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.
Alibaba IPO ranks as world's biggest after additional shares sold (Elzio Barreto, Reuters) Underwriters exercised an option to sell additional shares after the market closed Friday raising the size of the IPO to $25 billion. This is the largest ever globally, surpassing the previous record, set in China in 2010, when Agricultural Bank of China went public for $22.1 billion.
Comedy relief from the ECB (Chris Becker, Macro Business) There are a couple of quotes from Benoit Coeure, a French economist who sits on the ECB (European Central Bank Executive Board which the author presents with derision. But he attempts less humor (does mention "limp wristed efforts of the ECB") when he presents the following graph.
Recent articles about Scotland Independence Vote :
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U.S. Banks Are Now Operating With 100% Reserves - Is Full-Reserve Banking The Next Step? (Atle Williams, Seeking Alpha) Williams suggests that building the size of the Fed balance sheet has created excess reserves for the banks that almost exactly equals the value of M1. In other words, the banks now have reserves 1:1 with demand deposits. The question of how and when the Fed will unwind its balance sheet may be the wrong question. The correct question may be what will the future reserve ratio be?
A new policy tool for banks to stop asset bubbles wreaking economic havoc (Philip Pilkington, The Guardian) Philip Pilkington contributes to GEI each week. Pilkington endorses a proposal by Thomas Palley (see next article) for basing bank reserve requirements on specific assets and varying the required reserve by asset type. These requirements can be varied over time to control tendencies toward asset bubbles. As Pilkington has oft repeated, traditional monetary policy is a very blunt instrument for influencing the course of an economy. To paraphrase with a metaphor, he sees the Palley proposal as a sculpting of a sledge hammer into a myriad of scalpels. See next article.
This paper critiques the Federal Reserve's quantitative easing (QE) exit strategy which aims to deactivate excess liquidity via higher interest rates on reserves. That is equivalent to giving banks a tax cut at the public's expense. It also risks domestic and international financial market turmoil. The paper proposes an alternative exit strategy based on ABRR which avoids the adverse fiscal and financial market impacts of higher interest rates. ABRR also increase the number of monetary policy instruments which can permanently improve policy. This is especially beneficial for euro zone countries. Furthermore, ABRR yield fiscal benefits via increased seignorage and can shrink a financial sector that is too large.
Will this battery change everything? (Brian Dumaine, Fortune) Hat tip to Marvin Clark, GEI discussion group, LinkedIn. A Michigan start-up, backed by $30 million from multiple backers including GM, Itochu (Japan), venture capitalist Khosla Ventures and the state of Michigan, is developing a new flat film battery system which the company, Satki3, says will cost 40% of the ultimate best price for the Tesla battery (see graph below) and have a range between charging greater than 300 miles, above the best projections for Tesla.
Tesla claims to be able to provide up to 300 miles between charges, but that requires a 85kwh battery at a $10,000 premium cost. The premium by 2020 (see graph below) will be between $6,000 and $6,500. A 85 kwh battery pack for a Satki3 powered car would cost about $8,500 by 2020, according to projections and Tesla will have a total cost at that time of about $21,000. Even if Telsa could get cost down to $200 the power system would be double the cost of Satki3. See also next article.
2017 Tesla Model 3 Starting Price: $50,000, According To A Sobering Report On Tesla’s Future Challenges (Angelo Young, International Business Times) Tesla has a tight box to fit in. If they try to beat the competition, expected to be at 120-180 mile per charge range within three years, they won't be able to compete on price at the Tesla Model 3 base price of $35,000 for about 200 mile range. If they compete on range and get up to 300 miles per charge the price of the car will almost double some of the competition.
China says will not alter policy because of one economic indicator (Megha Rajagopalan and Koh Guiqing, Reuters) In the face of the slowest output growth since the Great Recession analysts have been reducing their estimates for future Chinese growth and suggesting significant stimulus efforts could be undertaken. This probably was the data (IP - Industrial Production) to which Finance Minister Lou Jiwei was referring when he made his comment Sunday (21 September). But the article points out that broad measures of lending were also the weakest in nearly six years in August. Lou seemed to stand firm for China's commitment to restructure (rebalance) its economy. He said:
China cannot rely on government spending to increase infrastructure investment. The economic stimulus measures adopted by China to confront the international financial crisis had boosted economic growth, but they also brought excess capacity, environmental pollution, and the growth of local government debt along with other problems. As a result, China cannot completely rely on public financial resources to make large-scale investments in infrastructure.
Macroeconomic policy will continue to focus on comprehensive goals, especially maintaining employment growth and stability in the price of goods.
Mortgage war highlights regulatory failure (Unconventional Economist, Macro Business) Housing and mortgages are bubbling in Australia with some banks offering $1,000 signing bonus cash (actually a prepaid debit card) for each mortgage contracted. The declining trend of "productive" debt and increasing share of "unproductive" debt as Aussies role mortgage debt to a new record.
The short-sighted US buyback boom (Edward Luce, Financial Times) If corporations can't find productive uses for their cash boardrooms will keep on draining corporate treasuries. This process fattens executive earnings for the quarter and diminishes corporate prospects down the road.
Time for a contrarian view: Eurozone's economy is turning the corner (Walter Kurtz, Sober Look) Kurtz covers a number of aspects of the European situation. One of them is the proposition that deleveraging may be ending. He sites the "unprecedented reduction in the central bank (Eurosystem) balance sheet since the beginning of last year" as a prime exhibit.
Other Economics and Business Items of Note and Miscellanea
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