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What We Read Today 27 February 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 included.

Inflation targeting is the new gold standard (Ajay Shah, Economic Times) Ajay Shah contributes to Global Economic Intersection.

"There is no game in town other than gold, dollar and the CPI basket. We have to choose one. Inflation targeting anchors the Indian rupee to the price of the CPI basket."

  • Milton Friedman’s 1948 Functional Finance Proposal (L. Randall Wray, Credit Writedowns) Friedman's proposal derives from the work of Irving Fisher in the 1930s which essentially made the creation of money a government function by means of requiring 100% reserve banking. The Irving proposal was also a project of Henry Simons at the University of Chicago and their work is often referred to as the Chicago Plan. The system that was proposed was essentially to move the creation of money from mostly private bank credit to direct creation by the government, or what some have called debt-free money. See GEI Opinion, GEI News and GEI Analysis.

There are 13 articles discussed behind the wall today.

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  • Republican tax plan aims at biggest banks (James Politi and Gina Chon, Financial Times) U.S. Rep. David Camp (R, MI) plans to introduce legislation that would lower the top rates for individuals and corporations to 25% and maintain revenue neutrality by instituting a new tax on banks. The details are not announced yet but it is believed that an annual levy of 3.5 basis points (0.035%) on total assets for banks over $500 billion in assets is what will be in the bill. That would be $350 million for a bank with $1 trillion in assets, hardly more than chump change. The banks that would be affected are Citigroup, JP Morgan Chase, Wells Fargo, Goldman Sachs, Bank of America and Morgan Stanley. See also Bloomberg article.

  • OFFSHORE TAX EVASION: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts (Carl Levin and John McCain, U.S. Senate Permanent Subcommittee on Investigations) The investigation found that, as of 2006, there were 22,000 U.S. accounts in Credit Suisse accounts in Switzerland totaling 12 billion Swiss francs ($13.6 billion). Swiss government restriction have protected all but about 230 of them from disclosure of their names to the U.S. government. The investigation has determined that the bank recruited U.S. business and provided assistance in hiding the accounts. The report also charges that there has been lax enforcement by the U.S. Dept of Justice.

  • Actual capital expenditures fall sharply (Unconventional Economist, Macro Business) Mining, which had been surging for seven years, has joined the other areas of Aussie business in Capex investment decline 2012 and 2013.


  • "What me worry," says Chinese official (Phil Flynn, Futures Magazine) A potpourri article with a small portin addressing the headline: The Chinese government State Administration of Foreign Exchange, part of the PBoC (People's Bank of China), says the recent decline of the renminbi vs. the U.S. dollar is nothing to worry about, simply "the result of market players adjusting their near-term renminbi trading strategies".

More of the article discusses the bearish pressures on oil as U.S. weather moderates, but also faces bullish pressures as China's imports of crude and petroleum products are expected to increase in 2014, up perhaps 7% from last year.

Gold is discussed and bullish signs indicate to the author that gold could push back to 2011 highs before the end of 2014.


Theoretical economics of the neoclassical variety thus appears quite oddly to combine sociological problems with relatively sociology-free solutions. It appears to be immune to the intrusion of sociological and social-psychological knowledge. How can sense be made of this?

In everyday situations, if, in answer to an inquiry about the weather forecast, one is told that the weather will remain the same as long as it does not change, then one does not normally go away with the impression of having been particularly well informed, although it cannot be denied that the answer refers to an interesting aspect of reality, and, beyond that, it is undoubtedly true.

If one tries to gain an impartial overview of the development of economic thought, then, under certain circumstances, one may be impressed by the great number of errors and misunderstandings to which even the most famous and penetrating thinkers succumb.

And a treasure for all time (about the law of demand and ceteris paribus):

If such and such conditions remain the same, then the demand function has such and such a general character.

Have you heard a more elegant statement of 'garbage in and garbage out'? Elaborating further on the absurdity of ceteris paribus (all else being equal) and the law of demand:

... the law of demand under question is fully immunized to facts, because every case which initially appears contrary must, in the final analysis, be shown to be compatible with this law. The clause here produces something of an absolute alibi, since, for every apparently deviating behavior, some altered factors can be made responsible.21 This makes the statement untestable, and its informational content decreases to zero. (Emphasis added.)


  • Bank of America disputes $2.1 billion claim in U.S. fraud suit (Jessica Dye, Reuters) Lawyers for Bank of America claim in a new court filing that a jury award of $2.1 billion for mortgage fraud "contradicts every pertinent legal principle" and a "dramatic departure from reality". The bank claims that the extent of its liability should be no more than its profits from the transactions, which it claims were zero. Econintersect has the opinion that the amounts of BofA's profits have nothing to do with damages awarded. The losses that occurred because of fraud are the basis for compensatory awards. A crook is not innocent of robbery if he fails to get anything in the attempt. Perhaps stupid, but not innocent.

  • Options for Europe – Part 35 (Bill Mitchell, billy blog) Hat tip to Roger Erickson. Good history lesson about the origins of the EU focused on 1989-90, with links to other parts of the story. Mitchell has a book coming out in a few months tentatively titled "Options for Europe".
  • Bitcoin virtual currency is on verge of collapse ( Chris O'Brien and Andrew Tangel, Los Angeles Times) The insolvency of the Mt. Gox Bitcoin exchange after purported cyber theft of assets from that major exchange is leading many Bitcoin stalwarts to exit their holdings. Up to $300 million may have been lost with the shutdown of Mt. Gox. After selling down to $400 intraday Monday (24 February 2014) bitcoin has returned to around the $600 level, as shown on this chart from bitcoin charts:

Click on chart for larger and updated chart at

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