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What We Read Today 25 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.

  • Articles about events, conflicts and disease around the world


A Tale of Two Outbreaks: Why Congo Conquered Ebola (NBC News)

Ebola outbreak: Sierra Leone workers dump bodies in Kenema (BBC News)

Ebola In Remote Liberia, Through The Eyes Of A Local Health Worker (NPR)


Nigeria's Maiduguri city hit by 'deadly blasts' (BBC News) Two teen-age girl suicide bombers.


Unidentified jet targets airport in Libya's Tripoli: witnesses (Reuters)


Jihadist training camps expand across Syria and Iraq (The Telegraph)


Islamic State fighters battle Iraqi forces near Baiji refinery (Reuters)

New ISIS video shows training of child soldiers in Iraq (Global News)

Graft Hobbles Iraq’s Military in Fighting ISIS (The New York Times)


Ukraine leader, under pressure from West, pledges new government soon (Reuters)


Russia puts losses from sanctions, cheaper oil at up to $140 billion per year (Reuters) Hat tip to Marvin Clark.

Hong Kong

Scuffles break out as Hong Kong clears part of protest site (Reuters)


Exclusive: U.S. to leave more troops than first planned in Afghanistan - sources (Jessic Donati, Reuters)

There are 10 articles discussed today 'behind the wall'.

Do not miss "Other Economics and Business Items of Note", the final section every day.

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  • OPEC Down, Not Out (Dave Gonigam, 5 Min. Forecast) Gonigam quotes trader Jonas Elmerraji:
"Support is all the way down at 1,900 in the S&P. I still don't think a big correction is imminent just yet, but neither is more upside at our current pace."


  • Memo to business: The TPP is not free trade (Leith van Onselen, Macro Business) According to van Onselen the TPP (Trans Pacific Partnership) agreement is not about free trade. In fact it is mostly not about trade at all. He says the pact is primarily about establishing control of markets by certain large corporations and creating rules that will allow corporations to circumvent government controls.
  • How the Fed Got Huge (Jeffrey Rogers Hummel, Hat tip to Brett Hyland, GEI Discussion Group, LinkedIn. The author feels that Milton Friedman and his student Ben Bernanke had two different views of helicopters and financial crisis actions:
Friedman viewed banking panics as monetary shocks, in which the checking accounts and other deposits at failing banks wink out of existence, causing a sudden fall in the total money supply. In contrast, Bernanke treats panics as shocks to the flow of savings, causing the failure of firms whose continued existence is crucial for the allocation of credit. Such disparate diagnoses dictate significantly different cures.

The Bush-Obama-Bernanke response to the Great Financial Crisis of 2008 was "targeted bailouts" that had "almost no impact on the effective money supply", according to Hummel. He says that there should have been a sharp increase in Fed-created money that would have calmed the panic and then been quickly reversed. Econintersect: In other words the helicopters should have flown to Main Street and not to Wall Street.

This article goes on to describe how the liquidity injected into the financial system by the Fed's asset purchases in the various QE programs did not increase the money supply proportionately. Even going back the 12 months leading up to August 2008 Bernanke was squeezing the monetary base. Although the Fed increased lending to banks by three orders of magnitude during that period Bernanke was withdrawing almost as much with sales of Treasury securities. The monetary base expanded by only 2.24% (at a time when CPI inflation was over 5% and productivity was increasing close to 3%). During the Greenspan years the monetary base expanded by an average of 7.5%. The reason for the tight policy ws undoubtedly inflation being above the Fed target.

During the QE years Hummel explains how much of the asset purchase money was effectively sterilized and kept out of the real economy. The stocks and flows described amount to the Fed borrowing the money used for QE purchase from the same financial players from whom it was purchasing the MBS and treasuries. It carried this out partly by reverse repo transactions and currency swaps, and predominantly by paying interest on the excess reserves created by the payments for security purchases. Another revelation is the fact, according to Hummel, that the Treasury was withdrawing money from circulation by selling securities in excess of government spending.

The picture painted by Hummel is one of the Fed reallocating credit rather than expanding it. Thus the vast shortfall of monetary base compared to the size of the Fed balance sheet expansion has resulted.

  • Fed rate hike victims: Not who you think (Nyshka Chandran, CNBC) Hat tip to Marvin Clark. This article reviews the economies of South Asia from 2008 to 2013 and discusses how they might be impacted by a Fed rate hike program in the U.S. The current account posture of a country is the most important determinant in what the effects might be. The article says that countries that have had a decrease in saving relative to investment would be the most hurt. China, Hong Kong and Malaysia have the most exposure but China experienced a still has a very large current account surplus and would be little damaged. Vietnam (not shown on the graph below) had by far the largest gain in its current account from 2008 to 2013 and should also hold up well when U.S. rate hiles come.


  • Hicks: Economist's 'truthiness' unmasks Obamacare (Mike Hicks, Indianapolis Business Journal) Citing the quoted comments of economist Jonathan Gruber, who participated in the formulation of the PPACA (Patient Protection and Affordable Care Act of 2010), aka Obamacare, Hicks says that if Obamacare is a fraud and is eliminated then Obama "will have nothing to show for the past six years but public debt". Econintersect: We could have picked on Paul Krugman, Robert Reich or any number of other "liberally biased economists" (or other conservatives as well) so Hicks is not necessarily unusual in making such a vacuous generalization. But we report it because it is an example of how far away from exact measurement and analysis so many economists have come. They might as well simply rename their profession "political consultancy and public relations". See also the next article.
  • Politics Trumps Economics (M.V. Kamath, The Free Press Journal) This article is a review of the book Politics Trumps Economics: The Interface of Economics and Politics in Contemporary India, Ed. By Bimal Jain and Pulapre Balakrishnan. It was written before the iconic Indian journalist and media executive died 23 October at the age of 93 and published posthumously 23 November 2014. Kamath found the book of essays "may not have directed their attention to the issue of corrupt politics damaging economic growth" but he still found that each did "have a lesson". In the review Kamath repeatedly selects for specific comment the cases discussed where politics (of corruption) has held sway over sound economic definitions and recommendations. Econintersect: At least Kamath did not find occasion to point out the political corruption of economists, as we discussed for the U.S. in the preceding article.
  • Why Is the Yield Curve Flattening? (excerpt) (Ed Tardeni, Dr. Ed's Blog) Over two months ago Dr. Ed Yardeni pointed out the unusual occurrence of the yield curve flattening when short-term rates and long-term rates were moving in opposing directions. (See annotated chart below from his 22 September blog post.) Since then the 2-year yield has increased to 0.59% (from 0.53%) and the 10-year has come down to 2.30% ( from 2.59%) and has actually hit a lower yield of 2.15% in the middle of October. Since that low point the 10-year has never gotten higher than 2.39%. So the unusual 2014 interest rate trends have continued for an additional two months since this blog post. Yesterday bond guru Jeffrey Gundlach told CNBC that the yield curve could flatten at an "unthinkable" level in 2015. By that he meant unthinkably low. If the 2014 trend lines are extrapolated to mid 2016 the yield curve would be flat (from 2- to 10-years) at an rate of less than 1.5%. To understand how unusual that would be see the next article.


  • US Treasury Historical Yield Curve 1990 – 2013 (Gadi Yedwab, Explore Analytics) This is repeated from yesterday's WWRT. Here is a particularly clever way to display the entire yield curve on a timeline. Yedweb displays yields for all Treasury maturities on the same timeline. (Note: The version of this graphic at the source is interactive, displaying all interest rates for any date selected by cursor.) Here is a summary of how to read his graphic:
  • The larger the vertical displacement, the steeper the yield curve. (Steepest: 1993-1994, 2003-2004, 2009-2011, 2013 and (not shown) 2014)
  • The smaller the vertical displacement the flatter the yield curve. (Flattest: 1996, 1999, 2000-2001, 2006-2007)
  • When long-term rates are lower than short-term rates, the curve is inverted. This easily seen by following the bright red 30-year rate line, but there are also times when only part of the curve is inverted (such as 1998 when the 5-year rate was lower than any other).
  • (Inversion vs. 30-years: 2000-2001, 2007;
  • Inversion vs. 10-year: 2006-2007;
  • Inversion vs. 7-year: 1996-1998;
  • Inversion vs. 5-year: 1998; and
  • Inverson vs. 3-year: 1996.


  • Other Economics and Business Items of Note and Miscellanea

China rate cut knocks legs from under yuan rally, more volatility seen (Reuters)

One Cannot Separate Politics and Economics (Economy Watch)

Canada moving toward American-style inequality, U.S. economist suggests (CTV News)

Smart Tax Strategies for Donating Collectibles (Financial Planning)

El-Erian Tells Investors to Sell Stock: The Allianz economic advisor shares concerns about global imbalances, volatility and divergence (ThinkAdvisor)

Why criticism of Uber isn’t turning customers away – yet (The Conversation)

The Mediterranean town where houses are on sale for less than $2 (The Washington Post)

Real World Economics: Ranking states is difficult, arbitrary (Twin Cities Pioneer Press)

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