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What We Read Today 16 October 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.

  • Easiest India Subsidy Fix Tests Modi as Rajan Makes Push (Debjit Chakraborty, Bloomberg) With crude in free-fall there could not be a better time for Modi to reform India's energy markets to spur growth. This article suggests he could also raise natural gas prices to create incentives for domestic exploration and production.
  • Skunk Works Reveals Compact Fusion Reactor Details (Guy Norris, Aviation Week) Gary of GEI Live Market Commentary discovered this gem. Ever since the demonstration of the vastly greater energy from nuclear fusion compared to nuclear fission by contrasting the atomic bomb to the hydrogen bomb, there has been a dream of harnessing fusion in a controlled reaction. Such an eventuality could produce vast amounts of thermal (and electrical) energy from small devices and continuously operating compact power sources for earth and space travel which could provide continuous power for years without refueling. Lockheed Martin has revealed a project which is expected to reach prototype stages within five years and at least one design unit in production in ten.


  • Scientists Close In on Creating Black Hole in Lab (Ron Cowen, Nature, Scientific American) Well, not a real black hole, but a sound wave analog (imitation) of the hypothetical electromagnetic wave event. From how Econintersect reads this proposed experiment, it will be an attempt to create at temperatures approaching absolute zero a decoupling of destructively interfering sound waves with one surviving and the other losing its energy to the "thermal black hole". The result would be the appearance of sound where none had existed before in much the same way that Hawking radiation has been proposed to be emitted from matter-antimatter pairs separating at the event horizon of an electromagnetic black hole. Hawking radiation has never been observed (detected) - a sonic simulation could serve as an existence proof of possibility. If you have followed this discussion up to this point, get another cup of coffee and move on - we have gone beyond our pay grade and better stop.
  • Recent articles about Scotland Independence and Similar Movements

What the United States Can Teach the U.K. About Federalism (Brookings Institute)

Catalonia presses ahead with symbolic Spain secession vote (BBC News) Now it's a "non-binding referendum".

  • Articles about conflicts and disease around the world


Dallas nurses describe Ebola hospital care: 'There was no protocol' (Los Angeles Times)

Dallas Ebola Nurse Amber Vinson 'Should Not Have Traveled,' CDC Head Says (NBC News, Wed. am)

Amber Vinson, Dallas Ebola Patient, Says CDC Gave Her Green Light To Fly (Huffington Post, Wed. pm)

New Ebola patient to be transferred to Atlanta (USA Today)

Obama orders CDC rapid response team to go to any future Ebola cases (CNBC) Hat tip to Marvin Clark.

Ebola: bats get a bad rap when it comes to spreading diseases (The Conversation)


New charges brought over 2012 Benghazi attack (Al Jazeera)


It's official: US won't be working with current Syrian rebel groups to battle Islamic State (Tribune News Service, MSN News)

Watch Out, ISIS, Dutch Biker Gangs Are Coming for You (Foreign Policy)


Exclusive: Washington Wants NATO Allies to Help Retrain the Iraqi Military (Foreign Policy)

Al Jazeera exclusive: New footage of ISIL fighters and their tactics (Al Jazeera)

Bush Defenders Say the New York Times Just Vindicated the Iraq Invasion (Foreign Policy)


With weeks to go, miles apart in Iranian negotiations (Al Jazeera)


Russia's warning to the Baltics tests NATO (Al Jazeera)

Hong Kong

Sorry, Eric X. Li, Democracy Is Not the Problem Hong Kong's pro-democracy activists aren't radicals or revolutionaries. But that's what Beijing wants you to believe. (Foreign Policy)

There are 12 articles discussed today 'behind the wall'.

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  • The arbitration game (The Economist) Trade agreements with provisions for appealing in court for relief for foreign investors from national laws that the foreigner believes are disadvantageous to him has led to an upwelling of tort action over the past 15-20 years. Countries are souring on the idea of continuing these kinds of provisions.


  • Why China won't suffer a US-style property crash (Peter Cai, China Spectator) There is a discussion of mortgage quality, lack of overbuilt inventory and other factors, but Econintersect suggests the most important reason is that the lenders can't become insolvent (unless the government so desires) because they are banks (or shadow banks mostly backed by banks) and the banks are largely owned by the government, as is the lender of last resort, PBoC (People's Bank of China), the central bank. In this structure the solvency of the banks is guaranteed by the government with the exception that the government can dissolve any of its own banks at any time. All such processes are quite orderly compared to what happens in a "private enterprise" system in a "free market" which is supported by the government but not controlled (or owned) by it. See also Fears of a Chinese property crash are overblown (Peter Cai, China Spectator)
  • China's local government debt binge curtailed (Walter Kurtz, Sober Look) China is taking steps to curtail the runaway borrowing of local governments (debt increase of 70% in just three years). The situation may come to a head very soon as 40% of the total debt matures in the next 2 1/2 months!!! One aspect of attempted solution is the development of a municipal bond market for China. But Kurtz wonders if it may be already too late:
... many municipalities are already bankrupt and survive only on their ability to "roll" exiting debt. Numerous infrastructure projects financed by local governments are being curtailed, creating a drag on the nation's growth. There will also be a hit to funding for education, healthcare, and other services provided by local authorities. While this restructuring is a positive development in the long term, the immediate effect will materially raise the risks to China's (and ultimately global) near-term growth.


  • Knaves, Fools, and Quantitative Easing (Paul Krugman, The New York Times) Prof. Krugman singled out an open letter to Ben Bernanke written in October 2010 for retrospective criticism. The letter (reproduced in full in the next article discussion) made some statements about negative risks and expected lack of desired results from the QE (quantitative easing security purchases) being initially implemented by the Fed at that time. Krugman cites material from Bloomberg which he represents to document an avoidance by any of the authors of the letter of admitting they were wrong. See next three articles.
  • Open Letter to Ben Bernanke (Hoover Institution Editor) The letter, written four years ago this month by 24 prominent economists and historians, was short and to the point:

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

We subscribe to your statement in the Washington Post on November 4 that "the Federal Reserve cannot solve all the economy's problems on its own." In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems.

  • The Inflation Imputation (Cliff Asnes, Real Clear Markets) One of the authors of the above has a response to Paul Krugman, best summarized with nine sound bites?
  1. Responding to Krugman is as productive as smacking a skunk with a tennis racket.
  2. Those looking for a blanket admission of error will get part of what they want; a small part.
  3. We did not make a prediction, something we certainly know how to do and have collectively done many times. We warned of a risk.
  4. Of course being able to call out risks, not just make firm predictions, is quite important.
  5. Quantitative easing (QE) and other inventive forms of loose monetary policy have simply been less than hoped or feared.
  6. Don't limit your view of inflation to the CPI.
  7. ... we have indeed observed tremendous inflation in asset prices since this experiment began ...
  8. We explicitly worried that the Fed's policies "will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy."
  9. Paul will continue to be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass class by himself ...
  • Calling into Question (John Mauldin, Outside the Box) John Mauldin offers a reasoned review of the latest flap covered in the three articles above. He doesn't totally agree with with either side (or completely disagree either) but actually might be characterized as representing a 'third side'.


  • Treasury collected record taxes in fiscal 2014 (Personal Liberty) This post concludes with "fiscal 2014 ended last month with the government running a $483 billion deficit. While the deficit is at a six-year low, it's still highly unsustainable from an economic standpoint". Econintersect would respond: How is the economy sustainable without a fiscal deficit?
  • Schaeuble, Summers Debate the Psychology of Economic Reform (Paul Hannon, The Wall Street Journal) Two economists who speak completely different languages (and we don't refer to German and English) debate, Chasuble argues pain is required to drive change and Summers maintains that people under pressure will not embrace change.



  • Other Economics and Business Items of Note and Miscellanea

12 Worst World Leaders Ever (Rant Political)

How to Not Outlive Your Retirement Savings (Brookings Institute)

The Mysterious Case of the 113-Year-Old Light Bulb (Priceonomics)

Eric Holder's business legacy: 'Too big to jail’? (Fortune)

Happy Diwali! Why India is likely to get a ratings upgrade within 365 days (The Economic Times)

Supreme Court takes a bite of N.C. teeth-whitening case (Raleigh News & Observer)

On Leak Prosecutions, Obama Takes it to 11. (Or Should We Say 526?) (American Civil Liberties Union) Hat tip to Roger Erickson.

Brain scans show who’s likely to trust strangers – something con men can only dream about (The Conversation)

When History and Finance Go Wrong (ThinkAdvisor)

Empty vaults: Will the next country to stiff bondholders be Ukraine or Venezuela? (The Economist)

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