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What We Read Today 11 November 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.

  • Japan shares outperform, crude continues drop (Lise Twaronite, Reuters) The Nikkei stock average soared to a 7-year high Tuesday (11 November), buoyed by falling oil prices and the rumor that Prime Minister Shinzo Abe might postpone the next consumption tax hike scheduled 11 months from now.

  • Obama officials work on health site contingency plans as enrollment nears (Amy Goldstein, The Washington Post) As the Nov. 15 beginning of open enrollment nears, administration officials have been eager to draw public attention to the fact that parts of the federal exchange, HealthCare.gov computer system, have been rebuilt. They have said online insurance applications will be easier to use and new federal managers are in charge. But, behind the scenes, contractors are working to have a back-up system in place if and whenever problems arise.
  • ACA ‘family glitch’ unlikely to be fixed soon (John Murawski, Raleigh News & Observer) There has been a lot of publicity about the ambiguous wording in the PPACA (Patient Protection and Affordable Care) law that has been interpreted by Obamacare opponents to prohibit federal insurance subsidies for all who obtain policies through the federal HealthCare.gov website. That case is scheduled for a Supreme Court hearing. But there is another case of sloppy statute writing which is causing problems which is not likely to end up in court. It is called the "family glitch". The PPACA law is written to define employer-provided healthcare insurance as affordable if it has an employee cost of 9.5% of income or less. If the employer plan is affordable the employee and immediate family members are not eligible for ACA policy subsidies based on income. The IRS interpretation of the law is that, if the employer plan is affordable for the employee only, it remains affordable no matter what the cost to add family members. Because the Republican majority in the House (and soon to be in the Senate) wants to repeal the law, correction of the wording defect is unlikely. In 2012 North Carolina Insurance Commissioner Wayne Goodwin testified before Congress:

"The average salary of North Carolina state employees is about $41,000. And the cost of family coverage in the basic plan is $516 a month, which is not affordable for many state employees.

"Because employee-only coverage for this plan is provided at no cost to the employee, all family members would be prohibited from obtaining subsidies through the exchange."

The News&Observer article has the following conclusion:

According to Monday's policy brief, the average U.S. worker contributed $999 a year for employer-sponsored health insurance in 2013, but the cost of insuring an entire family was $4,565.

The federal health law doesn't require employers to provide truly affordable health insurance to spouses of employees, only to the employees themselves. "The primary concern was the employers would raise the employee's share of family coverage, driving even more families to opt for premium tax credits," the policy brief said.

Sen. Al Franken, a Minnesota Democrat, has introduced a bill to fix the "family glitch" but its prospects are not favorable.

Because the ACA requires that most Americans have health insurance, spouses who can't afford coverage will have to apply for an exemption under federal law so they can avoid paying penalties.

The policy brief referred to is The Family Glitch (Health Affairs with support of Robert Woods Johnson Foundation).

  • Articles about conflicts and disease around the world

Ebola

New York doctor cleared of Ebola, which means there are no known Ebola cases in the U.S. (The Washington Post)

Kaiser Nurses in California Plan to Strike Over Ebola (Bloomberg)

Nigeria

Suicide bomber kills 48 students in Nigeria (Associated Press, MSN News)

Syria

The battle for Kobane offers a glimpse of Kurds’ new model democracy (The Conversation)

Iraq

UK drone carries out first strike in Iraq (BBC News)

Iran

Iran leader's call to 'annihilate' Israel sparks fury as nuclear deadline looms (CNN World)

US must not miss another chance to mend fences with Iran (The Conversation)

Lacking breakthrough, sides weigh next moves in Iran nuclear drama (Reuters)

Ukraine

Ukraine's currency plunges as ceasefire fears grow (Reuters)

Russia

The Russian Sanctions Are Working: Putin Can't Keep Buying Popularity (New Republic) Hat tip to Ken Workman, GEI Discussion Group, LinkedIn.

Russian Planes 'Play Dangerously', Report Warns (Skye News)

Putin Hits on China's First Lady, Censors Go Wild (Foreign Policy)

New Russia-China deal could further hit natural-gas prices (China Spectator)

Exclusive: Russian central bank buys up domestic gold output as sanctions bite (Reuters)

South Korea

Jail sentence for South Korea ferry captain (Reuters) Video

India

Eight Women Dead After India Mass Sterilization Goes Awry (Bloomberg)


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

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  • Sizing up the threat of China’s debt pile (Steve Keen, Business Spectator) Steve Keen contributes to GEI. China has some significant debt problems. Debt is growing faster that GDP; Credit accelerators have been much greater in China than in the U.S.; and private debt to GDP ratio has grown far faster and further in China than in the U.S. Keen says the official statistics seem to indicate a much bigger financial crisis is coming for China than was experienced by the U.S. But he also thinks that the Chinese reaction may make the impact less than the Great Financial Crisis of 2008, both for China compared to the U.S. and for the global economy as well. Note: GEI will post an article by Steve Keen similar to this one next week.

china-us-private-debt-to-gdp-keen-2014-nov-10

  • Citi paints bleak iron ore picture (Mitchell Neems, Business Spectator) Neems says that overproduction started the price decline of 2014 and now demand, driven by the slowdown in China, is continuing the decline, now down 45% this year to $75 per tonne. Citi has lowered its 4Q 2014 average price to $74, with a average price in 3Q 2015 of $60.
  • Fears of German recession as moment of truth looms (Holly Ellyatt, CNBC) Hat tip to Marvin Clark. In just a few days Germany's third quarter GDP will be announced. Second quarter showed a contraction of 0.2% (quarter-on-quarter) and another negative print for third quarter would be a nominal recession (two quarters with negative GDP growth).
  • The central bank of Russia is regaining control - but for how long? (Frances Coppola, Forbes) Frances Coppola has contributed to GEI. The avalanche fall of the ruble stabilized Monday (10 November), But if oil continues to decline, the exchange rate of the ruble for dollars should also decline, but hopefully in a more orderly fashion than what we saw over the past couple of months. In the chart below the ratio shows noon exchange rate of 45.6049 rubles for 1 U.S. dollar. In late June the exchange rate was less than 34 to the dollar and about six weeks ago the rate was 38.

ruble-2014-nov-10

  • Predictors of ’29 Crash See 65% Chance of 2015 Recession (Simon Kennedy, Bloomberg) The Jerome Levy Forecasting Center in Mount Kisco, NY sees a 65% chance of a U.S. recession in 2015. Should you pay attention? In 2006 they said "the next recession will be caused by the deflating housing bubble." In February 2007 they said that sub-prime troubles would spread "to virtually all financial markets". In October 2007, Levy forecast an "imminent recession" - and the recession began two months later as eventually confirmed by NBER (National Bureau of Economic Research) in December 2008. And, oh yeah, in 1929 the Jerome Levy (grandfather of the current CEO, David Levy) sold all his stocks ahead of the October stock market crash.
  • Heffernan wary of Chinese FTA (AAP, Business Spectator) An Australian senator is wary of a free trade agreement with China as long as that country does not have floating currency. He fears that China could turn Australia into a "disaster" through currency manipulation.
  • The Major Threat to Some of the World's Largest Oil Producers (Matt Baidiala, The Growth Stock Wire) Since the turn of the century Saudi Arabia has lost 1/3 of its market in the U.S. while Canada has doubled. With oil prices slipping do to (and below in some cases) the production costs from Canada's tar sands bitumen deposits Saudi Arabia is choosing to hold production in the face of falling demand with an eye toward regaining market share from Canada, They have a similar objective with squeezing U.S. shale oil fracking operations which also have a relatively high production cost. In street jargon, it's called a price war, and the oil company majors will be hurt in proportion to their investments in high production-cost operations which will have to be curtailed if prices fall further.

us-oil-imports-canada-saudi

  • Inequality in the UK – whatever happened to social mobility? (Faiza Shaheen, The NEF Blog) The author cites studies that suggest that not only is meritocracy not what it should be in the UK, it is also not what it formerly was. One point of comparison was with Denmark where a child growing up in a poor family has three times the chance of doing better than his/her parents vs. a child growing up in Britain.

euro-inflation-rate-sober-2014-nov-10

"Even President Franklin Delano Roosevelt's alphabet agencies ... would have resulted in failure had it not been for the onset of World War II, and America's building of the "arsenal for democracy," even before America actively entered World War II. Rampant unemployment was eliminated both by the drafting of millions, in addition to the need of home front war machine workers."

I have frequently seen this ridiculous argument over the years: Roosevelt's employment agencies were doomed to failure but the country was rescued from that by the onset of World War II. The only logical conclusion from that argument is that the pre-war government programs were insufficient. But that is never the intended conclusion of the circuitous logic which simply does not close with its hypothesis.

  • The economics of falling oil prices (Karen Ward, HSBC) The author says that Saudi Arabia and the other regional oil producers have built such strong balance sheets that they will have no problem dealing with an extended period of lower oil prices. Econintersect: All the better to win a price war!
  • Mortgage bond issuance the lowest since 2000 (Walter Kurtz, Sober Look) Mortgage loans outstanding balance is still falling, now just below $10 trillion, down from a peak near $11.5 trillion at the end of 2007. With subdued rates of new mortgage origination and some defaults still occurring on old mortgages the outstanding balance might still fall a little further.

mortgages-outstanding-sober-2014-nov-03

  • Other Economics and Business Items of Note and Miscellanea

Alibaba’s Singles Day sale breaks last year’s spending record with 10 hours still to go (TechInAsia Insights)

Did School Districts Offset State Education Funding Cuts? (Liberty Street Economics) We may post this later on GEI News.

Focus: The tough questions facing Saudi Arabia's economy (Arabian Business.com)

A Sad Fact of Life: It’s Actually Smart to Be Mean Online (Wired)


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