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What We Read Today 17 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.


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Making Sense of the Swiss Shock (Markus Brunnermeier and Harold James, Project Syndicate)  Two Princeton professors argue that the Swiss move decoupling the franc from the euro was similar in effect and consequence to a euro member country leaving.  They allude to the collapse of Lehman as an event which might be comparable in aftereffects to the Swiss action.  They also compare the current situation to the one that led up to the Nixon move to break away from the last vestiges of the gold standard in 1971, which occurred after West Germany broke its Deutschmark peg to the dollar and "essentially destroyed the entire international monetary system".  Here is their conclusion:

The risks created by the SNB’s decision – as transmitted through the financial system – have a fat tail. The negative effects for the Swiss economy – through the decreased competitiveness of its export industries (including tourism and medicine) – may already be showing that abandoning the euro peg was not a good idea.

But the consequences will not be limited to Switzerland. After years of wondering whether the exit of a small, fiscally weak country like Greece could undermine the euro, policymakers will have to deal with an even bigger shock stemming from the exit of a small, fiscally strong country that is not even a member of the European Union.

Articles about events, conflicts and disease around the world


Race and Ethnic Relations and Related News





Inequality and the Putin Economy: Inside the Numbers (Jason Breslow, Frontline)  Putin is reportedly tremendously popular in Russia.  But that appears to be in part due to abject ignorance among the people.  According to this Frontline piece, Putin has abandoned all pretense of working for economic advancement of a middle class and is running the world's most economically repressive oligarchy.  Income and wealth inequality are extreme:  111 people control 20% of the wealth and the top 10% control more than 85%  Two of the graphs from the article tell a lot of the story.



In the ointment (The Economist)  Africa has long had exceptionally scattered populations, apparently making very inefficient use of land.  A new paper by by Marcella Alsan (Stanford University) blames the tsetse fly.  This insect causes sleeping sickness in humans but is fatal to livestock that are bitten.  She has correlated higher Tsetse fly densities with lower farm animal populations which suggests a possible cause for slow-to-develop agriculture.  The higher the tsetse fly population for different areas across Africa, the lower the economic development.

Palladium Was the Winner in 2014 (Frank Holmes, U.S. Global Investors)  While the 2008 crash in the oil market went from ~$147 to ~$32 and the current decline is from ~$105 to ~$45 (so far), the decline in 2014-15 has been sharper (steeper) as evidenced by the RSI (Relative Strength Indicator) values.


Comparative Law & Economics and the ‘Egg-Laying Wool-Milk Sow’ (Florian Wagner-von Papp, Social Science Research Network)  The complexity of assumptions for economic studies can be considerably further complicated by introducing interdisciplinary combinations.  The mythical sow is a sarcastic representation of how founding assumptions for a study can create something completely devoid of reality.  The author suggests there is more to be gained from studying in-depth within a discipline than from combining disciplines and studying broadly.

US Rig Count Falls By Most In 5 Years (Myles Udland, Business Insider)  The total number of drilling rigs in operation has fallen sharply as the oil price decline has intensified.  See also next article for breakout of gas and oil drilling rigs.


Examining Drilling Economics In the Cheap Oil Era: RBN Energy (Clayton Browne, Value Walk)  Repeated from WWRT yesterday.  The low price for natural gas in North America has produced a reduction of gas drilling rigs by about half over the past four years.  Now it looks like the same trend is starting for oil rigs.  As the number of new wells is reduced over time there will be gradual reduction in production and gradual reduction will likely keep the price of oil depressed.


How the shale oil revolution has affected US oil and gasoline prices (Lutz Kilian,  The effect of the shale oil boom on gasoline prices has not been direct because U.S. refineries are set up for heavy, sour oil while the tight shale oil production is light and sweet.  The author has concluded that the increased production of oil in North America is only a secondary factor in falling oil prices; the primary reason is lower economic activity reducing demand.  By the way, the author says that U.S. refineries are already starting some conversions to be able to crack the new light, sweet crude but the process will take years and will not have a market impact for a few years.


Former Fed Governor Hedges June Rate Prediction (Jon Hilsenrath and Michael S. Derby, The Wall Street Journal)  Harvard professor and former Fed Governor Jeremy Stein is now questioning his prediction of a rate hike in June.  Economic events of the last week, especially the plunge of the 10-year Treasury bond below 2% yield, are giving him second thoughts.  Stein said that the drop in yields "represents a puzzle than isn't easily resolved".  Econintersect suggests he read Irving Fisher on debt deflation. 

Other Economics and Business Items of Note and Miscellanea

The Next Subprime Crisis Has Already Started (Money Morning)

Report: After Citizens United, Outside Spending Doubles (Frontline, PBS)  Wealth has its privileges and one of them is running the country.

The Narendra Modi government is on track to make India a top global investment destination (The Economic Times)

The War in South Sudan Might Cost $158 Billion Over 20 Years (Vice)

The end-users — not the ACA — control health care costs (Employee Benefit Advisor) 75% of healthcare costs are related to lifestyle choices.

Brad Pitt, Christian Bale and Ryan Gosling to Star in Financial Drama ‘The Big Short’ (EXCLUSIVE) (Variety)

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