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What We Read Today 09 January 2015

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.

World’s Best Forecaster Targets Euro-Dollar Parity: Currencies (Lucy Meakin and Andrea Wong, Bloomberg)  We have been discussing this 'behind the wall' in recent days and now ING Groep NV which became the world’s most accurate currency forecaster in 2014 by being bearish on the euro has forecast a 13-year low for the euro at U.S. dollar parity.  The forecast covers the expected low over the coming two years.  See more about currency forecasts 'behind the wall' today.


Fix the Debt (Progress Report 2014)  Subtitle:  Seeking Solutions for Responsible
Governing and Economic Success
.  This committee has a number of big name leaders and 365,000 active "campaign supporters".  The report starts with:

Despite recent improvement in annual federal budget deficits, those gains will be short-lived unless policymakers commit to a far-reaching and long-term approach to addressing our fiscal challenges. Absent further action, deficits will begin rising again in a couple of years, and the national debt will remain on an unsustainable path that threatens the economic prospects and standard of living for future generations.

Debt Threat: The National Debt and You (Fix the Debt)

According to the Congressional Budget Office, wages will grow more slowly over the next 25 years if debt is on an upward path compared to a downward path.

debt-and-wages

This article lists all the ways this organization says debt harms the economy and will "threaten citizens’ and families’ economic well-being".  The article's list of what a large debt will do:

  • Hurts wages and jobs
  • Makes borrowing more expensive for important investments
  • Harms our children
  • Threatens the safety net
  • Risks a real crisis
  • Prevents us from growing the economy

The article states that government debt "crowds out" private investment.

Econintersect:  Making such a statement without a through justification is problematic.  We believe the empirical data does not support such a statement.


The 2014 Long-Term Budget Outlook (Congressional Budget Office, July 2014) This report projects that federal debt held by the public will rise from the current level around 73% of GDP to 80% by 2024, about 94% of GDP by 2034.  This is from the same organization that projected in 2001 that the national debt would be completely paid off within a couple of decades.  This will be discussed further 'behind the wall' today and in the future.  See next article.


CBO Publications 2000-  (Congressional Budget OfficeEconintersect comment:  If you cannot rewrite history, remove the record.  Here is the content at http://www.cbo.gov/publications/CBOPubs2000-present.pdf.  Or maybe it's just a temporary hick-up on the site?

cbo-documents-archive-600x450


Articles about events, conflicts and disease around the world

France

Greece

Race Relations and Related News

Nigeria

Central Africa Republic

Syria

Palestine

Iraq

Uzbekistan

Sri Lanka

Latin America

Cuba

Best Major Currency Forecasters Q4 2014 (Bloomberg)  As of 05 January 2015 (follow link for more currency pairs):

currency-forecaster-rankings-600x720


A long way from dismal (The Economist)  The Economist says that microeconomics powered by data is shaping tech firms and that this trend has lessons for macroeconomics.  The comparison being made in this article is that macro has been plying its trade by making assumptions and building models.  (Unfortunately for the macro output, some of the 'assumptions' used for input have been confused with 'economic laws'.)  Micro, on the other hand, has developed as a data analysis discipline and the data used to formulate descriptions of how the macroeconomic system works.  The thought expressed is that macro guys should also be carefully analyzing data and using empirical approaches to define how macro systems work.

We couldn't agree more.  Too bad they didn't mention any of those economists who are doing just that, Steve Keen, for example.


It Would Help If Protestors Against Economics Understood Economics (Tim Worstall, Forbes)  This should be read as a comedy.  Paraphrasing what Worstall wrote (in the interest of saving  a number of superfluous words), 'economics demands you bring your beliefs with you' and 'Marx said profits were exploitation' are two of the punch lines delivered.  I would say I'm sorry to have brought a weak article by Worstall to your attention, but then, in my opinion, it's quite typical. 


There's No Telling How Low Oil Prices Could Go (Grant Smith and Mark Shenk, Bloomberg)  In 2014 the U.S. pumped more oil than at any other time in at least 30 years.  The highest level of production for any week in 2014 continued in 2015 with 64 million barrels (9,132 barrels per day).  The article quotes Ed Morse, head of global commodities research for Citigroup who says the Saudis are maintaining their production levels because of concern about the high output from U.S. wells.  Morse says they (Saudis) are "testing how much production growth can be curtailed by the drop in prices.”

It is estimates that there is a surplus output globally around 1 million barrels a day, a situation that did not exist during the last price collapse for oil in 2008.  For this reason none of the analysts interviewed by Bloomberg believe the bottom  for oil is close to being established - that will not happen until the surplus is removed, either through increased consumption or reduced production. (Econintersect:  probably the latter.)  Only one analyst mentioned a specific price level for a potential bottom: $40 for Brent and below $35 for WTI (Fransisco Blanch, head of commodities research for Bank of America).  For more discussion watch this video and a call on when there will be a bottom here.


Inflation Reading Misses Fed’s Target for 31st Straight Month (Eric Morath, The Wall Street Journal)  It deserves to be mentioned (and repeated) that giving money to the financial system and not to the consumers has had a poor record of increasing consumer spending and moving consumer inflation higher.  What was that definition of insanity again? 

inflation-3-years-2014-dec


Wading Through Molasses: "Did the Real Economy, Not Counting Government, Expand in Last 20 Years?"  (Mike Shedlock, MISH'S Global Economic Trend Analysis)  Mike Shedlock has contributed to GEI.  This is essentially a critique of John Williams' ShadowStats (Shadow Government Statistics).  Mish comes to the conclusion that, although it may have "been overstated by a little, perhaps by a lot" there has been real growth over the past 20 years.  He thinks that growth may be slower in coming years because of debt overhang but he does not accept that there has been no real growth in the past.  He says that the claim there has been no growth depends on ShadowStats instead of official inflation.  And he rejects the validity of ShadowStats applicability to reality.  He quotes Doug Short extensively (see next article).


Regression to Trend: Debunking the Alternate CPI (Doug Short, Advisor Perspectives dshort.com)  Doug Short is a regular contributor to GEI.  Short presents as evidence for the prosecution (to debunk John Williams' ShadowStats inflation measure) the chart below with the following comment:

As I commented when I originally posted this household income chart last year, the Alternate CPI is a completely bizarre outlier. What this deflator is telling us translates into something like this: If we chain the 1967 median household income of $7,143 in 2011 dollars, it would have had the purchasing power back then of $166,683.

On a personal note, my first full-time university faculty job in 1969 paid me $9,000 ($7,500 base plus $1,500 for teaching the summer session). Our household income that year was approximately $13,000, which would have been about 55% above the median $8,389. According to the Shadowstats CPI, our 1969 income had the purchasing power of $275,860 in 2011 dollars. That does not, even with the most rosy colored glasses of memory, remotely resemble the reality of our 1969 financial situation.

Click for large image at Advisor Perspectives dshort.com.
real-median-household-income-1065-2013-600x456


Secular Stagnation:  Facts, Causes and Cures (Edited by Coen Teulings and Richard Baldwin, CEPR Press e-Book)  This is a resource we will return to a number of times.  Contributors are Lawrence Summers, Barry Eichengreen, Paul Krugman, Robert J. Gordon and Edward L. Glaeser.


Other Economics and Business Items of Note and Miscellanea

Five steps towards a sustainable, just finance system (The NEF Blog)

Economics Stars Swing Left (Bloomberg View)

Medicare exploring new primary care bonus as old program expires (Medical Economics)

The Two Tales of Falling Oil Prices in Australia (The Wall Street Journal)

The Changing Economics of Single Motherhood (Pacific Standard)

Elizabeth Warren Just Delivered a Blistering Takedown of a Key Part of Reagan's Legacy (Policy.Mic)


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