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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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Bernanke Will Blog on Economics, Finance And Sometimes Baseball (Jeff Kearns, Bloomberg) The Ben Bernanke Blog will be a feature at Brookings. Bernanke is a Distinguished Fellow in Residence with the Economic Studies Program at the Brookings Institution. Here is his announcement statement: Inaugurating a new blog (Ben Bernanke, Brookings). The first blog article discusses why interest rates are so low and is on the reading/discussion list in the member section today. Become a GEI member by subscribing to our free newsletter.
Articles about events, conflicts and disease around the world
The myth of Europe’s Little Ice Age (VoxEU) Inappropriate use of 25-year moving averages appear to extract a temperature pattern from European data that shows a temperature down trend from the 14th to the 19th centuries. See next article. The authors say the the pattern in the 25-year moving data is simply an artifact of the purely random annual data called the Slutsky effect. It's also know as the Slutsky-Yule effect - see the next article.
Beware the Moving Average (Mikel J. Harry, Business Improvement Times) The author of this piece is the principal architect and the world's leading authority on the quality measurement strategy, "Six-Sigma". He offers an example using 500 role of two dice. The individual rolls are purely random and there are times when some data points recur more and less than probable. That is a purely random happening with a very serious artifact if using averages are used. Let's say that the improbable cluster is over 3 consecutive rolls and a 6-roll moving average is applied. The full 3-roll abnormality is included in the middle two data points and tails in and out for the first and last two moving average data points. There is an "amplification" of a random abnormality which causes a cyclical pattern to be displayed which has nothing directly to do with the individual events. One demonstration of the systematic loss of randomness produced by the use of a moving average is shown in the graphic below. The scatter plot for the moving averages shows a strong correlation of one moving average point with the next. For individual data points for individual dice rolls there is a random scatter of data. Econintersect: Our rule of thumb on this is not to apply moving averages unless a trend is apparent in the individual data series. Then moving averages can be useful in identifying possible trend changes. But even then the emphasis must be on the word "possible". Further data is required to confirm a trend change has actually occurred.
Japan: Monetization of Debt (Walter Kurtz, The Daily Shot) The Bank of Japan continues to buy government securities much faster than the government issues them. Very soon the central bank will own some 40% of all outstanding government debt.
There is a structural issue in Japan that the central bank will never be able to address. And even if not currently contemplated, debt monetization may become necessary as an increasingly smaller younger population will have to support a rapidly growing older population. What will happen if the debt is monetized and the money paid in subsistence allowences to the population 65 amd older, which then spends on necessary goods and services (like shelter, food, clothing and health care). Questions:
We may be about to learn something new about economics. I need to have a talk with my friend John Mauldin about bugs and windshields and get his take of these questions.
Other Economics and Business Items of Note and Miscellanea
Elizabeth Warren Strikes Back as Citigroup Tries to Blackmail the Democratic Party (Yves Smith, Naked Capitalism)
Silver's outperformance versus gold to stay: Capital Economics (Resource Investor)
Why are interest rates so low? (Ben Bernanke's Blog, Brookings) "The state of the economy, not the Fed, is the ultimate determinant of the sustainable level of real returns. This helps explain why real interest rates are low throughout the industrialized world, not just in the United States."
Central Banks Warn: Liquidity May Evaporate When Investors Finally Remove Blindfolds (Wolf Street) Corporate debt is being sold at record levels. What happens if the demand dries up and, even worse, investors want to cash out of billions inversted in pooled assets (mutual finds and ETFs?
Economics program makes a difference with unique Haiku poem (The Torch) A Haiku is so short that 3 or 4 of them will fit in one 140 character Tweet.
Improving public policy through behavioral economics (GovLab.org) A podcast interview of Raj Chetty (Harvard) by Andy Feldman.
Was Janet Yellen Test Driving the Policy Rule Bill? (John Taylor, Economics One) Janet Yellen’s discussion of how current and upcoming policy might differ from a reference rule (the Taylor Rule) is not unlike what you might see if the policy rule legislation under consideration in Congress became law.
Galaxy clusters collide—dark matter still a mystery (Phys.org) Hat tip to Sig Silber. Matter collides spectacularly but dark matter just "passes through" other dark matter.
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