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

Saturday, November 29, 2014

week ending Nov 29

FRB: H.4.1 Release--Factors Affecting Reserve Balances--November 28, 2014 - Federal Reserve Statistical Release: Factors Affecting Reserve Balances of Depository Institutions and Condition Statement of Federal Reserve Banks

 Monetary Policy When the Spyglass Is Smudged - San Francisco Fed Economic Letter - An accurate measure of economic slack is key to properly calibrating monetary policy. Two traditional gauges of slack have become harder to interpret since the Great Recession: the gap between output and its potential level, and the deviation of the unemployment rate from its natural rate. As a consequence, conventional policy rules based on these measures of slack generate wide-ranging policy rate recommendations. This variability highlights one of the challenges policymakers currently face.

Rock Bottom Economics, by Paul Krugman --  Six years ago the Federal Reserve hit rock bottom. It had been cutting the federal funds rate ... more or less frantically in an unsuccessful attempt to get ahead of the recession and financial crisis. But it eventually reached the point where it could cut no more...  Everything changes when the economy is at rock bottom... But for the longest time, nobody with the power to shape policy would believe it. As I wrote, in a rock-bottom economy “the usual rules of economic policy no longer apply...” Government spending doesn’t compete with private investment — it actually promotes business spending. Central bankers, who normally cultivate an image as stern inflation-fighters, need to do the exact opposite, convincing markets ... that they will push inflation up. “Structural reform,” which usually means making it easier to cut wages, is more likely to destroy jobs than create them. This may all sound wild and radical, but ... it’s what mainstream economic analysis says will happen once interest rates hit zero. And it’s also what history tells us. ... But as I said, nobody would believe it. By and large, policymakers and Very Serious People went with gut feelings rather than careful economic analysis. ... Thus we were told ... that budget deficits were our most pressing economic problem, that interest rates would soar unless we imposed harsh fiscal austerity... —... demands that we cut government spending now, now, now have cost millions of jobs and deeply damaged our infrastructure.This bodes ill for the future. What people in power don’t know, or worse what they think they know but isn’t so, can very definitely hurt us.

The Federal Reserve Is At The Heart Of The Debt Enslavement System That Dominates Our Lives -- From the dawn of history, elites have always attempted to enslave humanity.  Yes, there have certainly been times when those in power have slaughtered vast numbers of people, but normally those in power find it much more beneficial to profit from the labor of those that they are able to subjugate.  If you are forced to build a pyramid, or pay a third of your crops in tribute, or hand over nearly half of your paycheck in taxes, that enriches those in power at your expense.  You become a “human resource” that is being exploited to serve the interests of others.  Today, some forms of slavery have been outlawed, but one of the most insidious forms is more pervasive than ever.  It is called debt, and virtually every major decision of our lives involves more of it.  At the apex of this debt enslavement system is the Federal Reserve.  As you will see below, it is an institution that is designed to produce as much debt as possible.

PCE Price Index: Headline and Core Remain Below Target -- The Personal Income and Outlays report for October was published this morning by the Bureau of Economic Analysis. The latest Headline PCE price index year-over-year (YoY) rate is 1.44%, unchanged from the previous month. The Core PCE index of 1.55% is is up slightly from the previous month's 1.49% YoY.  As I've routinely observed, the general disinflationary trend in core PCE (the blue line in the charts below) must be perplexing 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 Core PCE had hovered in a narrow YoY range of 1.23% to 1.35%. The six most recent months have lifted the range slightly to 1.44% to 1.65%, but at this point we don't yet see evidence of an upward trend.   The adjacent thumbnail gives us a close-up of the trend in YoY Core PCE since January 2012. I've highlighted the 12 months when Core PCE hovered in a narrow range around its interim low.  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. For a long-term perspective, here are the same two metrics spanning five decades.

Inflation Below 2% Fed Target for 30th Consecutive Month -- U.S. inflation remained below the Federal Reserve’s annual 2% target for the 30th consecutive month in October. The price index for personal consumption expenditures, the Fed’s preferred inflation measure, rose 0.1% from September and is up 1.4% from a year earlier, the Commerce Department said Wednesday.Excluding food and energy components, so-called “core” prices gained 0.2% over the month and are up 1.6% over the year. Overall annual inflation was unchanged from September, while core inflation is firming, though only slowly. It was 1.5% year over year in September. The Fed has set a 2% target for inflation over the long run. The central bank prefers to use the Commerce Department gauge instead of the Labor Department’s consumer-price index, another broad measure of consumer prices.  But U.S. annual price gains have undershot that target since April 2012. The Fed, in its Oct. 29 policy statement, said that “inflation in the near term will likely be held down by lower energy prices and other factors,” though it’s expected to move back toward 2% over time as the economy heals. Fuel got cheaper last month, with energy prices falling 2% from September. Oil prices have fallen more than 30% since mid-June, which has translated into cheaper gasoline for U.S. consumers and businesses. Food prices were steady from the prior month in October and rose 2.5% from October 2013, identical to September’s annual gain.Prices for other goods and services rose higher. At 1.6%, October’s annual growth in core prices was at its highest level since December 2012. Fed officials, in their September projections, predicted headline inflation of 1.5% to 1.7% this year, with core prices rising 1.5% to 1.6%. That first estimate is looking a little high–in October, overall prices rose just 1.4% from a year earlier. The second looks more accurate.

The Fed concerned about "importing" disinflation -- The latest Reuters poll is showing 24 out of 43 economists projecting the first rate hike in the US by June of next year. The futures market is pricing liftoff by September. Citi's latest analysis puts it in December. And all of these forecasts are running way behind the so-called Taylor Rule, which is suggests that the Fed Funds rate should already be at 1.5%.In fact the US economy can easily handle non-zero short-term rates at this point. The banking system is quite healthy and can easily manage funding costs of 1.5%. Corporate borrowers can deal with slightly higher rates as well. And as far as mortgages are concerned (to the extend higher short-term rates extend to longer maturities), borrowers for whom payments become prohibitive at 5% vs. 4% should not be taking out a mortgage to begin with. But it's no longer as much about the US economy as it is about external factors. The international situation has made the Fed's policy planning much more complex.  With the BoJ suddenly accelerating its QE program, the PBoC cutting rates, and Mario Draghi hinting at a potential QE program in the Eurozone, the Fed is becoming increasingly isolated in its plans to begin rate normalization. Even India's RBI, who has kept rates elevated for some time, may begin to ease soon as the nation's inflation and money supply growth slows.  As a result of this divergence, the US dollar has been on the rise this year.  Of course the recent increase in and of itself is not tremendous relative to historical levels. However, given the disinflationary pressures around the world, the rising US dollar effectively "imports" disinflation into the US. Moreover, the massive drop in energy prices, caused by a combination of a significant rise in North American production and weaker demand globally (as well as the Saudi "dumping"), is adding to slower inflation. In fact, in recent months a paradigm shift has taken place. Weakness in inflation is no longer viewed as a temporary phenomenon and longer-dated inflation expectation measures have turned sharply lower.

Chicago Fed: Index shows "economic activity was near its historical trend" in October -- The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth decelerated in August Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to +0.14 in October from +0.29 in September. Two of the four broad categories of indicators that make up the index decreased from September, and two of the four categories made negative contributions to the index in October. The index’s three-month moving average, CFNAI-MA3, declined to –0.01 in October from +0.12 in September. October’s CFNAI-MA3 suggests that growth in national economic activity was near its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year. This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed: Economic Growth Moderated in October - "Index shows economic growth moderated in October": 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 declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to +0.14 in October from +0.29 in September. Two of the four broad categories of indicators that make up the index decreased from September, and two of the four categories made negative contributions to the index in October.  The index’s three-month moving average, CFNAI-MA3, declined to –0.01 in October from +0.12 in September. October’s CFNAI-MA3 suggests that growth in national economic activity was near its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests limited inflationary pressure from economic activity over the coming year.   The CFNAI Diffusion Index, which is also a three-month moving average, decreased to +0.11 in October from +0.16 in September. Forty-nine of the 85 individual indicators made positive contributions to the CFNAI in October, while 36 made negative contributions. Thirty-six indicators improved from September to October, while 49 indicators deteriorated. Of the indicators that improved, seven made negative contributions. [Download PDF News Release]  The previous month's CFNAI was revised downward from 0.47 to 0.29. was looking for a headline reading of 0.40. 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. After hitting the top of the channel in April, it has slipped to the upper mid-range.

There’s a Giant Contradiction at the Heart of the U.S. Economy - Suppose you told an economist these facts and only these facts: Long-term interest rates have fallen sharply over just a few months. Prices for oil and other much-needed commodities have been in free fall in the face of weak demand. Markets are predicting that inflation will be low in the years ahead and that the central bank will keep interest rates lower for longer.  Knowing only those facts, the economist would conclude that this country was staring down the barrel of a significant economic slowdown, and maybe even a recession.  What would that economist conclude, though, if stock prices are consistently rising toward record highs, job gains are the best in years, corporate sales and profits are rising, and business surveys and other real-time indicators of the economy point to steady expansion?  That country, of course, would seem to have a perfectly strong economic outlook. And as you have surely guessed, both these situations apply to the same country at the same time, which is to say the United States in November 2014.

Lower oil prices and the U.S. economy -- For the last 4 years, the national average retail price of gasoline in the United States stayed within a range of $3.25-$4.00 a gallon. But that all changed this fall, with U.S. consumers now paying an average price of $2.82.  This usually is the time of year when gasoline prices tend to be at their lowest. But the current U.S. price of gasoline is exactly what we’d predict given the long-run relation between the price of gasoline and crude oil. There’s essentially no seasonal component in the price of crude. In other words, if crude stays at its current value (namely, Brent at $80), the lower price of gasoline is here to stay. The current price of gasoline is 80 cents/gallon below what it has averaged over the last 3 years. Last year Americans consumed 135 billion gallons of gasoline. That means that if prices stay where they are, consumers will have an extra $108 billion each year to spend on other things. And if the historical pattern holds, spend it they will.  Lower gasoline prices likely also contributed to the recent rise in consumer sentiment. Historically a 20% drop in energy prices would predict a 15-point rise in consumer sentiment. That relation weakened considerably as consumers got accustomed to the up-and-down yo-yo of prices in recent years. Nonetheless, consumer sentiment is now at the highest level it’s been since the Great Recession.  But another thing that’s changed is that much more of the oil we consume is now being produced right here at home. While lower prices are a boon for consumers, they pose a potential threat to producers, especially the higher-cost operators. Jim Brown reports that “the most recent companies to announce capex cuts are Exxon, Shell, Conoco, Continental Resources, Apache, Energy XXI and Hess.”  If there are employment cuts in places like Texas, Louisiana, and North Dakota, that would obviously offset some of the gains to consumers noted above, and ultimately undercut the major force keeping the price of crude low for the time being, that being the success of small U.S. oil producers.

U.S. Economy Grew at 3.9 Percent Rate in 3rd Quarter - — The U.S. economy grew at a solid 3.9 percent annual rate in the July-September period, even faster than first reported, giving the country its strongest six months of growth in more than a decade.The third quarter growth rate climbed from an initial estimate of 3.5 percent because of greater spending by consumers and businesses, the Commerce Department reported Tuesday. The figure followed a 4.6 percent surge in the spring, which resulted in the biggest consecutive quarters of growth since 2003.Analysts believe momentum could slow to around 2.5 percent in the current quarter but then accelerate again in 2015. They expect growth of around 3 percent, representing a sustained acceleration in activity six years after the Great Recession."The question of whether the economy is accelerating or will accelerate is no longer a question; we can say somewhat definitively that the economy has already accelerated," said Dan Greenhaus, chief strategist at BTIG.The economy as measured by the gross domestic product — the country's total output of goods and services — has been on a roller coaster this year. It started with a steep slide in activity in the first three months of the year when GDP contracted at a 2.1 percent rate, largely due to a severe winter.Consumer spending, which accounts for 70 percent of economic activity, grew at a 2.2 percent rate in the third quarter. The figure was an improvement from an initial estimate of 1.8 percent growth. Business investment in equipment shot up at a 10.7 percent rate, an increase from an initial estimate of 7.2 percent.

Q3 GDP Revised Up to 3.9% Annual Rate --From the BEA: Gross Domestic Product: Third Quarter 2014 (Second Estimate) Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.9 percent in the third quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent. The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent. With the second estimate for the third quarter, private inventory investment decreased less than previously estimated, and both personal consumption expenditures (PCE) and nonresidential fixed investment increased more. In contrast, exports increased less than previously estimated. The increase in real GDP in the third quarter reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased. Here is a Comparison of Second and Advance Estimates.  PCE was revised up from 1.8% to 2.2%, and private investment was revised up.   A solid report.

Q3 GDP Surprisingly Revised Upward by Half a Percentage Point to 3.9% -Third quarter 2014 real GDP was revised upward to 3.9% from the original 3.5%.  The reason was investment, as changes in private inventories were revised sharply upward.  Consumer spending was also stronger by over a quarter of a percentage point and also bumped up the revision.  Imports were revised upward and exports downward which subtracted from economic growth.  Overall Q3 GDP was surprisingly strong in this Turkey surprise.As a reminder, GDP is made up of:  Y = C+ I + G + (X - M) where Y=GDP, C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  GDP in this overview, unless explicitly stated otherwise, refers to real GDP.  Real GDP is in chained 2009 dollars.This below table breaks down the revisions from the advance report and now in Q3 GDP.  We expected imports to be revised dramatically up but the changes to private inventories was a bonus boost to Q3 growth which negated increased imports.  We now have two quarters of strong GDP growth.  This below table shows the percentage point spread breakdown of Q2 from Q3 2014 GDP major components and their spread.  Notice how strong exports are, a nice and unusual change. Consumer spending was 39% of GDP.  Durable goods were now a 0.63 percentage point GDP contribution, slightly revised upward.  Motor vehicles & parts consumer spending added 0.26 percentage points to GDP.   In consumer spending services, food & accommodation services was 0.2 percentage points while financial & insurance was 0.28 percentage points, which makes one wonder how jacked consumers are getting on finance charges.  Housing and utilities was a -0.23 GDP percentage point contribution which reflects the decreasing energy demand.  Below is a percentage change graph in real consumer spending going back to 2000.

Q3 GDP Second Estimate at 3.9% Beats Economists' Expectations -- The Second Estimate for Q3 GDP, to one decimal, came in at 3.9 percent, an increase from the Advance Estimate of 3.5 percent. Today's number beat mainstream economists' estimates, which were for a fractional decrease. For example, had a forecast of 3.3 percent. Here is an excerpt from the Bureau of Economic Analysis news release: Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 3.9 percent in the third quarter of 2014, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.6 percent.  The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 3.5 percent. With the second estimate for the third quarter, private inventory investment decreased less than previously estimated, and both personal consumption expenditures (PCE) and nonresidential fixed investment increased more. In contrast, exports increased less than previously estimated (see "Revisions" on page 3).  The increase in real GDP in the third quarter reflected positive contributions from PCE, nonresidential fixed investment, federal government spending, exports, residential fixed investment, and state and local government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.  The deceleration in the percent change in real GDP reflected a downturn in private inventory investment and decelerations in exports, in nonresidential fixed investment, in state and local government spending, in PCE, and in residential fixed investment that were partly offset by a downturn in imports and an upturn in federal government spending. The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.4 percent in the third quarter, 0.1 percentage point more than in the advance estimate; this index increased 2.0 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 1.6 percent in the third quarter, compared with an increase of 1.7 percent in the second. [Full Release]  Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually.   Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I've also plotted the 10-year moving average, currently at 1.6 percent.

Q3 GDP Revised Above Highest Estimate, Prints 3.9% -- Just as the OECD cut US GDP further, here comes the BEA with an impressive first revision to the Q3 GDP, which succeeded in fixing all those things that were lacking in the first report which said GDP had grown 3.5% in the quarter. Moments ago, the revised number slammed expectations of a modest decling to 3.3%, rising by3.9%, above the highest Wall Street estimate (range was 2.8% to 3.8%), with the boost coming from all those components that disappointed in the first go around, namely Personal Consumption (which rose from 1.8% to 2.2%), contributing 1.51% of the final GDP print, inventories subtracting far less, or just -0.12% compared to -0.57%, and fixed investment revised to 0.97% from 0.74%. Finally, while exports were revised modestly lower, a small decline in imports also offset the net decline in trade contribution.

U.S. GDP Registers Best Consecutive Quarters of Growth Since ’03 -- GDP registered its best six-month stretch since 2003 in the period ending Sept. 30, Commerce Department data out Tuesday showed. The resurgent growth alongside steady labor market improvements this year suggest the economy is on solid footing despite uncertainty abroad. GDP has now expanded for two straight and 19 of the past 21 quarters. Those 63 months of only briefly interrupted growth stretch out longer than the post-World War II average of 58 months for recoveries. But strip out some of the quarterly volatility and the economy’s performance remains unspectacular. For the third quarter alone, GDP advanced a healthy 3.9%. But the same data sliced up a little differently offers a reminder of the lackluster, roughly 2% growth that has been the story through much of the recovery. Indeed, third-quarter GDP advanced only 2.4% compared with the same period a year earlier, slower than the 2.6% pace in the second quarter. The year-over-year figures, included in Table 8 of the GDP report, send important signals about how Federal Reserve officials are likely to view  the numbers. The headline number of 3.9% compares economic output for the July to September period to the April to June period. The figures can capture the latest trends in the economy but also reflect some volatility. The year-over-year numbers offer a longer-term perspective.  Macroadvisers is forecasting GDP will expand 2.2% from the third quarter to the fourth quarter, and 2.1% from the fourth quarter of 2013 to the fourth quarter of 2014. While the topline numbers aren’t terribly exciting, Mr. Herzon said some underlying figures, such as private domestic final sales and personal consumption expenditures, suggest the economy is steadily improving.

Something to be thankful for: the US government has finally stopped holding back the recovery - It’s no secret that spending cuts (and tax hikes) have retarded America’s growth for the past four years. But data from the Bureau of Economic Analysis suggests that the era of austerity may finally have ended. The following chart shows the contribution of government and private spending to annual GDP growth, since the start of 2005: Until the middle of 2010, government spending supplemented private activity to boost total income. One can argue about whether any of this spending was actually valuable and whether or not it was worth the cost of financing it through taxation and borrowing — we would ask the same questions about building and furnishing houses in the desert, too — but the maths are straightforward. Starting about four years ago, however, government spending cuts began to bite. At its worst, this austerity subtracted about 0.76 percentage points off the real growth rate of the economy between the middle of 2010 and the middle of 2011. If real government spending had remained constant at mid-2010 levels and everything else stayed constant, (yes we know these are big assumptions) the US economy would now be about 1.2 per cent larger. Zooming in we can see that, before the recession, defence spending was the largest contributor to reported GDP growth, while more recent austerity was initially driven by cuts at the state and local level. Those lower layers of government, which typically account for around 60 per cent of total government spending, began contributing to growth again in the middle of 2013. The federal government is still cutting its real spending, but by much less:Another way of looking at this is to break down real government spending into gross investment and current consumption. Note that we are using the BEA’s definitions rather than, say, common sense, so spending on military boondoggles and bridges to nowhere counts as investment while educating the citizenry does not. Overall, about one fifth of total government spending is classified as investment. But cutbacks in investment spending accounted for almost three fifths of the total austerity since the middle of 2010:

Q3 GDP Gets a Lift and Invites a Global Perspective on the U.S. Economy. - (6 graphs ) -The BEA announced the second estimate for real GDP this morning, boosting Q3 growth to 3.9% from 3.5% announced in the advance estimate. The increase came largely from boosts in  business investment and consumption. The equipment component of business fixed investment increased 10.7%. Residential structures showed only a 2.7% rise while the Case-Shiller and FHFA home price indices were essentially flat. The contribution of investment to GDP growth was less than a third of the contribution in the second quarter while the contribution of Exports, while still positive, was less than a half of what it was.  The GDP numbers suggest that the U.S. economy is strong and resilient although there are reasons for concern. Chief among these concerns is that major trading partners of the U.S. are struggling – some of them mightily.  In this post we look at the relation to other major trading partners and the powerful emerging economies. Our comparisons are somewhat hampered by the reliability and availability of data (see our rant on europeansnapshot) but we show what we can.  The first thing to note is that North American Economy as a whole is recovering well. The U.S., Canada and Mexico are all expanding in the seven years since the financial crisis of 2007-2009 brought many of the worlds economies to their knees. The picture below shows the trajectory of the North American economies since the financial crisis.  This is important because Canada is the top U.S. trading partner and Mexico ranks third behind China. If these economies were faltering that would hold back the U.S. but they are not.  Outside of North America the other most important trade relationship is with Europe. Taken as a whole the EU accounts for 17% of world GDP, slightly more than the U.S. Europe – U.S. trade accounts for 40% of world trade in services and 30% of world trade in goods. Japan accounts for about 5% of world GDP and is the fourth largest trading partner.  The picture below shows that Europe and Japan are both stagnant. .  Although the U.S. looks strong by comparison to these major trading partners their weakness constitutes a major headwind for the U.S. economy.  If they are not well it is harder for us to do well. Much of the momentum in the world economy for the past decade has been contributed by the fast growing emerging market economies referred to as the BRICS – Brazil, Russia, India, China and South Africa. Data limitations are a major limitation in looking at these economies but the pictures below give a sense of the recent pattern. Brazil has slipped into recession as has Russia. Partial data suggests that Chinese growth is slowing. The BRICS excluding China seem to be slowing somewhat, growing more at the pace of the U.S. than at their historical pace.

How the Data Show the Economic Recovery Is Still Young -- Not much changed in the revised third-quarter gross domestic product data: Growth was a bit faster than the first estimate indicated, largely because inventory investment slowed less rapidly.  But the preliminary estimates of third-quarter corporate profits, also released Tuesday, were more interesting. It’s a common historical pattern that capital incomes (profits and net interest payments, mostly) fall sharply as a share of corporate-sector income during recessions but rise rapidly in the early phase of recoveries. As recoveries mature and labor markets tighten and wages rise, the capital share of corporate-sector income then tends to fall. And the share of corporate-sector income claimed by labor compensation (wages and salaries) follows a mirror opposite pattern: rising sharply during recessions, falling in early recoveries, and then rising again in mature stages of the business cycle.  The behavior of these capital and labor income shares is a pretty good way to assess whether a recovery is “young.” And Tuesday’s data highlight that the recovery from the Great Recession, despite having gone on for more than five years, is still very young. In making this “young recovery” argument, a colleague and I noted (in this paper) that the first-quarter data on corporate profits should be largely discounted, as the sharp drop in profits in those months was driven by a tax change (the end of accelerated depreciation at the beginning of the year). Goldman Sachs research notes also indicated that according to capital income share measures the recovery was still young and that it was too early to declare that this share had peaked in 2013. Tuesday’s data confirm this: The share of corporate-sector income accruing to capital-owners reached 27.3%–the highest since the recovery from the Great Recession began and the highest since 1950.

Why 4% Growth Doesn’t Feel That Hot -  The Commerce Department on Tuesday revised up the annual growth rate for third-quarter real gross domestic product to 3.9% from the advance reading of 3.5%.The upgrade was a surprise. Indeed, none of the 30 economists surveyed by the Wall Street Journal expected GDP to be revised up. The rate follows a 4.6% expansion in the second quarter, putting growth over those six months at a rapid 4.25%. So, why doesn’t the U.S. economy feel like it’s surging by 4%-plus?A key explanation is the lopsided distribution of gains from that 4% output pace. With more data in hand, Commerce revised down sharply wages and salaries over the last two quarters. The growth rate for compensation last quarter was revised down from 4.0% to 3.5% last quarter, and down from 5.3% to 2.8% in the second quarter.At the same time, corporate profits continue to rise. Earnings economywide increased for the sixth consecutive quarter, according to the Commerce data. As a result, operating profits accounted for a slightly larger share of national income last quarter, while compensation’s share slipped. After-tax profits are also rising. No wonder that stock prices are hitting new highs while consumers saved less last quarter. No wonder, also, that consumer confidence about economic well-being remains well below levels usually hit this far into an expansion. The Conference Board reported Tuesday that its confidence index unexpectedly fell to 88.7 in November from 94.1 in October. Although confidence remains at a high level for this expansion, it’s actually quite low compared with the most recent expansions that have lasted more than five years (a mark hit by this expansion this summer).

If Output Is Near Potential, Why Is Inflation so Low? - There is a lot of discussion of how economic slack is fast disappearing, and I expect a lot of push on this view, given continued rapid growth in GDP as reported in today’s second release for 2014Q3. This view seems counter to (1) the CBO estimate of potential GDP and (2) the slow pace of inflation. My suggestion is that there remains a substantial amount of slack out there. In Figure 1, I plot log GDP as reported in today’s release, and potential GDP as estimated by the CBO in its August report. According to the CBO’s estimate of potential (if readers find my repetitive use of the adjective “estimate” tiresome, blame reader Tom), the current (estimated) output gap is -3.5% (in log terms). As I have discussed, there are a variety of other methods than the CBO’s (which is essentially a production function approach), including statistical detrending methods such as the Hodrick-Prescott filter (see [1] [2] [3])  I am going to use economics to infer the output gap and hence the level of potential GDP, i.e., exploiting the expectations-augmented Phillips curve. This means I am appealing to the following data. Figure 2: Year-on-year core CPI inflation (blue), core personal consumption expenditures (PCE) deflator (red), and expected one year PCE inflation over the next year (green triangles). Source: BLS, BEA via FRED, Survey of Professional Forecasters.

The GOP Controls Congress. Now It Can Change How Math Works. - When Republicans took control of both houses of Congress earlier this month, they won an important new power: They can change how Congress does math.  Seriously. Republicans, led by Rep. Paul Ryan (R-Wis.), their budget guru, are considering altering the way Congress calculates the costs of tax cuts—a move that could make big tax cuts for the rich appear less costly than they really are.  Here's how it would work. In January, Republicans will be in charge of Congress. And that includes the Joint Committee on Taxation, which calculates how tax laws affect revenue, and the Congressional Budget Office, which produces official budget projections. Right now, when the CBO and the JCT calculate the impact of tax laws on government income, they consider how Americans might alter their behavior in response to tax rate changes. But these tax-math bodies do not evaluate how tax legislation could affect economic growth—largely because those sorts of impacts are hard to predict. Republicans have long claimed that tax cuts lead to greater economic activity that inexorably yields more tax revenues—a point much disputed. But Ryan, who in January will head up the House Ways and Means committee (which has jurisdiction over tax reform), and his fellow GOPers are looking to enshrine this Republican belief into the hard and fast calculations of Capitol Hill's number-crunchers.

How to think about “think” tanks: It is sometimes said that think tanks are good for democracy; indeed the more of them, the better. If there are more ideas in the public arena battling it out for your approval, then it’s more likely that the best idea will win, and that we will all have better public policies. But intuitively many of us have trouble believing this, have trouble knowing who is being truthful, and don’t know who to trust.This battle of ideas, studies, and statistics has the potential to make many of us cynical about the whole process, and less trusting of all research and numbers. If a knowledgeable journalist like the Canadian Kady O’Malley expresses a certain exasperation that think-tank studies always back up “the think-tank’s existing position,” what hope is there for the rest of us? A flourishing of think tanks just let’s politicians off the hook, always allowing them to pluck an idea that suits their purposes, and making it easier to justify what they wanted to do anyways. Maybe we shouldn’t be so surprised that think tanks produce studies confirming their (sometimes hidden) biases. After all this is something we all do. We need to arm ourselves with this self-awareness. If we do, then we can also be more aware of the things in a think tank’s make-up that can help in judging its credibility, and also how public policy discussion should be structured to help promote a sincere exchange of facts and ideas. ...

High Marginal Tax Rates on the Top 1% -- Lambert here: Though I disagree with the thesis that taxes fund spending, I’ve always felt it would be a good thing to tax the rich heavily, for three reasons: 1) To prevent them from buying the political class and the government with their loose cash; 2) to prevent the formation of an aristocracy of inherited wealth; and 3) for the sake of the children of the rich, to whom great wealth often comes as a painful burden. To these reasons, the authors add a fourth:  Reducing the incentives for the most productive people in society to put effort into generating income leads to a reduction in labour hours provided by the top 1% earners on the order of about 30%.  We live in a financialized economy; hence — I would argue — the top 1% earners come from the FIRE sector. If this is true, then the work the top 1% earners do is parasitical and destructive.  If we had high paying private equity firms doing 30% less work looting firms, or highly paid banksters doing 30% less work fleecing customers, or HFT boutiques doing 30% less work gaming the markets, then I think the economy would be better off, not worse. Just because a tapeworm processes nutritive matter “productively” doesn’t mean tapeworms are productive for the body they inhabit. So I’m quite dubious about the authors’ claims for a “contraction of aggregate activity” if top earners are taxed at Eisenhower rates. In fact, aggregate activity might return to rude health.

Congress Poised To Eliminate Key Tax Breaks For Middle Class, Provide Permanent Tax Breaks For Corporations - Senate Majority Leader Harry Reid (D-NV) has reached a compromise with House Republicans on a package of tax breaks that would permanently extend relief for big multinational corporations without providing breaks for middle or lower-income families, individuals with knowledge of the deal tell ThinkProgress. Under the terms of the $444 billion agreement, lawmakers would phase out all tax breaks for clean energy and wind energy but would maintain fossil fuel subsidies. Expanded eligibility for the Earned Income Tax Credit and the Child Tax Credit would also end in 2017, even though the Center for Budget and Policy Priorities estimates that allowing the provisions to expire would push “16 million people in low-income working families, including 8 million children into — or deeper into — poverty.” The proposal would help students pay for college by making permanent the American Permanent Opportunity Tax Credit, a Democratic priority.  Meanwhile, two-thirds of the package would make permanent tax provisions that are intended to help businesses, including a research and development credit, small business expensing, and a reduction in the S-Corp recognition period for built-in gains tax. The costs of the package will not be offset.  “This Congress seems willing to give huge tax cuts to big businesses—who are already doing better than ever—but somehow can’t prevent tax increases on 50 million working Americans that will occur when expansions of the Earned Income Tax Credit and Child Tax Credit expire,” Harry Stein, the Associate Director for Fiscal Policy at American Progress Action Fund, told ThinkProgress. “This is a great deal for CEOs and a terrible deal for struggling families.”

Tax Extenders Package Is Fundamentally Flawed — The emerging “tax extenders” package marks a significant step backward on several key issues facing the nation:  long-term budget deficits, high levels of poverty (especially among children), and widening inequality.  It would permanently enlarge budget deficits — and, by so doing, increase pressures to cut domestic programs more deeply — while favoring large corporations and leaving out millions of families that work for low or modest wages.   At a cost of more than $400 billion over ten years, the package makes permanent a series of temporary tax breaks known as the “tax extenders” and substantially enlarges some of them, while extending most of the remaining extenders for two years.  This would undo more than half of the revenue raised by the “fiscal cliff” legislation at the end of 2012, and would consequently result in the overwhelming share of the deficit reduction achieved since 2010 — more than 85 percent of it — coming from budget cuts, with little net revenue savings.  And, with congressional Republicans insisting that future congressional budget resolutions balance the budget in ten years without new revenues, the extenders package would increase pressure to cut domestic programs more deeply.Moreover, if policymakers make a number of extenders permanent now without paying for them, they won’t have to offset the cost of making these tax breaks permanent as part of future tax reform legislation.  That would enable them to produce a tax reform bill that cuts the top tax rate more deeply, curbs fewer special-interest tax breaks, or both — and yet still is labeled “revenue neutral.” Finally, the package is lopsided in whom it benefits and whom it ignores.  Two-thirds of its more than $400 billion in tax benefits would go to businesses.  Yet it fails to extend the temporary tax provisions most important for reducing poverty and increasing opportunity among low-income working families with children.  Those provisions, improvements in the Earned Income Tax Credit (EITC) and the low-income component of the Child Tax Credit (CTC) that were first enacted in 2009 and are scheduled to expire after 2017, lift more than 16 million people out of poverty or closer to the poverty line each year, including nearly 8 million children.  By making a slew of the corporate tax extenders permanent while failing to extend these CTC and EITC provisions, the package risks stranding those provisions and making it less likely they will continue beyond 2017.

Extending Bad Fiscal Policy with Tax Extenders - As we near the end of the calendar year, we’ve once again reached tax extender season—the time of year when senators and representatives set aside their differences to hand out tax breaks, loopholes, credits, and deductions as if they got them at a Black Friday sale. For the uninitiated, “tax extenders” refers to a whole package of supposedly temporary tax breaks that are lumped together and passed into law every year or two, like clockwork.Tax extender packages are genetically designed to sail through even the most acrimonious Congress. For one thing, there’s something for everyone. Supporters of schoolteachers will vote for the package because it includes a deduction for teachers to buy items for their classrooms, even if it includes tax breaks they don’t like at all, like those that benefit thoroughbred racehorse owners and NASCAR racetrack developers. (Policymakers that like watching fast things race in circles, but don’t care much for teachers, are also happy to vote for the package.) Moreover, the temporary nature of extenders packages allows Congress to simultaneously pretend that the tax breaks will actually expire soon (so as to deflate the budgetary cost of the legislation) while telling key constituencies—most of whom happen to be big businesses—that their cherished tax breaks are effectively permanent because they have always been extended before. This week, Congress appears to be zeroing on a tax extender deal to be voted on when lawmakers return to Washington after Thanksgiving—and somehow, the biannual tax-cut fest is worse than normal.

The tax extender package: a lame duck turkey -  I apologize for breaking in with a weedy tax discussion. But there’s an effort afoot to jam some nasty tax policy through the system.I’m talking about the so-called “tax extenders” package, a dog’s breakfast of permanent tax breaks mostly for businesses that would add over $400 billion to the ten-year budget deficit without doing anything for low-income, working families. In a particularly nefarious twist, the package would increase pressure to further cut domestic programs far below the already unsustainable level imposed by sequestration.  As my CBPP colleagues point out: Two-thirds of its more than $400 billion in tax benefits would go to businesses, and it doesn’t continue the two temporary tax provisions most important for reducing poverty and increasing opportunity among low-income working families with children.  Those provisions, improvements in the Earned Income Tax Credit (EITC) and the low-income component of the Child Tax Credit (CTC), lift more than 16 million people out of poverty or closer to the poverty line each year, including nearly 8 million children.  By making a slew of the tax extenders permanent while excluding the CTC and EITC provisions, the package risks stranding those provisions and making it less likely they will continue beyond 2017.Tax extenders are a series of allegedly temporary tax breaks that are conventionally extended, unpaid for, year after year. These include tax credits for research and development, expensing deductions for small businesses, deductions for state and local sales taxes, and more. To put them in the annual budgets that Congress and the President construct each year would mean they’d either have to be paid for with higher taxes or spending cuts elsewhere or added to the deficit. So the usual practice is to just extend them by stealth every year and hope nobody notices.

Obama Veto Threat on Tax-Break Bill Deepens Rift Among Democrats - President Barack Obama’s threatened veto of a $400 billion-plus tax-break bill exposed a widening fault line within the Democratic Party. Negotiators from both parties, including Senate Majority Leader Harry Reid, were preparing to exclude a pair of Obama’s top priorities from a year-end agreement. The plan would lock in permanent extensions of tax breaks for corporations, college students and residents of states without income taxes while not making permanent breaks for low-income families. Obama objected and responded in an unusual way yesterday. The White House issued a veto threat before lawmakers released the plan publicly, siding with progressive groups and advocates for a lower budget deficit over his own party’s Senate leaders. “The president would veto the proposed deal because it would provide permanent tax breaks to help well-connected corporations while neglecting working families,” Jen Friedman, a White House spokeswoman, said in an e-mail yesterday.

The rich are getting richer, but it has nothing to do with their paychecks - The richest Americans are getting richer. Everyone knows that. But it doesn't mean their paychecks are getting bigger. New IRS data shows that the salaries and wages of the 400 highest-income tax-returns has in fact, relative to everyone else's pay, fallen off dramatically in recent years.  The data, highlighted by Al Jazeera's David Cay Johnston, highlights a few salient points about what's driving inequality in the US. It's not just the rich's percent of wage income that has fallen off. The average salaries and wages on these 400 returns totaled around $16.5 million in 2010. That's a fantastically huge sum of money for many of us, but it's only around 6.4 percent of the total average adjusted gross income those returns reported. That 6.4 percent is down from 26.2 in 1992. That's a huge fall in the importance of wages and salaries to these Americans.  So where are the rich getting all their money? As the Washington Post's Matt O'Brien points out today, they are reaping by far the largest portion of capital gains — these 0.0003 percent of tax returns were from people and households that took in nearly 16.2 percent of those gains last year. Not only that, but they accounted for more than 7 percent of the dividends and almost 5 percent of the taxable interest income — interest from, say, bonds or bank accounts. Here's a new chart that puts that salaries and wages line from the above chart into perspective.

U.S. Corporate Profits Up Year-Over-Year for 12th Straight Quarter --U.S. corporations saw profits rise for three straight quarters and are up 3.8% from a year earlier, the Commerce Department said Tuesday. The estimate for corporate profits after tax, without inventory valuation and capital consumption adjustments, came in at a seasonally adjusted annual rate of $1.873 trillion last quarter. That’s up 1.7% from $1.842 trillion in the second quarter. The second estimate of GDP report features the first reading on corporate profits. Year-over-year, profits have grown steadily since the start of 2012. In recent weeks, publicly traded companies have shown strong results. From a year earlier, profits have risen nearly 12% among firms included in the S&P 500 index, said Christine Short, senior vice president at forecasting site Estimize. The segment with the best growth? Retailers.

Senate Report: Scale of Wall Street Holdings Are “Unprecedented in U.S. History” -  Last Thursday, the U.S. Senate’s Permanent Subcommittee on Investigations, chaired by Senator Carl Levin, released an alarming 396-page report that details how Wall Street’s too-big-to-fail banks have quietly, and often stealthily through shell companies, gained ownership of a stunning amount of the nation’s critical industrial commodities like oil, aluminum, copper, natural gas, and even uranium. The report said the scale of these bank holdings “appears to be unprecedented in U.S. history.” Adding to the hubris of the situation, the Wall Street banks’ own regulator, the Federal Reserve, gave its blessing to this unprecedented and dangerous encroachment by banking interests into industrial commodity ownership and has effectively looked the other way as the banks moved into industrial commerce activities like owning pipelines and power plants.  For more than a century, Federal law has encouraged the separation of banking and commerce. The role of banks has been seen as providing prudent corporate lending to facilitate the growth of commerce, not to compete with it through unfair advantage by having access to cheap capital from the Federal Reserve’s lending programs. Additionally, the mega banks are holding trillions of dollars in FDIC insured deposits; if they experienced a catastrophic commercial accident through a ruptured pipeline, tanker oil spill, or power plant explosion, it could once again put the taxpayer on the hook for a bailout.  The Levin report addresses the element of catastrophic risk, noting:  “Goldman, for example, bought a uranium business that carried the risk of a nuclear incident, as well as open pit coal mines that carried potential risks of methane explosions, mining mishaps, and air and water pollution…Morgan Stanley owned and invested in extensive oil storage and transport facilities and a natural gas pipeline company which, together, carried risks of fire, pipeline ruptures, natural gas explosions, and oil spills.  JPMorgan bought dozens of power plants whose risks included fire, explosions, and air and water pollution.”

How NPR Was Conned by Geithner into Censoring My Criticisms -- William K. Black -- In December 2013 NPR interviewed me about one the great disgraces of the Obama administration – its refusal to prosecute either the officers or HSBC for laundering roughly $1 billion over the course of the decade for Mexico’s Sinaloa drug cartel.  The NPR story doesn’t name the cartel or inform the listener that it is one of the world’s most violent drug cartels, or that HSBC also routinely violated the money laundering laws on transactions involving tens of trillions of dollars, and covered up its numerous violations of U.S. sanctions on Iran and Burma.  The original NPR story presented my comments on Treasury’s opposition to brining criminal charges.  Those comments were subject to what NPR labeled a “clarification” which meant they were removed from the program. “Clarification: In an early radio version of this story, a former regulator was quoted speculating that Treasury Secretary Timothy Geithner did not want to put HSBC out of business. We should have made it clear that it is the Justice Department, not the Treasury Department, that made the decision to defer prosecution of HSBC.”  This “clarification” had multiple (minor league) Orwellian elements.  NPR did not clarify, it obfuscated and censored.  The original story was accurate and far cleared.  The “clarification creates a strawman argument that I never made in order to appear to refute my actual position.  The “clarification” was crafted to mislead the listener.  I also became anonymous in the clarification, so that listeners were unable to judge from my background and reputation that the “clarification” was bogus.  By “deferred” prosecution DOJ means non-prosecution, so the clarification mislead the listeners on many dimensions.

Exclusive: U.S. prosecutors to interview London FX traders - sources (Reuters) - U.S. prosecutors will travel to London in the coming weeks to interview traders about currency market manipulation, the latest sign that authorities are closer to filing criminal charges stemming from the long-running probe, sources told Reuters. Officials from the U.S. Department of Justice will interview current or former employees at HSBC Holdings plc, (HSBA.L) among other banks, people familiar with the matter told Reuters. The plans to interview traders from HSBC do not necessarily indicate that prosecutors will file criminal charges against the bank or its employees, sources said, noting it is common for prosecutors to speak to witnesses in any criminal investigation. HSBC declined to comment. The authorities have given banks under investigation until mid-December to turn over related information, one source said. JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), UBS AG (UBSN.VX), and others have disclosed that they are under criminal investigation in the foreign exchange probe. A Justice Department spokesman declined comment, as did representatives of the banks.

HSBC, Goldman Rigged Metals’ Prices for Years, Suit Says -  Goldman Sachs and HSBC were sued in New York over claims they conspired for eight years to manipulate prices for the precious metals platinum and palladium in what plaintiffs’ lawyers say is the first such class-action lawsuit in the U.S. Standard Bank Group Ltd. and a metals unit of BASF SE (BAS), the world’s largest chemical company, were also sued. The four companies used inside information about client purchases and sale orders to profit from price movements for the metals used in products ranging from jewelry to cars, according to a complaint filed yesterday in Manhattan federal court. Modern Settings LLC, a jeweler that buys precious metals and derivatives set on their prices, claims the companies “were privy to and shared confidential, non-public information about client purchase and sale orders that allowed them to glean information about the direction” of prices. Similar lawsuits have been filed this year in Manhattan accusing banks of rigging the benchmark price for gold. Authorities around the world are examining the gold market for signs of wrongdoing. Regulators tightened scrutiny of benchmarks after uncovering price-rigging in interbank-loan rates and currencies. In August, the price-setting mechanism for silver became the first traditional procedure for a precious metal to be replaced, and Intercontinental Exchange Inc. (ICE) will run the replacement for the 95-year-old London gold fixing. A new mechanism for platinum and palladium is set to be in place Dec. 1.

The NYT Thinks Jailing the Banksters Would Cause a “Bind --  William K. Black -- Peter Henning, in his self-bowdlerized Dealbook feature he branded as “White Collar Watch” (note his deletion of the word “crime”) has come up with an article that illustrates that the New York Times is clueless about bank regulation. The good news is that once the fundamental error in their understanding of banking regulation is corrected the supposed dilemma that the Henning claims has placed the NY Fed in a terrible “bind” disappears. The title of Henning’s November 24, 2011 article has morphed during the course of the day into “Fed’s New ‘Cop on the Beat’ Role Put it in a Bind.” The title exemplifies three fundamental errors. First, the role of federal financial regulators as “regulatory cop on the beat” is not “new.” It has always been our paramount role as financial regulators. Second, Henning’s columns was prompted by William Dudley, the NY Fed’s President’s testimony before a Senate banking committee subcommittee in which he expressly refused to function as the “cop on the beat” our Nation vitally needs. Third, were Dudley to embrace the role of “cop on the beat” and perform it properly he and our Nation would escape the desperate “bind” we are in – not create a “bind.” Henning’s article tries to support the three errors encapsulated in his title in the reverse order, which I will track.

Big Investors Rebelling Against Private Equity Fees - Yves Smith  In a remarkable and long-overdue change in attitude, institutional investors are starting to tell private equity titans that they think they don’t earn their outsized pay. And that’s before you get to all the grifting they’ve been exposed to be doing on top of that. The Wall Street Journal described a confrontation at a conference in Paris, with a pension fund manager responsible overseeing private equity investments calling out the unjustifiable level of private equity fees. The reason this contretemps is striking is that it represents yet another fracture between private equity limited partners and the general partners who operate the funds over the rules of the game. It follows a simmering revolt in the UK over the general partners’ secrecy regime, which investors correctly see as an anti-compteitive practice that prevents them from negotiating better terms. In the row in Paris, a manager at a Dutch pension fund described how private equity funds represented a mere 6% of fund assets yet represented over 50% of total fees paid.

Buy the All Time HighKunstler - Wall Street is only one of several financial roach motels in what has become a giant slum of a global economy. Notional “money” scuttles in for safety and nourishment, but may never get out alive. Tom Friedman of The New York Times really put one over on the soft-headed American public when he declared in a string of books that the global economy was a permanent installation in the human condition. What we’re seeing “out there” these days is the basic operating system of that economy trying to shake itself to pieces. The reason it has to try so hard is that the various players in the global economy game have constructed an armature of falsehood to hold it in place — for instance the pipeline of central bank “liquidity” creation that pretends to be capital propping up markets. It would be most accurate to call it fake wealth. It is not liquid at all but rather gaseous, and that is why it tends to blow “bubbles” in the places to which it flows. When the bubbles pop, the gas will tend to escape quickly and dramatically, and the ground will be littered with the pathetic broken balloons of so many hopes and dreams. All of this mighty, tragic effort to prop up a matrix of lies might have gone into a set of activities aimed at preserving the project of remaining civilized. But that would have required the dismantling of rackets such as agri-business, big-box commerce, the medical-hostage game, the Happy Motoring channel-stuffing scam, the suburban sprawl “industry,” and the higher ed loan swindle. All of these evil systems have to go and must be replaced by more straightforward and honest endeavors aimed at growing food, doing trade, healing people, traveling, building places worth living in, and learning useful things. All of those endeavors have to become smaller, less complex, more local, and reality-based — rather than based, as now, on overgrown and sinister intermediaries creaming off layers of value, leaving nothing behind but a thin entropic gruel of waste. All of this inescapable reform is being held up by the intransigence of a banking system that can’t admit that it has entered the stage of criticality. It sustains itself on its sheer faith in perpetual levitation. It is reasonable to believe that upsetting that faith might lead to war. After all, a number of places organized as nation-states will be full of angry, distressed citizens clamoring for sustenance and easy answers — and quite a bit of their remaining real capital is stored in the form of things that blow up.

The liquidity monster that awaits -- Fears are growing that the next crisis, if it should manifest, won’t come from any of the areas that spawned the 2008 crisis. To the contrary, it will emerge from areas we’ve not really had to worry about to date.  The key areas those in high places are now worrying about: the taken-for-granted presumed liquidity of the system. This is an easy assumption for the asset management industry to make. For years investment banks have made a business of carrying liquidity risk on their balance sheets, mainly by internalising the inventory nobody else is prepared to hold. This sort of “we’ll buying anything just to make money from making markets” service as a result conditioned the buy-side to presume liquidity risk is something that just doesn’t really manifest anymore.  As a consequence, liquidity — especially in the major asset classes like Treasury bonds and blue-chip stocks — is often taken for granted by the industry.  Yet, as former FT Alphavillain Tracy Alloway has been warning for a long time now, it’s becoming increasingly obvious that post-2008 regulation has restricted the banks in such a way that has meaningful and thus far under-appreciated consequences for their ability to make markets in volatile times. And, most worrying, it’s unclear if the asset management industry has as yet realised that the liquidity they take for granted might in fact be a bit of an illusion. We’re now at the point where regulators — knowing precisely the consequences of what they have done — are having to drop major hints in a bid to toughen up and change behaviours and assumptions.

Federal Reserve Facing Scrutiny After Corruption Scandals - Last Friday New York Federal Reserve Chairman and former Goldman Sachs Chief Economist William Dudley went before the Senate Banking Subcommittee on Financial Institutions and Consumer Protection. Dudley testified in the wake of a slew of scandals the New York Fed was caught up in including a secret recording that revealed the Fed looked on the other way on a “shady” deal by Goldman Sachs, allowing Wall Street banks to manipulate commodity markets, and providing inside information to Goldman Sachs about how the NY Fed viewed certain Goldman clients. Dudley’s typical response to Wall Street corruption being exposed is to give a nice speech and do nothing. After a nice speech via his opening statement about the important role of the Fed, Dudley faced questions that he attempted to provide scripted answers for only to be rolled over by Senators on the committee – particularly Elizabeth Warren who at one point essentially told him to do his job or resign. The scrutiny and the scandals appear to be instigating some inner-examination of the Fed itself if you believe their press releases, or perhaps it’s just PR. The Fed announcement looks an awful lot like damage control. It came late Thursday afternoon, directly after one Senate hearing that was critical of Fed practices and before another on Friday. It also came after a bill proposed by Senator Jack Reed, a Rhode Island Democrat, that would change the way the head of the most powerful of the 12 district banks — the Federal Reserve Bank of New York — is appointed. Senator Sherrod Brown, the Ohio Democrat who oversaw those hearings, said in an interview that he was concerned about regulatory capture at the Fed because it could imperil bank examiners’ ability to monitor the safety and soundness of major financial institutions. “It’s clear that the Fed historically has cared way more about monetary policy than they do about supervision,” Mr. Brown said. “That’s why we’re shining a light on what they’re doing and their inadequacies.”

U.S. Senate Tries Public Shaming of New York Fed President Dudley -- Last Friday, the Senate Subcommittee on Financial Institutions and Consumer Protection, chaired by Sherrod Brown, effectively put William Dudley, President of the Federal Reserve Bank of New York, in stocks in the village square and engaged in a rather brilliant style of public shaming. With each well-formed question posed by the panel, Dudley’s jaded leadership of a hubristic regulator came into ever sharper focus. There were a number of elephants in the room during the lengthy session that were only briefly touched upon but deserve greater scrutiny by the press. First, Congress knew that the New York Fed was a failed, crony regulator during the lead up to the financial collapse in 2008, but it granted it an even greater supervisory role under the Dodd-Frank financial reform legislation in 2010. This Congress has also failed to engage in public shaming of President Obama for brazenly ignoring the Dodd-Frank’s statutory mandate that calls for him to appoint, subject to Senate confirmation, a Vice Chairman for Supervision at the Federal Reserve Board of Governors, who could have shaped and monitored a more credible policing role for the New York Fed.

Elizabeth Warren Tells NY Fed President: Fix Your Problems, Or We'll Find Someone Who Will: The president of the Federal Reserve Bank of New York faced a grilling from the Senate Banking Committee on Friday, following revelations that one of its former employees had been fired by Goldman Sachs for accessing regulatory information about one of the banks it oversees. In one of her many rounds of questioning, Elizabeth Warren told William Dudley that change in the New York Fed’s culture “has to come from the top” and “you need to fix it, or we need to get someone who will.” The hearing was spurred be revelations by a former bank examiner at the Fed, Carmen Segarra, who was fired after clashing with her superiors over how harsh to be on the banks she examined, including Goldman Sachs. In hours of tapes she secretly recorded documenting conversations with other Fed staffers as well as with Goldman, the New York Fed comes off as unwilling to confront banks directly even when its own staffers think there is wrongdoing. Segarra sued the New York Fed after she was fired, but a judge threw out the case after ruling her termination didn’t fall under the whistleblower standard. “We are here today because of issues raised by Carmen Segarra,” Ohio Democrat Sherrod Brown said. “She has done a public service by bringing them to light.” Brown also said Segarra was present at the hearing.

Dudley Do Wrong Rejects Being a “Cop” and Embraces “Foaming the Runways” --  William K. Black - William Dudley, the President of the NY Fed, is not a stupid man. He is, however, wholly unfit to be a regulator. He has now admitted that publicly. It is time for him to return to Goldman Sachs so that he can be replaced by someone expressly chosen to be a vigorous regulator who will embrace the most critical function of a financial regulator – to be the tough “regulatory cop on the beat.”  The story of Dudley’s ineptness has been mirrored by the New York Times’ inept coverage of the failures of one of the reporter Peter Eavis’ favorite sons on Wall Street. Eavis is a Brit with a B.A. in international history and politics. He has also been a pastor. He co-authored the epically incoherent column on the NY Fed’s most recent scandal, the leaking of confidential information by a NY Fed employee to a former NY Fed employee who had joined Goldman Sachs. I criticized that column in my November 20, 2014 article and provided some of the key missing facts and analytics.  Eavis has now written what purports to be a news story, but often reads like an editorial, about the November 21 Senate hearing on a series of recent NY Fed failures. Eavis introduces his piece with this snide slam at Senator Elizabeth Warren.  The president of the New York Fed is not chosen by Congress. And much of the stern questioning could be seen as the sort of grandstanding that plays well with those who want to limit Wall Street’s power or were harmed in the financial crisis of 2008. Even so, it will be hard for the Fed to ignore the anger directed at Mr. Dudley. The New York Fed is the public’s first line of defense against Wall Street’s excesses and abuses, and the discontent in Congress could build if more evidence emerges that suggests the New York Fed is not tough enough with the large banks it oversees.”  First, one of the most serious problems is the fact that the “president of the New York Fed is not chosen by Congress” – or, more precisely, by the President with the “advice and consent” of the Senate. As long as our anti-regulators are chosen by industry they are supposed to regulate they will be anti-regulators and they will fail to regulate effectively.

Dudley s Awful Metaphor and What It Means for the Fed - - American Banker: — It is a well-worn cliché to describe federal regulators as a "cop on the beat." The analogy is imperfect because enforcement is just one piece of what regulators do in addition to assessing risks, writing new rules and the like. Still, it's rare to see a top official object to the metaphor, particularly in front of members of Congress. But that's just what New York Fed President William Dudley did on Friday after Sen. Elizabeth Warren described his role in those terms. "I don't think our primary purpose as supervisors is a cop on the beat," Dudley replied. "It's more like a fire warden; make sure that the institution is well run so that, you know, it's not going to catch on fire and burn down. And managed in a way that if the institution is stressed that it doesn't collapse and threaten the rest of the financial system." It's a response that's likely to come back to haunt him. It temporarily stunned Warren, D-Mass., and with good reason. In describing his role as a fire warden, Dudley reached for a metaphor with probably more meaning than he intended, and one with potentially disturbing implications. . A fire marshal's job is to protect a building and its inhabitants — and save them at all costs, even from the consequences of their own errors. That sounds noble, and in real life it is. But when discussing bank regulation, it raises the uncomfortable specter of bailouts and other supervisory intervention taken not to prevent problems, but instead to contain them. A fireman is a reactive role, not a proactive one. If the regulators are fire marshals, then their focus is always going to be on saving the institution in an effort to prevent more systemic problems — to save the people inside, even if it means protecting them from their own actions. In other words, a bailout, just like the ones we had in 2008.

Yes, bankers lie more than the rest of us. Wall Street reforms aren’t likely to change that culture -- There is something in the culture of banking that lends itself toward making otherwise fairly good people do bad things. That’s the finding of a new study published in the journal, Nature. And it may simply confirm the suspicions of many following endless news of bankers being outed for bad behaviour. The list is almost too endless to mention (but here goes anyway): manipulating the foreign exchange market, LIBOR and the gold market; mis-selling interest-rate swaps, mortgage backed securities and payment protection insurance; aiding money laundering; disregarding sanctions on a country; tax avoidance; providing compromised investment advice; trading scandals – the list could go on.  In total, these fines have directly cost banks more than $100 billion in the U.S. alone. Some have suggested this could soon bring the total bill for fines since 2008 to more than $300 billion.  And, however astronomical this number sounds, the fines are just the start of it. There are legal fees, processes of internal change, consultants and, of course, new risk and compliance departments which need to be paid. On top of this, there are huge reputational costs. One recent study of U.K. banks found that for every £1 they paid out in fines they lost £9 off their share price. So banks would probably do well to address this seemingly fundamental issue of having a corrupt culture, as shown in this study.

Freddie Mac: Mortgage Serious Delinquency rate declined in October, Lowest since December 2008 - Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 1.91% from 1.96% in September. Freddie's rate is down from 2.28% in October 2013, and this is the lowest level since December 2008. 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 0.57 percentage points over the last year - and at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

Fannie Mae: Mortgage Serious Delinquency rate declined in October, Lowest since October 2008 --Fannie Mae reported yesterday that the Single-Family Serious Delinquency rate declined in October to 1.92% from 1.96% in September. The serious delinquency rate is down from 2.48% in October 2013, and this is the lowest level since October 2008. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.  Earlier this week, Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 1.91% from 1.96% in September. Freddie's rate is down from 2.48% in September 2013, and is at the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.  Note: These are mortgage loans that are "three monthly payments or more past due or in foreclosure".

Banks fight back in mortgage price war - -- Mortgage lenders engaged in fresh skirmishes on rates this week as the battle to win new borrowers in a flagging market intensified. HSBC is offering its lowest-ever five-year fixed rate at 2.48 per cent for borrowers with a 40 per cent deposit. The deal is available from Monday and carries a fee of £999. The bank also slashed the fee on its 0.99 per cent two-year discount product from £1,999 to £1,499. The discount deal also requires a 40 per cent deposit. Rates are already at long-term lows across the industry. HSBC’s five-year rate undercuts the lowest current competitor in the category, Leeds Building Society’s 2.59 per cent five-year fixed rate mortgage, which requires a deposit of at least 35 per cent and a £1,999 fee. Other lenders cutting their rates included Barclays/Woolwich, which brought out a two-year fixed-rate mortgage at 1.79 per cent and a five-year deal at 2.79 per cent, both available to borrowers seeking up to 70 per cent of the property’s value. It has also introduced a two-year tracker mortgage at 0.79 per cent above Barclays’ bank base rate, implying an actual rate or “pay rate” of 1.29 per cent. Borrowers have the option to switch into a fixed-rate deal when the base rate begins to go up.

New Mortgage Lending Drops to 13-Year Low - New figures released by the Federal Reserve Bank of New York on Tuesday show that mortgage lending is running at its lowest level in 13 years, with 2014 on pace to be the weakest for new loans since 2000. ortgage lending has been weak since the housing bust hit in 2007, but it received a series of lifts over the past few years with each round of stimulus by the Federal Reserve. Those efforts brought mortgage rates to lower levels, unleashing bursts of refinancing.  After mortgage rates jumped in the middle of last year, from around 3.6% in May to 4.6% in June for a 30-year, fixed-rate mortgage, refinancing withered. And it hasn’t returned.  or the year ended in September, mortgage lending has averaged $357 billion per quarter over the prior four quarters, the lowest since the middle of 2001. And unless the fourth quarter is unusually strong—and it usually isn’t, because housing market activity slows in the winter—that will leave 2014 as the worst year for mortgage volumes since 2000. ost of the decline has been driven by the falloff in refinancing, and the New York Fed data doesn’t separate purchases from refinancing. Still, purchase activity hasn’t been great this year, with home purchases barely keeping up with last year’s volumes.

Mortgage News Daily: Mortgage Rates below 4%, Lowest in 1-Month - From Matthew Graham at Mortgage News Daily: Mortgage Rates Now at 1-Month Lows Mortgage rates continue making improvements so small and so steady that they're barely noticeable, but they're improvements just the same. That's recently meant that we've technically been in the best territory in nearly a month recently. Despite the fact that it's not materially different than most of the past 30 days, today's rates are officially the best during that time. The most prevalently-quoted conforming 30yr fixed rate remains 4.0% for top tier borrowers, but each day of modest improvement brings us closer to 3.875% and puts 4.125% farther in the rearview. Home Loan Rates

Black Knight: House Price Index down slightly in September, Up 4.6% year-over-year - The timing of different house prices indexes; 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 Black Knight: U.S. Home Prices Down Slightly for the Month; Up 4.6 Percent Year-Over-Year: Today, the Data and Analytics division of Black Knight Financial Services​ released its latest Home Price Index (HPI) report, based on September 2014 residential real estate transactions. The Black Knight HPI combines the company’s extensive property and loan-level databases to produce a repeat sales analysis of home prices as of their transaction dates every month for each of more than 18,500 U.S. ZIP codes. The Black Knight HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.  The Black Knight HPI declined 0.01% percent in September, and is off 10.2% from the peak in June 2006 (not adjusted for inflation). The year-over-year increases have been getting steadily smaller for the last year - as shown in the table below:

Case-Shiller: National House Price Index increased 4.8% year-over-year in September --S&P/Case-Shiller released the monthly Home Price Indices for September ("September" is a 3 month average of July, August and September prices). This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index. Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs. From S&P: Broad-based Slowdown for Home Prices According to the S&P/Case-Shiller Home Price IndicesS&P Dow Jones Indices today released the September 2014 index data for the S&P/Case-Shiller Home Price Indices ... Results show that home prices continue to decelerate. The 10-City Composite gained 4.8% year-over-year, down from 5.5% in August. The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.The National and Composite Indices were both slightly negative in September. Both the 10 and 20-City Composites reported a slight downturn while the National Index posted a -0.1% change for the month. Charlotte and Miami led all cities in September with increases of 0.6%. Atlanta and Washington D.C. offset those gains by reporting decreases of 0.3% and 0.4%. ... The S&P/Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, recorded a 4.8% annual gain in September 2014. The 10- and 20-City Composites reported year-over-year increases of 4.8% and 4.9%.

Case Shiller Reports "Broad-Based Slowdown For Home Prices", First Monthly Decrease Since November 2013 -- While the just revised Q3 GDP surprised everyone to the upside, the Case Shiller index for September which was also reported moments ago, showed yet another month of what it called a "Broad-based Slowdown for Home Prices." The bad news: the 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August. However, this was modestly above the 4.6% expected. However, what was more troubling is that on a sequential basis, the Top 20 Composite MSA posted a modest -0.03% decline, the first sequential drop since February. And from the report itself: "The National Index reported a month-over-month decrease for the first time since November 2013. The Northeast region reported its first negative monthly returns since December 2013 and its worst annual returns since December 2012 due to weaknesses in Washington D.C. and Boston."

House Prices: Real Prices and Price-to-Rent Ratio in September --The expected slowdown in year-over-year price increases is ongoing. In November 2013, the Comp 20 index was up 13.8% year-over-year (YoY). Now the index is only up 4.9% YoY. This is the smallest YoY increase since October 2012 (the National index was up 10.9% YoY in October 2013, is now up 4.8% - also the slowest YoY increase since October 2012. Looking forward, I expect the indexes to slow further on a YoY basis, however 1) I don't expect the indexes to turn negative YoY (in 2015) , and 2) I think most of the slowdown on a YoY basis is now behind us. This slowdown was expected by several key analysts, and I think it is good news.  As Zillow chief economist Stan Humphries said today: “The days of double-digit home value appreciation continue to rapidly fade away as more inventory comes on line, and the market is becoming more balanced between buyers and sellers,” This slowdown is a critical step on the road back to a normal housing market, and as we approach the end of 2014, the housing market has plenty to be thankful for.” In the earlier post, I graphed nominal house prices, but it is also 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 $278,600 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation). Another point on real prices: In the Case-Shiller release this morning, the National Index was reported as being 10.4% below the bubble peak.   However, in real terms, the National index is still about 25% below the bubble peak. The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through July) in nominal terms as reported.In nominal terms, the Case-Shiller National index (SA) is back to March 2005 levels, and the Case-Shiller Composite 20 Index (SA) is back to October 2004 levels, and the CoreLogic index (NSA) is back to February 2005.

A Look at Case-Shiller by Metro Area - U.S. home prices are up just 4.8% in the year ended in September, according to today’s S&P/Case-Shiller report. That’s down from 5.1% in August. Regionally, Charlotte and Dallas were the only cities to see their annual gains accelerate while Cleveland remained virtually unchanged for the fourth consecutive month. Miami’s change from a year ago, while not as high as in previous months, topped other cities at 10.3%. See how your metro area performed.

California Housing Market Cracks in Two, Top End Goes Crazy -- That the housing market is seriously twisted is apparent by the mortgage conundrum: despite historically low mortgage rates of around 4% for a 30-year fixed rate mortgage, mortgage originations averaged only $357 billion per quarter so far this year, according to the New York Fed. Unless a miracle intervenes in the fourth quarter, 2014 will be the worst year since 2000. But home prices have soared 74% since 2000, according to the S&P Case-Shiller index. Unit sales are higher as well. Mortgage originations soared with them during the boom, crashed with them during the bust, and re-soared with them. Now home prices have “recovered” beyond the bubble highs in many markets, pumped up by big Wall Street players with access to the Fed’s free money. They gobbled up vacant homes for their buy-to-rent scheme. And they’re now stuffing rent-backed structured securities into retirement portfolios via conservative-sounding bond funds. But even these firms are getting cold feet [The Big Unwind: After Messing up the Housing Market, the “Smart Money” Bails Out].   Yet purchase mortgages started fizzling last year and today remain below the level of a year ago. At the segment where first-time buyers enter the market and where regular folks are trying to cobble together their American dream, buyers have to get a mortgage to buy a home. And there, things have gotten tough. Incomes have stagnated, and prices have been shoved out of reach.

Zillow: Case-Shiller House Price Index year-over-year change expected to slow further in October - The Case-Shiller house price indexes for September were released yesterday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close. From Zillow: Oct. 2014 Case-Shiller Prediction: Expect the Slowdown to Continue The September S&P/Case-Shiller (SPCS) data out [yesterday] showed more slowing in the housing market, with annual growth in the 20-city index falling 0.7 percentage points from August’s pace to 4.9 percent in September. This is the first time annual appreciation for the 20-city index has been below 5 percent since October 2012. The national index was up 4.8 percent on an annual basis in September. Our current forecast for October SPCS data indicates further slowing, with the annual increase in the 20-City Composite Home Price Index falling to 4.3 percent. The non-seasonally adjusted (NSA) 20-City index was flat from August to September, and we expect it to decrease 0.4 percent in October. We also expect a monthly decline for the 10-City Composite Index, which is projected to fall 0.4 percent from September to October (NSA).All forecasts are shown in the table below. These forecasts are based on the September SPCS data release and the October 2014 Zillow Home Value Index (ZHVI), released Nov. 20. Officially, the SPCS Composite Home Price Indices for October will not be released until Tuesday, Dec. 30. So the Case-Shiller index will probably show a lower year-over-year gain in October than in September (4.9% year-over-year for the Composite 20 in September, 4.8% year-over-year for the National Index).

New Home Sales at 458,000 Annual Rate in October -- The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 458 thousand.   September sales were revised down from 467 thousand to 455 thousand, and August sales were revised down from 466 thousand to 453 thousand. "Sales of new single-family houses in October 2014 were at a seasonally adjusted annual rate of 458,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent above the revised September rate of 455,000 and is 1.8 percent above the October 2013 estimate of 450,000." The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Even with the increase in sales over the previous two years, new home sales are still close to the bottom for previous recessions. The second graph shows New Home Months of Supply. The months of supply increased in October to 5.6 months from 5.5 months in September. The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal).The third graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The New Home Sales Farce: Department Of US Economic "Data" Revisions Full Frontal -- Moments ago the Census Bureau reported that 458K new homes were sold in October (with a 16.5 error confidence), which missed expectations of a 471K increase from last month's 467K print, but that's ok, because last month's number was also revised substantially lower from 467K to 453K, which in turn will allow the mainstream propaganda to tout that New Home Sales jump in October to match the highest print since October 2013. There is one problem: here is what the update chart of New Home Sales data looks like on a historical basis... and as revised. It sure puts that 458K "increase" in a slightly different light.

Comments on October New Home Sales -  The new home sales report for October was below expectations at 458 thousand on a seasonally adjusted annual rate basis (SAAR).   Also, sales for the previous three months (July, August and September), were revised down.   Sales this year are significantly below expectations, however, based on the low level of sales, more lots coming available, and demographics, it seems likely sales will continue to increase over the next several years.  Earlier: New Home Sales at 458,000 Annual Rate in October. The Census Bureau reported that new home sales this year, through October, were 373,000, Not seasonally adjusted (NSA). That is up 1.9% from 366,000 during the same period of 2013 (NSA). Not much of a gain from last year.  Right now it looks like sales will barely be up this year.  Sales were up 1.8% year-over-year in October.This graph shows new home sales for 2013 and 2014 by month (Seasonally Adjusted Annual Rate). The year-over-year gain will be small in Q4, but I expect sales to be up for the quarter and for the year. And here is another update to the "distressing gap" graph that I first started posting several years ago to show the emerging gap caused by distressed sales. Now I'm looking for the gap to close over the next few years. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through September 2014. This graph starts in 1994, but the relationship has been fairly steady back to the '60s.

A note about the housing market for October -- A slew of housing data for September and October was reported yesterday and this morning. To begin with, let me reiterate that I pay so much attention to this market because it is the single most leading sector of the economy.  When interest rates increased by about 1.5% in mid-2013, I forecast that the housing market would stop growing and would even turn down this year.  That it did, making a trough at about the end of last winter.  Since then it turned up, but only at a very low rate.  Generally multi-unit properties are being construted at a slightly faster rate than single family homes, which have stagnated.  Meanwhile prices generally have continued to appreciate, although there are signs that these too may actually have turned down earlier this year before starting to appreciate again. The latest data continues that trend.  Last week we already found out that while the more volatile housing starts number was deemed slighly disappointing, housing permits (which tend to be about a month ahead of starts) made a new post-recession high.  Today single family home sales were reported equal to their post recession high, made a little more than a year ago.  For the last few months they have been generally slightly positive YoY.  The less important existing home sales were positive YoY for the first time in many months yesterday.  Pending home sales declined from September, but were also have turned postive YoY.  All of the house price numbers are positive YoY.  The Case-Shiller index, however, has failed to make a new seasonally adjusted high since April.  Mortgage rates continue to decline, with 30 year rates under 4% again.  This tells me that home sales will continue to improve, and are likely to improve a little more vigorously, in the months ahead.  And because housing is such a leading sector, this has made me increasingly optimistic about the economy, jobs, and wages next year.

Choose One, Millennials: Upward Mobility or Affordable Housing - So what'll it be: Dayton or San Francisco?Alright, so that's not the most common choice for young people getting ready to start their lives. But it's an instructive question. Dayton is the most affordable housing market in the United States, according to Trulia chief economist Jed Kolko, while San Francisco is the least affordable place to live in America. But the San Francisco-San Jose area has a better record of social mobility than just about any region in the country, according to Harvard economist Raj Chetty. In other words, a variety of factors make it the best place for young person to work his or her way into the middle class and beyond. As for Dayton and other Ohio cities, they account for four of the 12 worst cities for that same measure of upward mobility. The Dayton-SF dilemma isn't about Ohio vs. California. It's about a broader dilemma for young workers and, in particular, young couples looking to buy a home, raise children, and achieve the American Dream. The cities with the least affordable housing often have the best social mobility. And the cities with the worst social mobility often have the most affordable housing. When good jobs for the middle class and affordable homes are living in different cities, it represents a slow-motion splintering of the American Dream.

Just Released: Household Debt Balances Increase as Deleveraging Period Concludes - NY Fed - The New York Fed released the Quarterly Report on Household Debt and Credit for the third quarter of 2014 today. Balances continued to rise slightly, with an overall increase of $78 billion. The aggregate household debt balance now stands at $11.71 trillion, up 0.7 percent from the previous quarter, but still well below the peak of $12.68 trillion in the third quarter of 2008.   The report shows increases in all types of credit, except for home equity line of credit (HELOC) balances. Overall, it looks as if the trend of increasing household debt balances is continuing, and in this post, we further investigate the winding down of deleveraging. We’ve developed a framework decomposing the change in aggregate balances (first described in March 2011), where we found that the reduction in overall debt was due, in large part, to consumers borrowing less and actively paying down their existing liabilities, although we did find that charge-offs were also a major contributor to the decrease in aggregate balances. In a blog post updating the framework in November 2013, we wrote that “deleveraging is decelerating,” as the cash flow from borrowing approached positive territory. Today, we update the framework again.

NY Fed: Household Debt increased in Q3 2014, "Deleveraging process has ended" -- Here is the Q3 report: Household Debt and Credit Report. From the NY Fed: Aggregate household debt balances increased slightly in the 3rd quarter of 2014. As of September 30, 2014, total household indebtedness was $11.71 trillion, up by 0.7% from its level in the second quarter of 2014, an increase of $78 billion. Overall household debt still remains 7.6% below its 2008Q3 peak of $12.68 trillion. Mortgages, the largest component of household debt, edged up by 0.4%. Mortgage balances shown on consumer credit reports stand at $8.13 trillion, up by $35 billion from their level in the second quarter. Balances on home equity lines of credit (HELOC) dropped by $9 billion (1.7%) in the third quarter and now stand at $512 billion. Non-housing debt balances increased by 1.7 %, boosted by gains in all categories. Auto loan balances increased by $29 billion; student loan balances increased by $8 billion; credit card balances increased by $11 billion. New extensions increased for auto loans and credit cards, but were roughly flat for both mortgages and HELOCs. There were $105 billion in new auto loan originations, the highest volume since 2005Q3. The aggregate credit card limit continued to increase, and is up by 0.9% from the previous quarter. Mortgage originations, which we measure as appearances of new mortgage balances on consumer credit reports and which include refinanced mortgages, increased slightly to $337 billion but remain low by historical standards. HELOC limits were flat, down by 0.4%. Overall delinquency rates were flat overall in 2014Q3 As of September 30, 6.3% of outstanding debt was in some stage of delinquency, compared with 6.2% in 2014Q2. About $732 billion of debt is delinquent, with $506 billion seriously delinquent (at least 90 days late or “severely derogatory”).Here are two graphs from the report: The first graph shows aggregate consumer debt increased slightly in Q3. Household debt peaked in 2008, and bottomed in Q2 2013. The recent increase in debt suggests households (in the aggregate) deleveraging is over. Also from the NY Fed: Household Debt Balances Increase as Deleveraging Period Concludes The second graph shows the percent of debt in delinquency. The percent of delinquent debt is generally declining, although there is still a large percent of debt 90+ days delinquent (Yellow, orange and red).

A Tale Of Two Credit Markets: New Auto Loans Highest In 9 Years As New Mortgages Slump Near Record Lows -- Remember when three weeks ago, everyone was stunned as the Manufacturing ISM soared to new 3 year highs, continuing this summer's trend of blistering manufacturing, which was largely attributed to a burst of automotive production? Now, courtesy of the latest Q3 household credit report by the NY Fed, we know just how it was funded. According to the report, some $105 billion in new car loans were issued is the third quarter, the highest amount since 2005, and just $20 billion shy of an all time high. That's the good news. The bad news as Equifax reported two months ago, new subprime loan origination is trending at about 31% and rising. And what's worst, is that recently both Moody's and Fitch joined forces in making up for their past oversights, and "slammed subprime auto bonds" suggesting this latest bout of subprime driven euphoria boosting the US manufacturing sector may not last. Or it may: after all the central banks are always on the lookout for new things to monetize.

Why Didn’t New Jersey See More Declines in Household Debt? -- The New York Fed’s latest report on household debt shows that the so-called deleveraging process, by which households reduced their debt burdens following the recession, has ended after around five years.  Tuesday’s report reveals one state where debt loads are still very high and where deleveraging hasn’t happened much: New Jersey.Deleveraging, of course, happens two ways: voluntarily, when borrowers pay down their debts and do little new borrowing, and involuntarily, when they default and have debts wiped out through either foreclosure of bankruptcy. A great deal of deleveraging during and after the financial crisis came through foreclosure. Mortgage debt, including home-equity lines of credit, account for around three quarters of total household borrowing. But to understand what’s going on in the Garden State, it also helps to understand how foreclosures work. They’re governed by state law. Some 23 states require lenders to repossess homes by going before a court. The rest allow foreclosures to happen through an administrative, or nonjudicial, process.During the housing boom, many mortgages were bought, bundled together into securities and then sold and resold. Making matters worse, mortgage companies were caught routinely fabricating signatures and paperwork in what became known as the “robosigning” scandal in late 2010. This further bogged down the process, and it led several states, including New Jersey, to impose stricter standards on lawyers representing mortgage companies and banks. In some cases, these lawyers weren’t able or willing to meet the new standards, which further contributed to a slowdown in foreclosure processing. During the first nine months of this year, a mortgage backed by Fannie Mae, the nation’s largest guarantor of mortgages, that completed foreclosure in New Jersey had not made any payments for 1,346 days on average, or more than three years. In other judicial states, such as Florida and New York, the average foreclosure timeline stood at 1,366 days and 1,381 days, respectively. In California, which is a nonjudicial state, the process took 761 days.

Rents Heading Up? Will the CPI Follow?  -- Rents are up 6.5% in San Francisco, and 4.5% in numerous other cities. Is this a leading indicator for a stronger inflation as measured by the CPI. Please consider the Variant Perception article Higher Rents in the US are a Strong Support for CPIDespite the subdued nature of US CPI, some large components are turning up.  Owners’ equivalent rent and rent of primary residence, which together account almost of a third of the CPI basket, are turning up strongly. A low vacancy rate and a relatively resilient US economy is helping to drive rents higher, with San Francisco seeing the greatest rent increases, at 6.4% over the last year, and with many other cities, such as Nashville, Seattle, Denver and Houston, all seeing increases of over 4.5%.  Furthermore, our leading indicator for US Shelter CPI, which includes apartment vacancy rates and the growth in the working-age population among its inputs, shows that the trend should continue. Higher rents are a strong support for headline CPI in the US.

Personal Income increased 0.2% in October, Spending increased 0.2% -- The BEA released the Personal Income and Outlays report for October:  Personal income increased $32.9 billion, or 0.2 percent ... in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $27.3 billion, or 0.2 percent...Real PCE -- PCE adjusted to remove price changes -- increased 0.2 percent in October, in contrast to a decrease of less than 0.1 percent in September. ... The price index for PCE increased 0.1 percent in October, the same increase as in September. The PCE price index, excluding food and energy, increased 0.2 percent in October, compared with an increase of 0.1 percent in September.The following graph shows real Personal Consumption Expenditures (PCE) through October 2014 (2009 dollars). The increase in personal income was lower than expected,  Also the increase in PCE was below the 0.3% consensus, however that consensus was prior to the upward revisions to August and September PCE in the GDP report.  It looks like PCE is off to a decent start to Q4. On inflation: The PCE price index increased 1.4 percent year-over-year, and at a 0.7% annualized rate in October. The core PCE price index (excluding food and energy) increased 1.6 percent year-over-year in October, and at a 2.2% annualized rate in October.

The Mystery Of Surging Q3 GDP Explained And Why Americans Are Suddenly $80 Billion "Poorer" - The final major datapoint of the day was the Consumer Income and Spending data from the US Dept of Commerce's Bureau of Economic Analysis, the same outfit that yesterday shocked everyone with just how much better US GDP was. Well, today, we learned just where the offset came from. Because while on the surface, both income (+0.2%) and spending (+0.2%) missed expectations of a 0.4% and 0.3%, respectively... it was the revised data that the US department of data fudging once again showed why it has long since surpassed China. Behold what is perhaps the most important data series in all of US eco: Disposable Personal Income. We say behold, because there are some rather massive variations between what the BEA reported a month ago, and what it reported today, as relates to all the data issued since March. To wit: .. something struck us: this number was reported at 5.6% last month. And sure enough, since Disposable Personal Income flows into personal savings, net of outlays, it was clear that American savings would be dramatically impacted as a result of the massive data revision. Sure enough, this is how the US personal savings rate looked like based on the old and just revised data. And, the punchline: US savings in absolute terms, an $80 billion decline in savings from the old September print and the latest, post-revision, number of just over $650 billion.

Record Stocks & Plunging Gas Prices Send Consumer Confidence Tumbling, Biggest Miss Since June 2010 - With business confidence at post-crisis lows (in the US and around the world), it is hardly surprising that consumer confidence would fade and at 88.7 (vs 96.0 expectations), this is the biggest miss since June 2010. It appears last month's exuberant surge/beat was anomalous as we tumble from 94.5 in October, in spite of tumbling gas prices and record high stocks... The drop was largely driven by a slide in 'hope' as expectations fell to the lowest since June. Labor, employment, and business conditions all dropped.

Michigan Consumer Sentiment for November Slightly Trims Its Strong Preliminary Reading - The Final University of Michigan Consumer Sentiment for November came in at 88.8, a bit off the 89.4 preliminary reading but up from from the October Final of 86.9. As finaly readings go, this is a post-recession high and the highest level since July 2007, over seven years ago. Today's number came in below the forecast of 90.2. See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy. To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is now 4 percent above the average reading (arithmetic mean) and 6 percent above the geometric mean. The current index level is at the 51st percentile of the 443 monthly data points in this series.  The Michigan average since its inception is 85.1. During non-recessionary years the average is 87.4. The average during the five recessions is 69.3. So the latest sentiment number puts us 19.5 points above the average recession mindset and 1.4 points below the non-recession average. Note that this indicator is somewhat volatile with a 3.1 point absolute average monthly change. The latest month was a smaller 1.9 point change. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average.

UMich Confidence Misses By Most In 13 Months -- Following the Conference Board's tumble in confidence, Bloomberg's consumer comfort index surged this morning (rather aberrationally) to highs not seen since 2007. However, while UMich consumer confidence rose from last month to its highest since July 2007, it missed expectations by the most since October 2013. It would seem the survey respondents in UMich and Bloomberg confidence are stockholders, and Conference Board respondents are not... UMich data is dominated by a surge in current conditions with the outlook flat.

Conspicuous Consumption? Yes, but It’s Not Crazy - There’s no denying the over-the-top flavor of much high-end consumption these days. A Reinast toothbrush, of solid platinum, sells for $4,200 even though it may not get your teeth any cleaner than a $2 toothbrush from Walgreens. Then there’s the Greubel Forsey Double Tourbillon 30° Technique, a platinum wristwatch that sells for scores of thousands of dollars. Its intricate mechanical works may be a masterpiece of traditional engineering, but for that, you might keep your day-to-day appointments just as well with a $40 Timex.  Buyers of these products have plenty of money, of course. But are they different from the rest of us in other ways? It’s an important question. Because income growth in recent decades has been so heavily concentrated at the very top, luxury markets have become the biggest drivers of economic activity around the world. To understand these markets, we must first understand the motives of the customers they serve, and it’s here that many analysts have stumbled. One common claim is that the wealthy routinely violate the economist’s law of demand. A bedrock principle of economic rationality, this law holds that as the price of a good rises, consumers buy less of it. Many analysts, however, portray the rich as people who lust after what are known as “Veblen goods” — commodities whose sales actually increase when their prices rise.

Malled: The Hollowing Out of an American Institution. 'We Surrender' -   Three customers wander the aisles in a Sears the size of two football fields. The RadioShack is empty. A woman selling smartphone cases watches “Homeland” on a laptop. “It’s the quietest mall I’ve ever been to,” says Rich, who works for an education consulting firm and has been coming to the Steeplegate Mall in Concord, New Hampshire, since she was a kid. “It bums me out.” Built 24 years ago by a former subsidiary of Sears Holdings Corp. (SHLD), Steeplegate is one of about 300 U.S. malls facing a choice between re-invention and oblivion. Most are middle-market shopping centers being squeezed between big-box chains catering to low-income Americans and luxury malls lavishing white-glove service on One Percenters. It’s a time of reckoning for an industry that once expanded pell-mell across the landscape armed with the certainty that if you build it, they will come. Those days are over. Malls like Steeplegate either rethink themselves or disappear. This summer Rouse Properties, a real estate investment trust with a long track record of turning around troubled properties, decided Steeplegate wasn’t salvageable and walked away. The mall is now in receivership.

Not your father's price index: the Billion Prices Project -- In a previous post, I mentioned that the Billion Prices Project (BPP) contradicts the claims of those who believe that the government understates inflation data. The BPP crawls major US retailers' websites and scrapes them for price data, compiling an overall US Daily Index that is available on its website. The deviation between this index and the official CPI is minimal, as the above link shows.  The BPP isn't your father's price index—it shouldn't be viewed as a perfect substitute for the CPI. So use it wisely. What follows are a few details that I've gleaned from several papers on the topic of online price indexes as well my correspondence with Roberto Rigobon, one of the project's founders. The most obvious difference between it and the CPI is in the datasets:
1) Online vs offline: The price data to generate the CPI is harvested by Bureau of Labour Statistics (BLS) inspectors who trudge through brick & mortar retailers. Rigobon and his co-founder Alberto Cavallo get their data by sending out lightning fast algorithms to scrape the websites of online retailers.
2) Wide vs Narrow: BLS inspectors compile prices on a wide range of consumer goods and services. According to Cavallo, only 60% of the items that are in the CPI are available online. The ability to track service prices online is particularly limited given the fact that most large retailers websites only sell goods.
Let's get into some more specifics about what is included in the BPP, because there seems to be some confusion about this in the online discussion.

Hotels: Occupancy Rate Finishing 2014 Strong, Best Year since 2000 - From US hotel results for week ending 22 November The U.S. hotel industry recorded positive results in the three key performance measurements during the week of 16-22 November 2014, according to data from STR, Inc. In year-over-year measurements, the industry’s occupancy rose 5.5 percent to 60.7 percent. Average daily rate increased 4.1 percent to finish the week at US$112.52. Revenue per available room for the week was up 9.8 percent to finish at US$68.34. Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average. Hotels are now heading into the slow period of the year.

Weekly Gasoline Price Update: Down Another Seven Cents - It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny Regular dropped another seven cents and Premium six. Regular is now at its lowest price since November 2010. Will the price decline in gasoline boost discretionary spending as we approach the holiday season? Stay tuned!  According to, Hawaii has the highest cost at $3.88. The highest continental average price is in New York at $3.18. Missouri and South Carolina are tied for the cheapest Regular at $2.55.

More Americans can’t make their car payments - Americans are borrowing more to pay for their cars, but they’re also increasingly struggling to make their car payments. According to data released Monday from Transunion, the auto loan delinquency rate (the ratio of borrowers 60 days or more delinquent on their auto loans) has jumped 13% from the third quarter of last year to the third quarter of this year — with just two states (Hawaii and Oklahoma) bucking the trend. Furthermore, auto-loan debt rose for the 14th straight quarter to $17,352 (from $16,694 a year ago), with total debt per borrower rising in every state. It’s younger Americans (though, to many people’s surprise, not millennials) who are having the most trouble paying those bills. The highest delinquency rate is for those in the 30 to 39 age group, closely followed by those under 30, who actually saw the highest jump in delinquency rates from the previous year.While the auto loan delinquency rate (now 1.16%, as of the third quarter, compared to and just over 1.02% in the same quarter last year) is certainly on the rise, it’s still well below rates from a few years back.

Auto Loan Delinquencies Surge 18% Among Young Americans - Auto loan delinquency rates jumped nearly 13% in the last year, according to a new report by Transunion, with young (under-30) Americans seeing a 17.8% surge in 60+ day delinquency rates, as auto loan debt rose for the 14th straight quarter to $17,352. While these are notable rises, the overall levels remain low for now, but subprime-loan-delinquencies rose notably to 5.31%. However, in a somewhat stunningly blinkered conclusion, Transunion's Peter Terek notes "the uptick in delinquency reflects a healthy and thriving auto finance industry where credit is more broadly available to all consumers." So delinquencies are great news...As Transunion reports, Auto loan delinquency rates jumped nearly 13% in the last year to close Q3 2014 at 1.16%. At the same time, auto loan debt rose for the 14th straight quarter to $17,352. The latest TransUnion auto loan report also found that delinquency rates increased most for the youngest population subset with those under the age of 30 seeing a nearly 18% rise....Auto loan debt per borrower rose 3.9% from $16,694 in Q3 2013 to $17,352 in Q3 2014. On a quarterly basis, auto loan debt increased 1.4% from $17,108 in Q2 2014. Auto loan balances rose in every state between Q3 2013 and Q3 2014. Among the largest U.S. cities, Phoenix, Atlanta and Chicago saw the largest yearly auto loan debt rises of approximately 5%.

Vehicle Sales Forecast: "Strongest November since 2001" - The automakers will report November vehicle sales on Tuesday, December 2nd. Sales in October were at 16.35 million on a seasonally adjusted annual rate basis (SAAR), and it appears sales in November might be at or above 17 million SAAR.There were 25 selling days in November this year compared to 26 last year.  Here are a few forecasts: From WardsAuto: Forecast: SAAR Could Reach 17 Million for Second Time in Four Months A WardsAuto forecast calls for U.S. light-vehicle sales to reach a 17 million-unit seasonally adjusted annual rate for just the second time since 2006, after crossing that threshold most recently in August, when deliveries equated to a 17.4 million SAAR. The WardsAuto report is calling for 1.29 million light vehicles to be delivered over 25 selling days. From J.D. Power: New-Vehicle Retail Sales On Pace for 1.1 Million, the Strongest November Since 2001 New-vehicle retail sales in November 2014 are projected to come in at 1.1 million units, a 5.5 percent increase on a selling-day adjusted basis, compared with November 2013 (November 2014 has one fewer selling day than November 2013).  From Kelley Blue Book: New-Vehicle Sales To Rise 2.2 Percent In November On Black Friday Deals, According To Kelley Blue Book In November 2014, new light-vehicle sales, including fleet, are expected to hit 1,270,000 units, up 2.2 percent from November 2013, and down 0.6 percent from October 2014. The seasonally adjusted annual rate (SAAR) for November 2014 is estimated to be 16.8 million, up from 16.2 million in November 2013, and up from 16.3 million in October 2014. From TrueCar: TrueCar Forecasts 17 Million SAAR in November as Early Black Friday Events Prime the Market TrueCar, Inc. ... forecasts the pace of auto sales in November accelerated to a seasonally adjusted annualized rate ("SAAR") of 17 million new units with the early launch of Black Friday sales campaigns.

Econoday Economic Report: Durable Goods Orders November 26, 2014: The headline number for durables looked good for October but the core number notably disappointed. Durables orders rebounded 0.4 percent in October after September's decline of 0.9 percent. Market expectations were for a 0.5 percent decline. The core fell 0.9 percent in October after a rise 0.2 percent the month before. Analysts projected a 0.5 percent gain for October. Transportation increased a monthly 3.4 percent after falling a monthly 3.3 percent in September. Within transportation, defense aircraft jumped 45.3 percent after a 3.2 percent dip in September. Nondefense aircraft orders slipped 0.1 percent after falling 5.1 percent the month before. Motor vehicle orders rebounded 0.3 percent after declining 0.3 percent in September. Outside of transportation, weakness was broad based. The only major industries seeing a gain in the latest month was computers & electronics. Declines were seen in primary metals, fabricated metals, and electrical equipment. The "other" category was flat. The outlook for equipment investment continued to soften. Nondefense capital goods orders excluding aircraft declined 1.3 percent in both October and September. Shipments of this series decreased 0.4 percent in October after rising 0.4 percent in September. The latest durables report indicates softness in the manufacturing sector. The next notable national numbers will be ISM and Markit surveys and then production worker hours in the employment report.

Core Durable Orders Drop Most Since Polar Vortex, Core CapEx Lowest Since May - If yesterday the BEA provided the sugar high for Q3, with a GDP number that will be soon revised lower, then today's economic barage has so far been a disaster, with both Initial Claims, Personal Income and Spending, and now core Durable goods and capital goods shipments and orders missing across the board. While the headline Durable Goods number printed up 0.4%... ... this was entirely thanks to the usual volatile filler: transports. Excluding these, the Durable Goods ex-transports number dropped by a whopping -0.9%, far below the 0.5% increase expected, and the biggest drop since the December -1.8% tumble which was blamed on the Polar Vortex. It is unclear what the October tumble will be blamed on: the Ebola scare? Worse, the long-awaited CapEx recovery will not be materializing one more month, after Non-defense Capital Goods orders ex-aircraft declined for a second month in a row, dropping -1.3%, the same drop as the previous month, suggesting that - as everyone knows by now - companies will be far more focused on spending on buybacks than on capex for quarters to come. In fact, the number was bad, at only $71.2 billion in orders, this was the lowest print since May.

Dallas Fed: Texas Manufacturing "Posts Slower Growth" in November - From the Dallas Fed: Texas Manufacturing Activity Posts Slower Growth Texas factory activity increased again in November, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 13.7 to 6, indicating output growth slowed in November. Other measures of current manufacturing activity also reflected slower growth during the month. The capacity utilization index fell sharply from 18.1 to 9.8. The new orders index also declined notably from 14.2 to 5.6, although more than a quarter of firms continued to note increases in new orders over October levels. The shipments index was 12.1, nearly unchanged from its October reading. Perceptions of broader business conditions remained positive this month, while outlooks were less optimistic. The general business activity index held steady at a solid reading of 10.5. The company outlook index dropped from 18.2 to 8.8, due to a smaller share of firms noting an improved outlook in November than in October. Labor market indicators reflected continued employment growth and longer workweeks. The November employment index posted a sixth robust reading, coming in at 9.6.

Dallas Fed Unchanged in November, Despite 11 Of 15 Components Declining - Of the 15 sub-indices under the Dallas Fed Manufacturing survey, only 4 improved in November with New orders tumbling, and wages, number of employees, and average workweek all sliding notably. So, with that in mind, thanks to a surge in 'hope'-based business activity outlook 6 months forward (from 13.3 to 18.3), the Dallas Fed printed 10.5 (against expectations of 9.0) and unchanged from October's 10.5. The number of employees shrank to its lowest in 6 months.

30 Year Yield Drops Below 3.00% As Richmond Fed Tumbles Most Since 2006 -- Despite the clear message from stocks that everything in the world is awesome, 30Y Treasury yields have tumbled back below 3.00% - 1-month lows. Perhaps the slew of disappointing data is right after all that the US is not decoupling... just don't tell stocks. Against expectations of a 16 print, Richmond fed printed 4, plunging from its  exuberant 20 levels last month. This is the biggest miss since Jan 2013 (and biggest MoM drop since May 2006) as new order volume collapsed, employment and workweek tumbled, and most major future expectations indices dropped.

Chicago PMI Suffers 4th Biggest Drop Since Lehman -- Having surged to last October's highs last month, Chicago PMI tumbled back to mediocrity in November, missing extrapolatedly exuberant expecatations by the most since July. As 60.8 (against 63.0 expectations) this is barely above the levels of Q1's polar vortex as New Orders, Employment, and Production all fell (with only 2 components rising). This is the 4th largest MoM drop since Lehman but MNI remains confident that "the trend remains positive..."

Service PMI Misses, Tumbles To 7-Month Lows, "Extreme Weather" Warning For GDP Issued -- On the heels of the biggest miss on record for US Manufacturing PMI (which corresponded un-decoupling-ly with disappointing European and Chinese Manufacturing PMIs), Markit's Services PMI printed 56.3, missing 57.3 expectations and notably down from October's 57.1 to 7 month lows. As Markit notes, the index has now pointed to softer growth of business activity in each of the past five months, to signal a sustained loss of momentum since the post-crisis peak seen in June. What is even more worrying...  Markit points out that the economic upturn has lost considerable momentum, and with extreme weather hitting parts of the country, growth could slow even further.

Evidence of Alleged Apple-Google No-Poaching Deal Triggers More Lawsuits -  Evidence produced against Apple Inc. (AAPL), Google Inc. (GOOGL) and some Silicon Valley cohorts about an alleged conspiracy not to recruit each other’s employees has sparked new lawsuits claiming other tech and entertainment companies engage in the same anti-competitive conduct. Pixar President Edwin Catmull acknowledged the use of such agreements when he was questioned by lawyers for thousands of employees who sued his company, along with Apple, Google and four others, in 2011. An unapologetic Catmull said he was trying to help the industry survive by stopping hiring raids, remarks that triggered a trio of complaints in the last three months against animation studios in California. Likewise, a Google document revealed in the case from three years ago -- the search engine owner’s 2007 “Restricted Hiring” and “Do Not Cold Call” lists of all the companies it agreed not to recruit from -- has resurfaced as key evidence in complaints brought in the last two months against Oracle Corp., Microsoft Corp. (MSFT) and IAC/InterActiveCorp. (IACI)

Why Congress Should Not Get Out of the Way of the Postal Service: News of Ron Johnson the Tea Party favorite from Wisconsin taking over as chair of the Senate committee on Homeland Security & Governmental Affairs has caused an overwhelming sense of panic among progressives and postal workers. Johnson will control oversight of the Postal Service in the Senate. There may be good reason to think this has the makings of disaster. Johnson is on the record stating that it would be a good idea if the Postal Service went into bankruptcy and got privatized. His training is in accounting, but he has refused, with an aggressive ignorance, to acknowledge the basic tenets of accounting. When witnesses come before his committee, he bullies them and waves his arm abrasively. His dislike of unions is so intense he is willing to set aside his worship of the business principles of a contract to concoct a bankruptcy scheme to abrogate postal labor agreements. Is the coming of Ron Johnson any reason to panic? Tom Coburn, the current ranking member on the committee, has said virtually all of the same things as Johnson (in his quiet, deadly way). Several of the other Republicans on the committee — Rand Paul, Mike Enzi, and Kelly Ayotte — have also said many of the same things Johnson has. All of them have shown a disdain for the Postal Service as an institution. All of them have questioned the Postal Service role as a national infrastructure.

Good news and bad news for workers: corporate profits rose in third quarter - The BEA's revised release for 3rd quarter GDP included its calculation of corporate protifts, which rose 1.5% over the 2nd quarter, and once again made an all time high. This is both good news and bad news.  The good news is that corporate profits, deflated by unit labor costs, also made a new high. This is a long leading indicator, meaning that it usually starts to decline one year or more before a recession starts. This in turn means that more jobs should continue be added to the eonomy over the next year.  Companies with shrinking profits do not hire new workers; companies with increasing profits do. The bad news, of course, is that corporate profits continue to monopolise virtually all of the monetary gains since the economy started to expand in the second half of 2009.  Wages are still not sharing in the bounty.

Weekly Initial Unemployment Claims increased to 313,000 -- The DOL reportedIn the week ending November 22, the advance figure for seasonally adjusted initial claims was 313,000, an increase of 21,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 291,000 to 292,000. The 4-week moving average was 294,000, an increase of 6,250 from the previous week's revised average. The previous week's average was revised up by 250 from 287,500 to 287,750.  There were no special factors impacting this week's initial claims. The previous week was revised up to 292,000. The following graph shows the 4-week moving average of weekly claims since January 1971.

And the Winner Is...Full-Time Jobs! - Atlanta Fed macroblog - Each month, the U.S. Bureau of Labor Statistics (BLS) surveys about 60,000 households and asks people over the age of 16 whether they are employed and, if so, if they are working full-time or part-time. The BLS defines full-time employment as working at least 35 hours per week. This survey, referred to as both the Current Population Survey and the Household Survey, is what produces the monthly unemployment rate, labor force participation rate, and other statistics related to activities and characteristics of the U.S. population. For many months after the official end of the Great Recession in June 2009, the Household Survey produced less-than-happy news about the labor market. The unemployment rate didn't start to decline until October 2009, and nonfarm payroll job growth didn't emerge confidently from negative territory until October 2010. Now that the unemployment rate has fallen to 5.8 percent—much faster than most would have expected even a year ago—the attention has turned to the quality, rather than quantity, of jobs. This scrutiny is driven by a stubbornly high rate of people employed part-time "for economic reasons" (PTER). These are folks who are working part-time but would like a full-time job. everal headlines have popped up over the past year or so claiming that "...most new jobs have been part-time since Obamacare became law," However, a more careful look at the postrecession data illustrates that since October 2010, with the exception of four months (November 2010 and May–July 2011), the growth in the number of people employed full-time has dominated growth in the number of people employed part-time. Of the additional 8.2 million people employed since October 2010, 7.8 million (95 percent) are employed full-time (see the charts). ...

Some Good News for the Unemployed: There has been considerable discussion of the “hollowing out” of middle class jobs in recent years, a trend that started before the Great Recession. But where do those who have lost their jobs go? Do they end up with low paying service jobs, McJobs as they are sometimes called, or do they move up the ladder to higher paying jobs?   Many people believe most of those who lose middle-class jobs end up worse off than before, but recent research by economic policy analyst Ellie Terry and economist John Robertson of the Federal Reserve Bank of Atlanta finds some surprising results.  But first, it is true that middle-skill jobs were hit hardest by this recession. As the researchers noted: "Only employment in middle-skill occupations remains below prerecession levels."Overall employment declined by more than 8 million from the end of 2007 to the end of 2009, and middle-skill jobs declined the most, approximately 10 percent. These jobs are still 9 percent below the level they were when the recession began in late 2007.And for full-time workers in middle-skill jobs, the picture is even worse. The researchers said "the number of full-time workers whose main job was a middle-skill occupation fell more than 15 percent from 2007 to 2009 and is still about 11 percent below the level at the end of 2007." For high- and low-skill occupations, the story is very different. Low-skill occupations are now 7 percent above the level they were at in late 2007, and high-skill occupations are 8 percent higher.

Why the Job Market is Better Than it Looks -- True or false: Most of the jobs created during the sluggish economic recovery consist of part-time, not full-time, employment? It's a critical question. Although the U.S. economy is slowly healing, millions of Americans have dropped out of the labor market, perhaps demoralized by a sense that good jobs -- or any job -- are nowhere to be found. Contributing to that view is the widely shared notion that in recent years the labor market has produced mostly low-paying part-time and temporary jobs.  But idea turns out to be false. Economist Julie Hotchkiss of the Federal Reserve Bank of Atlanta has found that since October of 2010, U.S. employment has grown by 8.2 million, and 7.8 million -- or fully 95 percent -- of those jobs are full-time (defined as 35 or more hours per week). In fact, in only four months over that time period did the growth in full-time workers not greatly exceed the growth in part-time workers. Her findings dovetail with related research out of the Atlanta Fed showing that people who lost mid-level jobs during the Great Recession are today more likely to find higher skill, higher paying jobs than they were before the downturn. Of course, far too many of these workers still end up in lower paying, low-skill jobs, often in the service sector. But contrary to what many people believe, at least the trend is moving in the right direction.

The Mystery Of America's "Schrodinger" Middle Class, Which Is Either Thriving Or About To Go Extinct --On one hand, the US middle class has rarely if ever had it worse. At least, if one actually dares to venture into this thing called the real world, and/or believes the NYT's report: "Falling Wages at Factories Squeeze the Middle Class." In short, it says that America's manufacturing sector, and thus middle class, is being obliterated: "A new study by the National Employment Law Project, to be released on Friday, reveals that many factory jobs nowadays pay far less than what workers in almost identical positions earned in the past. And then, paradoxically, at almost the same time, there's this from Bloomberg: "Lower-wage workers saw bigger pay gains over the past year than the highest earners, reversing the trend from earlier stages of the recovery." In short: the state of the US middle class is truly in the eyes of the beholder.

Tech Worker Shortage Doesn’t Exist - Along with temporary deportation relief for millions, President Obama’s executive action will increase the number of U.S. college graduates from abroad who can temporarily be hired by U.S. corporations. That hasn’t satisfied tech companies and trade groups, which contend more green cards or guest worker visas are needed to keep tech industries growing because of a shortage of qualified American workers. But scholars say there’s a problem with that argument: The tech worker shortage doesn’t actually exist. “There’s no evidence of any way, shape, or form that there’s a shortage in the conventional sense,” says Hal Salzman, a professor of planning and public policy at Rutgers University. “They may not be able to find them at the price they want. But I’m not sure that qualifies as a shortage, any more than my not being able to find a half-priced TV.” For a real-life example of an actual worker shortage, Salzman points to the case of petroleum engineers, where the supply of workers has failed to keep up with the growth in oil exploration. The result, says Salzman, was just what economists would have predicted: Employers started offering more money, more people started becoming petroleum engineers, and the shortage was solved. In contrast, Salzman concluded in a paper released last year by the liberal Economic Policy Institute, real IT wages are about the same as they were in 1999. Further, he and his co-authors found, only half of STEM (science, technology, engineering, and mathematics) college graduates each year get hired into STEM jobs. “We don’t dispute the fact at all that Facebook and Microsoft would like to have more, cheaper workers,” says Salzman’s co-author Daniel Kuehn, now a research associate at the Urban Institute. “But that doesn’t constitute a shortage.”

What Tech-Worker Shortage? - Noah Smith --In economics, I learned that a shortage is when demand exceeds supply. People want to buy Goldfish crackers at the posted price, but the shelves go empty. . But it looks as if I was taught the wrong definition of shortage, because everyone else in the world seems to use the word in a very different way. When normal people say, “There is a shortage,” they don’t mean, “The shelf is empty.” They mean “Please lower the price, so I don’t have to pay as much.” And when normal people say, “No, there’s no shortage,” what they mean is, “Please increase the price I get for my wares because I’d like to make more money.” So I guess my econ classes got it all wrong. The most controversial case is the question of whether there is a shortage of tech workers in the U.S. Josh Eidelson of Bloomberg Businessweek reports on the debate: [T]ech companies...contend more green cards or guest worker visas are needed to keep tech industries growing because of a shortage of qualified American workers. But scholars say...[t]he tech worker shortage doesn’t actually exist. “There’s no evidence...that there’s a shortage in the conventional sense,” says Hal Salzman, a professor of planning and public policy at Rutgers University. “They may not be able to find them at the price they want. But I’m not sure that qualifies as a shortage, any more than my not being able to find a half-priced TV.” Go Hal Salzman! Stand up for Econ 101! Well, or not: For a real-life example of an actual worker shortage, Salzman points to the case of petroleum engineers, where the supply of workers has failed to keep up with the growth in oil exploration. The result, says Salzman, was just what economists would have predicted: Employers started offering more money, more people started becoming petroleum engineers, and the shortage was solved. In contrast, Salzman concluded in a paper released last year...real IT wages are about the same as they were in 1999.

With immigration action, Obama calls his opponents’ bluff - Stay wide awake in the coming weeks. This is a historic moment when all of the divisions, misunderstandings and hatreds of President Obama’s time in office have come to a head. We are in a different place than we were. We are also in a place we were bound to get to eventually. Obama’s decision to back away from our government’s policy of ripping apart the families of undocumented immigrants has called forth utterly contradictory responses from Republicans and Democrats, conservatives and progressives. It should now be clear that the two sides don’t see the facts, the law or history in the same way.  Conservatives say the president’s executive actions on immigration are uniquely lawless and provocative. Progressives insist that Obama is acting in the same way that President Reagan and both presidents Bush did. They recall that after the second President Bush’s immigration reform bill failed in the Senate in 2007 — it was very similar to the 2013 bill Obama supports — White House spokeswoman Dana Perino declared flatly of the administration’s willingness to use its executive powers: “We’re going as far as we possibly can without Congress acting.” Yet perhaps facts are now irrelevant. There was an enlightening moment of candor when Sen. Tom Coburn (R-Okla.) visited MSNBC’s “Morning Joe” on the morning of Obama’s immigration speech. “The president ought to walk into this a lot more slowly, especially after an election,” Coburn said. “This idea, the rule of law, is really concerning a lot of people where I come from. And whether it’s factual or perceptual, it really doesn’t matter.” Yes, for many of the president’s foes, the distinction between the “factual” and the “perceptual” doesn’t matter anymore. But mainstream Republicans seem as angry at Obama as the tea partyers. They argue repeatedly that by moving on his own, Obama has made it impossible for Congress to act.

Workers vs. Undocumented Immigrants: The Politics of Divide & Conquer - Yves Smith - Obama’s plan to give 4 million illegal immigrants temporary suspension from deportation has amped up the intensity of the already-heated debate over immigration and competition for US jobs from foreign workers. This Real News Network interview with Bill Barry, who has organized documented and undocumented workers in the textile industry, makes an argument at a high level that many will find hard to dispute: that the fight over immigration reform and the status of undocumented immigrants diverts energy and attention from the ways in which a super-rich class is taking more and more out of the economy, to the detriment of laborers. Barry also argues that getting rid of undocumented immigrants would not produce much in the way of wage increases. The experience of Alabama, which implemented an extremely aggressive immigration law, would tend to confirm Barry’s argument. Farmers, for instance, weren’t able to find substitutes for migrant workers, even when they offered higher wages. What it would take to get US natives to take those jobs was more than what those employers were willing to pay. The same is likely true for many of the other backbreaking jobs performed by undocumented workers, such as working in meatpacking plants. Barry points out how employers have deskilled jobs, making it easier for them to treat their employees as disposable, and have also moved to more flexible scheduling, which makes it harder for workers to earn enough to get by. The means that the immigration question is probably not the best point of entry for approaching the fallen status of US workers.

Video: How Will Obama’s Immigration Plan Affect the Economy? --President Obama's action to defer the deportation of millions of undocumented workers in the U.S. may have some positive and negative effects on the economy. WSJ economics editor Sudeep Reddy explains.

The 'Modest' Economic Implications Of Obama's Immigration Policy Changes - The executive actions on immigration announced last week look likely to have only a modest economic effect, because, as Goldman Sachs explains, most of the individuals eligible for the programs are already in the US and, in most cases, are likely already working. That said, Goldman estimates that the changes should increase the labor force by about 300k over the next couple of years and that possible wage gains among those gaining work authorization would increase average wages by less than 0.1%.

U.S. Losing Its Luster as World’s Top Destination for Skilled Migrants, Study Suggests - The U.S. is losing its some of its luster as the world’s top destination for skilled migrants, according to a new analysis of LinkedIn Corp. user data. The study by a group of researchers, Stanford University, University of Washington and Swiss university ETH Zurich tracked the movements of a sample of users of the online-professional network between 1990 and 2012. LinkedIn currently has more than 300 million users worldwide, though the number of users tracked for the study wasn’t clear. The study found that 13% of migrating professionals chose the U.S. in 2012, the highest share of any country, though it was down from 27% in 2000. Over the same period, the analysis found that Canada and many European countries saw decreases in their share of the world’s professional migration flows. Flows to Asia, Oceania, Africa and Latin America increased. Asian countries collectively saw the largest increase, boosting their share of migration inflows to 25% in 2012 from 10% in 2000. The study represents the latest attempt to use online-user data to track global migrations. The flows are important for national immigration and fiscal policies, but official data are often inconsistent and incomplete across countries.

Jobs: Visualizing Recovery, State By State- Sometimes a skewed view offers greater clarity. The most recent state-by-state unemployment figures, released Friday, show positive news in many states. The data from the Labor Department indicate, for example, that 15 states in October had unemployment rates lower than 5%, a few of them at or approaching prerecession rates. The national rate in October was 5.8%. Those 15 states, though, are small. Or, rather, they aren’t super populous. They represent roughly a third of the states in the country, but just under 12 percent of its civilian labor force—and collectively less than that of California. In an effort to put this into geographic terms, we’ve experimented with a mapping technique known as a cartogram, or a density-equalizing map. Developed by two academics a decade ago, this particular method reshapes states (or other geographic shapes) based on a data value—in our case, labor force population—rather than their physical boundaries.This type of map can help visualize the fact that some Western states have small populations but large swaths of land, and are therefore misrepresented in traditional maps. Texas and Alaska are both big, for example, but their populations aren’t at all comparable. This map deliberately distorts the shapes, showing the relative population size in the the Upper Midwest states. It also shows how large the workforce is in populous states such Florida, New York, Texas and California. While the employment situation in North Dakota is strong, it represents fewer actual workers.

On Black Friday, Walmart Is Pressed for Wage Increases - While millions of shoppers flocked to Walmart stores nationwide on Black Friday, thousands of protesters descended on Walmarts to protest what they said were the retailer’s low wages.About 300 people rallied Friday morning at a Walmart near Union Station in Washington, while 11 Walmart workers and supporters were arrested on charges of blocking traffic outside a Walmart on West Monroe Street in Chicago. At the Walmart in North Bergen, N.J., several hundred union members and others protested, including Randi Weingarten, president of the American Federation of Teachers, whose placard said, “Walmart: Breaking the Promise of America.”Ronee Hinton, a cashier at a Walmart in Laurel, Md., joined a morning protest at the Walmart in Washington, calling on the company to increase everyone’s pay to at least $15 and hour and give more workers full-time and less erratic schedules. “It’s very hard on what I earn,” said Ms. Hinton, noting that she typically earns about $220 a week — she earns $8.40 an hour and often works about 26 hours a week. “Right now I’m on food stamps and am applying for medical assistance. It would help a lot to get full time.” In recent days, leaders of Our Walmart, a union-backed group of Walmart employees, said there would be protests at 1,600 stores on Black Friday. Friday afternoon, officials from Our Walmart said that with the protests unfolding, they could not say how many Walmart employees had joined the rallies or how many protests had occurred.

Working for Walmart Is Even Worse Than You Think | Alternet: Within seconds of meeting Victoria Alvarez, you can tell she’s the type of person who's fun to be around; she talks with her hands, speaks her mind and doesn’t take anyone’s shit. Alvarez was born and raised in Mexico and immigrated to the United States more than 20 years ago. Her heavily accented voice is confident and captivating, and she had a lot to say. She applied to work at Walmart during the 2009 recession. After a few months of work in Arizona, she transferred to a store in Fremont, CA, an hour from San Jose, where she lives with her husband in their mobile home. Alvarez works full-time and started at $9 an hour. After five years, she makes $11. “In the beginning, I almost lost my mobile home because I struggled,” Alvarez said. “My husband was sick and out of work. I had to borrow from friends, from family for a very long time.” But there was more to the burden of working at Walmart than just low wages. Alvarez said as soon as she started working in Fremont, she noticed things weren't right. “A lot of people were punished for things they weren’t suppose to be, like not finishing their work on time,” she explained. “A lot of people were doing the work of three to four people. That’s what happened to me.” Alvarez and her supervisor ran Walmart’s Tire & Lube Express department. She was servicing customers, making keys, dealing with tires, and carrying heavy merchandise. “I was forced to skip meals,” she said, adding that many of her co-workers have to skip meals, too. Then the workers manipulate the punch-out clock to make it look like they took a break. “They say, ‘If we find out you do it we’ll fire you,’” Alvarez said

‘Being homeless is better than working for Amazon‘ - I am homeless. My worst days now are better than my best days working at Amazon.  According to Amazon’s metrics, I was one of their most productive order pickers – I was a machine, and my pace would accelerate throughout the course of a shift. During peak season, I trained incoming temps regularly. When that was over, I’d be an ordinary order picker once again, toiling in some remote corner of the warehouse, alone for 10 hours, with my every move being monitored by management on a computer screen.  Superb performance did not guarantee job security. ISS is the temp agency that provides warehouse labor for Amazon and they are at the center of the SCOTUS case Integrity Staffing Solutions vs. Busk. ISS could simply deactivate a worker’s badge and they would suddenly be out of work. They treated us like beggars because we needed their jobs. .. I worked in isolation and lived under constant surveillance. Amazon could mandate overtime and I would have to comply with any schedule change they deemed necessary, and if there was not any work, they would send us home early without pay. I started to fall behind on my bills. At some point, I lost all fear. I had already been through hell. I protested Amazon. The gag order was lifted and I was free to speak. I spent my last days in a lovely apartment constructing arguments on discussion boards, writing articles and talking to reporters.

Higher inequality any way you cut it: a review of CBOs updated comprehensive income series. - My CBPP colleague Ben Spielberg and I poured through the update of the CBO’s invaluable comprehensive income series. Here’s are the key findings but please be sure to see our full report here.The Congressional Budget Office (CBO) recently updated their series on the distribution of household income and federal taxes, providing important new information about the evolution of income inequality, comprehensively measured. We find:

  • –The increase in income inequality since the late 1970s has occurred both before and after taxes and transfers. Thus, according to these data, claims that adding taxes and transfers erase the trend toward higher inequality are incorrect.
  • –The income of the poorest fifth of households grows much more quickly in the CBO data than in other data sets but this is largely due to assigning the market value of health benefits to their income. We argue that based on unique inefficiencies that raise costs in the US health care system in ways that do not increase the living standards of the poor, this method creates an upward bias.
  • –The CBO data now run through 2011 and thus provide two years of comprehensive income data over the recovery that began in 2009. These data show just how unequal the recovery has been, with income gains even after taxes and transfers largely eluding the poor and middle class, while disproportionately accruing to the top 1%.
  • –Since the late 1970s, earnings growth has been slow and unequal. Remarkably, for middle-income households with children, the increase in transfer income has been larger than the increase in earnings.

A deeper dive into the weeds of the CBO household income data - Yesterday, I published a report by myself and Ben Spielberg analyzing the Congressional Budget Office’s comprehensive data series on household income. Here we dive a bit deeper into some of the weeds, expanding on some of our findings. One motivation for our report was to correct the record of those who claim that the trend of increasing income inequality is significantly reduced when accounting for government taxes and transfers. In fact, as we show, between 1979 and 2011, inequality measured by the Gini coefficient rose 24% based solely on market outcomes and by 22% based on CBO’s comprehensive, post-tax and transfer income data. Here we show that changes in pre- and post-tax income shares* – the percentage of total U.S. income held by different income groups – reveals a similar trend: The “low” category in this figure represents the lowest before-tax income quintile, the “middle” category represents households between the 40th and 60th income percentiles, and the “high” category represents the top quintile. As with the Gini, the change in pre- and post-tax income shares are similar. The share of total income held by the poorest households fell by 1 percentage point on a pre-tax basis, and by 1.2 points on a post-tax basis. The share of income held by middle-class households fell by almost two percentage points on a pretax basis and by 1.4 percentage points post-tax. Only within the top fifth of households do we see relative gains, and in fact, most of the increase in top quintile income shares has accrued to the richest subset of this group: the top 1%

Universal Basic Income vs. Unemployment Insurance: Which is the Better Safety Net? -- A universal basic income (UBI) and unemployment insurance (UI) are two possible forms of social insurance for an economy in which job loss is a significant risk. Which works better? How generous should either program be? Would a combination of the two be best of all? These are the questions that Alice Fabre, Stéphane Pallage, and Christian Zimmermann (FPZ) address in a recent working paper from the Research Division of the St. Louis Fed. The answers that the authors give to these questions will disappoint UBI supporters:

  • When compared head-to-head, UI is a better social safety net than a UBI.
  • In an economy with no unemployment insurance, a UBI would be better than nothing, but the optimal level would be quite low, about $2,000 per person per year for the United States.
  • No combination of UI and a UBI is superior to UI alone.

Skeptics are likely to seize on these findings, but in my view, they do not support a blanket rejection of a UBI. Instead, as I will explain, they highlight how important it is for UBI proponents to pay attention to details of financing and program design.

Why Living-Wage Laws Are Not Enough—and Minimum-Wage Laws Aren’t Either -- I am a lifelong organizer—in labor and community settings—and am proud to say that I helped spearhead the living-wage campaign in Baltimore twenty years ago this fall. Our campaign was led by the religious leaders of BUILD—Baltimoreans United in Leadership Development, an affiliate of the Industrial Areas Foundation—along with a team of determined low-wage service workers. While we received support from the American Federation of State, County, and Municipal Employees (AFSCME), this effort was conceived, planned, implemented and owned by local civic and clergy leaders alongside local workers. We won in Baltimore. Then, two years later, with almost no support from organized labor, we won in New York City. And we found that we had sparked a wave of living wage battles in cities and counties across the country that continues to this day. It pains me to say this, but I now believe that the effort going into raising the minimum wage and passing living-wage bills fails to address the fundamental cause of low wages and terrible conditions: a lack of worker power. Those who believe, as I do, that workers deserve a living wage and decent benefits, can’t ignore the fact that twenty years of mobilizing around higher minimum wages and legislated living-wage standards have not closed the wage gap. That gap has continued to grow. And the rate of growth has accelerated. It’s not a gap that will be filled by legislated solutions. It can and will only be filled by organized workers willing to fight for better wages and benefits in their own workplaces.

San Francisco passes first-in-nation limits on worker schedules - San Francisco is now the country’s first jurisdiction to limit how chain stores can alter their employees’ schedules. Other states and cities are considering similar statutory restraints. Work scheduling rules are therefore poised to follow localized minimum wage increases and paid leave mandates as the newest instance of state and local government stepping in to fill the void left by the decades-long decline of private-sector labor unions. San Francisco’s new law, which its Board of Supervisors passed Tuesday by unanimous vote, will require any “formula retailer” (retail chain) with 20 or more locations worldwide that employs 20 or more people within the city to provide two weeks’ advance notice for any change in a worker’s schedule. An employer that alters working hours without two weeks’ notice — or fails to notify workers two weeks ahead of time that their schedules won’t change — will be required to provide additional “predictability pay.“ Property service contractors that provide janitorial or security services for these retailers will also need to abide by the new rule. “We know that while the economy is doing well for some, there are too many workers and families struggling in low-wage jobs with unpredictable shifts,” said Supervisor David Chiu, who in September introduced the predictable scheduling measure as part of a “Retail Workers Bill of Rights.” In addition to limiting schedule changes, the bill requires employers to pay part-time employees the same starting hourly wage as full-time employees in the same position. Employers must also give part-time employees the same access to time off enjoyed by full-time workers, and equal eligibility for promotion.

Enter At Your Own Risk: Police Union Says ‘War-Like’ Detroit Is Unsafe For Visitors « CBS Detroit: – The men and women of the Detroit Police Department believe the city is too dangerous to enter, and they want citizens to know it.Detroit Police Officer Association (DPOA) Attorney Donato Iorio said officers are holding the “Enter At Your Own Risk” rally at 3:30 p.m. Saturday in front of Comerica Park to remind the public that the officers are overworked, understaffed, and at times, fearful for their lives.“Detroit is America’s most violent city, its homicide rate is the highest in the country and yet the Detroit Police Department is grossly understaffed,” Iorio told WWJ’s Kathryn Larson. “The DPOA believes that there is a war in Detroit, but there should be a war on crime, not a war on its officers.”Iorio says the once 2,000 strong force is shrinking rapidly; since the start of summer, hundreds of officers have left the department.“These are the men and women who we look to protect us… and police officers can’t protect you if they’re not there. Officers are leaving simply because they can’t afford to stay in Detroit and work 12 hour shifts for what they are getting paid… These police officers are beyond demoralized, these officers are leaving hand over fist because they can no longer afford to stay on the department and protect the public,” he said.

How Much Do Neighborhoods Influence Future Earnings? -- The potential impact on lifetime earnings between growing up in a well-to-do neighborhood and a poor neighborhood is potentially larger than the difference between the earnings of the average college and high school graduate, according to a new study on social mobility. The study published in Economic Geography, calculated the average household income of the census tracts that children lived in for the first 16 years of their lives to see how well this predicted their average earnings between the ages of 30 and 44.They found that lifetime earnings are $900,000 greater for those who are raised in the wealthiest 20% of neighborhoods than for those in the poorest 20% of neighborhoods. That’s greater than the difference in earnings between the average high school and college graduate.Messrs. Massey and Rothwell estimate that this earnings difference based on what neighborhood children are raised in is also between 50% and 66% of the effect that parents’ incomes have on their children’s future income. The upshot is that “growing up in a poor neighborhood would wipe out much of the advantage of growing up in a wealthy household,” writes Mr. Rothwell in a blog post summarizing the paper for Brookings. What could explain the neighborhood effect on incomes? Mr. Rothwell says school quality is a likely factor. Poor children tend to have better upward mobility when they attend better schools, and more affluent neighborhoods tend to have better schools.

Food pantries stretched to breaking point by food stamp cuts -- One year after drastic cuts to nationwide food stamp benefits took effect, the country’s largest food bank is struggling with what it describes as an unprecedented hunger emergency. Data from the Food Bank For New York City shows that emergency food assistance charities simply don’t have the resources to keep up with a worsening hunger crisis. “We are in a crisis in this city. We just are,”  The Food Bank For New York City calculates that 1.4 million New York City residents — roughly 16.5 percent of the city's population — depend on emergency food assistance. That figure is slightly higher than the 14.5 percent of the U.S. population served each year by the broader Feeding America network of food banks, of which Food Bank For New York City is a member. The United States Department of Agriculture estimates that roughly 14.3 percent of U.S. households in 2013 “lacked access to enough food for an active, healthy life for all household members" — a nearly 30 percent increase since 2007, the year before the financial crisis. Food Bank For New York City gathered the new data to quantify the local effects of a $5 billion cut to food stamps that took effect on Nov. 1, 2013. That cut, the result of expiring provisions in the 2009 federal Recovery Act, resulted in food stamp users nationwide receiving fewer benefits, with the average family of four losing about $36 per month in assistance.

What Falling Oil Prices Will Mean for State Budgets -- Oil prices are dropping…fast. This may be good news for drivers but not so good for a handful of states that use energy tax revenue to help fund their budgets. It may be especially challenging for states that rely on taxes from production of shale oil that uses methods that may be practical only at high prices. It costs $60 to $70 to produce a barrel of shale oil, leaving little margin once the price of crude dropped to the $75 range in November. Of course, the success of the controversial hydrofracking method which has opened up vast new reserves is one reason oil prices are so low.On the positive side, with gas prices at a four year low, consumers have extra money in their pockets just in time for the holiday shopping season: more shopping means more state sales tax collections. If more travelers take to the roads, those long trips will also boost motor fuel tax collections (remember, gas taxes are generally fixed, and not tied to pump prices).  Low crude oil prices also lower the costs of surface transport, both rail and truck. Unfortunately, low prices may also boost short-term consumption of fossil fuel and may make buying gas-guzzlers more attractive.  Energy states will be affected in different ways, depending in part on how well they’ve projected prices—always a risky game. Among states that rely heavily on oil severance taxes, price forecasts for the current fiscal year range from $80 to $105 per barrel, depending on when the forecast was made.Those states that projected prices on the low end should be able to manage without having to redo their 2015 budgets. For instance, North Dakota only publishes forecasts for the biennial budget and has not updated its projections since 2012. As a result, it’s forecasting $80-a-barrel oil and has built up over $5 billion in various reserve funds

Chicago Public Schools’ $100 Million Swaps Debacle Demonstrates High Cost of High Finance -- Yves Smith - I’ve been late to write up an important series published by the Chicago Tribune earlier this month on a costly swaps misadventure by the Chicago Public Schools. Like all too many state and local government entities, the Chicago Public Schools were persuaded to obtain $1 billion of needed ten-year financing not through the time-and-tested route of a simple ten year bond sale but the supposedly cost-saving mechanism of issuing a floating-rate bond and swapping it into a fixed rate. An impressive, expert-vetted analysis of the deal by the Chicago Tribune estimated that the school authority has in fact incurred $100 million in present-value losses on that $1 billion bond issue.  What is important about this story is that the CPS’ sorry experience has been replicated at state and local entities all over the US and abroad, yet remarkably few have been willing to sue. In some cases, it’s likely that rank corruption was involved, that the consultants hired to vet the deal were cronies and not up to the task, or worse, that key people at the issuer were overly close to the banks involved. In other cases, officials are afraid of banks, that if they sue them, they’ll be put on a financing black list and will have trouble fundraising.  As the series explains, entities like the Chicago Public Schools has previously been protected from their naivete by not having the authority to engage in fancy finance. But the state of Illinois passed legislation in 2003, written by a lawyer at an in-state bond firm, even though no local entity had asked for these new powers. Here is how local governments were set up to be shorn: The bill specified that any government able to issue at least $10 million in bonds could enter an interest-rate swap, making the deals accessible to towns with populations as small as 12,000. Lawmakers did not put even that restriction on auction-rate bonds. The law also gave municipal officials explicit permission to raise taxes in order to pay interest on swaps.

Texas OKs Most New History Textbooks Amid Outcry - ABC News: Texas' school board approved new history textbooks Friday for use across the nation's second-largest state, but only after defeating six and seeing a top publisher withdraw a seventh ? capping months of outcry over lessons some academics say exaggerate the influence of Moses in American democracy and negatively portray Muslims. The State Board of Education sanctioned 89 books and classroom software packages that more than 5 million public school students will begin using next fall. But it took hours of sometimes testy discussion and left publishers scrambling to make hundreds of last-minute edits, some to no avail. A proposal to delay the vote to allow the board and general public to better check those changes was defeated. "I'm comfortable enough that these books have been reviewed by many, many people," said Thomas Ratliff, a Republican and the board's vice chairman. "They are not perfect, they never will be." The history, social studies and government textbooks were submitted for approval this summer, and since then, academics and activists on the right and left have criticized many of them. Some worry they are too sympathetic to Islam or downplay the achievements of President Ronald Reagan. Others say they overstate the importance of Moses on America's Founding Fathers or trumpet the free-market system too much. Bitter ideological disputes over what gets taught in Texas classrooms have for years attracted national attention. The new books follow the state academic curriculum adopted in 2010, when board Republicans approved standards including conservative-championed topics, like Moses and his influence on systems of law. They said those would counter what they saw as liberal biases in classrooms.

Wall Street’s taxpayer scam: How local governments get fleeced — and so do you - Galvanized in part by a recent blockbuster investigation on the damage done by a series of  loans taken from Wall Street by Chicago Public Schools — which have not panned out and which Mayor Rahm Emanuel is trying to disown — opponents of Wall Street’s “predatory loans” demanded action, using a new report from the Roosevelt Institute as a guide.  Titled “Dirty Deals: How Wall Street’s Predatory Deals Hurt Taxpayers and What We Can Do About It,” the report is an in-depth look at one of Wall Street’s most insidious but overlooked practices that also tackles how government officials can fight back — assuming, of course, that they’re interested. Earlier this week, Salon called Roosevelt Institute fellow Saqib Bhatti to discuss his findings and recommendations for what those concerned about Wall Street malfeasance can do next. Our conversation is below and has been lightly edited for clarity and length.

Teacher Pay Penalty --There is an increased emphasis in building a quality teacher workforce but little attention paid to the pay penalty teachers face for working in their profession. +The figure below shows that teachers earn less than other similar non-teacher college-educated workers. Teachers working in the public sector who are represented by a union earn 13.2 percent less than other comparable college graduates. The pay gap is largest for private sector teachers without union representation (-32.1 percent). Separate analyses by gender are also presented given that the overwhelming majority of teachers are women (around 72 percent)—here female teachers were only compared to female non-teacher college-educated workers, and male teachers were only compared to male non-teacher college-educated workers. Compared to female teachers, the teacher pay penalty is worse for male teachers for each of the four teacher groups. In general, teacher pay disadvantages are mitigated if teachers are employed in the public sector—and more so if they have union representation.

Hundreds of University of California students walk out over proposed tuition hike (Reuters) - Hundreds of University of California students walked out of classes on Monday to protest a planned 25 percent tuition increase they say will make the cost of education across the 10-campus system too expensive. The proposed tuition hike of 5 percent over each of the next five years kicked off angry student protests last week and set the stage for a potentially rancorous fight between the system's governing board of regents and state lawmakers who oppose the increase. Tuition is currently about $12,000 a year. Students across the University of California system left classes at noon on Monday, with more than 1,000 joining the largest protest at the University of California at Berkeley, organizers said. The Berkeley protesters, some clutching banners reading: "Fight the hike" and "Public education for all," marched in front of a local high school. Hundreds walked out at other campuses, including Davis and San Diego, but only a few dozen joined the action at UCLA, which has more than 43,000 students.

You’ll Never Guess College Students’ Biggest Regret -- You might think that when people look back on their college years, their biggest regret would be not being more involved socially, choosing the wrong major or partying too much. In reality, the biggest regret college grads face is a much more grown-up one, and it’s one with repercussions that can follow them well into their adult years.According to a studyconducted by Citizens Financial Group, 77% of former college students age 40 and younger regret not doing a better job of planning how to manage their student loan debt.Student loan debts have ballooned in recent years, even as the demand for higher education has boomed as more companies in nearly every industry require that job applicants have college degrees. Earlier this year, Federal Reserve Bank of New York data showed that Americans collectively owe $1.1 trillion in student loan debt. By comparison, we owe $8.2 trillion in mortgage debt and $659 billion in credit card debt. Each indebted borrower owes nearly $30,000 upon graduation, and many of them are struggling. Citizen’s survey finds that current students carry roughly $25,000 of student debt, while their parents carry an average of $22,000.Nearly a quarter of former students in Citizen’s survey say they can’t stay current on their debt payments, and almost two-thirds say they’re uncomfortable with their debt load. Almost half say they would have reconsidered going to college entirely if they knew how burdensome their debts would be years or even decades later.Current students aren’t faring much better: Seven in 10 don’t think they’ll have enough financial acumen to do a good job managing their debt, and more than 80% say they wish they knew more about the long-term impact of carrying this debt — which will take nearly two decades to pay off for many borrowers, according to the survey responses of former students. What’s more, more than a third of former students don’t even have a guess when they’ll have those debts paid.

Why College Is Necessary But Gets You Nowhere - Robert Reich --  This is the time of year when high school seniors apply to college, and when I get lots of mail about whether college is worth the cost.The answer is unequivocally yes, but with one big qualification. I’ll come to the qualification in a moment but first the financial case for why it’s worth going to college.Put simply, people with college degrees continue to earn far more than people without them. And that college “premium” keeps rising.Last year, Americans with four-year college degrees earned on average 98 percent more per hour than people without college degrees. In the early 1980s, graduates earned 64 percent more. So even though college costs are rising, the financial return to a college degree compared to not having one is rising even faster. But here’s the qualification, and it’s a big one.  A college degree no longer guarantees a good job. The main reason it pays better than the job of someone without a degree is the latter’s wages are dropping. In fact, it’s likely that new college graduates will spend some years in jobs for which they’re overqualified.  According to the Federal Reserve Bank of New York, 46 percent of recent college graduates are now working in jobs that don’t require college degrees. (The same is true for more than a third of college graduates overall.) Their employers still choose college grads over non-college grads on the assumption that more education is better than less.  As a result, non-grads are being pushed into ever more menial work, if they can get work at all. Which is a major reason why their pay is dropping.

Even Among Harvard Graduates, Women Fall Short of Their Work Expectations - Women are not equally represented at the top of corporate America because of the basic facts of motherhood: Even the most ambitious women scale back at work to spend more time on child care. At least, that is the conventional wisdom.But it is not necessarily true for many women, according to a new study of Harvard Business School alumni. Instead, it found, women in business overwhelmingly want high-achieving careers even after they start families. The problem is mismatched expectations between what they hope to achieve in their careers and family lives and what actually happens, both at work and at home.Men generally expect that their careers will take precedence over their spouses’ careers and that their spouses will handle more of the child care, the study found — and for the most part, men’s expectations are exceeded. Women, meanwhile, expect that their careers will be as important as their spouses’ and that they will share child care equally — but, in general, neither happens. This pattern appears to be nearly as strong among Harvard graduates still in their 20s as it is for earlier generations.

Student Debt By Major: What Not To Study To Avoid A Lifetime Of Debt Slavery -   As recently reported by the Project On Student Debt, 7 in 10 seniors who graduated from public and nonprofit colleges in 2013 had student loans, with an average debt load of $28,400 per borrower. This represents a two percent increase from the average debt of 2012 public and nonprofit graduates. It is also a new record high. Those curious about the geographic breakdown of the student debt burden by state, can do so at the following interactive map: It goes without saying that while student debt is bad, record student debt - which at the Federal level amounts to over $1.2 trillion and rising exponentially - is worse. In fact, as shown previously, the unprecedented debt burden on the Millennial generation has been used to explain why the largest generational cohort in US history is unable to carry the weight of the economy on its shoulders, why the Millennials are perhaps the most financially disenfranchised generation, and why the labor force participation rate has collapsed in the past five years, as older workers rush back into the work force (thanks to ZIRP crushing the value of their savings) while young Americans chose to remain in university (where they can take remedial high school classes among other things) and out of the labor force in hopes of holding out a better job market (for the 6th year in a row). However, since all college educations are most certainly not created equal, one outstanding item has been the debt breakdown by field of study, or major.  This is where the latest project and research paper from the Hamilton Project, which comes in handy. It examined earnings for approximately 80 different majors and as the NYT summarizes, allows people to look up typical debt burdens by major, over the first decade after college – which is when people tend to repay their loans.

CalPERS: Retirees soon will outnumber active members --  In a few years CalPERS retirees are expected to outnumber active workers, a national trend among public pension funds that makes them more vulnerable to big employer rate increases. A mature pension fund for a growing number of retirees becomes much larger than the payroll. So if the pension fund has investment losses, an employer rate increase to help fill the hole takes a bigger bite from the payroll. CalPERS employers and employees are contributing more money. Investments have had two strong years. Reform legislation will cut future costs. And a funding level that fell to 60 percent during the recession is back up to 77 percent.The growing number of retirees, partly due to aging baby boomers, is one reason a staff report last week argues that CalPERS has too much “risk” and should consider a number of options during a board workshop early next year.Among the options listed are a more conservative investment allocation, a lower earnings forecast, an employer choice of asset allocations with different risk and expected returns, and workers sharing the risk through contributions, benefit design or cost sharing.

California’s Managed Care Project For Poor Seniors Faces Backlash -- California’s experiment aimed at moving almost 500,000 low-income seniors and disabled people automatically into managed care has been rife with problems in its first six months, leading to widespread confusion, frustration and resistance. Many beneficiaries have received stacks of paperwork they don’t understand. Some have been mistakenly shifted to the new insurance coverage or are unaware they were enrolled. And 44 percent of those targeted for enrollment through Oct. 1 opted out. Harold Marshall, who has hypertension, bipolar disorder, chronic pain and bladder cancer, said he rejected the managed care program because one of his doctors said he wouldn’t see him anymore if he was enrolled. Marshall, who lives in Inglewood, gets most of his care at renowned hospitals –Cedars Sinai Medical Center and UCLA. “If I didn’t have my doctors, I don’t know what would happen,” he said. In fact, doctors have been among the most vocal critics of the switch, and the state admittedly is having trouble getting some of them to participate. “The scope and the pace are too large and too rapid for what is supposed to be a demonstration project,” said Dr. William Averill, executive board member of the Los Angeles County Medical Association, which filed a lawsuit to block the project. “We are concerned that [the project] is ill-conceived, ill-designed and will jeopardize the health of many of the state’s most vulnerable population – the poor, the elderly and the disabled.”

Algorithms Are Great and All, But They Can Also Ruin Lives - 41-year-old John Gass received a letter from the Massachusetts Registry of Motor Vehicles. The letter informed Gass that his driver’s license had been revoked and that he should stop driving, effective immediately. .  After several frantic phone calls, followed up by a hearing with Registry officials, he learned the reason: his image had been automatically flagged by a facial-recognition algorithm designed to scan through a database of millions of state driver’s licenses looking for potential criminal false identities. The RMV itself was unsympathetic, claiming that it was the accused individual’s “burden” to clear his or her name in the event of any mistakes, and arguing that the pros of protecting the public far outweighed the inconvenience to the wrongly targeted few. John Gass is hardly alone in being a victim of algorithms gone awry. In 2007, a glitch in the California Department of Health Services’ new automated computer system terminated the benefits of thousands of low-income seniors and people with disabilities. Without their premiums paid, Medicare canceled those citizens’ health care coverage. Where the previous system had notified people considered no longer eligible for benefits by sending them a letter through the mail, the replacement CalWIN software was designed to cut them off without notice, unless they manually logged in and prevented this from happening. As a result, a large number of those whose premiums were discontinued did not realize what had happened until they started receiving expensive medical bills through the mail. Even then, many lacked the necessary English skills to be able to navigate the online health care system to find out what had gone wrong.

Top insurers overstated doctor networks, California regulators charge -- Bolstering a chief complaint about Obamacare coverage, California regulators said two major health insurers violated state law by overstating the number of doctors available to patients.More than 25 percent of physicians listed by Anthem Blue Cross and Blue Shield of California weren't taking Covered California patients or were no longer at the location listed by the companies, according to state reports released Tuesday.In some cases, these errors led to big unforeseen medical bills when patients unwittingly ventured to out-of-network doctors for medical tests or a surgery.The results of the five-month investigation come at a critical juncture as the second year of health law enrollment gets underway and more than 1.2 million Californians are shopping in the state's insurance exchange."We found the provider directories made available to the public had significant errors," said Shelley Rouillard, director of the California Department of Managed Health Care. "When you have a quarter or more of physicians that aren't available, that is significant."Anthem and Blue Shield account for nearly 60 percent of enrollment in Covered California. The two industry stalwarts have long catered to patients wanting the widest selection of physicians.

Too rich for Medicaid but too poor for a health care subsidy? Consumer Reports - I'm hearing from many readers who worry they may have to pay back all or some of the tax subsidy they received in 2014 to help pay for health insurance. And it's not because they earned too much money this past year, but too little. My quick answer, to ease their minds: No, you won't. In fact, you may get a little extra subsidy at tax time this year.   Under the Affordable Care Act, people whose incomes are between 100 percent and 400 percent of the Federal Poverty Level can receive tax credits to offset the cost of health insurance. (Here’s a chart with the numbers.) The assumption was that people who made less than 100 percent of the poverty level would get insurance through expanded Medicaid coverage, which was also part of the health care law. But many states decided to not expand Medicaid after a Supreme Court decision gave them that option. And in those states, households with incomes below the poverty limit cutoff fall into the dreaded “coverage gap”—too poor to get tax credits but unable to get Medicaid. The readers I'm hearing from are afraid that when they file their tax return and the government finds out how little they earned they'll be forced to pay back their premium tax subsidy. But experts in the health law say not to worry. “The Internal Revenue Service has a special rule about this,” explains Tara Straw, at the Center on Budget and Policy Priorities, a Washington think tank. “If you bought coverage on the Marketplace, got tax credits, and ended up with an income below the poverty line, then you still get your credit. In fact, you’re going to get a refund because your credit was based on a higher amount than you actually earned.”

Latest Obamacare gaffe: Marketplace enrollment inflated by 400,000 — The Obama administration downsized the nation’s marketplace health insurance enrollment to 6.7 million people on Thursday after House investigators found the original estimates for medical coverage included 400,000 people who only had dental coverage.The gaffe sours the otherwise flawless Nov. 15 start of the 2015 enrollment period and appears to undercut promises by Health and Human Services Secretary Sylvia Mathews Burwell that the new management team at HHS would be more transparent.“A mistake was made in calculating the number of individuals with . . . marketplace enrollments,” said a statement by Aaron Albright, a spokesman for the department’s Centers for Medicare and Medicaid Services. “Moving forward, only individuals with medical coverage will be included in our . . . enrollment numbers.”It’s unclear why and how the Department of Health and Human Services mixed the two enrollment figures, but the error, first reported by Bloomberg News, was uncovered by investigators from the House Oversight and Government Reform Committee.The committee’s chairman, Rep. Darrell Issa, R-Calif., accused the administration of engaging in a coverup.

Obamacare, coming to a mall near you -  HHS is hitting the malls this weekend to make sure that Obamacare is on the minds of consumers during the busiest shopping weekend of the year. The department on Wednesday will announce new partnerships it has made with retail stores, pharmacies and popular websites to spread the word about the current open enrollment season, which began on Nov. 15 and ends Feb. 15. On three key days after Thanksgiving — Black Friday, Small Business Saturday and Cyber Monday — as well as dates beyond, Westfield Shopping Centers, the National Community Pharmacists Association and the XO Group will provide consumers with information about how they can sign up for coverage through the exchanges.The outreach approach is a stark shift from Obamacare’s first year, when HHS utilized celebrities and other high-profile figures to generate buzz about But with a shorter enrollment period this time around, the necessity of capturing renewals and the challenges of messaging in the midst of a frenetic holiday season, HHS is turning to more practical approaches to get people to enroll. HHS Secretary Sylvia Mathews Burwell said the Obama administration was excited about the three partnerships and their potential for reaching Americans, “whether consumers are shopping at a mall, online or at their community pharmacy.”

Obamacare visualization: Company makes interactive map showing insurance prices - Insurance prices on the website show that insurance prices on the federal government's marketplace will be higher in 2015; now a New York-based personal finance company has made it easier to see. has produced a free, interactive map showing the change in subsidies, providers and premiums for "silver" insurance plans on the exchange for every county in the United States. "There have been significant changes in rates across the country," said Divya Sangam, a spokeswoman for the company. " can be a little confusing." In Alabama, the average cost of a silver plan is higher in every county except for Mobile and Limestone. The average subsidy under the Affordable Care Act, also known as Obamacare, also is up by an equivalent amount in most of those counties. The map allows users to review prices and subsidies available at various income levels and ages.

U.S. government says 462,125 people signed up for 2015 Obamacare plans - (Reuters) - Open enrollment for the second year of Obamacare individual health coverage brought in 462,125 people who chose their health plans in its first week, nearly half of whom were first-time customers, the U.S. government said on Wednesday. The U.S. Department of Health and Human Services has set a goal of 9 million people for 2015 individual plans. This new coverage was introduced in 2014 for the first time as part of President Barack Obama's national healthcare law, often called Obamacare. After fixing the technology issues that last year contributed to a rocky start for enrollment in the program, more than 7 million people were enrolled in 2014 plans. "It's still early and we have a long way to go, but we're off to a solid start," Secretary Sylvia Burwell said during a press conference to discuss the first week's data for the 2015 enrollment period that opened on Nov. 15. Of the 462,125 people who selected one of the health plans sold on, 52 percent were individuals who had enrolled in a 2014 plans. The balance were new customers, including people in Oregon and Nevada who are using the federally run exchange for the first time. The federal exchange covers 35 states and the remaining states and Washington D.C. run their own exchanges and release their data separately. Oregon and Nevada moved their customers to because of technology problems.

Answering the Hard Questions on the A.C.A.: Which Employees Must Be Covered? - On the surface, the rule seems straightforward: Every full-time employee — that is, anyone who puts in 30 hours of service a week, or 130 hours a month — is entitled to an offer of coverage from the company for that month (the monthly figure is 130 hours rather than 120 hours because most months are a few days longer than four weeks).For companies where work schedules are consistent or those that offer health insurance broadly, the method for determining employee status is also pretty straightforward: The employer counts up the hours for each calendar month and makes sure each full-time employee has an offer of coverage that month (or the business prepares to pay a penalty). The Internal Revenue Service calls this the “monthly measurement method.”But things become complicated when employee hours vary week to week or month to month: How can an employer know whether a worker with fluctuating hours will be entitled to insurance in advance of a given month? And, really, what company is going to offer health insurance on a month-to-month basis?The answers to these thorny questions are found in what the I.R.S. calls the “look-back measurement method.” Essentially, the rules give companies the option to determine whether “variable-hour” employees are full time in the current year by calculating their average hours of service in the previous year. Hours of service, by the way, can include time for which employees are paid even when they are not performing work, such as for vacations, sick leave or jury duty.

Change in Health Care Law Would Take Aim at Consumer Inertia -- People who bought Affordable Care Act health plans for 2014 but who don’t go back to shop again for 2015 will automatically keep the plan they first chose, even if its price goes way up. Now the federal government is proposing that when people sign up, they should get a choice of defaults for future years: to stay in the same plan, or switch to a cheaper one in the same category if theirs gets too pricey.  The proposed regulation, published Friday, suggests phasing in the additional choice, first giving states with their own exchanges the option of offering it. By 2017, if the proposal becomes final, everyone who buys a plan through the federal system will be subject to such a policy of having a choice of defaults. Of course, customers who shop every year will get to pick whatever plan they want. And The Upshot has been recommending that everyone buying insurance through the system do just that, because there are big price differences in many markets between the most popular plan from 2014 and the cheapest possible alternative plan in 2015.

Lawmakers Look for Ways to Provide Relief for Rising Cost of Generic Drugs -- With the prices for some common generic medicines soaring over the past 18 months, state and federal lawmakers are trying to find relief for patients struggling to pay.On Thursday, a Senate panel convened to investigate price increases for generic drugs. Separately, Senators Amy Klobuchar and John McCain will revive stalled legislation to allow some prescription imports from Canada. And Maine is testing out a hotly contested new law that allows its residents to buy drugs from overseas, flouting United States policy.One half of generic medicines went up in price between last summer and this summer; about 10 percent more than doubled in cost in that time, with some common medicines rising by over 500 percent, new data released in connection with a Congressional hearing found.  Because the United States does not regulate drug pricing or negotiate prices nationally like other countries, generic medicines have long been a safety valve for American patients, allowing them to obtain needed medicines at lower costs. Brand name medicines are granted patent protection for a number of years after they enter the market. Historically, after the patent expires, generic copies have entered the fray, bringing prices down, often sharply.But that pattern is changing, researchers and policy makers say.The cost of many generic medications has increased so much over the past year that prices for many common generic drugs in the United States have surpassed those of their brand-name equivalents in other developed countries, a new analysis by the website Pharmacychecker, which guides patients in the mail order purchase of medications, has found.

More Medicine Goes Off Limits in Drug-Price Showdown -  Steve Miller is waging war on high-priced medicine, guiding decisions to ban drugs from the health plans of millions of Americans and sending companies reeling in a $270 billion market. He and his colleagues at Express Scripts Holding Co. (ESRX) say they are just getting started. Miller is chief medical officer for the company, which oversees prescription benefits for health plans and employers covering 85 million patients. Unless more is done about a wave of new and expensive drugs, some priced at as much as $50,000 a month, Miller says that health plans are going to be swamped as costs double to half a trillion dollars as soon as 2020. Employers with health plans “are just terrified,” said Miller, after showing a visitor a giant prescription-filling room packed with robots stuffing pills in bottles. In a few years, “you could be in the business of running your company to pay your pharmacy bill.” Express Scripts deploys powerful cost-control weapons: refusing outright to pay for dozens of drugs, and setting hurdles for patients to access the most expensive medications. The St. Louis-based company is excluding 66 brand-name drugs in 2015 from its main formulary, or list of covered drugs, up from 48 in 2014, when it started exclusions. Each year’s list bans the popular rheumatoid arthritis drug Simponi, a $3,000-a-month injectable medicine from Johnson & Johnson. (JNJ)

My Insurance Company Killed Me, Despite Obamacare - Malcolm MacDougall died five days after writing this. How far will a health-insurance company go to deny coverage when you are really sick? How willing are they to risk their customers’ health and possibly their lives? Well let me tell you my experience with Health Republic and its affiliate MagnaCare. For five months—ever since I was diagnosed with stage-four metastasized prostate cancer—they refused to pay my medical bills. On Oct. 20, a nurse with Health Republic overruled my oncologist and my primary-care physician and declared that a critical test to determine the progress of my cancer was unnecessary. It seems she was wrong. As a result, I am writing this from Lenox Hill Hospital, where I am undergoing emergency tests and treatments ordered by three prominent New York doctors who didn’t agree with that health-insurance nurse. This latest fiasco is not at all surprising. I have been fighting to get Health Republic and MagnaCare to explain why they suddenly and inexplicably refused to pay for my doctors and my treatments even though I followed their rules for members, went to their online list of providers, and actually received two form letters stating the treatments the doctors had ordered were legitimate. It’s a long story, but if you want to know what it’s like dealing with the health-insurance bureaucracy when it’s a matter of life and death, you might want to stick with me

Doctors Tell All—and It’s Bad -  For someone in her 30s, I’ve spent a lot of time in doctors’ offices and hospitals, shivering on exam tables in my open-to-the-front gown, recording my medical history on multiple forms, having enough blood drawn in little glass tubes to satisfy a thirsty vampire. In my early 20s, I contracted a disease that doctors were unable to identify for years—in fact, for about a decade they thought nothing was wrong with me—but that nonetheless led to multiple complications, requiring a succession of surgeries, emergency-room visits, and ultimately (when tests finally showed something was wrong) trips to specialists for MRIs and lots more testing. During the time I was ill and undiagnosed, I was also in and out of the hospital with my mother, who was being treated for metastatic cancer and was admitted twice in her final weeks. I was startled by the profound discomfort I always felt in hospitals. Physicians at times were brusque and even hostile to us (or was I imagining it?). The lighting was harsh, the food terrible, the rooms loud. Weren’t people trying to heal? That didn’t matter. What mattered was the whole busy apparatus of care—the beeping monitors and the hourly check-ins and the forced wakings, the elaborate (and frequently futile) interventions painstakingly performed on the terminally ill. In the hospital, I always felt like Alice at the Mad Hatter’s tea party: I had woken up in a world that seemed utterly logical to its inhabitants, but quite mad to me.  To my surprise, I’ve now learned that patients aren’t alone in feeling that doctors are failing them. Behind the scenes, many doctors feel the same way. And now some of them are telling their side of the story. A recent crop of books offers a fascinating and disturbing ethnography of the opaque land of medicine, told by participant-observers wearing lab coats. What’s going on is more dysfunctional than I imagined in my worst moments. Although we’re all aware of pervasive health-care problems and the coming shortage of general practitioners, few of us have a clear idea of how truly disillusioned many doctors are with a system that has shifted profoundly over the past four decades. These inside accounts should be compulsory reading for doctors, patients, and legislators alike. They reveal a crisis rooted not just in rising costs but in the very meaning and structure of care.

What If We’re Wrong About Depression?  -- What is depression? Anyone who has dealt with the condition knows what it can feel like — but what causes it, what sustains it, and what’s the best way to make it subside?  Despite the prevalence of the disorder — in one Centers for Disease Control and Prevention study, 9.1 percent of adults met the criteria for depression — experts haven’t fully answered these questions. And to fully do so, some say we need new ways of thinking about depression entirely. For Turhan Canli, a professor of integrative neuroscience at Stony Brook University, that means looking at the possibility that depression could be caused by an infection. . “I always had a feeling that somehow we seem to be missing the actual treatment of the disease.” He was intrigued by research showing a connection between depression and inflammation in the body, and he started to think about the known causes of inflammation — among them pathogens like bacteria, viruses and parasites.  In a paper published in the journal Biology of Mood and Anxiety Disorders, he lays out his case for rethinking depression as a response to infection. He notes that the symptoms of depression are similar to those of infection: “Patients experience loss of energy; they commonly have difficulty getting out of bed and lose interest in the world around them. Although our Western conceptualization puts affective symptoms front-and-center, non-Western patients who meet DSM criteria for major depression report primarily somatic symptoms.” And, he writes, we already know that infectious agents can affect our emotions — he points to Toxoplasma gondii, a parasite that’s now somewhat famous (at least among science lovers) for its striking impact on its hosts.  In humans, it may have serious psychological effects — Dr. Canli cites research linking T. gondii with suicide. “Yet,” he writes, “large-scale studies of major depression and T. gondii or systematic searches to discover other potential parasitic infections have not yet been conducted.”

Has LSD Matured? -- In February 2014, Scientific American surprised readers with an editorial that called for an end to the ban on psychedelic drug research and criticized drug regulators for limiting access to such psychedelic drugs as LSD (Lysergic acid-diethylamide), ecstasy (MDMA), and psilocybin. A few months later, Science further described how scientists are rediscovering these drugs as legitimate treatments as well as tools of investigation. “More and more researchers are turning back to psychedelics” to treat depression, obsessive-compulsive disorder, various addictions, and other categories of mental illness. Historians of medicine and drugs have long held a view that psychoactive substances conform to cyclical patterns involving intense periods of enthusiasm, therapeutic optimism, critical appraisals, and finally limited use. The duration of this cycle has varied, but this historical model suggests psychedelics are due for a comeback tour. It was just a matter of time. While treating patients with psychedelic drugs may seem bizarre, in the 1950s and 1960s expectations were “high”.  Dr. Albert Hofmann’s discovery of LSD in 1943 drew attention from multiple fields, including psychiatry and psychotherapy. Ultimately, “doctors and scientists embraced LSD,” writes Science correspondent Kai Kupferschmidt. By the mid-1960s, the biomedical community had published over 1,000 academic papers on the subject, and researchers reported positive results, if not major breakthroughs, in treating anxiety, depression, and obsessive compulsive behavior. But just as this was happening, LSD and other psychoactive substances took on a public image as the drug of counter-cultural and anti-authority ideas, associated with the visceral images of the Charles Manson murders and hedonism of the late 1960s. Recreational abuse, in short, helped scuttle research. In 1968, amid widespread disagreement within the scientific and research community over the potential therapeutic applications of LSD, the U.S. government regulated it out of legal territory altogether.

Darkness at Sunrise: Warehousing dementia patients for $74,000 a year -- Sylvia Kronstadt -- When you step off the elevator onto the fourth floor of Sunrise Senior Living, and you enter the secure “Reminiscence” ward -- where dementia patients are housed -- you might well become overwhelmed with a sense of dread. The first thing you see is a large, semi-dark room – known as “the TV room” -- in which about 25 women sit virtually all day in theater-style rows, with their eyes closed and their heads either hanging down or thrown back. A couple of them gaze vacantly into the distance. There are no interactions between them, and the seating arrangement certainly isn’t conducive, even to eye contact. Is this what the website meant by "individually tailored care"? No one is watching “Let’s Make a Deal.” They ignored "The Price is Right" as well. It would be too bad if they were interested: The sound is turned off. These women look gray and dead. They seem unreal, as if they were in Madame Tussauds’ rendition of Zombieville. I am sick with grief and guilt as I confront the fact that my mother is moving into this $74,000 a year institution tomorrow.

If a tree falls in the forest: Rape vs. dementia -- Sylvia Kronstadt -- If a woman with dementia -- who has lost the ability to form new memories -- tells a nighttime  aide that she has been raped, but has no recollection of it the next morning, should any "sound" be made about it?   Should we care?  She is eating her eggs and bacon and talking about her love of "smooth jazz." What's the problem, Sylvia? Why don't you back off, instead of making a big deal out of nothing?   I received a calm, low-key phone call from the Executive Director  (ED) at 9:15 a.m. on Wednesday, Oct. 1, informing me that my mother had reported being “raped and beaten” at 4:30 a.m. that morning, but that she was fine now. He suggested that I call the Reminiscence Director (RD) to let her know if I wanted the police to be notified. Of course I wanted the police to be notified – hours ago, not waiting for “regular business hours.”  The RD said she wasn’t informed of the allegation until she arrived at about 8:30 a.m. She was told that a NOC (overnight) aide had entered my mother’s room to check on her, and discovered that she had wet the bed, which I’ve been told happens several nights a week. "Your mom is fine now. Do you really think we need to get law enforcement involved." "Yes I do," I insisted, being "disruptive," as usual.  Why did they permit hours to go by, during which any physical evidence – from fingerprints to seminal fluid -- could be compromised, contaminated, wiped off, laundered, discarded or in other ways rendered unusable/inadmissible?

How manipulative synthetic-aroma chemists have changed our home, work and shopping environments -- and our consumer products, behavior, and cognition - sylvia kronstadt - Her sheets smell like the 1960s. Does anybody out there remember those days? There were vacant lots everywhere that we called “meadows.” You could slip deep inside, beneath a tree with your teenage boyfriend, and kiss for hours amid flowery, grassy dewiness. And now some genius has immersed Elderly Girl once again in that ecstatic era. Thank you, sir! Her wrinkled loins are tingling poignantly. How ever did you pull it off, Mr. Detergent Man? But why didn’t you just name the scent “Freshly Showered Adolescent Male,” thereby getting right to the point? Oh wait -- Elderly Girl gets it. You were being coy! You were flirting! How apropos! Next time she washes her sheets, which she does so often now because it has turned bedtime into such an adventure, she can choose from, among many others, apple-mango tango, vanilla-lavender, mountain fresh, Hawaiian breeze (as opposed to the slightly naughtier Tropical breeze), lemongrass (for her more meditative phases) and Thai dragon fruit, which she has so far lacked the courage to try. That shit could really mess with your dreams. Crouching tigers!

Public Relations and the Obfuscation of Management Errors – Texas Health Resources Dodges its Ebola Questions --  Our last posts about how revenue focused, generically managed US health care (non) system would have difficulty handling the threat of the Ebola virus were in mid-October, 2014.  Yet since then we have learned little about what went wrong when a single hospital dealt with the first Ebola patient to present de novo in the US, and two of the hospital's own nurses who acquired the infection caring for him. The first three Ebola cases diagnosed in the US were initially managed at Texas Health Presbyterian hospital, the flagship hospital for Texas Health Resources (THR).  On October 15, 2014, I noted that statements by the generic managers in charge of the hospital and the system left confusion on many points:
-  How was the decision to send the index patient, Mr Eric Duncan, home after his first emergency department presentation made (given he apparently had a fever in the ED, and an ED nurse knew he came from Africa)?
-  Why did THR leaders insist they were prepared for Ebola when later evidence suggested they had not set up organized processes and lacked proper equipment?
-  Did hospital managers try to prevent health care professionals from talking about what really went on?
Furthermore, as I noted on October 9, 2014 and InformaticsMD had discussed in depth, e.g., here, whether the the electronic health record (EHR) used by THR enabled Mr Duncan to go home undiagnosed remained unclear.

The Racial Disparity of Ebola - American healthcare workers Nancy Writebol,  Kent Brantly, Craig Spencer, and Rick Sacra, as well as NBC cameraman Ashoka Mupko, were all beneficiaries of the medical sophistication of the U.S. hospital system. All of them contracted Ebola in West Africa and lived to tell the tale, emerging from the hospital Ebola-free and appearing remarkably robust. They benefited from early diagnosis, prompt evacuation to the leading U.S. special isolation centers, and in some cases, treatment with convalescent serum and the experimental drug ZMapp. The story is quite different for some other high-profile Ebola victims. Martin Salia, a legal and permanent Maryland resident, was the medical director of Sierra Leone’s Kissy United Methodist Hospital and its only full-time physician.  Salia was a rare breed of physician capable of treating anything from orthopedic injuries to myocardial infarction. . Although he was not working at an Ebola treatment center, Salia could easily have been exposed to the disease through contact with surgical patients. When Salia first fell ill in early November, his Ebola test returned negative. Three days later, a repeat test came back positive. But unlike white Americans Writebol, Brantly, Spencer, Sacra, and Mupko, Salia was not promptly transferred to the United States. He began receiving convalescent serum in Sierra Leone, and five days elapsed before he was sent to an Ebola isolation center for treatment in the United States—around a week later into the illness than his white American counterparts. It seems clear that delays in Salia’s diagnosis and treatment resulted in his deterioration to a point beyond repair. By the time he arrived in the United States on November 15, his raging infection had already rendered him too ill to be saved.

Successful Phase 1 trials of Ebola Vaccine -- My reaction was “tell me something I don’t know already” when I read that phase 1 trials of an Ebola vaccine at the National Institutes of Health have shown that it is safe. My dad works on the NIH campus and he told me about the trial weeks ago. The results were recently published. Trials aiming to determine if the vaccine is effective are tentatively scheduled to start in January (this means it will be given to health care workers in Liberia).  I bring this up not only because it is wonderful and important news, but to grind an old ax.  In October Francis Collins (director of the NIH) said they would have had a proven vaccine by then if it weren’t for budget cuts. The vaccine had been synthesized but not tested. The fact that there are very promising published results a month and a half after he made the claim, makes his claim extremely convincing. The progress since then involves no Eureka moment. It is based on finding a few million dollars by cutting spending on research on diseases which were more common than Ebola long long ago in July.  Something to tell your Fox News watching uncle who says the US Federal Government never does anything useful and is a waste of money. Also an NIH budget which might have a claim to compete with tax subsidies for owners of race horses (I wish I were joking)

The Downside of Securitizing the Ebola Virus - - The Ebola outbreak in West Africa, the largest of its kind in history, has been responsible for more than 15,000 cases, including more than 5,400 reported deaths as of late November. Unlike the responses to previous Ebola outbreaks, political and public health leaders have upped the ante by explicitly framing the disease in national and international security terms. Margaret Chan, the director general of the World Health Organization (WHO), spoke of “a threat to national security well beyond the outbreak zones,” and U.S. President Barack Obama described the outbreak as “a growing threat to regional and global security.” Although public health experts dismiss the prospect of a worldwide pandemic or even a sustained outbreak in the United States, Americans were told that the United States’ national security would be threatened by both an Ebola-triggered state collapse in Africa and a large number of panicked people (some of whom also carry the virus) flooding into the United States from Central and South America.  By calling for tighter border security in combating Ebola, politicians and military officials placed the virus on par with hard security threats such as ISIS terrorists. In a move not seen in the 2009 H1N1 pandemic, which killed an estimated 284,000 people, Obama announced the establishment of a new military command in Liberia and committed nearly 4,000 troops to the afflicted region. The United States is not the only country that has “securitized” the Ebola outbreak, a political process that has presented the virus as an existential threat requiring actions outside the normal bounds of political procedure. In Sierra Leone, the defense minister, not the health minister, was put in charge of the “fight” against Ebola. In Liberia, President Ellen Johnson Sirleaf imposed a state of emergency that closed schools and markets and restricted people’s movements.

Officials Revise Goals on Containing Ebola After Signs of Wider Exposure in Mali - The leaders of the United Nations and the World Health Organization expressed renewed alarm on Friday about Ebola’s tenacity in Africa and, in particular, its potential to ravage a fourth country, Mali, where they said hundreds of people had been exposed to an infected cleric who died last month.At a webcast news conference from the World Bank offices in Washington, the United Nations’ secretary general, Ban Ki-moon, and the W.H.O.’s director general, Dr. Margaret Chan, also appeared to reset their schedules for containing the Ebola virus, which has sickened at least 15,351 people and killed 5,459, according to a W.H.O. update posted earlier Friday.Mr. Ban said nothing about the goal of safely burying 70 percent of the dead and treating 70 percent of the sick by Dec. 1, and instead expressed hope that the outbreak could be contained by the middle of next year.Mr. Ban’s special envoy on the Ebola crisis, David Nabarro, also expressed doubts about achieving the Dec. 1 treatment goal in comments at the United Nations. “Confident? No,” he told reporters outside the Security Council, which was holding a meeting on the Ebola crisis.  Most of the cases have been in the three most afflicted countries: Liberia, Guinea and Sierra Leone.  Yet the focus of the message of Mr. Ban and Dr. Chan was their concern about Mali, a vast country where the government does not have full control and where a United Nations peacekeeping force is deployed. At least six people in Mali have died of Ebola.

Pollution and Politics, by Paul Krugman --  Earlier this week, the Environmental Protection Agency announced proposed regulations to curb emissions of ozone, which causes smog, not to mention asthma, heart disease and premature death. And you know what happened: Republicans went on the attack, claiming that the new rules would impose enormous costs. There’s no reason to take these complaints seriously, at least in terms of substance. Polluters and their political friends have a track record of crying wolf. Again and again, they have insisted that American business — which they usually portray as endlessly innovative, able to overcome any obstacle — would curl into a quivering ball if asked to limit emissions. Again and again, the actual costs have been far lower than they predicted. In fact, almost always below the E.P.A.’s predictions.Of course, polluters will defend their right to pollute, but why can they count on Republican support? When and why did the Republican Party become the party of pollution? For it wasn’t always thus. The Clean Air Act of 1970, the legal basis for the Obama administration’s environmental actions, passed the Senate on a bipartisan vote of 73 to 0, and was signed into law by Richard Nixon. (I’ve heard veterans of the E.P.A. describe the Nixon years as a golden age.) A major amendment of the law, which among other things made possible the cap-and-trade system that limits acid rain, was signed in 1990 by former President George H.W. Bush. But that was then. Today’s Republican Party is putting a conspiracy theorist who views climate science as a “gigantic hoax” in charge of the Senate’s environment committee. And this isn’t an isolated case. Pollution has become a deeply divisive partisan issue.

You Don't Know Shit: VICE Reports (Full Length documentary) Every day, America must find a place to park 5 billion gallons of human waste, and we're increasingly unable to find the space. We wake up in the morning, brush our teeth, and flush the toilet, thinking that the wastewater disappears into the center of the Earth. If only that were the case.

West Valley cities eyeing reclaimed water amid drought, population growth: Drought and population growth are driving some West Valley cities to place a greater importance on reclaimed water — or water from a toilet, shower, dishwasher and the like — as a renewable drinking-water resource. Although drinking water that was once flushed in a home's toilet might rank high on the yuck index for some, water experts said it is necessary because there is a finite supply of water on the planet, and there is nothing wrong with the water after it has been treated. Reclaimed water is sent to wastewater treatment plants where it is cleaned and either used to water golf courses and parks or pumped into the ground, where it is stored until needed. The water filtering through the ground acts as another layer of treatment. When it's needed, the water is pulled from wells and is treated yet again before being sent to residential and commercial taps.  "This is the same water that the dinosaurs drank. We're not getting any new water," said Jason Battern, vice chairman of Goodyear's Water Planning Commission and the supervisor of Buckeye's wastewater operations, covering four wastewater treatment plants. "It's important that we return good, clean water into the ground," Battern said. "Without the water, there wouldn't be anybody out here. Water is what's supporting the population. Without it, there wouldn't be any growth." To meet growth demands, Goodyear, Surprise and Buckeye all are making reclaimed water a key way to meet their future needs.

United Nations Calls for an End to Industrialized Farming -  In 2013, the United Nations announced that the world's agricultural needs can be met with localized organic farms. That's right, we do not need giant monocultures that pour, spray and coat our produce with massive amounts of poisons, only to create mutant pests and weeds while decimating pollinators and harming human health. Don't believe the hype: We do not need genetically modified foods "to feed the world." From my experience, many of these - how shall we say it - "worker bees" (i.e the GMO salesmen) who spread this propaganda, actually believe conventional tactics are necessary to ensure food security. They've drunk the Kool-Aid and cannot envision another possibility. The changes threaten their very existence. Organic agriculture, which has gone from a fringe movement to a multibillion industry, IX can IX produce high yields and withstand disaster and duress much better than chemical-reliant crops, according to reports coming out of the International Federation of Organic Agriculture Movement (IFOAM), which held its 18th annual world congress in Istanbul this past October. And a 30-year study from the Rodale Institute, showed that organic farm fields yielded 33 percent more in drought years compared with chemically managed ones. In an article titled "Yes Organic Food Can Feed the world," Anna Lappe, author and educator, known for her work as an expert on food systems, writes that "organic agriculture is taking off around the world, especially where it's needed most." She reports that 80 percent of all organic producers are based in developing countries, with India, Uganda, Mexico and Tanzania leading the charge. To date, 162 nations are now home to certified organic farms, and in 2012, the 37.5 million hectares of farmland produced a harvest worth $63.8 billion.

Tea Party-Controlled Legislature Pushes ‘Industry-Driven’ Great Lakes Water Withdrawal Bill - The Ohio legislature, dominated by a Tea Party-controlled Republican supermajority, often seems to be creating more problems than it solves. And it could be creating a problem with international ramifications. In its lame duck session, the chamber passed HB 490 last week, a water quality bill which alters standards for withdrawing water from Lake Erie and its tributaries, and sent it to the state Senate, where it’s expected to pass.  The fairly conservative Cleveland Plain Dealer calls it “a last-minute, larded-up mid-biennium agricultural bill” with “an industry-driven, water-withdrawal amendment that could condemn Lake Erie to death by a thousand straws.”  Among other things, the new language would consider only the impact of withdrawals on water level and not on wildlife or pollutant levels, potentially violating the 2008 Great Lakes Compact between the eight Great Lakes states and the international Great Lakes St. Lawrence River Basin Water Resources Compact with Ontario and Quebec. Joel Brammeier, president and CEO of the nonprofit environmental group Alliance for the Great Lakes, told the Plain Dealer that if Ohio starts picking and choosing which parts of the compact it wants to follow other states might do the same. “The risk to the Great Lakes is that we go back and start rehashing more than a decade of work that started in 1998 because Ohio has chosen to renege (on) part of the compact,”   The Ohio Environmental Council (OEC) says,”OEC strongly opposes the new amendment to the Great Lakes St. Lawrence River Basin Water Resources Compact. We believe the amendment violates the letter and spirit of the Great Lakes Compact and leaves Ohio vulnerable to litigation, poses risks to water quantity and the wildlife of Lake Erie, and will harm the public’s and sportsmen’s enjoyment of Lake Erie and wildlife.” OEC pointed out that Governor John Kasich vetoed a similar provision in 2011, saying “Ohio’s legislation lacks clear standards for conservation and withdrawals and does not allow for sufficient evaluation and monitoring of withdrawals or usage.”

Brazil edges to brink of epic water crisis - One of the world’s biggest cities is running out of water. Sao Paulo, a city of 20 million people, could run dry within weeks. The humanitarian and economic cost would be immense. The fiasco should be a global wakeup call for other metropolises. The immediate cause of the crisis is a year-long drought. The Cantareira reservoir system that supplies around a third of the city’s population is so low that Sabesp, the local utility, has to dip into and treat sediment-heavy supplies and pipe water in from other sources.It’s the worst dry spell in the region since record-keeping began more than 80 years ago. Other parts of Sao Paulo state and Brazil have been hit, too, though not as harshly. It may look like an aberration, but the planning for the disaster has been poor – and offers important lessons. Sabesp has not introduced any rationing – at least not formally. It has slashed reservoir extraction by a third, cut pump pressure at night and offered discounts to frugal customers. But, regrettably, the “R” word remains taboo. The government, meanwhile, shied away from suggesting mandatory rationing during last month’s presidential elections. That turned the shortage into a political battleground, which is no way to solve a crisis. Longer-term planning has fallen short, too. Some of the infrastructure is creaky. Leakage rates are between 30 per cent and 40 per cent. Compare that with Tokyo, which has reduced losses to around 3 per cent.

Does fixing a mistake make it worse? -- EC writes from Florida: One of the big questions staring me in the face is… as we reach the limits of sustainable use without “significant harm” to the environment and reuse more and more wastewater, what happens to the systems that have adapted to the volume of discharge provided by our waste stream outfalls? We have looked at many issues to determine if there is extra available water in our basins, but the amount of “freeboard” available for additional human use may be equivalent to the volume projected to go into reuse — purple pipe systems here — in the future. Reuse is fantastic for farmers recapturing and reusing fertilizer runoff, cities looking for less regulated water sources for esthetic irrigation, and water quality improvements in general. It is terrible for salinity intrusion up rivers with lower discharge volumes, groundwater recharge areas fighting salinity intrusion, hydro periods in flat wetlands, migratory species looking for a critical water depth, and other water volume dependent issues.  Have you looked at that? Also variability in the demand for water reuse is a big issue. Spray fields used to help discharge extra water exceeding reuse storage volume, almost always occurs on rainy days or after the soils are saturated. That is when lawns don’t need to be watered and spray fields are least effective at handling the runoff. It seems to be when reuse water managers run the spray field pumps 24-7. What is your experience with the expense of reuse water storage?

Record North Pacific temperatures threatening B.C. marine species - The North Pacific Ocean is setting record high temperatures this year and raising concerns about the potential impact on cold water marine species along the B.C. coast, including salmon. Ocean surface temperatures around the world this year reached the highest temperature ever recorded, due in large part to the normally chilly North Pacific, which was three to four degrees above average — far beyond any recorded value.  Bill Peterson, an oceanographer with the U.S. National Oceanic and Atmospheric Administration, said the warmth along the North Pacific coast is very unusual. "We've never seen this before. It's beyond anyone's experience and this is why it's puzzling," he said. To further complicate the picture, Peterson says an El Niño warm water ocean current should arrive in about a month. "We'll have what we call a double whammy," he said. "It's already very warm up north, up here. If we get an extra push of super warm water from the tropics, we could possibly have a big disaster on our hands, ecologically speaking." Unusual and invasive species have already headed north including:

  • Sunfish, normally found in tropical or temperate waters, which have been seen off the Alaska panhandle.
  • Thresher sharks, which rarely travel past Vancouver.
There's also concern that Humboldt squid, which voraciously eat juvenile salmon, could make their way north again, after first being spotted off Alaska in 2005.

Where is global warming’s missing heat? | Science/AAAS -- Call it the climate change conundrum: Even though humans are pumping more greenhouse gases than ever into the atmosphere, the world’s average air temperature isn’t rising as quickly as it once did. Some scientists have proposed that the missing heat is actually being trapped deep underwater by the Pacific Ocean. But a new modeling study concludes that the Pacific isn’t acting alone. Instead, it finds, several of the world’s oceans are playing a role in the warming slowdown by absorbing their share of the “missing” heat. “There are a lot of details about exactly which ocean basin is taking up the energy,” says Andrew Dessler, an atmospheric scientist at Texas A&M University, College Station, who wasn’t involved in the study. But “I don't see anything in here that changes our expectations of long-term climate change.” The world’s average air temperature has warmed 0.8°C since the late 1880s, but the warming has slowed precipitously in the last 15 years. Scientists have identified a number of factors—among them a temporary downturn in solar activity and more sun-blocking aerosol pollution—that at least partially explain why air temperatures have barely risen since the turn of the millennium. But recent research suggests that Earth is still taking in more energy from the sun than it’s letting out, to the tune of almost a 60-watt light bulb’s worth for every 100 square meters. This excess energy has to go somewhere. A potential answer? The tropical Pacific Ocean. Changing trade winds here may have helped lower sea surface temperatures by altering ocean circulation patterns and making it so heat that otherwise would be warming the air is now trapped deep underwater.

United States Forest Service wants to cut the 700,000 acre Pisgah-Nantahala National Forest in North Carolina -- The Southern Environmental Law Center issued a press release on 12 November revealing a new U.S. Forest Service proposal introducing industrial-scale logging in the Pisgah-Natahala National Forest in western North Carolina.  The 700,000 acres targeted is an area larger than the Great Smokey Mountains National Park. Earth First Journal reports  Forest Service Proposes Massive Logging Project in North Carolina’s Pisgah-Nantahala National Forest In what conservation groups flag as a dramatic shift, the U.S. Forest Service is proposing industrial-scale logging in the vast majority of the Pisgah-Nantahala National Forest in western North Carolina – about 700,000 acres, or an area bigger than the Great Smoky Mountain National Park – instead of protecting popular backcountry recreation destinations and conserving the Blue Ridge landscapes treasured by residents and tourists from across the United States. “Under the law and for everyone who enjoys America’s forests, the Forest Service’s first priority should be fixing the mistakes of the past – restoring the parts of the forest already damaged by prior logging,” said DJ Gerken, senior attorney with the Southern Environmental Law Center. “But the misguided logging plan proposed by the agency will repeat those old mistakes, causing more damage and putting the healthiest forests we have left on the chopping block. The people who use and love these forests won’t stand for cutting them down.”

The Perils of Wood-Based Bioenergy - Today’s meetings included the participation of activists from throughout Africa, Asia, the South Pacific, North and South America and Eastern and Western Europe.  The topic at hand was the problem of wood-based bioenergy–specifically electricity derived from cutting down forests, destroying biodiversity, polluting the atmosphere and displacing forest-based Indigenous and local communities.  Biomass also comes with an enormous cost in waste. In the Drax UK biomass plant, Biofuelwatch has calculated that of every three trees burned, two are wasted as heat. Half of one UK power station takes more wood than the entire UK produces every year and supplies only 4.6% of the country’s electricity demand. These power stations require co-generation with coal, so increased use of biomass = increased use of coal. Without the biomass conversion, this Drax plant would have had to close by 2016. The conversion to co-generation with biomass is allowing it to stay open, enabling continued and increased use of coal.  Defining this dirty wasteful, ecologically destructive and socially unjust energy as “renewable” drives increased biomass electricity generation by legitimizing it as a supposedly eco and climate-friendly technology. It also allows them to be eligible for renewable energy subsidies to the tune of £730 million per year ($1.1 billion/yr) The total cost of converting the plant to biomass was only conversion cost was £700 million.

Can the bulldozers in Indonesia be stopped? - Back in September, world leaders and major corporations joined the New York Declaration on Forests at the UN Climate Summit. From Germany to the U.S., Nestle to Kellogg’s, the signatures on this no-deforestation policy, according to an article on Earth Island Journal, definitely raise a few eyebrows. But are they really doing anything to stop razing the land? Palm oil plantations are one of the leading causes of deforestation, especially in Indonesia, where the deforestation rates are the highest in the world. Across the globe, forests the size of 300 football fields are destroyed every hour for palm oil production. Palm oil isn’t just about food; it’s also an ingredient in biofuel, as well. Even with the New York Declaration on Forests and the public eye on palm oil, the speed of deforestation hasn’t slowed much. Do these companies and governments really want to change the course or is this merely just another publicity stunt to show feigned compassion for the planet?

Acid Maps Reveal Worst of Climate Change --  Much of the change in climate change is happening to the ocean. It’s not just the extra heat hiding within the waves. The seven seas also absorb a big share of the carbon dioxide released by burning the fossilized sunshine known as coal, natural gas and oil. All those billions and billions of CO2 molecules interact with the brine to make it ever so slightly more acidic over time and, as more and more CO2 gets absorbed, the oceans become more acidic. Now scientists have delivered the most comprehensive maps of this acid phenomena, a global picture of the oceans in 2005 against which future scientists can track just how much more acidic the oceans have become. The maps are an attempt to bring to visual life a problem that is just as invisible as the excess CO2 piling up in the atmosphere for the past couple of centuries. People cannot see, taste or feel the subtle shift in the seawater and it has taken years of measurement around the world to gather enough data for this new global picture. Calls for such measurements had been made since at least 1956. Charles David Keeling heeded the call back then, producing the Keeling Curve, which tracks rising CO2 levels to this day. But a similar set of measurements for the oceans has been lacking—until now. Geochemist Taro Takahashi of Columbia University has spent four decades measuring these changes, which amount to a generally basic ocean growing 30 percent more acidic—a change in pH from 8.2 to 8.1. That’s the result of absorbing roughly 25 percent of annual CO2 pollution, which now amounts to 36 billion metric tons in total.

In metro Houston, an uphill fight to build a Texas-size defense against the next big storm - Ike hammered Galveston and its 57,000 inhabitants, funneling a surge of water around an existing seawall and into the bay. Eighty percent of Galveston’s homes were damaged or destroyed, including Merrell’s apartment building. The hurricane killed 112 people in the U.S., including 36 in the Houston-Galveston area alone, and caused nearly $30 billion in damage. The toll left little doubt that something was needed to defend residents and the U.S. economy against the next big storm. “It’s a national security issue,” said Bob Mitchell, president of the nonprofit Bay Area Houston Economic Partnership. Six years on, Galveston and Houston, the nation’s fourth largest city, are as vulnerable as when Ike hit. No major projects are under way to fend off surging seas. Instead, Merrell’s “Ike dike” remains the leading proposal for coastal defense. Nineteen cities and towns lining Galveston Bay back it, but with an estimated cost of $6 billion, the Ike dike is far from a done deal. It has no big money behind it. For the Ike Dike to evolve beyond wishful thinking, Texas would have to get funding from Congress and support from the U.S. Army Corps of Engineers, the go-to federal agency for coastal protection.

Most White Evangelicals Attribute Intense National Disasters To The Apocalypse, Not Climate Change -- Poll results released by the Public Religion Research Institute on Friday showed that sixty-nine percent of Americans believe there is solid evidence that Earth’s temperatures are increasing. This is good news, as so far this year has been the hottest ever recorded, despite the recent chill covering the United States. But the pollsters also asked about the cause of recent natural disasters, and the responses from some religious people could impact how America responds to climate change.   While 62 percent of total respondents ascribed the cause of recent natural disasters to climate change, 49 percent also thought biblical “end times” were the cause. For white evangelical Protestants, these numbers basically reversed — 77 percent pointed to the apocalypse, and just 49 percent attributed extreme weather to climate change (the numbers add up to more than one-hundred because people could offer more than one cause).  This fatalistic view of the impacts caused in part by burning fossil fuels could influence the national policy responses to the problem. More than half of the total respondents (53 percent) thought that God would not intercede if humans were destroying the Earth, while 39 percent said that God would step in.

Half of Americans Think Climate Change Is a Sign of the Apocalypse - Snowmageddon, snowpocalypse, snowzilla, just snow. Superstorm Sandy, receding shorelines, and more. Hurricanes Isaac, Ivan, and Irene, with cousins Rammasun, Bopha, and Haiyan. The parade of geological changes and extreme weather events around the world since 2011 has been stunning. Perhaps that's part of why, as the Public Religion Research Institute reported on Friday, "The number of Americans who believe that natural disasters are evidence of the apocalypse has increased somewhat over the past couple years." As of 2014, it's estimated that nearly half of Americans—49 percent—say natural disasters are a sign of "the end times," as described in the Bible. That's up from an estimated 44 percent in 2011. This belief is more prevalent in some religious communities than others. White evangelical Protestants, for example, are more likely than any other group to believe that natural disasters are a sign of the end times, and they're least likely to assign some of the blame to climate change (participants were allowed to select both options if they wanted). Black Protestants were close behind white evangelicals in terms of apprehending the apocalypse, but they were also the group most likely to believe in climate change, too. Predictably, the religiously unaffiliated were the least likely to believe superstorms are apocalyptic—but even so, a third of that group said they see signs of the end times in the weather. This is an interesting study in how religious beliefs affect thinking on science and current events, but it also may have implications for how people view public policy and their responsibility for the natural world. If God will intercede to stop humans from destroying the earth—which 39 percent of respondents believed to be true—why legislate limits on carbon emissions? Or, for that matter, why drive less, or eat fewer steaks, or change any behavior that affects the environment?

EPA Barred From Getting Advice From Scientists -- A bill passed through the US House of Representatives is designed to prevent qualified, independent scientists from advising the Environmental Protection Agency (EPA). They will be replaced with industry affiliated choices, who may or may not have relevant scientific expertise, but whose paychecks benefit from telling the EPA what their employers want to hear.  The EPA's Science Advisory Board (SAB) was established in 1978 to ensure the EPA uses the most up to date and relevant scientific research for its decision making and that the EPA's programs reflect this advice. It has served in this role, most often uncontroversially, through 36 years and six presidents. If the new bill passes the Senate and wins presidential approval, however, that is about to change.  It's hard to be against “balance”, which no doubt helped Rep Chris Stewart (R-Utah) gather 229-191 support for his bill H.R. 1422 to overhaul the way appointments to the SAB are made. Of the 51 members of the SAB, three come from the industries the EPA is regulating. Stewart wants more, saying, "All we're asking is that there be some balance to those experts…We're losing valuable insight and valuable guidance because we don't include them in the process." However, deeper investigation suggests the agenda involves more than getting input from a wider range of backgrounds. For one thing, the vote was largely on party lines with four Democrats supporting and one brave Republican opposed. Moreover, Stewart doesn't have much of a record for listening to genuine scientific expertise, considering 98% of qualified scientists' assessments irrelevant.  Moreover, Stewart has made clear he doesn't believe the EPA should exist at all, calling for its scrapping because it “thwarts energy development”. Axing a body that ensures water is drinkable and air doesn't kill you is politically hard, but nobbling is easier.

The Secrets of the “Secret Science” Bill -- Last Wednesday, the chamber approved the Secret Science Reform Act of 2014, which prohibits the EPA from “proposing, finalizing, or disseminating regulations or assessments based on science that is not transparent or reproducible.” It compels the agency to release all scientific and technical information used in its assessments. On its face, this does not sound bad. Early in his presidency, Barack Obama promised to make agency science transparent. . Scientists and bureaucrats themselves want to work toward more clarity and openness.  Alas, the “Secret Science” bill was put forth by Republicans on the House Science, Space, and Technology Committee with a penchant for alienating those who could lead reforms and improvements. Georgia’s Rep. Paul Broun (one of the bill’s sponsors) calls climate change a “hoax” and decries evolution as a lie “from the pit of hell.” That doesn’t inspire faith in science legislation with his backing. EPA mandarins—mere mortals just trying to do what’s asked of them—are attacked as job killers, and are bound to think any Republican bill is passed with their destruction in mind. “The EPA has approved regulations that have placed a crippling financial burden on economic growth in this country,” reads the press release from the bill’s author, Rep. David Schweikert, R-Ariz. And as Christopher Flavelle of Bloomberg points out, rather than making the EPA leaner, the bill would increase the agency’s costs tremendously without any real gains. What’s more, the Congressional Budget Office says implementing the law would mean far fewer scientific studies (about half of the current number) would go into making the EPA’s decisions.

Environmentalists, scientists fret over Republican bills targeting EPA science - Over objections from the White House and many science and environmental groups, the Republican-controlled U.S. House of Representatives this week approved two bills that would change how the Environmental Protection Agency (EPA) obtains and uses scientific data and advice. Proponents of the bills, which the House passed almost entirely with GOP votes, say they would increase transparency in how EPA uses data to justify its regulations and result in better, more balanced scientific advice for the agency. “EPA has an extensive track record of twisting the science to justify their actions,” and so reform is needed, said Representative Lamar Smith (R–TX), head of the House science committee, in a statement supporting one of the bills.But opponents say the legislation would do more harm than good. “These bills are the culmination of one of the most anti-science and anti-health campaigns I’ve witnessed in my 22 years as a member of Congress,” said Representative Eddie Bernice Johnson (D–TX), top Democrat on the House science committee, in a statement. White House officials say they would recommend that President Barack Obama veto the legislation if it reaches his desk. That’s unlikely in the current Congress, which ends next month, given that Democrats still hold a majority in the Senate. That makes the votes largely symbolic. But observers say they represent another salvo in a long-standing battle over the release of scientific data that underlines key regulations—and a sign of battles to come once Republicans assume control of both chambers of Congress in January.

Connecting the dots: Extreme climate change, conflict: What does melting sea ice in the Arctic have to do with the barbarism of the Islamic State? The answer is scary: Rising sea levels eventually will overrun some Pacific island nations and will turn many low-lying villages around the globe into ghost towns. Where will the uprooted inhabitants go? At the least, they will endure the anxiety and grief of leaving their traditional homes. At the worst, the displaced residents will become a generational underclass — lacking adequate food, shelter and hope and breeding the institutionalized resentments and conflicts that could last for decades. In short, global climate changes are a national security issue for the United States because those changes hold the potential to catalyze and accelerate conflict. This is not to say there's a direct line between melting ice floes and expanding violent extremism, including the Islamic State. But climate change will exacerbate some of the factors that sow discontent and create fertile recruiting grounds for extremists, including drought and food shortages, economic upheaval, changes in disease patterns, and population migration. Illegal migration already is a global crisis, and rising sea levels will uproot more people. "If we don't handle this right, it's a security risk,"

Utilities Facing Coal Shortages Due To Rail Congestion -- With winter approaching, the piles of coal at utility yards are running well below average, and several utilities are pressuring rail companies to allow more coal trains through. The problem is the traffic jam on railways across the country. A bumper crop for U.S. grain has led to a surge in shipments, with farmers shipping 15% more grain so far in 2014 compared to a year earlier. The story is similar with oil. Shipments of oil by rail – owing to a dearth of pipeline capacity – are up more than 13% this year. But coal still makes up the largest share of commodity-driven rail activity, and about two-thirds of all coal burned in American power plants is shipped by rail. Still in 2014, coal shipments are more or less flat, despite the fact that coal supplies were severely depleted during the unusually cold winter of 2014. Utilities have been trying to stock up since, but their supplies are running well below the five-year average.  Heading into the winter, supplies are significantly down. About 63% of coal-fired power plants have less than a 60-day supply on-hand this year, up from 42% in 2013. Even worse, 23% of coal plants have less than a 30-day supply, whereas just 13% of them were in that situation last year.

U.S.-China Climate Agreement Won’t Slow Warming Enough, World Bank Says - An agreement between the U.S. and China to curb greenhouse-gas emissions won’t slow global warming enough to prevent extreme weather that damages crops, World Bank Group President Jim Yong Kim said. President Barack Obama committed the U.S. to cut emissions more quickly under the deal, announced Nov. 12 in Beijing with Chinese President Xi Jinping. For its part, China pledged for the first time to cap its emissions. The accord won’t prevent global temperatures from rising by 2 degrees Celsius (3.6 degrees Fahrenheit), an increase scientists expect to drive a spike in extreme weather events, Kim said. “There’s a lot more optimism now than there was before the agreement, but there’s still a tremendous amount of work to do,” he said on a conference call. Global emissions are growing about 2.5 percent a year, a pace that will probably cause the 2 degree threshold to be breached within 30 years, according to a World Bank report on climate change released today. That would lead to lower crop yields, an increase in extreme heatwaves and a spike in tropical storms from rising sea levels, the World Bank said.

In Step to Lower Carbon Emissions, China Will Place a Limit on Coal Use in 2020 - China plans to set a cap on coal consumption in 2020, an important step for the country in trying to achieve a recently announced goal of having carbon dioxide emissions peak by around 2030.  The State Council, China’s cabinet, released details of an energy strategy late Wednesday that includes capping coal consumption at 4.2 billion tons in 2020 and having coal be no more than 62 percent of the primary energy mix by that year. Worldwide, coal burning for industrial use is the largest source of carbon dioxide emissions, which are the biggest catalyst of global climate change. China is the biggest emitter of greenhouses gases in the world, and it uses as much coal each year as the rest of the world combined. In theory, coal consumption might increase beyond 2020, but some researchers say economic trends show the rate of growth in coal use slowing in coming years and peaking about 2020. That means the State Council’s timeline is consistent with the findings of those researchers. The numbers announced Wednesday might be further formalized in China’s next five-year plan, whose details will be released around March. Last week, President Obama and President Xi Jinping of China announced a joint pledge to cut or limit carbon dioxide emissions from his country. China said it would reach an emissions peak “around 2030” and energy from sources other than fossil fuels would make up 20 percent of the total mix by that year. That announcement was praised by environmental advocates as a significant political move by the two nations.

China Needs 1,000 Nuclear Reactors to Fulfill Its Climate Pledge - China, which does nothing in small doses, will need about 1,000 nuclear reactors, 500,000 wind turbines or 50,000 solar farms as it takes up the fight against climate change. Chinese President Xi Jinping agreement last week with President Barack Obama requires a radical environmental and economic makeover. Xi’s commitment to cap carbon emissions by 2030 and turn to renewable sources for 20 percent of the country’s energy comes with a price tag of $2 trillion. The pledge would require China to produce either 67 times more nuclear energy than the country is forecast to have at the end of 2014, 30 times more solar or nine times more wind power. That almost equals the non-fossil fuel energy of the entire U.S. generating capacity today. China’s program holds the potential of producing vast riches for nuclear, solar and wind companies that get in on the action. “China is in the midst of a period of transition, and that calls for a revolution in energy production and consumption, which will to a large extent depend on new energy,”   By last year, China had already become the world’s largest producer of wind and solar power. Now, with an emerging middle class increasingly outspoken about living in sooty cities reminiscent of Europe’s industrial revolution, China is looking at radical changes in how its economy operates.

Private Funding Brings a Boom in Hydropower, With High Costs - While some dams in the United States and Europe are being decommissioned, a dam-building boom is underway in developing countries. It is a shift from the 1990s, when amid concerns about environmental impacts and displaced people, multilateral lenders like the World Bank backed away from large hydroelectric power projects.World hydropower production will grow from 4,000 terawatt hours now — about the annual power output of the United States — to 4,670 terawatt hours in 2020, according to Maria van der Hoeven, executive director of the International Energy Agency, in Paris. The Intergovernmental Panel on Climate Change predicts that hydropower generation will double in China between 2008 and 2035, and triple in India and Africa.  The World Bank and other international lenders were the most important financiers of large dams before the ’90s lull. But although the World Bank has in recent years increased its investment in hydropower from a low of just a few million dollars in 1999 to about $1.8 billion in 2014, it still funds only 2 percent of hydropower project investment today.  Picking up the slack are national development banks from emerging countries such as China, Brazil, Thailand, and India, and private investors. Public-private partnerships are on the rise, generally with the support of regional development banks.  “Who benefits from these infrastructure projects?” asked Jason Rainey, executive director of the anti-dam group International Rivers, in Berkeley, Calif.  Some well-documented answers: The Xayaburi Dam in Laos will sell power to Thailand, while threatening the subsistence livelihoods of people who have long lived along the Mekong River; the Inga 3 dam in the Democratic Republic of Congo will sell power to mining companies and to South Africa, rather than to the 96 percent of Congolese who lack access to electricity.

Solar and Wind Energy Start to Win on Price vs. Conventional Fuels - For the solar and wind industries in the United States, it has been a long-held dream: to produce energy at a cost equal to conventional sources like coal and natural gas.That day appears to be dawning.The cost of providing electricity from wind and solar power plants has plummeted over the last five years, so much so that in some markets renewable generation is now cheaper than coal or natural gas.Utility executives say the trend has accelerated this year, with several companies signing contracts, known as power purchase agreements, for solar or wind at prices below that of natural gas, especially in the Great Plains and Southwest, where wind and sunlight are abundant.Those prices were made possible by generous subsidies that could soon diminish or expire, but recent analyses show that even without those subsidies, alternative energies can often compete with traditional sources.In Texas, Austin Energy signed a deal this spring for 20 years of output from a solar farm at less than 5 cents a kilowatt-hour. In September, the Grand River Dam Authority in Oklahoma announced its approval of a new agreement to buy power from a new wind farm expected to be completed next year. Grand River estimated the deal would save its customers roughly $50 million from the project.And, also in Oklahoma, American Electric Power ended up tripling the amount of wind power it had originally sought after seeing how low the bids came in last year.“Wind was on sale — it was a Blue Light Special,” said Jay Godfrey, managing director of renewable energy for the company. He noted that Oklahoma, unlike many states, did not require utilities to buy power from renewable sources.“We were doing it because it made sense for our ratepayers,” he said.

OilPrice Mid-Week Intelligence Report: Wind Rises as Offshore Drilling Flops -- Chatter about how the US natural gas boom is resurrecting the American economy almost single-handedly has become all too common. But the New York Times reports that the economy may have even more to cheer about, as the cost of generating electricity from wind and solar has plummeted to the point where it has become competitive with natural gas, even without subsidies and accounting for the cost of intermittent generation. As Texas and Oklahoma turn to wind for utility-level deals, a new report estimates that solar energy can cost as little as 7.2 cents per kilowatt-hour at a utility scale, as opposed to 3.7 cents for wind, 6.1 cents for natural gas and 6.6 cents per coal.  In the wake of Statoil pulling out of a rig contract for offshore drilling in Angolan waters, an investigation by Motley Fool  is declaring the practice to be a very expensive flop. Statoil will have to swallow a $350 million hit to cancel the rig contract two years ahead of schedule, but initial drilling results have simply not been rewarding enough. Its  This comes on the heels of ConocoPhillips also failing to find significant hydrocarbons at Kamox-1. Both companies still officially see value in their Angolan efforts but 2015 is shaping up to be a poor year for Luanda’s hopes of further drilling investment. The fallout of the oil price drop is continuing to bite in far-flung corners of the world, with North Dakota being the latest to feel the effects. Halcon Resources is seeing its economics and planning for Bakken called into question, with developments dropping outside the core. Compounding the problem, poor results at The Mississippi Shale have seen Halcon put work there on hold until 2015. 

Google Gives Up On Renewables -- This is a post-mortem on a project initiated by Google – a master of innovation if ever there was one and a company with impeccable green credentials (see photo below) – the goal of which was to scope out an innovative renewable energy system that could compete economically with coal and other fossil fuels and which could be deployed quickly enough to stave off the worst impacts of climate change.  Work on the project, which Google named RE<C (Renewable Energy cheaper than Coal) continued from 2007 to 2011, a period over which Google invested large sums of money in renewable energy projects. (How much Google spent on the RE<C project isn’t known, but according to Forbes the company’s total investment in renewables by April 2011 had reached “a cool quarter of a billion dollars”.)  By 2011, however, it was clear that RE<C would not be able to deliver a technology that could compete economically with coal. (And to coal we can add gas and maybe nuclear too. According to EIA levelized costs for US combined cycle gas are presently considerably lower than coal and levelized costs for “advanced nuclear” about the same as coal.) In short, Google is telling us that a free-market approach won’t work for renewables. They aren’t cost-competitive with fossil-fuel generation and aren’t likely to become cost-competitive at any time in the foreseeable future.

How Energy Secure Are The EU And UK? - In a recent post, A Beginners Guide to Blackouts, I drew attention to the fact that keeping the lights on in Britain was to a large extent dependent upon our ability to source sufficient gas to power the country’s large fleet of combined cycle gas turbines. The official view from the UK Government, National Grid and OFGEM (the regulator) is that the:
• Gas market is well supplied and able to cover any cold spells.
• Gas supplies, storage and network capacity well in excess of maximum expected demand.
• Supply interruptions from Russia pose a low risk to UK energy security.
This seems rather optimistic for a number of reasons that include:
• Global Liquefied Natural Gas (LNG) supplies have fallen for the last two years despite rampant demand and high prices
• Competition for LNG supplies from Japan is fierce since that country closed down all of its nuclear power stations
• Indigenous European gas supplies have been falling since 2004
• Europe and the USA have decided to pick a fight with Russia, Europe’s closest, largest and most reliable supplier of natural gas

So, will the UK and the rest of Europe be able to source sufficient gas to keep the lights on this winter? This is quite a complex question to answer.

GasFrac's president sees golden opportunity in waterless fracking in Ohio - Oil and gas companies want waterless fracking because it could work better than water fracking. Residents want waterless fracking because it saves millions of gallons of water and cuts down on transportation needed to truck used water away. Add that to a failure of Ohio's oil and gas companies to economically drill for oil in the northern and western part of the state's Utica shale play, and Canadian company GasFrac Energy Services Inc. sees a golden opportunity, its president told me.  GasFrac has begun testing its first waterless fracking well in Tuscarawas County, as I reported last week.  "We think there's a lot of work in Ohio and a lot of potential there," said GasFrac president Jason Munro.  Munro couldn't confirm that Houston-based EnerVest subsidiary EV Energy Partners LP is the company working with the GasFrac on the test oil well, but its executives have made public comments alluding to the partnership. It's one of the worst-keep secrets in the industry, one which EV executive chairman John Walker said could be its most valuable asset in the Utica.  GasFrac's technique uses gelled propane instead of water in hydraulic fracturing. Munro said the technique could work in natural gas formations, but oil is the target. Drillers have had a hard time economically drilling for oil in Ohio; the process isn't the same for extracting natural gas.

Anti-fracking groups want permits revoked at 23 Ohio sites - Two environmental groups have filed suit against Gov. John Kasich and the Ohio Department of Natural Resources, seeking to revoke permits that have been granted to 23 facilities that store, handle, process or recycle hydraulic fracturing — or “fracking” — wastes. Seven of those facilities are in the Tuscarawas Valley. The lawsuit was filed Wednesday in Franklin County by the Fresh Water Accountability Project and Food & Water Watch. The two groups say the facilities were approved by ODNR “chief’s orders,” bypassing the official rule-making process required to permit such facilities. The suit asks the court to revoke all chief’s orders issued to date as “being fatally unlawful.” In a press release, the two environmental groups said, “Before approving these type of fracking waste facilities, ODNR must adhere to the formal rule making process, which includes a public comment period. No rules have been made available to the public, yet ODNR has already approved several of these facilities.” ODNR spokeswoman Bethany McCorkle said her agency does not comment on pending litigation.

Bill alters reporting of fracking chemicals in Ohio - The way companies report the fracking chemicals they use in Ohio could change under a bill moving through the Statehouse. Environmental activists say the legislation would make it more difficult for firefighters and people who live near fracking sites to get information about what chemicals they could be exposed to during an emergency, such as an explosion or spill. But the Ohio Department of Natural Resources, which oversees drilling in Ohio, says the provision would lead to greater transparency. The agency asked a state representative to add the provision to the bill. “We are concerned,” said Melanie Houston, the director of water policy and environmental health at the Ohio Environmental Council, an advocacy group. “The local (emergency responders) will have to go through ODNR and their database to get the information, and we’re worried. Will they have it when they need it in the event of an emergency? Basically, we think the law should stay as it is.” The provision is part of House Bill 490, legislation that deals with environmental and agricultural issues, oil and gas drilling and telecommunications. The bill passed the House of Representatives 73-20 on Wednesday; it now moves to the Senate. The bill would change how Ohio deals with the federal Emergency Planning and Community Right-to-Know Act, enacted almost 30 years ago to keep residents and emergency responders informed about the hazardous chemicals in their backyards. Congress passed the act in 1986, in direct response to a 1984 chemical leak in Bhopal, India, that killed more than 1,700 people.

Ohio activists oppose disclosure provisions of HB 490 - On Wednesday, the Ohio House of Representatives passed House Bill 490 and now the state is poised to go backwards when it comes to protecting communities and first responders. A coalition of first responders, community members, health professionals, scientists and environmental advocates including The Ohio Ecological Food and Farm Association, the Buckeye Forest Council, the Center for Health and Environmental Justice, Ohio Citizen Action, the Ohio Environmental Council, Progress Ohio, the Ohio Organizing Collaborative, Communities United for Responsible Energy (CURE), and the Mahoning Valley Organizing Collaborative is joining together to call for the Ohio Senate to stop this dangerous provision from becoming law. Silverio Caggiano, a 31-year veteran of the Youngtown Fire Department and member of several haz-mat task forces has a message for the governor and the Ohio Senate. He says working under two sets of laws have caused confusion for first responders and put communities at risk. He calls for the Senate and Governor John Kasich to “throw off this veil of secrecy and abide by the Emergency Planning and Community Right to Know Act.” “End this confusion of having industry working under two sets of laws- one for frackers and one for everyone else,” Caggiano says. “There is an old saying in the fire service. Fire codes / laws are written with the blood of the victims and firefighters. Is that what it will take before we do what is right?”

Environmentalists fear bill would weaken Ohio fracking oversight: An environmental group is calling on Attorney General Mike DeWine to provide support for the governor’s effort to penalize law breakers, saying a new bill would cripple state enforcement against fracking polluters. An Ohio Senate committee this week began hearings on House Bill 490, hearing testimony from top Kasich administration officials urging the Senate to restore provisions to the law to properly penalize violators of Ohio’s fracking regulations. Changes by the state Legislature to Gov. John Kasich’s original proposal, coupled with further roll backs of current law, may leave fewer tools and weaker penalties for fracking-law violations, opponents say. On Friday, the Ohio Environmental Council sent a letter to DeWine — the state’s chief law-enforcement officer — urging his office to weigh in on the debate to reduce the fracking enforcement.“The governor’s plan would have brought the hard hammer of justice against the most flagrant violators of human health and safety laws,” said Trent Dougherty, legal affairs director of Ohio Environmental Council. “The amended bill replaces that hammer with a tattered white flag.”According to OEC’s letter to DeWine, the group fears that the future of the state’s enforcement capabilities will be jeopardized. “The attorney general must act swiftly to make certain that the Legislature restores strong penalties to stop flagrant or repeat polluters dead in their tracks, and to ensure protection of health and safety,” Dougherty added.

Controversial fracking chemical bill the opposite of what ODNR sought -- Proposed changes to Ohio's fracking chemical reporting law are drawing concerns from first responders and environmental activists, but Department of Natural Resources officials said they didn't ask for the changes. A wide-ranging environmental and agricultural bill passed by the House last week would change the way oil and gas companies report chemicals used in hydraulic fracturing, a process in which sand, water and chemicals are injected underground to break up the earth and allow oil and gas to escape.  ODNR spokeswoman Bethany McCorkle said the department requested a law change allowing it to establish an online database for this information, which could be accessed 24/7 by first responders, emergency planners and the public. "This would be cutting-edge to have the information on a database anyone could have," McCorkle said. "This is very transparent." But a provision added last week to House Bill 490 appears to block the public and neighboring first responders and emergency planners from the database. Environmental activists said the bill would hurt first responders' ability to do their jobs while giving more power to ODNR. "No other chemical-intensive industry in the state gets a pass like this," Melissa English, development director for Ohio Citizen Action, said in a statement. "First responders and the public have a right to know about potential chemical hazards in their midst."

Ohio's new fracking solid waste disposal rules explained - Ohio’s budget bill for this year and next included changes in state regulations for handling solid waste from fracking. The Ohio EPA, and departments of Natural Resources and Health, who jointly enforce those, sent a letter to landfills about the new requirements.    But, Lea Harper of the Ohio Freshwater Accountability Project says, like in the old days of strip mining, nobody is responsible for future costs of remediating environmental damage. “Tax payers are paying for stream cleanup into perpetuity. This is another thing that is going to be very expensive. You know, they’re talking the economic benefits and the windfall tax revenues, but what about the long term costs?" In a statement the agencies wrote that the new rules arise from strengthened Ohio laws that ensure oil and gas waste substances are properly managed.

Protect Your Town From Fracking’s Collateral Damage  -- While New York’s highest court has upheld a town’s right to prohibit fracking within its borders, fracking threats still loom—regardless of whether a community has enacted a ban or moratorium on this activity.All communities, with bans or otherwise, will feel the impact of fracking-related activities nearby. Air and water pollution know no jurisdictional boundaries, and the build-up of natural gas infrastructure (i.e., pipelines, compressor stations, storage facilities and export terminals) will create hazards across municipal, county and state lines. Collateral damage includes:

  • Waste disposal – wastewater disposal, landfills, brine spreading on roads
  • Infrastructure for transporting and storing gas – pipelines, compressor stations, export facilities, underground storage, CNG facilities
  • Air pollution – methane, ozone and other toxic substances

Links to slides and other materials used at the November 15th, 2014 Conference. Links to additional resources.

Maryland Governor Is Officially Ready To Allow Fracking In The State -- Maryland’s outgoing Democratic Gov. Martin O’Malley announced on Tuesday that he will soon release proposed regulations for fracking — regulations that when finalized will officially allow natural gas drilling in the western part of the state.  The historically environmentally-friendly governor said the regulations when issued would be strict, going above and beyond to restrict drilling in certain locations and including strong protections from drinking-water contamination and air pollution. “We’re committed to ensuring that Marylanders have access to the economic opportunities associated with fracking, while also putting the most complete practices into place to ensure the highest level of protection for Maryland residents.” O’Malley said in a statement to the Baltimore Sun.  Even if the regulations proposed by O’Malley are incredibly strict, the governor’s term expires in January, which leaves them open to the state’s incoming governor, Republican Larry Hogan. As the Washington Post noted on Tuesday, Hogan could make major changes to the regulations, or scrap them altogether once he takes office. The Washington Post reported in October that the incoming governor has lauded natural gas as a potential “boon to Maryland’s economy,” but did not expand on how he felt about the fracking process itself, which injects high-pressure streams of water, sand, and chemicals underground to crack open shale rock. In an interview with the Baltimore Sun, Hogan said he would “want to make sure that [fracking] is done in an environmentally sensitive way, and that we take every precaution possible,” but also cited Maryland residents who need jobs.

Boulder County commissioners formally extend oil, gas moratorium to July 2018 - Boulder County commissioners have officially extended the county's temporary moratorium on accepting new oil and gas development applications until July 1, 2018. On Tuesday morning, Commissioners Deb Gardner and Elise Jones adopted a resolution that follows the 3 ½ -year moratorium-continuation decision they and Commissioner Cindy Domenico made on Nov. 13. Boulder County's moratorium, which applies to new applications for drilling and operating oil and gas wells in unincorporated parts of the county, originally was imposed in February 2012. It has been extended several times since then and had been set to expire Jan. 1. The moratorium applies to all new oil and gas development, and not just the practice of using hydraulic fracturing to free up deep underground deposits. Domenico did not attend Tuesday's meeting, and Jones and Gardner did not discuss the extension further before approving the resolution. The latest moratorium-extension resolution contains a provision requiring that any oil and gas operators — including those already having producing wells in the county — to notify emergency dispatchers and the Land Use Department in the event of any spill or release that "threatens or has the potential to impact the waters of the state."

'Monster' Fracking Wells Guzzle Water in Drought-Stricken Regions » The fracking industry likes to minimize the sector’s bottomless thirst for often-scarce water resources, saying it takes about 2-4 million gallons of water to frack the average well, an amount the American Petroleum Institute describes as “the equivalent of three to six Olympic swimming pools.” That’s close to the figure cited by the U.S. Environmental Protection Agency (EPA) as well. But a new report released by Environmental Working Group (EWG) located 261 “monster” wells that consumed between 10 and 25 million gallons of water to drill each well. Among the conclusions EWG teased out of data reported by the industry itself and posted at is that between April 2010 and December 2013, these 261 wells consumed 3.3 billions of water between them, a average of 12.7 million gallons each. And 14 of the wells topped 20 million gallons each. “It’s far more relevant to compare those figures to basic human needs for water, rather than to swimming pools or golf courses,” said EWG’s report. “The 3.3 billion gallons consumed by the monster wells was almost twice as much water as is needed each year by the people of Atascosa County, Texas, in the heart of the Eagle Ford shale formation, one of the most intensively drilled gas and oil fields in the country.” And proving that everything really is bigger in Texas, that’s where most of these monster wells were located, hosting 149 of them. Between them they consumed 1.8 billion gallons of water. The largest was located in Harrison County on the east Texas border, where in March 2013, Sabine Oil & Gas LLC drilled a well using more than 24.8 million gallons of water.  And Texas also had what EWG described as the “dubious distinction” of using more fresh water in fracking, consuming 21 million gallons in 2011 alone.  Pennsylvania had the second largest number of these monster wells with 39 located in that fracking-boom state atop the Marcellus shale formation. It was followed by Colorado (30, including 8 of the 15 biggest water consumers), Oklahoma (24), North Dakota (11), Louisiana and Mississippi (3 each) and Michigan (2).

Fracking can trigger earthquakes, scientists conclude — Evidence is growing that fracking for oil and gas is causing earthquakes that shake the heartland.  States such as Oklahoma, Texas, Kansas and Ohio are being hit by earthquakes that appear linked to oil and gas activity. While the quakes are far more often tied to disposal of drilling waste, scientists also increasingly have started pointing to the fracking process itself.“Certainly I think there may be more of this that has gone on than we previously recognized,” Oklahoma Geological Survey seismologist Austin Holland told colleagues last week.In addition to what Holland has seen in Oklahoma, a new study in the journal Seismological Research Letters concludes that fracking caused a series of earthquakes in Ohio a year ago. That follows reports of fracking leading to earthquakes in Canada and across the Atlantic in the United Kingdom.Before 2008 Oklahoma averaged just one earthquake greater than magnitude 3.0 a year. So far this year there have been 430 of them, Holland said.Scientists have linked earthquakes in Oklahoma to drilling waste injection. Shale drilling produces large amounts of wastewater, which then is often pumped deep underground as a way to dispose of it without contaminating fresh water. Injection raises the underground pressure and can effectively lubricate fault lines, weakening them and causing earthquakes, according to the U.S Geological Survey.USGS senior science adviser Bill Leith, speaking at an earthquake forum last week held by the U.S. Energy Association, said communities need to be worried about earthquakes from drilling waste injection. But quakes from fracking itself are rare, Leith said.

Real Fracking Frackquakes Hit Dallas!  -- Not just a little shake from a disposal well – but honest-to-god frackquakes from a fracked shale gas well.  Felt right here in Big D.  The birthplace of fracking and the hometown of the frackers. Imagine that.

Four earthquakes centered in Irving have shaken parts of North Texas since late Saturday. Saturday night’s magnitude 3.3 quake happened at 9:15 p.m. just northeast of the old Texas Stadium site and was felt by hundreds of North Texans. The NBCDFW Facebook Fan page received more than 1,300 comments about it.  Saturday’s quake fractured a two-inch water line beneath Portales Lane in Irving, just south off Texas 183 near MacArthur Boulevard, sending water rushing down the private road.

19 US Shale Areas That Are Suddenly Endangered, "The Shale Revolution Doesn't Work At $80" -- Despite the constant blather that lower oil prices are "unequivocally good" for America, we suspect companies working and people living these 19 Shale regions will have a different perspective... Drilling for oil in 19 shale regions loses money at $75 a barrel, according to calculations by Bloomberg New Energy Finance. Those areas pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations. “Everybody is trying to put a very happy spin on their ability to weather $80 oil, but a lot of that is just smoke,” said Daniel Dicker, president of MercBloc Wealth Management Solutions with 25 years’ experience trading crude on the New York Mercantile Exchange. “The shale revolution doesn’t work at $80, period.” Source: Bloomberg

Where Oil and Politics Mix - The mood was giddy. Halliburton served barbecued crawfish from Louisiana. A commemorative firearms dealer hawked a “one-million barrel” shotgun emblazoned with the slogan “Oil Can!” Mrs. North Dakota, in banner and crown, posed for pictures. The Texas Flying Legends performed an airshow backlit by a leaping flare of burning gas. And Gov. Jack Dalrymple was the featured guest. Tioga, population 3,000, welcomed North Dakota’s first well in 1951, more than a half-century before hydraulic fracturing liberated the “tight oil” trapped in the Bakken shale formation. So it was fitting that Tioga ring in the daily production milestone that had ushered the Bakken into the rarefied company of historic oil fields worldwide.But Tioga also claims another record: what is considered the largest on-land oil spill in recent American history. And only Brenda Jorgenson, 61, who attended “to hear what does not get said,” mentioned that one, sotto voce.The million-barrel bash was devoid of protesters save for Ms. Jorgenson, a tall, slender grandmother who has two wells at her driveway’s end and three jars in her refrigerator containing blackened water that she said came from her faucet during the fracking process. She did not, however, utter a contrary word.“I’m not that brave (or stupid) to protest among that,” she said in an email afterward. “I’ve said it before: we’re outgunned, outnumbered and out-suited.”

The Downside of the Boom - There had been an accident at the Skurupey 1-9H oil well. “Oh, my gosh, the gold is blowing,” she said he told her.  It was the 11th blowout since 2006 at a North Dakota well operated by Continental Resources, the most prolific producer in the booming Bakken oil patch. Spewing some 173,250 gallons of potential pollutants, the eruption, undisclosed at the time, was serious enough to bring the Oklahoma-based company’s chairman and chief executive, Harold G. Hamm, to the remote scene.It was not the first or most catastrophic blowout visited by Mr. Hamm, a sharecropper’s son who became the wealthiest oilman in America and energy adviser to Mitt Romney during the 2012 presidential campaign. Two years earlier, a towering derrick in Golden Valley County had erupted into flames and toppled, leaving three workers badly burned. “I was a human torch,” said the driller, Andrew J. Rohr.Blowouts represent the riskiest failure in the oil business. Yet, despite these serious injuries and some 115,000 gallons spilled in those first 10 blowouts, the North Dakota Industrial Commission, which regulates the drilling and production of oil and gas, did not penalize Continental until the 11th.The commission — the governor, attorney general and agriculture commissioner — imposed a $75,000 penalty. Earlier this year, though, the commission, as it often does, suspended 90 percent of the fine, settling for $7,500 after Continental blamed “an irresponsible supervisor” — just as it had blamed Mr. Rohr and his crew, contract workers, for the blowout that left them traumatized.

Bakken: Ripple effects - North Dakota is beginning to see the effects of a depressed crude oil market, and in at least one rather unexpected way. Oil production growth in the state set a record in September increasing by more than 52,000 barrels per day from the previous month according to data released by the Department of Mineral Resources, DMR, on Nov. 14. That would normally be viewed as positive news all the way around, but the reason for the growth is not because drilling and production are expanding, but instead, amid falling oil prices, operators are playing it safe and shifting focus back to the most productive Bakken core where wells simply have higher yields and better returns (see sidebar). The effects of low prices don’t stop there. North Dakota is also seeing a number of drill rigs simply fall off the rosters. In a Nov. 14 monthly press conference, DMR Director Lynn Helms said the state’s current rig count is down “pretty dramatically,” standing at 186 on Nov. 14. That is five fewer than at the end of October and nine fewer than at the end of September. Helms said many operators are scaling back drilling plans and letting some of the less efficient drill rigs go as contracts expire. “They had intended to increase rig count going into next year - almost all of them had budgeted for some fairly significant increases and were indicating that our rig count might go to 200 or maybe a little bit beyond that. They have dropped those plans at this point and plan to hold - at least the big double-digit drillers - plan hold at their rig count,” Helms said. “And they have alternate budgets that they could approve that actually reduce that,” Not only do low crude oil prices force operators to adjust, the Office of the Tax Commissioner as well as the Legislature must adjust also as lower prices mean lower revenues and lower revenues can mean tax adjustments. For calendar year 2014, that tax incentive trigger price is $52.06 per barrel, and if WTI falls and remains below that price for five consecutive months, oil extraction tax incentives kick in.

Bakken Volatility Tests Face More Challenges - WSJ: Regulators set to decide on crude-by-rail shipping rules are relying on testing methods that may understate the explosive risk of the crude, according to a growing chorus of industry and Canadian officials. The tests’ accuracy is central to addressing the safety of growing crude-by-rail shipments across the continent: whether Bakken crude contains potentially dangerous levels of dissolved gases. Several trains carrying Bakken crude have exploded after derailing, including a fiery accident last year that killed 47 people in a small town in Quebec. The North Dakota Industrial Commission is expected to rule Thursday on what steps, if any, producers must take to strip volatile gases out of crude oil before loading it into railroad tank cars. The regulator’s decision will be based, at least in part, on the testimony of a half-dozen oil executives who urged the state to consider the conclusions of a study by the North Dakota Petroleum Council, a lobbying group for energy producers. That study found Bakken crude was no more volatile than other so-called light crudes commonplace in Texas and elsewhere. But that finding may reflect a problem with the methodology, which could have allowed flammable gases, or light ends, to escape in the process of collecting and handling the crude samples. This means that tests aimed at determining how explosive crude is within a tank car might be significantly underestimating the risk of combustion.

Oil trains are disasters-in-waiting - The knee-jerk reaction in Minnesota and elsewhere to the spate of North American crude oil disasters — beefing up emergency capabilities — is predictable, but dead wrong. The glum, vivid consensus from fire chiefs and emergency managers is that derailments of 100-tanker oil trains are “way beyond our current capabilities.”  Following long-standing, prudent U.S. Transportation Department guidance, fire chiefs testified that “even if we had an infinite amount of foam” they can only do defensive firefighting, pulling back at least one-half mile and letting the explosions and fires happen. Minnesota, as a crude-by-rail corridor facing huge risks and no benefits, should be loudly demanding to see the railroads’ hidden documents, forcing the railroads to prove that they have selected the “safest and most secure” routes for all their highest risk hazmat cargoes, as a 2007 federal law requires. In the recent, sobering documents from the ongoing federal rule-making on high-hazard flammable trains, the Transportation Department concedes that routing trains to avoid urban areas could improve safety and security, but says it has seen only “modest” railroad hazmat rerouting.The DOT documents say it is “impossible to know” whether the railroads have prioritized safety in their routing decisions. Each railroad makes secret decisions based on 27 routing factors, which each can weight as they will, with no federal guidance. No federal oversight body has reported on whether such decisions are protecting a single U.S. city, major water reservoir or Native American land.

Gov’t Data Sharpens Focus on Crude-Oil Train Routes - -- A ProPublica analysis of federal government data adds new details to what’s known about the routes taken by trains carrying crude oil. Local governments are often unaware of the potential dangers they face.Much of North Dakota's oil is being transported by rail, rather than through pipelines, which are the safest way to move crude. Tank carloads of crude are up 50 percent this year from last. Using rail networks has saved the oil and gas industry the time and capital it takes to build new pipelines, but the trade-off is greater risk: Researchers estimates that trains are three and a half times as likely as pipelines to suffer safety lapses. Indeed, since 2012, when petroleum crude oil first began moving by rail in large quantities, there have been eight major accidents involving trains carrying crude in North America. In the worst of these incidents, in July, 2013, a train derailed at Lac-Mégantic, Quebec and exploded, killing 47 and burning down a quarter of the town. Six months later, another crude-bearing train derailed and exploded in Casselton, North Dakota, prompting the evacuation of most of the town's 2,300 residents. See our interactive map of the crude-oil train data.  In those and other cases, local emergency responders were overwhelmed by the conflagrations resulting from these accidents. Residents often had no idea that such a dangerous cargo, and in such volume, was being transported through their towns. Out of the disasters came a scramble for information. News outlets around the country began reporting the history of problems associated with the DOT-111 railroad tank cars carrying virtually all of the crude. Local officials, environmental groups, and concerned citizens began to ask what routes these trains were taking and whether the towns in their paths were ready should an accident occur.

Diverse group opposes oil plans The latest group to go public with its opposition to new oil terminals in Washington is a diverse group including firefighters, physicians and neighborhood association leaders.  In a letter to Gov. Jay Inslee on Friday, the coalition urged the governor to stop the proposed oil terminals in Vancouver and Grays Harbor and prevent the expansion of oil refineries in Anacortes.  "We are asking you to follow through on your commitment to a clean energy future and a robust sustainable economy by denying their permitting and construction," the letter to Inslee reads.  Geoff Simpson, a firefighter with the Kent Fire Department, said the letter was a result of meeting with a variety of people from those in the Projected emissions could include nitrogen dioxide, sulfur dioxide, arsenic, cadmium, hexavalent chromium, benzene and diesel engine particulate.  LaBrant said environmental concerns, such as impacts from a spill, drown out a lot of other pressing issues facing opponents of the proposed oil-by-rail terminal in Vancouver. At the end of the letter, the group requested to meet with the governor. "The governor's long-standing concern about the safety of the growth of crude by rail activity in Washington is well known," Jaime Smith, the governor's spokeswoman, wrote in an email on Friday.  Inslee has called on the federal government to lower the speed limit for trains carrying crude oil and accelerate the replacing of outdated cars.  The governor is also expected to unveil draft legislation for the 2015 session aimed at improving safety conditions and the state's ability to respond to spills.

First-Ever Footage of Aging Tar Sands Pipelines Beneath Great Lakes » This past July, National Wildlife Federation (NWF) conducted a diving expedition to obtain footage of aging oil pipelines strung across one of the most sensitive locations in the Great Lakes, and possibly the world: the Straits of Mackinac. Footage of these pipelines has never been released to the public until now. The Straits of Mackinac pipelines, owned by Enbridge Energy, are 60-years-old and considered one of the greatest threats to the Great Lakes because of their age, location and the hazardous products they transport—including tar sands derived oil. For nearly two years, NWF has been pressing pipeline regulators and Enbridge to release information about the integrity of these pipelines, including inspection videos showing how the pipelines cross the Straits of Mackinac. These requests have gone largely unanswered from both Enbridge and the Pipeline Hazards Safety Administration (PHMSA), who regulates pipeline operations. Because Enbridge hastily moved forward with plans to increase pressure on the aging pipelines, and has bypassed critical environmental permitting for changes in operation, NWF decided we needed to obtain our own:  The footage shows pipelines suspended over the lakebed, some original supports broken away—indicating the presence of corrosion—and some sections of the suspended pipelines covered in large piles of unknown debris. This visual is evidence that our decision makers need to step in and demand a release of information from Enbridge and PHMSA.

Drilling Slowdown on Sub-$80 Oil Creeps Into Biggest U.S. Fields -- The slowdown in the U.S. oil-drilling boom spread to two of the nation’s largest fields this week. The Permian Basin of Texas and New Mexico, the country’s biggest oil play, lost four rigs targeting crude, dropping to 558, Baker Hughes Inc. (BHI) said on its website today. Those in North Dakota’s Williston Basin, the third-largest and home to the Bakken shale formation, slid to the lowest level since August, according to the Houston-based field services company’s website. It was the first time in four weeks that oil rigs dropped in the Williston. Oil prices have tumbled 29 percent from this year’s peak, pausing a surge in drilling in U.S. shale plays that has propelled domestic crude production to the most in three decades and brought retail gasoline prices below $3 a gallon for the first time since 2010. Drillers from Apache Corp. (APA) to Hess Corp. (HES) have announced plans to cut their rig counts in some North American oil fields as crude futures trade under $80 a barrel. “Prices in the lower $70s over a period of six months would slow” U.S. oil production, Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman IHS Inc. (IHS), said at a conference in New York. “People have leased rigs. They have rented them for the year and so forth. But you’d start to see an impact.”  Nineteen shale regions in the U.S. are no longer profitable with oil at $75 a barrel, data compiled by Bloomberg New Energy Finance show. Those areas, including parts of the Eaglebine and Eagle Ford in Texas, pumped about 413,000 barrels a day, according to the latest data available from Drillinginfo Inc. and company presentations.

The problem with fracking - Slumping oil prices are wrecking life for drillers around the world, particularly high-cost producers now struggling to make a profit ... like the U.S. American oil from shale, which comes out of the ground through fracking, is pricey to extract. On top of that, sources of oil become mere trickles within a year or two. The notion of oil wells tailing off and aging isn’t new. In the late 1950s, a Hollywood celebrity famously joked that actors are “about as short-lived as an oil well and twice as pretty.” For the new so-called "shale wells," production falls like a stone in the first year. “Let’s say you produce 500 barrels in the first month of production,” says James Burkhard, head of oil market research for IHS Energy. “Twelve months later you could be producing around 250 barrels. So a decline rate of about 50 percent. In a conventional well, the decline rate is much less steep.” Oil from shale is not a pool of liquid, but rather small amounts trapped in tight rock. That requires drillers to fracture, or "frac," the shale rock to release the oil. Quickly, though, output slows and pressure falls. And the driller has to drill and frac again, in a new spot. That’s expensive — in many places, each well costs $8 million.

Frackin’ Bakken Bust. Why Shale Oil Is Imploding. - That low rumble you hear to the west is the sound of the Bakken Shale Oil Bust. Bomb Trains and all.  First shale gas went from fracking boom to fracking bust. Now it’s shale oil’s turn to get fracked. Below about $75 a barrel, most US shale oil becomes unprofitable on a fully burdened basis. And oil is now at $70 bbl. That dog no hunt.  Look on the sunny side – the frackers will have to shut in those shale oil wells - and stop lighting the heavens with gas flares. And fewer neighborhoods will get torched by Shale Oil Terror Trains. As shale oil production is shut in, gas supplies from those fields will drop, which should boost natural gas prices a bit near the oil fields. Note, this recent drop is being billed in the popular press as a conspiracy by OPEC or the Russians, (or Green Billionaires ?) when the simple fact is that oil prices “revert to the mean” cost of production, which is a function of the world average cost of production. And the world average cost is about $40 Bbl. So the market is always at risk of playing the limbo down to that floor price – which is about half the cost of production of most US shale oil fields. No new conspiracy theory needed. The shale oil bust was not only predictable, but was in fact predicted, by Art Berman, Deborah Lawrence, and others.  The lowest cost oil or gas producers in the world will not give up market share to higher cost North American shale oil or gas. That is what is already happening on the international gas market – where US LNG exports cannot compete against Russian or Mideast gas pipelines - over which real wars are being fought. Not just commodity price wars.

Who Will Wind Up Holding the Bag in the Shale Gas Bubble? -- Yves Smith  -- We've been writing off and on about how the sudden fall in gas prices has been expected to put a lot of shale gas development on hold. In fact, quite a few analysts believe that one of the big Saudi aims in refusing to support oil prices was to dent the prospects for competitive energy sources, not just renewables like wind and hydro power, but shale gas. Even though OilPrice reported that US rig count had indeed fallen as oil prices plunged, John Dizard at the Financial Times (hat tip Scott) gives a more intriguing piece of the puzzle: the degree to which production is still chugging along despite it being uneconomical. The oil majors have been criticized for levering up to continue developing when it is cash-flow negative; they are presumably betting that prices will be much higher in short order. But the same thing is happening further down the food chain, among players that don't begin to have the deep pockets of the industry behemoths: many of them are still in "drill baby, drill" mode.

Cheap energy is the new cheap labour - The price of oil keeps on falling; the shale gas boom has reduced the price of natural gas in the US to a third of that in France; Germany has appealed to Sweden for its support in expanding two coal mines; and the EU’s effort to switch to clean energy is troubled. For companies wondering where to locate, the world has turned upside down. Cheap energy is the new cheap labour. For two decades, the biggest driving force in industrial globalisation was the gap in the price of labour between the developed world and China. That induced many industries – textiles, electronics and others – to shift production from high-cost factories in the US and Europe to places where people would work for a fraction of the cost. Now, as the wage arbitrage between the north and south narrows, the energy gap is widening. Wage rates adjusted for productivity in China have risen to more than half the level in the US, according to Boston Consulting Group. Meanwhile, energy prices have been falling and the Opec oil-producing countries have failed to halt the decline. Some fortunate countries, especially the US, are gaining from both of these trends at once. Although cheap fuel theoretically helps every energy-dependent country, the gains are distributed unevenly. The big beneficiary, thanks to shale natural gas, is the US. Not only is it helped by companies bringing manufacturing home but it is also an oasis of cheap gas. That is luring energy-intensive industries such as chemicals, petrochemicals, aluminium and steel. Europe made the wrong bet. In the long run, making fossil fuels more expensive by subsidising renewables and charging for carbon emissions could bring the EU a steady supply of clean, cheap energy. At the moment, it is nullifying the benefits of lower energy prices and giving European companies an incentive to relocate.

“I Hate That Oil’s Dropping”: Why Mississippi Governor Phil Bryant Wants High Oil Prices for Fracking -Yves here. We posted yesterday on how, despite falling oil prices having a ricochet effect across the entire energy complex, so far shale oil well shutdowns didn't appear to be proceeding at the expected pace. John Dizard of the Financial Times attributed continuing cash-flow-negative exploration and development to continued access to super-cheap funding. He also noted that even when fracking operators were cut off from their money pipeline, a new wave of speculators was likely to sweep in and try bottom-fishing among distressed companies. That meant that normal market discipline would be circumvented, meaning production levels could remain at uneconomically high levels, keeping prices low. A second danger for the aspiring fracking-industrial complex is that prevailing production forecasts show the US having production well in excess of its domestic consumption levels in a few years. Production of needed export infrastructure would need to ramp up rapidly for so much shale output to be moved overseas. But not only are there "will the transport systems be in place" doubts, there's also a reason to question whether this investment will pay off. On current trajectories, fracking output peaks in 2020 and falls gradually over the next decade, and declines more rapidly after that. 12 to 15 years of decent utilization is very short for specialized facilities. Third, some readers, presented with the scenario above, said, basically, "No problem, production will focus on the lowest-cost areas like Marcellus." As the article below points out, there are parts of the country that have gotten a nice boost from the energy boomlet and will suffer if they aren't in the most competitive areas cost-wise. And their lenders are also at risk. Finally, current cost forecasts don't allow for the possibility of production delays or additions expenditures due to local protests and/or higher environmental standards put in place. Before you pooh-pooh the idea that anything might stand in the way of energy barons, consider the industry they are damaging: real estate, which is another powerful and politically connected industry. If fracking water contamination or fracking-induced earthquakes start affecting higher population density areas (suburbs, cities), we may have a Godzilla versus Mothra battle between competing elites in our future.

"I Hate That Oil's Dropping": Why Mississippi Governor Phil Bryant Wants High Oil Prices for Fracking - Steve Horn - Outgoing Interstate Oil and Gas Compact Commission (IOGCC) chairman Phil Bryant — Mississippi's Republican Governor — spoke to an audience of oil and gas industry executives and lobbyists, as well as state-level regulators.   At the industry-sponsored convening, which I attended on behalf of DeSmogBlog, it was hard to tell the difference between industry lobbyists and regulators. The more money pledged by corporations, the more lobbyists invited into IOGCC's meeting.  Perhaps this is why Bryant framed his presentation around “where we are headed as an industry,” even though officially a statesman and not an industrialist, before turning to his more stern remarks.  “I know it's a mixed blessing, but if you look at some of the pumps in Mississippi, gasoline is about $2.68 and people are amazed that it's below $3 per gallon,” he said.  “Of course the Tuscaloosa Marine Shale has a little problem with that, so as with most things in life, it's a give and take,” Bryant stated. “It's very good at one point and it's helping a lot of people, but on the other side there's a part of me that goes, 'Darn! I hate that oil's dropping, I hate that it's going down.' I don't say that out-loud, but just to those in this room.”  Tuscaloosa Marine Shale's “little problem” reflects a big problem the oil and gas industry faces — particularly smaller operators involved with hydraulic fracturing (“fracking”) — going forward.  That is, fracking is expensive and relies on a high global price of oil. A plummeting price of oil could portend the plummetting of many smaller oil and gas companies, particularly those of the sort operating in the Tuscaloosa Marine. A recent report published by energy investment firm Tudor, Pickering, Holt & Co., described Tuscaloosa Marine as the shale basin most likely to face severe impacts from the falling price of oil. The Tudor report said that drillers operating in the Tuscaloosa require oil to sell at $70-$90 per barrel for fracking to remain economically viable there.

Who’s Ready For $30 Oil? -- How low can and will oil prices go, and what will the effects of those prices be? I bet you’ll have a hard time finding even just two people who have the same opinion on that. Not that it’s merely a matter of opinion, mind you, there are a great number of real life factors that come into play. It’s not an easy game.  OPEC gets together next week, and it’s a cartel divided. Many if not most of its members are suffering some kind of losses at present prices, and the obvious choice seems to be to cut output in order to raise prices again. But that’s not easy either, because at lower prices they need more output, not less, to minimize the damage. Besides, if non-OPEC producers don’t cut their output, OPEC cuts may do very little to lift prices. There doesn’t seem to be much doubt that Saudi Arabia’s decision to cut its prices has played a major role in bringing down prices. The reason why it’s done that, however, is not so clear. Weakening the economic and political power of Russia, Venezuela and ISIS is a very obvious underlying reason. That the House of Fahd would engage in some sort of battle with US shale seems less likely; the Saudi rulers don’t fight the US that has protected them militarily for decades in the volatile region they’re in.  . We know that most large economies are not doing well at all, and we also know that their leaders and central bankers do whatever they can to make us think that pig was born with lipstick on. But perhaps we lose something in the translation, perhaps things are worse than we realize.  Martchev suggests that the impact on the price of oil of the economic slowdown in China could be far greater, in the recent past as well as going forward, than most wish to acknowledge. Since a lot of demand growth comes from China, as Europeans and Americans drive less miles per capita, a significant slowing of that growth demand could be a major factor in where oil prices go in 2015.

Gundlach: ‘Vicious cycle’ possible in oil, $70 is line in sand - CNBC - Bond guru Jeffrey Gundlach said Monday he expects the Federal Reserve to raise rates in 2015, but not on the strength of economic fundamentals. Speaking with CNBC's "Squawk Alley," the CEO and CIO of DoubleLine Capital said Fed policymakers may seek to raise rates because that is what is expected of them.  "The Fed should not be raising interest rates, and yet they don't want to be at zero. They're in a conundrum," he said. "They might raise rates just to see what happens."  Gundlach also predicted that oil prices will go even lower than they already have this year. Oil markets are in their "second part of the cycle" wherein prices will drop because producers are getting squeezed after oil settled below $80.  Production will see an increase "maybe on the sly" by countries that depend on oil revenue, he said, creating a "vicious cycle" for the commodity's price. He predicted that $70 is the "line in the sand" for West Texas Intermediate: Any drop below that level will lead to a significant fall in price, he said.  He also said an oil price around $75 would suggest that the consumer price index should probably be near zero—meaning that there is no inflation in the economy. At the time of the interview, WTI traded around $76.70.  

Brent Plunge To $60 If OPEC Fails To Cut, Junk Bond Rout, Default Cycle, "Profit Recession" To Follow -- While OPEC has been mostly irrelevant in the past 5 years as a result of Saudi Arabia's recurring cartel-busting moves, which have seen the oil exporter frequently align with the US instead of with its OPEC "peers", and thanks to central banks flooding the market with liquidity helping crude prices remain high regardless of where actual global spot or future demand was, this Thanksgiving traders will be periodically resurfacing from a Tryptophan coma and refreshing their favorite headline news service for updates from Vienna, where a failure by OPEC to implement a significant output cut could send oil prices could plunging to $60 a barrel according to Reuters citing "market players" say.

"It's Different This Time?" What Happened To US Oil Drillers During The Last Price War - History may not repeat but it rhymes so loud sometimes that Einstein would be rolling in his repetitively insane grave. As Bloomberg notes, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. "1986 was the big price collapse and the industry did not see it coming,” said Michael Lynch, president of Strategic Energy and Economic Research who has covered the oil sector for 37 years, "it put a lot of them out of business. You just don’t forget it. It’s part of the cultural memory." Think it can't happen again? Think again... consider how levered US Shale drillers are and just what Saudi has to gain from keeping their foot on the US neck... In 1986, the U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market.

The 2014 Oil Price Crash Explained -- Old hands will know that it is virtually impossible to forecast the oil price. The anomalous recent price stability of $110+/- 10 we believe reflects great skill on the part of Saudi Arabia balancing the market at a price high enough to keep Saudi Arabia solvent and low enough to keep the world economy afloat. While it may not be possible to predict the actions of the main players, it is easier to predict what the outcome may be of certain actions may be. A drop in demand for oil of only 1 million barrels per day can account for the fall in price from $110 to below $80 per barrel. The future price will be determined by demand, production capacity and OPEC production constraint. A further fall in demand of the order 1 Mbpd may see the price fall below $60. Conversely, at current demand, an OPEC production cut of the order 1 Mbpd may send the oil price back up towards $100. It seems that volatility has returned to the oil market.

Falling energy prices could cloud U.S. production boom: IEA - Falling global oil prices may be good for consumers but will pose new challenges for America’s producers, according to a new global energy survey by the International Energy Agency. On the heels of the U.S. and China’s joint announcement on climate change and clean energy cooperation, the World Energy Outlook 2014 outlined the sector’s role in climate change, the future of gas prices and the change in the world’s energy use through 2040, with shifts that could threaten the competitiveness of the booming U.S. energy sector. Much of the country’s fracking boom took place when oil prices topped $100 a barrel — more than $20 higher than today’s market prices.  The U.S. may have to take on even more debt in the future, said Fatih Birol, chief economist at IEA, and projects on the drawing board may never come to fruition. “If the [oil] prices continue to stay down, I would think that some of the companies may give a second look at their investment plans in North America, including the United States,” Mr. Birol said. The lower prices could also have a major impact on more unconventional — and expensive — moves to obtain oil, including projects to drill for oil in the Arctic and more challenging offshore sites. Mr. Birol warned of possible troubles ahead if oil prices continue to stay low for the next couple of years, which he predicts they could.

Oil price slide leaves energy bond investors facing zero returns - Slumping oil prices have left investors holding lower-quality energy bonds facing zero returns for the year and a rising tide of distress. With US oil prices falling below $74 a barrel, attention has focused on the implications for the junk bond and leveraged loan markets. Massive investment by oil drillers and exploration companies in US energy and shale gas projects in recent years has been partly financed via cheap borrowing conditions across capital markets. Energy debt now accounts for 16 per cent of the US $1.3tn junk bond market, up from a share of 4 per cent a decade ago. The pronounced slide in oil prices from a high above $100 a barrel in June, has been accompanied by a significant slide in prices for energy debt and with nearly a third of issuance trading so poorly it currently qualifies as being classed as distressed, indicating a high likelihood of being restructured. Since the start of the year, the average yield for junk-rated energy debt has risen from 5.67 per cent to 7.31 per cent, while total returns for the year hover at 0.13 per cent. In contrast, the overall junk bond market has a total return for 2014 at 4.17 per cent, after a price loss of some 2 per cent. While the US default rate remains low, such a measure is backward looking and was also moribund in 2007 ahead of the financial crisis. Deutsche Bank credit analysts recently said that if oil drops to $60 a barrel it could be the catalyst that pushes some energy companies into trouble and sparks a rise in the US corporate default rate.

Oil price fall starts to weigh on banks - Banks including Barclays and Wells Fargo are facing potentially heavy losses on an $850m loan made to two oil and gas companies, in a sign of how the dramatic slide in the price of oil is beginning to reverberate through the wider economy. Details of the loan emerged as delegates of Opec, the oil producers’ cartel, gathered in Vienna to address the growing glut in the supply of oil.  Several Opec members have been calling for a production cut to shore up prices, but Saudi Arabia, Opec’s leader and largest producer, signalled that while there was a consensus among the cartel’s Gulf members they would not clarify if that meant a push for a big change in the group’s output targets. Repercussions from the decline in the price of crude, which has dropped 30 per cent since June, are spreading beyond the energy sector, hitting currencies, national budgets and energy company shares. The price slide is having a serious impact on oil producers that rely on revenues from crude exports to balance their budgets. The Russian rouble has lost 27 per cent of its value since mid-June, when crude began to fall, while the Norwegian krone is down 12 per cent and on Wednesday the Nigerian naira touched a record low.

At OPEC Meeting, Saudi Arabia Stares Down Texas and North Dakota - For the first time in a long time, the ability to determine the price of oil no longer clearly resides with OPEC. Instead, it’s increasingly U.S. producers at the controls. This shift has big geopolitical implications, affecting everything from Iran’s nuclear program to the fight against ISIS. And it helps explain why most OPEC members come to the meeting having spent the past few weeks talking about the need for cuts. Venezuela and Ecuador want to “protect prices.” Libya’s wants a cut of 500,000barrels a day. Iran may propose an overall cut of up to 1 million barrels a day, although “under no circumstance” is it willing to cut itself. Sanctions have taken more than a million barrels of Iran’s production offline since 2012. Its oil minister has vowed that Iran will not cut its production “even by one barrel.” Russia won’t be in the room. But as the world’s top oil producer, it wants cuts, too. Over the weekend, Russia and Saudi Arabia agreed to cooperate on oil prices. And Russia is reportedly considering joining OPEC in production cuts next year—that is, if the cuts happen at all. As of Tuesday morning, Nov. 25, traders were starting to bet that whatever cuts OPEC does make on Thursday will be limited at best. Brent oil prices tumbled on midmorning news that a meeting of Venezuela, Mexico, Saudi Arabia, and Russiafailed to produce an agreement to coordinate a cut.

OPEC heading for no output cut despite oil price plunge - "The GCC reached a consensus," Saudi Arabian Oil MinisterAli al-Naimi told reporters, referring to the Gulf Cooperation Council which includes Saudi Arabia, Kuwait, Qatar and the United Arab Emirates. "We are very confident that OPEC will have a unified position." "The power of convincing will prevail tomorrow ... I am confident that OPEC is capable of taking a very unified position," Naimi added. A Gulf OPEC delegate told Reuters the GCC had reached a consensus not to cut oil output. Three OPEC delegates separately told Reuters they believed OPEC was unlikely to take any action when the 12-member organisation meets on Thursday after Russia said it would not cut output in tandem. The OPEC meeting will be one of its most crucial in recent years, with oil having tumbled to below $78 a barrel due to the U.S. shale boom and slower economic growth in China and Europe. Cutting output unilaterally would effectively mean for OPEC, which accounts for a third of global oil output, a further loss of market share to North American shale oil producers. If OPEC decided against cutting and rolled over existing output levels on Thursday, that would effectively mean a price war that the Saudis and other Gulf producers could withstand due to their large foreign-exchange reserves. Other members, such as Venezuela or Iran, would find it much more difficult.

OPEC Fails to Take Action to Ease Glut as Crude Plunges - OPEC took no action to ease a global oil-supply glut, resisting calls from Venezuela that the group needs to stem the rout in prices. Futures slumped the most in more than three years. The group maintained its collective production ceiling of 30 million barrels a day, Ali Al-Naimi, Saudi Arabia’s oil minister, said yesterday after the 12 nations met in Vienna. Brent crude dropped as much as 8.4 percent in London, extending this year’s decline to 34 percent. Oil tumbled into a bear market this year as the U.S. pumped the most in more than three decades and conflict in the Middle East and Ukraine failed to disrupt supply. While OPEC’s 30-million-barrel limit has been in place since 2012, the group actually produced almost 1 million barrels more last month, data compiled by Bloomberg show. “OPEC has chosen to abdicate its role as a swing producer, leaving it to the market to decide what the oil price should be,” Harry Tchilinguirian, head of commodity markets at BNP Paribas SA in London, said yesterday by phone. “It wouldn’t be surprising if Brent starts testing $70.” Brent, a global benchmark, is poised for the biggest annual decline since 2008 on the ICE Futures Europe exchange in London. Futures fell the most since May 2011 and traded down $5.17 to $72.58 a barrel yesterday.

Oil Prices Collapse After OPEC Keeps Oil Production Unchanged - Live Conference Feed - But, but, but... all the clever talking heads said they wil have to cut...WTI ($70 handle) and Brent Crude (under $75 for first time sicne Sept 2010) are collapsing... as will US Shale oil company stocks and bonds (and thus all of high yield credit) tomorrow. The Saudis are "very happy" with the decision, Venzuela 'stormed out, red faced, furious.' Commentary from various OPEC members appears focused on the need for non-OPEC (cough US Shale cough) nations to "share the burden" and cut production (just as the Saudis warned yesterday).

WTI Crude Crashes Below $70 For First Time Since June 2010 -- (6 graphs) Houston, we have a problem... Lowest since June 2010... At $70/barrel, the US Shale industry "does not work"... And don't expect help from the Saudis... "Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?" * * * And the Russian Ruble is in freefall:

WTI Crude Oil Falls Below $70 -- From the WSJ: OPEC Leaves Production Target Unchanged The Organization of the Petroleum Exporting Countries said its 12 members, who collectively pump around one-third of the world’s oil, would comply with its current production ceiling of 30 million barrels a day. That would involve a supply cut of around 300,000 barrels a day based on the cartel’s output in October, according to the group’s own data....The oil producer group’s decision led to a further sharp selloff in major global oil benchmarks, with U.S. markets closed for the Thanksgiving holiday. Brent crude fell about 6% to below $73, a four-year low, while the West Texas Intermediate benchmark was down 3.2% to $71.36 a barrel.  This graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).According to Bloomberg, WTI has fallen over 4% today to $69.40 per barrel, and Brent to $72.97. Prices are off over 35% from the peak for the year, and if this price decline holds, there should be further declines in gasoline prices over the next couple of weeks.  Gasoline futures are down about 10 cents per gallon.Below is a graph from for nationwide gasoline prices. Nationally prices are around $2.80 per gallon (down about 45 cents from a year ago).  If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Brent, WTI Slump to 4-Year Low as OPEC Keeps Quota Steady - Brent crude futures slumped to the lowest level in more than four years after OPEC refrained from cutting production limits. West Texas Intermediate slid below $70 for the first time since 2010. Futures tumbled 6.7 percent in London, the steepest one-day decline in more than three years, after Saudi Oil Minister Ali Al-Naimi said the group maintained its collective ceiling of 30 million barrels a day. The 12 member organization will abide by its target as it seeks a “fair” oil price, Secretary-General Abdalla El-Badri said in Vienna. Crude collapsed into a bear market last month amid the highest U.S. output in three decades, slower demand growth and speculation OPEC’s biggest members were more interested in preserving market share than propping up prices. The outcome of today’s meeting was anticipated by 58 percent of respondents in a Bloomberg Intelligence survey this week. WTI for January delivery dropped $4.64, or 6.3 percent, to $69.05 a barrel in electronic trading on the New York Mercantile Exchange, the least since May 2010. Prices have decreased 30 percent this year. Gasoline futures tumbled 5.6 percent to the lowest since September 2010. Floor trading was closed today because of the U.S. Thanksgiving holiday.  The Organization of Petroleum Exporting Countries, producer of 40 percent of world supplies, pumped 30.97 million barrels a day of oil in October, exceeding its collective target for a fifth month, data compiled by Bloomberg show. The group estimates the world will need 29.2 million barrels a day of its crude next year, according to a report on Nov. 12.

Crude Plunges Following OPEC Decision to Not Cut Production - For five consecutive months OPEC produced over its alleged quota. Nonetheless, and in spite of falling prices and pleas from Venezuela to restrict production, OPEC decided to take no action. In the wake of the news, West Texas Intermediate plunged nearly 7% and Brent fell over 8%. Please consider OPEC Fails to Take Action to Ease Glut as Crude Plunges. OPEC took no action to ease a global oil-supply glut, resisting calls from Venezuela that the group needs to stem the rout in prices. Futures slumped the most in more than three years.The group maintained its collective production ceiling of 30 million barrels a day, Ali Al-Naimi, Saudi Arabia’s oil minister, said yesterday after the 12 nations met in Vienna. Brent crude dropped as much as 8.4 percent in London, extending this year’s decline to 34 percent. Canada’s producers big and small will have to tighten their belts to prepare for declining profits.  “This is a pretty big shock,” said Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary. “There’s no question there’s going to be a slowdown. Even the big guys will have to look at their capital spending plans.”Western Canada Select, the Canadian benchmark, has lost more than a third of its value since June, in step with declines for West Texas Intermediate and the international gauge Brent. WCS traded yesterday at $55.94 a barrel, the lowest in the world.

OPEC Decision Is "Major Strike Against The American Market", Russian Tycoon Says -- As we warned yesterday, the last time that U.S. oil drillers got caught up in a price war orchestrated by Saudi Arabia, it ended badly for the Americans. OPEC's decision not to cut production, and Nigeria's comments on the need for burden-sharing among non-OPEC members, ensures a crash in the US shale industry according to Leonid Fedun (Russia's Lukoil board member). The Russian finance minister's comments that oil at $80 in coming years is moderately optimistic and as Fedun ominously warns, this is a "major strike against the American market." Isolated, much? As Bloomberg reports, OPEC policy on crude production will ensure a crash in the U.S. shale industry, a Russian oil tycoon said.  The Organization of Petroleum Exporting Countries kept output targets unchanged at a meeting in Vienna today even after this year’s slump in the oil price caused by surging supply from U.S shale fields. American producers risk becoming victims of their own success. At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable for some explorers, Leonid Fedun, vice president and board member at OAO Lukoil, said in an interview in London. “In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun, who’s made a fortune of more than $4 billion in the oil business, according to data compiled by Bloomberg. “The shale boom is on a par with the dot-com boom. The strong players will remain, the weak ones will vanish.”

US shale boom is same as dotcom bubble, says Russian oil executive Vice-president of Lukoil, Russia’s second-largest oil producer, says many companies will simply ‘vanish’  The rise of US shale is similar to the dotcom boom of the late Nineties and will cause many companies to fail, one of Russia’s top oil executives has warned.  Leonid Fedun, vice-president of Lukoil, Russia’s second-largest oil producer, believes that with the price of Brent crude and WTI at multi-year lows, fracking companies will struggle to make fracking profitable.  These fears were given extra weight on Thursday after Opec’s members agreed to leave oil production quotas unchanged, sending oil prices plummeting.  Some believe Opec, which controls the majority of the world’s oil output, is threatened by the emergence of US shale and is trying to force many American drilling companies out of business.  “In 2016, when Opec completes this objective of cleaning up the American marginal market, the oil price will start growing again,” Mr Fedun told Bloomberg.  He said the current oil market was similar to the rise of the technology sector more than a decade ago that saw companies’ stock prices surge before collapsing several years later.  “The shale boom is on a par with the dotcom boom. The strong players will remain, the weak ones will vanish,” added Mr Fedun, who is worth around $4bn.

Oil Tanks After OPEC Fails to Cut Production; US Shale Oil Targeted? - Yves Smith  - After a testy meeting, OPEC agreed to maintain current production targets. The failure to support oil prices via reducing production led to a sharp fall in prices on Thursday, with West Texas Intermediate crude dropping by over 6% and Brent plunging over 8% before rebounding to finish the day 6.7% lower, at $72.55 a barrel. Many analysts believe that oil could continue its slide to $60 a barrel.  - The ripple effects hit currency markets and, of course, energy stocks. The Wall Street Journal emphasized the potential upside for the US economy, with lower energy prices giving consumers more money to spend elsewhere. Energy importing countries will also benefit. In keeping with our reaction to Saudi’s earlier decision to let oil prices slide, more and more commentators are seeing the OPEC refusal to support the market as at least in part designed to target the US shale gas industry. despite official denials. From the From the Financial Times: “I wouldn’t call it a price war, but it’s a very aggressive test for US shale,” : “This is becoming a battle of [who has] the deep pockets and survival of the fittest.”… Although some analysts had thought the cartel may surprise observers with an output cut, others argued that driving prices higher would only encourage US shale drillers and other high-cost producers. All the while, Opec would only continue to lose market share, they said. But it isn’t clear how many North American producers will blink first in this game of chicken. From the Journal: While some, including ConocoPhillips Co., have already announced plans to spend less in 2015, many more won’t unveil next year’s budget for several more weeks.  In Canada, industry officials said the slide in prices wouldn’t likely lead to immediate production costs. Suncor Energy Inc., Canada’s largest oil sands producer, still expects crude to recover to “the $90 to $100 range,”   In a separate story, the pink paper points out that this de facto price cut is shellacking prices of bonds issued by energy companies: Since the start of the year, the average yield for junk-rated energy debt has risen from 5.67 per cent to 7.31 per cent, while total returns for the year hover at 0.13 per cent. In contrast, the overall junk bond market has a total return for 2014 at 4.17 per cent, after a price loss of some 2 per cent.

Inside OPEC room, Naimi declares price war on U.S. shale oil (Reuters) - Saudi Arabia's oil minister told fellow OPEC members they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers. Ali al-Naimi won the argument at Thursday's meeting, against the wishes of ministers from OPEC's poorer members such as Venezuela, Iran and Algeria which had wanted to cut production to reverse a rapid fall in oil prices. They were not prepared to offer big cuts themselves, and, choosing not to clash with the Saudis and their rich Gulf allies, ultimately yielded to Naimi's pressure. true "Naimi spoke about market share rivalry with the United States. And those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle," said a source who was briefed by a non-Gulf OPEC minister after Thursday's meeting. Oil hit a fresh four-year low below $72 per barrel on Friday [O/R]. A boom in shale oil production and weaker growth in China and Europe have sent prices down by over a third since June.

Can Saudi Arabia Kill Off US Shale Producers? - Here is a little background to the international political economy of the ongoing OPEC meeting. As you would expect for a multi-billion dollar industry, the stakes are very, very high. What's more, with oil prices sliding as a result of slowing growth in the world economy, the showdown is becoming an n=2 fight. For OPEC, Saudi Arabia represents the "swing" producer as the largest entity and therefore the one with the most sway within the cartel. The bogeyman, of course, is the United States which has become the world's largest energy producer on the back of the shale / hydraulic fracturing revolution that has made previously inaccessible energy supplies a price. The upshot of it all is that it's a highest-stakes game of chicken between Saudi Arabia--not really "OPEC"--and the US shale producers. The Saudi's gambit is to not restrict OPEC production in the expectation that, at current price levels, many shale operators will become uneconomic--especially if prices remain as they are now for a protracted period:  The Saudis still enjoy some of the lowest production costs in the world, so they can sustain a much lower price and still not worry about financing themselves. That’s a luxury many OPEC members don’t have. Venezuela, Iran, Iraq, Libya, and even Russia all need oil prices higher than $100 a barrel to keep their deficits in check.  Right now the Saudis are a lot less worried about the budget deficits of their fellow oil exporters as they are about what’s happening in North Dakota and Texas. The biggest threat to the power the Saudis have wielded as the de-facto head of OPEC for the past 30 years isn’t cheap oil; it’s the 9 million barrels a day coming out of the U.S. The Saudis would much rather play a game of chicken with U.S. producers than bow to the wishes of Iran, which they’re in no hurry to accommodate given their disagreements over the Assad regime in Syria, not to mention Iran’s burgeoning alliance with Iraq.

Free Fall in Oil Price Underscores Shift Away From OPEC -  Since the economically crippling oil embargo of 1973, every American president has pledged to seek and achieve energy independence.That elusive goal may finally have arrived, at least for the foreseeable future, with the failure of Saudi Arabia and its 11 oil cartel partners in the Organization of the Petroleum Exporting Countries to agree to a production cut that would put a brake on plummeting crude prices.On Friday, the benchmark American price for crude oil continued the free fall that began on Thursday, closing at $66.15, its lowest price in more than four years.The inability or unwillingness of OPEC to act showed that the cartel was no longer the dominating producer whose decisions determine global supplies and prices. Suddenly, the United States — which is poised to surpass Saudi Arabia as the world’s top producer, possibly in a matter of months — is in that position, although the resiliency of that new command must still be tested. “This is a historic turning point,” said Daniel Yergin, the energy historian. “The defining force now in world oil today is the growth of U.S. production. The outcome of the OPEC meeting is a clear indication that the oil exporters now recognize that this is a new market.”

Crude Carnage Continues After Close: WTI Now $65 Handle, Lowest Since 2009 -- Not 'off the lows' Big flush into WTI's close... And Brent under $70... first time since May 2010 To 5 year lows... Houston, we really have a problem... But it's priced in right? Charts: Bloomberg

OPEC might get the last laugh on oil — For most Americans, OPEC’s seeming impotence in the face of collapsing oil prices is a reason to rejoice. So enjoy the cheap gas, for now. But don’t get too euphoric. Even though collapsing oil prices promises near-term pain for many cartel members, the decision to stand pat looks like the smarter long-term strategy.  Veteran energy economist James Williams of WTRG Economics boils down the dilemma facing OPEC oil ministers as a question of whether to endure short-term pain for longer-term gain.  The debate, he said, comes down to this: “Am I willing to tolerate lower oil prices for a period, improve the world economy, and therefore increase customers and at the same time slow U.S. production growth, or do I want the money in my pocket today at the almost certainty of losing market share?” It would be wrong to assume that OPEC is toothless. Had the cartel agreed to make substantial cuts, and shown enough unity to make them stick, oil would be shooting back toward $100 a barrel, energy analysts say.   If oil pushed back toward $100 a barrel, OPEC would only see its market share continue to slide, Williams said. The shale revolution has seen U.S. oil production surge, growing at a clip of around 1 million barrels a day annually for the past several years. That’s roughly equal with demand growth. While analysts debate exactly where the pain point lies for U.S. shale producers, Williams emphasizes that production from shale wells declines rapidly, particularly compared to deep-sea and other types of production. That means a period of low prices should help ensure that OPEC maintains, or even increases, market share over the long run.

OPEC Presents: Q4 and Deflation - Thinking plummeting oil prices are good for the economy is a mistake. They instead, as I said only yesterday in The Price Of Oil Exposes The True State Of The Economy, point out how bad the global economy is doing. QE has been able to inflate stock prices way beyond anything remotely looking fundamental, but energy prices have now deflated instead of stocks. Something had to give at some point. Turns out, central banks weren’t able to inflate oil prices on top of everything else. Stocks and bonds are much easier to artificially inflate than commodities are.  The Fed and ECB and BOJ and PBoC may of course yet try to invest in oil, they’re easily crazy enough to try, but it will be too late even if they did. In that sense, one might argue that OPEC – or rather Saudi Arabia – has gifted us QE4, but the blessings of the ‘low oil price stimulus’ will of necessity be both mixed and short-lived. Because while the lower prices may free some money for consumers, not nearly all of the freed up ‘spending space’ will end up actually being spent. So in the end that’s a net loss as far as spending goes.  The ‘OPEC Q4′ may also keep some companies from going belly up for a while longer due to falling energy costs, but the flipside is many other companies will go bust because of the lower prices, first among them energy industry firms. And they are about to take some major hits as well. OPEC may have gifted us QE4, but it gave us another present at the same time: deflation in overdrive. You can’t force people to spend, not if you’re a government, not if you’re a central bank. And if you try regardless, chances are you wind up scaring people into even less spending. That’s the perfect picture of Japan right there. There’s no such thing as central bank omnipotence, and this is where that shows maybe more than anywhere else.

Alberta Producers With World’s Cheapest Oil Face Cascading Woes - Canada’s biggest energy producers now face the same prospects of shrinking budgets and declining profit as their smaller competitors with prices dropping for what’s already the world’s cheapest oil at $48.40. Energy companies including Suncor Energy Inc. and Canadian Natural Resources operate in one of the most expensive places on earth to produce oil. If crude prices continue sinking following OPEC’s decision yesterday not to cut its oil output target, Canada’s producers big and small will have to tighten their belts to prepare for declining profits. “This is a pretty big shock,” said Justin Bouchard, an analyst at Desjardins Securities Inc. in Calgary. “There’s no question there’s going to be a slowdown. Even the big guys will have to look at their capital spending plans.” Western Canada Select, the Canadian heavy-oil benchmark, has lost more than 40 percent of its value since June, roughly in line with declines for West Texas Intermediate and the international gauge Brent. WCS spot prices traded today at $48.40 a barrel, the lowest in the world. Profitability for all but the lowest-cost oil sands producers that use drilling and steam to coax bitumen from the ground will be squeezed, with WCS prices expected to trade around $54 a barrel next month,Patricia Mohr, an economist at Bank of Nova Scotia in Toronto, said today in a note.

The First Oil-Exporting Casualty Of The Crude Carnage: Venezuela -- What best shows that for Venezuela it is essentially game over, is that as the chart below shows, Venezuela’s international reserves declined $1.3 billion in the week after President Nicolas Maduro transfered $4 billion of Chinese loans to the central bank. In other words, the scrambling oil exporter was forced to burn one third of its Chinese bail-out loan to keep itself solvent. The country’s reserves dropped to $22.2 billion today, according to central bank data. As Bloomberg also notes, Maduro on Nov. 18 ordered the Chinese loan proceeds to be moved from an off-budget fund, so that they would show up in reserves and help boost investor confidence in an economy beset by the world’s highest inflation and widest budget deficit. The following day, Venezuelan bonds rose the most in six years in intraday trading. “If the plan was to calm the bondholders, then burning through a third of that money in five working days doesn’t do it in any way,” Henkel Garcia, director of Caracas-based consultancy Econometrica, said in a telephone interview.

Nigeria’s petrodollar exposure -- The consequences of Thursday’s non-Opec cut are understandably harshest for the oil cartel’s weakest members, such as Nigeria and Venezuela.  For Nigeria, lower prices are a particular problem, not only because it depends on petrodollar revenues for managing imports (amongst other things petroleum products themselves) but because of its dollar debt exposure to key trading intermediaries, whose business models depend on the ability to provide credit intermediation services to Nigerian businesses and banks.  So whilst the sovereign may indeed have little exposure to a petrodollar dearth, the same cannot be said for Nigeria’s private sector. Here’s a chart from Standard Chartered on Friday noting how much cross-border lending to Nigeria is going on, and how the dependence on foreign dollar loans seems to be growing as the oil price stagnates (the data doesn’t capture the recent sell-off):

The Price Of Oil Exposes The True State Of The Economy - We should be glad the price of oil has fallen the way it has (losing another 6% today as we write this). Not because it makes the gas in our cars a bit cheaper, that’s nothing compared to the other service the price slump provides. That is, it allows us to see how the economy is really doing, without the multilayered veil of propaganda, spin, fixed data and bailouts and handouts for the banking system. It shows us the huge extent to which consumer spending is falling, how much poorer people have become as stock markets set records. It also shows us how desperate producing nations have become, who have seen a third of their often principal source of revenue fall away in a few months’ time. Nigeria was first in line to devalue its currency, others will follow suit.  OPEC today decided not to cut production, but whatever decision they would have come to, nothing would have made one iota of difference. The fact that prices only started falling again after the decision was made public shows you how senseless financial markets have become, dumbed down by easy money for which no working neurons are required. OPEC has become a theater piece, and the real world out there is getting colder. Oil producing nations can’t afford to cut their output in some vague attempt, with very uncertain outcome, to raise prices. The only way to make up for their losses is to increase production when and where they can. And some can’t even do that. Saudi Arabia increased production in 1986 to bring down prices. All it has to do today to achieve the same thing is to not cut production. But the Saudi’s have lost a lot of clout, along with OPEC, it’s not 1986 anymore.  We are only now truly even just beginning to see how hard that crisis has already hit the Chinese export miracle, and its demand for resources, a major reason behind the oil crash. The US this year imported less oil from OPEC members than it has in 30 years, while Americans drive far less miles per capita and shale has its debt-financed temporary jump. Now, all oil producers, not just shale drillers, turn into Red Queens, trying ever harder just to make up for losses.

Claims about oil - “All told, roughly 2.6 million barrels a day of world crude oil production comes from projects with a breakeven price in excess of $80 a barrel,” the report said. World oil production was 93.2 million barrels a day in the third quarter. You will note, of course, that because of fixed costs and option value, a currently unprofitable project can remain up and running for a long time to come.  (As explained in the Cowen and Tabarrok Principles text.)  Here is a related point: At the same time, analysts have also noted that for many shale producers, a large chunk of production costs — acquiring acreage, contracting wells, etc. — have already been spent. As a result, the more important figure might be “half-cycle” production costs. which analysts at Citi last week pegged at between $37 to $45 a barrel. From William Watts, there is more here, including a discussion of which forms of fossil fuel energy are profitable at $80 a barrel.

Here Are The Breakeven Oil Prices For Every Drilling Project In The World -- Oil is getting slammed.   On Thursday, OPEC announced that it would not curb production to combat the decline in oil prices, which have been blamed in part on a global supply glut.   And now that oil prices have fallen more than 30% in just the last six or so months, everyone wants to know how low prices can go before oil projects start shutting down, particularly US shale projects.  In a note last week, Citi's Ed Morse highlighted this chart, showing that for most US shale plays, costs are below $80 a barrel.   Morse writes that if Brent price move towards $60 — they're currently around $72 — a "significant" amount of shale production would be challenged.  But Morse also highlighted this dizzying chart, listing the breakeven price for every international oil company project through 2020. (You can save it to your computer and zoom in for a closer look.)  Over the last few years, Morse writes that companies have been willing to consider projects if they can sell the project's oil for $90 a barrel.   And while the chart shows that almost every project that has been considered by companies to this point has required prices less than $90 to break-even, Morse writes that companies are canceling projects that require oil prices above $80 a barrel to break-even as the futures market has made hedging above that price a challenge.   And beyond the implications for the economic feasibility of projects right now, there are also implications for future global supply.   "We think the world has plenty of oil at $90 going forward," Morse writes, "but supply may be less adequate on a sustainable basis at prices much below $70...even though on a shorter-term basis, US shale production can continue to grow robustly even at lower prices." 

Breaking Even in a Low Oil Price Environment -  With the price of oil hitting levels not seen for more than four years, it's becoming an increasingly important issue for investors who are long on oil company shares, particularly given that some of the resource plays currently in vogue require prices that are far higher than conventional plays to provide a positive return on investment.  As you will see in this posting, this is particularly true for Canada's oil sands operators and companies operating in the American shale oil region.  In this posting, I will look at three different analyses that, in combination, give us some sense of the headwinds facing the oil industry.  Back in mid-2014, Reuters and Natixis published a brief article on the break-even price of producing an additional barrel of oil by geographic region, including both ethanol and biodiesel.  Here is a summary of their analysis:   The marginal cost of producing an additional barrel of oil from the Canadian oil sands is between $89 and $96 per barrel compared to $70 to $77 per barrel for U.S.-based shale oil. Here is another analysis by the Carbon Tracker Initiative showing the break-even price for the top twenty largest oil projects in the world that require oil prices of more than $95 per barrel:  Note that the six projects that require the highest break-even oil price are all Canadian oil sands projects, both mining and in-situ.  At this point in time, one has to wonder if these high-cost options will be shelved until the price of oil retraces its decline.  From the same report by Carbon Tracker, we find these interesting graphics which show the proportions of high cost potential production for seven major oil companies: In the worst case situation, Conoco Phillips has a portfolio containing potential projects that require an oil price of at least $75 per barrel and 36 percent require a price of at least $95 per barrel.  In the case of Shell which has the largest potential production portfolio, 45 percent of their potential projects require a market price of $75 per barrel and 30 percent require at least $95 per barrel.  Let's now look at a graph from a monthly commodity report from Scotiabank back in February 2014 which shows the full cycle break-even costs (including a 9 percent after tax return on investment) for selected production regions in North America:The graph shows us that the weighted average of all breakeven costs for all projects is between $67 and $68 per barrel.  Among the fifty projects examined, Saskatchewan's Bakken resource play has the lowest break-even costs at $44.30 per barrel.  On the other hand, you'll note that the costs for new oil sands mining and upgrading projects is $100 per barrel, well above the break-even costs for existing oil sands production which comes in at between $60 and $65 per barrel. 

US oil imports from Opec at 30-year low - US imports of crude oil from Opec nations are at their lowest level in almost 30 years, underlining the impact of the shale revolution on global trade flows. The lower dependence on imports from the cartel, which pumps a third of the world’s crude, comes amid advances in hydraulic fracturing that has propelled domestic US production to about 9m barrels a day – the highest level since the mid-1980s. In August, Opec’s share of US crude oil imports dropped to 40 per cent – accounting for 2.9m b/d – the lowest since May 1985, according to Financial Times analysis of US Department of Energy data. At its 1976 peak it stood at about 88 per cent. The decline in US appetite for foreign oil, alongside expanding eastern demand, has meant producers from the Middle East, west Africa and Latin America have turned towards Asia. But despite the shale boom reducing its oil-import dependency, the US remains the world’s second-largest net oil importer after China. The impact of the shale boom on Opec members has varied, with African countries such as Algeria and Libya being hit the hardest while Saudi Arabia and Venezuela have remained fairly strong. “It has been Africa that has been severely squeezed,” said Paul Horsnell, an analyst at Standard Chartered. Nigeria, which produces crude similar to the quality pumped out of North Dakota’s oilfields, has been the biggest victim of the US shale boom. Barrels stopped flowing altogether in July, having reached a 1979 peak of 1.37m b/d. August imports from Saudi Arabia – Opec’s largest producer – stood at just under 12 per cent of the total, at 894,000 b/d. Analysts say these heavier crude imports have since increased. At its peak, the Gulf nation made up a third of total US imports.

The countries punished by an Opec-fuelled oil price rout - Telegraph:  While a tumble in oil prices may provide a growth kick for the world as a whole, the crash is likely to put many governments on edge.  Brent crude, a major oil benchmark, has slid to around $71 a barrel, below levels several countries need to maintain a balanced budget.  Oil has slumped below budget breakeven levels for key Gulf nations, as well as Nigeria, Russia and Venezuela, according to Deutsche Bank calculations.  A marked increase in supply accompanied with falling global demand has seen the commodity’s price crumble in recent months.  Thursday's decision by the Organisation of Petroleum Exporting Countries (Opec) not to cut supply has seen oil slump further still.  The plunge took both Oman and Kuwait into territory in which Deutsche estimated their governments would not be able to balance the books.  Of Deutsche’s list - which also included Kuwait, Saudi Arabia and Bahrain - only Qatar and the UAE will be able to achieve a budget surplus at these levels. : "This immediate reaction is overdone, but there can be little remaining doubt that lower oil prices are here to stay."  The lower oil prices go, the more painful the situation is likely to be for these states. Some may have to find ways to adjust for a world in which oil revenues are permanently lower.

On the hypothetical eventuality of no more petrodollars | FT Alphaville: Imagine the US is near energy independent as far as crude imports are concerned. With that energy independence, the amount of dollars flowing out of the US and over to net energy producers (and traditional dollar reserve hoarders) such as Saudi Arabia, Russia and Mexico has come crashing down. So how would such a dollar-flow contraction affect the global economical and political balance? According to Citi’s credit team, it would likely affect things a lot. Especially so in the credit markets. Though, what’s really interesting … they believe the effects of a petrodollar shortage may already be showing up in credit markets. As they noted at the end of last week: As each day passes, it’s getting increasingly difficult to explain the underperformance of $ credit markets. The simple answer would seem to be that the steady leak wider in spreads is a result of heavy supply and low long-term yields. Yet there’s something lacking about that explanation. While this month’s calendar has been busy, it hasn’t been any busier than November 2012, a period when 30y yields were below 3%. To our minds then, the softness in credit appears just as likely to be the result of deterioration in demand as a case of too much supply. But who then has stopped buying? Remember, the $credit underperformance also comes in the context of a strong dollar, making it even more counter-logical. Which leads the analysts to introduce the oil price-decline theory of credit:  One somewhat novel theory is that sharply lower crude prices might have something to do with the change in the technicals. It seems plausible to us that lower crude prices have led to a slower rate of petrodollar accumulation by oil-exporting countries and less recycling of those funds back into global financial markets—amounting to a non-negligible retraction in liquidity.

"There Will Be Blood": Petrodollar Death Means A Liquidity And Oil-Exporting Crisis On Deck -- Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company - the end of the system that according to many has framed and facilitated the US Dollar's reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop.  The main thrust for this shift away from the USD, if primarily in the non-mainstream media, was that with Russia and China, as well as the rest of the BRIC nations, increasingly seeking to distance themselves from the US-led, "developed world" status quo spearheaded by the IMF, global trade would increasingly take place through bilateral arrangements which bypass the (Petro)dollar entirely. And sure enough, this has certainly been taking place, as first Russia and China, together with Iran, and ever more developing nations, have transacted among each other, bypassing the USD entirely, instead engaging in bilateral trade arrangements, leading to, among other thing, such discussions as, in today's FT, why China's Renminbi offshore market has gone from nothing to billions in a short space of time.

Oil-price decline: the bank-exit liquidity theory - We’re all about unexpected consequences of “liquidity illusion-syndrome” these days, so it was exciting to discover a liquidity-focused assertion from Citi’s Edward Morse and team on Monday about the recent oil price decline, one that ties together a few ideas about how commodity markets relate to bank intermediation. As a reminder, we have postulated that much of the decline is less related to sudden spot imbalances as it is to the curve’s “definancialisation”. The connection Citi has now made is between the commodity sell-off and regulatory burdens placed on banks’ commodity operations. It adds to a discussion developed in an April paper by David Bicchetti and Nicolas Maystre, which questioned whether the recent correlation reversal in commodities was indeed connected to the closure of banks’ commodity departments. Here’s Citi’s comment:  A second theory of commodity futures argues that futures prices are derived from expected future spot prices plus or minus a risk premium.  This view is partially predicated on a balance between hedgers, who are naturally long the commodity (like producers), and those who are naturally short (like refiners or airlines or trucking companies). It also involves liquidity provided by speculators or investors. This view of futures prices is more difficult to prove for statistical reasons, and has therefore been somewhat controversial in academic literature. As a result, we argue long-dated prices will often be more anchored to expectations about future spot prices than to strict arbitrage relationships with the current spot price. Variations in risk premia and financial flows, and currency effects are unavoidable. The recent exit of some banks from the back of the curve has impacted liquidity and thus may have magnified the impact of financial flows on prices over the last year.

The Worst Case If The Oil Slump Continues: "A Profit Recession" - With hopes high, at least among corner offices of the majors, that this week's OPEC meeting will somehow manage to slow down the biggest plunge in crude prices since Lehman, it will take much more than mere talk and hollow promises to offset the recent cartel-busting actions of Saudi Arabia. So in a worst case scenario where supply remains unchanged even as global energy demand continues to decline sharply due to the ongoing global slowdown what is the worst case scenario that could happen - aside from the mass energy HY defaults discussed previously - should the price of a barrel of oil continue to correlate the change in 2014 global GDP estimated? Here are some thoughts from Deutsche Bank.

OilPrice Mid-Week Intelligence Report: Halliburton and Saudi Arabia Playing Risky Games - As takeovers go, this one’s a doozy. While not in the upper stratosphere of corporate acquisitions at just $35 billion, Halliburton’s buying of Baker Hughes is nevertheless one of the bigger business stories of the year. Coming as it did as oil markets awaited news on OPEC cutting production and with the future of the Keystone XL pipeline still up in the air, it was a busy start to the week at OilPrice. On Monday morning, Halliburton announced it had made a successful bid for Baker Hughes, worth $35 billion in cash and stock. The merger of the second and third largest oil services companies in the world is aimed at taking on the behemoth that is Schlumberger NV. The joint revenue of Halliburton and Baker Hughes for 2013 was near $52 billion, outstripping Schlumberger NV’s $45.3 billion. If the deal goes through, this will be a shot in the arm for an oil services sector that has been in the doldrums due to oil prices dropping by a third worldwide since June. Halliburton CEO Dave Lesar gave an obvious breakdown of the deal to Reuters, saying it would allow the new entity “to be more resilient, and able to offer a wider suite of products globally.” But that is a pretty big if. Markets seemed to initially react warmly to the deal, with Halliburton’s shares rising by 2 percent after the Wall Street Journal initially broke the news. However, as details of the deal became clear, investors seemed to get spooked at what they perceived to be significant anti-trust problems. After talks between the two giants were disclosed on Friday, a note by FBR Capital Markets stated that the proposed merger would be dominant in North America, which could spur protracted (antitrust) scrutiny; and likely elicit howls of protest from customers everywhere, potentially requiring concessions to more than one national anti-trust authority.”

US "Secret" Deal With Saudis Backfires After Oil Minister Says US Should Cut First - Who could have seen this coming? With oil prices holding at 4-year lows, heavily pressuring around half of US shale production economics, the "secret" US deal (see here and here) with Saudi Arabia to crush Russia via oil over-supply in a slumping demand world appears to be backfiring rapidly for John Kerry and his strategery team. Capable of withstanding considerably lower prices for longer, Saudi Arabia's oil minister Ali al-Naimi proclaimed "no one should cut production and the market will stabilize itself," adding rather ominously (for the US economy and HY default rates), "Why should Saudi Arabia cut? The U.S. is a big producer too now. Should they cut?" With prices expected to drop to $60 on no cut, maybe the "unequivocally good" news for the US economy from lower oil prices should be rethunk.

90 Pipeline Spills You Probably Haven’t Heard About -- Watch as Tyson Slocum, director of Public Citizen‘s Energy Program, joins Thom Hartmann on The Big Picture to discuss the more than 90 pipeline spills that have occurred in Alberta, Canada, in October alone, releasing more than 625,000 liters of “toxic crap.”  Slocum and Hartmann talk about the Keystone XL and the many other pipelines in the works, including the Energy East pipeline, and the huge impact the extraction and burning of tar sands oil will have on the climate if these pipelines are built.

Seadrill Plunges on Dividend Suspension as Rig Market Sours - Seadrill Ltd. (SDRL) fell the most in six years after the offshore driller controlled by billionaire John Fredriksen suspended dividends as the slump in oil prices weakens demand for rigs. Seadrill, which hadn’t frozen or cut dividends in six years, dropped as much as 19 percent in Oslo trading, the most since November 2008. The stock was down 17 percent to 118.3 kroner at 3:58 p.m., the lowest since July 2010. “The decision to suspend the dividend has been a difficult decision for the board,” Fredriksen, chairman of Bermuda-based Seadrill, said in a statement. “However, taking into consideration the significant deterioration in the broader offshore drilling and financing markets over the past quarter, the board believes this is the right course of action.” The plunge in crude prices since June is blowing through the oil-services industry as clients peg back spending on finding and developing fields. Transocean Ltd. (RIG), one of Seadrill’s largest competitors, earlier this month wrote down the value of its fleet by $2.76 billion. Halliburton Co. (HAL), the second-biggest oil-service company, is buying the third-largest, Baker Hughes Inc. (BHI)

Oil industry risks trillions of 'stranded assets' on US-China climate deal - Brazil's Petrobras is the most indebted company in the world, a perfect barometer of the crisis enveloping the global oil and fossil nexus on multiple fronts at once. PwC has refused to sign off on the books of this state-controlled behemoth, now under sweeping police probes for alleged graft, and rapidly crashing from hero to zero in the Brazilian press. The state oil company says funding from the capital markets has dried up, at least until auditors send a "comfort letter". The stock price has dropped 87pc from the peak. Debt has jumped by $25bn in less than a year to $170bn, reaching 5.3 times earnings (EBITDA).  Part of the debt is a gamble on ultra-deepwater projects so far out into the Atlantic that helicopters supplying the rigs must be refuelled in flight. The wells drill seven thousand feet through layers of salt, blind to seismic imaging.  The Carbon Tracker Initiative says the break-even price for these fields is likely to be $120 a barrel. It is much the same story - for different reasons - in the Arctic 'High North', off-shore West Africa, and the Alberta tar sands. The major oil companies are committing $1.1 trillion to projects that require prices of at least $95 to make a profit.  The International Energy Agency (IEA) says fossil fuel companies have spent $7.6 trillion on exploration and production since 2005, yet output from conventional oil fields has nevertheless fallen. No big project has come on stream over the last three years with a break-even cost below $80 a barrel. "The oil majors could not even generate free cash flow when oil prices were averaging $100 ," said Mark Lewis from Kepler Cheuvreux. They have picked the low-hanging fruit. New fields are ever less hospitable. Upstream costs have tripled since 2000.

Russia puts losses from sanctions, cheaper oil at up to $140 billion per year (Reuters) - Lower oil prices and Western financial sanctions imposed over the Ukraine crisis will cost Russia around $130-140 billion a year - equivalent to around 7 percent of its economy - Finance Minister Anton Siluanov said on Monday. His comments are the latest acknowledgement by Russian policymakers that sanctions restricting borrowing abroad by major Russian companies are imposing heavy economic costs. But in Siluanov's view, the fall in oil prices is the bigger worry. "We're losing around $40 billion a year because of geopolitical sanctions, and about $90 billion to $100 billion from oil prices falling by 30 percent," he told a news conference. true "The main issue that affects the budget and economy and financial system, this is the price of oil and the fall in monetary flows from the sale of energy resources." Official forecasts suggest Russia's gross domestic product is likely to be around $1.9-2.0 trillion this year, at average exchange rates. Siluanov's estimate of the cost of lower oil prices is in line with analysts' rule of thumb that each $1 fall in the oil price lops around $3 billion off export earnings. The oil price has slumped from nearly $115 per barrel in June to around $80 now. Oil and gas account for around two-thirds of Russia's exports, making the balance of payments highly vulnerable to oil price falls.

Russian Official Says Oil Slump and Sanctions Cost $140 Billion a Year -- Russia’s Finance Minister said the combined cost of western sanctions and the recent fall in world oil prices to Russia’s economy this year would be a massive $140 billion. “We will lose around $40 billion a year because of sanctions, and around $90-100 billion a year, if we assume a 30% drop in the price of oil,” Anton Siluanov told a conference in Moscow Monday, according to news agency reports.Siluanov’s comments go against the grain of bravado from President Vladimir Putin and foreign minister Sergey Lavrov, both of whom have repeatedly tried to play down the impact of U.S. and E.U. sanctions in the wake of Russia’s annexation of Crimea and its sponsoring of an armed rebellion in the eastern provinces of Ukraine.They are, however, consistent with Siluanov’s own earlier warnings about the need for Russia to tighten its belt and make big cutbacks in the light of the new economic reality. Siluanov has already warned that the big increase in defense spending earmarked for the next three years is unaffordable.“If you’re talking about the consequences of geopolitics, they are, of course, substantial,” Siluanov said. “But it’s not as critical for the exchange rate and even for the budget as the oil price.”Siluanov’s comments come on the eve of a crucial meeting of oil ministers from the Organization of Petroleum Exporting Countries in Vienna, which will focus on the alarming slide in oil prices since the summer. In a weekend interview with ITAR-TASS, Putin insinuated that the U.S. and Saudi Arabia had conspired to drive up global supply well beyond actual levels of demand, in order to weaken the Russian economy. Somewhat confusingly, he later added that “maybe the Saudis want to ‘kill off’ their competitors” in the U.S. shale oil sector.”

Why Russia Is Over a Barrel on Oil Prices -  Russian Energy Minister Alexander Novak says Moscow is considering a possible cutback in oil production to help end the drop in prices, but there appears to be little it can do without harming its own energy sector.  “The issue [of production cuts] requires careful consideration,” Novak told reporters in Moscow. “But on the whole, this question is being discussed, but there are no final decisions on it.”  He said the issue was thorny because Russia doesn’t have the technology to manipulate its supplies quickly. Besides, he said, the country’s budget relies heavily on income from oil exports. Russia can’t balance its budget unless the average price of oil is about $100 a barrel. Even that price may be too low. Some analysts say oil should sell at up to $115 a barrel to allow Russia to balance its budget because spending has risen dramatically for social programs and the military. Further, US and European Union sanctions on Russia’s financial as well as oil sectors have left the government short of cash. Russia doesn’t have the technology, the infrastructure or even the climate to control the price of oil, according to Valery Nesterov, an analyst with Russia’s Sberbank CIB. He told Reuters that it can’t simply halt production at some fields because they’ll “just freeze if you stop them.” And Russia lacks the modern equipment needed to prevent that.

Russia’s crackdown on Crimea’s Muslims -They found the full-bearded, gray-haired, 54-year-old in a barn milking cows, but did not arrest him for the murder allegedly committed in the Ukrainian capital, Kiev, during anti-Russian protests early this year. Instead, they rudely ordered Muslyadinov to give up "banned literature, arms and drugs", and spent almost five hours in his living room to painstakingly list and confiscate more than a hundred books on Muslim theology, history and law, he said, "They even took away Islam for Children."  Unlike Crimea's ethnic Russian majority, most of the Tatars resisted Russia's annexation of the Black Sea peninsula in March. They fielded patrols to prevent Russian soldiers, APCs, pro-Russian paramilitary squads and Cossacks from entering their villages, and even used an Android app to turn their smartphones into walkie-talkies that provided instant communication with hundreds of people. Moscow responded by exiling community leaders, banning rallies, closing down Tatar media outlets and paralysing the work of the Mejlis, an informal Tatar parliament. At least 15 Tatars and pro-Ukrainian activists were kidnapped or went missing, one of them found dead with traces of torture, another allegedly hanged himself in a desolate barn.

Nuclear war: A forgotten threat to human sustainability - The possibility of a new Cold War between Russia and the United States and its NATO allies brings with it the spectre of nuclear war, an all-but-forgotten threat since the breakup of the Soviet Union in 1991. Even as the number of nuclear weapons has declined through mutually agreed reductions from a worldwide total of 68,000 in 1985 to an estimated 16,400 today, the destructive force of such weapons is so great that if the remaining ones were used, they might well spell the end of human civilization as we know it. One indication of the rising threat is what NATO calls an "unusual" increase in Russian military flights over Europe involving so-called Bear bombers, long-range Russian counterparts to American B-52 bombers. But, of course, U.S. and Russian nuclear forces have been operating all along since the end of the Cold War even as their arsenals were being slashed. The threat of nuclear war was always there even if tensions were falling between Russia and the United States. With Russian President Vladimir Putin making a premature exit from the G-20 summit as world leaders began to discuss Russian complicity in a rebellion in eastern Ukraine, it seems likely that tensions between Western powers and Russia will escalate from here. If they do, the threat of nuclear war will rise with them--now with several more permutations than before since the original five nuclear powers--the United States, Russia, China, France, and the United Kingdom--have now been joined by Israel, Pakistan, India, and North Korea. All of these latter entrants into the nuclear club face obvious regional tensions that could lead to a nuclear exchange, an exchange that might draw the original nuclear powers into the regional conflict.

Five Bedrock Washington Assumptions That Perpetuate Our Middle East Policy Train Wreck --As much as I consider myself to be reasonably jaded, I was nevertheless gobsmacked to read Andrew Bacevich’s list of “Washington assumptions” that underlie US policy-making in the Middle East. They aren’t just detached from reality, they are so wildly at odds with reality as to look deranged. I’d really like to believe that Bacevich is simply describing the all-too-common syndrome of coming to believe your own PR. But as he tells it, these “Washington assumptions” aren’t simply the undergirding talking points for key domestic and foreign constituencies; they really are policy drivers.  This thinking underlying these “Washington assumptions” is not just arrogant but has a rigidity that is almost religious in nature. The neocon vision, that the US has the right to remake the world, combined with how confidence in US virtue and exceptionalism seems to be rising even as our policy initiatives looks more and more mendacious and destructive even to our close allies (well, save the UK).  You can see another set of Washington assumptions at work in the TransPacific Partnership negotiations: that no prospective treaty member will ever question the benefits of free trade (as in they’ll never look at the fine print of what the deal is really about), that they will also want to ally themselves with the US as the better hegemon than China (if nothing else, the US is willing to act as the consumer of the last resort, a role China is not keen to assume, since that is tantamount to exporting jobs).  So this post also serves to demonstrate why Kissinger in his recent public pronouncements looks vastly more responsible than the crew in charge of our foreign affairs. As much as the deservedly-derided doctor was far too willing to team up with unsavory types to achieve what he considered to be American ends, his notion of “realpolitik” explicitly took morality out of the picture. Watching the US manage to devise even worse policies out of a warped, ideologically-driven notion of virtue is both perverse and chilling, like watching someone with a mental illness play out their delusions. And although mad leaders are sadly common in history, it’s another matter completely to see a technocratic class taking that role.

Iran nuclear talks may be extended as U.S. sees 'big gaps' (Reuters) - World powers and Iran struggled on Saturday to overcome crucial differences that are preventing them from ending a 12-year standoff over Tehran's atomic ambitions, raising the prospect of another extension to the high-stake talks. U.S. Secretary of State John Kerry said "big gaps" remained with two days to go before a self-imposed Nov. 24 deadline for an accord, despite signs of some headway. A European source said the likelihood of a final deal by Monday was "very small". Diplomats said a framework accord was still possible, but that weeks if not months would then be needed to agree on the all-important details of how it would be implemented. They made clear that continuing the negotiations - which have dragged on for more than a year - was preferable to letting them collapse and risking renewed tension. However, diplomats warned that an extension could push the talks into a never-ending cycle of rollovers with few prospects of a final deal. The negotiations in Vienna are intended to resolve a long-running dispute between Iran and the West and remove at least one source of potential conflict from the Middle East and its growing turmoil.

A Truce In The Holy Oil War? | naked capitalism: Could this be the first step in defeating the Islamic State? In an unexpected move Sunday, Saudi Arabia, the United Arab Emirates and Bahrain agreed to return their ambassadors to Qatar, signaling an end to an eight-month rift over Doha’s support for Islamist groups, according to a statement made by the Gulf Cooperation Council. If all sides respect the agreement this could well put to rest the holy oil war that has been going on behind the scenes as the oil-rich countries in the Gulf were opposed not only politically, but also on religious grounds with Qatar. When it was not buying up the latest European soccer team, or Swiss bank, it was meddling in the affairs of other Arab states. The news came after an emergency meeting held in the Saudi capital Riyadh to discuss the dispute that erupted following Qatar’s support of Islamist groups that were seen as supporting or engaging in terrorist activity. Qatar’s foreign policy was seen as interfering in the affairs of other countries, calling on the other rich Gulf States to rally their resources, including their oil and gas generated richness to combat the rising threat of extremist Islamists. In an unprecedented move, the three Gulf countries withdrew their ambassadors from fellow GCC member Qatar in March, accusing it of undermining their domestic security through its support of the Islamist movement, the Muslim Brotherhood. The GCC statement said that Sunday’s meeting had reached what it described as an “understanding,” meant to turn over a new leaf in relations between the six members of the Gulf organization, which also includes Kuwait and Oman.

China Deal Could Set New FDI Records, End Energy Crisis in Pakistan - Chinese state-owed banks will finance Chinese companies to invest in, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according Reuters. Major Chinese companies investing in Pakistan's energy sector will include China's Three Gorges Corp which built the world's biggest hydro power project, and China Power International Development Ltd. Under the agreement signed by Chinese and Pakistani leaders at a Beijing summit recently, $15.5 billion worth of coal, wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to the national grid.  An additional 6,120 megawatts will be added to the national grid at a cost of $18.2 billion by 2021.  Starting in 2015, the Chinese companies will invest an average of over $7 billion a year until 2021, a figure exceeding the previous record of $5 billion foreign direct investment in 2007 in Pakistan.

Hong Kong police arrest activists after Mong Kok scuffles - Authorities were acting on a court order to clear the camp in Mong Kok, the site of previous violent clashes. Protesters initially did not resist as workers removed barricades, but later a small group refused to leave. The activists have been on the streets since early October, demanding a free choice of leader in the 2017 election. China, however, says the pool of candidates that people in Hong Kong will vote on will be selected by a Beijing-backed committee. Protesters originally numbered in the tens of thousands when the Hong Kong unrest first began in October, but have since fallen to a few hundred, while attempts by both sides to reach a compromise have made little progress.

Hong Kong makes arrests as unrest over camp clearance continues - Hong Kong police arrested 11 more people in a second night of scuffles with demonstrators angry at having their 2-month-old pro-democracy protest camp in a volatile neighborhood shut down, officials said Thursday. Police also said they arrested seven of their own officers for assault in connection with the Oct. 15 beating of a handcuffed protester during a violent nighttime clash. None of the seven officers were identified. There was public anger when they were caught on camera apparently kicking and punching the protester in a dark corner of an underpass where hundreds of police were battling activists. Recommended: Could you pass a US citizenship test? Find out. In a statement, police denied accusations that their failure to immediately arrest them meant they were delaying the case. Police said they were continuing to investigate and collect evidence.

Fear Of "Surge In Debt Defaults, Business Failures And Job Losses" Means Many More Chinese Rate Cuts -- The PBOC, which cut rates for the first time in two years on Friday, will have its work cut out for it. And in the worst tradition of "developed world" banks, Beijing will now have no choice but to double down on the very same bad policies that got it into its current unstable equilibrium, and proceeds with a full-blown policy flip-flop, leading to a full easing cycle that reignites the bad-debt surge once more. And sure enough, today Reuters reports citing "unnamed sources involved in policy-making" (supposedly different sources than the unnamed sources Reuters uses to float trial balloons used by the ECB and the BOJ), that "China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions" due to concerns deflation "could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making." In other words, China has once again looked into the abyss once... and decided to dig a little more.

China’s Over-Reliance on Guaranteed Loans, in 3 Charts -  The belief that the Chinese government implicitly guarantees much, if not all, of the debt in China’s formal financial system, is widely taken a fact. After all, defaults are often repeatedly bailed out at the last minute by authorities. But what often gets overlooked is the mountain of explicit guarantees – in which companies back loans to other firms – that are proving to be considerably more fragile. About a quarter of loans in China’s banking system are backed by such guarantees. Analysts say these guarantees are threatening to spread financial contagion from struggling firms to more healthy parts of the economy. Traditionally, guarantees have been used by state firms to back loans to under-capitalized units, a practice which still likely makes up a large chunk of bank guarantees. But that’s been changing. Since 2007, the central government has instructed banks to lend more to small firms run by entrepreneurs, the most efficient part of the economy but one that banks have traditionally eschewed. Banks prefer to lend to large and state-owned firms that have sufficient collateral – typically land – to cover their loans. The banks’ solution has been to insist that in the absence of collateral, someone else guarantee the loan – absolving banks of the need to look too closely at borrowers’ ability to pay, while giving loans the veneer of being safe. In some cases, the guarantee will come from another small firm – maybe a neighboring factory, and a company run by a close friend. While banks could choose to extend loans without any explicit backing, that requires being able to assess whether a small company is a good credit risk — a skill-set many banks have been reluctant to develop. The cost of doing such due diligence is high relative to the value of a small loan, and analysts say that small businesses in China are often quite creative with their accounting, making it difficult for a bank to get a clear view of a firm’s health.

What goes up must come down – even China - What would China look like if it were growing at just 2 per cent a year? That sounds like a ridiculously pessimistic question given China’s performance in the past three decades. Certainly, it has manifold problems. Indeed, its economy is already slowing. But what misadventure could possibly bring its growth rate crashing down so spectacularly? That is the wrong question, according to an influential paper by US economists Lant Pritchett and Lawrence Summers. For them, “the single most robust and striking fact” about growth is “regression to the mean” of about 2 per cent. Only rarely in modern history, they say, have countries grown at “super-rapid” rates above 6 per cent for much more than a decade. China has managed to buck the trend since 1977 by harnessing market forces, engineering possibly the longest spell “in the history of mankind”. But what goes up, the authors tell us, must eventually come down. They have trawled through the data and drawn two powerful conclusions. One is that there is almost no statistical basis for predicting growth from one decade to another. Extrapolation is a mug’s game – or, as they put it, “current growth has very little predictive power”. From 1967 to 1980, Brazil grew at an average annual rate of 5.2 per cent. Few would have predicted, then, that for the next 22 years per capita income would grow at precisely zero. Their second finding is that episodes of super-rapid growth last a median of nine years. China is the big exception. The only countries with fast-growth episodes that come close are Taiwan and South Korea, which managed 32 and 29 years respectively. According to the authors, once such episodes end, the median drop in growth is 4.65 points. That would cut China’s growth to 4 per cent and India’s to 1.6 per cent, far lower than almost anyone is predicting. The thesis has huge potential ramifications, both economic and geopolitical. If China and India continue their current growth trajectories, their combined gross domestic product will rise to $66tn by 2033, against $11tn today. If they regressed fully to mean, they would reach a combined GDP of just $24tn. 

Exclusive: China ready to cut rates again on fears of deflation - sources  (Reuters) - China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making. Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy. Economic growth has slowed to 7.3 percent in the third quarter and policymakers feared it was on the verge of dipping below 7 percent - a rate not seen since the global financial crisis. Producer prices, charged at the factory gate, have been falling for almost three years, piling pressure on manufacturers, and consumer inflation is also weak. true "Top leaders have changed their views," said a senior economist at a government think-tank involved in internal policy discussions.

Wasted investment: China's $6.8-trillion hole? - HAS CHINA really blown $6.8 trillion on worthless investments over the past five years? This is the startling claim made by two Chinese government researchers that has, understandably, caused quite a stir. If true, it would mean that fully 37% of Chinese investment since 2009 was wasted on building bridges to nowhere and homes with no one in them. There is, without question, plenty of worrying evidence that Chinese investment has become less efficient in recent years. But a closer look at how the researchers produced the $6.8 trillion figure badly damages their claim. Calling it a back-of-the-envelope estimate would be undeserved praise. The $6.8 trillion calculation was made by Xu Ce of the National Development and Reform Commission, an economic planning agency, and Wang Yuan of the Academy of Macroeconomic Research, a think-tank under the commission. Their analysis was published last week as an opinion piece in the Shanghai Securities Journal, a government-run newspaper. In their article, they estimate that worthless investment totalled 7.9 trillion yuan in 2009; 5.4 trillion yuan in 2010; 4.7 trillion yuan in 2011; 10.6 trillion yuan in 2012; and 13.2 trillion yuan last year. That amounts to 41.8 trillion yuan over the past five years, or $6.8 trillion at the current exchange rate. These are remarkably precise figures for wasted investment, something that, by its nature, is extremely hard to pin down. There are practical difficulties – for example, we know that some government investment funds have been skimmed off by corrupt officials, but it takes careful forensics to track the ill-gotten gains of one rotten official, let alone thousands of them. Even greater are the theoretical challenges. China has clearly built too many homes, too quickly, but if some of those that stand empty today are eventually bought then what once seemed a wasted investment could yet turn into a productive one.

Diminishing Returns Aren't Waste (Wonkish) - Paul Krugman - There’s a new paper out of China, claiming that more than a third of investment spending since 2008 was wasted. It’s a claim that resonates, given what we know about corruption, ghost cities, and all that. But as SR of The Economist points out, the paper itself doesn’t actually do what it claims. It doesn’t at all show that there has been a lot of waste — in fact, the data it cites are perfectly consistent with no waste at all. Why do we care? Well, for one thing economics should be done right regardless. But the waste claims will also, of course, be used as a club to beat Keynesian fiscal policy. So you should know that anyone citing this estimate is actually revealing that he either doesn’t understand growth economics or doesn’t care. What the paper does is look at the ratio of capital added to economic growth — the so-called incremental capital output ratio. It finds that the ICOR has been lower in recent years than it was in the past, and attributes all of the shortfall to waste. But what if there were no waste at all? What if China were simply engaged in capital deepening? What would we expect to see in that case? The answer is, exactly what we do see. The ICOR data say nothing at all about waste.

China’s New Global Leadership by Jeffrey D. Sachs - The biggest economic news of the year came almost without notice: China has overtaken the United States as the world’s largest economy, according to the scorekeepers at the International Monetary Fund. And, while China’s geopolitical status is rising rapidly, alongside its economic might, the US continues to squander its global leadership, owing to the unchecked greed of its political and economic elites and the self-made trap of perpetual war in the Middle East. According to the IMF, China’s GDP will be $17.6 trillion in 2014, outstripping US output of $17.4 trillion. Of course, because China’s population is more than four times larger, its per capita GDP, at $12,900, is still less than a quarter of the $54,700 recorded in the US, which highlights America’s much higher living standards. China’s rise is momentous, but it also signifies a return. After all, China has been the world’s most populous country since it became a unified state more than 2,000 years ago, so it makes sense that it would also be the world’s largest economy. And, indeed, the evidence suggests that China was larger (in terms of purchasing power parity) than any other economy in the world until around 1889, when the US eclipsed it. Now, 125 years later, the rankings have reversed again, following decades of rapid economic development in China. With rising economic power has come growing geopolitical clout. Chinese leaders are feted around the world. Many European countries are looking to China as the key to stronger domestic growth. African leaders view China as their countries’ new indispensable growth partner, particularly in infrastructure and business development.

Xi Risks Silk Road Backlash to Remake China Center of World - President Xi Jinping’s grand plan to make China the center of the world again by reviving the ancient Silk Road trading route faces obstacles at its first stop. In Kazakhstan, through which Xi envisages pipelines, roads and railways revitalizing an economic belt that stretches half way around the world to Venice, China has struggled to gain a significant foothold. It’s failed in efforts to realize a free trade agreement mooted 22 years ago and, in 2009, the Kazakh president was forced to deny a plan to lease farmland to China after angry protests from a public wary of their neighbor’s growing power. What’s more, Xi’s vision for a bloc that involves at least 60 countries has left government advisers from Almaty to Delhi largely in the dark about the details. While Kazakhstan’s leaders have voiced support, enticed by billions of dollars in infrastructure funding, analysts in the country say the strategy involves greater Chinese influence that may be a harder sell to its people. “Xi’s proposed idea is to form the foundation of a new geopolitical concept of China,” said Konstantin Syroezhkin, an adviser to the Kazakh president. “All discussions before were mainly around the economic component of China’s relations with this region, but Xi has put forth a vision that is much broader.”

Currency Wars Reignite As Yuan Tumbles Most In 2 Months And Chinese Bond Market Freezes --Did China just re-enter the currency wars? The Chinese Yuan dropped 0.29% overnight - its biggest drop since September and 2nd biggest devaluation since March - as the currency tumbles back in line with the PBOC's fixing for the first time in over 3 months. Despite 'hopes', S&P confirms the recent (and reconfirmed) rate cut doesn’t signal renewed government intentions to resort to aggressive stimulus to prop up economy. More troubling is the fact that China's huge corporate debt market appears to be freezing as over $1.2 billion in bond sales were scrapped or delayed last week suggesting wall of maturing debt will find it increasingly difficult to roll-over and keep the dream alive (especially in light of Haixin's bankruptcy last week).

China cuts key short-term money rate as Beijing pushes down cash costs: China’s central bank cut the yield for a key short-term money rate on Tuesday for the fourth time this year, as regulators step up efforts to reduce funding pressure on Chinese companies. The reduction of the yield on the 14-day bond repurchase agreement (repo) to 3.4 percent, from 3.6 percent, follows a surprise cut to benchmark lending rates on Friday to support the cooling economy, and follows similar moves in October and July as growth wobbled. Expectations for further easing have stimulated stock markets in China and abroad, while depressing domestic bond yields and putting downward pressure on the yuan. “This signals the central bank will make further efforts to lower borrowing costs for investors and support liquidity,” said a trader at a city bank in Shanghai. The People’s Bank of China cut one-year benchmark lending rates by 40 basis points to 5.6 percent late on Friday, and at the same time increased the maximum payable deposit rate to 3.3 percent from 3.2 percent. On Tuesday, it drained 5 billion yuan ($814.17 million) from money markets through 14-day repos. The size of the issue was negligible, but traders read the decision to cut the official yield as a further reminder to Chinese financial institutions to lower the cost of money.

China Rate Cut No Help to Australian Miners - China’s surprise interest rate cut, coupled with a free-trade deal between Canberra and Beijing, gave only a short-lived lift to Australia’s mining sector. . China’s rate cut on Friday won’t change massive oversupply in China’s property market and a lack of demand. That’s hurt the outlook for Australian miners of iron ore, a product used in the production of steel. Iron ore prices have fallen almost 50% this year and continued to decline to fresh five-year lows last week after dour October housing price data out of China. Not only is China demand weak, there’s also a glut of supply from new Australian mines and elsewhere.ING economist Tim Condon points out that earlier measures to lift the property sector, such as reducing minimum down payments and fiscal spending on infrastructure, have failed to prop the sector. Commodities comprise more than 80% of Australia’s goods exports to China, its largest trading partner. But the free-trade deal, signed a little more than a week ago, also won’t help Australian miners much, many observers say.China did agree to immediately cut tariffs on coking coal, used in steel making, to zero from 3%. The impact will be limited, as the duty already was pretty low, said Capital Economics’ Daniel Martin. Chinese coking coal imports already have been declining because of problems with its housing market and that won’t change because of the trade deal.

Debts of S. Korean households hit record high after stimulus measures - People's Daily -- Debts owed by South Korean households hit a new record high after policy rate cuts and the easing of regulations on mortgage financing, central bank data showed on Tuesday.Household credit, including mortgage loans and purchase on credit, reached a record high of 1,060.3 trillion won (950 billion U.S. dollars) as of end-September, according to the Bank of Korea.The figure was up 22 trillion won from three months earlier, tantamount to an average monthly increase of more than 7 trillion won in the past three months. From a year earlier, the figure was up 66.7 trillion won, equaling an average monthly rise of 5.5 trillion won.The faster expansion over the past three months came as the central bank cut the benchmark interest rate in August by a quarter percentage point to 2.25 percent before lowering it again to a record low of 2 percent in October.The financial regulator eased regulations on mortgage financing by lifting the loan-to-value and debt-to-income (DTI) ratios, contributing to the record household debts.Household loans, which make up almost all of the household credit, jumped 22.1 trillion won from three months earlier to 1, 002.9 trillion won as of end-September, but purchase on credit fell 0.1 trillion won to 57.4 trillion won in the same period.The third-quarter increase in household debts was led by mortgage loans. Household loans by banks gained 12.3 trillion won to 501.9 trillion won, with the rise in mortgage loans amounting to 11.9 trillion won.

Kuroda Turns Up Heat on Japan Inc.: Turn Profits Into Wages - The brash Bank of Japan Gov. Haruhiko Kuroda has regularly shown a willingness to break taboos and cross lines. His remarkable speech Tuesday to business leaders was the latest example–he came close to trying to order executives to stop sitting on their rapidly accumulating profits, and to raise worker pay. “The Bank of Japan has been taking action and will continue to do so,” he told a group of business executives in Nagoya. “I would like to conclude my speech by expressing my expectations for your action” — especially in upcoming negotiations with labor unions. “I have great interest in developments in wage and price setting through spring of next year,” he said.  Mr. Kuroda’s intense focus on the wage negotiations was one reason behind his push to ramp up the central bank’s stimulus campaign on Oct. 31, according to minutes of that day’s policy board session released Tuesday. His hope is that more money-printing will stoke expectations for more inflation, leading workers to demand more pay and companies to grant it. But now he’s going beyond hoping his actions will have the intended effect. The Kuroda speech Tuesday underscores what appears to be a growing consensus among policymakers: that while Abenomics is working better than its critics say, the concentration of the gains so far among big companies and shareholders risks undermining political support, and the broader public confidence needed for sustainable success.

Oil prices:Sinking crude could boost Japanese economy- Plunging crude prices could light a fire under the sluggish Japanese economy by boosting the transportation sector and encouraging consumption. Dubai crude, the benchmark for Asian markets, plummeted 6% on Friday to around $67 per barrel. It hit the lowest level in roughly five years after OPEC failed to cut production on Thursday, and is now about 40% below the recent high from June. Crude oil futures also sank to a two-year low on the Tokyo Commodity Exchange, where contracts are traded in yen. Crude oil and other mineral-based fuels account for a third of Japan's total imports, and came to 28 trillion yen ($234 billion) in fiscal 2013. "The recent low price of crude will lift corporate pretax profits by 2 trillion yen to 3 trillion yen, and boost growth in fiscal 2015 by half a percentage point," estimates Hajime Takata at the Mizuho Research Institute. The Nikkei Stock Average gained 211 points on Friday on hopes of an upturn in corporate performance. Many of the beneficiaries were in the air transport industry, such as ANA Holdings, which jumped 7%, and Japan Airlines, which rose 5%, since they benefit from lower fuel costs.

Abe Sales Tax Backfiring With More Debt Not Less: - What started as a plan to reduce Japan’s debt is turning into a reason to issue more bonds. Prime Minister Shinzo Abe’s administration implemented a higher sales tax in April to boost revenue as government liabilities ballooned to 1 quadrillion yen ($8.5 trillion), more than double the nation’s yearly economic output. Consumption plunged and the economy fell into a recession, prompting companies including Mirae Asset Global Investments Co. and High Frequency Economics to predict even more sovereign debt sales to revive growth. “The government’s policies have failed,” Will Tseng, a money manager in Taipei at Mirae Asset, which manages about $62 billion, said in an e-mail Nov. 20. “They’re still issuing more debt and printing more money to try to help the economy. They’re in a really bad cycle.” He said he’s staying away from Japanese bonds. The cost of protecting Japan’s debt from default surged for eight straight days and the yen tumbled to a seven-year low as Abe called a snap election and delayed plans to further increase the sales tax by 18 months. Bank of Japan Governor Haruhiko Kuroda on Oct. 31 boosted the amount of government bonds he plans to buy to as much as 12 trillion yen a month, a record. Japan will go back to its routine of borrowing more to fund plans to spur growth, said Carl Weinberg, the chief economist at High Frequency Economics in Valhalla, New York. What it needs to do is allow immigration to keep the population from shrinking, he said Nov. 18 on the “Bloomberg Surveillance” radio program.

BOJ’s Kuroda, unfazed by yen falls, signals readiness to ease more  (Reuters) – Bank of Japan Governor Haruhiko Kuroda on Tuesday stressed the bank’s readiness to expand stimulus further to meet its price goal, standing firm in the face of criticism that last month’s monetary easing has accelerated unwelcome falls in the currency. But not all in the BOJ’s nine-member board share Kuroda’s optimism that further stimulus outweigh the costs, minutes of last month’s meeting showed, suggesting that the central bank chief may struggle to push through more easing. Some BOJ policymakers opposed last month’s easing, warning that doing so would hurt the BOJ’s credibility if its bond-buying is seen as tantamount to debt monetisation, according to minutes of the BOJ’s Oct. 31 meeting released on Tuesday Kuroda defended the Oct. 31 easing as a necessary step to ensure the Japanese public shakes off its “deflationary mindset,” and encourage companies to start investing and hiring more on expectations that prices will rise ahead. “To achieve the price stability target, the BOJ has been taking ‘action’ and will continue to do so,” he told business leaders in Nagoya, a central Japan city home to auto giant Toyota Motor Corp. While business executives present at the meeting generally welcomed the BOJ’s stimulus, some warned that recent yen declines were too rapid and were hurting smaller companies.

Japan cenbank assets hit record high of $2.35 trillion Yen (Reuters) - Total assets held by the Bank of Japan hit a record 277 trillion yen (1 trillion pound) by the end of September, the central bank said on Wednesday, up more than 30 percent from a year earlier, fuelled by outright purchases of Japanese government bonds under its quantitative easing programme.The BOJ also said it posted a net profit of 587.8 billion yen in the April-September period, up 47 percent over the corresponding period last year, buoyed by interest income from its JGB holdings.Of the BOJ's total assets, its JGB holdings hit 229 trillion yen at the end of September, up 36 percent from a year earlier, the BOJ said. That accounts for about 20 percent of outstanding government bonds, worth more than 1,000 trillion yen.The BOJ's capital adequacy ratio stood at 7.76 percent at end-September, the BOJ said, up from 7.74 percent at end-March, but still below the level of 8 percent it sets as the benchmark of its financial health.

As Japanese Bankruptcies Soar, Goldman Warns "Further Yen Depreciation Could Be A Net Burden" - It is no secret that one of the primary drivers of relentless S&P 500 levitation over the past two years, ever since the start of Japan's mammoth QE, has been the use of the Yen as the carry currency of choice (once again as during the credit bubble of the early-2000s), whose shorting has directly resulted in E-mini levitation. One look at the intraday chart of any JPY pair and the S&P500 is largely sufficient to confirm this. Those days, however, may be coming to an end, at least according to Goldman which overnight released a note saying that the Yen is "Almost at breakeven: Further yen depreciation could be a net burden."

Japan Household Spending Down 4%, CPI Drops to 0.9%; Bankruptcies Soar in Yen Collapse --In spite of the Yen falling 35% since 2011, Japan once again borders on deflation. Please consider Japan’s CPI falls to 0.9%.   Japanese core inflation last month fell below 1 per cent to a 13 month low, just weeks before prime minister Shinzo Abe heads to the polls to garner fresh support to push back a scheduled rise in sales tax. Core consumer prices, all prices excluding fresh food, slowed to an annual pace of 2.9 per cent growth year-on-year in October, in line with forecasts. Stripped of any impact of the sales tax rise in April, core prices are up 0.9 per cent. Household spending fell 4 per cent year-on-year, the seventh consecutive decline since the national sales tax was raised from 5 to 8 per cent in April. Retail sales dropped 1.4 per cent, reversing two months of gains.Here's an interesting note regarding bankruptcies that I picked up from ZeroHedge: As Japanese Bankruptcies Soar, Goldman Warns "Further Yen Depreciation Could Be A Net Burden" According to a recent bankruptcy survey by Tokyo Shoko Research, there were 214 bankruptcies due to the weak yen in January-September 2014, which is 2.4 times the 89 seen in January-September 2013. Far more of the bankruptcies were in the nonmanufacturing sector—81 in transport, 41 in wholesale trade, 19 in services, and 11 in retail—than in the manufacturing sector (44), which is consistent with our analysis based on the input/output tables.

OECD downgrades growth forecast for Japan amid recession - The Japan Times: The OECD has downgraded its projections for Japan’s economic growth in 2014 and 2015, acknowledging that the country has slipped back into recession in the wake of the April 1 consumption tax hike. The international economic organization said in a report released Tuesday that the world’s third-largest economy is expected to expand 0.4 percent this year and 0.8 percent next year. It also cut its September forecasts of 0.9 percent and 1.1 percent in terms of inflation-adjusted gross domestic product growth. The report came after government data showed earlier this month that the economy shrank by an annualized real 1.6 percent in the three months through September, contracting for the second straight quarter, after plunging 7.3 percent in the April-June period.

Japanese Sovereign Debt Yield Turns Negative - The yield on some Japanese sovereign debt turned negative Friday for the first time ever, the latest indication of the impact on the bond market of the Bank of Japan's aggressive easing measures. Following a pattern already seen in shorter-term debt, the yield on two-year Japanese government bonds hit minus 0.005%, suggesting a possible fall into negative territory for JGBs with longer maturities down the line. While negative rates on sovereign debt have been seen recently in Germany, the minus yields on bonds of up to three years there are less surprising since the European Central Bank has a negative interest rate policy in place on bank reserves, a factor that makes negative yields more likely. Japan’s negative rates stem largely from the BOJ’s massive bond-buying program aimed at lifting the nation out of deflation. After the bank’s move to expand its easing measures last month, the BOJ is now buying roughly the equivalent of all new debt issued by the government. After the latest BOJ move, traders had expected the negative rate to come sooner rather than later, and were largely unfazed by Friday’s development. Some traders said the normal functioning of the bond market didn’t appear to be among the central bank’s main objectives.

Kuroda’s Former Boss Urges Ditching of BOJ 2% Inflation Target - A former supervisor of Bank of Japan chief Haruhiko Kuroda is urging him to drop his 2% price target, saying it is inappropriately high for the nation’s economy in an “age of zero growth” in rich countries. “I know Mr. Kuroda very well, and consider him a brilliant governor,” said Eisuke Sakakibara, formerly Japan’s top financial diplomat, in an interview Thursday with The Wall Street Journal. “His monetary easing of a ‘different dimension’ has been a success. The yen has weakened, and the stock market has risen sharply. The only thing I can’t accept is the 2% target.” Mr. Sakakibara, now a professor of Aoyama Gakuin University, dictated Japan’s currency policy in 1997-1999 as vice finance minister for international affairs. Mr. Kuroda then headed the international bureau of the finance ministry. Together they navigated one of the most volatile periods of the yen exchange rate in history. Mr. Sakakibara’s ability to influence exchange rates through aggressive market intervention and straight talking earned him the nickname “Mr. Yen.” But the views of the two former colleagues over Japan’s price-setting mechanism and inflation outlook couldn’t be more different. Mr. Kuroda’s prediction that the inflation rate will hit 2% in the year through March 2016 is “not possible,” Mr. Sakakibara said, adding that Japanese deflation is a “structural phenomenon.” For instance, after years of diversifying their factory bases, Japanese manufacturers now produce many of their goods in Asian countries, taking advantage of low labor costs in the region, Mr. Sakakibara said. And they export those products back to Japan to sell at low prices. Mr. Sakakibara also rejected Mr. Kuroda’s view that if the BOJ succeeds in raising prices, wages will also grow, helping 2% inflation take hold.

I see currency wars -- The first rule of currency wars is: you always talk about currency wars. The second rule is: you can always find one to talk about if you look hard enough. This month’s FX war location of choice is Asia, and here with its proximate cause is BNP Paribas: Nobel Prize-winning economist James Tobin once joked that when it feels like everybody needs to devalue, it’s time for global monetary expansion. Tobin’s quip is germane to concerns over the intensification of ‘currency wars’ in recent weeks. US macroeconomic outperformance is driving up the US dollar and helping push down global commodity prices. With global commodities typically elastic with respect to the US dollar, the appreciating greenback is working to intensify disinflationary, even deflationary, pressure outside the US, where macrofundamentals are less propitious.The other major central banks are fighting back (most obviously, the Bank of Japan, but also prospectively the ECB) by stepping up their money printing, giving USD strength and commodity weakness a further twist, at least in the short term. Non-Japan Asia – and especially China, due to its dirty peg to the USD – is caught in the crossfire…For the record, Capital Economics have the Japanese yen at 140 against the dollar by the end of next year — making them a conservative version of Albert Edwards. Currently JPY is sitting at 118.

India central bank under pressure to cut rates as growth slips -- India's economic growth probably slowed to around 5 percent in the three months to September, slipping from 5.7 percent in the previous quarter, two senior finance ministry sources said, putting pressure on the central bank to cut interest rates.The sources said Finance Minister Arun Jaitley would press Reserve Bank of India (RBI) Governor Raghuram Rajan to lower borrowing costs when the two meet ahead of a decision on interest rates next Tuesday.Six months after Prime Minister Narendra Modi swept to power with a promise that "better days are coming", growth of 5 percent would mark a serious setback from the previous quarter and fall far short of the 8 percent that Asia's third-largest economy needs to create enough jobs for its growing workforce.Official GDP figures are due for release on Friday.Indian finance ministers often "jawbone" the RBI on interest rates, but Jaitley's calls have become unusually insistent of late. Aides say he will make the case for cuts forcefully."When Rajan meets the finance minister ahead of the policy review, he would be urged to cut the interest rates," one senior finance ministry official with direct knowledge of the matter told Reuters. "A rate cut is the only hope for industry facing poor domestic and external demand."

US Government Explains 20X Difference Between US-India BPT Trade Figures  A GAO study showed that U.S. data on offshoring of services to India are more than 20 times smaller than India’s data. What’s the story? The GAO study showed that U.S. imports from India of business, professional, and technical (BPT) services as published by BEA are substantially lower than India’s data on exports of BPT services to the U.S. (chart 1, left panel).1 However, when adjusted to a similar conceptual basis using information from the GAO report, the difference is actually quite small (chart 1, center panel). The large gap between the U.S. and Indian data mainly reflects differences in how BEA and India define BPT services. BEA data are consistent with international standards for balance of payments accounting; India’s data, which are based on data from an Indian trade association, do not conform to international standards.  In fact, a 2005 study published by the Reserve Bank of India (RBI) showed that computer services exports (a large component of BPT services) to the U.S. based on international standards are much lower than India’s published data (chart 1, right panel).2 In addition, a 2004 report by the OECD found that 97 percent of India’s exports of computer services to large OECD member countries were unaccounted for in those countries’ data on imports.  Depending upon how one adjusts for important definitional differences, the gap between the U.S. and Indian estimates either entirely disappears or is substantially reduced.

Pakistan Health TV Channel Offers Call-in Sex Advice  - Taboo subjects ranging from sex drive to abortion to breast cancer are being addressed on air by call-in show hosts on Health TV channel in conservative Muslim Pakistan, according to an AFP report.Founded three years ago, Health TV is something of an odd fit in Pakistan, a conservative Islamic state of 180 million people which saw an explosion of private broadcasters in the early 2000s following the liberalization agenda of former President Pervez Musharraf, says the AFP report.
“My husband doesn’t want to make love anymore, what should I do doctor?” asks a housewife.
"Under what circumstances is abortion permissible in Islam"? asks another caller.

Mexico's missing students draw attention to 20,000 'vanished' others | World news | The Guardian: They found the first grave in a thicket of spiny huisache trees clinging to the hillside outside the town of Iguala.  Mayra Vergara turned her back and broke into silent tears. She had hoped that today she might find some clue to the fate of her brother Tomás, a taxi driver who was kidnapped in July 2012, never to be seen again. But whoever lay in the shallow grave, she said, they deserved more than this. “Even if it isn’t my brother in there, it is still a person. A person who deserved a proper burial,” she said, her face contorted in anger and grief. “And the question is when? When are they going to do something for us?”  The disappearance and probable massacre of 43 student teachers after they were attacked and arrested by Iguala’s municipal police two months ago has focused world attention on the horror of Mexico’s drug violence – and the official corruption that allows much of it to happen. A wave of protests triggered by the massacre put President Enrique Peña Nieto under acute political pressure. But the incident has also lifted the lid on the open secret of Mexico’s many other disappeared: amid the drug-fuelled violence of recent years, some 20,000 people have simply vanished.

Mass Abductions in Mexico Reveal a Decaying State -  The close-up images show a handful of black teeth sifted out of leftover ash, and bits of charred bone picked from a landfill not far from Iguala. There are also shots of plastic bag scraps that washed up on the banks of Río San Juan. The murderers allegedly threw them into the river to dispose of the remains of the incinerated corpses.Cristóforo García is familiar with the pictures, of course. They were broadcast all over the country on the day that Mexico's attorney general appeared before the media following weeks of uncertainty. The monstrous riddle that has gripped Mexico this fall, he said, had apparently been solved. The case got its start on the evening of Sept. 26 when police in Iguala, a city 180 kilometers (112 miles) southwest of Mexico City in the state of Guerrero, opened fire on three buses full of students who were on their way to a demonstration. Six people were killed and 43 others have been missing ever since. Evidence seems to indicate that the police turned them over to the contract killers of a drug cartel. The message conveyed by the images is clear: There is no hope of finding the students alive. But García has a hard time believing it. "A couple of shreds of plastic," he says. "Pieces of bone and charred teeth that even the attorney general doesn't believe will be enough to identify a person. That is supposed to be it?"

The Problem With International Development—and a Plan to Fix It - It seemed like such a good idea at the time: A merry-go-round hooked up to a water pump. Every time the kids spun around on the big colorful wheel, water filled an elevated tank a few yards away, providing fresh, clean water anyone in the village could use all day. PlayPump International, the NGO that came up with the idea and developed the technology, seemed to have thought of everything. The whole package cost just $7,000 to install in each village and could provide water for up to 2,500 people. The donations gushed in. In 2006, the U.S. government and two major foundations pledged $16.4 million in a public ceremony emceed by Bill Clinton and Laura Bush. PlayPump set the goal of installing 4,000 pumps in Africa by 2010. “That would mean clean drinking water for some ten million people,”   By 2007, less than two years after the grants came in, it was already clear these aspirations weren’t going to be met. A UNICEF report found pumps abandoned, broken, unmaintained. Of the more than 1,500 pumps that had been installed with the initial burst of grant money in Zambia, one-quarter already needed repair. The Guardian said the pumps were “reliant on child labour.” In 2010, “Frontline” returned to the schools where they had filmed children laughing on the merry-go-rounds, splashing each other with water. They discovered pumps rusting, billboards unsold, women stooping to turn the wheel in pairs. In one community, adults were paying children to operate the pump.  Let’s not pretend to be surprised by any of this. The PlayPump story is a sort of Mad Libs version of a narrative we’re all familiar with by now: Exciting new development idea, huge impact in one location, influx of donor dollars, quick expansion, failure.

Economic Development and the Effectiveness of Foreign Aid: A Historical Perspective -  Yves here. Ebola is serving as a reminder that the fate of members of advanced economies isn't necessarily divorced from those of citizens of poor, developing nations. And it isn't as if those countries are completely neglected. They are simultaneously the recipients of foreign aid, while at the same time being de facto capital exporters. So while this study below is informative, it ignores the elephant in the room, which is the degree to which looting simply overwhelms the amount of funding provided by foreign aid. As Nicholas Shaxson wrote in Treasure Islands: Global Financial Integrity (GFI) in Washington authored a study on illicit financial flows out of Africa (March 2010). Between 1970 and 2008, it concluded: Total illicit financial outflows from Africa, conservatively estimated, were approximately $854 billion. total illicit outflows may be as high as $1.8 trillion... The GFI estimate - equivalent to just over 9 per cent of its $51 billion in oil and diamond exports during that time - simply has to be a gross underestimate of the looting. Many billions have disappeared offshore through opaque oil-backed loans channeled outside normal state budgets, many of them routed through two special trusts operating out of London.

Global Business Optimism Turns Down in October - Businesses in the U.S. and around the world are taking a dimmer view of the future, according to a global survey released Monday. That is leading to cutbacks in employment and spending plans. Optimism among 6,100 companies surveyed by Markit fell sharply in October, according to the data provider’s Global Business Outlook Survey that is conducted three times a year. “The number of companies that expect activity to be higher in a year’s time exceeded the number expecting a decline by some 28%, but this ‘net balance’ had stood at +39% in the summer,” the report said. Hiring and investment plans around the world were also weaker in October. Weak consumer demand means companies have little reason to expand staffs or facilities. Markit pointed to a long list of reasons for reduced business confidence. “Key threats include fears of a worsening global economic climate, and notably a renewed downturn in the euro zone, the prospect of higher interest rates in countries such as the U.K. and U.S. next year, geopolitical risk emanating from crises in Ukraine and the Middle East, plus growing political uncertainty in many countries,” the report said. Of the major economies surveyed, U.K. companies remained the most upbeat about the year ahead although even U.K. optimism fell from earlier readings.

Wolf Richter: Global Business Outlook “Darkest Picture Since Financial Crisis”  - Yves here. Wolf like to paint in bright colors, but the points he makes are consistent with business and financial press reporting, if you cut through the hype. Europe is still teetering on the verge of recession. Growth in Japan has gone negative. China is slowing down, to a degree that led the authorities to give it a monetary shot in the arm. And the US simply is not getting to liftoff. Even with official unemployment falling, consumers are cautious about purchases, with most planning to spend less on Christmas than last year. Corporate capital expenditures in the US are increasing, but so far, this is in the "a robin does not mean it's spring" category. So with the US as the one possible engine for world expansion, and that one not firing robustly, it's not hard to see the reason for global business leaders getting more nervous. And to add a wild card into the mix: contrary to current conventional wisdom, bond maven Jeff Gundlach thinks the Fed will raise rates next year. That seems plausible, given that ZIRP gives the Fed no policy room if anything bad happens to the financial system and that the central bank is also coming under more political heat for its continuing extreme monetary policies. Crisis junkies may recall that the Fed went from 25 basis point interest rate cuts to 75 basis points ("75 is the new 25"), when it wasn't clear that reductions that large were necessary (ie, signaling that the Fed was on the case and taking matters seriously was probably sufficient). The magnitude of the cuts brought the central bank deeper into super-lowe interest rate terrain. I recall thinking when the Fed cut the Fed funds rate below 2% that they would come to regret that decision.

Global 'quantitative easing glut' to brim through 2015 as funds swim with the tide (Reuters) - If the world's biggest central banks were actually coordinating a global monetary policy, they could scarcely do a better job of convincing financial markets right now. Just two days after the Federal Reserve halted six years of bond buying or 'quantitative easing' last month, the Bank of Japan shocked markets by expanding its own massive QE stimulus. Three weeks on, European Central Bank chief Mario Draghi insists his bank will move "as fast as possible" to raise euro zone inflation using all means available - something financial markets now assume will involve buying euro government bonds. On the same day -- fearful of the threat of deflation on ballooning domestic debts -- the People's Bank of China surprised by announcing its first interest cut in more than two years. Coincidence or not -- coming either side of a G20 summit in Australia -- investors are now convinced a dogged fight against deflation is under way around the globe from Tokyo to Frankfurt and Beijing, even as the U.S. Federal Reserve heads in the other direction and mulls raising interest rates. Intriguingly, that policy divergence could have unintended consequences for both world inflation and the United States if the upshot is explosive U.S. dollar strength. A sustained rise in value of the world's reserve currency -- now widely expected -- would depress commodity prices and global inflation even further while tightening financial screws in slowing emerging economies and dragging on U.S. exports.

Money talks: November 24th 2014: Harmless or harmful? | The Economist: (discussion) DOVEISH action and words from central banks in China and Europe, Russia's economy and more trouble for Google in Europe.

Sanctioned Russian firms struggle to turn East for bonds -sources: (Reuters) - Sanctioned Russian companies hoping to tap Asian bond markets for financing are struggling to find lawyers, underwriters or even bourses to help with potential deals, banking sources said on Friday. Some of Russia's largest firms and banks, including No. 2 bank VTB and leading oil producer Rosneft, have championed Russia's turn to the East after U.S. and EU sanctions over Ukraine froze them out of Western financial markets and stopped most foreign cooperation. Used to using European or U.S. companies to do the backroom work of finalising financial deals, Russian firms are finding it difficult to find lawyers or underwriters who will, or even can, work for them because of the sanctions. "Of course, we could find firms with no registration in the countries which approved sanctions but it will take a lot of time and energy," said a source at a large sanctioned firm, who declined to be named because of the sensitivity of the issue. Firms registered in the countries which imposed sanctions, and their citizens, are not allowed to help targeted Russian companies with financing, irrespective of the funding source.

Language has the power to disarm the concerned citizen - Let’s say you want to push through a massive programme of anti-democratic corporate protection over two continents. It might be a good idea to festoon your official explanations with tedious-sounding initialisms, acronyms and euphemistic bromides, and with any luck concerned citizens will fall asleep before realising what is going on under their noses. Consider the case of the US-EU trade deal called TTIP, with its controversial provisions for ISDS (Investor-State Dispute Settlement), and its reassuring talk of removing “barriers” and consulting “stakeholders”. As heroically wakeful perusal of its soporific rhetoric by George Monbiot and others has made clear, this threatens to constitute an enormous transfer of power from public to private hands. TTIP – which authorities cutely invite us to pronounce tea-tip – is short for the Transatlantic Trade and Investment Partnership. It sounds anodyne enough. (Everyone loves a partnership, right?) Its point is, they say, to remove “barriers” or “obstacles” to trade between the continental blocs. Well, who loves a barrier? Who adores the obstacle? As it happens, the normal kinds of trade “barriers”, ie import and export duties (collectively, “tariffs”), are already very low between the US and EU. So TTIP is focusing on the reduction of “non-tariff barriers”. Well, any kind of barrier is surely still a pesky thing.  TTIP’s boosters say they just want to make regulations more compatible on both sides of the Atlantic, so that a car manufacturer, say, will not have to pass two different expensive procedures, one for the US and one for the EU, that are aimed at ensuring similar safety levels. The term of art here is regulatory “harmonisation” or “coherence” or “cooperation”. Well, excellent. Who is an enemy of harmony? Who shudders at cooperation?

What Big Economies Got Right, or Wrong, After Crisis - WSJ: The divergent policy paths taken by the world’s advanced economies provide lessons for global leaders navigating difficult post-crisis environments. The U.S. and U.K. appear to have gotten something right, while the eurozone and Japan have fumbled. Unemployment rates after the crisis peaked at 10% in the U.S. and 8.5% in the U.K., and are down to 5.8% and 6%, respectively. The eurozone rate has climbed in the past few years to 11.5%, while Japan’s economy has fallen back into recession. The American and British central banks embraced aggressive easy-money policies early on. Japan lurched toward consumption-tax increases to restrain budget deficits, while Europe moved slowly in addressing weaknesses in banks and stuck to a course of fiscal austerity. Here are three lessons from this inadvertent experiment in post-crisis policy-making:

  • Quantitative easing helps address a long-standing economic riddle. What can central banks do to help the economy after short-term rates hit the “zero lower bound?” When rates are near zero, central banks lose a tool typically employed when the economy is weak: short-term interest-rate cuts. Rate cuts spur borrowing, spending and investment, helping to smooth out the economic cycle by bringing forward activity from a more optimistic future during depressed times.
  • Get your fiscal house in order when you can so you can respond when you must. Fed Chairwoman Janet Yellen in a speech this month said governments need to “significantly improve their structural fiscal balances during good times so they have more space to provide stimulus when times turn bad.”
  • Quickly get capital in your banks, rather than force them to shrink. Mr. Cecchetti argued at a conference this month that U.S. and European outcomes varied in part because the regions went about recapitalizing their banks in different ways.

Radical cures for unusual economic ills - The principal high-income economies – the US, the eurozone, Japan and the UK – have been suffering from “chronic demand deficiency syndrome”. More precisely, their private sectors have failed to spend enough to bring output close to its potential without the inducements of ultra- aggressive monetary policies, large fiscal deficits, or both. Demand deficiency syndrome has afflicted Japan since the early 1990s and the other economies since 2008 at the latest. What is to be done about it? To answer, you have to understand the ailment. Crises are cardiac arrests of the financial system. They have potentially devastating effects on the economy. The role of the economic doctor is to keep the patient alive: preventing the financial system from collapse and sustaining demand. The time to worry about a patient’s lifestyle is not during a heart attack. The need is to keep them alive. Like heart attacks, financial crises have long-lasting effects. One reason is the damage to the financial sector itself. Another is a loss of confidence in the future. Yet another is that it makes the debt accumulated in the run-up to the crisis no longer bearable. What happens then is a “balance-sheet recession” – a period when the indebted focus on paying down debt. Post-crisis policy has to offset or facilitate such private-sector deleveraging. Supportive monetary and fiscal policies can help do both. Without such policies enormous slumps are likely, as happened in crisis-hit eurozonee-member countries. A complement to deleveraging is debt restructuring. Many economists have recommended such restructuring as an essential part of the solution. In the household sector at least, the US has done a far better job of this than the eurozone. But organising debt restructuring is extremely difficult so long as borrowers refuse to admit defeat. This is true of the private sector and even more so of the public sector. This is one reason why debt overhangs last so long.

Tightly Coupled European Banks May be Harder to Bail In than the ECB Thinks - Yves here. This post is consistent with concerns we’ve raised earlier, that the appealing-sounding “bail in” scheme is a non-starter on a practical level. US regulators have not chosen to go this route, and this is one of those occasions where their reasons are sound as opposed to bank-serving. However, that is not to minimize the not-trivial problem that American regulators face: their resolution plans aren’t workable either.

ECB Nowotny: Wait to See Effect of Policy Measures Before Undertaking New Ones - —The European Central Bank should assess the measures it has already taken to increase inflation before it considers new actions, a member of the ECB’s governing council said Monday. “Monetary policy always has long lags that means one should have a calm hand,” Ewald Nowotny said. Although inflation levels for the eurozone remain well below the ECB’s target of just under 2%, “inflation expectations are well anchored,” Mr. Nowotny told journalists on the sidelines of an economic conference. He said core inflation—a measure of price levels that excludes transitory or temporary price volatility—may be a more relevant figure to consider as inflation is currently being weighed down by low energy prices, something the ECB can’t influence. While core inflation is still significantly below the ECB’s target, it is not as far away, he said. Asked whether it is realistic for the ECB to act to counter the low levels of inflation in the first-quarter of 2015, Mr.Nowotny said: “It is realistic in as much as there is a first quarter according to the calendar. What we do in the quarter is another matter. I think it’s too early. My personal view is that we’ve taken a number of measures and we should observe the effects of these measures.”

ECB’s Weidmann: Monetary Policy Alone Can’t Create Growth - —Germany’s central bank president, Jens Weidmann, Monday expressed doubt that a potential government bond-buying program would increase growth in eurozone countries. Speaking in Madrid, Mr. Weidmann—who is a member of the European Central Bank’s 24-strong governing council—said that monetary policy alone can’t create growth, and must be based on higher productivity and policy reforms. “Central banks are not able to deliver growth,” Mr. Weidmann said. “Whenever we meet, this is always the first question, there is the conception that there is this silver bullet and this is distracting our attention from the main problem.” Mr. Weidmann’s comments follow remarks made Friday by ECB President Mario Draghi, who sent a strong signal that the bank is ready to “step up the pressure” and expand its stimulus programs. This may happen, Mr. Draghi explained, if eurozone inflation fails to show signs of quickly returning to the bank’s target of just below 2%.

Conservative European Central Bank Officials Play Down Need for More Stimulus - Officials from the European Central Bank’s conservative wing on Monday signaled skepticism on the need for it to escalate its stimulus efforts, days after ECB President Mario Draghi fanned hopes for more aggressive measures to combat the risks of too-low inflation. “My personal view is that we’ve taken a number of measures and we should observe the effects of these measures” before considering new ones, said Austria’s central bank governor, Ewald Nowotny, on the sidelines of a conference in Vienna. He urged the ECB to maintain a “calm hand” given that central bank measures typically influence the economy with a long lag. His comments were echoed by German central bank President Jens Weidmann, who said at a conference in Madrid that potential purchases of eurozone government bonds by the ECB wouldn’t have much of an effect on the bloc’s economy. “Central banks are not able to deliver growth,” Mr. Weidmann said. “Whenever we meet, this is always the first question, there is the conception that there is this silver bullet and this is distracting our attention from the main problem.” Instead, he said overhauls of the labor and financial markets would be better suited to boost the region’s long-term growth potential.

Fault lines within the ECB --The simmering row between the European Central Bank president Mario Draghi and the German Bundesbank president Jens Weidmann is sometimes painted in personal terms, but in fact it epitomises a wider difference between the hawks and the doves on the ECB governing council. Mr Draghi has adopted the New Keynesian approach that dominates US academia and central banking.   In contrast, recent remarks by representative hawks such as Mr Weidmann and ECB executive board member Yves Mersch stem directly from the Austrian school of European economics. It is no wonder that these differences are so difficult to bridge.  To start with a point of agreement, both sides accept that the ECB is failing to hit its inflation objective, and both admit that this is a serious issue. However, there is a major difference in the urgency attached to this. Mr Draghi says that inflation must be raised “as fast as possible” because “the firm anchoring of inflation expectations is critical under any circumstances”. In contrast, Mr Weidmann says that “a problematic wage-price spiral is still a remote prospect”, and adds that “monetary policy matters should be considered with a degree of calm”. That is presumably why the Bundesbank president voted against the monetary easing announced by the ECB in September, though he did support the consideration of further unconventional measures, as announced by the GC in November.  On the content of these measures, there seems to be an even wider gulf between the two sides. This starts with the size of the ECB balance sheet. Mr Draghi says that both the composition and the size matter. He explains that “the magnitude of portfolio balance effects is a function of the size of the central bank’s balance sheet … the greater the purchases, the greater the displacement across asset classes”.The GC has, however, prevented its president from formally adopting the balance sheet number as a “target”. It is merely an “expectation”, as Mr Weidmann is reported to have pointedly commented the day after the last ECB meeting. Furthermore, Mr Mersch adds that the size of the balance sheet is “neither an end in itself nor a fetish”. Instead, he describes the recent ECB measures as merely “credit easing”, designed to improve the efficiency of the bank’s credit channel.

OECD Sees Eurozone in ‘Stagnation Trap’ -- The eurozone economy may have fallen into “a persistent stagnation trap” and that could partly be due to the European Central Bank’s reluctance to undertake quantitative easing, according to economists at the Organization for Economic Cooperation and Development. A “persistent stagnation trap” is the Paris-based research body’s equivalent to what has become more widely known as “secular stagnation.” In the OECD’s words, “deficient demand due to insufficient policy stimulus undermines potential growth, which in turn weakens aggregate demand still further.” Real interest rates that are too high play a key role in creating the circumstances that can lead to this condition. Since nominal interest rates can’t, in practice, go much below zero, and inflation rates are low when there is a lot of slack in the economy, the real rate of interest can be too high—or above its “neutral” level—to “stimulate demand sufficiently.” A period of weak demand can then lead to a decline in potential growth because businesses cut back on investment and workers lose skills—a process known as “hysteresis.” That weakened growth potential lowers demand still further and, before you know it, you’re in a vicious circle that’s difficult to escape. In Box 1.1 of its latest report on the global outlook (pages 15-18), which was published Tuesday, OECD economists consider the evidence for a persistent stagnation trap in the major economies, noting that such an undertaking is “complicated by considerable uncertainty.” But they conclude that while the U.S. and the U.K. are unlikely to be in a stagnation trap, the eurozone may have been caught.

Bundesbank Says Banks Risk Property Loss If Economy Sags - German banks may suffer “significant” losses from their mortgage loans if the economy worsens, according to the central bank. In cities where prices are rising quickly, about a third of mortgages issued by German banks cover more than 100 percent of a property’s appraised value, the Bundesbank said in its annual financial-stability review today. That indicates that lenders are “structurally vulnerable” to real estate crises. Home prices in Germany’s biggest seven cities are about 25 percent overvalued, the central bank said, unchanged from February. “If problems in the property market arise in isolation, in an otherwise stable economic landscape, banks should be able to compensate for mortgage losses through profits elsewhere,” the Bundesbank said. “However, because property crises are often accompanied by a macro-economic slowdown, the aggregated losses could significantly impair banks’ ability to cope with risk.” The assessment is based on a survey of 116 banks in 24 cities where the Bundesbank says home prices are rising particularly quickly. The survey was conducted from 2009 to 2013.

Merkel warns of threat of recession in Europe - (Xinhua) -- German Chancellor Angela Merkel on Tuesday warned that Europe could slide back into recession, German newspaper Frankfurt Allgemeine reported. "If we do not want to be left behind by the growth markets, then Europe has to hurry up," Merkel told a conference of European family entrepreneurs here. She called for an early conclusion of ongoing trade agreement negotiations with Canada and the United States. Given the increasing weight of Asia in the global economy, "Europe is no longer the measure of all things," said Merkel. She noted that opportunities may outweigh risks once the free-trade agreements with Canada and United States are put into place.

Euro-Area Yields Drop to Records as Dutch Borrow at All-Time Low -  Government bonds across the euro region rose, sending yields from Austria to Spain to all-time lows, on speculation the European Central Bank will expand its asset-purchase program to include sovereign bonds. Germany’s securities climbed as a report showed investment in the nation fell last quarter, putting the strength of Europe’s largest economy at risk. ECB Executive Board member Benoit Coeure said yesterday the central bank won’t make a hasty decision to add more stimulus and will hinge any measures on economic data. The ECB’s policies already include purchasing covered bonds and asset-backed securities. The Netherlands sold 10-year debt at a record-low auction yield today. Spain’s 10-year yield dropped five basis points, or 0.05 percentage point, to 1.923 percent as of 4:17 p.m. London time and touched 1.922 percent, the lowest since Bloomberg started collecting the data in 1993. The 2.75 percent bond due in October 2024 rose 0.475, or 4.75 euros per 1,000-euro ($1,248) face amount, to 107.405. Germany’s 10-year yield declined three basis points to 0.75 percent, approaching the record 0.715 percent set on Oct. 16.

Euro Bond Yields - Paul Krugman  - Let’s take a moment to note the record lows being hit in European bond markets:  As many people have pointed out, those ultra-low German rates are about weakness, not strength — basically, the market is pricing in many years of a depressed euro area economy with very low inflation (the implied expected inflation rate from index bonds is around 0.7 percent over the next five years.) But the number that really jumps out at me here is France, with borrowing costs at a historical record low under 1 percent. And that is very interesting indeed.  After all, not very long ago we were being assured that France was on the edge of fiscal meltdown, that it was ready to become another Italy or Spain. Here’s a sample. It turns out, however, that even Italy and Spain weren’t the next Italy and Spain — most of the spike in their borrowing costs was about self-fulfilling panic, which went away once the ECB started doing its job. And France is now paying only a small spread against Germany. It’s true that the French economy is sluggish — but a lot of that is because of the austerity imposed to head off an imaginary fiscal crisis. What you see, above all, is that Greece — which exerted immense influence as a supposed template for what was going to happen to everyone — was and is sui generis. (What’s the Greek for that?) Europe’s problem isn’t fiscal, and never was.

Draghi Highlights the Eurozone’s Unfinished Business - Just sharing a currency isn’t enough for the eurozone to defy its skeptics, European Central Bank President Mario Draghi said Thursday in a speech that reminded his audience about the foundations needed for a successful single currency area. “Doubts over the viability of [economic and monetary union] will only be fully removed when we have completed it in all relevant areas,” said the ECB head. “This means Banking and Capital Markets Union; it means Economic and Fiscal Union.” Draghi’s remarks come as over two years after he promised that the ECB would do “whatever it takes” to preserve the euro. Soon thereafter, the ECB announced a plan to buy the bonds of struggling eurozone states if they agreed to an international reform program. Though the ECB has never actually used this plan, which has come under legal challenge in Germany, it is credited with reviving sentiment in the currency bloc and reducing the likelihood that it would break up. Risks of a breakup of the currency have abated, but the ECB now faces the challenge of how to combat extremely low inflation, which threatens to turn into deflation, a damaging economic development in which prices and wages fall.  Recent comments from Draghi and his top deputy Vitor Constancio suggest that the central bank is getting ever closer to buying sovereign bonds on a large scale, possibly early next year. The ECB has largely resisted such quantitative easing, as it’s known, though the approach has been embraced by the Bank of Japan, the Bank of England and the Federal Reserve.

Vicious Cycle 2.0: European bank interconnectedness and vulnerabilities -- Since the beginning of the crisis – and more so since 2010 – Europeans have been looking at the sovereign-banking “vicious circle”, tying together the dismal fates of States and banks. This has emerged as a characteristic disease of the euro crisis, and one of the stated objectives of the European Banking Union project was to remedy it.   The idea was to achieve this goal in a twofold way. Ex ante, by strengthening and harmonising supervisory requirements (e.g. on capital) and by empowering a high-quality independent supervisor to oversee their fulfillment, thereby rebuilding trust in supervision and in the financial sector’s health. Ex post, in the event of an unavoidable crisis recourse to taxpayers’ money would be limited as far as possible, thereby preventing worries about the damage that bank rescue would inflict on public finances. The ex ante principle was translated into practice through the creation of a Single Supervisory Mechanism (SSM) under which, on the 4th of November, the ECB took over supervisory responsibility for major banks in the euro area. The ex post principle was concretised through the introduction of the Bank Recovery and Resolution Directive (BRRD) which gives a framework for resolution of troubled banks, and through the creation of a Single Resolution Mechanism (SRM), which should ensure consistent and homogeneous application of the BRRD. Among other provisions, the BRRD contains a set of rules for bail-in of private creditors in bank resolution, strengthening the private creditor responsibility that de facto is already introduced through the amended State Aid framework.

Radical left is right about Europe’s debt - Let us assume that you share the global consensus view on what the eurozone should do right now. Specifically, you want to see more public-sector investment and debt restructuring. Now ask yourself the following question: if you were a citizen of a eurozone country, which political party would you support for that to happen? You may be surprised to see that there is not much choice. In Germany, the only one that comes close to such an agenda is Die Linke, the former Communists. In Greece, it would be Syriza; and in Spain, it would be Podemos, which came out of nowhere and is now leading in the opinion polls. You may not consider yourself a supporter of the radical left. But if you lived in the eurozone and supported those policies, that would be your only choice. What about Europe’s centre-left parties, the social democrats and socialists? Do they not support such an agenda? They may do so when they are in opposition. But once in government they feel the need to become respectable, at which point they discover their supply-side genes. Remember that, François Hollande, France’s president, explained the policy shift of his government by saying that supply creates demand. Of the radical parties that have emerged recently, the one to watch is Podemos. It is still young, with an agenda in the making. From what I have read so far, it may be the one that comes the closest of all those in the eurozone to offering a consistent approach to post-crisis economic management. In a recent interview, Nacho Alvarez, a senior member of the party’s economics team, laid out his programme with a refreshing clarity. The 37-year-old economics professor says the Spanish debt burden, both private and public, is unsustainable and needs to be reduced. That could include some combination of a renegotiation of interest rates, grace periods, debt rescheduling and a haircut. He also said Podemos’ goal was not to leave the eurozone – but that equally the party would not insist on membership at all costs. The aim is the economic wellbeing of the country.

German unemployment rate falls to a record low: Germany's unemployment rate has hit a record low, but slower inflation has raised concerns over deflation. The Federal Statistical Office revised October's unemployment number from 6.7% to 6.6%, November's figure was also 6.6%. Both figures were adjusted for seasonal variation. Meanwhile inflation fell to its lowest rate in nearly five years in November. Official figures showed inflation dropped to 0.5% in November from 0.7% in October. Strong labour market The fall in the number of unemployed was larger than analysts' expectations, down 14,000 to 2.872 million, the Federal Labour Office said. The figures are in marked contrast to many other economies in the eurozone. Economists have warned of a potential economic "stagnation trap" in the euro area. However, analysts said that record employment, rising wages and low interest rates are helping to prop up domestic demand in Germany. "Germany's buoyant labour market continues to underpin wage growth and thus private consumption, in combination with very low inflation,"

Italy's Unemployment Rate Unexpectedly Hits Record High 13.2% - The string of unexpectedly bad news in the eurozone continues unabated as Italian Unemployment Rate Rises to Record, Above Forecasts. The unemployment rate rose to 13.2 percent from a revised 12.9 percent the previous month, the Rome-based national statistics office Istat said in a preliminary report today. That’s the highest since the quarterly series began in 1977. The median estimate of seven economists surveyed by Bloomberg called for an unemployment rate of 12.6 percent in October.  The youth unemployment rate for those aged 15 to 24 rose to 43.3 percent last month from 42.7 percent in September, today’s report showed.  Economists expected a drop in unemployment of 0.3%. Instead unemployment rose 0.3%.  Italian Prime Minister Matteo Renzi blamed the rise on an increase in the participation rate, with more people looking for a job.

Labour force(d) mobility: Migration in Europe - Last month Bruegel held an event exploring migration in the EU and the impact migration has on society and its contribution to sustainable economic growth. The free movement of labour is not only a key pillar of the European project, but also essential to the proper functioning of a monetary union. Inspired by this theme and the tone of the current political debate, we present 4 informative charts.  Source: Eurostat, most recent data, 2012.  This heat map shows the net migration rate (immigration minus emigration) expressed per 1000 inhabitants. High net immigration is represented as green in the graph, while high net emigration is represented as red.  There is a high degree of heterogeneity across EU countries, for example Germany and Belgium have net inflows of 4.3 and 6.5 migrants per 1000 inhabitants, while for Spain and Greece, the numbers are -3 and -4 (implying more people are leaving than arriving, on balance).  The next two charts show the association between the unemployment rate and net migration rate.

Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors - Yves Smith --I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika's antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that's before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem. In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

ECB, QE and so long to that damn negativity - On the potential death of that long awaited negative deposit rate, interesting thoughts from HSBC’s Stephen Major below if sovereign quantitative easing does eventually raise its head in Europe. But first, a necessary nod to QE skepticism from Peter Stella: Rather amazingly, a crude quantitative measure of ECB stimulus—the sum of refinancing operations and securities held for monetary policy purposes—peaked the very month of Dr. Draghi’s [whatever it takes] speech. Those who are now seeking QE apparently believe that, despite the inverse correlation between quantitative stimulus and actual results, an increase in the size of the ECB balance sheet will lead to an outcome superior to that associated with the increase in policy “size” evident above during the 14 months prior to the Draghi speech. During that time, the sum of ECB monetary operations instruments expanded by 168 percent without any discernible palliative impact on markets. So if the definition of insanity is repeatedly trying the same behavior and expecting different results, the market would appear slightly insane. Or perhaps it is simply guilty of failing to fully comprehend the complexity of monetary operations, and more specifically, which monetary medicines work and which do not.

In Great Britain, Protecting Pedophile Politicians Is A Matter Of "National Security" -- We've previously written about how the percentage of sociopaths within a group of humans becomes increasingly concentrated the higher you climb within the positions of power in a society, with it being most chronic amongst those who crave political power (see: Humanity is Rising). The reason for this is obvious. Those with the sickest minds, and who wish to act upon their destructive fantasies, understand that they can most easily get away with their deeds if they are protected by an aura of power and ostensible respectability. They believe that as a result of their status, no one would dare accuse them of horrific activities, and if it ever came to that, they could quash any investigation. Unfortunately for us all, this is typically the case.