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.
France bows to EU pressure on budget deficit (Adam Thompson, Financial Times) After issuing a figurative middle finger in the air last week ,France has now decided to trim €3.6 billion ($4.6 billion) from its 2015 national budget to try to forestall a fight with Brussels over the failure to contain the budget deficit to 3% of GDP as specifies in the Maastricht treaty. Before the cut the deficit was to be s little more than 4% of GDP; the change will reduce it to near 3.5%.
Huge Solar Flare Erupts from Biggest Sunspot in 24 Years (Photos) (Tariq Malik, Space.com) The largest sunspot since 1990 darkened an area of the sun's surface with a width much larger than the diameter of earth (7,918 miles) and comparable to Jupiter (86,881 miles at the equator) in size. That corresponds to an area of 5.8 trillion square miles. The cross-sectional area of the earth is "only" 50 million square miles so this sunspot covered more than 10,000 times the cross-sectional area of the earth. The sun has been very active this year with numerous sunspots and many powerful solar flares resulting. Solar flares interact with the earth's magnetic field and can disrupt radio communications, increase radiation exposure on the planet's surface and (usually) have a secondary impact on the earth's weather. See next article.
The Sunspot Cycle (David Hathaway, NASA) Sunspots have been observed and counted since the early 1600s, although continuous daily observations were not begun until 1849. The first graphic below summarizes sunspot activity observed from the time of Galileo (early 1600s) to the present day. The second graphic (three parts) shows the monthly average data detail since 1750. The correlation of sunspot activity with climate on the earth was first observed during the extremely low period of sunspot activity from about 1645 to 1715 which corresponded to a period known as the "Little Ice Age". Note: There is another time period given the name "The Little Ice Age" from around 1300 to 1870 which contains the 1645-1715 period. See the third graph below from The Little Ice Age, Ca. 1300-1870 (Environmental History Resources). Note: Superimposed on the longer term sunspot variation are shorter periods of abnormal volcanism which have also produced planetary cooling for a few years. One of the climate factors that may be influenced by sunspots is the North Atlantic Oscillation (NAO) which has a strong influence on the weather for North America and Europe. The NAO status is reported regularly by climate economist Sig Silber in his weekly weather and climate reviews every Tuesday at GEI News. The last item below is a solar flare video from Space.com.
Articles about conflicts and disease around the world
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Forecasting GDP: A Look at the WSJ Economists' Collective Crystal Ball (Doug Short, Advisor Perspectives) The Wall Street Journal reports GDP forecasts from 46 economists, data shown in the graphic below. The first ("advance") estimate will be reported Thursday morning (30 October) so the accuracy of this survey will be known shortly. The forecast for 4Q 2014 is also reported in this article (very similar to 3Q), along with great graphs of historical data back to 1947. See also next article.
Economic Forecasting Survey (The Wall Street Journal) The consensus of the GDP surveys made by The Wall Street Journal forecasting GDP could be duplicated by taking the average of the last 6 - 10 quarters and projecting that forward. There does seem to be a tendency to raise the forecast for the next quarter following an especially weak quarter. Otherwise very recent data (last 1 -2 quarters does not seem to have a lot of influence.
Stress tests alone will not bring the eurozone back to health (Gavyn Davies, Financial Times) Davies argues that the ECB stress tests are sufficiently demanding to provide some assurances against systemic failure in an economic crisis. But he thinks the banks are not healthy enough to provide sufficient credit for growing the European economy. He looks to fiscal stimulus for that support.
As long as the ECB is not the sole authority on bank resolution, and as long funds for dealing with insolvent banks are to come (in the final analysis) from the fiscally stressed states, the death embrace between weak states and fragile banks will continue. And so will the credit crunch in the regions of the Eurozone where austerity is already taking its heavy toll on demand, having annihilated any urge to invest in productive activities - as opposed just to bargain basement unproductive assets.
Can Russia Escape Dollar Dependence? (Benn Steil and Dinah Walker, Council on Foreign Relations) The authors say no. Russia has a much larger dependency on the euro and the dollar than do the other BRICS. See graph below. But they have little chance of diversification away from those two currencies into a basket of BRICS currencies as has been discussed because , with the exception of the Chinese yuan, the volatility of the currencies would expose Russia to far too much risk.
Chinese Democracy: A ‘Nightmare’ Scenario for US (Zachary Keck, The Diplomat) “China as a liberal democracy would be a much more nationalist, much more dangerous country.” There is a strong nationalist sentiment in China and a resentment of abuses in the age of Colonialism. The structure and control of the Communist regime keeps that cauldron of potential virulence constrained.
Why falling gas prices may do little for the US economy (Brian Bowdle, Quartz) In the past falling gasoline prices have created a boost for the economy as the money not spent on gasoline gets redirected elsewhere. Bowdle suggests the boost may be less this time. Americans are driving less than they were 7-8 years ago and that, combined with increasing numbers of fuel efficient cars, has produced a 6% drop in gasoline consumption over the same time period.
How Moving Average Strategies Can Really Work (Jerry A, Miccolis, Marina Goodman and Rhith Eggidi, Advisor Perspectives) Moving average crossing strategies to move in and out of the market do improve full cycle performance by reducing bear market losses, However they underperform in bull markets and the full cycle returns are only modestly better than buy and hold. The authors show how a moving average crossing strategy using a four market sector portfolio yields enhanced superior returns in all parts of the market cycle.
Exploding wealth inequality in the United States (Emmanuel Saez and Gabriel Zucman, Voxeu.org) This article will appear in GEI Analysis is a few days. However, we want to bring your attention to a graph which we have annotated. The wealth share of the lower 90% of Americans has declined back to the level it had at the end of the Great Recession in 1940.
Bill Greider on Why Paul Krugman Was So Wrong (Yves Smith, Naked Capitalism) Good summary of how the Krugman crowd went wrong - they missed the personal income redistribution forces that resulted and the threat of growth in larger emerging economies (like the BRICS) reducing growth in developed economies (like Europe and the U.S.).
Our Fed Dual-Mandate Tracker Affirms Taper Timing (Benn Steil and Dinah Walker, Council on Foreign Relations) St. Louis Fed President James Bullard continues to burnish his reputation as the FOMC's least predictable member, reversing course on policy for the second time in 3 months-going from dove to hawk and now back to dove again. His latest change of heart has him calling for the Fed not to complete the last step of the taper just yet. He is concerned with falling inflation expectations. The authors offer a graphic, "Fed Performance Tracker", which they say suggests the Fed is on track to meet targets and should stay the course.
Other Economics and Business Items of Note and Miscellanea
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