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What We Read Today 21 September 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.

  • How colleges can screw up your career (Amy Langfield, CNBC) Hat tip to Marvin Clark. Thousands of college "graduates" are not and in some cases they may not even be aware. In other cases individuals presume to overlook that they are a few credits (or even a single fee) short of holding a degree listed on their resume. The problem is compounded by poor record keeping by colleges.

  • Recent article about Scotland Independence Vote :

Violence Begins in Glasgow (Martin Armstrong, Armstrong Economics)

Scotland vote just the start of a rough ride for U.K. (Don Murray, CBC News)

Alex Salmond accuses UK party leaders of tricking Scotland into No vote (Severin Carrell, The Guardian)

Secessionist movements learn lessons from Scotland vote (Alan Gomez, USA Today)

  • Articles about wars elsewhere in the world:

Ebola outbreak: How Liberia lost its handshake (BBC News)

Al Shabaab's economic strategy is dipping into new wealth, making it more dangerous (Hiiraan Online)

Kenya to stay course in quest to stabilise Somalia - President (Reuters)

Boko Haram kills 'dozens' in attack on Nigerian market (BBC News)

Egypt to host Gaza talks between Palestinian factions (The Guardian)

ISIS takes over Syria Kurdish villages as thousands flee to Turkey (CBC News)

Syria crisis: 66,000 flee Islamic State into Turkey (BBC News)

Iraq: Baghdad rally held against US ‘occupiers’ (euronews)

Ukraine crisis: Thousands march in Moscow anti-war rally (BBC News)

Ukraine: rebels and government troops to retreat following peace deal (The Telegraph)

Putin 'privately threatened to invade Poland, Romania and the Baltic states' (The Telegraph) Conversation was with Pres. Petro Poroschenko and reported to the paper by the Ukraine head of state.

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

NOTE: Today there are four articles which discuss the Fed Reverse Repo policy, about to become the primary Fed Funds rate control tool. A very brief Econintersect commentary has been added.

Do not miss "Other Economics and Business Items of Note", the final section every day.

Please support all that we do at Global Economic Intersection with a subscription to our premium content 'behind the wall'.

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  • Stock market map: where investors can find the cheapest shares (Kyle Caldwell, The Telegraph) Hat tip to Ian R. Campbell, GEI discussion group, LinkedIn. The author appears to correlate distance below peak and undervaluation. This can lead to disappointment - some things do not gain value as their price comes down.

Click for large, readable map.

  • Fed’s New Cap on Reverse Repos Heightens Volatility Risks (Liz Capo McCormick and Matthew Boesler, Bloomberg) The reverse repo is the primary tool that the Fed will be using to define the Fed Funds rate. A different primary tool is needed .... Fed Funds rates have traditionally been the interest rates for very short-term exchanges between banks and with the Fed to balance bank reserves with reserve requirements. With the Fed having pumped up excess reserves to an extraordinary level, many fewer exchanges are needed ... essentially leaving the Fed Funds Rate undefined at times. Enter the reverse repo facility as a replacement. Now the Fed has announced that it will cap the daily repo volume at $300 billion. The problem with this is that it may be by far insufficient at the end of the month when banks "cook their books" to minimize their balance sheets at the time they are measured for regulatory purposes. At the monthly "lying time" the Fed Funds rate may come under great pressure as banks scramble to unload assets overnight for "optimizing" their records. The result may be unusual end-of-month volatility in the Fed Funds rate.
  • Difference between repo rate and overnight rate? ( This is a straightforward description of the interest rate defining operations by the Fed whereby they attempt to maintain the benchmark Fed Fund rate within the target range, currently 0 to 0.25%. The overnight rate (aka "effective Fed Funds rate") is the traditional primary tool. In a time of vast excess reserves within the banking system a reverse repo is the primary tool instead.
  • Fed Rate-Hike Tool Stirs Some Concern (Michael S. Derby and Jon Hilsrath, The Wall Street Journal) If the Fed reverse repo facility falls far short of demand for "parking" of funds at the Fed at interest, the excess demand will be searching for other parking spots at whatever rates can be obtained and the intended rate floor provided by the Fed will be violated. The $300 billion daily limit just announced by the Fed may produce great excess demand on month-end days (see second above article). The excess demand seeks takers outside the Fed at whatever lower rates can be found. In an extreme case the rates could even be negative. Why would an institution pay to park money? Because the penalty for being caught with a balance sheet outside of the committed window during the end of month accounting is much greater than the interest rate penalty paid for one or a few days. The fallout? For one, money market funds may destabilize (break the buck) which sends shock waves through the financial system because the cash equivalency of the principal value of money markets is a system assumption. Janet Yellen has dismissed concerns about systemic stability problems saying "such movements should have no material effect on financial conditions or the broader economy." Econintersect: Does this sound anything like 2008 statements that "the sub-prime problem is well contained"?

Econintersect: It seems obvious that a way to avoid all these problem would be to require balance sheets to be averaged daily over the full month. This is not attractive to banks because the current system allows 29 days of skimming (essentially from bank customers) with the 30th day back-up from the Fed. If this were anything but banking it would be called an extraction racket with police continence, even outright support and participation.


  • Economics of the Timber Industry (John Marshall, Flathead Beacon) The author claims that reinstituting the harvest of timber on public lands as was practiced prior to 1987 would have two undesirable reuslts: The lumber industry would return to the practices of that earlier era where the sale of public resources was done at a loss (at taxpayer cost) and would result in the collapse of lumber prices to an extent which would drive all but the publicly subsidized companies out of business. See also The Trials of Montana Timber (Dillon Tabish and Tristan Scott, Flathead Beacon)
This guide, updated for the 2014-15 job market season, describes the academic market for new Ph.D. economists and offers advice on conducting an academic job search. It reports findings from published papers, describes practical details, and provides links to internet resources. Topics addressed include: preparing to go on the market, applying for academic jobs, the AEA's new electronic clearinghouse for the job market, signaling, interviewing at the ASSA meetings, campus visits, the secondary market scramble, offers and negotiating, diversity, and dual job searches.

An excerpt from the paper:

National Science Foundation data indicate that Ph.D. economists have the lowest unemployment rate (0.9%) of any doctoral field, as well as one of the highest median salaries of any doctoral field. Finally, the vast majority of people are happy with the outcome of their search. Of the new Ph.D. economists in 2001-02, 94% reported that they liked their jobs very much or fairly well (Siegfried and Stock, 2004).
  • Apple Watch? No, Thank You (Susan Nunziata, Information Week) A survey of response from 585 readers proved readers of Information World are not Apple lovers, at least the ones willing to take the time to make two mouse clicks to submit an answer.


  • German infrastructure (real economics) The author argues that a "slumlord mentality" is destroying the real economy and following the path that "reduced UK to a pathetic pre-industrial has-been, tore the heart and soul out of USA aerospace, and reduced the American Midwest to crumbling ruins-among many other disasters". See Germany's Ailing Infrastructure: A Nation Slowly Crumbles (Der Spiegel), part of a series.
  • Alibaba's affluent: Instant riches for company workers (Calum McLeod, USA Today) The Alibaba IPO has spawned more than 5,000 nouveau riche multimillionaires in China. Current and former Alibaba employees were selling their shares in this IPO, according to this article, and will be going on spending sprees, mostly within China.


  • Other Economics and Business Items of Note and Miscellanea

Grading Economics Textbooks on Climate Change (Economic Policy Journal)

What's wrong with Hong Kong? (Too much government) (Scott Sumner, Library of Economics and Government)

The Economics of Meatless Monday: Does Eating Veggies Save You Money? (Personal Finance Cheat Sheet)

Nine blows to the head and then he was dead: forensics shed light on killing of Richard III (The Conversation)

6 reasons your new business will flop (CNBC, MSN Money)

Rashi Fein dies at 88; economist considered a father of Medicare (LA Times)

The economics are important but let’s not forget – health is a human right (Michelle Hughes, Crikey) This is an argumentative piece; some will not agree.

Bicycling Economics 101 (Dan Nielsen, Traverse City Record-Eagle)

A question of economics (The Nation) Hong Kong billionaires make large donation to Harvard and start controversy.

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