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What We Read Today 24 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".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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LinkedIn's billionaire founder shares his best networking advice (Richard Feloni, Business Insider

LinkedIn co-founder and chairman Reid Hoffman believes it is not as important what you know as it is who you know and what they know.  This is the power and value of networking which Hoffman explains in a 48-slide presentation.

Click to view slides.

Articles about events, conflicts and disease around the world


Econintersect:  Is there any difference between "bipartisan" and "mostly partisan"?  In the House 85% of Democrats did not vote for this and for the Senate 80% of Democrats did not support.  Republicans voting against:  in the House none and the Senate one.




South Africa






A Stock Market Alarm Is Sounding for the First Time Since 2007 (Anthony Mihaydari, The Fiscal Times)  Hat tip to Rob Carter.  The alarm Mihaydari refers to is the high positive investor sentiment which is often a good contrary indicator.  But there is a more important factor presented:  The broad NYSE Composite index has repeatedly bumped up against the 11,100 level and has thrice been repelled.  Currently it is coming up against the "ceiling" for the fourth time.  Does this look like a possible topping pattern to you?


What are the effects of not expanding Medicaid? (Jeremy Barofsky, Brookings) For the 22 states which refused expanded Medicaid, coverage has increased by 7% over the last year.  For the 38 states plus the District of Columbia which have expanded medicaid coverage has increased by more than 25%.  For Kentucky Medicaid coverage increased by 70% in 2014.  For the states which did not expand medicaid this article says:

The Urban Institute estimated that non-expansion states are causing six million people across the U.S. to remain uninsured in 2016.[ii] Texas represents the largest number of uninsured at 1.5 million, with three states—Texas, Florida and Georgia—accounting for half of that total. The report also estimates that states not expanding will forgo $37 billion in federal matching funds and $14 billion in hospital reimbursement in 2016.

A study of the Medicaid program in one of the states that did expand Medicaid found significant long-term benefit for that state:

A study of Oregon’s Medicaid program, which used a lottery to determine eligibility, found higher utilization rates across hospitalizations, primary care, and preventive care, but also lower out-of-pocket medical expenses and medical debt, and better self-reported health outcomes compared to the uninsured. The study also found a decline in depression and catastrophic expenditures from health spending. And although health benefits are less clear, an earlier study also showed that Medicaid expansion reduces all-cause mortality.

Also mentioned in this article is an analysis that found that increased incomes because of better health outcomes actually increase tax revenues enough to approximately pay for the additional health care.

The perils of internationalising the Chinese yuan (Peter Cai, China Spectator)  Given China’s current economic and financial instability, any attempt to suddenly throw open capital account controls in order to internationalise the currency is foolhardy.  Right now Cai says a major risk for China is capital outflows as the government cracks down on corruption.  These outflows have been rising significantly as we have discussed here recently.  Cai's conclusion:

In [Joshua] Aizeman’s new National Bureau of Economic Research working paper -- The Internationalization of the RMB, Capital Market Openness and Financial Reforms in China -- he argues that “the odds for a smoother transition are higher with gradual sequencing than with a cold turkey financial liberalisation.”

The Chinese central bank’s impatience is understandable but its agenda is fraught with risks and it is also swimming against the tide. The stigmas around short-term capital controls have been greatly reduced, especially in the light of recent global volatility.

The internationalisation of the yuan will happen naturally and over time but the misguided push to use the process as a way to get rid of capital account controls is a bad idea. It is a risk that China cannot afford to take right now.

Market expectations of the first Fed rate hike seem unrealistic (Walter Kurtz, Sober Look)  Fed Funds futures continue to point to the first Fed rate hike in late Q3/early Q4 of 2015.  The debate is now focused on whether this timing is unrealistic. To be sure, whether we have a hike in September of 2015 or in January of 2016 will have little direct impact on near-term growth. But could an earlier hike exacerbate disinfaltionary pressures in the United States and globally?  Or is weakness in inflation a fleeting thing to be gone once oil prices start to rise and hold higher prices again?  At any rate here is a graph showing implied expectations.

Fitch: Danish Krone Peg Defence Looks Credible, But Has Risks (Reuters)  The defense of the peg of the Danish krone ot the euro involves a steep negative interest rate on CDs.  Here is an excerpt from a note from Fitch Ratings:

Danmarks Nationalbank cut its interest rate on certificates of deposit for the fourth time this year, to -0.75%, on 5 February. The central bank has also increased its purchases of foreign exchange in the market, and the Ministry of Finance has suspended bond issuance until further notice on the central bank's recommendation. But it is not yet clear what further actions the authorities might have to take.

Accumulating reserves generates positive carry for the central bank (at current interest rates), but increases the risk of a negative valuation impact at a later date if the peg is not maintained indefinitely. Negative deposit rates could also reduce bank profitability by reducing net interest margins, as they will be difficult to pass on to retail depositors. More broadly, there is a risk that monetary easing to defend the peg will result in a build-up of credit risk in the financial system.

Reuters points out that if the peg were abandoned a sharp appreciation of the krone would occur, along the lines experienced by the Swiss franc which appreciated 15% immediately upon abandoning the euro link.  It seems that some people may be betting that a decoupling is imminent - see next article.

The Daily Shot February 22, 2015 (Walter Kurtz)  Referring to previous article, it appears that some are betting the Danish krone will be decoupled from its pin to the euro soon.  Why else would the flow into Danish CDs be occurring when the interest rate is minus 0.75%?  When the Swiss franc decoupled from the euro it appreciated 15% overnight.

Check that number again - people buying Danish CDs are paying the banks 75 basis points a year for the privelege of letting the banks hold their money.  That is several times the Bullion Vault storage fee (including insurance) for gold bullion, which is 0.12% per annum.  These are indeed interesting times in which we live. 


Just one graph: Growth in Real Average Income for the Bottom 90%, 1950-2013 (Dirk Ehnts)  Dirk is a regular contributor to GEI.  This is from the Economic Report of the President, 2015.


Other Economics and Business Items of Note and Miscellanea

Knock-Off Economics (U.S. News & World Report)  A jab at Republicans.  Could have done a similar one for Democrats.

The wealthy are walling themselves off in cities increasingly segregated by class (The Washingtom Post)

The Bank of England Dove Hunt Is On  (The Wall Street Journal)

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