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.
The European Central Bank whips out the big guns (Sabri Ben-Achour, Market Place) Hat tip to Ian R. Campbell, GEI Discussion Group, LinkedIn. Ben-Achour sees the ECB move to deeper negative interest rates and increased purchase of ABS (asset backed securities) having three effects: (1) weakening the euro vs. the U.S. dollar; (2) increasing the attractiveness of U.S. bonds and equities; and (3) increased competitiveness for European exports. See also next article.
Mario Draghi’s feeble attempt to save the eurozone is bound to fail (Allister Heath, The Telegraph) Hat tip to Ian R. Campbell, GEI Discussion Group, LinkedIn. Heath says the interest rate change paid by the ECB on deposits by banks from -0.1% to -0.2% will have no significant effect on the economy and the increased purchases of ABS (asset backed securities) is insufficient in extent by far. This is coming from a writer who feels the "entire euro construct is deeply defective, an edifice that is doomed, in time, to fail with disastrous consequences." But he does feel that the patient could be made more comfortable in its final years rather than repeat the money supply collapse of the Great Depression of the 1930s. Heath quotes Milton Friedman and Anna Schwartz. There is more about ECB action and impacts on the U.S. 'behind the wall'.
Economists Who Understand Economics Didn't See the August Jobs Report as an Outlier (Dean Baker, Center for Economic and Policy Research) Dean Baker has contributed to GEI. Baker concludes that if the rate of economic growth this year is 2%, a modest estimate of productivity improvement leads to an about 120,000 additional jobs each month. Thus 140,000 is not an outlier (unless it is on the high side) by Baker's estimate. When you realize the measurement uncertainty each month is about +/-100,000 the entire discussion of the difference between 140,000 and the expected 200,000+ (or Baker's 120,000) is merely chaff in the wind.
US labor markets Q&A (Walter Kurtz, Sober Look) Several important points about the situation with employment in the U.S., some of which we have discussed in WWRT on previous days. Two items not discussed before are (1) the stabilization of labor force participation rate over the past year (could be argued almost two years) and (2) the remarkable stability of nominal average hourly earnings growth at approximately 2% over the past five years. This is close to the inflation rate over that time period so the real average hourly rate is close to zero. Some skilled hourly workers have received increases above the inflation rate so others must be below. There is no data (that Econintersect knows of) so we do not know directly if the median hourly wage has risen less than the average; that would be the case if a large number of lower skills workers were to each lose a small amount while a smaller number of skilled workers gained by larger amounts. There are reasons to infer that has happened from median household income data which is 6% lower now than it was five years ago. See GEI News article by Sentier Research.
U.S. Billionaires Political Power Index (Darrell M. West, Brookings Institute) No surprise who is number one: the Koch brothers (Charles and David). Michael Bloomberg is #2, followed by Tom Steyer, Sheldon Adelson and George Soros.
From Chocolate to Beer, Shrinkflation Hits the Supermarket (Simon Kennedy, Bloomberg) The price doesn't change, the amount of content does. The takes from the consumer in two ways: If the weight of a product goes from 16 oz to 12, that is an increase in the cost per ounce of packaging, as well. The consumer gets 25% less product for the same price and a larger cost per unit weight of packaging is included.
Smart Ways to Manage Global Volatility (Paula Vasan, Financial Planning) The advice is so general as to be mostly useless. But the point about increasing volatility is something to be aware of.
Fed Debate on Rates Heats Up (Jon Hilsenrath, The Wall Street Journal) There is more and more discussion within the Fed about the language that has been appearing in the Fed Policy statements (no interest rate hike "for a considerable time"). More trigger fingers are getting itchy?
Four things I believe (Scott Sumner, Library of Economics and Liberty) The first three things Sumner believes are statements of reality (his reality) that lead logically to the fourth:
4. Ergo, professional economists (as a group) caused the Great Recession...
What is Supporting Bond Yields? (Lisa Abramowicz, with Julie Hyman, Street Smart, Bloomberg TV) Falling interest rates in Europe is a significant driving force for higher prices for U.S. bonds (lower interest rates).
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