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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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Articles about events, conflicts and disease around the world
Debt and (not much) deleveraging (Richard Dobbs, Susan Lund, Jonathan Woetzel, and Mina Mutafchieva, McKinsey Insights & Publications) Rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007. Global debt in these years has grown by $57 trillion, raising the ratio of debt to GDP by 17% from $142 trillion in 2007 to $199 trillion in 2014.
1 Debt owed by households, non-financial corporates, and governments.
The graph has been repeated below with added annotation. We have been hesitant to do so because of questions about how meaningful the data is. We have these reservations:
We will dig into this some more and give a further report in the future.
With those reservations we have made the following annotated version of the graphic which shows that as the data moves to the higher debt/GDP ratios, the rate of increase of debt/GDP increases. This suggests a debt trap, if you will, which produces an accelerating spiral of more rapid debt increase once a country gets above a certain debt.GDP ratio. The tipping poi9nt for the acceleration would appear to be between 200% and 300% (possibly) and above 300% (definitely). A major caveat must be stated here (in addition to the reservations above). The tipping point hypothesis is predicated on the data from a small fraction of the total number of countries in the data base (less than 15%).
This would suggest that the higher regions of debt/GDP ratio have a faster rate of growth of additional debt.
We leave this at this point - but suffice it to say that we expect some qualifications for this conclusion may be in order once the data is examined in more detail.
Other Economics and Business Items of Note and Miscellanea
It's Been a Great Year to Invest In Junk-Rated Energy Bonds (Bloomberg Business) It’s been a pretty great year to invest in U.S. junk-rated bonds of energy companies, with 6.4% return year-to-date in 2015, the best return for the period since securities rebounded from the credit crisis six years ago.
If Only Robert Reich Actually Understood The Economics Of Labour And Wages (Forbes) Tim Worstall criticizes Robert Reich analysis of labor compensation because Reich did not include benefits in compensation.
SolarCity: Economics Effectively Unviable (Seeking Alpha) This is an incomplete (and possibly not competent) analysis, which is made clear by the following brief excerpt:
Solar energy now has a competitive cost for generating electricity without any tax credit subsidy for many U.S. markets and will be the low cost source in virtually all markets within the next couple of years. Why is it that many U.S. utilities are investing billions in solar energy farms? We just gave you the reason. Now it may be that there are problems with the Solar City business model going forward, but high cost for solar electricity is not one of them.
Millennials Are Moving Out of Basements and Into Apartments (Bloomberg Business) After shacking up with family or friends for the past few years, millennials finally seem to be striking out on their own. More than 3 million new households were formed in the two quarters ending 31 March 2015.
Housing Recovery Slow and Steady in 2015, Will Pick Up Pace Next Year (National Association of Home Builders) Solid employment gains, attractive mortgage rates, a growing economy and pent-up demand will help keep the housing market moving forward throughout 2015 and into next year, according to housing economists. They say a key demographic to help jump-start this process should come from the millennials. See previous article.
Duke Now: Analyzing the Blue Devils’ reloaded basketball roster (Raleigh News&Observer) Three weeks ago Duke won the NCAA national championship in basketball. Then two weeks ago four of their starters left. Now they have a new team.
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