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What We Read Today 07 July 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.

  • France hits out at dollar dominance in international transactions (Michael Slothard, Financial Times) French government officials and industry leaders are calling for a "rebalancing" of the international payments system away from use of the dollar. This is in response to the nearly $9 billion penalty levied by the U.S. against BNP Paribus for money laundering to circumvent international sanctions. The protests center on the fact that BNP Paribus broke no European laws.

The surveillance files highlight a policy dilemma that has been aired only abstractly in public. There are discoveries of considerable intelligence value in the intercepted messages - and collateral harm to privacy on a scale that the Obama administration has not been willing to address.

Among the most valuable contents - which The Post will not describe in detail, to avoid interfering with ongoing operations - are fresh revelations about a secret overseas nuclear project, double-dealing by an ostensible ally, a military calamity that befell an unfriendly power, and the identities of aggressive intruders into U.S. computer networks.

  • Even Against Good Fundamentals, Negative Social Mood Will Sound the Drums of War: The American Revolution (Euan Wilson, Socionomics Institute) Hat tip to John O'Donnell. Why did the wealthiest land in the world with a per capita income more than three times the current U.S. level, adjusted for inflation, and the lowest taxation levels in the world revolt in 1776? It had little to do with economic factors, according to Euan Wilson and everything to do with "social mood". Opinions and sentiment count more than all other factors in determining the course of history is the premise of socionomics: events follow social mood, not the other way around. See also next three articles.
  • Journalists warn us about the coming revolution, but we don’t listen (Fabius Maximus) Fabius Maximus has contributed to GEI. Can the social mood be subliminal? FM discusses the displacement (by robots, software and automation) of many humans from employment activities and provides 37 examples of how the process has been reported by the media. Yet there is no revolution. Should we add "YET" to the preceding sentence? Is the social mood being guided by a displacement of humans from historical human activities, but is that an "invisible hand" not yet recognized in all its form and function by an inattentive populace? Does social mood tend to lead social action because of the natural human state of denial in the face of change?

There are 13 articles discussed today 'behind the wall'.

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So, who is Noah Smith? He is a young man on welfare. Rather than using food stamps - sorry: a free food debit card - he works for a tax-funded state university. He owes his income to people with badges and guns who go to taxpayers and announce: "You will pay this guy's salary, or you will go to jail." They pay. He prospers. For now. Maybe not for long. He does not have tenure, or as it is known to those of us not on the dole, "lifetime welfare checks in exchange for 9 hours a week of lectures, 8 months a year."
  • Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar (Liz Capo McCormick, Bloomberg) The repo market is critical to maintaining liquidity in day-to-day financial operations (money markets). It is a sign of stress in the financial system when repo market deals remain uncompleted. And the failure to complete rate is now the highest since the financial crisis.
  • The Daily Shot (email, no web site) Live Cattle are up more than 20% this year, 2/3 of that since Memorial Day. Better change the summer BBQ menu to chicken and pulled pork.


  • Barry Ritholtz offers the worst investing ideas he’s heard this year (Barry Ritholtz, The Washington Post) Interesting article, not because of what Ritholtz says but because of what he doesn't say. There was not a lot so far in 2014 that he wanted to pick on. He continued to be critical of fancy strategies using multiple gold related investments (he prefers simply gold, neat). And something new to us, he appears not to be a fan of sector rotation investing.
... current bank regulators, with their risk based capital requirements, allow banks to hold extremely large amounts of assets against extremely little capital only because bankers, and sometimes regulators themselves, say they perceive these as being "absolutely safe". And that allows banks to earn much higher risk adjusted returns on equity when lending to for instance the "infallible sovereigns", the housing sector and the Aristocracy, than when lending to the "risky" medium and small businesses, entrepreneurs and start-ups.

And that means, effectively, that regulators are assisting banks to create that kind of excessive exposures to what is perceived as "absolutely safe" which has been the source of all bank system crisis when these, surprisingly, turn out to be risky. And all this is worsened by the fact that when now one of these safe exposures blows up, banks stand there holding extremely little capital in defense.


  • The US Dollar Gathers Momentum (Barry Norman, FX Empire) The U.S. dollar added 8 points in early week trading in the Asian session, trading up to the 80.38 to 80.40 range. The euro is trading down 11 points to 1.3584.


  • When Steelers Steal (Christopher Westley, Hat tip to Mark Thornton. Christopher Westley has contributed to GEI. Westley discusses the "short-sightedness effect" of protectionism and the long-term negative consequences.

Click for large image at Rick's Picks.

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