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.
Escalation of Tensions in Ukraine Drive Safe Haven Flight (Barbara Zigah, Daily Forex) Geopolitics between Russia and Ukraine reared its head once again and pushed investors toward safe haven currencies like the Swiss Franc and the Japanese Yen, which both rose versus the common currency Euro.
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World getting 'super-aged' at scary speed (Alanna Petroff, CNN Money) The Conference Board estimates that rapid aging will knock about 1% off global growth rates over the next decade. Click below for interactive map that allows you to track global aging anywhere in the world.
Neanderthals Died Out 10,000 Years Earlier Than Thought, With Help From Modern Humans (Dan Vergano, National Geographic) A deepening ice age may have started a Neanderthal decline 50,000 years ago. That led to their eventual demise about 40,000 years ago as homo sapiens arrived in Europe and Asia in ever greater numbers. Careful examination of the fossil record has pinpointed the era of extinction more precisely than previous estimates. Another article reviews the overlap of Neanderthal and homo sapiens occupation of Eurasia. Scientists now believe the two species co-existed for as long as 5,400 years, allowing plenty of time for the DNA co-mingling that is observed in humans today. See Our life with the Neanderthals was no brief affair (Ben Hirschler, Reuters). See also the article that explains why, though the DNA of Neanderthal and homos sapiens are so nearly the same (sufficiently similar that interbreeding took place), mental, physical and disease (especially mental diseases) characteristics apparently were so different: DNA Study Shows Why Neanderthals, Modern Humans Are So Different (Sharon Begley, Reuters, Huffington Post). But, even though many characteristics appear to be so different, modelling indicates about 40% of the Neanderthal DNA sequences may still exist in humans today. Of that 20% has thus far been specifically identified. See At least 20% of Neanderthal DNA Is in Humans (Charles Q. Choi, LiveScience). But since any individual from European or Asian ancestry averages generally only 1% to 2% Neanderthal DNA, one person's Neanderthal heritage is much different from many others.
Siluria turns natural gas into gasoline for $1 per gallon (David R. Baker, SF Gate) Privately held Siluria Technologies says it can produce large quantities of gasoline, diesel, jet fuel and chemicals at a lower cost than traditional refineries and chemical plants. At today's natural gas prices, Siluria's technology could make gasoline at roughly $1 per gallon, according to the company. Econintersect calculates that the U.S. consumes about 15 trillion BTU per year from gasoline. Total natural gas production is about 25 trillion BTU per year plus another 1-3 trillion BTU that are simply released to the atmosphere or "flared off". So a little more than half of all natural gas production could supply all the gasoline consumed in the U.S. Obviously making a significant diversion of natural gas to gasoline would increase the price so $1 a gallon production cost might go up to $1.50 or $2. This is well below the current average cost of gasoline exiting a U.S. refinery which in 2014 has ranged between between $2.70 and $3.10. This article suggests that the conversion plants might be co-located with the gas producing wells and solve what might otherwise be a cross-country piping problem.
‘Robot Overlords’ Job-Stealing Exaggerated: Jackson Hole Paper (Jeff Kearns, Bloomberg) MIT (Massachusetts Institute of Technology professor David Autor is telling Jackson Hole attendees that the rumors of the death of human workers is greatly exaggerated. In fact, automation and robots don't "steal" jobs but merely rearrange them - benefiting many workers while disadvantaging others. See also the next article.
Polanyi’s Paradox and the Shape of Employment Growth (David H. Auter, MIT, NBER and JPAL) Philosopher Michael Polanyi postulated that our tacit knowledge of how the world works often exceeds our explicit understanding. In this paper Auter describes how that can lead to simultaneous increases in low wage and high wage employment with a concomitant decrease in middle wage employment. The effect has a global reach. With all the discussion of the decline of the middle class in the U.S. it is also something happening on the other side of the Atlantic as well. The following graph shows the "hollowing out" of middle paying employment in each of 16 EU countries.
Bullard Sees ’Several Hundred Billion’ of Reverse Repos (Matthew Boesler, Bloomberg) According to St. Louis Fed President James Bullard, the Fed will not have to have "that large of a program" using overnight reverse repos to carry out interest rate policy when it come time to tighten. Bullard said that "possibly several hundred billion would be enough". Econintersect: Do you remember only a few years ago when the entire Fed balance sheet was a few hundred billion? See also next article.
Plosser: Continued ZIRP May Not Heal Job Market (Value Walk) This is a transcript of the video of the Bloomberg interview by Kathleen Hayes, below. Philadelphia Fed President Charles Plosser at one point (at the end) expresses concern about the reverse repo function:
HAYS: So once the key rate moves off zero, as it surely will, then we get into the question of the exit strategy and how the Fed is going to go about that. That was on the table for discussion at the last meeting that was reflected in the minutes.
One of the things that some of my colleagues who are following this so closely noted was that there was a phrase about the temporary use of the reverse repo facility. And it seemed to suggest that maybe the Fed is reluctant to use that aggressively.
Broadly on the exit strategy, what are the key tools you see being used?
And what about this use of the reverse RP facility?
PLOSSER: Well, I think the key tool is going to be interest on reserves. I mean, I think that - and if you go back to 2011 when we first laid out our exit principles, we stated that the federal funds rate was going to be our primary instrument of monetary policy. And it still will be.
But because we've got such a huge balance sheet, the way we're going to have to get the funds rate to move up is going to be using interest on reserves. That's going to be our primary policy tool.
We have other tools, the reverse repo is one, to sort of make sure that in support, if you will, the ability of the interest on reserve to raise the funds rate and other short-term rates. And that's the way I think about it. I think that we may not need - from my perspective, we may not need the reverse repo facility at all because if we raise interest rates and the funds rate goes up with it, why would - why would we need to introduce other dimensions at all?
So I think we need - I think the - right now the committee is leaning towards the reverse repo for being primarily a supporting or an ancillary tool to help ensure that the funds rate goes up with the - with IOER.
HAYS: And do you - but do you need though the reverse repo facility to aggressively target the funds rate, to make sure you can control it?
PLOSSER: No. I don't think so. We may, but we don't know the answer to that. So I think it's presumption to sort of say that we will because I don't think we know whether we will or not in some sense.
So I'm not - I'm not - I'm not sure. I mean, we're in uncharted territory here. So I think it's important and some people think it's important certainly to have the reverse repo on account of our - in our back pocket if we need it.
But it's not obvious at all that we'll need it. And I think many members sort of think that the reverse - are worried about the reverse repo program becoming too big, too big an intervention into the money markets and to the plumbing of our money market system. And so we want to be cautious about creating a facility that we can't get ourselves out of in some sense.
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