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What We Read Today 18 March 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.

  • China Developer With $567 Million Debt Said to Collapse (Andreea Papuc, Bloomberg) Hat tip to Izabella Kaminska. Another bad debt shoe drops, this time in real estate development. Observers suggest this could trigger the start of a sharp real estate market correction in China.

  • Obamacare enrollment hits 5 million (Sandhya Somashekhar, The Washington Post) The CBO (Congressional Budget Office) estimate of 6 million enrollees by the end of March seems within reach but not the original administration objective of 7 million.
  • China and Its Currency Grow Up (Jim O'Neill, Bloomberg) The former Goldman Sachs chief economist points out that the shrinking current account surplus is due much more to increasing imports than to falling exports.

Today there are 14 articles discussed 'behind the wall'.

Econintersect poses the following question: If 68 million wage earners disappear from the consumer population and we use the current 2:1 ratio consumers:workers, the implication would be that the aggregate demand effect would be the same as if there were about 130 million fewer consumers at that future time. Obviously some combination of new jobs for humans and income for not working is needed to replace the 68 million jobs lost. Or the future U.S. economy will be a fraction of what it is today.

Click on image for full graphic at Bloomberg.com.
jobs-machines-cant-replace-aki-ito-bloomberg-2014-mar-12-380x140

  • China Takes Over the World (Ying Ma, rthk.hk) Barry Eichengreen, University of California, Berkeley (has contributed to Global Economic Intersection), and Ronald McKinnon, Stanford University, debate the merits and timing of the internationalization of the Chinese currency. Title link goes to an audio file.
  • The Five-Year Fantasy Is Ending (Charles Hugh Smith, Of Two Minds) Charles Hugh Smith contributes to Global Economic Intersection. Charles argues that the policies of the last five years have been based on an unsustainable expansion of credit without any systemic reforms to reign in the soaring costs of education an health care. One of the graphs in the article shows how well the corporate world is doing. Econintersect observes an exponential growth in corporate profits which might indicate a bubble. Exponential increases are unsustainable and often end poorly. In this graph the growth from 1986-2002 is 3x (average 9% per year compounded) and from 2002-2013 is 4x (average 16% per year compounded).

corporate-profits-1947-2013

newspapers-magazines-men-women-writers-justin-Wolters

Fed-Treasury-holdings-drop-bi-2014-mar-17

browser-use-US-NJ-2014-mar-17

  • The Piles of Cash That Never Existed (Ben Casselman, FiveThirtyEight) The idea that U.S. companies are sitting on piles of cash turns out to be an 'urban myth'. Casselman reports that Fed audits revealed that 25% of that cash didn't actually exist almost two years ago. And, in spite of years of record earnings the 'stash of cash' apparently has not grown since.
It is no longer enough to think of a "recovery" from finance-led growth. We need to discover potential futures for the UK economy. Thinking this way means exploring the wider social crisis of growing inequality and falling standards of living as well as new ways out of long-term predicaments such as the ecological limits to growth.

  • Low employee turnover is a bad sign for the economy (Catherine Rampell, The Washington Post) When "churn" of people changing jobs gets smaller it is a bad sign for the economy, says Rampell. The following graph from GEI Analysis shows that this "churn" was this low recently as recently as q1 2013. So it may be a concern but it is clearly not highly predictive of an imminent recession.


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