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What We Read Today 04 June 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.

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  • Why banking crises happen in America but not in Canada (John Kay, Financial Times) Kay discusses the analysis of Charles Calomoris and Stephen Haber (in their book Fragile by Design). The robustness of a financial system is related to "the product of culture, history and the political system", is Kay's synopsis of the message from the book. And Canada's mortgage market and financial system display an "enviable dullness". How does this compare to the U.S.'s vibrant and exciting financial system. From Kay's disparaging remarks about Tim Geithner's recent book you get the feeling you will not find the answer there. Kay says this was an "obvious question which Mr. Geithner has not thought to ask".

Today there are 11 articles discussed 'behind the wall'.

The final four articles discuss the disappearing growth in number of U.S. households.

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  • Why the Housing Market Recovery Is Over (Keith Jurow, Advisor Perspectives Keith Jurow contributes to GEI. Reasons the housing market is in trouble include an anemic trade-up market, investors now priced out of the market, large year-over-year decline in sales for many metros, large increases in inventories for some metros, and millions of 10-year HELOCs (home equity lines of credit) maturing and converting to much higher monthly payment amortizing mortgages over the next five years. The HELOC problem has been discussed 'behind the wall', most recently yesterday (03 June). (Note: This article will be reposted by GEI Analysis within a few days.) Jurow looks at data for several local and regional markets, some west coast data shown below. See also article on new home sales by Craig Eyerman further down below.


  • A Reflection on Capital in the21st Century (Philip Aresyis and Malcolm Sawyer, Triple Crisis) Hat tip to Yves Smith, Naked Capitalism. The authors maintain that Piketty's r>g condition is unsustainable because it can only occur under conditions of deflation and rising unemployment. If chronic, such conditions will be curtailed by social change (read that as revolution). The authors also criticize the use of a single value for r rather than considering the composition of the components averaged. They say that implications for distribution can be important. Finally they criticize the failure to analyze the details of savings and investment. This would relate to the Econintersect concern discussed previously that "all wealth is not created equally". If increased wealth is "applied" in "economically productive" ways then is wealth inequality really a problem? But if it is is stored in the form of "golden bathtubs" while many people are repressed in poverty can it be tolerated? These are the important questions raised by Piketty's work and Econintersect suggests they are not being adequately addressed in the academic debate. See also GEI News.
  • Whatís Stopping Robust Recovery? (Michael Spence, Project Syndicate) Hat tip to Roger Erickson. Spence says that for the U.S. the problem is public sector investment is low, even less than "growth-sustaining levels".

One reason the US recovery is only partial is fiscal drag, a lingering effect of the post-2008 downturn, which shifted some leverage to the public sector, resulting in a growing debt burden that has been addressed - controversially so - by immediate austerity.
  • The Bigger Picture for U.S. Real Estate (Craig Eyerman, Political Calculations) Hat tip to Doug Short, Advisor Perspectives. Eyerman has pretty convincing evidence of a new housing bubble in new home construction. See also the first article 'behind the wall' (above) by Keith Jurow on existing home sales data.


  • As renewables boom, need for energy storage is more urgent (Catalina Spataru, The Conversation) Intermittancy of wind and sunlight limit the penetration of those technologies without efficient and economical energy storage technology. Some highlight this as a negative but it is actually a once-in-a-generation opportunity. The author thinks governments need to lead and coordinate this effort.
  • Why We Still Canít Afford to Fix Americaís Broken Infrastructure (Andrew Flowers, FiveThirtyEight) State and local governments are deeply indebted and can't raise money. The federal government refuses to print any for them. So public sector construction stagnates just above 1.5% of GDP, a level not seen since 1993, right after the end of the 1991 recession.


  • Democrats Have a Problem With Science, Too (Tara Haelle, Politico) Haelle gives GMO beliefs as an example of science-deficient democratic positions. Earlier this month the strongly democratic state of Vermont passed a GMO labeling law, the first in the country to do so. No one has published any research that determined any harm can come from consuming GMO foods, according to Haelle.


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