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What We Read Today 22 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.

This feature is published every day late afternoon New York time. For early morning review of headlines see "The Early Bird" published every day in the early am at GEI News (membership not required for access to "The Early Bird".).

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Investing.com Weekly Economic Calendar (Investing.com)  If you want a global economic calendar for the week, start here.  Here is the Monday list:

weekly.calendar.monday.2015.feb.23


Articles about events, conflicts and disease around the world

U.S.

Here is ashort list of many of the statements by Pres. Obama that are worthy of criticism:

Come on GOP, you've got plenty of factual material without making stuff up.

Greece

Syria

Iraq

Ukraine

Russia



DEBTORS’ PRISON: GLOBAL DEBT HAS GROWN $57 TRILLION SINCE 2007 WITH 100 PERCENT OF SOVEREIGN DEBT MONETIZED (Anthony B. Sanders, Confounded Interest)  Since the subprime mortgage crisis and Lehman failure, global debt has grown by $57 trillion since 2007, raising the ratio of debt to GDP by 6.3%.  Sanders has two graphics which are difficult to rationalize one against the other.  If the first one is correct (we believe it is) then where do the numbers come from for the second?  And why tdo the numbers specified in the graph have no relationship to the vertical axis?  If we can find the McKinsey & Company source we will revisit the second graph and discuss the meaning and context.

debt.global.2000.2007.2014

debt.transfer.private.public.2000.2014

There is a third graph which is very important.  It shows that the net issuance of sovereign debt net of central bank monetization is now negative.  This is the equivalent of the issuance of debt-free money, although central banks have the ability of reversing the debt-free money at some point in the future by moving sovereign debt off their balance sheets and back to the private sector.  When would they do this?  It could be a tool of monetary tightening.  Of course, the market price for the debt would be much less than when originally issued  if inflation was higher (which it probably would be if tightening was on the table).  So the central bank would lose money on the transaction and that loss would eventually accrue to the private sector when bonds matured at par.  The integrated effect over time would be an increase in the money supply as the gains were realized in the private sector (which would have been losses on the central bank's books).  Those gains would be an debt-free increase in the money supply.

How could a central bank afford to do this?  It is no matter to them.  They can create and consume the money at will as long as it is accommodated by economic activity.  If they create and do not destroy money as needed by the economy dislocations can occur.  Right now the central banks are creating money without requiring the private sector to increase its holding of sovereign debt, a very accommodative policy.

sovereign.debt.issue.and.monetization


World Markets Update: The Rally Continues at a Moderate Pace (Doug Short, Advisor Perspectives dshort.com)  Doug Short is a regular contributor to GEI.  For the second consecutive week, all eight indexes on Doug's world market watch list posted weekly gains, although at a slightly more moderate pace.  The weakest market year-to-date is Shanghai; the strongest are Paris and Frankfurt.

markets.globa.2015.feb.20


America is Shaking Off Its Addiction to Oil (Bloomberg Business)  A combination of more efficient use of energy plus increased use of natural gas and renewables is driving down the U.S. dependency on oil.  It took three times as much oil in the 1970s to produce on unit of GDP than it does today.

oil.gdp.1970.2014.600x500


Low Yields Entice Corporate Debt Issuers (Moody's Analytics)  About 18 months ago the U.S. high yield to investment grade spread was an unusually low 200 basis points.  It has now opened to more than 500 bps indicating the market is much more concerned about credit risk than it was.  From Moody's:

Before the latest pickup, the drop-off in high yield issuance in the latter half of last year was particularly pronounced among the lowest rating categories (Figure 4). The $179 billion in global high yield issuance rated Ba1 to B2 for the six months ending January was the lowest in 26 months, and down 35% from the first half of 2014. For debt rated B3 or lower, the $40 billion in issuance over the past six months was the least in 33 months, representing a 53% drop from the total in the first half of last year. The relatively poor performance at the bottom of the rating scale is seen in the lasting rise in the spread for Caa-rated debt (Figure 5). The 801 bp spread for US Caa-rated corporate debt in the Barclays index is far above last year’s low of 509 bp. At the top of the high yield scale, the current Ba-rated spread of 299 bp is much closer to last year’s low of 228 bp. Investor wariness of credit risk is now heightened — particularly with regard to overleveraged energy sector firms. Those conditions will restrict the volume of debt issuance among the lowest rated borrowers.

high.yirld.bond.history.moodys


Other Economics and Business Items of Note and Miscellanea

The Economic Way of Thinking About Health Care (Reason.com)  "Health insurance does not grow wild and abundant in nature or fall from the sky like manna."   Econintersect:  Based on the premise there is a limit to what we can afford other than what would cause inflation.

Fast Company profiles American Giant, tough economics of making clothes in the United States (Bayou Buzz)

Economics moronism: Good grief (Trib Live)  Selective examples.

Questions surround economists who assess Missouri legislation (Kansas City Star)  You don't mean that professors can be bought, too?


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