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What We Read Today 25 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.

  • Nobel Economics Laureate: Why I back banking union (Catherine Boyle, CNBC) The 2014 Nobel prize winner in Economics, Jean Tirole, is a strong backer of a banking union which would take bank regulation away from the individual Eurozone countries and make the ECB (European Central Bank the regulator. Econintersect thinks the critics of such a move have a point (loss of control of a country's fiscal affairs) unless there is also a fiscal union (such as exists between the U.S. states).

  • Could non-citizens decide the November election? (Jesse Richman and David Earnest, The Washington Post) Hat tip to Sig Silber. Interesting even more for what it does not define than for what it does. The conclusion is that in very close election races non-citizens voting illegally can tip the race to a particular candidate. Democrats are favored by non-citizens who vote (according to this study). A specific race that might have been decided by non-citizens cited in this report was the election of Al Franken (D, MN) to the U.S, Senate in 2008 - he won by 312 votes. One thing that is worrisome to Econintersect is whether the samples are representative. In the two years studied there were 339 non-citizen respondents out of 32,800 surveyed (1.03%) in 2008 and 489 out of 55,400 (0.88%) in 2010. The total number of non-citizen residents in the U.S. is estimated to be about 25 million (13.3 million "green card" holders and 11.7 million illegal residents) or about 22.1 million total by another estimate. So that means between 7.1% and 8.1% of the population of the U.S. in 2008 and 2010 was composed of non-citizens. What are the uncertainties introduced by the under-representative sample contain 1% or less non-citizens. It looks like the small sample results (339 and 489) were projected onto what would have been representative samples of non-citizens (about 2,300 - 2,400 out of 32,800 in 2008 and about 4,100 to 4,200 out of 55,400 in 2010). This can only be done if there are exacting measures taken to assure the very small numbers are truly representative random samples.

For details of study data see Cooperative Congressional Election Study (Survey Study)

  • Articles about conflicts and disease around the world


Ebola crisis rekindles concerns about secret research in Russian military labs (The Washington Post)

Dallas nurse is Ebola-free: 'I feel fortunate and blessed' (USA Today)

New quarantine rules considered for aid workers returning to U.S. from Ebola-stricken region (The Washington Post)


Boko Haram was supposed to be releasing the Nigerian girls, but instead may have kidnapped more (The Washington Post)


Turkey kidnap plot raises doubts about U.S. troop safety (USA Today)

7 Canadian consulate staff in Turkey hospitalized after exposure to yellow powder (The


Refuge: 18 Stories from the Syrian Exodus (The Washington Post) Syria

Islamic State made $1 million a day, says US official (The Sydney Morning Herald)


Islamic State militants allegedly used chlorine gas against Iraqi security forces (The Washington Post)


Ukraine’s key election fails to spark enthusiasm (The Washington Post) Video


Russia’s Putin blames U.S. for destabilizing world order (The Washington Post)

Russia accuses Sweden of escalating tension in Baltic Sea (RT)


INTERVIEW -East Yemen risks civil war and humanitarian crisis, says UK expert (Thompson Reuters Foundation)


Attack on Egypt army post kills 17 (The Washington Post)

There are 12 articles discussed today 'behind the wall'. The final five discuss the economic situation in China.

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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  • Bubble Years Comparison Fallacy (Walter Kurtz, The Daily Slot email, no url) The current GDP trend for the UK is actually an extension of the trend from before the turn of the century. The output gap is a mirage generated by a false comparison to the post-2000 trend which collapsed in 2008. Kurtz's point seems to be that the "new normal" is the same as the "old normal" and what has been used for a "normal" baseline in calculating the output gap for the UK is actually the "abnormal". This needs a deeper data set than just back to 1992 to get a firmer grip on "normal" and "bubble" but Econintersect thinks that Kurtz has likely put his finger on a real problem in baseline selection.


  • Three major nations absent as China launches W.Bank rival in Asia (Brenda Goh, Arshad Mohammed, Sonali Paul, Jake Spring, Choonsik Yoo and Rosemarie Francisco, Reuters) China is spearheading the formation of a new Asian infrastructure bank. Three countries that could be major players in the AIIB (Asian Infrastructure Investment Bank), Australia , Indonesia and South Korea did not attend the organizational meeting. The U.S. has questioned whether the bank will "meet international standards of governance and transparency".
  • Tesla runs into trouble again (Catherine Rampell, The Washington Post) Michigan became the fifth state to to ban auto sales via any avenue other than independent dealerships. Rampell says "a slew of other states are erecting other creative restrictions" to hinder direct sales marketing plan for autos. There is an unnamed target in all this activity: Tesla. The electric car maker prefers to sell direct from factory to customer which cuts out the middlemen who have lots of political clout and lots of profits to protect. Tesla is countering with "informational galleries" which display cars, provide technical, design and other information but do not mention prices and do not offer test drives. The new Michigan law outlaws even the galleries within that state. Econintersect: Tesla may be able to use these laws for positive promotional purposes and may be able to make some sales to residents of the "embargoed" states through the internet. But eventually we think it likely these laws will be found to be an unconstitutional restraint of interstate commerce. The net for Tesla from all this is likely to be positive. After all, isn't it likely to attract customers when you can advertise "Buy the luxury car that Big Brother said you couldn't have."
  • Liquid Diet (The Economist) How can market makers handle a flood of orders in one direction (either buy or sell) if they only have an inventory which is a small percentage of the outstanding volume? The Economist says that the low ratio of dealer inventory to outstanding volume for corporate bonds represents a potential illiquidity problem should there be any sort of sudden move in the bond market. They say that all markets have interconnection and they expect that market volatility is likely to increase, whether it starts with a bond panic or somewhere else - and all segments of the security markets will feel the effects.


  • Helicopter money (Simon Wren-Lewis, Mainly Macro) A clearly written and easy to read summary of just what the various manifestations of monetary action might be called "helicopter money".
  • As the Eurozone Stalls, China Cuts the Red Tape (Frank Holmes, U.S. Global Investors) Frank Holmes has contributed to GEI. Holmes has some data we have not seen before - since the Great Recession the rate pf growth of start-ups has exploded while GDP has (after a spurt into 2010) been drifting toward lower growth. Holmes suggests that this is because of reduced restrictive red tape. But Econintersect thinks there is likely more to the story that that. (1) Manufacturing employment has been soft for several years as evidenced by the employment component of PMI being below 50 for most of the past four years. (2) The service sector has been increasing its growth rate while manufacturing has been slowing. Both of these factors would contribute to the organic growth of small business as employment opportunities in corporate style manufacturing enterprises becomes less available and the small business rich service sector has been booming. Red tape removal may or may not have been an important factor, but the structure of the economy definitely favored growth of small businesses over larger enterprises.


  • Even dragons tire (The Economist) No mention of the bet the Economist made with Michael Pettis 2 1/2 years ago which they now seem to feel they might lose. See GEI News.
"The surest of historical rules of thumb implies that 20 years from now, China's economy, measured by market exchange rates, will probably still be smaller than America's..."
  • China's Housing Market - The Rubber is About to Hit the Road (Walter Kurtz, The Daily Shot email, no url) Is China experiencing a housing market cycle typical of recent history or is this time different? Kurtz shows the the current status is similar approximately April 2012. In that cycle the deterioration of the market turned over and improvement started in the fall of 2012. So if this is a repeat of the last cycle then the "rocket shot" rise in the number of markets experiencing year-over-year price declines is at a peak and the number should be declining in the first half of next year. If this time is different then the two curves will hit 70 out of 70 and still be there in 4-6 months. There will be major distress is the number with price falls stays at or near 70 for more than six months and major drag on the Chinese financial system and economy if it lasts more than a year. Kurtz says: "Beijing's reaction will be important to watch if the situation deteriorates further."


  • China’s slowdown is secular, not cyclical (Gavyn Davies, Financial Times) For five years running IMF (International Monetary Fund) GDP projections have been progressively cut back. Davies takes this as one of the indications that a cyclical rebound in GDP is not likely for China. Although the 3% GDP that Michael Pettis says is necessary for a rebalanced Chinese economy is not yet on the IMF charts, extrapolation from the data graphed by Davies could easily show that (3%) arriving by the mid-2020s.


  • Other Economics and Business Items of Note and Miscellanea

The 25 Most Beautiful Female Politicians (Rant Political)

Structurally unsound: America restores the weak lending standards that led to the housing crash (The Economist)

IRS increases allowable 401(k) contribution levels (Employee Benefit News)

Agencies Request Comment on Proposed Flood Insurance Rule (Federal Reserve Board)

Amazon’s Spending Leads to Biggest Quarterly Loss in 14 Years (The Wall Street Journal)

Oldest DNA ever found sheds light on humans' global trek (APF, MSN News) Fascinating! Sleeping around does have redeeming social value (if you can wait 60,000 years).

Ancient Europeans were lactose intolerant for the first 4,000 years they made cheese (The Washington Post)

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