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What We Read Today 03 March 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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House Releases Hostage, Approves Funding For DHS Without Immigration Measures (Elise Foley, Huffington Post)  The Huff Post version of the story:

The grudge match between Republicans and Democrats over the president's immigration policies and funding the Department of Homeland Security ended Tuesday -- with a win for Democrats.

House Republicans approved $39.7 billion in funding for DHS without any measures to block President Barack Obama's executive actions on immigration, which could allow as many as 5 million undocumented immigrants to remain in the country and work for three years.

The vote was 257 to 167, with most Republicans voting against the bill.



Articles about events, conflicts and disease around the world


Fugitive ex-NSA contractor Snowden seeks to come home: lawyer (Reuters)







Fed’s Regional Banks Are ‘Unconstitutional,’ Brookings Paper Says (Pedro Nicolaci da Costa, The Wall Street Journal)  Peter Conti-Brown, assistant Professor of legal studies and business ethics at The Wharton School of the University of Pennsylvania, has posted a paper for the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy.  Conti-Brown argues that the mistaken public perception that the Federal Reserve is a privately owned institution comes from the "unconstitutional" structure of the central banking system.  From da Costa:

The central bank is a public institution created by Congress. Both its chair and other members of its powerful seven-seat board of governors are appointed by the U.S. president and subject to Senate confirmation.

However, the presidents of its regional reserve banks are appointed by a board of directors comprising mostly private-sector representatives heavily influenced by the banking sector, though the appointments are subject to approval by the board.

This article highlights conti-Brown's argument that "at least the appearance of and at most the reality of deep conflicts of interest in the enforcement of federal banking laws" because the regulation of banking is conducted by the regional Fed banks.  The heads of these regional organizations are appointed by the member banks.

Econintersect:  This structure would be supported today by those who argue that self-regulation is an appropriate free market solution.  We call this an idiocy, a denial of human nature which is to seek out the easiest path to self-preservation and the accumulation of power.

See also the next article.

The Twelve Federal Reserve Banks:  Governance and Accountability in the 21st Century (Peter Conti-Brown, Stanford Law School, Brookings Institute)  There are many aspects discussed of the operation of the FOMC (Federal Reserve Open Market Committee) which manages the Fed balance sheet and the implementation of monetary policy.  None is more surprising that some thing hidden in plain sight:  the abysmal record of the Obama presidency in abandoning public interest when it comes to the Fed.  A graph summarizes the history of the nine-member FOMC:  For most of the past 80 years the majority of the FOMC committees was populated with government appointed members (Federal Reserve Board governors) more than 80% of the time.  But starting with Bush I a rise commenced in the amount of time the FOMC was in the control of private banking (regional bank presidents). By Bush II the private banking members had a majority half the time and under Obama that has risen to 58% of the time


EconintersectUnder Obama, more than half the time the FOMC has been de facto the monetary policy arm of private banking, rather than the traditional role as monetary policy arm of the government.

This working paper is derived from the author's forthcoming book, "The Power and Independence of the Federal Reserve" from the  Princeton University Press.

Going to the Dogs (Bill Gross Investment Outlook)  Bill Gross in his monthly letter talks about Golden Retrievers and other dogs, especially currencies.  (Pardon the bad pun.)  He presents a graph showing the decade high in the U.S. Dollar Index.  The graph presented does not show sufficiently deep history to display the last time the index was this high in 2003, so refer to the next article.

But the chart below is not the only discussion item we found worthwhile in this piece.  Gross wrote:

What is remarkable about the ECB’s program to come, however, and that of other nations within the European Union which issue their own currency, is the extent to which yields have fallen – or been set – in order to regain a competitive currency edge. First the Swiss, then Sweden, then Denmark. Russia of course, was devaluing daily because of oil and geopolitical tensions. Promoting almost all of these devaluations were policy rates that went negative – that’s right, short term money market rates that would cost banks and ultimately small savers to lend money, as opposed to good old fashioned positive rates that at least offered something in return. The universe of negative yielding notes and bonds in Euroland now total almost $2 trillion. Not even “thin gruel” is being offered to our modern day Oliver Twist investors. You have to pay to come to the dinner table and then sit there staring at an empty plate.

The possibility of negative interest rates was rarely if ever contemplated in academia prior to 2014. No textbook or central bank research paper even mentioned it, although fees for safe haven “storage” have long been in existence at Swiss banks. Ben Bernanke in his famous 2002 paper titled “Deflation: making sure “IT” doesn’t happen here”, mentions helicopters dropping money from the sky, but nowhere was there a hint of negative yields once a central bank reached the zero bound. It was as inconceivable as the “Big Bang” with its black holes that followed billions of years later; the rules of physics or in this case the rules of money didn’t apply; it was impossible to imagine.

But here we are. Negative 25 to 35 basis point money market rates in Germany with minus signs all the way out to six year maturities, reflecting the expectation that negative policy rates are likely in store for at least 3 to 4 years in the future. Sweden has gone the furthest with negative 75 basis points but Switzerland and Denmark are not far behind. Outside the EU, Japan is on a mission of once swift and now gradual devaluation of the Yen via QE – their interest rates having been near zero for years. Even China is lowering its rates seemingly to weaken its Renminbi relative to the dollar and is having some success in doing so.

But how did the Swiss get into the mix?  Didn't their currency appreciate by 15% overnight after the franc decoupled from the euro in January?  Yes it did.  But if you don't know what has happened since see the second article below.


United States Dollar (Trading Economics)  This graph shows the 45 year history of the U.S. Dollar Index since the Nixon move severed the last connection of the dollar to gold.  The trend line indicates a depreciation of the dollar against other reference currencies that approaches 30% from 1970 to 2015.  The tredline is steepened considerably by the "Volcker peak" centered on 1983.  If that peak hadn't occurred the trendline would be much flatter; Econintersect estimates a 45-year decline about 15% would result, half of the slope with the full data set.

But a more important observation is that the current level of the U.S. Dollar Index is very close to the 45-year average (and well above the average if the "Volcker bubble" is not included).  The dollar index today is in the middle of the range it occupied for much of the 1970s.   


Swiss Franc/U.S. Dollar Pair (  Two-thirds of that Mid-January spike in the Swiss franc vs. the dollar has been given back in the ensuing six weeks.  The CHFUSD couple is back to the value it had in the late third and fourth quarters of 2014 (first chart below) as well as much of 2012 and again for a few months in 2013 (second chart below).  Note:  The chart is not shown here but the franc has only given back about 40% of its sudden mid-January appreciation against the euro.  Still, this is enough to soften the blow to Switzerland's domestic economy that was expected after the overnight 15% appreciation.



Other Economics and Business Items of Note and Miscellanea

Universities are misguided to evade controversy with ‘ethics’ (The Conversation)

The Economics of Influencer Marketing: How a Targeted Approach Seals Major Deals (Social Times)

U.S. economist Ross wins Deutsche prize for pricing models (Reuters)

The Mumbo-Jumbo of `Middle-Class Economics’: Reynolds (Bloomberg Business)

Why you should never assume anything about people with autism (The Conversation)

Economics can Make a World of Difference on SDGS (Skoll World Forum)

Alleged Patient Safety Kickbacks Lead To $1 Million Settlement (ProPublica)

Economics Weekly - Good deflation (

How economics lost its identity in Australia, and how to get it back  (The Conversation)

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