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What We Read Today 08 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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The future of new business is disrupting old business (Barry Ritholtz, The Washington Post)  The sharing economy, represented by Uber, but also including the likes of Airbnb, Snapgoods, RelayRides, TaskRabbit and Lending Club, is disrupting the stautus quo economy just as surely as the advent of the automoblie in the early 20th century disrupted the buggy whip industry. He discusses what is going on with these new companies:

They attack an existing market dominated by entrenched incumbents that are inefficient, expensive or both.


Articles about events, conflicts and disease around the world

Greece

Greece: Greenspan predicts exit from euro inevitable (BBC News)

Historically speaking, Germany a bigger deadbeat than Greece (CBC News)  Germany's debt defaults after the two world wars dwarfs anything Greece has done, economists say.

Greece says has no cash problem, to present plan next week (Reuters)

Tsipras Outlines Plans to Break Free From Bailout Program (Bloomberg Business)

Eurogroup Gives Greece 10 Day Ultimatum: Apply For Bailout Or Grexit (Zero Hedge)

Ebola

What Happened to Ebola? (Bloomberg Business)  This has gone from a global pandemic to less than 100 new cases a week.

Yemen

Yemenis rally against Houthi seizure of power (Al Jazeera)  Thousands take to streets a day after rebels dissolve parliament and proclaim a formal takeover of government.

Syria

Obama’s train and equip mission is no magic bullet for Syria (Al Jazeera)

Iran

Iran's Khamenei says could accept fair nuclear compromise  (Reuters)

Ukraine

German-French Push Yields Ukraine Summit Plan With Putin (Bloomberg Business)

Arming Ukraine will put the West in danger (Reuters)

Europeans Laugh as Lavrov Talks Ukraine (Bloomberg Business)

Costa Rica

Withering clouds: Climate change takes its toll on Costa Rica forest (Al Jazeera)

Mexico

In a rough part of Mexico City, shooting with cameras instead of guns (Al Jazeera)  A leading lensman in Mexico uses his own troubled past to steer teens out of trouble and into careers.


Baltic Dry Index (Darren Winters)  This relates to an article discussion from WWRT 06 February 2015, reproduced below this disccussion (next article).

The BDI is a shipping and trade index, created by the London-based Baltic Exchange, that measures changes in the cost to transport raw materials such as metals, grains and fossil fuels by sea. The Baltic Exchange directly contacts shipping brokers to assess price levels for a given route, product being transported and time to delivery (speed).

BDI is a composite of three sub-indexes that measure different sizes of dry bulk carriers (merchant ships) - Capesize, Supramax and Panamax. Multiple geographic routes are evaluated for each index to give depth to the index's composite measurement.

Changes in the Baltic Dry Index will give you an insight into global supply and demand trends. The change in the BDI is often considered a leading indicator of future economic growth (if the index is rising) or contraction (index is falling) because the goods shipped are raw, per-production material, which is typically an area with very low levels of speculation. 

The supply of large carriers tends to remain very tight, with long lead times and high production costs, so the index can experience high levels of volatility if global demand increases or drops off suddenly. The Baltic Exchange also operates as a maker of markets in freight derivatives, a type of forward contract known as FFAs (forward freight agreements) that are traded over-the-counter. 

BDI gets a moderate rating amongst analysts.

Some consider it a good indicator, especially when looking for hints of economic recovery, while others think investors shouldn't rely on it, suggesting that it's a long shot to count on this investment tool as a crystal ball to foresee the direction of stock markets or the global economy.

Click for large image.
baltic-dry-index-1985-2015-600x450


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

iron-ore-baltic-dry-Daily-Shot-2015-feb-05


islam-map


ECB's Lautenschlaeger does not see bond-buying: paper (Reuters, Investing.com)  For your amusement, this discussion is repeated from 06 July 2014 - It indicates just how blind ECB people can be.   European Central Bank executive board member Sabine Lautenschlaeger said she does not see the ECB embarking on a bond-buying spree in the near future, according to a German newspaper report. She said a large-scale purchase of bonds would only be an option if the ECB faced extraordinary risks, adding: "I really don't see that right now".


Inequality and Growth (Justin Wolfers, Brookings Institution) This is a 24 page summary and review of Thomas Piketty Capital in the Twenty-First Century. Wolfers concludes that Piketty has raised more questions than he has answered.


The incapable soothsayers (Salil Mehta, Statistical Ideas) Salil Mehta has contributed to GEI. Statistical analysis proves the the Fed has forecast unemployment six months after it happened.

unemployemnt-andfed-forecasts-mehta


Stiglitz, McKibbin clash on US failure (Houses and Holes, Macro Business)  This discussion of the U.S. education system is repeated from WWRT 03 July 2014.

From the AFR, at a conference today Jo Stiglitz,

...listed as weaknesses the US's poor educational performance, financial deregulation, a slump in work-force participation, an economy that "socialises losses and privatises gains" and several decades of wage stagnation for low income earners.

..."You have to say that's a failed ­economic model."

Warwick McKibbin wouldn't have a bar of it:

"I don't think the US model has failed. I agree that the income distributional issues are really serious and they will undermine the aggregate story, but the US is still a well-functioning, innovative society," he said.

"And if they fix the politics, they will fix the economics."

I think you've got to define your terms here. "Failure" will mean something different to an American with certain expectations than it will to an Australian surrounded by rent-seeking parasites.

It is clear that the US is broadly functional and vastly more innovative than here. But it is also the case that it's been royally screwed by Wall St and financialisation, especially in its income distribution. On that score, the political problem is also a manifestation of the economic in that certain free-market orthodoxies that Warwick McKibbin would likely endorse have empowered Wall St only for it to then buy more favourable policy. In short, McKibbin is dodging the real question.


Meet the 80-Year-Old Whiz Kid Reinventing the Corporate Bond (Edward Robinson, Bloomberg Business)  John “Mac” McQuown has invented a new hybrid security called an “exchangeable bond,” or eBond for short.  It is a process that converst a junk bond into a triple-A rated security by embedding a credit-default swap (CDS), the derivative that helped push the global financial system to the edge of ruin in 2008, in a corporate bond.  Econintersect:  Oh-oh!  And who guarantees the CDS?

Click for large image at Bloomberg Business.


Other Economics and Business Items of Note and Miscellanea

Why Do Many Reasonable People Doubt Science? (National Geographic)

Why Google Glass Broke (The New York Times)

Why Work Is Turning Into a Nightmare (Robert Reich, AlterNet)  Robert Reich has contributed to GEI.  The ultimate in labor productivity is to fit minor human activities into a robotic world and pay the humans pennies.

America’s 14th-Century Drone Policies (Slate)

The Hack That Warmed the World (Foreign Policy)  Europe’s carbon-trading market was supposed to be capitalism’s solution to global warming. Instead, it became a playground for gangsters, international crime syndicates, and even two-bit crooks -- who stole hundreds of millions of dollars in pollution credits.

The euro crisis: Debt, morality and the cycle (The Economist)  This really gets at the idea of credit-created money and debt-free money.  Can the two exist in parallel in one economy?

The concept of usury (an excessive interest rate) was developed by the Catholic Church, although the parable of the talents implies that money should be set to work. See Matthew 25:27

Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest

Later on, there was the concept of productive and unproductive loans: lend your neighbour the money to pay for hospital treatment, and no interest should be expected; lend him the money to start a business, and interest should be handed over.


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