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What We Read Today 27 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.


These reading lists and discussions are special content just for GEI Members.

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From The Guardian:

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Articles about events, conflicts and disease around the world












The Budget and Economic Outlook: 2015 to 2025 (Congressional Budget Office)  The fiscal deficit for the U.S. will be 2.6% of GDP for 2015 and is projected to remain stable at that level through 2018.  (Note:  Years given are fiscal years, ending 30 September of the calendar year.)  The estimate for federal debt held by the public is 74% of GDP at the end of 2015, falling slightly for a couple of years and then rising to about 79% in 2025.  The projection for GDP growth is around 3% in 2015 and 2016, but lower for 2017 (2.5%) and beyond (average 2.2% for 2020-2025).  Unemployment rates are projected to remain just below 6% for 2015 and beyond.  Inflation is projected at 2% for 2017 and beyond.  Econintersect:  These projections beyond 2017 are probably not very credible.  Based on history, the CBO has done far worse than monkeys throwing darts would have done for 5-year, 10-year and longer forecasts.  For more details see GEI News, just published.


The following is a representation of the output gap.  This looks different from the potential GDP definition that has been widely used in recent years - see next article.


Output Gap: Real GDP compared to potential GDP, 2000-2013 (The State of Working America, from the Economic Policy Institute)  This is the definition of potential GDP and the output gap as generally accepted over the past few years.  The CBO (see previous article) has adjusted the potential GDP curve and thus narrowed the output gap from what is shown here.


5 Catalysts That Will Lift India ETFs In 2015 Even After 2014's Big Gains (Phil DeAngelo, Seeking Alpha)  Hat tip to Trang Ho.  DeAngelo has the following reasons for investing in India:

  1. Low valuations
  2. Favorable demographics
  3. Business friendly reforms
  4. "Make in India" program
  5. Easing by RBI (Reserve Bank of India

See also recent GEI Analysis discussion:  Betting on India.

Roubini Global Economics Forecasts China's 2016 Growth at 5.4% (PRNewswire) December report following trip to China, Nouriel Roubini indicates that it is crunch time for rebalancing the economy in China.  He says:

"Our recent trip to China underscored the myriad challenges facing the Chinese economy, which is now in the midst of a marked slowdown. Efforts to reorient the economy toward domestic consumption are not occurring quickly enough and President Xi Jinping's stance on the reform question is a matter of considerable speculation.  The next few quarters will tell us whether he will commit to making serious changes or opt to maintain the status quo."

Roubini, together with Don Hanna (Managing Director, Asia) and Daili Wang (Senior Economist), recently published a two-part report on the takeaways from the China trip, charting the trajectory of the economy's deceleration and discussing the market implications of the slowdown. The authors cite lower investment, especially in residential construction, and weakening domestic demand as key headwinds in the coming years, with the resulting friction taking a toll on GDP growth, Chinese equities and commodity demand. In its latest China Outlook, the company downwardly revised its 2016 growth forecast for the economy from 5.6% to 5.4%.  Hanna said:

"Rebalancing the Chinese economy requires more than simply cutting credit or investment as a share of GDP.  It calls for aligning risks and returns in the new credit-funded investment that ensues.  Those who like the current 'heads I win, tails, you lose' structure oppose these changes. Much of the uncertainty springs from differing assessments of Xi's readiness to purse meaningful economic reforms, which would mean confronting those who gain from the economy's current unsustainable structure."

Meteorologist: 2010s officially the snowiest decade in the east coast in the NOAA record – surpassing the 1960s (Marc Morano, Climate Depot)  Hat tip to Sig Silber.  Global warming skeptic has loads of citations of statements by climate scientists predicting we would be getting warmer, milder winters with less snow.  He is looking at the U.S. east coast.  Has he looked at Alaska?


Medicare faces historic overhaul (Alex Wayne, LifeHealthPro)  The Obama administration is establishing a plan which will move 30% of Medicare payments away from pay-fo-service to pay-for-results.  Doctors will be paid based on the health of the patient resulting from their treatment rather than the services they supply to achieve that result.  The plan calls for 50% of payments be converted to pay-for-results by 2018.  This move is in the direction that Republicans have been moving with possible legislation to modify Medicare, which also has some Democratic support.  See Democrats praise GOP doc fix effort (Allison Bell, LifeHealthPro).

Still no way out for Greece (Kermal Dervis, ejinsight on the pulse)  Key points from this article:

  1. Syriza’s economic program rejects the austerity policies supported – or, some might say, imposed – by the so-called “troika”.
  2. These policies require Greece to maintain a very high primary budget surplus – more than 4%  of GDP – for many years to come.
  3. Greece’s foreign debt, the nominal value of which remains very high – close to 170% of GDP.
  4. The real present value of the debt is much lower, given that most of it is now held by governments or other public entities and carries long maturities and low interest rates.
  5. Nonetheless, repayment “spikes” this year constitute a real short-term challenge.
  6. Banks are largely out of the picture now:  They had large exposure in the 2012 crisis.
  7. A debt reduction in the form of further interest-rate reductions and maturity extensions on foreign government-held debt would not hurt financial markets.
  8. But if Greece’s new government does not tread lightly in discussions with the ECB and the IMF, withdrawal of these institutions’ liquidity support for Greek banks could follow.
  9. If negotiations break dow and there is no contagion (to Spain, Italy or elsewhere) there are still possible "serious political repercussions."

Canadian Banks Hesitate to Follow the Bank of Canada's Rate Cut (Walter Kurtz, Sober Look)  The Bank of Canada surprised markets last week when they lowered the overnight rate 0.75% on Wednesday. The bank cited low oil prices, which have rendered much of Canada's oil production unprofitable and resulted in downward pressure on growth and inflation expectations.  Kurtz provided the following graph with break-even points for various North American oil sources.  But there seems to be some uncertainty about just what production costs are.  See U.S. oil well shut-ins start as crude rout batters small producers (Terry Wade and Anna Driver, Reuters) and RPT-COLUMN-The real shale revolution: Kemp (John Kemp, Reuters).  Because there is a cost learning curve for the new horizontal drilling techniques, it is hard to get any firm estimates on what production costs are - they appear to be a moving target and the targets move lower with time.


Other Economics and Business Items of Note and Miscellanea

Junk Bonds and Fracking at Low Oil & Gas Prices: Wave of Defaults, “Outright Liquidations” Next (Wolf Street)

Why Republicans Are Talking About Income Inequality (Bloomberg Politics)

Obama’s Newest Middle-Class Tax Hike (National Review Online)

Yes, a Northeast Blizzard Can Slow U.S. Economic Growth  (The Wall Street Journal)

Blizzards and the Birth of the Modern Mayor (The Atlantic)  The Great White Hurricane of 1888 demonstrated the vulnerability of urban life, and led voters to demand greater protection.

How the cable industry is trying to reshape the economics of the Internet (The Washingtobn Post)

Is economics still important? (The Daily Star)

How Economists Came to Dominate the Conversation (The New York Times)

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