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What We Read Today 08 August 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 (and sometimes longer ones) 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.

  • China July exports jump, but domestic economy still a worry (Reuters) China achieved a record trade surplus in July. Exports were up 14.5% year-over-year and the trade balance was +$47.3 billion, aided by a decline in imports from a year ago of 1.6%. And the decline in imports is a concern because it reflects weak domestic demand. Rebalancing its economy toward increased domestic consumption isn't happening if imports are declining.

  • North Korea's military is falling apart — is Kim Jong Un's regime next? (Kyle Mizokami, This Week) North Korea's aging military machine has jets falling from the sky, tanks and other armaments so old that parts are no longer made and repairs of 50-year old machines are accomplished with parts cannibalized from other 50-year old machines. It is now appearing that the cannibalized parts are insufficient as three MiG-19 jets have crashed this year.
  • Who Stole the 4-Hour Workday? (Nathan Schneider, Vice) In 1930 John Maynard Keynes wrote an essay envisioning the world 100 years on. By 2030 he foresaw almost complete "technological unemployment". He projected 15 hour work weeks and much of that would be make work because technology would provide for all our needs. Well part of that vision sounds correct. And what pathway would get us to the utopia? Keynes said it would be greed that would drive the economic machine. Here is Schneider in the section just before he outlines the pathway over the intervening years that saw greed not delivering us from its evil but entrapping us in it:
With this, he proposed a deal with the devil: Trust in greed for a while more, and it would save us from itself. To illustrate, Keynes made the rather anti-Semitic observation that, just as the Jew Jesus brought access to eternal life into the world, the Jews' genius for compound interest would produce so much plenty as to deliver us all from wage slavery forever. Keynes didn't expect, however, that like most deals with the devil, the devil had the upper hand: Greed managed to suck up most of the benefits of almighty progress for itself.


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  • Europe’s low inflation is sending it into a lost decade (Matt O'Brien, The Washington Post) Looks like Europe is following Japan into a deflation trap, right now clearly sinking into a persistent "lowflation". The best indication of the trap is the decline in interest rates across the 18-country Eurozone. Thursday (07 August) ECB head Mario Draghi said the decline in inflation expectations is overstated. Of course, there is a possibility that Draghi's assessment is wrong. (Sacrilege, when has a central bank head ever been wrong!) If the market assessment is correct, bond prices are indicating inflation averaging about 0.5% for five years. See also Justin Wolfers' article on Italy later below.

European-Breakevens

  • Does Treasury See Market Crisis Ahead? (Gil Weinreich, ThinkAdvisor) Why is the government developing a plan to "hoard" cash? See also Treasury Buyback Tests Seen as More Than Tool by Primary Dealers (Liz Capo McCormick and Kasia Klimasinska, Bloomberg) and Why Is The US Treasury Suddenly Concerned About "Loss Of Market Access" (Tyler Durden, Zero Hedge). Econintersect: Unless the Treasury thinks the Fed will somehow make a decision to stop funding approved government expenditures, the suggestion that the holding of higher levels of cash has any other purpose than a fiscal response to a temporary spurt of inflation seems nonsensical. Once the anticipated spurt has passed the cash can be reintroduced to the economy by spending without debt issuance. In other words, this only makes sense to us if it is a fiscal tool for the Treasury similar to the Fed FOMC function on the monetary side. Yet none of the discussion above seems to consider this. So does that mean we are wrong?
  • How American seafood goes almost everywhere except America (Adam Wernick, PRI) Something weird is going on in the US seafood industry. About 1/3 of the U.S. seafood catch is exported. Yet 85% of the seafood consumed in the U.S. is imported. And some of American caught seafood is frozen, sent to China, thawed, deboned, fileted, refrozen and sent back to the U.S. Another factor in this story, wild-caught American shrimp are among the best in the world, wet most are exported. What you buy in American markets are mostly farm-raised Asian shrimp. It is hard to visualize a rationale for how all this "contortion" is improving the quality or lowering the cost of seafood. For more on this see also 'The Great Fish Swap': How America Is Downgrading Its Seafood Supply (The Salt, NPR)
  • Italy's Lost Decade (Justin Wolfers, The New York Times) Hat tip to Ian Campbell, GEI discussion group, LinkedIn. It is hard to call this a "triple dip" because there really was not a lasting GDP recovery in 2012-13 even though the "official story" is that the recession that started in 2011 ended in 4Q/2013. See next article and also Matt O'Brien's article, first 'behind the wall' today.

gdp-us-italy-nyt-wolfers-2014-aug-06

  • Italy shows euro zone may never have left recession (William Watts, MarketWatch, The Wall Street Journal) Here is the graphic that represents the end of the recession of 2011 in the last quarter of 2013. How about changing the definition for the end of a recession to be the first of two consecutive quarters with growing GDP? With that definition the recession that started in 2011 just completed its third year (12 quarters).

GDP-Italy-watts-mw-2014-aug-06

  • Subway Franchisee Invented Fictional Workers To Avoid Paying Overtime: Lawsuit (Dave Jamieson, Huffington Post) A former Subway employee has filed suit claiming he was illegally denied overtime for two years because his employer paid him for his 70 hours a week as two employees to avoid showing anyone earning more than 40 hours Time in excess of 40 hours in a week requires time-and-a-half compensation by federal law.

Click on chart for large image at Rick's Picks.
gold-ackerman-2014-aug-08-600x330


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