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.
The Canary in China's Central Bank (Daniel Altman, Foreign Policy) Prof. Altman suggests watching what happens with the the leadership of the Peoples' Bank of China (PBoC). Governor Zhou Xiaochuan has a term that runs until 2018 but he could be removed and replaced by Yi Gang, a U.S.-trained academic and internationally respected expert on capital markets and exchange rates.
Yi has run the State Administration of Foreign Exchange, the government's currency board, since 2009, and as such he has been at the vanguard of Zhou's agenda. But Altman says Yi is more cautious and if he were to replace Zhou it would represent a desire to go slower on reform. Zhou is outspoken in his support of moving to a freely floating currency and placing the renminbi along side the U.S. dollar and the euro as a widely used exchange currency. Such a situation would almost certainly lead to the renminbi appreciating significantly, diminishing China's competitive advantage in world trade while increasing domestic buying power and a more rapid increase in domestic consumption. China has the world's lowest consumption share of GDP and many have said the country needs to increase consumption to have a sustainable economy.
Highest Ice Age human settlements found in the Peruvian Andes (Amina Khan, Los Angeles Times) Archaeologists have found habitation sites as high as 14,698 feet (4,480 m.) above sea level that date to almost 13,000 years ago. These are the oldest habitations found above 4,000 m. by more than 1,000 years and were used only about 2,000 years after humans first arrived in South America. Scientists are changing their ideas about how early humans adapted and evolved to withstand harsh environments. Incidentally, humans live permanently at even higher elevations today. La Rinconanda, Peru sits at 16,700 feet (3.16 miles) above sea level.
Articles about conflicts and disease around the world
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U.S. Solar Electric Output Explodes (Walter Kurtz, The Daily Shot email, no url) The output of solar electricity has doubled for three years running. Kurtz quotes the EIA (U.S. Energy Information Administration) attributing the rapid rise to "record solar output from utility-scale facilities due to photovoltaics". Kurtz wonders if lower oil prices will stall this growth. See next three articles which discuss just how fast the cost of solar is declining.
The Future of Solar Economics and Policy (John Farrell, Clean Technica) This (and the following two articles) appeared previously in WWRT 22 October. Solar is rapidly becoming the economic source of electrical power. Part of the analysis has to do with the "value of solar". See next article.
Minnesota’s Value of Solar (John Farrell, Energy) The value of solar sometimes exceeds the retail price of solar because value includes environmental costs that is not part of the utility pricing formula. In other words, the utility does not charge for and does not have to pay for environmental damage.
Distributed Generation Poses Existential Threat To Utilities (Richard Martin, Forbes) Distributed generation at user sites are making the grid a less critical part of customer electrical energy supply and are creating a threat to the existing business plans for utilities.. It is not discussed in this article, but the implementation of value of electricity from each source might create an accounting which would "save" the grid and traditional utilities. See immediately preceding article.
Why China’s fund managers struggle to beat their market (Simon Constable, MarketWatch) Almost 4 out of 5 Chinese fund managers do not have either the CFA (Chartered Financial Analyst) designation or an MBA degree. These are considered very important qualifiers for competency in fund management. In the U.S. half of all fund managers are CFA certificants. No data was given on the number of U.S. MBAs. For an previous opinion piece on the high risk in China's banking and investment operations see China, the Death Star of Emerging Markets (William Pesek, Bloomberg View).
Deflation Flags (Walter Kurtz, The Daily Shot email, no url) Kurtz offers two deflation indicators. The first is nearly six-month decline in the CRB BLS Spot Commodity Index (-9.3%) and the second is the almost unanimous PPI (producer prices) decline across the Eurozone with 17 of 18 deflating in August. At that point the commodity index had fallen only about half of the total so future PPI readings, at least for the next three months, are not likely to be turning around.
Derivatives Market Species Origins - Abuse, Props and Risks (Jim Willie, The Market Oracle) Hat tip to Ian R. Campbell, GEI discussion group, LinkedIn. The author argues that the banks have used derivatives, and the seniority position defined for derivatives in the 2005 U.S. bankruptcy law, to create a global monolithic financial structure which can never contain a single failure but can only fail as a system. He says the reason that Lehman failed is that it was premeditated murder planned and executed by JP Morgan and Goldman Sachs. Willie says the legalized theft under current U.S. law will drive U.S. allies into an economic alliance with the east, onto a gold standard and with a repudiation of the dollar. Heavy stuff. Bring your salt shaker when you read.
Why China No Longer Wants Cheap Coal (Ryan Rutkowski, Peterson Institute for International Economics) Steel production is declining and China is serious about reducing pollution. Cheap coal is the dirtiest variety and China has clearly established a strategy to use cleaner, more expensive coal as well as to reduce the use of coal modestly. Improving margins for electrical power producers is supporting the strategy.
Pace of home price falls ease in China as market shows signs of stabilising (Langi Chiang and Daniel Ren, South China Morning Post) The headline promises more than the article delivers. The year-over-year price decline for September was 10.3% compared to 13.7% in August. But the number of markets with price declines jumped to 58 (out of 70) in September. In August the number of declining markets had been 39.
25 Lenders Said Poised to Fail ECB’s Health-Check (Patrick Henry, Bloomberg) The ECB (European Central Bank) will fail 25 banks (of 130) in the 2014 Comprehensive Assessment due out next week. The ECB is under some pressure to do well with this assessment because past stress tests have passed banks which have failed soon after.
China’s capital defences have sprung a major leak (John Foley, Reuters Breaking Views) China has tried to control "hot money" coming into the country from abroad, but there has still been the accumulation of nearly 3/4 of a trillion dollars of such money in the country. Much of the money has come because interest rates in China are so much higher than elsewhere. And much has come via deception such as use of fake export invoices to hide the transfer. One recent period (18 months?) has had $70 billion transferred by fake invoices. And that just what has been discovered. The primary worry for China is the stress on domestic credit that would result if a significant amount of this hot money was withdrawn from the country.
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