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Fed's Balance Sheet Declines in Latest Week - The Fed's asset holdings in the week ended Dec. 26 decreased to $2.909 trillion, down from $2.922 trillion a week earlier, it said in a weekly report released Thursday. The Fed's holdings of U.S. Treasury securities edged down to $1.657 trillion on Wednesday from $1.659 trillion a week earlier. The central bank's holdings of mortgage-backed securities fell to $926.56 billion from $933.39 billion a week ago. Fed officials reiterated earlier this month that they plan to continue buying mortgage bonds, as well as $45 billion of long-term Treasurys each month, until the labor market improves significantly. Thursday's report showed total borrowing from the Fed's discount lending window was $613 million Wednesday, down from $864 million a week earlier. Commercial banks borrowed $26 million Wednesday, down from $34 million a week earlier. U.S. government securities held in custody on behalf of foreign official accounts rose to $3.238 trillion, up from $ 3.234 trillion in the previous week. U.S. Treasurys held in custody on behalf of foreign official accounts increased to $2.891 trillion, up from $2.883 trillion in the previous week. Holdings of agency securities fell to $311.05 billion, down from the prior week's $315.20 billion.
FRB: H.4.1 Release--Factors Affecting Reserve Balances--December 27, 2012 - Federal Reserve statistical release
FRB: Recent balance sheet trends - Credit and Liquidity Programs and the Balance Sheet
With all the Fed activity, there has been no QE in 2012 - By definition, any policy of "quantitative easing" involves the expansion of bank reserves (by outright purchases of securities) and ultimately the monetary base. Neither has been expanded by the Fed in 2012.Clearly, given the latest announcement by the Fed (see discussion), 2013 should see both measures spike sharply. But there has been no "money printing" in 2012.
The Fed's Orwellian Claims About its Transparency - By Richard Alford, a former New York Fed economist. The US mainstream media (MSM) found a lot to like when the FOMC announced that its current highly accommodative monetary policy stance will continue unless certain "threshold levels" for unemployment and inflation are reached. While the MSM was not uniform in its praise, it applauded what it saw as the increased transparency in the design and execution of monetary policy. In comparison, the response of the market and the foreign press was muted, and comments by financial and economic bloggers were mixed. Juxtaposing a Binyamin Appelbaum article in the New York Times (serving as a stand in for MSM), the transcript of the Bernanke press conference, and a working history of monetary policy, it is clear that the enthusiasm of many in the MSM for increased clarity is misplaced. This in turn has less than flattering implications for the MSM, the Fed and its communication strategy. Applebaum asserts that the current Bernanke FOMC is more transparent than its predecessors: Over the last two years, Mr. Bernanke and his colleagues have announced a series of changes intended to increase the transparency of the Fed's decision-making. Some of those moves have also transformed the way those decisions are made… Appelbaum places great weight on transparency and asserts that the Fed first employed transparency in 2003 with the aim of affecting long-term rates and the economy:
Fed Flummoxed by Mortgage Yield Gap Refusing to Shrink: Economy - Record-low mortgage rates aren't cheap enough for Federal Reserve Chairman Ben S. Bernanke as he tries to spur economic growth and create jobs. Policy makers are disappointed that lower yields on mortgage-backed securities haven't led to more savings on home loans after the Fed expanded its balance sheet to an all-time high of almost $3 trillion through bond purchases. Bernanke this month called the trend "unfortunate," and the Federal Reserve Bank of New York held a workshop to examine the issue. The gap between the bond yields and home-loan rates is blunting the economic benefits of the Fed's record accommodation, New York Fed President William C. Dudley said in a speech in New York this month. Among the reasons for the spread: banks are reluctant to take on the expensive fixed costs of new staff to process the paperwork and tougher capital requirements are making it less attractive to service loans. "The Fed is pushing really hard to try to get the mortgage rate down," "There just doesn't seem to be much of an inclination on the part of banks to get out there and beat the bushes."
The Fed Targets Unemployment With More Money for Banks - Paul Jay of the Real News Network interviews Robert Pollin, Professor of Economics at the University of Massachusetts in Amherst and founding co-Director of the Political Economy Research Institute (PERI). This paragraph caught my eye: POLLIN: The corporations are sitting on somewhere on the order of $2 trillion in cash and other liquid assets because they don't want to invest. There is an issue here which also gets back to another question of financial regulation, which is, people who are hoarding cash who don't see any opportunities also think that around the corner there may be another financial bubble, and they want to be primed to take part in the bubble, that is, when asset prices go up very, very quickly, for example, prices of oil or prices of food, or a stock market bubble. That's where they think they're going to make their big killing. They don't want to put money into these investments that mean small expansions of business, you know, normal returns. And so they think that the financial system is still capable of generating another bubble. That's because we haven't established strong enough regulations to prevent bubbles from happening that then lead to another round of crashes.
Central Banks Can Phase in Nominal GDP Targets without Losing the Inflation Anchor - The time is right for the world's major central banks to reconsider the framework they use in conducting monetary policy. The US Federal Reserve and the European Central Bank are grappling with sustained economic weakness, despite years of low interest rates. In Japan, Shinzō Abe of the Liberal Democratic Party's (LDP) was elected prime minister December 16 on a platform of switching to a new, more expansionary, monetary policy. Mark Carney, the incoming governor of the Bank of England, has made clear that he is open to new thinking. Monetary policymakers would do well to consider a shift toward targeting nominal GDP. (Carney is evidently contemplating precisely this). The switch could be phased in via two steps, without abandoning the established inflation anchor. A number of monetary economists pointed out the robustness of nominal GDP targeting after money growth rules broke down in the 1980s. (Meade and other available references.) "Robustness" refers to the target's ability to hold up in the long term under various shocks. The context at that time was the need in the US and other advanced countries for an explicit anchor to help bring expected inflation rates down. The status quo regime to achieve this, during the heyday of monetarism, had been a money growth rule. Relative to the money growth rule, the advantage of nominal GDP targeting was robustness with respect to velocity shocks in particular.
Nominal GDP Targeting: Still a Skeptic - Atlanta Fed's macroblog - In a few days the clock will run out on another year of disappointing economic growth. It is inevitable and appropriate, then, that the year-end ritual of looking forward by looking backward will include an assessment of whether more or better policy can contribute to a pick-up in growth that failed to materialize in 2012. To this discussion, Harvard professor Jeff Frankel brings some fresh thinking to the not-quite-fresh notion that the Fed should adopt a nominal gross domestic product (GDP) targeting approach as a replacement for existing central bank practice—described by Frankel and others as policy driven by an inflation-targeting framework. What I particularly like about Frankel's proposal is the fact that he offers up a practical roadmap for using the Fed's current communications tools to transition to an explicit nominal GDP targeting framework. If I were inclined to think such a move would be a good idea, I would view Frankel's proposal with some enthusiasm. Alas, I am not yet so inclined. As to the case for skepticism on theoretical grounds, I commend to you this excellent post by Mark Thoma at Economist's View. But Professor Frankel suggests a case for nominal GDP targeting on practical grounds by appealing to this counterfactual: A nominal GDP target for the US Federal Reserve might have avoided the mistake of excessively easy monetary policy during 2004-06, a period when nominal GDP growth exceeded 6 per cent. Maybe. Average annual real GDP growth over those three years was just over 3 percent, compared to the Congressional Budget Office (CBO) estimates of potential GDP growth of just under 2.5 percent. That's not a big difference, but more importantly the average gap between the level of real GDP and the CBO estimate of potential was just 0.3 percent of average output—essentially zero.
More on Why the Fed Is Aggressively Targeting Unemployment (it would be weird if they weren't…) - Just doing a bit more research on changing Fed policy and the tilt toward what you might think of as the Evans rule, i.e., applying a heavier weight to high unemployment when considering monetary policy. Certainly personnel with such sensibilities are part of what's going on, but there's also the fact of the long growth slog with low, and in Fed-speak, well-anchored inflation (meaning people expect general inflation to stay low, even when there's, e.g., a gas-price spike). Basically, they've got a dual mandate (low price growth and low unemployment) and one part of that is clearly not met, so targeting unemployment is their job right now. (It's also a job that can't do alone—low interest rates surely help, but demand-side fiscal policy—stimulus—is also necessary and very much MIA.)One interesting way to see this graphically is to plot the Taylor rule (TR) against the Fed's funds (FF) rate. The TR is an equation that sets the FF based on the relations between output and inflation; it specifies a lower path when output gaps are large and vice versa. The figure shows that in normal times over the last few decades, the TR and FF track each other closely, but in both the 1980s and now large gaps persist.
The Fed Has Removed $425 Billion Worth Of Interest Income From The Economy -- Every time the Fed announces another round of QE we hear the "know-nothings" in the media, on Wall Street and in the mainstream economics community tell us that we're getting more stimulus. And when the Fed does nothing, they scream about how we need more stimulus. Well, be careful what you wish for! For as the chart below clearly shows, the Fed actions have removed an enormous amount of interest income from the economy. In fact, it has removed over $100 bln more in interest income than the total net gain in private wages and salaries since it began undertaking these extraordinary measures. Followers of Modern Monetary Theory (MMT) know why this is true: Quantitative easing is nothing more than an asset swap. The Fed removes one asset--a Treasury, for example--and replaces it with a cash balance (reserves) in the banking system. The result is that the private sector is stripped of the interest it would have earned on that Treasury, which is more than the zero-percent it earns on cash balances. Case in point, the $80 bln in profits that the Fed earned and turned over to the Treasury last year, was from income earned on the assets it bought. That was income that would have been earned by the private sector if it still had those bonds and securities. So while the net change in wages and salaries since 2008 has been an increase of $317 bln, personal interest income dropped by $425 bln. That's not a stimulus by any means. It's mind boggling that the mainstream economics community and the Fed itself, doesn't understand this when they incessantly call for more "stimulus."
Sci-Finance: The Great Cybernetic Experiment - Mad scientists from MIT have taken over the markets to conduct the world's greatest experiment. What are the unintended consequences? Financial disaster is only part of it... As recently reported by the Wall Street Journal many of the world's most powerful central bankers—including our own distinguished Ben Bernanke—received their PhDs at MIT. ZeroHedge chose to frame this by saying: "...a handful of people from MIT, deeply steeped in economic theory (not practice), the same people whose actions incidentally were responsible for the first great financial crisis, and who yield more power than any potentate in the history of the world - people who, as the ECB showed in the case of Berlusconi, can take down presidents and PMs with the flick of a switch, meet in private. No transcripts or butlers are allowed. In other words, they are accountable to absolutely nobody. Which is to be expected: after all they are conducting the greatest experiment in monetary, geopolitical and social history. If they fail... when they fail, everyone loses."
Plan to Limit Fed's Mandate Is Folly - Representative Kevin Brady, a Texas Republican, wants the Federal Reserve to be single-minded. In 1977, Congress required the central bank to serve three masters: It is supposed to promote stable prices, maximum employment and moderate long-term interest rates. Brady, who will be chairman of the Joint Economic Committee in the new Congress, wants to eliminate those last two missions. His "Sound Dollar Act" would make the Fed responsible for price stability, period. The congressman believes that the Fed's current "dual mandate" (that's what Fed watchers call it, ignoring the statute's mention of interest rates) gives it too much discretion. He finds the Fed's Dec. 12 statement -- in which it said it wouldn't tighten monetary policy until unemployment fell to 6.5 percent or inflation accelerated to 2.5 percent -- "particularly troubling." The best thing the Fed can do to reduce unemployment in the long run, he says, is to foster price stability. The bill has garnered support from conservatives as their concern over the Fed's quantitative easing has grown. Washington Post columnist George Will and the editors of the Wall Street Journal have written in favor of the bill, and Senator Marco Rubio, a Florida Republican, is a co-sponsor. The Stanford University monetary economist John Taylor and St. Louis Fed President James Bullard favor it, as well.
2012: Calm Before The Storm - We have a new era dawning in Global Monetary policy. It is a new day with the monetary skies already red. Within 90 days the captains of monetary policy have steered the world into uncharted waters and on a course that history warns us against. Federal Reserve: QE3 "Unlimited" and QE4 within 90 days, ECB: OMT "Uncapped", BoJ: QE 10 and the newly elected Prime Minister Abe's mandate for "Inflation at any cost" BoE: UK's newly appointed BoE Governor, Mark Carney's Monetary Evan Rule targeting. These untested and newly commissioned captains all have PhD's from the finest Economic schools in the world, but they clearly have not studied nor grasped the key lessons of history. To any sane person, who has a grasp of what is presently occurring, it is obvious that the current state of affairs is unsustainable. The question is how long can the Monetary Captains' misguided policies keep us off the shoals of our economic destruction. How long can policies of "Extend and Pretend", Kick the Can Down the Road" or "Fake it Until You Make It" continue? The answer is likely unknowable, the certainty of it ending badly is not.
Monetary Policy and Interest Rate Uncertainty- FRBSF Economic Letter - Market expectations about the Federal Reserve's policy rate involve both the future path of that rate and the uncertainty surrounding that path. Fed policy actions have historically been preceded by high levels of uncertainty, which decline after the policy is made public. Recently, measures of near-term interest rate uncertainty have fallen to historical lows, due partly to a Fed policy rate near zero. Unconventional monetary policies have substantially lowered both expectations and uncertainty about the future path of the Fed's policy rate.
The Fed and Interest Rates - Krugman - In response to today's column, I'm getting a lot of the usual: namely, the claim that low interest rates don't prove anything, because the Fed has been buying up all the federal government's debt issue. This is always said with an air of great wisdom; in fact, it's remarkably foolish, managing to be wrong in three distinct ways. First of all, it isn't true that the Fed has consistently been buying a lot of Federal debt issue. Sometimes it has, sometimes it hasn't; when QE2 stopped, there were widespread predictions that interest rates would spike, but they didn't — as those of us who have been getting it right predicted. Second, the idea is conceptually wrong. Asset prices should be determined mainly by the stocks of assets, not the changes in these stocks over short periods. If bond investors lose confidence in federal debt, there's a huge outstanding stock of that debt for them to try to sell, driving rates up, no matter how much of the new issue the Fed might be buying. But maybe the killer is this: since when do the kinds of people who worry all the time about deficits believe that the Fed can monetize a substantial part of a large deficit, for four whole years, without any negative consequences? If you believed in the framework these people have, all that expansion of the monetary base should have produced runaway inflation by now, as many of them did in fact predict early in the game. It hasn't — and no, don't give me the bit about the government hiding the true rate of inflation. Independent estimates are not significantly different from the official gauges.
On DeLong V Krugman - Brad DeLong and Paul Krugman are having a mini debate on whether Brad et al (that means the Clinton administration) had good reason to fear bond vigilantes in the 90s. Krugman argued no. DeLong argued that they really mostly feared the Fed not say fears of US default. Krugman phrases Brad's argument as high deficits cause high inflation which causes tight money. He notes that the inflation implies high nominal interest rates and low real interest rates so it should cause high demand now and writes "It's not at all easy to tell a coherent story in which the effect of future expected deficits on today's interest rates is contractionary " I'm not going to let a challenge like that get by me. I try 2.
1) Very political economy and trying to read Greenspan's mind of the time. Greenspan would have punished Congress and Clinton for disobeying his command to cut the deficit with high interest rates. Note I make no reference to inflation. In fact, in my model, I assume there is no inflation. Monetary authorities using tight money to punish elected officials for violating Austerian doctrine strikes me as totally obviously what regularly happens (note your discussion of episodes of alleged expansionary austerity, in any case deficit reduction followed by high growth and speculate as to why Alesina claims that spending cuts work better than tax increases).
2) Hmm I will assume that productive capital depreciates very quickly (and so is just a material input reall) so long term interest rates matter only for home construction (this is just an unrealistically for exposition strong version of something you wrote here) . I will assume that the home equity loan (heloc) market is not developed and people think of taking a second mortgage as a desperate last resort (I think this was true in 1993). Finally assume extreme nominal wage rigidity. Really assume that medium income economic agents assume extreme nominal wage rigidity so inflation implies low real wages. In fact, assume nominal wages are permanently fixed so inflation is high prices for while but is eventually followed by deflation to get real wages back to normal. A couple with low financial wealth considers buying a house. The relevant real interest rate is the nominal rate corrected for wage inflation. Oh that's the nominal rate.
Washington derailing nascent economic recovery: US consumer confidence took a hit in December, as the madness emanating from Washington is taking its toll. Reuters: - U.S. consumer sentiment slumped in December as Americans were rattled by on-going negotiations to avert the tax hikes and spending cuts set to come into effect in the new year, data showed on Friday. The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment tumbled to 72.9 from 82.7 in November, worse than forecasts for 74.7. It also came in under December's preliminary figure of 74.5. Talks to avoid the so-called fiscal cliff were thrown into disarray on Thursday evening when Republican lawmakers failed to back an effort by House of Representatives Speaker John Boehner that was designed to extract concessions from President Barack Obama.
Ten Economic Questions for 2013 - Here are some questions I'm thinking about ...
1) US Policy: This is probably the biggest downside risk for the US economy in 2013. I assume some sort of fiscal agreement will be reached soon, but how much austerity will be included? What will happen with the Alternative Minimum Tax (AMT)? What about emergency unemployment benefits? What about extending the mortgage relief for debt forgiveness (important for short sales)?And what about other policy in 2013 such as the "default ceiling" (aka debt ceiling)? In 2011, the threat of a US government default slowed the economy to almost a standstill for a month. Right now the White House is taking the Ronald Reagan approach (when the Democrats pulled a similar reckless stunt) and they are saying President Obama will only sign a clean debt ceiling bill. Good. Hopefully default is off the table, but you never know.
Private Investment and the Business Cycle - Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but the key is to watch private domestic investment, especially residential investment. Even though private investment usually only accounts for around 15% of GDP, the swings for private investment are significantly larger than for PCE during the business cycle, so private investment has an outsized impact on GDP at transitions in the business cycle. The first graph shows the real annualized change in GDP and private investment since 1960 (this is a 3 quarter centered average to smooth the graph). GDP has fairly small annualized changes compared to the huge swings in investment, especially during and just following a recession. This is why investment is one of the keys to the business cycle.The second graph shows the contribution to GDP from the four categories of private investment: residential investment, equipment and software, nonresidential structures, and "Change in private inventories". Note: this is a 3 quarter centered average of the contribution to GDP. This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment lags the business cycle. Red is residential, green is equipment and software, and blue is investment in non-residential structures. The usual pattern - both into and out of recessions is - red, green, and blue.The third graph shows residential investment as a percent of GDP. Residential investment as a percent of GDP is just above the record low, and it seems likely that residential investment as a percent of GDP will increase further in 2013. The key downside risk for the US economy in 2013 is too much austerity, too quickly. However, barring a policy mistake (I expect a fiscal agreement), it seems unlikely there will be a sharp decline in private investment in 2013. This is because residential investment is already near record lows as a percent of GDP and will probably increase further in 2013, and that suggests the US will avoid a new recession in 2013.
Chilling Economic Report Terrifies CEOs - Over an early-morning coffee with the chief executive of an FTSE 100 business last week, talk turned to the outlook for 2013. Where I had expected some guarded optimism, instead I heard a chilling analysis. The CEO said he had been reading a new paper from Boston Consulting Group headed " Ending the era of Ponzi finance ". The lessons he had taken from it were miserable. The West was not going to find its way to the right economic path with a little tweaking at the edges, the CEO said. What is needed is a wholesale overhaul of the economic system to tackle record levels of public and private debt. Was anyone brave enough to do it, he wondered aloud. I asked him to send me the report. He did. The BCG study by Daniel Stelter which is doing the rounds of corporate C-suites does not pull its punches. In fact, its punches are really just a softening-up exercise for a barrage of kicks and painful blows aimed at anyone who thinks that kicking the can down the road is a suitable substitute for radical action. At the heart of the analysis is the issue of debt. A report by the Bank of International Settlements, the study notes, found that the combined debts of the public and private sector in the 18 core members of the OECD rose from 160pc of GDP in 1980 to 321pc in 2010. That debt was not used to fund growth – perfectly reasonable – but was used for consumption, speculation and, increasingly, to pay interest on the previous debt as liabilities were rolled over.
Is Growth Over? – Krugman blog - It's taken me a while to get around to Bob Gordon's stimulating essay suggesting that the great days of economic growth are behind us. It's not that different from things he's been saying before, and I have in the past had a lot of sympathy for that view. I now believe, however, that his technological pessimism is wrong — or if you prefer, it's the wrong kind of pessimism. But this is definitely a discussion worth having. Gordon argues, rightly in my view, that we've really had three industrial revolutions so far, each based on a different cluster of technologies:The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:
IR #1 (steam, railroads) from 1750 to 1830;
IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
IR #3 (computers, the web, mobile phones) from 1960 to present.
Gordon then argues that IR#2 was by far the most dramatic, which again seems right. Think of the America shown in Lincoln, which is a society shaped by industrial revolution 1 but not yet transformed by IR #2. It was a society in which you could travel much further and faster than ever before — but when you got to your destination, it was still a horse-drawn society in which most people still lived on farms and cities were cruder and dirtier than we can easily imagine. By the 1920s, however, urban America was already recognizably a modern society. What Gordon then does is suggest that IR #3 has already mostly run its course, that all our mobile devices and all that are new and fun but not that fundamental. It's good to have someone questioning the tech euphoria; but I've been looking into technology issues a lot lately, and I'm pretty sure he's wrong, that the IT revolution has only begun to have its impact.
Is Growth Over?, by Paul Krugman - The great bulk of the economic commentary you read in the papers is focused on the short run: the effects of the "fiscal cliff" on U.S. recovery, the stresses on the euro, Japan's latest attempt to break out of deflation. This focus is understandable... But... What do we know about the prospects for long-run prosperity? The answer is: less than we think. Recently, Robert Gordon ... created a stir by arguing that economic growth is likely to slow sharply — indeed, that the age of growth that began in the 18th century may well be drawing to an end. It's an interesting thesis... And while I don't think he's right, the way in which he's probably wrong has implications equally destructive of conventional wisdom. For the case against Mr. Gordon's techno-pessimism rests largely on the assertion that the big payoff to information technology, which is just getting started, will come from the rise of smart machines. If you follow these things, you know that the field of artificial intelligence has for decades been a frustrating underachiever... Lately, however, the barriers seem to have fallen... So machines may soon be ready to perform many tasks that currently require large amounts of human labor. This will mean rapid productivity growth and, therefore, high overall economic growth.
Will 2013 Mark the Beginning of American Decline? - Becoming the world's top economic dog isn't easy. That's because any contender -- China or anyone else -- needs to answer three tough questions. First, do they have secure property rights for individuals? Who would trust their rainy-day funds or their most innovative ideas in a country where, when the going gets tough, the state gets your stuff? China has a big current-account surplus and lots of foreign-exchange reserves. They also have a 2,000-year tradition of putting the government before the individual. Think about all the ways this went wrong for the Soviet Union. Second, is the financial system viable in its current form? Japan had a great economic-transformation story -- and an even greater debt-fueled asset-price bubble when its banks went mad in the mid-1980s. How confident are you that China, Brazil or other emerging markets aren't headed down the same road? Third, is debt -- both public and private -- on an unsustainable path? Mismanaged debt has brought Europe to its current low point, both in the form of direct public borrowing (see Greece) and in the equally painful form of private-sector borrowing that goes bad, with nasty implications for the government's balance sheet (ask the Irish and Spanish about this).
Three ways Washington could mess up the recovery in 2013. A few excerpts:
- Going off the cliff. This is the most scrutinized possibility, the one that has been widely analyzed (and, as of Thursday morning, at least, seemed like a growing possibility). If the nation goes fully off the fiscal cliff, and stays there, the Congressional Budget Office estimates it would amount to a drag on gross domestic product of 2.9 percentage points in 2013 ...
- A deal with too much austerity, too fast. Going off the fiscal cliff is probably not even the likeliest risk (though the odds are changing all the time). Another risk is that while there is a deal to avert the entirety of the cliff, it is a deal that calls for enough austerity in 2013 to seriously undermine the nation's economic prospects.
- Debt ceiling hijinks. If the nation goes over the fiscal cliff, the results would be bad, but not catastrophic; we've had recessions before, we'll have them again. But in late February or early March comes a deadline with even more at stake: The legally mandated cap on how much debt the Treasury can issue will become a binding constraint, setting the stage for the same messy negotiations that walloped financial markets and business confidence in the summer of 2011. From an economic perspective, the thing that makes debt ceiling negotiations so perilous is the threat that Congressional Republicans are making — in effect, to allow the U.S. government to default on its debts if they don't get their way on major spending cuts.
Bernanke's Message to Congress: More Stimulus, Please - We do not live in normal times. There are lots of ways to tell, but the best one is that we can borrow for free for 20 years, adjusted for inflation. That's the market's way of begging us to borrow more, despite everything you may have heard about the fabled bond vigilantes who hate, just hate, the deficit. But it's not just markets that want us to take on more debt. Ben Bernanke does too. He told us right there in the Fed's latest economic projections. It might not look like it, but forecasting sub-2 percent inflation nowadays is the Fed's way of begging Congress to borrow more. That's the big implication of the Fed's big policy moves the past few months. The Fed is already buying $85 billion of bonds a month on an open-ended basis and has promised not to raise rates before unemployment falls below 6.5 percent or inflation rises above 2.5 percent. But it still thinks inflation will remain subdued, despite its bond-buying. In other words, the Fed is telling us it will tolerate a bit more inflation, but it won't create it. That's as good an invitation as Congress is going to get to cut taxes or increase spending, at least until inflation is around 2.5 percent. Now, the Fed might buy fewer bonds than it otherwise would if Congress does more, but we know it won't raise rates -- there's little guessing how much fiscal stimulus the Fed will allow. The multiplier is big now.It's right out of Ben Bernanke's playbook. As Tim Duy, a professor at the University of Oregon, points out, Bernanke's often cited "helicopter drop" speech about how to stop deflation -- the idea was you could drop money from the sky as a last resort -- did not say a central bank could do this on its own. Bernanke said a "determined government" could "always generate higher spending and hence positive inflation," emphasis on the word government. Bernanke wants Congress to help him, and he's doing everything he can to let them know.
2013 May Be the Year of Perpetual Fiscal Crisis - If 2012 was the year of modest economic recovery and surprising Democratic election success, 2013 may be the year of perpetual fiscal policy crisis. After watching the still-unresolved partisan battle over the fiscal cliff, it is increasingly hard to imagine Congress and President Obama reaching anything like a big budget deal next year. Instead, it looks as if lawmakers will spend 2013 staggering from crisis to crisis, not unlike a bunch of nasty drunks weaving their way from barroom to barroom. First, they will somehow have to avoid this year's cliff. Then, in late winter, they are likely to do fiscal battle all over again as the nation's borrowing authority reaches its limit and a temporary government funding bill expires. (Yesterday, Treasury said it would hit the debt ceiling on New Year's Eve, but it can delay the day of reckoning for a few months). At the very least, this will absorb nearly all of Washington's energy for the first quarter of 2013. And it will leave little time and enthusiasm for a Big Deal. Then, Congress and Obama may get to do it all one more time next fall when they squabble over the 2014 budget. Some of this mess could be avoided, of course, if Congress and Obama could agree quickly to a series of budget goals and timetables aimed at least stabilizing the national debt. That was the hope going into the fiscal cliff talks. But chances for such a deal are slipping away.
U.S. will reach debt ceiling on Dec. 31: Geithner - The United States will reach the $16.4 trillion debt ceiling at the end of December, Treasury Secretary Timothy Geithner said Wednesday. In a letter to Senate and House leaders, Geithner wrote that the Treasury will soon undertake accounting maneuvers to create $200 billion in "headroom" that will delay a violation. It was unclear how long this headroom would last, he said, because tax and spending policies for 2013 are still under negotiation as part of talks to avert the so-called fiscal cliff. Such maneuvers would usually run for about two months, but if a deal on the fiscal cliff is not reached, the extraordinary measures could last longer, according to Geithner. "Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer," he added. Congress must act to raise the debt limit. Republicans have said they want to use the debt-ceiling approval to win concessions on spending from the White House.
Treasury: U.S. Will Hit Debt Ceiling Monday - It's that time again. Time for our friends in Congress to champion fiscal responsibility – by threatening not to pay the bill for money already spent. But this time we are in the middle of the fiscal cliff drama which could exacerbate any chance of a deal presently and certainly not by Monday. From CNN: Government borrowing will hit the debt ceiling on Monday, Treasury Secretary Tim Geithner said in a letter to Congress Wednesday. As a result, the Treasury Department will soon start using what it calls "extraordinary measures" to prevent government borrowing from exceeding the legal limit. Such measures include suspending the reinvestment of federal workers' retirement account contributions in short-term government bonds…But it's unclear how much time the extraordinary measures can buy now because there are so many unanswered questions about tax and spending policies, Geithner said, referring to the lack of any resolution of the fiscal cliff. And make no mistake, once the extraordinary measures run out default is a real option given the paralysis in Washington. Even just threatening to default lead to a credit downgrade the last time. Now we might technically default which, animal spirits pending, could cascade through the global economy given how vital U.S. T-Bills are to the entire system. A truly reckless game.
Secretary Geithner Sends Debt Limit Letter to Congress - Treasury Notes - Dear Mr. Leader: I am writing to inform you that the statutory debt limit will be reached on December 31, 2012, and to notify you that the Treasury Department will shortly begin taking certain extraordinary measures authorized by law to temporarily postpone the date that the United States would otherwise default on its legal obligations. These extraordinary measures, which are explained in detail in an appendix to this letter, can create approximately $200 billion in headroom under the debt limit. Under normal circumstances, that amount of headroom would last approximately two months. However, given the significant uncertainty that now exists with regard to unresolved tax and spending policies for 2013, it is not possible to predict the effective duration of these measures. At this time, the extent to which the upcoming tax filing season will be delayed as a result of these unresolved policy questions is also uncertain. If left unresolved, the expiring tax provisions and automatic spending cuts, as well as the attendant delays in filing of tax returns, would have the effect of adding some additional time to the duration of the extraordinary measures. Treasury will provide more guidance regarding the expected duration of these measures when the policy outlook becomes clearer. Sincerely,Timothy F. Geithner
US debt limit looms amid cliff drama - FT.com: Tim Geithner, the US Treasury secretary, says the US will begin using "extraordinary measures" to avoid breaching its borrowing limit on December 31, adding an extra volatile element to the stalled budget talks between the White House and Congress that also have an end of year deadline. Mr Geithner said in a letter to Congress that changes to some of the Treasury's funding practices would, under "normal circumstances", give the department about two months before the country's borrowing limits were breached. However, because of the uncertainty over the tax and spending measures contained in the looming fiscal cliff, Mr Geithner said it was not possible to predict the duration of these special measures. The talks between the White House and Congress over the budget have been stalled since Friday in the wake of a Republican rebellion against its leadership in the House of Representatives last week and a subsequently scaled-back offer from President Barack Obama.
Geithner: U.S. to hit debt ceiling on Monday - Government borrowing will hit the debt ceiling on Monday, Treasury Secretary Tim Geithner said in a letter to Congress Wednesday. As a result, the Treasury Department will soon start using what it calls "extraordinary measures" to prevent government borrowing from exceeding the legal limit. Such measures include suspending the reinvestment of federal workers' retirement account contributions in short-term government bonds. On Monday, debt subject to the limit was just $95 billion below the $16.394 trillion debt ceiling. All told, the extraordinary measures can create about $200 billion of headroom under the limit -- normally about two months worth of borrowing. But it's unclear how much time the extraordinary measures can buy now because there are so many unanswered questions about tax and spending policies, Geithner said, referring to the lack of any resolution of the fiscal cliff.
Moody's Expects U.S. Government to Raise Debt Limit - As the U.S. rapidly approaches its debt limit, Moody's Investors Service expects the government will raise the debt ceiling as it has done in the past, but not before it nearly exhausts all other temporary measures. The ratings firm said it views the debt ceiling as a permanent part of the U.S. government's risk profile of triple-A--the highest credit quality. The outlook remains negative. Moody's anticipates drawn-out negotiations on the national budget, and said the debt ceiling might not be addressed until a budget agreement is reached or the government comes close to exhausting all other temporary measures. It said that the probability of a missed interest payment on Treasury bonds is extremely low, but will monitor political developments in the coming months for evidence the probability has shifted.
Geithner's plan to buy time under debt ceiling - The Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months. Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on December 31. To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities -- known as "slugs" -- beginning on December 28. Investments in a government employee pension fund will also be suspended, along with some other measures, although Treasury did not give dates for when these other measures will begin. "These extraordinary measures ... can create approximately $200 billion in headroom under the debt limit," Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders.Normally, these measures would buy the Treasury about two months time before hitting the debt ceiling, Geithner said in the letter. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, he said.
Government Financial Asset Addition = "Deficit"; Government Financial Asset Destruction = "Surplus" - The word "deficit," when applied to the Government financial accounting of a monetarily sovereign nation, that is, one that issues a non-convertible fiat currency, with a floating exchange rate, and no debts in a currency it doesn't issue, is a problem, because the label "deficit" when applied to such a Government doesn't mean what most people think it means. As Michel Hoexter points out:. . . The word "deficit" is a hold-over from conventional accounting and the era of the gold-standard when currencies were supposed to be fixed in their quantity by convertibility of the currency into a fixed quantity of precious metal. Deficit means primarily a "lack", an "absence" and in conventional accounting it means being "in the red", not having taken in enough income to cover expenditures. . . . The term "deficit" in this sense can be properly applied to households, corporations, other private and inter-governmental organizations, and states and nations that aren't monetarily sovereign such as the US States and the members of the Eurozone. In all these instances the governments involved can run out of money, and the more deficits they run, the more the risk that they will become insolvent increases. But when that term is applied to monetarily sovereign nations, then the "deficit" notion is profoundly misleading because neither the size of the "deficit," nor its accumulation over time when it is accompanied by selling debt instruments, makes a bit of difference when it comes to solvency, because monetarily sovereign governments always have unlimited power to issue currency, if they decide to remove all self-imposed constraints on currency issuance and use that power. There's a corresponding problem with the term "surplus" as applied to monetarily sovereign Government accounting. Surpluses are supposed to represent the situation where tax revenues exceed spending and the gap between them is described as net "savings" increasing the financial assets of the Government running the surplus. A surplus over a particular time period is viewed as being "in the black" for that time period, as a good thing for the Government doing it, and as reducing the "debt" of that government giving it an increased financial capability to spend in the future.
Metrics for the "Ever Expanding Government" - The latest in a series examining persistent macroeconomic myths [1] Reader Bruce Carman writes: total gov't spending in the US, including personal transfers, is equivalent to 54% of private GDP This is merely the latest installment in demonstrations of innumeracy in defense of reducing the size of government. Time to look at some data. First, even if we believed outlays as a share of non-government GDP was a reasonable measure, could we replicate the 54% number cited? No. So, total current government expenditures (on goods, transfers) is less than 44% of "private GDP"; whether that is a denominator makes sense is a relevant question. More importantly, I just cannot understand why people assert things as facts without checking them (or even providing a link to a source; didn't they teach this sort of thing in high school?). Notice that 2012Q3 levels of outlays to non-government GDP are less than in 1982Q4. Second, note that government spending in real terms has been increasing at a slower pace than real GDP. Total government spending on goods and services has trended more slowly than GDP since 1987, and has been growing more slowly since 2009Q3. Nondefense government spending has exhibited similar behavior.
The Deficit: Not as Bad as They Want You to Think - If those so-called deficit hawks would stop moralizing long enough to look at the data, they might find something surprising: That data almost entirely undermine their argument. Yes, the long-run path of spending on federal health programs remains a serious and legitimate source of concern. But the numbers show that our current fiscal deficit is well within control -- as have been the deficits of the last five years.The right way to evaluate the U.S.'s current fiscal condition is not to look at at its budget deficit, which fluctuates sharply due to economic conditions. Rather, it is to calculate the structural budget deficit, the difference between government spending and revenues when the economy is normal. (More technically, it is when the "output gap," the difference between actual and long-run potential economic output, is zero.) For this post, I have calculated estimates of the current structural fiscal deficit from 1949 to 2012 with data from the Office of Management and Budget.These estimates come from breaking down the deficit into its components -- spending by individual program and revenues from each tax -- and computing their sensitivity to the output gap over time through linear regression. My estimates of the output gap come from the Congressional Budget Office. For fiscal year 2012, the annual structural deficit was $325 billion, or 2.1 percent of GDP. (See the first graph accompanying this post.) That is worse than no structural deficit at all. But it is hardly unsustainable.
On the Economics and Politics of Deficits - Krugman - Evan Soltas of Wonkblog and Joe Weisenthal of Business Insider both make the same point, in more detail, that I tried to make in my series on ONE TRILLION DOLLARS: the current budget deficit is overwhelmingly the result of the depressed economy, and it's not clear that we have a structural budget problem at all, let alone the fundamental mismatch between what we want and what we're willing to pay for that people like to claim exists. Here's another chart, showing the primary federal balance — that is, not counting interest payments — since 1972 (data from CBO):It's hard to look at that chart and not conclude that the slump is the principal cause of the deficit. Soltas suggests, based on a more careful statistical analysis, that the structural budget deficit, including interest, is 2 percent of GDP or less. He also makes an interesting observation: the deficit has become more cyclically sensitive over time thanks to rising inequality. How so? More revenue comes from the wealthy — even though their tax rates have fallen — and their income is more volatile than that of ordinary workers. So, the whole deficit panic is fundamentally misplaced. And it's especially galling if you look at what many of the same people now opining about the evils of deficits said back when we had a surplus. Remember, George W. Bush campaigned on the basis that the surplus of the late Clinton years meant that we needed to cut taxes — and Alan Greenspan provided crucial support, telling Congress that the biggest danger we faced was that we might pay off our debt too fast. Now Greenspan is helping groups like Fix the Debt.
Taxes, and Cuts, and Drones: Obama's Imperialism of the Peasants - Ezra Klein is now reporting more details on what the impending fiscal cliff deal between Obama and the Republicans is going to look like: among other things, it includes cuts in Social Security benefits, and if this Dylan Matthews post from last week is correct, tax increases that would be slightly regressive in their effects (I'm not talking here, obviously, about the tax increases that would come from undoing some of the Bush tax cuts). So that's the deal: We raise taxes. And what do we get in return? Lower benefits. Genius!Democrats like Obama and his defenders, who bemoan the stranglehold of the Tea Party on American politics, have only themselves to blame. For decades, Democrats have collaborated in stripping back the American state in the vain hope that the market would work its magic. For a time it did, though mostly through debt; workers could compensate for stagnating wages with easy credit and low-interest mortgages. Now the debt's due to be repaid, and wages – if people are lucky enough to be working – aren't enough to cover the bills. The only thing that's left for them is cutting taxes. And the imperialism of the peasants.
Bond Vigilantes and the Power of Three – Krugman - Matthew Yglesias picks up on a point I've tried to make at some length recently: the popular story about how an attack by bond vigilantes can cause an interest rate spike and turn America into Greece, Greece I tell you, is incoherent. (Here's a 2010 example from Alan Greenspan — the piece in which he declares it "regrettable" that the vigilantes haven't yet attacked, but grudgingly concedes that low rates might persist "well into next year", that is, into 2011. So what has he learned from the failure of his prophecy? Nothing, of course). It's not just that there have so far been no signs of the bond vigilantes; it's that even if for some reason the vigilantes did attack, it's very hard to see how they could cause a recession in a country that retains its own currency and doesn't have large amounts of debt denominated in foreign currency. I've been trying to think about other ways to make this point, and also to help people understand the interest rate fluctuations we have actually experienced; here's one stab at it.
Falling Off the Fiscal Cliff - Dallas Fed - Rarely has a Federal Reserve chairman spoken of an event in more ominous terms. Falling off the "fiscal cliff," a phrase coined by Ben Bernanke to describe a massive and abrupt shift in federal taxes and spending, may accompany the last words of "Auld Lang Syne" to begin 2013. Commentators spanning the ideological spectrum have pronounced an economic apocalypse of varying proportions. Some have forecast that the country will slide into recession for at least two quarters and possibly all of 2013, that consumers will become even more reluctant to spend and that the international economy will suffer. The Group of 20—a collection of industrialized nations whose members (including Japan and much of Europe) face their own economic challenges—pegged the cliff as the single most significant threat to global economic growth in 2013. These are serious claims, with wide-ranging implications not only on Capitol Hill but also for monetary policymakers. As such, it's important to better understand the fiscal cliff and its overall economic implications, examining key components, their size and how they interact. Assessments of the fiscal cliff are complicated by the nation's high unemployment rate and slow growth in the three-and-a-half years following the end of the last recession. Most macroeconomic analyses of a fall from the cliff indicate a large hit to gross domestic product (GDP), at least in the short run. Some suggest the best alternative strategy may be to combine short-term spending with longer-term fiscal consolidation—though such a strategy may be easier said than done.
'Falling Off the Fiscal Cliff ' - Jason Saving, a senior research economist and advisor in the Research Department of the Federal Reserve Bank of Dallas, discusses the economic consequences of going over the fiscal cliff (see also Over the Cliff We Go for Brad DeLong's views on this issue). After detailing the components of the cliff and noting they amount to $560 billion in budget cuts or tax increases for 2013 alone (though they wouldn't all kick in at once), he notes: .. Interestingly, the various components of the fiscal cliff don't contribute equally to these negative economic impacts. For example, it might appear that letting the 2001/03 tax cuts expire would have a large impact because this component is among the biggest fiscal cliff budget items, as detailed in Chart 2. However, the cuts are estimated to have the fourth-largest impact, behind the sequester, labor-market provisions and AMT patch. The reason is that, in the short run, different fiscal policies can have a very different "bang for the buck" (often referred to in economic shorthand as a fiscal "multiplier"). When the government reduces its purchases and lays off workers, as would occur under the sequester, there is an immediate and sizable reduction in demand that feeds back into the overall economy — that's why the impact of the sequester on GDP is so large. Marginal rate cuts have the smallest multiplier because they flow disproportionately to higher-income individuals, who make the "wrong" choice from a short-run point of view and save those funds instead of spending and pumping them back into the broader economy.[3] ...
We've Been Falling Off That Fiscal Cliff - Brad DeLong is unhappy with how President Obama is negotiating with the Republicans on the wrong fiscal issue as he cites reporting from Suzy Khimm: President Obama's concessions to Republicans on taxes and Social Security have grabbed the headlines, but there's another big area where the White House has shifted considerably in the GOP's direction: direct stimulus to revive the short-term economy. In his original offer, Obama asked for $425 billion in stimulus through jobs measures and tax extenders, according to the Committee for a Responsible Federal Budget, including $50 billion in infrastructure spending and other stimulus measures; mass mortgage refinancing to boost the housing market; $30 billion in unemployment extension; a $115 billion extension of the payroll tax holiday; and the extension of a host of business tax breaks known as extenders. Republicans, however, have argued that more explicit stimulus right now isn't the answer: House Speaker John Boehner included no explicit stimulus measures in his original offer and has only proposed to extend a handful of business tax breaks since then. In his third offer, reported Monday, Obama dropped his ask from $425 billion to $175 billion in stimulus. Suzy's reporting reminds us what Ben Bernanke meant by the fiscal cliff: Even as fiscal policymakers address the urgent issue of fiscal sustainability, a second objective should be to avoid unnecessarily impeding the current economic recovery. Indeed, a severe tightening of fiscal policy at the beginning of next year that is built into current law--the so-called fiscal cliff--would, if allowed to occur, pose a significant threat to the recovery.
How 'Fiscal Cliff' Talks Hit the Wall - Behind Scenes, Boehner Failed to Sell Republicans on Taxes, While Obama's Spending Plans Rankled— In truth, talks to secure a big deficit-reduction deal had already broken down Monday afternoon in the office of Mr. Boehner (R., Ohio), a Wall Street Journal reconstruction shows. Mr. Boehner had been negotiating a deal with the White House to let tax rates rise for upper-income people. Mr. Boehner, irritated with the White House, was finding it hard to keep his troops in line as details of his negotiations with Mr. Obama leaked out. In the speaker's office just off the Capitol's majestic rotunda that afternoon, he told his top lieutenants that he was already thinking about a pared-down backup plan. "In the absence of an agreement, 'Plan B' is the plan," One by one, they came out in favor of Plan B and against the broader deal. House Ways and Means Chairman Dave Camp (R., Mich.) said the new tax revenue the broader plan called for was too high. Then Budget Chairman Paul Ryan (R., Wis.), whom Mr. Boehner had spent weeks wooing, said he couldn't sign on because it didn't make structural changes in entitlements. The speaker went ahead with Plan B, which collapsed Thursday night before he could even bring it to a vote, leaving talks at a perilous standstill just days before the year-end fiscal-cliff deadline. Even if an agreement can be reached by then, both sides expect it to be a small package doing little to tackle the long-term budget woes and deferring the battle until next year.
Guess Who Still Believes in Invisible Vigilantes - Paul Krugman = Lots of chatter about the WSJ's account of how the deficit negotiations broke down, although — a few fun quotes aside — most of it is what we already pretty much knew. But here's a passage that bothered me: On Dec. 13, Mr. Boehner went to the White House at the president's request, joking he was going to the woodshed. The president told him he could choose one of two doors. The first represented a big deal. If Mr. Boehner chose it, the president said, the country and financial markets would cheer. Door No. 2 represented a spike in interest rates and a global recession. Oh, dear — does the president still believe that failure to reach a Grand Bargain will cause an attack by the invisible bond vigilantes, and that this is the reason we should fear the fiscal cliff? How many times do we have to show that this notion is wrong both in theory and empirically? America can't run out of cash (except politically, if Congress refuses to raise the debt ceiling); it basically can't experience an interest rate spike unless people see an increased chance of economic recovery and hence a rise in short-term rates. And the people who have been predicting an interest rate spike any day now for four years shouldn't have any credibility at this point. Oh yeah, and a global recession would surely mean lower, not higher, interest rates. If Obama is still confused about this, it has real-world consequences — in particular, it makes him too eager to reach a deal now now now, and hence too willing to concede on fundamental priorities.
When Prophecy Fails, by Paul Krugman - Seriously, at every stage of our ongoing economic crisis — and in particular, every time anyone has suggested actually trying to do something about mass unemployment — a chorus of voices has warned that unless we bring down budget deficits now now now, financial markets will turn on America, driving interest rates sky-high. And ... very few of the prophets of fiscal doom have acknowledged the failure of their prophecies to come true so far. ...I and other economists argued from the beginning that ... budget deficits won't cause soaring interest rates as long as the economy is depressed —... the biggest risk to the economy is that we might ... slash the deficit too soon. And surely that point of view has been strongly validated by events. The key thing ... to understand, however, is that the prophets of fiscal disaster ... are at this point effectively members of a doomsday cult. They are emotionally and professionally committed to the belief that fiscal crisis lurks just around the corner, and they will hold to their belief no matter how many corners we turn without encountering that crisis.
Paul Krugman: Deficit Hawks Are 'Remarkably Foolish' - Paul Krugman is doubling down in his battle with deficit hawks. The Nobel Prize-winning economist struck back at those who doubted his rationale for not being concerned about the budget deficit in a blog post Monday afternoon. Krugman described in a column in The New York Times that morning how The Wall Street Journal, former Federal Reserve Chairman Alan Greenspan and others predicted that fears over rising U.S. government debt would spook investors. In reality, he noted, interest rates on U.S. government debt are at historic lows, indicating that investors aren't worried about America's ability to pay off its debt. Still, Krugman wrote in his blog post that he received "remarkably foolish" feedback on his column as deficit hawks continued to doubt that low interest rates prove investors aren't concerned about America's debt. "The persistence of the inflationista, eek! deficits! view despite year after year of failure -- and the amazing effort put into making excuses for year after year of failure -- are a wonder to behold," Krugman wrote in the blog post.
Kill the "fiscal cliff" instead of the Economy - William K. Black - Everyone now agrees that the so-called "fiscal cliff" is a stupid policy that threatens our economy and our people. Everyone agrees why the "fiscal cliff" is stupid – it inflicts austerity at a time when it is likely to throw the nation into a gratuitous recession. Here's the short version of why austerity is a self-destructive response to the Great Recession. A recession occurs when demand to purchase goods and services falls and the economy contracts, causing increased unemployment. This simultaneously causes tax revenues to fall and government expenditures for programs like unemployment compensation to increase. The fall in revenues and increase in expenses causes the federal budget deficit to grow rapidly. Austerity is a policy of raising taxes and/or cutting governmental spending for the purported purpose of cutting the deficit. If one raises overall taxes in response to the Great Recession the result is a reduction in private sector demand. If one cuts governmental spending the result is a reduction in public sector demand. The result of reducing private and public sector demand in the recovery phase from the Great Recession, where overall demand is already grossly inadequate, is to throw the nation back into recession or even a depression. That causes the budget deficit to grow. A policy of austerity undertaken under the claim that it will reduce the deficit causes a gratuitous recession that leads to a massive loss of wealth, far higher unemployment, and in increased deficit. That is why austerity is a policy that is the self-destructive economic analogy to the medical insanity of bleeding patients.
Futurism and Policy - Krugman As regular readers have noticed, I've been spending a fair bit of time recently thinking about issues of long-term growth: given how much public debate focuses on things like the state of Social Security or Medicare in the year 2040, it's definitely worth trying to figure out what we know or don't know about what our economy might look like in the year 2040. There is a conventional wisdom here, and it's embodied in long-run budget projections. I'm tempted to say that this conventional wisdom is that the next several decades will look like the last several decades, but that's not quite true. If you look, for example, at the CBO's long-run budget outlook, it assumes that productivity growth over the long term will be 1.7 percent a year (p. 34), which is roughly equal to average productivity growth since 1973. But it also assumes that compensation will grow roughly in line with productivity, which has not at all been the experience of the past 30 years. I can see why the budget office does this; basing the productivity guesstimate on the past is surely a defensible procedure — but projecting a continuation of the rapid rise in inequality would mean basing budget projections on a dystopian vision of the future, which is not exactly what you expect government agencies to do. Still, surely it's overwhelmingly likely that these projections will be hugely off in one or more ways.
'Chained-CPI' and calculating the cost of living - Conservatives argue that Washington never cuts programs, it just increases spending on them more slowly than planned. But to recipients of federal benefits, that type of "cut" can seem just as painful. That's why there is an intense battle looming over a proposal to reduce the cost-of-living adjustments applied to numerous federal programs, including Social Security. The change is billed as a more accurate way to calculate the effects of inflation, but it's really just a way to make Washington's financial picture marginally brighter. Both President Obama and House Speaker John A. Boehner (R-Ohio) have embraced a new version of the Consumer Price Index that's designed to do a better job accounting for how people respond to changes in prices. The switch to "chained-CPI" would trim the annual cost-of-living adjustment slightly, reducing Social Security and other federal benefit payments by more than $100 billion over 10 years. It would also generate billions more in tax revenue by slowing the rate at which tax brackets are adjusted for inflation, causing taxpayers with growing incomes to move more rapidly into higher brackets.Economists have grumbled for decades that the CPI overstates the real increase in the cost of living, in part because it assumes that the only way consumers react to changes in prices is to switch between more and less expensive versions of the same product. It doesn't consider how consumers change what they put into their shopping baskets in the face of rising prices by, for example, replacing meat with pasta. The "chained" approach to CPI factors in changes in the shopping basket as well as the price of the items therein to reflect more accurately the products people are actually buying.
Democrats, Social Security and the Fiscal Cliff - Why cut Social Security? The program is currently solvent, is expected to remain solvent for decades to come, and projected shortfalls in the future could be better addressed by raising the incomes of the people who pay into the program, not by cutting payments to those who depend on them. What is to be gained by 'solving' a problem that isn't? If cutting Social Security isn't necessary, why then is it being proposed? Barack Obama provided copious evidence in prior proposals, television interviews and speeches that doing so is his intent. Congressional democrats and labor leaders quickly acceded to his proposal to do so, with House Speaker Nancy Pelosi going so far as to actively lie that proposed cuts will 'strengthen' the program. And given the cuts will eventually put tens of millions of Americans into dire poverty from a program they paid into for all of their working lives, what rationale could possibly justify doing so? Mr. Obama created the 'fiscal cliff' to first push his stacked (in favor of cutting social insurance programs) 'deficit commission' to develop a plan to cut government spending and second, to force the issue to be revisited immediately after the election if no plan was agreed to. And Republican threats to refuse to raise the debt ceiling for leverage to 'force' spending cuts are idiotic. Ultimately the entire 'debate' is nonsense—the U.S. doesn't fund spending directly from taxes. As the Federal Reserve is in the process of demonstrating with its QE (Quantitative Easing) programs, it can buy an unlimited quantity of government debt with money it 'creates' –the 'debt limit' is an arbitrary misdirection. This isn't to argue that there is no relationship between economic production and money creation, but it is to point out that the 'Federal budget' is a convenient fiction. So, given his repeated analogy of the Federal budget to a family budget, is Mr. Obama ignorant of government finances or does he understand them and is purposely using the misleading analogy to further unstated goals?
Ten Reasons Why the Chained CPI Is Terrible Policy - Now that Christmas is over, President Obama and Speaker Boehner will soon resume talks to cut Social Security as part of a deal to avert the fiscal cliff. Here are ten reasons why the chained CPI–the Social Security cut they are considering–is terrible policy. I spoke about this with David Shuster on last Saturday's Take Action News. Check out the video of our discussion here. Then, subscribe to Take Action News TV on YouTube. It's free.
- 1. Chained CPI is a significant benefit cut that compounds over time, hitting late old-age beneficiaries and the long-time disabled hardest. For a worker with average earnings retiring at age 65 in 2015, chained CPI would cut benefits $653 a year (3.7%) at age 75, $1,139 a year (6.5%) at age 85 and $1,611 a year (9.2%) at age 95.
- 2. Chained CPI hits current beneficiaries. The theory is, if you're gonna burn people, give them some time to adopt a Spartan lifestyle for several years so they can make up for the lost pension money in time for retirement.
- 3. Chained CPI cuts benefits for veterans. At least 771,000 veterans receive both Social Security and VA disability benefits. Under chained CPI, both would be cut. A fully disabled veteran claiming benefits at age 30 in 2012 would see a cut in VA benefits alone of $1,425 a year (4.3%) at age 45, $2,341 a year (7%) at age 55, and $3,231 a year (9.7%) at age 65.
- 4. Chained CPI cuts benefits for the indigent elderly and disabled on Supplemental Security Income (SSI). Do I need to add detail here? These are the poorest of the poor.
- 5. Chained CPI is less accurate for seniors and people with disabilities. Chained CPI assumes people can substitute cheaper products as prices go up, but this is not true of seniors and people with disabilities for whom health care makes up a larger share of expenses. In 2009, health care made up 12.9% of expenses for people 65 or older, but 5.3% of spending for people ages 25-64.
In Case You Were Dying For More Polemics On the Chained CPI…Here Ya Go: Here's a rough typology/continuum of the positions on this policy change:
- 1)–it's a more accurate measure of price changes and should thus be widely applied to government programs and the tax code;
- 2)–true it's more accurate, but it's also a benefit cut that compounds over time and thus any changes should shield economically vulnerable people from its impact (CBPPs view);
- 3)–OK, you want to index Social Security benefits to a more accurate price index? Then have the BLS develop a chained index for the elderly (in fact, they have one—the CPI-E—but it needs work). Dean Baker makes that case—forcefully—today.
- 4)–Do not make this switch. It's a benefit cut to Social Security which is a critical source of income to most elderly. How could we possibly countenance such a change at a time when most of the economy's growth is accruing to the wealthy as middle and poor families fall further behind? Bob Kuttner hammered this point home on this radio show the other day.
You have nothing to lose but your chained CPI -- I see with delight that Obie is planning to cut Social Security, in a characteristically muffled and dishonest way, by tinkering with the technicalities of how inflation is calculated. If hamburger becomes more expensive, old people will switch to cat food. So naturally cat food should replace hamburger in the 'market basket'. Beautiful, eh? I say that I see it with delight although, of course, I really have mixed feelings. I like to be proved right — even before his second inauguration he's selling out the people who voted for him, as I said he would — but on the other hand, this thievish subterfuge will definitely make my old age a colder and starker affair. Oh well, there will also probably be less of it, since Medicare will certainly be next. Look on the bright side.
Six Rules for Criticizing Obama Over Social Security Cuts - These are confusing times for liberals. They've just awoken from a seven-week bender to discover that their number one sacred cow – President Obama – wants to take a butcher's knife to sacred cow # 2, Social Security. Libs are feeling angry, betrayed, and sputtery. They want to hold Obama's feet to the fire but aren't sure how to do so in a way that reassures Obama that they will always have his back. Thankfully, liberals themselves have developed – and relentlessly enforced – a number of rules about whether, when, and how it's acceptable to criticize Obama. Libs love rules almost as much as they love their rulers so hopefully this will help them get through these troubling times.
America's Deceptive 2012 Fiscal Cliff – Part 1 - Shifting the tax burden onto labor and industry is achieved most easily by cutting back public spending on the 99%. That is the root of the December 2012 showdown over whether to impose the anti-deficit policies proposed by the Bowles-Simpson commission of budget cutters whom President Obama appointed in 2010. Shedding crocodile tears over the government's failure to balance the budget, banks insist that today's 15.3% FICA wage withholding be raised – as if this will not raise the break-even cost of living and drain the consumer economy of purchasing power. Employers and their work force are told to save in advance for Social Security or other public programs. This is a disguised income tax on the bottom 99%, whose proceeds are used to reduce the budget deficit so that taxes can be cut on finance and the 1%. There is no more need to save in advance for Social Security than there is to save in advance to pay for war. Selling Treasury bonds to pay for retirees has the identical monetary and fiscal effect of selling newly printed securities. It is a charade – to shift the tax burden onto labor and industry. Governments need to provide the economy with money and credit to expand markets and employment. They do this by running budget deficits, and this can be done by creating their own money. That is what banks oppose, accusing it of leading to hyperinflation rather than help economies grow. Their motivation for this wrong accusation is self-serving and their logic is deceptive. Bankers always have fought to block government from creating its own money – at least under normal peacetime conditions.
Richard Eskow Asks: Which Side Are You On? - Richard Eskow of the Center for the American Future, posted a very good one a couple of days ago. He used the old union meme "which side are you on" to beat up the President and Congress about Social Security being placed on the negotiating table. I thought his writing on it was striking. Here's some of it: "This is a moment of moral clarity. Right now there are only two sides in the Social Security debate: the side that says it's acceptable to cut benefits – in a way that raises taxes for all income except the highest – and the side that says it isn't."It's time to ask our leaders – and ourselves – a simple question: Which side are you on? "Nancy Pelosi says she can convince most Congressional Democrats to "stick with the President" as he pursues his gratuitous and callous plan to cut Social Security benefits as part of a deficit deal – even though Social Security does not contribute to the deficit."
Mr. Incompetent, the Economy Wrecker Alan Greenspan, Was Central to the Formation of the Campaign to Fix the Debt -Dean Baker - Alan Greenspan will go down in history as the person who has done more damage to the U.S. economy and society that anyone who was not a foreign enemy. In fact the destruction he wreaked through his incompetence would also exceed the damage caused by almost all would-be enemies as well. This is why it would have been worth highlighting the news contained in a NYT article on the origins of the "Campaign to Fix the Debt," the corporate financed effort to reduce the deficit. The article tells readers in passing: "The Campaign to Fix the Debt started to come together at a salon dinner held in the backyard of Senator Mark Warner, Democrat of Virginia, in the fall of 2011. An influential group of economic, political and business leaders — including the former Federal Reserve chairman Alan Greenspan and Mark Bertolini, the chief executive of the Aetna insurance company — huddled in a too-small tent in the pouring rain." This is such an amazing tidbit that it really should have been the lead of the article. The person most responsible for wrecking the economy -- and incidentially adding trillions of dollars to the debt -- was there at the founding of the Campaign to Fix the Debt.
The New Mandate on Defense, by Barney Frank - There were so many encouraging signs for liberals in the election results this year that one of the most significant has been overlooked. For the first time in my memory, a Democratic candidate for President argued for less military spending against a Republican candidate who called for great increases—and the Democrat won. ...Because so much of that spending stems from overreach advocated by those who believe that America should be the enforcer of order everywhere in the world—and because we subsidize our wealthy European and Asian allies by providing a defense for them...—there has been increasing conservative support for reining in the military budget. Ron Paul, who goes far beyond most liberals in his eagerness to impose severe military cuts, was a popular figure with a significant base of GOP support not despite taking this position but in part because of it.Earlier this year, for the first time that I can recall, a majority of the House of Representatives voted to reduce the military appropriation recommended by the House Appropriations Committee. The cut was only $1.1 billion—less than it should have been—but it ... passed... with the support of ... a significant minority of Republicans... A realistic reassessment of our true national security needs would mean a military budget significantly lower... That is, by next year, we no longer should be forced to spend additional funds—close to $200 billion a year at their peak—in Afghanistan and Iraq. Additionally, we can reduce the base budget by approximately $1 trillion over a ten-year period ... while maintaining more than enough military strength...
In Taxes, Guns and Cabinet, Gridlock Grips the Capital - Though it has been 45 days since voters emphatically reaffirmed their faith in Mr. Obama, the time since then has shown the president's power to be severely constrained by a Republican opposition that is bitter about its losses, unmoved by Mr. Obama's victory and unwilling to compromise on social policy, economics or foreign affairs. "The stars are all aligning the wrong way in terms of working together," said Peter Wehner, a former top White House aide to President George W. Bush. "Right now, the political system is not up to the moment and the challenges that we face." House Republicans argue that voters handed their members a mandate as well, granting the party control of the House for another two years and with it the right to stick to their own views, even when they clash strongly with the president's. And many Republicans remember well when the tables were turned. After Mr. Bush's re-election in 2004, Democrats eagerly thwarted his push for privatization of Social Security, hobbling Mr. Bush's domestic agenda in the first year of his second term.
Orcs v. Goblins: Crazed Republicans Turn on Each Other in Ugly Fiscal Cliff Battle - Lynn Parramore - Fear gripped Middle Earth. The little people looked nervously toward the horizon, wondering if their few remaining possessions would be snatched away by marauding bands of goblins and orcs. For years the simple, honest folk had suffered as the twin forces of greed and hatred darkened the land. But this time, maybe there was hope; maybe the goblins and the orcs would turn their fury upon each other as they battled on the edge of a cliff over which both might fall…. And so things appear as Americans watch the fiscal cliff deadline draw near. There's just a week to go for lawmakers to make a deal to avert automatic tax increases and spending cuts. Last week, negotiations broke down as Speaker Boehner failed to get enough votes to pass a bill that would have required the wealthy to pay a minuscule increase in taxes at a time when income inequality is crippling the nation's future. With the House gridlocked, attention turns to the Senate, where some Republicans appear to be in favor of Obama's call for a partial deal that insulates most Americans from the tax increases but defers a resolution on spending. A deal may yet pass, but it's getting very ugly in the GOP. The Republican Party, particularly in the House of Representatives, is so blinded by greed and stupidity that factions are turning on each other.
In House of Representatives, an Arithmetic Problem - Markets were down sharply on Friday after Speaker John A. Boehner's tax plan failed to reach a vote in the House on Thursday evening.A variety of smart political observers have suggested that the markets are misreading the situation. Instead, they say, the failure of Mr. Boehner's bill makes a deal to avert the so-called fiscal cliff more likely because it has now become clear that any deal will need to rely upon the support of at least some Democrats, which could ease passage through the Democratic-controlled Senate.Perhaps this is correct. Mr. Boehner has said that the White House and Senator Harry Reid, the majority leader, will now have to take the lead in negotiations. The chance that a fiscal deal will be secured on terms that Democrats find favorable may have increased. But the chance that there will not be a deal at all may also have increased, or at least not one before protracted negotiations that could harm the economy. The difficulty is in finding any winning coalition of votes in the House of Representatives.In the diagram below, I've charted the major coalitions in the incoming 113th Congress, which will convene on Jan. 3. The new House of Representatives will have 233 Republicans and 200 Democrats. Two seats remain vacant, which means that 217 of 433 votes will be required to pass a bill.
Search for Way Through Fiscal Impasse Turns to the Senate - With little more than a week for lawmakers to avert huge tax increases and spending cuts, attention is turning from the gridlocked House to the Senate, where some Republicans on Sunday endorsed President Obama's call for a partial deal to insulate most Americans from the tax increases but defer a resolution on spending. Senators Kay Bailey Hutchison of Texas and Johnny Isakson of Georgia, both Republicans, implored Senate leaders to reach an accommodation with Mr. Obama when Congress returns on Thursday, even if that meant that taxes would go up for those with high incomes and that spending cuts would be put off. "The president's statement is right," Mr. Isakson said Sunday on the ABC program "This Week." "No one wants taxes to go up on the middle class."..."The truth of the matter is, if we do fall off the cliff after the president is inaugurated, he'll come back, propose just what he proposed yesterday in leaving Washington, and we'll end up adopting it," Mr. Isakson continued. "But why should we put the markets in such turmoil and the people in such misunderstanding or lack of confidence? Why not go ahead and act now?"
Gloomy predictions as Washington approaches the 'fiscal cliff' - It's still possible that the 'fiscal cliff' with its automatic tax increases and across-the-board spending cuts can be avoided. But the clock is ticking toward Jan.1, and most lawmakers are pessimistic.The New Year may be more than a week off, but realistically Congress and the White House have less than that as the clock ticks toward the "fiscal cliff" with its automatic tax increases and across-the-board spending cuts that could throw an already-weakened economy into a tailspin.On the Sunday before Christmas, lawmakers worried and postured, with a few – very few – expressing just a bit of optimism that anything would be done in time. "We can do better and we should do better," Senate Budget Committee chairman Kent Conrad said on "Fox News Sunday." "I would hope that we would have one last attempt here to do what everyone knows needs to be done: which is a larger plan that really does stabilize the debt and gets us moving in the right direction."
Lawmakers Say Time Short to Reach Deal on Fiscal Cliff - Lawmakers said they were losing confidence that Congress and President Barack Obama can reach a deal within a week to avoid more than $600 billion in tax increases and spending cuts that could cause a U.S. recession. "For the first time I feel it's more likely that we will go off the cliff," Senator Joseph Lieberman, a retiring Connecticut independent, said yesterday on CNN's "State of the Union" program about the so-called fiscal cliff. In the aftermath of House Speaker John Boehner's failure to garner support from his caucus for "Plan B," which would have extended tax cuts on incomes below $1 million, Lieberman said Senate leaders now must take charge of resolving the budget stalemate. Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, "have the ability to put this together again and pass something" and "they can do some things that will avoid the worst consequences," Lieberman said.
Fiscal Cliff Update: It Ain't Over 'til We're Over, But Little Movement on Hill - Reading Jon Weisman in the NYT this AM, the question re the fiscal cliff is less "are we going over?" and more, "do I attach a parachute or a bungee cord?" There are definitely folks trying for a last minute deal of the type the President outlined on Friday:
- –extend tax cuts on 98% of households; allow expiration for top 2% over $250K;
- –suspend sequester (i.e., shut off automatic spending cuts)
- –extend unemployment insurance, patch AMT and doc fix (I think that's right on those last two–the latter refers to scheduled negative spike in payments to docs who see Medicare patients).
But the politics may be insurmountable. Even if Senate R's wants to go there, the only way I see this passing in the House is if Rep Boehner decides he's willing to avoid the cliff by teaming up with Democrats (i.e., he allows a vote on a compromise to proceed and it passes with majority D's). This seems an unlikely option when his alternative is to wait a few days until after we go over, when agreeing to much the same deal is scored as a big tax cut (since tax rates will have reset by then). Silly, if not crazy, I know…but there it is.
Grand Bargain Shrinks as Congress Nearing U.S. Budget Deadline - The deal that seems possible to fix the U.S. budget is getting smaller and smaller. Five days before a deadline that would trigger more than $600 billion in tax increases and spending cuts that could cause a U.S. recession, Congress will return Dec. 27 amid calls for action in the Senate.The politics of progress there are easier than in the Republican-controlled House of Representatives, which balked last week at Speaker John Boehner's plan for tax increases on income above $1 million. Still, the House would have to sign off next. Boehner and President Barack Obama have been unable to agree on the tax-rate increase on top earners Obama wants or the cuts to entitlement programs that Boehner sought, complicating the chances of getting a package done. "At this point, all they're looking for is a fig leaf," said Stan Collender, "There's no grand bargain. There never was." The Senate is run by Democrats, and some Republican members including Kay Bailey Hutchison of Texas have said they would favor a small deal on parts of what the president has sought to avoid raising taxes on the middle class. The trouble is, Senate Majority Leader Harry Reid, a Nevada Democrat, and Minority Leader Mitch McConnell, a Kentucky Republican, need to come up with something that also can get through the House, which has balked at any tax increases. Senate Republicans don't want to be on the record supporting higher taxes unless they know the House also would pass it.
Obama 'eager to fall off fiscal cliff' - President Barack Obama has been accused by a senior Republican of being eager to take the US over the fiscal cliff for political gain, as Washington edges closer to a year-end deadline with no deal in sight. Speaking on Fox News Sunday, Senator John Barrasso, the third-highest ranking senator in the GOP, suggested that the president "sensed victory at the bottom of the cliff". Earlier, Obama called on Congress to "cool off" over the holiday break, amid rising rhetoric on both sides. On Friday, the White House raised the prospect of settling for a stopgap measure to avert the punitive tax rises and swingeing spending cuts which are due to come in effect on 1 January. The president had previously pushed for a grand compromise to avoid the so-called fiscal cliff. But with just nine days to go until the year-end deadline, Democrats and Republicans are seemingly still some way off from any agreement, be it to a comprehensive deal or short-term measures. Asked if he believed that the US was heading towards missing the deadline, and thus falling off the fiscal cliff, Barrasso said: "I believe we are. I believe the president is eager to go over the cliff for political purposes. He senses a victory at the bottom of the cliff. I think it hurts our county and it hurts our economy."
In Fiscal Debate, a Little Symbolism May Go a Long Way - We must decide whether to pursue a relatively loose and stimulative policy, and to trust in our later discipline, or to slam on the brakes now. Yet there may be a way to square this circle. When it comes to income tax rates, we could raise them for virtually everyone, to send a clear message that the current fiscal situation is unsustainable. At the same time, we could limit those tax increases for most income classes to a relatively small percentage, much less than the full expiration of the Bush tax cuts would imply. The sorry truth is that we Americans seem like the addict who keeps saying "I can quit any time," yet doesn't cut back. So what else might we say to frame this problem in a more useful way? To see how this could work, consider this script: Let's say the Republicans decide to largely give in to what the President Obama is proposing. There is, however, a catch: the president has to agree to raise marginal tax rates on all income classes, not just on the rich. The tax increase would be one-quarter of a percentage point, or some other arbitrary small amount, with larger increases possible for higher incomes, as has been discussed. The deal also stipulates that both the president and Congress must publicly acknowledge that current plans for government spending can't be financed unless taxes on most or all income groups climb further yet, and by some hefty amount. Given the slow economy, it is undesirable to reverse all or even most of the Bush tax cuts. A small but publicly trumpeted clawback of some of the cuts would send the right message to voters, while minimizing the macroeconomic fallout.
People Hate Losses and That Affects U.S. Budget Talks - Human beings dislike losses. In fact, they dislike losses a lot more than they like equivalent gains. This simple point helps to explain what kinds of economic incentives are most likely to have an impact. It also places a bright spotlight on an overlooked obstacle to fiscal reform. Any effort to raise revenue, or to cut programs, will impose losses. Consider, for example, tax deductions for mortgage interest, charitable contributions, state taxes and retirement savings. Imagine that these deductions didn't now exist, and the question was solemnly asked: In the current economic environment, should we create them in their current form? I am not denying that the right answer might be yes, but the whole discussion would be different from what it is today, when many people are resisting losses from the status quo. Loss aversion helps to entrench existing programs, making them seem like entitlements, simply because they establish the reference point against which losses and gains are measured. Can anything be done to overcome loss aversion? There are three possibilities. First, we might try to convince people that however painful, some losses are justified. Second, we might make loss aversion less relevant by bundling two or more reforms, ensuring that those who lose in one area gain in another. Third, we might focus people's attention on the question, not whether we should eliminate or scale back a program, but whether we would now create it in the first instance.
Fiscal Fail: Government Agencies Plan Few Significant Changes For January, Despite Cliff Hype: The so-called fiscal cliff is a combination of automatic tax hikes and spending cuts scheduled to go into effect Jan. 1. But the agencies responsible for implementing those changes, including the IRS and the Pentagon, are well aware that congressional and White House negotiators will most likely come to some sort of deal within weeks or months -- and so they are planning to carry on as usual, according to a broad review of private and public government plans. In other words, there will be no cliff. There won't even be a slope. Congress and the president can have their public and private dramas, but the government officials responsible for carrying out their eventual orders have seen this movie before, and they know how it ends.
Fiscal cliff: Barack Obama cuts short Christmas holiday to tackle crisis - The decision by Barack Obama to cut short his Christmas break and return to Washington to make a final effort to solve the fiscal cliff crisis demonstrates just how significant the issue is for the US – and arguably the rest of the world. The White House said on Wednesday the president would leave his family behind in Hawaii as he attempts to reanimate stalled negotiations that are being closely watched around the world before the year-end deadline. Without a fix – even a quick one – tax rates will rise across the board as $110bn (£68bn) in spending cuts are imposed and 2 million people lose their long-term unemployment benefits. Economists have warned that this could be powerful enough to push the US back into recession – and much of the world with it – in 2013. As US politicians prepared to return to work on Thursday Starbucks's chief executive, Howard Schultz, was asking employees in its 120 Washington DC area stores to write "Come Together" on coffee cups when serving customers to highlight the need for a deal which will set the tone for the world's economies next year . For now there is no specific bill on the schedule of either the US Senate or House of Representatives although aides for both the Democrats and the Republicans have said they expect some kind of deal to be brokered by the end of the week. But with so little time left few analysts now expect anything more than a "patch" solution and for the real argument to continue into the new year.
Obama Will Ride to the Rescue … for Republicans - The Republicans have put themselves in a holy mess with this Plan B debacle. They now have less than zero leverage. They are a national laughingstock. A majority of the country now thinks they are "too extreme." They just got walloped in the election. And with the tax cuts set to expire the laws are rigged against them as well. There is only one person who can rescue the Republican Party now -- Barack Obama. And he will. I have been saying for over two years now that President Obama is dying to do the Grand Bargain. He will do it at any cost. In fact, he actively wants to cut Social Security and Medicare. He can't wait for that pat on the back from the establishment when they finally call him post-partisan, above party politics, and a statesman for screwing over his own voters. This is by far his greatest wish. I couldn't believe that people couldn't believe that President Obama offered to cut Social Security again in this round of negotiations. What are you still surprised at? The man has offered to cut these so-called entitlements every time. When are you going to get it through your head -- he wants to cut them!
The 4 Fiscal Cliff Deals That Are Still Possible - With less than a week to go before going over the fiscal cliff becomes the reality that common wisdom said absolutely could not happen, there are only a handful of ways this is going to go down.
- 1. The Big Deal. This isn't going to happen. Never mind that the political support doesn't exist to do the combined comprehensive tax and Medicaid/ Medicare/Social Security reform that is the basic definition of a big budget deal. Even if that political support did exist there simply isn't enough time left to get it done before January 1 and 2. Chance of happening: 0%.
- 2. The Kick-the-Can-Down-the-Road. Yes, I know how sickeningly commonplace this continually repeated phrase has become, but it is still a fiscal cliff possibility. In fact, the procedurally (but not the politically) easiest thing to do at this point would be to extend all the existing tax cuts until, say, six months or a year from now, and delay the spending cuts to the same date, that is (no screaming, please), to kick the can down the road. Chance of happening. Chance of happening: 5%.
- 3. The Fig Leaf. This has become the increasingly discussed option last Friday: Do something small that's just enough to provide political cover to everyone for cancelling the tax increases and spending cuts. For example, an agreement to do nothing more than extend the tax cut for those earning $250,000 or less each year and perhaps something else (the White House is pushing for an extension of unemployment benefits, for example) might be enough to make cancelling the rest of the fiscal cliff politically acceptable. Chance of happening: 10%.
- 4. Nothing. Even though it will be one of the worst possible outcomes economically, It's hard to argue with the procedural simplicity of doing nothing because nothing would have to be debated, passed in the House and Senate, compromised or signed by the president. No votes, caucus meetings, press conferences or negotiating sessions. Chance of happening: 90%.
Fiscal cliff: Grand bargain unlikely as tax increases, spending cuts loom - The deal that seems possible to fix the U.S. budget is getting smaller and smaller. Five days before a deadline that would trigger more than $600 billion in tax increases and spending cuts that could cause a U.S. recession, Congress will return Thursday amid calls for action in the Senate. The politics of progress there are easier than in the Republican-controlled House of Representatives, which balked last week at Speaker John Boehner's plan for tax increases on income above $1 million. Still, the House would have to sign off next. Boehner and President Barack Obama have been unable to agree on the tax rate increase on top earners that Obama wants or the cuts to entitlement programs that Boehner sought, complicating the chances of getting a package done. "At this point, all they're looking for is a fig leaf," said Stan Collender, a former staff member of the House Ways and Means Committee and the House and Senate budget committees who's now at Qorvis Communications in Washington. "There's no grand bargain. There never was."
Cliff Hanger: Obama's Last Stand and the Republican Strategy of Fanaticism - Robert Reich: President Obama is cutting his Christmas holiday short, returning to Washington for a last attempt at avoiding the fiscal cliff. But he's running headlong into the Republican strategy of fanaticism.House Speaker John Boehner's failure to persuade rank-and-file House Republicans to raise taxes even on millionaires fits the fanatic's strategy exactly. Boehner can now credibly claim he has no choice in the matter – Republican fanatics in the House have tied his hands and manacled his feet — so the only way to avoid going over the cliff is for Obama and the Democrats to make more concessions. The White House's hope of getting the Senate to pass legislation that raises taxes on the wealthy in order to pressure Boehner won't work because the legislation can't possibly get through the House. That's the point: Boehner has demonstrated he has no choice; the fanatics are in charge there. Obama could decide going over the cliff isn't so bad after all – as long as he and congressional Democrats introduce legislation early in the 2013 that gives a tax cut to the middle class retroactively to January 1st (extending the Bush tax cut to the first $250,000 of income) and restores most spending — and Republicans feel compelled to go along. But with Boehner's hands tied and the fanatics in charge, this gambit becomes far riskier. What if we go over the cliff and House Republicans continue to hold out against any tax increases on the rich while demanding major cuts in Medicare and Social Security? The path of least resistance is for Obama and the Democrats to offer to keep everything as is, through 2013 – extend all the Bush tax cuts and continue all current spending (lifting the debt limit along the way) – unless or until a "grand bargain" on the budget is agreed to before the end of the next year.
Republicans and Democrats Should Agree to Do No Harm - I suppose it is has become too much to expect that the White House and US Congress might actually succeed in doing something useful for the economy at some point in the near future. But perhaps they could at least settle on the wisdom of Hippocrates and agree to do no harm. Given the recent decline in the federal deficit – a natural result of US economic recovery – both parties agree the best economic policy for our country right now is to adopt a "wait and see" strategy. Rather then putting pressure on fragile private sector balance sheets by peremptorily reducing spending or raising taxes, we have concluded that it is best to allow the recovery to continue to take hold by standing pat with our current level of fiscal accommodation. Mindful of the hopeful economic signs and the self-stabilizing reduction in the deficit, we have agreed to repeal the Budget Control Act of 2011 and extend the payroll tax holiday at this time, and to stand ready to reevaluate the situation as economic developments merit. Obama gives up on his grand bargain dreams; Republicans give up the goal of attacking entitlement programs.
U.S. poised to go off 'fiscal cliff': Senator Reid - Senate Majority Leader Harry Reid on Thursday warned that the United States looks to be headed over the "fiscal cliff" of tax hikes and spending cuts that will start next week if squabbling politicians do not reach a deal. Reid, the top Democrat in Congress, criticized Republicans for refusing to go along with any tax increases as part of a budget remedy as he sketched out a pessimistic outlook."It looks like that is where we're headed," Reid said of the likelihood of the U.S. economy going over the "fiscal cliff" - with tax increases on most working Americans and automatic spending cuts kicking in next month. Reid made his comments in a Senate floor speech at the opening of a post-Christmas session, adding that time was running out ahead of a December 31 deadline to act to avert the "fiscal cliff." Reid urged House of Representatives Speaker John Boehner, the top Republican in Congress, to bring his chamber back into session and to avoid the biggest impact of the "fiscal cliff" by passing a Democratic-backed bill extending low income tax rates for all Americans except those with net household incomes above $250,000 a year. House Republicans are expected to hold a telephone conference call on the fiscal cliff on Thursday afternoon, a House Republican aide said, adding that a schedule for returning to Washington would be discussed.
Fueled by Deficit Hysteria, Obama and the Republicans Are Choosing the Path of "Economicide" - Set up by a series of interactions over the last four years between Obama and his nominal opponents in the Republican Party, the framework of the negotiations ignores the way that the US government finances itself as well as the only known economic policy orientation which will allow our economy to thrive; the proposed policies and negotiations have been to date economically illiterate. The 2011 Budget Control Act, initiated by the Republican controlled House, is one of the most foolish pieces of legislation ever passed into law by Congress, as it forces the government to attempt to "balance" its budget and reduce the budget deficit. National government budget deficits, which are the net contribution of government spending to economic growth, are actually integral to economic growth, contrary to the anti-scientific conventional budget lore upon which deficit hysteria has been built. Without government budget deficits, the economies of nations with trade deficits CANNOT grow in monetary terms due a matter of simple arithmetic; those few nations (China, Germany, not the US) with large trade surpluses MIGHT be able to grow without a budget deficit but always with the cooperation of other nations financing those surpluses through trade and, in most cases, government budget deficits on the side of the net-importing nation. A fiat currency-issuing national government, unlike a local government, business or a household, does not depend upon tax or other income and therefore is not and should not pretend to be bound by conventional balance sheet accounting, which was perhaps a more applicable, though not particularly successful, means of national government accounting during the gold standard era. Wall Street tycoons freelancing as economic pundits, would like Washington insiders and the media to believe that the gold-standard never went away, specifically for the purpose of cutting social programs that stand in the way of Wall Street's expansion into new markets.
For Republicans, it's not about deficit reduction: Perhaps the oddest of the conservative rationalizations for refusing any kind of budget compromise is the insistence that budget deals are pointless — and maybe even counterproductive — because Democrats rig them such that the taxes are real and spending cuts are illusory.As Americans for Tax Reform, Grover Norquist's outfit, puts it, "tax hikes are real in these deals, but the spending cut promises are a fraud, plain and simple." It's a trick so dastardly that today's conservatives think even Ronald Reagan got snookered! "We know that President Reagan fell into the trap and President George H.W. Bush fell in the trap of 'Here, just raise taxes on somebody, and we'll come along with the cuts later,'" said Rep. Louie Gohmert on Fox News. It's an odd argument because it would seem, on its face, to invalidate everything the GOP wants and has been working toward. If no spending cut agreed to today can be counted on tomorrow, then what's the point of the Ryan budget, which includes $897 billion in unidentified spending cuts that future congresses would have to decide? Or of the 2011 Budget Control Act, which included more than a trillion dollars of spending cuts, and that Republicans were sufficiently confident in to agree to raise the debt ceiling?
Boehner calls House back to Washington on Sunday - The House of Representatives will reconvene on Sunday evening, just less than 30 hours before the United States reaches the fiscal cliff. House Speaker John Boehner, R-Ohio, notified lawmakers that the House would come to order at 6:30 p.m. ET on Sunday in hopes of averting the end-of-year combination of tax hikes and spending cuts that constitute the fiscal cliff. The lawmaker on Thursday's call told NBC News that any Senate plan Boehner puts on the House floor (of which there is no guarantee) would only receive as few as 40 Republican votes, making Democratic help necessary. "If the Senate will not approve these bills and send them to the president to be signed into law in their current form, they must be amended and returned to the House," Boehner told Republicans Thursday, according to a source on the call. "Once this has occurred, the House will then consider whether to accept the bills as amended, or to send them back to the Senate with additional amendments. The House will take this action on whatever the Senate can pass -- but the Senate must act."
Obama calls Hill leaders for Friday cliff talks - MarketWatch: President Barack Obama has called congressional leaders to come to the White House on Friday in a last ditch effort to avert the fiscal cliff. Senate Democratic leader Harry Reid, House Speaker John Boehner, Senate Republican leader Mitch McConnell and House Democratic leader Nancy Pelosi are expected to attend the meeting. White House officials, McConnell and Boehner all confirmed plans for the meeting. McConnell said separately late Thursday that Senate Republicans are open to any White House proposal to avert the fiscal cliff. "I told the president I would be happy to look at whatever he proposes," McConnell said in a brief statement on the Senate floor. "The action is on the Senate side, and we will see if we can move forward on a bipartisan basis." "We'll see what the president has to propose — members on both sides of the aisle will review it — and then we'll decide how to proceed," McConnell said. "Hopefully, there is still time for an agreement of some kind that saves taxpayers from a wholly preventable economic crisis." However, he also said that Republicans would not "write a blank check" just because the deadline for the fiscal cliff is little more than four days away.
White House Says It Has No New Fiscal Cliff Plan - ABC News: The White House said today it has no plans to offer new proposals to avoid the fiscal cliff which looms over the country's economy just five days from now, but will meet Friday with Congressional leaders in a last ditch effort to forge a deal. Republicans and Democrats made no conciliatory gestures in public today, despite the urgency. The White House said President Obama would meet Friday with Democratic and Republican leaders. But a spokesman for House Speaker John Boehner said the Republican "will continue to stress that the House has already passed legislation to avert the entire fiscal cliff and now the Senate must act." The White House announced the meeting after Senate Minority Leader Mitch McConnell, R-Ky., called the budget situation "a mess" and urged the president to present a fresh proposal.
"Fiscal Cliff": These is no Drop Dead Date and more thoughts - Two months ago I pointed out that there was no drop dead date for the "fiscal cliff" (more a slope than a cliff). A few things to remember:
• There is no drop dead date. Online sites and TV channels with "fiscal cliff" countdown timers are an embarrassment and are just trying to scare viewers.
• The "fiscal cliff" is about too much austerity too quickly (cutting the deficit too quickly). The "cliff" is a combination of expiring tax cuts (income taxes, payroll taxes, and more will increase), and forced spending cuts (mostly for defense). This has NOTHING to do with other long term fiscal issues, primarily related to medicare.
• All along I've assumed an agreement would be reached in January. That timing is based on a two assumptions: 1) the tax cuts for high income earners would be allowed to expire, and 2) some politicians will not vote for any package that included a tax rate increase. After January 1st the politicians can vote for a tax cut for most Americans. That is obviously dumb, and makes extra work for many involved with payrolls and taxes, but that is politics.
Obama To Meet With Congressional Leaders Friday - President Obama will host Congressional leaders at the White House on Friday in hopes of reaching a deal to avert the so-called fiscal cliff, the White House and House Speaker John Boehner's office announced Thursday. Vice President Biden will also attend the meeting. "Tomorrow, Speaker Boehner will attend a meeting with congressional leaders at the White House, where he will continue to stress that the House has already passed legislation to avert the entire fiscal cliff and now the Senate must act," a Boehner aide said in an email. The fiscal pow wow could be the last of such orchastrated affairs before the country goes over the fiscal cliff -- or before a major set of automatic tax increases and spending cuts kick in at the start of the new year. The House is expected to reconvene in Washington for "votes" on Sunday evening, Majority Leader Eric Cantor's office announced, presumably in anticipation of a yet to be reached deal that could be approved with enough time before the deadline Monday night.
Obama Said to Plan Offer of Scaled-Back Budget Package Today - Bloomberg: President Barack Obama at today's White House meeting plans to propose a scaled-back package to avert some of the effects of tax and spending changes set to begin in January, a Democratic aide with knowledge of the president's plans said.Obama will meet today at the White House with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans, and Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats. The meeting is scheduled for 3 p.m. Washington time, three days before a year-end deadline to avoid more than $600 billion in spending cuts and tax increases. The scaled-back offer Obama plans to make to Republican congressional leaders includes renewing George W. Bush-era tax cuts for middle class earners, most likely for those making $400,000 and below, according to a Senate aide close to the talks. Both aides spoke on condition of anonymity. The plan would extend unemployment insurance benefits set to expire at the end of the year, prevent a cut in Medicare reimbursements to doctors and head off an expansion of the alternative minimum tax, said the aide, who spoke on condition of anonymity. The plan would delay or replace part of scheduled federal spending cuts, most likely the defense portion, the aide said.
Potential GOP "no"-votes on Obama-Boehner fiscal cliff deal - The effort to get to January 1, with no damage done by the fiscal cliff deal, continues. No matter what the next Obama-Boehner deal contains, progressives will have a net win with No Deal. Even if the next offer does not contains Chained CPI, a raise in the Medicare eligibility age, or any of the other ways to knife the signature social programs, it will likely contain a surrender on the Bush Tax front. For example, letting the Bush–Obama tax cuts expire raises the top marginal rate to 39.6%. Obama wants to exempt the first $250,000 of income from that rate. The net good effect on federal revenue is almost $1 trillion dollars ($829 billion, to be exact). Any change to either the percentage or the threshold raises significantly less money. For example, changing the threshold to $1 million and keeping the rate at 39.6% gives away almost half of that revenue. I'm almost certain the next Obama–Boehner deal, if there is one, will give back some off that trillion. Let's not do that. Let's keep all of those dollars in the federal purse. In addition, let's not hurt any social program. No Deal is a good deal, say I. Keep the pressure on the Republicans to blow this thing up.
Fiscal cliff' focus shifts to Senate; estate tax emerges as key in talks - President Obama is reaching out to Senate Democrats and Republicans to strike an eleventh-hour deal to avoid the fiscal cliff, even as lawmakers grow increasingly skeptical about the likelihood of success. Obama has invited the Democratic and Republican leaders of the Senate and House to meet at the White House Friday to restart the stalled talks, while House Republicans have made plans to return to Washington on Sunday. While any deal will have to win approval of both chambers, the focus of the negotiations has shifted to the Senate.Senate GOP Leader Mitch McConnell (R-Ky.) appeared to anticipate this shift in dynamic last week when he presided over a Senate Republican conference meeting to discuss a potential compromise on taxes, according to a Republican senator who participated. The consensus that emerged during the meeting is that Senate Republicans could accept a deal that extends the Bush-era income tax rates for a vast majority of the populace and also extends the 35 percent tax rate on inheritances over $5 million per spouse, according to the GOP lawmaker. Another Republican senator confirmed that such a proposal could attract a significant number of Republican votes, especially if it shifted the threshold for extending income tax rates to cover family income up to $400,000 or $500,000.
Summoned Back to Work, Senators Chafe at Inaction — Senators bade hasty goodbyes to families, donned ties and pantsuits in lieu of sweat pants and Christmas sweaters and one by one returned to the Capitol on Thursday to begin the business of doing nothing in particular. But for once, those lawmakers were fully united, if only around their sadness and frustration at being stuck in Washington in a holiday week, peering over the edge of the fiscal abyss. "This is no way to run things," complained Senator Rand Paul, Republican of Kentucky, who checked off the various backyard sports he longed to be playing with his children: football, soccer and some golf. Members of the Senate trudged back to the Capitol ostensibly to work out a deal with the White House to avoid large tax increases and spending cuts set to take effect in just a few days. With the possibility of New Year's Eve floor festivities looming, Congress could find itself voting on the final day of the year for the first time in more than four decades. Senator Harry Reid of Nevada, the majority leader, was eager to demonstrate that the Senate was ready to move on any idea presented by the White House or the House even as things seemed to be careening toward failure on Thursday.
The Senate And The Fiscal Cliff: Really? - Are we really counting on this U.S.. Senate to avoid the fiscal cliff? The same U.S. Senate that hasn't been able to get 60 votes for much of anything the past four years? The same U.S. Senate that with only four days left before the fiscal cliff hits would have to get unanimous consent to do anything? The same U.S. Senate where only one senator can prevent something from happening? The same U.S. Senate where Rand Paul (R-KY) and Marco Rubio (R-FL) have nothing to lose and much to gain by being the senator who stops anything that can be characterized as a tax increase from happening? That U.S. Senate? Really?
Four Strikes Is An Out; Obama Proposes Last Minute "Mini Deal" Essentially Scrapping All Cutbacks, While Adding Milk Lobby Bonus - The one thing I am always afraid of in budget negotiations is that virtually nothing is done, or worse yet, something counterproductive is done. Obama's latest Fiscal Cliff "Mini-Deal" Proposal is exactly the kind of counterproductive nonsense I am talking about. Assuming the above Atlantic Wire article is correct ...
- The deal would delay or replace the vast majority of spending cuts called for in the automatic sequester.
- The deal would extend unemployment benefits
- The deal would stop planned cuts to Medicare reimbursements
- Out of the blue, and probably an attempt to buy farm-state votes, the deal purportedly would include a "milk fix" that allegedly would avoid a dairy market catastrophe created by the failure to renew the farm bill
I am against all four ideas and it's hard to say which one is worse. Certainly we need to scrap all farm subsidies, not put back those that have been scrapped. Hopefully the House punts this ball a mile high, or better yet, let's hope this does not clear the Senate in the first place.
Big Cliff Meeting Over…No White Smoke From WH Chimney - Read the details for yourself, but from what I'm picking up, resolution of the fiscal cliff before New Years still requires Rep Boehner to bring a vote up in the House that will pass with majority D votes, and I've seen no indication that this will happen. In their big meeting today, the President apparently stuck to his $250,000 threshold for the tax increases, though there's behind-the-scenes chatter of a deal being discussed in the Senate with a $400,000 threshold. That deal–if it should come into play, which it currently is not–may also keep the estate tax where it is now ($5m exemption, 35% rate) instead of accepting the WH reset to $3.5m exemption and 45% rate. I suspect that if Congressional R's (and probably some D's) are inflexible on that point, the WH will not accept the change…nor should they. Remember, the estate tax resets to $1m exemption and a 55% in mere hours from now. I suspect a deal that kept the threshold at $250K, suspended the sequester, patched the AMT and doc fix, and extended UI, would pass both houses of Congress and be signed by the President. But if the leadership in the House or the minority in the Senate continue to block such a vote, it's hard to envision, with a few days to go, any alternative path that doesn't lead us off the cliff.
Why they want to go over the cliff - Washington's Democratic and Republican power brokers have sent the message to the nation that going over the fiscal cliff is a worst-case scenario. But they're not acting that way, not at all. Instead, many of them have calculated that it's better to go over the cliff — at least temporarily — than swallow a raw deal. For many Republicans, a cliff dive means blaming President Barack Obama for a big tax hike in the short term and then voting to cut taxes for most Americans next month. That's an easier sell back home in Republican-heavy districts than a pre-cliff deal that raises taxes on folks making over $250,000 or $400,000, extends unemployment benefits and does little if anything to curb entitlement spending. If they back a bad deal now, they run the risk of facing primary challenges in two years. For Democrats, the cliff is better than setting a rich man's cutoff in the million-dollar range — or worse yet, extending the Bush tax cuts for all earners — and slashing Medicare and Social Security to appease Republicans. They, too, see an advantage in negotiating with Republicans who will feel freed from their promise not to vote to raise taxes once the rates have already gone up.
Republicans Agree To Raise Taxes For Entire Country - The inside line from Washington is that there will be no Fiscal Cliff deal before the end of the year. That's not surprising. Unfortunately, it always seemed unlikely that our politicians would agree to any vote that could be framed as them having voted to "raise taxes" — which any deal before December 31 could have been framed as. The more likely scenario seemed to be that politicians would wait until taxes increased automatically on January 1 and then heroically vote to cut them — at least some of them. And that's still my bet about what will happen in January. But just because it seemed likely that politicians would be ruled by "politics" instead of pragmatism doesn't mean this is something to be proud of.
Hoyer compares GOP debt limit tactics to hostage taker threatening to shoot child - Less than two weeks after one of the nation's deadliest school shootings, the No.2 Democrat in the U.S. House, Steny Hoyer, compared Republican tactics for dealing with the nation's debt limit to someone threatening to shoot a child hostage. "It's somewhat like taking your child hostage and saying to somebody else, 'I'm going to shoot my child if you don't do what I want done.' You don't want to shoot your child. There's no Republican leader that wants to default on our debt, that I've talked to," Hoyer said at a Capitol Hill press conference. Hoyer's comments came in response to a question about the Treasury Department's notice that the nation was approaching its debt limit. He criticized Republicans for previous resistance to raising the debt ceiling and used the gun analogy to argue that the issue should not be part of the negotiations involving the fiscal cliff.
Update on Fiscal Cliff - From a Goldman Sachs research note today:
Q: Where do things stand now?
A: Talks have resumed, but as of this writing there is no agreement yet. President Obama and congressional leaders met this afternoon to discuss the possible next steps that might be taken to avoid the fiscal restraint set to take effect at year-end. It seems likely that Senate Majority Leader Reid (D-NV) will bring up legislation on the Senate floor at some point before the end of the year, but it is not yet clear whether that will be the product of a bipartisan compromise reached with Republican leaders and the President, which would have a chance of passing both chambers of Congress, or a proposal supported only by Democrats, which would be less likely to pass in either chamber, particularly the House.
Q: Will there be an agreement by year-end?
A: It is still possible but a retroactive deal in January looks more likely. With little time left before year end, there are two obvious obstacles to enacting an agreement by that time: the lack of a political agreement, and the short time left on the calendar to get any agreement that might be reached enacted into law. Reaching a political agreement is the tougher part. ...
"Fiscal Cliff" Deal Seems Increasingly Less Likely - Barring some last minute deal it seems America is going over the "fiscal cliff." Which given the perverted incentives of Washington may be just what some people are longing for: For many Republicans, a cliff dive means blaming President Barack Obama for a big tax hike in the short term and then voting to cut taxes for most Americans next month. That's an easier sell back home in Republican-heavy districts than a pre-cliff deal that raises taxes on folks making over $250,000 or $400,000, extends unemployment benefits and does little if anything to curb entitlement spending. But there have been talks. One of the stumbling blocks appears to be the estate tax: The consensus that emerged during the meeting is that Senate Republicans could accept a deal that extends the Bush-era income tax rates for a vast majority of the populace and also extends the 35 percent tax rate on inheritances over $5 million per spouse, according to the GOP lawmaker… Liberal Senate Democrats may balk at the prospect of extending the estate tax in its current form. Many liberals were furious after Obama struck a deal with McConnell two years ago extending all of the Bush-era income tax rates and setting the estate tax at its current level.
Obama Urges Senate Leaders to Put Together a Tax Deal— President Obama urged Congress on Saturday to put together a last-minute tax deal over the weekend to avert large tax increases and budget cuts next year, or at least stop the worst of the economic punch from landing beginning Jan. 1. Related Senate Leaders Set to Work on a Last-Minute Tax Agreement (December 29, 2012) "Leaders in Congress are working on a way to prevent this tax hike on the middle class, and I believe we may be able to reach an agreement that can pass both houses in time," Mr. Obama said during his weekly address. "We just can't afford a politically self-inflicted wound to our economy." Senate aides went to work behind closed doors Saturday morning after Democratic and Republican leaders expressed optimism that a deal could be reached. After weeks of fruitless negotiations between the president and Speaker John A. Boehner, Mr. Obama has turned to Senator Harry Reid, Democrat of Nevada and the majority leader, and Senator Mitch McConnell of Kentucky, the Republican leader — two men who have been fighting for dominance of the Senate for years — to find a solution. The speaker, once seen as the linchpin for any agreement, essentially ceded control to the Senate and said the House would act on whatever the Senate could produce.
Obama Wants Up or Down Vote On "Basic Plan" By Fiscal Cliff Deadline - In a late press conference after his 3pm meeting with congressional leaders, President Obama offered an ultimatum to Republicans – pass a bipartisan compromise bill or he will instruct Senate Majority Leader Reid to put a bill on the Senate floor that will make anyone voting against it look responsible for the horrors of the fiscal cliff.From USA Today: If the Senate can't agree on a plan this weekend, Obama said he will ask Reid to simply put a bare-bones plan on the floor that would stop tax hikes for the middle class. Obama's plan would extend unemployment benefits due to expire, as well as the George W. Bush tax cuts for Americans who make less than $250,000 a year. Such a move would presumably pressure Republicans into signing off, or be blamed if the nation goes over the cliff. "We should let everybody vote," Obama said. "That's the way this is supposed to work." It is worth keeping in mind looking bad has not stopped the Republicans before nor are those interested in not looking bad in control of the party anymore (as evidenced by the Plan B vote). So don't be surprised if Senate Republicans filibuster said bill or it dies in the House. The House will not even be in session until Sunday evening.
Obama pushes for a 'fiscal cliff' deal, demands a vote - President Obama used his weekly address on Saturday to put pressure on the Senate's leaders as they work to craft a deal that would avoid the so-called fiscal cliff. Obama said he believed "we may be able to reach an agreement" to avoid a series of tax increases and spending cuts set to take effect in the new year. But he warned that if Senate leaders failed, he would push for a vote on his stripped-down proposal to block the tax hikes on the middle class. "I believe such a proposal could pass both houses with bipartisan majorities – as long as these leaders allow it to come to a vote," Obama said in his taped remarks. "If they still want to vote no and let this tax hike hit the middle class, that's their prerogative – but they should let everyone vote. That's the way this is supposed to work." The move was meant to increase the political heat on Republicans, who opposed Obama's plan to allow taxes to rise on top earners. If no deal is reached, Republicans could find themselves in the position of blocking the legislation that would prevent the tax hike for most taxpayers. Obama delivered the same message Friday night, after a meeting with congressional leaders at which Senate Majority Leader Harry Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) agreed to work together to try to reach a last-minute compromise to avoid the fiscal cliff.
Kicking the fiscal cliff can. - President Obama is flying back to DC today to continue work on the fiscal cliff, but my understanding of the calendar is that we're basically out of time already. To enact a big tax and spending bill, you'd first need agreement amongst the principals. Then aides would have to write it up in more precise legal language, and it'd have to be scored and sold to key members of congress. That's really a "deal before Christmas if you want to be finished by the New Year" scenario and we're not there. But there's still valuable work to be done. For one thing, Democrats and Republicans can talk about what bills they might like to pass in January once we're using the new baseline. But there's also the option of kicking the can. So, what can happen over the next few days once Obama and Congress return to their seats? "Democrats and Republicans can talk about what bills they might like to pass in January." Another possibility is that Obama and Boehner ask Congress for a few more weeks to hammer things out. However, "liberals will probably feel … that any mini-kick [of the fiscal-cliff can] disadvantages them. Given how close we are to locking the new baseline into place, and given the extent to which the GOP is already taking the blame for there being no deal, it looks pretty tempting from that perspective to just start negotiating anew on January 2.
Looks as Though the Austerity Bomb Is Going to Go Off... - Joshua Green:With five days to go… Republicans and Democrats… can barely bestir themselves to maintain the pretense that they're working to avoid the $600 billion of tax hikes and spending cuts due to arrive next week. President Obama is flying back from Hawaii tonight to keep up appearances. But almost nobody expects a deal before Jan. 1. Negotiations essentially ended after John Boehner's Plan B fell apart…. As the political scientist Jonathan Bernstein noted: [N]ot only do liberals believe that the expiration of Bush-era tax rates gives them a bargaining advantage, but many Republicans may well prefer that outcome as well. I think if there was any information generated by the Plan B fiasco, it might have been just that: some Republicans really would prefer an eventual outcome that involves relatively higher tax rates as long as they don't have to make an affirmative vote for it. That strikes me as exactly right, although I'd characterize the Republican motivation slightly differently…. [A]ll recognize that taxes will rise on Tuesday… to their Clinton-era levels…. Plan B… called on House Republicans to cast a career-threatening vote to raise taxes… [but] the cliff would do the dirty business of raising taxes for them if they just waited a week…. [O]nce rates reset, Republicans (and Democrats, too) would find themselves in the much more comfortable position of negotiating tax cuts for the vast majority of Americans. Given this reality, the question to ask in the days and hours leading up to the fiscal cliff is not whether the two parties will strike a deal, but why they would want to.
Too Many Baselines! - Here's an important piece by Ezra Klein on recent budget debates stressing a couple of points that I hold near and dear. First, there's the "compared-to-what," or budget baseline problem. Whenever we're talking about revenue increases or spending cuts, we're comparing those changes to some line in a budget that represents our existing plans for taxes and spending. So, if our "baseline" is to spend $1 trillion on Medicare over a bunch of years and we cut that by $200 billion…well, you get it. But we are currently beset by so many different baselines—different possible spending paths—that it's almost impossible to make a meaningful comparison. I was about to say "a comparison that anyone other than a seasoned budget wonk could understand." But I've been in lots of meetings with seasoned wonks where we ourselves are confused by which baseline someone is using when they're describing a plan. Doesn't CBO—the official score keeper of such matters—help here? Not as much as you think, because they have to use "current law" as their main point of comparison. In normal times, that works OK, but for years, they've had to assume, despite the fact that no politician supports this outcome, that the Bush tax cuts fully sunset as per the law (basically, they assume we go over a stay over the cliff). They have an alternative baseline, but that just becomes another in a sea of confusing options. There's got to be a better way.
Spending, Taxation, and the Fiscal Cliff-Becker - A front page article today in the New York Times points out that around 1990 the Republican Party shifted away from an emphasis on balancing the federal budget to an emphasis on the level of taxes. I believe that this shift was in the right direction, and it is highly relevant in understanding the Republicans' position on what to do to prevent the so-called "fiscal cliff" in 2013. Supporters of a balanced budget approach to fiscal policy want federal spending and revenue to be about equal to each other in the long run. This means that any long-term growth in the deficit and in the public debt should be less than the growth in GDP. By contrast, the level of taxation approach emphasizes that the levels of federal spending and taxation are the primary determinants of the effects of the federal government on the economy, including incentives to work hard, invest, and start businesses. The level of taxation ultimately determines the size of government since no government can continue to spend substantially more than its revenues. Greater government spending may help stimulate an economy coming out of a major recession, although the absence of any clear stimulus to the economy from the Obama stimulus package raises serious questions about the ease of stimulating an economy with fiscal policy. However, the level of federal government spending also has major direct effects on an economy, such as through spending on medical care, defense, and subsidizing the production of ethanol. Greater government spending also tends to crowd out spending by the private sector on consumption and investments.
The Fiscal Cliff--Posner -The "fiscal cliff" refers to a federal law scheduled to take effect on January 1 that will rescind the Bush tax cuts and make other adjustments to federal tax laws, with the overall effect being to increase tax rates and at the same time slash discretionary federal spending, much of it defense spending, across the board. If the "fiscal cliff" takes effect and remains in effect, it is estimated that over a ten-year period it will increase federal tax revenues by about a trillion dollars and cut federal spending by approximately the same amount. This would do wonders for the federal deficit (the annual increase in the federal debt), slashing it in half (by $200 billion) in 2013 and presumably in each of the subsequent years as well—or would it? The increase in the deficit since the 2008 financial crash has been due mainly to the depression (as I insist on calling the "Great Recession"—its political consequences alone may turn out to be as great as those of the Great Depression of the 1930s). The depression has reduced federal income tax collections (because people's incomes have fallen) and increased spending on unemployment insurance and other depression-fighting spending measures (the "automatic stabilizers," designed to smooth the business cycle by increasing tax revenue/reducing government spending in booms and increasing government spending/reducing tax revenue in busts). A substantial increase in taxes willreduce private spending, and in turn the production of goods and services and therefore employment, while reducing government spending will reduce incomes and so increase the depressive effect on spending of higher taxes; both the tax increases and the spending decreases will reduce disposable income. The overall effect may be to offset the deficit reduction that would occur if the "fiscal cliff" law would have no effect on disposable income and therefore on production and employment (and therefore on income and tax revenue).
Four Misconceptions About Taxes and the Deficit - In all the negotiations to prevent the fiscal cliff from hurting the economy, potential compromises keep coming apart over the issue of raising income tax rates, especially on high earners. Income taxes stir up strong feelings among voters because of concerns about fairness – and politicians exploit those emotions, whichever party they belong to. As a result, the broader budget discussion keeps getting diverted to focus on tax rates, which actually play only a small role among the causes of current U.S. financial troubles. In fact, there are really two different budget problems that often get mixed together. One is the current deficit, which totaled more than $1.1 trillion last year, almost double the amount that the U.S. economy can comfortably carry. The other is the long-term accumulation of debt. Even after the U.S. economy fully recovers from the effects of the recession, the Federal deficit is projected to remain too high. As a result, the national debt is on course to keep rising as a percentage of GDP until it reaches dangerous levels. While everyone agrees that growth of the national debt needs to be slowed over the long term, experts are divided over how much the current deficit should be cut. Some commentators even argue that the short-term deficit should be allowed to continue for another year or so to stimulate the sluggish economy. The best solution to both these problems would be a grand bargain that limits the growth of debt over the long term while trimming the immediate deficit just enough to show that policy is heading in the right direction. What keeps getting in the way are a bunch of misconceptions, chiefly about tax rates. Here are the four biggest:
Sometimes You Should Look Up the Numbers, Fiscal "Cliff" Edition - I'm working on an op ed on the "fiscal cliff" and just for kicks, I decided to see just how savage these massive cuts in spending would be. Now let me confess, the results shocked even me, so by all means, somebody show me what I'm overlooking… Here's a snapshot from a table in the CBO's August 2012 forecast: We are already in Fiscal Year 2013; it started on October 1. So the column for 2012 is already done; the changes (if no deal is reached) will show up in the 2013 numbers. So: If nothing is done and we go over the "cliff," then total spending will drop from $3.563 trillion to $3.554 trillion, a reduction of $9 billion, or 0.3%. Notice everyone, I am saying a drop of three-tenths of one percent. Then, by 2014, total spending will have risen to above where it was this year, in 2012 (because 3,595 > 3,563). On the revenue side, going over the "cliff" is projected to raise receipts from $2.435 trillion in 2012 to $2.913 trillion in 2013, an increase of $478 billion, or 19.6%. The deficit in 2013 is projected to be $641 billion, down from the actual $1.128 trillion deficit in 2012, for a drop of $487 billion.
The "fiscal cliff": What to expect if there's no deal - What happens if the country is forced over the "fiscal cliff" on January 1? Various federal tax cuts and breaks enacted under President George W. Bush expire as well as the payroll tax holiday enacted under President Obama. About $1.2 trillion in federal spending cuts begin to kick in (approximately $110 billion a year for 10 years), divided equally between the Pentagon and most other federal agencies. And federal jobless benefits expire for 2 million unemployed Americans.If lawmakers fail to work out any sort of deal, there will be severe long-term consequences for the economy: According to the Tax Policy Center, going off the "cliff" would affect 88 percent of U.S. taxpayers, with their taxes rising by an average of $3,500 a year; taxes would jump $2,400 on average for families with incomes of $50,000 to $75,000. Because consumers would get less of their paychecks to spend, businesses and jobs would suffer. Many economists, as well as the nonpartisan Congressional Budget Office, say the combination of spending cuts and tax hikes that are set to take effect would tip the economy into a new recession. The Congressional Budget Office has forecast that implementing all the mandated government spending cuts and tax hikes would reduce real GDP by 0.5 percent in 2013, with growth sinking in the first half of the year before resuming at a modest clip later in the year. The CBO forecasts that inaction would push up the unemployment rate to 9.1 percent by the end of 2013.
Fiscal Cutoff Would Pinch at First, Then Get Steadily Worse - Quick action by President Obama and Congress could still help the economy escape the full impact of hundreds of billions in tax increases and automatic spending cuts set to take effect shortly after the last minutes of 2012 tick away next week. But if the deadlock in Washington persists much longer than a few weeks, the consequences will quickly mount, economists warn.Until late last week, most observers had expected the president and Congressional Republicans to come up with at least a short-term compromise before the year-end deadline. But the failure of Speaker John A. Boehner to win support for tax increases on the wealthiest Americans from fellow House Republicans has forced many economic observers to reconsider what might happen if political leaders remain deadlocked into 2013. Wall Street is still betting on a quick deal, but that confidence is misplaced, said Julia Coronado, chief North American economist at BNP Paribas. "Markets have been incredibly complacent about this," she said. If a compromise cannot be found by Jan. 1, she said, "the markets will take that hard." Some hits — like a two percentage point increase in payroll taxes and the end of unemployment benefits for more than two million jobless Americans — would be felt right away. But other effects, like tens of billions in automatic spending cuts, to include both military and other programs, would be spread out between now and the end of the 2013 fiscal year in September. These could quickly be reversed if a compromise is found. Similarly, the expiration of Bush-era tax cuts on Jan. 1 would not have a major impact on consumers if Congress quickly agreed to extend them for all but the wealthiest Americans in early 2013, as is widely expected.
The Best Way to Solve the "Fiscal Cliff" Has Always Been to Just Eliminate It - The problem with the so-called "fiscal cliff" is that it would impose too much austerity on a weak economy. If there is one thing that people should have learned from this global economic downturn, it is that austerity is devastating for weak economies. This issue, though, is incredibly easy to solve. Congress can just simply eliminate the fiscal cliff. That is what Congress has traditionally done when faced with artificial deadlines in the past. It just passes "temporary fixes" or continuing resolutions that keep the status quo from being disturbed. Congress can just extend the tax rates for most Americans, eliminate the idiotic sequestrations and keep most current policies as they currently are. The big news story during this entire fight shouldn't have been how the negotiations were going but what a shocking dereliction of duty both President Obama and Speaker John Boehner were committing. They should be fixing real problems instead of threatening to hurt the economy to trick their caucuses/bases into agreeing to an unnecessary deficit package
Why "Bowles-Simpson" is a con job - Young Ezra exposes the con here, even if he doesn't know that's what he's doing:
- 3) There are so many tax increases that the plan is nearly 1:1. According to CBPP's calculations, Simpson-Bowles includes $2.9 trillion in spending cuts and $2.6 trillion in tax increases. That's 1.1:1. If you add the $800 billion in projected interest savings to the spending side, then it's 1.4:1. ...
- 9) The Social Security changes. Simpson-Bowles makes three main changes to Social Security. It increases the taxable maximum on income to 90 percent of all income, which raises $238 billion over the next decade. It uses a different measure of inflation to slow cost-of-living adjustments. It raises the retirement age to 68 in 2050 and 69 in 2075.
"1:1" -- notice how Ezra doesn't even need to give the terms of ratio, so pervasive is this trope among insiders -- means a one-to-one ratio of tax increases to spending cuts. And this is the con. We can understand this by looking at another pyramid: Maslow's. For the rich, the tax increases involve sacrifices at the top of Maslow's pyramid: Self-actualization territory. Maybe they'll have to forgo those symphony concert tickets, or that gym membership, or a few extra sessions with Dr. Malfi. For the rest of us, the spending cuts -- and especially cuts to social insurance programs -- are at the bottom of Maslow's pyramid: Safety and physiology. Food, shelter, clothing, a place to sleep.
Austerity for Posterity -- Whether Democrats and Republicans come to budgetary agreement before the end of the year, it seems likely that some Americans are going to be thrown off a fiscal cliff. Even President Obama's proposals call for cuts in discretionary spending that will disproportionately affect low-income children. The chasm between pro-family rhetoric and anti-family policies is widening. We are told to raise more children in order to prevent the aging of our population. We are told that education is the key to national economic success in this "age of human capital." But what we see is a growing political effort to reduce public spending on children. As Eduardo Porter recently explained, proposed cuts to federal spending will leave government as little more "than a heavily armed pension plan with a health insurer on the side" — not an entity likely to offer a helping hand to families struggling to support and educate the next generation. Provisions now teetering on the edge of possible elimination include those that increased eligibility for the child tax credit and the earned income tax credit, which augment the after-tax income of families with children. Funds for Head Start, Early Head Start and child-care assistance will almost certainly be squeezed. Cuts in federal support for college attendance (both Pell grants and tax breaks) are likely to kick in, worsening student debt. The probable cuts come on top of increased economic stress for those in charge of posterity. As the 2012 National Child and Youth Well-Being Index Report published by the Foundation for Child Development documents, the percentage of children living in families below the poverty line has increased over the last decade to 21.4 percent in 2011 from 15.6 percent in 2001.
Obama Prods Congress to Prevent Tax Increase on 98% - President Barack Obama, facing a budget stalemate with Republicans, urged leaders of both parties to assemble an interim bill to keep taxes from rising on middle- income Americans as they work on a more comprehensive plan. Obama said "all of us agree" that rates shouldn't go up for 98 percent of taxpayers when the new year starts. He also seeks to have unemployment insurance extended for about 2 million Americans who will lose benefits in January, and a commitment to deal with spending cuts next year. "I am still ready and willing to get a comprehensive package done," Democrat Obama said at the White House yesterday, a day after House Speaker John Boehner couldn't deliver enough Republican votes for his own alternative plan, throwing negotiations into turmoil. A plan can be achieved "whether it happens all at once or whether it happens in several different steps," the president said. "Call me a hopeless optimist, but I actually still think we can get it done."
Obama's "small deal" could lead to bigger tax increases - The juiciest passage in the Wall Street Journal's behind-the-scenes report on the fiscal cliff negotiations comes when House Speaker John A. Boehner (R-Ohio) asks President Obama whether he can have the deal he rejected in 2011. "You missed your opportunity on that," the president replies. But the most important insight into the White House's strategic thinking comes when Boehner says to the president, "I put $800 billion [in tax revenue] on the table. What do I get for that?" Obama's response is cold and telling. "You get nothing," the president said. "I get that for free." That, right there, is the central fact of negotiations for the Democrats and the central problem for the Republicans. At the end of this year, more than $5 trillion in scheduled tax increases begin. But the White House doesn't believe that's real revenue. Democrats in Congress won't permit that kind of a tax increase on ordinary Americans. The White House won't permit that kind of a tax increase on ordinary Americans. But they're certain they can hold onto almost $800 billion of it. The Senate already passed a bill letting the Bush tax cuts lapse for income over $250,000. That bill is very, very popular. The White House expects that if we go over the cliff, the House will have to pass that bill, too, and the president would have little choice but to sign it. That bill raises taxes by a bit more than $700 billion, which is less than the $1.6 trillion the White House wants. But that $700 billion, to the White House, is the baseline: If they get nothing else, they will certainly get that.
How Party of Budget Restraint Shifted to 'No New Taxes,' Ever - When conservatives sank Speaker John A. Boehner's plan last week to acquiesce on tax increases for the most affluent Americans as part of a potential broader deal with the Obama administration to avert tax increases for everyone else, several said that 1990 accord was a reason. They regard Mr. Bush's broken promise as a major reason he was not re-elected, and they say the budget agreement proved that such compromises do not restrain the growth of government. But the 1990 legislation also highlights a basic challenge now facing the party, which the chaos within the House caucus helped bring into public view on Thursday night. Republicans continue to embrace the no-new-taxes stand as a centerpiece of the party's identity, even in the face of public opinion that strongly supports tax increases on high incomes. And some Republicans fear that the party's commitment to prevent tax increases more and more is coming at the expense of those other, older kinds of fiscal responsibility. "Republicans used to be interested in not running continual rivers of red ink," said former Representative William Frenzel, a Minnesota Republican who as the ranking member of the House Budget Committee in 1990 helped to negotiate the deficit deal. "If that meant raising taxes a little bit, we always raised taxes a little bit. But nowadays taxes are like leprosy and they can't be used for anything, and so Republicans have denied themselves any bargaining power."
The Bush tax cuts: Who benefits? - Marc Thiessen points out that the Bush tax cuts for low- and middle-income households—which once were derided by Congressional Democrats as a pittance compared to the cuts for high-earners—are now portrayed as essential to the well-being of the middle class. You will be shocked to hear that the press has played along as well. For instance, a Dec. 24 Wall Street Journal article declared that "If the U.S. goes over the 'fiscal cliff,' some Americans may fall harder than others:"The biggest impact in sheer dollars would land on relatively affluent households, particularly when it comes to the tax increases that make up the bulk of the cliff. But in terms of percentage of tax increases, low- and moderate-income taxpayers will face the biggest burden—an often overlooked part of the budget debate that's now getting attention as the year-end deadline nears. This is precisely the opposite of what we heard as the 2001 income tax cuts were debated.. For instance, the Center on Budget and Policy Priorities pointed out in 2004 that "The top one percent of households will receive tax cuts averaging almost $35,000 — or 54 times as much as that received on average by those in the middle of the income spectrum."
Tax fairness and the wealthy - A central question for leaders confronting our fiscal crisis is fairness in the tax system — in particular, whether the wealthiest Americans are paying their fair share. While there appears — or, at least, appeared — to be some agreement between President Obama and House Speaker John Boehner that taxes on the wealthy must go up, the amount of the increase remains undecided. Many argue that the wealthy are already paying a disproportionate share of taxes, a view that new data from the Internal Revenue Service appear to support. Missing from the conversation, however, is an appreciation of the way these data fail to accurately describe the true income of the wealthiest Americans. The IRS recently released its analysis of 2010 tax returns, which shows the allocation of taxes over different income groups. This information is both informative and misleading. According to these latest figures, in 2010 the top 1 percent of earners (those with adjusted gross incomes of at least $369,691) paid about 37 percent of all income taxes but reported just less than 19 percent of all income. Based on these data, the U.S. income tax system looks truly progressive. This lends credence to the view that the wealthy are paying even more than their fair share.
Why Closing Tax Loopholes Isn't Enough - REPUBLICANS in Congress say they will do anything rather than raise tax rates. Apparently, that includes rushing headlong over the fiscal cliff and throwing the economy into a possible recession. When, in an effort to avert the now infamous tax increases and spending cuts to take effect on Tuesday, House Speaker John A. Boehner proposed his so-called Plan B — which would have nudged up tax rates only for those earning over $1 million a year — rank-and-file Republicans promptly rebelled, storming their party caucus with the rhetorical equivalents of pitchforks. One can't argue with religion — and for some, the unwillingness to bend on marginal rates is just that. But for many politicians, the refusal to raise tax rates rests on a faulty premise. The Congressional Budget Office projects that if the United States follows a likely scenario in terms of demographic changes, spending and economic growth through 2035, America's coffers may fall short by as much as $2 trillion a year in current dollars. With a predicted gap so large, any deal to restore the country's fiscal balance must include at least some new revenue. But even those Republicans who acknowledge that additional tax dollars will be necessary say we can get what we need without increasing a single tax rate. All we have to do is close up some "loopholes" and "broaden the base"! We can keep in place the Bush-era tax cuts, they say, and make up any lost revenue simply by eliminating various deductions, exclusions and credits.
Will 'Fiscal Cliff' Accelerate Millionaire Deaths? - Because the "fiscal cliff" will not stop for death, it looks as if death's carriage may make a "kindly" stop to pick up some American millionaires this year, to paraphrase Emily Dickinson. In 2010, after a year in which the estate tax was zeroed out altogether, Congress passed a law that set the estate tax at 35 percent and exempted all estates under $5 million, adjusted for inflation. That law expires in January 2013 when the exemption will fall to $1 million and the tax will rise to 55 percent. Many families are faced with a stark proposition. If the life of an elderly wealthy family member extends into 2013, the tax bills will be substantially higher. An estate that could bequest $3 million this year will leave just $1.9 million after taxes next year. Shifting a death from January to December could produce $1.1 million in tax savings.It may seem incredible to contemplate pulling the plug on grandma to save tax dollars. While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid—perhaps even evil. Will people really make life and death decisions based on taxes? Do we don our green eye shades when it comes to something this serious?
TaxVox's 2012 Lump of Coal Awards - TaxVox proudly presents its 2012 Lump of Coal awards, Thelma and Louise edition, for the worst fiscal policy ideas of the year.
Stabilization Won't Save Us - Nassim Nicholas Taleb - THE fiscal cliff is not really a "cliff"; the entire country won't fall into the ocean if we hit it. Some automatic tax cuts will expire; the government will be forced to cut some expenditures. The cliff is really just a red herring. Likewise, any last-minute deal to avoid the spending cuts and tax increases scheduled to go into effect on Jan. 1 isn't likely to save us from economic turmoil. It would merely let us continue the policy mistakes we've been making for years, allowing us only to temporarily stabilize the economy rather than address its deep, systemic failures. Stabilization, of course, has long been the economic playbook of the United States government; it has kept interest rates low, shored up banks, purchased bad debts and printed money. But the effect is akin to treating metastatic cancer with painkillers. It has not only let deeper problems fester, but also aggravated inequality. Bankers have continued to get rich using taxpayer dollars as both fuel and backstop. And printing money tends to disproportionately benefit a certain class. The rise in asset prices made the superrich even richer, while the median family income has dropped. Overstabilization also corrects problems that ought not to be corrected and renders the economy more fragile; and in a fragile economy, even small errors can lead to crises and plunge the entire system into chaos. That's what happened in 2008. More than four years after that financial crisis began, nothing has been done to address its root causes. Our goal instead should be an antifragile system — one in which mistakes don't ricochet throughout the economy, but can instead be used to fuel growth. The key elements to such a system are decentralization of decision making and ensuring that all economic and political actors have some "skin in the game." Two of the biggest policy mistakes of the past decade resulted from centralized decision making. First, the Iraq war, in addition to its tragic outcomes, cost between 40 and 100 times the original estimates. The second was the 2008 crisis, which I believe resulted from an all-too-powerful Federal Reserve providing cheap money to stifle economic volatility; this, in turn, led to the accumulation of hidden risks in the economic system, which cascaded into a major blowup.
1000x Systemic Leverage: $600 Trillion In Gross Derivatives "Backed" By $600 Billion In Collateral - There is much debate whether when it comes to the total notional size of outstanding derivatives, it is the gross notional that matters (roughly $600 trillion), or the amount which takes out biletaral netting and other offsetting positions (much lower). We explained previously how gross is irrelevant... until it is, i.e. until there is a breach in the counterparty chain and suddenly all net becomes gross (as in the case of the Lehman bankruptcy), such as during a financial crisis, i.e., the only time when gross derivative exposure becomes material (er, by definition). But a bigger question is what is the actual collateral backing this gargantuan market which is about 10 times greater than the world's combined GDP, because as the "derivative" name implies all this exposure is backed on some dedicated, real assets, somewhere. Luckily, the IMF recently released a discussion note titled "Shadow Banking: Economics and Policy" where quietly hidden in one of the appendices it answers precisely this critical question. The bottom line: $600 trillion in gross notional derivatives backed by a tiny $600 billion in real assets: a whopping 0.1% margin requirement! Surely nothing can possibly go wrong with this amount of unprecedented 1000x systemic leverage.
Business as Usual and Prosecution of Financial Crime - The latest fallout in the banks manipulating the LIBOR scandal were criminal charges against two UBS traders. LIBOR is a key financial rate and the Justice Department this week fined UBS $1.5 billion for rate rigging. The Japan UBS subsidiary also pleaded guilty to wire fraud. UBS Securities Japan, wholly-owned subsidiary of UBS AG, has agreed to plead guilty to felony wire fraud and admit its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark used in financial products and transactions around the world, Attorney General Eric Holder announced today. Notice what was not done in the case. The UBS charter was not revoked even though manipulating the LIBOR was widespread throughout the firm. The Justice Department's decision stops short of imperiling the broader financial system because it shields UBS's parent company from losing its charter, among other major repercussions. But by securing a guilty plea against a subsidiary, the department has shown that it is willing to punish severely one of the world's most powerful banks. It was the first guilty plea from a major financial institution since Drexel Burnham Lambert admitted to six counts of fraud in 1989. In other words, while we have some criminal prosecutions, it's a token in comparison to the damage. U.S. state and local governments have losses estimated to be $10 billion due to rate rigging. Fannie Mae and Freddie Mac has an estimated $3 billion loss due to LIBOR manipulations.
UBS Libor Manipulation Deserves the Death Penalty - There is no point in mincing words: UBS AG (UBSN), the Swiss global bank, has been disgracing the banking profession for years and needs to be shut down. The regulators that allow it to do business in the U.S. -- the Federal Reserve, the Securities and Exchange Commission, the Commodity Futures Trading Commission and the Office of Comptroller of the Currency -- should see that the line in the sand was crossed last week. On Dec. 19, the bank paid $1.5 billion to global regulators -- including $700 million paid to the CFTC, the largest fine in the agency's history -- to settle claims that for six years, the company's traders and managers, specifically at its Japanese securities subsidiary, manipulated the London interbank offered rate and other borrowing standards. According to the Wall Street Journal, two of the many victims of the Libor fraud -- a scandal that so far has nabbed Barclays Plc and UBS but will probably include other large global banks -- were the quasi-federal housing agencies Fannie Mae and Freddie Mac, which together claim to have lost more than $3 billion as a result of the manipulation.
Does Libor Manipulation Deserve The Death Penalty? - Bloomberg's William Cohan released a provocative piece last night, headlined by the even more provocative "UBS Libor Manipulation Deserves the Death Penalty." We can only assume that Cohan is being metaphorical - after all, despite the rare occasional recent criminal charge no one has still gone to prison for the biggest coordinated manipulation of a benchmark fixed income market for years: something previously relegated to the fringes of crackpot conspiracy theories - after all, so many people were in on it, how can they possibly all keep their mouths shut - you know, the usual excuse against massive conspiracy theories, at least until they become conspiracy fact. Yet one wonders: will current and future ongoing market manipulations ever cease when there is no real deterrent: after all spending a few years in jail is certainly worth a few million in ill-gotten proceeds, even assuming the termination of a career in finance. Is Cohan being rhetorical? Or has the time for some true vigilante justice finally come?
Hot Commodities: CFTC Staffers -After working long hours over many months crafting new rules for Wall Street, a number of government regulators are switching sides to work for the firms that will have to follow and interpret them. Whenever there is a major policy change in Washington like the 2010 Dodd-Frank financial overhaul, it enhances the marketability of government employees with specialized skills and contacts. But in the past, it was officials at the Securities and Exchange Commission, the Federal Reserve and the Treasury Department in particular who found their expertise and contacts most highly valued in the financial industry. Now, Dodd-Frank has prompted strong demand for staffers from the Commodity Futures Trading Commission. The law gave the agency broad new responsibilities to write rules for complex derivatives called swaps that had been largely unregulated. Many rules already are in place, while others will take effect next year. The new swaps rules have swept many more financial firms under the agency's jurisdiction, boosting demand for even midlevel staffers with just a few years' experience. At least nine CFTC employees have decamped since June for firms in finance, law and accounting that are figuring out how to comply with the Dodd-Frank overhaul. Six of the staffers were directly involved in rule making and three were in enforcement.
Rigging of the Oil and Gasoline Markets – What Will Obama do? - UBS paid $1.5 Billion for manipulating Libor, and Barclay`s already paid the piper for manipulating the Libor rate. Well, it is about time the CFTC get its act together, and start going after the culprits who rig the oil and gasoline markets costing consumers and businesses a mafia tax by paying prices much higher than the markets should be priced based upon supply and demand fundamentals in the consumption marketplace. Today we had another build in Gasoline supplies, up 2.2 million barrels in the week for a fourth straight weekly build. We have had builds of 3.9 million barrels, 7.9 million barrels, 5.0 million barrels, and 2.2 million barrels totaling 19 million barrels build in gasoline inventories in a month. Well, you say there must be strong demand numbers for gasoline. Nope, gasoline demand in the wholesale market is soft down 2.9 year-on-year, meaning gasoline sales this month are weak as well! Now, what is happening to price? On November 28th 2012 RBOB Gasoline prices were 2.66 a gallon, and today after 19 million barrels of build, (i.e. we no longer have short supplies on hand, about average for this time of year, in fact), RBOB gasoline prices are 2.74 a gallon. Ergo, we have 19 million barrels of build, weak demand year-on-year. However, this month, consumers are set to pay a whopping 8 cents a gallon more for the base commodity, which eventually will work its way to the pump over the next few weeks!
Fox Parent Company Being Sued For Using Mafia Like Business Tactics - News Corp – the parent corporation of Fox News – is finding itself in even more hot water, with new accusations filed in court this morning. The Dial Corp, makers of soap, personal-care and household cleaning products, have filed suit against News Corp along with subsidies News America, News America Marketing FSI, and News America Marketing In-Store Services, alleging that the company engaged in anti-competitive and illegal practices in order to monopolize the market, even forcing competition out of business through its illegal and immoral tactics. The accusations are lengthy, detailed, and specific, and paints a picture of a company out of control. Having already had their largest newspaper News of the World close their doors in light of the hacking scandal within the United Kingdom, there is a magnifying lens over News Corp to identify similar scandals. The new lawsuit opens up a can of worms, looking into the heart of the News Corp advertising divisions and finding tactics which even News America Inc.'s Chief Operating Officer, Paul Carlucci, compared to those used by Al Capone in the movie "The Untouchables." The allegations continue, detailing out threats by Mr. Carlucci to fire anyone "concerned about doing the right thing" and not supporting the firms aims of eliminating competition in the retail advertising space
Obama Administration Seeks to Strengthen Rupert Murdoch - Earlier this year, Obama Federal Communications Commission Chairman Julius Genachowski proposed relaxing media ownership rules to allow Rupert Murdoch to buy the Los Angeles Times and Chicago Tribune. It's not something you'll see discussed much, because Republicans like the fact that Murdoch is going to get more power, while Democrats don't want to admit that Obama is helping the person framed as their arch-nemesis. This is part of a larger pattern – media consolidation is one of the many structural problems that Obama promised to deal with. Backed by tech billionaires and consumer advocates in 2008, Obama argued for a dramatic restructuring of communications policy (versus Hillary Clinton, whose advisors were traditional telecom lobbyists). Candidate Obama made the right noises, from a strong stance on net neutrality to opposition to media consolidation to expanded broadband access. In this case, there were billionaires who valued the right policies, not just do gooders. For instance, Party platform from 2008. Of course, as is consistent with Obama's main policy arc, after winning, Obama neutralized the reform groups and quickly reverted to a model of policymaking that is slightly more pro-corporate than Bush's. He appointed Genachowski, a law school classmate known as an intellectual and moral lightweight, to run the FCC, and ensured that Larry Summers in the White House would sideline any attempts to fight against media and telecom barons. Here's the predictable outcome, in a Free Press filing.
ICE Chief Challenges Stock Views of Trading - Jeffrey Sprecher, the derivatives boss set to take control of America's most storied stock exchange, believes the stock market is ready for a shake-up. The chief executive and chairman of IntercontinentalExchange Inc., which last week unveiled plans to buy NYSE Euronext for $8.2 billion, isn't steeped in the business of equities trading. But he has plenty to say about it, including some views that challenge the prevailing wisdom and business models of many securities-trading firms. The 57-year-old, who started IntercontinentalExchange 12 years ago after a career in the electric-power industry, opposes paying incentives to lure big traders onto stock exchanges, a widespread practice that exchange officials say is necessary to keep their markets in motion. Mr. Sprecher also objects to the dispersion of stock trading across scores of exchanges and private markets, a trend embraced by banks and trading firms that earn profits by trading shares away from exchanges. Ownership of the parent of the New York Stock Exchange would give Mr. Sprecher a high-profile platform to try to realize those views. "It is clear that there is going to be change" in the structure of the U.S. stock trading business, Mr. Sprecher told analysts last week on a conference call discussing the NYSE deal. "It is clear that the leadership to drive that change…is going to come from the New York Stock Exchange." An ICE spokeswoman this week declined to comment further.
Judge Takes Aim at Another S.E.C. Settlement - An obscure settlement announced in March 2011 has triggered questions from a federal judge about how much accountability the Securities and Exchange Commission should demand when it resolves a case. Following a path started by Jed S. Rakoff, a Federal District Court judge in Manhattan, Judge Richard J. Leon of the Federal District Court in Washington, D.C., has held up the settlement for nearly two years because of his demands for greater disclosure to ensure the public's interest is protected. The case involves violations of the Foreign Corrupt Practices Act by International Business Machines from 1999 to 2008 for payments made to foreign government officials. The amounts involved were not significant, about $207,000 paid in Korea and a slush fund of undisclosed size to pay for overseas trips by Chinese officials. The settlement called for the company to pay $10 million. That included a civil penalty of $2 million, an amount that is small compared with some other recent overseas bribery cases. For example, Eli Lilly agreed last week to pay more than $29 million to settle with the S.E.C., with $8.7 million designated as a civil penalty.
The S.E.C. at a Turning Point - Simon Johnson - The job of head of enforcement at the Securities and Exchange Commission is now open. The Obama administration should press for the appointment of Neil Barofsky, former special inspector general for the Troubled Asset Relief Program, to this position. Unfortunately, the administration has given no indication it will do so, leaving the impression that it is likely to be business as usual for the next four years, with regulators who are less than tough on the industry.The departing director of the division of enforcement at the S.E.C. is Robert Khuzami, a former general counsel for the Americas at Deutsche Bank, a job he held from 2004 through early 2009. Although Mr. Khuzami was once a distinguished prosecutor, his appointment to the S.E.C. turned out to be a mistake because Deutsche Bank was so deeply involved in the securitization morass that led to the financial crisis of 2008. (For more details, I recommend this Web page, with information collated by UniteHere, a trade union. You should also read this assessment by Yves Smith on her nakedcapitalism blog.) Mr. Barofsky is at hand and is an excellent choice for head of enforcement at the S.E.C. (though surely not the only one so qualified). A career prosecutor who worked for the United States Attorney's Office in a previous era (through 2008), Mr. Barofsky successfully pursued mortgage fraud cases and complex securities fraud and accounting fraud cases, including against the most senior executives of the former commodities giant Refco. He also worked on drug-trafficking cases, going up against some of the most dangerous criminals in the world. (I have also endorsed Mr. Barofsky as a chairman of the S.E.C.; clearly, I want him at the commission one way or another.)
MBS investors' trade group moves to counter adverse put-back rulings - The Association of Mortgage Investors isn't sitting around and waiting for more bad precedent on the obligations of mortgage-backed securities issuers.Last week, the trade group of MBS investors, as well as an investment advisor that acts as a collateral manager for institutional investors in mortgage-backed notes, took the rare step of requesting leave to file an amicus brief at the trial stage of a breach-of-contract case against UBS. The trade group believes the stakes are high enough to warrant its involvement: If the bank's interpretation of its obligation to compensate MBS trusts for deficient underlying loans is adopted by a New York court, the AMI's memo said, "this will establish an adverse precedent that may result in a market-wide windfall to responsible parties such as (UBS) at the expense of RMBS investors." . A few months back, I told you about a ruling from U.S. District Judge John Tunheim of Minnesota in one of the earliest MBS put-back cases, in which the trustee of a $555 million Wells Fargo offering asserted that mortgage originators had breached representations and warranties about the underlying loans. Expanding on a previous adverse ruling for investors by U.S. Senior District Judge Paul Magnuson – who found that under MBS pooling and servicing agreements, investors can only demand the repurchase of deficient loans, not corresponding money damages — Tunheim said that MBS trustees have no cause of action based on foreclosed loans, since those mortgages are already extinguished and can't be repurchased by originators.
Bond Ratings Cuts Advance to Fastest Since '09: Credit Markets - Standard & Poor's and Moody's Investors Service are cutting corporate debt ratings at the fastest pace since 2009 as a global economic slowdown and record borrowing erode credit quality. The ratio of ratings downgrades to upgrades worldwide climbed to 1.85 this year from 1.23 in 2011, according to S&P data. PSA Peugeot Citroen (UG), Europe's second-largest carmaker, was cut three times by Moody's since March to speculative grade. Fort Worth, Texas-based RadioShack Corp. (RSH) was lowered four steps this year by S&P to seven levels below investment grade. Defaults rose to 80 issuers from 52 in 2011, according to S&P. Europe's second recession in four years and slowing global economic growth are helping to push a measure of corporate debt to earnings to a three-year high, Barclays Plc data show. Companies from the neediest to the most creditworthy sold unprecedented amounts of debt at record-low yields in 2012 as the Federal Reserve held interest rates at almost zero for a fourth year in an effort to boost the U.S. economy.
A third of bankers hate their jobs, survey finds - In many quarters bankers are public enemy number one: a loathed bunch of self-interested schemers who conspired to crash the world economy in pursuit of absurd bonuses. If you agree with the sentiment take some heart from this: a third of them say they hate their jobs. That's the conclusion of a survey by eFinancialCareers of more than 500 financial services professionals. One of its findings is that disillusionment among financial services professionals hasn't become deep-set, but the sort of passion and enthusiasm associated with a career in the industry appears to have faded. When asked their attitude to their current position, nearly four in 10 (38 per cent) poll participants said that they tolerated their job, and 29 per cent said they hated it. A fifth responded that they liked their current post, and just 12 per cent said they loved it.
Fewer US Banks Failing as Industry Strengthens - U.S. banks are ending the year with their best profits since 2006 and fewer failures than at any time since the financial crisis struck in 2008. And for the first time since 2009, banks' earnings growth is being driven by higher revenue — a healthy trend. Banks had previously managed to boost earnings by putting aside less money for possible losses. Signs of the industry's gains:
- — Banks are earning more. In the July-September quarter, the industry's earnings reached $37.6 billion, up from $35.3 billion a year earlier. It was the best showing since the July-September quarter of 2006, long before the financial meltdown. By contrast, at the depth of the Great Recession in the last quarter of 2008, the industry lost $32 billion.
- — Banks are lending a bit more freely. The value of loans to consumers rose 3.2 percent in the 12 months that ended Sept. 30 compared with the previous 12 months, according to data from the Federal Deposit Insurance Corp. More lending fuels more consumer spending, which drives roughly 70 percent of economic activity. At the same time, overall lending remains well below levels considered healthy over the long run.
- — Fewer banks are considered at risk of failure. In July through September, the number of banks on the FDIC's confidential "problem list" fell for a sixth straight quarter. These banks numbered 694 as of Sept. 30 — about 9.6 percent of all federally insured banks. At its peak in the first quarter of 2011, the number of troubled banks was 888, or 11.7 percent of all federally insured institutions.
Unofficial Problem Bank list declines to 841 Institutions - Note: The first unofficial problem bank list was published in August 2009 with 389 institutions. The number of unofficial problem banks grew steadily and peaked at 1,002 institutions on June 10, 2011. The list has been declining since then. This is an unofficial list of Problem Banks compiled only from public sources. Here is the unofficial problem bank list for Dec 21, 2012. Changes and comments from surferdude808: As expected, the OCC released its enforcement actions through mid-November this week. For the week, there were eight removals and four additions to the Unofficial Problem Bank List. After the changes, the list holds 841 institutions with assets of $313.3 billion. A year ago, the list held 973 institutions with assets of $397.6 billion.
Administration Planning to Use Fannie and Freddie to Provide More Stealth Stimulus - Yves Smith - The Obama Administration is planning to launch yet another mortgage refi program, this one targeting subprime borrowers who are current on their loans but underwater, extending the government support of the mortgage market to yet another borrower group. The timing raises the question of why this initiative is under consideration now, as opposed to earlier, since it's hardly news that a lot of homeowners are still in negative equity territory (10.8 million now, down from 12.1 million thanks to the recovery in housing prices). It appears that the Administration isn't convinced that further home price appreciation will restore these borrowers to having equity in their homes any time soon. And perhaps even more important, this program is seen as a way to boost consumer demand, which would somewhat offset the contractionary impact of deficit-cutting. But there is still a risk of bad incentives allowing the GSEs to serve yet again as stuffees. From the Wall Street Journal: Under the proposal, Fannie and Freddie would be allowed to charge higher rates to borrowers in order to compensate for the risk of guaranteeing refinanced loans that are underwater and more likely to result in default. Some economists argue that those borrowers could be relatively good credit risks because they have been paying their mortgages through the financial crisis, and that Fannie and Freddie could turn a profit on such mortgages while helping the housing market.But industry officials say such a program would work only if banks were given immunity from having to buy back any loans they refinance that subsequently default, and that such a shield would boost the risk for the taxpayer-backed companies. Huh? Given that the FHFA has filed putback lawsuits against bank originators that would result in $200 billion or so of damages if the agency prevailed, why in God's name would anyone give banks a liability waiver? Oh, it's obvious why they want one, but given their past abuses, it's reckless to give them carte blanche.
Mortgage-Bond Sales Soar on Fed's Refinance Push: : Sales of U.S.-backed mortgage bonds soared to a three-year high as steps by the Federal Reserve and Obama administration to make home ownership more affordable propelled a 34 percent jump in refinancing. Issuance of securities guaranteed by government-supported Fannie Mae and Freddie Mac or U.S.-owned Ginnie Mae has climbed to $1.72 trillion, compared with $1.22 trillion last year and $1.73 trillion in 2009, according to data compiled by Bloomberg. With weekly rates on 30-year home loans falling to record lows eight times since July, the first increase since 2009 in refinancing has driven total lending to almost $1.8 trillion this year, double a forecast from the Mortgage Bankers Association in October 2011.The Fed, the biggest buyer in the $5.2 trillion market, has purchased about $500 billion of the debt in 2012 as it tries to stoke the economy while President Barack Obama promotes programs to help more homeowners lower their monthly bills. In September, the central bank accelerated purchases of mortgage securities by $40 billion a month for its third round of so-called quantitative easing, or QE3. "The supply over the last three months in particular has been stronger than we anticipated, even given QE3,"
Foreclosure standstill to be Oregon topic in new year - — The Oregon Legislature and Supreme Court have at least one definite topic on their agendas in the new year: finding a solution to the state's foreclosure standstill. The Oregonian reports Oregon's new foreclosure mediation program was supposed to give homeowners one last chance at keeping their homes. Instead, it brought out-of-court foreclosures to a halt. Faced with new requirements and costs, lenders simply stopped filing new foreclosures. The logjam was compounded a week later by an appellate court ruling that lenders' recording practices didn't meet state law. Five months later, foreclosures are taking the court route, which is slower and costlier for all involved. Both the Oregon Legislature and the state Supreme Court will need to make some key decisions concerning the foreclosure process early in the new year.
Decline in foreclosure backlog may give false hope - More than 40 percent of foreclosures cleared from Florida's courts in recent months were dismissals, cases that likely will boomerang back into the overloaded judicial system when lenders are better prepared to continue their pursuit. In a four-month period beginning July 1, the state's foreclosure courts disposed of 69,513 cases — a laudable number helped along by a $4 million state stipend. But the achievement is dampened by the fact that nearly as many new foreclosures were filed during the same time period and by a new concern that 43 percent of the cases were dismissals. While a dismissal can occur because a short sale, deed-in-lieu of foreclosure or loan modification has been negotiated, foreclosure defense attorneys say the majority are voluntary dismissals taken by banks that don't have their case in shape to proceed. The foreclosure can then be re-filed at a later date. "The voluntary dismissal is an off-ramp for a plaintiff that is being forced to trial, but doesn't have his or her evidence ready," said Royal Palm Beach-based defense attorney Tom Ice. "Again, this means the numbers (of closed cases) is deceptive because the cases will be coming back." As of Oct. 31, Florida's 20 circuit courts had 377,272 pending foreclosure cases, according to the state courts administrator. That's a net of just 432 fewer cases than July 1 because of the 69,078 new foreclosures filed in the four-month span. On Thursday, RealtyTrac again ranked Florida top in the nation for foreclosure activity in November.
Foreclosures and the Police State - The Hernandez family, who became local heroes in their determination to keep their Van Nuys home from foreclosure, were evicted by the Los Angeles sheriffs and police at 4:30 this morning. During their four-month resistance, the activists built a cooperative community in the Hernandez home, with composting, surveying community needs, hosting barbeques and children's parties for neighbors, eviction awareness, and eviction training for renters and home owners. They mounted a legal defense with attorney Philip Koebel, and they marched on the international banks in downtown Los Angeles. After months of collective work, Amari remarked, "We're still standing strong despite all this. We're all sticking together, we've become a family, and that's what family does, they stick together." Before she left at 11:00, Lupe moved an abandonned chair up to the chain link fence and, with her son translating, addressed her extended family. She promised, "The next family that wants to do this, that wants to stand up to the banks, I will be there. We will be there." This morning's demolition ends one of the last and most enduring of the Occupations that took the nation by storm in 2011.
Tables Turn As Florida Homeowners Foreclose On Banks - The problem arises mostly from homeowner's association fees, which the foreclosing entity becomes responsible for – this includes both back fees and fees from the time of repossession forward. But banks are failing to pay these fees. That puts more of a burden on the homeowners who are paying their fees, and leaves those HAs with not enough funds to take care of the properties. So these groups are putting liens on the properties, now owned by the banks, in an effort to make them pay up. What happens when the banks don't pay the fees associated with the foreclosed homes? In places where homeowner associations handle things like security, water, garbage collection and routine maintenance, those services suffer. In one community, where JP Morgan Chase owes over $20,000 in fees, security has been scaled back and maintenance, including resurfacing roads, has been postponed. Another HA is looking for about $1 million in fees and has had to raise the fees to legitimate homeowners by $115 a year to cover the shortfall. The homeowners association has filed for foreclosure against Deutsche Bank, who has the lien on a home there and has not paid any fees for two-and-a-half years. The banks claim that they don't owe the fees, that they are merely trustees of the property. They say the companies which service the accounts are responsible for the fees. According to Mr. Solomon, however, banks are almost always the official holders of a foreclosed mortgage
'Shadow' Supply Overhyped as Housing Threat - WSJ.com: U.S. housing markets finally came alive in 2012, with home sales and housing starts up strongly. And prices are on track to end the year in positive territory for the first time since the downturn began in 2006. S&P/Case-Shiller home-price data due Wednesday should confirm those gains. The main 20-city, composite index for October is expected to rise by 4.1% from one year ago, according to Zillow Skeptics often point to the sizable overhang of properties headed toward foreclosure—the "shadow" inventory—that they say will erode such recent gains. While shadow inventory remains high, there is good reason to think it won't choke off the nascent recovery in 2013. First, the shadow is shrinking. It has already fallen to 3.4 million units this year from a peak of 4.7 million in 2009, according to John Burns Real Estate Consulting. As well, inventories of new homes for sale are at 50-year lows, while listings of previously owned homes are at an 11-year low. Banks have also become better at approving short sales, where homes sell for less than the mortgage owed. The danger in focusing so heavily on supply is that skeptics have overlooked demand, which revved up this past year. Sales of existing homes in November were up 14.5% year over year to a three-year high. Meanwhile, hearty investor appetites for foreclosed properties have trimmed the backlog and reduced the discount at which foreclosures sell. In September, foreclosures sold for around 7.7% less than traditional home sales, down from a 24% discount three years ago, according to Zillow.
Lawler: An "Update" to the "Excess" Supply of Housing - Housing economist Tom Lawler sent me the following long piece that suggests a large number of the excess vacant housing supply has been absorbed. It is over 2 1/2 years since the Decennial Census 2010's "snapshot" of the US population and housing market on April 1, 2010. While private housing analysts are still awaiting the result of research by Census analysts on the reasons for the sharply different results of Census 2010 compared to other Census surveys (e.g., the ACS and the HVS), I thought it might be useful to review some numbers since the Census was taken. On the housing production from, Census estimates suggest that from April 2010 to November 2012, housing completions plus manufactured housing units totaled about 1.817 million (an annualized pace of about 681 thousand).There are no data on the net loss to the housing stock over this period. Prior to the release of Census 2010 results many folks thought that the net loss to the housing stock last decade was averaging around 200 – 250 thousand units a year, but the decennial Census results suggested a much smaller number. But for fun, let's assume that the net loss in the housing stock since the decennial Census has been about 400,000, or an annualized rate of 150,000. Such a number would imply that the housing stock at the end of November/beginning of December increased by about 1.417 million, or an annualized rate of about 531 thousand.
LPS: House Price Index increased 0.3% in October, Up 4.3% year-over-year - The timing of different house prices indexes can be a little confusing. LPS uses October closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted. From LPS: U.S. Home Prices Up 0.3 Percent for the Month; Up 4.3 Percent Year-Over-Year Lender Processing Services ... today released its latest LPS Home Price Index (HPI) report, based on October 2012 residential real estate transactions. The LPS 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 15,500 U.S. ZIP codes. The LPS HPI represents the price of non-distressed sales by taking into account price discounts for REO and short sales.The LPS HPI is off 22.6% from the peak in June 2006. Note: The press release has data for the 20 largest states, and 40 MSAs. LPS shows prices off 53.6% from the peak in Las Vegas, 45.5% off from the peak in Riverside-San Bernardino, CA (Inland Empire), and barely off in Austin and Houston. Looking at the year-over-year price change throughout the year - in May, the LPS HPI was up 0.4% year-over-year, in June the index was up 0.9% year-over-year, 1.8% in July, 2.6% in August, 3.6% in September, and now 4.3% in October. This is steady improvement on a year-over-year basis. Note: Case-Shiller for October will be this morning.
Home Prices Decline In October, Case-Shiller Says - U.S. home prices declined in October on seasonal weakness, with 12 of 20 cities seeing lower prices in the month, according to the S&P/Case-Shiller home-price index released Wednesday. The S&P/Case-Shiller 20-city composite posted a 0.1% decrease in October following a 0.2% gain in September. Despite October's decline, home prices are showing a "sustained recovery," increasing 4.3% over the past 12 months - the largest annual price gain since May 2010 -- with annual declines only in Chicago and New York, according to the Case-Shiller report. "Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength," said David Blitzer, chairman of the index committee at S&P Dow Jones Indices. Other recent housing data, such as sales of existing homes and sentiment among home builders, have also shown a market that is gaining strength. However, while persistently low mortgage rates are attracting some buyers, consumers still face tight credit standards. Ongoing high unemployment is also a challenge. Despite recent gains, home prices are about 30% below peak levels in 2006, according to Case-Shiller.
US Home Prices Rise in October From Previous Year — US home prices rose in most major cities in October compared with a year ago, pushed up by rising sales and a decline in the supply of available homes. Higher prices show the housing market is improving even as it moves into the more dormant fall and winter sales period. The Standard & Poor's/Case-Shiller national home price index released Wednesday increased 4.3 percent in October compared with a year ago. That's the largest year-over-year increase in two and a half years, when a homebuyer tax credit temporarily boosted sales. Prices rose in October from a year ago in 18 of 20 cities. Phoenix led all cities with a 21.7 percent gain, followed Detroit, where prices increased 10 percent. Prices declined in Chicago and New York. Home prices fell in 12 of 20 cities in October compared with September. Monthly prices are not seasonally adjusted, so the decreases reflect the end of the peak buying season. Still, the broader trend is encouraging. October marked the fifth straight month of year-over-year gains, after nearly two years of declines. Prices rose in mid-2010 in the final months before the tax credit expired. They had fallen sharply in 2008 and 2009.
Case-Shiller: House Prices increased 4.3% year-over-year in October - S&P/Case-Shiller released the monthly Home Price Indices for October (a 3 month average of August, September and October). This release includes prices for 20 individual cities, and two composite indices (for 10 cities and 20 cities). Note: Case-Shiller reports NSA, I use the SA data. From S&P: Sustained Recovery in Home Prices According to the S&P/Case-Shiller Home Price Indices Data through October 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, ... showed home prices rose 4.3% in the 12 months ending in October in the 20-City Composite, out-distancing analysts' forecasts. Anticipated seasonal weakness appeared as twelve of the 20 cities and both Composites posted monthly declines in home prices in October. The 10- and 20-City Composites recorded respective annual returns of +3.4% and +4.3% in October 2012 – larger than the +2.1% and +3.0% annual rates posted for September 2012. In nineteen of the 20 cities, annual returns in October were higher than September. Chicago and New York were the only two cities with negative annual returns in October. The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000). The Composite 20 is up 5.4% from the post-bubble low set in March (SA). The second graph shows the Year over year change in both indices. The Composite 10 SA is up 3.4% compared to October 2011. The Composite 20 SA is up 4.3% compared to October 2011. This was the fifth consecutive month with a year-over-year gain since 2010 (when the tax credit boosted prices temporarily). The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.
Case-Shiller Posts 9th Consecutive Increase Driven By Phoenix, Detroit - Back To 2003 Levels, NSA Drops - As was expected, the October Case Shiller data showed that the recent transitory pick up in the housing sector, now that both REO-to-Rent and Foreclosure Stuffing, not to mention unparalleled debt forgiveness by virtually every bank has been thrown at the housing problem, continues with a ninth consecutive month in Top 20 Composite Index increases, rising 4.3% in October. On the other hand, based on the NSA data, the 4th consecutive dead cat bounce may be coming to a much expected end with October NSA data posting the first sequential decline since March. What drove the pick up in Seasonally Adjusted data? Nothing short of yet another housing bubble in the much beloved speculative areas such as Phoenix and Detroit, where home prices rose by 21.8% and... 9.9%. Yes: apparently one can pay for mortgages with foodstamps now. Other places such as Chicago and New York were not quite so lucky, with the average price declining by 1.3% and 1.2% in the past 12 months. What remains unsaid - very much on purpose - is that the shadow inventory problem is only getting worse, as we reported a week ago, when we showed that nearly half the market cap of Bank of America is in 6 month + delinquent mortgages, or mortgages that are not yet in foreclosure but virtually certainly will be, and will also be discharged.
Comment on House Prices, Real House Prices, and Price-to-Rent Ratio - There is a seasonal pattern for house prices, and I've been predicting that the Case-Shiller indexes would turn negative month-to-month in October on a Not Seasonally Adjusted (NSA) basis. That is the normal seasonal pattern. Also, as I've noted, I expect smaller month-to-month declines this winter than for the same months last year. Sure enough, Case-Shiller reported that the Composite 20 index declined 0.1% in October from September (barely negative). In October 2011, the index declined 1.3% on a month-to-month basis. Over the winter, the key will be to watch the year-over-year change in house prices and to compare to the NSA lows in early 2012. I think the house price indexes have already bottomed, and will be up about 6% or so year-over-year when prices reach the usual seasonal bottom in early 2013.Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio. As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation. Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index.The first graph shows the quarterly Case-Shiller National Index SA (through Q3 2012), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through October) in nominal terms as reported.The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.In real terms, the National index is back to mid-1999 levels, the Composite 20 index is back to July 2000, and the CoreLogic index back to January 2001. In real terms, most of the appreciation in the last decade is gone.
Bob Shiller On The 'Housing Recovery': "Highly Uncertain, It's Risky"- (video) Sometimes, taking a break from the mainstream view of the world is healthy for our sheep-like tendencies to follow the herd. To wit, Robert Shiller can't understand the enthusiasm for the long-term recovery outlook of the housing market. With rentals rising and home-ownership dwindling, Shiller, in this Bloomberg TV clip, questions the positivity noting that the outlook is 'fuzzy' at best; and in fact in the short-term is negative as MoM things have deteriorated modestly (though seasonally). He note that the focus has been on multi-family residences and "if you are sitting in a suburban single-family house - what is your outlook? Highly uncertain - It's Risky!" And in one of the most prescient comments of recent weeks, Shiller admits something that many others should try: "[the outlook] could be up; but I don't see how anyone knows?" adding that another plausible outlook for the next five years is that "housing stays right where it is now," adding that Zillow's 1.3% annual real growth expectation could be too optimistic.
America's Strategic Supply of Million-Dollar Homes Is Dwindling - The Great Recession of the past several years took many things from America: our jobs. Our financial resources. Our pride. But as the economy returns to its former glory, we now face a new peril: our national supply of mansions is getting dangerously low. The WSJ reports that sales of high end luxury homes roared back this year (and let us take this opportunity to congratulate you all on your million-dollar home sales in 2012—finally!). Good news? Sure—for the Soviets. How many terrorists, communists, and socialists enemies of this nation are rubbing their hands together in glee, waiting for us to deplete our precious Mansion Reserves before they strike? At the current sales pace, it would take nearly 12 months to sell the supply of million-dollar properties available for sale in October, down sharply from 21 months one year ago, according to the National Association of Realtors. The supply shortage is becoming particularly acute in the West, where the supply of million-dollar homes stood at just six months in October. We have backed ourselves into an untenable position in which a single Avatar sequel could create enough new millionaires to buy up every last mansion in California. And what do we expect America's rich to do then? Live in apartments?
Idled City Airports Are Finding a Second Life as Housing - Stapleton's journey from in-town airport to one of the city's newest planned residential communities began more than a decade ago when it was replaced by Denver International Airport, which was built 12 miles out of town in the middle of a vast prairie with no residential neighbors to be bothered by its noise. Repurposing a large civilian airfield like Stapleton had not been done before in the United States. But over the last decade the mixed-use community that has been developed there and one like it in Austin, Tex., are seen as examples of how problematic properties can be successfully converted. And these developments are being closely watched, as growing demand for air travel puts pressure on other urban airports with little space to grow.
The Great Housing Rebound of 2012: How the Fed Helped Sellers Beat the Odds - Without a doubt, the U.S. housing market has been the most successful sector of the economy this year, and Wednesday's Case-Shiller home price index report — which showed a fifth consecutive month of year-over-year increases in home prices nationwide — was a late Christmas present for homeowners across the country. The housing market "bottom" was one of the biggest business stories of 2012. After years of falling home values, the data clearly showed that the bleeding stopped somewhere in the first part of 2012, and that home prices have actually begun to slowly rise since then. In addition, other indicators like housing starts, new home sales, and foreclosure statistics all point toward a healing housing sector. These dynamics have gotten some economists and market analysts excited about the growth prospects for the U.S. economy in 2013. Robert Johnson, director of economic analysis for Morningstar, called housing, "the big change factor in 2013," and believes that "direct housing investment will be a meaningful contributer" to economic growth in 2013. He also sees industries related to housing — like furniture manufacturing and sales — adding to economic growth in 2013 as the housing market begins to pick up.
New Home Sales at 377,000 SAAR in November - The Census Bureau reports New Home Sales in November were at a seasonally adjusted annual rate (SAAR) of 377 thousand. This was up from a revised 361 thousand SAAR in October (revised down from 368 thousand). Sales for August and September were revised up slightly. The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate. Sales of new single-family houses in November 2012 were at a seasonally adjusted annual rate of 377,000 ... This is 4.4 percent above the revised October rate of 361,000 and is 15.3 percent above the November 2011 estimate of 327,000.The second graph shows New Home Months of Supply. The months of supply decreased in November to 4.7 months. October was revised up to 4.9 months (from 4.8 months). The all time record was 12.1 months of supply in January 2009. This is now in the normal range (less than 6 months supply is normal). The seasonally adjusted estimate of new houses for sale at the end of November was 149,000. This represents a supply of 4.7 months at the current sales rate. This graph shows the three categories of inventory starting in 1973. The inventory of completed homes for sale was just above the record low in November. The combined total of completed and under construction is also just above the record low since "under construction" is starting to increase. The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate). In November 2012 (red column), 27 thousand new homes were sold (NSA). Last year only 23 thousand homes were sold in November. This was the fourth weakest November since this data has been tracked (above 2011, 2009 and 1966). The high for November was 86 thousand in 2005.
New-Home Sales Rise to Highest Level in Two Years - Sales of new homes in the U.S. rose in November to their highest level in more than two years, the latest in a string of positive reports showing a steady housing recovery. New single-family home sales increased by 4.4% last month from October to a seasonally adjusted annual rate of 377,000, which is the highest level since April 2010, the Commerce Department said Thursday. Sales were up 15.3% from November 2011.
New Home Sales and Distressing Gap - New home sales have averaged 363,000 on an annual rate basis through November. That means sales are on pace to increase 18%+ from last year. Most sectors would be pretty happy with an 18% increase in sales. But even with the significant increase this year, 2012 will be the 3rd lowest year for New Home sales since the Census Bureau started tracking new home sales in 1963. This year will be above 2010 and 2011, but below the 375,000 sales in 2009. I expect new home sales to double from here within the next several years as distressed sales continue to decline. I started posting the following graph four years ago when the "distressing gap" first appeared. The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through October. This graph starts in 1994, but the relationship has been fairly steady back to the '60s. Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales. The flood of distressed sales kept existing home sales elevated, and depressed new home sales since builders weren't able to compete with the low prices of all the foreclosed properties. I don't expect much of an increase in existing home sales (distressed sales will slowly decline and be offset by more conventional sales). But I do expect this gap to close - mostly from an increase in new home sales. Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.
Sales Ratio: Existing to New Homes - Earlier I posted a graph that shows the "distressing gap" between new and existing home sales. I've argued that this gap has been mostly caused by distressed sales (foreclosures and short sales) and that eventually the gap would close. Another way to look at this is a ratio of existing to new home sales. This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. In general the ratio has been trending down, although it increased over the last few months with the recent pickup in existing home sales. I expect this ratio to trend down over the next several years as the number of distressed sales declines and new home sales increase. Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.
What the Housing Market Actually Looks Like - This week brought more good statistical news for the housing market. Existing home sales rose at a decent clip in November, nearing post-bubble highs not seen since the artificial spike from the homebuyer's tax credit (I've noted that the end of the Mortgage Forgiveness Debt Relief Act could be giving the same spike). Inventory fell again, which presages higher prices. And while housing starts fell in November, the more stable indicator of homebuilding permits rose above expectations. There's a huge hole to dig out from – even with its 25% rise, housing starts in 2012 would be the 4th-lowest in history – but the digging is occurring. However, it might be worth looking at some other statistics, to understand not the housing market based on prices and starts and sales, but based on what it looks like for the average person. And that shows a very different picture. First of all, here's a fairly astonishing stat: Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined [...] The data, published last month by the monitor of the settlement, highlight Bank of America's vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.
Pending Home Sales Increase 1.7% for November 2012 - Pending Home Sales rose in November by 1.7%, annualized according to the National Association of Realtors. This is highest level since April 2010 to an index level of 106.4 and a 9.8% increase from a year ago. October pending home sales was revised down to 5.0% increase from September. The above graph shows pending home sales are really around 2003 levels, ignoring the housing bubble itself and the first time home buyer tax credits of 2009. The deadline for using the first time home buyer tax credits was April 2010, which resulted in a 111.3 pending home sales index. Yes folks, tax credits do work. The PHSI are contracts which have not yet closed and why pending home sales are considered a future housing indicator. The PHSI represents future actual sales, about 45 to 60 days from signing. From the NAR: NAR's Pending Home Sales Index (PHSI) is released during the first week of each month. It is designed to be a leading indicator of housing activity. Here are the regional pending home sales from the report: The Northeast rose 5.2 percent to 83.3 in November and is 15.2 percent above a year ago. In the Midwest the index edged up 0.1 percent to 103.8 in November and is 15.2 percent above November 2011. Pending home sales in the South were unchanged at an index of 117.2 in November and are 13.9 percent higher than a year ago. In the West the index rose 4.2 percent in November to 110.1, but is 3.2 percent below November 2011.
Banks Siphon Bernanke's Stimulus While Tightening Credit On Middle Class - While many former homeowners will be spending the holidays in the streets, it is good to know the bailed out banks are making some nice profits… off the American taxpayer. Fed Chairman Bernanke's continual leveraging of the national credit card via buying mortgage-backed securities to stimulate the mortgage market has done little for the mortgage market and a lot for Wall Street's bottom line.From the Wall Street Journal: The Federal Reserve's intensified campaign to push mortgage rates lower has hit a wall, in part because a shift in the lending landscape has made some banks unable, or unwilling, to pass along cheaper credit. While current rates are the lowest in generations, some economists argue that they should be even lower—perhaps 2.8% based on the historical relationship between mortgage rates and yields on mortgage-backed securities. The economists posit that banks are keeping the rates artificially high, boosting profits and depriving the economy of the full benefit of the Federal Reserve's efforts. Whether you agree or disagree with the Federal Reserve's MBS buying program – in what world does Wall Street need further subsidy from the Fed?
Rising Rents Pinch Tenants - WSJ.com: Record-low mortgage rates mean that homeowners have a smaller financial burden for their residences than at any time since the early 1980s. But here's the bad news: Rising rents are squeezing many families and leaving them with less to spend. Several factors have pushed rents up. Rental and apartment housing is in short supply but demand has grown after several years of foreclosures and population growth.Housing-market turmoil has many potential owners wary of buying real estate. And for many aspiring buyers, qualifying for a mortgage is tough, keeping prospective owners in rentals for longer and locking out those with incomes or credit scores bruised by job loss or foreclosure. Across the U.S., "effective" monthly rent—which means the final amount paid including discounts—averaged $1,044 in October, up 3.7% from a year ago, according to Reis Inc.. Landlords no longer have to "pony up in order to entice tenants," said Victor Calanog, Reis's chief economist. He added that rising vacancies suggest rents are "approaching equilibrium," but aren't likely to fall soon. In the third quarter, the ratio of rent to after-tax mortgage payments was 107.8%, according to Deutsche Bank A rent-to-mortgage ratio above 100 means mortgage payments are cheaper than rent for the median homeowner. The ratio was down from an all-time high of 120.7% in the first quarter, but well above an average of 85% since 1991.
Household deleveraging continues - The Federal Reserve's report on household debt burdens was released last week, covering the July - September quarter. According to the bank, The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt. The financial obligations ratio (FOR) adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio. Both measures declined substantially, after a relative pause about a year ago for several quarters. I've combined the two measures into a single graph: Both debt service payments (blue line) and total household onligations (red line) are now less than at any time since 1984. While in recent quarters the rate of decrease has slowed, debt service payment are now only 0.1% above their all time low.
Median Household Incomes: The "Real" Story - The traditional source of household income data is the Census Bureau, which publishes annual household income data each September for the previous year. Sentier Research, an organization that focuses on income and demographics, offers a more up-to-date glimpse of household incomes by accessing the Census Bureau data and publishing monthly updates. Sentier Research has now released its most recent update, data through November (available here as a PDF file). The data in their report differs from the Census Bureau's data in three key respects:
- It is a monthly rather than annual series, which gives a more granular view of trends.
- Their numbers are more current, the latest through November 2012. In September the Census Bureau released the 2011 annual numbers (going on nine months into the next year).
- Sentier Research uses the more familiar Consumer Price Index (CPI) for the inflation adjustment. The Census Bureau uses the little-known CPI-U-RS (RS stands for "research series") as the deflator for their annual data. For more on that topic, see this commentary.
Sentier makes the data available in Excel format for a small fee (here). I have used the latest data to create a pair of charts illustrating the nominal and real income trends during the 21st century. The first chart below chains the nominal values and real monthly values in November 2012 dollars. The red line illustrates the history of nominal median household income in today's dollars (as of the designated month). I've added callouts to show the latest value and the real monthly values for the January 2000 and the peak and post-peak trough in between.
Economy Weighs on Shoppers in Final Holiday Dash to Mall - Americans have become warier as Washington approaches the end of the year without an agreement to forestall higher taxes and automatic spending cuts -- the so-called fiscal cliff. Last month, retailers from Macy's Inc. (M) to Target Corp. (TGT) posted same- store sales that trailed analysts' estimates. Consumer confidence fell in December to a five-month low, according to a Dec. 21 report. The Thomson Reuters/University of Michigan consumer sentiment index slid to 72.9, the weakest since July, from 82.7 in November. In another sign that consumers are pulling back, U.S. online sales increased 8.4 percent this holiday season, compared with last year's almost 16 percent gain, MasterCard Advisors SpendingPulse said. Sales grew to $48 billion from Oct. 28 through Dec. 22, the Purchase, New York-based research firm said yesterday. The figures come from the 60,000 Web retailers it tracks.
Lackluster Holiday Sales - The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory. While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of Barnes & Noble Inc and J. C. Penney Co. The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year. The estimates are still preliminary and focus on sales, not profits. A handful of retailers will post sales data next week, but most, including heavyweights like Wal-Mart, will not report results at the register until they release financial results in mid-February. Analysts and industry groups already expected sales to grow at a slower pace than in 2011 and 2010. The National Retail Federation predicted 4.l percent sales growth, versus a 5.6 percent increase a year earlier. But growth of less than 1 percent is weaker than even some of the most pessimistic forecasts.
US holiday retail sales slow - FT.com: US holiday retail sales this year grew at the weakest pace since 2008, when the nation was in a deep recession. In 2012, the shopping season was disrupted by bad weather and consumers' rising uncertainty about the economy. The MasterCard Advisors SpendingPulse, a report that tracks spending on popular holiday goods, said on Tuesday that sales in the two months before Christmas increased 0.7 per cent, compared with last year. Many analysts had expected holiday sales to grow 3 to 4 per cent. In 2008, sales declined by between 2 per cent and 4 per cent as the financial crisis that crested that fall dragged the economy into recession. Last year, by contrast, retail sales in November and December rose between 4 per cent and 5 per cent, according to ShopperTrak, a separate market research firm. A 4 per cent increase is considered a healthy season. Shoppers were buffeted this year by a string of events that made them less likely to spend: superstorm Sandy and other bad weather, the distraction of the presidential election and grief about the massacre of schoolchildren in Newtown, Connecticut. The numbers also show how Washington's budget impasse is trickling down to Main Street and unsettling consumers. If Americans remain reluctant to spend, analysts say, economic growth could falter next year. In the end, even steep last-minute discounts were not enough to get people into stores,
U.S. Holiday Sales Rise 0.7% as Washington Hurts Confidence - U.S. holiday sales growth slowed by more than half this year after gridlock in Washington soured consumers' moods and Hurricane Sandy disrupted shopping, MasterCard Advisors SpendingPulse said. Retail sales grew by 0.7 percent from Oct. 28 through Dec. 24, the Purchase, New York, research firm said yesterday, without providing a dollar figure in the billions. Sales grew at a 2 percent pace in the same period a year ago. SpendingPulse tracks total U.S. sales at stores and online via all payment forms. Americans became skittish as Washington approached the end of the year without an agreement to forestall higher taxes and automatic spending cuts -- the so-called fiscal cliff. Hurricane Sandy interrupted shopping in stores and online after it slammed into the East Coast in late October. Last month, retailers from Macy's Inc. (M) to Target Corp. (TGT) posted same-store sales that trailed analysts' estimates.
A bah, humbug consumer Christmas? not so fast - Yesterday the econoblogosphere was all a twitter about a MasterCard report that consumers had only spent 0.7% more this holiday season vs. last year. This is said to be the weakest showing since the recession collapse of 2008, But before you accept that a the final word on the subject of consumer sales at year end 2012' take a look at this screenshot of Gallup's daily consumer spending report published yesterday, covering data fron February 2008 through December 23: The last two weeks have seen the highest amount of consumer spending since 4 years ago, and the spike last week is by far the highest since 4 years ago as well. So, how does this square with the MasterCard result? Two reasons are likely. First of all, the MasterCard result includes all shopping since October 28' I.e., just before Sandy. Spending was depressed from then until mid-November. Second, MasterCard is reporting credit card purchases only. Gallup, by contrast, is a relatively small sample - and so more volatile - and further is a self-report of all consumer spending. So while credit card transactions may only have increased slightly, cash buying by more frugal or budget-conscious consumers may have increase more substantially.
Websites Vary Prices, Deals Based on Users' Information - It was the same Swingline stapler, on the same Staples.com website. But for Kim Wamble, the price was $15.79, while the price on Trude Frizzell's screen, just a few miles away, was $14.29. A key difference: where Staples seemed to think they were located. A Wall Street Journal investigation found that the Staples Inc. website displays different prices to people after estimating their locations. More than that, Staples appeared to consider the person's distance from a rival brick-and-mortar store, either OfficeMax or Office Depot. If rival stores were within 20 miles or so, Staples.com usually showed a discounted price. In what appears to be an unintended side effect of Staples' pricing methods—likely a function of retail competition with its rivals—the Journal's testing also showed that areas that tended to see the discounted prices had a higher average income than areas that tended to see higher prices. Presented with the Journal's findings, Staples acknowledged that it varies its online and in-store prices by geography because of "a variety of factors" including "costs of doing business."
Why Reported Inflation Seems Different Than Reality - The original calculation of CPI, which measured the change in the cost of an identical fixed basket of goods priced at prevailing market costs each period, worked reasonably well for the intended purpose into the early-1980's. However, as the pressure of increasing deficits weighed on political parties, the need to find solutions to reducing spending, without actually cutting spending, led to several substantial changes in the calculation of inflation. Shortly after Clinton entered the White House the Bureau of Labor Statistics (BLS) altered the calculation of inflation by changing the weighting of goods in the CPI fixed basket. Then, over subsequent years, the method of weighting the underlying components was changed from a straight arithmetic weighting method to geometric. The primary result of the switch to a geometric weighting was a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price which led to lower reported inflation. But the manipulation of the data did not stop there. Aside from the weighting changes the BLS instituted a system of "hedonic" adjustments. Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from them. "That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial, according to the BLS.
Consumer Confidence Takes a Plunge - The Latest Conference Board Consumer Confidence Index was released this morning based on data collected through December 13. The 65.1 reading was well off the consensus estimate of 70.0 reported by Briefing.com. Today's number is a steep decline from the interim high of 73.1 in October. The higher preliminary reading for November of 73.7 was revised down to 71.5. Here is an excerpt from the Conference Board report. "Consumers' expectations retreated sharply in December resulting in a decline in the overall Index. The sudden turnaround in expectations was most likely caused by uncertainty surrounding the oncoming fiscal cliff. A similar decline in expectations was experienced in August of 2011 during the debt ceiling discussions. While consumers are quite negative about the short-term outlook, they are more upbeat than last month about current business and labor market conditions." Consumers' appraisal of the labor market was mixed. Those saying jobs are "plentiful" edged down to 10.3 percent from 11.0 percent, while those saying jobs are "hard to get" declined to 35.6 percent from 37.4 percent. Consumers' optimism about the short-term outlook plummeted in December. The percentage of consumers expecting business conditions to improve over the next six months declined to 17.6 percent from 21.3 percent, while those expecting business conditions to worsen increased to 21.5 percent from 15.8 percent. Consumers' outlook for the labor market also turned more pessimistic. Those anticipating more jobs in the months ahead declined to 17.0 percent from 19.5 percent, while those expecting fewer jobs increased to 27.3 percent from 21.2 percent. The proportion of consumers expecting an increase in their incomes was virtually unchanged at 15.4 percent. However, those expecting their incomes to decline rose to 18.7 percent from 15.6 percent. [press release]
Consumer Confidence Plunges, Unadjusted New Homes Sales Slide To Lowest Since February - Just as we saw with UMich, it appears the hope for change is wearing thin among the people. Today's Consumer Confidence data missed by its biggest margin in 7 months, dropped below the year's average, and saw the largest 2-month drop in over 15 months. All age cohorts lost confidence with the eldest most and it appears those earning over $35k are also beginning to worry (as those between $35k and $15k seem more confident). Over 40% expect stock prices to decline and it is expectations that have plummeted from a hope-filled 80.9 to a 13-month low of 66.5. In other news, we got the November New Homes Sales report from the Census Bureau. On the surface the number was good, but like the initial claims dats, below the surface its not as pretty - on an unadjusted, unannualized basis, November saw a tiny 27K houses sold - lowest since Feb 2012. In fact, the only thing that really did soar was the number of homes for sale at the end of the period which rose to 151K: the highest since November of 2011.
Gasoline Prices near Low for Year, Expected to Increase - Another update on gasoline prices. It looks like prices will finish the year near the low, but probably increase soon. From CNN: Gas prices slide, but the decline won't last, survey says The average cost of a gallon of regular gasoline is $3.26, down 58 cents over the past 11 weeks, the Lundberg Survey found. But that good news at the pump is unlikely to continue, says publisher Tribly Lundberg. "Higher crude oil prices are translating into higher wholesale gasoline prices," and retailers will need to pass them through, she says. Expect prices to jump 5 or 10 cents per gallon soon. Here is a graph from Gasbuddy.com showing the roller coaster ride for gasoline prices. 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.
DOT: Vehicle Miles Driven increased 0.3% in October - The Department of Transportation (DOT) reported Friday: Travel on all roads and streets changed by +0.3% (0.9 billion vehicle miles) for October 2012 as compared with October 2011. Travel for the month is estimated to be 251.5 billion vehicle miles. Cumulative Travel for 2012 changed by +0.6% (14.9 billion vehicle miles). The Cumulative estimate for the year is 2,464.5 billion vehicle miles of travel. Vehicle miles driven decreased in the Northeast (probably impacted by Hurricane Sandy) and increased in all other regions. The following graph shows the rolling 12 month total vehicle miles driven. Currently miles driven has been below the previous peak for 59 months - and still counting. The second graph shows the year-over-year change from the same month in the previous year. Gasoline prices were up in October compared to October 2011. In October 2012, gasoline averaged of $3.81 per gallon according to the EIA. Last year, prices in October averaged $3.51 per gallon. However, as I've mentioned before, gasoline prices are just part of the story. The lack of growth in miles driven over the last 5 years is probably also due to the lingering effects of the great recession (high unemployment rate and lack of wage growth), the aging of the overall population (over 55 drivers drive fewer miles) and changing driving habits of young drivers.
Gasoline Volume Sales, Demographics and our Changing Culture: The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series. Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 7.7% below the all-time high set in August 2005. The next chart includes an overlay of monthly retail gasoline prices, all grades and formulations. I've shortened the timeline to start with EIA price series, which dates from April 1993. The retail prices are updated weekly, so the price series is the more current of the two. As we would expect, the rapid rise in gasoline prices in 2008 was accompanied by a significant drop in sales volume. With the official end of the recession in June 2009, sales reversed direction ... slightly. The 12-month MA hit an interim high in November 2010, and then resumed contraction. The moving average for the latest month (October 2012) is about 7.4% below the pre-recession level and 4.3% off the November 2010 interim high. In fact, the latest data point is a level first achieved over fourteen years ago, in September 1998.
Durable Goods Orders for November Better than Expected - The December Advance Report on November Durable Goods was released Friday morning by the Census Bureau, but I was so swamped with other economic data that I'm only just now getting around to posting my monthly update. Here is the Census Bureau's summary on new orders: New orders for manufactured durable goods in November increased $1.6 billion or 0.7 percent to $220.9 billion, the U.S. Census Bureau announced today. This increase, up six of the last seven months, followed a 1.1 percent October increase. Excluding transportation, new orders increased 1.6 percent. Excluding defense, new orders increased 0.8 percent. Machinery, up three consecutive months, had the largest increase, $1.0 billion or 3.3 percent to $32.0 billion. Download full PDF. The latest new orders at 0.7 percent was above the Briefing.com consensus of 0.2 percent. Year-over-year new orders are down 4.1 percent. If we exclude both transportation and defense, "core" durable goods orders rose 1.8 percent, down from the previous month's 2.2 percent. Year-over-year core goods are down 0.2%. The first chart is an overlay of durable goods new orders and the S&P 500. An overlay with unemployment (inverted) also shows some correlation. We saw unemployment begin to deteriorate prior to the peak in durable goods orders that closely coincided with the onset of the Great Recession, but the unemployment recovery tended to lag the advance durable goods orders..
The ''Real'' Goods on the Latest Durable Goods Data - Earlier today I posted an update on the December Advance Report on November Durable Goods Orders. This Census Bureau series dates from 1992 and is not adjusted for either population growth or inflation. Let's now review the same data with two adjustments. In the charts below the red line shows the goods orders divided by the Census Bureau's monthly population data, giving us durable goods orders per capita. The blue line goes a step further and adjusts for inflation based on the Producer Price Index, chained in today's dollar value. This gives us the "real" durable goods orders per capita. The snapshots below offer an alternate historical context in which to evaluate the standard reports on the nominal monthly data.Economists frequently study this indicator excluding Transportation or Defense or both. Just how big are these two subcomponents? Here is a stacked area chart to illustrate the relative sizes over time based on the nominal data.Here is the first chart, repeated this time ex Transportation. Now we'll exclude Defense orders. Finally, here is the chart that I believe gives the most accurate view of what Durable Goods Orders is telling us about the long-term economic trend. The three-month moving average of the real (inflation-adjusted) core series (ex transportation and defense) per capita helps us filter out the noise of volatility to see the big picture.
The Philly Fed ADS Business Conditions Index - The Philly Fed's Aruoba-Diebold-Scotti Business Conditions Index (hereafter the ADS index) is a fascinating but little known real-time indicator of business conditions for the U.S. economy, not just the Third Federal Reserve District. Thus it is comparable to the better-known Chicago Fed's National Activity Index, which is updated monthly (more about the comparison below). Named for the three economists who devised it, the index, as described on its home page, "is designed to track real business conditions at high frequency." It is based on six underlying data series:
- Weekly initial jobless claims
- Monthly payroll employment
- Industrial production
- Personal income less transfer payments
- Manufacturing and trade sales
- Quarterly real GDP
The accompanying commentary goes on to explain that "The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions."The first chart shows the complete data series, which stretches back to 1960. I've highlighted recessions and the current level of this daily index through its latest data point.As we can readily see, the current level of this index is higher than it was at the onset of all recessions with the exception of the one in 1973-1975 that was triggered by the Arab Oil Embargo and subsequent gasoline shortages.
Business Activity in U.S. Expands for a Second Month - Business activity in the U.S. expanded in December for a second month, easing concern that a lack of progress on the federal budget would prompt a slump in manufacturing. The MNI Chicago Report's business barometer rose to a four- month high of 51.6 from November' 50.4. A reading of 50 is the dividing line between expansion and contraction. The median estimate in a Bloomberg survey called for the gauge would rise to 51. The figure corroborates another report that showed manufacturing in the Philadelphia area expanded by the most in eight months, pointing to stability in the industry. With companies tempering equipment orders in the event that more than $600 billion in automatic tax increases and government spending cuts take place next year, an improvement in housing and sustained consumer spending has taken the lead in underpinning the economy. "Business investment is showing signs of stabilizing but it's still very soft, and I think that's going to be taking some steam out of manufacturing over the next couple of months,"
Chicago PMI increases to 51.6, Pending Home Sales index increases - From the Chicago ISM: The Chicago Purchasing Managers reported the Chicago Business Barometer was up for a third month, lumbering along since September's 3 year low. The Business Barometer was guided higher almost exclusively by a sizable advance in New Orders. PMI: Increased to 51.6 from 50.4. (Above 50 is expansion). Employment: at a three year low of 45.9, down from 55.2 New orders increased to 54.0 from 45.3. This was above expectations of a reading of 51.0.• From the NAR: November Pending Home Sales The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.7 percent to 106.4 in November from a downwardly revised 104.6 in October and is 9.8 percent above November 2011 when it was 96.9. The data reflect contracts but not closings. The index is at the highest level since April 2010 when it hit 111.3 as buyers were rushing to beat the deadline for the home buyer tax credit. With the exception of several months affected by tax stimulus, the last time there was a higher reading was in February 2007 when the index reached 107.9. Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in December and January. However, because of the increase in short sales that take longer to close, some of these contract signings are probably for a few months from now. This was slightly below consensus expectations of a 1.8% increase.
Chicago PMI Rises Even As Employment Index Slides To Three Year Low; Respondents Warn On Obamacare - If there was any good news in today's Chicago PMI, it is that the headline number beat expectations of 51.0, rising from November's 50.4, to 51.6, leaving the two months of sub 50 prints in September and October in the past, or so the ISM institute would like us to believe. Because a casual glance at the data reveals that things are actually getting worse, with the Employment index plunging from 55.2 to 45.9, the lowest print in three years, while the all critical Capital Equipment buying policy plunged to a new 28 month low. So much for that CapEx spending. In fact the only indicator that posted an increase in today's release was the New Orders index which jumped to 54.0 while Order Backlogs, Supplier Deliveries, and Prices Paid all dropped. And for those hoping that in Q4 that inventory glut will finally clear itself, we have news: it won't -the Inventory index posted yet another jump, from 47.1 to 49.8. And while the data was ugly, perhaps the saddest, or funniest blurb, came from one of the respondents, which probably captures business sentiment in America with absolute precision: "We are on a hiring freeze in Q4, waiting to assess the outcome of the fiscal cliff deliberations. We are also planning cutbacks due to increased healthcare costs and Obamacare related expenses." Nuf said.
West Coast ports may join Eastern on Dec 30th strike - Dockworkers at four U.S. Pacific Northwest ports moved closer to a possible labor clash with grain shippers on Monday, as parties in a larger, separate dispute at 15 East and Gulf coast ports agreed to mediation ahead of strike deadline set for December 30. The International Longshore and Warehouse Union (ILWU) announced nearly 3,000 of its members had voted to reject a contract proposal that management called its "last, best and final" offer. The proposed contract covers six of the nine grain terminals operating in Puget Sound and along the Columbia River that account for more than a quarter of all U.S. grain exports and nearly half of U.S. wheat exports. The stalemate in contract talks in Oregon and Washington state and management's failure to win approval of its offer, fueled speculation that grain shippers might impose a lockout of union members in a bid to keep terminals operating with replacement workers. The ILWU has not asked its members to authorize a strike, nor has it set a strike deadline or made mention of a walkout. The union urged the shippers to return to the bargaining table.
Potential dockworker strike may close East Coast ports - An impasse between the dockworker union on the East Coast and a group of shipping companies may lead to a strike starting on Sunday, reported the New York Times. The union which represents 14 ports involved in negotiations, the International Longshoremen's Association, has not been able to come to an agreement with the United States Maritime Alliance over a number of issues. But the most prominent point of contention relates to "container royalty payments," which offers dockworkers payment for every ton of cargo. The alliance's chair, James Capo, claims it adds $10 an hour in wages on top of the workers' salaries, which the group claims amounts to $124,000 including benefits. They want to see the royalties frozen for current workers and end them for those hired in the future. The workers claim they earn $75,000 not including benefits and point to the alliance number as warped. They also argue that the royalties allow workers to benefit from increased productivity.
Home Depot to Lowe's Busiest Season Threatened by Strike - Home Depot Inc. (HD) and Lowe's Cos. (LOW) have the most at stake among retailers facing a dockworkers' strike, with possible port closings cutting off shipments right before the lucrative gardening season. Home Depot, the biggest U.S. home-improvement chain, is making plans in case 15,000 workers at ports from Maine to Texas walk off the job, and Lowe's said that it is monitoring the talks. About 45 percent of the commerce that flows in an out of the U.S. goes through East Coast ports, according to the National Retail Federation. Retailers "would be hit far and wide from apparel to home goods to patio furniture to barbecues," Jonathan Gold, the NRF's vice president for supply chain and customs policy, said yesterday in a telephone interview from Washington. "It is a major concern. At this point, we don't anticipate a settlement." The International Longshoremen's Association has vowed to walk out if a deal isn't reached before the Dec. 29 expiration of its contract with the U.S. Maritime Alliance, whose members include container-carrier companies. Talks broke down last week after nine months of negotiations. A strike would be the first at East Coast and Gulf Coast ports since 1977.
Looming Port Strike Deadline Pressures Obama to Intervene - President Barack Obama is facing pressure to block a strike that would gridlock eastern U.S. ports and risk damaging industries from retail to manufacturing. Federal mediators have been pushing for a deal between dockworkers and their employers before a Dec. 29 deadline. Talks between the International Longshoremen's Association and the U.S. Maritime Alliance broke down last week amid a dispute over container royalty fees, levies that supplement wages. A walkout would be the first at East Coast and Gulf Coast ports since 1977, and would halt shipments of containerized cargo, including clothing, frozen foods and car parts. Obama would be left to choose between forsaking a pro-labor stance by invoking the 1947 Taft-Hartley Act and allowing a union action that could compound the effects of the fiscal cliff. "To throw that kind of a strike on top of the economy right away in January, I'm sure is something the administration would rather not see," . "Would it create that much of a nightmare for him that they would be willing to do something that would anger part of their constituency in organized labor? That's the $64,000 question."
The robot economy and the new rentier class - It seems more top-tier economists are coming around to the idea that robots and technology could be having a greater influence on the economy (and this crisis in particular) than previously appreciated. Paul Krugman being the latest. But first a quick backgrounder on the debate so far (as tracked by us). Probably the first high-profile advocate of the idea — in recent times — that "technology and computers were changing the economy in weird ways" was Alan Greenspan in the 1990s, when he attributed a mysterious lack of inflation, high productivity and low unemployment rate to the arrival of a technologically rich "New Economy". As we've written before, once the tech bubble burst — and Greenspan was supposedly proved so very wrong — the whole idea of technology being a fundamental force in the real economy was abandoned. This is well illustrated by the sudden fall in references to technology in FOMC meetings (as tracked by us): Apart from a few fringe voices, the technology factor — and its likely effect on the natural unemployment rate as society moves towards a more leisure-focused framework, since all the hard jobs are done by robots and computers — became victim to a deathly silence in the world of serious economic thinking.
Rise of the cyborgs - A lot of recent futurist discussion in the media and blogosphere has revolved around either the technological stagnation thesis, or the question of whether robots will replace humans. Elsewhere, people are toying with the implications of more far-out technologies like brain emulation and desire modification, or following the ongoing mini-booms in natural gas fracking and 3-D printing. But it occurs to me that people may be overlooking something big: another technological revolution that is right under our noses, about to change our world in a big way. I'm talking about the rise of biomechanical engineering...or, to use a more catchy term, cyborg technology. The cyborg revolution is not a far-future sci-fi conjecture; it is upon us even as I write these words. For a taste of how cyborg technology may soon change our world, check out this BBC article. The key technology is the integration of human brains with computers. Here are some extrapolations of technologies that currently exist:
Are robots and aging demographics self-cancelling problems? - Dean Baker says yes: This is one where a baseball bat might be necessary. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs. Let's try that again. If you are concerned that a falling ratio of workers to retirees is going to make us poor then you are not concerned that excessive productivity growth will leave tens of millions without jobs. It is possible for too much productivity growth to be a problem, if the gains are not broadly shared. It is also possible for too little productivity growth to be a problem as a growing population of retirees imposes increasing demands on the economy. But, it is not possible for both to simultaneously be problems. That is missing the point, as there is too much talk of "productivity growth" per se and not enough of either distribution or political economy. If robots concentrate wealth in the hands of IP owners, wages for many workers might fall or remain stagnant. That is a problem.
Policy Implications of Capital-Biased Technology - Paul Krugman - I'll be writing more about this in weeks to come, but I guess I'd better say something right away about the implications of a declining labor share in GDP. Again, the data so far look like this: So, if the recent plunge in the labor share is the shape of things to come, what difference might it make?The short answer is that it will pose problems for the current mechanisms by which we fund social insurance programs; but it will not undermine our ability to afford those programs, and it would in fact be cruel and basically irrational to slash social insurance in response to a declining labor share.OK, maybe that was too quick. Let me take it more slowly: a substantial part of our social insurance system — Social Security and the hospital insurance portion of Medicare — is funded through dedicated payroll taxes. If payrolls lag behind overall national income, this will tend to leave those programs underfunded given the way the laws are currently written. But America as a whole won't have gotten poorer: the money is still there to support the programs, it's just coming in the form of capital rather than labor income. There would be no problem, at least in economic terms, in continuing the programs by adding revenue from general taxation, maybe even from dedicated taxes on capital income.
More on Capital-Biased Technological Change - Dean Baker - Since several people in comments and e-mails raised questions on my earlier post on capital-biased technological change I will try to clarify my point. The original impetus was a Paul Krugman post in which he raised the possibility that changes in technology were causing a redistribution from labor to capital. (He has since written further on the topic.)My point was to note that this sort of redistribution cannot just be a matter of technology, it also involves a very big role for the laws and norms that make such a redistribution possible. I referred in the earlier post to the Cambridge controversies in the theory of capital. Unfortunately, these debates were sidetracked into a narrow and largely irrelevant discussion of the possibility and likelihood of "re-switching," a story where a production technique flips from being less capital intensive to more capital intensive as the interest rate rises or falls. From my perspective the main takeaway from this debate is that there is no measure of capital that is independent of its price. How do we compare a steel mill, the latest supercomputer from IBM, the software produced by Google and the method for producing a lifesaving cancer drug whose patent is owned by Pfizer? There is no measure of capital apart from its price. This is in contrast to labor, the other part of the technology story. What is the physical presence of a software or pharmaceutical patent? Yet, these items are hugely important in the modern return to capital story since a very large chunk of profits is earned by software companies, drug companies or other corporations that profit primarily based on their ownership of intellectual property.
What are the policy implications of capital-biased technological change? - Paul Krugman has a very interesting post on this topic, so I will add a few points:
- 1. Taxing capital per se is not the way to go, since capital (of some kinds) bids up the wages of labor. If one accepts Krugman's distributional premises (not exactly my view but let's see where it brings us), the answer is to tax mainly those forms of capital which substitute for labor, either directly or indirectly. That would mean high taxes on the internet and other media of communications as well as high taxes on software and embedded software. I don't myself favor those policies, all things considered, but still I find it worth pursuing this logic to its implied conclusion. It would imply especially high taxes on our technologically most dynamic sectors.
- 2. Intellectual property rights of many kinds should be weaker, as Alex discusses in his Launching the Innovation Renaissance. That is one way to "tax" some forms of capital. But do not expect the main action here to be found in easy-to-reproduce forms of capital, rather look to the more durable rents.
- 3. If you believe that the wages of labor are "stickier" than payments to capital, and there is downward pressure on wage shares, this implies a higher steady-state rate of price inflation. I know, I know, there are various nominal vs. real finesses buried in my claim but still I think it holds up for the most part.
The tech debate blasts off (a linkfest) - It took almost a year for me to be taken seriously on the "technology is undermining capital" front, so it was extremely exciting to see the debate blast off in serious economic circles during the last quarter of 2012. I thought it might be useful, as a result, to provide some links to the most recent developments — since the debate really is moving quickly now. But before doing so I would like to stress that I appreciate that the debate itself is not new. Ricardo, the Luddites, Keynes, Marx and many more have all considered the impact of technology on labour and capital. But, as I've written previously, it's almost as if the entire economic and financial community decided to collectively forget about how tech influences capital following the dotcom crash. Like the bubble and bust proved once and for all that the "new economy" theory was flawed, and that bringing it up again could turn out to be embarrassing — thus better left ignored.
The rise of the attention economy - Many activities that were previously performed "for free" (often within a household), such as sex, home maintenance and care for the sick and elderly, are now frequently outsourced and counted as economic output. In general, it is fair to say that these activities are performed more efficiently as a result: People whose skills are worth, say, $50 per hour spend more of their time earning $50, rather than performing chores "worth" $10 or $20 per hour. But the internet is changing that as well, in a way that may befuddle the many companies who view it primarily as an economic platform, where they can market or sell things, or even charge for content. Those companies go online to earn money. Google is perhaps the purest example of a company that transforms purchase intentions into income; most other "internet" companies offer something of independent value on the other side of those searches. But many individuals, most of the time, go online without any interest in buying something. They are there to find out about the world, catch up with friends, play games, listen to music, chat, or just hang out - and, increasingly, to get the attention of other people. Thanks to highly productive surplus economies, they can spend a lot more time being economically inactive.
What Millions Want For Christmas: A Job - If you have a job be thankful. Be especially thankful if you have a job you really like. Stories like the one following show what many people want for Christmas is a job, perhaps any job Bloomberg reports Delta Air Gets 22,000 Applications for 300 Attendant Jobs Delta Air Lines Inc. (DAL), the world's second-largest carrier, received 22,000 applications for about 300 flight attendant jobs in the first week after posting the positions outside the company. The applications arrived at a rate of two per minute, Chief Executive Officer Richard Anderson told workers in a weekly recorded message. The latest jobs reports shows there are over 12 million people unemployed, the average duration of unemployment is over 40 weeks, and over 40% of the unemployed have been unemployed for over 27 weeks. Another 8 million people want full-time jobs but only have a part-time jobs. And finally, unemployment stats do not capture millions more who are so discouraged they stopped looking for jobs.
Jobless Claims Drop as U.S. States Tally Data After Break - Bloomberg: Fewer Americans than forecast filed claims for unemployment insurance last week as state offices rushed to tally the data in a holiday-shortened period. Applications for jobless benefits decreased 12,000 to 350,000 in the week ended Dec. 22, Labor Department figures showed today. Economists forecast 360,000, according to the median estimate in a Bloomberg survey. Claims in 19 states and territories were estimated because government office closures on Dec. 24 prevented a complete count, a Labor Department spokesman said as the figures were released.The level of claims indicates companies are seeing enough demand to maintain headcounts, a necessary development before hiring picks up. To help spur demand, thereby stimulating faster job growth, the Federal Reserve said this month it plans to keep monetary policy accommodative.
Weekly Initial Unemployment Claims decline to 350,000, 4-Week average at low for 2012 - The DOL reports: In the week ending December 22, the advance figure for seasonally adjusted initial claims was 350,000, a decrease of 12,000 from the previous week's revised figure of 362,000. The 4-week moving average was 356,750, a decrease of 11,250 from the previous week's revised average of 368,000. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims declined to 356,750. The 4-week average is now at the low for the year. The previous low for the 4-week average was 363,000. The recent spike in the 4-week average was due to Hurricane Sandy. Weekly claims were lower than the 365,000 consensus forecast. And here is a long term graph of weekly claims: The previous week was revised up slightly from 361,000. The following graph shows the 4-week moving average of weekly claims since January 2000.
Weekly Unemployment Claims at 350K; Lowest 4-Week Moving Average Since March 2008 - The Unemployment Insurance Weekly Claims Report was released this morning for last week. The 350,000 new claims number was a 12,000 decline from a 1,000 upward adjustment of the previous week. The less volatile and closely watched four-week moving average, which is usually a better indicator of the recent trend, fell to 356,750. That is the lowest 4-week MA since March of 2008. Here is the official statement from the Department of Labor: In the week ending December 22, the advance figure for seasonally adjusted initial claims was 350,000, a decrease of 12,000 from the previous week's revised figure of 362,000. The 4-week moving average was 356,750, a decrease of 11,250 from the previous week's revised average of 368,000. The advance seasonally adjusted insured unemployment rate was 2.5 percent for the week ending December 15, unchanged from the prior week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending December 15 was 3,206,000, a decrease of 32,000 from the preceding week's revised level of 3,238,000. The 4-week moving average was 3,219,000, a decrease of 24,750 from the preceding week's revised average of 3,243,750. Today's seasonally adjusted number was significantly below the Briefing.com consensus estimate of 375K. Here is a close look at the data over the past few years (with a callout for 2012), which gives a clearer sense of the overall trend in relation to the last recession and the trend in recent weeks. In the callout, note the spike in red dots associated with Sandy. The most recent dot puts us back at pre-Sandy levels.
New low in initial jobless claims contraindicates recession - Initial jobless claims are generally acknowledged to be a short leading indicator for the economy. With this morning's report of 350,000 new claims being filed last week, the 4 week average fell to 356,750. This is the lowest 4 week average in 5 years! In the nearly 50 year history of initial jobless claims data, there has never been a new low in initial claims set during a recession. Back in July I took a look at the historical record. In all cases but one since records started to be kept back in the 1960s, initial jobless claims rose 10% from their lows before a recession began. While we did have two weeks post-Sandy where initial claims were more than 10% above their previous post-recession low of 363,000, my calculations have shown that ex-Sandy, the four week average of new claims would only have risen into the low 370,000s range. While initial jobless claims are only one indicator, it is unheard of for claims to be falling to new lows unless the economy is expanding, and is strong evidence against any thesis that a recession began earlier this year.
Chart Of The Day: Claims Not Translating Into Full-Time Jobs -- CNN Money: "There were 350,000 filing for initial jobless claims in the week, down from the 362,000 who sought assistance a week earlier. The four-week moving average, which economists prefer to look at since it smooths out the volatility in the weekly numbers, fell by 11,250 to 356,750 last week, as a spike in claims in the wake of Super storm Sandy faded into the background and the labor market continues to show signs of improvement. That four-week average is now at the lowest reading since the week that ended March 15, 2008, shortly after the start of the Great Recession. The average over the course of 2012 has been about 375,000 a week seeking help." This was the preliminary read on the initial jobless claims report for the week of December 22, 2012. The commentary, for quite some time now, is that improving jobless claims are a sign that the job market, and consequently the economy as a whole, is improving. While it is true that employment has recovered since the post-recession lows - the report sparked the following question. "Are initial jobless claims are falling due to the creation of full-time employment OR is it simply a function of lower levels of employment terminations?" Since an individual can theoretically only file for a jobless claim if they have been laid-off, or terminated, from their employment, it is possible that claims will fall as a function of lower terminations. The chart below shows the 4-month average "layoffs and discharges" overlaid against total civilian employment as measured by the Bureau of Labor Statistics (BLS).
Philly Fed: State Coincident Indexes increased in 45 States in November - From the Philly Fed: The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for November 2012. In the past month, the indexes increased in 45 states and decreased in five states, for a one-month diffusion index of 80. Over the past three months, the indexes increased in 45 states, decreased in three, and remained stable in two, for a three-month diffusion index of 84. For comparison purposes, the Philadelphia Fed has also developed a similar coincident index for the entire United States. The Philadelphia Fed's U.S. index rose 0.2 percent in November and 0.6 percent over the past three months.Note: These are coincident indexes constructed from state employment data. This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged). In November, 45 states had increasing activity, down slightly from 46 in October (including minor increases). This is the second consecutive year with a weak spot during the summer, and improvement towards the end of the year. Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession. The map was all green earlier this year, than started to turn red, and is mostly green again
Moving the Jobless to the Jobs—Crucial for Economic Growth - Around the world, movement from poor rural areas to rich cities within countries has been a vital part of wealth creation. China alone has 140 million internal migrants, for example—most moved from the middle of the country to more prosperous coastal areas such as Shanghai, where they can earn more while their children can get a better education and quality health care. Just as international migrants send back $406 billion to their home countries each year, internal migrants support the families and communities they leave behind. Internal migration has been a powerful force for improving quality of life in the U.S., as well. People moving to Texas and California are going where the jobs are. And when poor people in the U.S. move to rich areas, that's also a force for more equal national growth. Alongside the movement of goods and finance, the opportunities presented by movements of people are why poorer areas of the U.S. have traditionally grown faster than richer ones. But more recent analysis by Peter Ganong and Daniel Shoag of Harvard finds that the rate of convergence across U.S. states has slowed dramatically over the past 30 years—poor states are growing faster than rich states, still, but the relative pace is much closer than it used to be. From 1940 to 1980, the gap between incomes in poor and rich states narrowed by 2.1 percent a year. But after 1980, the rate of narrowing slipped to less than 1 percent.
USPS may start selling mag subscriptions - Your next magazine subscription may well be purchased at the post office—the Postal Service could begin selling magazines directly to consumers as soon as next month. The news comes from the Mailers Technical Advisory Committee. MTAC is a committee made up of representatives from the US Postal Service and various industries related to it—from magazine publishers to envelope manufacturers. Most of their discussions are concerned with arcane mailing regulations, but one proposal is relevant to journalists and media companies. As first reported by the blog Dead Tree Edition, run by an anonymous magazine publisher, MTAC's periodicals working group has been considering a proposal for the Postal Service to sell magazine subscriptions directly to consumers in post offices and online. The proposal was first formulated at an MTAC meeting in May and could go into effect as early as next month, according to Edward Mayhew, a member of MTAC. The plan is for the Postal Service to install posters with QR codes in post offices around the country. Customers could then scan the code with their phones and subscribe to different magazines. Alternatively, they could just subscribe to magazines online, through USPS.com. USPS did not respond to requests for comment.
Underwater Homeowners Will Work for Less Pay: Cutting Research -People who are underwater on their home mortgages probably will accept "significantly" lower wages than other homeowners, according to a study published this month by the Federal Reserve Bank of Atlanta. The recent U.S. housing bust left many homeowners with mortgage debt larger than the equity value of their homes, say Fed Bank of Atlanta economist Chris Cunningham and Robert R. Reed of the University of Alabama. They cite data showing that 31.4 percent of U.S. homeowners were underwater in the fourth quarter of 2011. People in that situation tend to value employment more than those with significant housing wealth do, because without a job they would default on their home loan, Cunningham and Reed said. They thus are willing to accept lower wages than their counterparts. Their study found that being underwater is associated with a wage decline of between a 5 percent and 9 percent. The risk is that by agreeing to work for lower wages, underwater workers create a negative feedback loop in which "house price depreciation leads to lower wages, and in turn, lower wages lead to greater housing losses," they said.
Charting the state of the U.S. economy: EPI's top charts of 2012 | Economic Policy Institute - EPI's top charts of 2012 are drawn from our flagship publication, The State of Working America; regularly updated Economic Indicators; weekly Economic Snapshots; and posts on Working Economics, the EPI blog. Taken together, they illustrate that in 2013, policymakers must do more to ensure the U.S. economy works for all Americans.
2013 Is the Year to Go to Work, Not Go on Disability - The National Bureau of Economic Research declared that the U.S. recession ended in June 2009, yet 2012 didn't look like much of a resurgence. To me, the number that sums up the year's doldrums is the 1.27 million increase in the number of disabled Americans without jobs from November 2011 to November 2012. This statistic reflects not only the sluggish recovery but also a drifting nation, badly in need of tough medicine. There are now 8.8 million workers receiving disability payments from Social Security. I find this number haunting. The disabled are part of the far larger number of Americans who have left the labor force altogether since the recession, and who don't seem to be coming back. About 88.9 million people in the U.S. are now out of the labor force, 2.4 million more than a year ago and 11.4 million more than in 2006. Thirty years ago, there was a 40-to-1 ratio between the total labor force and those workers receiving Social Security disability payments. Today that ratio is less than 18-to-1.
Why Do Americans Have Less Vacation Time than Anyone Else? - For most Americans, Christmas week represents about half of the time off we will enjoy all year long. Compared with Australians (at least 4 weeks off, plus 10 public holidays), Brazilians (22 days of paid leave with a 33 percent salary vacation bonus) and the French (at least 5 weeks off and as many as 9 for many public employees), we are seriously bereft. Look at how the United States stacks up against the rest of the developed world in number of mandatory days off each year:Yes, that's a big fat goose egg. And yes, the United States is the only OECD country that does not require employers to provide even a day of paid leave to its employees. As the Department of Labor states matter-of-factly, "The Fair Labor Standards Act (FLSA) does not require payment for time not worked, such as vacations, sick leave or federal or other holidays. These benefits are matters of agreement between an employer and an employee (or the employee's representative)."
Jobs Compete With College in Montana Oil Country - For most high school seniors, a college degree is the surest path to a decent job and a stable future. But here in oil country, some teenagers are choosing the oil fields over universities, forgoing higher education for jobs with salaries that can start at $50,000 a year.It is a lucrative but risky decision for any 18-year-old to make, one that could foreclose on his future if the frenzied pace of oil and gas drilling from here to North Dakota to Texas falters and work dries up. But with unemployment at more than 12 percent nationwide for young adults and college tuition soaring, students here on the snow-glazed plains of eastern Montana said they were ready to take their chances. "I just figured, the oil field is here and I'd make the money while I could," said Tegan Sivertson, 19, who monitors pipelines for a gas company, sometimes working 15-hour days. "I didn't want to waste the money and go to school when I could make just as much."
As Walmart Makes Safety Vows, It's Seen as Obstacle to Change - Mr. Duke's reassurances that Walmart enforces high standards in the global clothing industry appear to be contradicted by inspection reports it requested and some of Walmart's own internal communications:
- ¶ Just two weeks before Mr. Duke's vow, a top Walmart executive acknowledged in an e-mail to a group of retailers that the industry's safety monitoring system was seriously flawed. "Fire and electrical safety aspects are not currently adequately covered in ethical sourcing audits," Rajan Kamalanathan, the executive, wrote to other board members of the Global Social Compliance Program, a business-led group focused on improving the supply chain.
- ¶ Three inspection reports from 2011 and 2012 at the Tazreen Fashions factory where the fire occurred revealed serious repeated violations, including a lack of fire alarms in many areas, a shortage of fire extinguishers and obstacles blocking workers' escape routes. At the same time, those inspections did not even cover whether the factory had fire-safe emergency exits, leaving that responsibility to often lax government inspectors.
- ¶ Walmart led an effort to block a plan to have global retailers underwrite safety improvements at factories in Bangladesh, according to minutes of an April 2011 meeting as well as several participants.
Wages in America and the Attack on Labor - The attack on labor is in full throttle. We hear reports of outrageous pay for government workers with economic fictional spin. Pundits weave tall tales blaming the workers themselves as the reason for America's economic malaise. Actual wage statistics are never mentioned. Nor is the never ending income inequality in the United States and the policies which cause it. The social security administration keeps statistics on average and median wages as reported on Federal income taxes and contributions to deferred compensation plans. They use this data to calculate your social security benefits. Below is a chart of the average wage and median wage since 1990. Median means 50% of all wage earners earned that wage or less. The average wage has increased 104.3% since 1990, yet the median wage has only increased 86.0%. The reason the average wage has increase more than the median is the super rich. Average wages are calculated by taking the total compensation in America and dividing by the number of wage earners. The reason the median and average diverge is because those few at the top making millions pushing the average wage amount much higher. To see this below is a graph of wage earners by income bracket. A full 15.6% of wage earners make less than $5000 per year. A whopping quarter, that's 24.7%, of all wage earners make less than $10,000 per year. The average wage in these income brackets is also astounding. For those making less than $5,000 a year, the average wage is $2,019.42. For those making between $5 thousand and $10,000 the average wage is $7,400.95. That's 13,85 million people earning between $5,000 and less than $10,000 a year, right here in America with an astronomical 23,548,858 wage earners making less than $5k.
The Crass Cynicism of Right-to-Work Laws - By law, workers in shops represented by unions already enjoy the benefits of union membership – wages, working conditions, grievance procedures, and so on – without having to join the union. However in states without right to work laws, if they choose not to join, they must pay the equivalent of union dues in return for the benefits they receive. In the twenty-four states where right to work laws are in place, they do not have to pay anything. It is tempting to get something for nothing. But because solidarity among workers is hard to quash, right to work laws don't inevitably do unions in. They do weaken existing unions, however, and they make union organizing more difficult. This is not just bad for workers. It is bad for everyone, or rather for ninety-nine percent or more of everyone, because the labor movement is our main defense against predatory capitalists and corporate domination of the state.
There's Another No Work Option: Laid Off - Glaeser writes a lot of words dancing around the obvious issue: believe that recipients of the aid are typically in pain, but many have a choice between suffering at work and going on disability. In boom times, the work option may seem more attractive, but as labor options contract, a steady check from the federal government can seem the better choice. The recession surely explains much of the 24 percent increase in the number of people receiving Social Security disability insurance since 2007. It's an economist way to think about things, that someone being in the labor force means they're choosing the "work option." But in recession the options for some are no work and no money (otherwise known as "homelessness") or managing to qualify for disability (average monthly payment about $1100, max benefit about $2500). If you have some form of disability, you might be able to work if you have a job and employer that can accommodate you, but lose that job and you're probably going to be out of luck. his isn't really mysterious stuff. Someone is 61, has a moderate disability, and loses his/her job. There is no work option.
Fiscal Cliff Unemployment Limbo Makes Americans Feel 'Like They're Playing Games' In Congress: Congressman Steny Hoyer (D-Md.) said on Thursday that Americans are paying unusually close attention to the fiscal cliff debate in Congress. "I've never seen a public as energized or as knowledgeable about an issue as they are about the fiscal cliff," Hoyer said. "They know it will have a negative impact on the economy and they know it will have a negative impact on them and their families." That's certainly the case for Debi Ogg of Tulsa, Okla. Her state-funded unemployment insurance lasted until the beginning of December, and then Ogg switched over to federal benefits, which are supposed to last 14 weeks in Oklahoma. But when Ogg filed her weekly claim earlier this month, she was told she would not receive 14 weeks after all. . She is one of more than 2 million Americans the National Employment Law Project estimates will stop receiving benefits after Saturday, when federal unemployment benefits will almost certainly go away because Congress has not reauthorized them. Democrats have demanded that the benefits be included in a deal to avert the fiscal cliff's simultaneous tax hikes and spending cuts, but party leaders have not been able to find a compromise with Republicans. Members of both parties do agree that everyone should be mad at them. "The American people have a right to be very upset with this Congress," Hoyer said Thursday. "I think every American should be disgusted with all of Washington," Sen. Bob Corker (R-Tenn.) said on Friday.Dozens of unemployed Americans have expressed disgust with inaction on the fiscal cliff situation in emails and phone calls with HuffPost over the past month. In interviews, they explained how a fiscal cliff failure might affect them.
Saturday marks last week for extended unemployment benefits for unemployed Californians - Even before the Jan. 1 deadline, hundreds of thousands of Californians are set to go over the cliff Saturday; Dec. 29 marks the last day that federal extensions for unemployment benefits will be paid out to people. For any of the nearly 400,000 Californians receiving extended unemployment benefits, Saturday could mean the end of a lifeline. Once their claim is certified for this past week, their next payment will be their last, unless Congress and the president reach a deal. Even as the president and lawmakers returned to Washington early from their holidays to try to reach an agreement to avoid the fiscal cliff, California's Employment Development Department was already preparing unemployment recipients for the worst case scenario. The EDD administers the federal extension program. For the last few years the federal government has provided up to almost a year and a half of additional benefits to the unemployed who ran out of their original 26 weeks of regular state-provided benefits. "Now, when they reauthorized the federal extension program in February, they set it to expire at the end of this year, which means here at the EDD, we can no longer pay any federal extension benefits after this week ending tomorrow," EDD spokesperson Loree Levy said. That means anyone already receiving extended benefits who remains unemployed next week, they will not receive a payment even if they still have a balance left on their current claim.
Latinos Less Likely To Receive Unemployment Benefits Than Non-Hispanic Whites, Study Says - Even as rightwing pundits paint the Latino community as over-reliant on government, a new study highlights that Hispanics often do not receive enough of the benefits they are entitled to. Latinos are less likely than non-Hispanic whites to apply for unemployment insurance benefits or to receive them once they apply, according to the study published in the Monthly Labor Review and publicized in a briefing by the National Employment Law Project. Based on the 2005 supplement of the Current Population Survey of 60,000 households, the study by Alix Gould-Werth and Luke Shaefer of the University of Michigan found that only 34 percent of Latinos applied for unemployment benefits, compared to 49.5 percent of non-hispanic whites. Of those who applied, 56.8 percent of Hispanic applicants received benefits, versus 70.9 percent of non-Hispanic whites.
A Conservative Case for the Welfare State - Republicans in Congress opposed the New Deal and the Great Society, but Republican presidents from Dwight D. Eisenhower through George H.W. Bush accepted the legitimacy of the welfare state and sought to manage it properly and fund it adequately. When Republicans regained control of Congress in 1994 they nevertheless sought to repeal the New Deal and Great Society programs they had always opposed. Energized by their success in abolishing the principal federal welfare program, Aid to Families With Dependent Children, in 1996, Republicans tried to abolish Social Security as well, through partial privatization during the George W. Bush administration, and they more recently have attempted to change Medicaid into a block grant program with funds going to the states and to turn Medicare into a voucher program. Milton Friedman advised conservatives to use crises as opportunities to advance their agenda. "Only a crisis – actual or perceived – produces real change," he contended. Thus Republicans are now using the fiscal impasse to try to raise the age for Medicare and reduce Social Security benefits by changing the index used to adjust them for inflation. They know that such programs will be easier to abolish in the future if the number of people who qualify can be reduced and benefits are cut so that privatization becomes more attractive.
Philanthropy: You're doing it wrong - Interestingly, philanthropy is one of those areas where the richer you are, the more likely you are to be doing it spectacularly wrong. So to make you feel better still, this is aimed mainly at the mega-philanthropists: the people who give away millions of dollars and feel fantastic for doing so. These are the people at the heart of the debate over capping the mortgage-interest tax deduction: they receive an outsized proportion of its costs, on the grounds, to quote Bob Shiller, that charitable giving can substitute for a good part of the things that the government would otherwise be doing itself, a factor that is rarely introduced into budget calculations. Indeed, in many cases, individual philanthropy may be more effective than government expenditures. Being "more effective than government expenditures" is a pretty low bar to hurdle. But that doesn't mean it's reasonable to assume that most philanthropic donations hurdle it with ease. Remember John Paulson, with his $100 million gift to the Central Park Conservancy: I think I'm entirely safe in saying that the government, in the form of the New York City Department of Parks & Recreation, spends its money a lot more carefully and effectively, despite the fact that it has to divvy up its budget across 5,000 different properties, including Central Park. And the much bigger problem is that Paulson is no exception here. Let's run down the list of things you're likely to be doing wrong, if you're a rich philanthropist:
Hurricane Relief Bill Clears Hurdle in the Senate— A $60.4 billion bill to pay for recovery efforts in states pummeled by Hurricane Sandy took a major step toward passage in the Senate on Friday. Voting 91 to 1, Democrats and Republicans came together on a crucially important motion to end debate on the bill and schedule a vote next week. The move thrilled supporters, who said it meant that the Senate was all but certain to pass the measure. The motion came after days of intense negotiations in which the bill's Democratic supporters had to overcome serious doubts, mostly from Republicans, over several issues, including the measure's cost. "We are halfway home," said a jubilant Senator Charles E. Schumer, Democrat of New York. "There were times in the past week when it seemed that this bill would fall to a filibuster. It seemed that there was too much opposition to the bill." The bill still faces great uncertainty in the Republican-controlled House, where some leading conservative lawmakers may seek to block it.
On Ravaged Coastline, It's Rebuild Deliberately vs. Rebuild Now - Mr. Ryan, a retired bricklayer who built his house by hand 30 years ago only to lose most of it to Hurricane Sandy, was already hard at work rebuilding. He knew that officials from the city, the Federal Emergency Management Agency and the Breezy Point cooperative were still negotiating over new building standards, revisions that could force him to tear apart the windows and doors he was installing to add expensive new safeguards against another onslaught from the ocean. But he would not, he could not, sit around. "How long can I wait?" Mr. Ryan said. "I've got to get back here and live." The big thinkers have emerged in force since Hurricane Sandy. Environmentalists and academics call for a retreat from rising tides and vulnerable seashores. FEMA pores over flood photos, redefining the areas of highest risk. And city engineers and lawyers revisit building and zoning codes. All hope to ensure that whatever rises from the debris can survive future assaults by extreme weather. But for all the policy debates, the actual decisions that will shape these communities are already being made by individual homeowners across New York and New Jersey, providing reason to be skeptical that any cohesive, unified vision of a rebuilt coastline will eventually emerge. Unable to wait for updated guidelines, let alone far-reaching plans — or unable to afford the new costs they may entail — many families and business owners are already acting in ways that will determine whether those more ambitious goals can be met.
Along Coast, Hurricane Left Housing Market in Turmoil - The real estate market along the New York and New Jersey coastlines has been as upended by Hurricane Sandy as the houses tossed from their foundations. In places where waterfront views once commanded substantial premiums, housing prices have tumbled amid uncertainty about the costs of rebuilding and the dangers of seaside living. Homeowners have had to decide quickly whether to sell out or pour more money in to fix storm-damaged homes, as the real estate speculators who have descended on these areas make offers that would have been preposterous just two months ago. Some owners have indignantly balked and even gone so far as to take houses that were already on the market off, waiting for values to rebound. But many others who lack the means or the desire to rebuild say they have no choice but to try to get out from under these properties for whatever they can.
New York's Mental Health System Thrashed by Services Lost to Storm - When a young woman in the grip of paranoid delusions threatened a neighbor with a meat cleaver one Saturday last month, the police took her by ambulance to the nearest psychiatric emergency room. Or rather, they took her to Beth Israel Medical Center, the only comprehensive psychiatric E.R. functioning in Lower Manhattan since Hurricane Sandy shrank and strained New York's mental health resources.But the woman was discharged within hours, to the shock of the mental health professionals who had called the police. It took four more days, and strong protests from her psychiatrist and caseworkers, to get her admitted for two weeks of inpatient treatment. Psychiatric hospital admission is always a judgment call. But in the city, according to hospital records and interviews with psychiatrists and veteran advocates of community care, the odds of securing mental health treatment in a crisis have worsened significantly since the hurricane. The storm's surge knocked out several of the city's largest psychiatric hospitals, disrupted outpatient services and flooded scores of coastal nursing homes and "adult homes" where many mentally ill people had found housing of last resort. One of the most affected hospitals, Beth Israel, recorded a 69 percent spike in psychiatric emergency room cases last month, with its inpatient slots overflowing. Instead of admitting more than one out of three such cases, as it did in November 2011, it admitted only one out of four of the 691 emergency arrivals this November, records show. Capacity was so overtaxed that ambulances had to be diverted to other hospitals 15 times in the month, almost double the rate last year, in periods typically lasting for eight hours, officials said.
Hurricane Sandy Alters Utilities' Calculus on Upgrades - NYTimes.com: After Hurricane Sandy wreaked havoc with power systems in the Northeast, many consumers and public officials complained that the electric utilities had done far too little to protect their equipment from violent storms, which forecasters have warned could strike with increasing frequency.But from a utility's perspective, the cold hard math is this: it is typically far cheaper for the company, and its customers, to skip the prevention measures and just clean up the mess afterward. Consolidated Edison, for example, expects to spend as much as $450 million to repair damages to its electric grid in and around New York City. Since utilities are generally allowed to recover their costs through electric rates, customer bills in the region, which typically run about $90 a month for residential customers, would have to rise by almost 3 percent for three years to cover those expenses alone. Fully stormproofing the system — sinking power lines, elevating substations and otherwise hardening equipment against damage from torrential winds and widespread flooding — could easily cost 100 times as much. For Con Ed, carrying out just one measure — putting all of its electric lines underground — would cost around $40 billion, the company estimates. To recover those costs, electric rates would probably have to triple for a decade or more, according to Kevin Burke, Con Ed's chief executive.
Battered Seaside Haven Recalls Its Trial by Fire - Among the many cruelties delivered by Hurricane Sandy, the Breezy Point fire has inscribed itself as one of the storm's hellish signatures. Ranking with the worst residential fires in New York City's history, it burned down 126 homes and damaged 22 more, leaving a conspicuous hole in the heart of this genial shore community. The storm hit Oct. 29 and about two months later, the neighborhood remains a cindery reminder of what it had once been. In all, the New York City Fire Department counted 94 fires related to the storm. Nothing, though, approached the monster that visited Breezy Point. The Fire Department has not yet finished its investigation into the blaze. However, Robert Byrnes, the chief fire marshal, said that it had concluded that floodwaters caused something electrical, like a socket or breaker panel, to short and ignite inside the unoccupied house at 173 Ocean Avenue, random as the spin of a wheel. Breezy Point's residents know grief, 30 people connected to the community having perished in the Sept. 11 attacks. Yet the miracle of the torrid fire is that no one died or was seriously injured. The fire chose property and spared life.
Chicago parking meter rates to rise again in 2013 - Chicago Tribune: In an annual ritual that has become as predictable if not as joyous as a New Year's Eve countdown to midnight, Chicago drivers again will have to dig a little deeper to pay to park at meters in 2013. Loop rates will go up 75 cents to $6.50 an hour as part of scheduled fee increases included in Mayor Richard Daley's much-criticized 2008 lease of the city's meters to Chicago Parking Meters LLC.Paid street parking in neighborhoods near the Loop will rise 25 cents and reach $4 an hour. Metered spaces in the rest of Chicago also will increase by a quarter per hour, to $2, according to the company.
San Bernardino paid US$2M in employee cash-outs in months leading up to bankruptcy filing - The California city of San Bernardino paid US$2-million in cash-outs to employees for unused vacation and sick time in the three months before declaring bankruptcy on August 1, data reviewed by Reuters show. City officials chalked up the payment spurt to coincidence and other factors. Still, the payments may run afoul of a core provision of the bankruptcy code that imposes strict rules on the types of payments that can be made immediately prior to a bankruptcy, according to bankruptcy lawyers who are not involved in the case. In a court hearing scheduled for Friday, the city is expected to argue that it is so penniless that it needs bankruptcy protection and relief from payments owed to the California Public Employees Retirement System and other creditors. Yet in July alone, the city paid US$1.2-million to 33 employees for unused sick and vacation time, with more than half of that paid out the day before the bankruptcy filing.
Georgia's Hunger Games - Where 15 years ago 68 percent of poor Americans received cash via Temporary Assistance to Needy Families (as welfare was officially renamed in 1996), today only 27 percent of Americans with incomes low enough to qualify for cash benefits receive them. As the New York Times' Jason DeParle discussed in a front-page article earlier this year, the resulting welfare gap has left at least 4 million families with neither jobs nor cash aid. The size of the welfare gap, however, varies widely from state to state. In states like California and Maine, which have focused on getting their poor citizens into jobs programs, about two-thirds of those eligible still receive welfare. On the opposite end of the spectrum is Georgia, which over the past decade has set itself up as the poster child for the ongoing war on welfare. Even as unemployment has soared to 9 percent and 300,000 Georgia families now live below the poverty line—50 percent higher than in 2000, for a poverty rate that now ranks sixth in the nation—the number receiving cash benefits has all but evaporated: Only a little over 19,000 families receiving TANF remain, all but 3,400 of which were cases involving children only. That's less than 7 percent, making Georgia one of the toughest places in the nation to get welfare assistance.
Profiting From a Child's Illiteracy - THIS is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability. Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18. "The kids get taken out of the program because the parents are going to lose the check," "It's heartbreaking." This is painful for a liberal to admit, but conservatives have a point when they suggest that America's safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire. Some young people here don't join the military (a traditional escape route for poor, rural Americans) because it's easier to rely on food stamps and disability payments. Antipoverty programs also discourage marriage: In a means-tested program like S.S.I., a woman raising a child may receive a bigger check if she refrains from marrying that hard-working guy she likes. Yet marriage is one of the best forces to blunt poverty. In married couple households only one child in 10 grows up in poverty, while almost half do in single-mother households.
Sheriff Arpaio sending armed posse to protect schools- Phoenix -- Maricopa County Sheriff Joe Arpaio said Thursday that he plans to deploy his armed volunteer posse to protect Valley schools from the kind of violence that happened in the Connecticut shooting tragedy. Arpaio believes having armed law officers around schools will deter would-be criminals from trying anything violent and, possibly, stop them if they do. "I have the authority to mobilize private citizens and fight crime in this county," Arpaio said.
260 School Children Killed in Chicago in 3 Years -- Where Are the Tears for Them? - The tragedy in Newtown was truly horrific. But there is similar carnage carried out every day in the streets of America's cities, especially in the President's hometown of Chicago, where I work in Oakland, in Philadelphia, and many other cities across the nation. In 2010, nearly 700 Chicago school children were shot and 66 of them died. Last year, Mayor Rahm Emanuel attended a memorial for 260 school children who had been killed in just the previous three years. On several occasions in the past year, tens of people have been shot in a single weekend on the streets of the city. The worst three-day stretch saw 10 killed and 37 wounded in gun fire. But Google the term "Chicago weekend shootings" and the results are far too many deadly weekends to count. Oakland, Calif. has seen a huge increase in shootings. Last year, three small children were murdered in shootings. The youngest victim hadn't yet turned 2. Oakland has become the first city in the country to have its police force taken over by a federal court. Because of a lack of resources, the city has one of the lowest police to resident ratios in the country. Gun violence in America is a pandemic, but there is no round-the-clock news coverage. No national address from the President with tears. No pledge for urgent change.
Sen. Boxer proposes deploying National Guard at schools — Federal funds would be made available to deploy National Guard troops at schools under legislation introduced Wednesday by Sen. Barbara Boxer (D-Calif.) in response to last week's mass slaying at an elementary school in Newtown, Conn. The Save Our Schools Act would leave it to governors to decide whether to call out the National Guard and how to use troops around schools. "Is it not part of the national defense to make sure that your children are safe?" Boxer said at Capitol Hill press conference. Boxer also introduced the School Safety Enhancement Act, which would increase funding for a federal grants program, from $30 million to $50 million, to help fund school security measures, such as installation of metal detectors and surveillance cameras. The bills are among the first of what is expected to be a wave of legislative proposals intended to curb gun violence, including tougher gun control and new measures aimed at keeping firearms out of the hands of the mentally ill. "The slaughter of the innocents must stop," she said. "We must keep our schools safe by utilizing all of the law enforcement tools at our disposal."
10 Disgusting Examples Of Very Young School Children Being Arrested, Handcuffed And Brutalized By Police: When I was growing up, I don't remember a single time that the police ever came to my school and arrested anyone. But now police are being called out to public schools at the drop of a hat. All over America, very young school children are being arrested and marched out of their schools in handcuffs in front of all their friends. For example, down in Georgia the other day police were called out because a 6-year-old girl was throwing a tantrum. The police subdued her, slapped handcuffs on her and hauled her off to the police station. Instead of apologizing for this outrageous incident, the police are defending the actions of the officer involved. But this is not an isolated incident. All over the country young kids are being handcuffed and mistreated by police. The following are 10 more disgusting examples of very young school children being arrested, handcuffed and brutalized by police all over America….
Report: Safety with Dignity: Alternatives to the Over-Policing of Schools (2009) | New York Civil Liberties Union (NYCLU) - American Civil Liberties Union of New York State: The New York Civil Liberties Union, the Annenberg Institute for School Reform at Brown University and Make the Road New York today released a report documenting the successes of six New York City public high schools in maintaining safe, nurturing educational environments without using metal detectors, aggressive policing and harsh disciplinary policies—measures widely employed in city schools. Safety with Dignity: Alternatives to the Over-Policing of Schools explores the approaches to security and discipline favored by these six successful schools, which serve "at-risk" student populations, similar to schools with some of the harshest discipline policies. It concludes with practical recommendations to help replicate these success stories in schools throughout the city.
For Poor, Leap to College Often Ends in a Hard Fall - Angelica, a daughter of a struggling Mexican immigrant, was headed to Emory University. Bianca enrolled in community college, and Melissa left for Texas State University, President Lyndon B. Johnson's alma mater. "It felt like we were taking off, from one life to another," Four years later, their story seems less like a tribute to upward mobility than a study of obstacles in an age of soaring economic inequality. Not one of them has a four-year degree. Only one is still studying full time, and two have crushing debts. Angelica, who left Emory owing more than $60,000, is a clerk in a Galveston furniture store. Each showed the ability to do college work, even excel at it. But the need to earn money brought one set of strains, campus alienation brought others, and ties to boyfriends not in school added complications. With little guidance from family or school officials, college became a leap that they braved without a safety net. The story of their lost footing is also the story of something larger — the growing role that education plays in preserving class divisions. Poor students have long trailed affluent peers in school performance, but from grade-school tests to college completion, the gaps are growing. With school success and earning prospects ever more entwined, the consequences carry far: education, a force meant to erode class barriers, appears to be fortifying them.
Social Class and Higher Education - Most of the discussion of education and social inequality in America is over the advantages well off families have at getting their children into elite schools that perpetuate their advantage. Given the degree to which those schools control access to some of the most prestigious and financially rewarding careers, that's a real issue. But it's one that by definition impacts only a fraction of one percent of the population. Even if every seat to the top ten universities in the land were awarded solely on the basis of merit, the other 99-plus percent of students would go on to other schools or no school at all. A long NYT feature, "For Poor, Leap to College Often Ends in a Hard Fall," focuses on the obstacles that smart kids from impoverished backgrounds have in getting ahead through higher education. It's extremely anecdotal, focusing on three girls from a Galveston, Texas high school, but points to larger trends.
Student food banks fight hunger on campus - The University of Missouri student-run Tiger Pantry is among a growing number of programs at university campuses. Organizers say it's both a response to a weak economy and a sign of the latest trend in student activism. The pantry, which opened in early October, is within easy walking distance of the University of Missouri's campus in Columbia. It has given free food to nearly 150 people and their families, and an additional 100 people have expressed an interest. Food recipients include nearly three dozen graduate students and a similar number of university employees, as well as a handful of professors. Student organizers modeled the program on a similar effort at the University of Arkansas known as the Full Circle Food Pantry. As a sanctioned organization, the Tiger Pantry receives some money from student fees but primarily relies on donated food. Students can drop off donations in large bins around campus, and the local food pantry provided 2,500 pounds of food to help the Tiger Pantry get started. The University of Mississippi and Auburn University are also starting campus food pantries, joining schools such as Central Florida, Georgia, Iowa State, Oregon State and West Virginia. The University of California Los Angeles deploys "economic crisis response" teams that assist students struggling to pay bills and rent or who live on the streets. Campus organizers estimate at least 20 schools have similar programs, with even more interested in joining the effort.
The college textbook bubble and how the "open educational resources" movement is going up against the textbook cartel - The chart above shows the percent changes since 1978 for the CPI series "Educational Books and Supplies" (which is mostly college textbooks), the CPI series "Medical Services," the median price for new homes from the Census Bureau, and the CPI series "All Items." The 812% increase in the price of college textbooks since 1978 makes the run-up in house prices and housing bubble (and subsequent crash) in the 2000s seem rather inconsequential, and the nine-fold increase in textbook prices also dwarfs the increase in the cost of medical services over the last three decades. Compared to the 250% increase in the Consumer Price Index (CPI) over the last 34 years, college textbooks have risen more than three times the amount of the average increase for all goods and services.Just like the ongoing home price increases and housing bubble of the last decade were unsustainable, there is now growing evidence that rising college textbook prices and the "college textbook bubble" are also unsustainable, especially because of the growing number of low-priced and even free alternatives to over-priced $200-300 college textbooks. The textbook alternatives are part of the growing "open educational resources" movement, which is "terrifying" the college textbook cartel, according to a recent Slate article titled "Never Pay Sticker Price for a Textbook Again."
Cost of College: Colleges' Bureaucracy Expands Costs -- Like many public colleges, the University of Minnesota went on a spending spree over the past decade, paid for by a steady stream of state money and rising tuition. Officials didn't keep close tabs on their payroll as it swelled beyond 19,000 employees, nearly one for every 3½ students. "The more questions I asked, the less happy I was," Dr. Kaler said. Many of the newly hired, it turns out, were doing little teaching. A Wall Street Journal analysis of University of Minnesota salary and employment records from 2001 through last spring shows that the system added more than 1,000 administrators over that period. Their ranks grew 37%, more than twice as fast as the teaching corps and nearly twice as fast as the student body. Across U.S. higher education, nonclassroom costs have ballooned, administrative payrolls being a prime example. The number of employees hired by colleges and universities to manage or administer people, programs and regulations increased 50% faster than the number of instructors between 2001 and 2011, the U.S. Department of Education says. It's part of the reason that tuition, according to the Bureau of Labor Statistics, has risen even faster than health-care costs.
Free education: Learning new lessons | The Economist: TOP-QUALITY teaching, stringent admissions criteria and impressive qualifications allow the world's best universities to charge mega-fees: over $50,000 for a year of undergraduate study at Harvard. Less exalted providers have boomed too, with a similar model that sells seminars, lectures, exams and a "salad days" social life in a single bundle. Now online provision is transforming higher education, giving the best universities a chance to widen their catch, opening new opportunities for the agile, and threatening doom for the laggard and mediocre. The roots are decades old. Britain's Open University started teaching via radio and television in 1971; the for-profit University of Phoenix has been teaching online since 1989; MIT and others have been posting lectures on the internet for a decade. But the change in 2012 has been electrifying. Two start-ups, both spawned by Stanford University, are recruiting students at an astonishing rate for "massive open online courses" or MOOCs. In January Sebastian Thrun, a computer-science professor there, announced the launch of Udacity. It started to offer courses the next month—a nanosecond by the standards of old-style university decision making. He also gave up his Stanford tenure, saying that Udacity had "completely changed my perspective". In October Udacity raised $15m from investors. It has 475,000 users.
For Grieving Father Struggling With Dead Son's Student Debt, Resolution Comes Four Years Late - It's been four long years for Francisco Reynoso. The California gardener whose son died in a car accident in 2008 was left buried in grief — and in student debt. At last, the bereaved father is getting some resolution. As ProPublica reported in June, Reynoso was saddled with six figures in student loans that he had cosigned for his son, Freddy Reynoso, to attend college. According to his 2011 tax returns, the elder Reynoso made just $21,000. Debt collectors harassed him. Reynoso was left at the mercy of unfamiliar financial firms, Wall Street investors, and even the central bank of a foreign country. ProPublica traced the complex loan trail of Freddy Reynoso's student loans, which broke down into two main parts. For the first, Reynoso had borrowed from a bank with a household name — Bank of America. That debt changed hands and was ultimately sold to investors through a company neither he nor his father had ever heard of: First Marblehead, once one of the biggest securitizers of private student loans. Through the bankruptcy process, that portion of Reynoso's debt has now been discharged. But the other set of loans — the larger portion of Reynoso's debt — took an even stranger path. Originated by a company later accused of paying schools to steer students toward its loans products, his loans passed through Swiss bank UBS and landed in a portfolio of assets that were acquired by the Swiss central bank to stabilize UBS during the financial crisis.
Top Tax Expert Confirms Our Doubts About Occupy Wall Street's Debt Buying/Forgiveness Scheme - Yves Smith - As readers may recall, we expressed serious reservations about the tax consequences of a program launched by Strike Debt, an Occupy Wall Street working group, to buy distressed consumer debt from debt collectors and forgive it. These concerns have been confirmed by a top tax expert, Lee Sheppard. Sheppard not only describes how the scheme has the potential to harm the borrowers that Strike Debt wants to help, but also points out how their initiative runs afoul of IRS rules for not for profits.*Sheppard is a heavyweight in her field. Her bio at Forbes states: Sheppard is one of the most widely read and respected tax commentators in the world. She has been a mainstay of Tax Analysts' publications for 30 years. Trained as a lawyer, Sheppard specializes in cutting-edge financial issues, such as derivatives and hedge funds, and taxation of multinational corporations. While Strike Debt's plan, called Rolling Jubilee, sounds like a clever way to help debt overburdened consumers, upon inspection it looks more like a gimmick, since Strike Debt concedes it will be able to provide relief only to a small number of people. And in case you hoped that the project was using these purchases as a foundation to publicize the issue of consumer debt slavery, the Rolling Jubilee website proclaims that 100% of the proceeds of its fundraising will be used for debt purchases, which means no money will be spent on PR and lobbying.
Will retiring boomers be a drag on economy? Many say no - With millions of baby boomers reaching retirement age, fears are mounting of the economic impact if they follow the pattern of previous generations by curbing spending and draining Social Security and Medicare benefits. But the 78 million boomers – born from 1946 to 1964 – have always broken the mold in terms of setting trends, and some investors and business and community leaders see their retirement as no different. They see an unprecedented, multi-billion-dollar opportunity to offer new products and services to an active demographic group that's expected to live longer than previous generations. The Census Bureau projects that Americans 65 and older will make up 19 percent of the population by 2030. Community and business leaders in places such as the coastal towns of Myrtle Beach, Hilton Head and Bluffton, S.C., are looking to the growing retirement community to help rekindle local economies. They're rethinking sporting and shopping developments, as well as art centers, to attract on-the-go retirees looking for an array of easily accessible activities. On the labor front, the health care industry is the most obvious benefactor of a longer-living active community. Demand for home health aides is expected to grow 70 percent over the next decade, according to the Department of Labor.
Should Retirees Emigrate? -- Tyler Cowen says that "many old people would fare somewhat better if our economy were somewhat more like that of Mexico, namely with cheaper land and cheaper servants." This is precisely why so many old people move to Arizona which combines these Mexico-like characteristics (up to and including lots of people born in Mexico) with minor league baseball. But it's natural to wonder if in the future there won't be more business models and life plans built around actually relocating to a foreign country. For the host country, an American retiree is in effect a way to turn US workers' payroll taxes into remittances. For the retiree, the benefit is an increase in the purchasing power of Social Security benefits. The particularly winning strategy would be to find a country that not only has cheap land and labor, but also has an underlying rate of price inflation that's below America's. A problem here is that one of elderly Americans' largest implicit financial assets is their right to Medicare benefits, a right that can't be exercised abroad. But as Dean Baker has long argued trying to move to some form of free trade in Medicare is a potential game-changer. Right now international commerce in physical goods is already extraordinarily free, but that's not the case for health care services. And America is absymal at the production of cost-effective health care services compared to a wide range of other countries. Attempting purely domestic reforms to the system is wise, but in most markets there's no good substitute for direct competition to more efficient foreign providers. That's doubly true because trade in Medicare could unlock the kind of broader moves toward retirement-as-emigration that might benefit the elderly.
Fareed Zakaria on Social Security, Fareed Hearts Pete Peterson, Disses your mom - Fareed Zakaria wrote an essay for Time, The Baby Boom and Financial Doom. Dean Baker responded to Zakaria with Fareed Zakaria is unhappy that the American left chooses arithmetic over Peter Peterson. Baker makes the point that the increase in the number of people over age sixty five has always been accompanied by an increase in productivity that makes everyone richer despite the costs of feeding the old. Baker is far too kind to Zakaria. Zakaria's article is a compendium of lies designed to fool people in order to lead them to their harm. The lies are not original with Zakaria but are the same lies we have been hearing from Peter Peterson sponsored think tank "non partisan expert" liars for years. I hope that by taking a little harder look at those lies people will learn how not to be fooled by them and others like them.
Fort Lauderdale employee health premiums skyrocketing - The new year is bringing sticker shock to city employees, with some of their health insurance premiums scheduled to quadruple. City officials said they were forced to raise the rates because of a sharp increase in large claims to its self-insurance plan administered by Cigna. Family HMO coverage for a general city employee will go from $81.90 biweekly to $271, an annual of increase of $4,917. "The health insurance is out of control in the city," said John Sherman, business agent for Teamsters Local 769 that represents the city's general employees. "A lot of [the employees] are very upset because of the amount they're going up." Sherman said the union has been meeting with city officials to come up with some plan that would ease the burden on the employees. It will make a proposal next month, he said.
Free trade in Medicare benefits: the best idea you won't hear in Washington – Dean Baker - Cutting back Medicare is one of the favorite forms of belt-tightening being pushed by the elites. Many of the advocates of deficit reduction argue for raising the age of eligibility for Medicare from 65 to 67. Another favorite among this group is to require larger premium payments for Medicare from middle-class beneficiaries. Of course, many Republicans would simply privatize Medicare and replace it with a voucher, which almost certainly would not be sufficient to cover the cost of healthcare. It is striking in this discussion that no one advocating Medicare cuts ever proposes taking advantage of the lower-cost healthcare systems in other countries. As every policy analyst knows, the problem of Medicare costs stems almost entirely from the fact that our healthcare system is incredibly inefficient. We pay more than twice as much per person for our healthcare as people in other wealthy countries – even though we have almost nothing to show for it in the way of better health outcomes. This enormous gap in costs suggests an easy opportunity for massive gains from trade. If people in the United States could get their healthcare from other countries, there would be huge savings. While it may impractical for most of the population to go to another country for most of their healthcare needs, this is not true for Medicare beneficiaries, the vast majority of whom are retired. Many retirees have friends and/or family in other countries. If they opted to move to another country to get their healthcare, there could be enormous savings that they could share with the government.
The Cost of Health Care: 1958 vs. 2012 - - Mark Perry has posted some interesting comparison of how prices have plummeted between 1958 and 2012 when measured in terms of the hours of work required to purchase items. He concludes that today's consumer working at the average wage of $19.19 would only have to work 26.6 hours (a little more than three days) to earn enough income ($511) to purchase a toaster, TV and iPod. The equivalent products (in terms of their basic function, not their quality) would have required 4.64 weeks of work in 1958. In short, the "time cost" of these items has massively declined by 86% in less than 5 decades. What if we applied this kind of analysis to health care? The results are quite interesting. In 1958, per capita health expenditures were $134. This may seem astonishingly small, but it actually includes everything, inclusive of care paid for by government or private health insurers. A worker earning the average wage in 1958 ($1.98) would have had to work 118 hours—nearly 15 days–to cover this expense. By 2012, per capita health spending had climbed to $8,953. At the average wage, a typical worker would have to work 467 hours—about 58 days. In short, while time prices for other goods and services had shrunk to less than one quarter of their 1958 levels, time prices for health care had more than quadrupled!
Econ4 on Health Care - Yves Smith - Econ4, which is a group of heterodox economists, has produced a series of videos for laypeople on major political/economic policy issues. Their latest release is on healthcare, or more accurately, our broken healthcare system. From their statement:The United States ranks first in the world in health care spending per person, but only 45th in life expectancy. The average American sees a doctor less often than the average Canadian, the average Briton, or the average resident of most industrial democracies. The average life expectancy of white Americans without a high school degree has fallen since 1990 by three years for men and five years for women. This paradoxical combination of first-class costs and second-rate performance is a result of a multi-payer health care system whose enormous administrative bureaucracy absorbs nearly one-third of our health care dollars. The aim of this private bureaucracy is to police patients and doctors, not to add value or protect human health.
Humidity Levels Explain U.S. Flu Winter Peak - Cases of the flu peak in winter in the U.S. But why? A new study suggests it's not the heat, but the humidity. Or lack thereof. Because in temperate regions, the influenza virus fares best when the weather is dry. That's according to work published in the journal PLoS One. [Wan Yang, Subbiah Elankumaran and Linsey C. Marr, Relationship between Humidity and Influenza A Viability in Droplets and Implications for Influenza's Seasonality] Scientists have long debated why flu erupts when the days grow chilly. Is it that we spend more time cooped up together indoors? Or is there something about the virus that likes it cold and dry? To find out, researchers suspended influenza virus in a solution that mimics human mucus. They incubated this infectious soup at different humidities and measured viral survival. And they found that at low humidity, the fake mucus dries up and the virus does just fine. But when the humidity tops 50%, the droplets only partially evaporate, leaving behind a solution that's too salty for the virus to thrive. Interestingly, the virus does well again when the humidity reaches 100 percent, evaporation stops and the salinity of the mucus bath is juuust right. That could explain why the flu prefers to hit the tropics in rainy season. And why you should always keep your nose clean, but moist.
Stop Subsidizing Obesity - Not long ago few doctors – not even pediatricians – concerned themselves much with nutrition. This has changed, and dramatically: As childhood obesity gains recognition as a true health crisis, more and more doctors are publicly expressing alarm at the impact the standard American diet is having on health. "I never saw Type 2 diabetes during my training, 20 years ago," David Ludwig, a pediatrician, told me the other day, referring to what was once called "adult-onset" diabetes, the form that is often caused by obesity. "Never. Now about a quarter of the new diabetes cases we're seeing are Type 2." Ludwig, who is director of the New Balance Foundation Obesity Prevention Center. Because the situation is this: 17 percent of children in the United States are obese, 16 percent are food-insecure (this means they have inconsistent access to food), and some number, which is impossible to nail down, are both. Seven times as many poor children are obese as those who are underweight, an indication that government aid in the form of food stamps, now officially called SNAP, does a good job of addressing hunger but encourages the consumption of unhealthy calories.
Obesity Rates Fall Among U.S. Preschoolers, Study Finds - Obesity rates fell among U.S. preschool-age children in 2010, reversing a trend of the past decade, according to the first national study to spot a decline in the condition among young kids. The rate of obese 2- to 4-year-olds from low-income families dropped 1.8 percent in 2010 from 2003, while it fell 6.8 percent for those who were extremely obese, the U.S. Centers for Disease Control and Prevention reported in a research letter published yesterday in the Journal of the American Medical Association. Researchers attributed the decline to greater awareness of health problems caused by obesity as well as an increase in breastfeeding, which studies have shown can reduce the risk. Obesity even at such a young age can set up children for diabetes, heart disease and even premature death, said Heidi Blanck, a study author.
How Your Mind Organizes Reality - Scientific American - At the most basic level, we don't really perceive separate objects at all – we perceive our nervous systems' responses to a boundless flow of electromagnetic waves and biochemical reactions. Our brains slot certain neural response patterns into sensory pathways we call "sight," "smell" and so on – but abilities like synesthesia and echolocation show that even the boundaries between our senses can be blurry. Still, our brains are talented at picking out certain chunks of sensory experience and associating those chunks with other stimuli. For instance, if you hear purring and feel fur rubbing against your leg, your brain knows to associate that sound and feeling with the fluffy four-legged object you see at your feet – and to group that whole multisensory chunk under the heading of "cat." What's more, years of cat experience have taught you that it makes no sense to think of a cat as if it were a piece of furniture, or a truck, or a weather balloon. In other words, an encounter with a cat carries a particular set of meanings for you – and those meanings determine which areas of your brain will perk up in the presence of a feline. But where's the category "cat" in the brain? And where's it situated in relation to, say, "dog" or "giraffe" …or just "mammal?" A team of neuroscientists led by Alexander Huth at UC Berkeley's Gallant lab decided they'd answer these questions in the most thorough way possible: By capturing brain responses to every kind of object they could dig up.
Scientists discover how our brains categorize and map everything we see - If not for our brains, our eyes wouldn't be able to process anything. Considering how much time we spend with our eyes open, our brains are constantly dealing with an influx of visual data. The brain needs to store that data somewhere, and thanks to scientists over at the University of California, Berkeley, we now have our first map of not only where the brain puts all that information, but how our grey matter organizes it.The study (PDF), led by neuroscience doctoral student Alexander Huth, had five participants watch two hours of movie trailers that contained over 1,700 categories of actions and objects. During that time, their brain activity was recorded using functional Magnetic Resonance Imaging (fMRI), measuring blood flow in various spots in the brain. Using linear regression, the scientists were then able to analyze the collected data, and subsequently build a model showing how all of those actions and objects fit into around 30,000 locations within the cortex. After that point the researchers translated the model to a visual form. Using principal component analysis – a mathematical procedure used to provide a synopsis for a large amount of data — the scientists were able to visualize those 1,700 categories and how they related to one another, creating the chart shown to the right.
Expressing negative emotions could extend lifespan - German researchers just published a study that shows statistically that people who constrain themselves and don't express anger live on average 2 years shorter than individuals who do. Researchers Marcus Mund and Kristin Mitte at the University of Jena in Germany analyzed data from more than 6,000 patients to find that exhibiting self-restraint and holding back negative emotions could have serious repercussions for a person's physical and mental well-being - those who internalized their anxiety suffered from an elevated pulse. Raised pulse can result in high blood pressure and increase a person's risk of developing a wide range of conditions from heart disease to cancer, kidney damage and more, according to researchers.
Antidepressants to treat grief? Psychiatry panelists with ties to drug industry say yes - It was a simple experiment in healing the bereaved: Twenty-two patients who had recently lost a spouse were given a widely used antidepressant. The drug, marketed as Wellbutrin, improved "major depressive symptoms occurring shortly after the loss of a loved one," the report in the Journal of Clinical Psychiatry concluded. When, though, should the bereaved be medicated? For years, the official handbook of psychiatry, issued by the American Psychiatric Association, advised against diagnosing major depression when the distress is "better accounted for by bereavement." Such grief, experts said, was better left to nature. But that may be changing. In what some prominent critics have called a bonanza for the drug companies, the American Psychiatric Association this month voted to drop the old warning against diagnosing depression in the bereaved, opening the way for more of them to be diagnosed with major depression — and thus, treated with antidepressants. The change in the handbook, which could have significant financial implications for the $10 billion U.S. antidepressant market, was developed in large part by people affiliated with the pharmaceutical industry, an examination of financial disclosures shows.
Pharma firms tested drugs on East Germans: report - Major Western pharmaceutical companies carried out tests of medications in the 1980s on patients in communist East Germany, in some cases without the subjects' knowledge, a media report said Friday. "We have documents showing there were contracts between Western drug companies and East German institutions for medical tests," a staff member at the German national archive told AFP, partially confirming a report in the daily Der Tagesspiegel. The newspaper, which examined the documents, reported that more than 50 Western firms had contracts with East Germany's Health Ministry to carry out a total of 165 medical tests between 1983 and 1989. In exchange, the communist authorities were paid up to 860,000 deutschmarks (around 430,000 euros today or $567,000), according to the report, at a time when East Germany was desperate for hard currency.
Link between pot, psychosis goes both ways (Reuters Health) - Marijuana (cannabis) use may be linked to the development of psychotic symptoms in teens - but the reverse could also be true: psychosis in adolescents may be linked to later pot use, according to a new Dutch study. "We have focused mainly on temporal order; is it the chicken or the egg? As the study shows, it is a bidirectional relationship," wrote the study's lead author Merel Griffith-Lendering, a doctoral candidate at Leiden University in The Netherlands, in an email to Reuters Health. Previous research established links between marijuana and psychosis, but scientists questioned whether pot use increased the risk of mental illness, or whether people were using pot to ease their psychotic symptoms, such as hallucinations and delusions. "What is interesting in this study is that both processes are going on at the same time," said Dr. Gregory Seeger, medical director for addiction services at Rochester General Hospital in upstate New York. He told Reuters Health that researchers have been especially concerned about what tetrahydrocannabinol (THC), the active property in pot, could do to a teenager's growing brain. "That's a very vulnerable period of time for brain development," and individuals with a family history of schizophrenia and psychosis seem to be more sensitive to the toxic effects of THC, he said.
Gun-Control Today; Fat-Control Tomorrow? - Leaving the highly sensitive topic of "gun-control" aside for the time being, one can't help but wonder if it isn't time that the US government, seemingly hell-bent on regulating virtually everything in its quest to prove (to itself?) that America's population can no longer be trusted with making any responsible decisions on it own (and in the process becoming even bigger), shouldn't be more focused on "fat-control" instead. Why? Because while guns may or may not kill people, the bottom line is that of the 32K or so death attributed to firearms, roughly 20K, or two thirds were suicides, meaning firearm-based homicides were 11,015 in 2010. Putting this number in perspective, every year some 935,000 Americans suffer a heart attack, and 600,000 people die from some form heart disease: 1 in every 4 deaths. Net result to society: the cost of coronary heart disease borne by everyone is $108.9 billion each year. And of all proximal factors contributing to heart disease, obesity and overweight is the main one. But of course one can't make a media spectacle out of 600,000 hospital wards where people quietly pass away, in many cases due to a lifetime of ill decisions relating primarily to food consumption. In fact, some estimate that obesity now accounts for one fifth of the total US health-care bill (the part of the budget which no amount of tax increase can offset). Which is why if the topic of gun-control has managed to promptly tear the country into two (or three, or more), just wait until fat-control (far more than the recent tepid overtures into this field such as Bloomberg's NYC sugary soda ban) rears its ugly head and sends the already polarized (and weaponized) US society into a state of agitated hyperflux.
'Dairy cliff': Milk prices may double in New Year - With Congress spending all its time trying to avert the fiscal cliff, a slew of other legislative matters are going unattended. One of them is the agriculture bill which, if not addressed, could lead to a doubling of the price of milk early next year. It works like this: In order to keep dairy farmers in businesses, the government agrees to buy milk and other products if the price gets too low. The current agriculture bill has a formula that means the government steps in if the price of milk were to drop by roughly half from its current national average of about $3.65 a gallon. Problem is, the current bill expired last summer, and Congress had been unable to agree on a new one. Several protections for farmers have already expired, and several more are set to do so over the next few months. One of them is the dairy subsidy, which expires January 1. But instead of leaving farmers entirely out in the cold, the law states that if a new bill isn't passed or the current one extended, the formula for calculating the price the government pays for dairy products reverts back to a 1949 statute. Under that formula, the government would be forced to buy milk at twice today's price -- driving up the cost for everyone. "If you like anything made with milk, you're going to be impacted by the fact that there's no farm bill," U.S. Secretary of Agriculture Tom Vilsack told CNN's Candy Crowley in an interview on State of the Union airing Sunday, Dec. 30. "Consumers are going to be a bit shocked when instead of seeing $3.60 a gallon for milk, they see $7 a gallon for milk. And that's going to ripple throughout all of the commodities if this thing goes on for an extended period of time," Vilsack said.
'Dairy cliff' could lead to $7 gallon of milk - While debates over federal legislation have revolved mostly around defense cuts, reductions in social programs, and the soon-to-be-expired Bush tax cuts, the price of dairy has not been a hot topic. But the price of milk could soon rise precipitously, in fact doubling if no legislative action is soon taken, reported CNN. The farm bill, which sets agricultural and other food policy, expired last summer, and on Jan. 1 the dairy subsidy will also expire if new legislation isn't enacted or the former law extended. If nothing is done, government policy will revert to a 1949 statute, meaning that it will have to buy milk at double the current price — which could mean $7 for a gallon of milk, U.S. Secretary of Agriculture Tom Vilsack told Candy Crowley of CNN. "We call it the dairy cliff," a spokesperson for the National Milk Producers Federation told CNN, because high prices would likely push many to drastically cut back on milk, cheese, and other milk products.
A gallon of milk could cost $8 in 2013. Here's why - There's one potential casualty of the fiscal cliff that hasn't gotten much attention at all: the price of milk. Come Dec. 31, Washington's inaction could push the country's milk prices to as much as $6 to $8 per gallon unless Congress passes a farm bill renewing federal support for agriculture programs. Here's how that would happen: Without legislative action in the next five days, the government will have to revert to a 1949 dairy price subsidy that requires the Agriculture Department to buy milk at inflated prices. Much like the current fiscal cliff, the law was left on the books "as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products," as Vincent Smith, a Montana State University professor, told the New York Times. The Farm Bill isn't technically part of the fiscal cliff. Speaker John A. Boehner (R-Ohio.) has resisted the call by Agriculture Secretary Tom Vilsack (D) to incorporate it into the budget negotiations — to avoid complicating the budget talks and losing GOP votes, a Boehner aide told Politico last week. Legislators from rural districts are also worried that crop subsidies could be a tempting target in the fiscal cliff negotiations, so they've been trying to push Congress toward a separate resolution, to little avail.
Disease burden links ecology to economic growth, EurekAlert: A new study, published December 27 in the open access journal PLOS Biology, finds that vector-borne and parasitic diseases have substantial effects on economic development across the globe, and are major drivers of differences in income between tropical and temperate countries. The burden of these diseases is, in turn, determined by underlying ecological factors: it is predicted to rise as biodiversity falls. This has significant implications for the economics of health care policy in developing countries, and advances our understanding of how ecological conditions can affect economic growth. The team was intrigued by the fact that tropical countries are generally comprised of poor agrarian populations while countries in temperate regions are wealthier and more industrialized. This distribution of income is inversely related to the burden of disease, which peaks at the equator and falls along a latitudinal gradient. Although it is common to conclude that economics drives the pattern of disease, the authors point out that most of the diseases that afflict the poor spend much of their life-cycle outside the human host. Many cannot even survive outside the tropics. Their distribution is largely determined by ecological factors, such as temperature, rainfall, and soil quality.
Six Ways to Clean Up Science- A lot of scientists have been busted recently for making up data and fudging statistics. One case involves a Harvard professor who I once knew and worked with; another a Dutch social psychologist who made up results by the bushel. Medicine, too, has seen a rash of scientific foul play; perhaps most notably, the dubious idea that vaccines could cause autism appears to have been a hoax perpetrated by a scientific cheat. A blog called RetractionWatch publishes depressing notices, almost daily. One recent post mentioned that a peer-review site had been hacked; others detail misconduct in dentistry, cancer research, and neuroscience. And that's just in the last week. Even if cases of scientific fraud and misconduct were simply ignored, my field (and several other fields of science, including medicine) would still be in turmoil. One recent examination of fifty-three medical studies found that further research was unable to replicate forty-seven of them. All too often, scientists muck about with pilot studies, and keep tweaking something until they get the result they were hoping to achieve. Unfortunately, each fresh effort increases the risk of getting the right result for the wrong reason, and winding up with a spurious vision of something that doesn't turn out to be scientifically robust, like a cancer drug that seems to work in trials but fails to work in the real world
Farmland In Demand - In the last year, Prudential Financial Inc. has plowed money into lemons and avocados in Ventura County, almonds and mandarins in the Central Valley and strawberries in Santa Cruz County. The insurance giant is just one of many players, including highly specialized investors and large pension funds, that have snapped up California farmland recently. The buying spree has helped push farm and ranch land values to record highs, raising questions about how long the boom might last and what effect it might have on the state's important agricultural sector. A new class of investors is piling into the sector, said Frank Plessmann of Agriworld Fund Inc., a hedge fund based in Greenville, Miss. When he started putting together a plan to raise capital to finance farmland purchases a decade ago, he said, "there was no one to speak with about it, but now there are all these agricultural investment groups." The average cost of an acre of farm real estate in California rose to $7,200 this year, roughly $300 above last year's record, according to the U.S. Department of Agriculture.
Another Look at "Sustainable" Animal Farming - If you're farming on open space, or establishing 4-H projects, information sources like Sheep101.info will suggest trapping or shooting coyotes. Their rationale? If we kill off predator animals, then prey animals—young deer and so forth—will rise in numbers and thus the remaining coyotes will have plenty to eat without raiding the farmers' paddocks: The rationale behind hunting is that as the coyote population is reduced, there is less pressure on the natural food supply, so wildlife numbers rebound, in turn providing more natural food for the coyote population. Shooting is legal in most places. Coyotes can be shot from helicopters and fixed wing aircraft. If farmers follow such advice successfully, the increase in the natural prey population can be expected to fuel those pro-hunting arguments such as "There are too many deer." Free-living animals are caught in a lose-lose scenario.
Engineered Fish Moves a Step Closer to Approval - Government regulators moved a big step closer on Friday to allowing the first genetically engineered animal — a fast-growing salmon — to enter the nation's food supply. The Food and Drug Administration said it had concluded that the salmon would have "no significant impact" on the environment. The agency also said the salmon was "as safe as food from conventional Atlantic salmon." While the agency's draft environmental assessment will be open to public comment for 60 days, it seems likely that the salmon will be approved, though that could still be months away. The environmental assessment is dated May 4. It is unclear why it took until now for it to be released, but supporters of the salmon say they believe it is because the Obama administration was afraid of an unfavorable consumer reaction before the election in November. Environmental and consumer groups quickly criticized the federal agency's conclusions.
The Mississippi River's Water Levels Are Dropping, And Could Shut Down Trade Next Week — The Mississippi River level is dropping again and barge industry trade groups warned Thursday that river commerce could essentially come to a halt as early as next week in an area south of St. Louis. Mike Petersen of the Army Corps of Engineers said ice on the northern Mississippi River is reducing the flow more than expected at the middle part of the river that is already at a low-water point unseen in decades, the result of months of drought. The river level is now expected to get to 3 feet at the Thebes, Ill., gauge on Jan. 6, a juncture that could force new limitations. Worse still, the long-range forecast from the National Weather Service calls for the river to keep falling, reaching 2 feet on Jan. 23. The Coast Guard remains confident that the nation's largest waterway will remain open. But officials with two trade groups — the American Waterways Operators and Waterways Council Inc. — said in a joint news release that even if the river is open, further limits on barges will bring commercial traffic to a halt. Thebes, about 150 miles south of St. Louis, is a treacherous spot for barge operators because of hazardous rock formations and a big bend in the river. The corps is in the process of removing the rocks but work isn't expected to be finished until mid- to late-January at the earliest.
Top Ten U.S. Weather Events of 2012 | Weather Underground: It was another year of incredible weather extremes unparalleled in American history during 2012. Eleven billion-dollar weather disasters hit the U.S., a figure exceeded only by the fourteen such disasters during the equally insane weather year of 2011. I present for you now the top ten weather stories of 2012, chosen for their meteorological significance and human and economic impact.Video 1. Hour-by-hour animation of infrared satellite images for 2012. The loop goes in slow-motion to feature such events as Hurricane Sandy, the June Derecho, Summer in March, and other top weather events of 2012. The date stamp is at lower left; you will want to make the animation full screen to see the date. Special thanks to wunderground's Deb Mitchell for putting this together!
New record set for tornadoes on Christmas day - Winter Storm Euclid continues its U.S. tour today, and is pounding New England with heavy snows, high winds, and coastal flooding. The impressive storm set a record for most tornadoes spawned on Christmas Day, as 13 tornadoes have been confirmed (with at least 12 other suspected tornadoes still unrated.) The previous record for most tornadoes on Christmas Day was twelve, back in 1969. Yesterday, Euclid spawned an additional confirmed tornado in North Carolina. At least two of the Christmas Day tornadoes were rated EF-3. The EF-3 that hit Pennington, in Southeast Texas, completely destroyed a feed store and a restaurant, and had winds up to 150 mph. The other EF-3 hit McNeil, Mississippi, and was rated a weak EF-3 with winds of 140 mph. The tornado cut a path 24 miles long, injured 8 people, and damaged or destroyed 46 homes. Only four other EF-3 tornadoes have been recorded on Christmas Day since 1950, according to the Tornado History Project. The latest in the year an EF-3 tornado has touched down is December 31. This occurred just two years ago, in 2010, when five EF-3 tornadoes raked Arkansas, Missouri, and Illinois.
Six weeks of rain expected by New Year as deluge continues - Downpours will continue across the country over the next six days, bringing as much as seven inches of rain. The south west will face the brunt of the bad weather but no part of the UK will be untouched. It will make 2012 one of, if not the, wettest years on record and mean 2013 beginning in a similar fashion. Heavy rain is expected, in particular, on New Year's Eve, threatening to dampen the spirits of revellers. Met Office forecaster Tony Burgess said: "The rain is going to continue in to the New Year and the outset of 2013 is going to be similar to what we have had in the last couple of weeks."
Looking for winter weirdness 3 - It's been a while since we had a first couple of signs of winter weirdness, back in October, when superstorm Sandy took a 90 degree left turn due to a ridge of blocking highs along southern Greenland, and some cold air spilled from the central Arctic over Europe, bringing very early snow to the old continent. This time the weirdness seems to have hit Russia. Now before people start accusing me of alarmism or hype: I'm only singling out extreme weather patterns, like WACC-y weather, anomalous snowfall on the Northern Hemisphere land masses, outbreaks of cold air, atmospheric blocking patterns... So is the weather in Russia of the past couple of days extreme? Here's what RT has to say about it: Russia is enduring its harshest winter in over 70 years, with temperatures plunging as low as -50 degrees Celsius. Dozens of people have already died, and almost 150 have been hospitalized. The country has not witnessed such a long cold spell since 1938, meteorologists said, with temperatures 10 to 15 degrees lower than the seasonal norm all over Russia. That article was released 4 days ago. Here's one from AFP from yesterday: A deadly cold snap has claimed 88 lives across Russia, officials said Sunday, as Moscow authorities told schoolchildren they could stay home to avoid the frigid temperatures. Temperatures across the capital region were expected to drop to almost minus 30 degrees Celsius (minus 22 Fahrenheit) in the night. I used the NOAA ESRL daily mean composites page to check sea level pressure patterns for the last 10 days and this is what showed up: That's a huge high-pressure system parked over a very large part of Russia. In a high-pressure system skies are clear and thus a lot of heat gets radiated, lowering surface temperatures. I guess this explains most of the cold snap.
Down to -50C: Russians freeze to death as strongest-in-decades winter hits (PHOTOS) - Russia is enduring its harshest winter in over 70 years, with temperatures plunging as low as -50 degrees Celsius. Dozens of people have already died, and almost 150 have been hospitalized. The country has not witnessed such a long cold spell since 1938, meteorologists said, with temperatures 10 to 15 degrees lower than the seasonal norm all over Russia. Across the country, 45 people have died due to the cold, and 266 have been taken to hospitals. In total, 542 people were injured due to the freezing temperatures, RIA Novosti reported. The Moscow region saw temperatures of -17 to -18 degrees Celsius on Wednesday, and the record cold temperatures are expected to linger for at least three more days. Thermometers in Siberia touched -50 degrees Celsius, which is also abnormal for December.
In Praise Of Snow - What makes snow important is not only its volume but also its relative dependability. Much of the West is in a state of drought or near-drought, with snowfall having been below normal in seven of the past eight years. In general, though, snow can be far more reliably counted upon to fall in substantial amounts in the mountains during wintertime than rain can be counted upon to fall in the spring and summertime. And snowmelt flows onto the scene at nearly the most useful time of year, having been stored at high altitudes until the weather warms and the demands of agriculture begin to make themselves felt. It is snow that powers the great rivers of the West—the Colorado, the Rio Grande, the Columbia, the Missouri—on their long journeys through sometimes parched or semi-arid terrain, ribbons of brown and silver that at times enverdure entire basins, at times support the merest Nilotic fringe of green. How much water does the West's winter snow turn into? The snowmelt that finds its way into the Columbia River alone in an average year comes to 26 trillion gallons, which is 81 million acre-feet—enough to cover all of Kansas in knee-deep water, or to raise Lake Michigan by almost six feet.
West Antarctic Ice Sheet warming twice earlier estimate: A new analysis of temperature records indicates that the Western Antarctic Ice Sheet is warming nearly twice as fast as previously thought. US researchers say they found the first evidence of warming during the southern hemisphere's summer months. They are worried that the increased melting of ice as a result of warmer temperatures could contribute to sea-level rise. The study has been published in the journal Nature Geoscience. The scientists compiled data from records kept at Byrd station, established by the US in the mid-1950s and located towards the centre of the West Antarctic ice sheet (WAIS). Previously scientists were unable to draw any conclusions from the Byrd data as the records were incomplete. The new work used a computer model of the atmosphere and a numerical analysis method to fill in the missing observations. The results indicate an increase of 2.4C in average annual temperature between 1958 and 2010. "What we're seeing is one of the strongest warming signals on Earth," says Andrew Monaghan, a co-author and scientist at the US National Centre for Atmospheric Research.
Study shows rapid warming on the West Antarctic Ice Sheet: In a discovery that raises further concerns about the future contribution of Antarctica to sea level rise, a new study finds that the western part of the ice sheet is experiencing nearly twice as much warming as previously thought. The temperature record from Byrd Station, a scientific outpost in the center of the West Antarctic Ice Sheet (WAIS), demonstrates a marked increase of 4.3 degrees Fahrenheit (2.4 degrees Celsius) in average annual temperature since 1958—that is, three times faster than the average temperature rise around the globe. This temperature increase is nearly double what previous research has suggested, and reveals—for the first time—warming trends during the summer months of the Southern Hemisphere (December through February), said David Bromwich, professor of geography at Ohio State University and senior research scientist at the Byrd Polar Research Center. The findings were published online this week in the journal Nature Geoscience.
Central West Antarctica among the most rapidly warming regions on Earth : Nature Geoscience - There is clear evidence that the West Antarctic Ice Sheet is contributing to sea-level rise. In contrast, West Antarctic temperature changes in recent decades remain uncertain. West Antarctica has probably warmed since the 1950s, but there is disagreement regarding the magnitude, seasonality and spatial extent of this warming. This is primarily because long-term near-surface temperature observations are restricted to Byrd Station in central West Antarctica, a data set with substantial gaps. Here, we present a complete temperature record for Byrd Station, in which observations have been corrected, and gaps have been filled using global reanalysis data and spatial interpolation. The record reveals a linear increase in annual temperature between 1958 and 2010 by 2.4±1.2 °C, establishing central West Antarctica as one of the fastest-warming regions globally. We confirm previous reports of West Antarctic warming, in annual average and in austral spring and winter, but find substantially larger temperature increases. In contrast to previous studies, we report statistically significant warming during austral summer, particularly in December–January, the peak of the melting season. A continued rise in summer temperatures could lead to more frequent and extensive episodes of surface melting of the West Antarctic Ice Sheet. These results argue for a robust long-term meteorological observation network in the region.
West Antarctica Warming Three Times Faster Than Global Average, Threatening To Destabilize This Unstable Ice Sheet - In a finding that raises further concerns about the future contribution of Antarctica to sea level rise, a new study finds that the western part of the continent's ice sheet is experiencing nearly twice as much warming as previously thought. The temperature record from Byrd Station, a scientific outpost in the center of the West Antarctic Ice Sheet (WAIS), demonstrates a marked increase of 4.3 degrees Fahrenheit (2.4 degrees Celsius) in average annual temperature since 1958. The rate of increase is three times faster than the average temperature rise around the globe for the same period. The study was published Sunday in the journal Nature Geoscience ["Central West Antarctica among most rapidly warming regions on Earth" (subs. req'd)]. It was conducted by scientists at Ohio State University (OSU), the National Center for Atmospheric Research (NCAR), and the University of Wisconsin-Madison, with funding coming from the National Science Foundation, which is NCAR's sponsor. "Our results indicate that temperature increases during the past half century have been almost twice what we previously thought, placing West Antarctica among the fastest warming regions on Earth," says NCAR scientist Andrew Monaghan, a co-author. "A growing body of research shows that the West Antarctic Ice Sheet is changing at an alarming rate, with pressure coming from both a warming ocean and a warming atmosphere."
These Melting Ice Caps Could Be Great for Business - Leading scientific expert Peter Wadhams warned this week that it may be only four years until the Arctic—a place once known for its ice—experiences a total melting of its sea ice in the summer months. Wadhams called this a "global disaster" with "terrible" implications. Well Prof. Wadhams, perhaps you should change your name to Prof. Deborah Downer? Because it looks like you forgot about all the money$$$?? Sure, the total melting of the ice caps will be the most striking visible symptom of the man-made global warming that will eventually destroy us all. But before mankind is pitched into its inevitable final Water World-esque battle for our earth's swamped, dwindling resources, a lot of people could make a lot of ca$$$h. The NYT reports that the US, China, and several European nations are all furiously jockeying for political position in the Arctic and its surrounding countries, due to the fact that the receding ice is exposing huge new swaths of land that could be mined for valuable fuel, minerals, or, who knows, buried trea$$$ure(??). Environmental disaster FTW!
One solution to the melting ice cap: Refreeze it. It wouldn't even cost that much - A record loss of Arctic sea ice and faster-than-expected melting of Greenland's ice cap made worldwide headlines in 2012, but research published in major science journals in the fall suggest warming in the North doesn't have to continue. We could refreeze the Arctic, proposed a paper in Nature Climate Change. It wouldn't even cost that much, said an affiliated study in Environmental Research Letters. The question is should we?In a world that seems unable to come to grips with carbon dioxide emissions driving climate change, manipulating the Earth's climate to cool it down has some calling geoengineering a bad idea whose time has finally come. Scientists have long theorized that injecting reflective particles of some kind into the high atmosphere could reduce the amount of sunlight reaching the Earth's surface and compensate for the greenhouse effect. High CO2 levels would continue to trap heat, but with less energy coming in to begin with, temperatures on the surface would go down.
Coral Reefs Could Be Decimated by 2100 - - Nearly every coral reef could be dying by 2100 if current carbon dioxide emission trends continue, according to a new review of major climate models from around the world. The only way to maintain the current chemical environment in which reefs now live, the study suggests, would be to deeply cut emissions as soon as possible. It may even become necessary to actively remove carbon dioxide from the atmosphere, say with massive tree-planting efforts or machines. The world's open-ocean reefs are already under attack by the combined stresses of acidifying and warming water, overfishing, and coastal pollution. Carbon emissions have already lowered the pH of the ocean a full 0.1 unit, which has harmed reefs and hindered bivalves' ability to grow. The historical record of previous mass extinctions suggests that acidified seas were accompanied by widespread die-offs but not total extinction.
Climate change is big business (for the insurance industry) - Although many industries have fought to prevent action on climate change, there's at least one major business that's taking it seriously, according to a recent perspective in Science. Climate change is estimated to cost the world economy $1.2 trillion annually, which is proving to be a stress test for the insurance industry. Lest you think that's a niche concern, insurance accounts for seven percent of the global economy and is the world's largest industry. Increasingly, weather and climate related catastrophes are costing insurers. The number of weather-related loss events in North America has nearly quintupled in the past three decades, according to a recent report from MunichRe. Sandy alone cost New York and New Jersey $80 billion, affecting individuals and business, and impacting health. Claims have more than doubled each decade since the 1980s (adjusted for inflation) and paid claims now average $50 billion a year worldwide. Many insurers are using climate science to better quantify and diversify their exposure, more accurately price and communicate risk, and target adaptation and loss-prevention efforts. They also analyze their extensive databases of historical weather- and climate-related losses, for both large- and small-scale events. But insurance modeling is a distinct discipline. Unlike climate models, insurers' models extrapolate historical data rather than simulate the climate system, and they require outputs at finer scales and shorter time frames than climate models.
A Research Agenda for Climate Change Adaptation - Urbanization Project - In this post, I will pose some questions that I know that I don't know the answers to. If you can answer these questions, then you will become an important environmental economist. I want more nerds to devote their scarce time to studying the micro economics of climate change adaptation so permit me to point you in some productive directions.
- 1. What new capitalist innovations will be most useful in helping us to adapt to climate change? Is it the old reliable of the air conditioner? Or will it be innovations that increase our water supply such as desalinization? How do we conduct event studies to quantify the adaptation benefits of such new products?
- 2. If information technologies ranging from Tsunami Alerts to text messages to Smart Meters, provide us with real time information about new shocks, price spikes, and environmental alerts, will all of the population gain from such info or are there stubborn people who even when nudged do not respond? Do you treat those people as adults or do the benevolent paternalists step in and make decisions for this group?
- 3. Does competition in the insurance industry lead insurers to engage in "rational expectations" and updating their insurance premium policies to reflect evolving actuarial risk in flood zones and other places that climate change is shocking in new ways?
Climate change: Confessions of a Peak Oiler: In Paris, I learned a lot about oil depletion, but also about another matter that was emerging: the conflict of depletion studies with climate change studies. That ASPO conference saw the beginning of a contrast that was to flare up much more intensely in the following years. On one side of the debate there were the "climate concerned" people. They were clearly appalled at seeing that their efforts at stopping global warming were threatened by this new idea: that there won't be enough fossil fuels to cause the damage that they feared. On the other side, the "depletion concerned" people clearly scoffed at the idea of climate change: peak oil, they said, would make all the worries in that respect obsolete. My impression, at that time, was that the position of the climate concerned was untenable. Not that I became a climate change denier; not at all: the physical mechanisms of climate change have been always clear to me and I never questioned the fact that adding CO2 to the atmosphere was going to warm it. But the novelty of the concept of peak oil, the discovery of a new field of study, the implications of a decline of energy availability, all that led me to see depletion as the main challenge ahead. That belief of mine would last a few years, but no more. The more I studied oil depletion, the more I found myself studying climate: the two subjects are so strictly related to each other that you can't study one and ignore the other. I found that climate science is not just about modern global warming. It is the true scientific revolution of the 21st century. It is nothing less than a radical change of paradigm about everything that takes place on our planet; comparable to the Copernican revolution of centuries ago.
In Japan, Diesel Cars Get a Second Chance - Thirteen years ago, Tokyo's governor destroyed Japanese interest in diesel vehicles by banning all but those that installed exhaust fume purifiers from roads in the nation's largest city. Now the cars are making a comeback as manufacturers adopt technology that make them more eco-friendly. Hiroshima-based Mazda Motor is betting big on cleaner diesel engines for its home market, building new models to compete with diesel-powered sport-utility vehicles from Nissan Motor (NSANY) and Mitsubishi Motor and models that BMW (BMW) and Daimler's (DAI) Mercedes-Benz unit have started shipping from Europe, where half of all new cars run on diesel. Improved filters, turbochargers, and fuel injection have helped make the motors quieter and cleaner. As part of its support of more fuel-efficient vehicles, Japan's government this year introduced subsidies of as much as 180,000 yen ($2,200) for clean diesels. By 2020 it wants to convert 5 percent of new passenger vehicles, up from 0.4 percent last year. As of October, sales of diesels had tripled from last year to 31,425 vehicles in Japan, according to the Japan Automotive Dealers Association. "The idea younger people have of diesel cars is quite different from the elder generation," "Their impression is that the cars are environmentally friendly and popular in Europe."
Americans use more efficient and renewable energy technologies… energy flow chart - Americans used less energy in 2011 than in the previous year due mainly to a shift to higher-efficiency energy technologies in the transportation and residential sectors. Meanwhile, less coal was used but more natural gas was consumed according to the most recent energy flow charts released by Lawrence Livermore National Laboratory. Wind power saw the biggest jump from .92 quadrillion BTU, or quads, in 2010 up to 1.17 quads in 2011. (BTU or British Thermal Unit is a unit of measurement for energy and is equivalent to about 1.055 kilojoules). "Wind energy jumped significantly because, as in previous years, many new wind farms came online," said A.J. Simon, an LLNL energy systems analyst who develops the flow charts using data provided by the Department of Energy's Energy Information Administration. "This is the result of sustained investment in wind power."
Wind Farm Developers Race Against End of Tax Credit - All over the country, developers are in a sprint to get new wind farms up and running before Tuesday, when the federal wind production tax credit will disappear like Cinderella's ball gown. After that, the nation's wind-farm building will be at a virtual standstill. The stakes of meeting the deadline are enormous. Wind turbines that are connected to the grid and in commercial service before midnight on New Year's Eve are entitled to a 2.2 cent tax credit for each kilowatt-hour they generate in their first 10 years, which comes out to about $1 million for a big turbine. As it stands now, those that enter service on Jan. 1 or later are out of luck. The deadline is a bit like the April 15 one for filing income taxes, but "there are no extensions here," said Paul Copleman, a spokesman for Iberdrola. To reduce the risk of missing it — a risk that increases when managing construction projects on mountaintops in New England in the winter — the company allowed more than a year for what are normally nine-month construction projects. More than just individual projects are at risk; the wind industry says it expects installations to decline by 90 percent next year, with the loss of thousands of jobs. The erratic pattern of wind subsidies has spawned a boom-and-bust cycle, with supplier companies building factories that run at full production for months and then shut down when demand collapses.
German Utilities Pay Power Users as Warm, Windy Christmas Looms - Day-ahead power in Germany turned negative for the first time in at least five years as utilities prefer to pay users rather than halt plants amid low demand, mild temperatures and higher-than-average wind generation. Baseload next-day power, for supplies delivered around the clock, fell as low as minus 15 euros (minus $19.84) a megawatt- hour, compared with 22 euros a megawatt-hour on Dec. 21 for power delivered today, according to broker data compiled by Bloomberg. That's the first time the day-ahead contract has been negative since Bloomberg started collecting the data in 2007. Germany seeks to generate more than a third of its electricity from renewables as the country exits nuclear energy. Utilities including EON SE and RWE AG (RWE) may prefer to pay users rather than halt fossil fuel-fed plants when turbines and solar cells push power supply above demand. "Operators may just decide to accept that they are giving away power and money during the Christmas week for a few hours rather than putting up with even higher costs for switching their units off," Juergen Rogalla, head of power plant operations at Stadtwerke Bielefeld GmbH, a regional utility supplying 280,000 households with power and gas, said Dec. 21.
India confronts mountain of coal problems - Across India, thermal power stations are running below capacity because they cannot get enough coal, and factories are running on expensive diesel generators because they cannot get enough power. But here at one of India's largest mines, millions of tons of coal are stockpiled because they cannot be transported quickly to the nearest rail yard. Plans to expand production have been put on hold because a branch line to the mine, already three years behind schedule, is still less than half built. And the sorry state of India's railway network is only part of the story.At a time when the country's energy needs are growing at a staggering pace, India depends heavily on coal, drawing on the fifth-largest reserves in the world. But mining has consistently fallen below target, imports are rising fast, and the problems in the largely state-run industry may have even more far-reaching implications. "It is essentially a combination of misgovernance, apathy and neglect of the entire sector," . "It has been allowed to deteriorate out of the public eye."
Shale Energy Redraws Transport Networks - Surging energy production in North America is prompting billions of dollars of investment next year on pipelines and other infrastructure projects to move oil and gas around the continent. The existing U.S. pipeline network isn't configured to fully serve the new production areas in the center of the country, from North Dakota to South Texas, where oil and natural gas production have started booming. As a result, companies are finding creative ways to move those fuels to market, including a return to early 1900s favorites: iron horse and barge. The number of oil-laden tanker trains has grown, as has the number of river barges pushed by tugboats down the Mississippi River. Oil pipelines that once pumped crude north from the Gulf Coast increasingly are being reconfigured to flow south to refineries there. Some natural gas pipelines originally built to ship fuel from the Rocky Mountains and Gulf to the East Coast are little used because of new natural gas discoveries in Pennsylvania. Those pipelines are being considered for conversion to handle oil."Our infrastructure over the past 40 years has been set up for this idea of the U.S. as an energy-deficit nation," . "Now we have this tectonic shift where we can become an energy surplus nation. That means we have to transform, upgrade and rearrange our logistics."
There's no such thing as energy independence in our globalized, fossil-fueled world - As of 2011 fossil fuels produced 83 percent of the world's energy according to the U.S. Energy Information Administration (EIA). Because fossil fuels can be transported anywhere in the world, producers seek out the highest price unless they are constrained by law or infrastructure from doing so. This means that energy independence for a country is something of an optical illusion when it is based merely on the domestic production of fossil fuels. Here's why:
- Events far away such as wars; embargoes; strikes; and mine, oilfield and refinery disasters affect the level of domestic prices for fossil fuels in all countries where these fuels are freely exportable regardless of whether that country produces enough for its own consumption.
- Even fossil-fuel exporting countries that subsidize purchases of fossil fuel energy by businesses and consumers are affected by events outside those countries as prices for their exports are largely determined by external events. The revenue they forgo by keeping domestic prices low is a hidden cost to the energy sector of the economy.
- Unless fossil fuel companies are owned by a government, those companies focus on maximizing both returns for their shareholders and compensation for their managers. They seek out the highest prices for their products worldwide (adjusting for transportation costs) regardless of the effect on the energy security or energy independence of the country in which the oil, natural gas or coal is produced--
Iran says it has enough oil for 150 years: Tehran: Iran has enough petroleum to last for 150 years, allowing it to be one of the world's main exporters of crude, Petroleum Minister Rostam Ghasemi told the Fars news agency Sunday. "The country has petroleum reserves for about 150 years and during that time ... it can be one of the principal exporters of hydrocarbon resources," Ghasemi said. "Iran has reserves of nearly 600 billion barrels of petroleum," Ghasemi said. The Iranian petroleum industry is now able to produce enough equipment to meet domestic needs, the minister said. Iran is the subject of UN sanctions over its nuclear program, which some countries, led by the US, suspect is aimed at producing weapons. Tehran denies it plans to produce nuclear weapons and says its goals are purely civilian and peaceful.
Stabilization of Iranian Oil Production - I have updated my spreadsheet of Iranian production with all available data - that runs through November for JODI (direct reports), the IEA and OPEC (secondary sources), and through September for the US EIA. The graph above summarizes the situation since 2000. Note that there is fairly wide uncertainty about the level of Iranian production with different agencies giving widely different values. However, everyone except the Iranians themselves agreed that production had slid substantially since mid 2011 due to sanctions. The big news in the last quarter of 2012 is that the Iranians seem to have arrested that slide and production has stabilized at a level about a million barrels/day below the level of 2009-2010. We now have several months's data from several agencies showing this new lower plateau, so it doesn't seem to be a statistical artefact. It will be interesting to see what 2013 brings. I imagine the Iranians are going to continue to develop their nuclear program. The US and Israel could, in principle, stop them through military means, but I don't know if the political will exists to do so. I doubt the window for acting is too long and it's going to be a major black-eye for the current administrations in both countries if Iran tests a bomb on their watch.
Iran Launches Week-Long Straits Of Hormuz Naval Drill On Friday, Next To US Aircraft Carrier - With the market still hopeful of some deus ex resolution to the Fiscal Cliff will take place in the last few trading sessions of the year, here is Iran out of left field, adding yet another known unknown to the inequality, announcing that it will begin six days of naval drills in the Straits of Hormuz on Friday. In other words a one year flashback deja vu, as Iran held a similar 10-day drill last December, when everyone was expecting an imminent escalation out of the endless Israel-Iran foreplay and was analyzing which were the new moon days allowing Israel unobstructed access to the greatest distraction of all - Iran's nuclear facility being moved under a mountain: a catalyst which Israel repeatedly said is the only reason to attack a weaponizing, nuclear Iran, and which took place some time in 2012. Now that the official window of opportunity is closed, will Israel tone back on the aggressive rhetoric? Hardly: after all that is precisely why the Syrian "outlet valve" has been put in play over the past 6 months.
Iran Launches "Massive" 6 Day Naval Wargame - Video Coverage -As we reported previously, today Iran decided to launch a rather impromptu "massive" naval drill dubbed the Velayat 91, which will take place in the Oman Sea, North of Indian Ocean, in the Persian Gulf and East of Strait of Hormuz, and will cover an area of one million square kilometers right in the sweet zone of the US 5th Naval Fleet's AOR, where in addition to other resources, both the Stennis aircraft carrier and Peleliu amphibious warfare ship group are located. As PressTV reports, "On the first day of the drills, ships and submarines, will go to their locations and get ready for the tactical stage of the maneuvers. Forces in shores will also get ready for the tactical phase of the drills. In addition our 23rd fleet will be deployed to the high seas to protect commercial ships and oil tankers and to counter piracy in Gulf of Aden." All this will be taking place within kilometers of both the busiest seaborne transit corridor of crude oil in the world, as well as the headquarters of the US 5th Navy in Bahrain. What could go wrong.
China's Industrial Energy Revolution: Renewable targets just became even more demanding - China is undergoing the most astonishing energy transformation underpinning the industrial revolution that is making it the workshop of the world. It is building its 'black' energy system at a prodigious rate – building the equivalent of a 1-GW thermal power station every 10 days, and burning vast amounts of coal in doing so. But at the same time it is building a 'green' energy system based on non-fossil sources (renewables and nuclear) faster than any other country on earth. China's green revolution is reflected in its targets for building renewable energy systems, which are being expanded as fast as is humanly and technically possible – in the name of energy security and nation-building infrastructure as much as for decarbonizing the economy. Which wins in this close race between black and green development is a matter of the highest importance, for China and for the world.In October China's State Council released its Energy Policy white paper, locking in some stringent goals prior to the leadership transition that moved ahead in November, and updating previous targets that had been spelt out in the 12th Five Year Plan, covering the years 2011 to 2015. In the White paper, China committed itself to achieving by 2015 no less than 30% of its electric power generation coming from non-fossil fuel sources. China's electric power system, already the world's largest and operating at just over 1 TW in 2011, is expected to grow to 1.5 TW by 2015. Of this, 450 GW (30%) is to be accounted for by non-fossil sources. The remarkable growth in non-fossil and renewable power sources—if achieved—will start to match that of thermal (coal-burning) sources. This is a truly historic milestone. It means that China's carbon emissions – 50% of which come from power generation – are coming under control.
Working Conditions in China: Supply and Demand - The NYTimes has a lengthy and self-congratulatory article on improved working conditions in Chinese factories. The article ascribes improvements in Chinese workplaces to negative publicity from earlier NYTimes articles. Indeed, as soon as the NYTimes starts to investigate, we are presented with this boardroom set piece: "The world is watching!" [Foxconn Chairman] Mr. Gou yelled, according to multiple people. "We are going to fix this, right here!" The Times articles, part of a larger series, are well written and informative and no doubt they have prodded some changes at certain companies. China, however, is a very big place and the real story of better working conditions is a story of supply and demand. Wages in Chinese factories have been low because wages in China's agricultural interior were even lower and the great migration from the country to the city, one of the largest migrations in human history, meant that there was a ready supply of workers desperate for work and the more work the better. Even today many workers want longer hours: "Absolutely I'd like to do overtime to work more than 60 hours, but now there's a ceiling on it," said Ma Changqiao, a 23-year-old at Foxconn's Chongqing factory.As the great migration leveled off, however, wages began to rise. At first, workers wanted all of the increase in wages in money but as the more basic needs of workers and their families have been met the demand for better working conditions and more leisure has increased and this has made it profitable for firms to supply better working conditions
China Opens Longest High-Speed Rail Line - China began service Wednesday morning on the world's longest high-speed rail line, covering a distance in eight hours that is about equal to that from New York to Key West, Fla., or from London across Europe to Belgrade, Serbia. Trains traveling 300 kilometers, or 186 miles, an hour, began regular service between Beijing and Guangzhou, the main metropolis in southeastern China. Older trains still in service on a parallel rail line take 21 hours; Amtrak trains from New York to Miami, a shorter distance, still take nearly 30 hours. Completion of the Beijing-Guangzhou route — roughly 1,200 miles — is the latest sign that China has resumed rapid construction on one of the world's largest and most ambitious infrastructure projects, a network of four north-south routes and four east-west routes that span the country. The hiring of as many as 100,000 workers for each line has kept a lid on unemployment as private-sector construction has slowed because of limits on real estate speculation. The national network has helped to reduce air pollution in Chinese cities and helped to curb demand for imported diesel fuel by freeing capacity on older rail lines for goods to be carried by freight trains instead of heavily polluting, costlier trucks.
Longest High-Speed Railway to Compete With A380s in China - Travelers in China will soon have the choice of traveling on the world's longest high-speed train line or flying on an Airbus SAS A380 superjumbo when going from Beijing to Guangzhou. A 2,298-kilometer (1,428 mile) line linking the nation's capital and the southern city will open Dec. 26, according to a statement by the Ministry of Railways today, whisking passengers between the two in as few as eight hours. The trains will initially run at a speed of 300 kilometers per hour. The new line adds to competition for China Southern Airlines Co. (1055) A380s flying between the cities, an about three- hour flight. The carrier has already lost money on domestic A380 services in the first half, according to Citigroup Inc. The planes have been used on the route for about a year as the airline has so far failed to fly them on overseas services from Beijing. The bullet-train line, which will eventually connect to Hong Kong, is part of China's plans to build a 16,000-kilometer long network by 2015. The services have lured passengers from flights that often suffer delays in China because of airspace restrictions and poor weather.
Railway to create network of 'city clusters' - The world's longest high-speed rail service, which starts between Beijing and Guangzhou on Wednesday, is expected to bring huge economic prosperity to towns and cities along its route, creating what officials are calling world-class "city clusters" across Central China. Designed to carry passengers at an average speed of 300 km per hour, the high-speed link will cut travel time between the country's capital and the southern economic center to about eight hours. There will be 35 stops along the way, including major cities such Shijiazhuang, Zhengzhou, Wuhan and Changsha, and the route will cut through areas with a combined population of 300 million to 400 million. "Opening the route will not only bring these cities closer, but will generate business for many different supporting facilities, promoting change in their growth patterns for years to come,"
China To Increase 2013 Budget Deficit By 50%: Report - The Chinese government is planning to increase the country's budget deficit by 50 percent in 2013, China business News reported Thursday, citing unnamed sources. As a result, the deficit will balloon to CNY 1.2 trillion from an estimated CNY 800 billion this year. As a percentage of GDP, the deficit will likely rise to 2.1 percent in 2013 from 1.5 percent in 2012. The newspaper reported that the increase in deficit implies scaling back revenue growth target and introducing tax cuts for companies.
Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications Here are portions of a email from Michael Pettis at China Financial Markets on the unsustainable nature of China's growth, Ponzi schemes in wealth management programs, and the implications of China's rebalancing efforts. As analysts wrack their minds over specific debt problems in China and how they are to be resolved, I think we must remember to look not at specific debt issues but rather at the way the overall system operates. I have argued many times in the past six years that the Chinese growth model has reached the point (perhaps well over a decade ago) where growth was almost necessarily driven by an unsustainable increase in debt. This meant, I suggested, that while it might be hard to predict where the next debt problem would crop up, it was very easy to predict that debt problems would continue to crop in one sector of the economy after another. We need to remember this as we consider financial risks in China. One of the big stories this month of course was the failure of the Zhongding Wealth Investment Centre, the borrower against a Wealth Management Program (WMP) issued at a Shanghai branch of Huaxia Bank. According to an article in the South China Morning Post, [Huaxia scandal spotlights China's Ponzi crisis] "dozens of depositors lost their multimillion-yuan investments in a "wealth management product" (WMP) sold at a Shanghai branch of Huaxia Bank. The sorry saga was a rude reminder that Ponzi schemes thrive on the mainland, where millions of residents still believe that banks are the safest havens for their lifelong savings." The reason this particular story is important is not because the transaction is large enough to make much of a difference, but rather in what it tells us about risks in the financial system. The first point is that we have no idea what is really going on in this already large and rapidly growing part of the Chinese financial system, but whatever we can see looks pretty ugly.
China Foreign Exchange Manager Calls U.S. Global 'Bright Spot' - The U.S. may be a "bright spot" for the global economy in 2013, with Europe and Japan "not optimistic," said the official who oversees day-to-day management of China's $3.3 trillion foreign exchange reserves. Credit expansion and the development of the alternative energy industry will help make the U.S. "the major power promoting global economic growth in the future," said Huang Guobo, director of the foreign exchange reserves management department at China's State Administration of Foreign Exchange. A summery of Huang's comments, made Dec. 16 at Tsinghua University's Shenzhen campus, was published on a school website today. China, the largest foreign lender to the U.S. government, increased its Treasuries holdings in October to a five-month high of $1.16 trillion, according to U.S. Treasury Department data released on Dec. 18. SAFE doesn't publish data on its investments and Huang, also the foreign exchange regulator's chief economist, didn't directly comment on China's holdings. "Buying U.S. treasuries is a good choice for China now because the dollar is expected to appreciate,"
US lambasts China for breaches of trade rules - Washington has issued a blistering attack on China for persistent breaches of world trade rules and abuse of industrial secrets, accusing Beijing of failing to abide by treaty obligations. China is still flouting World Trade Organisation rules 11 years after it first joined, misusing the complaints machinery for tit-for-tat retaliation, said US Trade Repesentative Ron Kirk. "China's trade policies and practices in several specific areas cause particular concern for the United States," said Mr Kirk in his year-end report to Congress. "China's regulatory authorities at times seem to pursue anti-dumping and countervailing duty investigations and impose duties for the purpose of striking back at trading partners that have exercised their WTO rights in a way that displeases China," said the report. A range of policies raised "increasing concerns that China has not yet fully embraced the key WTO principles of market access, non-discrimination and transparency. China's incomplete adoption of the rule of law has exacerbated this situation." The report accused Chinese officials of running rough-shod over foreign firms, forcing them to give up trade secrets in clear violation of WTO rules.
S. Korea: Ties with China, US equally important - The presidential election of South Korea finally came to an end on the evening of Dec. 19. Presidential candidate of the ruling Saenuri Parity Park Geun-hye defeated Moon Jae-in of the Democratic United Party, the largest opposition party out of power, and became South Korea's 18th president and also the first female president in the history of South Korea. The 61-year-old Park is the daughter of former South Korean President Park Chung-hee and her election to the presidency creates a precedent in the political arena of South Korea that the daughter of a former president is also elected president. What new looks will the first female president bring to South Korea's domestic and foreign affairs? What impacts will her diplomatic policy have on the Korean Peninsula and regional situation? Solution of boosting domestic economy and narrowing polarization between the rich and the poor
Japan's Production Slumps to 2011 Quake-Aftermath Low: Economy - Japan's industrial output tumbled more than forecast to the lowest level since the aftermath of the record 2011 earthquake, bolstering the case for Prime Minister Shinzo Abe to unleash large-scale stimulus. The 1.7 percent drop in November from October exceeded all 27 forecasts in a Bloomberg News survey, a government report showed today in Tokyo. The nation also remained mired in deflation, with consumer prices excluding fresh food dropping 0.1 percent from a year before, compared with a central bank goal of 1 percent and Abe's desired target of 2 percent. With neighbor South Korea reporting a jump in production almost double the highest estimate among economists surveyed, Japan's data may strengthen the new Abe administration's determination to drive down the yen and force the Bank of Japan (8301) to add monetary stimulus. On the fiscal front, Abe has told ministries to compile emergency spending proposals by Jan. 7. "Weakness in exports is the major drag on Japan's economy," "Given the weak state of the economy, Abe's government may need a large-scale stimulus program to boost growth."
Japan Manufacturing PMI Downturn Accelerates; Output and New Orders Suffer Sharpest Contractions for 20 Months; Cheaper Yen Cannot Save Japan - The Markit/JMMA Japan Manufacturing PMI™ shows Downturn of manufacturing sector accelerated during December. Key points:
Output and new orders register sharpest contractions for 20 months
Employment, purchasing and stocks all continue to be cut
Output charges lowered further as input prices remain unchanged.
Summary: Latest data from Markit/JMMA indicated that the performance of the Japanese manufacturing sector continued to deteriorate in December. Output, new orders and employment all fell compared to one month ago while margins remained under pressure as output charges declined amid ongoing price competition. After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers' Index™ (PMI™) registered a level of 45.0 in December. Down from 46.5, the PMI subsequently posted a 44-month low. Output continued to decline markedly, with the sharpest contraction again seen in the capital goods
BOJ Holdings of JGBs Exceed 100 Trillion Yen for First Time - The Bank of Japan holdings of the government's bonds exceeded 100 trillion yen ($1.2 trillion) for the first time, raising the risk that yields will jump on perceptions that it is financing public spending. The central bank held 104.9 trillion yen of the debt at the end of September, 11.1 percent of all government bonds, a quarterly central bank report showed today in Tokyo. The BOJ said it was the highest on record. Bond holdings by foreign investors rose to a record 9.1 percent. The BOJ yesterday expanded its asset purchase program for the fifth time this year, with half of the 10 trillion-yen increase to be spent on JGBs. Incoming Prime Minister Shinzo Abe wants more central-bank action to defeat deflation and has pledged fiscal stimulus to stoke growth, even as he's constrained by the world's largest public debt.
Yen Declines After Abe Says He May Change BOJ Law - The yen declined versus its peers after incoming Japanese prime minister Shinzo Abe said he will consider changing the law on the central bank unless it boosts its inflation target to 2 percent next month. Abe said on Japan's Fuji Television yesterday that he will consider revising the law governing the Bank of Japan if it fails to increase its inflation target from 1 percent at its January meeting. He is poised to become prime minister after his Liberal Democratic Party's coalition secured a majority in elections on Dec. 16. Abe has called on the BOJ to pursue "unlimited easing" to help end deflation and revive growth. BOJ Governor Masaaki Shirakawa and his board last week refrained from doubling the central bank's 1 percent inflation target, while expanding its asset-purchase program by 10 trillion yen ($118 billion) to 76 trillion yen.
Japan signals rise in borrowing - Japan's new finance minister has signalled that the government will borrow to boost the struggling economy, as Prime Minister Shinzo Abe unveiled a "crisis beating" cabinet on Wednesday. At a press conference following his appointment as finance chief, Taro Aso announced he would issue bonds and lift a cap on new debt for the 2012 fiscal year. "We will not stick to the debt cap of Y44tn ($514bn) [for the year through to March]," Mr Aso said. The debt limitation was introduced by the previous Democratic party administration, which was defeated in a landslide by Mr Abe's Liberal Democratic party two weeks ago. Mr Abe on Wednesday unveiled a cabinet of close allies and policy experts to push his agenda of economic recovery, just hours after being formally appointed as the country's seventh prime minister in six years.He has vowed to create a "crisis beating government" to tackle the deflation that has dogged Japan for more than a decade and also the strong yen. Mr Abe said he had instructed his cabinet to do their utmost to achieve economic recovery and reconstruction after last year's devestating earthquake, and to ensure national security.
Japan's LDP, ally agree on 2% inflation - Shinzo Abe, who is likely to be elected Japan's prime minister tomorrow, agreed with his coalition ally Natsuo Yamaguchi of the New Komeito Party on a policy package that includes "bold monetary easing" to reach an inflation target of 2 percent. While Abe's Liberal Democratic Party (LDP) won a landslide victory in this month's election, it lacks a majority in parliament's upper house. Backing from New Komeito on specific proposals increases the chance that they will become law. New Komeito had warned during the election campaign that forcing the Bank of Japan to reach a 2 percent inflation target risked undermining its independence. Abe had also pledged to raise defense spending, while Yamaguchi said in an interview on Dec. 6 that any drastic rise was "undesirable." The agreement with New Komeito also calls for a "large" extra budget for the current fiscal year ending in March and deregulation of the energy, environment and healthcare sectors. The parties agreed to seek nominal GDP growth of 3 percent, without giving a timeframe for the goal.
Missing The Big Japan Story, by Tim Duy: The potential exists for groundbreaking changes in Japanese economic policy - and I sense that Western journalists, caught up in the current celebration of central bankers, are missing the bigger story. In my opinion, a higher inflation target by the Bank of Japan is not particularly interesting. After all, the Bank of Japan can't hit the current "goal" of 1 percent inflation. I don't have much faith that renaming the "goal" a "target" and increasing it to 2 percent will be like waving a magic wand. But something much more significant is afoot - the possibility of explicit cooperation, albeit perhaps forced cooperation, between fiscal and monetary authorities. The loss of the Bank of Japan's independence to force the direct monetization of deficit spending is the real story. Floyd Norris at the New York Times begins a recent article on Japanese monetary policy with a quote from then-Federal Reserve Governor Ben Bernanke:...under a paper-money system, a determined government can always generate higher spending and hence positive inflation. Norris continues:Now we may find out if Mr. Bernanke was right. Japan appears to be ready to do whatever it takes to end its long run of falling prices. The Bank of Japan took limited action on Thursday, and more is expected in the new year. Norris then proceeds with a generic review of Bernanke's point that monetary policymakers are not without tools even at the zero bound. Norris includes mention of Bernanke's "helicopter drop" reference, but fails to put it in proper context. The proper context is in terms of the cooperation between fiscal and monetary policy. This is my central complaint; that reporters have a tendency to not carefully read this speech. Bernanke does not say a "determined monetary authority." He says a determined "government."
Japan won't abide by bond cap for stimulus:reports -- Japan's newly-elected government won't abide by a ceiling on bond issuances when it decides on the size of an upcoming supplementary budget, aimed at providing a stimulus to the ailing economy, Finance Minister Taro Aso said, according to media reports. Speaking at his first press conference Wednesday, Aso said Prime Minister Shinzo Abe has told him not to worry about the 44 trillion yen ($515 billion) cap on bond issuances -- a limit that the previous Democratic Party of Japan government adhered to in its three years of rule, the Nikkei newspaper reported Thursday. Abe reportedly told Aso that he wants the budget to be "bold in size," according to the Nikkei.
Insight: Under siege, Japan central bank wakes up to political reality (Reuters) - Within a day of Shinzo Abe's Liberal Democratic Party sweeping to power in elections this month, elite bureaucrats in Japan's central bank rushed to ready what amounted to a surrender offer. Abe had run his campaign with a relentless focus on economic policy and had called on the Bank of Japan (BOJ) to take drastic steps to end the nation's long bout of deflation, or else face a radical makeover at the hands of parliament. The vote had become an unexpected referendum on the BOJ itself, and the bank had lost. Senior officials concluded that to preserve the BOJ's scope to act in a future crisis, it needed to move quickly to show it recognized reality, according to people familiar with the hurried deliberations. Abe had won a mandate for more forceful monetary easing, and Japanese taxpayers were frustrated with an economy slipping back into its third recession in five years. In the early afternoon of December 18, two days after the vote, BOJ Governor Masaaki Shirakawa was to pay a courtesy call on Abe. But even before then, a post-election plan had taken shape: the BOJ would consider the kind of ambitious 2 percent inflation target that Abe had insisted was needed to pull Japan out of nearly two decades of deflation and diminished expectations. It was an about-face for Shirakawa who, since taking his post in 2008, had argued that by focusing too narrowly on consumer prices, the BOJ could miss signs of an asset price bubble like the one Japan experienced in the late 1980s
The yen lost its status as a "safe haven" currency - As discussed earlier, the yen is no longer acting as a "safe haven" or "risk-off" currency. This is difficult for some in the FX community to accept, but it's the new reality. The recent drop in the US equity market coincided with declines in the yen. In the past the yen would typically move in the opposite direction of the "risk-on" assets such as equities and commodities, but that relationship no longer holds.Much of this is driven by Japan's fundamentals. The new government will ride the Bank of Japan (BOJ) to make sure it ramps up QE to unprecedented levels. The goal is to "print" so much yen that inflation rises from negative levels (where it is currently - chart to the left) to some fixed positive target such as 2%. Any semblance of independence BOJ had is now gone. The Telegraph: - Mr Abe has said that he will pick someone who agrees with his views on the need for bolder monetary easing to succeed governor Masaaki Shirakawa when his term expires in April next year. "At this month's policy meeting, the BoJ said it would examine (setting an inflation target) at its next meeting" in JanuaryThe strategy may in fact help Japan's exporters in the long run, as the weaker yen makes their goods cheaper. For now however the fundamentals remain weak and the traditional relationship between global risk assets and the yen no longer holds.
Global Currency Tensions Rise : Japan's incoming prime minister fired a volley into increasingly tense global currency markets, saying the country must defend itself against attempts by other governments to devalue their currencies by ensuring the yen weakens as well. Shinzo Abe's call comes as others including Bank of England Gov. Mervyn King warn that the world's economic-policy makers risk becoming embroiled in currency spats that could heighten tensions among countries. Mr. Abe on Sunday called on Japan's central bank to resist what he described as moves by the U.S. and Europe to cheapen their currencies and noted that a yen level of around ¥90 to the dollar—it was at ¥84.38 in early Asian trading Monday, down from ¥84.26 late Friday—would support the profit of Japanese exporters. Tokyo markets were closed on Monday for a holiday. "Central banks around the world are printing money, supporting their economies and increasing exports. America is the prime example," said Mr. Abe, referring to the Federal Reserve's policy of flooding the market with dollars by purchasing massive amounts of Treasury bonds and other assets. "If it goes on like this, the yen will inevitably strengthen. It's vital to resist this," said Mr. Abe, who will become prime minister on Wednesday. Mr. King, in an interview this month, said, "I do think 2013 could be a challenging year in which we will, in fact, see a number of countries trying to push down their exchange rates. That does lead to concerns." It was part of an effort by countries to preserve trade advantage, he said. "The policies pursued by countries for domestic purposes are leading to tension collectively."
The 2012 winner for the best performing currency against the US dollar - The table below shows the world's top performing currencies against the dollar. Poland, which was somewhat shielded from the Eurozone by its ties with the big neighbor to the east has been the best performer among the mainstream currencies. In fact Poland, together with other EU nations who stayed out of the euro area - such as as Norway, Sweden, and the UK - have seen their currencies appreciate.There is one currency however that has outperformed all of these by a long shot, but you won't find it on the list. The currency is called Bitcoin (ticker symbol BTC) and it more than tripled this year.It's not issued by a country, nor is it a precious metal or a rare-earth. Bitcoin is an electronic currency that can be exchanged for some goods and services, particularly online. The currency is not controlled by a central bank. Instead it is maintained by a global registrar and managed via a private network of participants who get paid to "rent" their computing power to the network. The "rented" machines are used to maintain the integrity of Bitcoin transactions and act as a virtual decentralized registrar.
A decisive year for 'deglobalisation' - The quarter-century leading up to the financial crisis saw a remarkable leap in globalisation. In particular, cross-border financial flows grew rapidly. Western investors piled into China and the other Brics. The new phenomenon of south-north flows emerged, as sovereign wealth funds from Asia and the Middle East acquired developed economy assets on a massive scale. But the fastest growth was in cross-border bank lending, much of it intermediated in London. Citibank's ambition was to be seen on street corners from Manhattan to Manama; HSBC proudly told us, every time we got off a plane, that it was "the world's local bank". Since the crisis that last trend has gone into reverse: cross-border lending has fallen sharply and the ambitions of major American and European banks have been scaled back. HSBC has withdrawn from a number of countries; Citibank and Barclay's have other preoccupations. The continental European banks are struggling to strengthen their capital bases, and emerging market assets have been realised to bolster the parents' balance sheets. So are we entering a new age of financial deglobalisation? If so, should we care?
The EU Bailout Oligarchy Issues A Report About Itself - On Friday before Christmas when nobody was paying attention, when people were elbowing their way through department stores or heading out for vacation, the European Commission issued its report on bank bailouts in the European Union—a dry document with mind-boggling numbers that left out the most important fact. The misnamed "2012 State Aid Scoreboard" provided a sobering number—misnamed because it covered the period from October 2008 through December 2011, and not 2012. It had taken the Commission bureaucracy a year to add up all the numbers, and there were a lot of them to add up. Turns out, the amount that the governments of all 27 EU states had handed to their banks to prop them up or bail them out amounted to €1.616 trillion ($2.1 trillion).It does not include the bank bailouts of 2012, such as Spain, whose banks are getting their first installment of €39 billion, or Greece or tiny Cyprus whose banks alone require at least €10 billion Nevertheless, €1.616 trillion is a big number: 13% of European Union GDP. Of that, €1.174 trillion was for "liquidity support," and €442 billion was for "bank solvency" support, such as recapitalizations and dumping "impaired assets." The usual suspects? Um…. In third position, Germany, whose banks received 16% of the total. In second position, Ireland, whose banks also got 16% of the total. Time and again, we can only shake our heads at the act of insanity committed by the Irish government at the time when it decided to condemn its citizens and taxpayers, current and future, to bail out and make whole the investors in Irish banks—a decision that bankrupted the entire country though it had had its fiscal house in order, until then.And in first position, drumroll…. the UK, whose rotten banks, now coddled and protected in the City, received 19% of the total.
The coast is not clear: 3 big potential problems for the EU next year - The markets are choosing to ignore the likely further deepening in the European economic recession and the consequent further political deterioration in the periphery that seems to be in store for Europe next year. Instead they are pinning their hopes on Mrs. Merkel's resolve to do whatever it takes to hold the Euro together at least until after the September 2013 elections are out of the way. They are also banking on Mario Draghi making good on his commitment to have the ECB buy as many Italian and Spanish bonds as might be necessary to keep interest rates for those countries at reasonable levels.Sadly, there are all too many ways that the market's present complacency about Europe's economic and political prospects could prove to be ill-founded.
- 1. A fall in Greece's shaky coalition government would almost certainly result in Greece defaulting on its official loan commitments, which would all too likely set the stage for Greece's exit from the Euro.
- 2. Similarly a growing anti-austerity backlash and regional problems in Spain could make it very difficult for Mariano Rajoy's government to request ESM financial support, which is a necessary condition for the ECB to buy Spanish government bonds.
- 3. And then there is always the prospect that a deepening economic recession in Italy and Portugal will heighten political instability in those countries.
Greece's Big Banks Need Bailout Too - Greece's four biggest banks have reported they were so battered by losses imposed by a previous government on investors that they will need a 27.4 billion euros ($36.29 billion) injection as they try to stem more losses as the country's economy continues to shrink. The debt-write down earlier this year effectively wiped out the capital base of the National Bank of Greece (NBG,) Eurobank, Alpha Bank and Piraeus Bank, who are also struggling with a rapid growth of defaulted loans by consumers as Greeks have been hit with waves of pay cuts, tax hikes and slashed pensions.
Greece not doing enough against rich tax dodgers, say EU/IMF - Greece's drive to crack down on flagrant tax evaders such as doctors and lawyers is flagging and must be reinvigorated, a report by the European Union and International Monetary Fund said on Monday. Athens has collected just half the tax debts and conducted less than half the audits it was supposed to under the targets set by its lenders, according to a survey by the country's international lenders which was compiled in November. "The mission expresses concern that authorities are falling idle and that the drive to fight tax evasion by the very wealthy and the free professions is at risk of weakening," it said. By the end of September authorities had conducted 440 checks on suspected wealthy tax evaders, compared with a full-year target of 1,300. About 1.1 billion euros in overdue taxes have been collected so far, less than the 2 billion euros targeted. The lenders urged Greece to improve tax collection and focus on the cases most likely to produce results. "Doctors and lawyers are a good place to start," they said.
Greece Should Write Off Billions of Overdue Taxes, Report Says - Greece should write off part of the 53 billion euros ($70 billion) of outstanding taxes owed to it as it will only be able to collect up to 20 percent of that amount, a report by the European Union and International Monetary Fund showed. More focus is needed on collection from the 1,500 biggest debtors, which make up two-thirds of the total amount owed to the state, according to an e-mailed copy of the November report from the Athens-based finance ministry today. More staff should be allocated to auditing those cases and specific targets for 2013 should be set, it said. Greece hasn't met five of 10 six-month targets set as part of its tax system overhaul and stronger enforcement of value added tax collection as well as speeding up VAT returns should be a priority, according to the report.
When Hedge Funds Trump Governments - While Greece suffers to the point of revolution and suicide, hedge funds made out like bandits on Greek sovereign debt. Greece had reached its target of buying back enough bonds at a discount to retire 21 billion euros, or about $27 billion, of its debt. The bigger winners, though, were hedge funds, which pocketed higher profits than many had expected, in yet another Greek bailout financed by European taxpayers. To some experts, this latest chapter in the long-running Greek drama is another reminder of how private investors have managed to outmaneuver European officials at various stages of the debt crisis. And they caution that each time it happens, future debt workouts in the euro zone will become even more costly. When Europe wanted to give the Greek bond holders a hair cut, the hedge funds threatened collective action against a host of European countries. They wouldn't buy any European sovereign bonds in retaliation against the Eurogroup taking a hard line against them. The warning was blunt: If Athens set off legal mechanisms in the bond contracts known as collective action clauses, forcing bondholders to accept lower prices, investors would stop buying the bonds of struggling European countries. That would be bad news for Spain and Italy — to say nothing of Portugal and Ireland when they return to global bond markets in 2013.
Wood-burning sets off pollution alarm bells in Athens - Air pollution in Athens has surged in recent days because of people choosing wood over more expensive fuels to heat their homes in the grips of a continuing economic crisis, the environment ministry said Friday. Particulate matter has been measured at 150 milligrammes per cubic metre, or three times the danger level, especially in the northern and western suburbs of the Greek capital, the ministry said. The visible smog is reminiscent of that which cloaked the mountain-ringed city before it modernised its cars and buses. "The smog, which appears especially in the evening, is made up of polluting and dangerous particles that can cause respiratory problems," said Evangelos Gerassopoulos, director of the Environment Institute of the Athens Observatory.
Greece: The Odyssey - At the end of another year of painful austerity and mouting debts, Greece's battered economy is seeing over 1,000 workers lose their jobs every day. On the surface, many cities still looks prosperous, but the nation's deep crisis is clearly reflected in the windows of hundreds of empty shops. More than one million Greeks are unemployed, which is one-quarter of the workforce, and the country is facing a youth unemployment rate of 58 percent. Greece is what collapse looks like. Not an immediate big bang collapse, but like air escaping from an inflated trash bag. People dropping back to subsistence farming as their circumstances dictate. Some may make the case that the whole western world is in collapse right now; this could be true. It's a gradual relaxing and letting go of the hyper urban and corporate ideals. Meanwhile, corps and urban life which are shrinking, are still operating under their own logic and in some cases we'll see a bit of thrash from them as they try to preserve their profits and turf. In the end, as each person drops out, it leaves a hole in the whole cloth. One day the final collapse will come, but there will be no-one left to note it; everybody will be too busy carrying on with their lives elsewhere.
Optimism on course of state and personal finances grows - The pessimism index in Greece is showing a decline for the first time in two years, according to the economic barometer that polling company Alco uses for the Athens Chamber of Commerce and Industry (ACCI). Although the vast majority of citizens remain downbeat about the course of the country's economy and their personal finances, the percentage of pessimists has receded considerably in comparison with the previous poll in October. The December poll found that 71 percent of Greeks are pessimistic about Greece's economy, down from 80 percent in October, while the rate for optimists climbed to 19 percent from just 6 percent in October. Another 10 percent failed to respond. The optimism rate is the highest since February 2011. Regarding personal finances, 74 percent expressed pessimism, from 83 percent in October, while 17 percent said they were optimistic, compared to 6 percent in the previous poll.
Berlusconi Blames Deutsche Bank, 'Big Lie' for Toppling His Government: Former Italian Prime Minister, Silvio Berlusconi, who is preparing to make a comeback in elections due in February 2013, has hinted at a conspiracy that toppled his government in November last year. Berlusconi, who is Italy's longest-serving leader since the Second World War, despite an ongoing trial involving a sex scandal and conviction for fraud, described his 2011 resignation as a "coup d'etat". He pointed the finger at one of Germany's largest banks for the spike in Italian bond yields, which rose above 7 percent in November 2011, forcing him to step aside. "Deutsche bank imposed a sell-off of all its Italian and Greek government bonds. American and international investors questioned the move," he said. "Some assumed that the German bank had some specific information that nobody else had. It was a huge lie."
Bankia shares slide on 'negative value' assessment: Shares in Bankia have slid almost 20% after Spain's bank rescue fund said the troubled lender had a negative value of -4.2bn euros (£3.4bn; $5.6bn). Bankia's parent company, BFA, which is being bailed out, was deemed to be worth -10.4bn euros. The assessments suggest losses on bad loans are even worse than expected. Bankia shares will be suspended from Spain's benchmark Ibex index from 2 January until at least after it is recapitalised, the stock exchange said. The Spanish government-owned bailout fund, which is called the FROB, said that a further 13.5bn euros of rescue money would have to be injected into BFA, on top of the 4.5bn provided by Madrid in September. The money, which is ultimately provided by the eurozone's bailout fund, is being injected into the bank via the sale of new shares in BFA to the FROB. By doing this, the FROB increases the bank's capital - its ability to absorb potential future losses on the loans it has made - by putting Spanish taxpayers' money at risk.
Social Trap in Spain: Mortgage Nightmare; Why Spain (or Germany) is Guaranteed to Leave Euro Looking for a synopsis of the problems facing Spain? A summary of bullet points I gathered from the Spiegel article Evictions Become Focus of Spanish Crisis shows just how hopeless the situation is.
- There were a record number of evictions in 2012, foreclosures are expected to increase in 2013.
- Some 400,000 eviction proceedings have been opened in Spain since 2007, with roughly half of the families involved having already lost residential properties due to foreclosures. That means Spain is only half-way through the crisis.
- There are now 1.7 million Spanish households in which not a single family member still earns a salary.
- 4 million people have lost their jobs since 2007
- 27 percent of the population lives below poverty level
- Evictions now affects pensioners, who have used their own homes as collateral to take out loans for their sons and daughters
- A joint study by UNICEF, Oxfam and Doctors Without Borders concluded that the country will need over 20 years to regain the standard of living it attained in the prosperous, pre-crisis years.
- In the Catalonia region, unemployment is 26 percent
- Youth unemployment is over 50%
Artur Mas approved as premier in Catalan parliament - After two days of intense debates, the Catalan parliament on Friday approved the investiture of Artur Mas to a second term as regional premier with votes in favor coming from his Catalan nationalist CiU bloc and coalition partner Catalan Republican Left (ERC) party. Mas promised to hold a referendum on regional independence before 2015 – a plan that has put him on a collision course with the Rajoy administration in Madrid. "I am issuing a call to all those who are in favor of the right to decide so that they can make an effort to adopt the legal framework – which doesn't necessarily mean it has to go through the Constitution – so that there can be a legal vote on sovereignty and the rights of the people can be guaranteed," Mas said in a speech before his investiture was approved. The CiU gave Mas its 50 votes, while 21 votes came from the ERC. There were 63 votes against his investiture, including those from the Catalan Socialist Party and the PP.
Euro crisis may lead to 'explosion of violence' - The brinksmanship being practiced by German Chancellor Angela Merkel and other leaders in the euro crisis carries considerable risk, not least of which is a downward spiral in countries like Greece that could end in an "explosion of violence." This was the grim warning delivered by economist James Galbraith during a visit to Germany earlier this month as he described the possible effect of current austerity policies in Europe."The dynamic has an end state for which there is a model, and that model is Yugoslavia," Galbraith said in an interview with the online publication NachDenkSeiten. He went on to specify what he meant by that model: "A downward spiral leading to an explosion of violence." Read the interview in English. Yugoslavia did not result from age-old ethnic conflict, but from new crimes committed for political and economic reasons. "That's what kicked off those wars," James Galbraith told his Berlin audience. "And when the violence starts in an advanced, in a developed country, it moves quickly and the fractures are not clean. And I can assure you that if you talk to people in certain parts of Europe, and Greece particularly, you can hear already the anxieties that you could have heard in Yugoslavia in the early 1990s." Read the transcript of Galbraith's speech.
Surprise! Facebook Avoids its European Taxes - If you are as cynical as I am, I know you are not surprised that Facebook paid Irish taxes (via Tax Justice Network) of about $4.64 million on its entire non-US profits of $1.344 billion for 2011.* This 0.3% tax rate is a bit below the normal, already low, Irish corporate income tax of 12.5%. As with Apple, Facebook funnels its foreign profits into its Irish subsidiary. As the Guardian article explains: Facebook is structured so that companies buying advertisements on the website in the UK, or anywhere outside of the US, have to pay Facebook Ireland. As a result, Facebook manages to slash its taxes in other countries, paying, for example, $380,800 in British tax on estimated 2011 UK profits of $280 million, or a little over 0.1%. As you've no doubt figured out, it's that "Double Irish" ploy again. Facebook operates a second subsidiary that is incorporated in Ireland but controlled in the Cayman Islands. This subsidiary owns Facebook Ireland, but the setup allows the two companies to be considered as one for U.S. tax purposes, but separate for Irish tax purposes. The Caymans-operated subsidiary owns the rights to use Facebook's intellectual property outside the U.S., for which Facebook Ireland pays hefty royalties to use. This lets Facebook Ireland transfer the profits from low-tax Ireland to no-tax Cayman Islands.
France Economic Implosion Underway; French Retail Sales Contract 9th Consecutive Month as Cost Inflation Surges - Inquiring minds are noting the expected (at least in this corner) collapse in European retail sales as measured by PMI indices. The spotlight for this post is France, the second largest Eurozone economy following Germany. The Markit France Retail PMI® shows French retail sales fall for ninth consecutive month. Key points:
- Sales fall at sharper pace on both monthly and annual measures
- Purchasing costs rise at strongest rate in ten months
- Stocks of goods for resale decline at faster pace
The headline Retail PMI® slipped to 46.8 in December, from 48.8 in November. The latest reading was indicative of a solid rate of contraction. Anecdotal evidence suggested that a difficult economic climate and low customer footfall had contributed to the drop in sales. Actual sales at French retailers once again disappointed relative to previously set plans in December. The degree of undershoot was the greatest since August. Survey respondents are also pessimistic regarding the one-month outlook for sales.
European PMI Retail Sales Collapse: Near-Record Drop in Italy Retail Sales; French Retail Sales Drop 9th Consecutive Month; Germany Retail Sales Back in Contraction - Inquiring minds are noting the expected (at least in this corner) collapse in European retail sales as measured by PMI indices in Italy, France, and Germany, the three largest Eurozone economies. Earlier today I took a look at France. This article will look at Germany and Italy, the first and third biggest eurozone economies. The Markit Italy Retail PMI® shows Steep downturn in high street spending continues in December. Key points:
- Near survey-record year-on-year fall in retail sales
- Rate of job losses fastest since July
- Business sentiment weakens to series low
The Markit Germany Retail PMI® shows Retail PMI hits lowest level for eight months. Key points:
- Moderate reduction in sales since the previous month
- Actual sales fall short initial expectations for December
- Job creation was maintained
Germany 'exporting' old and sick to foreign care homes - Growing numbers of elderly and sick Germans are being sent overseas for long-term care in retirement and rehabilitation centres because of rising costs and falling standards in Germany. The move, which has seen thousands of retired Germans rehoused in homes in eastern Europe and Asia, has been severely criticised by social welfare organisations who have called it "inhumane deportation". But with increasing numbers of Germans unable to afford the growing costs of retirement homes, and an ageing and shrinking population, the number expected to be sent abroad in the next few years is only likely to rise. Experts describe it as a "time bomb". Germany's chronic care crisis – the care industry suffers from lack of workers and soaring costs – has for years been mitigated by eastern Europeans migrating to Germany in growing numbers to care for the country's elderly. But the transfer of old people to eastern Europe is being seen as a new and desperate departure, indicating that even with imported, cheaper workers, the system is unworkable.
Germany 'exporting' elderly to foreign retirement homes - Growing numbers of elderly and sick Germans are being sent overseas for long-term care in retirement and rehabilitation centres because of rising costs and falling standards in Germany. The move, which has seen thousands of retired Germans rehoused in homes in eastern Europe and Asia, has been severely criticised by social welfare organisations who have called it "inhumane deportation". But with increasing numbers of Germans unable to afford the growing costs of retirement homes, and an ageing and shrinking population, the number expected to be sent abroad in the next few years is only likely to rise. Experts describe it as a "time bomb". Germany's chronic care crisis – the care industry suffers from lack of workers and soaring costs – has for years been mitigated by eastern Europeans migrating to Germany in growing numbers to care for the country's elderly. But the transfer of old people to eastern Europe is being seen as a new and desperate departure, indicating that even with imported, cheaper workers, the system is unworkable.
Euro doomsayers adjust predictions after 2012 apocalypse averted (Reuters) - Back in May, as the euro zone veered deeper into crisis, Nobel Prize-winning economist Paul Krugman penned one of his gloomiest columns about the single currency, a piece in the New York Times entitled "Apocalypse Fairly Soon". "Suddenly, it has become easy to see how the euro -- that grand, flawed experiment in monetary union without political union -- could come apart at the seams," Krugman wrote. "We're not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years." Krugman was far from being alone in predicting imminent doom for the euro in 2012. Billionaire investor George Soros told a conference in Italy in early June that Germany had a mere three-month window to avert European disaster. Then in July, Willem Buiter, chief economist at Citigroup and former Bank of England policymaker, raised the probability that Greece would leave the euro to 90 percent, even going so far as to provide a date on which it might occur. Buiter's D-Day -- January 1, 2013 -- falls next week. Half a year ago the chorus calling an end to the euro reached a crescendo. Among the chief doom-mongers were some of the world's leading economists and investors, many of them based in the United States. Fast forward six months and their prophesies look ill-judged, or premature at the least. The euro has rebounded against the U.S. dollar. The bond yields of stricken countries like Greece, Spain and Italy -- a market gauge of how risky these countries are -- have fallen back
Charities hit by austerity measures - FT.com: The woes of the global charity industry are deepening as donations – both smaller individual gifts and philanthropy – continue to contract as demand for the services of non-profit organisations keeps mounting. Charity officials and experts harbour little hope for a meaningful recovery in 2013. Individual donations – the single biggest source of revenue for most charities – have shrunk sharply in many western countries. Bigger gifts from philanthropists and endowments have also slumped after the financial crisis took its toll on their assets. The US Million Dollar List, which gathers information on donations of more than $1m, reveals that philanthropic giving in the US has contracted for five straight years, from a total of $43bn in 2007 to $11bn this year – the lowest since the list began in 2000. "It's still extremely tough for many non-profits," said Melissa Berman, president of Rockefeller Philanthropy Advisors. "It's hardest for grassroots charities close to hard-hit societies." The UK's Million Pound Donors Report, compiled by the University of Kent on behalf of Coutts, the private bank, estimates that the total value of charitable gifts worth £1m or more fell for a second year running in the 2010-11 period to £1.24bn, the lowest since at least 2006-07.