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What We Read Today 08 April 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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Forget Interest Rates, the Fed Has Another Big Decision to Make in the Next Year (Matthew Boesler, Bloomberg)  Boesler:  "Federal Reserve officials have another challenge approaching quickly: when to begin unwinding trillions of dollars of bond purchases that constitute the world’s largest fixed-income portfolio."

Any shrinking of the $4.2 trillion Fed balance sheet will amount to monetary tightening, removing liquidity from the financial system. 

Econintersect:  We expect that the balance sheet will be reduced only when there is a monetary reason (inflation) to do so.  So when it comes to maturing government bonds in the next year or two (or longer) it is likely that the Fed will just be rolling them over for the time being, maintaining the liquidity status quo.


Articles about events, conflicts and disease around the world

Global

U.S.

EU

France

Switzerland

  • Switzerland becomes first to sell 10-year debt at negative yield (Financial Times)  Hat tip to Matt O'Brien.  Investors today bought 10-year Swiss government debt issue and will pay the government minus 0.055% a year for holding their money.  That is a big bet on deflation for the Swiss franc.  Investors could have used a matress for free.

Iran

China

Japan

Brazil



The Real Heavies in Crude (Robert Rapier, Investing Daily)  We tend to think of Exxon Mobil and Chevron as the "big boys" in oil but they are actually quite ordinary on a list dominated by nationally owned oil giants.

oil.giants


Ratio of Part-Time Employed Remains Higher Than the Pre-Recession Level (Doug Short, Advisor Perspectives dshort.com)  The trend has been for a reduced percentage of jobs to be below 35 hours a week for five years now but the proportion of part-time jobs now is still greater than in 2007 and 2008.

full.time.part.time


Can Fiscal Policy Stabilize Output? (IMF)  This comprehensive IMF (International Monetary Fund) study measures the effectiveness of countercyclical fiscal activity in stabilizing economic activity in a recession.  Two of the significant points in the study relate to "stimulus" effectiveness and counter cyclical fiscal policy effectiveness.  From the summary:

Fiscal policy is often used to smooth fluctuations in economic activity, particularly in advanced economies. Because it reduces macroeconomic volatility, fiscal policy can boost real GDP growth. Specifically, a plausible increase in fiscal stabilization—measured as the sensitivity of the overall budget balance to the output gap—could boost annual growth rates by 0.1 percentage point in developing economies and 0.3 percentage point in advanced economies.

Also

Fiscal frameworks that promote fiscal stabilization through the cycle can foster more stable and higher growth while supporting debt sustainability. Countries seeking higher fiscal stabilization should avoid undermining automatic stabilizers with procyclical measures. Those seeking to enhance automatic stabilizers should do so without unduly increasing the size of the public sector or creating undesirable distortions (such as high marginal tax rates).

Two illustrative graphics:  The first basically says the bigger the fiscal (deficit) action the bigger the stabilizer effect.  No surprise, but the 1:1 effect (nearly 45-degree slope) does address a concern that some might have about stimulus efficiency.  The second graph shows how debt is affected by procyclic fiscal policy (government spends money in good times and cuts back in downturns) vs. symmetric stabilization which accumulates a fiscal surplus in good times and deficit spends in downturns.  Econintersect:  We see no surprises here but obviously there are some in the world who do not "believe" in this.

fiscal.stabilizers

debt.gdp.procyclical.anticyclical



Other Economics and Business Items of Note and Miscellanea

Why Economists Cling to Discredited Ideas (American Prospect) Hat tip to Prieur du Plessis.  Free-market theory may be at odds with reality, but it fits the needs of the rich and the powerful.  Read this - you won't find these views in many places.

FedEx agrees to $4.8B deal to expand in Europe (USA Today)

Offensive Lobbying (Boston Review)  Lobbying used to be focused on preventing government from taking actions detrimental to an interest.  But now lobbying is trying to run the government proactively.

How Facebook Ruins Us (Realtor Mag)

The Libertarian Plea to Bring Back Jim Crow: An Oxymoron by a Regular Moron (New Economic Perspectives)  William K. Black contributes to GEI.



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