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What We Read Today 08 July 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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Articles about events, conflicts and disease around the world

Global

  • Data point to poorer global middle class (Financial Times)  The global middle class is both smaller and poorer than previously thought, according to a new study, with hundreds of millions who have recently emerged from poverty in developing countries still vulnerable to falling back into it. The research by the Washington-based Pew Research Center paints a picture of entrenched prosperity in the rich economies of Europe and North America and a world that is more divided than previous studies have suggested.  More on this new data at GEI News tonight.

U.S.

  • Why Democrats Are Pushing a $1.2 Trillion Redistribution of Wealth (The Fiscal Times)  Earlier this year Rep. Chris Van Hollen (D-MD) proposed a $1.2 trillion redistribution of wealth from the richest Americans to a large swath of middle- and lower-income earners over the next 10 years.  The preferential tax treatment of certain kinds of non-work, unearned income has contributed to 17% of the major tax expenditures in the tax code flowing to households with the top 1% of incomes.

Van Hollen’s centerpiece proposal, the Paycheck Bonus Tax Credit, would cut taxes by $1,000 per year per worker, up to $2,000 for a couple earning a combined $200,000 or less. The proposal would also give an extra $250 credit to individuals who save at least half their $1,000 credit in an eligible investment vehicle.

  • America's Costliest Health Condition: Sepsis, A Relatively Little-Known Disease, Costs Us Billions In Hospitalizations (Medical Daily)  About one million people are hospitalized for sepsis each year, which is more than heart disease and stroke combined.  Sepsis is the body’s life-threatening response to an infection.  Sepsis is often referred to as “blood poisoning,” an inaccurate term. Sepsis is the body’s immune response to an infection present anywhere in the body (most commonly pneumonia, a urinary-tract infection or an intra-abdominal infection), while blood poisoning refers to an infection present only in the blood.  patients are in the hospital with sepsis, Somewhere between one in eight and one in four patients hospitalized with sepsis will die from it, and 33 to 50% of all hospital deaths can be attributed, at least in part, to sepsis.  And more than half of all Americans have never heard of sepsis.
  • The Pros and Cons of Bernie Sanders’ $50 Billion Tax Idea (The Fiscal Times)  Proponents of a financial transaction tax say it would make speculation more expensive, especially large voulmes of HFT (high frequency trading) and thus reduce market volatility.  Opponents say it would create inefficiencies in the market by encouraging investors to engage in tax avoidance schemes, and that it would reduce liquidity, increasing the cost of capital and discouraging investment.  The Tax Policy Center says more study is needed:

“The key question is whether an FTT is the best option relative to other potential taxes in terms of economic costs and benefits, fairness, and costs of administration and compliance. The answer is, at present, unclear."

EU

  • Tusk: Greece crisis most critical moment in EU history (The Telegraph)  EU President Donald Tusk says the decision to be made regarding Greece is the "most important in the history of the currency union and the wider EU".  Jean-Claude Juncker, president of the European Commission and the EU's top bureaucrat, said "a detailed plan for how Greece would exit the euro had been worked out".  Econintersect:  The action considered is to treat a symptom while ignoring the disease, a likely fatal disease.  In the early history of the U.S., when the Articles of Confederation were found to be not working, the disease was cut out and the U.S. Constitution was written.  See next article.
  • The Articles of Confederation (History)  The parallels between the early yeras of the U.S. and the EU are striking.  The following summary clearly states the fatal flaw of attempting monetary control without fiscal control: 

The Articles of Confederation was the first written constitution of the United States. Stemming from wartime urgency, its progress was slowed by fears of central authority and extensive land claims by states before was it was ratified on March 1, 1781. Under these articles, the states remained sovereign and independent, with Congress serving as the last resort on appeal of disputes. Congress was also given the authority to make treaties and alliances, maintain armed forces and coin money. However, the central government lacked the ability to levy taxes and regulate commerce, issues that led to the Constitutional Convention in 1787 for the creation of new federal laws.

Greece

China

  • China Bans Stock Sales by Major Shareholders for Six Months (Bloomberg)  China’s securities regulator banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months, its latest effort to stop the nation’s $3.5 trillion stock-market rout.  Investors with stakes exceeding 5% must maintain their positions.  Econintersect:  Greece has instituted capital controls (limiting bank withdrawals), China has implemented equity controls and the U.S. has implemented, well, computer failure.
  • China's dramatic stock plunge continues (USA Today)  The finger-in-the-dike efforts of the Chinese continue but the dike continues to leak.  (See previous article.)   The country's benchmark Shanghai Composite index tumbled 219.93 points, or 5.9%, to close at 3507.19 Wednesday 08 July.  The index is now down more than 32% from the intraday high 11 June 2015.  

Japan

Update on the Nikkei 225: Jul 8, 2015 (Pebblewriter)  Pebblewriter contributes to GEI.  As China melts down, seems there’s precious little being said about the Nikkei.  The futures are off almost 5.5% today, and down nearly 8% since the Jun 24 highs.

Click for large image at Pebblewriter.com.
nkd.2015.july.08.600x400


The Hugely Profitable, Wholly Legal Way to Game the Stock Market (Yuji Nakamura, Bloomberg)  With some deft maneuvers, hedge funds and Wall Street trading desks are reaping hundreds of millions at the expense of index mutual funds, the investments of choice for a growing number of ordinary Americans.  The tactic, in some ways, resembles illegal front-running - - but in this case, it’s perfectly fine. The traders are simply buying stocks before they’re added to the indexes that, by definition, index funds must track.  By one estimate, this process gouges owners of funds tracking the Standard & Poor’s 500 Index to the tune of $4.3 billion a year, a sum that can double or even triple the cost of such investments.  Over a course of a year, front-running of stocks going into and coming out of indexes costs investors in S&P 500 tracker funds at least 0.2%.

front.running.expenses


Is the Dividend Party Petering Out? (Financial Planning)  Investorss seeking stocks with growing dividends may be facing tougher times ahead if current trends continue.  According to S&P Dow Jones Indices, there were 1,558 positive dividend actions (increases, initiations, resumptions and extras) taken during the first half of this year, down 12.2% from the same period in 2014.  Meanwhile, negative dividend actions (decreases and discontinuations) stood at 257, up 61% from the total during the first half of last year. The data are for all domestic common stocks or roughly 10,000 issues.  Econintersect:  How much of swing is there in this data?  Certainly less than the 61% mentioned above.  The ratios of positive/negative actions are 7.5 (2013), 11.1 (20I4) and 6.1 (20`15 - to date).  Maybe 2014 was just an abnormal year?

dividend.action


Charting the Rise and Fall of China's Equity Market (Tom Orlik, Bloomberg)

Click for large image at Bloomberg.com.
china.market.policy.timeline.600x600

Other Economics and Business Items of Note and Miscellanea

The Great Recession is often compared with the Great Depression—and justly so. Among many other factors, the Great Depression was caused by the rapid transition from a railway-based economy, which was fuelled by coal, to a highway-based economy, which was fuelled by oil. The discoveries of many super oilfields in the late 1920s and 1930s made it clear to many people that oil would replace coal as the dominant fuel (Deffeyes, 2001). It took time (and much money) to build the infrastructure for the oil economy. But the infrastructure for the coal-based economy collapsed swiftly, given this rational expectation of the future. This was partly why the Great Depression lasted so long. It was also why the economy that emerged from the Great Depression, fuelled by oil—which is a higher quality energy source than coal—was so prosperous.

While the Great Depression was caused (in part) by responses to the large-scale discoveries of super oilfields over a very short period of time, the Great Recession was caused (in part) by responses to the gradual, but persistent and irreversible, increase of the production cost of petroleum and other commodities. A classical method to maintain high profits with a declining rate of return on assets is to increase the asset base. Another classical method when business opportunities are limited is to resort to fraud. These methods were exactly what financial institutions adopted when they generated large volumes of subprime mortgages and financial derivatives—activities that relied on both volume and fraud. If natural selection had acted directly upon financial institutions, or if laws against fraud were properly enforced, the rest of society would have no lasting problem with their business strategies. However, the general public was forced to bear the losses incurred by the large financial institutions.

Austerity measures, as presently conceived, are an integral part in this further transfer and transformation of wealth. They impose a general decline of living standards and the long-term prospect of economic stagnation, in the place of a strategy to reduce fixed costs—costs imposed on society by the support of financial institutions (and other economic entities) that are no longer adapted to economic and, especially, to resource conditions. Whether this development can be challenged, or changed, is perhaps the ultimate political question.

The liberal progressive leftists are very clever in their manipulation of language such as fair share, fairness, income inequality, and economic patriotism. Combined with a complicit liberal progressive media they are able to promulgate their message usually without any real policy challenge. Current case in point is the proposal by one avowed socialist running for the presidency, Vermont Senator Bernie Sanders. He has proposed a 90 percent income tax on “top earners.” When Senator Obama was running for the presidency in 2008 he claimed it better when we “spread the wealth around.” Of course these two astute gents are referring to the top one percent who are currently paying nearly 40 percent of overall income taxes in the United States. The estimate is that the top 10 percent of wage earners in America pay nearly 70 percent of all income taxes while there is almost 50 percent who only pay 3 percent — many receiving refunds.

  • These Biased Ideas Are Presented As Fact In Texas Curriculum Standards (Huffington Post)  In Texas this fall, millions of students will use social studies textbooks based on state standards that gloss over slavery and apparently call into question the separation of church and state.  They will also suggest that Moses was a major influence on the Constitution and our constitutional structure of government.  Econintersect:  This is revisionism not supported by historical scholars or by the courts which have ruled that the Ten Commandments are not suitable display in government buildings.  

Medicare rolled out new rules Wednesday (on page 246 of this document) that would reimburse physicians who talk to elderly patients about what options are available at the end of life — whether they would want life support, for example, or whether hospice care would be of interest. Doctors would get paid, under these new rules, for helping patients complete an advance directive.


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