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What We Read Today 06 February 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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Target in Canada: Goliath Receives a Spanking and Runs Away (Alex Carrick, CMD Market Intelligence)  Only two years after moving into Canada, Target is locking the doors and moving out.  This article recounts the mismanagement that led to this point.

Articles about events, conflicts and disease around the world



Saudi Arabia







China's credit-binge hangover is a big headache for Australia (Robert Gottliebsen, China Spectator)  Paul McNamara this week, the investment director of GAM's emerging markets bonds, is quoted by Gottliebsen.  He sees a tough several years ahead for commodity exports such as  Australia, Brazil, Russia, South Africa as their primary customer is clearly cutting back.  Gottliebsen writes:

However, as you can see in the graph below, China has been winding back its credit growth severely. The graph reflects McNamara's view that while there is only a small amount to fall, credit growth and therefore commodity demand will stay down for an extended period.

See also the next two articles.


Repeated discussion from yesterday

Aggregate demand = the sum of GDP plus the change in debt.  Steve Keen has pointed out that this means that the rate of change of aggregate demand = rate of change of GDP + the second derivative (acceleration) of debt.  For an example of Keen's analysis see (from 2010):  Deleveraging with a twist (Steve Keen's Debt Watch).  For a more detailed analysis from 2011 see Modeling a Multisectoral Economy (Steve Keen, GEI Analysis) which contains a lengthy bibliography including Keen's publications on the functional structure of aggregate demand (AD) back to 1995.

Perhaps the simple differential equations will be a clearer statement to some.

AD = GDP + d(Debt)/dt

d(AD)/dt = d(GDP)/dt + d^2(Debt)/dt^2

What the second equation above says is that, if the rate of debt growth is negative, a slowing of the negative growth (a positive acceleration) increases aggregate demand even as the debt contraction continues at the slower rate.

See comment below sent by Steve keen regarding this.

Comment from Steve Keen:  

 Just one thing to add: I've now shown analytically that aggregate demand and aggregate income are "expenditure & income generated out of the turnover of existing money plus expenditure and income generated by the change in debt". This ends all the assertions that I was doing double-counting, or violating the expenditure = income identity.  The academic paper elucidating this analysis is coming out in the next edition of the Review of Keynesian Economics (

Beware of Bankers Bearing Gifts (Dennis Miller, Miller's Money Forever)  Miller reports on a new practice by banks in the UK.  In that country interest-only mortgages are quite popular.  He writes that hundreds of thousands of interest-only mortgages are due to expire between now and 2020, and half are facing a shortfall (underwater) by an an average of £71,000 (US $109,000).  Over all terms to expiration there are about 1.3 million such interest-only loans, Miller says.  Banks are in a tough spot here because they cannot convert these terminating contracts to a conventional mortgage without collecting more money to remove the shortfall (money which most mortgagees do not have).  So it would seem that the only other option would be foreclosure, with a resale at a substantial loss.  So the banks have come up with a solution:  The "lifetime mortgage".  This is an agreement for the mortgagee to pay interest for the rest of his/her life and then the bank assumes title upon death.  It really is a solution which is in effect a lifetime contract to pay rent which includes an option to sell the property in the future provided the principal is repaid at closing.  Miller says that this is not a good deal because the interest payments can be more than the individual might pay in rent and  has added costs for maintenance and taxes that are included in rent.  He says it is another way that banks have found to avoid realizing losses at the expense of the public.

Have We Hit Peak America? (Elbridge Colby and Paul Lettow, Foreign Policy) Polls of the American people show a growing sense of decline for the world's greatest power. And measurements of global economic growth also indicate that a shift toward North American dominance in the 20th century has reversed to a shift toward Asia in the 21st.


Our Mismeasured Economy (Lew Daly, The New York Times) Daly says that we are not measuring properly the contribution of government to the economy over time. He says that 30% of personal consumption is funded by a lower dollar amount of government expenditure. Infrastructure provides about $800 billion of annual gain but costs only about $185 billion. And Lew says there is unmeasured economic benefit from regulations (example given , the Clean Air Act) and from government sponsored "human, social, intellectual and natural capital". See also next article.

GDP and the Public Sector (Dean Baker, Center for Economic and Policy Research) Dean Baker has contributed to GEI. Baker criticizes the preceding Lew Daly Op Ed on two grounds. First he says that Daly has focused on GDP while societal well-being is far more that an economic measure. The criticism he makes is basically that the government is far more important than the contribution it makes to GDP. And then he goes on to discuss a second point, why he thinks the "government's role in the economy goes much deeper than Daly suggests". The roles played by government permeate every corner of the economy that public and private activity are "so thoroughly integrated it is impossible to separate the two". Baker says "this is the fundamental misunderstanding, not our measure of GDP" which Lew discussed.

Why China Will Reclaim Siberia (Frank Jacobs, The New York Times) Until 1860 Siberia was part of greater China. It could become so again. Russia could become a truly European country instead of the multi-continental land giant it is today.

"A land without people for a people without land." At the turn of the 20th century, that slogan promoted Jewish migration to Palestine. It could be recycled today, justifying a Chinese takeover of Siberia. Of course, Russia's Asian hinterland isn't really empty (and neither was Palestine). But Siberia is as resource-rich and people-poor as China is the opposite. The weight of that logic scares the Kremlin.


Republicans pitch Obamacare alternative (Personal Liberty)  The legislation calls for an end to Obamacare’s mandate penalizing Americans for not obtaining health insurance, and it returns regulatory powers to the states, but preserves the pre-existing condition rule.  Republicans seem to feel they cannot repeal Obamacare, so they seem to be trying to settle for a modification that they can call repeal anyway.

Collapsing commodities leads to collapsing Baltic Dry Index (Walter Kurtz, The Daily Shot)  See also next article.


Spreading Deflation (Walter Kurtz, The Daily Shot)  Kurtz writes:

With disinflationary pressures spreading, more easing is expected from a large (and growing) number of central banks. Impressive.


Other Economics and Business Items of Note and Miscellanea

Rank Incompetence (The American Conservative)  Turf wars are the one kind our generals know how to win.

Teaching economics (The Economist)  The economics curriculum is evolving, but too slowly for some.

Obama's misguided 'middle-class economics' (The Hill)

When Leftwing Economists Gruber and Krugman Practiced Economics (

Dionne: 'Envy economics' really all about social justice (Chron)  Paul Ryan's label for Obama's budget ignores the fact that even some conservatives see income inequality as a serious issue.

Where in America Jobless Rates Have Dropped Below 5% (The Wall Street Journal)  More than 40% of some 372 metro areas in the U.S. had jobless rates below 5% in December.

Euro-Area Companies Add Jobs as ECB Bolsters Economic Recovery (Bloomberg Business)

Deflation Can Be A Good Environment For Gold – Capital Economics (Kitco News)

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