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What We Read Today 11 January 2014.

Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number accepted.

  • China overtakes US as world’s largest goods trader (Jamil Anderlini and Lucy Hornby, Financial Times) Some historians say that China was the leading global trader previously, from 1644-1912 (end of the Qing dynasty), a total of 268 years, according to the Financial Times. If that is true then China returns to the top spot after 100 years of being held back as a result of internal revolutionary conflicts, war with Japan and post World War II communist missteps.
  • Regulators to ease bank rule to help economic recovery (Huw Jones, Reuters) Hat tip to Roger Erickson. The Basel III bank regulatory standards will be eased to allow netting of short-term derivatives positions. This means if a Bank has a potential liability of $3.50 trillion toward several institutions and an asset position of $3.49 trillion for the same set of derivative instruments, then the only exposure shown on the books will be $10 billion. This type of accounting does not sufficiently recognize counter-party risks. If just $100 billion of counter-party coverage disappears (example is a bank like Lehman with relatively small derivative exposure) the bank suddenly has 10x the balnce sheet exposure that the accounting rule had recognized. This is the way avalanche cascades of balance sheet failures can bring down the global financial system.

Let's all party like it's 2008!

Click on image for infographic at the Washington Post.
healthcare.gov-infographic-wapo-2013-oct-24

health-care-costs-2005-2013-trend-600px

A longer time-frame makes it clear that the long-term trend in healthcare cost growth has been down, with shorter intervals of regression upwards. This decline in general follows the trend of long-term moderation of overall inflation, but is steeper (not shown on graph). The two graphs we have shown here make it clear that both Furman and Colburn are blowing political smoke ('where the sun don't shine').

healthcare-percent-change-from-year-ago-1980-2013-annotated

Even the Kaiser Foundation study cited by Colburn is guilty of taking a few economic cycles and projecting a generalization of those correlations to projecting a general condition. The Kaiser generalizations that inflation and GDP growth (both by fairly complicated relationships) are "highly predictive of the growth in health spending in any given year" is at best a hypothesis and not a proof. The data set is simply too small and the complex data arrangements used are too indirect for establishing an economic law.

mbs-issued-by-bank-nyt-2014-jan-10

soros-1

and

soros-2

  • Why FDR Did Not End the Great Depression – and Why Obama Won’t End This One (Alan Nasser, Counterpunch) Neither the Great Depression president nor the Great Recession one have followed the Keynes prescriptions for public investment. Prof. Nasser discusses the secular stagnation postulate of Larry Summers and suggests that the hand wringing over that condition derives in part from the neoclassical theory that the "free economy naturally tends toward full-employment equilibrium".

Nasser points out that a forgotten (by many) claim by Keynes that a steady state can be achieved at any level of unemployment. He discusses the example of 30% unemployment. Once that condition is acknowledged then the cure for secular stagnation is clear: there must be a demand stimulus. (A supply stimulus won't work because it would fall on empty demand.)

The author doesn't use the term "employer of last resort" but that is essentially what he proposes, along with the government as the "investor of last resort" - again an Econintersect supplied term.

If an unsatisfactory equilibrium is established then Nasser maintains the government must provide the shock to move away from the "secular stagnation" point in the desired direction (toward increased employment).

eu-gdp-3q-eurostat-2014-jan-10

Even the dumbest banker can get around the Volcker rule. The regulators started with a weak statute, and managed to make it weaker. It's as though they want to avoid offending the banks.

It took years of work and thousands of pages of banker whinges to achieve this dubious result in the final implementing regulations.


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