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What We Read Today 10 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.

  • America's 10 most dangerous suburbs (Randy Nelson, Movoto, MSN Real Estate) View the slide show. Surprise: The hometown of a former president is on the list. Also, six of the ten are in three sunbelt states.
  • War on polio: A call to African mothers (Angelique Kidjo, Al Jazeera) Nigeria is the only African country to still have cases of polio occurring. Activists (including the author of this article) are working to get complete vaccination coverage for the largest country on the continent with the support of government and thousands of Nigerian members of Rotary International. The largest country in the world, India, is celebrating its third year without a single case of polio but there are still pockets where polio remains entrenched. Just next door to India, Pakistan is still harboring the disease with 59 cases so far in 2014. The entire rest of the planet has had only 15 cases reported. The WHO (World Health Organization has banned travel from Pakistan unless there is proof of vaccination against polio at least four months previous and within the past twelve months.

There are 14 articles discussed today 'behind the wall'.

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The old days of needing to hide Germany's control of the EU through the facade of a German-French partnership are long gone. EU nations know that there will be a high price to pay for attempting to buck Germany - and that the effort will fail. Cameron's effort to block Juncker is generally viewed outside of the UK as quixotic and humiliating while Merkel is viewed as reigning supreme and serene.

The reaction in the UK, however, to Cameron's efforts is quite different. Cameron's efforts are generally viewed favorably and Juncker and Merkel are more unpopular than ever. If a plebiscite were held today the UK would likely vote to leave the EU.

Merkel has two self-created strategic problems with regard to the EU that threaten the EU and Germany's dominance over the EU. First, Merkel engineered Juncker's appointment not because even she considers him a good leader but as a reward for Juncker's leading role as austerity's hit man.

  • Central Banks Moving "Herd-Like" Into Stock Market (Cris Sheridan, Financial Sense) Hat tip to Doug Short, Advisor Perspectives The assertion is made without the presentation of any balance sheet data so Econintersect considers this to be rank speculation at this point. A related press release (by a London company named Official Monetary and Financial Institutions Forum) asserts that "GPIs as a whole appear to have built up their investments in publicly-quoted equities by at least $1tn in recent years". GPIs (Global Public Investments) are comprised of central bank holdings ($13.2 trillion), public pension funds ($9.4 trillion) and sovereign wealth funds ($6.5 trillion). Presumably a report offered by OMFIF at a cost of £250 ($430) provides the balance sheet data revealing how much stock investment is on the balance sheets of central banks.
  • Government made $100B in improper payments (Stephen Ohlemacher, Associated Press, News & Observer) The U.S. federal government made about $100 billion in payments last year to people who may not have been entitled to receive them, These included tax credits to families that didn't qualify, unemployment benefits to people who had jobs and medical payments for treatments that might not have been necessary. The exact number in the estimate is $97 billion, down from a peak of $121 billion in 2010. The government also identified underpayments totaling $9 billion in 2013. Republican critics say the $97 billion announced is an outrage, but is also probably lower than the actual amount.
  • Noah Smith on Austrian "brain worms" (engelhardtlm1, Live Journal) A great analysis of what is going on with Noah Smith's ad hominem which we discussed last week. Smith is off track according to this author in some of his generalizations and on track with criticism of Austrian economics "fanboys" who say some ridiculous things. Along the way "Engelhard" covers some significant economic history in detail. This is a great read. One specific we found interesting: Expectations for inflation have been running ahead of inflation for many years:


  • Federal Reserve Actually Propping Up Interest Rates: What This Means For mREITs (Lance Brofman, Seeking Alpha) Brofman sees a big opportunity to buy Mortgage REITS. His analysis indicates that the Fed is actually propping up interest rates with the payment of interest on excess reserves, something never before done in Fed history. He says the natural market rate of interest for short-term Treasuries is actually negative and that is where the excess liquidity in the financial system would take the market absent the Fed action. The recent pullback in mortgage backed securities due to banter about rising interest rate risk is actually great buying opportunity, according to Brofman. Brofman is a finance and economics professor and a daily trader on the bond market.
  • Gouging the Gauchos (Nouriel Roubini, Project Syndicate) "Debts that can't be paid won't be repaid." (Michael Hudson) The solution is to negotiate writedowns and restructuring to recover what can be paid. In the case of most forms of debt those recoverable amounts are determined via bankruptcy proceedings and the distributions determined are made to complete the default and close the books. Such is not the case for sovereign debts and any holdout against writedowns can destroy the agreement reached by all the other creditors. Instead of settling for a fraction of the face value of the debts, creditors can all end up with nothing. This is what is risked for the debt crisis in Argentina as two hedge funds that have bought up a small percentage of Argentina's debt have succeeded in getting a court order preventing a settlement agreed to by all other creditors until they (the hedge funds) have been paid at full face value. Obviously both things cannot happen. If the hedge funds are paid at full face value then there are no enough assets to complete the agreement with the other creditors. If the majority of creditors are paid at the writedown value then there are not enough assets remaining to pay the hedge funds at face value. Roubini concludes:
Either super-CACs need to be designed and introduced (though it will take years to include them in all new bond contracts) or the international community may want to reconsider whether the 2002 IMF proposal for a formal bankruptcy court for sovereign borrowers should be resurrected. Holdouts must not be permitted to block orderly restructurings that benefit debtors and creditors.
  • Big Job Gains and the Fed (Bill Hall, Money and Markets) After half a century of perfect negative correlation (r = -1) the last four years have seen a near zero correlation between the unemployment rate and the employment-population ratio for the U.S. This is strong evidence of a structural change in the labor market. Hall suggests it is due to retirement by baby boomers. But another factor, perhaps even larger, is the mismatch between job openings and available skills. See GEI Analysis and article discussed 'behind the wall' yesterday: The skills mismatch remains a fixture in US labor markets (Walter Kurtz, Sober Look).

Click on graph for larger image at Money and Markets.

  • IBM sets out $3bn chip development plans (Richard Waters, Financial Times) IBM announced it will continue to pour resources into chip technology development even as if moves away from low end hardware businesses and chip manufacture. Customers have feared that Big Blue might be moving away from its core hardware businesses completely and this move is meant to reassure that is not the case.
One wonders whether Abbott and his government really understand what has happened in the US? Does he realize that since the era of deregulation and liberalization began in the late 1970s, GDP growth has slowed markedly, and that what growth has occurred has primarily benefited those at the top? Does he know that prior to these "reforms," the US had not had a financial crisis - now a regular occurrence around the world - for a half-century, and that deregulation led to a bloated financial sector that attracted many talented young people who otherwise might have devoted their careers to more productive activities? Their financial innovations made them extremely rich but brought America and the global economy to the brink of ruin.
  • Multiple Jobholders as a Percent of the Employed: Two Decades of Trends (Doug Short, Advisor Perspectives Doug Short contributes to GEI. Very worthwhile data presented here. Did you know that multiple job holders have declined from more than 6% of the employed in 1997 to a multi-decade low less than 5% today? That is not what most would guess for the difficult employment market we have been through. But over the past eight years multiple job holders where one job is full-time have been declining in number and the number having two part-time jobs has been increasing. See graph below.
The Great Recession noticeably increased the percentage of multiple part-time jobholders. This metric leveled out in 2010 and 2011, but it has subsequently resumed its upward trend. I seems likely that the downward trend for the cohort whose hours vary for their primary or secondary job (the green line) has to some extent contributed to the rise of the exclusively part-timers (the red line). It is certainly possible that the Affordable Care Act (aka Obamacare) has been a factor in these trends as companies weigh burden of regulations in their decisions about the full- and part-time employment.


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