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.
BOJ Adviser Kawai Urges Abe to Raise Sales Tax Again (Toru Fujioka, Bloomberg) A University of Tokyo professor who advises the Bank of Japan said in a interview that the planned increase in the consumption tax from 8% (just up from 5% in April) to 10% in 2015 should proceed. Astounding! Keep easing money into the financial system and siphon it out of the real economy. See GEI News (July 2013): Japan: Conflicted Policy.
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Obama Outperformed Reagan? Hardly. (Lance Roberts, StreetTalkLive.com) Lance Roberts contributes to GEI weekly. Lance says that employment is just one area that Pres. Obama has failed to equal the record of Ronald Reagan. While Obama may beat Reagan by some views of the unemployment rate, the large numbers of workers dropping out of the labor force puts Obama in a class of his own, according to Roberts. The record of full-time employment gains during the Reagan years was remarkable, buoyed by the growing female workforce participation rate which grew from about 53% to about 58% in the 1980s.
The Fed Hates To Burst Your Bubble (Jesse Eisiger, ProPublica) Eisinger draws on former Fed governor Jeremy Stein to bolster his argument that the Fed should be more proactive in bubble fighting.
A solution, in Mr. Stein's words, is that "over the longer run, it might be helpful to try to build some institutional resolve and reputational capital around the proposition that policy should not be overly reactive to asset-price declines." Translation: The Fed needs to set a tightening course it cannot deviate from even if markets freak out.
Unfortunately, the Fed has made it pretty clear over the past few decades that it lacks the nerve to do this. More recently, this long bull market has been one of the smoothest and steadiest in history. The Fed has reinforced investor complacency and recklessness. The lack of volatility creates a volatile mix. If there's a price to be paid, and many think there will be, it will be borne less by the wealthy than by the rest of us.
Millenium Gold market (Chart of the Day) The chart looks to us more like a consolidation pattern rather than a collapsing bubble. Caveat: There are two descending triangle patterns that can be drawn (same base, different descending resistance) and that shape pattern is generally considered bearish.
China May Soon Go the Way of Japan, Says Merrill Lynch (Peter Coy, Bloomberg Businessweek) Two Merrill Lynch analysts say that the boom in China is marked by the same characteristics a that in Japan 25 years ago: "imbalanced growth, government stimulus, overcapacity, an overwrought housing market, and a severely under-capitalized financial system." They say that China is not immune to debt deflation which has been the end of every capitalist over-expansion in the past.
India second-highest contributor to rise in global m-cap (Puneet Wadhwa, Business Standard) The U.S. and India combined provided more than half of the market capitalization gain so far in 2014. India was second in the world contributing 10.25% ($500 billion) of the global rise of 3.9% ($3.4 trillion). The U.S. accounted for 41% or $1.6 trillion. China's increase of $300 billion came in third. As of August the market cap of the world was $66 trillion.
Auto-Loan Boom in U.S. Bringing More Bad Debt: Chart of the Day (David Wilson, Bloomberg) Auto loan debt in the U.S now exceeds $900 billion. That is a lot of money to owe on a depreciating asset. Will it get to $1 trillion? Maybe yes, maybe no - the article says it is ate in the credit cycle. But if it does then it will join student loan debt in that rarefied atmosphere. We'll have to start a new phrase: A trillion here and a trillion there and pretty soon you're talking of real money.
Australian Employers Add Record Jobs as Currency Jumps: Economy (Michael Heath, Bloomberg) Unemployment fell from a 12-year high 6.4% to 6.1% in August as Australia added 112,000 new jobs. A significant part of the surge was in part-time jobs. Improved home building numbers in part compensated for falling employment in mining as China reduces imports.
GUNDLACH: This Chart Is Why Janet Yellen Doesn't Want To Raise Rates (Myles Udland, Business Insider) Fed Chair Janet Yellen is focused on employment as well as inflation and right now employment may be worrying her more. The following chart shows why, even though unemployment has dropped to 6.1% the fraction of wages / GDP is 16% lower than in 1970. With the health of the economy so dependent on consumption there are arguments that growth requires more money be put in the hands of consumers.
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