374-acre Glen Oak Nature Preserve, 20 miles north of Cincinnati. Wildlife officials said thus far small animals have been impacted by the spill but thanks to the cold weather, fewer large animals are moving through the contaminated area.  The spill came from a five inch crack in the Mid-Valley Pipeline, running 1,000 miles from Texas to Michigan. On Monday, the pipeline operator, Sunoco Logistics, said the pipeline had been repaired and reopened. A company spokesman told the Associated Press that the cause of the spill is still under investigation.  Cleanup is likely to be time-consuming and expensive, as crews have had to build a road to get heavy machinery into the area and build a containment structure to attempt to keep spilled crude oil out of the nearby Great Miami River. Far from an isolated incident, the massive leak is “at least the third time in the last decade that oil has leaked in the Greater Cincinnati and Northern Kentucky region from this pipe” and “is the 40th incident since 2006 along the pipeline, which stretches 1,100 miles from Texas to Michigan,” according to the Cincinnati Enquirer, citing data from the Pipeline and Hazardous Materials Safety Administration (PHMSA).

A Week of Oil Spills - The past week has not been a good one for the oil industry. There have been several high profile oil spills across the U.S. The 168,000 gallon spill in the Galveston Bay in Texas was the worst, as it fouled the local waterways, shut down the Port of Houston for ship traffic, and threatened local wildlife. The Houston Ship Channel remained closed through Tuesday, March 25. Early reports suggested that the closure was not immediately affecting production at the enormous oil refineries nearby, but as the closure extended into a fourth day, ExxonMobil announced that it had reduced production rates at its Baytown facility. "A prolonged outage will result in refineries reducing their operating rates and some supply disruption," said Andy Lipow, President of Houston-based Lipow Oil Associates. Fortunately for those companies, it appeared that the channel was close to reopening as of Tuesday. Galveston Bay was not the only place with an oily mess on its hands. On March 18, a pipeline in southwest Ohio leaked 20,000 gallons of crude oil into a nature preserve, a volume that is twice as high as originally thought. The pipeline is part of a network that runs from Texas to Michigan. While the cause is still under investigation, Sunoco Logistics has since repaired the pipeline. On March 20, a pipeline in North Dakota broke and spilled 34,000 gallons of crude oil. North Dakota Water Quality Director Dennis Fewless said that the spill was being contained and no waterways were threatened. The rupture in the pipeline, which is owned by Hiland Crude LLC, occurred near Alexander, ND.  And on March 25, an unidentified quantity of oil leaked from BP’s massive Whiting refinery in Indiana. The oil was discharged into Lake Michigan. No injuries occurred and the leak was stopped. Favorable winds were keeping the oil at shore and cold weather eased containment. The refinery was recently upgraded to handle Canadian heavy crude.

Oil and gas industry loopholes in 7 major environmental laws -  The oil and gas industry is exempt from key provisions of seven major federal environmental laws -- allowing practices that would otherwise be illegal. Some exemptions date back decades. Others were adopted as recently as 2005.While states and tribes have tried to fill the gaps with their own rules and regulations, they vary widely in effectiveness and enforcement. Federal laws provide consistent standards that equally protect all Americans. That's why it's essential to reverse these federal loopholes: (details follow)

  • 1. The Safe Drinking Water Act (SDWA)
  • 2. The Clean Air Act (CAA).
  • 3. Clean Water Act (CWA)
  • 4. Resource Conservation and Recovery Act (RCRA)
  • 5. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA)
  • 6. National Environmental Policy Act (NEPA)
  • 7. The Toxic Release Inventory of EPCRA

Battle Begins Over Plan To Send Large Crude Oil Trains Through California Cities -- A company’s plan to send massive trains of crude oil through about about a dozen heavily populated California communities is starting to hit some roadblocks. On Tuesday, the City Council of Berkeley, California passed a resolution recommending strong action against Phillips 66, the company that recently filed a project proposal to bring 80-car trains of Canadian or North Dakotan oil to its refinery in Southern California. If approved, that project would have the capacity to transport trains carrying 2 million gallons of crude oil 250 times per year on tracks that are currently used for Amtrak commuter rail, traveling through communities in the Bay Area, Berkeley, and Oakland. It would be the first time crude oil could travel on trains through the Bay Area, the resolution said. “A crude train accident could occur anywhere along the transportation corridor,” the resolution states, citing the July derailment of a 72-car freight train carrying Bakken formation crude oil in Lac-Mégantic, Quebec that resulted in a 1.5 million gallon oil spill and the deaths of forty-seven people. Phillips 66′s proposed project intends to expand its Santa Maria Refinery, which currently processes crude oil that arrives via underground pipe from locations throughout California. But due to the decline in California’s crude oil production, Phillips 66 says it needs to look elsewhere for competitively priced oil. “These could include fields as far away as the Bakken field in North Dakota or Canada,” the company’s project description states.

Koch Brothers Are Largest Lease Holders in Alberta Tar Sands -  The largest lease holder in Canada’s oil sands is a subsidiary of Koch Industries, the conglomerate that is the source of the fortune owned by the controversial conservative political donors, Charles and David Koch. The Koch’s holdings in the tar sands were disclosed by Koch Cash, an activist group that analyzed mineral records of the Alberta government. The Koch subsidiary holds leases on at least 1.1 million acres in the northern Alberta oil sands, which span roughly 35 million acres; other industry experts estimate the total Koch holdings could be closer to 2 million acres. That puts Koch Industries ahead of energy heavyweights Royal Dutch Shell and Conoco Phillips, both of which lease significant acreage in the oil sands. Figure was reached by summing the acreage of all oil sands agreements purchased by Koch Oil Sands Operating ULC as listed in the Alberta government database.

BP Update: U.S. Chamber of Commerce or U.K. Chamber of Commerce? -- The U.S. Chamber of Commerce is expected to file an amicus brief on Monday in support of BP’s latest attempt to renege on its Settlement Agreement with individuals and businesses of the Gulf Coast. The U.S. Chamber is no friend of Gulf businesses and is not to be confused with the hundreds of legitimate local Chambers of Commerce that champion entrepreneurs. No, the U.S. Chamber is a puppet of very big business, which counts on the confusion involving its name to work against the interests of small business owners everywhere. Is it the “U.S.” or “U.K.” Chamber of Commerce? Members of the U.S. Chamber of Commerce should ask their leadership exactly who the organization represents – one massive British oil company convicted of multiple felonies? Or the tens of thousands of businesses of the United State of America? If the former, a name change to the U.K Chamber of Commerce seems in order.

Oil Limits and the Economy: One Story, Not Two -- The two big stories of our day are

  • (1) Our economic problems: The inability of economies to grow as rapidly as they would like, add as many jobs as they would like, and raise the standards of living of citizens as much as they would like. Associated with this slow economic growth is a continued need for ultra-low interest rates to keep economies of the developed world from slipping back into recession.
  • (2) Our oil related-problems: One part of the story relates to too little, so-called “peak oil,” and the need for substitutes for oil. Another part of the story relates to too much carbon released by burning fossil fuels, including oil, leading to climate change.

While the press treats these issues as separate stories, they are in fact very closely connected, related to the fact that we are reaching limits in many different directions simultaneously. The economy is the coordinating system that ties together all available resources, as well as the users of these resources. It does this almost magically, by figuring out what prices are needed to keep the system in balance—how much materials of which types are needed, given what consumers can afford to pay. The catch is that the economic system is not infinitely flexible. Energy use is very closely tied to economic growth. When energy consumption becomes slow-growing (or high-priced—which  is closely tied to slow-growing), it pulls back on economic growth. Job growth becomes more difficult, and governments find it difficult to get enough funding through tax revenue. This is the situation we have been experiencing for the last several years.

As Iraq’s Economy Gathers Pace, Headwinds Remain - Underpinned by rising oil production, war-ravaged Iraq’s economy is widely tipped to be one of the best performers in the Middle East this year. But amid the growing optimism, the International Monetary Fund reckons there’s still a few economic wrinkles that need to be ironed out. That was the conclusion of a staff visit to Amman earlier this week where an IMF team met with an Iraqi delegation that included the country’s acting minister of finance and acting central bank governor. The IMF predicts Iraq’s economy to grow by over 6% this year thanks largely to oil production of 3.2 million barrels per day (mbpd) and oil exports of 2.6 mbpd. That forecast looks modest given economists at Dubai-based Emirates NBD are penciling economic expansion of well over 8% for 2014. But such rapid levels of growth can’t paper over the other economic challenges Iraq is facing. “In 2013, lower than expected oil revenues and increased spending pressures—largely arising from the difficult security situation—weighed on the overall fiscal performance,” said Carlo Sdralevich, the IMF’s mission chief for Iraq. “As a result, the budget deficit rose to 6 percent of GDP for 2013, financed though the Development Fund for Iraq, which declined from over $18 billion to $6.5 billion in the course of the year.” Mr. Sdralevich went on to note that Iraq’s draft 2014 budget envisages large spending outlays reflecting new commitments for security, social assistance and pensions, and transfers to the provinces.

In new cold war, Russia can hit America where it hurts – on Iran - As Russia sped ahead with the annexation of Crimea and the US drew up more sanctions to punish Moscow, American and Russian officials were last week working side by side in Vienna as if unaffected by the unfolding drama of the new cold war. Emerging from a round of international negotiations with Iran on downsizing its nuclear ambitions, US officials expressed satisfaction that their Russian colleagues had acted constructively. Moscow, said a senior US official, had no interest in Iran obtaining a nuclear bomb or in an escalation in tensions in the Gulf. Moscow takes part in the Iran negotiations for its own interests, he noted, not those of the US. Yet, it would be wishful thinking to assume that if the crisis over Ukraine continues to deteriorate it will not seep through Russian policy towards the Middle East and affect Iran, primarily because that is where the US would be hurt most. Motivated by fierce nationalism and a deep sense of historic injustice, for which he blames the west, Russian president Vladimir Putin has been lashing out with little apparent regard for the consequences. If cornered, he will be tempted to use all the levers at his disposal to retaliate against western sanctions. “If you look at this rationally there no reason why Russians would want to undermine the [nuclear] talks in any way but . . . at this point you can’t count on him [Putin] making calculations of cost and benefit,” says Robert Einhorn, a former US negotiator with Iran. Despite Russian good behaviour in Vienna, Moscow’s representatives departed with a warning shot, with a senior official saying that Russia might have to use the nuclear talks “as an element in the game of raising the stakes”.

Ukraine needs energy supplies from the EU: PM - (Reuters) - Ukraine will need energy from the European Union to protect it from repercussions of its standoff with Russia, on which it depends for over half its oil and gas supplies, Prime Minister Arseny Yatseniuk said on Saturday. Yatseniuk's comments came a day after he signed a landmark association agreement with the EU, committing Ukraine to closer political and economic cooperation with the bloc. Speaking at a briefing in Kiev after talks with German Foreign Minister Frank-Walter Steinmeier, the prime minister said "we need reverse supplies of gas from the EU to ensure the energy security of Ukraine." Their talks included the possibility that Germany help Ukraine to modernize and strengthen its armed forces. Russia's annexation of Ukraine's Russian-majority region of Crimea has brought about the worst confrontation between Moscow and the West since the Cold War.

Ukraine Only Has Enough Gasoline For A Month - Nothing to see here, move along. While it appears the Russians are willing to pay the price of modest sanctions from the west to 'liberate' their fellow countrymen, the fallout from further tension with Ukraine could "boomerang" once again on the divided nation. As RBC Ukraine reports, the Minister of Energy and Coal Industry Yuriy Prodan said at a press conference today that "oil reserves will last for 28-29 days" in Ukraine. After that, the negotiation begins as Ukraine already owes billions for previously delivered gas - as Ukraine's natgas storage levels more than halved in the last 3 months.

Hot Air About American Gas Will Not Scare Putin - Calls are mounting for the US to export shale gas to Europe to help free the continent from Russian influence. Observers are right to focus on Moscow's energy leverage but they are prescribing the wrong response. The most useful thing that Europe could import is not American gas itself but the open economic model that has enabled the US natural gas industry to thrive. Europe buys nearly 30 per cent of its natural gas from Russia. This has led to concern that President Vladimir Putin might turn off a few taps to gain leverage in the confrontation with Ukraine. For now, these fears are overblown – among other things, Europe has a lot of natural gas in storage – but the fundamental worry is well founded. Yet US natural gas exports would do little to reduce Russian leverage. They cannot replace Russian gas in the current crisis since it will be more than a year until any US export terminals are built. Even once these facilities are up and running, the economics of sending shale gas to Europe are unlikely to make much sense. Once the cost of shipping is included, Russian gas is far cheaper; Moscow's share of the European market is not likely to change much. Instead, American gas will flow mainly to Asia.

Europe Doesn’t Need America’s Fracked Gas - Dean Baker -- In the wake of the Russian take over of Crimea, there have been a number of calls for weaning Europe from dependence on Russian natural gas. Some have suggested that Europe would abandon environmental restrictions on drilling for oil and gas to increase domestic production. To help, the U.S. would continue to massively increase production of oil and gas as well as its capacity to liquefy natural gas and transport it to Europe. The weaners seem to have the impression that this is yet another case in which the United States has to come to the rescue of those weak Europeans. Reality-based fans of arithmetic see matters differently. The reality is that Europe, especially Germany, has done a huge amount over the last two decades to reduce its consumption of fossil fuels, including natural gas, from Russia. The reduction in fossil fuel use swamps the impact of the drill-everywhere strategy in the United States. The idea that the United States can fill any significant portion of Europe’s need for natural gas with fracked gas and that this gas could available anytime soon, as hypothesized by some pundits, is simply not realistic. The amount of gas that the European Union imports from Russia is more than half of total U.S. production. It would take an enormous ramping up of natural gas production in the United States to be able to export any substantial amount to the EU without shortages leading to sharp jumps in price in the United States. That seems unlikely even if we decided to ignore all environmental considerations. Many of the new fields already have declining production, so it would take a huge increase in drilling to fill the gap and add capacity to allow for large-scale exports to the EU. In addition, we would have to increase our ability to liquefy and export natural gas. This can be done, but it takes time and money. One industry source put the full cost of constructing an export facility at $30 billion. This is money that could be recovered only through many years of exporting large volumes of natural gas. And these facilities would take years to build. Even in an optimistic scenario, large volumes of liquefied natural gas would probably not be heading to Europe until the end of the decade.

Why Exporting Natural Gas Isn’t A Simple Solution To The Russia Problem As the conflict between Russia and Ukraine continues with no end in sight, the search for actions that could weaken Russian President Vladimir Putin’s influence in the region has international leaders, members of Congress and numerous editorials calling for the U.S. to export liquefied natural gas (LNG) to Europe. The natural gas industry is predictably pleased. Experts, however, counter that exporting natural gas to Europe would be costly, time-consuming, environmentally risky and, in the end, unlikely to have a significant impact on Russia.  On Wednesday, the U.S. and EU issued a joint statement affirming their partnership and common interest in wielding energy resources as a diplomatic tool. “The situation in Ukraine proves the need to reinforce energy security in Europe, and we are considering new collaborative efforts to achieve this goal,” the statement reads. “We welcome the prospect of U.S. LNG exports in the future since additional global supplies will benefit Europe and other strategic partners.” “Expediting the approval of U.S. natural gas exports would send a clear signal that Russia’s energy stranglehold on Europe will not continue, and just as important, it would create more American jobs and help more Americans as they face the squeeze of not enough jobs and not enough increase in wages,” Speaker of the House John Boehner (R-OH) said at a Tuesday press conference. Several bills have been introduced in both the House and Senate to speed LNG exports, notably by rivals in the hotly contested Colorado Senate race, Sen. Mark Udall (D-CO) and Rep. Cory Gardner (R-CO).  The reality is a lot more complex. “While the prospect of U.S. energy exports could usefully reduce Russian energy export revenues, U.S. exports will not displace Russia from its dominant position in the European market; claiming otherwise reduces U.S. credibility,” Michael Levi, Senior Fellow at the Council on Foreign Relations, explained in testimony before the House Committee on Foreign Relations Wednesday.

Billionaire Sought by U.S. Holds Key to Putin Gas Cash -- A detained billionaire who made a fortune as a middleman in Russia’s murky gas trade with Ukraine may hold the key for U.S. lawmakers seeking harsher sanctions against President Vladimir Putin’s inner circle.  Ukrainian Dmitry Firtash, arrested in Vienna this month on an American warrant for bribery and other charges, may hand over a treasure trove of information about deals involving Russian state gas exporter OAO Gazprom that the U.S. would consider corrupt, said Mikhail Korchemkin, a former analyst for the Soviet Union’s Gas Ministry in Moscow and founder of Malvern, Pennsylvania-based East European Gas Analysis.  After Putin seized Ukraine’s southern Crimea region, a U.S. Senate panel approved a bill on emergency funding for the country that would widen the scope of sanctions to include any Russian involved in “significant” corruption.  “This law would enable the U.S. to go after any member of Putin’s entourage,” Masha Lipman, an analyst at the Carnegie Moscow Center, said by phone. “The point is to deepen the fractures within the Russian elite. The idea is to weaken Putin so he can be contained.”  President Barack Obama last week expanded financial sanctions to 20 more Russian officials, billionaires and a bank, including brothers Arkady and Boris Rotenberg, who have joint investments with Firtash in Ukraine and Russia. The Rotenbergs’ companies received $7 billion of contracts for the Sochi Winter Olympics and are major suppliers to Gazprom.

Ukraine agrees to 50% gas price hike amid IMF talks: Ukraine's interim government says it will raise gas prices for domestic consumers by 50% in an effort to secure an International Monetary Fund (IMF) aid package. An official at Ukraine's Naftogaz state energy company said the price rise would take effect on 1 May, and further rises would be scheduled until 2018. Ukrainians are accustomed to buying gas at heavily subsidised rates. But the IMF has made subsidy reform a condition of its deal. Ukraine currently buys more than half of its natural gas from Russia's Gazprom, and then sells it on to consumers at below market prices. Yury Kolbushkin, budget and planning director at Naftogaz, told reporters that gas prices for district heating companies would also rise by 40% from 1 July. IMF negotiators are still in Kiev to negotiate a package of measures worth billions of dollars to help Ukraine's interim government plug its budget deficit and meet foreign loan repayments. The IMF is also asking Ukraine to crack down on corruption and end central bank support for the Ukrainian currency.

Ukraine Shocks Population With Staggered 100% Heating Price Increase While Restricting Cash Use -- In a TV address to his divided nation, Ukraine's PM Yatsenyuk stunned the people by first suggesting heating prices would rise gradually, then confirming a plan that will see prices rise 100% in the next 2 years (and almost 200% by 2017) as the cost of imported Russian gas is expected to be around $500 (up from the current $84). This standard of living crushing move was then followed by tougher capital controls, restricting cash purchases to around $1300 per person per day after the Central bank basically admitted "amid a tense situation in the money markets" it was broke. And all of this comes on the heels of what can only be described as a vague pro-forma comment by US and EU governments over the riots by the "Right Sector" ultranationalists that clearly did not want to upset the state-sponsored thugs too much.

Europe Seen Paying Twice as Much to Replace Russian Gas - Europe’s natural gas prices would have to double to lure enough cargoes from the global market to replace Russian supplies, adding to the challenges of decreasing the region’s dependence on its neighbor. Benchmark U.K. prices would need to rise 127 percent to attract liquefied natural gas if Europe had to replace all its Russian fuel for two summer months, according to Energy Aspects Ltd. in London. LNG, shipped by tanker from as far away as Australia, would be the main alternative to the regional pipelines filled by Russia. The European Union will announce a strategy by June for reducing its reliance on Russia, whose annexation of Crimea this month sparked the biggest regional crisis since the Cold War. The 28-nation bloc gets a third of its gas from Russia, mostly via Ukraine, at an annual cost of about $53 billion. The EU would need to pay as much as 50 percent more to replace that with a combination of LNG, Norwegian gas and coal, according to Bruegel, a research group in Brussels. “There will be high costs for a complete switch,” “Russia will continue to be an important supplier to Europe, but I do think the emphasis will be on diversifying capabilities anyway so that they can import other sources when needed.”

Potential Crackdown on Russia Risks Also Punishing Western Oil Companies - As the United States seeks to strengthen sanctions on Moscow for its occupation of Crimea, energy experts say the powerful Russian oil industry would make a robust target. But any penalties on energy investments, technology transfers and financial transactions would most likely also punish Western oil companies like Exxon Mobil that are investing heavily in Russia.“Everything is on the table,” said David L. Goldwyn, the State Department’s coordinator for international energy affairs during President Obama’s first term. “The calculus has to be who will be hurt most, us or them, if sanctions are put in place.”As the heart of the Russian economy, the energy sector — led by state oil companies like Gazprom, Lukoil and Rosneft — would be a natural focus for pressure from the United States and its allies. Oil and petroleum products represent more than two-thirds of Russian export earnings, and they finance just over half of the federal budget.  But the rub is that the interests of the Russian companies — many led by powerful allies of President Vladimir V. Putin — are increasingly entwined with those of American and European corporations, with which they share critical projects.

Forget Russia Dumping U.S. Treasuries … Here’s the REAL Economic Threat - Russia threatened to dump its U.S. treasuries if America imposed sanctions regarding Russia’s action in the Crimea. Zero Hedge argues that Russia has already done so.But veteran investor Jim Sinclair argues that Russia has a much scarier financial attack which Russia can use against the U.S. Specifically, Sinclair says that if Russia accepts payment for oil and gas in any currency other than the dollar – whether it’s gold, the Euro, the Ruble, the Rupee, or anything else – then the U.S. petrodollar system will collapse: Indeed, one of the main pillars for U.S. power is the petrodollar, and the U.S. is desperate for the dollar to maintain reserve status.  Some wise commentators have argued that recent U.S. wars have really been about keeping the rest of the world on the petrodollar standard.

The Hydraulic Fracturing of Saudi Arabia...- Since the early twentieth century, Saudi Arabia has enjoyed a close relationship with the United States. From the development of the Saudi oil fields,to the First Gulf War, this relationship has been an uneasy cooperation—each side received something out of the alliance while nervously watching the other.  So recently we have the first open break between the two powers culminating in the Saudi’s refusing a seat on the U.N Security Council due to anger with U.S. Middle Eastern policies. Saudi Arabia holds the world’s second largest oil reserves and the sixth largest natural gas fields.  In addition to being located in the most volatile part of the world, these energy assets make the country a strategic interest for any global power.  The discovery of vast hydrocarbon reserves in the United States and the ability to harvest them through hydraulic fracturing techniques has radically altered the relationship between the two countries.  Ironically, even though the Obama administration has reduced drilling on Federal lands in the US and attempted to curtail hydrocarbon use overall, it is fracking which has allowed the United States to nearly gain energy independence, become a net energy exporter again, and reduced the need to buy oil from the Middle East.  This shift in the balance of power with the Saudis has made the Kingdom extremely nervous. American policy adds to the Saudi’s concerns.  The Saudi oil fields, located in the eastern part of the country, are the home to the country’s Shia minority.  As the guardians of the holy Muslim sites, the royal family walks a fine line between satisfying the Sunni Ulema, fighting terrorism, and keeping the Shia population in check.  Hence, their concern with America’s recent overtures to Iran. It is foolish for America to offend and promote distrust with another ally in a long list of broken long-standing relationships.  These include Poland, United Kingdom, Israel, Egypt, etc.  One wonders whether the results of American diplomacy  stems from extreme incompetence or is evidence of a much darker agenda.

Obama seeks to reassure Saudi king on Iran nuke program, Syrian civil war - President Obama on Friday sought to allay Saudi concerns that Washington was disengaging from the Middle East's regional conflicts, reportedly telling 89-year-old King Abdullah that US interests broadly overlap with Riyadh's position on Iran and Syria. The Saudis have been concerned about a recent thaw in US-Iranian relations. Last fall, Washington agreed to ease some of its economic sanctions against Iran in exchange for Tehran rolling back its uranium enrichment. Riyadh has reportedly been worried that easing sanctions will ultimately embolden the Islamic Republic to act aggressively in the region. According to a senior White House official, Obama told Abdullah that the US "won't accept a bad deal and that the focus on the nuclear issue doesn't mean we are not concerned about, or very much focused on Iran's destabilizing activities in the region." Tehran is a supporter of the Shiite militia Hezbollah in Lebanon and the Sunni militant group Hamas in the Gaza Strip. "I think it was important to have the chance to come look him in the eye and explain how determined the president is to stop Iran from getting a nuclear weapon," the official told the Reuters news agency on the condition of anonymity.

A U.S.-Saudi Move to Lower Oil Prices to Hurt Russia? - Could the U.S. unleash a flood of oil from the strategic petroleum reserve that would drive down prices in order to punish Russia? While the idea has been kicked around over the last few weeks – most recently by George Soros – it has also been dismissed as not a serious option. Some say the impact of an oil sale, if it actually succeeded in lower prices, would be temporary. Saudi Arabia could cut back on production to keep oil prices at their current levels. Others decried the idea as contrary to the objective of the SPR, which has been setup to be used only in cases of emergency. However, over at Quartz, Steve LeVine wrote an interesting article about the possibility of a coordinated response between the U.S. and Saudi Arabia that could have a much broader impact on oil markets. President Obama is, after all, meeting with the Saudi King on March 28. Ukraine is certainly going to come up in their discussions – his time in Europe was dominated by coordinating a response to Russia, despite the original intention of the trip to discuss nuclear security. LeVine argues that it is possible that the U.S. could sustain a sale of 500,000 to 750,000 barrels of oil per day from the SPR. If the U.S. coordinated with the Saudis to ensure that they did not cut back production – indeed, they could even step up production from 9.7 million bpd – the greater supplies could slash prices almost immediately. Russia gets about 70% of its export revenue from oil and gas, so even a modest drop would be a significant blow. A former Ford and Carter administration official believes a U.S. SPR release could lower oil prices by $12 per barrel, potentially costing Russia $40 billion in lost revenue.

Putin's unhindered advance won't go unnoticed in China -  China is claiming hundreds of islands and reefs, along with millions of square kilometers of ocean, from Japan, the Philippines, Malaysia and Vietnam. It also claims most of the Indian state of Arunachal Pradesh. For the countries resisting Chinese demands, events in Ukraine cannot be reassuring. It is already clear that Russian President Vladimir Putin will achieve his aim of changing the borders -- and will not be satisfied with just the region of Crimea. Putin's plan is to separate all the territory east of the Dnieper River into a new state, "Novy Russia," that could become the Russian Federation's 22nd republic. This territory on the east bank of the Dnieper is many times larger than the Transnistria ministate Russia seized from the Republic of Moldova. Transnistria is also separated from Russia proper, while Novy Russia would seamlessly extend Russian territory down to the Black Sea, including Crimea. Given the advance warning -- all the detailed planning, down to the design of a Novy Russia flag, could not be kept secret -- the failure to anticipate Putin's move or at least react effectively is very disappointing. First came the empty words: European prime ministers all seemed to use the same speechwriter, because they all said the seizure of Crimea was "unacceptable." Then, by ruling out any counter-move, they made it clear they would, in fact, accept it.

Asia to unite for stable gas supply: Asian buyers of liquefied natural gas (LNG) will join forces to secure gas in the rapidly-growing Asian market, regional energy experts said in Korea, Monday. Energy executives from Korea, China and Japan discussed ways to meet growing demand for gas in the region and to diversify suppliers. They shared views on demand-side issues during the morning session of the 27th Gastech Conference. Shigeru Muraki, chief executive of the Energy Solution Division at Tokyo Gas, said diversification of supply sources will help change the landscape of the Asian gas market. As Asian countries are heavily dependent on gas imports, they are fully exposed to external uncertainties mainly related to prices and supplies. Japan and Korea are the world’s two biggest importers of LNG. “A number of LNG projects in the U.S., Canada, Mozambique and East Siberia will come on stream during the next decade. Huge resources in East Siberia will be delivered to markets by both pipelines to the Northeast Asian market and LNG to the Asia Pacific market,” Muraki said during the panel discussion. He argued that pipeline supply could be the most viable option given the geopolitical factors in the locations of Russian gas sources in East Siberia and Sakhalin, and gas markets in Northeast Asia.

China Takes Sides: Sues Ukraine For $3bn Loan Repayment -  It is widely known that Russia is owed billions by Ukraine for already-delivered gas (as we noted earlier, leaving Gazprom among the most powerful players in this game). It is less widely know that Russia also hold $3b of UK law bonds which, as we explained in detail here, are callable upon certain covenants that any IMF (or US) loan bailout will trigger. Russia has 'quasi' promised not to call those loans. It is, until now, hardly known at all (it would seem) that China is also owed $3bn, it claims, for loans made for future grain delivery to China. It would seem clear from this action on which side of the 'sanctions' fence China is sitting.

WTO Finds Chinese Rare Earth Export Restrictions in Violation of International Trade Law -- A World Trade Organization panel determined on Wednesday that China was in contravention of international trade law over its export restrictions on rare earth elements and other raw materials. These materials are used across a host of international industries for a variety of manufacturing purposes and the WTO found that Beijing’s use of export taxes, quotas, and bureaucratic delays effectively raised prices by creating an artificial shortage. The WTO panel’s formal conclusion was that “China’s export quotas were designed to achieve industrial policy goals.”China, in its defense, argued that the rare earth export restrictions were geared towards preserving its environment — the WTO’s decision did not acknowledge that. In response to the ruling, China was noticeably disappointed. ”As a responsible WTO member, we respect relevant rules. But we regret that and we will continue our efforts to protect the environment and natural resources, and maintain our rights to argue,” Zhang Anwen, vice secretary-general of the Chinese Society of Rare Earths, told China’s Global Times following the decision. The European trade commissioner, Karel De Gucht, said, “China cannot use export restrictions to protect its own industries or give them a helping hand on the global market at the expense of foreign competitors.” The WTO case was first filed by the United States in March 2012 and both Japan and the European Union came on board shortly afterwards. The United States remains almost entirely dependent on Chinese rare earth metals, so the case was particularly urgent for the U.S. government.

China Manufacturing Gauge Falls as Slowdown Deepens - China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5 percent growth target this year. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to 48.1, compared with the 48.7 median estimate of 22 analysts surveyed by Bloomberg News and February’s final 48.5 figure. Numbers above 50 signal expansion. Chinese stocks rebounded from initial losses on speculation that weakening growth will prompt policy makers to reconsider their aversion to broad stimulus measures. Leaders face a balancing act of reining in credit expansion that’s fueled the risk of loans going bad, while averting an economic slump that raises the odds of higher unemployment.

Copper & Yuan Tumble As China Manufacturing PMI Drops To Lowest In 8 Months, Output Plunges --HSBC's Flash China Manufacturing PMI printed at 48.1 (against a hope-strewn 48.7 bounce expectation). This is the lowest in 8 months and among the lowest prints since Lehman. Even the usually silver-lining-seeing HSBC Chief economist had little positive to add, "weakness is broad-based with domestic demand softening further."  From Markit/HSBC: “The HSBC Flash China Manufacturing PMI reading for March suggests that China’s growth momentum continued to slow down. Weakness is broadly-based  with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, aircleaning and public housing, and guiding lending rates lower.” Too bad Beijing overnight made it quite clear not to expect any big stimulus this year...

China Output Contracts at Quickest Pace in 18 Months - The HSBC Flash China Manufacturing PMI shows Output Contracts at Quickest Pace in 18 Months. The overall PMI index, new orders, and production were all lower. Key points:

  • Flash China Manufacturing PMI™ at 48.1 in March (48.5 in February). Eight-month low.
  • Flash China Manufacturing Output Index at 47.3 in March (48.8 in February). Eighteen-month low.
Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co - Head of Asian Economic Research at HSBC said: “The HSBC Flash China Manufacturing PMI reading for March suggests that China’s growth momentum continued to slow down. Weakness is broadly-based with domestic demand softening further. We expect Beijing to launch a series of policy measures to stabilize growth. Likely options include lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.” In the face of an explosion of credit, still growing imbalances, malinvestments, property and other bubbles, it is a mystery why anyone expects China to make efforts to "stabilize growth".

As China Slows Down, Is Stimulus in the Offing? -- China’s growth is slowing, with a preliminary gauge of the manufacturing sector reinforcing the picture of weakness. Monday’s flash purchasing managers index from HSBC fell to an eight-month low of 48.1 in March from February’s 48.5, with any figure below 50 showing a contraction in activity. Authorities have a number of levers at their disposal if they want to help the economy  along – and some experts think they’re already starting to pull them. Some analysts expect the People’s Bank of China to cut banks’ reserve requirements, freeing up funds that can be used for lending. Others think authorities will rely on the type of stimulus spending they’ve used in the past. China’s State Council, or Cabinet, pledged last week to “quickly push out already-decided measures to expand domestic demand and stabilize growth, accelerate preparatory work and construction on major investment projects, and quickly spend funds allocated in the budget.” Vague as that is, it suggests the government is considering a repeat of last summer, when it used a combination of faster infrastructure investment and a gentle loosening of monetary policy to reverse slowing growth.

China Affirms Yellen's "Six Month" Guidance, Says Not To Expect Any "Big Stimulus" Out Of Beijing - Apparently China did not get the memo that the Fed's apologists are furiously scrambling to packpedal on Yellen's "6 month" guidance in virtually all media outlets. The is the only way to explain why Vice Minister of Finance Zhu Guangyao said overnight that "the U.S. Federal Reserve will begin boosting interest rates within six months after exiting “unconventional” monetary policy, and that will have a “significant impact” on the U.S. and world economy, as Market News International reported earlier. Zhu told China Development Forum this weekend “we believe a the Fed meeting this October, the exit of their quantiative easing will complete." In other words while the spin for public and algo consumption is that the Fed will continue placating those long the stock market until everyone's price target on the S&P 500 is hit and everyone can comfortably sell into an ever-present bid, China is already looking for the exits. But while the end of QE appears a given, at least until the market realizes there is no handover to an economy that is a moribund as it has ever been in the past five years, and the Fed has no choice but to  untaper and return with an "even more QE" vengeance (it certainly won't be the first time - just recall the "end" of QE1, QE2, Op Twist, etc), a bigger question surrounds whether China, already sliding in credit contraction and suffering a plunging stock market with its housing sector also on the edge of a bubble bust, is about to take over from the Fed and proceed with its own stimulus program. The answer is no.

China poised to ramp up its stimulus policies: Signs that China's economy is coming off the boil are fuelling speculation that the country's government will step in with new stimulus measures and could even cut official interest rates. But any stimulus measures are expected to stop short of the massive economic "pump priming" undertaken by the country in 2008-09, when the central government announced a four trillion yuan package. "Can growth stabilise without a major change of policy stance? We believe it cannot, as tight labour market conditions suggest that potential growth has already dropped to around 7 per cent or below," analysts at Japanese broker Nomura said in a note. "From a cyclical perspective the cumulative policy tightening since mid-2013 will likely damage investment momentum in coming quarters unless the policy stance loosens." While the Chinese government has sought to pursue its long-term policy of reforming the country's economy and shifting it away from investment-led growth, Nomura said it could turn back to its short-term goals if, as expected, the growth target for this year is not reached.

China’s struggle for a new economy - What are the prospects for the Chinese economy? Few, if any, economic questions can be more important. I have just attended this year’s China Development Forum in Beijing, which brings western business leaders and scholars together with senior Chinese policy makers and academics, with this question very much in my mind. Outside China, pessimism has been growing about the ability of the colossus to sustain its rapid growth. Worriers are paying particular attention to excessive capacity, investment and debt. I share the view that making the transition to slower and more balanced growth is an extraordinarily hard challenge even by the standards of those China has already met. Yet betting against the success of Chinese policy makers has been a foolish wager. When a superb horse meets a new obstacle, the odds must be on the horse. But even the best horse may fall. Yang Weimin, a vice-minister in the government, laid out the country’s new “guidelines for comprehensively deepening reform” in an invaluable background paper. This notes several new conditions. First, China is an upper-middle-income country, with gross domestic product per head of $6,700. It is now tackling the rarely achieved task of becoming an advanced economy. Second, the international environment is less favourable than it used to be, partly because the high-income economies are so structurally weak and partly because the Chinese economy has become so much larger relative to all others. Third, the economy has itself changed. The potential growth rate has fallen to 7-8 per cent, partly because of a shrinking labour force; excess capacity has become massive even by Chinese standards; financial risks have risen, driven by excessive local authority borrowing, housing bubbles and growth of shadow banking; the country is now more than 50 per cent urbanised but its cities suffer a range of ills, including pollution. Finally, the resource-intensive growth pattern is hitting limits, notably of water, which is not a directly tradeable commodity.

China’s Rebalancing Should Start With a Safety Net - Faced with increasing signs that its old growth model is running out of steam, China’s government is keen to promote consumer spending as a new force in the economy. The only problem: Chinese households hate to consume. Instead, they squirrel their money away for a rainy day—not surprisingly, since pension provision is patchy and, in the absence of a decent insurance system, medical costs weigh heavily on the sick. “Without the safety net, all this central planning is going to fail,” said Stephen Roach. “You can move people, you can pay them more, you can give them better jobs, but if you don’t address these issues of financial insecurity, it won’t work.”Mr. Roach in a new book likens the world’s two largest economies to a couple trapped in an unhealthy marriage—the U.S. needs China’s savings, and China needs America’s consumers. Like many economists, he thinks a more balanced global economy requires a reversal of this lopsided relationship. Americans need to learn to save, and Chinese households need to start spending. Mr. Roach—a Wall Street veteran who was with Morgan Stanley for 30 years, with most of that time spent as chief economist—seems an unlikely advocate for the welfare state. But as an adviser to China’s government, that is exactly what he has been doing.“They know me as the guy who always pounds on this safety-net issue,” he said, adding that he thinks the government takes the idea seriously. A framework for reforms outlined in November during a once-in-a-decade meeting of top party leaders represents a significant step in the right direction, he said.

Default risks surge at China steel mills – survey  -- Chinese steel mills were suffering a medley of woes in mid-March as sales slowed, production levels slumped and profits plunged, according to an investment bank survey published on Tuesday that foreshadows the rising risk of debt defaults in the world’s largest steel producer. Macquarie Commodities Research, quoting a proprietary survey of Chinese steel mills and traders conducted in mid-March, found that large, medium and small steel mills were all enduring a contraction in orders compared to the same period in February, and profits had declined to historic lows.“Looking at profitability, it is clear why the smaller mills are making the largest cuts (in production) – for the first time in the history of the steel survey not one smaller mill reported that they are making money,” a Macquarie report on the survey said (see chart). Colin Hamilton, analyst at Macquarie Capital (Europe), said that March usually brought an improvement in the key metrics of steel orders, production levels and profits relative to February as the economy revs up following the Chinese new year holidays. This year, however, has been defined by the deepening gloom besetting the industry.

Furious Chinese Demand Money Back As Housing Bubble Pops - Hell hath no fury like a woman scorned or, it seems, like a Chinese real estate speculator who is losing money. After four years of talking (and not doing much) about cooling the hot-money speculation that is the Chinese real-estate bubble (mirroring the US equity market bubble since stock-ownership is low in China), the WSJ reports that the people are restless as the PBOC actually takes actions - and prices are falling. With new project prices down over 20%, 'homeowners' exclaim "return our hard-earned money" and "this is very unfair" - who could have seen this coming... "We aren't speculators. We just want an explanation from the developer," said one 35-year-old home buyer, who said he had bought an apartment and gave his surname as Wu. "This is very unfair." Unfair indeed. How long before we hear they are "entitled" to a fair return on their housing (non) speculation investment? Alas for China's "non-speculators", as we reported last week in "The Music Just Ended: "Wealthy" Chinese Are Liquidating Offshore Luxury Homes In Scramble For Cash" the real anger is only just beginning.

China has a little bank run - Hundreds of depositors have raced to pull their cash from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread.…But it has also been a localised event, contained to one farming county where lightly regulated credit co-operatives and loan guarantee companies failed this year after mismanaging funds. …With the panic reaching other branches of the bank, the government intervened on Wednesday. In a video posted on the local government’s website, the governor of Sheyang county promised depositors that their money was safe. Tian Weiyou, the governor, said that People’s Bank of China, the central bank, would protect depositors.  At least Rmb80m was wiped out in Sheyang county this year when credit co-operatives and loan guarantee companies closed suddenly. Zang Zhengzhi, chairman of Jiangsu Sheyang Rural Commercial Bank, blamed the bank run on worries sparked by these earlier collapses. “Because ordinary people here have been scammed by the credit guarantee companies, when they hear that the banks might also have problems, they come right away to pull their cash out,” he told state radio.

Central bank steps in to calm China bank run - Hundreds of depositors have raced to pull their cash from a small rural bank in eastern China, forcing local officials to take emergency measures to calm the panic after the bank run began to spread. Coming weeks after the first true default in the Chinese bond market, the run on Jiangsu Sheyang Rural Commercial Bank is the latest sign of growing stresses in the country’s financial system.  But it has also been a localised event, contained to one farming county where lightly regulated credit co-operatives and loan guarantee companies failed this year after mismanaging funds. Worried depositors rushed to Jiangsu Sheyang Rural Commercial Bank after rumours spread that it was on the verge of collapse, according to state media. The panic first hit the bank’s branch in an industrial park on Monday. On Tuesday, big queues of depositors gathered at its branches in at least three other villages in Sheyang county, according to the Xinhua news agency. The bank took steps to try to reassure people: photographs showed that the bank had prepared large bricklike stacks of renminbi to meet the demand for withdrawals; on the dot matrix sign outside one stricken branch, the bank promised to operate uninterrupted for 24 hours to serve people withdrawing money. At its doors, the bank broadcast a recorded message on repeat: “Savers’ deposits are protected by law. There is no situation in which we cannot meet cash withdrawal demands. Depositors must not listen to rumours and cause unnecessary panic.” But these measures failed to allay concerns. Crowds on Tuesday gathered in the rain outside the bank to withdraw cash.

China's Shadow Banking Malaise - Boone and Johnson - Some commentators have suggested that China could be facing a Lehman moment (or even a Greece or Spain moment) with some particularly Chinese characteristics. None of this sounds good, and some of it sounds downright scary. But much of the speculation also seems like a stretch, if not an exaggeration of the negative implications for both China and the global economy. There is a serious issue in China. Starting in 2009, to offset the potential effects of the global financial crisis, the government encouraged a huge credit boom. This credit was largely used to finance real estate construction and infrastructure, helping China grow 45 percent from the end of 2008 to 2013 (our data are from China’s official bureau of statistics). The numbers are staggering. Over the same period, the International Monetary Fund reports total financial sector financing outstanding (i.e., credit of all kind) rose to nearly 200 percent of gross domestic product at the end of the first quarter of 2013, from 125 percent of G.D.P. That is a $13 trillion increase in bank loans, bonds and various nonbank financing. This sum is three-quarters of annual United States G.D.P. The vast bulk of this increase, more than two-thirds of the total, was in nonbank financing — meaning credit that flowed through a financial institution other than a regulated bank. When credit booms end, there is often some kind of bust.  China is not going to experience a Lehman sort of crisis, at least not now. The most serious problem in China is that nonbank “shadow” banking, especially trust securities and various types of bonds, grew rapidly with insufficient oversight. For the most part, this represented an attempt to circumvent the interest-rate controls that made bank deposits unattractive.

China Rumored to be Shutting Down Bitcoin Sites; Why IRS Ruling that Bitcoin is Property is Fatal to Its Use in Commerce in the US -- Yves Smith - Bitcoin is getting hammered today. The Caixin website says it has seen the draft of a Chinese central bank ruling that would require banks and payment service providers to stop dealing in Bitcoin as of April 15. The implications:This means people will only be able to use cash to buy bitcoins, an analyst who has been following the matter said, and will force all trading websites in the country to close…The requirement, which Caixin saw in a document the central bank’s headquarters recently sent to regional offices, says money can be taken from the accounts before the deadline, but no deposits can be made. Banks that fail to close the accounts will be punished, the PBOC said, but it did not elaborate on what those punishments would be. And notice how the thinking of the Chinese authorities is similar to that of their counterparts in Japan and the US, albeit even more forceful: The circular said bitcoins are a commodity, not a currency. It added that investors are free to trade in bitcoins at their own risk, but should know they cannot be used as legal tender. This would be a serious blow, since roughly 60% of global Bitcoin trading occurs in China. Bitcoin prices fell by almost 10% today.

China Corruption Reporting Becoming Impossible; JPMorgan Banker In China Resigns Amidst Probe -- As the world watches Ukraine, the US establishment press pumps out pieces on the horrors of contemporary Russia. Meanwhile, the perilous situation for press freedom in China degenerates further. Unlike Russia, China has gone head first into neoliberalism making partnerships with many prominent Wall Street firms like JPMorgan, which apparently has dissipated the more venomous criticism from the US media establishment.  In 2012 China blocked access to the New York Times website after the paper ran an expose about Chinese officials and now Bloomberg News is having it’s own crisis over push back from the Chinese government on reporting political corruption in the country. Have you heard about it? Ben Richardson has resigned from Bloomberg News after 13 years to protest editors’ handling of an investigative piece reported from China – a story that the bosses feared would get them expelled from the country… Richardson, who was an editor at large for Asia news (he edited the enterprise stories and columns), writes in an email: “I left Bloomberg because of the way the story was mishandled, and because of how the company made misleading statements in the global press and senior executives disparaged the team that worked so hard to execute an incredibly demanding story.”Richardson says the “threat of legal action” hangs over his head for speaking out about Bloomberg’s capitulation to the Chinese government so he merely affirmed the truth of other stories on the subject and publicly confirmed that the reason he resigned was the treatment of the story on corruption in the Chinese government. Correspondingly, JPMorgan’s top Chinese Banker, Fang Fang, will be leaving his post thanks to an investigation into JPMorgan’s hiring practices in China. The investigation revolves around the charge that JPMorgan is under investigation for participating in the bribery of Chinese government officials.

Rich Chinese overwhelm U.S. visa program - A dramatic surge in interest from wealthy Chinese is threatening to overwhelm a U.S. program offering investors green cards in exchange for cash. The number of applicants is now so great that the government might run out of permits. Any foreigner willing to commit at least $500,000 and create 10 jobs in America can apply for an investor immigrant visa — also known as an EB-5. The demand from mainland Chinese eager to move abroad has already led the U.S. government to warn the program could hit a wall as early as this summer. Chinese nationals account for more than 80% of visas issued, compared to just 13% a decade ago, according to government data compiled by CNNMoney. That translates to nearly 6,900 visas for Chinese nationals last year, a massive bump up from 2004, when only 16 visas were granted to Chinese. “The program has literally taken off to the point [that] in China, the minute anybody hears I’m an immigration lawyer, the first thing they say is, ‘Can we get an EB-5 visa?’ ” “There is a panic being created in China about the demand [getting] so big that there is going to be a visa waiting line,” he said.

Taiwan government faces backlash after student crackdown - A crackdown on protesters opposed to a cross-strait trade pact has dealt a serious blow to public opinion of Taiwanese President Ma Ying-jeou's government, almost certainly delaying enforcement of the agreement and possibly hurting prospects for other pro-China measures. The government directed police early Monday to evict 200-300 students and other protesters who had broken into the Executive Yuan complex, which houses the executive branch. Premier Jiang Yi-huah announced at a news conference Monday that 61 were detained, 35 arrested and 110 injured. The clampdown affected more than 2,000 protesters when those in surrounding areas are counted. Jiang defended the action, arguing that because the complex holds important administrative and national-security materials, the break-in could not be ignored. He was more positive about the several hundred students occupying the Legislative Yuan, saying that protest leaders have maintained order.

Americans Must Adjust to a World Dominated by China - Fed's Bullard - Normally when Federal Reserve Board of St. Louis President James Bullard travels abroad, he finds himself talking about U.S. economic growth and the unemployment rate, and what that might mean for Fed monetary policy. He did his share of that on a recent visit to Hong Kong, where he gave several talks at the Credit Suisse Asian investment conference. But he also found himself at one point imagining a world far removed from his daily experience. In an interview with The Wall Street Journal on the sidelines of the conference, Mr. Bullard spoke of a future in which China and India are  the economic leaders, and the U.S. must band together with Europe and Japan to try to counterbalance them. “Certainly attitudes in the U.S. are going to have to change, because the U.S. will not permanently be the global leader the way things are going,” he said. China is already the largest economy in the world after the United States, and is growing much faster than the U.S. Not too far in the future – estimates range from as soon as 2016 to as “distant” as 2028 — it will surpass the American economy in size. Most likely, China will eventually match the U.S. in per capita income terms as well. With a population about four times as large as America’s, that would imply a massive shift in the global balance of power. In that case, “the U.S. would be playing a role to China similar to the role the U.K. plays to the U.S. today,” Mr. Bullard said. “People think it’s 50-75 years away but it’s probably only 25 or 20 years away, something like that.”

China, Germany eye RMB hub in Frankfurt - (Xinhua) -- China and Germany on Friday signed a memorandum of understating (MoU) on establishing an RMB clearing and settlement mechanism in Frankfurt, moving the German city closer to becoming an offshore RMB center. The document was inked here by China's central bank, or the People's Bank of China, and its German counterpart, the Deutsche Bundesbank, in the presence of visiting Chinese President Xi Jinping and German Chancellor Angela Merkel. The German side "welcomes RMB to play a bigger role in the international financial and monetary systems," says a joint statement issued after talks between Xi and Merkel. The two sides welcome the signing of the MoU, and a clearing bank will be designated later, according to the statement. "The growing trade and investment relations between Germany and China will make the volumes of payment in RMB continue to rise. German Bundesbank supports the development of a yuan-clearing solution in Frankfurt," said Joachim Nagel, a member of the executive board of the Bundesbank. China pays high attention to its cooperation with Germany in finance, as well as the role of Frankfurt as a financial center for both Germany and Europe, according to industry insiders. Frankfurt is one of the most important financial hubs in Europe and the seat of two central banks, namely the Bundesbank and the European Central Bank.

China currency liberalisation to be a seismic event-Australia  (Reuters) - China realising its ambitions to internationalise the yuan is likely to be a "seismic event" for global markets, leading to large capital flows and perhaps a new reserve currency, a top Australian central banker said on Wednesday. Reserve Bank of Australia (RBA) Deputy Governor Philip Lowe said the process had some way to go yet but that Beijing had signalled its seriousness by last week widening the trading band for the yuan, also known as the renminbi (RMB). "The internationalisation of the RMB - and China's associated move towards a liberalised capital account and more flexible exchange-rate regime - has the potential to create a seismic shift in the international monetary and financial landscape," Lowe said in a speech to the Centre for International Finance and Regulation (CIFR) conference in Sydney. "History teaches us that financial deregulation is an inherently risky process, but that there are substantial payoffs if it is done well," he added. An eventual freeing up of the capital account would likely lead to significant flows of Chinese funds offshore and greater demand for products with which to hedge foreign currency risk, Lowe said.

Amid sweeping plains, a land bubble -- Today, The AFR has today reported on new research released by the Urban Development Institute of Australia (UDIA) showing the explosion of land prices across Australia: According to UDIA, the cost of vacant lots have spiked by nearly 150% per metre across Australia over the past decade, with the number of lots released to market also slumping recently. The UDIA blames excessive taxes and charges, along with constipated planning systems that have restricted land release. It has also called for housing affordability to be placed firmly on the agenda of governments, along with more infrastructure investment to unlock land, and the implementation of broad-based land taxes in place of stamp duties. “What concerns us is that a family can no longer afford a back yard where a family can play and grow.” This corroborates RP Data’s recently released new research showing the explosion of vacant lot prices across Australia. According to RP Data, median lot prices nationally have risen by over 400% over the past 20 years: (graphics series)

Australia’s richest person Gina Rinehart receives welfare loan from US taxpayers - How Australia’s richest person, mining heiress Gina Rinehart, secured a $US694 million ($764 million) loan from American taxpayers is surely one of the great ironies of the capitalist system, reports The Australian Financial Review. The case is the latest example of a flaw in the United States political economy: what some see as crony capitalism. Rinehart’s mining group, Hancock Prospecting, last week signed off on a $US7.2 billion debt package for her highly anticipated Roy Hill iron ore project in Western Australia’s Pilbara region. There are 19 international lenders, including Australia’s big four banks, in the syndicate. Government export credit agencies including the Ex-Im Bank in the US, as well as Japan and Korea, were crucial in helping the massive debt-funding deal over the line. Commercial banks and bond investors were reluctant to shoulder all the risk. The US Ex-Im Bank says it “assumes credit and country risks that the private sector is unable or unwilling to accept”. In return for the US government loan, Hancock Prospecting will purchase American mining and rail equipment from Caterpillar, General Electric and Atlas Copco. The Export-Import Bank says their involvement will “support” 3400 US jobs. US conservatives have deep misgivings about the “corporate welfare” the Ex-Im Bank is dishing out, including to Rinehart.

Once Again, Australia is Stealing Its Indigenous Children - The tape is searing. There is the voice of an infant screaming as he is wrenched from his mother, who pleads, “There is nothing wrong with my baby. Why are you doing this to us? I would’ve been hung years ago, wouldn’t I? Because [as an Australian Aborigine] you’re guilty before you’re found innocent.” The child’s grandmother demands to know why “the stealing of our kids is happening all over again”. A welfare official says, “I’m gunna take him, mate.” This happened to an Aboriginal family in outback New South Wales. It is happening across Australia in a scandalous and largely unrecognised abuse of human rights that evokes the infamous Stolen Generation of the last century. Up to the 1970s, thousands of mixed race children were stolen from their mothers by welfare officials. The children were given to institutions as cheap or slave labour; many were abused. Described by a Chief Protector of Aborigines as “breeding out the colour”, the policy was known as assimilation. It was influenced by the same eugenics movement that inspired the Nazis. In 1997, a landmark report, Bringing Them Home, disclosed that as many 50,000 children and their mothers had endured “the humiliation, the degradation and sheer brutality of the act of forced separation … the product of the deliberate, calculated policies of the state”. The report called this genocide. Assimilation remains Australian government policy in all but name. Euphemisms such as “reconciliation” and “Stronger Futures” cover similar social engineering and an enduring, insidious racism in the political elite, the bureaucracy and wider Australian society.

Japan Moves to Limit Bedbound Elderly On Feeding Tubes –  For the first time, Japan is trying to hold down the number of bedbound elderly people kept alive, sometimes for years, by feeding tubes. Following news articles by Bloomberg News and others, the government is planning to cut payouts on insertions in new patients and encourage home care. About a quarter-million Japanese elderly live on feeding tubes. Faced with a heavy public debt burden, Japan is trying to curtail growth in a 38.5 trillion yen ($376 billion) annual health bill by releasing patients from hospitals faster. The health ministry also plans to boost reimbursements to institutions that check swallowing ability and encourage rehabilitation to help the bedridden eat by mouth. The changes, effective April 1, mark the first time Japan has cut government reimbursements for the practice. The use of feeding tubes at the end of life, which isn’t standard practice in the western world, is common in Japan, the world’s fastest aging society. They often prolong the lives of terminally ill or dementia plagued Japanese elderly, and the ministry says almost a quarter of people nourished via a tube to the stomach were given one without an evaluation.

A Chart That Spells Trouble for Abenomics - One of Japan’s economic problems is the tendency of companies to sit on cash instead of putting it to productive use, and new data from the Bank of Japan show the problem isn’t getting better.As this chart shows, cash and deposits held by private-sector companies stood at about 222 trillion yen, or $2.17 trillion, as of Dec. 31, up 6.4% from a year earlier, just after Prime Minister Shinzo Abe took office. It was natural for companies to stay cautious after the global financial crisis. But now Mr. Abe wants them to step up investment and raise workers’ paychecks using their cash holdings, now equal to nearly half Japan’s annual economic output by this measure. Will it work? The shape of this chart a year from now may give the answer.

February Inflation Reading Isn’t Necessarily Bad for Bank of Japan -- On the surface, Friday’s inflation data don’t look so promising for the Bank of Japan. The core consumer price index rose 1.3% in February from a year earlier, well below the BOJ’s 2% target. It was the ninth straight month that prices rose, but the gains were unchanged from the past two months.  That’s because, while past gains were mainly due to the impact of the weak yen on imported energy prices, February’s data show price pressures gradually broadening through the world’s third-largest economy. Energy inflation slowed to about 6% in February from 7% in January, but that was offset by price gains in other products. The core index excludes the volatile cost of perishables. Lodging costs rose more than 1% in February, a sharp reversal from January’s 3% fall. That alone offset half the impact of slowing energy price increases. Also, growth in the number of foreign visitors to Japan seeking to take advantage of the weak yen suggests lodging prices could keep rising in coming months, some economists say. Of the 524 goods and services tracked by core CPI, 290 posted price gains in February, up from 279 in January, the government said. Prices of air conditioners jumped 26%, while those of washing machines gained 11%. The cost of desktop PCs climbed more than 20%. Still, with energy inflation expected to slow further from here, many economists think the CPI will fall below 1% by summer. The sharp weakening in the yen in the first half of 2013 pushed up the cost of imported energy, but that effect will drop out of the statistical reckoning soon. Also, Japan’s recent economic data are muddied by a sales tax increase to 8% from 5% that will take effect April 1.

India beats the odds, beats polio - When a global effort to end polio was launched in 1988, the disease crippled more than 200,000 children every year in India. Almost two decades later, in 2009, India still reported half of the world's new cases -- 741 out of 1,604. India has millions of poor and uneducated people. The population is booming. Large areas lack hygiene and good sanitation, and polio spreads through contaminated water. Many health experts predicted India would be the last country in the world to get rid of polio. They were wrong. Since Rukhsar's diagnosis three years ago, India has not seen another new case of polio. On March 27, the World Health Organization will formally announce the end of polio in India and proclaim another one of its global regions -- Southeast Asia -- free of the disease. Afghanistan, Pakistan and Nigeria are the only three countries that have not eradicated polio, leaving the Eastern Mediterranean and Africa the last two WHO regions with the disease. The last time WHO made a similar announcement was in 2002, when the European region was declared polio-free. Rotary International says the upcoming declaration will be a milestone for a nation that was once the epicenter of the disease.

How is the biomarker ID aid plan going in India? -- One of the most important positive developments of our time – both underpublicized and underappreciated — is our growing ability to send and receive money securely across space.  It’s not just Paypal or Bitcoin in the West, as the truly significant gains from payment systems are coming in the developing world.  In particular, the efforts of the Indian government to set up a biometrically-based payments system are improving the lives of many millions and may go down as one of the most impressive achievements of contemporary times. In 2009, the government of India set out to create unique, biometric-linked IDs for all 1.2 billion Indian citizens, based on fingerprints and a digital photograph.  Once the identities of these persons are tagged, the government will use the new system to deliver direct cash payments as a form of welfare aid.  To the extent the system works, programs with waste and leakage rates of 40% to 80% will become much more efficient.  Imagine instituting a direct cash transfer in lieu of a low productivity make-work job or sending welfare payments directly to beneficiaries rather than channeling them through corrupt local village officials, who take a cut off the top. When the biomarker idea was proposed, it was far from obvious it would succeed.  The Indian government has failed at many basic tasks of infrastructure, such as good roads or clean water, and in general the quality of governance is not reliable.  Furthermore conditions in India seemed less than ideal for such an endeavor, as for instance about half of India does not have even a bank account. There is now a major formal study of how well this new program is going and the results are strongly positive, as shown in “Payments Infrastructure and the Performance of Public Programs: Evidence from Biometric Smartcards in India,” a new NBER Working Paper by Karthik Muralidharan, Paul Niehaus, and Sandip Sukhtankar (ungated copies here).

India’s Investment Slowdown: The High Cost of Economic Policy Uncertainty - IMF blog - India, after witnessing spectacular growth averaging above 9 percent over the past decade, has started to slow in the last few years. The slump in infrastructure and corporate investment has been the single biggest contributor to India’s recent growth slowdown. India’s investment growth, averaging above 12 percent during the last decade fell to less than one percent in the last two years. What is especially worrisome is that more and more investment projects are getting delayed and shelved, while the pipeline of new projects has become exceptionally thin. This slowdown has sparked an intense public debate about its causes. Some commentators, including representatives of the business community, argue that high interest rates, which raise financing costs, are the major culprit, dampening investment.  Others maintain that interest rates are only partly responsible for the current weak levels of investment, suggesting that a host of other factors, particularly on the supply side, are at play.Our new Working Paper seeks to shed some light on the reasons behind this investment malaise. Using a novel index of economic policy uncertainty—an innovation in our analysis—we find that heightened uncertainty regarding the future course of broader economic policies and deteriorating business confidence have played a significant role in the recent investment slowdown.

India, Pakistan, and Growth – Part I - There are a number of examples in history where two countries that share the same fate and trajectory for a while suddenly start to diverge in their economic fortunes. A persistent difference in the growth rates of the two countries – i.e. a difference in long-run growth – translates into a huge difference in GDP per capita within a generation or two. India and Pakistan are a natural pair for long-run comparison. The two countries share a common colonial history and started off with a largely similar nature of economic activity. How does the long run trajectory of these two countries compare? We use real exports per capita as our metric of comparison because exports are much better measured than other components of GDP in India and Pakistan. Exports also provide a reflection of a country’s global interconnectedness.  The graph below plots real exports per capita for India and Pakistan starting in 1980. We index the two lines to 100 in 1992 for ease of comparison. Up until 1992, both India and Pakistan were on a similar trajectory with low growth in their exports per capita. However, the trajectories diverge strongly in 1992 with India’s export growth taking off while Pakistan continued to trudge along at mediocre pace. One can see the power of compounding when growth rates persistently differ. Within a span of just two decades, Indian exports per capita have grown to be almost six times those of Pakistan. What explains the persistent divergence between India and Pakistan since 1992? A natural candidate would be India’s economic liberalization that kicked off in 1992. However, an oft-overlooked fact is that Pakistan initiated economic liberalization earlier and with greater gusto than India. So something else must be at work.

Pakistan Will Import Electricity From India - A topic of speculation for sometime now, an India-Pakistan electricity deal may finally be on the horizon as Pakistan submitted a draft power trade deal to India this week. The move comes amid reports that Pakistan will imminently grant India most-favored nation (MFN) status and as the World Bank confirms that it will finance the feasibility study and transmission line for implementing the deal, which would see a transfer of 1,200 megawatts of energy from India to Pakistan. According to an anonymous government source cited by India’s Economic Times, “the World Bank has also offered to finance a feasibility study along with the (installation of) transmission line to import 1,200 MW power from India.” The Pakistani side has presented a draft Memorandum of Understanding (MoU) to the Indian side during a recent meeting in New Delhi; the two sides have further coordinated technical working groups reviewing the initial implementation phase of the deal. In the initial phase of the deal, Pakistan would import 500 MW from India, to be enhanced to 1,200 MW at a later date. Energy-starved Pakistan has been looking beyond its borders to meet its energy needs. The fate of a pipeline project with Iran that would see the transfer of Iranian natural gas to Pakistan has become increasingly uncertain after Iran cancelled a scheduled loan to Pakistan that would allow it to complete the parts of the pipeline that run within its territory. Pakistan has also considered importing 1,000 MW of electricity from Tajikistan.

Eyes on Afghanistan as Next Lithium Motherlode: In 2010, US geologists estimated that Afghanistan held some $1 trillion in mineral deposits such as lithium, copper and iron, and the American gift to Kabul here is the extremely valuable hyper-spectral imaging, which the Afghan authorities are hoping will help lure in investors. As it stands, Afghanistan is taking in less than $150 million in mining revenues annually, but officials in Kabul are eyeing a figure in the billions by 2020.  Lithium is positioned to play a key role in this mining venue, as Afghanistan is said to have one of the world’s largest untapped reserves. Lithium—a soft metal used to make lithium-ion and lithium-polymer batteries, which are used to power everything from electric cars to smart phones and computers—could even turn Afghanistan into the “Saudi Arabia of Lithium”, according to a Pentagon memo. That would challenge the current lithium leader, Bolivia, which is the world’s largest exporter of the high-demand element. And with lithium demand predicted by some to more than double in the next decade, securing the next big extraction venue is high on the list of priorities for manufacturers who depend on the element.

Asia Misses Out on Capital Spending Bump - Capital investment in emerging markets, especially Asia, is lagging the developed world, a trend likely to damp growth prospects in many nations. Global expenditure on capital goods like equipment and machinery, used in offices, factories and to build infrastructure, began to pick up around a year ago. A survey of output at global machinery and equipment firms by Markit and J.P. Morgan began to recover in the first quarter of 2013 and has gained steadily since then. Businesses in the U.S., Europe and Japan have led the renaissance, as demand increases and financial conditions improve. In emerging markets, the investment outlook is a lot more clouded. Asian businesses have been reluctant to expand. Partly this is due to a tepid pickup in demand from industrialized countries for Asia’s exports. Many factories in the region already are running spare capacity, which is due to tepid exports and also a result of over investment in recent years, especially in China. Rising global interest rates, as the U.S. Federal Reserve pares back its bond-buying program, is adding to the somber outlook for business spending. China has relied heavily on investment in steel factories, infrastructure and other heavy industry to spur growth. Today, investment accounts for about half of gross domestic product. Beijing can no longer rely on this formula, however, and the government is moving to pare down debt and promote a more consumption-led growth model.

While Most of Asia Waits for Export Bounce, Vietnam Powers Ahead - One of the burning questions about Asian economies is why their exports remain so weak despite the synchronized recovery in the United States, Europe and Japan. Leave Vietnam out of that question. Vietnam’s exports massively outperformed its peers’ over the 12 months through January, growing 15% on-year at a time when shipments from many members of the Association of Southeast Asian Nations were falling. Vietnam’s trade data for March is due out this week. “Vietnam is benefiting from a lot of regional themes right now,” HSBC economist Trinh Nguyen said. Low wages are attracting manufacturers looking for cheaper locations than China, where labor costs are rising quickly. Vietnam’s demographics are promising and literacy rates are relatively high, producing a workforce with the drive and skills for factory labor. And as neighboring Thailand implodes, Vietnam appears a beacon of stability by comparison. Say what you will about the political or economic management skills of Vietnam’s Communist rulers, but the party’s grip on power appears secure.

Surging ASEAN Trade Prompts Banking Realignment- Major banks are realigning their businesses in Southeast Asia, where a winding back of cross-border tariffs and regulations has led to sharp rise in regional trade ahead of the launch of the ASEAN Economic Community (AEC). The latest, Standard Chartered, has announced that it will realign its operations, particularly in the Greater Mekong Subregion (GMS), which takes in Thailand, Myanmar, Vietnam, Cambodia and Laos, to take advantage of a trading boom. “We are the only international bank with a network covering all five countries therefore we are well placed to support the flows of businesses in ASEAN and leverage our experience to help strengthen economies in Thailand and the GMS,”   Last year cross-border trade with the 10-nation Association of Southeast Asian Nations (ASEAN) surged 26 percent to $323 billion. However, this figure is expected to grow still further once the AEC is instituted by the end of 2015 with an anticipated combined gross domestic product of $2.1 trillion. Under ABIF an ASEAN-based bank will be re-classified as a local bank across the 10 ASEAN countries, as opposed to being categorized as foreign banks in a neighboring country. This will enable them to compete with an influx of major banks from China and Japan. Indonesia, by far the biggest economy in the region, has more than 100 banks but so far it’s the Philippine banks that have been particularly active in raising capital for an aggressive expansion plan amid the integration plans.

Opponents resume protests as Thai PM risks impeachment  (Reuters) - Anti-government demonstrators in Thailand resumed street protests on Monday after lying low for weeks, piling pressure on increasingly beleaguered Prime Minister Yingluck Shinawatra, who is expected to face impeachment within days. Her opponents were emboldened by a Constitutional Court decision on Friday to nullify last month's election, delaying the formation of a new administration and leaving Yingluck in charge of a caretaker government with limited powers. Yingluck's opponents first took to the streets in late November. Twenty-three people were killed and hundreds wounded in the political violence before the protests began to subside earlier this month. But the court ruling appears to have given her foes a second wind. The protests are the latest instalment of an eight-year political battle broadly pitting the Bangkok middle class and royalist establishment against the mostly rural supporters of Yingluck and her billionaire brother, former premier Thaksin Shinawatra, who was ousted in a 2006 coup.

Doctors Say They Can't Care for Injured in Venezuela - Boxes packed with medical supplies are stacked up high against a wall of"El Arepazo" restaurant in Doral. "People from all over the world send us medical supplies," says Dr. Juana Frontera, one of the leaders of S.O.S. Venezuela (#SOSVenezuela), an immigrant-organized effort to collect medical donations for doctors and patients dealing with scarce medical equipment and provisions in the restive South American country. Nearly two months of opposition marches against the government of President Nicolas Maduro have left more than 30 dead and dozens injured. But healing those hurt in the clashes — or anyone sick, for that matter — is becoming more challenging every day as emergency rooms run out of gloves, bandages and antibiotics and many other basics.

S&P cuts Brazil rating to one notch above junk - Standard & Poor’s has cut Brazil’s sovereign debt rating to one notch above junk-bond status, citing concerns over the country’s economic credibility, fiscal management, and weak growth in the years ahead. The rating agency on Monday reduced Brazil’s long-term foreign currency sovereign credit rating to BBB- from BBB, its lowest investment-grade rating, in a decision that could prompt similar downgrades by Moody’s and Fitch Ratings. The move comes as a blow to President Dilma Rousseff, who has struggled to revive Latin America’s biggest economy and regain the trust of investors ahead of presidential elections in October.“The downgrade reflects the combination of fiscal slippage, the prospect that fiscal execution will remain weak amid subdued growth in the coming years, a constrained ability to adjust policy ahead of the October presidential elections, and some weakening in Brazil’s external account,” S&P said in a note. However, the agency also changed Brazil’s outlook to stable from negative, reducing the risks of further downgrades in the near future. “ The stable outlook reflects our view of institutional and balance sheet strength,” Lisa Schineller at S&P said on a conference call on Monday. “It is not that we see policy unravelling,” she said.  S&P highlighted Brazil’s “well-established political institutions, broad commitment to policies that maintain economic stability, and its large and diversified economy.” The downgrade comes after growing criticism over Brazil’s handling of its fiscal accounts and its reliance on one-off items and “creative accounting” to meet official fiscal targets.

Countries Rejecting Trade Deal Provisions that Let Investors Override National Regulation - Yves Smith This is a welcome bit of good news. Countries are finally standing up for the rule of law over rule by multinational corporation. The most troubling feature of the stalled but far from trade deals, the TransPacific Partnership and the Transatlantic Trade and Investment Partnership, is that they would increase the power of investor panels to overrule national laws. Here are some overview sections on these tribunals from a November post that contains a good deal more information: And this system is deeply corrupt:And it’s even worse than you imagine once you understand how these panels work. Recall how Public Citizen mentioned the role of the panelists who go between working for the companies and serving on the panels? A small and tight-knit group has disproportionate influence (click to enlarge): The Wikileaks release of two highly contested chapters of the TransPacific Partnership appears to have solidified opposition to its worst provisions, the investor panels. And in an very encouraging development, Germany also wants these panels removed from the deals.  And this rebellion looks to be turning into a rout. Martin Khor tells us not only are countries opposed to these provisions in new trade agreements, but they are unwinding them in existing deals: The tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.Several other countries are also reviewing their investment treaties.This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits. Many countries have been asked to pay large compensations to companies under the treaties. The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.

IMF's Lagarde says can't do much about reform without U.S. support (Reuters) - International Monetary Fund chief Christine Lagarde said on Sunday that there was not much she should could to push reform at her organization and give emerging economies a bigger say without the support of the United States. China in January called on IMF member nations to stick to a commitment to give emerging markets more power at the global lender after U.S. lawmakers set back historic reforms that would give developing countries a greater say. The remarks by China's foreign ministry were an indirect criticism of the United States, the biggest and most powerful IMF member, where lawmakers that month failed to agree on funding measures needed for the reforms to move forward. The U.S. Congress must sign off on the IMF funding to complete 2010 reforms that would make China the IMF's third-largest member and revamp the IMF board to reduce the dominance of Western Europe. Speaking at Beijing's elite Tsinghua University, Lagarde said this was a matter for the United States to complete the process and ensure that the relevant legislation can be passed. "This is not something I can do much about," she told students.

OECD: Sovereign Gross Borrowing Needs Decline but Debt Ratios Still Rising - The combined gross borrowing needs of the most industrialized countries is declining more slowly than expected as their economies are taking longer to recover, while government debt ratios continue to rise, the Organisation for Economic Co-operation and Development said Friday. However, overall sovereign market stress in the OECD area seems to have subsided somewhat, with ultra-high yields having fallen to a "significant extent" and with ultra-low yields increased, the group said in a sovereign debt review. And "there is no shortage in the aggregate supply of safe sovereign assets, particularly if a broader measurement for sovereign risk is used," the OECD said. It suggests that in addition to triple-A rated debt, government borrowings that are rated AA or A "should also be considered safe." Combined gross borrowing peaked at $11 trillion in 2012, the OECD said, estimating the borrowing needs of member governments to have reached $10.8 trillion in 2013 and to total $10.6 trillion in 2014. Governments continue to face funding challenges as the level of redemptions--debt reaching maturity--is relatively high in several countries, while the slow recovery in many OECD countries makes fiscal adjustments harder, it said. "This in turn means that the government borrowing needs of many OECD countries will decrease more slowly than anticipated," the OECD said.

World Leaders Cancel G8 Summit In Russia After Ukraine Crisis: The leaders of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States canceled their scheduled G8 summit in Sochi, Russia, following Russia's annexation of Crimea. Instead, they will meet with European Union leaders in Brussels as the G7.  Leaders of the so-called Group of Eight announced Monday they would cancel their planned June meeting in Sochi, Russia, and suspend their participation in the international group, following Russia’s annexation of the Crimean peninsula from Ukraine and threats toward Eastern Ukraine.  The smaller group announced its plans in a joint statement after meeting in The Netherlands. Instead, the leaders of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States will meet with European Union leaders in Brussels as the G7, in the latest blow to Russian President Vladimir Putin. U.S. President Barack Obama convened a meeting of the G7 on the sidelines of the Nuclear Security Summit at The Hague, with the goal of increasing pressure on Russia following its actions in Ukraine. The G7 nations had previously suspended preparations for the Sochi conference following Russia’s takeover of Crimea.

Who In Ukraine Will Benefit From An IMF Bailout? --  Yves Smith -- This is an important, nitty-gritty discussion of the grim prospects for Ukraine under the tender ministrations of the IMF from economists Jeffrey Sommers and Michael Hudson. Unlike many TV segments on social and economic issues, this one packs a lot of information into a short time frame. If you are time pressed, you can read the transcript here. A key section: The objective of IMF loans is to deindustrialize the economy. It is to force the economy–meaning the government when you say the economy–the government has to pay the IMF loan by privatizing whatever remains in the public domain. The Westerners want to buy the Ukrainian farmland. They want to buy the public utilities. They want to buy the roads. They want to buy the ports. And all of this is going to be sold at a very low price to the Westerners, and the price that the Westerners pay will be turned over to the Ukrainian government, that then will turn it back to the Ukraine. So whatever the West gives Ukraine will immediately be taken back.  Be sure to listen to this illuminating case study of what an IMF bailout really means.

Russia Gets Ready for Life Without Visa and MasterCard -- Is Russia ready to cut up its plastic? After Visa and MasterCard stopped processing some Russian transactions in response to U.S. sanctions, Moscow says it could launch a homegrown payment system that could be ready in as little as six months, according to German Gref, chief of the country’s largest bank, Sberbank.  Hard as it may be for Americans to imagine life without Visa (V) and MasterCard (MA), jettisoning them wouldn’t be all that difficult. Moscow has been preparing for the past few years to issue an electronic payment card that citizens could use for transactions with the government, such as tax and pension payments. Expanding that to include private purchases wouldn’t be hard, says Avivah Litan: “If the banks are all on board, they can use the existing [card-reading] equipment in the retail stores. They’ve been thinking about it for so long, it’s just a matter of flipping the switch.” Legislation has already been introduced in Russia’s parliament that would ban the use of payment systems based outside of the country. “The fact that our banks use infrastructure that they cannot control carries a real threat for national security,” lawmaker Vladislav Reznik said in introducing the measure on March 21.

Wall Street’s Ties to Putin Threatened as Sanctions Bite -- Wall Street leaders including Lloyd Blankfein and James Gorman, who have courted business in Vladimir Putin’s Russia, are facing a dilemma as tensions over Ukraine escalate.  Their scheduled attendance at Putin’s annual investor showcase in St. Petersburg in May is in doubt as sanctions imposed by the U.S. in response to Russia’s annexation of Crimea -- and retaliatory moves by Putin -- threaten the ties between Russia’s leader and businesses including Goldman Sachs Group Inc. and Morgan Stanley. Spokesmen for the New York-based banks declined to comment on whether the executives will attend.  Wall Street firms that have pursued deals in Russia for years are being forced by the dispute over Ukraine to reexamine their bet on friendlier relations between Putin and the West. U.S. President Barack Obama yesterday added to the list of Russians targeted by financial sanctions and a June Group of Eight meeting in Russia was scrapped.

BBC News - Crimea crisis: Russia and Ukraine hold first meeting - Russian Foreign Minister Sergei Lavrov has held talks with his Ukrainian counterpart Andriy Deshchytsia, for the first time since Russia's move into Crimea triggered a diplomatic crisis. Mr Lavrov says Russia is unfazed by the prospect of being expelled from the G8. Other members of the group of industrialised countries have agreed not to hold a planned summit in Russia. The move comes as Ukrainian troops are leaving Crimea after Russian forces seized military bases in the region. Earlier this month, Russia annexed Crimea from Ukraine after a referendum considered illegal by Kiev and the West. Mr Lavrov met Mr Deshchytsia, Ukraine's interim foreign minister, on the sidelines of a nuclear security summit in The Hague on Monday. "We set forth our vision to establish good national dialogue taking into account all residents of Ukraine," Mr Lavrov told a news conference. He also said he saw "no great tragedy" if Moscow was expelled from the G8 group of leading nations over its annexation of the Crimean peninsula. "If our Western partners think that this format has outlived itself, then so be it. At the very least, we are not trying to cling on to this format," he told reporters.

Putin is making the West's Cold Warriors look like fools - William Hague was on rather shaky ground when he argued this week that Moscow has chosen ‘the route to isolation’ by recognising Crimea’s referendum. On the contrary, it is the European Union and the United States who look as if they have seriously overplayed their respective hands in Ukraine. Across Asia, Africa and Latin America, the cry of ‘western hypocrisy’ has been heard much louder than complaints about Vladimir Putin. Even in the UK, mainstream opinion is steadily becoming more critical of western interventionism and our ‘New Cold War’ posturing, despite some pretty one-sided media coverage and much establishment tut-tutting. Independent thought is still viewed with suspicion, and even disgust, by some — and I should know, having consistently argued that we should negotiate with Moscow, not threaten tough sanctions which we’ll never impose. But such queasiness about being labelled ‘pro-Russia’ has lately been eclipsed by a growing sense among British voters and commentators — increasingly articulated — that the West has gone way beyond its jurisdiction in Ukraine and made a bad situation far worse. The ‘Crimea crisis’ is the most serious East-West standoff since the USSR collapsed. Even if the worst is now over, this skirmish has changed diplomacy in ways that go beyond the sovereignty of a sun-kissed Black Sea peninsula not much bigger than Wales.

Stopping Russia -- Simon Johnson - The rhetoric of confrontation with Russia seems to be escalating, including with the remarkable suggestion – from Mike Rogers, the chairman of the House Intelligence Committee – that the US provide “small arms and radio equipment” to Ukraine. Encouragement for a military confrontation is not what Ukraine needs.  As Peter Boone and I have argued in a pair of recent columns for the’s Economix blog, Ukraine needs economic reform (with a massive reduction in corruption as the top priority).   This reform requires, above all, a massive and immediate reduction in – or elimination of – corruption. Throwing a lot of external financial assistance at Ukraine’s government, for example with a very large loan from the International Monetary Fund, is unlikely to prove helpful.  Based on recent prior experience, such lending may even prove counterproductive. And this seems to be exactly the path that our foreign policy elite has placed us on.

Weak Sister - Kunstler -  Why is it in our interest which way Ukraine tilts? It has been in the Russian orbit for hundreds of years under one administration or another. Are we disappointed now that Kiev won’t answer to the floundering Eurocrats of Brussels? Was that ever a realistic expectation? Really, the best outcome for western Europe would be a return to the prior condition of Ukraine as a mute bearskin rug with oil and gas pipelines running through it to the oil and gas starved West. The idea that the US could supply Europe with oil and gas instead of Russia is a preposterous fantasy. Anybody wondering whether Ukraine might turn its armed forces loose on Russian forces supposedly massing at its border should ask themselves how Ukrainian soldiers will get paid.   I’m sure Russia can’t afford to annex all of Ukraine. Russia can barely maintain its paved roads. But it obviously couldn’t afford to give up its rented warm water ports and naval bases in the Crimea, either, with the new Kiev government making so much anti-Russian noise since the “revolution.” The annexation of Crimea changes nothing materially about the disposition of Russian military force in the region. They were already there. Given the size of their navy compared to the other nations in the neighborhood, the Black Sea is Russia’s bathtub and has been as long as anyone can remember. Was the brass at the US State Department shocked to discover this two weeks ago?     The US would be better served these days to literally mind its own business. With Detroit in bankruptcy, why would we send Kiev billions of dollars? American urban infrastructures — water, sewer, gas, and electric lines — are falling apart. We have no idea how we’re going to manage most of the crucial economic activities of daily life in ten years, when the illusions of shale gas and shale evaporate in a dark cloud of disenchantment, when we no longer have an airline industry, and most Americans won’t have the means to own automobiles, and there’s not enough diesel fuel to plow Iowa mega-farms, or enough oil and gas based fertilizers or herbicides to pour into the eroding topsoil, and not enough fossil water left in the Oglala aquifer or enough electricity to run the center-pivot sprinklers where the prairie meets the desert? How are Americans going to live and eat and get from Point A to Point B and keep a roof over our heads in this beat-down land?

Russian Aggression Deserves a Response, But U.S. Lacks Credibility to Lead It - In reality, there seems to be little correlation between the willingness of Moscow to assert its power in areas within its traditional spheres of influence and who occupies the White House: The Soviets invaded Hungary in 1956 when Eisenhower was president; the Soviets invaded Czechoslovakia in 1968 when Johnson was president; the Soviets successfully pressed for martial law in Poland in 1981 when Reagan was president; the Russians attacked Georgia in 2008 when Bush was president. In each case, as much as these administrations opposed these actions, it was determined that any military or other aggressive counter-moves would likely do more harm than good. Washington cannot realistically do any more in response to Russian troops seizing Crimea in 2014 in the name of protecting Russian lives and Russian bases than Moscow could do in response to U.S. troops seizing Panama in 1989 in the name of protecting American lives and American bases.

U.S. surveillance state missed Russia’s Crimea plans - U.S. spy agency mass surveillance has been revealed in recent months as troubling as it is totalizing. However, a story highlighted in the Wall Street Journal this morning illustrates that the steep uptick in U.S. spying efforts and capabilities since 9/11, while systematically invasive of ordinary citizens, fails in its ostensible role to survey geopolitical machinations of adversarial world powers. Every communications datum within and going out of the U.S. is hoarded by U.S. spy agencies, but Russian plans to invade the Crimean region were totally missed. As the WSJ noted, “intelligence analysts were surprised because they hadn’t intercepted any telltale communications where Russian leaders, military commanders or soldiers discussed plans to invade.” The titanic force of U.S. eavesdropping serves to surveil us all, but appears to have failed at the most basic directive of giving early warnings for significant geopolitical events.

Capital controls feared in Russia after $70bn flight - Capital flight from Russia has spiked dramatically since President Vladimir Putin first sent troops into Crimea and may reach $70bn (£42bn) over the first quarter of the year, prompting fears that the country may soon have to impose capital controls to stem the loss. Andrei Klepach, the deputy economy minister, admitted in Moscow that the outflows are likely to reach $65-70bn, far higher than originally expected and a clear sign that investors are extremely nervous of escalating sanctions. “Markets have been extremely complacent, fooling themselves that Russia is invulnerable because it has almost half a trillion in foreign reserves. But reserves can become almost irrelevant in this sort of crisis.” Lars Christensen from Danske Bank said the authorities may resort to some form of financial coercion to lock down funds in Russia. “Capital controls are a serious risk, and should not be discounted. Whatever now happens, there has been permanent damage to the Russian economy because investors are not going to forget this lightly.” The US and the EU are ratcheting up the pressure each day following a spate of sanctions last week on Mr Putin’s inner circle. The US Energy Department announced on Monday that it would permit exports of liquefied natural gas (LNG) from Jordan Cove in Oregon, a move aimed at boosting global gas supply.

Ukraine crisis: The weakness of Europe: In both Washington and Moscow I suspect officials are asking the same question of Europe: "How strong is its resolve when it comes to Ukraine?" This week brought a reminder that Europe's economies are still struggling to emerge from recession, that unemployment remains stubbornly high and that there is growing discontent with the political establishment in many countries. So on Sunday in France the far-right National Front made strong gains in the first round of local elections, even topping the polls in several towns and cities. Last week in local elections in the Netherlands the anti-immigration party of Geert Wilders won in the city of Almere and came a close second in The Hague, with his supporters chanting they wanted "fewer" Moroccans in their city. On Saturday there was violence in Madrid, as tens of thousands protested against unemployment, poverty and corruption. These are just the news fragments from an average week, but they serve as a reminder that politically many European countries are still worn down by years of economic crisis, with a mood angry and mistrustful of political elites. It is against this background that Europe's leaders are being asked to show grit and spine in a crisis which just weeks ago they could scarcely have imagined.

Ukraine in talks with IMF for $15-20 billion loan package - finance minister (Reuters) - Ukraine, its economy seriously weakened by months of political turmoil and mismanagement, is negotiating with the International Monetary Fund for a loan package of $15-20 billion, its finance minister said on Tuesday. The minister, Oleksander Shlapak, speaking to reporters before a government meeting, said the ministry foresaw continued slowdown and stagnation in the economy with it contracting by 3 per cent in 2014. Referring to talks now going on with the IMF, he said: "We are successfully heading towards concluding a programme. I think we shall receive (what we seek). This sum is from 15 to 20 billion dollars."

Ukraine - Full Circle to the EU Integration Issue - The European Union and Ukraine signed a political association agreement today, after Russia took steps toward annexing Ukraine’s Crimean Peninsula, bringing us full circle to the very issue that led to the burgeoning of the Maidan protest movement and the overthrow of Ukrainian president Viktor Yanukovych in February. This is the same deal that Yanukovych and company rejected in November 2013, and which lent the impetus to the Maidan protest movement, the president’s downfall, and then Russia’s intervention in the Crimea. Even with this deal, however, Ukraine remains hostage to Russia in numerous ways, and there is still much to be anxious about. There are questions as to whether Ukraine can simultaneously deal with Russian President Vladimir Putin and the European Union without putting more stress on the economy and the political structure. According to Robert Bensh, a long-time energy expert in Ukraine, “Russia still controls many of the levers for the Ukraine’s success. It is Ukraine’s largest trading partner, and Ukraine is heavily in debt to Russia and relies on Russia for most of its energy imports.”“Russia has been selling Ukraine natural gas at well below world prices, and has substantial ability to promote riots, political intrigues and general instability. In short, unless Ukraine can normalize relations with Russia, the prospects for growth will be low,” Bensh told today from Kiev.

I.M.F. Prepares $18 Billion in Loans for Ukraine -  After three weeks of urgent negotiations with the interim government in Kiev and in an atmosphere of great power competition, the International Monetary Fund announced on Thursday an agreement to provide Ukraine up to $18 billion in loans over two years to prevent the country’s default.The agreement, announced in Kiev, the Ukrainian capital, will hinge on the country taking steps to let the value of its currency float downward, to cut corruption and red tape, and, crucially, to reduce huge state subsidies for the consumption of natural gas. The energy subsidies alone represent roughly 8 percent of Ukraine’s gross domestic product, and Russia has said that it intends to raise on April 1 the price of natural gas to Ukraine, which is largely dependent on Russian supplies and which already owes Gazprom well over $1 billion.  The deal, which is subject to the approval of the fund’s board next month, is intended to get the new government over a big hurdle of coming debt obligations when its hard-currency accounts have been sharply diminished by months of unrest that led to the overthrow of former President Viktor F. Yanukovych.The two-year loan package, the I.M.F. said in a statement, is expected to unlock more loans, including from the United States and the European Union, that should bring the total over two years to $27 billion. The loans will be more spread out and less onerous than the $15 billion Russia had promised Mr. Yanukovych before he fled the country.

IMF agrees to provide Ukraine with up to $18 billion - The International Monetary Fund said it has reached a deal to provide $14 billion to $18 billion to Ukraine, as part of an economic reform program that Ukrainian officials said would require “painful” change.  The IMF agreement will unlock aid from other donors, as well, with Ukraine set to receive a total of $27 billion over the next two years, an IMF official told a news conference in Kiev. Ukraine must complete certain “prior actions” before the IMF’s board will approve the aid package, the IMF official said. These prior actions include institutionalizing the flexible exchange-rate regime and adopting reforms in the energy sector, he said. Ukrainian central bank chief Stepan Kubiv told the briefing that the reforms may be “painful.” He added that the Ukrainian economy is “in a very complicated situation” requiring the government to shift “from populism to more pragmatic work.”

IMF Reaches Deal to Provide up to $18 Billion to Ukraine - —Momentum gathered in the West to censure Russia and shore up Ukraine's moribund economy, as the International Monetary Fund readied as much as $18 billion in rescue loans to help avert a financial collapse. The IMF agreement—which calls for what Ukrainian officials described as painful budget cuts and other measures that will strain the country's fragile economy—will unlock additional aid from other donors. IMF official Nikolay Gueorguiev told a news conference at Ukraine's central bank in Kiev on Thursday. In total, Ukraine is expected to receive a total of $27 billion over the next two years. The IMF said that its executive board would review the deal in April and that the precise amount of the IMF loan would depend on the level of support given by other lenders, including the U.S. and European Union. A senior EU official said on Thursday that the European Commission planned to disburse some €850 million ($1.17 billion) in loans and grants to Ukraine by June if the country completes the IMF accord next month.  The bailout comes as Ukraine grapples with the biggest crisis in its post-Soviet history. Mass protests in recent months led to the ouster of former President Viktor Yanukovych and the establishment of a new government. Russia, disturbed by what it perceives as the new government's pro-Western leanings, swiftly seized control and then annexed the Ukrainian peninsula of Crimea, transforming the crisis into the most charged East-West confrontation since the Cold War.

Windfall for hedge funds and Russian banks as IMF rescues Ukraine -  Ukraine has secured an emergency bail-out of up to $18bn (£10.9bn) from the International Monetary Fund to stave off imminent default but will see no debt relief and will be forced to slash spending amid dangerous civil conflict. Critics say the package may be too small to stabilise the country as it spirals into depression with wafer-thin foreign reserves, and braces for a fuel shock as Russia’s Gazprom doubles the cost of energy in a move described by Washington as political harassment. Arseny Yatseniuk, Ukraine’s premier, said his country was “on the edge of economic and financial bankruptcy”, yet vowed to comply with demands for drastic austerity – including a 50pc rise in fuel prices – even if this proved a “kamikaze” mission. There will be no haircuts for creditors under the deal, unlike the EU-IMF formula in Greece and Cyprus. This amounts to a bail-out for Russian state banks and Western funds accused of propping up the previous regime and for vulture funds that bought Ukrainian debt cheaply for quick gain. Tim Ash, from Standard Bank, said: “Ukraine has been the ultimate moral hazard play and it’s cavalier to expect taxpayers to cover this.”

Michael Hudson on the Real Logic of the $18 Billion Ukraine Rescue Package - Yves here. Michael Hudson gives a short, persuasive explanation of the real reason the US and the IMF are bailing out the Ukraine. Hint: it’s not the reason you read in the American press. From RT: (video)

Ukraine Unlocks $27 Billion International Aid Deal - Ukraine reached a preliminary deal with the International Monetary Fund to unlock $27 billion in international aid as U.S. lawmakers passed bills imposing more sanctions on Russians linked to Crimea’s annexation. The government in Kiev reached a staff-level accord with the IMF for a two-year loan of $14 billion to $18 billion, the lender said today in an e-mailed statement. The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the cabinet must complete “prior actions” to receive the first installment as early as April.  Ukraine’s government, which came to power after an uprising ousted President Viktor Yanukovych last month, is grappling with an economy threatening to slide into a third recession in six years, dwindling reserves and a weakening currency. Ukrainian asset prices have also suffered as Russia’s takeover of the Black Sea Crimean peninsula sparked European and U.S. sanctions and rekindled memories of the Cold War.“The IMF package should be sufficient to prevent the country falling into a full-blown balance-of-payments crisis,” London-based Capital Economics Ltd. said in an e-mailed note. “But the volatile political situation and Ukraine’s poor track record in implementing reforms demanded by the fund mean that there will still be many doubts about whether politicians will be able to push substantial changes through.”   As part of the IMF agreement, Ukraine agreed to narrow the budget deficit to 2.5 percent of gross domestic product by 2016 and to raise retail energy tariffs toward their full cost, according to the Washington-based lender. The central bank will shift to a flexible exchange rate and inflation targeting, while the nation will tackle bad debts at banks, it said.

European Banks Feel Effects of Crimea Crisis, With Austria Bearing Brunt - After the Cold War ended in the early 1990s, Viennese banks pushed aggressively into the newly open markets of Eastern Europe.The banks of Vienna were not the only Western lenders seeking to stake out the former Soviet bloc, of course. But the Austrians, for reasons of geography and history, bet big on Eastern Europe and Russia.Now, as regional tensions with Russia rise, Austrian banks risk being caught in the financial and geopolitical crossfire.The way things play out for Austria could have implications for the broader European Union, whose members since the outbreak of the Crimean crisis have urged caution in imposing sanctions. The worst case is that European banks would lose their subsidiaries in Russia amid escalating tit-for-tat reprisals or that it would become impossible to do business there.Whatever happens, analysts expect any Western banks with a presence in Russia — including American ones like Citigroup and JPMorgan Chase — to have their profits squeezed in a market that until recently had been quite lucrative.All told, the European banks are vulnerable to Russia for about $194 billion, according to Deutsche Bank, compared with about $37 billion for American banks. The financial links to Russia help explain why Europeans have been reluctant to impose sanctions.For Europe as a whole, there is also a danger that the crisis will ricochet back in ways that are impossible to predict.

German Industry Goes To See Uncle Putin  - President Barak Obama went to Belgium to meet with European leaders, commemorate the 100th anniversary of World War I, draw iffy parallels between then and now, and announce that more sanctions against Russia were being concocted and would soon be forthcoming, Russian President Vladimir Putin might have had a field day listening to the speech. But he was busy. He was at his official residence in Novo-Ogaryovo near Moscow, meeting with German industry tycoons, including Joe Kaeser, CEO of multinational engineering conglomerate Siemens. It wasn’t an emergency response to the current sanctions spiral but had been planned during their last meeting in October. That meeting in October must have been Kaeser’s first meeting as CEO with Putin. Saturday night, July 27, 2013, Kaeser’s predecessor had been unceremoniously sacked. There was no immediate successor. Eventually, the board settled on Kaeser who was CFO at the time and has been with Siemens his entire working life. And he didn’t wait long to go see Uncle Putin. Which shows how connected German industry and Putin are. Regular powwows are de rigueur. So this time, Kaeser explained to Putin that Siemens, which had already invested €800 million in Russia, wanted to continue its “long-term involvement and localization strategy,” a Siemens spokesman said. The company is of the opinion “that we should not let the conversation break off even if it is perhaps difficult politically at the moment.” So it would continue to produce in Russia and help industrialize the country.

How well do the Irish remember what price they paid for their homes? - It may be the single biggest purchase in their lives but most Irish homeowners have less than total recall when it comes to remembering just how much they paid for their homes, according to new research published by the Central Bank.More than 60 per cent of those surveyed claimed to have paid substantially less for their homes than they actually did with most of those questioned getting the purchase price wrong by tens of thousands of euro. More than 20 per cent of those polled underestimated the price they paid for their home by up to €30,000 while closer to 30 per cent were out by between €30,000 and €120,000. Could the mechanism be regret minimization?: “Perhaps people are trying to reassure themselves that their losses as a result of the property crash are not as great as they are,” Mr McQuinn told The Irish Times. “We can’t really say that with 100 per cent certainty but given the scale of the negative equity involved in many of the homes, it certainly looks that way.” The article is here, the research paper is here (pdf)

89% Of Venetians Vote For Independence From Italy, Will Withhold Taxes To Rome -- Inspired by Scotland's hopes for independence and hot on the heels of Crime'a 95% preference for accession to Russia, 89% of the citizens of Venice voted for their own sovereign state in a ‘referendum’ on independence from Italy. As The Daily Mail reports, the proposed ‘Repubblica Veneta’ includes the five million inhabitants of the Veneto region and has been largely driven by the wealthy 'who are tired of supporting the poor and crime-ridden south' (Venice pays EUR71bn in taxes and receives only EUR21bn in services and investment). The ballot appointed a committee of ten who immediately declared independence from Italy. Venice may now start withholding taxes from Rome. Wonder why the US, Europe, and Japan have not announced the referendum "illegal" and announced sanctions yet?

Jitters Mount Over Prospect of Catalonian Independence -- Like many of Spain’s business and finance big shots, Fainé is growing a little jittery over the prospect of Catalonian independence; the last thing transnational companies or banks want is for new national borders to be erected that restrict their flow of trade or capital.An unofficial, symmetric trade boycott has already taken its toll on both the Spanish and Catalonian economies. Not even Spain’s biggest bank, Banco Santander, has escaped the fallout. An associate of mine who works for the bank recently reported losing a high-net worth Catalan client, with over four million euros invested in the bank. The customer had taken offence to Santander President Emilio Botin’s criticism of the Catalonian independence movement.For Catalan banks such as La Caixa and Banco Sabadell, the stakes are even higher since so much of their business is based in Spain’s north-eastern province. Indeed, as the governor of the Bank of Spain, Luis María Linde, warned late last year, the Catalan independence movement could even pose an existential threat to the region’s banks.Like all European commercial banks, La Caixa and Banc de Sabadell depend on the European Central Bank (ECB) for liquidity. But the ECB is only sanctioned to provide credit lines to banks of EU Member States, and only accepts assets issued by agents of the eurozone as guarantees for that liquidity. In other words, if Catalonia were ejected from the EU after declaring independence, its banks could well be starved of all liquidity. That’s not to mention the capital flight that would also no doubt ensue.

EU’s plans for growth to bring shadow banking in from the cold  (Reuters) - European Commission proposals due to be published on Thursday on how to fund long-term investments to boost Europe's economies brings the start of a rehabilitation for the image of "shadow banking", the largely unregulated market-based provision of credit which lay at the heart of the financial crisis.The EC plans envisage engineering a fundamental shift in how the continent raises money for investment in infrastructure like roads and technology while at the same time moving away from an over-reliance on banks for fuelling growth in the economy. A core element involves reviving securitization or the bundling of loans into interest-bearing bonds, a market which was fatally wounded by its central role in the financial crisis seven years ago when bonds which packaged up subprime U.S. home loans became untradeable. Now the market for asset backed securities, currently has 650-700 billion euros worth of bonds in circulation, half its pre-crisis size.This shrinkage, coupled with banks being wary of lending as they rebuild their capital buffers, makes it harder than ever to seed economic growth in Europe.

Neoliberalism as Social Necrophilia: The Case of Greece: Greece is the most recent and historically unprecedented neoliberal experiment on a global scale. Greece's economy has shrunk by nearly one-third since 2007, and the debt has become unmanageable. Through cut-throat austerity measures, massive privatizations and cuts in the most sensitive sectors of public education and public health, the constant process of de-industrialization and the loss of sovereignty, it looks like "Greece will emerge as a poorer country, with a diminished productive base, with reduced sovereignty, [and] with a political class accustomed to almost neo-colonial forms of supervision."  I glance through snapshots in the news: grim faces, desperate eyes, angry gazes, frustration, and, most of all, fear. The city of Athens is slowly turning into a cemetery for the living. The transformation of the city, both as a physical and as a symbolic space, is shocking to the eye; as a public space and a habitat for its people, it now gets fragmented into deserted stores "for rent," broken façades and abandonment apartment windows and balcony doors tightly locked behind iron bars for "extra safety," carton beds and, along them, homeless people's possessions: an old dirty blanket, oversized worn out sneakers, plastic flowers, empty water bottles, stale bread. Different parts of the city palpably illustrate a degenerating social fabric, as more Greeks are now joining the ranks of what Zygmunt Bauman has called "human waste"(4): unemployed, working poor, immigrants, all the outcasts, victims of "economic progress," preys of rampant neoliberal policies, "casualties," real victims to what the Greek prime minister has recently called a "success story" on the road to privatization and the wholesale of Greece's national assets and sovereignty.

The Jobs-Currency Connection in Greece - Dimitri Papadimitriou - Negotiations between the Greek government and its international lenders were finally resolved last week, after seven long months. In January, Prime Minister Antonis Samaras made a celebratory announcement projecting a small, 2013 primary budget surplus of 1.5 billion euros. Also recently announced: European Union co-funding for a long-delayed 7.5 billion euro road construction project in 2014.  Sounds good. No reason to suggest that Greece needs an extreme monetary makeover right now, is there? Yes, there is. Talk of a recovery isn't just premature, it reflects a complete fantasy. For starters, at today's rate of net job creation Greece won't reach a reasonable employment level for more than a decade. That's too long.  An alternative domestic currency could be the basis for a solution. A parallel currency that was used to finance a government employment program would provide a relatively quick restoration of a lost standard of living to a large fraction Greece's population. We reached that conclusion at the Levy Institute after modeling multiple scenarios based on the narrow range of available options.

Spain proposes 2.3 billion euro rescue of failed motorways (Reuters) - Spain has proposed creditor banks take a 50 percent haircut on debt owed by nine failed motorways and will pay the balance via a 30-year bond of around 2.3 billion euros ($3.17 billion) with a coupon of at least 1 percent, sources with knowledge of the matter told Reuters on Tuesday. The government will form a state company to take over the assets of the defunct motorway concessionaries which will issue the bond, the sources said. The move will not have an impact on the country's public deficit, one of the sources said.

Deutsche Bank-er Explains Why He Committed Suicide -- The dismal list of financial executive deaths has recently increased to 11 in the last few months. Speculation has surrounded many of these deaths (and suicides) as to the reasoning; none more than the first - William Broeksmit, an executive who worked in Deutsche Bank's risk function and advised senior leadership who hanged himself in his South Kensington home in late January. However, as the WSJ reports, we now know why this poor man felt compelled to take his own life: he was "anxious about various authorities investigating areas of the bank where he worked"

ECB's Weidmann says quantitative easing not out of the question (Reuters) - The European Central Bank could buy loans and other assets from banks to help support the euro zone economy, Germany's Bundesbank has said, marking a radical softening of its stance on the contested policy. Jens Weidmann, who is a member of the European Central Bank's Governing Council, told MNI in an interview published on Tuesday that the ECB could consider purchasing euro zone government bonds or top-rated private sector assets. "Of course any private or public assets that we might buy would have to meet certain quality standards," Weidmann said. "But the overall question is one of effectiveness, costs and side-effects. We are currently discussing the effectiveness of these measures. The intended effects would then have to be weighed against the costs and side-effects." With little room for the ECB to cut interest rates further from a record low 0.25 percent, Weidmann called in the interview, which MNI said was conducted on Friday, for a debate about the effectiveness of other policy tools. "The unconventional measures under consideration are largely uncharted territory. This means that we need a discussion about their effectiveness and also about their costs and side-effects," he said.

ECB Considers Taking The Deposit Rate Below Zero - The euro nearly slipped below $1.38 on news that the European Central Bank was considering taking its deposit rate below zero. The common currency traded at $1.3810 at 3:25 GMT on Wednesday morning as investors nervously eyed next week's ECB policy meeting. Finnish central banker Erkki Liikanen told the Wall Street Journal that the ECB was willing to consider lowering the deposit rate, which would make it negative. Liikanen said that a negative rate could protect against excessively low inflation and would encourage bank lending. Such a move would likely prove controversial as the ECB would be the largest central bank to risk a rate below zero. A negative deposit rate would essentially charge banks for holding on to excess cash and many worry that the region's banks would pass that added cost on to customers by charging higher interest rates for loans. However, if the deposit rate is lowered it could encourage lending, which in turn would take short-term borrowing costs down. The euro would likely lose some of its new found strength as well, something most fragile eurozone economies would benefit from.

ECB Ponders Negative Interest Rates and QE: Bluff or Insanity? Can Inflation be Too Low? -- On Tuesday, Bundesbank chief Jens Weidmann opened the door to QE and negative interest rates. European Central Bank governing council member and Bundesbank chief Jens Weidmann said negative interest rates would be more appropriate to use to counter a higher exchange rate. Weidmann also added that it was not 'out of the question' for the ECB to buy bank assets to fight deflation, in a softening of the German central bank's strict stance on the issue. The above announcement had the monetarists led by Ambrose Evan-Pritchard preaching "Monks recant: Bundesbank opens the door to QE blitz". Others are scratching their heads. Is this a bluff of some sort or is it the real deal? Comments yesterday and today on Eurointelligence are quite interesting.  Nobody we have talked to has the slightest clue what the ECB is doing right now. In one of the press conferences Mario Draghi is dovish, the next one he is hawkish. One day, Jens Weidmann says the QE is not right for the ECB, then he can live with it in principle. One day, they warned that negative interest rates would produce all sorts of distortions and risks, and now we are told that they have long ceased to be a subject of dispute. In the meantime, nothing happens. We have reached a point where nobody listens to verbal intervention any more. A Reuters news analysis by Eva Taylor observes: "While some economists said the Bundesbank president 'left the door open, although only slightly' for asset purchases, others saw it merely as a more precise statement of its position and an attempt to talk down the euro exchange rate."

A deflationary future beckons for much of Europe, but still the ECB won’t listen -  When is a deflationary threat not a deflationary threat? Answer: when you see the world through the eyes of the European Central Bank. For some reason, there is a general expectation in financial markets that the ECB is about to see the light and take some form of action against sub-1pc inflation in the eurozone when its governing council meets next week, as indeed there was at last month’s meeting, and the one before that. They should prepare to be disappointed. In February, eurozone inflation stood at 0.7pc, and even two years out, the ECB forecasts that it will still be no higher than 1.5pc. Admittedly, this is not “deflation” in the accepted sense of the word, but it is well below the ECB’s target rate of “close to 2pc”, never mind that there are some eurozone countries that very plainly are experiencing outright deflation. Inflation in Spain, it was announced on Friday, is running at -0.2pc, and even “boom boom” Germany is at 0.9pc. As the International Monetary Fund has warned, it wouldn’t take much to tip the entire region into a downward spiral in demand and prices.  Virtually all other central banks, confronted with a two-year forecast like the ECB’s, would be taking urgent action to ease policy further. This will not, however, happen at the European Central Bank, or not unless there’s some kind of Damascene conversion between now and next week’s meeting. As things stand, there will be no attempt to impose a negative deposit rate, no quantitative easing, and very likely no credit easing, either.

France vs. Germany - a Eurozone puzzle - Here is a puzzle. We are seeing an unexpected divergence in private sector activity indicators for Germany and France. The manufacturing report for France came in materially better than was forecast by economists while the one for Germany was worse.The services sector PMI measures show a similar divergence to those for manufacturing. What's particularly puzzling is how broad based this divergence has been.

  • Markit (France): - Expansion was broad-based across the service and manufacturing sectors. Services activity increased for the first time in five months during March. Growth was at a 26-month high, albeit modest overall. Manufacturers reported a solid rise in output that was the sharpest since May 2011. [ - see story]
  • Markit (Germany): - The easing in the rate of activity growth was broad-based, with both manufacturers and service providers indicating weaker expansions than seen in February. Companies in the goods producing sector reported the slowest rise in output since November, while growth in the service sector eased to a two-month low. [- see story]

Schäuble revives push for eurozone integration - Germany is pushing for changes to EU treaties “as soon as possible” after the May European elections, in an overhaul to fuse eurozone economic governance behind a budget chief and euro area parliament. In interviews, speeches and articles, Wolfgang Schäuble, Germany’s finance minister, has given urgency and political impetus to Berlin’s longstanding ideas for a refashioned and more centralised eurozone. Mr Schäuble outlined a vision for a changing EU treaties to establish a “budget commissioner” empowered to use common funds and reject national fiscal plans if they “don’t correspond to the rules”. Asked when he envisaged agreeing the treaties, he said “today is better than tomorrow” and called for negotiations to start straight after the European parliament elections in May. These reforms to integrate the eurozone, he added, must be paired with measures to ensure those countries outside are not “systematically disadvantaged” – an approach that will be welcomed by Britain.

The money multiplier is dead -- The Bank of England’s Quarterly Review contains a detailed description of how money creation works in the UK’s fiat money economy.  Partnered with a useful primer on money and a couple of explanatory videos entertainingly hosted in the gold vaults, it is a comprehensive and clearly-written guide.And it is controversial. It rejects conventional theories of bank lending and money creation:  “The reality of how money is created today differs from the description found in some economics textbooks:

  • • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
  • • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”

To be sure, numerous papers from many eminent researchers and august institutions (including the Fed, the IMF, the ECB and the Bank for International Settlements) have cast doubt upon conventional theory as an adequate explanation of money creation in a modern fiat money system. But to my knowledge this is the first time that a central bank has presented an explanation of money creation that so comprehensively departs from conventional orthodoxy.

The End of QE, According to the BOE Playbook - What happens after central banks stop their asset purchase programs? Now that markets are pulling forward expectations of interest rate rises in both the U.K. and the U.S., it’s worth looking back at a stylized chart a group of Bank of England economists produced for a paper published in Q3 of the bank’s 2011 Quarterly Bulletin. The chart makes an interesting assumption: that the broad money supply pushed up by QE will stay fixed and that the consumer price level will rise to meet that broad money level through rising inflation. In fact it seems to imply an inflationary overshoot, following a jump in real economic growth, before the system returns to equilibrium. In other words, the central assumption seems to be that central bank balance sheets will remain vastly expanded. It’s not how QE was sold in the first place, but is building substantial support now. Adair Turner, former chairman of the U.K.’s Financial Services Authority, was the latest to argue that central banks won’t need to shrink their balance sheets. “They could stay permanently larger; and, for some countries, permanently bigger central-bank balance sheets will help reduce public-debt burdens.”But even if central bank balance sheets stop expanding, the BOE analysis suggests the era of forever rising asset prices.

The 67 People As Wealthy As The World’s Poorest 3.5 Billion - Oxfam International, a poverty fighting organization, made news at the World Economic Forum in Davos earlier this year with its report that the world’s 85 richest people own assets with the same value as those owned by the poorer half of the world’s population, or 3.5 billion people (including children). Both groups have  $US 1.7 trillion. That’s $20 billion on average if you are in the first group, and $486 if you are in the second group. Oxfam’s calculations of the richest individuals are based on the 2013 Forbes Billionaires list. I decided to take a closer look at this group of 85 in search of trends. That’s when I realized that they are by now a much wealthier group. The rich got richer.  And it was quite fast and dramatic. For example, while last year it took $23 billion to be in the top 20 of the world’s billionaires, this year it took $31 billion, according to Luisa Kroll, Forbes wealth editor, writing on As a result, by the time Forbes published its 2014 Billionaires List in early March, it took only 67 of the richest peoples’ wealth to match the poorer half of the world. (For the purpose of this blog, I will put aside the conversation about the importance of income inequality versus impoverishment. This has recently been skewing strongly toward recognition of the importance of income distribution and its inequality, most recently with the publication of Capital in the Twenty-First Century by Thomas Piketty.)