Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.
Asia stocks head for weekly loss, China yuan hits four-and-a-half-year low (Reuters) Asian shares were set for sizable weekly losses, with equities faltering again on Friday as plunging crude oil prices and a tumble in China's yuan to almost 4-1/2-year lows added to worries about receding global growth. A supply glut in oil markets and cooling growth in China, the world's biggest commodities consumer, have pressured many asset markets ahead of a widely expected hike to U.S. interest rates by the Federal Reserve next week. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS erased early modest gains and was down about 0.6%, facing a nearly 3% weekly loss.
Central Bankers Explore Response to Bitcoin: Their Own Digital Cash (The Wall Street Journal) The rise of bitcoin has central bankers around the world studying the possibility of issuing virtual money backed by the government itself. A shift in that direction could cut costs across the payment system and give authorities more control over their money supply. It also couldraise security and privacy concerns. To date, no central banks have embraced issuing digital versions of their fiat currencies. But the prospect is gaining steam as officials around the world begin to view a mostly digital payment system as inevitable. Econintersect: This would move in the direction that we (and many of our contributors) have suggested - the issuance of public money for public purpose while still leaving the existing banking system in place to serve private sector financing.
Democrats Attack a Pillar of Obamacare (Peter Orsag, Bloomberg) A push now under way in Congress to defer or repeal the so-called "Cadillac tax" is the biggest legislative threat the Affordable Care Act has faced in the past five years. And, weirdly, the lawmakers to blame are Democrats. The idea of taxing high benefit "Cadillac plans" provided by employers was to increase efficiency within the health care system. Orsag says:
The health legislation was built on three pillars: It was to expand insurance coverage to more Americans, have at least a neutral effect on the U.S. deficit, and contain health-care costs. These are mutually reinforcing; knock down one pillar and the others may tumble also. An effort to expand coverage without containing costs and improving value, for example, could overwhelm the health system and ultimately undermine the expansion. Lowering payments to health-care providers is less painful if those providers have more insured patients.
The Cadillac tax, which is to be imposed on high-cost employer-sponsored health insurance plans beginning in 2018, reinforces the ACA's second and third pillars. In 2025, it is expected to generate more than $20 billion in revenue -- or about 15 percent of the net budget cost of expanding coverage that year.
Hedge Funds Leave U.S. Pensions With Little to Show for the Fees (Bloomberg) Here's what U.S. state and city pension funds are getting this year for the hundreds of millions of dollars in fees they're forking over to hedge funds: almost nothing. The investment pools gained 0.4% through November, putting them on pace for the worst year since 2011, according to data compiled by Bloomberg. The industry's struggle was underscored over the past two months as BlackRock Inc., Fortress Investment Group and Bain Capital closed hedge funds after running up losses.
How to Break the Wall Street to Washington Merry-Go-Round (Foreign Policy) The revolving door between the big banks and the Federal Reserve isn't just unseemly - it's a time bomb. This article discusses how to fix it. The problem arises when the conflict of interest becomes so flagrant that public confidence in the institution - even government itself - is shaken. And after a historic financial crisis caused in great part by reckless banking, it's not difficult to see why the average taxpayer might be a bit put off. The author (Pedro Nicolai da Costa) suggests a simple fix would be to simply impose a three-year waiting period between any financial sector position and any regulatory or supervisory role in government.
4 of the Most Outrageous Drug Price Increases in 2015 (Money Morning) A Kaiser Health Tracking Poll released in August revealed that 72% of Americans feel that drug costs are unreasonable. Seventy-four percent suspect drug companies put profits before people. These sentiments are understandable given the average cost of a brand-name cancer drug in the United States is around $10,000 a month - double the level from a decade ago, according to data firm IMS Health. What's behind the dramatic drug price increases in 2015? More often than not, "pharmaceutical price gouging" is the chief culprit behind high drug prices. This article gives four seemingly outrageous price increases. Econintersect's managing editor is familiar with one of the four, doxycycline of which he had a number of 30-day courses over the years for treatment of Lyme disease. For more details see the next two articles.
Be Wary of Stratospheric Increases in Generic Drug Prices (The People's Pharmacy) In this article the price change for doxycycline is given as an increase from $.06 per pill to $3.65. Econintersect cannot rationalize the difference between the prices in this article and those in the preceding one. - but it is possible that over a number of years doxycycline could have increased in price by as much as 14 million percent (140,000 times). If the dose were smaller for th pill in this article (say 10 mg vs 100 mg in the preceding article) then the increase could be "only" 1,4000,000% (14,000 times). Econintersect: Although there may be varying reasons for hige price increases, by far the most common is consolidation among drug producers reducing competition.
Surprise! Generic-Drug Prices Spike (Bloomberg) This article contains an astoundingly rdiculous quote from the Hikma Pharmaceuticals CEO who said they were "forced" to make a huge price increase because its competitors raised theirs. Econintersect: WTF?
Europe and the Great Recession: is it a crisis wasted?(The Conversation) The response in Europe to the Great Recession was largely one of increased government borrowing, offset by packages of tax rises and spending cuts. The approaches in France, Germany, Ireland, Italy, Spain and the United Kingdom have been in some ways similar, but important differences in the balance of taxes and cuts, in the areas targeted and in the types of households affected have allowed us to draw some clear conclusions about the impact of the Great Recession. Econintersect: The authors seem to miss the point that austerity is simply the wrong prescription for the situation. They waffle through with this:
Where there is a need for further spending cuts and/or tax rises, these could be an opportunity for countries to make reforms that improve the efficiency of tax and benefit systems. However, the lesson from the reforms made so far is that we perhaps ought not to be too optimistic. We may have to settle for reforms that do not add to existing deficiencies.
China's Fiscal Squeeze Challenges Xi Goal as Slowdown Grinds On (Bloomberg) China's pared-back minimum growth rate may still be too high according to a sizable minority of economists who cite the limitations of traditional policy tools. Monetary easing, featuring six interest-rate cuts since late last year, has done little to spur an economy at risk of undershooting the 2015 growth target of 7%. The slowdown itself has made fiscal stimulus more difficult, through squeezing tax revenue and income from land sales by the local authorities who have long counted on them for spending money. Land sales have plummeted 32.2% in the first 10 months of this year. It is estimated that China will be touch-and-go for meeting this year's GDP growth target of 7% and will fall short of the 6.5% targeted for 2016.
Let's Just Hope Shipping Isn't Telling the Real Story of China (Bloomberg) For the first time in at least a decade, combined seaborne imports of iron ore and coal -- commodities that helped fuel a manufacturing boom in the world's second-largest economy -- are down from a year earlier. While demand next year may be a little better, slower-than-anticipated growth in 2015 has led to almost perpetual disappointment for shippers, after analysts' predictions at the end of 2014 for a rebound proved wrong. Econintersect: The falling Baltic Dry Index has indicated an surplus in shipping capacity. And that has occurred as China's bulk dry shipping has increased. There will be an even greater excess capacity if China continues to experience manufacturing contraction.
Australia's unemployment rate decines (MarketWatch) In spite of a sharp slowdown in mining, Australia's unemployment rate declined in November, contrary to market expectations, as the economy produced 71,400 new jobs mostly in New South Wales state. Economists had expected the number of people in work to fall by 10,000 from the previous month. The unemployment rate fell to 5.8% in November from 5.9% in October--compared with a consensus estimate of a rise to 6.0%. New South Wales added 50,300 jobs, signaling a surge in employment in parts of the economy not related to mining.
5,000 Cuban migrants stranded in Costa Rica (CNN) About 5,000 Cuban migrants have been stranded in Central America for the last month as they attempt to reach the U.S. because two countries, Nicaragua and Guatemala, have refused to give them free transit through their territory. Most of the Cuban migrants now stranded in Costa Rica started their journey in Ecuador, a country that does not require visas for Cubans. From Ecuador the migrants traveled north by land through Colombia, Panama and Costa Rica.
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