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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.
We are continuing to develop a new and improved "What We Read Today" daily column. Please excuse formating variations and inconsistencies when they occur during this process over the next several days. As always we will endeavor to keep the content itself at the highest quality and value levels.
JPMorgan Rushed to Hire Trader Who Suggested on His Resume That He Knew How to Game Electric Markets (Pam Martens, Wall Street on Parade) Internal JPMorgan emails prove the bank was anxious to hire (and, after hiring, anxious to exploit) the abilities of a trader to extract billions by exploiting a defect in a utility power procurement software program. Banksters uber alles!
Fall snow cover in Northern Hemisphere was most extensive on record, even with temperatures at high mark (Jason Samenow, The Washington Post) There are 46 years of snow coverage records for the northern hemisphere. The record for snow coverage extent in November was 1976 until until November 2014 closed its books.
If Spain is an economic success story … (Dirk Ehnts, econoblog 101) Dirk Ehnts contributes to GEI. Spain's ruling party has fallen to third place on Spanish political polling over the past few months. If this is success (see Merkel Says Euro Crisis Recovery Is Worth Austerity Pain, Patrick Donahue and Brian Parkin, Bloomberg) what would failure look like?
Articles about events, conflicts and disease around the world
Ferguson and Related News
Grand jury to consider fatal shooting of Akai Gurley by New York City police (The Guardian) Hat tip to Ron Carter.
Hundreds of Police Killings Are Uncounted in Federal Stats (The Wall Street Journal) Hat tip to Rob Carter.
Chicago pastors lead protests over deaths by police in Ferguson, NYC (Chicago Tribune)
What President Obama told me about Ferguson's movement: think big, but go gradual (The Guardian) Hat tip to Rob Carter.
Sierra Leone to jail ‘entire families’ in Ebola crackdown (African Spotlight)
Third Sierra Leone doctor dies of Ebola (Al Jazeera)
Russian bond yield rockets to five-year high (Financial Times)
'Don’t get Russia wrong': NATO intel warns against misjudging Moscow on Ukraine (RT) Russia doesn’t want Ukraine to be split up, NATO intelligence officials say.
Human Remains Identified As At Least One Of 43 Missing College Students Kidnapped, Slain In Mexico: AP (International Business Times)
Oil’s Winners & Losers (excerpt) (Ed Yardeni, Dr. Ed's Blog) Hat tip to bbro (comment on Steven Hansen article at Seeking Alpha) Since the Great Financial Crisis the annual rate of revenue production from oil has been in the range between $3.6 trillion and $4.0 trillion more than 90% of the time for 2011 through June 2014. However, since June the revenue rate (annualized) has fallen from about $3.8 trillion to less than $3 trillion, a decline of over 20% on a price decline for Brent crude of 40%. Yardeni says the annualized decline in revenues will also be about 40% ($1.5 trillion a year) should the price remain at the current level for another 6 months. The reduced money available for investment in new production will reduce supply and therefore "low oil prices will eventually be the cure for low oil prices". Here is the start of the Morning Briefing from Yardeni for Monday 01 December:
(1) OPEC agrees to do nothing. (2) 40% discount just in time for the holidays. (3) Winners and losers. (4) Big wipeout for producers equals big windfall for consumers. (5) US drivers could save more than $200 billion. (6) Dow Theory suggests melt-up in Transports could spread to broad market. (7) Big windfall for many EMs. (8) Oil price plunge adding to deflation and prolonging NZIRPs. (9) Bonanza for bond investors. (10) The latest round of central bank puts. (11) Performance since October 15. (12) The Hunger Games: Mockingjay, Part 1 ...
(What’s Left of) Our Economy: Hopium Dominates Mainstream Media Coverage of Wage Trends (Alan Tonelson, Reality Chek) Tonelson details the atrocious job of reporting on the BLS wage data that was seen last week. Much fuss was made over a 0.5% month-over-month change in wages in November, which many pundits equated to a 5% annualized wage advance. That's great arithmetic but terrible analysis, according to Tonelson. When the same data is evaluated year-over-year are monthly results all centered narrowly around 2.0% increases every month of 2014, while CPI has been averaging more than 1.8% for the last 8 months. Looking at the less noisy year-over-year data we see that wage increases have barely beaten inflation and show nowhere near the 5% gain that has been improperly bandied about. Finally, Tonelson delivers the coup de gras to the incompetent journalists: Wage increases are not increasing; they were actually larger in 2014 for only two months compared to 2013. If any trend can be proposed it would have to be for slowing wage growth (although the differences between 2013 and 2014 are too small to have much significance). See also another discussion of this by GEI contributor Dean Baker: Economics for Economic Reporters Lesson 34,721: Monthly Wage Data Are Erratic (Center for Economic and Policy Research)
Why Piketty is a Defender of Neoclassical Economics and an Enemy of Egalitarianism (Yves Smith, Naked Capitalism) Yves Smith has contributed to GEI. Here Smith presents an interview of Yanis Varoufakis by Andrew Mazzone. Varoufakis says the reason that Piketty ends up with redistribution as the only possible solution to income inequality is that Piketty's work assumes a neoclassical framework and ignores the real drivers of capitalism which are related to asymmetries such as differences in bargaining power.
Take your pick (The Economist) If you could just avoid the worst sector every year you would beat the market by a wide margin.
Phasing out safe economic bets is no easy task for Beijing (Editorial, South China Morning Post) China has had its high growth run of the past three decades with an implicit government guarantee supporting many investments. If a Chinese investor put money into a company that failed the expectation has been that the government would make the investor whole. And they have. Very highly publicized last year were the miraculous restorations of accounts of failed real estate investors when the trusts in which they put their money were unable to make interest payments or return principal. There were no announcements at the time but everybody new this was a government bailout via the People's Bank of China. The government has said that their guarantees will end. The South China Morning Post (SCMP) says the guarantees must be withdrawn but not too precipitously, to avoid any panic. They suggest that the public will continue to assume the government has their back until one day they won't. That will be day that no one will any longer assume the government guarantee still lives.
Draghi's authority drains away as half ECB board joins mutiny (Ambrose Evans-Pritchard, The Telegraph) Three of the six members of the ECB’s executive board refused to sign off on Mr Draghi’s latest statement. This is an unprecedented mutiny at the top level of the bank and effectively emasculates the president of the central bank. It is now clear why, six months after Draghi talked of a €1 trillion program deflation fighting program, nothing has happened. As the eurozone slips ever closer to deflation Mr. Draghi appears to no longer have any authority. Econintersect: Just think of the turmoil should Mr. Draghi resign, citing irreconcilable differences with the governing board. Hang on to your life vests and parachutes!!!
The Fed's policy trajectory is tied to global recovery (Walter Kurtz, Sober Look) The Fed is in a tough spot. The perception is that the U.S. economy is strengthening and that the U.S. labor market is tightening up with higher rates of wage growth (Econintersect note: Both perceptions are debatable as mentioned elsewhere here.) But the commodity deflation now ending its fourth year is "importing deflation" into the U.S. See The Fed concerned about "importing" disinflation (Walter Kurtz, Sober Look). The Fed would not want to let wage inflation get a foothold (Econintersect note: There is no sign that it has started - see second article discussion 'behind the wall' today.)
Banks Primed to ‘Collapse Like a House of Cards,’ Banking Expert Warns (Gil Weinreich, ThinkAdvisor) One of the foremost authorities on global banking is warning that the world financial system is primed to experience another collapse, with little likelihood of timely reform to avert the danger. Stanford University’s Anat Admati said last week:
“We’re all living the illusion, like in 2006, when we thought that everything was all right, but the entire financial system is now living dangerously and close to the abyss.”
U.S. small business borrowing rises to highest on record: PayNet (Ann Saphir, Reuters) The highest on record sounds impressive but this metric is only nine years old. The high that was exceeded in October was set in January 2007. The index being reported is the Thomson Reuters/PayNet Small Business Lending Index. Let's hope the two years that follow this reading are a lot better than the two years following the previous record high.
Here’s what’s really scary about China overtaking America as the world’s biggest economy (Gwynn Guilford, Quartz) Here is a discussion of the headlines that were blaring this week, like: "China's GDP Surpasses U.S." and "U.S. No Longer the Richest Country - China Is". Unfortunately this article is rather incomplete after explaining that the headline depends of adjusting the value of currencies to what the IMF calls "Purchasing Power Parity". Guilford explains that it adjusts for the different standards of living in individual countries, implying that because China has a lower standard of living than the U.S. their currency is worth more because less of iy can buy more of an average cost of living in China than it would in the U.S.
Econintersect: The concept of PPP is based on the effective relative currency exchange rates for international trade and reflects how much currencies are undervalued or overvalued in the official exchange rates when the purchasing power is measured on the global trade "market". The consumer purchasing power relative to the national standard of living is a byproduct of the global trade/exchange measurement but can fluctuate considerably from country to country - it is not what determines PPP.
For a reference on Purchasing Power Parity see http://www.jcer.or.jp/eng/pdf/kenrep030919e.pdf. The PPP value of the renminbi is about 1.8x the official exchange rate so the GDP calculated at the official exchange rate (about 6 rmb to the dollar) is multiplied by 1.8 to get the PPP normalized GDP. But that is only a theoretical point. Based on the exchange rates used for global commerce the U.S. GDP is about 1.8 times China's (U.S. $16.8 trillion, China $9,2 trillion - 2013). The U.S. is way ahead on a per capita basis (which relates roughly to standard of living). U.S. is about $53,000 per person and China is about $7,000. Even on a PPP normalized basis the U.S. per capita GDP is about 4.2 x that of China. And, on an official exchange rate basis the ratio is almost 8:1. Guilford tries to cover all that by saying that when China equals the U.S. its GDP will be bigger because it has more than four times as many people.
Guilford also talks about the debt burden for China, with unstated assumptions that China has an economic structure similar to that of Japan or the U.S. It doesn't. The "workout" for China's debt has degrees of freedom (and probably some constraints as well) that the other two countries do not have. Guilford finds the situation scary because she doesn't understand it. We may also lack understanding but at least we are aware of our ignorance and will not build straw men to obscure that.
For more on our thoughts about China's debt, see GEI Analysis: What You Need to Know about Investment in China in 8 Charts.
Finally, Guilford does provide a very good graphic summary:
Other Economics and Business Items of Note and Miscellanea
Sharp fall of GCC markets over OPEC's decision (Kuwait News Agency)
Basic, blooming economics: Don't you get it? (The Commentator)
Economics, politics and the road to 2016 (The Denver Post)
The new economics of oil (Trinidad & Tobago Guardian)
Elderly still lag in many healthcare metrics (Medical Economics)
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