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What We Read Today 08 April 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.

  • Deadbeat Chinese shipyards stick banks with default bill (Shanghai Newsroom, Fayen Wong, and Keith Wallis, Reuters) Refund guarantees for late delivery by Chinese shipbuilders may end up being paid by banks. The potential bill is uncertain but could easily be several billion dollars.

  • Gold Stuck At $1300 (Barry Norman, FX Empire) Gold settled back Monday after the big gain on Friday. Tuesday morning in Asia gold was struggling to stay above $1,300. Barry Norman reviews the factors at play.
  • My Generation (Ajay Shah, Economic Times) Ajay Shah, a Global Economic Intersection contributor, had a recent column which describes the promising human capital of India. Ajay's point that it is not specifically the young demographic of the subcontinent but the emerging quality of the educated Indian than will drive the economy in the 21st century. He sites the rapidly improving communications skills of the populace and the establishment of professional women among the revolutionary changes taking place. He specifically mentions computer programming as a field which will see great progress for India. But Ajay's point is not that progress will be accomplished by numbers; rather emergence of top quality will be the important factor. His concluding statement is that "there is much more to human capital than headcount".
  • Russian riposte (Vladimir Radyuhin, Frontline - India) Russia is sending a clear message to the U.S. and its Western allies that the unipolar world order is not viable anymore and the rules of engagement have to be changed. This article analyzes the current situation in the context of a centuries old western policy of containment for Russia.
  • Charles Koch Fights Back (Larry Kudlow, Money News) Hat tip to John O'Donnell. An impassioned plea for free markets with no government involvement.

Today there are 12 articles discussed 'behind the wall'.

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  • 1215095 Ė The Flash Boys Mystery Solved (Sal L. Arnik and Joseph Saluzzi, Themis Trading) Hat tips to John O'Donnell and David Stockman (Contra Corner). Michael Lewis poses a puzzle at the end of his new book Flash Boys: A Wall Street Revolt. Arnik and Saluzzi explain the answer, along with making a number of conflict of interest accusations against some of those who have criticized the book. This article adds a lot of "aroma" to the stew simmering over the Lewis book.
  • Hidden Tigers in China (John Mauldin, Thoughts from the Frontline) China has accelerating corporate debt and decelerating growth. China has been keeping global growth above a dismal level and the recent trends are clearly unsustainable. China now leads the world in corporate debt.

corporate-debt-global-thoughts-frontline-2014-apr-05

  • Bill bumping ACA to 40-hour work week passes House (Melissa A. Winn, Employee Benefit News) Would allow employees working 39 hours a week to be excluded from the count determining the number of employees counting toward the 50 that would require employer to provide health care coverage under Obamacare.
By changing the base-year in GDP calculations from 1990 to 2010, Nigeria increased the reported size of its economy by 89% over the weekend.

Click on graph for larger image.
eps-growth

  • More employers embracing ACA provisions in health plan designs (Melissa A. Winn, Employee Benefit News) Employee group plans are being designed to make benefits compatible with ACA requirements. This make conversion from group plans HIXs (health insurance exchanges) much easier for employees should employers go that direction, which is logical as the trend of transferring more health care costs to the employees continues.
  • A sudden conversion of property bubble doubts (Steve Keen, Business Spectator) Steve Keen contributes to Global Economic Intersection. Steve has been predicting collapse of an Australian housing bubble for several years (see GEI Analysis) and has been criticized because none has transpired. This article was written when one of those critics (Chris Joye) had a change in outlook and suggested house prices down under could fall by 8% to 17% if mortgage rates rise to 7-8%. Today rates are close to 5%. Joye is basing his projections of house price to disposable income ratios. Keen bases his projections on the rate of acceleration of mortgage debt which he says has a correlation to house price change of 0.68 since 2000. Right now Keen is projecting an increase in house prices in 2014, so he and Joye are still in disagreement, each now found on the opposite side of the fence from previous times.

keen-housing-mortgage-2014-apr-08

  • Now you see them (The Economist) The process of QE (quantitative easing) may not be monetization of debt precisely but it certainly is the same vaguely. (Econintersect selected words emphasized, interpreting the intent of The Economist.) Many have been asking how the Fed (and other central banks) will be able to unwind expanded balance sheets. The Economist suggests they may never have to figure that out. QE , or at least the central bank balance sheet results, may be permanent and further QE possible continued as a means of creating more money. Econintersect suggests that the key determinant here will be the extent of austerity on the fiscal side. If government expenditures are insufficient to provide enough money (deficit spending) to support the economy, then the central bank will try to compensate on the monetary side. Econintersect suggests (and The Economist seems to agree) that monetary expansion has a net effect of increasing wealth inequality because QE creates a concentration of growth in increased asset values. And who owns most of the assets?
  • GDP etc. in a deep funk (Doug Henwood, LBO News from Doug Henwood) Hat tip to Dan Kervick. When you measure things relative to their long-term (1970-2007) averages the depth of the Great Recession (and its continuation) are evident.

GDP-vs-trend-doug-henwood-2014-mar-31


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