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What We Read Today 09 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.

Asian shares gain as China data, U.S. markets support (Investing.com) Strong economic news from China (exports jump) and Japan (GDP surges) supported Asian stocks Monday, but most markets gained less than 1%. European markets are also trading up as this is being published.

Copper Takes A Hit As Chinese Port Scandal Expands (Barry Norman, FX Empire) investigations are underway to determine if firms using copper as collateral for loans double counted batches. Copper has fallen by 5% with this scandal aided in its sell-off by the latest trade data which shows China imports declining. See GEI News for trade data details.

Doom & Gloom Sells (EconMatters) EconMatters contributes to GEI. This is a good discourse on how visions of looming disaster do not seem to abate when economic news improves. Yes, doom and gloom does sell in the media but it can "sell" your portfolio "down the river". Don't wear rose colored glasses but also don't put blinders on.

Can Central Planners Revive China’s Economic Miracle? (John Mauldin, Thoughts from the Frontline) John Mauldin has contributed to GEI. This contains an extended embedded article by Worth Wray, which is a thorough review of Chin's over-extended economy. There are many excellent graphics, a few reproduced below, showing over-capacity. (Annotations added by Econintersect.) See also China's Minsky Moment? (John Mauldin, Thoughts from the Frontline). Click on images below for larger view.

china-ineff-invest-mauldin-worth-wray-ANNOTATED-2014-jun-08-600x300

china-slowdown-mauldin-worth-wray-2014-jun-08-600x300


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

Six articles discuss personal income and debt data.

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  • Financial Storm Chasing With Blinders On: How The Fed Is Driving The Next Bust (David Stockman, Contra Corner) Total household debt is down from the pre-crisis peak but still way above historically comparable levels. The graph below would look more alarming if adjusted for total population or for population sub-groups such as age 25-54 or other adult working age population selection. This "over-indebtedness" is especially alarming now that consumer credit has entered a new expansionary period (GEI Analysis). We have annotated Stockman's graph for historical reference (bubbles named for the presidential terms in which the bubbles were rising). Note that the first two bubbles were "deflated" back to the trend line and the two most recent were not. The situation has some complexity, however - See the next two articles.

household-leverage-stockman-2014-may-26-annotated-600x360

Click on graph for larger image w/o annotation at Calculated Risk.
Household-DSR-Q3-2013-annotated-600x450

consumer-credit-expenditure-disposable-pers-income

  • Americans warming up to credit cards again (Walter Kurtz, Sober Look) US consumer credit outstanding spiked way above expectations. While the media focused on the jobs report, this was the key news item. Unlike in previous Fed reports that showed consumer credit growth driven by student loans and to a lesser extent auto finance, we saw something new this time around. The increase was caused by a jump in revolving credit. Americans are warming up to using plastic again. See GEI Analysis for additional details.

consumer-credit-2014-apr

revolving-credit-2014-apr

  • Where is the wage growth? (James Pethokoukis, American Enterprise Institute) Wage growth has been weak as pointed out in this article. But the article is too brief to be of much use. The author stops before telling you that wage growth has been keeping even with inflation in recent years so that there is actually zero real wage growth. This is actually better than some periods were inflation outstripped wage growth so real wage growth was negative, such as during the years around 1980.

hourly-wage-growth-nominal

  • Why the Euro Is Stronger After ECB Went Negative (Michael J. Casey, The Wall Street Journal) Casey says the euro strengthened because the negative interest rate move is of inconsequential magnitude in relation to what the Fed and the Bank of Japan are doing with bond buying.
  • US consumer and domestic stimulus reducing risks to China's economy (Walter Kurtz, Sober Look) American consumers are helping to pull China out of its economic malaise. The recent credit card driven spending surge in the U.S. discussed in articles above) sent China's trade surplus to new highs. The trade balance clocked at almost $36 billion (vs. $23 billion expected).

china-trade-balance-sober-2014-jun-08

  • Social Security: Then, Now and the Future (Mike Patton, ThinkAdvisor) This is a comprehensive and very readable in-depth review of the social security system as it relates to benefits. The following is one of several good graphics.

social-security-benefits-vs-income

  • Geithner's Dubious Accounting (James Greiff, Bloomberg View) Greiff points out that Geithner's reported $51.8 billion gain for the government from the financial crisis bailout ignores trillions of dollars of losses by the economy. But even worse for Geithner's credibility, Greiff points out that the administration's own reports say that accounting cost (not gain) is expected to be $47.5 billion. An example of bigger loss Greiff gives is the loss of interest income to savers which he estimates thus far to be $825 billion.

interest-income-lost

  • Private Jobs Have Recovered. Government Jobs Still Lag. (David Leonhardt, The New York Times) This is the first recession in recorded history that has seen government jobs cut for a period of three years and hardly grown in the first year following those three. In all previous recessions government jobs were maintained and almost always grew during recessions. It is argued that this has helped support the economy during slowdowns. Supply-side theorists argue that it does nothing to help the economy, often including in the argument that "government employees don't produce anything". Whichever side of the argument you are on, the graph gives the facts.

employment-public-private-NYT-Leonhardt-2014-june-06


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