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What We Read Today 25 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.

  • U.S. Set To Export First Oil Since '70s (Christien Berthelsen and Lynn Cook, The Wall Street Journal) Crude oil exports from Texas Eagle Ford shale formation could begin as early as August. The activity has been approved sometime since the beginning of the year in a "private ruling" that has not been officially announced, according to the WSJ. Two companies applied for and received the approval, Pioneer Natural Resources Co. and Enterprise Products Partners LP. The WSJ speculates that other companies may now apply for export approval now that this action has become known.

  • As US oil output rises, the Middle East falls apart (Alan Kohler, Business Spectator) Kohler talks of U.S. energy self-sufficiency and a withdrawal of the U.S. from activity in the Middle East. What he doesn't consider is that energy self-sufficiency is very unlikely from increased domestic petroleum production, especially with the advent of crude exports by the U.S. The self-sufficiency will only come if alternative energy grows much faster than it has been. There is limited political will to pursue alternative energy development beyond whatever the private sector self-initiates and the energy sector will be pushing to capitalize on higher prices from exports which will raise energy prices in the U.S. This would seem to favor more rapid development of alternative energy but the "make a buck this quarter" incentive system will mitigate the attempts to move to new energy.
  • China expands plans for World Bank rival (Jamil Anderlini, Financial Times) China has increased to $100 billion the proposed capital for the Asian Infrastructure Investment Bank which is be a competitor for the World Bank and the Asian Development Bank. China feels the two existing institutions are too much dominated by the U.S. The new bank will fund infrastructure development in as many as 22 member nations, including a showcase direct rail link from Beijing to Baghdad (the B-to-B road, a new version of the ancient"silk road").

  • Will the two-child policy save China from its demographic destiny? (Peter Cai, China Spectator) China is modifying its one-child policy to allow some couples to have a second child. Cai says with further liberalization China might reverse its current demographic slide which has already seen the labor force start to decline and will see total population declining within a few years. But the response to the first relaxation of the policy has been far less than will be needed - Cai says the country may have slipped beyond the point of no return because the government action has been "too little, too late".

Today there are 17 articles discussed 'behind the wall'.

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Despite the failures in financial regulation evident during the 2007-2008 Global Financial Crisis and calls for improvement of relevant regulatory structures2, proponents of TISA aim to further deregulate global financial services markets. The draft Financial Services Annex sets rules which would assist the expansion of financial multi-nationals - mainly headquartered in New York, London, Paris and Frankfurt - into other nations by preventing regulatory barriers. The leaked draft also shows that the US is particularly keen on boosting cross-border data flow, which would allow uninhibited exchange of personal and financial data.

TISA negotiations are currently taking place outside of the General Agreement on Trade in Services (GATS) and the World Trade Organization (WTO) framework. However, the Agreement is being crafted to be compatible with GATS so that a critical mass of participants will be able to pressure remaining WTO members to sign on in the future. Conspicuously absent from the 50 countries covered by the negotiations are the BRICS countries of Brazil, Russia, India and China. The exclusive nature of TISA will weaken their position in future services negotiations.

The draft text comes from the April 2014 negotiation round - the sixth round since the first held in April 2013. The next round of negotiations will take place on 23-27 June in Geneva, Switzerland.

  • Memorandum on Leaked TISA Financial Services Text (Professor Jane Kelsey, Faculty of Law, University of Auckland, New Zealand, A thorough analysis of the leaked document (last previous article) by Prof. Kelsey which finds proposed a globalization of deregulation of financial institutions to make permanent and ubiquitous the conditions that produced the GFC (Great Financial Crisis) of 2008. Even more astounding she finds that this proposed agreement would institutionalize "unprecedented secrecy" which "reverses WTO trend of disclosure". Documents of adopted agreements will remain secret until five years after implementation! Similar complete lack of transparency surrounds the "super-secretive Trans-Pacific Partnership Agreement (TPPA)".

"We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation's financial markets. The sentries were not at their posts ...due to the widely accepted faith in the self-correcting nature of the markets and the ability of financial institutions to effectively police themselves.

This approach had opened up gaps in oversight of critical areas with trillions of dollars at risk....

In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor"
- (FCIC Report:xviii).

  • U.S. to face multibillion-dollar bill from climate change: report (Sharon Begley, Reuters) A report commissioned by a group that includes former New York City Mayor Michael Bloomberg, former Secretary of the Treasury Henry Paulson and environmentalist and financier Tom Steyer has attempted to estimate the cost of climate change over the next 25 years and beyond. The result is an analysis which, according to climatologist Michael Oppenheimer (Princeton University), "is the most detailed ever of the potential economic effects of climate change on the U.S.". The losses over the next 25 years could amount to tens of billions annually from such things as property losses to coastal storms ($35 billion), corn and wheat crop losses of tens of billions and higher electricity usage for cooling ($12 billion). In the more distant future the costs could soar to hundreds of billions annually. In addition the report estimates that $66 to $106 billion of coastal real estate will be lost by mid-century, with east and gulf Eastern Seaboard and Gulf of Mexico property losses reach to between $24 billion and $108 billion annually by 2100. Read the entire report Risky Business, A Climate Risk Assessment for the United States.

  • ExIm Irony (Paul Krugman, The New York Times) At the end of this short post Prof. Krugman acknowledges that he "was sloppy in my post about America as a lousy exporter". He acknowledges that the correlation between trade balance and savings and investment does not occur under current economic conditions. Put this in the department of confession to a lesser crime in an attempt to avoid a longer sentence (a plea bargain); he still uses the word "determined" rather than "correlated". See the next two articles for discussion of the more significant error of confusion of correlation with causation.
  • America As A Lousy Exporter (Paul Krugman, The New York Times) Prof. Krugman finds the strong productivity ranking and relatively low labor wages but a high trade deficit a puzzling situation As part of his discussion Krugman says:
"...the trade balance is a macroeconomic phenomenon, determined by the excess of savings over investment."
This story is perfectly plausible. But it's not the story told by the macroeconomic/mathematical relationship between excess saving and the trade balance referred to by Krugman and so many others. The reason? That relationship is a mathematical identity. It simply says that, mathematically speaking, the trade deficit will equal the savings shortfall. It does not say that the savings shortfall "determines" (i.e., causes) the deficit, or that the trade deficit causes the shortfall. It says nothing about causality at all.
  • World’s Best Stock Rally in Russia Fed by Putin Detente (Halia Pavliva, Bloomberg) As Putin pulls back from armed intervention in Ukraine the Russian stock market is off to the races. So far in June the RTS Index is up 9.7%, following a 12% rise in May. All told Russian stocks are up 34% since 14 March, but they still have not quite recovered to the levels seen at the end of December and are 5.8% below the high of 22 October 2013.



  • For Women in Midlife, Gains Slip Away (Dionne Searcy, The New York Times) A major problem for mid-career women is the need to care for aging parents with health issues. Another reason for women to be leaving the work force is the contraction of state and local government budgets. These entities employ a disproportionate number of women. Of course men have also been squeezed out of the labor force, and the percentage losses for men exceed women in all age groups except for the 35-44 yera old cohort.


  • The Fear Factor (Lincoln Caplan, The American Scholar) The fear referred to is that an aging population cannot be supported. The elderly fear living in poverty and the young fear not being able to pay to support the elderly while maintaining their own standard of living. The fact is that far fewer elderly live in poverty than do younger age groups. The fear seems to be overblown. Caplan explains why the problem may not be a severe in coming years as many have presumed. But be prepared to read a lot of superfluous stuff, the article is far longer than it needed to be.

Click on graphic for interactive version at Planet Money.

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