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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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Here’s What Niagara Falls Looks Like Frozen (Time) After getting down as low as -13 degrees Fahrenheit, Niagara Falls looks something like a modern art ice sculpture. See also ice climbing video below.
Ithaca, New York's Tourism Board Gives Up, Invites Visitors to Head to Florida Instead (People) Visitors to VisitIthaca.com this week were greeted with a pop-up on the site that encouraged them to flee to warmer climates. Econintersect checked just now and it was no longer there. But this is what it looked like:
Articles about events, conflicts and disease around the world
Here's a $9 Trillion Question (Mattghew Boesler, Bloomberg Business) Hat tip to Idea Economics via Twitter. Matthew Bossler has contributed to GEI. When the Fed raises interest rates it is not just the U.S. economy that is affected. Because $9 trillion of debt is owed by non-bank parties outside the U.S., every shaky corner of the global economy is put at risk. The Bank for International Settlements (BIS) says that the dollar denominated debt owed by non-banks outside the U.S. has increased by 50% since the Great Financial Crisis (GFC). With the dollar strengthening over the much of the past year the stress on many of these parties with dollar denominated debt has increased greatly through adverse exchange rate changes. If interest rates rise on top of that, the stress is multiplied. Where are the stresses most likely to cause dislocations? The article mentions China ($1.3 trillion) and Brazil ($300 billion), as well as Hong Kong, with its currency pegged to the dollar, facing a likely 20% real estate market decline due to a weaker retal market and in anticipation of the Fed raising rates.
Canada's millionaire migrants earn less than refugees, so why bother with wealth migration? (Ian Young, South China Morning Post) The idea of Canada's program to encourage immigration of the wealthy was that they would be a positive addition to the Canadian economy. But data indicates that after citizenship is acquired less than half even reside in Canada and the incomes reported on Canadian tax returns fall far below the median income for Canada. See graph below. These millionaire "immigrants" fall far below the incomes achieved by another class of immigrants: refugees. See also Canada extends millionaire migration deadline as scheme appears to flop with rich Chinese (Ian Young, South China Morning Post)
The truth is out: money is just an IOU, and the banks are rolling in it (David Graeber, The Guardian) Hat tip to Roger Erickson. Graeber says that the Bank of England has thrown the theoretical justification for austerity out the window. Henry Ford is reported to have once remarked:
A recent paper from the Bank of England has peeled back the veil to which Ford alluded and the operation of money and banking is now summarized in a document available to everyone. See next article but read this one first for better understanding of what follows.
Money creation in the modern economy ( Michael McLeay, Amar Radia and Ryland Thomas, Bank of England Monetary Analysis Directorate) From the lede:
The paper explicitly defines the two major misconceptions about banking that are so pervasive that they even exist in many university courses on Economics:
Econintersect: What is clear from this correct definition of banking operations is that, contrary to the fairy tale perpetuated in Economic mythology, savings per se do not create a means fro economic epxansion. Quite the opposite, savings held as deposits as money credits diminish the porential for an economy. Only when savings are invested in something other than "cash" can it grow an economy. And, more specifically, only when savings are removed from cash and invested in something productive, like a harvester machine or a woodworking tool, is there any economic value to the cash at all.
Note: Using cash savings for down payment on a house does nothing to grow the economy (unless the house is used to produce income via rent or a home office for work, for two examples). Otherwise the down payment is simply a form of consumption (not investment) as are all future mortgage payments used to retire principal which is reducing the monetary expansion created when the mortgage was issued.
Now for the second misconception:
Let us repeat what this paper says:
Econintersect: We maintain that the definitions in this paper are representations of fact. They are not theory. The mechanics of money and banking operate in exactly this way. The mythology of the loanable funds theory of banking causes much mischief in the interpretation of cause and effect in economic modeling. It is behind much of the disagreement with Keynes General Theory and the general omission of banking and credit from neoclassical modeling, the very omission that created nearly universal blindness to the credit bubble and the advent of the financial crisis of 2008. For an stament of the problem here see the next article.
Paradox of Thrift (Investopedia) Spreading the mythology here.
UK unemployment just dropped unexpectedly and wages are finally climbing (Mike Bird, Business Insider) Over the past 12 months UK unemployment rate has dropped from 7.2% to 5.7% and the employment rate is tied with the all-time record 73.2% of working age population. Regular pay and total pay are both rising at the same time for the first time in years. And CPI is declining. A virtuous confluence? Or a momentary coincidence?
Other Economics and Business Items of Note and Miscellanea
The rich own our democracy, new evidence suggests (Al Jazeera) Hat tip to Roger Erickson). The donor class opposes policies that favor the middle class and poor, and they have sway over our representatives.
The Hot New Statistic Oil Traders Are Eyeing Is 71 Years Old (Bloomberg Business)
The 5 Worst Large Caps (TalkMarkets)
Hurricane Sandy Lawsuit Battle: Homeowners Take On Insurers Claiming 'Secretly' Altered Engineering Reports (International Business Times)
U.S. Health-Care Spending Is on the Rise Again (Bloomberg Business) Years of slow growth in health-care costs may be coming to an end.
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