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posted on 16 December 2015

Early Headlines: Asia Stocks Surge, US Spending Deal, Junk Muni Bonds Popular, Great Greek Bank Robbery, Illegal Iran Missile Test, Record Sydney Tornado And More

Written by Econintersect

Early Bird Headlines 16 December 2015

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.

early-bird-301-180

Global

  • Asia surges as Wall Street gains lifts sentiment before Fed decision (Reuters) Asian stocks rose briskly on Wednesday, with sentiment lifting as Wall Street rose before a likely hike in U.S. interest rates, while the dollar held to large gains made as Treasury yields picked up. Spreadbetters saw the upbeat momentum in equities being retained in Europe and forecast a higher open for Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 2%. Shanghai stocks .SSEC edged up 0.8% and Australian shares rallied 2.2%. Crude oil prices bouncing from multi-year lows buoyed energy-related shares. Japan's Nikkei .N225 surged 2.5%, rebounding from a two-month low struck the previous day as risk sentiment has blown hot and cold ahead of one of the most-anticipated market events this year.

  • The Evolution of Work (Dani Rodrik, Project Syndicate) DR has contributed to GEI. The developing countries are likely to follow the advanced economies into a surplus of unused labor. This is both good and bad news for the future of work in developing countries. Thanks to social policy and labor rights, workers can become full stakeholders in the economy much earlier in the process of development. At the same time, the traditional engine of economic development - industrialization - is likely to operate at much lower capacity. The resulting combination of high public expectations and low income-producing capacity will be a major challenge for developing economies everywhere.

  • Why rising interest rates are bad news for emerging markets (The Conversation) More than US$12 trillion has been injected into the global financial system since 2008 all in the name of stabilizing the global economy. The injection of hot money at this pace and quantity is nothing more than a false economy, and could sooner rather than later trigger massive economic challenges in emerging economies. Investors have been able to borrow significant sums for very little and direct the proceeds into high-yielding assets in developing countries. A fire hose of cash has poured into investments, financing infrastructure and other projects. But the massive surge in the supply of cheap credit has created unstable bubbles. Rising rates will deflate these bubbles. The size of the bubbles is evident in the graph below:

debt.emerging.markets.2007.2015

U.S.

EU

  • Schengen and European Security (Daniel Gros, Project Syndicate) DG has contributed to GEI. The shift away from a "Europe without borders," instigated by images of refugees walking across internal frontiers, was fortified by the news that most of those who carried out last month's Paris attacks came from Belgium, and that some may have entered the EU via the Balkans, posing as refugees. The underlying assumption - reinforced by many European politicians, especially interior ministers - is that there is a tradeoff between security and openness. This is far from accurate.

UK

  • Bank of England warns EU bonus cap has increased risk of instability in the financial sector (City A.M.) The EU bonus cap has increased the risk of instability in the financial sector, Bank of England researchers said yesterday. Chancellor George Osborne is being urged to press the EU on removing rules capping bankers' bonuses after the Bank called the policy "counterproductive". The Bank said that the cap, which restricts bonuses to 100 per cent of fixed pay, cuts the link between performance and pay. It also restricts the banks' room for maneuverer when times are tough. Econintersect: These arguments ignore the obvious incentive of the cap to encourage behavior aimed at long-term growth and stability because the opportunity to try for a one-year "killing" has been removed. Bank of England researchers have little credibility here and very possibly serious conflicts of interest in view of the revolving door between the banks and the central bank.

Greece

  • The Great Greek Bank Robbery (Yanis Varoufakis, Project Syndicate) YV has contributed to GEI. Since 2008, bank bailouts have entailed a significant transfer of private losses to taxpayers in Europe and the United States. The latest Greek bank bailout constitutes a cautionary tale about how politics - in this case, Europe's - is geared toward maximizing public losses for questionable private benefits. In 2012, the insolvent Greek state borrowed €41 billion ($45 billion, or 22% of Greece's shrinking national income) from European taxpayers to recapitalize the country's insolvent commercial banks. For an economy in the clutches of unsustainable debt, and the associated debt-deflation spiral, the new loan and the stringent austerity on which it was conditioned were a ball and chain. At least, Greeks were promised, this bailout would secure the country's banks once and for all. And what do you think happened? Why not make a guess.

Iraq

  • Sunnis fear revenge attacks in Iraqi town brutalized by IS (Associated Press) The Islamic State militants who stormed into the Iraqi town of Sinjar last year, massacring members of the Yazidi minority and forcing women into sexual slavery, are gone. But Sunni Muslims who lived alongside the Yazidis there for generations say their own nightmare is far from over. After Kurdish forces and Yazidi militants backed by U.S.-led airstrikes drove the extremist group from the town last month, there were widespread reports of vandalism and the looting of Muslim homes. Many Sunni Muslim residents have yet to return, saying they fear revenge attacks.

Iran

  • Iran's October missile test violated U.N. ban - expert panel (Reuters) Iran violated a U.N. Security Council resolution in October by test-firing a missile capable of delivering a nuclear warhead, a team of sanctions monitors said, leading to calls in the U.S. Congress on Tuesday for more sanctions on Tehran. The White House said it would not rule out additional steps against Iran over the test of the medium-range Emad rocket.

Australia

  • Tornado rips roofs off homes as record winds lash Sydney (BBC News) A tornado has ripped through Sydney, with one weather station recording the fastest ever wind speeds in the state of New South Wales. Destructive winds of 213km/h (132 mph) hit Kurnell, on the southern headland of Botany Bay, Wednesday morning.

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